UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File No. 33-49869-01
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0739329
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2702 North 44th Street, Phoenix, Arizona 85008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(602) 957-7711
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject
to such filing requirement for the past 90 days. Yes[ X ] No[ ]
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed
by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by court. Yes[ ] No[ ]
DOCUMENTS INCORPORATED BY REFERENCE
None
OMISSION OF INFORMATION BY CERTAIN
WHOLLY-OWNED SUBSIDIARIES
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The registrant meets the conditions set forth in General Instruction (J)(1)(a) and (b) of Form 10-K
and therefore is filing this Form with the reduced disclosure format. Items 10, 11, 12 and 13 have been
omitted.
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Table of Contents
Page
Part I
Item 1. Business
(a) Developments since January 1, 1994 I-1
(b) Financial Information About Industry
Segments I-1
(c) Narrative Description of Business I-2
(d) Financial Information about Foreign and
Domestic Operations and Export Sales I-25
(e) Executive Officers of the Registrant I-25
Item 2. Properties I-25
Item 3. Legal Proceedings I-27
Item 4. Submission of Matters to a Vote of
Security Holders I-27
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters II-1
Item 6. Selected Financial Data II-1
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations II-1
Item 8. Financial Statements and Supplementary Data II-1
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-2
Part III
Item 10. Directors and Executive Officers of the
Registrant III-1
Item 11. Executive Compensation III-1
Item 12. Security Ownership of Certain Beneficial
Owners and Management III-1
Item 13. Certain Relationships and Related Transactions III-1
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV-1
Signatures IV-2
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PART I
Item 1. Business.
(a) Developments since January 1, 1994.
In July 1994, a subsidiary of the Company acquired certain
assets of a company that manufactured metal buttons. The purchase
price was approximately $5.7 million, including cash of $2,100,000,
323,232 shares of the Company's Common stock scheduled for issuance
two years after closing and certain liabilities assumed and
acquisition costs incurred.
(b) Financial Information about Industry Segments.
A segment description along with tables showing sales and
operating income for each of the last five years, and identifiable
assets for each of the last three years attributable to each of the
Company's four business segments in continuing operations,
including the year ended December 31, 1994, are incorporated by
reference to the material appearing in the Notes to Consolidated
Financial Statements on pages F-16 through F-36 of the Company's
financial statements for the year ended December 31, 1994, included
in a separate section of this report. For an additional discussion
of segment operations, see also "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages
F-2 through F-10 of the Company's financial statements for the year
ended December 31, 1994, included in a separate section of this
report.
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(c) Narrative Description of Business.
General
In July 1993, Talley Manufacturing and Technology, Inc. ("the
Company", or "Talley Manufacturing"), a wholly owned subsidiary of
Talley Industries, Inc., ("Talley") was formed with the issuance of
1,000 shares of common stock. The formation of the Company was in
connection with an offering, in October, 1993, of Senior Notes by
the Company and Senior Discount Debentures by Talley. Concurrently
with the issuance of these securities, Talley contributed the
capital stock of its operating subsidiaries (other than its real
estate operations) to the Company, which also assumed a substantial
portion of Talley's indebtedness and liabilities. At the same
time, the Company entered into a new credit facility with certain
institutional lenders. The Senior Notes were guaranteed by
substantially all of the Company's subsidiaries. For an additional
discussion see "Basis of Presentation" on page F-16 of the
Company's financial statements for the year ended December 31,
1994, included in a separate section of this report.
The Company is a diversified manufacturer of a wide range of
proprietary and other specialized products for defense, industrial
and commercial applications. Through its Government Products and
Services segment, the Company manufactures an extensive array of
propellant devices and electronic components for defense systems
and commercial applications and provides naval architectural and
marine engineering services. The Company participates in the
rapidly expanding market for automotive airbags through its royalty
agreement with TRW, Inc. ("TRW") which provides the Company with a
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quarterly royalty payment through April 30, 2001 for any airbag
manufactured and sold by TRW worldwide and for any other airbag
installed in a vehicle manufactured or sold in North America. The
Company's Industrial Products segment manufactures and distributes
stainless steel products, high-voltage ceramic insulators used in
power transmission and distribution systems, and specialized
welding equipment and systems. The Company's Specialty Products
segment manufactures and sells aerosol insecticides, air fresheners
and sanitizers for the commercial and agricultural markets, and
custom designed metal buttons for military and commercial uniforms
and fashion apparel.
(1) Government Products and Services Segment.
The Company's Government Products and Services segment provides
a wide range of products and services for government programs. The
vast majority of the Company's products are smaller components of
larger units and systems and are generally designed to enhance
safety or improve performance. Products manufactured by the
Company which have significant replacement requirements include
items having finite shelf lives, such as propellants for pilot
ejection seats, as well as products regularly consumed in training
and combat situations. Many of the Company's existing products and
its new product development efforts are focused on mobile, tactical
and "smart" military weapons and systems. The Company provides a
broad range of architectural and engineering design consulting
services for the U.S. Navy, commercial clients and shipyards, and
has most recently been expanding its design services into the
environmental protection market.
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Solid Propellant Devices and Related Products
A majority of the products manufactured by the Company's
Government Products and Services segment are based upon the
Company's core technologies and expertise in the design and
manufacture of propellants and related products. Propellants are
solid fuels which, when ignited, produce a specified thrust or
volume of gas for a designated period. The Company's propellant
products are typically custom designs developed by the Company in
response to customers' technical requirements and specifications.
The following sets forth a brief summary of several of the
solid propellant devices and related products manufactured by the
Company:
o Pilot Ejection Systems. The Company manufactures ejection
seats and related propellant devices for aircraft ejection
systems in high performance military aircraft. The Company
also manufactures escape systems for a number of foreign
aircraft.
o Rocket Motors. The Company manufactures a wide range of
rocket motors and rocket catapults. These products include
booster rockets for decoy missiles, as well as for unmanned
vehicles. The Company also manufactures rocket catapults and
rocket motors for its aircraft escape systems.
o Gas Generators. The Company manufactures a broad range of
solid propellant gas generators. These products provide
pneumatic power for guidance and control systems, hydraulic
systems, and safe and arming devices on a wide range of
missile systems.
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o Extended Range Munitions Components. The Company's extended
range munitions components utilize propellant technologies
to dramatically extend the range of U.S. artillery. The
Company's base burner assembly utilizes a solid propellant
to provide a thrust or rocket assist to extend the range of
new howitzer artillery.
o Dispersion Systems. The Company pioneered the use of airbag
technologies for modern munitions delivery systems. The
Company's dispersion systems utilize airbag assemblies to
eject submunitions (i.e., small bombs or missiles) from
missile systems.
o Weapons Systems. These weapon systems include the M72 E-
Series light anti-armor weapon for the U.S. Navy and a light-
weight disposable version of a U.S. Marine Corps shoulder-
launched weapon system for the U.S. Army. The Company has
also contracted with the U.S. Army to develop new warhead and
launcher technology for the next generation of shoulder-
launched weapon systems.
o Ejector Racks. These ejection racks enable helicopter pilots
to discard munitions, missiles or extra fuel in emergency
situations.
o Countermeasure Systems. The Company manufactures several
training and combat countermeasure systems for naval,
aircraft and submarine applications. Countermeasure systems
are designed to divert incoming weapons from their targets.
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o Insensitive Munitions. The Company is currently developing
new propellant products which are being qualified to meet
certain rigorous safety requirements. These munitions are
generally insensitive to shock, puncture, and high
temperature and pressure.
o Electro Explosive Devices ("EED"). Electro-explosive devices
manufactured by the Company include rocket motor igniters,
explosive bolts and separation nuts and booster cartridges,
as well as initiators for these and other components.
High Reliability Electronic Products
The Company designs and manufactures specialized electronic
display and monitoring devices, electromechanical instruments and
components, and high performance cable assemblies which are used by
the aerospace and defense industries. The Company's products are
designed to perform at a high level of reliability, conform to
tight tolerance specifications and withstand harsh operating
environments. The following sets forth a brief summary of the
primary electronic products manufactured by the Company:
o Air Traffic Control Systems. The Company has supplied
electronic displays to the Federal Aviation Administration
("FAA") for over 20 years for use in certain air traffic
control applications, and is currently the sole supplier of
video mapper systems to the FAA. The Company's proprietary
video mappers superimpose accurate, high resolution electronic
map images, including ground topography and weather, onto radar
screens which are used by both commercial and military air
traffic controllers to coordinate the position of aircraft.
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o Airborne Flight Data Recorders. The Company is the sole
manufacturer of flight data recorders that are used on military
aircraft. These flight data recorders are used to evaluate
training simulations and record flight information, and are
designed to maintain data integrity in the event of a crash.
o Safe and Arming Devices. The Company manufactures electronic
and electromechanical devices which are used to safely control,
arm and fire warheads on torpedoes and missiles. These
products are designed to meet a high standard for safety
requirements.
o Indicators. The Company is a producer of elapsed time
indicators, event counters and fault indicators, with a
significant share of the domestic aerospace market. The
Company's indicator products are capable of functioning with
a high degree of accuracy and are built to withstand the harsh
operating environment present in aerospace applications.
o Interconnect Products. The Company also designs, manufactures
and sells high quality interconnect products and accessories
for military, aerospace and commercial marketplaces. These
products include high voltage silicone wire and cable, multi-
pin high and low voltage connector and cable assembly
interconnection systems, and triax and coax high voltage
connections and cable assemblies. The major applications for
these products include medical equipment, radar and CRT
displays, electronic countermeasure systems and power supplies.
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Naval Architecture and Marine Engineering Services
The Company's naval architecture and marine engineering
business provides a broad range of consulting services for the U.S.
Navy, as well as for commercial clients and shipyards. The
Company's naval design and engineering business has provided
services for over 35 years and possesses domestic and international
experience in all phases of the design process for military and
commercial ships. These services include initial feasibility
and conceptual studies, contract design, and detail design and
engineering for new and retrofitted ships. The Company also
provides the engineering services necessary to physically integrate
combat systems and electronics into Navy ships and provides program
management and logistics support services to the Navy and
commercial customers. The Company has been expanding its design
services into the environmental protection market, and has been
successful in obtaining a prime contract in support of the U.S.
Navy's Hazardous Material Afloat program. The Company maintains
separate segments to meet the different technical, performance and
administrative needs of its customers.
Direct contracts with the U.S. Navy currently account for a
majority of the Company's naval architecture and marine engineering
revenue, with an additional revenue attributable to subcontracts
under Navy contracts. The remaining revenues are derived from
commercial shipyards or industrial customers for ship and other
marine design services. The majority of the Company's contracts
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with the U.S. Navy are cost plus a fixed fee. Under these
contracts, the Company is reimbursed for its actual costs plus a
percentage fee based on the estimated costs in the original
contract.
The demand for design services for the U.S. Navy is largely
driven by the number of new ship classes being developed or older
classes being retrofitted, versus the actual number of ships within
a class being built or operated. The majority of engineering and
detail design costs are incurred with the introduction of a new
class of ship or the retrofit of one or more ships of an existing
class.
Marketing
The Company markets its government products and services
directly to the Department of Defense, other U.S. government
departments and agencies, and other contractors. The Company's
marketing strategy focuses on those contracts and programs which
are likely to be emphasized in the current defense environment and
for which the Company has a competitive advantage in technology and
expertise.
The Company's technical sales personnel are strategically
located across the country for easy access to its customers. The
Company also uses independent sales agents to market its products
to various foreign governments and to sell its electronic component
products. In addition, the Company enters into joint marketing
agreements with foreign manufacturers to provide access to markets
not available direct to the Company.
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Competition
Competition for the Company's government products and services
varies widely. The markets for several of the Company's products
and services are highly competitive, and many of the Company's
competitors have greater financial resources than the Company.
However, the Company also competes in a variety of small niche
markets. Production of the products within these markets
frequently requires government certification, which can be costly
and time-consuming to obtain. Once a contract has been awarded,
the relatively small size of these markets often discourages
additional suppliers from obtaining certification. Within these
markets the Company is frequently a sole supplier, and therefore
faces little or no competition.
A wide variety of industrial companies compete with the Company
in the market for propellant devices, with particularly intense
competition in the markets for gas generators and dispersion
systems.
The market for the Company's electronics components products
is highly competitive. Competition is particularly intense among
Texas Instruments, IBM and Raytheon for air traffic control
equipment. The Company is the sole supplier of data acquisition
and display systems for the B-1, B-2, T-45 and F-4 military
aircraft, but there is significant competition for other
applications. The Company believes that it shares the market
for aerospace elapsed time indicators, fault indicators and
events counters primarily with one competitor, Airpax, a North
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American Phillips company. The Company believes that its safe and
arming devices compete with companies such as KDI, Motorola,
Quantic and Magnavox.
The Company believes that its market for naval architectural
and marine engineering services is served by the Company and a
small number of other major firms including M. Rosenblatt & Son,
Inc., Gibbs & Cox, Inc., Advanced Marine Enterprises,
Incorporated, George G. Sharp, Inc. and CDI Marine Company. These
companies actively compete with each other, and to a lesser extent
with smaller design firms, for U.S. Navy programs, foreign
contracts and subcontracts with private shipyards.
Government Contract Matters
Substantially all of the Company's government defense contracts
are fixed-price contracts except for the Company's naval
architecture and marine engineering contracts which are generally
cost reimbursable. Although the Company's fixed-price contracts
generally permit the Company to retain unexpected profits if costs
are less than projected, the Company bears the risk that increased
or unexpected costs may reduce profit or cause the Company to
sustain losses on a particular contract. From time to time the
Company accepts fixed-price contracts for products that have not
been previously developed. In such cases, the Company is subject
to the risk of delays and cost over-runs. Under U.S. Government
regulations, certain costs, including financing and interest
costs and foreign marketing expenses, are not allowable. The U.S.
Government also regulates the methods under which costs are
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allocated to Government contracts. With respect to U.S. Government
contracts that are obtained pursuant to an open bid process and
therefore result in a firm fixed price, the Government has no right
to renegotiate any profits earned thereunder. In Government
contracts where the price is negotiated at a fixed price rather
than on a cost-plus basis, as long as the financial and pricing
information supplied to the Government is current, accurate and
complete, the Government has no right to renegotiate any profits
earned thereunder. However, if the Government later conducts an
audit of the contractor and determines that such data was
inaccurate, or incomplete or not current, the Government may
initiate an action to recover the amount of any significantly
overstated costs plus applicable profit or fee and interest. If
the submission of inaccurate, incomplete or not current data was
knowingly made, then the Government may seek to recover an
additional penalty equal to the amount of the overstated costs; and
if the submission was willful or intentional the Government may
seek additional penalties and damages.
U.S. Government contracts are, by their terms, subject to
termination by the Government either for its convenience or for
default by the contractor. Fixed-price contracts provide for
payment upon termination for items delivered to and accepted by the
Government. If the termination is for convenience, fixed-price
contracts provide for payment of the contractor's costs incurred
plus the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable profit
on its incurred performance costs. However, if a fixed-price
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contract termination is for default, (i) the contractor is paid
such amount as may be agreed upon for completed and partially
completed products and services accepted by the Government, (ii)
the Government is not liable for the contractor's costs with
respect to unaccepted items and is entitled to repayment of advance
payments and progress payments, if any, related to the terminated
portions of the contracts and (iii) the contractor may be liable
for excess costs incurred by the Government in procuring
undelivered products and services from another source. Foreign
defense contracts generally contain comparable provisions relating
to termination at the convenience of the government.
Companies supplying defense-related products and services to
the U.S. Government are subject to certain additional business
risks unique to that industry. These risks include: the ability
of the Government to unilaterally suspend the Company from new
contracts pending resolution of alleged violations of certain
procurement laws or regulations; procurements which are dependent
upon appropriated funds by the Government; changes in the
Government's procurement policies (such as a greater emphasis on
competitive procurements or cancellation of programs due to
budgetary changes); the possibility of inadvertent Government
disclosure of a contractor's proprietary information to third
parties; and the possible need to bid on programs in advance of
design completion. A reduction in expenditures by the Government
for the Company's products and services, lower margins resulting
from increasingly competitive procurement policies, a reduction in
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the volume of contracts or subcontracts awarded to the Company,
incomplete, inaccurate or non-current data allegations,
terminations or cancellations of programs, or substantial cost
over-runs could have an adverse effect on the Company's results of
operations.
Backlog
The backlog of firm orders in the Government Products and
Services segment amounted to approximately $97 million at December
31, 1994, $128 million at December 31, 1993 and $143 million at
December 31, 1992. The backlog in 1991 and 1992 included a major
non-recurring program for extended range munitions. The Company
estimates that approximately $84 million of the orders outstanding
at December 31, 1994 will be delivered by December 31, 1995.
(2) Airbag Royalties Segment.
As an outgrowth of the research and development efforts in its
core propellant businesses, the Company was a pioneer in the
development of the automotive airbag. Airbags supplied by the
Company were installed by General Motors in approximately 12,000
automobiles during the 1970's and were the first airbags installed
in any significant number of automobiles. While the Company's
program with General Motors was successful, low market awareness
and acceptance prevented the airbag from attaining wide-spread
popularity for a number of years. During this period, the
Company continued to develop and refine its airbag technology,
while establishing relationships with certain U.S. and foreign
automakers and suppliers. As demand for airbags increased in the
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1980's, the Company's technology, manufacturing expertise and
strong customer relationships made it a leading supplier of
automobile airbags, and the Company designed and constructed a
highly automated production facility that began producing airbags
in volume during 1988. In 1989, the Company sold its automotive
airbag business to TRW, in part because TRW's offer involved not
only an attractive cash price for the business, but also an
opportunity to participate in the future growth of the industry.
This participation comes through a unique royalty agreement under
which royalties are payable both on TRW's worldwide airbag sales
and on its competitors' airbags installed in vehicles manufactured
or sold in North America.
At the closing of the 1989 sale of TRW, the Company received
$97.8 million in cash and entered into the 12-year Airbag Royalty
Agreement. The Airbag Royalty Agreement requires TRW to pay the
Company quarterly royalties through April 30, 2001 (the "Airbag
Royalty") based upon the following formula: (i) $1.14 for each
airbag "unit" (inflator plus one or more components) manufactured
and sold by TRW worldwide (the per-unit amount increases by $.01 on
May 1 of each year); (ii) 75% of the per-unit amount for each
inflator manufactured and sold separately by TRW worldwide; and
(iii) $0.55 for each airbag unit supplied by any other airbag
manufacturer and installed in any vehicle manufactured or
sold in North America. The Company will receive the Airbag
Royalty for any airbag using a gas-generating composition; the
higher royalty amount for TRW airbags applies regardless of whether
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the specific technology used is that which was originally licensed
by the Company to TRW. The Company also is entitled to receive
royalties from TRW for technology licenses and similar arrangements
under which TRW makes its airbag technology available to third
parties. Royalties to the Company from such arrangements have not
been significant to date.
The terms of the Airbag Royalty Agreement allow the Company to
participate in the rapidly expanding market for airbags. A
continued increase in the use of dual vehicle airbags is expected
as a consequence of several factors, including: (i) government
legislation mandating the use of dual airbags in all cars,
light trucks, sport utility vehicles and vans sold in the U.S. on
a phased-in basis; (ii) increasing consumer demand as a result of
the demonstrated effectiveness of airbags at saving lives and
preventing serious injury, and the convenience of airbags as
compared with automatic seatbelts; and (iii) the decreasing price
of airbags as competition and production volumes increase. The
U.S. government has passed legislation mandating that airbags be
installed as standard equipment according to the following
schedule: (i) 95% of 1997 model year cars (100% of 1998 models) are
to be equipped with driver and passenger side airbags for the front
seat, and (ii) 80% of 1998 model-year light trucks, vans and sport
utility vehicles (100% of 1999 models) are to be equipped with
driver and passenger side airbags for the front seat. (Also
reference Notes to Consolidated Financial Statements appearing
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under the heading Commitments and Contingencies on page F-27 to
F-29 of the Company's financial statements for the year ended
December 31, 1994, included in a separate section of this report.)
(3) Industrial Products Segment.
The Company's Industrial Products segment operates in three
product areas: stainless steel, high-voltage ceramic insulators
and other specialized industrial products. Demand for the
Company's products is directly related to the level of general
economic activity and therefore has been positively impacted most
recently by an improved national economy and increased construction
activity. The Company's operations are technologically advanced
and its products are highly competitive in terms of quality, brand
recognition and price. The Company's stainless steel mini-mill
utilizes modern computer automation, strict quality controls, and
strong engineering and technical capabilities to maintain its
position as a low cost, high quality producer of stainless bar and
rod products.
Stainless Steel
The Company operates a modern stainless steel mini-mill which
purchases stainless steel billets and converts them into a variety
of sizes of hot rolled and cold finished bar and rod. The
facility utilizes computer automation and quality control processes
that have resulted in a high standard of product quality, service
and deliveries. Located in South Carolina, the mini-mill has
relatively low labor and power costs and is situated close to major
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north-south and east-west interstate highways. The Company
recently installed three annealing furnaces, shot blasting and
pickling facilities and cold-drawing capabilities, which have
broadened the product range, shortened lead times, improved product
quality and lowered costs. Prior to these enhancements, the
Company either subcontracted these processes out to other
converters or was not able to meet customers' custom finishing
requests. The Company sells its products to a number of steel
distributors, including a distributor which is owned by the
Company, and to a lesser extent to industrial end-users. The
Company-owned distributor sells stainless steel sheet, angle and
plate, and also provide certain cutting, grinding and boring
services. The Company's distributor, which resells approximately
20% of the mini-mill's production currently, has five distribution
depots located in South Carolina, New Jersey, Pennsylvania,
Illinois and Texas. The Company also owns a Canadian distributor,
which sells principally flat stainless steel products (not produced
by the mini-mill). This distributor has locations in Ontario and
Quebec.
High-Voltage Ceramic Insulators
The Company's high-voltage ceramic insulator business
manufactures and sells electrical insulators and related items for
use in power transmission and distribution systems, principally to
electric utilities, municipalities and other government units, as
well as to electrical contractors and original equipment
manufacturers. High-voltage ceramic insulators are required to
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perform with high levels of reliability and typically require
product certification from electric utilities to be used for new or
replacement applications. Demand for these products is influenced
by the level of economic activity, particularly housing starts,
with a fairly stable minimum demand level due to normal replacement
and repair cycles.
The Company's primary customers include original equipment
manufacturers as well as many of the major utilities throughout the
U.S. and the world.
Other Specialized Industrial Products
The Company designs, manufactures and sells specialized
advanced-technology welding equipment and systems, power supply
systems and humidistats, and also provides contract assembly and
manufacturing for original equipment manufacturers. The Company's
welding equipment and systems are highly-engineered and advanced
technologically, and the Company holds over 30 patents for these
products. The Company's product lines include patented welding
systems which can be remotely controlled for use in radioactive and
other contaminated environments. These products are sold to the
utility, pipeline, shipbuilding, aerospace and specialty
construction industries.
The power supply systems manufactured by the Company are
principally low-wattage systems and are sold to original equipment
manufacturers in the telecommunications, medical, computer and
other industrial markets. The power supply market is highly
competitive, with more than 500 manufacturers in the U.S.
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The Company also manufactures and sells humidistats.
Humidistats are used to regulate humidity levels and are
principally sold to home appliance manufacturers.
Marketing
The Company markets its industrial products to domestic and
foreign business organizations and government entities. These
organizations vary in size, complexity and purchasing structures.
The Company's sales and marketing efforts use a combination of
direct sales, independent distributors and original equipment
manufacturers arrangements.
Competition
The Company's Industrial Products businesses are highly
competitive, with competition typically based on price, quality,
delivery time, engineering expertise and customer service. The
Company's competitors include major domestic and international
companies, many of which have financial, technical, marketing,
manufacturing, distribution and other resources substantially
greater than those of the Company, as well as smaller competitors
which focus on specific market niches.
Backlog
The backlog of firm orders in the Industrial Products segment
totalled approximately $34 million at December 31, 1994, $19
million at December 31, 1993 and $12 million at December 31, 1992.
The Company estimates that substantially all of the orders
outstanding at December 31, 1994 will be delivered by December 31,
1995. Increases are attributed to general improvement in the
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economy, a major steel mill competitor exiting the market and an
increase in demand from new and current customers.
(4) Specialty Products Segment.
The Company's Specialty Products segment is focused on two
primary markets: insect and odor control for the industrial
maintenance supply, pest control and agricultural markets, and
custom designed metal buttons for the military and commercial
uniform and fashion markets.
Insect and Odor Control
The Company offers a complete line of insecticides, air
fresheners and sanitizers for sale through distributors to the
industrial maintenance supply, pest control and agricultural
markets. The Company's insecticide products are sold under the
Q-Mist and CBM trademarks to agricultural and pest control
distributors, respectively, who sell to pest control professionals.
The Company's insecticide formulations focus on using natural
active ingredients including pyrethrin (derived from the
chrysanthemum flower), boric acid and sassafras. The Company
offers a complete line of insecticides to control the most common
crawling and flying insects. The insecticides are mixed and
packaged at the Company's Louisiana manufacturing plant and
formulated into aerosol, liquid and powder form.
Air freshening and sanitizing products are formulated and
packaged for specific air freshening and sanitizing situations,
which vary based on room size, type of odor to be treated, and
desired fragrance. In addition, the products are designed for one
I-21
<PAGE>
of four different delivery methods: (i) metered, automatic aerosols
for areas up to 6,000 cubic feet, (ii) fan delivered solids for
areas up to 1,500 cubic feet, (iii) manual aerosols for immediate
air freshening and (iv) passive solids for small enclosed areas.
In addition to manufacturing odor and insect control
formulations, the Company also manufactures and sells metered and
fan driven dispensers for these products. Metered dispensers
utilize a timing mechanism to deliver aerosol spray at programmable
time intervals. Fan driven dispensers utilize battery operated
fans to distribute the scent of selected air fresheners.
Custom Metal Buttons
The Company designs and manufactures a wide range of custom
metal buttons for the military and commercial uniform and upscale
fashion markets. The Company also produces insignias, cuff links,
money clips, tie bars and other accessories as a complement to its
button products. The buttons are individually stamped from custom
designed hand carved steel dies.
The use of hand carved steel dies and a brass stamping process
allow the Company to produce button designs with extremely fine
detail and high resolution. The Company custom designs and
produces metal buttons for the U.S. military based on detailed
military specifications.
The Company has seen the volume of military sales decline in
recent years as a result of reductions in military personnel.
Management expects future modest reductions in military button
I-22
<PAGE>
sales as military force reductions continue. Military sales
currently account for less than 20% of the Company's button
revenues. The market for commercial uniform buttons includes local
police, fire departments and other civil servants. The Company
continues to increase its presence in the fashion apparel market by
working with apparel manufacturers on custom button designs for
their manufactured garments.
Marketing
The Company utilizes several hundred independent distributors
to market its insect and odor control products to the various pest
control and sanitary supply companies that service the industrial
maintenance supply and commercial pest control industry. The
agricultural market is served by over 100 independent agricultural
products distributors. The Company has a three person marketing
staff which is responsible for working with and overseeing the
distributors who carry its products.
The Company's button business maintains a three person sales
force which is responsible for obtaining new and maintaining
existing customer relationships. Individual sales representatives
are focused on the military commercial uniform market the fashion
apparel markets and the men's accessories market. The Company's
advertising for its Specialty Products businesses is limited to
product brochures and ads in various trade publications.
Competition
Competitors for the Company's pest and odor control products
consist of numerous small companies as well as divisions of large
corporations. Because pest and odor control is a broad market,
I-23
<PAGE>
competitors include a range of chemical, manufacturing and pet care
companies. Competition for pest control products is based on
product efficiency, quality, price and the ability to offer a broad
range of product formulations.
Competitors for the Company's custom button business consist
principally of two companies, both of which are similar in size to
the Company's button operations. The Company maintains the
strongest position in the military and commercial uniform market.
Both of the Company's competitors maintain an equal presence with
the Company in the fashion markets.
Backlog
The backlog of firm orders in the Specialty Products segment
totalled approximately $1.4 million at December 31, 1994, $1.4
million at December 31, 1993 and $2.5 million at December 31, 1992.
The Company estimates that substantially all of the orders
outstanding at December 31, 1994 will be delivered by December 31,
1995.
(5) Other General information.
Research and Development. During the years ended December 31,
1994, 1993 and 1992, the Company's consolidated expenditures for
Company-sponsored research and development activities were
approximately $4.3 million, $3.1 million and $3.9 million,
respectively. For the same reporting periods, customer-
sponsored research and development expenditures were $8.2 million,
$11.6 million and $2.4 million, respectively.
Environmental Protection. The Company does not anticipate that
compliance with various laws and regulations relating to the
I-24
<PAGE>
protection of the environment will have any material effect
upon its capital expenditures, earnings or competitive position.
(Also see Item 3 "Legal Proceedings" and "Commitments and
Contingencies" note to the consolidated financial statements,
included in a separate section of this report).
Employees. As of December 31, 1994, the Company had 2,413
employees, approximately 16% of whom are represented by unions.
Proprietary Rights. Various of the Company's businesses are
dependent in part upon unpatented know-how and technologies,
including the solid propellent businesses. While various patents,
trademarks and tradenames are held by the Company and are used in
its businesses, none is critical to any segment, and the Company's
business is not dependent upon them to a material extent.
(d) Financial Information about Foreign and Domestic Operations
and Export Sales.
Information required by this item is incorporated by reference
to the Notes to Consolidated Financial Statements appearing under
the heading "Segment Operations" on pages F-32 through F-37 of the
Company's financial statements for the year ended December 31,
1994, included in a separate section of this report.
(e) Executive Officers of the Registrant.
Reference is hereby made to the information contained in Item
10(b) of this Form 10-K.
Item 2. Properties.
