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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997
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
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STARMET CORPORATION
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(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)
(978) 369-5410
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(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:
15,000,000 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
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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 $27,324,328 as of December 18, 1997.
As of December 18, 1997, there were issued and outstanding 4,786,344 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, 1997 (Items 5,6,7,8 and 14)
(2) Registrant's proxy statement for the annual meeting of shareholders to be
held on March 18, 1998 (Items 10, 11,12 and 13)
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STARMET CORPORATION
Securities and Exchange Commission
<TABLE>
<CAPTION>
Item Numbers and Description PAGE
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PART I
ITEM 1. Business......................................................................................... 3
ITEM 2. Properties....................................................................................... 17
ITEM 3. Legal Proceedings................................................................................ 18
ITEM 4. Submission of Matters to a Vote of Security Holders............................................... 18
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................... 19
ITEM 6. Selected Financial Data........................................................................... 19
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 19
ITEM 8. Financial Statements and Supplementary Data....................................................... 19
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 19
PART III
ITEM 10. Directors and Executive Officers of the Registrant............................................... 20
ITEM 11. Executive Compensation........................................................................... 20
ITEM 12. Security Ownership of Certain Beneficial Owners and Management................................... 20
ITEM 13. Certain Relationships and Related Transactions................................................... 20
PART IV
ITEM 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K................................... 20
SIGNATURES................................................................................................ 26
INDEX TO AUDITORS REPORT AND FINANCIAL STATEMENT SCHEDULE................................................. 27
</TABLE>
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 18, 1996 was $21.50. 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.
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PART I
ITEM 1. BUSINESS
GENERAL
Starmet Corporation (the "Company" or "Starmet"), formerly known as Nuclear
Metals Inc., changed its name on October 1, 1997. The Company also reorganized,
forming four new wholly-owned subsidiaries, effective for fiscal year 1998. The
new subsidiaries are: Starmet NMI Corporation, Starmet Powders, LLC, Starmet
Comcast, LLC and Starmet Aerocast, LLC. Additionally, Carolina Metals Inc., the
Company's wholly-owned subsidiary in Barnwell, South Carolina, has been renamed
Starmet CMI, Inc. The Company's new NASDAQ stock trading symbol is STMT.
Unless the context otherwise requires, references to the Company herein are
intended to refer to the Company and its subsidiaries.
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.
As of September 30, 1997 the Company had 235 employees.
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INDUSTRY SEGMENT FINANCIAL INFORMATION
The following table sets forth certain information regarding the revenue,
operating profit (loss) and identifiable assets attributable to the three
industry segments in which the Company operates.
<TABLE>
<CAPTION>
YEAR ENDED
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SEPT. 30, SEPT. 30, SEPT. 30,
1997 1996 1995
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<S> <C> <C> <C>
(IN THOUSANDS)
Net Sales and Contract Revenues:
Uranium Services & Recycle................................................. $ 4,965 $ 6,189 $ 4,969
Specialty Metal Products................................................... 13,170 13,730 12,102
Depleted Uranium Penetrators............................................... 9,927 8,775 1,713
Operating Profit(Loss):
Uranium Services & Recycle................................................ $ 1,195 $ (2,700) $ (996)
Specialty Metal Products.................................................. 391 1,432 (341)
Depleted Uranium Penetrators.............................................. 575 (942) (237)
Identifiable Assets:
Uranium Services & Recycle................................................ $ 12,846 $ 13,749 $ 16,609
Specialty Metal Products.................................................. 8,199 6,195 5,140
Depleted Uranium Penetrators.............................................. 7,691 8,441 12,158
</TABLE>
See Note 14 of Notes to Consolidated Financial Statements.
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The Company has no foreign operations. The Company has export sales,
which accounted for 25% of net sales for the fiscal year ended September 30,
1997. In the prior two fiscal years, 1996 and 1995, export sales were 28% and
33%, respectively.
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INDUSTRY SEGMENTS
The following is a general description of the Company's three business
segments. For additional information concerning developments in these
business segments during fiscal 1997, reference is made to the Company's 1997
Annual Report, which is incorporated herein by reference and is included as
Exhibit 13.
URANIUM SERVICES & RECYCLE
The Company's Uranium Services and Recycle business segment has the
technical capabilities and facilities to manufacture depleted uranium metal,
convert a chemical, uranium hexaflouride (UF6) to uranium tetrafluoride
(UF4), recycle various low-level radioactive metals, produce DUCRETE-TM-
shielding, repair depleted uranium and tungsten counterweights for military
and commercial aircraft, and supply depleted and natural uranium alloy
material for use in United States Enrichment Company's (USEC) Atomic Vapor
Laser Isotope Separation (AVLIS) program. The sales and marketing team
supporting the Uranium Services and Recycle business segment has been
significantly expanded during 1997 from one local office at Starmet CMI
located in Barnwell, SC to additional sales offices in Oak Ridge, TN, Idaho
Fall, ID, Aiken, SC, Washington, DC, and Concord, MA.
Recycle of Low-Level Radioactive Metals
The Company demonstrated the technical feasibility and economic soundness of
recycling radioactively contaminated steel into storage drums and boxes for
containment of various radioactive wastes at Department of Energy (DoE) sites.
The DoE facilities have millions of tons of radioactively contaminated 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
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 using a unique spray casting technique
in partnership with a foreign company.
During fiscal 1997, the Company continued its teaming arrangement with
ALARON Corporation in Cayce, SC offering services to remelt slightly
contaminated steel at the Company's Starmet CMI location. The resultant metal is
used in shielding applications
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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.
The Company competes in this market with Scientific Ecology Group and
British Nuclear Fuels Limited.
Production of DUCRETE-TM-
The Company has licensed the exclusive commercial production rights for a
DOE patented process known as DUCRETE-TM- shielding. DUCRETE-TM- shielding
was developed by the Idaho National Engineering Laboratory as a potential
shielding for spent fuel and high level radioactive waste casks. Starmet
Corporation has exclusive rights to market this technology in the commercial
sector. DUCRETE-TM- consists of uranium oxide aggregate combined with
concrete to form a stable and economical shielding for spent fuel and other
high level radioactive waste products. The Company is actively pursuing a
contract with the DoE for conversion of its 55,000 metric tons of Uranium
Hexaflouride into DU aggregate for DUCRETE shielding production. Spent fuel
containers produced from DUCRETE-TM- will offer the advantages of portability
and being 3-5 times more effective than standard concrete. DUCRETE shielding
has the added advantage of being rail transportable, and, therefore,
re-useable, unlike conventional concrete, which must be disposed of when
spent fuel is moved to alternative repositories. Pilot facilities were
installed during 1997 to convert DU oxides into high density DUCRETE-TM-
shielding aggregate.
Supply of Depleted Uranium Alloy
The Company supplies DU and Natural Uranium (NU) alloy material to USEC
for use as AVLIS feed material. AVLIS is expected to replace the current
gaseous diffusion process for separating the fissionable isotope, U(235),
from natural uranium within the next ten years. The Company currently is
performing conversion services for USEC, in converting Depleted Uranium
Hexaflouride (UF(6)) to Uranium feed materials for the AVLIS prove-out
program. 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 feed material. However, other companies are
expected to compete for future business.
Refurbishment of Counterweights
DU is used in production of commercial shielding and counterweight products
requiring the unique properties of DU which include density and ease of
fabrication. Starmet NMI and Starmet CMI are the only FAA approved facilities in
the United States to repair DU aircraft counterweights. The Company refurbishes
DU counterweights for essentially all of commercial and domestic carriers flying
wide body, i.e. DC-10, L-1011, and Boeing 747 aircraft, and has begun work on
military aircraft as well. The Company also has the capability to produce
counterweights. The Company competes primarily for business in North America
with Cameco of Canada.
Significant Customers
United States Enrichment Corporation (USEC) is a significant customer of the
Uranium Services & Recycle segment. In fiscal 1997, sales to USEC accounted for
14% of net sales. If USEC were lost as a customer, this would have a material
adverse effect on the Company.
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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--General
Beralcast -Registered Trademark- is the Company's patented investment
cast beryllium aluminum alloy, an engineering material designed for use in
electronic and secondary structural applications for a variety of aerospace,
avionics and commercial applications. Cost and weight pressures on today's
design engineers demand a transition to lightweight, strong, and high
stiffness materials such as Beralcast -Registered Trademark-. This alloy
offers 3 1/2 times the stiffness of aluminum with 22 percent less weight and
is investment castable to net and near net shapes.
The Company's patents on the alloy compositions for Beralcast -registered
trademark- materials have approximately 15 years remaining and certain
process details are trade secrets. Prototypes of a variety of aerospace
components have been produced and the Company also has produced volume
quantities of battery cases and navigational components for satellites. Sales
of Beralcast -Registered Trademark- products at present are made directly to
manufacturers of assemblies and systems. However, the Company is seeking
partnering arrangements to enable manufacturing and distribution through
sites other than its Concord, MA facility. The Company's Beralcast
- -Registered Trademark- sales and marketing organization has been expanded
greatly during 1997 through establishment of sales offices in Concord, MA,
Wilmington, MA, Los Angeles, CA, San Jose, CA, Ft. Walton Beach, FL,
Washington, DC, and Canton, CT, and sales representatives in Europe and Japan.
The Company competes with Brush Wellman Inc. in the production of beryllium
products. Beryllium alloys also compete with less expensive materials such as
stainless steel and other alloys.
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Beryllium Products--Defense Applications
High performance defense applications for Beralcast -Registered
Trademark- include: the Comanche (Advanced Attack Helicopter), the F-22
(Advanced Tactical Fighter), the PAC-3 (updated Patriot missile), the French
Rafael (Advanced Fighter Aircraft), and a number of other advanced design
programs. Lockheed Martin's Apache helicopter work is expected to include
upgrades to the night vision system. This system, referred to as "B-Kit", is
part of the advanced system being used on the Comanche program. All
components are distributed directly to customers who generally are prime
Government contractors. Beralcast -Registered Trademark- investment castings
compete directly with aluminum A356 aerospace materials, magnesium, and
aluminum silicon composites. Other competing materials are titanium and
stainless steel. Use of Beralcast -Registered Trademark- depends largely on
the customer's weight, stiffness, and vibration damping needs, in combination
with a willingness to pay a premium for the materials performance benefits.
Lockheed Martin Corporation will use some 58 Beralcast -Registered
Trademark- components for its Electro Optic Sensor System (EOSS), the night
vision system and target acquisition system on the Comanche helicopter, the
Army's most advanced reconnaissance helicopter. This material has the highest
priority for provision of Comanche program funding and is in the high growth
stage of its development as a product.
Beryllium Products--Commercial
Advanced commercial products are brought to the market much faster than
aerospace and Government products, i.e. 1-2 years instead of 5-10 years. All
of the Company's current products are sold to OEM's and are distributed
through its Concord, Massachusetts facility. The Company believes that there
are additional commercial applications for this unique and patented material
within the commercial marketplace where a modest cost premium over aluminum
can yield significant improvements in end product performance. The Company has
produced prototype quantities of golf club heads and disc drive armatures.
The Company also produces seamless beryllium tubes for satellite
applications. The Company can produce extruded Beralcast -Registered Trademark-
tubing for satellites, intended to supplant expensive graphite composites. The
Company's extrusion technology has been demonstrated successfully in the recent
manufacture of tubing struts for the Comanche EOSS.
Sources of Beryllium
Because the Company is able to use relatively low grade beryllium as
input metal, the Company has more than one source of beryllium (Be) input
material. Foreign sources of supply have adequate inventories to support the
Company's production needs for at least three years. Longer term, the
Company's strategic objective to become self-sufficient, producing its own
low cost Be using new conversion technologies.
Advanced Metal Products and Services
Since the early 1960's, the Company has produced bi-metallic transition
joints for joining titanium fuel tanks to stainless steel plumbing in
satellites. These joints are made by a proprietary co-extrusion process
resulting in a bond stronger than the parent metals of the joint. Other
bi-metallic bonding processes compete with our co-extruded products in markets
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where bond integrity is not as critical, i.e. cryogenic systems for
refrigerants. This business segment also produces powder metallurgy bearing
steel which is used by customers to fabricate fuel linkage bearings in jet
engines. The Company is a sole source supplier of this product which is in a
declining market, however, sales of this product are not material to the
success of the business unit. The Company also provides extrusion services to
various superconductor and research firms using the Company's 1400 ton, 300
ton, and 100 ton extrusion presses. Generally, local companies take advantage
of the Company's extrusion services. All of the foregoing products and
services are provided directly to a large base of Original Equipment
Manufacturers (OEM's) and there is no dependency on a single customer. Raw
materials for these products and services are readily available in the metals
industry requiring no special processing or long lead times.
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 Company supports its Powders business unit with a
sales office in Concord, Massachusetts, and a representative in Japan.
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 Company is in the process of seeking strategic
alliances to assist the Company in moving ahead with its plans to produce not
only metal powders, but also components made from the consolidation of these
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, as a carrier for toner in copy
machines and in 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 result in inherently "cleaner" powders, more uniformly spherical
particles and a higher percentage of particles within the desired size range
from a given amount of raw material.
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 less expensive 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.
Sources of Raw Materials
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,
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and the metals for these powders are generally available for purchase in job
lots from specialty metal suppliers.
Patents
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.
Significant Customers
Lockheed Martin Corporation (LMC) is a significant customer of the Company's
Specialty Metal Products segment. In fiscal 1997, sales to LMC accounted for 7%
of sales (See Note 1 of Notes to Consolidated Financial Statements). The Company
currently is 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.
Lockheed Idaho Technology Company (LITCO) is another significant customer of
the Company's Specialty Metal Products segment. In fiscal 1997, sales to LITCO
accounted for 5% of net sales. 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.
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.
The Company competes with Aerojet Ordnance, a division of GenCorp Inc.,
as one of two domestic DU penetrator manufacturers. 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.
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Company continues to produce M829A2 penetrators under a production
contract with options extending production to the year 1999. This contract is
subject to appropriations by the Government. The Company currently is in
production on the third option of this contract. Management strongly believes
the Government will exercise the remaining option on the contract. The
Company will continue to pursue both domestic and foreign military depleted
uranium penetrator production requirements, however, the market for DU
ordnance is declining, and near term orders are not expected.
During December 1998, the Company will complete an order for DU products
from a UK customer to support its UK based manufacture of tank ammunition
containing DU penetrators. This material will complete the customer's near
term requirements for this type of ammunition and follow-on orders are not
anticipated within the next 5 years. None of the business practices used in
this business segment are considered proprietary.
The Company plans to move its DU operations to its Barnwell, South
Carolina facility as DU products reach the point where the volume of such
operations are no longer practical at the Concord, MA facility.
Significant Customers
Royal Ordnance, a U.K. defense contractor, is a significant customer of
the Company's Depleted Uranium Penetrator segment. In fiscal 1997, sales to
Royal Ordnance accounted for 19% of net sales. The Company currently is under
contract to manufacture penetrator blanks for Royal Ordnance with a
completion date of December, 1998.
Primex Technologies is also a significant customer of the Company's
Depleted Uranium Penetrator segment. In fiscal 1997, sales to Primex
Technologies accounted for 12% of net sales. The Company currently is under
contract to provide Primex Technologies with 120mm penetrators for the U.S.
Army's ABRAMS Tank program with options extending another three years.
If Royal Ordnance and Primex Technologies were lost as customers in the
short term, this would have a material adverse effect on the Company. Both
customers have finite contracts with the conracts with the Company and
additional contract requirements from these customers are considered
unlikely. Management believes that expansion of its Beralcast-Registered
Trademark-product lines as well as growth in its uranium services and recycle
industry segment over the next few years will minimize the effect on the
Company of these probable reductions in contract requirements from these
customers.
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The following table sets forth certain information with respect to the
backlog of the Company's business segments at September 30, 1997 and
September 30, 1996 including the portions thereof represented by orders from
the Company's principal customers, Lockheed Martin, Lockheed Idaho, Prime
Technologies and United States Enrichment 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.
<TABLE>
<CAPTION>
BACKLOG 1997 1996
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(IN THOUSANDS)
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Uranium Services........................................................................ $ 0 $ --
United States Enrichment Corp......................................................... 424 1,261
Other................................................................................. 1,028 $ 566
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Total............................................................................... 1,452 1,827
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Specialty Metal Products
Lockheed Martin....................................................................... $ 4,237 $ 4,664
Lockheed Idaho........................................................................ 2,519 1,970
Other................................................................................. 3,861 5,868
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Total............................................................................... $ 10,617 12,502
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Depleted Uranium Penetrators
Primex Technologies................................................................... $ 5,474 $ 8734
Royal Ordnance........................................................................ 4,278 --
Other................................................................................. 5,833 181
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Total............................................................................... $ 15,585 $ 8,919
Company Total........................................................................... $ 27,654 $ 23,248
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</TABLE>
Marketing
The Company relies on a variety of marketing strategies, including
advertising and direct sales. Technical papers given at industry symposia,
presented both by Starmet and in conjunction with customers, also are used as
marketing vehicles for the Company's advanced metal products and services.
Strategic alliances are being developed with several key customers
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to strengthen the Company's customer and product base into the future and to
reduce costs through joint research and development costs and marketing
efforts.
Understanding the importance of Design-To-Cost principles, especially
those of Lockheed Martin Corporation, is essential to strategic teaming with
our Beralcast-Registered Trademark- customers. Concentrated efforts on cost
reduction in the form of Concurrent Engineering, low cost Beryllium metal
production, facility expansion, and other efforts, add value for future sales
volumes. Starmet has introduced Nucast, our Beralcast-Registered
Trademark-teammate, to these cost reduction ideas which is expected to 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 the Company is
positioning itself to exploit these opportunities. Novel product requirements
for our advanced metal products and services will continue to receive the
utmost attention for expansion of the Company's product base. 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. Payment 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.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company engages in research activities to develop new products or
enhance existing products for new applications. Research and development is
funded both by the Company and through customer sponsored programs. During
the past fiscal year, funded research and development has been sponsored by
the Department of Defense, Department of Energy, and various commercial
customers.
