-----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, WjYPhHIE0QZwbl3wj9myR9TnbHKAPRm9Q88B3q3Z8qFT126CjfjDSq7egEKDfQvG A/FlyMzTNOqPwme6R9A4BQ== 0000912057-97-015620.txt : 19970506 0000912057-97-015620.hdr.sgml : 19970506 ACCESSION NUMBER: 0000912057-97-015620 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19970505 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAYNAR HOLDINGS INC CENTRAL INDEX KEY: 0000917193 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT ENGINES & ENGINE PARTS [3724] IRS NUMBER: 330591091 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22345 FILM NUMBER: 97595732 BUSINESS ADDRESS: STREET 1: 800 S STATE COLLEGE BLVD CITY: FULLERTON STATE: CA ZIP: 92634 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1997 REGISTRATION NO. 333-22345 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 4 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ KAYNAR TECHNOLOGIES INC. (Exact name of Registrant as specified in its charter) DELAWARE 3452 33-0591091 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) Number)
500 N. STATE COLLEGE BLVD. ORANGE, CALIFORNIA 92868 (714) 712-4900 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) MR. DAVID A. WERNER EXECUTIVE VICE PRESIDENT KAYNAR TECHNOLOGIES INC. 500 N. STATE COLLEGE BLVD. ORANGE, CALIFORNIA 92868 (714) 712-4900 (Name and address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES TO: 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. / / 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS 2,000,000 SHARES [LOGO] [LOGO] COMMON STOCK ---------------- Of the 2,000,000 shares of Common Stock offered hereby (the "Offering"), 1,800,000 shares are being sold by Kaynar Technologies Inc. (together with its consolidated subsidiaries, the "Company") and 200,000 shares are being sold by the Selling Stockholder (as defined herein). Prior to the completion of the Offering, the Selling Stockholder owns approximately 79.5% of the outstanding shares of the Company on a fully-converted basis due to its holdings of the Company's Series C Convertible Preferred Stock. Proceeds of the Offering will be used, among other things, to repay approximately $18 million in debt owed by the Company to the Selling Stockholder. See "Principal Stockholders and Selling Stockholder." The Company will not receive any proceeds from the sale of shares by the Selling Stockholder. Prior to the Offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price of the Common Stock will be between $14.00 and $16.00 per share. See "Underwriting" for information relating to the factors considered in determining the initial public offering price. The Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "KTIC." --------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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.] Certain persons participating in this Offering may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Such transactions may include the purchase of shares of Common Stock following the pricing of the Offering to cover a syndicate short position in the Common Stock or for the purpose of maintaining the price of the Common Stock and the imposition of penalty bids. For a description of these activities, see "Underwriting." 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, AND NOTES THERETO, APPEARING ELSEWHERE IN THE PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THE PROSPECTUS (I) ASSUMES THAT IMMEDIATELY PRIOR TO THE OFFERING, KAYNAR TECHNOLOGIES INC. (THE "OPERATING COMPANY") WILL BE MERGED WITH AND INTO ITS PARENT, KAYNAR HOLDINGS INC. (SOMETIMES REFERRED TO HEREIN AS "HOLDINGS"), WHICH, AS THE CORPORATION SURVIVING THE MERGER, WILL BE RENAMED KAYNAR TECHNOLOGIES INC. (SEE "THE REORGANIZATION" FOR MORE INFORMATION REGARDING THE MERGER), (II) REFLECTS THE CONVERSION OF ALL OUTSTANDING SHARES OF HOLDINGS' CAPITAL STOCK INTO ADDITIONAL SHARES OF COMMON STOCK OR SHARES OF SERIES C PREFERRED STOCK AS DESCRIBED IN "THE REORGANIZATION" AND (III) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. UNLESS OTHERWISE INDICATED, THE TERM "COMPANY" AS USED HEREIN SHALL MEAN HOLDINGS, AS THE CORPORATION SURVIVING THE MERGER, TOGETHER WITH EACH OF HOLDINGS' CONSOLIDATED SUBSIDIARIES. THE COMPANY The Company is a leading manufacturer of specialty fasteners, fastening systems and related components primarily used by original equipment manufacturers ("OEMs") and their subcontractors in the production of commercial aircraft and defense products. In addition, the Company also manufactures other specialty fasteners and related products for sale in the automotive, electronic and other industrial markets, and their associated after-markets. The Company designs and manufactures a substantial majority of its fasteners to its customers' specifications and in a wide range of specialty metals, alloys and composites. The Company supplies products to virtually all major airframe and aircraft engine OEMs, including Boeing Co. ("Boeing"), General Electric Company ("GE"), the Pratt & Whitney Aircraft business of United Technologies Corporation ("Pratt & Whitney"), Airbus Industries ("Airbus"), Lockheed Martin Corporation ("Lockheed Martin"), McDonnell Douglas Corporation ("McDonnell Douglas") and Rolls Royce PLC ("Rolls Royce"), as well as to a global network of distributors. Direct sales to Boeing, GE and Pratt & Whitney, the Company's three largest OEM customers, accounted for approximately 18%, 12%, and 8% of the Company's 1996 net sales, respectively. Since the beginning of the commercial aircraft industry's recovery in 1994, the Company has experienced significant increases in sales and profitability. During this period, the Company's net sales have increased nearly 80%, from $55.1 million in 1994 to $99.0 million in 1996, and its operating income has increased approximately 160%, from $5.0 million in 1994 to $12.8 million in 1996. The Company's backlog of orders deliverable within 12 months has also increased during this period, from approximately $21 million as of January 3, 1994 to approximately $60 million as of December 31, 1996. The Company offers a broad line of fasteners, fastening systems and related components. The Company's Kaynar and Microdot business units manufacture precision, self-locking, internally threaded nuts and inserts and precision, threaded studs. Kaynar and Microdot fasteners are engineered for a variety of harsh, demanding environments and often require high tensile strength, toughness, durability, corrosion resistance and resistance to metal fatigue and creep. Kaynar's fasteners, which include wrenchable nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts, are used in airframe construction to fasten together various aircraft components, including the fuselage, wings and horizontal and vertical stabilizers. These fasteners also serve a similar function in the construction of aircraft jet and turboprop engines and related components. Recoil, acquired by the Company in August 1996, manufactures helically-wound wire thread inserts and thread repair kits, which are similar in design to certain Microdot products, but are sold to the automotive, electronic and other industrial markets, and their associated after-markets. The Company's K-Fast business unit produces and markets tools that are leased or sold to OEMs and are designed to allow operators to install the Company's and other manufacturers' fasteners rapidly and in restricted and hard-to-reach areas, while still maintaining precision torque control. The Company's goal is to sustain long-term, profitable growth by (i) enhancing its position as a leading supplier of specialty fasteners to the commercial aircraft and defense industries, (ii) expanding the array of fastener products and services it offers to current customers, (iii) continuing to focus on higher 3 value-added specialty products, (iv) leveraging its core capabilities in engineering, materials technology, manufacturing and business processes to develop additional business with both new and existing customers, (v) increasing its international marketing and penetration of foreign markets and (vi) pursuing selected opportunities for acquisitions and strategic alliances. The Company believes that it possesses a number of competitive strengths. First, the Company has established itself as a market leader in the engineering and manufacture of precision, self-locking internally threaded nuts and inserts and precision, threaded studs used in the commercial aircraft and defense industries. Products made by the Company have been "designed into" nearly all major airframes and aircraft engines manufactured in the U.S. and Europe. Second, cross-functional design and engineering teams and manufacturing expertise allow the Company to respond rapidly to customer requirements. Third, while many OEMs have significantly reduced the number of qualified suppliers of a particular part to a core group of only two or three, the Company continues to be a qualified supplier to virtually all major airframe and aircraft engine OEMs. Fourth, the Company is a "source delegation supplier" to many of its customers, including Boeing, GE and Pratt & Whitney. A source delegation supplier's products are designed, shipped and installed without the OEM undertaking further testing that it might otherwise perform before installation. Fifth, the Company has benefited from ongoing programs designed to improve operating efficiency and customer service, while maintaining or improving quality control. INDUSTRY OVERVIEW AND TRENDS. The Company's primary market for fasteners, the commercial aircraft industry, is experiencing a strong increase in demand from airlines ordering new and replacement aircraft. During the early 1990's, most airlines significantly decreased their aircraft purchase orders due to reduced profitability and excess capacity. Since that time, however, a rebounding world economy and increased passenger air traffic have returned many airlines to profitability, resulting in renewed demand for new and replacement aircraft. In 1996, for example, Boeing and Airbus, the two largest commercial aircraft manufacturers, reported increases in announced aircraft orders of 107% and 208% over 1995, respectively. Increased demand for new and replacement aircraft has led to an increase in the demand for fasteners and fastening systems, such as those manufactured by the Company. While there can be no assurance that demand for new and replacement aircraft will not be adversely affected by business cycle fluctuations or declines in airline profitability, the Company believes that long-term industry trends are favorable. For example, in its 1997 Current Market Outlook report, Boeing projects that during the period from 1996 to 2006, world air travel will grow by nearly 75%. Boeing also projects that during this period domestic and international airlines will lease or purchase over 7,000 new aircraft, thereby increasing the worldwide commercial fleet from approximately 11,500 aircraft at the end of 1996 to approximately 17,000 aircraft (net of retirements) at the end of 2006. In addition, as airlines seek to serve a growing number of air travelers with existing restrictions on arrival and departure slots, airport gates and ramp capacity, commercial aircraft OEMs are experiencing increased orders for heavier, widebodied aircraft of intermediate size. Widebodied aircraft generally require a greater number of fasteners than smaller aircraft. RECENT ACQUISITIONS. The Company acquired one business and one additional product line in 1996. In August 1996, the Company purchased the businesses of Recoil Pty Ltd, an Australian corporation (the acquired businesses are collectively referred to herein as "Recoil"). For a description of the Recoil business unit see "Business--Products and Services--Industrial Products and Services." In the period from the Company's purchase of Recoil to December 31, 1996, and for the twelve months ended on that date, Recoil's net sales were $3.9 million and $9.9 million, respectively. In February 1996, the Company purchased the KELOX product line from the Fastening Systems division of Emhart Fastening Teknologies. The KELOX product line complements various Microdot inserts. COMPANY ORGANIZATION. The Company was formed in 1993 for the purpose of acquiring substantially all of the assets of the Aerospace Fastening Systems Group ("AFSG") of Microdot Inc., a Delaware corporation that commenced a voluntary bankruptcy proceeding on June 10, 1993 ("Old Microdot"). The acquisition was structured as a management buyout financed substantially by the General Electric Capital 4 Corporation ("GECC" or the "Selling Stockholder"). See "The Company" for additional information regarding the AFSG acquisition. 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--Formation of the Company." The summary consolidated financial and operating information for the years ended December 31, 1994, 1995 and 1996 is derived from the Consolidated Financial Statements of the Company that have been audited by Arthur Andersen LLP, independent public accountants. The summary consolidated financial and operating information of AFSG for the years ended December 31, 1992 and 1993 is derived from the unaudited financial statements of AFSG, the Company's predecessor for financial reporting purposes, and, in the opinion of the Company's management, reflects all adjustments necessary to present the financial results of AFSG fairly and on a basis consistent with the Company's financial statements. The information for AFSG is presented to "Operating income" because the borrowing arrangements and tax position of Old Microdot are not meaningful to the Company. The unaudited summary consolidated financial and operating information for AFSG is provided for informational purposes only.
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....................... $ 0.79 --------- --------- Pro forma shares used in computing pro forma earnings per share, as adjusted................................................... 8,139
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 certain liabilities. See "Business--Products and Services--Industrial Products and Services." The 6 Recoil acquisition has been accounted for under the purchase method of accounting and, accordingly, the operating results of Recoil have been included in the Company's results of operations since mid-August 1996. In February 1996, the Company purchased the KELOX product line from the Fastening Systems division of Emhart Fastening Teknologies for $441,000 in cash. (2) Selling, general and administrative expenses of AFSG represent direct expenses and do not include an allocation of corporate overhead or expenses related to certain functions performed on a corporate-wide basis by Old Microdot, such as risk management services, tax reporting and similar corporate administrative functions. (3) Earnings per share are computed based on the weighted average number of shares of Common Stock and Common Stock equivalents outstanding. The outstanding shares of Series C Preferred Stock are included as Common Stock equivalents on an "as-if-converted" basis. See "Description of Capital Stock--Series C Preferred Stock." (4) Pro forma income statement data reflect the historical results for the year ended December 31, 1996, adjusted to reflect (i) the sale of 1,339,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $15.00 per share (the midpoint of the estimated filing range) and (ii) the application of approximately $18 million of the net proceeds to the reduction of certain indebtedness of the Company as if such debt reduction occurred at January 1, 1996. The pro forma results do not reflect 461,000 shares of Common Stock attributable to estimated proceeds in excess of the amount to be used to repay debt owed to the Selling Stockholder. (5) As adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $15.00 per share and (ii) the application of approximately $13.6 million of the net proceeds to the reduction of certain indebtedness of the Company as if such debt reduction occurred at December 31, 1996. The Company anticipates that as of the date of the Offering, it will have increased its borrowings under its revolving line-of-credit to approximately $4.9 million. Accordingly, the total amount of the net proceeds that will be applied to the reduction of certain indebtedness of the Company will approximate $18 million. See "Use of Proceeds." 7 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 Certificate of Incorporation (the "Certificate of Incorporation") and Amended and Restated By-laws (the "By-laws") that adversely affect the holders of the Series C Preferred Stock. See "Description of Capital Stock--Series C Preferred Stock." "Fully Diluted Shares" means, at any given time, the sum of (i) the outstanding Common Stock and (ii) the shares of Common Stock issuable upon conversion or exercise of all outstanding convertible securities, options and warrants convertible into, or exercisable for, Common Stock at that time or within sixty days thereafter. In addition, as long as the outstanding Series C Preferred Stock represents 40% or more of the Fully Diluted Shares, the holder thereof will have the right, pursuant to a Stockholders Agreement, dated May 5, 1997, among the Company and its existing stockholders (the "New Stockholders Agreement"), to designate two individuals that the Company will nominate for election to the Board of Directors each year. As long as the Series C Preferred Stock represents 25% or more (but less than 40%) of the Fully Diluted Shares, the holder thereof will have the right to designate one individual that the Company will nominate for election to the Board of Directors each year. The Selling Stockholder, in its sole discretion and at any time, may convert each share of Series C Preferred Stock into one share of Common Stock, subject to certain adjustments. In addition, upon any transfer of Series C Preferred Stock by the Selling Stockholder to a non-affiliate, the Series C Preferred Stock will automatically convert into Common Stock at a one-to-one conversion ratio, subject to certain adjustments. If all of the Series C Preferred Stock currently outstanding were converted into Common Stock, the Selling Stockholder would beneficially own approximately 60.5% of the Common Stock upon consummation of the Offering, assuming the Underwriters' over-allotment option is not exercised, or approximately 58.5% assuming full exercise of the Underwriters' over-allotment option. As a result of (i) the special voting rights granted to the Series C Preferred Stock, (ii) the rights granted to the Selling Stockholder under the New Stockholders Agreement and (iii) the possibility that the Selling Stockholder could convert its Series C Preferred Stock into Common Stock at any time, the Selling Stockholder may be able to exercise substantial influence over many matters affecting the Company, including the composition of the Board of Directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of either causing or delaying or preventing a change in control of the Company. See "Description of Capital Stock--Certain Anti-Takeover Effects." DEPENDENCE ON KEY PERSONNEL The success of the Company depends to a significant degree on the efforts of the Company's senior management. The Company's operations may be adversely affected if one or more members of senior management ceases to be active in the Company. The Company currently has employment agreements 9 with Jordan A. Law, Chief Executive Officer; David A. Werner, Executive Vice President; Robert L. Beers, Senior Vice President, Marketing and Business Development; LeRoy A. Dack, Division President, Kaynar; Joseph M. Varholick, Division President, Microdot; Kenneth D. Jones, Group Chief Executive Officer, Recoil; and Imre Berecz, Vice President, Product Research and Development, and Managing Director, K.T.I. Femipari KFT. See "Management--Employment Contracts and Termination of Employment and Change-In-Control Arrangements." AVAILABILITY AND COST OF RAW MATERIALS Commercial deposits of certain metals, such as titanium and nickel, that are required for the manufacture of several of the Company's products are only found in certain parts of the world. The availability and prices of these metals may be influenced by private or governmental cartels, changes in world politics, unstable governments in exporting nations or inflation. Similarly, supplies of steel and other, less exotic metals used by the Company may also be subject to variation in availability and pricing. Shortages of, and price increases for, certain raw materials used by the Company have occurred in the past and may occur in the future. Although to date the Company has been able to obtain such supplies of all necessary raw materials, there can be no assurance that the Company will always be able to obtain adequate supplies at reasonable prices. Future shortages or price fluctuations in raw materials could have a material adverse effect on the Company. If, for example, demand for titanium products in other industries continues to increase, it is possible that supplies of titanium could become limited or that prices could increase substantially, or both. As a result, the Company's material costs could rise accordingly. If the Company is unable to recover its increased costs through product price increases, it could have a material adverse effect on the Company. See "Business--Manufacturing and Raw Materials." COMPETITION Numerous companies manufacture fasteners, fastening systems and related components that compete with the Company's products. Certain of these competitors have greater financial resources than the Company. There can be no assurance that competitive pressures in any of the markets to which the Company supplies products will not have a material adverse effect on the Company. See "Business-- Competition." POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES The Company's facilities and manufacturing processes are engaged in activities regulated by extensive federal, state and local environmental and worker safety and health laws and regulations, including those relating to air emissions, wastewater discharges, the handling and disposal of solid and hazardous wastes and the remediation of contamination caused by the release of hazardous substances. The Company uses significant quantities of substances that are considered hazardous or toxic under such laws and regulations. The Company's operations thus pose a risk of accidental releases of, and worker exposure to, hazardous or toxic substances. The Company also faces risks that governmental environmental requirements may become more stringent in the future and that the Company may be subject to legal proceedings brought by private parties or governmental agencies with respect to environmental matters. For example, the degreasing operations at the Company's manufacturing facilities currently use perchloroethylene, a toxic solvent that has been subject to increasing regulation. Although the Company believes that it is in material compliance with all applicable environmental laws and regulations, including those relating to perchloroethylene, there can be no assurance that the Company will remain in compliance or that the failure to comply with such laws and regulations will not result in liabilities that are material to the Company. The Company is currently seeking to have a maximum usage restriction removed from an environmental permit for its cadmium-plating line. The Company was previously granted a variance to exceed this restriction. There can be no assurance, however, that this restriction will be removed or that another 10 variance from the restriction will be granted. If the restriction is not removed and another variance is not granted, it could have a material adverse effect on the Company. See "Business--Environmental Matters." BENEFITS TO SELLING STOCKHOLDER The existing stockholders of the Company will receive certain benefits from the sale of the Common Stock offered hereby. The Offering will establish a public market for the Common Stock and provide increased liquidity to the existing stockholders for the shares of Common Stock and Series C Preferred Stock (which is convertible into Common Stock) that they will own after the Offering, subject to certain limitations. See "Shares Eligible For Future Sale." The Company intends to use approximately $18 million of the net proceeds from the Offering to repay certain indebtedness owed to the Selling Stockholder. See "Use of Proceeds." The Selling Stockholder will sell 200,000 shares of Common Stock in the Offering and will receive $2.8 million in net proceeds, based upon an initial public offering price of $15.00 per share, after deducting the Selling Stockholder's proportionate share of the estimated underwriting discounts and commissions. REDUCED GOVERNMENT PURCHASES; GOVERNMENT REGULATION The Company is a direct supplier and subcontractor to several manufacturers of airframes and engines used by the defense industry. Direct sales to the U.S. government constituted approximately 6% of the Company's 1996 net sales. Many of the Company's other customers are also government contractors and subcontractors who may use the Company's fasteners for military applications. As a result, future reductions in defense budgets or military aircraft procurement could adversely affect the Company. See "Business--Industry Overview and Trends--Defense Market." In particular, the government could seek to terminate any of its contracts with the Company or with any of the airframe and engine manufacturers to which the Company supplies fasteners. Direct purchase orders from the government are typically for spare or repair needs. In such cases, funding is generally available at the time the purchase order is placed, and the products are delivered on an "as soon as possible" time frame. In addition, as a supplier and subcontractor to the U.S. government, the Company is directly and indirectly subject to various federal rules, regulations and orders applicable to government contracts. Although the Company believes that is in material compliance with all such laws, any future violation could result in civil liability, cancellation or suspension of existing contracts or ineligibility for future contracts or subcontracts funded in whole or in part with federal funds. A reduction in governmental purchases of the Company's products, or a violation by the Company of any laws applicable to government contracts, could have a material adverse effect on the Company. PRODUCT LIABILITY; CLAIMS EXPOSURE The Company's products may expose it to liabilities resulting from the failure of an airframe or aircraft engine manufactured with fasteners supplied by the Company. While the Company maintains liability insurance to protect it from such liabilities, and while no material claims have ever been made against the Company, no assurance can be given that claims will not arise in the future or that such insurance coverage will be adequate. Additionally, there can be no assurance that insurance coverage can be maintained in the future at an acceptable cost. Any such liability not covered by insurance, or for which third party indemnification is not available, could have a material adverse effect on the Company. NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or be sustained after the Offering. The initial public offering price will be determined by negotiation between the Company and the Representatives (as defined in "Underwriting") based upon several factors. The market price of the Common Stock may be volatile and could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new products by the 11 Company or its competitors, changes in financial estimates by securities analysts, or other events or factors beyond the Company's control, including events affecting the commercial aircraft and defense industries generally. These broad market fluctuations may adversely affect the market price of the Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Such litigation could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on the Company's business, financial condition and results of operations. See "Underwriting." SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of Common Stock in the public market following the Offering could adversely affect the market price for the Common Stock. The Company, its executive officers and directors and the Selling Stockholder, who will beneficially own 6,600,000 shares of Common Stock in the aggregate following the Offering (including 5,206,000 shares receivable upon conversion of all outstanding Series C Preferred Stock), have agreed not to offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock or any other capital stock of the Company, for a period of 180 days, after the date of the Prospectus without prior written consent of Lehman Brothers Inc. Upon the expiration of this period, however, the 6,600,000 shares of Common Stock (including 5,206,000 shares receivable upon conversion of all outstanding Series C Preferred Stock) held by the current holders may be eligible for sale in the public market, subject to compliance with the volume, holding period and other applicable limitations of Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to a registration statement meeting the requirements of the Securities Act. Also upon the expiration of this period, the Selling Stockholder will have certain rights, pursuant to the New Stockholders Agreement, to require the Company to register the shares of Common Stock into which the Series C Preferred Stock may be converted. See "Description of Capital Stock -- The New Stockholders Agreement." In addition, the shares of Common Stock sold in the Offering will be freely tradeable without restriction under the Securities Act, except for any shares purchased by an "affiliate" of the Company (as that term is defined under the rules and regulations of the Securities Act), which shares will be subject to the resale limitations of Rule 144. See "Shares Eligible for Future Sale" and "Description of Capital Stock." DILUTION Assuming an initial public offering price of $15.00 per share, investors participating in the Offering will incur an immediate dilution of $11.83 per share in the net tangible book value of the Common Stock, determined as of December 31, 1996. See "Dilution." 12 THE COMPANY The Company is a leading manufacturer of specialty fasteners, fastening systems and related components primarily used by OEMs and their subcontractors in the production of commercial aircraft and defense products. In addition, the Company also manufactures other specialty fasteners and related products for sale in the automotive, electronic and other industrial markets, and their associated after-markets. The Company supplies products to virtually all major airframe and aircraft engine OEMs, including Boeing, GE, Pratt & Whitney, Airbus Industries ("Airbus"), Lockheed Martin Corporation ("Lockheed Martin"), McDonnell Douglas and Rolls Royce PLC ("Rolls Royce"), as well as to a global network of distributors. The Company offers a broad line of fasteners, fastening systems and related components. The Company's Kaynar and Microdot business units manufacture precision, self-locking, internally threaded nuts and inserts and precision, threaded studs. Kaynar and Microdot fasteners are engineered for a variety of harsh, demanding environments and often require high tensile strength, toughness, durability, corrosion resistance and resistance to metal fatigue and creep. Kaynar's fasteners, which include wrenchable nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts, are used in airframe construction to fasten together various aircraft components, including the fuselage, wings and horizontal and vertical stabilizers. These fasteners also serve a similar function in the construction of aircraft jet and turboprop engines and related components. Recoil, acquired by the Company in August 1996, manufactures helically-wound wire thread inserts and thread repair kits, which are similar in design to certain Microdot products, but are sold to the automotive, electronic and other industrial markets, and their associated after-markets. The Company's K-Fast business unit produces and markets tools that are leased or sold to OEMs and are designed to allow operators to install the Company's and other manufacturers' fasteners rapidly and in restricted and hard-to-reach areas, while still maintaining precision torque control. The principal executive offices of the Company are located at 500 N. State College Blvd., Orange, California 92868, and its telephone number is (714) 712-4900. FORMATION OF THE COMPANY. As described below in "The Reorganization," Kaynar Technologies Inc. ("Operating Company") is merging with and into the Company immediately prior to the Offering. Operating Company, which was originally called MKQ Acquisition Corp., was formed as a Delaware corporation on October 22, 1993, for the purpose of acquiring substantially all of the assets of the Aerospace Fastening Systems Group ("AFSG") of Microdot Inc., a Delaware corporation that commenced a voluntary bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code on June 10, 1993 ("Old Microdot"). The Company, which was known as Kaynar Holdings Inc. prior to the Reorganization, was also incorporated in Delaware on October 22, 1993 to serve as the parent company of Operating Company. GECC was a creditor of Old Microdot and provided the Company and Operating Company with financing for the AFSG asset acquisition, which was completed on January 3, 1994. As consideration for the AFSG assets, GECC claims against Old Microdot in the amount of $25.4 million were cancelled, and Operating Company assumed certain of Old Microdot's liabilities. The Company and Operating Company also paid approximately $1.2 million in cash to Old Microdot's British affiliate for selected assets. As part of the acquisition financing, GECC purchased all of the issued and outstanding shares of Series A Convertible Preferred Stock, par value $.01 per share, of the Company ("Series A Preferred Stock") and all of the issued and outstanding shares of Series B Preferred Stock, par value $.01 per share, of the Company ("Series B Preferred Stock"). Members of the Company's management purchased the remaining equity interests in the Company. See "Principal Stockholders and Selling Stockholder." The Company intends to use the proceeds of the Offering to discharge certain debt owed to GECC. See "Use of Proceeds." THE REORGANIZATION In order to facilitate the Offering, immediately prior to the effectiveness of the Offering, Operating Company is merging with and into the Company, with the Company as the surviving corporation (the "Reorganization"). Immediately following the Reorganization, the surviving corporation will be renamed 13 "Kaynar Technologies Inc." Unless otherwise indicated, the term "Company" as used herein shall mean the corporation surviving the merger, together with each of its consolidated subsidiaries. In connection with the Reorganization, (i) each outstanding share of Common Stock, par value $.01 per share, of Operating Company will be cancelled and Operating Company will cease to exist, (ii) each outstanding share of Common Stock, par value $.01 per share, of the Company (the "Common Stock") will be exchanged for 68 shares of Common Stock, (iii) each outstanding share of Series A Preferred Stock will be exchanged for 9.953 shares of Common Stock and 58.047 shares of Series C Preferred Stock and (iv) each outstanding share of Series B Preferred Stock will be exchanged for 68 shares of Series C Preferred Stock. For further descriptions of the Common Stock and Series C Preferred Stock, see "Description of Capital Stock." Subsequent to the Reorganization and immediately prior to the Offering, GECC will own 200,000 shares of Common Stock and all 5,206,000 issued and outstanding shares of Series C Preferred Stock, which is convertible into Common Stock at a one-to-one conversion rate, subject to adjustment in certain circumstances. GECC will sell all of its 200,000 shares of Common Stock in the Offering. For the purposes of the Prospectus, all discussion of the Company and its ownership, business and operations and the number of shares of Common Stock outstanding, except as otherwise indicated, are discussed on a pro forma basis, giving effect to the Offering and the transactions described above. USE OF PROCEEDS Assuming an initial public offering price of $15.00 per share, the net proceeds to the Company from the sale of the Common Stock offered hereby are estimated to be $24.4 million ($28.6 million if the Underwriters' over-allotment option is exercised in full), after deducting estimated underwriting discounts and commissions and expenses. The Company will not receive any proceeds from the sale of shares by the Selling Stockholder. The Company intends to use approximately $7.0 million, $6.0 million and $4.9 million of the net proceeds from the Offering to discharge its obligations to GECC under fixed rate loans, variable rate loans and a revolving credit facility, respectively. At December 31, 1996, this indebtedness bore interest at a weighted average interest rate of 10.4%. Amounts owed under the fixed rate and variable rate loans are due and payable on January 3, 1999, which is the same date that the revolving credit facility expires. Amounts repaid under the revolving credit facility may be reborrowed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Certain Transactions." The remainder of the net proceeds will be used for general corporate purposes, including capital expenditures and working capital. A portion of the net proceeds may also be used to acquire other companies or divisions of other companies. The Company, however, currently has no agreements, commitments or understandings with respect to any acquisitions, nor can there be any assurance that the Company will make any such acquisition in the future. Pending any of these uses, the Company intends to invest the net proceeds of the Offering in short-term, investment grade, interest-bearing securities, certificates of deposit or direct or guaranteed obligations of the United States. DIVIDEND POLICY The Company currently intends to retain earnings, if any, to support the development of its business and does not anticipate paying cash dividends on the Common Stock for the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account various factors, including the Company's earnings, financial condition, operating results and current and anticipated cash needs, as well as such other conditions as the Board of Directors may deem relevant. Furthermore, the payment of dividends will be subject to the terms of the Company's outstanding financing arrangements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 14 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--Formation of the Company." The selected consolidated financial and operating information for the years ended December 31, 1994, 1995 and 1996 is derived from the Consolidated Financial Statements of the Company that have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial and operating information of AFSG for the years ended December 31, 1992 and 1993 is derived from the unaudited financial statements of AFSG, the Company's predecessor for financial reporting purposes, and, in the opinion of the Company's management, reflects all adjustments necessary to present the financial results of AFSG fairly and on a basis consistent with the Company's financial statements. The information for AFSG is presented to "Operating income" because the borrowing arrangements and the tax position of Old Microdot are not meaningful to the Company. The unaudited selected consolidated financial and operating information for AFSG is provided for informational purposes only.