The Company's operations are conducted at a number of
manufacturing and assembly facilities of various sizes and a number
I-25
<PAGE>
of warehouse, office and sales facilities located in 21 states in
the United States, as well as warehouse, office and sales
facilities in Canada and the Netherlands. The principal facilities
of the Government Products and Services segment include over
934,000 square feet of manufacturing and assembly facilities, and
related warehouse, office and sales facilities. The principal
manufacturing and assembly facilities for this segment are located
in Mesa, Arizona; Phoenix, Arizona; Rolling Meadows, Illinois; and
Toledo, Ohio. The majority of these facilities are owned by the
Company. The Company owns the plants and equipment at two of the
Arizona facilities, and leases the underlying land from the State
of Arizona under long-term leases of 10 years and 40 years. The
Company's naval architectural and engineering services are
provided out of several offices, with the major ones located in
New York, New York; Arlington, Virginia; Newport News, Virginia;
Ocean Springs, Mississippi; and Pascagoula, Mississippi, all of
which are leased.
Facilities used by the Industrial Products segment include over
817,000 square feet of manufacturing and assembly plants and
related office, warehouse and sales space, located in Davidson,
North Carolina; Carey, Ohio; Knoxville, Tennessee; Hartsville,
South Carolina; and sales and warehouse facilities in New
Brunswick, New Jersey; Hermitage, Pennsylvania; Chicago, Illinois;
Houston, Texas; Charlotte, North Carolina; Toronto and Montreal,
Canada, and the Netherlands. The operations of the Specialty
Products segment are conducted in several facilities consisting of
approximately 262,000 square feet of manufacturing, warehouse, and
I-26
<PAGE>
office space in four locations: Waterbury, Connecticut; Randolph,
Vermont; Biddeford, Maine; and Independence, Louisiana. All of
these facilities are owned by the Company with the exception of
eight Industrial Products segment sales and warehouse facilities
and three Specialty Products segment warehouses which are leased.
In total, approximately two-thirds of all the facilities (by
square footage) are owned by the Company and have been pledged as
collateral to secure the credit facility. The Company's
facilities, which are continually added to or modernized, are
generally considered to be in good condition and adequate for the
business operations currently being conducted.
Item 3. Legal Proceedings.
Information required by this item is incorporated by reference
to the Notes to Consolidated Financial Statements appearing under
the heading "Commitments and Contingencies" on page F-27 to F-30 of
the Company's financial statements for the year ended December 31,
1994, included in a separate section of this report.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the quarter ended December 31, 1994.
I-27
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's stock is wholly owned by its parent, Talley
Industries, Inc., and is not traded. Dividends can be and are made
when necessary by Talley Manufacturing. Subject to restrictions by
debt agreements, dividends may be declared and paid (See
"Management's Discussion and Analysis" on pages F-2 through F-10 of
the Company's financial statements for the year ended December 31,
1994, included in a separate section of this report, for further
discussion).
Item 6. Selected Financial Data.
The information required by this item is incorporated by
reference to the material under the captions "Summary of
Operations" and "Selected Financial Data" on pages F-38 and F-40 of
the Company's financial statements for the year ended December 31,
1994, included in a separate section of this report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information required by this item is incorporated by
reference to the material on pages F-2 through F-10 of the
Company's financial statements for the year ended December 31,
1994, included in a separate section of this report.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements, together with the report
thereon by Price Waterhouse, are included in a separate section of
II-1
<PAGE>
this report. (See "Index to Financial Statements and Schedules"
on page F-1). The Company's stock is wholly owned by the parent
company, Talley, and accordingly, quarterly financial results are
not provided.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
The Company's Independent Accountants during the two most
recent fiscal years have neither resigned, declined to stand for
re-election nor been dismissed.
II-2
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
(c) Compliance with Section 16(a) of the Exchange Act.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
Item 11. Executive Compensation.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
Item 13. Certain Relationships and Related Transactions.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
III-1
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a)-1 Financial Statements
A list of the financial statements included herein is set
forth in the Index to Financial Statements and Schedules
submitted as a separate section of this Report.
(a)-2 Financial Statement Schedules
A list of the financial statement schedules included
herein is contained in the accompanying Index to Financial
Statements and Schedules submitted as a separate section
of this Report.
(a)-3 Exhibits
Exhibits listed in the Exhibit Index on the pages
preceding the exhibits of this report are filed as a part
of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three
months ended December 31, 1994.
IV-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
By Mark S. Dickerson
February 28, 1995 Mark S. Dickerson
Phoenix, Arizona Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
William H. Mallender Director, Chairman
William H. Mallender of the Board
Principal Executive
Officer February 28, 1995
Jack C. Crim Director, President
Jack C. Crim Chief Operating
Officer February 28, 1995
Kenneth May Vice President,
Kenneth May Controller
Principal Accounting
Officer February 28, 1995
Daniel R. Mullen Vice President,
Daniel R. Mullen Treasurer
Principal Financial
Officer February 28, 1995
IV-2
<PAGE>
Neil W. Benson Director February 28, 1995
Neil W. Benson
Paul L. Foster Director February 28, 1995
Paul L. Foster
Townsend W. Hoopes Director February 28, 1995
Townsend W. Hoopes
Fred Israel Director February 28, 1995
Fred Israel
John D. MacNaughton, Jr. Director February 28, 1995
John D. MacNaughton, Jr.
Joseph A. Orlando Director February 28, 1995
Joseph A. Orlando
John W. Stodder Director February 28, 1995
John W. Stodder
Donald J. Ulrich Director February 28, 1995
Donald J. Ulrich
David Victor Director February 28, 1995
David Victor
Alex Stamatakis Director February 28, 1995
Alex Stamatakis
IV-3
<PAGE>
SUPPLEMENTAL INFORMATION
Supplemental information to be furnished with reports filed
pursuant to Section 15(d) of the Act by registrants which have not
registered securities pursuant to Section 12 of the Act.
No supplemental information is required.
IV-4
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The following documents are filed as part of this report:
Page in
This Report
(1) Financial Statements:
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................................F-2
Consolidated Statement of Operations -
Years ended December 31, 1994, 1993
and 1992.........................................F-11
Consolidated Balance Sheet -
December 31, 1994 and 1993.......................F-12
Consolidated Statement of Changes
in Stockholder's Equity - Years ended
December 31, 1994, 1993 and 1992.................F-14
Consolidated Statement of Cash Flows -
Years ended December 31, 1994, 1993
and 1992.........................................F-15
Notes to Consolidated Financial Statements,
including Summary of Segment Operations..........F-16
Summary of Operations..............................F-38
Report of Independent Accountants'.................F-39
Selected Financial Data and Supplemental Data......F-40
Financial Statement Schedules:
I - Condensed Financial Information of
Registrant..................................F-43
II - Valuation and Qualifying Accounts and
Reserves....................................F-49
All other schedules are omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
Separate financial statements for 50% or less owned companies
accounted for by the equity method have been omitted because each
such company does not constitute a significant subsidiary.
F-1
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
In July 1993, the Company was formed as a wholly-owned
subsidiary of Talley Industries, Inc. ("Talley"). The formation
was in connection with an offering of debt securities described
below. Concurrently with the offering, Talley contributed the
capital stock of its operating subsidiaries (other than its real
estate operations) to the Company, which also assumed a substantial
portion of Talley's debt and liabilities.
Results of operations improved significantly over 1993. The
expanding demand for automotive airbags has increased the Company's
airbag royalties, which have been a major factor in the improved
financial results. General economic improvement and operating
efficiencies have benefited the Company's stainless steel
production and distribution business. For the year ended December
31, 1994 the Company had net earnings of $11.2 million, an
improvement over the earnings of $4.7 million in 1993. Earnings in
1994 include a tax benefit of $5.6 million, the result of favorable
tax legislation and a $6.0 million provision for legal expenses in
connection with litigation with TRW, Inc., the licensee under the
Company's airbag royalty agreements. Interest expense increased by
$.8 million due primarily to a major portion of the Company's debt
being refinanced from variable rates to higher fixed rates and a
general rise in rates on remaining debt with variable rates.
Revenues in 1994 were $320.6 million, compared to $318.1
million in 1993. Improvement in revenues from the Company's steel
operations of $24.1 million was offset by decreases in certain
defense contract revenues. The reduction in defense contract
revenue is primarily associated with the completion of certain
contracts and a scheduled price reduction under the extended range
munitions program, following the recovery of the Company's
investment in a new production facility associated with this
program.
The gross profit percentage on sales and services (exclusive of
airbag and other royalties) increased in 1994 from 23.4% in 1993 to
24.5%. The increase is primarily due to a change in the mix of
defense contracts and improvement in steel pricing.
Revenue for the year ended December 31, 1993 increased $1.5
million when compared with 1992. Improvement in revenues from the
Company's steel operations of $13.7 million were offset by
decreases in certain defense contract revenues. Revenue also
decreased as a result of the July 1993 sale of the Company's
precision potentiometer business and the May 1992 sale of the
specialty advertising business. Results of operations improved
F-2
<PAGE>
Introduction, continued
significantly over 1992 with the expanding demand for automotive
airbags, which increased airbag royalties $4.0 million over the
1992 royalties. Interest expense decreased $5.6 million in 1993
when compared with 1992, due primarily to a significant paydown in
debt in November 1992. The gross profit percentage decreased from
25.3% in 1992 to 23.4% in 1993, a level more consistent with
historical results.
Government Products and Services
Revenue from the Government Products and Services segment in
1994 decreased $29.2 million or 17.2% compared with 1993.
Operating income decreased $6.2 million or 25.3%. The decrease in
revenue and operating income resulted primarily from the completion
of certain non-recurring contracts and a scheduled price reduction
under the extended range munitions program. The July 1993 sale of
the Company's precision potentiometer business also impacted
results in this segment. Sales and earnings from this business in
1993, prior to the sale, were $2.3 million and $.3 million,
respectively. U.S. Defense spending declined over the last several
years as part of efforts to refocus national spending and reduce
the federal budget deficit. The Company has experienced a
reduction in some defense contract revenue and has not been fully
excluded from the effects of defense budget cuts. However,
management believes that its defense businesses are relatively
well-positioned within their respective markets and are focused on
products consistent with the current military philosophy, which
emphasizes "smart", tactical weapons and lighter, more mobile
fighting forces. In addition, management believes that the
diversity of the Company's programs and significant sales of
replacement products should reduce the impact of cutbacks in, or
the elimination of, any individual program or system.
Revenue and operating income for the year ended December 31,
1993 decreased by $12.8 million and $1.7 million, respectively,
when compared with 1992. The decrease in revenue and operating
income resulted primarily from a scheduled pricing reduction under
the extended range munitions program, following the recovery of the
Company's investment in a new production facility.
F-3
<PAGE>
Airbag Royalty
Under the terms of an airbag licensing agreement executed in
April 1989, the Company has the right to receive royalty payments
for a period of twelve years ending April 30, 2001. Revenue from
airbag royalties increased from $9.6 million in 1993 to $17.3
million in 1994. The increase is a result of the recovery in the
automobile and light truck industry and increasing airbag
installation rates. The timing and amount of increases in the
airbag royalty stream are dependent on several factors, such as the
number of vehicles manufactured or sold in the United States, the
timing of U.S. car makers' compliance with legislative mandates and
the market shares of the licensee (both foreign and domestic),
which are beyond the control of the Company. Discontinuance of
royalty payments for any reason would have an adverse impact on the
Company's future earnings. (See also Commitments and Contingencies
note to the consolidated financial statements.)
Royalty income from automotive airbags increased from $5.6
million in 1992 to $9.6 million in 1993.
Industrial Products
The Industrial Products segment had increased revenue of $21.7
million, or 20.2%, and increased operating income of $5.0 million
in 1994 when compared to 1993. The increase in revenue is
primarily related to the improved demand for stainless steel bars
and rods and increased demand for ceramic insulator products due to
an improved national economy, increased construction activity, a
reduction in the number of competitors and improved market share.
Increases were attributed to rising prices and higher volume.
These increases were partially offset by lower welding product
sales and earnings, the result of a continuing low demand for
welding products. In early 1995 the U.S. Commerce Department
placed anti-dumping tariffs on stainless steel bars imported from
certain countries, which the Company believes will aid in the
continuance of the positive performance of the steel operations.
In 1993, revenue and operating income increased $12.3 million
and $2.5 million, respectively, when compared to 1992. The
increases were due primarily to the improved demand for stainless
steel bars and rods. Operating results also increased due to cost
reduction efforts at the Company's steel and ceramic insulator
operations.
F-4
<PAGE>
Specialty Products
The Specialty Products segment had increased revenue and a
slight decrease in operating income in 1994 when compared to 1993
of $2.4 million and $.1 million, respectively. The mid-year
acquisition of a manufacturer of metal buttons was the primary
reason for the sales improvement over the 1993 results, in spite of
sluggish demand for certain consumer products and the loss of
certain key buyers of these products. The slow down in the
consumer products were not fully offset with earnings in the
transition period following the acquisition.
Revenue and operating income in 1993 decreased $4.9 million and
$.1 million, respectively, over 1992, as a result of the
disposition of the specialty advertising business.
Other Matters
In 1994, other income, net of other expenses was $.1 million,
compared to a net income of $.7 million in 1993 and $.7 million in
1992. Interest income, which is one of the major components of
other income, and is related to the balance in notes receivable and
short-term investments, was $.1 million in 1994, $.3 million in
1993 and $1.9 million in 1992. Corporate overhead increased from
$14.8 million in 1993 to $17.2 million in 1994. The amounts in
1994 and 1993 are above normal levels due to a provision for
litigation costs in 1994 of $6.0 million related to resolution of
claims in connection with airbag royalties being received from the
licensee and due to increases in period costs associated with the
Company's refinancing efforts in 1993. Corporate overhead in 1992
was $9.7 million.
The income tax net provision for 1994 was $2.3 million compared
to a net tax provision of $6.4 million in 1993. The decrease in
net tax provision in 1994 is primarily the result of favorable
state tax legislation in the State of Arizona, which resulted in a
$5.6 million reversal of state income taxes previously accrued.
This benefit is partially offset by other tax provisions. The
effective tax rate on the earnings from operations for 1993 is
higher than the United States statutory rate due to higher state
income taxes, resulting from losses in states where no benefits
will be realized due to regulations on carryback and carryforward
provisions for such losses. The income tax provision in 1992 on
pretax earnings is less than the statutory rate due to a reversal
of an accrual for taxes previously accrued due to a favorable state
tax ruling.
F-5
<PAGE>
Other Matters, continued
Substantially all operations of the Company are located within
the United States. The Company operates a steel distribution
system in Canada which had sales in 1994 of $12.7 million or 3.9%
of consolidated revenue and earnings before income taxes of $1.5
million, which includes a pension fund termination gain of $.7
million.
Foreign exchange gains and losses for each of the last three
years have not been material. The general lack of inflationary
pressures in areas where the Company and its subsidiaries operate
also limited the impact of changing prices on the Company's sales
and income from operations for the three years ended December 31,
1994.
Recently Issued Accounting Pronouncements
In October 1994 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 119 "Disclosure
About Derivative Financial Instruments and Fair Value of Financial
Instruments" effective for the Company at December 31, 1994. The
Company does not presently have nor has it had any derivative type
instruments since mid-1993 when a single interest rate swap
agreement was terminated as described in the notes to the financial
statements.
Other pronouncements issued by the Financial Accounting
Standards Board with future effective dates are either not
applicable or not material to the consolidated financial statements
of the Company.
Litigation
As more fully explained in the Commitments and Contingencies
note to the Consolidated Financial Statements, litigation between
the Company and TRW Inc. (TRW) the buyer of the Company's airbag
business and licensee of the Company's patented and unpatented
technology related thereto, has been pending since 1989. In mid-
February 1994 TRW filed a new declaratory judgment action claiming,
among other things, that the Company, through the actions of a
subsidiary, breached a non-compete provision of the Asset Purchase
Agreement by rendering services to competitors of TRW, and
requesting among other things a court order that a contemporaneous
notice and payment that TRW sent to the Company are valid,
entitling it to terminate the airbag royalty and obtain a paid up
license for the Company's airbag technology.
F-6
<PAGE>
Litigation, continued
On March 14, 1994 the Company filed a motion for an Order
requiring TRW to make payment of all quarterly royalties until the
lawsuit is finally resolved. The Company sought the Order to avoid
the harm from cash flow interruption and/or potential loan covenant
defaults caused by TRW's failure to pay scheduled royalty payments.
A three day hearing on the Company's Motion was completed on May 3,
1994 and on May 19, 1994 the Court granted the Company's motion for
a preliminary injunction. The Court ordered TRW to continue paying
royalties to the Company pending conclusion of the lawsuit. On
August 24, 1994 the Court refused TRW's motion to suspend the
injunction. A trial in this matter is currently scheduled to
commence in April 1995. While it is not possible to predict the
outcome of litigation, the Company believes that it has meritorious
defenses to TRW's claims and that it will ultimately prevail.
Therefore, management anticipates that the above-described action
will be resolved without any material adverse impact on the results
of operations, liquidity or financial position of the Company.
In September 1994, the Arizona Court of Appeals reversed a 1992
Arizona Tax Court ruling that entitled the Company to file a
combined tax return in the State of Arizona for the fiscal year
ended March 31, 1983. The Company has filed a petition for review
with the Arizona Supreme Court. The Company believes the appellate
court erred in its decision, but cannot assess the likelihood of
the Arizona Supreme Court granting the petition for review. The
Company anticipates that the Supreme Court will rule on the
petition for review during 1995 and if the petition is granted, the
Supreme Court will require an additional eighteen months to rule on
the issues. If the appellate court decision stands, the Company
would be liable for approximately $1.2 million in taxes and
interest for 1983. In May 1993, the Arizona Department of Revenue
issued assessments with respect to calendar years 1984 through 1989
alleging that the Company owes additional Arizona income tax and
interest in the amount of $16.6 million. Management's preliminary
review of the assessments indicated that they were calculated on
essentially the same basis used by the Department in its previous
claims for income tax due with respect to its fiscal year ended
March 31, 1983. If the Company is unsuccessful in its attempts to
have the Arizona Supreme Court overturn the appellate court
decision related to the 1983 fiscal year, the Company intends to
vigorously litigate the Arizona Department of Revenue tax and
interest assessments totalling approximately $5.0 million for
calendar years 1984 and 1985. The Company does not anticipate a
F-7
<PAGE>
Litigation, continued
final resolution of the 1984 and 1985 periods for a number of
years. Legislation adopted in 1994 in Arizona specifically allows
companies to file combined tax returns in Arizona for periods from
January 1, 1986 and on December 8, 1994 the Arizona Department of
Revenue withdrew its assessments for 1986 and subsequent years.
Management believes that the final resolution of the above matter
will not result in a material adverse impact on the results of
operations or the financial position of the Company.
Environmental
A subsidiary of the Company has been named as a potentially
responsible party by the Environmental Protection Agency ("EPA")
under the Comprehensive Environmental Response Compensation and
Liability Act in connection with the remediation of the Beacon
Heights Landfill in Beacon Falls, Connecticut and has been
identified as a potentially responsible party by another company in
connection with the Laurel Park Landfill in Naugatuck, Connecticut.
Management's review indicates that the Company sent ordinary
rubbish and off-specification plastic parts to these landfills and
did not send any hazardous wastes to either site.
Two coalitions of potentially responsible parties have entered
into consent decrees with the EPA to remediate these sites. Each
coalition has in turn brought an action against other potentially
responsible parties, including a subsidiary of the Company, to
contribute to the cleanup costs. The federal court hearing these
cases has either dismissed claims against the subsidiary (with
respect to Beacon Heights) or denied attempts to include the
subsidiary in the proceedings (with respect to Laurel Park);
however, each coalition has indicated that it intends to appeal the
court's ruling. Based upon management's review and the status of
these proceedings, management believes that any reasonably
anticipated losses from these claims will not result in a material
adverse impact on the results of operations or the financial
position of the Company.
A subsidiary of the Company is conducting an investigation of
alleged groundwater contamination at a facility in Athens, Georgia,
in cooperation with the current owner of the site. The site was
owned by the subsidiary until March 1988. No lawsuit has been
filed in this matter and the Georgia Environmental Protection
Division made a determination in 1994 that the site should not be
listed on its Hazardous Site Inventory. Based on remediation
estimates received, management believes that any reasonably
F-8
<PAGE>
Environmental, continued
anticipated losses from the alleged contamination will not result
in a material adverse impact on the results of operations or the
financial position of the Company.
Liquidity and Capital Resources
In October 1993, the Company and its parent Talley Industries,
Inc. completed a refinancing of substantially all of their existing
senior and senior subordinated debt. This refinancing program
included an offering of $185 million of debt securities, consisting
of $70 million gross proceeds of Senior Discount Debentures due
2005, issued by Talley Industries, Inc. to yield 12.25% and $115
million of Senior Notes due 2003, with an interest rate of 10.75%
issued by the Company. In connection with this refinancing, the
Company also obtained a $60.0 million secured credit facility with
institutional lenders. At December 31, 1994 availability under the
facility, based on inventory and receivable levels, and certain
plant and equipment, was approximately $46.0 million, of which
$27.3 million was borrowed.
The proceeds from the offering and the initial borrowings under
the secured credit facility were used to repay substantially all of
the Company's previously outstanding debt. The Company anticipates
that the new capital structure will support the long-term growth of
the Company's core businesses and permit the implementation of its
strategy to use proceeds received from the increasing airbag
royalties and from continuing operations to reduce its total
indebtedness.
The Company is permitted (and intends) to distribute cash to
its parent, for specified purposes and under certain other
circumstances. These distributions will be made using funds
available from operations and the secured credit facility. The
payments include (but are not limited to) certain airbag royalties
in excess of $10 million in any year (or in excess of such greater
amount as would be required for the Company to meet a specified
fixed charge coverage ratio) which will be used to redeem the
Senior Discount Debentures issued by Talley and an annual
distribution of up to $1.3 million ($1.7 million for the period
from the issue date of the new indebtedness through December 31,
1994) for a period of five years to fund certain carrying and other
costs associated with Talley's real estate operations. The Company
may also redeem preferred stock of the Company purchased by Talley
from proceeds of the recent refinancing. In addition, the Company
is a party to a cost sharing agreement and a tax sharing agreement
which will require the Company to reimburse Talley for certain
ongoing general and administrative expenses and to make certain tax
payments to Talley.
F-9
<PAGE>
Liquidity and Capital Resources, continued
The Company believes that the combination of cash flow from
operations, funds available under the credit facility described
above (or any successor facility) and increasing revenue from
airbag royalties (to the extent retained by the Company as
described above) will provide sufficient liquidity to meet its
working capital, debt service and other capital requirements and to
meet its other ongoing business needs over the next five
years. At December 31, 1994, the Company had $2.8 million in cash
and cash equivalents and $75.1 million in working capital. During
1994 the Company generated $22.6 million of cash flow from
operating activities. This amount reflects cash generated due to
a decrease in accounts receivable of $2.3 million, a decrease in
prepaid expenses of $1.8 million, and an increase in accounts
payable and accrued expenses totalling $.4 million. Since the
Company is engaged in government contracting activities, the amount
of receivables may fluctuate based on the timing of contract
shipments and collections on such contracts. Accordingly, the
December 31, 1994 balance of receivables was lower than the 1993
balance by $4.7 million. The receivable balance at the end of 1993
was above normal levels. In 1994 the Company used $9.3 million of
cash for investing activities during the year, consisting primarily
of the purchase of the assets of a manufacturer of metal buttons
for $5.7 million, $.3 million proceeds from sale of property and
equipment, and $3.9 million in purchases of property and equipment.
Cash used in financing activities of $17.0 million reflects a net
reduction in debt of $19.6 million from cash generated from
operations. The Company redeemed $4.0 million of preferred stock
from the Company's parent and there was also an increase of $6.6
million in the investment in the Company by the parent company.
Borrowings and pay downs under revolving credit facilities are also
included in financing activities.
F-10
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Years Ended December 31, 1994 1993 1992
Sales $242,044,000 $243,990,000 $259,973,000
Services 59,989,000 63,270,000 52,976,000
Royalties 18,570,000 10,868,000 6,614,000
320,603,000 318,128,000 319,563,000
Cost of sales 175,880,000 180,408,000 186,832,000
Cost of services 52,314,000 54,927,000 46,980,000
Selling, general and
administrative expenses 61,866,000 54,961,000 57,473,000
290,060,000 290,296,000 291,285,000
Earnings from operations 30,543,000 27,832,000 28,278,000
Other income, net 160,000 728,000 650,000
30,703,000 28,560,000 28,928,000
Interest expense 17,180,000 16,364,000 21,945,000
17,180,000 16,364,000 21,945,000
Earnings before income taxes
and extraordinary loss 13,523,000 12,196,000 6,983,000
Income tax provision 2,308,000 6,392,000 2,312,000
Earnings before extraordinary
loss 11,215,000 5,804,000 4,671,000
Extraordinary loss, net of
income taxes - (1,102,000) -
Net earnings 11,215,000 $ 4,702,000 $ 4,671,000
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1994 1993
ASSETS
Cash and cash equivalents $ 2,756,000 $ 6,417,000
Accounts receivable, net of
allowance for doubtful accounts
of $994,000 in 1994 and
$1,091,000 in 1993 55,672,000 60,376,000
Inventories 66,069,000 64,808,000
Deferred income taxes 800,000 900,000
Prepaid expenses 7,523,000 9,367,000
Total current assets 132,820,000 141,868,000
Long-term receivables, net 10,317,000 7,093,000
Property, plant and equipment,
at cost, net of accumulated
depreciation of $87,894,000
in 1994 and $82,240,000 in 1993 45,920,000 49,489,000
Intangibles, at cost, net of
accumulated amortization of
$15,697,000 in 1994 and
$13,883,000 in 1993 46,288,000 44,928,000
Deferred charges and other assets 7,160,000 8,465,000
Total assets $242,505,000 $251,843,000
F-12
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
December 31, 1994 1993
LIABILITIES AND STOCKHOLDER'S EQUITY
Current maturities of long-term debt $ 3,549,000 $ 2,176,000
Accounts payable 25,560,000 23,095,000
Accrued expenses 28,620,000 31,652,000
Total current liabilities 57,729,000 56,923,000
Long-term debt 139,756,000 160,002,000
Deferred income taxes 6,655,000 12,320,000
Other liabilities 6,488,000 4,196,000
Commitments and contingencies - -
Stockholder's equity:
Preferred stock, $1 par value,
authorized 100 shares;
issued:
8 shares of Series A 4 8
Common stock, $1 par value,
authorized 1,000;
shares issued:
1,000 shares 1,000 1,000
Capital in excess of par value 18,365,996 15,752,992
Foreign currency translation
adjustments (723,000) (370,000)
Retained earnings 14,233,000 3,018,000
Total stockholder's equity 31,877,000 18,402,000
Total liabilities and stockholder's
equity $242,505,000 $251,843,000
The accompanying notes are an integral part of the financial
statements.
F-13
<PAGE>
<TABLE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statement of Changes
in Stockholder's Equity
Other
Preferred Common Common Retained
Stock Stock Equity Earnings
<S> <C> <C> <C> <C>
Balance at December 31, 1991 $ - $ - $16,776,000 $ -
Net loss 4,671,000
Amounts from Parent (10,833,000)
Decrease in guaranteed debt of ESOP 334,000
Balance at December 31, 1992 - - 10,948,000 -
Net earnings 4,702,000
Amounts to Parent (3,972,000)
Issuance of 1,000 shares of
Common stock - 1,000 (1,000) -
Issuance of 8 shares of
Series A Preferred stock 8 - 7,999,992 -
Dividends - - - (1,684,000)
Decrease in guaranteed debt of ESOP 778,000
Balance at December 31, 1993 8 1,000 15,752,992 3,018,000
Net earnings 11,215,000
Amounts from Parent 6,613,000
Issuance of 1,000 shares of
Common stock
Redemption of 4 shares of
Series A Preferred stock (4) (3,999,996)
Balance at December 31, 1994 $ 4 $ 1,000 $18,365,996 $14,233,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Statement of Cash Flows
Years Ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Cash and cash equivalents at beginning
of year $ 6,417,000 $ 10,118,000 $ 46,726,000
Cash flows from operating activities:
Earnings from continuing operations 11,215,000 4,702,000 4,671,000
Adjustments to reconcile net income
to cash flows from operating
activities:
Change in deferred income taxes (5,565,000) 1,780,000 (3,536,000)
Depreciation and amortization 9,542,000 10,070,000 10,565,000
Loss (gain) on sale of property
and equipment (173,000) (191,000) 188,000
Other 4,242,000 1,353,000 3,357,000
Changes in assets and liabilities,
net of effects from acquired
businesses:
(Increase) decrease in accounts
receivable 2,281,000 (8,386,000) 15,632,000
(Increase) decrease in inventories (93,000) 1,176,000 6,921,000
(Increase) decrease in prepaid
expenses 1,844,000 (1,619,000) (1,469,000)
Increase in other assets (587,000) (7,714,000) (663,000)
Increase in accounts payable 2,465,000 3,878,000 132,000
Increase (decrease) in accrued
expenses (2,100,000) 4,991,000 (8,028,000)
Decrease in other liabilities (454,000) (2,909,000) (1,426,000)
Other, net - (1,693,000) -
Cash flows from operating activities 22,617,000 5,438,000 26,344,000
Cash flows from investing activities:
Proceeds from sale of subsidiary - 2,756,000 7,691,000
Purchase of assets of acquired
business (5,688,000) - -
Purchases of property and
equipment (3,932,000) (5,346,000) (4,564,000)
Proceeds from sale of property
and equipment 302,000 291,000 257,000
Cash flows from investing
activities (9,318,000) (2,299,000) 3,384,000
Cash flows from financing activities:
Increase in investment by
Parent company 6,613,000 14,156,000 -
Decrease in investment by
Parent company - (17,351,000) (10,833,000)
Decrease in notes payable - - (361,000)
Issuance of common stock - 1,000 -
Issuance of preferred stock - 8,000,000 -
Redemption of preferred stock (4,000,000) - -
Dividends - (1,684,000) -
Repayment of long-term debt (402,127,000) (334,890,000) (146,094,000)
Proceeds from new long-term debt 382,554,000 324,928,000 90,952,000
Cash flows from financing
activities (16,960,000) (6,840,000) (66,336,000)
Net decrease in cash and
cash equivalents (3,661,000) (3,701,000) (36,608,000)
Total cash and cash equivalents at
end of year $ 2,756,000 $ 6,417,000 $ 10,118,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
Notes to Consolidated Financial Statements
Significant Accounting Policies
Basis of Presentation
In July 1993, Talley Manufacturing and Technology, Inc. (the
Company), a wholly-owned subsidiary of Talley Industries, Inc., was
formed with the issuance of 1,000 shares of common stock. The
formation of the Company was in anticipation of an offering of
Senior Notes by the Company and Senior Discount Debentures by
Talley. Concurrently with the issuance of these securities, Talley
contributed the capital stock of its operating subsidiaries (other
than its real estate operations held for orderly sale) to the
Company, which also assumed a substantial portion of Talley's
indebtedness and liabilities. At the same time, the Company
entered into a new credit facility with certain lenders. The net
proceeds from the Senior Notes, the Senior Discount Debentures and
the new credit facility were used to repay substantially all of the
indebtedness of the Company and its subsidiaries, including
indebtedness assumed from Talley and certain indebtedness remaining
with Talley.
