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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 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 March 31, 1996
$1.00 par value 11,959,501
<PAGE>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Consolidated Balance Sheet -
March 31, 1996 and December 31, 1995 1
Consolidated Statement of Operations -
Three Months Ended March 31, 1996 and 1995 2
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995 3
Consolidated Statement of Changes in Stockholders'
Equity - Three Months Ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-7
Management's Discussion and Analysis 8-14
Part II Other Information
Legal Proceedings 15-16
Defaults Upon Senior Securities 16
Exhibits and Reports on Form 8-K 16-17
Signatures 18
<PAGE>
PART I - FINANCIAL INFORMATION
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(thousands)
March 31, December 31,
1996 1995
ASSETS --------- ------------
Cash and cash equivalents $ 9,607 $ 10,475
Accounts receivable, net of allowance
for doubtful accounts of $1,331
at March 31, 1996 and $1,275
at December 31, 1995 69,918 69,453
Inventories, net 74,252 67,191
Deferred income taxes 1,200 1,200
Prepaid expenses 8,646 8,296
-------- --------
Current assets 163,623 156,615
Realty assets 103,745 104,964
Long-term receivables 10,827 10,113
Property, plant and equipment, net 48,763 48,760
Intangibles 47,119 43,969
Other assets 7,842 8,178
-------- --------
Total assets $381,919 $372,599
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt $ 3,644 $ 3,734
Current maturities of realty debt 1,548 2,155
Accounts payable 28,457 22,473
Accrued expenses 32,508 32,851
-------- --------
Current liabilities 66,157 61,213
Long-term debt 230,050 227,736
Long-term realty debt 7,961 7,980
Deferred income taxes 8,638 7,437
Other liabilities 9,048 9,899
Stockholders' equity:
Preferred stock, $1 par value,
authorized 5,000,000 shares:
Series A 67 67
Series B 1,548 1,548
Series D - 120
Common stock, $1 par value,
authorized 20,000,000 shares 11,959 10,053
Capital in excess of par value 84,036 86,035
Foreign currency translation adjustment (502) (530)
Accumulated deficit (37,043) (38,959)
-------- --------
Total stockholders' equity 60,065 58,334
-------- --------
Total liabilities and
stockholders' equity $381,919 $372,599
======== ========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(thousands, except per share amounts)
Three Months
Ended
March 31,
-----------------
1996 1995
------- -------
Sales $72,742 $67,666
Services 14,920 14,475
Royalties 7,465 6,568
------- -------
95,127 88,709
------- -------
Cost of sales 55,378 50,610
Cost of services 13,021 12,616
Selling, general, and administrative expenses 16,119 13,825
Provision for reserve on realty assets - 7,000
------- -------
84,518 84,051
------- -------
Earnings from operations 10,609 4,658
Other expense, net (952) (660)
------- -------
9,657 3,998
------- -------
Interest expense 7,181 7,012
------- -------
Earnings (loss) before income taxes and
extraordinary gain 2,476 (3,014)
Income tax provision 560 873
------- -------
Earnings (loss) before extraordinary gain 1,916 (3,887)
Extraordinary gain - 7,261
------- -------
Net earnings $ 1,916 $ 3,374
======= =======
Earnings (loss) applicable to common shares $(3,196) $ 2,834
======== =======
Earnings (loss) per share of common
stock and common stock equivalents:
Earnings (Loss) before extraordinary gain $ .13 $ (.28)
Extraordinary gain - .52
------- -------
Net earnings before consideration for
induced conversion of preferred stock .13 .24
Assumed value of conversion inducement (.42) -
------- -------
Earnings (loss) applicable to common shares $ (.29) $ .24
======= =======
The accompanying notes are an integral part of the financial statements.
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<PAGE>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(thousands)
Three Months Ended
March 31,
-------------------
1996 1995
-------- --------
Cash and cash equivalents at beginning of year $ 10,475 $ 13,002
-------- --------
Cash flows from operating activities:
Net earnings 1,916 3,374
Adjustments to reconcile net income
to cash flows from operating activities:
Change in deferred income taxes 1,201 -
Depreciation and amortization 2,200 2,188
Original issue discount amortization on
debentures 2,713 2,409
Gain on sale of property and equipment (38) -
Extraordinary gain - (7,261)
Provision reserve for realty assets - 7,000
Other 97 415
Changes in assets and liabilities, net of
effects from acquired businesses:
Increase in accounts receivable (983) (5,420)
Increase in inventories (7,061) (4,590)
(Increase) decrease in prepaid expenses (465) 417
Decrease in realty assets 1,854 820
Increase (decrease) in accounts payable 5,984 (1,985)
Increase (decrease) in accrued expenses (937) 2,960
Decrease in other liabilities (461) (1,093)
Other, net (16) -
------ --------
Cash flows from operating activities 6,004 (766)
Cash flows from investing activities:
Purchase of assets of acquired business (3,876) -
Purchases of property and equipment (1,466) (1,238)
Reduction of long-term receivables 278 54
Increase in long-term receivables (474) -
Proceeds from sale of property and equipment 52 29
-------- --------
Cash flows from investing activities (5,486) (1,155)
Cash flows from financing activities:
Preferred stock conversion cost (213) -
Repayment of long-term debt (120,774) (108,938)
Repayment of realty debt (684) (4,136)
Proceeds from new long-term debt 120,285 111,268
-------- --------
Cash flows from financing activities (1,386) (1,806)
Net decrease in cash and cash equivalents (868) (3,727)
-------- --------
Total cash and cash equivalents at March 31 $ 9,607 $ 9,275
======== ========
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended March 31, 1996 and 1995
(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, 1994 $ 71 $1,548 $ 120 $10,047 $86,026 $ - $(56,923)
Net earnings 3,374
Conversion to Common stock (4) 4
------ ------ ------ ------- ------- ------ --------
BALANCE AT MARCH 31, 1995 $ 67 $1,548 $ 120 $10,051 $86,026 $ - $(53,549)
====== ====== ====== ======= ======= ====== ========
BALANCE AT DECEMBER 31, 1995 $ 67 $1,548 $ 120 $10,053 $86,035 $ - $(38,959)
Net earnings 1,916
Conversion to Common Stock (120) 1,906 (1,999)
------ ------ ------ ------- ------- ------ --------
BALANCE AT MARCH 31, 1996 $ 67 $1,548 $ - $11,959 $84,036 $ - $(37,043)
====== ====== ====== ======= ======= ====== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<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 March 31, 1996 and December 31,
1995 and the results of operations for the three-month period, and
cash flows and changes in stockholders' equity for the three-month
period ended March 31, 1996 and 1995. Such results, however, may
not be indicative of the results for the full year.
For additional information regarding significant accounting
policies, and accounting matters applicable to the Company,
reference should be made to the Company's Annual Report to
Shareholders for the year ended December 31, 1995.
Note 2 - Inventories
Inventories are summarized as follows (in thousands):
March 31, December 31,
1996 1995
--------- -----------
Raw materials and supplies $14,886 $11,878
Work-in-process 13,166 11,222
Finished goods 28,893 28,955
Inventories applicable to
government contracts 17,307 15,136
------- -------
$74,252 $67,191
======= =======
Note 3 - Earnings Per Share
Earnings per share of Common stock and Common stock equivalents has
been computed on the basis of the average number of Common shares
outstanding during each period. The average number of shares has
been adjusted for assumed exercise at the beginning of the period
(or date of grant, if later) for any dilutive stock options, with
funds obtained thereby used to purchase shares of the Company's
Common stock at the average price during the period, and assumed
conversion of all dilutive convertible preferred stock. Common
stock equivalents that are anti-dilutive are excluded from the
computation of earnings per share and earnings are reduced by the
dividend requirements on such equivalents.
-5-
<PAGE>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Acquisition
In January 1996, a subsidiary of the Company acquired certain
assets of a manufacturer of a silicone wire product line. The
final cash purchase price of this product line was approximately
$3.9 million.
Note 5 - Extraordinary Gain
During the first quarter of 1995, the Company realized a net gain
of $7,261,000 from the retirement of realty debt. The gain
represents the difference between the value of the debt recorded on
the books of the Company and the consideration given and costs
incurred to settle the obligations. Due to the Company's net
operating tax loss position, there is no tax provision in
connection with the gain.
Note 6 - Preferred Stock Conversions
On February 16, 1996, the Company issued 1,905,849 shares of Talley
Common Stock in connection with the conversion of all of the
Company's Series D Preferred Stock, 702,919 more shares than
originally designated. The conversion automatically extinguished
all unpaid dividends on that stock, totaling approximately $2.6
million as of December 31, 1995.
On April 22, 1996, pursuant to a conversion offer with respect to
the Company's Series B and Series A Preferred Stock, approximately
798,000 shares or approximately 52% of the outstanding shares of
Series B and approximately 53,000 shares or approximately 79% of
the Series A were converted to Common Stock. Series B holders who
converted received 2.5 shares of Common Stock for each outstanding
Series B share. Series A holders who converted received 2.0 shares
of Common Stock for each outstanding Series A share. Common Stock
issued of approximately 1,995,000 shares in connection with the
conversion of the Series B Preferred Stock and approximately
106,000 in connection with the conversion of the Series A Preferred
Stock was approximately 948,000 and 56,000 more shares than
issuable under the original conversion terms of the respective
series of preferred stock. Prior to the conversion there were
approximately 1,548,000 shares of Series B outstanding and 67,000
shares of Series A outstanding. The conversion automatically
extinguishes all unpaid dividends on the Series B and Series A
shares that were converted totaling approximately $4.0 million ($5
per share) on the Series B Preferred Stock and totaling
approximately $0.3 million ($5.50 per share) on the Series A
Preferred Stock at March 31, 1996.
-6-
<PAGE>
The transactions do not impact the net earnings of the Company, but
"earnings applicable to common shares (after deduction of preferred
stock dividends)," as supplementally disclosed by the Company, and
the "earnings per share of common stock and common equivalent
share" have been, or will be reduced. The excess of the fair value
of the common shares transferred in the transactions by the Company
to the shareholders over the fair value of the common shares
issuable pursuant to the original conversion terms have been, or
will be subtracted from net earnings in the calculations of net
earnings available to common shareholders and earnings per share.
During the quarter ended March 31, 1996 earnings available for
Common shareholders in the calculation of earnings per share were
reduced by $4,639,000 in connection with the conversion of the
Series D Preferred Stock.
-7-
<PAGE>
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
Ended
March 31,
----------------------
1996 1995
REVENUES: --------- ---------
Government Products and Services $ 31,619 $ 30,819
Airbag Royalties 7,250 6,276
Industrial Products 48,650 43,420
Specialty Products 6,315 7,131
Realty 1,293 1,063
-------- --------
$ 95,127 $ 88,709
======== ========
OPERATING INCOME:
Government Products and Services $ 2,037 $ 1,288
Airbag Royalties 7,250 6,276
Industrial Products 5,662 6,296
Specialty Products (85) 826
Realty (1,119) (8,018)
-------- --------
Total operating income 13,745 6,668
Corporate expense (4,204) (2,814)
Non-segment interest income 116 144
Interest expense (7,181) (7,012)
-------- --------
Earnings (loss) before income taxes and
extraordinary gain $ 2,476 $ (3,014)
======== ========
Revenues for the three-month period ended March 31, 1996 increased
$6.4 million from $88.7 million to $95.1 million, compared with the
corresponding period in the prior year. The increase is primarily
the result of continued strong demand in the stainless steel
market. These increases were partially offset by a decrease in
revenue in the Specialty Products segment. Earnings before income
taxes and extraordinary gain for the three months ended March 31,
1996 was $2.5 million compared with $3.0 million loss in the first
three months of the previous year. The earnings in the first
three months of 1995 were reduced by a $7.0 million provision for
reserve on realty assets resulting from the decision to sell a
property in bulk rather than to pursue parcel sales over the next
several years.
-8-
<PAGE>
Net earnings for the three months ended March 31, 1996 and 1995
were $1.9 million and $3.4 million, respectively. Net earnings for
the three months ended March 31, 1995 includes an extraordinary
gain of $7.3 million from the retirement of real estate debt for
less than book value.
Operating income from both the Government Products and Services
segment and the Airbag Royalty segment improved compared with the
prior year. Operating income from the Government Products and
Services segment increased $0.7 million from $1.3 million to $2.0
million, while royalties in the Airbag Royalty segment increased by
$1.0 million from $6.3 million in the first three months of 1995 to
$7.3 million for the first three months of 1996. Operating income
from the Industrial Products segment for the three months ended
March 31, 1996, when compared with the first three months of 1995,
was $0.6 million lower, while operating income from the Company's
Specialty Products segment decreased $0.9 million. Losses in the
Realty segment decreased by $6.9 million for the first three months
of 1996, when compared with the prior year, mainly due to a $7.0
million provision for reserve on realty assets recorded in the
first quarter of 1995.
The gross profit percentage, excluding airbag royalties and the
provision for reserve on realty assets, of 22.2%, for the three
months ended March 31, 1996 was down slightly from the gross profit
percentage of 23.3% for the comparable period in 1995. The slight
decrease from the prior year is primarily due to lower margins on
sales made by the Company's stainless steel distributors, as prices
moderated following the substantial increases experienced in the
first quarter of the prior year.
Government Products and Services. Revenue and operating income
for the three months ended March 31, 1996 increased slightly by
$0.8 million and $0.7 million, respectively, when compared with the
same period in the prior year. Results in the first quarter of
1995 were adversely impacted by losses, or low margins, on certain
contracts.
Airbag Royalties. Revenue from airbag royalties increased from
$6.3 million in the first three months of 1995 to $7.3 million in
the comparable three months of 1996. The increased royalty is
primarily the result of increasing airbag implementation rates,
both in terms of the number of vehicles containing airbags and the
number of airbags installed in a given vehicle. (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 three-month period ended March 31,
1996, Industrial Products sales increased $5.2 million while
operating income decreased $0.6 million, when compared with the
same period in 1995. Increases in sales resulted from increased
orders for stainless steel bars and rods and increased demand for
ceramic insulator products, while decreases in operating income are
due to slightly lower selling prices and lower margins for
stainless steel, particularly for the Company's stainless steel
distributor subsidiaries.
-9-
<PAGE>
Specialty Products. During the first three months of 1996, sales
for the Specialty Products segment decreased 11%, from $7.1 million
to $6.3 million, while operating income decreased $0.9 million when
compared to the same period in 1995. The decrease in sales is
primarily a result of lower button sales caused by the slow-down in
the apparel industry and the effect of the prolonged winter on
insecticide sales.
Realty. Sales of real estate during the three months ended March
31, 1996 were $1.3 million compared with $1.1 million for the
comparable period in 1995. The operating loss decreased from $8.0
million in the first three months of 1995 to $1.1 million in the
first three months of 1996, due primarily to a $7.0 million
provision for reserve on realty assets in the prior year, resulting
from the decision to sell a property in bulk rather than to pursue
parcel sales over the next several years.
Other. Interest expense for the three months ended March 31, 1996
increased slightly to $7.2 million, from $7.0 million in the
comparable period in 1995. Corporate overhead for 1996 and 1995 is
above historical levels due to high litigation costs incurred in
connection with the airbag Asset Purchase Agreement and License
Agreement. The overhead expenses increased in the first three
months of 1996 from $2.8 million to $4.2 million when compared with
the comparable period in 1995. The income tax provision for the
first three months of 1996 was $0.6 million compared to $0.9
million in the comparable period in 1995. Due to unrecognized
federal tax carryforward benefits, primarily the result of losses
in the Company's real estate segment, the Company has no Federal
tax provision in 1995 or 1996. The tax provision in 1995 and 1996
is provided for foreign and state jurisdictions.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
At March 31, 1996, the Company had $9.6 million in cash and cash
equivalents and net working capital of $97.5 million. Cash
generated from operating activities for the three months ended
March 31, 1996 was $6.0 million. The amount primarily reflects
cash generated from earnings, an increase in accounts payable and
a reduction in realty assets, offset in part by cash used as a
result of an increase in inventories. Cash used in operations
during the three months of 1995 was $0.8 million. Cash used in
investing activities during the three months ended March 31, 1996
was $5.5 million, consisting primarily of purchase of assets of a
product line and capital expenditures. Cash used in financing
activities of $1.4 million reflects a reduction in realty debt and
a decrease in the Company's revolving debt facility.
