<PAGE>
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, 1994
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. 1-4778
TALLEY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0180396
(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, 1994
$1.00 par value 10,047,142
<PAGE>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Consolidated Balance Sheet -
June 30, 1994 and December 31, 1993 1
Consolidated Statement of Earnings -
Three Months and Six Months Ended
June 30, 1994 and 1993 2
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1994 and 1993 3
Consolidated Statement of Changes in Stockholders'
Equity - Six Months Ended June 30, 1994 and 1993 4
Notes to Consolidated Financial Statements 5-6
Management's Discussion and Analysis 7-11
Part II Other Information
Legal Proceedings 12
Defaults Upon Senior Securities 13
Submission of Matters to a Vote of Security Holders 13
Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PART I - FINANCIAL INFORMATION
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(thousands)
June 30, December 31,
1994 1993
ASSETS
Cash and cash equivalents $ 8,729 $ 12,194
Accounts receivable, net of allowance
for doubtful accounts of $1,153,000
at June 30, 1994 and $1,091,000 at
December 31, 1993 53,430 60,579
Inventories, net 66,847 64,808
Deferred income taxes 1,300 900
Prepaid expenses 12,631 9,664
Current assets 142,937 148,145
Realty assets 114,081 117,869
Long-term receivables 12,594 9,900
Property, plant and equipment, net 47,774 49,937
Intangibles 43,943 44,928
Other assets 11,378 11,659
Total assets $372,707 $382,438
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt $ 3,542 $ 2,176
Current maturities of realty debt 15,287 16,795
Accounts payable 23,759 23,621
Accrued expenses 42,293 41,775
U.S. & foreign income taxes 430 -
Current liabilities 85,311 84,367
Long-term debt 225,346 231,669
Long-term realty debt 12,328 11,446
Deferred income taxes 7,115 12,320
Other liabilities 5,970 6,094
Stockholders' equity:
Preferred stock, $1 par value,
authorized 5,000,000 shares:
Series A 71 71
Series B 1,548 1,548
Series D 120 120
Common stock, $1 par value,
authorized 20,000,000 shares 10,047 10,047
Capital in excess of par value 86,026 86,026
Foreign currency translation adjustment (657) (370)
Accumulated deficit (60,213) (60,429)
36,942 37,013
Less 22,000 shares at June 30, 1994
and 33,000 shares at December 31,
1993 of Common stock in treasury,
at cost (305) (471)
Total stockholders' equity 36,637 36,542
Total liabilities and
stockholders' equity $372,707 $382,438
The accompanying notes are an integral part of the financial
statements.
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TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(thousands, except per share amounts)
Three Months Six Months
Ended Ended
June 30, June 30,
1994 1993 1994 1993
Sales $59,219 $67,158 $118,036 $127,362
Services 15,403 15,622 30,924 30,741
Royalties 4,872 2,895 8,851 4,689
79,494 85,675 157,811 162,792
Cost of sales 44,454 50,983 88,942 95,395
Cost of services 13,410 13,402 26,933 26,598
Selling, general,
and administrative
expenses 13,345 14,413 30,953 28,128
71,209 78,798 146,828 150,121
Earnings from
operations 8,285 6,877 10,983 12,671
Other income, net 198 (876) (1,353) (1,170)
8,483 6,001 9,630 11,501
Interest expense (7,005) (6,012) (14,130) (12,189)
Earnings (loss) before
income taxes 1,478 (11) (4,500) (688)
Income tax benefit
(provision) (756) (513) 4,716 (907)
Net earnings (loss) $ 722 $ (524) $ 216 $ (1,595)
Earnings (loss) applicable
to common stock shares
(after deduction of
preferred stock
dividends) $ 180 $(1,066) $ (868) $ (2,679)
Net earnings (loss) per
share of common stock
and common stock
equivalents $ .02 $(.11) $ (.09) $(.28)
Weighted average shares
outstanding 10,023 9,659 10,020 9,634
The accompanying notes are an integral part of the financial
statements.
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TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(thousands)
Six Months Ended
June 30,
1994 1993
Cash and cash equivalents at beginning
of year $12,194 $10,168
Cash flows from operating activities:
Net earnings (loss) 216 (1,595)
Adjustments to reconcile net income
to cash flows from operating activities:
Change in deferred income taxes (5,605) (349)
Depreciation and amortization 4,953 5,170
Original issue discount amortization on
12.25% debentures 4,367 -
Gain on sale of property and equipment (5) (182)
Other 939 1,547
Changes in assets and liabilities, net of
effects from acquired businesses:
(Increase) decrease in accounts receivable 4,861 (6,008)
(Increase) decrease in inventories (2,039) 6,562
Increase in prepaids (2,967) (4,031)
Decrease in realty assets 3,788 2,486
Increase in accounts payable 138 1,223
Increase (decrease) in accrued expenses 1,218 (316)
Increase in income tax payable 430 -
Increase (decrease) in other liabilities (522) 1,091
Other, net (341) (463)
Cash flows from operating activities 9,431 5,135
Cash flows from investing activities:
Purchases of property and equipment (1,984) (1,861)
Reduction of long-term receivables 175 1,768
Increase in long-term receivables (479) (488)
Proceeds from sale of property and equipment 45 309
Cash flows from investing activities (2,243) (272)
Cash flows from financing activities:
Repayment of long-term debt (193,228) (61,100)
Repayment of realty debt (636) (2,845)
Proceeds from new long-term debt 183,204 54,306
Proceeds from new realty debt 7 -
Cash flows from financing activities (10,653) (9,639)
Net increase (decrease) in cash and cash
equivalents (3,465) (4,776)
Total cash and cash equivalents at June 30, $ 8,729 $ 5,392
The accompanying notes are an integral part of the financial
statements.
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<TABLE>
<CAPTION>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1994 and 1993
(thousands)
Capital in
Preferred Stock Common Excess of Treasury Retained
Series A Series B Series D Stock Par Value Stock Earnings
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $ 71 $1,548 $ 120 $ 9,519 $83,537 $ -0- $(53,931)
Net loss (1,595)
Debt of ESOP guaranteed 168
Stock grants 140 403
BALANCE AT JUNE 30, 1993 $ 71 $1,548 $ 120 $ 9,659 $84,108 $ -0- $(55,526)
BALANCE AT DECEMBER 31, 1993 $ 71 $1,548 $ 120 $10,047 $86,026 $ (471) $(60,429)
Net earnings 216
Treasury stock issued 166
BALANCE AT JUNE 30, 1994 $ 71 $1,548 $ 120 $10,047 $86,026 $ (305) $(60,213)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
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, 1994 and
December 31, 1993 and the results of operations for the
three-month and six-month periods ended June 30, 1994 and 1993,
and cash flows and changes in stockholders' equity for the
six-month periods ended June 30, 1994 and 1993. 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 to
Shareholders for the year ended December 31, 1993.
Note 2 - Inventories
Inventories are summarized as follows (in thousands):
June 30, December 31,
1994 1993
Raw materials and supplies $13,084 $10,293
Work-in-process 10,059 9,584
Finished goods 26,457 26,470
Inventories applicable to
government contracts 17,247 18,461
$66,847 $64,808
Note 3 - Earnings Per Share
Common stock equivalents for the six months ended June 30, 1994
and 1993 were anti-dilutive and excluded from the computation of
earnings per share. Dividends payable on anti-dilutive preferred
stock were deducted from net earnings before calculating the
earnings per share amount for the quarter. Earnings per common
share assuming full dilution are not reported in either of the
periods because the impact would be minimal.
Note 4 - Sale of Subsidiary
In July 1993 the Company completed the sale of the net assets of
its precision potentiometer business for a cash purchase price of
$2.8 million, which approximated the book value of the net assets
sold. Sales and pretax earnings of the business sold for the six
months ended June 30, 1993 were $2.3 million and $.4 million,
respectively.
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TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 - Income Tax Benefit
Pursuant to recent legislation passed in the State of Arizona
regarding the rules for filing consolidated state income tax
returns, the Company has reversed $5.6 million of state income
tax accruals to reflect the change in the law. The new law is
retroactive to the beginning of 1986.
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TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
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,
1994 1993 1994 1993
REVENUES:
Government Products
and Services $35,454 $48,280 $ 71,712 $ 87,706
Airbag Royalty 3,909 1,934 7,805 3,656
Industrial Products 30,835 27,912 60,035 54,001
Specialty Products 7,885 7,099 13,647 14,279
Realty 1,411 450 4,612 3,150
$79,494 $85,675 $157,811 $162,792
OPERATING INCOME:
Government Products
and Services $ 3,231 $ 5,909 $ 7,417 $ 11,593
Airbag Royalty 3,909 1,934 7,805 3,656
Industrial Products 2,323 827 3,043 1,364
Specialty Products 992 1,040 1,602 1,813
Realty (125) (1,087) (1,867) (1,386)
Total operating income 10,330 8,623 18,000 17,040
Corporate expense (1,923) (2,693) (8,507) (5,729)
Non-segment interest
income 76 71 137 190
Interest expense (7,005) (6,012) (14,130) (12,189)
Earnings (loss) before
income taxes $ 1,478 $ (11) $ (4,500) $ (688)
Revenues for the six-month period ended June 30, 1994 decreased
$5.0 million from $162.8 million to $157.8 million, compared with
the corresponding period in the prior year. The decrease in the
six-month comparison is primarily the result of decreased revenue
in the Government Products and Services segment due to scheduled
price reductions under certain extended range munitions contracts
and the timing of completion and shipments under other contracts,
offset by increasing revenue in the Airbag Royalties segment and
the Steel Operations in the Industrial Products segment. The
pretax loss for the six months ended June 30, 1994 was $4.5
million compared with $.7 million pretax loss in the first six
months of the previous year. The loss in the first half of 1994
includes a $4.5 million provision for litigation costs related to
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<PAGE>
resolution of claims in connection with the airbag royalties
being received from the licensee, partially offset by a $1.0
million pretax gain on reversion of surplus funds from two
previously terminated pension plans. Net earnings for the six
months ended June 30, 1994 was $.2 million, which reflects a tax
benefit resulting from reversal of state income tax accruals of
$5.6 million, pursuant to a retroactive change in tax laws in the
State of Arizona.
Earnings from both the Airbag Royalty segment and the Industrial
Products segment improved compared with the prior year.
Royalties in the Airbag Royalty segment increased by $4.1 million
from $3.7 million in the first six months of 1993 to $7.8 million
for the first six months of 1994, while earnings from the
Industrial Products segment improved $1.7 million. Earnings from
the Government Products and Services segment and the Specialty
Products segment for the first six months of 1994, when compared
with the first six months of 1993, were $4.2 million and $.2
million lower, respectively. Losses in the Realty segment
increased by $.5 million for the first six months of 1994, when
compared with the prior year, as a result of increased property
maintenance and development costs.
The gross profit percentage, excluding airbag royalties, of
22.2%, for the six months ended June 30, 1994 was down slightly
from the gross profit percentage of 22.8% for the comparable
period in 1993. The decrease from the prior year is primarily
due to the mix of contracts.
Government Products and Services. Revenue and earnings in the
first half of 1994 decreased $16.0 million and $4.2 million,
respectively, when compared with the same period in the prior
year. These decreases are primarily due to a scheduled pricing
reduction under the extended range munitions program following
the recovery of the Company's investment in a new production
facility, and also due to the timing of completion and shipments
under other contracts. Revenue and earnings from the Company's
architectural and engineering services company are approximately
equal to the comparable period in the prior year.