With the completion of the reorganization of entities under the
common control of Talley described above and the new financing, the
Company owns all of the capital stock of the operating subsidiaries
of Talley (other than the real estate operations held for orderly
sale). Accordingly, all corporate costs, assets and liabilities
are included in the Company's financial statements and interest
expense includes the interest on indebtedness of the operating
subsidiaries and all indebtedness assumed by the Company in
connection with the reorganization. In connection with the
reorganization, Talley and the Company entered into a Tax Sharing
Agreement and Cost Sharing Agreement.
The financial statements of Talley Manufacturing and
Technology, Inc. have been prepared using the historical amounts
included in the Talley Industries, Inc. and subsidiaries
consolidated financial statements giving effect to the
reorganization described above. With the exception of the net
assets of the real estate operations held for orderly sale and
certain debt and related interest expense, the consolidated
financial statements of Talley are substantially identical to the
Company. Inasmuch as the Company is a wholly-owned subsidiary of
Talley Industries, Inc., per share data has not be included as a
part of the results of operations.
Although the financial statements of Talley Manufacturing and
Technology, Inc. separately report its assets, liabilities
(including contingent liabilities) and stockholder's equity, legal
title to such assets and responsibilities for such liabilities was
not affected by such attribution during periods prior to the
reorganization. Accordingly, the Talley Industries, Inc.
consolidated financial statements and related notes should be read
in connection with these financial statements.
F-16
<PAGE>
Notes to Consolidated Financial Statements
Significant Accounting Policies (continued)
Principles of Consolidation:
The consolidated financial statements include the accounts of
the Company and all of its subsidiaries, all of which are wholly-
owned. All companies are consolidated in the financial statements.
All material intercompany transactions have been eliminated.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
Cash equivalents, which consist primarily of commercial paper and
money market funds are stated at cost plus accrued interest, which
approximates market.
Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method for substantially all
commercial inventories. Costs accumulated under government
contracts are stated at actual cost, net of progress payments, not
in excess of estimated realizable value.
Revenue Recognition:
Sales are generally recorded by the Company when products are
shipped or services performed. Sales under government contracts
are recorded when the units are shipped and accepted by the
government or as costs are incurred on the percentage-of-completion
method. Applicable earnings are recorded pro rata based upon total
estimated earnings at completion of the contracts. Anticipated
future losses on contracts are charged to income when identified.
Airbag royalties are recognized on an accrual basis, based on
production of airbag units by the licensee and production and sales
of vehicles for units not produced by the licensee.
Property and Depreciation:
Property, plant and equipment are recorded at cost and include
expenditures which substantially extend their useful lives.
Expenditures for maintenance and repairs are charged to earnings as
incurred. With the exception of items being depreciated under
composite lives, profit or loss on items retired or otherwise
disposed of is reflected in earnings. When items being depreciated
F-17
<PAGE>
Notes to Consolidated Financial Statements
Significant Accounting Policies (continued)
under composite lives are retired or otherwise disposed of,
accumulated depreciation is charged with the asset cost and
credited with any proceeds with no effect on earnings; however,
abnormal dispositions of these assets are reflected in earnings.
Depreciation of plant and equipment, other than buildings and
improvements on leased land, is computed primarily by the straight-
line method over the estimated useful lives of the assets.
Depreciation of buildings on leased land and amortization of
leasehold improvements and equipment are computed on the straight-
line method over the shorter of the terms of the related leases or
the estimated useful lives of the buildings or improvements.
Income Taxes:
Effective January 1, 1992, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting
For Income Taxes", retroactive to January 1, 1992. This
pronouncement requires a Company to recognize deferred tax
liabilities and assets for the expected future tax consequences of
events that have been recognized in a Company's financial
statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on differences between
the financial statement carrying amounts and tax bases of assets
and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. United States
income taxes are provided on the portion of earnings remitted or
expected to be remitted from foreign subsidiaries.
The Company is included in the consolidated U.S. income tax
return of Talley Industries, Inc. Accordingly, the provision for
income taxes is determined on a consolidated basis. The allocation
of the income tax provision for the Company has been determined on
a separate return basis.
Intangibles:
The excess cost of investments in subsidiaries over the equity
in net assets at acquisition date is being amortized using the
straight-line method over periods not in excess of 40 years. The
majority of the Company's intangibles consist of goodwill, which is
the excess of cost over tangible and identifiable intangible assets
acquired. The carrying value of intangibles is evaluated
periodically in relation to the operating performance and future
cash flow of the underlying businesses.
F-18
<PAGE>
Notes to Consolidated Financial Statements
Inventories
Inventories are summarized as follows:
(balances in thousands) 1994 1993
Raw material and supplies $ 11,757 $ 10,293
Work-in-process 11,733 9,584
Finished goods 24,616 26,470
Inventories substantially applicable to
fixed-price government contracts in
process, reduced by progress payments
of $8,273,000 and $9,110,000 in 1994
and 1993, respectively 17,963 18,461
$ 66,069 $ 64,808
Long-Term Receivables
Long-term receivables consist of the following:
(balances in thousands) 1994 1993
Notes receivable, including accrued
interest and income tax refunds $ 10,317 $ 10,554
Amounts due within one year, included
in accounts receivable - (3,461)
$ 10,317 $ 7,093
Long-term receivables include an income tax receivable of
$7,496,000 and one note of $2,829,000. The final maturity of the
note is March 1995 with an interest rate of 9.5%; However, payment
on the note is not current and collection is not expected during
1995.
Property, Plant and Equipment
Property, plant and equipment, is summarized as follows:
(in thousands) 1994 1993
Machinery and equipment $100,381 $ 97,051
Buildings and improvements 30,814 32,059
Land 2,619 2,619
$133,814 $131,729
Depreciation of property, plant and equipment for continuing
operations was $7,720,000, $8,271,000, and $8,634,000 for the years
ended December 31, 1994, 1993 and 1992, respectively.
F-19
<PAGE>
Notes to Consolidated Financial Statements
Long-Term Debt
Long-term debt consists of the following:
(balances in thousands) 1994 1993
10-3/4% Senior Notes, due 2003 $115,000 $115,000
Notes, interest based on prime or
other variable market rates,
due 1998 17,949 20,000
Revolving credit facilities 9,378 26,743
Capitalized leases and other 978 435
143,305 162,178
Less current maturities 3,549 2,176
Long-term debt $139,756 $160,002
On October 22, 1993 the Company completed a major debt
refinancing program. The Company issued $115,000,000 of Senior
Notes, due 2003, with an interest rate of 10.75% and also completed
a secured credit facility with two institutional lenders. In
connection with the new debt, the Company's parent, Talley
Industries, Inc., also received gross proceeds of $70,000,000 from
the issuance of Senior Discount Debentures. The $115,000,000 gross
proceeds of the public offering, plus an initial borrowing under
the secured credit facility, and certain distribution from its
parent, after payment of underwriting and other fees and expenses
associated with these financings, were used to repay substantially
all of the Company's previously outstanding debt.
The indenture for the Senior Notes and the loan agreement
relating to the secured credit facility contain covenants requiring
specified fixed charge coverage ratios, working capital levels,
capital expenditure limits, net worth levels, cash flow levels and
certain other restrictions on dividends, other payments and
incurrence of debt. Substantially all of the receivables,
inventory and property, plant and equipment of the Company and its
subsidiaries are pledged as collateral in connection with the
secured credit facility. In addition, the subsidiaries of the
Company have guaranteed its obligations under the Senior Notes and
the secured credit facility. The Company's parent, Talley
Industries, Inc., has guaranteed the Senior Notes on a subordinated
basis. Distributions from the subsidiaries of the Company are also
limited by tangible net worth and cash flow covenants. The capital
stock of the Company has been pledged by the Company to secure the
Senior Discount Debentures.
F-20
<PAGE>
Notes to Consolidated Financial Statements
Long-Term Debt, continued
The Senior Notes will mature on October 15, 2003 and Talley
Manufacturing will be required to make mandatory sinking fund
payments of $11,500,000 on October 15, in each of 2000, 2001 and
2002. Interest is payable semi-annually, commencing April 15,
1994. The secured credit facility consists of a five year
revolving credit facility of up to $40,000,000, depending on
inventory and receivable levels, and a five year $20,000,000 term
loan facility secured by plant and equipment. The balance
outstanding under the revolving credit facility at December 31,
1993 was $26,743,000. Upon the occurrence of certain specified
events at any time following the third anniversary of the facility,
the agent thereunder may elect to terminate the facility. The five-
year term facility requires monthly amortization payments based on
a seven year amortization schedule, with the balance due upon
expiration in October 1998. The credit facility interest rate is
prime plus one percent or an optional variable rate based on LIBOR
with an additional fee of one quarter of one percent on unused
amounts under the revolving facility.
Aggregate maturities of long-term debt for the years ending
December 31, 1995 through December 31, 1999, are $3,549,000,
$3,567,000, $3,094,000, $18,095,000 and $-0-, respectively. Cash
payments for total interest, net of amounts capitalized, during
1994, 1993 and 1992 were $16,063,000, $14,378,000 and $21,257,000,
respectively. Accrued interest expense at December 31, 1994, 1993
and 1992 was $2,640,000, $2,404,000 and $3,106,000, respectively.
Total capitalized lease obligations on buildings and equipment
included in long-term debt at December 31, 1994 is $313,000,
of which $139,000 is due within one year.
Leases
Rental expense (reduced by rental income from subleases of
$329,000 in 1994, $340,000 in 1993 and $693,000 in 1992) amounted
to $5,179,000 in 1994, $5,622,000 in 1993 and $6,641,000 in 1992.
Aggregate future minimum rental payments required under operating
leases having an initial lease term in excess of one year for years
ending December 31, 1995 through December 31, 1999 are $4,805,000,
$3,624,000, $2,279,000, $2,149,000 and $947,000, respectively, with
$761,000 payable in future years. Minimum operating lease payments
have not been reduced by future minimum sublease rentals of
$450,000.
F-21
<PAGE>
Notes to Consolidated Financial Statements
Leases, continued
Aggregate future minimum payments under capital leases for
years ending December 31, 1995 through December 31, 1997 are
$172,000, $170,000, and $18,000, respectively, with no payments in
later years. Minimum capital lease payments have not been reduced
by future minimum sublease rentals of $510,000. The present value
of net minimum lease payments is $313,000 after deduction of
$47,000, representing interest and estimated executory costs. The
net book value of leased buildings and equipment under capital
leases at December 31, 1994 and 1993 amounted to $213,000 and
$324,000, respectively.
Employee Benefit Plans
The Company and its subsidiaries have pension plans covering
a majority of their employees. Normal retirement age is 65, but
provisions are made for early retirement. For subsidiaries with
defined benefit plans, benefits are generally based on years of
service and salary levels. Contributions to the respective defined
contribution plans are based on each participant's annual pay and
age.
Pension expense in 1994, 1993 and 1992 was $4,977,000,
$5,394,000 and $4,085,000, respectively.
The Company generally contributes the greater of the amounts
expensed or the minimum statutory funding requirements. Pension
costs for continuing operations for defined benefit plans include
the following components:
(in thousands) 1994 1993 1992
Service cost-benefits earned
during the year $ 1,377 $ 1,594 $ 1,251
Interest cost on projected
benefit obligation 2,360 2,504 2,327
Actual return on assets 643 (5,712) (3,313)
Net amortization and deferral (3,493) 3,173 550
Net pension cost $ 887 $ 1,559 $ 815
The following table sets forth the aggregate funded status of
defined benefit plans at December 31, 1994 and 1993:
F-22
<PAGE>
Notes to Consolidated Financial Statements
Employee Benefit Plans, continued
1994
Assets Exceed Accumulated
Accumulated Benefits
(balances in thousands) Benefits Exceed Assets
Fair value of plan assets $ 36,474 $ 1,451
Projected benefit obligation (30,004) (1,641)
Projected benefit obligation
(in excess of) or less than
plan assets 6,470 (190)
Unrecognized net loss (gain) (7,612) (260)
Unrecognized prior service cost (266) 4
Unrecognized net liability 622 413
Unfunded accumulated benefit
obligation - (157)
Pension liability $ (786) $ (190)
Accumulated benefits $ 27,160 $ 1,641
Vested benefits $ 25,535 $ 1,611
1993
Assets Exceed Accumulated
Accumulated Benefits
(balances in thousands) Benefits Exceed Assets
Fair value of plan assets $ 39,879 $ 1,535
Projected benefit obligation (36,524) (1,948)
Projected benefit obligation
(in excess of) or less than
plan assets 3,355 (413)
Unrecognized net loss (gain) (3,826) (143)
Unrecognized prior service cost (279) 5
Unrecognized net liability 725 551
Unfunded accumulated benefit
obligation - (413)
Pension liability $ (25) $ (413)
Accumulated benefits $ 36,524 $ 1,948
Vested benefits $ 30,996 $ 1,932
F-23
<PAGE>
Notes to Consolidated Financial Statements
Employee Benefit Plans, (continued)
The provisions of Statement of Financial Accounting Standards
No. 87 "Employers' Accounting for Pensions," require the
recognition of an additional liability and related intangible asset
to the extent that accumulated benefits exceed plan assets. At
December 31, 1994 and 1993 the Company's additional liabilities
were $157,000 and $413,000, respectively. The Company recorded an
intangible asset in the same amount.
Assumptions used in 1994, 1993 and 1992 to determine the
actuarial present value of plan benefit obligations were:
1994 1993 1992
Assumed discount rate 8.5% 7.0% 7.0%
Assumed rate of compensation increase 5.0% 4.5% 5.0%
Expected rate of return on plan assets 9.0% 9.0% 9.0%
Net periodic pension cost is determined using the assumptions
as of the beginning of the year. The funded status is determined
using the assumptions as of the end of the year. Assets of the
Company's pension plans consist of marketable equity securities,
guaranteed investment contracts and corporate and government debt
securities. The total value of defined benefit plan assets exceed
total vested benefits by $10,779,000.
Effective January 1, 1984, the Company established an employee
stock purchase plan for eligible U.S. employees. Each eligible
employee who elects to participate may contribute 1% to 5% of his
or her pretax compensation from the Company. The Company
contributes an amount equal to 50% of the employee contributions.
During 1991, 1992 and 1993 the Company also made discretionary
contributions. Pursuant to a 1986 amendment to the Plan which
gives the Administration Committee authority to direct the trustee
to borrow funds to purchase Company securities, a promissory note
for $2,000,000 was executed on April 17, 1989 to purchase 141,500
shares of Talley Industries, Inc. Common stock. Company
contributions to the Plan were used, in part, by the Employee Stock
Ownership Plan (ESOP) to make loan and interest payments. As the
loan was repaid, a portion of the Common stock acquired by the Plan
was allocated to each employee in amounts based on the beginning of
month balances of the respective participant's accounts. Total
Company contributions during 1994 and 1993 were $713,000 and
$697,000, respectively. On October 22, 1993, the Company paid down
the loan as part of the debt refinancing program. As a result, the
Company's parent, Talley Industries, Inc. acquired the securities
not allocated to the Plan. Interest expense on the amount payable
by the Plan for 1994 and 1993 was $15,600 and $32,000,
respectively.
F-24
<PAGE>
Notes to Consolidated Financial Statements
Employee Benefit Plans (continued)
Any dividends received on the shares held by the ESOP are
reinvested in shares of Company stock. No dividends were received
during 1994, 1993 or 1992.
Health care and life insurance benefits are presently provided
to a small number of retired employees of one of the Company's
subsidiaries. The cost of retiree health care and life insurance
benefits are minor in amount and are recognized as benefits are
paid. The Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pension" in the first quarter of 1993, as
required by the pronouncement. The transition obligation of
approximately $1,474,000 is being amortized over a 20 year period.
The amortization of the unrecognized transition obligation for the
single subsidiary affected by the new pronouncement was $72,000 in
1994. Current service costs and interest costs for 1994 were
approximately $10,000 and $99,000, respectively.
Income Taxes
Earnings before income taxes and the provision (credit) for
income taxes consists of the following:
(balances in thousands) 1994 1993 1992
Earnings (loss) before income
taxes:
United States $ 11,981 $ 12,193 $ 7,511
Foreign 1,542 3 (528)
$ 13,523 $ 12,196 $ 6,983
Current tax expense (credit):
United States $ 6,613 $ 3,856 $ 5,212
Foreign 731 59 (285)
State and local 530 581 921
7,874 4,496 5,848
Deferred tax expense (credit):
United States - (232) (953)
Foreign 16 8 94
State and local (5,582) 2,120 (2,677)
5,566 1,896 (3,536)
$ 2,308 $ 6,392 $ 2,312
F-25
<PAGE>
Notes to Consolidated Financial Statements
Income Taxes, continued
Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities for 1994
and 1993, are as follows:
(balances in thousands) 1994 1993
Gross deferred tax assets:
Net operating losses and tax
credit carryforward $ - $ 1,727
Accrued expenses 5,015 6,794
Other 1,721 1,430
Valuation allowance for
deferred tax assets (1,019) (4,946)
Net deferred tax asset 5,717 5,005
Gross deferred tax liabilities:
Depreciation 6,662 7,642
Accrued expenses 3,908 7,606
Other 1,001 1,177
Gross deferred tax liability 11,571 16,425
Net deferred tax liabilities $ 5,854 $ 11,420
Reasons for the differences between the amount of income tax
determined by applying the applicable statutory federal income tax
rate to pretax income from continuing operations are:
1994 1993 1992
Computed tax at statutory U.S.
tax rates $ 4,597 $ 4,147 $ 2,374
State and local taxes (3,334) 1,781 (1,158)
Goodwill amortization 404 376 406
Other 641 88 690
$ 2,308 $ 6,392 $ 2,312
United States income taxes have not been provided on
$2,000,000 of undistributed earnings of subsidiaries incorporated
outside the United States, since it is the Company's intent to
reinvest such earnings. Net cash receipts (payments) for income
taxes during 1994, 1993 and 1992 were $(569,000), $828,000 and
$10,491,000, respectively.
F-26
<PAGE>
Notes to Consolidated Financial Statements
Income Taxes, continued
Pursuant to legislation passed in 1994 in the State of Arizona
regarding the rules for filing consolidated state income tax
returns, the Company reversed $5,600,000 of state income tax
accruals to reflect the change in the law. During 1992, the
Company was granted a favorable state income tax ruling and, as a
result, recognized a tax benefit of $3,508,000.
Commitments and Contingencies
TRW Claims. Litigation between the Company and TRW Inc. ("TRW")
has been pending in the United States District Court in Phoenix,
Arizona since November 1989. Various claims have been asserted by
TRW in this litigation, turning principally on alleged defects and
misrepresentations under the Asset Purchase Agreement relating to
the business and assets sold to TRW. Claims, asserted in this
litigation by TRW, relating to accounting adjustments demanded by
TRW and the expense of bringing the airbag plant into conformity
with the warranted production capacity have previously been
resolved by two arbitration proceedings. During the second quarter
of 1992, an arbitration panel made its determination on the TRW's
$34.0 million plant capacity claim and awarded TRW a judgment of
$5.1 million, which has been paid by the Company. TRW is currently
seeking pre-judgment interest (and the Company intends to oppose
TRW's right to such interest) on the arbitration award for the
period from June 1989 to the date on which the arbitration award
was paid (May 1992), at the statutory rate of ten percent per
annum. In April 1993, an arbitrator made his determination on the
TRW accounting claims and denied any award. TRW asserts that the
arbitration determinations did not dispose of all of its claims and
that it still possesses claims that the airbag plant failed to meet
certain government requirements and industry standards and that the
associated real estate was insufficient to permit construction of
certain additional facilities. TRW has not claimed a specific
dollar amount with respect to these issues. The Company has
asserted that all such claims have been extinguished by the
arbitration decisions.
In mid-February 1994 TRW filed a new declaratory judgment
action claiming, among other things, the Company, through the
actions of a subsidiary, breached a non-compete provision of the
Asset Purchase Agreement by rendering services to competitors of
TRW, and requesting among other things a court order that a
contemporaneous notice and a $26.5 million one-time payment that
TRW sent to the Company was valid, entitling it to terminate that
airbag royalty and obtain a paid up license to use the Company's
airbag technology. On March 1, 1994 the Company answered TRW's
complaint and also filed counterclaims alleging that TRW had
F-27
<PAGE>
Notes to Consolidated Financial Statements
Commitments and Contingencies, continued
wrongfully terminated the license agreement, had intentionally
interfered with the Company's business relationships and had failed
to exert reasonable efforts to exploit the exclusive license
granted to TRW by the Company. On March 14, 1994 the Company filed
a Motion for an Order requiring TRW to make payment of all
quarterly royalties until the lawsuit is finally resolved. The
Company sought the Order to avoid the harm from cash flow
interruption and/or potential loan covenant defaults caused by
TRW's failure to pay scheduled royalty payments. A three day
hearing on the Company's Motion was completed on May 3, 1994 and on
May 19, 1994 the Court granted the Company's motion for a
preliminary injunction. The Court ordered TRW to continue paying
royalties to the Company pending conclusion of the lawsuit. On
August 24, 1994 the Court refused TRW's motion to suspend the
injunction and also granted the Company's motion for partial
summary judgement precluding TRW at trial from relying on certain
claims it has asserted in the earlier action. A trial in this
matter is currently scheduled to commence in April 1995. While it
is not possible to predict the outcome of litigation, the Company
believes that it has meritorious defenses to TRW's claims and that
it will ultimately prevail. Therefore, management anticipates that
the above-described action will be resolved without any material
adverse impact on the results of operations, liquidity or financial
position of the Company.
Environmental. A subsidiary of the Company has been named as a
potentially responsible party by the Environmental Protection
Agency ("EPA") under the Comprehensive Environmental Response
Compensation and Liability Act in connection with the remediation
of the Beacon Heights Landfill in Beacon Falls, Connecticut and has
been identified as a potentially responsible party by another
company in connection with the Laurel Park Landfill in Naugatuck,
Connecticut. Management's review indicates that the Company sent
ordinary rubbish and off-specification plastic parts to these
landfills and did not send any hazardous wastes to either site.
Two coalitions of potentially responsible parties have entered
into consent decrees with the EPA to remediate these sites. Each
coalition has in turn brought action against other potentially
responsible parties, including a subsidiary of the Company, to
contribute to the cleanup costs. The federal court hearing these
cases has either dismissed claims against the subsidiary (with
respect to Beacon Heights) or denied attempts to include the
subsidiary in the proceedings (with respect to Laurel Park);
however, each coalition has indicated that it intends to appeal the
court's ruling. Based upon management's review and the status of
these proceedings, management believes that any reasonably
anticipated losses from these claims will not result in a material
adverse impact on the results of operations or the financial
position of the Company.
F-28
Notes to Consolidated Financial Statements
Commitments and Contingencies (continued)
Environmental, continued
A subsidiary of the Company is conducting an investigation of
alleged groundwater contamination at a facility in Athens, Georgia,
in cooperation with the current owner of the site. The site was
owned by the subsidiary until March 1988. No lawsuit has been
filed in this matter and the Georgia Environmental Protection
Division made a determination in 1994 that the site should not be
listed on its Hazardous Site Inventory. Based on remediation
estimates received, management believes that any reasonably
anticipated losses from the alleged contamination will not result
in a material adverse impact on the results of operations or the
financial position of the Company.
Tax. The Arizona Department of Revenue issued Notices of
Correction of Income Tax dated March 17, 1986 to the Company for
the fiscal year ending March 31, 1983. These Notices pertain to
whether subsidiaries of the Company must file separate income tax
returns in Arizona rather than allowing the Company to file on a
consolidated basis. The amount of additional Arizona income tax
alleged to be due as a result of the Notices of Correction was $0.4
million plus interest. In May 1992 the Arizona Tax Court granted
judgment in favor of the Company and against the Department on all
claims asserted against the Company. In October 1992 the Tax Court
entered judgment in favor of the Company awarding the Company
approximately $0.6 million for the Arizona income taxes the Company
overpaid for its fiscal year ending March 31, 1983 together with
interest and attorneys' fees.
In September 1994, the Arizona Court of Appeals reversed the
1992 Arizona Tax Court ruling that entitled the Company to file a
combined tax return in the State of Arizona for the fiscal year
ended March 31, 1983. The Company has filed a petition for review
with the Arizona Supreme Court. The Company believes the appellate
court erred in its decision, but cannot assess the likelihood of
the Arizona Supreme Court granting the petition for review. The
Company anticipates that the Supreme Court will rule on the
petition for review during 1995 and if the petition is granted, the
Supreme Court will require an additional eighteen months to rule on
the issues. If the appellate court decision stands, the Company
would be liable for approximately $1.2 million in taxes and
interest for 1983. In May 1993, the Arizona Department of Revenue
issued assessments with respect to calendar years 1984 through 1989
alleging that the Company owes additional Arizona income tax and
interest in the amount of $16.6 million. Management's preliminary
review of the assessments indicates that they were calculated on
essentially the same basis used by the Department in its previous
claims for income tax due with respect to its fiscal year ended
March 31, 1983. If the Company is unsuccessful in its attempts to
have the Arizona Supreme Court overturn the appellate court
decision related to the 1983 fiscal year, the Company intends to
F-29
<PAGE>
Notes to Consolidated Financial Statements
Commitments and Contingencies (continued)
Tax, continued
vigorously litigate the Arizona Department of Revenue tax and
interest assessments totalling approximately $5.0 million for
calendar years 1984 and 1985. The Company does not anticipate a
final resolution of the 1984 and 1985 periods for a number of
years. Legislation adopted in 1994 in Arizona specifically allows
companies to file combined tax returns in Arizona for periods from
January 1, 1986 and on December 8, 1994 the Arizona Department of
Revenue withdrew its assessments for 1986 and subsequent years.
Management believes that the final resolution of the above matter
will not result in a material adverse impact on the results of
operations or the financial position of the Company.
Fair Value of Financial Instruments
The following table presents the carrying amounts and fair
values of the Company's financial instruments for which it is
practicable to estimate. Financial Accounting Standards Board
Statement No. 107 "Disclosure about Fair Value of Financial
Instruments", defines the fair value of a financial instrument as
the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a force or
liquidation sale.
(balances in thousands) 1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash & cash equivalents $ 2,756 $ 2,756 $ 6,417 $ 6,417
Non-trade receivables 10,317 10,317 10,554 10,554
Debt 143,305 127,780 162,178 162,178
The following notes summarize the major methods and
assumptions used by the Company in estimating the fair values of
financial instruments.
Cash and cash equivalents
The carrying amount of cash and cash equivalents approximates
fair value because of the short maturity of those instruments.
Non-trade receivables
Interest rules on non-trade receivables, including the current
portion, are generally at current market rates. Accordingly the
carrying value and fair value of the receivables are equal after
considering allowances for the carrying value of certain notes.
F-30
<PAGE>
Notes to Consolidated Financial Statements
Fair Value of Financial Instruments, continued
Debt
The fair value of the Company's debt, including the current
portion, at December 31, 1994 is based on quoted market prices or,
if market prices are not available, the fair value is estimated
using discounted cash flow analysis based on estimated rates for
similar instruments.
The Company has the right to receive royalty payments under a
license agreement executed in April, 1989 in connection with the
sale of its airbag operations to TRW. Under the agreement, the
Company is entitled to receive royalties for the twelve year period
commencing May 1, 1989 and ending April 30, 2001. The rates at
which these royalties are to be paid are; $1.14 for each airbag
unit manufactured and sold anywhere in the world by TRW and its
subsidiaries (this amount increases by $.01 per unit on May 1 of
each year of the royalty term); 75% of the per-unit amount
specified above for each inflator manufactured and sold anywhere in
the world by TRW and subsidiaries; and $.55 for each airbag unit
supplied by companies other than TRW for use in a vehicle
manufactured or sold in North America.
The fair value of the royalty stream is dependent upon many
factors, including automobile production, the number of produced
vehicles with airbag systems and the market share of TRW.
Royalties recognized in the year ending December 31, 1994 were
$17,292,000.
Research and Development Costs
Company-sponsored research and development costs were
$4,304,000, $3,122,000 and $3,904,000 for the years ended December
31, 1994, 1993, and 1992, respectively. For the same periods,
customer-sponsored research and development expenditures were
$8,231,000, $11,620,000 and $2,404,000, respectively.
Extraordinary Loss
As a result of the termination of the interest swap agreement
and the payoff of the underlying debt in 1993, the Company
recognized an extraordinary loss of $1,102,000, net of taxes of
$568,000.
Acquisitions and Dispositions
In July 1994, a subsidiary of the Company acquired certain
assets of the Ball and Socket Manufacturing Company, Inc., a
manufacturer of metal buttons. The purchase price was
approximately $5.7million, including cash of $2,100,000; 323,232
F-31
<PAGE>
Notes to Consolidated Financial Statements
Acquisitions and Dispositions, continued
shares of the Company's Common stock scheduled for issuance two
years after closing; and certain liabilities assumed and
acquisition costs incurred.
As part of its restructuring plans the Company sold the net
assets of its precision potentiometer business in July 1993, for a
cash purchase price of $2,756,000, which approximated the book
value of the net assets sold. On May 19, 1992 the Company sold the
net assets of its specialty advertising subsidiary for $7,866,000,
which was approximately $400,000 below its book value.