The Company's is involved in research covering a variety of product areas
for applications of Beralcast-Registered Trademark- (beryllium aluminum)
castings, Dmetal powders, and uranium processing technology. 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 to uranium oxide, and the manufacture of DUCRETE-TM- as a
means of incorporating depleted uranium oxide aggregate in a cement matrix to
make shielded concrete structures. The Company built a pilot plant to
manufacture uranium oxide aggregate for DUCRETE-TM- and is developing the
process knowledge required to support large scale production. R&D activities
in the Specialty Metal Products segment included development of new casting
processes and alternative methods and forming and manufacturing of
Beralcast-Registered Trademark- alloys. The Company expects that this
research will lead to products suitable for commercial mass
production markets and extend the application of Beralcast-Registered
Trademark- products in the aerospace and military markets. The Company has
developed a method for producing fine titanium metal powders
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as an extension of our PREP-Registered Trademark- method for making for
making spherical powders form reactive metals such as titanium, and the
Company is exploring new methods for utilizing titanium powder in the
manufacture of metal parts.
The Company also participates in certain cooperative research and
development activities through arrangements with selected customers and
Government agencies where there is potential for utilizing proprietary
technology or specialized resources not directly available to the Company.
The Company employs a staff of six Ph.D. technologists with backgrounds in
chemistry, mechanical and metallurgical engineering to conduct research and
new product development. In addition, the Company has on the R&D staff a
former Government scientist who invented the DUCRETETM technology. The cost
for Company-sponsored research and development activities was $1,309,000 in
fiscal 1997, $876,000 in fiscal 1996, and $439,000 in fiscal 1995. Total
revenues from customer-funded research and development were $793,000 in
fiscal 1997, $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 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 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 licenses. At present, the Barnwell repository remains available for
use by the Company's Starmet CMI facility. The Company has made provisions to
accommodate an extended period of interim
14
<PAGE>
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 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 Company now is in the process
of removing and disposing of the material in the holding basin. 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.
Concord Site Remediation and Decommissioning Planning Requirements
The Company is required to maintain certain licenses issued by the
Massachusetts Department of Public Health ("DPH") 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 Nuclear Regulatory
Commission ("NRC") and the applicable state agencies a Decommissioning
Funding Plan ("DFP") to provide for possible future decommissioning of its
facilities. The Concord Facility DFP estimated cost is $11.7 million and the
Barnwell Facility DFP estimate is $2.9 million. The Company is required to
provide financial assurance for such decommissioning pursuant to applicable
regulations. The Company has satisfied these requirements and as a result,
the site licenses for both locations have been renewed.
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 to each geographic locations regulatory
agency.
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 United States
Army has issued to the Company a fixed price subcontract for remediation of
the holding basin and the Company entered into a fixed price subcontract with
a contractor to perform this remediation. This work is expected to continue
into the first half of fiscal 1998. The Company's contract with the
contractor is fixed price based on a specified volume of waste to be removed
from the basin and delivered to a burial site. If the volume of the material
removed exceeds the specified level then the Company is obligated to pay an
additional fee per cubic yard of excess material removed. Based on the
current estimates, management believes that the amount of material to be
removed will not exceed the specified amount and that the fixed price
contract issued by the United States Army will be adequate to fully fund the
remediation of the basin. The Army has provided written assurances (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
15
<PAGE>
plans), under an existing contract. D&D costs for the Company's CMI facility
are covered by the existing letter of credit. The Company has no written
assurance that the Army will accept responsibility for the share of the
estimated cost of D&D at its South Carolina facility which directly resulted
from production work under U.S. government contracts on government supplied
materials. However, based on the advice of legal counsel, management believes
that the Army is responsible for its estimated share of D&D.
Forward Looking and Cautionary Statements
Except for the historical information and discussions contained herein,
statements contained in this Form 10-K, including, without limitation,
statements incorporated herein by reference, may constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. The Company may also make forward looking statements in other
reports filed with the Securities and Exchange Commission, in materials
delivered to stockholders and in press releases. In addition, the Company's
representatives may from time to time make oral forward looking statements.
Without limiting the generality of the foregoing, the words "believes, "
"anticipates," "plans," "expects," and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements are
based on a number of assumptions and involve a number of risks and
uncertainties, and, accordingly, actual results could differ materially from
those projected in the forward-looking statements. Factors that may cause
such differences include, but are not limited to, the factors described in
Exhibit 99 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
George J. Matthews.................................. 67 Chairman of the Board of Directors,
CEO and Treasurer
Wilson B. Tuffin.................................... 66 Vice Chairman of the Board of Directors
Robert E. Quinn..................................... 44 President
Kevin R. Raftery.................................... 39 President, Starmet Comcast & Aerocast
Douglas F. Grotheer................................. 39 President, Starmet CMI
William T. Nachtrab................................. 44 Vice President, Technology & Engineering
James M. Spiezio.................................... 49 Vice President, Finance & Administration
James H. Scarboro................................... 58 Vice President, Marketing
Frank J. Vumbaco.................................... 44 Vice President, Health/Safety and Corporate Communications
Bruce E. Zukauskas.................................. 47 Vice President, Operations
</TABLE>
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.
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.
16
<PAGE>
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.
KEVIN R.RAFTERY became President of Starmet Comcast, LLC and Starmet
Aerocast, LLC in December 1997. Prior to December 1997 he was the Manager of
the Beralcast business unit, prior to August 1996 he was Program Manager for
Beralcast, prior to November 1994 he was Program Engineer for over five years.
DOUGLASS F. GROTHEER became President of Starmet CMI Corporation in 1997.
He served as Vice-President of Engineering and Program from 1994 to 1997, as
Manager of Engineering and Program from 1992 to 1994, as Manager of Ordinance
Programs from 1986 to 1992, as Program Manager from 1982 to 1986, and as
Project Engineer from 1980-1982.
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 and Administration
since October 1993. Prior to October 1993, he was Controller, and prior to
April 1989, he served as Manager of Business Planning.
JAMES H. SCARBORO became Vice-President in December 1997. Prior to
December 1997, he was Marketing Manager for over five years.
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.
ITEM 2. PROPERTIES
CONCORD, MASSACHUSETTS--The majority of the Company's activities are
conducted at a Company-owned site which comprises approximately 46.4 acres
and includes a 180,000 square feet building used for manufacturing
activities, offices and warehousing.
BARNWELL, SOUTH CAROLINA--Starmet CMI, the Company's wholly-owned
subsidiary, is located on 321 acres of land which includes:
109,000 square foot facility housing two manufacturing units: one unit
provides the capability of converting chemical gas (UF(6)) to chemical
salt (UF(4)) and a second unit houses a reduction process to convert
chemical salt (UF(4)) to metallic depleted uranium.
70,000 square foot DU Recycle Technology Center adjacent to the
manufacturing facility which provides the technology and facilities
required to provide recovery and recycle of depleted uranium and
other useful materials.
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 1997 Annual Report to Stockholders, which is incorporated
herein by reference and included in this Report as Exhibit 13.
17
<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 recent 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.
On December 9, 1997, Brush Wellman, Inc. ("Brush Wellman") filed a patent
infringement suit against Starmet Corporation in United States District Court
for the District of Massachusetts (Case No. 97-12705-RCO) alleging that the
Company is infringing a patent awarded to Brush Wellman for the investment
casting of aluminum beryllium alloys. Brush Wellman currently holds U.S.
Patent No. 5,642,773 entitled "Aluminum Alloys Containing Beryllium and
Investment Casting of Such Alloys." Brush Wellman is seeking an injunction of
the Company's alleged patent infringement, monetary damages (including treble
damages) and attorney fees. The Company has been advised by patent counsel
that Brush Wellman's claims are without merit and that Brush Wellman's patent
is invalid. The Company's answer to Brush Wellman's complaint is due December
30, 1997, unless the date for filing an answer is extended, and the Company
intends to challenge the validity of Brush Wellman's patent, deny any patent
infringement by the Company and assert counterclaims against Brush Wellman.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 29, 1997, the Company held a special meeting of stockholders
and approved the following proposals:
(1) To change the name of the Company to "Starmet Corporation," the name
of Carolina Metals, Inc. to "Starmet CMI" and the Company's ticker symbol
on Nasdaq to "STMT."
<TABLE>
<CAPTION>
*VOTE: FOR AGAINST ABSTAIN BROKER NON-VOTES
- ---------- --------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
2,545,974 5,398 350 0
</TABLE>
18
<PAGE>
(2) To approve a Plan of Reorganization, dated June 24, 1997
(incorporated herein by reference and is included as Exhibit 2), whereby
the Company has the authority to reorganize into four new subsidiaries to
operate in the following lines of business: depleted uranium products,
specialty powders, specialty metals, Beralcast-Registered Trademark-
products for aerospace use, and Beralcast-Registered Trademark- products
for commercial use. The Company also has the authority to (i) transfer
some or all of the assets, debts and obligations related to each business
activity to the respective subsidiary in exchange for 100% of such
subsidiary's issued and outstanding stock and (ii) transfer the remaining
assets used at Starmet CMI's South Carolina facility to Starmet CMI in
consideration of the assumption of the debts, obligations and liabilities
of such assets.
<TABLE>
<CAPTION>
*VOTE: FOR AGAINST ABSTAIN BROKER NON-VOTES
- ---------- --------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
2,203,531 3,300 1,798 343,093
</TABLE>
- ------------------------
* Note: Of the 4,785,344 shares outstanding as of the record date for the
stockholder's meeting, only 3,035,299 were eligible to vote. The remaining
1,750,045 shares were sterilized because of the application of the
Massachusetts Control Share Acquisition Act (ch. 110 D of the Massachusetts
General Laws).
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 1997 Annual
Report to Stockholders, which is included in this Report as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
section entitled "Selected Financial Data" in the Registrant's 1997 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" in the
Registrant's 1997 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 as of September 30, 1997 and notes thereto
in the Registrant's 1997 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
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Directors of the Company and compliance with
Section 16(a) of the Security Exchange Act of 1934, as amended called for by
Item 10 is incorporated by reference from the information under "Election of
Directors" and "Principal and Management Stockholders," respectively in the
proxy statement for the annual meeting of shareholders on March 18, 1998.
Information concerning executive officers of the Company is set forth in Part
I, Item 1 under "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated by reference from
the information under "Executive Compensation" in the proxy statement for the
annual meeting of shareholders on March 18, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated by reference from
the information under "Principal and Management Stockholders" in the proxy
statement for the annual meeting of shareholders on March 18, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated by reference from
the information under "Executive Agreements" in the proxy statement for the
annual meeting of shareholders on March 18, 1998.
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 1997 Annual Report are filed as part of this report:
Auditors' Report
Consolidated Balance Sheets--September 30, 1997 and September 30, 1996.
Consolidated Statements of Income for the years ended September 30, 1997,
September 30, 1996 and September 30, 1995.
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1997, September 30, 1996 and September 30, 1995.
Consolidated Statements of Cash Flows for the years ended September 30,
1997, September 30, 1996 and September 30, 1995.
Notes to Consolidated Financial Statements
2. Financial Statement Schedule for the Three Years Ended September 30, 1997
Auditors' Report on Schedule II-Valuation and Qualifying Accounts
20
<PAGE>
3. Exhibits:
<TABLE>
<CAPTION>
ITEM NO.* DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
2 Plan of Reorganization, dated June 24, 1997. (12)
3(a) Articles of Organization, as amended, of the Registrant.**
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, Registrant and Carolina
Metals, Inc. (a wholly-owned subsidiary) relating to Barnwell County, South Carolina 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, 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 Company'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. (7)
4(j) Common stock purchase warrant dated September 22, 1997 issued to Roger M. Marino for 60,000 shares.**
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. (7)
21
<PAGE>
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 Company, Carolina Metals, Inc. and State Street Bank and
Trust Company.(4)
10(f) First Amendment to Credit Agreement dated as of June 30, 1995 among the Company, 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. (7)
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. (7)
10(i) 10% Convertible Subordinated Debenture dated January 10, 1996 payable to WIAF Investors Co. in amount of
$334,000.00 and schedule of similar debentures. (7)
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. (7)
10(k) Letter Agreement dated as of September 16, 1996 with Kathleen Matthews and schedule similar letter
agreements. (7)
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.(7)
22
<PAGE>
10(s) Envirocare of Utah Inc. Low-Activity Radioactive Waste Disposal Agreement. (Confidential treatment has
been granted for certain portions of this Exhibit). (9)
10(t) Amendment of Solicitation/Modification of Contract dated March 10, 1997 issued by Department of the
Army. (10)
10(u) Securities Pledge Agreement dated July 3, 1997 between Khosrow B. Semnoni and Nuclear Metals, Inc. (11)
10(v) Employment Agreement, effective October 1, 1997 between the Registrant and James M. Spiezio.**
10(w) Amended and Restated Revolving Credit Note dated October 1, 1997 among the Company, Starmet Powders,
LLC, Starmet Aerocast, LLC, Starmet Comcast, LLC, Starmet NMI Corporation, Starmet CMI Corporation,
Starmet Holdings Corporation, NMI Foreign Sales Corporation and State Street Bank and Trust Company.**
10(x) Amended and Restated Credit Agreement dated October 1, 1997 among the Company, Starmet Powders, LLC,
Starmet Aerocast, LLC, Starmet Comcast, LLC, Starmet NMI Corporation, Starmet CMI Corporation, Starmet
Holdings Corporation, NMI Foreign Sales Corporation and State Street Bank and Trust Company.**
10(y) Amended and Restated Joint Security Agreement dated October 1, 1997 among the Company, Starmet Powders,
LLC, Starmet Aerocast, LLC, Starmet Comcast, LLC, Starmet NMI Corporation, Starmet CMI Corporation,
Starmet Holdings Corporation, NMI Foreign Sales Corporation and State Street Bank and Trust Company.**
10(z) Patent Assignment of Security dated October 1, 1997 between the Company and State Street Bank and Trust.**
10(aa) Employment Agreement, effective October 1, 1997 between the Registrant and William T. Nachtrab.**
10(bb) Employment Agreement, effective October 1, 1997 between the Registrant and Douglas F. Grotheer. **
10(cc) Employment Agreement, effective October 1, 1997 between the Registrant and Kevin R. Raftery. **
10(dd) First Amendment to Credit Agreement dated as of December 9, 1997 among the Company, Starmet
Powders, LLC, Starmet Aerocast, LLC, Starmet Comcast, LLC, Starmet NMI Corporation, Starmet CMI
Corporation, Starmet Holdings Corporation, NMI Foreign Sales Corporation and State Street Bank and Trust
Company.**
10(ee) Third Amendment to Credit Agreement dated August 7, 1997 among Nuclear Metals, Inc., Carolina Metals,
Inc. and State Street Bank and Trust Company.**
23
<PAGE>
10(ff) Amendment to Employment Agreement dated October 1, 1997 between the Registrant and Robert E. Quinn.**
10(gg) Letter agreement with Roger M. Marino dated September 22, 1997 between the registrant and Roger M.
Marino.**
10(hh) 10% Subordinated Debenture dated September 22, 1997 payable to Roger Marino in the amount of $500,000.00.**
10(ii) Letter agreement dated December 23, 1997 regarding issuance of subordinated convertible
debentures among the Registrant Melvin Chrein, WIAF Investors Co., Marshall Chrein, Joshua Feibusch and
George J. Matthews.**
10(jj) 10% Convertible Subordinated Debenture dated December 23, 1997 payable to WIAF Investors Co. in amount of $500,000.00
and schedule of similar debentures.**
10(kk) Second Amendment to Credit Agreement dated as of December 29, 1997 among the Company, Starmet Powders, LLC,
Starmet Aerocast, LLC, Starmet Comcast, LLC, Starmet NMI Corporation, Starmet CMI Corporation, Starmet Holdings
Corporation, NMI Foreign Sales Corporation and State Street Bank and Trust Company.**
10(ll) Second Additional Revolving Credit Note dated December 29, 1997 among the Company, Starmet Powders, LLC, Starmet
Aerocast, LLC, Starmet Comcast, LLC, Starmet NMI Corporation, Starmet CMI Corporation, Starmet Holdings Corporation,
NMI Foreign Sales Corporation and State Street Bank and Trust Company.**
13 Starmet Corporation 1997 Annual Report to Stockholders. **
21 Subsidiaries of the Registrant. **
23(a) Consent of Independent Public Accountants.**
27 Financial Data Schedule.**
99(a) Memorandum of Decision dated September 13, 1996 from the United States Army Contract Adjustment Board.
(8)
</TABLE>
- ------------------------
* 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.
(7) 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, 1996.
24
<PAGE>
(8) Incorporated by reference to Exhibit 99 filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996.
(9) Incorporated by reference to Exhibit 10A to Registrant's Form 10-Q for the
quarter ended March 31, 1997.
(10) Incorporated by reference to Exhibit 10B to Registrant's Form 10-Q for the
quarter ended March 31, 1997.
(11) Incorporated by reference to Exhibit 10 to Registrant's Form 10-Q for the
quarter ended June 30, 1997.
(12) Incorporated by reference to Annex A to Registrant's proxy statement for
special meeting held on September 29, 1997.
25
<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.
