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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 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 - Suite 100-A, 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, 1997
$1.00 par value 1,000
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
INDEX
Page No.
Part I Financial Information
Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996 1
Consolidated Statement of Earnings -
Three Months and Six Months Ended June 30, 1997 and 1996 2
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1997 and 1996 3
Consolidated Statement of Changes in Stockholder's
Equity - Six Months Ended June 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis 6-11
Part II Other Information
Legal Proceedings 12
Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
PART I - FINANCIAL INFORMATION
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Consolidated Balance Sheet
(thousands)
June 30, December 31,
ASSETS 1997 1996
-------- -----------
Cash and cash equivalents $ 20,119 $ 39,450
Accounts receivable, net of allowance for
doubtful accounts of $1,114 at June 30,
1997 and $925 at December 31, 1996 47,891 53,048
Inventories, net 62,348 64,684
Deferred income taxes 3,700 3,660
Prepaid expenses 8,912 6,100
-------- --------
Current assets 142,970 166,942
Property, plant and equipment, net 52,311 49,324
Intangibles 38,751 41,965
Deferred charges and other assets 6,603 12,646
-------- --------
Total assets $240,635 $270,877
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current maturities of long-term debt $ 3,030 $ 3,094
Accounts payable 24,760 18,754
Accrued expenses 32,003 35,006
U.S. and foreign income taxes 1,590 -
-------- --------
Current liabilities 61,383 56,854
Long-term debt 121,696 123,185
Deferred income taxes - 2,179
Other liabilities 9,308 8,948
Stockholder's equity:
Preferred stock, $1 par value,
authorized 100 shares:
Series A, issued -0- Shares - 1997;
6 shares - 1996 - -
Common stock, $1 par value,
authorized 1,000 shares 1 1
Capital in excess of par value 54,559 79,273
Foreign currency translation adjustment (609) (562)
Retained earnings (deficit) (5,703) 999
-------- --------
Total stockholder's equity 48,248 79,711
Total liabilities and -------- --------
stockholder's equity $240,635 $270,877
======== ========
The accompanying notes are an integral part of the financial statements.
-1-
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Consolidated Statement of Earnings
(thousands, except per share amounts)
Three Months Six Months
Ended Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Sales $ 66,272 $ 69,643 $133,205 $141,092
Services 21,078 17,902 42,269 32,822
Royalties 505 6,221 712 13,686
-------- -------- -------- --------
87,855 93,766 176,186 187,600
-------- -------- -------- --------
Cost of sales 48,833 52,111 97,903 106,217
Cost of services 18,835 15,847 37,835 28,868
Selling, general,
and administrative expenses 20,431 18,504 35,363 34,433
-------- -------- -------- --------
88,099 86,462 171,101 169,518
-------- -------- -------- --------
Earnings from operations (244) 7,304 5,085 18,082
Other income (expense), net (62) (131) 409 (222)
-------- -------- -------- --------
(306) 7,173 5,494 17,860
-------- -------- -------- --------
Interest expense (3,551) (4,132) (7,113) (8,254)
-------- -------- -------- --------
Earnings (loss) before income
taxes (3,857) 3,041 (1,619) 9,606
Income tax provision 1,778 1,449 2,602 4,176
-------- -------- -------- --------
Net earnings(loss) $ (5,635) $ 1,592 $ (4,221) $ 5,430
======== ======== ======== ========
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,
-------------------
1997 1996
-------- --------
Cash and cash equivalents at beginning of year $ 39,450 $ 3,461
-------- --------
Cash flows from operating activities:
Net earnings (loss) (4,221) 5,430
Adjustments to reconcile net income
to cash flows from operating activities:
Change in deferred income taxes (2,885) 1,657
Depreciation and amortization 4,438 4,380
Net loss on sale of subsidiary and product line 1,325 -
Gain on sale of property and equipment (24) (53)
Other 268 1,539
Changes in assets and liabilities, net of
effects from acquired businesses:
Decrease in accounts receivable 4,997 6,281
Increase in inventories (2,051) (12,062)
Increase in prepaid expenses (2,942) (2,488)
Increase in accounts payable 6,006 7,378
Decrease in accrued expenses (70) (474)
Increase (decrease) in other liabilities 1,246 (471)
Other, net (186) (16)
-------- --------
Cash flows from operating activities 5,901 11,101
Cash flows from investing activities:
Proceeds from sale of subsidiary and product line 6,162 -
Purchase of assets of acquired business - (4,030)
Reduction of long-term receivable 4,400 -
Purchases of property and equipment (7,103) (2,675)
Proceeds from sale of property and equipment 57 76
-------- --------
Cash flows from investing activities 3,516 (6,629)
Cash flows from financing activities:
Payment of dividends (23,547) (13,453)
Increase in investment by parent 2,352 3,103
Preferred stock issued 5,000 -
Redemption of preferred stock (11,000) -
Repayment of long-term debt (1,553) (2,076)
Reduction in borrowings under line of credit - (247,834)
Proceeds from borrowings under line of credit - 254,165
-------- --------
Cash flows from financing activities (28,748) (6,095)
Net decrease in cash and cash equivalents (19,331) (1,623)
-------- --------
Total cash and cash equivalents at June 30 $ 20,119 $ 1,838
======== ========
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
Consolidated Statement of Changes in Stockholder's Equity
For the Six Months Ended June 30, 1997 and 1996
(thousands)
Capital in Retained
Common Excess of Earnings
Stock Par Value (Deficit)
------- --------- --------
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
======= ======== ========
BALANCE AT DECEMBER 31, 1996 $ 1 $ 79,273 $ 999
Net loss (4,221)
Contribution from parent 2,352
Issuance of 5 shares of Series A
preferred stock 5,000
Redemption of 11 shares of Series A
preferred stock (11,000)
Dividends (21,066) (2,481)
------- -------- --------
BALANCE AT JUNE 30, 1997 $ 1 $ 54,559 $ (5,703)
======= ======== ========
The accompanying notes are an integral part of the financial statements.
