Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------------- to-----------
Commission File No. 33-49869-01
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0739329
(State or other jurisdiction of (I.R.S. Employer
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
(Former name, former address and former fiscal year, if changed since
last report)
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[ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock June 30, 1996
- --------------------- -----------------
$1.00 par value 1,000
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
INDEX
Page No.
Part I Financial Information
Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995 1
Consolidated Statement of Earnings -
Three Months and Six Months Ended
June 30, 1996 and 1995 2
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995 3
Consolidated Statement of Changes in Stockholder's
Equity - Six Months Ended June 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis 6-11
Part II Other Information
Legal Proceedings 12-13
Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PART I - FINANCIAL INFORMATION
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Consolidated Balance Sheet
(thousands)
June 30, December 31,
1996 1995
ASSETS -------- ------------
Cash and cash equivalents $ 1,838 $ 3,461
Accounts receivable, net of allowance
for doubtful accounts of $1,371
at June 30, 1996 and $1,275
at December 31, 1995 62,055 69,065
Inventories, net 79,253 67,191
Deferred income taxes 1,200 1,200
Prepaid expenses 10,177 7,899
-------- --------
Current assets 154,523 148,816
Long-term receivables 10,308 9,732
Property, plant and equipment, net 48,530 48,341
Intangibles, net 46,102 43,969
Deferred charges and other assets 5,000 5,498
-------- --------
Total assets $264,463 $256,356
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current maturities of long-term debt $ 3,215 $ 3,734
Accounts payable 29,087 21,709
Accrued expenses 29,683 29,498
-------- --------
Current liabilities 61,985 54,941
Long-term debt 141,632 136,858
Deferred income taxes 9,094 7,437
Other liabilities 3,831 4,283
Stockholder's equity:
Preferred stock, $1 par value,
authorized 100 shares:
Series A, issued 0 shares - 1996;
0 shares - 1995 - -
Common stock, $1 par value,
authorized 1,000 shares 1 1
Capital in excess of par value 26,597 23,494
Foreign currency translation adjustment (526) (530)
Retained earnings 21,849 29,872
-------- --------
Total stockholder's equity 47,921 52,837
Total liabilities and -------- --------
stockholder's equity $264,463 $256,356
======== ========
The accompanying notes are an integral part of the financial statements.
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TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Consolidated Statement of Earnings
(thousands, except per share amounts)
Three Months Six Months
Ended Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Sales $ 69,643 $ 77,584 $141,092 $144,187
Services 17,902 15,060 32,822 29,535
Royalties 6,221 7,645 13,686 14,213
-------- -------- -------- --------
93,766 100,289 187,600 187,935
-------- -------- -------- --------
Cost of sales 52,111 56,561 106,217 106,285
Cost of services 15,847 13,170 28,868 25,786
Selling, general,
and administrative expenses 18,504 17,835 34,433 31,367
-------- -------- -------- --------
86,462 87,566 169,518 163,438
-------- -------- -------- --------
Earnings from operations 7,304 12,723 18,082 24,497
Other income (expense), net (131) (354) (222) (217)
-------- -------- -------- --------
7,173 12,369 17,860 24,280
-------- -------- -------- --------
Interest expense (4,132) (4,565) (8,254) (8,863)
-------- -------- -------- --------
Earnings before income taxes 3,041 7,804 9,606 15,417
Income tax provision 1,449 3,406 4,176 6,534
-------- -------- -------- --------
Net earnings $ 1,592 $ 4,398 $ 5,430 $ 8,883
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Consolidated Statement of Cash Flows
(thousands)
Six Months Ended
June 30,
----------------------
1996 1995
-------- ---------
Cash and cash equivalents at beginning of year $ 3,461 $ 2,756
-------- --------
Cash flows from operating activities:
Net earnings 5,430 8,883
Adjustments to reconcile net earnings
to cash flows from operating activities:
Change in deferred income taxes 1,657 4
Depreciation and amortization 4,380 4,487
Gain on sale of property and equipment (53) (20)
Other 1,539 1,131
Changes in assets and liabilities, net of
effects from acquired businesses:
(Increase) decrease in accounts receivable 6,281 (6,502)
Increase in inventories (12,062) (5,954)
Increase in prepaid expenses (2,488) (2,012)
Increase in accounts payable 7,378 474
Increase (decrease) in accrued expenses (474) 2,029
Decrease in other liabilities (471) (1,226)
Other, net (16) 143
-------- --------
Cash flows from operating activities 11,101 1,437
Cash flows from investing activities:
Purchase of assets of acquired business (4,030) -
Purchases of property and equipment (2,675) (3,242)
Proceeds from sale of property and equipment 76 45
-------- --------
Cash flows from investing activities (6,629) (3,197)
Cash flows from financing activities:
Dividends paid (13,453) (1,300)
Increase in investment by Parent 3,103 4,468
Redemption of 4 shares of Series A
preferred stock - (4,000)
Long-term debt repayments (249,910) (242,479)
Long-term debt borrowings 254,165 244,847
-------- --------
Cash flows from financing activities (6,095) 1,536
Net decrease in cash and cash equivalents (1,623) (224)
-------- --------
Total cash and cash equivalents at June 30 $ 1,838 $ 2,532
======== ========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Consolidated Statement of Changes in Stockholder's Equity
For the Six Months Ended June 30, 1996 and 1995
(thousands)
Capital in
Common Excess of Retained
Stock Par Value Earnings
------- ---------- --------
BALANCE AT DECEMBER 31, 1994 $ 1 $ 18,366 $ 14,233
Net earnings 8,883
Contribution from Parent 4,468
Dividends (1,300)
Redemption of 4 shares of
Series A Preferred Stock (4,000)
------- -------- --------
BALANCE AT JUNE 30, 1995 $ 1 $ 18,834 $ 21,816
======= ======== ========
BALANCE AT DECEMBER 31, 1995 $ 1 $ 23,494 $ 29,872
Net earnings 5,430
Contribution from Parent 3,103
Dividends (13,453)
------- -------- --------
BALANCE AT JUNE 30, 1996 $ 1 $ 26,597 $ 21,849
======= ======== ========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
Note 1 - General
- ----------------
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of June 30, 1996 and December 31,
1995 and the results of operations for the three-month and six-
month periods ended June 30, 1996 and 1995, and cash flows and
changes in stockholder's equity for the six-month periods ended
June 30, 1996 and 1995. Such results, however, may not be
indicative of the results for the full year.