STARMET CORPORATION
By: /s/ Robert E. Quinn
____________________________________________
Robert E. Quinn, President (principal executive
officer and director)
Date: 12/29/97
__________________________________________
By: /s/ James M. Spiezio
____________________________________________
James M. Spiezio, Vice President Finance and
Administration (principal financial officer)
Date: 12/29/97
__________________________________________
By: /s/ Rebecca L. Perry
____________________________________________
Rebecca L. Perry, Controller
Date: 12/29/97
__________________________________________
By: /s/ George J. Matthews
____________________________________________
George J. Matthews, Chairman of the Board of
Directors, CEO and Treasurer
Date: 12/29/97
__________________________________________
By: /s/ Wilson B. Tuffin
____________________________________________
Wilson B. Tuffin, Vice Chairman
Date: 12/29/97
__________________________________________
By: /s/ Frank H. Brenton
____________________________________________
Frank H. Brenton, Director
Date: 12/29/97
__________________________________________
By: /s/ Kenneth A. Smith
____________________________________________
Kenneth A. Smith, Director
Date: 12/29/97
__________________________________________
26
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule II--Valuation and Qualifying Accounts
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Starmet Corporation:
We have audited the accompanying consolidated balance sheets of Starmet
Corporation (formerly Nuclear Metals, Inc.) (a Massachusetts Corporation) and
subsidiaries as of September 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1997. 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
Starmet Corporation and subsidiaries as of September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1997, 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 Commission 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 taken as
a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 14, 1997
(Except with respect to the matters
discussed in Notes 6 and 11 as to which the
date is December 29, 1997)
28
<PAGE>
NUCLEAR METALS, INC. AND SUBSIDIARIES
Schedule II- Valuation and Qualifying
Accounts For the Three Years Ended September 30, 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND END
CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- ---------------------------------------------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Allowance for doubtful accounts............... $ 821,000 $ -- $ 400,000 $ 421,000
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
Inventory Reserves............................ $ 4,862,000 $ -- $ 1,002,000 $ 3,860,000
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
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
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
</TABLE>
29
<PAGE>
Exhibit 3a
THE COMMONWEALTH OF MASSACHUSETTS
JOHN F. X. DAVOREN
Secretary of State
STATE HOUSE
BOSTON, MASS.
ARTICLES OF ORGANIZATION
(Under G.L. Ch. 156B)
Incorporators
Name Post Office Address
---- -------------------
Include given name in full in case of natural persons; in case of a
corporation, give state of incorporation.
Thomas A. Wooters 75 Federal Street
Boston, Massachusetts 02110
The above-named incorporator with the intention of forming a corporation
under the provisions of General Laws, Chapter 156B hereby state(s):
1. The name by which the corporation shall be known is:
NUCLEAR METALS, INC.
2. The purposes for which the corporation is formed are as follows:
Directly, as a partner, or otherwise: (1) to engage in research
and to sell, develop, manufacture, purchase and otherwise deal with
products, goods, and materials of every description; (2) to provide advice,
assistance, information and services of every nature; and (3) to carry on
any business permitted by the laws of the Commonwealth of Massachusetts to a
corporation organized under Chapter 156B of the General Laws.
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized is as follows:
Class of Stock: Common
Number of Shares Without Par Value: 150,000
Number of Shares With Par Value: 15,000 at $.10 par value
4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
5. The restrictions, if any, imposed by the Articles of Organization upon
the transfer of shares of stock of any class are as follows:
<PAGE>
NOT APPLICABLE
6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or
for limiting, defining, or regulating the powers of the corporation, or of
its directors or stockholders, or of any class of stockholders:
SEE ANNEXED PAGES 6a, 6b and 6c
7. By-laws of the corporation have been duly adopted and the initial
directors, president, treasurer and clerk, whose names are set out below,
have been duly elected.
8. The effective date of organization of the corporation shall be the
date of filing with the Secretary of the Commonwealth or if later date is
desired, specify date, (not more than 30 days after date of filing).
9. The following information shall not for any purposes be treated as a
permanent part of the Articles of Organization of the corporation.
a. The Post Office address of the initial principal office of the
corporation in Massachusetts is:
2229 Main Street, West Concord, Massachusetts
b. The name, residence, and post office address of each of the
initial directors and following officers of the corporation are
as follows:
<TABLE>
<CAPTION>
NAME RESIDENCE POST OFFICE ADDRESS
---- --------- -------------------
<S> <C> <C>
President: Wilson B. Tuffin 22 Arlington Street
Acton, Mass. 01720
Treasurer: George J. Matthews 221 Taylor Street
Littleton, Mass. 01460
Clerk: Thomas A. Wooters 33 Talbot Road 75 Federal Street
Braintree, Mass. 02184 Boston, Mass. 02110
Directors: Wilson B. Tuffin 22 Arlington Street
Acton, Mass. 01720
Walter S. Baird 14 Perry Road
Lexington, Mass.
George J. Matthews 221 Taylor Street
Littleton, Mass. 01460
</TABLE>
<PAGE>
c. The date initially adopted on which the corporation's fiscal year
ends is:
October 31
d. The date initially fixed in the by-laws for the annual meeting of
stockholders of the corporation is:
Third Thursday in April
e. The name and business address of the resident agent, if any, of
the corporation is:
None
IN WITNESS WHEREOF and under the penalties of perjury the above-named
INCORPORATOR sign(s) these Articles of Organization this 27th day of July, 1972.
________/s/ Thomas A. Wooters_______
Thomas A. Wooters
<PAGE>
PROVISIONS AS TO INTERCOMPANY DEALINGS
The Corporation may enter into contracts or transact business with one
or more of its directors, officers, or stockholders or with any corporation,
organization or other concern in which one or more of its directors, officers or
stockholders are directors, officers, shareholders, or otherwise interested and
other contracts or transactions in which any one or more of its directors,
officers or stockholders is in any way interested; and, in the absence of fraud,
no such contract or transaction shall be invalidated or in any wise affected by
the fact that such directors, officers, or stockholders of the Corporation have
or may have interests which are or might be adverse to the interest of the
Corporation even though the vote or action of directors, officers or
stockholders having such adverse interests may have been necessary to obligate
the Corporation upon such contract or transaction. At any meeting of the Board
of Directors of the Corporation (or any duly authorized committee thereof) any
such director or directors may vote or act thereat with like force and effect as
if he had no such interest, provided, in such case the nature of such interest
(though not necessarily the extent or details thereof), shall be disclosed or
shall have been known to the directors or a majority thereof. A general notice
that a director or officer is interested in any corporation or other concern of
any kind referred to shall be sufficient disclosure as to such director or
officer with respect to all contracts and transactions with such corporation or
other concern. No director shall be disqualified from holding office as
directors or officers of the Corporation by reason of any such adverse interest,
unless the interest is detrimental to the Corporation. In the absence of fraud,
no director, officer or stockholder having such adverse interest shall be liable
to the Corporation or to any stockholder or creditor thereof or to any other
person for any loss incurred by it under or by reason of such contract or
transaction, nor shall any such director, officer or stockholder be accountable
for any gains or profits realized thereon.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation may indemnify and hold harmless each director and each
officer or other employee of the Corporation against and from all loss, cost and
reasonable expenses hereafter incurred by him in the payment, settlement and
defense of any civil or criminal claim, action or proceeding (including appeals)
brought or threatened against him because he is or has been such director or
officer or other employee or because of any action alleged to have been taken or
omitted by him as such director or officer
<PAGE>
or other employee. The rights of indemnification and exoneration accruing under
this Article shall apply whether or not such person continues to be a director
or officer or other employee at the time any such loss, cost or expense is
suffered or incurred.
The corporation may advance expenses to, or where appropriate may
itself at its expense undertake the defense of, such director or officer or
other employee; provided, however, that he shall have undertaken to repay or to
reimburse such expenses if it should ultimately be determined that he is not
entitled to indemnification under this provision.
Such indemnification shall be of right if (1) such director or officer
or other employee shall have been wholly successful, on the merits or otherwise,
with respect to such claim, action or proceeding, or (2) the stockholders of
this Corporation at the time the subject is first presented to them for
determination, by vote of the holders of a majority of the shares entitled to
vote (excluding from shares entitled to vote all those held by each person whose
conduct is under consideration) determined that such director or officer or
other employee acted in good faith for a purpose which be reasonably believed to
be in the best interest of the Corporation and had no reasonable cause to
believe that his conduct was unlawful. Subject to the next following paragraph,
no disposition of any such claim, action or proceeding shall preclude such
determination by the shareholders.
Such rights shall not apply in relation to any matters: (1) as to
which such director or officer or other employee shall be adjudged in final
judgment in such action or proceeding to be liable for wilful misconduct or for
his own negligence; or (2) as to which, if there is not final judgment, the
stockholders of this Corporation at the time the subject is first presented to
them for determination, by vote of the holders of a majority of the shares
entitled to vote (excluding from shares entitled to vote all those held by each
person whose conduct is under consideration) determine that such director,
officer, or other employee has suffered or incurred such loss, cost, or expense
as the result of his wilful misconduct or negligence; or (3) in the case of
matters involving the allegation of crime, as to which such director or officer
or other employee shall have been adjudged in such claim, suit or proceeding to
have had reasonable cause to believe that his conduct was unlawful; or (4)
brought or asserted by or in behalf of the Corporation.
The rights provided for herein shall not be deemed exclusive of any
other rights to which any such person may be otherwise entitled, nor shall this
provision restrict the right of the Corporation to indemnify or reimburse any
such person in any proper case even though not specially provided for herein.
The rights provided for herein shall apply to persons who act or have acted at
the request of the Corporation as directors or officers of other corporation in
which this Corporation is or has been interested as an
<PAGE>
investor or a creditor. A person may be entitled to indemnification as to some
matters even though he is not so entitled as to others.
AMENDMENT OF BY-LAWS
The Board of Directors may amend the By-Laws, except with respect to
any provision thereof which by law, the Articles of Organization or the By-Laws
requires action by the stockholders. Not later than the time of giving notice
of the meeting of stockholders next following the amending, notice thereof
stating the substance of such change shall be given to all stockholders.
STOCKHOLDERS' MEETINGS
The meetings of stockholders may be held anywhere within the United
States.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 12
I hereby certify that, upon an examination of the
within written articles of organization, duly submitted
to me, it appears that the provisions of the General
Laws relative to the organization of corporations have
been complied with, and I hereby approve said articles;
and the filing fee in the amount of $75.00 having been
paid, said articles are deemed to have been filed with me
this 31st day of July , 1972.
Effective date
John F.X. Davoren
Secretary of the Commonwealth
TO BE FILED IN BY CORPORATION
PHOTO COPY OF ARTICLES OF ORGANIZATION TO BE SENT
TO: Gadsby & Hannah
75 Federal Street
Boston, Massachusetts 02110
<PAGE>
FEDERAL IDENTIFICATION NO. 04-2506761
THE COMMONWEALTH OF MASSACHUSETTS
Paul Guzzi
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
--------------------
We, Wilson B. Tuffin, President, and Thomas A. Wooters, Clerk of NUCLEAR METALS,
INC. located at 2229 Main Street, Concord, Massachusetts do hereby certify that
the following amendment to the articles of organization of the corporation was
duly adopted at a meeting held on June 14, 1978, by vote of 32,293 Shares of
Common Stock out of 32,293 shares outstanding, being at least a majority of each
class outstanding and entitled to vote thereon.
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:
The total amount of capital stock already authorized is 150,000 shares common
with par value $.10.
The amount of additional capital stock authorized is 2,850,000 shares common
with par value $.10.
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of the General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this fourteenth day of June, in the year 1978.
_________/s/ Wilson B. Tuffin_________________, President
____________/s/ Thomas A. Wooters_________________, Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment
and, the filing fee in the amount of $1,425.00
having been paid, said articles are deemed to have
been filed with me this 23rd day of June, 1978
Paul Guzzi
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO: Thomas A. Wooters, Esq.
Gadsby & Hannah
60 State Street
Boston, MA 02109
Telephone: (617) 367-1700
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
FEDERAL IDENTIFICATION
NO. 04-250-6761
Secretary of State
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of State of the
Commonwealth within sixty days after the date of the vote of stockholders
adopting the amendment. The fee for filing this certificate is prescribed by
General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth
of Massachusetts.
_____________________________
We, Wilson B. Tuffin President and
Thomas A. Wooters Clerk of
NUCLEAR METALS, INC.
located at 2229 Main Street, Concord, Massachusetts do hereby certify that the
following amendment to the articles of organization of the corporation was duly
adopted at a meeting held on FEBRUARY 4, 1982, by vote of 1368185 shares of
Common Stock out of 2695210 shares outstanding, being at least a majority of
each class outstanding and entitled to the vote thereon.
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:
The total amount of capital stock already authorized is 3 million shares common
with par value $.10
The amount of additional capital stock authorized is 3 million shares common
with par value $.10
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 19th day of May, in the year 1982.
/s/ Wilson B. Tuffin, President
/s/ Thomas A. Wooters, Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I, hereby approve the within articles of amendment
and, the filing fee in the amount of $
having been paid, said articles are deemed to have
been filed with me this day of , 1982
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO: Gadsby & Hannah
Sixty State Street
Boston, Massachusetts 02109
Telephone: (617) 367-1700
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-2506761
THE COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Robert E. Quinn, President and Thomas A. Wooters, Clerk of NUCLEAR
METALS, INC. located at 2229 Main Street, Concord, Massachusetts 01742, certify
that these Articles of Amendment affecting articles numbered: 3 of the Articles
of Organization were duly adopted at a meeting held on March 26, 1997, by vote
of: 1,895,151 shares of common stock of 2,392,014 shares outstanding, being at
least a majority of each type, class or series outstanding and entitled to vote
thereon.
To change the number of shares and the par value (if any) of any type,
class or series of stock which the corporation is authorized to issue, fill in
the following:
the total presently authorized is:
WITH PAR VALUE STOCKS: 6,000,000 at par value of $.10
Change the total authorized to:
WITH PAR VALUE STOCKS : 15,000,000 at par value of $.10
VOTED: To amend Article III of the Company's Articles of Organization to
provide that the Company shall have authority to issue a total of
fifteen million (15,000,000) shares of common stock, $.10 par value
per share.
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:____________________________.
<PAGE>
SIGNED UNDER THE PENALTIES OF PERJURY, this 26th day of March, 1997.
/s/ Robert E. Quinn, President
/s/ Thomas A. Wooters, Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I, hereby approve the within Articles of Amendment and, the filing fee in
the amount of $_______ having been paid, said articles are deemed
to have been filed with me this ____ day of ________________, 19___.
Effective Date:_______________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILED IN BY CORPORATION
Photocopy of document to be sent to:
Thomas A. Wooters, Esq.
Peabody &Arnold
50 Rowes Wharf
Boston, Massachusetts 02110
<PAGE>
FEDERAL IDENTIFICATION NO. 04-2506761
THE COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
-----------------
We, Robert E. Quinn, President, and Thomas A. Wooters, Clerk of NUCLEAR METALS,
INC. located at 2229 Main Street, Concord, Massachusetts certify that these
Articles of Amendment affecting articles number 1 of the Articles or
Organization were duly adopted at a meeting held on September 29, 1997, by vote
of:
SEE EXHIBIT ATTACHED HERETO
2,546,374 shares of Common Stock of 3,035,299 shares outstanding and entitled to
vote
**being at least a majority of each type, class or series outstanding and
entitled to vote thereon:
To amend Article I of the Articles of Organization of the Corporation to
change its name to "StarMet Corporation".
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date: October 1, 1997
SIGNED UNDER THE PENALTIES OF PERJURY, this 29th day of September, 1997.
/s/ Robert E. Quinn , President
--------------------------------------
/s/ Thomas A. Wooters , Clerk
------------------------------------------
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within Articles of Amendment,
and the filing fee in the amount of $100.00
having been paid, said articles are deemed to have
been filed with me this 30th day of September, 1997.
Effective date: 10/1/97
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF AMENDMENT TO BE SENT
TO: Thomas A. Wooters, Esq
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Telephone: (617) 367-1700
<PAGE>
NUCLEAR METALS, INC.
Articles of Amendment
EXHIBIT A
The Company has 4,785,344 shares outstanding; however, 1,750,045 shares of
the Company were acquired in "control share acquisition," as such term is
defined in Massachusetts General Laws, Chapter 110D (the "Act"). Under the Act,
the 1,750,045 shares acquired in control share acquisitions are ineligible to
vote and therefore, only 3,035,299 shares are entitled to vote on this
amendment.
<PAGE>
Exhibit 4(j)
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 22, 1997
Void After: September 21, 2000 Right to Purchase 60,000
Shares of Common Stock
Stock (subject to adjustment)
of Nuclear Metals, Inc.
NUCLEAR METALS, INC.
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES that, in consideration of value received, Roger Marino
(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"), Sixty Thousand (60,000)
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 $17.875 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 the date first set forth above and shall end at 5:00 p.m. Boston,
Massachusetts time on the third anniversary of such date.
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
-2-
<PAGE>
holder that such holder is not then, and has not been during the preceding
three months, an 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
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<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.
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<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/ George J. Matthews
-----------------------------------
Chairman
[CORPORATE SEAL]
Attest:
/s/ Thomas A. Wooters
- -----------------------------------
Clerk
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<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>
Exhibit 10(v)
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the first day of October, 1997, by
and between Starmet Corporation, a Massachusetts corporation with its
principal office in Concord, Massachusetts (the "Corporation"), and James M.
Spiezio (the "Employee") of Lunenburg, 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 Vice
President, Finance; 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 an executive employee of the Corporation.
3. COMPENSATION
3.1 INITIAL COMPENSATION
The Employee's compensation shall be at the mimimum annual rate of
$142,000 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 INCREASES
The Board of Directors or President 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:
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<PAGE>
4.1 BENEFIT PLANS
The Corporation shall include the Employee in all of its benefit
plans, including stock option plans, vacation, 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 NO REDUCTION OF BENEFITS
The Corporation shall not eliminate or reduce benefits in effect on
the date hereof.
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 determines, 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 Article 3 hereof shall cease; or
(c) prior to a "change of control," as herein defined, by either
party on twelve months' written notice to the other. "Change of control"
shall mean (i) a change (other
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<PAGE>
than a change resulting from death, retirement or disability) in the
identity of a majority of the Board of Directors of the Corporation or in
the identity of both the President and Chairman of the Board of the
Corporation, or (ii) the occurrance of a transaction or event which a
majority of directors of the Corporation in office immediately prior to
such transaction deem to involve a change of control.
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
earlier 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.
5.4 DEFINITION
"Good reason", within the meaning of this Agreement, means after a
"change of control," circumstances which, (a) 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) require 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.
-4-
<PAGE>
5.5 SURVIVAL. The provisions of Sections 8, 9 and 10 shall survive
the termination of this Agreement.
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.
8. NON-COMPETE.
8.1 The Employee agrees to devote his entire business time, attention
and energies to the business and interests of the Corporation during the
Employment Period.