-4-
<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, 1997 and December 31,
1996 and the results of operations for the three-month and six-month periods
ended June 30, 1997 and 1996, and cash flows and
changes in stockholder's equity for the six-month periods ended
June 30, 1997 and 1996. 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, 1996.
Note 2 - Inventories
- --------------------
Inventories are summarized as follows (in thousands):
June 30, December 31,
1997 1996
------- -----------
Raw materials and supplies $11,935 $10,995
Work-in-process 11,083 11,564
Finished goods 24,579 26,158
Inventories applicable to
government contracts 14,751 15,967
------- -------
$62,348 $64,684
======= =======
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 and Dispositions
- -------------------------------------
In May 1997, a subsidiary of the Company sold certain assets
of the connector product line. Proceeds from the $2.1 million sale
price include a note receivable for $1.9 million and cash of $.2
million.
In March 1997, the Company sold the assets of its Canadian
steel distributor. Cash proceeds from the sale were $4.1 million.
The purchaser assumed $2.3 million of liabilities.
In January 1996, a subsidiary of the Company acquired certain
assets of a manufacturer of a silicone wire product line. The
purchase price was approximately $4.3 million.
-5-
<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,
------------------ ------------------
1997 1996 1997 1996
REVENUES: -------- -------- -------- --------
Government Products
and Services $ 39,353 $ 37,352 $ 80,127 $ 68,971
Airbag Royalties - 6,143 - 13,393
Stainless Steel Products 29,111 32,601 59,374 71,536
Industrial Products 19,391 17,670 36,685 33,700
-------- -------- -------- --------
$ 87,855 $ 93,766 $176,186 $187,600
======== ======== ======== ========
OPERATING INCOME:
Government Products
and Services $ 4,805 $ 2,756 $ 9,056 $ 4,793
Airbag Royalties - 6,143 - 13,393
Stainless Steel Products 2,401 4,915 5,030 9,860
Industrial Products 1,787 454 2,774 1,086
-------- -------- -------- --------
Total operating income 8,993 14,268 16,860 29,132
Corporate expense (9,607) (7,109) (12,140) (11,313)
Non-segment interest
income 247 14 774 41
Interest expense (3,436) (4,132) (7,113) (8,254)
-------- -------- -------- --------
Earnings (loss) before
income taxes $ (3,803) $ 3,041 $ (1,619) $ 9,606
======== ======== ======== ========
Revenues for the six-month period ended June 30, 1997
decreased $11.4 million when compared with the corresponding period
in the prior year, principally because of the absence of airbag
royalty revenues for the 1997 period. Royalties from automotive
airbags ceased with the mid-1996 payments from TRW to settle the
airbag royalties litigation. Revenue increases for the first six
months of 1997 from the Company's Government Products and Services
segment (primarily from the naval architectural and engineering
unit) were offset by decreases in stainless steel revenues
resulting from the March 1997 sale of the Canadian steel
-6-
<PAGE>
distributor and from lower sales volume and prices, as competitive
pressures from United States and foreign suppliers affected the
sales volume and sales prices.
During the six months ended June 30, 1997 operating income
from the Government Products and Services segment increased from
$4.8 million to $9.1 million as compared with the comparable year-
earlier period, and operating income from the Company's Industrial
Products segment increased $1.7 million. These increases were more
than offset by the absence of any airbag royalty income for 1997.
Also, operating income from the Stainless Steel Products segment
for the six months ended June 30, 1997, when compared with the
first six months of 1996, was $4.8 million lower.
The gross profit percentage, excluding airbag royalties, was
23.0% for the six months ended June 30, 1997, up slightly from the
gross profit percentage of 22.5% for the comparable period in 1996.
The slight increase from the prior year is primarily due to higher
margins on certain government contracts and an improvement in the
margin on industrial products, partially offset by a lower margin
on stainless steel products.
Loss before income taxes for the six months ended June 30,
1997 was $1.6 million compared with earnings of $9.6 million in the
first six months of the previous year. Current year's results
include a $5.8 million severance payment made to the former Chief
Executive Officer of the Company. Net loss for the six months ended
June 30, 1997 was $4.2 million compared to a net earnings of $5.4
million for the same period in the prior year.
GOVERNMENT PRODUCTS AND SERVICES. Revenue and operating
income for the six months ended June 30, 1997 increased by $11.2
million and $4.3 million, respectively, when compared with the same
period in the prior year, primarily the result of an increase in
service revenues from the Company's naval architectural and
engineering unit and favorable results upon conclusion, or the
timing of completion, of certain other contracts. Earnings were
also favorably impacted in 1997 when compared with 1996, as a
result of reimbursement of research and development cost by a joint
venture partner working with the Company in the development of
automotive airbag inflators.
AIRBAG ROYALTIES. As described in the Notes to the
Consolidated Financial Statements for the year ended December 31,
1996, the quarterly royalty payments ceased with the payments
received from TRW in the third quarter of 1996. Airbag royalties
in the first six months of 1996 were $13.4 million.
STAINLESS STEEL PRODUCTS. During the first six months of
1997, sales for the Stainless Steel Products segment decreased
$12.2 million, while operating income decreased $4.8 million, when
compared with the same period in 1996. Revenue and earnings
were affected by the sale of the Canadian steel distributor in
-7-
<PAGE>
March 1997, and by lower sales volume and prices, as competitive
pressures from United States and foreign suppliers affected the
sales volume and sales prices.
INDUSTRIAL PRODUCTS. In the six-month period ended June 30,
1997, Industrial Products sales increased $3.0 million while
operating income increased $1.7 million, when compared with the
same period in 1996. Increases in sales and operating income
resulted primarily from increased orders for insecticides and air
fresheners.
