SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 2, 1996
TALLEY INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-4778 86-0180396
(State or other jurisdiction (Commission (IRS Employer Identi-
of incorporation) File Number) fication 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 or former address, if changed since last report)
<PAGE>
Item 5. Other Events.
On February 2, 1996 the Registrant's Board of Directors
amended the Preferred Share Purchase Rights (as amended, the
"Rights") originally issued in 1986 under the Rights Agreement
dated as of April 30, 1986, amended as of July 21, 1986, and
further amended and restated as of February 2, 1996 (the "Amended
Rights Agreement"). The February 2, 1996 amendment extended the
expiration date of the Rights (scheduled to expire on April 1,
1996) until February 1, 2006, and modified certain other terms
and conditions of the Rights, all as set forth in the Amended
Rights Agreement.
Each Right will entitle its holder to buy one one-hundredth
(1/100) of a share of Talley Series C Junior Participating
Preferred Stock having the principal terms described below (the
"Preferred Stock") at an exercise price of $32.00 per 1/100
share. The Rights are subject to the Amended Rights Agreement, a
copy of which is attached to this Report as an Exhibit. All
descriptions herein of the Amended Rights Agreement, the Rights
and the Preferred Stock are qualified in their entirety by
reference to the Amended Rights Agreement, including the exhibits
thereto. Such descriptions are general in nature, and a careful
review of the Amended Rights Agreement and exhibits thereto is
necessary to understand the exact terms and conditions of the
Amended Rights Agreement, the Rights, the Preferred Stock and
related matters.
The Rights trade with the Common Stock and are not
exercisable, or transferable apart from the Common Stock, until
the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated
persons (an "Acquiring Person") has acquired beneficial ownership
of 15% or more of the outstanding Common Stock (with certain
exceptions for inadvertent acquisitions), or (ii) 10 business
days (unless extended by the Board) following the commencement
of, or announcement of an intention to make, a tender offer or
exchange offer (other than a prior Board-approved offer for all
of the Common Stock), the consummation of which would result in
the beneficial ownership by a person or group of 15% or more of
the outstanding Common Stock. At that time, separate
certificates for the Rights will be mailed to holders of Common
Stock, and the Rights would then be expected to trade
independently. Certain exceptions are set forth in the Amended
Rights Agreement s definition of Acquiring Person to ensure
that the Rights are not triggered by the holding or accumulation
of a large block of Common Stock by a stock plan for the benefit
of Talley's employees or by the continued holdings of John J.
McMullen (and his affiliates) as Grandfathered Stockholders.
In the event that any person becomes an Acquiring Person,
each Right, other than Rights beneficially owned by the Acquiring
<PAGE>
Person and its affiliates and associates (which will thereafter
be void), will entitle its holder to receive upon exercise that
number of shares of Common Stock having a market value of two
times the exercise price of the Right. In such event, and should
Talley thereafter be acquired in a merger or other business
combination transaction, or should 50% or more of its
consolidated assets or earning power thereafter be acquired by
another company, each Right not previously exercised will entitle
its holder to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of
common stock of the acquiring company (or equivalent equity
interests) which at the time of such transaction have a market
value of two times the exercise price of the Right. The Board
may satisfy an exercise of Rights by delivering Common Stock or
equivalent value in the form of cash or certain other securities.
If an Acquiring Person holds less than a majority of the Common
Stock, the Board can elect to exchange any or all of the Rights
(except those held by the Acquiring Person, which would have
become void) for shares of Common Stock or equivalent value, at
an exchange ratio of one share of Common Stock per Right.
Unless already exercised, the Rights are redeemable by
Talley on 10 days' notice at $.05 per Right prior to any person
becoming an Acquiring Person. The Rights will expire on February
1, 2006. Until the Rights are exercised, their holders will have
no rights as shareholders of the Company, including, without
limitation, the right to vote or to receive dividends. The
purchase price payable, and the number of shares of Preferred
Stock or other securities or property issuable, upon exercise or
exchange of the Rights are subject to adjustment from time to
time to prevent dilution. Chemical Mellon Shareholder Services,
L.L.C., as successor to Manufacturers Hanover Trust Company, is
acting as the Rights Agent.
So long as the Rights are attached to the Common Stock,
Talley will continue to issue one Right with each newly issued
share of Common Stock, so that all such shares will have attached
Rights. This will include Common Stock issued upon conversion of
Talley's convertible preferred stock and Common Stock issued
under its stock option and incentive stock plans.
The Preferred Stock purchasable upon exercise of the Rights
will be nonredeemable and junior to other series of the Company's
preferred stock. Each full share of Preferred Stock will be
entitled to a minimum quarterly dividend equal to the greater of
$25.00 per share or 100 times the quarterly dividend paid on the
Common Stock. In the event of liquidation, holders of the
Preferred Stock will receive a preferred liquidation payment of
$100.00 per share, but will be entitled to receive (if greater
than $100.00 per share) an aggregate liquidation payment equal to
100 times the payment made per share of Common Stock. Each share
of Preferred Stock will have 100 votes, and will vote together
<PAGE>
with the Common Stock except as to certain matters affecting the
rights of preferred stockholders. In the event of any merger,
consolidation or other transaction in which shares of Common
Stock are exchanged for or changed into stock, securities, cash,
or other property, each share of Preferred Stock will be entitled
to receive 100 times the amount received per share of Common
Stock. The foregoing rights of the Preferred Stock are protected
against dilution in the event additional shares of capital stock
are issued.
Except as set forth in the Amended Rights Agreement, the
terms and conditions of the Rights, and the provisions of the
Amended Rights Agreement, are subject to further amendment
without the necessity of any consent or vote of the holders of
the Rights.
Also on February 2, 1996, the Registrant's Board of
Directors approved a transaction providing for the immediate
conversion of John J. McMullen's 120,293 shares of Talley Series
D Preferred Stock into 1,202,930 shares of Talley Common Stock
and the issuance of an additional 702,919 shares of Common Stock.
The Series D Preferred Stock has been held in a voting trust
agreement since its issuance in connection with the Registrant's
1988 acquisition of the naval engineering subsidiary founded by
Mr. McMullen. First Interstate Bank of Arizona, N.A., serves as
the voting trustee. The 1.9 million shares of Common Stock will
continue to be held in the voting trust, which is being extended
under the agreement until March 2001 and revised in various
respects to tighten the transfer restrictions and alter the
voting provisions. Among other things, the amended voting trust
agreement permits only limited sales of Common Stock prior to
expiration of the trust on March 1, 2001 (subject to earlier
termination in certain specified circumstances). The Amended and
Restated Voting Trust Agreement dated February 7, 1996 has been
signed by all parties, and the conversion of the Series D
Preferred Stock and the issuance of the additional shares of
Common Stock to the voting trustee are expected to be completed
within the next few days. A copy of that Agreement is attached
to this Report as an Exhibit, and the foregoing descriptions of
certain provisions thereof are qualified in their entirety by
reference to that Exhibit.
The conversion of the Series D Preferred Stock automatically
extinguishes all accrued and unpaid dividends on that stock,
which have been accruing since the first quarter of 1991 and
totalled approximately $2.57 million as of December 31, 1995.
The dividend rate on the Series D Preferred Stock is scheduled to
escalate dramatically in February 1998 (from $4.50 per share to
$15.75 per share) if the stock remains outstanding at that time.
Following the conversion, no Talley Series D Preferred Stock will
remain outstanding.
<PAGE>
The transaction will not impact the net earnings of the
Company in the first quarter of 1996, 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" will be
reduced. The excess of the fair value of the common shares
transferred in the transaction by the Company to Mr. McMullen
over the fair value of the common shares issuable pursuant to the
original conversion terms will be subtracted from net earnings in
the calculations of net earnings available to common shareholders
and earnings per share.
In addition, Mr. McMullen has extended and modified his
consulting arrangement with Talley Manufacturing and Technology,
Inc., a subsidiary of the Registrant. A company owned by Mr.
McMullen will provide various consulting services for the naval
engineering subsidiary and Mr. McMullen will serve as the non-
executive chairman of that subsidiary. A copy of that contract
is also attached as an Exhibit to this Report.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
4.1 Amended and Restated Rights Agreement by and among the
Registrant and Chemical Mellon Shareholder Services, L.L.C.,
successor to Manufacturers Hanover Trust Company of California,
as Rights Agent, dated as of April 30, 1986, and amended as of
July 21, 1986, and further amended and restated as of February 2,
1996, specifying the terms of the Rights (the "Amended Rights
Agreement"), attached as Exhibit 2.4 to the Registrant's Form 8-A
dated as of February 2, 1996, incorporated herein by this
reference.