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................ $ 0.79 --------- --------- Pro forma shares used in computing pro forma earnings per share, as adjusted..................................... 8,139
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 1,339,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $15.00 per share and (ii) the application of approximately $18 million of the net proceeds to the reduction of certain indebtedness of the Company as if such debt reduction occurred at January 1, 1996. The pro forma results do not reflect 461,000 shares of Common Stock attributable to estimated proceeds in excess of the amount to be used to repay debt owed to the Selling Stockholder. (5) As adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $15.00 per share and (ii) the application of approximately $13.6 million of the net proceeds to the reduction of certain indebtedness of the Company as if such debt reduction occurred at December 31, 1996. The Company anticipates that as of the date of the Offering, it will have increased its borrowings under its revolving line-of-credit to approximately $4.9 million. Accordingly, the total amount of the net proceeds that will be applied to the reduction of certain indebtedness of the Company will approximate $18 million. See "Use of Proceeds." 18 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. RECENT DEVELOPMENTS The Company recently completed its fiscal quarter ended March 31, 1997. For the fiscal quarter, the Company had net sales, operating income and net income of $32.2 million, $4.9 million and $2.2 million, respectively, representing increases of $11.5 million, $2.2 million and $1.1 million, respectively, over results for the same period in 1996. The increase in net sales was primarily due to increased customer demand. In the opinion of management, these results contain all adjustments necessary for a fair presentation of the unaudited quarterly results of operations. 23 BUSINESS GENERAL The Company is a leading manufacturer of specialty fasteners, fastening systems and related components primarily used by OEMs and their subcontractors in the production of commercial aircraft and defense products. In addition, the Company also manufactures other specialty fasteners and related products for sale in the automotive, electronic and other industrial markets, and their associated after-markets. The Company designs and manufactures a substantial majority of its fasteners to its customers' specifications and in a wide range of specialty metals, alloys and composites. The Company's Kaynar and Microdot business units manufacture precision, self-locking, internally threaded nuts and inserts and precision, threaded studs. Kaynar and Microdot fasteners are engineered for a variety of harsh, demanding environments and often require high tensile strength, toughness, durability, corrosion resistance and resistance to metal fatigue and creep. Kaynar's fasteners, which include wrenchable nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts, are used in airframe construction to fasten together various aircraft components, including the fuselage, wings and horizontal and vertical stabilizers. These fasteners also serve a similar function in the construction of aircraft jet and turboprop engines and related components. Recoil, acquired by the Company in August 1996, manufactures helically-wound wire thread inserts and thread repair kits, which are similar in design to certain Microdot products, but are sold to the automotive, electronic and other industrial markets, and their associated after-markets. The Company's K-Fast business unit produces and markets tools that are leased or sold to OEMs and are designed to allow operators to install the Company's and other manufacturers' fasteners rapidly and in restricted and hard-to-reach areas, while still maintaining precision torque control. The Company's goal is to achieve long-term, profitable growth by (i) enhancing its position as a leading supplier of specialty fasteners to the commercial aircraft and defense industries, (ii) expanding the array of fastener products and services it offers to current customers, (iii) continuing to focus on higher value-added specialty products, (iv) leveraging its core capabilities in engineering, materials technology, manufacturing and business processes to develop additional business with both new and existing customers, (v) increasing its international marketing and penetration of foreign markets and (vi) pursuing selected opportunities for acquisitions and strategic alliances. INDUSTRY OVERVIEW AND TRENDS COMMERCIAL AIRCRAFT MARKET The Company's primary market for fasteners, the worldwide commercial aircraft industry, is experiencing a strong increase in demand from airlines ordering new and replacement aircraft. Many airlines, particularly U.S. carriers, incurred substantial losses during the early 1990s. Factors which led to these losses included (i) a slowdown in world economic growth, (ii) a decline in air passenger traffic and (iii) the delivery of a record number of previously purchased aircraft to the airlines, all of which created excess aircraft capacity. This excess capacity, coupled with the weakened financial condition of many airlines, significantly impacted their purchases of new and replacement aircraft. Beginning in 1994, a rebound in the world economy and an increase in air passenger traffic helped many airlines restore and increase their profitability. As a result, the airlines have also increased their purchases of new and replacement aircraft, contributing to a significant recovery in the worldwide commercial aircraft industry. In 1996, for example, Boeing and Airbus, the two largest commercial aircraft manufacturers, reported increases in announced aircraft orders of 107% and 208% over 1995 levels, respectively. Increased demand for new and replacement aircraft has led to an increase in the demand for fasteners and fastening systems, such as those manufactured by the Company. While there can be no assurance that demand for new and replacement aircraft will not be adversely affected by business cycle fluctuations or declines in airline profitability, the Company believes that long-term industry trends are favorable. For example, in its 1997 Current Market Outlook report, Boeing 24 projects that during the period from 1996 to 2006, world air travel will grow by nearly 75%. Boeing also projects that during this period domestic and international airlines will lease or purchase over 7,000 new aircraft, thereby increasing the worldwide commercial fleet from approximately 11,500 aircraft at the end of 1996 to approximately 17,000 aircraft (net of retirements) at the end of 2006. In addition, as airlines seek to serve a growing number of air travelers with existing restrictions on arrival and departure slots, airport gates and ramp capacity, commercial aircraft OEMs are experiencing increased orders for heavier, widebodied aircraft of intermediate size. Widebodied aircraft generally require a greater number of fasteners than smaller aircraft. DEFENSE MARKET The Company also directly and indirectly supplies fasteners and related components to manufacturers of airframes, aircraft engines, missiles and other products used for defense. Since the late 1980s, decreasing levels of defense procurement spending have reduced the size of the defense market, with contracts often reflecting lower build rates and extended production schedules. The U.S. military budget, in particular, has focused principally on operations and maintenance funding for the existing force structure rather than on procurement of new equipment. Due in part to these budget constraints, the defense industry has been consolidating, thereby reducing the overall number of customers available to the Company and other suppliers. The Company's products are primarily utilized on military aircraft, including fighters and transport aircraft. Although the number of fighter aircraft expected to be produced is likely to decrease through the year 2000, this decrease may be offset in part by increased production of military transport aircraft such as the C-130J and the C-17. In addition, a number of fighter and other aircraft programs may be implemented to modernize the air forces of the industrialized western nations and their allies. Such programs that are either under development or contemplated include the F/A-18E/F (an advanced variant of the existing F/A-18 fighter bomber), the F-22 (the next-generation advanced fighter) and the EFA (European Fighter Aircraft). The first two programs are in preliminary production stages in the United States. The military programs of the United Kingdom, Germany, Italy and Spain have committed to the EFA, which is scheduled to begin production in 2000. In addition, although there can be no assurance that the proposed fiscal 1998 U.S. military budget will be adopted as proposed, the budget proposed by the President projects an increase in procurement spending for aircraft. There can be no assurance, however, that the production of military transport aircraft will increase, that proposed aircraft programs under development or contemplated will be completed or that any projected increase in U.S. defense procurement spending will result in increased demand for the Company's products. PRODUCTS AND SERVICES The Company's fasteners, fastening systems and related components may be divided into two general categories: those used exclusively in the manufacture of commercial aircraft and defense products (see "--Commercial Aircraft and Defense Products") and those with applications in other industries (see "--Industrial Products and Services"). Within these two broad categories, the Company's products may also be grouped by business unit. The Company's Kaynar and Microdot business units manufacture fasteners and related products that are sold principally to the commercial aircraft and defense industries. The Company's recently-acquired Recoil business manufactures thread insert systems used in a broad range of markets, including high performance automotive and electronic components. The Company's K-Fast business unit produces, sells, leases and services a complete line of installation tools and tooling systems for the Kaynar, Microdot and Recoil product lines, as well as for fasteners and inserts produced by other manufacturers. COMMERCIAL AIRCRAFT AND DEFENSE PRODUCTS A substantial portion of the Company's net sales are made to the commercial aircraft and defense industries. Of the Company's net sales in 1996, approximately 40% were made to airframe OEMs and their subcontractors, and approximately 21% were made to producers of aircraft engines. In addition, the 25 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: EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
QUARTER ENDED TWELVE MONTH BACKLOG 3-1994 $ 21,957 6 $ 23,794 9 $ 23,940 12 $ 24,421 3-1995 $ 28,940 6 $ 34,187 9 $ 33,524 12 $ 35,843 3-1996 $ 40,792 6 $ 44,997 9 $ 53,925 12 $ 60,189
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 30 more of the Company's patents would have a material adverse effect on the business or prospects of the Company. The Company has not been involved in patent infringement litigation, and the Company believes that its processes and products do not infringe on the intellectual property rights of others; however, there can be no assurance that an infringement claim will not be asserted against the Company in the future. The Company has from time to time asserted infringement claims by notice to third parties. Such claims, however, have been settled by the Company and have not resulted in litigation. MANUFACTURING AND RAW MATERIALS Each of the Company's fasteners is manufactured using one of three general methods of production: stamping, machining or forging. In each case, the production process begins with the purchase of raw materials: sheet metal in the case of stamping, bars in the case of machining and high grade wire in the case of forging. The fastener is then formed using the applicable processes. Subsequent steps in the production process include tapping, crimping, heat treating, plating, coating, assembly and final inspection. The Company manufactures fasteners for its commercial aircraft and defense customers based on the customers' orders and specifications and, except for certain Recoil products, the Company generally does not produce fasteners for its own inventory. The Company has the expertise in complex manufacturing processes necessary to produce products in multiple, short runs, which are often requested by its customers. See "--Key Competitive Strengths--Rapid Customer Response." The Company purchases raw materials, which include the various metals, composites and finishes used in production, from over twenty different suppliers. The Company believes that these raw materials would be available at competitive prices from various other suppliers as well. See "Risk Factors-- Availability and Cost of Raw Materials" for a discussion of the risks related to the Company's supply of raw materials. SALES AND MARKETING The Company's sales force consists of approximately 24 salespeople located throughout the world and 31 independent sales agents who work with the Company on a commission basis. The sales force sells products directly to OEMs and subcontractors and to a global network of 35 independent distributors, who, in turn, sell to OEMs, subcontractors and other customers. Often, the OEMs will determine whether the Company sells a product directly to the OEM or through an independent distributor. Each of the Company's four business units independently conducts sales and marketing efforts. In certain cases, however, the business units collaborate in cross-marketing efforts and, in some geographic regions, may use the same sales representative or agent. Each business unit's sales force and its respective officers are responsible for obtaining new customers and maintaining relationships with existing customers. EMPLOYEES As of December 31, 1996, the Company employed 1,111 employees. Approximately 73% of these employees are engaged in manufacturing, 22% are engaged in management, sales, marketing and general administration and 5% are engaged in engineering and product development. None of the Company's employees is represented by a union, and management considers its employee relations to be good. Each of the Company's employees (other than those in the Recoil business unit) is eligible for an annual bonus based on the return on capital employed of the particular business unit in which the employee works. 31 PROPERTIES As of March 31, 1997, the Company had nine principal facilities, consisting of an aggregate of approximately 282,500 square feet of space. The following table describes the principal facilities and indicates the location, function, approximate size and ownership of each:
APPROX. SQUARE LOCATION FUNCTION FOOTAGE OWNERSHIP - ------------------------------ --------------------------------- --------- ------------------------- Fullerton, CA................. Kaynar Division headquarters: 200,000 Leased (expires Administration, product October 31, 1999) development, engineering, manufacturing and distribution Placentia, CA................. Microdot Division headquarters: 40,000 Leased (expires Administration, product September 30, 2001) development, engineering, manufacturing and distribution Oakleigh, VIC, Australia...... Recoil Pty headquarters: 24,000 Leased (expires Administration, product August 1, 2000) development, engineering, manufacturing and distribution Nemesuamos, Hungary........... K.T.I. Femipari KFT: 6,200 Owned Manufacturing Orange, CA.................... The Company headquarters 4,600 Leased (expires April 1, 2003) Carmel, IN.................... Recoil (U.S.): 4,300 Leased (expires Sales and marketing of Recoil December 31, 1998) products Wolverhampton, U.K............ Recoil (Europe) Ltd.: 1,700 Leased (expires Sales and marketing of Recoil December 25, 2001) products Lutterworth, U.K.............. Kaynar Technologies Ltd. 1,000 Leased (expires headquarters: January 2, 2002) Kaynar and K-Fast sales office Aalst, Belgium................ Recoil Marketing BVBA: 700 Leased (expires Sales and marketing of Recoil April 20, 2003) products
The Company currently anticipates that its 6,200 square foot manufacturing facility in Nemesuamos, Hungary will be completed and operational by the end of the second quarter of 1997. The Company purchased the property on which the facility is being built in July 1996. When completed, the Hungarian facility will be responsible for certain machining and forging operations on a limited number of Kaynar and Microdot products. These products will be transported to the Company's U.S. facilities for final fabrication. The Company recently entered into a lease of office and administrative space in Orange, California. As a result, the Company has relocated its executive offices from Fullerton, California to the Orange site. 32 While the Company believes that its facilities are adequate to support its operations for the foreseeable future, the Company regularly reviews its need for additional facilities and could, in the future, lease or purchase one or more additional facilities or seek to expand its existing facilities. LEGAL PROCEEDINGS During the ordinary course of business, the Company, from time to time, is threatened with, or becomes a party to, legal actions and other proceedings. Management is of the opinion that the outcome of currently known legal actions and proceedings to which it is a party will not, singly or in the aggregate, have a material adverse effect on the Company. COMPETITION The Company competes with a number of producers of aerospace fasteners and fastening systems, including three publicly-held companies, SPS Technologies Inc. ("SPS"), the Huck International Division of the Thiokol Corporation ("Thiokol") and The Fairchild Corporation ("Fairchild"), all of which have greater financial resources than the Company. SPS manufactures high-strength wrenchable nuts, gang channels, plate nuts and other products for certain of the same customers as the Company, including Boeing, Pratt & Whitney and GE. Thiokol produces fasteners and fastening systems that differ substantially from the Company's products in design, but nevertheless often serve comparable functions in airframe and engine construction. Fairchild produces threaded inserts and studs that compete with the Microdot product lines, as well as various nuts used by certain of the Company's customers, including GE. On February 27, 1997, Fairchild acquired a controlling interest in Simmonds, S.A. ("Simmonds"), a French corporation, which produces fasteners that compete with certain Kaynar products, particularly metric nuts and gang channels sold to European airframe and engine OEMs. Under the terms of the agreement, Fairchild acquired an 84.2% ownership interest in Simmonds. Fairchild has also announced its intent to tender immediately for the remaining ownership interests in Simmonds held by the public. The Company also competes with several smaller, privately-owned companies, which generally have lower sales volumes than the Company. The Company believes that competition for sales of fasteners and fastener systems to the commercial aircraft and defense industries is based on product design and quality, turnaround time and responsiveness to customer specifications, product availability and pricing. The Company believes that it competes favorably with respect to each of these factors. HeliCoil, a unit of Black & Decker Corp., is Recoil's primary competitor in the industrial markets for threaded inserts. The Company believes that competition for sales of threaded insets and thread repair kits to the markets served by Recoil is based on turnaround time and responsiveness to customer specifications, product availability and pricing. The Company believes that it competes favorably with respect to each of these factors. ENVIRONMENTAL MATTERS The Company's operations are subject to federal, state and local environmental laws and regulation by various governmental agencies. Among other matters, these regulatory authorities impose requirements that regulate the generation, emission, discharge, management, transportation and disposal of hazardous materials, pollutants and contaminants, govern public and private response actions to hazardous or regulated substances that may be or have been released into the environment, and require the Company to obtain and maintain licenses and permits in connection with its operations. This extensive regulatory framework imposes significant compliance burdens and risks on the Company. Although management believes that the Company's operations and its facilities are in material compliance with such laws and regulations, there can be no assurance that future changes in such laws, regulations or interpretations thereof or the nature of the Company's operations will not require the Company to make significant additional capital expenditures to ensure compliance in the future. 33 The Company anticipates that during the period from 1997 through 1998 it will incur a one-time capital expenditure of between $1 million and $2 million to reduce its reliance on degreasing operations that use perchloroethylene by switching to aqueous-based solvents whenever possible. Although these new operations will significantly reduce the Company's need to use perchloroethylene as a degreasing agent, the Company's principal reason for undertaking this expenditure is to increase manufacturing efficiency. Although the Company has not been notified by any environmental authority that its current degreasing operations are in violation of any applicable law or regulation, perchloroethylene has been detected in the soil beneath the Company's Fullerton, California facility. Environmental consultants retained by the Company have determined that this was not caused by existing degreasing operations. The Company anticipates that if remediation of the perchloroethylene at this site is required, it could be accomplished at a cost of approximately $200,000 over the course of two years. In connection with the AFSG acquisition in January 1994, the Company established reserves that management believes are sufficient to cover this possible remediation. The Company is required to maintain air quality permits for the operation of several of its plating lines. The permit required to run its cadmium-plating system currently includes a maximum annual usage restriction that is significantly below the Company's actual 1996 usage. In 1996, however, the Company obtained a variance from the applicable environmental control authority that permitted the Company to exceed the usage restriction. In 1997, the Company intends to install a new automated cadmium-plating system that includes improved emissions control features, which should result in removal of the usage restriction. If the restriction is not removed prior to the installation of the automated plating system, the Company expects that it will again be granted a usage variance. There can be no assurance, however, that a usage variance will be granted or that the failure to obtain a usage variance will not have a material adverse effect on the Company. 34 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....................... 52 Division President, Kaynar Joseph M. Varholick................. 45 Division President, Microdot Kenneth D. Jones.................... 52 Group Chief Executive Officer, Recoil Imre Berecz......................... 59 Vice President, Product Research and Development, and Managing Director, K.T.I. Femipari KFT Joseph F. Blomberg.................. 58 Director of Human Resources Norman A. Barkeley.................. 66 Director Burton J. Kloster, Jr............... 65 Director Richard P. Strubel.................. 57 Director
- ------------------------ * As of December 31, 1996. JORDAN A. LAW has been Chairman of the Board of Directors, President and Chief Executive Officer of the Company since October 1993. From July 1991 to January 1994, Mr. Law served as President of AFSG. DAVID A. WERNER has been Executive Vice President of the Company since December 1996 and Secretary and a Director of the Company since October 1993. From October 1993 to December 1996, Mr. Werner served as Vice President and Treasurer of the Company. From July 1990 to January 1994, Mr. Werner was Vice President and Chief Financial Officer of Old Microdot. Mr. Werner is also a director of Lumber Yard Supply, a privately-held corporation. Mr. Werner is a certified public accountant. ROBERT L. BEERS has been Senior Vice President, Marketing and Business Development, of the Company since December 1996. From January 1994 to December 1996, Mr. Beers served as Vice President, Sales and Marketing, of the Company. From June 1991 to January 1994, Mr. Beers was Vice President, Sales and Marketing, of AFSG. LEROY A. DACK has been President of the Company's Kaynar business unit since December 1996. From January 1994 to December 1996, Mr. Dack served as Vice President and General Manager of the Kaynar business unit. From May 1991 to January 1994, Mr. Dack was Vice President and General Manager of the Kaynar division of Old Microdot. JOSEPH M. VARHOLICK has been President of the Company's Microdot operating unit since December 1996. From January 1994 to December 1996, Mr. Varholick served as Vice President and General Manager of the Microdot business unit. From September 1993 to January 1994, Mr. Varholick was Vice President and General Manager of the Microdot Inserts division of Old Microdot. From May 1992 to September 1993, Mr. Varholick was Managing Director of Microdot Aerospace Limited (U.K.), a subsidiary of Old Microdot. Prior to May 1992, Mr. Varholick was the Director of Sales of the Kaynar division of Old Microdot. KENNETH D. JONES has been Group Chief Executive Officer of the Company's Recoil business unit since August 1996. From August 1994 to August 1996, Mr. Jones was the Group Chief Executive Officer of 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--Formation of the Company." DIRECTORS COMPENSATION Prior to March 1997, members of the Company's Board of Directors did not receive any compensation for their services as directors. Commencing in March 1997, however, non-employee directors will be paid $10,000 per year plus $1,000 per meeting for attending meetings of the Board of Directors or meetings of any committee thereof not immediately preceding or following a meeting of the full Board. Non-employee directors may also participate in the Company's 1997 Stock Incentive Plan. See "--Stock Incentive Plan-- Non-Employee Director Options." Except as set forth below in "--Executive Compensation," directors who are employees of the Company will not be paid for their services as directors. All directors, however, are reimbursed for certain expenses in connection with attendance at Board of Directors and committee meetings. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has established an Audit Committee and a Compensation Committee. As long as the outstanding Series C Preferred Stock represents 40% or more of the Fully Diluted Shares, each of these committees will include two directors that were designated by the holder of the Series C Preferred Stock for nomination to the Board of Directors. As long as the outstanding Series C Preferred Stock 36 represents 25% or more (but less than 40%) of the Fully Diluted Shares, each of these committees will include one director that was designated by the holder of the Series C Preferred Stock for nomination to the Board of Directors. See "Description of Capital Stock--The New Stockholders Agreement." The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the selection of the Company's independent auditors, the scope of annual audits, fees to be paid to auditors, the performance of the auditors and the accounting practices of the Company. The Audit Committee currently consists of Messrs. Kloster and Strubel. The Compensation Committee, which consists of Messrs. Barkeley, Kloster and Strubel, determines the salaries and incentive compensation of the Company's officers and provides recommendations for the salaries and incentive compensation of the other employees of, and any consultants to, the Company. The Compensation Committee also administers the Company's incentive compensation, stock and benefit plans. The By-laws of the Company provide that the Board of Directors may also establish other committees from time to time. EXECUTIVE COMPENSATION The following table sets forth a summary of all compensation awarded to, earned by, or paid to the Chief Executive Officer of the Company and each of the four most highly compensated executive officers of the Company (other than the Chief Executive Officer) whose total annual salary and bonus for the year ended December 31, 1996 was in excess of $100,000: SUMMARY COMPENSATION TABLE