OTHER. Interest expense for the six months ended June 30,
1997 decreased to $7.1 million, from $8.3 million in the comparable
period in 1996, the result of paying down the Company's revolving
credit facility in the second half of 1996. The overhead expenses
in the first six months of 1997 of $12.1 million and $11.3 million
in 1996 are above historical levels. The 1997 corporate expenses
include $5.8 million incurred in connection with the severance
payments made to the former Chief Executive Officer of the Company.
Higher than normal corporate expenses were also attributed to above
average proxy solicitation costs incurred in connection with the
1997 Annual Meeting of Stockholders, due to the contested nature of
the meeting. The 1996 corporate expenses include $5.5 million of
costs incurred in connection with the TRW litigation. The income
tax provision for the first six months of 1997 was $2.6 million
compared to $4.2 million in the comparable period in 1996.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
At June 30, 1997, the Company had $20.1 million in cash and
cash equivalents and net working capital of $81.6 million. Cash
generated from operating activities for the six months ended June
30, 1997 of $5.9 million includes amounts generated from a decrease
in accounts receivable, an increase in accounts payable, and an
increase in other liabilities, offset by cash used to increase
inventories, and an increase in prepaid expenses and other assets.
Cash generated from operations during the first six months of 1996
was $11.1 million. Cash generated from investing activities during
the six months ended June 30, 1997 was $3.5 million, consisting
primarily of the sale of assets of a subsidiary and a product line,
the collection of an income tax refund receivable, offset by
capital expenditures. Cash used in financing activities of $28.7
million reflects the increase in investment by the parent company,
proceeds received from the issuance of preferred stock, offset by
the redemption of preferred shares, dividends to the parent
company, and a decrease in the Company's long-term debt. There
were no borrowings under the Company's line of credit during this
period.
In October 1993, the Company and its parent Talley completed
a major refinancing program. This refinancing program included an
-8-
<PAGE>
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, 1997 availability under the total facility
was approximately $49.7 million, of which approximately $9.7
million (the principal balance of the term loan) was borrowed.
The Company's parent, Talley, has recently entered into a
joint venture agreement with Delphi Automotive Systems to
manufacture automotive airbag inflators, which will require
significant capital contributions through 1998 to fund the capital
requirements of the venture, as it develops its manufacturing
capability. In addition, the Company is expected to have capital
requirements to develop its manufacturing capability for other
airbag related products. The Company is also committed to
significantly higher-than-normal research and development
expenditures for automotive airbag inflators and other airbag
related products. These commitments will require financial
resources in the next two to three years. The Company believes
that with present cash balances and cash available under the
Company's credit facility, there will be sufficient financial
resources to meet these needs and to support the long-term growth
of the Company's core businesses.
The Company is permitted to distribute cash to its parent,
Talley, for specific purposes and under certain other
circumstances. These distributions will be made using funds
available from operations and the secured credit facility. 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.
Other Matters
- -------------
Litigation - TRW Inc.
---------------------
A judgment in the Company's favor in the amount of $138.0
million was entered against TRW Inc. (TRW) by the United States
District Court for the District of Arizona in June 1995 following
a jury verdict that TRW had repudiated and breached the April 1989
Airbag Royalty Agreement with the Company. The $138.0 million
damages amount represented the jury's calculation of the present
value of the remaining stream of Airbag Royalties which would have
-9-
<PAGE>
been payable by TRW through the April 2001 scheduled expiration
date of the Airbag Royalty Agreement had TRW not breached the
Agreement. TRW appealed the judgment, and, during the pendency of
the appeal, was ordered by the District Court to continue making
quarterly payments to the Company in the same amounts as if the
Airbag Royalty Agreement had not been terminated and repudiated by
TRW. On June 19, 1996, the United States Court of Appeal for the
Ninth Circuit rejected TRW's appeal and affirmed the $138.0 million
judgment. A petition for rehearing filed by TRW with the Court of
Appeals was denied on July 30, 1996.
In August 1996 TRW made payments aggregating approximately
$133.1 million to the Company on account of TRW's obligations under
the judgment. The payments represented the $138.0 million face
amount of the judgment award, plus interest at the default rate
specified by the Airbag Royalty Agreement (prime plus 5%), less the
quarterly payments made by TRW pursuant to the District Court's
order during the pendency of the appeal. A further payment was
made by TRW at the same time in the amount of approximately $6.7
million as that portion of a court-ordered reimbursement of
litigation fees and costs (and interest on the reimbursement amount
at the same default rate).
During September 1996, claims between the Company and
TRW (which had been scheduled for trial) and all other matters in
dispute with TRW were settled by the parties pursuant to a global
settlement agreement. Under that settlement, TRW made a further
cash payment to the Company on September 3, 1996 in the aggregate
amount of $16.6 million. Accordingly, all claims between the
parties have now been resolved, and cash payments have been made by
TRW aggregating $156.4 million.
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.
Forward-Looking Statements
- --------------------------
This Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this
Quarterly Report contain forward-looking statements that are
based on current expectations, estimates and projections about the
industries in which the Company operates. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks,"
"estimates," and variations of such words and similar expressions
-10-
<PAGE>
are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions which are difficult to
predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-
looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
Factors affecting the future include, but are not limited to,
increasing prices and product/service competition by foreign and
domestic competitors, including new entrants; rapid technological
developments and changes; the ability to continue to introduce
competitive new products and services on a timely and cost
effective basis; the mix of products/services; the achievement of
lower costs and expenses; domestic and foreign governmental and
public policy changes including environmental regulations;
protection and validity of patent and other intellectual property
rights; reliance on large customers; the cyclical nature of certain
of the Company's businesses; the outcome of pending and future
litigation and governmental proceedings and continued availability
of financing, and financial resources in the amounts, at the times
and on the terms required to support future business. In addition,
such statements could be affected by general industry and market
conditions and growth rates, general domestic and international
economic conditions including interest rate and currency exchange
rate fluctuations and other factors.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Litigation - TRW Inc.
---------------------
For a description of legal proceedings involving the Company,
see "Other Matters" within Management's Discussion and
Analysis.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
27* Financial Data Schedule for Talley Manufacturing and
Technology, Inc., June 30, 1997.