4.2 Certificate of Designations, Preferences and Rights for
the Registrant's Series C Junior Participating Preferred Stock
(Exhibit A to the Amended Rights Agreement) attached as Exhibit
2.5 to the Registrant's Form 8-A dated as of February 2, 1996,
incorporated herein by this reference.
4.3 Form of Right Certificate (Exhibit B to the Amended
Rights Agreement), attached as Exhibit 1.1 to the Registrant's
Form 8-A dated as of February 2, 1996, incorporated herein by
this reference. Pursuant to the Amended Rights Agreement,
printed Rights Certificates will not be mailed until any person,
entity or group acquires beneficial ownership or announces its
intention to commence a tender or exchange offer for beneficial
ownership of 15% or more of the Common Stock.
9.1 Amended and Restated Voting Trust Agreement dated
February 7, 1996 by and among the Registrant, John J. McMullen
and First Interstate Bank of Arizona, N.A., as Trustee.
<PAGE>
99.1 Consulting Agreement dated February 7, 1996 by and
among Talley Manufacturing and Technology, Inc. and McMullen
Consultants Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report on Form 8-K
to be signed on its behalf by the undersigned, thereunto duly
authorized.
TALLEY INDUSTRIES, INC.
Dated: February 7, 1996 By Mark S. Dickerson
Mark S. Dickerson,
Secretary
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT
4.1 Amended and Restated Rights
Agreement by and among the
Registrant and Chemical Mellon
Shareholder Services, L.L.C.,
successor to Manufacturers Hanover
Trust Company of California, as
Rights Agent, dated as of April 30,
1986, and amended as of July 21,
1986, and further amended and
restated as of February 2, 1996,
attached as Exhibit 2.4 to the
Registrant's Form 8-A dated as of
February 2, 1996, incorporated
herein by this reference.
4.2 Certificate of Designations,
Preferences and Rights for the
Registrant's Series C Junior
Participating Preferred Stock
(Exhibit A to the Amended Rights
Agreement) attached as Exhibit 2.5
to the Registrant's Form 8-A dated
as of February 2, 1996,
incorporated herein by this
reference.
4.3 Form of Right Certificate
(Exhibit B to the Amended Rights
Agreement), attached as Exhibit 1.1
to the Registrant's Form 8-A dated
as of February 2, 1996,
incorporated herein by this
reference.
9.1 Amended and Restated Voting Trust
Agreement dated February 7, 1996 by
and among the Registrant, John J.
McMullen, and First Interstate Bank
of Arizona, N.A., as Trustee.
99.1 Consulting Agreement dated February
7, 1996 by and among Talley
Manufacturing and Technology, Inc.
and McMullen Consultants Inc.
EXHIBIT 9.1
AMENDED AND RESTATED VOTING TRUST AGREEMENT
This Amended and Restated Voting Trust Agreement
("Agreement") is made as of February 7, 1996 by and among Talley
Industries, Inc., a Delaware corporation ("Talley" or the
"Company"); John J. McMullen for himself and on behalf of his
permitted transferees as beneficial owners of the Talley capital
stock represented by voting trust certificates issued hereunder
(the "Stockholder"); and First Interstate Bank of Arizona, N.A.,
as trustee hereunder, and its successors in trust (the
"Trustee").
WHEREAS, the Stockholder and the Company, among others, were
parties to that certain Agreement and Plan of Merger dated as of
February 29, 1988 (the "Merger Agreement"); and
WHEREAS, pursuant to the Merger Agreement shares of the
Company's Series D Preferred Stock ("Series D Preferred Stock")
were issued to the Stockholder and/or the Trustee and shares of
the Company's Common Stock ("Common Stock") are issuable upon
conversion of the Series D Preferred Stock on terms and
conditions set forth therein; and
WHEREAS, the parties pursuant to the Merger Agreement
previously executed and delivered that certain Voting Trust
Agreement made as of February 29, 1988; and
WHEREAS, the parties acknowledge that amending and restating
said Voting Trust Agreement in its entirety as set forth in this
Agreement is in their mutual best interest because of a number of
factors, including the terms and conditions of the Series D
Preferred Stock, the current uncertainties prevailing as to a
number of matters affecting Talley's business and prospects as
heretofore publicly disclosed by Talley, various uncertainties
regarding the future tax treatment of the Series D Preferred
Stock and other matters affecting the parties; and
WHEREAS, Talley has agreed to issue 702,919 shares of Common
Stock (the "Consideration Shares") to the Trustee under this
Agreement in consideration of the several undertakings of the
Stockholder herein contained and other consideration, and Talley,
the Stockholder and the Trustee agree that the Consideration
Shares and the Common Stock issued upon conversion of the Series
D Preferred Stock (such Common Stock together with the
Consideration Shares being collectively the "Company Stock")
shall also be held by the Trustee subject to this Agreement; and
WHEREAS, the Trustee has consented to act under this
Agreement, as so amended and restated, for the purposes herein
provided,
It is therefore agreed by the parties that said Voting Trust
Agreement is hereby amended and restated in its entirety as of
February 7, 1996, to be and read as follows:<PAGE>
1. Agreement.
(a) Copies of this Agreement, and of every agreement
supplemental and/or amendatory hereto, shall be filed in the
principal office of the Company in Phoenix, Arizona and its
registered office in the State of Delaware and shall be open to
the inspection of any stockholder of the Company or holder of
voting trust certificates hereunder, daily during business hours.
All voting trust certificates issued as hereinafter provided
shall be issued, received, and held subject to all the terms of
this Agreement. Each person or entity initially entitled to
receive voting trust certificates issued hereunder, and persons
or entities thereafter receiving voting trust certificates as a
result of a Permitted Transfer as defined in Section 8 hereof,
upon accepting the voting trust certificates issued hereunder,
shall be bound by the provisions of this Agreement, and shall be
deemed for all purposes to be a "Successor Stockholder"
hereunder. At the request of the Trustee or the Company, each
such Successor Stockholder shall promptly execute and deliver an
appropriate written confirmation of the foregoing.
(b) The amendment and restatement effected by this
Agreement as of February 7, 1996 shall take effect upon the
receipt by the Company of a "fairness opinion" from Bear Stearns
& Co. or another reputable firm of investment bankers to the
effect that the transactions contemplated by this Agreement are
fair from a financial point of view to the Company and its
shareholders, which opinion is expected to be received on or
before February 9, 1996. Unless said opinion has been received
by February 20, 1996, or such other date as may be specified in
writing by all parties, then said amendment and restatement shall
be of no effect whatsoever.
2. Conversion of Preferred Stock. All outstanding voting
trust certificates representing beneficial interest in the stock
held by the Trustee under this Agreement shall have continuing
validity in accordance with the terms of this Agreement until
surrendered and replaced as provided herein. The Stockholder
hereby irrevocably instructs the Trustee, and the Trustee hereby
agrees, promptly to exercise the right to convert all shares of
Series D Preferred Stock held by the Trustee hereunder as Company
Stock (namely, 120,293 such shares) into an aggregate of
1,202,930 shares of Common Stock immediately after this Agreement
becomes effective (as set forth in Section 1(b) above), in
accordance with the conversion procedures set forth in the filed
Certificate of Designation pertaining to the Series D Preferred
Stock (the "Series D Certificate"). The Company shall effect
such conversion and shall issue and deliver to the Trustee
certificate(s) representing said 1,202,930 shares of Common
Stock. Such conversion shall be effected immediately upon
receipt of the "fairness opinion" described in 1(b) above.
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<PAGE>
The Trustee shall hold the same subject to the terms of this
Agreement, and upon surrender of voting trust certificates
evidencing the beneficial interest in the shares of Series D
Preferred Stock so converted shall issue and deliver to the
Stockholder and to any Successor Stockholder entitled thereto
voting trust certificates evidencing the beneficial interest in
such Common Stock.