In October 1993, the Company 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 a wholly owned subsidiary of the Company, Talley
Manufacturing and Technology, Inc. ("Talley Manufacturing"). In
connection with this refinancing, Talley Manufacturing obtained a
secured credit facility with institutional lenders.
-10-
<PAGE>
Borrowings under the secured credit facility may not exceed the
collateral base as defined in the governing credit agreement. The
facility consists of a five-year revolving credit facility of up to
$40.0 million and a five-year $20.0 million term loan facility.
At March 31, 1996 availability under the total facility was
approximately $48.3 million, of which approximately $26.7 million
was borrowed. Upon the occurrence of certain specified events, at
any time following the third anniversary of the secured credit
facility, the agent thereunder may elect to terminate the facility.
The Company anticipates that the present capital structure will
support the long-term growth of the Company's core businesses and
permit the implementation of its strategy to use proceeds received
from TRW, on account of TRW's airbag royalty obligation, and from
the sale of the assets of its real estate operations to reduce the
Company's 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, the
Company will be dependent primarily upon distributions from those
subsidiaries in order to meet its debt service and other
obligations. The Company 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 disposition of the Company's real estate
assets. The Company is required to use certain funds received from
Talley Manufacturing and certain funds from real estate sales to
make offers to redeem certain indebtedness of the Company. Because
the cash available to the Company is required to be used for these
specific purposes, and because certain debt covenants limit the
Company's ability to incur additional indebtedness, the Company
will be 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, the Company
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 the
Company to make cash payments of interest on its Discount
Debentures until April 15, 1999, the Company believes that funds
will be available in sufficient amounts, and at the required times,
to permit the Company to meet its obligations.
The Company has commenced an offer to repurchase up to $17.3
million aggregate principal amount ($12.9 million accreted value)
of its Senior Discount Debentures. The Company is obligated to
make this offer at this time and in this amount pursuant to the
terms of the Senior Discount Debentures. The amount of this offer
-11-
<PAGE>
is based upon Excess Airbag Royalties (as that term is defined in
the Senior Discount Debentures), and a portion of certain real
estate sales. The aggregate purchase price for these debentures
will be $14.4 million, which includes a prepayment premium and
accrued interest. If this repurchase offer is fully subscribed,
the payment to the bondholders will represent a reduction of
approximately 14 percent of the total accreted value, which was
approximately $94 million at March 31, 1996. Funds for the
repurchase will be available under the Company's revolving credit
facility and cash on hand.
Other Matters
- -------------
Litigation
- ----------
On June 27, 1995, the federal district court for the District of
Arizona entered judgment against TRW Inc. in favor of the Company
in TRW Inc. vs. Talley Industries, Inc. et al. The court dismissed
all claims asserted by TRW against the Company while the jury
reached a verdict in favor of the Company on its counterclaims
against TRW, awarding the Company a total of $138 million. The
award (which is in addition to (i) royalty payments of $24.4
million paid prior to the judgment pursuant to a preliminary
injunction order, and (ii) the court's January 26, 1996 award of
$7.1 million for attorneys' fees and recoverable costs relating to
this litigation) represents the jury's determination of the present
value of the royalties that would otherwise have been paid to the
Company by TRW for the period from April 1995 through April 2001.
The litigation in which this judgment was entered arose out of the
Asset Purchase Agreement dated February 4, 1989 and the License
Agreement dated April 21, 1989, between TRW and the Company
pursuant to which TRW acquired the Company's airbag business. The
court dismissed TRW's claims that the Company had breached a non-
compete provision contained in the Asset Purchase Agreement,
thereby entitling TRW to terminate airbag royalty payments to the
Company under the License Agreement (which it purported to do in
February 1994) and obtain a paid-up license to use the Company's
airbag technology. The jury found in fact that TRW had improperly
terminated and repudiated the License Agreement. TRW has filed an
appeal of the judgment to the Ninth Circuit Court of Appeals, on
which oral argument was heard on February 14, 1996. TRW has also
filed a notice of appeal from the district court's award of
attorneys' fees and expenses.
On July 26, 1995 the district court granted a stay of enforcement
of the judgment pending appeal upon the posting by TRW of a $175
million bond and the continuation of quarterly payments to the
Company in the amount of royalties that otherwise would be due
under the License Agreement. Upon affirmation of the judgment on
appeal, TRW would be required to pay the judgment plus interest
(which the court ruled will accrue from June 27, 1995 at the rate
-12-
<PAGE>
specified by the 1989 License Agreement - i.e., prime plus five
percent), offset by the continued quarterly payments made in the
interim as ordered by the court. TRW has sought and the Court of
Appeals has denied emergency review of the district court's order
requiring the continued quarterly payments pending appeal. The
denial of emergency relief by the Court of Appeals is without
prejudice to TRW's appeal from the district court's order.
Certain other claims asserted by TRW and the Company against each
other are the subject of a separate action which remains pending.
In that action, TRW has challenged certain representations by the
Company that the airbag manufacturing plant sold to TRW by the
Company in 1989 met applicable government requirements, and that
the associated real estate was sufficient to permit construction of
certain additional facilities. The Company's claims against TRW
include claims that TRW failed to properly exploit the license
granted to TRW by the Company in 1989 and denied the Company
certain contractually provided audit rights. It is currently
anticipated that these remaining claims will come to trial in 1996.
Management anticipates that the above-described claims will be
resolved without any material adverse impact on the results of
operations or financial position of the Company.
Preferred Share Purchase Rights Plan Amendment
- ----------------------------------------------
In February 1996, the Company amended its existing Preferred Share
Purchase Rights Plan. The Rights were originally issued ten years
ago, in April 1986, and were scheduled to expire in April 1996.
The amendment extends the term of the Rights and updates the Rights
to contain provisions comparable to the rights presently held by
shareholders in many other publicly held American companies. As
before, the Rights are not exercisable presently and are not
transferable apart from the common stock; the Rights will become
exercisable and trade separately from the common stock only in
certain circumstances when the possibility of an abusive or unfair
takeover of the Company arises. The Rights may be redeemed by the
Company's Board of Directors at any time before they become
exercisable.
Preferred Stock Conversions
- ---------------------------
On February 16, 1996, the Company issued 1,905,849 shares of Talley
Common Stock in connection with the conversion of all of the
Company's Series D Preferred Stock, 702,919 more shares than
originally designated. The conversion automatically extinguished
all unpaid dividends on that stock, totaling approximately $2.6
million as of December 31, 1995.
On April 22, 1996, pursuant to a conversion offer with respect to
the Company's Series B and Series A Preferred Stock, approximately
798,000 shares or approximately 52% of the outstanding shares of
-13-
<PAGE>
Series B and approximately 53,000 shares or approximately 79% of
the Series A were converted to Common Stock. Series B holders who
converted received 2.5 shares of Common Stock for each outstanding
Series B share. Series A holders who converted received 2.0 shares
of Common Stock for each outstanding Series A share. Common Stock
issued of approximately 1,995,000 shares in connection with the
conversion of the Series B Preferred Stock and approximately
106,000 in connection with the conversion of the Series A Preferred
Stock was approximately 948,000 and 56,000 more shares than
issuable under the original conversion terms of the respective
series of preferred stock. Prior to the conversion there were
approximately 1,548,000 shares of Series B outstanding and 67,000
shares of Series A outstanding. The conversion automatically
extinguishes all unpaid dividends on the Series B and Series A
shares that were converted totaling approximately $4.0 million
($5 per share) on the Series B Preferred Stock and totaling
approximately $0.3 million ($5.50 per share) on the Series A
Preferred Stock at March 31, 1996.
The transactions do not impact the net earnings of the Company, but
"earnings applicable to common shares (after deduction of preferred
stock dividends)," as supplementally disclosed by the Company, and
the "earnings per share of common stock and common equivalent
share" have been, or will be reduced. The excess of the fair value
of the common shares transferred in the transactions by the Company
to the shareholders over the fair value of the common shares
issuable pursuant to the original conversion terms have been, or
will be subtracted from net earnings in the calculations of net
earnings available to common shareholders and earnings per share.
During the quarter ended March 31, 1996 earnings available for
Common shareholders in the calculation of earnings per share were
reduced by $4,639,000 in connection with the conversion of the
Series D Preferred Stock.
Recently Issued Accounting Standards
- ------------------------------------
On January 1, 1996 the Company adopted Statement of Financial
Accounting Standards No.121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of," which is
effective for fiscal years beginning after December 15, 1995. The
application of this Statement requires the Company to carry real
estate projects that are substantially complete and ready for their
intended use at the lower of cost or fair value, less cost to sell.
If the sum of the expected future net cash flow (undiscounted and
without interest charges) is less than the carrying amount of
projects that are not substantially complete and ready for their
intended use, an impairment loss would be recognized. The Company,
consistent with existing generally accepted accounting principles,
currently states the majority of its land and land under
development at the lower of cost or net realizable value. No
adjustments were required in the carrying value of the Company's
real estate assets upon adoption of this pronouncement.
-14-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 27, 1995, the federal district court for the District of
Arizona entered judgment against TRW Inc. in favor of the Company
in TRW Inc. vs. Talley Industries, Inc. et al. The court dismissed
all claims asserted by TRW against the Company while the jury
reached a verdict in favor of the Company on its counterclaims
against TRW, awarding the Company a total of $138 million. The
award (which is in addition to (i) royalty payments of $24.4
million paid prior to the judgment pursuant to a preliminary
injunction order, and (ii) the court's January 26, 1996 award of
$7.1 million for attorneys' fees and recoverable costs relating to
this litigation) represents the jury's determination of the present
value of the royalties that would otherwise have been paid to the
Company by TRW for the period from April 1995 through April 2001.
The litigation in which this judgment was entered arose out of the
Asset Purchase Agreement dated February 4, 1989 and the License
Agreement dated April 21, 1989, between TRW and the Company
pursuant to which TRW acquired the Company's airbag business. The
court dismissed TRW's claims that the Company had breached a non-
compete provision contained in the Asset Purchase Agreement,
thereby entitling TRW to terminate airbag royalty payments to the
Company under the License Agreement (which it purported to do in
February 1994) and obtain a paid-up license to use the Company's
airbag technology. The jury found in fact that TRW had improperly
terminated and repudiated the License Agreement. TRW has filed an
appeal of the judgment to the Ninth Circuit Court of Appeals, on
which oral argument was heard on February 14, 1996. TRW has also
filed a notice of appeal from the district court's award of
attorneys' fees and expenses.
On July 26, 1995 the district court granted a stay of enforcement
of the judgment pending appeal upon the posting by TRW of a $175
million bond and the continuation of quarterly payments to the
Company in the amount of royalties that otherwise would be due
under the License Agreement. Upon affirmation of the judgment on
appeal, TRW would be required to pay the judgment plus interest
(which the court ruled will accrue from June 27, 1995 at the rate
specified by the 1989 License Agreement - i.e., prime plus five
percent), offset by the continued quarterly payments made in the
interim as ordered by the court. TRW has sought and the Court of
Appeals has denied emergency review of the district court's order
requiring the continued quarterly payments pending appeal. The
denial of emergency relief by the Court of Appeals is without
prejudice to TRW's appeal from the district court's order.
-15-
<PAGE>
Certain other claims asserted by TRW and the Company against each
other are the subject of a separate action which remains pending.
In that action, TRW has challenged certain representations by the
Company that the airbag manufacturing plant sold to TRW by the
Company in 1989 met applicable government requirements, and that
the associated real estate was sufficient to permit construction
of certain additional facilities. The Company's claims against TRW
include claims that TRW failed to properly exploit the license
granted to TRW by the Company in 1989 and denied the Company
certain contractually provided audit rights. It is currently
anticipated that these remaining claims will come to trial in 1996.
Management anticipates that the above-described claims will be
resolved without any material adverse impact on the results of
operations or financial position of the Company.
Item 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 and Series B Preferred Stock are
cumulative and must be paid in the event of liquidation and
before any distribution to holders of Common stock. 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 as of March 31, 1996 are approximately $367,000 ($5.50
per share) for the Series A shares and $7,739,000 ($5.00 per
share) for the Series B shares. The dividends in arrears
have been reduced in April 1996 as a result of the conversion
of approximately 798,000 shares of Series B and approximately
53,000 of Series A. (See Notes to Consolidated Financial
Statements and Management's Discussion and Analysis).
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.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
11* Computation of Earnings per Common and Common
Equivalent Share.
27* Financial Data Schedule for Talley Industries,
Inc., March 31, 1996.
-16-
<PAGE>
99.1* Waiver and Fourth Amendment to Loan and Security
Agreement dated March 20, 1996 by and among
Talley Manufacturing and Technology, Inc. and
Transamerica Business Credit Corporation, as
agent.
99.2* Second Amendment to Subsidiary Loan and Security
Agreement, dated as of March 20, 1996 between
Talley Manufacturing and Technology, Inc. and
each of certain subsidiaries.
99.3* Second Amendment To The Talley Industries, Inc.
Executive Death and Retirement Supplemental Plan,
dated December 22, 1994.
99.4* Third Amendment To The Talley Manufacturing and
Technology, Inc. Executive Death and Retirement
Supplemental Plan, dated March 20, 1996.
99.5* Talley Manufacturing and Technology, Inc.
Executive Disability Income Plan, dated March 20,
1996.
99.6* Talley Manufacturing and Technology, Inc.
Executive Restoration Benefit Plan, dated October
25, 1995.
99.7* Talley Manufacturing and Technology, Inc. Trust
Under The Executive Benefit Plans, dated March
20, 1996.
* Documents marked with an asterisk are filed with this report.
(b) Reports on Form 8-K:
A report dated February 2, 1996 related to the Preferred
Share Purchase Rights Plan Amendment and the conversion of
the Company's Series D preferred stock was filed on February
8, 1996 on Form 8-K.
"Safe harbor" statement under the Private Securities Litigation
Reform Act of 1995 and any applicable state laws:
Certain of the statements in the Management's Discussion and
Analysis and elsewhere in this report are not historical
facts and are "forward looking statements" that involve risks
and uncertainties, including, but not limited to, the course
and results of litigation affecting the Company (including
the litigation with TRW Inc.), stock market conditions and
fluctuations, future economic conditions, the impact of
competitive products, services and pricing, research and
development, commercialization and technological
difficulties, government contracting risks, the availability
and cost of financing, environmental matters, the values and
marketability of real estate held by the Company, the effect
of the Company's accounting policies and a number of other
risks described in this report.