99.1* Consent and Seventh Amendment to the Loan and
Security Agreement dated June 5, 1997 by and among
Talley Manufacturing and Technology, Inc. and
Transamerica Business Credit Corporation.
99.2* Consent and Eighth Amendment to the Loan and Security
Agreement dated July 17, 1997 by and among Talley
Manufacturing and Technology, Inc. and Transamerica
Business Credit Corporation.
* Documents marked with an asterisk are filed with this report.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the three
months ended June 30, 1997.
-12-
<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)
Date: August 7, 1997 By s/s Kenneth May
---------------------- --------------------------
Kenneth May
Vice President, Controller
Principal Accounting
Officer
Date: August 7, 1997 By s/s Mark S. Dickerson
---------------------- --------------------------
Mark S. Dickerson
Vice President
and Secretary
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<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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,119,000
<SECURITIES> 0
<RECEIVABLES> 49,005,000
<ALLOWANCES> 1,114,000
<INVENTORY> 62,348,000
<CURRENT-ASSETS> 142,970,000
<PP&E> 150,673,000
<DEPRECIATION> 98,362,000
<TOTAL-ASSETS> 240,635,000
<CURRENT-LIABILITIES> 61,383,000
<BONDS> 121,696,000
0
0
<COMMON> 1,000
<OTHER-SE> 48,247,000
<TOTAL-LIABILITY-AND-EQUITY> 240,635,000
<SALES> 133,205,000
<TOTAL-REVENUES> 176,186,000
<CGS> 97,903,000
<TOTAL-COSTS> 135,738,000
<OTHER-EXPENSES> 35,363,000
<LOSS-PROVISION> 231,000
<INTEREST-EXPENSE> 7,113,000
<INCOME-PRETAX> (1,619,000)
<INCOME-TAX> 2,602,000
<INCOME-CONTINUING> (4,221,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,221,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
Exhibit 99.1
CONSENT AND SEVENTH AMENDMENT
This CONSENT AND SEVENTH AMENDMENT (this "Consent") is
entered into as of the 5th day of June 1997, by and among TALLEY
MANUFACTURING AND TECHNOLOGY, INC., a Delaware corporation (the
"Borrower"), the lenders parties to the Loan Agreement referred to
below (the "Lenders"), and TRANSAMERICA BUSINESS CREDIT
CORPORATION, a Delaware corporation, as agent (the "Agent") for the
Lenders.
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have
heretofore entered into a Loan and Security Agreement dated October
22, 1993, as amended (the "Loan Agreement");
WHEREAS, the Borrower has formed Talley International
Sales Corporation, a Barbados corporation ("TISC"), and the
Borrower has purchased one share of the stock of TISC for a
purchase price of $1.00 (the "TISC Stock") such that TISC is a
wholly-owned subsidiary of the Borrower (the "TISC Formation");
WHEREAS, TISC has filed an election with the Internal
Revenue Service for the purpose of being treated as a Foreign Sales
Corporation ("FSC") as that term is defined in Section 922 of the
Internal Revenue Code;
WHEREAS, the Borrower intends to cause TISC to act as
agent for all of the export sales of the Subsidiaries (other than
Talley Canada, Inc.), and, in return, TISC will earn commissions to
be payable by the Subsidiaries (the "TISC Commissions");
WHEREAS, the Borrower intends to cause TISC to
subcontract certain of its responsibilities as agent to each of the
Subsidiaries (the "TISC Subcontracted Services");
WHEREAS, each of the Subsidiaries intends to charge TISC
certain fees for the performance of the TISC Subcontracted Services
(the "TISC Service Fees") and any TISC Service Fees payable by TISC
to a Subsidiary will be deducted from any TISC Commissions payable
by such Subsidiary to TISC;
WHEREAS, the TISC Formation, the earning and collection
of the TISC Commissions, the subcontracting of the TISC
Subcontracted Services and the payment of the TISC Service Fees
(collectively, the "TISC Operations" and, together with the TISC
Formation, the "TISC Formation and Operations") require the written
<PAGE>
consent of the Agent and the Required Lenders, and the Borrower has
requested that the Agent and the Required Lenders so consent;
WHEREAS, the Agent and the Required Lenders are willing
to consent to the TISC Formation and Operations on the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the foregoing
premises and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and intending to
be legally bound, 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. Consent. The Agent and the Required Lenders hereby
consent, effective as of January 23, 1997, to the TISC Formation
and Operations; provided, however, that such consent is subject to
the following conditions:
2.1. The TISC Formation and Operations shall
substantially conform to the terms set forth in the
letter from Kenneth May to Alan M. Christenfeld, Esq.,
dated February 21, 1997, a copy of which is attached
hereto as Exhibit A;
2.2. Within thirty (30) days after the end of each
fiscal quarter of the Borrower, (i) the Borrower shall
cause TISC to declare and to pay to the Borrower a
dividend in an amount equal to the lesser of (a) the
excess of the cash and cash equivalents reflected on
TISC's balance sheet at the end of such fiscal quarter
over $750,000 and (b) the maximum amount permitted by
applicable law or (ii) the Borrower shall cause TISC to
make a loan to the Borrower in an amount equal to the
excess of the cash and cash equivalents reflected on
TISC's balance sheet at the end of such fiscal quarter
over $750,000, such loan to be repaid in full by the
Borrower within sixty (60) days after the end of the
fiscal year of the Borrower, provided, however, that
within thirty (30) days following the repayment of such
loan by the Borrower, the Borrower shall cause TISC to
declare and to pay to the Borrower a dividend in an
amount equal to the lesser of (x) the amount of such loan
repayment and (y) the maximum amount permitted by
applicable law. The parties hereto agree that any
dividend or loan made by TISC to the Borrower pursuant to
this Section 2.2 may at any time exceed the amount
required under this Section 2.2.