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 May 1997, the Company entered into employment agreements with Messrs. Law, Werner, Dack, Beers, Varholick and Berecz. The agreements provide for annual base salaries of $190,000, $170,000, 37 $137,000, $136,000, $125,000 and $124,000, respectively, which are subject to discretionary increases and annual review. The duration of each agreement is one year (two years for Messrs. Law and Werner); however, each agreement contains an automatic renewal provision that takes effect every six months unless notice that the agreement will not be renewed is given at least 30 days prior to a renewal date. The agreements provide for participation in all annual bonus, incentive, savings and retirement and benefit plans offered generally to Company employees. If the Company terminates an agreement other than for cause or as a result of death or disability, the Company will make payments equal to the employee's annual base salary (two times annual base salary in the case of Messrs. Law and Werner). If a change in control of the Company occurs within one year, and either the Company terminates an agreement other than for cause or an employee terminates his agreement for good reason, the Company will pay an amount equal to the sum (or, for Messrs. Law and Werner, twice the sum) of (i) the highest annual base salary paid to the employee during the three most recent calendar years ending prior to the year the change in control occurs and (ii) the amount of the highest bonus or bonuses paid to the employee for any calendar year ending prior to the year the change in control occurs. In August 1996, the Company also entered into an employment agreement with Mr. Jones, which provides for a base salary of $184,000 (Australian dollars) per year, a contribution to a superannuation fund equaling 10% of base salary and certain fringe benefits. Mr. Jones will be entitled to a bonus equal to 1% of base salary for every 1% increase in Recoil's annual net profit before depreciation, interest and taxes from the previous twelve month period. Although the agreement is not limited in duration, either party may terminate the agreement by giving four months written notice; however, should his employment be terminated within the first three years after the commencement of the agreement, Mr. Jones will be entitled to an additional special payment equal to six months of his total compensation package. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In 1996, Messrs. Law and Werner were the only executive officers of the Company who participated in deliberations of the Company's Board of Directors concerning executive compensation. The Compensation Committee of the Board of Directors was not formed until March 1997. See "--Committees of the Board of Directors." STOCK INCENTIVE PLAN In May 1997, the Company adopted its 1997 Stock Incentive Plan (the "Plan"). The Plan provides an additional means to attract, motivate, retain and reward key employees (including executive officers), as well as outside consultants and advisors, of the Company and its subsidiaries and to attract, motivate, and retain experienced and knowledgeable independent directors. SHARES THAT MAY BE ISSUED UNDER THE PLAN. A maximum of 500,000 shares of Common Stock, or approximately 5.8% of the issued and outstanding shares of Common Stock (on a fully diluted basis), has been reserved for issuance as grants and awards under the Plan. The maximum number of shares that may be subject to options and stock appreciation rights ("SARs") granted to any participant in the Plan during any calendar year will not exceed 45,000. The number and kind of shares available under the Plan are subject to adjustment in the event of any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend), extraordinary dividend or other distribution with respect to the Common Stock, reverse stock split, reorganization, merger, combination, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Stock or other securities of the Company, or there shall occur any similar corporate transaction or event with respect to the Common Stock or a sale of substantially all assets of the Company. ADMINISTRATION AND ELIGIBILITY. The Plan will be administered by the Compensation Committee, each member of which must be an outside director as defined in Section 162(m) of the Internal Revenue Code (the "Code"). The Plan empowers the Compensation Committee, among other things, to interpret the Plan, to make all determinations deemed necessary or advisable for the administration of the Plan and to award to officers and other employees of the Company as well as other persons, such as significant 38 consultants and advisors, selected by the Compensation Committee (collectively, "Eligible Persons"), options (including incentive stock options ("ISOs")) as defined in the Code, SARs, performance shares, other awards valued by reference to Common Stock and such factors as the Compensation Committee deems relevant, and certain Cash-Based Awards (as defined in the Plan). The various types of awards under the Plan are collectively referred to as "Awards." It is expected that after the consummation of the Offering there will be approximately 50 officers and other employees eligible to participate in the Plan. TRANSFERABILITY. Generally speaking, Awards are not transferable other than by will or the laws of descent and distribution, are exercisable only by the participant and may be paid only to the participant or the participant's beneficiary or representatives. However, the Compensation Committee may establish conditions and procedures under which exercise by and transfers and payments to certain third parties are permitted, to the extent permitted by law. OPTIONS. An option is the right to purchase shares of Common Stock at a future date at a specified price. The option price is generally one hundred percent of the closing price for a share of Common Stock as reported on any national securities exchange ("fair market value") on the date of grant. An option may be granted as an ISO or a nonqualified stock option. An ISO may not be granted to a person who, at the time the ISO is granted, owns more than 10% of the total combined voting power of all classes of stock of the Company and its subsidiaries unless the option price is at least 110% of the fair market value of shares of Common Stock subject to the option and such option by its terms is not exercisable after expiration of five years from the date such option is granted. The aggregate fair market value of shares of Common Stock (determined at the time the option is granted) for which ISOs may be first exercisable by an option holder during any calendar year under the Plan or any other plan of the Company or its subsidiaries may not exceed $100,000. A nonqualified stock option is not subject to any of these limitations. SARS. The Plan authorizes the Compensation Committee to grant SARs independent of any other Award or concurrently (and in tandem) with the grant of options. An SAR granted in tandem with an option is only exercisable when and to the extent that the related option is exercisable. An SAR entitles the holder to receive upon exercise the excess of the fair market value of a specified number of shares of Common Stock at the time of exercise over the option price. This amount may be paid in Common Stock (valued at its fair market value on the date of exercise), cash or a combination thereof, as the Compensation Committee may determine. PERFORMANCE SHARE AWARDS. The Compensation Committee may, in its discretion, grant Performance Share Awards to Eligible Persons based upon such factors as the Compensation Committee deems relevant in light of the specific type and terms of the Award. The amount of cash or shares or other property that may be deliverable pursuant to these Awards will be based upon the degree of attainment, over a specified period of not more than ten years (a "performance cycle") as may be established by the Compensation Committee, of such measures of the performance of the Company (or any part thereof) or the participant as may be established by the Compensation Committee. The Compensation Committee may provide for full or partial credit, prior to completion of a performance cycle or the attainment of the performance achievement specified in the Award, in the event of the participant's death, retirement, or disability, a Change in Control Event (as defined in the Plan) or in such other circumstances as the Compensation Committee may determine. SPECIAL PERFORMANCE-BASED AWARDS. In addition to Awards granted under other provisions of the Plan, performance-based awards within the meaning of Section 162(m) of the Code ("Performance-Based Awards"), which depend on the achievement of pre-established performance goals, may be granted under the Plan. The specific performance goals will be selected by the Compensation Committee in its sole discretion and the specific targets will be pre-established so that their attainment is substantially uncertain at the time of establishment. The permitted performance goals under the Plan may include earnings per share, return on equity, cash flow and total stockholder return. However, the applicable performance measurement period may not be less than one nor more than ten years. 39 The eligible class of persons for Performance-Based Awards consists of the executive officers of the Company. The maximum number of shares of Common Stock that may be delivered as Performance-Based Awards to any participant in any calendar year shall not exceed 75,000 shares. Furthermore, the maximum amount of compensation to be paid to any participant in respect of any Cash-Based Awards that are granted in any calendar year may not exceed $200,000. Before any Performance-Based Award is paid, the Committee must certify that the material terms of the Performance-Based Award were satisfied. The Committee will have discretion to determine the restrictions or other limitations of the individual Awards. STOCK BONUSES. The Compensation Committee may grant a stock bonus to any Eligible Person to reward exceptional or special services, contributions or achievements in the manner and on such terms and conditions (including any restrictions on such shares) as determined from time to time by the Compensation Committee. The number of shares so awarded shall be determined by the Compensation Committee and may be granted independently or in lieu of a cash bonus. TERM AND EXERCISE PERIOD OF AWARDS. The Plan provides that awards may be granted for such terms as the Compensation Committee may determine but options to acquire Common Stock may not have terms greater than ten years after the date of the Award. The Plan also generally imposes a six-month minimum vesting period on Awards and vesting at a rate not in excess of 25% per year. The Compensation Committee will set forth in each Award the effect of termination of employment upon the rights and benefits conferred and may make distinctions based on the cause of termination. In the event of termination other than for cause, the Compensation Committee may, in its discretion, increase the portion of an Award otherwise available or extend the exercise period of such Award. For non-employee directors, if the director's service with the Company terminates by reason of death or disability, his or her options shall become immediately exercisable and may be exercised for a period of two years after the date of such termination or until the options expire, whichever occurs first. If a non-employee director is terminated for any other reason, his or her exercisable options will expire at the earlier of six months or the expiration of the stated term and options not exercisable will be terminated. Other than as specified in the Plan, the Committee has the authority to accelerate the exercisability of options or (within the maximum ten-year term) extend the exercisability periods. TERMINATION, AMENDMENT AND ADJUSTMENT. The Plan may be terminated by the Compensation Committee or by the Board of Directors at any time. In addition, the Compensation Committee or the Board may amend the Plan from time to time, without the authorization or approval of the Company's stockholders, unless that approval is required by the certificate of designation relating to the Series C Preferred Stock, any law or agreement or the rules of any exchange upon which the stock of the Company is listed. No Award may be granted under the Plan more than ten years after the effective date of the Plan, although Awards previously granted may thereafter be amended consistent with the terms of the Plan. Upon the occurrence of a change in control event, in addition to acceleration of vesting, an appropriate adjustment to the number and type of shares or other securities or property subject to an Award and the price thereof may be made in order to prevent dilution or enlargement of rights under Awards. Individual awards may be amended by the Compensation Committee in any manner consistent with the Plan, including amendments that effectively reprice options without changes to other terms. Amendments that adversely affect the holder of an Award, however, are subject to his or her consent. The Plan is not exclusive and does not limit the authority of the Board of Directors or the Compensation Committee to grant other awards, in stock or cash, or to authorize other compensation, under any other plan or authority. NON-EMPLOYEE DIRECTOR OPTIONS. The Plan provides for automatic initial and subsequent annual grants of non-qualified stock options, with five-year terms, to non-employee directors. Each person who becomes a non-employee director will receive an initial grant of options to purchase 1,000 shares of Common Stock. Under the subsequent automatic grant, each non-employee director then in office will be granted options to purchase 500 shares each January 31. Each non-employee director option will vest at 40 the rate of 25% per year commencing one year after the initial award date and each of the next three years thereof. Upon the occurrence of a change in control event, each non-employee director option will become immediately exercisable in full, provided that no option will be accelerated to a date prior to six months after its grant date. To the extent any non-employee director option is not exercised prior to (i) dissolution of the Company or (ii) a merger or other corporate event that the Company does not survive, and no provision is made for the assumption, conversion, substitution or exchange of such option, such option will terminate upon the occurrence of the change in control event. INITIAL GRANTS OF OPTIONS. The Company anticipates granting certain options or shares under the Plan within three-to-six months following the consummation of the Offering. Options to purchase approximately 100,000 shares are anticipated to be granted to all executive officers and employees as a group. These options are anticipated to have a term of five years and to vest in equal annual installments over four years. The options will have an exercise price at least equal to the then prevailing market price per share. CERTAIN TRANSACTIONS FINANCING ARRANGEMENTS The Company and Operating Company have entered into the following financing arrangements with GECC which, although not resulting from competitive bids, are believed by the Company to have been obtained on commercially reasonable terms: FIXED RATE LOANS TERM LOAN AGREEMENT. In January 1994, in connection with the capitalization of the Company, the Company and GECC entered into a Term Loan Agreement (the "Term Loan Agreement"), pursuant to which GECC loaned $4.8 million to the Company, which is due and payable on January 3, 1999 and secured by the stock of Operating Company. Interest on this term loan, which is payable quarterly and may be added to the original principal, accrued at the rate of 9.5% for the period from January 3, 1994 to December 31, 1995 and, pursuant to the terms of the Term Loan Agreement, will accrue at the rate of 11.5% from January 1, 1996 until the loan is paid in full. As of December 31, 1996, approximately $6.5 million in total principal and interest was outstanding under this term loan. Interest expense on the loan was approximately $476,000, $525,000, and $712,000 for 1994, 1995 and 1996 respectively. PAYMENT-IN-KIND (PIK) DIVIDEND NOTE AGREEMENT. In lieu of quarterly cash dividends on the Series A and Series B Preferred Stock, the Company has issued PIK Dividend Notes to GECC. As of December 31, 1996, principal and interest on twelve PIK Dividend Notes for each such series of Preferred Stock were outstanding in the aggregate amounts of $84,000 for the Series A Preferred Stock and $247,000 for the Series B Preferred Stock. Interest on the PIK Dividend Notes, which is payable quarterly and may be added to the original principal of a Note, accrued at the rate of 9.5% for the period from January 3, 1994 to December 31, 1995 and will accrue at the rate of 11.5% from January 1, 1996 until each PIK Dividend Note is paid in full. Total interest expense on all PIK Dividend Notes was approximately $5,000, $12,000, and $26,000 for 1994, 1995 and 1996, respectively. VARIABLE RATE LOANS CREDIT AGREEMENT. In January 1994, Operating Company entered into a separate Credit Agreement (the "Credit Agreement") with GECC, which contains both a term loan provision and the Revolver. The term loan under the Credit Agreement, which is secured by substantially all of the Company's assets, was initially issued in the amount of $15.8 million for use in connection with the AFSG acquisition. Amendments to the Credit Agreement in December 1994, August 1995, August 1996 and December 1996 increased that amount to $28.2 million, the proceeds of which have been used for working capital purposes and capital expenditures. Quarterly principal repayments commenced April 1, 1995 and are payable through the maturity date, January 3, 1999. Interest is payable monthly at a rate equal to the prime rate 41 plus 1.5% (which was 9.75% as of December 31, 1996). Interest expense on the loan was approximately $1.4 million, $1.9 million and $2.0 million, for 1994, 1995 and 1996, respectively. TERM LOAN AGREEMENT. In August 1996, GECC loaned an additional $4.0 million to the Company under the Term Loan Agreement for the Recoil acquisition. Interest on this loan is payable monthly at a rate equal to the prime rate plus 1.5% (which was 9.75% as of December 31, 1996). As of December 31, 1996, $4.0 million in total principal was outstanding under this loan. Interest expense on the loan was approximately $154,000 for 1996. RECOIL TERM LOAN AGREEMENT. Recoil Pty, an Australian subsidiary of the Company that was formed to acquire the Recoil business unit, entered a separate term loan agreement with GECC in August 1996 to finance the acquisition (the "Recoil Term Loan"). At December 31, 1996, the outstanding principal under the Recoil Term Loan, which is due and payable on January 3, 1999, was $6.0 million. Interest on the Recoil Term Loan is payable monthly at a rate equal to the prime rate plus 1.5% (which was 9.75% as of December 31, 1996). Interest expense on the Recoil Term Loan for 1996 was approximately $231,000. REVOLVING LINE-OF-CREDIT The Revolver is a $15.0 million revolving credit facility, the availability of which is limited by the lesser of a specified portion of qualified accounts receivable and $15.0 million. Interest is payable monthly, beginning at the date of advance, at a rate equal to the prime rate plus 1.5% (which was 9.75% as of December 31, 1996). The Revolver expires on January 3, 1999. A principal balance of approximately $746,000 was outstanding under the Revolver as of December 31, 1996, with availability of approximately $10 million as of such date. The average amount outstanding under the Revolver was approximately $5.1 million, $4.4 million and $6.9 million in 1994, 1995 and 1996, respectively. Interest expense on the Revolver was approximately $447,000, $462,000, $682,000 for 1994, 1995 and 1996, respectively. OTHER ARRANGEMENTS In the ordinary course of business, the Company supplies fasteners, inserts and other products to the Aircraft Engines Division of GE. GE is the indirect parent company of GECC. The Company made direct sales of approximately $8.0 million, $8.8 million and $11.4 million to the GE Aircraft Engines Division in 1994, 1995 and 1996, respectively, representing approximately 14.6%, 12.7% and 11.5% of the Company's net sales in such years, respectively. The Company believes that its sales to the GE Aircraft Engines Division have been conducted at competitive market rates. The Company believes that its financial transactions with GECC have not played a role in the bids or related negotiations with the GE Aircraft Engines Division. 42 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 500 N. State College Blvd., Orange, California 92868. (2) The number of shares beneficially owned by each stockholder is determined under rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after , 1997. The inclusion herein of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares such power with his or her spouse) with respect to all shares of capital stock listed as owned by such person or entity. (3) Assumes that the Underwriters' over-allotment option is not exercised. (4) Includes 5,206,000 shares of Series C Preferred Stock, which represent all issued and outstanding shares of Series C Preferred Stock. The Series C Preferred Stock is convertible at any time into Common Stock at a one-to-one conversion rate, subject to adjustment in certain circumstances. See "Description of Capital Stock--Series C Preferred Stock." (5) Imre Berecz, the Company's Vice President, Product Research and Development, and Managing Director, K.T.I. Femipari KFT, is the trustee of the Berecz Family Trust. (6) Joseph F. Blomberg, the Company's Director of Human Resources, is the trustee of the Blomberg Family Trust. 43 DESCRIPTION OF CAPITAL STOCK As of December 31, 1996, there were (i) 20,500 shares of Common Stock outstanding, held of record by seven holders, (ii) 20,094 shares of Series A Preferred Stock outstanding, held of record by one holder, (iii) 59,406 shares of Series B Preferred Stock outstanding, held of record by one holder and (iv) no options or warrants to purchase shares of Common Stock outstanding. After the Reorganization, the Company's authorized capital stock will consist of 20,000,000 shares of Common Stock and 10,000,000 shares of Series C Preferred Stock. As a result of the Reorganization, 1,594,000 shares of Common Stock, held of record by eight stockholders, 5,206,000 shares of Series C Preferred Stock, held of record by one stockholder and no options or warrants to purchase Common Stock will be outstanding. COMMON STOCK The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferential rights with respect to any outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividends." In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and satisfaction of preferential rights of any outstanding preferred stock. Common Stock has no preemptive or conversion rights or other subscription rights. The outstanding shares of Common Stock are, and the shares to be issued upon completion of the Offering will be, fully paid and non-assessable. SERIES C PREFERRED STOCK LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series C Preferred Stock will be entitled to receive out of the assets of the Company available for distribution to stockholders an amount equal to $0.22 per share, plus any accrued and unpaid dividends thereon, before any distribution is made to the holders of Common Stock. CONVERTIBILITY. Each share of Series C Preferred Stock is convertible at any time into one share of Common Stock (the "Conversion Rate"), with no payment due from the Selling Stockholder to the Company. Any shares of Series C Preferred Stock that the Selling Stockholder transfers to a non-affiliate will automatically convert to Common Stock at the Conversion Rate. The Conversion Rate is subject to certain anti-dilution adjustments that may be triggered any time the Company (i) issues rights or warrants to the holders of Common Stock entitling them to purchase Common Stock at below market price, (ii) effects any stock splits or reverse stock splits of the Common Stock, (iii) reclassifies the Common Stock into any other security or securities, (iv) is consolidated with, or merges into, another entity or (v) sells substantially all of its assets. Except as set forth above, the Conversion Rate will not be adjusted upon future issuances of Common Stock by the Company. VOTING RIGHTS. As long as the Selling Stockholder holds 25% or more of the Fully Diluted Shares, it is entitled to vote its Series C Preferred Stock as a separate class on (i) any liquidation, dissolution or winding-up of the Company, (ii) any amendment to the Company's Certificate of Incorporation or By-laws that, in any case, adversely affects any rights of the Series C Preferred Stock, (iii) the creation of any other class or series of preferred stock, (iv) the issuance of authorized shares of any class of capital stock, (v) any merger or consolidation resulting in shares of Common Stock or Series C Preferred Stock being converted into other securities or the right to receive cash or other property, (vi) the sale, lease or other conveyance of all or substantially of the Company's assets, whether in one transaction or a series of related transactions or (vii) any transaction, or related series of transactions, resulting in the redemption or repurchase of securities (other than Series C Preferred Stock) that aggregate 10% or more of the Fully Diluted Shares. DIVIDENDS. A holder of the Series C Preferred Stock will participate in any dividends paid on the Common Stock, whether in cash, securities or other property, as if such holder's Series C Preferred Stock had been converted into Common Stock at the Conversion Rate at that time. 44 OTHER PREFERRED STOCK The Board of Directors, with the approval of the holder of the Series C Preferred Stock (to the extent required), is authorized to issue additional series of Preferred Stock and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. Although the Company has no present plans to issue any shares of Preferred Stock following consummation of the Offering, the issuance of additional series of Preferred Stock may have the effect of delaying, deterring or preventing a change in control of the Company without further action of the stockholders. The issuance of any Preferred Stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others. THE NEW STOCKHOLDERS AGREEMENT The New Stockholders Agreement provides that as long as the outstanding Series C Preferred Stock represents 40% or more of the Fully Diluted Shares, (i) the holder thereof will have the right to designate two individuals that the Company will nominate for election to the Board of Directors each year and (ii) each of the Audit Committee and the Compensation Committee will include two directors who were so designated by the holder of the Series C Preferred Stock. As long as the outstanding Series C Preferred Stock represents 25% or more (but less than 40%) of the Fully Diluted Shares, (i) the holder thereof will have the right to designate one individual that the Company will nominate for election to the Board of Directors each year and (ii) each of the Audit Committee and the Compensation Committee will include one director who was so designated by the holder of the Series C Preferred Stock. The New Stockholders Agreement also provides that, beginning 180 days after the Offering, the Selling Stockholder will have the right to request on two separate occasions that the Company file a registration statement under the Securities Act covering shares of Common Stock issued to the Selling Stockholder upon conversion of Series C Preferred Stock ("Demand Registration Rights"). The Selling Stockholder will be entitled to three additional Demand Registration Rights if the Company becomes eligible to file a Registration Statement on Form S-3. If, under certain other circumstances, the Company files a registration statement covering shares of Common Stock, the Selling Stockholder will be entitled to notice of such registration and, on two separate occasions, may include in the offering shares of Common Stock issued to the Selling Stockholder upon conversion of Series C Preferred Stock ("Piggyback Registration Rights"). The Selling Stockholder will receive additional Piggyback Registration Rights to the extent that such rights are granted to any other stockholder of the Company. The Company will pay the costs of any offering in which the Selling Stockholder exercises its Demand or Piggyback Registration Rights, except that the Selling Stockholder will pay its own legal fees and expenses and a proportionate share of any underwriting discounts and commissions. The Selling Stockholder will be entitled to additional Demand and Piggyback Registration Rights to the extent that it agrees to pay a pro rata share of all offering costs. THE OLD STOCKHOLDERS AGREEMENT The Company, the Selling Stockholder and each management stockholder are parties to a Stockholders Agreement, dated as of January 3, 1994 (the "Old Stockholders Agreement"). The Old Stockholders Agreement provides, among other things, for the manner of election of directors, certain preemptive rights of stockholders, and the treatment of shares held by the management of the Company. Upon the consummation of the Offering, however, the Old Stockholders Agreement and all provisions thereto will terminate. CERTAIN ANTI-TAKEOVER EFFECTS SPECIAL PROVISIONS FOR SPECIAL MEETINGS OF THE STOCKHOLDERS OR BOARD OF DIRECTORS. The Certificate of Incorporation provides that, if no one person beneficially owns securities representing 25% or more of the 45 Fully Diluted Shares, any action required or permitted to be taken by the stockholders of the Company at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting, with advance notice given to the Company, and may not be taken by written action in lieu of a meeting. The By-laws further provide that special meetings of the stockholders may only be called by the Chairman of the Board of Directors (or, if none, the President of the Company) or the holders of 25% or more of the outstanding Common Stock. The foregoing provisions could have the effect of delaying until the next stockholders meeting stockholder actions which are favored by the holders of a majority of the outstanding voting securities of the Company. These provisions may also discourage another person or entity from making a tender offer for the Common Stock, because such person or entity, even if it acquired a majority of the outstanding voting securities of the Company, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders meeting, and not by written consent. DIRECTORS' EXCULPATION AND INDEMNIFICATION. The Certificate of Incorporation contains certain provisions permitted under the Delaware Law relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions which involve intentional misconduct or a knowing violation of law. Further, the By-laws contain provisions to indemnify the Company's directors to the fullest extent permitted by the Delaware Law. The Company has also entered into indemnification agreements with each director. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors. In addition, Mr. Kloster has entered into a separate indemnification agreement with the Selling Stockholder, pursuant to which the Selling Stockholder will indemnify Mr. Kloster to the extent his indemnifiable losses are not recoverable from the Company or any insurer of the Company. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is ChaseMellon Shareholder Services. Its telephone number is (213) 553-9700. SHARES ELIGIBLE FOR FUTURE SALE Assuming that the Underwriters' over-allotment option is not exercised, upon completion of the Offering, the Company will have outstanding 3,394,000 shares of Common Stock and 5,206,000 shares of Series C Preferred Stock, which is convertible into Common Stock at any time at a one-to-one conversion rate, subject to adjustment in certain circumstances. The 2,000,000 shares of Common Stock sold in the Offering (2,300,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradable without restriction under the Securities Act, except for shares held by an "affiliate" of the Company, as such term is defined under Rule 144 of the Securities Act. The remaining 6,600,000 shares of Common Stock (including 5,206,000 shares receivable upon conversion of the outstanding Series C Preferred Stock) (the "Restricted Shares") were issued and sold by the Company in private transactions and may be publicly sold only if registered under the Securities Act or sold in accordance with an applicable exemption from registration, such as Rule 144. All of the shares of Common Stock held by existing stockholders, which were acquired in October 1993, are subject to lock-up agreements (as described below) which restrict their sale prior to 180 days from the date of the Prospectus. A total of approximately 1,394,000 shares of Common Stock (or 6,600,000 shares of Common Stock if all outstanding Series C Preferred Stock were converted) subject to these lock-up agreements will become eligible for sale beginning 180 days from the date of the Prospectus, or earlier in the discretion of Lehman Brothers Inc., upon expiration of these lock-up agreements, in accordance with certain restrictions of Rule 144. In general, under Rule 144 as currently in effect, beginning on the 91st day after the Offering (but subject to the lock-up agreements), a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares as to which two years have elapsed between the later of the date of acquisition of 46 the securities from the Company or from an affiliate of the Company, is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then-outstanding number of shares of Common Stock (33,940 shares immediately after the Offering) or the average weekly trading volume of the Common Stock on the Nasdaq National Market System during the four calendar weeks preceding the sale. Sales under Rule 144 are subject to certain "manner of sale" provisions and notice requirements and to the availability of current public information about the Company. The Securities and Exchange Commission ("Commission") has adopted rule changes that will, effective April 29, 1997, reduce the Rule 144 holding period from two years to one. The Company and its officers and directors and the Selling Stockholder have agreed that, for a period of 180 days from the date of the Prospectus, they will not, without the prior written consent of Lehman Brothers Inc., offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any other capital stock of the Company. The Company is unable to estimate the number of shares that may be sold in the future by its existing stockholders or the effect, if any, that sales of shares by stockholders will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock by existing stockholders could adversely affect prevailing market prices. 47 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. Until the distribution of the Common Stock is completed, rules of the Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase shares of Common Stock. As an exception to these rules, the Representatives are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with the Offering (i.e., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus), the Representatives may reduce that short position by purchasing Common Stock in the open market. The Representatives also may elect to reduce any short position by exercising all or part of the over-allotment option described herein. The Representatives also may impose a penalty bid on certain Underwriters and selling group members. This means that if the Representatives purchase shares of Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the offering. In general, purchases of a security for the purpose of stabilization or to reduce a syndicate short position could cause the price of the security to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid might have an effect on the price of a security to the extent that it were to discourage resales of the security by purchasers in the offering. 