<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-K
(Mark One)
__X__Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
for the fiscal year ended September 30, 1996
or
_____Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
for the transition period from_____to_____
Commission File No. 0-8836
NUCLEAR METALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2506761
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
2229 Main Street,
CONCORD, MASSACHUSETTS 01742
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(508) 369-5410
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
6,000,000 SHARES OF COMMON STOCK ($.10 PAR VALUE)
(TITLE OF CLASS)
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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes__X__ No____
Indicate by check mark if the disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in a definitive proxy or information
statement incorporated in Part III of this Form 10-K or any amendments to this
Form 10-K. _____
The aggregate market value of the Common Stock of the Registrant held by non-
affiliates was approximately $14,070,618 as of December 13, 1996.
As of December 13, 1996, there were issued and outstanding 2,392,014 shares of
the Registrant's Common Stock, $.10 par value.
__________________
DOCUMENTS INCORPORATED BY REFERENCE
(1) Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1996 (Items 5,6,7,8 and 14)
<PAGE>
NUCLEAR METALS, INC.
Securities and Exchange Commission
Item Numbers and Description PAGE
- ---------------------------- ----
PART I
ITEM 1. Business 3
ITEM 2. Properties 21
ITEM 3. Legal Proceedings 22
ITEM 4. Submission of Matters to a Vote of Security Holders 22
PART II
ITEM 5. Market for the Registrant's Common Equity 23
and Related Stockholder Matters
ITEM 6. Selected Financial Data 24
ITEM 7. Management's Discussion and Analysis of Financial 24
Condition and Results of Operations
ITEM 8. Financial Statements and Supplementary Data 24
ITEM 9. Changes in and Disagreements with Accountants 24
on Accounting and Financial Disclosure
PART III
ITEM 10. Directors and Executive Officers of the Registrant 25
ITEM 11. Executive Compensation 27
ITEM 12. Security Ownership of Certain Beneficial Owners 36
and Management
ITEM 13. Certain Relationships and Related Transactions 38
PART IV
ITEM 14. Exhibits, Financial Statement Schedule and Reports 39
on Form 8-K
SIGNATURES 43
INDEX TO AUDITORS REPORT AND FINANCIAL STATEMENT SCHEDULE 45
Inasmuch as the calculation of shares of the registrant's voting stock held by
non-affiliates requires a calculation of the number of shares held by
affiliates, such figure, as shown on the cover page hereof, represents the
registrant's best good faith estimate for purposes of this annual report on
Form 10-K, and the registrant disclaims that such figure is binding for any
other purpose. The closing price of the Company's Common Stock as reported by
NASDAQ for trading on December 13, 1996 was $18.00. All outstanding shares
beneficially owned by executive officers and directors of the registrant or by
any shareholder beneficially owning more than 5% of registrant's common stock,
as disclosed herein, were considered solely for purposes of this disclosure to
be held by affiliates.
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
The Company is engaged in manufacturing a wide variety of
specialty metal products using sophisticated metallurgical technology and
metalworking processes. The Company operates in three industry segments: (1)
uranium services and recycling of low-level contaminated steel; (2)
fabrication of a large assortment of specialty metal products using foundry,
extrusion, and machining capabilities; including the manufacture of
high-purity, spherically shaped metal powders; and (3) manufacture of
depleted uranium penetrators.
The Company participates in the uranium services and recycling
industry segment primarily through its wholly-owned subsidiary, Carolina
Metals, Inc. ("CMI") located in Barnwell, South Carolina. The uranium
services and recycling segment of the Company's market segments include: (1)
the manufacture of uranium tetrafluoride (UF(4)) and depleted uranium metal
through chemical conversion processes; and (2) the recycling of various
metals from decommissioned nuclear sites. (SEE "INDUSTRY SEGMENT
INFORMATION," elsewhere herein)
As of September 30, 1996 the Company had 190 employees.
3
<PAGE>
INDUSTRY SEGMENT FINANCIAL INFORMATION
The following table sets forth certain information regarding the
revenue, operating profit and identifiable assets attributable to the three
industry segments in which the Company operates.
YEAR ENDED
Sept. 30, Sept. 30, Sept. 30,
1996 1995 1994
---- ---- ----
(In Thousands)
Net Sales and Contract Revenues:
Uranium Services & Recycle $ 6,189 $ 4,969 $ 4,752
Specialty Products 13,730 12,102 7,284
Depleted Uranium Penetrators 8,775 1,714 6,968
Operating Profit(Loss):
Uranium Services & Recycle $ (2,700) $ (996) $ (5,409)
Specialty Products 1,432 (341) (162)
Depleted Uranium Penetrators (942) (237) (5,033)
Identifiable Assets:
Uranium Services & Recycle $ 13,749 $ 16,609 $ 16,772
Specialty Products 6,195 5,140 5,646
Depleted Uranium Penetrators 8,441 12,158 9,863
See Note 14 of Notes to Consolidated Financial Statements.
__________________________________________
The Company does not have any foreign operations. The Company does have
export sales which accounted for 28% of net sales for the most recent fiscal
year ended September 30, 1996. In the prior two fiscal years, 1995 and 1994,
export sales were 33% and 37%, respectively.
The following is a general description of the Company's three business
segments. For additional information concerning developments in these
business segments during fiscal 1996, reference is made to pages 4 through 11
of the Company's 1996 Annual Report, which is incorporated herein by
reference and is included as Exhibit 13.
4
<PAGE>
URANIUM SERVICES & RECYCLE
The Company's Uranium Services and Recycle business segment includes the
manufacture of depleted uranium and of uranium tetrafluoride, the recycle of
various low level radioactive metals, the production of DUCRETE-TM-, and the
supply of depleted uranium alloy material for use in United States Enrichment
Company's (USEC) Atomic Vapor Laser Isotope Separation (AVLIS) program.
Manufacture of Depleted Uranium
A large-scale production contract from a foreign customer for depleted
uranium metal, produced at the CMI facility, was completed in 1996.
Recycle of Low Level Radioactive Metals
The Company successfully completed a program in September, 1995 with
Westinghouse Savannah River Company to demonstrate the beneficial reuse of
contaminated stainless steel from the Department of Energy (DoE). The program
demonstrated the technical feasibility and economic soundness of recycling
radioactively contaminated steel into storage drums and boxes for containment
of various radioactive wastes at DoE sites. This pilot program is
significant due to the large number of facilities within the DoE that were
engaged in production of nuclear materials for our national defense that have
substantial quantities of contaminated stainless steel that would benefit
from the beneficial reuse program. These facilities contain millions of tons
of carbon steel and stainless steel in the form of structural components and
various types of processing equipment. Through beneficial reuse of
contaminated steel scrap, the DoE will be able to reduce the volume of
low-level radioactive waste in a cost-effective manner. In addition to the
DoE facilities, it is estimated that an additional several million tons of
low-level contaminated steel will be generated as a result of decommissioning
the more than 100 currently operating commercial nuclear power plants over
the next 30 years. The Company continues to pursue additional contracts in
this product area.
During fiscal 1996, the Company teamed with ALARON Corporation in Cayce,
SC to offer services to remelt slightly contaminated steel at the Company's
CMI location. The resultant metal is used in shielding applications through
an interlocking shield called the RAM-LOC-TM- shielding block. Radioactively
contaminated steel remelt services are offered at only two other facilities
in the United States.
Production of Ducrete-TM-
The Company has licensed the production rights for a new product known
as DUCRETE-TM-. DUCRETE-TM- shielding was developed by the Idaho National
Engineering Laboratory as a potential shielding for spent fuel and high level
radioactive waste casks. DUCRETE-TM- is a uranium oxide aggregate that is
combined
5
<PAGE>
with concrete to form a stable and economical shielding. The Company is
actively pursuing the DoE to convert its 55,000 metric tons of Uranium
Hexaflouride into Depleted Uranium aggregate for DUCRETE shielding
production.
Supply of Depleted Uranium Alloy
The Company supplies Depleted Uranium (DU) alloy material to the USEC
for use as Atomic Vapor Laser Isotope Separation (AVLIS) feedstock material.
AVLIS is expected to replace the current gaseous diffusion process for
separating the fissionable isotope, U235, from natural uranium within the
next ten years. The Company has offered conversion services to the USEC for
converting Depleted Uranium Hexaflouride (UF(6)) to Uranium Tetraflouride
(UF(4)). This work would be performed at the Company's CMI facility. The
Company believes that USEC has a need for conversion of approximately 15-20
million pounds annually.
The Company continues to be the primary supplier of AVLIS feedstock
material. However, other companies are attempting to compete for future
business. The Company's South Carolina facility is the country's only active
facility for converting UF6 to UF4.
SPECIALTY METAL PRODUCTS
The Company has several specialty metal products, including: beryllium
products; specialty, medical, and aerospace powders; and a variety of advanced
metal products and services for aerospace, energy, and commercial applications.
Beryllium Products
The Company completed major development activities to fully utilize its
patented Beralcast-Registered Trademark- investment cast beryllium aluminum
alloy for production applications. Beralcast-Registered Trademark-, a
registered trademark, is a patented engineering material used in electronic
and secondary structural applications for advanced missiles, helicopters, and
a variety of other aerospace and avionics applications. Cost and weight
pressures on today's design engineers demand a transition to lightweight,
strong, and high stiffness materials such as NMI's patented
Beralcast-Registered Trademark-. The alloy offers 3 1/2 times the stiffness
of aluminum with 22% less weight and is investment castable to net and near
net shape. Lockheed Martin Corporation continues to view NMI's
Beralcast-Registered Trademark- hardware for the Electro Optic Sensor System
(EOSS) as the highest priority for provision of Comanche program funding.
The Company was awarded Lockheed Martin's Small Business of the Year Award
for 1995 based on the Company's successes in the Beralcast product area.
High performance defense applications for Beralcast-Registered Trademark-
where cost premiums are permissible include: the Comanche (Advanced Attack
Helicopter), the F-22 (Advanced Tactical Fighter), the PAC-3 (the updated
Patriot missile), the French
6
<PAGE>
Rafael (Advanced Fighter Aircraft), and a number of other advanced design
programs. In addition, design engineers at various aerospace, computer, and
electronic firms, are designing this new engineering material into emerging
systems. Commercial uses for Beralcast-Registered Trademark- are expected to
be introduced as production costs, which include the current high cost of
beryllium input metal, are reduced. The Company also continues to produce
seamless beryllium tubes for satellite applications. Introduction of extruded
Beralcast-Registered Trademark- tubing for satellites is a unique opportunity
to supplant expensive graphite composites. The Company's extrusion
technology has been successfully demonstrated in the recent manufacture of
tubing struts for the Comanche EOSS.
Advanced Metal Products and Services
Highly-reliable bi-metallic tubes, manufactured by a proprietary NMI
process, are used by aerospace and nuclear companies to join dissimilar metals.
Extruded tubes, bars, castings, and shapes of a variety of metals and alloys are
used as finished products or for further processing in a variety of industrial
applications.
The Company uses its large capacity for fabrication of depleted uranium
components to produce shielding for cancer therapy units, Industrial
Radiography, and Commercial/Government Nuclear applications. The Company also
recycles DU armor scrap for remelt into rolling slabs for the Amy's M1A2 Main
Battle Tank Program.
Metal Powders
The Company manufactures metal powders by proprietary processes called the
Rotating Electrode Process-TM- (REP) and the Plasma Rotating Electrode Process-
TM- (PREP), which produce spherical metal particles within a relatively
controllable size range.
The metal powders produced by the Company include steel, titanium alloy and
several nickel and cobalt-base alloys generally known in the industry as
specialty powders.
The principal markets for the Company's metal powders are medical
applications (titanium and cobalt-based alloy powders), which use the powder as
a porous coating on medical prostheses, and original equipment manufacturers
(steel, titanium alloy and specialty powders), which fabricate metal parts from
the powder through various processes. In addition, the Company continues to
produce steel powders for the photocopy industry, and as a carrier for toner in
copy machines and high-performance laser printers.
Management believes that the metal powders produced by its manufacturing
processes offer significant advantages for certain product applications compared
with metal powders produced by other processes. In particular, the processes
produces inherently "cleaner" powders, more uniformly spherical particles and a
7
<PAGE>
higher percentage of particles within the desired size range from a given amount
of raw material.
Management believes that the markets for titanium alloy and specialty
powders represent significant business opportunities for the Company's powder
making capability, especially under the Government's Technology Reinvestment
Program. This program is designed to assist defense contractors with
transitioning their products for commercial use by funding fifty percent (50%)
of the cost of transition.
Key competitive factors in the metal powders market are price and the
ability to meet exact dimensional, metallurgical and other specifications.
The steel powder marketed by the Company for photocopy applications competes
with powders produced by larger manufacturers. The Company believes that the
quality of its powder used in the photocopy processes helps to offset any
price advantage that may exist for competing powders in this price sensitive
market.
The principal raw material for the Company's steel powder is cold-rolled
steel bars, which are readily available. Other metal powders are
manufactured to customer specifications, and the metals for these powders are
generally available for purchase in job lots from specialty metal suppliers.
The Company holds three U.S. patents relating to developments in
Rotating Electrode Process production equipment, which provide patent rights
through the year 2001. These patents also are filed and effective in the
principal industrialized European countries, Canada, Israel and Japan.
Management believes that, although the original patent on the Rotating
Electrode Process machine expired in July 1980, the development patents
continue to benefit the Company's competitive position in the Metal Powders
market. It is also the opinion of management that the technical expertise
which has evolved from the development and manufacture of metal powders is of
equal importance in maintaining the Company's competitive position.
DEPLETED URANIUM PENETRATORS
The Company believes it is a technological leader in the
manufacture of depleted uranium penetrators. Depleted uranium (DU) is a
dense, heavy metal that is 68% heavier than lead. Because of its density and
workability, DU is an effective low-cost material for anti-armor ammunition
and is used in numerous United States Government and foreign government
weapons systems. DU is a low-level radioactive material which is a
by-product of the production of enriched uranium for nuclear fuel and
weapons.
8
<PAGE>
The Company is one of two domestic DU penetrator manufacturers.
Competition to supply penetrators is price sensitive. The principal DU
products manufactured by the Company, referred to as penetrators, have
application in various military gun systems. The Company generally sells
penetrators directly to prime ammunition contractors. The U.S. Government
has funded and owns a portion of the manufacturing machinery and equipment
used by the Company for producing penetrators.
In fiscal 1995, the Company was awarded an M829A2 penetrator production
contract with options extending production to the year 1999. This contract is
subject to appropriations by the Government. The Company is currently in
production on the second option of this contract. Management strongly
believes the Government will exercise the remaining options on the contract.
The Company will continue to pursue both domestic and foreign military
depleted uranium penetrator production requirements.
The Company believes that foreign military sales of the U.S. ABRAMS tank
could result in additional foreign military requirements for DU penetrators
in future fiscal years. Additionally, the Company received a purchase order
for DU products from a UK customer to support its UK based manufacture of
tank ammunition containing DU penetrators during December, 1996.
SIGNIFICANT CUSTOMERS
Olin Corporation is a significant customer of the Company's Depleted
Uranium Penetrator segment. In fiscal 1996, sales to Olin accounted for 20%
of net sales. The Company currently is under contract to provide Olin with
120mm penetrators for the U.S. Army's ABRAMS Tank program with options
extending another three years. If Olin were lost as a customer, this would
have a material adverse effect on the Company.
Lockheed Martin Corporation (LMC) is a significant customer of the
Company's Specialty Products segment. In fiscal 1996, sales to LMC accounted
for 16% of sales. The Company is currently under several contracts with LMC
to provide Beralcast-Registered Trademark- hardware for the Comanche
Helicopter Program. The loss of LMC as a customer would have a material
adverse effect on the Company.
Cogema, of France, is a significant customer of the Company's Uranium
Services & Recycle segment. In fiscal 1996, sales to Cogema accounted for
14% of net sales. In March of 1996, the Company completed its multi-year
contract to provide Cogema with depleted uranium. The loss of Cogema as a
customer has had a
9
<PAGE>
material adverse effect of the Company's Uranium Services & Recycle segment.
(See "Management's Discussion and Analysis of Operations", pages 16-19, in
the Registrant's 1996 Annual Report to Stockholders, which is included in
this Report as Exhibit 13)
Royal Ordnance, U.K. defense contractor, is also a significant customer
of the Company's Depleted Uranium Penetrator segment. In fiscal 1996, sales
to Royal Ordnance accounted for 11% of net sales. The Company has a purchase
order from Royal Ordnance for the purchase of $8.5 million of penetrator
blanks. If Royal Ordnance were lost as a customer, this would have a
material adverse effect on the Company.
Lockheed Idaho Technology Company (LITCO) is another significant
customer of the Company's Specialty Metals Products segment. In fiscal 1996,
sales to LITCO accounted for 4% of net sales (See Note 2 of Notes to
Consolidated Financial Statements). The Company currently is under contract
with Lockheed Idaho Technology Company to produce, from furnished DU recycle
metal, DU castings for the U.S. Army's heavy armor tank program. This
contract continues to have options for several additional years. The loss of
LITCO as a customer would have a material adverse effect on the Company.
MARKETING
The Company relies on a variety of marketing strategies including
advertising and direct sales. Technical papers given at industry symposia,
presented by both NMI and in conjunction with customers, are also used as
marketing vehicles for the Company's advanced metal products and services.
Strategic alliances are being developed with several key customers to
strengthen the Company's customer and product base into the future and to
reduce costs through joint research and development and marketing efforts.
Understanding the importance of Design-To-Cost principles, especially
those of Lockheed Martin Corporation, is tantamount to strategic teaming with
our Beralcast-Registered Trademark- customers. Concentrated efforts on cost
reduction in the form of Concurrent Engineering, low cost Beryllium input
metal production, facility expansion, and other efforts, add value for future
sales volumes. NMI has introduced Nucast, our Beralcast-Registered
Trademark-teammate, to these cost reduction ideas which will form the basis
for improved cost competitiveness in the future. Direct marketing efforts
are increasing.
The Company is committed to expanding its product and customer base for
metal powders. Market demands for fine metal powders, for re-consolidation or
incorporation into metal matrix composites, are on the rise and we are
positioning
10
<PAGE>
ourselves to exploit these opportunities. Novel product requirements for our
advanced metal products and services will continue to receive the utmost
attention for expansion of our product base.
Uranium Services and Recycling activities are being directly marketed
out of the Company's Oak Ridge, Tennessee and Idaho Falls, Idaho offices.
Efforts to enhance the Company's reputation as a supplier with high value
products are being strengthened through improved service, added advertising
and increased presence in the marketplace.
11
<PAGE>
BACKLOG
The following table sets forth certain information with respect to the
backlog of the Company's business segments at September 30, 1996 and September
30, 1995 including the portions thereof represented by orders from the Company's
principal customers, COGEMA, Lockheed Martin, Lockheed Idaho and Olin
Corporation. The backlog for the Company is affected by the timing of orders
from these customers. The Company believes all orders in backlog are firm.
1996 1995
---- ----
(In Thousands)
Uranium Services & Recycle
COGEMA $ -- $ 4,262
Other 1,827 84
------ ------
Total 1,827 4,346
------ ------
Specialty Metal Product
Lockheed Martin $ 4,664 $ 5,951
Lockheed Idaho 1,970 1,053
Other 5,868 5,052
------ ------
Total 12,502 12,056
------ ------
Depleted Uranium Penetrators
Olin Corp. 8,738 14,299
Other 181 8
------ ------
Total 8,919 14,307
------ ------
Company Total $23,248 $30,709
====== ======
A significant portion of the Company's business is dependent on the
award of contracts or subcontracts for the supply of products and materials
to governmental departments and agencies. Payments to the Company of all or
a portion of the amounts called for under such contracts or subcontracts, is
often subject to legislative funding appropriations, government agency
purchasing requirements and other conditions and factors beyond the Company's
control. Accordingly, the Company's performance under such contracts may be
delayed or may not commence at all, in which case the payments thereunder may
be recognized later than anticipated at the time of the contract award or not
at all in cases in which the Company is not called upon to perform. As a
result, the timing and amount of revenues under such government contracts is
uncertain and subject to change, which may result in fluctuations in the
Company's operating results and cash flows.
12
<PAGE>
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company engages in research and development activities for
departments and agencies of the U.S. Government and commercial customers.
During the last fiscal year, research has involved many product areas. The
highlights of R&D activities in the uranium services & recycle product
segment include recycling processes for radioactively contaminated steel
scrap, uranium production technology for AVLIS feedstock, removal of uranium
from MgF(2) slag, conversion of UF(4) to uranium oxide, and the manufacture
of Ducrete as a means of incorporating depleted uranium oxide aggregate in a
cement matrix to make shielded concrete structures. Activities in the
Specialty Metal Products segment include extensive mechanical property
characterization of the Company's patented Beralcast-TM- alloys to establish
S basis allowable for inclusion in MIL Handbook 5, an alternate casting and
forming process for manufacture of Beralcast-TM- alloys, and developing a
method for producing fine metal powders. A portion of the research and
product development efforts is performed through funded contracts.
The Company also funds certain research and development activities, and
funds other work through cost partnership arrangements with selected customers
where there is potential for utilizing proprietary technology or specialized
resources not directly available to the Company. Internal research and
development funding has the objective of improving manufacturing techniques and
developing new products. The Company employs a staff of five Ph.D.
technologists with backgrounds in chemistry, mechanical and metallurgical
engineering to conduct research and new product development. In addition, the
Company added to the R&D staff a former Government scientist who is the
inventor and patent holder for its DucreteTM technology. The cost for
Company-sponsored research and development activities was $876,000 in fiscal
1996 and $439,000 in fiscal 1995. Total revenues from customer-funded research
and development were $1,812,000 in fiscal 1996 and $557,000 in fiscal 1995.
These revenues are included in the revenues of the industry segment to which
the research and development relates.
ENVIRONMENTAL, SAFETY AND REGULATORY MATTERS
IN GENERAL
Two of the materials regularly processed by the Company, depleted uranium
and beryllium, have characteristics considered to be health or safety hazards by
various federal, state or local regulatory agencies. Processing of these
materials
13
<PAGE>
requires a high level of safety consciousness, personnel monitoring devices
and special equipment. Depleted uranium is a low-level radioactive material,
and the Company is subject to regulation by the United States Nuclear
Regulatory Commission (NRC). Depleted uranium in the finely divided state,
such as grinding dust or machine turnings, is combustible at room temperature
and requires special handling for safe operations and disposal of process
wastes. Beryllium is known to cause lung disease following significant
exposure by inhalation of airborne particles. Processing this material
requires use of extensive ventilation and dust collecting systems.
Management believes that the experience gained in its many years of working
with these metals has resulted in capabilities for dealing effectively with
their special characteristics.
The presence and use in the Company's operations of materials with
hazardous characteristics subjects the Company to regulation and scrutiny by
various governmental agencies. Management believes that the Company is
presently in compliance in all material respects with existing federal, state
and local regulations and has no knowledge of any threatened actions against
the Company for violations of any such laws, statutes or regulations, except
as described below under "Concord Site Remediation and Decommissioning
Planning requirements" and in Item 3 below. However, the potential effects
of evolving legislation and regulations affecting the Company's business
cannot be predicted.
In the process of manufacturing depleted uranium products, the Company
generates small amounts of low-level radioactive waste materials that must be
disposed of at sites licensed by federal, state, and local governments. With
the closing of the Barnwell, South Carolina, low-level radioactive waste
repository to out-of-region generators in July 1994, the Company began
storing waste on site in Concord and Barnwell. Interim storage is permitted
under the Company's NRC license. At present, the Barnwell repository remains
available for use by the Company's Carolina Metals, Inc. facility. The
Company has made provision to accommodate an extended period of interim
storage of waste within existing buildings in Concord as the state government
works toward a regional solution. At the same time, the Company has made
significant progress in developing and instituting alternatives to disposal
of its waste. The Company intends to continue the development of
technologies and processes aimed at eliminating the generation of waste
materials associated with its manufacturing process.
For a number of years, ending in 1985, the Company deposited spent acid
and associated depleted uranium waste and other residual materials by
neutralizing with lime and discharging the neutralized mixture to a holding
basin on its premises in Concord, Massachusetts. In 1986 the holding basin
was covered with Hypalon, an impervious material used to prevent rain and
surface run-off water
14
<PAGE>
from leaching through the holding basin. The Company now uses a proprietary
"closed loop" process that it developed to discontinue such discharges. The
Company believes that both practices were and are in compliance with all
applicable regulations. For a discussion of the status of remediation of the
holding basin at the Company's Concord facility, see "Concord Site Remediation
and Decommissioning Planning Requirements" elsewhere herein.
15
<PAGE>
CONCORD SITE REMEDIATION AND DECOMMISSIONING PLANNING REQUIREMENTS
The Company is required to maintain certain licenses issued by the United
States Nuclear Regulatory Commission ("NRC") and the South Carolina
Department of Health and Environmental Control ("DHEC") in order to possess
and process depleted uranium materials at its facilities in Massachusetts and
South Carolina, respectively. Under applicable licensing regulations
pertaining to decommissioning and disposal of certain hazardous materials
("D&D") at licensed sites, the Company submitted to the NRC a Decommissioning
Funding Plan ("DFP") to provide for possible future decommissioning of its
Concord Facility, at an estimated cost of $11.7 million. (This revised
estimate is approximately $2 million lower than the original estimate because
of lower than expected costs of decontamination resulting from utilization of
the Company's expanded capabilities for metal melt at its CMI facility.) The
Company is also required to provide financial assurance for such
decommissioning pursuant to applicable regulations. The Company has also
recently submitted to DHEC a DFP for the possible future decommissioning of
its CMI facility, at an estimated cost of $2.8 million and is also required
to provide financial assurances for decommissioning this facility.
Substantially all of the depleted uranium materials to which the DFP
requirements apply were processed by the Company for the United States
Government. Based on the terms of certain contracts that the Company entered
into with the United States Government to process such depleted uranium
materials, the Company believes that such materials continue to be owned by
the United States Government and that the United States Government is
obligated, under applicable law, to pay for its percentage of eventual D&D.
The Company's
16
<PAGE>
DFP's reflect its position that it is obligated to provide financial
assurance only with respect to the portion of the materials which are
attributable to the Company's commercial production for parties other than
the United States Government and that this obligation has been satisfied by a
letter of credit which have been issued by the Company's bank and restricted
cash held in trust by the Company's bank support the Company's D&D
obligations for each of its two facilities.
The Company had requested partial exemption from the NRC for the
regulatory D&D financial assurances requirements as they pertain to
Government owned materials. By letter dated July 16, 1996, the NRC's
Division of Nuclear Materials Safety (Region I) (the "Division") denied the
Company's request for partial exemption from certain aspects of the D&D
financial assurances and directed that, within 60 days of the Division's
letter, the Company provide satisfactory financial assurances from either the
Company or Government sources. In its letter, the Division indicated that it
will accept, as a satisfactory assurance, a Statement of Intent ("SOI") in
compliance with 10 CFR 40.36(e)(4) from the United States Army or another
Government agency to the effect that such agency intends to fund any costs
for which the Company has not directly provided financial assurances, subject
to public appropriation of required funds. In its letter, the Division
indicated that failure to meet the NRC's requirements by September 14, 1996,
could result in enforcement action, possibly in the form of a civil penalty,
or by license modification, suspension or revocation. Based on Memorandum of
Decision (see next paragraph) such an action would have had the effect of
preventing the Company from fulfilling its obligations to a substantial
portion of its customer base and, accordingly, would have had a material and
adverse impact on the Company's results of operations and financial position.
The United States Army, in a Memorandum of Decision dated September 13,
1996, determined pursuant to Public Law 85-804, that it should fund
remediation of the Concord holding basin site as well as D&D related to the
Concord facility, based in part on the Army's determination that the
Company's activities are essential to the national defense. The Army's
Memorandum of Decision contained certain limits on funding of the holding
basin remediation based upon the Company's current estimates of future costs,
which are subject to change based upon a number of factors, such as the
timing of the actual remediation and actual costs at the time of completion
of the remediation. The Company remains comfortable with its current
estimates with respect to remediation of the Concord site assuming
remediation as planned. In addition, the remediation of the holding basin is
subject to the usual government appropriation process. As a result of the
decision, the Company has reversed a previously established $3.4 million
reserve for the holding basin. D&D costs for the Concord facility are to be
awarded to the Company as part of ongoing contracts, but the Army has
provided written assurances (also subject to funding
17
<PAGE>
appropriations) of its intention to provide funding for D&D costs at the
Concord facility under future contracts or, in the event that no future
contracts were awarded (which the Army has indicated is unlikely in view of
its current plans), under an existing contract. The actual remediation will
proceed pursuant to a modification of an existing government contract, the
terms of which have not yet been determined but will presumably be consistent
with the Memorandum of Decision.
