-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CKJUu/ESenkZCo62HFAZLlk3/wWylnj6HRl271DWqgtzfZeQZNqIidZm4V6RhxvA w8xiSy/PTHbZ4un6Mh6p7Q== 0000912057-97-006755.txt : 19970227 0000912057-97-006755.hdr.sgml : 19970227 ACCESSION NUMBER: 0000912057-97-006755 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19970226 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAYNAR HOLDINGS INC CENTRAL INDEX KEY: 0000917193 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-22345 FILM NUMBER: 97543395 BUSINESS ADDRESS: STREET 1: 800 SOUTHA STATE COLLEGE BLVD CITY: FULLERTON STATE: CA ZIP: 92634 S-1 1 S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ KAYNAR TECHNOLOGIES INC. (Exact name of Registrant as specified in its charter) DELAWARE 3452 33-0591091 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) Number)
800 S. STATE COLLEGE BLVD. FULLERTON, CALIFORNIA 92831 (714) 871-1550 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) MR. DAVID A. WERNER EXECUTIVE VICE PRESIDENT KAYNAR TECHNOLOGIES INC. 800 S. STATE COLLEGE BLVD. FULLERTON, CALIFORNIA 92831 (714) 871-1550 (Name and address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES TO: C. JAMES LEVIN, ESQ. JOHN R. LIGHT, ESQ. O'MELVENY & MYERS LLP LATHAM & WATKINS 400 SOUTH HOPE STREET 633 WEST FIFTH STREET LOS ANGELES, CALIFORNIA 90071-2899 LOS ANGELES, CALIFORNIA 90071-2007 (213) 669-6000 (213) 485-1234
-------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. -------------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / - -------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / - -------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(1) Common Stock, $.01 par value.......................................... $36,800,000 $11,152
(1) Calculated pursuant to Rule 457(o). (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a). ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED FEBRUARY 25, 1997 PROSPECTUS 2,000,000 SHARES [KTI LOGO] KAYNAR TECHNOLOGIES INC. COMMON STOCK --------------------- Of the 2,000,000 shares of Common Stock offered hereby (the "Offering"), 1,800,000 shares are being sold by Kaynar Technologies Inc. (together with its consolidated subsidiaries, the "Company") and 200,000 shares are being sold by the Selling Stockholder (as defined herein). See "Principal Stockholders and Selling Stockholder." The Company will not receive any proceeds from the sale of shares by the Selling Stockholder. Prior to the Offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price of the Common Stock will be between $14.00 and $16.00 per share. See "Underwriting" for information relating to the factors considered in determining the initial public offering price. The Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "KTIC," subject to official notice of issuance. --------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Proceeds to Price to Discounts and Proceeds to Selling Public Commissions(1) Company(2) Stockholder Per Share.......................... $ $ $ $ Total(3)........................... $ $ $ $
(1) The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting estimated expenses of $ payable by the Company. (3) The Company has granted the Underwriters a 30-day option to purchase up to an additional 300,000 shares of Common Stock on the same terms as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Stockholder will be $ , $ , $ and $ , respectively. See "Underwriting." --------------------- The shares of Common Stock offered by this Prospectus are offered severally by the Underwriters subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain further conditions. It is expected that delivery of the shares of Common Stock will be made at the offices of Lehman Brothers Inc., New York, New York on or about , 1997. --------------------- LEHMAN BROTHERS PAINEWEBBER INCORPORATED , 1997 [IMAGE MATERIAL: PICTURES OF VARIOUS END-PRODUCTS USING THE COMPANY'S PRODUCTS: BOEING 747; BOEING 777; AIRCRAFT JET TURBINE ENGINE; AIRBUS A340; FRENCH HIGH-SPEED TGV RAILWAY LOCOMOTIVE; LOCKHEED F-117 STEALTH FIGHTER; M-1 ABRAMS MAIN BATTLE TANK.] [IMAGE MATERIAL: PICTURES OF VARIOUS AIRCRAFT AND AUTOMOBILE ASSEMBLY FACILITIES; PICTURES OF VARIOUS PRODUCTS OF THE COMPANY'S KAYNAR, K-FAST, MICRODOT, AND RECOIL BUSINESS UNITS.] IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, AND NOTES THERETO, APPEARING ELSEWHERE IN THE PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THE PROSPECTUS (I) ASSUMES THAT IMMEDIATELY PRIOR TO THE OFFERING, KAYNAR TECHNOLOGIES INC. (THE "OPERATING COMPANY") WILL BE MERGED WITH AND INTO ITS PARENT, KAYNAR HOLDINGS INC. (SOMETIMES REFERRED TO HEREIN AS "HOLDINGS"), WHICH, AS THE CORPORATION SURVIVING THE MERGER, WILL BE RENAMED KAYNAR TECHNOLOGIES INC. (SEE "THE REORGANIZATION" FOR MORE INFORMATION REGARDING THE MERGER), (II) REFLECTS THE CONVERSION OF ALL OUTSTANDING SHARES OF HOLDINGS' CAPITAL STOCK INTO ADDITIONAL SHARES OF COMMON STOCK OR SHARES OF SERIES C PREFERRED STOCK AS DESCRIBED IN "THE REORGANIZATION" AND (III) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. UNLESS OTHERWISE INDICATED, THE TERM "COMPANY" AS USED HEREIN SHALL MEAN HOLDINGS, AS THE CORPORATION SURVIVING THE MERGER, TOGETHER WITH EACH OF HOLDINGS' CONSOLIDATED SUBSIDIARIES. THE COMPANY The Company is a leading manufacturer of specialty fasteners, fastening systems and related components primarily used by original equipment manufacturers ("OEMs") and their subcontractors in the production of commercial aircraft and defense products. In addition, the Company also manufactures other specialty fasteners and related products for sale in the automotive, electronic and other industrial markets, and their associated after-markets. The Company designs and manufactures a substantial majority of its fasteners to its customers' specifications and in a wide range of specialty metals, alloys and composites. The Company supplies products to virtually all major airframe and aircraft engine OEMs, including Boeing Co. ("Boeing"), General Electric Company ("GE"), the Pratt & Whitney Aircraft business of United Technologies Corporation ("Pratt & Whitney"), Airbus Industries ("Airbus"), Lockheed Martin Corporation ("Lockheed Martin"), McDonnell Douglas Corporation ("McDonnell Douglas") and Rolls Royce PLC ("Rolls Royce"), as well as to a global network of distributors. Since the beginning of the commercial aircraft industry's recovery in 1994, the Company has experienced significant increases in sales and profitability. During this period, the Company's net sales have increased nearly 80%, from $55.1 million in 1994 to $99.0 million in 1996, and its operating income has increased approximately 160%, from $5.0 million in 1994 to $12.8 million in 1996. The Company's backlog of orders deliverable within 12 months has also increased during this period, from approximately $21 million as of January 3, 1994 to approximately $60 million as of December 31, 1996. The Company offers a broad line of fasteners, fastening systems and related components. The Company's Kaynar and Microdot business units manufacture precision, self-locking, internally threaded nuts and inserts and precision, threaded studs. Kaynar and Microdot fasteners are engineered for a variety of harsh, demanding environments and often require high tensile strength, toughness, durability, corrosion resistance and resistance to metal fatigue and creep. Kaynar's fasteners, which include wrenchable nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts, are used in airframe construction to fasten together various aircraft components, including the fuselage, wings and horizontal and vertical stabilizers. These fasteners also serve a similar function in the construction of aircraft jet and turboprop engines and related components. Recoil, acquired by the Company in August 1996, manufactures helically-wound wire thread inserts and thread repair kits, which are similar in design to certain Microdot products, but are sold to the automotive, electronic and other industrial markets, and their associated after-markets. The Company's K-Fast business unit produces and markets tools that are leased or sold to OEMs and are designed to allow operators to install the Company's and other manufacturers' fasteners rapidly and in restricted and hard-to-reach areas, while still maintaining precision torque control. The Company's goal is to sustain long-term, profitable growth by (i) enhancing its position as a leading supplier of specialty fasteners to the commercial aircraft and defense industries, (ii) expanding the array of fastener products and services it offers to current customers, (iii) continuing to focus on higher value-added specialty products, (iv) leveraging its core capabilities in engineering, materials technology, 3 manufacturing and business processes to develop additional business with both new and existing customers, (v) increasing its international marketing and penetration of foreign markets and (vi) pursuing selected opportunities for acquisitions and strategic alliances. The Company believes that it possesses a number of competitive strengths. First, the Company has established itself as a market leader in the engineering and manufacture of precision, self-locking internally threaded nuts and inserts and precision, threaded studs used in the commercial aircraft and defense industries. Products made by the Company have been "designed into" nearly all major airframes and aircraft engines manufactured in the U.S. and Europe. Second, cross-functional design and engineering teams and manufacturing expertise allow the Company to respond rapidly to customer requirements. Third, while many OEMs have significantly reduced the number of qualified suppliers of a particular part to a core group of only two or three, the Company continues to be a qualified supplier to virtually all major airframe and aircraft engine OEMs. Fourth, the Company is a "source delegation supplier" to many of its customers, including Boeing, GE and Pratt & Whitney. A source delegation supplier's products are designed, shipped and installed without the OEM undertaking further testing that it might otherwise perform before installation. Fifth, the Company has benefited from ongoing programs designed to improve operating efficiency and customer service, while maintaining or improving quality control. INDUSTRY OVERVIEW AND TRENDS. The Company's primary market for fasteners, the commercial aircraft industry, is experiencing a strong increase in demand from airlines ordering new and replacement aircraft. During the early 1990's, most airlines significantly decreased their aircraft purchase orders due to reduced profitability and excess capacity. Since that time, however, a rebounding world economy and increased passenger air traffic have returned many airlines to profitability, resulting in renewed demand for new and replacement aircraft. In 1996, for example, Boeing and Airbus, the two largest commercial aircraft manufacturers, reported increases in announced aircraft orders of 107% and 208% over 1995, respectively. Increased demand for new and replacement aircraft has led to an increase in the demand for fasteners and fastening systems, such as those manufactured by the Company. While there can be no assurance that demand for new and replacement aircraft will not be adversely affected by business cycle fluctuations or declines in airline profitability, the Company believes that long-term industry trends are favorable. For example, in its 1996 Current Market Outlook report, Boeing projects that during the period from 1995 to 2005, world air travel will grow by approximately 70%. Boeing also projects that during this period domestic and international airlines will lease or purchase approximately 7,000 new aircraft, thereby increasing the worldwide commercial fleet from approximately 11,000 aircraft at the end of 1995 to approximately 16,000 aircraft (net of retirements) at the end of 2005. In addition, as airlines seek to serve a growing number of air travelers with existing restrictions on arrival and departure slots, airport gates and ramp capacity, commercial aircraft OEMs are experiencing increased orders for heavier, widebodied aircraft of intermediate size. Widebodied aircraft generally require a greater number of fasteners than smaller aircraft. RECENT ACQUISITIONS. The Company acquired one business and one additional product line in 1996. In August 1996, the Company purchased the businesses of Recoil Pty Ltd, an Australian corporation (the acquired businesses are collectively referred to herein as "Recoil"). For a description of the Recoil business unit see "Business--Products and Services--Industrial Products and Services." In the period from the Company's purchase of Recoil to December 31, 1996, and for the twelve months ended on that date, Recoil's net sales were $3.9 million and $9.9 million, respectively. In February 1996, the Company purchased the KELOX product line from the Fastening Systems division of Emhart Fastening Teknologies. The KELOX product line complements various Microdot inserts. COMPANY ORGANIZATION. The Company was formed in 1993 for the purpose of acquiring substantially all of the assets of the Aerospace Fastening Systems Group ("AFSG") of Microdot Inc., a Delaware corporation that commenced a voluntary bankruptcy proceeding on June 10, 1993 ("Old Microdot"). The acquisition was structured as a management buyout financed substantially by the General Electric Capital Corporation ("GECC" or the "Selling Stockholder"). See "The Company" for additional information regarding the AFSG acquisition. 4 THE OFFERING Common Stock offered by the Company...... 1,800,000 shares Common Stock offered by the Selling Stockholder............................ 200,000 shares Total Common Stock offered........... 2,000,000 shares Common Stock and Common Stock equivalents to be outstanding after the Offering(1)............................ 8,600,000 shares Use of proceeds.......................... Proceeds to the Company will be used to repay certain indebtedness and for working capital and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market Symbol... KTIC
- ------------------------ (1) Includes 5,206,000 shares of Series C Convertible Preferred Stock (the "Series C Preferred Stock") owned by the Selling Stockholder. The Series C Preferred Stock is convertible into shares of Common Stock at a one-to-one conversion rate, subject to adjustment in certain circumstances. See "Description of Capital Stock--Series C Preferred Stock." RISK FACTORS Prior to making an investment in the Common Stock offered hereby, prospective purchasers of the Common Stock should take into account the specific considerations set forth in "Risk Factors" as well as other information set forth in the Prospectus. 5 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION The summary consolidated financial and operating information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto, and other financial information included elsewhere in the Prospectus. The Company was incorporated in October 1993 and began operations on January 3, 1994 when it acquired substantially all of the assets of AFSG. See "The Company--The Predecessor Company." The summary consolidated financial and operating information for the years ended December 31, 1994, 1995 and 1996 is derived from the Consolidated Financial Statements of the Company that have been audited by Arthur Andersen LLP, independent public accountants. The summary consolidated financial and operating information for the years ended December 31, 1992 and 1993 is derived from the unaudited financial statements of AFSG, the Company's predecessor, and, in the opinion of the Company's management, reflects all adjustments necessary to present the financial results of AFSG fairly and on a basis consistent with the Company's financial statements. The information for AFSG is presented to "Operating income" because the borrowing arrangements and tax position of Old Microdot are not meaningful to the Company. The unaudited summary consolidated financial and operating information for AFSG is provided for informational purposes only.
AFSG COMPANY -------------------- ------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1992 1993 1994 1995 1996(1) --------- --------- --------- --------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA) INCOME STATEMENT DATA: Net sales....................................................... $ 52,510 $ 46,378 $ 55,117 $ 68,781 $ 99,023 Cost of sales................................................... 38,975 35,933 41,117 51,940 72,924 --------- --------- --------- --------- --------- Gross profit.................................................. 13,535 10,445 14,000 16,841 26,099 Selling, general and administrative expenses(2)................. 8,194 8,239 9,048 10,018 13,263 --------- --------- --------- --------- --------- Operating income.............................................. 5,341 2,206 4,952 6,823 12,836 Interest expense, net........................................... 2,304 2,935 4,011 --------- --------- --------- Income before income taxes.................................... 2,648 3,888 8,825 Provision for income taxes...................................... 1,129 1,577 3,530 --------- --------- --------- Net income.................................................... $ 1,519 $ 2,311 $ 5,295 --------- --------- --------- --------- --------- --------- Earnings per share(3)........................................... $ 0.22 $ 0.34 $ 0.78 --------- --------- --------- --------- --------- --------- Weighted average number of shares outstanding(3)................ 6,800 6,800 6,800 --------- --------- --------- --------- --------- --------- PRO FORMA INCOME STATEMENT DATA(4): Pro forma earnings per share, as adjusted....................... $ 0.76 --------- --------- Pro forma shares used in computing pro forma earnings per share, as adjusted................................................... 8,600
DECEMBER 31, 1996 ---------------------- AS ACTUAL ADJUSTED(5) --------- ----------- (IN THOUSANDS) BALANCE SHEET DATA (AT PERIOD END): Working capital......................................................................... $ 30,188 $ 41,779 Total assets............................................................................ 73,689 84,534 Total long-term debt, excluding capital leases.......................................... 46,633 33,789 Stockholders' equity.................................................................... 10,626 35,061
- ------------------------ (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 6 certain liabilities. See "Business--Products and Services--Industrial Products and Services." The Recoil acquisition has been accounted for under the purchase method of accounting and, accordingly, the operating results of Recoil have been included in the Company's results of operations since mid- August 1996. In February 1996, the Company purchased the KELOX product line from the Fastening Systems division of Emhart Fastening Teknologies for $441,000 in cash. (2) Selling, general and administrative expenses of AFSG represent direct expenses and do not include an allocation of corporate overhead or expenses related to certain functions performed on a corporate-wide basis by Old Microdot, such as risk management services, tax reporting and similar corporate administrative functions. (3) Earnings per share are computed based on the weighted average number of shares of Common Stock and Common Stock equivalents outstanding. The outstanding shares of Series C Preferred Stock are included as Common Stock equivalents on an "as-if-converted" basis. See "Description of Capital Stock--Series C Preferred Stock." (4) Pro forma income statement data reflect the historical results for the year ended December 31, 1996, adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $15.00 per share (the midpoint of the estimated filing range) and (ii) the application of approximately $18 million of the net proceeds to the reduction of certain indebtedness of the Company as if such debt reduction occurred at January 1, 1996. The pro forma results also reflect interest income on the balance of the Company's net proceeds from the Offering, assuming such proceeds were invested at January 1, 1996. (5) As adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $15.00 per share and (ii) the application of approximately $13.6 million of the net proceeds to the reduction of certain indebtedness of the Company as if such debt reduction occurred at December 31, 1996. The Company anticipates that as of the date of the Offering, it will have increased its borrowings under its revolving line-of-credit to approximately $4.9 million. Accordingly, the total amount of the net proceeds that will be applied to the reduction of certain indebtedness of the Company will approximate $18 million. See "Use of Proceeds." 7 RISK FACTORS PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SPECIFIC FACTORS SET FORTH BELOW AS WELL AS THE OTHER INFORMATION INCLUDED ELSEWHERE IN THE PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. CERTAIN STATEMENTS IN THE PROSPECTUS ARE FORWARD-LOOKING IN NATURE AND, ACCORDINGLY, WHETHER THEY PROVE TO BE ACCURATE IS SUBJECT TO MANY RISKS AND UNCERTAINTIES. THE ACTUAL RESULTS THAT THE COMPANY ACHIEVES MAY DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS CONTAINED IN THE PROSPECTUS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES, INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND THOSE CONTAINED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THE PROSPECTUS. COMMERCIAL AIRCRAFT INDUSTRY CYCLICALITY The primary market for the Company's products is the commercial aircraft industry. Historically, demand from this industry has been subject to cyclical fluctuations, with orders from original equipment manufacturers ("OEMs") and other customers for the Company's products typically increasing or decreasing in advance of corresponding changes in the deliveries of new aircraft. The demand for new aircraft historically has been closely related to the financial performance of the airlines, which in turn has been closely related to general economic conditions and changes in business cycles. In the early 1990s, decreases in air passenger traffic, coupled with deliveries of previously purchased aircraft, created excess capacity for the airlines. Accordingly, airlines and aircraft leasing companies deferred or cancelled their purchases of new aircraft. These deferrals and cancellations adversely affected the volume and price of orders placed for products used to manufacture commercial aircraft and aircraft engine components, including the fasteners and fastening systems manufactured by the Company. Although (i) the U.S. airline industry reported profits in 1994, 1995 and 1996, (ii) excess capacity has been reduced and (iii) orders for new aircraft to be produced by major aircraft manufacturers have increased, there can be no assurance that this improved operating performance will continue or that deliveries of commercial aircraft will not decline in the future. Changes in the commercial aircraft market resulting in a reduction in the rate of future aircraft deliveries, including cancellations or deferrals of scheduled deliveries, could have a material adverse effect on the Company. CUSTOMER CONCENTRATION AND INDUSTRY CONSOLIDATION A significant portion of the Company's business is dependent upon a limited number of large manufacturers of commercial aircraft and defense products. Direct sales to Boeing Co. ("Boeing"), General Electric Company ("GE") and the Pratt & Whitney Aircraft business of United Technologies Corporation ("Pratt & Whitney"), for example, accounted for approximately 18%, 12% and 8% of the Company's 1996 net sales, respectively. In addition, the Company believes that a significant portion of the products that it sells to independent distributors and other customers is ultimately resold to these three OEMs, as well as other major commercial aircraft and defense product manufacturers. The commercial aircraft and defense industries are also currently undergoing a process of consolidation, as evidenced most recently by the pending merger of Boeing and McDonnell Douglas Corporation ("McDonnell Douglas"). Such continuing consolidation may lead to further concentration in the number of airframe and aircraft engine OEMs that purchase the Company's products. The loss of one or more significant customers would have a material adverse effect on the Company. In addition, because of the relatively small number of customers for certain of the Company's products, such customers may be able to influence the Company's prices and other terms of sale. LOSS OF QUALIFIED SUPPLIER STATUS The Company works directly with its customers to design and manufacture products based on the customers' own specifications. See "Business--Engineering and Product Development." Once a fastener has been "designed into" a particular airframe or engine component, the OEM will generally designate the Company as a qualified supplier and rely on the Company to provide the fastener for the entire production cycle of the airframe or engine, which could last a decade or more. From time to time, other suppliers of 8 fasteners to the aerospace industry have lost their qualified supplier status with one or more OEMs by reason of, among other things, problems with product quality, manufacturing processes or documentation. Although the Company has no reason to believe that it will lose its qualified supplier status with respect to any product or customer, there can be no assurance that such an event will not occur. If a significant customer were to terminate the Company's qualified supplier status with respect to one or more parts, it could have a material adverse effect on the Company. CONCENTRATION OF STOCK OWNERSHIP Upon completion of the Offering, General Electric Capital Corporation (together with its affiliates, "GECC" or the "Selling Stockholder") will beneficially own 5,206,000 shares of the Company's Series C Convertible Preferred Stock, par value $.01 per share (the "Series C Preferred Stock"), which will constitute all issued and outstanding Series C Preferred Stock at that time. As long as the outstanding Series C Preferred Stock represents 25% or more of the Company's Fully Diluted Shares (as defined below), the Series C Preferred Stock is entitled to vote as a separate class on certain matters affecting the Company, including, among other things, (i) the creation of any other class or series of preferred stock, (ii) any issuance of authorized shares of any class of capital stock, (iii) any merger or consolidation resulting in shares of Common Stock or Series C Preferred Stock being converted into other securities or the right to receive cash or other property and (iv) any amendments to the Company's Amended and Restated By-laws (the "By-laws"). See "Description of Capital Stock--Series C Preferred Stock." "Fully Diluted Shares" means, at any given time, the sum of (i) the outstanding Common Stock and (ii) the shares of Common Stock issuable upon conversion or exercise of all outstanding convertible securities, options and warrants convertible into, or exercisable for, Common Stock at that time or within sixty days thereafter. In addition, as long as the outstanding Series C Preferred Stock represents 40% or more of the Fully Diluted Shares, the holder thereof will have the right, pursuant to a Stockholders Agreement, dated March , 1997, among the Company and its existing stockholders (the "New Stockholders Agreement"), to designate two individuals that the Company will nominate for election to the Board of Directors each year. As long as the Series C Preferred Stock represents 25% or more (but less than 40%) of the Fully Diluted Shares, the holder thereof will have the right to designate one individual that the Company will nominate for election to the Board of Directors of each year. The Selling Stockholder, in its sole discretion and at any time, may convert each share of Series C Preferred Stock into one share of Common Stock, subject to certain adjustments. In addition, upon any transfer of Series C Preferred Stock by the Selling Stockholder to a non-affiliate, the Series C Preferred Stock will automatically convert into Common Stock at a one-to-one conversion ratio, subject to certain adjustments. If all of the Series C Preferred Stock currently outstanding were converted into Common Stock, the Selling Stockholder would beneficially own approximately 60.5% of the Common Stock upon consummation of the Offering, assuming the Underwriters' over-allotment option is not exercised, or approximately 58.5% assuming full exercise of the Underwriters' over-allotment option. As a result of (i) the special voting rights granted to the Series C Preferred Stock, (ii) the rights granted to the Selling Stockholder under the New Stockholders Agreement and (iii) the possibility that the Selling Stockholder could convert its Series C Preferred Stock into Common Stock at any time, the Selling Stockholder may be able to exercise substantial influence over many matters affecting the Company, including the composition of the Board of Directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of either causing or delaying or preventing a change in control of the Company. See "Description of Capital Stock--Certain Anti-Takeover Effects." DEPENDENCE ON KEY PERSONNEL The success of the Company depends to a significant degree on the efforts of the Company's senior management. The Company's operations may be adversely affected if one or more members of senior management ceases to be active in the Company. The Company currently has employment agreements with Jordan A. Law, Chief Executive Officer; David A. Werner, Executive Vice President; Robert L. Beers, Senior Vice President, Marketing and Business Development; LeRoy A. Dack, Division President, Kaynar; 9 Joseph M. Varholick, Division President, Microdot; Kenneth D. Jones, Group Chief Executive Officer, Recoil; and Imre Berecz, Vice President, Product Research and Development, and Managing Director, K.T.I. Femipari KFT. See "Management--Employment Contracts and Termination of Employment and Change-In-Control Arrangements." AVAILABILITY AND COST OF RAW MATERIALS Commercial deposits of certain metals, such as titanium and nickel, that are required for the manufacture of several of the Company's products are only found in certain parts of the world. The availability and prices of these metals may be influenced by private or governmental cartels, changes in world politics, unstable governments in exporting nations or inflation. Similarly, supplies of steel and other, less exotic metals used by the Company may also be subject to variation in availability and pricing. Shortages of, and price increases for, certain raw materials used by the Company have occurred in the past and may occur in the future. Although to date the Company has been able to obtain such supplies of all necessary raw materials, there can be no assurance that the Company will always be able to obtain adequate supplies at reasonable prices. Future shortages or price fluctuations in raw materials could have a material adverse effect on the Company. If, for example, demand for titanium products in other industries continues to increase, it is possible that supplies of titanium could become limited or that prices could increase substantially, or both. As a result, the Company's material costs could rise accordingly. If the Company is unable to recover its increased costs through product price increases, it could have a material adverse effect on the Company. See "Business--Manufacturing and Raw Materials." COMPETITION Numerous companies manufacture fasteners, fastening systems and related components that compete with the Company's products. Certain of these competitors have greater financial resources than the Company. There can be no assurance that competitive pressures in any of the markets to which the Company supplies products will not have a material adverse effect on the Company. See "Business-- Competition." POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES The Company's facilities and manufacturing processes are engaged in activities regulated by extensive federal, state and local environmental and worker safety and health laws and regulations, including those relating to air emissions, wastewater discharges, the handling and disposal of solid and hazardous wastes and the remediation of contamination caused by the release of hazardous substances. The Company uses significant quantities of substances that are considered hazardous or toxic under such laws and regulations. The Company's operations thus pose a risk of accidental releases of, and worker exposure to, hazardous or toxic substances. The Company also faces risks that governmental environmental requirements may become more stringent in the future and that the Company may be subject to legal proceedings brought by private parties or governmental agencies with respect to environmental matters. For example, the degreasing operations at the Company's manufacturing facilities currently use perchloroethylene, a toxic solvent that has been subject to increasing regulation. Although the Company believes that it is in material compliance with all applicable environmental laws and regulations, including those relating to perchloroethylene, there can be no assurance that the Company will remain in compliance or that the failure to comply with such laws and regulations will not result in liabilities that are material to the Company. The Company is currently seeking to have a maximum usage restriction removed from an environmental permit for its cadmium-plating line. The Company was previously granted a variance to exceed this restriction. There can be no assurance, however, that this restriction will be removed or that another variance from the restriction will be granted. If the restriction is not removed and another variance is not granted, it could have a material adverse effect on the Company. See "Business--Environmental Matters." 10 BENEFITS TO SELLING STOCKHOLDER The existing stockholders of the Company will receive certain benefits from the sale of the Common Stock offered hereby. The Offering will establish a public market for the Common Stock and provide increased liquidity to the existing stockholders for the shares of Common Stock and Series C Preferred Stock (which is convertible into Common Stock) that they will own after the Offering, subject to certain limitations. See "Shares Eligible For Future Sale." The Company intends to use approximately $18 million of the net proceeds from the Offering to repay certain indebtedness owed to the Selling Stockholder. See "Use of Proceeds." The Selling Stockholder will sell 200,000 shares of Common Stock in the Offering and will receive $2.8 million in net proceeds, based upon an initial public offering price of $15.00 per share, after deducting the Selling Stockholder's proportionate share of the estimated underwriting discounts and commissions. REDUCED GOVERNMENT PURCHASES; GOVERNMENT REGULATION The Company is a direct supplier and subcontractor to several manufacturers of airframes and engines used by the defense industry. Direct sales to the U.S. government constituted approximately 6% of the Company's 1996 net sales. Many of the Company's other customers are also government contractors and subcontractors who may use the Company's fasteners for military applications. As a result, future reductions in defense budgets or military aircraft procurement could adversely affect the Company. See "Business--Industry Overview and Trends--Defense Market." In particular, the government could seek to terminate any of its contracts with the Company or with any of the airframe and engine manufacturers to which the Company supplies fasteners. In addition, as a supplier and subcontractor to the U.S. government, the Company is directly and indirectly subject to various federal rules, regulations and orders applicable to government contracts. Although the Company believes that is in material compliance with all such laws, any future violation could result in civil liability, cancellation or suspension of existing contracts or ineligibility for future contracts or subcontracts funded in whole or in part with federal funds. A reduction in governmental purchases of the Company's products, or a violation by the Company of any laws applicable to government contracts, could have a material adverse effect on the Company. PRODUCT LIABILITY; CLAIMS EXPOSURE The Company's products may expose it to liabilities resulting from the failure of an airframe or aircraft engine manufactured with fasteners supplied by the Company. While the Company maintains liability insurance to protect it from such liabilities, and while no material claims have ever been made against the Company, no assurance can be given that claims will not arise in the future or that such insurance coverage will be adequate. Additionally, there can be no assurance that insurance coverage can be maintained in the future at an acceptable cost. Any such liability not covered by insurance, or for which third party indemnification is not available, could have a material adverse effect on the Company. NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or be sustained after the Offering. The initial public offering price will be determined by negotiation between the Company and the Representatives (as defined in "Underwriting") based upon several factors. The market price of the Common Stock may be volatile and could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new products by the Company or its competitors, changes in financial estimates by securities analysts, or other events or factors beyond the Company's control, including events affecting the commercial aircraft and defense industries generally. These broad market fluctuations may adversely affect the market price of the Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Such litigation could result in substantial costs 11 and a diversion of management's attention and resources, which would have a material adverse effect on the Company's business, financial condition and results of operations. See "Underwriting." SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of Common Stock in the public market following the Offering could adversely affect the market price for the Common Stock. The Company, its executive officers and directors and the Selling Stockholder, who will beneficially own 6,600,000 shares of Common Stock in the aggregate following the Offering (including 5,206,000 shares receivable upon conversion of all outstanding Series C Preferred Stock), have agreed not to offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock or any other capital stock of the Company, for a period of 180 days, after the date of the Prospectus without prior written consent of Lehman Brothers Inc. Upon the expiration of this period, however, the 6,600,000 shares of Common Stock (including 5,206,000 shares receivable upon conversion of all outstanding Series C Preferred Stock) held by the current holders may be eligible for sale in the public market, subject to compliance with the volume, holding period and other applicable limitations of Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to a registration statement meeting the requirements of the Securities Act. Also upon the expiration of this period, the Selling Stockholder will have certain rights, pursuant to the New Stockholders Agreement, to require the Company to register the shares of Common Stock into which the Series C Preferred Stock may be converted. See "Description of Capital Stock -- The New Stockholders Agreement." In addition, the shares of Common Stock sold in the Offering will be freely tradeable without restriction under the Securities Act, except for any shares purchased by an "affiliate" of the Company (as that term is defined under the rules and regulations of the Securities Act), which shares will be subject to the resale limitations of Rule 144. See "Shares Eligible for Future Sale" and "Description of Capital Stock." DILUTION Assuming an initial public offering price of $15.00 per share, investors participating in the Offering will incur an immediate dilution of $11.83 per share in the net tangible book value of the Common Stock, determined as of December 31, 1996. See "Dilution." 12 THE COMPANY The Company is a leading manufacturer of specialty fasteners, fastening systems and related components primarily used by OEMs and their subcontractors in the production of commercial aircraft and defense products. In addition, the Company also manufactures other specialty fasteners and related products for sale in the automotive, electronic and other industrial markets, and their associated after-markets. The Company supplies products to virtually all major airframe and aircraft engine OEMs, including Boeing, GE, Pratt & Whitney, Airbus Industries ("Airbus"), Lockheed Martin Corporation ("Lockheed Martin"), McDonnell Douglas and Rolls Royce PLC ("Rolls Royce"), as well as to a global network of distributors. The Company offers a broad line of fasteners, fastening systems and related components. The Company's Kaynar and Microdot business units manufacture precision, self-locking, internally threaded nuts and inserts and precision, threaded studs. Kaynar and Microdot fasteners are engineered for a variety of harsh, demanding environments and often require high tensile strength, toughness, durability, corrosion resistance and resistance to metal fatigue and creep. Kaynar's fasteners, which include wrenchable nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts, are used in airframe construction to fasten together various aircraft components, including the fuselage, wings and horizontal and vertical stabilizers. These fasteners also serve a similar function in the construction of aircraft jet and turboprop engines and related components. Recoil, acquired by the Company in August 1996, manufactures helically-wound wire thread inserts and thread repair kits, which are similar in design to certain Microdot products, but are sold to the automotive, electronic and other industrial markets, and their associated after-markets. The Company's K-Fast business unit produces and markets tools that are leased or sold to OEMs and are designed to allow operators to install the Company's and other manufacturers' fasteners rapidly and in restricted and hard-to-reach areas, while still maintaining precision torque control. The principal executive offices of the Company are located at 800 S. State College Blvd., Fullerton, California 92831, and its telephone number is (714) 871-1550. THE PREDECESSOR COMPANY. As described below in "The Reorganization," Kaynar Technologies Inc. ("Operating Company") is merging with and into the Company immediately prior to the Offering. Operating Company, which was originally called MKQ Acquisition Corp., was formed as a Delaware corporation on October 22, 1993, for the purpose of acquiring substantially all of the assets of the Aerospace Fastening Systems Group ("AFSG") of Microdot Inc., a Delaware corporation that commenced a voluntary bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code on June 10, 1993 ("Old Microdot"). The Company, which was known as Kaynar Holdings Inc. prior to the Reorganization, was also incorporated in Delaware on October 22, 1993 to serve as the parent company of Operating Company. GECC was a creditor of Old Microdot and provided the Company and Operating Company with financing for the AFSG asset acquisition, which was completed on January 3, 1994. As consideration for the AFSG assets, GECC claims against Old Microdot in the amount of $25.4 million were cancelled, and Operating Company assumed certain of Old Microdot's liabilities. The Company and Operating Company also paid approximately $1.2 million in cash to Old Microdot's British affiliate for selected assets. As part of the acquisition financing, GECC purchased all of the issued and outstanding shares of Series A Convertible Preferred Stock, par value $.01 per share, of the Company ("Series A Preferred Stock") and all of the issued and outstanding shares of Series B Preferred Stock, par value $.01 per share, of the Company ("Series B Preferred Stock"). Members of the Company's management purchased the remaining equity interests in the Company. See "Principal Stockholders and Selling Stockholder." The Company intends to use the proceeds of the Offering to discharge certain debt owed to GECC. See "Use of Proceeds." THE REORGANIZATION In order to facilitate the Offering, immediately prior to the effectiveness of the Offering, Operating Company is merging with and into the Company, with the Company as the surviving corporation (the "Reorganization"). Immediately following the Reorganization, the surviving corporation will be renamed 13 "Kaynar Technologies Inc." Unless otherwise indicated, the term "Company" as used herein shall mean the corporation surviving the merger, together with each of its consolidated subsidiaries. In connection with the Reorganization, (i) each outstanding share of Common Stock, par value $.01 per share, of Operating Company will be cancelled and Operating Company will cease to exist, (ii) each outstanding share of Common Stock, par value $.01 per share, of the Company (the "Common Stock") will be exchanged for 68 shares of Common Stock, (iii) each outstanding share of Series A Preferred Stock will be exchanged for 9.953 shares of Common Stock and 58.047 shares of Series C Preferred Stock and (iv) each outstanding share of Series B Preferred Stock will be exchanged for 68 shares of Series C Preferred Stock. For further descriptions of the Common Stock and Series C Preferred Stock, see "Description of Capital Stock." Subsequent to the Reorganization and immediately prior to the Offering, GECC will own 200,000 shares of Common Stock and all 5,206,000 issued and outstanding shares of Series C Preferred Stock, which is convertible into Common Stock at a one-to-one conversion rate, subject to adjustment in certain circumstances. GECC will sell all of its 200,000 shares of Common Stock in the Offering. For the purposes of the Prospectus, all discussion of the Company and its ownership, business and operations and the number of shares of Common Stock outstanding, except as otherwise indicated, are discussed on a pro forma basis, giving effect to the Offering and the transactions described above. USE OF PROCEEDS Assuming an initial public offering price of $15.00 per share, the net proceeds to the Company from the sale of the Common Stock offered hereby are estimated to be $24.4 million ($28.6 million if the Underwriters' over-allotment option is exercised in full), after deducting estimated underwriting discounts and commissions and expenses. The Company will not receive any proceeds from the sale of shares by the Selling Stockholder. The Company intends to use approximately $7.0 million, $6.0 million and $4.9 million of the net proceeds from the Offering to discharge its obligations to GECC under fixed rate loans, variable rate loans and a revolving credit facility, respectively. At December 31, 1996, this indebtedness bore interest at a weighted average interest rate of 10.4%. Amounts owed under the fixed rate and variable rate loans are due and payable on January 3, 1999, which is the same date that the revolving credit facility expires. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Certain Transactions." The remainder of the net proceeds will be used for general corporate purposes, including capital expenditures and working capital. A portion of the net proceeds may also be used to acquire other companies or divisions of other companies. The Company, however, currently has no agreements, commitments or understandings with respect to any acquisitions, nor can there be any assurance that the Company will make any such acquisition in the future. Pending any of these uses, the Company intends to invest the net proceeds of the Offering in short-term, investment grade, interest-bearing securities, certificates of deposit or direct or guaranteed obligations of the United States. DIVIDEND POLICY The Company currently intends to retain earnings, if any, to support the development of its business and does not anticipate paying cash dividends on the Common Stock for the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account various factors, including the Company's earnings, financial condition, operating results and current and anticipated cash needs, as well as such other conditions as the Board of Directors may deem relevant. Furthermore, the payment of dividends will be subject to the terms of the Company's outstanding financing arrangements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 14 CAPITALIZATION The following table sets forth, as of December 31, 1996, the capitalization of the Company (i) giving effect to the Reorganization as if it had occurred on that date and (ii) as adjusted to reflect the Offering and use of proceeds therefrom. The table should be read in conjunction with "Selected Consolidated Financial and Operating Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in the Prospectus.
DECEMBER 31, 1996 ------------------------- ACTUAL AS ADJUSTED(1) --------- -------------- (IN THOUSANDS) Revolving line-of-credit............................................................... $ 746 $ -- Long-term debt, including current portion: Variable rate loans.................................................................. 38,225 32,225 Fixed rate loans..................................................................... 8,408 1,564 Capital lease obligations............................................................ 465 465 --------- ------- Total long-term debt............................................................... 47,098 34,254 --------- ------- Stockholders' equity: Series C Convertible Preferred Stock, $.01 par value per share; 10,000,000 shares authorized, and 5,206,000 shares issued and outstanding actual and as adjusted..... 52 52 Common Stock, $.01 par value per share; 20,000,000 shares authorized, 1,594,000 shares issued and outstanding actual and 3,394,000 shares issued and outstanding as adjusted........................................................................... 16 34 Additional paid-in capital........................................................... 1,432 25,849 Retained earnings.................................................................... 8,838 8,838 Currency translation adjustment...................................................... 288 288 --------- ------- Total stockholders' equity......................................................... 10,626 35,061 --------- ------- Total capitalization............................................................. $ 57,724 $ 69,315 --------- ------- --------- -------
- ------------------------ (1) As adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $15.00 per share and (ii) the application of approximately $13.6 million of the net proceeds to the reduction of certain indebtedness of the Company as if such debt reduction occurred at December 31, 1996. The Company anticipates that as of the date of the Offering, it will have increased its borrowings under its revolving line-of-credit to approximately $4.9 million. Accordingly, the total amount of the net proceeds that will be applied to the reduction of certain indebtedness of the Company will approximate $18 million. See "Use of Proceeds." DILUTION The net tangible book value of the Company at December 31, 1996 was approximately $2.8 million, or $0.41 per share of Common Stock (after giving effect to the Reorganization), assuming the conversion by the Selling Stockholder of all shares of Series C Preferred Stock into shares of Common Stock as of such date. After giving effect to the Offering and the application of the estimated net proceeds from the Offering (assuming an initial public offering price of $15.00 per share), the Company's net tangible book value at December 31, 1996 would have been $27.2 million, or $3.17 per share. "Net tangible book value per share" is equal to the Company's total tangible assets less its total liabilities, divided by the total number of shares of Common Stock and Common Stock equivalents outstanding. This represents an immediate increase in net tangible book value of $2.76 per share to existing stockholders and an immediate 15 dilution in net tangible book value of $11.83 per share to new investors purchasing shares of Common Stock in the Offering. The following table illustrates this per share dilution: Assumed initial public offering price per share of Common Stock...................................................... $ 15.00 Net tangible book value per share at December 31, 1996... $ 0.41 Increase in net tangible book value per share attributable to new investors.......................... $ 2.76 --------- Net tangible book value per share after the Offering......... $ 3.17 --------- Dilution per share to new investors.......................... $ 11.83 ---------
The following table summarizes (assuming the conversion of all shares of Series C Preferred Stock into shares of Common Stock), as of December 31, 1996, the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price paid per share by the existing stockholders and by new investors (at an assumed initial public offering price of $15.00 per share and before deducting estimated underwriting discounts and commissions and expenses payable by the Company):
SHARES PURCHASED(1) TOTAL CONSIDERATION(1) ----------------------- -------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ----------- ------------- ----------- ------------- Existing stockholders............................... 6,800,000(2) 79.1% $ 1,500,000 5.3% $ 0.22 New investors....................................... 1,800,000 20.9 27,000,000 94.7 15.00 ---------- ----- ------------- ----- Total........................................... 8,600,000 100.0% $ 28,500,000 100.0% ---------- ----- ------------- ----- ---------- ----- ------------- -----
- ------------------------ (1) Assuming the Underwriters' over-allotment option is exercised in full, sales of Common Stock by the Company in the Offering will reduce the number of shares of Common Stock and Common Stock equivalents held by existing stockholders to 76.4% of the total shares of Common Stock and Common Stock equivalents to be outstanding after the Offering, and will increase the number of shares held by new investors to 23.6% of the total number of shares of Common Stock and Common Stock equivalents to be outstanding after the Offering. See "Principal Stockholders and Selling Stockholder." (2) Includes 5,206,000 shares of Series C Preferred Stock, which are convertible into shares of Common Stock at a one-to-one conversion rate, subject to adjustment in certain circumstances. See "Description of Capital Stock--Series C Preferred Stock." 16 SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION The selected consolidated financial and operating information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto, and other financial information included elsewhere in the Prospectus. The Company was incorporated in October 1993 and began operations on January 3, 1994 when it acquired substantially all of the assets of AFSG. See "The Company--The Predecessor Company." The selected consolidated financial and operating information for the years ended December 31, 1994, 1995 and 1996 is derived from the Consolidated Financial Statements of the Company that have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial and operating information for the years ended December 31, 1992 and 1993 is derived from the unaudited financial statements of AFSG, the Company's predecessor, and, in the opinion of the Company's management, reflects all adjustments necessary to present the financial results of AFSG fairly and on a basis consistent with the Company's financial statements. The information for AFSG is presented to "Operating income" because the borrowing arrangements and the tax position of Old Microdot are not meaningful to the Company. The unaudited selected consolidated financial and operating information for AFSG is provided for informational purposes only.
AFSG COMPANY -------------------- ------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1992 1993 1994 1995 1996(1) --------- --------- --------- --------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA) INCOME STATEMENT DATA: Net sales................................................ $ 52,510 $ 46,378 $ 55,117 $ 68,781 $ 99,023 Cost of sales............................................ 38,975 35,933 41,117 51,940 72,924 --------- --------- --------- --------- --------- Gross profit........................................... 13,535 10,445 14,000 16,841 25,099 Selling, general and administrative expenses (2)......... 8,194 8,239 9,048 10,018 13,263 --------- --------- --------- --------- --------- Operating income....................................... 5,341 2,206 4,952 6,823 12,836 Interest expense, net.................................... 2,304 2,935 4,011 --------- --------- --------- Income before income taxes............................. 2,648 3,888 8,825 Provision for income taxes............................... 1,129 1,577 3,530 --------- --------- --------- Net income............................................. $ 1,519 $ 2,311 $ 5,295 --------- --------- --------- --------- --------- --------- Earnings per share (3)................................... $ 0.22 $ 0.34 $ 0.78 --------- --------- --------- --------- --------- --------- Weighted average number of shares outstanding (3)........................................ 6,800 6,800 6,800 PRO FORMA INCOME STATEMENT DATA (4): Pro forma earnings per share, as adjusted................ $ 0.76 --------- --------- Pro forma shares used in computing pro forma earnings per share, as adjusted..................................... 8,600
17
DECEMBER 31, 1996 DECEMBER 31, ---------------------- -------------------- AS 1994 1995 ACTUAL ADJUSTED(5) --------- --------- --------- ----------- (IN THOUSANDS) BALANCE SHEET DATA (AT PERIOD END): Working capital................................................... $ 15,563 $ 18,991 $ 30,188 $ 41,779 Total assets...................................................... 35,051 43,336 73,689 84,534 Total long-term debt, excluding capital leases.................... 23,176 25,148 46,633 33,789 Stockholders' equity.............................................. 2,944 5,157 10,626 35,061
- ------------------------ (1) The Company acquired one business and one additional product line in 1996. In August 1996, the Company purchased its Recoil business unit for approximately $12.2 million and the assumption of certain liabilities. See "Business--Products and Services--Industrial Products and Services." The Recoil acquisition has been accounted for under the purchase method of accounting and, accordingly, the operating results of Recoil have been included in the Company's results of operations since mid-August 1996. In February 1996, the Company purchased the KELOX product line from the Fastening Systems division of Emhart Fastening Teknologies for $441,000 in cash. (2) Selling, general and administrative expenses of AFSG represent direct expenses and do not include an allocation of corporate overhead or expenses related to certain functions performed on a corporate-wide basis by Old Microdot, such as risk management services, tax reporting and similar corporate administrative functions. (3) Earnings per share are computed based on the weighted average number of shares of Common Stock and Common Stock equivalents outstanding. The outstanding shares of Series C Preferred Stock are included as Common Stock equivalents on an "as-if-converted" basis. See "Description of Capital Stock--Series C Preferred Stock." (4) Pro forma income statement data reflect the historical results for the year ended December 31, 1996, adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $15.00 per share and (ii) the application of approximately $18 million of the net proceeds to the reduction of certain indebtedness of the Company as if such debt reduction occurred at January 1, 1996. The pro forma results also reflect interest income on the balance of the Company's net proceeds from the Offering, assuming such proceeds were invested at January 1, 1996. (5) As adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $15.00 per share and (ii) the application of approximately $13.6 million of the net proceeds to the reduction of certain indebtedness of the Company as if such debt reduction occurred at December 31, 1996. The Company anticipates that as of the date of the Offering, it will have increased its borrowings under its revolving line-of-credit to approximately $4.9 million. Accordingly, the total amount of the net proceeds that will be applied to the reduction of certain indebtedness of the Company will approximate $18 million. See "Use of Proceeds." 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is a leading manufacturer of specialty fasteners, fastening systems and related components primarily used by OEMs and their subcontractors in the production of commercial aircraft and defense products. In addition, the Company also manufactures other specialty fasteners and related products for sale in the automotive, electronic and other industrial markets, and their associated after-markets. The Company designs and manufactures a substantial majority of its fasteners to its customers' specifications and in a wide range of specialty metals, alloys and composites. The Company supplies products to virtually all major airframe and aircraft engine OEMs, including Boeing, GE, Pratt & Whitney, Airbus, Lockheed Martin, McDonnell Douglas and Rolls Royce, as well as to a global network of distributors. In 1996, approximately 65% of the Company's net sales were made directly to OEMs and subcontractors. Direct sales to Boeing, GE and Pratt & Whitney, the Company's three largest OEM customers, accounted for approximately 18%, 12% and 8% of the Company's 1996 net sales, respectively. The remaining 35% of the Company's 1996 net sales were made to a global network of thirty-five independent distributors, who sell the Company's products to OEMs, subcontractors and other customers. Often, the OEMs will determine whether the Company sells a product directly to the OEM or through an independent distributor. See "Business--Sales and Marketing." The Company generates a portion of its net sales from international customers. The Company's direct net sales to foreign customers represented approximately 9%, 10% and 14% of net sales for 1994, 1995 and 1996, respectively. Although most of the Company's international sales are invoiced in United States dollars, a portion is invoiced in foreign currencies. The Company does not actively manage its foreign currency exposure and foreign currency fluctuations may result in quarterly variations in the Company's net sales. The Company has historically mitigated the impact of exchange rate fluctuations by adjusting the prices of its products. There can be no assurance, however, that the Company will be able to mitigate future exchange rate fluctuations through the adjustment of product prices. The Company acquired one business and one additional product line in 1996. In August 1996, the Company purchased its Recoil business for approximately $12.2 million and the assumption of certain liabilities. See "Business--Products and Services--Industrial Products and Services." The Recoil acquisition has been accounted for under the purchase method of accounting and, accordingly, the operating results of Recoil have been included in the Company's results of operations since mid-August 1996. In February 1996, the Company purchased the KELOX product line from the Fastening Systems division of Emhart Fastening Teknologies for $441,000 in cash. The KELOX product line complements various Microdot inserts. In the last three years, the Company's financial objectives have focused on increasing sales and profitability. The Company's financial results over this period reflect a high degree of leverage resulting from debt incurred to finance the AFSG acquisition in January 1994 and to finance internal growth and subsequent acquisitions. Using the net proceeds of the Offering, the Company intends to reduce its leverage by retiring approximately $18 million of debt, thereby reducing annual interest expense by approximately $1.8 million. See "Use of Proceeds." 19 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:
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1995 1996 --------- --------- --------- Net sales............................................................ 100.0% 100.0% 100.0% Cost of sales........................................................ 74.6 75.5 73.6 --------- --------- --------- Gross profit....................................................... 25.4 24.5 26.4 Selling, general and administrative expenses......................... 16.4 14.6 13.4 --------- --------- --------- Operating income................................................... 9.0 9.9 13.0 Interest expense, net................................................ 4.2 4.2 4.1 Provision for income taxes........................................... 2.0 2.3 3.6 --------- --------- --------- Net income......................................................... 2.8% 3.4% 5.3% --------- --------- --------- --------- --------- ---------
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 NET SALES. Net sales increased 43.9%, or $30.2 million, to $99.0 million in 1996 from $68.8 million in 1995. This growth was primarily the result of increased customer demand, which occurred as commercial aircraft build rates increased. In addition, net sales growth was enhanced by the expansion of existing product lines, the development of variations of existing products and the introduction of new products. The Company's acquisition of Recoil and its purchase of the KELOX product line accounted for approximately $5 million of the increase in net sales. GROSS PROFIT. Gross profit increased 55.4% to $26.1 million or 26.4% of net sales in 1996 from $16.8 million or 24.5% of net sales in 1995. This improvement in gross profit margin was primarily due to the increase in sales volume, which resulted in a greater absorption of fixed costs. Capital expenditures during the past three years for more efficient production equipment also contributed to the improvement in gross profit margin. In addition, gross profit margin in 1996 benefited from increased sales of Recoil and Microdot inserts and studs, which are generally higher margin products, and improved materials utilization. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 33.0% to $13.3 million in 1996 from $10.0 million in 1995. As a percentage of net sales, however, selling, general and administrative expenses decreased to 13.4% in 1996 from 14.6% in 1995. This decrease was primarily attributable to increased sales volumes. The $3.3 million increase in the absolute dollar amount of such expenses, however, was attributable primarily to (i) additional employee costs needed to support the increased sales volume and (ii) the selling, general and administrative expenses of Recoil, which, due to the nature of its business, tends to have higher selling, general and administrative expenses as a percentage of net sales than the Company's Kaynar and Microdot business units. INTEREST EXPENSE. The Company's average outstanding borrowings increased to $38.2 million in 1996 from $28.3 million in 1995. This increase related primarily to (i) increased working capital requirements to support the Company's growth, (ii) capital expenditures and (iii) the Recoil acquisition. The weighted average interest rate on these borrowings in 1996 was 10.2% (compared to 10.3% in 1995), resulting in a 37.9% increase in net interest expense, from $2.9 million in 1995 to $4.0 million in 1996. NET INCOME. The Company recorded net income of $5.3 million in 1996, or $0.78 per share, compared to $2.3 million, or $0.34 per share, in 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 NET SALES. Net sales increased 24.8%, or $13.7 million, to $68.8 million in 1995 from $55.1 million in 1994. This growth was primarily the result of an increase in customer demand, which occurred as 20 commercial aircraft build rates increased. In addition, net sales growth was enhanced by the expansion of existing product lines, the development of variations of existing products and the introduction of new products. GROSS PROFIT. Gross profit increased 20.0% to $16.8 million or 24.5% of net sales in 1995 from $14.0 million or 25.4% of net sales in 1994. The decrease in gross profit as a percentage of net sales was the result of increased personnel costs incurred to increase capacity and increases in the cost of raw materials. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 11.1% to $10.0 million in 1995 from $9.0 million in 1994. As a percentage of net sales, however, selling, general and administrative expenses decreased to 14.6% in 1995 from 16.4% in 1994. This decrease was primarily attributable to increased sales volumes. INTEREST EXPENSE. The Company's average outstanding borrowings increased to $28.3 million in 1995 from $26.0 million in 1994. This increase related primarily to (i) increased working capital requirements to support the Company's growth and (ii) capital expenditures. The weighted average interest rate on these borrowings in 1995 was 10.3% (compared to 8.9% in 1994), resulting in a 26.1% increase in net interest expense, from $2.3 million in 1994 to $2.9 million in 1995. NET INCOME. The Company recorded net income of $2.3 million for 1995, or $0.34 per share, compared to $1.5 million, or $0.22 per share, in 1994. QUARTERLY RESULTS OF OPERATIONS The following table presents certain unaudited quarterly financial information for the eight fiscal quarters of the two years ended December 31, 1996 and such data expressed as a percentage of net sales for such periods. This information is derived from, and should be read in connection with, the Company's Consolidated Financial Statements and the Notes thereto appearing elsewhere in the Prospectus. In the opinion of management, these results contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the unaudited quarterly results of operations set forth herein. The Company's results of operations for any previous fiscal quarter of any year may not be comparable with its results of operations for the same quarter of any other year and are not necessarily indicative of results for any future period.
QUARTER ENDED ------------------------------------------------------------------------------------- (UNAUDITED) APRIL 2, JULY 2, OCT. 1, DEC. 31, MAR. 31, JUNE 30, SEPT. 29, 1995 1995 1995 1995 1996 1996 1996 ----------- --------- --------- ----------- ----------- ----------- ----------- (IN THOUSANDS) INCOME STATEMENT DATA: Net sales.......................... $ 14,626 $ 17,704 $ 18,041 $ 18,410 $ 20,662 $ 23,228 $ 26,013 Cost of sales...................... 11,478 13,197 13,821 13,444 15,192 17,178 19,440 ----------- --------- --------- ----------- ----------- ----------- ----------- Gross profit..................... 3,148 4,507 4,220 4,966 5,470 6,050 6,573 Selling, general and administrative expenses.......................... 2,279 2,509 2,626 2,604 2,785 2,994 3,503 ----------- --------- --------- ----------- ----------- ----------- ----------- Operating income................. 869 1,998 1,594 2,362 2,685 3,056 3,070 Interest expense, net.............. 684 726 751 774 823 846 1,082 Provision for income taxes(1)...... 75 516 342 644 745 884 795 ----------- --------- --------- ----------- ----------- ----------- ----------- Net income....................... $ 110 $ 756 $ 501 $ 944 $ 1,117 $ 1,326 $ 1,193 ----------- --------- --------- ----------- ----------- ----------- ----------- ----------- --------- --------- ----------- ----------- ----------- ----------- DEC. 31, 1996 ----------- INCOME STATEMENT DATA: Net sales.......................... $ 29,120 Cost of sales...................... 21,114 ----------- Gross profit..................... 8,006 Selling, general and administrative expenses.......................... 3,981 ----------- Operating income................. 4,025 Interest expense, net.............. 1,260 Provision for income taxes(1)...... 1,106 ----------- Net income....................... $ 1,659 ----------- -----------
21
QUARTER ENDED ------------------------------------------------------------------------------------- (UNAUDITED) APRIL 2, JULY 2, OCT. 1, DEC. 31, MAR. 31, JUNE 30, SEPT. 29, 1995 1995 1995 1995 1996 1996 1996 ----------- --------- --------- ----------- ----------- ----------- ----------- (IN THOUSANDS) AS A PERCENTAGE OF NET SALES: Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales...................... 78.5 74.5 76.6 73.0 73.5 74.0 74.7 ----------- --------- --------- ----------- ----------- ----------- ----------- Gross profit................... 21.5 25.5 23.4 27.0 26.5 26.0 25.3 Selling, general and administrative expenses.......................... 15.6 14.2 14.6 14.2 13.5 12.9 13.5 ----------- --------- --------- ----------- ----------- ----------- ----------- Operating income................. 5.9 11.3 8.8 12.8 13.0 13.1 11.8 Interest expense, net.............. 4.7 4.1 4.2 4.2 4.0 3.6 4.1 Provision for income taxes......... 0.5 2.9 1.9 3.5 3.6 3.8 3.1 ----------- --------- --------- ----------- ----------- ----------- ----------- Net income....................... 0.7% 4.3% 2.7% 5.1% 5.4% 5.7% 4.6% ----------- --------- --------- ----------- ----------- ----------- ----------- ----------- --------- --------- ----------- ----------- ----------- ----------- DEC. 31, 1996 ----------- AS A PERCENTAGE OF NET SALES: Net sales.......................... 100.0% Cost of sales...................... 72.5 ----------- Gross profit................... 27.5 Selling, general and administrative expenses.......................... 13.7 ----------- Operating income................. 13.8 Interest expense, net.............. 4.3 Provision for income taxes......... 3.8 ----------- Net income....................... 5.7% ----------- -----------
The Company's net sales have increased in each of the eight fiscal quarters ended December 31, 1996 primarily due to increases in customer demand, which occurred as commercial aircraft build rates increased. In addition, net sales growth was enhanced by the expansion of existing product lines, the development of variations of existing products and the addition of new products. While the cost of sales has fluctuated, cost of sales as a percentage of net sales has generally declined over this period due to decreased unit costs associated with increased production. Selling, general and administrative expenses have generally increased over this period, but have generally decreased as a percentage of net sales, primarily as a result of increased sales volume. The Company's financial results have fluctuated from fiscal quarter to fiscal quarter and may continue to do so in the future. These variations have been due to a number of factors, including customer requirements, the timing of shipments, changes in the type and mix of products being sold, changes in manufacturing capacity, variations in the utilization of manufacturing capacity and variations in the number of working days in a given fiscal quarter. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements consist primarily of working capital needs, capital expenditures and scheduled payments of interest on its indebtedness to GECC. The Company's working capital requirements have increased as a result of higher accounts receivable and higher inventory levels needed to support its growth in net sales. The Company's working capital was $30.2 million as of December 31, 1996, compared to $19.0 million as of December 31, 1995 and $15.6 million as of December 31, 1994. In December 1996, the Company amended its Credit Agreement with GECC (the "Credit Agreement") to provide for a $15.0 million revolving line-of-credit (the "Revolver"), the availability of which is limited by the lesser of a specified portion of qualified accounts receivable and $15.0 million. The Credit Agreement contains significant financial and operating covenants, including limitations on the Company's ability to incur additional indebtedness and restrictions on the payment of dividends. The Company currently is in compliance with all such financial ratios and covenants. At December 31, 1996, borrowings under the Revolver, which bear interest at the prime rate plus 1.5% (which was 9.75% as of December 31, 1996), totaled $746,000, and the amount available for borrowing thereunder was approximately $10 million. The Company anticipates that prior to the consummation of the Offering, it will have increased its borrowings under the Revolver to a total of approximately $4.9 million, principally to pay accrued, Company-wide annual employee bonuses and to fund working capital needs in connection with increases in net sales. The Company intends to use a portion of the net proceeds of the Offering to repay all amounts owed under the Revolver. See "Use of Proceeds." The Credit Agreement expires on January 3, 1999. From time to time, GECC has also made certain variable rate loans to the Company for use in connection with the AFSG and Recoil acquisitions and for working capital purposes and capital expenditures (collectively, the "Variable Rate Loans"). At December 31, 1996, the aggregate outstanding principal 22 under the Variable Rate Loans was $38.2 million. Interest on these loans is payable monthly at a rate equal to the prime rate plus 1.5% (which was 9.75% as of December 31, 1996). The Variable Rate Loans, which are subject to the same financial and operating covenants as the Revolver, are due and payable on January 3, 1999. The Company intends to use approximately $6.0 million of the net proceeds of the Offering to repay these loans. See "Use of Proceeds." In January 1994, in connection with the capitalization of the Company and the payment of dividends on the Series A and Series B Preferred Stock, the Company borrowed certain other amounts from GECC which accrued interest at the rate of 9.5% for the period from January 3, 1994 to December 31, 1995 and will accrue interest at the rate of 11.5% from January 1, 1996 until the loan is paid in full (collectively, the "Fixed Rate Loans"). Interest on the Fixed Rate Loans is payable quarterly and may be deferred and added to the outstanding principal balance. At December 31, 1996, approximately $6.8 million in principal and interest was outstanding under the Fixed Rate Loans, all of which will be repaid in full using the net proceeds of the Offering. See "Use of Proceeds." The Fixed Rate Loans are due and payable on January 3, 1999. For the year ended December 31, 1996, net cash provided by operating activities was $4.3 million, as compared to net cash used in operating activities of $150,000 for the year ended December 31, 1995 and net cash provided by operating activities of $1.7 million for the year ended December 31, 1994. The primary sources of cash from operations during 1996 included net income of $5.3 million, non-cash charges for depreciation and amortization of $2.6 million, an increase in accrued expenses of $3.2 million (which was primarily attributable to accrued, Company-wide annual employee bonuses) and an increase in accounts payable of $2.4 million, offset by increases in accounts receivable and inventories of $2.5 million and $6.9 million, respectively. The primary sources of cash from operations during 1995 included net income of $2.3 million, non-cash charges for depreciation and amortization of $1.8 million, an increase in accounts payable of $1.1 million and an increase in accrued expenses of $1.1 million (which was primarily attributable to accrued, Company-wide annual employee bonuses), offset by increases in accounts receivable and inventories of $3.5 million and $3.4 million, respectively. The Company's capital expenditures were $2.4 million, $3.3 million and $6.9 million in 1994, 1995 and 1996, respectively. In 1996, the Company also used $12.6 million in cash in connection with the Recoil acquisition and the purchase of the KELOX product line. The Company's net cash provided by financing activities in 1996 was $16.7 million, consisting entirely of net borrowings on long-term debt, as compared to borrowings of $3.1 million in 1995 and $542,000 in 1994. The Company expects to spend approximately $8.0 million for capital expenditures in 1997. These capital expenditures will relate principally to equipment purchases intended to expand capacity and enhance operating efficiency at the Company's existing facilities. The Company believes that the net proceeds from the Offering, internally generated cash flow and amounts that may be available under the Revolver will provide adequate funds to meet its working capital needs, planned capital expenditures and debt service obligations. However, the Company's ability to fund its operations, make planned capital expenditures and make scheduled payments on, and refinance, its indebtedness depends on its future operating performance and cash flow. Future operating performance and cash flow are, in turn, subject to prevailing economic conditions and to financial, business and other factors affecting the Company, some of which are beyond the Company's control. 23 BUSINESS GENERAL The Company is a leading manufacturer of specialty fasteners, fastening systems and related components primarily used by OEMs and their subcontractors in the production of commercial aircraft and defense products. In addition, the Company also manufactures other specialty fasteners and related products for sale in the automotive, electronic and other industrial markets, and their associated after-markets. The Company designs and manufactures a substantial majority of its fasteners to its customers' specifications and in a wide range of specialty metals, alloys and composites. The Company's Kaynar and Microdot business units manufacture precision, self-locking, internally threaded nuts and inserts and precision, threaded studs. Kaynar and Microdot fasteners are engineered for a variety of harsh, demanding environments and often require high tensile strength, toughness, durability, corrosion resistance and resistance to metal fatigue and creep. Kaynar's fasteners, which include wrenchable nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts, are used in airframe construction to fasten together various aircraft components, including the fuselage, wings and horizontal and vertical stabilizers. These fasteners also serve a similar function in the construction of aircraft jet and turboprop engines and related components. Recoil, acquired by the Company in August 1996, manufactures helically-wound wire thread inserts and thread repair kits, which are similar in design to certain Microdot products, but are sold to the automotive, electronic and other industrial markets, and their associated after-markets. The Company's K-Fast business unit produces and markets tools that are leased or sold to OEMs and are designed to allow operators to install the Company's and other manufacturers' fasteners rapidly and in restricted and hard-to-reach areas, while still maintaining precision torque control. The Company's goal is to achieve long-term, profitable growth by (i) enhancing its position as a leading supplier of specialty fasteners to the commercial aircraft and defense industries, (ii) expanding the array of fastener products and services it offers to current customers, (iii) continuing to focus on higher value-added specialty products, (iv) leveraging its core capabilities in engineering, materials technology, manufacturing and business processes to develop additional business with both new and existing customers, (v) increasing its international marketing and penetration of foreign markets and (vi) pursuing selected opportunities for acquisitions and strategic alliances. INDUSTRY OVERVIEW AND TRENDS COMMERCIAL AIRCRAFT MARKET The Company's primary market for fasteners, the worldwide commercial aircraft industry, is experiencing a strong increase in demand from airlines ordering new and replacement aircraft. Many airlines, particularly U.S. carriers, incurred substantial losses during the early 1990s. Factors which led to these losses included (i) a slowdown in world economic growth, (ii) a decline in air passenger traffic and (iii) the delivery of a record number of previously purchased aircraft to the airlines, all of which created excess aircraft capacity. This excess capacity, coupled with the weakened financial condition of many airlines, significantly impacted their purchases of new and replacement aircraft. Beginning in 1994, a rebound in the world economy and an increase in air passenger traffic helped many airlines restore and increase their profitability. As a result, the airlines have also increased their purchases of new and replacement aircraft, contributing to a significant recovery in the worldwide commercial aircraft industry. In 1996, for example, Boeing and Airbus, the two largest commercial aircraft manufacturers, reported increases in announced aircraft orders of 107% and 208% over 1995 levels, respectively. Increased demand for new and replacement aircraft has led to an increase in the demand for fasteners and fastening systems, such as those manufactured by the Company. While there can be no assurance that demand for new and replacement aircraft will not be adversely affected by business cycle fluctuations or declines in airline profitability, the Company believes that long-term industry trends are favorable. For example, in its 1996 Current Market Outlook report, Boeing 24 projects that during the period from 1995 to 2005, world air travel will grow by approximately 70%. Boeing also projects that during this period domestic and international airlines will lease or purchase approximately 7,000 new aircraft, thereby increasing the worldwide commercial fleet from approximately 11,000 aircraft at the end of 1995 to approximately 16,000 aircraft (net of retirements) at the end of 2005. In addition, as airlines seek to serve a growing number of air travelers with existing restrictions on arrival and departure slots, airport gates and ramp capacity, commercial aircraft OEMs are experiencing increased orders for heavier, widebodied aircraft of intermediate size. Widebodied aircraft generally require a greater number of fasteners than smaller aircraft. DEFENSE MARKET The Company also directly and indirectly supplies fasteners and related components to manufacturers of airframes, aircraft engines, missiles and other products used for defense. Since the late 1980s, decreasing levels of defense procurement spending have reduced the size of the defense market, with contracts often reflecting lower build rates and extended production schedules. The U.S. military budget, in particular, has focused principally on operations and maintenance funding for the existing force structure rather than on procurement of new equipment. Due in part to these budget constraints, the defense industry has been consolidating, thereby reducing the overall number of customers available to the Company and other suppliers. The Company's products are primarily utilized on military aircraft, including fighters and transport aircraft. Although the number of fighter aircraft expected to be produced is likely to decrease through the year 2000, this decrease may be offset in part by increased production of military transport aircraft such as the C-130J and the C-17. In addition, a number of fighter and other aircraft programs may be implemented to modernize the air forces of the industrialized western nations and their allies. Such programs that are either under development or contemplated include the F/A-18E/F (an advanced variant of the existing F/A-18 fighter bomber), the F-22 (the next-generation advanced fighter) and the EFA (European Fighter Aircraft). The first two programs are in preliminary production stages in the United States. The military programs of the United Kingdom, Germany, Italy and Spain have committed to the EFA, which is scheduled to begin production in 2000. In addition, although there can be no assurance that the proposed fiscal 1998 U.S. military budget will be adopted as proposed, the budget proposed by the President projects an increase in procurement spending for aircraft. There can be no assurance, however, that the production of military transport aircraft will increase, that proposed aircraft programs under development or contemplated will be completed or that any projected increase in U.S. defense procurement spending will result in increased demand for the Company's products. PRODUCTS AND SERVICES The Company's fasteners, fastening systems and related components may be divided into two general categories: those used exclusively in the manufacture of commercial aircraft and defense products (see "--Commercial Aircraft and Defense Products") and those with applications in other industries (see "--Industrial Products and Services"). Within these two broad categories, the Company's products may also be grouped by business unit. The Company's Kaynar and Microdot business units manufacture fasteners and related products that are sold principally to the commercial aircraft and defense industries. The Company's recently-acquired Recoil business manufactures thread insert systems used in a broad range of markets, including high performance automotive and electronic components. The Company's K-Fast business unit produces, sells, leases and services a complete line of installation tools and tooling systems for the Kaynar, Microdot and Recoil product lines, as well as for fasteners and inserts produced by other manufacturers. COMMERCIAL AIRCRAFT AND DEFENSE PRODUCTS A substantial portion of the Company's net sales are made to the commercial aircraft and defense industries. Of the Company's net sales in 1996, approximately 40% were made to airframe OEMs and their subcontractors, and approximately 21% were made to producers of aircraft engines. In addition, the 25 Company sold approximately 31% of its production to independent distributors, who in turn are believed to have sold many of such products to commercial aircraft and defense OEMs and subcontractors. KAYNAR PRODUCTS Kaynar is a leading producer of precision, self-locking internally threaded nuts used in the manufacture of commercial aircraft and defense aerospace products. In 1996, sales of Kaynar products accounted for approximately 78% of the Company's net sales. The Kaynar product line is designed principally for use in harsh, demanding environments and includes wrenchable nuts, K-Fast nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts. Wrenchable nuts, which offer versatility in airframe construction, are designed for high-strength and vibration resistance and to ensure precision torquing of fastener assemblies. K-Fast nuts, which are lightweight, wrenchable nuts in various configurations, permit high-speed application using K-Fast installation tools. Anchor nuts, which may be riveted, welded or bonded to a structure, are especially useful in blind locations or in locations where an attached nut facilitates maintenance. Gang channel nut assemblies, which may be produced in either straight or radiused versions, are designed for applications that require multiple anchor-type nuts. Shank nuts, which are highly temperature resistant, are designed for jet and rocket engine flange assemblies, such as exhaust manifolds, afterburners and turbine flanges. Barrel nuts are high strength, self-locking nuts used in locations where wrenching space is not available. Clinch nuts and stake nuts are designed for blind applications where hexagonal nuts would be inaccessible for wrenching, or where conditions prevent the installation of an anchor nut. Kaynar produces fasteners in a wide variety of materials to accommodate each customer's specifications, from lightweight aluminum or titanium nuts for airframes, to high-strength, high-temperature tolerant engine nuts manufactured from materials such as A-286, Waspaloy-Registered Trademark-, Hastelloy-Registered Trademark- and Inconel-Registered Trademark-. Kaynar also produces the commercial aircraft and defense industries' broadest line of lightweight, non-metallic composite fasteners, which may be configured as wrenchable nuts, anchor nuts, gang channels or barrel nuts. These composite fasteners are used primarily for military aircraft and are designed to reduce radar visibility, enhance resistance to lightning strikes and provide galvanic corrosion protection. Kaynar offers a variety of coatings and finishes for its fasteners, including anodizing, cadmium plating, silver plating, aluminum plating, solid film lubricants and water-based cetyl and solvent-free lubricants. MICRODOT PRODUCTS Microdot, which accounted for approximately 14% of the Company's 1996 net sales, designs, engineers and manufactures threaded inserts and studs used principally in the commercial aircraft and defense industries. Microdot's threaded inserts, which are made of high-grade steel and other high-strength metals, are designed to be installed into softer metals, plastics and composite materials to create bolt-ready holes having strong internal threads within the softer parent material. Once a bolt is threaded into the installed insert, the overall strength of the fastening assembly is substantially enhanced. The Company's customers may also use Microdot inserts for thread repairs. When the existing internal threads on an airframe or engine component become stripped or are otherwise damaged, the customer will retap the hole and insert a Microdot insert, thereby recreating the internal threads. Microdot's K-Sert-Registered Trademark- Inserts include keys that are driven down through the threads of parent material, mechanically locking the insert in place to prevent rotation due to vibration and to resist torque-out. Microdot also produces Perma-Thread-Registered Trademark- Inserts and thin-wall inserts. Perma-Thread Inserts are helically-coiled inserts, precision formed from diamond shaped stainless steel wire wound into strong permanent thread. The Perma-Thread Inserts compress as they are inserted into an internally threaded hole to create a strong permanent thread inside the hole. Thin-wall inserts are designed for situations that require a smaller lightweight fastener but also demand a high degree of thread protection and fastening integrity. 26 In addition, Microdot produces K-Sert Studs, which are also made from steel and other high-strength metals. The keyed end of the stud is designed to be installed into parent material using a process similar to the insertion of K-Sert Inserts. The other end of the stud is threaded and protrudes from the parent material so that other components may be securely attached to the parent airframe or engine component. Like K-Sert Inserts, K-Sert Studs include locking keys that prevent rotation and provide resistance to torque-out. INDUSTRIAL PRODUCTS AND SERVICES The products designed and manufactured by the Company's recently acquired Recoil business unit have applications in a variety of industries, including the automotive and electronics markets. The Company's K-Fast products primarily serve the commercial aircraft and defense industries, but are also used in other industrial markets. Recoil, which the Company acquired in August 1996, and K-Fast each accounted for approximately 4% of the Company's 1996 net sales. For the four-month period ended December 31, 1996, Recoil accounted for approximately 8% of the Company's net sales. RECOIL PRODUCTS Recoil produces helically-wound wire thread inserts that increase the strength of a fastening assembly and assist in the reduction of thread wear, which is particularly important in cases where components are assembled and disassembled frequently or where vibrations are severe. Although Recoil inserts are similar in design to Microdot's Perma-Thread Inserts, Recoil serves a different customer base and sells a greater percentage of its products for use in thread repair, rather than original installation. Recoil inserts are used in the automotive, electronic and other industrial markets, and their associated after-markets. In addition to threaded inserts, Recoil also supplies both standard and customized thread repair kits, high speed steel taps and various electric and pneumatic, manual and semi-automatic insertion tools and related accessories. Recoil's distributors market thread repair kits to the public using custom-designed point-of-sale displays. Principal uses for the thread repair kits include automotive repair and the maintenance and repair of heavy machinery. Recoil products are designed and manufactured in stainless steel and a wide variety of other materials to meet customer specifications, including Inconel-Registered Trademark- for high temperature applications and phosphorous bronze for low permeability. Recoil inserts are often coated with finishes such as cadmium and silver to prevent corrosion, and dry film lubricants to prevent galling and binding. K-FAST PRODUCTS AND SERVICES K-Fast tools are primarily designed to install Kaynar, Microdot and Recoil fasteners and inserts, but can also be used to attach other wrenchable nuts, bolts and inserts. K-Fast tools allow customers to install fasteners rapidly and in restricted and hard-to-reach areas, while still maintaining precision torque control. K-Fast tools, which may be incorporated into a customer's automatic and semi-automatic application operations, also permit precise re-torquing of fasteners that have already been installed. K-Fast tools are ergonomically designed to reduce noise and operator fatigue. The Company outsources the production of motors for the K-Fast tools. Many OEMs lease K-Fast tools from the Company instead of purchasing them. The Company also services tools purchased or leased by its customers and trains its customers to use the tools. The Company currently has eleven service engineers located throughout North America and Europe, who are able to provide customers with on-site service of, and training for, K-Fast tools. The Company intends to continue to pursue opportunities on the service side of its tooling and tooling systems business. KEY COMPETITIVE STRENGTHS MARKET LEADER. The Company believes that it is the leading manufacturer of precision, self-locking internally threaded nuts sold to the commercial aircraft and defense aerospace industries, and a leading 27 manufacturer of other specialty fasteners, fastening systems and related components used in the manufacture of commercial aircraft and defense products. The Company also believes it offers customers one of the broadest arrays of fasteners, fastening systems and related services. Once a fastener manufactured by the Company has been "designed into" a particular airframe or engine component, the OEM will generally rely on the Company to provide the fastener for the entire production cycle of the airframe or engine, which could last a decade or more. This relationship with OEMs further enhances the Company's position as a market leader. RAPID CUSTOMER RESPONSE. The Company's product design and engineering capabilities and its manufacturing expertise give it the ability to respond rapidly to customer demands for new products and product modifications. Once a customer submits specifications for a product, the Company utilizes its forty-three person engineering and product design group to meet the customer's demands and expectations for product development and manufacturing, installation tooling development and application engineering. The Company's engineering and product design personnel are organized into cross-functional design teams to enhance the Company's responsiveness. Often customers will place multiple orders for short runs of different products. The Company has the expertise in complex manufacturing processes necessary to fill such orders within the timeframes required by its customers. CORE SUPPLIER. Many OEMs have reduced the number of suppliers for particular parts to a core group of two or three who have the size, expertise and capacity to meet the OEMs' needs. Such reductions allow an OEM to (i) reduce purchasing costs, (ii) streamline purchasing decisions, (iii) maintain greater control over quality and (iv) develop close supplier relationships. Participating in this trend, the Company continues to be a qualified supplier to virtually all major airframe and aircraft engine OEMs on the parts it designs and manufactures. In addition, the Company has never lost its qualified supplier status with respect to any product. The Company believes that as the OEMs have undertaken these reductions, the Company has often achieved incremental increases in its business. SOURCE DELEGATION SUPPLIER. The Company's experience and its strong, long-term relationships with OEMs, coupled with its customer-driven approach to quality control, engineering and production, have allowed it to qualify as a "source delegation supplier" to many of its customers, including Boeing, GE and Pratt & Whitney. See "--Customers." A source delegation supplier's products are designed, shipped and installed without the OEM undertaking further testing that it might otherwise perform before installation. An OEM will only designate a supplier as a source delegation supplier after the OEM has undertaken a rigorous review of both the supplier's products and its manufacturing processes. This review process often takes several years. EFFICIENCY AND QUALITY CONTROL. The Company has implemented a series of programs designed to improve operating efficiency while at the same time maintaining or improving quality control. As a result, the Company believes that since 1994 it has, among other things, significantly reduced its (i) new product design times, (ii) average lead times on production and (iii) rates of past due orders. Continuous improvement teams, re-engineering teams, Kaizen events (a self-directed process improvement program) and an incentive bonus plan that rewards all employees, other than Recoil personnel, based upon the return on capital employed by the Company's business units are among the quality improvement tools currently used by the Company in its efforts to reduce costs and improve customer service. The Company has also recently begun implementing an automated statistical process control ("SPC") system that will replace its current manual system for recording statistical information at each stage of the production process. The automated SPC system, which is already running in certain areas of the Company's business, should be fully operational by mid-1997. COMPANY STRATEGY The Company's goal is to sustain long-term profitable growth by focusing on the following areas: MAINTAINING KEY COMPETITIVE STRENGTHS. The Company intends to maintain and further develop its key competitive strengths, including its leading position in the market for specialty fasteners and fastening 28 systems used in the manufacture of commercial aircraft and defense products. See "--Key Competitive Strengths." EXPANDING FASTENER PRODUCTS AND SERVICES. The Company will continue to introduce new fastener products and services to the commercial aircraft, defense and other industrial markets. The Company also plans to continue augmenting its existing array of products and services by qualifying new fasteners and fastening systems, introducing new packaged thread repair kits in the automotive after-market and expanding its installation tooling products and repair services. FOCUSING ON HIGHER VALUE-ADDED PRODUCTS. Kaynar and Microdot, the Company's two largest business units, manufacture nuts, inserts and studs that are engineered for a variety of harsh, demanding environments and often require high tensile strength, toughness, durability, corrosion resistance and resistance to metal fatigue and creep. To meet these demands, the Company employs higher value-added manufacturing processes than would be required if the fasteners were designed for less demanding environments. These processes include manufacturing expertise in a wide range of specialty metals, alloys and composites. The Company intends to continue to focus on engineering and manufacturing such specialty products. LEVERAGING CORE CAPABILITIES. The Company intends to grow by leveraging its core capabilities in engineering, materials technology, manufacturing and business processes. The Company believes that with these capabilities, it can develop new business opportunities with current customers, beyond existing fastener applications. The Company will also use its core capabilities as a basis for moving into related markets that it does not currently address. INCREASING INTERNATIONAL MARKETING. The commercial aircraft industry is becoming increasingly international, as component and sub-assembly manufacturers overseas obtain significant contracts from major airframe and aircraft engine OEMs. The Company plans to continue to increase its international presence to capitalize on opportunities for growth in the expanding international commercial aircraft market. The Company's strategy includes continued penetration into foreign markets. The Company, for example, has recently placed an on-site sales engineer in Beijing, China and a direct salesperson in Mexico City, Mexico. See "--Sales and Marketing." GROWING THOUGH ACQUISITIONS AND STRATEGIC ALLIANCES. The Company selectively reviews opportunities to acquire other companies, assets and product lines that add to or complement its existing products and services. The Company successfully completed the Recoil acquisition and the purchase of the KELOX product line in 1996 and believes that other potentially complementary acquisitions may be possible as consolidation continues in the commercial aircraft and defense industries. The Company, however, currently has no agreements, commitments or understandings with respect to any acquisitions, nor can there be any assurance that the Company will make any such acquisitions in the future. CUSTOMERS In 1996, approximately 65% of the Company's net sales were made directly to OEMs and subcontractors. Direct sales to Boeing, GE and Pratt & Whitney, the Company's three largest OEM customers, accounted for approximately 18%, 12% and 8% of the Company's 1996 net sales, respectively. The remaining 35% of the Company's 1996 net sales were made to a global network of thirty-five independent distributors, who sell the Company's products to OEMs, subcontractors and other customers. See "--Sales and Marketing." The Company is currently a "source delegation supplier" of certain products to the following OEMs: Boeing, GE, Pratt & Whitney, Lockheed Martin, McDonnell Douglas, Air Supply (a unit of AlliedSignal Inc.), Ultra Electronics Ltd. and Williams International Co. A source delegation supplier's products are designed, shipped and installed without the OEM undertaking further testing that it might otherwise perform before installation. See "--Key Competitive Strengths--Source Delegation Supplier." In addition to its source delegation designations, the Company is also a qualified supplier under the preferred supplier programs of most other major airframe and aircraft engine OEMs and subcontractors, including Allison 29 Engine Co., Loral Vought Systems Corp., Northrop Grumman Corp., Rocketdyne (a unit of Rockwell International Corp.), Rohr Inc. and Rolls Royce. BACKLOG The Company's backlog at December 31, 1996 was approximately $65.5 million, approximately 92% of which is scheduled to be delivered during 1997. The Company's total backlog as of December 31, 1995 was approximately $41.2 million. The following chart shows the quarterly backlog orders believed by management to be deliverable within the twelve months following each quarter end: [Chart setting forth, for the years 1994, 1995 and 1996, the information described in the preceding paragraph.] ENGINEERING AND PRODUCT DEVELOPMENT The Company employs approximately 43 engineers and designers. At Kaynar and Microdot, these employees are assigned to cross-functional design teams, which work together to develop new products and improve existing products. Each design team includes personnel from the following functional areas: production design, tool design, manufacturing engineering and production engineering. The use of design teams is intended to reduce the overall time needed to bring products to market. The development of a new fastener generally begins when a customer submits specifications for the fastener to the Company. The design team then develops a computer-generated or physical model of the fastener based on the specifications and may work with the Company's research and development (R&D) group, which includes skilled tool and die makers and a machine development group, to produce a prototype of the product. Reliance on the Company's R&D personnel at this stage of the development process allows the Company to thoroughly test a new design and its requisite manufacturing process without interrupting the manufacture of existing products at the Company's facilities. Concurrent with the design and testing of a prototype, the design team also develops a plan for manufacturing the fastener in the most cost-effective manner and undertakes the steps necessary to implement that plan. PATENTS The Company currently holds a number of U.S. and international patents, covering a variety of products and processes. Although the Company believes patent protection to be valuable in certain circumstances, management does not believe that the termination, expiration or infringement of one or more of the Company's patents would have a material adverse effect on the business or prospects of the Company. The Company has not been involved in patent infringement litigation, and the Company believes that its processes and products do not infringe on the intellectual property rights of others; however, there can be no assurance that an infringement claim will not be asserted against the Company in the future. The Company has from time to time asserted infringement claims by notice to third parties. Such claims, however, have been settled by the Company and have not resulted in litigation. MANUFACTURING AND RAW MATERIALS Each of the Company's fasteners is manufactured using one of three general methods of production: stamping, machining or forging. In each case, the production process begins with the purchase of raw materials: sheet metal in the case of stamping, bars in the case of machining and high grade wire in the case of forging. The fastener is then formed using the applicable processes. Subsequent steps in the production process include tapping, crimping, heat treating, plating, coating, assembly and final inspection. The Company manufactures fasteners for its commercial aircraft and defense customers based on the customers' orders and specifications and, except for certain Recoil products, the Company generally does 30 not produce fasteners for its own inventory. The Company has the expertise in complex manufacturing processes necessary to produce products in multiple, short runs, which are often requested by its customers. See "--Key Competitive Strengths--Rapid Customer Response." The Company purchases raw materials, which include the various metals, composites and finishes used in production, from over twenty different suppliers. The Company believes that these raw materials would be available at competitive prices from various other suppliers as well. See "Risk Factors-- Availability and Cost of Raw Materials" for a discussion of the risks related to the Company's supply of raw materials. SALES AND MARKETING The Company's sales force consists of approximately 24 salespeople located throughout the world and 31 independent sales agents who work with the Company on a commission basis. The sales force sells products directly to OEMs and subcontractors and to a global network of 35 independent distributors, who, in turn, sell to OEMs, subcontractors and other customers. Often, the OEMs will determine whether the Company sells a product directly to the OEM or through an independent distributor. Each of the Company's four business units independently conducts sales and marketing efforts. In certain cases, however, the business units collaborate in cross-marketing efforts and, in some geographic regions, may use the same sales representative or agent. Each business unit's sales force and its respective officers are responsible for obtaining new customers and maintaining relationships with existing customers. EMPLOYEES As of December 31, 1996, the Company employed 1,111 employees. Approximately 73% of these employees are engaged in manufacturing, 22% are engaged in management, sales, marketing and general administration and 5% are engaged in engineering and product development. None of the Company's employees is represented by a union, and management considers its employee relations to be good. Each of the Company's employees (other than those in the Recoil business unit) is eligible for an annual bonus based on the return on capital employed of the particular business unit in which the employee works. 31 PROPERTIES As of December 31, 1996, the Company had eight principal facilities, consisting of an aggregate of approximately 277,900 square feet of space. The following table describes the principal facilities and indicates the location, function, approximate size and ownership of each:
APPROX. SQUARE LOCATION FUNCTION FOOTAGE OWNERSHIP - ------------------------------ --------------------------------- --------- ------------------------- Fullerton, CA................. The Company and Kaynar Division 200,000 Leased (expires headquarters: October 31, 1999) Administration, product development, engineering, manufacturing and distribution Placentia, CA................. Microdot Division headquarters: 40,000 Leased (expires Administration, product September 30, 2001) development, engineering, manufacturing and distribution Oakleigh, VIC, Australia...... Recoil Pty headquarters: 24,000 Leased (expires Administration, product August 1, 2000) development, engineering, manufacturing and distribution Nemesuamos, Hungary........... K.T.I. Femipari KFT: 6,200 Owned Manufacturing Carmel, IN.................... Recoil (U.S.): 4,300 Leased (expires Sales and marketing of Recoil December 31, 1998) products Wolverhampton, U.K............ Recoil (Europe) Ltd.: 1,700 Leased (expires Sales and marketing of Recoil December 25, 2001) products Lutterworth, U.K.............. Kaynar Technologies Ltd. 1,000 Leased (expires headquarters: January 2, 2002) Kaynar and K-Fast sales office Aalst, Belgium................ Recoil Marketing BVBA: 700 Leased (expires Sales and marketing of Recoil April 20, 2003) products
The Company currently anticipates that its 6,200 square foot manufacturing facility in Nemesuamos, Hungary will be completed and operational by the end of the first quarter of 1997. The Company purchased the property on which the facility is being built in July 1996. When completed, the Hungarian facility will be responsible for certain machining and forging operations on a limited number of Kaynar and Microdot products. These products will be transported to the Company's U.S. facilities for final fabrication. While the Company believes that its facilities are adequate to support its operations for the foreseeable future, the Company regularly reviews its need for additional facilities and could, in the future, lease or purchase one or more additional facilities or seek to expand its existing facilities. 32 LEGAL PROCEEDINGS During the ordinary course of business, the Company, from time to time, is threatened with, or becomes a party to, legal actions and other proceedings. Management is of the opinion that the outcome of currently known legal actions and proceedings to which it is a party will not, singly or in the aggregate, have a material adverse effect on the Company. COMPETITION The Company competes with a number of producers of aerospace fasteners and fastening systems, including three publicly-held companies, SPS Technologies Inc. ("SPS"), the Huck International Division of the Thiokol Corporation ("Thiokol") and The Fairchild Corporation ("Fairchild"), all of which have greater financial resources than the Company. SPS manufactures high-strength wrenchable nuts, gang channels, plate nuts and other products for certain of the same customers as the Company, including Boeing, Pratt & Whitney and GE. Thiokol produces fasteners and fastening systems that differ substantially from the Company's products in design, but nevertheless serve comparable functions in airframe and engine construction. Fairchild produces threaded inserts and studs that compete with the Microdot product lines, as well as various nuts used by certain of the Company's customers, including GE. On January 27, 1997, Fairchild announced that it had signed a letter of intent with Simmonds, a French corporation, which produces fasteners that compete with certain Kaynar products, particularly metric nuts and gang channels sold to European airframe and engine OEMs. Under the terms of the letter of intent, Fairchild would acquire an 84.2% ownership interest in Simmonds. The Company also competes with several smaller, privately-owned companies, which generally have lower sales volumes than the Company. The Company believes that competition for sales of fasteners and fastener systems to the commercial aircraft and defense industries is based on product design and quality, turnaround time and responsiveness to customer specifications, product availability and pricing. The Company believes that it competes favorably with respect to each of these factors. HeliCoil, a unit of Black & Decker Corp., is Recoil's primary competitor in the industrial markets for threaded inserts. The Company believes that competition for sales of threaded insets and thread repair kits to the markets served by Recoil is based on turnaround time and responsiveness to customer specifications, product availability and pricing. The Company believes that it competes favorably with respect to each of these factors. ENVIRONMENTAL MATTERS The Company's operations are subject to federal, state and local environmental laws and regulation by various governmental agencies. Among other matters, these regulatory authorities impose requirements that regulate the generation, emission, discharge, management, transportation and disposal of hazardous materials, pollutants and contaminants, govern public and private response actions to hazardous or regulated substances that may be or have been released into the environment, and require the Company to obtain and maintain licenses and permits in connection with its operations. This extensive regulatory framework imposes significant compliance burdens and risks on the Company. Although management believes that the Company's operations and its facilities are in material compliance with such laws and regulations, there can be no assurance that future changes in such laws, regulations or interpretations thereof or the nature of the Company's operations will not require the Company to make significant additional capital expenditures to ensure compliance in the future. The Company anticipates that during the period from 1997 through 1998 it will incur a one-time capital expenditure of between $1 million and $2 million to reduce its reliance on degreasing operations that use perchloroethylene by switching to aqueous-based solvents whenever possible. Although these new operations will significantly reduce the Company's need to use perchloroethylene as a degreasing agent, the Company's principal reason for undertaking this expenditure is to increase manufacturing efficiency. 33 Although the Company has not been notified by any environmental authority that its current degreasing operations are in violation of any applicable law or regulation, perchloroethylene has been detected in the soil beneath the Company's Fullerton, California facility. Environmental consultants retained by the Company have determined that this was not caused by existing degreasing operations. The Company anticipates that if remediation of the perchloroethylene at this site is required, it could be accomplished at a cost of approximately $200,000 over the course of two years. In connection with the AFSG acquisition in January 1994, the Company established reserves that management believes are sufficient to cover this possible remediation. The Company is required to maintain air quality permits for the operation of several of its plating lines. The permit required to run its cadmium-plating system currently includes a maximum annual usage restriction that is significantly below the Company's actual 1996 usage. In 1996, however, the Company obtained a variance from the applicable environmental control authority that permitted the Company to exceed the usage restriction. In 1997, the Company intends to install a new automated cadmium-plating system that includes improved emissions control features, which should result in removal of the usage restriction. If the restriction is not removed prior to the installation of the automated plating system, the Company expects that it will again be granted a usage variance. There can be no assurance, however, that a usage variance will be granted or that the failure to obtain a usage variance will not have a material adverse effect on the Company. 34 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below is certain information concerning the directors and executive officers of the Company. Each director holds office until the next annual meeting of stockholders, or until his successor has been elected and qualified. Officers are appointed by the Board of Directors.
NAME AGE(*) PRINCIPAL POSITIONS WITH THE COMPANY - ------------------------------------ ----------- -------------------------------------------------------------------- Jordan A. Law....................... 54 Chairman of the Board of Directors, President and Chief Executive Officer David A. Werner..................... 44 Executive Vice President, Secretary and Director Robert L. Beers..................... 50 Senior Vice President, Marketing and Business Development LeRoy A. Dack....................... 51 Division President, Kaynar Joseph M. Varholick................. 45 Division President, Microdot Kenneth D. Jones.................... 52 Group Chief Executive Officer, Recoil Imre Berecz......................... 59 Vice President, Product Research and Development, and Managing Director, K.T.I. Femipari KFT Joseph F. Blomberg.................. 58 Director of Human Resources Norman A. Barkeley.................. 66 Director Burton J. Kloster, Jr............... 65 Director Richard P. Strubel.................. 57 Director
- ------------------------ * As of December 31, 1996. JORDAN A. LAW has been Chairman of the Board of Directors, President and Chief Executive Officer of the Company since October 1993. From July 1991 to January 1994, Mr. Law served as President of AFSG. DAVID A. WERNER has been Executive Vice President of the Company since December 1996 and Secretary and a Director of the Company since October 1993. From October 1993 to December 1996, Mr. Werner served as Vice President and Treasurer of the Company. From July 1990 to January 1994, Mr. Werner was Vice President and Chief Financial Officer of Old Microdot. Mr. Werner is also a director of Lumber Yard Supply, a privately-held corporation. Mr. Werner is a certified public accountant. ROBERT L. BEERS has been Senior Vice President, Marketing and Business Development, of the Company since December 1996. From January 1994 to December 1996, Mr. Beers served as Vice President, Sales and Marketing, of the Company. From June 1991 to January 1994, Mr. Beers was Vice President, Sales and Marketing, of AFSG. LEROY A. DACK has been President of the Company's Kaynar business unit since December 1996. From January 1994 to December 1996, Mr. Dack served as Vice President and General Manager of the Kaynar business unit. From May 1991 to January 1994, Mr. Dack was Vice President of the Kaynar division of Old Microdot. JOSEPH M. VARHOLICK has been President of the Company's Microdot operating unit since December 1996. From January 1994 to December 1996, Mr. Varholick served as Vice President and General Manager of the Microdot business unit. From September 1993 to January 1994, Mr. Varholick was Vice President and General Manager of the Microdot Inserts division of Old Microdot. From May 1992 to September 1993, Mr. Varholick was Managing Director of Microdot Aerospace Limited (U.K.), a subsidiary of Old Microdot. Prior to May 1992, Mr. Varholick was the Director of Sales of the Kaynar division of Old Microdot. KENNETH D. JONES has been Group Chief Executive Officer of the Company's Recoil business unit since August 1996. From August 1994 to August 1996, Mr. Jones was the Group Chief Executive Officer of 35 Recoil Pty Ltd, the entity from which the Company purchased the Recoil business unit. Prior to August 1994, Mr. Jones served as Chief Executive Officer of Polycure Pty. Ltd., a manufacturer of specialty, high technology coatings. IMRE BERECZ has been Vice President, Product Research and Development, and Managing Director, K.T.I. Femipari KFT, since December 1996. From January 1994 to December 1996, Mr. Berecz was the Company's Vice President, Research and Development. From 1983 to January 1994, Mr. Berecz served as Vice President, Engineering of AFSG. JOSEPH F. BLOMBERG has been Director of Human Resources of the Company since January 1994. From June 1984 to January 1994, Mr. Blomberg served as Director of Human Resources of AFSG. NORMAN A. BARKELEY has been a Director of the Company since March 1997. Mr. Barkeley has been chairman of Ducommun Incorporated, an aerospace equipment manufacturer ("Ducommun"), since July 1988. Mr. Barkeley served as Chief Executive Officer of Ducommun from July 1988 to December 1996 and President of Ducommun from July 1988 to December 1995. Mr. Barkeley is also a director of Dames and Moore Inc., an engineering and consulting firm, Golden Systems, Inc., an electrical components manufacturer, and RHR International Co., a privately-held management consulting firm. BURTON J. KLOSTER, JR. has been a Director of the Company since March 1997. Mr. Kloster has been retired since September 1995. Prior to his retirement, Mr. Kloster had served as a Director of GECC since September 1989, Senior Vice President of GECC since October 1984 and Vice President, General Counsel and Secretary of GECC since March 1976. Pursuant to the New Stockholders Agreement, GECC designated Mr. Kloster as an individual to be nominated to the Board of Directors by the Company. RICHARD P. STRUBEL has been a Director of the Company since March 1997. Mr. Strubel has been Managing Director of Tandem Partners, Inc., a management services firm, since June 1990. From January 1984 to October 1994, Mr. Strubel served as President and Chief Executive Officer of Old Microdot. Mr. Strubel is a director of Children's Memorial Medical Center and Children's Memorial Hospital, both of which are located in Chicago, and a trustee of the University of Chicago. Mr. Strubel also is a trustee of 35 mutual funds for which Goldman, Sachs & Co. serves as investment adviser and 16 mutual funds for which The Northern Trust Company serves as investment adviser. Pursuant to the New Stockholders Agreement, GECC designated Mr. Strubel as an individual to be nominated to the Board of Directors by the Company. As discussed above, each of Messrs. Law, Werner, Beers, Dack, Varholick and Strubel served as an officer or key employee of Old Microdot. In June 1993, Old Microdot filed a petition under Chapter 11 of the federal bankruptcy laws. See "The Company--The Predecessor Company." DIRECTORS COMPENSATION Prior to January 31, 1997, members of the Company's Board of Directors did not receive any compensation for their services as directors. Commencing in March 1997, however, non-employee directors will be paid $10,000 per year plus $1,000 per meeting for attending meetings of the Board of Directors or meetings of any committee thereof not immediately preceding or following a meeting of the full Board. Non-employee directors may also participate in the Company's 1997 Stock Incentive Plan. See "--Stock Incentive Plan--Non-Employee Director Options." Except as set forth below in "--Executive Compensation," directors who are employees of the Company will not be paid for their services as directors. All directors, however, are reimbursed for certain expenses in connection with attendance at Board of Directors and committee meetings. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has established an Audit Committee and a Compensation Committee. As long as the outstanding Series C Preferred Stock represents 40% or more of the Fully Diluted Shares, each of these committees will include a director that was designated by the holder of the Series C Preferred Stock for nomination to the Board of Directors. As long as the outstanding Series C Preferred Stock represents 36 25% or more (but less than 40% of the Fully Diluted Shares, each of these committees will include one director that was designated by the holder of the Series C Preferred Stock for nomination to the Board of Directors. See "Description of Capital Stock--The New Stockholders Agreement." The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the selection of the Company's independent auditors, the scope of annual audits, fees to be paid to auditors, the performance of the auditors and the accounting practices of the Company. The Audit Committee currently consists of Messrs. Kloster and Strubel. The Compensation Committee, which consists of Messrs. Strubel and Barkeley, determines the salaries and incentive compensation of the Company's officers and provides recommendations for the salaries and incentive compensation of the other employees of, and any consultants to, the Company. The Compensation Committee also administers the Company's incentive compensation, stock and benefit plans. The Bylaws of the Company provide that the Board of Directors may also establish other committees from time to time. EXECUTIVE COMPENSATION The following table sets forth a summary of all compensation awarded to, earned by, or paid to the Chief Executive Officer of the Company and each of the four most highly compensated executive officers of the Company (other than the Chief Executive Officer) whose total annual salary and bonus for the year ended December 31, 1996 was in excess of $100,000: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION -------------------------------------- OTHER ANNUAL NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION - ------------------------------------------------------------------ ---------- ---------- -------------- Jordan A. Law .................................................... 1996 $ 175,000 $ 181,000 -- Chief Executive Officer 1995 164,000 123,000 -- 1994 156,000 81,000 -- David A. Werner .................................................. 1996 150,000 144,000 -- Executive Vice President 1995 139,000 98,000 -- 1994 132,000 66,000 -- Robert L. Beers .................................................. 1996 124,000 77,000 $ 4,769(1) Senior Vice President, Marketing and 1995 118,000 52,000 -- Business Development 1994 112,000 36,000 -- LeRoy A. Dack .................................................... 1996 122,000 80,000 -- Division President, Kaynar 1995 118,000 53,000 -- 1994 112,000 42,000 -- Joseph M. Varholick .............................................. 1996 110,000 67,000 -- Division President, Microdot 1995 101,000 39,000 -- 1994 96,000 23,000 3,504(2)
- ------------------------ (1) This amount compensated Mr. Beers for vacation time not taken. (2) This payment reimbursed Mr. Varholick for certain taxes incurred as a result of an overseas assignment undertaken at the request of the Company. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS In March 1997, the Company entered into employment agreements with Messrs. Law, Werner, Dack, Beers, Varholick and Berecz. The agreements provide for annual base salaries of $190,000, $170,000, 37 $137,000, $136,000, $125,000 and $124,000, respectively, which are subject to discretionary increases and annual review. The duration of each agreement is one year (two years for Messrs. Law and Werner); however, each agreement contains an automatic renewal provision that takes effect every six months unless notice that the agreement will not be renewed is given at least 30 days prior to a renewal date. The agreements provide for participation in all annual bonus, incentive, savings and retirement and benefit plans offered generally to Company employees. If the Company terminates an agreement other than for cause or as a result of death or disability, the Company will pay a lump sum equal to the employee's annual base salary (two times annual base salary in the case of Messrs. Law and Werner). If a change in control of the Company occurs within two years, and either the Company terminates an agreement other than for cause or an employee terminates his agreement for good reason, the Company will pay an amount equal to the sum (or, for Messrs. Law and Werner, twice the sum) of (i) the highest annual base salary paid to the employee during the three most recent calendar years ending prior to the year the change in control occurs and (ii) the amount of the highest bonus or bonuses paid to the employee for any calendar year ending prior to the year the change in control occurs. In August 1996, the Company also entered into an employment agreement with Mr. Jones, which provides for a base salary of $184,000 (Australian dollars) per year, a contribution to a superannuation fund equaling 10% of base salary and certain fringe benefits. Mr. Jones will be entitled to a bonus equal to 1% of base salary for every 1% increase in Recoil's annual net profit before depreciation, interest and taxes from the previous twelve month period. Although the agreement is not limited in duration, either party may terminate the agreement by giving four months written notice; however, should his employment be terminated within the first three years after the commencement of the agreement, Mr. Jones will be entitled to an additional special payment equal to six months of his total compensation package. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In 1996, Messrs. Law and Werner were the only executive officers of the Company who participated in deliberations of the Company's Board of Directors concerning executive compensation. The Compensation Committee of the Board of Directors was not formed until March 1997. See "--Committees of the Board of Directors." STOCK INCENTIVE PLAN In March 1997 the Company and its stockholders adopted the Company's 1997 Stock Incentive Plan (the "Plan"). The Plan provides an additional means to attract, motivate, retain and reward key employees (including executive officers), as well as outside consultants and advisors, of the Company and its subsidiaries and to attract, motivate, and retain experienced and knowledgeable independent directors. SHARES THAT MAY BE ISSUED UNDER THE PLAN. A maximum of 850,000 shares of Common Stock, or approximately 9.9% of the issued and outstanding shares of Common Stock (on a fully diluted basis), has been reserved for issuance as grants and awards under the Plan. The maximum number of shares that may be subject to options and stock appreciation rights ("SARs") granted to any participant in the Plan during any calendar year will not exceed 75,000. The number and kind of shares available under the Plan are subject to adjustment in the event of any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend), extraordinary dividend or other distribution with respect to the Common Stock, reverse stock split, reorganization, merger, combination, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Stock or other securities of the Company, or there shall occur any similar corporate transaction or event with respect to the Common Stock or a sale of substantially all assets of the Company. ADMINISTRATION AND ELIGIBILITY. The Plan will be administered by the Compensation Committee, each member of which must be an outside director as defined in Section 162(m) of the Internal Revenue Code (the "Code"). The Plan empowers the Compensation Committee, among other things, to interpret the Plan, to make all determinations deemed necessary or advisable for the administration of the Plan and to award to officers and other employees of the Company as well as other persons, such as significant 38 consultants and advisors, selected by the Compensation Committee (collectively, "Eligible Persons"), options (including incentive stock options ("ISOs")) as defined in the Code, SARs, shares of restricted stock, performance shares, other awards valued by reference to Common Stock and such factors as the Compensation Committee deems relevant, and certain Cash-Based Awards (as defined in the Plan). The various types of awards under the Plan are collectively referred to as "Awards." It is expected that after the consummation of the Offering there will be approximately 50 officers and other employees eligible to participate in the Plan. TRANSFERABILITY. Generally speaking, Awards are not transferable other than by will or the laws of descent and distribution, are exercisable only by the participant and may be paid only to the participant or the participant's beneficiary or representatives. However, the Compensation Committee may establish conditions and procedures under which exercise by and transfers and payments to certain third parties are permitted, to the extent permitted by law. OPTIONS. An option is the right to purchase shares of Common Stock at a future date at a specified price. The option price is generally one hundred percent of the closing price for a share of Common Stock as reported on any national securities exchange ("fair market value") on the date of grant, but may be a lesser amount, in the case of nonqualified stock options, if authorized by the Compensation Committee. An option may be granted as an ISO or a nonqualified stock option. An ISO may not be granted to a person who, at the time the ISO is granted, owns more than 10% of the total combined voting power of all classes of stock of the Company and its subsidiaries unless the option price is at least 110% of the fair market value of shares of Common Stock subject to the option and such option by its terms is not exercisable after expiration of five years from the date such option is granted. The aggregate fair market value of shares of Common Stock (determined at the time the option is granted) for which ISOs may be first exercisable by an option holder during any calendar year under the Plan or any other plan of the Company or its subsidiaries may not exceed $100,000. A nonqualified stock option is not subject to any of these limitations. SARS. The Plan authorizes the Compensation Committee to grant SARs independent of any other Award or concurrently (and in tandem) with the grant of options. An SAR granted in tandem with an option is only exercisable when and to the extent that the related option is exercisable. An SAR entitles the holder to receive upon exercise the excess of the fair market value of a specified number of shares of Common Stock at the time of exercise over the option price. This amount may be paid in Common Stock (valued at its fair market value on the date of exercise), cash or a combination thereof, as the Compensation Committee may determine. PERFORMANCE SHARE AWARDS. The Compensation Committee may, in its discretion, grant Performance Share Awards to Eligible Persons based upon such factors as the Compensation Committee deems relevant in light of the specific type and terms of the Award. The amount of cash or shares or other property that may be deliverable pursuant to these Awards will be based upon the degree of attainment, over a specified period of not more than ten years (a "performance cycle") as may be established by the Compensation Committee, of such measures of the performance of the Company (or any part thereof) or the participant as may be established by the Compensation Committee. The Compensation Committee may provide for full or partial credit, prior to completion of a performance cycle or the attainment of the performance achievement specified in the Award, in the event of the participant's death, retirement, or disability, a Change in Control Event (as defined in the Plan) or in such other circumstances as the Compensation Committee may determine. SPECIAL PERFORMANCE-BASED AWARDS. In addition to Awards granted under other provisions of the Plan, performance-based awards within the meaning of Section 162(m) of the Code ("Performance-Based Awards"), which depend on the achievement of pre-established performance goals, may be granted under the Plan. The specific performance goals will be selected by the Compensation Committee in its sole discretion and the specific targets will be pre-established so that their attainment is substantially uncertain at the time of establishment. The permitted performance goals under the Plan may include earnings per 39 share, return on equity, cash flow and total stockholder return. However, the applicable performance measurement period may not be less than one nor more than ten years. 40 The eligible class of persons for Performance-Based Awards consists of the executive officers of the Company. The maximum number of shares of Common Stock that may be delivered as Performance-Based Awards to any participant in any calendar year shall not exceed 75,000 shares. Furthermore, the maximum amount of compensation to be paid to any participant in respect of any Cash-Based Awards that are granted in any calendar year may not exceed $200,000. Before any Performance-Based Award is paid, the Committee must certify that the material terms of the Performance-Based Award were satisfied. The Committee will have discretion to determine the restrictions or other limitations of the individual Awards. STOCK BONUSES. The Compensation Committee may grant a stock bonus to any Eligible Person to reward exceptional or special services, contributions or achievements in the manner and on such terms and conditions (including any restrictions on such shares) as determined from time to time by the Compensation Committee. The number of shares so awarded shall be determined by the Compensation Committee and may be granted independently or in lieu of a cash bonus. TERM AND EXERCISE PERIOD OF AWARDS. The Plan provides that awards may be granted for such terms as the Compensation Committee may determine but options to acquire Common Stock may not have terms greater than ten years after the date of the Award. The Plan also generally imposes a six-month minimum vesting period on Awards. The Compensation Committee will set forth in each Award the effect of termination of employment upon the rights and benefits conferred and may make distinctions based on the cause of termination. In the event of termination other than for cause, the Compensation Committee may, in its discretion, increase the portion of an Award otherwise available or extend the exercise period of such Award. For non-employee directors, if the director's service with the Company terminates by reason of death or disability, his or her options shall become immediately exercisable and may be exercised for a period of two years after the date of such termination or until the options expire, whichever occurs first. If a non-employee director is terminated for any other reason, his or her exercisable options will expire at the earlier of six months or the expiration of the stated term and options not exercisable will be terminated. The Committee has the authority to accelerate the exercisability of options or (within the maximum ten-year term) extend the exercisability periods. TERMINATION, AMENDMENT AND ADJUSTMENT. The Plan may be terminated by the Compensation Committee or by the Board of Directors at any time. In addition, the Compensation Committee or the Board may amend the Plan from time to time, without the authorization or approval of the Company's stockholders, unless that approval is required by law, agreement or the rules of any exchange upon which the stock of the Company is listed. No Award may be granted under the Plan more than ten years after the effective date of the Plan, although Awards previously granted may thereafter be amended consistent with the terms of the Plan. Upon the occurrence of a Change in Control Event, in addition to acceleration of vesting, an appropriate adjustment to the number and type of shares or other securities or property subject to an Award and the price thereof may be made in order to prevent dilution or enlargement of rights under Awards. Individual awards may be amended by the Compensation Committee in any manner consistent with the Plan, including amendments that effectively reprice options without changes to other terms. Amendments that adversely affect the holder of an Award, however, are subject to his or her consent. The Plan is not exclusive and does not limit the authority of the Board of Directors or the Compensation Committee to grant other awards, in stock or cash, or to authorize other compensation, under any other plan or authority. NON-EMPLOYEE DIRECTOR OPTIONS. The Plan provides for automatic initial and subsequent annual grants of non-qualified stock options, with five-year terms, to non-employee directors. Each person who becomes a non-employee director will receive an initial grant of options to purchase 1,000 shares of Common Stock. Under the subsequent automatic grant, each non-employee director then in office will be granted options to purchase 500 shares each January 31. Each non-employee director option will vest at the rate of 25% per year commencing one year after the initial award date and each of the next three years 40 thereof. Upon the occurrence of a Change in Control Event, each non-employee director option will become immediately exercisable in full, provided that no option will be accelerated to a date prior to six months after its grant date. To the extent any non-employee director option is not exercised prior to (i) dissolution of the Company or (ii) a merger or other corporate event that the Company does not survive, and no provision is made for the assumption, conversion, substitution or exchange of such option, such option will terminate upon the occurrence of the Change in Control Event. INITIAL GRANTS OF OPTIONS. The Company anticipates granting certain options or shares under the Plan within three-to-six months following the consummation of the Offering. Options to purchase approximately 100,000 shares are anticipated to be granted to all executive officers and employees as a group. These options are anticipated to have a term of five years and to vest in equal annual installments over four years. It is anticipated that the options will have an exercise price at least equal to the then prevailing market price per share. CERTAIN TRANSACTIONS FINANCING ARRANGEMENTS The Company and Operating Company have entered into the following financing arrangements with GECC: FIXED RATE LOANS TERM LOAN AGREEMENT. In January 1994, in connection with the capitalization of the Company, the Company and GECC entered into a Term Loan Agreement (the "Term Loan Agreement"), pursuant to which GECC loaned $4.8 million to the Company, which is due and payable on January 3, 1999 and secured by the stock of Operating Company. Interest on this term loan, which is payable quarterly and may be added to the original principal, accrued at the rate of 9.5% for the period from January 3, 1994 to December 31, 1995 and, pursuant to the terms of the Term Loan Agreement, will accrue at the rate of 11.5% from January 1, 1996 until the loan is paid in full. As of December 31, 1996, approximately $6.5 million in total principal and interest was outstanding under this term loan. Interest expense on the loan was approximately $476,000, $525,000, and $712,000 for 1994, 1995 and 1996 respectively. PAYMENT-IN-KIND (PIK) DIVIDEND NOTE AGREEMENT. In lieu of quarterly cash dividends on the Series A and Series B Preferred Stock, the Company has issued PIK Dividend Notes to GECC. As of December 31, 1996, principal and interest on twelve PIK Dividend Notes for each such series of Preferred Stock were outstanding in the aggregate amounts of $84,000 for the Series A Preferred Stock and $247,000 for the Series B Preferred Stock. Interest on the PIK Dividend Notes, which is payable quarterly and may be added to the original principal of a Note, accrued at the rate of 9.5% for the period from January 3, 1994 to December 31, 1995 and will accrue at the rate of 11.5% from January 1, 1996 until each PIK Dividend Note is paid in full. Total interest expense on all PIK Dividend Notes was approximately $5,000, $12,000, and $26,000 for 1994, 1995 and 1996, respectively. VARIABLE RATE LOANS CREDIT AGREEMENT. In January 1994, Operating Company entered into a separate Credit Agreement (the "Credit Agreement") with GECC, which contains both a term loan provision and the Revolver. The term loan under the Credit Agreement, which is secured by substantially all of the Company's assets, was initially issued in the amount of $15.8 million for use in connection with the AFSG acquisition. Amendments to the Credit Agreement in December 1994, August 1995, August 1996 and December 1996 increased that amount to $28.2 million, the proceeds of which have been used for working capital purposes and capital expenditures. Quarterly principal repayments commenced April 1, 1995 and are payable through the maturity date, January 3, 1999. Interest is payable monthly at a rate equal to the prime rate plus 1.5% (which was 9.75% as of December 31, 1996). Interest expense on the loan was approximately $1.4 million, $1.9 million and $2.0 million, for 1994, 1995 and 1996, respectively. 41 TERM LOAN AGREEMENT. In August 1996, GECC loaned an additional $4.0 million to the Company under the Term Loan Agreement for the Recoil acquisition. Interest on this loan is payable monthly at a rate equal to the prime rate plus 1.5% (which was 9.75% as of December 31, 1996). As of December 31, 1996, $4.0 million in total principal was outstanding under this loan. Interest expense on the loan was approximately $154,000 for 1996. RECOIL TERM LOAN AGREEMENT. Recoil Pty, an Australian subsidiary of the Company that was formed to acquire the Recoil business unit, entered a separate term loan agreement with GECC in August 1996 to finance the acquisition (the "Recoil Term Loan"). At December 31, 1996, the outstanding principal under the Recoil Term Loan, which is due and payable on January 3, 1999, was $6.0 million. Interest on the Recoil Term Loan is payable monthly at a rate equal to the prime rate plus 1.5% (which was 9.75% as of December 31, 1996). Interest expense on the Recoil Term Loan for 1996 was approximately $231,000. REVOLVING LINE-OF-CREDIT The Revolver is a $15.0 million revolving credit facility, the availability of which is limited by the lesser of a specified portion of qualified accounts receivable and $15.0 million. Interest is payable monthly, beginning at the date of advance, at a rate equal to the prime rate plus 1.5% (which was 9.75% as of December 31, 1996). The Revolver expires on January 3, 1999. A principal balance of approximately $746,000 was outstanding under the Revolver as of December 31, 1996, with availability of approximately $10 million as of such date. The average amount outstanding under the Revolver was approximately $5.1 million, $4.4 million and $6.9 million in 1994, 1995 and 1996, respectively. Interest expense on the Revolver was approximately $447,000, $462,000, $682,000 for 1994, 1995 and 1996, respectively. OTHER ARRANGEMENTS In the ordinary course of business, the Company supplies fasteners, inserts and other products to the Aircraft Engines Division of GE. GE is the indirect parent company of GECC. The Company made direct sales of approximately $8.0 million, $8.8 million and $11.4 million to the GE Aircraft Engines Division in 1994, 1995 and 1996, respectively, representing approximately 14.6%, 12.7% and 11.5% of the Company's net sales in such years, respectively. All of these sales were negotiated at arm's length, based on competitive bids. 42 PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock and Common Stock equivalents after giving effect to the Reorganization, and as adjusted to reflect the sale of the Common Stock offered hereby, by (i) each person or entity known to the Company to own beneficially more than 5% of the Common Stock or Common Stock equivalents following the Reorganization, (ii) each of the Company's directors and executive officers, (iii) the Selling Stockholder and (iv) all directors and executive officers as a group.
SHARES OF COMMON STOCK OR COMMON STOCK EQUIVALENTS SHARES OF COMMON STOCK BENEFICIALLY OWNED OR COMMON STOCK AFTER THE EQUIVALENTS REORGANIZATION, BUT BENEFICIALLY OWNED PRIOR TO THE AFTER THE OFFERING(2) OFFERING(2)(3) NAME AND ADDRESS OF ----------------------- ----------------------- BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT - ---------------------------------------------------------- ---------- ----------- --------- ---------- ----------- General Electric Capital Corporation(4)................... 5,406,000 79.5% 200,000 5,206,000 60.5% 201 High Ridge Road Stamford, CT 06927 Jordan A. Law............................................. 369,444 5.4% -- 369,444 4.3% David A. Werner........................................... 341,564 5.0% -- 341,564 4.0% Robert L. Beers........................................... 229,976 3.4% -- 229,976 2.7% LeRoy A. Dack............................................. 229,976 3.4% -- 229,976 2.7% Berecz Family Trust(5).................................... 139,400 2.1% -- 139,400 1.6% Joseph M. Varholick....................................... 55,760 * -- 55,760 * Blomberg Family Trust(6).................................. 27,880 * -- 27,880 * All directors and executive officers as a group (11 persons)................................................ 1,394,000 20.5% -- 1,394,000 16.2%
- ------------------------ * Less than 1%. (1) The address of each person other than GECC is 800 S. State College Blvd., Fullerton, California 92831. (2) The number of shares beneficially owned by each stockholder is determined under rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after , 1997. The inclusion herein of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares such power with his or her spouse) with respect to all shares of capital stock listed as owned by such person or entity. (3) Assumes that the Underwriters' over-allotment option is not exercised. (4) Includes 5,206,000 shares of Series C Preferred Stock, which represent all issued and outstanding shares of Series C Preferred Stock. The Series C Preferred Stock is convertible at any time into Common Stock at a one-to-one conversion rate, subject to adjustment in certain circumstances. See "Description of Capital Stock--Series C Preferred Stock." (5) Imre Berecz, the Company's Vice President, Product Research and Development, and Managing Director, K.T.I. Femipari KFT, is the trustee of the Berecz Family Trust. (6) Joseph F. Blomberg, the Company's Director of Human Resources, is the trustee of the Blomberg Family Trust. 43 DESCRIPTION OF CAPITAL STOCK As of December 31, 1996, there were (i) 20,500 shares of Common Stock outstanding, held of record by seven holders, (ii) 20,094 shares of Series A Preferred Stock outstanding, held of record by one holder, (iii) 59,406 shares of Series B Preferred Stock outstanding, held of record by one holder and (iv) no options or warrants to purchase shares of Common Stock outstanding. After the Reorganization, the Company's authorized capital stock will consist of 20,000,000 shares of Common Stock and 10,000,000 shares of Series C Preferred Stock. As a result of the Reorganization, 1,594,000 shares of Common Stock, held of record by eight stockholders, 5,206,000 shares of Series C Preferred Stock, held of record by one stockholder and no options or warrants to purchase Common Stock will be outstanding. COMMON STOCK The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferential rights with respect to any outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividends." In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and satisfaction of preferential rights of any outstanding preferred stock. Common Stock has no preemptive or conversion rights or other subscription rights. The outstanding shares of Common Stock are, and the shares to be issued upon completion of the Offering will be, fully paid and non-assessable. SERIES C PREFERRED STOCK LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series C Preferred Stock will be entitled to receive out of the assets of the Company available for distribution to stockholders an amount equal to $0.22 per share, plus any accrued and unpaid dividends thereon, before any distribution is made to the holders of Common Stock. CONVERTIBILITY. Each share of Series C Preferred Stock is convertible at any time into one share of Common Stock (the "Conversion Rate"), with no payment due from the Selling Stockholder to the Company. Any shares of Series C Preferred Stock that the Selling Stockholder transfers to a non-affiliate will automatically convert to Common Stock at the Conversion Rate. The Conversion Rate is subject to certain anti-dilution adjustments that may be triggered any time the Company (i) issues rights or warrants to the holders of Common Stock entitling them to purchase Common Stock at below market price, (ii) effects any stock splits or reverse stock splits of the Common Stock, (iii) reclassifies the Common Stock into any other security or securities, (iv) is consolidated with, or merges into, another entity or (v) sells substantially all of its assets. Except as set forth above, the Conversion Rate will not be adjusted upon future issuances of Common Stock by the Company. VOTING RIGHTS. As long as the Selling Stockholder holds 25% or more of the Fully Diluted Shares, it is entitled to vote its Series C Preferred Stock as a separate class on (i) any liquidation, dissolution or winding-up of the Company, (ii) any amendment to the Company's Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") or the Certificate of Designation relating to the Series C Preferred Stock that, in either case, adversely affects any rights of the Series C Preferred Stock, (iii) the creation of any other class or series of preferred stock, (iv) the issuance of authorized shares of any class of capital stock, (v) any merger or consolidation resulting in shares of Common Stock or Series C Preferred Stock being converted into other securities or the right to receive cash or other property, (vi) the sale, lease or other conveyance of all or substantially of the Company's assets, whether in one transaction or a series of related transactions, (vii) any amendments to the By-laws or (viii) any transaction, or related series of transactions, resulting in the redemption or repurchase of securities (other than Series C Preferred Stock) that aggregate 10% or more of the Fully Diluted Shares. 44 DIVIDENDS. A holder of the Series C Preferred Stock will participate in any dividends paid on the Common Stock, whether in cash, securities or other property, as if such holder's Series C Preferred Stock had been converted into Common Stock at the Conversion Rate at that time. OTHER PREFERRED STOCK The Board of Directors, with the approval of the holder of the Series C Preferred Stock (to the extent required, is authorized to issue additional series of Preferred Stock and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. Although the Company has no present plans to issue any shares of Preferred Stock following consummation of the Offering, the issuance of additional series of Preferred Stock may have the effect of delaying, deterring or preventing a change in control of the Company without further action of the stockholders. The issuance of any Preferred Stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others. THE NEW STOCKHOLDERS AGREEMENT The New Stockholders Agreement provides that as long as the outstanding Series C Preferred Stock represents 40% or more of the Fully Diluted Shares, (i) the holder thereof will have the right to designate two individuals that the Company will nominate for election to the Board of Directors each year and (ii) each of the Audit Committee and the Compensation Committee will include two directors who were so designated by the holder of the Series C Preferred Stock. As long as the outstanding Series C Preferred Stock represents 25% or more (but less than 40%) of the Fully Diluted Shares, (i) the holder thereof will have the right to designate one individual that the Company will nominate for election to the Board of Directors each year and (ii) each oof the Audit Committee and the Compensation Committee will include one director who was so designated by the holder of the Series C Preferred Stock. The New Stockholders Agreement also provides that, beginning 180 days after the Offering, the Selling Stockholder will have the right to request on two separate occasions that the Company file a registration statement under the Securities Act covering shares of Common Stock issued to the Selling Stockholder upon conversion of Series C Preferred Stock ("Demand Registration Rights"). The Selling Stockholder will be entitled to three additional Demand Registration Rights if the Company becomes eligible to file a Registration Statement on Form S-3. If, under certain other circumstances, the Company files a registration statement covering shares of Common Stock, the Selling Stockholder will be entitled to notice of such registration and, on two separate occasions, may include in the offering shares of Common Stock issued to the Selling Stockholder upon conversion of Series C Preferred Stock ("Piggyback Registration Rights"). The Selling Stockholder will receive additional Piggyback Registration Rights to the extent that such rights are granted to any other stockholder of the Company. The Company will pay the costs of any offering in which the Selling Stockholder exercises its Demand or Piggyback Registration Rights, except that the Selling Stockholder will pay its own legal fees and expenses and a proportionate share of any underwriting discounts and commissions. THE OLD STOCKHOLDERS AGREEMENT The Company, the Selling Stockholder and each management stockholder are parties to a Stockholders Agreement, dated as of January 3, 1994 (the "Old Stockholders Agreement"). The Old Stockholders Agreement provides, among other things, for the manner of election of directors, certain preemptive rights of stockholders, and the treatment of shares held by the management of the Company. Upon the consummation of the Offering, however, the Old Stockholders Agreement and all provisions thereto will terminate. 45 CERTAIN ANTI-TAKEOVER EFFECTS SPECIAL PROVISIONS FOR SPECIAL MEETINGS OF THE STOCKHOLDERS OR BOARD OF DIRECTORS. Amendments to the Certificate of Incorporation and Bylaws will be effective upon the closing of the Offering, which will provide that, if the outstanding Series C Preferred Stock represents less than 25% of the Fully Diluted Shares, any action required or permitted to be taken by the stockholders of the Company at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting, with advance notice given to the Company, and may not be taken by written action in lieu of a meeting. The Certificate of Incorporation further provides that special meetings of the stockholders may only be called by the Chairman of the Board of Directors, the Chief Executive Officer (or, if none, the President of the Company) or the holders of 20% or more of the outstanding Common Stock. The foregoing provisions could have the effect of delaying until the next stockholders meeting stockholder actions which are favored by the holders of a majority of the outstanding voting securities of the Company. These provisions may also discourage another person or entity from making a tender offer for the Common Stock, because such person or entity, even if it acquired a majority of the outstanding voting securities of the Company, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders meeting, and not by written consent. ELECTION AND REMOVAL OF DIRECTORS. The Certificate of Incorporation provides that directors may be removed with or without cause by the affirmative vote of the holders of a majority of the Common Stock. Any vacancy on the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board of Directors, may only be filled by vote of a majority of the directors then in office. The limitations on the filling of vacancies could have the effect of making it more difficult for a third party to acquire, or for discouraging a third party from acquiring, control of the Company. DIRECTORS' EXCULPATION AND INDEMNIFICATION. The Certificate of Incorporation contains certain provisions permitted under the Delaware Law relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions which involve intentional misconduct or a knowing violation of law. Further, the Bylaws contain provisions to indemnify the Company's directors to the fullest extent permitted by the Delaware Law. The Company has also entered into indemnification agreements with each director. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors. In addition, Mr. Kloster has entered into a separate indemnification agreement with the Selling Stockholder, pursuant to which the Selling Stockholder will indemnify Mr. Kloster to the extent his indemnifiable losses are not recoverable from the Company or any insurer of the Company. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is ChaseMellon Shareholder Services. Its telephone number is (213) 553-9700. SHARES ELIGIBLE FOR FUTURE SALE Assuming that the Underwriters' over-allotment option is not exercised, upon completion of the Offering, the Company will have outstanding 3,394,000 shares of Common Stock and 5,206,000 shares of Series C Preferred Stock, which is convertible into Common Stock at any time at a one-to-one conversion rate, subject to adjustment in certain circumstances. The 2,000,000 shares of Common Stock sold in the Offering (2,300,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradable without restriction under the Securities Act, except for shares held by an "affiliate" of the Company, as such term is defined under Rule 144 of the Securities Act. The remaining 6,600,000 shares of Common Stock (including 5,206,000 shares receivable upon conversion of the outstanding Series C Preferred Stock) (the "Restricted Shares") were issued and sold by the Company in private transactions and may be publicly sold only if registered under the Securities Act or sold in accordance with an applicable exemption from registration, such as Rule 144. 46 All of the shares of Common Stock held by existing stockholders, which were acquired in October 1993, are subject to lock-up agreements (as described below) which restrict their sale prior to 180 days from the date of the Prospectus. A total of approximately 1,394,000 shares of Common Stock (or 6,600,000 shares of Common Stock if all outstanding Series C Preferred Stock were converted) subject to these lock-up agreements will become eligible for sale beginning 180 days from the date of the Prospectus, or earlier in the discretion of Lehman Brothers Inc., upon expiration of these lock-up agreements, in accordance with certain restrictions of Rule 144. In general, under Rule 144 as currently in effect, beginning on the 91st day after the Offering (but subject to the lock-up agreements), a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares as to which two years have elapsed between the later of the date of acquisition of the securities from the Company or from an affiliate of the Company, is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then-outstanding number of shares of Common Stock (33,940 shares immediately after the Offering) or the average weekly trading volume of the Common Stock on the Nasdaq National Market System during the four calendar weeks preceding the sale. Sales under Rule 144 are subject to certain "manner of sale" provisions and notice requirements and to the availability of current public information about the Company. The Securities and Exchange Commission has adopted pending rule changes that will reduce the Rule 144 holding period from two years to one. The Company and its officers and directors and the Selling Stockholder have agreed that, for a period of 180 days from the date of the Prospectus, they will not, without the prior written consent of Lehman Brothers Inc., offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any other capital stock of the Company. The Company is unable to estimate the number of shares that may be sold in the future by its existing stockholders or the effect, if any, that sales of shares by stockholders will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock by existing stockholders could adversely affect prevailing market prices. 47 UNDERWRITING The underwriters of the Offering named below (the "Underwriters"), for whom Lehman Brothers Inc. and PaineWebber Incorporated are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement, the form of which is filed as an exhibit to the Registration Statement of which the Prospectus is a part, to purchase from the Company and the Selling Stockholder, the aggregate number of shares of Common Stock set forth opposite their respective names below:
UNDERWRITERS NUMBER OF SHARES - --------------------------------------------------------------------------- ----------------- Lehman Brothers Inc........................................................ PaineWebber Incorporated................................................... ----------------- Total.................................................................... 2,000,000 ----------------- -----------------
The Underwriting Agreement provides that the obligations of the Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to approval of certain legal matters by counsel and to certain other conditions, and that, if any of the foregoing shares of Common Stock are purchased by the Underwriters pursuant to the Underwriting Agreement, all of the shares of Common Stock agreed to be purchased by the Underwriters pursuant to the Underwriting Agreement (other than those covered by the over-allotment option described below) must be so purchased. The Company and the Selling Stockholder have been advised that the Underwriters propose to offer the shares of Common Stock directly to the public initially at the public offering price set forth on the cover page of the Prospectus, and to certain selected dealers (who may include the Underwriters) at such public offering price less a selling concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the initial public offering, the public offering price, the concession to selected dealers and the reallowance may be changed by the Representatives. The Company has granted to the Underwriters an option to purchase up to an additional 300,000 shares of Common Stock at the public offering price, less the aggregate underwriting discounts and commissions shown on the cover page of the Prospectus, solely to cover over-allotments, if any. The option may be exercised at any time up to 30 days after the date of the Underwriting Agreement. To the extent that the Underwriters exercise such option, each of the Underwriters will be committed, subject to certain conditions, to purchase a number of option shares proportionate to such Underwriter's initial commitment as indicated in the preceding table. The Company has agreed that, without the prior written consent of Lehman Brothers Inc., it will not, subject to certain limited exceptions, directly or indirectly, offer, sell, contract to sell or otherwise issue or dispose of any shares of Common Stock or any other capital stock of the Company for 180 days after the date of the Prospectus. All of the stockholders of the Company, including the Selling Stockholder, have agreed that, without the prior written consent of Lehman Brothers Inc., they will not, subject to certain limited exceptions, directly or indirectly, offer, sell or otherwise dispose of any shares of Common Stock or any other capital stock of the Company for a period of 180 days after the date of the Prospectus. GE is the indirect parent of the Selling Stockholder. GE owns approximately 23% of PaineWebber Group, which is the holding company of PaineWebber Incorporated. As a result of the foregoing, the Selling Stockholder is deemed to be an affiliate of PaineWebber Incorporated, and the Offering is subject to the provisions of Rule 2720 of the National Association of Securities Dealers, Inc. (the "NASD"). Accordingly, the underwriting arrangements for the Offering will conform with the requirements set forth in Rule 2720. In particular, the public offering price of the Common Stock can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. In accordance with 48 this requirement, Lehman Brothers Inc. will serve in such role and will recommend the public offering price in compliance with the requirements of Rule 2720. Lehman Brothers Inc., in its role as qualified independent underwriter, has performed due diligence investigations and reviewed and participated in the preparation of the Prospectus and the Registration Statement of which the Prospectus forms a part. Prior to the Offering, there has been no public market for the shares of Common Stock. There can be no assurance that an active trading market will develop for shares of the Common Stock or as to the price at which shares of the Common Stock may trade in the public market from time to time subsequent to the Offering. The initial public offering price will be negotiated between the Company and the Representatives. Among the factors to be considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, will be the Company's historical performance, capital structure, estimates of the business potential and earnings prospects of the Company and its industry in general, an overall assessment of the Company, an assessment of the Company's management and the market prices of securities of companies engaged in businesses similar to that of the Company. The Common Stock has been approved for quotation, subject to official notice of issuance, on the Nasdaq National Market under the symbol "KTIC." The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act and to contribute, under certain circumstances, to payments that the Underwriters may be required to make in respect thereof. Purchasers of the Common Stock offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. The Representatives have informed the Company that they do not intend to confirm sales of shares of Common Stock offered hereby to any accounts over which they exercise discretionary authority. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by O'Melveny & Myers LLP. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Latham & Watkins. EXPERTS The consolidated financial statements of the Company at December 31, 1995 and 1996, and for each of the three years in the period ended December 31, 1996, and the consolidated financial statements of Recoil Pty Ltd and subsidiaries as of June 30, 1996 and for the year then ended, appearing in the Prospectus and Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their reports with respect thereto, and are included in reliance upon the authority of such firm as experts in giving said reports. ADDITIONAL INFORMATION The Company is not currently subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S--1 under the Securities Act with respect to the Common Stock offered hereby. The Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement and the exhibits and schedules filed as a part thereof. Statements contained in the Prospectus as to the contents of contracts or other documents are summaries of the material provisions thereof. Copies of each contract or document referred to herein are filed as exhibits to the Registration Statement. Copies of the Registration Statement, including exhibits and schedules thereto, may be inspected without charge at the Commission's principal office in Washington, D.C., or obtained at prescribed rates from the Public Reference Section of 49 the Commission at 450 Fifth Street, N.W. Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60606. Copies of such materials may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a web site at http://www.sec.gov that contains reports, proxy information statements and other information regarding registrants, like the Company, that file electronically with the Commission. As long as the Common Stock is quoted and traded on the Nasdaq National Market, such reports, proxy and information statements and other information can also be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. As a result of the Offering of the Common Stock, the Company will become subject to the informational requirements of the Exchange Act. The Company intends to furnish to its stockholders annual reports containing audited financial information and furnish quarterly reports containing condensed unaudited financial information for each of the first three quarters of each fiscal year. 50 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS KAYNAR TECHNOLOGIES INC.