48 Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. The Company has granted to the Underwriters an option to purchase up to an additional 300,000 shares of Common Stock at the public offering price, less the aggregate underwriting discounts and commissions shown on the cover page of the Prospectus, solely to cover over-allotments, if any. The option may be exercised at any time up to 30 days after the date of the Underwriting Agreement. To the extent that the Underwriters exercise such option, each of the Underwriters will be committed, subject to certain conditions, to purchase a number of option shares proportionate to such Underwriter's initial commitment as indicated in the preceding table. The Company has agreed that, without the prior written consent of Lehman Brothers Inc., it will not, subject to certain limited exceptions, directly or indirectly, offer, sell, contract to sell or otherwise issue or dispose of any shares of Common Stock or any other capital stock of the Company for 180 days after the date of the Prospectus. All of the stockholders of the Company, including the Selling Stockholder, have agreed that, without the prior written consent of Lehman Brothers Inc., they will not, subject to certain limited exceptions, directly or indirectly, offer, sell or otherwise dispose of any shares of Common Stock or any other capital stock of the Company for a period of 180 days after the date of the Prospectus. GECC indirectly owns approximately 23% of PaineWebber Group, which is the holding company of PaineWebber Incorporated. As a result of the foregoing, the Selling Stockholder is deemed to be an affiliate of PaineWebber Incorporated, and the Offering is subject to the provisions of Rule 2720 of the National Association of Securities Dealers, Inc. (the "NASD"). Accordingly, the underwriting arrangements for the Offering will conform with the requirements set forth in Rule 2720. In particular, the public offering price of the Common Stock can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. In accordance with this requirement, Lehman Brothers Inc. will serve in such role and will recommend the public offering price in compliance with the requirements of Rule 2720. Lehman Brothers Inc., in its role as qualified independent underwriter, has performed due diligence investigations and reviewed and participated in the preparation of the Prospectus and the Registration Statement of which the Prospectus forms a part. Prior to the Offering, there has been no public market for the shares of Common Stock. There can be no assurance that an active trading market will develop for shares of the Common Stock or as to the price at which shares of the Common Stock may trade in the public market from time to time subsequent to the Offering. The initial public offering price will be negotiated between the Company and the Representatives. Among the factors to be considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, will be the Company's historical performance, capital structure, estimates of the business potential and earnings prospects of the Company and its industry in general, an overall assessment of the Company, an assessment of the Company's management and the market prices of securities of companies engaged in businesses similar to that of the Company. The Common Stock has been approved for quotation, subject to official notice of issuance, on the Nasdaq National Market under the symbol "KTIC." The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act and to contribute, under certain circumstances, to payments that the Underwriters may be required to make in respect thereof. Purchasers of the Common Stock offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. The Representatives have informed the Company that they do not intend to confirm sales of shares of Common Stock offered hereby to any accounts over which they exercise discretionary authority. 49 LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by O'Melveny & Myers LLP. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Latham & Watkins. EXPERTS The consolidated financial statements of the Company at December 31, 1995 and 1996, and for each of the three years in the period ended December 31, 1996, and the consolidated financial statements of Recoil Pty Ltd and subsidiaries as of June 30, 1996 and for the year then ended, appearing in the Prospectus and Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their reports with respect thereto, and are included in reliance upon the authority of such firm as experts in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 under the Securities Act with respect to the Common Stock offered hereby. The Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement and the exhibits and schedules filed as a part thereof. Statements contained in the Prospectus as to the contents of contracts or other documents are summaries of the material provisions thereof. Copies of each contract or document referred to herein are filed as exhibits to the Registration Statement. Copies of the Registration Statement, including exhibits and schedules thereto, may be inspected without charge at the Commission's principal office in Washington, D.C., or obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W. Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60606. Copies of such materials may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a web site at http://www.sec.gov that contains reports, proxy information statements and other information regarding registrants, like the Company, that file electronically with the Commission. As long as the Common Stock is quoted and traded on the Nasdaq National Market, such reports, proxy and information statements and other information can also be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Company intends to furnish to its stockholders annual reports containing audited financial information and furnish quarterly reports containing condensed unaudited financial information for each of the first three quarters of each fiscal year. 50 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-3 Consolidated Balance Sheets as of December 31, 1995 and 1996............................................... F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996....... F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996................. F-7 Notes to Consolidated Financial Statements................................................................. F-8 RECOIL PTY LTD Report of Independent Public Accountants................................................................... F-18 Consolidated Statement of Income for the year ended June 30, 1996.......................................... F-19 Consolidated Balance Sheet as of June 30, 1996............................................................. F-20 Consolidated Statement of Stockholders' Equity for the year ended June 30, 1996............................ F-22 Consolidated Statement of Cash Flows for the year ended June 30, 1996...................................... F-23 Notes to Consolidated Financial Statements................................................................. F-24
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Kaynar Technologies Inc.: We have audited the accompanying consolidated balance sheets of Kaynar Technologies Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kaynar Technologies Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Orange County, California May , 1997 F-2 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-3 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-4 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-5 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-6 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-7 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-8 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-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) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. INVENTORIES Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out (FIFO) method and market based upon the lower of replacement cost or estimated realizable value. Inventory costs include material, labor and factory overhead. F. PROPERTY, PLANT AND EQUIPMENT Depreciation is computed on the straight-line method over the estimated useful lives of the depreciable assets (ranging from five to ten years). Cost and accumulated depreciation for property retired or disposed of are removed from the accounts and any gains or losses are reflected in operations. Major renewals and betterments that extend the useful life of an asset are capitalized. G. INTANGIBLE ASSETS Intangible assets primarily represent the excess of purchase price over fair value of net assets acquired and related acquisition costs incurred in the acquisition of Recoil. Intangibles are amortized using the straight-line method from the date of acquisition over the expected period to be benefited, currently estimated at 20 years. The Company assesses the recoverability of intangible assets in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." H. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts receivable and accounts payable approximate their fair value as of December 31, 1995 and 1996. The carrying amounts of the line-of-credit and long-term debt approximate fair value because the obligations bear interest at rates that fluctuate with the market rate. The carrying amount of the term loans approximates fair value because the obligation compares favorably with fixed rate obligations that would be currently available to the Company. I. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes," which requires an asset and liability approach in accounting for income taxes payable or refundable at the date of the financial statements as a result of all events that have been recognized in the financial statements and as measured by the provisions of enacted laws. J. EARNINGS PER SHARE Earnings per share are computed based on the weighted average number of shares of common stock and common stock equivalents outstanding. The outstanding Series C Convertible Preferred Stock are common share equivalents. F-10 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-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) 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-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 (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-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) 6. DEBT ARRANGEMENTS (CONTINUED) approximately $1,384, $1,904 and $2,400, respectively. The Term Loans are secured by substantially all of the Company's assets. B. THE LOANS In association with its purchase of net assets from Microdot Inc. and Microdot Aerospace Ltd. (see Note 1) and payment of dividends to the preferred stockholder (see Note 13), the Company borrowed additional amounts under other fixed rate loan agreements with the Lender. The principal on the Loans is due and payable on January 3, 1999, while interest, which is payable quarterly and may be added to the outstanding principal balance, accrues at 11.5 percent. At December 31, 1996, there was approximately $6,844 in principal, interest and dividends outstanding related to these agreements. C. THE NOTES The Company has promissory notes with financing institutions which are secured by certain machinery and equipment. At December 31, 1996, the outstanding balance under the Notes was $915. The Notes bear interest at interest rates ranging from 8.9 percent to 10.5 percent per annum. Monthly payments are payable through June 2000. D. ATC LOAN The Company has a loan with the Australian Trade Commission which was assumed as part of the Recoil asset purchase (see Note 1). At December 31, 1996, outstanding principal under the ATC Loan was $649. Interest accrues on the outstanding principal balance at an effective interest rate of nine and three quarters percent. Principal and interest payments are due semi-annually beginning September 1997. E. LINE-OF-CREDIT The Line-of-Credit (LOC) is a $15,000 revolving credit facility, limited by the lesser of a specified portion of qualified accounts receivable and $15,000. Interest is payable monthly, at the prime rate plus one and one-half percent (which was 9.75% as of December 31, 1996). The LOC, which expires January 3, 1999, had approximately $746 outstanding at December 31, 1996. Interest expense for the years ended December 31, 1994, 1995 and 1996 was approximately $447, $462 and $682, respectively. The weighted average interest rate for all borrowings under the LOC was 8.6 percent, 10.3 percent and 9.8 percent at December 31, 1994, 1995 and 1996, respectively. 7. SERIES C CONVERTIBLE PREFERRED STOCK Each share of the Series C Preferred Stock is convertible at any time into one share of Common Stock. The conversion rate is subject to certain anti-dilutive adjustments. The Series C Preferred stock will participate in any dividends paid on the Common Stock as if the Series C Preferred Stock had been converted into Common Stock. F-14 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-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) 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 13 and 15 percent, 15 and 13 percent and 18 and 12 percent of net sales, respectively. No other customer accounted for 10 percent or more of net sales in the years ended December 31, 1994, 1995 and 1996. Accounts receivable balances from these same two customers accounted for approximately 10 and 13 percent of accounts receivable at December 31, 1995 and 15 and 13 percent at December 31, 1996. No other customer represents 10 percent or more of the Company's gross accounts receivable at December 31, 1995 and 1996. F-16 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 May 1997, Kaynar Technologies Inc. (Operating Company) merged with and into Kaynar Holdings Inc. (Holding Company). The surviving corporation (Holding Company) changed its name to Kaynar Technologies Inc. In connection with the reorganization, each outstanding share of Common Stock of the Company was exchanged for 68 shares of Common Stock, each outstanding share of Series A Preferred Stock was exchanged for 9.953 shares of Common Stock and 58.047 shares of Series C Convertible Preferred Stock, par value .01 per share, and each outstanding share of Series B Preferred Stock was exchanged for 68 shares of Series C Preferred Stock. The effect of the reorganization and stock conversion has been retroactively reflected in the accompanying financial statements for all years presented. 13. RELATED PARTY MATTERS As discussed in Notes 1 and 6, the primary lender to the Company is General Electric Capital Corporation ("GECC"). Subsequent to the Reorganization and immediately prior to the Offering, GECC will own 12.5 percent of the outstanding Common Stock and 100 percent of the outstanding Series C Convertible Preferred Stock, which equates to 79.5 percent of the total outstanding Common Stock and Common Stock equivalents. As discussed in Note 1, this lender was also a secured primary lender to Microdot Inc. GECC is also an affiliated entity to a customer (the Aircraft Engines Division of GE) that accounted for approximately 12 percent of 1996 net sales and 13 percent of accounts receivable at December 31, 1996. F-17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Kaynar Technologies Inc.: We have audited the accompanying consolidated balance sheet of Recoil Pty Ltd (see Note 7) and Subsidiaries as of June 30, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Recoil Pty Ltd and Subsidiaries as of June 30, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Melbourne, Australia February 21, 1997 F-18 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-19 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-20 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-21 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-22 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-23 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-24 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-25 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 --------- $ 649,481 --------- --------- Financing Arrangements The company has a finance facility of:........................ $ 945,960 --------- --------- At June 30, 1996 this facility was drawn upon in the amount of:......................................................... $ 451,514 --------- ---------
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 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-27 [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 Recent Developments.................................. -- Business............................................. 24 Management........................................... 35 Certain Transactions................................. 41 Principal Stockholders and Selling Stockholder....... 43 Description of Capital Stock......................... 44 Shares Eligible for Future Sale...................... 46 Underwriting......................................... 48 Legal Matters........................................ 50 Experts.............................................. 50 Additional Information............................... 50 Index to Consolidated Financial Statements........... F-1
--------------------- UNTIL , 1997 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2,000,000 SHARES [LOGO] [LOGO] COMMON STOCK ------------------- PROSPECTUS , 1997 --------------------- LEHMAN BROTHERS PAINEWEBBER INCORPORATED - --------------------------------------------- --------------------------------------------- - --------------------------------------------- --------------------------------------------- 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.............................................................. $ 11,152 NASD fee.......................................................................... 21,970 Printing and engraving expenses................................................... 127,060 Legal fees and expenses........................................................... 200,000 Accounting fees and expenses...................................................... Blue Sky qualification fees and expenses.......................................... Transfer Agent and Registrar fees................................................. 2,000 Miscellaneous fees and expenses................................................... ---------- Total......................................................................... $ 675,000 ---------- ----------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Certificate of Incorporation, as amended, of the Company contains a provision eliminating the personal liability of the directors to the Company or its stockholders to the fullest extent set forth in Section 102(b)(7) of the Delaware General Corporation Law. The By-laws of the Company provide for indemnification of directors, officers, employees and agents of the Company consistent with the provisions of Section 145 of the Delaware General Corporation Law. The Company has also entered into indemnification agreements with each director and certain executive officers that provide for the maximum protection against liability permitted by law. The indemnification agreements also provide that, to the extent the Company purchases directors and officers insurance, the directors and officers who are parties to such agreements will be covered. The Company, however, has no obligation to purchase such insurance. Reference is also made to Section 9 of the Underwriting Agreement, contained in Exhibit 1 hereto, indemnifying officers and directors of the Company against certain liabilities. Burton J. Kloster, Jr., an outside director of the Company and the nominee of GECC, has entered into a separate indemnification agreement with GECC. Under the agreement, GECC will indemnify Mr. Kloster for losses, liabilities, damages and expenses incurred as a result of his acting properly on behalf of GECC, to the extent such amounts are not recoverable from the Company or any insurer of the Company. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES None. II-1 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 May 6, 1997 *2.2 Asset Purchase Agreement, dated January 9, 1996, among Emhart Industries, Inc., Emhart, Inc. and Operating Company *2.3 (a) Australian Asset Sale Agreement, dated August 9, 1996, among the Vendors (as defined therein), Recoil Inc., RCL Pty. and Operating Company *2.3 (b) US Asset Sale Agreement, dated August 9, 1996, among Recoil Inc., Operating Company, Recoil Pty. Ltd., the Advent Group and the Price Interests (as defined therein) 3.1 Amended and Restated Certificate of Incorporation of the Company 3.2 Amended and Restated By-laws of the Company 4.1 Specimen of Common Stock Certificate 5.1 Opinion of O'Melveny & Myers LLP regarding the legality of the Common Stock to be issued *10.1 Amended and Restated Term Loan Agreement, dated August 12, 1996, between the Company and GECC *10.2 (a) Amended and Restated Credit Agreement, dated August 12, 1996, between Operating Company and GECC *10.2 (b) First Amendment, Consent, and Limited Waiver to Amended and Restated Credit Agreement, dated December 17, 1996, between Operating Company and GECC *10.3 Term Loan Agreement, dated August 12, 1996, between RCL Pty. and GECC *10.4 PIK Dividend Note Agreement, dated January 3, 1994, among the Company, GECC and certain other parties identified therein *10.5 Lease with The Prudential Insurance Co. of America regarding the Fullerton, California facility *10.6 Lease with West L.A. Properties regarding the Placentia, California facility *10.7 Lease with Enfield View Pty. Ltd. regarding the Oakleigh, VIC, Australia facility *10.8 (a) General Terms Agreement, dated September 20, 1996, between the Company and Boeing 10.8 (b) Special Business Provisions, dated September 20, 1996, between the Company and Boeing (portions omitted and filed separately with Commission pursuant to an application for confidential treatment) 10.9 (a) Contract Award Letter of Agreement, dated April 28, 1994, between the Company and Boeing (portions omitted and filed separately with Commission pursuant to an application for confidential treatment) 10.9 (b) Boeing Commercial Airplane Group Purchase Order Terms and Conditions 10.10 Stockholders Agreement, dated as of April , 1997 *21.1 List of Subsidiaries 23.1 Consent of Independent Auditors 23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
II-2
NUMBER DESCRIPTION - ------------ --------------------------------------------------------------------------------------------- *24.1 Powers of Attorney for Jordan A. Law, David A. Werner, and Robert M. Nelson **24.2 Powers of Attorney for Norman A. Barkeley, Burton J. Kloster, Jr., and Richard P. Strubel 27.1 Financial Data Schedule *99.1 Form of 1997 Stock Incentive Plan of the Company *99.2 Form of Employment Agreement for Messrs. Law and Werner *99.3 Form of Employment Agreement for Messrs. Beers, Dack, Berecz and Varholick *99.4 Employment Agreement for Kenneth D. Jones *99.5 Form of Director Indemnification Agreement
(b) Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Commission are provided in the Notes to the Consolidated Financial Statements included elsewhere in this Registration Statement or are not required under the applicable instructions or are inapplicable and therefore have been omitted. - ------------------------ + To be filed by pre-effective amendment. * Previously filed with the initial Registration Statement on February 26, 1997. ** Previously filed with Pre-Effective Amendment No. 1 on April 1, 1997. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company has duly caused this Amendment No. 4 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Orange, State of California on this 4th day of May, 1997. KAYNAR TECHNOLOGIES INC. By: /s/ JORDAN A. LAW -------------------------------------- Jordan A. Law Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ----------------------------------------------- ----------------------------------------------- ---------------- /s/ JORDAN A. LAW Chief Executive Officer and Chairman of the May 4, 1997 - ------------------------------------- Board Jordan A. Law (Principal Executive Officer) /s/ DAVID A. WERNER Executive Vice President and Director May 4, 1997 - ------------------------------------- (Principal Financial Officer) David A. Werner * Controller May 4, 1997 - ------------------------------------- (Principal Accounting Officer) Robert M. Nelson * Director May 4, 1997 - ------------------------------------- Norman A. Barkeley * Director May 4, 1997 - ------------------------------------- Burton J. Kloster, Jr. * Director May 4, 1997 - ------------------------------------- Richard P. Strubel *By: /s/ DAVID A. WERNER -------------------------------- David A. Werner Attorney-in-fact
II-4 EXHIBIT INDEX
NUMBER DESCRIPTION - --------- ----------------------------------------------------------------------------------------------------- +1.1 Form of Underwriting Agreement 2.1 Agreement and Plan of Merger, dated May 6, 1997 *2.2 Asset Purchase Agreement, dated January 9, 1996, among Emhart Industries, Inc., Emhart, Inc. and Operating Company *2.3(a) Australian Asset Sale Agreement, dated August 9, 1996, among the Vendors (as defined therein), Recoil Inc., RCL Pty. and Operating Company *2.3(b) US Asset Sale Agreement, dated August 9, 1996, among Recoil Inc., Operating Company, Recoil Pty. Ltd., the Advent Group and the Price Interests (as defined therein) 3.1 Amended and Restated Certificate of Incorporation of the Company 3.2 Amended and Restated By-laws of the Company 4.1 Specimen of Common Stock Certificate 5.1 Opinion of O'Melveny & Myers LLP regarding the legality of the Common Stock to be issued *10.1 Amended and Restated Term Loan Agreement, dated August 12, 1996, between the Company and GECC *10.2(a) Amended and Restated Credit Agreement, dated August 12, 1996, between Operating Company and GECC *10.2(b) First Amendment, Consent, and Limited Waiver to Amended and Restated Credit Agreement, dated December 17, 1996, between Operating Company and GECC *10.3 Term Loan Agreement, dated August 12, 1996, between RCL Pty. and GECC *10.4 PIK Dividend Note Agreement, dated January 3, 1994, among the Company, GECC and certain other parties identified therein *10.5 Lease with The Prudential Insurance Co. of America regarding the Fullerton, California facility *10.6 Lease with West L.A. Properties regarding the Placentia, California facility *10.7 Lease with Enfield View Pty. Ltd. regarding the Oakleigh, VIC, Australia facility *10.8(a) General Terms Agreement, dated September 20, 1996, between the Company and Boeing 10.8(b) Special Business Provisions, dated September 20, 1996, between the Company and Boeing (portions omitted and filed separately with the Commission pursuant to an application for confidential treatment) 10.9(a) Contract Award Letter of Agreement, dated April 28, 1994, between the Company and Boeing (portions omitted and filed separately with the Commission pursuant to an application for confidential treatment) 10.9(b) Boeing Commercial Airplane Group Purchase Order Terms and Conditions 10.10 Stockholders Agreement, dated as of April , 1997 *21.1 List of Subsidiaries 23.1 Consent of Independent Auditors 23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1) *24.1 Powers of Attorney for Jordan A. Law, David A. Warner, and Robert M. Nelson **24.2 Powers of Attorney for Norman A. Barkeley, Burton J. Kloster, Jr., and Richard P. Strubel 27.1 Financial Data Schedule *99.1 Form of 1997 Stock Incentive Plan of the Company *99.2 Form of Employment Agreement for Messrs. Law and Werner *99.3 Form of Employment Agreement for Messrs. Beers, Dack, Berecz and Varholick *99.4 Employment Agreement for Kenneth D. Jones *99.5 Form of Director Indemnification Agreement