The Company believes that the Memorandum of Decision, together with
correspondence from the Army clarifying its intent with respect to the same,
should satisfy the NRC with respect to the sufficiency of the Company's DFP
for the D&D requirements, although the NRC has not responded or taken action
to allow renewal of the Company's license. DHEC has not yet responded with
respect to the DFP which the Company has submitted with respect to its South
Carolina facility. The Company believes that, in the event that DHEC
requires assurances from the Army with respect to what the Company believes
is the Army's share of the estimated potential cost of D&D at the CMI
facility, the United States Army will respond in a manner which is consistent
with the Memorandum of Decision regarding the Concord site. The Company
believes that its proportionate share of D&D costs for its CMI facility are
adequately covered by the existing letter of credit which is currently in
place to assure it D&D obligations.
The Company has no assurances that the Army will accept responsibility
for its share of the estimated cost of D&D at CMI which are directly
resulting from production work under U.S. government contracts on government
supplied materials. Also, the Company is currently the sole source to the US
Army of certain products which are investment cast with the Company's
patented beryllium aluminum alloy and which are vital to certain Army
programs. The Company also believes that its capabilities with respect to
the conversion of UF(6) gas to depleted uranium metal stock make it
strategically important to any future depleted uranium production which may
be required for US Army DU pentrators and tank armor (although current
inventories appear sufficient to supply announced procurement needs). The
Company believes that its production capabilities may also be used to serve
several Department of Energy needs for remediation of certain other
environment hazards posed by the process of Nuclear power generation. For
these reasons, the Company believes that the interests of the United States
Government would be best served by the Company's continued operation under
its current NRC and DHEC licenses, but there can be no assurance that the
various Governmental agencies which regulate NMI will permit the Company's
continued operation under its licenses.
18
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
George J. Matthews 66 Chairman of the Board of Directors,
CEO and Treasurer
Robert E. Quinn 43 President
Wilson B. Tuffin 65 Vice Chairman of the Board of Directors
Douglas F. Grotheer 38 Vice President, Engineering & Programs
William T. Nachtrab 43 Vice President, Technology
James M. Spiezio 48 Vice President, Finance & Administration
Frank J. Vumbaco 43 Vice President, Health/Safety
Bruce E. Zukauskas 46 Vice President, Operations
The term of office for each executive officer of the Company is one year
or until a successor is chosen and qualified. The executive officers are
elected by the directors at their first meeting following the annual meeting
of stockholders. There are no family relationships among the directors and
executive officers.
GEORGE J. MATTHEWS has been Chairman of the Board of Directors since 1972.
He is employed by Matthews Associates Limited, a Massachusetts corporation.
Matthews Associates Limited is engaged in the business of investing in and
providing management consultation and assistance to small and medium sized
businesses. Mr. Matthews devotes approximately 75% of his time to the
Company's affairs. Mr. Matthews was elected CEO and Treasurer on November
30, 1994.
ROBERT E. QUINN was elected President of the Company on November 30, 1994.
Prior to November 30, 1994 he held the position of Vice President, Sales
with the Company for over five years.
WILSON B. TUFFIN has been Vice Chairman of the Board of Directors since
November 1994. From 1972 to November 1994, he held the positions of
President, Chief Executive Officer and Treasurer of the Company.
DOUGLAS F. GROTHEER has held the position of Vice President, Engineering and
Programs since July 1994. Prior to July 1994, he was Manager, Engineering
and Programs for two years, and Manager, Ordnance Programs for more than
three years.
19
<PAGE>
WILLIAM T. NACHTRAB, PH.D. has held the position of Vice President, Technology
with the Company since May 1993. Prior to May 1993 he was Manager, Research &
Development for the prior five years.
JAMES M. SPIEZIO has been the Vice President, Finance & Administration since
October 1993. Prior to October 1993, he was Controller, and prior to April
1989, he served as Manager of Business Planning.
FRANK J. VUMBACO has held the position of Vice President, Health/Safety with the
Company since November 1993. Prior to November 1993, he was Manager of
Health/Safety for over five years.
BRUCE E. ZUKAUSKAS has held the position of Vice President, Operations since
October 1994. Prior to October 1994, he was Quality Manager for over five
years.
20
<PAGE>
ITEM 2. PROPERTIES
The majority of the Company's activities are conducted at a Company-owned
site in Concord, Massachusetts. The site comprises approximately 46.4 acres and
is improved by a steel and masonry building originally constructed in 1958 and
subsequently enlarged. The building contains approximately 180,000 square feet
used for manufacturing activities, offices and warehousing.
During fiscal 1995 the Company sold its 15,000 square foot office
building located in Acton, Massachusetts.
Carolina Metals, Inc., the Company's wholly-owned subsidiary, is located
on 321 acres of land in Barnwell, South Carolina. This 109,000 square foot
facility houses two manufacturing units. One unit provides the capability of
converting chemical gas (UF(6)) to chemical salt (UF(4)). The second unit
houses a reduction process to convert chemical salt (UF(4)) to metallic
depleted uranium. In December 1991, the Company completed a 70,000 square
foot DU Recycle Technology Center adjacent to the manufacturing facility in
Barnwell, S.C. This facility provides available space for recovery and
recycle of useful materials under CMI's license. In addition, Carolina
Metals, Inc. maintains a full scale analytical laboratory. For a discussion
of the current underutilization of the CMI facility, see "Management's
Discussion and Analysis of Operations" contained on page 12 of the Company's
1996 Annual Report to Stockholders, which is incorporated herein by reference
and included in this Report as Exhibit 13.
21
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is named as a Potentially Responsible Party (PRP) in regard
to the Maxey Flats, Kentucky, Superfund Site. This site was used until 1977
as a licensed and approved low level radioactive waste disposal site. A
committee of PRP's including the Company has submitted a remedial
investigation and feasibility study report to the Environmental Protection
Agency. The agreement signed by the settling parties in July 1995, outlines
the responsibilities of all parties and states that the PRP's will undertake
the initial remedial phase (IRP) of the site remediation at an estimated cost
of $60 million. The Company's liability is not expected to exceed
approximately $80,000 over 10 years. For a discussion of proceedings related
to the renewal of the Company's nuclear regulatory licenses, see Part I, Item
1 "Business - Environmental, Safety and Regulatory Matters -- Concord Site
Remediation and Decommissioning Planning Requirements," elsewhere herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
22
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the
Section entitled "Common Stock Information" in the Registrant's 1996 Annual
Report to Stockholders, which is included in this Report as Exhibit 13.
23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
section entitled "Selected Financial Data", pages 10 and 11, in the
Registrant's 1996 Annual Report to Stockholders, which is included in this
Report as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The information required by this item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Operations", pages
12-15, in the Registrant's 1996 Annual Report to Stockholders, which is
included in this Report as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the
Consolidated Financial Statements at September 30, 1996 and notes thereto in
the Registrant's 1996 Annual Report to Stockholders, which is included in
this Report as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to Item
401(b), the information required by this item concerning executive officers
is set forth in Part I, Item 1 under the heading "Executive Officers of the
Registrant".
The following table sets forth certain information concerning directors of
the Company.
<TABLE>
<CAPTION>
Present Principal Employment
Name Age and Prior Business Experience Director Since
- ---- --- ----------------------------- --------------
<S> <C> <C> <C>
George J. Matthews 66 Chairman of the Board of directors 1972
since 1972. Until July 1978 and since
December 1, 1994, also Treasurer of
the Company. Chairman of Matthews
Associates Limited, which is engaged
in the business of investing in and
providing management consulting and
assistance to small and medium sized
businesses, including the Company.
Robert E. Quinn 43 President of the Company since 1994
December 1, 1994. Prior to
becoming President, served as Vice
President, Sales for over five years.
Elected as a Director on
November 17, 1994 to fill a vacancy
created by the enlargement of the Board
of Directors by vote of the Directors.
Wilson B. Tuffin 65 Vice Chairman since November 1994, 1972
From 1972 to November 30, 1994,
President, Chief Executive Officer,
prior to 1978, also Treasurer of the
Company.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Present Principal Employment
Name Age and Prior Business Experience Director Since
- ---- --- ----------------------------- --------------
<S> <C> <C> <C>
Kenneth A. Smith 60 Professor of Chemical Engineering at 1985
Massachusetts Institute of Technology
since 1971.
Frank H. Brenton 71 Principal of Frank H. Brenton Associates, 1986
a business consulting firm. From
1984 to 1986, Chairman of the Board of
Directors of Marshall's Incorporated,
an off-price retailer and division of
Melville, Inc.
</TABLE>
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors met six times during the fiscal year ended September
30, 1996. There was no director who during the fiscal year attended fewer
than 75 percent of the aggregate of all board meetings and all meetings of
committees on which he served.
The Board of Directors has an Audit Committee which is reconstituted at the
first meeting of the Board following the annual meeting of stockholders. The
Audit Committee, which met three times during fiscal 1996, meets with the
Company's independent auditors and principal financial personnel to review the
scope and results of the annual audit and the Company's financial reports. The
Audit Committee also reviews the scope of audit and non-audit services performed
by the independent public accountants, and reviews the adequacy and
effectiveness of internal accounting controls. The present members of the Audit
Committee are Messrs. Brenton and Smith.
The "disinterested" directors, for purposes for Rule 16b-3 under the
Securities Exchange Act of 1934, Messrs. Brenton and Smith, acting as a Stock
Option Committee, have the authority, subject to express provisions of the
Company's Employee Stock Option Plan and Non-Qualified Stock Option Plan (the
"Plans"): to determine the employees of the Company to receive options, the
number of shares to be optioned, and the terms of the options granted; to
construe and interpret the Plans and outstanding options; and to make all other
determinations that they deem necessary and advisable for administering the
Plans. The Board of
25
<PAGE>
Directors as a whole has corresponding authority with respect to options
issued under the Directors' Stock Option Plan.
The Board of Directors does not have standing committees on compensation or
nominations.
DIRECTORS' COMPENSATION AND STOCK OPTION PLAN
Each outside director of the Company receives an annual fee of $15,000.
On November 20, 1995, the Board of Directors adopted a Director's Stock
Option Plan (the "Plan") in order to enhance the Company's ability to attract
and retain skilled and competent members of its Board of Directors. Only
outside (non-management) directors of the Company and its subsidiaries are
eligible to receive options under the Plan, and the maximum number of shares
as to which such directors' options may be granted is 35,000 shares (subject
to adjustments for stock splits, stock dividends and the like). Pursuant to
the Plan, each director eligible to participate in the Plan, upon first
election to office at the annual meeting of stockholders and for each
subsequent period of three years of service, receives an option to purchase
1,000 shares of Common Stock of the Company at an exercise price equal to
fair market value on the date of grant. Options granted under the Plan are
exercisable for a period of ten years and vest over a three-year period. No
options were granted pursuant to the Plan during fiscal 1996.
During fiscal year 1996, Matthews Associates Limited, of which Mr. Matthews
is sole owner, received compensation from the Company in connection with
consulting services provided to the company pursuant to a management
agreement between the Company and Matthews Associates Limited. See
"Executive Compensation" and "Executive Agreements".
26
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table and notes present the compensation provided by the
Company during the last three fiscal years to its chief executive officer and
the four most highly compensated executive officers of the Company (other
than the chief executive officer) who were serving as executive officers at
the Company's fiscal year end of September 30, 1996.
<TABLE>
<CAPTION>
Other Restricted Securities
Annual Stock Underlying LTIP
Name and Compen- Award (s) Options/ Payouts Comp
Principal Position Year (1) Salary ($) Bonus sation($) (2) $ - SARs (#) $ - sation
- ------------------ -------- ---------- ----- ------------- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E. Quinn 1996 180,768 -- -- -- -- -- --
President(3) 1995 151,673 200 35,000 -- 30,000 -- --
1994 131,000 -- -- -- -- -- --
George J. Matthews(4) 1996 350,000 -- -- -- -- -- --
Chairman of Board of 1995 350,000 -- -- -- -- -- --
Directors, CEO and 1994 350,000 -- -- -- -- -- --
Treasurer
Wilson B. Tuffin(5) 1996 270,979 -- -- -- -- -- --
Vice Chairman of 1995 172,039 3,800 -- -- -- -- --
Board of Directors 1994 210,000 -- -- -- -- -- --
and Consultant
James M. Spiezio 1996 130,096 -- -- -- -- -- --
Vice President,Finance 1995 113,270 10,830 -- -- 6,000 -- --
& Administration 1994 105,987 -- -- -- 2,500 -- --
William T. Nachtrab 1996 116,581 -- -- -- -- -- --
Vice President, 1995 108,703 10,830 -- -- 6,000 -- --
Technology 1994 103,558 -- -- -- -- -- --
</TABLE>
(1) The Company's fiscal year ends on September 30th of each year.
(2) Excludes perquisites in amounts less than the threshold level required
for reporting.
(3) Mr. Quinn's compensation for the fiscal year ended September 30, 1996 was
determined pursuant to his Employment Agreement. See "Executive
Agreements."
(4) Mr. Matthews is assigned as a consultant to the Company pursuant to a
management agreement between Matthews Associates Limited and the Company.
All compensation under the agreement is paid by the Company to
Matthews Associates Limited. See "Executive Agreements.
27
<PAGE>
(5) Mr. Tuffin's compensation for the fiscal year ended September 30, 1996
was determined pursuant to his Employment and Consulting Agreement.
See "Executive Agreements."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
There were no options granted to any of the named executive officers of the
Company during fiscal year ended September 30, 1996.
28
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the exercise
of options by the executive officers named in the Summary Compensation Table
during the last fiscal year and unexercised options held as of the end of the
fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End (2) -
---------------------- --------------------
Shares Acquired Value
Name On Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Quinn 0 0 9,999 20,001 0 0
George J. Matthews 0 0 5,333 6,667 0 0
Wilson B. Tuffin 0 0 1,666 3,334 0 0
James M. Spiezio 0 0 3,665 4,835 0 0
William T. Nachtrab 0 0 3,665 4,835 0 0
</TABLE>
(1) Value realized equals fair market value on the date of exercise, less the
exercise price, times the number of shares acquired, without deducting
taxes or commissions paid by employee.
(2) Value of unexercised options equals fair market value of the shares
underlying in-the-money options at September 30, 1996 ($16.00 per share),
less the exercise price, times the number of options outstanding. All
such options were "out of the money" as of September 30, 1996.
29
<PAGE>
PENSION PLAN TABLE
The following table sets forth the aggregate annual benefit payable upon
retirement at normal retirement age for each level of renumeration specified at
the listed years of service.
Years of Service -
---------------------------------------
Renumeration 15 - 20 - 25 - 30 or More
- ------------ ------- ------- ------- ----------
$100,000 23,520 31,360 39,220 47,040
150,000 38,520 51,360 64,200 77,040
200,000 53,520 71,360 89,200 107,040
300,000 83,520 111,360 139,200 167,040
400,000 113,520 151,360 189,200 227,040
500,000 143,520 191,360 239,200 287,040
The Company has a defined benefit plan (the "Pension Plan") designed to
provide retirement benefits for employees and ancillary benefits to their
beneficiaries, joint annuitants and spouses. All employees of the Company
become participants in the Pension Plan after attaining the later of age 21 or
a year of service with the Company. The Pension Plan provides retirement
benefits based on years of service and compensation. An employee's benefits
under the Pension Plan generally become fully vested after five years of
service. At normal retirement (the later of age 65 and five years of Plan
participation), participants are entitled to a monthly benefit for the
remainder of their life in an amount equal to one-twelfth of the sum of their
"Annual Credits" for their last 30 years or lesser period of employment with
the Company and its predecessors. An employee's "Annual Credit" is 1.25% of
the portion of his annual compensation that is subject to Social Security tax
and two percent (2%) of the balance of his annual compensation. Participants
with five years of service are entitled to retirement at age 55, but the
monthly benefit payable under the Pension Plan is reduced by 0.5% for each
month that early retirement precedes normal retirement but not less than $100
per month if the Participant has ten or more years of service. The surviving
spouse of a retiree under the Plan is entitled to receive benefits equal to
one-half the amount the retiree has been receiving. Alternative benefit
payments that are equivalent to the benefit described above are also available
to participants. Benefits payable under the plan are not reduced by Social
Security payments to the retiree. Amounts shown assume benefits commence at age
65. Benefit amounts shown are straight-life annuities. The executive officers
named in the Summary Compensation Table have the following years of credited
service for pension plan purposes: Robert E.
30
<PAGE>
Quinn-21 years; Wilson B. Tuffin-22 years; James M. Spiezio-11 years; and
William T. Nachtrab-7 years. On February 1, 1995, Mr. Tuffin began to receive
benefit payments under the Plan. Mr. Matthews does not participate in the
Pension Plan.
EXECUTIVE AGREEMENTS
EMPLOYMENT AGREEMENT WITH MR. TUFFIN
In November 1994, the Company entered into an employment and consulting
agreement (the "Employment and Consulting Agreement") with Mr. Tuffin.
Pursuant to the Employment and Consulting Agreement, Mr. Tuffin received
initial compensation at the annual rate of $210,000 through January 1995, for
his service as an employee. Effective February 1, 1995, Mr. Tuffin's
relationship as an employee of the Company ended and he continued with the
Company as a consultant with an initial compensation at the annual rate of
$105,000, subject to such annual increases as the Board of Directors may from
time to time determine. The Employment and Consulting Agreement shall continue
in force until February 28, 1999. During the term of the Employment and
Consulting Agreement and for a period of two (2) years after its expiration, or
the termination of Mr. Tuffin's employment with the Company, whichever occurs
later, Mr. Tuffin may not compete directly or indirectly with the Company within
the continental United States. The Employment and Consulting Agreement amends
and supersedes the employment agreement which Mr. Tuffin had previously entered
into with the Company.
EMPLOYMENT AGREEMENT WITH MR. QUINN
In February 1995, the Company entered into an employment agreement (the
"Employment Agreement") with Mr. Quinn. Pursuant to the Employment Agreement,
Mr. Quinn received initial compensation at the annual rate of $156,000, subject
to such annual increases and bonuses as the Board of Directors may from time to
time determine. The Employment Agreement shall continue in force for an initial
period of three (3) years, unless terminated by either party in accordance with
its terms. The Employment Agreement shall automatically continue for
additional one-year periods thereafter unless either party gives written notice
to the other on or before November 30th of any year of its or his intention to
terminate the Employment Agreement as of the last day of November of the
subsequent year. During the term of the Employment Agreement and for a period
of two (2) years after its expiration, or after the termination of Mr. Quinn's
employment with the Company, whichever occurs later, Mr. Quinn may not compete
directly or indirectly with the Company within the continental United States.
MANAGEMENT AGREEMENT WITH MATTHEWS ASSOCIATES LIMITED
The company has entered into a management agreement with Matthews Associates
Limited, a Massachusetts corporation ("MAL"), of which Mr. George J. Matthews,
Director and Chairman of the Board of Directors of the Company, is sole owner.
The agreement expires on February 28, 2002, subject to renewal thereafter from
year to year unless either party by written notice prior to February 28th of
any year elects to terminate the agreement upon the last day of February of the
third subsequent year, but not prior to 2002. Pursuant to the agreement, MAL
provides professional management services as a consultant to the Company through
a senior executive whose duties include (i) financial management, (ii)
31
<PAGE>
serving, subject to election, as a director, as Chairman of the Board of
Directors and as an officer of the Company and (iii) marketing and other advice
to the Company including placement and modification of financing and contact
with major customers, suppliers and governmental agencies. Mr. Matthews is the
senior executive assigned to the Company under the agreement. Under the
management agreement, Mr. Matthews devotes approximately 30 hours per week to
the Company.
MAL was paid $350,000 by the Company in fiscal 1996 for services under the
management agreement and is to be paid at the rate of $350,000 per annum for
all services under the agreement. The management agreement provides that the
Company may terminate the agreement if a majority of the directors determines
in good faith that the MAL representative has willfully refused to perform any
services under the management agreement or has been convicted of a crime of
moral turpitude, and in such event the right of MAL to all future payments
under the agreement shall cease. In the event of termination by MAL for "good
reason" or in the event of termination by the Company for reasons other than
those described above, the Company is obligated to pay to MAL all of the
amounts due under the agreement for the remaining term. In the event of
termination by MAL without "good reason," the Company is obligated to continue
to make payment to MAL for one year from the date of such termination.
"Good reason" for termination by MAL consists of circumstances which, in the
reasonable judgment of the MAL representative (Mr. Matthews), constitute a
material reduction in job title, perquisites, duties, authority, amenities,
benefits or responsibilities of the MAL representative or which require him to
perform services more than 25 miles from the Company's Concord, Massachusetts
facility without his consent. In the event of Mr. Matthews' death, the
management agreement automatically terminates and the Company is obligated to
continue to make payments to the estate of Mr. Matthews for the lesser of one
year from such termination or the end of the scheduled term of the agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 1996, the Board of Directors of
the Company was responsible for establishing executive compensation (other than
stock option compensation). Messrs. Quinn and Matthews participated in
deliberations of the Company's Board of Directors concerning executive officer
compensation. No executive officer of the Company served as a director or
member of a compensation committee, or its equivalent, of another entity, one
of whose executive officers served as director of the Company.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS
32
<PAGE>
AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS, IN WHOLE OR IN PART, THE
FOLLOWING REPORT ON COMPENSATION AND THE STOCK PERFORMANCE GRAPH CONTAINED
ELSEWHERE HEREIN SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS
NOR SHALL BE DEEMED TO BE SOLICITING MATERIAL OR DEEMED FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
REPORT OF THE BOARD OF DIRECTORS AND STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
During the fiscal year ended September 30, 1996, the Board of Directors of
the Company was responsible for establishing and administering the policies
which govern annual compensation (other than stock option compensation) for the
Company's executive officers. The Stock Option Committee was responsible for
considering stock option compensation for the Company's executive officers.
OVERVIEW
The Board of Directors has historically established levels of executive
compensation that provide for a base salary intended to allow the Company to
hire, motivate and retain qualified executive officers. From time to time, the
Board has also, on occasion, approved annual cash incentive bonuses based on
the Company's performance or on the performance of the executive in question.
In fiscal 1996, the Board approved cash incentive bonuses to certain executive
officers based on their performance. From time to time, the Stock Option
Committee also grants stock options to executive officers and key employees in
order to bring the stockholders' interests more sharply into the focus of such
officers and employees.
The Board of Directors establishes the annual salary and bonus of each of the
executive officers other than the Chief Executive Officer, based on the
recommendations made by the Chief Executive Officer. In determining the
recommendations for salary and bonus for each of the other executive officers,
the Chief Executive Officer considers each officer's individual performance'
attainment
33
<PAGE>
of individual goals and the contribution to the overall attainment of the
Company's goals.
STOCK OPTIONS AND OTHER COMPENSATION
Long-term incentive compensation for executive officers consists exclusively
of stock options granted under the Company's Stock Option Plans (the "Plans").
Executive officers as well as other key employees of the Company participate in
the Plans. The Company also believes that its Pension Plan is an attractive
feature for all employees.
BASIS FOR THE COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation of Mr. Matthews, the Company's Chief Executive Officer
during fiscal 1996, was determined pursuant to a management agreement between
Matthews Associates Limited and the Company. All compensation under the
agreement is paid by the Company to Matthews Associates Limited.
THE BOARD OF DIRECTORS
George J. Matthews
Robert E. Quinn
Wilson B. Tuffin
Kenneth A. Smith
Frank H. Brenton
STOCK OPTION COMMITTEE
Kenneth A. Smith
Frank H. Brenton
34
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
Set forth below is a line graph comparing the five-year cumulative total
return of the Company's Common Stock against the cumulative total return of the
NASDAQ Stock Market (U.S.) Index and the Dow Jones Aerospace and Defense Index.
Cumulative total return is measured assuming an initial investment of $100 and
reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN *
AMONG NUCLEAR METALS, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE DOW JONES AEROSPACE & DEFENSE INDEX
D O L L A R S
Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96
"Nuclear Metals, Inc." 100 94 104 330 191 278
NASDAQ Stock Market-US 100 112 147 148 204 243
D J Aerospace & Defense 100 92 126 149 237 331
* $100 invested on 09/30/91 in stock or index - including reinvestment of
dividends. Fiscal year ending September 30.
35
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 30, 1996
with respect to the Common Stock of the Company owned or deemed beneficially
owned as determined under the rules of the Securities and Exchange Commission,
directly or indirectly, by each stockholder known to the Company to own
beneficially more than 5% of the Company's Common Stock, by each director, by
the executive officers named in the Summary Compensation Table elsewhere
herein, and by all directors and executive officers of the Company and its
subsidiaries as a group. In accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, a person is deemed to be beneficial owner,
for purposes of this table, of any shares of Common Stock of the Company, if he
or she has or shares voting power or investment power with respect to such
security or has the right to acquire beneficial ownership at any time within 60
days of December 13, 1996. As used herein "voting power" is the power to
dispose of or direct the disposition of shares. Except as indicated in the
notes following the table below, each person named sole voting and investment
power with respect to the shares listed as being beneficially owned by such
person.
Name and address Beneficial Percent of
of Beneficial Owner Ownership (1) Common Stock (1)
- ------------------- ------------- ----------------
WIAF Investors Co. 1,212,340(2) 49.52%
466 Arbuckle Avenue
Lawrence, NY 11516
and
Melvin B. Chrein, M.D.
Meryl J. Chrein
Marshall J. Chrein
Michael Chrein
21 Copper Beech Lane
Lawrence, NY 11559
Charles Alpert
Joseph Alpert
George J. Matthews 239,930(3)(4) 9.99%
Chairman of the Board of Directors,
Director and Consultant
c/o Matthews Associates Limited
100 Corporate Place
Peabody, MA 01960
Wilson B. Tuffin 205,474(5) 8.58%
Vice Chairman and Director
23 Arlington Street
36
<PAGE>
Acton, MA 01720
Robert E. Quinn 17,739(6) *
President and Director
Kenneth A. Smith, Director 3,000 *
Frank H. Brenton, Director 3,000 *
James M. Spiezio 5,832(7) *
Vice President, Finance and Administration
William T. Nachtrab 5,832(7) *
Vice President, Technology
All directors and executive officers 480,807(8) 19.87%
* Less than one percent
(1) Does not reflect the effect on voting rights of the Massachusetts
Control Share Acquisition Act.
(2) Derived from Schedules 13DA, dated October 3, 1994, submitted to the
Company. The five persons named are described as a group in such
Schedules 13DA. The persons named reported ownership of the following
shares: WIAF Investors Co. (862,428); Melvin B. Chrein (88,400); Meryl
J. Chrein (128,100); Charles Alpert (25,000); and Marshall J. Chrein
(18,200). Each person reported sole voting and dispositive power with
respect to the shares owned by such person. Also includes 7,022 and
28,090 shares which Melvin B. Chrein and WIAF Investors Co.,
respectively, have the right to acquire upon conversion of outstanding
10% Convertible Subordinate Debentures and 13,500, 6,000 and 1,500
shares which Charles Alpert or nominee, Melvin B. Chrein and Marshall
J. Chrein, respectively, have the right to acquire under outstanding
Warrants.
(3) Includes 25,445 shares owned by a trust established by his late wife of
which Mr. Matthews is a permitted beneficiary.
(4) Includes 3,333 shares which may be purchased upon the exercise of
options and 6,980 shares which Mr. Matthews' wife has the right to
acquire upon conversion of an outstanding 10% Convertible Subordinated
Debenture, as to which Mr. Matthews disclaims beneficial ownership.
(5) Includes 1,666 shares which may be purchased upon the exercise of
options.
(6) Includes 6,666 shares which may be purchased upon the exercise of
options.