For additional information regarding significant accounting
policies, and accounting matters applicable to the Company,
reference should be made to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
Note 2 - Inventories
- --------------------
Inventories are summarized as follows (in thousands):
June 30, December 31,
1996 1995
-------- ------------
Raw materials and supplies $16,773 $11,878
Work-in-process 14,133 11,222
Finished goods 31,717 28,955
Inventories applicable to
government contracts 16,630 15,136
------- -------
$79,253 $67,191
======= =======
Note 3 - Earnings Per Share
- ---------------------------
The Company is a wholly owned subsidiary of Talley Industries, Inc.
("Talley"); accordingly, earnings per share information is not
presented.
Note 4 - Acquisition
- --------------------
In January 1996, a subsidiary of the Company acquired certain
assets of a manufacturer of a silicone wire product line. The
cash purchase price of this product line was approximately $4.0
million.
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<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the Company.
A summary of period-to-period changes in the consolidated statement
of earnings is shown below (in thousands):
Three Months Six Months
Ended Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
REVENUES: -------- -------- -------- --------
Government Products
and Services $ 37,352 $ 37,784 $ 68,971 $ 68,603
Airbag Royalties 6,143 7,300 13,393 13,576
Industrial Products 42,824 46,521 91,474 89,941
Specialty Products 7,447 8,684 13,762 15,815
-------- -------- -------- --------
$ 93,766 $100,289 $187,600 $187,935
======== ======== ======== ========
OPERATING INCOME:
Government Products
and Services $ 2,756 $ 3,388 $ 4,793 $ 4,676
Airbag Royalties 6,143 7,300 13,393 13,576
Industrial Products 5,686 6,034 11,348 12,330
Specialty Products (317) 908 (402) 1,734
-------- -------- -------- --------
Total operating income 14,268 17,630 29,132 32,316
Corporate expense (7,109) (5,314) (11,313) (8,128)
Non-segment interest income 14 53 41 92
Interest expense (4,132) (4,565) (8,254) (8,863)
-------- -------- -------- --------
Earnings before income taxes $ 3,041 $ 7,804 $ 9,606 $ 15,417
======== ======== ======== ========
Revenues for the six-month period ended June 30, 1996 of $187.6 million were
approximately equal to the $187.9 million reported in the corresponding period
in the prior year. Increases in the stainless steel products of the Company's
Industrial Products segment were offset by a decrease in revenue in the
Specialty Products segment. Earnings before income taxes for the six months
ended June 30, 1996 was $9.6 million compared with $15.4 million in the first
six months of the previous year. Included in the results for 1996 are costs
of approximately $5.5 million incurred in connection with the Company's
litigation with TRW Inc.
Net earnings for the six months ended June 30, 1996 was $5.4 million, while net
earnings for the comparable period in 1995 were $8.9 million. Operating income
for the six months ended June 30, 1996 for the Government Products and Services
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<PAGE>
segment and the Airbag Royalties segment were approximately equal
to the respective amounts reported in prior period results, while
operating income for the Industrial Products segment and the Specialty
Products segment for the first six months of 1996 was lower by $1.0
million and $2.1 million, respectively, when compared to the same
six-month period of 1995.
The gross profit percentage, excluding airbag royalties, of 22.5%,
for the six months ended June 30, 1996 was down from the gross
profit percentage of 24.3% for the comparable period in 1995. The
decrease from the prior year is primarily due to lower margins on
sales made by the Company's stainless steel distributors, as prices
moderated following the substantial increases experienced in the
prior year.
Government Products and Services. Revenue and operating income
for the six months ended June 30, 1996 increased slightly by $0.4
million and $0.1 million, respectively, when compared with the same
period in the prior year. Increased levels of research and
development costs were more than offset by improved performance on
certain defense contracts.