-17-
<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: May 13, 1996 By Kenneth May
------------------------ -------------------------
Kenneth May
Vice President, Controller
Principal Accounting
Officer
Date: May 13, 1996 By Mark S. Dickerson
------------------------ -------------------------
Mark S. Dickerson
Vice President
and Secretary
-18-
EXHIBIT 11
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Common
and Common Equivalent Share
(thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1 9 9 6 1 9 9 5
----------------- ----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Earnings (loss) before
extraordinary gain $ 1,916 $ 1,916 $(3,887) $(3,887)
Preferred stock dividend (473) (405) - -
------- ------- ------- -------
Earnings (loss) before
extraordinary gain 1,443 1,511 (3,887) (3,887)
Extraordinary gain - - 7,261 7,261
------- ------- ------- -------
1,443 1,511 3,374 3,374
Assumed value of common shares
issued to induce conversion of
Series D Preferred stock (4,639) (4,639) - -
------- ------- ------- -------
Net earnings (loss) for
computation $(3,196) $(3,128) $ 3,374 $ 3,374
======= ======= ======= =======
Average common shares
outstanding during period 10,996 11,960 10,048 10,048
Common stock equivalents:
Convertible preferred stock - - 3,302 3,302
Stock options - - 332 369
Shares issuable in connection
with acquired company - - 323 323
------- ------- ------- -------
Shares for computation 10,996 11,960 14,005 14,042
======= ======= ======= =======
Earnings (loss) per share:
Before extraordinary gain $ .13 $ .13 $ (.28) $ (.28)
Extraordinary gain - - .52 .52
------ ------ ------ ------
Net earnings before consideration
for induced conversion of
preferred stock .13 .13 .24 .24
Assumed value of conversion
inducement (.42) (.39) - -
------ ------ ------ ------
Net earnings (loss) per $ (.29) $ (.26) $ .24 $ .24
common share ====== ====== ====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Company's Balance Sheet and Statement of Operations and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,607
<SECURITIES> 0
<RECEIVABLES> 71,249
<ALLOWANCES> 1,331
<INVENTORY> 74,252
<CURRENT-ASSETS> 163,623
<PP&E> 142,719
<DEPRECIATION> 93,956
<TOTAL-ASSETS> 381,919
<CURRENT-LIABILITIES> 66,157
<BONDS> 238,011
0
1,615
<COMMON> 11,959
<OTHER-SE> 46,491
<TOTAL-LIABILITY-AND-EQUITY> 381,919
<SALES> 72,742
<TOTAL-REVENUES> 95,127
<CGS> 55,378
<TOTAL-COSTS> 68,399
<OTHER-EXPENSES> 17,071
<LOSS-PROVISION> 68
<INTEREST-EXPENSE> 7,181
<INCOME-PRETAX> 2,476
<INCOME-TAX> 560
<INCOME-CONTINUING> 1,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,916
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.26)
</TABLE>
EXHIBIT 99.1
WAIVER AND FOURTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This WAIVER AND FOURTH AMENDMENT TO LOAN AND SECURITY
AGREEMENT (this "Amendment") is entered into as of the 20th day of
March, 1996, by and among TALLEY MANUFACTURING AND TECHNOLOGY,
INC., a Delaware corporation (the "Borrower"), TRANSAMERICA
BUSINESS CREDIT CORPORATION, as agent (the "Agent"), and the
lenders parties to the Loan Agreement referred to below (the
"Lenders").
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have
heretofore entered in a Loan and Security Agreement dated
October 22, 1993, as amended (the "Loan Agreement");
WHEREAS, the Borrower has requested a waiver and certain
amendments to the Loan Agreement; and
WHEREAS, the Lenders are willing to consent to the waiver and
amendments on the terms herein set forth.
NOW, THEREFORE, in consideration of the premises and intending
to be legally bound hereby, the parties hereto hereby agree as
follows:
1. Definitions. Capitalized terms used herein and not
defined herein shall have the respective meanings given to such
terms in the Loan Agreement.
2. Amendments. Each of the "Maximum Revolving Advance
Amount" and the "Maximum Amount of the Facility" for (i) Rowe
Industries, Inc. ("Rowe") is hereby increased from "$2,100,000" to
"$5,000,000" and from "$2,500,000" to "$5,282,056", respectively,
and (ii) Talley Metals Technology, Inc. ("Metals") is hereby
increased from "$14,700,000" to "$20,000,000" and from
"$24,000,000" to "$26,557,687", respectively. Such increases shall
be effected by amending Schedule 2.1 to the Loan Agreement by
deleting "$2,100,000" and "$14,700,000" set forth in the column
entitled "Max. Revolving Advance Amount" for each of Rowe and
Metals, respectively, and replacing such amounts with "$5,000,000"
and "$20,000,000", respectively, and by deleting "$2,500,000" and
"$24,000,000" set forth in the column entitled "Max. Amount of
-1-
<PAGE>
Facility" for each of Rowe and Metals, respectively, and replacing
such amounts with "$5,282,056" and "$26,557,687", respectively.
3. Waiver. The provisions of Section 5.2 of the Loan
Agreement relating to the payment to the Agent for the benefit of
the Lenders of 50% of the Borrower's Excess Cash Flow for each
fiscal year are waived for the fiscal year ending December 31,
1995.
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. Document from Borrower. The Agent shall have
received this Amendment executed by a duly authorized officer of
each Lender and the Borrower.
4.2. Amendments to Subsidiary Loan Documents. The
Borrower and each Subsidiary shall have executed an amendment (the
"Subsidiary Amendment") to their respective Subsidiary Loan
Agreement, substantially in the form of Exhibit A attached hereto,
and shall have delivered such other documents and instruments in
connection therewith as the Agent shall require, each in form and
substance satisfactory to the Agent.
4.3. Confirmation of Loan Documents. Each Subsidiary
shall have executed the Confirmation of Loan Documents set forth
below.
4.4. Corporate Proceedings. The Agent shall have
received a copy of the resolutions (in form and substance
reasonably satisfactory to Agent) of the Board of Directors of the
Borrower authorizing (i) the execution, delivery and performance of
this Amendment, the documents referred to in Section 4.2 hereof,
and the other Loan Documents contemplated hereby and thereby, and
(ii) the consummation of the transactions contemplated hereby and
thereby, all certified by the Secretary or an Assistant Secretary
of the Borrower on the date hereof. Such certificate shall state
that the resolutions set forth therein have not been amended,
modified, revoked or rescinded as of the date of such certificate.
4.5. 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.
4.6. Representations and Warranties True. The
representations and warranties contained herein, in the Loan
Agreement and in all other Loan Documents (other than
representations and warranties that expressly speak only as of a
specified different date) shall be true and correct both as of the
date hereof and immediately after giving effect to this Amendment.
-2-
<PAGE>
4.7. Certificate of Officers. The Agent shall have received
a certificate, in form and substance satisfactory to the Agent,
dated the date of the effectiveness of this Amendment and signed by
the President or a Vice President and the Treasurer or Controller
of the Borrower certifying that the conditions set forth in this
Section 4 have been fulfilled and as to such other matters as the
Agent shall reasonably require.
4.8. Other Conditions. The Agent shall have received such
other agreements, opinions, certificates, representations,
instruments and other documents as it may reasonably require, all
in form and substance satisfactory to the Agent.
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 performance
of this Amendment and the other documents and instruments to be
executed and delivered in connection herewith by the Borrower and
its Affiliates, except for those already duly obtained, (iii) this
Amendment and the other documents and instruments to be executed
and delivered in connection herewith by the Borrower and its
Affiliates have been duly executed by the Borrower and such
Affiliates and constitute the legal, valid and binding obligation
of the Borrower and such Affiliates, enforceable against them in
accordance with their terms, (iv) the execution, delivery and
performance by the Borrower and its Affiliates of this Amendment
and the other documents and instruments to be executed and
delivered in connection herewith by the Borrower and its Affiliates
do not and will not conflict with, or constitute a violation or
breach of, or constitute a default under, or result in the creation
or imposition of any Lien upon the property of the Borrower or any
of its Affiliates by reason of the terms of (a) any contract,
mortgage, Lien, lease, agreement, indenture, or instrument to which
the Borrower or such Affiliate is a party or which is binding upon
it, (b) any requirement of law applicable to the Borrower or such
Affiliate, or (c) the Certificate or Articles of Incorporation or
By-Laws of the Borrower or such Affiliate, (v) no event has
occurred and is continuing which constitutes a Default, an Event of
Default or a Subsidiary Event of Default, and (vi) no change or
development or event involving a prospective change, which in any
such case has had or could reasonably be expected to have a
material adverse effect on the ability of the Borrower to perform
its obligations under the Loan Documents or on the business,
operations, assets, conditions (financial or otherwise) or
prospects of Borrower on a consolidated basis, has occurred and is
continuing.
-3-
<PAGE>
6. Authorization to Sign Amendments to Subsidiary Loan
Documents and other Documents. By their signatures below, the
Lenders hereby authorize TBCC, as Agent and as collateral agent for
the Lenders and the Senior Note Trustee under the Airbag Collateral
Security Agreement, to consent to the execution and delivery of the
Subsidiary Amendments, substantially in the form of Exhibit A
attached hereto; to consent to the delivery of such other documents
and instruments in connection therewith as the Agent shall require,
each in form and substance satisfactory to the Agent; and to
execute and deliver such written consents and other documents or
instruments in connection therewith as the Agent shall deem
appropriate.
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 reference to
the Loan Agreement as amended hereby.
7.2. Except as specifically amended or waived above, all
of the terms of the Loan Agreement shall remain unchanged and in
full force and effect.
7.3. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any Default, Event of
Default or Subsidiary Event of Default, nor as a waiver of any
right, power or remedy of any Lender or the Agent under the Loan
Agreement or any of the other Loan Documents, nor constitute a
waiver of any provision of the Loan Agreement or any of the other
Loan Documents, other than as specifically set forth herein.
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.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly
authorized officers as of the date set forth above.
BORROWER:
TALLEY MANUFACTURING AND TECHNOLOGY,
INC.
By: Mark S. Dickerson
-------------------------------------
Name: Mark S. Dickerson
Title: Vice President
AGENT:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: Michael S. Burns
-------------------------------------
Name: Michael S. Burns
Title: Vice President
LENDERS:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: Michael S. Burns
-------------------------------------
Name: Michael S. Burns
Title: Vice President
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO
By: Donald A. Tomlinson
-------------------------------------
Name: Donald A. Tomlinson
Title: Vice President
NATIONAL CANADA FINANCE CORPORATION
By: Thomas H. Hopkins
-------------------------------------
Name: Thomas H. Hopkins
Title: Vice President
By: Glenn S. Burroughs
-------------------------------------
Name: Glenn S. Burroughs
Title: Vice President
-5-
<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 Waiver and Fourth Amendment to
Loan and Security Agreement (the "Amendment"). Each of the
undersigned hereby confirms that each of the Loan Documents to
which it is a party shall remain in full force and effect on the
terms provided therein and that each reference in the Loan
Documents to the "Parent Loan Agreement" shall be a reference to
the Loan Agreement as modified or amended by the Amendment. Each
of the undersigned further confirms that there exists no Default or
Event of Default (as defined in the Subsidiary Loan Agreement to
which it is a party) and that all representations and warranties
made by it in the Loan Documents to which it is a party are true
and correct as though made on and as of the date hereof (other than
representations and warranties that expressly speak only as of a
specified different date).
Dated: As of March 20, 1996
AMCAN SPECIALTY STEELS, INC.;
DIMETRICS, INC.; ELECTRODYNAMICS,
INC.; JOHN J. MCMULLEN ASSOCIATES,
INC.; PORCELAIN PRODUCTS CO.; ROWE
INDUSTRIES, INC.; TALLEY AUTOMOTIVE
PRODUCTS, INC.; TALLEY CANADA, INC.;
TALLEY DEFENSE SYSTEMS, INC.; TALLEY
INTERNATIONAL INVESTMENT
CORPORATION; TALLEY METALS
TECHNOLOGY, INC.; TALLEY TECHNOLOGY,
INC.; UNIVERSAL PROPULSION COMPANY;
WATERBURY COMPANIES, INC.; WDC, INC.
By: Mark S. Dickerson
_____________________________
Name: Mark S. Dickerson
Title: Secretary
EXHIBIT 99.2
SECOND AMENDMENT TO
SUBSIDIARY LOAN AND SECURITY AGREEMENTS
This SECOND AMENDMENT TO SUBSIDIARY LOAN AND SECURITY
AGREEMENTS (this "Amendment") is entered into as of the 20th day of
March, 1996, by and among each of the Borrowers listed on the
signature pages hereof (each, individually, a "Borrower" and,
collectively, the "Borrowers") and TALLEY MANUFACTURING AND
TECHNOLOGY, INC., a Delaware corporation (the "Lender").
W I T N E S S E T H:
WHEREAS, each of the Borrowers has heretofore entered in a
Subsidiary Loan and Security Agreement with the Lender dated
October 22, 1993, as amended (each, individually, a "Subsidiary
Loan Agreement" and, collectively, the "Subsidiary Loan
Agreements");
WHEREAS, the Lender has assigned all of its rights under the
Subsidiary Loan Agreements and the other Loan Documents with all of
the Borrowers other than Talley Technology, Inc. ("TTI") to Agent
for the benefit of the lenders (the "Parent Lenders") under the
Parent Loan Agreement pursuant to the Collateral Assignment
Agreement and has assigned all of its rights under the Subsidiary
Loan Agreement and other Loan Documents with TTI to TBCC as Agent
and as collateral agent (the "Collateral Agent") for the Parent
Lenders and Bank One, Columbus, N.A., a national banking
association, as Trustee for the holders of the Senior Notes (in
such capacity, together with its successor in such capacity, the
"Senior Note Trustee");
WHEREAS, the Lender, the Agent and the Parent Lenders are
about to enter into a Waiver and Fourth Amendment to Loan and
Security Agreement with respect to the Parent Loan Agreement (the
"Parent Amendment");
WHEREAS, the Lender and the Borrowers wish to enter into this
Amendment to make certain changes to the Subsidiary Loan Agreements
consistent with those to be made to the Parent Loan Agreement
pursuant to the Parent Amendment and certain other changes and the
execution and delivery of this Amendment is a condition precedent
to the effectiveness of the Parent Amendment;
WHEREAS, the consent of Agent is required for the execution,
delivery and performance of this Amendment with respect to the
Subsidiary Loan Agreements with all of the Borrowers other than TTI
-1-
<PAGE>
and the consent of the Collateral Agent is required for the
execution, delivery and performance of this Amendment with respect
to the Subsidiary Loan Agreement with TTI;
WHEREAS, the Lender has requested the consent of the Agent and
the Collateral Agent; and
WHEREAS, the Agent and the Collateral Agent are willing to
consent to this Amendment on the terms herein set forth.
NOW, THEREFORE, in consideration of the premises and intending
to be legally bound hereby, the parties hereto hereby agree as
follows:
1. Definitions. Capitalized terms used herein and not
defined herein shall have the respective meanings given to such
terms in the Subsidiary Loan Agreements.
2. Amendments to Section 1.1 of Rowe Industries, Inc.
Subsidiary Loan Agreement. Effective January 5, 1996, the
definition of "Free Cash Flow" set forth in Section 1.1 of the
Subsidiary Loan Agreement with Rowe Industries, Inc. ("Rowe") shall
be amended to read in its entirety as follows:
"Free Cash Flow" shall mean for any applicable fiscal
period (as determined in accordance with Generally Accepted
Accounting Principles), (a) EBITDA for such period, minus (b)
the sum of Capital Expenditures (other than (I) Capital
Expenditures for the purchase of the "Business Assets" of
Markel Corporation and the "Covenants Not to Compete" with the
proceeds of the "Capital Contribution" (as such quoted terms
are defined in the Consent to Loan and Security Agreements,
dated as of January 5, 1996, among Lender, Borrower, the
Parent Lenders and the Agent), and (II) other Capital
Expenditures for which neither Borrower nor any Affiliate
thereof, whether from Advances, the Term Loan or otherwise,
shall be the source of funds) actually paid or payable during
such period.
3. Amendments to Schedule 2.1 of Certain Subsidiary Loan
Agreements. Effective as of the date hereof, each of the "Maximum
Revolving Advance Amount" and the "Maximum Amount of the Facility"
for (i) Rowe is hereby increased from "$2,100,000" to "$5,000,000"
and from "$2,500,000" to "$5,282,056", respectively, and
(ii) Talley Metals Technology, Inc. ("Metals") is hereby increased
from "$14,700,000" to "$20,000,000" and from "$24,000,000" to
"$26,557,687", respectively. Such increases shall be effected by
amending Schedule 2.1 to each Subsidiary Loan Agreement by deleting
"$2,100,000" and "$14,700,00" set forth in the column entitled
"Max. Revolving Advance Amount" for each of Rowe and Metals,
respectively, and replacing such amounts with "$5,000,000" and
"$20,000,000", respectively, and by deleting "$2,500,000" and
"$24,000,000" set forth in the column entitled "Max. Amount of
-2-
<PAGE>
Facility" for each of Rowe and Metals, respectively, and replacing
such amounts with "$5,282,056" and "$26,557,687", respectively.