(7) Includes 4,832 shares which may be purchased upon the exercise of
options.
(8) See notes (3), (4), (5), (6) and (7) above.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and stockholders who own more than 10% of the outstanding
common stock of the Company to file with the Securities and Exchange
Commission and NASDAQ reports of ownership and changes in ownership of voting
securities of the Company and to furnish copies of such reports to the
company. To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, during the fiscal year ended September
30, 1996 or written representations in certain cases, all section 16(a)
filing requirements were complied with except that the holders of the
Company's Convertible Subordinated Debentures and its Warrants failed to report
the acquisition thereof.
37
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into an agreement with each of Messrs. Tuffin and
Quinn, and with Matthews Associates Limited ("MAL"), a Massachusetts
Corporation of which Mr. Matthews is the sole owner, relative to the
compensation of Messrs. Tuffin and MAL. For a detailed description of these
agreements, see "Item 11. Executive Compensation -- Executive Agreements,"
which is incorporated herein by reference to pages 31-32 of this Form 10-K.
On January 10, 1996 the Company sold its 10% Convertible Subordinated
Debentures to the following persons whose collective and/or individual
ownership of the outstanding shares of the Company's Common Stock exceeds 5%:
Number of
Name Principal Amount($) Conversion Shares(1)
- ---- ------------------- --------------------
WIAF Investors Co. 334,000 28,090
Melvin B. Chrein 83,500 7,022
Kathleen Matthews(2) 83,000 6,980
(1) Principal convertible into shares of Common Stock at $11.89 per share.
(2) Kathleen Matthews is the wife of George J. Matthews.
On September 16, 1996 the Company sold its 10% Subordinated Debentures
with detachable Warrants (exercisable at $15.00 per share) to the following
individuals whose collective and/or individual ownership of the outstanding
shares of the Company's Common Stock exceeds 5%:
Name Principal Amount($) Number of Warrants(1)
- ---- ------------------- ---------------------
Charles Alpert $225,000 13,500
or nominee
Melvin B. Chrein $100,000 6,000
Marshall J. Chrein $ 25,000 1,500
For a description of the terms of these Debentures and Warrants, see Notes
6 and 8 to Notes to Consolidated Financial Statements, which are incorporated
herein by reference. See also, "Item 12. Security Ownership of Certain
Beneficial Owners and Management."
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company,
included in the Company's 1996 Annual Report are filed as part of this report:
Auditors' Report
Consolidated Balance Sheets - September 30, 1996 and September 30,
1995.
Consolidated Statements of Income for the years ended September 30,
1996, September 30, 1995 and September 30, 1994.
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1996, September 30, 1995 and September 30, 1994.
Consolidated Statements of Cash Flows for the years ended September
30, 1996, September 30, 1995 and September 30, 1994.
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULE FOR THE THREE YEARS ENDED SEPTEMBER 30,
1996
Auditors' Report on Schedule
II-Valuation and Qualifying Accounts
3. EXHIBITS:
Item No.* Description
--------- ------------
3(a) Articles of Organization, as amended, of the Registrant,
incorporated by reference to File No. 2-62266, Part II,
Exhibit 3(a).
3(b) By-laws, as amended, of the Registrant, incorporated by
reference to File No. 2-62266, Part II, Exhibit 3(b).
4(a) Financing Agreement, dated May 11, 1982, among Barnwell
County, South Carolina, the Registrant and Carolina
Metals, Inc. (a
39
<PAGE>
Item No. Description
-------- -----------
wholly-owned subsidiary) relating to Barnwell County, South California
Industrial Development Revenue Bond (Nuclear Metals, Inc. project)
1982, incorporated by reference to File No. 2-70044, Part II,
Exhibit 4(d).
4(b) Financing Agreement, dated September 27, 1984 among
Barnwell County, South Carolina, the Registrant and
Carolina Metals, Inc. (a wholly-owned subsidiary)
relating to Barnwell County, South Carolina Industrial
Development Revenue Bond (Nuclear Metals, Inc. project)
1984, incorporated by reference to File No. 0-8836,
Part II, Exhibit 4(e).
4(c) Financing Agreement, dated June 1, 1985 among
Massachusetts Industrial Finance Agency and the Registrant
relating to Massachusetts Industrial Development Revenue
Bond (NMI - 1985 Concord Issue) incorporated by reference
to File No. 0-8836, Part II, Exhibit 4(f)
4(d) Nuclear Metals, Inc. Non-Qualified Stock Option Plan as
amended.(1)
4(e) Nuclear Metals, Inc. Restated Employees' Stock Option
Plan as amended. (1)
4(f) Nuclear Metals, Inc. Directors' Stock Option Plan as
amended. (6)
4(h) Warrant to Purchase 25,000 shares of the Registrant's
Common Stock issued to State Street Bank and Trust
Company. (6)
4(i) Common Stock Purchase Warrant dated September 16, 1996
issued to Melvin B. Chrein and schedule of similar
warrants. **
10(a) Agreement, effective March 1, 1993, between the Registrant
and Matthews Associates Limited. (2)
10(b) Agreement, effective March 1, 1993, between the Registrant
and Wilson B. Tuffin, as amended November 17, 1994. (2)
10(c) Employment Agreement, effective February 8, 1995, between
the Registrant and Robert E. Quinn. **
10(d) Agreement with Olin Corporation regarding large caliber
penetrators. (Confidential treatment has been granted for
certain portions of this Exhibit). (3)
10(e) Credit Agreement dated March 31, 1995 among the Registrant,
Carolina Metals, Inc. and State Street Bank and Trust
Company.(4)
40
<PAGE>
10(f) First Amendment to Credit Agreement dated as of June 30,
1995 among the Registrant, Carolina Metals, Inc. and State
Street Bank and Trust Company. (5)
10(g) Amended and Restated Revolving Credit Note dated March 31,
1995 (as amended December 24, 1996) of the Registrant and
Carolina Metals, Inc. **
10(h) Second Amendment to Credit Agreement dated as of
December 24, 1996 among the Registrant, Carolina Metals,
Inc. and State Street Bank and Trust Company. **
10(i) 10% Convertible Subordinated Debenture dated January 10,
1996 payable to WIAF Investors Co. in the amount of
$334,000.00 and schedule of similar debentures. **
10(j) 10% Subordinated Debenture dated September 16, 1996
payable to Melvin B. Chrein in the amount of
$100,000.00 and schedule of similar debentures. **
10(k) Letter agreement dated as of September 16, 1996 with
Kathleen Matthews and schedule of similar letter
agreements. **
10(l) Joint Security Agreement dated as of March 31, 1995 among
the Registrant, Carolina Metals, Inc. and State Street
Bank and Trust Company. (6)
10(m) First Amendment to Joint Security Agreement dated
September 26, 1995 among the Registrant, Carolina Metals,
Inc. and State Street Bank and Trust Company. (6)
10(n) Patent Assignment of Security dated September 26, 1995
between the Registrant and State Street Bank and Trust
Company. (6)
10(o) Trademark Assignment of Security dated September 26,
1995 between the Registrant and State Street Bank and
Trust Company. (6)
10(p) Purchase order dated August 23, 1995 between the
Registrant and Olin Corporation. (Confidential treatment
requested as to certain portions) (6)
10(q) Forbearance and Amendment Agreement dated as of January
11, 1996 between the Registrant, Carolina Metals, Inc. and
State Street Bank and Trust Company. (6)
10(r) Waiver of Breach of Covenant, by and among the
Registrant, Carolina Metals, Inc. and State Street Bank
and Trust Company. **
13 Nuclear Metals, Inc. 1996 Annual Report to
Stockholders. **
41
<PAGE>
21 Subsidiaries of the Registrant. (7)
23(a) Consent of Independent Public Accountants. **
27 Financial Data Schedule.**
(99) Memorandum of Decision dated September 13, 1996 from
the United States Army Contract Adjustment Board. **
(b) REPORTS ON FORM 8-K
None
- ----------------------------
* Item numbers correspond to Exhibit Table, Item 601, Regulation S-K
** Indicates an exhibit filed herewith
(1) Incorporated by reference to the similarly numbered Exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992.
(2) Incorporated by reference to the similarly numbered Exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992.
(3) Incorporated by reference to Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993.
(4) Incorporated by reference to Exhibit 10A to the Registrant's Form 10-Q for
the Quarter ended March 31, 1995.
(5) Incorporated by reference to Exhibit 10(c) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995.
(6) Incorporated by reference to the similarly numbered Exhibit filed with
the Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Nuclear Metals, Inc.
By /s/ Robert E. Quinn
-----------------------------------------
Robert E. Quinn, President
Date December 30, 1996
-----------------------------------------
By /s/ James M. Spiezio
-----------------------------------------
James M. Spiezio, Vice President Finance & Administration
Date December 30, 1996
-----------------------------------------
By /s/ Rebecca L. Perry
-----------------------------------------
Rebecca L. Perry, Controller
Date December 30, 1996
-----------------------------------------
43
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ George J. Matthews
----------------------------------------
George J. Matthews, Chairman of the Board of Directors, CEO
and Treasurer
Date December 30, 1996
------------------------------------
By /s/ Frank H. Brenton
----------------------------------------
Frank H. Brenton, Director
Date December 30, 1996
-------------------------------------
By /s/ Kenneth A. Smith
----------------------------------------
Kenneth A. Smith, Director
Date December 30, 1996
--------------------------------------
By /s/ Wilson B. Tuffin
----------------------------------------
Wilson B. Tuffin, Vice Chairman
Date December 30, 1996
--------------------------------------
44
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts
45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Nuclear Metals, Inc.:
We have audited the accompanying consolidated balance sheets of
Nuclear Metals, Inc. (a Massachusetts Corporation) and subsidiaries as of
September 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Nuclear Metals, Inc. and subsidiaries as of September 30, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
the financial statements is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements as a
whole.
Boston, Massachusetts Arthur Andersen LLP
November 20, 1996
(Except with respect to the matters
discussed in Note 6 as to which the
date is December 24, 1996)
46
<PAGE>
NUCLEAR METALS, INC. AND SUBSIDIARIES
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1996
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND END
CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- -------------- --------- ---------- ---------- --------
YEAR ENDED SEPTEMBER
30, 1996:
Allowance for
doubtful accounts $ 883,000 $ 100,000 $ 162,000 $ 821,000
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Inventory Reserves $1,522,000 $3,340,000 $ -- $4,862,000
---------- ---------- --------- ----------
---------- ---------- --------- ----------
YEAR ENDED SEPTEMBER
30, 1995:
Allowance for
doubtful accounts $1,290,000 $ 400,000 $ 807,000 $ 883,000
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Inventory Reserves $2,000,000 $ -- $ -- $1,522,000
---------- ---------- --------- ----------
---------- ---------- --------- ----------
YEAR ENDED SEPTEMBER
30, 1994:
Allowance for
doubtful accounts $1,670,000 $ -- $ 380,000 $1,290,000
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Inventory Reserves $2,000,000 $ -- $ 442,000 $1,522,000
---------- ---------- --------- ----------
---------- ---------- --------- ----------
47
<PAGE>
Exhibit 4(i)
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, UNLESS THE COMPANY HAS RECEIVED THE WRITTEN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH SALE,
ASSIGNMENT OR TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
Issue Date: September 16, 1996
Void After: September 16, 1999 Right to Purchase 6,000
Shares of Common Stock
(subject to adjustment)
of Nuclear Metals, Inc.
NUCLEAR METALS, INC.
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES that, in consideration of value received, Melvin B. Chrein
(the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from Nuclear Metals, Inc.,
a Massachusetts corporation (the "Company"), Six Thousand (6,000) fully paid
and nonassessable shares of the Company's Common Stock, $0.10 par value per
share (the "Common Stock"). The number and exercise price of the securities
that may be purchased upon the exercise of this Common Stock Purchase Warrant
(the "Warrant") are subject to adjustment as provided herein.
1. EXERCISE PERIOD AND PRICE - The purchase rights represented by this
Warrant are exercisable by the Holder, in whole or in part, at any time from
time to time during the Exercise Period at the Exercise Price. The Exercise
Price shall initially be $15.00 per share of Common Stock subject to adjustment
as hereinafter provided.
The Exercise Period shall commence at 9:00 a.m. Boston, Massachusetts time
on September 16, 1996 and shall end at 5:00 p.m. Boston, Massachusetts time on
September 16, 1999.
2. EXERCISE OF WARRANT - During the Exercise Period and provided this
Warrant has not been terminated, this Warrant shall be exercised, in whole or in
part and from time to time, by the surrender of this Warrant and the Notice of
Exercise annexed hereto duly executed at the principal office of the Company, in
Boston, Massachusetts (or such other office or agency of the Company as it may
designate) and upon payment of the Exercise Price of the shares thereby
purchased (payment to be by check or bank draft payable to the order of the
Company). If the amount of the payment received by the Company is less than
<PAGE>
the Exercise Price, the Holder will be notified of the deficiency and shall make
payment in that amount within three days. In the event the payment exceeds the
Exercise Price, the Company will refund the excess to the holder within three
days of receipt. Upon exercise, the Holder shall be entitled to receive, within
a reasonable time after payment in full, one or more certificates, issued in the
Holder's name or in such name or names as the Holder may direct, subject to the
limitations on transfer contained herein, for the number of shares of Common
Stock so purchased. The shares so purchased shall be deemed to be issued as of
the close of business on the date on which this Warrant shall have been
exercised.
The Company covenants that all shares of Common Stock that are issued upon
the exercise of rights represented by this Warrant will be fully paid,
nonassessable, and free from all taxes, liens and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. NO FRACTIONAL SHARES OR SCRIP - No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu thereof, a cash payment shall be made equal to such fraction
multiplied by the Exercise Price per share as then in effect.
4. CHARGES, TAXES AND EXPENSES - Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the Holder for any issue or transfer tax or other incidental expense in respect
of the issuance of such certificate, all of which taxes and expenses shall be
paid by the Company.
5. NO RIGHTS AS SHAREHOLDER - This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to
exercise and payment of the Exercise Price in accordance with Section 2 hereof.
6. SALE OR TRANSFER OF THE WARRANT; LEGEND - This Warrant shall not be
sold or transferred unless either (i) it first shall have registered under the
1933 Act and any applicable state securities laws, or (ii) the Company first
shall have been furnished with an opinion of legal counsel reasonably
satisfactory to the Company to the effect that such sale or transfer is exempt
from the registration requirements of the 1933 Act and such state laws. Each
certificate representing any Warrant that has not been registered and that has
not been sold pursuant to an exemption that permits removal of the legend shall
bear a legend substantially in the form of the legend affixed to this Warrant.
Upon the request of a holder of a certificate representing any Warrant, the
Company shall remove the foregoing legend from the certificate or issue to such
holder a new certificate therefor free of any transfer legend, if, with such
request, the Company shall have received either (i) an opinion of counsel
reasonably satisfactory to the Company to the effect that such legend may be
removed from such certificate or (ii) if the present Paragraph (k) of Rule 144
or a substantially similar successor rule remains in force and effect,
representations from the holder that such holder is not then, and has not been
during the preceding three months, an
-2-
<PAGE>
affiliate of the Company and that such holder has beneficially owned the
security (within the meaning of Rule 144) for three years or more.
Such Warrant may be subject to additional restrictions on transfer imposed
under applicable state and federal securities law.
7. ADJUSTMENTS
7.1 ADJUSTMENTS FOR STOCK SPLITS, REVERSE STOCK SPLITS AND STOCK
DIVIDENDS - In the event that the outstanding shares of Common Stock shall be
subdivided (split), combined (reverse split), by reclassification or otherwise,
or in the event of any dividend payable on the Common Stock in shares of Common
Stock, the number of shares of Common Stock available for purchase in effect
immediately prior to such subdivision, combination, or dividend shall be
proportionately adjusted.
7.2 ADJUSTMENT FOR CAPITAL REORGANIZATIONS - If at any time there
shall be a capital reorganization of the Company or a merger or consolidation of
the Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that the Holder of this Warrant shall thereafter be
entitled to receive on exercise of this Warrant during the period specified in
this Warrant and on payment of the Exercise Price then in effect, the number of
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such merger or consolidation, to which a
holder of the Common Stock deliverable on exercise of this Warrant would have
been entitled on such capital reorganization, merger, consolidation, or sale if
this Warrant had been exercised immediately before that capital reorganization,
merger, consolidation, or sale. In any such case, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be made
in the application of the provisions of this Warrant with respect to the rights
and interests of the Holder of this Warrant after the reorganization, merger,
consolidation, or sale to the end that the provisions of this Warrant (including
adjustment of the number of shares purchasable on exercise of this Warrant)
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other securities or property deliverable after that event on
exercise of this Warrant.
7.3 CERTIFICATE AS TO ADJUSTMENTS - Upon the occurrence of each
adjustment or readjustment pursuant to this Section 7, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request, at any time, of any Holder, furnish or cause to be furnished to such
Holder, a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares of Common Stock and the
-3-
<PAGE>
amount, if any, of other property that at the time would be received upon the
exercise of the Warrant.
7.4 NOTICES OF RECORD DATE - In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend that is the same as cash dividends paid in previous
quarters) or other distribution, the Company shall mail to each Holder at least
ten days prior to the date specified for the taking of a record, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANT - The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Warrant, all shares of Common Stock (or other
securities) from time to time issuable upon the exercise of this Warrant and all
shares of Common Stock issuable upon conversion of such shares of Common Stock.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT - Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Warrant, and in case of loss, theft, or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation
in lieu of this Warrant.
10. REMEDIES - The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not adequate and may be enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
11. NOTICES, ETC. - All notices and other communications from the Company
to the holder of this Warrant shall be mailed, by first class mail, to such
address as may have been furnished to the Company in writing by such holder, or,
until an address is so furnished, to and at the address of the last holder of
this Warrant who has so furnished an address to the Company. All communications
from the holder of this Warrant to the Company shall be mailed by first class
mail to the Company's principal office, or such other address as may have been
furnished to the holder in writing by the Company.
12. MISCELLANEOUS - This Warrant shall be construed and enforced in
accordance with and governed by the laws of The Commonwealth of Massachusetts.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in
its corporate name by its duly authorized officer and to be dated as of the
issue date set forth on the first page of this Warrant.
NUCLEAR METALS, INC.
By: /s/ James M. Spiezio
--------------------------------------
Vice President, Finance
[CORPORATE SEAL]
Attest:
/s/ Thomas A. Wooters
- ------------------------------
Clerk
-5-
<PAGE>
NOTICE OF EXERCISE OF COMMON
STOCK PURCHASE WARRANT
TO: Nuclear Metals, Inc.
(1) Pursuant to the terms of the attached Warrant, the undersigned hereby
elects to purchase ______ shares of Common Stock of Nuclear Metals, Inc. (the
"Company"), and either (i) tenders herewith payment of the Exercise Price of
such shares in full or (ii) by indicating "cashless exercise" below, directs
that payment of the Exercise Price be made by cancellation as of the date of
exercise of a portion of this Warrant having a net fair market value equal to
the Exercise Price.
(2) Please issue a certificate or certificates representing said shares of
Common Stock, in the name of the undersigned or in such other name(s) as is/are
specified immediately below or, if necessary, on an attachment hereto:
NAME ADDRESS
---- -------
(3) In the event of partial exercise, please reissue an appropriate
Warrant exercisable into the remaining shares.
DATE: ____________________ HOLDER: _____________________________
Check here if cashless exercise: ______
<PAGE>
SCHEDULE TO EXHIBIT 4(i)
Other Similar Common Stock Purchase Warrants of the Company dated
September 16, 1996:
HOLDER # OF SHARES
------ -----------
1. Charles Alpert or nominee 13,500
2. Marshall J. Chrein 1,500
<PAGE>
Exhibit 10(c)
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the first day of February 8, 1995,
by and between NUCLEAR METALS, INC., a Massachusetts corporation with its
principal office in Concord, Massachusetts (the "Corporation"), and Robert E.
Quinn (the "Employee") of Marlborough, Massachusetts.
WHEREAS, the Corporation is engaged in the business of developing and
marketing metallurgical and other products; and
WHEREAS, the Employee is employed by the Corporation as its President; and
WHEREAS, the Employee serves as a Director of the Corporation; and
WHEREAS, the parties hereto wish to describe the terms under which the
employment relationship presently existing between Corporation and Employee will
continue in the future;
NOW, THEREFORE, in consideration of the foregoing promises and the mutual
agreements herein contained, the parties hereto agree as follows:
1. EMPLOYMENT
The parties agree to continued employment of the Employee by the
Corporation during the Term of this Agreement and according to the terms and
conditions hereof.
2. SERVICE BY THE EMPLOYEE
Except as specifically provided herein, the Employee shall continue to
devote his best efforts and his entire working time during the usual business
hours of the Corporation, and at such other times as is necessary and
appropriate to advancing the best interests of the Corporation. Without
limiting the generality of the foregoing, such activities shall include
<PAGE>
serving as President of the Corporation.
3. COMPENSATION
3.1 INITIAL COMPENSATION
The Employee's initial compensation shall be at the annual rate of
$156,000 for the Term of this Agreement.
3.2 PAYMENTS
Such compensation shall be paid to the Employee on a weekly, bi-weekly
or monthly basis, consistent with the Corporation's normal practice in
paying compensation to its other executive employees.
3.3 INCREASE BY THE BOARD OF DIRECTORS
The Board of Directors may, from time to time during the Term of this
Agreement, review compensation and such compensation may be increased (but
not decreased below the levels provided in this Agreement) from time to
time on a basis consistent with the performance of Employee and of the
Corporation and the salary levels prevailing generally for positions of
comparable responsibility.
3.4 BONUSES
In addition to the foregoing initial compensation, the Corporation may
pay the Employee a bonus in any year in such amount as may be determined by
the Board of Directors of the Corporation.
4. EMPLOYEE BENEFITS
In addition to the other employee benefits which may be made available to
the Employee from time to time, the Corporation shall provide the following to
the Employee:
- 2 -
<PAGE>
4.1 BENEFIT PLANS
The Corporation shall include the Employee in all of its benefit
plans, including pension benefits and major medical, accident and health
insurance, while he remains an active employee of the Corporation during
the Term of this Agreement, on the same basis as the coverage provided to
other executive employees of the Corporation.
4.2 Vacations
The Employee shall be entitled to six (6) weeks of paid vacation each
fiscal year, earned at the rate of one week for each two months of
employment hereunder, which vacation shall be taken at such time or times
as may be agreed upon between the Employee and the Corporation from time to
time. The Corporation shall carry forward to succeeding fiscal years any
accrued vacation unused during the preceding fiscal year.
4.3 AUTOMOBILE ALLOWANCE
The Corporation shall provide the Employee with an automobile for his
use, including use on corporate business. Any such automobile shall be
owned and fully maintained by the Corporation, which maintenance shall
include the cost of gas, oil and automobile insurance. The Employee shall
report estimated personal use as required by tax regulations in effect from
time to time. In lieu of providing the Employee with an automobile, the
Corporation may, instead, provide the Employee with an automobile allowance
in an amount approximately equal to the cost to the Corporation of
providing an automobile to him.
- 3 -
<PAGE>
5. TERMINATION
5.1 TERMINATION PAYMENTS
The Board of Directors of the Corporation acting on behalf of the
Corporation and after notice and an opportunity to be heard, may terminate
the Employee's employment hereunder if a majority of the whole number of
Directors then in office determine, in good faith, that:
(a) the Employee has willfully refused to perform substantially all
of the services required of him hereunder; or
(b) the Employee has been convicted of a crime of moral turpitude.
In such event, or in the event of voluntary termination by the Employee
without "good reason", as herein defined, the Employee's right to all
future payments set forth in subsection 3.1 hereof shall cease.
5.2 DEATH
In the event of the death of the Employee, payments set forth in
subsection 3.1 shall be made to the executor or administrator or other
personal representative of the decedent and shall be continued until the
earliest of one year from the date of death of the Employee or the end of
the Term of this Agreement.
5.3 OTHER TERMINATIONS
In the event of termination by the Corporation other than pursuant to
subsection 5.1 or of termination by the Employee for good reason, the
amounts payable pursuant to said subsection 3.1 for the balance of the Term
of this Agreement shall be due and payable upon termination.
- 4 -
<PAGE>
In the event of termination by Employee without good reason, in
recognition of past services and contributions the amounts payable pursuant
to said subsection 3.1 shall be continued for a period of one year from the
date of such termination.
5.4 DEFINITION
"Good reason", within the meaning of this Agreement, consists of
(a) circumstances which, in the reasonable judgment of Employee, constitute
a material reduction in the Employee's job title, perquisites, duties,
authority, amenities, benefits or responsibilities; or (b) requiring the
Employee regularly to perform services at a location more than twenty-five
(25) miles distant from the present location of Corporation in Concord,
Massachusetts, without his consent.
6. PAYMENTS AFTER DISABILITY
The Corporation shall pay to the Employee, or to his legal representative,
the amounts payable pursuant to subsection 3.1 during any period of partial or
total disability hereunder until the first to occur of (a) one year after the
date of the Employee's death, or (b) the end of the term of this Agreement. In
the event of partial disability, Employee shall exert reasonable effort to
perform such services thereunder as his disability will permit. The payments
made for such disability hereunder shall be reduced by the amount of any wage
continuation insurance payments payable to the Employee or his representative
during such period on the basis of any disability insurance coverage paid for by
the Corporation. During a period of disability the Board of Directors, by
written notice given not later than February 28 of any year, may terminate this
Agreement as of February 28 of the third successive year.
- 5 -
<PAGE>
7. NON-COMPETITION
During the Term of this Agreement and for a period of two (2) years after
its expiration, or after the termination of Employee's employment with the
Corporation, whichever occurs later, the Employee shall not compete directly or
indirectly with the Corporation within the continental United States.
8. TERM OF AGREEMENT
This Agreement shall continue in force for an initial period of three (3)
years from the date hereof, unless terminated by either party in accordance
herewith. It automatically shall continue for additional one-year periods
thereafter unless either party gives written notice to the other on or before
November 30th of any year of its or his intention to terminate this Agreement as
of the last day of November of the subsequent year. Reference herein to the
Term of this Agreement shall include the initial period and any period
thereafter for which this Agreement continues in effect pursuant to the
provisions of this Article 8.
9. MISCELLANEOUS
9.1 BINDING NATURE OF AGREEMENT
This Agreement shall be binding upon the parties hereto, and their
heirs, legal representatives, successors and assigns. The Corporation
shall require any successor to a majority of its business activities to
assume the obligations of the Corporation herein, however, the Corporation
shall continue to be liable to Employee for all payments due pursuant to
this Agreement.
- 6 -
<PAGE>
9.2 NO ASSIGNMENT
The parties agree that the nature of the Employee's services are
personal, and that the Employee may not assign any of his rights and duties
hereunder.
9.3 NOTICES
All notices required under this Agreement shall be sufficient if made
by certified or registered mail, return receipt requested, delivered to the
then residence of the Employee and to the Corporation at its then principal
office.
9.4 AMENDMENTS AND WAIVERS
This Agreement represents the exclusive statement of the entire
agreement between the parties concerning the subject matter hereof and
supersedes all prior written agreements, but not including any stock
purchase or stock option agreement between Corporation and Employee. This
Agreement may not be amended, modified or revoked in whole or in part
except by written agreement of the parties hereto. Any waiver of any
provision of this Agreement, to be enforceable by the non-waiving party,
must be in writing and signed by the party to be charged therewith; and a
waiver of any such occasion shall not be construed as a bar to or waiver of
any such right or remedy on any future occasion, unless the waiver
specifically provides otherwise.
9.5 DISPUTES
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in the City of
Boston in accordance with the rules then in effect of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
- 7 -
<PAGE>
In the event that Employee resorts to a suit for specific performance
or any other form of litigation or court action to implement the provisions
of this section or to enforce any award or order, substantive or
procedural, rendered by the arbitrator or relating to arbitration pursuant
to the provisions of this section, the Company shall pay the Employee's
entire cost thereof, including legal fees, whether such litigation is
settled or results in a determination by the court, and regardless of the
nature of that determination, unless there is a determination by the court
that the litigation or other court action brought by Employee was
frivolous.
9.6 COUNTERPARTS
This Agreement may be executed in several counterparts, and all so
executed shall constitute one agreement, binding upon each party,
notwithstanding that either party did not sign the same counterpart as the
other party.