3. Issuance Of Stock To Trustee.
(a) The shares of Common Stock issued upon conversion
of Series D Preferred Stock pursuant to Section 2 of this
Agreement and all Consideration Shares shall be issued to and
held by the Trustee in the name of "First Interstate Bank of
Arizona, N.A., as Voting Trustee," for the benefit of the
Stockholder and Successor Stockholders. The Company shall cause
the Consideration Shares to be issued or transferred, and one or
more share certificates therefor delivered, to the Trustee
hereunder concurrently with the conversion of the Series D
Preferred Stock pursuant to Section 2 of this Agreement, against
receipt of an appropriate investment letter from the Trustee and
the Stockholder unless, and to the extent, in the opinion of
counsel reasonably satisfactory to the parties hereto,
Consideration Shares can be offered and sold without the
necessity of registration under the Securities Act of 1933, as
amended. On receipt by the Trustee from the Company or its
transfer agent of all share certificates hereunder, the Trustee
shall hold the same and the shares in the Company evidenced
thereby as Company Stock subject to the terms of this Agreement,
and shall thereupon issue and deliver to the Stockholder or
Successor Stockholders entitled thereto voting trust certificates
in the form herein provided representing beneficial ownership (in
accordance with the provisions of this Agreement) of the
pertinent portion of the shares of Company Stock so held by the
Trustee against surrender by the Stockholder or Successor
Stockholder of voting trust certificates evidencing the
beneficial interest in shares of Series D Preferred Stock, as set
forth in Section 2 above.
(b) The Trustee shall maintain at its principal
corporate trust office (and at such other corporate trust office
as the Trustee may designate by an instrument in writing signed
by it and sent by mail to the registered holders of voting trust
certificates) voting trust certificate transfer records in which
the Trustee shall register the names of the holders of voting
trust certificates issued hereunder. Such transfer records shall
be open for inspection by such registered holders during regular
business hours of the Trustee upon reasonable notice to the
Trustee.
4. Voting Trust Certificates. The voting trust
certificates shall be in the following form:
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<PAGE>
No. . . . . . . . . .Shares
TALLEY INDUSTRIES, INC.
A Delaware Corporation
Voting Trust Certificate for Capital Stock
This certifies that , or
registered assigns, is entitled to all the benefits
arising from the deposit with the Trustee under the
Voting Trust Agreement hereinafter mentioned, of
certificates for shares of the
of Talley Industries, Inc., a Delaware corporation
(hereinafter called the "Company"), as provided in such
Voting Trust Agreement and subject to the terms
thereof. The registered holder hereof is entitled to
receive payment equal to the amount of cash dividends,
if any, received by the Trustee upon the number of
shares of capital stock of the Company in respect of
which this certificate is issued. Dividends received
by the Trustee in Common Stock, Series D Preferred
Stock or other Company capital stock having general
voting powers in a transaction nontaxable to the
recipient shall be evidenced by voting trust
certificates in form similar hereto. Until the Trustee
shall have delivered the Company Stock held under such
Voting Trust Agreement to the holders of the trust
certificates, or to the Company, as specified in such
Voting Trust Agreement, and subject to the limitations
set forth in the Voting Trust Agreement, the Trustee
shall possess and shall be entitled to exercise all
rights and powers of an absolute owner of such stock,
including the right to vote thereon for every purpose,
and to execute consents in respect thereof for every
purpose, it being expressly stipulated that no voting
right passes to the owner hereof, or his assigns, under
this certificate or any agreement, expressed or
implied. In exercising its rights and powers
hereunder, including without limitation voting and
executing consents with respect to the Company Stock,
the Trustee shall act and vote as provided in such
Voting Trust Agreement.
This certificate is issued, received, and held
under, and the rights of the owner hereof are subject
to, the terms of that certain Amended and Restated
Voting Trust Agreement dated as of February 7, 1996
between the Company, First Interstate Bank of Arizona,
N.A., and its successors in trust, and John J. McMullen
for himself and on behalf of his permitted transferees
thereunder (copies of which Voting Trust Agreement, and
of every agreement supplementing and/or amending the
same, are on file in the principal office of the
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<PAGE>
Company in Phoenix, Arizona and shall be open to the inspection
of any stockholder of the Company or holder of any voting trust
certificate issued under said Agreement, daily during business
hours).
In the event of the dissolution or total or
partial liquidation of the Company, the moneys,
securities, or property received by the Trustee in
respect of the stock deposited under such Voting Trust
Agreement shall be distributed among the registered
holders of trust certificates in proportion to their
interests as shown by the books of the Trustee.
In the event that any dividend or distribution
other than in cash or stock of the Company having
general voting powers or any dividend or distribution
in a transaction taxable to the recipient is received
by the Trustee, the Trustee shall distribute the same
to the registered holders of voting trust certificates,
on the date of such distribution, or to the registered
certificate holders at the close of business on the
date fixed by the Trustee for taking a record to
determine the certificate holders entitled to such
distribution, pursuant to the provisions of Section 7
of the Voting Trust Agreement, but subject to
applicable law. Such distribution shall be made to the
certificate holders ratably in accordance with the
number and kind of shares of Company Stock represented
by their respective voting trust certificates.
Stock certificates for the number of shares of
Company Stock then represented by this certificate, or
the net proceeds in cash or property of such shares,
shall be due and deliverable hereunder upon the
termination of such Voting Trust Agreement as provided
therein.
The Voting Trust Agreement shall continue in full
force and effect until the earliest of (i) March 1,
2001, or (ii) the date on which the number of shares of
Company Stock subject to the Voting Trust Agreement
(assuming for purposes of this calculation that all
Company Stock subject to the Voting Trust Agreement
that is convertible into Common Stock has been
converted) shall first be less than 100,000 shares of
Common Stock (adjusted as set forth in the Voting Trust
Agreement to account for certain dilutive or
contradilutive events or transactions affecting the
Common Stock), or (iii) the date on which William H.
Mallender shall cease to serve as chief executive
officer of the Company or in a position of similar
authority with the Company and shall not have been
replaced by a person satisfactory to John J. McMullen
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<PAGE>
(or such other person as John J. McMullen shall specify in
writing for the purpose of exercising such right in the event of
his death or incapacity, such designation to survive such death
or incapacity and to be with right of substitution) in his sole
discretion or (iv) the date 30 days after the public announcement
that any person or entity (or "group" of persons or entities)
beneficially owns (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) in excess of 25% of the then-outstanding
Common Stock of the Company, unless the same shall have been
approved in a resolution duly adopted by the Board of Directors
of the Company or (v) the earlier of the date that the Board of
Directors of the Company shall recommend to the shareholders of
the Company acceptance of a tender offer for in excess of 50% of
the then-outstanding shares of Common Stock or the date that a
single person or entity shall directly or indirectly beneficially
own (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) in excess of 50% of such then-outstanding Common Stock
or (vi) unless the Stockholder or Stockholder Designee shall
consent in writing, the date that the Trustee shall have received
notice from the Company that any person holding directly or
indirectly in excess of 1,000,000 shares of Common Stock of the
Company (adjusted as provided in Section 14 hereof) shall have
been elected to the Board of Directors of the Company pursuant to
an agreement with the Company that the Company will support such
election.
Transfer of this certificate is limited as set
forth in the Voting Trust Agreement. Subject to such
limitations on transfer and sale, this certificate is
transferable, absolutely or as security, on the books
of the Trustee at its principal corporate trust office
in Phoenix, Arizona (or elsewhere as designated by the
Trustee), by the holder hereof, either in person or by
attorney duly authorized, in accordance with the rules
established for that purpose by the Trustee and on
surrender of this certificate properly endorsed. Title
to this certificate when duly endorsed shall, to the
extent permitted by law and permitted by the Voting
Trust Agreement, be transferable with the same effect
as in the case of a negotiable instrument. Each holder
hereof agrees that delivery of this certificate, duly
endorsed by any holder hereof, shall vest title hereto
and all rights hereunder, and beneficial ownership of
the shares of capital stock of the Company represented
hereby, in the transferee; provided, however, that the
Trustee may treat the registered holder hereof, or when
presented duly endorsed in blank the bearer hereof, as
the absolute owner hereof, and of all rights and
interest represented hereby, for all purposes
whatsoever, and the Trustee shall not be bound or
affected by any notice to the contrary, or by any
notice of any trust, whether express or implied, or
constructive, or of any charge or equity respecting the
title or ownership of this certificate, or the Company
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<PAGE>
Stock represented hereby; provided, however, that no
delivery of stock certificates hereunder, or the proceeds
thereof, shall be made without surrender hereof properly
endorsed.
This certificate shall not be valid for any
purpose until duly signed by the Trustee.
The word "Trustee" as used in this certificate
means the Trustee or the successor Trustee acting under
such Voting Trust Agreement.
In witness whereof the Trustee has signed this
certificate on----------------, ------.
FIRST INTERSTATE BANK OF
ARIZONA, N.A., Trustee
By: --------------------
Its
(Form of Assignment):
For value received ------------------------ hereby
assigns the within certificate, and all rights and
interests represented thereby, to------------------ and
appoints------------------ attorney to transfer this
certificate on the books of the Trustee mentioned
therein, with full power of substitution.