2.3. TISC is established in accordance with, and at
all times maintains its qualification as an FSC under,
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<PAGE>
Sections 921 through 927 of the Internal Revenue Code and
the rules and regulations promulgated thereunder;
2.4. TISC shall not, at any time, have any material
assets other than claims for and proceeds of the TISC
Commissions;
2.5. TISC shall not, at any time, have any material
liabilities other than obligations in respect of the TISC
Service Fees and the TISC Commissions;
2.6. TISC shall not, at any time, conduct any
material business other than the TISC Operations as
described herein and in Exhibit A attached hereto;
2.7. Such consent is strictly limited to the facts
set forth herein and in Exhibit A attached hereto; and
2.8. All other conditions set forth in Section 6
hereof shall have been satisfied.
3. Springing Stock Pledge. Upon the failure by the
Borrower to satisfy the conditions set forth in Section 2.2 of this
Consent or upon the occurrence of any other Default, Event of
Default or Subsidiary Event of Default, the Borrower shall, at the
request of the Agent and as security for the payment and
performance of all Obligations, deliver, pledge and assign to the
Agent, for its benefit and the ratable benefit of the Lenders, a
first priority security interest in all of the Borrower's right,
title and interest in and to the TISC Stock, together with all of
the Borrower's rights and privileges with respect thereto. The
Borrower shall provide to the Agent such other agreements,
financing statements, opinions, certificates, representations,
instruments and other documents as the Agent may reasonably require
in connection with the stock pledge, all in form and substance
satisfactory to the Agent.
4. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders that (i) the
execution, delivery and performance of this Consent, and the other
documents and instruments to be executed and delivered in
connection herewith by the Borrower and the Subsidiaries 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 Consent and the other documents and instruments to be
executed and delivered in connection herewith by the Borrower and
the Subsidiaries, except for this Consent and those others already
duly obtained, (iii) this Consent and the Confirmation of Loan
Documents set forth below have been duly executed by the Borrower
and the Subsidiaries, respectively, and constitute the legal, valid
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<PAGE>
and binding obligation of the Borrower and the Subsidiaries, as the
case may be, enforceable against them in accordance with their
terms, (iv) the execution, delivery and performance by the Borrower
and the Subsidiaries of this Consent and the Confirmation of Loan
Documents, respectively, and the other documents and instruments to
be executed and delivered in connection herewith by the Borrower 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
the Subsidiaries (other than Liens the creation of which are
expressly contemplated hereunder) by reason of the terms of (a) any
contract, mortgage, Lien, lease, agreement, indenture, or
instrument to which the Borrower or any Subsidiary is a party or
which is binding upon it, (b) any requirement of law applicable to
the Borrower or the Subsidiaries or (c) the Certificate or Articles
of Incorporation or By-Laws of the Borrower or the Subsidiaries,
and (v) no event has occurred and is continuing which constitutes
a Default, an Event of Default or a Subsidiary Event of Default.
5. Amendments to Loan Agreement. Immediately after the
consummation of the transactions contemplated hereby, the Loan
Agreement shall be amended in the following respect:
5.1. The definition of the term "Non-Operating
Subsidiaries" set forth in Section 1.1 of the Loan Agreement shall
be amended in its entirety to read as follows:
"Non-Operating Subsidiaries" shall mean individually
and in the aggregate Merrick Corporation, Stencel Aero
Engineering Corporation, The Waterbury Button Company,
Talley International Investment Corporation, Talley
Automotive Products, Inc., McMullen Industries, Inc.,
Dimetrics International Inc., WDC, Inc., Talley Canada,
Inc. and Talley International Sales Corporation.
5.2. The following words shall be inserted at the
beginning of Schedule 9.20 of the Loan Agreement:
Borrower
Certain amounts loaned to the Borrower by Talley
International Sales Corporation, as contemplated by the
terms of the Consent and Seventh Amendment, dated June 5,
1997, by and among the Borrower, the Lenders and the
Agent.
6. Conditions to Effectiveness. This Consent shall be
effective as of the date first above written upon satisfaction of
the following conditions precedent:
6.1. Execution of this Consent. The Agent shall
have received a copy of this Consent duly executed by the
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<PAGE>
Borrower and the Lenders constituting the Required
Lenders;
6.2. Confirmation of Loan Documents. Each of the
Subsidiaries shall have executed the Confirmation of Loan
Documents set forth below;
6.3. No Defaults. No Default, Event of Default or
Subsidiary Event of Default shall have occurred and be
existing before this Consent shall have become effective,
and no Default, Event of Default or Subsidiary Event of
Default shall result, occur or exist immediately after
this Consent shall have become effective; and
6.4. 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 Consent.
7. Reference to and Effect on Loan Documents.
7.1. Except as specifically modified herein,
all of the terms of the Loan Agreement and the Subsidiary Loan
Agreements shall remain unchanged and in full force and effect.
7.2. Except as expressly set forth herein, the
execution, delivery and effectiveness of this Consent shall not
operate as a waiver of any right, power or remedy of any Lender or
the Agent under the Loan Agreement, any Subsidiary Loan Agreement
or any of the other Loan Documents, nor constitute a waiver of any
Default, Event of Default or Subsidiary Event of Default, or a
consent to any noncompliance with any provision of the Loan
Agreement, any Subsidiary Loan Agreement or any of the other Loan
Documents.
8. Execution in Counterparts. This Consent 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.
9. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
10. Headings. Section headings in this Consent are
included herein for convenience of reference only and shall not
constitute a part of this Consent or be given any substantive
effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Consent to be executed and delivered by their proper and duly
authorized officers as of the date set forth above.