9.7 CONSTRUCTION
The headings and subheadings of this Agreement have been inserted for
convenience only and are to be ignored in any construction of the
provisions hereof. The use of the singular shall be deemed to include the
plural and VICE VERSA, and the use of the masculine and neuter gender shall
be deemed to include the feminine, masculine and neuter gender unless the
context otherwise requires. No conclusion may be drawn from any difference
between this Agreement as finally signed and any prior agreement or draft
of all or any part of any prior agreement.
- 8 -
<PAGE>
9.8 LAW GOVERNING
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Employee has signed and sealed this Agreement
and the Corporation has caused this Agreement to be executed and its corporate
seal to be affixed hereto effective the day and year first written above.
NUCLEAR METALS, INC.
Attest: By: /s/ George J. Matthews
-------------------------- ------------------------------
George J. Matthews
Date:
----------------------------
{Corporate Seal}
Attest: s/ Robert E. Quinn
-------------------------- ----------------------------------
Robert E. Quinn
Date:
----------------------------
- 9 -
<PAGE>
Exhibit 10(g)
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$4,250,000 March 31, 1995
(as amended December 24, 1996)
FOR VALUE RECEIVED, the undersigned, NUCLEAR METALS, INC., a Massachusetts
corporation and CAROLINA METALS, INC., a Delaware corporation (the "Borrowers"),
hereby jointly and severally promise to pay to the order of STATE STREET BANK
AND TRUST COMPANY, an FDIC insured Massachusetts chartered trust company
("Bank"), in lawful money of the United States of America in immediately
available funds at its office at 225 Franklin Street, Boston, Massachusetts
02110 the principal sum of FOUR MILLION TWO HUNDRED AND FIFTY THOUSAND DOLLARS
($4,250,000) or such lesser sum as may from time to time be outstanding under
the terms of a Credit Agreement between the Borrowers and Bank of even date
herewith, as amended, modified, supplemented and/or restated from time to time
(the "Credit Agreement").
The Borrowers promise to pay interest on the unpaid principal balance at
the rates and at the times provided in the Credit Agreement. This Note may be
prepaid only in accordance with the terms of the Credit Agreement.
This Note will become due and payable at the Maturity Date (as defined in
the Credit Agreement) and earlier upon the occurrence of an Event of Default (as
defined in the Credit Agreement). The Borrowers agree to pay all reasonable
legal fees and other costs of collection of this Note.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right, nor shall any waiver on one
occasion be deemed to be an amendment or waiver of any such right with respect
to any future occasion. The Borrowers hereby waive presentment, demand, protest
and notice of every kind and assents to any one or more indulgences, to any
substitution, exchange or release of collateral (if at any time there be
available collateral to the holder of this Note) and to the addition or release
of any other party or persons primarily or secondarily liable.
<PAGE>
This Note shall be governed and construed under the laws of the
Commonwealth of Massachusetts and shall be deemed to be under seal.
NUCLEAR METALS, INC.
WITNESS:
By: s/ James M. Speizio
----------------------------------
- -------------------------------- Name:
Title:
CAROLINA METALS, INC.
WITNESS:
By: s/ James M. Speizio
----------------------------------
- -------------------------------- Name:
Title:
2
<PAGE>
Exhibit 10(h)
SECOND AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of December , 1996 between NUCLEAR METALS,
INC., a Massachusetts corporation ("Nuclear Metals"), CAROLINA METALS, INC., a
Delaware corporation ("Carolina Metals") (together with Nuclear Metals, the
"Borrowers") and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company (the "Bank").
WHEREAS, the Bank established a credit facility for the Borrowers pursuant
to a Credit Agreement dated as of March 31, 1995 (as amended, the "Credit
Agreement"); and
WHEREAS, the Credit Agreement was amended by a First Amendment dated as of
June 30, 1995 ("First Amendment"); and
WHEREAS, the Bank created an additional credit facility for the Borrowers
pursuant to a letter agreement dated September 26, 1995 ("Line of Credit"); and
WHEREAS, the Borrowers were in default of various provisions of the Credit
Agreement and Line of Credit resulting in a Forbearance and Amendment Agreement
dated as of January 11, 1996 which further amended the Credit Agreement (as
amended, the "Forbearance Agreement"); and
WHEREAS, the Borrowers have cured or the Bank has waived all of the
defaults under the Credit Agreement and Line of Credit and the Borrowers have
complied with the terms of the Forbearance Agreement; and
WHEREAS, the Borrowers and the Bank intend to create a continuing
relationship under the Credit Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. All outstanding obligations under the Line of Credit have been repaid
and the Line of Credit is terminated. All amounts advanced under the Term
Credit (as defined in the Credit Agreement) have been repaid and the Term Credit
is terminated.
2. SECTION 1.01 of the Credit Agreement is amended in its entirety to
read as follows:
"Subject to the terms and conditions hereof, and in
reliance on the representations and warranties contained
herein, the Bank hereby establishes a credit facility in
favor of the Borrowers in the principal amount of $4,250,000
(the "Credit").
<PAGE>
The Credit consists of a revolving line of credit of
$4,250,000 (the "Revolving Credit").
3. SECTION 1.02 THE REVOLVING CREDIT, subsections (a), (b) and (c) are
amended in their entirety to read as follows:
"(a) AMOUNT. Provided no Event of Default ( as defined in
Article V) or event which with the passage of time or
notice, or both, would become an Event of Default has
occurred and is continuing, each Borrower may from time to
time from the date hereof up to February 28, 1998 (the
"Maturity Date") borrow and reborrow from the Bank and the
Bank shall advance funds under the Revolving Credit to such
Borrower (an "Advance" or the "Advances"); provided that the
aggregate of all Advances outstanding at any time shall not
exceed $ 4,250,000 less the maximum aggregate liability of
the Borrowers under any outstanding letters of credit issued
prior to the date hereof or pursuant to this Credit
Agreement (the "Maximum Credit").
(b) BORROWING BASE. Intentionally deleted.
(c) REVOLVING CREDIT PAYMENT. The aggregate Advances
outstanding at any time shall not exceed the Maximum Credit.
If the aggregate Advances outstanding at any time exceed
such limit, then the Borrowers shall immediately pay such
excess. The Bank may, without prior notice to the
Borrowers, charge any of their accounts under the control of
the Bank to effect such payment."
4. SECTION 1.02(d) THE REVOLVING CREDIT NOTE is amended by substituting
the form of note attached hereto for Exhibit 1.02(d).
5. SECTION 1.03 TERM CREDIT is amended in its entirety to read
"intentionally deleted."
6. SECTION 6.05 is amended by replacing "Kenneth J. Mooney" with
"William R. Dewey IV."
7. The Bank hereby waives compliance with Section 4.21 TANGIBLE CAPITAL
BASE, Section 4.22 NET INCOME, Section 4.23 CAPITAL EXPENDITURES, and Section
4.31 WORKING CAPITAL for the fiscal quarter ending September 30, 1996.
8. The Borrowers represent and warrant that (i) all the representations
set forth in the Credit Agreement dated as of March 31, 1995 including, without
limitation, the Schedules,
2
<PAGE>
are true and accurate as of the date hereof subject to any changes set forth on
the Exhibits hereto and (ii) after granting the waivers set forth in paragraph
7, no Event of Default exists.
9. Except as set forth herein and in the First Amendment and in the
Forbearance Agreement, the Credit Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have signed this Second Agreement as of the
date first above written.
NUCLEAR METALS, INC.
By:
----------------------------------------
CAROLINA METALS, INC.
By:
----------------------------------------
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------------
3
<PAGE>
Exhibit 10(i)
THE SECURITIES REPRESENTED BY THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("ACT") AND MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NUCLEAR METALS, INC.
10% CONVERTIBLE SUBORDINATED DEBENTURE
DUE JUNE 10, 1997
No. 1 January 10, 1996
($334,000)
Nuclear Metals, Inc., a Massachusetts corporation (the
"Company"), for value received, hereby promises to pay to WIAF
Investors Co. or registered assigns (the "Holder"), the principal
sum of Three Hundred Thirty-Four Thousand Dollars ($334,000) on June
10, 1997 (the "Maturity Date") with interest from the date hereof
(computed on the basis of a 365-day year) at the rate per annum of
ten percent (10%) until paid in full or converted. The Company
will pay interest in arrears semi-annually on June 10, 1996,
December 10, 1996 and June 10, 1997 (each an "Interest Payment
Date") to the Holder of record. Interest will accrue from the most
recent date to which interest has been paid or if no interest has
been paid, from the date of issuance of this debenture. This
debenture (the "Debenture") is one of a series of Debentures issued
by the Company on January 10, 1996 (the "Issuance Date")
(collectively, the "Debentures"). The Holder shall have the option,
by written notice received by the Company prior to its Interest
Payment Date, to elect to receive the Interest Payment in shares of
stock of the Company, valued for that purpose of $11.89 per share.
1. General. This Debenture is transferable only by surrender thereof at
the principal office of the Company located at 2229 Main Street, Concord,
Massachusetts 01742, duly endorsed by, or accompanied by a written instrument
of transfer duly executed by, the registered Holder of this Debenture or his
attorney duly authorized in writing and a completed "investor questionnaire"
duly executed by the transferee reasonably satisfactory in form and substance to
the Company.
- 1 -
<PAGE>
2. CONVERSION RIGHT. Subject to and upon compliance with the provisions
of this Debenture, the Holder of this Debenture has the right at any time, at
his option, to convert the principal of this Debenture into such number of
fully paid and non-assessable shares (the "Debenture Shares") of common
stock, $.10 par value per share (the "Common Stock") of the Company as shall
equal the principal amount of this Debenture divided by the Conversion Price
(as hereinafter defined). A conversion shall only occur upon surrender of
this Debenture to the Company at its principal place of business, duly
endorsed by, or accompanied by instruments of transfer (in form reasonably
satisfactory to the Company) duly executed by the Holder or his attorney duly
authorized in writing, together with a conversion notice and transfer tax
stamps or funds therefor, if required. If this Debenture is surrendered for
conversion prior to an Interest Payment Date, the Holder shall be entitled to
receive interest on this Debenture through the date of such surrender on the
relevant Interest Payment Date. No fractional shares will be issued upon any
conversion, but an adjustment in cash will be made, as provided herein, in
respect of any fraction of a share which would otherwise be issuable upon the
surrender of this Debenture for conversion.
3. MANNER OF EXERCISING CONVERSION RIGHTS. In order to exercise the
conversion privilege, the Holder shall surrender this Debenture to the
Company at any time during usual business hours at its offices in Concord,
Massachusetts, and shall give written notice to the Company at such office
that the Holder elects to convert this Debenture. Such notice shall also
state the name or names (with address or addressees) in which the certificate
or certificates for shares of Common Stock which shall be deliverable upon
such conversion shall be registered. As promptly as practicable after the
receipt of such notice and the surrender of this Debenture as aforesaid, the
Company shall then cancel this Debenture and shall issue and deliver at such
office to such Holder, or on his written order, a certificate or certificates
for the number of full shares of Common Stock deliverable on such conversion
of this Debenture in accordance with the provisions of this Debenture and
cash as provided in the following Section, in respect of any fraction of a
share of Common Stock otherwise deliverable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the
close of business on the date (herein called the "Date of Conversion") on
which such notice shall have been received by the Company and this Debenture
shall have been surrendered as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become on the
Date of Conversion the holder or holders of record of the shares represented
thereby; provided, however, that any such surrender on any date when the
stock transfer books of the Company shall be closed shall be deemed effected
at the opening of business on the next succeeding day on which such stock
transfer books are open, and the person or persons in whose name or names the
certificate or certificates for such shares, are to be issued shall be deemed
to have become the record holder or holders thereof for all purposes as of
such date.
-2-
<PAGE>
4. NO FRACTIONAL SHARES. No fractions of shares of Common Stock or scrip
representing fractions of shares of Common Stock shall be issued upon
conversion of this Debenture. If more than one Debenture shall be surrendered
for conversion at one time by the same Holder, the number of full shares of
Common Stock which shall be deliverable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Debentures so
surrendered. If any fraction of a share of Common Stock would, except for the
provisions of this Section, be deliverable on the conversion of this
Debenture or Debentures (or specified portions thereof), the Company shall
make payment in lieu thereof in an amount of cash equal to the value of such
fraction multiplied by the Conversion Price.
5. CONVERSION PRICE ADJUSTMENTS. (a) For purposes of this Debenture:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common
Stock issued (or, pursuant to this Debenture, deemed to be issued) by the
Company, other than shares of Common Stock issued or issuable:
(i) upon conversion of the Debentures;
(ii) in lieu of interest on the Debentures; or
(iii) shares of Common Stock issued or issuable to officers,
employees or directors of, or consultants to, the Company
pursuant to a stock purchase or option plan or other
employee stock bonus arrangement approved by the Board of
Directors.
"CONVERSION PRICE" shall mean the price at which shares of the Common
Stock shall be deliverable upon conversion of this Debenture as adjusted from
time to time as herein provided. The initial Conversion Price is $11.89. The
Conversion Price for this Debenture shall be subject to adjustment as herein
provided.
"RECAPITALIZATION EVENTS" shall mean stock splits, stock dividends,
recapitalizations, reclassifications and similar events.
A. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Company at any time or from time to time after the Issuance Date
effects a subdivision of the outstanding Common Stock, the
Conversion Price then in effect immediately before that subdivision
shall be proportionately decreased, and conversely, if the Company
at any time or from time to time after the Issuance Date combines
the outstanding shares of Common Stock, the Conversion Price then
in effect immediately before the combination shall be
proportionately increased. Any adjustment under this subsection
shall become effective at the close of business on the date the
subdivision or combination becomes effective.
B. ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In
the event the Company at any time, or from time to time after the
Issuance Date makes, or fixes a
-3-
<PAGE>
record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in
Additional Shares of Common Stock, then and in each such event the
Conversion Price then in effect shall be decreased as of the time
of such issuance or, in the event such a record date is fixed, as
of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (a) the numerator of
which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date, and (b) the denominator of
which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or
distribution; PROVIDED, however, that if such record date is fixed
and such dividend is not fully paid or if such distribution is not
fully made on the date fixed thereof, the Conversion Price shall be
recomputed accordingly as of the close of business on such record
date and thereafter the Conversion Price shall be adjusted pursuant
to this Section 5B as of the time of actual payment of such
dividends or distributions.
C. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Company at any time or from time to time after the
Issuance Date makes, or fixes a record date for the determination
of holders of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Company other than shares
of Common Stock, then in each such event provision shall be made so
that the Holder shall receive upon conversion of this Debenture, in
addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Company which they would
have received had this Debenture been converted into Common Stock
on the date of such event and had the Holder thereafter, during the
period from the date of such event to and including the date of
conversion, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called
for during such period under this Section 5 with respect to the
rights of the Holder of this Debenture.
D. ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the Common Stock issuable upon the conversion of
this Debenture is changed into the same or a different number of
shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares of stock dividend or a
reorganization, provided for elsewhere in this Section 5, then and
in any such event the Holder of this Debenture shall have the right
thereafter to convert such stock into the kind and amount of stock
and other securities and property receivable upon such
reorganization, reclassification or other change, by holders of the
number of shares of Common Stock into which such a Debenture might
have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustments
provided herein.
E. RECLASSIFICATION, REORGANIZATION, ETC. If any of the
following shall occur, namely: (a) any reclassification or change
of outstanding shares of Common Stock
-4-
<PAGE>
issuable upon conversion of this Debenture (other than a change in
par value, or from par value to no par value, or from no par value
to par value, or as a result of subdivision or combination), (b)
any consolidation or merger to which the Company is a party other
than a merger in which the Company is the continuing corporation
and which does not result in any reclassification of, or change
(other than a change in name, or par value, or from par value to no
par value, or from no par value to par value, or as a result of a
subdivision or combination) in, outstanding shares of Common Stock
or (c) any sale or conveyance of all or substantially all of the
property or business of the Company as an entirety, then the
Company, or such successor or purchasing corporation, as the case
may be, shall, as a condition precedent to such reclassification,
change, consolidation, merger, sale or conveyance, execute and
deliver a certificate providing that the Holder of this Debenture
then outstanding shall have the right to convert such Debenture
into the kind and amount of shares of stock and other securities
and property (including cash) receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of
the number of shares of Common Stock deliverable upon conversion of
this Debenture immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. If, in the case of any
such consolidation, merger, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon by a
holder of Common Stock includes shares of stock or other securities
and property of a corporation other than the successor or
purchasing corporation, as the case may be, in such consolidation,
merger, sale or conveyance, then such certificate shall also be
executed by such other corporation and shall contain such
additional provision to protect the interests of the Holders of the
Debentures as the Board of Directors of the Company shall
reasonably consider necessary by reason of the foregoing. The
provisions of this Section shall similarly apply to successive
consolidation, mergers, sales or conveyances.
F. NOTICES OF RECORD DATE. In the event of any taking by the
Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution, the Company shall mail
to the Holder of this Debenture at least twenty (20) days prior to
the date specified herein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend or
distribution.
6. TAX. The issue of stock certificates on conversion of this
Debenture shall be made without charge to the Holder for any stock
issuance or transfer tax in respect of the issue thereof. The
Company shall not, however, be required to pay any tax which may be
payable in respect of any registration of transfer involved in the
issue and delivery of Common Stock or any new Debenture in any name
other than that of the Holder of this Debenture converted, and the
Company shall not be required to so issue or deliver any stock
certificate or new Debenture unless and until the person or persons
requesting the registration to transfer shall have paid to the Company
the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
-5-
<PAGE>
7. EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on this Debenture
when the same becomes due and payable and the default continues for ten
(10) days after notice thereof is given to the Company;
(b) the Company defaults in the payment of the principal of this
Debenture when the same becomes due and payable and the default continues
for ten (10) days after notice thereof;
(c) the Company, pursuant to or within the meaning of any Bankruptcy
Law (A) admits in writing its inability to pay its debts generally as they
become due, (B) commences a voluntary case or proceeding under any
Bankruptcy Law with respect to itself, (C) consents to the entry of a
judgment, decree or order for relief against it in an involuntary case or
proceeding under any Bankruptcy Law, (D) consents to the appointment of a
bankruptcy trustee (a "Bankruptcy Trustee") of its or for any part of its
property, (E) consents to or acquiesces in the institution of bankruptcy or
insolvency proceedings against it, (F) applies for, consents to or
acquiesces in the appointment of a Bankruptcy Trustee, (G) makes a general
assignment for the benefit of its creditors, or (H) takes any corporate
action for any of the foregoing purposes; or
(d) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company in an involuntary case or
proceeding under any Bankruptcy Law which shall (A) approve as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition in respect of the Company, (B) appoint a Bankruptcy Trustee of
the Company or for any part of its property, or (C) order the winding-up or
liquidation of its affairs; and such judgment, decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or (D) any
bankruptcy or insolvency petition or application is filed, or any
bankruptcy or insolvency proceeding is commenced against the Company and
such petition, application or proceeding is not dismissed within 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
8. Remedies. If an Event of Default (other than an Event
of Default specified in Section 7(d) or 7(e) in respect of the
Company) occurs and is continuing, the Holder may, subject to
Section 9 hereof, by notice of the Company, declare all unpaid
principal and accrued interest to the date of acceleration on the
Debenture then outstanding (if not then due and payable) to be due
and payable and, upon any such declaration, the same shall become
and be immediately due and payable. If an Event of Default
specified in Section 7(d) or 7(e) in respect of the Company occurs,
all unpaid principal and accrued interest on the Debentures then
outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of any
Holder. The Holder by notice to the Company may rescind an
- 6 -
<PAGE>
acceleration and its consequences if (i) all existing Events of Default, other
than the non-payment of the principal of the Debentures which has become due
solely by such declaration of acceleration, have been cured or waived, (ii) to
the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid, and (iii) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction.
9. Subordination. The Company covenants and agrees, for itself and its
successor and assigns, and each Holder hereof, for itself and for any subsequent
holder of this Debenture, by its acceptance hereof, covenants and agrees that
the indebtedness evidenced hereby is hereby expressly subordinated, to the
extent and in the manner hereinafter set forth, in right of payment to the prior
payment for satisfaction in full in cash of all Senior Indebtedness, as
hereinafter defined.
Until all Senior Indebtedness shall have been performed or paid in full in
cash, (a) the Company shall not, directly or indirectly, and the holder of this
Debenture shall not be permitted to receive any payment on account of this
Debenture and the holder of this Debenture shall not demand or accept from the
Company or any person any such payment or otherwise discharge any part of the
obligations of the Company hereunder and such holder shall not take any action
prejudicial to, or inconsistent with, the priority position of the Senior
Indebtedness over the holder hereof, including, without limitation, declaring
all unpaid principal and accrued interest under this Debenture due and payable,
commencing any action or proceeding against the Company to enforce to collect
this Debenture, or any portion hereof or commencing or joining any "Proceeding"
(as defined below) against the Company, and (b) the holder of this Debenture
shall have no right of subrogation to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness. Notwithstanding
the foregoing, so long as no default exists under any agreement or instrument
evidencing any of the Senior Indebtedness, interest and principal may be paid on
this Debenture in accordance with the terms hereof.
At any meeting of creditors of the Company or in the event of any
proceeding ("Proceeding"), voluntary or involuntary, for the distribution,
division or application of all or part of the assets of the Company, whether
such proceeding be for the liquidation, dissolution or winding up of the Company
or its business, or proceeding for relief under any bankruptcy, reorganization
or insolvency law or any other law relating to relief of debtors, readjustment
of indebtedness, reorganization, arrangement, composition or extension or
otherwise, the holder of the Senior Indebtedness is hereby irrevocably
authorized by the holder of this Debenture at any such meeting or in any such
proceeding: (a) to prove any claim (by the filing of proof(s) of claim(s) or
otherwise) on account of this Debenture either in its own name or in the name of
the holder hereof; (b) to collect any assets of the Company distributed, divided
or applied by way of dividend or payment, or any securities issued, on account
of this Debenture and apply the same to the Senior Indebtedness; (c) to vote
claims on account of this Debenture to accept or reject any plan for
liquidation, reorganization, arrangement, composition or extension; and (d) to
take generally any action in connection with any such meeting or proceeding
which the holder of this Debenture might otherwise take.
- 7 -
<PAGE>
Upon the occurrence of any default under any agreement or instrument
evidencing any of the Senior Indebtedness, should any payment be received by the
holder of this Debenture, such payment shall be delivered forthwith to the
holder of the Senior Indebtedness for application to the Senior Indebtedness.
The holder of the Senior Indebtedness is irrevocably authorized to supply any
required endorsement or assignment. Until so delivered, any such payment shall
be held by the holder of this Debenture in trust for the holder of the Senior
Indebtedness and shall not be commingled with other funds or property of the
holder of this Debenture.
Without the necessity of any reservation of rights against or any notice to
or further assent by the holder of this Debenture, any demand for payment of any
Senior Indebtedness made by the holder of the Senior Indebtedness may be
rescinded in whole or in part by such holder, the holder of the Senior
Indebtedness may exercise or refrain from exercising any rights and remedies
against the Company and others, the Senior Indebtedness or any collateral
security or guaranty therefor or right of offset with respect thereto, may be
executed, or released by the holder of Senior Indebtedness, and any agreement or
instrument evidencing, securing or otherwise relating to Senior Indebtedness may
be amended or modified, all without impairing, abridging, releasing or affecting
the subordination provided for herein. The holder of this Debenture waives any
and all notice of the creation or modification of any Senior Indebtedness and
notice of or proof of reliance by the holder of the Senior Indebtedness upon the
subordination provided for herein.
For purposes of this Debenture, "Senior Indebtedness" shall include any and
all indebtedness, liabilities, duties, undertakings, warranties, covenants and
agreements (including those of payment or performance) of the Company or any of
its wholly-owned subsidiaries to State Street Bank and Trust Company and its
respective successors or assigns (the "Lender"), of every kind, nature and
description and arising pursuant to the terms of the Forbearance and Amendment
Agreement ("Amendment Agreement") dated as of January 11, 1996 between the
Company, its wholly-owned subsidiary, Carolina Metals, Inc. ("CMI"), and the
Lender, as may be amended, modified, supplemented and/or restated from time to
time, the Loan Documents and Bond Documents, as defined in the Amendment
Agreement, as such Documents may be amended, modified, supplemented and/or
restated from time to time, or otherwise, whether or not the same are: now
existing or hereafter arising; imposed by agreement or by operation of law; due
or not due; absolute or contingent (including any reimbursement obligations
relating to any letter of credit issued for the account of the Company or CMI);
liquidated or unliquidated; voluntary or involuntary, evidenced by a writing;
presently contemplated by the parties; direct or indirect; liabilities or
undertakings of the Company or any of its subsidiaries as surety, guarantor or
endorser with respect to obligations of one or more other parties specifically
described as secured or unsecured, hereafter acquired by the Lender or any of
them by assignment, other transfer or operation of law. Senior Indebtedness
also shall include any refinancings thereof or replacement financing therefor.
10. Interest Limitation. If a law, which applies to this Debenture and
which sets maximum loan charges, is finally interpreted so that the interest or
other loan charges collected or to be collected in connection with this
Debenture exceed the permitted limits, then: (i) any
- 8 -
<PAGE>
such loan charge shall be reduced by the amount necessary to reduce the charge
to the permitted limit; and (ii) any sums already collected from the Company
which exceeded permitted limits will be refunded to the Company. The Holder may
choose to make this refund by reducing the principal owed under this Debenture
or by making a direct payment to the Company.
11. Consent to Jurisdiction. The Holder hereby irrevocably agrees that
any legal action or proceedings with respect to this Debenture against the
Company may be brought only in the courts of the United States of America or The
Commonwealth of Massachusetts. By acceptance of this Debenture, the Holder
hereby (i) accepts the exclusive jurisdiction of the aforesaid courts;
(ii) irrevocably agrees to be bound by any judgment of any such court with
respect to this Debenture; and (iii) irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any suit, action or proceedings with respect to this Debenture
brought in any court of the United States of America or The Commonwealth of
Massachusetts, and further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
12. Miscellaneous.
(a) THIS DEBENTURE SHALL BE GOVERNED BY THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS WITHOUT REFERENCE TO CONFLICTS OF LAWS, RULES OR
PRINCIPLES.
(b) The Company and all endorsers of this Debenture hereby waive
presentment, demand, protest or notice of any kind in connection with the
delivery, acceptance, performance or enforcement of this Debenture.
(c) No provision thereof shall alter or impair the obligation of the
Company which is absolute and unconditional, to pay the principal and
interest on this Debenture as herein prescribed.
NUCLEAR METALS, INC.
By:
------------------------------------
James M. Spiezio
Vice President - Finance
Attest:
- ----------------------------------
Clerk
- 9 -
<PAGE>
[FORM OF CONVERSION NOTICE]
The undersigned holder of this Debenture hereby irrevocably
exercises the option to convert this Debenture (or portion hereof
below designated) into shares of Common Stock of Nuclear Metals,
Inc. in accordance with the terms of the Debenture, and directs
that the shares deliverable upon the conversion, be registered in
the name of and delivered to the undersigned, together with any
check in payment for any fractional share, unless a different name
has been indicated below. If shares and any Debenture are to be
registered in the name of any such other person, the undersigned
will pay all transfer taxes payable with respect thereto.
Dated:
-------------------------- -----------------------------
Signature
---------------------------
Tax I.D. Number
If share and any Debenture are to be registered in the name of
a person or persons other than the above-signed holder, please
print each such person's name and address (including zip code):
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Portion to be converted (if less than all): $
--------------------
<PAGE>
SCHEDULE TO EXHIBIT 10(i)
Other similar 10% Convertible Subordinated Debentures of the Company
dated January 10, 1996:
Holder Amount
------ ------
1. Melvin B. Chrein $83,500.00
2. Kathleen Matthews $83,000.00
<PAGE>
Exhibit 10(j)
THE SECURITIES REPRESENTED BY THIS DEBENTURE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT") AND MAY NOT BE OFFERED
OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO
THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH
ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION OF
COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NUCLEAR METALS, INC.