Dated:--------------- By:----------------
Signature Guaranteed:
-----------------------
(Signature guarantee should be made by a guarantor
institution participating in the securities transfer agents
medallion program or in such other guarantee program
acceptable to the Trustee.) Note: The Signature(s) on this
assignment must correspond with the name(s) as written on
the face of the within registered certificate in every
particular without alteration or enlargement or any change
whatsoever.
5. Transfer Of Certificates.
(c) Subject to the limitations on sale and transfer
set forth in this Agreement, the voting trust certificates shall
be transferable at the principal corporate trust office of the
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<PAGE>
Trustee (and at such other corporate trust office as the Trustee
may designate by an instrument in writing signed by it and sent
by mail to the registered holders of voting trust certificates),
on the books of the Trustee, by the registered owner thereof,
either in person or by attorney thereto duly authorized upon
surrender thereof, according to the rules established for that
purpose by the Trustee; and the Trustee may treat the registered
holder as owner thereof for all purposes whatsoever, but it shall
not be required to deliver stock certificates hereunder without
the surrender of such voting trust certificates, or if delivery
of such stock certificates is not in connection with a Permitted
Transfer as defined in Section 8(e) below.
(b) If a voting trust certificate is lost, stolen,
mutilated, or destroyed, the Trustee, in its discretion, may
issue a duplicate of such certificate upon receipt of:
(1) evidence of such fact satisfactory to it; (2) indemnity
satisfactory to it; (3) the existing certificate, if mutilated;
and (4) its reasonable fees and expenses in connection with the
issuance of a new trust certificate. The Trustee shall not be
required to recognize any transfer of a voting trust certificate
not made in accordance with the provisions hereof, unless the
person claiming such ownership shall have produced indicia of
title satisfactory to the Trustee, and shall in addition deposit
with the Trustee indemnity satisfactory to it.
6. Termination Procedure.
(a) Upon the termination of this Agreement as
hereinafter provided, the Trustee, at such time as it may choose
during the period commencing 20 days before and ending 20 days
after such termination, shall mail written notice of such
termination to registered holders of the voting trust
certificates, at the addresses appearing on the transfer books of
the Trustee. After the date specified in any such notice (which
date shall be fixed by the Trustee), the voting trust
certificates shall cease to have any effect, and the holders of
such voting trust certificates shall have no further rights under
this Agreement, other than the right to receive certificates for
shares of stock of the Company or other property distributable
under the terms hereof and upon the surrender of such voting
trust certificates.
(b) Within 30 days after the termination of this
Agreement, the Company shall deliver to the Trustee, and the
Trustee shall deliver to the registered holders of all voting
trust certificates, certificates for the number of shares of the
capital stock of the Company beneficially represented thereby,
upon the surrender of such voting trust certificates properly
endorsed, such delivery to be made in each case at the principal
corporate trust office of the Trustee.
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(c) At any time subsequent to 30 days after the
termination of this Agreement, the Trustee may deposit with the
Company stock certificates representing the number of shares of
each class of Company Stock beneficially represented by the
voting trust certificates then outstanding, with authority in
writing to the Company to deliver such stock certificates in
exchange for voting trust certificates beneficially representing
a like number of shares of the capital stock of the Company; and
upon such deposit all further liability of the Trustee for the
delivery of such stock certificates and the delivery or payment
of dividends upon surrender of the voting trust certificates
shall cease, and the Trustee shall not be required to take any
further action hereunder.
7. Dividends.
(a) The holder of each voting trust certificate shall
be entitled to receive payments equal to the cash dividends, if
any, received by the Trustee prior to the termination of this
Agreement upon the shares of Company Stock beneficially
represented by each such voting trust certificate, such payment
to be made by the Trustee to the person or persons entitled
thereto within three business days after receipt of such cash
dividend by the Trustee unless and except to the extent that the
Trustee has given the Company the instructions contemplated by
Section 7(d) hereof. If any dividend in respect of the Company
Stock deposited with the Trustee is paid, in whole or in part, in
capital stock of the Company having general voting powers, in a
transaction nontaxable to the recipient, the Trustee shall
likewise hold, subject to the terms of this Agreement, the
capital stock so received by the Trustee on account of such
dividend (which shall thereupon also be deemed to be "Company
Stock"), and the holder of each voting trust certificate
beneficially representing Company Stock on which such stock
dividend has been paid shall receive an additional voting trust
certificate issued under this Agreement for the number of shares
and class of stock received by the Trustee as such dividend with
respect to the Company Stock beneficially represented by such
holder's voting trust certificate. Holders entitled to receive
the dividends described above shall be those registered as such
on the transfer books of the Trustee at the close of business on
day fixed by the Company for the taking of a record to determine
those holders of its stock entitled to receive such dividends, or
if the Trustee has fixed a date, as hereinafter in this paragraph
provided, for the purpose of determining the holders of voting
trust certificates entitled to receive such payment or
distribution, then registered as such at the close of business on
the date so fixed by the Trustee, but in all events subject to
applicable law.
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(b) If any dividend in respect of the Company Stock
deposited with the Trustee is paid other than in cash or in
capital stock having general voting powers, or is paid in a
transaction taxable to the recipient, then the Trustee shall
distribute the same among the holders of voting trust
certificates registered as such at the close of business on the
day fixed by the Trustee for taking a record to determine the
holders of voting trust certificates entitled to receive such
distribution, but in all events subject to applicable law. Such
distribution shall be made to such holders of voting trust
certificates ratably, in accordance with the number and kind of
shares of Company Stock beneficially represented by their
respective voting trust certificates.
(c) The transfer books of the Trustee may be closed
temporarily by the Trustee for a period not exceeding 20 days
preceding the date fixed for the payment or distribution of
dividends or the distribution of assets or rights, or any other
time in the discretion of the Trustee. In lieu of providing for
the closing of the books against the transfer of voting trust
certificates, and except as may otherwise be provided by
applicable law, the Trustee may fix a date not exceeding 20 days
preceding any date fixed by the Company for the payment or
distribution of dividends, or for the distribution of assets or
rights, as a record date for the determination of the holders of
voting trust certificates entitled to receive such payment or
distribution, and the holders of voting trust certificates of
record at the close of business on such date shall exclusively be
entitled to participate in such payments or distribution, but in
all events subject to applicable law.
(d) In lieu of receiving cash dividends upon Company
Stock and paying the same to the holders of voting trust
certificates pursuant to the provisions of this Agreement, the
Trustee may instruct the Company in writing to pay such dividends
to the holders of the voting trust certificates. Upon receipt of
such written instructions, the Company shall pay such dividends
directly to the holders of the voting trust certificates as their
interests may appear. Upon such instructions being given by the
Trustee to the Company, and until revoked by the Trustee, all
liability of the Trustee with respect to such dividends shall
cease. The Trustee may at any time revoke such instructions and
by written notice to the Company direct it to make dividend
payments to the Trustee.
8. Sale or Transfer of Voting Trust Certificates and
Company Stock.
(a) The Stockholder or Successor Stockholders shall be
permitted to transfer or sell voting trust certificates to third
parties only in accordance with the provisions of this Agreement
as so described in (b) below, and only if such transfer or sale
is a "Permitted Transfer" (as defined in Section (e) below).
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The Stockholder or Successor Stockholders shall also be permitted
to direct the Trustee to distribute shares of Common Stock held
with respect to voting trust certificates held by the Stockholder
or Successor Stockholders as so described in (c) below, but only
to the Stockholder or Successor Stockholders (and not to any
person or entity other than the Stockholder or Successor
Stockholders), and only if such distribution is a "Permitted
Transfer."
At least 10 business days prior to any Permitted
Transfer, the Stockholder or Successor Stockholder shall give
written notice to the Company and the Trustee of the same,
describing the arrangements for the Permitted Transfer in
reasonable detail, representing the number of shares of Company
Stock to be the subject of the Permitted Transfer and instructing
the Trustee to cancel the voting trust certificates for the
number of shares transferred in the Permitted Transfer. Each
Successor Stockholder agrees to abide by the restrictions on
sales and transfers set forth in this Agreement, and the written
notice described immediately above shall be accompanied by the
proposed transferee's written acknowledgement of and agreement
that when the transferee determines to transfer the Common Stock
to be received by it (if Common Stock is received by the
transferee), it will instruct its broker that such sale(s) must
be "Qualified Sale(s)" (as defined in Section (d) below).
(b) In the event of a Permitted Transfer of voting
trust certificates, the transfer of the same shall be carried out
as set forth in Section 5 of this Agreement.