Airbag Royalties. Revenue from airbag royalties increased from
$3.7 million in the first six months of 1993 to $7.8 million in
the first six months of 1994. The increased royalty is the
result of the recovering automobile and light truck industry and
increasing airbag implementation rates. (Also see "Other
Matters" as a separate caption within Management's Discussion and
Analysis of Financial Condition and Results of Operations)
Industrial Products. In the first six months of 1994 Industrial
Products sales and earnings increased $6.0 million and $1.7
million, respectively, when compared with the first six months of
1993. Increases in sales resulted from improvement in orders for
stainless steel bars and rods and increased demand for ceramic
insulator products due to harsh winter weather conditions and
improved market share. The improvement in earnings resulted from
the sales increases and cost reduction and streamlining efforts
at the Company's steel and ceramic insulator operations. These
increases partially were offset by lower welder products sales
and earnings.
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<PAGE>
Specialty Products. During the first six months of 1994, sales
for the Specialty Products segment decreased 4.4%, from $14.3
million to $13.6 million, while earnings decreased slightly from
$1.8 million to $1.6 million, when compared with the same period
in 1993. The decrease in sales and earnings when compared with
the prior year is a result of the timing of sales, which are
expected to improve during the remainder of 1994.
Realty. Sales of real estate in the first six months of 1994
were $4.6 million compared with $3.2 million for the comparable
period in 1993. The operating loss increased from $1.4 million
in the first six months of 1993 to $1.9 million in the first six
months of 1994, due to increased property maintenance and
development costs. On March 28, 1994, a fully consolidated real
estate joint venture, in which the Company has a $29.2 million
interest, instituted Chapter 11 proceedings in the United States
Bankruptcy Court for the District of Arizona. At the same time
the joint venture filed a proposed plan of reorganization that
would provide for the conversion of substantially all outstanding
debt of the joint venture into equity in a new company to be
formed to continue the project. A subsidiary of the Company
would own approximately two-thirds of the equity in the new
company, if the plan is accepted.
Other. Interest expense in the first six months of 1994
increased to $14.1 million, from $12.2 million in the comparable
period in 1993, mainly due to a major portion of the Company's
debt being refinanced from variable rates to higher fixed rates.
Corporate overhead increased from $5.7 million to $8.5 million
over the comparable period in 1993 due primarily to a $4.5
million provision for litigation costs related to resolution of
claims in connection with airbag royalties being received from
the licensee. Income tax benefit for the first six months of
1994 was $4.7 million compared to a tax provision of $.9 million
in the comparable period in 1993. The tax benefit in 1994 is the
result of a favorable state tax legislation which resulted in a
$5.6 million reversal of state income taxes previously accrued.
Financial Condition, Liquidity and Capital Resources
At June 30, 1994, Talley had $8.7 million in cash and cash
equivalents and net working capital of $57.6 million. Cash flow
from operating activities for the six months ended June 30, 1994
was $9.4 million, generally the result of the Company's
successful efforts toward collection of trade receivables and the
sale of realty assets, offset in part by increases in inventories
and prepaid expenses. Cash generated from operations during the
first six months of 1993 was $5.1 million. Cash used in
investing activities during the six months ended June 30, 1994
was $2.2 million, consisting of a net increase in long-term
receivables of $.3 million and $2.0 million of capital
expenditures. Cash used in financing activities of $10.7 million
reflects a reduction in debt from cash generated from operations
and from cash available at the beginning of the year.
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In October 1993, 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 the Company to
yield 12.25% and $115 million of Senior Notes due 2003, with an
interest rate of 10.75% issued by Talley Manufacturing and
Technology, Inc. ("Talley Manufacturing"). In connection with
this refinancing, Talley Manufacturing obtained a secured credit
facility with institutional lenders, of which approximately $48
million was initially borrowed.
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 million and a five-year $20 million term loan facility.
At June 30, 1994 availability under the facility, based primarily
on inventory and receivable levels, was approximately $54
million, of which approximately $37 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.
The proceeds from the offering and the initial borrowings under
the secured credit facility were used to repay substantially all
of the Company's previously outstanding non-real estate debt.
The Company anticipates that the new capital structure will
support the long-term growth of Talley's core businesses and
permit the implementation of its strategy to use proceeds
received from the increasing airbag royalties and from the
orderly sale of the assets of its real estate operations to
reduce its total indebtedness.
As a holding company with no significant operating or income-
producing assets beyond its stock interests in Talley
Manufacturing and the subsidiaries holding its real estate
operations, Talley will be dependent primarily upon distributions
from those subsidiaries in order to meet its debt service and
other obligations. Talley will be entitled to receive certain
distributions from Talley Manufacturing (absent certain defaults
under Talley Manufacturing indebtedness) for a period of five
years, to be used to fund certain carrying and other costs
associated with the orderly disposition of Talley's real estate
assets. Additional funding is also available for the real estate
costs from the anticipated redemption of preferred stock of
Talley Manufacturing purchased for an agreed upon amount by
Talley in connection with the October 1993 refinancing and from
a portion of the net cash proceeds from the sale of real estate
assets. Talley will be required to use certain funds received
from Talley Manufacturing and certain funds from real estate
sales to make offers to redeem certain indebtedness of Talley.
Because the cash available to Talley is required to be used for
these specific purposes, and because certain debt covenants limit
Talley's ability to incur additional indebtedness, Talley will be
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dependent upon the payment of dividends from Talley Manufacturing
(which payments will generally be limited by debt covenants of
Talley Manufacturing) and to future sales of equity securities as
its primary sources of discretionary liquidity. To the extent
such sources do not provide adequate funds, Talley may be unable
to fund expected costs and improvements associated with its real
estate holdings or to make cash interest payments on its
outstanding indebtedness when required. Nevertheless, and
particularly in light of the absence of requirements for Talley
to make cash payments of interest on outstanding indebtedness
until April 15, 1999, the Company believes that Talley will have
funds available in sufficient amounts, and at the required times,
to permit Talley to meet its obligations.
Other Matters
As more fully explained in the Commitments and Contingencies note
to the December 31, 1993 Consolidated Financial Statements,
litigation between the Company and TRW, Inc. (TRW), the buyer of
the Company's airbag business and licensee of the Company's
technology related thereto, has been pending since 1989. In mid-
February 1994 TRW filed a new declaratory judgment action
asserting claims already made in the existing action and further
claiming the Company, through the actions of a subsidiary,
breached a non-compete provision of the Asset Purchase Agreement
by rendering services to competitors of TRW, and requesting among
other things a court order that a contemporaneous notice and a
$26.5 million one-time payment that TRW sent to the Company was
valid, entitling it to terminate that airbag royalty and obtain
a paid up license to use the Company's airbag technology. On
March 1, 1994 the Company answered TRW's complaint and also filed
counterclaims alleging that TRW had wrongfully terminated the
license agreement, had intentionally interfered with Talley's
business relationships and had failed to exert reasonable efforts
to exploit the exclusive license granted to TRW by the Company.
On March 14, 1994 the Company filed a Motion for an Order
requiring TRW to make payment of all quarterly royalties until
the lawsuit is finally resolved. The Company sought the Order to
avoid the potential harm from cash flow interruption and/or
potential loan covenant defaults caused by TRW's failure to pay
scheduled royalty payments. A three day hearing on the Company's
Motion was completed on May 3, 1994 and on May 23, 1994 the Court
granted the Company's motion for a preliminary injunction. The
Court ordered TRW to continue paying royalties to the Company
pending conclusion of the lawsuit. The Company believes that a
final hearing will show that TRW's claims are without merit and
that the Court will enter a final Order confirming the Company's
right to continue receiving royalty payments.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As more fully explained in the Commitments and Contingencies note
to the December 31, 1993 Consolidated Financial Statements,
litigation between the Company and TRW, Inc. (TRW), the buyer of
the Company's airbag business and licensee of the Company's
technology related thereto, has been pending since 1989. In mid-
February 1994 TRW filed a new declaratory judgment action
asserting claims already made in the existing action and further
claiming the Company, through the actions of a subsidiary,
breached a non-compete provision of the Asset Purchase Agreement
by rendering services to competitors of TRW, and requesting among
other things a court order that a contemporaneous notice and a
$26.5 million one-time payment that TRW sent to the Company was
valid, entitling it to terminate that airbag royalty and obtain
a paid up license to use the Company's airbag technology. On
March 1, the Company answered TRW's complaint and also filed
counterclaims alleging that TRW had wrongfully terminated the
license agreement, had intentionally interfered with Talley's
business relationships and had failed to exert reasonable efforts
to exploit the exclusive license granted to TRW by the Company.
On March 14, 1994 the Company filed a Motion for an Order
requiring TRW to make payment of all quarterly royalties until
the lawsuit is finally resolved. The Company sought the Order to
avoid the potential harm from cash flow interruption and/or
potential loan covenant defaults caused by TRW's failure to pay
scheduled royalty payments. A three day hearing on the Company's
Motion was completed on May 3, 1994 and on May 23, 1994 the Court
granted the Company's motion for a preliminary injunction. The
Court ordered TRW to continue paying royalties to the Company
pending conclusion of the lawsuit. The Company believes that a
final hearing will show that TRW's claims are without merit and
that the Court will enter a final Order confirming the Company's
right to continue receiving royalty payments.
On March 28, 1994, a fully consolidated real estate joint
venture, in which the Company has a $29.2 million interest,
instituted Chapter 11 proceedings in the United States Bankruptcy
Court for the District of Arizona. At the same time the joint
venture filed a proposed plan of reorganization that would
provide for the conversion of substantially all outstanding debt
of the joint venture into equity in a new company to be formed to
continue the project. A subsidiary of the Company, if the plan
is accepted, would own approximately two-thirds of the equity in
the new company.
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Item 3. Defaults Upon Senior Securities
(b) The Company has not made any dividend payments on its
preferred and common shares since the first quarter of 1991,
and the ability to pay dividends in the future is limited by
the provisions of the Company's debt agreements. Dividends
on the shares of Series A, Series B and Series D Preferred
stock are cumulative and must be paid in the event of
liquidation and before any distribution to holders of Common
stock. These dividends are in arrears.
The Company's preferred stockholders have certain voting
rights with respect to the election of two directors which
were triggered by the dividend arrearages. The preferred
stock does not provide any other voting rights or remedies
to the preferred stockholders in the event of a dividend
arrearage. Dividends on Series D Preferred Stock currently
accrue at $4.50 per share annually. As of February 28,
1998, dividends of $15.75 per share are to be paid annually
to holders of any Series D Preferred Stock still outstanding
at that time. Annual dividends of $1.10 per share, and
$1.00 per share, accrue with respect to outstanding shares
of Series A Preferred Stock and Series B Preferred Stock,
respectively. Cumulative dividends on preferred shares that
have not been declared or paid are approximately: Series
A - $254,000 ($3.575 per share), Series B - $5,032,000
($3.25 per share) and Series D - $1,759,000 ($14.625 per
share).
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant held its Annual Meeting of Stockholders on
May 3, 1994.
(b) All of management's nominees for directors as listed in the
proxy statement were elected.
(c) The results of the election of directors were as follows:
Votes Votes
For Withheld Abstentions
Directors Elected by
Common Stockholders
Neil Benson 8,383,050 331,937 -
Townsend Hoopes 8,377,787 337,200 -
William H. Mallender 8,714,987 371,927 -
Emiel J. Nielsen, Jr. 8,377,914 337,073 -
Directors Elected by
Preferred Stockholders
Paul L. Foster 1,227,215 37,084 -
Joseph A. Orlando 1,225,286 39,013 -
No other matters were voted upon at the annual meeting.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1* Stock Registration Rights and Escrow Agreement,
dated as of July 18, 1994, by and among Talley
Industries, Inc., Waterbury Companies, Inc. and
The Ball and Socket Manufacturing Company, Inc.
10.1* First Amendment to Loan and Security Agreement by
and among Talley Manufacturing and Technology,
Inc. and Transamerica Business Credit Corporation,
as agent.