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
By: s/s Mark S. Dickerson
----------------------------
Name: Mark S. Dickerson
Title: Vice President
TRANSAMERICA BUSINESS CREDIT CORPORATION, as Agent
By: s/s Michael Burns
----------------------------
Name: Michael Burns
Title: Vice President
LENDERS:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: s/s Michael Burns
----------------------------
Name: Michael Burns
Title: Vice President
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO
By: s/s Elizabeth J. Limpert
----------------------------
Name: Elizabeth J. Limpert
Title: First Vice President
NATIONAL BANK OF CANADA
By: s/s Thomas H. Hopkins
----------------------------
Name: Thomas H. Hopkins
Title: Vice President
By: s/s Beth A. Pease
----------------------------
Name: Beth A. Pease
Title: Vice President
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<PAGE>
CONFIRMATION OF LOAN DOCUMENTS
Each of the undersigned hereby consents to the execution
and delivery of the foregoing Consent. 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 "Loan
Agreement" shall be a reference to the Loan Agreement as modified
by the Consent. 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 5, 1997
AMCAN SPECIALTY STEELS, INC.;
DIMETRICS, INC.; ELECTRODYNAMICS,
INC.; JOHN J. McMULLEN ASSOCIATES,
INC.; PORCELAIN PRODUCTS CO.; ROWE
INDUSTRIES, INC.; TALLEY AUTOMOTIVE
PRODUCTS, 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: s/s Mark S. Dickerson
---------------------------
Name: Mark S. Dickerson
Title: Secretary
<PAGE>
EXHIBIT A
THE TISC PROPOSAL LETTER
See Attached.
EXHIBIT 99.2
EXECUTION
CONSENT AND EIGHTH AMENDMENT
This CONSENT AND EIGHTH AMENDMENT (this "Consent") is
entered into as of July 17, 1997, by and among TALLEY MANUFACTURING
AND TECHNOLOGY, INC., a Delaware corporation (the "Borrower"),
TALLEY TECHNOLOGY, INC., a Delaware corporation ("Technology"),
TALLEY METALS TECHNOLOGY, INC., a Delaware corporation ("Metals"),
the lenders parties to the Loan Agreement referred to below (the
"Lenders"), and TRANSAMERICA BUSINESS CREDIT CORPORATION, a
Delaware corporation, as agent (the "Agent") for the Lenders.
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have
heretofore entered into a Loan and Security Agreement dated October
22, 1993, as amended (the "Loan Agreement"); and
WHEREAS, pursuant to a Continuing Guaranty and Security
Agreement, dated October 22, 1993, as amended (the "Technology
Guaranty"), executed by Technology in favor of the Agent,
Technology has guaranteed certain indebtedness, obligations and
liabilities of the Borrower to the Agent and the Lenders under the
Loan Agreement;
WHEREAS, pursuant to the Airbag Collateral Security Agreement,
the Obligations have been secured by a Lien upon the Airbag
Collateral;
WHEREAS, Technology and the Borrower have heretofore entered
into a Subsidiary Loan and Security Agreement dated October 22,
1993, as amended (the "Technology Loan Agreement"), pursuant to
which Technology has executed in favor of the Borrower a Term Note
(as defined in the Technology Loan Agreement and hereinafter
referred to as the "Technology Term Note") and has granted to the
Borrower a Lien upon all of Technology's Collateral (as defined in
the Technology Loan Agreement and hereinafter referred to as the
"Technology Collateral");
WHEREAS, as of the date hereof, the outstanding principal
balance of the Technology Term Note is $2,499,983;
WHEREAS, Metals and the Borrower have heretofore entered into
a Subsidiary Loan and Security Agreement dated October 22, 1993, as
amended (the "Metals Loan Agreement"); and
WHEREAS, pursuant to the Collateral Assignment Agreement, the
Borrower has collaterally assigned to the Agent and the Lenders all
<PAGE>
of the Borrower's rights and Liens under or relating to the Metals
Loan Agreement;
WHEREAS, the Borrower and Technology have requested that the
Agent and the Lenders agree to release the Technology Guaranty (the
"Technology Guaranty Release") and, in connection therewith, the
Airbag Collateral (the "Airbag Collateral Release");
WHEREAS, the Senior Notes are secured by the Airbag Collateral
and the Borrower is required to comply with the provisions of the
Indenture (the "Senior Note Indenture") under which the Senior
Notes were issued in order for the Collateral Agent to be permitted
to consummate the Airbag Collateral Release;
WHEREAS, pursuant to Section 23(ii) of the Airbag Collateral
Security Agreement, upon the consummation of the Technology
Guaranty Release, the Airbag Collateral Security Agreement shall
terminate, except as otherwise set forth in Section 23 of the
Airbag Collateral Security Agreement;
WHEREAS, the Borrower intends to contribute the Technology
Term Note to the capital of Technology (the "Technology Capital
Contribution") and, in connection therewith, the Borrower desires
to terminate (the "Technology Loan Termination") the Technology
Loan Agreement and all Loan Documents (as defined therein and
hereinafter referred to as the "Technology Loan Documents") and to
release (the "Technology Collateral Release") the Technology
Collateral;
WHEREAS, the Borrower and Metals desire to amend the Metals
Loan Agreement to provide for (i) an additional term loan (the
"Metals Additional Term Loan") to be made by the Borrower to Metals
in an amount equal to the outstanding principal amount of the
Technology Term Note immediately prior to the effectiveness of the
Technology Capital Contribution and, in connection therewith, to
cause Metals to execute a new term note in favor of the Borrower in
the amount of the Metals Additional Term Loan and (ii) an increase
of $3,500,000 in the maximum principal amount of the Revolving Loan
facility made available by Borrower to Metals (the "Revolving Loan
Facility Increase") and, in connection therewith, to cause Metals
to execute an amended and restated revolving note in favor of the
Borrower reflecting such increase;
WHEREAS, the Technology Guaranty Release, the Airbag
Collateral Release, the Technology Capital Contribution, the
Technology Loan Termination, the Technology Collateral Release, the
Metals Additional Term Loan and the Revolving Loan Facility
Increase (each, individually, a "Proposed Transaction" and,
collectively, the "Proposed Transactions") require the written
consent of the Agent and the Lenders, and the Borrower and
Technology have requested that the Agent and Lenders so consent;
and
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<PAGE>
WHEREAS, the Agent and the Lenders are willing to consent to
the Proposed Transactions on the terms and conditions herein set
forth;
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be
legally bound, 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. Consent to Proposed Transactions.