Airbag Royalties. Revenue from airbag royalties of $13.6 million
in the first six months of 1995 is approximately equal to the $13.4
million recorded in the comparable six months of 1996. The dollar
amount of royalties earned is related to the level of vehicle
production and the number of airbags included in vehicles produced.
(Also see "Other Matters - Litigations" as a separate caption
within Management's Discussion and Analysis of Financial Condition
and Results of Operations).
Industrial Products. In the six-month period ended June 30, 1996,
Industrial Products sales increased $1.5 million while operating
income decreased $1.0 million, when compared with the same period
in 1995. Increases in sales resulted from increased orders for
stainless steel bars and rods and increased demand for ceramic
insulator products, while decreases in operating income are due to
slightly lower selling prices and lower margins for stainless
steel, particularly for the Company's stainless steel distributor
subsidiaries.
Specialty Products. During the first six months of 1996, sales
for the Specialty Products segment decreased 13%, from $15.8
million to $13.8 million, while operating income decreased $2.1
million when compared to the same period in 1995. The decrease in
sales is primarily a result of large shipments made late in 1995,
along with a general slow-down in the apparel industry, which
decreased button sales, and the effect of the prolonged winter on
insecticide sales.
-7-
<PAGE>
Other. Interest expense for the six months ended June 30, 1996
decreased slightly to $8.3 million, from $8.9 million in the
comparable period in 1995. The corporate overhead expenses
increased in the first six months of 1996 from $8.1 million to
$11.3 million when compared with the comparable period in 1995.
Corporate overhead for 1996 and 1995 is above historical levels due
to high litigation costs incurred in connection with the airbag
Asset Purchase Agreement and License Agreement. The airbag
litigation costs for the first six months of 1996 were $5.5
million. The income tax provision for the first six months of 1996
was $4.2 million compared to $6.5 million in the comparable period
in 1995, as a result of lower taxable income.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
At June 30, 1996, the Company had $1.8 million in cash and cash
equivalents and net working capital of $92.5 million. Cash
generated from operating activities for the six months ended June
30, 1996 was $11.1 million. The amount primarily reflects cash
generated from earnings, a decrease in accounts receivable, an
increase in accounts payable, offset in part by cash used as a
result of an increase in inventories. Cash generated from
operations during the six months of 1995 was $1.4 million. Cash
used in investing activities during the six months ended June 30,
1996 was $6.6 million, consisting primarily of purchase of assets
of a product line and capital expenditures. Cash used in financing
activities of $6.1 million reflects borrowings and repayments under
the Company's long-term credit facility and payments made to the
Company's parent for debt reductions, pursuant to the requirements
of the Company's debt agreements.
In October 1993, the Company and its parent Talley completed a
major refinancing program. 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 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 obtained a secured
credit facility with institutional lenders.
Borrowings under the secured credit facility may not exceed the
collateral base as defined in the governing credit agreement. The
facility consists of a five-year revolving credit facility of up to
$40.0 million and a five-year $20.0 million term loan facility.
At June 30, 1996 availability under the total facility was
approximately $48.1 million, of which approximately $29.7 million
was borrowed. Upon the occurrence of certain specified events, at
any time following the third anniversary of the secured credit
facility, the agent thereunder may elect to terminate the facility.
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<PAGE>
The Company anticipates that the present capital structure will
support the long-term growth of the Company's core businesses and
permit the implementation of its strategy to use the portion of
airbag royalties retained by the Company (after certain permitted
distributions to Talley) and other available cash flow to reduce
the Company's total indebtedness.
The Company is permitted (and intends) to distribute cash to its
parent, Talley, 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 $10.0 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 for a period of five years to
fund certain carrying and other costs associated with Talley's
real estate operations. 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.
On June 11, 1996, Talley (the Company's parent) repurchased $17.3
million aggregate principal amount ($13.1 million accreted value)
of its Senior Discount Debentures. Talley was obligated to make
this repurchase in this amount pursuant to the terms of the Senior
Discount Debentures. The amount of this repurchase is based upon
Excess Airbag Royalties (as that term is defined in the Senior
Discount Debentures), and a portion of certain real estate sales.
The aggregate purchase price for these debentures was $14.4
million, which included a prepayment premium. The payment to the
bondholders represented a reduction of approximately 14 percent of
the total accreted value, which was approximately $96 million
before the repurchase date. Funds of $12.2 million were paid to
Talley, pursuant to the requirements of the Company's debt
agreements, for the repurchase. Amounts for the repurchase were
available under the Company's revolving credit facility and cash on
hand.
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.
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<PAGE>
Other Matters
- -------------
Litigation
- ----------
On June 19, 1996, the United States Court of Appeals for the Ninth
Circuit affirmed a $138 million judgment awarded to the Company
following a jury trial against TRW Inc. ("TRW") in 1995. A
petition for rehearing filed by TRW with the Court of Appeals was
denied on July 30, 1996. In addition, TRW has appealed a portion
of the $7.1 million awarded by the District Court to the Company
for attorneys' fees and costs.