10.2* Second Amendment to Loan and Security Agreement by
and among Talley Manufacturing and Technology,
Inc. and Transamerica Business Credit Corporation,
as agent.
11* Computation of Earnings per Common and Common
Equivalent Share.
* Documents marked with an asterisk are filed with this report.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the six months
ended June 30, 1994.
-14-
<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 INDUSTRIES, INC.
(Registrant)
Date: August 9, 1994 By Kenneth May
Kenneth May
Vice President, Controller
Principal Accounting
Officer
Date: August 9, 1994 By Mark S. Dickerson
Mark S. Dickerson
Vice President, General
Counsel and Secretary
-15-
<PAGE>
EXHIBIT 4.1
STOCK, REGISTRATION RIGHTS, AND ESCROW AGREEMENT
This Stock, Registration Rights, and Escrow Agreement (this
"Agreement") is made and entered into as of July 28, 1994, by and
among Talley Industries, Inc., a Delaware corporation ("Talley"),
Waterbury Companies, Inc., a Delaware corporation and a wholly-
owned subsidiary of Talley ("Waterbury"), and The Ball and Socket
Manufacturing Company, Inc., a Delaware corporation ("Balso").
RECITALS
A. Waterbury and Balso have entered into that certain Asset
Purchase Agreement dated as of July 28, 1994 (the "Purchase
Agreement"), pursuant to which, Waterbury has purchased
substantially all of the non-real estate assets of Balso. All
capitalized terms not otherwise defined herein shall have the
meaning of such capitalized term as set forth in the Purchase
Agreement.
B. The Purchase Agreement provides for the issuance to Balso of
shares of Common Stock, $1 par value ("Common Stock") of Talley
upon the terms and conditions set forth in this Agreement.
C. Talley, Waterbury and Balso have agreed that an escrow account
be established as partial security for performance by Balso of its
obligations under Article IX of the Purchase Agreement and Article
V of this Agreement upon the terms and conditions set forth in this
Agreement.
D. Talley has agreed to grant Balso certain registration rights
with respect to the Common Stock issued to Balso upon the terms and
conditions set forth in this Agreement and Balso has agreed to
grant Talley certain rights of first refusal with respect to such
Common Stock upon the terms and conditions set forth in this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, all of the parties hereto, intending to be legally
bound, agree as follows:
ARTICLE I
ISSUANCE OF COMMON STOCK
1.1 Issuance of Stock. Pursuant to and in accordance with the
Purchase Agreement and subject to the terms and conditions set
forth in this Agreement, Talley shall issue to Balso on the second
anniversary of the Closing Date Three Hundred Twenty Three Thousand
Two Hundred Thirty Two (323,232) shares of Common Stock
(hereinafter referred to as the "Stock"), subject to adjustment
pursuant to Section 1.2 below. The number of shares of Stock was
calculated by dividing $2,000,000 by the average Closing Price (as
defined in Section 7.14 hereof) of the Common Stock for each of the
10 Trading Days (as defined in Section 7.14 hereof) preceding the
Closing Date. Immediately upon issuance by Talley of any or all of
the Stock, stock certificates evidencing a portion of the shares of
Stock so issued shall be deposited directly by Talley into an
escrow account in accordance with Article III hereof. Upon receipt
by the escrow agent of such certificates, the escrow agent shall
hold the Stock subject to the terms of this Agreement.
1.2 Adjustments to the Number of Shares of Stock to be Issued.
1.2.1 The number of shares of Stock to be issued to Balso
pursuant to Section 1.1 hereof shall be subject to adjustment from
time to time as follows:
(a) In case, after the Closing Date and before issuance of
the Stock, Talley shall (i) take a record of the holders
of the Common Stock for the purpose of entitling them to
receive a dividend payable in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, or (iii) combine its
outstanding shares of Common Stock into a smaller number
of shares, the "Stock" shall thereafter (unless and until
further adjusted under this Section 1.2) be deemed to
consist of the number of shares of Common Stock of Talley
which would have been held by (and/or which would have
been issuable to) the holder of the Stock if the Stock
had been outstanding on such record date or the day upon
which such subdivision or combination becomes effective.
(b) In case, after the Closing Date and before issuance of
the Stock, there shall be any recapitalization (other
than as described in paragraph (a) above), or
reclassification of the Common Stock, or a consolidation
or merger of Talley with or into another corporation, or
any sale or conveyance to another corporation of all or
substantially all the assets of Talley or dissolution or
total liquidation of Talley, the Stock shall thereafter
(unless and until further adjusted under this Section
1.2) be deemed to consist of shares of stock, other
securities, cash or property which would have been held
by (and/or which would have been receivable by) the
holder of the Stock if the Stock had been outstanding on
the record date or effective date for such
recapitalization, reclassification, dissolution,
liquidation, or consolidation, merger, sale or
conveyance.
(c) In case, after the Closing Date and before issuance of
the Stock, there shall be a partial liquidation of
Talley, whether voluntary or involuntary, or any other
transaction not described in paragraphs (a) or (b) above
in which shares of stock, other securities, cash, or
property are exchanged for, or distributed with respect
to, the Stock, and in the event such liquidation or other
transaction does not give rise to a full adjustment under
paragraphs (a) and (b) above, then the Stock shall
thereafter (unless and until further adjusted under this
Section 1.2) be deemed to consist of shares of stock,
other securities, cash or property which would have been
held by (and/or which would have been receivable by) the
holder of the Stock if the Stock had been outstanding on
the record date or effective date for such dissolution,
liquidation or other transaction.
1.2.2 The term "Stock", for purposes of this Agreement,
shall include any adjustments made pursuant to Section 1.2.1 hereof
and any securities, cash or property issuable to, or receivable by,
Balso pursuant to Sections 1.2.1 or 2.11 hereof.
1.3 Ownership Rights. Until the issuance of the Stock, Balso
shall not possess nor be entitled to any voting or other rights
with respect to shares of Common Stock, except as otherwise
expressly set forth in this Agreement.
1.4 Duly and Validly Issued. Talley represents that the Stock,
upon issuance in accordance with this Agreement, will be duly and
validly issued, fully paid and nonassessable and will be delivered
to Balso and the escrow agent, as the case may be, free and clear
of all claims, liens, encumbrances and security interests.
1.5 Investment Only.
1.5.1 In connection with the issuance to Balso of the
Stock hereunder, Balso hereby represents to Talley that the Stock
is being acquired by Balso for investment for its own account and
not for the account or beneficial interest of any other person and
that the Stock is not being acquired with a view to or for resale
in connection with any distribution within the meaning of any
applicable securities laws. Balso understands that the Stock will
not have been registered under any securities laws and as such,
must be held until it is subsequently registered under applicable
securities laws or an exemption from registration thereunder is
available.
1.5.2 Balso further acknowledges that Talley's reliance
that the transaction is exempt from applicable securities laws is,
in part, based upon the foregoing representation and that the
statutory basis for such exemption may not be present if,
notwithstanding such representation, Balso were acquiring the Stock
for resale or distribution upon the occurrence or non-occurrence of
some predetermined events.
1.5.3 Any offer or transfer of the Stock by Balso pursuant
to an exemption claimed under applicable securities laws will
require a favorable opinion of Balso's counsel, reasonably
satisfactory to counsel for Talley, in order for Balso to
effectuate the offer or transfer.
1.5.4 Balso understands that the certificate(s)
representing the Stock will bear a restrictive legend thereon as
follows (in addition to the legends required by Sections 3.1 and
4.3.3 hereof):
"The securities represented by this certificate have been
acquired for investment only directly from the issuer
without being registered under any applicable securities
laws. These securities may not be offered, sold,
pledged, transferred, distributed or otherwise disposed
of in any manner ("Transfer") unless they are registered
under any applicable securities laws or unless the
request for Transfer is accompanied by a favorable
opinion of counsel, reasonably satisfactory to the
issuer, stating that the Transfer will not result in a
violation of any federal, state or other jurisdiction's
securities laws."
The legend required by this Section 1.5.4 will be removed from
such certificates, at the request of the holder thereof, at such
time as the shares of Stock represented by the certificates are
eligible for resale under Rule 144(k) under the Securities Act of
1933, as amended (the "Securities Act"); provided that such request
is accompanied by a favorable opinion of Balso's counsel,
reasonably satisfactory to counsel for Talley, that the shares are
so eligible.
1.5.5 Balso understands that in the absence of a
registration statement declared effective by the Securities and
Exchange Commission (the "SEC") or a favorable opinion of Balso's
counsel, reasonably satisfactory to counsel for Talley, that such
offer or transfer of the Stock by Balso is exempt from registration
under applicable securities laws, Talley will direct the transfer
agent for the Stock to place a stop transfer instruction against
the certificate(s) representing the Stock and will instruct such
transfer agent to refuse to effect any offer or transfer of the
Stock.
1.5.6 Balso represents and warrants that it is in receipt
of the following documents: (a) Talley's 1993 Annual Report to
Stockholders; (b) Talley's Proxy Statement for its 1994 Annual
Meeting of Stockholders; (c) Talley's Form 10-Q for the quarter
ended March 31, 1994; (d) Prospectus, dated October 15, 1993, for
the issuance of Senior Notes and Senior Discount Debentures of
Talley Manufacturing and Technology, Inc. and Talley, respectively;
(e)Talley's Form 10-K for the year ended December 31, 1993; (f) a
copy of the Findings of Fact, Conclusions of Law and Order re
Defendants' Motion for Order Requiring Payment of Royalties in the
TRW, Inc. vs. Talley et al litigation; and (g) a copy of a press
release issued by Talley, dated July 26, 1994, reporting its
results of operations for the quarter ended June 30, 1994.
Balso confirms to Talley that it has also received such other
documents and information including, but not limited to, documents
and information regarding Talley's litigation with TRW, Inc., as
Balso and its advisors requested in order to make its investment
decision regarding the Stock. Balso further confirms that it has
had a reasonable opportunity to ask questions of and receive
answers from a person or persons acting on behalf of Talley
concerning Talley and the Stock. No oral representations have been
made, or oral information furnished, to Balso, or its
representatives, in connection with the purchase of the Stock which
would constitute an assurance or guarantee of any future results of
operations.
1.5.7 Balso confirms to Talley that Balso has such
knowledge and experience in financial and business matters so as to
enable it to utilize the information made available to it in
connection with the Stock in order to evaluate the merits and risks
of an investment in the Stock and to make an informed investment
decision with respect thereto.
1.5.8 Balso represents and warrants to Talley that neither
Balso nor any of its officers, directors, stockholders or
affiliates beneficially own (within the meaning of Rule 13d-1 under
the Securities Exchange Act of 1934) any shares of Common Stock.
1.6 Reservation of Shares. The number of shares of Stock to be
issued to Balso have been set aside by Talley out of authorized but
unissued shares of Common Stock not reserved for any other purposes
or out of shares of Common Stock held in or acquired for the
treasury of Talley.
1.7 Right of Set-off. At the time of issuance of the Stock, if
Waterbury has been determined by a court of competent jurisdiction,
arbitration panel or the Neutral (as defined below in Section 6.2)
or a settlement agreement between Waterbury and Balso to be
entitled to payment for any Claims pursuant to Article IX of the
Purchase Agreement, the number of shares of Stock to be issued may
be reduced, in the sole discretion of Talley, by an amount equal to
the amount of such Claims divided by the average Closing Price of
the Common Stock for each of the 30 Trading Days preceding the
issuance of the Stock.
ARTICLE II
REGISTRATION OF STOCK
2.1 Shelf Registration. Talley shall file, no later than 45 days
prior to the time that the Stock is issued to Balso, a "shelf"
registration statement on any appropriate form pursuant to Rule 415
under the Securities Act and/or any similar rule that may be
adopted by the SEC to register the Stock for resale by Balso.