The excess of cost over tangible and identifiable intangible
assets acquired, net of amortization at December 31, 1994, 1993,
and 1992 was $45,716,000, $43,696,000, and $45,501,000,
respectively.
Related Party Transactions
In each of the last three years the Company and its
subsidiaries incurred legal fees payable to the law firm of one of
the Company's directors. During 1994, 1993 and 1992 total billings
for the firm were $610,000, $715,000 and $1,045,000, respectively,
and were for foreign and domestic services relating to litigation
and general corporate matters. Fees were paid to a second law firm
in 1993 of $329,000. A 1993 addition to the Company's board of
directors was a partner in such firm until he retired in June 1993.
Recently Issued Accounting Standards
In October 1994 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 119
"Disclosure About Derivative Financial Instruments and Fair Value
of Financial Instruments" effective for the Company at December 31,
1994. The Company does not presently have nor has it had any
derivative type instruments since mid-1993 when a single interest
rate swap agreement was terminated, which transaction is fully
disclosed in the notes to the financial statements.
Other pronouncements issued by the Financial Accounting
Standards Board with future effective dates are either not
applicable or not material to the consolidated financial statements
of the Company.
Segment Operations
The Company is a diversified manufacturer of a wide range of
proprietary and other specialized products for defense, industrial
and commercial applications. Through its Government Products and
Services segment, the Company manufactures an extensive array of
propellant devices and electronic components for defense systems
and commercial applications and provides naval architectural and
marine engineering services. The Company participates in the
F-32
<PAGE>
Notes to Consolidated Financial Statements
Segment Operations (continued)
rapidly expanding market for automotive airbags through its royalty
agreement with TRW, which provides the Company with a quarterly
royalty payment through April 30, 2001 for any airbag manufactured
and sold by TRW worldwide and for any other airbag installed in a
vehicle manufactured or sold in North America. The Company's
Industrial Products segment manufactures and distributes stainless
steel products, high-voltage ceramic insulators used in the power
transmission and distribution systems, and specialized welding
equipment and systems. The Company's Specialty Products segment
manufactures and sells aerosol insecticides, air fresheners and
sanitizers, and custom designed metal buttons.
Government Products and Services
The Company's Government Products and Services segment
provides a wide range of products and services for government
programs. The vast majority of the Company's products are smaller
components of larger units and systems and are generally designed
to enhance safety or improve performance. The Company manufactures
proprietary propellant products which, when ignited, produce a
specified thrust or volume of gas within a desired time period.
Propellant products manufactured include ballistic devices for
aircraft ejection systems, rocket motors, extended range munitions
components and dispersion systems.
The Company's propellant devices are currently used on
ejection seats on high performance domestic and foreign military
aircraft. Rocket motors manufactured by the Company include a
complete line of rocket boosters and propulsion systems used for
reconnaissance, surveillance, and target acquisition. The
Company's extended range munitions components utilize propellant
technologies to significantly extend the range of existing U.S.
artillery. Other electronic products include sub-miniature elapsed
time indicators, events counters, fault annunciators, and lighting
products used in aerospace and military applications to monitor
equipment performance. Naval architecture and marine engineering
services provided by the Company include detail design and
engineering services for new military and commercial construction
as well as a significant amount of maintenance and retrofit work
for existing ships.
The Company's Government Products and Services segment also
manufactures specialized electronic display and monitoring devices
and high performance cable connection assemblies.
Direct sales to the U.S. Government and its agencies,
primarily from the Government Products and Services segment
accounted for approximately 23%, 24% and 32% of the Company's sales
for the years ended December 31, 1994, 1993 and 1992, respectively.
F-33
<PAGE>
Notes to Consolidated Financial Statements
Segment Operations (continued)
Government Products and Services, continued
At December 31, 1994 and 1993 the amount billed but not paid by
customers under retainage provisions in long-term contracts was
$1,075,000 and $1,402,000, respectively. The $1,075,000 receivable
under retainage provisions is expected to be collected in 1995
through 1998 in the amounts of $198,000, $54,000, $129,000 and
$694,000, respectively. Amounts in process but unbilled at
December 31, 1994 and 1993 were $6,257,000 and $5,425,000,
respectively.
Airbag Royalties
The Company participates in the rapidly expanding market for
automotive airbags through its royalty agreement with TRW. The
Company entered into the Airbag Royalty Agreement as part of the
1989 sale of its automotive airbag manufacturing business. The
terms of the Airbag Royalty Agreement require TRW to make quarterly
royalty payments to the Company through April 30, 2001 for any
airbag units manufactured and sold worldwide by TRW as well as for
any other airbags installed in vehicles manufactured or sold in
North America.
Industrial Products
The Company's Industrial Products segment operates in three
product areas: stainless steel, high-voltage ceramic insulators
and automated welding equipment. Demand for these products is
directly related to the level of general economic activity.
Through its stainless steel operation, the Company operates a
mini-mill which converts purchased stainless steel billets into a
variety of sizes of both hot rolled and cold finished bar and rod.
The Company's stainless steel mini-mill has utilized advanced
computer automation, strict quality controls, and strong
engineering and technical capabilities to maintain its position as
a low cost, high quality producer. In addition to its stainless
steel manufacturing operation, the Company distributes stainless
steel and other specialty steel products through seven locations in
the U.S. and Canada. The Industrial Products segment also
manufactures and distributes high-voltage ceramic insulators for
electric utilities, municipalities and other governmental units, as
well as for electrical contractors and original equipment
manufacturers. Products include a wide array of transformer
bushings and accessories, special and standard porcelain for high
and low-voltage applications, apparatus bushing assemblies, and
F-34
<PAGE>
Notes to Consolidated Financial Statements
Segment Operations (continued)
Industrial Products, continued
transmission and distribution class insulators which are
manufactured for both domestic and international markets. In
addition, the Company manufactures specialized advanced-technology
welding systems, power supply systems and humidistats for the
utility, pipeline and original equipment manufacturer markets.
Welding equipment manufactured by the Company includes systems that
are specially designed to operate in hostile environments such as
nuclear radiation.
Specialty Products
The Company's Specialty Products segment is focused on two
distinct markets: aerosol insecticides, air fresheners and
sanitizers servicing the industrial maintenance supply, pest
control and agricultural markets, and custom designed metal buttons
for the military and commercial uniform and fashion markets. The
majority of the Company's aerosol insecticides are proprietary
formulations of natural active ingredients.
The Company's U.S. operations had export sales of $15,932,000,
$26,672,000 and $16,216,000 for the years ended December 31, 1994,
1993 and 1992, respectively.
Substantially all facilities and operations of the Company's
continuing operations are located within the United States. The
Company operates a steel distribution system located in Canada with
sales for the year ended December 31, 1994 and total assets at
December 31, 1994 of $12.7 million and $8.5 million, respectively.
Foreign exchange losses included in earnings for the years
ended December 31, 1994, 1993 and 1992 were not material. The
foreign currency translation adjustment included in stockholder's
equity decreased from $(370,000) at December 31, 1993 to $(723,000)
at December 31, 1994.
Sales between segments are not significant and have been
eliminated. Operating income is total revenue less operating
expenses and excludes general Corporate expenses, non-segment
interest income and interest expense. Interest income associated
with segment assets is included in segment operations income.
Corporate assets consist principally of cash and cash equivalents,
notes receivable, income taxes receivable and a building.
F-35
<PAGE>
Notes to Consolidated Financial Statements
Segment Operations (continued)
The tables which follow show assets, depreciation and amortization
and capital expenditures by segment:
(in thousands) 1994 1993 1992
Assets by Segment
Government Products and Services $ 98,424 $114,347 $113,385
Airbag Royalties 4,700 3,704 1,644
Industrial Products 86,583 86,879 83,904
Specialty Products 34,698 27,951 27,190
224,405 232,881 226,123
Corporate 18,100 18,962 21,635
$242,505 251,843 247,758
Depreciation and Amortization
by Segment
Government Products and Services $ 3,306 $ 4,163 $ 4,235
Airbag Royalties - - -
Industrial Products 4,750 4,427 4,616
Specialty Products 1,161 1,138 1,319
9,217 9,728 10,170
Corporate 325 342 395
$ 9,542 $ 10,070 $ 10,565
Capital Expenditures by Segment
Government Products and Services $ 1,820 $ 1,648 $ 2,122
Airbag Royalties - - -
Industrial Products 1,420 2,842 1,045
Specialty Products 561 754 1,101
3,801 5,244 4,268
Corporate 131 102 296
$ 3,932 $ 5,346 $ 4,564
F-36
<PAGE>
<TABLE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Summary of Segment Operations
(in thousands)
Years Ended December 31, 1994 1993 1992 1991 1990
Revenue from continuing operations
by segment:
<S> <C> <C> <C> <C> <C>
Government Products and Services $141,074 $170,323 $183,162 $168,961 $149,377
Airbag Royalties 17,292 9,606 5,566 3,161 2,956
Industrial Products 129,080 107,402 95,097 117,682 133,728
Specialty Products 33,157 30,797 35,738 41,061 48,570
$320,603 $318,128 $319,563 $330,865 $334,631
Operating income from continuing
operations by segment:
Government Products and Services $ 18,194 $ 24,354 $ 26,101 $ 23,940 $ 21,413
Airbag Royalties 17,292 9,606 5,566 3,161 2,956
Industrial Products 7,464 2,438 (45) 839 (4,235)
Specialty Products 4,854 5,001 5,055 5,345 2,462
47,804 41,399 36,677 33,285 22,596
Corporate expenses (17,163) (13,151) (9,672) (16,127) (14,058)
Non-segment interest income 62 312 1,923 2,248 2,003
Interest expense (17,180) (16,364) (21,945) (24,587) (19,846)
Earnings (loss) from continuing
operations before income taxes $ 13,523 $ 12,196 $ 6,983 $ (5,181) $ (9,305)
Operating income includes a charge of $15,000,000 in 1990 and $5,000,000 in 1991 related to the Company's
restructuring program.
</TABLE>
F-37
<PAGE>
<TABLE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Summary of Operations
(in thousands)
Years Ended December 31, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Revenue $320,603 $318,128 $319,563 $330,865 $334,631
Cost of sales and services 228,194 235,335 233,812 248,938 253,649
Selling, general and administrative
expenses 61,866 54,961 57,473 58,810 56,300
Restructuring costs - - - 5,000 15,000
290,060 290,296 291,285 312,748 324,949
Earnings from operations 30,543 27,832 28,278 18,117 9,682
Other income, net 160 728 650 1,289 859
30,703 28,560 28,928 19,406 10,541
Interest expense 17,180 16,364 21,945 24,856 20,537
Interest capitalized - - - (269) (691)
17,180 16,364 21,945 24,587 19,846
Earnings (loss) from continuing
operations before income taxes
and extraordinary loss 13,523 12,196 6,983 (5,181) (9,305)
Income tax provision (benefit) 2,308 6,392 2,312 (277) (1,974)
Earnings (loss) from continuing
operations 11,215 5,804 4,671 (4,904) (7,331)
Extraordinary loss, net of income
tax - (1,102) - - -
Net earnings (loss) $ 11,215 $ 4,702 $ 4,671 $ (4,904) $ (7,331)
</TABLE>
F-38
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder
of Talley Manufacturing and Technology, Inc.
In our opinion, the consolidated financial statements listed in the
index appearing on page F-1 present fairly, in all material
respects, the financial position of Talley Manufacturing and
Technology, Inc. and its subsidiaries at December 31, 1994 and
1993, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. 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
of these financial statements in accordance with generally accepted
auditing standards which 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, the evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion
expressed above.
As discussed in the notes to the financial statements titled
"Employee Benefit Plans" and "Significant Accounting Policies" the
Company changed its method of accounting for postretirement
benefits other than pensions in 1993 and changed its method of
accounting for income taxes in 1992.
PRICE WATERHOUSE LLP
Phoenix, Arizona
February 21, 1995
F-39
<PAGE>
<TABLE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
FINANCIAL DATA
Selected Financial Data
(in thousands)
Years Ended December 31, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Capital expenditures $ 3,932 $ 5,346 $ 4,564 $ 6,567 $ 14,544
Depreciation and amortization 9,542 10,070 10,565 11,195 11,711
Current assets 132,820 141,868 135,199 206,759 184,758
Current liabilities 57,729 56,923 58,106 287,294 * 307,524 *
Working capital 75,091 84,945 77,093 (80,535)* (122,766)*
Total assets 242,505 251,843 247,758 330,178 322,495
Total debt 143,305 162,178 172,140 227,977 235,086
Long-term debt 139,756 160,002 161,283 - -
Long-term debt, subject to
acceleration - - - 159,933 * 189,956 *
Stockholder's equity 31,877 18,402 10,948 16,776 (687)
Current ratio 2.3 2.5 2.3 .7 .6
Supplemental Data
(in thousands)
Years Ended December 31, 1994 1993 1992 1991 1990
Taxes, other than income:
Payroll $ 6,719 $ 7,037 $ 7,195 $ 7,321 $ 7,387
Property 1,660 1,557 1,721 1,891 1,810
Other 338 328 382 626 461
8,717 8,922 9,298 9,838 9,658
Maintenance and repairs 4,557 4,668 4,626 4,624 4,494
Rent 5,307 5,962 7,353 7,845 7,735
Advertising 786 648 720 958 1,164
Research and development 4,304 3,122 3,904 4,223 3,996
</TABLE>
F-40
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Subsidiaries/Divisions
GOVERNMENT PRODUCTS AND SERVICES
Electrodynamics, Inc. - Rolling Meadows,
Illinois. John W.
Kravcik, President.
John J. McMullen Associates, Inc. - New York, New York.
P. Thomas Diamant,
President.
Rowe Industries, Inc. - Toledo, Ohio. Haywood
W. Bower, President.
Talley Defense Systems, Inc. - Mesa, Arizona. Edward
T. Ryan, Jr., President.
Universal Propulsion Company, Inc. - Phoenix, Arizona.
Harold G. Watson,
President.
INDUSTRIAL PRODUCTS
Amcan Specialty Steels, Inc. - Hermitage, Pennsylvania.
Bruce R. Olson,
President.
Diversified Stainless Steel of Canada, Inc. - Downsview, Ontario,
Canada. Frank Szabo,
President.
Porcelain Products Co. - Carey, Ohio. Haywood W.
Bower, President.
Talley Metals Technology, Inc. - McBee, South Carolina.
Donald Bailey,
President.
Dimetrics, Inc. - Davidson, North
Carolina. Arthur M.
Squicciarini, President.
SPECIALTY PRODUCTS
Waterbury Companies, Inc. - Waterbury, Connecticut.
Gerald J. Palanzo, Jr.,
President.
F-41
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Directors and Corporate Management
DIRECTORS
William H. Mallender - Chairman of the Board and Chief
Executive Officer
Jack C. Crim - President and Chief Operating Officer
Neil W. Benson - Chartered Accountant, Lewis Golden & Co.
Paul L. Foster - Professor of Finance, Saint Joseph's
University
Townsend Hoopes - Retired, formerly President, Association
of American Publishers, Inc.
Fred Israel - Retired, formerly Senior Partner Israel
and Raley
John D. MacNaughton, Jr. - President, The MacNaughton Co.
Joseph A. Orlando - Independent financial consultant
Alex Stamatakis - Chairman of the Board, Stamatakis
Industries, Inc.
John W. Stodder - Vice Chairman, Jostens, Inc.
Donald J. Ulrich - Owner and Vice Chairman, Ventura Coastal
Corporation
David Victor - Member, Meyer, Hendricks, Victor, Osborn
& Maledon
CORPORATE MANAGEMENT
William H. Mallender - Chairman of the Board and Chief
Executive Officer
Jack C. Crim - President and Chief Operating Officer
William E. Bonnell - Vice President - Human Resources
Mark S. Dickerson - Vice President, General Counsel and
Secretary
Kenneth May - Vice President and Controller
Daniel R. Mullen - Vice President and Treasurer
George W. Poole - Vice President - Government Relations
F-42
<PAGE>
SCHEDULE I
Page 1 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
STATEMENT OF CONDITION (BALANCE SHEET)
DECEMBER 31,
1994 1993
Assets
Current assets:
Cash and cash equivalents $ 514,000 $ 2,069,000
Due from affiliates 6,373,000 1,648,000
Accounts receivable 8,735,000 11,078,000
Prepaid expenses 991,000 1,552,000
Total current assets 16,613,000 16,347,000
Investment in and advances to affiliates 134,359,000 122,844,000
Long-term receivables 3,757,000 2,829,000
Property, plant and equipment, at cost,
net of accumulated depreciation of
$1,596,000 in 1994 and $1,532,000
in 1993 581,000 682,000
Deferred charges and other assets 10,078,000 9,062,000
Deferred income taxes 192,000 -
Total assets $165,580,000 $151,764,000
See accompanying notes and the notes to the consolidated financial
statements.
F-43
SCHEDULE I
Page 2 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
STATEMENT OF CONDITION (BALANCE SHEET)
DECEMBER 31,
1994 1993
Liabilities and Stockholder's Equity
Current liabilities:
Current maturities of long-term debt $ 434,000 $ 88,000
Due to affiliates 2,000 2,000
Accounts payable 2,059,000 4,545,000
Accrued expenses 9,197,000 3,549,000
Deferred income taxes 3,263,000 5,182,000
Total current liabilities 14,955,000 13,366,000
Deferred income taxes - 4,411,000
Long-term debt 115,448,000 115,121,000
Other liabilities 3,300,000 464,000
Stockholder's equity:
Preferred stock, $1 par value,
authorized 100 shares -
Series A: Issued 8 shares 4 8
Common stock, $1 par value,
authorized 1,000 shares 1,000 1,000
Capital in excess of par value 18,365,996 15,752,992
Foreign currency translation adjustments (723,000) (370,000)
Retained earnings 14,233,000 3,018,000
Total stockholder's equity 31,877,000 18,402,000
Total liabilities and
stockholder's equity $165,580,000 $151,764,000
See accompanying notes and the notes to the consolidated financial
statements.
F-44
<PAGE>
SCHEDULE I
Page 3 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
Selling, general and
administrative expenses $ 16,658,000 $ 13,045,000 $ 9,381,000
Administrative allocations
to subsidiaries (14,965,000) (16,643,000) (19,218,000)
1,693,000 (3,598,000) (9,837,000)
Other income (expense), net (588,000) 264,000 3,253,000
2,281,000 (3,862,000) (13,090,000)
Interest expense 17,154,000 16,323,000 21,789,000
Interest charges to
subsidiaries, net (3,885,000) (167,000) (494,000)
13,269,000 16,156,000 21,295,000
(15,550,000) (12,294,000) (8,205,000)
Income tax provision (benefit) 8,641,000 (3,600,000) (5,564,000)
Loss before earnings of
subsidiaries and
extraordinary gains (6,909,000) (8,694,000) (2,641,000)
Extraordinary loss,
net of taxes - (1,102,000) -
Earnings from subsidiaries 18,124,000 14,498,000 7,312,000
Net earnings (loss) $ 11,215,000 $ 4,702,000 $ 4,671,000
See accompanying notes and the notes to the consolidated financial statements.
F-45
<PAGE>
SCHEDULE I
Page 4 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
Cash flows from operating activities $ 14,297,000 $ 9,223,000 $ 2,455,000
Cash flows from investing activities:
Decrease (increase) in investment
in subsidiaries, net (11,515,000) 40,780,000 1,686,000
Increase in long-term
receivables, net - - (958,000)
Cash from investing activities (11,515,000) 40,780,000 728,000
Cash flows from financing activities:
Reduction of notes payable - - (32,648,000)
Proceeds from long-term debt 68,372,000 120,885,000 -
Reduction of long-term debt (70,597,000) (126,802,000) (67,000)
Proceeds from issuance of stock - 8,000,000 -
Redemption of preferred stock (4,000,000) - -
Amounts (to) from Parent, net 6,613,000 (8,816,000) (10,833,000)
Decrease (increase) in due from
affiliates, net (4,725,000) (48,673,000) 4,228,000
Cash from financing activities (4,337,000) (55,406,000) (39,320,000)
Decrease in cash and cash
equivalents (1,555,000) (5,403,000) (36,137,000)
Balance at beginning of year 2,069,000 7,472,000 43,609,000
Balance at end of year $ 514,000 $ 2,069,000 $ 7,472,000
See accompanying notes and the notes to the consolidated financial statements.
F-46
<PAGE>
SCHEDULE I
Page 5 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
Notes to Financial Statements
The following notes supplement information provided in the notes
accompanying the consolidated financial statements.
1. Basis of Presentation
Investments in and advances to affiliates represents interest in
majority-owned subsidiaries and associated companies. The investments
are accounted for on the equity method and, accordingly, the carrying
value approximates the Company's equity in the recorded value of the
underlying net assets. In July 1993, Talley Manufacturing and
Technology, Inc. ("the Company"), a wholly owned subsidiary of Talley
Industries, Inc., ("Talley") was formed with the issuance of 1,000 shares
of common stock. The formation of the Company was in anticipation of an
offering, in October, 1993, of Senior Notes by the Company and Senior
Discount Debentures by Talley. Concurrently with the issuance of these
securities, Talley contributed the capital stock of its operating
subsidiaries (other than its real estate subsidiaries) to the Company,
which also assumed a substantial portion of Talley's indebtedness and
liabilities. (See Basis of Presentation note to the Company's
consolidated financial statements).
Certain reclassifications have been made in the prior year Statement of
Condition to be consistent with current year classifications.
2. Long-Term Debt
December 31,
Long-term debt consists of the following: 1994 1993
(balances in thousands)
10-3/4% Senior Notes, due 2003 $115,000 $115,000
Capitalized leases and other 882 209
115,882 115,209
Less current maturities 434 88
Long-term debt $115,448 $115,121
The Company and Talley Industries, Inc. completed a major debt
refinancing program on October 22, 1993. The proceeds from the new
financing were used to repay substantially all of the Company's debt.
(See Long-term debt note to the Company's consolidated financial
statements).
Aggregate maturities of long-term debt for the years ended December 31,
1995 through 1999 are $434,000, $448,000, $-0-, $-0- and $-0-,
respectively.
F-47
<PAGE>
SCHEDULE I
Page 6 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
Notes to Financial Statements
3. Income Taxes
The parent company and its domestic subsidiaries file a consolidated
federal income tax return. The provision for income taxes represents the
difference between amounts attributable to each subsidiary, generally
determined on a separate return basis, and the tax computed on a
consolidated basis.
4. Dividends Received
The registrant received dividends, net of contributions from consolidated
subsidiaries, unconsolidated subsidiaries and 50 percent or less owned
persons accounted for by the equity method during the years ended
December 31, 1994, 1993 and 1992 of $11,360,000, $97,475,000 and
$8,251,000, respectively.
F-48
<PAGE>
<TABLE>
SCHEDULE II
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
December 31, 1994
(thousands)
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Allowance for doubtful
accounts - accounts
receivable $1,091 $ 372 $ - $ (469) $ 994
Reserves for notes receivable 1,000 8 - - 1,008
Year Ended December 31, 1993:
Allowance for doubtful
accounts - accounts
receivable $ 867 $ 987 $ - $ 763 (a) $1,091
Reserves for notes receivable - 1,000 - - 1,000
Year Ended December 31, 1992:
Allowance for doubtful
accounts - accounts
receivable $ 881 $ 471 $ - $ 485 (a) $ 867
Notes:
(a) Uncollectible accounts charged against reserves, net of bad debt recoveries.
</TABLE>
F-49
<PAGE>
EXHIBIT INDEX
3.1 Certificate of Incorporation of Talley Manufacturing and
Technology, Inc., attached as Exhibit 3(d) to Registration
Statement on Form S-1 dated October 15, 1993, incorporated herein
by this reference.
3.2 By-laws of Incorporation of Talley Manufacturing and Technology,
Inc., attached as Exhibit 3(e) to the Company's Form S-1 dated
October 15, 1993, incorporated herein by this reference.
4.1 Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of Talley Manufacturing and Technology, Inc.,
attached as Exhibit 4(e) to the Company's Form S-1 dated October
15, 1993, incorporated herein by reference.
4.2 Indenture Agreement among Talley Manufacturing and Technology,
Inc., the Subsidiary Guarantors (as defined), Talley Industries,
Inc. and Bank One, Columbus, N.A., a national banking
association, as Trustee, dated as of October 15, 1993 relating
to the 10-3/4% Senior Notes due 2003 issued by Talley
Manufacturing and Technology, Inc. and the exhibits thereto,
attached as Exhibit 4.1 to the Company's Form 10-Q for the
quarter ended September 30, 1993, incorporated herein by
reference.
10.1 Form of Indemnification Procedures Agreement between Talley
Manufacturing and Technology, Inc. and each of its directors,
attached as Exhibit 10(jj) to Amendment No. 1 to Form S-1 dated
September 10, 1993, incorporated herein by reference.
10.2 Tax Sharing Agreement among Talley Industries, Inc., Talley
Manufacturing and Technology, Inc. and each of their respective
subsidiaries, dated as of October 22, 1993, attached as Exhibit
10.3 to the Company's Form 10-Q for the quarter ended September
30, 1993, incorporated herein by reference.
10.3 Restructuring, Assumption and Cost sharing Agreement among Talley
Industries, Inc., Talley Manufacturing and Technology, Inc. and
Talley Real Estate Company, Inc. dated as of October 22, 1993,
attached as Exhibit 10.4 to the Company's Form 10-Q for the
quarter ended September 30, 1993, incorporated herein by
reference.
10.4 Loan and Security Agreement among Talley Manufacturing and
Technology, Inc., the Lenders listed therein and Transamerica
Business Credit Corporation, as Agent dated October 22, 1993,
attached as Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 1993, incorporated herein by
reference.
<PAGE>
10.5 Airbag Collateral Security, Intercreditor and Agency Agreement
dated as of October 22, 1993 among Talley Manufacturing and
Technology, Inc., Talley Technology, Inc., Talley Defense
Systems, Inc., Talley Automotive Products, Inc., Talley Metals
Technology, Inc. and Transamerica Business Credit Corporation as
Agent and as collateral agent for the Lenders (as defined) and
the Senior Note Trustee, Lenders and Bank One, Columbus, N.A.,
a national banking association, as Trustee for the holders of the
10-3/4% Senior Notes due 2003 issued by Talley Manufacturing and
Technology, Inc., attached as Exhibit 10.2 to the Company's Form
10-Q for the quarter ended September 30, 1993, incorporated
herein by reference.
10.6 Form of Subsidiary Loan Agreement dated as of October 22, 1993
between Talley Manufacturing and Technology, Inc. and each of
certain subsidiaries, attached as Exhibit 99.1 to the Company's
Form 10-Q for the quarter ended September 30, 1993, incorporated
herein by reference.
10.7 Subsidiary Loan and Security Agreement dated as of October 22,
1993 between Talley Manufacturing and Technology, Inc. and Talley
Technology, Inc., attached as Exhibit 99.2 to the Company's Form
10-Q for the quarter ended September 30, 1993, incorporated
herein by reference.
10.8 Form of Subsidiary Continuing Guaranty and Security Agreement
dated as of October 22, 1993 between Transamerica Business Credit
Corporation, a Delaware corporation and each of certain
subsidiaries, attached as Exhibit 99.3 to the Company's Form
10-Q for the quarter ended September 30, 1993, incorporated
herein by reference.
10.9 First Amendment to Loan and Security Agreement dated April 29,
1994, by and among Talley Manufacturing and Technology, Inc. and
Transamerica Business Credit Corporation, as agent, attached as
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
June 30, 1994, incorporated herein by reference.
10.10 Second Amendment to Loan and Security Agreement dated June 30,
1994, by and among Talley Manufacturing and Technology, Inc. and
Transamerica Business Credit Corporation, as agent attached as
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
June 30, 1994, incorporated herein by reference.
10.11* Third amendment to Loan and Security Agreement dated December 16,
1994, by and among Talley Manufacturing and Technology, Inc. and
Transamerica Business Credit Corporation, as agent.
10.12* First Amendment to Subsidiary Loan and Security Agreement, dated
as of December 16, 1994 between Talley Manufacturing and
Technology, Inc. and each of certain subsidiaries.
10.13* First Amendment to Subsidiary Continuing Guaranty and Security
Agreement dated as of December 16, 1994 between Transamerica
Business Credit Corporation, and each of the Guarantors (certain
subsidiaries).
<PAGE>
21* Subsidiaries of the Registrant.
27* Financial Data Schedule for Talley Manufacturing and Technology,
Inc., December 31, 1994.
* Documents marked with an asterisk are filed with this report.
EXHIBIT 10.11
EXECUTION
THIRD AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of the 16th day of December, 1994,
by and among TALLEY MANUFACTURING AND TECHNOLOGY, INC., a Delaware
corporation (the "Borrower"), TRANSAMERICA BUSINESS CREDIT
CORPORATION, as agent (the "Agent"), and the lenders parties to the
Loan Agreement referred to below (the "Lenders").
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have
heretofore entered in a Loan and Security Agreement dated October
22, 1993, as amended (the "Loan Agreement");
WHEREAS, the Borrower, the Agent and the Lenders wish to enter
into this Amendment, among other things, to clarify certain
provisions of the Loan Agreement, to add an alternative interest
rate option and to make certain other changes thereto.
NOW, THEREFORE, in consideration of the premises and intending
to be legally bound hereby, the parties hereto hereby agree as
follows:
1. Definitions. Capitalized terms used herein and not
defined herein shall have the respective meanings given to such
terms in the Loan Agreement.
2. Amendments to Section 1.1.
2.1. The following definitions shall be added to Section
1.1 of the Loan Agreement, in appropriate alphabetical order:
"Base Rate Advance " shall mean an Advance that, when
initially made pursuant to Article 2, bears interest based
upon the Base Rate from time to time in effect.
"Base Rate Loan " shall mean a Loan that bears interest
based upon the Base Rate from time to time in effect.
"Closing Date Forecasts" shall have the meaning ascribed
to such term in Section 9.7 hereof.
"Continuation" shall have the meaning specified in
Section 3A.1 hereof.
"Conversion" shall have the meaning specified in Section
3A.1 hereof.
"Dollars" and "$" shall mean dollars in lawful currency
of the United States of America.