The federal district court for the District of Arizona entered
judgment against TRW in favor of the Company on June 27, 1995 in
TRW Inc. vs. Talley Industries, Inc. et al. The court dismissed
all claims asserted by TRW against the Company while the jury
reached a verdict in favor of the Company on one of its
counterclaims against TRW, awarding the Company a total of $138
million. The award (which is in addition to (i) royalty payments
of $24.4 million paid prior to the judgment pursuant to a
preliminary injunction order, and (ii) the court's January 26, 1996
award of $7.1 million for attorneys' fees and recoverable costs
relating to this litigation) represents the jury's determination of
the present value of future royalties that would otherwise have
been paid to the Company by TRW for the period through April 2001.
The litigation in which this judgment was entered arose out of the
Asset Purchase Agreement dated February 4, 1989 and the License
Agreement dated April 21, 1989, between TRW and the Company
pursuant to which TRW acquired the Company's airbag business. The
court dismissed TRW's claims that the Company had breached a non-
compete provision contained in the Asset Purchase Agreement,
thereby entitling TRW to terminate airbag royalty payments to the
Company under the License Agreement (which it purported to do in
February 1994) and obtain a paid-up license to use the Company's
airbag technology. The jury found in fact that TRW had improperly
terminated and repudiated the License Agreement.
On July 26, 1995 the district court granted a stay of enforcement
of the judgment pending appeal upon the posting by TRW of a $175
million bond and the continuation of quarterly payments to the
Company in the amount that otherwise would be due under the License
Agreement. Upon payment of the judgment, TRW's obligation to make
further payments under the court's order would cease.
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<PAGE>
Certain other claims asserted by TRW and the Company against each
other are the subject of a separate action which remains pending in
the federal district for the District of Arizona. In that action,
TRW has challenged certain representations by the Company that the
airbag manufacturing plant sold to TRW by the Company in 1989 met
applicable government requirements, and that the associated real
estate was sufficient to permit a doubling of manufacturing and
assembly floor space. The Company's claims against TRW are that
TRW failed to properly exploit the license granted to TRW by the
Company in 1989 and denied the Company certain contractually
provided audit rights. These remaining claims are scheduled for
trial in 1996. Management anticipates that the above-described
claims will be resolved without any material adverse impact on the
results of operations or financial position of the Company.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
On June 19, 1996, the United States Court of Appeals for the Ninth
Circuit affirmed a $138 million judgment awarded to the Company
following a jury trial against TRW Inc. ("TRW") in 1995. A
petition for rehearing filed by TRW with the Court of Appeals was
denied on July 30, 1996. In addition, TRW has appealed a portion
of the $7.1 million awarded by the District Court to the Company
for attorneys' fees and costs.
The federal district court for the District of Arizona entered
judgment against TRW in favor of the Company on June 27, 1995 in
TRW Inc. vs. Talley Industries, Inc. et al. The court dismissed
all claims asserted by TRW against the Company while the jury
reached a verdict in favor of the Company on one of its
counterclaims against TRW, awarding the Company a total of $138
million. The award (which is in addition to (i) royalty payments
of $24.4 million paid prior to the judgment pursuant to a
preliminary injunction order, and (ii) the court's January 26, 1996
award of $7.1 million for attorneys' fees and recoverable costs
relating to this litigation) represents the jury's determination of
the present value of future royalties that would otherwise have
been paid to the Company by TRW for the period through April 2001.
The litigation in which this judgment was entered arose out of the
Asset Purchase Agreement dated February 4, 1989 and the License
Agreement dated April 21, 1989, between TRW and the Company
pursuant to which TRW acquired the Company's airbag business. The
court dismissed TRW's claims that the Company had breached a non-
compete provision contained in the Asset Purchase Agreement,
thereby entitling TRW to terminate airbag royalty payments to the
Company under the License Agreement (which it purported to do in
February 1994) and obtain a paid-up license to use the Company's
airbag technology. The jury found in fact that TRW had improperly
terminated and repudiated the License Agreement.
On July 26, 1995 the district court granted a stay of enforcement
of the judgment pending appeal upon the posting by TRW of a $175
million bond and the continuation of quarterly payments to the
Company in the amount that otherwise would be due under the License
Agreement. Upon payment of the judgment, TRW's obligation to make
further payments under the court's order would cease.
Certain other claims asserted by TRW and the Company against each
other are the subject of a separate action which remains pending in
the federal district for the District of Arizona. In that action,
TRW has challenged certain representations by the Company that the
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<PAGE>
airbag manufacturing plant sold to TRW by the Company in 1989 met
applicable government requirements, and that the associated real
estate was sufficient to permit a doubling of manufacturing and
assembly floor space. The Company's claims against TRW are that
TRW failed to properly exploit the license granted to TRW by the
Company in 1989 and denied the Company certain contractually
provided audit rights. These remaining claims are scheduled for
trial in 1996. Management anticipates that the above-described
claims will be resolved without any material adverse impact on the
results of operations or financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
27* Financial Data Schedule for Talley Manufacturing and
Technology, Inc., June 30, 1996.
10.1* Fourth Amendment to the Restoration Benefit Plan of
Talley Manufacturing and Technology, Inc., dated July 23, 1996.
99.1* Third Amendment to Subsidiary Loan and Security
Agreement, dated as of June 4, 1996 between Talley
Manufacturing and Technology, Inc. and each of certain
subsidiaries.