- ------------------------ + To be filed by pre-effective amendment. * Previously filed with the initial Registration Statement on February 26, 1997. ** Previously filed with Pre-Effective Amendment No. 1 on April 1, 1997. EX-2.1 2 AGREEMENT & PLAN OF MERGER AGREEMENT AND PLAN OF MERGER BETWEEN KAYNAR HOLDINGS INC. AND KAYNAR TECHNOLOGIES INC. THIS AGREEMENT is entered into as of May __, 1997, between KAYNAR HOLDINGS INC., a Delaware corporation ("BUYER"), and its wholly-owned subsidiary, KAYNAR TECHNOLOGIES INC., a Delaware corporation ("TARGET"). The parties agree as follows: ARTICLE 1 -- THE MERGER 1.1 THE MERGER. Subject to the conditions of this Agreement, TARGET will merge with and into BUYER (the "Merger"). BUYER will be the surviving corporation, and its Certificate of Incorporation and Bylaws as in effect immediately prior to the Merger will be the Certificate of Incorporation and Bylaws of the surviving corporation, except with respect to the corporate name. 1.2 EFFECTIVE DATE. The Merger will become effective on the date (the "Effective Date") the Certificate of Merger is filed with the Delaware Secretary of State in accordance with Delaware General Corporation Law. 1.3 CONVERSION OF SHARES. On the Effective Date, (i) each outstanding share of Common Stock, par value $.01 per share, of TARGET will be cancelled and TARGET will cease to exist, (ii) each outstanding share of Series A Convertible Preferred Stock, par value $.01 per share, of BUYER will be exchanged for 9.953 shares of Common Stock of BUYER and 58.047 shares of a new class of capital stock of BUYER, Series C Convertible Preferred Stock, par value $.01 per share ("Series C Preferred Stock"), and (iii) each outstanding share of Series B Preferred Stock, par value $.01 per share, of BUYER will be exchanged for 68 shares of Series C Preferred Stock. 1.4 CHANGE OF NAME. Upon the Effective Date, the BUYER, as the surviving entity, will be renamed "Kaynar Technologies Inc." ARTICLE 2 -- REPRESENTATIONS AND WARRANTIES 2.1 DUE AUTHORIZATION, EXECUTION, AND DELIVERY. Each of TARGET and BUYER represents that this Agreement has been duly authorized by their respective boards of directors and stockholders and that this Agreement will be executed and delivered by respective officers thereof as required by Section 251 of the Delaware General Corporation Law. 2.2 LEGAL PROCEEDINGS. Each of TARGET and BUYER represents that (a) there is no pending or threatened judicial or administrative proceeding or investigation affecting it or any of its subsidiaries, that if resolved adversely to it could reasonably be expected to impair its ability to consummate the Merger; and (b) it is not aware of any judicial or administrative decision affecting it or any of its subsidiaries that could reasonably be expected to impair its ability to consummate the Merger. ARTICLE 3 -- COVENANTS 3.1 AFFIRMATIVE COVENANTS. (a) FILINGS AND APPROVALS. Each party will cooperate with the other in the preparation and filing, as soon as possible, of all necessary applications, and other documents with respect to the Merger. (b) STOCKHOLDERS' ACTIONS. Each party will submit this Agreement to its stockholders for approval as soon as practicable after this Agreement is approved by each party's respective board of directors. ARTICLE 4 -- CLOSING PROCEDURES The closing under this Agreement will take place on the Effective Date. 2 ARTICLE 5 -- TERMINATION This Agreement, whether or not approved by the stockholders of BUYER or TARGET, may be terminated on or before the Effective Date unilaterally by action of the board of directors of TARGET or of BUYER. If termination occurs, no party will have any further liability or obligation under this Agreement to the other parties or to any stockholder, director, officer, employee, agent or representative of the other parties. ARTICLE 6 -- MISCELLANEOUS 6.1 NOTICES. Any notice under this Agreement may be orally or in writing and either delivered in person, telexed or telecopied. 6.2 EXPENSES. Each party will pay its own expenses. 6.3 TERMINATION OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of each party will terminate on the Effective Date. 6.4 ASSIGNABILITY. Neither this Agreement nor any rights or obligations under it are assignable. 6.5 GOVERNING LAW. This Agreement will be governed by the laws of the State of Delaware. 6.6 AMENDMENT. This Agreement may be amended in accordance with applicable law. [remainder of the page intentionally left blank] 3 IN WITNESS WHEREOF, Kaynar Holdings Inc. and Kaynar Technologies Inc. have each caused this Agreement to be executed by its authorized officer as of the Effective Date first above written. KAYNAR HOLDINGS INC. KAYNAR TECHNOLOGIES INC. By_______________________ By _______________________ Title: Title: By_______________________ By _______________________ Title: Title: S - 1 EX-3.1 3 AMENDED & RESTATED CERTIFICATE OF INCORP Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF KAYNAR HOLDINGS INC. Kaynar Holdings Inc. (the "Corporation"), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST: The name of the Corporation is Kaynar Holdings Inc. The Corporation was originally incorporated under the name MKQ Acquisition Holding Corp., which was changed in a Certificate of Amendment filed with the Secretary of State of Delaware on December 17, 1993. The original Certificate of Incorporation was filed on October 22, 1993. SECOND: Pursuant to Sections 242 and 245 of the General Corporation Law of Delaware, this Restated Certificate of Incorporation restates, integrates and further amends the Corporation's existing Certificate of Incorporation. THIRD: Pursuant to a resolution of the Corporation's Board of Directors, the stockholders have approved this amendment and restatement by written consent in accordance with Section 228 of the General Corporation Law of Delaware. FOURTH: The text of the existing Certificate of Incorporation is hereby amended and restated to read in its entirety as follows: ARTICLE I The name of the Corporation is Kaynar Holdings Inc. ARTICLE II The name and address of the registered agent of the Corporation in the State of Delaware is: The Corporation Trust Company Corporation Trust Center 1209 Orange Street Wilmington, New Castle County, Delaware ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV The Corporation is authorized to issue two classes of capital stock, designated Common Stock and Preferred Stock. The total number of shares which the Corporation shall have authority to issue is thirty million (30,000,000) shares, consisting of twenty million (20,000,000) shares of Common Stock, par value $0.01 per share ("Common Stock") and ten million (10,000,000) shares of Preferred Stock, par value $0.01 per share ("Preferred Stock"). The express terms and provisions of the shares classified and designated as Series C Convertible Preferred Stock are as follows (and such terms and provisions may be referred to as the "Certificate of Designation" or "Designation" for such series): 1. DESIGNATION. The designation of the series of Preferred Stock created by this Designation shall be Series C Convertible Preferred Stock, $0.01 par value, of the Corporation (hereinafter referred to as "Convertible Preferred"), and the number of shares constituting such series shall be 5,206,000, which number may be increased (but not above the total number of shares of Preferred Stock of the Corporation) or decreased (but not below the number of shares then outstanding) from time to time by the Board of Directors or any authorized committee thereof, and the affirmative vote, to the extent required by the terms of this Designation, of the holders of a majority of the outstanding shares of Convertible Preferred. The Convertible Preferred shall rank prior to the Common Stock with respect to the distribution of assets upon the liquidation, dissolution or winding up of the Corporation. 2. DIVIDEND RIGHTS. Each holder of shares of Convertible Preferred shall be entitled to receive a payment of any dividend or other distribution declared on outstanding shares of Common Stock and payable in cash or other property (including any dividend or distribution payable in securities issued by the Corporation or any other person, other than a dividend payable solely in shares of Common Stock), pari passu with, and at the same time as (with delivery of the same notice, if any), such dividend or other distribution is payable to holders of shares of Common Stock, on the same basis (hereinafter "As Converted Basis") as if the shares of Convertible Preferred held by such person had been converted into shares of Common Stock, and at the 2 Conversion Rate (as defined below), in each case in effect immediately prior to the record date for determining holders of Common Stock of record entitled to receive such dividend or distribution. 3. LIQUIDATION PREFERENCES. (a) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of Convertible Preferred shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders an amount equal to $0.22 per share (the "Liquidation Value") of Convertible Preferred plus an amount equal to any declared but unpaid dividends thereon to and including the date of such distribution, and no more, before any distribution shall be made to the holders of Common Stock or any other class of stock of the Corporation ranking junior to the Convertible Preferred as to the distribution of assets upon any such liquidation, dissolution or winding up. After payment of such liquidating distributions, the holders of shares of Convertible Preferred will not be entitled to any further participation in any distribution of assets by the Corporation. (b) In the event the assets of the Corporation available for distribution to stockholders upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to the Convertible Preferred and any other shares of Preferred Stock ranking on a parity with the Convertible Preferred as to the distribution of assets upon any such liquidation, dissolution or winding up (the "Parity Preferred Stock"), the holders of Convertible Preferred and the holders of such Parity Preferred Stock shall share ratably in any distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. (c) The merger or consolidation of the Corporation into or with any other corporation, the merger or consolidation of any other corporation into or with the Corporation or the sale of the assets of the Corporation substantially as an entirety shall not be deemed a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this Section 3. 4. CONVERSION RIGHTS. The holders of shares of Convertible Preferred shall have the right, at their option, to convert such shares into shares of Common Stock on the following terms and conditions: 3 (a) Each share of Convertible Preferred shall be convertible at any time into one (subject to adjustment as set forth in Section 4(d) below) fully paid and nonassessable shares of Common Stock, $0.01 par value (the "Common Stock"), of the Corporation, with no payment due the Corporation by the holder of such share of Convertible Preferred. No payment or adjustment shall be made on account of any dividends on the shares of Common Stock issued upon such conversion subsequent to the record date for the determination of stockholders entitled to such dividends. (b) In order to convert shares of Convertible Preferred into Common Stock, the holder thereof shall surrender the certificates therefor, duly endorsed if the Corporation shall so require, or accompanied by appropriate instruments of transfer satisfactory to the Corporation, to the Corporation, together with written notice that such holder irrevocably elects to convert such shares of Convertible Preferred. Such notice shall also state the name and address in which such holder wishes the certificate for the shares of Common Stock issuable upon conversion to be issued. As soon as practicable after receipt of the certificates representing the shares of Convertible Preferred to be converted and the notice of election to convert the same, the Corporation shall issue and deliver a certificate for the number of shares of Common Stock issuable upon conversion of the shares of Convertible Preferred surrendered for conversion to the person entitled to receive the same. Shares of Convertible Preferred shall be deemed to have been converted immediately prior to the close of business on the date such shares are surrendered for conversion and notice of election to convert the same is received by the Corporation in accordance with the foregoing provision, and the person entitled to receive the Common Stock issuable upon such conversion shall be deemed for all purposes as the record holder of such Common Stock as of such date. (c) No fractional shares of Common Stock shall be issued upon conversion of any shares of Convertible Preferred. If more than one share of Convertible Preferred is surrendered at one time by the same holder, the number of full shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If the conversion of any shares of Convertible Preferred results in a fractional share of Common Stock, the Corporation shall pay cash in lieu thereof in an amount equal to such fraction multiplied by the closing price, determined as provided in subsection (vi) of Section 4(d) below, on the date on which the shares of Convertible Preferred were duly surrendered for conversion, or if such date is not a trading date, on the next succeeding trading date. 4 (d) The number of shares of Common Stock into which each share of Convertible Preferred may be converted (the "Conversion Rate") shall be adjusted from time to time as follows: (i) In case the Corporation shall pay or make a dividend or other distribution on shares of Common Stock payable in shares of Common Stock, the Conversion Rate in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be adjusted by multiplying such Conversion Rate by a fraction the numerator of which shall be the sum of the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the total number of shares constituting such dividend or other distribution and the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For purposes of this subsection, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Corporation will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Corporation. (ii) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately decreased, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iii) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 4(f) below applies) shall be deemed to be a distribution of such securities to all holders of Common Stock as governed by Section 2 of this Designation (and the effective date of such reclassification shall be deemed to 5 be "the date fixed for the determination of stockholders entitled to receive such distribution"). (iv) The reclassification of Common Stock into securities that include both Common Stock and securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 4(f) below applies) shall be deemed to involve (A) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision became effective" or "the day upon which such combination becomes effective" as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of subsection (ii) above) and (B) a distribution of the securities other than Common Stock to all holders of Common Stock as governed by Section 2 of this Designation (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution"). (v) No adjustment in the Conversion Rate for the Convertible Preferred shall be required unless such adjustment would require an increase or decrease of at least 0.10% in such Conversion Rate; PROVIDED, HOWEVER, that any adjustments which by reason of this subsection (v) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4 shall be made to the nearest one-tenth cent ($0.001) or to the nearest one-thousandth of a share, as the case may be. (e) Whenever the Conversion Rate shall be adjusted as herein provided (i) the Corporation shall forthwith make available a statement describing in reasonable detail the adjustment, the facts requiring such adjustment and the method of calculation used; and (ii) the Corporation shall cause to be mailed by first class mail, postage prepaid, as soon as practicable to each holder of record of shares of Convertible Preferred a notice stating that the Conversion Rate has been adjusted and setting forth the adjusted Conversion Rate. (f) In the event of any consolidation of the Corporation with or merger of the Corporation into any other corporation or a sale, lease or conveyance of the assets of the Corporation as an entirety or substantially as an entirety, or any statutory exchange of securities with another corporation, the holder of each share of Convertible Preferred shall have the right, after 6 such consolidation, merger, sale or exchange to convert such share into the number and kind of shares of stock or other securities, and the amount of cash or other property receivable upon such consolidation, merger, sale or exchange by a holder of the number of shares of Common Stock issuable upon conversion of such shares of Convertible Preferred immediately prior to such consolidation, merger, sale or exchange. No provision shall be made for adjustments in the Conversion Rate. The provisions of this Section 4(f) shall similarly apply to any such successive consolidation, merger, sale or exchange. (g) The Corporation shall pay any taxes that may be payable in respect of the issuance of shares of Common Stock upon conversion of shares of Convertible Preferred, but the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance of shares of Common Stock in the name other than that in which the shares of Convertible Preferred so converted are registered, and the Corporation shall not be required to issue or deliver any such shares unless and until the person requesting such issuance in another name shall have paid to the Corporation the amount of any such taxes, or shall have established to the satisfaction of the Corporation that such taxes have been paid. (h) The Corporation may make such increases in the Conversion Rate, in addition to those required by subsections (i) through (iv) of Section 4(d) above, as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients. (i) The Corporation shall at all times reserve and keep available out of its authorized but unissued Common Stock the full number of shares of Common Stock issuable upon the conversion of all shares of Convertible Preferred then outstanding. (j) In the event that: (i) any capital reorganization of the Corporation, reclassification of the capital stock of the Corporation, consolidation or merger of the Corporation with or into another corporation (other than a merger in which the Corporation is the surviving corporation and the holders of shares of Common Stock do not receive any distribution of cash, other property or other securities as a result thereof), or sale, lease or conveyance of the assets of the Corporation as an entirety or substantially as an entirety to another corporation occurs; or 7 (ii) the voluntary or involuntary dissolution, liquidation or winding up of the Corporation occurs; the Corporation shall cause to be mailed to the holders of record of the Convertible Preferred at least 20 days prior to the applicable date hereinafter specified a notice stating the date on which such reorganization, reclassification, consolidation, merger, sale, lease, conveyance, dissolution, liquidation or winding up is expected to take place, and the date, if any is to be fixed, as of which holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, lease conveyance, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reorganization, reclassification, consolidation, merger, sale, lease, conveyance, dissolution, liquidation or winding up. (k) In the event "beneficial ownership" (as determined pursuant to either Rule 13d-3 or Rule 16a-1(a)(2) adopted under the Securities Exchange Act of 1934, as amended) of one or more shares of Convertible Preferred is acquired by any person other than (i) the original holder of such share or (ii) any "affiliate" (as such term is defined in Rule 144(a) adopted under the Securities Act of 1933) of such original holder, such share or shares shall automatically, and without any further action on behalf of the holder or the Corporation, be converted into shares of the Corporation's Common Stock at the Conversion Rate then in effect, and the certificates evidencing such shares of Convertible Preferred shall thereafter evidence the beneficial ownership of the shares of Common Stock into which such shares of Convertible Preferred were converted; PROVIDED, HOWEVER, that until (i) the holder of the Convertible Preferred so converted advises the Corporation in writing of its acquisition of such shares and (ii) tenders the certificate(s) evidencing the shares of Convertible Preferred that were so converted for reissuance as shares of Common Stock, such shares of Common Stock shall not be deemed outstanding for purposes of any vote taken by holders of Common Stock or for purposes of receiving notice, but shall be deemed outstanding for purposes of receipt of dividends or other distributions in respect of shares of Common Stock. At any time shares of Convertible Preferred are outstanding, the holder of record will identify in writing, upon request of the Corporation, the beneficial owner or owners of such shares. 5. VOTING RIGHTS. Other than as required by applicable law, the Convertible Preferred shall not have any voting powers either general or special, except as follows: 8 (a) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of holders of a majority of all of the shares of the Convertible Preferred, and any one or more other series of Parity Preferred Stock which by its terms provides for similar voting rights and is similarly affected, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of the Convertible Preferred and any such other series of Preferred Stock shall vote together as a separate and single class, shall be necessary for (i) authorizing, adopting, effecting or validating the amendment, alteration or repeal of, or any other change in, any of the provisions of the Certificate of Incorporation or of any amendment or supplement thereto (including this Designation or any other Certificate of Designation or any similar document relating to any series of Preferred Stock hereinafter proposed to be authorized by action of the Board of Directors) or the Bylaws of the Corporation, which adversely affects the holders of the Convertible Preferred or such other Parity Preferred Stock; (ii) any voluntary or involuntary dissolution, liquidation or winding up of the Corporation; (iii) any merger, consolidation or other reorganization of the Corporation with or into another corporation or any other legal entity as a result of which (A) shares of Common Stock or (B) shares of the Convertible Preferred or such other Parity Preferred Stock in either case, are converted into, or will be entitled to receive, other securities or cash or other property (including securities of a different issuer); or (iv) any sale, lease or other conveyance, in one or more related series of transactions, of all or substantially all of the assets of the Corporation. (b) Unless the affirmative vote or consent of holders of a majority of all of the Convertible Preferred at the time outstanding, given in person or by proxy, either in writing or by vote at a meeting called for the purpose of such vote at which the holders of the Convertible Preferred shall vote as a single class, the Corporation shall not (i) issue or agree in writing to issue (whether or not such agreement is conditioned upon obtaining the affirmative vote of holders of a majority of the Convertible Preferred at the time outstanding) shares of Common Stock, or any option, warrant or other right to acquire shares of Common Stock, or any security convertible into or exchangeable for shares of Common Stock or another security convertible into or exchangeable for shares of Common Stock (whether or not then so exercisable or convertible, or only exercisable or convertible with the passage of time or the occurrence of some event or satisfaction of some condition) by the terms thereof (hereinafter a "Common Stock Equivalent"), if as a result of such issuance the aggregate number of the shares of Common Stock and Common Stock Equivalents then outstanding, when added to the number of shares 9 of Common Stock or Common Stock Equivalents proposed to be issued or which are the subject of the proposed agreement, would exceed the sum of (A) 7,608,400 plus (B) the number of shares of Common Stock issued by the Corporation and sold pursuant to the Underwriting Agreement between the Corporation, Lehman Brothers Inc. and others entered into in April 1997, (ii) issue or agree in writing to issue (whether or not such agreement is conditioned upon obtaining the affirmative vote of holders of a majority of the Convertible Preferred at the time outstanding) any shares of any class or series of Preferred Stock, or (iii) repurchase or redeem, or agree to repurchase or redeem (whether or not such agreement is conditioned upon obtaining the affirmative vote of holders of a majority of the Convertible Preferred at the time outstanding), in any single or related series of transactions, an aggregate number of shares of Common Stock and/or Common Stock Equivalents which exceeds ten percent (10%) of the aggregate number of shares of Common Stock plus Common Stock Equivalents at the time outstanding. (c) The special voting rights set forth in subsections (a) and (b) of this Section 5 shall terminate and cease to be effective at all times thereafter on the close of business on the date that the number of shares of Common Stock issuable upon conversion in full of all outstanding shares of Convertible Preferred at the Conversion Rate in effect on such date would constitute less than twenty-five percent (25%) of the sum of (i) the total number of shares of Common Stock then actually outstanding, (ii) the total number of shares of Common Stock which would be issued upon conversion of all shares of Convertible Preferred then outstanding at the Conversion Rate in effect on such date, plus (iii) the maximum number of shares of Common Stock which would be issued if all Common Stock Equivalents (other than Common Stock Equivalents in respect of the Convertible Preferred) then exercisable or convertible, or exercisable or convertible within 60 days of such date, were exercised or converted in full as of such date. 6. REACQUIRED SHARES. Shares of Convertible Preferred converted, redeemed, or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series. 7. NO SINKING FUND. Shares of Convertible Preferred are not subject to the operation of a sinking fund or other obligation of the Corporation to redeem or retire the Convertible Preferred. 8. NO IMPAIRMENT. Other than in connection with or as a result of any action (including amendment to this Certificate) which has been authorized or approved by vote of holders of a 10 majority of the Convertible Preferred, the Corporation shall not take any action or enter into any transaction or agreement which has the effect of avoiding the observance or performance of any of the terms to be observed or performed hereunder by the Corporation. ARTICLE V A. The Board of Directors is authorized, subject to applicable law, to issue the shares of Preferred Stock in one or more classes and series and to fix from time to time before issuance the number of shares to be included in any class or series and the designation, relative powers, preferences and rights and qualifications, limitations or restrictions of all shares of such classes or series. B. Without limiting the generality of the foregoing, as to each class and series of Preferred Stock, the Board of Directors is authorized from time to time to fix or alter, to the extent permitted by any Preferred Stock Designation (as defined below) and applicable law, the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences, rights to subscribe for or purchase any securities of the Corporation or any other corporation, and the number of shares constituting and as shall be stated in a resolution or resolutions providing for the issuance of such Preferred Stock ("Preferred Stock Designation"). C. The Board of Directors may increase (but not above the total number of authorized shares of Preferred Stock) or decrease the number of authorized shares in any class or series of Preferred Stock after the issue of shares of that class or series, but not below the number of shares outstanding. Should the number of shares be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such class or series. D. The number of authorized shares of Preferred Stock may be increased or decreased, but not below the number of shares then outstanding, by the affirmative vote of the holders of each class or series of Preferred Stock, but only to the extent permitted to vote by the applicable Preferred Stock Designation. E. Each holder of Common Stock entitled to vote shall have one vote for each share thereof held. F. Except as may be provided by the Board of Directors in a Preferred Stock Designation or by applicable law, the Common Stock shall have the exclusive right to vote for the 11 election of directors and for all other purposes, and holders of Preferred Stock shall not be entitled to receive notice of any meeting of stockholders at which they are not entitled to vote or consent. G. The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law. ARTICLE VI Subject to any voting rights or limitations set forth in a Preferred Stock Designation, and in furtherance and not in limitation of the powers conferred by the General Corporation Law of Delaware, the Bylaws of the Corporation may be adopted, repealed, and amended only by (1) the Board of Directors or (2) by majority vote of the holders of the outstanding shares of Common Stock. ARTICLE VII A. The number of directors shall consist of not less than one (1) director and not more than nine (9) directors, or such greater number as is provided in the following paragraph. The Board of Directors shall consist of five (5) directors, until the exact number is changed from time to time within the foregoing limits by, or in such manner as may be provided in, the Bylaws. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, pursuant to the applicable Preferred Stock Designation, to elect directors by voting separately as a class or series at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of such Preferred Stock Designation. B. Subject to any rights granted to holders of Preferred Stock pursuant to a Preferred Stock Designation, any director may be removed with or without cause only by a majority vote of the holders of Common Stock. ARTICLE VIII A. If, at any time, no one Person (as defined below) beneficially owns securities constituting twenty-five percent 12 (25%) or more of the Outstanding Common Stock on a Fully Diluted Basis (as defined below), (i) all actions by stockholders of the Corporation thereafter must be taken at either annual or special meetings of stockholders and (ii) stockholders may not act by written consent. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust or unincorporated organization. "Outstanding Common Stock on a Fully Diluted Basis" means the sum of (i) the total number of shares of Common Stock then actually outstanding, (ii) the total number of shares of Common Stock which would be issued upon conversion of all shares of the Corporation's Series C Convertible Preferred Stock, par value $0.01 per share ("Convertible Preferred"), then outstanding at the conversion rate in effect on such date, plus (iii) the maximum number of shares of Common Stock which would be issued if all options, warrants or other rights to acquire shares of Common Stock, or any security convertible into or exchangeable for shares of Common Stock or another security convertible into or exchangeable for shares of Common Stock by the terms thereof ("Common Stock Equivalents") (other than Common Stock Equivalents in respect of the Convertible Preferred) then exercisable or convertible, or exercisable or convertible within 60 days of such date, were exercised or converted in full as of such date. B. No vote at any meeting of stockholders need be by written ballot unless the Bylaws shall otherwise provide or the Board of Directors, in its discretion, or the officer of the Corporation presiding at the meeting, in his or her discretion, specifically directs the use of a written ballot. ARTICLE IX The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by applicable law and all rights conferred on stockholders herein are subject to this reservation. ARTICLE X A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of Delaware as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal. 13 ARTICLE XI Meetings of stockholders may be held within or without the State of Delaware as the Bylaws may provide. The books, documents and papers of the Corporation may be kept, subject to applicable law, outside the State of Delaware at places as may be designated from time to time by the Board of Directors or the Bylaws. ARTICLE XII All of the powers of the Corporation, insofar as the same may be lawfully vested by this Certificate of Incorporation in the Board of Directors, are hereby conferred upon the Board of Directors of the Corporation. ARTICLE XIII Notwithstanding any contrary provision in applicable law, the Corporation shall not be governed by the provisions of Section 203 of the General Corporation Law of Delaware. ARTICLE XIV Upon the filing in the Office of the Secretary of State of the State of Delaware of this Amended and Restated Certificate of Incorporation, each share of Common Stock issued and outstanding immediately prior to such filing shall be reclassified and changed into sixty-eight (68) shares of Common Stock. Each holder of Common Stock shall be entitled to receive such number of whole shares of Common Stock resulting from such stock split. 14 IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been signed by David A. Werner, its authorized officer this _____ day of May, 1997. ---------------------------------------- Title: Executive Vice President 15 EX-3.2 4 AMENDED & RESTATED BYLAWS AMENDED AND RESTATED BYLAWS OF KAYNAR HOLDINGS INC. (a Delaware corporation) Dated as of March 26, 1997 ARTICLE I STOCKHOLDERS Section 1.1. ANNUAL MEETING. The annual meeting of stockholders for the election of Directors and the transaction of such other business as may properly come before such meeting shall be held on such date as shall be determined by resolution of the Board of Directors, at such time and place, within or without the State of Delaware, as shall be determined by resolution of the Board of Directors. If the day fixed for the annual meeting is a legal holiday, such meeting shall be held on the next succeeding business day. If the election of Directors shall not be held on the day designated herein for the annual meeting of stockholders, or at any adjournment thereof, the Board of Directors shall cause such election to be held at a special meeting of stockholders to be called as soon thereafter as is convenient. Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders may be called by the Chairman of the Board of Directors or, if none, the President, or by the holders of 25% or more of the outstanding shares of Common Stock. Special meetings of stockholders may be held at such time and place, within or without the State of Delaware, as specified in the call of any such special meeting. If not otherwise designated, the place of any special meeting shall be the principal office of the Corporation in the State of California. Section 1.3. NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written notice of every meeting of stockholders, stating the place, date, time and purposes thereof, shall, except when otherwise required by the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation") or applicable state law, be given at least ten but not more than 60 days prior to such meeting to each stockholder of record entitled to vote thereat, in the manner set forth in SECTION 11.1 of these Bylaws, by or at the direction of the President or the Secretary or other person or persons authorized to call such a meeting. Any meeting at which a quorum of stockholders is present, in person or by proxy, may be adjourned from time to time without notice, other than announcement at such meeting, until its business shall be completed. At such adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, written notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat as above provided. Section 1.4. QUORUM. Except as otherwise provided by the laws of the State of Delaware or other applicable state law, a majority of the shares of capital stock of the Corporation entitled to vote on the matters to be voted on at the meeting of stockholders, represented in person or by proxy, shall constitute a quorum at any meeting of stockholders, notwithstanding the subsequent withdrawal of enough stockholders to leave less than a quorum. If at any meeting a quorum shall not be present, the chairman of such meeting shall, if approved by the affirmative vote of a majority of the shares of capital stock of the Corporation so represented, adjourn such meeting to another time and/or place without notice other than announcement at such meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, written notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat as above provided. At such adjourned meeting, if a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting, notwithstanding that a subsequent withdrawal of stockholders may leave less than a quorum remaining. Section 1.5. VOTING. Unless otherwise provided by these Bylaws or the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of capital stock of the Corporation held of record. If a quorum shall be present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the question shall be the act of the stockholders, unless the vote of a greater number or voting by classes is required by applicable state law, the Certificate of Incorporation, any Certificate of Designation adopted by the Board of Directors with respect to a class or series of Preferred Stock, or these Bylaws. Section 1.6. PROXIES. (a) At every meeting of stockholders, each stockholder having the right to vote thereat shall be entitled to vote in person or by proxy. Such proxy shall be filed with the Secretary before or at the time of the meeting. No proxy shall be valid after three years from its date, unless such proxy provides for a longer period. (b) A stockholder may authorize another person or persons to act for such stockholder as proxy (i) by executing a writing authorizing such person or persons to act as such, which execution may be accomplished by such stockholder or such stockholder's authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means, including, but not limited to, facsimile signature, or (ii) by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic 2 transmission (a "Transmission") to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such Transmission; PROVIDED, HOWEVER, that any such Transmission must either set forth or be submitted with information from which it can be determined that such Transmission was authorized by such stockholder. The Secretary or such other person or persons as shall be appointed from time to time by the Board of Directors shall examine Transmissions to determine if they are valid. If it is determined that a Transmission is valid, the person or persons making that determination shall specify the information upon which such person or persons relied. Any copy, facsimile telecommunication or other reliable reproduction of such a writing or such a Transmission may be substituted or used in lieu of the original writing or Transmission for any and all purposes for which the original writing or Transmission could be used; PROVIDED, HOWEVER, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or Transmission. Section 1.7. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date shall be adopted by the Board of Directors, and which record date shall not be more than 60 nor fewer than ten days before the date of such meeting. If no such record date shall have been fixed by the Board of Directors, such record date shall be at the close of business on the day next preceding the day on which such notice is given or, if such notice is waived, at the close of business on the day next preceding the day on which such meeting shall be held. A determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders shall apply to any adjournment of such meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or any allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of any capital stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date shall be adopted by the Board of Directors, and which record date shall not be more than 60 days prior to such payment, allotment or other action. If no such record date shall have been fixed, such record date shall be at the close of business on the day on which the Board of Directors shall have adopted the resolution relating to such payment, allotment or other action. 3 Section 1.8. STOCKHOLDER LIST. The Secretary or any other officer who has charge of the stock ledger of the Corporation, either directly or through a transfer agent or transfer clerk appointed by the Board of Directors, shall prepare, at least ten days prior to every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to such meeting, during ordinary business hours, during a period of not fewer than ten days prior to such meeting, either at a place within the city where such meeting is to be held, which place shall be specified in the notice of such meeting, or, if not so specified, at the place where such meeting is to be held. The list shall also be produced and kept at the time and place of such meeting during the whole time thereof, and may be inspected by any stockholder that is present. Such stock ledger shall be the only evidence as to the identity of the stockholders entitled to examine such stock ledger, such list or the books of the Corporation or to vote in person or by proxy at any meeting of stockholders. Section 1.9. VOTING OF SHARES BY CERTAIN HOLDERS. (a) Shares of capital stock of the Corporation standing in the name of another corporation, domestic or foreign, and entitled to vote may be voted by such officer, agent or proxy as the bylaws of such other corporation may prescribe or, in the absence of such provision, as the board of directors of such other corporation may determine. (b) Shares of capital stock of the Corporation standing in the name of a deceased person, a minor, an incompetent or a corporation declared bankrupt and entitled to vote may be voted by an administrator, executor, guardian, conservator or trustee, as the case may be, either in person or by proxy, without transfer of such shares into the name of the official so voting. (c) A stockholder whose shares of capital stock of the Corporation are pledged shall be entitled to vote such shares unless the pledger has expressly empowered the pledgee to vote such shares, in which case only the pledgee, or such pledgee's proxy, may represent such shares and vote thereon. (d) Shares of capital stock of the Corporation belonging to the Corporation, or to another corporation if a majority of the shares entitled to vote in the election of directors of such other corporation shall be held by the Corporation, shall not be voted at any meeting of stockholders and shall not be counted in determining the total number of outstanding shares for the purpose of determining whether a quorum is present. Nothing in this SECTION 1.9 shall be construed to limit the right of the Corporation to vote shares of capital stock of the Corporation held by it in a fiduciary capacity. 4 Section 1.10. ADVANCE NOTICE OF STOCKHOLDER BUSINESS. Unless otherwise permitted under the Certificate of Incorporation or a Certificate of Designation, at any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the President or Secretary or other person or persons authorized to call such a meeting or (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the meeting date is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the meeting date was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as the appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting except in accordance with the procedures set forth in this Section 1.10. The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1.10, and if he or she should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. The provisions of this Section 1.10 shall not apply to actions taken by written consent of the stockholders. ARTICLE II DIRECTORS Section 2.1. GENERAL POWERS. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Section 2.2. NUMBER, ELECTION AND TERM OF OFFICE OF DIRECTORS. The Board of Directors shall consist of five Directors. Directors shall be elected annually by the stockholders as provided by SECTIONS 1.1 or 1.5 of these Bylaws and as may be provided by 5 the Certificate of Incorporation. Each Director elected shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her earlier death, or resignation or removal pursuant to Article IV. Directors need not be residents of the State of Delaware or stockholders of the Corporation. Section 2.3. NOMINATION OF DIRECTORS. (a) The names of qualified individuals may be placed in nomination for election as directors by the affirmative vote of a majority of the directors then serving on the Board of Directors. The Board of Directors shall submit to the stockholders for their consideration for election as directors the names of the individuals so nominated. (b) Any nomination by a stockholder must be made by written notice to the Secretary delivered or mailed to the principal executive offices of the Corporation (1) not less than sixty (60) days nor more than ninety (90) days prior to the meeting, or (2) if less than seventy (70) days notice or prior public disclosure of the meeting date is given or made to the stockholders, not later than the close of business on the tenth day following the day on which the notice of the meeting was mailed, or if earlier, the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth (1) as to each person whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of stock of the Corporation which are beneficially owned by such person (as determined for the purposes of the Regulations under Section 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), and (D) such other information relating to such person that would be required to be disclosed in solicitations of proxies for the election of such person as a director of the Corporation pursuant to Regulation 14A under the Exchange Act and (2) as to the stockholder giving notice (A) the name and address, as they appear on the Corporation's records, of such person and (B) the class and number of shares beneficially owned (as determined by clause (1)(C) above) by such stockholder. (c) At the request of the Board of Directors, any person nominated under Section 2.3(b) shall deliver within ten (10) days a signed, written acknowledgement of the willingness of such person to serve as a director, and confirming the accuracy of the information set forth in the stockholder's notice referred to in Section 2.3(b)(1). The chairman of the meeting at which a stockholder's nomination is presented shall, if the facts so warrant, determine and declare to the meeting that such nomination was not made in accordance with the procedures described in this Section 2.3, and in such event the defective nomination shall be disregarded. Section 2.4. PLACE OF MEETINGS. Meetings of the Board of Directors may be held at such places, within or without the 6 State of Delaware, as the Board of Directors may from time to time determine or as may be specified in the call of any such meeting. Section 2.5. REGULAR MEETINGS. A regular annual meeting of the Board of Directors shall be held, without call or notice, immediately after and at the same place as the annual meeting of stockholders, for the purpose of organizing the Board of Directors, electing officers and transacting any other business that may properly come before such meeting. Additional regular meetings of the Board of Directors may be held without call or notice at such times as shall be fixed by resolution of the Board of Directors. Section 2.6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors or, if none, the President, or by any Director. Notice of each special meeting shall be mailed by the Secretary to each Director at least two days before such meeting, or be given by the Secretary personally or by telegraph or telecopy at least 24 hours before such meeting, in the manner set forth in SECTION 11.1 of these Bylaws. Such notice shall set forth the date, time and place of such meeting but need not, unless otherwise required by applicable state law, state the purpose of such meeting. Section 2.7. QUORUM AND VOTING. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. The act of the majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, unless otherwise provided by applicable state law, the Certificate of Incorporation or these Bylaws. A majority of the Directors present at any meeting at which a quorum shall be present may adjourn such meeting to any other date, time or place without further notice other than announcement at such meeting. If at any meeting a quorum shall not be present, a majority of the Directors present may adjourn such meeting to any other date, time or place without notice other than announcement at such meeting. Section 2.8. TELEPHONIC MEETINGS. Members of the Board of Directors or of any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or such committee through conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and participation in any meeting conducted pursuant to this SECTION 2.8 shall constitute presence in person at such meeting. Section 2.9. COMPENSATION. Unless otherwise restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of Directors. The Directors shall be paid their reasonable expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof and may be paid a fixed sum for attendance at each such meeting and an annual retainer or salary for services as a Director 7 or committee member. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 2.10. PRESUMPTION OF ASSENT. Unless otherwise provided by applicable state laws, a Director who is present at a meeting of the Board of Directors or a committee thereof at which action is taken on any corporate matter shall be presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of such meeting or unless he or she shall file his or her written dissent to such action with the person acting as secretary of such meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary immediately after the adjournment of such meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. Section 2.11. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or any committee thereof, may be taken without a meeting if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or such committee. Section 2.12. PRESIDING OFFICER. The presiding officer at any meeting of the Board of Directors shall be the Chairman of the Board of Directors or, in his or her absence and if a Director, the President. If neither the Chairman nor the President is present, then any other Director elected chairman by vote of a majority of the Directors present at such meeting shall preside. Section 2.13. EXECUTIVE COMMITTEE. The Board of Directors may, in its discretion, by resolution passed by a majority of the entire Board of Directors, designate an Executive Committee consisting of such number of Directors (not less than three) as the Board of Directors shall determine. The Executive Committee shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation with respect to any matter which may require action prior to, or which in the opinion of the Executive Committee may be inconvenient, inappropriate or undesirable to be postponed until, the next meeting of the Board of Directors; PROVIDED, HOWEVER, that the Executive Committee shall not have the power or authority of the Board of Directors in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of such a dissolution, amending these Bylaws, declaring a dividend, authorizing the issuance of capital stock of the Corporation or adopting a certificate of ownership and merger. Any member of the 8 Board of Directors may request the chairman of the Executive Committee to call a meeting of the Executive Committee with respect to a specified subject. Section 2.14. OTHER COMMITTEES. The Board of Directors may from time to time, in its discretion, by resolution passed by a majority of the entire Board of Directors, designate other committees of the Board of Directors consisting of such number of Directors (not less than two) as the Board of Directors shall determine, which shall have and may exercise such lawfully delegable powers and duties of the Board of Directors as shall be conferred or authorized by such resolution. The Board of Directors shall have the power to change at any time the members of any such committee, to fill vacancies and to dissolve any such committee. Section 2.15. ALTERNATES. The Board of Directors may from time to time designate from among the Directors alternates to serve on any committee of the Board of Directors to replace any absent or disqualified member at any meeting of such committee. Whenever a quorum cannot be secured for any meeting of any committee from among the regular members thereof and designated alternates, the member or members of such committee present at such meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another Director to act at such meeting in place of any absent or disqualified member. Section 2.16. QUORUM AND MANNER OF ACTING - COMMITTEES. A majority of the members of any committee of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of such committee, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of such committee. Section 2.17. COMMITTEE CHAIRMAN, BOOKS AND RECORDS, ETC. The chairman of each committee of the Board of Directors shall be selected from among the members of such committee by the Board of Directors. Each committee shall keep a record of its acts and proceedings, and all actions of each committee shall be reported to the Board of Directors at its next meeting. Each committee shall fix its own rules of procedure not inconsistent with these Bylaws or the resolution of the Board of Directors designating such committee and shall meet at such times and places and upon such call or notice as shall be provided by such rules. Section 2.18. RELIANCE UPON RECORDS. Every Director, and every member of any committee of the Board of Directors, shall, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or 9 committees of the Board of Directors, or by any other person as to matters the Director or member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, including, but not limited to, such records, information, opinions, reports or statements as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid, or with which the Corporation's capital stock might properly be purchased or redeemed. Section 2.19. INTERESTED DIRECTORS. The presence of a Director, who is directly or indirectly a party in a contract or transaction with the Corporation, or between the Corporation and any other corporation, partnership, association or other organization in which such Director is a director or officer or has a financial interest, may be counted in determining whether a quorum is present at any meeting of the Board of Directors or a committee thereof at which such contract or transaction is discussed or authorized, and such Director may participate in such meeting to the extent permitted by applicable law, including Section 144 of the General Corporation Law of the State of Delaware. ARTICLE III OFFICERS Section 3.1. NUMBER AND DESIGNATION. The officers of the Corporation shall be a President, one or more Vice Presidents, a Secretary and a Treasurer, and such Assistant Secretaries, Assistant Treasurers or other officers or agents as may be elected or appointed by the Board of Directors. The Board of Directors may, if it so determines, choose a Chairman of the Board of Directors from among its members. The Board of Directors is also authorized to create any other appropriate office and to elect or appoint officers thereto. Any two or more offices may be held by the same person unless the Certificate of Incorporation or these Bylaws provide otherwise. Section 3.2. ELECTION AND TERM OF OFFICE. The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after the election of Directors. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her earlier death, or resignation or removal pursuant to Article IV. 10 Section 3.3. PRESIDENT. The President shall be the chief executive officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation. The President may execute, alone or with the Secretary or any other officer of the Corporation authorized by the Board of Directors, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors or a committee thereof has authorized to be executed, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or a committee thereof or by these Bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise executed, and in general he or she shall perform all duties incident to the office of President and such other duties as from time to time may be prescribed by the Board of Directors or a committee thereof. Section 3.4. THE VICE PRESIDENTS. In the absence of the President or in the event of his or her inability or refusal to act, the Vice President (or in the event there shall be more than one Vice President, the Vice Presidents in the order determined by the Board of Directors or, if there shall have been no such determination, then in the order of their election) shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may also designate certain Vice Presidents as being in charge of designated divisions, plants or functions of the Corporation's business and add appropriate descriptions to their titles. In addition, any Vice President shall perform such duties as from time to time may be assigned to him or her by the President or the Board of Directors. Section 3.5. THE SECRETARY. The Secretary shall (a) keep the minutes of proceedings of the stockholders, the Board of Directors and any committee of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) affix the seal of the Corporation or a facsimile thereof, or cause it to be affixed, and, when so affixed, attest the seal by his or her signature, to all certificates for shares of capital stock of the Corporation prior to the issue thereof and to all other documents the execution of which on behalf of the Corporation under its seal is duly authorized by the Board of Directors or otherwise in accordance with the provisions of these Bylaws; (e) keep a register of the post office address of each stockholder, Director or committee member, which shall be furnished to the Secretary by such stockholder, Director or member; (f) have general charge of the stock transfer books of the Corporation; and (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the President or the Board of Directors. 11 Section 3.6. THE TREASURER. The Treasurer shall have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article VI of these Bylaws, disburse the funds of the Corporation as ordered by the Board of Directors or the President or as otherwise required in the conduct of the business of the Corporation and render to the President or the Board of Directors, upon request, an accounting of all his or her transactions as Treasurer and a report on the financial condition of the Corporation. The Treasurer shall in general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the President or the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond (which shall be renewed regularly), in such sum and with such surety or sureties as the Board of Directors shall determine, for the faithful discharge of his or her duties and for the restoration to the Corporation, in case of his or her death, resignation or removal pursuant to Article IV, or retirement from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. Section 3.7. ASSISTANT TREASURERS AND SECRETARIES. In the absence of the Secretary or the Treasurer, as the case may be, or in the event of his or her inability or refusal to act, the Assistant Secretaries and the Assistant Treasurers, respectively, in the order determined by the Board of Directors (or if there shall have been no such determination, then in the order of their election), shall perform the duties and exercise the powers of the Secretary or the Treasurer, as the case may be. In addition, the Assistant Secretaries and the Assistant Treasurers shall, in general, perform such duties as may be assigned to them by the President, the Secretary, the Treasurer or the Board of Directors. Each Assistant Treasurer shall, if required by the Board of Directors, give a bond (which shall be renewed regularly), in such sum and with such surety or sureties as the Board of Directors shall determine, for the faithful discharge of his or her duties. Section 3.8. SALARIES. The salaries of the officers and agents of the Corporation shall be fixed from time to time by the Board of Directors or by such officer as it shall designate for such purpose. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the Corporation. 12 ARTICLE IV RESIGNATIONS AND REMOVAL Section 4.1. RESIGNATIONS. Any director, officer or agent of the Corporation may, subject to contrary provision in any applicable contract, resign at any time by giving written notice to the Board of Directors or the President, or the Secretary of the Corporation, and any member of any Committee may resign at any time by giving notice either as aforesaid or to the Committee of which he or she is a member or to the chairman thereof. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Section 4.2. REMOVALS. (a) Except as otherwise required by the applicable state law or the Certificate of Incorporation, any director may be removed, with or without cause, by the affirmative vote of the holder of holders of shares possessing a majority of the voting power of the outstanding shares of the Corporation entitled to vote in the election of directors. (b) Any officer, employee or agent or member of any Committee may be removed at any time, with or without cause, by the affirmative vote of the holder of holders of shares possessing a majority of the voting power of the outstanding shares of the Corporation entitled to vote in the election of directors, such removal to take effect forthwith or at such other time as may be specified in such vote. (c) The Board of Directors may also at any time remove, with or without cause and without reference to or action by stockholders, any officer, employee, agent or member of any Committee, whether or not elected, appointed by it or hired with its approval or otherwise. (d) Any such removal shall be without prejudice to any rights the person removed shall have under existing contracts, agreements or arrangements with the Corporation. ARTICLE V VACANCIES Section 5.1. AMONG DIRECTORS. Except as otherwise required by the Certificate of Incorporation of the Corporation or applicable state law, any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled for the remainder of the unexpired term by the affirmative vote of a majority of the directors then serving on the Board of Directors, although less than a quorum. Except as otherwise required by the Certificate of Incorporation of the 13 Corporation or applicable state law, when one or more directors shall resign from the Board of Directors, effective at the future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this SECTION 5.1 for the filling of other vacancies. Section 5.2. AMONG OFFICERS, ETC. If the office of the President, any Vice President, the Secretary or the Treasurer or of any other officer, employee or agent or member of any Committee, become vacant at any time by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, such vacancy or vacancies shall be filled by the Board of Directors or as authorized by it. ARTICLE VI CONTRACTS, LOANS, CHECKS, AND DEPOSITS Section 6.1. CONTRACTS. The Board of Directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 6.2. LOANS. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in the name of the Corporation unless authorized by or pursuant to a resolution adopted by the Board of Directors. Such authority may be general or confined to specific instances. Section 6.3. CHECKS, DRAFTS. ETC. All checks, drafts or other orders for payment of money issued in the name of the Corporation shall be signed by such officers, employees or agents of the Corporation as shall from time to time be designated by the Board of Directors, the President or the Treasurer. Section 6.4. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as shall be designated from time to time by the Board of Directors, the President or the Treasurer; and such officers may designate any type of depository arrangement (including, but not limited to, depository arrangements resulting in net debits against the Corporation) as may from time to time be offered or made available. 14 ARTICLE VII CERTIFICATES OF STOCK AND THEIR TRANSFER Section 7.1. CERTIFICATES OF STOCK. Shares of capital stock of the Corporation shall be represented by certificates which shall be in such form as may be determined by the Board of Directors, shall be numbered and shall be entered on the books of the Corporation as they are issued. Such certificates shall indicate the holder's name and the number of shares evidenced thereby and shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. If any stock certificate shall be manually signed (a) by a transfer agent or an assistant transfer agent or (b) by a transfer clerk acting on behalf of the Corporation and a registrar, the signature of any officer of the Corporation may be facsimile. In case any such officer whose facsimile signature has been used on any such stock certificate shall cease to be such officer, whether because of death, resignation or removal pursuant to Article IV, or otherwise, before such stock certificate shall have been delivered by the Corporation, such stock certificate may nevertheless be delivered by the Corporation as though the person whose facsimile signature has been used thereon had not ceased to be such officer. Section 7.2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors in individual cases, or by general resolution or by delegation to the transfer agent for the Corporation, may direct that a new stock certificate or certificates for shares of capital stock of the Corporation be issued in place of any stock certificate or certificates theretofore issued by the Corporation claimed to have been lost, stolen or destroyed, upon the filing of an affidavit to that effect by the person claiming such loss, theft or destruction. When authorizing such an issuance of a new stock certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to such issuance, require the owner of such lost, stolen or destroyed stock certificate or certificates to advertise the same in such manner as the Corporation shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the stock certificate or certificates claimed to have been lost, stolen or destroyed. Section 7.3. TRANSFERS OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a stock certificate for shares of capital stock of the Corporation duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer or, if the relevant stock certificate for shares of capital stock of the Corporation is claimed to have been lost, stolen or destroyed, upon compliance with the provisions of SECTION 7.2 of these Bylaws, and upon payment of applicable taxes with respect to such transfer, and in compliance with any restrictions on transfer applicable to such stock certificate or the shares represented thereby of which the 15 Corporation shall have notice and subject to such rules and regulations as the Board of Directors may from time to time deem advisable concerning the transfer and registration of stock certificates for shares of capital stock of the Corporation, the Corporation shall issue a new stock certificate or certificates for such shares to the person entitled thereto, cancel the old stock certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the Corporation by the registered holder thereof or by such holder's attorney or successor duly authorized as evidenced by documents filed with the Secretary or transfer agent of the Corporation. Whenever any transfer of shares of capital stock of the Corporation shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the stock certificate or certificates representing such shares are presented to the Corporation for transfer, both the transferor and transferee request the Corporation to do so. Section 7.4. STOCKHOLDERS OF RECORD. The Corporation shall be entitled to treat the holder of record of any share of capital stock of the Corporation as the holder thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by applicable state law. ARTICLE VIII GENERAL PROVISIONS Section 8.1. FISCAL YEAR. The fiscal year of the Corporation shall be as determined by resolution of the Board of Directors. Section 8.2. SEAL. The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL" and "DELAWARE"; and it shall otherwise be in the form approved by the Board of Directors. Such seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or otherwise reproduced. ARTICLE IX OFFICES Section 9.1. REGISTERED OFFICE. The registered office of the Corporation in the State of Delaware shall be located at The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware. The name of the Corporation's registered agent at such address is The Corporation Trust Company. 