8.2 (i) During the period of employment by the Corporation and for a
period of eighteen (18) months after any termination of employment, the
Employee agrees that he will not, directly or indirectly, alone or as a
partner, officer, director, consultant, employee or direct or indirect
owner (except a less than 2% stockholder of a public company) of any
company or business organization, engage in any business activity which is
directly or indirectly competitive with the products or services being
developed, manufactured or sold by the Corporation, or any subsidiary or
affiliate of the Corporation. The term "directly or indirectly
competitive" shall include the performance
-5-
<PAGE>
of any services as an employee, consultant or otherwise in connection with
any business activity which is competitive with or adverse to the products
and services sold by the Corporation. Such limitations shall apply only
within the continental United States, and in such foreign jurisdictions as
to which there is a distributor or other representative of the Corporation
or a subsidiary, division, licensee or affiliate of the Corporation in
existence on the date of termination.
(ii) During the period of employment by the Corporation and for a
period of eighteen months after any termination thereof, the Employee
agrees that he will not directly or indirectly, either for himself or for
any other person, business, partnership, association, firm, company or
corporation, call upon, solicit, divert or take away or attempt to solicit,
divert or take away, any of the customers, business or prospective
customers of the Corporation. The Employee also agrees that during his
employment with the Corporation and for a period of eighteen months
thereafter, he will not solicit or discuss with any employee of the
Corporation (a "Corporation Employee") the employment of such Corporation
Employee by any business, firm, company, partnership, association,
corporation or any other entity other than the Corporation.
8.3 If any restriction set forth in this Section 8 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
8.4 The restrictions contained in this Section 8 are necessary for
the protection
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<PAGE>
of the business and goodwill of the Corporation and are considered by the
Employee to be reasonable for such purpose. The Employee agrees that any breach
of this Section 8 will cause the Corporation substantial and irrevocable damage
and therefore, in the event of any such breach, in addition to such other
remedies which may be available, the Corporation shall have the right to seek
specific performance and injunctive relief.
9. NONDISCLOSURE.
9.1 The Employee agrees that he will not at any time, whether during
or after the termination of his employment, reveal to any person, entity,
association or company any Proprietary or Confidential Information of the
Corporation, except as may be required in the ordinary course of performing his
duties as an employee of the Corporation (and then with due regard for continued
confidentiality) or as may be required by law, and he shall keep secret all
matters of such nature entrusted to him and shall not use or attempt to use any
such information in any manner for his own benefit or the benefit of others, or
as may injure or cause loss or damage to the Corporation.
9.2 The Employee further agrees that during his employment he shall
not make, use, or permit to be used any notes, memoranda, drawings,
specifications, programs, data or other materials relating to any matter within
the scope of the business of the Corporation or concerning any of its dealings
or affairs otherwise than for the benefit of the Corporation.
9.3 The Employee further agrees
(i) that he shall not, after the termination of his
employment, use or permit to be used any such notes, memoranda, drawings,
specifications, programs, data or other materials, it being agreed that any
of the foregoing shall be and remain the sole
-7-
<PAGE>
and exclusive property of the Corporation and that immediately upon
termination of his employment he shall deliver all of the foregoing, and
all copies thereof, to the Corporation;
(ii) that all files, letters, memoranda, reports, records,
experimental and other data, sketches, drawings, molds, models, patterns,
samples, laboratory notebooks, computer disks or other storage devices for
information, any computer, program listings, or other written,
photographic, or other tangible material containing or incorporating
Proprietary Information, whether created by Employee or others, which shall
come into Employee's custody or possession, shall be and are the exclusive
property of the Corporation to be used only in the performance of
Employee's duties for the Corporation;
(iii) that all such records or copies thereof and all tangible
property of the Corporation in Employee's custody or possession shall be
delivered to the Corporation, upon the earlier of a request by the
Corporation or any termination of employment; and
(iv) that after such delivery, Employee shall not retain any
such records or copies thereof or any such tangible property, and Employee
agrees to destroy any Proprietary Information that may be in his possession
but stored on media (such as computer disks) that themselves are not
property of the Corporation.
9.4 Employee agrees that his obligation not to disclose or to use
information and records of the types set forth above (including knowhow), and
his obligation to return records, copies and tangible property set forth in
paragraph (b) above, also extends to such knowhow and other information,
records, copies and tangible property of customers of the
-8-
<PAGE>
Corporation or suppliers to the Corporation or other third parties who may have
disclosed or entrusted the same to the Corporation or to Employee in the course
of the Corporation's business.
9.5 Proprietary or Confidential Information of the Corporation
includes any process, document, software, technique or other information
possessed or used by the Corporation and not generally known including, without
limiting the foregoing, trade secrets, processes, techniques, data, software,
code, algorithms, marketing plans, unpublished financial statements or
projections, budgets, sales records, licenses, prices, costs, and information as
to existing and prospective customers, employees and suppliers.
10. ASSIGNMENT OF INVENTIONS. The Employee agrees as follows:
10.1 To disclose to the Corporation all inventions, patentable or
unpatentable ideas, and all technical or business innovations developed,
conceived, prepared or created by him solely or in combination with others
during the period of his employment ("Inventions");
10.2 To assign, and Employee hereby does assign, to the Corporation,
as its exclusive property, all Inventions (i) that are in any way within the
scope of or related to the business of the Corporation, or as to which the
Employee may receive information due to his employment, or (ii) that result from
or are suggested by any work which the Employee may do for the Corporation, or
(iii) that otherwise are made through the use of Corporation time, facilities or
materials;
10.3 That any such Invention so required to be assigned shall be
considered a work made for hire for the Corporation as such term is defined in
Section 101 of the United States Copyright Act of 1976, as amended;
-9-
<PAGE>
10.4 To execute all necessary documents and otherwise provide proper
assistance during and subsequent to his employment to enable the Corporation to
obtain for itself or its nominees, copyrights, patents or other legal protection
for such Inventions or innovations;
10.5 To make and maintain for the Corporation adequate and current
written records of all such Inventions or innovations, which records shall at
all times remain on the Corporation's premises.
10.6 Employee hereby represents that, except as he has heretofore
disclosed in writing to the Corporation, he is not bound by the terms of any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or Confidential or Proprietary Information in the
course of his employment with the Corporation, or to refrain from competing,
directly or indirectly, with the business of any such previous employer or any
other party. Employee further represents that his performance of all the terms
of this Agreement and as an employee of the Corporation does not and will not
breach any agreement to keep in confidence Proprietary Information, knowledge or
data acquired by him in confidence or in trust prior to his employment with the
Corporation; and Employee will not disclose to the Corporation or induce the
Corporation to use any Confidential or Proprietary Information or material
belonging to any previous employer or others.
11. REMEDIES UPON BREACH. The Employee agrees that any breach of the
provisions of Sections 8, 9 and 10 of this Agreement by him could cause
irreparable damage, and that, in the event of such breach, the Corporation shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of the
Employee's obligations hereunder.
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<PAGE>
12. 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. Annually, the Board of Directors, in its discretion, may extend the
term of this Agreement for an additional 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 12.
13. MISCELLANEOUS
13.1 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.
13.2 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.
13.3 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.
-11-
<PAGE>
13.4 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.
13.5 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.
13.6 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.
13.7 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
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<PAGE>
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.
13.8 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.
STARMET CORPORATION
Attest: /s/ Thomas A. Wooters By: /s/ Robert E. Quinn
--------------------------- -----------------------------
Robert E. Quinn
Date: 10/1/97
{Corporate Seal}
Attest: /s/ Thomas A. Wooters /s/ James M. Spiezio
--------------------------- -----------------------------
(employee)
Date: 10/1/97
-----------------------------
<PAGE>
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$6,550,000 March 31, 1995
(as amended and restated
October 1, 1997)
FOR VALUE RECEIVED, the undersigned, STARMET CORPORATION, STARMET POWDERS,
LLC, STARMET AEROCAST, LLC, STARMET COMCAST, LLC, STARMET NMI CORPORATION,
STARMET CMI CORPORATION, STARMET HOLDINGS CORPORATION, NMI FOREIGN SALES
CORPORATION (the "Borrowers"), hereby jointly and severally, promise to pay to
the order of STATE STREET BANK AND TRUST COMPANY, a Massachusetts 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 SIX MILLION FIVE HUNDRED AND FIFTY THOUSAND DOLLARS
($6,550,000) 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.
STARMET CORPORATION
WITNESS:
By: /s/ James M. Spiezio
------------------------------
/s/ Rebecca L. Perry Name: James M. Spiezio
- ----------------------------- Title: Vice President Finance
STARMET POWDERS, LLC
WITNESS:
By: /s/ James M. Spiezio
-----------------------------
/s/ Rebecca L. Perry Name: James M. Spiezio
- ----------------------------- Title: Treasurer
STARMET AEROCAST, LLC
WITNESS:
By: /s/ James M. Spiezio
-----------------------------
/s/ Rebecca L. Perry Name: James M. Spiezio
- ----------------------------- Title: Treasurer
STARMET COMCAST, LLC
WITNESS:
By: /s/ James M. Spiezio
-----------------------------
/s/ Rebecca L. Perry Name: James M. Spiezio
- ----------------------------- Title: Treasurer
STARMET NMI CORPORATION
WITNESS:
By: /s/ James M. Spiezio
-----------------------------
/s/ Rebecca L. Perry Name: James M. Spiezio
- ----------------------------- Title: Treasurer
2
<PAGE>
STARMET CMI CORPORATION
WITNESS:
By: /s/ James M. Spiezio
-----------------------------
/s/ Rebecca L. Perry Name: James M. Spiezio
- ----------------------------- Title: Treasurer
STARMET HOLDINGS CORPORATION
WITNESS:
By: /s/ James M. Spiezio
-----------------------------
/s/ Rebecca L. Perry Name: James M. Spiezio
- ----------------------------- Title: Treasurer
NMI FOREIGN SALES CORPORATION
WITNESS:
By: /s/ James M. Spiezio
-----------------------------
/s/ Rebecca L. Perry Name: James M. Spiezio
- ----------------------------- Title: Treasurer
3
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
AGREEMENT made as of this 1st day of October, 1997 between STARMET
CORPORATION, a Massachusetts corporation (f/k/a Nuclear Metals, Inc.)
("StarMet"), STARMET POWDERS, LLC, a Delaware limited liability corporation
("Powders"), STARMET AEROCAST, LLC, a Delaware limited liability corporation
("AeroCast"), STARMET COMCAST, LLC, a Delaware limited liability corporation
("ComCast"), STARMET NMI CORPORATION, a Massachusetts corporation ("NMI"),
STARMET CMI CORPORATION, a Delaware corporation (f/k/a Carolina Metals, Inc.)
("CMI"), STARMET HOLDINGS CORPORATION, a Massachusetts corporation
("Holdings"), NMI FOREIGN SALES CORPORATION, a U.S. Virgin Islands
corporation ("FSC", and together with StarMet, Powders, AeroCast, ComCast,
NMI, CMI and Holdings, the "Borrowers") and STATE STREET BANK AND TRUST
COMPANY, an FDIC insured Massachusetts chartered trust company ("Bank").
WHEREAS, StarMet, CMI and the Bank are parties to a Credit Agreement
dated as of March 31, 1995, as amended by a First Amendment to Credit
Agreement dated as of June 30, 1995, a letter agreement dated as of September
26, 1995, a Forbearance and Amendment Agreement dated as of January 11, 1996,
a First Amendment to Forbearance and Amendment Agreement dated as of February
15, 1996, a Second Amendment to Forbearance and Amendment Agreement dated as
of June 4, 1996, a Second Amendment to Credit Agreement dated as of December
24, 1996 and a Third Amendment to Credit Agreement dated as of August 7, 1997
(the "Original Credit Agreement");
WHEREAS, StarMet is engaged in a restructuring where certain of its
business lines will be transferred to newly organized subsidiaries as
described in a proxy statement dated August 26, 1997 (the "Proxy Statement")
WHEREAS, the Borrowers and the Bank have agreed to amend and restate the
existing credit facility described above so as to, among other things, add
Powders, Speciality, AeroCast, ComCast, NMI, and Holdings as "Borrowers"
under the Original Credit Agreement and continue to provide for revolving
credit facilities to the Borrowers;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I. AMOUNT AND TERMS OF THE CREDIT.
Section 1.01. The Credit.
Subject to the terms and conditions hereof, and in reliance on the
representations and warranties contained herein, Bank hereby establishes a
credit facility in favor of the Borrowers
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in the principal amount of $6,550,000 (the "Credit"). The Credit consists of a
revolving line of credit of $6,550,000 ("Revolving Credit").
Section 1.02. The Revolving Credit.
(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
$6,550,000 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) 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.
(c) The Revolving Credit Note. Amounts owed to Bank with respect to
Advances made by Bank shall be evidenced by Bank's books and records and may,
at the request of Bank, be further evidenced by a revolving credit note in
the maximum principal amount of the Revolving Credit (the "Revolving Credit
Note") in the form of Exhibit 1.02(d) hereto. The unpaid principal balance
of the Revolving Credit may be voluntarily prepaid in whole or in part during
the continuation of the Revolving Credit without premium or penalty; provided
that if the Revolving Credit is to be terminated by the Borrowers, thirty
(30) days prior notice shall be given to Bank. Upon termination, the
Borrowers shall satisfy the provisions of Section 6.01. The Revolving Credit
Note is subject to mandatory repayments, as provided in Section 1.02(b).
(d) Interest. Advances made by Bank shall bear interest prior to
maturity or the occurrence of an Event of Default (computed on the basis of
actual number of days elapsed over a 360 day year) on the unpaid principal
balances outstanding from time to time at a rate per annum equal to the Prime
Rate plus one-half percent (1/2%). After the Maturity Date or the occurrence
of an Event of Default, the unpaid principal balance shall bear interest at
the Prime Rate plus five (5%) percent. Interest shall be payable monthly in
arrears on the first day of each month commencing on October 1, 1997. The
effective rate of interest shall change on each day the Prime Rate changes.
(e) Requests for Advances. Each Advance shall be made on the Banking
Day on which Bank receives notice from the Borrower if such notice is
received prior to 11:00 a.m.
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Boston time on such Banking Day, and otherwise on the next Banking Day. Each
request for an Advance shall be made to Bank in writing or by telephone by a
duly authorized representative of the Borrowers. Bank may rely upon any
telephone request which it believes is made by such a representative. The
Borrowers agree to indemnify and hold Bank harmless for any action, including
the making of Advances hereunder, or loss or expense, taken or incurred by
Bank in good faith reliance upon such telephone request. At the time of the
initial request for an Advance, the Borrowers shall have provided Bank with a
Compliance Certificate substantially in the form of Exhibit 1.02(e) hereto
("Compliance Certificate"). Bank shall be entitled to rely upon the most
recent Compliance Certificate in its possession until it is superseded by
another certificate.
(f) Expiration. The Revolving Credit shall expire on the Maturity Date
and all Advances then outstanding under the Revolving Credit shall be due and
payable without notice on such date. In the event Bank continues Advances
after the Maturity Date without a written extension of the Maturity Date, (i)
all such Advances shall be made within the sole discretion of Bank; (ii) the
entire Revolving Credit shall be due on demand; and (iii) other than such
Advances, the entire Revolving Credit shall earn interest at the rate
specified to be earned after maturity in Section 1.02(d).
(g) Overadvances. Bank may from time to time in its sole discretion
permit Advances to exceed the limitations set forth in this Agreement,
including, without limitation, (i) Advances in excess of the Maximum Credit,
and (ii) Advances after the Maturity Date or the occurrence of an Event of
Default. All such Advances shall be deemed part of the Credit secured by any
collateral securing the Credit and supported by any credit enhancements
supporting the Credit. The making of an Advance on one or more occasion will
not operate to limit, waive or otherwise modify any rights of Bank hereunder
on any future occasion unless otherwise agreed in writing.
(h) Special Uses. The Borrowers may request portions of the Revolving
Credit in the form of letters of credit pursuant to Section 1.05 hereof.
(i) Use of Proceeds. Proceeds from Advances only shall be used by the
Borrowers for working capital purposes.
Section 1.03. Agency.
Each of the Borrowers hereby appoints StarMet as its agent to take any
action and perform any obligation under this Agreement. The Bank may
conclusively rely upon any action taken by StarMet as binding on all of the
Borrowers.
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Section 1.04. Definitions.
"Banking Day" shall mean any day which Bank is open to conduct commercial
banking business in Boston, Massachusetts.
"Notes" shall mean the Revolving Credit Note and any other notes issued
by the Borrowers to Bank pursuant to this Agreement.
"Prime Rate" shall mean the rate of interest per annum from time to time
announced by Bank as its prime rate, it being understood that such rate is a
reference rate, not necessarily the lowest, which serves as the basis upon
which effective rates of interest are calculated for obligations making
reference thereto.
The following terms are defined in the following sections:
Advance Section 1.02(a)
Affiliate Section 4.17
Banking Day Section 1.04
Base Financial Statement Section 2.04
Bonds Section 4.12(b)
Compliance Certificate Section 1.02(e)
Closing Fee Section 1.10
Credit Section 1.01
Current Assets Section 4.22
Current Liabilities Section 4.22
Debt Section 4.20
Debt Service Section 4.23
ERISA Section 2.10
Event of Default Article V
Facility Fee Section 1.08
"L/Cs" Section 1.05(a)
Maturity Date Section 1.02(a)
Maximum Credit Section 1.02(a)
Net Income Section 4.22
1985 Trust Agreement Section 4.12(b)
Notes Section 1.04
Prime Rate Section 1.04
Proxy Statement Introduction
Restricted Payments Section 4.24
Revolving Credit Section 1.01
Revolving Credit Note Section 1.02(c)
SEC Section 4.08(a)
Security Agreement Section 3.01(c)
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Service Fee Section 1.09
Special Counsel Section 3.01(b)
Stock Section 4.24
Subordinated Debt Section 4.20
Subsidiaries Section 2.02
Tangible Assets Section 4.20
Tangible Capital Base Section 4.20
Section 1.05. Letters of Credit.