Talley agrees to use its best efforts to cause such registration
statement to become effective as of the date the Stock is first
issued and remain effective until the earlier of (a) the third
anniversary of the date that the Stock is deemed acquired for
purposes of Rule 144 under the Securities Act, or (b) the Stock
ceases to be restricted securities within the meaning of Rule 144
under the Securities Act or is otherwise transferable without
volume and transfer limitations under applicable securities laws;
provided, however, Talley shall have the right to delay the filing
of the registration statement or to withdraw the registration
statement if, in the good faith judgment of Talley's board of
directors, such delay or withdrawal is necessary in order to avoid
interference with a material transaction involving Talley or an
affiliate; provided that Talley shall use its best efforts to file
the registration statement and cause the registration statement to
become effective as soon as reasonably practicable once the reason
for such delay or withdrawal has ceased. Talley agrees that before
filing the registration statement or any amendments thereto, Talley
will furnish to Balso copies of all such documents proposed to be
filed, which documents will be subject to the reasonable review of
Balso and its counsel.
2.2 Amendments and Supplements. Talley shall prepare and file
with the SEC such amendments and supplements to the registration
statement and the prospectus used in connection therewith as may be
necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act
with respect to the disposition of the Stock.
2.3 Prospectuses and Documents. Talley shall furnish to Balso
such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and
any summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents, as Balso may reasonably
request in order to facilitate the public sale or other disposition
of the Stock.
2.4 Blue Sky Laws. Talley shall use its best efforts to register
or qualify the Stock under such other securities laws or blue sky
laws of such jurisdictions as Balso shall reasonably request, to
keep such registrations or qualifications in effect for so long as
the registration statement remains in effect and do any and all
other acts and things which may be necessary or advisable to enable
Balso to consummate the disposition in such jurisdictions of the
Stock, except that Talley shall not for any such purpose be
required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the
requirements of this Section 2.4 be obligated to be qualified, to
subject itself to taxation in any such jurisdiction or to consent
to general service of process in any such jurisdiction.
2.5 Notices. Talley shall notify Balso of Talley's becoming aware
that any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing, and promptly amend the
registration statement (if necessary) and prepare and furnish to
Balso a reasonable number of copies of a prospectus supplemented or
amended so that such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
2.6 Earnings Statement. Talley shall use its best efforts to
comply with all applicable rules and regulations of the SEC, and
make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve months, beginning with the first day of Talley's first
calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
2.7 New York Stock Exchange Listing. Talley shall list the Stock
on the New York Stock Exchange prior to the issuance of the Stock
to Balso, and shall thereafter maintain the listing of the Stock
during the effectiveness of the registration statement, subject
only to official notice of issuance.
2.8 Suspension of Disposition. Balso hereby agrees that upon
receipt of any notice from Talley of the occurrence of any event of
the kind described in Section 2.5 hereof Balso will forthwith
discontinue disposition of the Stock pursuant to the registration
statement covering such stock until receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2.5 and,
if so directed by Talley, will deliver to Talley (at Talley's
expense) all copies, other than permanent file copies, then in
Balso's possession of the prospectus covering the Stock current at
the time of receipt of such notice.
2.9 Information Regarding Balso. Balso hereby agrees to furnish
in writing all information in Balso's possession or knowledge
required to be disclosed by selling stockholders by the applicable
rules and regulations of the SEC in connection with the
registration of the Stock, including, but not limited to,
information regarding Balso and the distribution of the Stock, and
such other information as Talley may from time to time reasonably
request. Balso also agrees to cooperate as reasonably requested by
Talley in connection with all matters contemplated by this Article
II.
2.10 Registration Expenses. With respect to the registration of
the Stock, Talley shall bear the following fees, costs and
expenses: all registration, filing and National Association of
Securities Dealers, Inc. fees, printing expenses, fees and
disbursements of counsel and accountants for Talley, and all legal
fees and disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdictions in which the Stock
is to be registered or qualified. Fees and disbursements of
counsel and accountants for Balso, underwriting discounts and
commissions, brokerage expenses and transfer taxes for Balso and
any other expenses incurred by Balso not expressly included above
shall be borne by Balso.
2.11 Exceptions to Registration. Notwithstanding any other
provision of this Article II to the contrary, Talley shall not be
required to file a registration statement with respect to any
shares of Stock that Balso would be able to sell pursuant to Rule
144 under the Securities Act and/or any similar rule that may be
adopted by the SEC. Furthermore, in lieu of filing the
registration statement required by Section 2.1, Talley shall have
the right, in its sole discretion, to either (i) pay cash to Balso
in an amount equal to the number of shares of Stock to be issued
multiplied by the average Closing Price of the Common Stock for
each of the 30 Trading Days preceding the date on which the Stock
would have been issued to Balso, or (ii) arrange for or designate
a third party to purchase for cash all of the Stock to be issued at
a price per share equal to the average Closing Price of the Common
Stock for each of the 30 Trading Days preceding the date on which
the Stock would have been issued to Balso. The closing for the
purchase and sale shall occur no later than 15 business days
following the date on which the Stock would have been issued to
Balso.
ARTICLE III
ESCROW ACCOUNT
3.1 Contents of Escrow Account. Immediately upon issuance by
Talley of the Stock, stock certificates evidencing a portion of the
shares of Stock so issued shall be deposited directly by Talley
into an escrow account. Balso understands that the certificates
evidencing the shares of Stock deposited with the escrow agent will
bear a restrictive legend that the Stock is subject to the terms of
Article III hereof (in addition to the legends required by Sections
1.5.4 and 4.3.3. hereof). The number of shares of Stock deposited
into the escrow account shall equal $1,000,000 divided by the
average Closing Price for the Common Stock for each of the 30
Trading Days preceding the issuance of the Stock; provided,
however, if at the time of the issuance of the Stock Waterbury may
be entitled pursuant to Article IX of the Purchase Agreement to
payment for any Claims and the amount of the Claims cannot be
determined at that time, then an additional portion of the Stock
shall be deposited directly into the escrow account. The number of
additional shares of Stock to be deposited into the escrow account
shall equal a reasonable estimate of the maximum amount of the
Claims divided by the average Closing Price for the Common Stock
for each of the 30 Trading Days preceding the issuance of the
Stock. Waterbury and Balso shall mutually and in good faith
promptly agree upon the estimate of the maximum amount of the
Claims and until they are able to agree upon the estimate, all of
the Stock shall be deposited into the escrow account. All stock
certificates evidencing shares of Stock deposited into the escrow
account shall be properly endorsed by Balso, or accompanied by such
instrument of transfer as to enable the escrow agent to cause such
certificates to be transferred to Talley and/or Waterbury pursuant
to Section 3.3 hereof.
3.2 Escrow Agreement and Agent. The escrow account shall be
administered by a reputable independent financial institution
selected by Talley and reasonably acceptable to Balso. After the
selection of the escrow agent, Talley, Waterbury, Balso and the
escrow agent shall enter into an escrow agreement in form and
substance usual and customary for an escrow account of this type,
that contains the terms and conditions set forth in this Agreement,
and that is reasonably acceptable to Talley, Waterbury, Balso and
the escrow agent. Promptly after the Closing Date, the parties
shall use their best efforts to cause the escrow agent to be
identified and a reasonably acceptable escrow agreement to be
signed.
3.3 Payments to Talley and/or Waterbury. Talley and Waterbury
shall be required, prior to pursuing any other remedy for the
payment of money, to direct the escrow agent to deliver to Talley
and/or Waterbury shares of Stock and/or property in the escrow
account in satisfaction of Balso's obligations under Article IX of
the Purchase Agreement. The escrow agent shall deliver the shares
of Stock and/or property in the escrow account to Talley and/or
Waterbury, as directed by Talley, as follows:
3.3.1 Upon receipt by the escrow agent of notarized
officers' certificates from both Talley and Balso certifying to the
escrow agent that the payment of a Claim is due and owing;
3.3.2 On the tenth business day immediately following the
receipt by both the escrow agent and Balso of a notarized officers'
certificate from Talley certifying that the payment of a Claim is
due and owing unless Balso has sent a notice to both Talley and the
escrow agent disputing such Claim within such 10-day period; or
3.3.3 Upon receipt by the escrow agent of a notarized
officers' certificate from Talley certifying that the payment of a
Claim is due and owing as well as evidence of a judgment or award
against Balso, not subject to appeal, entered by a court of
competent jurisdiction, arbitration panel or the Neutral (as
defined below in Section 6.2) or a settlement agreement between
Waterbury and Balso conclusively showing that the payment of a
Claim is due and owing.
For purposes of this Section 3.3, the value of the shares of Stock
shall be equal to the average Closing Price of the Common Stock for
each of the 30 Trading Days preceding the payment of the Claim.
3.4 Payments to BALSO.
3.4.1 On the third and fourth anniversaries of the Closing
Date, Balso may withdraw shares of Stock and/or property from the
escrow account in order to reduce the value of the escrow account
to $750,000 on the third anniversary and $500,000 on the fourth
anniversary; provided, however, if at that time Waterbury is
entitled to payment for any Claims pursuant to Article IX of the
Purchase Agreement and the amount of the Claims can be determined
at that time, the Claims must be paid prior to determining the
amount of Stock and/or property that Balso can withdraw. If,
however, Waterbury may be entitled to payment for any Claims
pursuant to Article IX of the Purchase Agreement and the amount of
the Claims cannot be determined at that time, an amount equal to a
reasonable estimate of the maximum amount of the Claims must be
retained in the escrow account in addition to the amounts otherwise
required by the preceding sentence. The additional amount to be
retained in the escrow account shall promptly be mutually agreed
upon in good faith by Waterbury and Balso and Balso may not make
any withdrawals from the escrow account until the amount to be
retained in the escrow account is determined. For purposes of this
Section 3.4.1, the value of the shares of Stock shall be equal to
the average Closing Price of the Common Stock for each of the 30
Trading Days preceding the relevant anniversary date. The value
required to be maintained in the escrow account on each anniversary
date shall hereinafter be referred to as the "Required Minimum."
Any stock certificates evidencing shares of Stock and/or property
in the escrow account in excess of the Required Minimum on the
relevant anniversary date shall be delivered to Balso on the date
immediately following the date on which the escrow agent received
notarized officers' certificates from both Talley and Balso
certifying to the escrow agent the number of shares of Stock and/or
amount of property Balso is entitled to withdraw, or on the tenth
business day immediately following the receipt by the escrow agent
and Talley of a notarized officers' certificate from Balso
certifying as to the number of shares of Stock and/or amount of
property Balso is entitled to withdraw unless Talley has sent a
notice to both Balso and the escrow agent disputing the number of
shares of Stock and/or amount of property Balso is entitled to
withdraw within such 10-day period.
3.4.2 Any stock certificates evidencing shares of Stock
and/or property remaining with the escrow agent upon termination of
the escrow account shall be delivered to Balso on the date
immediately following the date on which the escrow agent received
notarized officers' certificates from both Talley and Balso
certifying to the escrow agent that the escrow account is
terminated, or on the tenth business day immediately following the
receipt by the escrow agent and Talley of a notarized officers'
certificate from Balso certifying that the escrow account is
terminated unless Talley has sent a notice to both Balso and the
escrow agent disputing the termination of the escrow account within
such 10-day period.
3.5 Termination of Escrow Account. The escrow account will
terminate on the fifth anniversary of the Closing Date; provided,
however, if at that time Waterbury may be entitled to payment for
any Claims pursuant to Article IX of the Purchase Agreement and the
amount of the Claims cannot be determined at that time, then an
amount equal to a reasonable estimate of the maximum amount of the
Claims will be retained in the escrow account and the escrow
account will not terminate until the actual amount of such Claims
can be determined and the escrow agent has delivered to Talley
and/or Waterbury either shares of Stock and/or property with
respect to such Claims. Waterbury and Balso shall promptly
mutually agree in good faith upon the estimate of the maximum
amount of the Claims. After the amount to be retained in the
escrow account has been determined, Balso shall be entitled to
withdraw any shares of Stock and/or property in the escrow account
that is in excess of that amount.
