Talley Industries, Inc. and Consolidated Subsidiaries - Page 12




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          In extending her counteroffer, Ms. Branda expressly adopted the             
          first and second numbered paragraphs in Mr. Kilberg's January 31,           
          1986, letter (quoted above) and partially adopted and modified              
          the third numbered paragraph therein.  Ms. Branda did not                   
          specifically characterize the settlement payment, or any part               
          thereof, as either compensation for the Government's losses or as           
          a penalty.                                                                  
          On February 18, 1986, the parties executed a settlement                     
          agreement that was consistent with Ms. Branda's February 7, 1986,           
          counteroffer.  The settlement agreement provided that Talley and            
          Stencel would pay the Government $1.9 million ($2.5 million less            
          an offset of $600,000), that Talley and Stencel would pay                   
          $900,000 upon execution of the agreement, and that Talley and               
          Stencel would pay the remaining $1 million no later than February           
          18, 1987, with simple interest computed at the rate established             
          by the Secretary of the Treasury pursuant to the Renegotiation              
          Act Amendments, Pub. L. 92-41, sec. 2, 85 Stat. 97 (1971).  The             
          settlement agreement provided that Talley and Stencel were                  
          relieved of liability under the FCA and the TINA, and that the              
          settlement satisfied Stencel's obligation to provide restitution            
          under the Judgment and Probation Commitment Order entered on July           
          8, 1985.  The settlement agreement did not characterize the                 
          payment as either compensation to the Government for its losses             
          or as a penalty.                                                            






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