(a) Issuance Procedures. Each Borrower may request and Bank will issue
standby letters of credit (such letters of credit together with any letters
of credit outstanding on the date hereof and any renewal of any such
outstanding letter of credit, collectively "L/Cs") for the account of such
requesting Borrower. With each request, the requesting Borrower shall
deliver to Bank an L/C application and L/C agreement together with the
proposed form of such L/C (which, together with all schedules and exhibits
thereto, shall be in form and substance satisfactory to Bank and its counsel)
and such other certificates, documents and other papers and information as
Bank may reasonably request. Any foreign beneficiary must be satisfactory to
Bank. All L/C's (other than letters of credit which are outstanding on the
date hereof and any renewal of any such outstanding letter of credit) must
expire at least one day prior to the Maturity Date. Within five Banking Days
following receipt of the above-described documents in satisfactory form, Bank
shall, provided that no Event of Default exists and no event exists which,
with the giving of notice or passage of time, or both, would constitute an
Event of Default, issue such L/C.
(b) Reimbursement. The Borrowers agree to pay Bank on each date that
any amount is drawn under an L/C, a sum equal to the amount so drawn. The
Borrowers agree to pay on demand any and all reasonable expenses incurred by
Bank in enforcing any rights under this Section 1.05. In the event any L/C
is payable in foreign currency, the Borrowers shall reimburse Bank at Bank's
selling rate of exchange on the date such reimbursement is made.
(c) Commission. The Borrowers agree to pay Bank in advance two percent
(2%) per year (prorated based upon the number of days from the issue date to
the expiration date) of the face amount of any L/C issued or renewed after
the date hereof, together with any transactional fees at the Bank's customary
rates.
(d) Method of Payment. Bank is authorized to obtain reimbursement by
making Advances under the Revolving Credit. Bank may make such Advance even
if it causes the outstanding balance to exceed the limits set forth in
Section 1.02(a) and the making of such Advance shall be an Event of Default
under Article V.
(e) Amount. The aggregate amount of L/Cs outstanding at any time shall
not exceed $3,550,000.
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Section 1.06. Payment by the Company.
All payments and prepayments of principal and interest due with respect
to the Credit and all other sums due hereunder shall be made by the Borrowers
in immediately available funds deposited with Bank. Payments received by
Bank after 11:00 a.m. Boston time shall be deemed received on the next
succeeding Banking Day. Bank is authorized to make all such payments by
Advances under the Revolving Credit.
Section 1.07. Credit for Uncollected Items.
Bank will give the Borrowers credit for uncollected items deposited with
Bank (a) the next Banking Day for purposes of computing availability under
the Revolving Credit and (b) two Banking Days after deposit for purposes of
computing interest and fees with respect to the Credit.
Section 1.08. Facility Fee.
On the first day of each month (and upon the day of termination if the
Credit is terminated), the Borrowers shall pay Bank a facility fee of
one-half percent (1/2%) per year of the unused portion of the Revolving
Credit for the preceding month.
Section 1.09. Audit Expenses.
The Borrowers shall pay Bank on demand Bank's customary and reasonable
fees and expenses for audit reviews by employees of Bank (currently $400 per
man-day plus out-of-pocket expenses).
Section 1.10. Closing Fee.
On the date hereof, Bank shall earn a one-time closing fee ("Closing
Fee") of $0.00.
ARTICLE II. REPRESENTATIONS AND WARRANTIES.
The Borrowers jointly and severally represent and warrant as follows:
Section 2.01. Corporate Existence and Power.
Each Borrower and its Subsidiaries (as defined in Section 2.02) are duly
organized, validly existing and in good standing under the laws of the
respective jurisdictions of their organization and have full corporate and
other power and authority to conduct businesses and own their properties as
now conducted and owned. Each Borrower and its Subsidiaries are licensed or
qualified as foreign corporations or limited liability corporations in each
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jurisdiction where the conduct of their respective businesses or the
ownership of their respective properties require such licensing or
qualification and where the failure to be so licensed or qualified would have
a material adverse effect on the business, finances or operations of such
Borrower or any of its Subsidiaries.
Section 2.02. Subsidiaries.
Any corporation, business trust, partnership or other business entity in
which any Borrower or any Subsidiary of such Borrower owns or has options to
acquire 50% or more of the voting control shall constitute a Subsidiary. The
Borrowers currently have no Subsidiaries. Powders, AeroCast, ComCast, NMI,
CMI and Holdings are each 100% owned Subsidiaries of StarMet.
Section 2.03. Power and Authority Relative to Borrowing; Legal and
Binding Nature; Compliance with Other Instruments.
Each Borrower and its Subsidiaries has full power and authority and has
taken all required corporate and other action necessary to permit such
Borrower to execute and deliver and perform all of its obligations contained
in this Agreement and all documents or instruments required hereby or
incident or collateral hereto, and to borrow hereunder, and none of such
actions will violate any provision of law applicable to, or of the
organizational documents of, such Borrower or any such Subsidiary, or result
in the breach of or constitute a default under any agreement or instrument to
which such Borrower or any such Subsidiary is a party or by which any of them
is bound. This Agreement and all documents or agreements required hereby or
incident hereto to which the Borrowers are a party are the valid and binding
obligations of the Borrowers enforceable in accordance with their terms.
Neither the execution, delivery nor performance by the Borrowers or any of
their Subsidiaries of any of the obligations contained in this Agreement or
in any document or instrument required hereby or incident or collateral
hereto requires the consent, approval or authorization of any person or
governmental authority.
Neither the Borrowers nor any of their Subsidiaries is in violation of
any term of its charter or by-laws, or any agreement, instrument, mortgage,
indenture, contract, judgment, decree, order, statute, rule or governmental
regulation applicable to the Borrowers or any of their Subsidiaries except
for possible minor violations none of which could, either individually or in
the aggregate, have any material adverse effect on the business, financial
condition or assets of any Borrower or any of their Subsidiaries and except
as otherwise disclosed on an Exhibit to this Agreement. The execution,
delivery and performance of this Agreement, all agreements incident or
collateral hereto, and the Credit will not result in the creation of any
security interest, lien, charge or encumbrance upon any of the properties or
assets of the Borrowers or any of their Subsidiaries except in favor of Bank.
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Section 2.04. Financial Condition.
The audited financial statement dated September 30, 1996 previously
delivered to Bank (the "Base Financial Statement") has been prepared with due
diligence and in accordance with generally accepted accounting principles and
practices. The Base Financial Statement fairly presents the financial
condition of the Borrowers and their Subsidiaries as of the date of such
statement and the results of their operations for the period then ending.
The Borrowers and their Subsidiaries have no material contingent liability
(including, without limitation, contingent tax and environmental liability)
nor any burdensome agreement or commitment which could have a material
adverse effect on its business or financial condition except as disclosed in
the Base Financial Statement and the Proxy Statement.
Section 2.05. No Material Adverse Change.
Since the date of the Base Financial Statement, there has been no
material adverse change in the condition (financial or otherwise), properties
or business operations of any Borrower or any of their Subsidiaries and
neither any Borrower nor any of their Subsidiaries has paid any dividends or
made any distributions on or purchased or otherwise acquired any shares of
the capital stock of any Borrower or any of their Subsidiaries.
Section 2.06. Litigation.
Except as set forth in Exhibit 2.06 hereto, there are no suits or
proceedings pending or, to the best knowledge of the Borrowers, threatened
against or affecting them or any of their Subsidiaries which could have a
material adverse effect on the business, assets or financial condition of
either of the Borrowers or any of their Subsidiaries. Moreover, there are no
suits or proceedings pending or, to the knowledge of the Borrowers,
threatened with respect to the transactions contemplated by this Agreement.
Section 2.07. Title.
Except as set forth in Exhibit 2.07, the Borrowers and their Subsidiaries
have good and marketable title to all of the properties and assets reflected
in the Base Financial Statement or acquired since such date (except for
materials used, inventory sold, accounts receivable collected and other items
disposed of, all in the ordinary course of business), free and clear of all
mortgages, liens and encumbrances except liens permitted by Section 4.14;
easements, restrictions and minor defects in title which do not, either
individually or in the aggregate, materially detract from the value or
materially limit the use of any real property; and certain assets listed on
Exhibit 2.14 which are not owned but which are reflected on the balance sheet
as capitalized leases.
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Section 2.08. Tax Returns and Payments.
Except as set forth on Exhibit 2.08 attached hereto, all of the tax
returns and tax reports relating to taxes on income and, to the best
knowledge of the Borrowers, all other tax returns and reports of each
Borrower and their Subsidiaries required by law to be filed have been duly
filed, or extensions of the time for filing have been duly obtained, and,
except as set forth in Exhibit 2.08 hereto, the Borrowers and their
Subsidiaries have paid all taxes shown due thereon. Except as set forth in
Exhibit 2.08 attached hereto, the federal income tax returns of the Borrowers
and their Subsidiaries have never been audited by the Internal Revenue
Service. Except as set forth on Exhibit 2.08 attached hereto, there are in
effect no waivers of the applicable statutes of limitations for federal taxes
for any period. No deficiency assessment or proposed adjustment of the
federal income taxes of any Borrower or of any of their Subsidiaries is
pending except as set forth in Exhibit 2.08 and the Borrowers have no
knowledge of any proposed liability of a substantial nature for any tax to be
imposed upon any of their properties or assets, for which there is not an
adequate reserve reflected in the Base Financial Statement.
Section 2.09. Compliance with Law.
The Borrowers and their Subsidiaries have all necessary franchises,
permits, licenses and other rights to allow them to conduct their businesses
as presently conducted, and are not in default with respect to any order or
decree of any court, or under any law, order or regulation of any
governmental authority, or under the provisions of any contract or agreement
to which any of them is a party or by which they may be bound, which default
would have a material adverse effect on the business, finances or operations
of any of them.
Section 2.10. Pension Matters.
Neither the Borrowers nor any of their Subsidiaries has incurred (a) any
material accumulated funding deficiency within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or (b) any
material liability to the Pension Benefit Guaranty Corporation in connection
with any employee benefit plan established or maintained by it; nor has any
Borrower or any of their Subsidiaries had any tax assessed against it by the
Internal Revenue Service for any alleged violation under Section 4975 of the
Internal Revenue Code. Neither the Borrowers nor any of their Subsidiaries
has any material unfunded liability under a pension plan or a contingent
liability for withdrawal from a multi-employer pension plan except as
disclosed in the Base Financial Statement.
Section 2.11. Environmental Matters.
Except as set forth on Exhibit 2.11, neither the Borrowers nor any of
their Subsidiaries has (a) been named as a potentially responsible party or
received notice of an investigation that could lead to such designation under
any proposed environmental cleanup; (b) incurred any
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unsatisfied liability (contingent or otherwise) in connection with the
release, spill, generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of hazardous materials, toxic
substances or solid waste under any state or federal environmental law; or
(c) occupied in the past or currently occupies any site designated as
environmentally contaminated. The Borrowers and their Subsidiaries have all
licenses, permits, certificates and similar authorizations required to
conduct its business under applicable environmental laws and is not subject
to any pending investigation or proceeding to revoke, limit or terminate such
authorizations.
Section 2.12. Compliance with Regulation U.
None of the proceeds of the Credit will be used to purchase, carry or
refinance any borrowing the proceeds of which were used to purchase or carry
any "margin securities" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System.
Section 2.13. Credit Agreements.
Set forth on Exhibit 2.13 is a complete and correct list of all existing
loan agreements, indentures, purchase agreements, leases, guarantees or other
instruments relating to extensions of credit or money borrowed for an amount
in excess of $25,000 under which any Borrower or any of their Subsidiaries is
or may become directly or indirectly obligated.
Section 2.14. Leases and Options to Purchase.
Set forth on Exhibit 2.14 is a complete and correct list of all existing
leases with respect to, or options to purchase any, real estate or any
equipment involving a commitment or potential commitment in excess of $25,000
under which any Borrower or any of their Subsidiaries is or may become
directly or indirectly obligated.
Section 2.15. Real Estate Owned.
Set forth on Exhibit 2.15 is a complete and correct list of all real
estate owned by each Borrower or any of their Subsidiaries.
Section 2.16. Fiscal Year.
The fiscal year end for each Borrower is September 30.
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ARTICLE III. CONDITIONS.
Section 3.01. Conditions to the First Advance.
The obligation of Bank to make the first Advance is subject to the
fulfillment of the following conditions:
(a) The Note. The Borrowers shall have executed and delivered to Bank
the Revolving Credit Note.
(b) Legal Opinions from Counsel for the Company. Bank shall have
received the written opinion of Peabody & Arnold, counsel for the Borrowers,
in form satisfactory to Goodwin, Procter & Hoar LLP special counsel to Bank
(said special counsel and any successor counsel shall be hereinafter referred
to as "Special Counsel").
(c) The Security Agreement. The Borrowers shall have executed and
delivered to Bank an amended and restated security agreement in a form
approved by Special Counsel (the "Security Agreement"), granting to Bank a
first priority security interest in all accounts, inventory and general
intangibles of the Borrowers and all financing statements and other documents
in connection therewith shall have been duly filed or recorded.
(d) Patents and Trademarks. The Borrowers shall have delivered to Bank
a current list of all patents, trademarks and applications therefor and shall
have executed and delivered to the Bank agreements in a form approved by
Special Counsel granting the Bank a first priority interest in all patents,
trademarks and applications thereof.
(e) Insurance. Each Borrower shall have delivered to Bank an executed
Certificate of Insurance in the form of Exhibit 3.01(e) hereto.
(f) Compliance Certificate. The Borrowers shall have delivered to Bank
an executed Compliance Certificate dated the date of the first Advance.
(g) Closing Certificate. Each Borrower shall have delivered to Bank an
executed Officer's Closing Certificate in substantially the form of Exhibit
3.01(g)(1) hereto or a Member/Manager Closing Certificate in substantially
the form of Exhibit 3.01(g)(2) hereto, as appropriate.
(h) No Default. No Event of Default and no event which, with the giving
of notice or the lapse of time, or both, would become an Event of Default,
has occurred and is continuing.
(i) Closing Fee. Bank shall have received payment of the Closing Fee.
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Section 3.02. Conditions to Subsequent Advances.
Each request for a subsequent Advance shall be deemed to be a
representation by the Borrowers to Bank that all representations and
warranties contained in Article II hereof or in any Exhibit, Schedule or
Certificate attached hereto or delivered to Bank in connection herewith were
true and correct when made, and continue to be true and correct except those
items which relate to a specific date and except as disclosed to Bank by the
Borrowers, and that no Event of Default, and no event which, with the giving
of notice or the lapse of time, or both, would become an Event of Default,
has occurred and is then continuing.
ARTICLE IV. COVENANTS OF THE COMPANY
The Borrowers jointly and severally covenant that:
Section 4.01. Payment of Amounts Due.
The Borrowers will make all payments of principal and interest on the
Credit in accordance with the terms hereof and thereof and will observe,
perform and comply with each and every one of the covenants, terms and
conditions contained herein, in the Credit or in any other document or
instrument required hereby or incident or collateral hereto to be observed,
performed or complied with by them.
Section 4.02. Corporate Existence.
The Borrowers and each of their Subsidiaries will maintain and preserve
in full force and effect their respective corporate existences and, insofar
as reasonable and practicable, will maintain and preserve in full force and
effect all material rights, licenses, patents and franchises, and comply with
all applicable regulations in all jurisdictions necessary for the conduct of
their businesses.
Section 4.03. Maintenance of Properties.
The Borrowers and each of their Subsidiaries will maintain, preserve,
protect and keep all properties used or useful in the conduct of their
businesses in good repair, working order and condition, and from time to time
make such repairs, renewals, replacements, betterments and improvements
thereto as are necessary to permit such businesses to be properly and
advantageously conducted at all times.
Section 4.04. Payment of Taxes.
The Borrowers and each of their Subsidiaries will pay and discharge all
lawful taxes, assessments and governmental charges or levies imposed upon
them or upon their income or profits, or upon any property belonging to them
before the same shall become past due, as well
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as all lawful claims for labor, materials and supplies, which, if not paid
when due, might become a lien or charge upon such property or any part
thereof; provided, however, that neither the Borrowers nor any of their
Subsidiaries shall be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof shall be contested in
good faith by appropriate proceedings and an adequate reserve for the payment
thereof is established on the books of the appropriate Borrowers or the
appropriate Subsidiary in accordance with generally accepted accounting
principles.
Section 4.05. Compliance with ERISA.
The Borrowers and their Subsidiaries will satisfy, or cause to be
satisfied, the minimum annual funding standard required by ERISA for any
employee benefit plan established or maintained by it which is subject to
ERISA and the Borrowers and their Subsidiaries will not permit any tax or
penalty to be incurred by it as a result of any failure to satisfy any such
minimum funding requirement or as a result of any violation of the provisions
of Section 4975 of the Internal Revenue Code or any regulation issued
thereunder.
Section 4.06. Compliance with Laws.
The Borrowers and their Subsidiaries at all time in all material respects
will comply with applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders and observe all requirements of federal, state,
local and other governmental authorities including, without limitation, all
provisions of the Fair Labor Standard Rules of 1938, the Occupational Safety
and Health Act of 1970 and all applicable environmental laws; provided,
however, that neither the Borrowers nor any of their Subsidiaries shall be
required to comply with such requirements so long as the validity or
applicability thereof shall be contested in good faith by appropriate
proceedings and an adequate reserve is established on the books of such
Borrower or any such Subsidiary in accordance with generally accepted
accounting principles.
Section 4.07. Insurance.
The Borrowers and their Subsidiaries will keep their insurable properties
insured by financially sound and reputable insurers satisfactory to Bank
against such risks and in such amounts as are deemed prudent by the Borrowers
and are reasonably acceptable to Bank and will name Bank as a Loss Payee
under all insurance policies maintained with respect to insurable properties
subject to a security interest or lien in favor of Bank. The Borrowers and
their Subsidiaries will maintain in full force and effect public liability
insurance against claims for bodily injury, death or physical property
damages occurring upon, in, about, or in connection with the use of any
properties occupied or controlled by them, or through the operation of any
motor vehicles by their agents or employees or arising in any manner out of
the businesses carried on by them in such amounts and with such coverages as
are deemed prudent by the Borrowers and are reasonably acceptable to Bank.