"Excess Airbag Royalties Payment" shall mean such amount
as Borrower pays to the Agent for application to the Revolving
Loan from its good faith estimate of the Excess Airbag
Royalties recorded as royalty revenue for any fiscal year.
"Excess Airbag Royalties Reserve" shall mean an amount
equal to the sum of:
(a) any Excess Airbag Royalties Payment; provided
that the Borrower (x) shall have given notice to the
Agent, on or prior to the date of such Excess Airbag
Royalties Payment, that the Borrower intends to reborrow
all or a specified portion of such amount and (y) is not
otherwise obligated to pay such amount to the Agent; and
provided, further, that the amount computed under this
clause (a) shall be reduced (x) to the extent that such
reborrowing is made and (y) to the extent Borrower
waives, in a written notice in form and substance
satisfactory to the Agent delivered to the Agent, the
right pursuant to Section 2.4(c) hereof to reborrow such
amount,
plus
(b) an amount equal to the sum of:
(i) Airbag Royalties recorded as income by
Borrower or any Subsidiary for any fiscal year,
minus
(ii) the cash payments of Airbag Royalties
received by Borrower or any Subsidiary for such
fiscal year;
provided, that the amount computed pursuant to this
clause (b) exceeds $200,000 and there were Excess Airbag
Royalties for such fiscal year; provided, further, that
the amount computed under this clause (b) shall be
reduced to the extent Airbag Royalties recorded as income
in the subsequent fiscal year are adjusted to reflect
such shortfall in cash payments.
"Extraordinary Item" shall mean, with respect to any
revenue or expense item of any Person, any such item that is
characterized both by its unusual nature and infrequency of
occurrence and that, in accordance with GAAP, is, or could
properly be, shown along with its tax effects separately from
ordinary income (or loss) and from income from discontinued
operations on the income statement of such Person.
"Forecasts" shall mean (a) as of October 22, 1993, and
thereafter until the Lenders receive subsequent forecasts
pursuant to Section 11.3 hereof, the Closing Date Forecasts
referred to in Section 9.7 hereof; and (b) thereafter, the
Latest Forecasts most recently received by the Lenders
pursuant to Section 11.3 hereof.
"Interest Period" shall mean, with respect to any LIBOR
Loan, the period commencing on the Business Day selected by
Borrower pursuant to Sections 2.4 or 3A.1 hereof and ending on
the date which is three months thereafter; provided, however,
that (i) the Borrower may not select any Interest Period that
ends after the date of termination of this Agreement under
Article 21 hereof; (ii) if there is no numerically
corresponding day in such third succeeding month, such
Interest Period shall end on the last Business Day in such
third succeeding month; and (iii) whenever the last day of any
Interest Period would otherwise occur on a day other than a
Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day, except
that if such extension would cause the last day of such
Interest Period to occur in the next following calendar month,
then the last day of such Interest Period shall occur on the
immediately preceding Business Day.
"Latest Forecasts" shall have the meaning ascribed to
such term in Section 11.3 hereof.
"Lending Affiliate" means, with respect to any Lender,
(a) each office and branch of such Lender, and (b) each entity
which, directly or indirectly, is controlled by or under
common control with such Lender or which controls such Lender
and each office and branch thereof.
"Letter of Credit Obligations" shall mean, at any time
and in respect of any Letter of Credit, the sum of (i) the
amount available to be drawn under such Letter of Credit plus
(ii) the aggregate unpaid amount of all Reimbursement
Obligations at such time due and payable in respect of
previous drawings made under such Letter of Credit.
"LIBOR Advance" shall mean an Advance that, when
initially made pursuant to Article 2, bears interest based
upon the LIBOR Rate.
"LIBOR Loan" shall mean a Loan that bears interest based
upon the LIBOR Rate.
"LIBOR Rate" shall mean, with respect to the Interest
Period for a LIBOR Loan, the arithmetic average of the rates
per annum for each Reference Lender equal to the quotient
(rounded upward to the nearest whole multiple of 1/16 of 1%
per annum) of (a) the rate per annum at which deposits in
Dollars are offered by the principal office of such Reference
Lenders in London, England to prime banks in the London
interbank market at 11:00 a.m. (London time) two Business Days
before the first day of such Interest Period for delivery on
the first day of such Interest Period for the number of days
comprised therein and in an amount approximately equal to the
amount of such LIBOR Loan, divided by (b) a number equal to
1.00 minus the Reserve Rate. The LIBOR Rate for the Interest
Period for each LIBOR Loan shall be determined by the Agent on
the basis of applicable rates furnished to and received by the
Agent from the Reference Lenders two Business Days before the
first day of such Interest Period, subject, however, to the
provisions of Sections 2.4(d) and 3A.6(B).
"Maximum Aggregate Subsidiary Revolving Advance Amount"
shall mean the sum of the Maximum Individual Subsidiary
Revolving Advance Amounts for all Subsidiaries; provided,
however, that Advances against Eligible Inventory of all
Subsidiaries pursuant to clause (b)(ii) of the definition of
Maximum Individual Subsidiary Revolving Advance Amount shall
not exceed $25,000,000 in the aggregate at any one time
outstanding.
"Maximum Individual Subsidiary Revolving Advance Amount"
shall mean, with respect to each Subsidiary set forth on
Schedule 2.1, the lesser of:
(a) the Maximum Revolving Advance Amount set forth on
Schedule 2.1 for each such Subsidiary; or
(b) the sum of:
(i) the product of the applicable Percentage of
Net Amount of Eligible Receivables set forth
on Schedule 2.1 for each category of Eligible
Receivables of such Subsidiary multiplied by
the amount of such Subsidiary's Eligible
Receivables in each such category; plus
(ii) the product of the applicable Percentage of
Eligible Inventory set forth on Schedule 2.1
for each category of Eligible Inventory of
such Subsidiary multiplied by the amount of
such Subsidiary's Eligible Inventory in each
such category; provided, however, that the
amount determined pursuant to this clause (ii)
for such Subsidiary shall not at any one time
outstanding exceed the Maximum Subsidiary
Inventory Availability set forth on Schedule
2.1 for such Subsidiary.
"Notice of Borrowing" shall have the meaning specified in
Section 2.4(b) hereof.
"Notice of Continuation and/or Conversion" shall have the
meaning specified in Section 3A.1 hereof.
"Reference Lenders" shall mean Citibank, N.A., Chemical
Bank and The First National Bank of Chicago.
"Reimbursement Obligations" shall mean, as at any date,
the obligations of the Borrower then outstanding, or which may
thereafter arise in respect of Letters of Credit then
outstanding, under Section 2.3 hereof, to reimburse the Agent
and/or any Lender for payments made by the Agent or any Lender
in connection with the guaranty or facilitation by the Agent
or any Lender of Letters of Credit, to issuers of Letters of
Credit with respect to amounts which have been drawn under
such Letters of Credit.
"Reserve Rate" shall mean, with respect to any Interest
Period, the maximum reserve rate (including, without
limitation, supplemental, marginal and emergency reserve
requirements), expressed as a decimal, determined by the Agent
to be the rate which would be applicable to the relevant
Interest Period under Regulation D of the Board of Governors
of the Federal Reserve System (or any successor or similar
regulation relating to such reserve requirements) with respect
to eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D) of a member of the
Federal Reserve System, whether or not such fundings were
outstanding.
"Type" shall mean a Base Rate Loan or a LIBOR Loan.
2.2. The definition of "Business Day" set forth in
Section 1.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"Business Day" shall mean a day on which commercial banks
in New York or Chicago are not authorized or required by law
or executive order to close and, if the day relates to a LIBOR
Loan or the Interest Period therefor, on which dealings in
Dollars are carried on in the London interbank market.
2.3. The definition of "EBITDA" set forth in Section 1.1
of the Loan Agreement is hereby amended by adding the following
words immediately before the period at the end thereof:
plus (i) all losses resulting from Extraordinary Items during
such period to the extent deducted from net income for such
period and minus (ii) all gains resulting from Extraordinary
Items during such period to the extent included in net income
for such period
2.4. The definition of "Excess Cash Flow" set forth in
Section 1.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"Excess Cash Flow" shall mean for any applicable fiscal
period (as determined in accordance with Generally Accepted
Accounting Principles) (a) the consolidated EBITDA of the
Borrower and the Subsidiaries for such period, minus (b) the
sum of (i) the consolidated amount of Capital Expenditures
(other than Capital Expenditures for which neither Borrower
nor any Subsidiary or any Affiliate thereof, whether from
Advances, the Term Loan or otherwise, shall be the source of
funds) of the Borrower and the Subsidiaries during such
period, plus (ii) all losses resulting from Extraordinary
Items during such period to the extent deducted from net
income for such period, plus (iii) the Excess Airbag Royalties
paid (or payable with respect to such fiscal period) by
Borrower to Holdings to the extent required by and pursuant to
the terms existing on the date hereof of the Indenture under
which the Discount Debentures are issued, plus (iv) any
scheduled or required principal and interest payments actually
made by Borrower on the Term Notes, or Senior Notes, or
actually made by Borrower or the Subsidiaries on other
Indebtedness permitted hereby (other than the Revolving Loan)
or purchase money indebtedness of the Borrower and the
Subsidiaries (on a consolidated basis) permitted pursuant to
Section 17.1 of this Agreement, in each case during such
period (and without double counting), plus (v) any scheduled
or required interest payments actually made by Borrower on the
Revolving Loan and any required principal payments actually
made by Borrower on the Revolving Loan resulting in a
permanent reduction thereof, plus (vi) any scheduled capital
lease payments actually made by Borrower or the Subsidiaries,
plus (vii) income taxes actually paid by Borrower and the
Subsidiaries during such period, to the applicable
governmental taxing authorities, plus income taxes and other
amounts actually paid by Borrower and the Subsidiaries during
such period to Holdings pursuant to the Tax Sharing Agreement,
plus (viii) any redemptions of preferred stock of Borrower or
any dividends or distributions on any capital stock of
Borrower, in each case not otherwise covered in the preceding
clauses of this definition and permitted to be made by
Borrower to Holdings, in accordance with Section 17.11 (but
not clause (f) thereof) during such period, plus (c) all gains
resulting from Extraordinary Items during such period to the
extent included in net income for such period.
2.5. The definition of "Loan Availability" set forth in
Section 1.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"Loan Availability" shall mean:
(a) the lesser of:
(i) the Maximum Revolving Advance Amount; or
(ii) an amount equal to:
(x) the Maximum Aggregate Subsidiary
Revolving Advance Amount,
minus
(y) the Stipulated Reserve;
minus
(b) the sum of:
(i) the Excess Airbag Royalties Reserve, and
(ii) such other reserves (other than the Stipulated
Reserve) as Agent in its sole discretion deems
necessary.
2.6. Effective February 19, 1994, the definition of
"Maximum Amount of the Facility" set forth in Section 1.1 of the
Loan Agreement is hereby amended to read in its entirety as
follows:
"Maximum Amount of the Facility" shall mean at any time
Sixty Million Dollars ($60,000,000), less principal payments
on the Term Loan, less amounts provided under this Agreement
by reason of prepayment resulting in permanent reductions of
the Maximum Revolving Advance Amount.
2.7. Effective February 19, 1994, the definition of
"Maximum Revolving Advance Amount" set forth in Section 1.1 of the
Loan Agreement is hereby amended to read in its entirety as
follows:
"Maximum Revolving Advance Amount" shall mean Forty
Million Dollars ($40,000,000), less amounts provided under
this Agreement resulting in permanent reductions of the
commitments to make Revolving Loans.
2.8. The definition of "Revolving Notes" set forth in
Section 1.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"Revolving Notes" shall mean those certain amended and
restated promissory notes of Borrower substantially in the
form attached hereto as Exhibit D-1, issued to the Lenders, in
accordance with their respective Percentage Interests, and any
promissory notes issued in addition thereto or in replacement
thereof pursuant to Section 25.2(e) of this Agreement (each as
amended, supplemented, further restated or otherwise modified
from time to time).
2.9. The definition of "Stipulated Reserve" set forth in
Section 1.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"Stipulated Reserve" shall mean an amount equal to Eleven
Million Dollars ($11,000,000), which shall be reduced (i)
dollar-for-dollar, as and to the extent that the outstanding
principal amount of the Term Loan is reduced below Five
Million Dollars ($5,000,000) provided that no Default or Event
of Default shall have occurred and be continuing and (ii) in
part or in whole in the sole discretion of the Required
Lenders upon the resolution of or settlement of the TRW
Litigation and the Arizona Tax Litigation to the satisfaction
of the Required Lenders.
2.10. The definitions of "Subsidiary Availability" and
"Subsidiary Inventory Availability" set forth in Section 1.1 of the
Agreement shall be deleted in their entirety.
2.11. The definition of "Term Notes" set forth in
Section 1.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"Term Notes" shall mean those certain amended and
restated promissory notes of Borrower substantially in the
form attached hereto as Exhibit D-2, issued to the Lenders in
accordance with their Percentage Interests, in the aggregate
initial principal sum of Twenty Million Dollars ($20,000,000),
and any promissory notes issued in addition thereto or in
replacement thereof pursuant to Section 25.2(e) of this
Agreement (each as amended, supplemented, further restated or
otherwise modified from time to time).
3. Amendments to Section 2.1(a). Section 2.1(a) of the Loan
Agreement is hereby amended to read in its entirety as follows:
(a) Subject to the terms and conditions set forth in
this Agreement, each Lender shall, severally and not jointly,
lend to Borrower, from time to time on Borrower's request, an
aggregate amount at any one time outstanding not to exceed a
sum equal to (i) such Lender's Percentage Interest of the Loan
Availability at such time minus (ii) such Lender's Percentage
Interest of all Letter of Credit Obligations. In addition,
and notwithstanding any provision in this Agreement to the
contrary, the aggregate outstanding amount of the Revolving
Loans under the Subsidiary Loan Agreements may be in excess of
the outstanding Revolving Loan under this Agreement, in which
event Borrower shall be entitled to request and obtain
Advances (subject to the provisions of this Section 2.1 and
the other provisions of this Agreement) for its proper
corporate purposes, provided that the cumulative amount of
such Advances received by Borrower and not advanced to its
Subsidiaries (for the entire period after the date of this
Agreement) shall not exceed the cumulative amount of dividends
received by Borrower from its Subsidiaries (for such entire
period) and shall not cause a Default or Event of Default to
occur. Each Lender shall be severally, and not jointly,
responsible for funding only its Percentage Interest of any
Loan and shall have no responsibility to fund any other
Lender's Percentage Interest. Any interest or expenses
incurred by Agent or a Lender hereunder which are to be paid
for by Borrower or are otherwise the responsibility of
Borrower may be deemed, in Agent's discretion, to be a
Revolving Loan or Term Loan hereunder if not paid by Borrower
when due.
The Revolving Loan shall be evidenced in part by, and
repaid pursuant to, Revolving Notes in favor of the Lenders
(in accordance with their respective Percentage Interests),
executed by Borrower and delivered as of the date hereof to
the Lenders pursuant hereto. If a Lender's Percentage
Interest shall change from time to time, Borrower shall issue
a new Revolving Note to such Lender reflecting such new
Percentage Interest in the Revolving Loan.
4. Amendments to Section 2.1(b)). Subsection (b) of Section
2.1 of the Loan Agreement is hereby amended to read in its entirety
as follows:
(b) Borrower shall not permit the outstanding amount of
the Revolving Loan (including Letters of Credit) to at any
time exceed the Loan Availability at such time. If any such
excess occurs, Borrower shall, and Borrower shall cause each
of its Subsidiaries to, forthwith make such payments and take
such other action as may be necessary to eliminate such
excess.
5. Amendments to Section 2.3. Effective January 1, 1994,
the third sentence of the second unnumbered paragraph of Section
2.3 of the Loan Agreement is hereby amended to read in its entirety
as follows:
Agent will generally not process any such application
involving a Letter of Credit that is not subject to the
Uniform Custom and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication 500
(the "UCP"), any amendments thereto, and any other applicable
laws, to the extent not inconsistent with the UCP.
6. Amendments to Section 2.4. Section 2.4 of the Loan
Agreement is hereby amended to read in its entirety as follows:
2.4 Manner of Borrowing; Reaffirmation of
Representations and Warranties; No Default.
(a) On the second Business Day following the end of each
week, unless sooner requested by Agent, Borrower shall provide
Agent with Borrowing Base Certificates for itself and for each
Subsidiary on a consolidating basis in the form attached
hereto as Exhibit A for such week.
(b) Except with respect to Advances made in compliance
with the provisions of Section 2.4(c) hereof, each Advance
shall be made on notice, given by the Borrower to Agent not
later than 1:00 p.m., New York City time, on the date of the
proposed Advance, in the case of a Base Rate Advance; on the
third Business Day prior to the date of the proposed Advance,
in the case of a LIBOR Advance; and on the fifth Business Day
prior to the date of the proposed issuance of a Letter of
Credit, in the case of an Advance that is to be made as a
Letter of Credit. Each such notice of an Advance (a "Notice
of Borrowing") shall be in writing, in substantially the form
of Exhibit F, specifying therein (i) the date of such Advance,
which shall be a Business Day, (ii) the Type of Advance
comprising such Advance, (iii) the aggregate amount of such
Advance, which, in the case of a LIBOR Advance, shall be
specified in such manner as is necessary to comply with all
limitations on Loans and LIBOR Loans outstanding hereunder,
and (iv) if an Advance will be made to fund an advance to a
Subsidiary pursuant to a Subsidiary Loan Agreement, the
Subsidiary to which the Advance will be subsequently made
pursuant to the applicable Subsidiary Loan Agreement. Subject
to the terms and conditions of this Agreement, Agent shall
fund on such date the amount of any Advance (including
Advances made in compliance with the provisions of Section
2.4(c) hereof) on behalf of the Lenders for which the Agent
has received proper notice. Except with respect to Advances
made in compliance with the provisions of Section 2.4(c)
hereof, each request by Borrower for an Advance, and the
acceptance by Borrower of the proceeds or benefits thereof,
shall be deemed to constitute a representation and warranty by
the Borrower that, as of both the date of the request and the
date on which such Advance is made:
(A) each of the representations and warranties (other than
representations and warranties that expressly speak only
as of a specified different date) made by Borrower in
this Agreement and in each of the Loan Documents is true
and correct in all material respects;
(B) no Default or Event of Default has occurred and is
continuing or would result from the making of an Advance
or issuance of a Letter of Credit; and
(C) no material adverse change, as determined by Agent in its
reasonable discretion, in the financial condition or
operations of either the Borrower individually, or the
Borrower and the Subsidiaries, on a consolidated basis,
shall have occurred (a) at any time or times subsequent
to the most recent annual financial statements provided
pursuant to Section 11.2, and (b) prior to the receipt of
the first of such statements, at any time subsequent to
August 31, 1993.
(c) Notwithstanding the provisions of Section 2.4(b)
above, each Lender shall, severally and not jointly, lend to
Borrower on its request such Lender's Percentage Interest of
an amount equal to the Excess Airbag Royalties Payment which
is then included in any then existing Excess Airbag Royalties
Reserve and which has not theretofore been advanced to
Borrower pursuant to this Section 2.4(c); provided, however,
that (i) Borrower shall notify Agent (in accordance with the
provisions of the second sentence of Section 2.4(b)) not later
than 1:00 p.m. (New York City time) five days before the date
of any reborrowing of any Excess Airbag Royalties Payment;
(ii) such amount, when aggregated with the principal sum of
all other Obligations then outstanding on account of Advances,
shall not exceed the Maximum Revolving Advance Amount; and
(iii) each request by Borrower for a reborrowing of such
Excess Airbag Royalties Payment, and the acceptance by
Borrower of the proceeds or benefits thereof, shall be deemed
to constitute a representation and warranty by Borrower that,
as of both the date of the request and the date on which such
Advance is made:
(A) no Default or Event of Default (constituting a payment
default) shall have occurred and be continuing or would
occur as a result thereof;
(B) no insolvency proceeding or any other proceeding of the
type referred to in Section 23.1(c) has been commenced by
or against Borrower;
(C) this Agreement, the Revolving Notes, the Obligations then
existing hereunder and the Obligation created by the
provisions of this Section 2.4(c) are and will be legal,
valid and binding obligations of Borrower; and
(D) Borrower is then a corporation duly organized and validly
existing under the laws of the state of its
incorporation.
(d) Agent's obligation to fund any Advance under this
Agreement shall be subject to (i) Agent's receipt of all
applications, certificates, consents, schedules, instruments,
security agreements, financing statements, opinions and other
documents which are provided for hereunder or under the other
Loan Documents or which Agent may reasonably request, and (ii)
Borrower's eligibility for such Advance as indicated by the
Borrowing Base Certificate most recently provided to Agent
prior to the date on which the Advance is requested to be
made.
(e) In lieu of delivering a Notice of Borrowing, the
Borrower may give the Agent telephonic notice of any requested
Advance by the required time; provided, however, that such
notice shall be confirmed in writing by delivery to the Agent
(A) immediately of a telecopy of a Notice of Borrowing which
has been signed by an authorized officer of the Borrower
containing all information required to be contained in a
Notice of Borrowing, and (B) promptly (and in no event later
than three (3) Business Days after the funding date) of a
Notice of Borrowing containing the original signature of an
authorized officer of Borrower.
7. Addition of Article 3A. A new Article 3A shall be added
to the Loan Agreement immediately after the end of Article 3
thereof and shall read as follows:
3A. CERTAIN PROVISIONS RELATING TO ALL LOANS.
3A.1 Continuations and Conversions. The Borrower may,
subject to the provisions of Section 3A.2 hereof and so long
as no Default or Event of Default has occurred and continues
to exist, elect (a) to continue (a "Continuation") any
outstanding LIBOR Loan or any portion thereof as a LIBOR Loan,
and (b) to convert (a "Conversion") outstanding Base Rate
Loans or any portion thereof from Base Rate Loans into LIBOR
Loans. Each such election shall be made by notice given not
later than 1:00 p.m. (New York City time) on the third
Business Day prior to the date of any such Continuation and/or
Conversion by the Borrower to Agent. Such notice by the
Borrower of a Continuation and/or Conversion (a "Notice of
Continuation and/or Conversion") shall be in writing, in
substantially the form of Exhibit G, specifying (i) the date
of such Continuation and/or Conversion, which shall commence
on the last day of the then existing Interest Period, if any,
or such other Business Day as is specified by the Borrower in
compliance with the terms hereof, if there is no then existing
Interest Period, (ii) the amount of the Loans subject to such
Continuation and/or Conversion, which shall be specified in
such manner as is necessary to comply with all limitations on
Loans and LIBOR Loans outstanding hereunder, and (iii) if the
LIBOR Loan that is subject to such Notice of Continuation
and/or Conversion has been or will be made to fund an advance
to a Subsidiary pursuant to a Subsidiary Loan Agreement, the
Subsidiary to which the advance has been or will be
subsequently made pursuant to the applicable Subsidiary Loan
Agreement. Unless, on or before 1:00 p.m. (New York City
time) of the third Business Day prior to the expiration of an
Interest Period, the Agent shall have received a Notice of
Continuation and/or Conversion from the Borrower requesting a
Continuation for the entire LIBOR Loan or any portion thereof
outstanding during such Interest Period, any amount of such
LIBOR Loan remaining outstanding at the end of such Interest
Period (or any unpaid portion of such LIBOR Loan not covered
by a timely Notice of Continuation and/or Conversion) shall,
upon the expiration of such Interest Period, be converted
automatically into a Base Rate Loan, and the Borrower shall
not select a LIBOR Loan or a Conversion of any Base Rate Loan
for any subsequent Loan during the ninety day period following
the expiration of such Interest Period.
In lieu of delivering a Notice of Continuation and/or
Conversion, the Borrower may give the Agent telephonic notice
of any requested Continuation and/or Conversion by the
required time; provided, however, that such notice shall be
confirmed in writing by delivery to the Agent (A) immediately
of a telecopy of a Notice of Continuation and/or Conversion
which has been signed by an authorized officer of the Borrower
containing all information required to be contained in a
Notice of Continuation and/or Conversion and (B) promptly (and
in no event later than three (3) Business Days after the date
of Continuation and Conversion) of a Notice of Continuation
and/or Conversion containing the original signature of an
authorized officer of Borrower.
Each request by Borrower for a Continuation and/or
Conversion, and the acceptance by the Borrower of the proceeds
or benefits thereof, shall be deemed to constitute a
representation and warranty by the Borrower that, as of both
the date of the request and the date on which such
Continuation and/or Conversion is made:
(A) each of the representations and warranties (other than
representations and warranties that expressly speak only
as of a specified different date) made by Borrower in
this Agreement and in each of the Loan Documents is true
and correct in all material respects;
(B) no Default or Event of Default has occurred and is
continuing or would result from such Continuation and/or
Conversion; and
(C) no material adverse change, as determined by Agent in its
reasonable discretion, in the financial condition or
operations of either the Borrower individually, or the
Borrower and the Subsidiaries, on a consolidated basis,
shall have occurred (a) at any time or times subsequent
to the most recent annual financial statements provided
pursuant to Section 11.2, and (b) prior to the receipt of
the first of such statements, at any time subsequent to
August 31, 1993.
3A.2 Certain Limitations on LIBOR Loans. Anything in
Section 2.4 or 3.A1 hereof to the contrary notwithstanding,
(i) there shall not be outstanding at any time more
than one Loan which consists of a LIBOR Loan, it being
understood that all Advances made as LIBOR Loans pursuant
to subsections (b) and (c) of Section 2.4 hereof and all
LIBOR Loans resulting from Continuations and/or
Conversions pursuant to Section 3A.1 above shall
constitute a single LIBOR Loan for the purposes of this
clause (i) if they have the same Interest Period;
(ii) all Reimbursement Obligations shall, at all
times, constitute and consist of Base Rate Loans;
(iii) all Advances made as LIBOR Loans pursuant to
subsections (b) and (c) of Section 2.4 hereof and all
LIBOR Loans resulting from Continuations and/or
Conversions pursuant to Section 3A.1 hereof shall be in
such amounts so that, after giving effect thereto, the
aggregate principal amount of all LIBOR Loans having the
same Interest Period shall not be less than $5,000,000 or
whole multiples of $1,000,000 in excess thereof,
(iv) the maximum aggregate principal amount of LIBOR
Loans shall not, at any time, exceed $50,000,000;
(v) the Borrower shall maintain a sufficient amount
of Base Rate Loans so that the application of the
proceeds of Collateral in accordance with Section 13 will
not necessitate a payment of any reasonably projected
portion of a LIBOR Loan on a day other than the last day
of the Interest Period applicable thereto; and
(vi) no Interest Period selected with respect to the
Term Loan may extend beyond a principal repayment date
for the Term Loan unless after giving effect to such
repayment the aggregate principal amount of LIBOR Loans
with respect to the Term Loan shall be equal to or less
than the unpaid principal amount to be outstanding under
the Term Loan after such repayment date.
3A.3 LIBOR Notices Irrevocable. Each Notice of
Borrowing, to the extent that it specifies an Advance that is
to be comprised of a LIBOR Advance, and each Notice of
Continuation and/or Conversion, to the extent that it
specifies a Loan that is to be comprised of a LIBOR Loan,
shall be irrevocable and binding on the Borrower.
3A.4 Names of Authorized Signatories. The Borrower shall
notify the Agent in writing of the names of the officers
authorized to request Advances, Continuations and Conversions
on behalf of the Borrower, and shall provide the Agent with a
specimen signature of each such officer. The Agent shall be
entitled to rely conclusively on such officer's authority to
request Advances, Continuations and Conversions on behalf of
the Borrower until the Agent receives written notice to the
contrary. The Agent shall have no duty to verify the
authenticity of the signature appearing on any Notice of
Borrowing or Notice of Continuation and/or Conversion, and,
with respect to an oral request for Advances, Continuations or
Conversions, the Agent shall have no duty to verify the
identity of any individual representing himself as one of the
officers of the Borrower authorized to make such request on
behalf of the Borrower. The Agent shall not incur any
liability to the Borrower as a result of acting upon any
telephonic notice referred to in Section 2.4 or this Article
3A which notice the Agent believes in good faith to have been
given by a duly authorized officer of the Borrower or other
individual authorized to request Advances, Continuations or
Conversions on behalf of the Borrower or for otherwise acting
in good faith under Section 2.4 or this Article 3A, and, upon
the funding of Loans or the effectuation of Conversions and
Continuations by the Lenders or the Agent in accordance with
this Agreement, pursuant to any such telephonic notices, the
Borrower shall be deemed to have made a borrowing hereunder or
effected a Continuation or Conversion hereunder.
3A.5 Lending Affiliates. Any Lender may make, carry or
transfer LIBOR Loans at, to or for the account of, any of its
Lending Affiliates.
3A.6 Additional Costs, Etc., With Respect to LIBOR
Advances. (A) If in the determination of any Lender any
applicable "law," which expression, as used in this Section
3A.6, includes statutes, rules and regulations thereunder and
interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with
the administration or the interpretation thereof and requests,
directives, instructions and notices at any time or from time
to time hereafter made upon or otherwise issued to any Lender
or any Lending Affiliate of any Lender by any central bank or
other fiscal, monetary, or other authority (whether or not
having the force of law) adopted, becoming effective, or any
change in the interpretation or administration thereof, or
compliance by any Lender or any Lending Affiliate of any
Lender maintaining any LIBOR Loan, in each case after the date
hereof, shall in the case of LIBOR Loans:
(i) subject any Lender or any Lending Affiliate of
any Lender to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to
LIBOR Loans (other than taxes imposed on or measured by
the overall net income of such Lender or Lending
Affiliate), or
(ii) change the taxation of payments to any Lender
or any Lending Affiliate of principal or interest on or
any other amount relating to any LIBOR Loans (other than
taxes imposed on or measured by the overall net income of
such Lender or Lending Affiliate), or
(iii) impose or increase or render applicable any
special deposit, assessment, insurance charge, reserve or
liquidity or other similar requirement (whether or not
having the force of law) against assets held by, or
deposits in or for the account of or loans by any Lender
or any Lending Affiliate of any Lender, or
(iv) impose on any Lender or any Lending Affiliate
of any Lender any other conditions or requirements with
respect to LIBOR Loans,
and the result of any of the foregoing is:
I. to increase the cost to any Lender of making,
funding or maintaining its LIBOR Loans, or
II. to reduce the amount of principal, interest or
other amount payable to any Lender hereunder on
account of LIBOR Loans, or
III. to require any Lender to make any payment or to
forego any interest or other sum payable under this
Agreement,
then, and in each such case, Borrower will, upon demand made
by any Lender at any time and from time to time and as often
as the occasion therefor may arise, but without duplication of
any other sums payable hereunder, pay to such Lender such
additional amounts as will be sufficient to compensate such
Lender for such additional cost, reduction, payment or
foregone interest or other sum.