10% SUBORDINATED DEBENTURE
DUE DECEMBER 10, 1998
No. 5 September 16, 1996
($100,000.00)
Nuclear Metals, Inc., a Massachusetts corporation (the "Company"), for
value received, hereby promises to pay to Melvin B. Chrein or registered
assigns (the "Holder"), the principal sum of One Hundred Thousand
($100,000.00) on December 10, 1998 (the "Maturity Date") with interest from
the date hereof (computed on the basis of a 365-day year) at the rate per
annum of ten percent (10%) until paid in full. The Company will pay interest
in arrears semi-annually on March 10, 1997, September 10, 1997, March 10, 1998
and September 10, 1998 (each an "Interest Payment Date") to the Holder of
record. Interest will accrue from the most recent date to which interest has
been paid or if no interest has been paid, from the date of issuance of this
debenture. This debenture (the "Debenture") is one of a series of Debentures
issued by the Company on September 16, 1996 (the "Issuance Date")
(collectively, the "Debentures").
1. GENERAL. This Debenture is transferable only by surrender thereof
at the principal office of the Company located at 2229 Main Street, Concord,
Massachusetts 01742, duly endorsed by, or accompanied by a written
instrument of transfer duly executed by, the registered Holder of this
Debenture or his attorney duly authorized in writing and a completed
"investor questionnaire" duly executed by the transferee reasonably
satisfactory in form and substance to the Company.
- 1 -
<PAGE>
2. EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on this Debenture
when the same becomes due and payable and the default continues for ten
(10) days after notice thereof is given to the Company;
(b) the Company defaults in the payment of the principal of this
Debenture when the same becomes due and payable and the default continues
for ten (10) days after notice thereof;
(c) the Company, pursuant to or within the meaning of any Bankruptcy
Law (A) admits in writing its inability to pay its debts generally as they
become due, (B) commences a voluntary case or proceeding under any
Bankruptcy Law with respect to itself, (C) consents to the entry of a
judgment, decree or order for relief against it in an involuntary case or
proceeding under any Bankruptcy Law, (D) consents to the appointment of a
bankruptcy trustee (a "Bankruptcy Trustee") of its or for any part of its
property, (E) consents to or acquiesces in the institution of bankruptcy or
insolvency proceedings against it, (F) applies for, consents to or
acquiesces in the appointment of a Bankruptcy Trustee, (G) makes a general
assignment for the benefit of its creditors, or (H) takes any corporate
action for any of the foregoing purposes; or
(d) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company in an involuntary case or
proceeding under any Bankruptcy Law which shall (A) approve as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition in respect of the Company, (B) appoint a Bankruptcy Trustee of
the Company or for any part of its property, or (C) order the winding-up or
liquidation of its affairs; and such judgment, decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or (D) any
bankruptcy or insolvency petition or application is filed, or any
bankruptcy or insolvency proceeding is commenced against the Company and
such petition, application or proceeding is not dismissed within 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
3. REMEDIES. If an Event of Default (other than an Event of Default
specified in Section 2(c) or 2(d) in respect of the Company) occurs and is
continuing, the Holder may, subject to Section 4 hereof, by notice of the
Company, declare all unpaid principal and accrued interest to the date of
acceleration on the Debenture then outstanding (if not then due and payable)
to be due and payable and, upon any such declaration, the same shall become
and be immediately due and payable. If an Event of Default specified in
Section 2(c) or 2(d) in respect of the Company occurs, all unpaid principal
and accrued interest on the Debentures then outstanding shall ipso facto
become and be immediately due and payable without any declaration or other
act on the part of any Holder. The Holder by notice to the Company may
rescind an
- 2 -
<PAGE>
acceleration and its consequences if (i) all existing Events of Default,
other than the non-payment of the principal of the Debentures which has
become due solely by such declaration of acceleration, have been cured or
waived, (ii) to the extent the payment of such interest is lawful, interest
on overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid, and
(iii) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction.
4. SUBORDINATION. The Company covenants and agrees, for itself and its
successor and assigns, and each Holder hereof, for itself and for any
subsequent holder of this Debenture, by its acceptance hereof, covenants and
agrees that the indebtedness evidenced hereby is hereby expressly
subordinated, to the extent and in the manner hereinafter set forth, in right
of payment to the prior payment for satisfaction in full in cash of all
Senior Indebtedness, as hereinafter defined.
Until all Senior Indebtedness shall have been performed or paid in full
in cash, (a) the Company shall not, directly or indirectly, and the holder of
this Debenture shall not be permitted to receive any payment on account of
this Debenture and the holder of this Debenture shall not demand or accept
from the Company or any person any such payment or otherwise discharge any
part of the obligations of the Company hereunder and such holder shall not
take any action prejudicial to, or inconsistent with, the priority position
of the Senior Indebtedness over the holder hereof, including, without
limitation, declaring all unpaid principal and accrued interest under this
Debenture due and payable, commencing any action or proceeding against the
Company to enforce to collect this Debenture, or any portion hereof or
commencing or joining any "Proceeding" (as defined below) against the
Company, and (b) the holder of this Debenture shall have no right of
subrogation to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness. Notwithstanding the foregoing, so
long as no default exists under any agreement or instrument evidencing any of
the Senior Indebtedness, interest and principal may be paid on this Debenture
in accordance with the terms hereof.
At any meeting of creditors of the Company or in the event of any
proceeding ("Proceeding"), voluntary or involuntary, for the distribution,
division or application of all or part of the assets of the Company, whether
such proceeding be for the liquidation, dissolution or winding up of the
Company or its business, or proceeding for relief under any bankruptcy,
reorganization or insolvency law or any other law relating to relief of
debtors, readjustment of indebtedness, reorganization, arrangement,
composition or extension or otherwise, the holder of the Senior Indebtedness
is hereby irrevocably authorized by the holder of this Debenture at any such
meeting or in any such proceeding: (a) to prove any claim (by the filing of
proof(s) of claim(s) or otherwise) on account of this Debenture either in its
own name or in the name of the holder hereof; (b) to collect any assets of
the Company distributed, divided or applied by way of dividend or payment, or
any securities issued, on account of this Debenture and apply the same to the
Senior Indebtedness; (c) to vote claims on account of this Debenture to
accept or reject any plan for liquidation, reorganization, arrangement,
composition or extension; and (d) to take generally any action in connection
with any such meeting or proceeding which the holder of this Debenture might
otherwise take.
- 3 -
<PAGE>
Upon the occurrence of any default under any agreement or instrument
evidencing any of the Senior Indebtedness, should any payment be received by
the holder of this Debenture, such payment shall be delivered forthwith to
the holder of the Senior Indebtedness for application to the Senior
Indebtedness. The holder of the Senior Indebtedness is irrevocably authorized
to supply any required endorsement or assignment. Until so delivered, any
such payment shall be held by the holder of this Debenture in trust for the
holder of the Senior Indebtedness and shall not be commingled with other
funds or property of the holder of this Debenture.
Without the necessity of any reservation of rights against or any notice
to or further assent by the holder of this Debenture, any demand for payment
of any Senior Indebtedness made by the holder of the Senior Indebtedness may
be rescinded in whole or in part by such holder, the holder of the Senior
Indebtedness may exercise or refrain from exercising any rights and remedies
against the Company and others, the Senior Indebtedness or any collateral
security or guaranty therefor or right of offset with respect thereto, may be
executed, or released by the holder of Senior Indebtedness, and any agreement
or instrument evidencing, securing or otherwise relating to Senior
Indebtedness may be amended or modified, all without impairing, abridging,
releasing or affecting the subordination provided for herein. The holder of
this Debenture waives any and all notice of the creation or modification of
any Senior Indebtedness and notice of or proof of reliance by the holder of
the Senior Indebtedness upon the subordination provided for herein.
For purposes of this Debenture, "Senior Indebtedness" shall include any
and all indebtedness, liabilities, duties, undertakings, warranties,
covenants and agreements (including those of payment or performance) of the
Company or any of its wholly-owned subsidiaries to State Street Bank and
Trust Company and its respective successors or assigns (the "Lender"), of
every kind, nature and description and arising pursuant to the terms of the
Forbearance and Amendment Agreement ("Amendment Agreement") dated as of
January 11, 1996 between the Company, its wholly-owned subsidiary, Carolina
Metals, Inc. ("CMI"), and the Lender, as may be amended, modified,
supplemented and/or restated from time to time, the Loan Documents and Bond
Documents, as defined in the Amendment Agreement, as such Documents may be
amended, modified, supplemented and/or restated from time to time, or
otherwise, whether or not the same are: now existing or hereafter arising;
imposed by agreement or by operation of law; due or not due; absolute or
contingent (including any reimbursement obligations relating to any letter of
credit issued for the account of the Company or CMI); liquidated or
unliquidated; voluntary or involuntary, evidenced by a writing; presently
contemplated by the parties; direct or indirect; liabilities or undertakings
of the Company or any of its subsidiaries as surety, guarantor or endorser
with respect to obligations of one or more other parties specifically
described as secured or unsecured, hereafter acquired by the Lender or any of
them by assignment, other transfer or operation of law. Senior Indebtedness
also shall include any refinancings thereof or replacement financing therefor.
5. INTEREST LIMITATION. If a law, which applies to this Debenture and
which sets maximum loan charges, is finally interpreted so that the interest
or other loan charges collected or to be collected in connection with this
Debenture exceed the permitted limits, then: (i) any
- 4 -
<PAGE>
such loan charge shall be reduced by the amount necessary to reduce the
charge to the permitted limit; and (ii) any sums already collected from the
Company which exceeded permitted limits will be refunded to the Company. The
Holder may choose to make this refund by reducing the principal owed under
this Debenture or by making a direct payment to the Company.
6. CONSENT TO JURISDICTION. The Holder hereby irrevocably agrees that
any legal action or proceedings with respect to this Debenture against the
Company may be brought only in the courts of the United States of America or
The Commonwealth of Massachusetts. By acceptance of this Debenture, the
Holder hereby (i) accepts the exclusive jurisdiction of the aforesaid courts;
(ii) irrevocably agrees to be bound by any judgment of any such court with
respect to this Debenture; and (iii) irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to
the laying of venue of any suit, action or proceedings with respect to this
Debenture brought in any court of the United States of America or The
Commonwealth of Massachusetts, and further irrevocably waives any claim that
any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.
7. MISCELLANEOUS.
(a) THIS DEBENTURE SHALL BE GOVERNED BY THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS WITHOUT REFERENCE TO CONFLICTS OF LAWS, RULES OR
PRINCIPLES.
(b) The Company and all endorsers of this Debenture hereby waive
presentment, demand, protest or notice of any kind in connection with the
delivery, acceptance, performance or enforcement of this Debenture.
(c) No provision thereof shall alter or impair the obligation of the
Company which is absolute and unconditional, to pay the principal and
interest on this Debenture as herein prescribed.
NUCLEAR METALS, INC.
By: /s/ James M. Spiezio
-----------------------------
James M. Spiezio
Vice President - Finance
Attest:
/s/ Thomas A. Wooters
- --------------------------
Clerk
- 5 -
<PAGE>
SCHEDULE TO EXHIBIT 10(J)
Other similar 10% Subordinated Debentures of the Company dated September 16,
1996:
Holder Amount
------ ------
1. Charles Albert or nominee $225,000.00
2. Marshall J. Chrein $ 25,000.00
<PAGE>
NUCLEAR METALS, INC.
2229 Main Street
Concord, MA 01742
As of September 16, 1996
Mrs. George J. Matthews
15 Hickory Hill
Manchester, MA 01944
Re: 10% Convertible Subordinated Debenture
Due June 10, 1997
--------------------------------------
Dear Mrs. Matthews:
This letter agreement will confirm that the 10% Convertible Subordinated
Debenture dated January 10, 1996 and due June 10, 1997 issued to you by
Nuclear Metals, Inc. is amended to become due on December 10, 1998,
semi-annual payments under the Debenture will continue as now scheduled with
the balance paid at maturity, as extended, or earlier upon acceleration.
Please sign below to acknowledge your agreement and acceptance of the
terms of this letter agreement.
Very truly yours,
NUCLEAR METALS, INC.
By: /s/ James M. Spiezio
-----------------------
James M. Spiezio,
Vice President, Finance
AGREED AND ACCEPTED:
By: /s/ Kathleen W. Matthews (Mrs. George J.)
-----------------------------------------
Name:
Date: 12-26-96
--------
<PAGE>
Exhibit 10(k)
Schedule of Similar Letter Agreements
Similar letter agreements were addressed to, and accepted by:
Charles Alpert
Melvin B. Chrein, M.D.
<PAGE>
EXHIBIT 10(r)
WAIVER OF BREACH OF COVENANT
This Waiver relates to a credit facility pursuant to a Credit Agreement
dated as of March 31, 1995 (as amended to date, the "Credit Agreement")
between Nuclear Metals, Inc., a Massachusetts corporation ("Nuclear Metals"),
Carolina Metals, Inc., a Delaware corporation ("Carolina Metals" and together
with Nuclear Metals, the "Borrowers"), and State Street Bank and Trust
Company, a Massachusetts company (the "Bank").
WHEREAS, lack of business at Carolina Metals's South Carolina facility
is expected to result in losses for the current fiscal year, and
WHEREAS, the Borrower's auditors have advised that, under the
circumstances, such losses should be recognized in the fiscal year ended
September 30, 1996 (the "Write-off"), and
WHEREAS, certain reserves in the approximate amount of $3.3 million have
been reclassified from long term reserves to inventory reserves (the
"Reclassification"), and
WHEREAS, the Write-off and the Reclassification will result in Borrowers
being out of compliance with the covenants in the Credit Agreement; and
WHEREAS, the Bank is willing to waive such noncompliance to the extent
that it is attributable to the Write-off and the Reclassification, and
WHEREAS, the Borrowers and the Bank intend to continue the relationship
existing under the Credit Agreement,
NOW, THEREFORE, the parties agree as follows:
1. The Bank hereby waives any failure to comply with covenants which
results from the Write-off and the Reclassification, as of September 30, 1996
and subsequently, and agrees, until the parties agree to new covenants as set
forth herein, compliance will be measured assuming that the Write-off and the
Reclassification had not occurred.
<PAGE>
2. The Bank and the Borrowers will agree upon revised covenants
consistent with the Company's business plans and such that the Company's
anticipated performance will allow it to remain in compliance at such time as
Borrowers have prepared and delivered a business plan to the Bank and the
Bank has had the opportunity to review it.
3. Except as set forth herein, the Credit Agreement, as amended to
date, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have signed below:
NUCLEAR METALS, INC.
By: /s/ James M. Spiezio
--------------------------
CAROLINA METALS, INC.
By: /s/ James M. Spiezio
--------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ William R. Dewey, IV
--------------------------
William R. Dewey, IV
<PAGE>
OUR BUSINESS
Nuclear Metals, Inc. develops and manufactures a variety of advanced metal
products serving a diverse customer base which includes the aerospace,
environmental, defense, medical and energy industries.
CONTENTS
President's Letter 2
Market Profile 5
Selected Financial Data 10
Management's Discussion and Analysis of Operations 12
Consolidated Balance Sheets 16
Consolidated Statements of Operations 17
Consolidated Statements of Stockholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
Report of Independent Public Accountants 32
Corporate Directory
<PAGE>
Exhibit 13
PRESIDENT'S LETTER
DEAR STOCKHOLDER:
While we made great progress in fiscal 1996, with sales revenues
increasing over 50%, sustained operating margins for work at our Concord
facility and a written commitment from the Army to fund the remediation of
the Concord holding basin, we were not able to report income for the year. We
had expected significant orders from both the Department of Energy (DoE) and
United States Enrichment Corp. (USEC) for production work at our Carolina
Metals, Inc. (CMI) facility. Unfortunately, these orders have yet to be
realized and as a result, the Company incurred a loss for the fourth quarter
and fiscal year. The fourth quarter loss included a charge of $2.1 million
for the estimated loss on current production contracts at CMI.
FINANCIAL HIGHLIGHTS
Although the Company experienced a net loss in fiscal 1996, sales of $28.7
million compared favorably with fiscal 1995 sales of $18.8 million. Year-end
backlog decreased to $23.2 million from $30.7 million the prior year
reflecting timing differences on a few large orders. Capital expenditures
for the year nearly doubled to $1.4 million from $0.8 million the prior year.
Research and development spending also doubled to $876 thousand from $439
thousand the prior year.
NMI'S year-end balance sheet reflects the increase in reserves that
occurred in the fourth quarter of fiscal 1996. Our current ratio (current
assets/current liabilities) decreased to 1.99:1 from 3.0:1 the prior year.
Our quick ratio (current assets less inventory/current liabilities) decreased
to 0.7:1 from 0.8:1 the prior year. Year-end cash and marketable securities
were $1.3 million. Inventories decreased, including the effect of additional
reserves, to $12.0 million from $17.5 million the prior year. Long-term debt
was reduced by $2.5 million during fiscal 1996. Debt at fiscal 1996 year-end
was at an all time low of $2.0 million or 8% of stockholder equity.
State Street Bank and Trust Company, our commercial bank, approved a new
$4.25 million line of credit in December, 1996 which allows management
attention to shift its focus from intense cash management to growing
revenues from new and expanding products in fiscal 1997.
HOLDING BASIN
From an environmental remediation and licensing standpoint, we have
achieved substantial milestones. First, the United States Army determined, to
a great extent due to the strategic importance of the Beralcast -Registered
Trademark- products, to fund the remediation of our Concord holding basin
waste
<PAGE>
site and to provide assurances with respect to the potential
decommissioning of our Concord facility so that we can achieve compliance
with the regulatory requirements which govern our NRC license for the Concord
plant. While we have not yet received a formal contract for this remediation
work, we are confident that the Army will assist with all required
remediation of our Concord site and that our NRC license will be renewed.
BERALCAST -REGISTERED TRADEMARK- INVESTMENT CASTINGS
Our patented Beralcast -Registered Trademark- alloys received increased
market acceptance from the aerospace community during fiscal 1996.
Acceptance by Lockheed Martin on the Army's new Comanche helicopter has
stimulated the evaluation of this new material on other military defense and
electronic programs. We are now building prototype hardware for numerous
emerging programs, including the new Patriot PAC 3 Missile, the F-22 Fighter,
several electronic countermeasure systems and satellite power supply
systems. NMI recently received government funding for work to qualify
Beralcast -Registered Trademark- for non-rotating aircraft engine
applications. NASA also initiated a qualification program for use of
Beralcast -Registered Trademark- for NASA applications. In addition to these
military applications, Beralcast -Registered Trademark- is now being tested
in several commercial electronic applications where its high stiffness allows
for a nearly ten-fold increase in electronic processing speed. A number of
new commercial electronic devices are being redesigned with Beralcast
- -Registered Trademark- to achieve these major increases in processing speed.
CAROLINA METALS INC.
Carolina Metals Inc., (CMI) our wholly-owned subsidiary located in
Barnwell, South Carolina is the world's only depleted uranium (DU) processing
facility. DU is the by-product of the uranium enrichment process. The DOE
maintains an inventory of over one billion pounds of DU that will be
converted to oxide and/or metal. Additionally, when the newly created United
States Enrichment Corporation (USEC) is privatized, it is expected that
their DU will be used as a feed material for their new, more efficient,
laser enrichment process. Both of these programs represent potential orders
that are substantial, however, the timing of the receipt of these orders
remains uncertain.
In the third quarter of fiscal 1996, the Company completed its three-year
order for DU metal with COGEMA. The continued delays in orders from DoE and
USEC have resulted in a substantial underutilization of the CMI facility. As
a result, a substantial reduction in the CMI work force was made in the third
quarter.
In the fourth quarter the Company announced its intent to install new
processing equipment for DUCRETE TM shielding concrete under license to
the DoE. By March 1997 CMI will have a prototype facility capable of
<PAGE>
processing one ton per day.
RECYCLING CONTAMINATED METAL
Prototype steel melting and casting equipment at CMI have successfully
demonstrated that radiologically contaminated steels can be safely
reconfigured and reused for disposal containers and shielding blocks. CMI
began production of recycled steel shielding blocks in the fourth quarter of
fiscal 1996 and has orders for over one million pounds in fiscal 1997.
The Company's proposal to commercialize advanced steel-making technology
in conjunction with ARMCO INC. and build a Micromill to support DoE's needs
for recycling contaminated metals has received favorable support from DoE,
Oak Ridge. We expect to know whether this opportunity will be funded in the
first half of 1997.
CUSTOMER SATISFACTION
The Company voluntarily joined the US Army's Contractor Performance
Certification Program (CP2) in late 1995. During fiscal 1996 an Army/industry
team conducted two preliminary certification audits. This independent team
of quality experts recommended a final certification audit in early 1997.
Employee teams have been formed throughout the Company to assess and
continuously improve how we manufacture quality products on time and at ever
decreasing cost to our customers. We were awarded Lockheed Martin's 1995 Small
Business of the Year Award which is a good indicator of our strong commitment
to achieving customer satisfaction.
OUR PEOPLE
During fiscal 1996 the Company added to its highly skilled workforce at NMI
in Concord to support our rapidly growing Beralcast -Registered Trademark-
business and at fiscal year-end we had twenty open positions in support of
our growth. It was with deep regret that we were forced to reduce employment
at CMI.
We have repeatedly been told by our customers that the Company has an
outstanding group of talented, dedicated employees who provide exceptional
customer service and are clearly committed to the Company's success. Our
employees are our strength and future.
THE FUTURE
We are excited on the prospects of significant growth. The Beralcast
investment casting business has started an explosive growth phase with
applications in both military and, most recently, commercial applications.
CMI has unique capabilities that we believe will be of value to USEC when it
is privatized and to the DoE as they convert their huge inventory of DU. We
remain encouraged that our pilot scale contaminated steel recycling
operations will result in a production plant being built with our strategic
ally ARMCO, Inc. to support DoE requirements.
We are committed to achieving results that will enhance shareholder value.
Thank you for your continued support and confidence.
/s/ Robert E. Quinn /s/ George J. Matthews
Robert E. Quinn George J.Matthews
President Chairman of the Board
<PAGE>
[PHOTO]
BUILDING ON OUR TECHNICAL STRENGTH
NMI's rich heritage in the manufacture of advanced metal products dates
back to the 1940's as part of the metallurgical lab supporting the Manhattan
Project. When the company moved to Concord, Massachusetts in the 50's, we
were staffed with strong technical leaders whose research into new materials
and processing technologies form the basis for many of our current successes.
In the 1960's and 70's, the Company transitioned from an R&D company to a
production operation with high volume manufacture of steel powder for the
photocopier industry, principally for Xerox Corp. During the late 1970's and
1980's, the demand for these powders waned as technology changes made
obsolete conventional photocopier techniques. At the same time powder
production was slowing, the U.S. Armed Services needed large quantities of
Depleted Uranium
SOLVING CUSTOMER'S UNIQUE NEEDS WITH INNOVATIVE METALLUGICAL SOLUTIONS
CREATES NEW OPPORTUNITIES TO OUR MUTUAL BUSINESS ADVANTAGE. PICTURED ABOVE,
JOHN NICHOLSON (SALES MANAGER) AND DENNIS LEHAN (SALES MANAGER), LOOK OVER A
CUSTOMER'S SPEC SHEET, WHILE DR. STEVE MILLER (R&D ENGINEER) AND HANK DEMITA
TAKE READINGS FROM NMI'S PATENTED REP -REGISTERED TRADEMARK- MACHINE.
<PAGE>
ammunition. The Company expanded its existing DU operations to include the
construction of a state of the art DU metal facility in South Carolina known
as Carolina Metals, Inc.
At the end of the Cold War, NMI found itself in a similar state as many
defense contractors which unforunately meant the need to downsize and remake
the Company. This reformation of the Company brought us from one dependent on
defense spending within a narrow product range to one with broad and
innovative product offerings. The Company continues to maintain an
outstanding technical staff which is the foundation of our growth position
and new product development. Combining these technical skills with dedicated
manufacturing and support staff, who together earned Lockheed Martin's Small
Business of the Year award for 1995, the Company is poised for growth and
competitive excellence into the 21st century.
[PHOTO]
THE VARIETY OF NMI'S DEPLETED URANIUM, ULTRA CLEAN METAL POWDERS, AND
SPECIALTY METAL PRODUCTS AND SERVICES BOUYED THE COMPANY IN DIFFICULT
TIMES.
<PAGE>
ASSURING OUR FUTURE
The development of Beralcast -Registered Trademark-, an investment cast
Beryllium Aluminum alloy, was initiated in response to customer demand for a
light weight, high stiffness material. Once successful in meeting this
demand, the material has been slated for a variety of new and exiting
applications from Aerospace to Consumer Products. NMI is responding to this
new and broad marketplace by adding the technical and support resources to
help customers manage their increasingly demanding weight and stiffness
needs. Beralcast -Registered Trademark- is twenty-two
[PHOTO]
"AN EXCITING NEW ENGINEERING MATERIAL" IS WHAT OUR CUSTOMERS ARE CALLING
BERALCAST -REGISTERED TRADEMARK-. THE COMPANY'S PERSISTENCE IN MEETING
DEMANDING CUSTOMER WEIGHT AND STIFFNESS REQUIREMENTS IN A LIGHTWEIGHT METAL
IS LEADING TO VAST NEW MARKETS.
PICTURED ABOVE, KEVIN RAFERTY (BUSINESS UNIT MANAGER), JOINS CUSTOMER
REPRESENTATIVES FROM LOCKHEED MARTIN IN EXAMINING THE FINE PRECISION OF OUR
BERALCAST INVESTMENT CASTING, WHILE KARIN KARG AND BILL KING (ENGINEERS) WORK
ON A 3D MODEL. DWIGHT HENDERSON, JOE LASKOWSKI, AND HEATHER DEHIMER
(ENGINEERS) INSPECT CASTING MOLDS USED TO CREATE VARIOUS CUSTOMER PARTS WHILE
A BERALCAST -REGISTERED TRADEMARK- FOUNDRY CREW PREPARED FOR A MELT.
<PAGE>
percent lighter than aluminum and three times as stiff. Using Design to Cost
principles and Concurrent Engineering techniques, NMI is partnering with
customers to implement low cost designs that will result in significantly
lower production costs in the future. The addition of six new Sales offices
throughout the United States, and reinvigoration of our foreign Sales efforts
will aid customers in gaining faster access to NMI's Beralcast -Registered
Trademark- technology.
With the reduction in the manufacture of the Depleted Uranium penetrator in
support of the U.S. army's M1A2 main battle tank, we have expanded our
uranium product and service offerings. As the Atomic Vapor Laser Isotope
Separation (AVLIS) program transitions from development to production, NMI
continues to supply the needed Depleted Uranium feed stock for the program's
early needs. AVLIS will require significant quantities of DU alloy feed
material in the future.
DUCRETE TM shielding was developed by the Idaho National Engineering
Laboratory as a potential shielding for spent fuel and high level radioactive
waste casks. DUCRETE TM is a uranium oxide aggregate that is combined with
concrete to form a stable and economical shielding. NMI has teamed with the
commercial company that purchased the DUCRETE TM patent rights and we are
actively pursuing the Department of Energy to convert its 55,000 metric tons
of Uranium Hexaflouride into Depleted Uranium aggregate for DUCRETE TM
shielding production.
In expanding our expertise in the handling of radioactive metals,
such as uranium and thorium, NMI has installed equipment and
facilities to manufacture RAM-LOC TM shielding blocks from slightly
radioactive steel from the Nuclear industry. These shielding blocks
are used to shield workers from high radiation sources within nuclear
facilities. The beneficial reuse of slightly contaminated steel is an
even larger need within the Department of Energy as facilities, rich
with metal
<PAGE>
[PHOTO]
resources, are being decommissioned. NMI and CMI have partnered with Armco
Steel to convince the DOE to convert these resources into economical steel
products using a proprietary strip casting technology. The important plus for
the DOE is our ability to offer recycled steel strip at commercial prices.
NMI is working diligently to develop fine titanium powders for commercial
applications where sphericity and consistency are important. We continue to
produce beryllium tubing for satellite applications, Bi-metallic transition
joints made from a proprietary extrusion process, and a variety of other
advanced metal products for the aerospace, medical, and other commercial
industries. NMI continues to build on our technical successes by accepting
aggressive challenges and responding with timely and customer focused
solutions.