99.2* Fifth Amendment to Loan and Security Agreement, dated
June 4, 1996 by and among Talley Manufacturing and
Technology, Inc. and Transamerica Business Credit
Corporation, as agent.
* Documents marked with an asterisk are filed with this report.
(b) Reports on Form 8-K:
A report dated June 19, 1996 related to the affirmation of the
$138 million judgement by the Ninth Circuit Court of Appeals
in favor of the Company in TRW Inc. vs. Talley Industries,
Inc. et al was filed on June 16, 1996 on Form 8-K.
"Safe harbor" statement under the Private Securities Litigation
Reform Act of 1995 and any applicable state laws:
Certain of the statements in the Management's Discussion and
Analysis and elsewhere in this report are not historical facts
and are "forward looking statements" that involve risks and
uncertainties, including, but not limited to, the course and
results of litigation affecting the Company (including the
litigation with TRW Inc.), stock market conditions and
fluctuations, future economic conditions, the impact of
competitive products, services and pricing, research and
development, commercialization and technological difficulties,
government contracting risks, the availability and cost of
financing, environmental matters, the effect of the Company's
accounting policies and a number of other risks described in
this report.
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<PAGE>
SIGNATURES
Pursuant to the requirements 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.
----------------------------
(Registrant)
August 2, 1996 Kenneth May
Date:---------------------- By:----------------------------
Kenneth May
Vice President, Controller
Principal Accounting
Officer
August 2, 1996 Mark S. Dickerson
Date:---------------------- By:----------------------------
Mark S. Dickerson
Vice President
and Secretary
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EXHIBIT 10.1
FOURTH AMENDMENT TO
THE RESTORATION BENEFIT PLAN
OF TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Effective November 30, 1975, Talley Industries, Inc.,
the predecessor sponsor to Talley Manufacturing and Technology,
Inc., a Delaware corporation (the "Company"), adopted the
Restoration Benefit Plan of Talley Industries, Inc. (the "Plan").
The Plan was amended and restated in its entirety effective Janu-
ary 1, 1985, and was thereafter amended several times. The most
recent amendment changed the name of the Plan to the "Restoration
Benefit Plan of Talley Manufacturing and Technology, Inc." By
this instrument, the Company intends to amend the Plan to restore
the benefits lost by certain participants in Talley Savings Plus
as a result of the limitations under the Internal Revenue Code of
1986, as amended (the "Code") on compensation, annual additions
and contributions and the Code's nondiscrimination rules.
1. This Amendment shall amend only those Sections and
subsections set forth herein and those Sections and subsections
not amended hereby shall remain in full force and effect.
2. Section 1 of the Plan is hereby amended in its
entirety to read as follows:
SECTION 1
Declaration
The Restoration Benefit Plan of Talley Manufacturing
and Technology, Inc., as amended, is intended to restore
benefits lost under The Retirement Plan of Talley Manufac-
turing and Technology, Inc. and Talley Savings Plus (collec-
tively referred to as the "Plans") as a result of the opera-
tion of certain limitations under the Internal Revenue Code
<PAGE>
of 1986 (the "Code") with respect to a select group of
executives and key employees of the Company. By reason of
the certain limitations of the Code, and pursuant to the
terms and provisions of the Plans, a Participant's benefits
and employer contributions and forfeitures under the "Plans"
may be reduced (from the benefits and contributions other-
wise payable in the absence of the limitations of the Code).
The Restoration Benefit Plan, as amended, has been
established and will be maintained in part as an "excess
benefit plan" described in accordance with Section 3(36) of
the Employee Retirement Income Security Act of 1974 (herein-
after referred to as the "Act") and exempt under Section
4(b) of the Act and in part as an unfunded plan of deferred
compensation for a select group of management and highly
compensated employees exempt from the participation, vest-
ing, funding and fiduciary responsibility provisions of the
Act under Sections 201(2), 301(a)(3) and 401(a)(1) of the
Act.
3. Section 2 is hereby amended in its entirety to
read as follows:
2.1 Definitions. Terms in this Plan shall have the
meanings given in Article Two of the Retirement Plan, gov-
erning definitions and construction, except where such terms
are defined in this Restoration Benefit Plan or where the
context clearly requires otherwise:
(a) "Company" - TALLEY MANUFACTURING
AND TECHNOLOGY, INC., a Delaware corporation,
and each corporation that succeeds to sub-
stantially all of the business of the Company
and elects to continue the Plan hereunder.
(b) "Plan" shall mean the Restoration
Benefit Plan of Talley Manufacturing and
Technology, Inc., as the same may be amended
from time to time.
(c) "Retirement Plan" - The Retirement
Plan of Talley Manufacturing and Technology,
Inc., as the same may be amended from time to
time.
(d) "Savings Plan" - Talley Savings
Plus, as the same may be amended from time to
time.
-2-
<PAGE>
2.2 Construction. If any provision of this Plan is
determined to be invalid or unenforceable, the remaining
provisions shall remain in full force and effect. This Plan
shall be construed together with the Retirement Plan and the
Savings Plan in order to effectuate full accrual and payment
of all the benefits described hereunder.