(B) If, for any Interest Period, any Reference Lender
shall be unable or otherwise fail to furnish quotations of
rates to the Agent upon the Agent's request therefor as
contemplated hereby, the LIBOR Rate for such Interest Period
shall be determined on the basis of the quotations of the
remaining Reference Lenders; provided, however, that if fewer
than two Reference Lenders furnish timely quotations of rates
for such Interest Period, the right of the Borrower to select
the LIBOR Rate for such Interest Period shall be suspended
until the circumstances causing such suspension shall no
longer exist. Neither Agent nor any Lender shall in any event
be responsible to Borrower in any way if the Agent is not able
for any reason beyond its control to quote a LIBOR Rate with
respect to any proposed Interest Period. If, on any proposed
date of determination of a LIBOR Rate, the Agent shall
determine (which determination shall be conclusive and binding
on Borrower) that it is unable to determine the requested
LIBOR Rate with respect to any proposed Interest Period, the
Agent shall promptly notify Borrower of such determination.
In such event, any then pending notice by Borrower requesting
the making, Continuation or Conversion of a LIBOR Loan shall
be deemed and shall constitute a request for the making of
such Loan as, or the continuation or conversion of such Loan
to, a Base Rate Loan.
(C) If any Lender determines that either maintenance of
a LIBOR Loan would violate any applicable law, or that
deposits of a type and maturity appropriate to match fund any
LIBOR Loan does not accurately reflect the cost of making or
maintaining such a LIBOR Loan, then upon notice by such Lender
to Agent, Agent shall suspend the availability of proposed
LIBOR Loans, and Continuations thereof and Conversions
thereto, so long as any such condition exists, and all
affected LIBOR Loans, as the case may be, outstanding shall be
immediately repaid upon notice to Borrower from any Lender to
do so; provided, however, that if otherwise permitted under
this Agreement Borrower may reborrow, as a Base Rate Advance,
an amount equal to the principal amount of all such affected
LIBOR Loans, as the case may be, so repaid.
3A.7 Indemnification for Losses. Without limiting any of
the other provisions of this Agreement, Borrower will, on
demand by any Lender, at any time and from time to time and as
often as the occasion therefor may arise, indemnify each
Lender against any losses, costs or expenses which such Lender
may at any time or from time to time sustain or incur with
respect to any Notice of Borrowing, Notice of Continuation
and/or Conversion or LIBOR Loan as a consequence of:
(A) the failure by Borrower to borrow any LIBOR
Loan, or to continue any Loan as, or to convert any Loan
to, a LIBOR Loan, in each case on the date of borrowing,
Continuation or Conversion, as the case may be,
designated by Borrower,
(B) the failure by Borrower to pay, punctually on
the due date thereof, any amount payable by Borrower
under this Agreement, or
(C) the accelerated payment of Borrower's
obligations under this Agreement as a result of an Event
of Default or otherwise, or
(D) any voluntary or mandatory repayment or
prepayment of any principal of any LIBOR Loan on a date
other than the last day of the Interest Period relating
to the principal so repaid or prepaid, whether pursuant
to Section 5.1 or otherwise;
Such losses, costs or expenses will include, but will not
be limited to, the reimbursement for any loss (including loss
of reasonably anticipated profits), expense or cost in
liquidating or employing deposits acquired to fund any
affected LIBOR Loan; provided, however, that such losses,
costs or expenses will not include costs of redeployment of
funds resulting from any mandatory repayment or prepayment of
any principal of any LIBOR Loan on a date other than the last
day of the Interest Period relating to the principal so repaid
or prepaid if such mandatory repayment or prepayment was made
pursuant to Section 3A.6(c).
3A.8 Payments to be Free of Deductions. All payments
(whether of principal, interest or otherwise) by the Borrower
hereunder shall be made without setoff or counterclaim, and
free and clear of and without deduction for any taxes, levies,
imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now
or hereafter imposed or levied by any country or any political
subdivision thereof or taxing or other authority therein
unless Borrower is compelled by law to make such deduction or
withholding. If any such obligation is imposed upon Borrower
with respect to any amount payable by it hereunder, it will
pay to Lenders, on the date on which such amount becomes due
and payable hereunder and in Dollars, such additional amounts
as shall be necessary to enable each Lender to receive the
same amount which it would have received on such due date had
no such obligation been imposed upon Borrower (net of any
savings to such Lender). If Borrower shall be required by law
to make such deduction or withholding it will also (i) pay
directly to the relevant authority the full amount required to
be deducted or withheld and (ii) promptly deliver to Lenders
the official tax receipts or other appropriate evidence of
payment. Moreover, if any such items are directly asserted
against any Lender with respect to any payment received by
such Lender, such Lender may pay such items and Borrower shall
promptly pay such additional amounts as shall be necessary to
enable each such Lender to receive the same amount it would
have received had such items not been asserted.
3A.9 Certificate. A certificate of any Lender, setting
forth any additional amount required to be paid by Borrower to
such Lender under any provision of Sections 3A.6 through 3A.8
hereof shall be submitted by such Lender to Borrower in
connection with each demand made at any time by such Lender
upon Borrower under any of such provisions. Such certificate,
in the absence of manifest error, shall be conclusive as to
the additional amount owed.
8. Amendments to Section 4.1. Section 4.1 of the Loan
Agreement is hereby amended to read in its entirety as follows:
4.1 Interest.
(a) Borrower shall pay Agent, for the ratable benefit of
Lenders, interest on the average daily outstanding principal
amount of each Loan and all other Obligations (exclusive of
Obligations which are then contingent or not yet matured) from
the date of such Loan or other Obligation to the date such
Loan or other Obligation is paid in full, at the following
rates per annum:
(i) Base Rate Loans and Obligations other than
LIBOR Loans. If such Obligation is a Base Rate Loan or
any other Obligation other than a LIBOR Loan, at a
fluctuating rate which is equal to one percent (1.00%)
per annum above the Base Rate in effect from time to
time, each change in such fluctuating interest rate to
take effect simultaneously with the corresponding change
in the Base Rate.
(ii) LIBOR Loans. If (and for such time as) such
Loan is a LIBOR Loan, at a rate which is equal at all
times during the Interest Period for such LIBOR Loan to
three and one-quarter percent (3 1/4%) per annum above
the LIBOR Rate.
(b) Interest is payable in arrears monthly on the first
day of each month prior to the occurrence of an Event of
Default and, after the occurrence of an Event of Default, upon
demand or monthly in the absence of a demand. The per annum
applicable rate of interest shall be reduced by one-quarter of
one percent (0.25%) per annum effective (and to be given
retroactive effect to) January 1, 1995 if:
(i) Agent has received from Borrower's accountants the
audited annual financial statements required by Section
11.2 hereof, which demonstrate to Agent's reasonable
satisfaction that the consolidated operations of Borrower
and the Subsidiaries for the year ending on December 31,
1994 have achieved or surpassed all of the financial
projections described in Schedule 4.1-a;
(ii) No Default, Event of Default or Subsidiary Event of
Default has occurred and is continuing; and
(iii) Borrower shall not be in default of any Indebtedness.
(c) The rate of interest applicable to any period during
which an Event of Default shall have occurred and is
continuing, whether or not the maturity of any Obligation has
been accelerated, shall be two percent (2%) per annum above
the interest rate as otherwise determined under this Section
4.1.
(d) In no event shall the total of all interest to be
paid under this Agreement or under any Loan Document exceed
the maximum rate permitted by law.
9. Amendments to Section 4.12. Section 4.12 of the Loan
Agreement is hereby amended to read in its entirety as follows:
4.12 Capital Adequacy. If either (i) the introduction of
or any change in or in the interpretation of any law or
regulation, or (ii) compliance by any Lender, or by any
Lending Affiliate of any Lender maintaining any LIBOR Loan,
with any guideline or request from any central bank or other
governmental authority (whether or not having the force of
law) affects or would affect the rate of return (other than an
increase in the rate of income taxes to be paid by any Lender
or any Lending Affiliate of any Lender) on the amount of
capital or assets required or expected to be maintained by
such Lender or Lending Affiliate or any Person controlling
such Lender or Lending Affiliate as a consequence of, as
determined by such Lender, in its sole discretion, the
existence of such Lender's commitments or obligations under
this Agreement or any of the other Loan Documents, then, upon
demand by such Lender, the Borrower shall, but without
duplication of any other sums payable hereunder, immediately
pay to such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such
Lender in light of such circumstances. A certificate of any
Lender, setting forth any additional amount required to be
paid by Borrower to such Lender under this Section 4.12, shall
be submitted by such Lender to Borrower in connection with
each demand made at any time by such Lender upon Borrower
under this Section. Such certificate, in the absence of
manifest error, shall be conclusive as to the additional
amount owed.
10. Amendments to Sections 5.1 and 5.3 and Article 13. The
following sentence shall be added to the end of each of Sections
5.1 and 5.3 of the Loan Agreement and to the end of the first
paragraph of Article 13 of the Loan Agreement:
Any prepayment of any LIBOR Loan shall be accompanied by
payment of any amounts required under Section 5.4(b) hereof.
11. Amendments to Section 5.2. Section 5.2 of the Loan
Agreement is hereby amended to read in its entirety as follows:
5.2 Excess Cash Flow. Promptly after each of Borrower's
audited annual financial statements referred to in
Section 11.2 hereof becomes available, but in any case within
ninety (90) days following each fiscal year of Borrower,
Borrower shall pay to Agent fifty percent (50%) of Excess Cash
Flow for such fiscal year to be applied by the Agent to prepay
the Term Loan or, if so determined in the Required Lenders'
sole discretion, to the Revolving Loan. To the extent Agent
so determines to apply any such payment to the Term Loan, such
payment shall be applied to unpaid installments in the inverse
order of maturity, and shall be a permanent reduction of the
Term Loan; to the extent any such payment is applied to the
Revolving Loan, it shall not result in a reduction of the
Maximum Revolving Advance Amount but shall be a permanent
reserve against (and thus a reduction of the amount of) the
aggregate amount calculated pursuant to clause (b) of the
definition of the term "Maximum Individual Subsidiary
Revolving Advance Amount." Agent may establish, in its
reasonable discretion, quarterly reserves against borrowing
availability based on Borrower's projected Excess Cash Flow
for each year. Any prepayment of any LIBOR Loan shall be
accompanied by payment of any amounts required under Section
5.4(b) hereof.
12. Addition of Section 5.4 A new Section 5.4 shall be added
to the Loan Agreement and shall read as follows:
5.4 Prepayment of LIBOR Loans.
(a) If any prepayment of any principal of any Loan is
made at any time, such prepayment shall be applied to LIBOR
Loans outstanding at such time if so required pursuant to the
terms hereof. Otherwise, such prepayment shall be applied
first to Base Rate Loans outstanding at such time and then to
LIBOR Loans outstanding at such time.
(b) If any payment of principal of any LIBOR Loan is
made other than on the last day of the Interest Period for
such Loan, as a result of a payment pursuant to Section 5.1,
5.2 or 5.3 hereof or Article 13 hereof, acceleration of the
maturity of the Advances pursuant to Section 23.2 hereof, or
for any other reason, the Borrower shall, upon demand by any
Lender, pay to such Lender any amounts required pursuant to
Section 3A.7. Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and
obligations of the Borrower contained in Sections 5.1, 5.2 and
5.3 hereof, this Section 5.4 and Article 13 hereof shall
survive the payment in full of principal, interest and fees
hereunder.
13. Amendments to Section 7.1(b). Effective as of October
22, 1993, subsection (b) of Section 7.1 of the Loan Agreement is
hereby amended to read in its entirety as follows:
(b) As further security for all such Obligations,
Borrower has delivered the Mortgages to Agent on each parcel
of Real Estate owned by it or the Subsidiaries as of October
22, 1993 (other than the parcel owned by Talley Defense
Systems, Inc. and located at 4551 East McKellips Street, Mesa,
Arizona, and the parcel owned by Waterbury Companies, Inc. and
located at 100 Calhoun Street, Independence, Louisiana). If
Borrower or any Subsidiary shall hereafter acquire a fee
interest in any other real estate, Borrower shall immediately
advise Agent, and upon Agent's request, Borrower shall, or
shall cause the relevant Subsidiary to, give to Agent, for its
benefit and the ratable benefit of the Lenders, a first
(subject only to Permitted Liens) mortgage or deed of trust on
such property.
14. Amendments to Section 9.2. Effective as of October 22,
1993, Section 9.2 of the Loan Agreement is hereby amended to read
in its entirety as follows:
9.2 Executive Offices. Borrower's chief executive
office and principal place of business is at the address set
forth above or at such other address to which such chief
executive office and principal place of business have moved in
compliance with Section 17.14 hereof.
15. Amendments to Sections 9.6, 9.9, 9.10 and 9.11.
Effective as of October 22, 1993, the words "As of October 22,
1993," shall be added to the beginning of each sentence of Section
9.6, and to the beginning of each of Sections 9.9, 9.10 and 9.11 of
the Loan Agreement, and the first letter of the respective first
words immediately thereafter (other than in Section 9.10 of the
Loan Agreement) shall be reduced to lower case.
16. Amendments to Section 9.7. Effective as of October 22,
1993, Section 9.7 of the Loan Agreement is hereby amended to read
in its entirety as follows:
9.7 Forecasts. As of October 22, 1993, Borrower has
delivered to Agent and Lenders forecasted financial statements
consisting of consolidated and consolidating balance sheets,
cash flow statements and income statements of Borrower
together with appropriate supporting details and a statement
of the underlying assumptions, ranges and limitations (the
"Closing Date Forecasts"). The Closing Date Forecasts cover
the five-year period commencing on January 1, 1993 and have
been prepared on a monthly basis for each of the first twelve
(12) months and on an annual basis thereafter. As of October
22, 1993 with respect to the Closing Date Forecasts, and as of
the respective date when delivered with respect to each of the
Latest Forecasts, each of such Forecasts (a) have been
prepared by Borrower in good faith and in the light of the
past business of Borrower and with a good faith belief in the
reasonableness of the assumptions on which the Forecasts were
based, (b) disclose all material or significant assumptions
used in preparation thereof, (c) represent the good faith
opinion of Borrower and its senior management as to the most
probable course of Borrower's consolidated business and (d)
fairly present the information which they purport to show.
Except as noted therein, the practices followed in preparing
such Forecasts do not materially differ from practices usually
followed by Borrower and its Subsidiaries in the preparation
of financial forecasts in good faith and in the regular course
of an ongoing business.
17. Amendments to Section 9.8. Effective as of October 22,
1993, Section 9.8 of the Loan Agreement is hereby amended to read
in its entirety as follows:
9.8 Documents Delivered to Agent and Lenders. All data,
reports and information which Borrower and each Subsidiary
have supplied or will supply to Agent and Lenders or caused to
be supplied by a third party on their behalf in connection
with the obtaining of the credit provided for in this
Agreement or in connection with its business transactions
giving rise to Borrower's seeking such credit, including
without limitation, the Registration Statement (such data,
reports and information with respect to Borrower or any
Subsidiary individually shall be taken as a whole), are
complete and accurate as of the date when supplied to Agent
and Lenders and contain no material omission or misstatement
as of the date when supplied to Agent and Lenders, are not
misleading as of the date when supplied to Agent and Lenders,
and as of such date contain no material information the
subject of which has changed materially and adversely without
Borrower having notified Agent and Lenders of such change in
writing.
18. Amendments to Section 9.14. Effective as of October 22,
1993, Section 9.14 of the Loan Agreement is hereby amended to read
in its entirety as follows:
9.14 Compliance with Tax Laws. Holdings, Borrower and
each Subsidiary have in all material respects accurately
prepared and timely filed all tax returns (federal, state or
local) required to be filed and paid all taxes shown thereon
to be due including interest and penalties or has provided
adequate reserves therefor. Except as set forth on Schedule
9.14 or as otherwise expressly permitted pursuant to Section
16.3 hereof, no assessments or proposed adjustment of federal
or state income taxes or other material state, municipal or
local taxes are pending or have been made against Holdings,
Borrower or any Subsidiary by any taxing authority nor has any
penalty or deficiency been made by any such authority and
Borrower has no knowledge of any proposed liability for any
such tax to be imposed against Borrower, Holdings or any
Subsidiary. As of October 22, 1993, no federal or other
income tax return of Holdings, Borrower or any Subsidiary is
presently being audited by the Internal Revenue Service or any
state or local tax authority nor are the results of any prior
audit by the Internal Revenue Service or any state or local
tax authority being contested by Holdings, Borrower or any
Subsidiary except as specifically described on Schedule 9.14
hereto.
19. Amendments to Section 9.15. Effective as of October 22,
1993, Section 9.15 of the Loan Agreement is hereby amended to read
in its entirety as follows:
9.15 Proceedings and Litigation. No action,
investigation (known to Borrower) or proceeding is now pending
or, to Borrower's knowledge, threatened against Holdings,
Borrower or any Subsidiary at law, in equity or otherwise,
before any court, board, commission, agency or instrumentality
of the federal or any state government or of any municipal
government or any agency or subdivision thereof, or before any
arbitrator or panel of arbitrators, (a) that is likely to be
material to Holdings or Borrower (each on a consolidated
basis), except as specifically described in Schedule 9.15
hereto, and (b) such other actions, investigations and
proceedings of which Borrower has given notice to Agent as
required, pursuant to Section 16.7, none of which other
actions, investigations and proceedings is likely to have a
material adverse effect on the business, property, financial
condition or prospects of Holdings or Borrower (each on a
consolidated basis). Neither Holdings, nor Borrower nor any
Subsidiary has accepted liability for any such action or
proceeding.
20. Amendments to Sections 9.17 and 9.18. Effective as of
October 22, 1993, Sections 9.17 and 9.18 of the Loan Agreement are
hereby amended to read in their entirety as follows:
9.17 Location of Receivables Records. Borrower and the
Subsidiaries maintain their respective records relating to
their respective Receivables at the addresses listed on
Schedule 9.17 hereto or at such other address to which such
records have been moved in compliance with Section 17.14
hereof (in the case of Borrower) or Section 18.13 of the
relevant Subsidiary Loan Agreement (in the case of any
Subsidiary).
9.18 Location of Inventory. Borrower and the
Subsidiaries maintain their respective Inventory at the
addresses listed on Schedule 9.18 hereto or at such other
address to which such Inventory has been moved in compliance
with Section 17.14 hereof (in the case of Borrower) or Section
18.13 of the relevant Subsidiary Loan Agreement (in the case
of any Subsidiary) except for (a) Inventory in transit or (b)
Inventory being processed by third parties not exceeding One
Hundred Thousand Dollars ($100,000) in aggregate fair market
value.
21. Amendments to Section 9.19. Effective as of October 22,
1993, the first sentence of Section 9.19 of the Loan Agreement is
hereby amended to read in its entirety as follows:
Annexed hereto as Schedule 9.19 is a description of all
Borrower's and the Subsidiaries' respective Equipment and
describing the places where the same is located as of October
22, 1993.
22. Amendments to Sections 9.20, 9.21 and 9.23. Effective as
of October 22, 1993, the words "or as is otherwise permitted
pursuant to Article 17 hereof" shall be added immediately before
the period at the end of each of Sections 9.20 and 9.21 of the Loan
Agreement and immediately before the first comma in Section 9.23 of
the Loan Agreement.
23. Amendments to Section 9.28. Effective as of October 22,
1993, Section 9.28 of the Loan Agreement is hereby amended to read
in its entirety as follows:
9.28 Employees. Borrower and the Subsidiaries have no
union contract except (a) as of October 22, 1993, as set forth
in Schedule 9.28 hereto, (b) amendments or replacements of the
union contracts set forth in Schedule 9.28 hereto which in any
such case has not had and could not reasonably be expected to
have a material adverse effect on the ability of the Borrower
or any Subsidiary to perform its respective obligations under
the Loan Documents or the Subsidiary Loan Agreements or on the
business, operations, assets, conditions (financial or
otherwise) or prospects of Borrower or any Subsidiary, and (c)
such other union contracts as to which Borrower has given
notice to Agent and which shall have been entered into
following good faith bargaining between Borrower or a
Subsidiary and those of its employees covered thereby and
without any strike, work stoppage or other similar action by
Borrower's or any Subsidiary's employees against Borrower or
such Subsidiary or the threat thereof. Borrower and the
Subsidiaries have no labor controversy presently existing or,
to Borrower's knowledge, threatened which may result in a
strike or work stoppage against Borrower or any Subsidiary.
24. Amendments to Section 11.2. The words ", but in any case
the separate financial statements of Waterbury Companies, Inc. and
Talley Metals Technology, Inc." shall be deleted from the first
parenthetical phrase set forth in clause (ii) of Subsection (a) of
Section 11.2 of the Loan Agreement. In addition, the word "and"
immediately before the beginning of subsection (b) of such Section
shall be deleted and the following text shall be added immediately
after the semi-colon at the end of such Section:
and (c) the Borrower shall consult with the Agent in advance
of each yearly audit of the Borrower's consolidated financial
statements to ensure that the scope of the independent
auditor's audit review with respect to Waterbury Companies,
Inc. and Talley Metals Technology, Inc. is satisfactory to the
Agent, and the Borrower shall instruct its independent
auditors to conduct a restricted scope review (which shall
include a full scope audit of Inventory and Receivables) with
respect to Waterbury Companies, Inc. and Talley Metals
Technology, Inc. for the year ended December 31, 1993;
25. Amendments to Section 11.3. Effective as of October 22,
1993, Section 11.3 of the Loan Agreement is hereby amended to read
in its entirety as follows:
11.3 Forecasts. At least fifteen (15) days but not more
than sixty (60) days prior to the end of each fiscal year of
Borrower, forecasts (the "Latest Forecasts") prepared in a
manner consistent with Borrower's and Holdings' past practices
and in such further reasonable detail as Agent may request
consisting of projected consolidated and consolidating (by
Subsidiary and Borrower) balance sheets, and income,
availability and cash flow statements of the Borrower and the
Subsidiaries and a consolidated and consolidating borrowing
availability forecast of the Borrower and the Subsidiaries
(based upon the derived calculations or amounts listed on
Schedule 2.1 hereto), on a monthly basis for each of the
forthcoming twelve (12) months, month by month, together with
such appropriate supporting details and statements of
assumptions, all as Agent may reasonably request; provided,
however, that separate annual forecasts with respect to any of
Talley Automotive Products, Inc., Talley International
Investment Corporation and WDC, Inc. shall not be required to
be delivered pursuant to this Section 11.3 if and so long as
such Subsidiaries are and remain inactive;
26. Amendments to Section 14.2. The designation "(a)" shall
be inserted immediately before the first sentence of Section 14.2
of the Loan Agreement, and a new Subsection (b) shall be added to
Section 14.2 of the Loan Agreement and shall read as follows:
(b) All Inventory now owned or hereafter acquired by
Borrower or any Subsidiary will be kept at the location or
locations shown on Schedule 9.18 opposite Borrower's or such
Subsidiary's respective name except as permitted by this
Agreement. Without the prior written consent of Agent,
Borrower and the Subsidiaries will not at any time have or
maintain in the State of Tennessee Inventory having a fair
market value greater than $2,000,000 in the aggregate.
27. Amendment to Section 15.1. Section 15.1 of the Loan
Agreement shall be amended to read in its entirety as follows:
15.1 Description and Location; Records of Equipment.
Annexed hereto as Schedule 9.19 is a description of all of
Borrower's and each Subsidiary's present Equipment and
describing the location where the same is kept. All Equipment
now owned or hereafter acquired will be kept at the location
or locations shown on said Schedule opposite Borrower's or
such Subsidiary's respective name except as permitted by this
Agreement. Borrower and each Subsidiary shall at all times
hereafter keep correct and accurate records (consistent with
records maintained by comparable businesses) itemizing and
describing the location of all Equipment and the kind, type,
age and condition of all material Equipment, Borrower's and
such Subsidiary's cost therefor and accumulated depreciation
thereof and retirements, sales, or other dispositions thereof,
all of which records shall be available for examination during
Borrower's or the Subsidiary's usual business hours on demand
to any of the officers, employees or agents of Agent. Without
the prior written consent of the Agent, Borrower and the
Subsidiaries will not at any time have or maintain in the
State of Maryland Equipment having a fair market value greater
than $50,000 in the aggregate.
28. Amendments to Section 17.9. Section 17.9 of the Loan
Agreement shall be amended by deleting the word "and" immediately
before the beginning of clause (viii) thereof, deleting the period
at the end of such Section, inserting in lieu thereof "; and" and
adding a new clause (ix) to such Section immediately thereafter to
read as follows:
(ix) through April 30, 1995, a loan by Borrower to the Talley
Savings Plus Employee Stock Ownership Plan Trust in a maximum
principal amount at any one time outstanding equal to the sum
of $527,704.84 less the cumulative sum of regularly scheduled
installments of principal paid or payable thereon after the
date hereof and all other payments of principal paid thereon
after the date hereof.
29. Amendments to Section 17.10. Effective October 22, 1993,
Section 17.10 of the Loan Agreement shall be amended by deleting
the word "and" at the end of Subsection (d) thereof, deleting the
period at the end of Subsection (e) thereof, inserting in lieu
thereof "; and" and adding a new Subsection (f) to such Section
immediately thereafter to read as follows:
(f) Through March 31, 1994, Liens in favor of Security
Pacific Business Credit Inc. ("SPBC") on cash collateral,
in the aggregate amount of $377,576.20 less the
cumulative sum of all such cash released prior to March
31, 1994 by SPBC, as security for certain letters of
credit outstanding on the date hereof caused to be issued
by SPBC for the account of Talley Metals Technology, Inc.
and Amcan Specialty Steels, Inc.
30. Amendments to Section 17.11(e). The following proviso
shall be added to Subsection (e) of Section 17.11 of the Loan
Agreement immediately after the semi-colon at the end of the first
proviso thereto:
and provided, further, that (i) at least 30 days prior to the
Borrower's proposed reimbursement or payment of more than
$100,000 in the aggregate of costs of the nature
("Reimbursable Costs") subject to the third sentence of
Section 6 of the Cost Sharing Agreement during any fiscal
year, the Borrower shall advise the Agent in writing to such
effect and provide to the Agent such information as the Agent
may request regarding such Reimbursable Costs and the
anticipated level of Reimbursable Costs for such year; (ii) at
least 30 days prior to the Borrower's proposed reimbursement
or payment of more than $500,000 in the aggregate of
Reimbursable Costs during any fiscal year, the Borrower shall
advise the Agent in writing to such effect, shall provide to
the Agent such information as the Agent may request regarding
such Reimbursable Costs and shall demonstrate to the Agent's
reasonable satisfaction that the Borrower's reimbursement or
payment of Reimbursable Costs will neither cause the Borrower
not to be Solvent nor result in the Borrower's inability to
fund the anticipated cash requirements of the Borrower and its
Subsidiaries, and such proposed reimbursement or payment of
Reimbursable Costs will not be made by the Borrower unless and
until such matters have been demonstrated to the Agent's
reasonable satisfaction and the Agent has so notified the
Borrower in writing; and (iii) in no event shall the Borrower
reimburse or pay, or undertake to reimburse or pay, any costs
or expenses under the Cost Sharing Agreement, whether as
Reimbursable Costs or otherwise, to pay Holdings' interest
expense in respect of the Discount Debentures;
31. Amendments to Section 18.7. Effective as of October 22,
1993, the reference to "Forecasts" in the first sentence of Section
18.7 of the Loan Agreement shall be changed to "Closing Date
Forecasts."
32. Amendments to Section 22.3(e). Section 22.3(e) of the
Loan Agreement is hereby amended to read in its entirety as
follows:
(e) The Agent will not, without the consent of all
Lenders, agree to or take any other action to cause or permit
any of the following, whether under this Agreement, any other
Loan Document, the Airbag Collateral Security Agreement or the
Subsidiary Loan Agreements: (i) any reduction in fees,
commissions or principal of any Loan or any Subsidiary Loans;
(ii) except as otherwise permitted pursuant to Section 22.3(f)
hereof, release any material Collateral, collateral under the
Subsidiary Loan Agreements, or Airbag Collateral; (iii) extend
the date of termination of this Agreement; (iv) increase the
amount of the Maximum Amount of the Facility or the Maximum
Revolving Advance Amount; (v) reduce the interest rate payable
under this Agreement; (vi) make any overadvances except
Permitted Overadvances (as hereinafter defined); (vii)
increase or fail to enforce the lending formulae in Schedule
2.1 (including the definitions set forth therein), except that
Agent may reduce the Stipulated Reserve to not less than
$5,000,000; (viii) materially and adversely modify or reduce
the Airbag Collateral or any of Lenders' rights or powers with
respect to any material Collateral or the Subsidiary Loan
Agreements; (ix) amend or modify Section 2.3 hereof, clauses
(e) or (f) of Section 22.3 hereof, the definition of the term
"Required Lenders," or any provision in any Loan Document that
requires the consent, agreement or approval of all of the
Lenders; or (x) modify the structure of the transactions
contemplated by the Loan Documents and the Subsidiary Loan
Agreements so as to materially and adversely affect the
enforceability of such Documents and Agreements or the
structure of the loans to Borrower and the Subsidiaries.
Except for Permitted Overadvances, Agent shall not, without
the prior written consent of the Required Lenders, enter into
any waiver, consent or amendment under this Agreement, the
other Loan Documents, the Subsidiary Loan Agreements or the
Airbag Collateral Security Agreement or accelerate the
maturity of the Obligations or terminate this Agreement upon
the occurrence of an Event of Default; provided, however,
except as provided in the immediately preceding sentence,
Agent may consent to any immaterial departure from, or waive
any immaterial Events of Default in, the Loan Documents and
the Subsidiary Loan Agreements upon prompt notice thereof to
Lenders.
