Four years ago, the Marquardt Co., a Van Nuys-based weapons maker, had more than $100 million in defense contracts, 1,100 workers and what looked like a rosy future.
Today the company has been broken up into three businesses. One of them is in bankruptcy court and is also suing its former parent company in a dispute over assets, including the rights to what could be a lucrative tank-bomb business.
It's a complicated, messy case with the parties battling each other in Superior Court in Van Nuys and the Federal Bankruptcy Court in Los Angeles.
The breakup started when Britain's struggling Ferranti International PLC began to liquidate the old Marquardt Co. In August, 1991, Marquardt Co. sold one of its main businesses, making parts for the tank bombs--called Rockeyes--and other weapons in a leveraged buyout to a group led by Leonard D. Kristal, a former investment banker who lives in San Francisco, and Ronald Spire, a Los Angeles investor.
The group formed a new company called Marquardt Manufacturing Inc. (MMI), which is still in Van Nuys.
In December, 1991, Marquardt Co. then sold its other main business, a rocket-propulsion division, to privately owned Kaiser Aerospace & Electronics Corp. in Foster City, Calif. Now called Kaiser Marquardt, and still based in Van Nuys, it makes propulsion systems used on the space shuttle and satellite rocket-thrusters.
The sales of Marquardt Co.'s former businesses within four months created confusion over which buyer was getting which assets, said Kristal, MMI's chairman and chief executive. The conflict escalated when Marquardt Co. and MMI clashed over the terms of an agreement allowing Marquardt Co. to repurchase some assets.
The dispute heated up in July, when MMI sued Marquardt Co. and Ferranti in Superior Court in Van Nuys. MMI alleged, among other things, that Marquardt Co. retained "several million dollars" in government-contract checks that belonged to MMI and withheld equipment, including machine tools for the Rockeye tank bombs that Marquardt Co. had agreed to deliver to MMI.
"We haven't done anything improper to MMI," said James P. Shinehouse, president of Ferranti's U. S. subsidiary, Lancaster, Pa.-based Ferranti International Inc., in an interview.
Marquardt Co. largely financed the MMI transaction by accepting a note from the investors for $3.7 million. The MMI buyers also assumed $1.6 million of Marquardt's liabilities.
Because of the current dispute, Kristal said, MMI has stopped making payments to Marquardt on its $3.7-million note.
In one sense, the Rockeye bomb business is a key part of the dispute. Before the MMI buyout, Marquardt made parts for the Rockeye bomb. According to Kristal, the Rockeye business brought in an average of $60 million a year between 1981 and 1991 from sales to the U. S. government and other countries.
Now, MMI doesn't just want to make Rockeye parts, it also wants to assemble and sell the bombs, said Spire, MMI's president. A type of cluster bomb, the Rockeye is designed to knock out tanks and other heavily armored vehicles. It is released from an airplane in a one-piece canister, which splits in flight, scattering hundreds of dart-like "bomblets" that cause explosions. The Rockeye was used in the Persian Gulf War.
"The Rockeye is a highly profitable business," MMI's Spire said. "The overriding issue here may be Marquardt (Co.) wanting to get MMI back entirely so it can be in the Rockeye bomb business."
Not true, said Shinehouse. "We have no desire to have that business back. That's why we sold it in the first place. We just want to be paid for the business we sold." Marquardt Co.'s parent Ferranti makes and sells Rockeyes through Ferranti International Inc., another subsidiary in Lancaster, Pa. Shinehouse said.
In February, after MMI had stopped paying on the $3.7-million note, Marquardt Co. declared MMI in default and tried to sell "substantially all of MMI's assets," according to MMI in a court document.
MMI responded by asking Superior Court to block the sale, which would have put MMI out of business, Kristal said. When the state court didn't act immediately to prevent the sale, MMI then filed Chapter 11 in March to protect itself.
Three days later, a Superior Court judge agreed that the sale shouldn't proceed and ordered MMI and Marquardt to meet with a court-appointed receiver to try and resolve their differences.
Now, MMI has asked the bankruptcy court to let the company out of Chapter 11. The judge supervising its bankruptcy is scheduled to consider the request in a hearing tomorrow.
Kristal contends that MMI is financially healthy. "I see no reason why we wouldn't be allowed out" of bankruptcy, he said. In court documents, MMI estimates both its assets and liabilities at less than $10 million. The company is down to 40 workers, about half the number it had in early April.
The original Marquardt Co. is basically now a landlord. It owns 56 acres and several buildings, including the company's headquarters, near Van Nuys Airport.