4. Section 4.1 is hereby amended in its entirety to
read as follows:
4.1 Any executive or key employee of the Company shall
be eligible for consideration as a Participant in this Plan,
in whole or in part. The Committee may, in its discretion,
designate as Participants those employees whose benefits
under the Retirement Plan and/or whose share of Company
contribution and forfeiture allocations under the Savings
Plan will be reduced by reason of
(a) the limitations of Section 415 of
the Code and the terms and provisions of the
Plan, as determined by the Company's actuari-
al consultants;
(b) the annual limitation on the com-
pensation which may be taken into account
under the Retirement Plan and/or the Savings
Plan each Plan Year (as adjusted annually for
increases in the cost of living in accordance
with Section 415(d) of the Code) under Sec-
tion 401(a)(17) of the Code;
(c) the limitation imposed by Sec-
tion 402(g) of the Code on the contributions
that may be made by a Participant on a pre-
tax basis;
(d) the limitations imposed by Section
401(k)(3)(A) of the Code on the contributions
that may be made by a Participant who is a
"highly compensated employee" (as defined in
Code Section 414(q)) on a pre-tax basis in
order to satisfy the nondiscrimination tests
set forth in said Code section; or
(e) the limitations imposed by Sec-
tion 401(m) of the Code on the aggregate
employer matching contributions and voluntary
after-tax employee contributions that may be
made by or on behalf of a Participant who is
a "highly compensated employee" (as defined
in Code Section 414(q)) in order to satisfy
the nondiscrimination tests set forth in said
Code section.
-3-
<PAGE>
The Committee may designate employees as Participants in
one (1) or more of the features of the Plan as set forth
above in Section 4.1 in connection with their participation
in the Retirement Plan and/or the Savings Plan. Designation
of an employee as a Participant with respect to one (1) such
plan but not the other shall not give the employee the right
to participate in this Plan with respect to the plan as to
which the employee has not been specifically designated as a
Participant by the Committee. An employee shall be advised
of which of the foregoing features of the Plan he is enti-
tled to participate in and any limitations on the employee's
participation at the time of his designation as a Partici-
pant in the Plan. An employee who is a Participant in
one (1) or more features of this Plan may not be removed
from participation in this Plan until he has received pay-
ment of all amounts accrued by him under such features.
5. Section 5.3 is hereby redesignated as Section 5.5,
and new Sections 5.3 and 5.4 are hereby added to the Plan which
shall read as follows:
5.3 Any Participant selected by the Committee to
participate in the features set forth in Section 4.1 and who
participates in the Savings Plan (or his spouse or other
beneficiary in the event of the death of the Participant)
shall be entitled to a benefit hereunder equal to the aggre-
gate amount of Company contributions and forfeitures (but
not employee pre-tax or after-tax contributions) that would
have been allocated to the Participant's accounts under the
Savings Plan for a Plan Year but for (a) the limitations of
Section 415 of the Code, (b) the limitation on compensation
that may be taken into account for the Plan Year under
Section 401(a)(17) of the Code, (c) the annual limitation on
pre-tax contributions under Section 402(g) of the Code,
(d) the limitations on pre-tax contributions imposed on
"highly compensated employees" (as defined in Section 414(q)
of the Code) under Section 401(k)(3)(A) of the Code, (e) the
limitations on the aggregate employer matching contributions
and employee voluntary after-tax contributions made by or on
behalf of "highly compensated employees" (as defined in Code
Section 414(q)) under Section 401(m) of the Code, and (f)
the corresponding provisions of the Savings Plan, reduced by
the aggregate amount of Company contributions and forfei-
tures actually allocated to the Participants account under
the Savings Plan for that Plan Year. Pursuant to the terms
and provisions of the Savings Plan, no amount shall be pay-
able pursuant to this Section 5.3 on account of the fact
that a Participant directed contributions under the Savings
Plan at a rate less than the maximum rate permitted under
the Savings Plan, except as may have been required as a
result of (i) the limitations of Section 415 of the Code,
-4-
<PAGE>
(ii) the limitation on compensation set forth in Section 401(a)
(17) of the Code, (iii) the annual limitation on pre-
tax contributions under Section 402(g) of the Code, (iv) the
limitations on pre-tax contributions imposed on "highly
compensated employees" (as defined in Section 414(q) of the
Code) under Section 401(k)(3)(A) of the Code, (v) the limi-
tations on the aggregate employer matching contributions and
employee voluntary contributions made by or on behalf of
"highly compensated employees" (as defined in Code Sec-
tion 414(q)) under Section 401(m) of the Code, and (vi) the
corresponding provisions of the Savings Plan.
5.4 Benefits payable pursuant to Section 5.3 as deter-
mined by the Committee shall be distributed to the Partici-
pant (or to his designated beneficiary in the event of his
death) each year in a lump sum. The Company shall distrib-
ute to such Participant the amount to which the Participant
is entitled under this Section 5.4 as promptly as possible
following the approval of the annual benefit calculation by
the Committee.
6. This Amendment shall be effective as of January 1,
1994.