(c) In the event of a Permitted Transfer of shares of
Common Stock to a Stockholder or Successor Stockholder, within
two business days after receipt of the notice given pursuant to
subsection (a) above and the voting trust certificates
representing the shares of Company Stock to be the subject of the
Permitted Transfer, or, if later, within two business days after
the Valuation Date, if any, the Trustee shall (i) give to the
Company written confirmation that voting trust certificates
representing beneficial ownership of said Company Stock have been
surrendered to the Trustee and (ii) deliver to the Company for
cancellation one or more certificates for Common Stock registered
in the name of the Trustee for a number of shares at least equal
to the number of shares covered by the notice of Permitted
Transfer. Upon receipt of the foregoing from the Trustee, the
Company shall register the transfer of the shares constituting
the Permitted Transfer, issue a certificate or certificates for
such shares in the name of the transferee identified in the
notice given pursuant to (a) above, deliver such certificate(s)
to the Trustee or otherwise as instructed by the Stockholder or
Successor Stockholder making the Permitted Transfer, cancel the
share certificates delivered by the Trustee, and issue and
deliver to the Trustee a certificate or certificates in the name
of the Trustee for that number of shares of Common Stock, if any,
by which the number of shares of Common Stock represented by
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share certificates delivered by the Trustee to the Company in
connection with such Permitted Transfer. The Trustee shall
promptly issue and deliver to the transferring Stockholder or
Successor Stockholder a voting trust certificate for the shares
of Company Stock represented by any such share certificate(s)
issued by the Company to the Trustee.
(d) As used herein, the following terms shall have the
meaning appearing after such terms.
(1) "Immediate Family" means the Stockholder, his
spouse, children and other lineal descendants and their
respective spouses and one or more trusts or other entities
established by the Stockholder exclusively for the benefit
of some or all of said persons.
(2) "Charitable Entity" means one or more private tax
exempt foundations established by the Stockholder, other
entities selected by the Stockholder which are exempt from
tax pursuant to Section 503(c) of the Internal Revenue Code,
or are foreign charitable or educational institutions, and
one or more trusts or other entities established by the
Stockholder, exclusively for the benefit of some or all of
the foregoing.
(3) "Sale" or "transfer" (and derivative words) shall
also be deemed to include an option, pledge or other
agreement whereby the Stockholder is (or could become)
obligated to sell or transfer.
(4) "Permitted Transfer" means a transfer described in
Section 8(e).
(5) "Qualified Sales" means open market sales of
Common Stock through a broker in the ordinary course of
business on the New York Stock Exchange ("NYSE"), effected
by such broker in a manner reasonably calculated to ensure
that no single purchaser purchases more than 10,000 shares
in a single transaction.
(6) "Valuation Date" shall mean the date specified in
the notice given pursuant to Section 8(a) above for the
purpose of determining the valuation of the Company Stock to
be transferred in a particular Permitted Transfer for the
purposes of Section 8(e)(1) or (2).
(e) For the purposes hereof, "Permitted Transfers" are
the following transfers (and no others), each of the listed
categories to be separate and distinct and not cumulative:
(1) One or more transfers of Company Stock to the
United States Naval Academy or its Alumni Foundation (or
voting trust certificates representing Company Stock) having
an aggregate value of up to $1,000,000 based on the average
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of the closing prices of Common Stock on the NYSE for the ten
(10) trading days preceding the Valuation Date of such
transfers(s), provided that each such transfer is subject to the
undertaking of the transferee that such transferee will sell all
shares of Common Stock so received only in Qualified Sales. The
Stockholder may revise the number of shares transferred under
this clause (1) and the number of shares transferred under clause
(2) below, provided that the aggregate of the transfers under
both clauses (1) and (2) does not exceed $1,500,000 in value.
(2) One or more transfers of Company Stock to Boston
College (or voting trust certificates representing Company
Stock) having an aggregate value of up to $500,000 based on
the average of the closing prices of Common Stock on the
NYSE for the ten (10) trading days preceding the Valuation
Date of such transfers(s), provided that each such transfer
is subject to the undertaking of the transferee that such
transferee will sell all shares of Common Stock only in
Qualified Sales. The Stockholder may revise the number of
shares transferred under this clause (2) and the number of
shares transferred under clause (1) above, provided that the
aggregate of the transfers under both clauses (1) and (2)
does not exceed $1,500,000 in value.
(3) One or more distributions of Common Stock by the
Trustee to one or more of the Stockholder and Successor
Stockholders for sale by such distributee in Qualified Sales
provided that:
(i) the aggregate number of shares of Common Stock so
distributed to the Stockholder and/or Successor
Stockholders for sale in Qualified Sales, shall not
exceed 100,000 shares of Common Stock during any one
calendar year; and
(ii) each such distribution of Common Stock from the
Trustee to the Stockholder and/or Successor
Stockholders is subject to the undertaking of the
Stockholder and/or such Successor Stockholders (hereby
given by the Stockholder and/or Successor Stockholders)
that such Stockholder and/or Successor Stockholders
will sell all such shares of Common Stock only in
Qualified Sales.
(4) Distributions of Common Stock to the Stockholder
(or executor or personal representative of the Stockholder)
for sale in Qualified Sales in order to obtain funds solely
to pay inheritance and similar taxes of the estate of John
J. McMullen and/or his spouse, but subject to the
undertaking of the Stockholder or his estate (hereby given
by or on behalf of the Stockholder and his estate) that all
sales of such shares of Common Stock will be Qualified
Sales.
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(5) The sale or transfer of voting trust certificates
to a member of the Immediate Family or to a Charitable
Entity, provided that after each such sale or transfer, the
voting trust certificates sold or transferred (and the
Common Stock held by the Trustee and beneficially
represented by such voting trust certificates) shall remain
subject in all respects to this Agreement; and, in the event
a Charitable Entity receives voting trust certificates,
distributions of Common Stock (beneficially represented by
the voting trust certificates held by such Charitable
Entity) to such Charitable Entity for sale in Qualified
Sales as, when and to the extent necessary in order to meet
diversification or other requirements of law applicable to
such Charitable Entity, or to avoid taxes and penalties that
would otherwise be imposed upon such Charitable Entity, but
subject to the undertaking of such Charitable Entity (hereby
given by such Charitable Entity) that all sales of such
shares of Common Stock will be Qualified Sales.
(6) The pledge by the Stockholder of voting trust
certificates to secure either a bona fide loan made to the
Stockholder, or a guarantee by the Stockholder in whole or
substantial part of a loan made to a third party.
(7) The distribution to a pledgee of Common Stock
beneficially represented by voting trust certificates which
have been pledged by the Stockholder to secure either a bona
fide loan made to the Stockholder, or a guarantee by the
Stockholder in whole or substantial part of a loan made to a
third party, following a foreclosure upon such certificates
arising from a bona fide default not cured by the
Stockholder (and he hereby agrees to use best efforts
promptly to cure any such default to avoid any such
foreclosure), whereupon such pledgee (or its nominee) shall
be entitled to sell the shares of Common Stock so
distributed to it, but without the necessity of effecting
such sale(s) in Qualified Sales. The Company and the
Trustee agree to cooperate as reasonably requested by the
Stockholder in connection with the consummation of any such
secured loan arrangements. The Stockholder covenants that
the form and substance of all such loan documents will
conform substantially to normal and customary documentation
for similar transactions.
(8) Such further sales, transfers and/or distributions
of shares of Common Stock at the request of the Stockholder
or Successor Stockholder as are consistent with the purpose
and intent of this Agreement and as are satisfactory to the
Stockholder (or Stockholder Designee appointed pursuant to
Section 11(c)) and the Company, in the sole discretion of
each, provided that written confirmation of the terms and
conditions of the same shall be given first to the Trustee
in reasonable detail, signed on behalf of each.
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<PAGE>
(f) Following a Permitted Transfer that results in the
distribution of Company Stock to a person or entity, such Company
Stock held by such person or entity shall be free and clear of
any restrictions contained in this Agreement except for the
obligation (if applicable) to transfer Company Stock only in
Qualified Sales.
(g) The Trustee shall have no responsibility for
interpreting or enforcing the foregoing provisions of this
Section 8 where the Trustee notifies the Company and the
Stockholder or Successor Stockholder in writing of any
conflicting direction received by the Trustee or any unresolved
ambiguity relating to a proposed Permitted Transfer, whereupon
the Trustee shall be entitled to defer action on account of such
proposed Permitted Transfer until the Trustee shall have received
either (i) an opinion of its own counsel or (ii) a joint
instruction from the Company and the Stockholder or Successor
Stockholder, in which event the Trustee shall be fully protected
in relying upon either (i) or (ii).