If any Lender fails to respond to the Agent's request for
consent to any action (including those described above) for
more than five (5) Business Days, then that Lender shall be
deemed to have given its consent to the Agent's request. Each
Lender agrees that it will not make or otherwise permit to
exist any loans, advances, or other financial accommodations
to or with the Borrower that are not expressly contemplated by
this Agreement. The term "Permitted Overadvances" means (A)
involuntary overadvances that may result from time to time due
to the fact that any borrowing formulas set forth in the Loan
Documents were exceeded (whether at the time of any Loan or
otherwise) for any reason (other than the Agent's gross
negligence or willful misconduct), including Collateral or a
Subsidiary's collateral once eligible in fact being or
becoming ineligible for any reason and the return of
uncollected checks or other items applied to the reduction of
the Loans or other Obligations, and resulting overadvances
made by the Agent without Lenders' consent for up to thirty
(30) days after discovering the unintentional overadvance,
provided that the Agent does not during that period
voluntarily increase the amount by which the borrowing
formulas had been exceeded as of the start of that period and
further the aggregate amount of the "out of formula" Advances
does not exceed $2,500,000, and (B) voluntary overadvances
made by the Agent in its sole discretion to protect or
preserve Collateral which shall (x) not cause the Obligations
to exceed Loan Availability by an amount in excess of Two
Million Five Hundred Thousand Dollars ($2,500,000) at any one
time outstanding, and (y) not be made on a date which is
beyond ninety (90) days after the first voluntary overadvance
is made during such overadvance period, or (z) be with the
consent of all Lenders. To the extent any Permitted
Overadvances are made, each Lender shall bear its Percentage
Interest thereof.
33. Addition of Subsection (f) to Section 22.3. A new
Subsection (f) shall be added to Section 22.3 of the Loan Agreement
immediately after the end of Subsection (e) of such Section 22.3
and shall read as follows:
(f) The Lenders hereby irrevocably authorize the Agent,
at its option and in its discretion, to release any Liens
granted to or held by the Agent, for the benefit of the Agent
or the Lenders, upon any Collateral, collateral under the
Subsidiary Loan Agreements or Airbag Collateral (i) pursuant
to Section 7.4 hereof; (ii) constituting property being sold
or disposed of if the Borrower and any applicable Subsidiary
certifies to the Agent that the sale or disposition is made in
compliance with this Agreement and any applicable Subsidiary
Loan Agreement (and the Agent may rely conclusively on any
such certificate, without further inquiry); (iii) constituting
property being sold or disposed of if such sale or disposition
is otherwise approved, authorized or ratified in writing by
the Lenders; (iv) constituting property leased to the
applicable Borrower or Subsidiary under a lease which has
expired or been terminated in a transaction permitted under
this Agreement or any applicable Subsidiary Loan Agreement or
which will expire imminently and which has not been, and is
not intended by such Borrower or Subsidiary to be, renewed or
extended; or (v) if otherwise approved, authorized or ratified
in writing by the Lenders. Nevertheless, the Agent shall not
be required to execute any release document on terms which, in
the Agent's opinion, could expose the Agent to liability or
create any obligation or entail any consequence other than the
release of such Liens without recourse, representation or war-
ranty, and such release shall not in any manner discharge,
affect or impair the Obligations (or Obligations under the
Subsidiary Loan Agreements) or any Liens (other than those
expressly being released) upon (or obligations of the Borrower
or any Subsidiary in respect of) all interests retained by
such Borrower or Subsidiary, including (without limitation)
the proceeds of any sale, all of which shall continue to
constitute part of the Collateral, collateral under the
Subsidiary Loan Agreements or Airbag Collateral, as the case
may be.
34. Amendments to Section 22.4(a). The first sentence of
Section 22.4(a) of the Loan Agreement is hereby amended in its
entirety to read as follows:
Each Lender shall pay to the Agent upon demand, in readily
available funds, all sums necessary to maintain its Percentage
Interest in the Loans (provided, however, ANB shall not be
obligated to pay to Agent in respect of the principal amount
of Revolving Loans more than $16,666,667), together with its
Percentage Interest of Extraordinary Expenses and Permitted
Overadvances.
35. Amendments to Section 25.3. The address for notice to
Agent or TBCC set forth in Section 25.3 of the Loan Agreement is
deleted, and the following is substituted therefor:
If to Agent or TBCC: Transamerica Business Credit
Corporation
555 Theodore Fremd Avenue
Rye, New York 10580
Attn: Steven Fischer
With a copy to: Rogers & Wells
200 Park Avenue
New York, New York 10166
Attn: Alan M. Christenfeld, Esq.
The address for notice to Agent or TBCC set forth in all other Loan
Documents shall be changed identically.
36. Amendments to Schedule 1.2. Schedule 1.2 to the Loan
Agreement is hereby amended in its entirety by replacing such
Schedule with the Schedule attached hereto as Schedule 1.2
37. Amendments to Exhibits D-1 and D-2. Exhibits D-1 and D-2
to the Agreement shall be amended in their entirety by replacing
such Exhibits with the Exhibits D-1 and D-2, respectively, annexed
hereto.
38. Certain Technical Amendments. The word "Lender" shall be
changed to the word "Agent" in clause (a) of the definition of
Eligible Receivables set forth in Section 1.1 of the Loan
Agreement, in the last sentence of Section 7.3, in Subsection (c)
of Section 10.2 and in Subsection (d) of Section 24.6 of the Loan
Agreement. The "Lender's" shall be changed to the word "Agent's"
in Subsection (b) of Section 23.4 of the Loan Agreement. The word
"Lender" shall be changed to the word "Lenders" in clause (n) of
the definition of Eligible Receivables set forth in Section 1.1 of
the Loan Agreement. The word "any" shall be inserted immediately
after the words "compliance by" in Section 4.2 of the Loan
Agreement. The word "such" shall be inserted immediately before
the word "Lender" the first time such word appears in Section 16.11
of the Loan Agreement. The word "Lender" shall be changed to the
words "Agent and/or Lenders" in clause (iii) of the last
undesignated paragraph of Section 16.5 of the Loan Agreement.
39. Allocations of Interest and Other Costs on Subsidiary
Loan Agreements. Notwithstanding anything to the contrary
contained in any Loan Document or any Subsidiary Loan Agreement,
allocations to each of the Borrower's Subsidiaries of interest
expense in respect of the Subsidiary Loan Agreements shall be made
by the Borrower monthly, in arrears, and an allocation to each of
the Borrower's Subsidiaries of increased costs, losses, expenses or
other costs and amounts shall be made by the Borrower as and when
they are incurred, in each case on a pro rated basis, to be
determined by the Borrower and reasonably acceptable to the Agent,
based on the average daily principal amount of each Subsidiary Loan
(exclusive of the average daily sum of the undrawn face amounts of
or unreimbursed drawings under any "Letters of Credit" (as defined
in the Subsidiary Loan Agreements)) outstanding during the prior
month. The Borrower shall furnish to the Agent, within 14 days
after the end of each month, a report showing the Borrower's
allocation of interest expense among the Subsidiaries, on a
Subsidiary-by-Subsidiary basis, together with such explanation
thereof and supporting detail therefor as the Agent may require,
all of which shall be in form and substance reasonably satisfactory
to the Agent.
40. Exhibits. The Exhibits F and G added to the Loan
Agreement pursuant to this Amendment shall be in the forms of
Exhibits F and G, respectively, attached hereto.
41. Conditions to Effectiveness. This Amendment shall be
effective as of the date first above written upon satisfaction of
the following conditions precedent:
41.1. Documents from Borrower. The Agent shall have
received the following conforming to the requirements hereof and in
form and substance satisfactory to the Agent, the Lenders and their
respective counsel and executed by a duly authorized officer of
Borrower:
(a) This Amendment;
(b) New Revolving Notes to each of the Lenders, in
exchange for the respective Revolving Notes held by such
Lenders immediately prior to such exchange and in the
principal amounts of such Lenders' respective Percentage
Interests of the Maximum Revolving Advance Amount after giving
effect to this Amendment; and
(c) New Term Notes to each of the Lenders, in exchange
for the respective Term Notes held by such Lenders immediately
prior to such exchange and in the principal amounts of such
Lenders' respective Percentage Interests of the Term Loan.
41.2. Amendments to Subsidiary Loan Documents. The
Borrower and each Subsidiary shall have executed an amendment (the
"Subsidiary Amendment") to their respective Subsidiary Loan
Agreement, substantially in the form of Exhibit Z-1 attached
hereto, and shall have delivered such other documents and
instruments in connection therewith as the Agent shall require,
each in form and substance satisfactory to the Agent.
41.3. Confirmation of Loan Documents. Each Subsidiary
shall have executed the Confirmation of Loan Documents set forth
below.
41.4. Amendments to Guaranties. Each Subsidiary shall
have executed an amendment (the "Subsidiary Guaranty Amendment") to
their respective Guaranty, substantially in the form of Exhibit Z-2
attached hereto, and shall have delivered such other documents and
instruments in connection therewith as the Agent shall require,
each in form and substance satisfactory to the Agent.
41.5. Legal Opinions. The Agent shall have received an
opinion of Messrs. Meyer, Hendricks, Victor, Osborn & Maledon,
P.A., counsel to Borrower relying in part upon the opinion of
Messrs. Donovan Leisure Newton & Irvine, New York counsel to the
Borrower, each addressed to the Agent and the Lenders and in form
and substance satisfactory to the Agent.
41.6. Corporate Proceedings. The Agent shall have
received a copy of the resolutions (in form and substance
reasonably satisfactory to Agent) of the Board of Directors of the
Borrower authorizing (i) the execution, delivery and performance of
this Amendment, the documents referred to in Section 41.2 hereof,
the new Revolving Notes, the new Term Notes and the other Loan
Documents contemplated hereby and thereby, and (ii) the
consummation of the transactions contemplated hereby and thereby,
all certified by the Secretary or an Assistant Secretary of the
Borrower on the date hereof. Such certificate shall state that the
resolutions set forth therein have not been amended, modified,
revoked or rescinded as of the date of such certificate.
41.7. No Defaults. No Default, Event of Default or
Subsidiary Event of Default shall have occurred and be existing
either before or immediately after giving effect to this Amendment.
41.8. Representations and Warranties True. The
representations and warranties contained herein, in the Loan
Agreement and in all other Loan Documents (other than
representations and warranties that expressly speak only as of a
specified different date) shall be true and correct both as of the
date hereof and immediately after giving effect to this Amendment.
41.9. Certificate of Officers. The Agent shall have
received a certificate, in form and substance satisfactory to the
Agent, dated the date of the effectiveness of this Amendment and
signed by the President or a Vice President and the Treasurer or
Controller of the Borrower certifying that the conditions set forth
in this Section 41 have been fulfilled and as to such other matters
as the Agent shall reasonably require.
41.10. Other Conditions. The Agent shall have received
such other agreements, opinions, certificates, representations,
instruments and other documents as it may reasonably require, all
in form and substance satisfactory to the Agent.
42. Mortgage Amendments and Title Policy Endorsements. The
Borrower covenants and agrees to execute and deliver, and to cause
to be executed and delivered, to the Agent, within seventy-five
(75) days after the date hereof, such amendments or modifications
to the Mortgages and assignments of the Mortgages, if any,
heretofore delivered by Borrower and the Subsidiaries to Lender,
and, within one hundred fifty (150) days after the date hereof,
such endorsements to the policies of title insurance with respect
thereto, as the Agent shall reasonably require to confirm that the
Mortgages and assignments of the Mortgages continue to be valid and
grant a first priority perfected Lien on the Real Estate covered
thereby, free and clear of all defects and encumbrances other than
as Agent may approve, to secure the repayment of the Obligations
after giving effect to this Amendment, all prior amendments of the
Loan Agreement, and the Subsidiary Guaranty Amendment.
43. Representations and Warranties. The Borrower hereby
represents and warrants to the Lenders and the Agent that (i) the
execution, delivery and performance of this Amendment and the other
documents and instruments to be executed and delivered in
connection herewith by the Borrower and its Affiliates are within
their respective corporate powers and have been duly authorized by
all necessary corporate action, (ii) no consent, approval,
authorization of, or declaration or filing with, any governmental
or public authority, and no consent of any other Person, is
required in connection with the execution, delivery and performance
of this Amendment and the other documents and instruments to be
executed and delivered in connection herewith by the Borrower and
its Affiliates, except for those already duly obtained, (iii) this
Amendment and the other documents and instruments to be executed
and delivered in connection herewith by the Borrower and its
Affiliates have been duly executed by the Borrower and such
Affiliates and constitute the legal, valid and binding obligation
of the Borrower and such Affiliates, enforceable against them in
accordance with their terms, (iv) the execution, delivery and
performance by the Borrower and its Affiliates of this Amendment
and the other documents and instruments to be executed and
delivered in connection herewith by the Borrower and its Affiliates
do not and will not conflict with, or constitute a violation or
breach of, or constitute a default under, or result in the creation
or imposition of any Lien upon the property of the Borrower or any
of its Affiliates by reason of the terms of (a) any contract,
mortgage, Lien, lease, agreement, indenture, or instrument to which
the Borrower or such Affiliate is a party or which is binding upon
it, (b) any requirement of law applicable to the Borrower or such
Affiliate, or (c) the Certificate or Articles of Incorporation or
By-Laws of the Borrower or such Affiliate, (v) no event has
occurred and is continuing which constitutes a Default, an Event of
Default or a Subsidiary Event of Default, and (vi) no change or
development or event involving a prospective change, which in any
such case has had or could reasonably be expected to have a
material adverse effect on the ability of the Borrower to perform
its obligations under the Loan Documents or on the business,
operations, assets, conditions (financial or otherwise) or
prospects of Borrower on a consolidated basis, has occurred and is
continuing.
44. Authorization to Sign Amendments to Subsidiary Loan
Documents and other Documents. By their signatures below, the
Lenders hereby authorize TBCC, as Agent and as collateral agent for
the Lenders and the Senior Note Trustee under the Airbag Collateral
Security Agreement, to consent to the execution and delivery of the
Subsidiary Amendments, substantially in the form of Exhibit Z-1
attached hereto, and to execute the Subsidiary Guaranty Amendment;
to consent to the delivery of such other documents and instruments
in connection therewith as the Agent shall require, each in form
and substance satisfactory to the Agent; and to execute and deliver
such written consents and other documents or instruments in
connection therewith as the Agent shall deem appropriate.
45. Reference to and Effect on Loan Documents.
45.1. On and after the date hereof, each reference in
the Loan Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in the other
Loan Documents to the Loan Agreement, shall mean and be a reference
to the Loan Agreement as amended hereby.
45.2. Except as specifically amended above, all of the
terms of the Loan Agreement shall remain unchanged and in full
force and effect.
45.3. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any Default, Event of
Default or Subsidiary Event of Default, nor as a waiver of any
right, power or remedy of any Lender or the Agent under the Loan
Agreement or any of the other Loan Documents, nor constitute a
waiver of any provision of the Loan Agreement or any of the other
Loan Documents.
46. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and
delivered (including delivery by telecopier) shall be deemed to be
an original and all of which taken together shall constitute one
and the same instrument.
47. Governing Law. This Amendment shall be governed by, and
shall be construed and enforced in accordance with, the laws of the
State of New York.
48. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Amendment or be given any substantive
effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly
authorized officers as of the date set forth above.
BORROWER:
TALLEY MANUFACTURING AND TECHNOLOGY,
INC.
By:Mark S. Dickerson
Name: Mark S. Dickerson
Title: Vice President & Secretary
AGENT:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:Steve Goetschius
Name: Steve Goetschius
Title: Vice President
LENDERS:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
Name:
Title:
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO
By:Elizabeth J. Limpert
Name: Elizabeth J. Limpert
Title: Vice President
NATIONAL CANADA FINANCE CORPORATION
By:Thomas H. Hopkins
Name:
Title:
By:George A. Baker, Jr.
Name: George A. Baker, Jr.
Title: Vice President
<PAGE>
CONFIRMATION OF LOAN DOCUMENTS
Each of the undersigned hereby acknowledges that the Loan
and Security Agreement, dated October 22, 1993 (as amended or
modified, the "Loan Agreement"), among Talley Manufacturing and
Technology, Inc., a Delaware corporation, Transamerica Business
Credit Corporation, as agent, and each of the financial
institutions identified on the signature pages thereto is being
amended pursuant to the foregoing Third Amendment to Loan and
Security Agreement (the "Amendment"). Each of the undersigned
hereby confirms that each of the Loan Documents to which it is a
party shall remain in full force and effect on the terms provided
therein and that each reference in the Loan Documents to the
"Parent Loan Agreement" shall be a reference to the Loan Agreement
as modified or amended by the Amendment. Each of the undersigned
further confirms that there exists no Default or Event of Default
(as defined in the Subsidiary Loan Agreement to which it is a
party) and that all representations and warranties made by it in
the Loan Documents to which it is a party are true and correct as
though made on and as of the date hereof (other than
representations and warranties that expressly speak only as of a
specified different date).
Dated: As of December 16, 1994
AMCAN SPECIALTY STEELS, INC.;
DIMETRICS, INC.; ELECTRODYNAMICS,
INC.; JOHN J. MCMULLEN ASSOCIATES,
INC.; PORCELAIN PRODUCTS CO.; ROWE
INDUSTRIES, INC.; TALLEY AUTOMOTIVE
PRODUCTS, INC.; TALLEY CANADA, INC.;
TALLEY DEFENSE SYSTEMS, INC.; TALLEY
INTERNATIONAL INVESTMENT
CORPORATION; TALLEY METALS
TECHNOLOGY, INC.; TALLEY TECHNOLOGY,
INC.; UNIVERSAL PROPULSION COMPANY;
WATERBURY COMPANIES, INC.; WDC, INC.
By:Mark S. Dickerson
Name: Mark S. Dickerson
Title: Vice President & Secretary
<PAGE>
EXHIBIT D-1
FORM OF AMENDED AND RESTATED REVOLVING NOTE
<PAGE>
EXHIBIT D-2
FORM OF AMENDED AND RESTATED TERM NOTE
<PAGE>
EXHIBIT F
FORM OF NOTICE OF BORROWING
<PAGE>
EXHIBIT G
FORM OF NOTICE OF CONTINUATION AND/OR CONVERSION
<PAGE>
EXHIBIT Z-1
FORM OF AMENDMENT TO SUBSIDIARY LOAN AGREEMENTS
<PAGE>
EXHIBIT Z-2
FORM OF AMENDMENT TO GUARANTIES
<PAGE>
SCHEDULE 1.2
PERCENTAGE INTERESTS OF LENDERS
The Percentage Interest of Lenders is:
TBCC - 41.666666667%
ANB - 41.666666667%
National Canada
Finance Corp. 16.666666667%
EXHIBIT 10.12
EXECUTION
FIRST AMENDMENT TO
SUBSIDIARY LOAN AND SECURITY AGREEMENTS
This FIRST AMENDMENT TO SUBSIDIARY LOAN AND SECURITY
AGREEMENTS (this "Amendment") is entered into as of the 16th day of
December, 1994, by and among each of the Borrowers listed on the
signature pages hereof (each, individually, a "Borrower" and,
collectively, the "Borrowers") and TALLEY MANUFACTURING AND
TECHNOLOGY, INC., a Delaware corporation (the "Lender").
W I T N E S S E T H:
WHEREAS, each of the Borrowers has heretofore entered in a
Subsidiary Loan and Security Agreement with the Lender dated
October 22, 1993 (each, individually, a "Subsidiary Loan Agreement"
and, collectively, the "Subsidiary Loan Agreements");
WHEREAS, the Lender has assigned all of its rights under the
Subsidiary Loan Agreements and the other Loan Documents with all of
the Borrowers other than Talley Technology, Inc. ("TTI") to Agent
for the benefit of the lenders (the "Parent Lenders") under the
Parent Loan Agreement pursuant to the Collateral Assignment
Agreement and has assigned all of its rights under the Subsidiary
Loan Agreement and other Loan Documents with TTI to TBCC as Agent
and as collateral agent (the "Collateral Agent") for the Parent
Lenders and Bank One, Columbus, N.A., a national banking
association, as Trustee for the holders of the Senior Notes (in
such capacity, together with its successor in such capacity, the
"Senior Note Trustee");
WHEREAS, the Lender, the Agent and the Parent Lenders are
about to enter into a Third Amendment to Loan and Security
Agreement with respect to the Parent Loan Agreement (the "Parent
Amendment"), among other things, to clarify certain provisions of
the of the Parent Loan Agreement, to add an alternative interest
rate option and to make certain other changes thereto;
WHEREAS, the Lender and the Borrowers wish to enter into this
Amendment to make certain changes to the Subsidiary Loan Agreements
consistent with those to be made to the Parent Loan Agreement
pursuant to the Parent Amendment and the execution and delivery of
this Amendment is a condition precedent to the effectiveness of the
Parent Amendment; and
WHEREAS, the consent of Agent is required for the execution,
delivery and performance of this Amendment with respect to the
Subsidiary Loan Agreements with all of the Borrowers other than TTI
and the consent of the Collateral Agent is required for the
execution, delivery and performance of this Amendment with respect
to the Subsidiary Loan Agreement with TTI.
NOW, THEREFORE, in consideration of the premises and intending
to be legally bound hereby, the parties hereto hereby agree as
follows:
I. Definitions. Capitalized terms used herein and not
defined herein shall have the respective meanings given to such
terms in the Subsidiary Loan Agreements.
II. Amendments to Section 1.1.
A. The following definitions shall be added to Section
1.1 of each Subsidiary Loan Agreement, in appropriate alphabetical
order:
"Closing Date Forecasts" shall have the meaning ascribed
to such term in Section 9.7 hereof.
"Extraordinary Item" shall mean, with respect to any
revenue or expense item of any Person, any such item that is
characterized both by its unusual nature and infrequency of
occurrence and that, in accordance with GAAP, is, or could
properly be, shown along with its tax effects separately from
ordinary income (or loss) and from income from discontinued
operations on the income statement of such Person.
"Forecasts" shall mean (a) as of October 22, 1993, and
thereafter until the Lender receives subsequent forecasts
pursuant to Section 11.3 hereof, the Closing Date Forecasts
referred to in Section 9.7 hereof; and (b) thereafter, the
Latest Forecasts most recently received by the Lender pursuant
to Section 11.3 hereof.
"Latest Forecasts" shall have the meaning ascribed to
such term in Section 11.3 hereof.
B. The definition of "EBITDA" set forth in Section 1.1
of each Subsidiary Loan Agreement is hereby amended by adding the
following words immediately before the period at the end thereof:
plus (i) all losses resulting from Extraordinary Items during
such period to the extent deducted from net income for such
period and minus (ii) all gains resulting from Extraordinary
Items during such period to the extent included in net income
for such period
C. The definition of "Free Cash Flow" set forth in
Section 1.1 of each Subsidiary Loan Agreement is hereby amended to
read in its entirety as follows:
"Free Cash Flow" shall mean, for any applicable fiscal
period (as determined in accordance with Generally Accepted
Accounting Principles), (a) EBITDA for such period, minus (b)
the sum of Capital Expenditures (other than Capital
Expenditures for which neither Borrower nor any Affiliate
thereof, whether from Advances, the Term Loan or otherwise,
shall be the source of funds) actually paid or payable during
such period, minus (c) all losses resulting from Extraordinary
Items during such period to the extent deducted from net
income for such period, plus (d) all gains resulting from
Extraordinary Items during such period to the extent included
in net income for such period.
III. Amendments to Section 2.3. Effective January 1, 1994,
the third sentence of the second unnumbered paragraph of Section
2.3 of each Subsidiary Loan Agreement is hereby amended to read in
its entirety as follows:
Lender will generally not process any such application
involving a Letter of Credit that is not subject to the
Uniform Custom and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication 500
(the "UCP"), any amendments thereto, and any other applicable
laws, to the extent not inconsistent with the UCP.
IV. Amendments to Section 2.4. Section 2.4 of each
Subsidiary Loan Agreement is hereby amended in its entirety to read
as follows:
2.4 Manner of Borrowing; Reaffirmation of
Representations and Warranties; No Default. On the second
Business Day following the end of each week, unless sooner
requested by Lender, Borrower shall provide Lender with a
Borrowing Base Certificate substantially in the form attached
hereto as Exhibit A for such week. Borrower shall notify
Lender not later than 1:00 p.m. New York City time, on a
Business Day that an Advance is requested to be made (or in
the case of an Advance that is to be issued as a Letter of
Credit, five (5) Business Days before such Letter of Credit is
to be issued), specifying the amount of the proposed Advance,
and the date of such Advance. Each request by Borrower for an
Advance, and the acceptance by Borrower of the proceeds or
benefits thereof, shall be deemed to constitute a
representation and warranty by the Borrower that, as of both
the date of the request and the date on which such Advance is
made:
(A) each of the representations and warranties (other than
representations and warranties that expressly speak only
as of a specified different date) made by Borrower in
this Agreement and in each of the Loan Documents is true
and correct in all material respects; and
(B) no Default or Event of Default has occurred and is
continuing or would result from the making of an Advance
or issuance of a Letter of Credit; and
(C) no material adverse change, as determined by Lender in
its reasonable discretion, in the financial condition or
operations of the Borrower shall have occurred (a) at any
time or times subsequent to the most recent annual
financial statements provided pursuant to Section 11.2,
and (b) prior to the receipt of the first of such
statements at any time subsequent to August 31, 1993.
Lender's obligation to fund any Advance under this Section 2.4
shall be subject to (a) Lender's receipt of all applications,
certificates, consents, schedules, instruments, security
agreements, financing statements, opinions and other documents
which are provided for hereunder or under the other Loan
Documents or which Lender may reasonably request, and
(b) Borrower's eligibility for such Advance as indicated by
the Borrowing Base Certificate most recently provided to
Lender prior to the date on which the Advance is requested to
be made.
V. LIBOR Provisions. Notwithstanding anything to the
contrary contained in any Subsidiary Loan Agreement or any Loan
Document, if for any period any portion of Lender's interest-
bearing "Obligations" under the Parent Loan Agreement shall consist
of a LIBOR Loan (as defined in the Parent Loan Agreement), then
each Borrower's interest obligation and other obligations under its
respective Subsidiary Loan Agreement with respect to an equivalent
portion of the Loans outstanding thereunder shall be calculated and
paid in the same manner and at the same time as interest on such
LIBOR Loan is calculated and paid under the Parent Loan Agreement
and each Borrower shall be liable with respect to a ratable portion
of any increased costs, losses, expenses or other costs or amounts
for which Lender is liable pursuant to the Parent Loan Agreement in
respect of LIBOR Loans. An allocation to each Borrower of interest
expense in respect of the Subsidiary Loan Agreements shall be made
by Lender monthly, in arrears, and an allocation to each Borrower
of increased costs, losses, expenses or other costs and amounts
shall be made by Lender as and when they are incurred, in each case
on a pro rated basis to be determined by Lender and reasonably
acceptable to the Agent, based on the average daily principal
amount of the Loan (exclusive of the average daily sum of the
undrawn face amounts of or unreimbursed drawings under any Letters
of Credit) to each Borrower) outstanding during the prior month.
Each such allocation, when made by Lender and accepted by Agent,
shall be binding and conclusive against the Borrowers.
VI. Amendments to Section 7.1(b) of Talley Defense Systems,
Inc. Subsidiary Loan Agreement. Effective as of October 22, 1993,
the first sentence of subsection (b) of Section 7.1 of the
Subsidiary Loan Agreement with Talley Defense Systems, Inc. shall
be amended to read in its entirety as follows:
As further security for all such Obligations, Borrower has
delivered the Mortgages to Lender on each parcel of Real
Estate owned by it as of October 22, 1993 (other than the
parcel located at 4551 East McKellips Street, Mesa, Arizona).
VII. Amendments to Section 7.1(b) of Waterbury Companies, Inc.
Subsidiary Loan Agreement. Effective as of October 22, 1993, the
first sentence of subsection (b) of Section 7.1 of the Subsidiary
Loan Agreement with Waterbury Companies, Inc. shall be amended to
read in its entirety as follows:
As further security for all such Obligations, Borrower has
delivered the Mortgages to Lender on each parcel of Real
Estate owned by it as of October 22, 1993 (other than the
parcel located at 100 Calhoun Street, Independence,
Louisiana).
VIII. Amendments to Section 9.2. Effective as of October
22, 1993, Section 9.2 of each Subsidiary Loan Agreement is hereby
amended to read in its entirety as follows:
9.2 Executive Offices. Borrower's chief executive
office and principal place of business is at the address set
forth above or at such other address to which such chief
executive office and principal place of business have moved in
compliance with Section 18.13 hereof.
IX. Amendments to Sections 9.6, 9.9, 9.10 and 9.11.
Effective as of October 22, 1993, the words "As of October 22,
1993," shall be added to the beginning of each sentence of Section
9.6, and to the beginning of each of Sections 9.9, 9.10 and 9.11 of
each Subsidiary Loan Agreement, and the first letter of the
respective first words immediately thereafter shall be reduced to
lower case.
X. Amendments to Section 9.7. Effective as of October 22,
1993, Section 9.7 of each Subsidiary Loan Agreement is hereby
amended to read in its entirety as follows:
9.7 Forecasts. As of October 22, 1993, Borrower has
delivered to Lender forecasted financial statements consisting
of balance sheets, cash flow statements and income statements
of Borrower together with appropriate supporting details and
a statement of the underlying assumptions, ranges and
limitations (the "Closing Date Forecasts"). The Closing Date
Forecasts cover the five-year period commencing on January 1,
1993 and have been prepared on a monthly basis for each of the
first twelve (12) months and on an annual basis thereafter.
As of October 22, 1993 with respect to the Closing Date
Forecasts, and as of the respective date when delivered with
respect to each of the Latest Forecasts, each of such
Forecasts (a) have been prepared by Borrower in good faith and
in the light of the past business of Borrower and with a good
faith belief in the reasonableness of the assumptions on which
the Forecasts were based, (b) disclose all material or
significant assumptions used in preparation thereof, (c)
represent the good faith opinion of Borrower and its senior
management as to the most probable course of Borrower's
business and (d) fairly present the information which they
purport to show. Except as noted therein, the practices
followed in preparing such Forecasts do not materially differ
from practices usually followed by Borrower in the preparation
of financial forecasts in good faith and in the regular course
of an ongoing business.