PAGE --------- Report of Independent Public Accountants................................................................... F-2 Consolidated Statements of Income for the years ended December 31, 1994, 1995 and 1996..................... F-4 Consolidated Balance Sheets as of December 31, 1995 and 1996............................................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996....... F-7 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996................. F-8 Notes to Consolidated Financial Statements................................................................. F-9 RECOIL PTY LTD Report of Independent Public Accountants................................................................... F-19 Consolidated Statement of Income for the year ended June 30, 1996.......................................... F-20 Consolidated Balance Sheet as of June 30, 1996............................................................. F-21 Consolidated Statement of Stockholders' Equity for the year ended June 30, 1996............................ F-23 Consolidated Statement of Cash Flows for the year ended June 30, 1996...................................... F-24 Notes to Consolidated Financial Statements................................................................. F-25
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Kaynar Technologies Inc.: After the reorganization and the preferred stock conversion discussed in Note 12 to Kaynar Technologies Inc. and subsidiaries' consolidated financial statements are effected, we expect to be in a position to render the following audit report. ARTHUR ANDERSEN LLP Orange County, California February 25, 1997 F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Kaynar Technologies Inc.: We have audited the accompanying consolidated balance sheets of Kaynar Technologies Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kaynar Technologies Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Orange County, California February , 1997 F-3 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1995 1996 ------------ ------------ ------------ Net sales, including $8,046, $8,755 and $11,437 in 1994, 1995 and 1996, respectively, to a related party (see Note 13)........................ $ 55,117 $ 68,781 $ 99,023 Cost of sales........................................................... 41,117 51,940 72,924 ------------ ------------ ------------ Gross profit.......................................................... 14,000 16,841 26,099 ------------ ------------ ------------ Selling, general and administrative expenses............................ 9,048 10,018 13,263 ------------ ------------ ------------ Operating income...................................................... 4,952 6,823 12,836 Interest expense, net................................................... 2,304 2,935 4,011 ------------ ------------ ------------ Income before income taxes............................................ 2,648 3,888 8,825 Provision for income taxes.............................................. 1,129 1,577 3,530 ------------ ------------ ------------ Net Income............................................................ $ 1,519 $ 2,311 $ 5,295 ------------ ------------ ------------ ------------ ------------ ------------ Earnings per share of common stock and common stock equivalents outstanding........................................................... $ 0.22 $ 0.34 $ 0.78 ------------ ------------ ------------ ------------ ------------ ------------ Weighted average number of shares of common stock and common stock equivalents outstanding............................................... 6,800,000 6,800,000 6,800,000 ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1995 AND 1996 ASSETS (DOLLARS IN THOUSANDS)
1995 1996 --------- --------- Current assets: Cash........................................................................................ $ 52 $ 909 Accounts receivable, including $1,487 and $1,987 in 1995 and 1996, respectively, from a related party (see Note 13), net of allowance for doubtful accounts of $141 and $235 in 1995 and 1996, respectively............................................................. 11,382 15,392 Inventories............................................................................... 20,523 29,901 Prepaid expenses and other current assets................................................. 318 709 --------- --------- Total current assets.................................................................. 32,275 46,911 --------- --------- Property, plant and equipment, at cost...................................................... 13,994 24,160 Less accumulated depreciation and amortization............................................ (3,050) (5,451) --------- --------- 10,944 18,709 --------- --------- Intangible assets, net of accumulated amortization of $167 at December 31, 1996............. -- 7,815 Other assets................................................................................ 117 254 --------- --------- $ 43,336 $ 73,689 --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-5 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1995 AND 1996 LIABILITIES AND STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
1995 1996 --------- --------- Current liabilities: Revolving line-of-credit, to a related party (see Note 13)................................ $ 4,306 $ 746 Current portion of long-term debt......................................................... 830 1,457 Current portion of capital lease obligations.............................................. 22 133 Accounts payable.......................................................................... 3,217 6,105 Accrued payroll and related expenses...................................................... 3,175 5,330 Other accrued expenses.................................................................... 1,306 2,664 Deferred income taxes..................................................................... 428 288 --------- --------- Total current liabilities............................................................. 13,284 16,723 --------- --------- Long-term debt, primarily to a related party (see Note 13)................................ 24,318 45,176 Capital lease obligations................................................................. 105 332 Deferred income taxes..................................................................... 472 832 --------- --------- 24,895 46,340 --------- --------- Commitments and contingencies (Notes 6 and 9) Stockholders' equity: Series C Convertible Preferred Stock,$0.01 par value; Authorized--10,000,000; issued and outstanding--5,206,000 shares........................................................... 52 52 Common stock, $.01 par value; Authorized--20,000,000 shares; issued and outstanding--1,594,000.................................................................. 16 16 Additional paid-in capital................................................................ 1,432 1,432 Retained earnings......................................................................... 3,639 8,838 Currency translation adjustment........................................................... 18 288 --------- --------- Total stockholders' equity................................................................ 5,157 10,626 --------- --------- $ 43,336 $ 73,689 --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-6 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
PREFERRED STOCK SERIES C COMMON STOCK ADDITIONAL CURRENCY ----------------------- ----------------------- PAID-IN RETAINED TRANSLATION SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ---------- ----------- ---------- ----------- ----------- ----------- ------------- (DOLLARS IN THOUSANDS) January 3, 1994................... 5,206,000 $ 52 1,594,000 $ 16 $ 1,432 $ -- $ -- Net income...................... -- -- -- -- -- 1,519 -- Dividends declared.............. -- -- -- -- -- (96) -- Currency translation adjustment.................... -- -- -- -- -- -- 21 ---------- --- ---------- --- ----------- ----------- ----- Balance, December 31, 1994........ 5,206,000 52 1,594,000 16 1,432 1,423 21 Net income...................... -- -- -- -- -- 2,311 -- Dividends declared.............. -- -- -- -- -- (95) -- Currency translation adjustment.................... -- -- -- -- -- -- (3) ---------- --- ---------- --- ----------- ----------- ----- Balance, December 31, 1995........ 5,206,000 52 1,594,000 16 1,432 3,639 18 Net income...................... -- -- -- -- -- 5,295 -- Dividends declared.............. -- -- -- -- -- (96) -- Currency translation adjustment.................... -- -- -- -- -- -- 270 ---------- --- ---------- --- ----------- ----------- ----- Balance, December 31, 1996........ 5,206,000 $ 52 1,594,000 $ 16 $ 1,432 $ 8,838 $ 288 ---------- --- ---------- --- ----------- ----------- ----- ---------- --- ---------- --- ----------- ----------- ----- TOTAL --------- January 3, 1994................... $ 1,500 Net income...................... 1,519 Dividends declared.............. (96) Currency translation adjustment.................... 21 --------- Balance, December 31, 1994........ 2,944 Net income...................... 2,311 Dividends declared.............. (95) Currency translation adjustment.................... (3) --------- Balance, December 31, 1995........ 5,157 Net income...................... 5,295 Dividends declared.............. (96) Currency translation adjustment.................... 270 --------- Balance, December 31, 1996........ $ 10,626 --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-7 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS)
1994 1995 1996 --------- --------- ---------- Cash flows from operating activities: Net income.................................................................... $ 1,519 $ 2,311 $ 5,295 Adjustments to reconcile net income to net cash provided by (used in) operating activities-- Depreciation and amortization............................................... 1,351 1,754 2,613 Loss on sale of property, plant and equipment................................. 30 -- 34 Changes in operating assets and liabilities-- Increase in accounts receivable............................................... (2,190) (3,528) (2,505) Increase in inventories....................................................... (1,095) (3,368) (6,867) (Increase) decrease in prepaid expenses....................................... (12) 37 (152) (Increase) decrease in other assets........................................... (35) (82) 181 Increase in accounts payable.................................................. 1,706 1,114 2,361 Increase in accrued expenses.................................................. 34 1,111 3,172 Increase in deferred income taxes............................................. 399 501 186 --------- --------- ---------- Net cash provided by (used in) operating activities......................... 1,707 (150) 4,318 --------- --------- ---------- Cash flows from investing activities: Purchases of property, plant and equipment.................................... (2,423) (3,324) (6,850) Proceeds from sales of property, plant and equipment.......................... 5 169 43 Acquisition, net of acquired cash of $34...................................... -- -- (12,160) Increase in intangible assets................................................. -- -- (1,231) --------- --------- ---------- Net cash used in investing activities....................................... (2,418) (3,155) (20,198) --------- --------- ---------- Cash flows from financing activities: Net borrowings (payments) on line-of-credit, from a related party (see Note 13)......................................................................... (1,938) 1,244 (3,560) Borrowings on long-term debt, primarily from a related party (see Note 13).... 2,480 2,666 21,245 Payments on long-term debt, primarily to a related party (see Note 13)........ -- (789) (898) Principal payments on capital lease obligations............................... -- (6) (55) --------- --------- ---------- Net cash provided by financing activities................................... 542 3,115 16,732 --------- --------- ---------- Effect of exchange rate changes on cash......................................... -- -- 5 --------- --------- ---------- Net increase (decrease) in cash................................................. (169) (190) 857 Cash, beginning of period....................................................... 411 242 52 --------- --------- ---------- Cash, end of period............................................................. $ 242 $ 52 $ 909 --------- --------- ---------- --------- --------- ---------- Supplemental disclosures of cash flow information: Cash paid during the period for Interest.................................................................... $ 2,006 $ 2,968 $ 3,787 --------- --------- ---------- --------- --------- ---------- Income Taxes................................................................ $ 743 $ 722 $ 2,841 --------- --------- ---------- --------- --------- ---------- Noncash financing activities: Capital lease obligations assumed for the purchase of equipment............. $ -- $ 157 $ 355 --------- --------- ---------- --------- --------- ---------- Borrowings on long-term debt for preferred stock dividends.................. $ 96 $ 95 $ 96 --------- --------- ---------- --------- --------- ---------- Issuance of debt for purchase of assets of predecessor company.............. $ 25,695 $ -- $ -- --------- --------- ---------- --------- --------- ----------
The accompanying notes are an integral part of these consolidated financial statements. F-8 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. NATURE OF OPERATIONS AND FORMATION OF COMPANY Kaynar Technologies Inc. (the "Company") is a manufacturer of specialty fasteners, fastening systems and related components used primarily by original equipment manufacturers and their subcontractors in the production of commercial aircraft and defense products. In addition, the Company also manufactures other specialty fasteners and related products for sale in the automotive, electronic and other industrial markets, and their associated after-markets. The Company designs and manufactures a substantial majority of its fasteners to its customers' specifications and in a wide range of specialty metals, alloys and composites. The Company was originally incorporated (see Note 12) in Delaware in October 1993, and on January 3, 1994, purchased certain assets and assumed certain liabilities of Microdot Inc., a Delaware corporation, that filed for protection under Chapter 11 of the United States Bankruptcy Code and of Microdot Aerospace Ltd., a United Kingdom corporation, which had filed for liquidation under the laws of the United Kingdom. The net assets acquired totaled approximately $25,695. The purchase price was allocated to the net assets, based on the then fair market value (which approximated net book value) as follows: Current assets..................................................... $ 21,080 Property, plant and equipment...................................... 8,373 --------- Total assets....................................................... 29,453 Current liabilities................................................ 3,758 --------- Net assets..................................................... $ 25,695 --------- ---------
The acquisition was financed by the issuance of approximately $25,000 of debt to the lender referred to in Note 6 who was also a secured lender to Microdot Inc. On August 11, 1996, the Company acquired substantially all of the assets of Recoil Pty Ltd., an Australian corporation ("Recoil"). Recoil is a manufacturer and distributor of thread inserts used primarily in the automotive, electronic and other industrial markets, and their associated after-markets. The purchase price of $12,194 was paid in cash (primarily obtained under terms of various credit agreements, see Note 6). The total purchase price was allocated to the net assets, based on the then fair market value, as follows: 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 --------- ---------
F-9 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. NATURE OF OPERATIONS AND FORMATION OF COMPANY (CONTINUED) The following unaudited pro forma consolidated statements of income information present the results of the Company's operations for the years ended December 31, 1995 and 1996, as though the acquisition of Recoil had occurred as of the beginning of each respective fiscal year:
1995 1996 --------- ---------- Net sales.............................................................. $ 77,449 $ 105,015 --------- ---------- --------- ---------- Net income............................................................. $ 2,793 $ 5,432 --------- ---------- --------- ---------- Earnings per share..................................................... $ 0.41 $ 0.80 --------- ---------- --------- ----------
The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisition taken place at the beginning of the fiscal year or the results that may occur in the future. Furthermore, the pro forma results do not give effect to cost savings or incremental costs which may occur as a result of the integration and consolidation of Recoil. The pro forma results include additional interest on borrowed funds and additional amortization of goodwill resulting from the acquisition. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. USE OF ESTIMATES IN FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Kaynar Technologies Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. C. REVENUE RECOGNITION Sales and related costs are recorded by the Company upon shipment of product. Revenues related to the leasing of the Company's K-Fast tools, which are not significant, are recognized monthly over the term of the lease. D. CURRENCY TRANSLATION ADJUSTMENT Assets and liabilities of foreign subsidiaries are translated into United States dollars at the year-end rate of exchange. Income and expense items are translated at the average rates of exchange for the period. Gains and losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders' equity. Foreign currency transaction gains and losses are insignificant. F-10 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. INVENTORIES Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out (FIFO) method and market based upon the lower of replacement cost or estimated realizable value. Inventory costs include material, labor and factory overhead. F. PROPERTY, PLANT AND EQUIPMENT Depreciation is computed on the straight-line method over the estimated useful lives of the depreciable assets (ranging from five to ten years). Cost and accumulated depreciation for property retired or disposed of are removed from the accounts and any gains or losses are reflected in operations. Major renewals and betterments that extend the useful life of an asset are capitalized. G. INTANGIBLE ASSETS Intangible assets primarily represent the excess of purchase price over fair value of net assets acquired and related acquisition costs incurred in the acquisition of Recoil. Intangibles are amortized using the straight-line method from the date of acquisition over the expected period to be benefited, currently estimated at 20 years. The Company assesses the recoverability of intangible assets in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." H. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts receivable and accounts payable approximate their fair value as of December 31, 1995 and 1996. The carrying amounts of the line-of-credit and long-term debt approximate fair value because the obligations bear interest at rates that fluctuate with the market rate. The carrying amount of the term loans approximates fair value because the obligation compares favorably with fixed rate obligations that would be currently available to the Company. I. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes," which requires an asset and liability approach in accounting for income taxes payable or refundable at the date of the financial statements as a result of all events that have been recognized in the financial statements and as measured by the provisions of enacted laws. J. EARNINGS PER SHARE Earnings per share are computed based on the weighted average number of shares of common stock and common stock equivalents outstanding. The outstanding Series C Convertible Preferred Stock are common share equivalents. F-11 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 3. INVENTORIES Inventories consist of the following at December 31, 1995 and 1996:
1995 1996 --------- --------- Finished goods.......................................................... $ 4,914 $ 8,781 Components.............................................................. 3,715 4,628 Work in progress........................................................ 6,482 9,151 Raw materials........................................................... 2,080 2,790 Supplies and small tools................................................ 3,332 4,551 --------- --------- $ 20,523 $ 29,901 --------- --------- --------- ---------
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following at December 31, 1995 and 1996:
YEARS OF ESTIMATED USEFUL LIFE 1995 1996 ------------- --------- --------- Land..................................................... -- $ -- $ 30 Factory equipment........................................ 7 to 10 7,707 12,825 Equipment rented to others............................... 7 3,656 5,651 Office equipment......................................... 5 848 1,374 Leasehold improvements................................... Lease term 381 628 Construction in progress................................. -- 1,194 3,089 Equipment under capital lease............................ Lease term 208 563 --------- --------- 13,994 24,160 Accumulated depreciation and amortization................ (3,050) (5,451) --------- --------- $ 10,944 $ 18,709 --------- --------- --------- ---------
F-12 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 5. INCOME TAXES The components of the net accumulated deferred income tax liability at December 31, 1995 and 1996 are as follows:
1995 1996 --------- --------- Current deferred tax (asset) liability: Inventory reserves........................................................ $ 1,161 $ 818 Accrued vacation.......................................................... (232) (205) AMT credit................................................................ (472) -- Other..................................................................... (29) (325) --------- --------- $ 428 $ 288 --------- --------- --------- --------- Long-term deferred tax (asset) liability: Foreign income............................................................ $ 59 $ (48) Foreign tax credit........................................................ (53) -- Depreciation.............................................................. 466 880 --------- --------- $ 472 $ 832 --------- --------- --------- ---------
The provision for income taxes includes income taxes currently payable and those deferred because of temporary differences between the financial statements and tax bases of assets and liabilities. The provision differs from the statutory rates primarily due to permanent differences. The provision for income taxes for the years ended December 31, 1994, 1995 and 1996, consists of the following:
1994 1995 1996 --------- --------- --------- Current provision: Federal........................................................ $ 559 $ 854 $ 2,590 State.......................................................... 171 222 720 Deferred provision: Federal........................................................ 355 456 69 State.......................................................... 44 45 151 --------- --------- --------- $ 1,129 $ 1,577 $ 3,530 --------- --------- --------- --------- --------- ---------
The components of the Company's deferred income tax provision for the years ended December 31, 1994, 1995 and 1996, which arise from tax credits and timing differences between financial and tax reporting, are presented below:
1994 1995 1996 --------- --------- --------- Inventory reserves................................................. $ 1,109 $ 52 $ (343) Accrued vacation................................................... (57) (175) 27 AMT credit......................................................... (656) 184 472 Foreign income..................................................... -- 59 (107) Foreign tax credit................................................. -- (53) 53 Depreciation....................................................... 9 457 414 Other.............................................................. (6) (23) (296) --------- --------- --------- $ 399 $ 501 $ 220 --------- --------- --------- --------- --------- ---------
F-13 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 5. INCOME TAXES (CONTINUED) Variations from the federal statutory rate for the years ended December 31, 1994, 1995 and 1996, are as follows:
1994 1995 1996 ------------------------ ------------------------ ------------------------- AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE --------- ------------- --------- ------------- --------- -------------- Federal statutory rate.......................... $ 900 34.0% $ 1,322 34.0% $ 3,001 34.0% State income taxes, net of federal benefit...... 138 5.2 202 5.2 485 5.5 Foreign sales corporation benefit............... -- -- -- -- (141) (1.6) Other........................................... 91 3.4 53 1.4 185 2.1 --------- --- --------- --- --------- --- $ 1,129 42.6% $ 1,577 40.6% $ 3,530 40.0% --------- --- --------- --- --------- --- --------- --- --------- --- --------- ---
6. DEBT ARRANGEMENTS The Company has entered into Credit Agreements (the "Agreements") with General Electric Capital Corporation (the "Lender"), who is also a significant stockholder of the Company. The Agreements contain significant financial and operating covenants, including limitations on the ability of the Company to incur additional indebtedness and restrictions on, among other things, the Company's ability to pay dividends or take certain other corporate actions. The Agreements also require the Company to be in compliance with certain financial ratios. In addition to the Agreements, the Company has entered into promissory notes with other lenders for the purchase of equipment. The following schedule summarizes the future annual minimum principal payments due under the variable rate term loans (the "Term Loans"), other fixed rate loans (the "Loans"), promissory notes (the "Notes") and Australian Trade Commission Loan (the "ATC Loan") as of December 31, 1996:
TERM LOANS THE LOANS THE NOTES ATC LOAN TOTAL --------- --------- --------- --------- --------- 1997.............................................................. $ 1,100 $ -- $ 249 $ 108 $ 1,457 1998.............................................................. 2,200 -- 273 216 2,689 1999.............................................................. 34,925 6,844 366 216 42,351 2000.............................................................. -- -- 27 109 136 --------- --------- --------- --------- --------- $ 38,225 $ 6,844 $ 915 $ 649 $ 46,633 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Debt arrangements are described as follows: A. TERM LOANS During the year ended December 31, 1996, the Company amended an existing Term Loan agreement, increasing the borrowing capacity of the Term Loan to $28,225, with principal payable quarterly. Additionally, the Company (in connection with its purchase of the net assets of Recoil, see Note 1) entered into new Term Loans of $10,000. Each of the aforementioned Term Loans is due and payable on January 3, 1999 and bears interest, payable monthly, at the prime rate plus one and one-half percent (which was 9.75% at December 31, 1996). At December 31, 1996, outstanding principal under the Term Loans totaled $38,225. Interest expense for December 31, 1994, 1995 and 1996 was F-14 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 6. DEBT ARRANGEMENTS (CONTINUED) approximately $1,384, $1,904 and $2,400, respectively. The Term Loans are secured by substantially all of the Company's assets. B. THE LOANS In association with its purchase of net assets from Microdot Inc. and Microdot Aerospace Ltd. (see Note 1) and payment of dividends to the preferred stockholder (see Note 13), the Company borrowed additional amounts under other fixed rate loan agreements with the Lender. The principal on the Loans is due and payable on January 3, 1999, while interest, which is payable quarterly and may be added to the outstanding principal balance, accrues at 11.5 percent. At December 31, 1996, there was approximately $6,844 in principal, interest and dividends outstanding related to these agreements. C. THE NOTES The Company has promissory notes with financing institutions which are secured by certain machinery and equipment. At December 31, 1996, the outstanding balance under the Notes was $915. The Notes bear interest at interest rates ranging from 8.9 percent to 10.5 percent per annum. Monthly payments are payable through June 2000. D. ATC LOAN The Company has a loan with the Australian Trade Commission which was assumed as part of the Recoil asset purchase (see Note 1). At December 31, 1996, outstanding principal under the ATC Loan was $649. Interest accrues on the outstanding principal balance at an effective interest rate of nine and three quarters percent. Principal and interest payments are due semi-annually beginning September 1997. E. LINE-OF-CREDIT The Line-of-Credit (LOC) is a $15,000 revolving credit facility, limited by the lesser of a specified portion of qualified accounts receivable and $15,000. Interest is payable monthly, at the prime rate plus one and one-half percent (which was 9.75% as of December 31, 1996). The LOC, which expires January 3, 1999, had approximately $746 outstanding at December 31, 1996. Interest expense for the years ended December 31, 1994, 1995 and 1996 was approximately $447, $462 and $682, respectively. The weighted average interest rate for all borrowings under the LOC was 8.6 percent, 10.3 percent and 9.8 percent at December 31, 1994, 1995 and 1996, respectively. 7. SERIES C CONVERTIBLE PREFERRED STOCK Each share of the Series C Preferred Stock is convertible at any time into one share of Common Stock. The conversion rate is subject to certain anti-dilutive adjustments. The Series C Preferred stock will participate in any dividends paid on the Common Stock as if the Series C Preferred Stock had been converted into Common Stock. F-15 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 7. SERIES C CONVERTIBLE PREFERRED STOCK (CONTINUED) In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series C Preferred Stock will be entitled to receive a liquidation preference out of the assets available for distribution in an amount equal to $0.22 per share, plus any accrued and unpaid dividends, before any distribution is made to the holders of the Common Stock. 8. SAVINGS AND RETIREMENT PLAN The Company sponsors a defined contribution plan (the "Retirement Plan"), which provides benefits to all employees who have completed six months of service. Employees may make contributions between one and 14 percent of their annual compensation. The Company may make contributions to the Retirement Plan at its own discretion. The Company contributed approximately $236, $400 and $577 to the Retirement Plan in the years ended December 31, 1994, 1995 and 1996, respectively. 9. COMMITMENTS AND CONTINGENCIES A. OPERATING LEASES The Company leases certain facilities and equipment under long-term operating leases with varying terms. The leases generally provide that the Company pay taxes, maintenance and insurance costs and some leases contain renewal and/or purchase options. Total rental expense under operating leases amounted to approximately $1,097, $1,209 and $1,187 in the years ended 1994, 1995 and 1996, respectively. Minimum rental expenses on commitments for the years subsequent to December 31, 1996, are as follows:
Year ending December 31, 1997................................................................ $ 1,314 1998................................................................ 1,184 1999................................................................ 980 2000................................................................ 423 2001................................................................ 146 Thereafter.......................................................... 15 --------- $ 4,062 --------- ---------
F-16 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 9. COMMITMENTS AND CONTINGENCIES (CONTINUED) B. CAPITAL LEASES The Company has entered into capital lease agreements for equipment. Future lease payments due under the agreements are as follows:
Year ending December 31, 1997................................................................ $ 139 1998................................................................ 133 1999................................................................ 125 2000................................................................ 107 2001................................................................ 36 --------- 540 Amounts representing interest....................................... (75) --------- 465 Current portion..................................................... (133) --------- $ 332 --------- ---------
C. CONTINGENCIES The Company is, from time to time, subject to claims and disputes for legal, environmental and other matters in the normal course of its business. While the results of such matters cannot be predicted with certainty, management does not believe that the final outcome of any pending matters will have a material effect on the consolidated financial position and results of operations. 10. SIGNIFICANT CUSTOMERS For the years ended December 31, 1994, 1995 and 1996, two customers accounted for approximately 28 percent, 28 percent and 30 percent of net sales, respectively. No other customer accounted for greater than 10 percent of net sales in the years ended December 31, 1994, 1995 and 1996. Accounts receivable balances from these same two customers accounted for approximately 23 percent of accounts receivable at December 31, 1995 and 28 percent at December 31, 1996. No other customers represent more than 10 percent of the Company's gross accounts receivable at December 31, 1995 and 1996. F-17 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994, 1995 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 11. GEOGRAPHIC SALES INFORMATION Net sales for the years ended December 31, 1994, 1995 and 1996 were made to geographic regions approximately as follows:
1994 1995 1996 ---------------------- ---------------------- ---------------------- AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE --------- ----------- --------- ----------- --------- ----------- United States............................... $ 50,346 91.4% $ 62,041 90.2% $ 85,069 85.9% Europe...................................... 2,800 5.1% 2,906 4.2% 8,378 8.5% Pacific Rim................................. 404 0.7% 1,379 2.0% 2,256 2.3% Other....................................... 1,567 2.8% 2,455 3.6% 3,320 3.3% --------- ----- --------- ----- --------- ----- $ 55,117 100.0% $ 68,781 100.0% $ 99,023 100.0% --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Sales for the Company's foreign operations represented less than 10 percent of net sales during each of the years ended December 31, 1994, 1995 and 1996. 12. REORGANIZATION In April 1997, Kaynar Technologies Inc. (Operating Company) merged with and into Kaynar Holdings Inc. (Holding Company). The surviving corporation (Holding Company) changed its name to Kaynar Technologies Inc. In connection with the reorganization, each outstanding share of Common Stock of the Company was exchanged for 68 shares of Common Stock, each outstanding share of Series A Preferred Stock was exchanged for 9.953 shares of Common Stock and 58.047 shares of Series C Convertible Preferred Stock, par value .01 per share, and each outstanding share of Series B Preferred Stock was exchanged for 68 shares of Series C Preferred Stock. The effect of the reorganization and stock conversion has been retroactively reflected in the accompanying financial statements for all years presented. 13. RELATED PARTY MATTERS As discussed in Notes 1 and 6, the primary lender to the Company is General Electric Capital Corporation ("GECC"). Subsequent to the Reorganization and immediately prior to the Offering, GECC will own 12.5 percent of the outstanding Common Stock and 100 percent of the outstanding Series C Convertible Preferred Stock, which equates to 79.5 percent of the total outstanding Common Stock and Common Stock equivalents. As discussed in Note 1, this lender was also a secured primary lender to Microdot Inc., a predecessor of the Company. GECC is also an affiliated entity to a customer (the Aircraft Engines Division of GE) that accounted for approximately 12 percent of 1996 net sales and 13 percent of accounts receivable at December 31, 1996. F-18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Kaynar Technologies Inc.: We have audited the accompanying consolidated balance sheet of Recoil Pty Ltd (see Note 7) and Subsidiaries as of June 30, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Recoil Pty Ltd and Subsidiaries as of June 30, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Melbourne, Australia February 21, 1997 F-19 RECOIL PTY LTD AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED JUNE 30, 1996 Net sales....................................................................... $9,707,335 Cost of sales................................................................... 4,218,327 --------- Gross profit.................................................................... 5,489,008 --------- Bad debts and provision for doubtful accounts................................... 9,847 Selling, general and administrative expenses.................................... 4,251,743 --------- Operating income................................................................ 1,227,418 Other expenses.................................................................. 60,348 Non-operating income............................................................ 147,355 Interest expense, net........................................................... 49,595 --------- Income before income taxes...................................................... 1,264,830 Provision for income taxes...................................................... 404,283 --------- Net income...................................................................... $ 860,547 --------- ---------
The accompanying notes form an integral part of these consolidated financial statements. F-20 RECOIL PTY LTD AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 1996 ASSETS
Current Assets: Cash............................................................................ $ 105,459 Accounts receivable, including $56,228 from a related party, net of allowance for doubtful accounts of $32,996.............................................. 1,888,810 Inventories..................................................................... 2,295,380 Prepaid expenses and other current assets....................................... 120,120 --------- Total current assets............................................................ 4,409,769 --------- Property, plant and equipment, at cost.......................................... 2,276,343 Less accumulated depreciation and amortization.................................. (962,464) --------- 1,313,879 --------- Goodwill, net of accumulated amortization of $34,162............................ 37,134 Other assets.................................................................... 882 --------- Total non-current assets........................................................ 1,351,895 --------- Total assets.................................................................... $5,761,664 --------- ---------
The accompanying notes form an integral part of these consolidated financial statements. F-21 RECOIL PTY LTD AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 1996 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities: Lines of credit, secured by substantially all assets............................ $ 451,514 Current portion of capital lease obligations.................................... 14,900 Accounts payable................................................................ 802,923 Accrued expenses................................................................ 408,691 Income taxes payable............................................................ 365,236 --------- Total current liabilities....................................................... 2,043,264 --------- Long-term debt.................................................................. 649,481 Capital lease obligation........................................................ 33,384 --------- Total non-current liabilities................................................... 682,865 --------- Total liabilities............................................................... 2,726,129 --------- Commitments and contingencies (Note 5) Stockholders' Equity: Common stock, par value $0.24 Authorized--10,100,000 shares Issued and outstanding--1,372,968 shares...................................... 324,693 Common stock, par value $0.79 Authorized--5,000,000 shares Issued and outstanding--892,859 shares........................................ 703,841 Additional Paid-in Capital...................................................... 1,050,297 Retained earnings............................................................... 956,704 --------- Total stockholders' equity...................................................... 3,035,535 --------- Total liabilities and equity.................................................... $5,761,664 --------- ---------
The accompanying notes form an integral part of these consolidated financial statements. F-22 RECOIL PTY LTD AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED JUNE 30, 1996
COMMON STOCK COMMON STOCK ADDITIONAL PAR VALUE PAR VALUE PAID-IN $0.24 $0.79 CAPITAL RETAINED EARNINGS TOTAL -------------- -------------- -------------- ----------------- ------------ Balance, June 30, 1995......... $ 324,693 $ 703,841 $ 1,050,297 $ 96,157 $ 2,174,988 Net income..................... -- -- -- 860,547 860,547 -------------- -------------- -------------- -------- ------------ Balance, June 30, 1996......... $ 324,693 $ 703,841 $ 1,050,297 $ 956,704 $ 3,035,535 -------------- -------------- -------------- -------- ------------ -------------- -------------- -------------- -------- ------------
The accompanying notes form an integral part of these consolidated financial statements. F-23 RECOIL PTY LTD AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1996 Cash Flows from Operating Activities: Net income....................................................................... $ 860,547 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................................. 295,626 Loss on sale of property, plant and equipment.................................. (10,291) Decrease in accounts receivable................................................ 136,049 Increase in inventories........................................................ (679,772) Increase in prepaid expenses................................................... (84,570) Increase in other assets....................................................... (86,925) Decrease in accounts payable................................................... (240,066) Increase in accrued expenses................................................... 128,315 Decrease in deferred income taxes.............................................. (24,384) --------- Net cash provided by operating activities........................................ 294,529 --------- Cash Flows from Investing Activities: Purchases of plant and equipment................................................. (741,239) Proceeds from sales of property, plant and equipment............................. 250,811 --------- Net cash used in investing activities............................................ (490,428) --------- Cash Flows from Financing Activities: Net borrowings (payments) on line-of-credit...................................... 340,338 Dividends paid................................................................... (141,894) Principal payments on capital lease obligation................................... (22,103) Net cash provided by financing activities........................................ 176,341 Net increase/(decrease) in cash.................................................. (19,558) Cash, beginning of period........................................................ 125,017 --------- Cash, end of period.............................................................. $ 105,459 --------- --------- Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest....................................................................... $ 42,631 --------- --------- Income taxes................................................................... $ 348,633 --------- ---------
The accompanying notes form an integral part of these consolidated financial statements. F-24 RECOIL PTY LTD AND SUBSIDIARIES NOTES TO AND FORMING PART OF THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED JUNE 30, 1996 NOTE 1. LINE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The company manufactures and distributes thread inserts and related products used primarily in the electronic, automotive and other industrial markets, and their associated after-markets. The company is headquartered in Oakleigh, Australia, which is outside Melbourne. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. (a) Principles of Consolidation The consolidated financial statements include the accounts of Recoil Pty Ltd and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. (b) Goodwill Goodwill is amortized on a straight line basis over 20 years. (c) Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation or amortization. The carrying amount of property, plant and equipment is reviewed annually to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to present values in determining recoverable amount. The depreciable amounts of all fixed assets, including capitalized leased assets, are depreciated over their estimated useful lives commencing from the time the asset is held ready for use. (d) Income Tax The company uses the liability method of tax-effect accounting whereby the income tax expense shown in the profit and loss account is based on the pre-tax accounting profit adjusted for any permanent differences. Temporary differences which arise due to the different accounting periods in which items of revenue and expense are included in the determination of operating profit before income tax and taxable income are recorded either as provision for deferred income tax or an asset described as future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable. Future income tax benefits are not recorded unless realization of the asset is assured. The amount of benefits recorded which may be realized in the future is based on the assumption that no adverse change will occur in income taxation legislation, and the anticipation that the company will derive sufficient future taxable income and comply with the conditions of deductibility imposed by the law to permit a future income tax benefit to be obtained. The provision for income taxes is as follows: Tax at 36% statutory rate......................................... $ 455,339 Increase/(decrease) in income tax expense due to: Non-allowance items............................................. 869 Tax incentives and sundry items................................. (50,288) Net operating loss carry-forwards not realized.................. 42,034 Tax effect of intercompany profit in inventory.................. (41,391) Other........................................................... (2,280) --------- Income tax expense................................................ $ 404,283 --------- ---------
F-25 RECOIL PTY LTD AND SUBSIDIARIES NOTES TO AND FORMING PART OF THE CONSOLIDATED ACCOUNTS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 1996 NOTE 1. LINE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) (e) Foreign Currency TRANSACTIONS Foreign currency transactions during the year are converted to the Australian dollar at rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at the balance sheet date are converted at the rates of exchange ruling at that date. The gains and losses from conversion of short-term assets and liabilities, whether realized or unrealized, are included in operating profit before income tax as they arise. TRANSLATION OF FINANCIAL STATEMENTS The Australian dollar is the functional currency. These financial statements have been translated into US dollars using the year-end exchange rate for the consolidated balance sheet and the average exchange rate for the year for the consolidated statement of income. (f) Inventories Inventories are measured at the lower of cost and net realizable value. Costs are assigned on a first-in, first-out basis and include direct materials, direct labor and an appropriate portion of variable and fixed overhead expenses. Inventories are composed of the following at June 30, 1996: Raw materials................................................... $ 380,123 Work in progress................................................ 71,304 Finished goods.................................................. 1,843,953 --------- $2,295,380 --------- ---------
NOTE 2. PROPERTY, PLANT AND EQUIPMENT Fixtures and fittings--at cost.................................. $ 156,662 Less: Accumulated depreciation.................................. (54,561) --------- 102,101 --------- Office equipment--at cost....................................... 486,264 Less: Accumulated depreciation.................................. (292,546) --------- 193,718 --------- Motor vehicles--at cost......................................... 132,492 Less: Accumulated depreciation (58,443) --------- 74,049 --------- Plant and equipment--at cost.................................... 1,324,363 Less: Accumulated depreciation.................................. (548,009) --------- 776,354 ---------
F-26 RECOIL PTY LTD AND SUBSIDIARIES NOTES TO AND FORMING PART OF THE CONSOLIDATED ACCOUNTS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 1996 NOTE 2. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Capital equipment--work in progress............................. 134,569 --------- Leased motor vehicles........................................... 41,993 Less: Accumulated amortization.................................. (8,905) --------- 33,088 --------- $1,313,879 --------- ---------
NOTE 3. ACCRUED EXPENSES Other creditors................................................... $ 261,618 Wages and payroll related......................................... 147,073 --------- $ 408,691 --------- ---------
NOTE 4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS Loan--Government Agency (Australian Trade Commission)............. $ 649,481 ---------
This loan is unsecured and bears interest at an effective interest rate of 9.75% per annum. Principal and interest payments are due semi-annually beginning in September 1997. Principal repayments for the years ended December 31 are as follows: 1997.......................................................... $ 108,061 1998.......................................................... 216,062 1999.......................................................... 216,062 2000.......................................................... 109,296 --------- Financing Arrangements The company has a finance facility of:........................ $ 945,960 --------- At June 30, 1996 this facility was drawn upon in the amount of:......................................................... $ 451,514 --------- ---------
F-27 RECOIL PTY LTD AND SUBSIDIARIES NOTES TO AND FORMING PART OF THE CONSOLIDATED ACCOUNTS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 1996 NOTE 5. LEASE COMMITMENTS (a) Capital Lease Commitments Payable: --not later than one year....................................... $ 16,390 --later than one year and not later than two years.............. 13,544 --later than two years and not later than five years............ 23,755 --------- Minimum lease payments.......................................... 53,689 Less: Future finance charges.................................... (5,405) --------- Total........................................................... $ 48,284 --------- --------- Representing: --Current....................................................... $ 14,900 --Non-Current................................................... 33,384 --------- $ 48,284 --------- (b) Operating Lease Commitments Payable: --not later than one year....................................... $ 175,492 --later than one year and not later than two years.............. 180,248 --later than two years and not later than five years............ 571,465 --------- Total operating lease commitments............................... $ 927,205 ---------
NOTE 6. SEGMENT REPORTING The economic entity operates in the manufacturing sector where it manufactures Recoil thread inserts in Australia and distributes its products throughout Australia, USA, UK and other international markets. NOTE 7. SUBSEQUENT EVENT In August 1996 the company sold a majority of its assets to Kaynar Technologies Inc., a US business involved in the manufacture and sale of specialty fasteners, fastening system and components, for approximately $12.2 million. Subsequent to the asset sale, the company changed its name to Scuba Pty Ltd. F-28 [IMAGE MATERIAL: PICTURE OF AIRCRAFT IN FLIGHT.] - --------------------------------------------- --------------------------------------------- - --------------------------------------------- --------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------- TABLE OF CONTENTS
Page --- Prospectus Summary................................... 3 Risk Factors......................................... 8 The Company.......................................... 13 The Reorganization................................... 13 Use of Proceeds...................................... 14 Dividend Policy...................................... 14 Capitalization....................................... 15 Dilution............................................. 15 Selected Consolidated Financial and Operating Information........................................ 17 Management's Discussion and Analysis of Financial Condition and Results of Operations................ 19 Business............................................. 24 Management........................................... 35 Certain Transactions................................. 41 Principal Stockholders and Selling Stockholder....... 43 Description of Capital Stock......................... 44 Shares Eligible for Future Sale...................... 46 Underwriting......................................... 48 Legal Matters........................................ 49 Experts.............................................. 49 Additional Information............................... 49 Index to Consolidated Financial Statements........... F-1
--------------------- UNTIL , 1997 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2,000,000 SHARES KAYNAR TECHNOLOGIES INC. COMMON STOCK ------------------- PROSPECTUS , 1997 --------------------- LEHMAN BROTHERS PAINEWEBBER INCORPORATED - --------------------------------------------- --------------------------------------------- - --------------------------------------------- --------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of Common Stock being registered. All amounts are estimates, except the SEC registration fee and the NASD fee.
AMOUNT TO BE PAID ---------- SEC registration fee.............................................................. NASD fee.......................................................................... Printing and engraving expenses................................................... Legal fees and expenses........................................................... Accounting fees and expenses...................................................... Blue Sky qualification fees and expenses.......................................... Transfer Agent and Registrar fees................................................. Miscellaneous fees and expenses................................................... ---------- Total......................................................................... $ 675,000 ---------- ----------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Certificate of Incorporation, as amended, of the Company contains a provision eliminating the personal liability of the directors to the Company or its stockholders to the fullest extent set forth in Section 102(b)(7) of the Delaware General Corporation Law. The Bylaws of the Company provide for indemnification of directors, officers, employees and agents of the Company consistent with the provisions of Section 145 of the Delaware General Corporation Law. The Company has also entered into indemnification agreements with each director and certain executive officers that provide for the maximum protection against liability permitted by law. The indemnification agreements also provide that, to the extent the Company purchases directors and officers insurance, the directors and officers who are parties to such agreements will be covered. The Company, however, has no obligation to purchase such insurance. Reference is also made to Section 9 of the Underwriting Agreement, contained in Exhibit 1 hereto, indemnifying officers and directors of the Company against certain liabilities. Burton J. Kloster, Jr., an outside director of the Company and the nominee of GECC, has entered into a separate indemnification agreement with GECC. Under the agreement, GECC will indemnify Mr. Kloster for losses, liabilities, damages and expenses incurred as a result of his acting properly on behalf of GECC, to the extent such amounts are not recoverable from the Company or any insurer of the Company. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES None. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
NUMBER DESCRIPTION - ------------ ------------------------------------------------------------------------------------------------ +1.1 Form of Underwriting Agreement +2.1 Agreement and Plan of Merger, dated April , 1997, between the Company and Operating Company 2.2 Asset Purchase Agreement, dated January 9, 1996, among Emhart Industries, Inc., Emhart, Inc. and Operating Company 2.3(a) Australian Asset Sale Agreement, dated August 9, 1996, among the Vendors (as defined therein), Recoil Inc., RCL Pty. and Operating Company 2.3(b) US Asset Sale Agreement, dated August 9, 1996, among Recoil Inc., Operating Company, Recoil Pty. Ltd., the Advent Group and the Price Interests (as defined therein) +3.1 Amended and Restated Certificate of Incorporation of the Company +3.2 Amended and Restated Bylaws of the Company +4.1 Specimen of Common Stock Certificate +5.1 Opinion of O'Melveny & Myers LLP regarding the legality of the Common Stock to be issued 10.1 Amended and Restated Term Loan Agreement, dated August 12, 1996, between the Company and GECC 10.2(a) Amended and Restated Credit Agreement, dated August 12, 1996, between Operating Company and GECC 10.2(b) First Amendment, Consent, and Limited Waiver to Amended and Restated Credit Agreement, dated December 17, 1996, between Operating Company and GECC 10.3 Term Loan Agreement, dated August 12, 1996, between RCL Pty. and GECC 10.4 PIK Dividend Note Agreement, dated January 3, 1994, among the Company, GECC and certain other parties identified therein 10.5 Lease with The Prudential Insurance Co. of America regarding the Fullerton, California facility 10.6 Lease with West L.A. Properties regarding the Placentia, California facility 10.7 Lease with Enfield View Pty. Ltd. regarding the Oakleigh, VIC, Australia facility 10.8(a) General Terms Agreement, dated September 20, 1996, between the Company and Boeing 10.8(b) Special Business Provisions, dated September 20, 1996, between the Company and Boeing (confidential treatment requested) 10.9 Contract Award Letter of Agreement, dated April 28, 1994, between the Company and Boeing (confidential treatment requested) +Stockholders Agreement dated as of March , 1996 21.1 List of Subsidiaries
II-2
NUMBER DESCRIPTION - ------------ ------------------------------------------------------------------------------------------------ 23.1 Consent of Independent Auditors 23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1) 24.1 Power of Attorney (see page II-6) +27.1 Financial Data Schedule 99.1 Form of 1997 Stock Incentive Plan of the Company 99.2 Form of Employment Agreement for Messrs. Law and Werner 99.3 Form of Employment Agreement for Messrs. Beers, Dack, Berecz and Varholick 99.4 Employment Agreement for Kenneth D. Jones 99.5 Form of Director Indemnification Agreement
(b) Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Commission are provided in the Notes to the Consolidated Financial Statements included elsewhere in this Registration Statement or are not required under the applicable instructions or are inapplicable and therefore have been omitted. - ------------------------ + To be filed by pre-effective amendment. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fullerton, State of California on this 25th day of February, 1997. KAYNAR TECHNOLOGIES INC. By:/s/ JORDAN A. LAW -------------------------------------- Jordan A. Law Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Jordan A. Law and David A. Werner, and each of them acting individually, as his attorney in fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys to any and all amendments to said Registration Statement, or any related registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - -------------------------------------------- -------------------------------------------- ---------------------- /s/ JORDAN A. LAW Chief Executive Officer and Chairman of the February 25, 1997 - ---------------------------------- Board Jordan A. Law (Principal Executive Officer) /s/ DAVID A. WERNER Executive Vice President and Director February 25, 1997 - ---------------------------------- (Principal Financial Officer) David A. Werner /s/ ROBERT M. NELSON Controller February 25, 1997 - ---------------------------------- (Principal Accounting Officer) Robert M. Nelson
II-4 EXHIBIT INDEX
NUMBER DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- +1.1 Form of Underwriting Agreement +2.1 Agreement and Plan of Merger, dated April , 1997, between the Company and Operating Company 2.2 Asset Purchase Agreement, dated January 9, 1996, among Emhart Industries, Inc., Emhart, Inc. and Operating Company 2.3(a) Australian Asset Sale Agreement, dated August 9, 1996, among the Vendors (as defined therein), Recoil Inc., RCL Pty. and Operating Company 2.3(b) US Asset Sale Agreement, dated August 9, 1996, among Recoil Inc., Operating Company, Recoil Pty. Ltd., the Advent Group and the Price Interests (as defined therein) +3.1 Amended and Restated Certificate of Incorporation of the Company +3.2 Amended and Restated Bylaws of the Company +4.1 Specimen of Common Stock Certificate +5.1 Opinion of O'Melveny & Myers LLP regarding the legality of the Common Stock to be issued 10.1 Amended and Restated Term Loan Agreement, dated August 12, 1996, between the Company and GECC 10.2(a) Amended and Restated Credit Agreement, dated August 12, 1996, between Operating Company and GECC 10.2(b) First Amendment, Consent, and Limited Waiver to Amended and Restated Credit Agreement, dated December 17, 1996, between Operating Company and GECC 10.3 Term Loan Agreement, dated August 12, 1996, between RCL Pty. and GECC 10.4 PIK Dividend Note Agreement, dated January 3, 1994, among the Company, GECC and certain other parties identified therein 10.5 Lease with The Prudential Insurance Co. of America regarding the Fullerton, California facility 10.6 Lease with West L.A. Properties regarding the Placentia, California facility 10.7 Lease with Enfield View Pty. Ltd. regarding the Oakleigh, VIC, Australia facility 10.8(a) General Terms Agreement, dated September 20, 1996, between the Company and Boeing 10.8(b) Special Business Provisions, dated September 20, 1996, between the Company and Boeing (confidential treatment requested) 10.9 Contract Award Letter of Agreement, dated April 28, 1994, between the Company and Boeing (confidential treatment requested) +Stockholders Agreement dated as of March , 1996 21.1 List of Subsidiaries 23.1 Consent of Independent Auditors 23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1) 24.1 Power of Attorney (see page II-6) +27.1 Financial Data Schedule 99.1 Form of 1997 Stock Incentive Plan of the Company 99.2 Form of Employment Agreement for Messrs. Law and Werner 99.3 Form of Employment Agreement for Messrs. Beers, Dack, Berecz and Varholick 99.4 Employment Agreement for Kenneth D. Jones 99.5 Form of Director Indemnification Agreement
- ------------------------ + To be filed by pre-effective amendment. EX-2.2 2 EX 2.2 ASSET PURCHASE AGREEMENT W/ EMHART INDUST. ASSET PURCHASE AGREEMENT dated as of January 9, 1996 among EMHART INDUSTRIES, INC., EMHART, INC. and KAYNAR TECHNOLOGIES INC. TABLE OF CONTENTS SECTION PAGE - ------- ---- ARTICLE 1 PURCHASE AND SALE OF ASSETS................................... 1 1.1 Sale of Assets................................................ 1 1.1.1 Names......................................................... 1 1.1.2 Inventory..................................................... 1 1.1.3 Equipment..................................................... 1 1.1.4 Intellectual Property......................................... 2 1.1.5 Sales Materials............................................... 2 1.1.6 Books and Records............................................. 2 1.1.7 Assigned Contracts............................................ 2 1.2 Accounts and Work-In-Process Not Transferred.................. 2 ARTICLE 2 CLOSING/DELIVERY OF ASSETS/PURCHASE PRICE/ ASSUMPTION OF LIABILITIES................................... 3 2.1 The Closing................................................... 3 2.2 Selection of Inventory and Equipment/Purchase Price/Closing Date.......................................................... 3 2.2.1 Purchase of Inventory and Equipment/Determination of Inventory Price and Equipment Price..................................... 3 2.2.2 Closing Date and Purchase Price............................... 5 2.2.3 Allocation of Purchase Price.................................. 6 2.3 Payments to Seller............................................ 6 2.4 Instruments of Conveyance and Transfer........................ 7 2.5 Assumption of Certain Liabilities............................. 7 2.6 Non-Assumption of Liabilities................................. 7 2.7 Sales and Use Tax............................................. 7 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER...................... 8 3.1 Organization, Corporate Power and Authority................... 8 3.2 Authorization of Agreements................................... 8 3.3 Effect of Agreement........................................... 8 3.4 Permits....................................................... 8 3.5 Assigned Contracts............................................ 9 3.6 Sufficiency of Property....................................... 9 3.7 Equipment..................................................... 9 3.8 Inventory..................................................... 9 3.9 Legal Proceedings............................................. 9 i 3.10 Compliance with Law........................................... 9 3.11 Intellectual Property......................................... 10 3.12 Taxes and Proration........................................... 10 3.13 Insurance..................................................... 10 3.14 Worker Adjustment and Retraining Notification................. 10 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER....................... 11 4.1 Organization, Corporate Power and Authority................... 11 4.2 Authorization of Agreement.................................... 11 4.3 Effect of Agreement........................................... 11 4.4 Financing..................................................... 11 ARTICLE 5 COVENANTS WITH RESPECT TO CONDUCT OF SELLER AND BUYER PRIOR TO CLOSING............... 12 5.1 Access........................................................ 12 5.2 Material Adverse Changes...................................... 12 5.3 Conduct of Business........................................... 12 5.4 Preservation of Business Prior to Delivery Date of Retained Equipment..................................................... 13 5.5 Disposal of Inventory and Equipment Not Selected for Purchase. 14 ARTICLE 6 ADDITIONAL CONTINUING COVENANTS............................... 14 6.1 Permits and Approvals......................................... 14 6.2 Nondisclosure of Proprietary Data............................. 14 6.3 Access to Information......................................... 15 ARTICLE 7 CONDITIONS OF PURCHASE........................................ 15 7.1 General Conditions............................................ 15 7.2 Conditions to Obligations of Buyer............................ 15 7.3 Conditions to Obligations of Seller........................... 16 ARTICLE 8 INDEMNIFICATION............................................... 16 8.1 Obligations of Seller......................................... 16 8.2 Obligations of Buyer.......................................... 17 8.3 Notice and Defense............................................ 17 ARTICLE 9 GENERAL....................................................... 18 9.1 Amendments; Waivers........................................... 18 9.2 Schedules; Exhibits; Integration.............................. 18 9.3 Further Assurances............................................ 18 ii 9.4 Governing Law................................................. 19 9.5 Counterparts.................................................. 19 9.6 Remedies Cumulative........................................... 19 9.7 Notices....................................................... 19 9.8 Expenses and Attorneys Fees................................... 20 9.9 Survival...................................................... 21 9.10 Specific Performance; Return of Initial Payment............... 21 9.11 Bulk Transfer Laws............................................ 21 9.12 No Assignment................................................. 22 9.13 Headings...................................................... 22 ARTICLE 10 DEFINITIONS................................................... 22 iii EXHIBITS EXHIBIT A Assignment and Assumption Agreement EXHIBIT B Bill of Sale EXHIBIT C Form of Assignment of Intellectual Property Rights EXHIBIT D Form of Non-Competition Agreement EXHIBIT E Valiant Supply Agreement EXHIBIT F The Business SCHEDULES 1.1.1 - Names 1.1.3 - Equipment 1.1.4 - Intellectual Property 1.1.7 - Assigned Contracts 1.2 - Excluded Assets 2.2.1 - Inventory Price Calculation Procedure iv ASSET PURCHASE AGREEMENT This Asset Purchase Agreement is entered into as of January 9, 1996, among Kaynar Technologies Inc., a Delaware corporation ("BUYER"), Emhart Industries, Inc., a Connecticut corporation ("SELLER") and Emhart, Inc., a Delaware corporation ("INTELLECTUAL PROPERTY SELLER"). Capitalized terms used herein without definition are defined in Article 10. A G R E E M E N T In consideration of the mutual promises contained herein and intending to be legally bound, the parties agree as follows: ARTICLE 1 PURCHASE AND SALE OF ASSETS 1.1 SALE OF ASSETS. (a) Subject to the terms and conditions of this Agreement Seller (and Intellectual Property Seller with respect to the Intellectual Property owned by it) will sell, transfer and assign to Buyer, and Buyer will purchase from Seller, all of Seller's right, title and interest in and to the following assets (collectively, the "ASSETS"): 1.1.1 NAMES. All of Seller's right to use the name "KELOX" and the other tradenames or product names set forth on SCHEDULE 1.1.1 (the "NAMES"); 1.1.2 INVENTORY. All raw materials, product samples, parts, finished goods, and inventory owned by the Seller and relating principally to the Business and existing as of the date hereof (the "INVENTORY"), but solely to the extent that Buyer is required or elects to purchase such Inventory pursuant to Section 2.2.1(B) hereof; provided that Buyer shall not purchase any Inventory required by Seller to fill orders existing as of the date hereof (or which may be placed following the date hereof and before Closing) and delivery of which is due on or before 60 days following Closing (the "CUSTOMER ORDER BACKLOG"), and, within 10 days of the date hereof, Seller shall provide Buyer with a reasonably detailed written description of the Inventory which Seller estimates it may need with respect to the Customer Order Backlog; 1.1.3 EQUIPMENT. The machinery, equipment, furniture, supplies, tools, designs, patterns, molds, office equipment and supplies, computer hardware and other tangible property listed on SCHEDULE 1.1.3 annexed hereto (such assets being collectively referred to as the "EQUIPMENT"), but solely to the extent that Buyer elects to purchase such Equipment pursuant to Section 2.2.1(C) hereof; 1 1.1.4 INTELLECTUAL PROPERTY. All trademarks and trade names, trademark and trade name registrations, service marks and service mark registrations, copyright registrations, the applications therefor and the licenses with respect thereto all as identified on SCHEDULE 1.1.4, and all unregistered copyrights engineering reports and specifications, technical information, trade secrets, secret processes, confidential information, know-how, and other intellectual property of the Seller or Intellectual Property Seller, as the case may be, used or held for use primarily in the Business, together with the goodwill appurtenant to each of the foregoing (collectively, the "INTELLECTUAL PROPERTY"); 1.1.5 SALES MATERIALS. All of Seller's sales and purchase data and information (including sales history), customer lists, pricing sheets, product costs, supplier lists, mailing lists, catalogues, brochures, sales literature, promotional material, advertising material, and other selling material, in each case, pertaining to the Assets, the Assumed Liabilities or otherwise to the Business (collectively, the "SALES MATERIALS"); 1.1.6 BOOKS AND RECORDS. All books and records and all files, documents and papers (including, but not limited to, those contained in computerized storage media) principally pertaining to the Assets, the Assumed Liabilities or otherwise to the Business, including, without limitation, all manufacturing documentation to the extent not included in the Intellectual Property (collectively, the "BOOKS AND RECORDS"); 1.1.7 ASSIGNED CONTRACTS. All rights of Seller under all of the Contracts (including the Valiant Supply Agreement), guarantees and warranties from third parties, listed on SCHEDULE 1.1.7 annexed hereto (the "ASSIGNED CONTRACTS"); (b) The Assets shall include all assets, rights and properties of the type described above that are acquired by Seller between the date hereof and the Closing principally in connection with the Business, and shall exclude the assets listed on Schedule 1.2 annexed hereto and, subject to Article 5, any assets, rights and properties that are disposed of, sold or consumed after the date hereof in the ordinary course of business. 1.2 ACCOUNTS AND WORK-IN-PROCESS NOT TRANSFERRED. All accounts receivable arising from sales prior to the Closing (other than accounts receivable arising from the Assigned Contracts in respect of sales of products to be delivered after 60 days following Closing) and from the Work-In-Process (as defined below) even if the invoices relating to such sales have not been issued (collectively, the "ACCOUNTS"), all work-in-process existing as of the Closing (the "WORK-IN-PROCESS"), and the assets listed on SCHEDULE 1.2 annexed hereto are specifically excluded from the Assets and shall be retained by Seller (the "EXCLUDED ASSETS"), provided that Seller shall be solely responsible for collecting the Accounts, for disposing of or completing the manufacture of the Work-In-Process in accordance with Article 5 and for filling the Customer Order Backlog. Buyer shall grant to Seller an irrevocable and fully-paid up license to use any Intellectual Property acquired by Buyer on the Closing Date in connection with Seller's disposition and 2 completion of its manufacture of the Work-In-Process following Closing in the manner contemplated by this Agreement. ARTICLE 2 CLOSING/DELIVERY OF ASSETS/PURCHASE PRICE/ ASSUMPTION OF LIABILITIES 2.1 THE CLOSING. The consummation of the Transactions (the "CLOSING") will take place at the offices of O'Melveny & Myers located at 400 South Hope Street, 15th Floor, Los Angeles, California 90071, on the date specified in Section 2.2.2 below after the satisfaction or waiver of the conditions in Article 7. 2.2 SELECTION OF INVENTORY AND EQUIPMENT/PURCHASE PRICE/CLOSING DATE. 2.2.1 PURCHASE OF INVENTORY AND EQUIPMENT/DETERMINATION OF INVENTORY PRICE AND EQUIPMENT PRICE. Seller and Buyer agree that the obligation of Buyer to purchase any Inventory or Equipment, and the amount payable by Buyer to Seller for the Inventory (the "INVENTORY PRICE") and for the Equipment (the "EQUIPMENT PRICE") purchased by Buyer, shall be determined in accordance with the procedures set forth in (A), (B) and (C) below and such determinations shall be binding on Buyer and Seller for purposes of determining the Inventory Price and the Equipment Price components of the actual Purchase Price. (A) INSPECTION OF INVENTORY AND EQUIPMENT. Pursuant to Section 5.1, immediately following the date hereof, Seller shall permit Buyer and its agents to have access to all of the Assets and shall provide Buyer all financial information and records, in each case, only to the extent necessary for Buyer to conduct a physical inspection, count and valuation of the Inventory and the Equipment. On or before February 20, 1996, Buyer and Seller shall complete a physical inspection, count and valuation of the Inventory and the Equipment (the "PHYSICAL INSPECTION") and determine the actual amount of the Inventory Price and the Equipment Price in accordance with the terms and provisions of this Section 2.2.1. Notwithstanding anything to the contrary contained herein, Buyer shall not be obligated to purchase any Inventory or Equipment which is not in good condition and/or repair, reasonable wear and tear excepted. (B) PURCHASE OF INVENTORY/INVENTORY PRICE. During or within twenty business days following the completion of the Physical Inspection, Buyer and Seller shall determine the total amount of Inventory (other than Inventory needed by Seller to fill the Customer Order Backlog) held by Seller and available for purchase by Buyer (the "TOTAL INVENTORY"). Buyer and Seller shall also determine, based on the sales history of Seller for the 12-month period prior to the date of completion of the Physical Inspection, the average amount of Inventory (by item) actually sold by Seller in each month during such 12-month period (such average, 3 the "PRIOR TWELVE-MONTH AVERAGE"); PROVIDED THAT, if, Buyer can demonstrate in good faith that the Prior Twelve-Month Average is not indicative of demand for the Inventory during the 24-month period following the date of completion of the Physical Inspection, the Prior Twelve-Month Average figure shall be adjusted downward to reflect the projected demand for the Inventory during such 24-month period as mutually agreed upon between Buyer and Seller (such adjusted average, the "ADJUSTED TWELVE-MONTH AVERAGE"). Based on the final determination by Buyer and Seller of the Total Inventory, the Prior Twelve-Month Average and the Adjusted Twelve-Month Average (if any), Buyer shall be obligated to purchase the lesser of (i) the Total Inventory and (ii) an amount of Inventory (by item) equal to the product of (x) the Prior Twelve-Month Average (if no adjustment is made to the Prior Twelve-Month Average) or the Adjusted Twelve-Month Average (if an adjustment is made to the Prior Twelve-Month Average) multiplied by (y) twenty-four (24) (such product, the "TWENTY-FOUR MONTH INVENTORY"). The Buyer shall have the option, but not the obligation, to purchase all or any portion of the Total Inventory (if any) in excess of the Twenty-Four Month Inventory. The Inventory Price for each item of Inventory required to be purchased by Buyer pursuant to this Section 2.2.1 shall be determined in the manner specified on SCHEDULE 2.2.1 annexed hereto. (C) PURCHASE OF EQUIPMENT/EQUIPMENT PRICE. During or within twenty business days following the Physical Inspection, Buyer shall provide Seller a list of the particular items of Equipment Buyer elects to purchase and Buyer shall be obligated to purchase only the items of Equipment set forth on such list or as otherwise communicated in writing by Buyer to Seller. The parties agree that the Equipment Price for each item of Equipment selected by Buyer for purchase shall initially be equal to the "LIQUIDATION VALUE" of such Equipment as set forth in that certain Appraisal, Heli-Coil Fastening Systems Division, Shelter Rock Lane, Danbury, Connecticut 06810, dated March 29, 1994, prepared by Roland Grenier, Appraiser, of Grenier National, Inc. (the "APPRAISAL"). The purchase price of any gages and thread roll dies listed on Schedule 1.1.3 but not included in the Appraisal and which Buyer elects to purchase shall be agreed upon between Buyer and Seller in good faith prior to Closing. Any form tools, taps, round dies, welding punches and nests and miscellaneous other items of Equipment listed on Schedule 1.1.3 but not included in the Appraisal and which Buyer elects to purchase shall be deemed to be part of the other Equipment purchased by Buyer and shall be included in the Equipment Price payable by Buyer for such other Equipment. The Liquidation Value of any item of Equipment may, however, be adjusted downward by an amount agreed upon between Buyer and Seller during the completion of the Physical Inspection if the Physical Inspection reveals that the physical condition of such item of Equipment is such that the appraised Liquidation Value of such Equipment is materially higher than the true liquidation value of such Equipment as agreed upon between Buyer and Seller; PROVIDED that, notwithstanding anything to the contrary contained herein, Buyer shall not be obligated to purchase any such Equipment if Buyer and Seller cannot agree on the true liquidation value of such Equipment; provided further that 4 Seller may but shall not be obligated to sell any item of Equipment at less than its Liquidation Value. 2.2.2 CLOSING DATE AND PURCHASE PRICE. (a) Following the date of this Agreement, Seller shall maintain the Assets in its possession in accordance with Article V. The Closing shall occur within 10 days after the date on which the Inventory Price and the Equipment Price are conclusively determined pursuant to Section 2.2.1, or such later date (which shall not be beyond February 29, 1996) as the parties may agree in the event that the conditions to the parties' obligations to close set forth in Article 7 have not been satisfied within 10 days after the date that the Inventory Price and Equipment Price are determined. At Closing, all equitable, legal and beneficial title incidental to the ownership of the Assets (other than the Equipment) shall pass to Buyer, and Seller shall promptly initiate in accordance with Buyer's instructions the delivery to Buyer (via commercially reasonable means of transportation designated by Buyer to a location designated by Buyer) of the Inventory, the Equipment (other than the Retained Equipment (as defined below)), and the other Assets purchased by Buyer. Equitable, legal and beneficial title to the Equipment (including the Retained Equipment) shall pass to Buyer upon delivery of the Equipment to a location in California designated by Buyer; provided that Buyer shall be entitled to receive any insurance proceeds in the event the Equipment is damaged, lost or destroyed during transit. Because Seller shall retain possession of the Assets after Closing, the risk of loss incidental to the ownership of the Assets shall pass to Buyer upon delivery of the Assets to the carrier who will transport the Assets to Buyer. Seller shall be entitled to retain for a period of up to 30 days from the date of the Closing, any Equipment Seller reasonably determines it will need in order to complete its manufacture and delivery of Customer Order Backlog (the "RETAINED EQUIPMENT"). Seller shall deliver to Buyer, via commercially reasonable means of transportation designated by Buyer to a location designated by Buyer, the Retained Equipment immediately after the end of such 30 day period. Seller shall deliver the Retained Equipment to Buyer in substantially the same condition as the Retained Equipment existed on the Closing Date. Seller shall bear all costs of crating and packaging the Assets for delivery to Buyer and Buyer shall bear all costs of shipping and taking delivery of the Assets (other than any taxes payable by Seller under Section 3.12). (b) In consideration of the purchase and sale of the Assets and the promises of Seller contained in this Agreement and the other Transaction Documents, Buyer agrees to make the following payments to Seller: (i) Buyer shall pay to Seller $100,000 on the date of this Agreement (the "INITIAL PAYMENT"); (ii) On the Closing Date, Buyer shall pay to Seller the Inventory Price for the Inventory purchased by Buyer pursuant to Sections 2.2.1 and 2.2.2; 5 (iii) On the Closing Date, Buyer shall pay to Seller the Equipment Price for the Equipment (other than the Retained Equipment) purchased by Buyer pursuant to Sections 2.2.1 and 2.2.2; (iv) On the date on which Seller notifies Buyer that the Retained Equipment has been packed and crated for delivery to Buyer, Buyer shall pay to Seller the Equipment Price for the Retained Equipment being delivered to Buyer; (v) On the Closing Date, Buyer shall pay to Seller the sum of $175,000 (a portion of which shall be distributed by Seller to Intellectual Property Seller as payment for the Intellectual property being sold by Intellectual Property Seller) in consideration for the remaining Assets purchased by Buyer and the Non-Competition Agreement. For purposes of this Agreement, the "Purchase Price" shall mean the sum of (i) the Initial Payment, (ii) the Inventory Price, (iii) the Equipment Price, and (iv) the sum of $175,000 payable by Buyer to Seller with respect to the remaining Assets and the Non-Competition Agreement. 2.2.3 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated among the Assets as follows: Inventory: actual aggregate Inventory Price Equipment: actual aggregate Equipment Price Non Competition Agreement: $50,000 Names and Intellectual Property: $175,000 Remainder of Assets: $50,000 Buyer and Seller each agrees to file Internal Revenue Service Form 8594, and all federal, state, local and foreign tax returns, in accordance with the above calculation and allocation of the Purchase Price. 2.3 PAYMENTS TO SELLER. On the date hereof, Buyer shall pay to Seller the Initial Payment of $100,000 by wire transfer in immediately available funds to Seller's account specified below. The Initial Payment shall be refundable to Buyer in accordance with Section 9.10 of this Agreement. On the Closing date, Buyer shall pay to Seller the Inventory Price for the Inventory purchased by Buyer, the Equipment Price for the Equipment (other than the Retained Equipment) purchased by Buyer and the $175,000 payment relating to the remaining Assets and the Non-Competition Agreement by wire transfer to Seller's account specified below. On the date specified in Section 2.2.2(b)(iv), Buyer shall pay to Seller the Equipment Price for the Retained Equipment purchased by Buyer by wire transfer in immediately available funds to Seller's account specified below 6 or by certified check. For purposes of this Section 2.3, Seller's account information is as follows: Citibank New York ABA 021000089 Account of: Emhart Industries Inc. Account No: 4057-7082 2.4 INSTRUMENTS OF CONVEYANCE AND TRANSFER. On the Closing, Seller (and Intellectual Property Seller in the case of clause (c) below) shall execute and deliver or cause to be delivered to Buyer against Seller's receipt of the wire transfer made in accordance with Section 2.3 at Closing (a) a Bill of Sale, conveying all of the Assets other than the Retained Equipment (b) the Assignment and Assumption Agreement, (c) the Assignment of Intellectual Property Rights and specific assignments of each trademark and copyright included in the Intellectual Property in a form recordable in the United States Patent and Trademark Office, (d) the Non-Competition Agreement, (e) such other instrument or instruments of transfer as shall be necessary or appropriate to transfer to and vest in Buyer all of Seller's and Intellectual Property Seller's respective rights, title and interests in and to the Assets, and (f) on or after the Closing, such other documents as may be reasonably requested by Buyer in order to carry out the Transactions. Seller and Intellectual Property Seller shall use their reasonable best efforts to execute and deliver assignments of Intellectual Property in a form recordable in each remaining jurisdiction granting such rights on or before Closing; provided that if such assignments cannot be delivered on or before Closing, Seller and Intellectual Property Seller shall deliver such assignments promptly following Closing. Against the receipt by Seller of the Equipment Price for the Retained Equipment, Seller shall execute and deliver to Buyer a separate Bill of Sale conveying the Retained Equipment. 2.5 ASSUMPTION OF CERTAIN LIABILITIES. On the Closing, Buyer shall execute and deliver to Seller the Assignment and Assumption Agreement, pursuant to which, subject to Section 2.6, Buyer shall, after the closing and subject to Section 6.1, assume and agree to pay, perform and discharge when due, all the liabilities and obligations of Seller arising solely out of the Valiant Supply Agreement and the other Assigned Contracts (collectively, the "ASSUMED LIABILITIES"), except any liability or obligation arising thereunder as a result of a breach of any such Assigned Contract prior to Closing. 2.6 NON-ASSUMPTION OF LIABILITIES. Buyer is not assuming, and shall not be deemed to have assumed any liability or obligation of Seller or any affiliate of Seller, of any kind or nature, whether absolute, contingent, accrued or otherwise, known or unknown, and whether arising before or after the date hereof which is not set forth in Section 2.5 or is not otherwise expressly assumed in any other provision of this Agreement. 2.7 SALES AND USE TAX. Buyer and Seller shall cooperate in preparing and filing use and sales tax returns, if required, relating to, and Buyer shall pay any and all sales, transfer or use tax due with regard to, the Transactions. 7 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER Seller (and Intellectual Property Seller with respect to Sections 3.1, 3.2, 3.3, 3.9 and 3.11) represents and warrants to Buyer as of the date hereof and as of Closing as follows: 3.1 ORGANIZATION, CORPORATE POWER AND AUTHORITY. Each of Seller and Intellectual Property Seller is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated and is duly qualified to do business as a foreign corporation in the jurisdictions in which Seller conducts the Business, except where the failure so to qualify will not have a material adverse effect on the Assets or the Business. Seller has all requisite corporate power and authority to own, operate and lease the Assets, to conduct the Business, to execute and deliver the Transaction Documents and to perform its obligations thereunder. Seller's principal executive offices are located in the State of Connecticut and all of the material tangible Assets are located in the County of Fairfield, State of Connecticut. 3.2 AUTHORIZATION OF AGREEMENTS. The execution, delivery and performance by Seller and Intellectual Property Seller of the Transaction Documents, and the consummation by it of the Transactions, have been duly authorized by all necessary corporate action by Seller and Intellectual Property Seller. This Agreement has been, and each other Transaction Document will be at the date thereof, duly executed and delivered by Seller and Intellectual Property Seller and constitutes, or will, when executed and delivered, constitute, the legal, valid and binding obligations of Seller, enforceable against Seller and Intellectual Property Seller in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws and equitable principles relating to or limiting creditors' rights generally. 3.3 EFFECT OF AGREEMENT. The execution, delivery and performance by Seller and Intellectual Property Seller of the Transaction Documents, and the consummation by each of them of the Transactions, will not violate the charter documents or bylaws of Seller or Intellectual Property Seller or any law to which Seller or Intellectual Property Seller is subject, or any judgment, award or decree or any indenture, agreement or other instrument to which Seller or Intellectual Property Seller is a party, or by which Seller or Intellectual Property Seller or its Assets are bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement or other instrument, or result in the creation or imposition of any encumbrance or lien of any nature whatsoever upon any of its Assets. No consents, approvals, authorizations, qualifications, waivers and releases (collectively, the "APPROVALS"), including any Approvals of any governmental entity, are required to be obtained by Seller to consummate the transactions contemplated by this Agreement and the other Transaction Documents. 3.4 PERMITS. No Permit has been obtained by or issued to Seller or is required in connection with the conduct of the Business. 8 3.5 ASSIGNED CONTRACTS. SCHEDULE 1.1.7 annexed hereto lists each Assigned Contract. Each Assigned Contract is valid and subsisting; Seller has duly performed all its obligations thereunder to the extent that such obligations to perform have accrued; and no breach or default, alleged breach or default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by Seller, or, to the best knowledge of Seller, any other party or obligor with respect thereto, has occurred or as a result of the Transactions will occur. True copies of the Assigned Contracts, including all amendments and supplements thereto, have been delivered to Buyer. EXHIBIT E annexed hereto is a true, complete and correct copy of the Valiant Supply Agreement. 3.6 SUFFICIENCY OF PROPERTY. Seller has and shall transfer to Buyer on the date hereof good and marketable title to, free of any encumbrances and liens, all of the Assets. The Assets, together with the Inventory and Equipment not purchased by Buyer pursuant to Section 2.2.1, constitute (A) all of the assets necessary for the manufacture of the products of the Business in the manner in which such products are currently manufactured by Seller, and (B) all of the assets of Seller used to manufacture the products of the Business. 3.7 EQUIPMENT. SCHEDULE 1.1.3 annexed hereto is a schedule which is complete and accurate in all material respects describing, and specifying the location of, the Equipment. All Equipment taken as a whole and including any Equipment not purchased by Buyer is adequate for the manufacture of the products of the Business and is sufficient in quantity and quality for the manufacture of the products of the Business in the manner in which such products are currently manufactured. No Equipment is held under any lease, security agreement, conditional sales contract, or other title retention or security arrangement or is located other than in the possession of the Seller. 3.8 INVENTORY. Seller does not hold any Inventory on consignment and does not have title to any Inventory in the possession of others other than approximately $10,000 worth of raw materials held on consignment by Valiant Tool Company, Inc. 3.9 LEGAL PROCEEDINGS. There are no legal proceedings pending, or, to the best knowledge of Seller, threatened, against or affecting Seller or the Assets that individually or when aggregated with one or more other legal proceedings have or would reasonably be expected to have a material adverse effect on the Business or on Seller's ability to perform its obligations under the Transaction Documents. 3.10 COMPLIANCE WITH LAW. Seller has conducted the Business in accordance with applicable laws. 9 3.11 INTELLECTUAL PROPERTY. SCHEDULE 1.1.4 annexed hereto lists any and all trademarks, tradenames, and registered copyrights which presently are, or at any time in the past 5 years have been used and is currently required by Seller or Intellectual Property Seller in the operation of the Business and in which Seller or Intellectual Property Seller has or has had an interest and the nature of such interest. Except as set forth on SCHEDULE 1.1.4, to the knowledge of Seller or Intellectual Property Seller, Seller or Intellectual Property Seller has complete rights to and ownership of all Intellectual Property required for use in connection with the Business, does not use any Intellectual Property by license or consent of any other person or entity and the Intellectual Property of Seller or Intellectual Property Seller used in connection with the Business are fully assignable, free and clear of any encumbrances or liens. Neither Seller nor Intellectual Property Seller has received any notice to the effect (or is otherwise aware) that any Intellectual Property or any use by Seller or Intellectual Property Seller thereof in connection with the Business conflicts with or allegedly conflicts with or infringes the rights of any other person or entity. Neither Seller nor Intellectual Property Seller owns or has a license to use any registered or unregistered patents relating to the Business. 3.12 TAXES AND PRORATION. (a) Seller has timely filed or will file (or, where permitted or required, its respective direct or indirect parents have timely filed or will file) all required tax returns and have paid all taxes of any kind applicable to the Assets and the Business due for all periods ending on or before the Closing Date. Seller has not elected to be treated as a consenting corporation under Section 341(f) of the Code. (b) Subject to Section 2.7, all ad valorem, property and similar taxes in respect of the Assets and the Business attributable to the period prior to the Closing, shall be prorated to the Closing, based on the latest available applicable tax rates. Each party shall immediately pay on demand to the other party the amount of any taxes paid or payable by the other party in excess of the tax liability accruing to such party under this Sections 3.12 and Section 2.7. 3.13 INSURANCE. Seller is currently insured with reputable insurers against all risks with respect to the Assets and the Business normally insured against by companies engaged in similar businesses. All insurance policies and bonds are in full force and effect and shall remain in full force and effect until delivery of the Assets to the carrier who will transport the Assets pursuant to Section 2.2.2(a). 3.14 WORKER ADJUSTMENT AND RETRAINING NOTIFICATION. Seller represents and warrants that Seller has complied with the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Sections 2101 ET. SEQ. (the "WARN ACT") and has timely served all the notices required under the WARN Act. 10 Seller agrees to defend, indemnify and hold harmless Buyer from and against any losses in connection with or arising out of or resulting from or incident to the WARN Act. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as of the date hereof and as of Closing as follows: 4.1 ORGANIZATION, CORPORATE POWER AND AUTHORITY. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated. Buyer has all requisite corporate power and authority to acquire, own, lease and operate the Assets, to conduct the Business after the date hereof, to execute and deliver the Transaction Documents to which it is a party and to perform its obligations thereunder. 4.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance by Buyer of the Transaction Documents to which it is a party, and the consummation by it of the Transactions, have been duly authorized by all necessary corporate action by Buyer. This Agreement has been, and each other Transaction Document to which Buyer is a party will be at the date of delivery thereof, duly executed and delivered by Buyer and constitute, or will, when delivered, constitute, the legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors' rights generally. 4.3 EFFECT OF AGREEMENT. The execution, delivery and performance by Buyer of the Transaction Documents to which it is a party, and the consummation by it of the Transactions, will not violate the charter documents or bylaws of Buyer or any law to which Buyer is subject, or any judgment, award or decree or any material indenture, material agreement or other material instrument to which Buyer is a party, or by which Buyer or its properties or assets are bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement or other instrument, except to the extent the effect thereof will not be materially adverse to Buyer's ability to fulfill its obligations under the Transaction Documents to which it is a party. 4.4 FINANCING. Buyer has sufficient funds available to enable it to pay the Purchase Price and otherwise satisfy its obligations under the terms of this Agreement in a timely fashion. 11 ARTICLE 5 COVENANTS WITH RESPECT TO CONDUCT OF SELLER AND BUYER PRIOR TO CLOSING 5.1 ACCESS. (a) From the date hereof to and including the Closing (the "TRANSITION PERIOD"), Seller shall authorize and permit Buyer and its agents to have access during such times as may be agreed to between Buyer and Seller, to the Assets and all other information with respect to the Business as Buyer may from time to time reasonably request, and to discuss the Business with Seller's officers, employees, accountants, counsel, suppliers, and a representative sampling of customers to be agreed upon between Buyer and Seller for the Buyer's purpose of familiarizing itself with the Business, completing the Physical Inspection obtaining any necessary Approvals for the Transactions. Prior to Closing, Buyer shall not be entitled to make or retain any copies of books, records or other materials and shall destroy any notes, analyses or other written information it may produce based on or in connection with the access it may be granted to Seller pursuant to this Agreement in the event that Closing does not occur for any reason. Buyer shall arrange for the access provided pursuant to this Section 5.1 (including the sampling of customers) only through Robert McCue and any other person Mr. McCue may designate following the date of this Agreement. (b) Prior to Closing, Buyer and Buyer's partners, officers, co-venturers, directors, officers, employees, affiliates, agents, advisors and representatives (collectively, "BUYER'S REPRESENTATIVES") will keep all the information (whether written or oral) pertaining to the Seller or the Seller's Business which is furnished pursuant this Section 5.1 or has been furnished prior to the date of this Agreement by the Seller or by any officer, employee, affiliate, agent, advisor or representative of the Seller (collectively, the "SELLER REPRESENTATIVES") confidential and will not without the Seller's prior written consent, use or disclose any of such information in any manner whatsoever. Nothing contained herein shall be construed to prevent the Buyer from making disclosures that may be required by applicable law, regulation or legal process. The terms of this Section 5.1 shall survive the termination of this Agreement in the event that Closing does not occur. 5.2 MATERIAL ADVERSE CHANGES. Seller will promptly notify Buyer of any event of which Seller obtains knowledge which has had or might reasonably be expected to have a material adverse effect on the Business or which if known as of the date hereof would have been required to be disclosed to Buyer. 5.3 CONDUCT OF BUSINESS. Prior to and for 30 days following Closing, Seller shall have the right, power and authority to use the Assets and continue the Business solely for the purpose of filling the Customer Order Backlog. To this end, Seller may deliver to its customers 12 any Inventory (for a period of 60 days following Closing) needed to fill the Customer Order Backlog and may complete the build out of any Work-In-Process. Any such Work-In-Process built out by Seller and constituting Inventory but not needed by Seller to fill the Customer Order Backlog shall, if purchased by Buyer pursuant to Section 2.2.1, be delivered to Buyer in accordance with Section 2.2.2(a). Seller covenants and agrees that it shall not without the prior consent in writing of Buyer which may not be unreasonably withheld: (a) conduct the Business in any manner except as provided in this Article 5 and consistent with prudent industry practice; (b) default in any of its obligations under any Assigned Contract or take any action that would jeopardize the continuance of its material supplier or customer relationships (it being understood that there cannot be any assurance that material suppliers or customers will initiate relationships with Buyer following Closing, PROVIDED that Seller shall reasonably cooperate with Buyer to induce such material suppliers or customers to initiate and develop relationships with Buyer following Closing); (c) terminate, amend or fail to renew any existing insurance coverage with respect to the Assets of the Business (it being understood that such insurance coverage will not apply or be continued following delivery of the Assets to the carrier who will transport the Assets to Buyer; (d) sell, transfer, mortgage, encumber or otherwise dispose of any Assets or any liabilities other than the Customer Order Backlog; or (e) agree to or make any commitment to take any actions prohibited by this Section 5.3. 5.4 PRESERVATION OF BUSINESS PRIOR TO DELIVERY DATE OF RETAINED EQUIPMENT. Prior to the date of delivery of the Retained Equipment, Seller will use its reasonable efforts to preserve the Business and to preserve the goodwill of customers, suppliers and others having business relations with Seller and shall fully cooperate with Buyer in making a smooth transition of the Assets and the Business to the Buyer (it being understood that the terms of this covenant shall not require Seller to pay money to any third parties other than in the ordinary course of business and consistent with past practices). 13 5.5 DISPOSAL OF INVENTORY AND EQUIPMENT NOT SELECTED FOR PURCHASE. Any Inventory or Equipment not selected for purchase by Buyer pursuant to Section 2.2.1 may be disposed of by Seller in any manner that Seller deems appropriate and nothing contained herein (including the Non-Competition Agreement) shall prevent Seller from selling or transferring such Inventory or Equipment to a competitor of Seller or Buyer or any vendor, broker or other person connected to or engaged in the Business or a similar business. ARTICLE 6 ADDITIONAL CONTINUING COVENANTS 6.1 PERMITS AND APPROVALS. Seller and Buyer each agree to cooperate and use their reasonable best efforts to obtain all Approvals and Permits (if any) not obtained on or before Closing pursuant to Section 7.2 that may be necessary or which may be reasonably requested by Buyer to consummate the Transactions. Notwithstanding anything herein to the contrary, the parties hereto acknowledge and agree that, Seller will not assign to Buyer any Assigned Contract that by its terms requires, prior to such assignment, the consent of any other contracting party thereto unless such consent has been obtained prior to the Closing. With respect to each such Assigned Contract not assigned at Closing, following Closing Seller shall continue to deal with the other contracting parties to such Assigned Contract as the prime contracting party, and Seller shall use its reasonable best efforts to obtain the consent of all required parties to the assignment of such Assigned Contract. Such Assigned Contract shall be promptly assigned by Seller to Buyer after receipt of such consent after Closing. Notwithstanding the absence of any such consent, Buyer shall be entitled to the benefits of such Assigned Contract accruing after Closing; Buyer agrees to perform all of the obligations of Seller to be performed under such Assigned Contract (other than any performance arising as a result of a breach by Seller) after the Closing. Seller shall pay all costs and expenses incurred by Buyer or Seller in obtaining any consents to the assignment of the Assigned Contracts pursuant to this Section 6.1. Buyer shall pay all costs and expenses incurred by Buyer or Seller in obtaining any Permits or other Approvals (other than consents to the Assigned Contracts) pursuant to this Section 6.1. Nothing contained in this Agreement shall require the Seller to pay money to any third party in order to obtain any consent to the assignment of an Assigned Contract. 6.2 NONDISCLOSURE OF PROPRIETARY DATA. Neither Seller nor any of its representatives or affiliates shall, at any time, make use of, divulge or otherwise disclose, directly or indirectly, any trade secret or other proprietary data (including, but not limited to, any customer list, record or financial information) concerning the Business; PROVIDED that Seller may make use of any trade secret or other proprietary data concerning the Business to the extent necessary to complete the build out of the Work-In-Process as contemplated in Sections 1.2 and 5.3. 14 In addition, neither Seller nor any of its representatives or affiliates shall make use of, divulge or otherwise disclose, directly or indirectly, to any person or entity other than Buyer, any confidential information concerning the Business. The terms of this covenant shall not apply with respect to trade secrets, proprietary data or information which (a) is or becomes generally available to the public other than as a result of a disclosure by the Seller or the Seller Representatives; or (b) becomes available to the Seller on a nonconfidential basis from a source other than the Buyer or the Buyer Representatives, provided, that the Seller has no reason to believe after due inquiry with Buyer that such source is not entitled to disclose the information to it or a nonconfidential basis. Furthermore, nothing contained herein shall be construed to prevent the Seller from making disclosures that may be required by applicable law, regulation or legal process. 6.3 ACCESS TO INFORMATION. Buyer shall, from and after the Closing, not destroy or dispose of the books and records of the Business relating to any period prior to the Closing for a period of 7 years after the Closing without giving adequate notice to the Seller of such pending disposal and offering Seller the right to copy or take possession of such records. Buyer shall give Seller and Seller's employees, counsel and accountants, full access upon reasonable notice during such times as may be agreed to between Buyer and Seller, to all such records for any proper purpose including, without limitation, in connection with the preparation of any tax returns or financial statements or in connection with any judicial, quasi judicial, administrative, tax audit or arbitration proceeding. Seller shall arrange for the access provided pursuant to this Section 6.3 only through David Werner or another authorized officer of Buyer. ARTICLE 7 CONDITIONS OF PURCHASE 7.1 GENERAL CONDITIONS. The obligations of the parties to effect the Closing shall be subject to the following condition: (a) NO ORDERS; LEGAL PROCEEDINGS. No law or order shall have been enacted, entered, issued, promulgated or enforced by any governmental entity, nor shall any legal proceedings have been instituted and remain pending or have been threatened and remain which prohibits or restricts or would (if successful) prohibit or restrict the Transactions. 7.2 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to effect the Closing are subject to the satisfaction or written waiver of each of the following conditions (it being understood that a waiver of a Closing condition shall also constitute a waiver of any post-Closing remedy (other than as provided in Section 9.8) that may otherwise be available to Buyer in respect of the matter or matters which cause the Closing condition not to be satisfied): 15 (a) REPRESENTATIONS AND WARRANTIES AND COVENANTS OF SELLER. The representations and warranties of Seller herein contained shall be true in all material respects as of the Closing; Seller shall have in all material respects performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing, and Seller shall have delivered to Buyer a certificate of Seller in form and substance satisfactory to Buyer, dated as of the Closing and signed by its Chief Executive Officer or Chief Financial Officer to such effect. (b) Buyer shall have received certified copies of resolutions passed by the respective Boards of Directors of Seller and Intellectual Property Seller authorizing and approving the Transactions and the Transaction Documents. 7.3 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to effect the Closing are subject, at the option of Seller, to the satisfaction or written waiver of the following condition (it being understood that a waiver of a Closing condition shall also constitute a waiver of any post-Closing remedy (other than as provided in Section 9.8) that may otherwise be available to Seller in respect of the matter or matters which cause the Closing condition not to be satisfied): (a) REPRESENTATIONS AND WARRANTIES OF BUYER. The representations and warranties of Buyer herein contained shall be true in all material respects as of the Closing; Buyer shall have in all material respects performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing, and Buyer shall have delivered to Seller a certificate of Buyer in form and substance satisfactory to Seller, dated as of the Closing and signed by its Chief Executive Officer or Chief Financial Officer, to such effect. ARTICLE 8 INDEMNIFICATION 8.1 OBLIGATIONS OF SELLER. Following Closing, Seller agrees to indemnify and hold harmless Buyer and its directors, officers, employees, affiliates, agents and assigns during the periods specified below from and against any and all losses or damages, directly or indirectly, as a result of, or based upon or arising from: (a) any breach of any representation, warranty or covenant of Seller made in this Agreement, for the periods covered by Section 9.9; (b) any claims (other than those arising under (a), (c) or (d) of this Section 8.1) made after the Closing to the extent and only to the extent that such claims relate (i) to the conduct of the Business before Closing or (ii) to the build out of the 16 Work-In-Process and the filling of the Customer Order Backlog as contemplated in Sections 1.2 and 5.3, in each case, indefinitely; (c) any products liability claims made prior to or after Closing to the extent and only to the extent that such claims relate to products manufactured and sold (even if not delivered) by Seller in the conduct of its Business prior to Closing, indefinitely; or (d) any recall of products effective on or after the date hereof mandated as to Buyer by any federal, state, local or foreign governmental authority to the extent and only to the extent that such recall relates to products manufactured and sold (even if not delivered) by Seller prior to Closing, indefinitely. 8.2 OBLIGATIONS OF BUYER. Following Closing, Buyer agrees to indemnify and hold harmless Seller and its directors, officers, employees, affiliates, agents and assigns during the periods set forth below from and against any and all losses or damages, directly or indirectly, as a result of, or based upon or arising from: (a) any breach of any representation, warranty or covenant of Seller made in this Agreement, for the periods covered by Section 9.9; (b) any claims (other than those arising under (a), (c) or (d) of this Section 8.2) made after the Closing with respect to the conduct of the Business by Buyer following the Closing, indefinitely; (c) any products liability claims made after Closing to the extent and only to the extent that such claims relate to the products manufactured and sold by Buyer in the conduct of the Business after the Closing, indefinitely; (d) any recall of products effective on or after Closing mandated as to Seller by any federal, state, local or foreign governmental authority to the extent and only to the extent that such recall relates to products manufactured and sold by Buyer after Closing, indefinitely; or (e) any failure of Buyer to satisfy, perform, pay and discharge the Assumed Liabilities to the extent assumed by Buyer pursuant to Section 2.5 and the Assignment and Assumption Agreement. 8.3 NOTICE AND DEFENSE. If Buyer or Seller is seeking indemnification (the party seeking indemnification to be referred to as the "INDEMNIFIED PARTY") and desires to make a claim against the other party for indemnification (the "INDEMNIFYING PARTY") under this Article 8, the Indemnified Party shall, within 30 days after the Indemnified Party becomes aware of a claim by notice or knowledge, notify the Indemnifying Party in 17 writing of any claim or demand as to which the Indemnified Party is entitled to claim indemnification, the section under this Agreement with respect to which such claim is being made and, to the extent known, the amount and circumstances surrounding such claim. In the event the claim is a third party claim against an Indemnified Party or involves a claim by or liability involving a governmental authority, the Indemnifying Party shall have the right to employ counsel of its choice to defend any such claim or demand; provided, however, that (i) the Indemnified Party is kept fully informed of all developments and is furnished copies of all relevant papers; (ii) the Indemnifying Party diligently prosecutes the defense; and (iii) the Indemnified Party shall have the right to participate, at its own undertaking and through counsel selected by it, in the defense of any such claim. If the conditions of the foregoing proviso are not met, or if the Indemnifying Party chooses not to control the defense, the Indemnified Party shall assume and control the defense of such third party claim or suit at the expense of the Indemnifying Party. The Indemnifying Party, or, if the conditions to the foregoing proviso are not met, the Indemnified Party, shall have the right to pay, compromise or settle any such third party claim with the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. ARTICLE 9 GENERAL 9.1 AMENDMENTS; WAIVERS. This Agreement and any schedule or exhibit attached hereto may be amended only by agreement in writing of all parties. No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided. 9.2 SCHEDULES; EXHIBITS; INTEGRATION. Each schedule and exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement, although schedules need not be attached to each copy of this Agreement. This Agreement, together with such schedules and exhibits, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith. 9.3 FURTHER ASSURANCES. Each party shall execute and deliver both before and after the date hereof such further certificates, agreements and other documents and take such other actions as the other party may reasonably request to consummate or implement the transactions contemplated hereby or to evidence such events or matters. In furtherance and not in limitation of the foregoing, Seller and Intellectual Property Seller shall execute and deliver any and all documents and perform any actions (including the payment of money 18 to third parties) necessary to release and terminate any liens of any type whatsoever (other than liens created by Buyer) that may exist on any of the Assets purchased by Buyer. Seller and Intellectual Property Seller shall also execute and deliver any and all documents and perform any actions (other than the payment of recording and filing fees) necessary to make any filings with any governmental entity or office (foreign or domestic) necessary to record and/or perfect Buyer's interests in the Assets. 9.4 GOVERNING LAW. This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and performed in such State and without regard to conflicts of law doctrines except to the extent that certain matters are preempted by federal law or are governed by the law of the jurisdiction of incorporation of the respective parties. 9.5 COUNTERPARTS. This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each party and delivered to the other party. 9.6 REMEDIES CUMULATIVE. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. In addition, Article 9 shall not be deemed to preclude or otherwise limit in any way the exercise of any other rights or pursuit of other remedies for the breach of this Agreement or with respect to any misrepresentation. 9.7 NOTICES. Any notice or other communication hereunder must be given in writing and (a) delivered in person, (b) transmitted by telex, telefax or telecommunications mechanism, provided that any notice so given is also mailed as provided in clause (c), or (c) mailed by certified or registered mail, postage prepaid, receipt requested as follows: IF TO BUYER, ADDRESSED TO: Kaynar Technologies Inc. 800 South State College Fullerton, California 92634-4001 Telephone: (714) 449-4304 Facsimile: (714) 680-3153 Attention: David A. Werner 19 WITH A COPY TO: O'Melveny & Myers 400 South Hope Street, 15th Floor Los Angeles, California 90071 Telephone: (213) 669-6000 Facsimile: (213) 669-6407 Attention: C. James Levin and Stuart Y. Kim IF TO SELLER OR INTELLECTUAL PROPERTY SELLER, ADDRESSED TO: Emhart Industries, Inc. 510 River Road Shelton, Connecticut 06484 Telephone: (203) 925-4422 Facsimile: (203) 925-3255 Attention: Robert McCue WITH A COPY TO: Charles E. Fenton, Esquire Vice President and General Counsel The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 AND John B. Frisch, Esquire Miles & Stockbridge, a Professional Corporation 10 Light Street Baltimore, Maryland 21202 or to such other address or to such other person as either party shall have last designated by such notice to the other party. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in (or pursuant to) this Section 9.7 and an appropriate answerback is received, (ii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when actually received at such address. 9.8 EXPENSES AND ATTORNEYS FEES. Seller and Buyer shall each pay their own expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby, including but not limited to the fees, expenses and disbursements 20 of their respective accountants and counsel; provided that Seller shall pay or reimburse Buyer for any and all fees and disbursements of Buyer's counsel if Closing does not occur as a result of Seller's refusal to consummate the Closing despite the fact that all of the conditions to Closing set forth in Sections 7.1 and 7.3 have been satisfied. Buyer shall pay or reimburse Seller for any and all fees and expenses of Seller's counsel if the Closing does not occur due to Buyer's refusal to consummate the Closing despite the fact that all of the conditions to Closing set forth in Sections 7.1 and 7.2 have been satisfied. In the event of any legal proceedings for the breach of this Agreement by any party, the prevailing party shall be entitled to reasonable attorney's fees, costs and expenses incurred in such legal proceedings. 9.9 SURVIVAL. The representations and warranties and agreements contained in or made pursuant to this Agreement shall expire on the first anniversary of the Closing except that (i) the representations and warranties contained in Sections 3.1, 3.2, 3.3, 4.1, 4.2 and 4.3 shall survive the Closing and shall remain in full force and effect indefinitely, (ii) the agreements made in Article 8 shall continue for the periods set forth therein, (iii) this Section 9.9 shall be continuing indefinitely and (iv) the provisions of Section 6.3 shall continue to the periods specified therein. 9.10 SPECIFIC PERFORMANCE; RETURN OF INITIAL PAYMENT. Seller acknowledges that, in view of the uniqueness of the Business and the transactions contemplated by this Agreement, Buyer would not have an adequate remedy at law for money damages in the event that this Agreement has not been performed in accordance with its terms, and therefore agrees that Buyer shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which it may be entitled, at law or in equity. Notwithstanding anything contained herein to the contrary, in the event that Closing does not occur because the conditions to Buyer's obligations to proceed to Closing set forth in Sections 7.1 and 7.2 have not been satisfied, or because Seller refuses to consummate the Closing even though the conditions to Seller's obligations to proceed to Closing set forth in Sections 7.1 and 7.3 have been satisfied, Seller shall immediately refund the Initial Payment by wire transfer in immediately available funds to Buyer and in that event Buyer shall not be entitled to any other remedy (other than as provided in Section 9.8) or to otherwise proceed against Seller. 9.11 BULK TRANSFER LAWS. Seller and Buyer hereby waive compliance with any applicable bulk transfer laws, including, but not limited to, the bulk transfer provisions of the Uniform Commercial Code of any state, or any similar statute, with respect to the transactions contemplated hereby. Seller agrees to indemnify, defend and hold harmless Buyer from any and all losses and damages resulting from the assertion of claims made against the Assets sold hereunder or against Buyer by creditors of Seller under any bulk sales law with respect to liabilities and obligations of Seller not assumed by Buyer hereunder. 21 9.12 NO ASSIGNMENT. Neither this Agreement nor any rights or obligations under it are assignable by either party without the prior written consent of the other party. 9.13 HEADINGS. The descriptive headings of the Articles, Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement. ARTICLE 10 DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (a) the terms defined in this Article 11 have the meanings assigned to them in this Article 11 and include the plural as well as the singular, (b) all accounting terms not otherwise defined herein have the meanings assigned under GAAP, (c) all references in this Agreement to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of the body of this Agreement, (d) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms, and (e) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. As used in this Agreement and the Exhibits and Schedules delivered pursuant to this Agreement, the following definitions shall apply. "ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS" means an Assignment of Intellectual Property Rights substantially in the form of Exhibit C hereto. "ASSIGNMENT AND ASSUMPTION AGREEMENT" means an Assignment and Assumption Agreement substantially in the form of Exhibit A hereto. "BILL OF SALE" means a Bill of Sale substantially in the form of Exhibit B hereto. 22 "BUSINESS" means the Seller's business of manufacturing, producing and selling the "KELOX" product line of products as identified on Exhibit F annexed hereto. "CLOSING" has the meaning given thereto in Section 2.1. "CONTRACT" means any contract, agreement, lease, license, sales order, purchase order, or other legally binding commitment or instrument, whether or not in writing. "CUSTOMER ORDER BACKLOG" has the meaning given thereto in Section 1.1.2. "GAAP" means generally accepted accounting principles in the United States, as in effect on the date hereof. "NON-COMPETITION AGREEMENT" means the Non-Competition Agreement substantially in the form of Exhibit D hereto. "PERMIT" means any license, permit, franchise, certificate of authority, or order, or any waiver of the foregoing, required to be issued by any governmental entity in connection with the Assets or the Business. "TRANSACTION DOCUMENTS" means this Agreement, the Assignment and Assumption Agreement, the Bill of Sale, Non-Competition Agreement and the Assignment of Intellectual Property. "TRANSACTIONS" means the transactions contemplated by the Transaction Documents. "VALIANT SUPPLY AGREEMENT" means the agreement attached hereto as Exhibit E. 23 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officers as of the day and year first above written. BUYER KAYNAR TECHNOLOGIES INC. By: /s/ David A. Werner -------------------------- Name: David A. Werner Title: Vice President SELLER EMHART INDUSTRIES, INC. By: /s/ Charles E. Fenton -------------------------- Name: Charles E. Fenton Title: Vice President INTELLECTUAL PROPERTY SELLER EMHART, INC. By: /s/ Charles E. Fenton -------------------------- Name: Charles E. Fenton Title: Vice President 24 EX-2.3(A) 3 EX 2.3(A) AUSTRALIAN ASSET SALE AGREEMENT DATED 9 August 1996 - ------------------------------------------------------------------------------- RECOIL PTY LTD -and- RECOIL INC. - and - ADVENT LIMITED -and- AUSTRALIAN PACIFIC TECHNOLOGY LIMITED -and- WESTERN PACIFIC INVESTMENT COMPANY LIMITED -and- MR B. PRICE -and- B. PRICE HOLDINGS PTY LTD -and- LENARDE PTY LTD -and- KAYNAR TECHNOLOGIES INC. -and- RCL PTY ------------------------------------------------------------------- AUSTRALIAN ASSET SALE AGREEMENT ------------------------------------------------------------------- I do hereby certify that this is a true and complete copy of the Australian Asset Sale Agreement of 148 pages. /s/ Tom Rowan 9/8/96 Thomas J Rowan 600 Bourke Street, MELBOURNE A Solicitor holding a current Practising Certificate under the Legal Profession Practice Act 1958. [LETTERHEAD] INDEX CLAUSE PAGE - ------ ---- NO. --- 1. DEFINITIONS AND INTERPRETATION 2 2. SALE OF BUSINESS ASSETS 13 3. CONSIDERATION 14 4. CONDITIONS PRECEDENT 17 5. STOCKTAKE 19 6. COMPLETION 19 7. ACCOUNTS, NET TANGIBLE ASSETS AND OTHER MATTERS 23 8. TRANSFERRING EMPLOYEES 25 9. BUSINESS CONTRACTS AND TRANSFERRED LEASES 26 9A. BUSINESS CONTRACTS 27 9B. TRANSFERRED LEASES 28 10. BUSINESS LIABILITIES AND INDEMNITIES BY THE PURCHASER AND THE VENDORS 28 11. CHANGE OF NAME 30 12. RESTRAINT 30 13. BOOK DEBTS 32 14. RIGHTS AND OBLIGATIONS PENDING COMPLETION 33 15. KAYNAR GUARANTEE AND INDEMNITY 34 16. WARRANTIES 36 17. SUPERANNUATION 39 18. ACCESS TO BUSINESS RECORDS 39 19. JOINT AND SEVERAL LIABILITY 39 20. CONFIDENTIALITY 39 21. MOREN LITIGATION 40 22. GENERAL 41 23. ENVIRONMENTAL REPORT 44 INDEX CONT'D SCHEDULE 1 - Business Contracts SCHEDULE 2 - Business Records SCHEDULE 3 - Industrial and Intellectual Property SCHEDULE 4 - Plant & Equipment SCHEDULE 5 - Subsidiaries and Subsidiary Shares SCHEDULE 6 - Transferring Employees SCHEDULE 7 - Transferred Leases SCHEDULE 8 - Industrial and Intellectual Property Deed of Assignment SCHEDULE 9 - ITES Loan SCHEDULE 10 - Warranted Subsidiary Matters SCHEDULE 11 - Warranties and Representations SCHEDULE 12 - Due Diligence Disclosure SCHEDULE 13 - Superannuation Funds SCHEDULE 14 - Book Debt Deed of Assignment and Notice ASSET SALE AGREEMENT THIS AGREEMENT is made the 9th day of August 1996. BETWEEN RECOIL PTY LTD ACN 006 664 731 of 20 Stamford Road, Oakleigh, Victoria ("the Company") AND RECOIL INC of 1051 Third Avenue, SW, Indianapolis, Indiana, United States ("the US Subsidiary") AND ADVENT LIMITED ACN 006 509 708 of 6th Floor, 410 Collins Street, Melbourne ("AL") AND AUSTRALIAN PACIFIC TECHNOLOGY LIMITED ACN 006 212 764 of 6th Floor, 410 Collins Street, Melbourne ("APT") AND WESTERN PACIFIC INVESTMENT COMPANY LIMITED ACN 006 254 502 of 6th Floor, 410 Collins Street, Melbourne ("WPI") (and AL, APT and WPI are called "the Advent Group") AND MR B. PRICE of 59 Glyndon Road, Camberwell, Victoria ("Mr Price") AND B. PRICE HOLDINGS PTY LTD ACN 073 779 352 of 59 Glyndon Road, Camberwell, Victoria ("BPH"); AND LENARDE PTY LTD 005 846 597 of 59 Glyndon Road, Camberwell, Victoria ("Lenarde") (and Mr Price, BPH and Lenarde are called "the Price Interests") (and the Advent Group, BPH and Lenarde are called "the Shareholder Vendors") (and the Company and the Shareholder Vendors are called "the Vendors") AND KAYNAR TECHNOLOGIES INC. of 800 State College Boulevard, Fullerton, California, United States ("Kaynar") AND RCL PTY ACN 073 750 428 of 20 Stamford Road, Oakleigh, Victoria ("the Purchaser") - 2 - WHEREAS: 1. The Company: (a) Employs the Business Assets in the Australian Business in Australia; and (b) On or before the Effective Date will sell, or otherwise transfer legal and beneficial interest in the Business Assets, other than the Book Debts, the ITES Loan, the Stock, the Subsidiary Shares and the Transferred Leases to the Shareholder Vendors; and (c) Will continue to own the Book Debts, ITES Loan, the Stock, Subsidiary Shares and Transferred Leases. B. The US Subsidiary has employed the US Assets in the US Business in the United States of America. C. The Vendors have agreed to sell to the Purchaser, and the Purchaser has agreed to purchase from the Vendors, all the Business Assets other than the Subsidiary Shares, upon and subject to the terms and conditions set out herein. D. The Vendors have agreed to sell, and Kaynar has agreed to purchase (or nominate another to purchase), the Subsidiary Shares. E. The US Subsidiary has agreed to sell, and Kaynar has agreed to purchase from the US Subsidiary, the US Business Assets upon the terms and conditions of the US Asset Sale Agreement. NOW IT IS AGREED AS FOLLOWS: 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement, unless the context otherwise requires, the following terms have the following meanings: (a) "Accounts" means the consolidated audited balance sheet and the profit and loss statement and accompanying notes of the Company and its Subsidiaries at the Effective Date prepared in accordance with Australian Accounting Principles; (b) "Australian Accounting Principles" means: (i) The applicable accounting standards and practices required by the Corporations Law; - 3 - (ii) The accounting standards and practices issued by or on behalf of the Institute of Chartered Accountants in Australia or Australian Society of Certified Practising Accountants, and any successor to either of those bodies; and (iii) If there are no explicit accounting standards and practices, those generally accepted in Australia; (c) "Australian Business" means the business of manufacturing and selling helically wound threads and thread insert kits carried on by the Company in Australia, the assets of which will be owned by the Vendors in the manner described in the Recitals to this Agreement; (d) "Bank Charge" means the fixed and floating charge given by the Company to National Australia Bank Limited registered with the Australian Securities Commission and numbered 92103 securing a maximum liability of approximately $1,100,000; (e) "BBB Rate" means the rate expressed as a percentage per annum equal to the average of the bank bill buying rates which appear on the page designated as BBSW on the Reuters Monitor System or such other page as may replace the BBSW page or such other system for the purpose of displaying the bank bill buying rate for bills of exchange having a term of 90 days, at or about 10.30am on the day for determining the BBB Rate; (eA) "Book Debt Amount" means $1,410,291; (f) "Book Debts" means any debt due to the Company at the Effective Date or to become due to it at some future time on account of the Australian Business carried on by the Company at any time up to the Effective Date including any amounts owed to the Company by the Subsidiaries, other than the US Subsidiary; (h) "Business Assets" means each of the: (i) Book Debts; (ii) Business Contracts; (iii) Business Records; (iv) Industrial and Intellectual Property; (v) Licences; (vi) Plant and Equipment; - 4 - (vii) Stationery and Supplies; (viii) Stock; (ix) Subsidiary Shares; (x) Transferred Leases; and all other assets directly associated with and of benefit to the ongoing Australian Business, other than the Excluded Assets; (i) "Business Contracts" means each of the contracts entered into by the Company and others in the Australian Business including, without limitation, those more particularly described in Schedule 1, all of which are owned by the Vendors; (j) "Business Day" means any day on which the majority of banks carrying on business in the cities of Melbourne and Los Angeles are open for business; (k) "Business Liabilities" means: (i) The actual liabilities of the Vendors relating to the Australian Business as at the Effective Date disclosed in the Accounts; and (ii) Any Claim of a Transferring Employee for or in respect of severance or termination of employment the subject of the indemnity from the Purchaser under clause 8.7, but excluding the Excluded Liabilities; (m) "Business Records" means each of the records of the Company including, without limitation, those more particularly described in Schedule 2, all of which are owned by the Vendors; (n) "Claim" means any claim or cause of action in contract, tort, under statute or otherwise; (o) "Company's Auditor" means Bird Cameron Partners; (p) "Completion Date" means the first Business Day following the Effective Date or such other date as the parties may agree; - 5 - (q) "Completion Statement" means the statements prepared in accordance with clause 7 as at the Effective Date and Retention Date, as the case may be; (qA) "Composite Purchase Price" means $14,700,000; (r) "Effective Date" means the date notified under clause 6.2 or such other date as the parties may agree; (s) "Encumbrance" means a mortgage, Claim, security interest, title defect, charge, pledge, lien, option, restriction as to transfer, use or possession, easement, subordination to any right of any other person, or other encumbrance, but does not include a lien arising as a matter of law or title retention in respect of Stock which lien or title retention will be discharged by payment of the Business Liabilities to be assumed by the Purchaser and includes the Bank Charge; (t) "Excluded Assets" means each of the following assets of the Vendors: (i) Any amount owed by the US Subsidiary to the Company disclosed in the Accounts; (ii) Any future income tax benefit of the Company; (iii) Any amount owed or paid by, or any consideration provided by, any of the: A. Shareholder Vendors to the Company in relation to the acquisition by them of the Business Assets including, but not limited to, the assumption by them of any Business Liabilities or any other liability of the Company; and B. Transferring Employees to the Company in relation to the exercise of any option over shares in the capital of the Company; (iv) The shares in the French Subsidiary held by Recoil (Europe) Ltd; and (v) Any amount owed or paid to the Company and not disclosed in the Accounts; (u) "Excluded Liabilities" means each of the following liabilities of the Vendors and whether existing on, or after, the Effective Date and whether asserted or unasserted, liquidated or unliquidated, contingent or non-contingent: - 6 - (i) Any cost and expense incurred by the Vendors and any liability of the Vendors arising in relation to: A. This Agreement; B. The acquisition by the Shareholder Vendors of the Business Assets and the assumption by them of the Business Liabilities and any other liability of the Company; C. The liquidation of the US Subsidiary; D. The French Subsidiary, including but not limited to any liability arising in relation to the liquidation of that company; E. The acquisition by the Company of any share or option over any share in its capital held by any of the Price Interests or any employee of the Company, including, but not limited to, the cost of the Company's Auditor of performing any function under clause 7, any legal fees, accountants' fees, tax advisers' fees, other consultants' fees, stamp duty and Taxes and whether of an income or capital nature or otherwise; (ii) Any liability of the Company to pay income taxes under the Income Tax Assessment Act 1936 (Commonwealth of Australia) and the US Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder; (iii) Any amount owed by the Company to Mr Paul Dowling or to AL, where AL has paid any such amount to Mr Dowling on the Company's behalf; (iv) Any amount owed by the Company to Mr Ken Jones in respect of the sale by the Vendors of the Business Assets to the Purchaser and Kaynar; and (v) Any liability not disclosed in the Accounts resulting from or under any employee benefit plan of the Company or the Subsidiaries, whether to current employees, former employees, retired employees or other persons entitled to receive payments under such plans or the beneficiaries of any of the foregoing; (vi) Subject to clause 21, any liability not disclosed in the Accounts with respect to Claims, investigations or arbitration or other litigation - 7 - pending on the Effective Date or which arises on or after the Effective Date as a result of events occurring prior to the Effective Date; (vii) Subject to clause 8, any liability arising out of Claims by Transferring Employees which are not fully indemnified under indemnity compensation insurance pending on the Effective Date (or which arise after the Effective Date but are based on facts or circumstances occurring prior to the Effective Date), including but not limited to Claims for unpaid salary and wages, bonuses, violation of any industrial award or workplace or employment or collective agreement, unfair work practices, working condition, violation of equal opportunity or race discrimination legislation, Taxes, violation of workplace health and safety legislation or sick leave entitlements; (viii) Any liability arising from Claims brought by former employees of the Company who are not Transferring Employees; (ix) Any product liability Claims arising from or related to any product manufactured by the Company prior to the Effective Date, subject to the Purchaser maintaining product liability insurance at least equivalent to that maintained by the Vendors as at the Effective Date; (x) Any liability in respect of a violation or contravention by the Vendors or any of their directors or officers of any environmental law or any licences, approvals, consents, permission or permits issued under any environmental law; (xi) For the period from the Effective Date to: A. 31 July 2000, in the case of the property at 20 Stamford Road, Oakleigh, Victoria, 3166, Australia; B. 28 September 1997, in the case of the property at Unit 7, Fallings Park Industrial Estate, Park Lane, Wolverhampton, WV109QE, United Kingdom; and C. 30 April 1997, in the case of the property at Langestraat 103, B9300, Aalst, Belgium, any liability as a result of events occurring prior to the Effective Date in respect of any pollution, contamination or any hazardous or toxic spill, leak or discharge of whatever nature - 8 - affecting those properties including any liability: D. Under any notice, direction or order issued by any government or semi-government body to clean up, decontaminate or take remedial action to make good under any environmental law; E. Arising from any Claim concerning property damage or personal injury or death; F. In respect of the generation, treatment, storage, release or disposal or any hazardous material; or G. As a result of the property listed in Part A of Schedule 7 being located on a landfill site, but excluding any liability as a result of subsidence on any of the properties referred to in this paragraph (xi); (xii) Any liability in connection with any violation or alleged violation of any law by the Vendors; (xiii) For a period of two years from the Completion Date, in respect of any Claims relating to the infringement by the Vendors of third party rights and the infringement of such rights by the Purchaser or Kaynar as a result of the use by the Purchaser or Kaynar of the Trademarks described in Schedule 3; and (xiv) Any other liability which is not a Business Liability; (vA) "French Subsidiary" means Recoil SARL; (v) "Industrial and Intellectual Property" means all industrial and intellectual property of the Australian Business, including, without limitation: (i) All patents and patent applications used in connection with the Australian Business, all of which are owned by the Vendors; (ii) All copyright, industrial designs, inventions, trade secrets, confidential information and knowhow and all other intellectual property used in connection with the Australian Business, all of which, registered or not, are owned by the Vendors; and - 9 - (iii) All customer lists, and including all rights to use the Trademarks, research and development, and all of the goodwill of the Australian Business including the right for the Purchaser to represent itself as carrying on the Australian Business as the successor of the Vendors; (vA) "Initial Instalment" means the difference between: (i) The Interim Purchase Price; and (ii) The sum of the Book Debt Amount and the Retention Amount; (vB) "Interim Purchase Price" means the difference between: (i) $14,700,000; and (ii) The sum of the Subsidiary Share Price and the US Purchase Price; (w) "ITES Loan" means the loan made by The Australian Trade Commission to the Company under the International Trade Enhancement Scheme under an agreement of 17 March 1994, and which is owned by the Company; (wA) "Licences" means all licences, permits, consents and approvals from government and non-government bodies; (x) "Loss" means any damage, loss, cost, Claim, liability, charge, expense, diminution in value or deficiency of any kind or character (including loss of property or expected profit); (y) "Net Assets of the Company" means the difference between: (i) The total assets; and (ii) The total liabilities, of the Company and its Subsidiaries determined on a consolidated basis at the Effective Date, as if the transactions set out in recital A(b) had not taken place, in accordance with clause 7; (z) "Plant and Equipment" means all plant and equipment used in the Australian Business on the Effective Date including, without limitation and subject to clause 6.4, the plant and equipment described in Schedule 4, including all plant and equipment under construction, all of which is owned by the Vendors; - 10 - (zA) "Purchase Price" means: (i) The sum of the Interim Purchase Price and the amount of that excess referred to in clause 3.5(a)(i); or (ii) The difference between the Interim Purchase Price and that amount referred to in clause 3.5(b)(i), (as the case may be); (aa) "Purchaser's Auditor" means Arthur Andersen; (aaA) "Purchaser's Stakeholder" means Corrs Chambers Westgarth, solicitors, of 600 Bourke Street, Melbourne; (bb) "R & D Grant" means the grant made by the Industry Research and Development Board to the Company under an agreement dated 4 February 1992; (bbA) "Retention Amount" means $1,000,000; (cc) "Retention Date" means the first Business Day which falls after 45 days after the Completion Date, or such other date as the parties may agree; (dd) "Stationery and Supplies" means all stationery and supplies used in the Australian Business on the Effective Date including, without limitation, advertising material, samples, catalogues, brochures, consumables, spare parts and tools all of which are owned by the Vendors; (ee) "Stock" means the stock used in the Australian Business on the Effective Date, including without limitation, stock in transit, raw materials, components, work in progress, finished goods, partly finished goods, spare parts, consumables, pallets and packaging material, all of which are owned by the Company; (ff) "Subsidiaries" means the companies described in Schedule 5 as such; (gg) "Subsidiary Shares" means the shares, described in Schedule 5, in the Subsidiaries, other than the US Subsidiary, all of which are owned by the Company; (ggA)"Subsidiary Shares Price" means the price paid by Kaynar for the purchase of the Subsidiary Shares, which amount will be the amount shown in Schedule 5; - 11 - (hh) "Superannuation Funds" means the superannuation funds set out in Schedule 13; (hhA) "Tax" and "Taxes" means: (i) All taxes levied, imposed or assessed under the Income Tax Assessment Act 1936 (Commonwealth of Australia) or any other statute, ordinance or law, in Australia; (ii) All taxes levied, imposed or assessed under the tax legislation, or any other statute, ordinance or law in the United States of America, the United Kingdom, Belgium or elsewhere; and (iii) Taxes in the nature of sales tax, excise, consumption tax, value added tax, payroll tax, group tax, pay as you earn tax, superannuation contributions, workers' compensation contributions, social security, pension fund and other obligatory contributions undistributed profits tax, fringe benefits tax, recoupment tax, withholding tax, land tax, water rates, municipal rates, stamp duties, gift duties or other foreign, national, state, territorial, Commonwealth, local or municipal taxes, charges or impositions levied, imposed or collected by any government body in Australia, the United States of America, the United Kingdom, Belgium, or elsewhere, together with any additional tax, interest, penalty, charge, fee or other amount of any kind assessed, charged or imposed and any loss in connection with the determination, settlement or litigation of any Tax liability; (ii) "Trademarks" means all of the trademarks of the Australian Business including, without limitation: (i) Each and every trademark which is registered or for which an application is pending; (ii) Such unregistered rights as may exist through use, including trademarks, trade dress, brand names, logos and other names and slogans embodying goodwill associated with any product; and (iii) Any goodwill incidental to such trademark used by or on behalf of the Vendors in relation to the Australian Business including, without limitation, the trademarks described in Schedule 3; - 12 - (jj) "Transferred Leases" means the leases of the real property described in Part A of Schedule 7 and chattels described in Part B of Schedule 7 entered into by the Company and others and which are owned by the Company; (kk) "Transferring Employees" means, subject to clause 6.4, the persons more particularly described in Schedule 6; (ll) "US Asset Sale Agreement" means the agreement between Kaynar and the US Subsidiary bearing or intended to bear even date, relating to the sale by the US Subsidiary to Kaynar of the US Assets. (mm) "US Assets" means the assets to be sold by the US Subsidiary to Kaynar under the US Asset Sale Agreement; (nn) "US Business" means the business of selling helically wound thread and thread insert kits carried on by the US Subsidiary in the United States of America; and (oo) "US Purchase Price" means the amount to be paid to the US Subsidiary by Kaynar under the US Asset Sale Agreement being $1,875,000. (pp) "Vendor's Stakeholder" means Norton Smith Gledhill, solicitors, of level 23, 459 Collins Street, Melbourne. 1.2 In this Agreement, unless the context otherwise requires: (a) Words importing one gender shall include the other and neuter genders; (b) Persons shall include corporations and vice versa; (c) The singular number shall include the plural number and vice versa; (d) A reference to any statute or regulation or other law includes a reference to that statute, regulation or other law as modified, amended, or re-enacted from time to time, and any reference to any provision thereof is to that provision as so modified, amended or re-enacted; and (e) A reference to $ or dollars is a reference to the lawful currency of Australia. 1.3 Headings used herein are inserted for ease of reference and shall not affect in any way the meaning of this Agreement. - 13 - 1.4 References to clauses, sub-clauses and paragraphs are references to clauses, sub-clauses and paragraphs of this Agreement and a reference to this Agreement includes the Schedules to this Agreement. 1.5 In this Agreement, unless the contrary intention requires, references to the ownership sale, receipt of payment for or any other treatment of the Business Assets by the Vendors shall be construed as if the Business Assets are owned by the Vendors in the manner described in Recital A to this Agreement. 2. SALE OF BUSINESS ASSETS 2.1 On the Completion Date, but with effect from the Effective Date: (a) The Vendors, as legal and beneficial owners of the Business Assets respectively owned by them as described in this Agreement, hereby sell, assign and transfer, free from all Encumbrances: (i) The Business Assets, other than the Subsidiary Shares, to the Purchaser; and (ii) The Subsidiary Shares to Kaynar or its nominee; and (b) The Purchaser hereby purchases and has assigned and transferred from the Vendors the Business Assets, other than the Subsidiary Shares, respectively owned by them; and (c) Kaynar hereby purchases and has assigned and transferred from the Company the Subsidiary Shares, upon and subject to the terms and conditions of this Agreement, it being the intention of the parties that the Purchaser shall become the legal and beneficial owner of the Business Assets other than the Subsidiary Shares and Kaynar or its nominee shall become the legal and beneficial owner of the Subsidiary Shares, in each case on and from the Effective Date, and be entitled to the rights and obligations in relation to the Business Assets from the Effective Date. 2.2 Kaynar shall have the right two (2) Business Days before the Completion Date to nominate to the Company in writing a person other than itself as the purchaser of all or any of the Subsidiary Shares under this Agreement, and the person so nominated may purchase the Subsidiary Shares on the terms and conditions of this Agreement. - 14 - 2.3 The liability of Kaynar to pay the amount due under this Agreement for the sale and purchase of the Subsidiary Shares shall not in any way be affected by the exercise of its right to nominate some other person to purchase the Subsidiary Shares. 3. CONSIDERATION 3.1 The consideration for the sale and purchase of the Business Assets shall be the: (a) Assumption by the Purchaser of the Business Liabilities on the Completion Date but with effect from the Effective Date; (b) Payment by the Purchaser of the Purchase Price under this clause 3; and (c) Payment by Kaynar of the Subsidiary Shares Price under this clause 3. 3.2 The Purchase Price shall be applied as follows: (a) Book Debts, the face value of the Book Debts shown in the Accounts less all proper provisions in the Accounts for bad and doubtful debts; (b) Business Records, $1.00; (c) Plant and Equipment, $3,600,000; (d) Stock, the amount determined under clause 5; (e) Stationery and Supplies, $1.00; (f) Transferred Leases, $1.00; (g) Licences and all other Business Assets, $1.00; and (h) Business Contracts and Industrial and Intellectual Property, the balance, and the Vendors, Kaynar and the Purchaser each agree to file U.S. Internal Revenue Service Form 8594, and all federal, state, local and foreign tax returns, in accordance with the above calculation and allocation of the Purchase Price. 3.3 (a) On the Completion Date the Purchaser shall pay the Interim Purchase Price by paying on that date the: - 15 - (i) A. Book Debt Amount; and B. Retention Amount, to the Purchaser's Stakeholder, to be held in an interest bearing trust account for the benefit of the Purchaser and the Vendors and to be paid in accordance with this Agreement, and (ii) The Initial Instalment to the Vendors' Stakeholder. (b) The Purchaser shall, not later than eighteen (18) days after the Completion Date, procure the Purchaser's Stakeholder to pay the Book Debt Amount and any interest earned on the Book Debt Amount to the Vendors' Stakeholder. (c) The Composite Purchase Price shall be adjusted, and any amounts payable under clause 3.5 (including interest earned on the Retention Amount) which are held by the Purchaser's Stakeholder shall be paid in accordance with clause 3.5 and as follows, if the amount due under clause 3.5 is: (i) Agreed under clause 7 before the Retention Date, the Purchaser shall procure the Purchaser's Stakeholder to pay the amount no later than the Retention Date; (ii) Not agreed under clause 7 before the Retention Date, the Purchaser shall: A. Procure the Purchaser's Stakeholder to pay the amount which is not in dispute under clause 7 no later than the Retention Date; and B. Procure the Purchaser's Stakeholder to continue to hold any amount in dispute under clause 7 until the dispute is resolved by the independent chartered accountant appointed under clause 7.4. Upon resolution of the dispute by the independent chartered accountant, the Purchaser shall procure the Purchaser's Stakeholder to forthwith pay the amounts in accordance with the independent chartered accountant's determination. 3.4 Kaynar shall pay the Subsidiary Shares Price to the Vendors' Stakeholder on the Completion Date. - 16 - 3.5 If the Net Assets of the Company: (a) Exceed $3,697,368 by more than $100,000: (i) The Composite Purchase Price shall be adjusted by increasing the Interim Purchase Price by the amount by which the Net Assets of the Company exceed $3,697,368; ("that excess"); and (ii) The Purchaser shall pay that excess and procure that the Purchaser's Stakeholder pay the Retention Amount, and any interest accrued on the Retention Amount, to the Vendors' Stakeholder; or (b) Are less than $3,697,368 by more than $100,000: (i) The Composite Purchase Price shall be adjusted by reducing the Interim Purchase Price by the amount by which the Net Assets of the Company is less than $3,697,368 ("that amount"); and (ii) If that amount is less than the Retention Amount: A. The Purchaser shall procure that the Purchaser's Stakeholder pay the difference between the Retention Amount and that amount ("the net amount") and any interest accrued on the net amount to the Vendors' Stakeholder; and B. The Purchaser shall be entitled to the balance of the Retention Amount and any interest accrued on that balance; and (iii) If that amount is greater than or equal to the Retention Amount: A. The Vendors shall, on the Retention Date, pay the difference between that amount and the Retention Amount to the Purchaser and any interest accrued on that amount; and B. The Purchaser shall be entitled to the Retention Amount and any interest accrued on the Retention Amount; or (c) Are within $100,000 of $3,697,368: (i) The Composite Purchase Price shall not be adjusted and the Interim Purchase Price shall not be increased or reduced; and - 17 - (ii) The Purchaser shall procure that the Purchaser's Stakeholder pay the Retention Amount to the Vendors' Stakeholder. 3.6 For the purpose of clarity, the parties agree that the amount paid by the Purchaser to the Vendors under paragraph (i) of clause 3.2 shall be increased by the amount of that excess, or decreased by the amount of that amount, and the increase or decrease shall be wholly applied to Industrial and Intellectual Property. 3.7 The Purchaser and Kaynar shall pay the Vendors the Purchase Price, and any other amount due under this clause 3, by cheques drawn on a bank (as defined by the Banking Act (C'th)). 3.8 All amounts to be calculated and paid in accordance with this clause 3 shall be rounded down to the nearest whole dollar. 3.9 All adjustments under clause 3.5 shall be certified in accordance with clause 7. 3.10 Each of the Vendors appoints the Vendors' Stakeholder their agent for the receipt of all payments made by the Purchaser and Kaynar under this Agreement. 3.11 All payments to be paid by the Purchaser and Kaynar under this Agreement shall be made to the Vendors' Stakeholder on behalf of the Vendors and the receipt of the payments by the Vendors' Stakeholder shall discharge the obligations of the Purchaser and Kaynar with respect to those payments, and neither the Purchaser nor Kaynar shall be obliged to see the application of any payments made to the Vendors' Stakeholder. 4. CONDITIONS PRECEDENT 4.1 This Agreement is conditional upon the satisfaction on or prior to the Completion Date of the conditions precedent that on or prior to the Completion Date: (a) Pursuant to the Foreign Acquisitions and Takeovers Act (1975), the Treasurer of the Commonwealth of Australia consents to the proposed acquisition of the Business Assets, and the Treasurer shall be deemed to have so consented: (i) If a notice is issued pursuant to Section 26(1)(b)(ii) of the Foreign Takeovers Act, stating that the Commonwealth Government does not object to the proposed acquisition; or - 18 - (ii) If notice of the proposed acquisition, having been given to the Treasurer pursuant to Section 25 or Section 26 of the Foreign Takeovers Act, the Treasurer is, by reason of lapse of time, not empowered to make any order under Part II of the Foreign Takeovers Act in relation to the proposed transfer or the proposed issue; (b) The Industry Research and Development Board approves the sale and purchase under this Agreement of the Industrial and Intellectual Property the subject of the R & D Grant; (c) The Australian Trade Commission and the Company execute the deed of novation set out in Schedule 9; (d) General Electric Capital Corporation consents unconditionally in writing to the purchase of the Business Assets by the Purchaser hereunder; (e) The Advent Group becomes related to the Company (within the meaning of Section 160G of the Income Tax Assessment Act 1936) on or prior to the Effective Date; (f) Kaynar and the US Subsidiary: (i) Execute the US Asset Sale Agreement; and (ii) Complete the sale and purchase under the US Asset Sale Agreement in accordance with its terms; (g) The Purchaser obtains the consent of the lessor under the lease of the real property described in Part A of Schedule 7 to the assignment of that lease to the Purchaser and of any mortgagee of that real property; (h) There has not been any material adverse change to the financial condition of the Australian Business since the date of execution of this Agreement; and (i) The Purchaser and Kaynar have completed to their satisfaction a due diligence investigation of the Business Assets and the Business Liabilities. 4.2 The parties shall take such practical steps and use best endeavours as may be within their respective powers to enable the conditions precedent set out in clause 4.1 to be fulfilled on or prior to the Completion Date. 4.3 Subject to clause 4.4, if the conditions precedent set out in clause 4.1 are not fulfilled as at 15 August 1996, or such other date as the parties may agree, then any party may, at any time after that date by written notice to the others, give two (2) Business Days notice of intention to - 19 - terminate this Agreement, and if the conditions precedent are not fulfilled as at the expiration of that notice, or, if no notice is given within that two (2) Business Day period, no party shall be under any obligation to any other party under this Agreement other than in respect of any antecedent breach. 4.4 A party may not terminate this Agreement if it relies on the non-fulfilment of any condition in respect of which it is in breach of its obligation under clause 4.2. 4.5 The conditions precedent set out in clause 4.1 have been included for the benefit of each party to this Agreement, and the conditions precedent may only be waived in whole or in part with the consent of each of the parties. 5. STOCKTAKE 5.1 For the purposes of determining the amount of the Purchase Price to be applied to Stock, under clause 3.2, the Company shall determine the value of Stock not more than seven (7) days after the Completion Date in accordance with this clause 5. 5.2 All Stock shall be valued at the lower of cost and net realisable value, and costs are to be assigned on a first in first out basis and include direct materials, direct labour and an appropriate portion of variable and fixed overhead expenses. 5.3 Any dispute as to the quantity or value of Stock shall be determined at the request of either the Company or the Purchaser in accordance with clause 7. 6. COMPLETION 6.1 Completion of the sale and purchase of the Business Assets shall take place on the Completion Date at the office of the Vendors' solicitors, Norton Smith Gledhill, Level 23, 459 Collins Street, Melbourne, Victoria, or at such other place as the parties may agree, at which time all the Vendors' right, title and interest in and to the Business Assets shall pass to the Purchaser. The Vendors, until completion of the sale and purchase of the Business Assets, remain the owners of and bear all risks in connection with the Business Assets. On the Completion Date the risk in the Business Assets passes to the Purchaser. 6.2 Any party may give to the other parties written notice specifying the Effective Date which shall be a date not less than two (2) Business Days after the date that the written notice is given. - 20 - 6.3 The Vendors shall, at completion, and subject to clause 6.5, deliver to the Purchaser and Kaynar or its nominee (as the case may be), and they shall accept delivery of: (a) The Business Assets and title to them; (b) All deeds, instruments of transfer and other documents, notices, certificates and consents (in a form satisfactory to the Purchaser) reasonably necessary to effect the transfer of the legal and beneficial ownership of the Business Assets free of all Encumbrances to the Purchaser and Kaynar or its nominee (as the case may be), including: (i) Assignments or novations of the Transferred Leases, together with all appropriate consents; (ii) A deed of assignment in the form set out in Schedule 8 of all Industrial and Intellectual Property; (iii) A deed of novation of the ITES Loan in the form set out in Schedule 9; (iv) A release of the Bank Charge; (v) If necessary, to enable transfer of registration of any motor vehicle to the Purchaser, duly executed notices of disposition of all motor vehicles and certificates of roadworthiness for those motor vehicles; (vi) Written consent by the Company to the registration by the Purchaser of the company name "Recoil Pty Ltd" together with a Companies Form 410 effecting the reservation of that company name in the name of the Purchaser; and (vii) A deed of assignment of the Book Debts and notice of intention to register the assignment in the form set out in Schedule 14; (c) All share certificates issued by the Subsidiaries, excluding the US Subsidiary, for the Subsidiary Shares together with duly executed instruments of transfer in registrable form in accordance with the laws applicable to the relevant Subsidiary (save for the payment of any applicable stamp duty) in favour of Kaynar or any nominee of it (as transferee) from the Company (as transferors); (d) All consents in a form reasonably acceptable to the Purchaser to the assumption of the Business Liabilities by the Purchaser under this Agreement; - 21 - (e) The written resignation of such of the existing directors, secretary and public officer of the Company and the Subsidiaries as the Purchaser shall, by written notice given to the Vendors seven (7) days prior to the Completion Date, require to resign, and an acknowledgment in such form as the Purchaser may reasonably require from each such director, secretary and public officer that he has no claim of any nature against those Subsidiaries, whether in respect of salary, fees, compensation for loss of office, loans or otherwise, which has not been disclosed to the Purchaser; (f) Evidence of the repayment by Rudbar Pty Ltd ACN 006 126 110 of the loan of $71,328 made to Rudbar Pty Ltd by the Company; (g) The certificate of incorporation, common seal (and any duplicate or official seal), memorandum and articles of association, register of members, register of directors and secretaries, register of charges, minute books of the directors' and shareholders' meetings and all other statutory registers and records of the Subsidiaries, other than the US Subsidiary, all in proper order and condition and fully entered up and otherwise complying with all legal requirements; (h) All other books, documents and records of the Subsidiaries, other than the US Subsidiary, including any documents of title, all in proper order; (i) A power of attorney executed by the Company and Mr Price appointing Kaynar or its nominee (as the case may be) their attorney for the purpose of receiving notices and attending general meetings of the Subsidiaries (other than the US Subsidiary) until such time as Kaynar or its nominee is registered as a shareholder of the relevant subsidiary; (j) Written opinions in a form approved by General Electric Capital Corporation from the legal advisers to the Vendors, the Purchaser and Kaynar, and the Vendors shall sign such transfers and other forms as are produced to them by the Purchaser as are required to transfer the existing services of the Australian Business, including telephone, facsimile, electricity and gas to the Purchaser. 6.4 The Vendors shall, at completion, deliver to the Purchaser written notice of any: (a) Items of Plant and Equipment listed in Schedule 4 which have then been disposed of; - 22 - (b) Items of Plant and Equipment which are then additional to the Plant and Equipment listed in Schedule 4; (c) Business Contracts listed in Schedule 1 which have then been terminated; (d) Business Contracts which are additional to the Business Contracts listed in Schedule 1; (e) Transferred Leases listed in Schedule 7 which have then been terminated; (f) Transferred Leases which are additional to the Transferred Leases listed in Schedule 7; (g) Transferring Employees who are then no longer employees of the Company; and (h) Any additional persons not listed as Transferring Employees who have become employees of the Company, and any such item of Plant and Equipment, Business Contract and Transferred Lease shall be taken to be excluded or included (as the case may be) in Schedules 4, 1 and 7 (as the case may be), and any such person shall be taken to not be or to be (as the case may be) a Transferring Employee. 6.5A For the purpose of clarity the parties acknowledge and agree that if the Vendors give notice under clause 6.4 the giving of that notice shall be taken for the purposes of clause 16.4 to make the Purchaser aware of a matter which arises after the date of this Agreement and is inconsistent with a warranty or representation made elsewhere in this Agreement by the Vendors, and the Purchaser shall be entitled to the rights given by that clause 16.4. 6.5 The Purchaser shall, at completion: (a) Pay out, and otherwise satisfy the requirements for the release of, the Bank Charge; and (b) Deliver to the Vendors copies of the consents and approvals referred to in paragraphs (a), (b), (d) and (g) of clause 4.1. 6.6 A member of the Advent Group shall at completion deliver to the Purchaser a letter stating that the condition precedent set out in paragraph (e) of clause 4.1 is satisfied as at the Effective Date. 6.7 The Vendors shall, at or prior to completion, cause the following meetings to be held: - 23 - (a) A meeting of the shareholders of the Company at which the shareholders will approve and consent to the transactions contemplated by this Agreement and the US Asset Sale Agreement; (b) A meeting of the directors of Recoil (Europe) Ltd at which the directors will approve and consent to the transfer of shares from the Company to Kaynar or its nominee and, subject to payment of any stamp duty, approve the registration of that transfer in the register of members of Recoil (Europe) Ltd; (c) A meeting of the directors of the Company at which the directors will authorise Kenneth David Jones to act for and on behalf of that company to execute a Belgian share sale agreement; (d) A meeting of the shareholders of Recoil Marketing BVBA at which the shareholders will unanimously decide to transfer their shares in Recoil Marketing BVBA. 6.8 The obligations of the parties in relation to completion are interdependent so that the Purchaser is not obliged to complete the purchase of the Australian Business unless the purchase of all of the Business Assets and US Assets are completed simultaneously, and all actions at completion take place simultaneously and no delivery or payment is to be taken to have been made until all deliveries and payment have been made. 7. ACCOUNTS, NET TANGIBLE ASSETS AND OTHER MATTERS 7.1 The Company shall, within thirty (30) days of the Completion Date: (a) Prepare and provide to the Purchaser the Accounts, which shall be: (i) Prepared in accordance with Australian Accounting Principles consistently with past practices of the Company; and (ii) Audited by the Company's Auditor at the cost of the Company, and the Purchaser's Auditor shall be entitled at the cost of the Purchaser to audit the Accounts; (b) Determine the Net Assets of the Company in accordance with clause 7.3, and provide a copy of that - 24 - determination to the Purchaser, certified by the Company's Auditor; and (c) Prepare and provide to the Purchaser the Completion Statement, certified by the Company's Auditor, which shall show the: (i) Amount and method of calculating the Purchase Price; and (ii) Amount of any adjustment to the Composite Purchase Price and the increase or decrease of the Interim Purchase Price due to the Vendors, or the Purchaser, under clause 3.5; (iii) Allocation of the Purchase Price to the Business Assets; and (iv) Any interest due to the Vendors, and the Purchaser, under clause 3.5. 7.2 The Purchaser shall, within seven (7) days of receiving the last of the matters under clause 7.1, notify the Vendors whether or not they accept, or do not accept, any of them, and if: (a) The Purchaser accepts all of them, they shall be conclusive of all relevant matters to be determined under this Agreement; and (b) The Purchaser does not accept any of them, those that are not accepted shall, subject to clause 7.4, be agreed to by the Company's Auditor and the Purchaser's Auditor within seven (7) days of the expiration of the first mentioned seven (7) day period. 7.3 In determining the Net Assets of the Company, the Company's Auditor shall make the following adjustments to the Accounts: (a) Any Excluded Assets in existence as of, or after, the Effective Date, other than the Excluded Assets referred to in paragraphs (i) and (iv) of the definition of Excluded Assets in clause 1.1 and one half of the value of the Excluded Asset referred to in paragraph (ii) of the definition of Excluded Assets inc clause 1.1 disclosed in the Accounts, shall be excluded; and (b) The only liabilities that shall be taken into account will be those disclosed in the Accounts in existence as of, or after the Effective Date, but the Excluded Liabilities referred to in paragraph (ii) of the - 25 - definition of Excluded Liabilities in clause 1.1, shall be excluded. 7.4 The determination of any matter in respect of which the Vendors and the Purchaser, or the Company's Auditor and the Purchaser's Auditor, are unable to agree under all or any of clauses 3, 5 and this clause 7, shall be referred at the request of the Vendors or the Purchaser to an independent chartered accountant agreed to by them, and failing agreement within two (2) Business Days of a request being made therefor, by an independent chartered accountant nominated by the President for the time being of the Victorian Chapter of the Institute of Chartered Accountants in Australia or the successor of that body who shall in any case be appointed on terms that he shall make his determination within fourteen (14) days of his appointment. 7.5 The independent chartered accountant shall act as an expert and not as an arbitrator, the costs of making any determination shall be borne by the Vendors, on the one hand, and the Purchaser, on the other hand, equally. 7.6 Any determination made by the independent chartered accountant shall be binding on the parties. 7.7 The parties shall use their best endeavours to procure the independent chartered accountant to make his determination within fourteen (14) days of his appointment. 8. TRANSFERRING EMPLOYEES 8.1 The Purchaser shall, on or before the Completion Date, offer to each of the Transferring Employees employment with the Purchaser on terms as to salary and financial benefits no less favourable than the terms under which each is employed by the Company in conducting the Australian Business on the Effective Date being the terms disclosed to the Purchaser prior to the date of this Agreement. 8.2 The Purchaser covenants with the Company that in respect of all Transferring Employees the Purchaser shall: (a) Abide by the terms and conditions of the offer of employment made under clause 8.1; and (b) Indemnify the Company for any Loss suffered or incurred by it and any Claim made against it in respect of all Transferring Employees: (i) Occasioned by the Purchaser's failure to observe those terms and conditions of employment; and (ii) Subject to clause 8.4, who do not accept those terms and conditions. - 26 - 8.3 Each of the Vendors and the Purchaser shall use its best endeavours to encourage all Transferring Employees to accept the offers made by the Purchaser under clause 8.1. 8.4 The Company shall pay on the Completion Date all Transferring Employees who do not accept the offer of employment made under clause 8.1, all amounts due and owing to them in respect of accrued salary or wages, holiday pay and long service leave pay, but not any Claim for or in respect of severance or termination of employment. 8.5 The Vendors shall pay, and indemnify the Purchaser in respect of, any Claim for workers' compensation not covered by indemnity compensation insurance, any violation of any relevant employment laws and any common law Claim arising from any injury with respect to any employees of the Company but not any Claim for or in respect of severance or termination of employment of a Transferring Employee. 8.6 The Company shall, on the Completion Date release all Transferring Employees employed by it from employment by it. 8.7 On and from the Effective Date the Purchaser shall, subject to clause 8.4: (a) Pay all Transferring Employees all amounts due to them on and from the Effective Date as and when they fall due; and (b) Indemnify the Company against any liability for any Claim for any amount due to or accrued by all employees who accept the offer in clause 8.1 on or after the Effective Date, and whether the amount or liability accrued prior to the Effective Date, it being the intention of the parties that the Purchaser shall be responsible for and pay all amounts disclosed in the Accounts as accrued but not then due to employees on the Effective Date for salary or wages, holiday pay and long service leave pay and other severance or termination pay (whether or not disclosed in the Accounts) other than that to be paid by the Company under clause 8.4. 9. BUSINESS CONTRACTS AND TRANSFERRED LEASES 9.1 With effect on and from the Effective Date, the Purchaser assumes responsibility for the performance of: (a) The Business Contracts; and - 27 - (b) The Transferred Leases, ("all agreements") and agrees to indemnify and save harmless the Vendors on and from the Effective Date from all Claims and Losses relating to all agreements arising from matters or things done or omitted to be done on or from the Effective Date. 9.2 The Purchaser shall be entitled, on and from the Effective Date, to the rights and benefits arising under or in relation to all agreements. 9.3 The Vendors agree to indemnify and hold harmless the Purchaser on and from the Effective Date, from all Claims and Loss relating to all agreements entered into by them arising from matters or things done, or omitted to be done, at any time up to and including the day before the Effective Date and not included in the definition of Business Liabilities. 9A. BUSINESS CONTRACTS 9A.1 The Vendors shall novate or assign to the Purchaser each and every Business Contract,with effect from the Effective Date. If any other party to any Business Contract objects to such assignment or novation the Purchaser may elect for the provisions of clause 9A.2 to apply. 9A.2 The Vendors undertake to the Purchaser, in the situation where any third party to a Business Contract objects to or refuses to consent to an assignment or novation of a Business Contract to: (a) Duly perform the contract with the assistance of such employees and materials of the Purchaser which the Purchaser shall make available as and when necessary at no expense to the Vendors; (b) Delegate management to the Purchaser if it is reasonably possible to do so; (c) Enforce the contract against the other party or parties to the relevant Business Contract in such a manner as the Purchaser may direct from time to time, at no expense to the Vendors; (d) Not agree to any amendment to the Business Contract or waiver of the Vendors' rights under the relevant Business Contracts without the prior written consent of the Purchaser; and (e) Pay to the Purchaser forthwith all moneys received by the Vendors for goods and services supplied by the - 28 - Vendors in respect of the performance by them of the relevant Business Contracts. 9B. TRANSFERRED LEASES 9B.1 The Company shall novate or assign (with the written consent of each of the lessors) the Transferred Leases to the Purchaser with effect from the Effective Date. 9B.2 If any of the Transferred Leases have not been effectively assigned or novated to the Purchaser at completion the Purchaser may require that the Vendors at their own cost (save in respect of stamp duty, registration fees and the Purchaser's legal costs) take such action as may be reasonably necessary to procure the assignment or novation of such Transferred Leases to the Purchaser on terms which are not materially adversely different from those in force at the date of execution of this Agreement. 9B.3 The Vendors indemnify the Purchaser on demand in respect of any stamp duty including, without limitation, fines and penalties due but unpaid in respect of any of the Transferred Leases as at the Completion Date. 10. BUSINESS LIABILITIES AND INDEMNITIES BY THE PURCHASER AND THE VENDORS 10.1 Subject to clause 10.2 the Purchaser covenants to indemnify and keep indemnified the Vendors: (a) From all Claims and Losses brought or made against the Vendors in connection with the use of the Business Assets on and from the Effective Date that arise on or after the Effective Date; and (b) In respect of the Business Liabilities, and the Purchaser covenants to pay all of the Business Liabilities as and when they fall due. 10.2 Subject to clauses 8.7, 10.2A and 10.2B, the Vendors indemnify the Purchaser and Kaynar in respect of all Losses and Claims which either or both: (a) Are incurred in connection with the use of the Business Assets prior to the Effective Date; or (b) Relate to the Excluded Liabilities, and are not Business Liabilities PROVIDED HOWEVER THAT in the case of an Excluded Liability of the kind referred to in paragraph (xiii) of the definition of Excluded - 29 - Liabilities in clause 1.1, the Vendors shall not be required to indemnify the Purchaser and Kaynar under this clause 10.2 if the Purchaser and Kaynar: (c) During the two year period referred to in paragraph (xiii) of the definition of Excluded Liabilities in clause 1.1, have failed to take reasonable steps as a result of which the Trademarks described in schedule 3 may be declared void, voidable, invalid or subject to removal or expungement; and (d) Have not taken all reasonable steps to mitigate all Loss arising as a result of any Claim of the kind referred to in paragraph (xiii) of the definition of Excluded Liabilities in clause 1.1. 10.2A The Vendors shall not be required to indemnify the Purchaser or Kaynar under clause 10.2 for any Claim or Loss where the amount of the liability for all Vendors in aggregate in respect of all Claims and Losses is more than the difference between $13,700,000 and the US Purchase Price. 10.2B Neither the Purchaser nor Kaynar shall bring any action under clause 10.2 in respect of any Claim or Loss unless the aggregate amount of all Claims and Losses incurred by them exceeds $100,000 and the Vendors shall only be liable to the Purchaser or Kaynar in respect of the Claim or Loss to the extent that the aggregate amount of all Claims and Losses exceeds $100,000. 10.3 The Vendors hereby indemnify and hold harmless the Purchaser and Kaynar in respect of any Claim or Loss made against the Purchaser or Kaynar in respect of the sale or provision of Stock by the Purchaser and Kaynar or the Subsidiaries on or after the Effective Date. 10.4 If the Purchaser or the Vendors are seeking indemnification (the party seeking indemnification to be referred to as the "Indemnified Party") and desires to make a Claim against the other party or parties for indemnification (the "Indemnifying Party") under this clause 10, the Indemnified Party shall, within thirty (30) days after the Indemnified Party becomes aware of a Claim by notice or knowledge, notify the Indemnifying Party in writing of any Claim or demand as to which the Indemnified Party is entitled to claim indemnification, the clause under this Agreement with respect to which such Claim is being made and, to the extent known, the amount and circumstances surrounding such Claim. In the event that Claim is a third party Claim against an Indemnified Party or involves a Claim by or liability involving a governmental authority, the Indemnifying Party shall have the right to employ counsel of its choice to defend any such Claim or demand PROVIDED HOWEVER THAT: - 30 - (a) The Indemnified Party is kept fully informed of all developments and is furnished copies of all relevant papers; (b) The Indemnifying Party diligently prosecutes the defence; and (c) The Indemnified Party shall have the right to participate, at its own undertaking and through counsel selected by it, in the defence of any such Claim. If the conditions of the foregoing proviso are not met, or the Indemnifying Party chooses not to control the defence, the Indemnified Party shall assume and control the defence of such third party Claim or suit at the expense of the Indemnifying Party. The Indemnifying Party, or, if the conditions to the foregoing proviso are not met, the Indemnified Party, shall have the right to pay, compromise or settle any such third party Claim with the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. 10.5 Unless otherwise provided in this Agreement, each indemnity under this Agreement continues indefinitely and the party to whom the benefit of an indemnity is given shall be kept indemnified. 11. CHANGE OF NAME 11.1 The Company shall, on or before the Completion Date, pass a special resolution to change its name from Recoil Pty Ltd to some other dissimilar name, not incorporating the word "Recoil". 11.2 Each of the Vendors, Mr Price and the U.S. Subsidiary covenants with the Purchaser and Kaynar that they shall not, after the Completion Date, use the name Recoil or any similar name in the conduct of any business of any of them or otherwise PROVIDED HOWEVER that the Company shall be entitled to use the name Recoil to designate its name until such time as the Australian Securities Commission has issued a certificate of change of name. 11.3 The Company covenants with the Purchaser that: (a) The Company shall change its name in accordance with clause 11.1; (b) The Purchaser shall be entitled to use the name Recoil or any similar name as the name of the Purchaser; and (c) The Company shall, at its own expense, do all acts, matters and things required to be done by the Company - 31 - to permit the Purchaser to change its name to Recoil or any similar name. 12. RESTRAINT 12.1 For the purpose of protecting the Purchaser and Kaynar in respect of the goodwill associated with the Australian Business and the businesses of the Subsidiaries other than the U.S. Subsidiary and in consideration of the benefits to be derived from the sale by the Vendors of the Business Assets and of the agreement evidenced by this Agreement, each of the Vendors, Mr Price and the US Subsidiary ("the restricted party") covenants severally with the Purchaser and Kaynar for itself and as trustee and agent for the Subsidiaries other than the US Subsidiary that it shall not: (a) For the period from the date of this Agreement specified below: (i) In the case of the Price Interests, the US Subsidiary and the Company, three (3) years; and (ii) In the case of the Advent Group, one (1) year; and (b) In the area specified below: (i) Australia; (ii) The European Union; and (iii) The United States of America, (either directly or indirectly) be concerned with or interested in any undertaking or business in competition with the Australian Business or in competition with the business of the Subsidiaries (other than the US Subsidiary) as at the Effective Date PROVIDED HOWEVER that this clause shall not prevent any restricted party from holding or being otherwise interested as principal in stocks, shares, units or securities of any company or trust ("securities"), which securities represent less than 10% in number of the securities on issue in any such company or trust and which securities are listed for quotation on any stock exchange. 12.2 During the period referred to in clause 12.1(a), the restricted parties shall not on their own account or for any other person: - 32 - (a) Induce or attempt to induce any employee to leave the employment of the Purchaser, Kaynar or the Subsidiaries other than the US Subsidiary (b) Induce or attempt to induce any customer away from the Purchaser, Kaynar or the Subsidiaries other than the US Subsidiary; or (c) Induce or attempt to induce any supplier or financier away from the Purchaser, Kaynar or the Subsidiaries other than the US Subsidiary. 12.3 (a) Each of the covenants contained in clause 12.1 is to be construed as a separate independent covenant severable from all other covenants contained in clause 12.1. If any of the covenants is found to be void, invalid or otherwise unenforceable, such unenforceability does not affect the validity or enforceability of any of the separate covenants. (b) It is intended by the parties that restraints contained in this clause operate to the maximum extent except that, if any of the prohibitions or restrictions is judged to go beyond what is reasonable in the circumstances, but would be judged reasonable if the period or area were reduced, then the prohibitions or restrictions apply with that period or area reduced by the minimum amount necessary. (c) The restricted party acknowledges that the duration, extent and application of the respective restrictions contained in this clause are not greater than is reasonably necessary for the protection of the interests of the Purchaser and the preservation of the goodwill acquired under this Agreement, but that, if such restriction is adduced by any court of competent jurisdiction to be void or unenforceable but would be valid if part of the wording of this clause was either or both deleted or the period was reduced, those restrictions apply with such modification as may be necessary to make this clause valid and effective. (d) In the event of any breach by the restricted party of its obligations under this clause then, in addition and without prejudice to any other remedy which the Purchaser may have, the Purchaser is entitled to seek and obtain injunctive relief in any court of competent jurisdiction. 13. BOOK DEBTS 13.1 The Company and the Purchaser agree and acknowledge that from the Effective Date the Book Debts are the property of the Purchaser. - 33 - 13.2 On or before the Effective Date, the Company shall compile a list of Book Debts as at the Effective Date detailing the name, address and amount owing in relation to each Book Debt and deliver to the Purchaser a copy of such list. 13.3 Any payment (including any part payment) with respect to any Book Debt received by the Company on or after the Effective Date shall be remitted, as soon as practicable, to the Purchaser. 13.4 Any monies collected by the Company or the Purchaser in respect of trading indebtedness from or on behalf of any debtor are to be first applied in satisfying the invoice against which the particular debtor makes payment or if no such invoice is nominated the collections are to be applied first in satisfying the debtor's account from whom such collection was received on a first-in first-out basis, save where a debt is in dispute. 13.5 The Vendors warrant to the Purchaser that the Purchaser will, within 180 days after the Completion Date, recover an amount equal to the total value of the Book Debts shown in the Accounts, less any provisions in the Accounts for bad and doubtful debts ("the warranted amount"). 13.6 The Vendors indemnify the Purchaser in respect of any Loss by the Purchaser resulting from the failure by the Purchaser to recover the warranted amount within that 180 day period, and shall pay to the Purchaser within seven (7) days of receiving a written request therefor the amount of any such Loss. 13.7 Where the Vendors pay any amount in respect of any Book Debt under clause 13.6, the Purchaser shall assign the corresponding portion of that Book Debt to the Company within seven (7) days of receipt of that amount and it shall be the property of the Company. 13.8 The Purchaser covenants with the Vendors that the Purchaser shall: (a) Use its reasonable endeavours to collect all Book Debts within 180 days after the Completion Date; and (b) Comply with all reasonable requests of the Vendors to provide the Vendors with information relating to the collection of the Book Debts. 14. RIGHTS AND OBLIGATIONS PENDING COMPLETION 14.1 From the date of this Agreement to the Completion Date the Vendors shall: - 34 - (a) Ensure that the Australian Business and the businesses of the Subsidiaries other than the US Subsidiary is conducted in accordance with normal and prudent practice (having regard to the nature of the Australian Business and the businesses of the Subsidiaries other than the US Subsidiary); (b) Use their reasonable commercial endeavours to maintain the profitability and value of the Australian Business and the businesses of the Subsidiaries other than the US Subsidiary; (c) Use the Business Assets and the assets of the Subsidiaries other than the US Subsidiary with reasonable care; (d) Not without the prior consent of the Purchaser: (i) Enter into any material contract or commitment or, other than in the ordinary course of operating the Australian Business and the businesses of the Subsidiaries other than the US Subsidiary, incur any material liabilities; or (ii) Hire or terminate the employment of any employee or alter the terms or conditions of employment of the Transferring Employees or any employees of the Subsidiaries other than the US Subsidiary; (e) Keep the Business Assets and the assets of the businesses of the Subsidiaries other than the US Subsidiary insured on a replacement basis and comply in all respects with the requirements of all insurance policies maintained in respect of the Business Assets and the assets of the businesses of the Subsidiaries other than the US Subsidiary; and (f) Consult with Kaynar on any matters which may have a material impact on the value or performance of the Australian Business and the businesses of the Subsidiaries other than the US Subsidiary. 14.2 The Vendors warrant to the Purchaser that the Australian Business and the businesses of the Subsidiaries other than the US Subsidiary have been conducted in accordance with paragraph (a), (b), (c) and (e) of clause 14.1 from 31 December 1995 to the Effective Date. 15. KAYNAR GUARANTEE AND INDEMNITY 15.1 Kaynar, unconditionally and irrevocably, guarantees to the Vendors the due and punctual performance of the Purchaser's - 35 - obligations under this Agreement (including any indemnities given in favour of the Vendors). 15.2 As a separate and independent principal obligation, Kaynar indemnifies and holds the Vendors harmless from and against all Loss incurred or suffered by the Vendors, and all Claims made against the Vendors as a result of default by the Purchaser in the performance of any such obligation. 15.3 This guarantee and indemnity: (a) Applies: (i) To the present and future obligations of the Purchaser under this Agreement; (ii) To this Agreement as amended, supplemented, renewed or replaced; and (iii) Regardless of whether Kaynar is aware of, or has consented to, or is given notice of, any amendment, supplement, renewal or replacement of any agreement to which the Vendors and the Purchaser are a party or the occurrence of any other thing; and (b) Is not affected, nor are the obligations of Kaynar under this Agreement released or discharged or otherwise affected, by anything which, but for this provision, must have that effect, and the obligations of the Purchaser hereunder extend to any change in the obligations of the Purchaser as a result of any amendment, supplement, renewal or replacement of this Agreement or the occurrence of any other thing. 