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Section 4.08. Accounts and Reports.
The Borrowers will furnish or cause to be furnished to Bank the following
reports:
(a) Annual Reports. As soon as available, and in any event within
ninety (90) days after the end of each fiscal year of the Borrowers,
consolidated and consolidating audited financial statements of the Borrowers,
of the Borrowers, together with all notes thereto, prepared in reasonable
detail and in accordance with generally accepted accounting principles
consistently applied (except there will be no required notes to the
consolidating balance sheet) such consolidated (but not consolidating)
statements to be duly certified by Arthur Anderson & Co., SC or other
certified, independent public accountants selected by the Borrowers and
acceptable to Bank. Such statements shall be accompanied by a statement of
such certified, independent public accountants that the examination made in
certifying such statements did not disclose the existence of any condition or
event which constitutes an Event of Default under this Agreement or which,
after notice or lapse of time or both, would constitute such an Event of
Default, or a statement specifying the nature and period of existence of any
such condition or event disclosed by such examination; provided, however,
that in issuing such statement, such accountants shall not be required to
exceed the scope of normal accounting procedures conducted in connection with
their audit opinion. Notwithstanding the foregoing, delivery within the
period specified above of a copy of the Annual Report on Form 10-K of StarMet
filed with the Securities and Exchange Commission (the "SEC"), shall be
deemed to satisfy the requirements of this Section 4.08(a) so long as the
Form 10-K contains all of the information required by this Section 4.08(a),
or, is otherwise supplemented so that such Form, together with such
supplemental information, satisfies the requirements hereof.
(b) Quarterly Reports. As soon as available, and in any event within
forty-five (45) days after the end of each quarterly accounting period in
each fiscal year of the Borrowers, unaudited consolidated and consolidating
financial statements of the Borrowers prepared in reasonable detail and in
accordance with generally accepted accounting principles consistently applied
(except that such statements need not contain notes thereto) certified by the
chief financial officers of the Borrowers, which statements shall contain
balance sheets as of the end of such accounting period and statements of
profit and loss for the period from the beginning of such fiscal year to the
end of such accounting period. Notwithstanding the foregoing, delivery
within the period specified above of a copy of the Quarterly Report on Form
10-Q of StarMet filed with the SEC, shall be deemed to satisfy the
requirements of this Section 4.08(b) so long as the Form 10-Q contains all of
the information required by this Section 4.08(b), or, is otherwise
supplemented so that such Form, together with such supplemental information,
satisfies the requirements hereof.
(c) Monthly Reports. As soon as available, and in any event within
thirty (30) days after the end of each monthly accounting period in each
fiscal year, consolidated and consolidating unaudited financial statements of
the Borrowers prepared in reasonable detail and
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in accordance with generally accepted accounting principles consistently
applied (except that such statements need not contain notes thereto and
except as may be otherwise required hereby) certified by their respective
chief financial officers, which statements shall contain balance sheets as of
the end of such accounting period and statements of profit and loss for the
period from the beginning of such fiscal year to the end of such accounting
period.
(d) Periodic Reports. With the monthly financial statements furnished
pursuant to subsection (c) hereof, (i) summary of all Advances and L/C's
outstanding at the end of such period, (ii) consolidated and consolidating
accounts receivable aging based on invoice date, (iii) a backlog sales
report, (iv) an updated Compliance Certificate, and (v) such other reports as
Bank shall reasonably request. With the quarterly financial statements
furnished pursuant to subsection (b) hereof, a list of the names and
addresses of the respective customers of each Borrower.
(e) Auditor's Management Letter. Promptly after receipt by any
Borrower, copies of the management letter, if any, provided by the
independent certified public accountants who audit the annual financial
statements.
(f) Public Information. Promptly, copies of all reports and financial
statements which any Borrower sends to its stockholders as a class or which
any Borrower, or any of their Subsidiaries, file with the Securities and
Exchange Commission or any other public body.
(g) Projections. At least thirty (30) days prior to the end of each
fiscal year of the Borrowers, projections for the next fiscal year indicating
the Borrowers' expected operating results (on a consolidated and
consolidating basis) and proposed capital expenditures. Such projections
shall be made on a month-by-month basis.
(h) Accounting Principles. Reports furnished under this Agreement shall
be prepared in accordance with generally accepted accounting principles
except that unaudited statements shall be subject to normal year end
adjustments and there shall be no requirement for notes thereto. Any
accounting terms not otherwise defined shall have the same meaning provided
by generally accepted accounting principles. Compliance with the covenants
set forth in this Agreement will be determined on the basis of accounting
principles used in the preparation of the Base Financial Statements. In the
event that any subsequent reports shall have been prepared in accordance with
accounting principles different than those used in the Base Financial
Statements, the Borrowers shall inform Bank of such changes in accounting
principles and shall provide to Bank, with such subsequent reports, such
supplemental reconciling financial information as may be required to
ascertain performance by the Borrowers and their Subsidiaries with the
covenants contained in this Agreement.
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Section 4.09. Information and Inspection.
At all reasonable times and as often as Bank shall reasonably request on
one (1) day's written notice, the Borrowers will furnish to Bank from time to
time with reasonable promptness full information pertinent to any covenant,
provision or condition hereof or to any matter in connection with their
business and permit any authorized representative designated by Bank to visit
and inspect any of their properties and those of their Subsidiaries,
including their books (and to make extracts therefrom), and to discuss their
affairs, finances and accounts with their officers. The Borrowers and their
Subsidiaries, will, in addition, furnish to Bank with reasonable promptness
such financial information as Bank shall reasonably request. Without
limiting the generality of the foregoing, Bank shall be entitled to conduct
field audits of the accounts receivable and inventory of the Borrowers and
their Subsidiaries, and subject to the limitations set forth in Section 1.09
hereof, the Borrowers shall pay on demand Bank's out-of-pocket expenses and
reasonable field audit fees.
Section 4.10. Additional Advice.
The Borrowers will promptly advise Bank of (i) any material casualty loss
whether or not insured; (ii) the threat of or commencement of any material
litigation; (iii) the assertion by any governmental authority or private
party of a material violation of or material liability arising under any
environmental law; (iv) any change which constitutes or, after notice or
lapse of time or both, would constitute an Event of Default as defined in
Article V of this Agreement; and (v) each waiver, consent or amendment
granted or made with respect to instruments or agreements relating to
borrowed money in excess of $100,000 and each request by any Borrower
therefor.
Section 4.11. Payment of Bank Expenses.
The Borrowers will bear all reasonable expenses incurred by Bank in
connection with the negotiation, preparation, execution, amendment,
interpretation, administration, termination or enforcement of this Agreement
(whether or not the Credit is consummated) and the making and collection of
the Credit, including without limitation, the reasonable fees and
disbursements of Special Counsel and appraisers employed by Bank.
Section 4.12. Limitation on Indebtedness.
Neither the Borrowers nor any of their Subsidiaries will create, incur,
assume, or become, be or remain liable in any manner in respect of, or allow
to exist, any indebtedness (which term includes all indebtedness, obligations
and liabilities which in accordance with generally accepted accounting
principles would be reflected on the balance sheet of any Borrower or any of
their Subsidiaries as a liability and any negative cash balance; all
indebtedness, obligations and liabilities, whether or not assumed by any
Borrower or any of their Subsidiaries, secured by any mortgage, pledge or
lien existing on property owned by any
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Borrower or any of their Subsidiaries; and all amounts representing rental
payments which, in accordance with generally accepted accounting principles,
would be classified as a liability on its balance sheet), except for:
(a) the Credit and any other obligations owed to Bank in connection with
this Agreement or otherwise;
(b) the obligations to Barnwell County, South Carolina and the
Massachusetts Industrial Finance Agency and Bank related to those certain
industrial revenue notes or bonds (collectively "Bonds") issued pursuant to
that certain (i) Indenture dated as of September 27, 1984 between Barnwell
County, South Carolina and Bank, and (ii) Security and Trust Agreement dated
as of June 1, 1985 ("1985 Trust Agreement") between StarMet, the
Massachusetts Industrial Finance Agency and Bank;
(c) indebtedness representing trade debt, wages, employee benefits and
similar indebtedness incurred in the ordinary course of business;
(d) indebtedness secured by liens to the extent permitted by Section
4.14;
(e) liabilities for taxes, assessments, governmental charges, liens or
claims to the extent that payment thereof is not required by Section 4.04;
(f) indebtedness in respect of final judgments for the payment of money
not in excess of $50,000 in the aggregate at any time outstanding (excluding
sums covered by insurance) which has been in force for less than the
applicable appeal period or less than sixty (60) days, whichever is sooner,
provided that such indebtedness may remain outstanding if the appropriate
Borrower or the appropriate Subsidiary at the time shall in good faith be
prosecuting an appeal, or proceedings for review or pending and in respect of
which a stay shall have been obtained pending such appeal or review;
(g) Subordinated Debt;
(h) indebtedness of any Borrower to any other Borrower, provided, that
if such indebtedness is represented by a note or other negotiable instrument,
such note or negotiable instrument shall be delivered to the Bank as
collateral under the Security Agreement;
(i) such other indebtedness of the Borrowers and their Subsidiaries
which is specifically disclosed in Exhibit 4.12 attached hereto;
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Section 4.13. Limitation on Liability for Obligations of Others.
Neither the Borrowers nor any of their Subsidiaries will assume,
guarantee, endorse or otherwise be or become liable, contingently or
otherwise, for the obligations of any other corporation, firm or entity or
other person, except:
(a) guarantees in favor of the Bank in connection with the Bonds;
(b) for the endorsement of negotiable instruments for deposit or
collection in the normal course of its business;
(c) guarantees and other contingent liabilities which are disclosed on
Exhibit 4.13; and
(d) guarantees by any Borrower of the obligations of any other Borrower,
provided, that such obligations are permitted under Section 4.12.
Section 4.14. Limitation on Liens.
Neither the Borrowers nor any of their Subsidiaries will create, incur,
assume or allow to be created, incurred or assumed, or to exist, any pledge
of, or any mortgage, lien, charge or encumbrance of any kind on, any of its
property or assets, or subject any of such assets to prior payments of any
other indebtedness whether by subordination agreement, transfer of assets or
otherwise, or own or acquire or agree to acquire any property of any
character subject to or upon any mortgage, conditional sale agreement or
other title retention agreement except:
(a) liens in favor of Bank;
(b) any lien securing the purchase price of any fixed asset to be used
in the business of any Borrower or any of their Subsidiaries, but not any
renewal, extension or refunding of any such lien or the indebtedness secured
thereby, provided that (i) each such lien shall at all times be confined
solely to the item of property so acquired, and (ii) the aggregate
indebtedness secured by all such liens does not exceed $500,000 at any one
time or if such indebtedness so exceeds $500,000, Bank has consented in
writing in advance of the subject transaction;
(c) liens for taxes, assessments, governmental charges and levies or for
claims to the extent that payment thereof is not then required by such
Section 4.04;
(d) liens in respect of judgments which had been in force for less than
the applicable appeal period or less than sixty (60) days, whichever is
sooner, so long as execution is not levied thereunder, or in respect of which
the appropriate Borrower or the appropriate
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Subsidiary at the time shall in good faith be prosecuting an appeal, or
proceedings for review are pending and in respect of which a stay of
execution shall have been obtained pending such appeal or review;
(e) liens on deposits made in connection with, or to secure payment of,
workmen's compensation, unemployment insurance or similar programs; liens,
charges or encumbrances imposed by law, such as carriers', warehousemen's and
mechanics' liens and similar involuntary liens arising in the ordinary course
of business which do not, individually or in the aggregate, materially
detract from the value or limit the use of any property subject thereto;
landlords' liens in respect of rent not in default; and liens on deposits
made to secure the performance of bids, appeal bonds and surety bonds; and
(f) liens and encumbrances which are disclosed on Exhibit 4.14.
Section 4.15. Sale of Accounts Receivable.
Neither the Borrowers nor any of their Subsidiaries will sell or transfer
any of its accounts receivable, whether with or without recourse.
Section 4.16. Loans and Investments.
Neither the Borrowers nor any of their Subsidiaries will purchase or
otherwise acquire or retain any stock, partnership interest, or obligations
of, or make any loans or advances to, or investments in any corporation or
other entity or person, including loans or advances to or investments in any
Borrower by StarMet other than:
(a) the present investment of StarMet in its Subsidiaries;
(b) open account transactions between the Borrowers and between
Subsidiaries in the ordinary course of business;
(c) loans or advances for reimbursable expenses to employees not
exceeding $50,000 outstanding in the aggregate at any time;
(d) obligations of the United States of America, or any agency thereof,
maturing not more than one (1) year from the date of issue thereof, provided
that Bank shall acquire a perfected first security interest in such
obligation simultaneously with its purchase or acquisition;
(e) certificates of deposit or other obligations maturing not more than
one (1) year from the date of issue thereof issued by a bank, provided that
Bank have a perfected first security interest in such obligation;
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(f) indebtedness of any Borrower to any other Borrower permitted
pursuant to Section 4.12(h); and
(g) loans or advances by StarMet to any other Borrower.
Section 4.17. Transactions With Affiliated Persons.
Except as set forth on Exhibit 4.17, neither the Borrowers nor any of
their Subsidiaries will enter into any transaction with any Affiliate, except
on terms no less favorable to either such Borrower or any such Subsidiary
than would be available in a bona fide arm's length transaction with a
non-affiliated person or entity. "Affiliate" means any officer, director or
shareholder who owns ten percent (10%) or more of any class of securities of
StarMet or any Subsidiary of StarMet; any entity where any Borrower owns
directly or indirectly ten percent (10%) or more of any class of securities
or interest issued by such entity; or any entity that controls, is controlled
by or under common control with any Borrower or any of their Subsidiaries.
Section 4.18. Consolidation, Merger and Disposition of Assets.
Neither the Borrowers nor any of their Subsidiaries will consolidate with
or merge into or with another corporation, partnership or other entity;
directly or indirectly issue, sell, assign, pledge or otherwise encumber or
dispose of any shares of its capital stock or the capital stock of any such
Subsidiary; sell, lease or otherwise dispose of all or any material portion
of its properties or assets (other than in the ordinary course of its
business) to any firm, person or corporation; or acquire any material portion
of the properties or assets of any other corporation, partnership or entity,
whether in one or a series of related transactions, except:
(a) any Subsidiary may merge into or consolidate with its respective
parent Borrower (provided that such Borrower shall be the surviving
corporation);
(b) any Borrower may transfer equipment to any other Borrower;
(c) StarMet may issue capital stock for cash and may issue options or
warrants to any person for cash or to employees for services;
provided that in each case no Event of Default as set forth in Article V
hereof, and no condition or event which after notice or lapse of time, or
both, would constitute an Event of Default, would exist immediately after any
such transaction or series of related transactions.
Section 4.19. Changes in Business.
Neither the Borrowers nor any of their Subsidiaries will materially alter
the nature of its business.
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Section 4.20. Debt-Tangible Capital Base.
The ratio of Debt to Tangible Capital Base of the Borrowers on a
consolidated basis shall not exceed at any time 1.20 to 1.0.
"Debt" shall mean the sum of consolidated liabilities (including all
liabilities to Bank), both short-term and long-term, of the Borrowers and all
of their Subsidiaries, but excluding stockholders equity and Subordinated
Debt.
"Subordinated Debt" means the outstanding principal amount of any debt of
any Borrower which is subordinated to the obligations of the Borrowers to
Bank in form and substance satisfactory to Bank and its Special Counsel.
"Tangible Assets" shall mean the consolidated assets of the Borrowers and
all Subsidiaries, less intangible assets such as goodwill, organization
expenses, patents, trademarks, copyrights, research and development costs,
training costs, unamortized debt discount and similar items deemed to be
intangible by Bank.
"Tangible Capital Base" shall mean Tangible Assets, less Debt, plus
Subordinated Debt.
Section 4.21. Tangible Capital Base.
The Tangible Capital Base of the Borrowers shall be not less than
$25,000,000 at any time.
Section 4.22. Net Income.
The Net Income of the Borrowers for the periods set forth below shall not
be less than the amounts set forth opposite such periods:
Period Net Income
------ ----------
each consecutive three month period $300,000
"Net Income" shall mean the consolidated net income of the Borrowers before
interest and taxes.
Section 4.23. Capital Expenditure.
In any fiscal year, unless Bank otherwise consents in writing, the
Borrowers and their Subsidiaries on a consolidated basis shall not make or
incur expenditures which are properly
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chargeable to capital account under generally accepted accounting principles
(including leases which are capitalized) in an aggregate amount in excess of
$1,000,000.
Section 4.24. Restricted Payments.
Neither the Borrowers nor any of their Subsidiaries will, directly or
indirectly, declare, order, pay or make any Restricted Payment (as
hereinafter defined), except the Borrowers may prior to the occurrence of an
Event of Default or an event which with notice or the passage of time will
constitute an Event of Default, and provided that such Restricted Payment
will not constitute an Event of Default or such an event:
(a) declare and pay dividends on its Stock payable solely in Stock;
(b) make exchanges of one or more classes of Stock provided that no cash
or other property is distributed in such exchange; or
(c) retire Stock out of the net proceeds of the simultaneous sale of
other Stock; and
(d) pay principal and interest on Subordinated Debt to extent permitted
by Bank pursuant to a subordination agreement or agreements in form and
substance satisfactory to Bank.
For the purposes of this Section 4.24, the following terms shall have the
following respective meanings:
(i) Restricted Payments shall mean:
(a) any payment or declaration of any dividend on any class of Stock
of StarMet or any other distribution on account of any class of
Stock;
(b) any redemption, purchase or other acquisition by StarMet,
directly or indirectly, of any shares of its Stock; and
(c) any payments of principal or interest made by any Borrower in
respect of any Subordinated Debt.
(ii) "Stock" shall mean capital stock and warrants or options to purchase
stock.