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. Documents from Borrowers. The Agent shall have
received:
(a) this Amendment executed by a duly authorized
officer of Lender and each Borrower; and
(b) Amended and Restated Revolving Notes issued by
each of Metals and Rowe to the Lender, in exchange for
the respective Revolving Notes held by the Lender
immediately prior to such exchange, each in the principal
amount equal to the respective Maximum Revolving Advance
Amount for each of Metals and Rowe after giving effect to
this Amendment, such Notes to be in the form of Exhibit 1
annexed hereto, executed by a duly authorized officer of
Metals and Rowe, respectively, and endorsed to the Agent
by a duly authorized officer of Lender.
4.2. Consent of Agent and Collateral Agent. TBCC, as
Agent and Collateral Agent, shall have consented to the execution,
delivery and performance of this Amendment by executing the Consent
set forth below.
4.3. Amendments to Parent Loan Documents. The Lender
shall have executed the Parent Amendment and the Lender and each
Borrower shall have executed and/or delivered such other documents
and instruments in connection therewith as the Parent Lenders and
the Agent shall require as a condition precedent to the
effectiveness thereof, each in form and substance satisfactory to
the Agent, and such Parent Amendment shall have become effective.
4.4. Corporate Proceedings. The Agent shall have
received a copy of the resolutions (in form and substance
reasonably satisfactory to Agent) of the Board of Directors of each
Borrower authorizing (i) the execution, delivery and performance of
this Amendment and the other Loan Documents contemplated hereby,
and (ii) the consummation of the transactions contemplated hereby
and thereby, all certified by the Secretary or an Assistant
Secretary of each Borrower on the date hereof. Such certificate
shall state that the resolutions set forth therein have not been
amended, modified, revoked or rescinded as of the date of such
certificate.
4.5. No Defaults. No Default or Event of Default shall
have occurred and be existing either before or immediately after
giving effect to this Amendment.
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<PAGE>
4.6. Representations and Warranties True. The
representations and warranties contained herein, in the Subsidiary
Loan Agreements and in all other Loan Documents (other than
representations and warranties that expressly speak only as of a
specified different date) shall be true and correct both as of the
date hereof and immediately after giving effect to this Amendment.
4.7. Certificate of Officers. The Agent shall have
received a certificate, in form and substance satisfactory to the
Agent, dated the date of the effectiveness of this Amendment and
signed by the President, a Vice President or the Secretary, and the
Treasurer or Controller, of each Borrower certifying that the
conditions set forth in this Section 4 have been fulfilled and as
to such other matters as the Agent shall reasonably require.
4.8. Other Conditions. The Agent shall have received
such other agreements, opinions, certificates, representations,
instruments and other documents as it may reasonably require, all
in form and substance satisfactory to the Agent.
5. Representations and Warranties. Each Borrower hereby
represents and warrants to the Lender and the Agent that (i) the
execution, delivery and performance of this Amendment and the other
documents and instruments to be executed and delivered in
connection herewith by such Borrower and its Affiliates are within
their respective corporate powers and have been duly authorized by
all necessary corporate action, (ii) no consent, approval,
authorization of, or declaration or filing with, any governmental
or public authority, and no consent of any other Person, is
required in connection with the execution, delivery and performance
of this Amendment and the other documents and instruments to be
executed and delivered in connection herewith by such Borrower and
its Affiliates, except for those already duly obtained, (iii) this
Amendment and the other documents and instruments to be executed
and delivered in connection herewith by such Borrower and its
Affiliates have been duly executed by such Borrower and Affiliates
and constitute the legal, valid and binding obligation of such
Borrower and Affiliates, enforceable against them in accordance
with their terms, (iv) the execution, delivery and performance by
such Borrower and its Affiliates of this Amendment and the other
documents and instruments to be executed and delivered in
connection herewith by such Borrower and its Affiliates do not and
will not conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or imposition
of any Lien upon the property of such Borrower or any of its
Affiliates by reason of the terms of (a) any contract, mortgage,
Lien, lease, agreement, indenture, or instrument to which such
Borrower or such Affiliate is a party or which is binding upon it,
(b) any requirement of law applicable to such Borrower or such
Affiliate, or (c) the Certificate or Articles of Incorporation or
By-Laws of such Borrower or such Affiliate, (v) no event has
occurred and is continuing which constitutes a Default or an Event
of Default, and (vi) no change or development or event involving a
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<PAGE>
prospective change, which in any such case has had or could
reasonably be expected to have a material adverse effect on the
ability of such Borrower to perform its obligations under the Loan
Documents or on the business, operations, assets, conditions
(financial or otherwise) or prospects of the Borrowers on a
consolidated basis has occurred and is continuing.
6. Reference to and Effect on Loan Documents.
6.1. On and after the date hereof, each reference in the
Subsidiary Loan Agreements to "this Agreement", "hereunder",
"hereof", "herein" or words of like import, and each reference in
the other Loan Documents to a Subsidiary Loan Agreement, shall mean
and be a reference to such Subsidiary Loan Agreement as amended
hereby.
6.2. Except as specifically amended above, all of the
terms of the Subsidiary Loan Agreements shall remain unchanged and
in full force and effect.
6.3. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any Default or Event of
Default, nor as a waiver any right, power or remedy of any Lender
or the Agent under any Subsidiary Loan Agreement or any of the
other Loan Documents, nor constitute a waiver of any provision of
any Subsidiary Loan Agreement or any of the other Loan Documents.
7. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and
delivered (including delivery by telecopier) shall be deemed to be
an original and all of which taken together shall constitute one
and the same instrument.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
9. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Amendment or be given any substantive
effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly
authorized officers as of the date set forth above.
BORROWERS:
AMCAN SPECIALTY STEELS, INC.; DIMETRICS,
INC.; ELECTRODYNAMICS, INC.; JOHN J.
MCMULLEN ASSOCIATES, INC.; PORCELAIN
PRODUCTS CO.; ROWE INDUSTRIES, INC.;
TALLEY AUTOMOTIVE PRODUCTS, INC.; TALLEY
CANADA, INC.; TALLEY DEFENSE SYSTEMS,
INC.; TALLEY INTERNATIONAL INVESTMENT
CORPORATION; TALLEY METALS TECHNOLOGY,
INC.; TALLEY TECHNOLOGY, INC.; UNIVERSAL
PROPULSION COMPANY; WATERBURY COMPANIES,
INC.; WDC, INC.
By: Mark S. Dickerson
-----------------------------------
Name: Mark S. Dickerson
Title: Secretary
LENDER:
TALLEY MANUFACTURING AND TECHNOLOGY,
INC.
By: Daniel R. Mullen
-----------------------------------
Name: Daniel R. Mullen
Title: Treasurer
<PAGE>
CONSENT OF AGENT AND COLLATERAL AGENT
The undersigned, as Agent, hereby consents to the
execution, delivery and performance of the foregoing Second
Amendment to Subsidiary Loan and Security Agreements with respect
to the Subsidiary Loan Agreements with all of the Borrowers other
than TTI and, as Collateral Agent, hereby consents to the
execution, delivery and performance of the foregoing Second
Amendment to Loan and Security Agreements with respect to the
Subsidiary Loan Agreement with TTI.
Dated: As of March 20, 1996
TRANSAMERICA BUSINESS CREDIT CORPORATION, as
Agent and Collateral Agent
By: Michael S. Burns
__________________________
Name: Michael S. Burns
Title: Vice President
EXHIBIT 99.3
SECOND AMENDMENT TO THE
TALLEY INDUSTRIES, INC. EXECUTIVE
DEATH AND RETIREMENT SUPPLEMENTAL PLAN
Effective July 1, 1987, Talley Industries, Inc. ("Talley")
adopted the TALLEY INDUSTRIES, INC. EXECUTIVE DEATH AND RETIREMENT
SUPPLEMENTAL PLAN (the "Plan"). The Plan was thereafter amended.
Effective January 1, 1994, Talley Manufacturing and Technology,
Inc. (the "Company") became the sponsor of the Plan. By this
instrument, Talley and the Company intend to reflect the Company's
sponsorship of the Plan.
1. This Amendment shall amend only those provisions set forth
herein, and those provisions not amended hereby shall remain in
full force and effective.
2. Section I is hereby amended in its entirety as follows:
I. OBJECTIVE AND PURPOSE. The objective and
purposes of the TALLEY MANUFACTURING AND TECHNOLOGY, INC.
EXECUTIVE DEATH AND RETIREMENT SUPPLEMENTAL PLAN (the
"Plan") is to attract competent officers and key
executives by providing to the officers and key
executives of Talley Manufacturing and Technology, Inc.
(the "Company") certain benefits and to offer them an
opportunity to supplement income after retirement.
3. This Amendment shall be effective as of January 1, 1994.
Except as amended by this Second Amendment, the Company hereby
ratifies the Plan in its entirety as adopted effective July 1,
1987, and thereafter amended.
Dated: December 22, 1994.
TALLEY INDUSTRIES, INC.
By: Kenneth May
--------------------
Kenneth May
Its: Vice President
--------------------
TALLEY MANUFACTURING AND
TECHNOLOGY, INC.
By: Kenneth May
--------------------
Kenneth May
Its: Vice President
--------------------
EXHIBIT 99.4
THIRD AMENDMENT TO THE
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
EXECUTIVE DEATH AND RETIREMENT SUPPLEMENTAL PLAN
Effective July 1, 1987, Talley Industries, Inc. adopted
the Talley Industries, Inc. Executive Death and Retirement
Supplemental Plan (the "Plan"). The Plan was thereafter amended on
March 25, 1991, and December 22, 1994. In connection therewith,
the name of the Plan was changed to the "Talley Manufacturing and
Technology, Inc. Executive Death and Retirement Supplemental Plan"
and Talley Manufacturing and Technology, Inc. (the "Company")
became the Plan's sponsor. By this instrument, the Company intends
to amend the Plan to restore benefits lost by participants as a
result of certain actuarial adjustments to their pension benefits.
1. This Amendment shall amend only those provisions set
forth herein, and those provisions not amended hereby shall remain
in full force and effect.
2. Section V is hereby amended in its entirety to read as
follows:
V. PAYMENT OF POST-RETIREMENT SUPPLEMENTAL
RETIREMENT BENEFITS
Subject to the provisions of Section VII, upon the
retirement of the participant after satisfying the
requirements for receipt of a retirement benefit under
the terms and provisions of the Company's qualified
retirement plan and the terms and provisions of the
Talley Manufacturing and Technology, Inc. Executive
Restoration Benefit Plan (the "Executive Plan"), the
participant shall receive a monthly benefit for life
equal to the difference between the amount described in
subparagraph (1) and subparagraph (2) of this Section V,
provided that the participant elects to receive his
benefits under the Company's qualified retirement plan in
the form of the one hundred percent (100%) contingent
annuity permitted under said plan. A participant who
<PAGE>
does not elect the one hundred percent (100%) contingent
annuity option under the Company's qualified retirement
plan shall not be eligible for benefits under this Plan.
In the even that the participant shall die following re-
tirement and is survived by his or her eligible spouse,
the monthly payment so calculated shall also be paid to
the eligible spouse for life. For purposes of this
Section V, the term "eligible spouse" shall mean the
person to whom the participant was legally married on his
or her date of retirement and who was named as the
participant's contingent annuitant under the one hundred
percent (100%) contingent annuity for purposes of both
the Company's qualified retirement plan and the Executive
Plan.
For purposes of this Section V, (1) shall be the
amount to which the participant is entitled on retirement
under the "straight life" (life only) monthly retirement
benefit option under the terms of the Company's qualified
retirement plan (calculated pursuant to the terms and
provisions of that plan as in effect on the retirement
date of the participant but without regard to the
limitations of Section 415 of the Internal Revenue Code
(the "Code") and the limitation on the compensation that
may be taken into account for the Plan Year under Section
401(a)(17) of the Code and the corresponding provisions
of the Retirement Plan), and (2) shall be the amount to
which the participant is entitled on retirement under the
one hundred percent (100%) contingent annuity option
under the terms of the Company's qualified retirement
plan (calculated pursuant to the terms and provisions of
that plan as in effect on the retirement date of the
participant but without regard to the limitations of
Section 415 of the Code and the limitation on the
compensation that may be taken into account for the Plan
Year under Section 401(a)(17) of the Code and the
corresponding provisions of the Retirement Plan).
Payment of benefits under this Section V shall
commence upon the commencement of benefit payments to the
participant under the Company's qualified retirement
plan, subject to the provisions of Section VII.
3. This Amendment shall be effective as of January 1, 1995.
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<PAGE>
Except as amended by this instrument, the Company hereby
ratifies the Plan as adopted effective July 1, 1987, and thereafter
amended.
Dated: March 20, 1996.
TALLEY MANUFACTURING AND
TECHNOLOGY, INC.
By William H. Mallender
----------------------
William H. Mallender
Its Chairman
----------------------
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EXHIBIT 99.5
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
EXECUTIVE DISABILITY INCOME PLAN
Effective July 1, 1995
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
EXECUTIVE DISABILITY INCOME PLAN
PREAMBLE
Effective July 1, 1995, Talley Manufacturing and Technology,
Inc. (the "Company") establishes the Talley Manufacturing and
Technology, Inc. Executive Disability Income Plan (the "Plan" or
the "Executive LTD Plan") to provide certain employees who have
suffered a "Total and Permanent Disability" (as defined in the
Plan) with disability benefits which, when added to other disabili-
ty benefits received by that employee to which the Company and/or
a participating Affiliate (collectively, the "Employer") have
contributed, equal sixty percent (60%) of the employee's "Total
Pay" (as defined in the Plan).
This Plan may be funded, in whole or in part, through a trust
established by the Company. The trustee of such trust may purchase
insurance to cover the benefits of this Plan. The Employer may
also purchase individual insurance policies outside the trust to
fund all or a portion of the Plan's benefits.
SECTION I. DEFINITIONS
The following terms shall have the indicated meanings, unless
the context shall clearly require otherwise. Terms or conditions
not defined herein shall be as defined by the Basic Plan.
1.1 "Act" means the Employee Retirement Income Security Act
of 1974, as amended.
1.2 "Affiliate" shall mean a corporation, trade or business
under "common control" with the Company. "Common control" shall be
determined under Code Section 1563(a).
1.3 "Basic Plan" shall mean the long term disability plan of
the Employer available to Employees eligible to participate in the
Plan pursuant to Section 2.1.
1.4 "Benefit Waiting Period" shall be as defined in the Basic
Plan, but in no event less than six (6) months after Date of
Disablement.
1.5 "Board" shall mean the Board of Directors of TALLEY
MANUFACTURING AND TECHNOLOGY, INC.
1.6 "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
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<PAGE>
1.7 "Company" shall mean TALLEY MANUFACTURING AND TECHNOLOGY,
INC., a Delaware corporation, and each corporation that succeeds to
substantially all of the business of the Company and elects to
continue the Plan hereunder.
1.8 "Date of Disablement" shall mean the date established
under the Basic Plan as of which the Participant became Totally and
Permanently Disabled.
1.9 "Effective Date" shall mean July 1, 1995.
1.10 "Employee" means each person who receives remuneration,
or who is entitled to remuneration, for services rendered to an Em-
ployer in the legal relationship of employer and employee and not
in the relationship of a private contractor.
1.11 "Employer" shall mean the Company and such of its
Affiliates as have adopted this Plan by action of their respective
boards of directors with the consent of the Board.
1.12 "Individual Policy" shall mean the insurance policy or
policies purchased by the Trustee, the Company or an Employer to
provide all or part of the benefits hereunder.
1.13 "Other Plans" shall mean (a) any other Employer-provided
plans, including, but not limited to, any defined benefit pension
plan (benefit commencing at age 65), but excluding any defined
contribution plan, and (b) any individual employment contracts
between the Employer and a Participant.