15.4 If any payment, conveyance, transfer or other transaction relating to, or affecting, any obligation of the Purchaser under this Agreement is: (a) Void, voidable or unenforceable under any law relating to bankruptcy, liquidation or protection of creditors in whole or in part; or (b) Is claimed to be void, voidable or unenforceable under any law relating to bankruptcy, liquidation or protection of creditors, and that claim is upheld, conceded or compromised in whole or in part, the liability of Kaynar under this guarantee and indemnity is the same as if: - 36 - (c) The payment, transaction, conveyance or transfer or the void, voidable or unenforceable part of it; and (d) Any release, settlement or discharge made in reliance on anything referred to in paragraph (c), had not been made, and Kaynar must immediately take all action and sign all documents reasonably necessary or reasonably required by the Vendors to restore to them the benefit of this guarantee and indemnity. 15.5 This guarantee and indemnity is: (a) A principal obligation and is not to be treated as ancillary or collateral to any other right or obligation; and (b) Independent of, and not in substitution for or affected by, any other collateral security which the Vendors may hold in respect of the obligations of the Purchaser under this Agreement or any other person, except that no Claim may be brought under this guarantee and indemnity unless a written notice of claim in respect of the matter concerned has been given to the Purchaser and the Claim remains unsatisfied seven (7) Business Days after the giving of that notice. 15.6 This guarantee and indemnity is a continuing obligation of Kaynar despite any settlement of account among the Vendors and any account debtor, and remains in full force and effect until: (a) The obligations of the Purchaser under this Agreement have been performed; or (b) This guarantee and indemnity has been fully discharged by the Purchaser. 15.7 The parties acknowledge and agree that all amounts paid, whether under this clause 15 or as provided elsewhere in this Agreement (other than clause 3.5), shall not exceed the difference between $13,700,000 and the US Purchase Price. 16. WARRANTIES 16.1 Subject to this Agreement, the Vendors warrant and represent to the Purchaser and Kaynar the matters set out in the Schedule 11 ("the warranties"). The Vendors acknowledge that Kaynar and the Purchaser enter into this Agreement in full reliance on the warranties and that the warranties have been made with the intention of inducing Kaynar and the Purchaser to enter into this Agreement. - 37 - 16.2 The Vendors warrant and represent to the Purchaser and Kaynar that the warranties are true, complete and accurate and not misleading in any way. 16.3 The Vendors shall not be liable for any inaccuracy or breach of any of the warranties, or any representation made elsewhere in this Agreement, if the inaccuracy or breach or the facts giving rise to the inaccuracy or breach is or are actually known to the Purchaser or Kaynar as a result of any of the: (a) Due diligence investigation undertaken by the Purchaser or Kaynar prior to the date of this Agreement; or (b) Material: (i) Made available to the Purchaser or Kaynar by the Vendors listed in Schedule 12; or (ii) Notified to the Purchaser or Kaynar in writing after the date of this Agreement, PROVIDED HOWEVER THAT in the case of sub-paragraph (ii) of paragraph (b), the Purchaser and Kaynar shall be entitled to treat the notification as making it aware of a matter which, for the purposes of clause 16.4, arises after the date of this Agreement and is inconsistent with a warranty or representation made elsewhere in this Agreement by the Vendors, and the Purchaser and Kaynar shall be entitled to the rights given by that clause 16.4. 16.4 If: (a) The Vendors, the Purchaser or Kaynar become aware before the Completion Date of a matter which arises after the date of this Agreement and is inconsistent with any of the warranties or any representation made elsewhere in this Agreement, it must immediately notify the other of them in writing of the matter; (b) The matter is such as to have a fundamental and adverse impact on the Australian Business and prospects taken as a whole, then the Vendors, Kaynar and the Purchaser must negotiate in good faith to resolve the issue and, failing an outcome of the negotiations satisfactory to both parties, any of them are entitled to rescind this Agreement by giving written notice to the other of them within five (5) Business Days of becoming aware of the matter, provided that completion has not already occurred; and - 38 - (c) This Agreement is not rescinded pursuant to paragraph (b) of this clause, then the parties must proceed to completion and the Purchaser and Kaynar must not bring any Claim against the Vendors in respect of any matter referred to in paragraph (a), provided that this exclusion does not apply: (i) If and to the extent that the matter giving rise to the Claim was caused by the negligence or wilful default of the Vendors in their management of the Australian Business after the date of this Agreement; or (ii) If the matter is such as to have a fundamental and adverse impact upon the Australian Business and its prospects taken as a whole and the Purchaser and Kaynar were not aware of such matter before completion. 16.5 The Vendors shall not be liable to the Purchaser or Kaynar for any Claim in respect of any breach of the warranties where either or both: (a) The Claim is not agreed, compromised or settled, or the Purchaser or Kaynar has not issued and served legal proceedings against the relevant Vendors within one year of the Completion Date; or (b) The amount of the liability for all Vendors in aggregate in respect of all Claims is more than the difference between $13,700,000 and the US Purchase Price. 16.6 Each of the warranties is given as of the date of this Agreement and the Completion Date and subject to this Agreement. 16.7 The warranties are taken to be complete immediately before completion with respect to the facts then existing. 16.8 Subject to clause 16.5, the Vendors covenant to indemnify and keep indemnified the Purchaser and Kaynar against all liabilities which may be incurred by the Purchaser as a result (directly or indirectly) of a breach of any of the warranties. 16.9 Notwithstanding any other provision of this Agreement to the contrary, neither the Purchaser nor Kaynar shall bring any action under this Agreement, other than clauses 11.2, 12 and 20.5 in respect of any Claim or Loss relating to any indemnity, warranty, representation or covenant made or given to them by the other parties to this Agreement ("the warranty claims") unless the aggregate amount of the warranty claims exceeds $100,000, and the other parties - 39 - shall only be liable to the Purchaser or Kaynar in respect of the warranty claims to the extent that the warranty claims exceed $100,000. 17. SUPERANNUATION 17.1 The Vendors covenant that the Transferring Employees are members of the Superannuation Funds, and no other superannuation funds and that the Purchaser shall become the nominated employer under the Superannuation Funds for those Transferring Employees who accept employment with the Purchaser in accordance with this Agreement. 17.2 The Vendors covenant with the Purchaser that the Company has complied with its superannuation requirements under the Superannuation Industry Supervision Act and indemnifies and holds harmless the Purchaser from all Claims and Loss brought or made against the Purchaser in relation to such matters arising prior to the Effective Date. 17.3 The Vendors shall use their reasonable endeavours to assist the Purchaser in becoming a nominated employer under the Super Funds. 18. ACCESS TO BUSINESS RECORDS 18.1 On and from the Completion Date, the Purchaser shall provide the Company with access to the Business Records, and to all other the documents and records of the Australian Business, and permit them to take copies thereof for the purposes of enabling them to complete any taxation or other statutory return, and for all other reasonable commercial purposes. 19. JOINT AND SEVERAL LIABILITY The obligations and liability of each of the Vendors and Mr Price under this Agreement are joint and several except in the case of the obligations and liability of each of the Vendors and Mr Price arising under clauses 11, 12, and 20, which shall be several only. 20. CONFIDENTIALITY 20.1 No announcement or communication concerning these terms or conditions of this Agreement shall be made or authorised by any of the parties to this Agreement before the Completion Date without the prior written consent of the other parties, except as permitted by this clause 20. - 40 - 20.2 A party may disclose anything in respect of this Agreement as required: (a) By applicable law; or (b) By any recognised stock exchange on which its shares, or shares of any related body corporate, are listed for quotation, but to the extent possible, it shall consult with the other parties before making the disclosure. 20.3 A party may disclose anything in respect of this Agreement to the officers, employees and professional advisers of that party and of its related bodies corporate, but it must use all reasonable endeavours to ensure the matters disclosed are kept confidential. 20.4 If this Agreement is rescinded or terminated, the Purchaser and Kaynar covenant with the Vendors to: (a) Cease using all information and documents provided to it by the Vendors in relation to this Agreement; (b) Return that information and those documents and all copies to the Vendors; and (c) Keep that information and those documents confidential and not disclose them to any person. 20.5 The Vendors and Mr Price covenant with the Purchaser not to use or disclose any confidential information of the Company. In this clause 20.5 "confidential information of the Company" means information of every kind concerning or in any way relating to customers, business transactions, records, financial affairs, trade secrets, technical information, processes, all inventions and know-how used in connection with the Australian Business other than information which is in the public domain. 21. MOREN LITIGATION 21.1 Subject to clause 21.2 the Purchaser covenants to indemnify and hold harmless the Company for and in respect of all Claims, Losses and costs and expenses incurred by the Company in connection with complying with clause 21.2. 21.2 The Company covenants with the Purchaser to: (a) Continue to conduct the litigation commenced by the Company in the Supreme Court proceeding no 7750 of - 41 - 1995 against Mr Christopher Moren ("the Moren Litigation") in accordance with the instructions given to the Company by the Purchaser from time to time; (b) Not settle or compromise the Moren Litigation without the consent of the Purchaser; and (c) Not incur any expense in the conduct of the Moren Litigation without the consent of the Purchaser unless it is incurred as a result of an order of the Supreme Court. 21.3 The Company covenants that in respect of any monetary or other benefit received by the Company in relation to the Moren Litigation, to account to the Purchaser for that benefit after deducting any Loss, Claim, cost or expense relating to the Moren Litigation incurred by the Company in accordance with clause 21.2 or ordered by the Supreme Court. 22. GENERAL 22.1 This Agreement is governed by and shall be construed in accordance with the laws in force in Victoria and the parties submit to the jurisdiction of the courts of that state including all courts of appeal. 22.2 All representations, warranties, covenants and agreements made herein shall survive any investigation made and shall survive completion. 22.3 Except as otherwise expressly provided, the provisions of this Agreement shall enure to the benefit of and be binding upon the successors, heirs, executors and administrators of the parties hereto. 22.4 Neither this Agreement nor any term thereof may be amended, waived, discharged or terminated except by written instrument signed by each of the parties hereto. 22.5 No party may assign its rights or obligations under this Agreement to any person without the written consent of the other parties, which consent shall not be unreasonably withheld PROVIDED HOWEVER that Kaynar and the Purchaser may assign and transfer to General Electric Capital Corporation or any other provider of financing to either of them (collectively, the "Financier") all of such person's rights and remedies under and with respect to this Agreement and any agreements, documents or instruments executed in connection with this Agreement, including, without limitation, its rights to any and all amounts payable to Kaynar and the Purchaser under this Agreement, and each of the other parties to this Agreement hereby consents to such - 42 - assignment and transfer and agrees to execute and deliver to any such Financier confirmation thereof. 22.6 The parties shall each bear their own costs and expenses including legal fees in connection with the negotiation and preparation of this Agreement. 22.7 This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 22.8 This Agreement shall be read and construed subject to all applicable laws and shall have effect only to the extent permitted thereby. If, but for this clause, any provision of this Agreement would be unenforceable, voidable or void it shall be read and construed in such manner as will preclude it from so being to the intent that such provision shall be read and construed so as to be valid and enforceable to the greatest extent possible. Each provision may be so read and construed (or deleted if necessary) regardless of the effect which that may have on the provision in question or any other provision or the Agreement as a whole. 22.9 Subject to clause 22.15, time shall be of the essence of this Agreement in all respects and no extension or variation thereof shall operate as a waiver of this provision. 22.10 Each party hereby covenants with the other to do all acts, matters and things, including, without limitation, executing or signing agreements, deeds or other matters which are required to be done in order to give full effect to the provisions of this Agreement and the transactions contemplated herein. 22.11 Without prejudice to any rights any party may have under this Agreement, each party agrees to pay to the others on demand interest calculated at the rate of two percent (2%) above the BBB Rate on any money which is not paid by the party to any other party when payable, which interest paid shall accrue daily from the date due for payment, until paid. 22.12 Any notice, demand or other communication required to be given or made hereunder shall, unless otherwise expressly provided, be in writing and be deemed duly given or made if delivered or sent by prepaid mail or by facsimile communication as follows: (a) To the Vendors, If delivered or sent by Mr Price and the prepaid mail, the address US Subsidiary at: set out at the beginning of this Agreement; - 43 - If by facsimile, to 61 3 9700561 (b) To the Purchaser at: If delivered or sent by prepaid mail, the address set out the beginning of this Agreement; If by facsimile, to 0011 1 714 680 3153 (c) To Kaynar at: If delivered or sent by prepaid mail, the address set out at the beginning of this Agreement; If by facsimile, to 0011 1 714 680 3153 or such other address as may be notified by any party to the other and where served by post shall be deemed served on the tenth Business Day following its posting. 22.13 Where, by virtue of the provisions of this Agreement, the day on which any act, matter or thing is to be done is not a Business Day in the place in which the act, matter or thing is to be done, such act, matter or thing shall be done on the next succeeding Business Day. 22.14 The Purchaser shall pay all stamp duty and other similar charges relating to the purchase by the Purchaser of the Business Assets under this Agreement. 22.15 (a) If any party defaults under this Agreement, no party not in default shall be entitled to exercise any of its rights arising out of the default other than its right to sue for money then owing until it has served the defaulting party with a written notice specifying the default and its intention to exercise its rights unless the default is remedied and the proper legal costs caused by the default and any interest demanded are all paid within five (5) Business Days of service of the notice or such longer period as may be specified, and the defaulting party fails to comply with the notice. (b) If the notice given pursuant to paragraph (a) also states that unless the default is remedied within the period set out in the notice, the Agreement will be rescinded pursuant to this clause then, if the default is not so remedied the Agreement shall thereupon be rescinded. - 44 - (c) The provisions of this clauses 22.15 are subject to clause 16.3. 22.16 Each schedule and exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement, although schedules need not be attached to each copy of this Agreement. This Agreement, together with such schedules and exhibits, and in combination with the US Asset Sale Agreement and the schedules and exhibits thereto, a letter dated 19 July 1996 from Kaynar to Mr Brian Ball regarding the payment of European lawyers' costs and a letter dated 25 July 1996 from Arthur Andersen regarding the audit of the Company constitutes the entire agreement among the parties pertaining to the purchase and sale of the Business Assets and the US Business Assets and supersedes all prior understandings, including, but not limited to, the preliminary agreement dated 15 March 1996 between the Company, Kaynar, Mr Price, Lenarde and the Advent Group. If there is any inconsistency between this Agreement and the US Asset Sale Agreement with respect to the sale of the Business Assets under this Agreement, then the provisions of this Agreement will prevail. 23. ENVIRONMENTAL REPORT 23.1 The Purchaser and Kaynar shall use their best endeavours to procure Rust PPK Pty. Ltd. (ACN 058 381 507) to issue to the Vendors in their names a limited phase two environmental site assessment by the Company's premises at 20 Stamford Road, Oakleigh, Victoria, prepared by Rust PPK Pty. Ltd. (in this clause 23, "the Environmental Report"). 23.2 In the event that the Environmental Report is not issued to the Vendors in accordance with clause 23.1, the Purchaser and Kaynar will render every assistance to the Vendors should they wish to commission a report similar to the Environmental Report, including giving the Vendors, their agents or any person engaged by the Vendors to prepare the report access to the premises at 20 Stamford Road, Oakleigh, Victoria. IN WITNESS WHEREOF the parties hereto have executed this Agreement the day and year first hereinbefore written. - 45 - SIGNED for and on behalf of ) RECOIL PTY LTD ACN 006 664 731 ) /s/ Brian F. Ball by BRIAN F. BALL in the ) . . . . . . . . . . . . . . . . . . . presence of: ) /s/ illegible . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) RECOIL PTY LTD by BRIAN F. BALL ) /s/ Brian F. Ball in the presence of: ) . . . . . . . . . . . . . . . . . . . /s/ illegible . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) RECOIL PTY LTD ACN 006 509 708 ) /s/ Brian F. Ball by BRIAN F. BALL in ) . . . . . . . . . . . . . . . . . . . the presence of: /s/ illegible . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) AUSTRALIAN PACIFIC TECHNOLOGY ) /s/ Brian F. Ball LIMITED ACN 006 212 764 ) . . . . . . . . . . . . . . . . . . . by BRIAN F. BALL ) in the presence of: ) /s/ illegible . . . . . . . . . . . . . . . . Witness - 46 - SIGNED for and on behalf of ) WESTERN PACIFIC INVESTMENT ) /s/ Brian F. Ball COMPANY LIMITED ) . . . . . . . . . . . . . . . . . . . ACN 006 254 502 ) BY BRIAN F. BALL ) in the presence of: ) /s/ illegible . . . . . . . . . . . . . . . . Witness SIGNED by Mr. B. PRICE in the ) /s/ Bruce Price presence of: ) . . . . . . . . . . . . . . . . . . . /s/ illegible . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of B. ) PRICE HOLDINGS PTY LTD ACN 073 ) /s/ Bruce Price 779 352 by BRUCE PRICE ) in the presence of: ) /s/ illegible . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) LEANARDE PTY LTD ACN 005 846 597 ) /s/ Bruce Price By BRUCE PRICE ) in the presence of: ) /s/ illegible . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) KAYNAR TECHNOLOGIES INC. by ) /s/ Tom Rowan THOMAS JOSEPH ROWAN in the ) presence of: ) /s/ illegible . . . . . . . . . . . . . . . . Witness - 47 - SIGNED for and on behalf of RCL ) PTY ACN 073 750 428 by ) /s/ Tom Rowan THOMAS JOSEPH ROWAN ) in the presence of: ) /s/ illegible . . . . . . . . . . . . . . . Witness EX-2.3(B) 4 EX 2.3(B) US ASSET SALE AGREEMENT DATED 9 August 1996 - -------------------------------------------------------------------------------- RECOIL, INC. - and - KAYNAR TECHNOLOGIES INC. - and - RECOIL PTY LTD - and - ADVENT LIMITED - and - AUSTRALIAN PACIFIC TECHNOLOGY LIMITED - and - WESTERN PACIFIC INVESTMENT COMPANY LIMITED - and - MR. B. PRICE - and - B. PRICE HOLDINGS PTY LTD - and - LENARDE PTY LTD ----------------------------------------------------- US ASSET SALE AGREEMENT ----------------------------------------------------- I do hereby certify that this is a true and complete copy of the US Asset Sale Agreement of 82 pages. /s/ Tom Rowan 9/8/96 Thomas J Rowan 600 Bourke Street, MELBOURNE A Solicitor holding a current Practising Certificate under the Legal Profession Practice Act 1958. [LETTERHEAD] INDEX CLAUSE PAGE - ------ ---- NO. - ----- 1. DEFINITIONS AND INTERPRETATION 2 2. SALE OF BUSINESS ASSETS 9 3. CONSIDERATION 9 4. CONDITIONS PRECEDENT 10 5. STOCK TAKE 11 6. COMPLETION 12 7. EXPERT DETERMINATION 14 8. TRANSFERRING EMPLOYEES 14 9. BUSINESS CONTRACTS AND TRANSFERRED LEASES 16 9A. BUSINESS CONTRACTS 16 9B. TRANSFERRED LEASES 17 10. BUSINESS LIABILITIES AND INDEMNITIES BY THE PURCHASER, THE VENDOR AND THE AUSTRALIAN VENDORS 17 11. CHANGE OF NAME 19 11A. RESTRAINT 20 12. ACCOUNTS RECEIVABLE 21 13. RIGHTS AND OBLIGATIONS PENDING COMPLETION 23 14. WARRANTIES 23 15. SUPERANNUATION 25 16. ACCESS TO BUSINESS RECORDS 26 17. JOINT AND SEVERAL LIABILITY 26 18. CONFIDENTIALITY 26 19. GENERAL 27 20. AUSTRALIAN VENDORS' GUARANTEE & INDEMNITY 30 - 2 - SCHEDULE 1 - BUSINESS CONTRACTS SCHEDULE 2 - BUSINESS RECORDS SCHEDULE 3 - INDUSTRIAL AND INTELLECTUAL PROPERTY SCHEDULE 4 - PLANT AND EQUIPMENT SCHEDULE 5 - TRANSFERRING EMPLOYEES SCHEDULE 6 - TRANSFERRED LEASES SCHEDULE 7 - INDUSTRIAL AND INTELLECTUAL PROPERTY DEED OF ASSIGNMENT SCHEDULE 8 - WARRANTIES AND REPRESENTATIONS SCHEDULE 9 - DUE DILIGENCE DISCLOSURE SCHEDULE 10 - EMPLOYEE BENEFIT PLANS ASSET SALE AGREEMENT THIS AGREEMENT is made the 9th day of August 1996. BETWEEN RECOIL INC. of 1051 Third Avenue, SW, Indianapolis, Indiana, United States ("the Vendor") AND KAYNAR TECHNOLOGIES INC. of 800 State College Boulevarde, Fullerton, California, United States ("the Purchaser") AND RECOIL PTY LTD ACN 006 664 731 of 20 Stamford Road, Oakleigh, Victoria, ("Recoil") AND ADVENT LIMITED ACN 006 509 708 of 6th Floor, 410 Collins Street, Melbourne ("AL") AND AUSTRALIAN PACIFIC TECHNOLOGY LIMITED ACN 006 212 764 of 6th Floor, 410 Collins Street, Melbourne ("APT") AND WESTERN PACIFIC INVESTMENT COMPANY LIMITED ACN 006 254 502 of 6th Floor, 410 Collins Street, Melbourne ("WPI") (and AL, APT and WPI are called "the Advent Group") AND MR B. PRICE of 59 Glyndon Road, Camberwell, Victoria ("Mr Price") AND B. PRICE HOLDINGS PTY LTD ACN 073 779 352 of 59 Glyndon Road, Camberwell, Victoria ("BPH"); AND LENARDE PTY LTD 005 846 597 of 59 Glyndon Road, Camberwell, Victoria ("Lenarde") (and Mr Price, BPH and Lenarde are called "the Price Interests"). WHEREAS: A. The Vendor has employed the Business Assets in the US Business in the United States of America. B. The Australian Vendors have employed the Australian Assets in the Australian Business in Australia. - 2 - C. The Vendor has agreed to sell, and the Purchaser has agreed to purchase from the Vendor, the Business Assets upon the terms and conditions of this Agreement. D. The Australian Vendors have agreed to sell to the Australian Purchasers, and the Australian Purchasers have agreed to purchase from the Australian Vendors, the Australian Business Assets upon and subject to the terms and conditions of the Australian Asset Sale Agreement. NOW IT IS AGREED AS FOLLOWS: 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement, unless the context otherwise requires, the following terms have the following meanings: (a) "Accounts" has the same meaning ascribed to that term in the Australian Asset Sale Agreement; (b) "Accounts Receivable" means any debt due to the Vendor at the Effective Date or to become due to it at some future time on account of the US Business carried on by it at any time up to the Effective Date; (c) "Australian Asset Sale Agreement" means the agreement between the Vendor, the Australian Purchasers, Mr B. Price and the Australian Vendors relating to the sale to the Australian Purchasers of the Australian Business; (d) "Australian Assets" means the assets to be sold by the Australian Vendors to the Australian Purchasers under the Australian Asset Sale Agreement; (e) "Australian Business" means the business of manufacturing and selling helically wound threads and thread insert kits carried on by Recoil Pty Ltd in Australia, the assets of which will be owned by the Australian Vendors in the manner described in the Recitals to the Australian Asset Sale Agreement; (f) "Australian Purchasers" means the Purchaser and RCL Pty ACN 073 750 428; (g) "Australian Vendors" means Recoil, the Advent Group, BPH and Lenarde; (h) "Bank Rate" means the prime rate of interest as set forth from time to time in the Wall Street Journal; - 3 - (i) "Business Assets" means each of the: (i) Accounts Receivable; (ii) Business Contracts; (iii) Business Records; (iv) Industrial and Intellectual Property; (v) Plant and Equipment; (vi) Stationery and Supplies; (vii) Inventory; and (viii) Transferred Leases, (ix) Licences and all other assets directly associated with and of benefit to the ongoing US Business; (j) "Business Contracts" means, subject to clause 6.3, each of the contracts entered into by the Vendor in the US Business including, without limitation, those more particularly described in Schedule 1, all of which are owned by the Vendor; (k) "Business Day" means any day on which the majority of banks carrying on business in the cities of Melbourne, Australia, and Los Angeles, California, are open for business; (l) "Business Liabilities" means: (i) The actual liabilities of the Vendor relating to the US Business as at the Effective Date disclosed in the Accounts; and (ii) Any Claim of a Transferring Employee for or in respect of severance or termination of employment the subject of the indemnity from the Purchaser under clause 8.6, but excluding the Excluded Liabilities; (n) "Business Records" means each of the records of the Vendor including, without limitation, those more particularly described in Schedule 2, all of which are owned by the Vendor; (o) "Claim" means any claim or cause of action in contract, tort, under statute or otherwise; - 4 - (p) "Completion Date" has the meaning ascribed to that term under the Australian Asset Sale Agreement; (q) "Effective Date" has the meaning ascribed to that term under the Australian Asset Sale Agreement; (r) "Employee Benefit Plans" means the retirement, medical and dental plans for the benefit of employees set out in Schedule 10; (s) "Encumbrance" means a mortgage, Claim, security, interest, title defect, charge, pledge, lien, option, restriction as to transfer, use or possession, easement, subordination to any right of any other person, or other encumbrance, but does not include a lien arising as a matter of law or title retention in respect of Inventory which lien or title retention will be discharged by payment of the Business Liabilities to be assumed by the Purchaser, but excludes any right arising under the so called Bulk Sales Laws; (t) "Excluded Liabilities" means each of the following liabilities of the Vendor, and whether existing on, or after, the Effective Date: (i) Any amount owed by the Vendor to Recoil Pty Ltd disclosed in the Accounts; (ii) Any cost and expense incurred by the Vendor and any liability of the Vendor arising in relation to: A. This Agreement; and B. The liquidation of the Vendor, including, but not limited to, the cost of the Vendor's Auditor of performing any function under clause 7, any legal fees, accountant's fees, tax advisers' fees, other consultants' fees and Taxes, and whether of an income or capital nature; (iii) Any liability of the Vendor to pay income taxes under the Income Tax Assessment Act 1936 (Commonwealth of Australia) and the US Internal Revenue Code of 1986, as amended, and any regulation promulgated thereunder, and any US state income taxes; (iv) Any liability which is not a Business Liability; - 5 - (v) Any liability not disclosed in the Accounts resulting from or under any employee benefit plan of the Vendor whether to current employees, former employees, retired employees or other persons entitled to receive payments under such plans or the beneficiaries of any of the foregoing; (vi) Any liability not disclosed in the Accounts with respect to Claims, investigations or arbitration or other litigation pending on the Effective Date or which arises on or after the Effective Date as a result of events occurring prior to the Effective Date; (vii) Subject to clause 8, any liability arising out of Claims by Transferring Employees which are not fully indemnified under workers' compensation insurance pending on the Effective Date (or which arise after the Effective Date but are based on facts or circumstances occurring prior to the Effective Date), including but not limited to Claims for unpaid salary and wages, bonuses, violation of any industrial award or workplace or employment or collective agreement, unfair work practices, working condition, violation of equal opportunity or race discrimination legislation, Taxes, violation of workplace health and safety legislation or sick leave entitlements; (viii) Any liability arising from Claims brought by former employees of the Vendor who are not Transferring Employees; (ix) Any product liability Claims arising from or related to any product manufactured by the Vendor prior to the Effective Date, subject to the Purchaser maintaining product liability insurance at least equivalent to that maintained by the Vendor as at the Effective Date; (x) Any liability in respect of a violation or contravention by the Vendor or any of its directors or officers of any environmental law or any licences, approvals, consents, permissions or permits issued under any environmental law; (xi) Any liability as a result of events occurring prior to the Effective Date in respect of any pollution, contamination or any hazardous or toxic spill, leak or discharge of whatever nature affecting any land (including the property listed in Part A of Schedule 6 and any other premises or - 6 - facility owned, occupied, or used by the Vendor) including any liability: A. Under any notice, direction or order issued by any government or semi-government body to clean up, decontaminate or take remedial action to make good under any environmental law; B. Arising from any Claim concerning property damage or personal injury or death; or C. In respect of the generation, treatment, storage, release or disposal or any hazardous material, but excluding any liability as a result of subsidence on any of the properties referred to in this paragraph (xi); (xii) Any liability in connection with any violation or alleged violation of any law by the Vendor; (xiii) For a period of two years from the Completion Date, in respect of any Claims relating to the infringement by the Vendor of third party rights and the infringement of such rights by the Purchaser as a result of the use by the Purchaser of the Trademarks described in Schedule 3; and (xiv) Any liability in respect of the Vendor's failure to comply with any bulk sales laws applicable to the transactions contemplated by this Agreement but excluding any liability as a result of the Purchaser's failure to discharge Business Liabilities as provided in clauses 3.1(a) and 10.1(b); (u) "Industrial and Intellectual Property" means all industrial and intellectual property of the US Business, including without limitation: (i) All patents and patent applications; (ii) All copyright, industrial designs, inventions, trade secrets, confidential information and knowhow and all other intellectual property used in connection with the US Business, all of which, registered or not, are owned by the Vendor; and (iii) All customer lists, and including all rights to use the Trademarks, research and development, and all of the goodwill of - 7 - the US Business including the right for the Purchaser to represent itself as carrying on the US Business as the successor of the Vendor; (v) "Inventory" means the stock used in the US Business on the Effective Date, including, but not limited to, stock in transit, raw materials, components, work in progress, finished goods, partly finished goods, spare parts, consumables, pallets and packaging material, all of which are owned by the Vendor; (vA) "Licences" means all licences, permits, consents and approvals from government and non-government entities; (w) "Loss" means any damage, loss, cost, Claim, liability, charge, expenses, diminution in value or deficiency of any kind or character (including loss of property or expected profit); (x) "Plant and Equipment" means, all plant and equipment used in the US Business on the Effective Date including, without limitation and subject to clause 6.3, the plant and equipment described in Schedule 4, including all plant and equipment under construction, all of which is owned by the Vendor; (y) "Purchase Price" means: $1,875,000; (z) "Purchaser's Auditor" means Arthur Andersen; (aa) "Stationery and Supplies" means all stationery and supplies used in the US Business on the Effective Date including, without limitation, advertising material, samples, catalogues, brochures, consumables, spare parts and tools, all of which are owned by the Vendor; (aaA) "Tax" and "Taxes" means: (i) All taxes levied, imposed or assessed under the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder or any other statute, ordinance or law, in the United States of America; (ii) All taxes levied, imposed or assessed under the tax legislation, or any other statute, ordinance or law, in Australia, the United Kingdom, Belgium, France or elsewhere; (iii) Taxes in the nature of sales tax, excise, consumption tax, value added tax, payroll tax, group tax, pay as you earn tax, franchise tax, personal property tax, transfer tax, gross - 8 - receipt tax, capital stock tax, production tax, business and occupation tax, disability tax, severance tax, superannuation contributions, workers' compensation contributions, social security, pension fund and other obligatory contributions undistributed profits tax, fringe benefits tax, recoupment tax, withholding tax, land tax, water rates, municipal rates, stamp duties, gift duties or other foreign, national, state, territorial, Commonwealth, local or municipal taxes, charges or impositions levied, imposed or collected by any government body in Australia, the United States of America, the United Kingdom, Belgium, France or elsewhere, together with any additional tax, interest, penalty, charge, fee or other amount of any kind assessed, charged or imposed and any loss in connection with the determination, settlement or litigation of any Tax liability; (bb) "Trademarks" means all of the trademarks of the US Business including, without limitation: (i) Each and every trademark of the Vendor which is registered or for which an application is pending; (ii) Such unregistered rights of the Vendor as may exist through use, including trademarks, trade dress, brand names, logos and other names and slogans embodying goodwill associated with any product; and (iii) Any goodwill incidental to such trademark used by or on behalf of the Vendor in relation to the US Business including, without limitation, the trademarks described in Schedule 3; (cc) "Transferred Leases" means, subject to clause 6.3, the leases of the real property described in Schedule 6 entered into by the Vendor; (dd) "Transferring Employees" means, subject to clause 6.3, the persons more particularly described in Schedule 5; (ee) "US Business" means the business of selling helically wound thread and thread insert kits carried on by the Vendor in the United States of America; and (ff) "Vendor's Auditor" means Bird Cameron Partners; - 9 - 1.2 In this Agreement, unless the context otherwise requires: (a) Words importing one gender shall include the other and neuter genders; (b) Persons shall include corporations and vice versa; (c) The singular number shall include the plural number and vice versa; (d) A reference to any statute or regulation or other law includes a reference to that statute, regulation or other law as modified, amended, or re-enacted from time to time, and any reference to any provision thereof is to that provision as so modified, amended or re-enacted; and (e) A reference to $ and dollars is a reference to the lawful currency of Australia. 1.3 Headings used herein are inserted for ease of reference and shall not affect in any way the meaning of this Agreement. 1.4 References to clauses, sub-clauses and paragraphs are references to clauses, sub-clauses and paragraphs of this Agreement and a reference to this Agreement includes the Schedules to this Agreement. 2. SALE OF BUSINESS ASSETS On the Completion Date, but with effect from the Effective Date: (a) The Vendor, as legal and beneficial owner of the Business Assets hereby sells, assigns and transfers to the Purchaser, free from all Encumbrances; and (b) The Purchaser hereby purchases and has assigned and transferred from the Vendor the Business Assets, upon and subject to the terms and conditions of this Agreement, it being the intention of the parties that the Purchaser shall become the legal and beneficial owner of the Business Assets on and from the Effective Date and be entitled to the rights and obligations in relation to the Business Assets from the Effective Date. 3. CONSIDERATION 3.1 The consideration for the sale and purchase of the Business Assets shall be the: - 10 - (a) Assumption by the Purchaser of the Business Liabilities on the Completion Date, but with effect from the Effective Date; and (b) Payment by the Purchaser to the Vendor of the Purchase Price on the Completion Date. 3.2 The Purchase Price shall be applied as follows: (i) Accounts Receivable, the face value of the Accounts Receivable shown in the Accounts, less all proper provisions in the Accounts for bad and doubtful debts; (ii) Business Records, $1.00; (iii) Plant and Equipment, the written down book value for taxation purposes; (iv) Stationery and Supplies, $1.00; (v) Inventory, the amount determined in accordance with clause 5; (vi) Transferred Leases, $1.00; (vii) Licences and all other Business Assets, $1.00; and (viii) Business Contracts and Industrial and Intellectual Property, the balance, and the Purchaser, the Vendor and the Australian Vendors each agree to file U.S. Internal Revenue Service Form 8594, and all federal, state, local and foreign tax returns, in accordance with the above calculation and allocation of the Purchase Price. 3.3 The Purchaser shall pay the Vendor the Purchase Price, on the Completion Date by bank cheque. 3.4 All amounts to be calculated and paid in accordance with this clause 3 shall be rounded down to the nearest whole dollar. 4. CONDITIONS PRECEDENT 4.1 This Agreement is conditional upon the satisfaction on or prior to the Completion Date of these conditions precedent that on or prior to the Completion Date: (a) The Vendor, the Australian Vendors, Mr B. Price and the Australian Purchasers: - 11 - (i) Execute the Australian Asset Sale Agreement; and (ii) The sale and purchase under the Australian Asset Sale Agreement completes in accordance with its terms; (b) There has not been any material adverse change to the financial condition of the US Business since the date of execution of this Agreement; and (c) The Purchaser obtains the consent of the lessor under the lease of the real property described in Part A of Schedule 6 to the assignment of that lease to the Purchase; (d) The Purchaser has completed to its satisfaction a due diligence investigation of the Business Assets and the Business Liabilities. 4.2 The parties shall take such practical steps and use best endeavours as may be within their respective powers to enable the conditions precedent set out in clause 4.1 to be fulfilled on or prior to the Completion Date. 4.3 Subject to clause 4.4, if the conditions precedent set out in clause 4.1 are not fulfilled as at 15 August 1996, or such other date as the parties may agree, then any party may, at any time after that date, by written notice to the others, give two (2) Business Days' notice of intention to terminate this Agreement, and if the conditions precedent are not fulfilled as at the expiration of that notice, or, if no notice is given within that two (2) Business Day period, no party shall be under any obligation to any other party under this Agreement other than in respect of any antecedent breach. 4.4 A party may not terminate this Agreement if it relies on the non-fulfilment of any condition in respect of which it is in breach of its obligation under clause 4.2. 4.5 The conditions precedent set out in clause 4.1 have been included for the benefit of each party to this Agreement, and the conditions precedent may only be waived in whole or in part with the consent of each of the parties. 5. INVENTORY VALUATION 5.1 For the purposes of determining the amount of the Purchase Price to be applied to Inventory, under clause 3.2, the Vendor shall determine the value of Inventory not more than seven (7) days after the Completion Date in accordance with this clause 5. - 12 - 5.2 All Inventory shall be valued at the lower of cost and fair market value, and costs are to be assigned on a first in first out basis and include direct materials, direct labour and an appropriate portion of variable and fixed overhead expenses. 5.3 A valuation of all Inventory shall be taken in the presence of a representative of the Vendor and the Vendor's Auditor, and a representative of the Purchaser and the Purchaser's Auditor. 5.4 Any dispute as to the quantity or value of Inventory shall be determined at the request of either the Vendor or the Purchaser in accordance with clause 7. 6. COMPLETION 6.1 Completion of the sale and purchase of the Business Assets shall take place on the Completion Date at the office of the Vendor's solicitors, Norton Smith Gledhill, Level 23, 459 Collins Street, Melbourne, Victoria, Australia, or at such other place as the parties may agree, at which time all the Vendor's right, title and interest in and to the Business Assets shall pass to the Purchaser. The Vendor, until completion of the sale and purchase of the Business Assets remains the owner of and bears all risks in connection with the Business Assets. On the Completion Date the risk in the Business Assets passes to the Purchaser. 6.2 The Vendor shall, at completion, deliver to the Purchaser, and the Purchaser shall accept delivery of: (a) The Business Assets and title to them; (b) All deeds, instruments of transfer and other documents, notices, certificates and consents (in a form satisfactory to the Purchaser) reasonably necessary to effect the transfer of the legal and beneficial ownership of the Business Assets free of all Encumbrances to the Purchaser, including: (i) Assignments or novations of the Transferred Leases, together with all appropriate consents; (ii) A deed of assignment in the form set out in Schedule 7 of all Industrial and Intellectual Property; (iii) If necessary, to enable transfer of registration of any motor vehicle to the Purchaser, titles to motor vehicles executed for transfer; and - 13 - (iv) written consent by the Vendor to the use by the Purchaser of the company name "Recoil"; (c) All consents in a form reasonably acceptable to the Purchaser to the assumption of the Business Liabilities by the Purchaser under this Agreement; and (d) Written opinions in a form approved by General Electric Capital Corporation from the legal advisers to the Vendor, the Australian Vendors and the Purchaser; and the Vendor shall sign such transfers and other forms as are produced to it by the Purchaser as are required to transfer the existing services of the US Business, (including telephone, facsimile, electricity and gas) to the Purchaser. 6.3 The Vendor shall, at completion, deliver to the Purchaser written notice of any: (a) Items of Plant and Equipment listed in Schedule 4 which have then been disposed of; (b) Items of Plant and Equipment which are then additional to the Plant and Equipment listed in Schedule 4; (c) Business Contracts listed in Schedule 1 which have then been terminated; (d) Business Contracts which are then additional to the Business Contracts listed in Schedule 1; (e) Transferred Leases listed in Schedule 6 which have then been terminated; (f) Transferred Leases which are then additional to the Transferred Leases listed in Schedule 6; (g) Transferring Employees who are then no longer employees of the Vendor; and (h) Any additional persons not listed as Transferring Employees who have become employees of the Vendor, and any such item of Plant and Equipment, Business Contract and Transferred Lease shall be taken to be excluded or included (as the case may be) in Schedules 4, 1 and 6 (as the case may be), and any such person shall be taken to be, or not to be, (as the case may be) a Transferring Employee. 6.4A For the purpose of clarity, the parties acknowledge and agree that if the Vendor gives notice under clause 6.3 the giving of that notice shall be taken for the purposes of - 14 - clause 14.4 to make the Purchaser aware of a matter which arises after the date of this Agreement and is inconsistent with a warranty or representation made elsewhere in this Agreement by the Vendor, and the Purchaser shall be entitled to the rights given by that clause 14.4. 6.4 The Purchaser shall pay all state taxes, other than US state income taxes, and other transfer taxes which become due because of the completion of this transaction. 6.5 The obligations of the parties in relation to completion are interdependent so that the Purchaser is not obliged to complete the purchase of the US Business unless the purchase of all of the Business Assets is completed simultaneously, and all actions at completion take place simultaneously and no delivery or payment is to be taken to have been made until all deliveries and payment have been made. 7. EXPERT DETERMINATION 7.1 The determination of any matter in respect of which the Vendor and the Purchaser, or the Vendor's Auditor and the Purchaser's Auditor, are unable to agree under clause 5 shall be referred at the request of the Vendor or the Purchaser to an independent chartered accountant agreed to by them, and failing agreement within two (2) Business Days of a request being made therefor, by an independent chartered accountant nominated by the President for the time being of the Institute of Chartered Accountants or the successor of that body who shall, in any case, be appointed on terms that he shall make his determination within fourteen (14) days of his appointment. 7.2 The independent chartered accountant shall act as an expert and not as an arbitrator, and the costs of making any determination shall be borne by the Vendor and the Purchaser equally. 7.3 Any determination made by the independent chartered accountant shall be binding on the parties. 7.4 The parties shall use their best endeavours to procure the independent chartered accountant to make his determination within fourteen (14) days of his appointment. 8. TRANSFERRING EMPLOYEES 8.1 The Purchaser shall, on or before the Completion Date, offer to each of the Transferring Employees employment with the Purchaser on terms as to salary and financial benefits no less favourable than the terms under which each is - 15 - employed by the Vendor in conducting the US Business on the Effective Date (as the case may be) being the terms disclosed to the Purchaser prior to the date of this Agreement. 8.2 The Purchaser covenants with the Vendor that in respect of all Transferring Employees the Purchaser shall: (a) Abide by the terms and conditions of the offer of employment made under clause 8.1; and (b) Indemnify the Vendor for any Loss suffered or incurred by it and any Claim made against it in respect of all Transferring Employees: (i) Occasioned by the Purchaser's failure to observe those terms and conditions of employment; and (ii) Subject to clause 8.4, who do not accept those terms and conditions. 8.3 The Vendor and the Purchaser shall use their best endeavours to encourage all Transferring Employees to accept the offers made by the Purchaser under clause 8.1. 8.4 The Vendor shall pay on the Completion Date all Transferring Employees who do not accept the offer of employment made under clause 8.1, all amounts due and owing to them in respect of accrued salary or wages, holiday pay and long service leave pay, but not any Claim for or in respect of severance or termination of employment, and the Vendor and the Australian Vendors shall: (a) Pay, and indemnify the Purchaser in respect of, any Claim for workers' compensation and any common law Claim arising from any injury to those Transferring Employees, but not any Claim for, or in respect of, severance or termination of employment; and (b) Indemnify the Purchaser with respect to any non-compliance by the Vendor with the U.S. Worker Adjustment and Retraining Notification Act. 8.5 The Vendor shall, on the Completion Date, release all Transferring Employees employed by it from employment by it. 8.6 On and from the Effective Date the Purchaser shall, subject to clause 8.4: (a) Pay all Transferring Employees all amounts due to them on and from the Effective Date as and when they fall due; and - 16 - (b) Indemnify the Vendor against any liability for any Claim for any amount due to or accrued by all employees on or after the Effective Date, and whether the amount or liability accrued prior to the Effective Date, it being the intention of the parties that the Purchaser shall be responsible for and pay all amounts disclosed in the Accounts as accrued but not then due to employees on the Effective Date for salary or wages, holiday pay and long service leave pay and other severance or termination pay other than that to be paid by the Vendor under clause 8.4 (whether or not disclosed in the Accounts). 9. BUSINESS CONTRACTS AND TRANSFERRED LEASES 9.1 With effect on and from the Effective Date, the Purchaser assumes responsibility for the performance of: (a) The Business Contracts; and (b) The Transferred Leases, ("all agreements") and agrees to indemnify and save harmless the Vendor on and from the Effective Date from all Claims and Losses relating to all agreements arising from matters or things done or omitted to be done on or from the Effective Date. 9.2 The Purchaser shall be entitled, on and from the Effective Date, to the rights and benefits arising under or in relation to all agreements. 9.3 The Vendor and the Australian Vendors agree to indemnify and hold harmless the Purchaser on and from the Effective Date, from all Claims and Loss relating to all agreements entered into by the Vendor arising from matters or things done, or omitted to be done, at any time up to and including the day before the Effective Date and not included in the definition of Business Liabilities. 9A. BUSINESS CONTRACTS 9A.1 The Vendor shall assign to the Purchaser each and every Business Contract,with effect from the Effective Date. If any other party to any Business Contract objects to such assignment the Purchaser may elect for the provisions of clause 9A.2 to apply. 9A.2 The Vendor, and the Australian Vendors undertake to the Purchaser, in the situation where any third party to a - 17 - Business Contract objects to or refuses to consent to an assignment of a Business Contract to: (a) Duly perform the contract with the assistance of such employees and materials of the Purchaser which the Purchaser shall make available as and when necessary at no expense to the Vendor; (b) Delegate management to the Purchaser if it is reasonably possible to do so; (c) Enforce the contract against the other party or parties to the relevant Business Contract in such a manner as the Purchaser may direct from time to time, at no expense to the Vendor; (d) Not agree to any amendment to the Business Contract or waiver of the Vendor's rights under the relevant Business Contracts without the prior written consent of the Purchaser; and (e) Pay to the Purchaser forthwith all moneys received by the Vendor for goods and services supplied by the Vendor in respect of the performance by it of the relevant Business Contracts. 9B. TRANSFERRED LEASES 9B.1 The Vendor shall assign (with the written consent of each of the lessors) the Transferred Leases to the Purchaser with effect from the Effective Date. 9B.2 If any of the Transferred Leases have not been effectively assigned to the Purchaser at completion the Purchaser may require that the Vendor at its own cost (save in respect of registration fees and the Purchaser's legal costs) take such action as may be reasonably necessary to procure the assignment of such Transferred Leases to the Purchaser on terms which are not materially adversely different from those in force at the date of execution of this Agreement. 10. BUSINESS LIABILITIES AND INDEMNITIES BY THE PURCHASER, THE VENDOR AND THE AUSTRALIAN VENDORS 10.1 Subject to clause 10.2 the Purchaser covenants to indemnify and keep indemnified the Vendor: (a) From all Claims and Losses brought or made against the Vendor in connection with the use of the Business Assets on and from the Effective Date that arise on or after the Effective Date; and - 18 - (b) In respect of the Business Liabilities. 10.2 Subject to clauses 8.6, 10.2A and 10.2B, the Vendor and the Australian Vendors indemnify the Purchaser in respect of all Losses and Claims which either or both: (a) Are incurred in connection with the use of the Business Assets prior to the Effective Date; or (b) Relate to the Excluded Liabilities, and are not Business Liabilities PROVIDED HOWEVER THAT in the case of an Excluded Liability of the kind referred to in paragraph (xiii) of the definition of Excluded Liabilities in clause 1.1, the Vendor and the Australian Vendors shall not be required to indemnify the Purchaser under this clause 10.2 if the Purchaser: (c) During the two year period referred to in paragraph (xiii) of the definition of Excluded Liabilities in clause 1.1, has failed to take reasonable steps as a result of which the Trademarks described in Schedule 3 may be declared void, voidable, invalid or subject to removal or expungement; and (d) Has not taken all reasonable steps to mitigate all Loss arising as a result of any Claim of the kind referred to in paragraph (xiii) of the definition of Excluded Liabilities in clause 1.1. 10.2A The Vendors and the Australian Vendors shall not be required to indemnify the Purchaser under clause 10.2 for any Claim or Loss where the amount of the liability for all Vendors and the Australian Vendors in aggregate in respect of all Claims and Losses is more than the Purchase Price. 10.2B The Purchaser shall not bring any action under clause 10.2 in respect of any Claim or Loss unless the aggregate amount of all Claims and Losses incurred by them exceeds $100,000 and the Vendors and the Australian Vendors shall only be liable to the Purchaser in respect of the Claim or Loss to the extent that the aggregate amount of all Claims and Losses exceeds $100,000. 10.3 The Vendor and the Australian Vendors hereby indemnify and holds harmless the Purchaser in respect of any Claim or Loss made against the Purchaser in respect of the sale or provision of Inventory by the Purchaser on or after the Effective Date. 10.4 If the Purchaser or the Vendor is seeking indemnification (the party seeking indemnification to be referred to as the "Indemnified Party") and desires to make a Claim against the other party or parties for indemnification (the - 19 - "Indemnifying Party") under this clause 10, the Indemnified Party shall, within thirty (30) days after the Indemnified Party becomes aware of a Claim by notice or knowledge, notify the Indemnifying Party in writing of any Claim or demand as to which the Indemnified Party is entitled to claim indemnification, the clause under this Agreement with respect to which such Claim is being made and, to the extent known, the amount and circumstances surrounding such Claim. In the event that Claim is a third party Claim against an Indemnified Party or involves a Claim by or liability involving a governmental authority, the Indemnifying Party shall have the right to employ counsel of its choice to defend any such Claim or demand PROVIDED HOWEVER THAT: (a) The Indemnified Party is kept fully informed of all developments and is furnished copies of all relevant papers; (b) The Indemnifying Party diligently prosecutes the defence; and (c) The Indemnified Party shall have the right to participate, at its own undertaking and through counsel selected by it, in the defence of any such Claim. If the conditions of the foregoing proviso are not met, or the Indemnifying Party chooses not to control the defence, the Indemnified Party shall assume and control the defence of such third party Claim or suit at the expense of the Indemnifying Party. The Indemnifying Party, or, if the conditions to the foregoing proviso are not met, the Indemnified Party, shall have the right to pay, compromise or settle any such third party Claim with the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. 10.5 Unless otherwise provided in this Agreement, each indemnity given under this Agreement continues indefinitely and the party to whom the benefit of an indemnity is given shall be kept indemnified. 11. CHANGE OF NAME 11.1 The Vendor shall, on or before the Completion Date change its name from Recoil Inc to some other dissimilar name, not incorporating the word "Recoil". 11.2 The Vendor covenants with the Purchaser that the Vendor shall not, after the Completion Date, use the name Recoil or any similar name in the conduct of any business of it or otherwise PROVIDED HOWEVER that the Vendor shall be entitled to use the name Recoil to designate its name until - 20 - such time as the Secretary of the State of Indiana has issued a certificate of change of name. 11.3 The Vendor covenants with the Purchaser that: (a) The Vendor shall change its name in accordance with clause 11.1; and (b) The Purchaser shall be entitled to use the name Recoil or any similar name as the name of the Purchaser. 11A. RESTRAINT 11A.1 For the purpose of protecting the Purchaser in respect of the goodwill associated with the US Business and in consideration of the benefits to be derived from the sale by the Vendor and the Australian Vendors of the Business Assets and of the agreement evidenced by this Agreement, each of the Vendor and the Australian Vendors ("the restricted party") covenants severally with the Purchaser that it shall not: (a) For the period from the date of this Agreement specified below: (i) In the case of the Price Interests, and Recoil, three (3) years; and (ii) In the case of the Advent Group, one (1) year; and (b) In the area specified below: (i) Australia; (ii) The European Union; and (iii) The United States of America, (either directly or indirectly) be concerned with or interested in any undertaking or business in competition with the US Business PROVIDED HOWEVER that this clause shall not prevent any restricted party from holding or being otherwise interested as principal in stocks, shares, units or securities of any company or trust ("securities"), which securities represent less than 10% in number of the securities on issue in any such company or trust and which securities are listed for quotation on any stock exchange. 11A.2 During the period referred to in clause 11A.l(a), the restricted parties shall not on their own account or for any other person: - 21 - (a) Induce or attempt to induce any employee to leave the employment of the Purchaser; (b) Induce or attempt to induce any customer away from the Purchaser; or (c) Induce or attempt to induce any supplier or financier away from the Purchaser. 11A.3(a) Each of the covenants contained in clause 11A.l is to be construed as a separate independent covenant severable from all other covenants contained in clause 11A.1. If any of the covenants is found to be void, invalid or otherwise unenforceable, such unenforceability does not affect the validity or enforceability of any of the separate covenants. (b) It is intended by the parties that restraints contained in this clause operate to the maximum extent except that, if any of the prohibitions or restrictions is judged to go beyond what is reasonable in the circumstances, but would be judged reasonable if the period or area were reduced, then the prohibitions or restrictions apply with that period or area reduced by the minimum amount necessary. (c) The restricted party acknowledges that the duration, extent and application of the respective restrictions contained in this clause are not greater than is reasonably necessary for the protection of the interests of the Purchaser and the preservation of the goodwill acquired under this Agreement, but that, if such restriction is adduced by any court of competent jurisdiction to be void or unenforceable but would be valid if part of the wording of this clause was either or both deleted or the period was reduced, those restrictions apply with such modification as may be necessary to make this clause valid and effective. (d) In the event of any breach by the restricted party of its obligations under this clause then, in addition and without prejudice to any other remedy which the Purchaser may have, the Purchaser is entitled to seek and obtain injunctive relief in any court of competent jurisdiction. 12. ACCOUNTS RECEIVABLE 12.1 The parties agree and acknowledge that from the Effective Date the Accounts Receivable are the property of the Purchaser. - 22 - 12.2 On or before the Effective Date, the Vendor shall compile a list of Accounts Receivable as at the Effective Date detailing the name, address and amount owing in relation to each Account Receivable and deliver to the Purchaser a copy of such list. 12.3 Any payment (including any part payment) with respect to any Account Receivable received by the Vendor on or after the Effective Date shall be remitted, as soon as practicable, to the Purchaser. 12.4 Any monies collected by the Vendor in respect of trading indebtedness from or on behalf of any debtor are to be first applied in satisfying the invoice against which the particular debtor makes payment or if no such invoice is nominated the collections are to be applied first in satisfying the debtor's account from whom such collection was received on a first-in first-out basis, save where a debt is in dispute. 12.5 The Vendor warrants to the Purchaser that the Purchaser will, within 180 days after the Completion Date, recover an amount equal to the total value of the Accounts Receivable shown in the Accounts, less any provisions in the Accounts for bad and doubtful debts ("the warranted amount"). 12.6 The Vendor and the Australian Vendors indemnify the Purchaser in respect of any Loss by the Purchaser resulting from the failure by the Purchaser to recover the warranted amount within that 180 day period, and shall pay to the Purchaser, within seven (7) days of receiving a written request therefor, the amount of any such Loss. 12.7 Where the Vendor or the Australian Vendors pay any amount in respect of any Account Receivable under clause 12.6, the Purchaser shall assign the corresponding portion of that Account Receivable to the Vendor within seven (7) days of receipt of that amount, and the Account Receivable shall be the property of the Vendor. 12.8 The Purchaser covenants with the Vendor and the Australian Vendors that the Purchaser shall: (a) Use its reasonable endeavours to collect all Accounts Receivable within 180 days after the Completion Date; and (b) Comply with all reasonable requests of the Vendor to provide the Vendor with information relating to the collection of the Accounts Receivable. - 23 - 13. RIGHTS AND OBLIGATIONS PENDING COMPLETION 13.1 From the date of this Agreement to the Completion Date the Vendor shall: (a) Ensure that the US Business is conducted in accordance with normal and prudent practice (having regard to the nature of the US Business); (b) Use its reasonable commercial endeavours to maintain the profitability and value of the US Business; (c) Use the Business Assets with reasonable care; (d) Not without the prior consent of the Purchaser: (i) Enter into any material contract or commitment or, other than in the ordinary course of operating the US Business, incur any material liabilities; or (ii) Hire or terminate the employment of any employee or alter the terms or conditions of employment of the Transferring Employees; (e) Keep the Business Assets insured on a replacement basis and comply in all respects with the requirements of all insurance policies maintained in respect of the Business Assets; and (f) Consult with the Purchaser on any matters which may have a material impact on the value or performance of the US Business, or if known as of the date of this Agreement would have been required to be disclosed to the Purchaser. 13.2 The Vendor warrants to the Purchaser that the US Business has been conducted in accordance with paragraphs (a), (b), (c) and (e) of clause 13.1 from 31 December 1995 to the Effective Date. 14. WARRANTIES 14.1 Subject to this Agreement, the Vendor and the Australian Vendors warrant and represent to the Purchaser the matters set out in the Schedule 8 ("the warranties"). The Vendor and the Australian Vendors acknowledge that the Purchaser enters into this Agreement in full reliance on the warranties and that the warranties have been made with the intention of inducing the Purchaser to enter into this Agreement. - 24 - 14.2 The Vendor and the Australian Vendors warrant and represent to the Purchaser that the warranties are true, complete and accurate and not misleading in any way. 14.3 The Vendor and the Australian Vendors shall not be liable for any inaccuracy or breach of any of the warranties, or any representation made elsewhere in this Agreement, if the inaccuracy or breach or the facts giving rise to the inaccuracy or breach is or are actually known to the Purchaser as a result of any of the: (a) Due diligence investigation undertaken by the Purchaser prior to the date of this Agreement; and (b) Material: (i) Made available to the Purchaser by the Vendor listed in Schedule 9; or (ii) Notified to the Purchaser in writing after the date of this Agreement, PROVIDED HOWEVER THAT in the case of sub-paragraph (ii) of paragraph (b), the Purchaser shall be entitled to treat the notification as making it aware of a matter which, for the purposes of clause 14.4, arises after the date of this Agreement and is inconsistent with a warranty or representation made elsewhere in this Agreement by the Vendor, and the Purchaser shall be entitled to the rights given by that clause 14.4. 14.4 If: (a) The Vendor, the Australian Vendors or the Purchaser become aware before the Completion Date of a matter which arises after the date of this Agreement and is inconsistent with any of the warranties or any representation made elsewhere in this Agreement, it must immediately notify the other of them in writing of the matter; (b) The matter is such as to have a material adverse impact on the US Business, then the Vendor and the Purchaser must negotiate in good faith to resolve the issue and, failing an outcome of the negotiations satisfactory to both parties, either of them is entitled to rescind this Agreement by giving written notice to the other of them within five (5) Business Days of becoming aware of the matter, provided that completion has not already occurred; and (c) This Agreement is not rescinded pursuant to paragraph (b) of this clause, then the parties must proceed to completion and the Purchaser must not bring any Claim - 25 - against the Vendor, or the Australian Vendors in respect of any matter referred to in paragraph (a), provided that this exclusion does not apply: (i) If and to the extent that the matter giving rise to the Claim was caused by the negligence or wilful default of the Vendor in its management of the US Business after the date of this Agreement; or (ii) If the matter is such as to have a material adverse impact upon the US Business and the Purchaser was not aware of such matter before completion. 14.5 The Vendor and the Australian Vendors shall not be liable to the Purchaser for any Claim in respect of any indemnity, breach of the warranties or of any representations made elsewhere in this Agreement where either or both: (a) The Claim is not agreed, compromised or settled, or the Purchaser has not issued and served legal proceeding against the Vendor within one (l) year of the Completion Date; and (b) The amount of the liability of the Vendor in aggregate in respect of all Claims is more than the Purchaser Price. 14.6 Each of the warranties is given as of the date of this Agreement and the Completion Date and subject to this Agreement. 14.7 The warranties are taken to be complete immediately before completion with respect to the facts then existing. 14.8 Subject to clause 14.5, the Vendor and the Australian Vendors covenant to indemnify and keep indemnified the Purchaser against all liabilities which may be incurred by the Purchaser as a result (directly or indirectly) of a breach of any of the warranties. 15. EMPLOYEE BENEFITS 15.1 The Vendor and the Australian Vendors covenant that the Transferring Employees are members of the employee benefit plans set forth in Schedule 10, and no other employee benefit plans. 15.2 The Vendor and the Australian Vendors covenant with the Purchaser that the Vendor has complied with the requirements of the Employee Retirement Income Security Act ("ERISA") with respect to the employee benefit plans set - 26 - forth in Schedule 10 and indemnify and hold harmless the Purchaser from all Claims and Loss brought or made against the Purchaser in relation to such matters arising prior to the Effective Date. 16. ACCESS TO BUSINESS RECORDS On and from the Completion Date, the Purchaser shall provide the Vendor with access to the Business Records, and to all other the documents and records of the US Business, and permit them to take copies thereof for the purposes of enabling them to complete any taxation or other statutory return, and for all other reasonable commercial purposes. 17. JOINT AND SEVERAL LIABILITY The obligations and liability of each of the Australian Vendors, Mr Price and the Vendor under this Agreement are joint and several except in the case of the obligations and liability of each of the Australian Vendors and the Vendor arising under clauses 11, 11A and 18, which shall be several only. 18. CONFIDENTIALITY 18.1 No announcement or communication concerning these terms or conditions of this Agreement shall be made or authorised by any of the parties to this Agreement before the Completion Date without the prior written consent of the other parties, except as permitted by this clause 17. 18.2 A party may disclose anything in respect of this Agreement as required: (a) By applicable law; or (b) By any recognised stock exchange on which its shares, or shares of any related body corporate, are listed for quotation, but to the extent possible, it shall consult with the other parties before making the disclosure. 18.3 A party may disclose anything in respect of this Agreement to the officers, employees and professional advisers of that party and of its related bodies corporate, but it must use all reasonable endeavours to ensure the matters disclosed are kept confidential. 18.4 If this Agreement is rescinded or terminated, the Purchaser and Kaynar covenant with the Vendor to: - 27 - (a) cease using all information and documents provided to it by the Vendor in relation to this Agreement; (b) Return that information and those documents and all copies to the Vendor; and (c) Keep that information and those documents confidential and not disclose them to any person. 18.5 The Vendor covenants with the Purchasers not to use or disclose any confidential information of the Company. In this clause 18.5 "confidential information of the Company" means information of every kind concerning or in any way relating to customers, business transactions, records, financial affairs, trade secrets, technical information, processes, all inventions and knowhow used in connection with the US Business other than information in the public domain. 19. GENERAL 19.1 This Agreement is governed by and shall be construed in accordance with the laws in force in California and the parties submit to the jurisdiction of the courts of that state including all courts of appeal. 19.2 All representations, warranties, covenants and agreements made herein shall survive any investigation made and shall survive completion. 19.3 Except as otherwise expressly provided, the provisions of this Agreement shall enure to the benefit of and be binding upon the successors, heirs, executors and administrators of the parties hereto. 19.4 Neither this Agreement nor any term thereof may be amended, waived, discharged or terminated except by written instrument signed by each of the parties hereto. 19.5 No party may assign its rights or obligations under this Agreement to any person without the written consent of the other parties, which consent shall not be unreasonably withheld PROVIDED HOWEVER that the Purchaser may assign and transfer to General Electric Capital Corporation or any other provider of financing to the purchaser (collectively, the "Financier") all of the Purchaser's rights and remedies under and with respect to this Agreement and any agreements, documents or instruments executed in connection with this Agreement, including, without limitation, its rights to any and all amounts payable to the Purchaser under this Agreement, and each of the other parties to this Agreement hereby consents to such assignment and transfer - 28 - and agrees to execute and deliver to any such Financier confirmation thereof. 19.6 The parties shall each bear their own costs and expenses including legal fees in connection with the negotiation and preparation of this Agreement. 19.7 This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 19.8 This Agreement shall be read and construed subject to all applicable laws and shall have effect only to the extent permitted thereby. If, but for this clause, any provision of this Agreement would be unenforceable, voidable or void it shall be read and construed in such matter as will preclude it from so being to the intent that such provision shall be read and construed so as to be valid and enforceable to the greatest extent possible. Each provision may be so read and construed (or deleted if necessary) regardless of the effect which that may have on the provision in question or any other provision or the Agreement as a whole. 19.9 Subject to clause 18.15, time shall be of the essence of this Agreement in all respects and no extension or variation thereof shall operate as a waiver of this provision. 19.10 Each party hereto covenants with the other party to do all acts, matters and things including, without limitation, executing or signing agreements, deeds or other matters, which are required to be done in order to give full effect to the provisions of this Agreement and the transactions contemplated herein. 19.11 Without prejudice to any rights any party may have under this Agreement, each party agrees to pay to the other on demand interest calculated at the rate of two percent (2%) above the Bank Rate on any money which is not paid by one party to the other when payable, which interest paid shall accrue daily from the date due for payment, until paid. 19.12 Any notice, demand or other communication required to be given or made hereunder shall, unless otherwise expressly provided, be in writing and be deemed duly given or made if delivered or sent by prepaid mail or by facsimile communication as follows: (a) To the Vendor and the Australian Vendors at: If delivered or sent by prepaid mail, the address set out at the beginning of this Agreement; - 29 - If by facsimile, 61 3 9700561; (b) To the Purchaser at: If delivered or sent by pre-paid mail,the address set out the beginning of this Agreement; If by facsimile, 0011 1 714 6803153; or such other address as may be notified by any party to the other and where served by post shall be deemed served on the second day following its posting. 19.13 Where, by virtue of the provisions of this Agreement, the day on which any act, matter or thing is to be done is not a Business Day in the place in which the act, matter or thing is to be done, such act, matter or thing shall be done on the next succeeding Business Day. 19.14(a) If any party defaults under this Agreement, no party not in default shall be entitled to exercise any of its rights arising out of the default other than its right to sue for money then owing until it has served the defaulting party with a written notice specifying the default and its intention to exercise its rights unless the default is remedied and the proper legal costs caused by the default and any interest demanded are all paid within five (5) Business Days of service of the notice or such longer period as may be specified, and the defaulting party fails to comply with the notice. (b) If the notice given pursuant to paragraph (a) also states that unless the default is remedied within the period set out in the notice, the Agreement will be rescinded pursuant to this clause then, if the default is not so remedied the Agreement shall thereupon be rescinded. (c) The provisions of this clauses 19.14 are subject to clause 14.3. 19.15 Each schedule and exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement, although schedules need not be attached to each copy of this Agreement. This Agreement, together with such schedules and exhibits, and in combination with the Australian Asset Sale Agreement and the schedules and exhibits thereto, a letter dated 19 July 1996 from Kaynar to Mr Brian Ball regarding the payment of European lawyers' costs and a letter dated 25 July - 30 - 1996 from Arthur Andersen regarding the audit of the Company, constitutes the entire agreement among the parties pertaining to the purchase and sale of the Business Assets and the Australian Assets and supersedes all prior understandings, including, but not limited to, the preliminary agreement dated 15 March 1996 between the Company, Kaynar, Mr Price, Lenarde and the Advent Group. If there is any inconsistency between this Agreement and the Australian Asset Sale Agreement with respect to the sale of the Business Assets under this Agreement, then the provisions of this Agreement will prevail. 20. AUSTRALIAN VENDORS' GUARANTEE AND INDEMNITY 20.1 The Australian Vendors unconditionally and irrevocably guarantee to the Purchaser the due and punctual performance of the Vendor's obligations under this Agreement (including any indemnities given in favour of the Purchaser). 20.2 As a separate and independent principal obligation, the Australian Vendors indemnify and hold the Purchaser harmless from and against all Loss incurred or suffered by the Purchaser, and all Claims made against the Purchaser as a result of default by the Vendor in the performance of any such obligation. 20.3 This guarantee and indemnity: (a) Applies: (i) To the present and future obligations of the Vendor under this Agreement; (ii) To this Agreement as amended, supplemented, renewed or replaced; (iii) Regardless of whether the Australian Vendors are aware of, or have consented to, or are given notice of, any amendment, supplement, renewal or replacement of any agreement to which the Purchaser and the Vendor are a party or the occurrence of any other thing; and (b) Is not affected, nor are the obligations of the Vendor under this Agreement released or discharged or otherwise affected, by anything which, but for this provision, must have that effect, and the obligations of the Australian Vendors hereunder extend to any change in the obligations of the Vendor as a - 31 - result of any amendment, supplement, renewal or replacement if this Agreement or the occurrence of any other thing. 20.4 If any payment, conveyance, transfer or other transaction relating to, or affecting, any obligation of the Vendor under this Agreement are: (a) Void, voidable or unenforceable under any law relating to bankruptcy, liquidation or protection of creditors in whole or in part; or (b) Claimed to be void, voidable or unenforceable under any law relating to bankruptcy, liquidation or protection of creditors, and that Claim is upheld, conceded or compromised in whole or in part, the liability of the Australian Vendors under this guarantee and indemnity is the same as if: (c) The payment, transaction, conveyance or transfer or the void, voidable or unenforceable part of it; and (d) Any release, settlement or discharge made in reliance on anything referred to in paragraph (c), had not been made, and the Australian Vendors must immediately take all action and sign all documents reasonably necessary or reasonably required by the Purchaser to restore to it the benefit of this guarantee and indemnity. 20.5 This guarantee and indemnity is: (a) A principal obligation and is not to be treated as ancillary or collateral to any other right or obligation; and (b) Independent of, and not in substitution for or affected by, any other collateral security which the Purchaser may hold in respect of the obligations of the Vendor under this Agreement or any other person, except that no Claim may be brought under this guarantee and indemnity unless a written notice of claim in respect of the matter concerned has been given to the Vendor and the Claim remains unsatisfied seven (7) Business Days after the giving of that notice. 20.6 This guarantee and indemnity is a continuing obligation of the Australian Vendors despite any settlement of account, and remains in full force and effect until: (a) The obligations of the Vendor under this Agreement have been performed; or - 32 - (b) This guarantee and indemnity has been fully discharged by the Australian Vendors. 20.7 The parties acknowledge and agree that all amounts paid, whether under this clause 20 or as provided elsewhere in this Agreement, shall not exceed the Purchase Price. IN WITNESS WHEREOF the parties hereto have executed this Agreement the day and year first hereinbefore written. SIGNED for and on behalf of ) /s/ Brian F. Ball RECOIL INC. by BRIAN F. BALL ). . . . . . . . . . . . . . . . in the presence of: ) /s/ illegible . . . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) /s/ Tom Rowan KAYNAR TECHNOLOGIES INC. by ). . . . . . . . . . . . . . . . THOMAS JOSEPH ROWAN in the ) presence of: ) /s/ illegible . . . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) RECOIL PTY LIMITED ACN 006 664 ) /s/ Brian F. Ball 731 by BRIAN F. BALL in the ) presence of: ) /s/ illegible . . . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) /s/ Brian F. Ball ADVENT LIMITED ACN 006 509 708 by ). . . . . . . . . . . . . . . . BRIAN F. BALL in the ) presence of: ) /s/ illegible . . . . . . . . . . . . . . . . . . Witness - 33 - SIGNED for and on behalf of ) AUSTRALIAN PACIFIC TECHNOLOGY ) /s/ Brian F. Ball LIMITED ACN 006 212 764 ). . . . . . . . . . . . . . . . by BRIAN F. BALL in the ) presence of: ) /s/ illegible . . . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) /s/ Brian F. Ball WESTERN PACIFIC INVESTMENT ). . . . . . . . . . . . . . . . COMPANY ACN 006 254 502 ) by BRIAN F. BALL ) in the presence of: ) /s/ illegible . . . . . . . . . . . . . . . . . . Witness SIGNED by MR. B. PRICE in the ) /s/ Bruce Price presence of: ). . . . . . . . . . . . . . . . /s/ illegible . . . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of B. ) PRICE HOLDINGS PTY LTD ACN 073 ) /s/ Bruce Price 779 352 by BRUCE PRICE ) in the presence of: ) /s/ illegible . . . . . . . . . . . . . . . . . . Witness SIGNED for and on behalf of ) LENARDE PTY LTD ACN 005 846 597 ) /s/ Bruce Price by BRUCE PRICE ) in the presence of: ) /s/ illegible . . . . . . . . . . . . . . . . . . Witness EX-10.1 5 EX 10.1 AMENDED AND RESTATED TERM LOAN AGREEMENT ================================================================================ AMENDED AND RESTATED TERM LOAN AGREEMENT dated as of August 12, 1996 between KAYNAR HOLDINGS INC., as Borrower and GENERAL ELECTRIC CAPITAL CORPORATION, as Lender ================================================================================ -1- TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I DEFINITIONS 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . 2 1.02. Computation of Time Periods. . . . . . . . . . . . . . . . . . . 25 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . 25 1.04. References to this Agreement . . . . . . . . . . . . . . . . . . 25 1.05. Miscellaneous Terms. . . . . . . . . . . . . . . . . . . . . . . 25 1.06. Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE II AMOUNTS AND TERMS OF TERM LOANS 2.01. Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.02. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.03. Authorized Officers and Agents . . . . . . . . . . . . . . . . . 29 ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.02. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.03. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.04. Promise to Repay; Evidence of Indebtedness . . . . . . . . . . . 33 ARTICLE IV CONDITIONS TO SUPPLEMENTAL TERM LOAN 4.01. Conditions Precedent to the Supplemental Term Loan . . . . . . . 33 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01. Representations and Warranties . . . . . . . . . . . . . . . . . 36 ARTICLE VI REPORTING COVENANTS 6.01. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 40 6.02. Operations Reports . . . . . . . . . . . . . . . . . . . . . . . 43 6.03. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . 44 6.04. Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.05. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.06. ERISA Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.07. Environmental Notices. . . . . . . . . . . . . . . . . . . . . . 47 -i- Section Page - ------- ---- 6.08. Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.09. Government Contract Notices. . . . . . . . . . . . . . . . . . . 48 6.10. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE VII AFFIRMATIVE COVENANTS 7.01. Organizational Existence, Etc. . . . . . . . . . . . . . . . . . 49 7.02. Organizational Powers; Conduct of Business . . . . . . . . . . . 49 7.03. Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . 49 7.04. Payment of Taxes and Claims; Tax Consolidation . . . . . . . . . 50 7.05. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.06. Inspection of Property; Books and Records; Discussions . . . . . 51 7.07. Insurance and Condemnation Proceeds. . . . . . . . . . . . . . . 51 7.08. ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . 52 7.09. Foreign Employee Benefit Plan Compliance . . . . . . . . . . . . 52 7.10. Government Contract Compliance . . . . . . . . . . . . . . . . . 52 7.11. Environmental Compliance . . . . . . . . . . . . . . . . . . . . 52 7.12. Maintenance of Property. . . . . . . . . . . . . . . . . . . . . 52 7.13. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ARTICLE VIII NEGATIVE COVENANTS 8.01. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.02. Sales of Assets. . . . . . . . . . . . . . . . . . . . . . . . . 55 8.03. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 8.04. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 56 8.05. Accommodation Obligations. . . . . . . . . . . . . . . . . . . . 57 8.06. Restricted Junior Payments . . . . . . . . . . . . . . . . . . . 57 8.07. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . 58 8.08. Transactions with Shareholders and Affiliates. . . . . . . . . . 59 8.09. Restriction on Fundamental Changes . . . . . . . . . . . . . . . 59 8.10. Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . 59 8.11. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.12. Issuance of Capital Stock. . . . . . . . . . . . . . . . . . . . 61 8.13. Organizational Documents . . . . . . . . . . . . . . . . . . . . 61 8.14. Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.15. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.16. Payment of PIK Dividend Notes. . . . . . . . . . . . . . . . . . 61 -ii- Section Page - ------- ---- ARTICLE IX FINANCIAL COVENANTS 9.01. Consolidated Cash Flow . . . . . . . . . . . . . . . . . . . . . 61 9.02. Consolidated Interest Coverage Ratio . . . . . . . . . . . . . . 62 9.03. Consolidated Total Funded Indebtedness Coverage Ratio. . . . . . 62 ARTICLE X EVENTS OF DEFAULT; RIGHTS AND REMEDIES 10.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . 63 10.02. Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . 66 ARTICLE XI MISCELLANEOUS 11.01. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 11.02. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 11.03. Change in Accounting Principles . . . . . . . . . . . . . . . . 68 11.04. Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 11.05. Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . 69 11.06. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 11.07. Survival of Warranties and Agreements . . . . . . . . . . . . . 70 11.08. Failure or Indulgence Not Waiver; Remedies Cumulative . . . . . 70 11.09. Marshalling; Payments Set Aside . . . . . . . . . . . . . . . . 70 11.10. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 71 11.11. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 11.12. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 71 11.13. Limitation of Liability . . . . . . . . . . . . . . . . . . . . 71 11.14. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 71 11.15. Certain Consents and Waivers of the Borrower. . . . . . . . . . 72 11.16. Counterparts; Effectiveness; Inconsistencies. . . . . . . . . . 73 11.17. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 73 11.18. No Novation . . . . . . . . . . . . . . . . . . . . . . . . . . 73 11.19. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 75 -iii- EXHIBITS Exhibit A -- Form of Collection Account Agreement Exhibit B -- Form of Notice of Borrowing Exhibit C-1 -- Form of Pledge Agreement Exhibit C-2 -- Form of Supplement to Pledge Agreement Exhibit D-1 -- Form of Initial Term Note Exhibit D-2 -- Form of Supplemental Term Note Exhibit E -- Form of Officer's Certificate to Accompany Reports SCHEDULES Schedule 1.01.1 -- Collection Accounts and Collection Account Banks Schedule 1.01.2 -- Permitted Existing Accommodation Obligations Schedule 1.01.3 -- Permitted Existing Indebtedness Schedule 1.01.4 -- Permitted Existing Liens Schedule 5.01-C -- Consents Schedule 5.01-D -- Authorized, Issued and Outstanding Capital Stock; Subsidiaries -iv- AMENDED AND RESTATED TERM LOAN AGREEMENT This Amended and Restated Term Loan Agreement dated as of August 12, 1996 (as further amended, restated, supplemented or modified from time to time, the "Agreement") is entered into by and between Kaynar Holdings Inc., a Delaware corporation (the "Borrower"), and General Electric Capital Corporation, a New York corporation (the "Lender"). PRELIMINARY STATEMENTS WHEREAS, the Borrower and the Lender entered into the Term Loan Agreement dated as of January 3, 1994 (the "Original Credit Agreement"); WHEREAS, the Original Credit Agreement has been amended by the First Amendment dated as of December 15, 1994 (the "First Amendment"), the Second Amendment dated as of May 30, 1995, and the Third Amendment dated as of August 4, 1995 (the "Third Amendment" and, collectively, the "Original Amendments"; and the Original Credit Agreement, as amended by the Original Amendments, the "Existing Credit Agreement"); and WHEREAS, the Borrower and the Lender desire to amend and restate the Existing Credit Agreement in its entirety to give effect to the terms and provisions set forth in this Agreement, it being understood and agreed that (i) with respect to any date or time period occurring and ending prior to the Amendment and Restatement Effective Date (as defined below), the rights and obligations of the parties thereto shall be governed by the provisions of the Existing Credit Agreement (including, without limitation, the Exhibits and Schedules thereto) which for such purposes shall remain in full force and effect, (ii) with respect to any date or time period occurring or ending on or after the Amendment and Restatement Effective Date, the rights and obligations of the parties hereto shall be governed by this Agreement (including, without limitation, the Exhibits and Schedules hereto) and (iii) it is the intent of the Borrower and Lender that Lender shall remain a beneficiary under each Loan Document executed on or before the date hereof pursuant to which the Borrower granted a Lien to Lender in any of Borrower's Property and that all of the Obligations shall be secured by the Liens on the Property subject to such Loan Documents, as well as the Liens granted to Lender on all other Collateral on and after the date hereof. NOW, THEREFORE, in consideration of the premises, agreements, covenants, representations and warranties herein contained, and for good and valuable consideration, the receipt of which is hereby acknowledged, the Borrower and the Lender agree as follows: ARTICLE I DEFINITIONS 1.01. CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings, applicable both to the singular and the plural forms of the terms defined: "ACCOMMODATION OBLIGATION" means any Contractual Obligation, contingent or otherwise, of one Person with respect to any Indebtedness, obligation or liability of another, if the primary purpose or intent thereof by the Person incurring the Accommodation Obligation is to provide assurance to the obligee of such Indebtedness, obligation or liability of another that such Indebtedness, obligation or liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders thereof will be protected (in whole or in part) against loss in respect thereof including, without limitation, direct and indirect guarantees, endorsements (except for collection or deposit in the ordinary course of business), notes co- made or discounted, recourse agreements, take-or-pay agreements, keep-well agreements, agreements to purchase or repurchase such Indebtedness, obligation or liability or any security therefor or to provide funds for the payment or discharge thereof, agreements to maintain solvency, assets, level of income, or other financial condition, and agreements to make payment other than for value received. The amount of any Accommodation Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported; PROVIDED, that (i) if the liability of the Person extending such guaranty or support is limited with respect thereto to an amount less than the obligation guaranteed or supported, or is limited to recourse against a particular asset or assets of such Person, the amount of the corresponding Accommodation Obligation shall be limited (in the case of a guaranty or other support limited by amount) to such lesser amount or (in the case of a guaranty or other support limited by recourse to a particular asset or assets) to the higher of the Fair Market Value of such asset or assets at the date for determination of the amount of the Accommodation Obligation or the value at which such asset or assets would, in conformity with GAAP, be reflected on or valued for the purposes of preparing a consolidated balance sheet of such Person as at such determination date; and (ii) if any obligation is guaranteed or otherwise supported jointly and severally by a Person and others, then the amount of the liability of such Person with respect to such guaranty or other support to be included in the amount of such Person's Accommodation Obligation shall be the whole principal amount so guaranteed or otherwise supported. "ACCOUNTS" means all of the Borrower's and each of its Subsidiaries' respective present and future (i) accounts, (ii) contract rights, chattel paper, instruments, documents, deposit accounts (including, without limitation, the Collection Accounts of the Borrower, the "Collection Accounts" under (and as defined in) the Opco Credit Agreement and the "Collection Accounts" under -2- (and as defined in) the RCL Loan Agreement), and other rights to payment of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and whether or not earned by performance, (iii) any of the foregoing which are not evidenced by instruments or chattel paper, (iv) intercompany receivables, and any security documents executed in connection therewith, (v) proceeds of any letters of credit or insurance policies on which the Borrower or any of its Subsidiaries is named as beneficiary, (vi) claims against third parties for advances and other financial accommodations and any other obligations whatsoever owing to the Borrower or any of its Subsidiaries, (vii) rights in and to all security agreements, leases, guarantees, instruments, securities, documents of title and other contracts securing, evidencing, supporting or otherwise relating to any of the foregoing, together with all rights in any goods, merchandise or Inventory which any of the foregoing may represent, and (viii) rights in returned and repossessed goods, merchandise and Inventory which any of the same may represent, including, without limitation, any right of stoppage in transit. "AFFILIATE" means any Person (other than Lender) which directly or indirectly owns or controls, on an aggregate basis, including all beneficial ownership and ownership or control as a trustee, guardian or other fiduciary, at least ten percent (10%) of the outstanding capital stock (or other ownership interests) having ordinary voting power to elect a majority of the board of directors or otherwise to direct or cause the direction of the management and policies (irrespective of whether, at the time, stock (or other ownership interest) of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) of the Borrower or any Subsidiary of the Borrower which is controlled by or is under common control with the Borrower or any stockholders (or other owners) of the Borrower, or any Subsidiary. For the purpose of this definition, "control" means the possession, directly or indirectly, of the power to direct or to cause the direction of management and policies, whether through the ownership of voting securities, by contract or otherwise. "AFS" means the Aerospace Fastening Systems Group of Microdot. "AFS PURCHASE AGREEMENT" means the Asset Purchase Agreement dated as of November 3, 1993 by and between Opco and Microdot, pursuant to which Microdot agrees to sell, and Opco agrees to purchase substantially all of the assets of AFS. "AGREEMENT" is defined in the preamble hereto. "AMENDMENT AND RESTATEMENT EFFECTIVE DATE" is defined in SECTION 11.16. -3- "BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C. Sections 101 ET SEQ.), as amended from time to time, and any successor statute. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Central District of California, Santa Ana Division. "BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) subject to Title IV of ERISA (i) in respect of which the Borrower or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA and (ii) which is not a Foreign Pension Plan or Foreign Employee Benefit Plan. "BORROWER" is defined in the preamble hereto. "BORROWING" means a borrowing of any Term Loan hereunder. "BUSINESS ACTIVITY REPORT" means (i) a Notice of Business Activities Report from the State of New Jersey Division of Taxation, or (ii) a Minnesota Business Activity Report from the Minnesota Department of Revenue. "BUSINESS DAY" means a day, in the applicable local time, which is not a Saturday or Sunday or a legal holiday and on which banks are not required or permitted by law or other governmental action to close in Los Angeles, California, Chicago, Illinois or New York, New York. "CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures (whether payable in cash or other Property or accrued as a liability (but without duplication)) during such period that, in conformity with GAAP, are required to be included in or reflected by the Borrower's or any of its Subsidiaries' fixed asset accounts as reflected in any of their respective balance sheets; PROVIDED, HOWEVER, that Capital Expenditures shall include, whether or not such a designation would be in conformity with GAAP, (i) that portion of Capital Leases which is capitalized on the consolidated balance sheet of the Borrower and its Subsidiaries and (ii) expenditures for Equipment which is purchased simultaneously with the trade-in of existing Equipment owned by the Borrower or any of its Subsidiaries, to the extent the gross purchase price of the purchased Equipment exceeds the book value of the Equipment being traded in at such time. "CAPITAL LEASE", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. -4- "CAPITAL STOCK", with respect to any Person, means any shares, capital stock, stock units or units in the capital of such Person, regardless of class or designation, and all warrants, options, purchase rights, conversion or exchange rights, voting rights, calls or claims of any character with respect thereto. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; and (ii) domestic and eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Corporation or Prime-1 (or better) by Moody's Investors Services, Inc.; PROVIDED, that the maturities of such Cash Equivalents shall not exceed one year. "CASH FLOW" means, for any Person for any period, the amounts for such period (taken as a single accounting period determined in conformity with GAAP) of such Person's (i) net income or loss determined on a first-in-first-out method of inventory accounting basis, PLUS (ii) depreciation and amortization expense, PLUS (iii) interest expense, PLUS (iv) foreign, federal and state income taxes, PLUS (v) state sales taxes arising in connection with the Purchase, to the extent included in the calculation of net income (or loss), PLUS (vi) extraordinary losses, PLUS (vii) Liabilities and Costs incurred in connection with any Remedial Action, to the extent included in the calculation of net income (or loss), PLUS (viii) Transaction Costs, MINUS (ix) extraordinary gains. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601 ET SEQ., any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "CLAIM" means any claim or demand, by any Person, of whatsoever kind or nature for any alleged Liabilities and Costs, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, Permit, ordinance or regulation, common law or otherwise. "COLLATERAL" means all Property and interests in Property now owned or hereafter acquired by the Borrower upon which a Lien is granted under any of the Loan Documents. "COLLECTION ACCOUNT" means each deposit account of the Borrower identified on SCHEDULE 1.01.1. -5- "COLLECTION ACCOUNT AGREEMENT" means, with respect to each Collection Account of the Borrower, an agreement in substantially the form of EXHIBIT A attached hereto and made a part hereof (or such other form as may be agreed to by the Borrower and the Lender), pursuant to which, among other things (i) the Collection Account Bank party thereto agrees to remit to the Lender or its designee in accordance with instructions contained therein, on a daily basis and by wire transfer or through an automated clearing house, all collected funds on deposit in the Collection Account(s) maintained by such Collection Account Bank (which agreement may not be revoked, and shall remain in effect, until sixty (60) days after such Collection Account Bank mails to the Lender and the Borrower a notice of termination), and (ii) the Borrower (or its applicable Subsidiary) and the Collection Account Bank confirm the Lender's perfected first priority liens in the Collection Accounts subject thereto. "COLLECTION ACCOUNT BANK" means each bank, trust company or other financial institution identified on SCHEDULE 1.01.1 at which the Borrower or any of its Subsidiaries maintains one or more Collection Accounts. "COMMISSION" means the Securities and Exchange Commission and any Person succeeding to the functions thereof. "COMMON STOCK" means the common stock, par value $0.01 per share, of the Borrower. "COMPLIANCE CERTIFICATE" is defined in SECTION 6.01(d). "CONSOLIDATED CASH FLOW" means, for any period, the Cash Flow for such period (taken as a single accounting period determined in conformity with GAAP) of Opco and its Subsidiaries determined on a consolidated basis. "CONSOLIDATED INTEREST CHARGES" means, for any period, the amount for such period (taken as a single accounting period determined in conformity with GAAP) of total interest expense, paid in cash (including the interest component of Capital Leases), of Opco and its Subsidiaries on a consolidated basis. "CONSOLIDATED INTEREST COVERAGE RATIO" means, for any period, the ratio of (i) Consolidated Cash Flow for such period to (ii) Consolidated Interest Charges for such period. "CONSOLIDATED TOTAL FUNDED INDEBTEDNESS" means, as of any date of determination, the amount (determined in conformity with GAAP) of (i) "Letter of Credit Obligations" and Indebtedness evidenced by the "Notes" in each case under (and as defined in) the Opco Credit Agreement, PLUS (ii) all other outstanding Indebtedness of Opco and its Subsidiaries, determined on a consolidated basis, which matures more than one year from the date such Indebtedness was incurred, created or assumed by any of -6- such Persons, or matures within one year from such date but is renewable or extendible, at the option of the debtor, to a date more than one year from such date, PLUS (iii) all other outstanding Indebtedness of Opco and its Subsidiaries which arises under a revolving credit or similar agreement which obligates the lender or lenders to extend credit during a period of more than one year from such date, MINUS (iv) any Indebtedness owing by Opco or any of its Subsidiaries to any other of such Persons. "CONSOLIDATED TOTAL FUNDED INDEBTEDNESS COVERAGE RATIO" means, as of any date of determination, the ratio of (i) Consolidated Total Funded Indebtedness as such date to (ii) Consolidated Cash Flow for any period ending on such date. "CONTAMINANT" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, extremely hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos, PCBs, or any constituent of any such substance or waste, and includes, but is not limited to, these terms as defined in any Environmental Law, as well as any other substance which is required by any Governmental Authority to be investigated, cleaned up, removed, treated or otherwise abated or which is regulated by such Governmental Authority. "CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "CUSTOMARY PERMITTED LIENS" means (i) Liens (other than Environmental Liens and Liens in favor of the PBGC) with respect to the payment of taxes, assessments or governmental charges in all cases which are not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (ii) statutory Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; -7- (iii) Liens (other than Environmental Liens and Liens in favor of the PBGC) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), surety and performance bonds; PROVIDED, that (A) all such Liens do not in the aggregate materially detract from the value of the Borrower's or any of its Subsidiaries' respective assets or Property or materially impair the use thereof in the operation of their respective businesses, and (B) all such Liens in connection with worker's compensation, unemployment insurance or other types of social security benefits deposits shall secure obligations in an aggregate principal amount not exceeding $50,000 at any time outstanding; and (iv) Liens arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar charges or encumbrances on the use of Real Property which do not interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries. "DESIGNATED PREPAYMENT" is defined in SECTION 3.01(b)(iii). "DOD" means the United States Department of Defense, all constituent agencies thereof and any Person succeeding to the functions thereof. "DOL" means the United States Department of Labor, all constituent agencies thereof and any Person succeeding to the functions thereof. "DOLLARS" and "$" mean the lawful money of the United States. "ENVIRONMENTAL LAW" means any Requirement of Law derived from or relating to federal, state and local laws or regulations relating to or addressing the environment, health or safety, including but not limited to CERCLA, OSHA and RCRA, and any state or local equivalent thereof. "ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental Authority for any (i) liabilities under any Environmental Law, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. "ENVIRONMENTAL PROPERTY TRANSFER ACTS" means any applicable Requirement of Law that conditions, restricts, -8- prohibits or requires any notification or disclosure triggered by the transfer, sale, lease or closure of any Property or deed or title for any Property for environmental reasons, including, but not limited to, any so-called "Environmental Cleanup Responsibility Acts" or "Responsible Transfer Acts". "EQUIPMENT" means all of the Borrower's and each of its Subsidiaries' respective present and future (i) equipment, including, without limitation, machinery, manufacturing, distribution, selling, data processing and office equipment, assembly systems, tools, molds, dies, fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft, aircraft engines, and trade fixtures, (ii) other tangible personal Property (other than the Borrower's and each such Subsidiary's respective Inventory), and (iii) any and all accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions therefor and replacements, products and proceeds thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "ERISA AFFILIATE" means (i) any Person which is a member of the same controlled group of Persons (within the meaning of Section 414(b) of the Internal Revenue Code) as the Borrower; (ii) a partnership or other trade or business (whether or not incorporated) which is under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with the Borrower; and (iii) a member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as the Borrower, any Person described in CLAUSE (i) above or any partnership or trade or business described in CLAUSE (ii) above. "EVENT OF DEFAULT" means any of the occurrences set forth in SECTION 10.01 after the expiration of any applicable grace period and the giving of any applicable notice, in each case as expressly provided in SECTION 10.01. "EXCESS CASH FLOW" means, for any Fiscal Year, an amount equal to (i) Cash Flow for such Fiscal Year, MINUS (ii) income taxes paid in cash during such Fiscal Year, MINUS (iii) state sales taxes arising in connection with the Purchase which are paid in cash during such Fiscal Year, MINUS (iv) Capital Expenditures paid in cash during such Fiscal Year, MINUS (v) Transaction Costs paid in cash during such Fiscal Year, MINUS (vi) interest on permitted Indebtedness of the Borrower and its Subsidiaries paid in cash during such Fiscal Year, including, without limitation, the interest component of all Capital Leases, MINUS (vii) for Fiscal Year 1994, $2,000,000, MINUS (viii) for Fiscal Year 1995 and each Fiscal Year thereafter, scheduled amortization of the principal portion of the "Term Loan" under (and as defined in) the Opco Credit Agreement during such Fiscal -9- Year, MINUS (ix) extraordinary cash losses incurred during such Fiscal Year, MINUS (x) Liabilities and Costs paid in cash during such Fiscal Year and incurred in connection with any Remedial Action, PLUS (xi) extraordinary cash gains for such Fiscal Year, PLUS (xii) any cash gain for such Fiscal Year with respect to any inventory or accounts purchased from MAL in connection with the Purchase, to the extent included in the calculation of net income (or loss), PLUS (or MINUS) (xiii) any decrease (or increase) in Net Working Capital since the last day of the then immediately preceding Fiscal Year, the amount for such Fiscal Year in each case determined in conformity with GAAP for the Borrower, Opco and their respective Subsidiaries on a consolidated basis. "EXCESS PROCEEDS OF ISSUANCE OF STOCK OR INDEBTEDNESS" means net cash proceeds received by the Borrower or any of its Subsidiaries at any time after the Amendment and Restatement Effective Date on account of the issuance of (i) Capital Stock of the Borrower or any of its Subsidiaries (other than Capital Stock of a Subsidiary issued to the Borrower or to a Subsidiary of the Borrower) or (ii) Indebtedness (other than Indebtedness permitted under SECTION 8.01) of the Borrower or any of its Subsidiaries, in each case net of all transaction costs and underwriters' discounts with respect thereto. "EXISTING CREDIT AGREEMENT" is defined in the preliminary statements hereto. "EXPORT LICENSE" means any and all licenses, authorizations, approvals or applications therefor relating to exports, reexports, temporary exports, temporary imports and imports, as the case may be, granted by or pending before the United States Department of Commerce, the United States Department of State or any other United States Governmental Authority. "FACILITY SECURITY CLEARANCE" means an administrative determination by the applicable United States Government Authority that, from a security viewpoint, a facility is eligible for access to classified information of a certain category and all lower categories. "FAIR MARKET VALUE" means, with respect to any asset, the value of the consideration obtainable in a sale of such asset in the open market, assuming a sale by a willing seller to a willing purchaser dealing at arm's length and arranged in an orderly manner over a reasonable period of time, each having reasonable knowledge of the nature and characteristics of such asset, neither being under any compulsion to act, determined (a) in good faith by the board of directors of the Borrower or (b) in an appraisal of such asset, PROVIDED, that such appraisal was performed relatively contemporaneously with such sale by an independent third party appraiser and the basic assumptions underlying such appraisal have not materially changed since the date thereof. -10- "FISCAL YEAR" means the fiscal year of the Borrower, which shall be the 12-month period ending on December 31 of each calendar year. "FOREIGN EMPLOYEE BENEFIT PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of the Borrower, any of its Subsidiaries or any of its ERISA Affiliates and is not covered by ERISA pursuant to ERISA Section 4(b)(4). "FOREIGN PENSION PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA which (i) is maintained or contributed to for the benefit of employees of the Borrower, any of its Subsidiaries or any of its ERISA Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accounting Standards Board or in such other statements by such other entity as may be in general use by significant segments of the accounting profession as in effect on the date hereof (unless otherwise specified herein as in effect on another date or dates). "GENERAL INTANGIBLES" means all of the Borrower's and its Subsidiaries' respective present and future (i) general intangibles, (ii) rights, interests, choses in action, causes of action, claims and other intangible Property of every kind and nature (other than Accounts), (iii) corporate and other business records, (iv) loans, royalties, and other obligations receivable, (v) trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, patent applications, trade names, rights of use of any name, labels, fictitious names, inventions, designs, trade secrets, computer programs, software, printouts and other computer materials, goodwill, registrations, copyrights, copyright applications, permits, licenses, franchises, customer lists, credit files, correspondence, and advertising materials, (vi) customer and supplier contracts, firm sale orders, rights under license and franchise agreements, rights under tax sharing agreements, and other contracts and contract rights, (vii) interests in partnerships and joint ventures, (viii) tax refunds and tax refund claims, (ix) right, title and interest under leases, subleases, licenses and concessions and other agreements relating to Property, (x) deposit accounts (general or special) with any bank or other financial institution (including, without limitation, the Collection Accounts of the Borrower, the "Collection Accounts" under (and as defined in) the Opco Credit Agreement and the "Collection Accounts" under (and as defined in) the RCL Loan Agreement), (xi) credits with and other claims against third -11- parties (including carriers and shippers), (xii) rights to indemnification and with respect to support and keep-well agreements, (xiii) reversionary interests in pension and profit sharing plans and reversionary, beneficial and residual interests in trusts, (xiv) proceeds of insurance of which the Borrower or such Subsidiary is beneficiary, (xv) letters of credit, guarantees, Liens, security interests and other security held by or granted to the Borrower or such Subsidiary, (xvi) uncertificated securities, and (xvii) governmental certificates and certifications, including, without limitation, certificates and certifications relating to Government Contracts and Export Licenses, authorizations and approvals, issued to the Borrower or such Subsidiary. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, provincial, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GOVERNMENT CONTRACT" means any bid, quotation, proposal, contract, agreement, work authorization, lease, commitment or sale or purchase order of the Borrower or any of its Subsidiaries which is entered into with or submitted to any United States Governmental Authority or any agency, agent or instrumentality thereof, including, among other things, all contracts and work authorizations to supply goods and services to the United States Government. "INDEBTEDNESS", as applied to any Person, means, at any time, (i) all indebtedness, obligations or other liabilities of such Person (A) for borrowed money or evidenced by debt securities, debentures, acceptances, notes or other similar instruments, and any accrued interest, fees and charges relating thereto, (B) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any Securities of such Person or to pay dividends in respect of any stock, (C) with respect to letters of credit issued for such Person's account, (D) to pay the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business, (E) in respect of Capital Leases, (F) which are Accommodation Obligations or (G) under warranties and indemnities; (ii) all indebtedness, obligations or other liabilities of such Person or others secured by a Lien on any property of such Person, whether or not such indebtedness, obligations or liabilities are assumed by such Person, all as of such time; (iii) all preferred stock subject (upon the occurrence of any contingency or otherwise) to mandatory redemption; and (iv) all contingent Contractual Obligations with respect to any of the foregoing. "INDEX RATE" means the higher of: -12- (i) the highest prime or base rate of interest published in New York City by any of Morgan Guaranty Trust Company of New York, Citibank, N.A. and Chemical Bank (whether or not such rate is actually charged by any such bank); and (ii) the latest published rate for 90-day directly placed commercial paper (or the mid-point in the range of such rates, if more than one rate is published) as quoted either in the Federal Reserve Rate Report which customarily appears in the Friday issue of THE WALL STREET JOURNAL under "Money Rates" or in such other publication as the Lender may, from time to time hereafter, designate in writing. "INITIAL CLOSING DATE" means the date the Initial Term Loan was made. "INITIAL TERM LOAN" is defined in SECTION 2.01(a). "INITIAL TERM NOTE" is defined in SECTION 2.01(d). "INTEREST PAYMENT DATE" means each March 31, June 30, September 30 and December 31 during the term of this Agreement. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, any successor statute and any regulations or guidance promulgated thereunder. "INVENTORY" means all of the Borrower's and each of its Subsidiaries' respective present and future (i) inventory, (ii) goods, merchandise and other personal Property furnished or to be furnished under any contract of service or intended for sale or lease, and all consigned goods and all other items which have previously constituted Equipment but are then currently being held for sale or lease in the ordinary course of the Borrower's or such Subsidiary's business, (iii) raw materials, work-in-process and finished goods, (iv) materials and supplies of any kind, nature or description used or consumed in the Borrower's or such Subsidiary's business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the Property described in CLAUSES (i) through (iii) above, (v) goods in which the Borrower or such Subsidiary has a joint or other interest or right of any kind (including, without limitation, goods in which the Borrower or such Subsidiary has an interest or right as consignee), and (vi) goods which are returned to or repossessed by the Borrower or such Subsidiary; in each case whether in the possession of the Borrower, such Subsidiary, a bailee, a consignee, or any other Person for sale, storage, transit, processing, use or otherwise, and any and all documents for or relating to any of the foregoing. -13- "INVESTMENT" means, with respect to any Person, (i) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities, issued by any other Person, (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business. The amount of any Investment shall be the original cost of such Investment, plus the cost of all additions thereto less the amount of any return of capital or principal to the extent such return is in cash with respect to such Investment without any adjustments for increases or decreases in value or write-ups, write-downs or write-offs with respect to such Investment. "IRS" means the Internal Revenue Service and any Person succeeding to the functions thereof. "KAYNAR FEMIPARI" means K.T.I. Femipari KFT, a company organized under the laws of Hungary. "KAYNAR U.K." means Kaynar Technologies Ltd., a company organized under the laws of England and Wales. "LENDER" is defined in the preamble hereto. "LIABILITIES AND COSTS" means all liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or Remedial Action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a Capital Lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor pursuant to Section 9-408 of the Uniform Commercial Code), naming the owner of such -14- property as debtor, under the Uniform Commercial Code or other comparable law of any jurisdiction. "LOAN ACCOUNT" is defined in SECTION 3.04(b). "LOAN DOCUMENTS" means this Agreement (and for the applicable period, the Existing Credit Agreement), the Term Notes, the Pledge Agreement and all other instruments, agreements and written Contractual Obligations between the Borrower and the Lender delivered to the Lender pursuant to or in connection with the transactions contemplated hereby or by the Existing Credit Agreement. "MAL" means Microdot Aerospace Limited, a company organized under the laws of the United Kingdom, and a wholly-owned Subsidiary of Microdot. "MAL PURCHASE AGREEMENT" means, to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the agreement by and between MAL, Opco and Kaynar U.K., pursuant to which Opco and Kaynar U.K. agree to purchase substantially all of the assets of MAL, which agreement shall be in form and substance satisfactory to the Lender. "MANAGEMENT DISCUSSION AND ANALYSIS" is defined in SECTION 6.02. "MANAGEMENT INVESTORS" means Jordan A. Law, David A. Werner, Leroy A. Dack, Robert L. Beers, Imre Berecz, Joseph Varholick and Joseph F. Blomberg. "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (i) the financial condition, operations, assets or prospects of the Borrower, Opco or any of their respective Subsidiaries, (ii) the ability of the Borrower, Opco or any of their respective Subsidiaries to perform their respective obligations under the Transaction Documents, or (iii) the ability of the Lender to enforce the Loan Documents. "MICRODOT" means Microdot Inc., a Delaware corporation. "MICRODOT LOAN AGREEMENT" means that certain Loan and Security Agreement dated as of December 30, 1983 between Lender and Microdot, as amended, as amended and restated by that certain Amended and Restated Loan and Security Agreement dated as of April 1, 1989 between Lender and Microdot, as further amended by Amendment No. 1 thereto dated as of December 8, 1992. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by either the Borrower or any ERISA Affiliate. -15- "NET CASH PROCEEDS OF SALE" means (i) proceeds received by the Borrower or any of its Subsidiaries in cash from the sale, assignment or other disposition of (but not the lease or license of) any Property, other than sales permitted under CLAUSES (ii) through (iv) of SECTION 8.02, net of (A) the costs of sale, assignment or other disposition, (B) any income, franchise, transfer or other tax liability arising from such transaction and (C) amounts required to be applied to the repayment of Indebtedness secured by a Lien permitted by SECTION 8.03 on the asset disposed of, if such net proceeds arise from any individual sale, assignment or other disposition or from any group of related sales, assignments or other dispositions; and (ii) proceeds of insurance on account of the loss of, damage to or the occurrence of any other insured risk with respect to, any such Property or Properties, and payments of compensation for any such Property or Properties taken by condemnation or eminent domain, as provided in SECTION 7.07. "NET WORKING CAPITAL" means, as of any date of determination, the excess, if any, of (i) consolidated current assets, except cash and Cash Equivalents, over (ii) consolidated current liabilities, except current maturities of long-term debt as of such date, in each case for the Borrower and its Subsidiaries on a consolidated basis. "NOTICE OF BORROWING" means a notice substantially in the form of EXHIBIT B attached hereto and made a part hereof. "OBLIGATIONS" means the Term Loans and all advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender, or any Person entitled to indemnification pursuant to SECTION 11.02 of this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement, any Term Note or any other Loan Document, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest (including, without limitation, interest, whether or not allowed under Section 502 of the Bankruptcy Code or otherwise, at the then applicable rate (including the rate in effect from time to time under SECTION 2.02(c)) specified herein that accrues after the commencement of any proceeding under the Bankruptcy Code or other applicable bankruptcy, reorganization, insolvency, dissolution, liquidation or other debtor relief Requirement of Law), charges, expenses, fees, attorneys' fees and disbursements and any other sum chargeable to the Borrower under this Agreement or any other Loan Document. "OFFICER'S CERTIFICATE" means a certificate executed on behalf of a corporation by (i) the chairman or vice-chairman of -16- its board of directors (if an officer of such corporation) or (ii) its president, any of its vice-presidents, its chief financial officer, or its treasurer. "OPCO" means Kaynar Technologies Inc., a Delaware corporation. "OPCO CREDIT AGREEMENT" means that certain Credit Agreement dated as of January 3, 1994 by and between Opco and the Lender, as amended and as amended and restated by that certain Amended and Restated Credit Agreement of even date herewith by and between Opco and the Lender, as the same may be further amended, restated, supplemented or modified from time to time. "OPCO LOAN DOCUMENTS" means the "Loan Documents" as defined in the Opco Credit Agreement. "OPERATING LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which is not a Capital Lease. "ORGANIZATIONAL DOCUMENTS" means, with respect to any corporation, limited liability company, unlimited liability company or partnership (i) the articles/certificate of incorporation (or the equivalent organizational documents) of such corporation or limited liability company, (ii) the partnership agreement executed by the partners in the partnership, (iii) the certificate of registration and memorandum and articles of association of such unlimited liability company, (iv) the by-laws (or the equivalent governing documents) of the corporation, limited liability company, unlimited liability company or partnership, and (iv) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such corporation's Capital Stock or such limited liability company's, unlimited liability company's or partnership's equity or ownership interests. "ORIGINAL AMENDMENTS" is defined in the preliminary statements hereto. "ORIGINAL CREDIT AGREEMENT" is defined in the preliminary statements hereto. "OSHA" means the Occupational Safety and Health Act of 1970, any amendments thereto, any successor statutes and any regulations or guidance promulgated thereunder. "PBGC" means the Pension Benefit Guaranty Corporation and any Person succeeding to the functions thereof. "PCBS" means polychlorinated biphenyls. "PERMITS" means any license, permit, variance, interim permit, permit application, approval, consent, certification, -17- qualification or other authorization under any Requirement of Law applicable to the Borrower or any of its Subsidiaries or otherwise required by any Governmental Authority in connection with the business or operations of the Borrower or any of its Subsidiaries, including, without limitation, any license, permit, consent, certification, approval, authorization or qualification relating to any Government Contract. "PERMITTED EXISTING ACCOMMODATION OBLIGATIONS" means the Accommodation Obligations of the Borrower and its Subsidiaries identified as such on SCHEDULE 1.01.2. "PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the Borrower and its Subsidiaries identified as such on SCHEDULE 1.01.3. "PERMITTED EXISTING LIENS" means the Liens on the Property of the Borrower and its Subsidiaries identified as such on SCHEDULE 1.01.4. "PERSON" means any natural person, corporation, limited liability company, unlimited liability company, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority. "PERSONNEL SECURITY CLEARANCE" means an administrative determination by the applicable United States Governmental Authority that an individual is eligible, from a security point of view, for access to classified information of the same or lower category as the level of the personnel clearance being granted. "PIK DIVIDEND NOTE AGREEMENT" means that certain PIK Dividend Note Agreement dated as of January 3, 1994 by and between the Borrower and the Lender, as the initial holder of the Preferred Stock of the Borrower, and the other Persons from time to time party thereto as "Holders" (as defined therein), as the same may be amended, restated, supplemented or modified from time to time. "PIK DIVIDEND NOTES" means the outstanding promissory notes issued by the Borrower pursuant to the PIK Dividend Note Agreement. "PLAN" means an employee benefit plan defined in Section 3(3) of ERISA (i) in respect of which the Borrower or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA and (ii) which is not a Foreign Pension Plan or Foreign Employee Benefit Plan. -18- "PLEDGE AGREEMENT" means that certain pledge agreement dated as of January 3, 1994, in the form of EXHIBIT C-1 attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, pursuant to which the Borrower pledges and grants a security interest to the Lender in all of the issued and outstanding Capital Stock of Opco and related Property, as supplemented by the Supplement to Pledge Agreement, and as the same may be further amended, supplemented or modified from time to time. "POTENTIAL EVENT OF DEFAULT" means an event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "PREFERRED STOCK" means the Series A Preferred Stock and the Series B Preferred Stock. "PROCESS AGENT" is defined in SECTION 11.15. "PROPERTY" means any Real Property or personal property, plant, building, facility, structure, underground storage tank or unit, Equipment, Inventory, General Intangible, Account, or other asset owned, leased or operated by the Borrower or its Subsidiaries, as applicable, (including any surface water thereon or adjacent thereto, and soil and groundwater thereunder). "PURCHASE" means, collectively, (i) the purchase by Opco from Microdot of substantially all of the assets of AFS pursuant to the AFS Purchase Agreement and (ii) to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the purchase by Opco and the U.K. Subsidiary of substantially all of the assets of MAL pursuant to the MAL Purchase Agreement. "PURCHASE AGREEMENTS" means the AFS Purchase Agreement and, to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the MAL Purchase Agreement, and "PURCHASE AGREEMENT" means either of them. "PURCHASE DOCUMENTS" means the Purchase Agreements and all of the agreements, documents and instruments executed in connection with either of them. "RCL" means RCL Pty, an unlimited liability company organized under the laws of the State of Victoria, Australia. "RCL LOAN AGREEMENT" means that certain Term Loan Agreement of even date herewith by and between RCL and the Lender, as the same may be amended, restated, supplemented or modified from time to time. "RCL LOAN DOCUMENTS" means the RCL Loan Agreement and the agreements, documents and instruments executed in connection therewith. -19- "RCRA" means the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 ET SEQ., any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "REAL PROPERTY" means all of the Borrower's and each of its Subsidiaries' respective present and future right, title and interest (including, without limitation, any leasehold estate) in (i) any plots, pieces or parcels of land, (ii) any improvements, buildings, structures and fixtures now or hereafter located or erected thereon or attached thereto of every nature whatsoever (the rights and interests described in CLAUSE (i) or (ii) above being the "Premises"), (iii) all easements, rights of way, gores of land or any lands occupied by streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and public places adjoining such land, and any other interests in property constituting appurtenances to the Premises, or which hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all hereditaments, gas, oil, minerals (with the right to extract, sever and remove such gas, oil and minerals), and easements, of every nature whatsoever, located in or on the Premises and (v) all other rights and privileges thereunto belonging or appertaining and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to or of any of the rights and interests described in CLAUSE (iii) or (iv) above. "RECOIL ACQUISITION" means, collectively, (i) the purchase by Opco of substantially all of the assets of Recoil U.S. pursuant to the Recoil U.S. Acquisition Agreement and (ii) the purchase by Opco, RCL and, if designated by Opco to acquire the shares of Recoil U.K., Kaynar U.K. of substantially all of the assets of Recoil Australia pursuant to the Recoil Australia Acquisition Agreement and related documents. "RECOIL ACQUISITION AGREEMENTS" means the Recoil U.S. Acquisition Agreement and the Recoil Australia Acquisition Agreement, and "RECOIL ACQUISITION AGREEMENT" means either of them. "RECOIL ACQUISITION DOCUMENTS" means the Recoil Acquisition Agreements and all of the agreements, documents and instruments executed in connection with either of them. "RECOIL AUSTRALIA" means Recoil Pty Ltd, a company organized under the laws of the State of Victoria, Australia. "RECOIL AUSTRALIA ACQUISITION AGREEMENT" means that certain Australian Asset Sale Agreement dated August 9, 1996 among Opco, RCL, Recoil Australia and the other Vendors, pursuant to which the Vendors agree to sell, and Opco and RCL agree to purchase, substantially all of the assets of Recoil Australia. -20- "RECOIL AUSTRALIA HOLDINGS" means Recoil Australia Holdings, Inc., a Delaware corporation. "RECOIL BELGIUM" means Recoil Marketing BVBA, a company organized under the laws of Belgium. "RECOIL HOLDINGS" means Recoil Holdings, Inc., a Delaware corporation. "RECOIL U.K." means Recoil (Europe) Limited, a company organized under the laws of England and Wales. "RECOIL U.S." means Recoil Inc., an Oregon corporation. "RECOIL U.S. ACQUISITION AGREEMENT" means that certain US Asset Sale Agreement dated August 9, 1996 among Opco, Recoil U.S., Recoil Australia and the other Vendors, pursuant to which Recoil U.S. agrees to sell, and Opco agrees to purchase, substantially all of the assets of Recoil U.S. "RELEASE" means release, presence, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Property or Third Party Property, including the movement of Contaminants through or in the air, soil, surface water, groundwater, Property or Third Party Property. "REMEDIAL ACTION" means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants; or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care. "REPORTABLE EVENT" means any of the events described in Section 4043 of ERISA and the regulations promulgated thereunder as in effect from time to time, excluding any event with respect to which the 30-day notice requirement is waived in the applicable regulations. "REQUIREMENTS OF LAW" means, as to any Person, the Organizational Documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, the Securities Act, the Securities Exchange Act, ERISA, the Fair Labor Standards Act and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit or environmental, labor, employment, occupational safety or health law, ordinance, rule, regulation or common law. -21- "RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding, and (iii) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding. "SCHEDULED MATURITY DATE" means the fifth (5th) anniversary of the Initial Closing Date. "SECURITIES" means any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include any evidence of the Obligations. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute. "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "SERIES A PREFERRED STOCK" means the Series A Convertible Preferred Stock, par value $0.01 per share, of the Borrower. "SERIES B PREFERRED STOCK" means the Series B Preferred Stock, par value $0.01 per share, of the Borrower. "SHAREHOLDERS AGREEMENT" means that certain Shareholders Agreement dated as of January 3, 1994 among the Borrower, the Lender and the Management Investors regarding transfers of, restrictions on and other rights and conditions relating to the Common Stock and the Preferred Stock, as the same may be amended, supplemented or modified from time to time. "SOLVENT", when used with respect to any Person, means that at the time of determination: (i) the assets of such Person, at a fair valuation, are in excess of the total amount of its -22- debts (including, without limitation, contingent liabilities); and (ii) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "SUBSIDIARY" of a Person means any corporation, limited liability company, unlimited liability company, general or limited partnership, or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions with respect to such entity are at the time directly or indirectly owned or controlled by such Person, one or more of the other subsidiaries of such Person or any combination thereof. "SUPPLEMENTAL TERM LOAN" is defined in SECTION 2.01(a). "SUPPLEMENTAL TERM NOTE" is defined in SECTION 2.01(d). "SUPPLEMENT TO PLEDGE AGREEMENT" is defined in SECTION 4.01(a)(iv). "TAXES" is defined in SECTION 3.03(a). "TERM LOAN COMMITMENTS" means the obligation of the Lender to make (a) the Initial Term Loan pursuant to the terms and conditions of this Agreement (and, for the applicable period, the Existing Credit Agreement), which shall be in an aggregate principal amount equal to (i) $4,800,000, PLUS (ii) all additions in principal due to the capitalization of interest under the Existing Credit Agreement and this Agreement and (b) the Supplemental Term Loan pursuant to the terms and conditions of this Agreement, which shall be in an aggregate principal amount equal to $4,000,000, in each case as permanently reduced by payments or prepayments on the Term Loans made from time to time pursuant to SECTION 2.01(d) or SECTION 3.01. "TERM LOANS" is defined in SECTION 2.01(a). "TERM NOTES" is defined in SECTION 2.01(d). "TERMINATION EVENT" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Benefit Plan during a plan year in which the Borrower or such ERISA Affiliate was a "substantial -23- employer" as defined in Section 4001(a)(2) of ERISA or the cessation of operations of a facility which results in the termination of employment of 20% of Benefit Plan participants who are employees of the Borrower or any ERISA Affiliate; (iii) the imposition of an obligation on the Borrower or any ERISA Affiliate under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC or any similar foreign Governmental Authority of proceedings to terminate a Benefit Plan or a Foreign Pension Plan; (v) any event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; (vi) a foreign Governmental Authority shall appoint or institute proceedings to appoint a trustee to administer any Foreign Pension Plan; or (vii) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan or a Foreign Pension Plan. "THIRD PARTY PROPERTY" means any real or personal property, plant, building, facility, structure, underground storage tank or unit or equipment owned, leased or operated by any Person other than the Borrower or its Subsidiaries (including, without limitation, any surface water thereon or adjacent thereto and soil and ground water thereunder). "TRANSACTION COSTS" means the fees, costs and expenses payable by the Borrower, Opco and their respective Subsidiaries in connection with the execution, delivery and performance of the Transaction Documents. "TRANSACTION DOCUMENTS" means (i) the Loan Documents, (ii) the PIK Dividend Note Agreement and the PIK Dividend Notes, (iii) the Opco Loan Documents, (iv) the Purchase Documents, (v) the RCL Loan Documents and (vi) the Recoil Acquisition Documents. "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as enacted in the State of California, as it may be amended from time to time. "VENDORS" means Recoil Australia, Advent Limited, Australian Pacific Technology Limited, Western Pacific Investment Company Limited, Mr. Bruce Price, B. Price Holdings Pty Ltd and Lenarde Pty Ltd. 1.02. COMPUTATION OF TIME PERIODS. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. Any period determined hereunder by reference to a month or months or year or years shall end on the day in the relevant calendar month in the relevant year, if applicable, immediately preceding the -24- date numerically corresponding to the first day of such period, PROVIDED, that if such period commences on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month during which such period is to end), such period shall, unless otherwise expressly required by the other provisions of this Agreement, end on the last day of the calendar month. 1.03. ACCOUNTING TERMS. Subject to SECTION 11.03, for purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. 1.04. REFERENCES TO THIS AGREEMENT. The words "hereof", "herein", "hereunder" and similar terms when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, subsection, clause, schedule and exhibit references herein are references to articles, sections, subsections, clauses, schedules and exhibits to this Agreement unless otherwise specified. 1.05. MISCELLANEOUS TERMS. All terms defined in this Agreement in the singular shall have comparable meanings when used in the plural, and VICE VERSA, unless otherwise specified. The term "including" is by way of example and not limitation. A reference to a statute, ordinance, code or other Requirement of Law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them. A reference to a Person includes a reference to the Person's executors, administrators, successors, substitutes (including Persons taking by novation) and assigns. 1.06. OTHER TERMS. All other terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings assigned to such terms by the Uniform Commercial Code to the extent the same are defined therein. ARTICLE II AMOUNTS AND TERMS OF TERM LOANS 2.01. TERM LOANS. (a) AMOUNTS OF TERM LOANS. The Lender has made a term loan, in Dollars, to the Borrower on the Initial Closing Date in an initial principal amount equal to $4,800,000. The outstanding principal amount of such term loan has increased after the Initial Closing Date due to the Borrower's election to capitalize accrued and unpaid interest on such term loan in accordance with the terms of the Existing Credit Agreement and will continue to increase after the Amendment and Restatement Effective Date if the Borrower elects to capitalize accrued and unpaid interest on such term loan in accordance with the terms of SECTION 2.02(b)(i) (the term loan in the principal amount made on the Initial Closing Date, together -25- with all additions to principal due to the capitalization of interest under the Existing Credit Agreement and under this Agreement are collectively referred to herein as the "Initial Term Loan"). Subject to the terms and conditions set forth in this Agreement, the Lender hereby agrees to make a second term loan, in Dollars, to the Borrower on the Amendment and Restatement Effective Date in an aggregate amount equal to $4,000,000 (the "Supplemental Term Loan", and together with the Initial Term Loan, the "Term Loans"). (b) NOTICE OF BORROWING. When the Borrower desires to borrow the Supplemental Term Loan under this SECTION 2.01, it shall deliver to the Lender a Notice of Borrowing, signed by it, on the Amendment and Restatement Effective Date. Such Notice of Borrowing shall specify (i) the amount of the proposed Borrowing, and (ii) instructions for the disbursement of the proceeds of the proposed Borrowing. In lieu of delivering such a Notice of Borrowing, the Borrower may give the Lender telephonic notice of the Borrowing of the Supplemental Term Loan on the Amendment and Restatement Effective Date, if it confirms such notice by delivery of the Notice of Borrowing to the Lender promptly, but in no event later than 5:00 p.m. (Chicago time) on the same day. Any Notice of Borrowing (or telephonic notice in lieu thereof) given pursuant to this SECTION 2.01(b) shall be irrevocable. (c) MAKING OF SUPPLEMENTAL TERM LOAN. Promptly after receipt of a Notice of Borrowing under SECTION 2.01(b) (or telephonic notice in lieu thereof), the Lender shall deposit an amount equal to the amount requested by the Borrower to be made in respect of the Supplemental Term Loan under this SECTION 2.01(c), in immediately available funds, not later than 1:00 p.m. (Chicago time) on the Amendment and Restatement Effective Date. Subject to the fulfillment of the conditions precedent set forth in SECTION 4.01, the Lender shall make the proceeds of such amounts available to the Borrower by disbursing such proceeds on the Amendment and Restatement Effective Date to an account specified in a written notice from the Lender to the Borrower or in accordance with the Borrower's disbursement instructions set forth in such Notice of Borrowing. (d) TERM NOTES; REPAYMENT OF THE TERM LOANS. (i) On the Initial Closing Date, the Borrower executed and delivered to the Lender a promissory note evidencing the Initial Term Loan in the form of EXHIBIT D-1 attached hereto and made a part hereof (the "Initial Term Note"). On the Amendment and Restatement Effective Date, the Borrower shall execute and deliver to the Lender, a separate promissory note, in substantially the form of EXHIBIT D-2 attached hereto and made a part hereof, evidencing the Supplemental Term Loan (the "Supplemental Term Note" and, together with the Initial Term Note, the "Term Notes"). The outstanding principal balance of the Term Loans (including, without limitation, the principal balance of the Initial Term Loan attributable to interest capitalized in accordance with the terms of SECTION 2.02(b)(i)) shall be payable in full on the -26- 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 pursuant hereto. (ii) In addition to the scheduled payment on the Term Loans, the Borrower may make the voluntary prepayments described in SECTION 3.01(a) and shall make the mandatory prepayments prescribed in SECTION 3.01(b), for credit against such scheduled payments on the Term Loans pursuant to SECTION 3.01(a) or SECTION 3.01(b), as applicable. (e) USE OF PROCEEDS OF SUPPLEMENTAL TERM LOAN. The proceeds of the Supplemental Term Loan shall be used by the Borrower to make a capital contribution to Opco (and the Borrower shall cause Opco to use the proceeds of such capital contribution for the purposes set forth in Section 2.01(e) of the Opco Credit Agreement). 2.02. INTEREST. (a) RATE OF INTEREST. (i) The Initial Term Loan and the outstanding principal balance of all other Obligations (other than the outstanding principal balance of the Supplemental Term Loan) shall bear interest on the unpaid principal amount thereof from the date the Initial Term Loan is made (or the dates interest thereon has been or is capitalized) and such other Obligations are due and payable until paid in full, except as otherwise provided in SECTION 2.02(c), at a per annum rate equal to (i) for the period commencing on the Initial Closing Date and ending on December 31, 1995, nine and one-half percent (9.50%) and (ii) for the period commencing on January 1, 1996 and ending on the date the Obligations are paid in full, eleven and one-half percent (11.50%). (ii) The Supplemental Term Loan shall bear interest on the unpaid principal amount thereof from the date the Supplemental Term Loan is made until paid in full, except as otherwise provided in SECTION 2.02(c), at a rate per annum equal to the sum of (i) the Index Rate, as in effect from time to time as interest accrues, PLUS (ii) one and one-half percent (1.50%). (b) INTEREST PAYMENTS. (i) Interest accrued on the Initial Term Loan shall be payable in arrears (A) with respect to interest accrued and unpaid as of any Interest Payment Date, on the day immediately following such Interest Payment Date, commencing on the first such day immediately following March 31, 1994, (B) upon the payment or prepayment of the Initial Term Loan in full, and (C) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of the Initial Term Loan. Accrued and unpaid interest on the outstanding principal balance of the Initial Term Loan may, at the option of the Borrower, be paid in immediately available funds in accordance with the immediately preceding sentence and SECTION 3.02(a). If interest on the Initial Term Loan is not so paid, such interest shall be capitalized on the day immediately following the applicable Interest Payment Date, and the outstanding principal balance of -27- the Initial Term Loan shall automatically and without notice of any kind whatsoever be increased by an amount equal to such interest. (ii) Interest accrued on the Supplemental Term Loan shall be payable in arrears (A) with respect to interest accrued and unpaid as of the end of any calendar month, on the first day of the immediately succeeding calendar month, commencing on the first such day following the making of the Supplemental Term Loan, (B) upon the payment or prepayment of the Supplemental Term Loan in full, and (C) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of the Supplemental Term Loan. (iii) Interest accrued on the principal balance of all other Obligations shall be payable in immediately available funds in arrears (A) on the last day of each calendar month, commencing on the first such day following the incurrence of such Obligation, (B) upon repayment thereof in full or in part, and (C) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (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 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 Initial Term Loan, the principal balance of the Supplemental Term Loan and the principal balance of all other Obligations, shall bear interest at a per annum rate which is two percent (2.0%) per annum in excess of the interest rate otherwise applicable under SECTION 2.02(a). (d) COMPUTATION OF INTEREST. Interest on all Obligations shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. In computing interest on the Term Loans, the date of the making of the Term Loans shall be included and the date of payment shall be excluded. 2.03. AUTHORIZED OFFICERS AND AGENTS. On the Amendment and Restatement Effective Date and from time to time thereafter when necessary, the Borrower shall deliver to the Lender an Officer's Certificate setting forth the names of the officers, employees and agents authorized to request a Borrowing and containing a specimen signature of each such officer, employee or agent. The officers, employees and agents so authorized shall also be authorized to act for the Borrower in respect of all other matters relating to the Loan Documents. The Lender shall be entitled to rely conclusively on such officer's or employee's authority to request such Borrowing until the Lender receives -28- written notice to the contrary. The Lender shall have no duty to verify the authenticity of the signature appearing on any written Notice of Borrowing or any other document, and, with respect to an oral request for such a Borrowing the Lender shall have no duty to verify the identity of any person representing himself or herself as one of the officers, employees or agents authorized to make such request or otherwise to act on behalf of the Borrower. The Lender shall incur no liability to the Borrower or any other Person in acting upon any telephonic notice referred to above which the Lender believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of the Borrower. ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. The Borrower may, upon at least one (1) Business Day's prior written notice to the Lender, at any time and from time to time, prepay the Term Loans, in whole or in part. Unless the aggregate outstanding principal balance of the Term Loans is to be prepaid in full, voluntary prepayments of the Term Loans shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount. Any notice of prepayment given to the Lender under this SECTION 3.01(a) shall specify the date (which shall be a Business Day) of prepayment, the aggregate principal amount of the prepayment and whether such prepayment is to be applied to the Initial Term Loan or the Supplemental Term Loan or both. When notice of prepayment is delivered as provided herein, the principal amount of the Term Loan(s) specified in the notice shall become due and payable on the prepayment date specified in such notice. The prepayments described in this SECTION 3.01(a) may be made without premium or penalty. (b) MANDATORY PREPAYMENTS/REDUCTIONS. (i) After the payment in full of the "Obligations" under (and as defined in) the Opco Credit Agreement and the "Obligations" under (and as defined in) the RCL Loan Agreement, the Borrower shall make the following prepayments in respect of the Term Loans: (A) Within two (2) Business Days after the Borrower's or any of its Subsidiaries' receipt of any Net Cash Proceeds of Sale, the Borrower shall make or cause to be made a mandatory prepayment of the Obligations in an amount equal to one hundred percent (100%) of such Net Cash Proceeds of Sale. (B) Within ninety (90) days after the end of each Fiscal Year, the Borrower shall calculate Excess Cash -29- Flow for such Fiscal Year and shall make a mandatory prepayment in an amount equal to seventy-five percent (75%) of such Excess Cash Flow. The Borrower shall make an additional mandatory prepayment on the date on which annual reports are required to be delivered by SECTION 6.01(c) to the extent 75% of Excess Cash Flow determined in accordance with the annual reports exceeds 75% of the Borrower's preliminary calculation of Excess Cash Flow. (C) Within two (2) Business Days after the Borrower's or any of its Subsidiaries' receipt of any Excess Proceeds of Issuance of Stock or Indebtedness, the Borrower shall make or cause to be made a mandatory prepayment in an amount equal to one hundred percent (100%) of such Excess Proceeds of Issuance of Stock or Indebtedness. (ii) Nothing in this SECTION 3.01(b) shall be construed to constitute the Lender's consent to any transaction referred to in CLAUSE (i) above which is not expressly permitted by ARTICLE VIII. (iii) Each mandatory prepayment required by SECTION 3.01(b)(i) shall be referred to herein as a "Designated Prepayment". The Borrower shall give the Lender not less than one (1) Business Day's prior written notice or telephonic notice promptly confirmed in writing, of the date on which each such Designated Prepayment will be made (which date of prepayment shall be no later than the date on which such Designated Payment becomes due and payable pursuant to this SECTION 3.01(b)). (iv) Designated Prepayments shall be allocated and applied to the Obligations as follows: (A) FIRST, to the unpaid principal balance of the Supplemental Term Loan and (B) SECOND, to the unpaid principal balance of the Initial Term Loan. 3.02. PAYMENTS. (a) MANNER AND TIME OF PAYMENT. All payments and prepayments of principal of and interest on the Term Loans and other Obligations (including, without limitation, fees and expenses) which are payable to the Lender shall be made without condition or reservation of right, in immediately available funds (except to the extent otherwise permitted by SECTION 2.02(b)(i)), delivered to the Lender not later than 1:00 p.m. (Chicago time) on the date and at the place due, to such account of the Lender as it may designate; and funds received by the Lender not later than 1:00 p.m. (Chicago time) on any given Business Day shall be credited against payment to be made that day and funds received by the Lender after that time shall be deemed to have been paid on the immediately following Business Day. All payments and prepayments of Obligations shall be made in Dollars, and the Borrower waives any right which it has under any Requirement of Law to repay the Obligations in a currency other than Dollars. -30- (b) APPLICATION OF PAYMENTS. (i) Subject to the provisions of SECTIONS 3.01 AND 3.02(b)(ii), all payments of principal and interest in respect of the Term Loans, all payments of fees and all other payments in respect of any other Obligations, shall be applied FIRST, to pay all Obligations then due and payable and SECOND, as the Borrower so designates. (ii) After the occurrence of an Event of Default and while the same is continuing, the Lender shall apply all payments in respect of any Obligations and all proceeds of Collateral in the following order: (A) FIRST, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Lender; (B) SECOND, to pay interest due in respect of the Supplemental Term Loan; (C) THIRD, to pay interest due in respect of the Initial Term Loan; (D) FOURTH, to the payment or prepayment of principal outstanding on the Supplemental Term Loan; (E) FIFTH, to the payment or prepayment of principal outstanding on the Initial Term Loan; and (F) SIXTH, to the payment of all other Obligations. (c) PAYMENTS ON NON-BUSINESS DAYS. Whenever any payment to be made by the Borrower hereunder or under any Term Note is stated to be due on a day which is not a Business Day, the payment shall instead be due on the immediately following Business Day, and any such extension of time shall be included in the computation of the payment of interest and fees hereunder. 3.03. TAXES. (a) PAYMENT OF TAXES. Any and all payments by the Borrower hereunder or under any Term Note or other document evidencing any Obligations shall be made, in accordance with SECTION 3.02, free and clear of and without reduction for any and all present or future taxes, levies, imposts, deductions, charges, withholdings, duties, and all stamp, transaction or documentary taxes, excise taxes, ad valorem taxes and other taxes imposed on the value of the Property, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, or otherwise with respect to, any of the Loan Documents or the Term Loan Commitments and all other liabilities with respect thereto (including any related interest, penalties, fines and expenses in connection with any of them), excluding taxes imposed on or measured by net income or overall gross receipts and capital and franchise taxes imposed on the Lender by (i) the United States, -31- (ii) the Governmental Authority of any jurisdiction in which the Lender has an office or any political subdivision thereof or (iii) the Governmental Authority in which the Lender is organized, managed and controlled or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and duties being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder or under any Term Note or document to the Lender (x) the sum payable to the Lender shall be increased as may be necessary so that after making all required withholding or deductions (including withholding or deductions applicable to additional sums payable under this SECTION 3.03) the Lender receives an amount equal to the sum it would have received had no such withholding or deductions been made, (y) the Borrower shall make such withholding or deductions, and (z) the Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) INDEMNIFICATION. The Borrower will indemnify the Lender against, and reimburse the Lender on demand for, the full amount of all Taxes (including, without limitation, any Taxes imposed by any Governmental Authority on amounts payable under this SECTION 3.03 and any additional income or franchise taxes resulting therefrom) incurred or paid by the Lender or any of its Affiliates and any liability (including penalties, additions to tax, interest, and out-of-pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or not such Taxes were lawfully payable. A certificate as to any additional amount payable to any Person under this SECTION 3.03 submitted by it to the Borrower shall, absent manifest error, be final, conclusive and binding upon all parties hereto. The Lender agrees, within a reasonable time after receiving a written request from the Borrower, to provide the Borrower with such certificates as are reasonably required, and take such other actions as are reasonably necessary to claim such exemptions as the Lender may be entitled to claim in respect of all or a portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this SECTION 3.03 in respect of any payments under this Agreement or under any Term Note. (c) RECEIPTS. Within thirty (30) days after the date of any payment of Taxes by the Borrower, it will furnish to the Lender, at its address referred to in SECTION 11.06, the original or a certified copy of a receipt evidencing payment thereof. 3.04. PROMISE TO REPAY; EVIDENCE OF INDEBTEDNESS. (a) PROMISE TO REPAY. The Borrower hereby agrees to pay when due the principal amount of the Term Loans, and further agrees to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement and the respective Term Notes. -32- (b) LOAN ACCOUNT. The Lender shall maintain in accordance with its usual practice an account or accounts (a "Loan Account") evidencing the Indebtedness of the Borrower to the Lender resulting from the Term Loans, including the amount of principal and interest payable and paid to the Lender from time to time hereunder and under the respective Term Notes. (c) ENTRIES BINDING. The entries made in the Loan Account shall be conclusive and binding for all purposes, absent manifest error. ARTICLE IV CONDITIONS TO SUPPLEMENTAL TERM LOAN 4.01. CONDITIONS PRECEDENT TO THE SUPPLEMENTAL TERM LOAN. The obligation of the Lender to make the Supplemental Term Loan on the Amendment and Restatement Effective Date shall be subject to the satisfaction of all of the following conditions precedent: (a) DOCUMENTS. The Lender shall have received on or before the Amendment and Restatement Effective Date, duly executed and acknowledged where appropriate and in form and substance satisfactory to the Lender, all of the following: (i) this Agreement, together with all Schedules hereto which shall be in each case true, complete and correct in all material respects as of the Amendment and Restatement Effective Date; (ii) the Supplemental Term Note; (iii) a Notice of Borrowing completed in accordance with the provisions of Section 2.01(b); (iv) the supplement to the Pledge Agreement in substantially the form of EXHIBIT C-2 attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, reaffirming the pledge and grant of security interest under the Pledge Agreement (the "Supplement to Pledge Agreement"); (v) Uniform Commercial Code financing statements covering the Collateral; (vi) a favorable legal opinion, dated the Amendment and Restatement Effective Date, addressed to the Lender, from O'Melveny & Myers LLP, counsel to the Borrower, with respect to the Loan Documents and related matters; (vii) evidence that the Borrower has directed O'Melveny & Myers LLP to prepare and deliver to the Lender the opinion described in CLAUSE (vi) above; -33- (viii) the PRO FORMA financials referred to in SECTION 5.01(g); (ix) a certificate signed by the Vice President of the Borrower certifying that all conditions precedent under this SECTION 4.01 have been met and no Potential Event of Default or Event of Default has occurred or is continuing; (x) a solvency certificate for the Borrower and its Subsidiaries, duly executed by the chief financial officer or treasurer of such Person, dated the Amendment and Restatement Effective Date and giving effect to the Recoil Acquisition and the financing transactions contemplated under this Agreement, supported by such analyses, valuations, appraisals, reviews, projections and other documentation as the Lender deems appropriate; (xi) documentation deemed adequate by the Lender showing the Borrower's and its Subsidiaries' compliance with any financial responsibility requirements of applicable Requirements of Law, including, without limitation, those contained in 40 C.F.R. Parts 264 and 265, Subps. H, and state law equivalents, and those promulgated pursuant to 42 U.S.C. Section 6991b(c)(6), and state equivalents; and (xii) such additional documentation as the Lender may reasonably request. (b) PERFECTION OF LIENS. Evidence that all financing statements relating to the Collateral have been filed where necessary to perfect the Lender's security interest therein and all certificates representing Capital Stock included in the Collateral have been delivered to the Lender (with duly executed stock powers). (c) NO LEGAL IMPEDIMENTS. 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 (i) enjoin, prohibit or restrain (A) the making of the Supplemental Term Loan on the Amendment and Restatement Effective Date or (B) the consummation of the Recoil Acquisition or (ii) impose or result in the imposition of a Material Adverse Effect. (d) NO DEFAULT. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the Supplemental Term Loan on the Amendment and Restatement Effective Date. (e) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties contained in SECTION 5.01 and in any of the other Loan Documents shall be true and correct in all -34- material respects on and as of the Amendment and Restatement Effective Date. (f) THE RECOIL ACQUISITION. Substantially simultaneously with the consummation of the transactions contemplated by this Agreement, the Opco Credit Agreement and the RCL Loan Agreement, Opco shall have acquired substantially all of the assets of Recoil U.S. pursuant to the Recoil U.S. Acquisition Agreement, and Opco, RCL and, if designated by Opco to acquire the shares of Recoil U.K., Kaynar U.K. shall have acquired substantially all of the assets of Recoil Australia pursuant to the Recoil Australia Acquisition Agreement and related documents, in each case in compliance with all applicable Requirements of Law. (g) ORGANIZATIONAL DOCUMENTS. The Lender shall have received copies, certified to its satisfaction, of all Organizational Documents of the Borrower and its Subsidiaries as in effect as of the Amendment and Restatement Effective Date and determined them to be satisfactory in form and substance. (h) NO MATERIAL ADVERSE EFFECT. No event has occurred since the Initial Closing Date which has had or is reasonably likely to have a Material Adverse Effect. ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to enter into this Agreement and to make the Supplemental Term Loan and the other financial accommodations to the Borrower, the Borrower hereby represents and warrants to the Lender that the following statements are true, correct and complete: (a) ORGANIZATION; ORGANIZATIONAL POWERS. The Borrower and each of its Subsidiaries (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified to do business as a foreign corporation (or other entity) and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing will have or is reasonably likely to have a Material Adverse Effect, (iii) to the extent required, has filed and maintained effective (unless exempt from the requirements for filing) a current Business Activity Report with the appropriate Governmental Authority in the states of Minnesota and New Jersey, and (iv) has all requisite corporate power and authority to own, operate and encumber its Property and to conduct its business as proposed to be conducted in connection with and following the consummation of the transactions contemplated by the Transaction Documents. -35- (b) AUTHORITY. (i) The Borrower and each of its Subsidiaries have the requisite corporate power and authority (A) to execute, deliver and perform each of the Transaction Documents which are to be executed by it in connection with the Purchase or the Recoil Acquisition or which have been executed by it as required by this Agreement or the Existing Credit Agreement on or prior to the Amendment and Restatement Effective Date and (B) to file the Transaction Documents which must be filed by it in connection with the Purchase or the Recoil Acquisition or which have been filed by it as required by this Agreement or the Existing Credit Agreement on or prior to the Amendment and Restatement Effective Date, with any Governmental Authority. (ii) The execution, delivery, performance and filing, as the case may be, of each of the Transaction Documents which must be executed or filed by the Borrower or its Subsidiaries in connection with the Purchase or the Recoil Acquisition or which have been executed or filed as required by this Agreement or the Existing Credit Agreement on or prior to the Amendment and Restatement Effective Date and to which the Borrower or any of its Subsidiaries is party and the consummation of the transactions contemplated thereby, have been duly approved by the respective boards of directors and, if necessary, the shareholders of the Borrower and its Subsidiaries and such approvals have not been rescinded. No other organizational action or proceedings on the part of the Borrower or its Subsidiaries are necessary to consummate such transactions. (iii) Each of the Transaction Documents to which the Borrower or any of its Subsidiaries is a party has been duly executed, delivered or filed, as the case may be, by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, is in full force and effect and no material term or condition thereof has been amended, modified or waived from the terms and conditions contained in the Transaction Documents delivered to the Lender pursuant to SECTION 4.01(a) without the prior written consent of the Lender, and all parties thereto have performed and complied with all the terms, provisions, agreements and conditions set forth therein and required to be performed or complied with by such parties on or before the Amendment and Restatement Date, and no Potential Event of Default, Event of Default or breach of any covenant by any such party exists thereunder. (c) CONSENTS. Except as set forth in SCHEDULE 5.01-C and for approval of the Bankruptcy Court (solely with respect to the Purchase), no consents or approvals of, or filings or registrations (other than filings or registrations contemplated by SECTION 4.01(b) or 5.01(f)(i) with respect to Government Contracts) by the Borrower or its Subsidiaries with any Governmental Authority or any other Person not a party to this Agreement are necessary in connection with the execution and delivery of the Transaction Documents by the Borrower and its Subsidiaries and the consummation by the Borrower and its -36- Subsidiaries of the transactions contemplated by the Transaction Documents, except where the failure to obtain such consents or approvals would not result in a Material Adverse Effect. (d) SUBSIDIARIES; OWNERSHIP OF CAPITAL STOCK. SCHEDULE 5.01-D accurately sets forth (i) the correct legal name, the jurisdiction of incorporation and the jurisdictions in which qualified to transact business as a foreign corporation of each of the direct and indirect Subsidiaries of the Borrower, (ii) the authorized, issued and outstanding shares of each class of Capital Stock of the Borrower and each of its Subsidiaries and the owners of such shares, and (iii) a summary of the direct and indirect partnership, joint venture, or other equity interests, if any, of the Borrower and each of its Subsidiaries in any Person that is not a corporation. None of such issued and outstanding Capital Stock is subject to any vesting or redemption agreement, or, except as provided in the Shareholders Agreement, repurchase agreement, and there are no warrants or options outstanding with respect to such Capital Stock. The outstanding Capital Stock of the Borrower and each of its Subsidiaries is duly authorized, validly issued, fully paid and nonassessable. (e) NO CONFLICT. The execution, delivery and performance of each of the Transaction Documents to which the Borrower or any of its Subsidiaries is a party do not and will not (i) conflict with the Organizational Documents of the Borrower or any such Subsidiary, (ii) constitute a tortious interference with any Contractual Obligation of any Person or conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law or Contractual Obligation of the Borrower or any such Subsidiary, or require termination of any Contractual Obligation, the consequences of which violation, breach, default or termination, singly or in the aggregate, will have or is reasonably likely to have a Material Adverse Effect or is reasonably likely to subject the Lender to any liability, or (iii) result in or require the creation or imposition of any Lien whatsoever upon any of the Property or assets of the Borrower or any such Subsidiary, other than Liens contemplated by the Loan Documents, the Opco Loan Documents or the RCL Loan Documents, as applicable. (f) PATENTS, TRADEMARKS, PERMITS, ETC.; GOVERNMENT APPROVALS. (i) After giving effect to the Purchase and the Recoil Acquisition, the Borrower and each of its Subsidiaries own, are licensed or otherwise have the lawful right to use, or have all permits and other governmental approvals (except with respect to Government Contracts), patents, trademarks, trade names, copyrights, technology, know-how and processes used in or necessary for the conduct of their businesses as proposed to be conducted which are material to their condition (financial or otherwise), operations, performance and prospects, taken as a whole, including, without limitation, the names "Microdot", "Kaynar", "Microdot Inserts" and "Recoil". With respect to each Government Contract acquired by Opco or RCL in connection with -37- the Purchase or the Recoil Acquisition, such Government Contract has been transferred to Opco or RCL (and all necessary approvals therefor have been obtained) or Opco or RCL is operating under a subcontract which is in full force and effect. (ii) The consummation of the Purchase, the Recoil Acquisition and the transactions contemplated by the Transaction Documents will not impair the ownership of or rights under (or the license or other right to use, as the case may be) any permits and governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how or processes by the Borrower or any of its Subsidiaries in any manner which has or is reasonably likely to have a Material Adverse Effect. (g) PRO FORMA FINANCIALS. The PRO FORMA consolidated and consolidating balance sheets of the Borrower and its Subsidiaries prepared as of March 31, 1996 (and giving effect to the Recoil Acquisition) and in accordance with GAAP consistently applied, copies of which have been furnished to the Lender on or before the Amendment and Restatement Effective Date, fairly present on a PRO FORMA basis the financial condition of the Borrower and such Subsidiaries as of March 31, 1996, and reflect on a PRO FORMA basis those liabilities reflected in the notes thereto and resulting from consummation of the transactions contemplated by the Transaction Documents, and the payment or accrual of all Transaction Costs payable on the Amendment and Restatement Effective Date with respect to any of the foregoing. The projections and assumptions expressed in the PRO FORMA financials furnished pursuant to this SECTION 5.01(g) are reasonable based on the information available to the Borrower as of the date hereof. (h) SOLVENCY. After giving effect to the making of the Supplemental Term Loan on the Amendment and Restatement Effective Date, the Borrower and each of its Subsidiaries are Solvent. (i) THE PURCHASE. (i) All conditions precedent to, and all consents necessary to permit, the Purchase pursuant to the Purchase Documents have been satisfied or delivered, or waived with the prior written consent of the Lender, and no material breach of any term or provision of any Purchase Document has occurred and no action has been taken by any competent authority which restrains, prevents or imposes material adverse conditions upon, or seeks to restrain, prevent or impose material adverse conditions upon, the Purchase or the making of the Supplemental Term Loan hereunder. (ii) After giving effect to the Purchase, Opco has acquired substantially all of the assets of AFS pursuant to the AFS Purchase Agreement, and, to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, Opco and Kaynar U.K. have acquired substantially all -38- of the assets of MAL pursuant to the MAL Purchase Agreement, in each case in compliance with all applicable laws. (j) THE RECOIL ACQUISITION. (i) All conditions precedent to, and all consents necessary to permit, the Recoil Acquisition pursuant to the Recoil Acquisition Documents have been satisfied or delivered, or waived with the prior written consent of the Lender, and no material breach of any term or provision of any Recoil Acquisition Document has occurred and no action has been taken by any competent authority which restrains, prevents or imposes material adverse conditions upon, or seeks to restrain, prevent or impose material adverse conditions upon, the Recoil Acquisition or the making of the Supplemental Term Loan hereunder. (ii) After giving effect to the Recoil Acquisition, Opco has acquired substantially all of the assets of Recoil U.S. pursuant to the Recoil U.S. Acquisition Agreement, and Opco, RCL and, if designated by Opco to acquire the shares of Recoil U.K., Kaynar U.K. have acquired substantially all of the assets of Recoil Australia pursuant to the Recoil Australia Acquisition Agreement and related documents, in each case in compliance with all applicable Requirements of Law. (k) PLEDGE OF COLLATERAL. The grant and perfection of the security interest in the Capital Stock of Opco constituting a portion of the Collateral for the benefit of the Lender, as contemplated by the terms of the Pledge Agreement, is not made in violation of the registration provisions of the Securities Act, any applicable provisions of other federal securities laws, state securities or "Blue Sky" law, foreign securities law, or applicable general corporation, limited liability company, unlimited liability company or partnership law or in violation of any other Requirement of Law. (l) PAYMENT OF TAXES. All tax returns and reports of each of the Borrower and its Subsidiaries required to be filed have been timely filed, and all taxes, assessments, fees and other governmental charges thereupon and upon their respective Property, assets, income and franchises which are shown in such returns or reports to be due and payable have been paid, other than those which are being contested in good faith by appropriate proceedings. The Borrower has no knowledge of any proposed tax assessment (or similar claim) against the Borrower or any of its Subsidiaries that will have or is reasonably likely to have a Material Adverse Effect. ARTICLE VI REPORTING COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent thereto: -39- 6.01. FINANCIAL STATEMENTS. The Borrower shall maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated and consolidating financial statements in conformity with GAAP, and each of the financial statements described below shall be prepared from such system and records. The Borrower shall deliver or cause to be delivered to the Lender: (a) MONTHLY REPORTS. As soon as practicable, and in any event within thirty (30) days after the end of each calendar month in each Fiscal Year, the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such period and the related consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries for such calendar month and for the period from the beginning of the then current Fiscal Year to the end of such calendar month, setting forth in each case in comparative form the corresponding figures for the corresponding calendar periods in the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f), certified by the chief financial officer of the Borrower as fairly presenting the consolidated and consolidating financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the calendar months indicated in accordance with GAAP, subject to normal year end adjustments. (b) QUARTERLY REPORTS. As soon as practicable, and in any event within forty-five (45) days after the end of each fiscal quarter in each Fiscal Year, the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such period and the related consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current Fiscal Year to the end of such fiscal quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f), certified by the chief financial officer of the Borrower as fairly presenting the consolidated and consolidating financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with GAAP, subject to normal year end adjustments. (c) ANNUAL REPORTS. As soon as practicable, and in any event within one hundred twenty (120) days after the end of each Fiscal Year, (i) the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Year and the related consolidated and consolidating 40 statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f), and (ii) a report thereon of Arthur Andersen & Co. or other independent certified public accountants of recognized standing and otherwise acceptable to the Lender, which report shall be unqualified and shall state that such financial statements fairly present the consolidated and consolidating financial position of each of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which Arthur Andersen & Co. or any such other independent certified public accountants, if applicable, shall concur and which shall have been disclosed in the notes to the financial statements) and that the examination by such accountants in connection with such consolidated and consolidating financial statements has been made in accordance with generally accepted auditing standards. (d) OFFICER'S CERTIFICATE. Together with each delivery of any financial statement pursuant to PARAGRAPHS (b) and (c) of this SECTION 6.01, (i) an Officer's Certificate of the Borrower substantially in the form of EXHIBIT E attached hereto and made a part hereof, stating that the officer signatory thereto has reviewed the terms of the Loan Documents, and has made, or caused to be made under his supervision, a review in reasonable detail of the transactions and consolidated and consolidating financial condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements, that such review has not disclosed the existence during or at the end of such accounting period, and that such officer does not have knowledge of the existence as at the date of such Officer's Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower or any of its Subsidiaries has taken, is taking and proposes to take with respect thereto; and (ii) a certificate (the "Compliance Certificate"), signed by the Borrower's chief financial officer, setting forth calculations and the methods of determination thereof (with such specificity as the Lender may reasonably request) for the period then ended which demonstrate compliance, when applicable, with the provisions of ARTICLE IX. (e) ACCOUNTANT'S STATEMENT AND PRIVITY LETTER. Together with each delivery of the financial statements referred to in SECTION 6.01(c), a written statement of the firm of independent certified public accountants giving the report thereon (i) stating that their audit examination has included a review of the terms of this Agreement as it relates to accounting 41 matters, (ii) stating whether, in connection with their audit examination, any condition or event which constitutes an Event of Default or Potential Event of Default has come to their attention, and if such condition or event has come to their attention, specifying the nature and period of existence thereof; PROVIDED, that such accountants shall not be liable by reason of any failure to obtain knowledge of any such condition or event that would not be disclosed in the course of their audit examination, and (iii) stating that based on their audit examination nothing has come to their attention which causes them to believe that the information contained in either or both of the certificates delivered therewith pursuant to SECTION 6.01(d) is not correct or that the matters set forth in the Compliance Certificate delivered therewith pursuant to SECTION 6.01(d)(ii) for the applicable Fiscal Year are not stated in accordance with the terms of this Agreement. The statement referred to above shall be accompanied by (x) a copy of the management letter or any similar report delivered to the Borrower or to any officer or employee thereof by such accountants in connection with such financial statements and (y) a letter from the Borrower to such accountants informing such accountants that the Lender is relying upon the financial statements audited by such accountants and delivered to the Lender pursuant to SECTION 6.01(c) and that a primary intent of the Borrower in having such financial statements audited is to induce the Lender to continue to make financial accommodations to the Borrower under this Agreement. The Lender may, with the consent of the Borrower (which consent shall not be unreasonably withheld), communicate directly with such accountants. (f) BUDGETS; BUSINESS PLANS; FINANCIAL PROJECTIONS. As soon as practicable and in any event not later than thirty (30) days prior to the commencement of each Fiscal Year of the Borrower, (i) a monthly budget for such Fiscal Year; (ii) an annual business plan for such Fiscal Year, in form and substance acceptable to the Lender, accompanied by a report reconciling all changes and departures from the business plan delivered to the Lender for the preceding Fiscal Year; and (iii) a consolidated plan and financial forecast, prepared in accordance with the Borrower's normal accounting procedures applied on a consistent basis, for such Fiscal Year and the two (2) immediately succeeding Fiscal Years, including, without limitation, (A) a forecasted consolidated balance sheet and a consolidated statement of changes in financial position of the Borrower for such Fiscal Years, (B) forecasted consolidated balance sheets, statements of earnings and retained earnings, and changes in financial position of the Borrower for and as of the end of each fiscal quarter of such Fiscal Years, (C) the amount of forecasted Capital Expenditures and Excess Cash Flow for such Fiscal Years, and (D) forecasted compliance with the provisions of ARTICLE IX for such Fiscal Years. 6.02. OPERATIONS REPORTS. Accompanying the reports to be delivered by the Borrower each fiscal quarter in each Fiscal 42 Year pursuant to SECTION 6.01(b) and, in addition to the foregoing, within seven (7) days after the Lender's request therefor, the Borrower shall deliver to the Lender a report detailing the operations of the Borrower and its Subsidiaries which report shall include a management discussion and analysis with respect to the Borrower's and its Subsidiaries' financial performance during such period, including a comparison of actual sales versus budgeted sales for such fiscal quarter, a discussion of bookings, a listing of significant new customers and new products developed for sale, an explanation of any cost saving measures implemented, together with a discussion of the general business environment and results of operations, including an explanation of any material changes in consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries for such period from such statements for the corresponding period of the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year pursuant to SECTION 6.01(f) (the "Management Discussion and Analysis"). 6.03. EVENTS OF DEFAULT. Promptly upon any of the chief executive officer, chief operating officer, chief financial officer, treasurer or controller of the Borrower obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default, or becoming aware that the Lender has given any notice with respect to a claimed Event of Default or Potential Event of Default under this Agreement, (b) that any Person has given any notice to the Borrower or any Subsidiary of the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in SECTION 10.01(e), or (c) of any condition or event which has or is reasonably likely to have a Material Adverse Effect, the Borrower shall deliver to the Lender an Officer's Certificate specifying (A) the nature and period of existence of any such claimed default, Event of Default, Potential Event of Default, condition or event, (B) the notice given or action taken by such Person in connection therewith, and (C) what action the Borrower has taken, is taking and proposes to take with respect thereto. 6.04. LAWSUITS. (a) Promptly upon the Borrower obtaining knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Borrower or any of its Subsidiaries or any Property of the Borrower or any of its Subsidiaries, which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Borrower's reasonable judgment, the Borrower or any of its Subsidiaries to liability in an amount aggregating $100,000 or more (exclusive of claims covered by insurance policies of the Borrower or any of its Subsidiaries unless the insurers of such claims have disclaimed 43 coverage or reserved the right to disclaim coverage on such claims), the Borrower shall give written notice thereof to the Lender and provide such other information as may be reasonably available to enable the Lender and its counsel to evaluate such matters; (b) as soon as practicable and in any event within forty-five (45) days after the end of each fiscal quarter of the Borrower, the Borrower shall provide a written quarterly report to the Lender covering the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration (not previously reported) against or affecting the Borrower or any of its Subsidiaries or any Property of the Borrower or any of its Subsidiaries not previously disclosed by the Borrower to the Lender, and shall provide such other information at such time as may be reasonably available to enable the Lender and its counsel to evaluate such matters (but excluding such information at to which the Borrower in good faith has asserted or will assert a legal privilege in objection to disclosure of the information by the Borrower in the action, suit, proceeding, investigation or arbitration); and (c) in addition to the requirements set forth in CLAUSES (a) and (b) of this SECTION 6.04, the Borrower upon request of the Lender shall promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to CLAUSE (a) or (b) above and provide such other information as may be reasonably available to it to enable the Lender and its counsel to evaluate such matters. 6.05. INSURANCE. As soon as practicable and in any event by the last day of April in each Fiscal Year, the Borrower shall deliver to the Lender (a) a report in form and substance reasonably satisfactory to the Lender outlining all material insurance coverage maintained as of the date of such report by the Borrower and its Subsidiaries and the duration of such coverage and (b) evidence that all premiums with respect to such coverage have been paid when due. 6.06. ERISA NOTICES. The Borrower shall deliver or cause to be delivered to the Lender, at the Borrower's expense, the following information and notices as soon as reasonably possible, and in any event: (a) within ten (10) Business Days after the Borrower or any ERISA Affiliate knows or has reason to know that a Termination Event has occurred, a written statement of the chief financial officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto; (b) within ten (10) Business Days after the Borrower or any of its Subsidiaries knows or has reason 44 to know that an assessment of a prohibited transaction excise tax under Section 4975 of the Internal Revenue Code has occurred, a statement of the chief financial officer of the Borrower describing such transaction and the action which the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto; (c) upon the request of the Lender, copies of each annual report (form 5500 series), including Schedule B thereto, filed with the DOL, IRS or PBGC with respect to each Benefit Plan; (d) within ten (10) Business Days after the filing of the same with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by the Borrower or any ERISA Affiliate with respect to such request; (e) within ten (10) Business Days after the occurrence any material increase in the benefits of any existing Benefit Plan or the establishment of any new Benefit Plan or the commencement of contributions to any Benefit Plan to which the Borrower or any ERISA Affiliate was not previously contributing, notification of such increase, establishment or commencement; (f) within three (3) Business Days after the Borrower or any ERISA Affiliate receives notice of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice; (g) within ten (10) Business Days after the Borrower or any of its Subsidiaries receives notice of any unfavorable determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the Internal Revenue Code, copies of each such letter; (h) within ten (10) Business Days after the Borrower or any ERISA Affiliate receives notice from a Multiemployer Plan regarding the imposition of withdrawal liability, copies of each such notice; (i) within three (3) Business Days after the Borrower or any ERISA Affiliate fails to make a required installment or any other required payment under Section 412 of the Internal Revenue Code on or before the due date for such installment or payment, a notification of such failure; (j) within ten (10) Business Days after the Borrower or any ERISA Affiliate knows or has reason to 45 know (A) a Multiemployer Plan has been terminated, (B) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (C) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan; and (k) within ten (10) Business Days after the Borrower receives written notice from the Lender requesting the same, copies of any Foreign Employee Benefit Plan and related documents, reports and correspondence specified in such notice. For purposes of this SECTION 6.06, the Borrower and any ERISA Affiliate shall be deemed to know all facts known by the Administrator of any Plan of which the Borrower or any ERISA Affiliate is the plan sponsor. 6.07. ENVIRONMENTAL NOTICES. (a) The Borrower shall notify the Lender in writing, within five (5) days after the Borrower's learning thereof, of any: (i) notice or claim to the effect that the Borrower or any of its Subsidiaries is or can reasonably be expected to be liable to any Person as a result of the Release or threatened Release of any Contaminant; (ii) notice that the Borrower or any of its Subsidiaries is subject to investigation by any Governmental Authority evaluating whether any Remedial Action is needed to respond to the Release or threatened Release of any Contaminant; (iii) notice that any Property of the Borrower or any of its Subsidiaries is subject to an Environmental Lien; (iv) notice of violation to the Borrower or any of its Subsidiaries of any Environmental Law; (v) condition which might reasonably result in a violation of any Environmental Law; (vi) commencement or threat of any judicial or administrative proceeding alleging a violation by the Borrower or any of its Subsidiaries of any Environmental Law; (vii) new or proposed changes to any existing Environmental Law that could result in a Material Adverse Effect; 46 (viii) any Release of a Contaminant which requires, or is reasonably likely to require, (A) Remedial Action which is subject to review or approval by any Governmental Authority or (B) reporting to any Governmental Authority; or (ix) any proposed acquisition of stock, assets, real estate, or leasing of property, or any other action by the Borrower or any of its Subsidiaries that is reasonably likely to subject the Borrower or any of its Subsidiaries to environmental, health or safety Liabilities and Costs. (b) Within forty-five (45) days after the end of each Fiscal Year, the Borrower shall submit to the Lender a report summarizing the status of environmental, health or safety compliance, hazard or liability issues identified in notices required pursuant to SECTION 6.07(a) or identified in any notice or report required herein. 