3.6 Dividends and Distributions. If any dividend or other
distribution in respect of the Stock held by the escrow agent is
paid, either in cash, capital stock of Talley or other property,
Talley shall deposit directly with the escrow agent such cash,
capital stock or property and the escrow agent shall hold, subject
to the terms of the escrow account including, but not limited to
Section 3.4 above, the cash, stock certificates or other property
received by the escrow agent on account of such dividend or
distribution, which shall be deemed to be part of the Stock held by
the escrow agent.
3.7 Dissolution of Talley. In the event of the dissolution or
total or partial liquidation of Talley, whether voluntary or
involuntary, the escrow agent shall receive cash, securities,
rights, or property in respect of the Stock held by the escrow
agent, and shall hold, subject to the terms of the escrow account,
the cash, securities, rights or property received by him on account
of such dissolution or liquidation, which shall be deemed to be
part of the Stock held by the escrow agent.
3.8 Reorganization of Talley. In case Talley is merged into or
consolidated with another corporation, or all or substantially all
of the assets of Talley are transferred to another corporation,
then in connection with such transfer the term "Talley" for all
purposes of the escrow account shall be taken to include such
successor corporation, and the escrow agent shall receive and hold
in the escrow account any stock of such successor corporation
received on account of the ownership, subject to the terms of the
escrow account and which stock shall be deemed to be part of the
Stock held by the escrow agent, of the stock held hereunder prior
to such merger, consolidation, and transfer.
3.9 Administration of the Fund. Balso shall have the right to
direct the escrow agent to sell for cash any shares of Stock in the
escrow account and to direct the investment and reinvestment of the
proceeds of any such sales in one or more of the following
investments (the "Obligations") from time to time.
3.9.1 Direct obligations of, or obligations the principal of
and interest on which are unconditionally guaranteed
by, the United States of America; or
3.9.2 Certificates of deposit issued by any bank, trust
company or national banking association (including the
escrow agent), provided that the capital stock,
surplus and undivided profits of such institution are
not less than $50,000,000; or
3.9.3 Commercial paper having a rating of at least "prime"
at the time of such investment; provided, however, at
least one-half of any funds shall be invested in
Obligations having maturities of six months or less
and the remainder of such funds shall be invested in
Obligations having maturities of one year or less.
3.10 Earnings. Any earnings from any Obligations, and any other
income from whatever source arising from funds in the escrow
account, shall be retained in the escrow account subject to the
terms of the escrow account including, but not limited to, Section
3.4 above, and any loss incurred from any such investment will be
borne by the escrow account; provided, however, that in no event
shall any gain or loss borne by the escrow account affect Balso's
obligation to indemnify Waterbury pursuant to Article IX of the
Purchase Agreement.
3.11 Irrevocable Escrow. Balso, Waterbury and Talley agree that
the escrow account shall be irrevocable and that the authority of
the escrow agent shall not be terminated by operation of law,
whether by bankruptcy, insolvency, reorganization of Balso or the
occurrence of any other event. Accordingly, notwithstanding any
such bankruptcy, insolvency, reorganization or other event prior to
the termination of the escrow account, the escrow agent is
nevertheless authorized and directed to deal with the escrow
account in accordance with the terms and conditions hereof, as if
such bankruptcy, insolvency, reorganization or other event had not
occurred, regardless of whether the escrow agent shall have
received notice of such bankruptcy, insolvency, reorganization or
other event.
3.12 Rights and Powers of Escrow Agent.
3.12.1 Balso, Waterbury and Talley agree to hold the escrow
agent harmless and to indemnify the escrow agent against loss,
liability, expense (including reasonable attorneys' fees and
disbursements), claim or demand arising out of or in connection
with the performance of its obligations in connection with the
escrow account as and to the extent set forth in the escrow
agreement.
3.12.2 Balso, Waterbury and Talley agree that should any
dispute arise with respect to the payment and/or ownership or right
of possession of any shares of Stock and/or property in the escrow
account, the escrow agent is authorized and directed to retain in
its possession, without liability to anyone, all or any part of
said escrow account until such dispute shall have been settled in
accordance with the procedure set forth in Article VI hereof;
provided, however, that the escrow agent shall be under no duty
whatsoever to institute or defend any such proceedings.
3.12.3 Balso, Waterbury and Talley agree that the escrow
agent shall receive its customary fees, and charges for serving as
escrow agent. In addition, the escrow agent shall have the right
to incur and pay such reasonable expenses and charges, to employ
and pay such agents, attorneys, and counsel as it may deem
necessary and proper. All such fees and charges and any such
expenses or charges incurred by and due to the escrow agent shall
be shared equally among Talley, Waterbury and Balso, except that
all such fees and charges related to Balso's right to direct the
sale of Stock in the escrow account and to the investment and
reinvestment of the proceeds of any such sales shall be borne
solely by Balso.
ARTICLE IV
TALLEY'S RIGHT OF FIRST REFUSAL
4.1 Privately Negotiated Transactions. Until the escrow account
is terminated, in the event that Balso desires to sell shares of
Stock in a privately negotiated transaction and not in a public
market transaction, Balso shall give Talley notice of its intention
to sell setting forth the terms and conditions of the transaction
in reasonable detail, including, but not limited to, the identity
of the purchaser, if known, the number of shares proposed to be
sold and the price at which Balso proposes to sell the shares.
Talley or its designee shall have five business days from such
notice to notify Balso of its desire to purchase such number of
shares at the price and otherwise on the terms specified in Balso's
notice of intention to sell. The closing for the purchase and sale
shall occur no later than 15 business days following Talley's
notice of its election to purchase the shares. In the event that
Talley does not notify Balso within five business days of Balso's
notice of Talley's desire to purchase or have its designee purchase
the shares at the price specified in Balso's notice, Balso shall be
free to close the transaction specified in the notice within 60
days on the terms and conditions specified in the notice and
subject to applicable securities laws. In the event that Balso
does not so dispose of such shares, Balso must give a new five
business days notice to Talley and Talley or its designee shall
have the right to purchase the shares at the price set forth in the
new notice.
4.2 Public Market Transactions. Until the escrow account is
terminated, in the event that Balso proposes to sell shares of
Stock in an amount in excess of the limits specified in Rule 144
under the Securities Act (and/or any similar rule that may be
adopted by the SEC) in a public market transaction, Balso shall
first give Talley notice of the proposed sale, and Talley or its
designee shall have two business days to give Balso notice of its
desire to purchase such shares in excess of such limits at the
average Closing Price of the Common Stock for each of the 30
Trading Days preceding the date of Balso's notice to Talley. The
closing for the purchase and sale shall occur no later than three
business days following Balso's notice to Talley of the proposed
sale. If Talley or its designee fail to deliver such notice to
Balso or elects not to purchase such shares, Balso shall thereafter
be entitled to sell the same number of shares of Stock specified in
Balso's notice to Talley in public market transactions without
providing Talley notice or any right to purchase such shares.
4.3 General.
4.3.1 Talley's or its designee's right of first refusal
set forth in Sections 4.1 and 4.2 hereof shall remain in effect as
long as Balso, its affiliates, stockholders and immediate family
members of such stockholders, beneficially own (within the meaning
of Rule 13d-1 under the Securities Exchange Act of 1934), in the
aggregate, more than one percent of the issued and outstanding
Common Stock, but in no event shall it remain in effect after the
escrow account is terminated.
4.3.2 Talley's and its designee's right of first refusal
set forth in Sections 4.1 and 4.2 hereof shall not apply to
transfers of Stock to Balso's stockholders or its affiliates, or
among Balso's stockholders and their immediate family members;
provided that the transfers are in accordance with any applicable
securities laws, the terms and conditions of this Agreement and
that the transferees agree in writing to be subject to the terms
and conditions of this Agreement including, without limitation,
Talley's or its designee's right of first refusal.
4.3.3 Balso understands that the certificates evidencing
the shares of Stock will bear a restrictive legend regarding the
right of first refusal set forth in Sections 4.1 and 4.2 (in
addition to the legends required by Sections 1.5.4 and 3.1 hereof).
4.3.4 Talley's and its designee's right of first refusal
is subject to the provisions of any applicable securities and other
laws and the requirements of the New York Stock Exchange.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification of Balso. Talley and Waterbury agree to
indemnify Balso and hold it harmless, upon demand at any time and
from time to time after the date of this Agreement for, from and
against any and all losses, liabilities, claims, demands, damages,
recoveries, lawsuits, deficiencies, penalties, causes of action,
obligations, settlements, fines, disbursements, costs and expenses
(including, without limitation, any interest which may be imposed
pursuant to Article VI of this Agreement or by a court of competent
jurisdiction, in connection therewith or any Legal Expenses)
(collectively, "Claims"), directly or indirectly, arising out of,
relating to, or based upon:
5.1. Any misrepresentation, or breach of any
representation, warranty, covenant or agreement made by Talley or
Waterbury in this Agreement or in any collateral documents
delivered pursuant to this Agreement; or
5.1.2 Any untrue statement of a material fact contained in
any registration statement, prospectus or preliminary prospectus,
or any amendment or supplement thereto, or any omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein (in the case of a prospectus or
preliminary prospectus, in light of the circumstances under which
they are made) complete or not misleading, except insofar as such
losses, liabilities, claims, demands, damages, recoveries,
lawsuits, deficiencies, penalties, causes of action, obligations,
settlements, fines, disbursements, or costs and expenses, arise out
of, relate to, or are based upon an untrue statement or omission
contained in information with respect to Balso furnished to Talley
by or on behalf of Balso.
5.2 Indemnification of Talley. Balso agrees to indemnify Talley
and Waterbury and hold them harmless, upon demand at any time and
from time to time after the date of this Agreement for, from and
against any and all Claims, directly or indirectly, arising out of,
relating to, or based upon:
5.2. Any misrepresentation, or breach of any
representation, warranty, covenant or agreement made by Balso in
this Agreement or in any collateral documents delivered pursuant to
this Agreement; or
5.2.2 Any untrue statement of a material fact contained in
any registration statement, prospectus or preliminary prospectus,
or any amendment or supplement thereto, or any omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein (in the case of a prospectus or
preliminary prospectus, in light of the circumstances under which
they are made) complete or not misleading, but only to the extent
that such losses, liabilities, claims, demands, damages,
recoveries, lawsuits, deficiencies, penalties, causes of action,
obligations, settlements, fines, disbursements, or costs and
expenses, arise out of, relate to, or are based upon an untrue
statement or omission contained in information with respect to
Balso furnished to Talley by or on behalf of Balso.
5.3 Process. Promptly after any person entitled to indemnification
under this Article (an "indemnified party") receives notice of the
commencement of any Claim the indemnified party shall notify the
person that is obligated to provide such indemnification (the
"indemnifying party") thereof in writing, but any failure to so
notify the indemnifying party shall not relieve such party from any
liability that it may have to the indemnified party except to the
extent actually prejudiced by such failure. The indemnifying party
shall be entitled to participate in the defense of such action
brought by any third party and to assume full control of such
defense provided, however, that the indemnifying party selects
counsel reasonably acceptable to the indemnified party (who may be
the same counsel as represents others provided that the interests
of the indemnified party are not materially and adversely affected
by such common representation); provided, however, THAT:
5.3.1 The indemnified party shall be entitled to
participate in the defense of such Claim and to employ counsel at
its own expense to assist in the handling of such Claim;
5.3.2 The indemnifying party shall notify the indemnified
party before entering into any settlement of such Claim or ceasing
to defend against such Claim; and
5.3.3 The indemnifying party shall not be entitled to
control but shall be entitled to participate at its own expense in
the defense of, and the indemnified party shall be entitled to have
sole control over, the defense or settlement of any Claim to the
extent the Claim seeks an order, injunction or other equitable
relief against the indemnified party which, if successful, could
materially interfere with the business, operations, assets,
condition or prospects of the indemnified party.