1.14 "Participant" shall mean each Employee who, on or after
the Effective Date, has satisfied the requirements for participa-
tion specified in SECTION II and whose participation has not termi-
nated.
1.15 "Plan" or "Executive LTD Plan" shall mean the TALLEY
MANUFACTURING AND TECHNOLOGY, INC. EXECUTIVE DISABILITY INCOME
PLAN, as set forth herein and as the same may be amended from time
to time.
1.16 "Plan Administrator" shall mean the person or committee
appointed by the Board and certified to the Trustee to administer
the terms and provisions of the Plan. As of the Effective Date,
the Company's Master Trust Administration Committee has been
appointed as the Plan Administrator.
1.17 "Plan Year" shall mean the fiscal year used pursuant to
this Plan, which is the twelve (12) consecutive month period
commencing each January 1.
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<PAGE>
1.18 "Social Security Benefits" shall mean the disability
benefits provided to a Participant and his or her dependents under
the United States Social Security Act.
1.19 "Total and Permanent Disability" or "Totally and
Permanently Disabled" shall be as defined in the group insurance
contract for the Basic Plan.
1.20 "Total Pay" shall mean the sum of (a) the Participant's
regular salary paid by an Employer to a Participant for the perfor-
mance of services or during paid time off and (b) the average of
the annual bonuses paid to the Participant during the three (3)
most recent Plan Years completed prior to the Date of Disablement.
"Total Pay" shall not include directors' fees, moving and reloca-
tion reimbursements or allowances, deferred or fringe benefits and
any employer contributions or any benefits under any other
"employee benefit plan" (as defined in the Act), provided that
"Total Pay" shall included amounts that would have constituted
"Total Pay" as defined above, but for the Participant's election to
make salary reduction contributions to a plan sponsored by the
Employer which satisfies the requirements of Section 401(k) or
Section 125 of the Code and the Participant's election to defer
part of his or her bonus pursuant to the terms of the Talley
Manufacturing and Technology, Inc. Executive Bonus Deferral Plan.
1.21 "Trust" shall mean the trust established by the Company
in which this Plan participates.
1.22 "Trustee" shall mean the Trustee appointed by the Company
under the Trust.
SECTION II. ELIGIBILITY AND PARTICIPATION
2.1 ELIGIBILITY AND PARTICIPATION. Employees who (a) are
paid on a salaried basis, (b) are employed in executive positions,
and (c) elect to participate in the Basic Plan are eligible to
participate in this Plan.
2.2 PARTICIPATION. An Employee eligible under Section 2.1
shall become a Participant upon his or her designation in writing
by the Company's Chief Executive Officer ("CEO") or Corporate
Secretary as a Participant. An eligible Employee who is not so
designated in writing shall not be a Participant in the Plan.
A Participant shall commence participation in this Plan as of
the first day of the Plan Year in which he is designated for
participation pursuant to this Section 2.2 unless another date is
specified in the written designation of participation by the CEO or
Corporate Secretary.
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<PAGE>
2.3 TERMINATION OF PARTICIPATION. The CEO may terminate the
participation of any Employee, whether during or prior to benefit
commencement. An Employee's participation shall end on the earli-
est of the date on which the Employee no longer satisfies the re-
quirements for participation under Section 2.1, the date on which
the CEO or Corporate Secretary informs the Employee in writing that
he is no longer eligible to participate in the Plan, or the date on
which the Participant terminates employment with the Employer for
any reason other than a Total and Permanent Disability.
SECTION III. BENEFITS
3.1 AMOUNT. The monthly benefit payable under this Plan
shall equal (a) 60% of Total Pay; less (b) the Social Security
Benefit; less (c) the Basic Plan benefit; less (d) Other Plans'
disability benefits. Benefits under this Plan shall be calculated
without regard to when the benefit referred to in subsections (b),
(c) and (d) are in pay status so long as the benefits would be
payable upon application by the Participant. Benefits may be
reduced after commencement if and to the extent there is an
increase in the amount of benefits paid or payable under (b), (c)
or (d).
3.2 DURATION. Benefits under this Plan shall be paid for the
same period as are benefits under the Basic Plan.
3.3 PARTIAL DISABILITY. If the Basic Plan benefit is reduced
because of the Participant's becoming partially employable, the
same pro rata reduction will apply to this Plan's benefits.
3.4 TERMINATION OF BENEFITS. The benefits hereunder shall
cease when benefits under the Basic Plan cease. Notwithstanding
the prior sentence, benefits hereunder shall cease if the Company
determines, in its sole discretion, that a disabled Participant has
acted in any manner detrimental to the Company or its Affiliates or
to their customers.
3.5 INALIENABILITY OF BENEFITS. No Participant or benefi-
ciary of a Participant shall have any right to assign, pledge,
hypothecate, anticipate or any way create a lien on any amounts
payable hereunder. No amounts payable hereunder shall be subject to
assignment or transfer or otherwise be alienable, either by
voluntary or involuntary act, or by operation of law, or subject to
attachment, execution, garnishment, sequestration or other seizure
under any legal, equitable or other process, or be liable in any
way for the debts or defaults of Plan participants and their
beneficiaries. Notwithstanding the foregoing, assignments of the
benefits provided under this Plan shall be permitted for purposes
of satisfying family support obligations if such assignments are
pursuant to a court order which satisfies the requirements for a
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<PAGE>
"qualified domestic relations order" as defined in Section
206(d)(3) of the Act.
3.6 CLAIMS. Any claim for benefits hereunder shall be
submitted to the Company's Human Resources Department. If the
Basic Plan pays benefits to the Participant, benefits hereunder
shall become payable.
If an Employee, Participant or other person entitled to
benefits under the Plan is dissatisfied with the determination of
his or her benefits, eligibility, participation or any other right
or interest under this Plan, such person may file a written claim
setting forth the basis of the claim with the Company's Vice
President of Human Resources in a manner prescribed by the Plan
Administrator. In connection with the determination of a claim, or
in connection with review of a denied claim, the claimant may
examine this Plan and any other pertinent documents generally
available to Participants relating to the claim and may submit
comments in writing. A written notice of the disposition of any
such claim shall be furnished to the claimant within sixty (60)
days after the claim is filed with the Company's Vice President of
Human Resources, provided that the Vice President of Human
Resources shall be entitled to additional time to determine the
claim if he or she notifies the claimant in writing of the reason
for the extension and the date on which the determination will be
made. The notice of disposition of the claim shall refer, if
appropriate, to pertinent provisions of this Plan, shall set forth
in writing the reasons for denial of the claim if the claim is
denied (including references to any pertinent provisions of this
Plan), and where appropriate, shall explain how the claimant can
perfect the claim. If the claim is denied, in whole or in part,
the claimant shall also be notified in writing that a review
procedure is available. Thereafter, within ninety (90) days after
receiving the written notice of the Vice President of Human
Resources' disposition of the claim, the claimant may request in
writing, and shall be entitled to, a review meeting with the Plan
Administrator to present reasons why the claim should be allowed.
The claimant shall be entitled to be represented by counsel at the
review meeting. The claimant may also submit a written statement
of his or her claim and the reasons for granting the claim. Such
statement may be submitted in addition to, or in lieu of, the
review meeting with the Plan Administrator. If the claimant does
not request a review meeting within ninety (90) days after receiv-
ing written notice of the Vice President of Human Resources'
disposition of the claim, the claimant shall be deemed to have
accepted the Vice President of Human Resources' written disposi-
tion, unless the claimant shall have been physically or mentally
incapacitated so as to be unable to request review within the
ninety (90) day period. The Plan Administrator shall have the
right to request of and receive from a claimant within thirty (30)
days such additional information, documents or other evidence as
the Plan Administrator may reasonably require. A decision on
-5-
<PAGE>
review shall be rendered in writing by the Plan Administrator
ordinarily not later than sixty (60) days after review, and a
written copy of such decision shall be delivered to the claimant.
If special circumstances require an extension of the ordinary
period, the Plan Administrator shall so notify the claimant. In
any event, if a claim is not determined within one hundred twenty
(120) days after submission for review, it shall be deemed to be
denied. To the extent permitted by law, a decision on review by
the Plan Administrator shall be binding and conclusive upon all
persons whomsoever. To the extent permitted by law, completion of
the claims procedures described in this Section 3.6 shall be a
mandatory precondition that must be complied with prior to
commencement of a legal or equitable action in connection with the
Plan by a person claiming rights under the Plan, or by another
person claiming rights through such a person. The Plan Administra-
tor may, in its sole discretion, waive these procedures as a
mandatory precondition to such an action.
Notwithstanding the foregoing, if the claimant is the Vice
President of Human Resources or a person claiming through him or
her, the duties of the Vice President of Human Resources under this
Section 3.6 shall be assumed by the Company's Corporate Secretary.
SECTION IV. FUNDING
4.1 LIABILITY. The cost of this Plan shall be the obligation
of the Company, except as to the extent funded in the Trust or in
the Individual Policy.
4.2 CONTRIBUTIONS. The Company shall make such contributions
to the Trust as it deems proper, to fund obligations not expected
to be satisfied under the Individual Policy. The Company shall pay
premiums for the Individual Policy, directly or through the Trust.
4.3 TRUST AGREEMENT. The assets of the trust fund under this
Plan shall be held in the Trust established under the Trust
Agreement which shall contain such provisions as the Company and
the Trustee shall agree upon, including, but not limited to, provi-
sions with respect to the powers and authority of the Trustee and
the authority of the Company to amend the Trust Agreement, to
remove the Trustee and to appoint a new Trustee or Trustees in its
place, to terminate the Trust and to settle the accounts of the
Trustee on behalf of all persons having an interest in the Trust.
SECTION V. ADMINISTRATION
5.1 POWERS OF THE PLAN ADMINISTRATOR. The Plan Administrator
shall have the discretionary power and authority to perform the
administrative duties described in the Plan or as required for
proper administration of the Plan, and shall have all powers
necessary to enable it to properly carry out such duties. Without
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<PAGE>
limiting the generality of the foregoing, the Plan Administrator
shall have the power and discretion to construe and interpret the
Plan (including the right to remedy possible ambiguities, inconsis-
tencies and omissions, determine all questions relative to the
status and rights of a Participant, to determine the manner and
time of payment of benefits under the Plan, to compute the amount
of benefits which shall be payable to any Participant or anyone
claiming through him or her, to hear and resolve claims relating to
the Plan, to make final decision upon all questions and disputes
arising under the Plan, and to adopt and enforce any bylaws and
regulations as the Plan Administrator may deem necessary or
appropriate. All benefit disbursements by the Trustee shall be
made upon the instructions of the Plan Administrator. The decision
of the Plan Administrator upon all matters within the scope of its
authority shall be binding and conclusive on all persons.
5.2 SCOPE OF RESPONSIBILITY. The Plan Administrator, the
Company, the Employer and the Trustee shall perform the duties
respectively assigned to them under this Plan and shall not be
responsible for performing duties assigned to others under the
terms and provisions of this Plan. No inference of approval or
disapproval is to be made from the inaction of any party described
above or the employee or agent of any of them with regard to the
action of any other such party. The Company shall have authority
to employ advisors, legal counsel, accountants and investment
managers in connection with the administration of the Plan, and may
delegate to the Plan Administrator and/or the Trustee authority to
employ such persons. To the extent permitted by applicable law,
the Company, the Plan Administrator and the Trustee shall not be
liable for complying with the directions of any advisors, legal
counsel, and accountants pursuant to this SECTION V. Persons,
organizations or corporations acting in a position of any fiduciary
responsibility with respect to the Plan and/or the Trust Fund may
serve in more than one fiduciary capacity. The Company or the Plan
Administrator from time to time may delegate to any persons or
organizations any of the rights, powers, duties and responsibili-
ties of the Company or the Plan Administrator, respectively, with
respect to the operation and administration of the Plan, and the
Company or Plan Administrator may employ and authorize any person
to whom any of its or their fiduciary responsibility has been
delegated to employ persons to render advice with regard to any
fiduciary responsibility held hereunder.
5.3 INDEMNIFICATION. To the extent permitted by law, the
Company shall and does hereby jointly and severally indemnify and
agree to hold harmless its employees, agents and members of the
Plan Administrator from all loss, damage or liability, joint or
several, including payment of expenses in connection with defense
against any such claim, for their acts, omissions and conduct, and
for the acts, omissions and conduct of their duly appointed agents,
which acts, omissions or conduct constitute or are alleged to
constitute a breach of such individual's fiduciary or other
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responsibilities under the Act or any other law, except for those
acts, omissions or conduct resulting from his or her own willful
misconduct, willful failure to act or gross negligence; provided
however, that if any party would otherwise be entitled to indemni-
fication hereunder with respect to any liability and such party
shall be insured against loss as a result of such liability by any
insurance contract or contracts, such party shall be entitled to
indemnification hereunder only to the extent by which the amount of
such liability shall exceed the amount thereof payable under such
insurance contract or contracts. The Company may obtain insurance
covering itself and others for breaches of fiduciary obligations
under the Plan to the extent permitted by law, and nothing in this
Plan shall restrict the right of any person to obtain such
insurance for himself or herself in connection with the performance
of his or her duties under the Plan.
5.4 EXPENSES. The reasonable expenses incident to the
operation of the Plan, the compensation of actuaries, legal
counsel, accountants, advisors, and for such other technical and
clerical assistance as may be required, shall be paid from the
Trust unless paid by the Company. In the event the Plan is
terminated, the expenses of its administration after the date of
Plan termination shall be paid from the Trust.
SECTION VI. PLAN AMENDMENT OR TERMINATION
6.1 AMENDMENT. This Plan may be amended at any time by action
of the Board, except that no amendment shall reduce the benefits of
a Participant already in pay status. All amendments shall be in
writing, approved by the Board and executed by a duly authorized
officer of the Company.
6.2 TERMINATION. This Plan may be terminated at any time by
action of the Company. If the Plan is terminated, benefits to any
Participant in pay status shall continue for the same duration as
under the Basic Plan. No other Participant shall be entitled to
benefits hereunder following Plan termination.
SECTION VII. MISCELLANEOUS
7.1 LIMITATION ON PARTICIPANTS' RIGHTS. The Plan shall not
be deemed to constitute a contract between the Employer and any
Employee or to be a consideration or an inducement for the
employment of any Employee by the Employer. Nothing contained in
the Plan shall be deemed to give any Employee the right to be
retained in the service of the Employer or to interfere with the
right of the Employer to discharge or to terminate the service of
any Employee at any time without regard to the effect such
discharge or termination may have on any rights under the Plan.
The Employer reserves the right to dismiss any Employee without any
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liability for any claim either against the Trust, except to the
extent herein provided, or against the Employer.
7.2 CONSTRUCTION. The masculine gender, where appearing in
this Plan, shall include the feminine gender, and vice versa, and
the singular may include the plural, unless the context clearly
indicates to the contrary. Headings and subheadings are for the
purpose of reference only and are not to be considered in the
construction of this Plan.
Any term or provision needed to interpret or apply the
provisions of this Plan shall be as provided in the applicable
section of the Basic Plan. In the event of a conflict between the
provisions of the Plan or an Individual Policy and the provisions
of the Basic Plan, the terms of the Basic Plan shall control. In
the event of a conflict between the provisions of the Plan and an
Individual Policy, the terms of the Plan shall control.
7.3 SEVERABILITY. If any provision of this Plan is deter-
mined to be for any reason invalid or unenforceable, the remaining
provisions shall continue in full force and effect.
7.4 GOVERNING LAW. All of the provisions of this Plan shall
be construed and enforced according to the laws of the State of
Arizona and shall be administered according to the laws of such
state, except as otherwise required by the Act, the Code or other
Federal law.
7.5 HEIRS AND SUCCESSORS. All of the provisions of the Plan
shall be binding upon all persons who shall be entitled to any
benefit under the Plan, their heirs and legal representatives.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed as of the 20th day of March, 1996.
TALLEY MANUFACTURING AND
TECHNOLOGY, INC.