6.08. LABOR MATTERS. The Borrower shall notify the Lender in writing, promptly upon the Borrower's learning thereof, of (a) any material labor dispute to which the Borrower or any of its Subsidiaries may become a party, including, without limitation, any strikes, lockouts or other disputes relating to such Persons' plants and other facilities and (b) any liability incurred with respect to the closing of any plant or other facility of the Borrower or any of its Subsidiaries. 6.09. GOVERNMENT CONTRACT NOTICES. The Borrower shall notify the Lender in writing, within three (3) Business Days after the Borrower's learning thereof, of any of the following: (a) The DOD, any other United States Governmental Authority, any prime contractor, subcontractor or other Person has notified the Borrower or any of its Subsidiaries that the Borrower or such Subsidiary has breached or violated in any material respect any Requirement of Law, certification, representation, clause, provision or requirement pertaining to any Government Contract; (b) A termination for default, termination for convenience, cure notice or show cause notice is in effect with respect to any Government Contract; (c) Any cost incurred pertaining to any Government Contract has been questioned or challenged, is the subject of any investigation or has been disallowed by any United States Governmental Authority; (d) Any money due to the Borrower or any of its Subsidiaries pertaining to any Government Contact is withheld, or is the subject of an attempt to withhold, or is reduced through exercise of a right of set-off or otherwise; 47 (e) The commencement or threat of any action, suit, investigation or proceeding relating to any Government Contact, or relating to any proposed suspension or debarment of the Borrower, any of its Subsidiaries or any of their respective employees or agents, against the Borrower, such Subsidiary, such other Person or any Property; (f) The discovery of any irregularity, misstatement or omission arising under or relating to any Government Contract that could reasonably be expected to lead to (i) an administrative, civil or criminal investigation, indictment or information with respect to the Borrower, any of its Subsidiaries or any of their respective directors, officers, employees, consultants or agents, (ii) disclosure of such irregularity, misstatement or omission to any Governmental Authority or (iii) material damage, penalty assessment, recoupment of payment or disallowance of cost; or (g) The existence of (i) any outstanding material Claims against the Borrower, its Subsidiaries or any Property, either by a United States Governmental Authority or by any prime contractor, subcontractor, vendor or other third party, arising under or relating to any Government Contract, or (ii) any material dispute between the Borrower or any of its Subsidiaries, on the one hand, and any United States Governmental Authority, any prime contractor, subcontractor, vendor or other third party, on the other hand, arising under or relating to any Government Contract. 6.10. OTHER INFORMATION. Promptly upon receiving a request therefor from the Lender, the Borrower shall prepare and deliver to the Lender such other information with respect to the Borrower, any of its Subsidiaries, or the Collateral, including, without limitation, schedules identifying and describing the Collateral and any dispositions thereof, as from time to time may be reasonably requested by the Lender. ARTICLE VII AFFIRMATIVE COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent: 7.01. ORGANIZATIONAL EXISTENCE, ETC. Except as permitted by SECTION 8.09, the Borrower shall, and shall cause each of its Subsidiaries to, at all times maintain its organizational existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses, except where the loss or termination of such rights and franchises is not likely to have a Material Adverse Effect. 48 7.02. ORGANIZATIONAL POWERS; CONDUCT OF BUSINESS. The Borrower shall, and shall cause each of its Subsidiaries to qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified. 7.03. COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause its Subsidiaries to, (a) comply with all Requirements of Law and all restrictive covenants affecting such Person or the business, Property, assets or operations of such Person, and (b) obtain as needed all Permits necessary for its operations and maintain such Permits in good standing, except in the case where noncompliance with either CLAUSE (a) or (b) above is not reasonably likely to have a Material Adverse Effect. 7.04. PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Borrower shall pay, and cause each of its Subsidiaries to pay, (a) all taxes, assessments and other governmental charges imposed upon it or on any of its Property or assets or in respect of any of its franchises, business, income or Property before any penalty, addition to tax or interest accrues thereon, and (b) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Lien permitted by SECTION 8.03) upon any of the Borrower's or such Subsidiary's Property or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; PROVIDED, HOWEVER, that no such taxes, assessments and governmental charges referred to in CLAUSE (a) above or claims referred to in CLAUSE (b) above need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. The Borrower will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than with the Borrower, Opco or any of their respective Subsidiaries). 7.05. INSURANCE. The Borrower shall maintain for itself and its Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force and effect the insurance policies and programs listed on SCHEDULE 5.01-X of the Opco Credit Agreement or substantially similar policies and programs or other policies and programs as are acceptable to the Lender and, upon the request of the Lender, such other insurance which in the sole and reasonable judgment of the Lender, is necessary or desirable to increase the likelihood of the repayment of the Obligations. All such policies and programs shall be maintained with insurers acceptable to the Lender. Each certificate and policy relating to Property damage, boiler and machinery and/or business interruption coverage shall contain an endorsement, in form and substance acceptable to the Lender, showing loss payable to the Lender, and, if required by the Lender, naming the Lender as an additional insured under such policy. Each certificate and -49- policy relating to coverages other than the foregoing shall, if required by the Lender, contain an endorsement naming the Lender as an additional insured under such policy. Such endorsement or an independent instrument furnished to the Lender shall provide that the insurance companies will give the Lender at least thirty (30) days' written notice before any such policy or policies of insurance shall be altered adversely to the interests of the Lender or cancelled and that no act, whether willful or negligent, or default of the Borrower, any of its Subsidiaries or any other Person shall affect the right of the Lender to recover under such policy or policies of insurance in case of loss or damage. In the event the Borrower or any of its Subsidiaries, at any time or times hereafter shall fail to obtain or maintain any of the policies or insurance required herein or to pay any premium in whole or in part relating thereto, then the Lender, without waiving or releasing any obligations or resulting Event of Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Lender deems advisable. All sums so disbursed by the Lender shall be part of the Obligations, payable as provided in this Agreement. 7.06. INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Borrower shall permit, and cause each of its Subsidiaries to permit, any authorized representative(s) designated by the Lender to visit and inspect any of the Properties of the Borrower or any of its Subsidiaries, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby, by the Purchase Documents or by the Recoil Acquisition Documents (including, without limitation, in connection with environmental compliance, hazard or liability or any Government Contract), and to discuss their affairs, finances and accounts with their officers and independent certified public accountants, all upon reasonable notice and at such reasonable times during normal business hours, as often as may be reasonably requested. At the request of the Lender and upon delivery to the Borrower of invoices therefor, each such visitation and inspection shall be at the Borrower's expense. The Borrower shall keep and maintain, and cause its Subsidiaries to keep and maintain, in all material respects proper books of record and account in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to their respective businesses and activities, including, without limitation, transactions and other dealings with respect to the Collateral. If an Event of Default has occurred and is continuing, the Borrower, upon the Lender's request, shall turn over copies of any such records to the Lender or its representatives. 7.07. INSURANCE AND CONDEMNATION PROCEEDS. After the payment in full of the "Obligations" under (and as defined in) -50- the Opco Credit Agreement and the "Obligations" under (and as defined in) the RCL Loan Agreement, the Borrower shall direct (and, if applicable, shall cause its Subsidiaries to direct) all insurers under policies of Property damage, boiler and machinery and business interruption insurance and payors of any condemnation claim or award relating to the Property to pay all proceeds payable under such policies or with respect to such claim or award directly to the Lender, and in no case to the Borrower or one or more of its Subsidiaries and the Lender. Such proceeds shall constitute Net Cash Proceeds of Sale and shall be applied to the Obligations in accordance with SECTION 3.01(b)(iv). 7.08. ERISA COMPLIANCE. The Borrower shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Plans to comply in all material respects with the provisions of ERISA, the Internal Revenue Code, all other applicable laws, and the regulations thereunder and the respective requirements of the governing documents for such Plans. 7.09. FOREIGN EMPLOYEE BENEFIT PLAN COMPLIANCE. The Borrower shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Foreign Employee Benefit Plans to comply in all material respects with all laws and regulations applicable thereto and the respective requirements of the governing documents for such Plans. 7.10. GOVERNMENT CONTRACT COMPLIANCE. The Borrower shall, and shall cause each of its Subsidiaries to (a) maintain all Permits pertaining to Government Contracts required to operate the Borrower's business as it is currently conducted, including, without limitation, (i) all Facility Security Clearance(s) and Personnel Security Clearance(s), (ii) all certifications of products manufactured by the Borrower which are on the "Qualified Products List" of any United States Governmental Authority, and (iii) all Export Licenses and other similar Permits; and (b) comply in all material respects with all Requirements of Law and Contractual Obligations pertaining to each Government Contract. 7.11. ENVIRONMENTAL COMPLIANCE. The Borrower shall, and shall cause each of its Subsidiaries to (a) obtain and maintain in effect all Permits required by Environmental Law and comply with all conditions of such Permits; (b) comply with all Environmental Law applicable to the Borrower and its Subsidiaries; and (c) conduct its and their operations in an environmentally responsible manner so as to minimize Releases of Contaminants and the likelihood of violating Environmental Law, except in the case where non-compliance with any of clause (a) or (b) or (c) above will not have or result in a Material Adverse Effect. -51- 7.12. MAINTENANCE OF PROPERTY. The Borrower shall, and shall cause each of its Subsidiaries to, maintain in all material respects all of their respective owned and leased Property in good, safe and insurable condition and repair, and not permit, commit or suffer any waste or abandonment of any such Property and from time to time shall make or cause to be made all material repairs, renewal and replacements thereof, including, without limitation, any capital improvements which may be required; PROVIDED, HOWEVER, that such Property may be altered or renovated in the ordinary course of business. 7.13. CONDEMNATION. Immediately upon learning of the institution of any proceeding for the condemnation or other taking of any of the owned or leased Real Property of the Borrower or any of its Subsidiaries, the Borrower shall notify the Lender of the pendency of such proceeding, and permit the Lender to participate in any such proceeding, and from time to time will deliver to the Lender all instruments reasonably requested by the Lender to permit such participation. ARTICLE VIII NEGATIVE COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent: 8.01. INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (i) the Obligations; (ii) trade payables, wages and other accrued expenses incurred in the ordinary course of business; (iii) the Transaction Costs; (iv) to the extent permitted by ARTICLE IX, the Opco Credit Agreement and the RCL Loan Agreement and in any event in an aggregate amount not to exceed $3,000,000 at any time, Capital Leases and purchase money Indebtedness incurred to finance the acquisition of fixed assets, and Indebtedness incurred to refinance such Capital Leases and purchase money Indebtedness; (v) Indebtedness in respect of taxes, assessments, governmental charges and claims for labor, materials or supplies, to the extent that payment thereof is not required pursuant to SECTION 7.04; -52- (vi) Indebtedness constituting Accommodation Obligations permitted by SECTION 8.05; (vii) Indebtedness arising from intercompany loans from the Borrower to Opco or from any of Opco's wholly-owned Subsidiaries to Opco, PROVIDED, that (A) all such Indebtedness shall be evidenced by promissory notes (which, if payable to RCL, Recoil Holdings or Recoil Australia Holdings, shall be delivered to the Lender in accordance with the RCL Loan Documents), shall be subordinated in right of payment to the "Obligations" under (and as defined in) the Opco Credit Agreement and (B) the proceeds of such Indebtedness shall be used for purposes permitted by this Agreement; (viii) Indebtedness arising from intercompany loans from Opco to the Borrower which, together with the amount of dividends or distributions to the Borrower on the Capital Stock of Opco permitted under SECTION 8.06(ii), shall not exceed an aggregate amount of $600,000 in any Fiscal Year, PROVIDED, that (A) all such Indebtedness shall be evidenced by promissory notes which are pledged to the Lender in accordance with the provisions of the "Security Agreement" (as defined in the Opco Credit Agreement) and (B) the proceeds of such intercompany loans, dividends or distributions shall be used by the Borrower solely to pay (I) operating expenses of the Borrower in an amount not to exceed $50,000 in any Fiscal Year, (II) accrued interest on the Term Loans or the PIK Dividend Notes (including, without limitation, that portion of the principal amount of the Initial Term Loan or the PIK Dividend Notes attributable to interest which has been capitalized in accordance with this Agreement or the PIK Dividend Note Agreement, as applicable) and (III) if and only if all accrued interest on the Term Loans and the PIK Dividend Notes (including, without limitation, that portion of the principal amount of the Initial Term Loan or the PIK Dividend Notes attributable to interest which has been capitalized in accordance with this Agreement or the PIK Dividend Note Agreement, as applicable) as of the then most recent date on which interest on any Term Loan or the PIK Dividend Notes is payable has been (or will be concurrently therewith) paid in full in cash, dividends or distributions on the Preferred Stock of the Borrower; (ix) In addition to the intercompany loans from Opco to the Borrower permitted under SECTION 8.01(viii), Indebtedness arising from intercompany loans from Opco to the Borrower, the proceeds of which, together with the proceeds of dividends or distributions to the Borrower on the Capital Stock of -53- Opco permitted under SECTION 8.06(iv), are used to pay the outstanding Indebtedness under this Agreement and the respective Term Notes on the Scheduled Maturity Date; (x) Indebtedness with respect to reasonable warranties and indemnities made under any agreements for asset sales permitted under SECTION 8.02; (xi) Indebtedness under the PIK Dividend Notes issued in payment of dividends on Preferred Stock permitted by SECTION 8.06 and interest capitalized in accordance with the terms of the PIK Dividend Note Agreement; (xii) Indebtedness under the Opco Credit Agreement and any refinancing thereof, provided that the aggregate outstanding amount of Indebtedness described in this clause (xii) is not increased by the refinancing; (xiii) Indebtedness with respect to warranties and indemnities in favor of Recoil Australia, Recoil U.S. and the Vendors under the Recoil Acquisition Documents; (xiv) Indebtedness under the RCL Loan Agreement and any refinancing thereof, provided that the aggregate outstanding amount of Indebtedness described in this clause (xiv) is not increased by the refinancing; and (xv) Permitted Existing Indebtedness. 8.02. SALES OF ASSETS. Neither the Borrower nor any of its Subsidiaries shall sell, assign, transfer, lease, convey or otherwise dispose of any Property, whether now owned or hereafter acquired, or any income or profits therefrom, or enter into any agreement to do so, except: (i) the sale of Property having an aggregate Fair Market Value of not more than $1,000,000 in any Fiscal Year for cash consideration not less than the Fair Market Value thereof, PROVIDED that the Borrower complies with the mandatory prepayment provisions set forth in SECTION 3.01(b), Opco complies with the mandatory prepayment provisions set forth in SECTION 3.01(b) of the Opco Credit Agreement or RCL complies with the mandatory prepayment provisions set forth in SECTION 3.01(b) of the RCL Loan Agreement (as applicable); (ii) the transfer of Property from a Subsidiary of Opco to Opco; -54- (iii) sales of Inventory, dispositions of Equipment and licensing of General Intangibles, in each case as permitted by the Opco Loan Documents or the RCL Loan Documents (as applicable); and (iv) any Investment permitted under SECTION 8.04. 8.03. LIENS. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of their respective Property or assets except: (i) Liens created by the Loan Documents, the Opco Loan Documents and the RCL Loan Documents; (ii) Customary Permitted Liens; (iii) purchase money Liens (including the interest of a lessor under a Capital Lease or an Operating Lease having substantially the same economic effect and Liens to which any Property is subject at the time of the Borrower's or such Subsidiary's purchase thereof) securing an amount not to exceed $3,000,000 in the aggregate at any time or from time to time, PROVIDED, that such Liens shall not apply to any Property of the Borrower or its Subsidiaries other than that purchased or subject to such Capital Lease; and (iv) Permitted Existing Liens. 8.04. INVESTMENTS. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly make or own any Investment except: (i) Investments in Cash Equivalents; (ii) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (iii) contributions to and payments of benefits under any Plan (in accordance with the terms of the Plan) permitted by this Agreement; (iv) Investments (in an aggregate unrecovered amount not to exceed $1,400,000) by Opco in Kaynar U.K. and by Kaynar U.K. in Recoil U.K., including, without limitation, Opco's ownership of the Capital Stock of Kaynar U.K. and Kaynar U.K.'s ownership of the Capital Stock of Recoil U.K.; -55- (v) Investments arising from intercompany loans which are permitted under SECTION 8.01(vii), 8.01(viii) or 8.01(ix); (vi) Investments (in each case in an aggregate unrecovered amount not to exceed $12,000,000) by Opco in Recoil Holdings and Recoil Australia Holdings and by Recoil Holdings and Recoil Australia Holdings in RCL, including, without limitation, Opco's ownership of the Capital Stock of Recoil Holdings and Recoil Australia Holdings and Recoil Holding's and Recoil Australia Holdings's ownership of the Capital Stock of RCL; and (vii) Investments (in an aggregate unrecovered amount not to exceed $600,000) by Opco in Kaynar Femipari, including, without limitation, Opco's ownership of the Capital Stock of Kaynar Femipari; and (viii) Investments in Opco's Subsidiaries (other than those permitted by CLAUSES (iv), (vi) and (vii)) in existence, and in the unrecovered amounts, on the Amendment and Restatement Effective Date. 8.05. ACCOMMODATION OBLIGATIONS. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create or become or be liable with respect to any Accommodation Obligation, except: (i) recourse obligations resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (ii) Permitted Existing Accommodation Obligations; (iii) Accommodation Obligations arising under the Loan Documents or the Opco Loan Documents; and (iv) Accommodation Obligations of Recoil Holdings and Recoil Australia Holdings arising under the RCL Loan Documents. 8.06. RESTRICTED JUNIOR PAYMENTS. Neither the Borrower nor any of its Subsidiaries shall declare or make any Restricted Junior Payment, except for: (i) dividends or distributions to Opco on the Capital Stock of any of Opco's wholly-owned Subsidiaries; (ii) for so long as no Event of Default has occurred and is continuing, dividends or distributions to the Borrower on the Capital Stock of Opco which, together with the principal amount of intercompany -56- loans from Opco to the Borrower permitted under SECTION 8.01(viii), shall not exceed an aggregate amount of $600,000 in any Fiscal Year, PROVIDED, that the proceeds of such intercompany loans, dividends or distributions shall be used by the Borrower solely to pay (A) operating expenses of the Borrower in an amount not to exceed $50,000 in any Fiscal Year, (B) accrued interest on the Term Loans or the PIK Dividend Notes (including, without limitation, that portion of the principal amount of the Initial Term Loan or the PIK Dividend Notes attributable to interest which has been capitalized in accordance with this Agreement or the PIK Dividend Note Agreement, as applicable) and (C) if and only if all accrued interest on the Term Loans and the PIK Dividend Notes (including, without limitation, that portion of the principal amount of the Initial Term Loan or the PIK Dividend Notes attributable to interest which has been capitalized in accordance with this Agreement or the PIK Dividend Note Agreement, as applicable) as of the then most recent date on which interest on any Term Loan or the PIK Dividend Notes is payable has been (or will concurrently therewith) paid in full in cash, dividends or distributions on the Preferred Stock of the Borrower; (iii) dividends or distributions on the Preferred Stock of the Borrower in PIK Dividend Notes to the extent permitted by the PIK Dividend Note Agreement or in cash to the extent permitted by SECTION 8.06(ii)(C), PROVIDED, HOWEVER, that no such dividends or distributions may be made or paid in any fiscal quarter of the Borrower in which an Event of Default has occurred or is continuing and the Lender has delivered written notice to the Borrower that such dividends or distributions are prohibited under this SECTION 8.06, PROVIDED, FURTHER, HOWEVER, that if such Event of Default is the result of a breach of any covenant in ARTICLE IX of this Agreement, such Event of Default shall be deemed to be cured solely for purposes of permitting the payment of dividends or distributions under this SECTION 8.06 upon the Borrower's compliance with such covenant for each of the two (2) fiscal quarters immediately following the fiscal quarter with respect to which such Event of Default occurred; and (iv) in addition to the dividends and distributions to the Borrower on the Capital Stock of Opco permitted under SECTION 8.06(ii), dividends and distributions to the Borrower on the Capital Stock of Opco, the proceeds of which, together with the proceeds of intercompany loans from Opco to the Borrower permitted under SECTION 8.01(ix), are used to pay the outstanding Indebtedness under this Agreement and the respective Term Notes on the Scheduled Maturity Date. -57- 8.07. CONDUCT OF BUSINESS. Neither the Borrower nor any of its Subsidiaries shall engage in any business other than (i) the businesses engaged in by AFS on the Initial Closing Date, (ii) the businesses engaged in by Recoil Australia and its Subsidiaries on the Amendment and Restatement Effective Date and (iii) the business or activities which are substantially similar, related or incidental thereto; PROVIDED, HOWEVER, that Recoil Holdings and Recoil Australia Holdings shall not engage in any business other than the holding of the Capital Stock of RCL and, in the case of Recoil Holdings, one share of the Capital Stock of Recoil Belgium. 8.08. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder or holders of more than five percent (5%) of any class of equity Securities of the Borrower or Opco, or with any Affiliate of the Borrower which is not its Subsidiary, on terms that are less favorable to the Borrower or any of its Subsidiaries, as applicable, than those that might be obtained in an arm's length transaction at the time from Persons who are not such a holder or Affiliate. Nothing contained in this SECTION 8.08 shall prohibit (i) any transaction expressly permitted by SECTIONS 8.01, 8.05 or 8.06; (ii) increases in compensation and benefits for officers and employees of the Borrower or any of its Subsidiaries which are customary in the industry or consistent with the past business practice of the Borrower or such Subsidiary, PROVIDED, that no Event of Default or Potential Event of Default has occurred and is continuing; (iii) payment of customary directors' fees and indemnities; (iv) performance of any obligations arising under the Transaction Documents or the Shareholders Agreement; or (v) transactions between the Borrower and Opco or Opco and any of its Subsidiaries, PROVIDED, that no Event of Default or Potential Event of Default results therefrom. 8.09. RESTRICTION ON FUNDAMENTAL CHANGES. Neither the Borrower nor any of its Subsidiaries shall enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of the Borrower's or any such Subsidiary's business or Property, whether now or hereafter acquired, except for (i) transactions permitted under SECTION 8.02, (ii) transactions permitted under SECTION 8.16 of the Opco Credit Agreement and (iii) a merger of Recoil Holdings and Recoil Australia Holdings, PROVIDED that such merger will not result in any adverse tax consequences to Recoil Holdings, Recoil Australia Holdings, RCL or the Lender. 8.10. SALES AND LEASEBACKS. Neither the Borrower nor any of its Subsidiaries shall become liable, directly, by assumption or by Accommodation Obligation, with respect to any lease, 58 whether an Operating Lease or a Capital Lease, of any Property (whether real or personal or mixed) (i) which it or one of its Subsidiaries sold or transferred or is to sell or transfer to any other Person, or (ii) which it or one of its Subsidiaries intends to use for substantially the same purposes as any other Property which has been or is to be sold or transferred by it or one of its Subsidiaries to any other Person in connection with such lease. 8.11. ERISA. The Borrower shall not: (i) engage, or permit any ERISA Affiliate to engage, in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the Department of Labor; (ii) permit to exist any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the Internal Revenue Code), with respect to any Benefit Plan, whether or not waived; (iii) fail, or permit any ERISA Affiliate to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (iv) establish, maintain or otherwise become liable with respect to, or permit any ERISA Affiliate to establish, maintain or otherwise become liable with respect to, any Benefit Plan; (v) fail to make any contribution or payment to any Multiemployer Plan which Borrower or any ERISA Affiliate is required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (vi) fail, or permit any ERISA Affiliate to fail, to pay any required installment or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment; (vii) amend, or permit any ERISA Affiliate to amend, a Benefit Plan resulting in an increase in current liability for the plan year such that the Borrower or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Internal Revenue Code; (viii) permit any unfunded liabilities with respect to any Foreign Pension Plan; or 59 (ix) fail, or permit any of its Subsidiaries or ERISA Affiliates to fail, to pay any required contributions or payments to a Foreign Pension Plan on or before the due date for such required installment or payment. 8.12. ISSUANCE OF CAPITAL STOCK. Neither the Borrower nor any of its Subsidiaries shall issue any Capital Stock to any Person except for (i) the Capital Stock issued by such Persons as of the Amendment and Restatement Effective Date and (ii) Common Stock issued by the Borrower upon conversion of shares of Preferred Stock in accordance with the respective certificate of designation for the Series A Preferred Stock and the Series B Preferred Stock. 8.13. ORGANIZATIONAL DOCUMENTS. Neither the Borrower nor any of its Subsidiaries shall amend, modify or otherwise change any of the terms or provisions in any of their respective Organizational Documents as in effect on the date hereof. 8.14. BANK ACCOUNTS. Neither the Borrower nor any of its Subsidiaries shall open or maintain any deposit account with any Person unless (i) such Person is a bank or financial institution reasonably acceptable to the Lender, (ii) such Person has executed a Collection Account Agreement with respect to such deposit account, and (iii) SCHEDULE 1.01.1 reflects (or shall have been amended to reflect) such Person as a Collection Account Bank and such deposit account as a Collection Account under this Agreement. 8.15. FISCAL YEAR. Neither the Borrower nor any of its consolidated Subsidiaries shall change its Fiscal Year for accounting or tax purposes from a period consisting of the 12-month period ending on December 31 of each calendar year. 8.16. PAYMENT OF PIK DIVIDEND NOTES. The Borrower shall not make any payment in respect of principal of the PIK Dividend Notes prior to the maturity thereof, whether or not permitted by the PIK Dividend Note Agreement or otherwise. ARTICLE IX FINANCIAL COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent thereto: 9.01. CONSOLIDATED CASH FLOW. Consolidated Cash Flow, as determined as of each date set out below for the 12-month period ending on such date, shall not be less than the amount set out below opposite such date: 60 DATE MINIMUM AMOUNT ---- -------------- 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 $10,000,000 September 30, 1998 $10,000,000 December 31, 1998 $10,000,000 9.02. CONSOLIDATED INTEREST COVERAGE RATIO. The Consolidated Interest Coverage Ratio, as determined as of each date set out below for the 12-month period ending on such date, shall not be less than the amount set out below opposite such date: DATE MINIMUM RATIO ---- ------------- 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 2.75 to 1 March 31, 1998 3.00 to 1 June 30, 1998 3.00 to 1 September 30, 1998 3.00 to 1 December 31, 1998 3.00 to 1 9.03. CONSOLIDATED TOTAL FUNDED INDEBTEDNESS COVERAGE RATIO. The Consolidated Total Funded Indebtedness Coverage Ratio, as determined as of each date set out below for the 12-month period ending on such date, shall not be greater than the ratio set out below opposite such date: DATE MAXIMUM RATIO ---- ------------- June 30, 1996 4.5 to 1 September 30, 1996 4.5 to 1 December 31, 1996 3.5 to 1 March 31, 1997 3.5 to 1 June 30, 1997 3.5 to 1 September 30, 1997 3.5 to 1 December 31, 1997 3.5 to 1 March 31, 1998 3.5 to 1 June 30, 1998 3.5 to 1 September 30, 1998 3.5 to 1 December 31, 1998 3.5 to 1 61 ARTICLE X EVENTS OF DEFAULT; RIGHTS AND REMEDIES 10.01. EVENTS OF DEFAULT. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Borrower shall fail to pay when due any of the Obligations. (b) BREACH OF CERTAIN COVENANTS. The Borrower shall fail duly and punctually to perform or observe any agreement, covenant or obligation binding on such Person under SECTIONS 6.07, 7.01, and 7.06, ARTICLE VIII or ARTICLE IX. (c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty made or deemed made by the Borrower to the Lender herein or by the Borrower or any of its Subsidiaries in any of the other Loan Documents or in any statement or certificate at any time given by any such Person pursuant to any of the Loan Documents shall be false or misleading in any material respect on the date as of which made (or deemed made). (d) OTHER DEFAULTS. The Borrower shall default in the performance of or compliance with any term contained in this Agreement (other than as covered by PARAGRAPHS (a), (b) or (c) of this SECTION 10.01) or any default or event of default shall occur under any of the other Loan Documents, and such default or event of default shall continue for fifteen (15) days after the Borrower has knowledge of the default or, if earlier, receipt by the Borrower of a notice of the default from the Lender. (e) DEFAULT AS TO OTHER INDEBTEDNESS; OPERATING LEASES; OTHER AGREEMENTS. The Borrower or any of its Subsidiaries shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness (other than an Obligation) having a principal amount in excess of $100,000; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness; or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by the Borrower or any of its Subsidiaries (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or any "Event of Default" under (and as defined in) the RCL Loan Agreement, the Opco Credit Agreement or the PIK Dividend Note Agreement has occurred and is continuing. 62 (f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) An involuntary case shall be commenced against the Borrower or any of its Subsidiaries and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of its Subsidiaries in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law; or the board of directors of the Borrower or any of its Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any of its Subsidiaries or over all or a substantial part of the Property of the Borrower or any of its Subsidiaries shall be entered; or an interim receiver, trustee or other custodian of the Borrower or any of its Subsidiaries or of all or a substantial part of the Property of the Borrower or any of its Subsidiaries shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the Property of the Borrower or any of its Subsidiaries shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days after entry, appointment or issuance; or the board of directors of the Borrower or any of its Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Borrower or any of its Subsidiaries of the Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its Property; or the Borrower or any of its Subsidiaries of the Borrower shall make any assignment for the benefit of creditors or shall be unable or fail, or admit in writing its inability, to pay its debts as such debts become due. (h) JUDGMENTS AND ATTACHMENTS. Any money judgment (other than a money judgment covered by insurance as to which the insurance company has acknowledged coverage), writ or warrant of attachment, or similar process against the Borrower or any of its Subsidiaries of the Borrower or any of their respective assets 63 involving in any case an amount in excess of $500,000 is entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale thereunder. (i) DISSOLUTION. Any order, judgment or decree shall be entered against the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or the Borrower or any of its Subsidiaries shall otherwise dissolve or cease to exist except as specifically permitted by this Agreement. (j) LOAN DOCUMENTS; FAILURE OF SECURITY. At any time, for any reason, (i) any Loan Document ceases to be in full force and effect or the Borrower or any of its Subsidiaries party thereto seeks to repudiate its obligations thereunder and the Liens intended to be created thereby are, or the Borrower or any such Subsidiary seeks to render such Liens, invalid and unperfected, or (ii) Liens in favor of the Lender contemplated by the Loan Documents shall, at any time, for any reason, be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated by this Agreement or the Loan Documents. (k) TERMINATION EVENT. Any Termination Event occurs which the Lender believes could reasonably be expected to subject either the Borrower or any ERISA Affiliate to liability in excess of $250,000. (l) WAIVER APPLICATION. The plan administrator of any Benefit Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Internal Revenue Code and the Lender believes that the substantial business hardship upon which the application for the waiver is based could subject either the Borrower or any ERISA Affiliate to liability in excess of $250,000. (m) SUSPENSIONS, DEBARMENT. Any suspension or debarment with respect to Government Contracts is imposed on the Borrower, any of its Subsidiaries or any of their respective directors, officers, employees, consultants or agents. (n) MATERIAL ADVERSE CHANGE. An event shall exist which has a Material Adverse Effect. An Event of Default shall be deemed "continuing" until cured or waived in writing in accordance with SECTION 11.05. 10.02. RIGHTS AND REMEDIES. (a) ACCELERATION AND TERMINATION. Upon the occurrence of any Event of Default described in SECTIONS 10.01(f) or 10.01(g), the unpaid principal amount of, and any and all accrued 64 interest on, the Obligations and all accrued fees shall automatically become immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower; and upon the occurrence and during the continuance of any other Event of Default, the Lender may, by written notice to the Borrower, declare the unpaid principal amount of and any and all accrued and unpaid interest on the Obligations to be, and the same shall thereupon be, immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower. (b) DEFAULT RATE OF INTEREST. In addition to any other remedies available to the Lender after the occurrence of an Event of Default, the Lender shall be entitled to receive interest on the Obligations at the default rate in accordance with SECTION 2.02(c). (c) ENFORCEMENT. The Borrower acknowledges that in the event the Borrower or any of its Subsidiaries fails to perform, observe or discharge any of their respective obligations or liabilities under this Agreement or any other Loan Document, any remedy of law may prove to be inadequate relief to the Lender; therefore, the Borrower agrees that the Lender shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. ARTICLE XI MISCELLANEOUS 11.01. EXPENSES. The Borrower agrees upon demand to pay, or reimburse the Lender for, all of the Lender's reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of Sidley & Austin, local and foreign legal counsel, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents) incurred by the Lender in connection with (a) the preparation, negotiation and execution of this Agreement and the Loan Documents and any amendments, consents, waivers, assignments, restatements, or supplements to any of the same; (b) the Lender's periodic audits of the Borrower and its Subsidiaries after the Initial Closing Date; (c) the protection of the Liens under the Loan Documents after the Initial Closing Date (including, without limitation, any reasonable fees and expenses for local counsel in various jurisdictions); (d) the ongoing 65 administration of this Agreement and the Term Loans, including consultation with attorneys in connection therewith and with respect to the Lender's rights and responsibilities under this Agreement and the other Loan Documents; (e) the protection, collection or enforcement of any of the Obligations or Loan Documents or any security therefor or exercising or enforcing any other right or remedy available to the Lender under the Loan Documents; (f) the commencement, defense or intervention in any court proceeding relating in any way to the Obligations, the Property, the Borrower, any of its Subsidiaries, this Agreement or any of the other Transaction Documents; (g) the response to, and preparation for, any subpoena or request for document production with which the Lender is served or deposition or other proceeding in which the Lender is called to testify, in each case, relating in any way to the Obligations, the Property, the Borrower, any of its Subsidiaries, this Agreement or any of the other Transaction Documents; (h) in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; (i) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in CLAUSES (e) through (h) above. 11.02. INDEMNITY. The Borrower further agrees to defend, protect, indemnify, and hold harmless the Lender and each of its officers, directors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in ARTICLE IV) (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses (other than loss of profits), damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (excluding any taxes and including, without limitation, the fees and disbursements of counsel or consulting firms for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of (a) this Agreement or the other Loan Documents, or any act, event or transaction related or attendant thereto or to the Purchase, the Recoil Acquisition, the making of the Term Loans, the management of the Term Loans, the use or intended use of the proceeds of the Term Loans, or any of the other transactions contemplated by the Transaction Documents, or (b) any Liabilities and Costs under Environmental Laws arising from or in connection with the past, present or future operations of the Borrower, its Subsidiaries or any of their respective predecessors in interest, or, the past, present or future environmental condition of any Property, the presence of asbestos-containing materials at any Property or the Release or threatened Release of any Contaminant (collectively, the "Indemnified Matters"); PROVIDED, HOWEVER, that the Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters to the extent caused by or resulting from 66 the willful misconduct or gross negligence of the Indemnitee (or any other Indemnitee whose willful misconduct or grossly negligent acts were authorized by the Indemnitee claiming indemnification hereunder), as determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. 11.03. CHANGE IN ACCOUNTING PRINCIPLES. If any change in the accounting principles used in the preparation of the most recent financial statements referred to in SECTION 6.01 are hereafter required or permitted by the rules, regulations, pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and are adopted by the Borrower with the agreement of its independent certified public accountants and such changes result in a change in the method of calculation of any of the covenants, standards or terms found in ARTICLE VIII and ARTICLE IX, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating compliance with such covenants, standards and terms by the Borrower shall be the same after such changes as if such changes had not been made; PROVIDED, HOWEVER, that no change in GAAP that would affect the method of calculation of any of the covenants, standards or terms shall be given effect in such calculations until such provisions are amended, in a manner satisfactory to the Lender and the Borrower, to so reflect such change in accounting principles. 11.04. SETOFF. In addition to any Liens granted under the Loan Documents and any rights now or hereafter granted under applicable law, upon the occurrence and during the continuance of any Event of Default, the Lender is hereby authorized by the Borrower at any time or from time to time, without notice to any Person (any such notice being hereby expressly waived) to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured (but not including trust accounts)) and any other Indebtedness at any time held or owing by the Lender to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower to the Lender, including, but not limited to, the Term Loans and all claims of any nature or description arising out of or in connection with this Agreement, irrespective of whether or not (a) the Lender shall have made any demand hereunder or (b) the Lender shall have declared the principal of and interest on the Term Loans and other amounts due hereunder to be due and payable as permitted by ARTICLE X and even though such Obligations may be contingent or unmatured. 67 11.05. AMENDMENTS AND WAIVERS. Unless otherwise provided in this Agreement, no amendment or modification of any provision of this Agreement shall be effective without the written agreement of the Lender and the Borrower, and no termination or waiver of any provision of this Agreement, or consent to any departure by the Borrower therefrom, shall be effective without the written concurrence of the Lender, which the Lender shall have the right to grant or withhold in its sole discretion. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. 11.06. NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by courier service or United States certified mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex or four (4) Business Days after deposit in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this SECTION 11.06) shall be as follows: (a) If to the Lender, at: General Electric Capital Corporation 201 High Ridge Road Stamford, CT 06927 Attention: Murry Stegelmann Telecopier No. (203) 316-7894 with copies to: 201 High Ridge Road Stamford, CT 06927 Attention: Corporate Finance Group Department Counsel Telecopier No. (203) 316-7889 and Sidley & Austin 555 West Fifth Street Los Angeles, California 90013-1010 Attention: Edward D. Eddy, III, Esq. Telecopier No. (213) 896-6600 -68- (b) If to the Borrower, at: Kaynar Holdings Inc. 800 South State College Blvd. Fullerton, California 92634-3001 Attention: David A. Werner Telecopier No. (714) 680-3153 with a copy to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 Attn: C. James Levin, Esq. Telecopier No. (213) 669-6407 PROVIDED, that the Lender or the Borrower shall have the right to change any of the above-listed addresses by properly addressed and delivered notice to the other party. 11.07. SURVIVAL OF WARRANTIES AND AGREEMENTS. All representations and warranties made herein and all obligations of the Borrower in respect of taxes, indemnification and expense reimbursement shall survive the execution and delivery of this Agreement and the other Loan Documents, the making and repayment of the Term Loans and the termination of this Agreement and shall not be limited in any way by the passage of time or occurrence of any event and shall expressly cover time periods when the Lender may have come into possession or control of any of the Borrower's or its Subsidiaries' Property. 11.08. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Lender in the exercise of any power, right or privilege under any of the Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under the Loan Documents are cumulative to and not exclusive of any rights or remedies otherwise available. 11.09. MARSHALLING; PAYMENTS SET ASIDE. The Lender shall be under no obligation to marshall any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations. To the extent that the Borrower makes a payment or payments to the Lender or the Lender receives payment from the proceeds of the Collateral or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, -69- right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 11.10. SEVERABILITY. In case any provision in or obligation under this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 11.11. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substantive effect. 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 11.13. LIMITATION OF LIABILITY. No claim may be made by the Borrower or the Lender or any other Person against the Borrower, the Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and the Borrower and the Lender hereby waive, release and agree not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 11.14. SUCCESSORS AND ASSIGNS. This Agreement and the other Loan Documents shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Lender. The Lender may assign all or any part of its rights and obligations under this Agreement and the other Loan Documents to any Person upon thirty (30) days' prior written notice to (but without the consent of) the Borrower, it being agreed and understood that the Lender's right to assign its interests under this Agreement and the other Loan Documents shall be independent of any right of assignment in favor of the Lender with respect to any other agreement, document or instrument to which it is a party. The rights hereunder of the Borrower, or any interest therein, may not be assigned without the written consent of the Lender. 11.15. CERTAIN CONSENTS AND WAIVERS OF THE BORROWER. (a) PERSONAL JURISDICTION. (i) THE LENDER AND THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY CALIFORNIA -70- STATE COURT OR FEDERAL COURT SITTING IN LOS ANGELES, CALIFORNIA, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE BORROWER IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION AS ITS AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. THE LENDER AND THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (ii) THE BORROWER AGREES THAT THE LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION WHICH IS NECESSARY OR DESIRABLE TO ENABLE THE LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE LENDER. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE LENDER. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE LENDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION. (b) SERVICE OF PROCESS. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR THE BORROWER'S NOTICE ADDRESS SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. (c) WAIVER OF JURY TRIAL. THE LENDER AND THE BORROWER IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. -71- 11.16. COUNTERPARTS; EFFECTIVENESS; INCONSISTENCIES. This Agreement and any amendments, waivers, consents, or supplements hereto may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective against the Borrower and the Lender as of the date when all of the conditions set forth in Section 4.01 have been satisfied or duly waived in accordance with Section 11.05 (the "Amendment and Restatement Effective Date"). Subject to the provisions of this Agreement (including, without limitation, the preliminary statements hereto), this Agreement and each of the other Loan Documents shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Agreement are actually inconsistent with the terms and conditions of any other Loan Document, this Agreement shall govern. 11.17. CONFIDENTIALITY. The Lender shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Borrower in accordance with the Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide offeree, transferee or participant in connection with the contemplated transfer or participation or as required or requested by any Governmental Authority or representative thereof or pursuant to legal process and shall require any such offeree, transferee or participant to agree (and require any of its offerees, transferees or participants to agree) to comply with this SECTION 11.17. In no event shall the Lender be obligated or required to return any materials furnished by the Borrower; PROVIDED, HOWEVER, that each offeree shall be required to agree that if it does not become a transferee or participant it shall return all materials furnished to it by the Borrower in connection with this Agreement. Any and all confidentiality agreements entered into between the Lender and the Borrower shall survive the execution of this Agreement. 11.18. NO NOVATION. This Agreement is an amendment and restatement of the Existing Credit Agreement. The parties hereto hereby acknowledge and agree that (a) the "Term Note" (as defined in the Existing Credit Agreement) is the same instrument as the Initial Term Note referred to in this Agreement and (b) this Agreement and the delivery of the Supplemental Term Note pursuant hereto are in no way intended to constitute a novation of the Existing Credit Agreement or the Initial Term Note or the outstanding principal amount of the Indebtedness evidenced by either of them. [THE FOLLOWING PAGE IS THE SIGNATURE PAGE] -72- 11.19. ENTIRE AGREEMENT. This Agreement, taken together with all of the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and all prior agreements and understandings, written and oral, relating to the subject matter hereof. IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. BORROWER: KAYNAR HOLDINGS INC. By /s/ D.A. Werner ---------------------------- Name: David A. Werner Title: Vice President LENDER: GENERAL ELECTRIC CAPITAL CORPORATION By /s/ P.C. Keenoy ---------------------------- Name: Peter C. Keenoy Title: Managing Director -73- EX-10.2(A) 6 EX 10.2(A) AMENDED AND RESTATED CREDIT AGREEMENT Exh. 10.2 [EXECUTION COPY] ================================================================================ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of August 12, 1996 between KAYNAR TECHNOLOGIES INC., as Borrower and GENERAL ELECTRIC CAPITAL CORPORATION, as Lender ================================================================================ -1- TABLE OF CONTENTS Section Page ------- ---- ARTICLE I DEFINITIONS 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . 2 1.02. Computation of Time Periods. . . . . . . . . . . . . . . . . . . 29 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . 30 1.04. References to this Agreement . . . . . . . . . . . . . . . . . . 30 1.05. Miscellaneous Terms. . . . . . . . . . . . . . . . . . . . . . . 30 1.06. Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE II AMOUNTS AND TERMS OF LOANS 2.01. Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.02. Revolving Credit Facility. . . . . . . . . . . . . . . . . . . . 32 2.03. Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . 34 2.04. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.06. Authorized Officers and Agents . . . . . . . . . . . . . . . . . 40 ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. Prepayments; Reductions in Commitments . . . . . . . . . . . . . 40 3.02. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3.03. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 3.04. Promise to Repay; Evidence of Indebtedness . . . . . . . . . . . 46 ARTICLE IV CONDITIONS TO LOANS 4.01. Conditions Precedent to Amendment and Restatement Effective Date Loans and Letters of Credit . . . . . . . . . . . 47 4.02. Conditions Precedent to All Subsequent Revolving Loans and Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01. Representations and Warranties . . . . . . . . . . . . . . . . . 51 -i- ARTICLE VI REPORTING COVENANTS 6.01. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 64 6.02. Operations Reports . . . . . . . . . . . . . . . . . . . . . . . 67 6.03. Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . 68 6.04. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . 69 6.05. Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 6.06. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 6.07. ERISA Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 70 6.08. Environmental Notices. . . . . . . . . . . . . . . . . . . . . . 72 6.09. Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 73 6.10. Government Contract Notices. . . . . . . . . . . . . . . . . . . 73 6.11. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 74 ARTICLE VII AFFIRMATIVE COVENANTS 7.01. Organizational Existence, Etc. . . . . . . . . . . . . . . . . . 74 7.02. Organizational Powers; Conduct of Business . . . . . . . . . . . 74 7.03. Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . 74 7.04. Payment of Taxes and Claims; Tax Consolidation . . . . . . . . . 75 7.05. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 7.06. Inspection of Property; Books and Records; Discussions. . . . . . . . . . . . . . . . . . . . . . . . . . . 76 7.07. Insurance and Condemnation Proceeds. . . . . . . . . . . . . . . 76 7.08. ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . 77 7.09. Foreign Employee Benefit Plan Compliance . . . . . . . . . . . . 77 7.10. Government Contract Compliance . . . . . . . . . . . . . . . . . 77 7.11. Maintenance of Property. . . . . . . . . . . . . . . . . . . . . 77 7.12. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . 77 7.13. Future Liens on Real Property. . . . . . . . . . . . . . . . . . 78 ARTICLE VIII NEGATIVE COVENANTS 8.01. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 78 8.02. Sales of Assets. . . . . . . . . . . . . . . . . . . . . . . . . 79 8.03. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 8.04. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 80 8.05. Accommodation Obligations. . . . . . . . . . . . . . . . . . . . 82 8.06. Restricted Junior Payments . . . . . . . . . . . . . . . . . . . 82 8.07. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . 83 8.08. Transactions with Shareholders and Affiliates. . . . . . . . . . 83 8.09. Restriction on Fundamental Changes . . . . . . . . . . . . . . . 84 8.10. Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . 84 8.11. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 8.12. Issuance of Capital Stock. . . . . . . . . . . . . . . . . . . . 85 8.13. Organizational Documents . . . . . . . . . . . . . . . . . . . . 85 8.14. Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 85 -ii- 8.15. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 86 8.16. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 86 ARTICLE IX FINANCIAL COVENANTS 9.01. Consolidated Cash Flow . . . . . . . . . . . . . . . . . . . . . 87 9.02. Consolidated Interest Coverage Ratio . . . . . . . . . . . . . . 87 9.03. Consolidated Total Funded Indebtedness Coverage Ratio. . . . . . 87 9.04. Net Working Capital to Senior Indebtedness Ratio . . . . . . . . 88 9.05. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . 88 ARTICLE X EVENTS OF DEFAULT; RIGHTS AND REMEDIES 10.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . 89 10.02. Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . 92 ARTICLE XI MISCELLANEOUS 11.01. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 11.02. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 11.03. Change in Accounting Principles . . . . . . . . . . . . . . . . 94 11.04. Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 11.05. Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . 95 11.06. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 11.07. Survival of Warranties and Agreements . . . . . . . . . . . . . 96 11.08. Failure or Indulgence Not Waiver; Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . 97 11.09. Marshalling; Payments Set Aside . . . . . . . . . . . . . . . . 97 11.10. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 97 11.11. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 11.12. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 97 11.13. Limitation of Liability . . . . . . . . . . . . . . . . . . . . 97 11.14. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 98 11.15. Certain Consents and Waivers of the Borrower. . . . . . . . . . 98 11.16. Counterparts; Effectiveness; Inconsistencies. . . . . . . . . . 99 11.17. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 100 11.18. No Novation . . . . . . . . . . . . . . . . . . . . . . . . . . 100 11.19. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 101 -iii- EXHIBITS -------- Exhibit A -- Form of Borrowing Base Certificate Exhibit B-1 -- Form of Charge Over Shares Exhibit B-2 -- Form of Supplement to Charge Over Shares Exhibit C -- Form of Collection Account Agreement Exhibit D-1 -- Form of Patent Security Agreement Exhibit D-2 -- Form of Supplemental Patent Security Agreement Exhibit D-3 -- Form of Supplement to Patent Security Agreements Exhibit E -- Form of Pledge Agreement Exhibit F -- Form of Notice of Borrowing Exhibit G-1 -- Form of Security Agreement Exhibit G-2 -- Form of Amendment and Supplement to Security Agreement Exhibit H-1 -- Form of Trademark Security Agreement Exhibit H-2 -- Form of Supplemental Trademark Security Agreement Exhibit H-3 -- Form of Amendment and Supplement to Trademark Security Agreements Exhibit I -- Form of Term Note Exhibit J -- Form of Revolving Credit Note Exhibit K -- Form of Officer's Certificate to Accompany Reports SCHEDULES --------- Schedule 1.01.1 -- Collection Accounts and Collection Account Banks Schedule 1.01.2 -- Permitted Existing Accommodation Obligations Schedule 1.01.3 -- Permitted Existing Indebtedness Schedule 1.01.4 -- Permitted Existing Liens Schedule 5.01-C -- Consents Schedule 5.01-D -- Authorized, Issued and Outstanding Capital Stock; Subsidiaries Schedule 5.01-O -- Pending Actions Schedule 5.01-T -- Environmental Matters Schedule 5.01-U -- ERISA Matters Schedule 5.01-W -- Labor Contracts Schedule 5.01-X -- Insurance Policies Schedule 5.01-Y -- Government Contract Matters -iv- AMENDED AND RESTATED CREDIT AGREEMENT This Amended and Restated Credit Agreement dated as of August 12, 1996 (as further amended, restated, supplemented or modified from time to time, the "Agreement") is entered into by and between Kaynar Technologies Inc., a Delaware corporation (the "Borrower"), and General Electric Capital Corporation, a New York corporation (the "Lender"). PRELIMINARY STATEMENTS WHEREAS, the Borrower and the Lender entered into the Credit Agreement dated as of January 3, 1994 (the "Original Credit Agreement"); WHEREAS, the Original Credit Agreement has been amended by the First Amendment dated as of December 15, 1994 (the "First Amendment"), the Second Amendment dated as of May 30, 1995, and the Third Amendment dated as of August 4, 1995 (the "Third Amendment" and, collectively, the "Original Amendments"; and the Original Credit Agreement, as amended by the Original Amendments, the "Existing Credit Agreement"); and WHEREAS, the Borrower and the Lender desire to amend and restate the Existing Credit Agreement in its entirety to give effect to the terms and provisions set forth in this Agreement, it being understood and agreed that (i) with respect to any date or time period occurring and ending prior to the Amendment and Restatement Effective Date (as defined below), the rights and obligations of the parties thereto shall be governed by the provisions of the Existing Credit Agreement (including, without limitation, the Exhibits and Schedules thereto) which for such purposes shall remain in full force and effect, (ii) with respect to any date or time period occurring or ending on or after the Amendment and Restatement Effective Date, the rights and obligations of the parties hereto shall be governed by this Agreement (including, without limitation, the Exhibits and Schedules hereto) and (iii) it is the intent of the Borrower and Lender that Lender shall remain a beneficiary under each Loan Document executed on or before the date hereof pursuant to which the Borrower granted a Lien to Lender in any of Borrower's Property and that all of the Obligations shall be secured by the Liens on the Property subject to such Loan Documents, as well as the Liens granted to Lender on all other Collateral on and after the date hereof. NOW, THEREFORE, in consideration of the premises, agreements, covenants, representations and warranties herein contained, and for good and valuable consideration, the receipt of which is hereby acknowledged, the Borrower and the Lender agree as follows: ARTICLE I DEFINITIONS 1.01. CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings, applicable both to the singular and the plural forms of the terms defined: "ACCOMMODATION OBLIGATION" means any Contractual Obligation, contingent or otherwise, of one Person with respect to any Indebtedness, obligation or liability of another, if the primary purpose or intent thereof by the Person incurring the Accommodation Obligation is to provide assurance to the obligee of such Indebtedness, obligation or liability of another that such Indebtedness, obligation or liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders thereof will be protected (in whole or in part) against loss in respect thereof including, without limitation, direct and indirect guarantees, endorsements (except for collection or deposit in the ordinary course of business), notes co- made or discounted, recourse agreements, take-or-pay agreements, keep-well agreements, agreements to purchase or repurchase such Indebtedness, obligation or liability or any security therefor or to provide funds for the payment or discharge thereof, agreements to maintain solvency, assets, level of income, or other financial condition, and agreements to make payment other than for value received. The amount of any Accommodation Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported; PROVIDED, that (i) if the liability of the Person extending such guaranty or support is limited with respect thereto to an amount less than the obligation guaranteed or supported, or is limited to recourse against a particular asset or assets of such Person, the amount of the corresponding Accommodation Obligation shall be limited (in the case of a guaranty or other support limited by amount) to such lesser amount or (in the case of a guaranty or other support limited by recourse to a particular asset or assets) to the higher of the Fair Market Value of such asset or assets at the date for determination of the amount of the Accommodation Obligation or the value at which such asset or assets would, in conformity with GAAP, be reflected on or valued for the purposes of preparing a consolidated balance sheet of such Person as at such determination date; and (ii) if any obligation is guaranteed or otherwise supported jointly and severally by a Person and others, then the amount of the liability of such Person with respect to such guaranty or other support to be included in the amount of such Person's Accommodation Obligation shall be the whole principal amount so guaranteed or otherwise supported. "ACCOUNTS" means all of the Borrower's and each of its Subsidiaries' respective present and future (i) accounts, (ii) contract rights, chattel paper, instruments, documents, deposit accounts (including, without limitation, the Collection Accounts of the Borrower and the "Collection Accounts" under (and as defined in) the RCL Loan Agreement), and other rights to payment 2 of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and whether or not earned by performance, (iii) any of the foregoing which are not evidenced by instruments or chattel paper, (iv) intercompany receivables, and any security documents executed in connection therewith, (v) proceeds of any letters of credit or insurance policies on which the Borrower or any of its Subsidiaries is named as beneficiary, (vi) claims against third parties for advances and other financial accommodations and any other obligations whatsoever owing to the Borrower or any of its Subsidiaries, (vii) rights in and to all security agreements, leases, guarantees, instruments, securities, documents of title and other contracts securing, evidencing, supporting or otherwise relating to any of the foregoing, together with all rights in any goods, merchandise or Inventory which any of the foregoing may represent, and (viii) rights in returned and repossessed goods, merchandise and Inventory which any of the same may represent, including, without limitation, any right of stoppage in transit. "ACCOUNT DEBTOR" means any person who is or who may become obligated to the Borrower under, with respect to, or on account of an Account or a General Intangible. "AFFILIATE" means any Person (other than Lender) which directly or indirectly owns or controls, on an aggregate basis, including all beneficial ownership and ownership or control as a trustee, guardian or other fiduciary, at least ten percent (10%) of the outstanding capital stock (or other ownership interests) having ordinary voting power to elect a majority of the board of directors or otherwise to direct or cause the direction of the management and policies (irrespective of whether, at the time, stock (or other ownership interest) of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) of the Borrower or any Subsidiary of the Borrower which is controlled by or is under common control with the Borrower or any stockholders (or other owners) of the Borrower, or any Subsidiary. For the purpose of this definition, "control" means the possession, directly or indirectly, of the power to direct or to cause the direction of management and policies, whether through the ownership of voting securities, by contract or otherwise. "AFS" means the Aerospace Fastening Systems Group of Microdot. "AFS PURCHASE AGREEMENT" means the Asset Purchase Agreement dated as of November 3, 1993 by and between the Borrower and Microdot, pursuant to which Microdot agrees to sell, and the Borrower agrees to purchase substantially all of the assets of AFS. "AGREEMENT" is defined in the preamble hereto. 3 "AMENDMENT AND RESTATEMENT EFFECTIVE DATE" is defined in SECTION 11.16. "BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C. Sections 101 ET SEQ.), as amended from time to time, and any successor statute. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Central District of California, Santa Ana Division. "BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) subject to Title IV of ERISA (i) in respect of which the Borrower or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA and (ii) which is not a Foreign Pension Plan or Foreign Employee Benefit Plan. "BORROWER" is defined in the preamble hereto. "BORROWING" means a borrowing consisting of Loans of the same type made on the same day. "BORROWING BASE" at any time means the lesser of (a) the Revolving Credit Commitment at that time and (b) an amount equal to 85% of Eligible Accounts LESS reserves as the Lender may deem necessary or appropriate in its reasonable credit judgment. "BORROWING BASE CERTIFICATE" means a certificate of the chief financial officer of the Company in substantially the form of EXHIBIT A attached hereto and made a part hereof and appropriately completed. "BUSINESS ACTIVITY REPORT" means (i) a Notice of Business Activities Report from the State of New Jersey Division of Taxation, or (ii) a Minnesota Business Activity Report from the Minnesota Department of Revenue. "BUSINESS DAY" means a day, in the applicable local time, which is not a Saturday or Sunday or a legal holiday and on which banks are not required or permitted by law or other governmental action to close in Los Angeles, California, Chicago, Illinois or New York, New York. "CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures (whether payable in cash or other Property or accrued as a liability (but without duplication)) during such period that, in conformity with GAAP, are required to be included in or reflected by the Parent's or any of its Subsidiaries' fixed asset accounts as reflected in any of their respective balance sheets; PROVIDED, HOWEVER, that Capital Expenditures shall include, whether or not such a designation would be in conformity with GAAP, (i) that portion of Capital Leases which is capitalized on the consolidated balance sheet of 4 the Parent and its Subsidiaries and (ii) expenditures for Equipment which is purchased simultaneously with the trade-in of existing Equipment owned by the Parent or any of its Subsidiaries, to the extent the gross purchase price of the purchased Equipment exceeds the book value of the Equipment being traded in at such time. "CAPITAL LEASE", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "CAPITAL STOCK", with respect to any Person, means any shares, capital stock, stock units or units in the capital of such Person, regardless of class or designation, and all warrants, options, purchase rights, conversion or exchange rights, voting rights, calls or claims of any character with respect thereto. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; and (ii) domestic and eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Corporation or Prime-1 (or better) by Moody's Investors Services, Inc.; PROVIDED, that the maturities of such Cash Equivalents shall not exceed one year. "CASH FLOW" means, for any Person for any period, the amounts for such period (taken as a single accounting period determined in conformity with GAAP) of such Person's (i) net income or loss determined on a first-in-first-out method of inventory accounting basis, PLUS (ii) depreciation and amortization expense, PLUS (iii) interest expense, PLUS (iv) foreign, federal and state income taxes, PLUS (v) state sales taxes arising in connection with the Purchase, to the extent included in the calculation of net income (or loss), PLUS (vi) extraordinary losses, PLUS (vii) Liabilities and Costs incurred in connection with any Remedial Action, to the extent included in the calculation of net income (or loss), PLUS (viii) Transaction Costs, MINUS (ix) extraordinary gains. "CHARGE OVER SHARES" means that certain Charge Over Shares dated January 3, 1994, in the form of EXHIBIT B-1 attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, pursuant to which the Borrower pledges and grants a security interest to the Lender in 65% of the issued and outstanding Capital Stock of Kaynar U.K. and related Property, as supplemented by the Supplement to Charge Over Shares of even date 5 herewith, in substantially the form of EXHIBIT B-2 attached hereto and made a part hereof, as the same may be further amended, restated, supplemented or modified from time to time. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601 ET SEQ., any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "CLAIM" means any claim or demand, by any Person, of whatsoever kind or nature for any alleged Liabilities and Costs, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, Permit, ordinance or regulation, common law or otherwise. "COLLATERAL" means all Property and interests in Property now owned or hereafter acquired by the Borrower or any of its Subsidiaries upon which a Lien is granted under any of the Loan Documents. "COLLECTION ACCOUNT" means (i) each deposit account of the Borrower identified on SCHEDULE 1.01.1 (except for disbursement accounts into which no funds are deposited other than (a) proceeds of Revolving Loans or (b) transfers from other disbursement accounts into which only proceeds of Revolving Loans are deposited) and (ii) each deposit account of the Lender into which collections in respect of Accounts and other proceeds of Collateral are deposited. "COLLECTION ACCOUNT AGREEMENT" means, with respect to each Collection Account of the Borrower, an agreement in substantially the form of EXHIBIT C attached hereto and made a part hereof (or such other form as may be agreed to by the Borrower and the Lender), pursuant to which, among other things (i) the Collection Account Bank party thereto agrees to remit to the Lender or its designee in accordance with instructions contained therein, on a daily basis and by wire transfer or through an automated clearing house, all collected funds on deposit in the Collection Account(s) maintained by such Collection Account Bank (which agreement may not be revoked, and shall remain in effect, until sixty (60) days after such Collection Account Bank mails to the Lender and the Borrower a notice of termination), and (ii) the Borrower (or its applicable Subsidiary) and the Collection Account Bank confirm the Lender's perfected first priority liens in the Collection Accounts subject thereto. "COLLECTION ACCOUNT BANK" means each bank, trust company or other financial institution (i) identified on SCHEDULE 1.01.1 at which the Borrower or any of its Subsidiaries maintains one or more Collection Accounts or (ii) at which the Lender maintains one or more Collection Accounts. 6 "COMMISSION" means the Securities and Exchange Commission and any Person succeeding to the functions thereof. "COMMITMENTS" means the Term Loan Commitment and the Revolving Credit Commitment. "COMPLIANCE CERTIFICATE" is defined in SECTION 6.01(d). "CONCENTRATION ACCOUNT" means account no. 50199839 maintained by the Lender at Bankers Trust Company in New York, New York, ABA # 02100103-3. "CONSOLIDATED CASH FLOW" means, for any period, the Cash Flow for such period (taken as a single accounting period determined in conformity with GAAP) of the Borrower and its Subsidiaries determined on a consolidated basis. "CONSOLIDATED INTEREST CHARGES" means, for any period, the amount for such period (taken as a single accounting period determined in conformity with GAAP) of total interest expense, paid in cash (including the interest component of Capital Leases), of the Borrower and its Subsidiaries on a consolidated basis. "CONSOLIDATED INTEREST COVERAGE RATIO" means, for any period, the ratio of (i) Consolidated Cash Flow for such period to (ii) Consolidated Interest Charges for such period. "CONSOLIDATED TOTAL FUNDED INDEBTEDNESS" means, as of any date of determination, the amount (determined in conformity with GAAP) of (i) Letter of Credit Obligations and Indebtedness evidenced by the Notes, PLUS (ii) all other outstanding Indebtedness of the Borrower and its Subsidiaries, determined on a consolidated basis, which matures more than one year from the date such Indebtedness was incurred, created or assumed by any of such Persons, or matures within one year from such date but is renewable or extendible, at the option of the debtor, to a date more than one year from such date, PLUS (iii) all other outstanding Indebtedness of the Borrower and its Subsidiaries which arises under a revolving credit or similar agreement which obligates the lender or lenders to extend credit during a period of more than one year from such date, MINUS (iv) any Indebtedness owing by the Borrower or any of its Subsidiaries to any other of such Persons. "CONSOLIDATED TOTAL FUNDED INDEBTEDNESS COVERAGE RATIO" means, as of any date of determination, the ratio of (i) Consolidated Total Funded Indebtedness as such date to (ii) Consolidated Cash Flow for any period ending on such date. "CONTAMINANT" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, extremely hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos, PCBs, or any constituent of any such substance 7 or waste, and includes, but is not limited to, these terms as defined in any Environmental Law, as well as any other substance which is required by any Governmental Authority to be investigated, cleaned up, removed, treated or otherwise abated or which is regulated by such Governmental Authority. "CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "CUSTOMARY PERMITTED LIENS" means (i) Liens (other than Environmental Liens and Liens in favor of the PBGC) with respect to the payment of taxes, assessments or governmental charges in all cases which are not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (ii) statutory Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (iii) Liens (other than Environmental Liens and Liens in favor of the PBGC) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), surety and performance bonds; PROVIDED, that (A) all such Liens do not in the aggregate materially detract from the value of the Borrower's or any of it Subsidiaries' assets or Property or materially impair the use thereof in the operation of their respective businesses, and (B) all such Liens in connection with worker's compensation, unemployment insurance or other types of social security benefits deposits shall secure obligations in an aggregate principal amount not exceeding $50,000 at any time outstanding; and (iv) Liens arising with respect to zoning restrictions, easements, licenses, reservations, 8 covenants, rights-of-way, utility easements, building restrictions and other similar charges or encumbrances on the use of Real Property which do not interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries. "DESIGNATED PREPAYMENT" is defined in SECTION 3.01(b)(v). "DOD" means the United States Department of Defense, all constituent agencies thereof and any Person succeeding to the functions thereof. "DOL" means the United States Department of Labor, all constituent agencies thereof and any Person succeeding to the functions thereof. "DOLLARS" and "$" mean the lawful money of the United States. "ELIGIBLE ACCOUNTS" means those Accounts created by the Borrower in the ordinary course of business that arise out of the Borrower's sale of goods or rendition of services, that strictly comply with all of the Borrower's representations and warranties to the Lender with respect to Accounts, and that are and at all times shall continue to be acceptable to the Lender in all respects, PROVIDED, HOWEVER, that standards of eligibility may be fixed and revised from time to time by the Lender in its reasonable credit judgment. Without limiting the foregoing, the Lender does not CURRENTLY intend to treat the following as Eligible Accounts: (i) Accounts which the Account Debtor has failed to pay within ninety (90) days of invoice date; (ii) Accounts with selling terms of more than sixty (60) days; (iii) Accounts with respect to which the Account Debtor is an officer, employee, Affiliate or agent of the Borrower; (iv) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the Account Debtor may be conditional; (v) Accounts with respect to which the Account Debtor is not a resident of the United States, and which are not either (i) covered by credit insurance in form and amount, and by an insurer, satisfactory to the Lender, or (ii) supported by one or more letters of credit that are assignable and have been delivered to the Lender in form, substance, amount and of a tenor, and issued by a financial institution, acceptable to the Lender; 9 (vi) Accounts with respect to which the Account Debtor is the United States or any department, agency or instrumentality of the United States, any state of the United States, or any city, town, municipality, or division thereof unless such Account has been assigned to the Lender in accordance with (A) the Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 203 ET SEQ.) with respect to the United States or any department, agency or instrumentality of the United States or (B) any similar statute in effect in any state of the United States, or any city, town, municipality, or division thereof with respect to such state, city, town, municipality or division; (vii) Accounts with respect to which the Account Debtor is a subsidiary of, related to, has common shareholders, officers or directors with, or otherwise controls, is controlled by or is under common control with, the Borrower; (viii) Accounts with respect to which the Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower to the extent of the amount by which the Borrower is or may be liable to the Account Debtor for goods sold or services rendered by the Account Debtor; (ix) Accounts with respect to an Account Debtor whose total obligations to the Borrower exceed ten percent (10%) of the aggregate amount of all Eligible Accounts (other than an Account Debtor whose unsecured debt is rated as investment grade by Standard & Poor's Corporation and Moody's Investors Service) to the extent of the obligations of such Account Debtor in excess of such percentage; (x) Accounts which are subject to any unapplied debits, to the extent of such unapplied debits, and Accounts with respect to which the Account Debtor otherwise disputes liability or makes any claim with respect thereto, or is subject to any insolvency proceeding, or becomes insolvent, or goes out of business; (xi) Accounts the collection of which the Lender believes to be doubtful by reason of the Account Debtor's financial condition; and (xii) Accounts owed by an Account Debtor that has failed to pay fifty percent (50%) or more of the aggregate amount of its accounts owed to the Borrower within ninety (90) days of the date of the applicable invoices. "ENVIRONMENTAL LAW" means any Requirement of Law derived from or relating to federal, state and local laws or regulations relating to or addressing the environment, health or -10- safety, including but not limited to CERCLA, OSHA and RCRA, and any state or local equivalent thereof. "ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental Authority for any (i) liabilities under any Environmental Law, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. "ENVIRONMENTAL PROPERTY TRANSFER ACTS" means any applicable Requirement of Law that conditions, restricts, prohibits or requires any notification or disclosure triggered by the transfer, sale, lease or closure of any Property or deed or title for any Property for environmental reasons, including, but not limited to, any so-called "Environmental Cleanup Responsibility Acts" or "Responsible Transfer Acts". "EQUIPMENT" means all of the Borrower's and each of its Subsidiaries' respective present and future (i) equipment, including, without limitation, machinery, manufacturing, distribution, selling, data processing and office equipment, assembly systems, tools, molds, dies, fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft, aircraft engines, and trade fixtures, (ii) other tangible personal Property (other than the Borrower's and each such Subsidiary's respective Inventory), and (iii) any and all accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions therefor and replacements, products and proceeds thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "ERISA AFFILIATE" means (i) any Person which is a member of the same controlled group of Persons (within the meaning of Section 414(b) of the Internal Revenue Code) as the Borrower; (ii) a partnership or other trade or business (whether or not incorporated) which is under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with the Borrower; and (iii) a member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as the Borrower, any Person described in CLAUSE (i) above or any partnership or trade or business described in CLAUSE (ii) above. "EVENT OF DEFAULT" means any of the occurrences set forth in SECTION 10.01 after the expiration of any applicable grace period and the giving of any applicable notice, in each case as expressly provided in SECTION 10.01. "EXCESS CASH FLOW" means, for any Fiscal Year, an amount equal to (i) Cash Flow for such Fiscal Year, MINUS (ii) income taxes paid in cash during such Fiscal Year, MINUS (iii) -11- state sales taxes arising in connection with the Purchase which are paid in cash during such Fiscal Year, MINUS (iv) Capital Expenditures paid in cash during such Fiscal Year, MINUS (v) Transaction Costs paid in cash during such Fiscal Year, MINUS (vi) interest on permitted Indebtedness of the Parent and its Subsidiaries paid in cash during such Fiscal Year, including, without limitation, the interest component of all Capital Leases, MINUS (vii) for Fiscal Year 1994, $2,000,000, MINUS (viii) for Fiscal Year 1995 and each Fiscal Year thereafter, scheduled amortization of the principal portion of the Term Loan during such Fiscal Year, MINUS (ix) extraordinary cash losses incurred during such Fiscal Year, MINUS (x) Liabilities and Costs paid in cash during such Fiscal Year and incurred in connection with any Remedial Action, PLUS (xi) extraordinary cash gains for such Fiscal Year, PLUS (xii) any cash gain for such Fiscal Year with respect to any inventory or accounts purchased from MAL in connection with the Purchase, to the extent included in the calculation of net income (or loss), PLUS (or MINUS) (xiii) any decrease (or increase) in Net Working Capital since the last day of the then immediately preceding Fiscal Year, the amount for such Fiscal Year in each case determined in conformity with GAAP for the Parent, the Borrower and their respective Subsidiaries on a consolidated basis. "EXCESS PROCEEDS OF ISSUANCE OF STOCK OR INDEBTEDNESS" means net cash proceeds received by the Borrower or any of its Subsidiaries at any time after the Amendment and Restatement Effective Date on account of the issuance of (i) Capital Stock of the Borrower or any of its Subsidiaries (other than Capital Stock of a Subsidiary issued to the Borrower or to a Subsidiary of the Borrower) or (ii) Indebtedness (other than Indebtedness permitted under SECTION 8.01) of the Borrower or any of its Subsidiaries, in each case net of all transaction costs and underwriters' discounts with respect thereto. "EXISTING CREDIT AGREEMENT" is defined in the preliminary statements hereto. "EXPORT LICENSE" means any and all licenses, authorizations, approvals or applications therefor relating to exports, reexports, temporary exports, temporary imports and imports, as the case may be, granted by or pending before the United States Department of Commerce, the United States Department of State or any other United States Governmental Authority. "FACILITY SECURITY CLEARANCE" means an administrative determination by the applicable United States Government Authority that, from a security viewpoint, a facility is eligible for access to classified information of a certain category and all lower categories. "FAIR MARKET VALUE" means, with respect to any asset, the value of the consideration obtainable in a sale of such asset -12- in the open market, assuming a sale by a willing seller to a willing purchaser dealing at arm's length and arranged in an orderly manner over a reasonable period of time, each having reasonable knowledge of the nature and characteristics of such asset, neither being under any compulsion to act, determined (a) in good faith by the board of directors of the Borrower or (b) in an appraisal of such asset, PROVIDED, that such appraisal was performed relatively contemporaneously with such sale by an independent third party appraiser and the basic assumptions underlying such appraisal have not materially changed since the date thereof. "FIRST AMENDMENT" is defined in the preliminary statements hereto. "FIRST AMENDMENT EFFECTIVE DATE" means the Amendment Effective Date under (and as defined in) the First Amendment. "FISCAL YEAR" means the fiscal year of the Borrower, which shall be the 12-month period ending on December 31 of each calendar year. "FOREIGN EMPLOYEE BENEFIT PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of the Borrower, any of its Subsidiaries or any of its ERISA Affiliates and is not covered by ERISA pursuant to ERISA Section 4(b)(4). "FOREIGN PENSION PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA which (i) is maintained or contributed to for the benefit of employees of the Borrower, any of its Subsidiaries or any of its ERISA Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accounting Standards Board or in such other statements by such other entity as may be in general use by significant segments of the accounting profession as in effect on the date hereof (unless otherwise specified herein as in effect on another date or dates). "GENERAL INTANGIBLES" means all of the Borrower's and its Subsidiaries' respective present and future (i) general intangibles, (ii) rights, interests, choses in action, causes of action, claims and other intangible Property of every kind and nature (other than Accounts), (iii) corporate and other business records, (iv) loans, royalties, and other obligations receivable, (v) trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, patent applications, trade names, rights -13- of use of any name, labels, fictitious names, inventions, designs, trade secrets, computer programs, software, printouts and other computer materials, goodwill, registrations, copyrights, copyright applications, permits, licenses, franchises, customer lists, credit files, correspondence, and advertising materials, (vi) customer and supplier contracts, firm sale orders, rights under license and franchise agreements, rights under tax sharing agreements, and other contracts and contract rights, (vii) interests in partnerships and joint ventures, (viii) tax refunds and tax refund claims, (ix) right, title and interest under leases, subleases, licenses and concessions and other agreements relating to Property, (x) deposit accounts (general or special) with any bank or other financial institution (including, without limitation, the Collection Accounts and the "Collection Accounts" under (and as defined in) the RCL Loan Agreement), (xi) credits with and other claims against third parties (including carriers and shippers), (xii) rights to indemnification and with respect to support and keep-well agreements, (xiii) reversionary interests in pension and profit sharing plans and reversionary, beneficial and residual interests in trusts, (xiv) proceeds of insurance of which the Borrower or such Subsidiary is beneficiary, (xv) letters of credit, guarantees, Liens, security interests and other security held by or granted to the Borrower or such Subsidiary, (xvi) uncertificated securities, and (xvii) governmental certificates and certifications, including, without limitation, certificates and certifications relating to Government Contracts and Export Licenses, authorizations and approvals, issued to the Borrower or such Subsidiary. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, provincial, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GOVERNMENT CONTRACT" means any bid, quotation, proposal, contract, agreement, work authorization, lease, commitment or sale or purchase order of the Borrower or any of its Subsidiaries which is entered into with or submitted to any United States Governmental Authority or any agency, agent or instrumentality thereof, including, among other things, all contracts and work authorizations to supply goods and services to the United States Government. "INDEBTEDNESS", as applied to any Person, means, at any time, (i) all indebtedness, obligations or other liabilities of such Person (A) for borrowed money or evidenced by debt securities, debentures, acceptances, notes or other similar instruments, and any accrued interest, fees and charges relating thereto, (B) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any Securities of such Person or to pay dividends in respect of any stock, (C) with respect to letters of credit issued for such Person's account, -14- (D) to pay the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business, (E) in respect of Capital Leases, (F) which are Accommodation Obligations or (G) under warranties and indemnities; (ii) all indebtedness, obligations or other liabilities of such Person or others secured by a Lien on any property of such Person, whether or not such indebtedness, obligations or liabilities are assumed by such Person, all as of such time; (iii) all preferred stock subject (upon the occurrence of any contingency or otherwise) to mandatory redemption; and (iv) all contingent Contractual Obligations with respect to any of the foregoing. "INDEX RATE" means the higher of: (i) the highest prime or base rate of interest published in New York City by any of Morgan Guaranty Trust Company of New York, Citibank, N.A. and Chemical Bank (whether or not such rate is actually charged by any such bank); and (ii) the latest published rate for 90-day directly placed commercial paper (or the mid-point in the range of such rates, if more than one rate is published) as quoted either in the Federal Reserve Rate Report which customarily appears in the Friday issue of THE WALL STREET JOURNAL under "Money Rates" or in such other publication as the Lender may, from time to time hereafter, designate in writing. "INITIAL CLOSING DATE" means the date the Initial Term Loan was made. "INITIAL TERM LOAN" is defined in SECTION 2.01(a). "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, any successor statute and any regulations or guidance promulgated thereunder. "INVENTORY" means all of the Borrower's and each of its Subsidiaries' respective present and future (i) inventory, (ii) goods, merchandise and other personal Property furnished or to be furnished under any contract of service or intended for sale or lease, and all consigned goods and all other items which have previously constituted Equipment but are then currently being held for sale or lease in the ordinary course of the Borrower's or such Subsidiary's business, (iii) raw materials, work-in-process and finished goods, (iv) materials and supplies of any kind, nature or description used or consumed in the Borrower's or such Subsidiary's business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the Property described in CLAUSES (i) through (iii) above, (v) goods in which the Borrower or such Subsidiary has a joint or other interest or right of any kind -15- (including, without limitation, goods in which the Borrower or such Subsidiary has an interest or right as consignee), and (vi) goods which are returned to or repossessed by the Borrower or such Subsidiary; in each case whether in the possession of the Borrower, such Subsidiary, a bailee, a consignee, or any other Person for sale, storage, transit, processing, use or otherwise, and any and all documents for or relating to any of the foregoing. "INVESTMENT" means, with respect to any Person, (i) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities, issued by any other Person, (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business. The amount of any Investment shall be the original cost of such Investment, plus the cost of all additions thereto less the amount of any return of capital or principal to the extent such return is in cash with respect to such Investment without any adjustments for increases or decreases in value or write-ups, write-downs or write-offs with respect to such Investment. "IRS" means the Internal Revenue Service and any Person succeeding to the functions thereof. "ISSUING BANK" means any bank or financial institution which issues a Letter of Credit at the request of the Lender for the account of the Borrower pursuant to SECTION 2.03. "KAYNAR FEMIPARI" means K.T.I. Femipari KFT, a company organized under the laws of Hungary. "KAYNAR INTERNATIONAL" means Kaynar Technologies International Sales Corp., a company organized under the laws of Barbados. "KAYNAR U.K." means Kaynar Technologies Ltd., a company organized under the laws of England and Wales. "L/C DOCUMENTS" is defined in SECTION 2.03(g)(ii). "LENDER" is defined in the preamble hereto. "LETTER OF CREDIT" means any letter of credit issued by the Lender or an Issuing Bank pursuant to SECTION 2.03 or, to the extent outstanding on the Amendment and Restatement Effective Date, pursuant to SECTION 2.03 of the Existing Credit Agreement. -16- "LETTER OF CREDIT FEE" is defined in SECTION 2.05(a). "LETTER OF CREDIT OBLIGATIONS" means, at any particular time, the sum of (i) all outstanding Reimbursement Obligations at such time, PLUS (ii) the aggregate undrawn face amount of all outstanding Letters of Credit at such time. "LETTER OF CREDIT REIMBURSEMENT AGREEMENT" means, with respect to a Letter of Credit, such form of application therefor and form of reimbursement agreement therefor (whether in a single or several documents, taken together) as the Lender may employ in the ordinary course of business for its own account, with such modifications thereto as may be agreed upon by the Lender and the Borrower. "LIABILITIES AND COSTS" means all liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or Remedial Action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future. "LIFO RESERVE" means, as of any date of determination, that amount of accounting reserve taken by the Borrower to reduce the carrying value of Inventory from a first-in-first-out method to a last-in-first-out method of Inventory accounting, all in accordance with GAAP, as reflected in the books and records of the Borrower as of that date. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a Capital Lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor pursuant to Section 9-408 of the Uniform Commercial Code), naming the owner of such property as debtor, under the Uniform Commercial Code or other comparable law of any jurisdiction. "LOAN ACCOUNT" is defined in SECTION 3.04(b). "LOAN DOCUMENTS" means this Agreement (and for the applicable period, the Existing Credit Agreement), the Notes, the Security Agreement, the Patent Security Agreements, the Trademark Security Agreements, the Pledge Agreements and all other -17- instruments, agreements and written Contractual Obligations between the Borrower or any Subsidiary of the Borrower and the Lender delivered to the Lender pursuant to or in connection with the transactions contemplated hereby or by the Existing Credit Agreement. "LOANS" means the Term Loan and the Revolving Loans. "MAL" means Microdot Aerospace Limited, a company organized under the laws of the United Kingdom, and a wholly-owned Subsidiary of Microdot. "MAL PURCHASE AGREEMENT" means, to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the agreement by and between MAL, the Borrower and Kaynar U.K., pursuant to which the Borrower and Kaynar U.K. agree to purchase substantially all of the assets of MAL, which agreement shall be in form and substance satisfactory to the Lender. "MANAGEMENT DISCUSSION AND ANALYSIS" is defined in SECTION 6.02. "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (i) the financial condition, operations, assets or prospects of the Parent, the Borrower or any of their respective Subsidiaries, (ii) the ability of the Parent, the Borrower or any of their respective Subsidiaries to perform their respective obligations under the Transaction Documents, or (iii) the ability of the Lender to enforce the Loan Documents. "MICRODOT" means Microdot Inc., a Delaware corporation. "MICRODOT LOAN AGREEMENT" means that certain Loan and Security Agreement dated as of December 30, 1983 between Lender and Microdot, as amended, as amended and restated by that certain Amended and Restated Loan and Security Agreement dated as of April 1, 1989 between Lender and Microdot, as further amended by Amendment No. 1 thereto dated as of December 8, 1992. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by either the Borrower or any ERISA Affiliate. "NET CASH PROCEEDS OF SALE" means (i) proceeds received by the Borrower or any of its Subsidiaries in cash from the sale, assignment or other disposition of (but not the lease or license of) any Property, other than sales permitted under CLAUSES (ii) through (vi) of SECTION 8.02, net of (A) the costs of sale, assignment or other disposition, (B) any income, franchise, transfer or other tax liability arising from such transaction and (C) amounts required to be applied to the repayment of Indebtedness secured by a Lien permitted by SECTION 8.03 on the -18- asset disposed of, if such net proceeds arise from any individual sale, assignment or other disposition or from any group of related sales, assignments or other dispositions; and (ii) proceeds of insurance on account of the loss of, damage to or the occurrence of any other insured risk with respect to, any such Property or Properties, and payments of compensation for any such Property or Properties taken by condemnation or eminent domain, as provided in SECTION 7.07. "NET WORKING CAPITAL" means, as of any date of determination, the excess, if any, of (i) consolidated current assets, except cash and Cash Equivalents, over (ii) consolidated current liabilities, except current maturities of long-term debt as of such date, in each case for the Parent and its Subsidiaries on a consolidated basis. "NET WORKING CAPITAL TO SENIOR INDEBTEDNESS RATIO" means, as of any date of determination, the ratio of (i) Net Working Capital as of such date PLUS any LIFO Reserve as of such date actually deducted from inventory carrying value in the determination of Net Working Capital to (ii) the outstanding principal balance of the Term Loan and the Revolving Loans and the undrawn face amount of all Letters of Credit outstanding as of such date. "NOTE" means the Term Note or the Revolving Credit Note and "NOTES" means the Term Note and the Revolving Credit Note. "NOTICE OF BORROWING" means a notice substantially in the form of EXHIBIT F attached hereto and made a part hereof. "OBLIGATIONS" means all Loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender, or any Person entitled to indemnification pursuant to SECTION 11.02 of this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement, the Notes or any other Loan Document, whether or not for the payment of money, whether arising by reason of an extension of credit, issuance or amendment of a Letter of Credit or payment of any draft drawn thereunder, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest (including, without limitation, interest, whether or not allowed under Section 502 of the Bankruptcy Code or otherwise, at the then applicable rate (including the rate in effect from time to time under SECTION 2.04(c)) specified herein that accrues after the commencement of any proceeding under the Bankruptcy Code or other applicable bankruptcy, reorganization, insolvency, dissolution, liquidation or other debtor relief Requirement of Law), charges, expenses, fees, attorneys' fees and disbursements and any other -19- sum chargeable to the Borrower under this Agreement or any other Loan Document. "OFFICER'S CERTIFICATE" means a certificate executed on behalf of a corporation by (i) the chairman or vice-chairman of its board of directors (if an officer of such corporation) or (ii) its president, any of its vice-presidents, its chief financial officer, or its treasurer. "OPERATING LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which is not a Capital Lease. "ORGANIZATIONAL DOCUMENTS" means, with respect to any corporation, limited liability company, unlimited liability company or partnership (i) the articles/certificate of incorporation (or the equivalent organizational documents) of such corporation or limited liability company, (ii) the partnership agreement executed by the partners in the partnership, (iii) the certificate of registration and memorandum and articles of association of such unlimited liability company, (iv) the by-laws (or the equivalent governing documents) of the corporation, limited liability company, unlimited liability company or partnership, and (iv) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such corporation's Capital Stock or such limited liability company's, unlimited liability company's or partnership's equity or ownership interests. "ORIGINAL AMENDMENTS" is defined in the preliminary statements hereto. "ORIGINAL CREDIT AGREEMENT" is defined in the preliminary statements hereto. "OSHA" means the Occupational Safety and Health Act of 1970, any amendments thereto, any successor statutes and any regulations or guidance promulgated thereunder. "PARENT" means Kaynar Holdings Inc., a Delaware corporation. "PARENT AGREEMENTS" means (i) the Parent Loan Agreement and the agreements, documents and instruments executed in connection therewith and (ii) the PIK Dividend Note Agreement and the PIK Dividend Notes. "PARENT LOAN AGREEMENT" means that certain Term Loan Agreement dated as of January 3, 1994 by and between the Parent and the Lender, as amended and as amended and restated by that certain Amended and Restated Term Loan Agreement of even date herewith by and between the Parent and the Lender, as the same may be further amended, restated, supplemented or modified from time to time. -20- "PATENT SECURITY AGREEMENTS" means (i) that certain Patent Security Agreement dated as of January 3, 1994, in the form of EXHIBIT D-1 attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, pursuant to which the Borrower grants a security interest to the Lender in all of the Borrower's domestic patents, patent applications, patent licenses and related Property, (ii) that certain Supplemental Patent Security Agreement dated as of March 10, 1994, in the form of EXHIBIT D-2 attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, pursuant to which the Borrower grants a security interest to the Lender in all of the Borrower's foreign patents, patent applications, patent licenses and related Property and (iii) the Supplement to Patent Security Agreements of even date herewith in substantially the form of EXHIBIT D-3 attached hereto and made a part hereof, as any of the same may be further amended, restated, supplemented or modified from time to time. "PBGC" means the Pension Benefit Guaranty Corporation and any Person succeeding to the functions thereof. "PCBS" means polychlorinated biphenyls. "PERMITS" means any license, permit, variance, interim permit, permit application, approval, consent, certification, qualification or other authorization under any Requirement of Law applicable to the Borrower or any of its Subsidiaries or otherwise required by any Governmental Authority in connection with the business or operations of the Borrower or any of its Subsidiaries, including, without limitation, any license, permit, consent, certification, approval, authorization or qualification relating to any Government Contract. "PERMITTED EXISTING ACCOMMODATION OBLIGATIONS" means the Accommodation Obligations of the Borrower and its Subsidiaries identified as such on SCHEDULE 1.01.2. "PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the Borrower and its Subsidiaries identified as such on SCHEDULE 1.01.3. "PERMITTED EXISTING LIENS" means the Liens on the Property of the Borrower and its Subsidiaries identified as such on SCHEDULE 1.01.4. "PERSON" means any natural person, corporation, limited liability company, unlimited liability company, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority. "PERSONNEL SECURITY CLEARANCE" means an administrative determination by the applicable United States Governmental 21 Authority that an individual is eligible, from a security point of view, for access to classified information of the same or lower category as the level of the personnel clearance being granted. "PIK DIVIDEND NOTE AGREEMENT" means that certain PIK Dividend Note Agreement dated as of January 3, 1994 by and between the Parent and the Lender, as the initial holder of the preferred stock of the Parent, and the other Persons from time to time party thereto as "Holders" (as defined therein), as the same may be amended, restated, supplemented or modified from time to time. "PIK DIVIDEND NOTES" means the outstanding promissory notes issued by the Parent pursuant to the PIK Dividend Note Agreement. "PLAN" means an employee benefit plan defined in Section 3(3) of ERISA (i) in respect of which the Borrower or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA and (ii) which is not a Foreign Pension Plan or Foreign Employee Benefit Plan. "PLEDGE AGREEMENTS" means (i) the Charge Over Shares, and (ii) a pledge agreement of even date herewith, in substantially the form of EXHIBIT E attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, pursuant to which the Borrower pledges and grants a security interest to the Lender in all (or such lesser amount as is set forth therein) of the issued and outstanding Capital Stock of its Subsidiaries and related Property, as the same may be amended, restated, supplemented or modified from time to time. "POTENTIAL EVENT OF DEFAULT" means an event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "PROCESS AGENT" is defined in SECTION 11.15. "PROPERTY" means any Real Property or personal property, plant, building, facility, structure, underground storage tank or unit, Equipment, Inventory, General Intangible, Account, or other asset owned, leased or operated by the Borrower or its Subsidiaries, as applicable, (including any surface water thereon or adjacent thereto, and soil and groundwater thereunder). "PURCHASE" means, collectively, (i) the purchase by the Borrower from Microdot of substantially all of the assets of AFS pursuant to the AFS Purchase Agreement and (ii) to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the purchase by the Borrower and Kaynar U.K. of substantially all of the assets of MAL pursuant to the MAL Purchase Agreement. 22 "PURCHASE AGREEMENTS" means the AFS Purchase Agreement and, to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the MAL Purchase Agreement, and "PURCHASE AGREEMENT" means either of them. "PURCHASE DOCUMENTS" means the Purchase Agreements and all of the agreements, documents and instruments executed in connection with either of them. "RCL" means RCL Pty, an unlimited liability company organized under the laws of the State of Victoria, Australia. "RCL LOAN AGREEMENT" means that certain Term Loan Agreement of even date herewith by and between RCL and the Lender, as the same may be amended, restated, supplemented or modified from time to time. "RCL LOAN DOCUMENTS" means the RCL Loan Agreement and the agreements, documents and instruments executed in connection therewith. "RCRA" means the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 ET SEQ., any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "REAL PROPERTY" means all of the Borrower's and each of its Subsidiaries' respective present and future right, title and interest (including, without limitation, any leasehold estate) in (i) any plots, pieces or parcels of land, (ii) any improvements, buildings, structures and fixtures now or hereafter located or erected thereon or attached thereto of every nature whatsoever (the rights and interests described in CLAUSE (i) or (ii) above being the "Premises"), (iii) all easements, rights of way, gores of land or any lands occupied by streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and public places adjoining such land, and any other interests in property constituting appurtenances to the Premises, or which hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all hereditaments, gas, oil, minerals (with the right to extract, sever and remove such gas, oil and minerals), and easements, of every nature whatsoever, located in or on the Premises and (v) all other rights and privileges thereunto belonging or appertaining and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to or of any of the rights and interests described in CLAUSE (iii) or (iv) above. "RECOIL ACQUISITION" means, collectively, (i) the purchase by the Borrower of substantially all of the assets of Recoil U.S. pursuant to the Recoil U.S. Acquisition Agreement and (ii) the purchase by the Borrower, RCL and, if designated by the Borrower to acquire the shares of Recoil U.K., Kaynar U.K. of 23 substantially all of the assets of Recoil Australia pursuant to the Recoil Australia Acquisition Agreement and related documents. "RECOIL ACQUISITION AGREEMENTS" means the Recoil U.S. Acquisition Agreement and the Recoil Australia Acquisition Agreement, and "RECOIL ACQUISITION AGREEMENT" means either of them. "RECOIL ACQUISITION DOCUMENTS" means the Recoil Acquisition Agreements and all of the agreements, documents and instruments executed in connection with either of them. "RECOIL AUSTRALIA" means Recoil Pty Ltd, a company organized under the laws of the State of Victoria, Australia. "RECOIL AUSTRALIA ACQUISITION AGREEMENT" means that certain Australian Asset Sale Agreement dated August 9, 1996 among the Borrower, RCL, Recoil Australia and the other Vendors, pursuant to which the Vendors agree to sell, and the Borrower and RCL agree to purchase, substantially all of the assets of Recoil Australia. "RECOIL AUSTRALIA HOLDINGS" means Recoil Australia Holdings, Inc., a Delaware corporation. "RECOIL BELGIUM" means Recoil Marketing BVBA, a company organized under the laws of Belgium. "RECOIL HOLDINGS" means Recoil Holdings, Inc., a Delaware corporation. "RECOIL U.K." means Recoil (Europe) Limited., a company organized under the laws of England and Wales. "RECOIL U.S." means Recoil Inc., an Oregon corporation. "RECOIL U.S. ACQUISITION AGREEMENT" means that certain US Asset Sale Agreement dated August 9, 1996 among the Borrower, Recoil U.S., Recoil Australia and the other Vendors, pursuant to which Recoil U.S. agrees to sell, and the Borrower agrees to purchase, substantially all of the assets of Recoil U.S. "REIMBURSEMENT DATE" is defined in SECTION 2.03(d)(i)(A). "REIMBURSEMENT OBLIGATIONS" means the aggregate non-contingent reimbursement or repayment obligations of the Borrower with respect to amounts drawn under Letters of Credit. "RELEASE" means release, presence, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Property or Third Party Property, including the movement of Contaminants through or in 24 the air, soil, surface water, groundwater, Property or Third Party Property. "REMEDIAL ACTION" means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants; or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care. "REPORTABLE EVENT" means any of the events described in Section 4043 of ERISA and the regulations promulgated thereunder as in effect from time to time, excluding any event with respect to which the 30-day notice requirement is waived in the applicable regulations. "REQUIREMENTS OF LAW" means, as to any Person, the Organizational Documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, the Securities Act, the Securities Exchange Act, ERISA, the Fair Labor Standards Act and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit or environmental, labor, employment, occupational safety or health law, ordinance, rule, regulation or common law. "RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding, and (iii) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding. "REVOLVING CREDIT COMMITMENT" means the obligation of the Lender to make Revolving Loans and to issue, or cause to be issued, Letters of Credit pursuant to the terms and conditions of this Agreement (and, for the applicable period, the Existing Credit Agreement), in an aggregate amount (including all Letter of Credit Obligations and the principal amount of all Revolving Loans) which shall not exceed (i) from the Initial Closing Date through and including December 31, 1994, $6,500,000, (ii) from January 1, 1995 until the Third Amendment Effective Date, 25 $5,000,000 and (iii) from the Third Amendment Effective Date until the Revolving Credit Termination Date, $9,500,000. "REVOLVING CREDIT NOTE" is defined in SECTION 2.02(e)(i). "REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum of (i) the outstanding principal amount of the Revolving Loans at such time, PLUS (ii) the Letter of Credit Obligations at such time. "REVOLVING CREDIT TERMINATION DATE" is defined in SECTION 2.02(e)(iii). "REVOLVING LOAN" is defined in SECTION 2.02(a). "REVOLVING LOAN FUNDING DATE" means, with respect to any Revolving Loan, the date of the funding of such Revolving Loan. "SCHEDULED MATURITY DATE" means the fifth (5th) anniversary of the Initial Closing Date. "SECOND SUPPLEMENTAL TERM LOAN" is defined in SECTION 2.01(a). "SECURITIES" means any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include any evidence of the Obligations. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute. "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "SECURITY AGREEMENT" means that certain Security Agreement dated as of January 3, 1994, in the form of EXHIBIT G-1 attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, pursuant to which the Borrower grants a security interest to the Lender in substantially all of the Borrower's personal Property, as amended and supplemented by the Amendment and Supplement to Security Agreement of even date herewith in substantially the form of EXHIBIT G-2 attached hereto and made a part hereof, as the same may be further amended, restated, supplemented or modified from time to time. 26 "SOLVENT", when used with respect to any Person, means that at the time of determination: (i) the assets of such Person, at a fair valuation, are in excess of the total amount of its debts (including, without limitation, contingent liabilities); and (ii) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "SUBSIDIARY" of a Person means any corporation, limited liability company, unlimited liability company, general or limited partnership, or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions with respect to such entity are at the time directly or indirectly owned or controlled by such Person, one or more of the other subsidiaries of such Person or any combination thereof. "SUPPLEMENTAL TERM LOAN" is defined in SECTION 2.01(a). "TAXES" is defined in SECTION 3.03(a). "TERM LOAN" is defined in SECTION 2.01(a). "TERM LOAN COMMITMENT" means the obligation of the Lender to make its Term Loan pursuant to the terms and conditions of this Agreement (and, for the applicable period, the Existing Credit Agreement), which shall be in an aggregate principal amount of (a) prior to the First Amendment Effective Date, $15,800,000, (b) on and after the First Amendment Effective Date until the Third Amendment Effective Date, $17,800,000, (c) on and after the Third Amendment Effective Date until the Amendment and Restatement Effective Date, $19,425,000 and (d) on and after the Amendment and Restatement Effective Date, $22,425,000 as permanently reduced from time to time by payments or prepayments on the Term Loan made pursuant to SECTION 2.01(d) or SECTION 3.01. "TERM NOTE" is defined in SECTION 2.01(d). "TERMINATION EVENT" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Benefit Plan during a plan year in 27 which the Borrower or such ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the cessation of operations of a facility which results in the termination of employment of 20% of Benefit Plan participants who are employees of the Borrower or any ERISA Affiliate; (iii) the imposition of an obligation on the Borrower or any ERISA Affiliate under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC or any similar foreign Governmental Authority of proceedings to terminate a Benefit Plan or a Foreign Pension Plan; (v) any event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; (vi) a foreign Governmental Authority shall appoint or institute proceedings to appoint a trustee to administer any Foreign Pension Plan; or (vii) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan or a Foreign Pension Plan. "THIRD AMENDMENT" is defined in the preliminary statements hereto. "THIRD AMENDMENT EFFECTIVE DATE" has the meaning specified in the Third Amendment. "THIRD PARTY PROPERTY" means any real or personal property, plant, building, facility, structure, underground storage tank or unit or equipment owned, leased or operated by any Person other than the Borrower or its Subsidiaries (including, without limitation, any surface water thereon or adjacent thereto and soil and ground water thereunder). "THIRD SUPPLEMENTAL TERM LOAN" is defined in SECTION 2.01(a). "TRADEMARK SECURITY AGREEMENTS" means (i) that certain Trademark Security Agreement dated as of January 3, 1994, in the form of EXHIBIT H-1 attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, pursuant to which the Borrower grants a security interest to the Lender in all of the Borrower's domestic trademarks, service marks, tradenames, trademark applications, trademark licenses and related goodwill and other Property, (ii) that certain Supplemental Trademark Security Agreement dated as of March 10, 1994, in the form of EXHIBIT H-2 attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, pursuant to which the Borrower grants a security interest to the Lender in all of the Borrower's foreign trademarks, service marks, tradenames, trademark applications, trademark licenses and related goodwill and other Property and (iii) the Amendment and Supplement to Trademark Security Agreements of even date herewith in substantially the form of EXHIBIT H-3 attached hereto and made 28 a part hereof, as any of the same may be further amended, restated, supplemented or modified from time to time. "TRANSACTION COSTS" means the fees, costs and expenses payable by the Parent, the Borrower and their respective Subsidiaries in connection with the execution, delivery and performance of the Transaction Documents. "TRANSACTION DOCUMENTS" means (i) the Loan Documents, (ii) the Parent Agreements, (iii) the Purchase Documents, (iv) the RCL Loan Documents and (v) the Recoil Acquisition Documents. "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as enacted in the State of California, as it may be amended from time to time. "VENDORS" means Recoil Australia, Advent Limited, Australian Pacific Technology Limited, Western Pacific Investment Company Limited, Mr. Bruce Price, B. Price Holdings Pty Ltd and Lenarde Pty Ltd. 1.02. COMPUTATION OF TIME PERIODS. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. Any period determined hereunder by reference to a month or months or year or years shall end on the day in the relevant calendar month in the relevant year, if applicable, immediately preceding the date numerically corresponding to the first day of such period, PROVIDED, that if such period commences on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month during which such period is to end), such period shall, unless otherwise expressly required by the other provisions of this Agreement, end on the last day of the calendar month. 1.03. ACCOUNTING TERMS. Subject to SECTION 11.03, for purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. 1.04. REFERENCES TO THIS AGREEMENT. The words "hereof", "herein", "hereunder" and similar terms when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, subsection, clause, schedule and exhibit references herein are references to articles, sections, subsections, clauses, schedules and exhibits to this Agreement unless otherwise specified. 29 1.05. MISCELLANEOUS TERMS. All terms defined in this Agreement in the singular shall have comparable meanings when used in the plural, and VICE VERSA, unless otherwise specified. The term "including" is by way of example and not limitation. A reference to a statute, ordinance, code or other Requirement of Law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them. A reference to a Person includes a reference to the Person's executors, administrators, successors, substitutes (including Persons taking by novation) and assigns. 1.06. OTHER TERMS. All other terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings assigned to such terms by the Uniform Commercial Code to the extent the same are defined therein. ARTICLE II AMOUNTS AND TERMS OF LOANS 2.01. TERM LOAN. (a) AMOUNT OF TERM LOAN. The Lender (i) has made a term loan, in Dollars, to the Borrower on the Initial Closing Date in an aggregate amount equal to $15,800,000 (the "Initial Term Loan"), (ii) has made a term loan, in Dollars, to the Borrower on the First Amendment Effective Date, in an aggregate amount equal to $2,000,000 (the "Supplemental Term Loan"), (iii) has made a term loan, in Dollars, to the Borrower on the Third Amendment Effective Date, in an aggregate amount equal to $2,000,000 (the "Second Supplemental Term Loan") and (iv) subject to the terms and conditions set forth in this Agreement, hereby agrees to make a term loan, in Dollars, to the Borrower on the Amendment and Restatement Effective Date, in an aggregate amount equal to $4,000,000 (the "Third Supplemental Term Loan" and together with the Initial Term Loan, the Supplemental Term Loan and the Second Supplemental Term Loan, the "Term Loan"). After giving effect to the advance of the Third Supplemental Term Loan, the outstanding principal balance of the Term Loan will be $22,425,000. (b) NOTICE OF BORROWING. When the Borrower desires to borrow the Third Supplemental Term Loan under this SECTION 2.01, it shall deliver to the Lender a Notice of Borrowing, signed by it, on the Amendment and Restatement Effective Date. Such Notice of Borrowing shall specify (i) the amount of the proposed Borrowing, and (ii) instructions for the disbursement of the proceeds of the proposed Borrowing. In lieu of delivering such a Notice of Borrowing, the Borrower may give the Lender telephonic notice of the Borrowing of the Third Supplemental Term Loan on the Amendment and Restatement Effective Date, if it confirms such notice by delivery of the Notice of Borrowing to the Lender promptly, but in no event later than 5:00 p.m. (Chicago time) on the same day. Any Notice of Borrowing (or telephonic notice in 30 lieu thereof) given pursuant to this SECTION 2.01(b) shall be irrevocable. (c) MAKING OF THIRD SUPPLEMENTAL TERM LOAN. Promptly after receipt of a Notice of Borrowing under SECTION 2.01(b) (or telephonic notice in lieu thereof), the Lender shall deposit an amount equal to the amount requested by the Borrower to be made in respect of the Third Supplemental Term Loan under this SECTION 2.01(c), in immediately available funds, not later than 1:00 p.m. (Chicago time) on the Amendment and Restatement Effective Date. Subject to the fulfillment of the conditions precedent set forth in SECTION 4.01, the Lender shall make the proceeds of such amounts available to the Borrower by disbursing such proceeds on the Amendment and Restatement Effective Date to an account specified in a written notice from the Lender to the Borrower or in accordance with the Borrower's disbursement instructions set forth in such Notice of Borrowing. (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 shall execute and deliver to the Lender a third 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 Amendment and Restatement Effective Date, the Borrower shall make the following quarterly installments in respect of the outstanding principal balance of the Term Loan, payable on the dates and in the amounts set forth opposite such dates below: PAYMENT DATE PRINCIPAL INSTALLMENT ------------ --------------------- October 1, 1996 $ 200,000 January 1, 1997 $ 200,000 April 1, 1997 $ 300,000 July 1, 1997 $ 300,000 October 1, 1997 $ 300,000 January 1, 1998 $ 325,000 April 1, 1998 $ 625,000 July 1, 1998 $ 625,000 October 1, 1998 $ 625,000 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. 31 (ii) In addition to the scheduled payments on the Term Loan, the Borrower may make the voluntary prepayments described in SECTION 3.01(a)(i) and shall make the mandatory prepayments prescribed in SECTION 3.01(B), for credit against such scheduled payments on the Term Loan pursuant to SECTION 3.01(a)(i) or SECTION 3.01(b), as applicable. (e) USE OF PROCEEDS OF THIRD SUPPLEMENTAL TERM LOAN. The proceeds of the Third Supplemental Term Loan shall be used (i) to pay the "Purchase Price" under (and as defined in) the Recoil U.S. Acquisition Agreement, (ii) to pay (and enable Kaynar U.K. to pay) that portion of the "Purchase Price" under (and as defined in) the Recoil Australia Acquisition Agreement attributable to the Capital Stock of Recoil Belgium and Recoil U.K., (iii) to make capital contributions to Recoil Holdings and Recoil Australia Holdings, the proceeds of which will be contributed to the capital of RCL (and the Borrower shall cause RCL to use the proceeds of such capital contributions for the purposes set forth in Section 2.01(e) of the RCL Loan Agreement) and (iv) for working capital in the ordinary course of the Borrower's business and for other lawful general corporate purposes. 2.02. REVOLVING CREDIT FACILITY. (a) AVAILABILITY. The Lender has made from the Initial Closing Date until the Amendment and Restatement Effective Date and, subject to the terms and conditions set forth in this Agreement, hereby agrees to make from the Amendment and Restatement Effective Date until the Business Day immediately preceding the Revolving Credit Termination Date, revolving loans, in Dollars (each individually, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower from time to time during such period, PROVIDED, that the aggregate principal amount of Revolving Loans outstanding at any time shall not exceed the Borrowing Base at such time, MINUS the Letter of Credit Obligations at such time. Subject to the provisions of this Agreement (including, without limitation, SECTION 4.02), the Borrower may repay any outstanding Revolving Loan on any day which is a Business Day and any amounts so repaid may be reborrowed, up to the amount available under this SECTION 2.02(a) at the time of such Borrowing, until the Business Day immediately preceding the Revolving Credit Termination Date. (b) NOTICE OF BORROWING. When the Borrower desires to borrow under this SECTION 2.02, it shall deliver to the Lender a Notice of Borrowing, signed by it, (x) on the Amendment and Restatement Effective Date, in the case of a Borrowing of Revolving Loans on the Amendment and Restatement Effective Date and (y) no later than 1:00 p.m. (Chicago time) on the Business Day immediately preceding the proposed Revolving Loan Funding Date. Such Notice of Borrowing shall specify (i) the proposed Revolving Loan Funding Date (which shall be a Business Day), (ii) the amount of the proposed Borrowing, (iii) the Revolving Credit Obligations outstanding as of the date of the proposed Revolving Loan Funding Date (after giving effect to such proposed -33- Borrowing), and (iv) instructions for the disbursement of the proceeds of the proposed Borrowing. In lieu of delivering such a Notice of Borrowing, the Borrower may give the Lender telephonic notice of any proposed Borrowing by the time required under this SECTION 2.02(b), if it confirms such notice by delivery of the Notice of Borrowing to the Lender promptly, but in no event later than 5:00 p.m. (Chicago time) on the same day. Any Notice of Borrowing (or telephonic notice in lieu thereof) given pursuant to this SECTION 2.02(b) shall be irrevocable. (c) MAKING OF REVOLVING LOANS. Promptly after receipt of a Notice of Borrowing under SECTION 2.02(b) (or telephonic notice in lieu thereof), the Lender shall deposit an amount equal to the amount requested by the Borrower to be made as Revolving Loans, in immediately available funds, not later than 1:00 p.m. (Chicago time) on any Revolving Loan Funding Date applicable thereto. Subject to the fulfillment of the conditions precedent set forth in SECTION 4.01 or 4.02, as applicable, the Lender shall make the proceeds of such amounts available to the Borrower by disbursing such proceeds on such Revolving Loan Funding Date to an account specified in a written notice from the Lender to the Borrower or in accordance with the Borrower's disbursement instructions set forth in the applicable Notice of Borrowing. (d) USE OF PROCEEDS OF REVOLVING LOANS. The proceeds of Revolving Loans shall be used for working capital in the ordinary course of the business of the Borrower and for other lawful general corporate purposes. (e) REVOLVING CREDIT NOTE; REPAYMENT OF THE REVOLVING LOANS; REVOLVING CREDIT TERMINATION DATE. (i) On the Initial Closing Date, Borrower executed and delivered to the Lender a promissory note evidencing the Revolving Loans and the then existing Revolving Credit Commitment. On the Third Amendment Effective Date, the Borrower executed and delivered to the Lender a substitute promissory note in the form of EXHIBIT J evidencing the Revolving Loans and the Revolving Credit Commitment (the "Revolving Credit Note"). (ii) The Borrower may make the voluntary prepayments described in SECTION 3.01(a) and shall make the mandatory prepayments prescribed in SECTION 3.01(b), for credit against such scheduled payments on the Revolving Loans pursuant to SECTION 3.01(A) or SECTION 3.01(b), as applicable. (iii) The Revolving Credit Commitment shall terminate, and all outstanding Revolving Credit Obligations (together with any accrued and unpaid interest thereon) shall be paid in full (or, in the case of unmatured Letter of Credit Obligations, provision for payment in cash shall be made to the satisfaction of the Lender) on the day (the "Revolving Credit Termination Date") which is the earlier of (A) the Scheduled Maturity Date (or, if not a Business Day, the immediately preceding Business Day) and (B) the date of acceleration of the Obligations or -33- termination of the Revolving Credit Commitment pursuant hereto. The Lender's obligation to make Revolving Loans shall terminate on the Business Day immediately preceding the Revolving Credit Termination Date. 2.03. LETTERS OF CREDIT. Subject to the terms and conditions set forth in this Agreement, the Lender hereby agrees to issue, or cause the issuance of, for the account of the Borrower, one or more Letters of Credit, subject to the following provisions: (a) TYPES AND AMOUNTS. The Lender shall not have any obligation to issue, or cause the issuance of, any Letter of Credit at any time: (i) if the aggregate Letter of Credit Obligations with respect to such Issuing Bank, after giving effect to the issuance of the Letter of Credit requested hereunder, shall exceed any limit imposed by law or regulation upon the Lender; (ii) if (A) immediately after giving effect to the issuance of such Letter of Credit, the Letter of Credit Obligations at such time shall exceed $1,000,000, or the Revolving Credit Obligations at such time shall exceed the Borrowing Base at such time, or (B) one or more of the conditions precedent contained in SECTION 4.01 or 4.02, as applicable, shall not on such date be satisfied; (iii) which has an expiration date later than the earlier of (A) the date one (1) year after the date of issuance (without regard to any automatic renewal provisions thereof) and (B) the Business Day immediately preceding the Revolving Credit Termination Date; and (iv) which is in a currency other than Dollars. (b) CONDITIONS. In addition to being subject to the satisfaction of the conditions precedent contained in SECTIONS 4.01 and 4.02, as applicable, the obligation of the Lender to issue, amend or extend (or cause an Issuing Bank to issue, amend or extend) any Letter of Credit is subject to the satisfaction in full of the following conditions: (i) if the Lender so requests, the Borrower shall execute and deliver to the Lender a Letter of Credit Reimbursement Agreement and such other documents and materials as may be required pursuant to the terms thereof, in the form customarily required by Lender, PROVIDED, that it is hereby agreed and understood that, to the extent the terms of any such Letter of Credit Reimbursement Agreement is inconsistent with the terms -34- of this Agreement, the terms of this Agreement shall control; and (ii) the terms of the proposed Letter of Credit shall be satisfactory to the Issuing Bank in its sole discretion. (c) ISSUANCE OF LETTERS OF CREDIT. The Borrower shall request the issuance of Letters of Credit by giving the Lender written notice thereof not later than 1:00 p.m. (Chicago time) on the third (3rd) Business Day preceding the requested date for issuance thereof under this Agreement, or such shorter notice as may be acceptable to the Lender. Such notice shall be irrevocable unless and until such request is denied by the Lender and shall specify (i) the type of Letter of Credit being requested, (ii) the stated amount of the Letter of Credit requested, (iii) the effective date (which shall be a Business Day) of issuance of such Letter of Credit, (iv) the date on which such Letter of Credit is to expire (which shall be a Business Day and no later than the Business Day immediately preceding the Revolving Credit Termination Date), (v) the Person for whose benefit such Letter of Credit is to be issued, (vi) other relevant terms of such Letter of Credit, and (vii) the Revolving Credit Obligations and the Letter of Credit Obligations outstanding as of the date of (and after giving effect to) the proposed issuance of such Letter of Credit. (d) REIMBURSEMENT OBLIGATIONS; DUTIES OF ISSUING BANKS. (i) Notwithstanding any provisions to the contrary in any Letter of Credit Reimbursement Agreement: (A) the Borrower shall reimburse the Lender for amounts paid by the Lender pursuant to any sight draft, receipt or cable or written demand for payment presented to the Lender in connection with a Letter of Credit, in Dollars, no later than the date (the "Reimbursement Date") which is the earlier of (I) the time specified in the applicable Letter of Credit Reimbursement Agreement and (II) demand therefor by the Lender; and (B) all Reimbursement Obligations with respect to any Letter of Credit shall bear interest at the rate specified in SECTION 2.04(a) from the date of the relevant drawing under such Letter of Credit until the Reimbursement Date and thereafter at the rate specified in SECTION 2.04(c). (ii) No action taken or omitted in good faith by the Lender or any Issuing Bank under or in connection with any Letter of Credit shall put the Lender or such Issuing Bank under any resulting liability the Borrower. -35- (e) PAYMENT OF REIMBURSEMENT OBLIGATIONS. The Borrower unconditionally agrees to pay to the Lender (including without limitation by operation of SECTION 3.02(b)(iii)), in Dollars, the amount of all Reimbursement Obligations, interest and other amounts payable to the Lender under or in connection with the Letters of Credit when such amounts are due and payable, irrespective of any claim, setoff, defense or other right which the Borrower may have at any time against any Issuing Bank or any other Person. (f) ISSUING BANK CHARGES. The Borrower shall pay to the Lender the standard charges (of which the Borrower shall be advised in writing) assessed by the Lender, or the charges paid by the Lender to an Issuing Bank, in connection with the issuance, administration, amendment and payment or cancellation of Letters of Credit. (g) INDEMNIFICATION; EXONERATION. (i) In addition to all other amounts payable to the Lender, the Borrower hereby agrees to defend, indemnify, and save the Lender and each Issuing Bank harmless from and against any and all claims, demands, liabilities, penalties, damages, losses (other than loss of profits), costs, charges and expenses (including reasonable attorneys' fees but excluding taxes) which the Lender or such Issuing Bank may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit other than as a result of the gross negligence or willful misconduct of the Lender or such Issuing Bank, as determined by a court of competent jurisdiction, (B) the failure of the Lender or such Issuing Bank issuing a Letter of Credit to honor a drawing under such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future DE JURE or DE FACTO government or Governmental Authority or (C) the transfer, sale, delivery, surrender or endorsement of any bill of lading, warehouse receipt or other document at any time(s) held by the Lender or any Issuing Bank, or any of their respective correspondents or agents used by the Lender or such Issuing Bank in connection with the issuance of Letters of Credit. (ii) As between the Borrower on the one hand and the Lender and the Issuing Banks on the other hand, the Borrower assumes all risks of the acts and omissions of, or misuse of Letters of Credit by, the respective beneficiaries of the Letters of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of the Letter of Credit Reimbursement Agreements, the Issuing Banks and the Lender shall not be responsible for: (A) the form, validity, legality, sufficiency, accuracy, genuineness or legal effect of the documents submitted by any party in connection with the application for, issuance of, or the drawing under the Letters of Credit (collectively, the "L/C Documents"), even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the existence, character, quality, quantity, condition, packing or value of the property -36- purporting to be represented by any L/C Document; (C) the time, place, manner or order in which shipment is made; (D) partial or incomplete shipment or failure or omission to ship any or all of the property referred to in the applicable Letters of Credit or any L/C Documents pertaining thereto; (E) the character, adequacy, validity or genuineness of any insurance or solvency or responsibility of any insurer or any other risk connected with insurance; (F) any deviation from instructions, delay, default or fraud by the shipper or anyone else in connection with the property referred to in the applicable Letter of Credit or the L/C Documents pertaining thereto, or the shipping of such property; (G) the insolvency, responsibility or relationship to the property of any party issuing any L/C Document in connection with the property referred to in any Letter of Credit; (H) delay in arrival or failure to arrive of the property referred to in the applicable Letter of Credit or the L/C Documents pertaining thereto; (I) delay in giving or failure to give notice of arrival or any other notice; (J) any breach of contract between the shipper(s) or vendor(s) and the consignee(s) or buyer(s) of the property represented by any L/C Document; (K) failure of any instrument to bear any reference or adequate reference to the applicable Letter of Credit or failure of any L/C Document to accompany any instrument at negotiation, or failure of any Person to note the amount of any instrument on the reverse of any Letter of Credit or to send forward L/C Documents apart from instruments as required by the terms of the applicable Letter of Credit or to send forward L/C Documents apart from instruments as required by the terms of the Letter of Credit, each of which provisions, if contained in such Letter of Credit, it is agreed may be waived by the Lender or the applicable Issuing Bank; (L) the validity, legality or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (M) failure of the beneficiary of a Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (N) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (O) errors in interpretation of technical terms; (P) any loss or delay in the transmission or otherwise of any L/C Document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (Q) the misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (R) any consequences arising from causes beyond the control of the Lender or any Issuing Bank. 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), at a rate per annum equal to the sum of (i) the -37- Index Rate, as in effect from time to time as interest accrues, PLUS (ii) one and one-half percent (1.50%). (b) INTEREST PAYMENTS. (i) Interest accrued on each Loan shall be payable in arrears (A) with respect to interest accrued and unpaid as of the end of any calendar month, on the first day of the immediately succeeding calendar month, commencing on the first such day following the making of such Loan, (B) upon the payment or prepayment of such Loan in full, and (C) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of such Loan. (ii) Interest accrued on the principal balance of all other Obligations shall be payable in arrears (A) on the last day of each calendar month, commencing on the first such day following the incurrence of such Obligation, (B) upon repayment thereof in full or in part, and (C) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (c) DEFAULT INTEREST. Notwithstanding the rates of interest specified in SECTION 2.04(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 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 three and one-half percent (3.50%) per annum in excess of the Index Rate. (d) COMPUTATION OF INTEREST. Interest on all Obligations shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. In computing interest on any Loan, the date of the making of the Loan shall be included and the date of payment shall be excluded; PROVIDED, HOWEVER, that if a Loan is repaid in accordance with the terms hereof on the same day prior to 1:00 p.m. (Chicago time) on which it is made, no interest shall be paid on such Loan. 2.05. FEES. (a) LETTER OF CREDIT FEE. In addition to any charges paid pursuant to SECTION 2.03(f), the Borrower shall pay to the Lender, for its own account, a fee (the "Letter of Credit Fee") accruing at a rate equal to one percent (1.00%) per annum on the undrawn face amount of each outstanding Letter of Credit, payable monthly, in arrears, on the first day of each calendar month thereafter; PROVIDED, HOWEVER, that upon (i) the 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 SECTION 2.04(c), and for so long thereafter as such Event of Default shall be continuing, -38- the rate at which the Letter of Credit Fee shall accrue and be payable shall be equal to three percent (3.00%) per annum. (b) AMENDMENT AND RESTATEMENT FEE. In addition to the Letter of Credit Fee, the Borrower shall pay to the Lender on the Amendment and Restatement Effective Date, a fee of $200,000. (c) CALCULATION AND PAYMENT OF FEES. The Letter of Credit Fee shall be calculated on the basis of the actual number of days elapsed in a 360-day year. All fees payable under this SECTION 2.05 shall be payable in addition to, and not in lieu of, interest, compensation, expense reimbursements, indemnification and other Obligations. All such fees shall be payable to the Lender by wire transfer to an account specified in a written notice from the Lender to the Borrower in immediately available funds. All fees shall be fully earned and nonrefundable when paid. All fees specified or referred to in this Agreement due to the Lender, including, without limitation, those referred to in this SECTION 2.05, shall constitute Obligations and shall be secured by all of the Collateral. 2.06. AUTHORIZED OFFICERS AND AGENTS. On the Amendment and Restatement Effective Date and from time to time thereafter when necessary, the Borrower shall deliver to the Lender an Officer's Certificate setting forth the names of the officers, employees and agents authorized to request Loans and Letters of Credit and containing a specimen signature of each such officer, employee or agent. The officers, employees and agents so authorized shall also be authorized to act for the Borrower in respect of all other matters relating to the Loan Documents. The Lender shall be entitled to rely conclusively on such officer's or employee's authority to request such Loan or Letter of Credit until the Lender receives written notice to the contrary. The Lender shall have no duty to verify the authenticity of the signature appearing on any written Notice of Borrowing or any other document, and, with respect to an oral request for such a Loan or Letter of Credit the Lender shall have no duty to verify the identity of any person representing himself or herself as one of the officers, employees or agents authorized to make such request or otherwise to act on behalf of the Borrower. The Lender shall incur no liability to the Borrower or any other Person in acting upon any telephonic notice referred to above which the Lender believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of the Borrower. ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. PREPAYMENTS; REDUCTIONS IN COMMITMENTS. (a) VOLUNTARY PREPAYMENTS/REDUCTIONS. (i) The Borrower may, upon at least one (1) Business Day's prior written -39- notice to the Lender, at any time and from time to time, prepay any Loan, in whole or in part. Unless the aggregate outstanding principal balance of the Term Loan is to be prepaid in full, voluntary prepayments of the Term Loan shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount. Each voluntary prepayment shall be applied to the unpaid installments of the Term Loan in the forward order of maturity and shall permanently reduce the Term Loan Commitment of the Lender. Any notice of prepayment given to the Lender under this SECTION 3.01(a)(i) shall specify the date (which shall be a Business Day) of prepayment and the aggregate principal amount of the prepayment. When notice of prepayment is delivered as provided herein, the principal amount of the Loans specified in the notice shall become due and payable on the prepayment date specified in such notice. (ii) The Borrower, upon at least one (1) Business Day's prior written notice to the Lender, shall have the right, at any time and from time to time, to terminate in whole or permanently reduce in part the Revolving Credit Commitment, provided that the Borrower shall have made whatever payment in respect of the Revolving Loans which may be required to reduce the principal amount of all Revolving Credit Obligations then outstanding to an amount less than or equal to the Revolving Credit Commitment as reduced or terminated. Any partial reduction of the Revolving Credit Commitment shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount, and shall reduce the Revolving Credit Commitment of the Lender by such amount. Any notice of termination or reduction given to the Lender under this SECTION 3.01(a)(ii) shall specify the date (which shall be a Business Day) of such termination or reduction and, with respect to a partial reduction, the aggregate principal amount thereof. When notice of termination or reduction is delivered as provided herein, the principal amount of the Loans specified in the notice shall become due and payable on the date specified in such notice. (iii) The repayments and prepayments in respect of reductions and terminations described in this SECTION 3.01(a) may be made without premium or penalty. (b) MANDATORY PREPAYMENTS/REDUCTIONS. (i) Within two (2) Business Days after the Borrower's or any of its Subsidiaries' receipt of any Net Cash Proceeds of Sale, the Borrower shall make or cause to be made a mandatory prepayment of the Obligations in an amount equal to one hundred percent (100%) of such Net Cash Proceeds of Sale; PROVIDED, HOWEVER, that, with respect to any such proceeds received by or on behalf of RCL, Recoil Holdings or Recoil Australia Holdings, such proceeds shall be payable to the Lender hereunder only after payment in full of the "Obligations" under (and as defined in) the RCL Loan Agreement. -40- (ii) Within ninety (90) days after the end of each Fiscal Year, the Borrower shall calculate Excess Cash Flow for such Fiscal Year and shall make a mandatory prepayment in an amount equal to seventy-five percent (75%) of such Excess Cash Flow. The Borrower shall make an additional mandatory prepayment on the date on which annual reports are required to be delivered by SECTION 6.01(c) to the extent 75% of Excess Cash Flow determined in accordance with the annual reports exceeds 75% of the Borrower's preliminary calculation of Excess Cash Flow. (iii) Within two (2) Business Days after the Borrower's or any of its Subsidiaries' receipt of any Excess Proceeds of Issuance of Stock or Indebtedness, the Borrower shall make or cause to be made a mandatory prepayment in an amount equal to one hundred percent (100%) of such Excess Proceeds of Issuance of Stock or Indebtedness; PROVIDED, HOWEVER, that, with respect to any such proceeds received by or on behalf of RCL, Recoil Holdings or Recoil Australia Holdings, such proceeds shall be payable to the Lender hereunder only after payment in full of the "Obligations" under (and as defined in) the RCL Loan Agreement. (iv) Nothing in this SECTION 3.01(b) shall be construed to constitute the Lender's consent to any transaction referred to in CLAUSES (i) or (iii) above which is not expressly permitted by ARTICLE VIII. (v) Each mandatory prepayment required by CLAUSES (i), (ii) and (iii) of this SECTION 3.01(b) shall be referred to herein as a "Designated Prepayment". The Borrower shall give the Lender not less than one (1) Business Day's prior written notice or telephonic notice promptly confirmed in writing, of the date on which each such Designated Prepayment will be made (which date of prepayment shall be no later than the date on which such Designated Payment becomes due and payable pursuant to this SECTION 3.01(b)). (vi) Designated Prepayments shall be allocated and applied to the Obligations as follows: (A) FIRST, to the unpaid installments of the Term Loan in the inverse order of maturity (and the Term Loan Commitment shall be permanently reduced by the amount of such Designated Prepayment so applied); (B) SECOND, to the outstanding Revolving Loans (and the Revolving Loan Commitment shall be permanently reduced by the amount of such Designated Prepayment so applied); and (C) THIRD, to the Letter of Credit Obligations then due and payable (or, to the extent such Letter of Credit Obligations are contingent, deposited in an account maintained by the Lender to provide cash collateral in respect of such Letter of Credit Obligations). (vii) The Borrower shall, without notice or demand of any kind, immediately make such prepayments of the Revolving Loans to the extent necessary to reduce the aggregate outstanding -41- Revolving Credit Obligations to an amount less than or equal to the Borrowing Base at such time. (viii) All collections of Accounts included in the Collateral and other proceeds of Collateral shall be deposited in a Collection Account which is subject to a Collection Account Agreement. Each Collection Account Bank shall remit to the Concentration Account (or such other account as may be designated from time to time by the Lender) in accordance with instructions contained in the applicable Collection Account Agreement, on a daily basis and by wire transfer or through an automated clearing house, all collected funds on deposit in the Collection Account(s) maintained by such Collection Account Bank. Any of the foregoing collections received by the Borrower or any of its Subsidiaries and not so deposited, shall be deemed to have been received by such Person in trust for the Lender, and upon such Person's receipt thereof, such Person shall immediately transfer all such amounts into the Concentration Account in their original form (with any necessary endorsement). The Borrower acknowledges and agrees that each of the Collection Accounts shall be maintained for the purpose of creating a collection point for amounts representing proceeds of Accounts and other personal Property which are part of the Collateral. The Concentration Account and each of the Collection Accounts shall at all times be under the exclusive dominion and control of the Lender, and the Borrower shall have no right to withdraw or direct the payment of any funds on deposit in the Concentration Account or any Collection Account (except to the Lender or its designee as provided herein). All collections of Accounts and all proceeds of Collateral will be the sole property of the Lender and will be deemed received for application on the Obligations as follows: (A) FIRST, to the payment of outstanding fees, expenses and indemnities, (B) SECOND, to the outstanding Revolving Loans (and any amounts so applied may be reborrowed subject to the provisions of this Agreement, including, without limitation, SECTIONS 2.02 AND 4.02), (C) THIRD, to the outstanding Letter of Credit Obligations then due and payable, (D) FOURTH, to the payment of all other outstanding Obligations (other than unpaid installments of the Term Loan or Letter of Credit Obligations) then due and payable, (E) FIFTH, to the unpaid installments of the Term Loan in the inverse order of maturity (and the Term Loan Commitment shall be permanently reduced by the amount of such prepayment so applied), and (F) SIXTH, to the extent such Letter of Credit Obligations are contingent, such collections and proceeds shall be deposited in an account maintained by the Lender to provide cash collateral in respect of such Letter of Credit Obligations). The Lender shall apply the proceeds of any item deposited in the Concentration Account to payment of the Obligations on the day on which the bank at which the Concentration Account is maintained receives final settlement for the item. 3.02. PAYMENTS. (a) MANNER AND TIME OF PAYMENT. All payments and prepayments of principal of and interest on the -42- Loans, Reimbursement Obligations and other Obligations (including, without limitation, fees and expenses) which are payable to the Lender shall be made without condition or reservation of right, in immediately available funds, delivered to the Lender not later than 1:00 p.m. (Chicago time) on the date and at the place due, to such account of the Lender as it may designate; and funds received by the Lender, including, without limitation, funds in respect of any Revolving Loans to be made on that date, not later than 1:00 p.m. (Chicago time) on any given Business Day shall be credited against payment to be made that day and funds received by the Lender after that time shall be deemed to have been paid on the immediately following Business Day. All payments and prepayments of Obligations shall be made in Dollars, and the Borrower waives any right which it has under any Requirement of Law to repay the Obligations in a currency other than Dollars. (b) APPLICATION OF PAYMENTS. (i) Subject to the provisions of SECTIONS 3.01 AND 3.02(b)(ii), all payments of principal and interest in respect of outstanding Loans, all payments of fees and all other payments in respect of any other Obligations, shall be applied FIRST, to pay all Obligations then due and payable and SECOND, as the Borrower so designates. Unless otherwise designated by the Borrower, all principal payments in respect of Loans shall be applied FIRST, to the outstanding Revolving Loans, and SECOND, to the outstanding Term Loan. (ii) After the occurrence of an Event of Default and while the same is continuing, the Lender shall apply all payments in respect of any Obligations and all proceeds of Collateral in the following order: (A) FIRST, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Lender and the Issuing Banks; (B) SECOND, to pay principal of and interest on Letter of Credit Obligations (or, to the extent such Obligations are contingent and the Lender deems it appropriate in its sole discretion under the circumstances, deposited in an account maintained by the Lender to provide cash collateral in respect of such Obligations); (C) THIRD, to pay interest due in respect of the Loans; (D) FOURTH, to the payment or prepayment of principal outstanding on Loans in such order as the Lender may determine in its sole discretion; and -43- (E) FIFTH, to the payment of all other Obligations. (iii) The Lender, in its sole discretion subject only to the terms of this SECTION 3.02(b)(iii), may pay from the proceeds of Revolving Loans made to the Borrower hereunder, whether made following a request by the Borrower pursuant to SECTION 2.02 or a deemed request as provided in this SECTION 3.02(b)(iii), all amounts payable by the Borrower hereunder, including, without limitation, amounts payable with respect to payments of principal, interest, Reimbursement Obligations and fees and all reimbursements for expenses pursuant to SECTION 11.01. No Revolving Loan shall be made pursuant to this SECTION 3.02(b)(iii) for the purpose of paying fees or reimbursements for expenses unless and until the Lender has sent to the Borrower at least five (5) days prior to the making of the Revolving Loan a statement describing the fees and expenses. The Borrower hereby irrevocably authorizes the Lender to make Revolving Loans upon notice from the Lender as described in the following sentence for the purpose of paying principal, interest, Reimbursement Obligations and fees due from the Borrower, reimbursing expenses pursuant to SECTION 11.01 and paying any and all other amounts due and payable by the Borrower hereunder or under the Notes, and agrees that all such Revolving Loans so made shall be deemed to have been requested by it pursuant to SECTION 2.02 as of the date of the aforementioned notice. The Lender shall promptly notify the Borrower of the amount and Revolving Loan Funding Date of the proposed Borrowing and that such Borrowing is being requested on the Borrower's behalf pursuant to this SECTION 3.02(b)(iii). On the proposed Revolving Loan Funding Date, the Lender shall make the requested Loans in accordance with the procedures and subject to the conditions specified in SECTION 2.02. (c) PAYMENTS ON NON-BUSINESS DAYS. Whenever any payment to be made by the Borrower hereunder or under the Notes is stated to be due on a day which is not a Business Day, the payment shall instead be due on the immediately following Business Day, and any such extension of time shall be included in the computation of the payment of interest and fees hereunder. 3.03. TAXES. (a) PAYMENT OF TAXES. Any and all payments by the Borrower hereunder or under any Note or other document evidencing any Obligations shall be made, in accordance with SECTION 3.02, free and clear of and without reduction for any and all present or future taxes, levies, imposts, deductions, charges, withholdings, duties, and all stamp, transaction or documentary taxes, excise taxes, ad valorem taxes and other taxes imposed on the value of the Property, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, or otherwise with respect to, any of the Loan Documents or the Commitments and all other liabilities with respect thereto (including any related interest, penalties, fines and expenses in connection with any of them) -44- excluding taxes imposed on or measured by net income or overall gross receipts and capital and franchise taxes imposed on the Lender by (i) the United States, (ii) the Governmental Authority of any jurisdiction in which the Lender has an office or any political subdivision thereof or (iii) the Governmental Authority in which the Lender is organized, managed and controlled or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and duties being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder or under any such Note or document to the Lender (x) the sum payable to the Lender shall be increased as may be necessary so that after making all required withholding or deductions (including withholding or deductions applicable to additional sums payable under this SECTION 3.03) the Lender receives an amount equal to the sum it would have received had no such withholding or deductions been made, (y) the Borrower shall make such withholding or deductions, and (z) the Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) INDEMNIFICATION. The Borrower will indemnify the Lender against, and reimburse the Lender on demand for, the full amount of all Taxes (including, without limitation, any Taxes imposed by any Governmental Authority on amounts payable under this SECTION 3.03 and any additional income or franchise taxes resulting therefrom) incurred or paid by the Lender or any of its Affiliates and any liability (including penalties, additions to tax, interest, and out-of-pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or not such Taxes were lawfully payable. A certificate as to any additional amount payable to any Person under this SECTION 3.03 submitted by it to the Borrower shall, absent manifest error, be final, conclusive and binding upon all parties hereto. The Lender agrees, within a reasonable time after receiving a written request from the Borrower, to provide the Borrower with such certificates as are reasonably required, and take such other actions as are reasonably necessary to claim such exemptions as the Lender may be entitled to claim in respect of all or a portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this SECTION 3.03 in respect of any payments under this Agreement or under the Notes. (c) RECEIPTS. Within thirty (30) days after the date of any payment of Taxes by the Borrower, it will furnish to the Lender, at its address referred to in SECTION 11.06, the original or a certified copy of a receipt evidencing payment thereof. 3.04. PROMISE TO REPAY; EVIDENCE OF INDEBTEDNESS. (a) PROMISE TO REPAY. The Borrower hereby agrees to pay when due the principal amount of each Loan which is made to it, and further agrees to pay all unpaid interest accrued -45- thereon, in accordance with the terms of this Agreement and Notes. (b) LOAN ACCOUNT. The Lender shall maintain in accordance with its usual practice an account or accounts (a "Loan Account") evidencing the Indebtedness of the Borrower to the Lender resulting from each Loan owing to the Lender from time to time, including the amount of principal and interest payable and paid to the Lender from time to time hereunder and under the Notes. (c) ENTRIES BINDING. The entries made in the Loan Account shall be conclusive and binding for all purposes, absent manifest error. ARTICLE IV CONDITIONS TO LOANS 4.01. CONDITIONS PRECEDENT TO AMENDMENT AND RESTATEMENT EFFECTIVE DATE LOANS AND LETTERS OF CREDIT. The obligation of the Lender to make the Third Supplemental Term Loan and any Revolving Loan on the Amendment and Restatement Effective Date and to issue, or cause the issuance of, any Letter of Credit requested to be issued on the Amendment and Restatement Effective Date shall be subject to the satisfaction of all of the following conditions precedent: (a) DOCUMENTS. The Lender shall have received on or before the Amendment and Restatement Effective Date all of the following, each duly executed and acknowledged where appropriate and in form and substance satisfactory to the Lender: (i) this Agreement, together with all Schedules hereto which shall be in each case true, complete and correct in all material respects as of the Amendment and Restatement Effective Date; (ii) the Term Note; (iii) a Notice of Borrowing completed in accordance with the provisions of SECTION 2.01(b) and/or SECTION 2.02(b); (iv) amendments and/or supplements to each of the Charge Over Shares, Patent Security Agreements, Security Agreement and Trademark Security Agreements substantially in the forms of EXHIBITS B-2, D-3, G-2 and H-3, respectively; (v) a Pledge Agreement with respect to 100% of the Capital Stock of Recoil Holdings and Recoil Australia Holdings and 65% of the Capital Stock of Kaynar Femipari, Kaynar International and Recoil Belgium; -46- (vi) a collateral assignment with respect to all of the Borrower's rights under the Recoil Acquisition Documents; (vii) amendments (in recordable form) to the deeds of trust recorded against the Borrower's Placentia and Fullerton, California Properties; (viii) to the extent not previously delivered, Uniform Commercial Code financing statements and/or amendment statements for filing in jurisdictions in which any of the Collateral is located or deemed located; (ix) favorable legal opinions, each dated the Amendment and Restatement Effective Date, addressed to the Lender (or with respect to which the Lender has been issued a reliance letter) from the following counsel: (A) O'Melveny & Myers LLP, United States counsel to the Borrower, with respect to the Loan Documents, the Recoil Acquisition Documents and related matters; (B) Corrs Chambers Westgarth, Australian counsel to the Borrower, with respect to the Recoil Acquisition Documents and related matters; (C) Goffin & Forges, Belgian counsel to the Borrower, with respect to the transfer of Capital Stock of Recoil Belgium under the Recoil Australia Acquisition Agreement and related documents; (D) Herbert Smith, English counsel to the Borrower or, if designated by the Borrower to acquire the shares of Recoil U.K., Kaynar U.K., with respect to the transfer of Capital Stock of Recoil U.K. under the Recoil Australia Acquisition Agreement and related documents; (E) Goodwin, Procter & Hoar, United States counsel to Recoil U.S., with respect to the Recoil U.S. Acquisition Agreement and related matters; (F) Norton Smith Gledhill, Australian counsel to Recoil Australia and certain of the Vendors, with respect to the Recoil Acquisition Documents and related matters; and (G) Logie-Smith Lanyon, Australian counsel to certain of the Vendors, with respect to the Recoil Acquisition Documents and related matters; (x) evidence that the Borrower has directed its counsel to prepare and deliver to the Lender the respective -47- opinions described in SUBCLAUSES (A) through (D) of CLAUSE (ix) above and that Recoil U.S., Recoil Australia and the Vendors have directed their respective counsel to prepare and deliver to the Lender the respective opinions described in SUBCLAUSES (E) through (G) of CLAUSE (ix) above; (xi) a certificate signed by the chief financial officer of the Borrower certifying that all conditions precedent under this SECTION 4.01 have been met and no Potential Event of Default or Event of Default has occurred or is continuing; (xii) a solvency certificate for the Borrower and its Subsidiaries, duly executed by the chief financial officer or treasurer of such Person, dated the Amendment and Restatement Effective Date and giving effect to the Recoil Acquisition and the financing transactions contemplated under this Agreement, supported by such analyses, valuations, appraisals, reviews, projections and other documentation as the Lender deems appropriate; (xiii) the PRO FORMA financials referred to in SECTION 5.01(g); (xiv) documentation deemed adequate by the Lender showing the Borrower's and its Subsidiaries' compliance with any financial responsibility requirements of applicable Requirements of Law, including, without limitation, those contained in 40 C.F.R. Parts 264 and 265, Subps. H, and state law equivalents, and those promulgated pursuant to 42 U.S.C. Section 6991b(c)(6), and state equivalents; and (xv) such additional documentation as the Lender may reasonably request. (b) PERFECTION OF LIENS; TITLE INSURANCE. Evidence that all financing statements, mortgages and leasehold mortgages relating to the Collateral have been filed or recorded where necessary to record or perfect the Lender's security interest therein, title commitments, title endorsements and surveys requested by the Lender have been issued to the Lender, certificates representing Capital Stock included in the Collateral have been delivered to the Lender (with duly executed stock powers) and all title charges, recording fees and filing taxes have been paid. (c) NO LEGAL IMPEDIMENTS. 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 (i) enjoin, prohibit or restrain (A) the making of the Loans or issuance of Letters of Credit on the Amendment and Restatement Effective Date or (B) the -48- consummation of the Recoil Acquisition or (ii) impose or result in the imposition of a Material Adverse Effect. (d) NO DEFAULT. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the Loans or the issuance of a Letter of Credit on the Amendment and Restatement Effective Date. (e) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties contained in SECTION 5.01 and in any of the other Loan Documents shall be true and correct in all material respects on and as of the Amendment and Restatement Effective Date. (f) THE RECOIL ACQUISITION. (i) The Lender shall be satisfied in all material respects (A) with the terms, form and substance of the Recoil Acquisition and the Recoil Acquisition Documents, including, without limitation, the resolutions with respect to the Recoil Acquisition adopted by the respective boards of directors of the Borrower, RCL, Recoil Australia, Recoil U.S. and the other parties to the respective Recoil Acquisition Agreements, (B) that the parties to the Recoil Acquisition Agreements have complied with all applicable Requirements of Law in connection with the Recoil Acquisition, (C) that all conditions precedent to, and all consents necessary to permit, the Recoil Acquisition pursuant to the Recoil Acquisition Documents shall have been satisfied or delivered, or waived with the prior written consent of the Lender, (D) that all Liens encumbering the assets being purchased in the Recoil Acquisition have been terminated (other than Liens permitted by SECTION 8.03) and (E) that the Recoil Acquisition Documents have not been amended or modified without the prior written consent of the Lender and are in full force and effect. (ii) Substantially simultaneously with the consummation of the transactions contemplated by this Agreement, the Parent Loan Agreement and the RCL Loan Agreement, the Borrower shall have acquired substantially all of the assets of Recoil U.S. pursuant to the Recoil U.S. Acquisition Agreement, and the Borrower, RCL and, if designated by the Borrower to acquire the shares of Recoil U.K., Kaynar U.K. shall have acquired substantially all of the assets of Recoil Australia pursuant to the Recoil Australia Acquisition Agreement and related documents, in each case in compliance with all applicable Requirements of Law. (g) ORGANIZATIONAL DOCUMENTS. The Lender shall have received copies, certified to its satisfaction, of all Organizational Documents of the Borrower and its Subsidiaries as in effect as of the Amendment and Restatement Effective Date and determined them to be satisfactory in form and substance. -49- (h) NO MATERIAL ADVERSE EFFECT. No event has occurred since the Initial Closing Date which has had or is reasonably likely to have a Material Adverse Effect. (i) FEES AND EXPENSES PAID. There shall have been paid to the Lender all fees and expenses due and payable on or before the Amendment and Restatement Effective Date. 4.02. CONDITIONS PRECEDENT TO ALL SUBSEQUENT REVOLVING LOANS AND LETTERS OF CREDIT. The obligation of the Lender to make any Revolving Loan requested to be made on any date after the Amendment and Restatement Effective Date and to issue, or cause the issuance of, any Letter of Credit on any date after the Amendment and Restatement Effective Date is subject to the following conditions precedent as of each such date: (a) REPRESENTATIONS AND WARRANTIES. As of such date, both before and after giving effect to the Loans to be made and Letters of Credit to be issued on such date, all of the representations and warranties of the Borrower contained in SECTION 5.01 and in any other Loan Document shall be true and correct in all material respects (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 DEFAULTS. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the requested Loan or issuance of the requested Letter of Credit. (c) NO LEGAL IMPEDIMENTS. No law, regulation, order, judgment or decree of any Governmental Authority shall, and no litigation is pending or threatened which is likely to, enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the making of the requested Loan or issuance of the requested Letter of Credit. (d) NO MATERIAL ADVERSE EFFECT. No event has occurred since the Initial Closing Date which has had or is reasonably likely to have a Material Adverse Effect. Each submission by the Borrower to the Lender of a Notice of Borrowing with respect to a Revolving Loan, each acceptance by the Borrower of the proceeds of each Revolving Loan made hereunder, each request by the Borrower for the issuance of a Letter of Credit and the issuance of such Letter of Credit shall constitute a representation and warranty by the Borrower as of the Revolving Loan Funding Date in respect of such Revolving Loan or the date of issuance of such Letter of Credit (as applicable) that all the conditions contained in this SECTION 4.02 have been satisfied or waived in accordance with SECTION 11.05. -50- ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to enter into this Agreement and to make the Loans and the other financial accommodations to the Borrower and to issue, or cause the issuance of, Letters of Credit, the Borrower hereby represents and warrants to the Lender that the following statements are true, correct and complete: (a) ORGANIZATION; ORGANIZATIONAL POWERS. The Borrower and each of its Subsidiaries (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified to do business as a foreign corporation (or other entity) and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing will have or is reasonably likely to have a Material Adverse Effect, (iii) to the extent required, has filed and maintained effective (unless exempt from the requirements for filing) a current Business Activity Report with the appropriate Governmental Authority in the states of Minnesota and New Jersey, and (iv) has all requisite corporate power and authority to own, operate and encumber its Property and to conduct its business as proposed to be conducted in connection with and following the consummation of the transactions contemplated by the Transaction Documents. (b) AUTHORITY. (i) The Borrower and each of its Subsidiaries have the requisite corporate power and authority (A) to execute, deliver and perform each of the Transaction Documents which are to be executed by it in connection with the Purchase or the Recoil Acquisition or which have been executed by it as required by this Agreement or the Existing Credit Agreement on or prior to the Amendment and Restatement Effective Date and (B) to file the Transaction Documents which must be filed by it in connection with the Purchase or the Recoil Acquisition or which have been filed by it as required by this Agreement or the Existing Credit Agreement on or prior to the Amendment and Restatement Effective Date, with any Governmental Authority. (ii) The execution, delivery, performance and filing, as the case may be, of each of the Transaction Documents which must be executed or filed by the Borrower or its Subsidiaries in connection with the Purchase or the Recoil Acquisition or which have been executed or filed as required by this Agreement or the Existing Credit Agreement on or prior to the Amendment and Restatement Effective Date and to which the Borrower or any of its Subsidiaries is party and the consummation of the transactions contemplated thereby, have been duly approved by the respective boards of directors and, if necessary, the shareholders of the Borrower and its Subsidiaries and such approvals have not been rescinded. No other organizational action or proceedings on the part of the Borrower or its Subsidiaries are necessary to consummate such transactions. -51- (iii) Each of the Transaction Documents to which the Borrower or any of its Subsidiaries is a party has been duly executed, delivered or filed, as the case may be, by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, is in full force and effect and no material term or condition thereof has been amended, modified or waived from the terms and conditions contained in the Transaction Documents delivered to the Lender pursuant to SECTION 4.01(a) without the prior written consent of the Lender, and all parties thereto have performed and complied with all the terms, provisions, agreements and conditions set forth therein and required to be performed or complied with by such parties on or before the Amendment and Restatement Effective Date, and no Potential Event of Default, Event of Default or breach of any covenant by any such party exists thereunder. (c) CONSENTS. Except as set forth in SCHEDULE 5.01-C and for approval of the Bankruptcy Court (solely with respect to the Purchase), no consents or approvals of, or filings or registrations (other than filings or registrations contemplated by SECTION 4.01(b) or 5.01(f)(i) with respect to Government Contracts) by the Borrower or its Subsidiaries with any Governmental Authority or any other Person not a party to this Agreement are necessary in connection with the execution and delivery of the Transaction Documents by the Borrower and its Subsidiaries and the consummation by the Borrower and its Subsidiaries of the transactions contemplated by the Transaction Documents, except where the failure to obtain such consents or approvals would not result in a Material Adverse Effect. (d) SUBSIDIARIES; OWNERSHIP OF CAPITAL STOCK. SCHEDULE 5.01-D accurately sets forth (i) the correct legal name, the jurisdiction of incorporation and the jurisdictions in which qualified to transact business as a foreign corporation of each of the direct and indirect Subsidiaries of the Borrower, (ii) the authorized, issued and outstanding shares of each class of Capital Stock of the Borrower and each of its Subsidiaries and the owners of such shares, and (iii) a summary of the direct and indirect partnership, joint venture, or other equity interests, if any, of the Borrower and each of its Subsidiaries in any Person that is not a corporation. None of such issued and outstanding Capital Stock is subject to any vesting, redemption, or repurchase agreement, and there are no warrants or options outstanding with respect to such Capital Stock. The outstanding Capital Stock of the Borrower and each of its Subsidiaries is duly authorized, validly issued, fully paid and nonassessable. (e) NO CONFLICT. The execution, delivery and performance of each of the Transaction Documents to which the Borrower or any of its Subsidiaries is a party do not and will not (i) conflict with the Organizational Documents of the Borrower or any such Subsidiary, (ii) constitute a tortious interference with any Contractual Obligation of any Person or conflict with, result in a breach of or constitute (with or without notice or lapse of -52- time or both) a default under any Requirement of Law or Contractual Obligation of the Borrower or any such Subsidiary, or require termination of any Contractual Obligation, the consequences of which violation, breach, default or termination, singly or in the aggregate, will have or is reasonably likely to have a Material Adverse Effect or is reasonably likely to subject the Lender to any liability, or (iii) result in or require the creation or imposition of any Lien whatsoever upon any of the Property or assets of the Borrower or any such Subsidiary, other than Liens contemplated by the Loan Documents or the RCL Loan Documents, as applicable. (f) PATENTS, TRADEMARKS, PERMITS, ETC.; GOVERNMENT APPROVALS. (i) After giving effect to the Purchase and the Recoil Acquisition, the Borrower and each of its Subsidiaries own, are licensed or otherwise have the lawful right to use, or have all permits and other governmental approvals (except with respect to Government Contracts), patents, trademarks, trade names, copyrights, technology, know-how and processes used in or necessary for the conduct of their businesses as proposed to be conducted which are material to their condition (financial or otherwise), operations, performance and prospects, taken as a whole, including, without limitation, the names "Microdot", "Kaynar", "Microdot Inserts" and "Recoil". With respect to each Government Contract acquired by the Borrower or RCL in connection with the Purchase or the Recoil Acquisition, such Government Contract has been transferred to the Borrower or RCL (and all necessary approvals therefor have been obtained) or the Borrower or RCL is operating under a subcontract which is in full force and effect. (ii) The consummation of the Purchase, the Recoil Acquisition and the transactions contemplated by the Transaction Documents will not impair the ownership of or rights under (or the license or other right to use, as the case may be) any permits and governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how or processes by the Borrower or any of its Subsidiaries in any manner which has or is reasonably likely to have a Material Adverse Effect. (g) PRO FORMA FINANCIALS. The PRO FORMA consolidated and consolidating balance sheets of the Parent and its Subsidiaries prepared as of March 31, 1996 (and giving effect to the Recoil Acquisition) and in accordance with GAAP consistently applied, copies of which have been furnished to the Lender on or before the Amendment and Restatement Effective Date, fairly present on a PRO FORMA basis the financial condition of the Parent and such Subsidiaries as of March 31, 1996, and reflect on a PRO FORMA basis those liabilities reflected in the notes thereto and resulting from consummation of the transactions contemplated by the Transaction Documents, and the payment or accrual of all Transaction Costs payable on the Amendment and Restatement Effective Date with respect to any of the foregoing. The projections and assumptions expressed in the PRO FORMA -53- financials furnished pursuant to this SECTION 5.01(g) are reasonable based on the information available to the Borrower as of the date hereof. (h) SOLVENCY. After giving effect to the Loans to be made on the Amendment and Restatement Effective Date or such other date as Loans requested hereunder are made, and the disbursement of the proceeds of such Loans pursuant to the Borrower's instructions (if any), the Borrower and each of its Subsidiaries are Solvent. (i) THE PURCHASE. (i) All conditions precedent to, and all consents necessary to permit, the Purchase pursuant to the Purchase Documents have been satisfied or delivered, or waived with the prior written consent of the Lender, and no material breach of any term or provision of any Purchase Document has occurred and no action has been taken by any competent authority which restrains, prevents or imposes material adverse conditions upon, or seeks to restrain, prevent or impose material adverse conditions upon, the Purchase or the making of any Loans hereunder. (ii) After giving effect to the Purchase, the Borrower has acquired substantially all of the assets of AFS pursuant to the AFS Purchase Agreement, and, to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the Borrower and Kaynar U.K. have acquired substantially all of the assets of MAL pursuant to the MAL Purchase Agreement, in each case in compliance with all applicable laws. (j) THE RECOIL ACQUISITION. (i) All conditions precedent to, and all consents necessary to permit, the Recoil Acquisition pursuant to the Recoil Acquisition Documents have been satisfied or delivered, or waived with the prior written consent of the Lender, and no material breach of any term or provision of any Recoil Acquisition Document has occurred and no action has been taken by any competent authority which restrains, prevents or imposes material adverse conditions upon, or seeks to restrain, prevent or impose material adverse conditions upon, the Recoil Acquisition or the making of any Loans hereunder. (ii) After giving effect to the Recoil Acquisition, the Borrower has acquired substantially all of the assets of Recoil U.S. pursuant to the Recoil U.S. Acquisition Agreement, and the Borrower, RCL and, if designated by the Borrower to acquire the shares of Recoil U.K., Kaynar U.K. have acquired substantially all of the assets of Recoil Australia pursuant to the Recoil Australia Acquisition Agreement and related documents, in each case in compliance with all applicable Requirements of Law. (k) PLEDGE OF COLLATERAL. The grant and perfection of the security interest in the Capital Stock of the Subsidiaries of -54- the Borrower constituting a portion of the Collateral for the benefit of the Lender, as contemplated by the terms of the Loan Documents, is not made in violation of the registration provisions of the Securities Act, any applicable provisions of other federal securities laws, state securities or "Blue Sky" law, foreign securities law, or applicable general corporation, limited liability company, unlimited liability company or partnership law or in violation of any other Requirement of Law. (l) GOVERNMENTAL REGULATION. Neither the Borrower, nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940, or any other foreign, federal or state statute or regulation which limits its ability to incur indebtedness or its ability to consummate the transactions contemplated hereby, by the Purchase Agreements or by the Recoil Acquisition Agreements. (m) RESTRICTED JUNIOR PAYMENTS. Since the date of the Borrower's incorporation, neither the Borrower nor any of its Subsidiaries (other than Recoil Belgium and Recoil U.K.) has directly or indirectly declared, ordered, paid or made or set apart any sum or Property for any Restricted Junior Payment or agreed to do so, except as permitted pursuant to SECTION 8.06. Since the Amendment and Restatement Effective Date, none of Recoil Belgium or Recoil U.K. has directly or indirectly declared, ordered, paid or made or set apart any sum or Property for any Restricted Junior Payment or agreed to do so, except as permitted pursuant to SECTION 8.06 (n) BANK ACCOUNTS. Each bank, trust company or other financial institution at which the Borrower or any of its Subsidiaries maintains any deposit account (except for disbursement accounts into which no funds are deposited other than (i) proceeds of Revolving Loans or (ii) transfers from other disbursement accounts into which only proceeds of Revolving Loans are deposited) has executed and delivered to the Lender a Collection Account Agreement with respect to such deposit account(s). (o) LITIGATION; ADVERSE EFFECTS. Except as set forth in SCHEDULE 5.01-O, there is no action, suit, proceeding, investigation or arbitration before or by any Governmental Authority or private arbitrator pending or, to the best of Borrower's knowledge, threatened against the Borrower or any of its Subsidiaries or any Property of any of them (i) challenging the validity or the enforceability of any of the Transaction Documents or (ii) which will or is reasonably likely to result in any Material Adverse Effect. There is no material loss contingency within the meaning of GAAP which has not been reflected in the consolidated financial statements of the Borrower. Neither the Borrower nor any of its Subsidiaries is (x) in violation of any applicable Requirements of Law which violation will have or is reasonably likely to have a Material -55- Adverse Effect, or (y) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or Governmental Authority which will have or is reasonably likely to have a Material Adverse Effect. (p) NO MATERIAL ADVERSE CHANGE. Since the Initial Closing Date, there has occurred no event which has had or is reasonably likely to have a Material Adverse Effect. (q) PERFORMANCE. Neither the Borrower nor any of its Subsidiaries has received notice or has actual knowledge that (i) it is in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any Contractual Obligation applicable to it, or (ii) any condition exists which, with the giving of notice or the lapse of time or both, would constitute a default with respect to any such Contractual Obligation. (r) DISCLOSURE. The representations and warranties of the Borrower and its Subsidiaries contained in the Transaction Documents, and all certificates and other documents delivered to the Lender pursuant to the terms thereof, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Borrower has not intentionally withheld any fact from the Lender in regard to any matter which will have or is reasonably likely to have a Material Adverse Effect. (s) REQUIREMENTS OF LAW. The Borrower and its Subsidiaries are in compliance with all Requirements of Law applicable to them and their respective businesses, in each case where the failure to so comply individually or in the aggregate will have or is reasonably likely to have a Material Adverse Effect. (t) ENVIRONMENTAL MATTERS. (i) After giving effect to the Purchase and the Recoil Acquisition, except as disclosed on SCHEDULE 5.01-T: (A) the operations of the Borrower and its Subsidiaries comply in all material respects with all applicable Environmental Laws; (B) the Borrower and each of its Subsidiaries have obtained all environmental, health and safety Permits necessary for their respective operations, and all such Permits are in good standing and the Borrower and each of its Subsidiaries are currently in material compliance with all terms and conditions of such Permits; -56- (C) none of the Borrower or its Subsidiaries or any of their respective present or, to the Borrower's knowledge, past Property or operations are subject to or the subject of any investigation by, order from or agreement or negotiations with any Person (including without limitation any prior owner or operator of the Borrower or its Subsidiaries and/or such Property) respecting (I) any Environmental Law, (II) any Remedial Action or (III) any Claims or Liabilities and Costs arising from the Release or threatened Release of a Contaminant; (D) none of the operations of the Borrower or its Subsidiaries is subject to any judicial or administrative proceeding, order, judgment, decree or settlement alleging or addressing a violation of or a liability under any Environmental Law; (E) neither the Borrower nor any of its Subsidiaries have filed any notice under any applicable Requirement of Law: (I) reporting a Release of a Contaminant; (II) indicating past or present treatment, storage or disposal of a hazardous waste, as that term is defined under 40 C.F.R. Part 261 or any state equivalent; or (III) reporting a violation of any applicable Environmental Law. (F) none of the Borrower's or its Subsidiaries' present or, to the Borrower's knowledge, past Property is listed or proposed for listing on the National Priorities List ("NPL") pursuant to CERCLA or on the Comprehensive Environmental Response Compensation Liability Information System List ("CERCLIS") or any similar state list of sites requiring Remedial Action; (G) to the Borrower's knowledge, neither the Borrower nor its Subsidiaries have sent or directly arranged for the transport of any waste to any NPL site or a proposed NPL site or to a CERCLIS site; (H) there is not now, nor (to the Borrower's knowledge) has there ever been on or in the Property: (I) any generation, treatment, recycling, storage or disposal of any hazardous waste, as that term is defined under 40 C.F.R. Part 261 or any state equivalent; (II) any landfill, waste pile, underground storage tank or surface impoundment; (III) any asbestos-containing material; or -57- (IV) a Release of any PCB used in hydraulic oils, electrical transformers or other Equipment; which, in each case or in the aggregate, is reasonably likely to result in a Material Adverse Effect; (I) neither the Borrower nor any of its Subsidiaries have received any notice or Claim to the effect that any of such Persons has or may reasonably be expected to have Liability and Costs in excess of $250,000, in the aggregate, as a result of the Release or threatened Release of a Contaminant; (J) there have been no Releases of any Contaminants from any Property which (I) require Remedial Action to be undertaken and where such Remedial Action is subject to review or approval by any Governmental Authority or (II) which would require a report to be made to any Governmental Authority; (K) neither the Borrower nor any of its Subsidiaries have any contingent liability in connection with any Release or threatened Release of any Contaminants which is reasonably likely to result in a Material Adverse Effect; (L) no Environmental Lien has attached to any Property of the Borrower or its Subsidiaries; and (M) none of the Property of the Borrower or its Subsidiaries is subject to any Environmental Property Transfer Act, or to the extent such acts are applicable to any such Property, the Borrower and its Subsidiaries have complied with the requirements of such acts in all material respects. (ii) The Borrower and its Subsidiaries are conducting and will continue to conduct their respective businesses and operations in an environmentally responsible manner and in material compliance with Environmental Laws, and the Borrower and its Subsidiaries, taken as a whole, have not been, and have no reason to believe that they shall be, subject to Liabilities and Costs arising out of or relating to environmental, health or safety matters that have or will result in a Material Adverse Effect. (u) ERISA. Neither the Borrower nor any ERISA Affiliate maintains or contributes to any Benefit Plan, Multiemployer Plan or Foreign Pension Plan other than those listed on SCHEDULE 5.01-U hereto. Except with respect to new Plans for which the remedial amendment period under Section 401(b) of the Internal Revenue Code has not expired, each Plan which is intended to be qualified under Section 401(a) of the Internal Revenue Code as currently in effect has been determined by the IRS to be so qualified, and each trust related to any such Plan has been determined to be exempt from federal income tax under Section 501(a) of the Internal Revenue Code as currently in effect. Except as disclosed in SCHEDULE 5.01-U, neither the Borrower nor -58- any of its Subsidiaries maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA. The Borrower and all its Subsidiaries are in compliance in all material respects with the responsibilities, obligations and duties imposed on them by ERISA, the Internal Revenue Code and regulations promulgated thereunder with respect to all Plans. No Benefit Plan has incurred any accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Internal Revenue Code) whether or not waived. Neither the Borrower nor any of its Subsidiaries nor any fiduciary of any Plan which is not a Multiemployer Plan (i) has engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code or (ii) has taken or failed to take any action which would constitute or result in a Termination Event. Neither the Borrower nor any ERISA Affiliate is subject to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA. Neither the Borrower nor any ERISA Affiliate has incurred any liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. Schedule B to the most recent annual report filed with the IRS with respect to each Benefit Plan and furnished to the Lender is complete and accurate. Since the date of each such Schedule B, there has been no material adverse change in the funding status or financial condition of the Benefit Plan relating to such Schedule B. Neither the Borrower nor any ERISA Affiliate has (x) failed to make a required contribution or payment to a Multiemployer Plan or (y) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer Plan. Neither the Borrower nor any ERISA Affiliate has failed to make a required installment or any other required payment under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment. Neither the Borrower nor any ERISA Affiliate is required to provide security to a Benefit Plan under Section 401(a)(29) of the Internal Revenue Code due to a Plan amendment that results in an increase in current liability for the plan year. Except as disclosed on SCHEDULE 5.01-U, neither the Borrower nor any of its Subsidiaries has, by reason of the transactions contemplated hereby, any obligation to make any payment to any employee pursuant to any Plan or existing contract or arrangement. The Borrower has given to the Lender copies of all of the following: each Benefit Plan and related trust agreement (including all amendments to such Plan and trust) in existence or committed to as of the Amendment and Restatement Effective Date and in respect of which the Borrower or any ERISA Affiliate is currently an "employer" as defined in section 3(5) of ERISA, and the most recent summary plan description, actuarial report, determination letter issued by the IRS and Form 5500 filed in respect of each such Benefit Plan in existence; a listing of all of the Multiemployer Plans currently contributed to by the Borrower or any ERISA Affiliate with the aggregate amount of the most recent annual contributions required to be -59- made by the Borrower and all ERISA Affiliates to each such Multiemployer Plan, any information which has been provided to the Borrower or an ERISA Affiliate regarding withdrawal liability under any Multiemployer Plan and the collective bargaining agreement pursuant to which such contribution is required to be made; and as to each employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees of the Borrower or any of its Subsidiaries after termination of employment other than as required by Section 601 of ERISA, the most recent summary plan description for such plan and the aggregate amount of the most recent annual payments made to terminated employees under each such plan. (v) FOREIGN EMPLOYEE BENEFIT MATTERS. Each Foreign Employee Benefit Plan is in compliance in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plan. The aggregate of the liabilities to provide all of the accrued benefits under any Foreign Pension Plan does not exceed the current Fair Market Value of the assets held in the trust or other funding vehicle for such Plan. With respect to any Foreign Employee Benefit Plan maintained or contributed to by the Borrower, any of its Subsidiaries or any ERISA Affiliate (other than a Foreign Pension Plan), reasonable reserves have been established to the extent required by prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained. The aggregate unfunded liabilities, after giving effect to any reserves for such liabilities, with respect to such Plans does not exceed the current Fair Market Value of the assets held in the trust or other funding vehicle (or reserves) for such Plan. There are no actions, suits or claims (other than routine claims for benefits) pending or threatened against the Borrower, any of its Subsidiaries or any ERISA Affiliate with respect to any Foreign Employee Benefit Plan. (w) LABOR MATTERS. SCHEDULE 5.01-W accurately sets forth all labor contracts to which the Borrower or any of its Subsidiaries is a party on the date hereof and the expiration date of each such contract. There are no strikes, lockouts or other disputes relating to any collective bargaining or similar agreement to which the Borrower or any of its Subsidiaries is a party. (x) INSURANCE. SCHEDULE 5.01-X accurately sets forth as of the date delivered to the Lender all insurance policies and programs currently in effect with respect to the respective Property and assets and business of the Borrower and its Subsidiaries, specifying for each such policy and program, (i) the amount thereof, (ii) the risks insured against thereby, (iii) the name of the insurer and each insured party thereunder, (iv) the policy or other identification number thereof, (v) the expiration date thereof and (vi) the annual premium with respect thereto. Such insurance policies and programs are in amounts -60- sufficient to cover the replacement value of the respective Property and assets of the Borrower and its Subsidiaries. (y) GOVERNMENT CONTRACT MATTERS. Except as set forth in SCHEDULE 5.01-Y: (i) The Borrower is in compliance with all material terms and conditions of all Government Contracts, including all clauses, provisions and requirements incorporated expressly, by reference or by operation of law therein; (ii) The Borrower is in compliance with all material terms and conditions of all Requirements of Law and all Contractual Obligations pertaining to any Government Contract; (iii) All representations and certifications executed or acknowledged or set forth in or pertaining to each Government Contract were complete, accurate, correct and truthful as of the date such representations or certifications were made, and the Borrower has complied in all material respects with all such representations and certifications since such date; (iv) None of the DOD, any other United States Governmental Authority, any prime contractor, subcontractor or other Person has notified the Borrower or any of its Subsidiaries that the Borrower or such Subsidiary has breached or violated any Requirement of Law, certification, representation, clause, provision or requirement pertaining to any Government Contract; (v) No termination for default, termination for convenience, cure notice or show cause notice is currently in effect with respect to any Government Contract; (vi) To the best of the Borrower's knowledge, no cost incurred pertaining to any Government Contract has been questioned or challenged, is the subject of any investigation or has been disallowed by any United States Governmental Authority; (vii) To the best of the Borrower's knowledge, no money due to the Borrower or any of its Subsidiaries pertaining to any Government Contract has been withheld, or has been the subject of an attempt to withhold, or reduced through exercise of a right of set-off or otherwise; (viii) There is no action, suit, investigation or proceeding relating to any Government Contract, or relating to any proposed suspension or debarment of the Borrower, any of its Subsidiaries or any of their respective employees or agents, pending against (or, to the best of the Borrower's -61- knowledge, threatened against) the Borrower, such Subsidiary, such other Person or any Property; (ix) Neither the Borrower, any of its Subsidiaries or any of their respective directors, officer or employees is (or during the last five (5) years has been) suspended or debarred from doing business with the United States or any Governmental Authority therein or is (or during such period was) the subject of a finding of nonresponsibility or ineligibility for United States government contracting; (x) (A) To the best of the Borrower's knowledge, none of the Borrower's or any of its Subsidiaries' respective directors, officers, employees, consultants or agents is (or during the last five (5) years has been) under administrative, civil or criminal investigation, indictment or information by any Governmental Authority with respect to any alleged irregularity, misstatement or omission arising under or relating to any Government Contract, (B) during the last five (5) years, the Borrower has not conducted or initiated any internal investigation or audit or made a voluntary disclosure to any United States Governmental Authority, with respect to any alleged irregularity, misstatement or omission arising under or related to any Government Contract; and (C) the Borrower has no knowledge or reason to know of any irregularity, misstatement or omission arising under or relating to any Government Contract that has led or could reasonably lead, either before or after the Amendment and Restatement Effective Date, to any of the consequences set forth in CLAUSE (A) or (B) above or any other material damage, penalty assessment, recoupment of payment or disallowance of cost; (xi) There exist (A) no outstanding material Claims against the Borrower, its Subsidiaries or any Property, either by a United States Governmental Authority or by any prime contractor, subcontractor, vendor or other third party, arising under or relating to any Government Contract; and (B) no material disputes between the Borrower or any of its Subsidiaries, on the one hand, and any United States Governmental Authority, any prime contractor, subcontractor, vendor or other third party, on the other hand, arising under or relating to any Government Contract; (xii) The Borrower's cost accounting and procurement systems with respect to Government Contracts are in compliance in all material respects with all applicable Requirements of Law; and (xiii) All Government Contracts and bids (A) are being performed or were submitted, as the case may be, in the ordinary course of business and (B) are or would be, as the case may be, capable of performance in accordance with their -62- terms without loss (determined in accordance with the Borrower's accounting principles, consistently applied). (z) PAYMENT OF TAXES. All tax returns and reports of each of the Borrower and its Subsidiaries required to be filed have been timely filed, and all taxes, assessments, fees and other governmental charges thereupon and upon their respective Property, assets, income and franchises which are shown in such returns or reports to be due and payable have been paid, other than those which are being contested in good faith by appropriate proceedings. The Borrower has no knowledge of any proposed tax assessment (or similar claim) against the Borrower or any of its Subsidiaries that will have or is reasonably likely to have a Material Adverse Effect. (aa) ELIGIBLE ACCOUNTS. From and after the Amendment and Restatement Effective Date, the Eligible Accounts are, as of the date as of which any Revolving Loan is made or requested or any Letter of Credit is issued hereunder or a Borrowing Base Certificate is delivered, bona fide existing obligations created by the sale and delivery of Inventory or the rendition of services to Account Debtors in the ordinary course of the Borrower's business, unconditionally owed to the Borrower without defenses, disputes, offsets, counterclaims or rights of return other than in the ordinary course of business. The property giving rise to such Eligible Accounts has been delivered to the Account Debtor, or to the Account Debtor's agent for immediate shipment to and unconditional acceptance by the Account Debtor. The Borrower has not received notice of actual or imminent bankruptcy, insolvency, or the material impairment of the financial condition of any Account Debtor at the time an Eligible Account due from such Account Debtor is created or first included in the Borrowing Base. ARTICLE VI REPORTING COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent thereto: 6.01. FINANCIAL STATEMENTS. The Borrower shall maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated and consolidating financial statements in conformity with GAAP, and each of the financial statements described below shall be prepared from such system and records. The Borrower shall deliver or cause to be delivered to the Lender: (a) MONTHLY REPORTS. As soon as practicable, and in any event within thirty (30) days after the end of each calendar -63- month in each Fiscal Year, the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such period and the related consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries for such calendar month and for the period from the beginning of the then current Fiscal Year to the end of such calendar month, setting forth in each case in comparative form the corresponding figures for the corresponding calendar periods in the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f), certified by the chief financial officer of the Borrower as fairly presenting the consolidated and consolidating financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the calendar months indicated in accordance with GAAP, subject to normal year end adjustments. (b) QUARTERLY REPORTS. As soon as practicable, and in any event within forty-five (45) days after the end of each fiscal quarter in each Fiscal Year, the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such period and the related consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current Fiscal Year to the end of such fiscal quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f), certified by the chief financial officer of the Borrower as fairly presenting the consolidated and consolidating financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with GAAP, subject to normal year end adjustments. (c) ANNUAL REPORTS. As soon as practicable, and in any event within one hundred twenty (120) days after the end of each Fiscal Year, (i) the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Year and the related consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f), and (ii) a report thereon of Arthur Andersen & Co. or other independent certified public accountants of recognized standing and otherwise acceptable to the Lender, which report shall be unqualified and shall state that such financial statements fairly present the consolidated and consolidating financial position of each of the Borrower and -64- its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which Arthur Andersen & Co. or any such other independent certified public accountants, if applicable, shall concur and which shall have been disclosed in the notes to the financial statements) and that the examination by such accountants in connection with such consolidated and consolidating financial statements has been made in accordance with generally accepted auditing standards. (d) OFFICER'S CERTIFICATE. Together with each delivery of any financial statement pursuant to PARAGRAPHS (b) and (c) of this SECTION 6.01, (i) an Officer's Certificate of the Borrower substantially in the form of EXHIBIT K attached hereto and made a part hereof, stating that the officer signatory thereto has reviewed the terms of the Loan Documents, and has made, or caused to be made under his supervision, a review in reasonable detail of the transactions and consolidated and consolidating financial condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements, that such review has not disclosed the existence during or at the end of such accounting period, and that such officer does not have knowledge of the existence as at the date of such Officer's Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower or any of its Subsidiaries has taken, is taking and proposes to take with respect thereto; and (ii) a certificate (the "Compliance Certificate"), signed by the Borrower's chief financial officer, setting forth calculations and the methods of determination thereof (with such specificity as the Lender may reasonably request) for the period then ended which demonstrate compliance, when applicable, with the provisions of ARTICLE IX. (e) ACCOUNTANT'S STATEMENT AND PRIVITY LETTER. Together with each delivery of the financial statements referred to in SECTION 6.01(c), a written statement of the firm of independent certified public accountants giving the report thereon (i) stating that their audit examination has included a review of the terms of this Agreement as it relates to accounting matters, (ii) stating whether, in connection with their audit examination, any condition or event which constitutes an Event of Default or Potential Event of Default has come to their attention, and if such condition or event has come to their attention, specifying the nature and period of existence thereof; PROVIDED, that such accountants shall not be liable by reason of any failure to obtain knowledge of any such condition or event that would not be disclosed in the course of their audit examination, and (iii) stating that based on their audit examination nothing has come to their attention which causes them to believe that the information contained in either or both of -65- the certificates delivered therewith pursuant to SECTION 6.01(d) is not correct or that the matters set forth in the Compliance Certificate delivered therewith pursuant to SECTION 6.01(d)(ii) for the applicable Fiscal Year are not stated in accordance with the terms of this Agreement. The statement referred to above shall be accompanied by (x) a copy of the management letter or any similar report delivered to the Borrower or to any officer or employee thereof by such accountants in connection with such financial statements and (y) a letter from the Borrower to such accountants informing such accountants that the Lender is relying upon the financial statements audited by such accountants and delivered to the Lender pursuant to SECTION 6.01(c) and that a primary intent of the Borrower in having such financial statements audited is to induce the Lender to continue to make Loans to the Borrower under this Agreement. The Lender may, with the consent of the Borrower (which consent shall not be unreasonably withheld), communicate directly with such accountants. (f) BUDGETS; BUSINESS PLANS; FINANCIAL PROJECTIONS. As soon as practicable and in any event not later than thirty (30) days prior to the commencement of each Fiscal Year of the Borrower, (i) a monthly budget for such Fiscal Year; (ii) an annual business plan for such Fiscal Year, in form and substance acceptable to the Lender, accompanied by a report reconciling all changes and departures from the business plan delivered to the Lender for the preceding Fiscal Year; and (iii) a consolidated plan and financial forecast, prepared in accordance with the Borrower's normal accounting procedures applied on a consistent basis, for such Fiscal Year and the two (2) immediately succeeding Fiscal Years, including, without limitation, (A) a forecasted consolidated balance sheet and a consolidated statement of changes in financial position of the Borrower for such Fiscal Years, (B) forecasted consolidated balance sheets, statements of earnings and retained earnings, and changes in financial position of the Borrower for and as of the end of each fiscal quarter of such Fiscal Years, (C) the amount of forecasted Capital Expenditures and Excess Cash Flow for such Fiscal Years, and (D) forecasted compliance with the provisions of ARTICLE IX for such Fiscal Years. (g) BORROWING BASE CERTIFICATE. As soon as practicable and in any event not less than fifteen (15) calendar days after the end of each monthly accounting period of the Borrower and, additionally, promptly upon request, a Borrowing Base Certificate as at the last day of such accounting period (or as at the date of such request). 6.02. OPERATIONS REPORTS. Accompanying the reports to be delivered by the Borrower each fiscal quarter in each Fiscal Year pursuant to SECTION 6.01(b) and, in addition to the foregoing, within seven (7) days after the Lender's request therefor, the Borrower shall deliver to the Lender a report detailing the operations of the Borrower and its Subsidiaries -66- which report shall include a management discussion and analysis with respect to the Borrower's and its Subsidiaries' financial performance during such period, including a comparison of actual sales versus budgeted sales for such fiscal quarter, a discussion of bookings, a listing of significant new customers and new products developed for sale, an explanation of any cost saving measures implemented, together with a discussion of the general business environment and results of operations, including an explanation of any material changes in consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries for such period from such statements for the corresponding period of the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year pursuant to SECTION 6.01(f) (the "Management Discussion and Analysis"). 6.03. COLLATERAL REPORTING. (a) Upon the request of the Lender, the Borrower shall deliver to the Lender, in form and substance acceptable to the Lender, a summary aged trial balance of all then existing Accounts specifying the names, addresses, face amount and dates of invoices for each Account the Borrower obligated on an Account so listed ("Schedule of Accounts"), and upon demand, the original or copies, as request, of all documents, including, without limitation, proofs of delivery, repayment histories and present status reports, relating to the Accounts so scheduled and such other matters and information relating to the status of Accounts as the Lender shall reasonably request. (b) Promptly upon, but in no event later than ten (10) Business Days after, the Borrower's learning thereof, inform the Lender, in writing, of (i) any material delay in the Borrower's performance of any of its obligations to any material Account Debtor and of any assertion of any material claims, offsets or counterclaims by any Account Debtor and of any material allowances, credits or other monies granted by the Borrower to any Account Debtor, and (ii) all material adverse information relating to the financial condition of any material Account Debtor. (c) Upon the request of the Lender, the Borrower shall deliver to Lender, in form and substance acceptable to the Lender, a report summarizing, on a LIFO and FIFO basis, the kind, type, quality and quantity of Inventory as of the end of such month, the Borrower's cost therefor, and summaries of Inventory by categories or classifications and by location. (d) The Borrower shall provide the Lender with copies of all agreements between the Borrower and any warehouse at which Inventory may from time to time be kept and all leases or similar agreements between the Borrower or any of its Affiliates and any other Person, whether the Borrower or its Affiliate is lessor or lessee thereunder. -67- 6.04. EVENTS OF DEFAULT. Promptly upon any of the chief executive officer, chief operating officer, chief financial officer, treasurer or controller of the Borrower obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default, or becoming aware that the Lender has given any notice with respect to a claimed Event of Default or Potential Event of Default under this Agreement, (b) that any Person has given any notice to the Borrower or any Subsidiary of the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in SECTION 10.01(e), or (c) of any condition or event which has or is reasonably likely to have a Material Adverse Effect or affect the value of, or the Lender's interest in, Collateral with a value in excess of $500,000 in any material respect, the Borrower shall deliver to the Lender an Officer's Certificate specifying (A) the nature and period of existence of any such claimed default, Event of Default, Potential Event of Default, condition or event, (B) the notice given or action taken by such Person in connection therewith, and (C) what action the Borrower has taken, is taking and proposes to take with respect thereto. 6.05. LAWSUITS. (a) Promptly upon the Borrower obtaining knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Borrower or any of its Subsidiaries or any Property of the Borrower or any of its Subsidiaries not previously disclosed pursuant to SECTION 5.01(o), which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Borrower's reasonable judgment, the Borrower or any of its Subsidiaries to liability in an amount aggregating $100,000 or more (exclusive of claims covered by insurance policies of the Borrower or any of its Subsidiaries unless the insurers of such claims have disclaimed coverage or reserved the right to disclaim coverage on such claims), the Borrower shall give written notice thereof to the Lender and provide such other information as may be reasonably available to enable the Lender and its counsel to evaluate such matters; (b) as soon as practicable and in any event within forty-five (45) days after the end of each fiscal quarter of the Borrower, the Borrower shall provide a written quarterly report to the Lender covering the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration (not previously reported) against or affecting the Borrower or any of its Subsidiaries or any Property of the Borrower or any of its Subsidiaries not previously disclosed by the Borrower to the Lender, and shall provide such other information at such time as may be reasonably available to enable the Lender and its counsel to evaluate such matters (but excluding such information at to which the Borrower in good faith has asserted or will assert a legal privilege in objection to -68- disclosure of the information by the Borrower in the action, suit, proceeding, investigation or arbitration); and (c) in addition to the requirements set forth in CLAUSES (a) and (b) of this SECTION 6.05, the Borrower upon request of the Lender shall promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to CLAUSE (a) or (b) above and provide such other information as may be reasonably available to it to enable the Lender and its counsel to evaluate such matters. 6.06. INSURANCE. As soon as practicable and in any event by the last day of April in each Fiscal Year, the Borrower shall deliver to the Lender (a) a report in form and substance reasonably satisfactory to the Lender outlining all material insurance coverage maintained as of the date of such report by the Borrower and its Subsidiaries and the duration of such coverage and (b) evidence that all premiums with respect to such coverage have been paid when due. 6.07. ERISA NOTICES. The Borrower shall deliver or cause to be delivered to the Lender, at the Borrower's expense, the following information and notices as soon as reasonably possible, and in any event: (a) within ten (10) Business Days after the Borrower or any ERISA Affiliate knows or has reason to know that a Termination Event has occurred, a written statement of the chief financial officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto; (b) within ten (10) Business Days after the Borrower or any of its Subsidiaries knows or has reason to know that an assessment of a prohibited transaction excise tax under Section 4975 of the Internal Revenue Code has occurred, a statement of the chief financial officer of the Borrower describing such transaction and the action which the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto; (c) upon the request of the Lender, copies of each annual report (form 5500 series), including Schedule B thereto, filed with the DOL, IRS or PBGC with respect to each Benefit Plan; (d) within ten (10) Business Days after the filing of the same with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan -69- and all communications received by the Borrower or any ERISA Affiliate with respect to such request; (e) within ten (10) Business Days after the occurrence any material increase in the benefits of any existing Benefit Plan or the establishment of any new Benefit Plan or the commencement of contributions to any Benefit Plan to which the Borrower or any ERISA Affiliate was not previously contributing, notification of such increase, establishment or commencement; (f) within three (3) Business Days after the Borrower or any ERISA Affiliate receives notice of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice; (g) within ten (10) Business Days after the Borrower or any of its Subsidiaries receives notice of any unfavorable determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the Internal Revenue Code, copies of each such letter; (h) within ten (10) Business Days after the Borrower or any ERISA Affiliate receives notice from a Multiemployer Plan regarding the imposition of withdrawal liability, copies of each such notice; (i) within three (3) Business Days after the Borrower or any ERISA Affiliate fails to make a required installment or any other required payment under Section 412 of the Internal Revenue Code on or before the due date for such installment or payment, a notification of such failure; (j) within ten (10) Business Days after the Borrower or any ERISA Affiliate knows or has reason to know (A) a Multiemployer Plan has been terminated, (B) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (C) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan; and (k) within ten (10) Business Days after the Borrower receives written notice from the Lender requesting the same, copies of any Foreign Employee Benefit Plan and related documents, reports and correspondence specified in such notice. For purposes of this SECTION 6.07, the Borrower and any ERISA Affiliate shall be deemed to know all facts known by the -70- Administrator of any Plan of which the Borrower or any ERISA Affiliate is the plan sponsor. 6.08. ENVIRONMENTAL NOTICES. (a) The Borrower shall notify the Lender in writing, within five (5) days after the Borrower's learning thereof, of any: (i) notice or claim to the effect that the Borrower or any of its Subsidiaries is or can reasonably be expected to be liable to any Person as a result of the Release or threatened Release of any Contaminant; (ii) notice that the Borrower or any of its Subsidiaries is subject to investigation by any Governmental Authority evaluating whether any Remedial Action is needed to respond to the Release or threatened Release of any Contaminant; (iii) notice that any Property of the Borrower or any of its Subsidiaries is subject to an Environmental Lien; (iv) notice of violation to the Borrower or any of its Subsidiaries of any Environmental Law; (v) condition which might reasonably result in a violation of any Environmental Law; (vi) commencement or threat of any judicial or administrative proceeding alleging a violation by the Borrower or any of its Subsidiaries of any Environmental Law; (vii) new or proposed changes to any existing Environmental Law that could result in a Material Adverse Effect; (viii) any Release of a Contaminant which requires, or is reasonably likely to require, (A) Remedial Action which is subject to review or approval by any Governmental Authority or (B) reporting to any Governmental Authority; or (ix) any proposed acquisition of stock, assets, real estate, or leasing of property, or any other action by the Borrower or any of its Subsidiaries that is reasonably likely to subject the Borrower or any of its Subsidiaries to environmental, health or safety Liabilities and Costs. (b) Within forty-five (45) days after the end of each Fiscal Year, the Borrower shall submit to the Lender a report summarizing the status of environmental, health or safety -71- compliance, hazard or liability issues identified in notices required pursuant to SECTION 6.08(a), disclosed on SCHEDULE 5.01-T or identified in any notice or report required herein. 6.09. LABOR MATTERS. The Borrower shall notify the Lender in writing, promptly upon the Borrower's learning thereof, of (a) any material labor dispute to which the Borrower or any of its Subsidiaries may become a party, including, without limitation, any strikes, lockouts or other disputes relating to such Persons' plants and other facilities and (b) any liability incurred with respect to the closing of any plant or other facility of the Borrower or any of its Subsidiaries. 6.10. GOVERNMENT CONTRACT NOTICES. The Borrower shall notify the Lender in writing, within three (3) Business Days after the Borrower's learning thereof, of any of the following: (a) The DOD, any other United States Governmental Authority, any prime contractor, subcontractor or other Person has notified the Borrower or any of its Subsidiaries that the Borrower or such Subsidiary has breached or violated in any material respect any Requirement of Law, certification, representation, clause, provision or requirement pertaining to any Government Contract; (b) A termination for default, termination for convenience, cure notice or show cause notice is in effect with respect to any Government Contract; (c) Any cost incurred pertaining to any Government Contract has been questioned or challenged, is the subject of any investigation or has been disallowed by any United States Governmental Authority; (d) Any money due to the Borrower or any of its Subsidiaries pertaining to any Government Contact is withheld, or is the subject of an attempt to withhold, or is reduced through exercise of a right of set-off or otherwise; (e) The commencement or threat of any action, suit, investigation or proceeding relating to any Government Contact, or relating to any proposed suspension or debarment of the Borrower, any of its Subsidiaries or any of their respective employees or agents, against the Borrower, such Subsidiary, such other Person or any Property; (f) The discovery of any irregularity, misstatement or omission arising under or relating to any Government Contract that could reasonably be expected to lead to (i) an administrative, civil or criminal investigation, indictment or information with respect to the Borrower, any of its Subsidiaries or any of their respective directors, officers, employees, consultants or agents, (ii) disclosure of such irregularity, misstatement or omission to any Governmental -72- Authority or (iii) material damage, penalty assessment, recoupment of payment or disallowance of cost; or (g) The existence of (i) any outstanding material Claims against the Borrower, its Subsidiaries or any Property, either by a United States Governmental Authority or by any prime contractor, subcontractor, vendor or other third party, arising under or relating to any Government Contract, or (ii) any material dispute between the Borrower or any of its Subsidiaries, on the one hand, and any United States Governmental Authority, any prime contractor, subcontractor, vendor or other third party, on the other hand, arising under or relating to any Government Contract. 6.11. OTHER INFORMATION. Promptly upon receiving a request therefor from the Lender, the Borrower shall prepare and deliver to the Lender such other information with respect to the Borrower, any of its Subsidiaries, or the Collateral, including, without limitation, schedules identifying and describing the Collateral and any dispositions thereof, as from time to time may be reasonably requested by the Lender. ARTICLE VII AFFIRMATIVE COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent: 7.01. ORGANIZATIONAL EXISTENCE, ETC. Except as permitted by SECTION 8.09, the Borrower shall, and shall cause each of its Subsidiaries to, at all times maintain its organizational existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses, except where the loss or termination of such rights and franchises is not likely to have a Material Adverse Effect. 7.02. ORGANIZATIONAL POWERS; CONDUCT OF BUSINESS. The Borrower shall, and shall cause each of its Subsidiaries to qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified. 7.03. COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause its Subsidiaries to, (a) comply with all Requirements of Law and all restrictive covenants affecting such Person or the business, Property, assets or operations of such Person, and (b) obtain as needed all Permits necessary for its operations and maintain such Permits in good standing, except in the case where noncompliance with either CLAUSE (a) or (b) above is not reasonably likely to have a Material Adverse Effect. -73- 7.04. PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Borrower shall pay, and cause each of its Subsidiaries to pay, (a) all taxes, assessments and other governmental charges imposed upon it or on any of its Property or assets or in respect of any of its franchises, business, income or Property before any penalty, addition to tax or interest accrues thereon, and (b) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Lien permitted by SECTION 8.03) upon any of the Borrower's or such Subsidiary's Property or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; PROVIDED, HOWEVER, that no such taxes, assessments and governmental charges referred to in CLAUSE (a) above or claims referred to in CLAUSE (b) above need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. The Borrower will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than with the Parent, the Borrower or any of their respective Subsidiaries). 7.05. INSURANCE. The Borrower shall maintain for itself and its Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force and effect the insurance policies and programs listed on SCHEDULE 5.01-X or substantially similar policies and programs or other policies and programs as are acceptable to the Lender and, upon the request of the Lender, such other insurance which, in the sole and reasonable judgment of the Lender, is necessary or desirable to increase the likelihood of the repayment of the Obligations. All such policies and programs shall be maintained with insurers acceptable to the Lender. Each certificate and policy relating to Property damage, boiler and machinery and/or business interruption coverage shall contain an endorsement, in form and substance acceptable to the Lender, showing loss payable to the Lender, and, if required by the Lender, naming the Lender as an additional insured under such policy. Each certificate and policy relating to coverages other than the foregoing shall, if required by the Lender, contain an endorsement naming the Lender as an additional insured under such policy. Such endorsement or an independent instrument furnished to the Lender shall provide that the insurance companies will give the Lender at least thirty (30) days' written notice before any such policy or policies of insurance shall be altered adversely to the interests of the Lender or cancelled and that no act, whether willful or negligent, or default of the Borrower, any of its Subsidiaries or any other Person shall affect the right of the Lender to recover under such policy or policies of insurance in case of loss or damage. In the event the Borrower or any of its Subsidiaries, at any time or times hereafter shall fail to obtain or maintain any of the policies or insurance required herein or to pay any -74- premium in whole or in part relating thereto, then the Lender, without waiving or releasing any obligations or resulting Event of Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Lender deems advisable. All sums so disbursed by the Lender shall be part of the Obligations, payable as provided in this Agreement. 7.06. INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Borrower shall permit, and cause each of its Subsidiaries to permit, any authorized representative(s) designated by the Lender to visit and inspect any of the Properties of the Borrower or any of its Subsidiaries, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby, by the Purchase Documents or by the Recoil Acquisition Documents (including, without limitation, in connection with environmental compliance, hazard or liability or any Government Contract), and to discuss their affairs, finances and accounts with their officers and independent certified public accountants, all upon reasonable notice and at such reasonable times during normal business hours, as often as may be reasonably requested. At the request of the Lender and upon delivery to the Borrower of invoices therefor, each such visitation and inspection shall be at the Borrower's expense. The Borrower shall keep and maintain, and cause its Subsidiaries to keep and maintain, in all material respects proper books of record and account in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to their respective businesses and activities, including, without limitation, transactions and other dealings with respect to the Collateral. If an Event of Default has occurred and is continuing, the Borrower, upon the Lender's request, shall turn over copies of any such records to the Lender or its representatives. 7.07. INSURANCE AND CONDEMNATION PROCEEDS. The Borrower hereby directs (and, if applicable, shall cause its Subsidiaries to direct) all insurers under policies of Property damage, boiler and machinery and business interruption insurance and payors of any condemnation claim or award relating to the Property to pay all proceeds payable under such policies or with respect to such claim or award directly to the Lender, and in no case to the Borrower or one or more of its Subsidiaries and the Lender; PROVIDED, HOWEVER, that, with respect to any such proceeds relating to the Property of RCL, such proceeds shall be payable to the Lender hereunder only after payment in full of the "Obligations" under (and as defined in) the RCL Loan Agreement. Such proceeds shall constitute Net Cash Proceeds of Sale and shall be applied to the Obligations in accordance with SECTION 3.02(b)(vi). -75- 7.08. ERISA COMPLIANCE. The Borrower shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Plans to comply in all material respects with the provisions of ERISA, the Internal Revenue Code, all other applicable laws, and the regulations thereunder and the respective requirements of the governing documents for such Plans. 7.09. FOREIGN EMPLOYEE BENEFIT PLAN COMPLIANCE. The Borrower shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Foreign Employee Benefit Plans to comply in all material respects with all laws and regulations applicable thereto and the respective requirements of the governing documents for such Plans. 7.10. GOVERNMENT CONTRACT COMPLIANCE. The Borrower shall, and shall cause each of its Subsidiaries to (a) maintain all Permits pertaining to Government Contracts required to operate the Borrower's business as it is currently conducted, including, without limitation, (i) all Facility Security Clearance(s) and Personnel Security Clearance(s), (ii) all certifications of products manufactured by the Borrower which are on the "Qualified Products List" of any United States Governmental Authority, and (iii) all Export Licenses and other similar Permits; and (b) comply in all material respects with all Requirements of Law and Contractual Obligations pertaining to each Government Contract. 7.11. MAINTENANCE OF PROPERTY. The Borrower shall, and shall cause each of its Subsidiaries to, maintain in all material respects all of their respective owned and leased Property in good, safe and insurable condition and repair, and not permit, commit or suffer any waste or abandonment of any such Property and from time to time shall make or cause to be made all material repairs, renewal and replacements thereof, including, without limitation, any capital improvements which may be required; PROVIDED, HOWEVER, that such Property may be altered or renovated in the ordinary course of business. 7.12. CONDEMNATION. Immediately upon learning of the institution of any proceeding for the condemnation or other taking of any of the owned or leased Real Property of the Borrower or any of its Subsidiaries, the Borrower shall notify the Lender of the pendency of such proceeding, and permit the Lender to participate in any such proceeding, and from time to time will deliver to the Lender all instruments reasonably requested by the Lender to permit such participation. 7.13. FUTURE LIENS ON REAL PROPERTY. The Borrower shall, and shall cause its Subsidiaries to, execute and deliver to the Lender, immediately upon the acquisition or leasing of any Real Property, a mortgage, deed of trust, assignment or other appropriate instrument evidencing a Lien upon any such Real Property, lease or interest, together with such title insurance -76- policies (mortgagee's form), certified surveys, appraisals, and local counsel opinions with respect thereto and such other agreements, documents and instruments which the Lender deems necessary or desirable, the same to be in form and substance substantially the same as the mortgages and other Loan Documents relating to Real Property executed and delivered in connection with the Original Credit Agreement, and to be subject only to (a) Liens permitted under SECTION 8.03 and (b) such other Liens as the Lender may reasonably approve, it being understood that the granting of such additional security for the Obligations is a material inducement to the execution and delivery of this Agreement by the Lender. ARTICLE VIII NEGATIVE COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent: 8.01. INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (i) the Obligations; (ii) trade payables, wages and other accrued expenses incurred in the ordinary course of business; (iii) the Transaction Costs; (iv) to the extent permitted by ARTICLE IX and the RCL Loan Agreement and in any event in an aggregate amount not to exceed $3,000,000 at any time, Capital Leases and purchase money Indebtedness incurred to finance the acquisition of fixed assets, and Indebtedness incurred to refinance such Capital Leases and purchase money Indebtedness; (v) Indebtedness in respect of taxes, assessments, governmental charges and claims for labor, materials or supplies, to the extent that payment thereof is not required pursuant to SECTION 7.04; (vi) Indebtedness constituting Accommodation Obligations permitted by SECTION 8.05; (vii) Indebtedness arising from intercompany loans from the Parent or any of Borrower's wholly-owned Subsidiaries to the Borrower, PROVIDED, that all such Indebtedness shall be evidenced by promissory notes (which, if payable to RCL, Recoil Holdings or Recoil -77- Australia Holdings, shall be delivered to the Lender in accordance with the RCL Loan Documents) and shall be subordinated in right of payment to the Obligations; (viii) Indebtedness with respect to reasonable warranties and indemnities made under any agreements for asset sales permitted under SECTION 8.02; (ix) Indebtedness with respect to warranties and indemnities in favor of Recoil Australia, Recoil U.S. and the Vendors under the Recoil Acquisition Documents; (x) Indebtedness under the RCL Loan Agreement and any refinancing thereof, provided that the aggregate outstanding amount of Indebtedness described in this clause (x) is not increased by the refinancing; and (xi) Permitted Existing Indebtedness. 8.02. SALES OF ASSETS. Neither the Borrower nor any of its Subsidiaries shall sell, assign, transfer, lease, convey or otherwise dispose of any Property, whether now owned or hereafter acquired, or any income or profits therefrom, or enter into any agreement to do so, except: (i) the sale of Property having an aggregate Fair Market Value of not more than $1,000,000 in any Fiscal Year for cash consideration not less than the Fair Market Value thereof, PROVIDED that the Borrower complies with the mandatory prepayment provisions set forth in SECTION 3.01(b) or RCL complies with the mandatory prepayment provisions set forth in SECTION 3.01(b) of the RCL Loan Agreement (as applicable); (ii) the transfer of Property from a Subsidiary of the Borrower to the Borrower; (iii) the sale of Inventory in the ordinary course of business; (iv) the disposition of Equipment if (A) such Equipment is obsolete or no longer useful in the ordinary course of the Borrower's or such Subsidiary's business, PROVIDED, that the aggregate Fair Market Value of all such Equipment disposed of in any Fiscal Year shall not exceed $500,000, or (B) within six (6) months after such disposition, the proceeds therefrom are either (I) used to finance the purchase of replacement Equipment and the Borrower delivers to the Lender evidence of such use and that the replacement Equipment is free and clear of all Liens except those created under the Loan Documents or (II) delivered to the Lender for application to the repayment of the -78- Obligations or the "Obligations" under (and as defined in) the RCL Loan Agreement (as applicable); (v) the licensing of General Intangibles as permitted by the Loan Documents or the RCL Loan Documents (as applicable); and (vi) any Investment permitted under SECTION 8.04. 8.03. LIENS. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of their respective Property or assets except: (i) Liens created by the Loan Documents and the RCL Loan Documents; (ii) Customary Permitted Liens; (iii) purchase money Liens (including the interest of a lessor under a Capital Lease or an Operating Lease having substantially the same economic effect and Liens to which any Property is subject at the time of the Borrower's or such Subsidiary's purchase thereof) securing an amount not to exceed $3,000,000 in the aggregate at any time or from time to time, PROVIDED, that such Liens shall not apply to any Property of the Borrower or its Subsidiaries other than that purchased or subject to such Capital Lease; and (iv) Permitted Existing Liens. 8.04. INVESTMENTS. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly make or own any Investment except: (i) Investments in Cash Equivalents; (ii) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (iii) contributions to and payments of benefits under any Plan (in accordance with the terms of the Plan) permitted by this Agreement; (iv) Investments (in an aggregate unrecovered amount not to exceed $1,400,000) by the Borrower in Kaynar U.K. and by Kaynar U.K. in Recoil U.K., including, without limitation, the Borrower's ownership of the Capital Stock of Kaynar U.K. and Kaynar U.K.'s ownership of the Capital Stock of Recoil U.K.; -79- (v) Investments arising from intercompany loans from the Borrower to the Parent which, together with the amount of dividends or distributions to the Parent on the Capital Stock of the Borrower permitted under SECTION 8.06(ii), shall not exceed an aggregate amount of $600,000 in any Fiscal Year, PROVIDED, that (A) all such Investments shall be evidenced by promissory notes which are pledged to the Lender in accordance with the provisions of the Security Agreement and (B) such intercompany loans, dividends or distributions shall be made by the Borrower solely to enable the Parent to pay (I) operating expenses of the Parent in an amount not to exceed $50,000 in any fiscal year of the Parent, (II) accrued interest on the "Term Loans" under (and as defined in) the Parent Loan Agreement and the PIK Dividend Notes (including, without limitation, that portion of the principal amount of the "Initial Term Loan" under (and as defined in) the Parent Loan Agreement or the PIK Dividend Notes attributable to interest which has been capitalized in accordance with the Parent Loan Agreement or the PIK Dividend Note Agreement, as applicable) and (III) if and only if all accrued interest on such Term Loans and the PIK Dividend Notes (including, without limitation, that portion of the principal amount of such Initial Term Loan or the PIK Dividend Notes attributable to interest which has been capitalized in accordance with the Parent Loan Agreement or the PIK Dividend Note Agreement, as applicable) as of the then most recent date on which interest on any such Term Loans or the PIK Dividend Notes is payable has been (or will be concurrently therewith) paid in full in cash, dividends or distributions on the preferred stock of the Parent; (vi) Investments arising from intercompany loans which are permitted under SECTION 8.01(vii); (vii) Investments (in each case in an aggregate unrecovered amount not to exceed $12,000,000) by the Borrower in Recoil Holdings and Recoil Australia Holdings and by Recoil Holdings and Recoil Australia Holdings in RCL, including, without limitation, the Borrower's ownership of the Capital Stock of Recoil Holdings and Recoil Australia Holdings and Recoil Holdings's and Recoil Australia Holdings's ownership of the Capital Stock of RCL; (viii) Investments (in an aggregate unrecovered amount not to exceed $600,000) by the Borrower in Kaynar Femipari, including, without limitation, the Borrower's ownership of the Capital Stock of Kaynar Femipari; and -80- (ix) Investments in the Borrower's Subsidiaries (other than those permitted by CLAUSES (iv), (vii) and (viii)) in existence, and in the unrecovered amounts, on the Amendment and Restatement Effective Date. 8.05. ACCOMMODATION OBLIGATIONS. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create or become or be liable with respect to any Accommodation Obligation, except: (i) recourse obligations resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (ii) Permitted Existing Accommodation Obligations; (iii) Accommodation Obligations arising under the Loan Documents; and (iv) Accommodation Obligations of Recoil Holdings and Recoil Australia Holdings arising under the RCL Loan Documents. 8.06. RESTRICTED JUNIOR PAYMENTS. Neither the Borrower nor any of its Subsidiaries shall declare or make any Restricted Junior Payment, except for: (i) dividends or distributions to the Borrower on the Capital Stock of any of its wholly-owned Subsidiaries; and (ii) for so long as no Event of Default has occurred and is continuing, dividends or distributions to the Parent on the Capital Stock of the Borrower which, together with the principal amount of intercompany loans from the Borrower to the Parent permitted under SECTION 8.04(v), shall not exceed an aggregate amount of $600,000 in any Fiscal Year, PROVIDED, that such intercompany loans, dividends or distributions shall be made by the Borrower solely to enable the Parent to pay (A) operating expenses of the Parent in an amount not to exceed $50,000 in any fiscal year of the Parent, (B) accrued interest on the "Term Loans" under (and as defined in) the Parent Loan Agreement or the PIK Dividend Notes (including, without limitation, that portion of the principal amount of the "Initial Term Loan" under (and as defined in) the Parent Loan Agreement or the PIK Dividend Notes attributable to interest which has been capitalized in accordance with the Parent Loan Agreement or the PIK Dividend Note Agreement, as applicable) and (C) if and only if all accrued interest on such Term Loans and the PIK Dividend Notes (including, without limitation, that -81- portion of the principal amount of such Initial Term Loan or the PIK Dividend Notes attributable to interest which has been capitalized in accordance with the Parent Loan Agreement or the PIK Dividend Note Agreement, as applicable) as of the then most recent date on which interest on any such Term Loans or the PIK Dividend Notes is payable has been (or will concurrently therewith) paid in full in cash, dividends or distributions on the preferred stock of the Parent. 8.07. CONDUCT OF BUSINESS. Neither the Borrower nor any of its Subsidiaries shall engage in any business other than (i) the businesses engaged in by AFS on the Initial Closing Date, (ii) the businesses engaged in by Recoil Australia and its Subsidiaries on the Amendment and Restatement Effective Date and (iii) any business or activities which are substantially similar, related or incidental thereto; PROVIDED, HOWEVER, that Recoil Holdings and Recoil Australia Holdings shall not engage in any business other than the holding of the Capital Stock of RCL and, in the case of Recoil Holdings, one share of the Capital Stock of Recoil Belgium. 8.08. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder or holders of more than five percent (5%) of any class of equity Securities of the Borrower or the Parent, or with any Affiliate of the Borrower which is not its Subsidiary, on terms that are less favorable to the Borrower or any of its Subsidiaries, as applicable, than those that might be obtained in an arm's length transaction at the time from Persons who are not such a holder or Affiliate. Nothing contained in this SECTION 8.08 shall prohibit (i) any transaction expressly permitted by SECTIONS 8.01, 8.05 or 8.06; (ii) increases in compensation and benefits for officers and employees of the Borrower or any of its Subsidiaries which are customary in the industry or consistent with the past business practice of the Borrower or such Subsidiary, PROVIDED, that no Event of Default or Potential Event of Default has occurred and is continuing; (iii) payment of customary directors' fees and indemnities; (iv) performance of any obligations arising under the Transaction Documents; or (v) transactions between the Borrower and the Parent or the Borrower and any of its Subsidiaries, PROVIDED that no Event of Default or Potential Event of Default results therefrom. 8.09. RESTRICTION ON FUNDAMENTAL CHANGES. Neither the Borrower nor any of its Subsidiaries shall enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of the Borrower's or any such Subsidiary's business or Property, whether now or hereafter -82- acquired, except for (i) transactions permitted under SECTION 8.02 or SECTION 8.16 and (ii) a merger of Recoil Holdings and Recoil Australia Holdings, PROVIDED that such merger will not result in any adverse tax consequences to Recoil Holdings, Recoil Australia Holdings, RCL or the Lender. 8.10. SALES AND LEASEBACKS. Neither the Borrower nor any of its Subsidiaries shall become liable, directly, by assumption or by Accommodation Obligation, with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real or personal or mixed) (i) which it or one of its Subsidiaries sold or transferred or is to sell or transfer to any other Person, or (ii) which it or one of its Subsidiaries intends to use for substantially the same purposes as any other Property which has been or is to be sold or transferred by it or one of its Subsidiaries to any other Person in connection with such lease. 8.11. ERISA. The Borrower shall not: (i) engage, or permit any ERISA Affiliate to engage, in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the Department of Labor; (ii) permit to exist any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the Internal Revenue Code), with respect to any Benefit Plan, whether or not waived; (iii) fail, or permit any ERISA Affiliate to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (iv) establish, maintain or otherwise become liable with respect to, or permit any ERISA Affiliate to establish, maintain or otherwise become liable with respect to, any Benefit Plan; (v) fail to make any contribution or payment to any Multiemployer Plan which Borrower or any ERISA Affiliate is required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (vi) fail, or permit any ERISA Affiliate to fail, to pay any required installment or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment; -83- (vii) amend, or permit any ERISA Affiliate to amend, a Benefit Plan resulting in an increase in current liability for the plan year such that the Borrower or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Internal Revenue Code; (viii) permit any unfunded liabilities with respect to any Foreign Pension Plan; or (ix) fail, or permit any of its Subsidiaries or ERISA Affiliates to fail, to pay any required contributions or payments to a Foreign Pension Plan on or before the due date for such required installment or payment. 8.12. ISSUANCE OF CAPITAL STOCK. Neither the Borrower nor any of its Subsidiaries shall issue any Capital Stock to any Person except for the Capital Stock issued by such Persons as of the Amendment and Restatement Effective Date. 8.13. ORGANIZATIONAL DOCUMENTS. Neither the Borrower nor any of its Subsidiaries shall amend, modify or otherwise change any of the terms or provisions in any of their respective Organizational Documents as in effect on the date hereof. 8.14. BANK ACCOUNTS. Neither the Borrower nor any of its Subsidiaries shall open or maintain any deposit account with any Person unless (i) such Person is a bank or financial institution reasonably acceptable to the Lender, (ii) such Person has executed a Collection Account Agreement with respect to such deposit account, and (iii) SCHEDULE 1.01.1 reflects (or shall have been amended to reflect) such Person as a Collection Account Bank and such deposit account as a Collection Account under this Agreement. 8.15. FISCAL YEAR. Neither the Borrower nor any of its consolidated Subsidiaries shall change its Fiscal Year for accounting or tax purposes from a period consisting of the 12-month period ending on December 31 of each calendar year. 8.16. SUBSIDIARIES. (a) Within 180 days after the Amendment and Restatement Effective Date, the Borrower shall have caused Recoil U.K. to merge with, or transfer all of its assets to, Kaynar U.K. or shall have taken, and shall have caused Kaynar U.K. and Recoil U.K. to have taken, all actions requested by the Lender in order for Kaynar U.K. to pledge to the Lender, and to register and otherwise perfect such pledge of, the Capital Stock of Recoil U.K. in accordance with the laws of England and Wales. (b) The Borrower shall not, and shall cause Kaynar International and Recoil Belgium not to, increase the value of any such Subsidiary's assets by more than 25% of the value of such Subsidiary as of the Amendment and Restatement Effective -84- Date unless the Borrower shall have taken, and shall have caused such Subsidiaries to have taken, all actions requested by the Lender to register and otherwise perfect the Lender's security interest in 65% of the Capital Stock of such Subsidiaries evidenced by the Pledge Agreement under the laws of Barbados, Belgium and France, respectively. (c) The Borrower shall not, and shall cause Kaynar Femipari not to, allow the value of Kaynar Femipari's assets to exceed $500,000 at any time unless the Borrower shall have taken, and shall have caused Kaynar Femipari to have taken, all actions requested by the Lender to register and otherwise perfect the Lender's security interest in 65% of the Capital Stock of Kaynar Femipari evidenced by the Pledge Agreement under the laws of Hungary. (d) The Borrower shall not, and shall cause Recoil Holdings and Recoil Australia Holdings not to, engage in any business other than the holding of the Capital Stock of RCL and, in the case of Recoil Holdings, one share of the Capital Stock of Recoil Belgium. (e) The Borrower shall not create any Subsidiaries other than Kaynar Femipari, Kaynar International, Kaynar U.K., Recoil Australia Holdings, Recoil Belgium, Recoil Holdings and Recoil U.K. ARTICLE IX FINANCIAL COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent thereto: 9.01. CONSOLIDATED CASH FLOW. Consolidated Cash Flow, as determined as of each date set out below for the 12-month period ending on such date, shall not be less than the amount set out below opposite such date: Date Minimum Amount ---- -------------- 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 $10,000,000 September 30, 1998 $10,000,000 December 31, 1998 $10,000,000 -85- 9.02. CONSOLIDATED INTEREST COVERAGE RATIO. The Consolidated Interest Coverage Ratio, as determined as of each date set out below for the 12- month period ending on such date, shall not be less than the amount set out below opposite such date: Date Minimum Ratio ---- ------------- 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 2.75 to 1 March 31, 1998 3.00 to 1 June 30, 1998 3.00 to 1 September 30, 1998 3.00 to 1 December 31, 1998 3.00 to 1 9.03. CONSOLIDATED TOTAL FUNDED INDEBTEDNESS COVERAGE RATIO. The Consolidated Total Funded Indebtedness Coverage Ratio, as determined as of each date set out below for the twelve month period ending on such date, shall not be greater than the ratio set out below opposite such date: Date Maximum Ratio ---- ------------- June 30, 1996 4.5 to 1 September 30, 1996 4.5 to 1 December 31, 1996 3.5 to 1 March 31, 1997 3.5 to 1 June 30, 1997 3.5 to 1 September 30, 1997 3.5 to 1 December 31, 1997 3.5 to 1 March 31, 1998 3.5 to 1 June 30, 1998 3.5 to 1 September 30, 1998 3.5 to 1 December 31, 1998 3.5 to 1 9.04. NET WORKING CAPITAL TO SENIOR INDEBTEDNESS RATIO. The Net Working Capital to Senior Indebtedness Ratio, as determined as of the end of each fiscal quarter set out below, shall not be less than the ratio set out below opposite such Fiscal Year: Fiscal Year Minimum Ratio ----------- ------------- 1996 0.60 to 1 1997 0.65 to 1 1998 0.70 to 1 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 set out -86- below in an aggregate amount greater than the amount set out below opposite such Fiscal Year: Fiscal Year Maximum Amount ----------- -------------- 1996 $4,500,000 1997 $3,500,000 1998 $3,500,000 PROVIDED, HOWEVER, that solely for purposes of calculating compliance with this 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, or (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. ARTICLE X EVENTS OF DEFAULT; RIGHTS AND REMEDIES 10.01. EVENTS OF DEFAULT. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Borrower shall fail to pay when due any of the Obligations. (b) BREACH OF CERTAIN COVENANTS. The Borrower shall fail duly and punctually to perform or observe any agreement, covenant or obligation binding on such Person under SECTIONS 6.08, 7.01, and 7.06, ARTICLE VIII or ARTICLE IX. (c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty made or deemed made by the Borrower to the Lender herein or by the Borrower or any of its Subsidiaries in any of the other Loan Documents or in any statement or certificate at any time given by any such Person pursuant to any of the Loan Documents shall be false or misleading in any material respect on the date as of which made (or deemed made). (d) OTHER DEFAULTS. The Borrower shall default in the performance of or compliance with any term contained in this Agreement (other than as covered by PARAGRAPHS (a), (b) or (c) of this SECTION 10.01) or any default or event of default shall occur under any of the other Loan Documents, and such default or event of default shall continue for fifteen (15) days after the -87- Borrower has knowledge of the default or, if earlier, receipt by the Borrower of a notice of the default from the Lender. (e) DEFAULT AS TO OTHER INDEBTEDNESS; OPERATING LEASES; PARENT AGREEMENTS. The Borrower or any of its Subsidiaries shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness (other than an Obligation) having a principal amount in excess of $100,000; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness; or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by the Borrower or any of its Subsidiaries (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or any "Event of Default" under (and as defined in) the RCL Loan Agreement or either of the Parent Agreements has occurred and is continuing. (f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) An involuntary case shall be commenced against the Borrower or any of its Subsidiaries and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of its Subsidiaries in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law; or the board of directors of the Borrower or any of its Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any of its Subsidiaries or over all or a substantial part of the Property of the Borrower or any of its Subsidiaries shall be entered; or an interim receiver, trustee or other custodian of the Borrower or any of its Subsidiaries or of all or a substantial part of the Property of the Borrower or any of its Subsidiaries shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the Property of the Borrower or any of its Subsidiaries shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days after entry, appointment or issuance; or the board of directors of the Borrower or any of its Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. -88- (g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Borrower or any of its Subsidiaries of the Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its Property; or the Borrower or any of its Subsidiaries of the Borrower shall make any assignment for the benefit of creditors or shall be unable or fail, or admit in writing its inability, to pay its debts as such debts become due. (h) JUDGMENTS AND ATTACHMENTS. Any money judgment (other than a money judgment covered by insurance as to which the insurance company has acknowledged coverage), writ or warrant of attachment, or similar process against the Borrower or any of its Subsidiaries of the Borrower or any of their respective assets involving in any case an amount in excess of $500,000 is entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale thereunder. (i) DISSOLUTION. Any order, judgment or decree shall be entered against the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or the Borrower or any of its Subsidiaries shall otherwise dissolve or cease to exist except as specifically permitted by this Agreement. (j) LOAN DOCUMENTS; FAILURE OF SECURITY. At any time, for any reason, (i) any Loan Document ceases to be in full force and effect or the Borrower or any of its Subsidiaries party thereto seeks to repudiate its obligations thereunder and the Liens intended to be created thereby are, or the Borrower or any such Subsidiary seeks to render such Liens, invalid and unperfected, or (ii) Liens in favor of the Lender contemplated by the Loan Documents shall, at any time, for any reason, be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated by this Agreement or the Loan Documents. (k) TERMINATION EVENT. Any Termination Event occurs which the Lender believes could reasonably be expected to subject either the Borrower or any ERISA Affiliate to liability in excess of $250,000. (l) WAIVER APPLICATION. The plan administrator of any Benefit Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Internal Revenue Code and the Lender believes that the substantial business hardship upon which the application for the -89- waiver is based could subject either the Borrower or any ERISA Affiliate to liability in excess of $250,000. (m) SUSPENSIONS, DEBARMENT. Any suspension or debarment with respect to Government Contracts is imposed on the Borrower, any of its Subsidiaries or any of their respective directors, officers, employees, consultants or agents. (n) MATERIAL ADVERSE CHANGE. An event shall exist which has a Material Adverse Effect. An Event of Default shall be deemed "continuing" until cured or waived in writing in accordance with SECTION 11.05. 10.02. RIGHTS AND REMEDIES. (a) ACCELERATION AND TERMINATION. Upon the occurrence of any Event of Default described in SECTIONS 10.01(f) or 10.01(g), the Commitments shall automatically and immediately terminate and the unpaid principal amount of, and any and all accrued interest on, the Obligations and all accrued fees shall automatically become immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower; and upon the occurrence and during the continuance of any other Event of Default, the Lender may, by written notice to the Borrower, (i) declare that the Commitments are terminated, whereupon the Commitments and the obligation of the Lender to make any Loan hereunder or issue, or cause the issuance of, any Letter of Credit not then issued shall immediately terminate, and/or (ii) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Obligations to be, and the same shall thereupon be, immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower. (b) DEPOSIT FOR LETTERS OF CREDIT. In addition, after the occurrence and during the continuance of an Event of Default, the Borrower shall, promptly upon demand by the Lender, deliver to the Lender, cash for deposit in an account designated by the Lender, together with the execution and delivery of such documents and instruments as the Lender may request in order to perfect or protect the Lender's Lien with respect thereto, in an aggregate principal amount equal to the then outstanding Letter of Credit Obligations. Any amounts so delivered to the Lender which are not applied to the Letter of Credit Obligations shall, after the expiration of all Letters of Credit issued pursuant to this Agreement, be returned to the Borrower. -90- (c) DEFAULT RATE OF INTEREST. In addition to any other remedies available to the Lender after the occurrence of an Event of Default, the Lender shall be entitled to receive interest on the Obligations at the default rate in accordance with SECTION 2.04(c). (d) ENFORCEMENT. The Borrower acknowledges that in the event the Borrower or any of its Subsidiaries fails to perform, observe or discharge any of their respective obligations or liabilities under this Agreement or any other Loan Document, any remedy of law may prove to be inadequate relief to the Lender; therefore, the Borrower agrees that the Lender shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. ARTICLE XI MISCELLANEOUS 11.01. EXPENSES. The Borrower agrees upon demand to pay, or reimburse the Lender for, all of the Lender's reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of Sidley & Austin, local and foreign legal counsel, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents) incurred by the Lender in connection with (a) the preparation, negotiation and execution of this Agreement and the Loan Documents and any amendments, consents, waivers, assignments, restatements, or supplements to any of the same; (b) the Lender's periodic audits of the Borrower and its Subsidiaries after the Initial Closing Date; (c) the protection of the Liens under the Loan Documents after the Initial Closing Date (including, without limitation, any reasonable fees and expenses for local counsel in various jurisdictions); (d) the ongoing administration of this Agreement and the Loans, including consultation with attorneys in connection therewith and with respect to the Lender's rights and responsibilities under this Agreement and the other Loan Documents; (e) the protection, collection or enforcement of any of the Obligations or Loan Documents or any security therefor or exercising or enforcing any other right or remedy available to the Lender under the Loan Documents; (f) the commencement, defense or intervention in any court proceeding relating in any way to the Obligations, the Property, the Borrower, any of its Subsidiaries, this Agreement or any of the other Transaction Documents; (g) the response to, and preparation for, any subpoena or request for document production with which the Lender is served or deposition or other proceeding in which the Lender is called to testify, in each case, relating in any way to the Obligations, the Property, the Borrower, any of its Subsidiaries, this Agreement or any of the other Transaction Documents; (h) in connection with any -91- refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; (i) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in CLAUSES (e) through (h) above. 11.02. INDEMNITY. The Borrower further agrees to defend, protect, indemnify, and hold harmless the Lender and each of its officers, directors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in ARTICLE IV) (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses (other than loss of profits), damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (excluding any taxes and including, without limitation, the fees and disbursements of counsel or consulting firms for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of (a) this Agreement or the other Loan Documents, or any act, event or transaction related or attendant thereto or to the Purchase, the Recoil Acquisition, the making of the Loans or the issuing, or causing the issuance of, Letters of Credit, the management of such Loans or Letters of Credit, the use or intended use of the proceeds of the Loans or Letters of Credit, or any of the other transactions contemplated by the Transaction Documents, or (b) any Liabilities and Costs under Environmental Laws arising from or in connection with the past, present or future operations of the Borrower, its Subsidiaries or any of their respective predecessors in interest, or, the past, present or future environmental condition of any Property, the presence of asbestos-containing materials at any Property or the Release or threatened Release of any Contaminant (collectively, the "Indemnified Matters"); PROVIDED, HOWEVER, that the Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters to the extent caused by or resulting from the willful misconduct or gross negligence of the Indemnitee (or any other Indemnitee whose willful misconduct or grossly negligent acts were authorized by the Indemnitee claiming indemnification hereunder), as determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. 11.03. CHANGE IN ACCOUNTING PRINCIPLES. If any change in the accounting principles used in the preparation of the most recent financial statements referred to in SECTION 6.01 are hereafter required or permitted by the rules, regulations, -92- pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and are adopted by the Borrower with the agreement of its independent certified public accountants and such changes result in a change in the method of calculation of any of the covenants, standards or terms found in ARTICLE VIII and ARTICLE IX, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating compliance with such covenants, standards and terms by the Borrower shall be the same after such changes as if such changes had not been made; PROVIDED, HOWEVER, that no change in GAAP that would affect the method of calculation of any of the covenants, standards or terms shall be given effect in such calculations until such provisions are amended, in a manner satisfactory to the Lender and the Borrower, to so reflect such change in accounting principles. 11.04. SETOFF. In addition to any Liens granted under the Loan Documents and any rights now or hereafter granted under applicable law, upon the occurrence and during the continuance of any Event of Default, the Lender is hereby authorized by the Borrower at any time or from time to time, without notice to any Person (any such notice being hereby expressly waived) to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured (but not including trust accounts)) and any other Indebtedness at any time held or owing by the Lender to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower to the Lender, including, but not limited to, all Loans and Letters of Credit and all claims of any nature or description arising out of or in connection with this Agreement, irrespective of whether or not (a) the Lender shall have made any demand hereunder or (b) the Lender shall have declared the principal of and interest on the Loans and other amounts due hereunder to be due and payable as permitted by ARTICLE X and even though such Obligations may be contingent or unmatured. 11.05. AMENDMENTS AND WAIVERS. Unless otherwise provided in this Agreement, no amendment or modification of any provision of this Agreement shall be effective without the written agreement of the Lender and the Borrower, and no termination or waiver of any provision of this Agreement, or consent to any departure by the Borrower therefrom, shall be effective without the written concurrence of the Lender, which the Lender shall have the right to grant or withhold in its sole discretion. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. -93- 11.06. NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by courier service or United States certified mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex or four (4) Business Days after deposit in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this SECTION 11.06) shall be as follows: (a) If to the Lender, at: General Electric Capital Corporation 201 High Ridge Road Stamford, CT 06927 Attention: Murry Stegelmann Telecopier No. (203) 316-7894 with copies to: General Electric Capital Corporation 201 High Ridge Road Stamford, CT 06927 Attention: Corporate Finance Group Department Counsel Telecopier No. (203) 316-7889 and Sidley & Austin 555 West Fifth Street Los Angeles, California 90013-1010 Attention: Edward D. Eddy, III, Esq. Telecopier No. (213) 896-6600 (b) If to the Borrower, at: Kaynar Technologies Inc. 800 South State College Blvd. Fullerton, California 92634-3001 Attention: David A. Werner Telecopier No. (714) 680-3153 with a copy to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 Attn: C. James Levin, Esq. Telecopier No. (213) 669-6407 -94- PROVIDED, that the Lender or the Borrower shall have the right to change any of the above-listed addresses by properly addressed and delivered notice to the other party. 11.07. SURVIVAL OF WARRANTIES AND AGREEMENTS. All representations and warranties made herein and all obligations of the Borrower in respect of taxes, indemnification and expense reimbursement shall survive the execution and delivery of this Agreement and the other Loan Documents, the making and repayment of the Loans, the issuance and discharge of Letters of Credit, and the termination of this Agreement and shall not be limited in any way by the passage of time or occurrence of any event and shall expressly cover time periods when the Lender may have come into possession or control of any of the Borrower's or its Subsidiaries' Property. 11.08. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Lender in the exercise of any power, right or privilege under any of the Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under the Loan Documents are cumulative to and not exclusive of any rights or remedies otherwise available. 11.09. MARSHALLING; PAYMENTS SET ASIDE. The Lender shall be under no obligation to marshall any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations. To the extent that the Borrower makes a payment or payments to the Lender or the Lender receives payment from the proceeds of the Collateral or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 11.10. SEVERABILITY. In case any provision in or obligation under this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 11.11. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall -95- not constitute a part of this Agreement or be given any substantive effect. 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 11.13. LIMITATION OF LIABILITY. No claim may be made by the Borrower or the Lender or any other Person against the Borrower, the Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and the Borrower and the Lender hereby waive, release and agree not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 11.14. SUCCESSORS AND ASSIGNS. This Agreement and the other Loan Documents shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Lender. The Lender may assign all or any part of its rights and obligations under this Agreement and the other Loan Documents to any Person upon thirty (30) days' prior written notice to (but without the consent of) the Borrower, it being agreed and understood that the Lender's right to assign its interests under this Agreement and the other Loan Documents shall be independent of any right of assignment in favor of the Lender with respect to any other agreement, document or instrument to which it is a party. The rights hereunder of the Borrower, or any interest therein, may not be assigned without the written consent of the Lender. 11.15. CERTAIN CONSENTS AND WAIVERS OF THE BORROWER. (a) PERSONAL JURISDICTION. (i) THE LENDER AND THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY CALIFORNIA STATE COURT OR FEDERAL COURT SITTING IN LOS ANGELES, CALIFORNIA, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE BORROWER IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION AS ITS AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH -96- COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. THE LENDER AND THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (ii) THE BORROWER AGREES THAT THE LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION WHICH IS NECESSARY OR DESIRABLE TO ENABLE THE LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE LENDER. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE LENDER. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE LENDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION. (b) SERVICE OF PROCESS. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR THE BORROWER'S NOTICE ADDRESS SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. (C) WAIVER OF JURY TRIAL. THE LENDER AND THE BORROWER IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. 11.16. COUNTERPARTS; EFFECTIVENESS; INCONSISTENCIES. This Agreement and any amendments, waivers, consents, or supplements hereto may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective against the Borrower and the Lender as of the date when all of the conditions set forth in SECTION 4.01 have been satisfied or duly waived in accordance with SECTION 11.05 (the "Amendment and Restatement Effective Date"). Subject to the provisions of this Agreement (including, without limitation, the preliminary statements hereto), this Agreement and each of the other Loan Documents -97- shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Agreement are actually inconsistent with the terms and conditions of any other Loan Document, this Agreement shall govern. 11.17. CONFIDENTIALITY. The Lender shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Borrower in accordance with the Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide offeree, transferee or participant in connection with the contemplated transfer or participation or as required or requested by any Governmental Authority or representative thereof or pursuant to legal process and shall require any such offeree, transferee or participant to agree (and require any of its offerees, transferees or participants to agree) to comply with this SECTION 11.17. In no event shall the Lender be obligated or required to return any materials furnished by the Borrower; PROVIDED, HOWEVER, that each offeree shall be required to agree that if it does not become a transferee or participant it shall return all materials furnished to it by the Borrower in connection with this Agreement. Any and all confidentiality agreements entered into between the Lender and the Borrower shall survive the execution of this Agreement. 11.18. NO NOVATION. This Agreement is an amendment and restatement of the Existing Credit Agreement. The parties hereto hereby acknowledge and agree that (a) the Term Note delivered by the Borrower to the Lender on the Amendment and Restatement Effective Date is given in renewal of and rearrangement and substitution, but not in payment, for the "Term Note" (as defined in the Existing Credit Agreement) (b) the "Revolving Credit Note" (as defined in the Existing Credit Agreement) is the same instrument as the Revolving Credit Note referred to in this Agreement and (c) this Agreement and the delivery of the substitute Term Note pursuant hereto are in no way intended to constitute a novation of the Existing Credit Agreement, such "Term Note," such "Revolving Credit Note" or the outstanding principal amount of the Indebtedness evidenced by any of them. [THE FOLLOWING PAGE IS THE SIGNATURE PAGE] -98- 11.19. ENTIRE AGREEMENT. This Agreement, taken together with all of the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and all prior agreements and understandings, written and oral, relating to the subject matter hereof. IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. BORROWER: KAYNAR TECHNOLOGIES INC. - -------- By /s/ D.A. Werner -------------------------------- Name: David A. Werner Title: Vice President LENDER: GENERAL ELECTRIC CAPITAL CORPORATION - ------ By /s/ P.C. Keenoy -------------------------------- Name: Peter C. Keenoy Title: Managing Director EX-10.2(B) 7 EX 10.2(B) FIRST AMENDMENT, CONSENT & LTD WAIVER FIRST AMENDMENT, CONSENT AND LIMITED WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT, CONSENT AND LIMITED WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 17, 1996 (this "FIRST 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 supplemented or otherwise modified from time to time through the date hereof, the "CREDIT AGREEMENT"). W I T N E S S E T H: WHEREAS, the Borrower and the Lender have entered into the Credit Agreement; WHEREAS, the Borrower has requested that the Lender amend the Credit Agreement (i) to increase the Revolving Credit Commitment from $9,500,000 to $15,000,000, (ii) to make an additional Term Loan in a principal amount of $6,000,000, the proceeds of which will be used to reduce the outstanding principal balance of the Revolving Loans and (iii) to effect other amendments, all as more fully described herein; and WHEREAS, the Borrower has also requested that (i) the Lender consent to an amendment to the Recoil Acquisition Agreements and (ii) the Lender waive certain Events of Default under the Credit Agreement, in each case 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 6 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: -1- (a) The following definition of "Fourth Supplemental Term Loan" is added in proper alphabetical order: "FOURTH SUPPLEMENTAL TERM LOAN" is defined in SECTION 2.01(a). (b) The following definition of "New First Amendment" is added in proper alphabetical order: "NEW FIRST AMENDMENT" means the First Amendment, Consent and Limited Waiver to Amended and Restated Credit Agreement dated as of December 17, 1996, between the Borrower and the Lender. (c) The following definition of "New First Amendment Effective Date" is added in proper alphabetical order: "NEW FIRST AMENDMENT EFFECTIVE DATE" means the "Effective Date" under (and as defined in) the New First Amendment. (d) The definition of "Revolving Credit Commitment" is hereby amended and restated in its entirety to read as follows: "REVOLVING CREDIT COMMITMENT" means the obligation of the Lender to make Revolving Loans and to issue, or cause to be issued, Letters of Credit pursuant to the terms and conditions of this Agreement (and, for the applicable period, the Existing Credit Agreement), in an aggregate amount (including all Letter of Credit Obligations and the principal amount of all Revolving Loans) which shall not exceed (i) from the Initial Closing Date through and including December 31, 1994, $6,500,000, (ii) from January 1, 1995 until the Third Amendment Effective Date, $5,000,000, (iii) from the Third Amendment Effective Date until the New First Amendment Effective Date, $9,500,000 and (iv) from the New First Amendment Effective Date until the Revolving Credit Termination Date, $15,000,000, as permanently reduced from time to time pursuant to SECTION 3.01. (e) The definition of "Term Loan Commitment" is hereby amended and restated in its entirety to read as follows: "TERM LOAN COMMITMENT" means the obligation of the Lender to make its Term Loan pursuant to the terms and conditions of this Agreement (and, for the -2- applicable period, the Existing Credit Agreement), which shall be in an aggregate principal amount of (i) from the Initial Closing Date until the First Amendment Effective Date, $15,800,000, (ii) from the First Amendment Effective Date until the Third Amendment Effective Date, $17,800,000, (iii) from the Third Amendment Effective Date until the Amendment and Restatement Effective Date, $19,425,000, (iv) from the Amendment and Restatement Effective Date until the New First Amendment Effective Date, $22,425,000 and (v) from and after the New First Amendment Effective Date, $28,225,000, as permanently reduced from time to time by payments or prepayments on the Term Loan made pursuant to SECTION 2.01(d) or SECTION 3.01. 2.2 AMENDMENTS TO SECTION 2.01. Section 2.01 of the Credit Agreement is hereby amended as follows: (a) Section 2.01(a) is hereby amended and restated in its entirety to read as follows: (a) AMOUNT OF TERM LOAN. The Lender (i) has made a term loan, in Dollars, to the Borrower on the Initial Closing Date in an aggregate amount equal to $15,800,000 (the "Initial Term Loan"), (ii) has made a term loan, in Dollars, to the Borrower on the First Amendment Effective Date, in an aggregate amount equal to $2,000,000 (the "Supplemental Term Loan"), (iii) has made a term loan, in Dollars, to the Borrower on the Third Amendment Effective Date, in an aggregate amount equal to $2,000,000 (the "Second Supplemental Term Loan"), (iv) has made a term loan, in Dollars, to the Borrower on the Amendment and Restatement Effective Date, in an aggregate amount equal to $4,000,000 (the "Third Supplemental Term Loan") and (v) subject to the terms and conditions set forth in this Agreement and the New First Amendment, hereby agrees to make a term loan, in Dollars, to the Borrower on the New First Amendment Effective Date, in an aggregate amount equal to $6,000,000 (the "Fourth Supplemental Term Loan" and together with the Initial Term Loan, the Supplemental Term Loan, the Second Supplemental Term Loan and the Third Supplemental Term Loan, the "Term Loan"). After giving effect to the advance of the Fourth Supplemental Term Loan, the outstanding principal balance of the Term Loan will be $28,225,000. (b) Section 2.01(c) is hereby amended and restated in its entirety to read as follows: (c) MAKING OF TERM LOANS. (i) Promptly after receipt of a Notice of Borrowing under SECTION 2.01(b) -3- (or telephonic notice in lieu thereof), the Lender shall deposit an amount equal to the amount requested by the Borrower to be made in respect of the Third Supplemental Term Loan under this SECTION 2.01(c), in immediately available funds, not later than 1:00 p.m. (Chicago time) on the Amendment and Restatement Effective Date. Subject to the fulfillment of the conditions precedent set forth in SECTION 4.01, the Lender shall make the proceeds of such amounts available to the Borrower by disbursing such proceeds on the Amendment and Restatement Effective Date to an account specified in a written notice from the Lender to the Borrower or in accordance with the Borrower's disbursement instructions set forth in such Notice of Borrowing. (ii) Upon the New First Amendment Effective Date, the Lender shall be deemed to have advanced the proceeds of the Fourth Supplemental Term Loan to the Borrower to reduce the outstanding principal balance of the Revolving Loans by an amount equal to $6,000,000, it being agreed and understood that such amount shall be a transfer on the books of the Lender from one loan account of the Borrower to another and that no proceeds of the Fourth Supplemental Term Loan shall otherwise be made available to the Borrower. (c) Section 2.01(d)(i) is hereby amended by deleting the fourth sentence thereof in its entirety and substituting the following sentences in lieu thereof: On the Amendment and Restatement Effective Date, the Borrower executed and delivered to the Lender a third substitute promissory note, in substantially the form of EXHIBIT I attached hereto and made a part hereof, 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 shall execute and deliver to the Lender a fourth substitute promissory note, in substantially the form of EXHIBIT I-A attached hereto and made a part hereof, evidencing the Term Loan (the "Term Note"). (e) Section 2.01(e) is hereby amended and restated in its entirety to read as follows: (e) USE OF PROCEEDS OF TERM LOANS. (i) The proceeds of the Third Supplemental Term Loan shall be used (A) to pay the "Purchase Price" under (and as defined in) the Recoil U.S. Acquisition Agreement, (B) to pay (and enable Kaynar U.K. to pay) that portion of the "Purchase Price" under (and as defined in) the Recoil Australia Acquisition Agreement attributable to the Capital Stock of Recoil Belgium and Recoil U.K., (C) to make capital contributions to Recoil Holdings and Recoil Australia Holdings, the proceeds of which will be contributed to the capital of RCL (and the Borrower shall cause RCL to use the proceeds of such capital contributions for the purposes set forth in Section 2.01(e) of the RCL Loan Agreement) and (D) for working capital in the ordinary course of the Borrower's business and for other lawful general corporate purposes. (ii) The proceeds of the Fourth Supplemental Term Loan shall be used to reduce the outstanding principal balance of the Revolving Loans by an amount equal to $6,000,000. 2.3 AMENDMENT TO SECTION 2.02. Section 2.02(e)(i) is hereby amended by deleting the second sentence thereof in its entirety and substituting the following sentences in lieu thereof: On the Third Amendment Effective Date, the Borrower executed and delivered to the Lender a substitute promissory note in the form of EXHIBIT J attached hereto and made a part hereof, evidencing the then existing Revolving Credit Commitment. On the New First Amendment Effective Date, the Borrower shall execute and deliver to the Lender a second substitute promissory note, in substantially the form of EXHIBIT J-A attached hereto and made a part hereof, evidencing the Revolving Loans and the Revolving Credit Commitment (the "Revolving Credit Note"). 2.4 AMENDMENT TO SECTION 2.05. Section 2.05 is hereby amended by inserting immediately following Section 2.05(c) the following new Section 2.05(d): (d) NEW FIRST AMENDMENT FEE. In addition to any fees paid pursuant to SECTION 2.05(a) or 2.05(b), the Borrower shall pay to the Lender, upon execution of the New First Amendment, a fee of $60,000. 2.5 AMENDMENT TO SECTION 6.01. Section 6.01(f)(iii) of the Credit Agreement is hereby amended by amending and restating clause (C) thereof in its entirety to read as follows: (C) a budget in reasonable detail of the types and amounts of Capital Expenditures to be made during such -5- Fiscal Years and the amount of forecasted Excess Cash Flow for such Fiscal Years, and 2.6 AMENDMENT TO SECTION 9.05. Section 9.05 of the Credit Agreement is hereby amended by deleting in its entirety the table of Fiscal Years and Maximum Amounts therein and inserting in lieu thereof the following table of Fiscal Years and Maximum Amounts: Fiscal Year Maximum Amount ----------- -------------- 1996 $6,000,000 1997 $7,500,000 1998 $8,000,000 2.7 AMENDMENTS TO EXHIBITS. (a) A new Exhibit I-A is hereby added to the Credit Agreement in the form of ANNEX A attached hereto and made a part hereof. (b) A new Exhibit J-A is hereby added to the Credit Agreement in the form of ANNEX B attached hereto and made a part hereof. 3. LENDER CONSENT. As of the Effective Date, the Lender hereby approves the agreement to amend the Recoil Acquisition Agreements in substantially the form of ANNEX C attached hereto and made a part hereof (the "RECOIL AMENDMENT"); PROVIDED, HOWEVER, that if material additions or deletions to the text of the Recoil Amendment attached hereto are made, a new consent from the Lender shall be required. Upon the effectiveness of the Recoil Amendment, the Borrower shall promptly deliver to the Lender a fully executed copy of the Recoil Amendment. 4. LIMITED WAIVER. As of the Effective Date, the Lender hereby (a) waives the provisions of the letter agreement dated August 12, 1996 (the "POST-CLOSING LETTER") between the Borrower and the Lender with respect to the obligation of the Borrower to deliver the documents set forth on ANNEX D attached hereto and made a part hereof (the "POST-CLOSING DOCUMENTS") within the time periods specified in the Post-Closing Letter and extends the time period for the delivery of such documents to December 30, 1996 and (b) waives the Events of Default under Sections 10.01(c) and 10.01(d) of the Credit Agreement resulting from the Borrower's failure to deliver the Post-Closing Documents within the time periods specified in the Post-Closing Letter; PROVIDED, HOWEVER, that, if such Post-Closing Documents are not delivered on or before March 5, 1997 (the "EXPIRATION DATE"), (x) the limited waiver under this SECTION 4 shall expire, (y) the -6- Borrower shall pay to the Lender on the Expiration Date a fee in the amount of $25,000, and the Borrower hereby irrevocably authorizes the Lender to make a Revolving Loan on the Expiration Date to pay such fee without regard to the notice requirements set forth in Section 3.02(b)(iii) of the Credit Agreement, and (z) notwithstanding any payment of the fee described in CLAUSE (y), the Events of Default arising from the Borrower's failure to deliver the Post-Closing Documents prior to the Expiration Date shall remain in effect until all of the Post-Closing Documents, in form and substance satisfactory to the Lender, are delivered to the Lender, and the Lender reserves all rights and remedies available to it as a result of the continued existence of such Events of Default. 5. 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 7 below) purported to be released by this First Amendment. 6. 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: (i) counterparts hereof executed by the Borrower and the Lender; (ii) a Revolving Credit Note substantially in the form of EXHIBIT I-A to the Credit Agreement (as added by this First Amendment), duly executed by the Borrower; -7- (iii) a Term Note substantially in the form of EXHIBIT J-A to the Credit Agreement (as added by this First Amendment), duly executed by the Borrower; (iv) Modification Agreements with respect to the leasehold deeds of trust executed by the Borrower in favor of the Lender with respect to the Property located in Fullerton, California and Placentia, California, substantially in the forms of ANNEXES E and F attached hereto and made a part hereof, respectively; (v) Loan Modification Title Insurance Endorsements with respect to the title insurance policies issued to the Lender in connection with the Modification Agreements described in CLAUSE (iv) above; (vi) an opinion of counsel to the Borrower with respect to the Loan Documents described in CLAUSES (i) through (iv) above; (vii) a certificate of the chief financial officer of the Borrower certifying that all conditions precedent to the effectiveness of this First Amendment have been satisfied; (viii) 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 First Amendment and the other Transaction Documents executed in connection with this First Amendment to which it is a party, (B) that the By-laws of the Borrower have not been amended or otherwise modified since the Amendment and Restatement Effective Date 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 First Amendment and the other Transaction Documents executed in connection with this First Amendment to which the Borrower is a party; and (ix) such additional documentation as the Lender may reasonably request; (b) the Borrower shall have paid to the Lender the New First Amendment Fee described in SECTION 2.4 above; -8- (c) no law, regulation, order, judgment or decree of any Governmental Authority shall, and the Lender shall not have received any notice that litigation is pending or threatened which is likely to, enjoin, prohibit or restrain the consummation of the transactions contemplated by this 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; (d) 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); (e) 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 (f) no Event of Default or Potential Event of Default shall have occurred and be continuing on the Effective Date or will result after giving effect to this First Amendment. 7. OUTSTANDING INDEBTEDNESS. The Borrower hereby acknowledges and agrees that as of November 29, 1996 the aggregate outstanding principal amount of the Revolving Loans under the Credit Agreement was $7,520,861.27 and that the aggregate outstanding principal amount of the Term Loan under the Credit Agreement was $22,225,000 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 -9- 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. 8. 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. 9. 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. 10. 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. 11. 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. -10- IN WITNESS WHEREOF, the Borrower and the Lender have caused this First Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. KAYNAR TECHNOLOGIES INC. By: /s/ D.A. Werner ---------------------------------- Name: David A. Werner Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ P.C. Keenoy ---------------------------------- Name: P.C. Keenoy Title: Authorized Signatory -11- ANNEX A TO FIRST AMENDMENT, CONSENT AND LIMITED WAIVER FORM OF AMENDED AND RESTATED REVOLVING CREDIT NOTE Attached. ANNEX B TO FIRST AMENDMENT, CONSENT AND LIMITED WAIVER FORM OF AMENDED AND RESTATED TERM NOTE Attached. ANNEX C TO FIRST AMENDMENT, CONSENT AND LIMITED WAIVER FORM OF RECOIL AMENDMENT Attached. ANNEX D TO FIRST AMENDMENT, CONSENT AND LIMITED WAIVER POST-CLOSING DOCUMENTS 1. Replacement stock certificate for 650 shares of the Capital Stock of Kaynar International owned by the Borrower. 2. Landlord Waiver with respect to the lease of the Property located at Stamford Road, Oakleigh, Victoria. 3. Amended Articles of Association of Kaynar International deleting the provisions regarding recognition of stock transfers. 4. Evidence of perfection of pledge by the Borrower of 65% of the Capital Stock of Recoil Femipari. ANNEX E TO FIRST AMENDMENT, CONSENT AND LIMITED WAIVER FORM OF MODIFICATION AGREEMENT (FULLERTON) Attached. ANNEX F TO FIRST AMENDMENT, CONSENT AND LIMITED WAIVER FORM OF MODIFICATION AGREEMENT (PLACENTIA) Attached. EX-10.3 8 EX 10.3 TERM LOAN AGREEMENT Exh. 10.5 [EXECUTION COPY] =============================================================================== TERM LOAN AGREEMENT dated as of August 12, 1996 between RCL PTY, as Borrower and GENERAL ELECTRIC CAPITAL CORPORATION, as Lender =============================================================================== -1- TABLE OF CONTENTS Section Page - -------- ---- ARTICLE I DEFINITIONS 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . 1 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . 19 1.03. Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . 20 1.04. References to this Agreement. . . . . . . . . . . . . . . . . . . 20 1.05. Miscellaneous Terms . . . . . . . . . . . . . . . . . . . . . . . 20 1.06. Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE II AMOUNTS AND TERMS OF TERM LOAN 2.01. Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.02. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.03. Authorized Officers and Agents. . . . . . . . . . . . . . . . . . 22 ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. Prepayments; Reductions in Term Loan Commitment . . . . . . . . . 23 3.02. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.03. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.04. Promise to Repay; Evidence of Indebtedness. . . . . . . . . . . . 27 ARTICLE IV CONDITIONS TO TERM LOAN 4.01. Conditions Precedent to Effective Date. . . . . . . . . . . . . . 27 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01. Representations and Warranties. . . . . . . . . . . . . . . . . . 31 ARTICLE VI REPORTING COVENANTS 6.01. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 39 6.02. Operations Reports. . . . . . . . . . . . . . . . . . . . . . . . 42 6.03. Collateral Reporting. . . . . . . . . . . . . . . . . . . . . . . 43 6.04. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 43 6.05. Lawsuits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.06. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.07. Employee Benefit Plan Notices . . . . . . . . . . . . . . . . . . 45 -i- 6.08. Environmental Notices . . . . . . . . . . . . . . . . . . . . . . 45 6.09. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.10. Government Contract Notices . . . . . . . . . . . . . . . . . . . 45 6.11. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE VII AFFIRMATIVE COVENANTS 7.01. Organizational Existence, Etc.. . . . . . . . . . . . . . . . . . 47 7.02. Organizational Powers; Conduct of Business. . . . . . . . . . . . 47 7.03. Compliance with Laws, Etc.. . . . . . . . . . . . . . . . . . . . 47 7.04. Payment of Taxes and Claims; Tax Consolidation. . . . . . . . . . 47 7.05. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.06. Inspection of Property; Books and Records; Discussions . . . . . 48 7.07. Insurance and Condemnation Proceeds . . . . . . . . . . . . . . . 49 7.08. [Intentionally omitted] . . . . . . . . . . . . . . . . . . . . . 49 7.09. Employee Benefit Plan Compliance. . . . . . . . . . . . . . . . . 49 7.10. Government Contract Compliance. . . . . . . . . . . . . . . . . . 49 7.11. Maintenance of Property . . . . . . . . . . . . . . . . . . . . . 49 7.12. Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . 49 7.13. Business Contracts. . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE VIII NEGATIVE COVENANTS 8.01. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 50 8.02. Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.03. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 8.04. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 8.05. Accommodation Obligations . . . . . . . . . . . . . . . . . . . . 52 8.06. Restricted Junior Payments. . . . . . . . . . . . . . . . . . . . 53 8.07. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . 53 8.08. Transactions with Shareholders and Affiliates . . . . . . . . . . 53 8.09. Restriction on Fundamental Changes. . . . . . . . . . . . . . . . 53 8.10. Sales and Leasebacks. . . . . . . . . . . . . . . . . . . . . . . 54 8.11. Employee Benefit Plan Matters . . . . . . . . . . . . . . . . . . 54 8.12. Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . 54 8.13. Organizational Documents. . . . . . . . . . . . . . . . . . . . . 54 8.14. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.15. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.16. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 55 -ii- Section Page - --------- ---- ARTICLE IX FINANCIAL COVENANTS 9.01. Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 ARTICLE X EVENTS OF DEFAULT; RIGHTS AND REMEDIES 10.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . 55 10.02. Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE XI MISCELLANEOUS 11.01. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 11.02. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 11.03. Change in Accounting Principles. . . . . . . . . . . . . . . . . 61 11.04. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 11.05. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 61 11.06. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 11.07. Survival of Warranties and Agreements. . . . . . . . . . . . . . 63 11.08. Failure or Indulgence Not Waiver; Remedies Cumulative. . . . . . 63 11.09. Marshalling; Payments Set Aside. . . . . . . . . . . . . . . . . 63 11.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.11. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 11.12. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 64 11.13. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . 64 11.14. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 64 11.15. Certain Consents and Waivers of the Borrower . . . . . . . . . . 64 11.16. Counterparts; Effectiveness; Inconsistencies . . . . . . . . . . 66 11.17. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 66 11.18. Supervening Legislation. . . . . . . . . . . . . . . . . . . . . 66 11.19. Time is of the Essence . . . . . . . . . . . . . . . . . . . . . 66 11.20 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 67 -iii- EXHIBITS Exhibit A -- Form of Collection Account Agreement Exhibit B -- Form of Fixed and Floating Charge Exhibit C -- Form of Notice of Borrowing Exhibit D -- Form of Parent Pledge Agreement Exhibit E -- Form of Parent Guaranty Exhibit F -- Form of Officer's Certificate to Accompany Reports SCHEDULES Schedule 1.01.1 -- Collection Accounts and Collection Account Banks Schedule 1.01.2 -- Permitted Existing Accommodation Obligations Schedule 1.01.3 -- Permitted Existing Indebtedness Schedule 1.01.4 -- Permitted Existing Liens Schedule 5.01-C -- Consents Schedule 5.01-D -- Subsidiaries; Authorized, Issued and Outstanding Capital Stock Schedule 5.01-N -- Pending Actions Schedule 5.01-S -- Employee Benefit Plan Matters Schedule 5.01-T -- Labor Contracts Schedule 5.01-V -- Government Contract Matters -iv- TERM LOAN AGREEMENT This Term Loan Agreement dated as of August 12, 1996 (as further amended, restated, supplemented or modified from time to time, the "Agreement") is entered into by and between RCL Pty (ACN 073 075 428), 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"). ARTICLE I DEFINITIONS 1.01. CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings, applicable both to the singular and the plural forms of the terms defined: "ACCOMMODATION OBLIGATION" means any Contractual Obligation, contingent or otherwise, of one Person with respect to any Indebtedness, obligation or liability of another, if the primary purpose or intent thereof by the Person incurring the Accommodation Obligation is to provide assurance to the obligee of such Indebtedness, obligation or liability of another that such Indebtedness, obligation or liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders thereof will be protected (in whole or in part) against loss in respect thereof including, without limitation, direct and indirect guarantees, endorsements (except for collection or deposit in the ordinary course of business), notes co-made or discounted, recourse agreements, take-or-pay agreements, keep-well agreements, agreements to purchase or repurchase such Indebtedness, obligation or liability or any security therefor or to provide funds for the payment or discharge thereof, agreements to maintain solvency, assets, level of income, or other financial condition, and agreements to make payment other than for value received. The amount of any Accommodation Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported; PROVIDED, that (i) if the liability of the Person extending such guaranty or support is limited with respect thereto to an amount less than the obligation guaranteed or supported, or is limited to recourse against a particular asset or assets of such Person, the amount of the corresponding Accommodation Obligation shall be limited (in the case of a guaranty or other support limited by amount) to such lesser amount or (in the case of a guaranty or other support limited by recourse to a particular asset or assets) to the higher of the Fair Market Value of such asset or assets at the date for determination of the amount of the Accommodation Obligation or the value at which such asset or assets would, in conformity with GAAP, be reflected on or valued for the purposes of preparing a consolidated balance sheet of such Person as at such determination date; and (ii) if any obligation is guaranteed or otherwise supported jointly and severally by a Person and others, then the amount of the liability of such Person with respect to such guaranty or other support to be included in the amount of such Person's Accommodation Obligation shall be the whole principal amount so guaranteed or otherwise supported. "ACCOUNT" means all of the Borrower's and each Parent's respective present and future (i) book debts and accounts receivable, (ii) contract rights, chattel paper, instruments, documents, deposit accounts (including, without limitation, the Collection Accounts), and other rights to payment of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and whether or not earned by performance, (iii) any of the foregoing which are not evidenced by instruments or chattel paper, (iv) intercompany receivables, and any security documents executed in connection therewith, (v) proceeds of any letters of credit or insurance policies on which the Borrower or any Parent is named as beneficiary, (vi) claims against third parties for advances and other financial accommodations and any other obligations whatsoever owing to the Borrower or any Parent, (vii) rights in and to all security agreements, leases, guarantees, instruments, securities, documents of title and other contracts securing, evidencing, supporting or otherwise relating to any of the foregoing, together with all rights in any goods, merchandise or Inventory which any of the foregoing may represent, and (viii) rights in returned and repossessed goods, merchandise and Inventory which any of the same may represent, including, without limitation, any right of stoppage in transit. "ACCOUNT DEBTOR" means any person who is or who may become obligated to the Borrower under, with respect to, or on account of an Account or a General Intangible. "AFFILIATE" means any Person (other than Lender) which directly or indirectly owns or controls, on an aggregate basis, including all beneficial ownership and ownership or control as a trustee, guardian or other fiduciary, at least ten percent (10%) of the outstanding capital stock (or other ownership interests) having ordinary voting power to elect a majority of the board of directors or otherwise to direct or cause the direction of the management and policies (irrespective of whether, at the time, stock (or other ownership interest) of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) of the Borrower or any Parent which is controlled by or is under common control with the Borrower, any Parent or any stockholders (or other owners) of the Borrower or any Parent. For the purpose of this definition, "control" means the possession, directly or indirectly, of the power to direct or to cause the direction of management and policies, whether through the ownership of voting securities, by contract or otherwise. "AGREEMENT" is defined in the preamble hereto. "BORROWER" is defined in the preamble hereto. -2- "BORROWING" means the borrowing of the Term Loan hereunder. "BUSINESS DAY" means a day, in the applicable local time, which is not a Saturday or Sunday or a legal holiday and on which banks are not required or permitted by law or other governmental action to close in Los Angeles, California, Chicago, Illinois, New York, New York or Melbourne, Victoria, Australia. "CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures (whether payable in cash or other Property or accrued as a liability (but without duplication)) during such period that, in conformity with GAAP, are required to be included in or reflected by KHI's or any of its Subsidiaries' fixed asset accounts as reflected in any of their respective balance sheets; PROVIDED, HOWEVER, that Capital Expenditures shall include, whether or not such a designation would be in conformity with GAAP, (i) that portion of Capital Leases which is capitalized on the consolidated balance sheet of KHI and its Subsidiaries and (ii) expenditures for Equipment which is purchased simultaneously with the trade-in of existing Equipment owned by KHI or any of its Subsidiaries, to the extent the gross purchase price of the purchased Equipment exceeds the book value of the Equipment being traded in at such time. "CAPITAL LEASE", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease or a financing lease on the balance sheet of that Person. "CAPITAL STOCK", with respect to any Person, means any shares, capital stock, stock units or units in the capital of such Person, regardless of class or designation, and all warrants, options, purchase rights, conversion or exchange rights, voting rights, calls or claims of any character with respect thereto. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States or Australian government and backed by the full faith and credit of the United States or Australian government; and (ii) domestic and eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, Australia or any state thereof, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Corporation or Prime-1 (or better) by Moody's Investors Services, Inc.; PROVIDED, that the maturities of such Cash Equivalents shall not exceed one year. -3- "CASH FLOW" means, for any Person for any period, the amounts for such period (taken as a single accounting period determined in conformity with GAAP) of such Person's (i) net income or loss determined on a first-in-first-out method of inventory accounting basis, PLUS (ii) depreciation and amortization expense, PLUS (iii) interest expense, PLUS (iv) foreign, federal and state income taxes, PLUS (v) state sales taxes arising in connection with the Purchase, to the extent included in the calculation of net income (or loss), PLUS (vi) extraordinary losses, PLUS (vii) Liabilities and Costs incurred in connection with any Remedial Action, to the extent included in the calculation of net income (or loss), PLUS (viii) Transaction Costs, MINUS (ix) extraordinary gains. "CLAIM" means any claim or demand, by any Person, of whatsoever kind or nature for any alleged Liabilities and Costs, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, Permit, ordinance or regulation, common law or otherwise. "COLLATERAL" means all Property and interests in Property now owned or hereafter acquired by the Borrower or either Parent upon which a Lien is granted under any of the Loan Documents. "COLLECTION ACCOUNT" means (i) each deposit account of the Borrower identified on SCHEDULE 1.01.1 and (ii) each deposit account of the Lender into which collections in respect of Accounts and other proceeds of Collateral are deposited. "COLLECTION ACCOUNT AGREEMENT" means, with respect to each Collection Account of the Borrower or any Parent, an agreement in substantially the form of EXHIBIT A attached hereto and made a part hereof (or such other form as may be agreed to by the Borrower and the Lender), pursuant to which, among other things (i) the Collection Account Bank party thereto agrees to remit to the Lender or its designee in accordance with instructions contained therein, on a daily basis and by wire transfer or through an automated clearing house, all collected funds on deposit in the Collection Account(s) maintained by such Collection Account Bank (which agreement may not be revoked, and shall remain in effect, until sixty (60) days after such Collection Account Bank mails to the Lender and the Borrower or the applicable Parent a notice of termination), and (ii) the Borrower or the applicable Parent and the Collection Account Bank confirm the Lender's perfected first priority liens in the Collection Accounts subject thereto. "COLLECTION ACCOUNT BANK" means each bank, trust company or other financial institution (i) identified on SCHEDULE 1.01.1 at which the Borrower or any Parent maintains one or more Collection Accounts or (ii) at which the Lender maintains one or more Collection Accounts. -4- "COMPLIANCE CERTIFICATE" is defined in SECTION 6.01(d). "CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "CORPORATIONS LAW" means the Corporations Law of Australia. "CUSTOMARY PERMITTED LIENS" means (i) Liens (other than Environmental Encumbrances and Liens in favor of the Insurance and Superannuation Commission of Australia) with respect to the payment of taxes, assessments or governmental charges in all cases which are not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (ii) statutory Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (iii) Liens (other than Environmental Encumbrances and Liens in favor of the Insurance and Superannuation Commission of Australia) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), surety and performance bonds; PROVIDED, that (A) all such Liens do not in the aggregate materially detract from the value of the Borrower's or any of its Parents assets or Property or materially impair the use thereof in the operation of their respective businesses, and (B) all such Liens in connection with worker's compensation, unemployment insurance or other types of social security benefits deposits shall secure obligations in an aggregate principal amount not exceeding $50,000 at any time outstanding; and -5- (iv) Liens arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar charges or encumbrances on the use of Real Property which do not interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries. "DESIGNATED PREPAYMENT" is defined in SECTION 3.01(b)(iii). "DOLLARS" and "$" mean the lawful money of the United States. "EFFECTIVE DATE" is defined in SECTION 11.16. "EMPLOYEE BENEFIT PLAN" means any superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cwlth) which is maintained or contributed to for the benefit of the employees of the Borrower. "ENVIRONMENTAL ENCUMBRANCE" is defined in the Fixed and Floating charge. "ENVIRONMENTAL HAZARD" is defined in the Fixed and Floating charge. "ENVIRONMENTAL LAW" is defined in the Fixed and Floating charge. "EQUIPMENT" means all of the Borrower's and each Parent's respective present and future (i) equipment, including, without limitation, machinery, manufacturing, distribution, selling, data processing and office equipment, assembly systems, tools, molds, dies, fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft, aircraft engines, and trade fixtures, (ii) other tangible personal Property (other than the Borrower's and each Parents' respective Inventory), and (iii) any and all accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions therefor and replacements, products and proceeds thereof. "EVENT OF DEFAULT" means any of the occurrences set forth in SECTION 10.01 after the expiration of any applicable grace period and the giving of any applicable notice, in each case as expressly provided in SECTION 10.01. "EXCESS CASH FLOW" means, for any Fiscal Year, an amount equal to (i) Cash Flow for such Fiscal Year, MINUS (ii) income taxes paid in cash during such Fiscal Year, MINUS (iii) state sales taxes arising in connection with the Purchase which are paid in cash during such Fiscal Year, MINUS (iv) Capital Expenditures paid in cash during such Fiscal Year, MINUS (v) -6- Transaction Costs paid in cash during such Fiscal Year, MINUS (vi) interest on permitted Indebtedness of KHI and its Subsidiaries paid in cash during such Fiscal Year, including, without limitation, the interest component of all Capital Leases, MINUS (vii) for Fiscal Year 1994, $2,000,000, MINUS (viii) for Fiscal Year 1995 and each Fiscal Year thereafter, scheduled amortization of the principal portion of the "Term Loan" under (and as defined in) the KTI Credit Agreement during such Fiscal Year, MINUS (ix) extraordinary cash losses incurred during such Fiscal Year, MINUS (x) Liabilities and Costs paid in cash during such Fiscal Year and incurred in connection with any Remedial Action, PLUS (xi) extraordinary cash gains for such Fiscal Year, PLUS (xii) any cash gain for such Fiscal Year with respect to any inventory or accounts purchased from Microdot Aerospace Limited in connection with the Purchase, to the extent included in the calculation of net income (or loss), PLUS (or MINUS) (xiii) any decrease (or increase) in Net Working Capital since the last day of the then immediately preceding Fiscal Year, the amount for such Fiscal Year in each case determined in conformity with GAAP for KHI, KTI, the Borrower and their respective Subsidiaries on a consolidated basis. "EXCESS PROCEEDS OF ISSUANCE OF STOCK OR INDEBTEDNESS" means net cash proceeds received by the Borrower or any Parent at any time after the Effective Date on account of the issuance of (i) Capital Stock of the Borrower (other than Capital Stock of the Borrower issued to the Parent) (ii) Capital Stock of either Parent (other than Capital Stock of either Parent issued to KTI) or (iii) Indebtedness (other than Indebtedness permitted under SECTION 8.01) of the Borrower or either Parent, in each case net of all transaction costs and underwriters' discounts with respect thereto. "EXPORT LICENSE" means any and all licenses, authorizations, approvals or applications therefor relating to exports, reexports, temporary exports, temporary imports and imports, as the case may be, granted by or pending before any Governmental Authority. "FAIR MARKET VALUE" means, with respect to any asset, the value of the consideration obtainable in a sale of such asset in the open market, assuming a sale by a willing seller to a willing purchaser dealing at arm's length and arranged in an orderly manner over a reasonable period of time, each having reasonable knowledge of the nature and characteristics of such asset, neither being under any compulsion to act, determined (a) in good faith by the board of directors of the Borrower or (b) in an appraisal of such asset, PROVIDED, that such appraisal was performed relatively contemporaneously with such sale by an independent third party appraiser and the basic assumptions underlying such appraisal have not materially changed since the date thereof. -7- "FISCAL YEAR" means the fiscal year of the Borrower, which shall be the 12-month period ending on December 31 of each calendar year. "FIXED AND FLOATING CHARGE" means the Fixed and Floating Charge dated August 2, 1996, in substantially the form of EXHIBIT B attached hereto and made a part hereof, executed by the Borrower in favor of the Lender, pursuant to which the Borrower grants a security interest to the Lender in substantially all of its Property, as the same may be amended, restated, supplemented or modified from time to time. "GAAP" means (i) with respect to the Borrower, (A) the applicable accounting standards and practices required by the Corporations Law and (B) if not inconsistent with the accounting standards described in CLAUSE (i), generally accepted accounting principles set forth in the opinions and pronouncements of the Institute of Chartered Accountants in Australia or Australian Society of Certified Practising Accounts or any successor to either of them or in such other statements by such other entity as may be in general use by significant segments of the accounting profession in Australia as in effect on the date hereof (unless otherwise specified herein as in effect on another date or dates); and (ii) with respect to the Parents, generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accounting Standards Board or in such other statements by such other entity as may be in general use by significant segments of the accounting profession as in effect on the date hereof (unless otherwise specified herein as in effect on another date or dates). "GENERAL INTANGIBLES" means all of the Borrower's and each Parent's respective present and future (i) general intangibles, (ii) rights, interests, choses in action, causes of action, claims and other intangible Property of every kind and nature (other than Accounts), (iii) corporate and other business records, (iv) loans, royalties, and other obligations receivable, (v) trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, patent applications, trade names, rights of use of any name, labels, fictitious names, inventions, designs, trade secrets, computer programs, software, printouts and other computer materials, goodwill, registrations, copyrights, copyright applications, permits, licenses, franchises, customer lists, credit files, correspondence, and advertising materials, (vi) customer and supplier contracts, firm sale orders, rights under license and franchise agreements, rights under tax sharing agreements, and other contracts and contract rights, (vii) interests in partnerships and joint ventures, (viii) tax refunds and tax refund claims, (ix) right, title and interest under leases, subleases, licenses and concessions and other agreements relating to Property, (x) deposit accounts (general or special) with any bank or other -8- financial institution (including, without limitation, the Collection Accounts) (xi) credits with and other claims against third parties (including carriers and shippers), (xii) rights to indemnification and with respect to support and keep-well agreements, (xiii) reversionary interests in pension and profit sharing plans and reversionary, beneficial and residual interests in trusts, (xiv) proceeds of insurance of which the Borrower or any Parent is beneficiary, (xv) letters of credit, guarantees, Liens, security interests and other security held by or granted to the Borrower or any Parent, (xvi) uncertificated securities, and (xvii) governmental certificates and certifications, including, without limitation, certificates and certifications relating to Government Contracts and Export Licenses, authorizations and approvals, issued to the Borrower or any parent. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, territorial, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GOVERNMENT CONTRACT" means any bid, quotation, proposal, contract, agreement, work authorization, lease, commitment or sale or purchase order of the Borrower which is entered into with or submitted to any Governmental Authority, including, among other things, all contracts and work authorizations to supply goods and services to such Governmental Authority. "INCOME TAX ASSESSMENT ACT" means the Income Tax Assessment Act 1936 (Cwlth). "INDEBTEDNESS", as applied to any Person, means, at any time, (i) all indebtedness, obligations or other liabilities of such Person (A) for borrowed money or evidenced by debt securities, debentures, acceptances, notes or other similar instruments, and any accrued interest, fees and charges relating thereto, (B) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any Securities of such Person or to pay dividends in respect of any stock, (C) with respect to letters of credit issued for such Person's account, (D) to pay the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business, (E) in respect of Capital Leases, (F) which are Accommodation Obligations or (G) under warranties and indemnities; (ii) all indebtedness, obligations or other liabilities of such Person or others secured by a Lien on any property of such Person, whether or not such indebtedness, obligations or liabilities are assumed by such Person, all as of such time; (iii) all preferred stock subject (upon the occurrence of any contingency or otherwise) to mandatory redemption; and (iv) all contingent Contractual Obligations with respect to any of the foregoing. -9- "INDEX RATE" means the higher of: (i) the highest prime or base rate of interest published in New York City by any of Morgan Guaranty Trust Company of New York, Citibank, N.A. and Chemical Bank (whether or not such rate is actually charged by any such bank); and (ii) the latest published rate for 90-day directly placed commercial paper (or the mid-point in the range of such rates, if more than one rate is published) as quoted either in the Federal Reserve Rate Report which customarily appears in the Friday issue of THE WALL STREET JOURNAL under "Money Rates" or in such other publication as the Lender may, from time to time hereafter, designate in writing. "INSOLVENCY EVENT" is defined in the Fixed and Floating Charge. "INVENTORY" means all of the Borrower's and each Parent's respective present and future (i) inventory, (ii) goods, merchandise and other personal Property furnished or to be furnished under any contract of service or intended for sale or lease, and all consigned goods and all other items which have previously constituted Equipment but are then currently being held for sale or lease in the ordinary course of the Borrower's or any Parent's business, (iii) raw materials, work-in-process and finished goods, (iv) materials and supplies of any kind, nature or description used or consumed in the Borrower's or any Parent's business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the Property described in CLAUSES (i) through (iii) above, (v) goods in which the Borrower or any Parent has a joint or other interest or right of any kind (including, without limitation, goods in which the Borrower or any Parent has an interest or right as consignee), and (vi) goods which are returned to or repossessed by the Borrower or any Parent; in each case whether in the possession of the Borrower, any Parent, a bailee, a consignee, or any other Person for sale, storage, transit, processing, use or otherwise, and any and all documents for or relating to any of the foregoing. "INVESTMENT" means, with respect to any Person, (i) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities, issued by any other Person, (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business. -10- The amount of any Investment shall be the original cost of such Investment, plus the cost of all additions thereto less the amount of any return of capital or principal to the extent such return is in cash with respect to such Investment without any adjustments for increases or decreases in value or write-ups, write-downs or write-offs with respect to such Investment. "KHI" means Kaynar Holdings Inc., a Delaware corporation. "KHI AGREEMENTS" means (i) the KHI Loan Agreement and the agreements, documents and instruments executed in connection therewith and (ii) the PIK Dividend Note Agreement and the PIK Dividend Notes. "KHI LOAN AGREEMENT" means that certain Term Loan Agreement dated as of January 3, 1994 by and between KHI and the Lender, as amended and as amended and restated by that certain Amended and Restated Term Loan Agreement of even date herewith by and between KHI and the Lender, as the same may be further amended, restated, supplemented or modified from time to time. "KTI" means Kaynar Technologies Inc., a Delaware corporation. "KTI CREDIT AGREEMENT" means that certain Credit Agreement dated as of January 3, 1994 by and between KTI and the Lender, as amended and as amended and restated by that certain Amended and Restated Credit Agreement of even date herewith by and between KHI and the Lender, as the same may be further amended, restated, supplemented or modified from time to time. "KTI LOAN DOCUMENTS" means the "Loan Documents" as defined in the KTI Credit Agreement. "LENDER" is defined in the preamble hereto. "LIABILITIES AND COSTS" means all liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or Remedial Action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future. "LIEN" means any mortgage, deed of trust, pledge, charge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, title retention arrangement, bill of sale (as defined in any statute), profit a prendre, easement, restrictive covenant, equity interest, garnishee order, writ of execution, right of set-off, -11- license to use or occupy, lien (statutory or other), notice under section 218 or 255 of the Income Tax Assessment Act or under section 74 of the Sales Tax Assessment Act or under any other similar Requirement of Law, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any property of a Person, whether granted voluntarily or imposed by law, and any agreement to create any of them or allow any of them to exist, and includes the interest of a lessor under a Capital Lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice, naming the owner of such property as debtor, under the Uniform Commercial Code or other comparable law of any jurisdiction. "LOAN ACCOUNT" is defined in SECTION 3.04(b). "LOAN DOCUMENTS" means this Agreement, the Fixed and Floating Charge, the Parent Guaranty, the Parent Pledge Agreements and all other instruments, agreements and written Contractual Obligations between the Borrower or any Parent and the Lender delivered to the Lender pursuant to or in connection with the transactions contemplated hereby. "MANAGEMENT DISCUSSION AND ANALYSIS" is defined in SECTION 6.02. "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (i) the financial condition, operations, assets or prospects of KHI, KTI, the Borrower or any of their respective Subsidiaries, (ii) the ability of KHI, KTI, the Borrower or any of their respective Subsidiaries to perform their respective obligations under the Transaction Documents, or (iii) the ability of the Lender to enforce the Loan Documents. "NET CASH PROCEEDS OF SALE" means (i) proceeds received by the Borrower or Parent in cash from the sale, assignment or other disposition of (but not the lease or license of) any Property, other than sales permitted under CLAUSES (ii) through (iv) of SECTION 8.02, net of (A) the costs of sale, assignment or other disposition, (B) any income, franchise, transfer or other tax liability arising from such transaction and (C) amounts required to be applied to the repayment of Indebtedness secured by a Lien permitted by SECTION 8.03 on the asset disposed of, if such net proceeds arise from any individual sale, assignment or other disposition or from any group of related sales, assignments or other dispositions; and (ii) proceeds of insurance on account of the loss of, damage to, or the occurrence of any other insured risk with respect to, any such Property or Properties, and payments of compensation for any such Property or Properties taken by condemnation or eminent domain, as provided in SECTION 7.07. -12- "NET WORKING CAPITAL" means, as of any date of determination, the excess, if any, of (i) consolidated current assets, except cash and Cash Equivalents, over (ii) consolidated current liabilities, except current maturities of long-term debt as of such date, in each case for the KHI, KTI, the Borrower and their respective Subsidiaries on a consolidated basis. "NOTICE OF BORROWING" means a notice substantially in the form of EXHIBIT C attached hereto and made a part hereof. "OBLIGATIONS" means all loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender, or any Person entitled to indemnification pursuant to SECTION 11.02 of this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement or any other Loan Document, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest (including, without limitation, interest, whether or not allowed after the occurence of an event or occurrence described in SECTION 10.01(f), at the then applicable rate (including the rate in effect from time to time under SECTION 2.02(c)) specified herein that accrues after the commencement of any proceeding under the bankruptcy, reorganization, insolvency, dissolution, liquidation or other debtor relief Requirement of Law), charges, expenses, fees, attorneys' fees and disbursements and any other sum chargeable to the Borrower under this Agreement or any other Loan Document. "OFFICER'S CERTIFICATE" means a certificate executed on behalf of a corporation by (i) the chairman or vice-chairman of its board of directors (if an officer of such corporation) or (ii) its president, any of its vice-presidents, its chief financial officer, or its treasurer; PROVIDED, HOWEVER, that any such certificate executed on behalf of the Borrower shall be executed by a director or secretary of the Borrower. "OPERATING LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which is not a Capital Lease. "ORGANIZATIONAL DOCUMENTS" means, with respect to any corporation, limited liability company, unlimited liability company or partnership (i) the articles/certificate of incorporation (or the equivalent organizational documents) of such corporation or limited liability company, (ii) the partnership agreement executed by the partners in the partnership, (iii) the certificate of registration and memorandum and articles of association of such unlimited liability company, (iv) the by-laws (or the equivalent governing documents) of the -13- corporation, limited liability company, unlimited liability company or partnership, and (iv) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such corporation's Capital Stock or such limited liability company's, unlimited liability company's or partnership's equity or ownership interests. "PARENT GUARANTY" means a guaranty and contribution agreement of even date herewith, substantially in the form of EXHIBIT E attached hereto and made a part hereof, executed by each Parent in favor of Lender, pursuant to which each Parent unconditionally guarantees the payment and performance of the Obligations. "PARENT PLEDGE AGREEMENT" means the Pledge Agreements dated as of August 2, 1996, each in substantially the form of EXHIBIT D attached hereto and made a part hereof, executed by Recoil Holdings and Recoil Australia Holdings, respectively, in favor of the Lender, pursuant to which such Parent pledges and grants a security interest to the Lender in 100% of the issued and outstanding Capital Stock of any Affiliated Person and related Property, as the same may be amended, restated, supplemented or modified from time to time. "PARENTS" means Recoil Australia Holdings and Recoil Holdings, and "PARENT" means either of them. "PENSION PLAN" means any Employee Benefit Plan which (i) is maintained or contributed to for the benefit of employees of the Borrower, and (ii) under applicable local law, is required to be funded through a trust or other funding vehicle. "PERMITS" means any license, permit, variance, interim permit, permit application, approval, consent, certification, qualification or other authorization under any Requirement of Law applicable to the Borrower or any Parent or otherwise required by any Governmental Authority in connection with the business or operations of the Borrower or any Parent, including, without limitation, any license, permit, consent, certification, approval, authorization or qualification relating to any Government Contract. "PERMITTED EXISTING ACCOMMODATION OBLIGATIONS" means the Accommodation Obligations of the Borrower and each Parent identified as such on SCHEDULE 1.01.2. "PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the Borrower and its Subsidiaries identified as such on SCHEDULE 1.01.3. "PERMITTED EXISTING LIENS" means the Liens on the Property of the Borrower and its Subsidiaries identified as such on SCHEDULE 1.01.4. -14- "PERSON" means any natural person, corporation, limited liability company, unlimited liability company, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority. "PIK DIVIDEND NOTE AGREEMENT" means that certain PIK Dividend Note Agreement dated as of January 3, 1994 by and between the KHI and the Lender, as the initial holder of the preferred stock of KHI, and the other Persons from time to time party thereto as "Holders" (as defined therein), as the same may be amended, restated, supplemented or modified from time to time. "PIK DIVIDEND NOTES" means the outstanding promissory notes issued by KHI pursuant to the PIK Dividend Note Agreement. "POTENTIAL EVENT OF DEFAULT" means an event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "PROCESS AGENT" is defined in SECTION 11.15. "PROPERTY" means any Real Property or personal property, plant, building, facility, structure, underground storage tank or unit, Equipment, Inventory, General Intangible, Account, or other asset owned, leased or operated by the Borrower or any Parent, as applicable, (including any surface water thereon or adjacent thereto, and soil and groundwater thereunder). "PURCHASE" means the "Purchase" as defined in the KTI Credit Agreement. "REAL PROPERTY" means all of the Borrower's and any Parent's respective present and future right, title and interest (including, without limitation, any leasehold estate) in (i) any plots, pieces or parcels of land, (ii) any improvements, buildings, structures and fixtures now or hereafter located or erected thereon or attached thereto of every nature whatsoever (the rights and interests described in CLAUSE (i) or (ii) above being the "Premises"), (iii) all easements, rights of way, gores of land or any lands occupied by streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and public places adjoining such land, and any other interests in property constituting appurtenances to the Premises, or which hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all hereditaments, gas, oil, minerals (with the right to extract, sever and remove such gas, oil and minerals), and easements, of every nature whatsoever, located in or on the Premises and (v) all other rights and privileges thereunto belonging or appertaining and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to or of any of the rights and interests described in CLAUSE (iii) or (iv) above. -15- "RECOIL ACQUISITION" means, collectively, (i) the purchase by KTI of substantially all of the assets of Recoil U.S. pursuant to the Recoil U.S. Acquisition Agreement and (ii) the purchase by KTI, the Borrower and, if designated by the Borrower to acquire the shares of Recoil U.K., Kaynar U.K. of substantially all of the assets of Recoil Australia pursuant to the Recoil Australia Acquisition Agreement. "RECOIL ACQUISITION AGREEMENTS" means the Recoil U.S. Acquisition Agreement and the Recoil Australia Acquisition Agreement, and "RECOIL ACQUISITION AGREEMENT" means either of them. "RECOIL ACQUISITION DOCUMENTS" means the Recoil Acquisition Agreements and all of the agreements, documents and instruments executed in connection with either of them. "RECOIL AUSTRALIA" means Recoil Pty Ltd, a company organized under the laws of the State of Victoria, Australia. "RECOIL AUSTRALIA ACQUISITION AGREEMENT" means that certain Australian Asset Sale Agreement dated August , 1996 among KTI, the Borrower, Recoil Australia and the other Vendors, pursuant to which the Vendors agree to sell, and the Borrower and KTI agree to purchase, substantially all of the assets of Recoil Australia. "RECOIL AUSTRALIA HOLDINGS" means Recoil Australia Holdings, Inc., a Delaware corporation. "RECOIL BELGIUM" means Recoil Marketing BVBA, a company organized under the laws of Belgium. "RECOIL HOLDINGS" means Recoil Holdings, Inc., a Delaware corporation. "RECOIL U.K." means Recoil (Europe) Limited., a company organized under the laws of England and Wales. "RECOIL U.S." means Recoil Inc., an Oregon corporation. "RECOIL U.S. ACQUISITION AGREEMENT" means that certain US Asset Sale Agreement dated August , 1996 among KTI, Recoil U.S., Recoil Australia and the other Vendors, pursuant to which Recoil U.S. agrees to sell, and KTI agrees to purchase, substantially all of the assets of Recoil U.S. "RELEASE" means release, presence, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Property or Third Party Property, including the movement of Environmental Hazards through or in the air, soil, surface water, groundwater, Property or Third Party Property. -16- "REMEDIAL ACTION" means actions required to (i) clean up, remove, treat or in any other way address Environmental Hazards in the indoor or outdoor environment; (ii) prevent the Release or threat of Release or minimize the further release of any Environmental Hazard; or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care. "REQUIREMENTS OF LAW" means, as to any Person, the Organizational Documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit or environmental, labor, employment, occupational safety or health law, ordinance, rule, regulation or common law. "RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Borrower or any Parent now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of the Borrower or any Parent now or hereafter outstanding, and (iii) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Borrower or any Parent now or hereafter outstanding. "SALES TAX ASSESSMENT ACT" means the Sales Tax Assessment Act of 1992 (Cwlth). "SCHEDULED MATURITY DATE" means January 3, 1999. "SECURITIES" means any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include any evidence of the Obligations. "SOLVENT", when used with respect to any Person, means that at the time of determination: (i) the assets of such Person, at a fair valuation, are in excess of the total amount of its -17- debts (including, without limitation, contingent liabilities); and (ii) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "SUBSIDIARY" of a Person means any corporation, limited liability company, unlimited liability company, general or limited partnership, or other entity which is a subsidiary of such Person within the meaning of part 1.2 of the Corporations Law or of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions with respect to such entity are at the time directly or indirectly owned or controlled by such Person, one or more of the other subsidiaries of such Person or any combination thereof. "TAXES" is defined in SECTION 3.03(a). "TERM LOAN" is defined in SECTION 2.01(a). "TERM LOAN COMMITMENT" means the obligation of the Lender to make its Term Loan pursuant to the terms and conditions of this Agreement, which shall be in an aggregate principal amount of $6,000,000, as permanently reduced from time to time by payments or prepayments on the Term Loan made pursuant to SECTION 2.01(d) or SECTION 3.01. "TERMINATION EVENT" means (i) the institution by the any Governmental Authority of proceedings to terminate any Employee Benefit Plan; (ii) any Governmental Authority shall appoint or institute proceedings to appoint a trustee to administer any Employee Benefit Plan; or (iii) the partial of complete withdrawal of the Borrower from an Employee Benefit Plan. "THIRD PARTY PROPERTY" means any real or personal property, plant, building, facility, structure, underground storage tank or unit or equipment owned, leased or operated by any Person other than the Borrower or any Parent (including, without limitation, any surface water thereon or adjacent thereto and soil and ground water thereunder). "TRANSACTION COSTS" means the fees, costs and expenses payable by KHI, KTI, the Borrower and their respective -18- Subsidiaries in connection with the execution, delivery and performance of the Transaction Documents. "TRANSACTION DOCUMENTS" means (i) the Loan Documents, (ii) the KHI Agreements, (iii) the KTI Loan Documents and (iv) the Recoil Acquisition Documents. "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as enacted in the State of California, as it may be amended from time to time. "VENDORS" means Recoil Australia, Advent Limited, Australian Pacific Technology Limited, Western Pacific Investment Company Limited, Mr. Bruce Price, B. Price Holdings Pty Limited and Lenarde Pty Ltd. 1.02. COMPUTATION OF TIME PERIODS. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. Any period determined hereunder by reference to a month or months or year or years shall end on the day in the relevant calendar month in the relevant year, if applicable, immediately preceding the date numerically corresponding to the first day of such period, PROVIDED, that if such period commences on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month during which such period is to end), such period shall, unless otherwise expressly required by the other provisions of this Agreement, end on the last day of the calendar month. 1.03. ACCOUNTING TERMS. Subject to SECTION 11.03, for purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. 1.04. REFERENCES TO THIS AGREEMENT. The words "hereof", "herein", "hereunder" and similar terms when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, subsection, clause, schedule and exhibit references herein are references to articles, sections, subsections, clauses, schedules and exhibits to this Agreement unless otherwise specified. 1.05. MISCELLANEOUS TERMS. All terms defined in this Agreement in the singular shall have comparable meanings when used in the plural, and VICE VERSA, unless otherwise specified. The term "including" is by way of example and not limitation. A reference to a statute, ordinance, code or other Requirement of Law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any -19- of them. A reference to a Person includes a reference to the Person's executors, administrators, successors, substitutes (including Persons taking by novation) and assigns. 1.06. OTHER TERMS. All other terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings assigned to such terms by the Uniform Commercial Code to the extent the same are defined therein. ARTICLE II AMOUNTS AND TERMS OF TERM LOAN 2.01. TERM LOANS. (a) AMOUNT OF TERM LOAN. The Lender, subject to the terms and conditions set forth in this Agreement, hereby agrees to make a term loan, in Dollars, to the Borrower on the Effective Date, in an aggregate amount equal to $6,000,000 (the "Term Loan"). (b) NOTICE OF BORROWING. When the Borrower desires to borrow the Term Loan under this SECTION 2.01, it shall deliver to the Lender a Notice of Borrowing, signed by it, on the Effective Date. Such Notice of Borrowing shall specify (i) the amount of the proposed Borrowing, and (ii) instructions for the disbursement of the proceeds of the proposed Borrowing. In lieu of delivering such a Notice of Borrowing, the Borrower may give the Lender telephonic notice of the Borrowing of the Term Loan on the Effective Date, if it confirms such notice by delivery of the Notice of Borrowing to the Lender promptly, but in no event later than 5:00 p.m. (Chicago time) on the same day. Any Notice of Borrowing (or telephonic notice in lieu thereof) given pursuant to this SECTION 2.01(b) shall be irrevocable. (c) MAKING OF TERM LOAN. Promptly after receipt of a Notice of Borrowing under SECTION 2.01(b) (or telephonic notice in lieu thereof), the Lender shall deposit an amount equal to the amount requested by the Borrower to be made in respect of the Term Loan under this SECTION 2.01(c), in immediately available funds, not later than 1:00 p.m. (Chicago time) on the Effective Date. Subject to the fulfillment of the conditions precedent set forth in SECTION 4.01, the Lender shall make the proceeds of such amounts available to the Borrower by disbursing such proceeds on the Effective Date to an account specified in a written notice from the Lender to the Borrower or in accordance with the Borrower's disbursement instructions set forth in such Notice of Borrowing. (d) REPAYMENT OF THE TERM LOAN. (i) 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 pursuant hereto. -20- (ii) In addition to the scheduled payments on the Term Loan, the Borrower may make the voluntary prepayments described in SECTION 3.01(a)(i) and shall make the mandatory prepayments prescribed in SECTION 3.01(b), for credit against such scheduled payments on the Term Loans pursuant to SECTION 3.01(a)(i) or SECTION 3.01(b), as applicable. (e) USE OF PROCEEDS OF TERM LOAN. The proceeds of the Term Loan shall be used (i) to pay that portion of the "Purchase Price" under (and as defined in) the Recoil Australia Acquisition Agreement attributable to the assets of Recoil Australia (other than the Capital Stock of Recoil Belgium and Recoil U.K.) and (iii) for working capital in the ordinary course of the Borrower's business and for other lawful general corporate purposes. 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), at a rate per annum equal to the sum of (i) the Index Rate, as in effect from time to time as interest accrues, PLUS (ii) one and one-half percent (1.50%). (b) INTEREST PAYMENTS. (i) Interest accrued on the Term Loan shall be payable in arrears (A) with respect to interest accrued and unpaid as of the end of any calendar month, on the first day of the immediately succeeding calendar month, commencing on the first such day following the making of the Term Loan, (B) upon the payment or prepayment of the Term Loan in full, and (C) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of the Term Loan. (ii) Interest accrued on the principal balance of all other Obligations shall be payable in arrears (A) on the last day of each calendar month, commencing on the first such day following the incurrence of such Obligation, (B) upon repayment thereof in full or in part, and (C) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (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 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 three and one-half percent (3.50%) per annum in excess of the Index Rate. -21- (d) COMPUTATION OF INTEREST. Interest on all Obligations shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. In computing interest on the Term Loan, the date of the making of the Loan shall be included and the date of payment shall be excluded; PROVIDED, HOWEVER, that if a Loan is repaid in accordance with the terms hereof on the same day prior to 1:00 p.m. (Chicago time) on which it is made, no interest shall be paid on the Term Loan. (e) INTEREST FOLLOWING JUDGMENT OR ORDER. If any of the Obligations becomes merged in a judgment or order, then the Borrower agrees to pay interest to the Lender on the amount of that Obligation as an independent Obligation. This interest accrues from the date the Obligation becomes due for payment both before and after the judgement or order until it is paid in full, at a rate which is the higher of (i) the rate payable under the judgment or order and (ii) the rate referred to in SECTION 2.02(c). 2.03. AUTHORIZED OFFICERS AND AGENTS. On the Effective Date and from time to time thereafter when necessary, the Borrower shall deliver to the Lender an Officer's Certificate setting forth the names of the officers, employees and agents authorized to request the Term Loan and containing a specimen signature of each such officer, employee or agent. The officers, employees and agents so authorized shall also be authorized to act for the Borrower in respect of all other matters relating to the Loan Documents. The Lender shall be entitled to rely conclusively on such officer's or employee's authority to request the Term Loan until the Lender receives written notice to the contrary. The Lender shall have no duty to verify the authenticity of the signature appearing on any written Notice of Borrowing or any other document, and, with respect to an oral request for such a Loan the Lender shall have no duty to verify the identity of any person representing himself or herself as one of the officers, employees or agents authorized to make such request or otherwise to act on behalf of the Borrower. The Lender shall incur no liability to the Borrower or any other Person in acting upon any telephonic notice referred to above which the Lender believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of the Borrower. ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. PREPAYMENTS; REDUCTIONS IN TERM LOAN COMMITMENT. (a) VOLUNTARY PREPAYMENTS/REDUCTIONS. (i) The Borrower may, upon at least one (1) Business Day's prior written notice to the Lender, at any time and from time to time, prepay the Term Loan, in whole or in part. Unless the aggregate -22- outstanding principal balance of the Term Loan is to be prepaid in full, voluntary prepayments of the Term Loan shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount. Each voluntary prepayment shall be applied to the unpaid installments of the Term Loan in the forward order of maturity and shall premanently reduce the Term Loan Commitment of the Lender. Any notice of prepayment given to the Lender under this SECTION 3.01(a)(i) shall specify the date (which shall be a Business Day) of prepayment and the aggregate principal amount of the prepayment. When notice of prepayment is delivered as provided herein, the principal amount of the Term Loan specified in the notice shall become due and payable on the prepayment date specified in such notice. (ii) The repayments and prepayments in respect of reductions and terminations described in this SECTION 3.01(a) may be made without premium or penalty. (b) MANDATORY PREPAYMENTS/REDUCTIONS. (i) Within two (2) Business Days after the Borrower's or any Parent's receipt of any Net Cash Proceeds of Sale, the Borrower shall make or cause to be made a mandatory prepayment of the Obligations in an amount equal to one hundred percent (100%) of such Net Cash Proceeds of Sale. (ii) After the payment in full of the "Obligations" under (and as defined in) the KTI Credit Agreement, within ninety (90) days after the end of each Fiscal Year, the Borrower shall calculate Excess Cash Flow for such Fiscal Year and shall make a mandatory prepayment in an amount equal to seventy-five percent (75%) of such Excess Cash Flow. The Borrower shall make an additional mandatory prepayment on the date on which annual reports are required to be delivered by SECTION 6.01(c) to the extent 75% of Excess Cash Flow determined in accordance with the annual reports exceeds 75% of the Borrower's preliminary calculation of Excess Cash Flow. (iii) Within two (2) Business Days after the Borrower's or any Parent's receipt of any Excess Proceeds of Issuance of Stock or Indebtedness, the Borrower shall make or cause to be made a mandatory prepayment in an amount equal to one hundred percent (100%) of such Excess Proceeds of Issuance of Stock or Indebtedness. (iv) Nothing in this SECTION 3.01(b) shall be construed to constitute the Lender's consent to any transaction referred to in CLAUSES (i) or (iii) above which is not expressly permitted by ARTICLE VIII. (v) Each mandatory prepayment required by CLAUSES (i), (ii) and (iii) of this SECTION 3.01(b) shall be referred to herein as a "Designated Prepayment". The Borrower shall give the Lender not less than one (1) Business Day's prior written notice -23- or telephonic notice promptly confirmed in writing, of the date on which each such Designated Prepayment will be made (which date of prepayment shall be no later than the date on which such Designated Payment becomes due and payable pursuant to this SECTION 3.01(b)). (iv) Designated Prepayments shall be allocated and applied to the unpaid principal balance of the Term Loan. 3.02. PAYMENTS. (a) MANNER AND TIME OF PAYMENT. All payments and prepayments of principal of and interest on the Term Loan and other Obligations (including, without limitation, fees and expenses) which are payable to the Lender shall be made without condition or reservation of right, in immediately available funds, delivered to the Lender not later than 1:00 p.m. (Chicago time) on the date and at the place due, to such account of the Lender as it may designate; and funds received by the Lender not later than 1:00 p.m. (Chicago time) on any given Business Day shall be credited against payment to be made that day and funds received by the Lender after that time shall be deemed to have been paid on the immediately following Business Day. All payments and prepayments of Obligations shall be made in Dollars, and the Borrower waives any right which it has under any Requirement of Law to repay the Obligations in a currency other than Dollars. If the Lender receives payment in a currency other than Dollars, the Lender may convert the amount received into Dollars at the spot rate at which the Lender is able to purchase Dollars with the amount received at the time of receipt of the other currency. The Borrower satisfies its obligation to make payments in Dollars only to the extent of the amount of the Dollars purchased after deducting any costs of conversion. The Borrower acknowledges that it may be necessary for the Lender to convert amounts received through a currency other than Dollars to ascertain the Dollar equivalent of the amount received. (b) APPLICATION OF PAYMENTS. (i) Subject to the provisions of SECTIONS 3.01 AND 3.02(b)(ii), all payments of principal and interest in respect of the Term Loan, all payments of fees and all other payments in respect of any other Obligations, shall be applied FIRST, to pay all Obligations then due and payable and SECOND, as the Borrower so designates. (ii) After the occurrence of an Event of Default and while the same is continuing, the Lender shall apply all payments in respect of any Obligations and all proceeds of Collateral in the following order: (A) FIRST, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Lender; (B) SECOND, to pay interest due in respect of the Supplemental Term Loan; -24- (C) THIRD, to the payment or prepayment of principal outstanding on the Term Loan; and (D) FOURTH, to the payment of all other Obligations. (c) PAYMENTS ON NON-BUSINESS DAYS. Whenever any payment to be made by the Borrower hereunder is stated to be due on a day which is not a Business Day, the payment shall instead be due on the immediately following Business Day, and any such extension of time shall be included in the computation of the payment of interest and fees hereunder. 3.03. TAXES. (a) PAYMENT OF TAXES. Any and all payments by the Borrower hereunder or other document evidencing any Obligations shall be made, in accordance with SECTION 3.02, free and clear of and without reduction for any and all present or future taxes, levies, imposts, deductions, charges, withholdings, duties, and all stamp, transaction or documentary taxes, excise taxes, ad valorem taxes and other taxes imposed on the value of the Property, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, or otherwise with respect to, any of the Loan Documents or the Term Loan Commitment and all other liabilities with respect thereto (including any related interest, penalties, fines and expenses in connection with any of them), excluding taxes imposed on or measured by net income or overall gross receipts and capital and franchise taxes imposed on the Lender by (i) the United States, (ii) the Governmental Authority of any jurisdiction in which the Lender has an office or any political subdivision thereof or (iii) the Governmental Authority in which the Lender is organized, managed and controlled or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and duties being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder or any such document to the Lender (x) the sum payable to the Lender shall be increased as may be necessary so that after making all required withholding or deductions (including withholding or deductions applicable to additional sums payable under this SECTION 3.03) the Lender receives an amount equal to the sum it would have received had no such withholding or deductions been made, (y) the Borrower shall make such withholding or deductions, and (z) the Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) INDEMNIFICATION. The Borrower will indemnify the Lender against, and reimburse the Lender on demand for, the full amount of all Taxes (including, without limitation, any Taxes imposed by any Governmental Authority on amounts payable under this SECTION 3.03 and any additional income or franchise taxes resulting therefrom) incurred or paid by the Lender or any of its Affiliates and any liability (including penalties, additions to -25- tax, interest, and out-of-pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or not such Taxes were lawfully payable. A certificate as to any additional amount payable to any Person under this SECTION 3.03 submitted by it to the Borrower shall, absent manifest error, be final, conclusive and binding upon all parties hereto. The Lender agrees, within a reasonable time after receiving a written request from the Borrower, to provide the Borrower with such certificates as are reasonably required, and take such other actions as are reasonably necessary to claim such exemptions as the Lender may be entitled to claim in respect of all or a portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this SECTION 3.03 in respect of any payments under this Agreement. (c) RECEIPTS. Within thirty (30) days after the date of any payment of Taxes by the Borrower, it will furnish to the Lender, at its address referred to in SECTION 11.06, the original or a certified copy of a receipt evidencing payment thereof. (d) INCOME TAX ASSESSMENT ACT MATTERS. (i) The Borrower acknowledges that section 261 of the Income Tax Assessment Act may render void its Obligation to make payment under this SECTION 3.03. However, the Borrower convenants that even if this is the case, and the Borrower would not otherwise be obliged to make the payment as a result thereof, it will make the payments contemplated by this SECTION 3.03 and that the making of such payment is in the best interest of Borrower. The Borrower acknowledges that the Lender has materially relied on the covenant in this SECTION 3.03(d)(i) in entering into this Agreement and breach of such covenant would materially harm the Lender. (ii) The Borrower waives any right it may have to any reimbursement of money paid under this SECTION 3.03 or in accordance with the Borrower's covenant contained in SECTION 3.03(d)(i). The Borrower also releases the Lender from any Claim the Borrower may have against the Lender or any of its affiliates to refund or repay amounts so paid whether the Claim arises by reason of the Obligation under this SECTION 3.03 being void under section 261 of the Income Tax Assessment Act or by reason of money paid under mistake of any nature or for any other reason. 3.04. PROMISE TO REPAY; EVIDENCE OF INDEBTEDNESS. (a) PROMISE TO REPAY. The Borrower hereby agrees to pay when due the principal amount of the Term Loan which is made to it, and further agrees to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement. (b) LOAN ACCOUNT. The Lender shall maintain in accordance with its usual practice an account or accounts (a "Loan Account") evidencing the Indebtedness of the Borrower to -26- the Lender resulting from the Term Loan owing to the Lender from time to time, including the amount of principal and interest payable and paid to the Lender from time to time hereunder. (c) ENTRIES BINDING. The entries made in the Loan Account shall be conclusive and binding for all purposes, absent manifest error. ARTICLE IV CONDITIONS TO TERM LOAN 4.01. CONDITIONS PRECEDENT TO EFFECTIVE DATE. The obligation of the Lender to make the Term Loan on the Effective Date shall be subject to the satisfaction of all of the following conditions precedent: (a) DOCUMENTS. The Lender shall have received on or before the Effective Date all of the following, each duly executed, acknowledged, stamped and registered where appropriate and in form and substance satisfactory to the Lender: (i) this Agreement, together with all Schedules hereto which shall be in each case true, complete and correct in all material respects as of the Effective Date; (ii) a Notice of Borrowing completed in accordance with the provisions of SECTION 2.01(b); (iii) the Fixed and Floating Charge, together with all schedules thereto which shall be in each case true, complete and correct in all material respects as of the Effective Date: (iv) a certified copy of the extract of the meeting of the board of directors of each of the Borrower and each Parent evidencing the resolutions authorizing the execution, delivery and performance of the Loan Documents to which such Person is a party; (v) the Parent Pledge Agreements and the Parent Guaranty and Uniform Commercial Code financing statements for filing in jurisdictions with respect to the Property subject to the Charge Over Shares; (vi) favorable legal opinions, each dated the Effective Date, addressed to the Lender (or with respect to which the Lender has been issued a reliance letter) from the following counsel: (A) O'Melveny & Myers LLP, United States counsel to the Borrower, Recoil Australia Holdings -27- and Recoil Holdings, with respect to the Loan Documents and related matters; (B) Corrs Chambers Westgarth, Australian counsel to the Borrower, Recoil Australia Holdings and Recoil Holdings, with respect to the Loan Documents, the Recoil Australia Acquisition Agreement and related matters; and (C) Norton Smith Gledhill, Australian counsel to Recoil Australia and certain of the Vendors, with respect to the Recoil Australia Acquisition Agreement and related matters; and (D) Logie-Smith Lanyon, Australian counsel to certain of the Vendors, with respect to the Recoil Acquisition Documents and related matters; (vii) evidence that the Borrower and each Parent have directed its counsel to prepare and deliver to the Lender the respective opinions described in SUBCLAUSES (A) and (B) of CLAUSE (vii) above and that Recoil Australia and the Vendors have directed their respective counsel to prepare and deliver to the Lender the respective opinions described in SUBCLAUSES (C) and (D) of CLAUSE (ix) above; (viii) a certificate signed by a director of the Borrower certifying that all conditions precedent under this SECTION 4.01 have been met and no Potential Event of Default or Event of Default has occurred or is continuing; (ix) a solvency certificate for the Borrower and each Parent, duly executed by a director of such Person, dated the Effective Date and giving effect to the Recoil Australia and the financing transactions contemplated under this Agreement, supported by such analyses, valuations, appraisals, reviews, projections and other documentation as the Lender deems appropriate; (x) the PRO FORMA financials referred to in SECTION 5.01(g); (xi) originals of all powers of attorney under which any of the Loan Documents are executed; (xii) such additional documentation as the Lender may reasonably request. (b) PERFECTION OF LIENS. Evidence that the Fixed and Floating Charge and the Parent Pledge Agreements have been filed, stamped and/or registered where necessary to record or perfect the Lender's security interest in the respective Collateral subject thereto, certificates representing Capital Stock included -28- in the Collateral (including the Capital Stock of RCL) have been delivered to the Lender (with duly executed stock powers) and all recording fees and stamp and filing taxes have been paid. (c) NO LEGAL IMPEDIMENTS. 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 (i) enjoin, prohibit or restrain (A) the making of the Term Loan on the Effective Date, (B) the Parents' entering into the Parent Guaranty on the Effective Date or (C) the consummation of the Recoil Acquisition or (ii) impose or result in the imposition of a Material Adverse Effect. (d) NO DEFAULT. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the Term Loan on the Effective Date or the Parents' entering into the Parent Guaranty on the Effective Date. (e) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties contained in SECTION 5.01 and in any of the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date. (f) THE RECOIL ACQUISITION. (i) The Lender shall be satisfied in all material respects (A) with the terms, form and substance of the Recoil Acquisition and the Recoil Acquisition Documents, including, without limitation, the resolutions with respect to the Recoil Acquisition adopted by the respective boards of directors of the Borrower, KTI, Recoil Australia, Recoil U.S. and the other parties to the respective Recoil Acquisition Agreements, (B) that the parties to the Recoil Acquisition Agreements have complied with all applicable Requirements of Law in connection with the Recoil Acquisition, (C) that all conditions precedent to, and all consents necessary to permit, the Recoil Acquisition pursuant to the Recoil Acquisition Documents shall have been satisfied or delivered, or waived with the prior written consent of the Lender, (D) that all Liens encumbering the assets being purchased in the Recoil Acquisition have been terminated (other than Liens permitted by SECTION 8.03) and (E) that the Recoil Acquisition Documents have not been amended or modified without the prior written consent of the Lender and are in full force and effect. (ii) Substantially simultaneously with the consummation of the transactions contemplated by this Agreement, the KHI Loan Agreement and the KTI Credit Agreement, the Borrower, KTI and, if designated by KTI to acquire the shares of Recoil U.K., Kaynar U.K. shall have acquired substantially all of the assets of Recoil Australia pursuant to the Recoil Australia Acquisition Agreement and related documents in compliance with all applicable Requirements of Law. -29- (g) ORGANIZATIONAL DOCUMENTS. The Lender shall have received copies, certified to its satisfaction, of the Organizational Documents of the Borrower and each Parent as in effect as of the Effective Date and determined them to be satisfactory in form and substance. (h) NO MATERIAL ADVERSE EFFECT. No event has occurred since December 31, 1995 which has had or is reasonably likely to have a Material Adverse Effect. (i) FEES AND EXPENSES PAID. There shall have been paid to the Lender all fees and expenses due and payable on or before the Effective Date. ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to enter into this Agreement and to make the Term Loan and the other financial accommodations to the Borrower, the Borrower hereby represents and warrants to the Lender that the following statements are true, correct and complete: (a) ORGANIZATION; ORGANIZATIONAL POWERS. The Borrower and each Parent (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified to do business as a foreign corporation (or other entity) and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing will have or is reasonably likely to have a Material Adverse Effect, and (iii) has all requisite corporate power and authority to own, operate and encumber its Property and to conduct its business as proposed to be conducted in connection with and following the consummation of the transactions contemplated by the Transaction Documents. (b) AUTHORITY. (i) The Borrower and each Parent have the requisite corporate power and authority (A) to execute, deliver and perform each of the Transaction Documents which are to be executed by it in connection with the Recoil Acquisition or which have been executed by it as required by this Agreement on or prior to the Effective Date and (B) to file the Transaction Documents which must be filed by it in connection with the Recoil Acquisition or which have been filed by it as required by this Agreement on or prior to the Effective Date, with any Governmental Authority. (ii) The execution, delivery, performance and filing, as the case may be, of each of the Transaction Documents which must be executed or filed by the Borrower or any Parent in connection with the Recoil Acquisition or which have been executed or filed as required by this Agreement on or prior to the Effective Date and to which the Borrower or any Parent is -30- party and the consummation of the transactions contemplated thereby, have been duly approved by the respective boards of directors and, if necessary, the shareholders of the Borrower and each Parent and such approvals have not been rescinded. No other organizational action or proceedings on the part of the Borrower or any Parent are necessary to consummate such transactions. (iii) Each of the Transaction Documents to which the Borrower or any Parent is a party has been duly executed, delivered or filed, as the case may be, by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, is in full force and effect and no material term or condition thereof has been amended, modified or waived from the terms and conditions contained in the Transaction Documents delivered to the Lender pursuant to SECTION 4.01(a) without the prior written consent of the Lender, and all parties thereto have performed and complied with all the terms, provisions, agreements and conditions set forth therein and required to be performed or complied with by such parties on or before the Effective Date, and no Potential Event of Default, Event of Default or breach of any covenant by any such party exists thereunder. (iv) Neither the Borrower nor any Parent have entered into any Transaction Document in the capacity of a trustee of any trust or settlement. (v) All of the obligations of the Borrower and each Parent under any Loan Document to which such Person is a party rank at least equally with all other senior, secured Indebtedness of such Person, except Indebtedness mandatorily preferred by law or as otherwise permitted hereunder or under the Loan Documents, including Indebtedness permitted by SECTION 8.01 and Liens permitted by SECTION 8.03. (c) CONSENTS. Except as set forth in SCHEDULE 5.01-C no consents or approvals of, or filings or registrations (other than filings or registrations contemplated by SECTION 4.01(b) or 5.01(f)(i) with respect to Government Contracts) by the Borrower or any Parent with any Governmental Authority or any other Person not a party to this Agreement are necessary in connection with the execution and delivery of the Transaction Documents by the Borrower and the Parents and the consummation by the Borrower and the Parents of the transactions contemplated by the Transaction Documents, except where the failure to obtain such consents or approvals would not result in a Material Adverse Effect. (d) SUBSIDIARIES; OWNERSHIP OF CAPITAL STOCK. SCHEDULE 5.01-D accurately sets forth (i) the correct legal name, the jurisdiction of incorporation and the jurisdictions in which qualified to transact business as a foreign corporation of each of the direct and indirect Subsidiaries of the Borrower and the Parents, (ii) the authorized, issued and outstanding shares of each class of Capital Stock of the Parents, the Borrower and each -31- of their respective Subsidiaries and the owners of such shares, and (iii) a summary of the direct and indirect partnership, joint venture, or other equity interests, if any, of the Borrower and any each Parent in any Person that is not a corporation. None of such issued and outstanding Capital Stock is subject to any vesting, redemption, or repurchase agreement, and there are no warrants or options outstanding with respect to such Capital Stock. The outstanding Capital Stock of the Borrower and each Parent is duly authorized, validly issued, fully paid and nonassessable. (e) NO CONFLICT. The execution, delivery and performance of each of the Transaction Documents to which the Borrower or any Parent is a party do not and will not (i) conflict with the Organizational Documents of the Borrower or any Parent, (ii) constitute a tortious interference with any Contractual Obligation of any Person or conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law or Contractual Obligation of the Borrower or any Parent, or require termination of any Contractual Obligation, the consequences of which violation, breach, default or termination, singly or in the aggregate, will have or is reasonably likely to have a Material Adverse Effect or is reasonably likely to subject the Lender to any liability, or (iii) result in or require the creation or imposition of any Lien whatsoever upon any of the Property or assets of the Borrower or any Parent, other than Liens contemplated by the Loan Documents. (f) PATENTS, TRADEMARKS, PERMITS, ETC.; GOVERNMENT APPROVALS. (i) After giving effect to the Recoil Acquisition, the Borrower and each Parent own, are licensed or otherwise have the lawful right to use, or have all permits and other governmental approvals (except with respect to Government Contracts), patents, trademarks, trade names, copyrights, technology, know-how and processes used in or necessary for the conduct of their businesses as proposed to be conducted which are material to their condition (financial or otherwise), operations, performance and prospects, taken as a whole, including, without limitation, the name "Recoil". With respect to each Government Contract acquired by the Borrower in connection with the Recoil Acquisition, such Government Contract has been transferred to the Borrower (and all necessary approvals therefor have been obtained) or the Borrower is operating under a subcontract which is in full force and effect. (ii) The consummation of the Recoil Acquisition and the transactions contemplated by the Transaction Documents will not impair the ownership of or rights under (or the license or other right to use, as the case may be) any permits and governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how or processes by the Borrower or any Parent in any manner which has or is reasonably likely to have a Material Adverse Effect. -32- (g) PRO FORMA FINANCIALS. The PRO FORMA consolidated and consolidating balance sheets of KHI and its Subsidiaries prepared as of March 31, 1996 (and giving effect to the Recoil Acquisition) and in accordance with GAAP consistently applied, copies of which have been furnished to the Lender on or before the Effective Date, fairly present on a PRO FORMA basis the financial condition of KHI and it's Subsidiaries as of March 31, 1996, and reflect on a PRO FORMA basis those liabilities reflected in the notes thereto and resulting from consummation of the transactions contemplated by the Transaction Documents, and the payment or accrual of all Transaction Costs payable on the Effective Date with respect to any of the foregoing. The projections and assumptions expressed in the PRO FORMA financials furnished pursuant to this SECTION 5.01(g) are reasonable based on the information available to the Borrower as of the date hereof. (h) SOLVENCY. After giving effect to the Term Loan to be made on the Effective Date, and the disbursement of the proceeds of the Term Loan pursuant to the Borrower's instructions (if any), the Borrower and each Parent are Solvent. (i) THE RECOIL ACQUISITION. (i) All conditions precedent to, and all consents necessary to permit, the Recoil Acquisition pursuant to the Recoil Acquisition Documents have been satisfied or delivered, or waived with the prior written consent of the Lender, and no material breach of any term or provision of any Recoil Acquisition Document has occurred and no action has been taken by any competent authority which restrains, prevents or imposes material adverse conditions upon, or seeks to restrain, prevent or impose material adverse conditions upon, the Recoil Acquisition or the making of the Term Loan hereunder. (ii) After giving effect to the Recoil Acquisition, and the Borrower, KTI and, if designated by KTI to acquire the shares of Recoil U.K., Kaynar U.K. have acquired substantially all of the assets of Recoil Australia pursuant to the Recoil Australia Acquisition Agreement and related documents in compliance with all applicable Requirements of Law. (j) PLEDGE OF COLLATERAL. The grant and perfection of the security interest in the Capital Stock of the Borrower constituting a portion of the Collateral for the benefit of the Lender, as contemplated by the terms of the Parent Pledge Agreements, is not made in violation of the registration provisions of the Securities Act of 1933, any applicable provisions of other federal securities laws, state securities or "Blue Sky" law, foreign securities law, or applicable general corporation, limited liability company, unlimited liability company or partnership law or in violation of any other Requirement of Law. (k) GOVERNMENTAL REGULATION. Neither the Borrower, nor any Parent is subject to regulation under the Public Utility -33- Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940, or any other foreign, federal or state statute or regulation which limits its ability to incur indebtedness or its ability to consummate the transactions contemplated hereby or by the Recoil Acquisition Agreements. (l) RESTRICTED JUNIOR PAYMENTS. Since the respective dates of incorporation of the Borrower and the Parents, neither the Borrower nor any Parent has directly or indirectly declared, ordered, paid or made or set apart any sum or Property for any Restricted Junior Payment or agreed to do so, except as permitted pursuant to SECTION 8.06. (m) BANK ACCOUNTS. Each bank, trust company or other financial institution at which the Borrower or any Parent maintains any deposit account has executed and delivered to the Lender a Collection Account Agreement with respect to such deposit account(s). (n) LITIGATION; ADVERSE EFFECTS. Except as set forth in SCHEDULE 5.01-N, there is no action, suit proceeding, investigation or arbitration before or by any Governmental Authority or private arbitrator pending or, to the best of Borrower's knowledge, threatened against the Borrower or any Parent or any Property of any of them (i) challenging the validity or the enforceability of any of the Transaction Documents or (ii) which will or is reasonably likely to result in any Material Adverse Effect. There is no material loss contingency within the meaning of GAAP which has not been reflected in the consolidated financial statements of the Borrower. Neither the Borrower nor any of its Subsidiaries is (x) in violation of any applicable Requirements of Law which violation will have or is reasonably likely to have a Material Adverse Effect, or (y) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or Governmental Authority which will have or is reasonably likely to have a Material Adverse Effect. (o) NO MATERIAL ADVERSE CHANGE. Since the Effective Date, there has occurred no event which has had or is reasonably likely to have a Material Adverse Effect. (p) PERFORMANCE. Neither the Borrower nor any Parent has received notice or has actual knowledge that (i) it is in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any Contractual Obligation applicable to it, or (ii) any condition exists which, with the giving of notice or the lapse of time or both, would constitute a default with respect to any such Contractual Obligation. -34- (q) DISCLOSURE. The representations and warranties of the Borrower and the Parents contained in the Transaction Documents, and all certificates and other documents delivered to the Lender pursuant to the terms thereof, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Borrower has not intentionally withheld any fact from the Lender in regard to any matter which will have or is reasonably likely to have a Material Adverse Effect. (r) REQUIREMENTS OF LAW. The Borrower and the Parents are in compliance with all Requirements of Law applicable to them and their respective businesses, in each case where the failure to so comply individually or in the aggregate will have or is reasonably likely to have a Material Adverse Effect. (s) EMPLOYEE BENEFIT MATTERS. The Borrower does not maintain or contribute to any Employee Benefit Plan other than those listed on SCHEDULE 5.01-S hereto. Each Employee Benefit Plan is in compliance in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Employee Benefit Plan. The aggregate of the liabilities to provide all of the accrued benefits under any Pension Plan does not exceed the current Fair Market Value of the assets held in the trust or other funding vehicle for such Pension Plan. With respect to any Employee Benefit Plan maintained or contributed to by the Borrower (other than a Pension Plan), reasonable reserves have been established to the extent required by prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Employee Benefit Plan is maintained. The aggregate unfunded liabilities, after giving effect to any reserves for such liabilities, with respect to such Employee Benefit Plans does not exceed the current Fair Market Value of the assets held in the trust or other funding vehicle (or reserves) for such Employee Benefit Plan. There are no actions, suits or claims (other than routine claims for benefits) pending or threatened against the Borrower with respect to any Employee Benefit Plan. (t) LABOR MATTERS. SCHEDULE 5.01-T accurately sets forth all labor contracts to which the Borrower or any Parent is a party on the date hereof and the expiration date of each such contract. There are no strikes, lockouts or other disputes relating to any collective bargaining or similar agreement to which the Borrower or any Parent is a party. (u) INSURANCE. SCHEDULE 5.01-X of the KTI Credit Agreement accurately sets forth as of the date delivered to the Lender all insurance policies and programs currently in effect with respect to the respective Property and assets and business of the Borrower and the Parents, specifying for each such policy -35- and program, (i) the amount thereof, (ii) the risks insured against thereby, (iii) the name of the insurer and each insured party thereunder, (iv) the policy or other identification number thereof, (v) the expiration date thereof and (vi) the annual premium with respect thereto. Such insurance policies and programs are in amounts sufficient to cover the replacement value of the respective Property and assets of the Borrower and the Parents. (v) GOVERNMENT CONTRACT MATTERS. Except as set forth in SCHEDULE 5.01-V: (i) The Borrower is in compliance with all material terms and conditions of all Government Contracts, including all clauses, provisions and requirements incorporated expressly, by reference or by operation of law therein; (ii) The Borrower is in compliance with all material terms and conditions of all Requirements of Law and all Contractual Obligations pertaining to any Government Contract; (iii) All representations and certifications executed or acknowledged or set forth in or pertaining to each Government Contract were complete, accurate, correct and truthful as of the date such representations or certifications were made, and the Borrower has complied in all material respects with all such representations and certifications since such date; (iv) No Governmental Authority, any prime contractor, subcontractor or other Person has notified the Borrower that the Borrower has breached or violated any Requirement of Law, certification, representation, clause, provision or requirement pertaining to any Government Contract; (v) No termination for default, termination for convenience, cure notice or show cause notice is currently in effect with respect to any Government Contract; (vi) To the best of the Borrower's knowledge, no cost incurred pertaining to any Government Contract has been questioned or challenged, is the subject of any investigation or has been disallowed by any Governmental Authority; (vii) To the best of the Borrower's knowledge, no money due to the Borrower pertaining to any Government Contract has been withheld, or has been the subject of an attempt to withhold, or reduced through exercise of a right of set-off or otherwise; (viii) there is no action, suit, investigation or proceeding relating to any Government Contract, or relating -36- to any proposed suspension or debarment of the Borrower or any of its employees or agents, pending against (or, to the best of the Borrower's knowledge, threatened against) the Borrower, such other Person or any Property; (ix) Neither the Borrower nor any of its directors, officers or employees is (or during the last five (5) years has been) suspended or debarred from doing business with any Governmental Authority or is (or during such period was) the subject of a finding of nonresponsibility or ineligibility for government contracting; (x) (A) To the best of the Borrower's knowledge, none of the Borrower's directors, officers, employees, consultants or agents is (or during the last five (5) years has been) under administrative, civil or criminal investigation, indictment or information by any Governmental Authority with respect to any alleged irregularity, misstatement or omission arising under or relating to any Government Contract, (B) during the last five (5) years, the Borrower has not conducted or initiated any internal investigation or audit or made a voluntary disclosure to any Governmental Authority, with respect to any alleged irregularity, misstatement or omission arising under or related to any Government Contract; and (C) the Borrower has no knowledge or reason to know of any irregularity, misstatement or omission arising under or relating to any Government Contract that has led or could reasonably lead, either before or after the Effective Date, to any of the consequences set forth in CLAUSE (A) or (B) above or any other material damage, penalty assessment, recoupment of payment or disallowance of cost; (xi) There exist (A) no outstanding material Claims against the Borrower or any Property, either by a Governmental Authority or by any prime contractor, subcontractor, vendor or other third party, arising under or relating to any Government Contract; and (B) no material disputes between the Borrower or any Parent, on the one hand, and any Governmental Authority, any prime contractor, subcontractor, vendor or other third party, on the other hand, arising under or relating to any Government Contract; (xii) The Borrower's cost accounting and procurement systems with respect to Government Contracts are in compliance in all material respects with all applicable Requirements of Law; and (xiii) All Government Contracts and bids (A) are being performed or were submitted, as the case may be, in the ordinary course of business and (B) are or would be, as the case may be, capable of performance in accordance with their -37- terms without loss (determined in accordance with the Borrower's accounting principles, consistently applied). (w) PAYMENT OF TAXES. All tax returns and reports of each of the Borrower and the Parents required to be filed have been timely filed, and all taxes, assessments, fees and other governmental charges thereupon and upon their respective Property, assets, income and franchises which are shown in such returns or reports to be due and payable have been paid, other than those which are being contested in good faith by appropriate proceedings. The Borrower has no knowledge of any proposed tax assessment (or similar claim) against the Borrower or any Parent that will have or is reasonably likely to have a Material Adverse Effect. (x) BENEFIT OF TRANSACTION DOCUMENTS. The Company and each Parent benefits by executing and delivering the Transaction Documents to which such Person is a party and the interest charged by the Lender under the Loan Documents is fair and reasonable. (y) RELATED PARTY TRANSACTIONS. None of the parties to the Recoil Acquisition Documents has contravened or will contravene section 243H or section 243ZE of the Corporations Law by entering into or participating in any Transaction Document or any transaction contemplated by any Transaction Document, to the extent that such Requirements of Law are applicable to such Persons and the Transaction Documents. (z) TITLE TO PROPERTY. Each of the Borrower and each Parent is the beneficial owner of, and has good and marketable title to, all Property held by it or on its behalf and all undertakings carried on by such Person, free from any Lien other than those permitted by this Agreement. ARTICLE VI REPORTING COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent thereto: 6.01. FINANCIAL STATEMENTS. The Borrower shall maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated and consolidating financial statements in conformity with GAAP, and each of the financial statements described below shall be prepared from such system and records. The Borrower shall deliver or cause to be delivered to the Lender: (a) MONTHLY REPORTS. As soon as practicable, and in any event within thirty (30) days after the end of each calendar -38- month in each Fiscal Year, the consolidated and consolidating balance sheets of the Borrower and the Parents as at the end of such period and the related consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and the Parents for such calendar month and for the period from the beginning of the then current Fiscal Year to the end of such calendar month, setting forth in each case in comparative form the corresponding figures for the corresponding calendar periods in the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f), certified by a director of the Borrower as fairly presenting the consolidated and consolidating financial position of the Borrower and the Parents as at the dates indicated and the results of their operations and cash flow for the calendar months indicated in accordance with GAAP, subject to normal year end adjustments. (b) QUARTERLY REPORTS. As soon as practicable, and in any event within forty-five (45) days after the end of each fiscal quarter in each Fiscal Year, the consolidated and consolidating balance sheets of the Borrower and the Parents as at the end of such period and the related consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and the Parents for such fiscal quarter and for the period from the beginning of the then current Fiscal Year to the end of such fiscal quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f), certified by a director of the Borrower as fairly presenting the consolidated and consolidating financial position of the Borrower and the Parents as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with GAAP, subject to normal year end adjustments. (c) ANNUAL REPORTS. As soon as practicable, and in any event within one hundred twenty (120) days after the end of each Fiscal Year, (i) the consolidated and consolidating balance sheets of the Borrower and the Parents as at the end of such Fiscal Year and the related consolidated and consolidating statements of income, stockholders' equity and cash flow of the Borrower and the Parents for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f), and (ii) a report thereon of Arthur Andersen & Co. or other independent certified public accountants of recognized standing and otherwise acceptable to the Lender, which report shall be unqualified and shall state that such financial statements fairly present the consolidated and consolidating financial position of each of the Borrower and the Parents as at the dates indicated and the results of their -39- operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which Arthur Andersen & Co. or any such other independent certified public accountants, if applicable, shall concur and which shall have been disclosed in the notes to the financial statements) and that the examination by such accountants in connection with such consolidated and consolidating financial statements has been made in accordance with generally accepted auditing standards. (d) OFFICER'S CERTIFICATE. Together with each delivery of any financial statement pursuant to PARAGRAPHS (b) and (c) of this SECTION 6.01, (i) an Officer's Certificate of the Borrower substantially in the form of EXHIBIT F attached hereto and made a part hereof, stating that the officer or director signatory thereto has reviewed the terms of the Loan Documents, and has made, or caused to be made under his supervision, a review in reasonable detail of the transactions and consolidated and consolidating financial condition of the Borrower and the Parents during the accounting period covered by such financial statements, that such review has not disclosed the existence during or at the end of such accounting period, and that such officer or director does not have knowledge of the existence as at the date of such Officer's Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower or any Parent has taken, is taking and proposes to take with respect thereto; and (ii) a certificate (the "Compliance Certificate"), signed by a director of Borrower, setting forth calculations and the methods of determination thereof (with such specificity as the Lender may reasonably request) for the period then ended which demonstrate compliance, when applicable, with the provisions of ARTICLE IX. (e) ACCOUNTANT'S STATEMENT AND PRIVITY LETTER. Together with each delivery of the financial statements referred to in SECTION 6.01(c), a written statement of the firm of independent certified public accountants giving the report thereon (i) stating that their audit examination has included a review of the terms of this Agreement as it relates to accounting matters, (ii) stating whether, in connection with their audit examination, any condition or event which constitutes an Event of Default or Potential Event of Default has come to their attention, and if such condition or event has come to their attention, specifying the nature and period of existence thereof; PROVIDED, that such accountants shall not be liable by reason of any failure to obtain knowledge of any such condition or event that would not be disclosed in the course of their audit examination, and (iii) stating that based on their audit examination nothing has come to their attention which causes them to believe that the information contained in either or both of the certificates delivered therewith pursuant to SECTION 6.01(d) is not correct or that the matters set forth in the Compliance -40- Certificate delivered therewith pursuant to SECTION 6.01(d)(ii) for the applicable Fiscal Year are not stated in accordance with the terms of this Agreement. The statement referred to above shall be accompanied by (x) a copy of the management letter or any similar report delivered to the Borrower or to any officer, director or employee thereof by such accountants in connection with such financial statements and (y) a letter from the Borrower to such accountants informing such accountants that the Lender is relying upon the financial statements audited by such accountants and delivered to the Lender pursuant to SECTION 6.01(c) and that a primary intent of the Borrower in having such financial statements audited is to induce the Lender to continue to make financial accommodations to the Borrower under this Agreement. The Lender may, with the consent of the Borrower (which consent shall not be unreasonably withheld), communicate directly with such accountants. (f) BUDGETS; BUSINESS PLANS; FINANCIAL PROJECTIONS. As soon as practicable and in any event not later than thirty (30) days prior to the commencement of each Fiscal Year of the Borrower, (i) a monthly budget for such Fiscal Year; (ii) an annual business plan for such Fiscal Year, in form and substance acceptable to the Lender, accompanied by a report reconciling all changes and departures from the business plan delivered to the Lender for the preceding Fiscal Year; and (iii) a consolidated plan and financial forecast, prepared in accordance with the Borrower's normal accounting procedures applied on a consistent basis, for such Fiscal Year and the two (2) immediately succeeding Fiscal Years, including, without limitation, (A) a forecasted consolidated balance sheet and a consolidated statement of changes in financial position of the Borrower for such Fiscal Years, (B) forecasted consolidated balance sheets, statements of earnings and retained earnings, and changes in financial position of the Borrower for and as of the end of each fiscal quarter of such Fiscal Years, (C) the amount of forecasted Capital Expenditures and Excess Cash Flow for such Fiscal Years, and (D) forecasted compliance with the provisions of ARTICLE IX for such Fiscal Years. 