2.1. Consent. The Agent and the Lenders hereby consent
to the Proposed Transactions; provided, however, that such consent
is subject to conditions set forth in Section 2.2 of this Consent.
2.2. Conditions to Consent. The consent provided for in
Section 2.1 of this Consent is subject to the following conditions:
(a) Each Proposed Transaction shall be consummated and
become effective simultaneously with the consummation and
effectiveness of all of the other Proposed Transactions (the
date of the consummation of the Proposed Transactions being
hereinafter referred to as the "Transaction Closing Date");
(b) The Agent shall have reviewed and approved all
documents and instruments to be executed and delivered in
connection with the Technology Capital Contribution and the
Technology Loan Termination, and such Proposed Transactions
shall be consummated in accordance therewith;
(c) The original principal amount of the Metals
Additional Term Loan shall not exceed the principal balance of
the Technology Term Note outstanding on the Transaction
Closing Date immediately before giving effect to the
Technology Capital Contribution;
(d) The Borrower and Metals shall have executed an
amendment (the "Metals Amendment") to the Metals Loan
Agreement, substantially in the form of Exhibit A attached
hereto, Metals shall have executed and delivered the
Additional Term Note (as defined therein) and the Revolving
Note attached thereto (the "Amended and Restated Revolving
Note") and the Borrower and Metals 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;
(e) The Borrower and Metals shall have executed and
delivered to the Agent an instrument, in form and substance
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<PAGE>
satisfactory to the Agent, acknowledging and confirming that
the Metals Amendment, the Additional Term Note and the Amended
and Restated Revolving Note constitute Subsidiary Loan
Documents as defined under and collaterally assigned to the
Agent pursuant to the Collateral Assignment Agreement; the
Borrower shall have endorsed the Additional Term Note and the
Amended and Restated Revolving Note to the order of the Agent;
and the Borrower shall have delivered the originals of the
Additional Term Note and the Amended and Restated Revolving
Note to the Agent or its counsel, Rogers & Wells, in pledge,
pursuant to the Loan Agreement and the Collateral Assignment
Agreement;
(f) The Agent shall have received a copy of the
resolutions (in form and substance reasonably satisfactory to
the Agent) of the Board of Directors of each of the Borrower,
Technology and Metals authorizing (i) the execution, delivery
and performance of this Consent, the documents referred to
herein, and the other Loan Documents contemplated hereby and
thereby, and (ii) the consummation of the Proposed
Transactions and the other transactions contemplated hereby
and thereby, all certified by the Secretary or an Assistant
Secretary of each of the Borrower, Technology and Metals on
the date hereof. Such certificates shall state that the
resolutions set forth therein have not been amended, modified,
revoked or rescinded as of the date of such certificate;
(g) On the date hereof, immediately after giving effect
to this Consent, and on the Transaction Closing Date: no
Default or Event of Default under and as such terms are
defined and used in the Senior Note Indenture and the
Indenture (the "Discount Debenture Indenture") under which the
Discount Debentures are issued shall have occurred and be
existing; neither the Senior Notes nor the Discount Debentures
shall have been accelerated (whether by declaration or
otherwise); and the Senior Note Trustee shall not have
delivered a notice of acceleration to the Collateral Agent;
(h) On and as of the Transaction Closing Date, the
Collateral Agent shall have received all certificates,
Opinions of Counsel (as defined in the Senior Note Indenture)
and other documents required pursuant to the provisions of
Sections 15.03 and 15.04 of the Senior Note Indenture and all
other conditions, if any, for the release of Airbag Collateral
required by the Senior Note Indenture, the Discount Debenture
Indenture or applicable law shall have been satisfied to the
satisfaction of the Collateral Agent;
(i) No Default, Event of Default or Subsidiary Event of
Default shall have occurred and be existing either on the date
hereof, immediately after giving effect to this Consent or on
the Transaction Closing Date;
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<PAGE>
(j) 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 as
of the date hereof, immediately after giving effect to this
Consent, and on the Transaction Closing Date;
(k) The Agent shall have received a certificate, in form
and substance satisfactory to the Agent, dated the Transaction
Closing Date and signed by the President or a Vice President
and the Treasurer or Controller of the Borrower certifying (x)
the principal balance of the Technology Term Note outstanding
on the Transaction Closing Date immediately before giving
effect to the Technology Capital Contribution, (y) that the
conditions set forth in this Section 2.2 have been fulfilled,
and (z) such other matters as the Agent shall reasonably
require;
(l) The Agent shall have received an opinion of Mark S.
Dickerson, Esq., Vice President, Secretary and General Counsel
of Talley Industries, Inc. and counsel to the Borrower,
addressed to the Agent, the Collateral Agent and the Lenders
and in form and substance satisfactory to the Agent;
(m) 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;
(n) Such consent is strictly limited to the facts set
forth herein; and
(o) All other conditions set forth in Section 6 hereof
shall have been satisfied.