Witness:
By: Mark S. Dickerson By: William H. Mallender
---------------------- -----------------------
Its: Corporate Secretary Its: Chairman and CEO
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EXHIBIT 99.6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
EXECUTIVE RESTORATION BENEFIT PLAN
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
EXECUTIVE RESTORATION BENEFIT PLAN
Declaration
Effective January 1, 1996, TALLEY MANUFACTURING AND
TECHNOLOGY, INC. (the "Company") hereby establishes the TALLEY
MANUFACTURING AND TECHNOLOGY, INC. EXECUTIVE RESTORATION BENEFIT
PLAN (the "Plan") as a means of restoring to a select group of
executives and key employees of the Company and its Affiliates
benefits under certain tax qualified retirement and savings plans
maintained by the Company and its Affiliates which they lost as a
result of the operation of the Internal Revenue Code of 1986, as
amended (the "Code").
The Plan has been established and will be maintained in
part as an "excess benefit plan" described in accordance with
Section 3(36) of the Employee Retirement Income Security Act of
1974, as amended (the "Act") and exempt under Section 4(b) of the
Act and in part as a non-qualified form of executive compensation
exempt from the participation, vesting, funding and fiduciary re-
sponsibility provisions of the Act under Sections 201(2), 301(a)(3)
and 401(a)(1) of the Act.
SECTION 1
Definitions and Construction
1.1 When a word or phrase shall appear in this Plan with
the initial letter capitalized, and the word or phrase does not
commence a sentence, the word or phrase shall generally have the
meaning given in Article Two of the Retirement Plan of Talley
Manufacturing and Technology, Inc., governing definitions and
construction, unless such term is defined in this Section 1.1. or
a clearly different meaning is required by the context in which the
word or phrase is used. The following words and phrases with the
initial letter capitalized shall have the meanings set forth in
this Section 1.1:
(a) "Act" - The Employee Retirement Income Security
Act of 1974, as amended.
(b) "Affiliate" - A corporation other than the
Company that is a member of a "controlled group of
corporations" (within the meaning of Section 414(b) of
the Code) or of a group of trades or businesses under
common control (within the meaning of section 414(c) of
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<PAGE>
the Code) that also includes the Company (as a member of
the group).
(c) "Board" - The Board of Directors of the
Company.
(d) "Code" - The Internal Revenue Code of 1986, as
amended from time to time.
(e) "Committee" - The committee appointed by the
Board to administer the terms and provisions of the Plan.
The duties and responsibilities of the Committee are more
particularly described in Section 5 of this Plan.
(f) "Company" - TALLEY MANUFACTURING AND
TECHNOLOGY, INC., a Delaware corporation, and each
corporation that succeeds to substantially all of the
business of the Company.
(g) "Crediting Rate" - For a Plan Year, a rate of
interest equal to the highest rate of interest charged on
the outstanding debt of the Company during the twelve
(12) consecutive month period ending on the November 30
preceding that Plan Year, as determined by the Company's
Treasurer in his discretion.
(h) "Effective Date" - January 1, 1995.
(i) "Employer" - The Company and those of its
Affiliates which have adopted this Plan (by action of
their respective boards of directors with the consent of
the Board). Adopting Affiliates shall also delegate to
the Board all authority to amend or terminate the Plan.
(j) "Participant" - Each employee of the Employer
who as of or after the Effective Date has satisfied the
eligibility requirements specified in Section 2.1 and who
has been designated for participation by the Committee
pursuant to Section 2.1 and whose participation has not
terminated.
(k) "Plan" - The TALLEY MANUFACTURING AND
TECHNOLOGY, INC. EXECUTIVE RESTORATION BENEFIT PLAN, as
the same may be amended from time to time.
(l) "Plan Year" - The fiscal year used pursuant to
this Plan, which is the twelve (12) consecutive month
period commencing each January 1.
(m) "Retirement Plan" - The defined benefit pension
plan or defined contribution money purchase pension plan
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sponsored by the Employer for its employees which
satisfies the requirements of Section 401(a) of the Code.
(n) "Savings Plan" - The defined contribution
thrift plan or cash or deferred plan sponsored by the
Employer for its employees which satisfies the require-
ments of Section 401(a) of the Code.
(o) "Service" - For purposes of determining a Par-
ticipant's benefits under Section 3.1, the Participant
shall be credited with all service with which he is
credited under a Retirement Plan which is a defined
benefit plan and all service with which he is credited
after the Effective Date under a Retirement Plan which is
a defined contribution money purchase plan, and for
purposes of determining the Participant's benefits under
Section 3.3, the Participant shall be credited with all
service with which he is credited after the Effective
Date under the Savings Plan.
1.2 The masculine gender, where appearing in this Plan,
shall include the feminine gender, and vice versa, and the singular
may include the plural, unless the context clearly indicates to the
contrary. Headings and subheadings are for the purpose of refer-
ence only and are not to be considered in the construction of this
Plan.
This Plan shall be construed together with the Retirement
Plan and Savings Plan in order to effectuate full accrual and pay-
ment of all the benefits described hereunder. Any reference in
this Plan to the Company's actuarial consultants shall refer to the
actuarial consulting firm designated by the Board from time to
time. It is the intention of the Company that the Plan, as adopted
by the Company, shall constitute an "unfunded plan of deferred com-
pensation for a select group of management and highly compensated
employees" within the meaning of Sections 201(2), 301(3) and
401(a)(1) of the Act. This Plan shall be construed in a manner
consistent with the Company's intention.
SECTION 2
Eligibility and Vesting
2.1 Any executive or key employee of the Employer shall
be eligible for consideration as a Participant in this Plan, in
whole or in part. The Committee may, in its discretion, designate
as Participants those employees whose benefits under the Retirement
Plan and/or whose share of employer contribution allocations under
the Savings Plan will be reduced by reason of
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<PAGE>
(a) the limitations of Section 415 of the Code and
the terms and provisions of the Plan, as determined by
the Company's actuarial consultants;
(b) the annual limitation on the compensation which
may be taken into account under the Retirement Plan
and/or the Savings Plan each Plan Year (as adjusted
annually for increases in the cost of living in accor-
dance with Section 415(d) of the Code) under
Section 401(a)(17) of the Code;
(c) the limitation imposed by Section 402(g) of the
Code on the contributions that may be made by a
Participant on a pre-tax basis;
(d) the limitations imposed by Section 401(k)(3)(A)
of the Code on the contributions that may be made by a
Participant who is a "highly compensated employee" (as
defined in Code Section 414(q)) on a pre-tax basis in
order to satisfy the nondiscrimination tests set forth in
said Code section; or
(e) the limitations imposed by Section 401(m) of
the Code on the aggregate employer matching contributions
and voluntary after-tax employee contributions that may
be made by or on behalf of a Participant who is a "highly
compensated employee" (as defined in Code Section 414(q))
in order to satisfy the nondiscrimination tests set forth
in said Code section.
The Committee may designate employees as Participants in one (1) or
more of the features of the Plan as set forth above in this Sec-
tion 2.1 in connection with their participation in the Retirement
Plan and/or the Savings Plan. Designation of an employee as a
Participant with respect to one (1) such plan but not the other
shall not give the employee the right to participate in this Plan
with respect to the plan as to which the employee has not been
specifically designated as a Participant by the Committee. An
employee shall be advised of which of the foregoing features of the
Plan he is entitled to participate in and any limitations on the
employee's participation at the time of his designation as a
Participant in the Plan. An employee who is a Participant in
one (1) or more features of this Plan may not be removed from
participation in this Plan until he has received payment of all
amounts accrued by him under such features.
2.2 A Participant shall be vested in his benefits under
this Plan which correspond to the Retirement Plan on the date on
which he is vested in his benefits under the Retirement Plan, and
shall vest in his benefits under this Plan which correspond to the
Savings Plan on the date on which he is vested in his benefits
under the Savings Plan.
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<PAGE>
SECTION 3
Benefits
3.1 Any Participant selected by the Committee to
participate in the features set forth in Section 2.1(a) and (b) of
this Plan and who participates in the Retirement Plan (or his
spouse or other beneficiary in the event of the Participant's
death) shall be entitled to a benefit hereunder equal to the
benefit the Participant (or his spouse or other beneficiary) would
have received under the terms of the Retirement Plan in the absence
of the limitations of Section 415 of the Code, and the limitation
on compensation that may be taken into account for the Plan Year
under Section 401(a)(17) of the Code and the corresponding
provisions of the Retirement Plan, reduced by the pension payable
to the Participant (or spouse or other beneficiary) under the
normal form of benefit distribution specified in the Retirement
Plan.
3.2 Vested benefits payable pursuant to Section 3.1
shall be payable in the same form and at the same time as the
Participant's benefits under the Retirement Plan and shall be
calculated using the factors specified in the Retirement Plan for
such purpose. A Participant's vested interest shall be determined
in accordance with Section 2.2.
3.3 Any Participant selected by the Committee to
participate in the features set forth in Section 2.1 and who
participates in the Savings Plan (or his spouse or other beneficia-
ry in the event of the death of the Participant) shall be entitled
to a benefit hereunder equal to the sum of (a) the aggregate amount
of employer contributions and forfeitures (but not employee pre-tax
or after-tax contributions) that would have been allocated to the
Participant's accounts under the Savings Plan for each Plan Year
beginning after December 31, 1994, but for (i) the limitations of
Section 415 of the Code, (ii) the limitation on compensation that
may be taken into account for the Plan Year under Section
401(a)(17) of the Code, (iii) the annual limitation on pre-tax
contributions under Section 402(g) of the Code, (iv) the limita-
tions on pre-tax contributions imposed on "highly compensated
employees" (as defined in Section 414(q) of the Code) under
Section 401(k)(3)(A) of the Code, (v) the limitations on the
aggregate employer matching contributions and employee voluntary
after-tax contributions made by or on behalf of "highly compensated
employees" (as defined in Code Section 414(q)) under Section 401(m)
of the Code, and (vi) the corresponding provisions of the Savings
Plan, reduced by the aggregate amount of employer contributions and
forfeitures actually allocated to the Participant's accounts under
the Savings Plan for each Plan Year beginning after December 31,
1994, during which the Participant participated in the Plan, and
(b) interest, compounded annually, on the amount determined under
Section 3.3(a) as of the end of each Plan Year. The rate of
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<PAGE>
interest credited each such Plan Year shall be the Crediting Rate.
If a Participant terminates employment prior to the end of a Plan
Year, interest will be credited for that Plan Year based on the
amount determined under Section 3.3(a) as of the date of the
Participant's termination of employment and the number of full
months that the Participant was employed with the Employer during
the Plan Year prior to his or her termination of employment.
Pursuant to the terms and provisions of the Savings Plan, no amount
shall be payable pursuant to this Section 3.3 on account of the
fact that a Participant directed contributions under the Savings
Plan at a rate less than the maximum rate permitted under the
Savings Plan, except as may have been required as a result of
(A) the limitations of Section 415 of the Code, (B) the limitation
on compensation set forth in Section 401(a)(17) of the Code,
(C) the annual limitation on pre-tax contributions under
Section 402(g) of the Code, (D) the limitations on pre-tax
contributions imposed on "highly compensated employees" (as defined
in Section 414(q) of the Code) under Section 401(k)(3)(A) of the
Code, (E) the limitations on the aggregate employer matching
contributions and employee voluntary contributions made by or on
behalf of "highly compensated employees" (as defined in Code
Section 414(q)) under Section 401(m) of the Code, and (F) the
corresponding provisions of the Savings Plan.
3.4 Vested benefits payable pursuant to Section 3.3
shall be payable in the form of a lump sum no later than sixty (60)
days after the end of the Plan Year in which the Participant
terminated his employment with the Employer. A Participant's
vested interest shall be determined in accordance with Section 2.2.
3.5 Notwithstanding any provisions to the contrary in
this Plan, a Participant's compensation for purposes of determining
his or her benefits under Section 3.1 or Section 3.2, shall include
amounts which would have constituted Earnings for purposes of the
Retirement Plan or Base Pay for purposes of the Savings Plan but
for the Participant's election to defer such amounts pursuant to
the terms of the Talley Manufacturing and Technology, Inc.
Executive Bonus Deferral Plan.
3.6 If it is determined that any Participant or benefi-
ciary under the Plan is subject to Federal income taxation on
benefits accruing under this Plan in a taxable year prior to the
taxable year of receipt of such benefits, the Committee may, in its
sole and absolute discretion, direct the Employer to pay such
individual an amount equal to the amount by which, if any, the
Company's actuarial consultant determines, in its sole and
exclusive discretion, the Participant's Federal income taxes have
been increased by reason of such inclusion. In the event of such
payment, benefits payable hereunder shall be reduced by the
actuarial equivalent of such payment, with such actuarial
equivalent being determined by the Company's actuarial consultant,
in its sole and absolute discretion.
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<PAGE>
3.7 Notwithstanding the foregoing, the Company may, in
its discretion, adjust the payments made to Participants under
Section 3.2 and/or 3.4 to reflect cost-of-living adjustments and
other changes to (i) the limitations of Section 415 of the Code,
(ii) the limitation on compensation that may be taken into account
for the Plan Year under Section 401(a)(17) of the Code, (iii) the
annual limitation on pre-tax contributions under Section 402(g) of
the Code, (iv) the limitations on pre-tax contributions imposed on
"highly compensated employees" (as defined in Section 414(q) of the
Code) under Section 401(k)(3)(A) of the Code, and (v) the limita-
tions on the aggregate employer matching contributions and employee
voluntary after-tax contributions made by or on behalf of "highly
compensated employees" (as defined in Code Section 414(q)) under
Section 401(m) of the Code, to the extent that such cost-of-living
adjustments and other changes result in the Participants receiving
larger benefits from the Retirement Plan and/or the Savings Plan.
3.8 Notwithstanding anything to the contrary in this
Plan, benefits accrued by a Participant under the Plan shall be
forfeited and benefit payments shall cease if the Company deter-
mines, in its sole and absolute discretion, that the Participant
has acted in any manner detrimental to the Company or its Affili-
ates or to their customers.
SECTION 4
Liability of Employer
4.1 The benefits under this Plan shall be paid by the
Employer and may be paid directly by the Employer or through
another party as the Committee shall determine. The Employer shall
remain directly liable for all benefits payable hereunder, but may
establish a reserve account, trust fund or other funding medium to
provide a source of accumulation of amounts the Employer may be
obligated to pay hereunder. The Employer shall reserve and/or
accumulate funds for the payment of benefits hereunder on a prudent
actuarial basis, after consultation with the Company's actuarial
consultants.
4.2 Notwithstanding any provisions in this Plan to the
contrary, the benefits payable pursuant to Section 3 may be funded
by the Employer through the purchase of a life insurance policy
insuring the life of the Participant or otherwise. The Employer
shall be under no obligation to purchase a life insurance policy to
fund such benefits, and no such purchase shall grant any rights of
ownership in the policy to the Participant.
4.3 A Participant shall be a general creditor of the
Employer as to the payment of any benefit under this Plan, but a
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<PAGE>
separate account shall be established under the Participant's name
and his benefits shall be reserved pursuant to Section 4.1.
SECTION 5
Administration
5.1 Except for the functions reserved to the Company,
the Board or the Chairman of the Board, administration of the Plan
shall be the responsibility of a committee, described in this Plan
as the "Committee", which shall be comprised of the members of the
Executive Compensation Committee of the Board or the successor
thereto.
5.2 The Committee shall have the power and the duty to
take all actions necessary and proper to carry out the provisions
of this Plan. In carrying out its duties and responsibilities
under this Plan, the Committee shall act for the exclusive benefit
of Plan Participants and shall construe this Plan and perform its
duties for the purpose of providing the benefits promised under
this Plan.
5.3 In administering the Plan, the Committee shall:
(a) designate eligible employees for participation;
(b) furnish to all Participants, upon request,
copies of the Plan;
(c) inform Participants as to the manner of making
benefit elections under this Plan and selecting modes of
payment under this Plan;
(d) take whatever action is necessary in fulfilling
the purposes and intent of this Plan.