Section 4.25. Restriction on Use of Proceeds.
None of the proceeds of the Credit shall be used by the Borrowers to
purchase commodities except for use in the ordinary course of the Borrowers'
business or for the purpose of purchasing or carrying, or refinancing any
borrowing the proceeds of which were
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used to purchase or carry any "margin securities" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System.
Section 4.26. Controlling Interest.
StarMet will at all times own 100% of the issued and outstanding capital
stock or membership interests, as appropriate, of each of the Borrowers.
Section 4.27. Bank Accounts.
The Borrowers shall maintain at all times their principal operating
accounts with Bank and other operating accounts with other banks approved by
Bank. A complete list of all existing banks, mutual fund, brokerage or other
accounts containing cash, cash equivalents or marketable securities for the
Borrowers and all of their Subsidiaries is set forth on Exhibit 4.27.
Neither the Borrowers nor any of their Subsidiaries will open any further
account of the type required to be listed on Exhibit 4.27 without prior
notice in writing to Bank.
Section 4.28. Further Security.
The Borrowers agree to provide Bank with such security interest or liens
as Bank may hereafter reasonably request with respect to their assets or
assets of any of their Subsidiaries.
Section 4.29. Fiscal Year.
The Borrowers shall (a) maintain the same fiscal year end, and (b) not
change such fiscal year end without prior written consent of Bank.
Section 4.30. Amendments to Documents.
No Borrower shall agree to any amendment or modification to any
instrument or agreement executed by any Borrower in connection with any
Subordinated Debt or any of the Bonds, nor shall any Borrower request, or
consent to, any waiver of any provision contained in any of the foregoing.
ARTICLE V. EVENTS OF DEFAULT.
If, while any part of the principal of or interest on the Credit remains
unpaid or while this Agreement shall be in effect, any one of the following
"Event of Default" shall occur:
(a) nonpayment of principal of the Revolving Credit when due;
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(b) failure to pay any Advances in excess of the Maximum Credit as
required by Section 1.02(b);
(c) failure to pay any amounts due with respect to letters of credit
issued by Bank when due;
(d) nonpayment of interest on the Advances when due;
(e) any Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of it or of all or a substantial part of its
assets; (ii) admit in writing its inability to pay its debts as they mature;
(iii) make a general assignment for the benefit of creditors; (iv) be
adjudicated a bankrupt or insolvent; (v) file a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization or an
arrangement with creditors to take advantage of any insolvency law; (vi) file
any answer admitting the material allegations of a petition filed against it
in any bankruptcy, reorganization or insolvency proceeding or fail to dismiss
such petition within thirty (30) days after the filing thereof; or (vii) take
any corporate action for the purpose of effecting any of the foregoing;
(f) an order, judgment or decree shall be entered, without the
application, approval or consent of any Borrower by any court of competent
jurisdiction, approving a petition seeking reorganization or liquidation of
such Borrower or appointing a receiver, trustee or liquidator of any Borrower
or of all or a substantial part of its assets;
(g) any representation or warranty made by the Borrowers herein or
hereunder or in any certificate, document or instrument furnished pursuant
hereto shall prove to have been false or incorrect in any material respect
when made;
(h) default by the Company in the performance of any covenant or
agreement contained in Sections 4.01 through 4.19 or Sections 4.23 through
4.30;
(i) except as otherwise set forth herein, default by the Company in the
performance of any other covenant or agreement contained herein or in any
document or instrument required hereby or incidental or collateral hereto
which shall not have been remedied within thirty (30) days after written
notice thereof shall have been given to the Borrowers by Bank;
(j) default by any Borrower in the performance of any covenant or
agreement contained in any other agreement to which it is a party or by which
it is bound involving a liability in excess of $100,000 which shall not be
remedied within the period of time (if any) within which such other agreement
permits such default to be remedied without the consent or waiver of the
other party thereto, unless such default is waived or excused as a matter of
law;
(k) failure by any Borrower to make any payment of principal or interest
beyond the period of grace contained in the respective instrument or
agreement evidencing any
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indebtedness for money borrowed in excess of $100,000 to which it is a party
or by which it may be bound (unless such default is the result of a good
faith dispute arising under such agreement or instrument), or default by any
Borrower in the performance of any other covenant or agreement contained in
any such agreement or instrument which results in the acceleration of the
maturity of any indebtedness to others of such Borrower under such agreement
or instrument;
(l) default by any Borrower in the performance of any covenant or
agreement contained in the Security Agreement or other documents in favor of
Bank executed in connection with this Agreement which continues beyond any
grace period provided therein;
(m) all or any substantial part of the property of any Borrower shall be
condemned, seized or otherwise appropriated by any governmental authority or
any officer or instrumentally thereof;
(n) a judgment or judgments for the payment of money in excess of the
sum of $100,000 in the aggregate (not covered by insurance) shall be rendered
against any Borrower and such judgment or judgments shall remain unsatisfied
and in effect for any period of sixty (60) days without a stay of execution;
(o) there shall occur any material adverse change in the financial
condition of any Borrower;
(p) (i) George Matthews shall cease, for any reason, to be the Chairman
and Chief Executive Officer of StarMet and a successor to Mr. Matthews
reasonably satisfactory to Bank, shall not have become Chairman and Chief
Executive Officer within ninety (90) days of the date of cessation, or (ii)
Robert Quinn shall cease, for any reason, to be the President of StarMet and
a successor to Mr. Quinn reasonably satisfactory to Bank, shall not have
become President within ninety (90) days of the date of cessation, provided,
however, that in either event, an Event of Default shall not arise until
sixty (60) days after Bank has given the Borrowers written notice thereof;
then and in every such event, while such event shall be continuing, Bank may,
by written notice to the Borrowers, declare the Credit (and any Notes issued)
to be forthwith due and payable, whereupon the Credit shall forthwith become
due and payable and the right to borrow hereunder shall terminate; provided,
however, that upon the happening of any event under Subsections (e) or (f) of
this Article V, then the Credit shall, without the taking of any action by
Bank, immediately become due and payable and the right to borrow hereunder
shall immediately terminate.
ARTICLE VI. MISCELLANEOUS.
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Section 6.01. Term of Agreement.
This Agreement shall terminate whenever all of the following conditions
shall have been met: (i) all principal of and interest of the Credit and all
other amounts due and payable under this Agreement have been paid and
discharged in full, (ii) all letters of credit or other financial
accommodation provided by Bank shall have been terminated or an indemnity
provided in a form acceptable to Bank, (iii) the Borrowers shall have
provided indemnity by cash or other collateral satisfactory to Bank for any
projected fees, expenses and other contingent liabilities, and (iv) the
Borrowers shall have no further right to borrow under the Credit.
Section 6.02. Indemnity.
The Borrowers agree to indemnify and hold harmless Bank and each of their
directors, officers, agents, employees and counsel, from and against any and
all losses, claims, damages, liabilities or expenses imposed on or incurred
by any of them in connection with the lending relationship reflected in this
Agreement except as a result of such indemnified parties' negligence or
willful misconduct. This indemnity shall survive termination of the
Agreement.
Section 6.03. Consent to Jurisdiction.
Each Borrower irrevocably consents and submits to the non-exclusive
jurisdiction of the Superior Court in the Commonwealth of Massachusetts and
the United States District Court for the Eastern District of Massachusetts in
connection with any action, proceeding or claim arising out of or relating to
this Agreement or other document executed in connection with this Agreement.
In any such litigation, each Borrower waives personal service and agrees that
service may be made in the manner specified for Notices under this Agreement.
Section 6.04. Waiver of Jury Trial.
Each Borrower waives trial by jury in any action or proceeding of any
kind arising out of or relating to this Agreement or other document executed
in connection with this Agreement.
Section 6.05. Notices.
Except as otherwise specifically provided in this Agreement, all notices
hereunder shall be deemed to have been given when delivered in person or, if
mailed, when actually received by the party to whom addressed; provided,
however, that any written notice given pursuant to Article V hereof shall be
deemed to be effective when mailed, so long as such notice is mailed by
registered or certified mail, addressed
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to any party at its address set forth below or at any other address notified
in writing to the other parties hereto. Actual receipt shall be conclusively
presumed if such notice shall be mailed by registered or certified mail,
addressed to any party at its address set forth below or at any other address
notified in writing to the other parties hereto by notice pursuant to this
Section, and if the sender shall have received back a return receipt.
To Bank: State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: William R. Dewey IV
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Jon D. Schneider, P.C.
To the Borrowers: c/o StarMet Corporation
2229 Main Street
Concord, MA 01742
Attn: James M. Spiezio
With a copy to: Peabody & Arnold
50 Rowes Wharf
Boston, Massachusetts 02110
Attention: Thomas A. Wooters, Esq.
Section 6.06. No Waiver.
No failure to exercise, and no delay in exercising, on the part of Bank,
any right, power or privilege hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The rights and remedies herein provided
are cumulative and not exclusive of any rights or remedies provided by law.
Section 6.07. Setoff.
Any sums due from Bank to any Borrower, any property in the possession of
Bank and any balance in the Borrower's accounts with Bank may be held and
treated as collateral security for the payment of the obligations of the
Borrowers to Bank and, after the occurrence of an Event of Default, may be
applied to the payment of such obligations regardless of the adequacy of
other collateral. Any sums due from any financing institution that may
participate in the Credit or property of the Borrowers in the possession of
such institution may be held as collateral security for the payment of the
obligations of the Borrowers to Bank as if such institution had extended the
Credit directly to the Borrowers and, after the occurrence of an
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Event of Default, may be applied to the payment of such obligations
regardless of the adequacy of other collateral.
Section 6.08. Construction.
This Agreement shall be deemed to be a contract made under the laws of
the Commonwealth of Massachusetts, and shall be construed in accordance with
the laws of the Commonwealth of Massachusetts. The descriptive headings of
the several Sections hereof are for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
Section 6.09. Amendments, Waivers and Consents.
Compliance by the Borrowers with any term, covenant or condition of this
Agreement may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively) only by a consent or
consents in writing signed by Bank.
Section 6.10. Counterparts.
This Agreement may be executed in any number of counterparts which
together shall constitute one Agreement.
Section 6.11. Joint and Several Obligations.
The obligations of the Borrowers hereunder and under any agreement or
instrument executed in connection herewith, including the Notes, shall be
joint and several; provided, however, that the obligations of any Borrower
shall be limited to the maximum amount that can be incurred without rendering
such liability void under applicable law.
Section 6.12. Prior Facilities.
The Credit is in substitution for the $6,550,000 line of credit facility
that was previously made available by Bank to StarMet and CMI under the
Original Credit Agreement and each of the Borrowers and Bank acknowledge and
agree that all rights and claims under or relating to the Original Credit
Agreement have been terminated and waived and (i) Bank has no further
obligations to StarMet and CMI thereunder, and (ii) StarMet and CMI have no
further obligations to Bank thereunder, provided, however, that Section 6.02
of the Original Credit Agreement shall survive termination of the Original
Credit Agreement and nothing in this Section 6.12 shall be deemed a waiver by
the Bank of its rights and claims under Section 6.02 of the Original Credit
Agreement.
Section 6.13. Guarantees.
28
<PAGE>
Each Borrower irrevocably and unconditionally guarantees the payment and
performance of the obligations to Bank of the other Borrower under, arising
from or relating to any L/C which is outstanding as of the date hereof and
each of the Borrowers, other than StarMet, guarantees the payment and
performance of the obligations of StarMet to Bank under, arising from or
relating to the Bonds issued in connection with the 1985 Trust Agreement,
including without limitation, any guaranty of such Bonds by StarMet in favor
of Bank. The above guarantees are of payment and not collection.
Section 6.14. Confidentiality, etc.
The Bank agrees to use reasonable precautions to keep confidential, in
accordance with safe and sound banking practices, any non-public information
supplied to it by the Borrowers pursuant to this Agreement which is
identified by the Borrowers as being confidential at the time the same is
delivered to the Bank, provided that nothing herein shall limit the
disclosure of any such information (i) to the extent required by statute,
rule, regulation or judicial process, (ii) to counsel for the Bank, (iii) to
bank examiners, auditors or accountants, (iv) in connection with any
litigation to which the Bank is a party, (v) to any assignee or participant
(or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first executes and
delivers to the respective Bank a confidentiality agreement, or (vi) to the
extent it subsequently becomes public. The Bank may assign or sell
participations in, all or any part of the Credit to another bank or other
entity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
STARMET CORPORATION
By: /s/ James M. Spiezio
--------------------------------
Name: James M. Spiezio
Title: Vice President Finance
STARMET POWDERS, LLC
By: /s/ James M. Spiezio
---------------------------------
Name: James M. Spiezio
Title: Treasurer
29
<PAGE>
STARMET AEROCAST, LLC
By: /s/ James M. Spiezio
---------------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMCAST, LLC
By: /s/ James M. Spiezio
---------------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET NMI CORPORATION
By: /s/ James M. Spiezio
---------------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET CMI CORPORATION
By: /s/ James M. Spiezio
---------------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
By: /s/ James M. Spiezio
---------------------------------
Name: James M. Spiezio
Title: Treasurer
30
<PAGE>
NMI FOREIGN SALES CORPORATION
By: /s/ James M. Spiezio
---------------------------------
Name: James M. Spiezio
Title: Treasurer
STATE STREET BANK AND TRUST
COMPANY
By: /s/ William R. Dewey IV
---------------------------------
Name: William R. Dewey IV
Title: Vice President
31
<PAGE>
Exhibit 2.02
Subsidiaries
None.
32
<PAGE>
Exhibit 2.06
Litigation
No pending or threatened litigation.
33
<PAGE>
Exhibit 2.07
Title
None.
34
<PAGE>
Exhibit 2.08
Tax Returns and Payments
StarMet is not currently being audited by the Internal Revenue Service or any
other taxing authority. StarMet was audited for fiscal years ended 1993 and
1994. StarMet was also previously audited by the Internal Revenue Service
for the fiscal years ended 1989, 1990, 1991 and 1992.
35
<PAGE>
Exhibit 2.10
Pension Matters
None.
36
<PAGE>
Exhibit 2.11
Environmental Matters
StarMet is named as a Potentially Responsible Party (PRP) in regard to the
Maxey Flats, Kentucky, Superfund Site.
StarMet has received a notice of responsibility letter from the state of
Massachusetts in regards to a closed holding basin facility on its property
in Concord, Massachusetts. The basin facility and the Concord property have
been classified as a priority disposal site, requiring remediation. StarMet
has entered into a contract with Zhargrus Environmental, Inc. for the
disposal of any hazardous waste at the basin facility.
As part of the five-year relicensing process under the federal Nuclear
Regulatory Commission (NRC), StarMet was reissued NRC licenses for both the
Concord and Barnwell facilities. The relicensing program is now being
administered in Massachusetts by the Massachusetts Department of Public
Health ("DPH"), and in the State of South Carolina by the South Carolina
Department of Health and Environmental Control ("DHEC"). StarMet has
approached both DPH and DHEC regarding (i) the transfer of the Concord
license to StarMet NMI Corporation and (ii) changing the name of the Barnwell
license to reflect CMI's change of name.
StarMet has had ongoing discussions with the these agencies regarding
Decontamination and Decommissioning funding and financial assurance plans. At
present, StarMet has posted letters of credit with each of DPH and DHEC in
the respective amounts of (i) $750,000 for DPH and (ii) $2,800,000 and
$73,024 for DHEC as security for Decontamination and Decommissioning expenses.
37
<PAGE>
Exhibit 2.13
Credit Agreements
- - $3,200,000 Barnwell County, South Carolina Industrial Development Revenue
Note, September 27, 1984 (Carolina Metals, Inc.) (the "CMI IRB")
- - $500,000.00 Palmetto Federal Savings Bank of South Carolina, November 29,
1995, and a separate letter of credit in the amount of $73,024 (Carolina
Metals as Obligor and StarMet as Guarantor) (collectively, the "Palmetto
Loan")
- - StarMet Corporation has issued subordinated debentures to the following
individuals (collectively, the "Debentures"):
Date of Maturity
Name Issue Date Amount
---- ------- -------- ------
Melvin Chrein 12-Jan-96 30-Sep-98 $ 83,500
WIAF Investors 12-Jan-96 30-Sep-98 334,000
George Matthews 12-Jan-96 30-Sep-98 83,000
Marshall Chrein 18-Sep-96 30-Sep-98 25,000
Charles Alpert 18-Sep-96 30-Sep-98 225,000
Meryl Chrein 18-Sep-96 30-Sep-98 100,000
Roger Marino 09-Sep-97 22-Sep-00 500,000
------------
$ 1,350,500
------------
------------
38
<PAGE>
Exhibit 2.14
Leases and Options to Purchase
<TABLE>
<S> <C> <C> <C> <C>
ALCO Capital Purchase Order #100717 $76,260.00 06/22/94 5 yr lease
RESOURCE INC.
AT&T Equipment Lease #0004721 $77,101.91 05/13/97 5 yr lease
IKON Purchase Order #100990 $129,000.00 12/30/96 5 yr lease
</TABLE>
39
<PAGE>
Exhibit 2.15
Real Estate Owned
- - Concord, MA - Approximately 46.4 acres of land with a steel and masonry
building which contains approximately 180,000 square feet, owned by StarMet
NMI Corporation.
- - Barnwell, SC - Approximately 321 acres of land with a 109,000 square foot
facility that contains two manufacturing units owned by StarMet CMI
Corporation ("CMI"). Adjacent to the manufacturing facility is a 70,000
square DU Recycle Technology Center.
40
<PAGE>
Exhibit 4.12(i)
Permitted Indebtedness
1. The Palmetto Loan.
2. The Debentures.
41
<PAGE>
Exhibit 4.13
Permitted Liability for Obligations of Others
1. CMI is the obliger and NMI is the guarantor under the Palmetto Loan.
42
<PAGE>
Exhibit 4.14
Permitted Liens
Limitations on Liens
1. The CMI IRB is secured by a lien on the South Carolina real property.
2. The Palmetto Loan is secured by a lien on CMI's assets subordinated to the
CMI IRB lien and is subject to an Amended and Restated Subordination and
Inter Creditor Agreement by and among Palmetto, CMI, StarMet and Bank dated
April __, 1996.