6.02. OPERATIONS REPORTS. Accompanying the reports to be delivered by the Borrower each fiscal quarter in each Fiscal Year pursuant to SECTION 6.01(b) and, in addition to the foregoing, within seven (7) days after the Lender's request therefor, the Borrower shall deliver to the Lender a report detailing the operations of the Borrower which report shall include a management discussion and analysis with respect to the Borrower's financial performance during such period, including a comparison of actual sales versus budgeted sales for such fiscal quarter, a discussion of bookings, a listing of significant new customers and new products developed for sale, an explanation of any cost saving measures implemented, together with a discussion of the general business environment and results of operations, including an explanation of any material changes in consolidated and consolidating statements of income, stockholders' equity and -41- cash flow of the Borrower and the Parents for such period from such statements for the corresponding period of the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year pursuant to SECTION 6.01(f) (the "Management Discussion and Analysis"). 6.03. COLLATERAL REPORTING. (a) Upon the request of the Lender, the Borrower shall deliver to the Lender, in form and substance acceptable to the Lender, a summary aged trial balance of all then existing Accounts specifying the names, addresses, face amount and dates of invoices for each Account the Borrower obligated on an Account so listed ("Schedule of Accounts"), and upon demand, the original or copies, as request, of all documents, including, without limitation, proofs of delivery, repayment histories and present status reports, relating to the Accounts so scheduled and such other matters and information relating to the status of Accounts as the Lender shall reasonably request. (b) Promptly upon, but in no event later than ten (10) Business Days after, the Borrower's learning thereof, inform the Lender, in writing, of (i) any material delay in the Borrower's performance of any of its obligations to any material Account Debtor and of any assertion of any material claims, offsets or counterclaims by any Account Debtor and of any material allowances, credits or other monies granted by the Borrower to any Account Debtor, and (ii) all material adverse information relating to the financial condition of any material Account Debtor. (c) Upon the request of the Lender, the Borrower shall deliver to Lender, in form and substance acceptable to the Lender, a report summarizing, on a LIFO and FIFO basis, the kind, type, quality and quantity of Inventory as of the end of such month, the Borrower's cost therefor, and summaries of Inventory by categories or classifications and by location. (d) The Borrower shall provide the Lender with copies of all agreements between the Borrower and any warehouse at which Inventory may from time to time be kept and all leases or similar agreements between the Borrower of any of its Affiliates and any other Person, whether the Borrower or its Affiliate is lessor or lessee thereunder. 6.04. EVENTS OF DEFAULT. Promptly upon any of the chief executive officer, chief operating officer, chief financial officer, treasurer or controller of the Borrower obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default, or becoming aware that the Lender has given any notice with respect to a claimed Event of Default or Potential Event of Default under this Agreement, (b) that any Person has given any notice to the Borrower or any Parent or taken any other action with respect to a claimed default or event or condition of the type referred to -42- in SECTION 10.01(e), or (c) of any condition or event which has or is reasonably likely to have a Material Adverse Effect or affect the value of, or the Lender's interest in, Collateral with a value in excess of $500,000 in any material respect, the Borrower shall deliver to the Lender an Officer's Certificate specifying (A) the nature and period of existence of any such claimed default, Event of Default, Potential Event of Default, condition or event, (B) the notice given or action taken by such Person in connection therewith, and (C) what action the Borrower has taken, is taking and proposes to take with respect thereto. 6.05. LAWSUITS. (a) Promptly upon the Borrower obtaining knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Borrower or any Parent or any Property of the Borrower or any Parent not previously disclosed pursuant to SECTION 5.01(n), which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Borrower's reasonable judgment, the Borrower or any Parent to liability in an amount aggregating $100,000 or more (exclusive of claims covered by insurance policies of the Borrower or any Parent unless the insurers of such claims have disclaimed coverage or reserved the right to disclaim coverage on such claims), the Borrower shall give written notice thereof to the Lender and provide such other information as may be reasonably available to enable the Lender and its counsel to evaluate such matters; (b) as soon as practicable and in any event within forty-five (45) days after the end of each fiscal quarter of the Borrower, the Borrower shall provide a written quarterly report to the Lender covering the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration (not previously reported) against or affecting the Borrower or any Parent or any Property of the Borrower or any Parent not previously disclosed by the Borrower to the Lender, and shall provide such other information at such time as may be reasonably available to enable the Lender and its counsel to evaluate such matters (but excluding such information at to which the Borrower in good faith has asserted or will assert a legal privilege in objection to disclosure of the information by the Borrower in the action, suit, proceeding, investigation or arbitration); and (c) in addition to the requirements set forth in CLAUSES (a) and (b) of this SECTION 6.05, the Borrower upon request of the Lender shall promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to CLAUSE (a) or (b) above and provide such other information as may be reasonably available to it to enable the Lender and its counsel to evaluate such matters. 6.06. INSURANCE. As soon as practicable and in any event by the last day of April in each Fiscal Year, the Borrower -43- shall deliver to the Lender (a) a report in form and substance reasonably satisfactory to the Lender outlining all material insurance coverage maintained as of the date of such report by the Borrower and the duration of such coverage and (b) evidence that all premiums with respect to such coverage have been paid when due. 6.07. EMPLOYEE BENEFIT PLAN NOTICES. The Borrower shall deliver or cause to be delivered to the Lender, at the Borrower's expense, the following information and notices as soon as reasonably possible, and in any event: (a) within ten (10) Business Days after the Borrower knows or has reason to know that a Termination Event has occurred, a written statement of the chief financial officer or a director of the Borrower describing such Termination Event and the action, if any, which the Borrower has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by any Governmental Authority with respect thereto; and (b) within ten (10) Business Days after the Borrower receives written notice from the Lender requesting the same, copies of any Employee Benefit Plan and related documents, reports and correspondence specified in such notice. For purposes of this SECTION 6.07, the Borrower shall be deemed to know all facts known by the Administrator of any Employee Benefit Plan of which the Borrower is the plan sponsor. 6.08. ENVIRONMENTAL NOTICES. The Borrower shall deliver all notices pertaining to Environmental Laws, Environmental Hazards, Remedial Actions and Environmental Encumbrances as are required to be delivered under the terms of the Fixed and Floating Charge. 6.09. LABOR MATTERS. The Borrower shall notify the Lender in writing, promptly upon the Borrower's learning thereof, of (a) any material labor dispute to which the Borrower or any Parent may become a party, including, without limitation, any strikes, lockouts or other disputes relating to such Persons' plants and other facilities and (b) any liability incurred with respect to the closing of any plant or other facility of the Borrower or any Parent. 6.10. GOVERNMENT CONTRACT NOTICES. The Borrower shall notify the Lender in writing, within three (3) Business Days after the Borrower's learning thereof, of any of the following: (a) Any Governmental Authority, any prime contractor, subcontractor or other Person has notified the Borrower that the Borrower has breached or violated in any material -44- respect any Requirement of Law, certification, representation, clause, provision or requirement pertaining to any Government Contract; (b) A termination for default, termination for convenience, cure notice or show cause notice is in effect with respect to any Government Contract; (c) Any cost incurred pertaining to any Government Contract has been questioned or challenged, is the subject of any investigation or has been disallowed by any Governmental Authority; (d) Any money due to the Borrower or any Parent pertaining to any Government Contact is withheld, or is the subject of an attempt to withhold, or is reduced through exercise of a right of set-off or otherwise; (e) The commencement or threat of any action, suit, investigation or proceeding relating to any Government Contact, or relating to any proposed suspension or debarment of the Borrower, or any of its employees or agents, against the Borrower, such other Person or any Property; (f) The discovery of any irregularity, misstatement or omission arising under or relating to any Government Contract that could reasonably be expected to lead to (i) an administrative, civil or criminal investigation, indictment or information with respect to the Borrower or any of its directors, officers, employees, consultants or agents, (ii) disclosure of such irregularity, misstatement or omission to any Governmental Authority or (iii) material damage, penalty assessment, recoupment of payment or disallowance of cost; or (g) The existence of (i) any outstanding material Claims against the Borrower or any Property, either by a Governmental Authority or by any prime contractor, subcontractor, vendor or other third party, arising under or relating to any Government Contract, or (ii) any material dispute between the Borrower or any Parent, on the one hand, and any Governmental Authority, any prime contractor, subcontractor, vendor or other third party, on the other hand, arising under or relating to any Government Contract. 6.10. OTHER INFORMATION. Promptly upon receiving a request therefor from the Lender, the Borrower shall prepare and deliver to the Lender such other information with respect to the Borrower, any Parent, or the Collateral, including, without limitation, schedules identifying and describing the Collateral and any dispositions thereof, as from time to time may be reasonably requested by the Lender. -45- ARTICLE VII AFFIRMATIVE COVENANTS The Borrower covenants or represents and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent: 7.01. ORGANIZATIONAL EXISTENCE, ETC. Except as permitted by SECTION 8.09, the Borrower shall and each Parent shall at all times maintain its organizational existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses, except where the loss or termination of such rights and franchises is not likely to have a Material Adverse Effect. 7.02. ORGANIZATIONAL POWERS; CONDUCT OF BUSINESS. The Borrower and each Parent shall to qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified. 7.03. COMPLIANCE WITH LAWS, ETC. The Borrower and each Parent shall (a) comply with all Requirements of Law and all restrictive covenants affecting such Person or the business, Property, assets or operations of such Person, and (b) obtain as needed all Permits necessary for its operations and maintain such Permits in good standing, except in the case where noncompliance with either CLAUSE (a) or (b) above is not reasonably likely to have a Material Adverse Effect. 7.04. PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Borrower and each Parent shall pay (a) all taxes, assessments and other governmental charges imposed upon it or on any of its Property or assets or in respect of any of its franchises, business, income or Property before any penalty, addition to tax or interest accrues thereon, and (b) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Lien permitted by SECTION 8.03) upon any of the Borrower's or any Parent's Property or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; PROVIDED, HOWEVER, that no such taxes, assessments and governmental charges referred to in CLAUSE (a) above or claims referred to in CLAUSE (b) above need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. Neither Borrower nor Parent will file or consent to the filing of any consolidated income tax return with any Person (other than with KHI, KTI, the Parents, the Borrower or any of their respective Subsidiaries). 7.05. INSURANCE. The Borrower shall maintain in full force and effect the insurance policies and programs applicable -46- to Borrower listed on SCHEDULE 5.01-X of the KTI Credit Agreement or substantially similar policies and programs or other policies and programs as are acceptable to the Lender and, upon the request of the Lender, such other insurance which, in the sole and reasonable judgment of the Lender, is necessary or desirable to increase the likelihood of the repayment of the Obligations. All such policies and programs shall be maintained with insurers acceptable to the Lender. Each certificate and policy relating to Property damage, boiler and machinery and/or business interruption coverage shall contain an endorsement, in form and substance acceptable to the Lender, showing loss payable to the Lender, and, if required by the Lender, naming the Lender as an additional insured under such policy. Each certificate and policy relating to coverages other than the foregoing shall, if required by the Lender, contain an endorsement naming the Lender as an additional insured under such policy. Such endorsement or an independent instrument furnished to the Lender shall provide that the insurance companies will give the Lender at least thirty (30) days' written notice before any such policy or policies of insurance shall be altered adversely to the interests of the Lender or cancelled and that no act, whether willful or negligent, or default of the Borrower or any other Person shall affect the right of the Lender to recover under such policy or policies of insurance in case of loss or damage. In the event the Borrower or any Parent, at any time or times hereafter shall fail to obtain or maintain any of the policies or insurance required herein or to pay any premium in whole or in part relating thereto, then the Lender, without waiving or releasing any obligations or resulting Event of Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Lender deems advisable. All sums so disbursed by the Lender shall be part of the Obligations, payable as provided in this Agreement. 7.06. INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Borrower and each Parent shall permit any authorized representative(s) designated by the Lender to visit and inspect any of the Properties of the Borrower or any Parent, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby or by the Recoil Acquisition Documents (including, without limitation, in connection with environmental compliance, hazard or liability or any Government Contract), and to discuss their affairs, finances and accounts with their officers and independent certified public accountants, all upon reasonable notice and at such reasonable times during normal business hours, as often as may be reasonably requested. At the request of the Lender and upon delivery to the Borrower of invoices therefor, each such visitation and inspection shall be at the Borrower's expense. The Borrower and each Parent shall keep and maintain in -47- all material respects proper books of record and account in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to their respective businesses and activities, including, without limitation, transactions and other dealings with respect to the Collateral. If an Event of Default has occurred and is continuing, the Borrower and each Parent, upon the Lender's request, shall turn over copies of any such records to the Lender or its representatives. 7.07. INSURANCE AND CONDEMNATION PROCEEDS. The Borrower hereby directs all insurers under policies of Property damage, boiler and machinery and business interruption insurance and payors of any condemnation claim or award relating to the Property to pay all proceeds payable under such policies or with respect to such claim or award directly to the Lender, and in no case to the Borrower and the Lender. Such proceeds shall constitute Net Cash Proceeds of Sale and shall be applied to the Obligations in accordance with SECTION 3.01(b)(vi). 7.08. [Intentionally omitted]. 7.09. EMPLOYEE BENEFIT PLAN COMPLIANCE. The Borrower shall establish, maintain and operate all Employee Benefit Plans to comply in all material respects with all laws and regulations applicable thereto and the respective requirements of the governing documents for such Employee Benefit Plans. 7.10. GOVERNMENT CONTRACT COMPLIANCE. The Borrower shall (a) maintain all Permits pertaining to Government Contracts required to operate the Borrower's business as it is currently conducted, including, without limitation, all Export Licenses and other similar Permits; and (b) comply in all material respects with all Requirements of Law and Contractual Obligations pertaining to each Government Contract. 7.11. MAINTENANCE OF PROPERTY. The Borrower and each Parent shall maintain in all material respects all of their respective owned and leased Property in good, safe and insurable condition and repair, and not permit, commit or suffer any waste or abandonment of any such Property and from time to time shall make or cause to be made all material repairs, renewal and replacements thereof, including, without limitation, any capital improvements which may be required; PROVIDED, HOWEVER, that such Property may be altered or renovated in the ordinary course of business. 7.12. CONDEMNATION. Immediately upon learning of the institution of any proceeding for the condemnation or other taking of any of the owned or leased Real Property of the Borrower or any Parent, the Borrower shall notify the Lender of the pendency of such proceeding, and permit the Lender to participate in any such proceeding, and from time to time will deliver to the Lender all instruments reasonably requested by the Lender to permit such participation. -48- 7.13. BUSINESS CONTRACTS. Within 120 days after the Effective Date, the Borrower shall deliver to Lender evidence that (i) all parties to any "Business Contract" (under and as defined in the Recoil Australia Acquisition Agreement) transferred to and/or assumed by the Borrower in connection with the Recoil Acquisition have consented to such transfer and/or assumption, (ii) that such consent was not required under such Business Contract or applicable Requirements of Law, (iii) that such Business Contract has been replaced by a new Business Contract with such party or (iv) that such Business Contract is not material to Borrower's business. ARTICLE VIII NEGATIVE COVENANTS The Borrower covenants or represents and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent: 8.01. INDEBTEDNESS. Neither the Borrower nor any Parent shall directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (i) the Obligations and other obligations and liabilities under the Loan Documents; (ii) trade payables, wages and other accrued expenses incurred in the ordinary course of business; (iii) the Transaction Costs; (iv) to the extent permitted by ARTICLE IX and the KTI Credit Agreement and in any event in an aggregate amount not to exceed $3,000,000 at any time, Capital Leases and purchase money Indebtedness incurred to finance the acquisition of fixed assets, and Indebtedness incurred to refinance such Capital Leases and purchase money Indebtedness; (v) Indebtedness in respect of taxes, assessments, governmental charges and claims for labor, materials or supplies, to the extent that payment thereof is not required pursuant to SECTION 7.04; (vi) Indebtedness constituting Accommodation Obligations permitted by SECTION 8.05; (vii) Indebtedness with respect to reasonable warranties and indemnities made under any agreements for asset sales permitted under SECTION 8.02; -49- (viii) Indebtedness with respect to warranties and indemnities in favor of Recoil Australia and the Vendors under the Recoil Australia Acquisition Agreement; and (ix) Permitted Existing Indebtedness 8.02. SALES OF ASSETS. Neither the Borrower nor any Parent shall sell, assign, transfer, lease, convey or otherwise dispose of any Property, whether now owned or hereafter acquired, or any income or profits therefrom, or enter into any agreement to do so, except: (i) the sale of Property having an aggregate Fair Market Value of not more than $1,000,000 in any Fiscal Year for cash consideration not less than the Fair Market Value thereof, PROVIDED that the Borrower complies with the mandatory prepayment provisions set forth in SECTION 3.01(b); (ii) the transfer of Property from the Borrower or any Parent to KTI; (iii) the sale of Inventory in the ordinary course of business; (iv) the disposition of Equipment if (A) such Equipment is obsolete or no longer useful in the ordinary course of the Borrower's or such Parent's business, PROVIDED, that the aggregate Fair Market Value of all such Equipment disposed of in any Fiscal Year shall not exceed $500,000, or (B) within six (6) months after such disposition, the proceeds therefrom are either (I) used to finance the purchase of replacement Equipment and the Borrower delivers to the Lender evidence of such use and that the replacement Equipment is free and clear of all Liens except those created under the Loan Documents or (II) delivered to the Lender for application to the repayment of the Obligations; (v) the licensing of General Intangibles as permitted by the Loan Documents; and (vi) any Investment permitted under SECTION 8.04. 8.03. LIENS. Neither the Borrower nor any Parent shall directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of their respective Property or assets except: (i) Liens created by the Loan Documents; (ii) Customary Permitted Liens; -50- (iii) purchase money Liens (including the interest of a lessor under a Capital Lease or an Operating Lease having substantially the same economic effect and Liens to which any Property is subject at the time of the Borrower's or any Parent's purchase thereof) securing an amount not to exceed $3,000,000 in the aggregate at any time or from time to time, PROVIDED, that such Liens shall not apply to any Property of the Borrower or any Parent other than that purchased or subject to such Capital Lease; and (iv) Permitted Existing Liens. 8.04. INVESTMENTS. Neither the Borrower nor any Parent shall directly or indirectly make or own any Investment except: (i) Investments in Cash Equivalents; (ii) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (iii) contributions to and payments of benefits under any Employee Benefit Plan (in accordance with the terms of the Employee Benefit Plan) permitted by this Agreement; and (iv) Investments arising from intercompany loans from the Borrower or any Parent to KTI, PROVIDED, that all such Indebtedness shall be evidenced by promissory notes delivered to the Lender in accordance with the Fixed and Floating Charge or the Parent Pledge Agreements and shall be subordinated in right of payment ot the "Obligations" under (and as defined in) the KTI Credit Agreement; 8.05. ACCOMMODATION OBLIGATIONS. Neither the Borrower nor any Parent shall directly or indirectly create or become or be liable with respect to any Accommodation Obligation, except: (i) recourse obligations resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (ii) Permitted Existing Accommodation Obligations; and (iii) Accommodation Obligations arising under the Loan Documents. -51- 8.06. RESTRICTED JUNIOR PAYMENTS. Neither the Borrower nor any Parent shall declare or make any Restricted Junior Payment, except that each Parent may make dividends or distributions to KTI on the Capital Stock of such Parent. 8.07. CONDUCT OF BUSINESS. The Borrower shall not engage in any business other than (i) the businesses engaged in by Recoil Australia on the Effective Date and (ii) any business or activities which are substantially similar, related or incidental thereto, all of which shall be conducted outside the United States of America. The Parents shall not engage in any business other than the holding of the Capital Stock of RCL. 8.08. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Neither the Borrower nor any Parent shall directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder or holders of more than five percent (5%) of any class of equity Securities of KTI or KHI, or with any Affiliate of the Borrower, on terms that are less favorable to the Borrower than those that might be obtained in an arm's length transaction at the time from Persons who are not such a holder or Affiliate. Nothing contained in this SECTION 8.08 shall prohibit (i) any transaction expressly permitted by SECTIONS 8.01 or 8.05; (ii) increases in compensation and benefits for officers and employees of the Borrower which are customary in the industry or consistent with the past business practice of the Borrower or any Parent, PROVIDED, that no Event of Default or Potential Event of Default has occurred and is continuing; (iii) payment of customary directors' fees and indemnities; (iv) performance of any obligations arising under the Transaction Documents; or (v) transactions between the Borrower or any Parent and KTI, PROVIDED that no Event of Default or Potential Event of Default results therefrom. 8.09. RESTRICTION ON FUNDAMENTAL CHANGES. Neither the Borrower nor any Parent shall enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of the Borrower's or any such Parent's business or Property, whether now or hereafter acquired, except for (i) transactions permitted under SECTION 8.02 and (ii) a merger of Recoil Holdings and Recoil Australia Holdings, PROVIDED that such merger will not result in any adverse tax consequences to Recoil Holdings, Recoil Australia Holdings, the Borrower or the Lender. 8.10. SALES AND LEASEBACKS. Neither the Borrower nor any Parent shall become liable, directly, by assumption or by Accommodation Obligation, with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real or personal or mixed) (i) which it sold or transferred or is to sell or transfer to any other Person, or (ii) which it intends to -52- use for substantially the same purposes as any other Property which has been or is to be sold or transferred by it to any other Person in connection with such lease. 8.11. EMPLOYEE BENEFIT PLAN MATTERS. The Borrower shall not: (i) permit any unfunded liabilities with respect to any Pension Plan; or (ii) fail to pay any required contributions or payments to a Pension Plan on or before the due date for such required installment or payment. 8.12. ISSUANCE OF CAPITAL STOCK. The Borrower shall not issue any Capital Stock to any Person except for the Capital Stock isued by the Borrower to Recoil Holdings and Recoil Australia Holdings as of the Effective Date. Each Parent shall not issue any Capital Stock to any Person except for the Capital Stock issued by such Parent to KTI as of the Effective Date. 8.13. ORGANIZATIONAL DOCUMENTS. Neither the Borrower nor any Parent shall amend, modify or otherwise change any of the terms or provisions in any of their respective Organizational Documents as in effect on the date hereof, PROVIDED, that the Borrower shall be permitted to change its name to Recoil Pty Ltd after the Effective Date. 8.14. BANK ACCOUNTS. Neither the Borrower nor any Parent shall open or maintain any deposit account with any Person unless (i) such Person is a bank or financial institution reasonably acceptable to the Lender, (ii) such Person has executed a Collection Account Agreement with respect to such deposit account, and (iii) SCHEDULE 1.01.1 reflects (or shall have been amended to reflect) such Person as a Collection Account Bank and such deposit account as a Collection Account under this Agreement. 8.15. FISCAL YEAR. Neither the Borrower nor any Parent shall change its Fiscal Year for accounting or tax purposes from a period consisting of the 12-month period ending on December 31 of each calendar year. 8.16. SUBSIDIARIES. The Borrower shall not acquire or create any Subsidiaries. Neither Parent shall acquire or create any Subsidiaries other than the Borrower. -53- ARTICLE IX FINANCIAL COVENANTS The Borrower covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Lender shall otherwise give prior written consent thereto: 9.01 NET INCOME. The Borrower shall have positive net income, determined in conformity with GAAP on a first-in-first-out method of inventory accounting basis, for each 12-month period ending on each March 31, June 30, September 30 and December 31 during the term of this Agreement; PROVIDED, HOWEVER, that for the periods ending on September 30, 1996, December 31, 1996, March 31, 1997 and June 30, 1997, such periods shall commence on the Effective Date. ARTICLE X EVENTS OF DEFAULT; RIGHTS AND REMEDIES 10.01. EVENTS OF DEFAULT. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Borrower shall fail to pay when due any of the Obligations (other than the failure to make a payment under SECTION 3.03 with respect to Taxes payable to a federal Australian Governmental Authority). (b) BREACH OF CERTAIN COVENANTS. The Borrower or any Parent shall fail duly and punctually to perform or observe any agreement, covenant or obligation binding on such Person under SECTIONS 6.08, 7.01, and 7.06, ARTICLE VIII or ARTICLE IX. (c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty made or deemed made by the Borrower or any Parent to the Lender herein or by the Borrower or any Parent in any of the other Loan Documents or in any statement or certificate at any time given by any such Person pursuant to any of the Loan Documents shall be false or misleading in any material respect on the date as of which made (or deemed made). (d) OTHER DEFAULTS. The Borrower or any Parent shall default in the performance of or compliance with any term contained in this Agreement (other than as covered by PARAGRAPHS (a), (b) or (c) of this SECTION 10.01) or any default or event of default shall occur under any of the other Loan Documents, and such default or event of default shall continue for fifteen (15) days after the Borrower has knowledge of the default or, if earlier, receipt by the Borrower of a notice of the default from the Lender (other than the failure to make a payment under SECTION 3.03 with respect to Taxes payable to a federal Australian Governmental Authority). -54- (e) DEFAULT AS TO OTHER INDEBTEDNESS; OPERATING LEASES; KHI AGREEMENTS. The Borrower or any Parent shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness (other than an Obligation) having a principal amount in excess of $100,000; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness; or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by the Borrower or any Parent (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or any "Event of Default" under (and as defined in) either of the KHI Agreements or the KTI Credit Agreement has occurred and is continuing. (f) INSOLVENCY EVENTS. (i) An involuntary case shall be commenced against the Borrower or any Parent and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any Parent in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law; or the board of directors of the Borrower or any Parent Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian, controller (as defined in the Corporations Law) or other officer having similar powers over the Borrower or any of its Subsidiaries or over all or a substantial part of the Property of the Borrower or any Parent shall be entered; or a Person is appointed under legislation to investiate or manage any part of the affairs of the Borrower or any Parent; or an interim receiver, trustee or other custodian of the Borrower or any Parent or of all or a substnatial part of the Property of the Borrower or any Parent shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the Property of the Borrower or any Parent shall be issued an any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days after entry, appointment or issuance; or the board of directors of the Borrower or any Parent (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (iii) The Borrower or any Parent shall commence a voluntary case under any applicable bankruptcy, insolvency or -55- other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee, controller or other custodian for all or a substantial part of its Property, or shall consent to the appointment under legislation of a Person to investigate or manage any part of the affairs of the Borrower or any Parent; or the Borrower or any of its Subsidiaries of the Borrower shall make any assignment for the benefit of creditors or shall be unable or fail, or admit in writing its inability, to pay its debts as such debts become due. (iv) Any Insolvency Event shall have occurred. (g) JUDGMENTS AND ATTACHMENTS. Any money judgment (other than a money judgment covered by insurance as to which the insurance company has acknowledged coverage), distress, writ, warrant of attachment or order of encumbrance, or similar process against the Borrower or any Parent of the Borrower or any of their respective assets involving in any case an amount in excess of $500,000 is entered or levied and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale thereunder. (h) DISSOLUTION. Any order, judgment or decree shall be entered against the Borrower or any Parent decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or the Borrower or any Parent shall otherwise dissolve or cease to exist except as specifically permitted by this Agreement. (i) LOAN DOCUMENTS; FAILURE OF SECURITY. At any time, for any reason, (i) any Loan Document ceases to be in full force and effect or the Borrower or any Parent party thereto seeks to repudiate its obligations thereunder and the Liens intended to be created thereby are, or the Borrower or any Parent seeks to render such Liens, invalid and unperfected, or (ii) Liens in favor of the Lender contemplated by the Loan Documents shall, at any time, for any reason, be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated by this Agreement or the Loan Documents. (j) TERMINATION EVENT. Any Termination Event occurs which the Lender believes could reasonably be expected to subject the Borrower to liability in excess of $250,000. (k) SUSPENSIONS, DEBARMENT. Any suspension or debarment with respect to Government Contracts is imposed on the Borrower or any of its directors, officers, employees, consultants or agents. -56- (l) MATERIAL ADVERSE CHANGE. An event shall exist which has a Material Adverse Effect. (m) REDUCTION IN CAPITAL. The Borrower or any Parent takes action to reduce its capital. (n) CESSATION OF BUSINESS. The Borrower or any Parent ceases to carry on its business or a material part of it, or threatens to do either of those things except to reconstruct or amalgamate while solvent on terms approved by the Lender. (o) CHANGE OF CONTROL. All of the Capital Stock of the Borrower ceases to be held by Recoil Holdings and/or Recoil Australia Holdings. (p) TAX PAYMENTS. The Company or any Parent does not pay when due (i) any money payable by such Person under SECTION 3.03 or under Section 5 of the Guaranty, as applicable or (ii) any money such Person has warranted it will pay under SECTION 3.03 or under Section 5 of the Guaranty. An event of Default shall be deemed "continuing" until cured or waived in writing in accordance with SECTION 11.05. 10.02. RIGHTS AND REMEDIES. (a) ACCELERATION AND TERMINATION. Upon the occurrence of any Event of Default described in SECTIONS 10.01(f), the Term Loan Commitment shall automatically and immediately terminate and the unpaid principal amount of, and any and all accrued interest on, the Obligations and all accrued fees shall automatically become immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower; and upon the occurrence and during the continuance of any other Event of Default, the Lender may, by written notice to the Borrower, declare the unpaid principal amount of and any and all accrued and unpaid interest on the Obligations to be, and the same shall thereupon be, immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower. (b) DEFAULT RATE OF INTEREST. In addition to any other remedies available to the Lender after the occurrence of an Event of Default, the Lender shall be entitled to receive interest on the Obligations at the default rate in accordance with SECTION 2.02(c). -57- (c) ENFORCEMENT. The Borrower acknowledges that in the event the Borrower or any of its Subsidiaries fails to perform, observe or discharge any of their respective obligations or liabilities under this Agreement or any other Loan Document, any remedy of law may prove to be inadequate relief to the Lender; therefore, the Borrower agrees that the Lender shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. ARTICLE XI MISCELLANEOUS 11.01. EXPENSES. The Borrower agrees upon demand to pay, or reimburse the Lender for, all of the Lender's reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of Sidley & Austin, local and foreign legal counsel, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents) incurred by the Lender in connection with (a) the preparation, negotiation, execution, stamping, registration and completion of this Agreement and the Loan Documents and any amendments, consents, waivers, assignments, restatements, or supplements to any of the same; (b) the Lender's periodic audits of the Borrower and the parents after the Effective Date; (c) the protection of the Liens under the Loan Documents after the Effective Date (including, without limitation, any reasonable fees and expenses for local counsel in various jurisdictions); (d) the ongoing administration of this Agreement and the Term Loan, including consultation with attorneys in connection therewith and with respect to the Lender's rights and responsibilities under this Agreement and the other Loan Documents; (e) the protection, collection or enforcement of any of the Obligations or Loan Documents or any security therefor or exercising or enforcing any other right or remedy available to the Lender under the Loan Documents; (f) the commencement, defense or intervention in any court proceeding relating in any way to the Obligations, the Property, the Borrower, any Parent, this Agreement or any of the other Transaction Documents; (g) the response to, and preparation for, any subpoena or request for document production with which the Lender is served or deposition or other proceeding in which the Lender is called to testify, in each case, relating in any way to the Obligations, the Property, the Borrower, Parent, this Agreement or any of the other Transaction Documents; (h) in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; (i) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in CLAUSES (e) through (h) above. -58- 11.02. INDEMNITY. The Borrower further agrees to defend, protect, indemnify, and hold harmless the Lender and each of its officers, directors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in ARTICLE IV) (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses (other than loss of profits), damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (excluding any taxes and including, without limitation, the fees and disbursements of counsel or consulting firms for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of (a) this Agreement or the other Loan Documents, or any act, event or transaction related or attendant thereto or to the Recoil Acquisition, the making of the Term Loan, the management of the Term Loan, the use or intended use of the proceeds of the Term Loan hereunder, or any of the other transactions contemplated by the Transaction Documents, or (b) any Liabilities and Costs under Environmental Laws arising from or in connection with the past, present or future operations of the Borrower, any Parent or any of their respective predecessors in interest, or, the past, present or future environmental condition of any Property, the presence of asbestos-containing materials at any Property or the Release or threatened Release of any Contaminant (collectively, the "Indemnified Matters"); PROVIDED, HOWEVER, that the Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters to the extent caused by or resulting from the willful misconduct or gross negligence of the Indemnitee (or any other Indemnitee whose willful misconduct or grossly negligent acts were authorized by the Indemnitee claiming indemnification hereunder), as determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. 11.03. CHANGE IN ACCOUNTING PRINCIPLES. If any change in the accounting principles used in the preparation of the most recent financial statements referred to in SECTION 6.01 are hereafter required or permitted by the rules, regulations, pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and are adopted by the Borrower with the agreement of its independent certified public accountants and such changes result in a change in the method of calculation of any of the covenants, standards or terms found in ARTICLE VIII and ARTICLE IX, the parties hereto -59- agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating compliance with such covenants, standards and terms by the Borrower shall be the same after such changes as if such changes had not been made; PROVIDED, HOWEVER, that no change in GAAP that would affect the method of calculation of any of the covenants, standards or terms shall be given effect in such calculations until such provisions are amended, in a manner satisfactory to the Lender and the Borrower, to so reflect such change in accounting principles. 11.04. SETOFF. In addition to any Liens granted under the Loan Documents and any rights now or hereafter granted under applicable law, upon the occurrence and during the continuance of any Event of Default, the Lender is hereby authorized by the Borrower at any time or from time to time, without notice to any Person (any such notice being hereby expressly waived) to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured (but not including trust accounts)) and any other Indebtedness at any time held or owing by the Lender to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower to the Lender, including, but not limited to, the Term Loan and all claims of any nature or description arising out of or in connection with this Agreement, irrespective of whether or not (a) the Lender shall have made any demand hereunder or (b) the Lender shall have declared the principal of and interest on the Term Loan and other amounts due hereunder to be due and payable as permitted by ARTICLE X and even though such Obligations may be contingent or unmatured. 11.05. AMENDMENTS AND WAIVERS. Unless otherwise provided in this Agreement, no amendment or modification of any provision of this Agreement shall be effective without the written agreement of the Lender and the Borrower, and no termination or waiver of any provision of this Agreement, or consent to any departure by the Borrower therefrom, shall be effective without the written concurrence of the Lender, which the Lender shall have the right to grant or withhold in its sole discretion. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. 11.06. NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by courier service or United States certified mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex or three (3) days (seven (7), if posted to Australia from a place outside of Australia or from -60- Australia to place outside of Australia) Business Days after deposit in the ordinary post in the applicable jurisdiction with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this SECTION 11.06) shall be as follows: (a) If to the Lender, at: General Electric Capital Corporation 201 High Ridge Road Stamford, CT 06927 Attention: Murry Stegelmann Telecopier No. (203) 316-7894 with copies to: General Electric Capital Corporation 201 High Ridge Road Stamford, CT 06927 Attention: Corporate Finance Group Department Counsel Telecopier No. (203) 316-7889 and Sidley & Austin 555 West Fifth Street Los Angeles, California 90013-1010 Attention: Edward D. Eddy, III, Esq. Telecopier No. (213) 896-6600 (b) If to the Borrower, at: RCL Pty c/o Kaynar Technologies Inc. 800 South State College Blvd. Fullerton, California 92634-3001 Attention: David A. Werner Telecopier No. (714) 680-3153 with a copy to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 Attn: C. James Levin, Esq. Telecopier No. (213) 669-6407 PROVIDED, that the Lender or the Borrower shall have the right to change any of the above-listed addresses by properly addressed and delivered notice to the other party. -61- 11.07. SURVIVAL OF WARRANTIES AND AGREEMENTS. All representations and warranties made herein and all obligations of the Borrower in respect of taxes, indemnification and expense reimbursement shall survive the execution and delivery of this Agreement and the other Loan Documents, the making and repayment of the Term Loan, and the termination of this Agreement and shall not be limited in any way by the passage of time or occurrence of any event and shall expressly cover time periods when the Lender may have come into possession or control of any of the Borrower's or any Parent's Property. 11.08. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Lender in the exercise of any power, right or privilege under any of the Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under the Loan Documents are cumulative to and not exclusive of any rights or remedies otherwise available. 11.09. MARSHALLING; PAYMENTS SET ASIDE. The Lender shall be under no obligation to marshall any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations. To the extent that the Borrower makes a payment or payments to the Lender or the Lender receives payment from the proceeds of the Collateral or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 11.10. SEVERABILITY. In case any provision in or obligation under this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 11.11. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substantive effect. 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. -62- 11.13. LIMITATION OF LIABILITY. No claim may be made by the Borrower or the Lender or any other Person against the Borrower, the Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and the Borrower and the Lender hereby waive, release and agree not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 11.14. SUCCESSORS AND ASSIGNS. This Agreement and the other Loan Documents shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Lender. The Lender may assign all or any part of its rights and obligations under this Agreement and the other Loan Documents to any Person upon thirty (30) days' prior written notice to (but without the consent of) the Borrower, it being agreed and understood that the Lender's right to assign its interests under this Agreement and the other Loan Documents shall be independent of any right of assignment in favor of the Lender with respect to any other agreement, document or instrument to which it is a party. The rights hereunder of the Borrower, or any interest therein, may not be assigned without the written consent of the Lender. 11.15. CERTAIN CONSENTS AND WAIVERS OF THE BORROWER. (a) PERSONAL JURISDICTION. (i) THE LENDER AND THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY CALIFORNIA STATE COURT OR FEDERAL COURT SITTING IN LOS ANGELES, CALIFORNIA, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE BORROWER IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION AS ITS AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. THE LENDER AND THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. -63- (ii) THE BORROWER AGREES THAT THE LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION WHICH IS NECESSARY OR DESIRABLE TO ENABLE THE LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE LENDER. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE LENDER. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE LENDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION. (b) SERVICE OF PROCESS. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR THE BORROWER'S NOTICE ADDRESS SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. (c) WAIVER OF JURY TRIAL. THE LENDER AND THE BORROWER IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. (D) IMMUNITY. NEITHER THE COMPANY NOR ANY PARENT HAVE IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM LEGAL PROCESS (WHETHER THROUGH SERVICE OF PROCESS, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE). 11.16. COUNTERPARTS; EFFECTIVENESS; INCONSISTENCIES. This Agreement and any amendments, waivers, consents, or supplements hereto may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective against the Borrower and the Lender as of the date when all of the conditions set forth in SECTION 4.01 have been satisfied or duly waived in accordance with SECTION 11.05 (the "Effective Date"). Subject to the provisions of this Agreement (including, without limitation, the preliminary statements hereto), this Agreement and each of the other Loan Documents shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Agreement are actually -64- inconsistent with the terms and conditions of any other Loan Document, this Agreement shall govern. 11.17. CONFIDENTIALITY. The Lender shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Borrower in accordance with the Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide offeree, transferee or participant in connection with the contemplated transfer or participation or as required or requested by any Governmental Authority or representative thereof or pursuant to legal process and shall require any such offeree, transferee or participant to agree (and require any of its offerees, transferees or participants to agree) to comply with this SECTION 11.17. In no event shall the Lender be obligated or required to return any materials furnished by the Borrower; PROVIDED, HOWEVER, that each offeree shall be required to agree that if it does not become a transferee or participant it shall return all materials furnished to it by the Borrower in connection with this Agreement. Any and all confidentiality agreements entered into between the Lender and the Borrower shall survive the execution of this Agreement. 11.18 SUPERVENING LEGISLATION. Any present or future legislation which operates to vary the obligations of the Borrower or any Parent in connection with the Agreement or the other Loan Documents with the result that the Lender's rights, powers or remedies are adversely affected (including by way of delay or postponement) is excluded except to the extent that its exclusion is prohibited or rendered ineffective by applicable Requirements of Law. 11.19 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement in respect of any Obligation of the Borrower to pay money. -65- 11.20. ENTIRE AGREEMENT. This Agreement, taken together with all of the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and all prior agreements and understandings, written and oral, relating to the subject matter hereof. IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. SIGNED by /s/ D.A. Werner -------------------) as authorized representative ) of RCL Pty in the presence of:) ) -------------------------- ) By executing this Agreement ) the signatory warrants that /s/ Jordon A. Law ) the signatory is duly - ------------------------- ) authorized to execute this Signature of Witness ) Agreement on behalf of RCL Pty SIGNED by /s/ Peter C. Keenoy -------------------) as authorized representative ) of General Electric Capital ) /s/ P.C. Keenoy Corporation in the ) -------------------------- presence of: ) By executing this Agreement ) the signatory warrants that /s/ illegible ) the signatory is duly - ------------------------- ) authorized to execute this Signature of Witness ) Agreement on behalf of General Electric Capital Corporation EX-10.4 9 EX 10.4 PIK DIVIDEND NOTE AGREEMENT [EXECUTION COPY] =============================================================================== PIK DIVIDEND NOTE AGREEMENT Dated as of January 3, 1994 among KAYNAR HOLDINGS INC., as Issuer and GENERAL ELECTRIC CAPITAL CORPORATION, as Initial Holder and THE OTHER PERSONS FROM TIME TO TIME PARTY HERETO, as Holders ===============================================================================
TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I DEFINITIONS 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . 1 1.02. Computation of Time Periods. . . . . . . . . . . . . . . . . . . . 18 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.04. Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE II THE NOTES 2.01. Issuance of Notes. . . . . . . . . . . . . . . . . . . . . . . . . 18 2.02. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.03. Authorized Officers and Agents . . . . . . . . . . . . . . . . . . 22 ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. Voluntary Prepayments. . . . . . . . . . . . . . . . . . . . . . . 22 3.02. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.03. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE IV CONDITIONS TO ISSUANCE OF NOTES 4.01. Conditions Precedent to Effectiveness of this Agreement . . . . . 24 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01. Closing Date Representations and Warranties. . . . . . . . . . . . 26 ARTICLE VI REPORTING COVENANTS 6.01. Financial Statements and Reports . . . . . . . . . . . . . . . . . 29 6.02. Operations Reports . . . . . . . . . . . . . . . . . . . . . . . . 30 6.03. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . 30 6.04. Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.05. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 31
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ARTICLE VII AFFIRMATIVE COVENANTS 7.01. Corporate Existence, Etc.. . . . . . . . . . . . . . . . . . . . . 31 7.02. Corporate Powers; Conduct of Business. . . . . . . . . . . . . . . 31 7.03. Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . 32 7.04. Payment of Taxes and Claims; Tax Consolidation . . . . . . . . . . 32 7.05. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 7.06. Inspection of Property; Books and Records; Discussions . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 7.07. ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.08. Foreign Employee Benefit Plan Compliance . . . . . . . . . . . . . 33 7.09. Government Contract Compliance . . . . . . . . . . . . . . . . . . 33 7.10. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . 33 7.11. Maintenance of Property. . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE VIII NEGATIVE COVENANTS 8.01. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 8.02. Sales of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.03. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.04. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.05. Accommodation Obligations. . . . . . . . . . . . . . . . . . . . . 37 8.06. Restricted Junior Payments . . . . . . . . . . . . . . . . . . . . 37 8.07. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . 38 8.08. Transactions with Shareholders and Affiliates. . . . . . . . . . . 38 8.09. Restriction on Fundamental Changes . . . . . . . . . . . . . . . . 39 8.10. Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . 39 8.11. Issuance of Capital Stock. . . . . . . . . . . . . . . . . . . . . 39 8.12. Corporate Documents. . . . . . . . . . . . . . . . . . . . . . . . 39 8.13. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE IX EVENTS OF DEFAULT; RIGHTS AND REMEDIES 9.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . 39 9.02. Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE X MISCELLANEOUS 10.01. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 10.02. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 10.03. Change in Accounting Principles . . . . . . . . . . . . . . . . . 44 10.04. Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 10.05. Ratable Sharing . . . . . . . . . . . . . . . . . . . . . . . . . 45 10.06. Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . 46
-ii- 10.07. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 10.08. Survival of Warranties and Agreements . . . . . . . . . . . . . . 47 10.09. Failure or Indulgence Not Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . 47 10.10. Marshalling; Payments Set Aside . . . . . . . . . . . . . . . . . 48 10.11. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . 48 10.12. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 10.13. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 48 10.14. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . 48 10.15. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . 49 10.16. Certain Consents and Waivers of the Issuer. . . . . . . . . . . . 49 10.17. Counterparts; Inconsistencies . . . . . . . . . . . . . . . . . . 50 10.18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 50 10.19. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 51
-iii- EXHIBITS -------- Exhibit A -- Form of Note Exhibit B -- List of Closing Documents SCHEDULES --------- Schedule 1.01.1 -- Permitted Existing Accommodation Obligations Schedule 5.01-C -- Consents Schedule 5.01-D -- Authorized, Issued and Outstanding Capital Stock; Subsidiaries -iv- PIK DIVIDEND NOTE AGREEMENT This PIK Dividend Note Agreement dated as of January 3, 1994 (as amended, supplemented or modified from time to time, the "Agreement") is entered into by and among Kaynar Holdings Inc., a Delaware corporation (the "Issuer"), General Electric Capital Corporation, a New York corporation (the "Initial Holder") and the other Persons from time to time party hereto as "Holders" (as defined below). ARTICLE I DEFINITIONS 1.01. CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings, applicable both to the singular and the plural forms of the terms defined: "ACCOMMODATION OBLIGATION" means any Contractual Obligation, contingent or otherwise, of one Person with respect to any Indebtedness, obligation or liability of another, if the primary purpose or intent thereof by the Person incurring the Accommodation Obligation is to provide assurance to the obligee of such Indebtedness, obligation or liability of another that such Indebtedness, obligation or liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders thereof will be protected (in whole or in part) against loss in respect thereof including, without limitation, direct and indirect guarantees, endorsements (except for collection or deposit in the ordinary course of business), notes co- made or discounted, recourse agreements, take-or-pay agreements, keep-well agreements, agreements to purchase or repurchase such Indebtedness, obligation or liability or any security therefor or to provide funds for the payment or discharge thereof, agreements to maintain solvency, assets, level of income, or other financial condition, and agreements to make payment other than for value received. The amount of any Accommodation Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported; PROVIDED, that (i) if the liability of the Person extending such guaranty or support is limited with respect thereto to an amount less than the obligation guaranteed or supported, or is limited to recourse against a particular asset or assets of such Person, the amount of the corresponding Accommodation Obligation shall be limited (in the case of a guaranty or other support limited by amount) to such lesser amount or (in the case of a guaranty or other support limited by recourse to a particular asset or assets) to the higher of the Fair Market Value of such asset or assets at the date for determination of the amount of the Accommodation Obligation or the value at which such asset or assets would, in conformity with GAAP, be reflected on or valued for the purposes of preparing a consolidated balance sheet of such Person as at such determination date; and (ii) if any obligation is guaranteed or otherwise supported jointly and severally by a Person and others, then the amount of the liability of such Person with respect to such guaranty or other support to be included in the amount of such Person's Accommodation Obligation shall be the whole principal amount so guaranteed or otherwise supported. "AFFILIATE" means any Person (other than the Initial Holder) which directly or indirectly owns or controls, on an aggregate basis, including all beneficial ownership and ownership or control as a trustee, guardian or other fiduciary, at least ten percent (10%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) of the Issuer or any Subsidiary of which is controlled by or is under common control with the Issuer or any stockholders of the Issuer, or any Subsidiary. For the purpose of this definition, "control" means the possession, directly or indirectly, of the power to direct or to cause the direction of management and policies, whether through the ownership of voting securities, by contract or otherwise. "AFS" means the Aerospace Fastening Systems Group of Microdot. "AFS PURCHASE AGREEMENT" means the Asset Purchase Agreement dated as of November 3, 1993 by and between Opco and Microdot, pursuant to which Microdot agrees to sell, and Opco agrees to purchase substantially all of the assets of AFS. "AGREEMENT" is defined in the preamble hereto. "BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C. Sections 101 ET SEQ.), as amended from time to time, and any successor statute. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Central District of California, Santa Ana Division. "BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) subject to Title IV of ERISA (i) in respect of which the Issuer or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA and (ii) which is not a Foreign Pension Plan or Foreign Employee Benefit Plan. "BOARD OF DIRECTORS" means the board of directors of the Issuer. "BUSINESS ACTIVITY REPORT" means (i) an Indiana Business Activity Report from the Indiana Department of Revenue, Compliance Division, or (ii) a Notice of Business Activities Report from the State of New Jersey Division of Taxation, or -2- (iii) a Minnesota Business Activity Report from the Minnesota Department of Revenue. "BUSINESS DAY" means a day, in the applicable local time, which is not a Saturday or Sunday or a legal holiday and on which banks are not required or permitted by law or other governmental action to close in Los Angeles, California or Chicago, Illinois. "CAPITAL LEASE", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "CAPITAL STOCK", with respect to any Person, means any capital stock of such Person, regardless of class or designation, and all warrants, options, purchase rights, conversion or exchange rights, voting rights, calls or claims of any character with respect thereto. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; and (ii) domestic and eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Corporation or Prime-1 (or better) by Moody's Investors Services, Inc.; PROVIDED, that the maturities of such Cash Equivalents shall not exceed one year. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601 ET SEQ., any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "CERTIFICATES OF DESIGNATION" means, collectively, the Certificate of Designation of the Series A Preferred Stock and the Certificate of Designation of the Series B Preferred Stock; and "CERTIFICATE OF DESIGNATION" means either of them. "CLAIM" means any claim or demand, by any Person, of whatsoever kind or nature for any alleged Liabilities and Costs, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, Permit, ordinance or regulation, common law or otherwise. "CLOSING DATE" means the date the "Term Loan" under (and as defined in) the Term Loan Agreement is made. -3- "COGNIZANT SECURITY OFFICE" means the office of the Defense Investigative Service Director of Industrial Security that has industrial security jurisdiction over the geographical area in which a contractor is located. "COMMISSION" means the Securities and Exchange Commission and any Person succeeding to the functions thereof. "COMMON STOCK" means the common stock, par value $0.01 per share, of the Issuer. "CONTAMINANT" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, extremely hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos, PCBs, or any constituent of any such substance or waste, and includes, but is not limited to, these terms as defined in any Environmental Law, as well as any other substance which is required by any Governmental Authority to be investigated, cleaned up, removed, treated or otherwise abated or which is regulated by such Governmental Authority. "CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "CORPORATE DOCUMENTS" means, with respect to any corporation, (i) the articles/certificate of incorporation (or the equivalent organizational documents) of such corporation, (ii) the by-laws (or the equivalent governing documents) of the corporation and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such corporation's Capital Stock. "CUSTOMARY PERMITTED LIENS" means (i) Liens (other than Environmental Liens and Liens in favor of the PBGC) with respect to the payment of taxes, assessments or governmental charges in all cases which are not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (ii) statutory Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which -4- adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (iii) Liens (other than Environmental Liens and Liens in favor of the PBGC) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), surety and performance bonds; PROVIDED, that (A) all such Liens do not in the aggregate materially detract from the value of the Issuer's or any of its Subsidiaries' respective assets or Property or materially impair the use thereof in the operation of their respective businesses, and (B) all such Liens in connection with worker's compensation, unemployment insurance or other types of social security benefits deposits shall secure obligations in an aggregate principal amount not exceeding $50,000 at any time outstanding; and (iv) Liens arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar charges or encumbrances on the use of Real Property which do not interfere with the ordinary conduct of the business of the Issuer or any of its Subsidiaries. "DIVIDEND PAYMENT DATE" means, with respect to each series of Preferred Stock, each "Dividend Payment Date" under (and as defined in) the applicable Certificate of Designation with respect to which the Board of Directors declares dividends on such series of Preferred Stock out of funds of the Issuer legally available therefor. "DOD" means the United States Department of Defense, all constituent agencies thereof and any Person succeeding to the functions thereof. "DOL" means the United States Department of Labor, all constituent agencies thereof and any Person succeeding to the functions thereof. "DOLLARS" and "$" mean the lawful money of the United States. "ENVIRONMENTAL LAW" means any Requirement of Law derived from or relating to federal, state and local laws or regulations relating to or addressing the environment, health or safety, including but not limited to CERCLA, OSHA and RCRA, and any state or local equivalent thereof. -5- "ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental Authority for any (i) liabilities under any Environmental Law, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. "ENVIRONMENTAL PROPERTY TRANSFER ACTS" means any applicable Requirement of Law that conditions, restricts, prohibits or requires any notification or disclosure triggered by the transfer, sale, lease or closure of any Property or deed or title for any Property for environmental reasons, including, but not limited to, any so-called "Environmental Cleanup Responsibility Acts" or "Responsible Transfer Acts". "EQUIPMENT" means all of the Issuer's and each of its Subsidiaries' respective present and future (i) equipment, including, without limitation, machinery, manufacturing, distribution, selling, data processing and office equipment, assembly systems, tools, molds, dies, fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft, aircraft engines, and trade fixtures, (ii) other tangible personal Property (other than the Issuer's and each such Subsidiary's respective Inventory), and (iii) any and all accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions therefor and replacements, products and proceeds thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, any amendments thereto, any successor statutes, and any regulations promulgated thereunder. "ERISA AFFILIATE" means (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as the Issuer; (ii) a partnership or other trade or business (whether or not incorporated) which is under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with the Issuer; and (iii) a member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as the Issuer, any corporation described in CLAUSE (i) above or any partnership or trade or business described in CLAUSE (ii) above. "EVENT OF DEFAULT" means any of the occurrences set forth in SECTION 9.01 after the expiration of any applicable grace period and the giving of any applicable notice, in each case as expressly provided in SECTION 9.01. "EXPORT LICENSE" means any and all licenses, authorizations, approvals or applications therefor relating to exports, reexports, temporary exports, temporary imports and imports, as the case may be, granted by or pending before the United States Department of Commerce, the United States -6- Department of State or any other United States Governmental Authority. "FACILITY SECURITY CLEARANCE" means an administrative determination by the applicable United States Government Authority that, from a security viewpoint, a facility is eligible for access to classified information of a certain category and all lower categories. "FAIR MARKET VALUE" means, with respect to any asset, the value of the consideration obtainable in a sale of such asset in the open market, assuming a sale by a willing seller to a willing purchaser dealing at arm's length and arranged in an orderly manner over a reasonable period of time, each having reasonable knowledge of the nature and characteristics of such asset, neither being under any compulsion to act, determined (a) in good faith by the board of directors of the Issuer or (b) in an appraisal of such asset, PROVIDED, that such appraisal was performed relatively contemporaneously with such sale by an independent third party appraiser and the basic assumptions underlying such appraisal have not materially changed since the date thereof. "FISCAL YEAR" means the fiscal year of the Issuer, which shall be the 12-month period ending on December 31 of each calendar year. "FOREIGN EMPLOYEE BENEFIT PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of the Issuer, any of its Subsidiaries or any of its ERISA Affiliates and is not covered by ERISA pursuant to ERISA Section 4(b)(4). "FOREIGN PENSION PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA which (i) is maintained or contributed to for the benefit of employees of the Issuer, any of its Subsidiaries or any of its ERISA Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accounting Standards Board or in such other statements by such other entity as may be in general use by significant segments of the accounting profession as in effect on the date hereof (unless otherwise specified herein as in effect on another date or dates). "GENERAL INTANGIBLES" means all of the Issuer's and its Subsidiaries' respective present and future (i) general intangibles, (ii) rights, interests, choses in action, causes of action, claims and other intangible Property of every kind and -7- nature (other than accounts), (iii) corporate and other business records, (iv) loans, royalties, and other obligations receivable, (v) trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, patent applications, trade names, rights of use of any name, labels, fictitious names, inventions, designs, trade secrets, computer programs, software, printouts and other computer materials, goodwill, registrations, copyrights, copyright applications, permits, licenses, franchises, customer lists, credit files, correspondence, and advertising materials, (vi) customer and supplier contracts, firm sale orders, rights under license and franchise agreements, rights under tax sharing agreements, and other contracts and contract rights, (vii) interests in partnerships and joint ventures, (viii) tax refunds and tax refund claims, (ix) right, title and interest under leases, subleases, licenses and concessions and other agreements relating to Property, (x) deposit accounts (general or special) with any bank or other financial institution, (xi) credits with and other claims against third parties (including carriers and shippers), (xii) rights to indemnification and with respect to support and keep-well agreements, (xiii) reversionary interests in pension and profit sharing plans and reversionary, beneficial and residual interests in trusts, (xiv) proceeds of insurance of which the Issuer or such Subsidiary is beneficiary, (xv) letters of credit, guarantees, Liens, security interests and other security held by or granted to the Issuer or such Subsidiary, (xvi) uncertificated securities, and (xvii) governmental certificates and certifications, including, without limitation, certificates and certifications relating to Government Contracts and Export Licenses, authorizations and approvals, issued to the Issuer or such Subsidiary. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GOVERNMENT CONTRACT" means any bid, quotation, proposal, contract, agreement, work authorization, lease, commitment or sale or purchase order of the Issuer or any of its Subsidiaries which is entered into with or submitted to any United States Governmental Authority or any agency, agent or instrumentality thereof, including, among other things, all contracts and work authorizations to supply goods and services to the United States Government. "HOLDERS" means the Stockholders and the Noteholders. "INDEBTEDNESS", as applied to any Person, means, at any time, (i) all indebtedness, obligations or other liabilities of such Person (A) for borrowed money or evidenced by debt securities, debentures, acceptances, notes or other similar instru- -8- ments, and any accrued interest, fees and charges relating thereto, (B) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any Securities of such Person or to pay dividends in respect of any stock, (C) with respect to letters of credit issued for such Person's account, (D) to pay the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business, (E) in respect of Capital Leases, (F) which are Accommodation Obligations or (G) under warranties and indemnities; (ii) all indebtedness, obligations or other liabilities of such Person or others secured by a Lien on any property of such Person, whether or not such indebtedness, obligations or liabilities are assumed by such Person, all as of such time; (iii) all preferred stock subject (upon the occurrence of any contingency or otherwise) to mandatory redemption; and (iv) all contingent Contractual Obligations with respect to any of the foregoing. "INITIAL HOLDER" is defined in the preamble hereto. "INTEREST PAYMENT DATE" means each March 31, June 30, September 30 and December 31 during the term of this Agreement. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, any successor statute and any regulations or guidance promulgated thereunder. "INVENTORY" means all of the Issuer's and each of its Subsidiaries' respective present and future (i) inventory, (ii) goods, merchandise and other personal Property furnished or to be furnished under any contract of service or intended for sale or lease, and all consigned goods and all other items which have previously constituted Equipment but are then currently being held for sale or lease in the ordinary course of the Issuer's or such Subsidiary's business, (iii) raw materials, work-in-process and finished goods, (iv) materials and supplies of any kind, nature or description used or consumed in the Issuer's or such Subsidiary's business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the Property described in CLAUSES (i) through (iii) above, (v) goods in which the Issuer or such Subsidiary has a joint or other interest or right of any kind (including, without limitation, goods in which the Issuer or such Subsidiary has an interest or right as consignee), and (vi) goods which are returned to or repossessed by the Issuer or such Subsidiary; in each case whether in the possession of the Issuer, such Subsidiary, a bailee, a consignee, or any other Person for sale, storage, transit, processing, use or otherwise, and any and all documents for or relating to any of the foregoing. "INVESTMENT" means, with respect to any Person, (i) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities, issued by any other Person, -9- (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business. The amount of any Investment shall be the original cost of such Investment, plus the cost of all additions thereto less the amount of any return of capital or principal to the extent such return is in cash with respect to such Investment without any adjustments for increases or decreases in value or write-ups, write-downs or write-offs with respect to such Investment. "IRS" means the Internal Revenue Service and any Person succeeding to the functions thereof. "ISSUER" is defined in the preamble hereto. "LIABILITIES AND COSTS" means all liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or Remedial Action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a Capital Lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor pursuant to Section 9-408 of the Uniform Commercial Code), naming the owner of such property as debtor, under the Uniform Commercial Code or other comparable law of any jurisdiction. "LIQUIDATION PREFERENCE" means, with respect to each series of Preferred Stock, the "Liquidation Preference" under (and as defined in) the Certificate of Designation pursuant to which such Preferred Stock was issued. "MAJORITY HOLDERS" means, as of any date of determination, (i) Noteholders holding, in the aggregate, greater -10- than fifty percent (50%) in principal amount of all Notes outstanding as of such date, (ii) Stockholders holding, in the aggregate, greater than fifty percent (50%) of the Shares of Series A Preferred Stock issued and outstanding as of such date and (iii) Stockholders holding, in the aggregate, greater than fifty percent (50%) of the Shares of Series B Preferred Stock issued and outstanding as of such date. "MAL" means Microdot Aerospace Limited, a company organized under the laws of the United Kingdom, and a wholly-owned Subsidiary of Microdot. "MAL PURCHASE AGREEMENT" means, to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the agreement by and between MAL, Opco and the U.K. Subsidiary, pursuant to which Opco and the U.K. Subsidiary agree to purchase substantially all of the assets of MAL, which agreement shall be in form and substance satisfactory to the Initial Holder. "MANAGEMENT INVESTORS" means Jordan A. Law, David A. Werner, Leroy A. Dack, Robert L. Beers, Imre Berecz, Joseph Varholick and Joseph F. Blomberg. "MANAGEMENT SUBSCRIPTION AGREEMENTS" means the respective Subscription Agreements between the Issuer and each of the Management Investors, pursuant to which the Issuer agrees to sell and the Management Investors subscribe to purchase an aggregate of 20,500 shares of Common Stock. "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (i) the financial condition, operations, assets or prospects of the Issuer, Opco or any of their respective Subsidiaries, (ii) the ability of the Issuer, Opco or any of their respective Subsidiaries to perform their respective obligations under the Transaction Documents, or (iii) the ability of any Holder to enforce this Agreement or the Notes held by such Holder. "MICRODOT" means Microdot Inc., a Delaware corporation. "MICRODOT LOAN AGREEMENT" means that certain Loan and Security Agreement dated as of December 30, 1983 between the Initial Holder and Microdot, as amended, as amended and restated by that certain Amended and Restated Loan and Security Agreement dated as of April 1, 1989 between the Initial Holder and Microdot, as further amended by Amendment No. 1 thereto dated as of December 8, 1992. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by either the Issuer or any ERISA Affiliate. -11- "NOTE" is defined in SECTION 2.01(a). "NOTEHOLDER" means each holder of record of Notes as it appears on the books of the Issuer. "OBLIGATIONS" means the Indebtedness evidenced by the Notes and all advances, debts, liabilities, obligations, covenants and duties owing by the Issuer to the Noteholders, or any Person entitled to indemnification pursuant to SECTION 10.02 of this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement or the Notes, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest (including, without limitation, interest, whether or not allowed under Section 502 of the Bankruptcy Code or otherwise, at the then applicable rate (including the rate in effect from time to time under SECTION 2.02(c)) specified herein that accrues after the commencement of any proceeding under the Bankruptcy Code or other applicable bankruptcy, reorganization, insolvency, dissolution, liquidation or other debtor relief Requirement of Law), charges, expenses, fees, attorneys' fees and disbursements and any other sum chargeable to the Issuer under this Agreement or any of the Notes. "OFFICER'S CERTIFICATE" means a certificate executed on behalf of a corporation by (i) the chairman or vice-chairman of its board of directors (if an officer of such corporation) or (ii) its president, any of its vice-presidents, its chief financial officer, or its treasurer. "OPCO" means Kaynar Technologies Inc., a Delaware corporation. "OPCO CREDIT AGREEMENT" means that certain Credit Agreement of even date herewith by and between Opco and the Initial Holder, as the same may be amended, supplemented or modified from time to time. "OPCO LOAN DOCUMENTS" means the "Loan Documents" as defined in the Opco Credit Agreement. "OPERATING LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which is not a Capital Lease. "OSHA" means the Occupational Safety and Health Act of 1970, any amendments thereto, any successor statutes and any regulations or guidance promulgated thereunder. -12- "PBGC" means the Pension Benefit Guaranty Corporation and any Person succeeding to the functions thereof. "PCBS" means polychlorinated biphenyls. "PERMITS" means any license, permit, variance, interim permit, permit application, approval, consent, certification, qualification or other authorization under any Requirement of Law applicable to the Issuer or any of its Subsidiaries or otherwise required by any Governmental Authority in connection with the business or operations of the Issuer or any of its Subsidiaries, including, without limitation, any license, permit, consent, certification, approval, authorization or qualification relating to any Government Contract. "PERMITTED EXISTING ACCOMMODATION OBLIGATIONS" means the Accommodation Obligations of the Issuer and its Subsidiaries identified as such on SCHEDULE 1.01.1. "PERSON" means any natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority. "PERSONNEL SECURITY CLEARANCE" means an administrative determination by the applicable United States Governmental Authority that an individual is eligible, from a security point of view, for access to classified information of the same or lower category as the level of the personnel clearance being granted. "PLAN" means an employee benefit plan defined in Section 3(3) of ERISA (i) in respect of which the Issuer or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA and (ii) which is not a Foreign Pension Plan or Foreign Employee Benefit Plan. "POTENTIAL EVENT OF DEFAULT" means an event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "PREFERRED STOCK" means the Series A Preferred Stock and the Series B Preferred Stock. "PROCESS AGENT" is defined in SECTION 10.16. "PROPERTY" means any Real Property or personal property, plant, building, facility, structure, underground storage tank or unit, Equipment, Inventory, General Intangible, account, or other asset owned, leased or operated by the Issuer or its Subsidiaries, as applicable, (including any surface water thereon or adjacent thereto, and soil and groundwater thereunder). -13- "PRO RATA SHARE" means, with respect to any Noteholder, the percentage obtained by dividing (i) the unpaid balance of the outstanding Notes held by such Noteholder by (ii) the aggregate unpaid balance of all outstanding Notes issued pursuant to this Agreement. "PURCHASE" means, collectively, (i) the purchase by Opco from Microdot of substantially all of the assets of AFS pursuant to the AFS Purchase Agreement and (ii) to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the purchase by Opco and the U.K. Subsidiary of substantially all of the assets of MAL pursuant to the MAL Purchase Agreement. "PURCHASE AGREEMENTS" means the AFS Purchase Agreement and, to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, the MAL Purchase Agreement, and "PURCHASE AGREEMENT" means either of them. "PURCHASE DOCUMENTS" means the Purchase Agreements and all of the agreements, documents and instruments executed in connection with either of them. "RCRA" means the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 ET SEQ., any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "REAL PROPERTY" means all of the Issuer's and each of its Subsidiaries' respective present and future right, title and interest (including, without limitation, any leasehold estate) in (i) any plots, pieces or parcels of land, (ii) any improvements, buildings, structures and fixtures now or hereafter located or erected thereon or attached thereto of every nature whatsoever (the rights and interests described in CLAUSE (i) or (ii) above being the "Premises"), (iii) all easements, rights of way, gores of land or any lands occupied by streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and public places adjoining such land, and any other interests in property constituting appurtenances to the Premises, or which hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all hereditaments, gas, oil, minerals (with the right to extract, sever and remove such gas, oil and minerals), and easements, of every nature whatsoever, located in or on the Premises and (v) all other rights and privileges thereunto belonging or appertaining and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to or of any of the rights and interests described in CLAUSE (iii) or (iv) above. "RELEASE" means release, presence, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Property or Third Party -14- Property, including the movement of Contaminants through or in the air, soil, surface water, groundwater, Property or Third Party Property. "REMEDIAL ACTION" means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants; or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care. "REPORTABLE EVENT" means any of the events described in Section 4043 of ERISA and the regulations promulgated thereunder as in effect from time to time, excluding any event with respect to which the 30-day notice requirement is waived in the applicable regulations. "REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, the Securities Act, the Securities Exchange Act, ERISA, the Fair Labor Standards Act and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit or environmental, labor, employment, occupational safety or health law, ordinance, rule, regulation or common law. "RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Issuer or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of the Issuer or any of its Subsidiaries now or hereafter outstanding, and (iii) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Issuer or any of its Subsidiaries now or hereafter outstanding. "SCHEDULED MATURITY DATE" means the fifth (5th) anniversary of the Closing Date. "SECURITIES" means any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or -15- acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include any evidence of the Obligations. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute. "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "SERIES A PREFERRED STOCK" means the Series A Convertible Preferred Stock, par value $0.01 per share, of the Issuer. "SERIES B PREFERRED STOCK" means the Series B Preferred Stock, par value $0.01 per share, of the Issuer. "SHAREHOLDERS AGREEMENT" means that certain Shareholders Agreement dated as of January 3, 1994 among the Issuer, the Initial Holder and the Management Investors regarding transfers of, restrictions on and other rights and conditions relating to the Common Stock and the Preferred Stock, as the same may be amended, supplemented or modified from time to time. "SOLVENT", when used with respect to any Person, means that at the time of determination: (i) the Fair Market Value of its assets is in excess of the total amount of its liabilities (including, without limitation, contingent liabilities); and (ii) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "STOCKHOLDER" means each holder of record of shares of Series A Preferred Stock or Series B Preferred Stock as it appears on the share register of the Issuer. "SUBSIDIARY" of a Person means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned or controlled by such -16- Person, one or more of the other subsidiaries of such Person or any combination thereof. "TAXES" is defined in SECTION 3.03(a). "TERM LOAN AGREEMENT" means that certain Term Loan Agreement by and between the Issuer and the Initial Holder, as the same may be amended, supplemented or modified from time to time. "TERM LOAN DOCUMENTS" means the "Loan Documents" as defined in the Term Loan Agreement. "TERMINATION EVENT" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Issuer or any ERISA Affiliate from a Benefit Plan during a plan year in which the Issuer or such ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the cessation of operations of a facility which results in the termination of employment of 20% of Benefit Plan participants who are employees of the Issuer or any ERISA Affiliate; (iii) the imposition of an obligation on the Issuer or any ERISA Affiliate under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC or any similar foreign Governmental Authority of proceedings to terminate a Benefit Plan or a Foreign Pension Plan; (v) any event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; (vi) a foreign Governmental Authority shall appoint or institute proceedings to appoint a trustee to administer any Foreign Pension Plan; or (vii) the partial or complete withdrawal of the Issuer or any ERISA Affiliate from a Multiemployer Plan or a Foreign Pension Plan. "THIRD PARTY PROPERTY" means any real or personal property, plant, building, facility, structure, underground storage tank or unit or equipment owned, leased or operated by any Person other than the Issuer or its Subsidiaries (including, without limitation, any surface water thereon or adjacent thereto and soil and ground water thereunder). "TRANSACTION COSTS" means the fees, costs and expenses payable by the Issuer, Opco and their respective Subsidiaries in connection with the execution, delivery and performance of the Transaction Documents. "TRANSACTION DOCUMENTS" means (i) this Agreement and the Notes, (ii) the Term Loan Documents, (iii) the Opco Loan Documents and (iv) the Purchase Documents. -17- "U.K. SUBSIDIARY" means Kaynar Technologies Ltd., a wholly-owned Subsidiary of Opco organized under the laws of England and Wales. "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as enacted in the State of California, as it may be amended from time to time. 1.02. COMPUTATION OF TIME PERIODS. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. Any period determined hereunder by reference to a month or months or year or years shall end on the day in the relevant calendar month in the relevant year, if applicable, immediately preceding the date numerically corresponding to the first day of such period, PROVIDED, that if such period commences on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month during which such period is to end), such period shall, unless otherwise expressly required by the other provisions of this Agreement, end on the last day of the calendar month. 1.03. ACCOUNTING TERMS. Subject to SECTION 10.03, for purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. 1.04. OTHER TERMS. All other terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings assigned to such terms by the Uniform Commercial Code to the extent the same are defined therein. ARTICLE II THE NOTES 2.01. ISSUANCE OF NOTES. (a) AMOUNTS AND SERIES OF NOTES. Subject to the terms and conditions set forth in this Agreement, on each Dividend Payment Date through and including the Scheduled Maturity Date, if the Issuer has not paid all dividends declared to be payable on such Dividend Payment Date in cash (or if the Issuer is then prohibited by law or contract from paying dividends in cash on the Preferred Stock), the Issuer shall issue, in two separate series, promissory notes in substantially the form of EXHIBIT A attached hereto and made a part hereof (collectively, the "Notes") dated such Dividend Payment Date to each Stockholder of record of shares of Series A Preferred Stock and Series B Preferred Stock, respectively, appearing on the share register of the Issuer on the tenth (10th) day preceding the relevant Dividend Payment Date, PROVIDED that the Notes may have notations, legends or endorsements required by -18- law, stock exchange rule or usage (including any legend required by the Internal Revenue Code if the Notes are considered to be issued with "original issue discount"). Each issuance of Notes shall be issued in accordance with a resolution of the Board of Directors, and shall be designated generally as the "PIK Dividend Notes" of the Issuer, with such further particular designations added or incorporated into such title for the Notes of any particular series as the Board of Directors may determine. With respect to any particular series of Notes, the Board Resolution relating thereto shall specify, to the extent deemed appropriate by the Board of Directors, the title of the Notes of that series (which shall distinguish the Notes of that series from all other Notes); PROVIDED that, notwithstanding anything herein to the contrary, Notes may be issued hereunder only (a) in payment of dividends and in lieu of payment of dividends in cash and (b) in substitution or replacement of other Notes as provided in SECTION 2.01(f). With respect to the series of Notes from time to time issued to the Stockholders of Series A Preferred Stock, the Issuer shall issue to each such Stockholder a Note in a principal amount equal to the excess (if any) of (i) the amount of the dividend declared to be payable to such Stockholder as of the relevant Dividend Payment Date over (ii) the cash payment paid to such Stockholder in respect of the dividends declared to be paid as of such Dividend Payment Date. With respect to the series of Notes from time to time issued to the Stockholders of Series B Preferred Stock, the Issuer shall issue to each such Stockholder a Note in a principal amount equal to the excess (if any) of (x) the amount of the dividend declared to be payable to such Stockholder as of the relevant Dividend Payment Date over (y) the cash payment paid to such Stockholder in respect of the dividends declared to be paid as of such Dividend Payment Date. (b) CONDITIONS TO ISSUANCE. In addition to the conditions set forth in this Agreement, the Issuer shall not issue or pay any Notes under this Agreement in violation of law or applicable directors' duties, and unless and until all of the conditions for the declaration and payment of dividends set forth in the applicable Certificate of Designation shall have been satisfied. (c) REPAYMENT OF THE NOTES. (i) The outstanding principal balance of the Notes (including, without limitation, the principal balance of the Notes attributable to interest capitalized in accordance with the terms of SECTION 2.02(b)(i)) 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 pursuant hereto. (ii) In addition to the scheduled payment on the Notes, the Issuer may make the voluntary prepayments described in SECTION 3.01 for credit against such scheduled payments on the Notes pursuant to SECTION 3.01. -19- (d) NOTEHOLDER LIST. The Issuer shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Noteholders. (e) TRANSFER AND EXCHANGE. Where Notes are presented to the Issuer with a request to register a transfer or to exchange them for an equal principal amount of Notes of other permitted denominations of like series, the Issuer shall register the transfer or make the exchange and, upon surrender of the existing Notes, shall issue such new Notes as shall be necessary to evidence such transfer or exchange. No service charge shall be made for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Issuer may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith. The Issuer shall not be required (i) to issue, register the transfer of or exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for prepayment of Notes under SECTION 3.01 and ending at the close of business on the day of selection, or (ii) to register the transfer or exchange of any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (f) REPLACEMENT NOTES. If a Noteholder claims that its Note has been mutilated, lost, destroyed or wrongfully taken, the Issuer shall issue a replacement Note, PROVIDED that, if required by the Issuer, an indemnity bond must be provided by such Noteholder in an amount which is sufficient in the judgment of the Issuer to protect the Issuer from any loss which any of them may suffer if a Note is replaced. The Issuer may charge for their expenses in replacing a Note. In case any such mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Issuer, in its discretion, may, instead of issuing a new Note, pay such Note. Every replacement Note is an additional Obligation of the Issuer. (g) OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes issued by the Issuer except for those cancelled by it, those delivered to it for cancellation, and those described in this SECTION 2.01(G) as not outstanding. If a Note is replaced pursuant to SECTION 2.01(F), it ceases to be outstanding unless the Issuer receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If Notes are fully paid in cash, they cease to be outstanding and interest on them ceases to accrue. A Note does not cease to be outstanding solely because the Issuer or an Affiliate of the Issuer holds the Note. (h) TREASURY NOTES. In determining whether the Noteholders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer or an Affiliate of the Issuer shall be considered as though they are not outstanding. -20- 2.02. INTEREST. (a) RATE OF INTEREST. The Indebtedness evidenced by each Note and the outstanding principal balance of all other Obligations shall bear interest on the unpaid principal amount thereof from the date such Note is issued and such other Obligations are due and payable until paid in full, except as otherwise provided in SECTION 2.02(c), at a per annum rate equal to (i) for the period commencing on the Closing Date and ending on December 31, 1995, nine and one-half percent (9.50%) and (ii) for the period commencing on January 1, 1996 and ending on the date the Obligations are paid in full, eleven and one-half percent (11.50%). (b) INTEREST PAYMENTS. (i) Interest accrued on the Notes shall be payable in arrears (A) with respect to interest accrued and unpaid as of any Interest Payment Date, on the day immediately following such Interest Payment Date, commencing on the first such day immediately following March 31, 1994, (B) upon the payment or prepayment of the Notes in full, and (C) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of the Notes. Accrued and unpaid interest on the outstanding principal balance of the Notes may, at the option of the Issuer, be paid in immediately available funds in accordance with the immediately preceding sentence and SECTION 3.02(a). If not so paid, such interest shall be capitalized on the day immediately following the applicable Interest Payment Date, and the outstanding principal balance of the Notes shall automatically and without notice of any kind whatsoever be increased by an amount equal to such interest. (ii) Interest accrued on the principal balance of all other Obligations shall be payable in immediately available funds in arrears (A) on the last day of each calendar month, commencing on the first such day following the incurrence of such Obligation, (B) upon repayment thereof in full or in part, and (C) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (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 9.01(a) or (ii) the occurrence of any other Event of Default and notice from the Majority Holders 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 Notes, and the principal balance of all other Obligations, shall bear interest at a per annum rate which is two percent (2.0%) per annum in excess of the interest rate otherwise applicable under SECTION 2.02(a). (d) COMPUTATION OF INTEREST. Interest on all Obligations shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. In computing interest on each Note, the date of -21- issuance of such Note shall be included and the date of payment shall be excluded. 2.03. AUTHORIZED OFFICERS AND AGENTS. On the Closing Date and from time to time thereafter when necessary, the Issuer shall deliver to the Holders an Officer's Certificate setting forth the names of the officers, employees and agents authorized to act for the Issuer in respect of all matters relating to the this Agreement and the Notes and containing a specimen signature of each such officer, employee or agent. The Holders shall be entitled to rely conclusively on such officer's or employee's authority to act hereunder until the Holders receive written notice to the contrary. The Holders shall have no duty to verify the authenticity of the signature appearing on any written document. ARTICLE III PAYMENTS AND PREPAYMENTS 3.01. VOLUNTARY PREPAYMENTS. The Issuer may, upon at least one (1) Business Day's prior written notice to the Noteholders, at any time and from time to time, prepay the Notes, in whole or in part. Unless the aggregate outstanding principal balance of the Notes is to be prepaid in full, voluntary prepayments of the Notes shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount. Any notice of prepayment given to the Noteholders under this SECTION 3.01 shall specify the date (which shall be a Business Day) of prepayment and the aggregate principal amount of the prepayment. When notice of prepayment is delivered as provided herein, the principal amount of the Notes specified in the notice shall become due and payable on the prepayment date specified in such notice. The prepayments described in this SECTION 3.01 may be made without premium or penalty. 3.02. PAYMENTS. (a) MANNER AND TIME OF PAYMENT. All payments and prepayments of principal of and interest on the Notes and other Obligations (including, without limitation, fees and expenses) which are payable to the Noteholders shall be made without condition or reservation of right, in immediately available funds (except to the extent otherwise permitted by SECTION 2.02(b)(i)), delivered to the Noteholders not later than 1:00 p.m. (Chicago time) on the date and at the place due, to such account of each Noteholder as such Noteholder may designate; and funds received by each Noteholder not later than 1:00 p.m. (Chicago time) on any given Business Day shall be credited against payment to be made that day and funds received by the Holders after that time shall be deemed to have been paid on the immediately following Business Day. (b) APPLICATION OF PAYMENTS. (i) Subject to the provisions of SECTION 3.01, all payments of principal and interest in respect of the Notes, all payments of fees and all -22- other payments in respect of any other Obligations, shall be allocated among such of the Noteholders as are entitled thereto, in proportion to their respective Pro Rata Shares and shall be applied FIRST, to pay all Obligations then due and payable and SECOND, as the Issuer so designates. (ii) After the occurrence of an Event of Default and while the same is continuing, the Noteholders shall apply all payments in respect of any Obligations in the following order: (A) FIRST, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Noteholders; (B) SECOND, to pay interest due in respect of the Notes; (C) THIRD, to the payment or prepayment of principal outstanding on the Notes; and (D) FOURTH, to the payment of all other Obligations. (c) PAYMENTS ON NON-BUSINESS DAYS. Whenever any payment to be made by the Issuer hereunder or under the Notes is stated to be due on a day which is not a Business Day, the payment shall instead be due on the immediately following Business Day, and any such extension of time shall be included in the computation of the payment of interest and fees hereunder. 3.03. TAXES. (a) PAYMENT OF TAXES. Any and all payments by the Issuer hereunder or under the Notes or other document evidencing any Obligations shall be made, in accordance with SECTION 3.02, free and clear of and without reduction for any and all present or future taxes, levies, imposts, deductions, charges, withholdings, and all stamp or documentary taxes, excise taxes, ad valorem taxes and other taxes imposed on the value of the Property, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, or otherwise with respect to, this Agreement or any of the Notes and all other liabilities with respect thereto, excluding taxes imposed on or measured by net income or overall gross receipts and capital and franchise taxes imposed on the Noteholders by (i) the United States, (ii) the Governmental Authority of any jurisdiction in which any Noteholders has an office or any political subdivision thereof or (iii) the Governmental Authority in which a Noteholders is organized, managed and controlled or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges and withholdings being hereinafter referred to as "Taxes"). If the Issuer shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder or under the Notes or document to any Noteholder (x) the sum payable to such Noteholder shall be increased as may be necessary so that after making all -23- required withholding or deductions (including withholding or deductions applicable to additional sums payable under this SECTION 3.03) such Noteholder receives an amount equal to the sum it would have received had no such withholding or deductions been made, (y) the Issuer shall make such withholding or deductions, and (z) the Issuer shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) INDEMNIFICATION. The Issuer will indemnify the Noteholders against, and reimburse each Noteholder on demand for, the full amount of all Taxes (including, without limitation, any Taxes imposed by any Governmental Authority on amounts payable under this SECTION 3.03 and any additional income or franchise taxes resulting therefrom) incurred or paid by such Noteholder or any of its Affiliate and any liability (including penalties, additions to tax, interest, and out-of-pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or not such Taxes were lawfully payable. A certificate as to any additional amount payable to any Person under this SECTION 3.03 submitted by it to the Issuer shall, absent manifest error, be final, conclusive and binding upon all parties hereto. Each Noteholder agrees, within a reasonable time after receiving a written request from the Issuer, to provide the Issuer with such certificates as are reasonably required, and take such other actions as are reasonably necessary to claim such exemptions as such Noteholder may be entitled to claim in respect of all or a portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this SECTION 3.03 in respect of any payments under this Agreement or under the Notes. (c) RECEIPTS. Within thirty (30) days after the date of any payment of Taxes by the Issuer, it will furnish to the applicable Noteholders, at its address referred to in SECTION 10.07, the original or a certified copy of a receipt evidencing payment thereof. ARTICLE IV CONDITIONS TO ISSUANCE OF NOTES 4.01. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall become effective against the Issuer and the Initial Holder upon the satisfaction of all of the following conditions precedent: (a) DOCUMENTS. The Initial Holder shall have received on or before the Closing Date all of the following: (i) this Agreement and all other agreements, documents and instruments described in the List of Closing Documents attached hereto as EXHIBIT B attached hereto and made a part hereof, each duly executed where -24- appropriate and in form and substance satisfactory to the Initial Holder; (ii) the PRO FORMA financials referred to in SECTION 5.01(g); (iii) documentation deemed adequate by the Initial Holder showing the Issuer's and its Subsidiaries' compliance with any financial responsibility requirements of applicable Requirements of Law, including, without limitation, those contained in 40 C.F.R. Parts 264 and 265, Subps. H, and state law equivalents, and those promulgated pursuant to 42 U.S.C. Section 6991b(c)(6), and state equivalents; and (iv) such additional documentation as the Initial Holder may reasonably request. (b) NO LEGAL IMPEDIMENTS. No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Issuer shall not have received any notice that litigation is pending or threatened which is likely to (i) enjoin, prohibit or restrain (A) the effectiveness of this Agreement or the issuance of the Notes pursuant hereto or (B) the consummation of the Purchase or (ii) impose or result in the imposition of a Material Adverse Effect. (c) NO DEFAULT. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the effectiveness of this Agreement or the issuance of Notes pursuant hereto. (d) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties contained in SECTION 5.01 shall be true and correct in all material respects on and as of the Closing Date. (e) PURCHASE OF CAPITAL STOCK OF THE ISSUER. The Management Investors shall have purchased all of the issued and outstanding Common Stock pursuant to the respective Management Subscription Agreements for an aggregate purchase price of not less than $300,000 (less out-of-pocket transaction costs for which the Management Investors are entitled to credit for this purpose in accordance with the letter agreement on such subject, together with any amendments or supplements thereto (if any), between the Management Investors and the Initial Holder). (f) THE PURCHASE. (i) All conditions precedent to, and all consents necessary to permit, the Purchase pursuant to the Purchase Documents shall have been satisfied or delivered, or waived with the prior written consent of the Initial Holder, and the Purchase Documents shall not have been amended or modified without the prior written consent of the Initial Holder and shall be in full force and effect. -25- (ii) Substantially simultaneously with the effectiveness of this Agreement, the Term Loan Agreement and the Opco Credit Agreement, Opco shall have acquired substantially all of the assets of AFS pursuant to the AFS Purchase Agreement, and, to the extent the assets of MAL shall have been made available for purchase on the Closing Date pursuant to the AFS Purchase Agreement, Opco and the U.K. Subsidiary shall have acquired substantially all of the assets of MAL pursuant to the MAL Purchase Agreement, in each case in compliance with all applicable laws. ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01. CLOSING DATE REPRESENTATIONS AND WARRANTIES. In order to induce the Initial Holder to enter into this Agreement on the Closing Date, the Issuer hereby represents and warrants to the Initial Holder that the following statements are true, correct and complete as of the Closing Date: (a) ORGANIZATION; CORPORATE POWERS. The Issuer and each of its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing will have or is reasonably likely to have a Material Adverse Effect, (iii) to the extent required, has filed and maintained effective (unless exempt from the requirements for filing) a current Business Activity Report with the appropriate Governmental Authority in the states of Minnesota, New Jersey and Indiana, and (iv) has all requisite corporate power and authority to own, operate and encumber its Property and to conduct its business as proposed to be conducted in connection with and following the consummation of the transactions contemplated by the Transaction Documents. (b) AUTHORITY. (i) The Issuer and each of its Subsidiaries have the requisite corporate power and authority (A) to execute, deliver and perform each of the Transaction Documents which are to be executed by it in connection with the Purchase or which have been executed by it as required by this Agreement on or prior to the Closing Date and (B) to file the Transaction Documents which must be filed by it in connection with the Purchase or which have been filed by it as required by this Agreement on or prior to the Closing Date, with any Governmental Authority. (ii) The execution, delivery, performance and filing, as the case may be, of each of the Transaction Documents which must be executed or filed by the Issuer in connection with the Purchase or which have been executed or filed as required by this Agreement on or prior to the Closing Date and to which the Issuer -26- or any of its Subsidiaries is party and the consummation of the transactions contemplated thereby, have been duly approved by the respective boards of directors and, if necessary, the shareholders of the Issuer and its Subsidiaries and such approvals have not been rescinded. No other corporate action or proceedings on the part of the Issuer or its Subsidiaries are necessary to consummate such transactions. (iii) Each of the Transaction Documents to which the Issuer or any of its Subsidiaries is a party has been duly executed, delivered or filed, as the case may be, by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, is in full force and effect and no material term or condition thereof has been amended, modified or waived from the terms and conditions contained in the Transaction Documents delivered to the Initial Holder pursuant to SECTION 4.01(a) without the prior written consent of the Initial Holder, and all parties thereto have performed and complied with all the terms, provisions, agreements and conditions set forth therein and required to be performed or complied with by such parties on or before the Closing Date, and no Potential Event of Default, Event of Default or breach of any covenant by any such party exists thereunder. (c) CONSENTS. Except as set forth in SCHEDULE 5.01-C and for approval of the Bankruptcy Court, no consents or approvals of, or filings or registrations (other than filings or registrations contemplated by SECTION 5.01(f)(i) with respect to Government Contracts) by the Issuer or its Subsidiaries with any Governmental Authority or any other Person not a party to this Agreement are necessary in connection with the execution and delivery of the Transaction Documents by the Issuer and its Subsidiaries and the consummation by the Issuer and its Subsidiaries of the transactions contemplated by the Transaction Documents, except where the failure to obtain such consents or approvals would not result in a Material Adverse Effect. (d) SUBSIDIARIES; OWNERSHIP OF CAPITAL STOCK. SCHEDULE 5.01-D accurately sets forth (i) the correct legal name, the jurisdiction of incorporation and the jurisdictions in which qualified to transact business as a foreign corporation of each of the direct and indirect Subsidiaries of the Issuer, (ii) the authorized, issued and outstanding shares of each class of Capital Stock of the Issuer and each of its Subsidiaries and the owners of such shares, and (iii) a summary of the direct and indirect partnership, joint venture, or other equity interests, if any, of the Issuer and each of its Subsidiaries in any Person that is not a corporation. None of such issued and outstanding Capital Stock is subject to any vesting or redemption agreement, or, except as provided in the Shareholders Agreement, repurchase agreement, and there are no warrants or options outstanding with respect to such Capital Stock. The outstanding Capital Stock of the Issuer and each of its Subsidiaries is duly authorized, validly issued, fully paid and nonassessable. -27- (e) NO CONFLICT. The execution, delivery and performance of each of the Transaction Documents to which the Issuer or any of its Subsidiaries is a party do not and will not (i) conflict with the Corporate Documents of the Issuer or any such Subsidiary, (ii) constitute a tortious interference with any Contractual Obligation of any Person or conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law or Contractual Obligation of the Issuer or any such Subsidiary, or require termination of any Contractual Obligation, the consequences of which violation, breach, default or termination, singly or in the aggregate, will have or is reasonably likely to have a Material Adverse Effect or is reasonably likely to subject the Initial Holder to any liability, or (iii) result in or require the creation or imposition of any Lien whatsoever upon any of the Property or assets of the Issuer or any such Subsidiary, other than Liens contemplated by the Term Loan Documents or the Opco Loan Documents. (f) PATENTS, TRADEMARKS, PERMITS, ETC.; GOVERNMENT APPROVALS. (i) After giving effect to the Purchase, the Issuer and each of its Subsidiaries own, are licensed or otherwise have the lawful right to use, or have all permits and other governmental approvals (except with respect to Government Contracts), patents, trademarks, trade names, copyrights, technology, know-how and processes used in or necessary for the conduct of their businesses as proposed to be conducted which are material to their condition (financial or otherwise), operations, performance and prospects, taken as a whole, including, without limitation, the names "Microdot", "Kaynar" and "Microdot Inserts". With respect to each Government Contract acquired by Opco in connection with the Purchase, such Government Contract has been transferred to Opco (and all necessary approvals therefor have been obtained) or Opco is operating under a subcontract contemplated by the AFS Purchase Agreement. (ii) The consummation of the Purchase and the transactions contemplated by the Transaction Documents will not impair the ownership of or rights under (or the license or other right to use, as the case may be) any permits and governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how or processes by the Issuer or any of its Subsidiaries in any manner which has or is reasonably likely to have a Material Adverse Effect. (g) PRO FORMA FINANCIALS. The PRO FORMA consolidated and consolidating balance sheets of the Issuer and its Subsidiaries prepared as of October 31, 1993 (and giving effect to the Purchase) and in accordance with GAAP consistently applied, copies of which have been furnished to the Initial Holder on or before the Closing Date, fairly present on a PRO FORMA basis the financial condition of the Issuer and such Subsidiaries as of October 31, 1993, and reflect on a PRO FORMA basis those liabilities reflected in the notes thereto and resulting from -28- consummation of the transactions contemplated by the Transaction Documents, and the payment or accrual of all Transaction Costs payable on the Closing Date with respect to any of the foregoing. The projections and assumptions expressed in the PRO FORMA financials furnished pursuant to this SECTION 5.01(g) are reasonable based on the information available to the Issuer as of the date hereof. (h) SOLVENCY. After giving effect to the making of the "Term Loan" under (and as defined) in the Term Loan Agreement on the Closing Date, the Issuer and each of its Subsidiaries are Solvent. (i) THE PURCHASE. (i) All conditions precedent to, and all consents necessary to permit, the Purchase pursuant to the Purchase Documents have been satisfied or delivered, or waived with the prior written consent of the Initial Holder, and no material breach of any term or provision of any Purchase Document has occurred and no action has been taken by any competent authority which restrains, prevents or imposes material adverse conditions upon, or seeks to restrain, prevent or impose material adverse conditions upon, the Purchase or the effectiveness of this Agreement. (ii) After giving effect to the Purchase, Opco has acquired substantially all of the assets of AFS pursuant to the AFS Purchase Agreement, and, to the extent the assets of MAL have been made available in accordance with the AFS Purchase Agreement, Opco and the U.K. Subsidiary have acquired substantially all of the assets of MAL pursuant to the MAL Purchase Agreement, in each case in compliance with all applicable laws. ARTICLE VI REPORTING COVENANTS The Issuer covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Majority Holders shall otherwise give prior written consent thereto: 6.01. FINANCIAL STATEMENTS AND REPORTS. The Issuer shall maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated and consolidating financial statements in conformity with GAAP, and each of the financial statements submitted to the Holders shall be prepared from such system and records. The Issuer shall deliver or cause to be delivered to each Holder a copy of all financial statements, notices, reports and other documents and certificates delivered to any other holder of Indebtedness of the Issuer (or any agent or representative thereof), other than Indebtedness held solely by an Affiliate of -29- the Issuer and Indebtedness whose aggregate outstanding principal amount is less than $1,000,000. 6.02. OPERATIONS REPORTS. Within seven (7) days after the Majority Holders' request therefor, the Issuer shall deliver to the Holders a report detailing the operations of the Issuer and its Subsidiaries which report shall include a management commentary with respect to the Issuer's and its Subsidiaries' financial performance during such period as may be requested by the Majority Holders, together with an explanation of any material changes in the consolidated and consolidating statements of income, stockholders' equity and cash flow of the Issuer and its Subsidiaries for such period from such statements for the corresponding period of the previous Fiscal Year and the corresponding figures from the consolidated financial forecast for the current Fiscal Year delivered pursuant to SECTION 6.01(f) of the Term Loan Agreement. 6.03. EVENTS OF DEFAULT. Promptly upon any of the chief executive officer, chief operating officer, chief financial officer, treasurer or controller of the Issuer obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default, or becoming aware that any Holder has given any notice with respect to a claimed Event of Default or Potential Event of Default under this Agreement, (b) that any Person has given any notice to the Issuer or any Subsidiary of the Issuer or taken any other action with respect to a claimed default or event or condition of the type referred to in SECTION 9.01(e), or (c) of any condition or event which has or is reasonably likely to have a Material Adverse Effect, the Issuer shall deliver to the Holders an Officer's Certificate specifying (A) the nature and period of existence of any such claimed default, Event of Default, Potential Event of Default, condition or event, (B) the notice given or action taken by such Person in connection therewith, and (C) what action the Issuer has taken, is taking and proposes to take with respect thereto. 6.04. LAWSUITS. (a) Promptly upon the Issuer obtaining knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Issuer or any of its Subsidiaries or any Property of the Issuer or any of its Subsidiaries, which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Issuer's reasonable judgment, the Issuer or any of its Subsidiaries to liability in an amount aggregating $100,000 or more (exclusive of claims covered by insurance policies of the Issuer or any of its Subsidiaries unless the insurers of such claims have disclaimed coverage or reserved the right to disclaim coverage on such claims), the Issuer shall give written notice thereof to the Holders and provide such other information as may -30- be reasonably available to enable the Holders and their respective counsel to evaluate such matters; (b) as soon as practicable and in any event within forty- five (45) days after the end of each fiscal quarter of the Issuer, the Issuer shall provide a written quarterly report to the Holders covering the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration (not previously reported) against or affecting the Issuer or any of its Subsidiaries or any Property of the Issuer or any of its Subsidiaries not previously disclosed by the Issuer to the Holders, and shall provide such other information at such time as may be reasonably available to enable the Holders and its counsel to evaluate such matters (but excluding such information at to which the Issuer in good faith has asserted or will assert a legal privilege in objection to disclosure of the information by the Issuer in the action, suit, proceeding, investigation or arbitration); and (c) in addition to the requirements set forth in CLAUSES (a) and (b) of this SECTION 6.04, the Issuer upon request of the Majority Holders shall promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to CLAUSE (a) or (b) above and provide such other information as may be reasonably available to it to enable the Holders and their respective counsel to evaluate such matters. 6.05. OTHER INFORMATION. Promptly upon receiving a request therefor from the Majority Holders, the Issuer shall prepare and deliver to the Holders such other information with respect to the Issuer, any of its Subsidiaries, as from time to time may be reasonably requested by the Majority Holders. ARTICLE VII AFFIRMATIVE COVENANTS The Issuer covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Majority Holders shall otherwise give prior written consent: 7.01. CORPORATE EXISTENCE, ETC. The Issuer shall, and shall cause each of its Subsidiaries to, at all times maintain its corporate existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses, except where the loss or termination of such rights and franchises is not likely to have a Material Adverse Effect. 7.02. CORPORATE POWERS; CONDUCT OF BUSINESS. The Issuer shall, and shall cause each of its Subsidiaries to qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified. -31- 7.03. COMPLIANCE WITH LAWS, ETC. The Issuer shall, and shall cause its Subsidiaries to, (a) comply with all Requirements of Law and all restrictive covenants affecting such Person or the business, Property, assets or operations of such Person, and (b) obtain as needed all Permits necessary for its operations and maintain such Permits in good standing, except in the case where noncompliance with either CLAUSE (a) or (b) above is not reasonably likely to have a Material Adverse Effect. 7.04. PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Issuer shall pay, and cause each of its Subsidiaries to pay, (a) all taxes, assessments and other governmental charges imposed upon it or on any of its Property or assets or in respect of any of its franchises, business, income or Property before any penalty, addition to tax or interest accrues thereon, and (b) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Lien permitted by SECTION 8.03) upon any of the Issuer's or such Subsidiary's Property or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; PROVIDED, HOWEVER, that no such taxes, assessments and governmental charges referred to in CLAUSE (a) above or claims referred to in CLAUSE (b) above need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. The Issuer will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than with the Issuer, Opco or any of their respective Subsidiaries). 7.05. INSURANCE. The Issuer shall maintain for itself and its Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force and effect the insurance policies and programs listed on SCHEDULE 5.02-M of the Opco Credit Agreement or substantially similar policies and programs or other policies and programs as are acceptable to the Majority Holders. All such policies and programs shall be maintained with insurers acceptable to the Majority Holders. 7.06. INSPECTION OF PROPERTY; BOOKS AND RECORDS; Discussions. The Issuer shall permit, and cause each of its Subsidiaries to permit, any authorized representative(s) designated by any Holder to visit and inspect any of the Properties of the Issuer or any of its Subsidiaries, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby or by the Purchase Documents (including, without limitation, in connection with environmental compliance, hazard or liability or any Government Contract), and to discuss their affairs, finances and accounts with their officers and independent certified public accountants, all upon -32- reasonable notice and at such reasonable times during normal business hours, as often as may be reasonably requested. At the request of any Holder and upon delivery to the Issuer of invoices therefor, each such visitation and inspection shall be at the Issuer's expense. The Issuer shall keep and maintain, and cause its Subsidiaries to keep and maintain, in all material respects proper books of record and account in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to their respective businesses and activities. If an Event of Default has occurred and is continuing, the Issuer, upon the Majority Holders' request, shall turn over copies of any such records to a representative designated by the Majority Holders. 7.07. ERISA COMPLIANCE. The Issuer shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Plans to comply in all material respects with the provisions of ERISA, the Internal Revenue Code, all other applicable laws, and the regulations thereunder and the respective requirements of the governing documents for such Plans. 7.08. FOREIGN EMPLOYEE BENEFIT PLAN COMPLIANCE. The Issuer shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Foreign Employee Benefit Plans to comply in all material respects with all laws and regulations applicable thereto and the respective requirements of the governing documents for such Plans. 7.09. GOVERNMENT CONTRACT COMPLIANCE. The Issuer shall, and shall cause each of its Subsidiaries to (a) maintain all Permits pertaining to Government Contracts required to operate the Issuer's business as it is currently conducted, including, without limitation, (i) all Facility Security Clearance(s) and Personnel Security Clearance(s), (ii) all certifications of products manufactured by the Issuer which are on the "Qualified Products List" of any United States Governmental Authority, and (iii) all Export Licenses and other similar Permits; and (b) comply in all material respects with all Requirements of Law and Contractual Obligations pertaining to each Government Contract. 7.10. ENVIRONMENTAL COMPLIANCE. The Issuer shall, and shall cause each of its Subsidiaries to (a) obtain and maintain in effect all Permits required by Environmental Law and comply with all conditions of such Permits; (b) comply with all Environmental Law applicable to the Issuer and its Subsidiaries; and (c) conduct its and their operations in an environmentally responsible manner so as to minimize Releases of Contaminants and the likelihood of violating Environmental Law, except in the case where non-compliance with any of clause (a) or (b) or (c) above will not have or result in a Material Adverse Effect. 7.11. MAINTENANCE OF PROPERTY. The Issuer shall, and shall cause each of its Subsidiaries to, maintain in all material -33- respects all of their respective owned and leased Property in good, safe and insurable condition and repair, and not permit, commit or suffer any waste or abandonment of any such Property and from time to time shall make or cause to be made all material repairs, renewal and replacements thereof, including, without limitation, any capital improvements which may be required; PROVIDED, HOWEVER, that such Property may be altered or renovated in the ordinary course of business. ARTICLE VIII NEGATIVE COVENANTS The Issuer covenants and agrees that so long as any Obligations are outstanding (other than indemnities not yet due), unless the Majority Holders shall otherwise give prior written consent: 8.01. INDEBTEDNESS. Neither the Issuer nor any of its Subsidiaries shall directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (i) the Obligations; (ii) Indebtedness under the Term Loan Agreement and the Opco Credit Agreement and any refinancing thereof, provided that the aggregate outstanding amount of Indebtedness described in this clause (ii) is not increased by the applicable refinancing; (iii) trade payables, wages and other accrued expenses incurred in the ordinary course of business; (iv) the Transaction Costs; (v) in an aggregate amount not to exceed $1,000,000 at any time, Capital Leases and purchase money Indebtedness incurred to finance the acquisition of fixed assets, and Indebtedness incurred to refinance such Capital Leases and purchase money Indebtedness; (vi) Indebtedness in respect of taxes, assessments, governmental charges and claims for labor, materials or supplies, to the extent that payment thereof is not required pursuant to SECTION 7.04; (vii) Indebtedness constituting Accommodation Obligations permitted by SECTION 8.05; (viii) Indebtedness arising from intercompany loans from Opco to the Issuer which, together with the amount of dividends or distributions to the Issuer on the Capital Stock of Opco permitted under SECTION -34- 8.06(ii), shall not exceed an aggregate amount of $600,000 in any Fiscal Year, PROVIDED, that the proceeds of such intercompany loans, dividends or distributions shall be used by the Issuer solely to pay (A) operating expenses of the Issuer in an amount not to exceed $50,000 in any Fiscal Year, (B) accrued interest on the "Term Loan" under (and as defined in) the Term Loan Agreement or the Notes (including, without limitation, that portion of the principal amount of such Term Loan or the Notes attributable to interest which has been capitalized in accordance with the Term Loan Agreement or this Agreement, as applicable) and (C) if and only if all accrued interest on such Term Loan and the Notes (including, without limitation, that portion of the principal amount of such Term Loan or the Notes attributable to interest which has been capitalized in accordance with the Term Loan Agreement or this Agreement, as applicable) as of the then most recent Interest Payment Date has been (or will be concurrently therewith) paid in full in cash, dividends or distributions on the Preferred Stock of the Issuer; (ix) In addition to the intercompany loans from Opco to the Borrower permitted under SECTION 8.01(viii), Indebtedness arising from intercompany loans from Opco to the Borrower, the proceeds of which, together with the proceeds of dividends or distributions to the Borrower on the Capital Stock of Opco permitted under SECTION 8.06(iv), are used to pay the outstanding Indebtedness under (A) the Term Loan Agreement and the "Term Note" on the "Scheduled Maturity Date" (each as defined in the Term Loan Agreement) and (B) this Agreement and the Notes on the Scheduled Maturity Date; (x) Indebtedness arising from intercompany loans from the Issuer to Opco or from any of Opco's wholly-owned Subsidiaries to Opco; and (xi) Indebtedness with respect to reasonable warranties and indemnities made under any agreements for asset sales permitted under SECTION 8.02. 8.02. SALES OF ASSETS. Neither the Issuer nor any of its Subsidiaries shall sell, assign, transfer, lease, convey or otherwise dispose of any Property, whether now owned or hereafter acquired, or any income or profits therefrom, or enter into any agreement to do so, except: (i) the sale of Property having an aggregate Fair Market Value of not more than $1,000,000 in any Fiscal Year for cash consideration not less than the Fair Market Value thereof; -35- (ii) the transfer of Property from a Subsidiary of Opco to Opco; (iii) sales of Inventory, dispositions of Equipment and licensing of General Intangibles, in each case in the ordinary course of business; and (iv) any Investment permitted under SECTION 8.04. 8.03. LIENS. Neither the Issuer nor any of its Subsidiaries shall directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of their respective Property or assets except: (i) Liens created by the Term Loan Documents or the Opco Loan Documents or any refinancing or replacement thereof (provided that the aggregate Indebtedness of the Issuer and its Subsidiaries is not increased by the refinancing or replacement); (ii) Customary Permitted Liens; and (iii) purchase money Liens (including the interest of a lessor under a Capital Lease or an Operating Lease having substantially the same economic effect and Liens to which any Property is subject at the time of the Issuer's or such Subsidiary's purchase thereof) securing an amount not to exceed $1,000,000 in the aggregate at any time or from time to time, PROVIDED, that such Liens shall not apply to any Property of the Issuer or its Subsidiaries other than that purchased or subject to such Capital Lease. 8.04. INVESTMENTS. Neither the Issuer nor any of its Subsidiaries shall directly or indirectly make or own any Investment except: (i) Investments in Cash Equivalents; (ii) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (iii) contributions to and payments of benefits under any Plan (in accordance with the terms of the Plan) permitted by this Agreement; (iv) Investments (in an aggregate unrecovered amount not to exceed $1,600,000) by Opco in the U.K. Subsidiary, including, without limitation, Opco's ownership of the Capital Stock of the U.K. Subsidiary; and -36- (v) Investments arising from intercompany loans which are permitted under SECTION 8.01(viii), 8.01(ix) or 8.01(x). 8.05. ACCOMMODATION OBLIGATIONS. Neither the Issuer nor any of its Subsidiaries shall directly or indirectly create or become or be liable with respect to any Accommodation Obligation, except: (i) recourse obligations resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (ii) Permitted Existing Accommodation Obligations; and (iii) Accommodation Obligations arising under the Term Loan Documents or the Opco Loan Documents. 8.06. RESTRICTED JUNIOR PAYMENTS. Neither the Issuer nor any of its Subsidiaries shall declare or make any Restricted Junior Payment on account of any shares of Capital Stock which is junior in right of payment or liquidation preference to the Preferred Stock, except for: (i) dividends or distributions to Opco on the Capital Stock of any of Opco's wholly-owned Subsidiaries; (ii) for so long as no Event of Default has occurred and is continuing, dividends or distributions to the Issuer on the Capital Stock of Opco which, together with the amount of intercompany loans from Opco to the Issuer permitted under SECTION 8.01(viii), shall not exceed an aggregate amount of $600,000 in any Fiscal Year, PROVIDED, that the proceeds of such intercompany loans, dividends or distributions shall be used by the Issuer solely to pay (A) operating expenses of the Issuer in an amount not to exceed $50,000 in any Fiscal Year, (B) accrued interest on the "Term Loan" under (and as defined in) the Term Loan Agreement or the Notes (including, without limitation, that portion of the principal amount of such Term Loan or the Notes attributable to interest which has been capitalized in accordance with the Term Loan Agreement or this Agreement, as applicable) and (C) if and only if all accrued interest on such Term Loan and the Notes (including, without limitation, that portion of the principal amount of such Term Loan or the Notes attributable to interest which has been capitalized in accordance with the Term Loan Agreement or this Agreement, as applicable) as of the then most recent Interest Payment Date has been (or will be concurrently -37- therewith) paid in full in cash, dividends or distributions on the Preferred Stock of the Issuer; (iii) dividends or distributions on the Preferred Stock of the Issuer in Notes to the extent permitted by this Agreement or in cash to the extent permitted by SECTION 8.06(ii)(C); and (iv) in addition to the dividends and distributions to the Borrower on the Capital Stock of Opco permitted under SECTION 8.06(ii), dividends and distributions to the Borrower on the Capital Stock of Opco, the proceeds of which, together with the proceeds of intercompany loans from Opco to the Borrower permitted under SECTION 8.01(ix), are used to pay the outstanding Indebtedness under (A) the Term Loan Agreement and the "Term Note" on the "Scheduled Maturity Date" (each as defined in the Term Loan Agreement) and (B) this Agreement and the Notes on the Scheduled Maturity Date. 8.07. CONDUCT OF BUSINESS. Neither the Issuer nor any of its Subsidiaries shall engage in any business other than (i) the businesses engaged in by AFS on the date hereof and (ii) any business or activities which are substantially similar, related or incidental thereto. 8.08. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Neither the Issuer nor any of its Subsidiaries shall directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder or holders of more than five percent (5%) of any class of equity Securities of the Issuer or Opco, or with any Affiliate of the Issuer which is not its Subsidiary, on terms that are less favorable to the Issuer or any of its Subsidiaries, as applicable, than those that might be obtained in an arm's length transaction at the time from Persons who are not such a holder or Affiliate. Nothing contained in this SECTION 8.08 shall prohibit (i) any transaction expressly permitted by SECTIONS 8.01, 8.05 or 8.06; (ii) increases in compensation and benefits for officers and employees of the Issuer or any of its Subsidiaries which are customary in the industry or consistent with the past business practice of the Issuer or such Subsidiary, PROVIDED, that no Event of Default or Potential Event of Default has occurred and is continuing; (iii) payment of customary directors' fees and indemnities; (iv) performance of any obligations arising under the Transaction Documents or the Shareholders Agreement; or (v) transactions between the Issuer and Opco or Opco and any of its Subsidiaries, PROVIDED, that no Event of Default or Potential Event of Default results therefrom. 8.09. RESTRICTION ON FUNDAMENTAL CHANGES. Neither the Issuer nor any of its Subsidiaries shall enter into any merger or -38- consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of the Issuer's or any such Subsidiary's business or Property, whether now or hereafter acquired, except transactions permitted under SECTION 8.02. 8.10. SALES AND LEASEBACKS. Neither the Issuer nor any of its Subsidiaries shall become liable, directly, by assumption or by Accommodation Obligation, with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real or personal or mixed) (i) which it or one of its Subsidiaries sold or transferred or is to sell or transfer to any other Person, or (ii) which it or one of its Subsidiaries intends to use for substantially the same purposes as any other Property which has been or is to be sold or transferred by it or one of its Subsidiaries to any other Person in connection with such lease. 8.11. ISSUANCE OF CAPITAL STOCK. Neither the Issuer nor any of its Subsidiaries shall issue any Capital Stock to any Person except for (i) the Capital Stock issued by such Persons as of the date of this Agreement and (ii) Common Stock issued by the Issuer upon conversion of shares of Preferred Stock in accordance with the respective certificate of designation for the Series A Preferred Stock and the Series B Preferred Stock. 8.12. CORPORATE DOCUMENTS. Neither the Issuer nor any of its Subsidiaries shall amend, modify or otherwise change any of the terms or provisions in any of their respective Corporate Documents as in effect on the date hereof. 8.13. FISCAL YEAR. Neither the Issuer nor any of its consolidated Subsidiaries shall change its Fiscal Year for accounting or tax purposes from a period consisting of the 12-month period ending on December 31 of each calendar year. ARTICLE IX EVENTS OF DEFAULT; RIGHTS AND REMEDIES 9.01. EVENTS OF DEFAULT. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Issuer shall fail to pay when due any of the Obligations. (b) BREACH OF CERTAIN COVENANTS. The Issuer shall fail duly and punctually to perform or observe any agreement, covenant or obligation binding on such Person under SECTIONS 7.01 and 7.06 or ARTICLE VIII. -39- (c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty made or deemed made by the Issuer to the Initial Holder herein or in any statement or certificate at any time given by the Issuer pursuant to this Agreement shall be false or misleading in any material respect on the date as of which made (or deemed made). (d) OTHER DEFAULTS. The Issuer shall default in the performance of or compliance with any term contained in this Agreement (other than as covered by PARAGRAPHS (a), (b) or (c) of this SECTION 9.01), and such default or event of default shall continue for fifteen (15) days after the Issuer has knowledge of the default or, if earlier, receipt by the Issuer of a notice of the default from the Majority Holders. (e) DEFAULT AS TO OTHER INDEBTEDNESS; OPERATING LEASES; OTHER AGREEMENTS. The Issuer or any of its Subsidiaries shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness (other than an Obligation) having a principal amount in excess of $25,000; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness; or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by the Issuer or any of its Subsidiaries (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or any "Event of Default" under (and as defined in) the Opco Credit Agreement or the Term Loan Agreement has occurred and is continuing. (f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) An involuntary case shall be commenced against the Issuer or any of its Subsidiaries and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Issuer or any of its Subsidiaries in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law; or the board of directors of the Issuer or any of its Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Issuer or any of its Subsidiaries or over all or a substantial part of the Property of the Issuer or any of its Subsidiaries shall be entered; or an interim receiver, trustee or -40- other custodian of the Issuer or any of its Subsidiaries or of all or a substantial part of the Property of the Issuer or any of its Subsidiaries shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the Property of the Issuer or any of its Subsidiaries shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days after entry, appointment or issuance; or the board of directors of the Issuer or any of its Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Issuer or any of its Subsidiaries of the Issuer shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its Property; or the Issuer or any of its Subsidiaries of the Issuer shall make any assignment for the benefit of creditors or shall be unable or fail, or admit in writing its inability, to pay its debts as such debts become due. (h) JUDGMENTS AND ATTACHMENTS. Any money judgment (other than a money judgment covered by insurance as to which the insurance company has acknowledged coverage), writ or warrant of attachment, or similar process against the Issuer or any of its Subsidiaries of the Issuer or any of their respective assets involving in any case an amount in excess of $500,000 is entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale thereunder. (i) DISSOLUTION. Any order, judgment or decree shall be entered against the Issuer or any of its Subsidiaries decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or the Issuer or any of its Subsidiaries shall otherwise dissolve or cease to exist except as specifically permitted by this Agreement. (j) EFFECTIVENESS OF AGREEMENT AND NOTES. At any time, for any reason, this Agreement or any of the Notes ceases to be in full force and effect or the Issuer seeks to repudiate its obligations thereunder. (k) TERMINATION EVENT. Any Termination Event occurs which the Majority Holders believe could reasonably be expected to subject either the Issuer or any ERISA Affiliate to liability in excess of $250,000. -41- (l) WAIVER APPLICATION. The plan administrator of any Benefit Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Internal Revenue Code and the Majority Holders believe that the substantial business hardship upon which the application for the waiver is based could subject either the Issuer or any ERISA Affiliate to liability in excess of $250,000. (m) SUSPENSIONS, DEBARMENT. Any suspension or debarment with respect to Government Contracts is imposed on the Issuer, any of its Subsidiaries or any of their respective directors, officers, employees, consultants or agents. (n) MATERIAL ADVERSE CHANGE. An event shall exist which has a Material Adverse Effect. An Event of Default shall be deemed "continuing" until cured or waived in writing in accordance with SECTION 10.06. 9.02. RIGHTS AND REMEDIES. (a) ACCELERATION AND TERMINATION. Upon the occurrence of any Event of Default described in SECTIONS 9.01(f) or 9.01(g), the unpaid principal amount of, and any and all accrued interest on, the Obligations and all accrued fees shall automatically become immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Issuer; and upon the occurrence and during the continuance of any other Event of Default, the Majority Holders may, by written notice to the Issuer, declare the unpaid principal amount of and any and all accrued and unpaid interest on the Obligations to be, and the same shall thereupon be, immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Issuer. (b) DEFAULT RATE OF INTEREST. In addition to any other remedies available to the Holders after the occurrence of an Event of Default, the Noteholders shall be entitled to receive interest on the Obligations at the default rate in accordance with SECTION 2.02(c). (c) ENFORCEMENT. The Issuer acknowledges that in the event the Issuer fails to perform, observe or discharge any of its respective obligations or liabilities under this Agreement or the Notes, any remedy of law may prove to be inadequate relief to the Holders; therefore, the Issuer agrees that the Holders shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. -42- ARTICLE X MISCELLANEOUS 10.01. EXPENSES. The Issuer agrees upon demand to pay, or reimburse each Holder for, all of such Holder's reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of Sidley & Austin, counsel to the Initial Holder, local and foreign legal counsel, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents) incurred by such Holder in connection with (a) such Holder's periodic audits of the Issuer and its Subsidiaries after the date hereof; (b) the ongoing administration of this Agreement and the Notes, including consultation with attorneys in connection therewith and with respect to such Holder's rights and responsibilities under this Agreement and the Notes; (c) the protection, collection or enforcement of any of the Obligations or any security therefor or exercising or enforcing any other right or remedy available to such Holder under this Agreement or the Notes; (d) the commencement, defense or intervention in any court proceeding relating in any way to the Obligations, the Property, the Issuer, any of its Subsidiaries, this Agreement or any of the other Transaction Documents; (e) the response to, and preparation for, any subpoena or request for document production with which such Holder is served or deposition or other proceeding in which such Holder is called to testify, in each case, relating in any way to the Obligations, the Property, the Issuer, any of its Subsidiaries, this Agreement or any of the other Transaction Documents; (f) in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; (g) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in CLAUSES (c) through (g) above; and (h) any amendments, consents, waivers, assignments, restatements, or supplements to this Agreement or any of the Notes and the preparation, negotiation, and execution of the same. Each Holder hereby acknowledges that such Holder shall pay its own expenses incurred in connection with the preparation, negotiation and execution of this Agreement. 10.02. INDEMNITY. The Issuer further agrees to defend, protect, indemnify, and hold harmless the Holders and each of its officers, directors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in ARTICLE IV) (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses (other than loss of profits), damages, penalties, actions, judgments, suits, claims, costs, expenses and -43- disbursements of any kind or nature whatsoever (excluding any taxes and including, without limitation, the fees and disbursements of counsel or consulting firms for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of (a) this Agreement or the Notes, or any act, event or transaction related or attendant thereto or to the Purchase, the issuance of the Notes, the management of the Notes, or any of the other transactions contemplated by the Transaction Documents, or (b) any Liabilities and Costs under Environmental Laws arising from or in connection with the past, present or future operations of the Issuer, its Subsidiaries or any of their respective predecessors in interest, or, the past, present or future environmental condition of any Property, the presence of asbestos-containing materials at any Property or the Release or threatened Release of any Contaminant (collectively, the "Indemnified Matters"); PROVIDED, HOWEVER, that the Issuer shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters to the extent caused by or resulting from the willful misconduct or gross negligence of the Indemnitee (or any other Indemnitee whose willful misconduct or grossly negligent acts were authorized by the Indemnitee claiming indemnification hereunder), as determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Issuer shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. 10.03. CHANGE IN ACCOUNTING PRINCIPLES. If any change in the accounting principles used in the preparation of the most recent financial statements referred to in SECTION 6.01 are hereafter required or permitted by the rules, regulations, pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and are adopted by the Issuer with the agreement of its independent certified public accountants and such changes result in a change in the method of calculation of any of the covenants, standards or terms found in ARTICLE VIII, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating compliance with such covenants, standards and terms by the Issuer shall be the same after such changes as if such changes had not been made; PROVIDED, HOWEVER, that no change in GAAP that would affect the method of calculation of any of the covenants, standards or terms shall be given effect in such calculations until such provisions are amended, in a manner satisfactory to the Majority Holders and the Issuer, to so reflect such change in accounting principles. -44- 10.04. SETOFF. In addition to any rights now or hereafter granted under applicable law, upon the occurrence and during the continuance of any Event of Default, each Holder is hereby authorized by the Issuer at any time or from time to time, without notice to any Person (any such notice being hereby expressly waived) to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured (but not including trust accounts)) and any other Indebtedness at any time held or owing by such Holder to or for the credit or the account of the Issuer against and on account of the Obligations of the Issuer to such Holder Holders, including, but not limited to, the Notes and all claims of any nature or description arising out of or in connection with this Agreement, irrespective of whether or not (a) such Holder shall have made any demand hereunder or (b) the Majority Holders shall have declared the principal of and interest on the Notes and other amounts due hereunder to be due and payable as permitted by ARTICLE IX and even though such Obligations may be contingent or unmatured. 10.05. RATABLE SHARING. The Noteholders agree among themselves that (i) with respect to all amounts received by them which are applicable to the payment of the Obligations, equitable adjustment will be made so that, in effect, all such amounts will be shared among them ratably in accordance with their Pro Rata Shares, whether received by voluntary payment, by the exercise of the right of setoff, by counterclaim or cross-action or by the enforcement of any or all of the Obligations, (ii) if any of them shall by voluntary payment or by the exercise of any right of counterclaim, setoff or otherwise, receive payment of a proportion of the aggregate amount of the Obligations held by it, which is greater than the amount which such Noteholder is entitled to receive hereunder, the Noteholder receiving such excess payment shall purchase, without recourse or warranty, an undivided interest and participation (which it shall be deemed to have done simultaneously upon the receipt of such payment) in such Obligations owed to the others so that all such recoveries with respect to such Obligations shall be applied ratably in accordance with their Pro Rata Shares; PROVIDED, HOWEVER, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such party to the extent necessary to adjust for such recovery, but without interest except to the extent the purchasing party is required to pay interest in connection with such recovery. The Issuer agrees that any Noteholder so purchasing a participation from another Noteholder pursuant to this SECTION 10.05 may, to the fullest extent permitted by law, exercise all its rights of payment (including, subject to SECTION 10.04, the right of setoff) with respect to such participation as fully as if such Noteholder were the direct creditor of the Issuer in the amount of such participation. -45- 10.06. AMENDMENTS AND WAIVERS. Unless otherwise provided in this Agreement, no amendment or modification of any provision of this Agreement shall be effective without the written agreement of the Majority Holders and the Issuer, and no termination or waiver of any provision of this Agreement, or consent to any departure by the Issuer therefrom, shall be effective without the written concurrence of the Majority Holders, which the Majority Holders shall have the right to grant or withhold in their sole discretion. Notwithstanding the foregoing, any amendment, modification, termination, waiver or consent with respect to any of the following provisions of this Agreement shall be effective only by a written agreement, signed by each Holder affected thereby: (a) reduction of the principal of, rate or amount of interest on the Notes or any fees or other amounts payable to such Holder (other than by the payment or prepayment thereof), (b) postponement of the Scheduled Maturity Date or any other date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable to such Holder, (c) change in the definition of Majority Holders or (d) amendment of SECTION 10.05 or this SECTION 10.06. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Issuer in any case shall entitle the Issuer to any other or further notice or demand in similar or other circumstances. 10.07. NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by courier service or United States certified mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex or four (4) Business Days after deposit in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this SECTION 10.07) shall be as follows: (a) If to the Initial Holder, at: General Electric Capital Corporation 190 South LaSalle Street Suite 1200 Chicago, Illinois 60603 Attention: Douglas P. Haensel Telecopier No. (312) 419-5992 -46- with copies to: General Electric Capital Corporation 292 Longridge Road Stamford, CT 06927 Attention: Corporate Finance Group Department Counsel Telecopier No. (203) 357-3047 and Sidley & Austin 555 West Fifth Street Los Angeles, California 90013-1010 Attention: Edward D. Eddy, III, Esq. Telecopier No. (213) 896-6600 (b) If to any other Holder, at such notice as such Holder shall deliver to the Issuer upon becoming a Holder under this Agreement. (c) If to the Issuer, at: Kaynar Holdings Inc. 800 South State College Blvd. Fullerton, California 92634-3001 Attention: David A. Werner Telecopier No. (714) 680-3153 with a copy to: O'Melveny & Myers 400 South Hope Street Los Angeles, California 90071 Attn: C. James Levin, Esq. Telecopier No. (213) 669-6407 PROVIDED, that each Holder and the Issuer shall have the right to change any of the above-listed addresses by properly addressed and delivered notice to the other party. 10.08. SURVIVAL OF WARRANTIES AND AGREEMENTS. All representations and warranties made herein and all obligations of the Issuer in respect of taxes, indemnification and expense reimbursement shall survive the execution and delivery of this Agreement and the Notes, the issuance and repayment of the Notes and the termination of this Agreement and shall not be limited in any way by the passage of time or occurrence of any event and shall expressly cover time periods when the Holders may have come into possession or control of any of the Issuer's or its Subsidiaries' Property. 10.09. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any Holder -47- Holders in the exercise of any power, right or privilege under this Agreement or any of the Notes shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement and the Notes are cumulative to and not exclusive of any rights or remedies otherwise available. 10.10. MARSHALLING; PAYMENTS SET ASIDE. The Holders shall be under no obligation to marshall any assets in favor of the Issuer or any other party or against or in payment of any or all of the Obligations. To the extent that the Issuer makes a payment or payments to any Holder or any Holder exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 10.11. SEVERABILITY. In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10.12. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substantive effect. 10.13. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 10.14. LIMITATION OF LIABILITY. No claim may be made by the Issuer or any Holders or any other Person against the Issuer, any Holder or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and the Issuer and the Holders hereby waive, release and agree not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. -48- 10.15. SUCCESSORS AND ASSIGNS. This Agreement and the Notes shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Holders. The Holders may assign all or any part of its rights and obligations under this Agreement and the Notes to any Person upon thirty (30) days' prior written notice to (but without the consent of) the Issuer, it being agreed and understood that each Holder's right to assign its interests under this Agreement and the other Notes shall be independent of any right of assignment in favor of any Holder with respect to any other agreement, document or instrument to which it is a party. The rights hereunder of the Issuer, or any interest therein, may not be assigned without the written consent of all of the Holders. 10.16. CERTAIN CONSENTS AND WAIVERS OF THE ISSUER. (a) PERSONAL JURISDICTION. THE HOLDERS AND THE ISSUER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY CALIFORNIA STATE COURT OR FEDERAL COURT SITTING IN LOS ANGELES, CALIFORNIA, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE ISSUER IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION AS ITS AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. THE HOLDERS AND THE ISSUER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE ISSUER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (b) SERVICE OF PROCESS. THE ISSUER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR THE ISSUER'S NOTICE ADDRESS SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. THE ISSUER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY NOTE IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE -49- PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE MAJORITY HOLDERS TO BRING PROCEEDINGS AGAINST THE ISSUER IN THE COURTS OF ANY OTHER JURISDICTION. (c) WAIVER OF JURY TRIAL. EACH HOLDER AND THE ISSUER IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY NOTE. 10.17. COUNTERPARTS; INCONSISTENCIES. This Agreement and any amendments, waivers, consents, or supplements hereto may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement and each of the Notes shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Agreement are actually inconsistent with the terms and conditions of any Note, this Agreement shall govern. 10.18. CONFIDENTIALITY. Each Holder shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Issuer in accordance with such Holder's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide offeree, transferee or participant in connection with the contemplated transfer or participation or as required or requested by any Governmental Authority or representative thereof or pursuant to legal process and shall require any such offeree, transferee or participant to agree (and require any of its offerees, transferees or participants to agree) to comply with this SECTION 10.18. In no event shall any Holder be obligated or required to return any materials furnished by the Issuer; PROVIDED, HOWEVER, that each offeree shall be required to agree that if it does not become a transferee or participant it shall return all materials furnished to it by the Issuer in connection with this Agreement. Any and all confidentiality agreements entered into between any Holder and the Issuer shall survive the execution of this Agreement. [THE FOLLOWING PAGE IS THE SIGNATURE PAGE] -50- 10.19. ENTIRE AGREEMENT. This Agreement, taken together with all of the Notes, embodies the entire agreement and understanding among the parties hereto and all prior agreements and understandings, written and oral, relating to the subject matter hereof. IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. ISSUER: KAYNAR HOLDINGS INC. By /s/ D.A. Werner ------------------------------ Name: David A. Werner Title: Vice President INITIAL HOLDER: GENERAL ELECTRIC CAPITAL CORPORATION By /s/ Douglas P. Hansel ------------------------------ Name: Douglas P. Hansel Title: Region Operation Manager -51- EX-10.5 10 EX 10.5 LEASE WITH PRUDENTIAL INSURANCE CO. LEASE LEASE, made and entered into this 31st day of December, 1979, with an effective date as of November 1, 1979, by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, as Lessor, and KAYNAR MFG. DIVISION, MICRODOT MANUFACTURING INC., a Delaware corporation, as Lessee: W I T N E S S E T H: Lessor, for and in consideration of the rents, conditions, terms and covenants herein specified to be paid, performed and kept by Lessee, does hereby lease, let, and demise to said Lessee, for the term hereinafter set forth, and Lessee does hereby lease and take from Lessor, the real estate, land, premises and improvements thereon located at 800 S. State College Boulevard, Fullerton, California, as described legally in Exhibit "A" attached hereto and made a part hereof, subject to all governmental regulations applicable thereto and all matters of public record relating thereto. LESSEE TO HAVE AND TO HOLD the same, together with all rights, privileges and appurtenances appertaining or belonging thereunto, for and during the term of twenty (20) years, said term commencing on November 1, 1979 and ending on October 31, 1999, unless sooner terminated pursuant to any provision hereof. TERMS AND CONDITIONS 1. RENT. Lessee covenants and agrees to pay to Lessor as annual rent for the leased premises the sum of $271,500 in lawful money of the United States of America, payable at such place -2- as may be designated by Lessor in writing, in equal monthly installments of $22,625 in advance on the first day of each month throughout the term hereof. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installments. 2. RENT ADJUSTMENT. At the end of the fifth (5th) year, tenth (10th) year and fifteenth (15th) year of the term of this Lease, the rent specified in the preceding section shall automatically be adjusted based upon any increase that may occur in the Consumer Price Index for All Urban Consumers, all items, as published by the United States Department of Labor, Bureau of Labor Statistics for the Los Angeles-Long Beach-Anaheim Metropolitan Area ("Index"). Annual rent and monthly rent, as set out in the preceding section, shall be adjusted in the same percentage proportion as any increase in the Index that may occur between the Index as last published immediately preceding the commencement date of this Lease and the average for the Index as published for the six (6) months immediately preceding, as the case may be, the commencement of the sixth (6th), eleventh (11th) or sixteenth (16th) year of the term of this Lease, and Lessee shall pay any increased rent to Lessor without demand commencing with the first monthly installment of rent due, as the case may be, in the sixth (6th), eleventh (11th) or sixteenth (16th) year of the term; provided, however, that there shall be no reduction in rent at any time as a result of a downward movement in the Index. 3. ASSIGNING AND SUBLETTING. Lessee shall not sublet the leased premises nor any part thereof, nor assign, transfer, nor hypothecate this -3- Lessee shall have the right to assign this Lease to a corporation with which it may merge or consolidate, to any parent or subsidiary of Lessee, or subsidiary of Lessee's parent, or to a purchaser of substantially all of Lessee's assets if the assignee executes an agreement required by Lessor by which the assignee assumes Lessee's obligations hereunder. No assignment, subletting or transfer of this Lease shall diminish, alter or prejudice the direct and primary liability of Lessee under this Lease and the covenants thereof. 4. ADDITIONAL RENT. This Lease is what is commonly called a "net lease", it being understood that Lessor shall receive the rent set forth in Sections 1 and 2 free and clear of any and all other impositions, taxes, liens, charges or expenses of any nature whatsoever in connection with the ownership and operation of the premises. In addition to the rent reserved by Sections 1 and 2, Lessee shall pay to the parties respectively entitled thereto all impositions, insurance premiums, operating charges, maintenance charges, construction costs, and any other charges, costs and expenses which arise or may be contemplated under any provisions of this Lease during the term hereof. All of such charges, costs and expenses shall constitute additional rent, and upon the failure of Lessee to pay any of such costs, charges or expenses, Lessor shall have the same rights and remedies as otherwise provided in this Lease for the failure of Lessee to pay rent. It is the intention of the parties hereto that this Lease shall not be terminable for any reason by the Lessee, and that Lessee shall in no event be entitled to any abatement of or reduction in rent payable hereunder, except as herein expressly provided. 5. REAL PROPERTY TAXES. Lessee agrees to pay promptly, as the same become due and -4- are assessed and are, or become a lien during the term of this Lease, and Lessee agrees to exhibit to Lessor, on demand, receipts evidencing payment of all such taxes and assessments so payable by Lessee. All such taxes for the last year of the term hereof shall be equitably prorated between the parties as of the last day of the term of this Lease. It is expressly agreed, however, that Lessee shall not be obligated to pay any income tax, profits tax, excise tax or other similar tax or charge that may be payable by or chargeable to Lessor under any present or future law of the United States, the State of California, or any City or other local government authority except to the extent that Lessor can demonstrate that such taxes are in lieu of real property taxes and are in fact imposed upon the real estate. Nor shall Lessee be obligated to pay any inheritance, transfer, estate, succession or other similar tax or charge that may be payable under any present or future law of the United States or the said State, or imposed by any political or taxing subdivision thereof. Lessee may, in good faith and in a lawful manner, contest the propriety or legality of any tax, assessment or claim against said premises but all costs and expense incident to such contest shall be paid by Lessee and, in case any such tax, assessment or claim shall be adjudicated adversely to Lessee, then Lessee shall promptly pay and satisfy such tax, assessment or claim. In the event of any such contest by Lessee, Lessee shall indemnify Lessor against any loss or damage resulting therefrom and, if necessary to prevent a sale or other loss or damage to Lessor shall pay such tax, assessment or claim under the protest or take such other steps as may be necessary to prevent any such sale or any loss or damage to Lessor in connection therewith. 6. UTILITIES. Lessee shall pay all charges for public utility services rendered to or on said demised premises during the term of this -5- 7. CONDITION OF PREMISES. Acceptance of possession of the herein demised premises by Lessee shall constitute an agreement by Lessee with Lessor that the demised premises are in good and tenantable condition and that Lessor has complied with each and every obligation on its part to be performed relating thereto. Lessee agrees that it will, at its own cost and expense, keep the demised premises and the improvements thereon and appurtenances thereto and every part thereof, except as hereinafter provided, in as good order, condition and repair as they shall be upon the commencement of the term of this Lease, reasonable and ordinary wear excepted, and except damage or destruction caused by condemnation proceedings, except as hereinafter provided. In the event Lessee shall fail to make or commence any repairs required to be made by it under the provisions of this Lease within thirty (30) days after notice from Lessor to do so, then Lessor may, at its option (but this provision shall not be deemed to create any obligation upon Lessor to do so nor in any manner affect the obligation of Lessee) enter upon said premises and repair the same, and the costs and expenses of such repairs, with interest, shall be included in the amount of rent payable on the next succeeding rental date. 8. COMPLIANCE WITH LAW. Lessee covenants that, during the life of this Lease, in the use and occupation of the leased premises and the buildings, structures, fixtures and improvements thereon, and the sidewalks, alleys, streets and ways adjacent thereto, Lessee will comply with all covenants, conditions and restrictions of record and all applicable laws, ordinances and regulations of duly constituted public authorities now or -6- the use thereof, whether or not any such laws, ordinances or regulations which may be hereafter enacted involve a change of policy on the part of the governmental body enacting the same. Lessee agrees to hold Lessor financially harmless (a) from the consequences of any violations of such laws, ordinances or regulations, and (b) from all claims for damages on account of injuries, death or property damage resulting from such violation. Lessee further agrees that it will not permit any unlawful occupation, business or trade to be conducted on said premises or any use to be made thereof contrary to any such law; ordinance or regulation. 9. ALTERATIONS AND REPAIRS. Lessee, when not in default of performance of any of its obligations hereunder, shall have the right, during the term of this Lease from time to time, in such manner and to such extent as Lessor may in writing approve, (which consent shall be governed by paragraph 28 hereof) to alter or repair improvements now or hereafter located on the leased premises. All such alterations and repairs shall conform to the architectural and design configuration which now exists at the premises and shall enhance rather than impair the economic value of the improvements. Lessee shall, before commencing any alteration, addition or repair involving an expenditure of Fifty Thousand Dollars ($50,000) or more, if requested in writing to do so, furnish Lessor with plans and specifications or other detailed information covering such work, and furnish Lessor with lien and completion bonds to insure payment of the costs thereof. All such additions, repairs and alterations shall be and remain the property of Lessor. Lessor specifically approves the making, at such time or times as Lessee may elect, of any or all those repairs which Lessee may elect to make to the leased premises which are described in -7- waives the requirement for lien or completion bonds in connection with said repairs. All signs and all fixtures and equipment which have been or may be installed, placed or attached in or about demised premises by Lessee shall always remain the property of Lessee and, upon termination by expiration of time or otherwise of this Lease, or at any prior time, Lessee may remove all or any of said signs, fixtures and equipment so installed, placed or attached; provided, however, that any damage caused to the demised premises by reason of such removal shall be repaired and paid by Lessee. Lessor may at the termination of this Lease, at its option, require the removal by Lessee at the expense of Lessee of any signs, fixtures, equipment or other property installed, placed or attached to, in or about the demised premises by Lessee. Any property of Lessee not removed from the said premises prior to the termination of this Lease shall at the option of Lessor be deemed abandoned by Lessee and be and become the property of Lessor. 10. LIENS. Lessee will not permit any mechanics', laborers' or materialmen's lien to stand against the demised premises for any labor or material furnished to Lessee or claimed to have been furnished to Lessee or to Lessee's agents, contractors or sublessees, in connection with the work of repair described in Exhibit B or work of any character performed or claimed to have been performed on said premises at the direction or sufferance of Lessee, provided, however, that Lessee shall have the right to contest the validity or amount of any such lien or claimed lien on the condition that Lessee shall give to Lessor such reasonable security as may be -8- and one-half times the amount of such lien or claimed lien. On final determination of the lien or claim for lien the Lessee will immediately pay any judgment rendered with all proper costs and charges and shall have the lien released or judgment satisfied at Lessee's own expense. 11. DAMAGE OR DESTRUCTION. In the event the improvements on the demised premises are damaged or destroyed, then Lessee shall repair and restore the improvements then owned by Lessor and this lease shall continue in full force and effect and Lessee shall commence such repair or rebuilding with reasonable diligence and shall prosecute and complete such repair and rebuilding with reasonable diligence, provided, however, that any delay in the completion of said repairs resulting from fire or other casualty, strikes, shortages of material or labor, governmental laws, rules and regulations, the elements or matters beyond the reasonable control of Lessee shall extend the time within which Lessee may complete said repairs or rebuilding by the period of such delay. There shall be no abatement of rental by reason of such damage or destruction or the time required to repair or rebuild. The net proceeds of any insurance maintained in force at the expense of Lessee, with the proceeds thereof payable to Lessor or any encumbrancer shall, except for any portion thereof required by any encumbrancer to pay current installments due on any encumbrance, be made available to Lessee to be applied to the cost and expense of repair or rebuilding the damage or destruction insured, subject to reasonable conditions and payable on the usual architect's. certificates, but Lessor or any encumbrancer holding said insurance proceeds may withhold until completion and the expiration of the period -9- exist an amount reasonably necessary to insure completion of such repairs or destruction. Any amount required to complete such repair or rebuilding in excess of the insurance proceeds payable to Lessee hereunder shall be paid by Lessee before such insurance proceeds are used. If said net proceeds of insurance are not made available to Lessee as herein provided within thirty days after written demand therefor served upon Lessor or any encumbrancer holding said proceeds, Lessee may terminate this Lease and be released from its obligation to further repair or rebuild. The preceding sentence shall not apply to any portion of said insurance proceeds which may be withheld by Lessor or any encumbrancer until expiration of the period within which mechanics' or materialmen's liens may be filed as hereinbefore provided, unless and until the said period for liens has expired and the written demand provided for herein shall be served upon Lessor and any encumbrancer holding said insurance proceeds or any part thereof. The option of Lessee to terminate this Lease after said thirty day written demand may be exercised only if the funds demanded are properly then due Lessee under the terms of this Lease. Lessor, after the commencement of the term of this Lease, shall not be required to make any expenditures whatsoever in connection with this Lease, including the work of repair specified in Exhibit "B", or to make any alterations or repairs to maintain the demised premises in any way during the term hereof. 