5.4 The Committee may appoint a person or persons to act
in the day-to-day administration of the Plan, which persons may or
may not include Participants or members of the Committee.
5.5 If an employee, Participant or other person entitled
to benefits under the Plan is dissatisfied with the determination
of his or her benefits, eligibility, participation or any other
right or interest under this Plan, such person may file a written
claim setting forth the basis of the claim with the Company's Vice
President of Human Resources in a manner prescribed by the
Committee. In connection with the determination of a claim, or in
connection with review of a denied claim, the claimant may examine
this Plan and any other pertinent documents generally available to
Participants relating to the claim and may submit comments in
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writing. A written notice of the disposition of any such claim
shall be furnished to the claimant within sixty (60) days after the
claim is filed with the Company's Vice President of Human Resourc-
es, provided that the Vice President of Human Resources shall be
entitled to additional time to determine the claim if he or she
notifies the claimant in writing of the reason for the extension
and the date on which the determination will be made. The notice
of disposition of the claim shall refer, if appropriate, to
pertinent provisions of this Plan, shall set forth in writing the
reasons for denial of the claim if the claim is denied (including
references to any pertinent provisions of this Plan), and where
appropriate, shall explain how the claimant can perfect the claim.
If the claim is denied, in whole or in part, the claimant shall
also be notified in writing that a review procedure is available.
Thereafter, within ninety (90) days after receiving the written
notice of the Vice President of Human Resources' disposition of the
claim, the claimant may request in writing, and shall be entitled
to, a review meeting with the Committee to present reasons why the
claim should be allowed. The claimant shall be entitled to be
represented by counsel at the review meeting. The claimant may
also submit a written statement of his or her claim and the reasons
for granting the claim. Such statement may be submitted in
addition to, or in lieu of, the review meeting with the Committee.
If the claimant does not request a review meeting within ninety
(90) days after receiving written notice of the Committee's
disposition of the claim, the claimant shall be deemed to have
accepted the Committee's written disposition, unless the claimant
shall have been physically or mentally incapacitated so as to be
unable to request review within the ninety (90) day period. The
Committee shall have the right to request of and receive from a
claimant within thirty (30) days such additional information,
documents or other evidence as the Committee may reasonably re-
quire. A decision on review shall be rendered in writing by the
Committee ordinarily not later than sixty (60) days after review,
and a written copy of such decision shall be delivered to the
claimant. If special circumstances require an extension of the
ordinary period, the Committee shall so notify the claimant. In
any event, if a claim is not determined within one hundred twenty
(120) days after submission for review, it shall be deemed to be
denied. To the extent permitted by law, a decision on review by
the Committee shall be binding and conclusive upon all persons
whomsoever. To the extent permitted by law, completion of the
claims procedures described in this Section 5.5 shall be a
mandatory precondition that must be complied with prior to
commencement of a legal or equitable action in connection with the
Plan by a person claiming rights under the Plan, or by another
person claiming rights through such a person. The Committee may,
in its sole discretion, waive these procedures as a mandatory
precondition to such an action.
Notwithstanding the foregoing, if the claimant is the
Vice President of Human Resources or a person claiming through him
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or her, the duties of the Vice President of Human Resources under
this Section 5.5 shall be assumed by the Company's Corporate
Secretary.
SECTION 6
Amendment and Termination
6.1 The Board shall have the power to amend, modify,
suspend or terminate this Plan in whole or in part at any time;
provided that no amendment, modification, suspension or termination
shall deprive a Participant or person claiming benefits under this
Plan through the Participant of any benefit accrued under Section
3.1 or Section 3.3 of this Plan as of the date of the amendment,
modification, suspension or termination unless such amendment,
modification, suspension or termination is intended to preclude
Participants from becoming subject to tax upon amounts credited
hereunder prior to the date on which such amounts are distributed
or to comply with applicable law. For the purpose of determining
the level of benefits accrued under this Plan in the event of
termination or suspension, (a) with respect to benefits accruing
under Section 3.1, the Participant's normal retirement benefit
under the Retirement Plan (in the absence of Sections 401(a)(17)
and 415 of the Code and in the absence of the corresponding
provisions of the Retirement Plan) shall be determined as of the
date of termination or suspension, assuming continued employment to
the normal retirement date and assuming that the Participant's
Earnings for the last completed calendar year continue to attain-
ment of the normal retirement date, less the amount actually
payable to the Participant under the Retirement Plan (assuming such
employment and Earnings), with the resulting total then being
multiplied by a fraction, the numerator of which is the Service
credited to the Participant as of the date of the termination or
suspension and the denominator of which is the Service that the
Participant would have been credited with upon attainment of his
normal retirement date, and (b) with respect to benefits accruing
under Section 3.3, the Participant's benefit shall be the amount
determined under Section 3.3 as of the date of termination or
suspension.
The fact that a director is, has been, or will be, a
Participant in this Plan shall not disqualify such Participant from
voting as a director for or against an extension, discontinuance,
modification or termination of this Plan or any part thereof.
6.2 The Company intends to continue this Plan indefi-
nitely, but nevertheless assumes no contractual obligation beyond
the promise to pay the accrued benefits described under this Plan.
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6.3 If this Plan is terminated by the Board pursuant to
the provisions of this Section 6, a Participant shall be entitled
to the benefits accrued as of the date of such termination. For
purposes of this Section 6.3, a Participant's accrued benefit (i)
attributable to a Retirement Plan which is a defined benefit
pension plan shall be based on the Participant's compensation in
the year of termination, (ii) attributable to a Retirement Plan
which is a money purchase pension plan shall be the Participant's
account balance determined under Section 3.1 as of the date of
termination, and (iii) attributable to the Savings Plan shall be
the Participant's account balance determined under Section 3.3 as
of the date of termination.
SECTION 7
Miscellaneous
7.1 Nothing contained in this Plan shall be construed as
a contract of employment between the Employer and an employee, or
as a right of any employee to be continued in the employment of the
Employer, or as a limitation of the right of the Employer to dis-
charge any of its employees, with or without cause.
7.2 No Participant or spouse or beneficiary of a
Participant shall have any right to assign, pledge, hypothecate,
anticipate or any way create a lien on any amounts payable
hereunder. No amounts payable hereunder shall be subject to
assignment or transfer or otherwise be alienable, either by
voluntary or involuntary act, or by operation of law, or subject to
attachment, execution, garnishment, sequestration or other seizure
under any legal, equitable or other process, or be liable in any
way for the debts or defaults of Participants and their benefici-
aries. Notwithstanding the foregoing, persons to whom a Partici-
pant owes spousal or child support shall have the same rights, with
respect to a Participant's interest in this Plan, as they have with
respect to the Participant's interest in the Retirement Plan or the
Savings Plan, as applicable.
7.3 If a person entitled to any payment hereunder shall
in the sole judgment of the Committee be under a legal disability,
or shall otherwise be unable to apply such payment to this own
interest and advantage, the Committee in the exercise of its
discretion may direct the Employer to make any such payment in any
one (1) or more of the following ways: (a) directly to such person,
(b) to his legal guardian or conservator, or (c) to his spouse or
to any person charged with the duty of his support, to be expended
for his benefit and/or that of his dependents. The decision of the
Committee shall in each case be final and binding upon all persons
in interest, unless the Committee shall revise its decision due to
changed circumstances.
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7.4 If any provision of this Plan is determined to be
for any reason invalid or unenforceable, the remaining provisions
shall continue in full force and effect. The provisions of the Plan
shall be construed and governed under the laws of the State of
Arizona, except as otherwise required by federal law.
7.5 Any taxes required to be withheld from payments to
Participants hereunder shall be deducted and withheld by the
Employer.
7.6 Nothing contained in this Plan shall prevent a
Participant prior to his death, or his spouse or other beneficiary
after his death, from receiving, in addition to any payments
provided for under this Plan, any payments provided for under the
Retirement Plan and/or Savings Plan, or which would otherwise be
payable or distributable to him, his surviving spouse or benefici-
ary under any plan or policy of the Employer or otherwise. Nothing
in this Plan shall be construed as preventing the Company or any of
its Affiliates from establishing any other or different plans
providing for current or deferred compensation for employees.
7.7 All of the provisions of this Plan shall be binding
upon all persons who shall be entitled to any benefit hereunder,
their heirs and personal representatives.
Executive Compensation Committee
Adopted: October 25 , 1996
Donald J. Ulrich, Jr.
-----------------------------
Chairman
TALLEY MANUFACTURING AND
TECHNOLOGY, INC.
By William H. Mallender
-----------------------------
Its Chairman
--------------------------
Attest:
By Mark S. Dickerson
------------------------------
Its Secretary
------------------------------
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EXHIBIT 99.7
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
TRUST UNDER THE EXECUTIVE BENEFIT PLANS
This Agreement made this 20th day of March , 1996, by and
between TALLEY MANUFACTURING AND TECHNOLOGY, INC. ("Company") and
MARSHALL & ILSLEY TRUST COMPANY OF ARIZONA ("Trustee");
WHEREAS, Company has established the nonqualified deferred
compensation plans as listed in the Appendix (the "Plans") to
provide benefits to certain employees of it and its Affiliates
(singularly and collectively, "Employer");
WHEREAS, Company has incurred or expects to incur liability
under the terms of such Plans with respect to the individuals
participating in such Plans;
WHEREAS, Employer wishes to establish a trust (hereinafter
called the "Trust") and to contribute to the Trust assets that
shall be held therein, subject to the claims of creditors upon
Employer's Insolvency, as herein defined, until paid to Plan
participants and their beneficiaries in such manner and at such
times as specified in the Plans;
WHEREAS, it is the intention of the parties that this Trust
shall constitute an unfunded arrangement and shall not affect the
status of the Plans as unfunded plans maintained for the purpose of
providing deferred compensation for a select group of management or
highly compensated employees for purposes of Title I of the
Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of Employer to make contributions
to or on behalf of the Trust to provide a source of funds to assist
it in meeting its liabilities under the Plans.
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as
follows:
Section 1. Establishment of Trust.
(a) Company hereby deposits with Trustee in trust $1,000,
which shall become the principal of the Trust to be held, adminis-
tered and disposed of by Trustee as provided in this Trust
Agreement.
(b) The Trust hereby established is revocable by Company; it
shall become irrevocable upon a Change of Control, as defined
herein.
(c) The Trust is intended to be a grantor trust, of which
Company is the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Internal Revenue Code of
1986, as amended, and shall be construed accordingly.
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<PAGE>
(d) The principal of the Trust and any earnings thereon shall
be held separate and apart from other funds of Employer and shall
be used exclusively for the uses and purposes of Plan participants
and general creditors as herein set forth. Plan participants and
their beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plans and this Trust Agreement shall be
mere unsecured contractual rights of Plan participants and their
beneficiaries against Employer. Any assets held by the Trust will
be subject to the claims of Employer's general creditors under
federal and state law in the event of Insolvency, as defined in
Section 3(a) herein.
(e) Company shall make contributions to or on behalf of the
Trust in amounts at least equal to the insurance premiums due, if
any, plus any amounts which the Company determines, in its discre-
tion, to contribute for the purpose of funding any uninsured Plan
benefits. Company may, in its sole discretion, at any time, or
from time to time, make additional deposits of cash or other
property in trust with Trustee to augment the principal to be held,
administered and disposed of by Trustee as provided in this Trust
Agreement. Neither Trustee nor any Plan participant or beneficiary
shall have any right to compel such additional deposits.
Upon a Change of Control, as defined in Section 13(d), Company
shall, as soon as possible, but in no event more than thirty (30)
days following the Change of Control, make an irrevocable contribu-
tion to the Trust in an amount that is sufficient to fully fund all
benefits, whether insured or uninsured, payable to each Plan par-
ticipant or beneficiary affected by the Change of Control under the
terms of the Plans as of the date on which the Change of Control
occurred, as well as the benefits to which each such participant or
his or her beneficiary would have been entitled under the Talley
Manufacturing and Technology, Inc. Executive Post-Retirement
Medical Plan upon retirement from Employer.
(f) Trustee shall establish and maintain separate bookkeeping
accounts for each Employer reflecting such Employer's allocable
share of assets of the Trust. Upon the occurrence of Employer's
Insolvency, Trustee shall allocate to the bookkeeping account
maintained for that Employer its allocable share of the assets of
the Trust. Prior to Employer's Insolvency or a Change of Control,
Company shall have the authority and discretion to instruct Trustee
regarding the allocation of Trust assets to the separate bookkeep-
ing accounts of Employer.
Section 2. Payments to Plan Participants and Their Beneficia-
ries.
(a) Company shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each
Plan participant (and his or her beneficiaries), that provides a
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<PAGE>
formula or other instructions acceptable to Trustee for determining
the amounts so payable, the form in which such amounts are to be
paid (as provided for or available under the Plans), and the time
of commencement for payment of such amounts. Except as otherwise
provided herein, Trustee shall make payments to the Plan partici-
pants and their beneficiaries in accordance with such Payment
Schedule. Trustee shall make provision for the reporting and
withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits
pursuant to the terms of the Plans and shall pay amounts withheld
to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by Employer.
(b) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plans shall be determined by
Company or such party as may be designated under the Plans, and any
claim for such benefits shall be considered and reviewed under the
procedures set out in the Plans.
(c) Employer may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the
terms of the Plans. Company shall notify Trustee of Employer's
decision to make payment of benefits directly prior to the time
amounts are payable to participants or their beneficiaries. In
addition, if the principal of the Trust, and any earnings thereon,
are not sufficient to make payments of benefits in accordance with
the terms of the Plans, Employer shall make the balance of each
such payment as it falls due. Trustee shall notify Company where
principal and earnings are not sufficient.
(d) Notwithstanding the foregoing, but subject to Section 3,
if the Executive Compensation Committee of Company determines, in
its discretion, that it would be in the best interest of Company to
terminate and liquidate the Trust, it shall so advise Trustee in
writing and direct Trustee, in writing, to distribute the assets of
the Trust to Plan participants and their beneficiaries in payment
of the benefits which such participants have accrued under the
Plans as of the termination date of the Trust. Upon receipt of
such written direction, Trustee shall liquidate the Trust and
distribute, on a uniform basis, Trust assets to Plan participants
and beneficiaries as directed. Trustee shall return any assets
remaining in the Trust after such distribution to Company.
Section 3. Trustee Responsibility Regarding Payments When
Employer Is Insolvent.
(a) Trustee shall cease payment of benefits to Plan partici-
pants who are employees of Employer and their beneficiaries if
Employer is Insolvent. An Employer shall be considered "Insolvent"
for purposes of this Trust Agreement if (i) Employer is unable to
pay its debts as they become due, or (ii) Employer is subject to a
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<PAGE>
pending proceeding as a debtor under the United States Bankruptcy
Code.
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the
Trust shall be subject to claims of general creditors of Employer
under federal and state law as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of Company shall have the duty to inform Trustee in writing
of Employer's Insolvency. If a person claiming to be a creditor of
Employer alleges in writing to Trustee that Employer has become In-
solvent, Trustee shall determine whether Employer is Insolvent and,
pending such determination, Trustee shall discontinue payment of
benefits to Plan participants who are employees of that Employer or
to their beneficiaries.
(2) Unless Trustee has actual knowledge of
Employer's Insolvency, or has received notice from Company,
Employer or a person claiming to be a creditor alleging that
Employer is Insolvent, Trustee shall have no duty to inquire
whether Employer is Insolvent. Trustee may in all events rely on
such evidence concerning Employer's solvency as may be furnished to
Trustee by Company and that provides Trustee with a reasonable
basis for making a determination concerning Employer's solvency.
(3) If, at any time, Trustee has determined that
Employer is Insolvent, Trustee shall discontinue payments to Plan
participants who are employees of an Insolvent Employer or their
beneficiaries and shall hold the assets of the Trust credited to
Employer's account pursuant to Section 1(f) for the benefit of
Employer's general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights as general creditors of
Employer with respect to benefits due under the Plans or otherwise.