3. Representations and Warranties. The Borrower, Technology
and Metals hereby represent and warrant to the Agent and the
Lenders that (a) the execution, delivery and performance of the
this Consent, and the other documents and instruments to be
executed and delivered in connection herewith by the Borrower,
Technology and Metals are within their respective corporate powers
and have been duly authorized by all necessary corporate action,
(b) 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 Consent and the other documents
and instruments to be executed and delivered in connection herewith
by the Borrower, Technology and Metals, except for this Consent and
those others already duly obtained, (c) this Consent has been duly
executed by the Borrower, Technology and Metals and constitutes the
legal, valid and binding obligation of the Borrower, Technology and
Metals, enforceable against them in accordance with its terms, (d)
the execution, delivery and performance by the Borrower, Technology
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<PAGE>
and Metals of this Consent and the other documents and instruments
to be executed and delivered in connection herewith by the
Borrower, Technology and Metals 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, Technology or Metals (other than Liens
the creation of which are expressly contemplated hereunder) by
reason of the terms of (i) any contract, mortgage, Lien, lease,
agreement, indenture, or instrument to which the Borrower,
Technology or Metals is a party or which is binding upon it, (ii)
any requirement of law applicable to the Borrower, Technology or
Metals or (iii) the Certificate or Articles of Incorporation or By-Laws
of the Borrower, Technology or Metals, (e) no event has
occurred and is continuing which constitutes a Default, an Event of
Default or a Subsidiary Event of Default, (f) the Metals Additional
Term Loan constitutes Indebtedness, as defined in the Senior Note
Indenture and the Discount Debenture Indenture, that is permitted
under Section 4.12(e) of each of such indentures, and (g) after
giving effect to the Proposed Transactions, Technology will have no
material assets and no material liabilities.
4. Covenant by Borrower and Technology. The Borrower hereby
covenants that, from and after the Transaction Closing Date, it
will not allow Technology to, and Technology hereby covenants that,
from and after the Transaction Closing Date, it will not, possess
or acquire any material assets, have or incur any material
liabilities or conduct any material business.
5. Amendments to Loan Agreement. Effective as of the
Transaction Closing Date immediately after the consummation of the
Proposed Transactions, the Loan Agreement shall be amended in the
following respects:
5.1. The definition of the term "Non-Operating
Subsidiaries" set forth in Section 1.1 of the Loan Agreement shall
be amended in its entirety to read as follows:
"Non-Operating Subsidiaries" shall mean individually
and in the aggregate Merrick Corporation, Stencel Aero
Engineering Corporation, The Waterbury Button Company,
Talley International Investment Corporation, Talley
Automotive Products, Inc., McMullen Industries, Inc.,
Dimetrics International Inc., WDC, Inc., Talley Canada,
Inc. and Talley Technology, Inc.
5.2. The words "(other than the stock of Talley
Technology, Inc., which shall be pledged under and pursuant to the
Airbag Collateral Security Agreement)" set forth in the definition
of the term "Pledged Stock" shall be deleted.
5.3. The words "Talley Technology, Inc., a Delaware
corporation" set forth in Schedule 1.3 of the Loan Agreement shall
be deleted.
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<PAGE>
5.4. The row beginning with the words "Talley Technology,
Inc." in the column entitled "Name of Sub," and all information in
such row, shall be deleted from Schedule 2.1 of the Loan Agreement.
6. Conditions to Effectiveness. This Consent shall be
effective as of the date first above written upon satisfaction of
the following conditions precedent:
6.1. Execution of this Consent. The Agent shall have
received a copy of this Consent duly executed by the Borrower,
Technology, Metals and Lenders constituting the Required Lenders.
6.2. Confirmation of Loan Documents. Each Subsidiary
shall have executed the Confirmation of Loan Documents set forth
below.
7. Authorization to Sign Metals Amendments, Releases 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 (a) to execute and deliver such documents and instruments
as are necessary or appropriate, in TBCC's judgment, to effectuate,
on and after the Transaction Closing Date, the Technology Guaranty
Release, the Airbag Collateral Release, the Technology Loan
Termination and the Technology Collateral Release; (b) to consent
to the execution and delivery of the Metals Amendment,
substantially in the form of Exhibit A attached hereto; (c) to
consent to the delivery of such other documents and instruments in
connection with the Proposed Transactions as the Agent shall
require, each in form and substance satisfactory to the Agent; and
(d) to execute and deliver such written consents, releases,
terminations and other documents and instruments, and to take such
other action, in connection with the Proposed Transactions as the
Agent shall deem appropriate.
8. Reference to and Effect on Loan Documents.
8.1. Except as specifically modified herein, all of the
terms of the Loan Agreement, the Technology Loan Agreement and the
Metals Loan Agreement shall remain unchanged and in full force and
effect.
8.2. Except as expressly set forth herein, the execution,
delivery and effectiveness of this Consent shall not operate as a
waiver of any right, power or remedy of any Lender or the Agent
under the Loan Agreement, the Technology Loan Agreement, the Metals
Loan Agreement or any of the other Loan Documents, nor constitute
a waiver of any Default, Event of Default or Subsidiary Event of
Default, or a consent to any noncompliance with any provision of
the Loan Agreement, the Technology Loan Agreement, the Metals Loan
Agreement or any of the other Loan Documents.
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<PAGE>
9. Execution in Counterparts. This Consent 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.
10. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
11. Headings. Section headings in this Consent are included
herein for convenience of reference only and shall not constitute
a part of this Consent or be given any substantive effect.
[Rest of page intentionally left blank]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Consent 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: s/s Mark S. Dickerson
--------------------------
Name: Mark S. Dickerson
Title: Secretary
TECHNOLOGY:
TALLEY TECHNOLOGY, INC.
By: s/s Mark S. Dickerson
--------------------------
Name: Mark S. Dickerson
Title: Secretary
METALS:
TALLEY METALS TECHNOLOGY, INC.
By: s/s Mark S. Dickerson
--------------------------
Name: Mark S. Dickerson
Title: Secretary
AGENT:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: s/s Michael S. Burns
--------------------------
Name: Michael S. Burns
Title: Vice President
-9-
<PAGE>
LENDERS:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: s/s Michael S. Burns
--------------------------
Name: Michael S. Burns
Title: Vice President
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO
By: s/s Elizabeth J. Limpert
--------------------------
Name: Elizabeth J. Limpert
Title: First Vice President
NATIONAL BANK OF CANADA
By: s/s Thomas H. Hopkins
--------------------------
Name: Thomas H. Hopkins
Title: Vice President
By: s/s Glenn S. Burroughs
--------------------------
Name: Glenn S. Burroughs
Title: Vice President
-10-