Except as amended by this instrument, the Company
hereby ratifies and confirms the Plan as amended and restated
effective January 1, 1985, and thereafter amended.
Dated: July 23 , 1996.
TALLEY MANUFACTURING AND
TECHNOLOGY, INC.
Donald J. Ulrich, Jr.
By -----------------------------------
Its Chairman, Executive Compensation
Committee
AGREED AND APPROVED:
William H. Mallender
- ----------------------
William H. Mallender
Jack C. Crim
- ----------------------
Jack C. Crim
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,838,000
<SECURITIES> 0
<RECEIVABLES> 63,426,000
<ALLOWANCES> 1,371,000
<INVENTORY> 79,253,000
<CURRENT-ASSETS> 154,523,000
<PP&E> 144,080,000
<DEPRECIATION> 95,550,000
<TOTAL-ASSETS> 264,463,000
<CURRENT-LIABILITIES> 61,985,000
<BONDS> 141,632,000
0
0
<COMMON> 1,000
<OTHER-SE> 47,920,000
<TOTAL-LIABILITY-AND-EQUITY> 264,463,000
<SALES> 141,092,000
<TOTAL-REVENUES> 187,600,000
<CGS> 106,217,000
<TOTAL-COSTS> 135,085,000
<OTHER-EXPENSES> 34,655,000
<LOSS-PROVISION> 152,000
<INTEREST-EXPENSE> 8,254,000
<INCOME-PRETAX> 9,606,000
<INCOME-TAX> 4,176,000
<INCOME-CONTINUING> 5,430,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,430,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99.1
THIRD AMENDMENT TO
SUBSIDIARY LOAN AND SECURITY AGREEMENTS
This THIRD AMENDMENT TO SUBSIDIARY LOAN AND SECURITY AGREEMENTS
(this "Amendment") is entered into as of the 4th day of June, 1996,
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, as amended (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 Fifth Amendment to Loan and Security Agreement with
respect to the Parent Loan Agreement (the "Parent Amendment");
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;
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;
WHEREAS, the Lender has requested the consent of the Agent and
the Collateral Agent; and
<PAGE>
WHEREAS, the Agent and the Collateral Agent are willing to
consent to this Amendment on the terms herein set forth.
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
Subsidiary Loan Agreements.
2. Amendments. Effective as of the date hereof, the interest
rate with respect to the Revolving Loan, the Term Loan and all other
Obligations is hereby decreased from a fluctuating rate per annum
equal to one percent (1%) per annum above the Base Rate to a
fluctuating rate per annum equal to one-half percent (.50%) per annum
above the Base Rate. Such decrease shall be effected by amending
Section 4.1 of each Subsidiary Loan Agreement by deleting "one percent
(1%)" in the fourth line therein and replacing such with "one-half
percent (.50%)".
3. Conditions to Effectiveness. This Amendment shall be
effective as of the date first above written upon satisfaction of the
following conditions precedent:
3.1. Documents from Borrowers. The Agent shall have
received:
(a) this Amendment executed by a duly authorized officer
of Lender and each Borrower; and
(b) executed amendments, in form and substance satisfactory
to the Agent, to the following: (i) Open-End First Mortgage, Security
Agreement and Assignment of Leases dated as of October 22, 1993 by
Waterbury Companies, Inc. ("Waterbury") to Agent, as amended,
encumbering the real property located at 32 Mattatuck Heights,
Waterbury, Connecticut; (ii) Open-End Second Mortgage, Security
Agreement and Assignment of Leases dated as of October 22, 1993, by
Waterbury to Lender, as amended, which has been collaterally assigned
to Agent, encumbering the real property located at 32 Mattatuck
Heights, Waterbury, Connecticut; (iii) Open-End First Mortgage,
Security Agreement and Assignment of Leases dated as of October 22,
1993 by Waterbury to Agent, as amended, encumbering the real property
located at 64 Avenue of Industry, Waterbury, Connecticut; and
(iv) Open-End Second Mortgage, Security Agreement and Assignment of
Leases dated as of October 22, 1993 by Waterbury to Lender, as
amended, which has been collaterally assigned to Agent, encumbering
the real property located at 64 Avenue of Industry, Waterbury,
Connecticut.
3.2. 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.
-2-
<PAGE>
3.3. 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.
3.4. 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, the documents referred to in Sections 3.1(b) and 3.3
hereof, 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.
3.5. No Defaults. No Default or Event of Default shall
have occurred and be existing either before or immediately after
giving effect to this Amendment.
3.6. 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.
3.7. 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 3 have been fulfilled and as to
such other matters as the Agent shall reasonably require.
3.8. 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.
4. 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
-3-
<PAGE>
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, enforce-
able 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.
5. Reference to and Effect on Loan Documents.
5.1. 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 refer-
ence to such Subsidiary Loan Agreement as amended hereby.
5.2. Except as specifically amended above, all of the terms
of the Subsidiary Loan Agreements shall remain unchanged and in full
force and effect.
5.3. 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.
-4-
<PAGE>
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.
-5-
<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.