NOVEL RECYCLING TECHNIQUES FOR OTHERWISE UNWANTED AND CONTAMINATED METALS
HAVE MET WITH ENTHUSIASTIC RESPONSE IN BOTH THE GOVERNMENT AND COMMERCIAL
NUCLEAR SECTORS. PICTURED ABOVE, CMI'S ROBIN UTSEY (LAB SUPERVISOR) WORKS ON
LAB SAMPLES, WHILE JIM CORNWELL (MANAGER) AND MALCOLM RILEY (LAB TECHNICIAN)
READ RESULTS FROM A METAL COMPOSITION TEST.
<PAGE>
[PHOTO]
OUR VISION OF NEW MARKETS FOR NMI'S ADVANCED METAL PRODUCTS AND
SERVICES IS ONE OF BOUNDLESS POSSIBILITIES, SOME OF WHICH ARE ALREADY
STARTING TO BE REALIZED.
GROWING TODAY
The employees of NMI are our most valuable asset. We are strengthening
these assets with the introduction of the U.S. Army's Quality system known as
CP2. This quality system, which includes all of the elements of the
International Standards Organization (ISO), has been embraced at NMI.
Combining training, rewards, and a systematic approach to our work habits
with high standards for continuous improvement, NMI is setting the tone for a
solid and exiting future. Beralcast -Registered Trademark- products will
replace today's heavier and less effective competitive materials in a wide
variety of applications. Facility expansion will likely be the sole pacing
item in the Company's ability to handle the expected business volumes of the
near future. Recycled metals, AVLIS feedstock, and DUCRETE TM shielding,
among other new products in development at NMI, provide the framework for
continued growth and expansion. We see a future which will include a broad
product offering, effective technical problem solving, and economical
production techniques based on the specialized skills of a workforce
dedicated to excellence.
[PHOTO]
AN AGILE SMALL BUSINESS WITH A BIG FUTURE WILL ONLY TRANSITION TO A MUCH
LARGER AND MORE PROFITABLE ENTERPRISE IF WE LISTEN TO OUR CUSTOMERS AND TO
EACH OTHER. PICTURED ABOVE, BRUCE ZUKAUSKAS (V.P. OF OPERATIONS), AND KEVIN
RAYMOND (MACHINIST) ALIGN EQUIPMENT TO A SPECIFIC JOB IN THE MACHINE SHOP.
THE OTHER SPECIALTY PRODUCTS TEAM (L TO R) ANDREW FUNK (BUYER), KEVIN RAYMOND
(MACHINIST), ROBERT ARCAND (TECHNICIAN), WAYNE CORMIER (CHEIF INSPECTOR),
CARRIE FLOOD (PRODUCTION CONTROL SUPERVISOR), WORK ON TRACKING QUALITY
THROUGHOUT LOTS. DOUG GROTHEER (V.P. OF ENGINEERING,) JEFF ELLIOT, AND CHRIS
ROSE, ANALYZE METRICS.
<PAGE>
SELECTED FINANCIAL DATA
(NOT COVERED BY REPORT OF INDEPENDENT PULIC ACCOUNTANTS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF EMPLOYEES)
<TABLE>
<CAPTION>
OPERATING RESULTS FOR THE YEAR 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales and Contract Revenues $28,694 $18,784 $19,004 $17,019 $42,083
Costs and Expenses 31,254 20,708 29,958 27,515 39,791
Operating Income (Loss) (2,560) (1,924) (10,954) (10,496) 2,292
Other Income (Expense), Net (476) (118) (430) (557) (745)
Income (Loss) Before Taxes (3,036) (2,042) (11,384) (11,053) 1,547
Provision (Benefit) for Income Taxes 1 (1,967) (1,188) (3,746) 626
Extraordinary Gain -- 585 -- -- --
Cumulative Change in Accounting Principle -- -- -- 1,100 --
Net Income (Loss) (3,037) 510 (10,196) (6,207) 921
Earnings (Loss) per Share (1.27) -- (4.43) (2.70) 0.40
Capital Expenditures, Net 1,449 777 709 1,265 1,015
Research and Development 876 439 575 1,031 1,233
FINANCIAL POSITION AT YEAR-END
Stockholders' Equity 24,240 27,245 26,252 36,371 43,037
Shares Outstanding 2,391 2,388 2,307 2,295 2,295
Net Book Value per Common Share Outstanding 10.14 11.41 11.38 15.85 18.76
Dividends Paid -- -- -- 459 276
Dividends per Share -- -- -- 0.26 0.12
Total Assets 35,118 40,886 40,542 57,223 66,391
Working Capital 9,249 15,866 17,477 24,532 32,571
Long-term Debt (including current installments) 2,004 4,480 4,859 8,986 11,372
OTHER DATA
Weighted Average Number of Shares
of Common Stock Outstanding 2,389 2,353 2,300 2,295 2,302
Backlog (at Year-end) 23,248 30,709 14,512 8,285 10,729
Number of Employees (at Year-end) 190 200 189 169 231
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPERATING RESULTS FOR THE YEAR 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C>
Net Sales and Contract Revenues $48,250 $47,662 $49,760 $45,714 $42,395 [GRAPHIC]
Costs and Expenses 44,930 44,734 45,350 42,378 45,143
Operating Income (Loss) 3,320 2,928 4,410 3,336 (2,748)
Other Income (Expense), Net (1,029) (1,706) (1,191) (1,182) (271)
Income (Loss) Before Taxes 2,291 1,222 3,219 2,154 (3,019)
Provision (Benefit) for Income Taxes 871 489 972 506 (1,452)
Extraordinary Gain -- -- -- -- --
Cumulative Change in Accounting Principle -- -- -- -- --
Net Income (Loss) 1,420 733 2,247 1,648 (1,567)
Earnings (Loss) per Share 0.60 0.30 0.86 0.62 (0.58)
Capital Expenditures, Net 1,349 2,270 3,306 2,812 3,040
Research and Development 1,357 685 1,007 1,186 679
[GRAPHIC]
FINANCIAL POSITION AT YEAR-END
Stockholders' Equity 42,614 41,756 43,135 41,592 40,632
Shares Outstanding 2,335 2,384 2,596 2,632 2,701
Net Book Value per Common Share Outstanding 18.25 17.52 16.62 15.80 15.04
Dividends Paid 238 251 263 -- --
Dividends per Share 0.10 0.10 0.10 -- --
Total Assets 70,810 73,603 76,520 75,461 66,189
Working Capital 33,034 32,772 35,578 36,231 27,095
Long-term Debt (including current installments) 13,759 16,040 18,405 19,756 11,163
OTHER DATA
[GRAPHIC]
Weighted Average Number of Shares
of Common Stock Outstanding 2,369 2,447 2,622 2,677 2,701
Backlog (at Year-end) 10,398 14,758 19,352 16,016 31,947
Number of Employees (at Year-end) 456 455 574 585 569
</TABLE>
<PAGE>
[PHOTO]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
FISCAL 1996 COMPARED WITH FISCAL 1995
Net sales increased by $9,910,000 or 53% in fiscal 1996. Sales in the
Uranium Services and Recycle industry segment increased by $1,220,000 or 25%;
sales in the Specialty Metal Products industry segment increased by
$1,628,000 or 13% and sales in the Depleted Uranium Penetrator industry
segment increased by $7,062,000 or 412%. The increase in the Uranium Services
and Recycle industry segment was mainly due to increases in AVLIS feedstock
production for the United States Enrichment Corporation (USEC). The increase
in the Specialty Metal Products industry segment was a result of higher sales
of beryllium products and commercial depleted uranium. The increase in the
Depleted Uranium Penetrator industry segment was the result of higher large
caliber penetrator production sales.
During the third quarter of fiscal 1996, the Company reduced its workforce
from 55 to 24 employees at the Carolina Metal's (CMI) facility due to reduced
production requirements resulting from the completion of a multi-year
contract for the manufacture of depleted uranium for a foreign customer and
the lack of anticipated new orders. The Company had expected to obtain
substantial orders from USEC and the Department of Energy (DoE) in the second
half of fiscal 1996. These orders have yet to be materialized and as a result
CMI is operating at approximately 40% capacity on a one shift basis and is
expected to do so through most of fiscal 1997. In the fourth quarter of
fiscal 1996 the Company established a $2,100,000 reserve for estimated fiscal
1997 losses associated with CMI's current production contracts. The Company
is obligated to complete these contracts, which are fixed price. The Company
continues to pursue alternate production contracts and believes that
significant orders eventually will be received for work at the CMI facility.
In the event that the prospects for greater utilization of the CMI facility
do not improve, the Company will reevaluate the carrying value of its CMI
facility during fiscal
PICTURED ABOVE, CONTROLLER BECKY PERRY, V.P. OF FINANCE JIM SPIEZIO,
AND V.P. OF TECHNOLOGY BILL NACHTRAB DISCUSS RESEARCH AND DEVELOPMENT
COSTS. ERIC ANDERSON, AND V.P. OF HEALTH AND SAFETY FRANK VUMBACO. 12
<PAGE>
1997, which could result in a writedown of plant assets.
Gross profit (net sales and contract revenues less cost of sales)
increased by $309,000 to $3,641,000 or 13% of sales as compared to
$3,332,000 or 18% of sales for fiscal 1995. This increase in gross profit is
primarily due to increased sales volume during fiscal 1996. As a percentage
of sales, the decrease in gross profit is primarily due to the establishment
of a $2,100,000 reserve for estimated losses associated with CMI's production
contracts.
Selling, general and administrative expenses increased by $507,000 to
$5,324,000. This increase was primarily due to additional employees required
to support the growth in business. As a percentage of sales, these expenses
decreased to 19% as compared to 26% for the prior year, as a result of sales
increasing at a higher rate than expenses.
Company-sponsored research and development expenses increased by 100%, or
$437,000 to $876,000 for fiscal 1996. As a percentage of sales, these
expenses were 3% as compared to 2% in fiscal 1995.
Interest and other income, net, decreased to $(89,000) for the fiscal
year as compared to $232,000 for the prior year. This decrease was mainly
from a $150,000 restructuring fee associated with amendments to the Company's
credit facility during the third quarter of fiscal 1996 and a gain of
$175,000 recognized during the second quarter of fiscal 1995 on the sale of
an office building.
Interest expense increased by $37,000 to $387,000 as compared to fiscal
1995. This increase was primarily the result of higher interest rates and
fees associated with outstanding debt during fiscal 1996.
During fiscal 1995, the Company realized a $585,000 extraordinary gain,
net of taxes of $10,000, on the early extinguishment of debt.
INCOME TAXES
Income taxes benefited during 1996 and 1995 were at an effective rate of
0% and 96%, respectively. During fiscal 1995, the Company received $978,000
in tax refunds from carryback losses and reduced tax reserves by $989,000 as
a result of successful completion of a federal tax audit.
INFLATION
Inflation has not had a material impact on the Company's cost of doing
business. Management attempts to protect the Company by adjusting prices
where market conditions permit and by reviewing and improving production
processes where possible. Price escalation clauses also are negotiated into
long-term contracts when possible.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, working capital decreased to $9,249,000 from
$15,866,000 in fiscal 1995. This decrease is primarily due to increased
reserves against inventory of $3.3 million and a reserve established for CMI
losses of $2.1 million associated with current production
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS) 13
<PAGE>
contracts both of which were recorded in the fourth quarter.
On December 24, 1996, the Company and its commercial bank increased the
amount of the Company's credit facilities from $3.25 to $4.25 million (See
Note 6 of the Notes to Consolidated Financial Statements for details of
the credit facilities) pursuant to the terms of a certain Second Amendment to
Credit Agreement, amending the terms of a certain Credit Agreement dated as
of March 31, 1995 between the Company, its wholly owned subsidiary, Carolina
Metals, Inc. and State Street Bank and Trust Company (as so amended, the
"Credit Agreement"). The increase in the credit facility was to provide the
Company with additional working capital to support the growth in business.
During the fourth quarter the Company also sold an additional $350,000 of
subordinated debt, with warrants to purchase Common Stock, to certain
shareholders bringing the principal amount of such subordinated debt to
$850,000. This additional capital was provided to the Company in support of
growth in new product areas. (See Note 6 of the Notes to Consolidated
Financial Statements for details of the Credit Agreement and the subordinated
debt issued to certain of the Company's shareholders.)
The Company also has outstanding approximately $500,000 in principal amount
on industrial revenue bond indebtedness.
The Company did not declare any dividends during its last three fiscal
years. Given the Company's current cash flow situation, the Company does not
expect to pay dividends in the next fiscal year. Future cash dividends if
any, would be paid on an annual basis, the amount of which is subject to the
determination and approval of the Company's Board of Directors. The Company's
bank loan agreement also prohibits the declaration or payment of dividends
without bank consent.
The Company believes, based on assumptions concerning backlog fulfillment
and the expected timing of new orders, that its cash from operations together
with currently available credit facilities, will be sufficient to sustain
operations in 1997.
ENVIRONMENTAL REMEDIATION
The Company has been working with various regulatory bodies to formulate a
plan for the removal of materials contained in a holding basin at its site in
Concord, Massachusetts. The United States Army, in a Memorandum of Decision
dated September 13, 1996, determined pursuant to Public Law 85-804, that it
should fund remediation of the Concord holding basin site as well as costs
related to decommissioning and disposal with respect to the Concord facility,
based in part on the Army's determination that the Company's activities are
essential to the national defense. Based on the decision of the Army to fund
the remediation of the holding basin in the fourth quarter, the Company has
reversed its $3.4
14
<PAGE>
million reserve previously established to cover the Company's potential
obligation to remediate the basin. The Company believes that any cost of
remediation not funded by the army will not have a material impact on its
results of operations or financial position. (See Note 11 of the Notes to
Consolidated Financial Statements for further discussion.)
FISCAL 1995 COMPARED WITH FISCAL 1994
Net sales decreased by $220,000 or 1% in fiscal 1995. Sales in the Uranium
Services and Recycle industry segment increased by $217,000 or 5%. Sales in
the Specialty Metal Products industry segment increased by $4,818,000 or 66%.
Sales in the Depleted Uranium Penetrator industry segment decreased by
$5,255,000 or 75%.
The increase in the Uranium Services and Recycle industry segment was
mainly due to increases in remelt services. The increase in the Specialty
Metal Products industry segment was a result of increased sales of beryllium
products and commercial depleted uranium. The decrease in the Depleted
Uranium Penetrator industry segment was primarily due to lower large caliber
penetrator production sales.
Gross income (net sales and contract revenues less cost of sales)
increased by $5,918,000 to $3,332,000 or 18% of sales as compared to
$(2,586,000) or (14)% of sales for fiscal 1994. This increase in gross income
is primarily due to increased reserves taken in fiscal 1994 and the absence
in fiscal 1995 of losses on certain contracts which occurred during fiscal
1994.
Selling, general and administrative expenses increased by $608,000 to
$4,817,000. This increase was attributable to higher legal and audit costs
which were primarily associated with debt restructuring and a property sale.
As a percentage of sales, these expenses increased to 26% as compared to 22%
for the prior year.
Company-sponsored research and development expenses decreased by $136,000
to $439,000 for fiscal 1995. As a percentage of sales, these expenses were 2%
as compared to 3% in fiscal 1994.
Interest and other income, net, increased to $232,000 for the fiscal year
as compared to $120,000 for the prior year. This increase was mainly due to a
gain recognized during the second quarter of fiscal 1995 on the sale of an
office building.
Interest expense decreased by $200,000 to $350,000 as compared to fiscal
1994. This decrease was primarily the result of reductions in debt during
1995.
The Company realized a $585,000 extraordinary gain, net of taxes of
$10,000, on the early extinguishment of debt.
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS) 15
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,051,000 $ 1,076,000
Restricted cash 250,000 -
Marketable securities - 170,000
Accounts receivable, net of allowances for doubtful accounts
of $821,000 in 1996 and $883,000 in 1995 4,931,000 4,730,000
Inventories 12,025,000 17,468,000
Other current assets 376,000 343,000
----------- -----------
Total Current Assets 18,633,000 23,787,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 2,178,000 2,178,000
Buildings 18,040,000 18,250,000
Machinery, equipment, and fixtures 26,179,000 25,296,000
Construction-in-progress 583,000 42,000
----------- -----------
Total Property, Plant and Equipment 46,980,000 45,766,000
Less: Accumulated depreciation 31,834,000 30,479,000
----------- -----------
Net property, plant, and equipment 15,146,000 15,287,000
Other Assets 1,339,000 1,812,000
----------- -----------
$35,118,000 $40,886,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 510,000 $ 2,405,000
Accounts payable 2,143,000 2,465,000
Accrued payroll and related costs 1,170,000 682,000
Other accrued expenses 5,561,000 2,369,000
----------- -----------
Total Current Liabilities 9,384,000 7,921,000
----------- -----------
NOTES PAYABLE TO SHAREHOLDERS 850,000 -
----------- -----------
LONG-TERM OBLIGATIONS 644,000 2,075,000
----------- -----------
OTHER LONG-TERM LIABILITIES - 3,645,000
----------- -----------
COMMITMENTS & CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock, par value $.10; authorized - 6,000,000 shares;
issued and outstanding for 1996 and 1995;
2,390,964 shares and 2,387,964 shares, respectively 239,000 239,000
Additional paid-in capital 14,258,000 14,226,000
Retained earnings 9,743,000 12,780,000
----------- -----------
Total Stockholders' Equity 24,240,000 27,245,000
----------- -----------
$35,118,000 $40,886,000
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS. 16
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET SALES AND CONTRACT REVENUES $28,694,000 $18,784,000 $ 19,004,000
----------- ----------- ------------
COST AND EXPENSES:
Cost of sales 25,053,000 15,452,000 21,590,000
Selling, general, and administrative expenses 5,324,000 4,817,000 4,209,000
Research and development expenses 876,000 439,000 575,000
Loss on fixed asset writedown - - 3,584,000
----------- ----------- ------------
31,253,000 20,708,000 29,958,000
----------- ----------- ------------
OPERATING LOSS (2,560,000) (1,924,000) (10,954,000)
INTEREST AND OTHER INCOME (EXPENSE), NET (89,000) 232,000 120,000
INTEREST EXPENSE (387,000) (350,000) (550,000)
----------- ----------- ------------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM (3,036,000) (2,042,000) (11,384,000)
PROVISION (BENEFIT) FOR INCOME TAXES 1,000 (1,967,000) (1,188,000)
----------- ----------- ------------
LOSS BEFORE EXTRAORDINARY ITEM (3,037,000) (75,000) (10,196,000)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT NET OF
TAXES OF $10,000 - 585,000 -
----------- ----------- ------------
NET INCOME (LOSS) $(3,037,000) $ 510,000 $(10,196,000)
----------- ----------- ------------
----------- ----------- ------------
PER SHARE INFORMATION
- ---------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (1.27) (0.03) (4.43)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF
DEBT NET OF TAXES OF $10,000 - 0.25 -
----------- ----------- ------------
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT
SHARE $ (1.27) $ 0.22 $ (4.43)
----------- ----------- ------------
----------- ----------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 2,389,464 2,352,756 2,300,131
----------- ----------- ------------
----------- ----------- ------------
DIVIDENDS PER SHARE $ - $ - $ -
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS. 17
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------ Additional
Number Par Paid-in Retained
of Shares Value Capital Earnings
--------- ----- ------- --------
<S> <C> <C> <C> <C>
Balance at September 30, 1993 2,294,664 $ 229,000 $ 13,676,000 $ 22,466,000
--------- ------------- ------------ ------------
Stock Options Exercised 12,800 1,000 76,000 --
Net Loss for the Year -- -- -- (10,196,000)
--------- ------------- ------------ ------------
Balance at September 30, 1994 2,307,464 $ 230,000 $ 13,752,000 $ 12,270,000
--------- ------------- ------------ ------------
Stock Options Exercised 80,500 9,000 474,000 --
Net Income for the Year -- -- -- 510,000
--------- ------------- ------------ ------------
Balance at September 30, 1995 2,387,964 $ 239,000 $ 14,226,000 $ 12,780,000
--------- ------------- ------------ ------------
--------- ------------- ------------ ------------
Stock Options Exercised 3,000 -- 32,000
Net Loss for the Year 3,037,000
--------- ------------- ------------- ------------
Balance at September 30, 1996 2,390,964 $ 239,000 $ 14,258,000 $ 9,743,000
--------- ------------- ------------- ------------
--------- ------------- ------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,037,000) $ 510,000 $ (10,196,000)
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 1,493,000 1,339,000 2,874,000
Loss on fixed asset writedown -- -- 3,584,000
Changes in assets and liabilities, net-
Decrease (increase) in accounts receivable (201,000) 725,000 (2,205,000)
Decrease (increase) in income tax receivables -- -- 2,394,000
Decrease (increase) in inventories 2,099,000 (2,982,000) 1,150,000
(Decrease) increase in accounts
payable and accrued expenses 3,358,000 1,387,000 (993,000)
Gain on sale of building (75,000) (175,000)
Changes in accrued and deferred taxes -- (1,000) (1,286,000)
Changes in other long-term liabilities (301,000) (981,000) 2,439,000
Other 440,000 (100,000) 253,000
------------ ------------- ------------
Net cash provided (used) by operating activities 3,776,000 (278,000) (1,986,000)
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (1,449,000) (777,000) (709,000)
Sales of marketable securities, net 170,000 326,000 94,000
Proceeds from sale of Property, Plant & Equipment 172,000 487,000 --
------------ ------------- -----------
Net cash (used) provided by investing activities (1,107,000) 36,000 (615,000)
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations (4,856,000) (4,103,000) (4,127,000)
Proceeds from bank debt 2,380,000 3,725,000 --
Proceeds from Shareholder Notes 850,000 -- --
Proceeds from Stock issuance 32,000 483,000 77,000
------------ ------------- -----------
Net cash (used) provided by financing activities (2,444,000) 105,000 (4,050,000)
------------ ------------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: 225,000 (137,000) (6,651,000)
Cash and cash equivalents at beginning of year 1,076,000 1,213,000 7,864,000
------------ ------------- -------------
Cash and cash equivalents at end of year $ 1,301,000 $ 1,076,000 $ 1,213,000
------------ ------------- -------------
------------ ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest, net of amounts capitalized $ 345,000 $ 280,000 $ 680,000
Income tax refunds received $ 11,000 $ 978,000 $ --
NON-CASH INVESTING & FINANCING ACTIVITIES:
Capital lease obligations $ 75,000 $ -- $ --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE 19
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
The Company is a manufacturer of specialized metal products which are
fabricated by a variety of metalworking processes. Export sales to foreign
unaffiliated customers are 28% of total net sales and contract revenues in
fiscal 1996, 33% in fiscal 1995, and 37% in fiscal 1994. A significant
portion of the Company's sales revenue has been derived from major customers
as follows:
1996 1995 1994
Olin Corp 20% 8% 21%
Lockheed Martin 16 18 -
Cogema 14 19 20
Royal Ordnance 11 - 12
Lockheed Idaho Falls 4 9 6
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Nuclear Metals, Inc. and its wholly owned subsidiaries: NMI Foreign Sales
Corporation, NMI Holdings, Inc., a Massachusetts securities corporation, and
Carolina Metals, Inc. All material intercompany transactions and balances
have been eliminated in consolidation.
FISCAL YEARS
References in these financial statements to 1996, 1995, and 1994 are for
the fiscal years ended September 30, 1996, September 30, 1995, and September
30, 1994, respectively.
REVENUE RECOGNITION
Revenues are recorded when products are shipped, except for revenues on
long-term contracts which are recorded on the percentage-of-completion
method. The percentage-of-completion method is used for research and
development contracts and for production contracts which require significant
amounts of initial engineering and development costs. The
percentage-of-completion is determined by relating the actual number of
contract units completed or costs incurred to date to the total units to be
completed or total cost to be incurred under the respective contract. When
the estimated total cost on a contract indicates a loss, the Company's policy
is to record the entire loss currently. Performance incentives incorporated
in certain government contracts are recognized when incentives are earned or
awarded or when penalties are incurred or assessed. Contract revenues
include fees resulting from facilitization contracts with the U. S. Army
(contracts to establish production capacity through the purchase and
installation of equipment to be owned by the U.S. Army). Costs associated
with these contracts, exclusive of the costs to purchase the equipment ($0 in
1996, $0 in 1995 and $380,000 in 1994) are included in cost of sales. The
consolidated balance sheets do not include the cost of this U.S. Army-owned
equipment.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are recorded at cost which approximates market
value. Cash equivalents include certificates of deposit with a maturity of
three months or less.
20
<PAGE>
MARKETABLE SECURITIES
Marketable securities are recorded at cost which approximates market
value. Marketable securities include certificates of deposit purchased with
a maturity greater than three months.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and include materials, labor, and manufacturing and engineering
overhead.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at the lower of cost or net
realizable value. For financial reporting purposes, the Company provides
depreciation on the straight-line method over the estimated useful lives of
the assets, which are as follows:
Buildings 20 - 30 years
Machinery, equipment, and fixtures 3 - 10 years
Maintenance and repairs are charged to operations as incurred; renewals
and betterment's are capitalized. When property, plant, and equipment are
sold, retired or entirely written down, the asset cost and accumulated
depreciation are removed from the accounts, and the resulting gain or loss is
included in operations.
During the fourth quarter of 1994, the Company recorded a loss on fixed
asset writedown in the Depleted Uranium Segment of $3,584,000 consisting
principally of a provision to adjust the carrying values of idle and
underperforming fixed assets to estimated net realizable values. The provision
was based on a periodic review of fixed assets and a determination that there
has been a permanent decline in the value of assets due to declines in defense
spending and the pricing necessary to compete effectively for such contracts.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." This statement requires a reveiw for
impairment for long-lived assets and certain identifiable intangibles to be
held and used by an entity whether events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. An
impairment loss would be recognized if the sum of the expected future cash
flows to result from the use and eventual disposition of the asset is less
than the carrying amount of the asset. The amount by which the carrying
amount of the asset exceeds the fair value less costs to sell, is an
impairment loss to be recognized. This statement applies to fiscal years
beginning after December 15, 1995. The effects of adopting this statement on
the Company's financial position and results of operations are not known at
this time.
In the fourth quarter of fiscal 1996 the Company established a $2,100,000
reserve for estimated fiscal 1997 losses associated with CMI's current
production contracts. The Company is obligated to complete these contracts,
which are fixed price. The Company continues to pursue alternate production
contracts and believes that significant orders eventually will be received
for work at the CMI facility. In the event that the prospects for greater
utilization of the CMI facility do not improve, the Company will reevaluate
the carrying value of its CMI facility during fiscal 1997, which could result
in a writedown of plant assets.
INCOME TAXES
The Company provides for income taxes in each year's consolidated
statements of operations regardless of the year in which the transactions are
reported for tax purposes to recognize the tax effects of all events.
The deferred federal and state income taxes result primarily from using
accelerated depreciation on property, plant, and equipment for income tax
21
<PAGE>
reporting purposes and from establishing reserves which are not currently
deductible for income tax purposes, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are related only to Company-sponsored
research and development and include direct costs and an allocation of overhead.
RECLASSIFICATIONS
Certain amounts previously reported in the consolidated financial
statements have been reclassified to conform with the 1996 presentation.
NEW ACCOUNTING STANDARDS
In October 1995, the FASB issued SFAS No.123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which is effective for fiscal years beginning after December 15,
1995. The Company has determined that it will continue to account for
employee stock-based compensation under Accounting Principals Board No. 25
and elect the disclosure-only alternative under SFAS No. 123. The Company
will be required to disclose pro forma net income and loss per share amounts
in the notes to the financial statements using the fair-value-based method
beginning in the fiscal year ending September 30, 1997.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and cash
equivalents, restricted cash, marketable securities, accounts receivable,
notes receivable from officers, accounts payable and notes payable. The
carrying amounts of the Company's cash and equivalents, restricted cash,
accounts receivable, notes receivable from officers and accounts payable
approximate their fair value due to the short-term nature of these
instruments. The carrying value of the notes payable also approximate the
fair value, based on rates available to the Company for debt with similar
terms and remaining maturities.