16 Section 9.2. OTHER OFFICES. The Corporation may have offices at such other places, both within or without the State of Delaware, as shall be determined from time to time by the Board of Directors or as the business of the Corporation may require. ARTICLE X INDEMNIFICATION Section 10.1. GENERAL. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application 17 that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (c) To the extent that a Director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b) of this SECTION 10.1, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. (d) Any indemnification under paragraphs (a) and (b) of this SECTION 10.1 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in paragraphs (a) and (b) of this SECTION 10. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested Directors so directs, by independent legal counsel designated by a majority of such disinterested Directors in a written opinion or (iii) by the stockholders. (e) Expenses (including attorneys' fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation pursuant to this Article X. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, bylaw, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. (g) For purposes of this Article X, references to the "Corporation" shall include, in addition to the resulting or surviving corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees 18 or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article X with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. (h) For purposes of this Article X, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves service by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article X. (i) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article X shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. Section 10.2. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of Section 145 of the General Corporation Law of the State of Delaware or other applicable state law. ARTICLE XI NOTICES Section 11.1. MANNER OF NOTICE. Except as otherwise provided by law, whenever under the provisions of applicable state law, the Certificate of Incorporation or these Bylaws notice is required to be given to any stockholder, Director or member of any committee of the Board of Directors, such notice may be given by personal delivery or by depositing it, in a sealed envelope, in the 19 United States mails, air mail or first class, postage prepaid, addressed, or by delivering it to a telegraph company, charges prepaid, for transmission, or by transmitting it via telecopier, to such stockholder, Director or member either at the address of such stockholder, Director or member as it appears on the books of the Corporation or, in the case of such a Director or member, at his or her business address; and such notice shall be deemed to be given at the time when it is thus personally delivered, deposited, delivered or transmitted, as the case may be. Such requirement for notice shall also be deemed satisfied, except in the case of stockholder meetings with respect to which written notice is required by law, if actual notice is received orally or by other writing by the person entitled thereto as far in advance of the event with respect to which notice is being given as the minimum notice period required by applicable state law or these Bylaws. Whenever notice is required to be given under any provision of the laws of the State of Delaware or other applicable state law, the Certificate of Incorporation or these Bylaws to any stockholder to whom (i) notice of two consecutive annual meetings of stockholders, and all notices of meetings of stockholders or of the taking of action by stockholders by written consent without a meeting to such stockholder during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities of the Corporation during a 12-month period, have been mailed addressed to such stockholder at the address of such stockholder as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such stockholder shall not be required. Any action or meeting which shall be taken or held without notice to such stockholder shall have the same force and effect as if such notice had been duly given. If any such stockholder shall deliver to the Corporation a written notice setting forth the then current address of such stockholder, the requirement that notice be given to such stockholder shall be reinstated. Section 11.2. WAIVER OF NOTICE. Whenever any notice is required to be given under any provision of the laws of the State of Delaware or other applicable state law, the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to such notice. Attendance by a person at a meeting, including participation by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, shall constitute a waiver of notice of such meeting, except when such person attends such meeting for the express purpose of objecting, at the beginning of such meeting, to the transaction of any business because such meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of stockholders, the Board of Directors or a committee of the Board of Directors need be specified in any 20 written waiver of notice unless so required by applicable state law, the Certificate of Incorporation or these Bylaws. ARTICLE XII DIVIDENDS The Board of Directors may from time to time declare, and the Corporation may pay, dividends, in cash, in property or in shares of capital stock of the Corporation, on its outstanding shares of capital stock in the manner and upon the terms and conditions provided by law and by the Certificate of Incorporation. ARTICLE XIII AMENDMENTS Except to the extent otherwise provided in the Certificate of Incorporation or these Bylaws, these Bylaws shall be subject to alteration, amendment or repeal, and new Bylaws may be adopted (i) by the affirmative vote of the holders of not less than a majority of the voting power of all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of Directors or (ii) by the affirmative vote of not less than a majority of the entire Board of Directors at any meeting of the Board of Directors at which there is a quorum present and voting. 21 EX-4.1 5 SPECIMEN OF STOCK CERTIFICATE [LOGO] NUMBER SHARES KT KAYNAR TECHNOLOGIES INC. INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS OF THE STATE OF DELAWARE CUSIP 486605 10 8 This Certifies that is the record holder of FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF KAYNAR TECHNOLOGIES INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. CERTIFICATE OF STOCK Dated: /s/ D.A. Werner [SEAL] /s/ Jordan A. Law SECRETARY PRESIDENT COUNTERSIGNED AND REGISTERED TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE
The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation's Secretary at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- .............Custodian............. TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act ............................... in common (State) UNIF TRF MIN ACT -- .........Custodian (until age......) (Cust) ............under Uniform Transfers (Minor) to Minors Act ..................... (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, __________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- __________________________________________________________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) __________________________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________ Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint __________________________________________________________________________________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated _________________________________________________ X __________________________________________________________________________ X __________________________________________________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By_________________________________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15. - ---------------------------------------------------- AMERICAN BANK NOTE COMPANY APR 14, 1997 fm 3504 ATLANTIC AVENUE SUITE 12 LONG BEACH, CA 90807 050052bk (562) 989-2333 (FAX) (562) 426-7450 Proof /s/ Illegible NEW - ----------------------------------------------------
EX-5.1 6 O'MELVENY & MYERS CONSENT May 5th 1 9 9 7 (213) 669-6000 445,876-009 LA1-744465 Kaynar Technologies Inc. Kaynar Holdings Inc. 500 N. State College Boulevard Suite 1000 Orange, California 92868 Re: Registration Statement on Form S-1 ---------------------------------- Ladies and Gentlemen: At your request, we have examined the above-referenced Registration Statement on Form S-1, SEC File No. 333-22345 (the "Registration Statement"), filed by you with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of 2,000,000 shares (2,300,000 if the over-allotment option is exercised in full) of your Common Stock, $0.01 par value (the "Shares"). We are familiar with the proceedings heretofore taken, and with the additional proceedings proposed to be taken, by you in connection with the authorization and proposed issuance and sale of the Shares. Page 2 - Kaynar Technologies Inc. - May 5, 1997 It is our opinion that, subject to said proceedings being duly taken and completed by you prior to the issuance and sale of the Shares, upon the issuance and sale thereof in the manner referred to in the Registration Statement, the Shares will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and we further consent to the use of our name under the caption "Legal Matters" in the Registration Statement and the Prospectus which forms a part thereof. Respectfully submitted, O'MELVENY & MYERS LLP EX-10.8(B) 7 SPECIAL BUSINESS PROVISIONS SPECIAL BUSINESS PROVISIONS SPECIAL BUSINESS PROVISIONS between THE BOEING COMPANY and KAYNAR TECHNOLOGIES INCORPORATED Number STD-65751-025 ------------- ** Filed under an application for confidential treatment. i 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. For Product on Attachment 1A of Boeing's requirements shall be purchased from Seller. If Seller maintains performance for Product on Attachment 1a as measured by Boeing. If Seller fails to maintain for Product on Attachment 1A. Boeing. Such Products shall be shipped at any scheduled rate of delivery, as determined by Boeing, and Seller shall see to Boeing Boeing's requirements of such Products, provided that, without limitation on Boeing's right to determine its requirements. Boeing shall not be obligated to issue any Orders for any given Product if: * A. * B. Such Product is, in Boeing's reasonable judgment, not technologically competitive at any time, for reasons including but not limited to the * C. Boeing gives reasonable notice to Seller of a change in any of Boeing's aircraft which will result in Boeing no longer requiring such Product for such aircraft: * D. Seller has materially defaulted in any of its obligations under any Order, whether or not Boeing has issued a notice of default to Seller pursuant to GTA Section 13.0; or, * E. Seller cannot support Boeing's requirements for Products in the amounts and within the delivery schedules Boeing requires.* 11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY Seller shall provide all necessary cost support data, source documents for direct and indirect costs, and assistance at the Seller's facility for cost performance reviews performed by Boeing pursuant to any Order. Furthermore, Seller shall provide financial data, on a quarterly basis, or as requested, to Boeing's Credit Office and Materiel Representative for credit and financial condition reviews. Said data shall include but not be limited to balance sheets, schedule of accounts payable and receivable, major lines of credit, creditors, income statements (profit and loss), cash flow statements, firm backlog, and headcounts. Copies of such data are to be made available within 72 hours of any written request by Boeing. This data is required in addition to the cost data provided pursuant to GTA Section 9.0. All such information shall be treated as confidential in accordance with GTA Section 20.0. * Confidential portions omitted and filed separately with the Commission. 4 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(A) 8 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. ** Filed under an application for confidential treatment. 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-10.9(B) 9 BOEING TERMS AND CONDITIONS Exhibit 10.9(b) BOEING COMMERCIAL AIRPLANE GROUP PURCHASE ORDER TERMS AND CONDITIONS 1. ACCEPTANCE. This Order is Buyer's offer to Seller, and acceptance is strictly limited to its terms. Buyer shall not be bound by and specifically objects to any term or condition whatsoever which is different from or in addition to the provisions of this Order. Whether or not such term or condition will materially alter this Order. Seller's commencement of performance, or acceptance of this Order, in any manner shall conclusively evidence agreement to this Order, as written. 2. DEFINITIONS. Whenever used in this Order, (a) "Customer" means any customer of Buyer, any subsequent owner, operator or user of the Goods, and any other individual, partnership, corporation or person or entity which has or acquires any interest in the Goods from, through or under Buyer: (b) "FAR" means the United States Government Federal Acquisition Regulations: (c) "Goods" means all of the goods, services, documents, data, software and other information or items furnished or to be furnished to Buyer under this Order: and (d) "Order" means this purchase order, including the provisions on its face, these Purchase Order Terms and Conditions, and all of the specifications, technical descriptions, statements of work, drawings, designs, documents, and other requirements and provisions attached to, incorporated into or otherwise made a part of this purchase order by Buyer. 3. SHIPMENT/DELIVERY. Shipments or deliveries, as specified in this Order, shall be strictly in accordance with: the specified quantities, without shortage or excess: the specified schedules, neither ahead of nor behind schedule: and the other requirements of this Order. Seller shall promptly notify Buyer in writing of any anticipated or actual delay, the reasons therefor, and the actions being taken by Seller to overcome or minimize the delay. If requested by Buyer, Seller shall, at Seller's expense, ship Goods via air or other fast mode of transportation to avoid or minimize the delay to the maximum extent possible. 4. PACKING AND SHIPPING. Seller shall prepare and pack the Goods to prevent damage and deterioration, and shall comply with carrier tariffs. Charges for preparation, packing, crating and cartage are included in the price unless separately specified in the Order. Goods sold F.O.B. place of shipment shall be forwarded collect. Seller shall make no declaration concerning value of Goods shipped, except for Goods on which tariff rating is dependent upon released or declared value, in which event Seller shall release or declare such value at maximum value within the lowest rating. 5. INVOICE AND PAYMENT. Seller shall issue a separate invoice for each delivery and shall not issue any invoice prior to the Order schedule date or actual delivery date, whichever is later. Payment will be made after receipt of Goods and correct invoice. Unless freight or other charges are itemized, any discount may be taken on the full amount of invoice. Payment due date, including discount periods, shall be computed from the date of receipt of Goods or correct invoice (whichever is later) or the date Buyer's check is mailed or otherwise tendered. Seller shall promptly repay to Buyer any amounts paid in excess of amounts due Seller. 6. EXAMINATION OF RECORDS. Seller shall maintain complete and accurate records showing the sales volume of all Goods. Such records shall support all services performed, allowances claimed and costs incurred by Seller in the performance of the Order, including but not limited to those factors which comprise or affect direct labor hours, direct labor rates, material costs, burden rates and subcontracts. Such records and other data shall be capable of verification through audit and analysis by Buyer and shall be available to Buyer at Seller's facility for Buyer's examination and audit at all reasonable times from the date of the Order until three (3) years after final payment under the Order. Seller shall provide assistance to interpret such data if required by Buyer. Such examination shall provide Buyer with complete information regarding Seller's performance for use in price negotiations with Seller relating to existing or future orders for Goods (including but not limited to negotiation of equitable adjustments pursuant to Clause 11, "CHANGES," and Clause 12, "TERMINATION FOR CONVENIENCE"). Buyer shall treat such information as confidential. 7. INSPECTION. Buyer's acceptance of Goods shall be subject to Buyer's final inspection within a reasonable time after receipt at destination, notwithstanding any payment or prior test or inspection. In addition, Buyer and the Federal Aviation Administration (if nondomestic an equivalent government agency) may inspect and evaluate Seller's plant, including but not limited to facilities, systems, equipment, testing, data, personnel and all work-in-process and completed goods manufactured for installation on Buyer's airplanes. No inspection, test or prior approval or acceptance, and no delay or failure to inspect, test or give prior approval or acceptance, or failure to discover any defect or other noncompliance, shall relieve Seller of any of its obligations nor impair any rights or remedies of Buyer or Customers. 8. REJECTION. Buyer may reject or revoke acceptance ("rejection" herein) of any or all Goods, including any tender thereof which are not strictly in conformance with all of the requirements of this Order, and shall notify Seller of such rejection by notice, rejection tag or other communication. At Seller's risk and expense, all such Goods will be returned to Seller for immediate Seller repair, replacement or other correction and redelivery to Buyer: provided, however, that with respect to any or all such Goods, at Buyer's election and at Seller's risk and expense, Buyer may: (a) hold, retain or return such Goods, without permitting any repair, replacement or other correction by Seller: (b) hold or retain such Goods for repair by Seller or, at Buyer's election, for repair by Buyer with such assistance from Seller as Buyer may require: (c) hold such Goods until Seller has delivered conforming replacements for such Goods: (d) hold such Goods until conforming replacements are obtained from a third party: or (e) return such Goods with instructions to Seller as to whether the Goods shall be repaired or replaced and as to the manner of redelivery. All repair, replacement and other correction and redelivery shall be completed within such time as Buyer may require. All costs and expenses and loss of value incurred as a result of or in connection with nonconformance and repair, replacement or other correction may be recovered from Seller by equitable price reduction, setoff or credit against any amounts which may be owed to Seller under this Order or otherwise. 9. WARRANTIES. Seller warrants to Buyer and Customers that Goods shall: (a) conform in all respects to all of the requirements of this Order: (b) be free from all defects in materials and workmanship: and (c) to the extent not manufactured pursuant to detailed designs furnished by Buyer, be free from all defects in design and be fit for the intended purposes. 10. INDEMNITY/INFRINGEMENT. Seller shall indemnify, defend, and save Buyer and Customers harmless from all claims, suits, actions, awards (including but not limited to awards based on intentional infringement of patents known to Seller at the time of such infringement and those exceeding actual damages and/or including attorneys' fees), liabilities, damages, costs and attorneys' fees related to the actual or alleged infringement of any United States or foreign intellectual property right (including but not limited to any right in a patent, copyright, industrial design or semiconductor mask work, or based on misappropriation or wrongful use of information of documents) and arising out of the manufacture, sale or use of Goods by Buyer or Customers, Buyer and/or Customers shall duly notify Seller of any such claim, suit or action: and Seller shall, at its own expense, fully defend such claim, suit or action on behalf of Buyer and/or Customers. Seller shall have no obligation under this clause with regard to any infringement arising from: (a) Seller's compliance with formal specifications issued by Buyer where infringement could not be avoided in complying with such specifications or (b) use or sale of Goods in combination with other items when such infringement would not have occurred from the use or sale of those Goods solely for the purpose for which they were designed or sold by Seller. For purposes of this Clause 10 only, the term Customer shall not include the U.S. Government and the term Buyer shall include The Boeing Company (Boeing) and all Boeing subsidiaries and all officers, agents, and employees of Boeing or any Boeing subsidiary. 11. CHANGES. Buyer's Materiel Representative may from time to time direct changes in writing within the general scope of this Order in any one or more of the following: (a) technical requirements and descriptions, specifications, statements of work, drawings or designs: (b) shipment or packing methods: (c) place of delivery, inspection of acceptance: (d) reasonable adjustments in quantities or delivery schedules or both: and (e) amount of Buyer-furnished property. Seller shall comply immediately with such direction and avoid unnecessary costs related thereto. If any such change causes an increase or decrease in the cost of or the time required for performance of this Order, an equitable adjustment in the prices and schedules of this Order shall be made to reflect such increase or decrease, and this Order shall be modified in writing accordingly. Unless otherwise agreed in writing, any Seller claim for adjustment must be delivered to Buyer in writing within thirty (30) days after Seller's receipt of such direction. Seller shall make available for Buyer's examination relevant books and records to verify Seller's claim for adjustment. Failure of Buyer and Seller to agree upon any adjustment shall not excuse Seller from performing in accordance with such direction. If Seller considers the conduct of any of Buyer's employees to have constituted a change hereunder: Seller shall notify Buyer immediately in writing as to the nature of such conduct and its effect upon Seller's performance. Pending direction from Buyer's Materiel Representative, Seller shall take no action to implement any such change. 12. TERMINATION FOR CONVENIENCE. Buyer may terminate this Order in whole or from time to time in part, effective as of the date specified by Buyer, in accordance with the provisions of FAR 52.249-2 (APR 1984: without Alternates), which provisions are incorporated herein by reference. In FAR 52.249-2, "Government" and "Contracting Officer" shall mean Buyer: "Contractor" shall mean Seller and "this Contract" and "the Contract" shall mean this Order. All references to one (1) year in paragraph (d) of such clause are changed to six (6) months, and all references to a "Disputes" clause are deleted. 13. CANCELLATION FOR DEFAULT. Buyer may cancel this Order in whole or from time to time in part, effective as of the date specified by Buyer. In accordance with the (CONTINUED ON REVERSE SIDE) provisions of FAR 52.249-8 (APR 1984: without Alternates), which provisions are incorporated herein by reference, in the event of any Seller default, or in the event of Seller's suspension of business, insolvency, reorganization or arrangement or liquidation proceedings, assignment for the benefit of creditors or Seller's trustee in bankruptcy or Seller as debtor in possession not assuming this Order pursuant to a Federal Bankruptcy Court's approval within sixty (60) days after the bankruptcy petition was filed, or appointment or a receiver for Seller's property. In FAR 52.249-8, "Government" and "Contracting Officer," shall mean Buyer except in paragraph (e). "Contractor" shall mean Seller, "this Contract" and "the Contract" shall mean this Order, and all references to a "Disputes" clause are deleted. If Buyer and Seller fail to agree on the amount to be paid for manufacturing materials referred to in paragraph (e) of FAR 52.249-8, the amount shall be the reasonable value thereof but shall not exceed that portion of the price of this Order which is reasonably allocable to such materials. 14. RESPONSIBILITY FOR PERFORMANCE. Buyer's issuance of this Order is based in part on Buyer's reliance on Seller's ability, expertise and awareness of the intended use of Goods, and Seller's continuing compliance with all applicable laws and regulations during the performance of this Order. Further, Seller shall not, by contract, operation of law, or otherwise, assign any of its rights or interest in this Order (including but not limited to any right to monies due or to become due), delegate any of its duties or obligations under this Order, or subcontract all or substantially all of its performance of this Order to one or more third parties, without Buyer's prior written consent. No assignment, delegation or subcontracting by Seller with or without Buyer's consent shall relieve Seller of any of its obligations under this Order. Buyer may unilaterally assign any rights or title to property under this Order to any wholly owned subsidiary of The Boeing Company. Seller shall have a continuing obligation to promptly notify Buyer of any violation of or deviation from Seller's approved inspections quality control system and to advise Buyer of the quantity and specific identity of any Goods delivered to Buyer during the period of any such violation or deviation. 15. PUBLICITY. Seller shall not, and shall require that its subcontractors and suppliers (of any tier) shall not, cause or permit to be released any publicity, advertisement, news release, public announcement, or denial or confirmation of same, in whatever form, regarding any aspect of this Order or the Goods or program to which they pertain without Buyer's prior written approval. 16. COMPLIANCE WITH LAWS. Seller shall be responsible for complying with all laws, including, but not limited to, any statute, rule, regulation, judgment, decree, order or permit applicable to its performance under this Order. Seller further agrees (1) to notify Buyer of any obligation under this Order which is prohibited under any applicable environmental law, at the earliest opportunity but in all events sufficiently in advance of Seller's performance of such obligation so as to enable the identification of alternative methods of performance, and (2) to notify Buyer at the earliest possible opportunity of any aspect of its performance which becomes subject to additional environmental regulation or which Seller reasonably believes will become subject to additional environmental regulation during performance of this Order. 17. RESPONSIBILITY FOR PROPERTY. Unless otherwise specified, upon delivery to Seller or manufacture or acquisition by Seller of any materials, parts, tooling, data or other property, title to which is in Buyer. Seller assumes the risk of and shall be responsible for any loss thereof or damage thereto. In accordance with the provisions of this Order, but in any event upon completion thereof. Seller shall return such property to Buyer in the condition in which it was received except for reasonable wear and tear and except for such property as has been reasonably consumed in the performance of this Order. 18. CONFIDENTIAL, PROPRIETARY, AND/OR TRADE SECRET INFORMATION AND ITEMS. Buyer and Seller shall each keep confidential and protect from disclosure all (a) confidential, proprietary, and/or trade secret information: (b) tangible items containing, conveying, or embodying such information: and (c) tooling obtained from and/or belonging to the other in connection with this Order (collectively referred to as "Proprietary Materials"). Buyer and Seller shall each use Proprietary Materials of the other only in the performance of and for the purpose of this Order. Provided, however, that despite any other obligations or restrictions imposed by this Clause 18, Buyer shall have the right to use and disclose Seller's Proprietary Materials for purposes of testing, certification, use, sale, or support of any item delivered under an Order or any airplane including such an item: and any such disclosure by Buyer shall, whenever appropriate, include a restrictive legend suitable to the particular circumstances. The restrictions on disclosure or use of Proprietary Materials by Seller shall apply to all materials derived by Seller or others from Buyer's Proprietary Materials. Upon Buyer's request at any time, and in any event upon the completion, termination or cancellation of this Order. Seller shall return all of Buyer's Proprietary materiels, and all materials derived from Buyer's Proprietary Materials, to Buyer unless specifically directed otherwise in writing by Buyer. Seller shall not, without the prior written authorization of Buyer, sell or otherwise dispose of (as scrap or otherwise) any materials containing, conveying, embodying, or made in accordance with or by reference to any Proprietary Materials of Buyer. Prior to disposing of such materials as scrap, Seller shall render the materials unusable. Buyer shall have the right to audit Seller's compliance with this Clause 18. Seller may disclose Proprietary Materials of Buyer to its subcontractors as required for the performance of this Order, provided that each such subcontractor first assumes, by written agreement, the same obligations imposed on Seller under this Clause 18 relating to such Proprietary Materials; and Seller shall be liable to Buyer for any breach of such obligation by such subcontractor. The provisions of this Clause 18 are effective in lieu of, and will apply notwithstanding the absence of, any restrictive legencs or notices applied to Proprietary Materials: and the provisions of this Clause 18 shall survive the performance, completion, termination or cancellation of this Order. This Clause 18 supersedes and replaces any and all prior agreements and understandings between the parties to the extent that such agreements or understandings cover confidential, proprietary, and/or trade secret information, or tangible items containing, conveying, or embodying such information, related to any Goods, regardless of whether disclosed to the receiving party before or after the effective date of these Purchase Order Terms and Conditions. 19. INTEGRITY IN PROCUREMENT. Buyer's policy is to maintain high standards of integrity in procurement. Buyer's employees must ensure that no favorable treatment compromises their impartiality in the procurement process. Accordingly, Buyer's employees must strictly refrain from soliciting or accepting any payment, gift, favor, or thing of value which could improperly influence their judgment with respect to either issuing a purchase order or administering this Order. Consistent with this policy, Seller agrees not to provide or offer to provide any employee of Buyer any payment, gift, favor, or thing of value for the purpose of improperly obtaining or regarding favorable treatment in connection with any purchase order of this Order. Seller shall conduct its own procurement practices, and shall ensure that its suppliers conduct their procurement practices, consistent with these standards. If Seller has reasonable grounds to believe that this policy may have been violated, Seller shall immediately report such possible violation to the appropriate Director of Materiel or Division Chief Counsel of Buyer. 20. NONWAIVER AND PARTIAL INVALIDITY. Any and all failure, delay or forbearance of Buyer in insisting upon or enforcing at any time any of the provisions of this Order, or in exercising any rights or remedies under this Order, shall not be construed as a waiver or relinquishment of any such provisions, rights or remedies in those or any other instances: rather, the same shall be and remain in full force and effect. Further, if any provision of this Order is or becomes void or unenforceable by law, the remainder shall be valid and enforceable. 