Mark S. Dickerson
By:------------------------
Name: Mark S. Dickerson
Title: Secretary
LENDER:
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Daniel R. Mullen
By:-------------------------
Name: Daniel R. Mullen
Title: Treasurer
-6-
<PAGE>
CONSENT OF AGENT AND COLLATERAL AGENT
The undersigned, as Agent, hereby consents to the execution,
delivery and performance of the foregoing Third 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 Second Amendment to Loan and Security
Agreements with respect to the Subsidiary Loan Agreement with TTI.
Dated: As of June 4, 1996
TRANSAMERICA BUSINESS CREDIT CORPORATION, as
Agent and Collateral Agent
Steven Fischer
By:----------------------------
Name: Steven Fischer
Title: Senior Vice President
-7-
EXHIBIT 99.2
FIFTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of the 4th day of June, 1996, 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 has requested amendments to the Loan
Agreement; and
WHEREAS, the Lenders are willing to consent to the amendments
on the terms herein set forth.
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. Effective as of the date of this Amendment,
the interest rate with respect to (i) Base Rate Loans or any other
Obligations other than LIBOR Loans is hereby decreased from a
fluctuating rate equal to one percent (1.00%) per annum above the
Base Rate in effect from time to time to a fluctuating rate equal
to one-half percent (.50%) per annum above the Base Rate in effect
from time to time, and (ii) LIBOR Loans is hereby decreased from a
fluctuating rate equal to three and one-quarter percent (3 1/4%)
per annum above the LIBOR Rate to two and three-quarter percent
(2 3/4%) per annum above the LIBOR Rate. Such decreases shall be
effected by (i) amending Section 4.1(a)(i) of the Loan Agreement by
deleting "one percent (1.00%)" in the third line therein and
replacing such with "one-half percent (.50%)", and (ii) amending
Section 4.1(a)(ii) of the Loan Agreement by deleting "three and
one-quarter percent (3 1/4%)" in the third line therein and
replacing such with "two and three-quarters percent (2 3/4%)".
3. Conditions to Effectiveness. This Amendment shall be
effective as of the date first above written upon satisfaction of
the following conditions precedent:
<PAGE>
3.1. Document from Borrower. The Agent shall have
received this Amendment executed by a duly authorized officer of
each Lender and the Borrower.
3.2. 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 A 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.
3.3. Amendments to Mortgages. The Agent shall have
received executed amendments, in form and substance satisfactory to
the Agent, to the following: (i) Open-End First Mortgage, Security
Agreement and Assignment of Leases dated as of October 22, 1993 by
Waterbury Companies, Inc. ("Waterbury") to Agent, as amended,
encumbering the real property located at 32 Mattatuck Heights,
Waterbury, Connecticut; (ii) Open-End Second Mortgage, Security
Agreement and Assignment of Leases dated as of October 22, 1993 by
Waterbury to Borrower, as amended, which has been collaterally
assigned to Agent, encumbering the real property located at 32
Mattatuck Heights, Waterbury, Connecticut; (iii) Open-End First
Mortgage, Security Agreement and Assignment of Leases dated as of
October 22, 1993 by Waterbury to Agent, as amended, encumbering the
real property located at 64 Avenue of Industry, Waterbury,
Connecticut; and (iv) Open-End Second Mortgage, Security Agreement
and Assignment of Leases dated as of October 22, 1993 by Waterbury
to Borrower, as amended, which has been collaterally assigned to
Agent, encumbering the real property located at 64 Avenue of
Industry, Waterbury, Connecticut.
3.4. Confirmation of Loan Documents. Each Subsidiary
shall have executed the Confirmation of Loan Documents set forth
below.
3.5. 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 Sections 3.2 and 3.3
hereof, 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.
3.6. 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.
-2-
<PAGE>
3.7. 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.
3.8. 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 3 have been fulfilled and as to such other matters
as the Agent shall reasonably require.
3.9. 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.
4. 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
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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.
5. 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 A
attached hereto; 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.
6. Reference to and Effect on Loan Documents.
6.1. 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.
6.2. Except as specifically amended or waived above, all
of the terms of the Loan Agreement shall remain unchanged and in
full force and effect.
6.3. 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, other than as specifically set forth herein.
7. 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.
8. 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.
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<PAGE>
9. 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.
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<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.
Mark S. Dickerson
By:-----------------------------
Name: Mark S. Dickerson
Title: Vice President
AGENT:
TRANSAMERICA BUSINESS CREDIT CORPORATION
Steven Fischer
By:-----------------------------
Name: Steven Fischer
Title: Sr. Vice President
LENDERS:
TRANSAMERICA BUSINESS CREDIT CORPORATION
Steven Fischer
By:-----------------------------
Name: Steven Fischer
Title: Sr. Vice President
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO
Donald A. Tomlinson
By:-----------------------------
Name: Donald A. Tomlinson
Title: Vice President
NATIONAL BANK OF CANADA
Mark J. Locher
By:-----------------------------
Name: Mark J. Locher
Title: Assistant Vice President
Thomas H. Hopkins
By:-----------------------------
Name: Thomas H. Hopkins
Title: Vice President
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<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 Fifth 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 June 4, 1996
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.
Mark S. Dickerson
By:-------------------------------
Name: Mark S. Dickerson
Title: Secretary
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