After written notice by the indemnifying party to the indemnified
party of its election in accordance with the terms of this
Agreement to assume control of the defense of any such action
brought by a third party, the indemnifying party shall not be
liable to such indemnified party hereunder for any legal expenses
subsequently incurred by such indemnified party in connection with
the defense or handling thereof. If the indemnifying party does
not assume control of the defense of such claims as provided in
this Article, the indemnified party shall have the right to defend
such claim in such manner as it may deem appropriate at the cost
and expense of the indemnifying party, and the indemnifying party
will promptly reimburse the indemnified party therefor in
accordance with this Article. The reimbursement of fees, costs and
expenses required by this Article shall be made by periodic
payments during the course of the investigation or defense, as and
when bills are received or expenses incurred. As used in this
Article, "Legal Expenses" of a person shall mean any and all
reasonable fees, costs and expenses of any kind, (including,
without limitation, court costs, counsel fees and attorney fees,
but excluding in-house counsel fees for both parties hereto),
incurred by such person and its counsel in investigating, preparing
for, defending against, or providing evidence, producing documents
or taking other similar action with respect to any threatened or
asserted claim.
5.4 Survival. The obligation to furnish indemnification under this
Article shall not be limited in time.
ARTICLE VI
DISPUTE RESOLUTION
6.1 Negotiation Between Executives. Talley, Waterbury and Balso
shall attempt in good faith to resolve any dispute arising out of
or relating to this Agreement promptly by negotiations between
executives including in-house counsel who have authority to settle
the controversy (subject to board of directors or equivalent
approval, if required). Each party shall promptly give the other
party written notice of any dispute not resolved in the normal
course of business (the "Dispute Notice"). Within 10 business days
after delivery of the Dispute Notice, executives of both parties
shall meet at a mutually acceptable time and place, and thereafter
as often as they reasonably deem necessary, to exchange relevant
information and to attempt to resolve the dispute. If the matter
has not been resolved within 45 business days of the Dispute
Notice, or if the parties fail to meet within 10 business days, any
of the parties may initiate further dispute resolution procedures
as provided hereinafter.
If a party intends to be accompanied at a meeting by an
attorney other than in-house counsel, the other party shall be
given at least three business days' notice of such intention and
may also be accompanied by an attorney. All negotiations pursuant
to this clause are confidential and shall be treated as compromise
and settlement negotiations for purposes of the Federal Rules of
Evidence and state rules of evidence.
6.2 Further Dispute Resolution Procedures.
6.2.1 Appointment of Neutral. If, within 45 business days
after the Dispute Notice, the parties have not succeeded in
negotiating a written resolution of the dispute, (or if the parties
fail to meet within 10 business days after the Dispute Notice),
upon written request by any party to the other party, both parties
will promptly negotiate in good faith to jointly appoint a mutually
acceptable neutral person not affiliated with any of the parties
(the "Neutral"). If all parties so agree in writing, a panel of
two or more individuals (such panel also being referred to as the
"Neutral") may be selected by the parties, or in the absence of an
agreement in selecting the Neutral within sixty (60) days of the
written request for a Neutral, the Neutral shall be an individual
selected by the parties with the assistance of a dispute resolution
service if they have been unable to agree upon such appointment
within 60 days after the Dispute Notice. The fees and costs of the
Neutral and of any such assistance shall be shared equally among
the parties.
6.2.2 Selection of Procedure. In consultation with the
Neutral, the parties will negotiate in good faith to select or
devise a nonbinding, or, if the parties agree, a binding,
alternative dispute resolution procedure ("ADR") by which they will
attempt to resolve the dispute, and a time and place for the ADR to
be held, with the Neutral (at the written request of any party to
the other parties) making the decision as to the procedure
(including allowable discovery procedures, if any,) and/or place
and time if the parties have been unable to agree on any of such
matters in writing within 10 days after the selection of the
Neutral.
6.2.3 Termination of Procedure. The parties agree to
participate in good faith in the ADR to its conclusion; provided,
however, that no party shall be obligated to continue to
participate in the ADR if the parties have not resolved the dispute
in writing within 120 days after the Dispute Notice and any party
shall have terminated the ADR by delivery of written notice of
termination to the other parties following expiration of said 120-
day period. Following any such termination notice after the
expiration of the 120-day period, and if any party so requests in
writing to the Neutral (with a copy to the other parties), then the
Neutral shall make a recommended resolution of the dispute in
writing to each party, which recommendation shall not be binding
upon the parties; provided, however, that the parties shall give
good faith consideration to the settlement of the dispute on the
basis of such recommendation, and if any party thereafter pursues
any other judicial or non-judicial remedy to conclusion, such party
shall pay the reasonable attorneys' fees, costs and other expenses
(including expert witness fees) of the other parties incurred in
connection with the pursuit and achievement of (and defense
against) such remedy, if any, if the result thereof is less
favorable to such pursuing party than the recommendation of the
Neutral.
6.3 Provisional Remedies. Notwithstanding anything herein to the
contrary, any party may seek a temporary restraining order,
preliminary injunction or other interim or provisional judicial
relief if, in its judgment, such action is necessary to avoid
irreparable damage or to preserve the status quo. Despite such
action the parties will continue to participate in good faith in
the procedures specified in this Article. The provisions of this
Article shall be specifically enforceable.
6.4 Secrecy of ADR Proceedings. At the request of any party, ADR
proceedings shall be conducted in the utmost secrecy. In such
case, all documents, testimony and records shall be received, heard
and maintained by the parties and the Neutral in secrecy, available
for inspection only by the parties and by their respective
attorneys and experts who shall agree, in advance and in writing,
to receive all such information in secrecy, to use such information
only for the purpose of the ADR proceedings, and not to disclose
such information to third parties for any other purpose.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Survival of Representations, Warranties and Covenants. Each
and every representation, warranty and covenant of Balso, Waterbury
and Talley contained herein shall survive indefinitely.
7.2 Amendment and Modification. This Agreement may be amended,
modified and supplemented only by written agreement signed by
Balso, Waterbury and Talley.
7.3 Waiver of Compliance. Any failure of Balso, Waterbury or
Talley to comply with any obligation, covenant, agreement or
condition herein may be expressly waived in writing by Balso,
Waterbury or Talley, as the case may be, but such waiver or failure
to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
7.4 Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given if delivered by hand
against receipt, or if telecopied against confirmation of receipt,
or if mailed, certified, express or registered mail, return receipt
requested, with postage prepaid, when received:
7.4.1 If to Balso:
The Ball and Socket Manufacturing Company, Inc.
c/o J. Walter Freiberg, III, Esq.
Weston, Patrick, Willard & Redding
84 State Street
Boston, MA 02109
Fax No.: (617) 742-3187
or to such other person or address as Balso shall furnish to Talley
and Waterbury in writing.
7.4.2 If to Talley:
Mark S. Dickerson, Esq.
Talley Industries, Inc.
2702 N. 44th Street
Phoenix, Arizona 85008
Fax No.: (602) 852-6972
or to such other person or address as Talley shall furnish to Balso
and Waterbury in writing.
7.4.3 If to Waterbury:
Jerry Palanzo
President
Waterbury Companies, Inc.
32 Mattatuck Heights
Waterbury, CT 06705
Fax No.: (203) 755-2798
With a copy to:
Mark S. Dickerson, Esq.
Talley Industries, Inc.
2702 N. 44th Street
Phoenix, Arizona 85008
Fax No.: (602) 852-6972
or to such other person or address as Waterbury shall furnish to
Talley and Balso in writing.
7.5 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by either party without the
prior written consent of the other party, which consent shall not
unreasonably be withheld provided, however, Talley may assign,
without Balso's consent (but only after notice to Balso), any of
its rights, interests or obligations to any of its affiliates.
7.6 Transferability of Stock. The Stock is transferable subject
to the terms and conditions of this Agreement, any applicable
securities laws, the receipt by Talley of an opinion of counsel,
reasonably satisfactory to Talley, stating that the transfer will
not result in a violation of any applicable securities laws and
such other written agreements that Talley may reasonably request
from Balso and/or the transferee to confirm that the transfer
complies with the terms and conditions of this Agreement and
applicable securities laws.
7.7 Governing Law and Choice of Forum. This Agreement and the
legal relations among the parties hereto shall be governed by and
construed in accordance with the laws of the State of Delaware,
without regard to its principles of conflicts of laws and any
dispute resulting from this Agreement shall only be brought in a
state or federal court located in the State of Arizona and the
parties agree to submit to the jurisdiction of such court.
7.8 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
7.9 Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this
Agreement.
7.10 Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto in respect of the
subject matter contained herein, and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
7.11 Construction. This Agreement shall be construed as a whole,
in accordance with its fair meaning, and without regard to or
taking into account any assumption or other rule of law requiring
construction against the party preparing this Agreement.
7.12 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or unenforceability
of any other provision of this Agreement, which shall remain in
full force and effect.
7.13 Further Assurances. The parties hereto shall, at any time and
from time to time after the Closing, upon request by any other
party and without further consideration, take such further actions
and execute such documents as may be reasonably necessary or
advisable to fully consummate the transaction contemplated by this
Agreement or to carry out or perform any obligation of Balso,
Waterbury or Talley hereunder.
7.14 Definitions. As used in this agreement, the following terms
have the respective meanings herein set forth:
"Closing Price" means, for any Trading Day, the last sales
price for one share of Common Stock regular way on such day or, if
no sale of Common Stock took place on such day, the arithmetic
average of the closing bid and asked prices regular way for one
share of Common Stock, in either case as officially quoted on the
New York Stock Exchange or, if different, the principal stock
exchange on which Common Stock is listed or, if Common Stock is not
listed or admitted to trading on any exchange, the average of the
closing bid and asked prices for one share of Common Stock as
furnished by any New York Stock Exchange member firm selected from
time to time by the board of directors of Talley for the purpose
or, if such bid and asked prices are not published, the fair market
value of one share of Common Stock as reasonably and in good faith
determined by the board of directors of Talley for the purpose.
"Trading Day" means a day on which the trading floor of the
New York Stock Exchange is open for general business.
7.15 Anniversary Date. In the event that an anniversary date
falls on a Saturday, Sunday or legal holiday, the anniversary date
for that year shall be extended to the next business day.
7.16 Valuation of Securities and Property. In the event that
the term "Stock" is deemed for purposes of this Agreement to
include any securities and/or other property that are not traded on
the New York Stock Exchange and a valuation of such securities
and/or property is required under this Agreement, then an
appropriate valuation methodology shall be mutually agreed upon by
Talley and Balso.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
"BALSO":
THE BALL AND SOCKET MANUFACTURING
COMPANY, INC., a Delaware
corporation
By: Richard A. Butler, Jr.
Richard A. Butler, Jr.
President
"TALLEY":
TALLEY INDUSTRIES, INC.,
a Delaware corporation
By: Mark S. Dickerson
Mark S. Dickerson
Vice President, General Counsel
and Secretary
"WATERBURY"
WATERBURY COMPANIES, INC.,
a Delaware corporation
By: Gerald J. Palanzo, Jr.
Gerald J. Palanzo, Jr.