3. OTHER ACCRUED EXPENSES
Accrued expenses consist of the following at September 30, 1996 and 1995
1996 1995
--------------- ---------------
Waste burial cost $ 2,884,000 $ 1,727,000
Estimated loss on contracts 2,100,000
Other 577,000 642,000
--------------- ---------------
$ 5,561,000 $ 2,369,000
--------------- ---------------
--------------- ---------------
4. ACCOUNTS RECEIVABLE
The following is an analysis of accounts receivable (net of allowances
for doubtful accounts):
1996 1995
--------------- ---------------
Accounts receivable $ 3,479,000 $ 4,449,000
Unbilled Receivables and Retainages due
upon completion of contracts 1,452,000 281,000
--------------- ---------------
$ 4,931,000 $ 4,730,000
--------------- ---------------
--------------- ---------------
5. INVENTORIES
Inventories (net of reserves) at September 30, 1996, and September 30,
1995, were as follows:
1996 1995
--------------- ---------------
Work-in-process $ 8,697,000 $ 13,942,000
Raw materials 2,620,000 2,794,000
Spare parts 708,000 732,000
--------------- ---------------
$ 12,025,000 $ 17,468,000
--------------- ---------------
--------------- ---------------
22
<PAGE>
As of September 30, 1996, approximately $8.0 million, net of reserves, of
the Company's inventory consists of Depleted Uranium (DU) in various stages of
production. This amount consists of both value-added costs to government owned
material, ($4.1 million), which is used for U.S. Military contracts and for
material which the Company has acquired from other sources, ($3.9 million).
During fiscal 1995 the U.S. Army notified the Company that the Army would
provide the DU for production for the most recent penetrator contract.
Management strongly believes that the Army is responsible to compensate the
Company for the value-added costs of this material and that at a minimum the
Army would allow the Company to use this material for non U.S. military
contracts at no additional cost to the Company. Management is pursuing several
Department of Energy programs that would require more DU over the next several
years than the Company currently has on hand. Management believes that the
carrying cost of the inventory on hand will be fully realizable through these
possible programs or from its ongoing usage for U.S. and foreign military
procurements, however it is uncertain how much of the inventory balance will be
utilized in fiscal 1997. During fiscal 1996, the Company provided additional
reserves for inventory of approximately $3.3 million.
6. LONG-TERM OBLIGATIONS AND NOTES PAYABLE
Long-term obligations and notes payable of the Company at September 30,
1996, and September 30, 1995, are as follows:
1996 1995
------------- -------------
Term Credit, interest rate of prime plus 0.5%
due in monthly principal payments though 1996 $ 133,000 $ 1,733,000
Line of Credit, interest rate of prime plus 0.5% - 1,000,000
Demand Line of Credit, interest rate of prime
plus 1.5% - 925,000
Industrial Development Revenue Bonds, variable
interest rates (5.5% - 5.8% at September 30,
1996) due in quarterly principal payments
through 2000 492,000 822,000
Debentures payable to shareholders, interest only
payments of 10% until maturity 850,000 -
Note Payable, monthly interest and principal
payments for 18 months, interest rate of
10.25% 457,000 -
Capital Leases 72,000 -
------------- -------------
$ 2,004,000 $ 4,480,000
Less Current portion of long-term obligations 510,000 2,405,000
------------- -------------
$ 1,494,000 $ 2,075,000
------------- -------------
------------- -------------
On December 24, 1996 the Company and its commercial bank increased the
amount of the Company's credit facilities from $3.25 million to $4.25
million, with a maturity date of February 28, 1998, pursuant to the terms of
a certain Second Amendment to Credit Agreement, amending the terms of a
certain Credit Agreement dated as of March 31, 1995 between the Company, its
wholly owned subsidiary, Carolina Metals, Inc. and State Street Bank and
Trust Company (as amended, the "Credit Agreement"). The $4.25 million
consists of $2.25 million of letters of credit and $2.0 million credit line
for working capital. Borrowings under the Credit Agreement bear interest at
the prime rate plus 1/2 of 1%. The Company also pays a fee of 1/2 of 1% on the
unused portion of the credit facilities. As of
NOTES TO CONSOLIDATED FINACIAL STATEMENTS, CONTINUED. 23
<PAGE>
September 30, 1996 no amounts were outstanding under the line of credit.
The Company did have $2.25 million of letters of credit outstanding. As of
September 30, 1996, the Company was not in compliance with certain financial
covenants contained in the Credit Agreement. The Company's lender has waived
non-compliance with the Credit Agreement as of September 30, 1996 and
modified certain covenants contained therein pending agreement upon revised
covenants. The Company and the lender have agreed to revise the covenants in
the Credit Agreement consistent with the Company's business plans such that
the Company's anticipated performance will allow it to remain in compliance
at such time as the Company has prepared the business plan and the lender has
reviewed it.
The Company's Line of Credit Demand Note (the Note) (Balance of
$925,000 as of September 30, 1995) was due by January 15, 1996. This
Note, which was negotiated in September 1995, was intended to provide the
Company working capital until the receipt of proceeds from the sale of
specific penetrator blanks to a certain customer. This Note was secured by
a number of patents held by the Company. In consideration for providing this
facility, the Company issued the lender a warrant to purchase 25,000 shares
of the Company's common stock at $11.89 per share which was the approximate
market value of the Company's common stock at the time the warrants were
issued. These warrants expire in 2005. The holder of the warrant has the
option to exercise a portion of the warrant in a cashless transaction by
surrendering the remaining portion of the warrant as defined.
On January 11, 1996, the Company reached an agreement with its lender to
amend certain terms of its debt, including the waiver of past violations of
debt covenants, extension of certain debt maturity dates and the revision of
certain financial covenants. The agreement required the Company to make a
payment of $500,000 of the Demand Line of Credit Note on January 12, 1996,
the funds of which were received from certain shareholders in exchange for
notes payable of $500,000 due June 1997. The notes payable to the
shareholders are payable interest only (in cash or common stock) semi-annually
until their maturity date at a rate of 10% convertible into shares of the
Company's common stock at $11.89 per share and are subordinate to the debt of
the Company. In consideration for providing this amendment, the Company paid
a fee to the lender in the amount of $150,000.
On July 2, 1996 the Company paid all amounts due under the Demand Line of
Credit and that agreement was then terminated.
On January 10, 1996, the Company issued $500,000 in principal amount
of its 10% Convertible Subordinated Debentures, the principal amount of which
is convertible at the option of the holder into shares of the Company's
Common Stock at the rate of $11.89 per share. The original maturity date of
these Debentures, June 10, 1997, has been extended by the holders pursuant to
certain letter agreements until December 10, 1998. These Debentures were
issued to persons who are significant shareholders of the Company or related
to such persons.
On September 16, 1996 the Company issued an additional $350,000 in
principal amount pursuant to its 10% Subordinated Debentures due December 10,
1998 which were issued to certain significant shareholders of the Company.
In consideration for the Debentures, the holders were issued three-year
warrants to purchase an aggregate of 21,000 shares of common stock at an
exercise price of $15.00 per share, subject to antidilution adjustments.
During fiscal 1995, the Company restructured its long-term debt, the
principal balance of $3,532,000 outstanding on the 10.05% Note was settled at
a discount. Accordingly, the Company recorded an extaordinary gain on
extinguishment of debt of $585,000 net of taxes of $10,000 in the
accompanying statement of operations as a result of this transaction.
The Industrial Revenue Bonds, (the "IRBs") outstanding consists of two
note issues. The interest rates on these notes range from 66.5% to 70% of the
lenders bank's prime interest rate. These notes are secured by property,
plant and equipment.
The IRBs contain restrictive
24
<PAGE>
covenants including, among others, a requirement to maintain minimum working
capital, consolidated net worth and a minimum current ratio. As of September
30, 1996, the Company was not in compliance with certain of these financial
covenants. The Company has received a letter from the trustee representing
the IRB holders which indicates it has not accelerated, and has no intention
to accelerate, payments pursuant to the IRBs.
Maturities of long term obligations subsequent to September 30, 1996 are:
1997 - $510,000, 1998 - $1,040,000; 1999 - $199,000; 2000 - $151,000;
thereafter $69,000.
7. INCOME TAXES
The provision (benefit) for income taxes differs from the amount computed
by applying the statutory federal income tax rate due to the following:
1996 1995 1994
Statutory rate (34.0) % (34.0) % (34.0) %
Increase (reduction) in taxes resulting from:
State taxes, net of federal effect (6.0) (6.0) (6.3)
Valuation allowance 40.0 (2.0) 29.6
Tax reserves no longer required - (48.0) -
Other - (6.0) -
---------- ---------- ---------
- % (96.0)% (10.4) %
---------- ---------- ---------
---------- ---------- ---------
As of September 1996, the Company has a federal net operating loss
carryforward of approximately $6 million of which $3.2 million expires in
2009, $1.7 million expires in 2010, $1.1 million expires in 2011, and State
net operating loss carryforwards of approximately $15.1 million which expire
between 1998 through 2008. These net operating loss carryforwards are fully
reserved by valuation allowances due to the uncertainty regarding their
realizability.
The components of the provision (benefit) for income taxes are as follows:
1996 1995 1994
Current (Benefit) Provision:
Federal $ (363,000) $ (766,000) $ (1,757,000)
State (112,000) (135,000) (543,000)
Valuation allowance 475,000 901,000 2,300,000
------------ ------------- --------------
Total current (Benefit)
Provision $ - $ - $ -
------------ -------------- --------------
------------ -------------- --------------
Deferred (Benefit) Provision:
Federal $ (592,000) $ (1,819,000) $ (1,738,000)
State (183,000) (148,000) (537,000)
Valuation Allowance 776,000 - 1,087,000
------------ -------------- --------------
Total deferred (Benefit)
Provision: 1,000 (1,967,000) (1,188,000)
------------ -------------- --------------
Total (Benefit) Provision: $ 1,000 (1,967,000) (1,188,000)
------------ -------------- --------------
------------ -------------- --------------
NOTES TO CONSOLIDATED FINACIAL STATEMENTS, CONTINUED. 25
<PAGE>
During 1995 the Company received $978,000 of Federal income tax refunds.
As of September 30, 1994, the Company had established a full valuation
allowance for this amount. Accordingly, the Company reduced it's valuation
allowance by $978,000 upon receipt of this amount.
The Company has provided a full valuation allowance on the net deferred
tax assets as of September 30, 1996, and 1995. The Company's alternative
minimum tax credit has an unlimited life. The tax effects of significant
items making up the deferred tax liabilities and deferred tax assets, as of the
end of the 1996 and 1995 fiscal years are as follows:
1996 1995
Assets:
Reserves not currently deductible for
tax purpose $ 2,475,000 $ 2,331,000
Accrued employee health benefits 38,000 382,000
Federal operating loss carryforward 1,850,000 1,843,000
State operating loss carryforwards
and other assets 1,438,000 1,374,000
Other 1,867,000 345,000
Valuation allowance (4,653,000) (3,738,000)
-------------- --------------
Total deferred tax assets 3,015,000 2,537,000
Alternative minimum tax credit 407,000 407,000
-------------- ---------------
$ 3,422,000 $ 2,944,000
-------------- ---------------
-------------- ---------------
Liabilities:
Fixed asset basis difference $ 2,549,000 $ 2,229,000
Employee benefits 715,000 715,000
Other 158,000 -
-------------- ---------------
$ 3,422,000 $ 2,944,000
-------------- ---------------
-------------- ---------------
8. STOCK OPTIONS AND WARRANTS
A total of 247,900 shares of common stock have been reserved for issuance
upon exercise of options issued or issuable pursuant to the Company's stock
option plans for employees and directors. The exercise price of options
issued or issuable under such plans may not be less than 100% of the fair
market value of the shares purchasable on the date of grant of the options.
Information concerning options which have been granted under the plans and
the exercise prices thereof is set forth below. Those options with an
indicated exercise price of $6.63 expire in 2003, those with an exercise
price of $13.50, $14.00, or $16.00 expire in 2004, and those with an
excersize price of 12.25 expire in 2005, in each case on the anniversary of
the date of grant.
Common shares under option are presented:
Number Option Price
of Shares per Share
Options outstanding as of September 30, 1994 98,900 6.00-16.00
Exercised (80,500) 6.00
Granted 25,300 13.50-14.00
Canceled (5,200) 6.00-6.50
----------- ---------------
Options outstanding as of September 30, 1995 38,500 $ 6.63-16.00
----------- ---------------
Exercised (3,000) 10.5
Granted 71,000 12.25
Canceled (1,000) 6.63
----------- ---------------
Options outstanding as of September 30, 1996 105,500 $ 6.63-16.00
----------- ---------------
----------- ---------------
26
<PAGE>
In consideration of entering into a credit agreement with its lender the
Company issued the lender a warrant to purchase 25,000 shares of the
Company's common stock for $11.89 per share, which was the approximate
market value of the Company's common stock at the date of the transaction.
These warrants expire in 2005. The holder of the warrant has the option to
exercise a portion of the warrant in a cashless transaction by surrendering
the remaining portion of the warrant as defined.
In consideration of the purchase of its 10% Subordinated Debentures due
December 10, 1998, the Company issued the holders of the Debentures
three-year warrants to purchase 21,000 shares of common stock for $15.00 per
share, which was the approximate market value of the Company's common stock
at the date of the transactions. The holder of the warrant has the option to
exercise a portion of the warrant in a cashless transaction by surrendering
the remaining portion of the warrant as defined.
9. PENSION PLAN
The Company has a defined benefit pension plan designed to provide
retirement benefits to all employees. This plan provides pension benefits
that are based on the employee's salary and years of service. The Company's
policy is to fund the plan at a level within the range required by applicable
regulations.
The Company's net pension cost for 1996, 1995, and 1994 was $281,000,
$165,000, and $269,000, respectively. During 1996, the Company used the
weighted average discount rate of 8.0%. Net pension cost for the Company's
defined benefit plan included the following components:
<TABLE>
1996 1995 1994
<S> <S> <S> <S>
Service cost - benefits earned during the period $ 183,000 $ 155,000 $ 206,000
Interest cost on projected benefit obligation 1,022,000 954,000 936,000
Actual return on plan assets (932,000) (985,000) (414,000)
Net amortization and deferral 8,000 41,000 (459,000)
---------------- --------------- --------------
Net pension cost $ 281,000 $ 165,000 $ 269,000
---------------- --------------- --------------
---------------- --------------- --------------
Assumptions used in determining the plan's funded status:
Discount rate 8.0% 8.0% 8.0%
Expected rate on increase in compensation levels 5.5% 5.5% 5.5%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
</TABLE>
The following table sets forth the plan's funded status as of September
30, 1996, September 30, 1995, and September 30, 1994
1996 1995 1994
Vested benefit obligation $ (11,869,000) $ (11,245,000) $ (11,013,000)
Accumulated benefit obligation $ (11,884,000) $ (11,249,000) $ (11,061,000)
Projected benefit obligation $ (13,654,000) $ (12,661,000) $ (12,364,000)
Plan assets at fair value 12,517,000 12,274,000 11,981,000
Funded status (1,137,000) (387,000) (383,000)
Unrecognized prior service
costs 98,000 121,000 125,000
Unrecognized net loss 2,392,000 1,885,000 2,042,000
-------------- -------------- --------------
Prepaid pension cost $ 1,353,000 $ 1,619,000 $ 1,784,000
-------------- -------------- --------------
-------------- -------------- --------------
Plan assets are invested under the provision of a trust agreement with a
bank in common trust funds.
NOTES TO CONSOLIDATED FINACIAL STATEMENTS, CONTINUED. 27
<PAGE>
10. POSTRETIREMENT BENEFITS
The Company provides employees who retired from the Company prior to
January 1, 1993, with at least ten years of service and are under the age of
65, with Group Health Insurance on a cost-sharing basis. Coverage for an
employee's spouse or dependents will also continue under this plan until the
employee has reached age 65 at which time, the coverage ceases. In addition,
the Company provides the same employees who are at least 62 years of age with
life insurance equal to their ending annual salary up to a maximum of $50,000.
For employees who retire after January 1, 1993, the postretirement
benefits do not include health insurance. In addition, the life insurance
benefit, up to a maximum of $50,000, is provided for one year after
retirement.
The accumulated benefit obligation of these benefits as of October 1,
1996, is approximately $758,000 ($15,000 for medical insurance and $743,000
for life insurance). Plan assets of $401,000 in cash reserves are on hand
with an insurance company to partially cover the cost of the life insurance
benefits. The Company adopted the new standard prospectively as of October 1,
1993, and is amortizing the transition obligation of $456,000, over three
years for the medical insurance benefits and fifteen years for the life
insurance benefits.
Postretirement benefit expense for fiscal 1996, 1995, and 1994 is
$71,000, $96,000, and $104,000 respectively. The components of the expense
are as follows:
Service cost of benefits earned $ 1,000
Interest cost on liability 58,000
Return on plan assets (12,000)
Amortization of transition obligation 24,000
----------------
Net postretirement benefit cost $ 71,000
----------------
----------------
THE FOLLOWING TABLE SETS FORTH THE BENEFIT PLAN'S
FUNDED STATUS AS OF OCTOBER 1, 1996:
--------------------------------------------------
Accumulated Post Retirement Benefit obligation $ (758,000)
Plan Asset at Fair Value 401,000
---------------
Funded Status $ (357,000)
Transition obligation 266,000
---------------
Accrued Post-Retirement Benefit Cost $ (91,000)
---------------
---------------
THE FOLLOWING ACTUARIAL ASSUMPTIONS WERE USED:
----------------------------------------------
Salary increase 5.5 %
Discount rate 8 %
Return on Assets 3 %
Medical Inflation 4-9 %
28
11. COMMITMENTS AND CONTINGENCIES
EXPANSION
The Company is expanding its facilities by adding new equipment. The
Company anticipates that this will require capital expenditures totaling
approximately $1,000,000 during fiscal 1997.
WASTE DISPOSAL
In the process of manufacturing depleted uranium products, the Company
generates low-level radioactive waste (LLRW) that must be disposed of at
sites licensed by federal, state, and local governments. At present, there
is one licensed commercial repository in the United States available for use
by the Company. Management is of the opinion that an extended period of
storage can be accommodated within existing buildings and in an
environmentally safe manner acceptable to all regulatory agencies until such
time as an acceptable site is identified.
HOLDING BASIN FACILITY
For a number of years, ending in 1985, the Company disposed of
manufacturing-related depleted uranium waste and the associated spent acid and
other residual materials by neutralizing with lime and discharging the
neutralized mixture to a holding basin on its premises in Concord,
Massachusetts. In 1986 the holding basin was covered with hypalon, an
impervious material used to prevent rain and surface run-off water from
leaching through the holding basin. The Company now uses a proprietary "closed
loop" process that it developed to discontinue such discharges. The Company
believes that both practices were and are in compliance with all applicable
regulations.
The Commonwealth of Massachusetts, Department of Environmental Protection
("DEP"), has designated the Concord site, including the holding basin, as a
"priority" remediation site. The Company in conjunction with it's environmental
consultants and the DEP has developed a comprehensive site evaluation and risk
assessment plan. This plan originally scheduled to be completed during
calendar year 1995, has been delayed from a modification to the plan to
include public comment. This will require additional work during 1997.
The Company believes that the results of these studies and any future
remediation work required beyond the holding basin removal scheduled for 1997,
should not have an adverse material effect on the Company's results of
operations and financial position.
The Company is required to maintain certain licenses issued by the
United States Nuclear Regulatory Commission ("NRC") and the South Carolina
Department of Health and Environmental Control(DHEC) in order to possess and
process depleted uranium materials at its facilities in Massachusetts and
South Carolina, respectively. Under applicable licensing regulations
pertaining to decommissioning and disposal of certain hazardous materials
("D&D") at licensed sites, the Company submitted to the NRC a Decommissioning
Funding
29
<PAGE>
Plan ("DFP") to provide for possible future decommissioning of its Concord
Facility, at an estimated cost of $11.7 million. (This revised estimate is
approximately $2 million lower than the original estimate because of lower
than expected costs of decontamination resulting from utilization of the
Company's expanded capabilities for metal melt at its CMI facility.) The
Company is also required to provide financial assurance for such
decommissioning pursuant to applicable regulations. The Company has also
recently submitted to DHEC a DFP for the possible future decommissioning of
its CMI facility, at an estimated cost of $2.8 million and is also required
to provide financial assurances for decommissioning this facility.
Substantially all of the depleted uranium materials to which the DFP
requirements apply were processed by the Company for the United States
Government. Based on the terms of certain contracts that the Company entered
into with the United States Government to process such depleted uranium
materials, the Company believes that such materials continue to be owned by the
United States Government and that the United States Government is obligated,
under applicable law, to pay for its percentage of eventual D&D. The Company's
DFP's reflect its position that it is obligated to provide financial assurance
only with respect to the portion of the materials which are attributable to the
Company's commercial production for parties other than the United States
Government and that this obligation has been satisfied by a letter of credit
which have been issued by the Company's bank and restricted cash held in trust
by the Company's bank support the Company's D&D obligations for each of its two
facilities.
The Company had requested partial exemption from the NRC for the
regulatory D&D financial assurances requirements as they pertain to
Government owned materials. By letter dated July 16, 1996, the NRC's
Division of Nuclear Materials Safety (Region I) (the "Division") denied the
Company's request for partial exemption from certain aspects of the D&D
financial assurances and directed that, within 60 days of the Division's
letter, the Company provide satisfactory financial assurances from either the
Company or Government sources. In its letter, the Division indicated that it
will accept, as a satisfactory assurance, a Statement of Intent ("SOI") in
compliance with 10 CFR 40.36(e)(4) from the United States Army or another
Government agency to the effect that such agency intends to fund any costs
for which the Company has not directly provided financial assurances, subject
to public appropriation of required funds. In its letter, the Division
indicated that failure to meet the NRC's requirements by September 14, 1996,
could result in enforcement action, possibly in the form of a civil penalty,
or by license modification, suspension or revocation. Such an action could
have the practical effect of preventing the Company from fulfilling its
obligations to a substantial portion of its customer base and, accordingly,
could have a material and adverse impact on the Company's results of
operations and financial position.
The United States Army, in a memorandum of Decision dated September 13,
1996, determined pursuant to Public Law 85-804, that it should fund
remediation of the Concord holding basin site as well as D&D related to the
Concord facility, based in part on the Army's determination that the Company's
activities are essential to the national defense. The Army's Memorandum of
Decision contained certain limits on funding of the holding basin remediation
based upon the Company's current estimates of future costs, which are subject
to change based upon a number of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED. 30
<PAGE>
factors, such as the timing of the actual remediation and actual costs at the
time of completion of the remediation. The Company remains comfortable with
its current estimates with respect to remediation of the Concord site
assuming remediation as planned. In addition, the remediation of the holding
basin is subject to the usual government appropriation process. As a result
of this decision the Company has determined that the $3.4 million reserve for
the holding basin that had previously been established to cover the Company's
obligation to remediate the basin is no longer required and reversed the
reserve in the fourth quarter of fiscal 1996. D&D costs for the Concord
facility are to be awarded to the Company as part of ongoing contracts, but
the Army has provided written assurances (also subject to funding
appropriations) of its intention to provide funding for D&D costs at the
Concord facility under future contracts or, in the event that no future
contracts were awarded (which the Army has indicated is unlikely in view of
its current plans), under an existing contract. The actual remediation will
proceed pursuant to a modification of an existing government contract, the
terms of which have not yet been determined but will presumably be consistent
with the Memorandum of Decision.
The Company believes that the Memorandum of Decision, together with
correspondence from the Army clarifying its intent with respect to the same,
should satisfy the NRC with respect to the sufficiency of the Company's DFP for
the D&D requirements, although the NRC has not responded or taken action to
allow renewal of the Company's license. DHEC has not yet responded with
respect to the DFP which the Company has submitted with respect to its South
Carolina facility. The Company believes that, in the event that DHEC
requires assurances from the Army with respect to what the Company believes
is the Army's share of the estimated potential cost of D&D at the CMI facility,
the United States Army will respond in a manner which is consistent with the
Memorandum of Decision regarding the Concord site. The Company believes that
its proportionate share of D&D costs for its CMI facility are adequately
covered by the existing letter of credit which is currently in place to
assure it D&D obligations.
The Company has no assurances that the Army will accept responsibility for
its share of the estimated cost of D&D at CMI but it is currently the sole
source to the US Army of certain products which are investment cast with the
Company's patented beryllium aluminum alloy and which are vital to certain Army
programs. The Company also believes that its capabilities with respect to the
conversion of UF6 gas to depleted uranium metal stock make it strategically
important to any future depleted uranium production which may be required for
US Army DU pentrators and tank armor (although current inventories appear
sufficient to supply announced procurement needs). The Company believes that
its production capabilities may also be used to serve several Department of
Energy needs for remediation of certain other environment hazards posed by the
process of Nuclear power generation. for these reasons, the Company believes
that the interests of the United States Government would be best served by the
Company's continued operation under its current NRC and DHEC licenses, but
there can be no assurance that the various Governmental agencies which
regulate NMI will permit the Company's continued operation under its licenses.
31
<PAGE>
LEGAL PROCEEDINGS
The Company is involved with various legal actions. Management believes
that the final disposition of these actions will not have a material effect on
the Company's results of operations or financial position.
12. TRANSACTIONS WITH RELATED PARTIES
Under the terms of a management agreement, Matthews Associates Limited is
entitled to an annual management fee. George J. Matthews, Chairman of the
Board of Directors, is sole owner of Matthews Associates Limited. These fees,
as well as certain expenses of Matthews Associates Limited that were
reimbursed by the Company, have been included in selling, general, and
administrative expenses. Management fees were $350,000 in 1996, 1995, and
1994. Mr. Matthews does not receive any other salary or fee for services as
Chairman of the Board of Directors. (See other related party transactions in
Note 6 and 8)
13. MAINTENANCE AND REPAIRS
Maintenance and repair expenditures, which are charged to cost and expense
as incurred, amounted to $1,092,000 in 1996, $854,000 in 1995, and $1,029,000
in 1994.
14. INDUSTRY SEGMENT INFORMATION
The Company is engaged in the manufacture and sale of various specialty
metal products. The Company operates in three industry segments: Uranium
Services and Recycle, Specialty Metal Products, and Depleted Uranium
Penetrators. Information relating to the Company's operations for the
industry segments described above for each of the three years in the period
ended September 30 is as follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Net Sales and Contract Revenues:
Uranium Services & Recycle $ 6,189,000 $ 4,969,000 $ 4,752,000
Specialty Metal Products 13,730,000 12,102,000 7,284,000
Depleted Uranium Penetrators 8,775,000 1,713,000 6,968,000
------------- ------------- -------------
Total $ 28,694,000 $ 18,784,000 $ 19,004,000
------------- ------------- -------------
------------- ------------- -------------
Operating Income (Loss):
Uranium Services & Recycle $ (2,700,000) $ (996,000) $ (5,409,000)
Specialty Metal Products 1,432,000 (341,000) (162,000)
Depleted Uranium Penetrators (942,000) (237,000) (5,033,000)
-------------- -------------- --------------
Subtotal (2,210,000) (1,574,000) (10,604,000)
General Corporate Expenses 350,000 350,000 350,000
--------------- -------------- -------------
Net Operating Loss (2,560,000) (1,924,000) (10,954,000)
--------------- -------------- -------------
Other Expense, Net 476,000 118,000 430,000
--------------- -------------- -------------
Loss Before Taxes $ (3,036,000) $ (2,042,000) $(11,384,000)
--------------- -------------- -------------
--------------- -------------- -------------
Identifiable Assets:
Uranium Services & Recycle $ 13,749,000 $ 16,609,000 $ 16,772,000
Specialty Metal Products 6,195,000 5,140,000 5,646,000
Depleted Uranium Penetrators 8,441,000 12,158,000 9,863,000
Corporate 6,733,000 6,979,000 8,261,000
--------------- -------------- ------------
Total $ 35,118,000 $ 40,886,000 $ 40,542,000
--------------- -------------- ------------
--------------- -------------- ------------
Depreciation and Amortization Expenses:
Uranium Services & Recycle $ 430,000 $ 404,000 $ 843,000
Specialty Metal Products 291,000 251,000 421,000
Deleted Uranium Penetrators 519,000 443,000 1,252,000
Corporate 254,000 241,000 358,000
--------------- -------------- ------------
Total $ 1,494,000 $ 1,339,000 $ 2,874,000
--------------- -------------- ------------
--------------- -------------- ------------
Capital Expenditures:
Uranium Services & Recycle $ 379,000 $ 325,000 $ 68,000
Specialty Metal Products 436,000 85,000 315,000
Depleted Uranium Penetrators 77,000 6,000 65,000
Corporate 557,000 361,000 261,000
--------------- -------------- -----------
Total $ 1,449,000 $ 777,000 709,000
--------------- -------------- -----------
--------------- -------------- -----------
</TABLE>
NOTES TO CONSOLIDATED FINACIAL STATEMENTS, CONTINUED. 32
<PAGE>
The Uranium Services and Recycle segment includes the manufacture of
depleted uranium products (non-penetrator) and the recycle of low level
radioactive metal. The Specialty Metal Products segment includes a large
assortment of metal products fabricated using foundry, extrusion, and machining
capabilities and involves the production and sale of various metal powders
manufactured by the Company's patented Rotating Electrode Process. Operations
in the Depleted Uranium Penetrator industry segment include the production of
various penetrators (a component of armor-piercing ammunition used in certain
U.S. military gun systems) which are sold to a department of the U.S.