12. INSURANCE. Lessee hereby agrees to indemnify and hold harmless Lessor, its subsidiaries, directors, officers, agents and employees from and against any and all damage, loss, liability -10- any person or persons for damage, loss or expense due to, but not limited to, bodily injury, including death resulting anytime therefrom, and property damage sustained by such person or persons which arises out of, is occasioned by or in any way attributable to the use or occupancy of the demised premises and adjacent areas by the Lessee or otherwise, the acts or omissions of Lessee, its agents, employees or any contractors brought onto said premises by the Lessee, except that caused by the negligence or intentional or wilful misconduct of Lessor or its employees, agents customers and invitees. Such loss or damage shall include, but not be limited to, any injury or damage to Lessor's personnel (including death resulting anytime therefrom) or premises. Lessee agrees that the obligations assumed herein shall survive this Lease. Lessee hereby agrees to maintain in full force and effect at all times during the term of this Lease, at its own expense, for the protection of Lessee and Lessor, as their interest may appear, policies of insurance issued by a responsible carrier or carriers reasonably acceptable to Lessor which afford the following coverages: a) Worker's Compensation - Statutory Employer's Liability - Not less than $100,000 Comprehensive General - Not less than Liability Insurance $1,000,000 including Blanket Combined Single Contractual Liability Limit for both Broad Form Property bodily injury Damage, Personal Injury, and property Completed Operations - damage Product Liability, Fire Damage Legal. b) Fire and Extended Coverage, Vandalism and Malicious Mischief, and Sprinkler Leakage insurance, to cover both Lessor and Lessee as to their respective interests therein, for the full cost of replacement -11- c) During the period of repairs described in Exhibit "B", Builder's All-Risk insurance naming Lessor as an additional insured and providing coverage in an amount not less than $1,000,000. Lessee may, elect to have reasonable deductibles in connection with all insurance specified above with the exception of public liability insurance. The Lessee shall deliver to Lessor at least thirty days prior to the time such insurance is first required to be carried by Lessee, and thereafter at least thirty days prior to expiration of such policy, Certificates of Insurance evidencing the above coverage with limits not less than those specified above. Such Certificates, with the exception of Worker's Compensation, shall name Lessor its subsidiaries, directors, agents and employees as additional insureds and shall, with the exception of public liability insurance, expressly provide that the interest of same therein shall not be affected by any breach by Lessee of any policy provision for which such Certificates evidence coverage. Further, all Certificates shall expressly provide that no less than thirty days prior written notice shall be given Lessor in the event of material alterations to or cancellation of the coverages evidenced by such Certificates. If, on account of the failure of Lessee to comply with the foregoing provisions, Lessor is adjudged a co-insurer by its insurance carrier, then any loss or damage Lessor shall sustain by reason thereof shall be borne by Lessee and shall be immediately paid by Lessee upon receipt of a bill thereof and evidence of such loss. Lessor makes no representation that the limits of liability specified to be carried by Lessee under the terms of this Lease are adequate to protect Lessee against Lessee's undertaking -12- this Lease is insufficient, Lessee shall provide at its own expense, such additional insurance as Lessee deems adequate. Anything in the Lease to the contrary notwithstanding, Lessor and Lessee hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the leased premises or the building thereon, personal property (building contents) within the building, any furniture, equipment, machinery, goods or supplies not covered by this Lease which Lessee may bring or obtain upon the leased premises or any additional improvements which Lessee may construct on the leased premises, by reason of fire, the elements or any other cause which could be insured against under the terms of standard fire and extended coverage insurance policies, regardless of cause or origin, including negligence of Lessor or Lessee and their agents, officers and employees. Because this paragraph will preclude the assignment of any claim mentioned in it by way of subrogation (or otherwise) to an insurance company (or any other person), each party to this Lease agrees immediately to give to each insurance company, written notice of the terms of the mutual waivers contained in this paragraph, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages by reason of the mutual waivers contained in this paragraph. Lessee and Lessor each also waive and release the other, its agents, officers and employees, of and from any and all rights of recovery, claim, action or cause of action for any loss or damage insured against under any other policies of insurance carried by Lessee or Lessor as the case may be. Lessor agrees that Lessee shall adjust any insurance claim made under any of its policies in the event of a loss. -13- Without limiting the generality of the foregoing, damage to or destruction of any portion of all of the buildings, structures and fixtures upon the leased premises by fire, the elements or any other cause whatsoever, whether or not without fault on the part of Lessee, shall not terminate this Lease or entitle Lessee to surrender the leased premises, or entitle Lessee to any abatement of or reduction in rent payable by Lessee hereunder, except as specifically provided in this Lease, or otherwise affect the respective obligations of the parties hereto, any present or future law to the contrary notwithstanding. 14. USE. Lessee shall have the right to use the leased premises for the purpose of manufacture and sale of parts and equipment for the aircraft industry or the manufacture and sale of any other products, provided such use is not injurious to the building and does not create a public hazard or nuisance. 15. EMINENT DOMAIN. In the event the leased premises or any part thereof shall be condemned and taken by eminent domain, the Lease shall terminate as to the part taken, and all and any award or compensation arising from such condemnation shall be paid and belong to Lessor except any award for damage to fixtures and equipment of Lessee, which latter award shall belong to Lessee, and there shall be an abatement in rent payable after the actual taking and during the balance of the term hereof in the proportion that the floor area of the building on the demised premises taken bears to the total floor area of said building immediately prior to said taking. If such condemnation or taking results in the tak- -14- not occupied by buildings, then Lessee may by notice within ten days after possession has been taken by the condemning authority terminate this Lease. In the event Lessee does not terminate, then Lessee shall repair any damage to the premises and improvements and the award shall be made available to Lessee for such purpose in the same manner as hereinabove provided with regard to proceeds of insurance. 16. QUIET POSSESSION. Provided Lessee performs all its covenants, agreements, and obligations hereunder, Lessor covenants that Lessee shall have the peaceful and quiet enjoyment of the leased premises without let or hindrance on the part of Lessor and that Lessor will warrant and defend Lessee in the peaceful and quiet enjoyment of the leased premises against the lawful claims of all persons. All obligations of Lessee under this Lease are material and of equal importance. 17. DEFAULTS. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Lessee: a) The vacating or abandonment of the Premises by Lessee. b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of five days after -15- this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of 30 days after written notice hereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than 30 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. 18. REMEDIES. In the event of any such default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; and the worth at the time of award -16- the amount of such rental loss for the same period that Lessee proves could be reasonably avoided. Unpaid installments of rent or other sums shall bear interest from the date due at the rate of 10% per annum. In the event Lessee shall have abandoned the Premises, Lessor shall have the option of (i) retaking possession of the Premises and recovering from Lessee the amount specified in this Section 18(a) or (ii) proceeding under Section 18(b). b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. c) In the event of any such expiration, termination or repossession, then in addition to any other remedies available to the Lessor at law or in equity, Lessor shall have the immediate option to terminate this Lease and all rights of Lessee hereunder by giving written notice of such intention to terminate. In the event that Lessor shall elect to so terminate this Lease then Lessor may recover from Lessee: (i) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent would have been earned after termination until the time of award exceeds the amount of such rental loss Lessee proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award -17- its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom, and (v) at Lessor's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable California law. As used in subparagraphs (i) and (ii) above, the "worth at the time of award" is computed by allowing interest at the rate of ten (10%) percent per annum. As used in paragraph (iii) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one (1%) percent. d) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the State of California. 19. ATTORNEY'S FEES. Reasonable attorney's fees and other expenses incurred by Lessor in enforcing any provision of this lease or in any action or proceeding in which Lessor is successful by reason of a default by Lessee or by anyone holding under Lessee, in complying with any requirement of this Lease shall be paid by Lessee and shall constitute additional rent for this Lease. In the event Lessee is successful in any action or proceeding between the parties hereto, reasonable attorney's fees and expenses of Lessee in any such action or proceeding may be added to the judgment therein. 20. WAIVER. Except to the extent that Lessor may have otherwise agreed in writing, no waiver by Lessor of any breach by Lessee of any of its obligations, agreements or covenants hereunder shall be deemed to be a waiver of any subsequent or continuing breach of the same or -18- 21. INSPECTION. Lessor shall at all reasonable times during Lessee's business hours have access to the premises for the purpose of inspection or repair. 22. HOLDING OVER. In the event Lessee holds over after the termination of this Lease, such holding over shall not be considered as or being a renewal of this Lease, and such holding over shall be construed to be a tenancy from month to month only at the same rental and under the same terms and conditions as are provided in this Lease. 23. SUCCESSORS AND ASSIGNS. This Lease, subject to the provisions on assignment, shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto. Any transfer of this Lease, whether by Lessee or any assigns of Lessee by operation of law or by voluntary assignment, with or without the consent of Lessor, shall not diminish, alter or prejudice the direct and primary liability of Lessee under this Lease and the covenants thereof. 24. ESTOPPEL CERTIFICATE. a) Lessee shall at any time upon not less than ten (10) days prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying -19- b) Lessee's failure to deliver such statement within such time shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance. c) If Lessor desires to finance or refinance the Premises, or any part thereof, Lessee hereby agrees to deliver to any lender designated by Lessor such financial statements of Lessee as may be reasonably required by such lender. Such statements shall include the past three years' financial statements of Lessee. All such financial statements shall be received by Lessor in confidence and shall be used only for the purposes herein set forth. 25. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title of the premises. In the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers the then grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligation thereafter to be performed, provided that (i) Lessor's grantee has assumed in writing, for the benefit of Lessee, Lessor's obligations under this Lease and said written assumption is delivered to Lessee, and (ii) any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective -20- TERMINATION OF LEASE The parties to this Agreement are The Prudential Insurance Company of America, a New Jersey corporation the (hereinafter the "Lessor") and Kaynar Mfg. Division, Microdot Manufacturing Inc., a Delaware corporation (hereinafter the "Lessee"). RECITALS: A. Frank A. Klaus, as landlord, and Kaynar Mfg. Co., Inc., as tenant, entered into a written Lease dated May 22, 1962, for the lease of certain premises therein (hereinafter the "Premises") located at 800 S. State College Blvd., Fullerton, California (hereinafter the "Lease"). B. Lessor succeeded to all right, title and interest in said Lease held by Frank A. Klaus and Lessee succeeded to all right, title and interest in said Lease held by Kaynar Mfg. Co., Inc. C. Lessor and Lessee desire by this agreement to terminate the Lease, subject to the conditions and provisions hereinafter contained. D. Lessor and Lessee are simultaneously herewith entering into a new lease of the Premises. TERMS: In consideration of the mutual agreements herein contained, the parties hereby agree as follows: 1. The effective date of this agreement shall be 11:59 P.M. on October 31, 1979. 2. On the effective date of this agreement and provided that the parties have executed and delivered simultaneously with this agreement a new lease of the Premises for a term of 20 years commencing on November 1, 1979, the Lease shall be fully and finally surrendered and terminated. -21- their respective obligations arising from or connected with the provisions of the Lease. This agreement shall fully and finally settle all demands, charges, claims, accounts, or causes of action of any nature, including, without limitation, both known and unknown claims and causes of action that arose out of or in connection with the Lease, and it constitutes a mutual release with respect to the Lease. 4. Lessee acknowledges that Lessor is not holding any money or any form of security deposit on behalf of Lessee. 5. Each party represents that it has not made any assignment, sublease, transfer, conveyance, or other disposition of the Lease, or interest in the Lease, or any claim, demand, obligation, liability, action, or cause of action arising from the Lease. 6. The parties have read this agreement and the mutual releases contained in it, and on advice of counsel they have freely and voluntarily entered into the agreement. 7. If either party commences an action against the other party arising out of or in connection with this agreement, the prevailing party shall be entitled to recover from the losing party reasonable attorneys' fees and costs of suit. 8. This agreement shall be binding on and inure to the benefit of the parties and their successors. 9. This agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. This agreement has been entered into by the parties as of December , 1979. The Prudential Insurance Company of America By: /s/ illegible ----------------------------------------- Vice President By: /s/ illegible ----------------------------------------- Assistant Secretary LESSOR -22- DESCRIPTION OF REAL PROPERTY CONTAINED IN LEASE PARCEL 1. That portion of the southwest quarter of Section 36, Township 3 south, Range 10 west, in the Rancho San Juan Cajon de Santa Ana, city of Fullerton, county of Orange, state of California, as per map recorded in book 51 page 7 of Miscellaneous Maps, in the office of the county recorder of said county, described as follows: Beginning at the southwest corner of said section 36; thence north 2201.38 feet along the west line of said section to the true point of beginning; thence north 89DEG. 37' 41" east 796.02 feet to the east line of the land described in the deed to Anna Bordate, recorded January 22, 1949 in book 1791 page 520 of Official Records; thence south 476.92 feet to the southeast corner of the land described in said deed to Anna Bordate; thence north 89DEG. 46' 00" west 796.01 feet along the south line of said land of Anna Bordate to a point on the west line of said section 36, northerly 1732.87 feet from the southwest corner of said section; thence north 468.51 feet to the true point of beginning. Said land is shown on a map filed in book 34 page 36 of Record of Surveys, in the office of the county recorder of said county. PARCEL 2. That portion of the southwest quarter of section 36, Township 3 south, Range 10 west, in the Rancho San Juan Cajon de Santa Ana, city of Fullerton, county of Orange, State of California, as per map recorded in book 51 page 7 of Miscellaneous Maps, in the office of the county recorder of said county, described as follows: -23- Beginning at the southwest corner of the land described as Parcel 1 in the deed to John F. Clark and wife, recorded June 5, 1952 in book 2338 page 114 of Official Records, said point being north 0DEG. 46' 15" west 1732.87 feet from the southwest corner of said section 36; thence north 89DEG. 27' 45" east 796.01 feet along the southerly line of said land to the easterly line of the land described in the deed to Dominica Crowther, a widow, recorded October 29, 1941 in book 1118 page 207 of Official Records; thence south 0DEG. 46' 15" east along said easterly line to the easterly prolongation of the north line of the south half of the southeast quarter of section 35, Township 3 South, Range 10 west, as said north line is shown on a map filed in book 29 page 17 of Record of Surveys, in the office of the county recorder of said county; thence south 89DEG. 28' 30" west along said easterly prolongation to the west line of said section 36; thence north 0DEG. 46' 15" west 411.74 feet to the point of beginning. EXCEPT the south 14.00 feet thereof. Said land is shown on a map filed in book 34 page 36 of Record of Surveys, in the office of the county recorder of said county. EXHIBIT "A" page 2 EX-10.6 11 EX 10.6 LEASE WITH WEST L.A. PROPERTIES STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. Basic Provisions ("Basic Provisions"). 1.1 Parties: This Lease ("Lease"), dated for reference purposes only, January 3, 1994, is made by and between West L.A. Properties, a California limited partnership ("Lessor") and Kaynar Technologies, Inc. ("Lessee"), (collectively the "Parties," or individually a "Party"). 1.2(a) Premises: That certain portion of the Building, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 190 West Crowther, located in the City of Placentia, County of Orange, State of California, with zip code 92670, as outlined on Exhibit A attached hereto ("Premises"). The "Building" is that certain building containing the premises and generally described as (describe briefly the nature of the Building): Concrete tilt-up building. Premises consist of Bay C with an approximate area of 40,000 square feet. In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the Building or to any other buildings in the Industrial Center. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Industrial Center." (Also see Paragraph 2.) 1.2(b) Parking: Area on Exhibit A. (Also see Paragraph 2.6.) 1.3 Term: Five years and -0- months ("Original Term") commencing January 3, 1994 ("Commencement Date") and ending December 31, 1998 ("Expiration Date"). (Also see Paragraph 3.) 1.4 Early Possession: N/A ("Early Possession Date"). (Also see Paragraphs 3.2 and 3.3.) 1.5 Base Rent: $15,200 per month ("Base Rent"), payable on the first day of each month commencing February 1, 1994. (Also see Paragraph 4.) [x] If this box is checked, this Lease provides for the Base Rent to be adjusted per PARA 49. 1.6(a) Base Rent Paid Upon Execution: $14,219.35, as Base Rent for the period January 3, 1994 through January 31, 1994. 1.6(b) Lessee's Share of Common Area Operating Expenses: 32.9 percent (32.9%) "Lessee's Share") as determined by [x] pro rata square footage of the Premises as compared to the total square footage of the Building or [ ] other criteria as described in Addendum ___. 1.7 Security Deposit: $15,200 ("Security Deposit"). (Also see Paragraph 5.) 1.8 Permitted Use; Warehousing, manufacturing, assembly, and related legal uses. ("Permitted Use") (Also see Paragraph 6.) 1.9 Insuring Party, Lessor is the "Insuring Party." (Also see Paragraph 8.) 1.10(a) Real Estate Brokers. The following real estate broker(s) (collectively, the "Brokers") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes): None [Item intentionally deleted by Parties.] 1.11 Guarantor. The obligations of the Lessee under the Lease are to be guaranteed by N/A ("Guarantor"). (Also see Paragraph 37.) 1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 55 and Exhibits A, all of which constitute a part of this Lease. 2. Premises, Parking and Common Areas. 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental and/or Common Area Operating Expenses, is an approximation which Lessor and Lessee agree is reasonable and the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, electrical systems, fire sprinkler system, lighting, air conditioning and heating systems and loading doors, if any, in the Premises, other than those constructed by Lessee shall be in good operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in the Lease, promptly after receipt of written notice 2 from Lessee setting forth with specificity the nature and extent of such non-compliance rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within thirty (30) days after the Commencement Date correction of that non-compliance shall be the obligation of Lessee at Lessee' sole costs and expense. 2.3 Compliance with Covenants. Restrictions and Building code. Lessor warrants that any improvements (other than those constructed by Lessee or at Lessee's direction) on or in the Premises which have been constructed or installed by Lessor or with Lessor's consent or at Lessor's direction shall comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinance in effect on the Commencement Date. Lessor further warrants to Lessee that Lessor has no knowledge of any claim having been made by any governmental agency that a violation or violations of applicable building codes, regulations, or ordinances exist with regard to the Premises as of the Commencement Date. Said warranties shall not apply to any Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranties, Lessor shall, except as otherwise provided in this Lease promptly after receipt of written notice from Lessee given within six (6) months following the Commencement Date and setting forth with specificity the nature and extent of such non-compliance take such action, at Lessor's expense, as may be reasonable or appropriate to rectify the non-compliance. Lessor makes no warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined in Paragraph 2.4). 2.4 Acceptance of Premises. Lessee hereby acknowledges (a) that it has been advised to satisfy itself with respect to the condition of the Premises including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, seismic and earthquake requirements and compliance with the Americans with Disabilities Act and applicable zoning, municipal, county, state and federal laws, ordinances and regulations and any covenants or restrictions of record (collectively, "Applicable Laws") and the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters, is satisfied with reference thereto, and assumes all responsibility therefore as the same relate to Lessee's occupancy of the Premises and/or the terms of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. [Item intentionally deleted by Parties.] 2.6 Vehicle Parking. Lessee shall be entitled to use the number of Unreserved Parking Spaces in the area referenced 3 specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size vehicles shall be parked and loaded or unloaded as directed by Lessor in the Rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9). (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. (b) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6 than Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicles involved and charge the reasonable cost to Lessee, which cost shall be immediately payable upon demand by Lessor. (c) Lessor shall at the Commencement Date of this Lease, provide the parking facilities required by Applicable Law. 2.7 Common Areas - Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Industrial Center and interior utility raceways within the Premises that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. 2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers, invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Industrial Center. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur than Lessor shall have the right, without notice, in addition to such other right and 4 remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable Rules and Regulations with respect thereto in accordance with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Industrial Center. 2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time. (a) To make changes to the Common Areas, including without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premiss remains available; (c) To designate other land outside the boundaries of the Industrial Center to be a part of the Common Area. (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Industrial Center, or any portion thereof, and (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Industrial Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 Early Possession. If an Early Possession Date is specified in Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the Early Possession Date but prior to the Commencement Date, the obligation to pay Base Rent shall 5 be abated for the period of such early occupancy. All other terms of this Lease, however, (including but not limited to the obligation to pay Lessee's Share of Common Area Operating Expense and to carry the insurance required by Paragraph 8) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. 3.3 Delay in Possession. If for any reason Lessor cannot deliver possession of the Premises to Lessee by the Early Possession Date, if one is specified in Paragraph 1.4 or if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of the Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days after the end of said sixty (60) day period, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder, provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. Except as may be otherwise provided and regardless of when the Original Term actually commences, if possession is not rendered to Lessee when required by the Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to the period during which the Lessee would have otherwise enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. Rent. 4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as the same may be adjusted from time to time, to Lessor in lawful money of the United States without offset or deduction, on or before the day on which it is due under the terms of its Lease Base Rent and all other rent and charges for any period during the term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from to time to time designate in writing to Lessee. 4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, 6 Lessee's Share (as specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions. (a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Industrial Center, including, but limited to, the following; (i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following: (aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators and roof. (bb) Exterior signs and any tenant directions. (cc) Fire detection and sprinkler systems. (ii) The cost of water, gas, electricity and telephone to service the Common Areas. (iii) Trash disposal, property management and security service and the costs of any environmental inspections. [Item intentionally deleted by Parties.] (v) Real Property Taxes (as defined in Paragraph 10.2) to be paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof. (vi) The costs of the premiums for the insurance policies maintained by Lessor under Paragraph 8 hereof. (vii) Any deductible portion of an insured loss concerning the Building or the Common Area (except to the extent arising from Landlord's (or its agent's, employee's or contractor's) negligence or wilful misconduct). (viii) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense. (b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Building or to any other building in the Industrial Center or to the operation, repair and maintenance thereof, shall be allocated entirely to the Building or to such other building. However, any Common Area 7 Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Industrial Center. (c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Industrial Center already has the same, Lessor already provides that services, or Lessor has agreed elsewhere in that Lease to provide the same or some of them. (d) Lessee's Share of Common Area Operating Expenses shall be payable by Lessee within ten (10) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12-month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated on said statement, Lessor shall be credited the amount of such overpayment against Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year were less than Lessee's Share as indicted on said statement. Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. 5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefore deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall upon written request from Lessor, deposit additional monies with Lessor as an addition to 8 the Security Deposit so that the total amount of the Security Deposit shall at all times bear the same proportion to the then current Base Rent as the initial Security Deposit bears to the initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any monies to be paid by Lessee under this Lease. 6. Use. 6.1 Permitted Use. (a) Lessee shall use and occupy the Premises only for the Permitted Use set forth in Paragraph 1.8, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use of permit the use of the Premises in a manner that is unlawful, creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to the Premises or neighboring premises or properties. (b) Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee. Lessee's assignees or subtenants, and by prospective assignees and subtenants of Lessee, its assignees and subtenants, for a modification of said Permitted Use, so long as the same will not impair the structural integrity of the improvements on the Premises or in the Building or the mechanical or electrical systems therein, does not conflict with uses by other lessees, is not significantly more burdensome to the Premises or the Building and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within five (5) business days after such request give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 Hazardous Substances. See Addendum para. 51.3 (a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other expected to be on the Premises, is either; (i) potentially ingenuous to the public 9 health, safety or welfare, the environment, or the Premises. (ii) regulated or monitored by any governmental authority; or (iii) a basis for potential liability of Lessor to any governmental agency of third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to hydrocarbons, petroleum, gasoline, crude oil or any products or by products thereof. Lessee shall not engage in any activity in or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Requirements (as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and (iii) the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Laws require that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but upon notice to Lessor and in compliance with all Applicable Requirements, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of the Permitted Use, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to any Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional assurance as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environmental against damage, contamination or injury and/or liability therefor, including but not limited to the installation (and, at Lessor's option, removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. Notwithstanding anything to the contrary herein, Lessee may, without Lessor's consent, use Hazardous Substances as reasonably required in the ordinary course of the business that it conducts at the Property so long as such use does not expose the Property or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor and so long as such use is conducted in compliance with all laws and regulations pertaining to Hazardous Substances. Further, Lessor's consent shall not be required for the use of any above ground storage tanks for Hazardous Substances if the conditions of this Lease to Lessee's use of Hazardous Substances at the Property are met in connection therewith. 10 (b) Duty to inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises of the Building, other than as previously consented to by the Lessor or existing as of the Commencement Date, Lessee shall immediately give Lessor written notice thereof, together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action, or proceeding given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Substance including but not limited to all such documents as may be involved in any Reportable Use involving the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including, without limitation, through the plumbing or sanitary sewer system). (c) Indemnification. Except to the extent arising from Landlord's (or its agent's, employee's or contractor's) negligence or wilful misconduct, Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises harmless from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultants' and attorneys' fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. It is expressly agreed that the terms of this Section 6.2(c) apply only to Hazardous Substances brought to the Premises by or for Lessee or by any one under Lessee's control following the Commencement Date. 6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Requirements," which terms is used in this Lease to mean all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record permits, the requirements of any applicable fire insurance underwriter of rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, 11 under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill, or release of any Hazardous Substance), now in effect or which may hereafter come into effect. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Requirements. See Rider page 3A 6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall have the right to enter the Premises at any time in the case of any emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with the Lease and all Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to employ experts and/or consultants in connection therewith to advise Lessor with respect to Lessee's activities, including but not limited to Lessee's installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease by Lessee or a violation of Applicable Requirements or a contamination, caused or materially contributed to by Lessee, is found to exist or to be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 7. Maintenance, Repairs, Utility installations. Trade Fixtures and Alterations. 7.1 Lessee's Obligations. (1) Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation) and 51.3 (Remediation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or 12 readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities specifically serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical lighting facilities, boilers, fired or unfired pressure vessels, fire hose connections if within the Premises, fixtures, interior walls, interior surfaces of exterior walls, ceiling, floors, windows, doors, plate glass, and skylights, but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. (b) Lessee shall, at Lessee's sole cost and expense, procure and maintain a contract, with copies to Lessor, in customary form and substance for and with a contractor specializing and experienced in the inspection, maintenance and service of the heating, air conditioning and ventilation system for the Premises. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain the contract for the heating, air conditioning and ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the costs thereof. (c) If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days after written notice to Lessee, (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, in accordance with Paragraph 13.2 below. 7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if located in the Common Areas) or other automatic fire extinguishing system including fire alarm and/or smoke detection systems and equipment, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to 13 paint the exterior or interior surfaces of exterior walls now shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute nor or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Building, Industrial Center or Common Areas in good order, condition and repair. 7.3 Utility Installations, Trade Fixtures, Alterations. (a) Definitions, Consent Required. The term "Utility Installations" is used in this Lease to refer to all air lines, power panels, electrical distribution, security, fire protection systems, communications systems, lighting fixtures, heating, ventilating and air conditioning equipment, plumbing and fencing in, on or about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment which can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises which are provided by Lessor under the terms of this Lease other than Utility Installations or Trade Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be made any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Alterations or Utility Installations to the interior of the Premises (excluding the roof) without Lessor's consent but upon notice to Lessor, so long as they are not visible from the outside of the Premises, do not involve puncturing, relocating or removing the roof or any existing walls or changing or interfering with the fire sprinkler or fire detection systems and the cumulative cost thereof during the term of this Lease as extended does not exceed $40,000. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and be in compliance with all Applicable Requirements. Lessee shall promptly upon completion thereof furnish Lessor with 14 as-built plans and specifications therefor. Lessor may, (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $25,000 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation. (c) Lien Protection. Lessee shall pay when due all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on, or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall at its sole expense, defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 Ownership, Removal, Surrender, and Restoration. (a) Ownership. Subject to Section 12 (Rider 6A) and subject to Lessor's right to require their removal and to cause Lessee to become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Installations made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon the Premises and be surrendered with the Premises by Lessee. (b) Removal. Unless otherwise agreed in writing, Lessor may require that any or all Lessee-Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding that their installation may have been consented to by Lessor. Lessor may 15 require the removal at any time of all or any part of any Alterations or Utility Installations made without the required consent of Lessor. (c) Surrender/Restoration. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified herein, the Premises, as surrendered, shall include the Alterations and Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment and Lessee-Owned Alterations and Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Requirements and/or good practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 8. Insurance; Indemnity. 8.1 Payment of Premiums. The cost of the premiums for the insurance policies maintained by Lessor under this Paragraph 8 shall be a Common Area Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be pro- rated to coincide with the corresponding Commencement Date or Expiration Date. 8.2 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in writing (as additional insureds) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured Managers or Lessors of Premises" endorsement and contain the "Amendment of the Pollution Exclusion" endorsement for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for 16 the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried by Lessor. Lessor shall also maintain liability insurance described in Paragraph 8.2(a) above, in addition to and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. Lessor may from time to time permit Lessee to place some or all of the insurance on the property. No insurance shall be placed by Lessee which provides for more than a $10,000 deductible. Should Lessor do so, Lessee will furnish Lessor with certificates of insurance which shall provide the policies may not be amended or canceled without 30 days' prior written notice to Lessor. Lessor will reimburse Lessee for that portion of the expense which is not attributable to Lessee under the allocations made under the Lease. Lessor may at any time, in its discretion, assume the right to place the insurance, or any part of it. 8.3 Property Insurance--Building, Improvements and Rental Value. (a) Building and Improvements. Lessor shall obtain and keep in force during the term of this Lease a policy in the name of Lessor, with loss payable to Lessor and to any Lender(s), insuring against loss or damage to the Premises. Such insurance shall be for full replacement cost, as the same shall exist from time to time, or the amount required by any Lender(s), but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessee's personal property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and commercially appropriate, Lessor's policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender) (it being expressly agreed that Lessee shall pay its pro rata share of the costs of earthquake insurance only if such coverage is required by Lender but in no event shall Lessee's pro rata share of such costs exceed $5,000 per year) including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Building required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered loss, but not including plate glass insurance. Said policy or policies shall also contain an agreed 17 valuation provision in lieu of any co-insurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. (b) Rental Value. Lessor shall also obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and any Lender(s), insuring the loss of the full rental and other charges payable by all lessees of the Building to Lessor for one year (including all Real Property Taxes, insurance costs, all Common Area Operating Expenses and any scheduled rental increases). Said insurance may provide that in the repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any co-insurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, Real Property Taxes, insurance premium costs and other expenses, if any, otherwise payable, for the next 12-month period. Common Area Operating Expenses shall include any deductible amount in the event of such loss except that lessee shall not be responsible for the deductible amount if the loss resulted from Landlord's (or its agent's, employee's or contractor's) negligence or wilful misconduct. (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Industrial Center if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee-Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. 8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance shall be full replacement cost coverage with a deductible not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property and the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request from Lessor, 18 Lessee shall provide Lessor with written evidence that such insurance is in force. 8.5 Insurance Policies. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholder's Rating" of at least B-, V, or such other rating as may be required by a Lender, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven (7) days after the earlier of the Early Possession Date or the Commencement Date, certified copies of, or certificates evidencing the existence and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to modification except after thirty (30) days' prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. 8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss or damage to their property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereof. Lessor and Lessee agree to have their respective insurance companies issuing property damage insurance waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7 Indemnity. Except for Lessor's negligence, wilful misconduct and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, loss of permits, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against 19 Lessor) litigated and/or reduced to judgment. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters. Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee of Lessor nor from the failure by Lessor to enforce the provisions of any other lease in the Industrial Center. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. Damage or Destruction. 9.1 Definitions (a) "Premises Partial Damage" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than fifty percent (50%) of the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises (excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures) immediately prior to such damage or destruction. (b) "Premises Total Destruction" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations, the repair cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures) immediately prior to such damage or destruction. In addition, damage or destruction to the Building, other than Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any lessees of the Building, the cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost 20 (excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any lessees of the Building) of the Building shall, at the option of Lessor, be deemed to be Premises Total Destruction. (c) "Insured Loss" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 Premises Partial Damage -- Insured Loss. If Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect. In the event, however, that there is a shortage of insurance proceeds and such shortage is due to the fact that, by reason of the unique nature of the improvements in the Premises, full replacement cost insurance coverage was not commercially reasonable and available, lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, lessor shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within such ten (10) day period, and if Lessor does not so elect to restore and repair, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds 21 contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 Partial Damage -- Uninsured Loss. If Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect), Lessor may at Lessor's option, either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following such commitment from Lessee. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 Total Destruction. Notwithstanding any other provision hereof, if Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 9.7. 9.5 Damage Near End of Term. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at 22 that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by (a) exercising such option, and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten (10) days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds. Lessor shall, at Lessor's expense, repair such damages as soon as reasonably possible and this Lease shall continue in full force and effect if Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate as of the date set forth in the first sentence of this Paragraph 9.5. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance Condition for which Lessee is not legally responsible, the Base Rent, Common Area Operating Expenses and other charges, if any, payable by Lessee hereunder for the period during which such damage or condition, its repair, remediation or restoration continues, shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not in excess of proceeds from insurance required to be carried under Paragraph 8.3(b). Except for abatement of Base Rent and Additional Rent, including Common Area Operating Expenses and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair, remediation or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair of restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after the receipt of such notice, this Lease shall continue in full force and effect. "Commence" as used in this Paragraph 9.6 shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever occurs first. 23 9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Applicable Requirements and this Lease shall continue in full force and effect but subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 13). Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice in the event Lessor elects to give such notice of Lessor's intention to termination this Lease. Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the excess costs of (a) investigation and remediation of such Hazardous Substance Condition to the extent required by Applicable Requirements, over (b) an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following said commitment by Lessee. In such event this Lease shall continue in full force and effect and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time period specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.8 Termination - Advanced Payments. Upon termination of this Lease pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment made by Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises and the Building with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent it is inconsistent herewith. 24 10. Real Property Taxes. 10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise provided in Paragraph 10.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2. 10.2 Real Property Tax Definition. As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Industrial Center by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage, or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Industrial Center or any portion thereof, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in Applicable Law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Industrial Center or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common. Any assessments which may be paid in installments shall be deemed payable during the lease term only to the extent that installments are attributable to the lease term on a pro rata basis. Lessee shall not be responsible for any penalties which are incurred solely by reason of the fault of the Lessor. 10.3 Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Industrial Center by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request. 25 10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee-Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or stored within the Industrial Center. When possible, Lessee shall cause its Lessee-Owned Alternations and Utility Installations, Trade Fixtures, furnishing, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's said property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 10.6 Lessee's Right to Contest Taxes. Lessee may attempt to have the assessed valuation of the Property reduced or may initiate proceedings to contest the real property taxes. If required by law, Lessor shall join in the proceedings brought by Lessee. However, Lessee shall pay all costs of the proceedings, including any costs of fees incurred by Lessor. Upon the final determination of any proceeding or contest, Lessee shall immediately pay the real property taxes due, together with all costs, charges, interest and penalties incidental to the proceedings. If Lessee does not pay the real property taxes when due and contests such taxes, Lessee shall not be in default under this Lease for nonpayment of such taxes if Lessee bonds over such taxes or if Lessee deposits funds with Lessor or opens an interest bearing account reasonably acceptable to Lessor in joint names of Lessor and Lessee. The amount of such deposit shall be sufficient to pay the real property taxes plus a reasonable estimate of the interest, costs, charges and penalties which may accrue if Lessee's action is unsuccessful, less any applicable tax impounds previously paid by Lessee to Lessor. The deposit shall be applied to the real property taxes due, as determined at such proceedings. The real property taxes shall be paid under protest from such deposit if such payment under protest is necessary to prevent the Property from being sold under a "tax sale" or similar enforcement proceeding. 11. Utilities. Lessee shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, telephone, security, gas and cleaning of the Premises, together with any taxes thereof. If any such utilities 26 or services are not separately metered to the Premises or separately billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be determined by Lessor of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth in Paragraph 4.2(d). 27 12. Assignment and Subletting. Notwithstanding anything to the contrary contained in this Lease, Lessor's consent to the assignment of the Lease will not be required in the following situations: (a) To any corporation which controls, in controlled by or is under common control with Lessee; (b) To a surviving corporation in the event of a merger or consolidation of Lessee with or into another corporation; (c) To a corporation or other entity which purchases or otherwise receives a transfer of all or substantially all of the assets of Lessee of the purpose of operating them as a going business; (d) To General Electric Capital Corporation or any future mortgagee of the Lease consented to by the Lessor (which consent will not be unreasonably withheld) (GECC), a creditor of Lessee, on the following conditions: (1) Effective upon any exercise by GECC of its right as mortgagee of the Lease (the effective date), including, without limitation, its taking possession of the premises, GECC shall assume the obligations of the Lessee under the Lease, both for obligations prior to and subsequent to the effective date. (2) GECC may not assign its mortgage interest or, once it has foreclosed its mortgage, assign the Lease or sublet the Premises without first obtaining the consent of the Lessor in accordance with the provisions of Paragraph 12 of the Lease. (3) GECC shall acknowledge that Lessor and Lessee, its successors and assigns, may negotiate for and execute revisions of the Lease, waivers of its provisions, or extension of its term. GECC shall agree that those changes may be made by Lessee and the Lessor without the participation of consent of GECC, so long as GECC has not given Lessor written notice of its exercise of its rights as mortgagee of the Lease and its assumption of the obligations of lessee under the Lease. (e) Notwithstanding the foregoing in this Section 12, in the event of the involvement of Lessee or its 28 assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out, or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets, if which transaction or transactions will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of the Net Worth of Lessee as it exists immediately prior to such transaction or transactions, such a transaction shall be considered an assignment of this Lease by Lessee, to which Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth of the Lessee(excluding any guarantors) established under generally accepted accounting principals consistently applied. Lessor hereby specifically consents to the execution, delivery and recordation concurrently herewith of a Leasehold Mortgage, Security Agreement, Financing Statement and Assignment of Rents in favor of GECC with respect to Lessee's Interest under the Lease. Lessor further acknowledges, notwithstanding anything to the contrary contained herein, that GECC has been granted a security interest in and to all personal property of Lessee which is or may become located at the Premises (the "Personal Property"). Lessor shall not claim any right, lien or security interest in or to any of such Personal Property regardless of how it may be affixed to the Premises. Further, Lessor hereby grants to GECC the right to enter upon the Premises for the purpose of exercising its rights with respect to the Personal Property for a period of up to 120 days (the "Liquidation Period") following the date GECC receives written notice that Lessee's right to possession of the Premises has been terminated, PROVIDED, HOWEVER, (i) that GECC shall repair any damage to the Premises resulting from the exercise by GECC of its rights with respect to the Personal Property and (ii) GECC shall pay rent and other charges (at the rate under the Lease) for the period that GECC is in possession of the Premises for the purpose of exercising its remedies with respect to Personal Property. It is further agreed that (i) the Liquidation Period shall be extended for the number of days that GECC may be enjoined, by operation of law or otherwise, from exercising its rights with respect to the Personal Property, and (ii) GECC shall be entitled to extend the Liquidation Period for an additional period of up to 60 days provided that GECC pays rent and other charges (at the rate under the Lease) prorated on a daily basis for such extended period. 12.1 Lessor's Consent Required. 29 (a) Lessee shall not voluntarily or by operation of law, assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in the control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessees, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of full execution and delivery of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold as consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding any Guarantors) established under generally accepted accounting principles consistently applied. (d) As assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1, or a non-curable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unconsented to assignment or subletting as a non-curable Breach, Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice"), increase the monthly Base Rent for the Premises to the greater of the then fair market rental value of the Premises, as reasonably determined by Lessor, or one hundred ten percent (110%) of the Base Rent then in effect. Pending determination of the new fair market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall 30 be subject to similar adjustment to the then fair market value as reasonably determined by Lessor (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition) or one hundred ten percent (110%) of the price previously in effect, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new rental bears to the Base Rent in effect immediately prior to the adjustment specified in Lessor's Notice. (e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief. 12.2 Terms and Conditions Applicable to Assignment and Subletting. (a) Regardless of lessor's consent, any assignment or subletting shall not (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, nor (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent for performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the assignee or sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable under this Lease or the sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or the sublease. (d) In the event of any Default or Breach of Lessee's obligation under this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the 31 performance of the Lessee's obligations under this Lease, including any sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of or sublessee under this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. (g) The occurrence of a transaction described in Paragraph 12.2(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased by an amount equal to six (6) times the then monthly Base Rent, and Lessor may make the actual receipt by Lessor of the Security Deposit increase a condition to Lessor's consent to such transaction. (h) Lessor, as a condition to giving its consent to any assignment or subletting, may require that the amount and adjustment schedule of the rent payable under this Lease be adjusted to what is then the market value and/or adjustment schedule for property similar to the Premises as then constituted, as determined by Lessor. 12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any 32 sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of the foregoing provision or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublease for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from a claim from Lessee to the contrary, Lessee shall have no right or claim against such sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposits paid by such sublessee to such sublessor or for any other prior defaults or breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent to Lessor herein. (d) No sublessee under a sublease approved by Lessor shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default of Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the Sublessee. 33 13. Default; Breach; Remedies. 13.1 Default; Breach. A "Default" by Lessee is defined as a failure by Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" by Lessee is defined as the occurrence of any one or more of the following Defaults, and where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraph 13.2 and/or 13.3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent, Lessee's Share of Common Area Operating Expenses or any other monetary payment required to be made by Lessee hereunder as and when due, when such failure continues for five (5) days after written notice or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of five (5) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with Applicable Requirements per Paragraph 6.3,(ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or subletting per Paragraph 12.1, (iv) a tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that are to be observed, complied with or performed by Lessee, other than those described in Subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it 34 shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days provided, however, in the event that any provision of this Subparagraph 13.1(e) is contrary to any applicable law, such provision shall be of no force or effect, and shall not affect the validity of the remaining provisions. (f) The discovery by Lessor that any financial statement of Lessee or of any Guarantor, given to Lessor or any Guarantor, was materially false. [Item intentionally deleted by Parties.] 13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its own option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee (as defined in Paragraph 13.1) with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of 35 the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount sale rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District in which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not wave Lessor's right to recover damages under this Paragraph 13.2. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace period under the unlawful detainer statute shall run concurrently after the one such statutory notice and the failure of Lessee to cure the Default within the greater of the two (2) such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect in California under California Civil Code Section 1951(4) after Lessee's Breach and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations Lessor and Lessee agree that the limitations on assignment and subletting in this Lease are reasonable Acts of maintenance or preservation efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under this Lease, shall not constitute a termination of the Lessee's right to possession. 36 (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state whereon the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3. Inducement Recapture in Event of Breach. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions" shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach (as declined in Paragraph 13.1) of this Lease by Lessee any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4. Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or deed of trust covering the Premises. Accordingly, if any installment of rent or other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted 37 hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary. Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5. Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5 a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor and by any Lender(s) whose name and address shall have been furnished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed, provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the portion of the Common Areas designated for Lessee's parking, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the Premises. No reduction of Base Rent shall occur if the condemnation does not apply to any portion of the Premises. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution of value of the leasehold or for the taking of the fee, or as severance damages, provided, however, that Lessee shall be entitled to any compensation, separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not 38 terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above Lessee's Share of the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to the Premises caused by such condemnation authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 15. Brokers' Fees. Each party represents to the other that it has used no broker in this transaction. [Items intentionally deleted by Parties.] 16. Tenancy and Financial Statements. 16.1. Tenancy Statement. Each Party (as "Responding Party") shall within ten (10) days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in a form similar to the then most current "Tenancy Statement" form published by the Amencar Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2. Financial Statement. If Lessor desires to finance, refinance, or sell the Premises or the Building, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15.3, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 39 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Post-Due Obligations. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within ten (10) days following the date on which it was due, shall bear interest from the date due at the prime rate charged by the largest state chartered bank in the state in which the Premises are located plus four percent (4%) per annum, but not exceeding the maximum rate allowed by law, in addition to the potential late charge provided for in Paragraph 13.4. 20. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. 23. Notices. 23.1. Notice Requirements. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission during normal business hours and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of making or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at 40 such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2. Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail, the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone or facsimile confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday or a Sunday or a legal holiday, it shall be deemed received on the next business day. 24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or any other term, covenant or condition hereof. Lessor's consent to, or approval of, any such act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of any provision hereof. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 41 26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. In the event that Lessee holds over in violation of this Paragraph 26 then the Base Rent payable from and after the time of the expiration or earlier termination of this Lease shall be increased to two hundred percent (200%) of the Base Rent applicable during the month immediately preceding such expiration or earlier termination. Nothing contained herein shall be construed as a consent by Lessor to any holding over by Lessee. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties, the personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-Disturbance. 30.1. Subordination. Lessee agrees to subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively "Security Device"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof, PROVIDED THAT the ground lessor or holder thereof agrees to recognize the tenancy of Lessee pursuant to this Lease and not to disturb Lessee's tenancy hereunder. If Lessee fails to respond to a request to subordinate within ten (10) days after receipt of a subordination document complying with the prior sentence then Lessor may execute said document as Lessee's attorney-in-fact. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default pursuant 42 to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2. Attornment. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one month's rent. 30.3. Non-Disturbance. With respect to Security Devices now existing or entered into by Lessor after the execution of this lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorneys to the record owner of the Premises. 30.4. Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. Attorneys' Fees. If any Party brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party of its claim or defense. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys' fees, costs and expenses incurred in preparation and service of 43 notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purposes of showing the same to prospective purchasers, lenders, or lessees, and making alterations, repairs, improvements or additions to the Premises or to the Building, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or Building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred eighty (180) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Lessee shall not place any sign upon the exterior of the Premises or the Building, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business so long as such signs are in a location designated by Lessor and comply with Applicable Requirements and the signage criteria established for the Industrial Center by Lessor. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof of the Building, and the right to install advertising signs on the Building, including the roof, which do not unreasonably interfere with the conduct of Lessee's business; Lessor shall be entitled to all revenues from such advertising signs. 35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of the Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically 44 terminate any sublease or lesser estate in the Premise; provided, however, Lessor shall in the event of any such surrender, termination or cancellation, have the option to construe any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. Consents. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. In addition to the deposit described in Paragraph 12.2(e), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the impositions by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. [Item intentionally deleted by Parties.] 37. Quiet Possession. Upon payment by Lessee of the rent for the Premises and the performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises 45 for the entire term hereof subject to all of the provisions of this Lease. 39. Options 39.1 Definition. As used in this Lease, the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 Options Personal to Original Lessee. Each Option granted to Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. 39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given the Lessee three (3) or more notices of separate Defaults under Paragraph 13.1 during the twelve (12) month period immediately preceding the exercise of the Option, whether or not the Defaults are cured (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's 46 inability to exercise an Option because of the provisions of Paragraph 39.4(a) (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of separate Defaults under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. Rules and Regulations. Lessee agrees that it will abide by, and keep and observe all reasonable rules and regulations ("Rules and Regulations") which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Industrial Center and their invitees. 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service of other security measures and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. Reservations. Lessor reserves the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights of way, utility raceways, and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights of way, utility raceways, dedications, maps and restrictions do not reasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor effectuate any such easement rights, dedication, map or restrictions. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much 47 thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duty authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor shall not be deemed an offer to lease. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 47. Amendments. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The Parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to the Lease as may be reasonably required by an institutional insurance company or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. Multiple Parties. Except as otherwise expressly provided herein, if more than one person or entity is named therein as either Lessor or Lessee, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S REVIEW AND APPROVAL. FURTHER EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE 48 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures. Executed at: Executed at: ------------------ ----------------- on: on: --------------------------- -------------------------- By LESSOR: By LESSEE: WEST L.A. PROPERTIES, Kaynar Technologies, Inc. A CA Ltd. Ptshp. By Martin H. Weil, Trustee of The Weil Family Trust dated 10/3/84, General Partner By: /s/ Martin H. Weil By: /s/ David A. Werner -------------------------- ------------------------- Name Printed: Name Printed: David A. Werner ---------------- --------------- Title: Title: Vice President ----------------------- ----------------------- By: By: -------------------------- ------------------------- Named Printed: Named Printed: --------------- -------------- Title: Title: ----------------------- ----------------------- Address: 233 Wilshire Blvd., Address: 800 So. State College Suite 600 Blvd. Santa Monica, CA 90401 Fullerton, CA 92631 Telephone: (310) 451-9871 Telephone: (714) 449-4304 Facsimile: (310) 394-4512 Facsimile: (714) 680-3153 49 ADDENDUM TO LEASE DATED JANUARY 3, 1994 BETWEEN WEST L.A. PROPERTIES, LESSOR, AND KAYNAR TECHNOLOGIES, INC., LESSEE This is an Addendum to the above-described Lease. Where there is a conflict between this addendum and the printed lease, this Addendum shall prevail: 51. MICRODOT LEASE 51.1 EFFECT ON COMMENCEMENT. The premises are presently occupied by Microdot, Inc. under the terms of a lease dated March 26, 1991 (the "Microdot Lease"). Microdot, Inc. is in reorganization under Chapter 11 of the Bankruptcy Act. Lessee expects to purchase Microdot's assets and concurrently enter into this new lease with Lessor covering the Premises. The Microdot Lease will be terminated in the bankruptcy proceedings. The term of this lease will commence effective as of the termination of the Microdot Lease on January 3, 1994 (such date being the "Commencement Date" for all purposes under this Lease). 51.2 CONSIDERATION. Lessee will pay to Lessor as consideration for the execution of this Lease the sum of $60,000 within thirty (30) days following the actual Commencement Date hereof, less any sums received by Lessor prior to the commencement of the term of this Lease from the Microdot bankruptcy on account of Lessor's Proof of Claim in bankruptcy. 51.3 REMEDIATION. Prior to the Commencement Date, certain environmental conditions which may require investigation and remediation may have arisen with respect to the Property. Lessor contends that Microdot is responsible for the cost of that work and has filed a claim in the Microdot bankruptcy proceedings. Lessee will contribute funds to the cost of such work in the following limited amounts: Lessee will pay to Lessor the sum of $25,000 per calendar quarter for a total of six quarterly payments, which shall be payable on the first day of each calendar quarter commencing April 1, 1994. Except for the payments provided for in this Lease, which total $150,000, Lessee shall have no liability for any environmental conditions existing on the commencement of the term of this lease, or any liability arising out of the environmental conditions that were created prior to that date. Lessor will undertake remediation of existing environmental contamination pursuant to Applicable Requirements, and Lessee will cooperate in granting access and making the Premises available for the necessary work, but Lessee shall not (except for the payments required to be made to Lessor under the provisions of this paragraph) be responsible for the investigation and remediation work. The 50 terms of this PARAGRAPH 51.3 shall control over any contrary provision of this Lease. 52. WAREHOUSE LIGHTS. Upon vacating the premises by Lessee, Lessee agrees to leave all existing lighting in place in the warehouse as is in existence in the Premises as of the effective date of this Lease. 53. BROKER'S FEE. Lessor and Lessee both represent and warrant that they have dealt with no broker with regard to this transaction, and agree to Indemnify and hold each other harmless from any brokerage claims, demands or suits that might arise out of any facts constituting a breach of such representation and warranty. 54. RIGHT TO AUDIT. Wherever the Lease requires Lessee to pay to Lessor an amount upon request by Lessor, Lessee shall have the right to audit and contest such requests. Lessor shall maintain books and records in accordance with sound accounting and management practices, reflecting such costs, Lessee shall have the right to inspect Lessor's accounting office upon reasonable prior notice during normal business hours during the ninety (90) days following the furnishing by Lessor to Lessee of a request for payment. Unless Lessee shall take written exception to any item within said ninety (90) day period, such item shall be considered as final and accepted by Lessee. If Lessee makes such timely written exception, a certification as to the proper amount of any such costs shall be made by an independent certified public accountant acceptable to both parties, which shall be final and conclusive. Lessee agrees to pay the costs of such certification unless it is determined that Lessor's original determination of the aggregate of Taxes and Operating Costs was in error by more than two (2%) percent of said amounts. 55. COUNTERPARTS. This Lease and any document or instrument executed pursuant hereto may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 51 RENT ADJUSTMENT(S) ADDENDUM TO STANDARD LEASE Dated: January 3, 1994 By and Between (Lessor) West L.A. Properties (Lessee) Kaynar Technologies, Inc. Property Address: 190 West Crowther, Placentia, CA Paragraph 49 A. RENT ADJUSTMENTS: The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately) X 1. Cost of Living Adjustment(s) (COL) - --- (a) On (Fill in COL Adjustment Date(s): July 1, 1996 - -------------------------------------------------------------------------------- the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): ___ CPIW (Urban Wage Earners and Clerical Workers) or X CPIU (All Urban Consumers), for (Fill in Urban Area): Los Angeles - Anaheim - Riverside. All items (1982-1984 = 100), herein referred to as "C.P.I." (b) The monthly rent payable in accordance with paragraph A1(a) of this Addendum shall be calculated as follows: the Base Rent set for the in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the C.P.I. of the calendar month 2 (two) months prior to the month(s) specified in paragraph A1(a) above during which the adjustment is to take effect, and the denominator of which shall be the C.P.I. of the calendar month which is two (2) months prior to (select one): ___ the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or X (Fill in Other "Base Month": November, 1993. The sum so calculated shall constitute the new monthly rent hereunder, but in no event shall any such new monthly rent be less than the rent payable for the month immediately preceding the date for rent adjustment. (c) In the event the compilation and/or publication of the C.P.I. shall be transferred to any other governmental department 52 or bureau or agency or shall be discontinued, then the index most nearly the same as the C.P.I. shall be used to make such calculation. In the event that Lessor and Lessee cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitrators shall be paid equally by Lessor and Lessee. Initials: ____ Initials: ____ ____ ____ 53 AMENDMENT TO LEASE West L.A. Properties, a California limited partnership (Lessor) and Kaynar Technologies, Inc. (Lessee) hereby amend the Lease between them dated January 3, 1994, (the Lease) covering a portion of the premises commonly known as 190 West Crowther, Placentia, California as follows: 1. TERM The term of the Lease, now scheduled to end on December 31, 1998, is extended to September 30, 2001. Paragraph 50 of the Lease, which granted Lessee an option to extend the term of the Lease, is hereby deleted; Lessee has no further option to extend. 2. RENT Effective on October 1, 1996, the Base Rent shall be $14,000 per month. The security deposit shall be reduced to $14,000 Lessor will apply the $1,200 excess it now holds to the rent due on September 1, 1996. Rent shall continue to be payable on the first day of each month. Effective on April 1, 1999, the Base Rent shall be increased in accordance with the Cost of Living Adjustments provided for in paragraph 49, of the Lease, except that the Base Month (the denominator in the fraction) shall be August 1996 and the Comparison Month (the numerator in the fraction) shall be February 1999. 3. TENANT IMPROVEMENTS Lessee proposes to make certain Tenant Improvements in accordance with plans and specifications that Lessee will promptly prepare and submit to Lessor for its approval, which approval will not be unreasonably withheld or delayed. Lessee will make those improvements in a good and workmanlike manner and in accordance with the requirements of paragraph 7.3 of the Lease. Lessor will not require a lien and completion bond provided; (a) Lessor approves the general contractor and its financial statement, and (b) Lessor is given an opportunity to file and post an effective notice of non-responsibility. Those improvements shall be subject to the provisions of paragraph 7.4 of the Lease. Upon completion of those improvements in accordance the Lease requirements, Lessor will lend to Lessee an amount (not to exceed $205,000) which Lessee demonstrates by books, records and canceled checks to represent Lessee's out of pocket cost in connection with those improvements. The loan shall be funded in increments of not less than $50,000 prior to completion of improvements provided Lessee gives Lessor evidence of (a) lien free completion of work of a value of not less than the required draw; and (b) certification by the contractor that the work remaining to be done can be completed at a cost which will not exceed the undrawn balance of the $205,000. Total 54 incremental advances shall not exceed $150,000. Any remaining loan shall be funded only after expiration of the period during which mechanic's liens can be filed. Lessor's loan to Lessee shall be represented by Lessee's promissory note (the Note) in the form attached as Exhibit A. The Note shall be payable in equal installments of principal and interest over the number of full months remaining between the date of the Note and September 30, 2001. It is a condition precedent to Lessor's loan that Lessee not be in breach of any of is obligations under the Lease. For this purpose, a breach is a default which shall have extended beyond any notice and cure periods. A default in any payment under the Note shall constitute a Breach under the provisions of paragraph 13 of the Lease. Dated: August 21, 1996 LESSOR: WEST L.A. PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP By The Weil Family Trust dated October 3, 1984, General Partner By /s/ Martin H. Weil ------------------------------------------ Martin H. Weil, Trustee LESSEE: KAYNAR TECHNOLOGIES INC. By /s/ David A. Werner ---------------------------------------------- David A. Werner, Vice President 55 EXHIBIT A Santa Monica, California $_____________________________________________________________________ , 1996 In installments as hereafter stated, for value received, the undersigned promises to pay to West L.A. Properties, or order, at Santa Monica, California, the principal sum of $____________ , with interest from date of advance(s) on unpaid principal at the rate of 10% per annum. This note is executed pursuant to the provisions of a Lease (the Lease) between Maker as Lessee and Payee as Lessor. The Lease consists of the original lease dated January 3, 1994, as amended on _______________ , 1996. Principal and interest shall be payable in the sum of $_____________ or more on the first day of each month commencing on ______________ , 1996. the note will become immediately due and payable on the first to occur of the following: (a) any Default or Breach by the undersigned of any of its obligations under the Lease as those obligations are defined in the Lease; or (b) September 30, 2001. The maker(s) acknowledge(s) that late payment to payee will cause payee to incur costs not contemplated by this loan. Such costs include, without limitation, processing and accounting charges. Therefore, if any installment is not received by payee when due, maker(s) will pay to payee an additional sum of 6% of the overdue amount as a late charge. The parties agree that this late charge represents a reasonable sum considering all the circumstances existing on the date of this agreement and represents a fair and reasonable estimate of the costs that payee will incur by reason of late payment. The parties further agree that proof of actual damages would be costly or inconvenient. Acceptance of any late charge will constitute a waiver of the default with respect to the overdue amount and will not prevent payee from exercising any of the other rights and remedies available to payee. Should default be made in the payment of any installment of principal or interest when due, then the whole sum of principal and interest shall become immediately due and payable at the option of the holder of this note. The undersigned further promise to pay all costs of collection, including attorney's fees incurred in the collection of this note. Principal and interest payable in lawful money of the United States. Kaynar Technologies Inc. By__________________________________ EX-10.7 12 EX 10.7 LEASE WITH ENFIELD VIEW PTY LTD. DATED 10 October 1995 ENFIELD VIEW PTY LTD A.C.N. 007 382 603 Lessor and RECOIL PTY LTD A.C.N. 006 664 731 Lessee -------------------- LEASE -------------------- Premises: 20 Stamford Road, Oakleigh ANDERSON RICE SOLICITORS LEVEL 10 555 LONSDALE STREET MELBOURNE VIC 3000 AUSDOC DX 117 TEL: 672 2666 FAX: 642 0271 REF: TB:RAFW:914603 LEASE THIS LEASE is made the 10th day of October 1995 BETWEEN ENFIELD VIEW PTY LTD (A.C.N. 007 382 603) of 1846 Princes Highway, Clayton in the State of Victoria ("Lessor") AND RECOIL PTY LTD (A.C.N. 006 664 731) of 7 Kingston Town Close, Oakleigh in the State of Victoria ("Lessee") RECITALS In consideration of the rent herein reserved and of the covenants and agreements by the Lessee contained in this Lease, the Lessor on and subject to the following covenants, terms, conditions and provisos: A. HEREBY LEASES to the Lessee ALL THOSE premises (herein called the "Demised Premises") more particularly described in Item 1 of the Schedule together with the right to the Lessee, its servants, agents and invitees to use the chattels described in Item 10 of the Schedule (if any) and for the term described in Item 5 of the Schedule commencing on the commencement date set out in Item 9 of the Schedule and at the rental set out in Item 3 of the Schedule and as increased or reviewed in accordance with the provisions hereof. B. RESERVES to the Lessor and persons claiming through or authorized by it the use of exterior walls the roof and right to install, maintain, use, repair, alter and replace pipes, ducts, conduits and wires leading through the premises and to pass and run water, air, electricity, sewerage, drainage, gas and other services through such pipes, ducts, conduits and wires and to enter upon the premises for such purpose provided that (except as hereinafter provided) in exercising such rights as aforesaid the Lessor shall not interfere with the Lessee in its use and occupation of the Demised Premises more than is reasonably necessary. 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Lease and in any Rules and Regulations made hereunder or annexed hereto the following expressions shall have the meanings hereinafter respectively assigned to them unless the contrary intention appears: "Demised Premises" -- the Demised Premises described in Item 1 of the Schedule and shall include, where appropriate, the building erected on the land; "Lease" -- this Lease and any annexures and schedules relating hereto; -2- "Lessee" -- includes the Lessee, its successors and permitted assigns and where not repugnant to the context the servants and agents of the Lessee; "Lessor" -- includes the Lessor, its successors and assigns and where not repugnant to the context its servants and agents; "Lessor's Premises" -- the premises situated at 20 Stamford Road, Oakleigh in the State of Victoria together with the fixtures, fittings, furnishings, plant, machinery, equipment and Mechanical Installations of the Lessor therein from time to time; "Mechanical Installations" -- includes air conditioning and any other plant, machinery or equipment for heating or cooling or circulating air; exhaust and ventilation plant; fire alarm; fire fighting equipment; sprinklers and any other machine, plant or equipment now or hereafter installed at the Demised Premises; "Outgoings" -- (to the extent to which the same are not specifically payable from time to time by any Lessee or Licensee of any part thereof) the total cost of all outgoings costs and expenses of the Lessor now or hereinafter properly assessed, charged or chargeable, paid or payable or otherwise incurred upon or in respect of the Demised Premises and/or upon the Lessor in relation thereto or in the conduct, management, repair and maintenance of the Demised Premises and to the use and occupation of the same for the use described in Item 2 of the Schedule and/or the other facilities pertaining thereto and in particular but without limiting the generality of the foregoing, includes: 1.1.1 all taxes payable in respect of the Lessor's Premises and/or Demised Premises or in respect of the Lessor's ownership or occupancy thereof but excluding income tax payable by the Lessor on its income. The Lessee shall hereunder reimburse or indemnify the Lessor for the Lessee's proportion of State Land Tax or liability therefore (as the case may be) in respect of the Lessor's Premises, calculated on the basis that such land is the only land of which the Lessor is the owner within the meaning of the Land Tax Act; 1.1.2 all rates, charges, assessments, duties, impositions and fees of any public, municipal or government body, authority or department charges, imposed or assessed on or in respect of the Demised Premises; 1.1.3 all insurance premiums payable by the Lessor in respect of the Demised Premises and fixtures and fittings, to the full insurable replacement value thereof, against fire, flood, lightning, storm and tempest, aircraft and other accident and such other insurances including the removal of debris and other risks as the Lessor may -3- deem necessary or desirable in relation to the Demised Premises or the Lessor's ownership or interest therein as set out in Clause 2.5; 1.1.4 all charges for water (including any excess water charges), gas, oil, electricity, light, power, fuel, telecommunications, sewerage, garbage, pest control and other services or requirements furnished or supplied to the Demised Premises for the general benefit or purpose of the Demised Premises; 1.1.5 the costs of repairs, painting, maintenance and renovations of and to the Lessor's Premises (except work of a structural nature) unless such work arises from the use of the premises by the Lessee; and 1.1.6 the costs including running costs, repairs and maintenance of lighting, elevators, fire alarm, fire fighting equipment, sprinklers and all other Mechanical Installations. "Yearly Rent" - the amount set out in Item 3 of the Schedule and multiplied by twelve including any alteration thereto pursuant to Clause 2.2 and Annexure 1. 1.2 Interpretation Words importing the singular number include the plural and the masculine gender the feminine or neuter and vice versa and words importing the persons include corporations and vice versa. Any covenant or agreement on the part of two or more persons shall be deemed to bind them jointly and severally. Reference to a statute or ordinance includes all regulations under and amendments to that statute or ordinance whether by subsequent statute or otherwise and a statute or otherwise and a statute or ordinance passed in substitution for the statute or ordinance referred to or incorporating any of its provisions. Headings have been inserted for guidance only and shall not be deemed to form any part of the context of this Lease. Where under or pursuant to this Lease or anything done hereunder, the day on or by which any act, matter or thing is to be done is a Saturday or a Sunday or a public holiday in the State or place in which the Demised Premises are situated, such act, matter or thing may be done on the next succeeding day which is not a Saturday, Sunday or a public holiday. References to Clauses and Schedules are to clauses of and schedules to this Lease. -4- 2. LESSEE'S COVENANTS THE LESSEE FOR HIMSELF AND HIS SUCCESSORS AND PERMITTED ASSIGNS AND TO THE EXTENT THAT THE OBLIGATIONS MAY CONTINUE THROUGHOUT THE CONTINUANCE OF THE LEASE, DOES HEREBY COVENANT WITH THE LESSOR AS FOLLOWS: 2.1 Rent To pay the Lessor the sum set out in Item 3 of the Schedule, as adjusted from time to time in accordance with Clause 2.2, monthly in advance on the first day of each month, without any set-off (whether arising at law or in equity) and clear of all deductions whether demanded or not and if the said commencement date shall be other than on the first day of a month then by a proportionate payment for any broken period calculated from the commencement date to the first day of the month next ensuing the commencement date or from the first day of the last month of the term hereby created to the end of the said term as the case may be. 2.2 Rent Review The rent payable by the Lessee pursuant to the Lease or any renewal or extension thereof shall be the sum or sums set out in Item 3 of the Schedule PROVIDED THAT the rental shall be increased, as and from the date or dates set out in Item 4 of the Schedule hereto as a rent review date, by an amount by which the yearly rent payable immediately prior to the review date shall be multiplied by a fraction whereof the denominator shall be 100 and the numerator shall be 104 and this sum shall be the annual rent payable from the rent review date for the twelve month period thereafter. 2.3 Rates, Taxes and Outgoings 2.3.1 To pay and bear as from the commencement date for the term hereof, all existing and future rates (including special parking rates and garbage collection rates whether municipal or otherwise) taxes, assessments, charges and Outgoings (whether parliamentary, semi-governmental or otherwise) now or hereafter imposed or charged on the owner or occupier in respect of the Demised Premises. If the Demised Premises are not separately rated, taxed, assessed or charged or the Outgoings relate to an area larger than the Demised Premises, the whole of such rates, taxes, assessments, charges or Outgoings shall be apportioned and the Lessee shall pay a proportion of the amount such proportion being equal to the area that the Demised Premises bears to the total lettable area of the property (of which the Demised Premises form part) so rated or assessed or to which the Outgoings relate. -5- 2.3.2 Notwithstanding anything herein contained, the Lessor may from time to time notify the Lessee of the Lessee's proportion of Outgoings for any period not exceeding one (1) year in advance of the estimate, whereupon the Lessee will pay during such period, the estimate by equal monthly installments in advance on the days and in the manner fixed for payment of the rent, provided that at the end of the then current year, the actual Outgoings shall be made and any refund to or further payment by the Lessee shall be allowed or made. 2.4 General Positive Covenants 2.4.1 Consumables To pay all charges in respect of electric supply, gas supply or power used on the Demised Premises and any water charges (including any excess water charges) and telecommunications, rentals and other charges in respect of the Demised Premises. 2.4.2 Clean the Premises To pay the costs of maintenance and cleaning of the Demised Premises and if the Lessee does not clean the Demised Premises by its own staff then the Lessee shall engage for this purpose the cleaning contractor (if any for the time being) of the Lessor's property of which the Demised Premises form part. 2.4.3 Repair and Maintain From time to time throughout the said term, as often as the occasion shall require, at his own cost and expense to repair, maintain and keep the Demised Premises (including the locks, keys, windows, glass (internal and external) and fixtures all sewerage fittings and pipes and all Mechanical Installations serving the Demised Premises) in as good and substantial repair, order and condition as the same now are with all necessary reparations, clearings and amendments whatsoever, when and where and as often as the same shall be requisite during the said term provided that damage by fair wear and tear or fire alone shall be excepted unless the Lessee and his servants or agents invitees or charges or any of them shall have suffered or omitted something by reason whereof the Lessor shall be deprived of the benefit of any insurance on the Demised Premises and provided that it shall be the responsibility of the Lessor at the Lessor's own cost to ensure that at all times the air conditioning plant complies with any law from time to time applicable to refrigerants. -6- 2.4.4 Clean Windows To regularly clean thoroughly all windows in or upon the Demised Premises. 2.4.5 Make Good Damage To pay for and make good all damage which may be caused to the Demised Premises or any part thereof by reason of any gas or water taps, electric current, appliances or fittings in the Demised Premises being left on or open or mismanaged in any way. 2.4.6 Repair Damage Caused to Adjoining Premises From time to time make good any defect or damage to any adjoining premises or other premises or any facility or appurtenance thereof occasioned by any neglect want of care, misuse or abuse on the part of the Lessee or the Lessee's agents, contractors, customers, invitees or other persons claiming through or under the Lessee or otherwise occasioned by any breach or default of the Lessee hereunder. 2.4.7 Disposal of Rubbish At all times during the term, store and keep all trade waste, trash and garbage in proper receptacles kept within such space or area in or about the Demised Premises as shall from time to time be reasonably designated or notified by the Lessor and to arrange for the disposal thereof and at all times refrain from throwing or dropping from the Demised Premises or depositing or leaving in the Demised Premises any such trade waste, trash and garbage. 2.4.8 Notice of Defects To give to the Lessor immediate notice in writing of any accident or defects in the water pipes, gas pipes, electric light appliances or fittings installed in or upon the Demised Premises. 2.4.9 Comply with Acts At the Lessee's own expense to comply in all respects with all such provisions of the Health Act, Melbourne and Metropolitan Board of Works Act and the Labour and Industry Act for the time being in force and all present and future amendments thereof respectively and with the provisions of all Acts of Parliament, Regulations, Rules and By-Laws now or hereafter in force as shall be necessitated by the business being conducted in or the use by -7- the Lessee of the Demised Premises and to do all acts, works, cleansings and other things that may be necessary or ordered to be done under any Act or Regulation or By-Law affecting buildings of the type of the Demised Premises (and/or the building of which the Demised Premises forms part as the case may be) and/or public health and for the time being in force in the said State relating to the carrying on of the business or purpose of the Lessee upon the Demised Premises or the employment of persons connected therewith or that may be required by the Melbourne Water Corporation and the relevant Municipal or Shire Authority or any Health Officer, Inspector or other local or Public Authority but nothing herein contained shall require the Lessee to make, provide or pay for any structural alterations or additions to the Demised Premises unless such structural alterations or additions are necessitated by the nature of the business conducted or use by the Lessee upon or of the Demised Premises or by the number or sex of persons employed or lawfully present therein or by any act, neglect or default of the Lessee or his agents, servants, employees, charges, invitees or any other person claiming through or under the Lessee. 2.4.10 Use of Premises To use the Demised Premises in a fair and tenantable manner and for the permitted use set out in Item 2 of the Schedule only. 2.4.11 Inspection To allow the Lessor and his agents, architects, surveyors and workmen, upon giving the Lessee forty-eight (48) hours notice to have access at all reasonable times to the Demised Premises and to all services passing through over or along the Demised Premises, but at any time without notice in the case of emergency, to inspect the same and every part thereof and to do such work therein or in respect of the Demised Premises or any part thereof as the Lessor may require to do and the Lessee shall forthwith after receipt of notice in writing from the Lessor properly effect any repairs, reparations and cleansings for which the Lessee is liable hereunder PROVIDED ALWAYS that if at any time the Lessee fails to comply with the terms of such notice within fourteen days after service thereof the Lessor may with or without workmen or others enter upon the Demised Premises and do all things necessary to effect the repairs or cleansings and any moneys expended by the Lessor for that purpose shall be recoverable by the Lessor against the Lessee as money paid by him at the Lessee's request by an action at law or by distress as for rent in arrears. The Lessee will ensure that the Lessor has been provided with and -8- is in possession of all keys and/or entrance devices required to gain access into the Demised Premises from time to time. 2.4.12 Maintenance and Alteration To permit the Lessor and its architects, contractors, workmen and others at all times on reasonable notice to enter upon the Demised Premises and carry out repairs, improvements, maintenance, alterations and other work (including work of a structural nature) to the Demised Premises or to any part thereof in compliance with the Lessor's obligations under the provisions of this Lease or otherwise deemed necessary or desirable by the Lessor PROVIDED ALWAYS that in the exercise of any such power the Lessor will endeavour to avoid unduly inconveniencing the Lessee. 2.4.13 Lessor's Costs To pay the Lessor's reasonable costs, charges, fees and expenses of and incidental to the preparation, completion and execution of this Lease and all counterparts thereof and any extension or renewal thereof and any guarantee and any other ancillary agreements and to pay all stamp duty and registration fees (if any) thereon. 2.4.14 Costs of Default To pay on demand, all moneys, costs, charges and expenses which the Lessor may incur or expend in consequence of any default in the performance or observance of any covenant or agreement herein contained on the part of the Lessee to be performed or observed or under or in the exercise or enforcement or attempted exercise or enforcement of any power or authority herein contained or in consequence of any lawful request by the Lessor under any covenant or condition herein contained immediately the Lessor shall have paid, expended or incurred the same and if such costs are legal costs these shall be charged at the appropriate scale operating from time to time. 2.4.15 Interest on Default To pay to the Lessor in respect of any amount due by the Lessee to the Lessor, at the rate which is the aggregate of three per centum (3 %) and the Indicator Lending Rate from time to time quoted by the Lessor's banker at the relevant date for commercial overdraft accommodation exceeding $100,000-00 calculated daily from the date upon which the same fell due for payment until the same shall have been paid. -9- 2.4.16 Exhibit "To Let" Sign During the last six months of the said term and at any time during any holding over or extension thereof to permit the Lessor or the Lessor's agents or workmen or any of them to enter upon the Demised Premises and to exhibit and to put upon them notices "To Let" which notices shall not be removed by the Lessee without the written permission of the Lessor. 2.4.17 Inspection at End of Term During the last six months of the said term and at any time during any holding over or extension thereof to permit the Lessor's agent and any person or persons if accompanied by the Lessor or the Lessor's agent or with the Lessor's written authority, upon giving the Lessee forty-eight (48) hours notice, to inspect the Demised Premises at any time between the hours of 9:00am and 5:00pm, but at any time without notice in the case of emergency, and at the expiration or earlier determination of the tenancy to give peaceable possession of the same to the Lessor. 2.4.18 Keep Premises Open At all times throughout the said term during normal business hours pertaining to the said permitted use, to keep the Demised Premises open for the permitted use referred to and not without the consent in writing of the Lessor to leave the Demised Premises unoccupied during the said term AND if the permitted use or purpose referred to relates to or concerns the conduct of a business thereon, to use his best endeavours to carry on and conduct the said business in a proper and efficient manner AND in the event of the said business not being so conducted or not conducted at all or the Demised Premises being unoccupied or unopened as the case may be the total rental for the said term or period shall immediately become due and payable and such sum shall be recoverable by the Lessor from the Lessee by an action at law or by distress as for rent in arrears. This provision is in addition to and not in derogation of any other right or remedy available to the Lessor. 2.4.19 Locking of Property To ensure that all doors windows and other entrances are securely locked in the event of entering or leaving the Demised Premises (and/or the building of which the Demised Premises forms part as the case may be) outside the usual and normal hours during which such doors and other entrances are kept open. -10- 2.4.20 Garden To attend to the garden (if any) of the Demised Premises and every part thereof and to ensure that the same is attended to regularly and in particular to ensure that the Demised Premises is of neat appearance and free from weeds and excess growth. 2.4.21 Delivering Up At the expiration or sooner determination of the term hereby created quietly to deliver up to the Lessor the Demised Premises in good and substantial repair order and condition as the same are at the commencement of occupancy by the Lessee or any predecessor of the Lessee pursuant to this Lease or any other lease of which this Lease is a result due to the exercise of an option for a further term with the glass all whole in the windows, doors, electric light globes, fixtures and fittings in good order and condition and in particular with the walls and ceiling free of grease, dirt, excess paint or other material detrimental to or detracting from the good appearance thereof including any rubbish, damage by fair wear and tear or fire alone excepted as aforesaid. 2.4.22 Lessee's Works To carry out any works, repairs, alterations or additions required to be done by the Lessee pursuant to the Lease in a professional and workmanlike manner in accordance with the instructions given by the Lessor's architect and to the reasonable satisfaction of the Lessor. 2.5 Insurance 2.5.1 Insurance Charges To pay or reimburse (as the case requires) the Lessor forthwith on demand being made by the Lessor so as to do the cost of all premiums, stamp duty levies and other like expenses (hereinafter called "the premiums") in respect of such of the policies of insurance referred to below which are already taken out by the Lessor in respect of the Lessor's Premises of which the Demised Premises form part as from the commencement date of the term hereby created for the term hereof and any renewal or extension thereof and to take out any of the policies listed below which are not so taken out by the Lessor such policies to be taken out by the Lessee in the names of the Lessor and the Lessee for their respective rights and interest and in the names of such other persons, firm or corporation as may be designated by the Lessor including any mortgagee of the Demised Premises, and at the -11- Lessee's expenses with such insurance company as the Lessor shall approve for the replacement value or for such other amount as herein specified or as the Lessor shall reasonably direct the policies taken out by the Lessee to be kept in full force and effect during the continuance of this Lease and the Lessee shall produce a receipt for every premium payment and Certificates of Currency in respect of each of such policies to the Lessor on or before the commencement date and at least fourteen (14) days prior to the renewal date of such policies AND in any event, the Lessee will cause the original Policies or a true copy of each of them to be delivered to the Lessor immediately the same are issued by the Insurance Company, the said policies are: (a) an insurance policy covering inter alia damage by fire extended to include damage by explosion, storm and tempest, riots, strikes and malicious damage, earthquake, impact by all vehicles, aircraft, internal water and flood for the full replacement value of all of the Lessee's fixtures, fittings and stock contained in the Demised Premises; (b) an insurance policy covering inter alia damage by fire extended to include damage by explosion, storm and tempest, riots, strikes and malicious damage, earthquake, impact by all vehicles, aircraft, internal water and flood for the full replacement value of the Demised Premises and the Lessor's fixtures and fittings (if any) therein and further extended to include clearance of debris and loss of rent including Outgoings paid by Lessee; (c) an insurance policy against breakage for the replacement value of all plate glass now or hereafter installed in or affixed to or forming part of the Demised Premises; (d) a Lessor's owner's public liability insurance policy for a cover of at least Five Million Dollars ($5,000,000-00), or such other sum as the Lessor may reasonably advise by notice in writing; (e) a Lessee's/occupier's public liability insurance policy for a cover of at least Five Million Dollars ($5,000,000-00), or such other sum as the Lessor may reasonably advise by notice in writing; and (f) an insurance policy against breakdown of all machinery plant equipment or device whether mechanical electrical or of whatsoever other nature installed in or affixed to or forming part of the Demised Premises. -12- 2.5.2 Pay or Reimburse For the purpose of this covenant the Lessee shall pay to or reimburse (as the case requires) the Lessor the whole of the premiums relating to any of the above insurance policies taken out by the Lessor which relate to the Demised Premises. 2.5.3 Application of Insurance Money In the case of any loss or damage arising from any cause covered by the insurance as referred to in Clause 2.5.1, the Lessee shall immediately make a claim under the relevant insurance policy and apply and expend the moneys received by virtue of such insurances in restoring, replacing, repairing or reinstating the same and where such moneys shall be insufficient for that purpose, the Lessee shall pay the balance out of his own money. 2.5.4 Insurance against storage of Hazardous Chemicals The Lessee shall ensure that all risks relating to the storage or use of hazardous chemicals on Demised Premises in accordance with Clause 2.6.8 are to be covered by the policies of insurance referred to in Clause 2.5.1. 2.6 General Negative Covenants 2.6.1 Not to Sleep on Premises Not to sleep or suffer anyone to sleep in or upon the Demised Premises or use or permit the use of same or any part thereof for residential purposes save for and in the manner permitted by the relevant authority (if any) registering the Demised Premises for the said permitted use. 2.6.2 No Illegal Immoral Purpose Not to use or permit or suffer the use of the same for any illegal, immoral or improper purpose. 2.6.3 No Rubbish Not to allow rubbish or useless property to accumulate thereon. 2.6.4 No Alterations/Additions Not without written consent to make, suffer or permit any alteration or addition whatsoever to be made to any part of the Demised Premises nor drive any nails, screws or other fixing -13- material into any part of the Demised Premises nor use any adhesive material on the walls thereof. 2.6.5 Not to Vitiate Insurance Not to do or permit to be done anything whereby the policy or policies of insurance on the Demised Premises for the time being subsisting may become void or voidable or whereby the rate of premium thereon may be increased and to pay all increased premiums and all expenses incurred by the Lessor in the renewal of such policy or policies rendered necessary by breach of this covenant. 2.6.6 No Noxious Offensive Business Not to use or permit to be used the Demised Premises or any part thereof for or carry on offensive, noxious, hazardous or noisy business or occupation nor for the purpose or in any manner which may be a nuisance or annoyance to the other tenants or occupiers (if any) of the Demised Premises, the Lessor's Premises or the adjoining occupiers or owners and not to do or permit to be done any act or things that may be contrary to the laws of health or the regulations or by-laws of the Department of Health, relevant Municipal or Shire Authority or other Authority in relation to the Demised Premises. 2.6.7 No Auction Sale Not to conduct or permit to be conducted upon the Demised Premises or any part thereof any auction, sale, teaching practice or rendering of any music whatsoever or classes for any kind of teaching or instruction whatsoever save for the permitted use of the Demised Premises without the prior consent in writing of the Lessor. 2.6.8 Hazardous Chemicals Not to keep or permit to be kept or used on the Demised Premises any chemical fluids or materials of a dangerous or explosive nature, the keeping of which may contravene any statute or regulation or by-law or constitute a nuisance to the Lessor or the occupiers of neighbouring property. 2.6.9 Approved Heating Not to use any method of heating other than that approved of by the Lessor and then not without the prior consent in writing of the Lessor. -14- 2.6.10 No Animals Not to bring or keep or permit to be brought or kept any animals or birds on, in or about the Demised Premises. 2.6.11 No Sweeping Not to throw or permit to be thrown any sweeping rubbish, rags, ashes or any other substances whether or not of the same genus or class of the substances aforesaid out of the windows or doors or into the water closet or closets or other water reticulation sewerage or drainage apparatus of the Demised Premises and/or the Lessor's Premises. 2.6.12 No Noise Not to make or permit any of the employees, agents, charges or invitees of the Lessee to make any improper noises in the Demised Premises nor interfere with or annoy or permit to be interfered with or annoyed in any way other occupiers (if any) of the Demised Premises and/or the Lessor's Premises or any persons having lawfully entered therein. 2.6.13 Signs (a) Not to inscribe, paint, write or affix on or to, as the case may be, the Demised Premises or any part thereof or any building of which the Demised Premises form part or any part thereof any writing, lettering, sign, signboard, plate, name, placard, notice or neon or other type of electric sign (all of which without limiting their generality are hereinafter referred to as "such signs") without first obtaining the written approval of the Lessor, whose approval shall not be unreasonably withheld, to its position size colour and design and in all other respects and obtaining all necessary permits from the relevant authorities in respect of same. (b) During the currency of the term hereof or any renewal or extension thereof the Lessee shall continue to maintain such sign in good order, repair and appearance. (c) Upon the expiration or earlier determination of the term hereby created (or later upon the renewal or extension thereof as the case may be) or earlier at the Lessee's election the Lessee shall forthwith remove such sign, make good any damage or loss occasioned by such removal and reinstate and restore the Demised Premises -15- and/or any building (of which the Demised Premises form part) damaged or affected by the removal of such sign to the same standard and condition subsisting on the day before the Lessee commenced erecting such sign. 2.6.14 Damage to the Demised Premises Not to do or permit to be done anything whereby the Demised Premises or any part thereof, fair wear and tear alone excepted, may be damaged or strained or the walls thereof caused to sag from their right lines. 2.7 Assignment Mortgage and/or Parting with Possession 2.7.1 Provisions for Assignment, etc. Not at any time or times to mortgage, assign, transfer, sublet, part with possession or to give any person, firm or corporation a licence to use or occupy the Demised Premises or any part thereof without the consent in writing of the Lessor first had and obtained PROVIDED THAT: (a) the Lessor shall not withhold such consent to the assignment of the whole of the Demised Premises if the Lessee is not in breach of any of the covenants or conditions herein contained and the proposed assignee is a respectable, responsible and solvent person the onus of proving which shall be on the Lessee; (b) if the proposed assignee or sub-lessee should be a firm or corporation, the Lessor may at its sole discretion require a Guarantor of the due performance and observance by the proposed assignee or sub-lessee of the Lessee's covenants in this Lease, to execute such form of guarantee and indemnity as the Lessor may require or approve; (c) the Lessor shall be entitled to refuse or withhold consent to the assigning of part or to the sub-letting of the Demised Premises and in respect of this further proviso Section 144 of the Property Law Act 1958 is hereby negatived; (d) the Lessor shall in no way be liable or responsible for any alterations or modifications to the Demised Premises which may be necessary or required by relevant authorities in the event of the Lessee sub-letting the -16- Demised Premises the whole of which burden shall lie with the Lessee; (e) the Lessee shall procure the execution by such person of an assignment of this Lease to which the Lessor shall be a party in such form as the Lessor and/or his solicitors shall approve of and in which shall be repeated by such assignee with the Lessor the several conditions, covenants, agreements, stipulations and powers herein expressed or such of the said covenants, agreements, stipulations and powers herein expressed or such of the said covenants, agreements, stipulations and powers as may be required by the Lessor and/or his solicitors such assignment to be perused by the Lessor and/or his solicitors at the cost and expense in all respects of the person requiring such consent and an executed copy of such assignment duly stamped shall be delivered to the Lessor; (f) the Lessee shall also pay to the Lessor all reasonable costs, charges and expenses incurred by the Lessor of and incidental to the perusal of the assignment and enquiries in relation to the respectability, responsibility and solvency of the proposed assignee; (g) the liability of the Lessee under this Lease shall not be released by such assignment and the Lessee shall provide to the Lessor, a guarantee and indemnity in the form required by the Lessor guaranteeing performance by the assignee of the obligations under this term or any further term of this Lease renewed pursuant to an option for renewal contained herein or provided for herein. 2.7.2 Lessee Corporation If the Lessee is a duly incorporated company and if at any time hereafter the majority of the shares therein cease to be held beneficially and according to the Share Register (except as a result of transfers by inheritance) by the person or persons who held such majority at the date of execution of this Lease then - (a) the Lessee shall immediately notify the Lessor of such changes in shareholdings; (b) such change of shareholdings shall be deemed to constitute an assignment of this Lease and the provisions of Clause 2.7.1 shall apply; and -17- (c) this provision shall not apply wherever the Lessee is a company the voting shares of which are listed on a recognised Stock Exchange in Australia or if at least 80% of its voting shares are owned by another company the voting shares of which are so listed. 3. LESSOR'S COVENANTS THE LESSOR DOES HEREBY COVENANT WITH THE LESSEE AS FOLLOWS: 3.1 Quiet Enjoyment That the Lessee paying the rent hereby reserved on days and times and in the manner hereinbefore mentioned and observing and performing the several covenants, conditions and stipulations hereinbefore contained and on the part of the Lessee to be observed and performed shall and may peaceably and quietly hold and enjoy the premises hereby demised during the term hereby granted without any disturbance, eviction or interruption by the Lessor or any person claiming through or under him. 3.2 Comply With Terms To comply with the terms or conditions on the part of the Lessor to be observed, if any, set out herein. 3.3 Structural Maintenance and Repair 3.3.1 The Lessor shall maintain the Demised Premises and the building except for the Mechanical Installations in sound structural condition and shall at all times be responsible for the structural work of any nature to the Demised Premises and keep the Demised Premises in a good structural state of repair and free from the ingress of water. 3.3.2 The Lessor shall not be responsible for any structural work of any nature pursuant to Clause 3.3.1 where the necessity for such structural work has resulted from an act, neglect or default on the part of the Lessee its agent, servant, employee, charge, invitee or any person claiming through or under the Lessee or has resulted from the use of the Demised Premises specified in Item 2 of the Schedule by the Lessee. 3.4 Refrigerants Notwithstanding anything in Clause 3.3, the Lessor shall ensure that the air conditioning plant at all times complies with any law from time to time applicable to refrigerants. -18- 4. MUTUAL COVENANTS THE LESSOR AND LESSEE MUTUALLY COVENANT AND AGREE AS FOLLOWS: 4.1 Default Any one of the following events shall constitute a default pursuant to the Lease: 4.1.1 if the said rent hereby reserved or any part thereof shall be in arrears and unpaid for fourteen (14) days after the same shall have become due (whether any formal demand therefor shall have been made or not); 4.1.2 if the Lessee shall at any time make default in or neglect or fail to perform or observe or fulfil any of the covenants, agreements, conditions or stipulations herein contained or implied and which on the part of the Lessee are or ought to be performed, observed or fulfilled; 4.1.3 if any order or resolution shall be made for the winding up of the Lessee or any permitted assign of the Lessee being a company (otherwise than for the purpose of amalgamation or reconstruction) or the Lessee be placed in official management; 4.1.4 if any assignment shall be made of the property of the Lessee for the benefit of his Creditors; 4.1.5 if the said term or the interest of the Lessee in the Demised Premises shall be attached or taken in execution or upon any legal process; 4.1.6 if the Lessee or any assign being an individual shall commit an act of bankruptcy or enter into any arrangement pursuant to Part X of the Bankruptcy Act (Commonwealth); or 4.1.7 if a Receiver and Manager of the undertaking of the Lessee is appointed. If any one of the above events shall occur then it shall be lawful for the Lessor or any person authorized by him in that behalf in the case of a breach by the Lessee of any covenant, agreement condition or stipulation to which Section 146 of the Property Law Act 1958 does not extend (and although advantage may not have been taken of a previous default of the like nature) at any time thereafter to re-enter upon the Demised Premises or any part thereof in the name of the whole. Upon such entry this Lease shall absolutely determine but without prejudice to the right of action of -19- the Lessor in respect of any antecedent breach of the Lessee's covenants, agreements, conditions or stipulations herein contained or implied and which on the part of the Lessee are or ought to have been performed observed or fulfilled. In the case of a breach by the Lessee of any covenant, agreement, condition or stipulation to which Section 146 of the Property Law Act does so extend at the expiration of fourteen days from the service of the notice referred to in sub-section (1) of the said Section 146 to enter into or upon the Demised Premises or any part thereof in the name of the whole. In either case the Lessor may expel and exclude therefrom the Lessee and all or any persons claiming under the Lessee and to remove all goods and effects found upon the Demised Premises without in any case being taken or deemed to be guilty of any manner of trespass and without being in any manner liable at law or otherwise and released from all and every claim by the Lessee for any act, matter or thing done or omitted to be done by the Lessor under the powers and authorities hereby conferred or intended so to be and without prejudice to any right of action or remedy of the Lessor for arrears of rent or any of the covenants of the Lessee or of the other conditions, agreements and stipulations herein contained. Thereupon this Lease shall if the Lessor so elects determine and be at an end and the Lessee shall remain liable for rent to the date of such re-entry and at the rate herein before reserved, and in any such case this Lease may be produced as a Notice to Quit duly given and expired. 4.2 Matters Deemed Not To Affect Lessor's Rights If the Lessee shall vacate the Demised Premises during the said term (whether or not the Lessee ceases to pay the rental or other moneys payable hereunder): 4.2.1 acceptance of the keys and/or entry into the Demised Premises by the Lessor or by any person on the Lessor's behalf for the purposes of inspection or for the purposes of showing the premises to prospective tenants and/or the advertising of the Demised Premises for reletting shall not constitute a re-entry or forfeiture or waiver of the Lessor's right to recover in full all rental and other moneys from time to time payable hereunder. 4.2.2 in the absence of a written agreement by the Lessor to accept the surrender of the Lessee's interest hereunder or a formal notice of forfeiture or re-entry this Lease shall be deemed to continue in full force and effect until the date as from which a new Lessee actually commences to occupy the Demised Premises. -20- 4.2.3 any entry by the Lessor into the Demised Premises in the meantime shall be deemed an entry by the leave and licence of the Lessee. 5. DAMAGE, DESTRUCTION If at any time the Demised Premises or part thereof shall be in the opinion of the Lessor rendered unfit for occupation or use by reason of fire or otherwise then and in any such case the Lessor may at his option determine the Lease hereby created or may restore and reinstate the Demised Premises so as to be fit again for occupation and in the latter case except as hereinafter provided, the rent or a proportionate part thereof shall not be payable in respect of any period during which the Demised Premises or part thereof shall in the opinion of the Lessor be unfit for occupation or use but this provision for cessation of rent shall not apply if the policy of insurance against fire shall have been vitiated or if a renewal thereof shall have been refused in consequence of some act or default of the Lessee or the agents, servants, employees, invitees or charges of the Lessee or if the fire or otherwise shall have been caused through any act or omission of the Lessee or the agents, servants, employees, charges or invitees of the Lessee PROVIDED THAT if the Demised Premises be destroyed or rendered unfit for occupation for a period estimated by the Lessor to be beyond six months then the Lessee may by one week's written notice to the Lessor determine this Lease. 6. BANK GUARANTEE 6.1 The Lessee shall forthwith provide to the Lessor a Bank Guarantee to the amount specified in Item 12 of the Schedule ("the Bank Guarantee") to be held by the Lessor during the said term as security for the due and proper performance and observance by the Lessee of all of the covenants, provisos, conditions and agreements herein contained or implied and on the Lessee's part to be performed and observed. 6.2 In the event of the Lessee failing to pay the rent or any other moneys hereby reserved including all rates, taxes and Outgoings on the due dates for payment thereof the Lessor shall be entitled to have recourse to the Bank Guarantee to recover all amounts outstanding referred to herein and to meet any expense incurred by the Lessor as a result thereof without prejudice to the Lessor's other rights, powers and remedies in respect of such amounts. 6.3 6.3.1 If the Lessee fails to perform and observe any of the covenants, provisos, conditions and agreements contained in this Lease then the Lessor may, provided it has obtained an order from the relevant court, have recourse to the Bank Guarantee to remedy any such breach or default and to meet any expense incurred by the Lessor as a result thereof without prejudice to the Lessor's -21- other rights, powers and remedies in respect of any such default or breach. 6.3.2 The provisions of Clause 6.3.1. shall not apply to those covenants relating to the payment of rent and any other moneys including, rates, taxes and Outgoings referred to in Clause 6.2. 6.4 At the expiration or sooner determination of the said term the Lessee having performed and observed all of the said covenants, provisos, conditions and agreements shall be entitled to a refund of the Bank Guarantee or such part thereof as has not been applied as aforesaid. 6.5 Without prejudice to any other rights or powers of the Lessor provided in this Lease, the Lessor shall advise the Lessee in writing seven (7) days prior to exercising its rights under this Bank Guarantee. 7. RENEWAL OF LEASE If the Lessee shall wish to take a renewal Lease of the Demised Premises for a further term being the period (if any) so set out in the said Schedule from the expiration of the said term AND PROVIDED that the Lessee shall at least three months before the expiration of the term hereby created request such renewal by notice in writing to be delivered to the Lessor at its address last known to the Lessee and to its address herein appearing and shall have at all times throughout the term duly and punctually paid the rent reserved by this Lease at the times herein appointed for payment thereof and shall have at all times throughout the term duly performed and observed the covenants and agreements by and on the part of the Lessee contained in this Lease up to the expiration of the term hereby granted then the Lessor will at the expense of the Lessee grant to the Lessee a new Lease of the Demised Premises for a further term being the period (if any) so set out in the said Schedule from the day after the date of expiration of the said term (hereinafter called "the renewal date") at a rent to be determined in accordance with the provisions of Annexure 1 hereof which shall apply as if incorporated herein in respect to the first year of the further term and thereafter in accordance with Clause 2.2 AND otherwise the renewal Lease shall contain the like covenants and provisos as are herein contained save as to rental aforesaid and save for the provisions of this Clause PROVIDED FURTHER ALWAYS that if this Lease is presently subject to a Guarantee and Indemnity or a Bank Guarantee then the Lessor shall not be bound to grant a renewal Lease for the further term (if any) as herein otherwise provided for unless and until the Lessee procures the execution by a party or parties nominated by the Lessor of a Guarantee and Indemnity of the renewal Lease in a form approved by the Lessor and/or the Lessor's solicitors or at the Lessor's option a Bank Guarantee for the further term. If applicable, the parties herein agree that the last date for the Lessee to request a renewal lease is the date contained in Item 8 of the Schedule herein. -22- 8. HOLDING OVER If upon the expiration of the said terms the Lessee shall remain in possession of the Demised Premises without objection by the Lessor the Lessee shall be considered as from the date of expiry of the term hereby granted tenant from month to month of the Demised Premises at a rental to be determined in accordance with the provisions of Clause 2.2 payable in the manner set out in the Schedule subject to the provisions of this Lease as far as same can be construed to apply to a monthly tenancy. 9. MAXIMUM AGGREGATE PERIOD Notwithstanding anything to the contrary in this Lease contained or implied it is expressly agreed and understood that the maximum aggregate period for which the Lessee may occupy the Demised Premises is the period set out in Item 7 of the Schedule as the "maximum aggregate period" from the commencement date provided that the Lessee will have duly observed and performed all his obligations and covenants pursuant to this Lease and provided that he will have duly and properly exercised his right to renew this Lease for the further term (if any). 10. LESSEE MAY REMOVE PROPERTY 10.1 Prior to the expiration or earlier determination of the term hereby created (or later the renewal or extension thereof as the case may be) the Lessee may remove any of his chattels, floor coverings, fixtures and fittings contained or installed in or affixed to the Demised Premises by the Lessee during or prior to the term hereof (or later the renewal or extension thereof as the case may be) PROVIDED ALWAYS that any damage or loss occasioned thereby shall be made good at the expense of the Lessee and the Demised Premises are reinstated and restored by the Lessee to the same standard and condition subsisting at the date the Lessee began occupation of the Demised Premises or at the commencement date hereof whichever is the earlier. 10.2 If the Lessee has not so removed the said chattels, floor coverings, fixtures or fittings, the Lessor may by notice in writing addressed to the Lessee require the Lessee at the expense of the Lessee to remove from the Demised Premises within fourteen (14) days from the expiration or earlier determination of the term hereof (or later the renewal or extension thereof as the case may be) all or any of such chattels, floor coverings, fixtures and fittings and to reinstate and restore the Demised Premises to the same standard and condition subsisting at the date the Lessee began occupation of the Demised Premises or the commencement date hereof whichever is the earlier PROVIDED ALWAYS that the Lessor may at its option itself cause any such chattels, floor coverings, fixtures or fittings to be removed and any such damage to be made good and to reinstate and restore the -23- Demised Premises and may recover the costs thereof from the Lessee as a liquidated debt payable on demand. 10.3 If the Lessee shall not have so removed any of the said chattels, floor coverings, fixtures or fittings either as of right or by requirement of the Lessor as aforesaid, then the same shall be deemed to be affixed to the Demised Premises and thereupon the Lessee shall be deemed to have abandoned any claim in or at such chattels, floor coverings, fixtures and fittings and to have waived any right to compensation in respect thereof whereupon the same shall become the property of the Lessor. 10.4 Upon vacating the Demised Premises or at the request of the Lessor immediately prior thereto, the Lessee shall remove any signs, names, advertisements or notices erected, painted, displayed, affixed or exhibited upon, to or within the Demised Premises and shall make good any damage or disfigurement thereby caused. 11. ZONING AND USE OF PREMISES The Lessor shall in no way be held liable or responsible or accountable for the zoning applicable to the Demised Premises and the Lessee hereby acknowledges that it has checked the zoning applicable to the Demised Premises and finds the same suitable for its purposes and has obtained all necessary permits. Should the zoning in respect of the Demised Premises now or at any time hereafter conflict with the permitted uses hereunder then notwithstanding such conflict the Lessee shall remain fully liable for performance of its obligations hereunder. The Lessor in no way warrants that the premises are suitable for the permitted use described in Item 2 of the Schedule. 12. LESSEE'S RISK 12.1 To the extent permitted by law or statute, the Lessee indemnifies and keeps the Lessor indemnified from and against all damages, losses, costs, charges, expenses, actions, claims and demands which may be sustained, suffered, recovered or made against the Lessor (by any person) or for which the Lessor may become liable whether during or after the term of this Lease in respect of or arising from: 12.1.1 injury or loss which may be sustained by any person when using or entering or near any portion of the Demised Premises whether in the occupation of the Lessor or of the Lessee or of any other person where such injury arises or has arisen as a result of the negligence of or as a result of the creation of some dangerous thing or state of affairs by the Lessee or any agent, servant, employee, charge, invitee or any other person claiming through or under the Lessee and whether the existence of such dangerous thing or -24- dangerous state of affairs was or ought to have been known to the Lessee or not; 12.1.2 loss, damage or injury from any cause whatsoever to property or to persons within or outside the Demised Premises occasioned or contributed to by the neglect or default of the Lessee or any agent, servant, employee, charge, invitee or other person claiming through or under the Lessee to observe or perform any of the covenants, conditions, regulations and restrictions on the part of the Lessee hereunder whether positive or negative expressed or implied; 12.2.3 loss, damage or injury to the Demised Premises and all properties therein occasioned or contributed to by the neglect or default of the Lessee or any agent, servant, employee, charge, invitee or other person claiming through or under the Lessee; 12.1.4 the negligent use, misuse, waste or abuse by the Lessee or any agent, servant, employee, charge, invitee or any other person claiming through or under the Lessee of any water, gas, electricity or any other services supplied to the Demised Premises or the buildings; 12.1.5 the negligent use, misuse, waste or abuse by the Lessee or any agent, servant, employee, charge, invitee or any other person claiming through or under the Lessee of any faulty fittings and fixtures of the Lessee; 12.1.6 the negligent use, misuse, waste or abuse by the Lessee or any agent, servant, employee, charge, invitee or any other person claiming through or under the Lessee of the services, Mechanical Installations or facilities of the Demised Premises or the buildings; 12.1.7 the overflow leakage or escape of water, fire, gas, electricity or any other harmful agent whatsoever in or from the buildings or the Demised Premises caused or contributed to by any act or omission on the part of the Lessee or any agent, servant, employee, charge, invitee or any other person claiming through or under the Lessee; 12.1.8 the failure of the Lessee to immediately notify the Lessor of any accident or a defect in any of the Mechanical Installations, appurtenances, water pipes, gas pipes, electric wiring or other fittings or fixtures contained in the Demised Premises; -25- 12.1.9 loss, damage or injury from any cause whatsoever to property or person caused or contributed to by the use of the buildings or the Demised Premises by the Lessee or any agent, servant, employee, charge, invitee or any other person claiming through the Lessee; 12.1.10 the occurrence on the Demised Premises during the said term of any accident or injury to or death of any person or damage or injury to or loss of the property of any persons; or 12.1.11 any injury, illness, loss or damage which may be caused to or suffered by the Lessee or any agent, servant, employee, charge, invitee or any person claiming through or under the Lessee resulting from any materials used in or about the construction or maintenance of the buildings or the fixtures and fittings therein. 12.2 Notwithstanding Clause 12.1.11, the Lessee shall not be liable to indemnify the Lessor in respect of any injury, illness, loss or damage which may be caused to or suffered by the Lessee or any agent, servant, employee, charge, invitee or any other person claiming through or under the Lessee resulting from any materials used in or about the construction or maintenance of the buildings or the fixtures and fittings therein prior to the commencement of the Lease provided that: 12.2. 1 the Lessee acknowledges that a visual inspection of the Demised Premises and the building of which the Demised Premises forms part has been conducted. The Lessee undertakes to notify the Lessor of any defects which may become apparent to the Lessee during the term of the Lease. 12.2.2 the Lessee shall be responsible for any injury, illness, loss or damage resulting from any act, neglect or default on the part of the Lessee. 12.3 The Lessee agrees to occupy use and keep the Demised Premises at the risk of the Lessee and hereby releases to the full extent permitted by law the Lessor and its agents, servants, contractors and employees (save for the consequences of any wilful act on their part) from all claims and demands of every kind resulting from any accident, damage or injury occurring therein and the Lessee expressly agrees that in the absence of any such negligence as aforesaid the Lessor shall have no responsibility or liability for any loss of or damage to fixtures or personal property of the Lessee. -26- 12.4 Without limiting the generality of the foregoing the Lessee acknowledges that the Lessor shall not be liable to the Lessee or to any other person in respect of loss or damage suffered as a result of fire or explosion or the escape of water liquids or sewerage or by reason of any fault or failure of any of the Mechanical Installations or any electric, gas, water or sewerage system installation or apparatus or any fire protective or alarm system in the buildings or by insufficiency or absence of lighting or by the bursting, running or leaking of any tank closet tape or pipe or by rain or other water being upon or entering the Demised Premises through the roof, skylight, vent, window, trapdoor or otherwise or for any damage arising from any act or neglect of other occupiers of the buildings or of any adjacent property or the public or from any other cause howsoever occurring or from any structural defect and the Lessor shall not be liable in damages or otherwise for any failure to furnish or interruption of service of lift, escalator, water, gas, electricity, heated water, steam and chilled water caused by mechanical breakdown, fire, accident, riot, strike, labour disputes, Acts of God the making of any repairs or improvements or other causes beyond the control of the Lessor PROVIDED ALWAYS that such loss or damage is not occasioned by any wilful act of the Lessor its servants or agents. 13. ESSENTIAL COVENANTS That the covenants by the Lessee contained or implied in the clauses to pay rent, rates, taxes and all other charges, impositions, Outgoings, maintenance, repairs, assignments, sub-letting or otherwise of the Demised Premises, use of and licenses relating to the Demised Premises and insurances with regard to the Demised Premises are essential and fundamental terms to this Lease and the breach or non-observance or non-performance of any one or more such covenants, terms and conditions shall be deemed to be a fundamental breach of the provisions of this Lease on the part of the Lessee to be observed and performed PROVIDED THAT the presence of this Clause in this Lease shall not mean or be construed as meaning that there are no other fundamental and/or essential terms in this Lease. Should the Lessor terminate this Lease following any such fundamental breach or otherwise, then without prejudice to any other right or remedy of the Lessor herein contained or implied, IT IS EXPRESSLY AGREED AND DECLARED that the Lessor shall be entitled to recover from the Lessee as and by way of liquidated damages for such breach the difference between the aggregate of the rent, the Lessee's obligations to pay rates, taxes, other impositions and Outgoings in relation to the Demised Premises and other monies that would have been payable by the Lessee for the unexpired residue of the term but for such determination calculated from the date of such determination to the date of termination of this Lease referred to in the Schedule of this Lease LESS the aggregate of the several rental and other monies which the Lessor by taking proper steps to re-let the Demised Premises shall obtain or could reasonably be expected to obtain by re-letting the Demised Premises for the unexpired residue of the term (if any) PROVIDED that in so doing the Lessor shall not be required to oblige to offer or accept in respect of such re-letting -27- terms, covenants, conditions or stipulations which are the same or similar to the terms, covenants, conditions or stipulations herein contained or implied. 14. MORTGAGE OF PREMISES The parties hereto HEREBY JOINTLY ACKNOWLEDGE AND AGREE that the Lessor shall have the right at any time to mortgage or otherwise charge the Demised Premises without prejudice to the rights of the Lessee hereunder without obtaining or requiring the consent by the Lessee to such Mortgage or Charge and the Lessee FURTHER AGREES to sign documents and do all such reasonable acts, matters or things that may be required to enable registration in the Office of Titles of such Mortgage PROVIDED ALWAYS that any legal costs so incurred by the Lessee pursuant to this provision shall be paid by the Lessor. 15. SUITABILITY OF THE PREMISES 15.1 The Lessee acknowledges that no promise, representation, warranty or undertaking has been given by or on behalf of the Lessor in respect of the suitability of the buildings or the Demised Premises for any purpose or for any business to be carried on therein or as to the fittings, finishes, facilities and amenities of the buildings or the Demised Premises and all warranties (if any) implied by law are hereby so far as legally possible expressly negatived. 15.2 The Lessee acknowledges and declares that no promise, representation, warranty or undertaking either express or implied has been given by or on behalf of the Lessor or can be said to be deemed to have arisen as to the suitability of the Demised Premises for any business to be carried on therein by the Lessee or as to the quality, nature or extent of any of the fittings, finishes, facilities and amenities of the Demised Premises or any of the common areas appurtenances services and mechanical installations that the Lessee is to be entitled to use and enjoy either alone or in common with others or as to the use or purpose to which the Demised Premises may lawfully be put or otherwise as to any business that may lawfully be carried on in the Demised Premises and notwithstanding that the Lessee may have made known to the Lessor or any person acting for it the nature of the Lessee's present business or of any other business that the Lessee wishes to carry on in the Demised Premises. 16. VICARIOUS RESPONSIBILITY The Lessee shall not permit any of the Lessee's servants, agents or so far as the Lessee can control them the Lessee's customers or invitees to commit a breach of or make default in performing any of the covenants on the part of the Lessee herein contained. -28- 17. FIRE HAZARD The Lessee shall not in any way create any actual or potential fire hazard in the buildings or the Demised Premises or in any part thereof and will permit the Lessor at all times to enter upon the Demised Premises and to abate any actual or potential fire hazard in or about the Demised Premises and if such hazard in the reasonable opinion of the Lessor is caused by or results from the use or occupancy of the Demised Premises by the Lessee the Lessee shall pay to the Lessor the costs and expenses incurred by the Lessor in carry out such work. 18. MORATORIUM The Lessee shall not be entitled to the benefit of any Acts, Regulations or proclamations in the nature or having the effect of a moratorium or purporting to effect any reduction in rent or interest whether already passed made or authorized or hereafter to be passed made or authorized by the Federal or State Parliament or other responsible body or authority thereunder and that such Acts, Regulations and proclamations shall not apply hereto. 19. GOVERNING LAW This Lease shall be governed by and construed in accordance with the Laws of the State of Victoria and if any provisions of this Lease shall to any extent be invalid the remainder of this Lease shall not be affected thereby. 20. NO REPRESENTATIONS There are no oral or written agreements between the Lessor and Lessee affecting this Lease other than the written agreement for Lease (if any) to which this Lease was attached and which was made by the parties hereto in respect of the Demised Premises and that this Lease is not entered into in reliance on any representations or warranties express or implied, save as may be specifically set out herein. 21. NOTICES Any notice to the Lessee hereunder, notwithstanding any other provision herein to the contrary contained or implied shall be deemed to be duly given if left at the Demised Premises or addressed to the Lessee at the Demised Premises and duly posted. A notice sent by post shall be deemed to have been duly served at twelve (12) noon on the day next following such posting. 22. JOINT AND SEVERAL LIABILITY That in the event of the Lessee consisting of more than one party then the covenants herein contained and on the part of the Lessee to be observed and performed shall be deemed to be entered into both jointly and severally by the parties constituting the Lessee. -29- 23. MISCELLANEOUS 23.1 Amendment This Lease may be amended only by instruments in writing executed by the Lessor and Lessee. 23.2 No Relationship Nothing herein contained shall be deemed or construed (by the parties hereto nor by any third party) as creating the relationship of principal and agent or of partnership or of joint venture between the parties hereto it being understood and agreed that no provision contained herein shall be deemed to create any relationship between the parties hereto other than the relationship of Lessor and Lessee. 23.3 Waiver No waiver by the Lessor of a breach of any covenant, obligation or provision in this Lease contained or implied shall, operate as a waiver of another breach of the same or any other covenant, obligation or provision in this Lease contained or implied. 23.4 Index and Headings The Index and all headings in this Lease are not intended to and do not constitute parts of the Lease and only act as a guide to finding the relevant clauses. 23.5 Schedule and Annexures The Schedule, Annexures and Special Conditions (if any) are intended to and do form part of this Lease. 23.6 Severance, Reading Down The several covenants and conditions and each and every part thereof contained in this Lease, shall be so construed as not to infringe the provisions of any Act whether State or Federal, but if any such covenant or condition in its true interpretation does infringe any such provision, that covenant or condition shall be read down to such extent as may be necessary to ensure that it does not so infringe and as may be reasonable in all circumstances so as to give it a valid operation of a partial character and in the event that the infringing covenant or condition cannot be so read down it shall be deemed to be void and severable. -30- EXECUTED BY THE PARTIES THE COMMON SEAL of ENFIELD ) VIEW PTY LTD (A.C.N. 007 382 603) ) (SEAL) was hereunto affixed in ) accordance with its Articles ) of Association in the ) presence of: ) /s/ J.P. Shannon DIRECTOR - ----------------------- J.P. Shannon Name of Director (print) - ----------------------- /s/ illegible SECRETARY - ----------------------- illegible Name of Secretary (print) - ----------------------- THE COMMON SEAL of RECOIL ) PTY LTD (A.C.N. 006 664 7311) ) (SEAL) was hereunto affixed in accordance with ) its Articles of Association in the ) presence of: ) /s/ B.F. Ball DIRECTOR - ----------------------- B.F. Ball Name of Director (print) - ----------------------- /s/ K.D. Jones DIRECTOR - ----------------------- K.D. Jones Name of Director (print) - ----------------------- 11th Day of August 1995 Commonwealth Bank as Mortgageee under Memorandum of Mortgage No. A571511D of the premise demised by the within lease hereby conents to such lease. /s/ illegible SCHEDULE ITEM 1. DEMISED PREMISES: All that piece of land being Lots, 6, 7 and part of Lot 8 on Plan of Subdivision No. 136910 lodged in the Titles Office and described in Certificate of Title Volume 9518 Folio 994 and situated at 20 Stamford Road, Oakleigh 2. USE OF PREMISES: Office, warehouse and light industrial manufacturing 3. RENTAL: TEN THOUSAND SIX HUNDRED AND NINETY DOLLARS AND SIXTY- THREE CENTS ($10,690.63) per calendar month payable monthly in advance from the commencement date. No rent is payable for the period from the commencement date to 31 October 1995. Nothing in this Schedule shall relieve the Lessee of its obligations to pay the Outgoings. 4. RENT REVIEW DATES: Annually from the commencement date 5. TERM OF LEASE: Five (5) years 6. FURTHER TERM: One (1) further term of five (5) years 7. MAXIMUM AGGREGATE PERIOD Ten (10) years 8. LAST DATE FOR EXERCISE OF OPTION: 30 April 2000 9. COMMENCEMENT DATE: 1st August 1995 10. CHATTELS: Airconditioner, Partitioning, Carpets, Sprinkler System (Garden) and Fire Fighting Equipment 11. SECURITY DEPOSIT: Nil 12. BANK GUARANTEE: Bank Guarantee of seventy thousand dollars ($70,000.00) for the term of this Lease. The Bank Guarantee for the further term shall be the average six (6) monthly rental payable during the further term based on an annual rental increase of four percent (4%) pursuant to Clause 2.2, rounded up to the nearest one thousand dollars ($1,000.00). LEASE INDEX CLAUSE Recitals 1. DEFINITIONS AND INTERPRETATION. . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2. LESSEE'S COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.2 Rent Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.3 Rates, Taxes and Outgoings . . . . . . . . . . . . . . . . . . . . 4 2.4 General Positive Covenants . . . . . . . . . . . . . . . . . . . . 5 2.4.1 Consumables. . . . . . . . . . . . . . . . . . . . . . . . 5 2.4.2 Clean the Premises . . . . . . . . . . . . . . . . . . . . 5 2.4.3 Repair and Maintain. . . . . . . . . . . . . . . . . . . . 5 2.4.4 Clean Windows. . . . . . . . . . . . . . . . . . . . . . . 6 2.4.5 Make Good Damage . . . . . . . . . . . . . . . . . . . . . 6 2.4.6 Repair Damage Caused to Adjoining Premises . . . . . . . . 6 2.4.7 Disposal of Rubbish. . . . . . . . . . . . . . . . . . . . 6 2.4.8 Notice of Defects. . . . . . . . . . . . . . . . . . . . . 6 2.4.9 Comply with Acts . . . . . . . . . . . . . . . . . . . . . 6 2.4.10 Use of Premises. . . . . . . . . . . . . . . . . . . . . . 7 2.4.11 Inspection . . . . . . . . . . . . . . . . . . . . . . . . 7 2.4.12 Maintenance and Alteration . . . . . . . . . . . . . . . . 8 2.4.13 Lessor's Costs . . . . . . . . . . . . . . . . . . . . . . 8 2.4.14 Costs of Default . . . . . . . . . . . . . . . . . . . . . 8 2.4.15 Interest on Default. . . . . . . . . . . . . . . . . . . . 8 2.4.16 Exhibit "To Let" Sign . . . . . . . . . . . . . . . . . . 9 2.4.17 Inspection at End of Term. . . . . . . . . . . . . . . . . 9 2.4.18 Keep Premises Open . . . . . . . . . . . . . . . . . . . . 9 2.4.19 Locking of Property. . . . . . . . . . . . . . . . . . . . 9 2.4.20 Garden . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.4.21 Delivering Up. . . . . . . . . . . . . . . . . . . . . . . 10 2.4.22 Lessee's Works . . . . . . . . . . . . . . . . . . . . . . 10 2.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.5.1 Insurance Charges. . . . . . . . . . . . . . . . . . . . . 10 2.5.2 Pay or Reimburse . . . . . . . . . . . . . . . . . . . . . 12 2.5.3 Application of Insurance Money . . . . . . . . . . . . . . 12 2.5.4 Insurance against storage of Hazardous Chemicals . . . . . 12 2.6 General Negative Covenants . . . . . . . . . . . . . . . . . . . . 12 2.6.1 Not to Sleep on Premises . . . . . . . . . . . . . . . . . 12 2.6.2 No Illegal Immoral Purpose . . . . . . . . . . . . . . . . 12 2.6.3 No Rubbish . . . . . . . . . . . . . . . . . . . . . . . . 12 2.6.4 No Alterations/Additions . . . . . . . . . . . . . . . . . 12 ii 2.6.5 Not to Vitiate Insurance . . . . . . . . . . . . . . . . . 13 2.6.6 No Noxious Offensive Business. . . . . . . . . . . . . . . 13 2.6.7 No Auction Sale. . . . . . . . . . . . . . . . . . . . . . 13 2.6.8 Hazardous Chemicals. . . . . . . . . . . . . . . . . . . . 13 2.6.9 Approved Heating . . . . . . . . . . . . . . . . . . . . . 13 2.6.10 No Animals . . . . . . . . . . . . . . . . . . . . . . . . 14 2.6.11 No Sweeping. . . . . . . . . . . . . . . . . . . . . . . . 14 2.6.12 No Noise . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.6.13 Signs. . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.6.14 Damage to the Demised Premises . . . . . . . . . . . . . . 15 2.7 Assignment Mortgage and/or Parting with Possession . . . . . . . . 15 2.7.1 Provisions for Assignment, etc.. . . . . . . . . . . . . . 15 2.7.2 Lessee Corporation . . . . . . . . . . . . . . . . . . . . 16 3. LESSOR'S COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.1 Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.2 Comply With Terms. . . . . . . . . . . . . . . . . . . . . . . . . 17 3.3 Structural Maintenance and Repair. . . . . . . . . . . . . . . . . 17 3.4 Refrigerants . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4. MUTUAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4.1 Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4.2 Matters Deemed Not To Affect Lessor's Rights . . . . . . . . . . . 19 5. DAMAGE, DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6. BANK GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 7. RENEWAL OF LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 8. HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9. MAXIMUM AGGREGATE PERIOD. . . . . . . . . . . . . . . . . . . . . . . . 22 10. LESSEE MAY REMOVE PROPERTY. . . . . . . . . . . . . . . . . . . . . . . 22 11. ZONING AND USE OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . 23 12. LESSEE'S RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 13. ESSENTIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 26 14. MORTGAGE OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . 27 15. SUITABILITY OF THE PREMISES . . . . . . . . . . . . . . . . . . . . . . 27 iii 16. VICARIOUS RESPONSIBILITY. . . . . . . . . . . . . . . . . . . . . . . . 27 17. FIRE HAZARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 18. MORATORIUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 19. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 20. NO REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 21. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 22. JOINT AND SEVERAL LIABILITY . . . . . . . . . . . . . . . . . . . . . . 28 23. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 23.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 23.2 No Relationship. . . . . . . . . . . . . . . . . . . . . . . . . . 29 23.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 23.4 Index and Headings . . . . . . . . . . . . . . . . . . . . . . . . 29 23.5 Schedule and Annexures . . . . . . . . . . . . . . . . . . . . . . 29 23.6 Severance, Reading Down. . . . . . . . . . . . . . . . . . . . . . 29 SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 EX-10.8A 13 EXHIBIT 10.8(A) GENERAL TERMS AGREEMENT EXHIBIT 10.8(a) GENERAL TERMS AGREEMENT between THE BOEING COMPANY and KAYNAR TECHNOLOGIES INCORPORATED Number BCA-65751-029 ------------- KAYNAR TECH BCAG CONTRACT 07-01-95 BCA-65751-029 GENERAL TERMS AGREEMENT TABLE OF CONTENTS SECTION TITLE - ------- ----- 1.0 DEFINITIONS 2.0 ISSUANCE OF PURCHASE ORDERS AND APPLICABLE TERMS 2.1 Issuance of Purchase Orders 2.2 Acceptance of Purchase Orders 2.3 Written Authorization to Proceed 2.4 Rejection of Purchase Orders 3.0 TITLE AND RISK OF LOSS 4.0 DELIVERY 4.1 Requirements 4.2 Delay 4.3 Notice of Labor Disputes 5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES 5.1 Review 5.2 Resident Representatives 6.0 INVOICE AND PAYMENT 7.0 PACKING AND SHIPPING 8.0 QUALITY ASSURANCE, INSPECTION REJECTION AND ACCEPTANCE 8.1 Controlling Document 8.2 Seller's Inspection 8.3 Boeing's Inspection and Rejection 8.4 Federal Aviation Administration or Equivalent Government Agency Inspection 8.5 Retention of Records KAYNAR TECH BCAG CONTRACT 07-01-95 ii BCA-65751-029 SECTION TITLE - ------- ----- 8.6 Source Inspection 8.7 Language for Technical Information 9.0 EXAMINATION OF RECORDS 10.0 CHANGES 10.1 General 10.2 Model Mix 11.0 PRODUCT ASSURANCE 12.0 TERMINATION FOR CONVENIENCE 13.0 EVENTS OF DEFAULT AND REMEDIES 14.0 EXCUSABLE DELAY 15.0 SUSPENSION OF WORK 16.0 TERMINATION OR CANCELLATION: INDEMNITY AGAINST SUBCONTRACTOR'S CLAIMS 17.0 ASSURANCE OF PERFORMANCE 18.0 RESPONSIBILITY FOR PROPERTY 19.0 LIMITATION OF SELLER'S RIGHTS TO ENCUMBER ASSETS 20.0 PROPRIETARY INFORMATION AND ITEMS 21.0 COMPLIANCE WITH LAWS 22.0 INTEGRITY IN PROCUREMENT 23.0 INFRINGEMENT 24.0 BOEING'S RIGHTS IN SELLER'S, PATENTS COPYRIGHTS, TRADE SECRETS AND TOOLING 25.0 NOTICES 25.1 Addresses 25.2 Effective Date 25.3 Approval or Consent KAYNAR TECH BCAG CONTRACT 07-01-95 iii BCA-65751-029 SECTION TITLE - ------- ----- 26.0 PUBLICITY 27.0 PROPERTY INSURANCE 27.1 Insurance 27.2 Certificate of Insurance 27.3 Notice of Damage or Loss 28.0 RESPONSIBILITY FOR PERFORMANCE 28.1 Subcontracting 28.2 Reliance 28.3 Assignment 29.0 NON-WAIVER 30.0 HEADINGS 31.0 PARTIAL INVALIDITY 32.0 APPLICABLE LAW 33.0 AMENDMENT 34.0 LIMITATION 35.0 TAXES 35.1 Inclusion of Taxes in Price 35.2 Litigation 35.3 Rebates 36.0 FOREIGN PROCUREMENT OFFSET 37.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE 37.1 Entire Agreement 37.2 Incorporated By Reference 37.3 Order of Precedence 37.4 Disclaimer KAYNAR TECH BCAG CONTRACT 07-01-95 iv BCA-65751-029 AMENDMENT AMEND NUMBER DESCRIPTION DATE APPROVAL - ------ ----------- ------------- KAYNAR TECH BCAG CONTRACT 07-01-95 v BCA-65751-029 GENERAL TERMS AGREEMENT RELATING TO BOEING PRODUCTS THIS GENERAL TERMS AGREEMENT ("Agreement") is entered into as of September 20, 1996, by and between Kaynar Technologies Incorporated, a California corporation, with its principal office in Fullerton, California, ("Seller"), and The Boeing Company, a Delaware corporation with its principal office in Seattle, Washington acting by and through its division the Boeing Commercial Airplane Group ("Boeing"). RECITALS A. Boeing produces commercial airplanes. B. Seller manufactures and sells certain goods and services for use in the production and support of such aircraft. C. Seller desires to sell and Boeing desires to purchase certain of Seller's goods and services in accordance with the terms set forth in this Agreement. Now therefore, in consideration of the mutual covenants set forth herein, the parties agree as follows: KAYNAR TECH BCAG CONTRACT 07-01-95 1 BCA-65751-029 AGREEMENTS 1.0 DEFINITIONS The definitions set forth below shall apply to the following terms as they are used in this Agreements, any Order, or any related Special Business Provisions ("SBP"). Words importing the singular number shall also include the plural number and vice versa. (a) "Customer" means an owner, operator or user of Products and any other individual, partnership, corporation or entity which has or acquires any interest in the Products from, through or under Boeing. (b) "Derivative" means any new model airplane designated by Boeing as a derivative of an existing Model airplane and which: (1) has the same number of engines as the existing model airplane: (2) utilizes essentially the same aerodynamic and propulsion design, major assembly components, and systems as the existing model airplane and (3) achieves other payload/range combinations by changes in body length, engine thrust, or variations in certified gross weight. (c) "Drawing" means an automated or manual depiction of graphics or technical information representing a Product or any part thereof and which includes the parts list and specifications relating thereto. (d) "End Item Assembly" means any Product which is described by a single part number and which is comprised of more than one component part: (e) "FAA" means the United States Federal Aviation Administration or any successor agency thereto. (f) "FAR" means the Federal Acquisition Regulations in effect on the date of this Agreement. (g) "Material Representative" means the individual designated from time to time, by Boeing as being primarily responsible for interacting with Seller regarding this Agreement and any Order. (h) "Order" means each purchase order issued by Boeing and accepted by Seller under the terms of this Agreement. Each Order is a contract between Boeing and Seller. (i) "Product" means goods, including components and parts thereof, services, documents, data, software, software documentation and other information or items furnished or to be furnished to Boeing under any Order, including Tooling except for Rotating Use Tools. (j) "Purchased on Assembly Production Detail Part (POA)" means a component part of an End Item Assembly. (k) "Shipset" means the total quantity of a given part number or material necessary for production of one airplane. KAYNAR TECH BCAG CONTRACT 07-01-95 2 BCA-65751-029 (l) "Spare" means any Product' regardless of whether the Product is an End Item Assembly or a Purchased on Assembly Production Detail Part, which is intended for use or sale as a spare part or a production replacement. (m) "Tooling" means all tooling, as defined in Boeing Document M31-24, "Boeing Suppliers Tooling Manual," and/or described on any Order, including but not limited to Boeing-Use Tooling, Supplier-Use Tooling and Common-Use Tooling as defined in Boeing Document D6-49004, "Operations General Requirements for Suppliers.' and Rotating-Use Tooling as defined in Boeing Document M31-13. Accountability of Inplant/Outplant Special (Contract) Tools." For purposes of this Agreement, in the documents named in this subparagraph, the term "Supplier Use Tooling" shall be changed to Seller Use Tooling. 2.0 ISSUANCE OF ORDERS AND APPLICABLE TERMS 2.1 ISSUANCE OF ORDERS Boeing may issue Orders to Seller from time to time. Each Order shall contain a description of the Products ordered, a reference to the applicable specifications and Drawings, the quantities and prices, the delivery schedule, the terms and place of delivery and any special conditions. Each Order which incorporates this Agreement shall be governed by and be deemed to include the provisions of this Agreement. Purchase Order Terms and Conditions, Form D1-4100-4045, Form P252T and any other purchase order terms and conditions which may conflict with this Agreement, do not apply to the Orders. 2.2 ACCEPTANCE OF ORDERS Each Order is Boeing's offer to Seller and acceptance is strictly limited to its terms. Boeing will not be bound by and specifically objects to any term or condition which is different from or in addition to the provisions of the Order, whether or not such term or condition will materially alter the Order. Seller's commencement of performance or acceptance of the Order in any manner shall conclusively evidence Seller's acceptance of the Order as written. Boeing may revoke any Order prior to Boeing's receipt of Seller's written acceptance or Seller's commencement of performance. 2.3 WRITTEN AUTHORIZATION TO PROCEED Boeing's Material Representative may give written authorization to Seller to commence performance before Boeing issues an Order. If Boeing in its written authorization specifies that an Order will be issued, Boeing and Seller shall proceed as if an Order had been issued. This Agreement, the applicable SBP and the terms stated in the written authorization shall be deemed to be a part of Boeing's offer and the parties shall promptly agree on any open Order terms. If Boeing does not specify in its written authorization that an Order shall be issued, Boeing's obligation is strictly limited to the terms of the written authorization. For purposes of this Section 2.3 only, written authorization includes electronic transmission chosen by Boeing. If Seller commences performance before an Order is issued or without receiving Boeing's prior authorization to proceed, such performance shall be at Seller's expense. 2.4 REJECTION OF PURCHASE ORDER Any rejection by Seller of an Order shall specify the reasons for rejection and any changes or additions that would make the Order acceptable to Seller; provided, however, that Seller may not reject any Order for reasons inconsistent with the provisions of this Agreement or the applicable SBP. KAYNAR TECH BCAG CONTRACT 07-01-95 3 BCA-65751-029 3.0 TITLE AND RISK OF LOSS Title to and risk of any loss of or damage to the Products shall pass from Seller to Boeing at the F.O.B. point as specified in the applicable Order, except for loss or damage thereto resulting from Seller's fault or negligence. Passage of title on delivery does not constitute Boeing's acceptance of Products. 4.0 DELIVERY 4.1 REQUIREMENTS Deliveries shall be strictly in accordance with the quantities, the schedule and other requirements specified in the applicable Order. Seller may not make early deliveries without Boeing's prior written authorization. Seller may not make partial deliveries without Boeing's prior authorization. Deliveries which fail to meet Order requirements may be returned to Seller at Seller's expense. 4.2 DELAY Seller shall notify Boeing immediately, of any circumstances that may cause a delay in delivery, stating the estimated period of delay and the reasons therefor. If requested by Boeing, Seller shall use additional effort, including premium effort, and shall ship via air or other expedited routing to avoid or minimize delay to the maximum extent possible. All additional costs resulting from such premium effort or premium transportation shall be borne by Seller with the exception of such costs attributable to delays caused directly by Boeing. Nothing herein shall prejudice any of the rights or remedies provided to Boeing in the applicable Order or by law. 4.3 NOTICE OF LABOR DISPUTES Seller shall immediately notify Boeing of any actual or potential labor dispute that may disrupt the timely performance of an Order. Seller shall include the substance of this Section 4.3, including this sentence, in any subcontract relating to an Order if a labor dispute involving the subcontractor would have the potential to delay the timely performance of such Order. Each subcontractor, however, shall only be required to give the necessary notice and information to its next higher-tier subcontractor. 5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES 5.1 REVIEW At Boeing's request, Seller shall provide at Boeing's facility or at a place designated by Boeing, a review explaining the status of the Order, actions taken or planned relating to the Order and any other relevant information. Nothing herein maybe construed as a waiver of Boeing's rights to proceed against Seller because of any delinquency. Boeing's authorized representatives may enter Seller's plant at all reasonable times to conduct preliminary inspections and rests of the Products and work-in-process. Seller shall include in its subcontracts issued in connection with an Order a like provision giving Boeing the right to enter the premises of Seller's subcontractors. When requested by Boeing, Seller shall accompany Boeing to Seller's subcontractors. 5.2 RESIDENT REPRESENTATIVES Boeing may in its discretion and for such periods as it deems necessary assign resident personnel at Seller's facilities. Seller shall furnish, free of charge, all office space, secretarial service and other facilities and assistance reasonably required by Boeing's representatives at Seller's plant. The resident team will function under the guidance of Boeing's manager. The resident team will provide communication and coordination to ensure timely performance of the Order. Boeing's resident team shall be allowed access to all work areas. Order status reports and management review necessary to assure timely performance and conformance with the requirements of each Order. Notwithstanding such assistance, Seller remains solely responsible for performing in accordance with each Order. KAYNAR TECH BCAG CONTRACT 07-01-95 4 BCA-65751-029 6.0 INVOICE AND PAYMENT Unless otherwise provided in the applicable Order, invoicing and payment shall be in accordance with SBP Section 7.0. 7.0 PACKING AID SHIPPING Seller shall (a) prepare for shipment and suitably pack all Products to prevent damage or deterioration, (b) where Boeing has not identified a carrier, secure lowest transportation rates, (c) comply faith the appropriate carrier tariff for the mode of transportation specified by Boeing and (d) comply with any special instructions stated in the applicable Order. Boeing shall pay no charges for preparation, packing, crating or cartage unless stated in the applicable Order. Unless otherwise directed by Boeing, all standard routing shipments forwarded on one day must be consolidated. Each container must be consecutively numbered and marked as set forth below. Container and Order numbers must be indicated on the applicable bill of lading. Two copies of the packing sheets must be attached to the No. 1 container of each shipment and one copy in each individual container. Each pack sheet must include as a minimum the following: a) Seller's name, address and phone number: b) Order and item number; c) ship date for the Products; d) total quantity shipped and quantity in each container, if applicable: e) legible pack slip number: f) nomenclature; g) unit of measure; h) ship to if other than Boeing; i) warranty data and certification, as applicable; j) rejection tag, if applicable; k) Seller's certification that Products comply with Order requirements; and, l) identification of optional material used, if applicable. Products sold F.O.B. place of shipment must be forwarded collect. Seller may not make any declaration concerning the value of the Products shipped, except on Products where the tariff rating or rate depends on the released or declared value, and in such event the value shall be released or declared at the maximum value for the lowest tariff rating or rate. The following markings shall be included on each unit container: a) Seller's name; b) Seller's part number, if applicable: c) Boeing part number, if applicable; d) part nomenclature; e) Order number: f) quantity of Products in container; g) unit of measure; h) serial number, if applicable: i) date (quarter/year) identified as assembly or rubber cure date, if applicable: j) precautionary handling instructions or marking as required. In addition, the following markings/labels shall be included on each shipping container: a) Name and address of consignee; b) Name and address of consigner; c) Order number; d) Part number as shown on the Order; e) Quantity of Products in container: f) Unit of measure: g) Box number; h) Total number of boxes in shipment: and, i) Precautionary handling, labeling or marking as required. 8.0 QUALITY ASSURANCE, INSPECTION, REJECTION & ACCEPTANCE 8.1 CONTROLLING DOCUMENT The controlling quality assurance document for Orders shall be as set forth in the SBP Section 4.0. 8.2 SELLER'S INSPECTION Seller shall inspect or otherwise verify that all Products and components thereof, including those procured from or furnished by subcontractors or Boeing, comply with the requirements of the Order prior to shipment to Boeing or Customer. Seller shall be responsible for all tests and inspections of the Product and any component thereof during receiving, manufacture and Seller's final inspection. Seller shall include on each packing sheet a certification that the Products comply with the requirements of the Order. KAYNAR TECH BCAG CONTRACT 07-01-95 5 BCA-65751-029 8.2.1 SELLER'S DISCLOSURE Seller will immediately notify Boeing when discrepancies in Seller's processes or Product are discovered or suspected for Products Seller has delivered. 8.3 BOEING'S INSPECTION AND REJECTION Unless otherwise specified on an Order, Products shall be subject to final inspection and acceptance by Boeing at destination, notwithstanding any payment or prior inspection. Boeing may reject any Product which does not strictly conform to the requirements of the applicable Order. Boeing shall by notice, rejection tag or other communication notify Seller of such rejection. Whenever possible, Boeing may coordinate with Seller prior to disposition of the rejected Product(s), however. Boeing shall retain final disposition authority with respect to all rejections. At Seller's risk and expense, all such Products will be returned to Seller for immediate repair, replacement or other correction and redelivery to Boeing: provided, however, that with respect to any or all of such Products and at Boeing's election and at Seller's risk and expense, Boeing may: (a) hold, retain, or return such Products without permitting any repair, replacement or other correction by Seller: (b) hold or retain such Products for repair by Seller or, at Boeing's election, for repair by Boeing with such assistance from Seller as Boeing may require; (c) hold such Products until Seller has delivered conforming replacements for such Products; (d) hold such Products until conforming replacements are obtained from a third party; (e) return such Products with instructions to Seller as to whether the Products shall be repaired or replaced and as to the manner of redelivery or (f) return such Products with instructions that they be scrapped. Upon final disposition by Boeing that the non-conforming Product(s) are not subject to repair and prior to the Products being scrapped, Seller shall render the Product(s) unusable. Seller shall also maintain, pursuant to their quality assurance system, records certifying destruction of the applicable Products. Said certification shall state the method and date of mutilation and destruction of the subject Product(s). Boeing shall have the right to review and inspect these records at any time it deems necessary. Failure to comply with these requirements shall be a material breach of this Agreement and grounds for default pursuant, to GTA Section 13.0. All repair, replacement and other corrections and redelivery shall be completed within such time as Boeing may require. All costs and expenses, loss of value and any other damages incurred as result of or in connection all with nonconformance and repair, replacement or other correction may be recovered from Seller by an equitable price reduction, set-off or credit against any amounts that may be owed to Seller under the applicable Order or otherwise. Boeing may revoke its acceptance of any Products and have the same rights with regard to the Products involved as if it had originally rejected them. 8.4 FEDERAL AVIATION ADMINISTRATION OR EQUIVALENT GOVERNMENT AGENCY INSPECTION Representatives of Boeing, the FAA or any equivalent government agency may inspect and evaluate Sellers plant including, but not limited to, Seller's and subcontractor's facilities, systems, data, equipment, inventory holding areas, procedures, personnel, testing, and all work-in-process and completed Products. For purposes of this Section 8.4, equivalent government agency shall mean those governmental agencies so designated by the FAA or those agencies within individual countries which maintain responsibility for assuring aircraft airworthiness. 8.5 RETENTION OF RECORDS Quality assurance records shall be maintained on file at Seller's facility and available to Boeing's authorized representatives. Seller shall retain such records for a period of not less than seven (7) Years from the date of final payment under the applicable Order. KAYNAR TECH BCAG CONTRACT 07-01-95 6 BCA-65751-029 8.6 SOURCE INSPECTION If an Order contains a notation that "100% Source Inspection" is required, the Products shall not be packed for shipment until they have been submitted to Boeing's quality assurance representative for inspection. Both the packing list and Seller's invoice must reflect evidence of this inspection. 8.7 LANGUAGE FOR TECHNICAL INFORMATION All reports, drawings and other technical information submitted to Boeing for review or approval shall be in English and shall employ the units of measure customarily used by Boeing in the United States of America. 9.0 EXAMINATION OF RECORDS Seller shall maintain complete and accurate records showing the sales volume of all Products. Such records shall support all services performed, allowances claimed and costs incurred by Seller in the performance of each Order, including but not limited to those factors which comprise or affect direct labor hours, direct labor rates, material costs, burden rates and subcontracts. Such records and other data shall be capable of verification through audit and analysis by Boeing and be available to Boeing at Seller's facility for Boeing's examination and audit at all reasonable times from the date of the applicable Order until three (3) years after final payment under such Order. Seller shall provide assistance to interpret such data if requested by Boeing. Such examination shall provide Boeing with complete information regarding Seller's performance for use in price negotiations with Seller relating to existing or future orders for Products, including but not limited to negotiation of equitable adjustments for changes and termination/obsolescence claims pursuant to GTA Section 10.0. Boeing shall treat all information disclosed under this Section as confidential. 10.0 CHANGES 10.1 GENERAL Boeing's Material Representative may at any time by written change order make changes within the general scope of an Order in any one or more of the following: drawings, designs, specifications, shipping, packing, place of inspection, place of delivery, place of acceptance, adjustments in quantities, adjustments in delivery schedules, or the amount of Boeing furnished material. Seller shall proceed immediately to perform the Order as changed. If any such change causes an increase or decrease in the cost of or the time required for the performance of any part of the work, whether changed or not changed by the change order, an equitable adjustment shall be made in the price of or the delivery schedule for those Products affected, and the applicable Order shall be modified in writing accordingly. Any claim by Seller for adjustment under this Section 10.1 must be received by Boeing in writing no later than (60) days from the date of receipt by Seller of the written change order or within such further time as the parties may agree in writing or such claim shall be deemed waived. Nothing in this Section 10.1 shall excuse Seller from proceeding with an Order as changed, including failure of the parties to agree on any adjustment to be made under this Section 10.1. If Seller considers that the conduct of any of Boeing's employees has constituted a change hereunder, Seller shall immediately notify Boeing's Material Representative in writing as to the nature of such conduct and its effect on Seller's performance. Pending direction from Boeing's Material Representative, Seller shall take no action to implement any such change. KAYNAR TECH BCAG CONTRACT 07-01-95 7 BCA-65751-029 10.2 MODEL MIX In the event any Derivative aircraft(s) is introduced by Boeing, Boeing may (but is not obligated to) direct Seller within the scope or the applicable Order and in accordance with the provisions or GTA Section 10.0 to supply Boeing's requirements for Products for such Derivative aircraft(s) which correspond to those Products being produced under the applicable Order. 11.0 PRODUCT ASSURANCE Boeing's acceptance or any Product does not alter or affect the obligations of Seller or the rights of Boeing and its customers under the document referenced in the SBP Section 6.0 or as provided by law. 12.0 TERMINATION FOR CONVENIENCE 12.1 BASIS FOR TERMINATION: NOTICE Boeing may, from time to time and at Boeing's sole discretion, terminate all or part of any Order issued hereunder by written notice to Seller. Any such written notice of termination shall specify the effective date and the extent of any such termination. 12.2 TERMINATION INSTRUCTIONS On receipt of a written notice of termination pursuant to GTA Section 12.1, unless otherwise directed by Boeing, Seller shall: A. Immediately stop work as specified in the notice: B. Immediately terminate its subcontracts and purchase orders relating to work terminated; C. Settle any termination claims made by its subcontractors or suppliers: provided, that Boeing shall have approved the amount of such termination claims prior to such settlement; D. Preserve and protect all terminated inventory and Products; E. At Boeing's request, transfer title (to the extent not previously transferred) and deliver to Boeing or Boeing's designee all supplies and materials, work-inprocess, Tooling and manufacturing drawings and data produced or acquired by Seller for the performance of this Agreement and any Order, all in accordance with the terms of such request: F. Take all reasonable steps required to return, or at Boeing's option and with prior written approval to destroy, all Boeing Proprietary Information and Items in the possession, custody or control of Seller: G. Take such other action as, in Boeing's reasonable opinion, may be necessary, and as Boeing shall direct in writing, to facilitate termination of this Order; and H. Complete performance of the work not terminated. 12.3 SELLER'S CLAIM If Boeing terminates an Order in whole or in part pursuant to Section 12.1 above, Seller shall have the right to submit a written termination claim to Boeing in accordance with the terms of this Section 12.3. Such termination claim shall be submitted to Boeing riot later than six (6) months after Seller's receipt of the termination notice and shall be in the form prescribed by Boeing. Such claim must contain sufficient detail to explain the amount claimed, including detailed inventory schedules and a detailed breakdown of all costs claimed separated into categories (e.g., materials, purchased parts, finished components, labor, burden, general and administrative), and to explain the basis for allocation of all other costs. Seller shall be entitled to be compensated in accordance with and to the extent allowed under the terms of FAR 52-249-2(e)-(m) excluding (i), (as published in 48 CFR Section 52.249-2) which is incorporated herein by this reference except "Government" and "Contracting Officer" shall mean Boeing, "Contractor" shall mean Seller and "Contract" shall mean Order. KAYNAR TECH BCAG CONTRACT 07-01-95 8 BCA-65751-029 12.4 FAILURE TO SUBMIT A CLAIM Notwithstanding any other provision of this Section 12.0, if Seller fails to submit a termination claim within the time period set forth above, Seller shall be barred from submitting a claim and Boeing shall have no obligation for payment to Seller under this Section 12.0 except for those Products previously delivered and accepted by Boeing. 12.5 PARTIAL TERMINATION Any partial termination or an Order shall not alter or affect the terms and conditions of the Order or any Order with respect to Products not terminated. 12.6 PRODUCT PRICE Termination under any of the above paragraphs shall not result in any change to unit prices for Products not terminated. 12.7 EXCLUSIONS OR DEDUCTIONS The following items shall be excluded or deducted from any claim submitted by Seller: A. All unliquidated advances or other payments made by Boeing to Seller pursuant to a terminated Order: B. Any claim which Boeing has against Seller; C. The agreed price for scrap allowance: E. Except for normal spoilage and any risk of loss assumed by Boeing, the agreed fair value of property that is lost, destroyed, stolen or damaged. 12.8 PARTIAL PAYMENT/PAYMENT Payment, if any, to be paid under this Section 12.0 shall be made thirty (30) days after settlement between the parties or as otherwise agreed to between the parties. Boeing may make partial payments and payments against costs incurred by Seller for the terminated portion of the Order, if the total of such payments does not exceed the amount to which Seller would be otherwise entitled. If the total payments exceed the final amount determined to be due, Seller shall repay the excess to Boeing upon demand. 12.9 SELLER'S ACCOUNTING PRACTICES Boeing and Seller agree that Seller's "normal accounting practices" used in developing the price of the Product(s) shall also be used in determining the allocable costs at termination. For purposes of this Section 12.9, Seller's "normal accounting practices" refers to Seller's method of charging costs as either a direct charge, overhead expense, general administrative expense, etc. 12.10 RECORDS Unless otherwise provided in this Agreement or by law, Seller shall maintain all records and documents relating to the terminated portion of the Order for three (3) years after final settlement or Seller's termination claim. 13.0 EVENTS OF DEFAULT AND REMEDIES 13.1 EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an "Event of Default": KAYNAR TECH BCAG CONTRACT 07-01-95 9 BCA-65751-029 A. Any failure by Seller to deliver, when and as required by Agreement or any Order, any Product, except as provided in GTA Section 14.0: or B. Any failure by Seller to provide an acceptable Assurance of Performance within the time specified in GTA Section 14.0, or otherwise in accordance with applicable law; or, C. Any failure by Seller to perform or comply with any obligation set forth in GTA Section 20.0: or D. Seller is or has participated in the sale, purchase or manufacture of airplane parts without the required approval of the FAA. E. Any failure by Seller to perform or comply with any obligation (other than as described in the foregoing Sections 13.1.A, 13.1.B, 13.1.C and 13.1.D) set forth in this Agreement and such failure shall continue unremedied for a period of thirty (30) days or more following receipt by Seller of notice from Boeing specifying such failure: or F. (a) the suspension, dissolution or winding-up of Seller's business, (b) Seller's insolvency, or its inability to pay debts, or its nonpayment of debts, as they become due, (c) the institution of reorganization, liquidation or other such proceedings by or against Seller or the appointment of a custodian, trustee, receiver or similar Person for Seller's properties or business, (d) an assignment by Seller for the benefit of its creditors, or (e) any action of Seller for the purpose of effecting or facilitating any of the foregoing. 13.2 REMEDIES If any Event of Default shall occur: A. CANCELLATION Boeing may, by giving written notice to Seller, immediately cancel this Agreement and/or any Order, in whole or in part, and Boeing shall not be required after such notice to accept the tender by Seller of any Products with respect to which Boeing has elected to cancel this Agreement. B. COVER Boeing may by giving written notice to Seller manufacture, produce or provide, or may engage any other persons to manufacture, produce or provide, any Products in substitution for the Products to be delivered or provided by Seller hereunder with respect to which this Agreement or any Order has been cancelled and, in addition to any other remedies or damages available to Boeing hereunder or at law or in equity, Boeing may recover from Seller the difference between the price for each such Product and the aggregate expense, including, without limitation, administrative and other indirect costs, paid or incurred by Boeing to manufacture, produce or provide, or engage other persons to manufacture, produce or provide, each such Product. C. REWORK OR REPAIR Boeing may rework or repair any Product in accordance with GTA Section 8.3; D. SETOFF Boeing shall, at its option have the right to set off against and apply to the payment or performance or any obligation, sum or amount owing at any time to Boeing hereunder or under any Order, all deposits, amounts or balances held by Boeing for the account of Seller and any amounts owed by Boeing to Seller, regardless of whether any such deposit, amount, balance or other amount or payment is then due and owing. E. TOOLING AND OTHER MATERIALS As compensation for the additional costs which Boeing will incur as a result of the actual physical transfer of production capabilities from Seller to Boeing or Boeing's designee. Seller shall upon the request of Boeing, transfer and deliver to Boeing or Boeing's designee title to any or all (i) Tooling, (ii) Boeing- furnished material, (iii) raw materials, parts, work-in-process, incomplete or completed assemblies, and all other Products or parts thereof in the possession or under the KAYNAR TECH BCAG CONTRACT 07-01-95 10 BCA-65751-029 effective control of Seller or any of its subcontractors (iv) Proprietary Information and Materials of Boeing including without limitation planning data, drawings and other Proprietary Information and Materials relating to the design, production, maintenance, repair and use of Tooling, in the possession or under the effective control of Seller or any of its subcontractors, in each case free and clear of all liens, claims or other rights or any person. Seller shall be entitled to receive from Boeing reasonable compensation for any item accepted by Boeing which has been transferred to Boeing pursuant to this Section 13.2.E (except for any item the price of which shall have been paid to Seller prior to such transfer) provided, however, that such compensation shall not be paid directly to Seller, but shall be accounted for as a setoff against any damages payable by Seller to Boeing as a result of any Event of Default. F. REMEDIES GENERALLY No failure on the part of Boeing in exercising any right or remedy hereunder, or as provided by law or in equity, shall impair, prejudice or constitute a waiver of any such right or remedy, or shall be construed as a waiver of any Event of Default or as an acquiescence therein. No single or partial exercise of any such right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. No acceptance of partial payment or performance of any of Seller's obligations hereunder shall constitute a waiver of any Event of Default or a waiver or release of payment or performance in full by Seller of any such obligation. All rights and remedies of Boeing hereunder and at law and in equity shall be cumulative and not mutually exclusive and the exercise of one shall not be deemed a waiver of the right to exercise any other. Nothing contained in this Agreement shall be construed to limit any right or remedy of Boeing now or hereafter existing at law or in equity. 