President
<PAGE>
EXHIBIT 10.1
EXECUTION
FIRST AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of the 29th day of April, 1994,
by and among TALLEY MANUFACTURING AND TECHNOLOGY, INC., a Dela-
ware 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 here-
tofore entered in a Loan and Security Agreement dated October 22,
1993 (the "Loan Agreement");
WHEREAS, the Borrower has requested that the Lenders and the
Agent agree to amend the Fixed Charge Coverage Ratio and Net
Income Before Taxes covenants set forth in Article 18 of the Loan
Agreement in certain respects; and
WHEREAS, the Lenders and the Agent are willing to so agree,
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and intend-
ing 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. Amendment to Section 18.2. Section 18.2 of the Loan
Agreement is hereby amended to read in its entirety as follows:
18.2 Fixed Charge Coverage Ratio. Borrower shall
cause Borrower's and its Subsidiaries' consolidated Fixed
Charge Coverage Ratio as of the end of each March 31, June
30, September 30 and December 31 for the fiscal year to date
period then ending (commencing with the quarter ending March
31, 1994) to exceed 1.2 to 1, or in the case of each quarter
during the term of this Agreement ending on March 31, to
exceed 1.05 to 1; provided, however, that the Borrower's and
its Subsidiaries' consolidated Fixed Charge Coverage Ratio
as of the end of any such quarter ending in the fiscal year
ending December 31, 1994, shall be computed without taking
into account either (a) the elimination by Borrower of a
reserve in the amount of $5.6 million for potential tax
liability to the State of Arizona in respect of the Arizona
Tax Litigation and (b) the establishment by Borrower of a
reserve in the amount of $4 million for the potential
liability for legal fees and expenses in connection with the
TRW Litigation.
3. Amendment to Section 18.6. Section 18.6 of the Loan
Agreement is hereby amended to read in its entirety as follows:
3.1. Net Income Before Taxes. Borrower will not permit
its Net Income Before Taxes, on a consolidated basis with
the Subsidiaries, (a) for October, November or December 1993
to be less than $0, $500,000 and $1,000,000, respectively,
and (b) at the end of each month thereafter, for the period
from and including the beginning of the fiscal year in which
such month is contained, to the end of such month, to be
less than the amounts indicated below:
Period Cumulative Net Income Before Taxes
January ($250,000)
February $0
March $1,000,000
April $1,000,000
May $1,500,000
June $2,000,000
July $2,000,000
August $2,950,000
September $3,800,000
October $4,400,000
November $5,000,000
December $5,600,000
provided, however, that the amount of such Net Income Before
Taxes as at the end of any such month during the fiscal year
ending December 31, 1994, shall be computed without taking
into account the establishment by Borrower of a reserve in
the amount of $4 million for the potential liability for
legal fees and expenses in connection with the TRW
Litigation.
4. Conditions to Effectiveness. This Amendment shall be
effective as of the date first above written upon satisfaction of
the following conditions precedent:
4.1. Execution of Amendment. The Agent shall have
received counterparts of this Amendment executed by the Borrowers
and the Lenders.
4.2. Confirmation of Loan Documents. Each Subsidiary
shall have executed the Confirmation of Loan Documents set forth
below.
4.3. 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.
4.4. Representations and Warranties True. The repre-
sentations and warranties contained herein, in the Loan Agreement
and in all other Loan Documents shall be true and correct both as
of the date hereof and immediately after giving effect to this
Amendment.
5. 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 per-
formance of this Amendment and the other documents and instru-
ments to be executed and delivered in connection herewith by the
Borrower and its Affiliates, except for those already duly
obtained, (iii) this Amendment has been duly executed by the
Borrower and constitutes the legal, valid and binding obligation
of the Borrower, enforceable against it in accordance with its
terms, (iv) the execution, delivery and performance by the Bor-
rower and its Affiliates of this Amendment and the other docu-
ments 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 consti-
tute a default under, or result in the creation or imposition of
any Lien upon the property of the Borrower or any of its Affili-
ates by reason of the terms of (a) any contract, mortgage, Lien,
lease, agreement, indenture, or instrument to which the Borrower
or such Affiliate is a party or which is binding upon it, (b) any
requirement of law applicable to the Borrower or such Affiliate,
or (c) the Certificate or Articles of Incorporation or By-Laws of
the Borrower or such Affiliate, (v) no event has occurred and is
continuing which constitutes a Default, an Event of Default or a
Subsidiary Event of Default, and (vi) no change or development or
event involving a prospective change, which in any such case has
had or could reasonably be expected to have a Material Adverse
Effect, has occurred and is continuing.
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 refer-
ence to the Loan Agreement as amended hereby.
6.2. Except as specifically amended 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 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 pro-
vision of the Loan Agreement or any of the other Loan Documents.
7. Execution in Counterparts. This Amendment may be exe-
cuted in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
and delivered 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.
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.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly
authorized officers as of the date set forth above.
BORROWER:
TALLEY MANUFACTURING AND TECHNOLOGY,
INC.
By: Daniel R. Mullen
Name: Daniel R. Mullen
Title: Vice President
By: Kenneth May
Name: Kenneth May
Title: Vice President
AGENT:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: Steven R. Fischer
Name: Steven R. Fischer
Title:
LENDERS:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: Steven R. Fischer
Name: Steven R. Fischer
Title:
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO
By: Dennis E. Harrison
Name: Dennis E. Harrison
Title: Vice President
<PAGE>
CONFIRMATION OF LOAN DOCUMENTS
Each of the undersigned hereby acknowledges that the
Loan and Security Agreement, dated October 22, 1993 (as amended
or modified, the "Loan Agreement"), among Talley Manufacturing
and Technology, Inc., a Delaware corporation, Transamerica Busi-
ness Credit Corporation, as agent, and each of the financial
institutions identified on the signature pages thereto is being
amended pursuant to the foregoing First 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 Agree-
ment as modified or amended by the Amendment. Each of the under-
signed further confirms that it is in full compliance with all of
the obligations under the Loan Documents to which it is a party
and that all representations and warranties made by it in such
Loan Documents are true and correct as though made on and as of
the date hereof.
Dated: As of April 29, 1994
AMCAN SPECIALTY STEELS, INC.;
DIMETRICS, INC.; ELECTRODYNAMICS,
INC.; JOHN J. MCMULLEN ASSOCIATES,
INC.; PORCELAIN PRODUCTS CO.; ROWE
INDUSTRIES, INC.; TALLEY AUTOMOTIVE
PRODUCTS, INC.; TALLEY CANADA,
INC.; TALLEY DEFENSE SYSTEMS, INC.;
TALLEY INTERNATIONAL INVESTMENT
CORPORATION; TALLEY METALS
TECHNOLOGY, INC.; TALLEY
TECHNOLOGY, INC.; UNIVERSAL
PROPULSION COMPANY; WATERBURY
COMPANIES, INC.; WDC, INC.
By: Daniel R. Mullen
Name: Daniel R. Mullen
Title: Treasurer
<PAGE>
EXHIBIT 10.2
EXECUTION
SECOND AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of the 30th day of June, 1994, by
and among TALLEY MANUFACTURING AND TECHNOLOGY, INC., a Delaware
corporation (the "Borrower"), TRANSAMERICA BUSINESS CREDIT
CORPORATION, as agent (the "Agent"), and the lenders parties to
the Loan Agreement referred to below (the "Lenders").
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have
heretofore entered in a Loan and Security Agreement dated October
22, 1993 (as heretofore amended, the "Loan Agreement");
WHEREAS, the Borrower, the Agent and the Lenders wish to
enter into this Amendment to clarify certain provisions of the
Loan Agreement and to make certain other changes thereto.
NOW, THEREFORE, in consideration of the premises and
intending to be legally bound hereby, the parties hereto hereby
agree as follows:
1. Definitions. Capitalized terms used herein and not
defined herein shall have the respective meanings given to such
terms in the Loan Agreement.
2. Amendments to Section 1.1.
2.1. The definition of "Revolving Notes" set forth in
Section 1.1 of the Loan Agreement is hereby amended to read in
its entirety as follows:
"Revolving Notes" shall mean those certain promissory
notes of Borrower substantially in the form attached hereto
as Exhibit D-1, issued to TBCC and ANB, as Lenders, in
accordance with their respective Percentage Interests, and
any promissory notes issued in addition thereto or in
replacement thereof pursuant to Section 25.2(e) of this
Agreement (each as amended, supplemented or otherwise
modified from time to time).
2.2. The definition of "Term Notes" set forth in
Section 1.1 of the Loan Agreement is hereby amended to read in
its entirety as follows:
"Term Notes" shall mean those certain promissory notes
of Borrower substantially in the form attached hereto as
Exhibit D-2, issued to TBCC and ANB, as Lenders, in
accordance with their respective Percentage Interests, in
the aggregate initial principal sum of Twenty Million
Dollars ($20,000,000), and any promissory notes issued in
addition thereto or in replacement thereof pursuant to
Section 25.2(e) of this Agreement (each as amended,
supplemented or otherwise modified from time to time).
3. Amendments to Section 25.2(e). Subsection (e) of
Section 25.2 of the Loan Agreement is hereby amended to read in
its entirety as follows:
(e) Upon its receipt of an Assignment and Assumption
Agreement executed by an assigning Lender, together with the
Revolving Note or Revolving Notes and Term Note or Term
Notes subject to such assignment, the Agent shall, if such
Assignment and Assumption Agreement has been completed and
is in substantially the form of Exhibit E hereto, (i) accept
such Assignment and Assumption Agreement, (ii) record the
information contained therein in the Register and (iii) give
prompt notice thereof to the Borrower. Within five (5)
Business Days after its receipt of such notice, the Borrower
shall execute and deliver to the Agent in exchange for the
surrendered Revolving Note or Revolving Notes and Term Note
or Term Notes a new Revolving Note or Revolving Notes and
Term Note or Term Notes to the order of the assignee in an
amount equal to the Percentage Interest assumed by it
pursuant to such Assignment and Assumption Agreement and, if
the assigning Lender has retained a Percentage Interest
hereunder, a new Revolving Note or Revolving Notes and Term
Note or Term Notes to the order of the assigning Lender in
an amount equal to the Percentage Interest retained by it
hereunder. Such new Revolving Note or Revolving Notes and
Term Note or Term Notes shall state that it or they re-
evidence a portion of the Obligations outstanding under the
old Revolving Note or Revolving Notes and Term Note or Term
Notes, shall be in an aggregate principal amount equal to
the aggregate principal amount of such surrendered Revolving
Note or Revolving Notes, shall be in the aggregate principal
amount of such surrendered Term Note or Term Notes
outstanding on the Acceptance Date with a proportionate
apportionment of periodic amortization of principal as is
appropriate to reflect the assignment, shall be dated as of
the Acceptance Date, and shall otherwise be in substantially
the form of the Revolving Note or Revolving Notes and Term
Note or Term Notes subject to such assignments.
4. Exhibit E. The Exhibit E referred to Section 25.2(e)
of the Loan Agreement shall be in the form of Exhibit E attached
hereto.
5. Conditions to Effectiveness. This Amendment shall be
effective as of the date first above written upon satisfaction of
the following conditions precedent:
5.1. Execution of this Amendment. The Agent shall
have received a copy of this Amendment executed by a duly
authorized officer of Borrower and by each Lender.
5.2. Confirmation of Loan Documents. Each Subsidiary
shall have executed the Confirmation of Loan Documents set forth
below.
5.3. 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 the execution, delivery and performance
of this Amendment and the consummation of the transactions
contemplated hereby, certified by the Secretary or an Assistant
Secretary of the Borrower as of 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.
5.4. 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.
5.5. Representations and Warranties True. The
representations and warranties contained herein, in the Loan
Agreement and in all other Loan Documents shall be true and
correct both as of the date hereof and immediately after giving
effect to this Amendment.
5.6. 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 5 have been fulfilled and as to such other
matters as the Agent shall reasonably require.
5.7. 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.