The Insolvency of one Employer shall not affect the rights
hereunder of any other Employer which is not Insolvent.
(4) Trustee shall resume the payment of benefits to
Plan participants or their beneficiaries in accordance with Section
2 of this Trust Agreement only after Trustee has determined that
Employer is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to
Section 3(b) hereof and subsequently resumes such payments, the
first payment following such discontinuance shall include the ag-
gregate amount of all payments due to Plan participants or their
beneficiaries under the terms of the Plans for the period of such
discontinuance, less the aggregate amount of any payments made to
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<PAGE>
Plan participants or their beneficiaries by Employer in lieu of the
payments provided for hereunder during any such period of discon-
tinuance.
Section 4. Payments to Employer.
Except as provided in Section 2(d) or Section 3 hereof, after
the Trust has become irrevocable, Company shall have no right or
power to direct Trustee to return to it or to Employer or to divert
to others any of the Trust's assets before all payments of benefits
have been made to Plan participants and their beneficiaries pur-
suant to the terms of the Plans. Trustee shall return any assets
remaining in the Trust after payment of all benefits due under the
Plans to Company.
Section 5. Investment Authority.
In the investment, administration and distribution of the
assets of the Trust, Trustee, subject only to its duty to apply the
proceeds and avails of all assets of the Trust to the purposes
specified in the Plans and to the restrictions of applicable law,
may perform every act in the management of the Trust which
individuals may perform in the management of like property owned by
them free of any trust, and may exercise every power with respect
to each item of property in the Trust, real and personal, which
individual owners of like property can exercise, including by way
of illustration, but not by way of limitation, the following
powers:
(a) To pledge or mortgage, assign, lease, contract to
lease, exercise, grant or acquire options to purchase or sell,
sell for cash or on credit at a private or public sale, con-
vert, redeem, exchange for other securities or other property
in which the Trust hereunder may be invested under this Trust
Agreement, or otherwise dispose of any securities or other
property at any time held by it;
(b) To settle, compromise, contest or submit to arbitra-
tion any claims, debts or damages due or owing to or from the
Trust, and to commence or defend suits or legal proceedings,
and to represent this trust in all suits or legal proceedings;
(c) To exercise any conversion privilege or subscription
right available in connection with any securities or property
at any time held by it; to consent to the reorganization,
consolidation, merger or readjustment of the finances of any
corporation, company or association, or to the sale, mortgage,
pledge or lease of the property of any corporation, company or
association, any of the securities of which may at any time be
held by it; and to do any acts with reference thereto,
including the granting and/or exercise of options, making of
agreements or subscriptions, and the payment of expenses,
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<PAGE>
deemed to be necessary or advisable in connection therewith, and to
hold and retain any securities or other property which Trustee may
so acquire;
(d) To vote any corporate stock belonging to the Trust
hereunder and to give proxies or general or limited powers of
attorney for the purpose of such voting to other persons with
or without power of substitution;
(e) To tender or exchange any corporate stock belonging
to the Trust hereunder;
(f) To borrow money from Trustee or others, assume
indebtedness, extend mortgages and encumber by mortgage or
pledge upon such terms and conditions as may be deemed
advisable by Trustee;
(g) To lease property on any terms or conditions and for
any term of years, but not extending beyond the period of the
Trust hereunder; to manage, insure, administer, operate,
repair, improve and mortgage or lease, regardless of any
restrictions on leases; to renew or extend or to participate
in the renewal or extension of any mortgage or lease, and to
agree to the reduction in the interest on any mortgage or
other modification or change in the terms of any mortgage,
guarantee thereof or lease in any manner and upon such terms
as may be deemed advisable; to alter and partition real
estate, erect or raze improvements, grant easements or subdi-
vide;
(h) To collect the income, rents, issues, profits and
increases of the Trust hereunder through such means as are
deemed advisable;
(i) To invest all or a part of the Trust hereunder in
interest-bearing deposits with Trustee in its separate
corporate capacity, or with any other banking institution
affiliated with Trustee, or with any other bank at a reason-
able rate of interest, including but not limited to investment
in time deposits, savings deposits, certificates of deposit or
time accounts;
(j) To cause any of the investments of the Trust to be
registered in its name or in the name of its nominee; to
combine certificates representing such investments with
certificates of the same issue held by Trustee in other
fiduciary capacities, or to deposit or to arrange for the
deposit of such securities in a qualified central depository
even though, when so deposited, such securities may be merged
and held in bulk in the name of the nominee of such depository
with other securities deposited therein by any other person,
or to deposit or to arrange for the deposit of any securities
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<PAGE>
issued by the United States Government, or any agency or
instrumentality thereof, with a federal reserve bank, but the
books and records of Trustee shall at all times show that all
such investments are part of the Trust; to make, execute and
deliver as Trustee any and all instruments, deeds, leases,
mortgages, advances, contracts, waivers, releases or other
instruments in writing necessary or proper in the employment
of any of the foregoing powers; to form corporations and to
create trusts to hold title to any securities or other
property, upon such terms and conditions as are deemed
advisable;
(k) To retain any funds or property subject to dispute
without liability for the payment of interest, and to decline
to make payment or delivery thereof until final adjudication
is made by a court of competent jurisdiction;
(l) To pay personal and real property taxes, income
taxes, transfer taxes and other taxes levied or assessed
against the Trust under the law of any jurisdiction; but
Trustee shall have the right to contest, protest, and settle
the liability of the Trust for any such taxes; and
(m) To perform any and all other acts, which, in its
judgment, are necessary or appropriate for the proper and
advantageous management, investment and distribution of the
Trust.
Except as provided below, no enumeration of specific powers
herein shall be construed as a limitation on the foregoing general
power of Trustee, nor shall any of the powers herein conferred upon
Trustee be exhausted by the use thereof but each shall be continu-
ing.
Notwithstanding any provision to the contrary in this Trust
Agreement, in no event may Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by Company,
other than a de minimis amount held in common investment vehicles
in which Trustee invests.
Section 6. Disposition of Income.
During the term of this Trust, all of the income received by
the Trust, net of benefits payments, expenses and taxes, shall be
accumulated and reinvested.
Section 7. Accounting by Trustee.
Trustee shall keep accurate and detailed records of all in-
vestments, receipts, disbursements, and all other transactions re-
quired to be made, including such specific records as shall be
agreed upon in writing between Company and Trustee. Within sixty
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<PAGE>
(60) days following the close of each calendar year and within
sixty (60) days after the removal or resignation of Trustee, Trust-
ee shall deliver to Company a written account of its administration
of the Trust during such year or during the period from the close
of the last proceeding year to the date of such removal or resigna-
tion, setting forth all investments, receipts, disbursements and
other transactions affected by it, including a description of all
securities and investments purchased and sold with the cost or net
proceeds of such purchases or sales (accrued interest paid or re-
ceivable being shown separately), and showing all cash, securities
and other property held in the Trust at the end of such year or as
of the date of such removal or resignation, as the case may be.
Section 8. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
person acting in like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with
like aims, provided, however, that Trustee shall incur no liability
to any person for any action taken pursuant to a direction, request
or approval given by Company which is contemplated by, and in con-
formity with, the terms of the Plans or this Trust and is given in
writing by Company. In the event of a dispute between Company and
a party, Trustee may apply to a court of competent jurisdiction to
resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising
in connection with this Trust, Company agrees to indemnify Trustee
against Trustee's costs, expenses and liabilities (including, with-
out limitation, attorneys' fees and expenses) relating thereto and
to be primarily liable for such payments. If Company does not pay
such costs, expenses and liabilities in a reasonably timely manner,
Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or
obligations hereunder.
(d) Trustee may hire agents, accountants, actuaries, invest-
ment advisors, financial consultants or other professionals to
assist in performing any of its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers con-
ferred on trustees by applicable law, unless expressly provided
otherwise herein, provided, however, that if an insurance policy is
held as an asset of the Trust, Trustee shall have no power to name
a beneficiary of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a different
form) other than to a successor Trustee, or to loan to any person
the proceeds of any borrowing against such policy.
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<PAGE>
(f) Notwithstanding the provisions of Section 8(e) above to
the contrary, Trustee may loan Company the proceeds of any
borrowing against an insurance policy held as an asset of the
Trust.
(g) Notwithstanding any powers granted to Trustee pursuant to
this Trust Agreement or to applicable law, Trustee shall not have
any power that could give this Trust the objective of carrying on
a business and dividing the gains therefrom, within the meaning of
Section 301.7701-2 of the Procedure and Administrative Regulations
promulgated pursuant to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee.
Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from
the Trust.
Section 10. Resignation and Removal of Trustee.
(a) Trustee may resign at any time by written notice to
Company, which shall be effective sixty (60) days after receipt of
such notice unless Company and Trustee agree otherwise.
(b) Trustee may be removed by Company on sixty (60) days
notice or upon shorter notice accepted by Trustee.
(c) Upon a Change of Control, as defined herein, Trustee may
not be removed by Company for three (3) years.
(d) If Trustee resigns or is removed within three (3) years
of a Change of Control, as defined herein, Trustee shall select a
successor Trustee in accordance with the provisions of Section
11(b) hereof prior to the effective date of Trustee's resignation
or removal.
(e) Upon resignation or removal of Trustee and appointment of
a successor Trustee, all assets shall subsequently be transferred
to the successor Trustee. The transfer shall be completed within
sixty (60) days after receipt of notice of resignation, removal or
transfer, unless Company extends the time limit.
(f) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective
date of resignation or removal under Section 10(a) or (b). If no
such appointment has been made, Trustee may apply to a court of
competent jurisdiction for appointment of a successor or for
instructions. All expenses of Trustee in connection with the
proceeding shall be allowed as administrative expenses of the
Trust.
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<PAGE>
Section 11. Appointment of Successor.
(a) If Trustee resigns or is removed in accordance with
Section 10(a) or (b) hereof, Company may appoint any third party,
such as a bank trust department or other party that may be granted
corporate trustee powers under state law, as a successor to replace
Trustee upon resignation or removal. The appointment shall be
effective when accepted in writing by the new Trustee, who shall
have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall
execute any instrument necessary or reasonably requested by Company
or the successor Trustee to evidence the transfer.
(b) If Trustee resigns or is removed pursuant to the provi-
sions of Section 10(d) hereof and selects a successor Trustee,
Trustee may appoint any third party such as a bank trust department
or other party that may be granted corporate trustee powers under
state law. The appointment of a successor Trustee shall be effec-
tive when accepted in writing by the new Trustee. The new Trustee
shall have all the rights and powers of the former Trustee, includ-
ing ownership rights in Trust assets. The former Trustee shall
execute any instrument necessary or reasonably requested by the
successor Trustee to evidence the transfer.
(c) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing
Trust assets, subject to Sections 7 and 8 hereof. The successor
Trustee shall not be responsible for and Company shall indemnify
and defend the successor Trustee from any claim or liability
resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it
becomes successor Trustee.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instru-
ment executed by Trustee and Company. Notwithstanding the forego-
ing, no such amendment shall conflict with the terms of the Plans
or shall make the Trust revocable after it has become irrevocable
in accordance with Section 1(b) hereof.
(b) The Trust shall not terminate until the date on which
Plan participants and their beneficiaries are no longer entitled to
benefits pursuant to the terms of the Plans, unless sooner revoked
in accordance with Section 1(b) or terminated in accordance with
Section 2(d). Subject to Section 2(d), upon termination of the
Trust, any assets remaining in the Trust shall be returned to
Company.
(c) Upon written approval of participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the Plans,
Company may terminate this Trust prior to the time all benefit
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<PAGE>
payments under the Plans have been made. All assets in the Trust
at termination shall be returned to Company.
(d) This Trust Agreement may not be amended by Company for
three (3) years following a Change of Control, as defined herein.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) Benefits payable to Plan participants and their benefici-
aries under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered or
subjected to attachment, garnishment, levy, execution or other
legal or equitable process.
(c) This Trust Agreement shall be governed by and construed
in accordance with the laws of Arizona.
(d) For purposes of this Trust, Change of Control shall mean
a change in ownership or managerial control of the stock, assets or
business of Talley resulting from one (1) or more of the following
circumstances:
(1) A change of control of Talley of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Act, or any
successor regulation of similar import, regardless of whether
Talley is subject to such reporting requirement;
(2) A change of control in ownership of Talley
through a transaction or series of transactions, such that any
Person (other than an Affiliate) is or becomes the Beneficial
Owner, directly or indirectly, of securities of Talley representing
fifteen percent (15%) or more of the combined voting power of
Talley's then outstanding securities unless the Board of Directors
of Talley approves such acquisition;
(3) The shareholders of Talley approve a consoli-
dation or merger of Talley, other than a consolidation or merger of
Talley in which the holders of the voting securities of Talley
immediately prior to the consolidation or merger own at least
eighty percent (80%) of the voting securities of Talley or the sur-
viving corporation immediately after the consolidation or merger;
(4) The shareholders of Talley approve a sale,
transfer or other disposition of all or substantially all of the
assets of Talley to a Person other than Talley;
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(5) During any period of two (2) consecutive years,
individuals who, at the beginning of such period, constituted the
Board of Directors of Talley, for any reason, cease to constitute
at least a majority thereof, unless the election or nomination for
election of each new director was approved by the vote of at least
two-thirds (2/3) of the directors then still in office who were
directors at the beginning of the period; or
(6) Substantially all of the assets of Talley and
its Affiliates, in the aggregate, are sold or otherwise transferred
to Persons that are not Affiliates.
For purposes of the foregoing,
(A) "Act" shall mean the Securities and Exchange Act of
1934, as amended;
(B) "Affiliate" shall mean a corporation, trade or
business under "common control" with Company. "Common
control" shall be determined under Internal Revenue Code
Section 1563(a);
(C) "Beneficial Owner" shall have the same meaning as
given to that term in Rule 13d-3 of the General Rules and
Regulations of the Act, provided that any pledgee of
Company voting securities shall not be deemed to be the
Beneficial Owner thereof prior to its disposition of, or
acquisition of voting rights with respect to, such
securities;
(D) "Person" shall mean any individual, partnership,
joint venture, association, trust, corporation or other
entity (including a "group" as defined in Sections 13(d)
and 14(d) of the Act), other than an employee benefit
plan of Company or an Affiliate or an entity organized,
appointed or established pursuant to the terms of any
such benefit plan, or a corporation owned, directly or
indirectly, by the shareholders of Company in substan-
tially the same proportions as their ownership of the
stock of Company; and
(E) "Talley" shall mean Talley Industries, Inc., a
Delaware corporation.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be December 1, 1995.
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<PAGE>
IN WITNESS WHEREOF, Company and Trustee have caused this
instrument to be executed by their duly authorized officers the
date and year first above written.
TALLEY MANUFACTURING AND
ATTEST TECHNOLOGY, INC.
By: Mark S. Dickerson By: William H. Mallender
------------------------ ------------------------
Its: Secretary Its: Chairman
------------------------ ------------------------
MARSHALL & ILSLEY TRUST
COMPANY OF ARIZONA
ATTEST
By: Kathleen A. Gould By: J. M. Rudolph
------------------------ ------------------------
Its: Vice President Its: Vice President
------------------------ -------------------------
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<PAGE>
APPENDIX
1. Talley Manufacturing and Technology, Inc. Executive
Disability Income Plan.
2. Talley Manufacturing and Technology, Inc. Executive Joint
and Survivor Plan.
3. Talley Manufacturing and Technology, Inc. Executive Life
Insurance Plan.
4. Talley Manufacturing and Technology, Inc. Key Employee
Life Insurance Plan.
5. Talley Manufacturing and Technology, Inc. Executive
Restoration Benefit Plan.
6. Talley Manufacturing and Technology, Inc. Executive Bonus
Deferral Plan.
7. Talley Manufacturing and Technology, Inc. Executive
Health Plan.
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