XI. Amendments to Section 9.8. Effective as of October 22,
1993, Section 9.8 of each Subsidiary Loan Agreement is hereby
amended to read in its entirety as follows:
9.8 Documents Delivered to Lender. All data, reports
and information which Borrower has supplied or will supply to
Lender or caused to be supplied by a third party on its behalf
in connection with the obtaining of the credit provided for in
this Agreement or in connection with its business transactions
giving rise to Borrower's seeking such credit, including
without limitation, the Registration Statement (such data,
reports and information with respect to Borrower shall be
taken as a whole), are complete and accurate as of the date
when supplied to Lender and contain no material omission or
misstatement as of the date when supplied to Lender, are not
misleading as of the date when supplied to Lender, and as of
such date contain no material information the subject of which
has changed materially and adversely without Borrower having
notified Lender of such change in writing.
XII. Amendments to Section 9.14. Effective as of October 22,
1993, Section 9.14 of each Subsidiary Loan Agreement is hereby
amended to read in its entirety as follows:
9.14 Compliance with Tax Laws. Borrower has in all
material respects accurately prepared and timely filed all tax
returns (federal, state or local) required to be filed and
paid all taxes shown thereon to be due including interest and
penalties or has provided adequate reserves therefor. Except
as set forth on Schedule 9.14 or as otherwise expressly
permitted pursuant to Section 17.3 hereof, no assessments or
proposed adjustment of federal or state income taxes or other
material state, municipal or local taxes are pending or have
been made against Borrower by any taxing authority nor has any
penalty or deficiency been made by any such authority and
Borrower has no knowledge of any proposed liability for any
such tax to be imposed against Borrower. As of October 22,
1993, no federal or other income tax return of Borrower is
presently being audited by the Internal Revenue Service or any
state or local tax authority nor are the results of any prior
audit by the Internal Revenue Service or any state or local
tax authority being contested by Borrower except as
specifically described on Schedule 9.14 hereto.
XIII. Amendments to Section 9.15. Effective as of October
22, 1993, Section 9.15 of the Loan Agreement is hereby amended to
read in its entirety as follows:
9.15 Proceedings and Litigation. No action,
investigation (known to Borrower) or proceeding is now pending
or, to Borrower's knowledge, threatened against Holdings,
Borrower at law, in equity or otherwise, before any court,
board, commission, agency or instrumentality of the federal or
any state government or of any municipal government or any
agency or subdivision thereof, or before any arbitrator or
panel of arbitrators, (a) that is likely to be material to
Borrower, except as specifically described in Schedule 9.15
hereto, and (b) such other actions, investigations and
proceedings of which Borrower has given notice to Agent as
required pursuant to Section 16.7, none of which other
actions, investigations and proceedings is likely to have a
material adverse effect on the business, property, financial
condition or prospects of Borrower. Borrower has not accepted
liability for any such action or proceeding.
XIV. Amendments to Sections 9.17 and 9.18. Effective as of
October 22, 1993, Sections 9.17 and 9.18 of each Subsidiary Loan
Agreement are hereby amended to read in their entirety as follows:
9.17 Location of Receivables Records. Borrower maintains
its records relating to its Receivables at the addresses
listed on Schedule 9.17 hereto or at such other address to
which such records have been moved in compliance with Section
18.13 hereof.
9.18 Location of Inventory. Borrower maintains its
Inventory at the addresses listed on Schedule 9.18 hereto or
at such other address to which such Inventory has been moved
in compliance with Section 18.13 hereof except for (a)
Inventory in transit or (b) Inventory being processed by third
parties not exceeding One Hundred Thousand Dollars ($100,000)
in aggregate fair market value.
XV. Amendments to Section 9.19. Effective as of October 22,
1993, the first sentence of Section 9.19 of each Subsidiary Loan
Agreement is hereby amended to read in its entirety as follows:
Annexed hereto as Schedule 9.19 is a description of all
Borrower's Equipment and describing the places where the same
is located as of October 22, 1993.
XVI. Amendments to Sections 9.20, 9.21 and 9.23. Effective as
of October 22, 1993, the words "or as is otherwise permitted
pursuant to Article 18 hereof" shall be added immediately before
the period at the end of each of Sections 9.20 and 9.21 of each
Subsidiary Loan Agreement and immediately before the first comma in
Section 9.23 of each Subsidiary Loan Agreement.
XVII. Amendments to Section 9.28. Effective as of October
22, 1993, Section 9.28 of the Loan Agreement is hereby amended to
read in its entirety as follows:
9.28 Employees. Borrower has no union contract except
(a) as of October 22, 1993, as set forth in Schedule 9.28
hereto, (b) amendments or replacements of the union contracts,
if any, set forth in Schedule 9.28 hereto which in any such
case has not had and could not reasonably be expected to have
a material adverse effect on the ability of the Borrower to
perform its obligations under the Loan Documents or on the
business, operations, assets, conditions (financial or
otherwise) or prospects of Borrower, and (c) such other union
contracts as to which Borrower has given notice to Lender and
which shall have been entered into following good faith
bargaining between Borrower and those of its employees covered
thereby and without any strike, work stoppage or other similar
action by Borrower's employees against Borrower or the threat
thereof. Borrower has no labor controversy presently existing
or, to Borrower's knowledge, threatened which may result in
a strike or work stoppage against Borrower.
XVIII. Amendments to Section 11.2(a) of Certain Subsidiary
Loan Agreements. Subsection (a) of Section 11.2 of the Subsidiary
Loan Agreements with Waterbury Companies, Inc. and Talley Metals
Technology, Inc. shall be amended by deleting the word "audited"
from the first sentence thereof and by deleting the final sentence
thereof.
XIX. Amendments to Section 11.3. Effective as of October 22,
1993, Section 11.3 of each Subsidiary Loan Agreement is hereby
amended to read in its entirety (except as further amended pursuant
to Paragraph 20 hereof) as follows:
11.3 Forecasts. At least fifteen (15) days but not more
than sixty (60) days prior to the end of each fiscal year of
Borrower, forecasts (the "Latest Forecasts") prepared in a
manner consistent with Borrower's past practices and in such
further reasonable detail as Lender may request consisting of
projected balance sheets, and income, availability and cash
flow statements of the Borrower and a borrowing availability
forecast of the Borrower (based upon the derived calculations
or amounts listed on Schedule 2.1 hereto), on a monthly basis
for each of the forthcoming twelve (12) months, month by
month, together with such appropriate supporting details and
statements of assumptions, all as Lender may reasonably
request;
XX. Amendments to Section 11.3 of Certain Subsidiary Loan
Agreements. The following proviso shall be added to Section 11.3
(as otherwise amended pursuant to Paragraph 19 hereof) of the
Subsidiary Loan Agreements with Talley Automotive Products, Inc.,
Talley International Investment Corporation and WDC, Inc.
immediately after the semi-colon at the end thereof:
provided, however, that annual forecasts with respect to
Borrower shall not be required to be delivered pursuant to
this Section 11.3 if and so long as Borrower is and remains
inactive;
XXI. Amendments to Section 15.2. Effective as of October 22,
1993, Section 15.2 of each Subsidiary Loan Agreement is hereby
amended to read in its entirety (except as further amended pursuant
to Paragraph 22 hereof) as follows:
15.2 Additional Covenants and Representations. All
Inventory is, and will be, owned by Borrower free and clear of
all liens and encumbrances in favor of any party other than
Lender, Agent and the Lenders named in the Parent Loan
Agreement, except for Permitted Liens and Liens described on
Schedule 15.2 hereto, and shall be maintained at the locations
shown on Schedule 9.18 hereto except as permitted by this
Agreement. No Inventory shall be removed therefrom, except
for (a) transfer to another facility of Borrower, (b) the
purpose of sale in the ordinary course of Borrower's business
or (c) transfer for processing and assembly, in the ordinary
course, in the case of clauses (a) and (c), to the extent
disclosed on the perfection certificate of Borrower provided
Agent and the Lenders named in the Parent Loan Agreement.
Except for sales in the ordinary course of business, Borrower
will not sell, encumber, dispose of or permit the sale,
encumbrance, return or disposal of any Inventory without
Lender's prior written consent. If sales are made for cash,
Borrower shall immediately deliver to Lender the identical
checks or other forms of payment which it receives to the lock
box established pursuant to this Agreement. Borrower shall
specially and separately account for all Inventory to be sold
to the United States, any department, agency or
instrumentality thereof or to any State of the United States,
or any city, town, municipality or jurisdiction thereof and
shall physically segregate such Inventory upon its becoming
work-in-progress (as distinct from raw materials).
XXII. Amendments to Section 15.2 of Porcelain Products Co.
Subsidiary Loan Agreement. The following sentence shall be added
to the end of Section 15.2 (as otherwise amended pursuant to
Paragraph 21 hereof) of the Subsidiary Loan Agreement with
Porcelain Products Co.:
Without the prior written consent of Lender, Borrower will not
at any time have or maintain in the State of Tennessee
Inventory having a fair market value greater than $2,000,000
in the aggregate.
XXIII. Amendments to Section 16.1 of John J. McMullen
Associates, Inc. Subsidiary Loan Agreement. The following sentence
shall be added to the end of Section 16.1 of the Subsidiary Loan
Agreement with John J. McMullen Associates, Inc.:
Without the prior written consent of Lender, Borrower will not
at any time have or maintain in the State of Maryland
Equipment having a fair market value greater than $50,000 in
the aggregate.
XXIV. Amendments to Section 18.10 of Certain Subsidiary
Loan Agreements. Effective October 22, 1993, Section 18.10 of the
Subsidiary Loan Agreements with Talley Metals Technology, Inc. and
Amcan Specialty Steels, Inc. shall be amended by deleting the word
"and" at the end of Subsection (d) thereof, deleting the period at
the end of Subsection (e) thereof, inserting in lieu thereof ";
and" and adding a new Subsection (f) to such Section immediately
thereafter to read as follows:
(f) Through March 31, 1994, Liens in favor of Security
Pacific Business Credit Inc. ("SPBC") on cash collateral
granted by Talley Metals Technology, Inc. and Amcan
Specialty Steels, Inc., in the aggregate amount of
$377,576.20 less the cumulative sum of all such cash
released prior to March 31, 1994 by SPBC, as security for
certain letters of credit outstanding on the date hereof
caused to be issued by SPBC for the account of Talley
Metals Technology, Inc. and Amcan Specialty Steels, Inc.
XXV. Amendments to Section 19.1 of Certain Subsidiary Loan
Agreements. Effective October 22, 1993, the references to
"$6,000,000" set forth opposite the calendar quarters ending each
of June, September and December, 1994, in Section 19.1 of the
Subsidiary Loan Agreements with John J. McMullen Associates, Inc.
and Porcelain Products Co. shall be changed to "$3,000,000" in each
such instance.
XXVI. Amendments to Section 19.3. Effective as of October
22, 1993, the reference to "Forecasts" in the first sentence of
Section 19.3 of each Subsidiary Loan Agreement shall be changed to
"Closing Date Forecasts."
XXVII. Amendments to Section 26.3. The address for notice
to Lender or Agent set forth in Section 26.3 of each Subsidiary
Loan Agreement is deleted, and the following is substituted
therefor:
If to Lender or Agent: c/o Transamerica Business Credit
Corporation
555 Theodore Fremd Avenue
Rye, New York 10580
Attn: Steven Fischer
With a copy to: Rogers & Wells
200 Park Avenue
New York, New York 10166
Attn: Alan M. Christenfeld, Esq.
The address for notice to Agent or TBCC set forth in all other Loan
Documents shall be changed identically.
XXVIII. Amendments to Term Note Made by TTI. Effective as
of October 22, 1993, the reference to "One Hundred Nineteen
Thousand Two Hundred Thirty One Dollars ($119,231)" set forth in
the Term Note made by TTI shall be changed to "Sixty-Four Thousand
One Hundred Three Dollars ($64,103)." TTI will, promptly upon
demand by the Agent, execute and issue to Lender and deliver to
Agent such new replacement Term Note as Agent may request to
reflect the amendments effected pursuant to this Paragraph 28, in
exchange for the Term Note issued to Lender by such Borrower and
held in pledge by the Agent immediately prior to such exchange;
provided, however, that the amendments effected pursuant to this
Paragraph 28 shall be effective notwithstanding the absence of any
request or demand by Lender or the Agent for, or the failure of TTI
to issue or deliver, any of such new replacement promissory notes.
XXIX. Conditions to Effectiveness. This Amendment shall be
effective as of the date first above written upon satisfaction of
the following conditions precedent:
A. Documents from Borrower. The Agent shall have
received this Amendment executed by a duly authorized officer of
Lender and each Borrower.
B. Consent of Agent and Collateral Agent. TBCC, as
Agent and Collateral Agent, shall have consented to the execution,
delivery and performance of this Amendment by executing the Consent
set forth below.
C. Amendments to Parent Loan Documents. The Lender
shall have executed the Parent Amendment and the Lender and each
Borrower shall have executed and/or delivered such other documents
and instruments in connection therewith as the Parent Lenders and
the Agent shall require as a condition precedent to the
effectiveness thereof, each in form and substance satisfactory to
the Agent, and such Parent Amendment shall have become effective.
D. Legal Opinions. The Agent shall have received an
opinion of Messrs. Meyer, Hendricks, Victor, Osborn & Maledon,
P.A., counsel to Borrower relying in part upon the opinion of
Messrs. Donovan Leisure Newton & Irvine, New York counsel to the
Borrower, each addressed to the Agent, the Parent Lenders and the
Lender and in form and substance satisfactory to the Agent.
E. Corporate Proceedings. The Agent shall have received
a copy of the resolutions (in form and substance reasonably
satisfactory to Agent) of the Board of Directors of each Borrower
authorizing (i) the execution, delivery and performance of this
Amendment and the other Loan Documents contemplated hereby, and
(ii) the consummation of the transactions contemplated hereby and
thereby, all certified by the Secretary or an Assistant Secretary
of each Borrower on the date hereof. Such certificate shall state
that the resolutions set forth therein have not been amended,
modified, revoked or rescinded as of the date of such certificate.
F. No Defaults. No Default or Event of Default shall
have occurred and be existing either before or immediately after
giving effect to this Amendment.
G. Representations and Warranties True. The
representations and warranties contained herein, in the Subsidiary
Loan Agreements and in all other Loan Documents (other than
representations and warranties that expressly speak only as of a
specified different date) shall be true and correct both as of the
date hereof and immediately after giving effect to this Amendment.
H. Certificate of Officers. The Agent shall have
received a certificate, in form and substance satisfactory to the
Agent, dated the date of the effectiveness of this Amendment and
signed by the President, a Vice President or the Secretary, and the
Treasurer or Controller, of each Borrower certifying that the
conditions set forth in this Section 29 have been fulfilled and as
to such other matters as the Agent shall reasonably require.
I. Other Conditions. The Agent shall have received such
other agreements, opinions, certificates, representations,
instruments and other documents as it may reasonably require, all
in form and substance satisfactory to the Agent.
XXX. Mortgage Amendments and Title Policy Endorsements. Each
Borrower covenants and agrees to execute and deliver, and to cause
to be executed and delivered, to the Agent, within seventy-five
(75) days after the date hereof, such amendments or modifications
to the Mortgages and assignments of the Mortgages, if any,
heretofore delivered by such Borrower to Lender, and, within one
hundred fifty (150) days after the date hereof, such endorsements
to the policies of title insurance with respect thereto, as the
Agent shall reasonably require to confirm that the Mortgages and
assignments of the Mortgages continue to be valid and grant a first
priority perfected Lien on the Real Estate covered thereby, free
and clear of all defects and encumbrances other than as Agent may
approve, to secure the repayment of the Obligations after giving
effect to this Amendment and all prior amendments, if any, of the
Subsidiary Loan Agreement.
XXXI. Representations and Warranties. Each Borrower
hereby represents and warrants to the Lender and the Agent that (i)
the execution, delivery and performance of this Amendment and the
other documents and instruments to be executed and delivered in
connection herewith by such Borrower and its Affiliates are within
their respective corporate powers and have been duly authorized by
all necessary corporate action, (ii) no consent, approval,
authorization of, or declaration or filing with, any governmental
or public authority, and no consent of any other Person, is
required in connection with the execution, delivery and performance
of this Amendment and the other documents and instruments to be
executed and delivered in connection herewith by such Borrower and
its Affiliates, except for those already duly obtained, (iii) this
Amendment and the other documents and instruments to be executed
and delivered in connection herewith by such Borrower and its
Affiliates have been duly executed by such Borrower and Affiliates
and constitute the legal, valid and binding obligation of such
Borrower and Affiliates, enforceable against them in accordance
with their terms, (iv) the execution, delivery and performance by
such Borrower and its Affiliates of this Amendment and the other
documents and instruments to be executed and delivered in
connection herewith by such Borrower and its Affiliates do not and
will not conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or imposition
of any Lien upon the property of such Borrower or any of its
Affiliates by reason of the terms of (a) any contract, mortgage,
Lien, lease, agreement, indenture, or instrument to which such
Borrower or such Affiliate is a party or which is binding upon it,
(b) any requirement of law applicable to such Borrower or such
Affiliate, or (c) the Certificate or Articles of Incorporation or
By-Laws of such Borrower or such Affiliate, (v) no event has
occurred and is continuing which constitutes a Default or an Event
of Default, and (vi) no change or development or event involving a
prospective change, which in any such case has had or could
reasonably be expected to have a material adverse effect on the
ability of such Borrower to perform its obligations under the Loan
Documents or on the business, operations, assets, conditions
(financial or otherwise) or prospects of the Borrowers on a
consolidated basis has occurred and is continuing.
XXXII. Reference to and Effect on Loan Documents.
A. On and after the date hereof, each reference in the
Subsidiary Loan Agreements to "this Agreement", "hereunder",
"hereof", "herein" or words of like import, and each reference in
the other Loan Documents to a Subsidiary Loan Agreement, shall mean
and be a reference to such Subsidiary Loan Agreement as amended
hereby.
B. Except as specifically amended above, all of the
terms of the Subsidiary Loan Agreements shall remain unchanged and
in full force and effect.
C. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any Default or Event of
Default, nor as a waiver any right, power or remedy of any Lender
or the Agent under any Subsidiary Loan Agreement or any of the
other Loan Documents, nor constitute a waiver of any provision of
any Subsidiary Loan Agreement or any of the other Loan Documents.
XXXIII. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and
delivered (including delivery by telecopier) shall be deemed to be
an original and all of which taken together shall constitute one
and the same instrument.
XXXIV. Governing Law. This Amendment shall be governed by,
and shall be construed and enforced in accordance with, the laws of
the State of New York.
XXXV. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Amendment or be given any substantive
effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly
authorized officers as of the date set forth above.
BORROWERS:
AMCAN SPECIALTY STEELS, INC.; DIMETRICS,
INC.; ELECTRODYNAMICS, INC.; JOHN J.
MCMULLEN ASSOCIATES, INC.; PORCELAIN
PRODUCTS CO.; ROWE INDUSTRIES, INC.;
TALLEY AUTOMOTIVE PRODUCTS, INC.; TALLEY
CANADA, INC.; TALLEY DEFENSE SYSTEMS,
INC.; TALLEY INTERNATIONAL INVESTMENT
CORPORATION; TALLEY METALS TECHNOLOGY,
INC.; TALLEY TECHNOLOGY, INC.; UNIVERSAL
PROPULSION COMPANY; WATERBURY COMPANIES,
INC.; WDC, INC.
By:Mark S. Dickerson
Name: Mark S. Dickerson
Title: Secretary
LENDER:
TALLEY MANUFACTURING AND TECHNOLOGY,
INC.
By:Mark S. Dickerson
Name: Mark S. Dickerson
Title: Vice President & Secretary
<PAGE>
CONSENT OF AGENT AND COLLATERAL AGENT
The undersigned, as Agent, hereby consents to the
execution, delivery and performance of the foregoing First
Amendment to Subsidiary Loan and Security Agreements with respect
to the Subsidiary Loan Agreements with all of the Borrowers other
than TTI and, as Collateral Agent, hereby consents to the
execution, delivery and performance of the foregoing First
Amendment to Loan and Security Agreements with respect to the
Subsidiary Loan Agreement with TTI.
Dated: As of December 16, 1994
TRANSAMERICA BUSINESS CREDIT CORPORATION, as
Agent and Collateral Agent
By:Steve Goetschius
Name: Steve Goetschius
Title: Vice President
EXHIBIT 10.13
EXECUTION
FIRST AMENDMENT TO
CONTINUING GUARANTY AND SECURITY AGREEMENTS
This FIRST AMENDMENT TO CONTINUING GUARANTY AND SECURITY
AGREEMENTS (this "Amendment") is entered into as of the 16th day of
December, 1994, by and among each of the Guarantors listed on the
signature pages hereof (each, individually, a "Guarantor" and,
collectively, the "Guarantors"), TRANSAMERICA BUSINESS CREDIT
CORPORATION, as agent (the "Agent"), and the lenders parties to the
Loan Agreement referred to below (the "Lenders").
W I T N E S S E T H:
WHEREAS, the Talley Manufacturing and Technology, Inc., a
Delaware corporation ("Borrower"), the Agent and the Lenders have
heretofore entered in a Loan and Security Agreement dated October
22, 1993, as amended (the "Loan Agreement");
WHEREAS, each of the Guarantors has heretofore executed and
delivered to the Agent and the Lenders a Continuing Guaranty and
Security Agreement dated October 22, 1993 (each, individually, a
"Guaranty" and, collectively, the "Guaranties"); and
WHEREAS, the Guarantors, the Lenders and the Agent wish to
enter into this Amendment to make certain changes to the
Guaranties.
NOW, THEREFORE, in consideration of the premises and intending
to be legally bound hereby, the parties hereto hereby agree as
follows:
1. Definitions. Capitalized terms used herein and not
defined herein shall have the respective meanings given to such
terms in the Guaranties.
2. Amendments to Paragraph 1. Effective as of October 22,
1993, Paragraph 1 of each Guaranty is hereby amended in its
entirety to read as follows:
1. Guaranty of Indebtedness. Talley Manufacturing and
Technology, Inc., a Delaware corporation ("Borrower"), the
lenders from time to time parties thereto (collectively
hereinafter referred to as the "Lenders"), and Transamerica
Business Credit Corporation, a Delaware corporation ("TBCC"),
as agent for Lenders are parties to that certain Loan and
Security Agreement of even date herewith (as the same may be
amended, supplemented, restated or otherwise modified from
time to time, the "Loan Agreement"). At the solicitation of
Borrower, the undersigned requests the Lenders and TBCC, as
Agent for Lenders (Lenders and TBCC, as Agent for Lenders, are
hereinafter sometimes referred to collectively as the
"Beneficiary") to extend credit or provide other financial
accommodations to Borrower, the proceeds of which, in part or
in whole, shall be made available to the undersigned and/or
its affiliates to borrow or receive the benefit of from
Borrower and with the consent of the Beneficiary as provided
in the Loan Agreement, and in consideration thereof and for
other valuable consideration (the receipt and sufficiency of
which are hereby acknowledged), the undersigned
unconditionally, absolutely and irrevocably guarantees and
promises to pay to the Beneficiary, on demand, in lawful money
of the United States, as and when the same shall become due
(by demand, acceleration or otherwise) under the Loan
Agreement, all present and future Indebtedness, as hereinafter
defined, of Borrower to the Beneficiary. The word
"Indebtedness" is used herein in its most comprehensive sense
and includes any and all "Obligations" (as that term is
defined in the Loan Agreement) of Borrower to the Beneficiary
and any and all other loans, advances, credit and other
financial accommodations extended by the Beneficiary to
Borrower, and all debts, obligations and liabilities of
Borrower to the Beneficiary, of any kind and nature, whether
heretofore, now or hereafter made, incurred or created,
whether voluntary or involuntary and howsoever arising,
whether due or not due, absolute or contingent, liquidated or
unliquidated, secured or unsecured, and whether Borrower may
be liable individually or jointly with others, and whether
recovery upon such Indebtedness may be or hereafter becomes
barred by any statute of limitations, or whether such
Indebtedness may be or hereafter becomes otherwise
unenforceable. Except as to those terms otherwise defined in
this Continuing Guaranty, all capitalized terms used in this
Continuing Guaranty shall have the respective meanings
ascribed to them in the Loan Agreement.
3. Certain Technical Amendments. Effective as of October
22, 1993, the words "TBCC, as Agent for Lenders" shall be deleted
wherever they appear in Section 2 through 11, Sections 13 through
18, and the first sentence of Section 12 of the Guaranty, and the
words "The Beneficiary " shall be substituted therefor.
4. Representations and Warranties. Each Guarantor hereby
represents and warrants to the Lenders and the Agent that (i) the
execution, delivery and performance of this Amendment by such
Guarantor are within its respective corporate powers and have been
duly authorized by all necessary corporate action, (ii) no consent,
approval, authorization of, or declaration or filing with, any
governmental or public authority, and no consent of any other
Person, is required in connection with the execution, delivery and
performance of this Amendment by such Guarantor, except for those
already duly obtained, (iii) this Amendment has been duly executed
by such Guarantor and constitutes the legal, valid and binding
obligation of such Guarantor, enforceable against such Guarantor in
accordance with its terms, and (iv) the execution, delivery and
performance by such Guarantor of this Amendment by such Guarantor
do not and will not conflict with, or constitute a violation or
breach of, or constitute a default under, or result in the creation
or imposition of any Lien upon the property of such Guarantor or
any of its Affiliates by reason of the terms of (a) any contract,
mortgage, Lien, lease, agreement, indenture, or instrument to which
such Guarantor is a party or which is binding upon it, (b) any
requirement of law applicable to such Guarantor, or (c) the
Certificate or Articles of Incorporation or By-Laws of such
Guarantor.
5. Reference to and Effect on Documents.
5.1. On and after the date hereof, each reference in the
Guaranties to a "this Continuing Guaranty", "hereunder", "hereof",
"herein" or words of like import, and each reference in the other
Loan Documents to a Subsidiary Guaranty shall mean and be a refer-
ence to such Guaranty as amended hereby.
5.2. Except as specifically amended above, all of the
terms of the Guaranties shall remain unchanged and in full force
and effect.
6. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and
delivered (including delivery by telecopier) shall be deemed to be
an original and all of which taken together shall constitute one
and the same instrument.
7. Governing Law. This Amendment shall be governed by, and
shall be construed and enforced in accordance with, the laws of the
State of New York.
8. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Amendment or be given any substantive
effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly
authorized officers as of the date set forth above.
GUARANTORS:
AMCAN SPECIALTY STEELS, INC.; DIMETRICS, INC.;
ELECTRODYNAMICS, INC.; JOHN J. MCMULLEN
ASSOCIATES, INC.; PORCELAIN PRODUCTS CO.; ROWE
INDUSTRIES, INC.; TALLEY AUTOMOTIVE PRODUCTS,
INC.; TALLEY CANADA, INC.; TALLEY DEFENSE
SYSTEMS, INC.; TALLEY INTERNATIONAL INVESTMENT
CORPORATION; TALLEY METALS TECHNOLOGY, INC.;
TALLEY TECHNOLOGY, INC.; UNIVERSAL PROPULSION
COMPANY; WATERBURY COMPANIES, INC.; WDC, INC.
By:Mark S. Dickerson
Name: Mark S. Dickerson
Title: Secretary
AGENT:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:Steve Goetschius
Name: Steve Goetschius
Title: Vice President
LENDERS:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
Name:
Title:
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO
By:Elizabeth J. Limpert
Name: Elizabeth J. Limpert
Title: Vice President
NATIONAL CANADA FINANCE CORPORATION
By:Thomas H. Hopkins
Name: Thomas H. Hopkins
Title: Vice President
By:George A. Baker, Jr.
Name: George A. Baker, Jr.
Title: Vice President
EXHIBIT 21
Subsidiaries of Talley Manufacturing and Technology, Inc.
The following are the subsidiaries of the Registrant, as of December 31,
1994:
Percentage
of Voting Jurisdiction
Securities of
Owned Incorporation
1. Amcan Specialty Steels, Inc. 100% New Jersey
2. Dimetrics, Inc. 100% Delaware
3. Electrodynamics, Inc. 100% Arizona
4. John J. McMullen Associates, Inc. 100% Delaware
5. Porcelain Products Co. 100% Delaware
6. Rowe Industries, Inc. 100% Delaware
7. Talley Canada, Inc. 100% Canada
8. Talley Defense Systems, Inc. 100% Delaware
9. Talley Metals Technology, Inc. 100% Delaware
10. Talley Technology, Inc. 100% Delaware
11. Universal Propulsion Company, Inc. 100% Delaware
12. Waterbury Companies, Inc. 100% Delaware
Each of the above subsidiaries is included in the Company's Consolidated
Financial Statements. Several inactive or minor corporations are not
included above because all of them, when taken in the aggregate, do not
constitute a significant subsidiary.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,756,000
<SECURITIES> 0
<RECEIVABLES> 55,672,000
<ALLOWANCES> 994,000
<INVENTORY> 66,069,000
<CURRENT-ASSETS> 132,820,000
<PP&E> 133,813,000
<DEPRECIATION> 87,893,000
<TOTAL-ASSETS> 242,505,000
<CURRENT-LIABILITIES> 57,729,000
<BONDS> 139,756,000
<COMMON> 1,000
0
0
<OTHER-SE> 31,876,000
<TOTAL-LIABILITY-AND-EQUITY> 242,505,000
<SALES> 242,044,000
<TOTAL-REVENUES> 320,603,000
<CGS> 175,880,000
<TOTAL-COSTS> 228,194,000
<OTHER-EXPENSES> 61,706,000
<LOSS-PROVISION> 414,000
<INTEREST-EXPENSE> 17,180,000
<INCOME-PRETAX> 13,523,000
<INCOME-TAX> 2,308,000
<INCOME-CONTINUING> 11,215,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,215,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