(h) In no event shall the Company, the Trustee, the
Stockholder or any other Successor Stockholder have any
responsibility or liability on account of any transfer tax,
income, gift or inheritance tax, gross receipts tax or other
impost or duty relating to the sale or transfer of any voting
trust certificate or shares of Common Stock by the Stockholder or
Successor Stockholder (other than the Stockholder or Successor
Stockholder effecting the Permitted Transfer), or otherwise
imposed on the Stockholder or Successor Stockholder on account of
any of the transactions contemplated by this Agreement.
(i) The Trustee shall have no responsibility for
enforcing the undertaking of any transferee that said transferee
will sell all shares of Common Stock distributed by the Trustee
only in Qualified Sales.
9. Dissolution of Company. In the event of the
dissolution or total or partial liquidation of the Company,
whether voluntary or involuntary, the Trustee shall receive the
moneys, securities, rights, or property to which the holders of
the Company Stock deposited hereunder are entitled, and shall
promptly distribute the same among the registered holders of
voting trust certificates in proportion to their interests, as
shown by the books of the Trustee.
10. Reorganization of Company. In case the Company is
merged into or consolidated with another corporation, or all or
substantially all of the assets of the Company are transferred to
another corporation or entity, then in connection with such
transfer the term "Company" for all purposes of this Agreement
shall be taken to include such successor corporation or entity,
and the Trustee shall receive and hold under this Agreement any
securities of such successor corporation received on account of
the ownership, as Trustee hereunder, of the Company Stock held
hereunder prior to such merger, consolidation, and transfer.
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Voting trust certificates issued and outstanding under this
Agreement at the time of such merger, consolidation, or transfer
may remain outstanding, or the Trustee may, in its discretion,
substitute for such voting trust certificates new voting trust
certificates in appropriate form, and the terms "stock", "Company
Stock" and "capital stock" as used herein shall be taken to
include any securities which may be received by the Trustee in
lieu of all or any part of the Company Stock.
11. Rights of Trustee.
(a) Until the actual delivery to the holders of voting
trust certificates issued hereunder of certificates evidencing
Company Stock in exchange therefor, and until the surrender of
the voting trust certificates for cancellation, the Trustee shall
have the right, subject to the restrictions and provisions of
this Section 11, to exercise, in person or by its nominees or
proxies, all stockholders' voting rights and powers in respect of
all Company Stock deposited hereunder, and to take part in or
consent to any corporate or stockholders' action of any kind
whatsoever. The right to vote shall include the right to vote
for the election of directors, and in favor of or against any
resolution or proposed action of any character whatsoever, which
may be presented at any meeting or require the consent of
stockholders of the Company; provided, however, that for so long
as the Company Stock includes any shares of Series D Preferred
Stock, such right to vote shall be exercised by the Trustee with
respect to any matter set forth in Sections (E.1) and (E.4) of
the Series D Certificate as directed in a written notice to the
Trustee from the holders of the respective voting trust
certificates beneficially representing the shares of Series D
Preferred Stock to be so voted.
(b) Except with respect to matters set forth in
Sections (E.1) and (E.4) of the Series D Certificate, in
exercising its rights and powers hereunder, and in voting all
shares of Company Stock held by it hereunder or executing
consents in respect thereof, either in person or by its nominees
or proxies, or in taking any other action with respect to all
shares of Company Stock, the Trustee shall act and vote as
follows:
(1) as directed in a written notice delivered to the
Trustee by the Stockholder or "Stockholder Designee" (as
defined in (c) below) at least five business days before the
date on which the relevant vote is to be taken or the
deadline for the relevant consent or other action, and
confirming that a copy has simultaneously been delivered to
the Company, which direction shall be followed by the
Trustee for the shares of Company Stock beneficially
represented by the voting trust certificates owned by the
Stockholder and all Successor Stockholders, but such
direction must be either (as elected by the Stockholder or
Stockholder Designee under the written notice described
above):
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(i) in the same proportions as all other shares of
Company capital stock of the same class (and not
constituting Company Stock) are voted affirmatively or
negatively or acted upon by written consent with
respect to the particular matter (disregarding shares
not so voted or acted upon); or
(ii) as agreed upon in writing by both the Company and
the Stockholder or Stockholder Designee, in the sole
discretion of each (and subject to the receipt by the
Trustee of a notice from the Company indicating
agreement regarding the same).
(2) In the event the Trustee shall not have timely received
a proper election notification under (b)(1) above from the
Stockholder or Stockholder Designee, then all shares of the
Company Stock shall be voted or acted upon by the Trustee as
specified by (b)(1)(i) above.
(c) The "Stockholder Designee" shall mean: (i) For so long
as either John J. McMullen or his estate owns, directly or
indirectly, at least 25% in value of all voting trust
certificates, the Stockholder Designee shall be the individual
whom the Stockholder may, but is not required to, designate in a
written notice to both the Trustee and the Company; or (ii) if at
any time neither John J. McMullen nor his estate owns, directly
or indirectly, at least 25% in value of all voting trust
certificates, then from that time forward the Stockholder
Designee (and not the Stockholder) shall direct the written
notice and make the election specified in (b)(1) above, and the
registered holders of the voting trust certificates shall, (by
written designation executed by a majority in value of all then-
outstanding voting trust certificates, which designation shall be
delivered for the Trustee and the Company) select a "Stockholder
Designee" with respect to all shares of Company Stock.
(d) The Trustee shall not be personally responsible with
respect to any action taken pursuant to its vote or other action
so made in any matter or act committed or omitted to be done
under this Agreement.
12. Trustee.
(a) The Trustee (and any successor Trustee) may at any
time resign by mailing to the registered holders of voting trust
certificates and to the Company a written resignation, to take
effect as soon as practicable thereafter upon acceptance of
appointment by a successor Trustee. The Company shall have the
right to designate by notice to each Stockholder a successor
Trustee, who shall be reasonably acceptable to the Stockholders
upon notice of resignation of the Trustee. Such designation may
be made by a filing in the principal office of the Company in
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Phoenix, Arizona, with written notice to all holders of voting
trust certificates hereunder. If a successor Trustee has not
been appointed within 30 days after such notice of resignation
has been given, the Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(b) The rights, powers, and privileges of the Trustee
named hereunder shall be possessed by the successor Trustee, with
the same effect as though such successor had originally been a
party to this Agreement. The word "Trustee" as used in this
Agreement means the Trustee or any successor Trustee acting
hereunder, and shall include both the single and the plural
number.
13. Term. This Agreement shall expire and terminate on the
earliest to occur of: (i) March 1, 2001, or (ii) the date on
which the number of shares of Company Stock subject to this
Agreement (assuming for purposes of this calculation that all
Company Stock that is convertible into Common Stock has been
converted) shall first be less than 100,000 shares of Common
Stock (adjusted as set forth in this Agreement to account for
certain dilutive or contradilutive events or transactions
affecting the Common Stock) or (iii) the date on which William H.
Mallender shall cease to serve as chief executive officer of the
Company or in a position of similar authority with the Company
and shall not have been replaced by a person satisfactory to the
Stockholder (or such other person as the Stockholder shall
specify in writing for the purpose of exercising such right in
the event of his death or incapacity, such designation to survive
such death or incapacity and to be with right of substitution) in
his sole discretion or (iv) the date 30 days after the public
announcement that any person or entity (or "group" of persons or
entities) beneficially owns (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) in excess of 25% of the then-
outstanding Common Stock of the Company, unless the same shall
have been approved in a resolution duly adopted by the Board of
Directors of the Company or (v) the date that the Trustee shall
have received notice from the Company either that the Board of
Directors of the Company has recommended to the shareholders of
the Company acceptance of a tender offer for in excess of 50% of
the then-outstanding shares of Common Stock or that a single
person or entity shall directly or indirectly beneficially own
(as defined in Rule 13d-3 under the Securities Exchange Act of
1934) in excess of 50% of such then-outstanding Common Stock, or
(vi) unless the Stockholder or Stockholder Designee shall consent
in writing, the date that the Trustee shall have received notice
from the Company that any person holding directly or indirectly
in excess of 1,000,000 shares of Common Stock of the Company
(adjusted as provided in Section 14 hereof) shall have been
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elected to the Board of Directors of the Company pursuant to an
agreement with the Company that the Company will support such
election. The Company and each Stockholder hereby agree to give
written notice to the Trustee (and to each Stockholder and the
Company) promptly upon becoming aware of the occurrence of any
event specified in (ii), (iii), (iv), (v) or (vi) above.