14.0 EXCUSABLE DELAY If delivery of any Product is delayed by unforeseeable circumstances beyond the control and without the fault or negligence of Seller or of its suppliers or subcontractors (any such delay being hereinafter referred to as "Excusable Delay"), the delivery of such Product shall be extended for a period to be determined by Boeing after an assessment by Boeing or alternate work methods. Excusable Delays may include, but are not limited to, acts of God, war, riots, acts of government, fires, floods, epidemics, quarantine restrictions, freight embargoes, strikes or unusually severe weather, but shall exclude Seller's noncompliance with any rule, regulation or order promulgated by any governmental agency for or with respect to environmental protection. However, the above notwithstanding, Boeing expects Seller to continue production, recover lost time and support all schedules as established under this Agreement or any Order. Therefore, it is understood and agreed that (i) delays of less than two (2) days' duration shall not be considered to be Excusable Delays unless such delays shall occur within thirty (30) days preceding the scheduled delivery date of any Product and (ii) if delay in delivery of any Product is caused by the default of any of Seller's subcontractors or suppliers, such delay shall not be considered an Excusable Delay unless the supplies or services to be provided by such subcontractor or supplier are not obtainable from other sources in sufficient time to permit Seller to meet the applicable delivery schedules. If delivery of any Product is delayed by any Excusable Delay for more than three (3) months, Boeing may, without any additional extension, cancel all or part of any Order with respect to the delayed Products, and exercise any of its remedies in accordance with GTA Section 13.2 provided however, that Boeing shall not be entitled to monetary damages or specific performance to the extent Seller's breach is the result of an Excusable Delay. KAYNAR TECH BCAG CONTRACT 07-01-95 11 BCA-65751-029 15.0 SUSPENSION OF WORK Boeing may at any time, by written order to Seller, require Seller to stop all or any part of the work called for by this Agreement hereafter referred to as a "Stop Work Order" issued pursuant to this Section 15.0. On receipt of a Stop Work Order, Seller shall promptly comply with its terms and take all reasonable steps to minimize the occurrence of costs arising from the work covered by the Stop Work Order during the period of work stoppage. Within the period covered by the Stop Work Order (including any extension thereof) Boeing shall either (i) cancel the Stop Work Order or (ii) terminate or cancel the work covered by the Stop Work Order in accordance with the provisions of GTA Section 12.0 or 13.0. In the event the Stop Work Order is cancelled by Boeing or the period of the Stop Work Order (including any extension thereof) expires, Seller shall promptly resume work in accordance with the terms of this Agreement or any applicable Order. 16.0 TERMINATION OR CANCELLATION AND INDEMNITY AGAINST SUBCONTRACTOR CLAIMS Boeing shall not be liable for any loss or damage resulting from any termination pursuant to GTA Section 12.1, except as expressly provided in GTA Section 12.3 or any cancellation under GTA Section 13.0 except to the extent that such cancellation shall have been determined by Boeing and Seller to have been wrongful, in which case such wrongful cancellation shall be deemed a termination pursuant to GTA Section 12.1 and therefore shall be limited to the payment to Seller of the amount or amounts identified in GTA Section 12.3. As subcontractor claims are included in Seller's termination claim pursuant to GTA Section 12.3, Seller shall indemnify Boeing and hold Boeing harmless from and against (i) any and all claims, suits and proceedings against Boeing by any subcontractor or supplier of Seller in respect of any such termination and (ii) and any and all costs, expenses, losses and damages incurred by Boeing in connection with any such claim, suit or proceeding. 17.0 ASSURANCE OF PERFORMANCE A. SELLER TO PROVIDE ASSURANCE If Boeing determines, at anytime or from time to time, that it is not sufficiently assured of Seller's full, timely and continuing performance hereunder, or if for any other reason Boeing has reasonable grounds for insecurity, Boeing may request, by notice to Seller, written assurance (hereafter an "Assurance of Performance") with respect to any specific matters affecting Seller's performance hereunder, that Seller is able to perform all of its respective obligations under this Agreement when and as specified herein. Each Assurance of Performance shall be delivered by Seller to Boeing as promptly as possible, but in any event no later than 15 calendar days following Boeing's request therefore and each Assurance of Performance shall be accompanied by any information, reports or other materials, prepared by Seller, as Boeing may reasonably request. Boeing may suspend all or any part of Boeing's performance hereunder until Boeing receives an Assurance of Performance from Seller satisfactory in form and substance to Boeing. B. MEETINGS AND INFORMATION Boeing may request one or more meetings with senior management or other employees of Seller for the purpose of discussing any request by Boeing for Assurance of Performance or any Assurance of Performance provided by Seller. Seller shall make such persons available to meet with representatives of Boeing as soon as may be practicable following a request for any such meeting by Boeing, and Seller shall make available to Boeing any additional information, reports or other materials in connection therewith as Boeing may reasonably request. 18.0 RESPONSIBILITY FOR PROPERTY On delivery to Seller or manufacture or acquisition by it of any materials, parts, Tooling or other property, title to any of which is in Boeing, Seller shall assume the risk of and shall be responsible for any loss thereof or damage thereto. In accordance KAYNAR TECH BCAG CONTRACT 07-01-95 12 BCA-65751-029 with the provisions of an Order, but in any event on completion thereof, Seller shall return such property to Boeing in the condition in which it was received except for reasonable clear and tear and except to the extent that such property has been incorporated in Products delivered under such Order or has been consumed in the normal performance of work under such Order. 19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS Seller warrants to Boeing that it has good title to all inventory, work-in-process, tooling and materials to be supplied by Seller in the performance of its obligations under any Order ("Inventory"), and that pursuant to the provisions of such Order, it will transfer to Boeing title to such Inventory, whether transferred separately or as part of any Product delivered under the Order, free of any liens, charges, encumbrances or rights of others. 20.0 PROPRIETARY INFORMATION AND ITEMS Boeing and Seller shall each keep confidential and protect from disclosure all (a) confidential, proprietary, and/or trade secret information; (b) tangible items containing, conveying, or embodying such information; and (c) tooling obtained from and/or belonging to the other in connection with this Agreement or any Order (collectively referred to as "Proprietary Information and Materials"). Boeing and Seller shall each use Proprietary Information and Materials of the other only in the performance of and for the purpose of this Agreement and/or any Order. Provided, however, that despite any other obligations or restrictions imposed by this Section 20.0, Boeing shall have the right to use and disclose of Seller's Proprietary Information and Materials for the purposes of testing, certification, use, sale, or support of any item delivered under this Agreement, an Order, or any airplane including such an item; and any such disclosure by Boeing shall, whenever appropriate, include a restrictive legend suitable to the particular circumstances. The restrictions on disclosure or use of Proprietary Information and Materials by Seller shall apply to all materials derived by Seller or others from Boeing's Proprietary Information and Materials. Upon Boeing's request at any time, and in any event upon the completion, termination or cancellation of this Agreement, Seller shall return all of Boeing's Proprietary Information and Materials, and all materials derived from Boeing's Proprietary Information and Materials to Boeing unless specifically directed otherwise in writing by Boeing. Seller shall not, without the prior written authorization of Boeing, sell or otherwise dispose of (as scrap or otherwise) any parts or other materials containing, conveying, embodying, or made in accordance with or by reference to any Proprietary Information and Materials of Boeing. Prior to disposing of such parts or materials as scrap, Seller shall render them unusable. Boeing shall have the right to audit Seller's compliance with this Section 20.0. Seller may disclose Proprietary Information and Materials of Boeing to its subcontractors as required for the performance of an Order, provided that each such subcontractor first assumes, by written agreement, the same obligations imposed upon Seller under this Section 20.0 relating to Proprietary Informations and Materials; and Seller shall be liable to Boeing for any breach of such obligation by such subcontractor. The provisions of this Section 20.0 are effective in lieu of, and will apply notwithstanding the absence of, any restrictive legends or notices applied to Proprietary Information and Materials: and the provisions of this Section 20.0 shall survive the performance, completion, termination or cancellation of this Agreement or any Order. This Section 20.0 supersedes and replaces any and all other prior agreements or understandings between the parties to the extent that such agreements or understandings relate to Boeing's obligations relative to confidential, proprietary, and/or trade secret information, or tangible items containing, conveying, or embodying such information, obtained from Seller and related to any Product, regardless of whether disclosed to the receiving party before or after the effective date of this Agreement. KAYNAR TECH BCAG CONTRACT 07-01-95 13 BCA-65751-029 21. COMPLIANCE WITH LAWS 21.1 SELLER'S OBLIGATION Seller shall be responsible for complying with all laws, including, but not limited to, any statute, rule, regulation, judgment, decree, order, or permit applicable to its performance under this Agreement. Seller further agrees (1) to notify Boeing of any obligation under this Agreement which is prohibited under applicable environmental law, at the earliest opportunity but in all events sufficiently in advance of Seller's performance of such obligation so as to enable the identification of alternative methods of performance, and (2) to notify Boeing at the earliest possible opportunity of any aspect of its performance which becomes subject to additional environmental regulation or which Seller reasonably believes will become subject to additional regulation during the performance of this Agreement. 21.2 GOVERNMENT REQUIREMENTS If any of the work to be performed under this Agreement is performed in the United States, Seller shall, via invoice or other form satisfactory to Boeing, certify that the Products covered by the Order were produced in compliance with Sections 6, 7, and 12 of the Fair Labor Standards Act (29 U. S. C. 201-291), as amended, and the regulations and orders of the U.S. Department of Labor issued thereunder. In addition, the following Federal Acquisition Regulations are incorporated herein by this reference except "Contractor" shall mean "Seller": FAR 52.222-26 "Equal Opportunity" FAR 52.222-35 "Affirmative Action for Special Disabled and Vietnam Era Veterans" FAR 52.222-36 "Affirmative Action for Handicapped Workers". 22.0 INTEGRITY IN PROCUREMENT Boeing's policy is to maintain high standards of integrity in procurement. Boeing's employees must ensure that no favorable treatment compromises their impartiality in the procurement process. Accordingly, Boeing's employees must strictly refrain from soliciting or accepting any payment, gift, favor or thing of value which could improperly influence their judgement with respect to either issuing a Order or administering this Agreement. Consistent with this policy. Seller agrees not to provide or offer to provide any employees of Boeing any payment, gift, favor or thing of value for the purposes of improperly obtaining or rewarding favorable treatment in connection with any Order or this Agreement. Seller shall conduct its own procurement practices and shall ensure that its suppliers conduct their procurement practices consistent with these standards. If Seller has reasonable grounds to believe that this policy may have been violated. Seller shall immediately report such possible violation to the appropriate Director of Material or Ethics Advisor of Boeing. 23.0 INFRINGEMENT Seller shall indemnify, defend, and save Boeing and Customers harmless from all claims, suits, actions, awards (including but not limited to awards based on intentional infringement of patents known to Seller at the time of such infringement, exceeding actual damages, and/or including attorneys' fees and/or costs), liabilities, damages, costs and attorneys' fees related to the actual or alleged infringement of any United States or foreign intellectual property right (including but not limited to any right in a patent, copyright, industrial design or semiconductor mask work, or based on misappropriation or wrongful use of information or documents) and arising out of the manufacture, sale or use of Products by Boeing or Customers. Boeing and/or Customers shall duly notify Seller of any such claim, suit or action: and Seller shall, at its own expense, fully defend such claim, suit or action on behalf of Boeing and/or Customers. Seller shall have no obligation under this Section 23.0 with regard to any infringement arising from: (i) Seller's compliance with formal specifications issued by KAYNAR TECH BCAG CONTRACT 07-01-95 14 BCA-65751-029 Boeing where infringement could not be avoided in complying with such specifications or (ii) use or sale of Products in combination with other items when such infringement would not have occurred from the use or sale of those Products solely for the purpose for which they were designed or sold by Seller. For purposes of this Section 23.0 only, the term Customer shall not include the United States Government; and the term Boeing shall include The Boeing Company (Boeing) and all Boeing subsidiaries and all officers, agents, and employees of Boeing or any Boeing subsidiary. 24.0 BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS, TRADE SECRETS, AND TOOLING Seller hereby grants to Boeing an irrevocable, nonexclusive, paid-up worldwide license to practice and/or use, and license others to practice and/or use on Boeing's behalf, all of Seller's patents, copyrights, trade secrets (including, without limitation, designs, processes, drawings, technical data and tooling), industrial designs, semiconductor mask works, and tooling (collectively hereinafter referred to as "Licensed Property") related to the development, production, maintenance or repair of Products. Boeing hereafter retains all of the aforementioned license rights in Licensed Property, but Boeing hereby covenants not to exercise such rights except in connection with the making, having made, using and selling of Products or products of the same kind, and then only in the event of any of the following: a. Seller discontinues or suspends business operations or the production of any or all of the Products; b. Seller is acquired by or transfers any or all of its rights to manufacture any Product to any third party, whether or not related; c. Boeing cancels this Agreement or any Order for cause pursuant to GTA Section 13.0 herein: d. in Boeing's judgement it becomes necessary, in order for Seller to comply with the terms of this Agreement or any Order, for Boeing to provide support to Seller (in the form of design, manufacturing, or on-site personnel assistance)substantially in excess of that which Boeing normally provides to its suppliers: e. Seller's trustee in bankruptcy (or Seller as debtor in possession) fails to assume this Agreement and all Orders by formal entry of an order in the bankruptcy court within sixty (60) days after entry of an order for relief in a bankruptcy case of the Seller, or Boeing elects to retain its rights to Licensed Property under the bankruptcy laws: f. Seller is at any time insolvent (whether measured under a balance sheet test or by the failure to pay debts as they come due) or the subject of any insolvency or debt assignment proceeding under state or nonbankruptcy law; or g. Seller voluntarily becomes a debtor in any case under bankruptcy law or, in the event an involuntary bankruptcy petition is filed against Seller, such petition is not dismissed within thirty (30) days. As a part of the license granted under this Section 24.0, Seller shall, at the written request of Boeing and at no additional cost to Boeing, promptly deliver to Boeing any and all Licensed Property considered by Boeing to be necessary to satisfy Boeing's requirements for Products and their substitutes. KAYNAR TECH BCAG CONTRACT 07-01-95 15 BCA-65751-029 25.0 NOTICES 25.1 ADDRESSES Notices and other communications shall be given in writing by personal delivery, mail, telex, teletype, telegram, facsimile, cable or other electronic transmission addressed to the respective party as set forth in the SBP Section 9.0. 25.2 EFFECTIVE DATE The date on which any such communication is received by the addressee is the effective date of such communication. 25.3 APPROVAL OR CONSENT With respect to all matters subject to the approval or consent of either party, such approval or consent shall be requested in writing and is not effective until given in writing. With respect to Boeing, authority to grant approval or consent is limited to Boeing's Material Representative. 26.0 PUBLICITY Seller will not, and will require that its subcontractors and suppliers of any tier will not, (i) cause or permit to be released any publicity, advertisement, news release. public announcement, or denial or confirmation of the same, in whatever form, regarding any Order or Products, or the program to which they may pertain, or (ii) use, or cause or permit to be used, the Boeing name or any Boeing trademark in any form of promotion or publicity without Boeing's prior written approval. 27.0 PROPERTY INSURANCE 27.1 INSURANCE Seller shall maintain continuously in effect a property insurance policy covering loss or destruction of or damage to all property in which Boeing does or could have an insurable interest pursuant to this Agreement, including but not limited to Tooling, Boeing-furnished property, raw materials, parts, work-in process, incomplete or completed assemblies and all other products or parts thereof, and all drawings, specifications, data and other materials relating to any of the foregoing in each case to the extent in the possession or under the effective care, custody or control of Seller, in the amount of full replacement value thereof providing protection against all perils normally covered in an "all risk" property insurance policy (including without limitation fire, windstorm, explosion, riot, civil commotion, aircraft, earthquake, flood or other acts of God). Any such policy shall (i) provide for payment of loss thereunder to Boeing, as loss payee, when an aggregate amount of Fifty Thousand Dollars ($50,000) of aforementioned property, as its interests may appear and (ii) contain a waiver of any rights of subrogation against Boeing, its subsidiaries, and their respective directors, officers, employees and agents. 27.2 CERTIFICATE OF INSURANCE Prior to commencement of this Agreement, Seller shall provide to Boeing's Material Representative, for Boeing's review and approval, certificates of insurance reflecting full compliance with the requirements set forth in GTA Section 27.1. Such certificates shall be kept current and in compliance throughout the period of this Agreement and shall provide for thirty (30) days advanced written notice to Boeing's Material Representative in the event of cancellation, non-renewal or material change adversely affecting the interests of Boeing. 27.3 NOTICE OF DAMAGE OR LOSS Seller shall give prompt written notice to Boeing's Material Representative of the occurrence of any damage or loss to any property required to be insured herein. If any such property shall be damaged or destroyed, in whole or in part, by an insured peril or otherwise, and if no Event of Default shall have occurred and be continuing, then KAYNAR TECH BCAG CONTRACT 07-01-95 16 BCA-65751-029 Seller may, upon written notice to Boeing, settle, adjust, or compromise any all such loss or damage not in excess of Two Hundred Fifty Thousand Dollars ($250,000) in any one occurrence and Five Hundred Thousand Dollars ($500,000) in the aggregate. Seller may settle, adjust or compromise any other claim by Seller only after Boeing has given written approval, which approval shall not be unreasonably withheld. 28.0 RESPONSIBILITY FOR PERFORMANCE Seller shall be responsible for the requirements of this Agreement and any Order referencing this Agreement. Seller shall bear all risks of providing adequate facilities and equipment to perform each Order in accordance with the terms thereof. Seller shall include as part of its subcontracts those elements of the Agreement which protect Boeing's rights including but not limited to right of entry provisions, proprietary information and rights provisions and quality control provisions. In addition, Seller shall provide to its subcontractors sufficient information to clearly document that the work being performed by Seller's subcontractor is to facilitate performance under this Agreement or any Order. Sufficient information may include but is not limited to Order number, GTA number or the name of Boeing's Material Representative. No subcontracting by Seller shall relieve Seller of its obligation under the applicable Order. 28.1 SUBCONTRACTING Seller may not procure any Product, as defined in the applicable Order, from a third party in a completed or a substantially completed form without Boeing's prior written consent. Where required by the requirements of the Order, no raw material and/or material process may be incorporated in a Product unless: (a) Seller uses an approved source or (b) Boeing has surveyed and qualified Seller's receiving inspection personnel and laboratories to test the specified raw materials and/or material process. No waiver of survey and qualification requirements will be effective unless granted by Boeing's Engineering and Quality Control Departments. Utilization of a Boeing-approved raw material source does not constitute a waiver of Seller's responsibility to meet all specification requirements. 28.2: RELIANCE Boeing entering into this Agreement is in part based upon Boeing's reliance on Seller's ability, expertise and awareness of the intended use of the Products. Seller agrees that Boeing and Boeing's customers may rely on Seller as an expert, and Seller will not deny any responsibility or obligation hereunder to Boeing or Boeing's customers on the grounds that Boeing or Boeing's customers provided recommendations or assistance in any phase of the work involved in producing or supporting the Products, including but not limited to Boeing's acceptance of specifications, test data or the Products. 28.3 ASSIGNMENT Each Order shall inure to the benefit of and be binding on each of the parties hereto and their respective successors and assigns, provided however, that no assignment of any rights or delegation of any duties under such Order is binding on Boeing unless Boeing's written consent has first been obtained. Notwithstanding the above, Seller may assign claims for monies due or to become due under any Order provided that Boeing may recoup or setoff any amounts covered by any such assignment against any indebtedness of Seller to Boeing, whether arising before or after the date of the assignment or the date of this Agreement, and whether arising out of any such Order or any other agreement between the parties. KAYNAR TECH BCAG CONTRACT 07-01-95 17 BCA-65751-029 Boeing may settle all claims arising out of any Order, including termination claims, directly with Seller. Boeing may unilaterally assign any rights or title to property, under the Order to any wholly-owned subsidiary of The Boeing Company. 29.0 NON-WAIVER Boeing's failure at any time to enforce any provision of an Order does not constitute a waiver of such provision or prejudice Boeing's right to enforce such provision at any subsequent time. 30.0 HEADINGS Section and Section headings used in this Agreement are for convenient reference only and do not affect the interpretation of the Agreement. 31.0 PARTIAL INVALIDITY If any provision of any Order is or becomes void or unenforceable by force or operation of law, the other provisions shall remain valid and enforceable. 32.0 APPLICABLE LAW, JURISDICTION Each Order, including all matters of construction, validity and performance, shall in all respects be governed by, and construed and enforced in accordance with, the law as set forth in SBP Section 5.0. 33.0 AMENDMENT Oral statements and understandings are not valid or binding. Except as otherwise provided in GTA Section 12.0 and SBP Section 10.0, no Order may be changed or modified except by a writing signed by Seller and Boeing's Material Representative. 34.0 LIMITATION Seller may not (except to provide an inventory of Products to support delivery acceleration and to satisfy reasonable replacement and Spares requirements) manufacture or fabricate Products or procure any goods in advance of the reasonable flow time required to comply with the delivery schedule in the applicable Order. Notwithstanding any other provision of an Order, Seller is not entitled to any equitable adjustment or other modification of such Order for any manufacture, fabrication, or procurement of Products not in conformity with the requirements of the Order, unless Boeing's written consent has first been obtained. Nothing in this Section 34.0 shall be construed as relieving Seller of any of its obligations under the Order. 35.0 TAXES 35.1 INCLUSION OF TAXES IN PRICE All taxes, including but not limited to federal, state and local income taxes, value added taxes, gross receipt taxes, property taxes, and custom duties taxes are deemed to be included in the Order price, except applicable sales or use taxes on sales to Boeing ("Sales Taxes") for which Boeing has not supplied a valid exemption certificate or unless otherwise indicated on the applicable Order. 35.2 LITIGATION In the event that any taxing authority has claimed or does claim payment for Sales Taxes, Seller shall promptly notify Boeing, and Seller shall take such action as Boeing may direct to pay or protest such taxes or to defend against such claim. The actual and direct expenses, without the addition of profit and overhead, of such defense and the amount of such taxes as ultimately determined as due and payable shall be paid directly by Boeing or reimbursed to Seller. If Seller or Boeing is successful in defending such claim, the amount of such taxes recovered by Seller, which had previously been paid by Seller and reimbursed by Boeing or paid directly by Boeing, shall be immediately refunded to Boeing. KAYNAR TECH BCAG CONTRACT 07-01-95 18 BCA-65751-029 35.3 REBATES If any taxes paid by Boeing are subject to rebate or reimbursement, Seller shall take the necessary actions to secure such rebates or reimbursement and shall promptly refund to Boeing any amount recovered. 36.0 FOREIGN PROCUREMENT OFFSET With respect to work covered by the Order, Seller shall use its best efforts to cooperate with Boeing in the fulfillment of any foreign offset program obligation that Boeing may have accepted as a condition of the sale of Boeing's products. In the event that Seller solicits bids or proposals for, or procures or offers to procure any goods or services relating to the work covered by an Order from any source outside of the United States, Boeing shall be entitled, to the exclusion of all others, to all industrial benefits and other "offset" credits which may result from such solicitations, procurements or offers to procure. Seller agrees to take any actions that may be required on its part to assure that Boeing receives such credits. 37.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE 37.1 ENTIRE AGREEMENT The Order sets forth the entire agreement, and supersedes any and all other prior agreements, understandings and communications between Boeing and Seller related to the subject matter of an Order. The rights and remedies afforded to Boeing or Customers pursuant to any provisions of an Order are in addition to any other rights and remedies afforded by any other provisions of this Order, by law or otherwise. 37.2 INCORPORATED BY REFERENCE In addition to the documents previously incorporated herein by reference, the documents listed below are by this reference made a part of this Agreement: A. Engineering Drawing by Part Number and Related Outside Production Specification Plan (OPSP). B. Any other exhibits or documents agreed to by the parties to be a part of this Agreement. 37.3 ORDER OF PRECEDENCE In the event of a conflict or inconsistency between any of the terms of the following documents, the following order of precedence shall control: A. SBP (excluding the Administrative Agreement identified in E below) B. This General Terms Agreement (excluding the documents identified in D and F below) C. Order (excluding the documents identified in A and B above) D. Engineering Drawing by Part Number and, if applicable, related Outside Production Specification Plan (OPSP). E. Administrative Agreement (If Applicable) F. Any other exhibits or documents the parties agree shall be part of the Agreement. KAYNAR TECH BCAG CONTRACT 07-01-95 19 BCA-65751-029 37.4 DISCLAIMER Unless otherwise specified on the face of the applicable Order, any CATIA Dataset or translation thereof (each or collectively "Data") furnished by Boeing is furnished as an accommodation to Seller. It is the Seller's responsibility to compare such Data to the comparable two dimensional computer aided design drawing to confirm the accuracy of the Data. BOEING HEREBY DISCLAIMS, AND SELLER HEREBY WAIVES, ALL WARRANTIES AND LIABILITIES OF BOEING AND ALL CLAIMS AND REMEDIES OF SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN ANY CATIA DATASET OR TRANSLATION THEREOF, INCLUDING, WITHOUT LIMITATION, ANY (A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, (B) ANY IMPLIED WARRANTY ARISING FROM COURSE OF DEALING OR PERFORMANCE OR USAGE OF TRADE, (C) RECOVERY BASED UPON TORT, WHETHER OR NOT ARISING FROM BOEING'S NEGLIGENCE, AND (D) ANY RECOVERY BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON LOSS OF USE OR PROFIT OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES. EXECUTED in duplicate as of the date and year first written above by the duly authorized representatives of the parties. THE BOEING COMPANY KAYNAR TECHNOLOGIES INCORPORATED by and through its division Boeing Commercial Airplane Group /s/ Hugh McCormick /s/ Robert L. Beers Name: Hugh N. McCormick Name: Robert L. Beers Title: Buyer Title: Vice President Sales and Marketing Date: September 16, 1996 Date: 9-20-96 KAYNAR TECH BCAG CONTRACT 07-01-95 20 BCA-65751-029 EX-10.8B 14 EXHIBIT 10.8(B) SPECIAL BUSINESS PROVISIONS SPECIAL BUSINESS PROVISIONS between THE BOEING COMPANY and KAYNAR TECHNOLOGIES INCORPORATED Number STD-65751-025 ------------- i SPECIAL BUSINESS PROVISIONS TABLE OF CONTENTS Section Item - ------- ---- 1.0 DEFINITIONS 2.0 PURCHASE ORDER NOTE 3.0 PRICES 3.1 Product Pricing 3.2 Manufacturing Configuration Baseline 3.3 Packaging 4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT 5.0 APPLICABLE LAW JURISDICTION 6.0 PRODUCT ASSURANCE 6.1 Governing Document 7.0 PAYMENT 7.1 Recurring Price 7.2 Non-Recurring Price/Special Charges 8.0 ACCELERATION/DECELERATION AT NO COST 9.0 NOTICES 9.1 Addresses 10.0 OBLIGATION TO PURCHASE AND SELL 11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY 12.0 CHANGES 12.1 Changes to the Statement of Work 12.2 Computation of Equitable Adjustment 12.3 Obsolescence 12.4 Change Absorption 12.5 Planning Schedule 12.6 Value Engineering 12.7 Reduction in Quantity to be Delivered 13.0 SPARES AND OTHER PRICING 13.1 Spares 13.2 Short Flow Production Requirements 13.3 Tooling ii SPECIAL BUSINESS PROVISIONS TABLE OF CONTENTS Section Item - ------- ---- 13.4 Pricing of Boeing's Supporting Requirements 13.5 Pricing of Requirements for Modification or Retrofit 13.6 Similar Pricing 14.0 STATUS REPORTS/REVIEWS 15.0 PROVISIONS FOR OFFSET/BUSINESS STRATEGIES FOREIGN PROCUREMENT REPORT 16.0 BOEING FURNISHED MATERIAL 17.0 ASSIGNMENT Attachment 1, 1A Work Statement and Pricing Attachment 2 Foreign Procurement Report Attachment 3 Rates and Factors Attachment 4 Boeing AOG Coverage Attachment 5 Boeing AOG/Critical Shipping Notification Attachment 6 Economic Price Adjustment for Titanium Seal Nuts iii SPECIAL BUSINESS PROVISIONS AMENDMENTS AMEND NUMBER DESCRIPTION DATE APPROVAL - ------ ----------- ---- -------- 1 Add BACN10JS part family to 12/3/96 see original Attachment 1, page 1 and 2. 2 Correct pricing to reflect 4 12/9/96 see original decimal places. 3 Add exhibit 1A and 6 for TN 1/17/97 pricing. Add escalation for Attachment 1A to section 3.1. Modify section 10.0 to denote percent of requirements purchased for Attachment 1A. Modify sections: 3.1, 3.2, 3.3, 7.2, 10.0, 12.6.3, 13.1.3, 13.1.3.1, 13.1.3.2, 13.4, 13.5, and 17.0 to include Attachment 1A. iv SPECIAL BUSINESS PROVISIONS SPECIAL BUSINESS PROVISIONS THESE SPECIAL BUSINESS PROVISIONS are entered into as of September 20, 1996 by and between Kaynar Technologies Incorporated, a California corporation with its principal office in Fullerton, California ("Seller"), and The Boeing Company, a Delaware corporation with an office in Seattle, Washington acting by and through its division the Boeing Commercial Airplane Group ("Boeing"). RECITALS -------- A. Boeing and Seller entered into a General Terms Agreement GTA # BCA-65751-029 dated September 20, 1996, (the "Agreement") which is incorporated herein and made a part hereof by this reference, for the sale by Seller and purchase by Boeing of Products. B. Boeing and Seller desire to include these special business provisions ("SBP") relating to the sale by Seller and purchase by Boeing of Products. Now, therefore, in consideration of the mutual covenants set forth herein, the parties agree as follows: PROVISIONS 1.0 DEFINITIONS The definitions used herein shall be the same as used in the Agreement. 2.0 PURCHASE ORDER NOTE The following note shall be contained in any Order to which these SBP are applicable: This Order is subject to and incorporates by this reference SBP STD-65751-025 between The Boeing Company and Kaynar Technologies Incorporated dated September 20, 1996. Each Order bearing such note shall be governed by and be deemed to include the provisions of these SBP. 3.0 PRICES 3.1 PRODUCT PRICING The prices and applicable period of performance of Products scheduled for delivery under this SBP are set forth in Attachment 1 and 1A. Prices are in United States dollars, F.O.B. Fullerton, California. Prices for Products in Attachment 1A shall be subject to escalation as set forth in Attachment 6. 1 SPECIAL BUSINESS PROVISIONS 3.2 MANUFACTURING CONFIGURATION BASELINE Unit pricing for each Product or part number shown in Attachment 1 and 1A are based on the latest revisions of the engineering drawings or specifications at the time of the signing of this SBP. 3.3 PACKAGING The prices shown in Attachment 1 and 1A include packaging costs and all materials and labor required to package Products identified in Attachment 1 and 1A. Packaging shall be furnished by the Seller in accordance with Document M6-1025, Volume II, "Supplier Part Protection Guide", Document D200-10038-2 "Supplier Packaging Requirements", or in accordance with instructions specified on individual Order as applicable. In the case of Products to be shipped directly to Customers, A.T.A. Specification 300 "Specification for Packaging of Airline Supplies" shall apply unless otherwise directed by Boeing. Bulk packaging is acceptable for Products shown on Attachment 1A. 4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT All work performed under this SBP shall be in accordance with the following document which is incorporated herein and made a part hereof by this reference: Document D1-9000, "Advanced Quality System for Boeing Suppliers," as amended from time to time. 5.0 APPLICABLE LAW JURISDICTION Each Order, including all matters of construction, validity and performance, shall in all respects be governed by, and construed and enforced in accordance only with the law of the State of Washington as applicable to contracts entered into and to be performed wholly within such State between citizens of such State, without reference to any rules governing conflicts of law. Seller hereby irrevocably consents to and submits itself exclusively to the jurisdiction of the applicable courts of the State and the federal courts therein for the purpose of any suit, action or other judicial proceeding arising out of or connected with any Order or the performance or subject matter thereof. Seller hereby waives and agrees not to assert by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that (a) Seller is not personally subject to the jurisdiction of the above-named courts, (b) the suit, action or proceeding is brought in an inconvenient forum or (c) the venue of the suit, action or proceeding is improper. 6.0 PRODUCT ASSURANCE 6.1 GOVERNING DOCUMENT Seller acknowledges that Boeing and Customers must be able to rely on each Product performing as specified and that Seller will provide all required support. Accordingly, the following provisions and document(s) are incorporated herein and made a part hereof: Seller warrants to Boeing and Customers that Products shall: (a) conform in all respects to all the requirements of the Order; (b) be free from all defects in materials and workmanship; and (c) to the extent not manufactured pursuant to detailed designs furnished by Boeing, be free from all defects in design and be fit for the intended purposes. 2 SPECIAL BUSINESS PROVISIONS 7.0 PAYMENT 7.1 RECURRING PRICE Unless otherwise provided in the applicable Order, payment of the recurring price shall be made in accordance with Form X-27981 "Pay From Receipt - Additional Terms and Conditions Regarding Invoicing and Payment". Payment terms shall be net thirty (30) days except as otherwise agreed to by the parties. All payments are subject to adjustment for shortages, credits and rejections. 7.2 NON-RECURRING PRICE/SPECIAL CHARGES Unless otherwise provided in the applicable Order, any non-recurring price payable by Boeing under Attachment 1 or 1A shall be paid within the term discount period or thirty (30) calendar days (whichever is later) after receipt by Boeing of both acceptable Products and a correct invoice. 8.0 ACCELERATION/DECELERATION AT NO COST Notwithstanding GTA Section 10.0, Boeing may make changes in the delivery schedule without additional cost or change to the unit price stated in the applicable Order if (a) the delivery date of the Product under such Order is on or before the last date of contract, if applicable, and (b) Boeing provides Seller with written notice of such changes. 9.0 NOTICES 9.1 ADDRESSES Notices and other communications shall be given in writing by personal delivery, United States mail, telex, teletype, telegram, facsimile, cable or electronic transmission addressed to the respective party as follows: To Boeing: Attention: Buyer: Hugh McCormick, M/S 38-FW BOEING COMMERCIAL AIRPLANE GROUP MATERIEL DIVISION P.O. Box 3707 Seattle, Washington 98124-2207 To Seller: Attention: Paula Smith KAYNAR TECHNOLOGIES INCORPORATED 800 S. State Collage Blvd. Fullerton, CA 92634-3001 3 SPECIAL BUSINESS PROVISIONS 10.0 OBLIGATION TO PURCHASE AND SELL Boeing and Seller agree that in consideration of the prices set forth under Attachment 1 and 1A, Boeing shall issue Orders for Products from time to time to Seller for Boeing's requirements. * A. * B. * C. * D. * E. * 11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY Seller shall provide all necessary cost support data, source documents for direct and indirect costs, and assistance at the Seller's facility for cost performance reviews performed by Boeing pursuant to any Order. Furthermore, Seller shall provide financial data, on a quarterly basis, or as requested, to Boeing's Credit Office and Materiel Representative for credit and financial condition reviews. Said data shall include but not be limited to balance sheets, schedule of accounts payable and receivable, major lines of credit, creditors, income statements (profit and loss), cash flow statements, firm backlog, and headcounts. Copies of such data are to be made available within 72 hours of any written request by Boeing. This data is required in addition to the cost data provided pursuant to GTA Section 9.0. All such information shall be treated as confidential in accordance with GTA Section 20.0. * Confidential portions omitted and filed separately with the Commission. 4 SPECIAL BUSINESS PROVISIONS 12.0 CHANGES 12.1 CHANGES TO THE STATEMENT OF WORK Boeing may direct Seller within the scope of the applicable Order and in accordance with the provisions of GTA Section 10.0, to increase or decrease the work to be performed by the Seller in the manufacture of any Product. 12.2 COMPUTATION OF EQUITABLE ADJUSTMENT NOT APPLICABLE 12.3 OBSOLESCENCE Claims for obsolete or surplus material and work-in-process created by change orders issued pursuant to this Section shall be subject to the procedures set forth in GTA Section 12.0, except that Seller may not submit a claim for obsolete or surplus material resulting from an individual change order that has a total claim value of Twenty-Five Hundred Dollars ($2500.00) or less. Payment for obsolete or surplus materials shall be made by check deposited as first class mail to the address designated by Seller in SBP Section 9.1. Payment will be made on the tenth (10th) day of the month following the month of the obsolescence claim settlement. 12.4 CHANGE ABSORPTION 12.4.1 NON-RECURRING AND RECURRING CHANGE ABSORPTION NOT APPLICABLE 12.5 PLANNING SCHEDULE Any planning schedule or quantity estimate provided by Boeing shall be used solely for production planning. Boeing may purchase Products in different quantities and specify different delivery dates as necessary to meet Boeing's requirements. Such planning schedule and quantity estimate shall be subject to adjustment from time to time. Any such adjustment is not a change under GTA Section 10.0. 12.6 VALUE ENGINEERING Seller may from time to time submit proposals to Boeing to change drawings, designs, specifications or other requirements that: a. decrease Seller's performance costs; or b. produce a net reduction in the cost to Boeing of installation, operation, maintenance or production of the Product. Provided, that such change shall not impair any essential functions or characteristics of the Products or Tooling. 5 SPECIAL BUSINESS PROVISIONS 12.6.1 SUBMISSION OF PROPOSAL Proposals shall be submitted to Boeing's Materiel Representative. Boeing shall not be liable for any delay in acting upon a proposal. Boeing's decision to accept or reject any proposal shall be final. If there is a delay and the net result in savings no longer justifies the investment, Seller will not be obligated to proceed with the change. Seller has the right to withdraw, in whole or in part, any proposal not accepted by Boeing within the time period specified in the proposal. Seller shall submit, as a minimum, the following information with the proposal: a. description of the difference between the existing requirement and the proposed change, and the comparative advantages and disadvantages of each; b. the specific requirements which must be changed if the proposal is adopted; c. the cost savings and Seller's implementation costs; d. Each proposal shall include the need dates for engineering release and the time by which a proposal must be approved so as to obtain the maximum cost reduction. 12.6.2 ACCEPTANCE AND COST SHARING Boeing may accept, in whole or in part, any proposal by issuing a change order. Until such change has been issued, Seller shall remain obligated to perform in accordance with the terms and requirements of the original Order as written. Boeing and Seller shall share the savings as follows: * savings to Boeing; * savings to Seller. Seller shall include with each proposal verifiable cost records and other data as required by Boeing for proposal review and analysis. Each party shall be responsible for its own implementation costs, including but not limited to non-recurring costs. 12.6.3 COST SAVINGS COMPUTATION A change order shall be issued by Boeing and the unit price shall be reduced in an amount equal to the savings portion attributable to Boeing as set forth above. The applicable unit price as set forth in Attachment 1 or 1A Statement of Work shall be amended to reflect such change. EXAMPLE: Current Price: $600.00 Proposed Cost Savings: $100.00/unit Boeing's Percentage: * Seller's Percentage: * * Confidential portions omitted and filed separately with the Commission. 6 SPECIAL BUSINESS PROVISIONS 12.6.3 COST SAVINGS COMPUTATION (Continued) STEP BY STEP COMPUTATION: 1. $100.00 unit savings x * Boeing's percentage of savings = * Boeing savings. 2. $100.00 unit savings x * Seller's percentage of savings = * Seller savings. 3. Net affect to the unit cost = * New Unit Price For Units = * 12.6.4 WEIGHT REDUCTION PROPOSALS Seller is encouraged to submit proposals to Boeing that reduce the Product's weight without impairing any essential functions or characteristics of the Product. Seller shall submit such proposals in accordance with SBP Section 12.6.1 above. The amount of any costs or savings that result from a weight reduction proposal shall be agreed by Boeing and Seller. Seller shall include with each proposal verifiable cost records and other data as required by Boeing for proposal review and analysis. Boeing may accept in whole or in part, any such proposal by issuing a change order to the applicable Order. 12.7 REDUCTION IN QUANTITY TO BE DELIVERED NOT APPLICABLE 13.0 SPARES AND OTHER PRICING 13.1 SPARES For purposes of this Section, the following definitions shall apply: A. AIRCRAFT ON GROUND (AOG) - means the highest Spares priority. Seller will expend best efforts to provide the earliest possible delivery of any Spare designated AOG by Boeing. Such effort includes but is not limited to working twenty-four (24) hours a day, seven days a week and use of premium transportation. Seller shall specify the delivery date and time of any such AOG Spare within two (2) hours of receipt of an AOG Spare request. B. CRITICAL - means an imminent AOG work stoppage. Seller will expend best efforts to provide the earliest possible delivery of any Spare designated Critical by Boeing. Such effort includes but is not limited to working two (2) shifts a day, five (5) days a week and use of premium transportation. Seller shall specify the delivery date and time of any such Critical Spare within the same working day of receipt of a Critical Spare request. * Confidential portions omitted and filed separately with the Commission. 7 SPECIAL BUSINESS PROVISIONS 13.1 SPARES (Continued) C. EXPEDITE (CLASS I) - means a Spare required in less than Seller's normal lead-time. Seller will expend best efforts to meet the requested delivery date. Such effort includes but is not limited to working overtime and use of premium transportation. D. ROUTINE (CLASS III) - means a Spare required in Seller's normal lead-time. E. POA REQUIREMENT (POA) - means any detail component needed to replace a component on an End Item Assembly currently in Boeing's assembly line process. Seller shall expend best efforts feasible to provide the earliest possible delivery of any Spare designated as POA by Boeing. Such effort includes but is not limited to working twenty-four (24) hours a day, seven days a week and use of premium transportation. Seller shall specify the delivery date and time of any such POA within two (2) hours of an AOG Spare request. F. IN-PRODUCTION - means any Spare with a designation of AOG, Critical, Expedite, Routine, POA or End Item Assembly which is in the current engineering configuration for the Product and is used on a model aircraft currently being manufactured by Boeing. G. NON-PRODUCTION REQUIREMENTS - means any Spare with a designation of AOG, Critical, Expedite and Routine requirements which is used on model aircraft no longer being manufactured by Boeing (Post Production) or is in a non-current engineering configuration for the Product (Out of Production). H. BOEING PROPRIETARY SPARE - means any Spare which is manufactured (i) by Boeing, or (ii) to Boeing's detailed designs with Boeing's authorization or (iii) in whole or in part using Boeing's Proprietary Materials. 13.1.1 SPARES SUPPORT Seller shall provide Boeing with a written Spares support process describing Seller's plan for supporting AOG and Critical commitments and manufacturing support. The process must provide Boeing with the name and number of a twenty-four (24) hour contact for coordination of AOG and Critical requirements. Such contact shall be equivalent to the coverage provided by Boeing to its Customers as outlined in Attachment 4 "Boeing AOG Coverage" which is incorporated herein and made a part hereof by this reference. Seller shall notify Boeing as soon as possible via fax, telecon, or as otherwise agreed to by the parties of each AOG and Critical requirement shipment using the force identified in Attachment 5 "Boeing AOG and Critical Shipping Notification". Such notification shall include time and date shipped, quantity shipped, Order, pack slip, method of transportation and air bill if applicable. Seller shall also notify Boeing immediately upon the discovery of any delays in shipment of any requirement and identify the earliest revised shipment possible. 8 SPECIAL BUSINESS PROVISIONS 13.1.2 RECLASSIFICATION OR RE-EXERCISES Boeing may on occasion, instruct Seller to re-prioritize or reclassify an existing requirement in order to improve or otherwise change the established shipping schedule. Seller shall expend the effort required to meet the revised requirement as set forth above in the definitions of the requirements. Seller's commitment of a delivery schedule shall be given in accordance with that set forth above for the applicable classification but in no case shall it exceed twenty-four (24) hours from notification by Boeing. 13.1.3 SPARE PRICING Except as set forth in subsections 13.1.3.1 and 13.1.3.2 below, the price for Spare(s) shall *. 13.1.3.1 AIRCRAFT ON GROUND (AOG), CRITICAL SPARES AND POA REQUIREMENT The price for AOG and Critical Spares and POA requirements shall be the price for such Products listed on Attachment 1 or 1A. 13.1.3.2 EXPEDITE SPARE (CLASS 1) The price for Expedite Spares shall be the price for such Products listed on Attachment 1 and 1A. 13.1.4 SPECIAL HANDLING The price for all effort associated with the handling and delivery of Spare(s) is deemed to be included in the price for such Spare(s). Provided, that if Boeing directs delivery of Spares to an F.O.B. point other than Seller's plant, Boeing shall reimburse Seller for shipping charges, including insurance, paid by Seller from the plant to the designated F.O.B. point. Such charges shall be shown separately on all invoices. 13.2 SHORT FLOW PRODUCTION REQUIREMENTS Boeing shall pay no expedite charges for production requirements released less than Seller's current ROLT. Seller agrees to support Boeing's short flow requirements with its best effort. * Confidential portions omitted and filed separately with the Commission. 9 SPECIAL BUSINESS PROVISIONS 13.3 TOOLING 13.3.1 RESPONSIBLE PARTY Seller shall absorb all costs for Tooling manufactured and/or purchased by Seller necessary for the manufacture and delivery of the Products including but not limited to rework, repair and maintenance of the Tooling. 13.3.2 BOEING FURNISHED TOOLING In the event Boeing furnishes Tooling to Seller to support the delivery of Product(s), Seller shall comply with the Terms and Conditions applicable to the Blanket Tooling Purchase Control Order established with Seller who possess or controls Tooling. No repair, replacement or rework required shall be performed without Boeing's prior written consent. Boeing shall notify Seller of, what if any, action shall be required for all discrepant Tooling. 13.4 PRICING OF BOEING'S SUPPORTING REQUIREMENTS Any Products required to assist Boeing's supporting requirements, including but not limited to color and appearance samples, design studies, product qualification, Boeing-owned simulators, test requirements, factory support, flight test spares will be provided for not more than the applicable price as set forth in Attachment 1 or 1A. 13.5 PRICING OF REQUIREMENTS FOR MODIFICATION OR RETROFIT Any Products required by Boeing to support a modification or retrofit program shall be provided for *. 13.6 SIMILAR PRICING New Products ordered by Boeing that are similar to or within Product families of Products currently being manufactured by Seller shall be priced *. 14.0 STATUS REPORTS/REVIEWS When requested by Boeing, Seller shall update and submit, as a minimum, monthly status reports on data requested by Boeing using a method mutually agreed upon by Boeing and Seller. When requested by Boeing, Seller shall provide to Boeing a manufacturing milestone chart identifying the major purchasing, planning and manufacturing operations for the applicable Product(s). Upon request by Boeing, a program review may be held between the parties. The location of such review shall be mutually agreed to by the parties. The purpose of the review is to improve communication and understanding between the parties to ensure program success. * Confidential portions omitted and filed separately with the Commission. 10 SPECIAL BUSINESS PROVISIONS 15.0 PROVISIONS FOR OFFSET/BUSINESS STRATEGIES FOREIGN PROCUREMENT REPORT Seller agrees to cooperate with Boeing in identifying possible subcontractors for work under any Order that support Boeing's offset or business strategies. Prior to releasing any request for proposal to a subcontractor to support Boeing's offset or business strategy, Seller shall coordinate with Boeing. Seller shall document on Attachment 2 all offers to contract and executed contracts with such subcontractors including the dollars contracted. Seller shall provide to Boeing with an updated copy of Attachment 2 for the six-month periods ending June 30 and December 31 of each year. The reports shall be submitted on the 1st of August and the 1st of February respectively. 16.0 BOEING FURNISHED MATERIAL NOT APPLICABLE 17.0 ASSIGNMENT Boeing and Seller agree that Boeing may, in its discretion, assign, in part or in whole, its purchasing obligations under the Agreement or any Order, as applicable, at the prices set forth in Attachment 1 and 1A thereof. Boeing reserves the right to rescind its assignment at anytime. Boeing's assignment of purchasing obligation includes scheduling, issuance of Order(s), receival and inspection of Products, acceptance or rejection of Products, payment for accepted Products, and ensuring conformance to the quality assurance system requirements. Boeing shall retain all other rights and obligations pursuant to the applicable terms and conditions. In addition, Boeing reserves the right, where necessary, to coordinate with and mediate between Seller and any assignee regarding such assignment. EXECUTED in duplicate as of the date and year first set forth above by the duly authorized representatives of the parties. THE BOEING COMPANY KAYNAR TECHNOLOGIES By and Through its Division INCORPORATED Boeing Commercial Airplane Group /s/ Hugh N. McCormick /s/ Robert L. Beers Name: Hugh N. McCormick Name: Robert L. Beers Title: Buyer Title: Vice President Sales and Marketing Date: January 20, 1997 Date: January 23, 1997 ---------------- ---------------- 11 SPECIAL BUSINESS PROVISIONS ATTACHMENT 1A TO SPECIAL BUSINESS PROVISIONS WORK STATEMENT AND PRICING All Items listed on attachment 1A are titanium seal nuts. The Re-order lead time (ROLT) for all items is expressed in weeks. Tolerances applicable to Orders placed under this contract are +1% -1% of the total Order quantity. The price for Products to be delivered on or before 12-31-2000, shall be as follows: Item # PART NUMBER UNIT PRICE LEAD TIME - ----------------------------------------------------------------------------- 1 2 * 3 * Confidential portions omitted and filed separately with the Commission. SPECIAL BUSINESS PROVISIONS ATTACHMENT 6 TO SPECIAL BUSINESS PROVISIONS ECONOMIC PRICE ADJUSTMENT FOR TITANIUM SEAL NUTS 1997 THROUGH 2000 1. This clause sets forth the method for adjusting base prices as a result of abnormal escalation for 1997 through 2000 provided that: A. An abnormal price increase shall be made to the base unit price only if the actual cumulative index exceeds the baseline cumulative forecast as defined in paragraph 5.B below. B. An abnormal price decrease shall be made to the base unit price only if the actual cumulative index is less than baseline cumulative forecast as defined in paragraph 5.C. below. 2. Adjustment will be determined by the following index: A. MATERIAL - Producer Price Index (PPI) Titanium Mill Shapes, Code P102505 as reported by the U.S. Bureau of Labor Statistics. B. CONTENT - Material content shall be * of the Contract unit prices listed in Attachment 1. 3. Baseline price is defined as the unit prices in Attachment 1A to the Special Business Provisions. 4. SPECIAL NOTES: In the event the U.S. Bureau of Labor Statistics discontinues or alters its current method of calculating the index specified above, both parties shall agree upon an appropriate substitution for or adjustment of the indices to be employed herein. * Confidential portions omitted and filed separately with the Commission. 1 SPECIAL BUSINESS PROVISIONS 5. BASELINE FORECAST: A. The cum baseline forecast is developed from the actual December 1996 index with an annual forecast through December 1999 as follows: 12/96 12/97 12/98 12/99 Code 102505 * Composite Rate (+/-) * Therefore, the cumulative baseline band is as follows: B. ESCALATION INCREASE 12/96 12/97 12/98 12/99 Max * C. ESCALATION DECREASE 12/96 12/97 12/98 12/99 Min * 6. CALCULATION OF ADJUSTMENT ABNORMAL ESCALATION The general equation for the calculation of a price change for 1998 shall be: A = * Where CA = * A = Adjusted Price B = Base Price CA = Cum Actuals CB = Cum Baseline for December for the year preceding the re-price year as defined in 5B. & 5C. M1 = PPI Code P102505 - Actual index for the month of December of the year preceding the re-price year. * Confidential portions omitted and filed separately with the Commission. 2 SPECIAL BUSINESS PROVISIONS 7. ABNORMAL ESCALATION INCREASE EXAMPLE: If the actual indices are as noted below, the calculation of the 1999 price would be established by simply multiplying the base price by the ratio of the 1998 actual cum rate to the corresponding 1998 cum baseline rate. 12/96 12/97 12/98 12/99 Code P102505 Percent Change * Cum Actuals Cum Baseline Example: 1999 Price = * If the base price = * Then base material, = * base non-material = * = * = * = * Then the 1999 Price = * 8. ABNORMAL ESCALATION DECREASE EXAMPLE If the actual indices are as noted below, the calculation of the 1999 price would be: 12/96 12/97 12/98 12/99 Code P102505 Percent Change * Cum Actuals Cum Baseline Example: 1999 Price = * If the base price = * Then base material, = * base non-material = * = * = * = * Then the 1999 Price = * * Confidential portions omitted and filed separately with the Commission. 3 SPECIAL BUSINESS PROVISIONS 9. Assuming a price adjustment occurs for either 1998 or 1999, and the succeeding year's actual index line returns within the baseline parameters, as described in paragraphs 5.B and 5.C. above, then the price will also return to the base price level. 10. The unit prices listed in Attachment 1A to the Special Business Provisions are firm fixed for quantities ordered in 1997. Therefore, the beginning base for cumulative abnormal escalation is the actual index for December 1996 and any adjustment from the base prices will begin with the unit prices for 1998 if the actual cumulative index falls outside the baseline cumulative forecast band as defined in paragraphs 5.B and C. above. 4 EX-10.9 15 EXHIBIT 10.9 CONTRACT AWARD LETTER OF AGREEMENT Exhibit A 6-5751-02-69 Ex. 10.9 SUBJECT: NAS1804, NAS1805, BACN1OHR NUT SERIES CONTRACT AWARD LETTER OF AGREEMENT Gentlemen: The Boeing Commercial Airplane Group, the Buyer, will place orders as noted in Exhibit B and referred to herein as the Procurement Package, with Kaynar, Division of Kaynar Technologies, Inc., the Seller. This Letter of Agreement states the provisions which apply to this Procurement Package and Subsequently Placed Orders. All other Boeing Companies, Divisions or Groups and Japan Aircraft Industry (JAI) may purchase to this Agreement at the same pricing and terms afforded to the Boeing Commercial Airplane Group. GENERAL The Seller agrees to accept Subsequently Placed Orders for unlimited quantities from Boeing Commercial Airplane Group at the same prices stated in Exhibit B and under the terms and conditions enclosed for the duration of this Agreement. In the event of short flow items, i.e. less than lead time away, the Seller shall be given the first opportunity to supply such parts at the contract price. Should the Seller be unable to supply items in quantities and schedule required, the Buyer reserves the right to purchase such items from other suppliers. Supplier shall reserve, at all times, at least five (5) percent of the next 12 months requirements in stock to accommodate short flow requirements. DURATION The duration of this agreement will extend from the signature date of this Letter of Agreement through August 15, 1999. Orders shall be entered with the Seller lead time away (as defined by Seller) and scheduled for delivery prior to November 13, 1999. In the event that the Seller fails to deliver prior to November 14, 1999 as scheduled, such delinquent shipments will continue to have the pricing and terms of the Procurement Package until delivery is made. Exhibit A 6-5751-02-69 TERMS AND CONDITIONS The Boeing Commercial Airplane Group Terms and Conditions, form D1 4100 4045, Rev 5/92, Hill apply to all orders subsequently placed referencing this Letter of Agreement (see note A52). In the event conflict exists between the Terms and Conditions and this Letter of Agreement, the latter shall govern. ADDITIONAL PROVISIONS PER PURCHASE ORDER NOTES The Buyer and Seller have mutually agreed that the following purchase order notes will apply to all orders subsequently placed referencing this Letter of Agreement: A18 - Seller agrees not to make any change in materials or design details which would affect the part or any component part thereof with regard to (A) part number identification, (B) physical or functional changeability, and (C) repair and overhaul procedures and processes and material changes which affect these procedures without prior written approval of buyer, and without revising the part numbers and the originals of all drawings or data. (Seller will place the above clause in all its subcontracts for supplier identified purchased equipment whether such equipment is supplied to seller as an end item or as a component part of an end item.) A47 - The Seller shall at all times, keep adequate books and records relating to all work under this purchase order. Those records shall include rates and factors for direct labor (including labor hours), material costs, burden rates and subcontracts costs. Representatives of Boeing shall be accorded access to review, analyze and verify these books and records for the purpose of collecting information for negotiation of prices for future orders, buyer directed changes and termination claims. C28 - The pack slip is the document required for receipt/payment processing. In order to facilitate process of the receipt and subsequent payment, the following information (when applicable) must be referenced on every pack slip: 1. Suppliers name, address and phone number 2. Boeing purchase order number 3. Date parts shipped 4. Total quantity shipped and quantity in each container 5. Part number shown on the purchase order 6. Bill of Lading (Required on Direct Shipments) 7. Legible pack slip number Exhibit A 6-5751-02-69 8. Multiple boxes with same pack slip must reference 1 of 3, 2 of 3, etc. (if applicable) 9. Pack slip required on the outside of #1 box and inside each individual box 10. Description/Nomenclature 11. Boeing Purchase Order item number 12. Unit of Measure 13. Sold to and/or ship to as applicable 14. Warranty data and certification data as applicable 15. Rejection tag number if applicable Q06 - This order is subject to Document D1-8000A. Boeing reserves the right to conduct surveillance at seller's plant. Q09 - Seller certifies that material and/or finished parts shall be controlled and tested in accordance with, and will meet, specified order requirements, and that applicable records are on file subject to examination. Seller agrees to furnish certified copies of test and/or control data upon request from buyer. Q87 - This order is subject to Document D1-9000. Boeing reserves the right to conduct surveillance at seller's plant. S01 - Work under this order is subject to Boeing surveillance at Seller's plant. Boeing quality control representative may elect to conduct inspection either on a random basis or to the extent of 100 percent inspection. Seller will be notified if Boeing inspection is to be conducted on specific shipments. No shipments are to be held for Boeing inspection unless notification is received prior to, or at time of, material being ready for shipment. S68 - Representatives of the Buyer and/or Federal Aviation Administration (if non-domestic, equivalent government agency) may inspect and evaluate Seller's facilities' system, data, equipment, personnel and all completed articles manufactured for installation on Boeing commercial production airplanes. B39 - Strict adherence to the purchase order delivery schedule is required. Immediate written notice of shipment delays must be given by the supplier to the Boeing buyer. H57 - Seller agrees that, notwithstanding the provisions of the termination for convenience clause, any unshipped portion of this order may be terminated by buyer without any cost, charge or liability to buyer, provided, buyer notifies seller at least 120 days in advance of the shipping date specified in the order. L01 - Reschedule of the order will be at no charge Exhibit A 6-5751-02-69 ACCELERATION/DECELERATION NOTE Purchase order schedule accelerations/decelerations will be at no charge. PRICING The pricing applying to the orders making up the Procurement Package and all Subsequently Placed Orders referencing this Letter of Agreement is as listed on Exhibit B. This pricing, as listed, will be firm for unlimited quantities for orders placed from the date of this contract and scheduled for delivery prior to August 15, 1999. ACCEPTANCE This Order is Buyer's offer to Seller, and acceptance is strictly limited to its terms. Buyer shall not be bound by and specifically objects to any term or condition whatsoever which is different from, or in addition to, the provisions of this Agreement. Seller commencement or performance or acceptance of this Agreement, in any matter, shall conclusively evidence acceptance unless such term or condition is mutually agreed to by the parties in writing. Kaynar, Division of Kaynar Boeing Commercial Technologies, Inc. Airplane Group /s/ JORDAN LAW 4-28-94 /s/ KAE FARLEY 4-28-94 - --------------------------- -------------------------- Jordan Law Date Kae Farley Date President Buyer -------------------------- G.D. Neely Date Lead Buyer -------------------------- E.G. Beals Date Manager EXHIBIT B, 6-5751-02-69 CONTRACT UNIT PRICES NAS1804 ALLOY NUTS NAS1805 STAINLESS NUTS BACN10HR INCONEL NUTS KAYNAR, DIVISION OF KAYNAR TECHNOLOGIES, INC. FIVE YEARS - AUGUST 15, 1994 THROUGH AUGUST 15, 1999 - ---- ---- ----------------------------------------------- ----------- P/NS ITEM PART NUMBER UNIT PRICES - ---- ---- ----------------------------------------------- ----------- * Confidential portions omitted and filed separately with the Commission. BACN10, NAS1804, NAS1805 NUT PACKAGE KAYNAR/BOEING 5-YR CONTRACT DURATION 4/28/1994 THROUGH 8/15/1999
- ----------------------------------------------------------------------------------------------------------------------------- TOTAL KAYNAR KAYNAR EST. QTY EST. QTY EST. QTY EST. QTY EST. QTY ESTIMATED GROUP P/N PART NO. 12/93-11/94 12/94-11/95 12/95-11/96 12/96-11/97 12/97-11/98 QUANTITY PRICING EACH - -----------------------------------------------------------------------------------------------------------------------------
* Confidential portions omitted and filed separately with the Commission. BACN10, NAS1804, NAS1805 NUT PACKAGE KAYNAR/BOEING 5-YR CONTRACT DURATION 4/28/1994 THROUGH 8/15/1999
- ----------------------------------------------------------------------------------------------------------------------------- TOTAL KAYNAR KAYNAR EST. QTY EST. QTY EST. QTY EST. QTY EST. QTY ESTIMATED GROUP P/N PART NO. 12/93-11/94 12/94-11/95 12/95-11/96 12/96-11/97 12/97-11/98 QUANTITY PRICING EACH - -----------------------------------------------------------------------------------------------------------------------------
* Confidential portions omitted and filed separately with the Commission. EX-21.1 16 LIST OF SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES KAYNAR TECHNOLOGIES INC. Jurisdiction of Incorporation: Delaware KAYNAR TECHNOLOGIES LTD. Jurisdiction of Incorporation: United Kingdom K.T.I. FEMIPARI KFT Jurisdiction of Incorporation: Hungary KAYNAR TECHNOLOGIES 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
EX-23.1 17 ARTHUR ANDERSEN CONSENT EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to all references to our firm and to the use of our reports in this Registration Statement (Form S-1) and Prospectus. ARTHUR ANDERSEN LLP Orange County, California February 25, 1997 EX-99.1 18 EXHIBIT 99.1 1997 STOCK INCENTIVE PLAN KAYNAR HOLDINGS INC. 1997 STOCK INCENTIVE PLAN TABLE OF CONTENTS Page ---- 1. THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Administration and Authorization; Power and Procedure . . . 1 1.3 Participation . . . . . . . . . . . . . . . . . . . . . . . 3 1.4 Shares Available for Awards; Share Limits . . . . . . . . . 3 1.5 Grant of Awards . . . . . . . . . . . . . . . . . . . . . . 4 1.6 Award Period. . . . . . . . . . . . . . . . . . . . . . . . 4 1.7 Limitations on Exercise and Vesting of Awards . . . . . . . 4 1.8 No Transferability; Limited Exception to Transfer Restrictions . . . . . . . . . . . . . . . . . . . 5 2. OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.1 Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.2 Option Price. . . . . . . . . . . . . . . . . . . . . . . . 6 2.3 Limitations on Grant and Terms of Incentive Stock Options . . . . . . . . . . . . . . . . . . . . . . . 6 2.4 Limits on 10% Holders . . . . . . . . . . . . . . . . . . . 7 2.5 Option Repricing/Cancellation and Regrant/ Waiver of Restrictions. . . . . . . . . . . . . . . . . . . 7 3. STOCK APPRECIATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . 8 3.1 Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.2 Exercise of Stock Appreciation Rights . . . . . . . . . . . 8 3.3 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4. PERFORMANCE SHARE AWARDS AND STOCK BONUSES . . . . . . . . . . . . 9 4.1 Grants of Performance Share Awards. . . . . . . . . . . . . 9 4.2 Special Performance-Based Share Awards. . . . . . . . . . . 10 4.3 Grants of Stock Bonuses . . . . . . . . . . . . . . . . . . 12 4.4 Deferred Payments . . . . . . . . . . . . . . . . . . . . . 12 5. OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.1 Rights of Eligible Persons, Participants and Beneficiaries. 12 5.2 Adjustments; Acceleration . . . . . . . . . . . . . . . . . 13 5.3 Effect of Termination of Employment . . . . . . . . . . . . 14 5.4 Compliance with Laws. . . . . . . . . . . . . . . . . . . . 15 5.5 Tax Withholding . . . . . . . . . . . . . . . . . . . . . . 15 5.6 Plan Amendment, Termination and Suspension. . . . . . . . . 16 5.7 Privileges of Stock Ownership . . . . . . . . . . . . . . . 16 5.8 Effective Date of the Plan. . . . . . . . . . . . . . . . . 17 5.9 Term of the Plan. . . . . . . . . . . . . . . . . . . . . . 17 5.10 Governing Law/Construction/Severability . . . . . . . . . . 17 5.11 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.12 Effect of Change of Subsidiary Status . . . . . . . . . . . 18 i 6. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 18 7. NON-EMPLOYEE DIRECTOR OPTIONS. . . . . . . . . . . . . . . . . . . 24 7.1 Participation . . . . . . . . . . . . . . . . . . . . . . . 24 7.2 Annual Option Grants. . . . . . . . . . . . . . . . . . . . 24 7.3 Option Price. . . . . . . . . . . . . . . . . . . . . . . . 25 7.4 Option Period and Exercisability. . . . . . . . . . . . . . 25 7.5 Termination of Directorship . . . . . . . . . . . . . . . . 25 7.6 Acceleration and Adjustments. . . . . . . . . . . . . . . . 25 7.7 Acceleration Upon a Change in Control Event . . . . . . . . 25 ii KAYNAR HOLDINGS INC. 1997 STOCK INCENTIVE PLAN 1. THE PLAN. 1.1 PURPOSE. The purpose of this Plan is to promote the success of the Company by providing an additional means through the grant of Awards to attract, motivate, retain and reward key employees, including officers, whether or not directors, of the Company with awards and incentives for high levels of individual performance and improved financial performance of the Company and to attract, motivate and retain experienced and knowledgeable independent directors through the benefits provided under Article 7. "Corporation" means Kaynar Holdings Inc. and "Company" means the Corporation and its Subsidiaries, collectively. These terms and other capitalized terms are defined in Article 6. 1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE. (a) COMMITTEE. This Plan shall be administered by and all Awards to Eligible Persons shall be authorized by the Committee. Action of the Committee with respect to the administration of this Plan shall be taken pursuant to a majority vote or by unanimous written consent of its members. (b) PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the express provisions of this Plan, the Committee shall have the authority: (i) to determine from among those persons eligible the particular Eligible Person who will receive any Awards; (ii) to grant Awards to Eligible Persons, determine the price at which Securities will be offered or awarded and the amount of securities to be offered or awarded to any of such persons, and determine other specific terms and conditions of such Awards consistent with the express limits of this Plan, and establish the installments (if any) in which such Awards shall become exercisable or shall vest, or determine that no delayed exercisability or vesting is required, and establish the events of termination or reversion of such Awards; (iii) to approve the forms of Award Agreements (which need not be identical either as to type of award or among Participants); (iv) to construe and interpret this Plan and any agreements defining the rights and obligations of the Company and Participants who are granted Awards under Articles 2, 3, or 4 of this Plan, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan; (v) to cancel, modify, or waive the Corporation's rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding Awards held by Eligible Persons, subject to any required consent under Section 5.6; (vi) to accelerate or extend the exercisability or extend the term of any or all such outstanding Awards within the maximum ten-year term of Awards under Section 1.6; and (vii) to make all other determinations and take such other action as contemplated by this Plan or as may be necessary or advisable for the administration of this Plan and the effectuation of its purposes. Notwithstanding the foregoing, the provisions of Article 7 relating to Non- Employee Director Awards shall be automatic and, to the maximum extent possible, self-effectuating. (c) BINDING DETERMINATIONS. Any action taken by, or inaction of, the Corporation, any Subsidiary, the Board or the Committee relating or pursuant to this Plan shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons. No member of the Board or Committee, or officer of the Corporation or any Subsidiary, shall be liable for any such action or inaction of the entity or body, of another person or, except in circumstances involving bad faith, of himself or herself. Subject only to compliance with the express provisions hereof, the Board and Committee may act in their absolute discretion in matters within their authority related to this Plan. (d) RELIANCE ON EXPERTS. In making any determination or in taking or not taking any action under this Plan, the Committee or the Board, as the case may be, may obtain and may rely upon the advice of experts, including professional advisors to the Corporation. No director, officer or agent of the Company shall be liable for any such action or determination taken or made or omitted in good faith. 2 (e) DELEGATION. The Committee may delegate ministerial, non- discretionary functions to a third-party administrator or to individuals who are officers or employees of the Company. 1.3 PARTICIPATION. Awards may be granted by the Committee only to those persons that the Committee determines to be Eligible Persons. An Eligible Person who has been granted an Award may, if otherwise eligible, be granted additional Awards if the Committee shall so determine. 1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS. (a) SHARES AVAILABLE. Subject to the provisions of Section 5.2, the capital stock that may be delivered under this Plan shall be shares of the Corporation's authorized but unissued Common Stock and any shares of its Common Stock held as treasury shares. The shares may be delivered for any lawful consideration. (b) SHARE LIMITS. The maximum number of shares of Common Stock that may be delivered pursuant to Awards (including Incentive Stock Options) granted to Eligible Persons under this Plan shall not exceed 850,000 shares (the "SHARE LIMIT"). The maximum number of shares of Common Stock that may be delivered pursuant to Incentive Stock Options granted to Eligible Employees shall not exceed [750,000] shares. The maximum number of shares of Common Stock that may be delivered to Non-Employee Directors under the provisions of Article 7 shall not exceed [50,000] shares. The maximum number of shares subject to those Options and Stock Appreciation Rights that are granted during any calendar year to any individual shall be limited to 75,000. Each of the four foregoing numerical limits shall be subject to adjustment as contemplated by this Section 1.4 and Section 5.2. (c) SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED AWARDS. No Award may be granted under this Plan unless, on the date of grant, the sum of (i) the maximum number of shares issuable at any time pursuant to such Award, plus (ii) the number of shares that have previously been issued pursuant to Awards granted under this Plan, other than reacquired shares available for reissue consistent with any applicable legal limitations, plus (iii) the maximum number of shares that may be issued at any time after such date of grant pursuant to Awards that are outstanding on such date, does not exceed the Share Limit. Shares that are subject to or underlie Awards which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under this Plan, as well as reacquired shares, shall again, except to the extent prohibited by law, 3 be available for subsequent Awards under the Plan. Except as limited by law, if an Award is or may be settled only in cash, such Award need not be counted against any of the limits under this Section 1.4. 1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan, the Committee shall determine the number of shares of Common Stock subject to each Award, the price (if any) to be paid for the shares or the Award and, in the case of Performance Share Awards, in addition to matters addressed in Section 1.2(b), the specific objectives, goals and performance criteria (such as an increase in sales, market value, earnings or book value over a base period, the years of service before vesting, the relevant job classification or level of responsibility or other factors) that further define the terms of the Performance Share Award. Each Award shall be evidenced by an Award Agreement signed by the Corporation and, if required by the Committee, by the Participant. The Award Agreement shall set forth the material terms and conditions of the Award established by the Committee consistent with the specific provisions of this Plan. 1.6 AWARD PERIOD. Each Award and all executory rights or obligations under the related Award Agreement shall expire on such date (if any) as shall be determined by the Committee, but in the case of Options or other rights to acquire Common Stock not later than ten (10) years after the Award Date. 1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS. (a) PROVISIONS FOR EXERCISE. Unless the Committee otherwise expressly provides, no Award shall be exercisable or shall vest until at least six months after the initial Award Date, and once exercisable an Award shall remain exercisable until the expiration or earlier termination of the Award. (b) PROCEDURE. Any exercisable Award shall be deemed to be exercised when the Secretary of the Corporation receives written notice of such exercise from the Participant, together with any required payment made in accordance with Section 2.2(a) or 7.4, as the case may be. (c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests shall be disregarded, but may be accumulated. The Committee, however, may determine in the case of Eligible Persons that cash, other securities, or other property will be paid or transferred in lieu of any fractional share interests. No fewer than 100 shares may be purchased on exercise of any Award at one time unless the 4 number purchased is the total number at the time available for purchase under the Award. 1.8 NO TRANSFERABILITY; LIMITED EXCEPTION TO TRANSFER RESTRICTIONS. (a) LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly provided in (or pursuant to) this Section 1.8, by applicable law and by the Award Agreement, as the same may be amended, (i) all Awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; Awards shall be exercised only by the Participant; and (ii) amounts payable or shares issuable pursuant to an Award shall be delivered only to (or for the account of) the Participant. (b) EXCEPTIONS. The Committee may permit Awards to be exercised by and paid only to certain persons or entities related to the Participant, including but not limited to members of the Participant's immediate family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant's immediate family and/or charitable institutions, or to such other persons or entities as may be approved by the Committee, pursuant to such conditions and procedures as the Committee may establish. Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes or a gratuitous or donative basis and without consideration (other than nominal consideration). Notwithstanding the foregoing, Incentive Stock Options shall be subject to any and all additional transfer restrictions under the Code. (c) FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and transfer restrictions in Section 1.8(a) shall not apply to: (i) transfers to the Corporation, (ii) the designation of a beneficiary to receive benefits in the event of the Participant's death or, if the Participant has died, transfers to or exercise by the Participant's beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution, (iii) if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by his or her legal representative, or (iv) the authorization by the Committee of "cashless exercise" procedures with third parties who 5 provide financing for the purpose of (or who otherwise facilitate) the exercise of Awards consistent with applicable laws and the express authorization of the Committee. Notwithstanding the foregoing, Incentive Stock Options shall be subject to all applicable transfer restrictions under the Code. 2. OPTIONS. 2.1 GRANTS. One or more Options may be granted under this Article to any Eligible Person. Each Option granted shall be designated in the applicable Award Agreement, by the Committee as either an Incentive Stock Option, subject to Section 2.3, or a Non-Qualified Stock Option. 2.2 OPTION PRICE. (a) PRICING LIMITS. The purchase price per share of the Common Stock covered by each Option shall be determined by the Committee at the time of the Award, but in the case of Incentive Stock Options shall not be less than 100% (110% in the case of a Participant described in Section 2.4) of the Fair Market Value of the Common Stock on the date of grant and in all cases shall not be less than the par value thereof. (b) PAYMENT PROVISIONS. The purchase price of any shares purchased on exercise of an Option granted under this Article shall be paid in full at the time of each purchase in one or a combination of the following methods: (i) in cash or by electronic funds transfer; (ii) by check payable to the order of the Corporation; (iii) by notice and third party payment in such manner as may be authorized by the Committee; or (iv) by the delivery of shares of Common Stock of the Corporation already owned by the Participant, PROVIDED, HOWEVER, that the Committee may in its absolute discretion limit the Participant's ability to exercise an Award by delivering such shares, and provided further that any shares delivered which were initially acquired upon exercise of a stock option must have been owned by the Participant at least six months as of the date of delivery. Shares of Common Stock used to satisfy the exercise price of an Option shall be valued at their Fair Market Value on the date of exercise. 2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS. (a) $100,000 LIMIT. To the extent that the aggregate "Fair Market Value" of stock with respect to which incentive stock options first become exercisable by a 6 Participant in any calendar year exceeds $100,000, taking into account both Common Stock subject to Incentive Stock Options under this Plan and stock subject to incentive stock options under all other plans of the Company or any parent corporation, such options shall be treated as Nonqualified Stock Options. For this purpose, the Fair Market Value of the stock subject to options shall be determined as of the date the options were awarded. In reducing the number of options treated as incentive stock options to meet the $100,000 limit, the most recently granted options shall be reduced first. To the extent a reduction of simultaneously granted options is necessary to meet the $100,000 limit, the Committee may, in the manner and to the extent permitted by law, designate which shares of Common Stock are to be treated as shares acquired pursuant to the exercise of an Incentive Stock Option. (b) OPTION PERIOD. Each Option and all rights thereunder shall expire no later than 10 years after the Award Date. (c) OTHER CODE LIMITS. Incentive Stock Options may only be granted to Eligible Employees who are actually employed by the Corporation or a Subsidiary and that satisfy the other eligibility requirements of the Code. There shall be imposed in any Award Agreement relating to Incentive Stock Options such other terms and conditions as from time to time are required in order that the Option be an "incentive stock option" as that term is defined in Section 422 of the Code. 2.4 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be granted to any person who, at the time the Option is granted, owns (or is deemed to own under Section 424(d) of the Code) shares of outstanding Common Stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation, unless the exercise price of such Option is at least 110% of the Fair Market Value of the stock subject to the Option and such Option by its terms is not exercisable after the expiration of five years from the date such Option is granted. 2.5 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS. Subject to Section 1.4 and Section 5.6 and the specific limitations on Awards contained in this Plan, the Committee from time to time may authorize, generally or in specific cases only, for the benefit of any Eligible Person any adjustment in the exercise or purchase price, the vesting schedule, the number of shares subject to, the restrictions upon or the term of, an Award granted under this Article by cancellation of an outstanding Award and a 7 subsequent regranting of an Award, by amendment, by substitution of an outstanding Award, by waiver or by other legally valid means. Such amendment or other action may result, among other changes, in an exercise or purchase price which is higher or lower than the exercise or purchase price of the original Award or prior Award, provide for a greater or lesser number of shares subject to the Award, or provide for a longer or shorter vesting or exercise period. 2.6 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS. Options and Stock Appreciation Rights may be granted to Eligible Persons under this Plan in substitution for employee stock options granted by other entities to persons who are or who will become Eligible Persons in respect of the Company, in connection with a distribution, merger or reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Company, directly or indirectly, of all or a substantial part of the stock or assets of the other entity. 3. STOCK APPRECIATION RIGHTS. 3.1 GRANTS. In its discretion, the Committee may grant a Stock Appreciation Right to any Eligible Person either concurrently with the grant of another Award or in respect of an outstanding Award, in whole or in part, or independently of any other Award. Any Stock Appreciation Right granted in connection with an Incentive Stock Option shall contain such terms as may be required to comply with the provisions of Section 422 of the Code and the regulations promulgated thereunder, unless the holder otherwise agrees. 3.2 EXERCISE OF STOCK APPRECIATION RIGHTS. (a) EXERCISABILITY. Unless the Award Agreement or the Committee otherwise provides, a Stock Appreciation Right related to another Award shall be exercisable at such time or times, and to the extent, that the related Award shall be exercisable. (b) EFFECT ON AVAILABLE SHARES. To the extent that a Stock Appreciation Right is exercised, the number of underlying shares of Common Stock theretofore subject to a related Award shall be charged against the maximum amount of Common Stock that may be delivered pursuant to Awards under this Plan. The number of shares subject to the Stock Appreciation Right and the related Option of the Participant shall, however, be reduced by the number of underlying shares as to which the exercise related, unless the Award Agreement otherwise provides. 8 (c) STAND-ALONE SARS. A Stock Appreciation Right granted independently of any other Award shall be exercisable pursuant to the terms of the Award Agreement but in no event earlier than six months after the Award Date, except in the case of death or Total Disability. 3.3 PAYMENT. (a) AMOUNT. Unless the Committee otherwise provides, upon exercise of a Stock Appreciation Right and the attendant surrender of an exercisable portion of any related Award, the Participant shall be entitled to receive payment of an amount determined by multiplying (i) the difference obtained by subtracting the exercise price per share of Common Stock under the related Award (if applicable) or the initial share value specified in the Award from the Fair Market Value of a share of Common Stock on the date of exercise of the Stock Appreciation Right, by (ii) the number of shares with respect to which the Stock Appreciation Right shall have been exercised. (b) FORM OF PAYMENT. The Committee, in its sole discretion, shall determine the form in which payment shall be made of the amount determined under paragraph (a) above, either solely in cash, solely in shares of Common Stock (valued at Fair Market Value on the date of exercise of the Stock Appreciation Right), or partly in such shares and partly in cash, provided that the Committee shall have determined that such exercise and payment are consistent with applicable law. If the Committee permits the Participant to elect to receive cash or shares (or a combination thereof) on such exercise, any such election shall be subject to such conditions as the Committee may impose. 4. PERFORMANCE SHARE AWARDS AND STOCK BONUSES 4.1 GRANTS OF PERFORMANCE SHARE AWARDS. The Committee may, in its discretion, grant Performance Share Awards to Eligible Persons based upon such factors as the Committee shall deem relevant in light of the specific type and terms of the award. An Award Agreement shall specify the maximum number of shares of Common Stock (if any) subject to the Performance Share Award, the consideration (but not less than the minimum lawful consideration) to be paid for any such shares as may be issuable to the Participant, the duration of the Award and the conditions upon which delivery of any shares or cash to the Participant shall be based. The amount of cash or shares or other property that may be deliverable pursuant to such Award shall be based upon the degree of attainment over 9 a specified period of not more than 10 years (a "performance cycle") as may be established by the Committee of such measure(s) of the performance of the Company (or any part thereof) or the Participant as may be established by the Committee. The Committee may provide for full or partial credit, prior to completion of such performance cycle or the attainment of the performance achievement specified in the Award, in the event of the Participant's death, Retirement, or Total Disability, a Change in Control Event or in such other circumstances as the Committee consistent with Section 5.10(c)(2), if applicable may determine. 4.2 SPECIAL PERFORMANCE-BASED SHARE AWARDS. Without limiting the generality of the foregoing, and in addition to Options and Stock Appreciation Rights granted under other provisions of this Plan which are intended to satisfy the exception for "performance-based compensation" under Section 162(m) of the Code (with such Awards hereinafter referred to as a "Qualifying Option" or a "Qualifying Stock Appreciation Right," respectively), other performance-based awards within the meaning of Section 162(m) of the Code ("PERFORMANCE-BASED AWARDS"), whether in the form of performance stock, phantom stock, Cash-Based Awards, or other rights, the grant, vesting, exercisability or payment of which depends on the degree of achievement of the Performance Goals relative to preestablished targeted levels for the Corporation or the Corporation and one or more of its Subsidiaries, may be granted under this Plan. Any Qualifying Option or Qualifying Stock Appreciation Right shall be subject only to the requirements of subsections (a) and (c) below in order for such Awards to satisfy the requirements for Performance-Based Awards under this Section 4.2. With the exception of any Qualifying Option or Qualifying Stock Appreciation Right, an Award that is intended to satisfy the requirements of this Section 4.2 shall be designated as a Performance-Based Award at the time of grant. (a) ELIGIBLE CLASS. The eligible class of persons for Performance-Based Awards under this Section shall be the executive officers of the Corporation. (b) PERFORMANCE GOAL ALTERNATIVES. The specific performance goals for Performance-Based Awards granted under this Section (other than Qualifying Options and Qualifying Stock Appreciation Rights) shall be, on an absolute or relative basis, one or more of the Performance Goals, as selected by the Committee in its sole discretion. The Committee shall establish in the applicable Award Agreement the specific performance target(s) relative to the Performance Goal(s) which must be attained before the compensation under the Performance-Based Award becomes payable. The specific targets shall be determined within the time period permitted under Section 162(m) of the Code 10 (and any regulations issued thereunder) so that such targets are considered to be preestablished and so that the attainment of such targets is substantially uncertain at the time of their establishment. The applicable performance measurement period may not be less than one nor more than 10 years. (c) MAXIMUM PERFORMANCE-BASED AWARD. Notwithstanding any other provision of the Plan to the contrary, the maximum number of shares of Common Stock which may be delivered pursuant to options, stock appreciation rights or other share-based awards that are granted as Performance-Based Awards to any Participant in any calendar year shall not exceed 75,000 shares, either individually or in the aggregate, subject to adjustment as provided in Section 5.2. Awards that are cancelled during the year shall be counted against this limit to the extent required by Section 162(m) of the Code. In addition, the aggregate amount of compensation to be paid to any Participant in respect of any Cash-Based Awards that are granted during any calendar year as Performance-Based Awards shall not exceed $200,000. (d) COMMITTEE CERTIFICATION. Before any Performance-Based Award under this Section 4.2 (other than Qualifying Options or Qualifying Stock Appreciation Rights) is paid, the Committee must certify in writing that the Performance Goal(s) and any other material terms of the Performance-Based Award were satisfied; provided, however, that a Performance-Based Award may be paid without regard to the satisfaction of the applicable Performance Goal in the event of a Change in Control Event in accordance with Section 5.2(d). (e) TERMS AND CONDITIONS OF AWARDS. The Committee will have the discretion to determine the restrictions or other limitations of the individual Awards granted under this Section 4.2 including the authority to reduce Awards, payouts or vesting or to pay no Awards, in its sole discretion, if the Committee preserves such authority at the time of grant by language to this effect in its authorizing resolutions or otherwise. (f) ADJUSTMENTS FOR CHANGES IN CAPITALIZATION AND OTHER MATERIAL CHANGES. In the event of a change in corporate capitalization, such as a stock split or stock dividend, or a corporate transaction, such as a merger, consolidation, spinoff, reorganization or similar event, or any partial or complete liquidation of the Corporation, or any similar event consistent with regulations issued under Section 162(m) of the Code including, without limitation, any material change in accounting policies or practices affecting the Corporation and/or the Performance Goals or targets, then the Committee may make adjustments to the Performance Goals and targets relating to outstanding 11 Performance-Based Awards to the extent such adjustments are made to reflect the occurrence of such an event; provided, however, that adjustments described in this subsection may be made only to the extent that the occurrence of an event described herein was unforeseen at the time the targets for a Performance-Based Award were established by the Committee. 4.3 GRANTS OF STOCK BONUSES. The Committee may grant a Stock Bonus to any Eligible Person to reward exceptional or special services, contributions or achievements in the manner and on such terms and conditions (including any restrictions on such shares) as determined from time to time by the Committee. The number of shares so awarded shall be determined by the Committee. The Award may be granted independently or in lieu of a cash bonus. 4.4 DEFERRED PAYMENTS. The Committee may authorize for the benefit of any Eligible Person the deferral of any payment of cash or shares that may become due or of cash otherwise payable under this Plan, and provide for accredited benefits thereon based upon such deferment, at the election or at the request of such Participant, subject to the other terms of this Plan. Such deferral shall be subject to such further conditions, restrictions or requirements as the Committee may impose, subject to any then vested rights of Participants. 5. OTHER PROVISIONS. 5.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES. (a) EMPLOYMENT STATUS. Status as an Eligible Person shall not be construed as a commitment that any Award will be made under this Plan to an Eligible Person or to Eligible Persons generally. (b) NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in any other documents related to this Plan or to any Award) shall confer upon any Eligible Person or other Participant any right to continue in the employ or other service of the Company or constitute any contract or agreement of employment or other service, nor shall interfere in any way with the right of the Company to change such person's compensation or other benefits or to terminate the employment of such person, with or without cause, but nothing contained in this Plan or any document related hereto shall adversely affect any independent contractual right of such person without his or her consent thereto. 12 (c) PLAN NOT FUNDED. Awards payable under this Plan shall be payable in shares or from the general assets of the Corporation, and no special or separate reserve, fund or deposit shall be made to assure payment of such Awards. No Participant, Beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly otherwise provided) of the Company by reason of any Award hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company and any Participant, Beneficiary or other person. To the extent that a Participant, Beneficiary or other person acquires a right to receive payment pursuant to any Award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company. 5.2 ADJUSTMENTS; ACCELERATION. (a) ADJUSTMENTS. If there shall occur any extraordinary dividend or other extraordinary distribution in respect of the Common Stock (whether in the form of cash, Common Stock, other securities, or other property), or any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend), reverse stock split, reorganization, merger, combination, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Corporation, or there shall occur any other like corporate transaction or event in respect of the Common Stock or a sale of substantially all the assets of the Corporation as an entirety, then the Committee shall, in such manner and to such extent (if any) as it deems appropriate and equitable (1) proportionately adjust any or all of (a) the number and type of shares of Common Stock (or other securities) which thereafter may be made the subject of Awards (including the specific maxima and numbers of shares set forth elsewhere in this Plan), (b) the number, amount and type of shares of Common Stock (or other securities or property) subject to any or all outstanding Awards, (c) the grant, purchase, or exercise price of any or all outstanding Awards, (d) the securities, cash or other property deliverable upon exercise of any outstanding Awards, or (e) the performance standards appropriate to any outstanding Awards, or (2) in the case of an extraordinary dividend or other distribution, recapitalization, reclassification, merger, reorganization, consolidation, combination, sale of assets, split up, exchange, or spin off, make provision for a cash payment or for the substitution or exchange of any or all outstanding Awards or the cash, securities or property deliverable to the holder of any or all outstanding Awards based upon the distribution or consideration payable to holders of the Common Stock of the Corporation upon or in respect of such 13 event; PROVIDED, HOWEVER, in each case, that with respect to Awards of Incentive Stock Options, no such adjustment shall be made which would cause the Plan to violate Section 424(a) of the Code or any successor provisions thereto without the written consent of holders materially adversely affected thereby. In any of such events, the Committee may take such action sufficiently prior to such event if necessary to permit the Participant to realize the benefits intended to be conveyed with respect to the underlying shares in the same manner as is available to shareholders generally. (b) ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. As to any Participant, unless prior to a Change in Control Event, the Committee determines that, upon its occurrence, there shall be no acceleration of benefits under Awards or determines that only certain or limited benefits under Awards shall be accelerated and the extent to which they shall be accelerated, and/or establishes a different time in respect of such Change in Control Event for such acceleration, then upon the occurrence of a Change in Control Event (i) each Option and Stock Appreciation Right shall become immediately exercisable, (ii) each Performance Share Award shall become payable to the Participant. The Committee may override the limitations on acceleration in this Section 5.2(b) by express provision in the Award Agreement and may accord any Eligible Person a right to refuse any acceleration, whether pursuant to the Award Agreement or otherwise, in such circumstances as the Committee may approve. Any acceleration of Awards shall comply with applicable regulatory requirements, including without limitation Section 422 of the Code. (c) POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option or other right to acquire Common Stock under this Plan (other than under Article 7) has been fully accelerated as permitted by Section 5.2(b) but is not exercised prior to (i) a dissolution of the Corporation, or (ii) an event described in Section 5.2(a) that the Corporation does not survive, or (iii) the consummation of an event described in Section 5.2(a) that results in a Change in Control Event approved by the Board, such Option or right shall thereupon terminate, subject to any provision that has been expressly made by the Committee for the survival, substitution, exchange or other settlement of such Option or right. 5.3 EFFECT OF TERMINATION OF EMPLOYMENT. The Committee shall establish in respect of each Award granted to an Eligible Person the effect of a termination of employment on the rights and benefits thereunder and in so doing may make distinctions based upon the cause of termination. In addition, in the event of, or in anticipation of, a termination of employment with the Company for any reason, other than discharge for cause, the 14 Committee may, in its discretion, increase the portion of the Participant's Award available to the Participant, or Participant's Beneficiary or Personal Representative, as the case may be, or, subject to the provisions of Section 1.6, extend the exercisability period upon such terms as the Committee shall determine and expressly set forth in or by amendment to the Award Agreement. 5.4 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Awards under this Plan and the offer, issuance and delivery of shares of Common Stock and/or the payment of money under this Plan or under Awards granted hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Corporation, be necessary or advisable in connection therewith. Any securities delivered under this Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Corporation, provide such assurances and representations to the Corporation as the Corporation may deem necessary or desirable to assure compliance with all applicable legal requirements. 5.5 TAX WITHHOLDING. Upon any exercise, vesting, or payment of any Award or upon the disposition of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option prior to satisfaction of the holding period requirements of Section 422 of the Code, the Company shall have the right at its option to (i) require the Participant (or Personal Representative or Beneficiary, as the case may be) to pay or provide for payment of the amount of any taxes which the Company may be required to withhold with respect to such Award event or payment or (ii) deduct from any amount payable in cash the amount of any taxes which the Company may be required to withhold with respect to such cash payment. In any case where a tax is required to be withheld in connection with the delivery of shares of Common Stock under this Plan, the Committee may in its sole discretion grant (either at the time of the Award or thereafter) to the Participant the right to elect, pursuant to such rules and subject to such conditions as the Committee may establish, to have the Corporation reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares valued at their then Fair Market Value, to satisfy such withholding obligation. 15 5.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION. (a) BOARD AUTHORIZATION. The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part. No Awards may be granted during any suspension of this Plan or after termination of this Plan, but the Committee shall retain jurisdiction as to Awards then outstanding in accordance with the terms of this Plan. (b) STOCKHOLDER APPROVAL. Any amendment that would (i) materially increase the benefits accruing to Participants under this Plan, (ii) materially increase the aggregate number of securities that may be issued under this Plan, or (iii) materially modify the requirements as to eligibility for participation in this Plan, shall be subject to stockholder approval only to the extent then required by Section 422 of the Code or applicable law, or deemed necessary or advisable by the Board. (c) AMENDMENTS TO AWARDS. Without limiting any other express authority of the Committee under but subject to the express limits of this Plan, the Committee by agreement or resolution may waive conditions of or limitations on Awards to Eligible Persons that the Committee in the prior exercise of its discretion has imposed, without the consent of a Participant, and may make other changes to the terms and conditions of Awards that do not affect in any manner materially adverse to the Participant, his or her rights and benefits under an Award. (d) LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment, suspension or termination of this Plan or change of or affecting any outstanding Award shall, without written consent of the Participant, affect in any manner materially adverse to the Participant any rights or benefits of the Participant or obligations of the Corporation under any Award granted under this Plan prior to the effective date of such change. Changes contemplated by Section 5.2 shall not be deemed to constitute changes or amendments for purposes of this Section 5.6. 5.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly authorized by the Committee or this Plan, a Participant shall not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by him or her. No adjustment will be made for dividends or other rights as a shareholders for which a record date is prior to such date of delivery. 16 5.8 EFFECTIVE DATE OF THE PLAN. This Plan shall be effective as of March __, 1997, the date of Board approval, subject to shareholder approval within 12 months thereafter. 5.9 TERM OF THE PLAN. No Award shall be granted more than ten (10) years after the effective date of this Plan (the "termination date"). Unless otherwise expressly provided in this Plan or in an applicable Award Agreement, any Award granted prior to the termination date may extend beyond such date, and all authority of the Committee with respect to Awards hereunder, including the authority to amend an Award, shall continue during any suspension of this Plan and in respect of Awards outstanding on the termination date. 5.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY. (a) CHOICE OF LAW. This Plan, the Awards, all documents evidencing Awards and all other related documents shall be governed by, and construed in accordance with the laws of the state of incorporation of the Corporation. (b) SEVERABILITY. If any provision shall be held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions of this Plan shall continue in effect. (c) PLAN CONSTRUCTION. (1) RULE 16b-3. It is the intent of the Corporation that transactions in and affecting Awards in the case of Participants who are or may be subject to Section 16 of the Exchange Act satisfy any then applicable requirements of Rule 16b-3 so that such persons (unless they otherwise agree) will be entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Exchange Act in respect of those transactions and will not be subjected to avoidable liability thereunder. If any provision of this Plan or of any Award would otherwise frustrate or conflict with the intent expressed above, that provision to the extent possible shall be interpreted as to avoid such conflict. If the conflict remains irreconcilable, the Committee may disregard the provision if it concludes that to do so furthers the interest of the Corporation and is consistent with the purposes of this Plan as to such persons in the circumstances. (2) SECTION 162(m). It is the further intent of the Company that Options or Stock Appreciation Rights with an exercise or base price not less than Fair 17 Market Value on the date of grant and performance awards under Section 4.2 of this Plan that are granted to or held by a Section 16 Person shall qualify as performance-based compensation under Section 162(m) of the Code, and this Plan shall be interpreted consistent with such intent. 5.11 CAPTIONS. Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof. 5.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan and any Award hereunder, if an entity ceases to be a Subsidiary a termination of employment and service shall be deemed to have occurred with respect to each Eligible Person in respect of such Subsidiary who does not continue as an Eligible Person in respect of another entity within the Company. 5.13 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Committee to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority. 6. DEFINITIONS. 6.1 DEFINITIONS. (a) "AWARD" shall mean an award of any Option, Stock Appreciation Right, Stock Bonus, Performance-Based Award, Cash-Based Award, Performance Share Award, dividend equivalent or deferred payment right or other right or security that would constitute a "derivative security" under Rule 16a- 1(c) of the Exchange Act, or any combination thereof, whether alternative or cumulative, authorized by and granted under this Plan. (b) "AWARD AGREEMENT" shall mean any writing setting forth the terms of an Award that has been authorized by the Committee. (c) "AWARD DATE" shall mean the date upon which the Committee took the action granting an Award or such later date as the Committee designates as the Award Date at the time of the Award or, in the case of Awards under Article 7, the applicable dates set forth therein. 18 (d) "AWARD PERIOD" shall mean the period beginning on an Award Date and ending on the expiration date of such Award. (e) "BENEFICIARY" shall mean the person, persons, trust or trusts designated by a Participant or, in the absence of a designation, entitled by will or the laws of descent and distribution, to receive the benefits specified in the Award Agreement and under this Plan in the event of a Participant's death, and shall mean the Participant's executor or administrator if no other Beneficiary is designated and able to act under the circumstances. (f) "BOARD" shall mean the Board of Directors of the Corporation. (g) "CASH-BASED AWARDS" shall mean Awards that, if paid, must be paid in cash and that are neither denominated in nor have a value derived from the value of, nor an exercise or conversion privilege at a price related to, shares of Common Stock. (h) "CASH FLOW" shall mean cash and cash equivalents derived from either (i) net cash flow from operations or (ii) net cash flow from operations, financings and investing activities, as determined by the Committee at the time an Award is granted. (i) "CHANGE IN CONTROL EVENT" shall mean any of the following: (1) Approval by the shareholders of the Corporation of the dissolution or liquidation of the Corporation; (2) Approval by the shareholders of the Corporation of an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities that are not Subsidiaries or other affiliates, as a result of which less than 40% of the outstanding voting securities of the surviving or resulting entity immediately after the reorganization are, or will be, owned, directly or indirectly, by shareholders of the Corporation immediately before such reorganization (assuming for purposes of such determination that there is no change in the record ownership of the Corporation's securities from the record date for such approval until such reorganization and that such record owners hold no securities of the other parties to such reorganization), but including in such determination any securities of the other parties to such reorganization held by affiliates of the Corporation); (3) Approval by the shareholders of the Corporation of the sale of substantially all of the 19 Corporation's business and/or assets to a person or entity which is not a Subsidiary or other affiliate; or; (4) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act but excluding any person described in and satisfying the conditions of Rule 13d-1(b)(1) thereunder), other than a person who is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than 30% of the outstanding Shares of Common Stock at the time of adoption of this Plan, (or an affiliate, successor, heir, descendant or related party of or to any such person, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing more than 30% of the combined voting power of the Corporation's then outstanding securities entitled to then vote generally in the election of directors of the Corporation; or (5) During any period not longer than two consecutive years, individuals who at the beginning of such period constituted the Board cease to constitute at least a majority thereof, unless the election, or the nomination for election by the Corporation's shareholders, of each new Board member was approved by a vote of at least [three-fourths] of the Board members then still in office who were Board members at the beginning of such period (including for these purposes, new members whose election or nomination was so approved). (j) "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. (k) "COMMISSION" shall mean the Securities and Exchange Commission. (l) "COMMITTEE" shall mean the Board or a committee appointed by the Board to administer this Plan, which committee shall be comprised only of two or more directors or such greater number of directors as may be required under applicable law, each of whom, in respect of any decision at a time when the Participant affected by the decision may be subject to Section 162(m) of the Code, shall be an "outside" director within the meaning of Section 162(m) of the Code. (m) "COMMON STOCK" shall mean the Common Stock of the Corporation and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 5.2 of this Plan. 20 (n) "COMPANY" shall mean, collectively, the Corporation and its Subsidiaries. (o) "CORPORATION" shall mean Kaynar Holdings Inc., a Delaware corporation, and its successors. (p) "DISINTERESTED" shall mean disinterested within the meaning of any applicable regulatory requirements, including Rule 16b-3. (q) "ELIGIBLE EMPLOYEE" shall mean an officer (whether or not a director) or key employee of the Company. (r) "ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible Person, as determined by the Committee in its discretion, or, with respect to the provisions of Article 7, a Non-Employee Director. (s) "EPS" shall mean earnings per common share on a fully diluted basis determined by dividing (i) net earnings, less dividends on preferred stock of the Corporation by (ii) the weighted average number of common shares and common shares equivalents outstanding. (t) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. (u) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended from time to time. (v) "FAIR MARKET VALUE" on any date shall mean (i) if the stock is listed or admitted to trade on a national securities exchange, the closing price of the stock on the Composite Tape, as published in the Western Edition of The Wall Street Journal, of the principal national securities exchange on which the stock is so listed or admitted to trade, on such date, or, if there is no trading of the stock on such date, then the closing price of the stock as quoted on such Composite Tape on the next preceding date on which there was trading in such shares; (ii) if the stock is not listed or admitted to trade on a national securities exchange, the last price for the stock on such date, as furnished by the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ National Market Reporting System or a similar organization if the NASD is no longer reporting such information; (iii) if the stock is not listed or admitted to trade on a national securities exchange and is not reported on the National Market Reporting System, the mean between the bid and asked price for the stock on such date, as furnished by the NASD or a similar organization; or (iv) if the stock is not listed or admitted to trade on a national securities exchange, is not reported on the National Market Reporting System and if bid and asked prices for the stock are not furnished by the NASD 21 or a similar organization, the value as established by the Committee at such time for purposes of this Plan. (w) "INCENTIVE STOCK OPTION" shall mean an Option which is intended, as evidenced by its designation, as an incentive stock option within the meaning of Section 422 of the Code, the award of which contains such provisions (including but not limited to the receipt of shareholder approval of this Plan, if the Award is made prior to such approval) and is made under such circumstances and to such persons as may be necessary to comply with that section. (x) "NONQUALIFIED STOCK OPTION" shall mean an Option that is designated as a Nonqualified Stock Option and shall include any Option intended as an Incentive Stock Option that fails to meet the applicable legal requirements thereof. Any Option granted hereunder that is not designated as an incentive stock option shall be deemed to be designated a nonqualified stock option under this Plan and not an incentive stock option under the Code. (y) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board of Directors of the Corporation who is not an officer or employee of the Company. (z) "NON-EMPLOYEE DIRECTOR PARTICIPANT" shall mean a Non- Employee Director who holds an outstanding Award under the provisions of Article 7. (aa) "OPTION" shall mean an option to purchase Common Stock granted under this Plan. The Committee shall designate any Option granted to an Eligible Person as a Nonqualified Stock Option or an Incentive Stock Option. Options granted under Article 7 shall be Nonqualified Stock Options. (ab) "OTHER ELIGIBLE PERSON" shall mean any individual consultant or advisor who or (to the extent provided in the next sentence) agent who renders or has rendered BONA FIDE services (other than services in connection with the offering or sale of securities of the Company in a capital raising transaction) to the Company, and who is selected to participate in this Plan by the Committee; PROVIDED that if the Corporation's officers and directors are or become subject to Section 16 of the Exchange Act, a Non-Employee Director shall not thereafter be selected as an Other Eligible Person. A non-employee agent providing BONA FIDE services to the Company (other than as an eligible advisor or consultant) may also be selected as an Other Eligible Person if such agent's participation in this Plan would not adversely affect (x) the Corporation's eligibility to use Form S-8 to register under the Securities Act of 1933, as amended, the offering of shares issuable under this Plan by the Corporation or (y) the Corporation's compliance with any other applicable laws. 22 (ac) "PARTICIPANT" shall mean an Eligible Person who has been granted an Award under this Plan and a Non-Employee Director who has been received an Award under Article 7 of this Plan. (ad) "PERFORMANCE-BASED AWARD" shall mean an Award of a right to receive shares of Common Stock or other compensation (including cash) under Section 4.2, the issuance or payment of which is contingent upon, among other conditions, the attainment of performance objectives specified by the Committee. (ae) "PERFORMANCE GOALS" shall mean EPS or ROE or Cash Flow or Total Stockholder Return, and "Performance Goals" means any combination thereof. (af) "PERFORMANCE SHARE AWARD" shall mean an Award of a right to receive shares of Common Stock under Section .1, the issuance or payment of which is contingent upon, among other conditions, the attainment of performance objectives specified by the Committee. (ag) "PERSONAL REPRESENTATIVE" shall mean the person or persons who, upon the disability or incompetence of a Participant, shall have acquired on behalf of the Participant, by legal proceeding or otherwise, the power to exercise the rights or receive benefits under this Plan and who shall have become the legal representative of the Participant. (ah) "PLAN" shall mean this Kaynar Holdings Inc. 1997 Stock Incentive Plan. (ai) "ROE" shall mean consolidated net income of the Corporation (less preferred dividends), divided by the average consolidated common shareholders equity. (aj) "RULE 16b-3" shall mean Rule 16b-3 as promulgated by the Commission pursuant to the Exchange Act, as amended from time to time. (ak) "SECTION 16 PERSON" shall mean a person subject to Section 16(a) of the Exchange Act. (al) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended from time to time. (am) "STOCK APPRECIATION RIGHT" shall mean a right authorized under this Plan to receive a number of shares of Common Stock or an amount of cash, or a combination of shares and cash, the aggregate amount or value of which is determined by reference to a change in the Fair Market Value of the Common Stock. 23 (an) "STOCK BONUS" shall mean an Award of shares of Common Stock granted under this Plan for no consideration other than past services and without restriction other than such transfer or other restrictions as the Committee may deem advisable to assure compliance with law. (ao) "SUBSIDIARY" shall mean any corporation or other entity a majority of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Corporation. (ap) "TOTAL DISABILITY" shall mean a "permanent and total disability" within the meaning of Section 22(e)(3) of the Code and (except in the care of a Non-Employee Director) such other disabilities, infirmities, afflictions or conditions as the Committee by rule may include. 7. NON-EMPLOYEE DIRECTOR OPTIONS. 7.1 PARTICIPATION. Awards under this Article 7 shall be made only to Non-Employee Directors and shall be evidenced by Award Agreements substantially in the form of Exhibit A hereto. 7.2 ANNUAL OPTION GRANTS. (a) TIME OF INITIAL AWARD. Persons who are Non-Employee Directors in office at the time this Plan is first approved by the shareholders of the Corporation shall be granted without further action a Nonqualified Stock Option to purchase 1,000 shares of Common Stock. After approval of this Plan by the shareholders of the Corporation, if any person who is not then an officer or employee of the Company shall become a director of the Corporation, there shall be granted automatically to such person (without any action by the Board or Committee) a Nonqualified Stock Option (the Award Date of which shall be the date such person takes office) to purchase 1,000 shares of Common Stock. (b) SUBSEQUENT ANNUAL AWARDS. On January 31 in each year during the term of the Plan, commencing in 1998, there shall be granted automatically (without any action by the Committee or the Board) a Nonqualified Stock Option (the Award Date of which shall be such date in January) to each Non-Employee Director then continuing in office to purchase 500 shares of Common Stock. (c) MAXIMUM NUMBER OF SHARES. Annual grants that would otherwise exceed the maximum number of shares under Section 1.4(a) shall be prorated within such limitation. A Non-Employee Director shall not receive more than one Nonqualified Stock Option under this Section 7.2 in any calendar year. 24 7.3 OPTION PRICE. The purchase price per share of the Common Stock covered by each Option granted pursuant to Section 7.2 hereof shall be 100 percent of the Fair Market Value of the Common Stock on the Award Date. The exercise price of any Option granted under this Article shall be paid in full at the time of each purchase in cash or by check or in shares of Common Stock valued at their Fair Market Value on the date of exercise of the Option, or partly in such shares and partly in cash, PROVIDED THAT any such shares used in payment shall have been owned by the Participant at least six months prior to the date of exercise. 7.4 OPTION PERIOD AND EXERCISABILITY. Each Option granted under this Article 7 and all rights or obligations thereunder shall expire five (5) years after the Award Date and shall be subject to earlier termination as provided below. Each Option granted under Section 7.2 shall become exercisable at the rate of 25% per annum commencing on the first anniversary of the Award Date and each of the next three anniversaries thereof. 7.5 TERMINATION OF DIRECTORSHIP. If a Non-Employee Director's services as a member of the Board of Directors terminate by reason of death, or Total Disability, an Option granted pursuant to this Article held by such Participant shall immediately become and shall remain exercisable for two years after the date of such termination or until the expiration of the stated term of such Option, whichever first occurs. If a Non-Employee Director's services as a member of the Board of Directors terminate for any other reason, any portion of an Option granted pursuant to this Article which is not then exercisable shall terminate and any portion of such Option which is then exercisable may be exercised for six months after the date of such termination or until the expiration of the stated term whichever first occurs. 7.6 ACCELERATION AND ADJUSTMENTS. Options granted under this Article 7 shall be subject to acceleration and adjustment as provided in Section 6.2, but only to the extent that such acceleration and adjustment is consistent with changes to Options held by persons other than executive officers or directors of the Corporation. 7.7 ACCELERATION UPON A CHANGE IN CONTROL EVENT. Upon the occurrence of a Change in Control Event, each Option granted under Section 7.2 hereof shall become immediately exercisable in full; provided, however, that 25 none of the Options granted under Section 7.2 shall be accelerated to a date less than six months after the Award Date of such Option. To the extent that any Option granted under this Article 7 is not exercised prior to (i) a dissolution of the Corporation or (ii) a merger or other corporate event that the Corporation does not survive, and no provision is (or consistent with the provisions of Section 7.7 can be) made for the assumption, conversion, substitution or exchange of the Option, the Option shall terminate upon the occurrence of such event. 26 EXHIBIT A KAYNAR HOLDINGS INC. ELIGIBLE DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT dated as of the ____ day of _____________, 199__, between KAYNAR HOLDINGS INC., a Delaware corporation (the "Corporation"), and ________________ (the "Director"). W I T N E S S E T H WHEREAS, the Corporation has adopted and the shareholders of the Corporation have approved the 1997 Stock Incentive Plan (the "Plan"). WHEREAS, pursuant to Article 7.2 of the Plan, the Corporation has granted an option (the "Option") to the Director upon the terms and conditions evidenced hereby, as required by the Plan, which Option is not intended as and shall not be deemed to be an incentive stock option within the meaning of Section 422 of the Code. NOW, THEREFORE, in consideration of the services rendered and to be rendered by the Director, the Corporation and the Director agree to the terms and conditions set forth herein as required by the terms of the Plan. 1. OPTION GRANT. This Agreement evidences the grant to the Director, as of ___________, 199__ (the "Option Date"), of an Option to purchase an aggregate of [INSERT NUMBER] shares of Common Stock, par value $.01 per share, under Section 7.2 of the Plan, subject to the terms and conditions and to adjustment as set forth herein or in pursuant to the Plan. 2. EXERCISE PRICE. The Option entitles the Director to purchase (subject to the terms of Sections 3 through 5 below) all or any part of the Option shares at a price per share of $____.___, which amount represents the Fair Market Value of the shares on the Option Date. 3. OPTION EXERCISABILITY AND TERM. Subject to acceleration and adjustment pursuant to Section 7.6 of the Plan, the Option shall first become and remain exercisable as to 25% of the shares on ____________, _____ and as to an additional 25% of the shares on each of the following dates: ______________, _____, __________, _____ and _____________, 27 _____. The Option shall terminate on ____________, 19__,* unless earlier terminated in accordance with the terms of Section 5.6 of the Plan. 4. SERVICE AND EFFECT OF TERMINATION OF SERVICE. The Director agrees to serve as a director in accordance with the provisions of the Corporation's Certificate of Incorporation, bylaws and applicable law. If the Director's services as a member of the Board shall terminate, this Option shall terminate at the times and to the extent set forth in Section 7.5 of the Plan. 5. GENERAL TERMS. The Option and this Agreement are subject to, and the Corporation and the Director agree to be bound by, the provisions of the Plan that apply to the Option. Such provisions are incorporated herein by this reference. The Director acknowledges receiving a copy of the Plan and reading its applicable provisions. Capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Plan. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. KAYNAR HOLDINGS INC. (a Delaware corporation) By ___________________________ Title _____________________ Optionee Director _____________________________ (Signature) _____________________________ (Print Name) _____________________________ (Address) _____________________________ (City, State, Zip Code) __________________ *insert day before fifth anniversary of date of grant. 28 In consideration of the execution of the foregoing Stock Option Agreement by KAYNAR HOLDINGS INC., I, ____________________________, the spouse of the Director therein named, do hereby agree to be bound by all of the terms and provisions thereof and of the Plan. DATED: ______________, 19__. ___________________________ Signature of Spouse 29 EX-99.2 19 EX 99.2 EMPLOY AGMT FOR LAW & WERNER EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is entered into by and between KAYNAR TECHNOLOGIES INC., a Delaware corporation, (the "Company") and ("Employee"), as of the day of February 1997. I. EMPLOYMENT. The Company hereby employs Employee and Employee hereby accepts such employment, upon the terms and conditions hereinafter set forth. II. TERMS. This Agreement shall be effective from the date hereof to December 31, 1998; provided, however, that on June 30, 1997, eighteen months before expiration and every six months thereafter ("Renewal Date"), this Agreement shall be extended for two additional years unless, at least 30 days prior to the Renewal Date (which shall be either June 30 or December 31), the Company shall have delivered to Employee or Employee shall have delivered to the Company written notice that the Agreement shall not be so extended. III. DUTIES. A. Employee shall serve during the course of his employment as of the Company, and shall have such other duties and responsibilities as the Board of Directors of the Company shall determine from time to time. B. Employee agrees to devote substantially all of his time, energy and ability to the business of the Company. Nothing herein shall prevent Employee, upon approval of the Board of Directors of the Company, from serving as a director or trustee of other corporations or businesses which are not in competition with the business of the Company or in competition with any present or future affiliate of the Company. IV. COMPENSATION. A. The Company will pay to Employee a base salary at the rate of $ per year. Such salary shall be earned monthly and shall be payable in periodic installments no less frequently than monthly in accordance with the Company's customary practices. Amounts payable shall be reduced by standard withholding and other authorized deductions. The Company will review Employee's salary at least annually. The Company may in its discretion increase Employee's salary but it may not reduce it during the term of this Agreement. 1 B. ANNUAL BONUS, INCENTIVE, SAVINGS AND RETIREMENT PLANS. Employee shall be entitled to participate in all annual bonus, incentive, stock incentive, savings and retirement plans, defined contribution plans, practices, policies and programs applicable generally to other executives of the Company. C. WELFARE BENEFIT PLANS. Employee and/or his family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company. D. EXPENSES. Employee shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him in accordance with the policies, practices and procedures as in effect generally with respect to other executives of the Company. E. FRINGE BENEFITS. Employee shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies as in effect generally with respect to other executives of the Company. F. VACATION. Employee shall be entitled to paid vacation time in accordance with the plans, policies, programs and practices as in effect with respect to other employees of the Company. G. PLAN AMENDMENTS. The Company reserves the right to modify, suspend or discontinue any and all of its employee plans, practices, policies and programs at any time without recourse by Employee so long as such action is taken generally with respect to other similarly situated executives and does not single out Employee. V. TERMINATION. A. DEATH OR DISABILITY. Employee's employment shall terminate automatically upon Employee's death. If the Company determines in good faith that a Disability of Employee has occurred (as Disability is defined below), it may give to Employee written notice in accordance with Section XX of its intention to terminate Employee's employment. In such event, Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by Employee, provided that, within the 30 days after such receipt, Employee shall not have returned to full-time performance of his duties. For purposes of this Agreement, 2 "Disability" shall mean the absence of Employee from his duties with the Company on a full-time basis for a period of two consecutive months as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to Employee or his legal representative (such agreement as to acceptability not to be withheld unreasonably). "Incapacity" as used herein shall be limited only to such Disability which substantially prevents the Company from availing itself of the services of Employee or substantially impairs the Employee's ability to perform services to the standard reasonably expected by the Company for Employee's office. B. CAUSE, ETC.. Following a Change in Control, as defined in Section VI below, during the term of this Agreement remaining after such Change in Control, the parties agree that the Company may terminate Employee's employment only for Cause, as "Cause" is defined below. Prior to the occurrence of a Change in Control (and so long as such termination is not made in connection therewith) the Company may terminate Employee's employment, at any time, with or without Cause. The Company also may terminate such employment, at any time, for Employee's breach of the provisions of Sections VIII (Noncompetition), IX (Antisolicitation) or XII (Confidential Information) or as set forth in paragraph A above. For purposes of this Agreement, "Cause" shall mean that the Company, acting in good faith based upon the information then known to the Company, determines that Employee has: (1) failed to perform in a material respect his obligations under this Agreement without proper reason, (2) been convicted of a felony, or (3) committed a material act of fraud, dishonesty or gross misconduct which is materially injurious to the Company. C. OBLIGATIONS OF THE COMPANY UPON TERMINATION. 1. DEATH OR DISABILITY. If Employee's employment is terminated by reason of Employee's Death or Disability, this Agreement shall not be subject to any further extension pursuant to Section II hereof. 2. CAUSE, ETC. If Employee's employment is terminated by the Company pursuant to Section V-B, this Agreement shall terminate without further obligations to Employee other than for (a) payment of the sum of Employee's annual base salary through the date of termination and any accrued vacation pay to the extent not theretofore paid, which shall be paid to Employee or his estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the date of termination; (b) payment of any compensation previously deferred by Employee (together with any accrued interest or earnings 3 thereon), which shall be paid to Employee or his estate or beneficiary pursuant to terms of the plan or agreement under which such compensation was deferred; and (c) payment to Employee or his estate or beneficiary, as applicable, any amounts due pursuant to the terms of any applicable welfare benefit plans. The payments described in clauses (a) and (b) shall hereinafter be referred to as the "Accrued Obligations." If it is subsequently determined that the Company did not have the right to terminate Employee under Section V-B, then the Company's decision to terminate shall be deemed to have been made under Section V-C-3 and the amounts payable thereunder shall be the only amounts Employee may receive for his termination. 3. OTHER. If the Company breaches this Agreement by terminating Employee's employment other than pursuant to Sections V-A or V-B, the Company (a) shall immediately pay to Employee a lump sum equal to two times Employee's base salary for one year at the rate in effect immediately prior to Employee's termination of employment, less standard withholdings and other authorized deductions, and (b) shall timely pay to Employee the Accrued Obligations. Employee shall have no duty to mitigate damages and none of the payments provided in this Section V-C-3 shall be reduced by any amounts earned or received by Employee from a third party at any time. 4. EXCLUSIVE REMEDY. Employee agrees that the payments contemplated by this Agreement shall constitute the exclusive and sole remedy for any termination of his employment and Employee covenants not to assert or pursue any other remedies, at law or in equity, with respect to any termination of employment. VI. CHANGE IN CONTROL. A. Notwithstanding anything to the contrary in this Agreement, if a Change in Control (as defined below) of the Company occurs during the term of this Agreement, and if within two years following such Change in Control either the Company terminates Employee's employment, or if employee terminates his employment for Good Reason (as defined below), the Company shall pay to Employee by cashier's check immediately upon Employee's termination of employment with the Company an amount equal to two times the sum of (1) the amount of the highest annual base salary paid to Employee during the three most recent calendar years ending prior to the year in which the Change in Control occurs and (2) the amount of the highest bonus (or bonuses) paid to Employee for any calendar year ending prior to the year in which the Change in Control occurs. This payment shall be in lieu of the lump sum payment 4 otherwise payable under Section V-C-3(a), but shall be in addition to the timely payment of the Accrued Obligations. Employee shall have no duty to mitigate damages and none of the payments provided in this Section VI-A shall be reduced by any amounts earned or received by Employee from a third party at any time. B. Notwithstanding anything in this Agreement to the contrary, any "parachute payments" to be made to or for Employee's benefit, whether pursuant to this Agreement or otherwise, shall be modified to the extent necessary so that the requirements of one of the two subparagraphs below are satisfied: 1. The aggregate "present value" of all "parachute payments" payable to Employee or for Employee's benefit, whether pursuant to this Agreement or otherwise, shall be less than three (3) times Employee's "base amount"; or 2. Each "parachute payment" payable to Employee or for Employee's benefit, whether pursuant to this Agreement or otherwise, shall be in an amount which does not exceed the "reasonable compensation" allocable to such "parachute payment." C. For purposes of this Section VI: 1. A "Change in Control" of the Company means any of the following: (1) Approval by the shareholders of the Company of the dissolution or liquidation of the Company; (2) Approval by the shareholders of the Company of an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities that are not subsidiaries or other affiliates, as a result of which less than 60% of the outstanding voting securities of the surviving or resulting entity immediately after the reorganization are, or will be, owned, directly or indirectly, by shareholders or other affiliates of the Company immediately before such reorganization (assuming for purposes of such determination that there is no change in the record ownership of the Company's securities from the record date for such approval until such reorganization but including in such determination any securities of the other parties to such reorganization held by affiliates of the Company); (3) Approval by the shareholders of the Company of the sale of substantially all of the Company's business and/or assets to a person or entity which is not a subsidiary or other affiliate; or 5 (4) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) becomes the "beneficial owner") (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company's then outstanding securities entitled to then vote generally in the election of directors of the Company. For purposes of this Section VI-C-(4), "voting power" shall not include any voting power to the extent such entity (or its members) held the securities giving such voting power on the third business day after the effective time of the Company's first registration of such class of securities under the Exchange Act. 2. "Good Reason" shall mean (a) an adverse and significant change in Employee's position, duties, responsibilities, or status with the Company, (b) a change in Employee's office location to a point more than 50 miles from Employee's office immediately prior to a Change in Control, (c) the taking of any action by the Company to eliminate benefit plans without providing substitutes therefore, to reduce benefits thereunder or to substantially diminish the aggregate value of incentive awards or other fringe benefits, (d) any reduction in Employee's base salary, or (e) breach of this Agreement by the Company. 3. The term "base amount" shall have the meaning ascribed to it under Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"); 4. The term "parachute payment" shall have the meaning ascribed in Section 280G(b)(2)(A) of the Code, without regard to Section 280G(b)(2)(A)(ii) of the Code but with regard to Section 280G(b)(4)(A); 5. "Present value" shall be determined in accordance with Section 280G(d)(4) of the Code; 6. The term "reasonable compensation" shall have the meaning ascribed to it under Section 280G(b)(4)(B) of the Code (for personal services actually rendered before the date of the Change in Control of the Company); and 7. The portion of the "base amount" and the amount of "reasonable compensation" allocable to any "parachute payment" shall be determined in accordance with Section 280G(b)(3) of the Code and Section 280G(b)(4)(B) of the Code, respectively. D. In the event the amount of any of "parachute payments" which would be payable to Employee or for Employee's benefit without regard to this Section must be modified to comply with this Section VI, Employee shall direct which 6 "parachute payments" are to be a waived or modified; provided, however, that no change in timing of the payments shall be made without the consent of the Company. E. All determinations required by this Section VI, including without limitation the determination of whether any benefit or payment would constitute a parachute payment, the calculation of the value of any parachute and whether any benefit or payment constitutes reasonable compensation, shall be made by an independent accounting firm (other than the Company's outside auditing firm) having nationally recognized expertise in such matters selected by the Compensation Committee of the Board of Directors of the Company. Any such determination by such accounting firm shall be binding on the Company and Employee. F. Payment of amounts pursuant to this Agreement shall not, unless directed by Employee, be delayed pending determination of the status of a payment as a "parachute payments" by the Internal Revenue Service, court or similar body of competent jurisdiction. VII. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, its enforcement or interpretation, or because of an alleged breach, default, or misrepresentation in connection with any of its provisions, shall be submitted to arbitration, to be held in Orange County, California in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the arbitration may be entered in any court in the State of California, or in any other court of competent jurisdiction. In the event either party institutes arbitration under this Agreement arising prior to a Change in Control of the Company, the party prevailing in any such litigation shall be entitled, in addition to all other relief, the reasonable attorneys' fees relating to such arbitration, and the nonprevailing party shall be responsible for all costs of the arbitration, including but not limited to, the arbitration fees, court reporter fees, etc. In the case of any arbitration or subsequent judicial proceedings arising after a Change in Control of the Company, Employee shall be awarded his costs, including attorneys' fees. VIII. NONCOMPETITION. A. Employee agrees that, during the term of this Agreement, and for a period of six months thereafter, he will not, directly or indirectly, without the prior written consent of the Board of Directors of the Company, provide consultative service with or without pay, own, manage, operate, join, control, participate in, or be connected as a stockholder, 7 partner, or otherwise with, any business, individual, partner, firm, corporation, or other entity which is then in the business of producing metal fasteners (or related products) for the aerospace industry anywhere (including both in the United States and abroad). However, this Section VIII-A will not apply if Employee's only relationship to such business is by ownership of less than 4% of the outstanding voting securities of a publicly-traded company. B. It is expressly agreed that the Company will or would suffer irreparable injury if Employee were to compete with the business of the Company or any subsidiary or affiliate of the Company in violation of this Agreement and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction. Employee consents and stipulates to the entry of such injunctive relief in such a court prohibiting him from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement. IX. ANTISOLICITATION. Employee promises and agrees that during the term of this Agreement he will not influence or attempt to influence customers of the Company or any of its present or future subsidiaries or affiliates, either directly or indirectly, to divert their business to any individual, partnership, firm, corporation or other entity then in competition with the business of the Company, or any subsidiary or affiliate of the Company. X. JOINING FORMER COMPANY EMPLOYEES. Employee promises and agrees that for six months following his termination of employment other than pursuant to Section V-C or VI above or Disability above or expiration of this Agreement, he will not enter business or work with any person who was employed with the Company, and who earned annually $80,000 or more as a Company employee during the last six months of his or her own employment, in any business, partnership, firm, corporation or other entity then in competition with the business of the Company or any subsidiary or affiliate of the Company. XI. SOLICITING EMPLOYEES. Employee promises and agrees that he will not, for a period of one year following termination of his employment or the expiration of this Agreement, directly or indirectly solicit any of the Company employees who earned annually $80,000 or more as a Company employee during the last six months of his or her own employment to work for any business, individual, partnership, firm, corporation, or other entity 8 then in competition with the business of the Company or any subsidiary or affiliate of the Company. XII. CONFIDENTIAL INFORMATION. A. Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by Employee during his employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by Employee or his representatives in violation of this Agreement). After termination of Employee's employment with the Company, he shall not, without the prior written consent of the Company, or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. B. Employee agrees that all lists, materials, books, files, reports, correspondence, records, and other documents ("Company material") used, prepared, or made available to Employee, shall be and shall remain the property of the Company. Upon the termination of employment or the expiration of this Agreement, all Company materials shall be returned immediately to the Company, and Employee shall not make or retain any copies thereof. XIII. SUCCESSORS. A. This Agreement is personal to Employee and shall not, without the prior written consent of the Company, be assignable by Employee. B. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and any such successor or assignee shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" and "assignee" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires the stock of the Company or to which the Company assigns this Agreement by operation of law or otherwise. XIV. WAIVER. No waiver of any breach of any term or provision of this Agreement shall be construed to be, nor shall be, a waiver of any other breach of this Agreement. No waiver shall be binding unless in writing and signed by the party waiving the breach. 9 XV. MODIFICATION. This Agreement may not be amended or modified other than by a written agreement executed by the Employee and the Company. XVI. SAVINGS CLAUSE. If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable. XVII. COMPLETE AGREEMENT. This instrument constitutes and contains the entire agreement and understanding concerning Employee's employment and other subject matters addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matter hereof. This is an integrated agreement. XVIII. GOVERNING LAW. This Agreement shall be deemed to have been executed and delivered within the State of California, and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with, and governed by, by the laws of the State of California without regard to principles of conflict of laws. XIX. CONSTRUCTION. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. XX. COMMUNICATIONS. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered in person, by telecopy, telex or equivalent form of written telecommunication or if sent by registered or certified mail, return receipt requested, postage prepaid, as follows: To Company: Kaynar Technologies Inc. 800 South State College Boulevard Fullerton, California 92831 Attention: 10 With copy to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 Attention: C. James Levin, Esq. To Employee: Either party may change the address at which notice shall be given by written notice given in the above manner. All notices required or permitted hereunder shall be deemed duly given and received on the date of delivery, if delivered in person or by telex, telecopy or other written telecommunication on a regular business day and within normal business hours or on the fifth day next succeeding the date of mailing, if sent by certified or registered mail. XXI. EXECUTION. This Agreement is being executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose. XXII. LEGAL COUNSEL. The Employee and the Company recognize that this is a legally binding contract and acknowledge and agree that they have had the opportunity to consult with legal counsel of their choice. XXIII. SURVIVAL. The provisions of this Agreement shall survive the term of this Agreement to the extent necessary to accommodate full performance of all such terms. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. - ------------------------------ ------------------------------- KAYNAR TECHNOLOGIES INC. By -------------------------- Its -------------------------- 11 EX-99.3 20 EXHIBIT 99.3 EMPLMT AGMT FOR BEERS DACK ET AL EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is entered into by and between KAYNAR TECHNOLOGIES INC., a Delaware corporation, (the "Company") and _______________ ("Employee"), as of the ____ day of February 1997. I. EMPLOYMENT. The Company hereby employs Employee and Employee hereby accepts such employment, upon the terms and conditions hereinafter set forth. II. TERMS. This Agreement shall be effective from the date hereof to December 31, 1997; provided, however, that on June 30, 1997 six months before expiration and every six months thereafter ("Renewal Date"), this Agreement shall be extended for one additional year unless, at least 30 days prior to the Renewal Date (which shall be either June 30 or December 31), the Company shall have delivered to Employee or Employee shall have delivered to the Company written notice that the Agreement shall not be so extended. III. DUTIES. A. Employee shall serve during the course of his employment as ______________________, of the Company, and shall have such other duties and responsibilities as the Board of Directors of the Company shall determine from time to time. B. Employee agrees to devote substantially all of his time, energy and ability to the business of the Company. Nothing herein shall prevent Employee, upon approval of the Board of Directors of the Company, from serving as a director or trustee of other corporations or businesses which are not in competition with the business of the Company or in competition with any present or future affiliate of the Company. IV. COMPENSATION. A. The Company will pay to Employee a base salary at the rate of $__________ per year. Such salary shall be earned monthly and shall be payable in periodic installments no less frequently than monthly in accordance with the Company's customary practices. Amounts payable shall be reduced by standard withholding and other authorized deductions. The Company will review Employee's salary at least annually. The Company may in its discretion increase Employee's salary but it may not reduce it during the term of this Agreement. 1 B. ANNUAL BONUS, INCENTIVE, SAVINGS AND RETIREMENT PLANS. Employee shall be entitled to participate in all annual bonus, incentive, stock incentive, savings and retirement plans, defined contribution plans, practices, policies and programs applicable generally to other executives of the Company. C. WELFARE BENEFIT PLANS. Employee and/or his family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company. D. EXPENSES. Employee shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him in accordance with the policies, practices and procedures as in effect generally with respect to other executives of the Company. E. FRINGE BENEFITS. Employee shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies as in effect generally with respect to other executives of the Company. F. VACATION. Employee shall be entitled to paid vacation time in accordance with the plans, policies, programs and practices as in effect with respect to other employees of the Company. G. PLAN AMENDMENTS. The Company reserves the right to modify, suspend or discontinue any and all of its employee plans, practices, policies and programs at any time without recourse by Employee so long as such action is taken generally with respect to other similarly situated executives and does not single out Employee. V. TERMINATION. A. DEATH OR DISABILITY. Employee's employment shall terminate automatically upon Employee's death. If the Company determines in good faith that a Disability of Employee has occurred (as Disability is defined below), it may give to Employee written notice in accordance with Section XX of its intention to terminate Employee's employment. In such event, Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by Employee, provided that, within the 30 days after such receipt, Employee shall not have returned to full-time performance of his duties. For purposes of this Agreement, 2 "Disability" shall mean the absence of Employee from his duties with the Company on a full-time basis for a period of two consecutive months as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to Employee or his legal representative (such agreement as to acceptability not to be withheld unreasonably). "Incapacity" as used herein shall be limited only to such Disability which substantially prevents the Company from availing itself of the services of Employee or substantially impairs the Employee's ability to perform services to the standard reasonably expected by the Company for Employee's office. B. CAUSE, ETC.. Following a Change in Control, as defined in Section VI below, during the term of this Agreement remaining after such Change in Control, the parties agree that the Company may terminate Employee's employment only for Cause, as "Cause" is defined below. Prior to the occurrence of a Change in Control (and so long as such termination is not made in connection therewith) the Company may terminate Employee's employment, at any time, with or without Cause. The Company also may terminate such employment, at any time, for Employee's breach of the provisions of Sections VIII (Noncompetition), IX (Antisolicitation) or XII (Confidential Information) or as set forth in paragraph A above. For purposes of this Agreement, "Cause" shall mean that the Company, acting in good faith based upon the information then known to the Company, determines that Employee has: (1) failed to perform in a material respect his obligations under this Agreement without proper reason, (2) been convicted of a felony, or (3) committed a material act of fraud, dishonesty or gross misconduct which is materially injurious to the Company. C. OBLIGATIONS OF THE COMPANY UPON TERMINATION. 1. DEATH OR DISABILITY. If Employee's employment is terminated by reason of Employee's Death or Disability, this Agreement shall not be subject to any further extension pursuant to Section II hereof. 2. CAUSE, ETC. If Employee's employment is terminated by the Company pursuant to Section V-B, this Agreement shall terminate without further obligations to Employee other than for (a) payment of the sum of Employee's annual base salary through the date of termination and any accrued vacation pay to the extent not theretofore paid, which shall be paid to Employee or his estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the date of termination; (b) payment of any compensation previously deferred by Employee (together with any accrued interest or earnings 3 thereon), which shall be paid to Employee or his estate or beneficiary pursuant to terms of the plan or agreement under which such compensation was deferred; and (c) payment to Employee or his estate or beneficiary, as applicable, any amounts due pursuant to the terms of any applicable welfare benefit plans. The payments described in clauses (a) and (b) shall hereinafter be referred to as the "Accrued Obligations." If it is subsequently determined that the Company did not have the right to terminate Employee under Section V-B, then the Company's decision to terminate shall be deemed to have been made under Section V-C-3 and the amounts payable thereunder shall be the only amounts Employee may receive for his termination. 3. OTHER. If the Company breaches this Agreement by terminating Employee's employment other than pursuant to Sections V-A or V-B, the Company (a) shall immediately pay to Employee a lump sum equal to Employee's base salary for one year at the rate in effect immediately prior to Employee's termination of employment, less standard withholdings and other authorized deductions, and (b) shall timely pay to Employee the Accrued Obligations. Employee shall have no duty to mitigate damages and none of the payments provided in this Section V-C-3 shall be reduced by any amounts earned or received by Employee from a third party at any time. 4. EXCLUSIVE REMEDY. Employee agrees that the payments contemplated by this Agreement shall constitute the exclusive and sole remedy for any termination of his employment and Employee covenants not to assert or pursue any other remedies, at law or in equity, with respect to any termination of employment. VI. CHANGE IN CONTROL. A. Notwithstanding anything to the contrary in this Agreement, if a Change in Control (as defined below) of the Company occurs during the term of this Agreement, and if within two years following such Change in Control either the Company terminates Employee's employment, or if employee terminates his employment for Good Reason (as defined below), the Company shall pay to Employee by cashier's check immediately upon Employee's termination of employment with the Company an amount equal to the sum of (1) the amount of the highest annual base salary paid to Employee during the three most recent calendar years ending prior to the year in which the Change in Control occurs and (2) the amount of the highest bonus (or bonuses) paid to Employee for any calendar year ending prior to the year in which the Change in Control occurs. This payment shall be in lieu of the lump sum payment otherwise payable under Section V-C-3(a), but shall be in 4 addition to the timely payment of the Accrued Obligations. Employee shall have no duty to mitigate damages and none of the payments provided in this Section VI-A shall be reduced by any amounts earned or received by Employee from a third party at any time. B. Notwithstanding anything in this Agreement to the contrary, any "parachute payments" to be made to or for Employee's benefit, whether pursuant to this Agreement or otherwise, shall be modified to the extent necessary so that the requirements of one of the two subparagraphs below are satisfied: 1. The aggregate "present value" of all "parachute payments" payable to Employee or for Employee's benefit, whether pursuant to this Agreement or otherwise, shall be less than three (3) times Employee's "base amount"; or 2. Each "parachute payment" payable to Employee or for Employee's benefit, whether pursuant to this Agreement or otherwise, shall be in an amount which does not exceed the "reasonable compensation" allocable to such "parachute payment." C. For purposes of this Section VI: 1. A "Change in Control" of the Company means any of the following: (1) Approval by the shareholders of the Company of the dissolution or liquidation of the Company; (2) Approval by the shareholders of the Company of an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities that are not subsidiaries or other affiliates, as a result of which less than 60% of the outstanding voting securities of the surviving or resulting entity immediately after the reorganization are, or will be, owned, directly or indirectly, by shareholders or other affiliates of the Company immediately before such reorganization (assuming for purposes of such determination that there is no change in the record ownership of the Company's securities from the record date for such approval until such reorganization but including in such determination any securities of the other parties to such reorganization held by affiliates of the Company); (3) Approval by the shareholders of the Company of the sale of substantially all of the Company's business and/or assets to a person or entity which is not a subsidiary or other affiliate; or 5 (4) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) becomes the "beneficial owner") (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company's then outstanding securities entitled to then vote generally in the election of directors of the Company. For purposes of this Section VI-C-(4), "voting power" shall not include any voting power to the extent such entity (or its members) held the securities giving such voting power on the third business day after the effective time of the Company's first registration of such class of securities under the Exchange Act. 2. "Good Reason" shall mean (a) an adverse and significant change in Employee's position, duties, responsibilities, or status with the Company, (b) a change in Employee's office location to a point more than 50 miles from Employee's office immediately prior to a Change in Control, (c) the taking of any action by the Company to eliminate benefit plans without providing substitutes therefore, to reduce benefits thereunder or to substantially diminish the aggregate value of incentive awards or other fringe benefits, (d) any reduction in Employee's base salary, or (e) breach of this Agreement by the Company. 3. The term "base amount" shall have the meaning ascribed to it under Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"); 4. The term "parachute payment" shall have the meaning ascribed in Section 280G(b)(2)(A) of the Code, without regard to Section 280G(b)(2)(A)(ii) of the Code but with regard to Section 280G(b)(4)(A); 5. "Present value" shall be determined in accordance with Section 280G(d)(4) of the Code; 6. The term "reasonable compensation" shall have the meaning ascribed to it under Section 280G(b)(4)(B) of the Code (for personal services actually rendered before the date of the Change in Control of the Company); and 7. The portion of the "base amount" and the amount of "reasonable compensation" allocable to any "parachute payment" shall be determined in accordance with Section 280G(b)(3) of the Code and Section 280G(b)(4)(B) of the Code, respectively. D. In the event the amount of any of "parachute payments" which would be payable to Employee or for Employee's benefit without regard to this Section must be modified to comply with this Section VI, Employee shall direct which 6 "parachute payments" are to be a waived or modified; provided, however, that no change in timing of the payments shall be made without the consent of the Company. E. All determinations required by this Section VI, including without limitation the determination of whether any benefit or payment would constitute a parachute payment, the calculation of the value of any parachute and whether any benefit or payment constitutes reasonable compensation, shall be made by an independent accounting firm (other than the Company's outside auditing firm) having nationally recognized expertise in such matters selected by the Compensation Committee of the Board of Directors of the Company. Any such determination by such accounting firm shall be binding on the Company and Employee. F. Payment of amounts pursuant to this Agreement shall not, unless directed by Employee, be delayed pending determination of the status of a payment as a "parachute payments" by the Internal Revenue Service, court or similar body of competent jurisdiction. VII. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, its enforcement or interpretation, or because of an alleged breach, default, or misrepresentation in connection with any of its provisions, shall be submitted to arbitration, to be held in Orange County, California in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the arbitration may be entered in any court in the State of California, or in any other court of competent jurisdiction. In the event either party institutes arbitration under this Agreement arising prior to a Change in Control of the Company, the party prevailing in any such litigation shall be entitled, in addition to all other relief, the reasonable attorneys' fees relating to such arbitration, and the nonprevailing party shall be responsible for all costs of the arbitration, including but not limited to, the arbitration fees, court reporter fees, etc. In the case of any arbitration or subsequent judicial proceedings arising after a Change in Control of the Company, Employee shall be awarded his costs, including attorneys' fees. VIII. NONCOMPETITION. A. Employee agrees that, during the term of this Agreement, and for a period of six months thereafter, he will not, directly or indirectly, without the prior written consent of the Board of Directors of the Company, provide consultative service with or without pay, own, manage, operate, join, control, participate in, or be connected as a stockholder, 7 partner, or otherwise with, any business, individual, partner, firm, corporation, or other entity which is then in the business of producing metal fasteners (or related products) for the aerospace industry anywhere (including both in the United States and abroad). However, this Section VIII-A will not apply if Employee's only relationship to such business is by ownership of less than 4% of the outstanding voting securities of a publicly-traded company. B. It is expressly agreed that the Company will or would suffer irreparable injury if Employee were to compete with the business of the Company or any subsidiary or affiliate of the Company in violation of this Agreement and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction. Employee consents and stipulates to the entry of such injunctive relief in such a court prohibiting him from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement. IX. ANTISOLICITATION. Employee promises and agrees that during the term of this Agreement he will not influence or attempt to influence customers of the Company or any of its present or future subsidiaries or affiliates, either directly or indirectly, to divert their business to any individual, partnership, firm, corporation or other entity then in competition with the business of the Company, or any subsidiary or affiliate of the Company. X. JOINING FORMER COMPANY EMPLOYEES. Employee promises and agrees that for six months following his termination of employment other than pursuant to Section V-C or VI above or Disability above or expiration of this Agreement, he will not enter business or work with any person who was employed with the Company, and who earned annually $80,000 or more as a Company employee during the last six months of his or her own employment, in any business, partnership, firm, corporation or other entity then in competition with the business of the Company or any subsidiary or affiliate of the Company. XI. SOLICITING EMPLOYEES. Employee promises and agrees that he will not, for a period of one year following termination of his employment or the expiration of this Agreement, directly or indirectly solicit any of the Company employees who earned annually $80,000 or more as a Company employee during the last six months of his or her own employment to work for any business, individual, partnership, firm, corporation, or other entity 8 then in competition with the business of the Company or any subsidiary or affiliate of the Company. XII. CONFIDENTIAL INFORMATION. A. Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by Employee during his employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by Employee or his representatives in violation of this Agreement). After termination of Employee's employment with the Company, he shall not, without the prior written consent of the Company, or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. B. Employee agrees that all lists, materials, books, files, reports, correspondence, records, and other documents ("Company material") used, prepared, or made available to Employee, shall be and shall remain the property of the Company. Upon the termination of employment or the expiration of this Agreement, all Company materials shall be returned immediately to the Company, and Employee shall not make or retain any copies thereof. XIII. SUCCESSORS. A. This Agreement is personal to Employee and shall not, without the prior written consent of the Company, be assignable by Employee. B. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and any such successor or assignee shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" and "assignee" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires the stock of the Company or to which the Company assigns this Agreement by operation of law or otherwise. XIV. WAIVER. No waiver of any breach of any term or provision of this Agreement shall be construed to be, nor shall be, a waiver of any other breach of this Agreement. No waiver shall be binding unless in writing and signed by the party waiving the breach. 9 XV. MODIFICATION. This Agreement may not be amended or modified other than by a written agreement executed by the Employee and the Company. XVI. SAVINGS CLAUSE. If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable. XVII. COMPLETE AGREEMENT. This instrument constitutes and contains the entire agreement and understanding concerning Employee's employment and other subject matters addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matter hereof. This is an integrated agreement. XVIII. GOVERNING LAW. This Agreement shall be deemed to have been executed and delivered within the State of California, and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with, and governed by, by the laws of the State of California without regard to principles of conflict of laws. XIX. CONSTRUCTION. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. XX. COMMUNICATIONS. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered in person, by telecopy, telex or equivalent form of written telecommunication or if sent by registered or certified mail, return receipt requested, postage prepaid, as follows: To Company: Kaynar Technologies Inc. 800 South State College Boulevard Fullerton, California 92831 Attention: David A. Werner 10 With copy to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 Attention: C. James Levin, Esq. To Employee: Either party may change the address at which notice shall be given by written notice given in the above manner. All notices required or permitted hereunder shall be deemed duly given and received on the date of delivery, if delivered in person or by telex, telecopy or other written telecommunication on a regular business day and within normal business hours or on the fifth day next succeeding the date of mailing, if sent by certified or registered mail. XXI. EXECUTION. This Agreement is being executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose. XXII. LEGAL COUNSEL. The Employee and the Company recognize that this is a legally binding contract and acknowledge and agree that they have had the opportunity to consult with legal counsel of their choice. XXIII. SURVIVAL. The provisions of this Agreement shall survive the term of this Agreement to the extent necessary to accommodate full performance of all such terms. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. - --------------------------- ------------------------- KAYNAR TECHNOLOGIES INC. By ------------------------ Its ----------------------- 11 EX-99.4 21 EX 99.4 EMPLOYMENT AGREEMENT FOR KEN JONES [LETTERHEAD] 1996 Mr. Ken Jones, 29C Stanhope Grove, CAMBERWELL VIC 3124 Dear Ken, RE: LETTER OF APPOINTMENT TO THE POSITION OF SENIOR RELATIONSHIP MANAGER The purpose of this letter is to confirm the offer to you of the position of GROUP CHIEF EXECUTIVE and to set out the terms of employment for Recoil Pty ACN 073 750 428 (the Company) as an affiliate of Kaynar Technologies Inc., and which is a member company of the KTI Group. 1. DATE OF COMMENCEMENT Your employment with the Company, for the purposes of accrual of long service leave and annual leave commenced 24 August, 1994. Your position as Group Chief Executive with the Company commenced with effect from 11 August, 1996 (the Commencement Date) 2. JOB TITLE AND POSITION RESPONSIBILITIES You are being appointed to perform the position of Group Chief Executive. You are required to exercise the powers and to perform the duties from time to time assigned to you by the Board of Recoil Pty. 3. REMUNERATION Your Total Remuneration Package is comprised of base salary, superannuation contributions and fringe benefits. BASE SALARY The method of payment of Base Salary is described in the Standard Terms of Employment annexed to this letter as Annexure "A". Your Base Salary is Aud$184000 per annum effective from 11th August, 1996. SUPERANNUATION CONTRIBUTIONS The Company will contribute 10% of your Base Salary to a complying superannuation fund nominated by you. FRINGE BENEFITS Other components of the package shall be agreed between the Company and yourself so that they can be provided to you in the most tax efficient manner within the requirements of the applicable law for both yourself and the Company. The Total Remuneration Package shall include the cost to the Company of any fringe benefits tax in regard to the provision of any components including but not limited to the following provisions: (A) MOTOR VEHICLE A motor vehicle being a motor vehicle at least equivalent to the existing Holden Statesman. The Company agrees to replace the motor vehicle every 3 years. The Company agrees to pay all lease payments, registration, running, service, maintenance and insurance costs. (B) BUSINESS TRAVEL AND ENTERTAINMENT EXPENSES The Company will reimburse you for all reasonable travelling, entertainment, accommodation and general expenses incurred by you in connection with performing your functions as Group Chief Executive. (C) HOME TELEPHONE & FAX The Company will reimburse you for all home telephone and fax expenses. 4. SALARY REVIEW Your Base Salary of Aud$184000 per annum referred to in Clause 3 shall be reviewed each year commencing 1 year from the acquisition date of the Recoil Pty Ltd. business by Kaynar Technologies Inc. (11 August, 1996). 5. BONUS PAYMENTS In addition to the Total Remuneration Package referred to in Clause 4 of this letter you may be entitled to receive bonus payments. You will be entitled to a bonus equal to 1% of your base salary for every 1% increase in Net Profit Before Depreciation, Interest and Tax (NPBDIT) when comparing the prior year as at 30 June to the current year as at 30 June. The calculation will include an adjustment for acquisition accounting and will be payable on or before 1 August in each year. It should be noted that the basis of your entitlement to a bonus payment may be varied by agreement between you and the Company at any time. 6. NOTICE OF TERMINATION You may terminate your employment by providing to the Company four months notice in writing of your intention to terminate. The Company may terminate your employment at any time by giving you four months written notice of termination. In the case of notice of termination of employment being given by the Company, the Company may satisfy its obligations by payment in lieu of notice. In the event that payment in lieu of notice is made then the payment shall be based on the Total Remuneration Package set out in Clause 4 of this letter (as increased from time to time). Despite the preceding paragraphs, the Company may terminate your employment at any time during the Term without notice in circumstances where you have engaged in misconduct which seriously prejudices the Company's business or such that it would be unreasonable for the Company to continue your employment during the period of notice. 7. SPECIAL PAYMENT In the event that your employment is terminated by you or the Company for any reason within the first 3 years from the Commencement Date, you will be entitled in addition to any payments made under clause 6, to a special payment equivalent to six months of your Total Remuneration Package. 8. STOCK OPTION PLAN The Company acknowledges and agrees to continue negotiations to establish a stock option plan. Once these details are finalised it is intended to include you in this plan. 9. REFERENCE TO ANNEXURES There is an annex to this letter of appointment being the following: ANNEXURE A: The standard terms of employment which apply to your employment with the Company. Please note that by agreeing to accept employment with the Company on the terms set out in this letter you agree that the terms which are contained in the annexure also form part of the terms of your employment. 10. TAX FILE NUMBER It is a requirement of the Australian Taxation Office that unless the Company receives your Tax File Number it will be required to deduct tax from your salary or wages at the maximum marginal rate. Accordingly, you are requested to supply your Tax File Number on your date of commencement of employment. ACCEPTANCE Please sign and return the attached copy of this letter acknowledging your agreement to the terms of your employment. By signing this letter you acknowledge that the letter and the Annexure "A" constitutes the entire agreement between the Company and yourself concerning your employment and supersedes all prior arrangements, understandings and negotiations concerning same. Yours faithfully, Accepted /s/ Jordan Law /s/ Ken Jones ________________________ _________________________ JORDAN LAW KEN JONES CHAIRMAN STANDARD TERMS OF EMPLOYMENT (ANNEXURE "A") 1. METHOD OF PAYMENT OF BASE SALARY After deduction of pay as you earn (PAYE) income tax instalments payment of base salary will be made on or before the 15th day of each month for the current calender month. Payments will be made directly to the bank account of your choice. The Company reserves the right to alter the manner in which your base salary is paid to suit its administrate and accounting practices. Unless you are on unpaid leave your base salary whilst on leave will be paid in this manner. 2. SICK LEAVE In the event that you are absent from work as a result of illness you will be entitled to sick leave on full pay for at least one month per annum which is cummulative or such greater period as the Company may determine. 3. ANNUAL LEAVE Your minumum annual leave entitlements are provided in accordance with the legislation applicable in Victoria which is 20 days paid leave after 12 months completed service. Leave loading is payable at 17 1/2% Annual leave is accumulated if it is not taken, however, it is the Company's preference that you take your annual leave within the in the year after it is earned. 4. LONG SERVICE LEAVE Long Service leave is provided in accordance with the applicable Victorian legislation. 5. JURY DUTY The Company will provide leave with pay to employees who are required to serve on jury duty and any compensation received from the Court should be refunded to the Company. 6. ANTI-DISCRIMINATION The Company is a non-discriminatory and equal opportunity employer. All employees are required not to engage in any form of unlawful discrimination and shall treat all fellow employees in a respectful manner. 7. NON SMOKING POLICY Smoking is not permitted in the offices or factory of the Company. 8. WORKERS' COMPENSATION In order to protect the rights of employees notice of any injury incurred during working hours or whilst travelling to or from work shall be given to the Company Secretary within a reasonable time. EX-99.5 22 EX 99.5 FORM OF INDEMNIF AGMRT INDEMNIFICATION AGREEMENT KAYNAR TECHNOLOGIES INC. This Indemnification Agreement ("Agreement") is made as of February , 1997 by and between KAYNAR TECHNOLOGIES INC., a Delaware corporation (the "Company"), and ("Indemnitee"). WHEREAS, the Company and Indemnitee recognize the difficulty of obtaining directors' and officers' liability insurance that fully and adequately covers directors for their acts and omissions on behalf of the Company and its subsidiaries; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation, subjecting directors to expensive litigation risks; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances and Indemnitee and other directors of the Company may not be willing to continue to serve as directors without additional protection; and WHEREAS, the Company desires to attract and retain highly qualified individuals, such as Indemnitee, to serve as directors of the Company and to indemnify its directors so as to provide them with the maximum protection permitted by law. NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. INDEMNIFICATION. (a) THIRD-PARTY PROCEEDINGS. The Company shall indemnify Indemnitee in the event Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, whose approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding unless the Company shall establish, in accordance with the procedures described in Section 3(c), that Indemnitee did not act in good faith or in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, had reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith or in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. (c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Subsections (a) and (b) of this Section 1 or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. (d) GOOD FAITH DEFINED. The provisions of this Section 1(d) shall not be deemed to be exclusive or to limit in any way the circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in 2 Section 1. Indemnitee shall, in the performance of Indemnitee's duties, be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any of the Company's officers or employees, or committees of the Board of Directors, or by any other person as to matters Indemnitee reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. 2. AGREEMENT TO SERVE. In consideration of the protection afforded by this Agreement, Indemnitee agrees to serve as a director in such capacity at the will of the Company (or under separate agreement, if such agreement exists) so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the By-laws of the Company or any subsidiary of the Company or until such time as Indemnitee tenders a resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment or directorship, whether during or after such fiscal year. 3. EXPENSES; INDEMNIFICATION PROCEDURE. (a) ADVANCEMENT OF EXPENSES. Notwithstanding any other provision of this Agreement (including the exceptions in Section 9), the Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referenced in Section 1(a) or (b). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company. The advances for expenses shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request by Indemnitee. (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to any rights under this Agreement, give the Company written notice as soon as practicable of any claim for which indemnification will or could be sought. All notices, requests, demands, and other communications relating to indemnification or the advancement of expenses shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the Company, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 3 (c) PROCEDURE. Any indemnification and advances provided for in Sections 1 and 3 shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or By-laws providing for indemnification, is not paid in full by the Company within forty-five (45) days after a written request for payment thereof has first been received by the Company, Indemnitee may at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 13 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 3(a) unless and until such defense may be finally adjudicated by judicial determination from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for a court of competent jurisdiction to decide and neither the failure of the Company (including its Board of Directors or its independent legal counsel) to make a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law nor an actual determination by the Company (including its Board of Directors or its independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has directors' and officers' liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable actions to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable in accordance with the terms of such policies. (e) RELATIONSHIP TO OTHER SOURCES. Indemnitee shall not be required to exercise any rights against any other parties (e.g., under any insurance policy purchased by the Company, Indemnitee or any other person or entity) before Indemnitee enforces this Agreement. To the extent that the Company actually indemnifies Indemnitee or advances expenses, Indemnitee agrees to 4 subrogate such rights against third parties to the Company to recover amounts with respect to which the Company's payments were made. Indemnitee shall assist the Company in enforcing those rights if the Company pays Indemnitee's reasonable costs and expenses of doing so. (f) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 3(a) to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, whose approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee, and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of other counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee has reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company has not, in fact, employed counsel to assume the defense of such proceeding, the reasonable fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) SCOPE. Notwithstanding any other provision of this Agreement (including the exceptions in Section 9), the Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that separate indemnification may or may not be independently authorized by other provisions of this Agreement, the Company's Certificate of Incorporation, its By-laws, or by statute. In the event of any change after the date of this Agreement in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors, such changes shall be, IPSO FACTO, within the purview of Indemnitee's rights and Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its By-laws, any other agreement, any vote of 5 stockholders or disinterested directors of the Company, or by statute, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. 5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not for the total amount thereof, the Company shall indemnify Indemnitee for the portion of such expenses, judgments, fines penalties to which Indemnitee is entitled. 6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company may be required to submit the question of indemnification in certain circumstances for judicial determination of the Company's ability to indemnify Indemnitee. 7. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall, from time to time, make a good faith determination whether it is practicable for the Company to obtain and maintain a policy or policies of insurance providing the directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance obtained by the Company, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company. 8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or 6 fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; (b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; (c) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' liability insurance maintained by the Company. (d) CLAIMS UNDER SECTION 16(b). To indemnify or advance expenses to Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 10. CONSTRUCTION OF CERTAIN PHRASES. (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any 7 constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agent, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes or penalties assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 13. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material 8 defenses to such action was not made in good faith or was frivolous. 14. CHOICE OF LAW. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. KAYNAR TECHNOLOGIES INC. By: ---------------------------------- Name: Title: 800 S. State College Boulevard Fullerton, California 92831 AGREED TO AND ACCEPTED: INDEMNITEE: - --------------------------------------- (Signature) - --------------------------------------- (Print Name) - --------------------------------------- - --------------------------------------- (Address) 9 -----END PRIVACY-ENHANCED MESSAGE-----