6. 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 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 by
the Borrower and its Affiliates, except for those already duly
obtained, (iii) this Amendment has been duly executed by the
Borrower and constitutes the legal, valid and binding obligation
of the Borrower, enforceable against it in accordance with its
terms, (iv) the execution, delivery and performance by the
Borrower and its Affiliates of this Amendment by the Borrower and
its Affiliates do not and will not conflict with, or constitute a
violation or breach of, or constitute a default under, or result
in the creation or imposition of any Lien upon the property of
the Borrower or any of its Affiliates by reason of the terms of
(a) any contract, mortgage, Lien, lease, agreement, indenture, or
instrument to which the Borrower or such Affiliate is a party or
which is binding upon it, (b) any requirement of law applicable
to the Borrower or such Affiliate, or (c) the Certificate or
Articles of Incorporation or By-Laws of the Borrower or such
Affiliate, (v) no event has occurred and is continuing which
constitutes a Default, an Event of Default or a Subsidiary Event
of Default, and (vi) no change or development or event involving
a prospective change, which in any such case has had or could
reasonably be expected to have a material adverse effect on the
financial condition of the Borrower, the ability of the Borrower
to pay any of the Obligations, or the priority or value of
Agent's and Lenders' security interest in the Collateral or any
collateral under any other Loan Document (including without
limitation, the Airbag Collateral) has occurred and is
continuing.
7. Reference to and Effect on Loan Documents.
7.1. 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 refer-
ence to the Loan Agreement as amended hereby.
7.2. Except as specifically amended above, all of the
terms of the Loan Agreement shall remain unchanged and in full
force and effect.
7.3. The execution, delivery and effectiveness of this
Amendment shall not operate 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
Default, Event of Default or Subsidiary Event of Default, or any
provision of the Loan Agreement or any of the other Loan Docu-
ments.
8. 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.
9. 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.
10. 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.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly
authorized officers as of the date set forth above.
BORROWER:
TALLEY MANUFACTURING AND TECHNOLOGY,
INC.
By: Daniel R. Mullen
Name: Daniel R. Mullen
Title: Treasurer
By: Mark S. Dickerson
Name: Mark S. Dickerson
Title: Secretary
AGENT:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: Stephen K. Goetschius
Name: Stephen K. Goetschius
Title: Vice President
LENDERS:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: Stephen K. Goetschius
Name: Stephen K. Goetschius
Title: Vice President
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO
By: Elizabeth J. Limpert
Name: Elizabeth J. Limpert
Title: Vice President
<PAGE>
CONFIRMATION OF LOAN DOCUMENTS
Each of the undersigned hereby acknowledges that the
Loan and Security Agreement, dated October 22, 1993 (as amended
or modified, the "Loan Agreement"), among Talley Manufacturing
and Technology, Inc., a Delaware corporation, Transamerica
Business Credit Corporation, as agent, and each of the financial
institutions identified on the signature pages thereto is being
amended pursuant to the foregoing Second 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 it is in full compliance with
all of the obligations under the Loan Documents to which it is a
party and that all representations and warranties made by it in
such Loan Documents are true and correct as though made on and as
of the date hereof.
Dated: As of June 30, 1994
AMCAN SPECIALTY STEELS, INC.;
DIMETRICS, INC.; ELECTRODYNAMICS,
INC.; JOHN J. MCMULLEN ASSOCIATES,
INC.; PORCELAIN PRODUCTS CO.; ROWE
INDUSTRIES, INC.; TALLEY AUTOMOTIVE
PRODUCTS, INC.; TALLEY CANADA,
INC.; TALLEY DEFENSE SYSTEMS, INC.;
TALLEY INTERNATIONAL INVESTMENT
CORPORATION; TALLEY METALS
TECHNOLOGY, INC.; TALLEY
TECHNOLOGY, INC.; UNIVERSAL
PROPULSION COMPANY; WATERBURY
COMPANIES, INC.; WDC, INC.
By: Mark S. Dickerson
Name: Mark S. Dickerson
Title: Secretary
<PAGE>
EXHIBIT E
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of ________,
199__, between _________________________, a ______________ (the
"Assignor") and ____________________, a ______________ (the
"Assignee").
PRELIMINARY STATEMENT
Reference is made to the Loan and Security Agreement
dated as of October 22, 1993, as amended (the "Loan Agreement")
among Talley Manufacturing and Technology, Inc., a Delaware
corporation (the "Borrower"), Transamerica Business Credit
Corporation, as agent (the "Agent"), and the lenders party to the
Loan Agreement (the "Lenders"). Terms defined in the Loan
Agreement and not otherwise defined herein shall have the meanings
ascribed to them in the Loan Agreement.
NOW, THEREFORE, the Assignor and the Assignee hereby
agree as follows:
1. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the
Assignor, WITHOUT RECOURSE, as of the Effective Date (as defined
below) a ___% interest in and to all of the Lenders' rights,
obligations and commitments under the Loan Agreement and the other
Loan Documents [, including, without limitation, the Loan as in
effect on the Effective Date, the Revolving Note (the "Original
Revolving Note") held by the Assignor and the Term Note (the
"Original Term Note") held by the Assignor and the Assignor's
commitments and obligations in respect thereof on the Effective
Date)] [with respect to _______________________].
2. The Assignor (i) represents and warrants that as of
the date hereof (and without giving effect to assignments which
have not yet become effective) the aggregate outstanding principal
amount of [Revolving Loans owing to it is $__________, the
aggregate outstanding principal amount of Term Loans owing to it is
$__________, and the aggregate outstanding principal amount of
Letter of Credit Obligations owing to it is $___________]; (ii)
represents and warrants that it is the legal and beneficial owner
of the interest being assigned by it hereunder and that such
interest is being assigned by it hereunder and that such interest
is free and clear of any adverse claim; [(iii) attaches the
Original Revolving Note and requests that the Agent exchange the
Original Revolving Note for new replacement Revolving Notes as
follows: a Revolving Note dated the Effective Date in the
principal amount of $__________, payable to the order of the
Assignor, and a Revolving Note dated the Effective Date in the
principal amount of $__________, payable to the order of the
Assignee;] [and (iv) attaches the Original Term Note and requests
that the Agent exchange the Original Term Note for new replacement
Term Notes as follows: a Term Note dated the Effective Date in the
principal amount of $__________, payable to the order of the
Assignor, and a Term Note dated the Effective Date in the principal
amount of $__________, payable to the order of the Assignee]. [As
used herein, "Letter of Credit Obligations" means, as of the date
hereof in respect of any Letter of Credit, the sum of (i) the
amount available to be drawn under such Letter of Credit plus (ii)
the aggregate unpaid amount of all obligations of the Borrower then
outstanding, or which may thereafter arise in respect of Letters of
Credit then outstanding, under Section 2.3 of the Loan Agreement,
to reimburse the Agent and/or any Lender for payments made by the
Agent or any Lender in connection with the guaranty or facilitation
by the Agent or any Lender of Letters of Credit, to issuers of
Letters of Credit with respect to amounts which have been drawn
under such Letters of Credit.]
3. Upon the execution of this Assignment and Assumption
Agreement by the Assignor and the Assignee and the acceptance
hereof by the Agent, from and after the date specified herein as
the Effective Date (x) the Assignee hereunder shall be a party to
the Loan Agreement and the other Loan Documents, and, to the extent
that rights and obligations under the Loan Agreement and the other
Loan Documents have been assigned to it pursuant to this Assignment
and Assumption Agreement, the Assignee shall have the rights and
obligations of a Lender thereunder and (y) the Assignor hereunder
shall, to the extent that rights and obligations under the Loan
Agreement and the other Loan Documents have been assigned by it
pursuant to this Assignment and Assumption Agreement, relinquish
its rights (other than any rights it may have pursuant to Section
25.17 of the Loan Agreement which will survive) and be released
from its obligations under the Loan Agreement and the other Loan
Documents [(and, in the case of an Assignment and Assumption
Agreement covering all or the remaining portion of an Assignor's
rights and obligations under the Loan Agreement and the other Loan
Documents, such Lender shall cease to be a party thereto)].
Following the execution of this Assignment and Assumption
Agreement, it will be delivered to the Agent for acceptance and
recording in the Register by the Agent. This Assignment and
Assumption Agreement shall become effective on [the date (the
"Effective Date") the same is accepted by the Agent] [_______,
19__ (the "Effective Date"), provided the Agent, in its sole
discretion, shall have consented to and accepted this Assignment
and Assumption Agreement and thereby consented to such Effective
Date].
4. By executing and delivering this Assignment and
Assumption Agreement, the Assignee hereunder confirms and agrees as
follows: (i) other than as provided in this Assignment and
Assumption Agreement, the Assignor makes no representation or
warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection
with the Loan Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan
Agreement, the Loan Documents, the Airbag Collateral Security
Agreement, or any instrument or document furnished pursuant
thereto, or the validity, enforceability, perfection, priority,
value, condition or sufficiency of any collateral or security
purporting to secure the Obligations, (ii) the Assignor makes no
representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or any
Subsidiary or the performance or observance by the Borrower or any
Subsidiary of any of its obligations under the Loan Agreement or
any other instrument or document furnished pursuant thereto, (iii)
the Assignee confirms that it has received a copy of the Loan
Agreement, and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to
enter into this Assignment and Assumption Agreement, (iv) the
Assignee has independently and without reliance upon the Agent, the
Assignor or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under
the Loan Agreement, (v) the Assignee appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise
such powers under the Loan Agreement as are delegated to the Agent
by the terms thereof, together with such powers as are reasonably
incidental thereto and (vi) the Assignee agrees that it will
perform in accordance with their terms all of the obligations which
by the terms of the Loan Agreement are required to be performed by
it as a Lender, (vii) specifies as its address for notices to be
given hereunder, under the Loan Agreement or any other Loan
Document furnished pursuant thereto, the address set forth beneath
its name on the signature page hereof.
5. From and after the Effective Date, the Agent shall
make all payments under the Loan Agreement in respect of the
interest assigned hereunder (including, without limitation, all
payments of principal, interest and fees with respect thereto) to
the Assignee. The Assignor and Assignee shall make all appropriate
arrangements for payment for the assignment contemplated hereby and
for adjustments in payments under the Loan Agreement for periods
prior to the Effective Date directly between themselves.
6. This Assignment and Assumption Agreement shall be
governed by, and construed in accordance with, the laws of the
State of New York.
7. This Assignment and Assumption Agreement may be
executed in any number of counterparts which, when taken together,
shall be deemed one and the same instrument.
[NAME OF ASSIGNOR]
By: ________________________
Title
[NAME OF ASSIGNEE]
By: _________________________
Title
Address
___________________________
___________________________
___________________________
___________________________
___________________________
Accepted this ____ day
of _____________, 19__
TRANSAMERICA BUSINESS CREDIT CORPORATION,
as Agent
By: _______________________
Title
<PAGE>
EXHIBIT 11
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Common
and Common Equivalent Share
(thousands, except per share amounts)
1 9 9 4 1 9 9 3
Fully Fully
Primary Diluted Primary Diluted
Three months ended June 30:
Net earnings (loss) $ 722 $ 722 $ (524) $ (524)
Preferred stock dividend (542) (542) (542) (542)
Net income (loss) $ 180 $ 180 $(1,066) $(1,066)
Average common shares
outstanding during period 10,023 10,023 9,659 9,659
Shares for computation 10,023 10,023 9,659 9,659
Net earnings (loss) per
share $ .02 $ .02 $(.11) $(.11)
Six months ended June 30:
Net earnings (loss) $ 216 $ 216 $(1,595) $(1,595)
Preferred stock dividend (1,084) (1,084) (1,084) (1,084)
Net loss $ (868) $ (868) $(2,679) $(2,679)
Average common shares
outstanding during period 10,020 10,020 9,634 9,634
Shares for computation 10,020 10,020 9,634 9,634
Net loss per share $ (.09) $ (.09) $(.28) $(.28)