14. Antidilution Provision. If during the term of this
Agreement the Company shall (A) take any action entitling the
holders of the Common Stock to receive a dividend payable in
shares of Common Stock, (B) subdivide its outstanding shares of
Common Stock into a greater number of shares, (C) combine its
outstanding shares of Common Stock into a smaller number of
shares or (D) issue by reclassification of its Common Stock any
shares of capital stock of the Company of any class or series,
the references in this Agreement (and in any instrument or
document delivered or deliverable hereunder) to numbers of shares
of Common Stock shall be automatically adjusted to equal the
product obtained by multiplying each such referenced number of
shares by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after occurrence
of the event described in subsection (A), (B), (C) or (D) of this
sentence, and the denominator which is the number of shares of
Common Stock outstanding immediately prior to occurrence of such
event.
15. Certain Company Covenants. The Company hereby
covenants, for the benefit of the Stockholder and the Trustee:
(a) The Company shall hold the Stockholder and the
Trustee harmless from and against any and all liabilities, costs
and expenses (including reasonable attorney fees) arising from
any litigation or claim asserted against the Stockholder or the
Trustee by a Company stockholder in such stockholder's name or in
the name of the Company to the effect that the Company's
consummation of the transactions contemplated by this Agreement
abridge any securities or other law applicable to the Company, or
fiduciary or other duties owed to other stockholders of the
Company, or the provisions of the Company's certificate of
incorporation as amended or its bylaws as amended; provided that
the Stockholder or the Trustee shall cooperate as reasonably
requested by the Company in minimizing any such liabilities,
costs and expenses (including acceptance by the Stockholder
and/or the Trustee of joint representation by counsel for the
Company with respect to any such litigation or claim, if
appropriate).
(b) In connection with the Company's undertaking under
Section 8(e)(7) above to cooperate as reasonably requested by
Stockholder in connection with Stockholder's secured loan
arrangements, the Company shall: (i) to ensure that
Stockholder's beneficial interest in the "Consideration Shares"
is "marginable," promptly register Consideration Shares under the
Securities Act of 1933, as amended, and maintain such
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registration in effect, for so long as the Consideration Shares
are not freely salable under Rule 144 (under said Act) without
regard to volume limitations and manner-of-sale limitations under
Rule 144; and (ii) direct the Company's counsel to provide such
opinion(s) as may be reasonably requested by the secured
lender(s) pursuant to such arrangements. In connection with the
foregoing, Stockholder and his counsel shall cooperate with the
Company and its counsel as reasonably requested in order to
minimize the costs and other burdens to the Company of (i) and
(ii) above, including the mutual effort to satisfy the
requirements of the secured lender(s) on a basis (if feasible)
that would confer registration rights upon the secured lender in
lieu of immediate registration of Consideration Shares.
(c) If and to the extent share certificates evidencing
some or all of the Consideration Shares held by the Trustee are
"legended" pursuant to the investment letter referred to in
Section 3(a) above or otherwise, and upon the request of
Stockholder from time to time, the Company shall cause one or
more unlegended certificates to be issued to the Trustee in
exchange for legended certificates upon receipt by the Company
and the Trustee of an opinion of counsel reasonably acceptable to
them that such Consideration Shares are freely salable under
Rule 144 (under the Securities Act of 1933, as amended) without
regard to volume limitations and manner-of-sale limitations under
Rule 144.
16. Compensation and Reimbursement of Trustee. The Trustee
shall receive its customary fees and charges for serving
hereunder. The Trustee shall have the right to incur and pay
such reasonable expenses and charges, to employ and pay such
agents, attorneys, and counsel as it may deem necessary and
proper for carrying this Agreement into effect. All such fees
and charges and any such expenses or charges incurred by and due
to the Trustee shall be paid by the Company.
17. Notice.
(a) Unless otherwise in this Agreement specifically
provided, any notice to or communication with the holders of the
voting trust certificates (and Stockholders) hereunder shall be
deemed to be sufficiently given or made if mailed, certified or
registered mail (return receipt requested) to the addresses of
the holders of voting trust certificates (or Stockholders), as
shown on the transfer books of the Trustee, which shall in all
cases be deemed to be the addresses of voting trust certificate
holders (and Stockholders) for all purposes under this Agreement,
without regard to what other or different addresses the Trustee
may have for any voting trust certificate holder on any other
books or records of the Trustee. Holders of voting trust
certificates (and Stockholders) may change their addresses for
notice hereunder by notice in writing to the Trustee (with a copy
to the Company). Every notice so given shall be effective,
whether or not received, on the date five (5) days after mailing
postage prepaid, and such date shall be the date such notice is
deemed given for all purposes.
-20-
<PAGE>
(b) Any notice to the Company hereunder shall be
sufficient if mailed, certified or registered mail (return
receipt requested) to the Company addressed as follows:
Talley Industries Inc.
2702 N. 44th Street, 100A
Phoenix, Arizona 85008
Att'n: Secretary
or to such other address as the Company may designate by notice
in writing to the Trustee. A copy of each such notice shall be
sent simultaneously to:
David Victor, Esq.
Meyer, Hendricks, Victor
Ruffner & Bivens, P.L.C.
2929 N. Central Avenue, Suite 1800
Phoenix, Arizona 85012-2762
and/or to such other or additional address as the Company may
designate by notice in writing to the Trustee.
(c) Any notice to the Trustee hereunder shall be
mailed, registered or certified mail (return receipt requested)
to the Trustee, addressed to it at such addresses as may from
time to time be furnished in writing to the Company by the
Trustee, and if no such address has been so furnished by the
Trustee, then to the Trustee in care of the Company. A copy of
any notice from the Company to the Trustee in its capacity as
record holder of any Company Stock shall be mailed concurrently
with such notice to the Trustee, registered or certified mail
(return receipt requested) to counsel for John J. McMullen at the
following address or to such other address as may from time to
time be furnished in writing to the Company:
Patrick J. Gilmartin, Esq.
Gilmartin, Poster & Shafto
One William Street
New York, NY 10004
[signature page follows]
-21-
<PAGE>
IN WITNESS WHEREOF the Company, John J. McMullen as sole
Stockholder on the date of this Agreement, and the Trustee have
duly signed this Agreement, as of the date first set forth in the
recitals above.
TALLEY INDUSTRIES, INC.
By Mark S. Dickerson
Its Vice President and
Secretary
FIRST INTERSTATE BANK OF
ARIZONA, N.A., as Trustee
By Kathleen Jakubowicz
Its Assistant Vice President
John J. McMullen
John J. McMullen
-22-
EXHIBIT 99.1
CONSULTING AGREEMENT
THIS AGREEMENT made and entered into this 7th day of
February, 1996 by and between TALLEY MANUFACTURING AND
TECHNOLOGY, INC., a Delaware corporation with an office at
2702 North 44th Street, Phoenix, Arizona 85008 (hereinafter
called the "Company"), and McMULLEN CONSULTANTS INC., a Delaware
corporation with an office at 200 Plaza Drive, Secaucus, New
Jersey 07096 (hereinafter called "Consultant").
RECITALS
A. The Company is the owner of JOHN J. MCMULLEN
ASSOCIATES, INC. ("JJMA") a corporation engaged in the business
of naval architecture and marine engineering with a significant
amount of U.S. Navy business, and is seeking to control the costs
and enhance the revenues of such business and of certain other
enterprises owned by the Company which do a significant amount of
business with various agencies and bureaus within the U.S.
Department of Defense, and the Company is desirous of finding
opportunities to expand its business operations into other
defense-oriented activities.
B. Consultant and personnel associated with Consultant
possess a high degree of entrepreneurial and financial experience
which the Company wishes to have available to it for its business
improvement and expansion.
C. In consideration of the mutual benefits and agreements
set out herein, the Company and Consultant have made the
agreement set forth herein.
<PAGE>
1. Engagement. The Company hereby engages the services of
Consultant to provide the services hereinafter specified (the
"Services") for the compensation and on the terms and conditions
set forth in this Agreement. Consultant accepts such engagement
and agrees to provide such Services for said compensation and on
such terms and conditions.
2. Effective Date and Term. This Agreement shall be
effective as of the first day of February, 1996 and shall
continue in force and effect for five (5) years until January 31,
2001 unless sooner terminated under the provisions hereof.
3. Services of Consultant.
(a) Consultant, acting as an independent contractor
and consultant, shall on request of the Company or JJMA provide
the following services to the Company or JJMA by means of members
of the Consultant's staff designated by the Consultant for the
particular task: assist the Company in seeking and finding
business opportunities for the Company to exploit including
analyzing the investment required and the potential return of
each such business opportunity; as and when requested by the
Company assist the Company from time to time in making
presentations to potential clients of JJMA and other enterprises
owned by the Company which do business with agencies of the U.S.