21. GOVERNMENT REQUIREMENTS. Within Seller's invoice or other form satisfactory to Buyer, Seller shall certify that Goods covered by this Order were produced in compliance with Sections 6, 7 and 12 of the Fair Labor Standards Act as amended, and the regulations and orders of the U.S. Department of Labor issued thereunder Paragraph (b) of the Equal Opportunity clause set forth in FAR 52.222-26. FAR 52.222-35, Affirmative Action for Special Disabled and Vietnam Era Veterans, and FAR 52.222-38, Affirmative Action for Handicapped Workers, are incorporated herein by reference, except that "Contractor" shall mean Seller in such FAR clauses. The appearance of a U.S. Government agency prime contract number on the face of this Order incorporates into this Order, without further notice of action, Boeing Form D1 4100 4050, entitled "Additional Terms and Conditions-Government Contracts." 22. GOVERNING LAW. This Order and the performance thereof shall be governed by the law of the State of Washington, U.S.A., exclusive of the choice of law rules thereof. 23. ENTIRE AGREEMENT. This Order sets forth the entire agreement, and supersedes any and all other agreements, understandings and communications between Buyer and Seller related to the subject matter of this Order. No amendment or modification of this Order shall be binding upon Buyer unless set forth in a written instrument signed by Buyer's Materiel Representative. The rights and remedies afforded to Buyer or Customers pursuant to any provision of this Order are in addition to any other rights and remedies afforded by any other provisions of this Order, by law or otherwise. EX-10.10 10 STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT This Stockholders Agreement (this "AGREEMENT"), dated as of May __, 1997, is entered into by and among Kaynar Technologies Inc., a Delaware corporation formerly known as Kaynar Holdings Inc. (the "COMPANY"), General Electric Capital Corporation, a New York corporation ("GECC"), Jordan A. Law, David A. Werner, LeRoy A. Dack, Robert L. Beers, the Berecz Family Trust, Joseph Varholick and the Blomberg Family Trust (each individually a "MANAGEMENT STOCKHOLDER" and collectively, the "MANAGEMENT STOCKHOLDERS"). WHEREAS, immediately following the execution of this Agreement, the Company will make an initial public offering (the "OFFERING") of 2,000,000 shares of its Common Stock, par value $.01 per share (the "COMMON STOCK"); WHEREAS, GECC is the beneficial owner of 5,406,000 shares of Series C Convertible Preferred Stock, par value $.01 per share, of the Company (the "SERIES C PREFERRED STOCK"), which is convertible into shares of Common Stock at one-to-one conversion rate, subject to certain adjustments set forth in the Certificate of Designations (as defined below); WHEREAS, immediately prior to the Offering, GECC will convert 200,000 shares of Series C Preferred Stock into 200,000 shares of Common Stock, all of which will be sold in the Offering; WHEREAS, the Management Stockholders beneficially own 1,394,000 shares of Common Stock in the aggregate; WHEREAS, the parties hereto desire to set forth their agreement as to certain matters regarding the nomination of Directors of the Company, tag-along transfer rights and registration rights granted to the Series C Preferred Stock; and NOW THEREFORE, in consideration of the promises, covenants and agreements contained herein, the sufficiency and adequacy of which are hereby acknowledged, and for other good and valuable consideration, the sufficiency and adequacy of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. OTHER DEFINITIONS AND USAGE. As used in this Agreement: 1.1 OTHER DEFINITIONS. (a) "AFFILIATE" means, as to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (b) "BOARD OF DIRECTORS" means the Board of Directors of the Company. (c) "CERTIFICATE OF DESIGNATIONS" means the Certificate of Designations relating to the Series C Preferred Stock. (d) "COMMON STOCKHOLDERS" means all owners of the outstanding shares of Common Stock. (e) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (f) "FULLY DILUTED SHARES" means, at any given time, the sum of (i) the outstanding Common Stock and (ii) the shares of Common Stock issuable upon conversion or exercise of all outstanding convertible securities, options and warrants convertible into, or exercisable for, Common Stock at that time or within sixty days thereafter. (g) "PERSON" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust or unincorporated organization. (h) "REGISTRABLE SECURITIES" means (i) Common Stock issuable or issued upon conversion of Series C Preferred Stock, (ii) any Common Stock held by a Management Stockholder and (iii) any Common Stock theretofore issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Series C Preferred Stock or the Common Stock described in items (i) and (ii) above. (i) "REGISTRATION EXPENSES" means all expenses incurred by the Company in complying with Section 4 hereof, including all registration and filing fees, printing expenses, fees and disbursements of counsel and independent accountants for the Company, blue sky fees and expenses, the fees and other costs and 2 expense of any special audits incident to or required by any such registration and the fees and other costs and expenses of any "independent" underwriter required by the rules and regulations of the National Association of Securities Dealers, Inc.; provided, however, that if any such independent underwriter is required because the underwriter selected by the Series C Stockholder is an Affiliate of, or otherwise related to, any Stockholder, such fees and other costs and expenses of the independent underwriter shall be Selling Expenses. (j) "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement or document by the Securities and Exchange Commission. (k) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. (l) "SELLING EXPENSES" means all underwriting discounts, selling commissions and underwriters' expense allowances applicable to the sale of Registrable Securities. (m) "SERIES C STOCKHOLDER" means GECC (so long as it owns any Series C Preferred Stock), together with any Affiliate of GECC to whom GECC Transfers any shares of Series C Preferred Stock in accordance with the Certificate of Designations. (n) "STOCKHOLDER" means any Person that owns any shares of the outstanding Common Stock or Series C Preferred Stock. (o) The number of shares of Registrable Securities "THEN OUTSTANDING" shall be the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock which upon issuance of then exercisable or convertible securities will be, Registrable Securities. (p) "TRANSFER" shall mean (and correlative words shall have correlative meanings) the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security); PROVIDED, HOWEVER, that any transfer or other disposition upon foreclosure by a secured creditor after an event of default under or with respect to a pledge, hypothecation or other transfer as security shall constitute a "Transfer". 3 1.2. USAGE. (a) References to a Person are also references to its assigns and successors in interest (by means of merger, consolidation or sale of all or substantially all the assets of such Person or otherwise, as the case may be). (b) References to shares of capital stock "owned" by a Stockholder shall include shares of capital stock beneficially owned by such Person but which are held of record in the name of a nominee, trustee, custodian or other agent. (c) References to a document are to it as amended, waived and otherwise modified from time to time and references to a statute or other governmental rule are to it as amended and otherwise modified from time to time (and references to any provision thereof shall include references to any successor provision). (d) References to Sections are to sections hereof, unless the context otherwise requires. (e) The definitions set forth herein are equally applicable both to the singular and plural forms and the feminine, masculine and neuter forms of the terms defined. (f) The term "including" and correlative terms shall be deemed to be followed by "without limitation" whether or not followed by such words or words of like import. (g) The term "hereof" and similar terms refer to this Agreement as a whole. (h) The "date of" any notice or request given pursuant to this Agreement shall be determined in accordance with SECTION 6. (i) The terms "day" and "days" refer to calendar days unless preceded by the term "business". SECTION 2. NOMINATION OF DIRECTORS. (a) So long as the number of shares of Common Stock issuable upon conversion in full of the outstanding Series C Preferred Stock held by the Series C Stockholder represents 40% or more of the number of Fully Diluted Shares, (i) GECC shall have the right each year to designate, by written notice thereof to the Company, two individuals (who are each legally, mentally and physically capable of serving) for the Company to nominate for election to the Board of Directors at the Company's annual meeting, and the Company shall so nominate such individuals in accordance with its Bylaws and (ii) each of the Company's Audit and Compensation Committees shall include both directors so 4 designated by GECC. GECC shall deliver any such written notice at least 60 days prior to the date set for the election of directors (or if not theretofore notified by the Company of such date, at least 60 days prior to the first anniversary of the Company's most recent annual meeting). (b) So long as the number of shares of Common Stock issuable upon conversion in full of the outstanding Series C Preferred Stock held by the Series C Stockholder represents 25% or more (but less than 40%) of the number of Fully Diluted Shares, (i) GECC shall have the right each year to designate, by written notice thereof to the Company, one individual (who is legally, mentally and physically capable of serving) for the Company to nominate for election to the Board of Directors at the Company's annual meeting, and the Company shall so nominate such individual in accordance with the Company's Bylaws and (ii) each of the Company's Audit and Compensation Committees shall include the director who was so designated by GECC. GECC shall deliver any such written notice at least 60 days prior to the date set for the election of directors (or if not theretofore notified by the Company of such date, at least 60 days prior to the first anniversary of the Company's most recent annual meeting). (c) At any time the Series C Stockholder is entitled to designate two or one nominees for the Board of Directors pursuant to Section 2(a) or 2(b), as the case may be, the Company shall identify any such nominee as the designee of the Series C Stockholder in any proxy statement, information statement or other document delivered to the Common Stockholders in which such nominees are named. (d) The rights granted to the Series C Stockholder pursuant to this Section 2 may not be, directly or indirectly, assigned or transferred. SECTION 3. CERTAIN TRANSFER RIGHTS. 3.1. DELIVERY OF TRANSFER NOTICE. If the Series C Stockholder proposes to Transfer, in one transaction or a series of related transactions, to one Person or "group" (as defined in Rule 13d-5 promulgated under the Exchange Act) of Persons, Series C Preferred Stock, Common Stock or other securities representing, in the aggregate, more than 40% of the Fully Diluted Shares, and the Transferee or Transferee group is not an Affiliate of the Series C Stockholder, the Series C Stockholder shall deliver to the Company a notice that sets forth: (i) the aggregate number of shares of Common Stock to be Transferred (the "Offered Shares"); (ii) the proposed date, time and, if known, place of Transfer; (iii) the amount and form of consideration to be received in the aggregate and on a per-share basis by the Transferring Person (before deduction for the expenses of Transfer) or, if the amount and form of consideration are not then definite, an estimate (identified as such) of the range of consideration being 5 negotiated; (iv) the identity and address(es) of the Transferee or Transferees; (v) any other material terms and conditions of the Transfer, together with copies of any then-available Transfer documents (or the latest draft thereof) related thereto (a "TRANSFER NOTICE"). 3.2. RIGHTS. The Series C Stockholder shall not make any Transfer of the type described in Section 3.1 unless the proposed Transferee has agreed, in writing with the Company, to offer to acquire all of the outstanding Common Stock of the Company for the same per-share price (comprised of the same per share form(s) of consideration), and upon the same terms and conditions, as such offerer purchases shares from the Series C Stockholder (as required to be set forth in the Transfer Notice). Any such offer made by the proposed Transferee must remain open for at least 30 days after receipt of the offer by the last of the Stockholders to receive the offer in accordance with Section 6. For this purpose, any tender offer by the offeror would commence upon publication in accordance with Rule 14(d)-2 promulgated under the Exchange Act. SECTION 4. REGISTRATION RIGHTS. 4.1 DEMAND REGISTRATION RIGHTS. (a) If the Company shall receive, at any time after the expiration of that certain Agreement, dated as of April __, 1997, between GECC and the Representatives (as defined therein) (the "Lock-up Agreement"), (i) a written request from the Series C Stockholder that the Company file a registration statement under the Securities Act covering the registration of at least 5% of the Registrable Securities then outstanding (or any lesser percentage if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed $4,000,000) and (ii) a list of the jurisdictions in which the Series C Stockholder intends to attempt to qualify such securities under applicable state securities laws, the Company shall promptly give written notice of such request to all Management Stockholders and shall as soon as practicable file a registration statement and use its best efforts (subject to the limitations of this SECTION 4) to effect the registration under the Securities Act of the proposed Transfer of all such Registrable Securities which the Series C Stockholder requests to be registered, together with all of the Registrable Securities of any Management Stockholders who so request by notice to the Company which is given within 30 days after the notice from the Company described above. Notwithstanding the foregoing, if the Company shall furnish to the Series C Stockholder a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to file a registration statement shall be 6 deferred for a period not to exceed 90 days (or, at the option of the Series C Stockholder, withdrawn without constituting a demand). (b) If the Series C Stockholder intends to distribute the Registrable Securities covered by its request by means of an underwriting through an underwriter selected by the Series C Stockholder, it shall so advise the Company as a part of its request made pursuant to this SECTION 4, and the Company shall include such information in the written notice referred to in SECTION 4.1(a). In such event, the right of any Management Stockholder to include its Registrable Securities in such registration shall be conditioned upon such Management Stockholder's participation in such underwriting and the inclusion of such Management Stockholder's Registrable Securities in the underwriting (unless otherwise mutually agreed by the Series C Stockholder, the underwriter, the Company and such Management Stockholder) to the extent permitted herein. (c) The Series C Stockholder and all Management Stockholders proposing to distribute their Registrable Securities through such underwriting (together with the Company as provided in SECTION 4.3(e)) shall enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the Series C Stockholder and reasonably acceptable to the Company. Any Management Stockholder that (i) does not elect to distribute Registrable Securities through such underwriting and (ii) beneficially owns 1% or more of the total Common Stock outstanding as of the effective date of the applicable registration statement, shall be prohibited, for a period of 90 days from such effective date, from selling, contracting to sell or otherwise disposing of any shares of Common Stock without the underwriter's prior written consent. Notwithstanding any other provisions of this SECTION 4, if the underwriter advises the Series C Stockholder in writing that marketing factors require a limitation of the number of shares to be underwritten, the Series C Stockholder shall so advise the Company, who shall so advise all Management Stockholders, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated first to the Series C Stockholder, and then any remaining shares shall be allocated among the Management Stockholders pro rata based on the number of shares for which registration was requested. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. (d) The Company is obligated to effect only two demand registrations for the Series C Stockholder pursuant to this SECTION 4.1; PROVIDED, HOWEVER, that (i) if the Company is, at the time of any request, eligible to register securities using a Registration Statement on Form S-3, the Company will be obligated 7 to effect up to three additional demand registrations at the request of the Series C Stockholder pursuant to this SECTION 4.1 and (ii) the limitations set forth in this SECTION 4.1(d) shall not apply to any demand registrations in which the Series C Stockholder agrees to pay a pro rata share of both the Registration Expenses and the Selling Expenses, which share shall be determined by comparing the number of shares registered by the Series C Stockholder to the total number of shares included in such registration. (e) The rights granted to the Series C Stockholder pursuant to this Section 4.1 may not be, directly or indirectly, assigned or transferred, other than to another Series C Stockholder; provided, however, that the Series C Stockholder may, on one occasion only, Transfer one demand registration right to any one Person to whom the Series C Stockholder Transfers all or a portion of the Common Stock into which the Series C Preferred Stock is convertible. 4.2 PIGGY-BACK REGISTRATION RIGHTS. (a) If, at any time, the Company proposes to register (including a registration effected by the Company for Stockholders other than the Series C Stockholder) any of its securities under the Securities Act in connection with the public offering of such securities (other than a registration form relating to: (i) a registration of a stock option, stock purchase or compensation or incentive plan or of stock issued or issuable pursuant to any such plan, or a dividend investment plan; (ii) a registration of securities proposed to be issued in exchange for securities or assets of or in connection with a merger or consolidation with, another entity; or (iii) a registration of securities proposed to be issued in exchange for, or as a right exercisable only by holders of, other securities of the Company), the Company shall promptly (but in no event later than 30 days after such notice) give GECC written notice of such registration together with a list of the jurisdictions in which the Company intends to attempt to qualify such securities under applicable state securities laws. Upon the written request of the Series C Stockholder given within 30 days after receipt of such written notice from the Company in accordance with SECTION 6, the Company shall, subject to the provisions of SECTION 4.3 (in the case of an underwritten offering), include in the registration statement to be filed by it under the Securities Act in connection with such offering all of the Registrable Securities that the Series C Stockholder has requested to be registered. (b) The right of the Series C Stockholder to "piggyback" in an underwritten public offering of the Company's securities pursuant to SECTION 4.2(a) shall be conditioned upon the Series C Stockholder's participation in such underwriting and the inclusion of the Series C Stockholder's Registrable Securities in 8 the underwriting to the extent provided herein. If the Series C Stockholder proposes to distribute its securities through such underwriting, the Series C Stockholder shall (together with the Company and any other Stockholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company. Notwithstanding any other provision of this SECTION 4.2, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the Company shall so advise all Stockholders participating in the underwriting and registration, and the number of securities that may be included in the registration and underwriting shall be allocated first to the Company, and then any remaining shares shall be allocated among such Stockholders pro rata based on the number of shares for which registration was requested. (c) The Series C Stockholder may only exercise piggyback registration rights pursuant to Section 4.2(a) two times; provided, however, that this limitation shall not apply to any piggy back registrations in which the Series C Stockholder agrees to pay a pro rata share of both the Registration Expenses and the Selling Expenses, which share shall be determined by comparing the number of shares registered by the Series C Stockholder to the total number of shares included in such registration. (d) The rights granted to the Series C Stockholder pursuant to this Section 4.2 may not be, directly or indirectly, assigned or transferred, other than to another Series C Stockholder. 4.3 OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the Securities and Exchange Commission ("SEC") a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective; (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (c) Furnish to the Stockholders participating in such registration such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may 9 reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (d) Use its best efforts to register and qualify the securities covered by such registration statement under the securities laws of such jurisdictions as the Company believes shall be reasonably appropriate for the distribution of the securities covered by the registration statement and, with respect to registrations under Section 4.1, such jurisdictions as the Series C Stockholder shall reasonably request, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction, and further provided that (anything in this Agreement to the contrary notwithstanding with respect to the bearing of expenses) if any jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by selling Stockholders and provided there is no exemption from such requirement by reason of the Company's obligation to pay such expenses pursuant to SECTION 4.5, such expenses shall be payable pro rata by the Stockholders participating in such registration, to the extent required by such jurisdiction; and (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement with terms generally satisfactory to the managing underwriter of such offering. Each Stockholder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 4.4 FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this SECTION 4 that the selling Stockholders shall furnish to the Company in writing expressly for inclusion in the registration statement, such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. In that connection, each selling Stockholder shall be required to represent to the Company that all such information which is given is both complete and accurate in all material respects. 4.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this SECTION 4 shall be borne by the Company, and all Selling Expenses shall be borne by the Company and any Stockholders of the securities so registered pro rata on the basis of the number of shares registered by the Company and such Stockholders. Each Stockholder participating in any registration effected pursuant to this Section 4 shall bear all of the fees and expenses of its own counsel. 10 4.6 INDEMNIFICATION. If any Registrable Securities are included in a registration statement under this Agreement: (a) To the maximum extent permitted by law, the Company will indemnify and hold harmless each Stockholder participating in the registration, the officers, directors, controlling persons and partners of each such Stockholder, and any underwriter (as defined in the Securities Act) for any such Stockholder, against any losses, claims, damages, or liabilities (joint or several) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise from or are based upon any of the following: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; or (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; and the Company will reimburse each such Stockholder, officer, director, controlling person or partner or underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 4.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises from or is based upon written information furnished expressly for use in connection with such registration by any such Stockholder, underwriter or controlling person. (b) To the maximum extent permitted by law, each selling Stockholder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter (within the meaning of the Securities Act) for the Company, any person who controls such underwriter, any other Stockholder selling securities in such registration statement or any of its directors or officers or any person who controls such other Stockholder against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, or underwriter or other such Stockholder or its director, officer or controlling person may become subject, under the Securities Act, the Exchange Act or any other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise from or are based upon written information furnished by such Stockholder expressly for use in connection with such 11 registration; and each such Stockholder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or controlling person thereof, other Stockholder, or officer, director or controlling person of such other Stockholder in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this SECTION 4.6(b) shall not apply to amounts paid in settlement of any such loss, claim damage, liability or action if such settlement is effected without the consent of the Stockholder providing the indemnity which consent shall not be unreasonably withheld; provided, that in no event shall any indemnity under this SECTION 4.6(b) exceed the gross proceeds from the offering received by the Stockholder. (c) Promptly after receipt by an indemnified party under this SECTION 4.6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this SECTION 4.6, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to notify an indemnifying party within a reasonable time of the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this SECTION 4.6, but the omission so to notify the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this SECTION 4.6. (d) The obligations of the Company and the Stockholders under this SECTION 4.6 shall survive the completion of any offering of Registrable Securities in a registration statement made under the terms of this Agreement. 4.7 ADDITIONAL REGISTRATION RIGHTS. In addition to the registration rights granted to the Series C Stockholder pursuant to Sections 4.1 and 4.2 hereof, the Series C Stockholder shall be entitled to any other registration rights that the Company grants to any other Stockholder during the term of this Agreement, subject to the same terms and 12 conditions on which such registration rights are granted to such other Stockholder. SECTION 5. AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, without the prior written consent of the Company, the Series C Stockholder and, with respect to amendments, modifications or supplements to Sections 4.2, 4.3, 4.5 and 4.6 that adversely affect such Persons, the holders of a majority of the shares of Common Stock owned in the aggregate by the Management Stockholders. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof with respect to a matter which relates exclusively to the rights of holders of Registrable Securities whose securities are being sold pursuant to a registration statement and which does not directly or indirectly affect the rights of other holders of Registrable Securities may be given by the holders of a majority of the Registrable Securities being sold; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. SECTION 6. NOTICES. All notices, demands and requests required by this Agreement shall be in writing and shall be deemed to have been given for all purposes (a) upon personal delivery, (b) one business day after being sent, when sent by professional overnight courier service from and to locations within the continental United States, or (c) five days after posting when sent by registered or certified mail (return receipt requested), addressed to the Company or a Stockholder at his, her or its address set forth on the signature pages hereof. Any party hereto may from time to time by notice in writing served upon the others as provided herein, designate a different mailing address or a different person to which such notices or demands are thereafter to be addressed or delivered. SECTION 7. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall inure to the benefit of and be binding upon the successors of each of the parties. SECTION 8. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which shall be deemed to be an original, and when executed, separately or together, shall constitute a single original instrument, effective in the same manner as if the parties hereto had executed one and the same instrument. SECTION 9. CAPTIONS. Captions are provided herein for convenience only and they are not to serve as a basis for 13 interpretation or construction of this Agreement, nor as evidence of the intention of the parties hereto. SECTION 10. GOVERNING LAW. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of Delaware. SECTION 11. SEVERABILITY. The provisions of this Agreement are severable. The invalidity, in whole or in part, of any provision of this Agreement shall not affect the validity or enforceability of any other of its provisions. If one or more provisions hereof shall be declared invalid or unenforceable, the remaining provisions shall remain in full force and effect and shall be construed in the broadest possible manner to effectuate the purposes hereof. The parties further agree to replace such void or unenforceable provisions of this Agreement with valid and enforceable provisions which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provisions. SECTION 12. ENTIRE AGREEMENT. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior written and oral agreements, understandings, commitments and practices between the parties, including all prior agreements with respect to registration rights. SECTION 13. TERMINATION. This agreement shall terminate on May __, 2007. In addition, Sections 4.1 and 4.2 shall terminate at such time as the Series C Stockholder is entitled to sell Common Stock pursuant to Rule 144(k), as adopted by the SEC, or any similar rule or federal statute permitting sales without registration under the Securities Act, without regard to the holding period, volume, manner of sale or type of transaction, and without regard to whether or not the Company has then timely satisfied all of its filing requirements under the Exchange Act. 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement with the intent and agreement that the same shall be effective as of the day and year first above written. KAYNAR TECHNOLOGIES INC. (formerly known as KAYNAR HOLDINGS INC.) By: ------------------------------------- David A. Werner, Executive Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: ------------------------------------- Name/title ---------------------------------------- Jordan A. Law ---------------------------------------- David A. Werner ---------------------------------------- LeRoy A. Dack ---------------------------------------- Robert L. Beers ---------------------------------------- Imre Berecz, as Trustee of the Berecz Family Trust ---------------------------------------- Joseph Varholick ---------------------------------------- Joseph F. Blomberg, as Trustee of the Blomberg Family Trust S - 1 EX-23.1 11 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to all references to our firm and to the use of our reports in this Registration Statement (Form S-1) and Prospectus. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Orange County, California May 2, 1997 EX-27 12 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES AS OF DEC 31, 1995 AND 1996, AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DEC 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 DEC-31-1996 909 0 17,379 1,987 29,901 46,911 24,160 5,451 73,689 16,723 0 0 52 16 10,558 73,689 99,023 99,023 72,924 72,924 13,263 0 4,011 8,825 3,530 12,836 0 0 0 5,295 0.78 0.78
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