Department of Defense (DOD), to prime contractors manufacturing such ammunition
for the DOD or to foreign military operations. Revenues derived from contract
research and development activities have been included in the above segments
based on the nature of the product.
Net sales and contract revenues by industry segment include sales to
unaffiliated customers (intersegment sales are not significant). A significant
portion of the Company's revenues has been derived from five major customers
(see Note 2) sales to Cogema are included in the Uranium Services & Recycle
industry segment. Sales to Lockheed Martin and Lockheed Idaho Falls are
included in the Specialty Metal Products industry segment. Sales to Olin
Corporation and Royal Ordnance are included in the Penetrator industry segment.
Due to the utilization among segments of common production facilities and
equipment and the involvement of a single management organization in all phases
of the Company's operations, necessary allocations have been made based on
estimates which management believes to be reasonable.
Operating loss and profit includes net sales and contract revenues less
operating expenses allocated to the individual segments. General corporate
expenses represent expenses which are not of an operating nature and,
therefore, are not allocable to industry segments.
Identifiable assets shown include accounts receivable, inventory, and
plant and equipment that have been allocated to each of the Company's industry
segments. Corporate assets consist primarily of cash, certificates of deposit,
and other assets.
33
<PAGE>
15. QUARTERLY RESULTS (UNAUDITED)
Financial results (in thousands, except per share amounts) by quarter
for 1996, 1995, and 1994 are summarized below:
<TABLE>
<S> <C> <C> <C> <C>
First Second Third Fourth
Quarter Quarter Quarter Quarter
1996
Net Sales $ 6,671 $ 10,021 $ 6,434 $ 5,568
Operating Income (Loss) 198 287 523 (3,568)
Net Income (Loss) 109 238 249 (3,633)
Net Income (Loss) per share 0.05 0.10 0.10 (1.52)
1995
Net Sales $ 5,626 $ 4,213 $ 3,753 $ 5,191
Operating Income (Loss) 220 (1,355) 45 (834)
Income (Loss) before extraordinary item 121 (300) 39 65
Extraordinary gain on extinguishment of debt - 585 - -
Net Income 121 285 39 65
Per share amounts:
Income (Loss) before extraordinary item 0.05 (0.13) 0.02 0.03
Extraordinary gain on extinguishment of debt - 0.25 - -
Net Income per share 0.05 0.12 0.02 0.03
1994
Net Sales $ 4,300 $ 4,506 $ 5,527 $ 4,671
Operating Income (Loss) (1,118) 142 (2,183) (7,795)
Net Income (Loss) (808) 24 (2,031) (7,381)
Net Income (Loss) per share (0.35) 0.01 (0.88) (3.21)
</TABLE>
34
<PAGE>
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF NUCLEAR METALS, INC.:
We have audited the accompanying consolidated balance sheets of NUCLEAR
METALS, INC. (a Massachusetts corporation) and subsidiaries as of September 30,
1996 and 1995 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Nuclear Metals,
Inc. and subsidiaries as of September 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended September 30, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 20, 1996
(EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 6 AS TO WHICH THE
DATE IS DECEMBER 24, 1996)
35
<PAGE>
COMMON STOCK INFORMATION
The Company's common stock is traded on the NADSDAQ Market under the
symbol NUCM. As reported by a principal market maker for the stock, the high
and low bid prices for the three years ended September 30 are reflected in the
following table. This information reflects inter-dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual transactions.
As of September 30, 1996, there were approximately 298 holders of record
of the Company's Common Stock. The Company believes the actual number of
beneficial owners of the Company's Common Stock is greater because a large
number of shares are held in custodial or nominee accounts.
The Company did not declare any dividends during its last two fiscal
years. Given the Company's current cash flow situation, the Company does not
expect to pay dividends in the next year. Future cash dividends, if any, would
by paid on an annual basis, the amount of which is subject to the determination
and approval of the Company's Board of Directors. The Company's loan agreement
with a bank prohibits the declaration of dividends without the bank's consent.
HEADQUARTERS
2229 Main Street, Concord, Massachusetts 01742
CAROLINA METALS, INC.
Highway 80, Barnwell, South Carolina 29812
TRANSFER AGENT AND REGISTRAR
State Street Bank & Trust Co.
225 Franklin Street, Boston, Massachusetts 02110
AUDITORS
Arthur Andersen LLP
One International Place, Boston, Massachusetts 02110
ANNUAL MEETING
The annual meeting of stockholders will be held on March 26, 1997 at 10:00 A.M.
at the offices of State Street Bank & Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101.
FORM 10-K
The Form 10-K Annual Report to the Securities and Exchange Commission will be
provided without charge to shareholders on written request. Requests should be
directed to the Vice President, Finance, Nuclear Metals, Inc. 2229 Main Street,
Concord, Massachusetts 01742.
1996 High Low
1st Quarter 14 10 1/2
2nd Quarter 21 11
3rd Quarter 18 1/2 13 1/2
4th Quarter 18 3/4 12
1995 High Low
1st Quarter 18 13 1/4
2nd Quarter 16 3/4 11 1/2
3rd Quarter 14 1/2 11 1/2
4th Quarter 14 1/4 11
1994 High Low
1st Quarter 10 3/4 6 1/8
2nd Quarter 13 10 1/8
3rd Quarter 20 11 3/4
4th Quarter 21 14
CORPORATE DIRECTORY
- -------------------
Board of Directors
George J. Matthews, Chairman, Wilson B. Tuffin, Vice Chairman Robert E.
Quinn, President, Frank H. Brenton, Chairman Marshall's Incorporated,
Retired, Kenneth A. Smith, Professor of Chemical Engineering Massachusetts
Institute of Technology
EXECUTIVE OFFICERS AND CORPORATE STAFF
George J. Matthews, Chairman of the Board of Directors, Wilson B. Tuffin, Vice
Chairman of the Board of Directors, Robert E. Quinn, President, Douglas F.
Grotheer, Vice President, Engineering, William T. Nachtrab, Vice President,
Technology, James M. Spiezio, Vice President, Finance and Administration,
Frank J. Vumbaco, Vice President, Health/Safety and Corporate Communications,
Bruce E. Zukauskas, Vice President, Operations, Thomas A. Wooters, Clerk,
Rebecca L. Perry, Controller
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated November 20, 1996 (except with respect to the matters
discussed in Note 6 as to which the date is December 24, 1996) included in this
Form 10-K into the Company's previously filed Registration Statement
File No. 33-36812 on Form S-8.
Boston, Massachusetts Arthur Andersen LLP
December 27, 1996
51
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,301,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 821,000
<INVENTORY> 12,025,000
<CURRENT-ASSETS> 18,633,000
<PP&E> 46,980,000
<DEPRECIATION> 31,834,000
<TOTAL-ASSETS> 35,118,000
<CURRENT-LIABILITIES> 9,384,000
<BONDS> 0
0
0
<COMMON> 239,000
<OTHER-SE> 24,001,000
<TOTAL-LIABILITY-AND-EQUITY> 35,118,000
<SALES> 28,694,000
<TOTAL-REVENUES> 28,694,000
<CGS> 25,053,000
<TOTAL-COSTS> 31,253,000
<OTHER-EXPENSES> (89,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 387,000
<INCOME-PRETAX> (3,036,000)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,037,000)
<EPS-PRIMARY> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
<PAGE>
EXHIBIT 99
DEPARTMENT OF THE ARMY
OFFICE OF THE ASSISTANT SECRETARY
RESEARCH DEVELOPMENT AND ACQUISITION
Septemher 13, 1996
ARMY CONTRACT ADJUSTMENT BOARD
MEMORANDUM OF DECISION
Public Law 85-804 Application of
Nuclear Metals, Inc. ACAB No. 1244
Nuclear Metals, Inc., 2229 Main Street, Concord, Massachusetts (NMI or
company), requested extraordinary relief under Public Law 85-804, as implemented
in Part 50 of the Federal Acquisition Regulation (FAR). NMI's request was
processed through the U.S. Army Tank-Automative and Armaments Command, Armament
Research, Development and Engineering Center, Picatinny Arsenal, New Jersey,
(Picatinny), and through the U.S. Army Material Command, Alexandria, Virginia
(AMC), with both headquarters recommending that the Army Contract Adjustment
Board (ACAB or Board) grant the requested relief.
After reviewing NMI's written request for extraordinary relief, additional
matters submitted subsequent to NMI's initial application, and the
recommendations of both Picatinny and AMC, the Board has determined that
extraordinary contractual relief is warranted under the unique circumstances of
this request.
STATEMENT OF FACTS
In 1958 NMI moved its low-level radioactive metal processing operations to
Concord, Massachusetts, from the campus of the Massachusetts Institute of
Technology, where NMI and predecessor entities had engaged for many years in a
variety of nuclear research programs, to include work on the Manhattan Project.
NMI established a licensed and permitted holding basin on its Concord site as a
place where it could neutralize with lime the spent acid used in some of NMI's
metal processing operations. This neutralization process precipitated uranium
and copper into the holding basin in the form of hydrated oxides and hydroxides.
Relatively small quantities of these deposits slowly accumulated in the basin
until 1974.
NMI, a small business, began producing significant quantities of depleted
uranium (DU) penetrators to support defense ammunition programs in 1974. With
this increased production, which supported Army, Navy, Air Force, and Marine
Corps requirements, the volume of uranium precipitates in the holding basin also
began to grow rapidly. Although NMI's holding basin remained in compliance with
applicable laws, the large volume of
<PAGE>
- 2 -
precipitates accumulating in the basin, the adoption of increasingly
restrictive environmental laws at both the federal and state levels, and
advancements in uranium recovery technologies prompted NMI in 1965 to adopt a
closed-loop DU recovery process, eliminating further need for the holding
basin. In 1986 NMI covered the holding basin with an impervious material to
prevent water infiltration and the escape of airborne particles.
By the mid-1980s, both NMI and the Army had become concerned about the
need to clean up the holding basin to meet tightening federal and
Massachusetts environmental standards. The Army paid for complete and proper
disposal of new wastes produced under its ongoing contracts during the 1980s
and into the 1990s, but NMI and the Army could not agree on how the cleanup
of old waste produced under completed contracts should be handled, because
most of these contracts already were closed out.(1) By 1993, only on contract
under which waste in the basin had been produced remained open. However, the
work under that cost-type contract, DAAK10-81-C-0323, had produced only about
2.7% of all holding basin deposits.(2) Consequently, because most of the
waste in the basin was not produced under that single open contract, the cost
of cleaning up the entire basin could not be allocated to contract
DAAK10-81-C-0323.
During the early 1990s, the uncertain liability that the holding basin
represented to NMI became a point of contention between NMI and the Nuclear
Regulatory Commission (NRC). The NRC licenses NMI to handle the low-level
radioactive materials used in NMI's industrial operations at its Concord
site. One of the prerequisites for the issuance or renewal of an NRC license
is the furnishing of financial assurances that the licensee will be able to
bear the decontamination and decommissioning costs associated with eventual
closure of its facilities. Specifically, 10 C.F.R. Section 40.36 requires a
licensee to submit a decommissioning funding plan,(3) together with a cost
estimate for the decommissioning effort and a description of the method the
licensee will use to ensure that funds are available in an amount equal to
that estimated cost.(4) Additionally, an NRC licensee must provide the
required financial assurances through a means acceptable to the NRC, such as
through prepayment, a surety,
- ------------------------
(1)The Army suggested that NMI bill basin cleanup costs against an
appropriate overhead pool or corporate general and administrative accounts,
but NMI declined to do so to avoid making its prices less competitive for
ongoing work.
(2)Of the total amount of waste in the holding basin, NMI estimates that
96% is attributable to work done under defense contracts. The remaining 4% is
attributable to commercial work and independent NMI research efforts.
(3)10 C. F. R. Section 40.36(a).
(4)10 C. F. R. Section 40.36(d).
<PAGE>
- 3 -
insurance, or an external sinking fund coupled with a surety or insurance.(5)
As environmental standards become more strict in the 1980s and early
1990s, the NRC began demanding more substantial financial assurances from NMI
than it previously had required. NMI sought to meet these demands through
commitments from various Army organizations that the Army would pay some or
all of NMI's decontamination costs, but the Army refused to enter into such
an open-ended commitment at a privately-owned site.
Concurrently, NMI's sales declined dramatically in the early 1990s due
to decreased defense ammunition requirements and fewer Army contracts and
subcontracts for DU penetrators. This decline in sales cut NMI's revenues by
more than half in the early 1990s, leaving NMI with operating losses
exceeding $10 million per year in both 1993 and 1994. NMI's weakened
financial condition forced it to request a partial exemption from the NRC's
financial assurance requirement in 1995.
As its DU sales declined dramatically in the early 1990s, NMI sought to
diversify its product line of specialty metals. One of the new products that
NMI introduced was Beralcast-TM-, a patented beryllium-aluminum product that is
both lighter and stronger than aluminum, and capable of being cast into complex
shapes. One important new customer of this NMI product is the Lockhead Martin
Electronics and Missiles Company (Lockhead Martin), which currently uses NMI
Beralcast-TM- for fifty-two components in the electro-optics system that
Lockhead Martin is developing for the Comanche helicopter program. According to
the Army's Comanche Program Manager (PM Comanche), Beralcast -TM- is the only
known material capable of meeting critical Comanche weight requirements without
the Comanche program incurring additional costs in the range of $300 million,
and schedule delays of eighteen to twenty-four months. These additional costs
and schedule delays would be needed for PM Comanche to accomplish the redesign
of key components and/or research and develop alternate materials.
After a number of meetings and exchanges of correspondence between NMI, the
Army, and the NRC in the early and mid-1990s, NMI received an official response
to its request for a partial exemption from the NRC's financial assurance
requirement on July 16, 1996. The NRC denied NMI's request, and directed NMI to
provide the financial assurances
- ------------------------
(5)10 C. F. R. Section 40.36(e). NRC regulations also permit a federal,
state, or municipal government licensee to meet the NRC's financial
assurances requirement through a statement of intent to obtain funds for
decontamination and decommissioning when necessary. 10 C. F. R. Section
40.36(e)(4). Although this provision is not strictly applicable to NMI's
privately-owned site, the NRC has allowed private licensees in past cases to
meet the financial assurance requirement through government commitments to
clean up private sites when they are decommissioned. Because the
responsibility for cleanup at NMI's site lies principally with NMI, however,
and because the total cleanup liability at NMI's Concord site is uncertain,
the Army has not provided NMI such an open-ended commitment.
<PAGE>
- 4 -
mandated by 10 C. F. R. Section 40.36 not later than September 16, 1996.
After the date, NMI faces the potential shutdown of its Concord facility.
APPLICATION FOR RELIEF
NMI initially submitted its request for relief on September 22, 1995,
and later certified its request on March 15, 1996. NMI requested $4,549,785
to pay the costs of removing low-level radioactive wastes from its holding
basin, and of restoring the site. NMI also requested the Army to furnish
government-provided transportation and disposal of the extracted waste
(estimated to cost $2.1 million), for an estimated total cost to the Army of
$6.65 million.(6) NMI based its request on: NMI's essentiality to the
national defense as a producer of DU products and beryllium-aluminum
castings;(7) and, the interest of fairness,(8) because NMI did not include
disposal costs for the waste in the holding basin in NMI's prices under past
Army contracts, which benefited the Army through lower prices.
In conjunction with reviewing NMI's application for relief, Picatinny asked
the Defense Contract Audit Agency (DCAA) to audit NMI's Public Law 85-804
request. Among its other findings, DCAA concluded that a denial of NMI's
application for extraordinary relief would result in a high probability of NMI's
financial insolvency. Based on this conclusion and the recommendation of PH
Comanche, both Picatinny and AMC recommended that the ACAB grant NMI the
requested relief.
DISCUSSION
NMI requests Public Law 85-804 relief under the provisions of FAR 50.302-1,
"Amendments Without Consideration." Paragraph (a) provides that:
When an actual or threatened loss under a defense contract, however
caused, will impair the productive ability of a contractor whose
continued performance on any defense contract or whose continued
operation as a source of supply is found to be essential to the
national defense, the contract may be amended without consideration,
but only to the extent necessary to avoid such impairment to the
contractor's productive ability.
- ------------------------
(6)Transportation and disposal of the waste by the Army is anticipated to
be considerably less expensive than the cost to NMI of procuring these
services commercial rates and passing these costs on to the Army.
(7)FAR 50.302-1(a).
(8)FAR 50.302-1(b).
<PAGE>
- 5 -
The circumstances of NMI's request for relief do not meet precisely the
situation contemplated in the provision at FAR 50.302-1(a), because NMI is not
asking for relief based on an actual or threatened loss under a particular
defense contract. Instead, NMI faces an environmental liability related to its
research, development, and production efforts under many different defense
contracts, nearly all of which are now the parties under those contracts no
longer exist (except under a single contract relevant to only a small portion of
the deposits in the holding basin), and NMI is not at risk of a loss under a
single contract as described in FAR 50.302-1(a), NMI nevertheless faces a
significant financial liability that threatens its ability to perform future
defense contracts. It is the future viability of an essential defense
contractor that FAR 50.302-1(a) seeks to protect, not merely the prevention of a
loss to an essential contractor under a single contract.
The description in FAR 50.302-1(a) of when relief to a contractor deemed
essential to the national defense may be appropriate is more narrowly drafted
than required by Public Law 85-804. FAR 50.301 more broadly describes the
circumstances under which an agency may grant relief to a contractor when it is
essential to the national defense. FAR 50.301 states:
Whether appropriate action will facilitate the national defense is a
judgment to be made on the basis of all of the facts of the case.
Although it is impossible to predict or enumerate all the types of
cases in which action may be appropriate, examples are included in
50.302 below. Even if all of the factors in any of the examples are
present, other considerations may warrant denying a contractor's
request for contract adjustment. The examples are not intended to
exclude other cases in which the approving authority determines that
the circumstances warrant action.
Thus, the fact that NMI's holding basin liability does not represent a
possible loss under an existing contract does not preclude the ACAB from
granting relief to preserve NMI's continued viability as an essential Army
contractor.
After reviewing the facts and circumstances surrounding NMI's request for
extraordinary relief, the Board is satisfied that NMI is a contractor essential
to the national defense. The Comanche helicopter is critically important to the
Army in facing its future missions. PM Comanche unequivocally states that NMI's
Beralcast-TM- products are vitally important to the Comanche program, and PM
Comanche adequately describes the significant and adverse cost and schedule
consequences that the program would suffer if NMI were no longer available as a
supplier. With no other material or supplier reasonably available to the Army
to substitute for NMI's Beralcast-TM- in its Comanche applications, NMI is
clearly a contractor essential to the Army in performing its national defense
missions.(9)
- ------------------------
(9)NMI also claims in its application for extraordinary contractual relief
that it produces other products that also make it essential to the national
defense. These products include tank
<PAGE>
- 6 -
The Board is also satisfied that granting the relief sought in NMI's
Public Law 85-804 request is essential to preserving NMI as a viable defense
contractor. As a small business that has borne significant losses in each of
the last three years,(10) NMI lacks the financial capability to undertake the
cleanup of its holding basin while still meeting its other financial and
environmental obligations.(11) Without the relief requested, a chain of events
may be initiated that likely would result in a loss or suspension of NMI's
NRC license, a loss of its lines of credit from its lenders, and ultimately
insolvency and/or bankruptcy for the company. Because DCAA concluded in its
audit report that failure to grant NMI's request for relief would result in a
high probability that NMI will become insolvent, thereby threatening NMI's
continued availability as a supplier of essential defense products, the Board
concludes that granting relief up to the amount NMI requested is appropriate
under the circumstances of this application.
NMI also requests extraordinary contractual relief in the interest of
fairness, based on its course of dealings with the Army over many years. NMI
contends that the prices it charged the Army from 1958 to 1985 did not
reflect the full cost of NMI's performance, because basin cleanup costs were
not included in those prices, even though basin cleanup costs could properly
have been billed against the Army contracts during this period. NMI thus
alleges that the Army benefited by this undercharging, and that the Army
should accordingly now pay for the basin cleanup. NMI does not explain,
however, how the Army induced NMI not to include basin clean up costs in its
prices.(12) Instead, the Army actually encouraged NMI to begin cleaning up the
basin and to charge cleanup costs as overhead
- ------------------------
armor, tank ammunition, other ammunition employing DU penetrators, and
Beralcast-TM- Patriot missile components. The ACAB does not reach the
question of whether NMI is a contractor essential to the national defense in
its production of these other items, because NMI's status as an essential
supplier to PM Comanche makes resolution of the question of its essentiality
to these other programs unnecessary.
(10)NMI reported operating losses in its corporate annual report of $10.5
million in 1993, nearly $11 million in 1994, and nearly $2 million in 1995.
(11)In addition to the holding basin, NMI also must assess its
responsibility for other contamination at its Concord site, and begin cleanup
operations or reserve funds to clean up these areas at some future time as
required by law. These obligations, which NMI will recognize as operating
expenses as they are incurred, present NMI with significant financial
challenges even with the assistance NMI seeks under Public Law 85-804.
(12)FAR 50.302-1(b) requires some government action to be associated with a
contractor's loss for that loss to be the basis for extraordinary relief.
<PAGE>
- 7 -
against ongoing work. NMI also contends that various contract clauses have
committed the Army to pay cleanup costs at its site, and that Army
representatives have expressed some degree of responsibility for basin
cleanup costs in the past. The Board is not convinced, however, that any
contract ever committed the Army to pay more than the allocable share of site
cleanup costs under any particular contract, and the Board cannot reconcile
NMI's agreement to close out past contracts with its current assertion that
the Army retains cleanup responsibility for work done under those contracts.
Nevertheless, given the Board's determination that NMI is a contractor
essential to the national defense, the Board does not need to resolve whether
NMI also may be entitled to relief in the interest of fairness. The board
considers this issue moot given its disposition of NMI's application for
extraordinary relief.
The Board has been cognizant during its consideration of NMI's
application for relief under Public Law 85-804 that NMI faces a September 16,
1996, deadline with the NRC for the submission of satisfactory financial
assurances. But for this regulatory dilemma that NMI faces with the NRC, in
addition to NMI's weakened financial condition after three consecutive years
of losses, the Board would be included to allow resolution of the
environmental problems at NMI's site through more traditional mechanisms.
NMI could, for instance, bill cleanup costs against overhead or general and
administrative accounts, or pursue contract or environmental litigation to
definitively resolve the relative legal responsibilities of the parties under
the terms of past contracts and applicable environmental laws. However, the
Board finds that these means of resolving the current dilemma are
inadequate(13) to ensure that NMI remains a reliable supplier of essential
defense products. Therefore, it is appropriate for the Board to act on NMI's
request without the delay associated with the normal pursuit of traditional
relief mechanisms.
DECISION
By unanimous decision of the ACAB, an amendment without consideration is
hereby authorized under FAR 50.301 and FAR 50.302-1. The Board concludes
that NMI's continued performance under its existing defense contracts, and
NMI's continued availability as a source of critical supplies, is essential
to the national defense within the intent of FAR 50.302-1. This relief is
subject to the following conditions.
a. Picatinny is authorized and directed to enter into negotiations
for a supplemental agreement with NMI under an appropriate existing contract,
agreeing that the Army will pay an amount not to exceed $4,549,785, on a
fixed-price, no-profit basis, for NMI to clean up the holding basin at its
Concord facility. This amount is subject to
- ------------------------
(13)The Board's ability to grant relief is limited by FAR 50.203(b)(2),
which states that no Public Law 85-804 relief is available "[u]nless other
legal authority within the agency concerned is deemed to be lacking or
inadequate[.]"
<PAGE>
- 8 -
downward negotiation only, with negotiations addressing, in addition to the
matters below, the questioned costs identified in DCAA's audit report and
other relevant pricing matters. Picatinny may only conclude this agreement
after proper finding is obtained in accordance with paragraph b. below. In
performing this effort, if NMI's costs for cleaning up the holding basin
exceed the negotiated price of this supplemental agreement, NMI will treat
the excess costs in accordance with paragraph d. below.
b. The funds committed to support this supplemental agreement will be
appropriate defense ammunition funds. No funds will be obligated under this
supplemental agreement until they are properly identified and certified as
available. Picatinny will coordinate with higher headquarters to identify
appropriate funds for this effort as expeditiously as possible.
c. The supplemental agreement also will obligate the Army to provide
transportation and disposal of the waste removed from NMI's holding basin. The
volume of waste that the Army is obligated to remove will be identified in the
supplemental agreement, and the Army will have no further removal or disposal
obligation after this volume is removed. Picatinny will coordinate with the
Radioactive Waste Disposal Office at Rock Island to obtain the support needed to
meet this commitment. Certified funds of the same type identified in paragraph
b. above also will support this transportation and disposal effort.
d. As a condition of this supplemental agreement, NMI will agree to
complete necessary environmental assessments at its site within a reasonable
period, and to submit a site remediation plan approved by the NRC (or other
governmental entity performing the NRC's current oversight role) to the
contracting officer by a date to be designated in the supplemental agreement.
(1) Cleanup of areas not supporting current production at NMI's
Concord site, in addition to the holding basin work addressed in paragraphs a.,
b., and c. above, and pursuant to the plan identified above, will proceed at a
reasonable pace to ensure compliance with applicable environmental standards.
These additional site assessment, planning, and cleanup costs will be billed by
NMI against appropriate overhead and/or general and administrative pools as
normal operating expenses, and not against the contract line item(s) established
by this supplemental agreement for holding basin cleanup. Excess holding basin
cleanup costs, if any which exceed the amount negotiated pursuant to paragraph
a. above, also will be charged in a manner consistent with the costs discussed
in this paragraph against appropriate NMI overhead and/or general and
administrative cost pools.
(2) In addition, normal waste processing and cleanup efforts
associated with future work at NMI's Concord site to be performed under current
and future contracts will be billed as appropriate against those contracts; such
efforts are not affected by this supplemental agreement.
<PAGE>
- 9 -
(3) NMI will provide for the long-term decontamination and
decommissioning of facilities and equipment supporting current production in
accordance with 10 C.F.R. Section 40.36.
e. As a further condition of this supplemental agreement, NMI will
execute a release in conjunction with this supplemental agreement waiving and
holding the Army harmless from any contract or environmental claims related to
existing contamination and waste at NMI's Concord site. This release may except
from its coverage the Army's responsibility for eventual decontamination and
disposal of government-furnished equipment that NMI maintains under its
facilities contract with the U.S. Army Industrial Operations Command, Rock
Island, Illinois. This release will not prohibit NMI's normal billing for its
ongoing incurrence of assessment, cleanup, and decontamination costs in
accordance with paragraph d.(2) above.
In addition to ensuring that the above conditions are met, Picatinny is
authorized to incorporate into the implementing supplemental agreement with NMI
such additional terms and conditions as Picatinny believes are reasonably
necessary to protect the Army's interests.
The action authorized by this decision will facilitate the national defense
consistent with the intent of Public Law 85-804.
Kenneth J. Oscar
Chairman
Army Contract Adjustment Board