Government, and provide such other consulting services as the
Company and the Consultant may mutually agree are within the
general scope of the foregoing listed specific service
description.
<PAGE>
(b) During the term of this Agreement, and for so long
as he is willing and able to do so, the Company and the
Consultant agree that Dr. John J. McMullen shall serve as
Chairman of JJMA with such duties as may be delegated to him from
time to time by the Board of Directors of JJMA, and shall be
otherwise available at reasonable times by telephone for
consultation with officers and employees of the Company and/or
its subsidiaries.
4. Compensation and Expense Reimbursement.
(a) As a consulting fee, the Company shall pay, or
shall cause one or more of its subsidiaries to pay, to Consultant
a fee of $400,000 per year for each year of the term of this
Agreement, payable in equal installments on the fifteenth (15th)
day and last day of each month during the term of this Agreement.
(b) Consultant shall also be reimbursed for reasonable
out-of-pocket expenses incurred in carrying out its duties
pursuant to this Agreement. All such reimbursements will be made
within 30 days of receipt by the Company of Consultant's
itemization of such expenses.
5. Secretarial Services. The Company shall supply to
Consultant the exclusive services of two secretaries employed by
JJMA and carried on its payroll, but seconded to Consultant. All
costs related to such secretaries incurred by JJMA or the
Company, including but not limited to salary, benefits,
extraordinary medical claims and severance pay, shall be
reimbursed to the Company by Consultant.
<PAGE>
6. Early Termination. This Agreement may be terminated by
either party prior to January 31, 2001 by written notice given to
the other in the event any of the following should occur: (a) a
material default by either party in performing its material
obligations under this Agreement, such default continuing for a
period of thirty (30) days following notice of default by the
non-defaulting party to the defaulting party, and the non-
defaulting party then giving a notice of election to terminate;
(b) the other party shall become unable or fail to pay its debts
generally as they become due, or admit in writing its inability
to pay its debts, or make a general assignment for the benefit of
creditors; (c) any proceeding shall be instituted by or against
the other party seeking (i) to adjudicate it a bankrupt or
insolvent, or (ii) reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
(iii) appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property, and
such proceeding shall not have been dismissed within forty-five
(45) days after the date such proceeding was commenced; or
(iv) the other party shall take any action to authorize or
consent to any action described in clause (c) above.
7. Covenant Not to Compete; Confidentiality. During the
term of this Agreement and for a period of three (3) years after
the termination of this Agreement, neither Consultant nor
McMullen shall engage in any activity that competes with any line
<PAGE>
of business engaged in by JJMA, including, but not limited to the
business of commercial ship and detail design, naval ship and
combat systems and marine technical and management services
(collectively, "Line of Business"), whether acting as an officer,
director, employee, consultant, shareholder, owner, partner,
fiduciary or in any other individual or representative capacity
whatsoever, and shall not otherwise use to its or his own
advantage, or to the advantage of any other person, corporation,
or other entity, or disclose to any other person, corporation, or
other entity, any non-public information as to the clients,
customers, prospects, properties, prices, sales practices, manner
of operation, plans, trade secrets, patents, processes,
relationships with clients and customers or any other non-public
information concerning the Company or JJMA and/or their
respective businesses or solicit or induce (or seek to induce)
any employee of JJMA to leave such employment. Notwithstanding
the foregoing, Consultant and Dr. John J. McMullen may invest its
or his assets in such form or manner as deemed appropriate;
provided, however, that such investments shall not require any
substantial services on the part of Consultant or Dr. McMullen in
the operation of the affairs of the company or entity in which
such investments are made if such company or entity competes with
a Line of Business. The parties acknowledge the foregoing
covenants are reasonable in scope and necessary for the Company
to receive the full benefit of the consulting services to be
provides hereunder. The Company shall have the option in its
<PAGE>
sole discretion to reduce the scope and extent of the foregoing
covenants, by written notice to Consultant, either before or
after adjudication of the legality or enforceability of said
covenants, whereupon said covenants shall be valid and
enforceable against Consultant and McMullen.
If a court should conclude that the foregoing covenants are
unenforceable according to their terms either because of their
duration, the geographic area covered thereby or the scope of the
subject matter covered, the parties hereby agree that the court
shall reduce such duration, geographic area or scope so that the
resulting duration, geographic area and scope shall be the
maximum that such court shall conclude is enforceable, which
reduction shall be performed as follows: in the case of
duration, the duration hereof shall be reduced by one month at a
time until it shall be the maximum enforceable duration; in the
case of geographic area, such area shall be reduced by
eliminating individual states one at a time therefrom until such
area shall be of maximum enforceable geographical coverage,
commencing with the state in which the least volume of JJMA
revenues is generated during a fiscal year immediately preceding
such determination and eliminating additional states one at a
time in inverse order of the volume of JJMA revenues generated by
business activity of JJMA in each such state during such fiscal
year; in the case of the scope of subject matter, the parties
agree that the scope of such covenants shall be reduced to the
minimum extent necessary in order for such covenants to be
<PAGE>
enforced. The parties acknowledge that damages may not be an
adequate remedy for breaches of the foregoing covenants. In
addition to such other remedies as may be available under
applicable law, the parties acknowledge that the remedies of
specific performance and/or injunctive relief shall be available
and proper in the event of Consultant's or Mcmullen's actual or
imminent refusal or failure to perform its or his obligations
hereunder.
8. Relationship of Parties. This instrument does not
create and shall not be construed as creating joint venture,
partnership, or association between the Company and Consultant.
Consultant is and shall be during the entire term of this
Agreement an independent contractor.
9. Not Personal Services. In addition to other provisions
herein contained, this Agreement shall not be terminated in the
event of the death or disability of Dr. John J. McMullen.
10. No Assignments. This Agreement is personal to each of
the parties hereto, and neither party may assign or delegate any
of its rights or obligations hereunder without first obtaining
the written consent of the other; provided, however, that the
Company may in connection with a merger, consolidation, sale or
other disposition of all or substantially all of its assets
assign its respective rights and delegate its obligations
hereunder, but in such case shall remain obligated as surety for
the performance of the assignee.
<PAGE>
11. Binding Effect. This Agreement shall bind and benefit
Consultant and the Company and their respective successors and
assigns.
12. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and if
sent by registered mail to the attention of the President at the
office of Consultant, in the case of the Consultant; or to the
attention of its Chairman of the Board at its principal office in
the case of the Company.
13. Integration Clause; Oral Modification. This Agreement
represents the entire agreement of the parties with respect to
the subject matter hereof, and all agreements entered into prior
hereto are revoked and superseded by this Agreement, and no
representations, warranties, inducements or oral agreements halve
been made by any of the parties except as expressly set forth
herein, or in other contemporaneous written agreements. This
Agreement may not be changed, modified or rescinded except in
writing, signed by all parties hereto, and any attempt at oral
modification of this Agreement shall be void and of no effect.
14. Governing Law. This Agreement shall be deemed to be
made under, and shall be construed in accordance with and shall
be governed by, the laws of the State of Arizona, and suit to
enforce any provision of this Agreement or to obtain any remedy
with respect hereto may be brought in Superior Court, Maricopa
County, Arizona, and for this purpose each party hereby expressly
and irrevocably consents to the jurisdiction of said court.
<PAGE>
15. Attorneys' Fees. In the event suit is brought (or
arbitration instituted) or an attorney is retained by any party
to this Agreement to enforce the terms of this Agreement or to
collect any moneys due hereunder, or to collect money damages for
breach hereof, the prevailing party shall be entitled to recover,
in addition to any other remedy, reimbursement for reasonable
attorneys' fees, court costs, costs of investigation and other
related expenses incurred in connection therewith.
16. Waiver. Failure of any party to exercise any right or
option arising out of a breach of this Agreement shall not be
deemed a waiver of any right or option with respect to any
subsequent or different breach, or the continuance of any
existing breach.
17. Counterparts. This Agreement may be executed in any
number of counterparts, all such counterparts shall be deemed to
constitute one and the same instrument, and each of said
counterparts shall be deemed an original hereof.
18. Captions. Captions and section headings used herein
are for convenience only and are not a part of this Agreement and
shall not be deemed to limit or alter any provisions hereof and
shall not be deemed relevant in construing this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement
as of the day, month and year first written above.
TALLEY MANUFACTURING AND
TECHNOLOGY, INC., a Delaware
corporation
By Mark S. Dickerson
Its: Vice President and
Secretary
McMULLEN CONSULTANTS INC.
By John J. McMullen
President