43
<PAGE>
Exhibit 4.17
Transactions with Affiliates
StarMet expects to license or assign various intellectual property that it
owns to its operating subsidiaries.
44
<PAGE>
Exhibit 4.27
Bank Accounts
Bank Account #
- ---- ---------
BankBoston 396-976-9
BankBoston 1012-215-7
BankBoston 632-878-4
BankBoston 211-4624427
Rigg's National Bank 08-538-374
Fidelity Investments 0059-00080342702
Fidelity Investments 349797399
Hudson National Bank 20655
Palmetto Federal Savings Bank 803304925
Palmetto Federal Savings Bank 803304918
45
<PAGE>
Exhibit 2.01
Corporate Existence and Power
FSC is not in good standing in the U.S. Virgin Islands.
46
<PAGE>
AMENDED AND RESTATED
JOINT SECURITY AGREEMENT
AGREEMENT made as of this 1st day of October, 1997, by and among STARMET
CORPORATION, a Massachusetts corporation (f/k/a Nuclear Metals, Inc.)
("StarMet"), STARMET POWDERS, LLC, a Delaware limited liability corporation
("Powders"), STARMET AEROCAST, LLC, a Delaware limited liability corporation
("AeroCast"), STARMET COMCAST, LLC, a Delaware limited liability corporation
("ComCast"), STARMET NMI CORPORATION, a Massachusetts corporation ("NMI"),
STARMET CMI CORPORATION, a Delaware corporation (f/k/a Carolina Metals, Inc.)
("CMI"), STARMET HOLDINGS CORPORATION, a Massachusetts corporation
("Holdings"), NMI FOREIGN SALES CORPORATION, a U.S. Virgin Islands
corporation ("FSC", and together with StarMet, Powders, AeroCast, ComCast,
NMI, CMI and Holdings, the "Borrowers") and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts chartered trust company ("Bank").
WITNESSETH:
WHEREAS, StarMet, CMI and the Bank are parties to an Amended and Restated
Credit Agreement dated as of March 31, 1995, as amended by a First Amendment
to Credit Agreement dated as of June 30, 1995, a Second Amendment to Credit
Agreement dated as of December 24, 1996 and a Third Amendment to Credit
Agreement dated as of August 7, 1997 (the "Original Credit Agreement");
WHEREAS, StarMet is engaged in a restructuring where certain of its
business lines will be transferred to newly organized subsidiaries as
described in a proxy statement dated August 26, 1997 (the "Proxy Statement");
WHEREAS, pursuant to the terms of that certain Joint Security Agreement
dated as of March 31, 1995, executed by StarMet and CMI in favor of Bank (the
"Original Security Agreement"), StarMet and CMI have previously granted to
the Bank a security interest in the Collateral (as hereinafter defined) to
secure StarMet and CMI's obligations under the Original Credit Agreement;
WHEREAS, the Borrowers and the Bank have agreed to amend and restate the
Original Credit Agreement so as to, among other things, add Powders,
AeroCast, ComCast, NMI, and Holdings as "Borrowers" under the Original Credit
Agreement and continue to provide for revolving credit facilities to the
Borrowers;
WHEREAS, the Borrowers and the Bank executed the Amended and Restated
Credit Agreement dated as of the date hereof (as amended and in effect from
time to time, the "Credit Agreement"); and
WHEREAS, it is a condition precedent to the agreement of the Bank to
enter into the Credit Agreement and to extend credit to the Borrowers
thereunder that the Borrowers execute
<PAGE>
and deliver this Amended and Restated Joint Security Agreement to secure the
obligations of the Borrowers under the Credit Agreement and restate the
Original Security Agreement in its entirety on the terms set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed as follows:
1. Security Interest. The Borrowers grant Bank a security interest
("Security Interest") in all personal property and fixtures of the Borrowers,
of every kind and description, tangible or intangible all wherever located
and whether now existing or hereafter acquired or arising, including without
limitation, all accounts, inventory, equipment and other goods, documents,
instruments, chattel paper and general intangibles (as such terms are defined
by the Uniform Commercial Code), and the proceeds therefrom (including
without limitation, proceeds of insurance and proceeds in deposit accounts)
and accessions thereto all as more particularly described in the attached
Exhibit A (the "Collateral").
2. Obligations. The Security Interest shall secure the following,
obligations (herein the "Obligations"):
(a) The prompt and complete payment when due (whether by
acceleration otherwise) of the Revolving Credit (as defined in the Credit
Agreement);
(b) The prompt and complete payment when due of all obligations of
the Borrowers with respect to L/C's (as defined in the Credit Agreement);
(c) Any and all other obligations of the Borrowers under the
Credit Agreement or under any other document, agreement or instrument
executed in connection with the Credit Agreement;
(d) Any and all obligations of any Borrower in connection with,
related to or arising from that certain Indenture dated as of September 27,
1984 between Barnwell County, South Carolina and Bank; and
(e) Any and all other liabilities and obligations of every name
and nature whatsoever of any Borrower to Bank whether such liabilities and
obligations be direct or indirect, absolute or contingent, secured or
unsecured, now existing or hereafter arising, or acquired, due or to become
due including, without limitation and without regard as to whether or not
contemplated at the time of this Agreement, any extensions of credit
hereinafter made by Bank to any Borrower (including any such extension
pursuant to a foreign exchange line of credit or any liability or obligation
of any Borrower to Bank arising from any foreign exchange transaction), any
obligations of any Borrower acquired by Bank, and any Guaranties by any
Borrower of obligations owed by others to Bank.
3. Financing Statements and Other Action. The Borrowers agree to do
all acts which Bank deems necessary or desirable to protect and enforce the
Security Interest including, but not limited to, the execution of financing,
continuation, amendment and termination statements and similar instruments.
Each Borrower hereby irrevocably appoints Bank as its attorney-in-fact (which
power is coupled with an interest) to execute financing, continuation,
2
<PAGE>
amendment and termination statements and similar instruments; provided, that
Bank shall exercise this power only after Bank has requested that such
Borrower execute such statements and instruments and such Borrower does not
so execute and deliver to Bank the subject statements and instruments within
two days of such request.
4. Borrowers Places of Business. The Borrowers jointly and severally
represent and warrant that their respective places of business, chief
executive office, the location where the records concerning their respective
accounts and contract rights are located and the record owners of any real
estate on which any of the Collateral is located are as set forth on Exhibit
B attached hereto. The Borrowers agree to notify Bank of the addition or
discontinuance of any place of business, chief executive office or any chance
in the information contained on Exhibit B. None of the Collateral shall be
removed from the locations specified on Exhibit B other than sales in the
ordinary course of business unless Bank is given thirty (30) days prior
written notice of such removal, which notice shall state the location or
locations to which the Collateral will be removed. The Borrowers jointly
represent and warrant that all of the Collateral presently is located at the
locations set forth on Exhibit B and agrees that the Collateral will remain
at such locations and at such other locations of which Bank receives notice
in accordance with this Paragraph 4.
5. Name. The Borrowers jointly represent and warrant that their
precise legal names are set forth in the introduction to this Agreement and
agree to notify Bank immediately of any change in such legal names.
6. Encumbrances. Each Borrower represents and warrants that it has
title to the Collateral in which it has rights and that there are no sums
owed or claims, liens, security interests or other encumbrances against the
Collateral other than those permitted by the Credit Agreement. The Borrowers
agree to notify Bank of any lien (except inchoate liens arising by the
operation of law), security interest or other encumbrance securing, an
obligation in excess of $50,000 against the Collateral (even though permitted
by the Credit Agreement). Borrowers shall defend the Collateral against any
claim, lien, security interest or other encumbrance adverse to Bank, except
for liens permitted by the Credit Agreement.
7. Maintenance of Collateral. The Borrowers shall preserve the
Collateral for the benefit of Bank. Without limiting the generality of the
foregoing, the Borrowers shall:
(a) sell inventory only in the ordinary course of business;
(b) preserve all beneficial contract rights to the extent
commercially reasonable;
(c) take commercially reasonable steps to collect all accounts; and
(d) pay all taxes, assessments or other charges on the Collateral
when due, except to the extent otherwise permitted by the Credit Agreement.
8. Collection. Bank may communicate with account debtors in order to
verify the existence, amount and terms of any accounts or contract rights. The
Borrowers will maintain
3
<PAGE>
such lockbox or blocked accounts as Bank shall specify. All proceeds of
Collateral in the possession of the officers, employees or agents of the
Borrowers shall be held in trust for the benefit of Bank. All proceeds of
Collateral including, without limitation, collections from accounts and
proceeds from cash sales of Collateral shall be deposited into such lockbox
or blocked accounts or remitted directly to Bank.
At any time after the occurrence and during the continuance of an Event
of Default, Bank (a) may notify account debtors of the Security Interest and
require that payments on .accounts and returns of goods be made directly to
Bank; (b) may require the Borrowers to notify their respective account
debtors and indicate on all billings that payments and returns are to be made
directly to Bank; and (c) may collect, compromise, endorse, sell or otherwise
deal with the accounts or proceeds thereof in its own name or in the name of
any Borrower.
If any of the Borrowers' accounts or contract rights arise out of
contracts with a governmental body subject to the Federal Assignment of
Claims Act or a similar statute, upon request of Bank, the Borrowers shall
execute any instruments and take any action required by law to ensure that
all monies due and to become due under such contract shall be paid directly
to Bank.
9. Insurance. The Borrowers shall maintain insurance covering the
Collateral as provided in the Credit Agreement. All such insurance policies
with respect to Collateral shall be written so as to be payable in the event
of loss directly to Bank, shall provide for thirty (30) days prior written
notice to Bank of cancellation or modification, and shall contain an
endorsement providing that the insurer cannot withhold payment to Bank on
account of any action by the Borrowers. Bank is hereby irrevocably appointed
as attorney-in-fact (which power is coupled with an interest) to collect the
proceeds of such insurance, to settle any claims with the insurers in the
event of loss or damage, to endorse settlement drafts, to cancel, assign or
surrender any insurance policies; provided, however, that Bank will not
exercise the foregoing power of attorney except after the occurrence and
during the continuance of an Event of Default.
10. Additional Provisions Concerning the Collateral.
(a) Each Borrower hereby irrevocably appoints Bank its
attorney-in-fact (which such power of attorney is coupled with an interest)
with full authority in the place and stead of such Borrower and in the name
thereof, from time to time after the occurrence and during the continuation
of an Event of Default, to take any of the following actions or execute any
of the following instruments which Bank may deem necessary or advisable to
accomplish the purposes of this Agreement: (i) to ask, demand, collect, sue
for, recover, compound, receive, and give acquittance and receipts for moneys
due and to become due under or in respect of any of the Collateral; (ii) to
receive, endorse, and collect any checks, drafts, letters of credit, or other
instruments, documents, and chattel paper in connection with clause (i)
above; (iii) to sign each such Borrower's name on any invoice or bill of
lading relating, to any account, on drafts against customers, on schedules
and assignments of accounts, on notices of assignment, financing statements
and other public records, on verification of accounts and on
4
<PAGE>
notices to customers (including notices directing customers to make payment
directly to Bank); (iv) to notify the post office authorities to change the
address for delivery of its mail to an address designated by Bank; (v) to
receive, open and process all mail addressed to any Borrower; (vi) to send
requests for verification of accounts to customers; and (vii) to file any
claims or take any action or institute any Proceedings which Bank may deem
necessary or desirable for the collection of any of the Collateral or
otherwise to enforce the rights of Bank with respect to any of the
Collateral. Bank agrees that it will exercise the foregoing power of
attorney in a commercially reasonable manner.
(b) If any Borrower fails to perform any agreement contained
herein, Bank may itself perform, or cause performance of, such agreement or
obligation, and the reasonable costs and expenses of Bank incurred in
connection therewith shall be payable by the Borrowers on demand and shall be
secured by the Collateral. All such expenditures shall bear interest at the
Prime Rate (as defined in the Credit Agreement) plus five percent (5%).
(c) The powers conferred on Bank under this Agreement are solely to
protect its interest in the Collateral and shall not impose any duty upon
Bank to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received
by it hereunder, Bank shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Collateral.
11. Default. If any one or more of the following events (herein
referred to as "Events of Default") shall occur:
(a) Any Borrower shall fail to perform or observe any provision of
this Agreement and such default shall continue for a period of seven (7) days
after written notice from Bank; or
(b) An Event of Default shall have occurred under Article V of the
Agreement;
then, Bank shall have (a) the right to accelerate any or all of the
Obligations, and (b) all of the rights and remedies set forth in Section 12
below.
12. Remedies. Bank shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code and shall have full power and
authority to sell or otherwise dispose of the Collateral or any part thereof.
Any such sale or other disposition, subject to the provisions of applicable
law, may be by public or private proceedings and may be made by one or more
contracts, as a unit or in parcels, at such time and place, by such method,
in such manner and on such terms as Bank may determine. Except as required
by law, such sale or other disposition may be made without advertisement or
notice of any kind or to any person. Where reasonable notification of the
time or place of such sale or other disposition is required by law, such
requirement shall have been met if such notice is delivered as provided in
the Agreement, at least ten (10) days before the time of such sale or other
5
<PAGE>
disposition. Upon notice from Bank, the Borrowers shall assemble the
Collateral at a time and place specified by Bank. To the extent permitted by
law, Bank or any other holder of the Obligations may buy any or all of the
Collateral upon any sale thereof. To the extent permitted by law, upon any
such sale or sales, the Collateral so purchased shall be held by the
purchaser absolutely free from any claims or rights of whatsoever kind or
nature, including any equity of redemption or any similar rights, all such
equity of redemption and any similar rights being hereby expressly waived and
released by the Borrowers. In the event any consent, approval or
authorization of any governmental agency shall be necessary to effectuate any
such sale or sales, the Borrowers shall execute, as necessary, all
applications or other instruments as may be required.
At any time after the occurrence of an Event of Default, Bank may
commence proceedings in any court of competent jurisdiction for the
appointment of a receiver (which term shall include a receiver-manager) of
the Collateral or of any part thereof. At any time after the occurrence of
an Event of Default, Bank may, if permitted without the commencement of a
proceeding, appoint any person to be a receiver of the Collateral or any part
thereof and may remove any receiver so appointed and appoint another in his
stead. Any such receiver appointed by Bank, or a court at the request of
Bank, shall have power (i) to take possession of the Collateral or any part
thereof; (ii) to carry on the business of the Borrowers; (iii) to borrow
money on the security of the Collateral for the maintenance, preservation or
protection of the Collateral or any part thereof or for the carrying on of
the business of the Borrowers; and (iv) to sell, lease or otherwise dispose
of the whole or any part of the Collateral at public auction, by public
tender or by private sale, either for cash or upon credit, at such time and
upon such terms and conditions as the receiver may determine; provided that
Bank shall not be in any way responsible for any misconduct or negligence of
any such receiver.
Upon written notice to the Borrowers, the Borrowers shall execute and
deliver to Bank a written assignment or assignments of all of their
respective rights under any lease of Collateral. If the consent of the
lessor is required with respect to any assignment or hereunder, such
assignment shall not be effective until such consent is obtained. Each
Borrower hereby irrevocably appoints Bank its attorney-in-fact (which power
is coupled with an interest) to execute assignments and subleases in favor of
Bank, provided that Bank shall exercise this power only after Bank has
requested that such Borrower execute such assignment and it does not so
execute and deliver to Bank the subject assignment within two days of such
request.
13. Proceeds. After deducting all reasonable costs and expenses of
collection, custody, sale or other disposition or delivery (including legal
costs and reasonable attorneys' fees) and all other charges due against the
Collateral, the residue of the proceeds of any such sale or other disposition
shall be applied to the payment of the Obligations and any surplus shall be
returned to the Borrowers, except as otherwise provided by law. The
Borrowers shall be liable for any deficiency in payment of the Obligations,
including all reasonable costs and expenses of collection, custody, sale or
other disposition or delivery and all other charges due against the
Collateral, as hereinbefore enumerated.
6
<PAGE>
14. Waivers. To the extent permitted by law, the Borrowers and any
third party providing credit enhancement with respect to the Obligations
("Secondary Party") hereby waive demand for payment, notice of dishonor or
protest, rights of redemption, prior notice of the appointment of a receiver
and all other notices of any kind except notices specifically required hereby
or by the Credit Agreement. Bank may modify the liability of any Secondary
Party and release any Collateral provided by such Secondary Party without
giving, notice to the Borrowers or any other Secondary Party. Such
modifications, changes, renewals, releases or other actions shall in no way
affect the obligations of the Borrowers or any Secondary Party hereunder.
15. Expenses. The Borrowers agree to pay, indemnify and hold harmless
Bank and the nominees of Bank from and against all costs and expenses
(including, taxes, if any) arising out of or incurred in connection with the
administration and sale of Collateral and all reasonable costs and expenses
(including reasonable legal fees) incurred by Bank in connection with the
negotiation, preparation, execution, amendment, interpretation, termination
or enforcement of this Agreement.
16. Setoff. Any sums due from Bank to any Borrower or any property of
any Borrower in the possession of Bank may be held and treated as Collateral
and, after the occurrence of an Event of Default, may be applied to the
payment of the Obligations regardless of the adequacy of the Collateral.
17. Modification. This Agreement may be modified or amended only in
writing signed by each of the parties hereto.
18. Notices. All notices and other communications hereunder shall be
deemed to have been sufficiently given if delivered as provided in the Credit
Agreement.
19. Waivers. No course of dealing between the Borrowers and Bank, nor
any delay in exercising, on the part of Bank, any right, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law.
20. Governing Law; Binding Effect; Counterparts. This Agreement shall
be construed in accordance with and governed by the laws of the Commonwealth
of Massachusetts. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
including any other holder or holders of any Obligations and may be executed
in two or more counterparts, each of which shall together constitute one and
the same agreement.
21. Severability. The invalidity or unenforceability of any provision
hereof shall way affect the validity or enforceability of any other provision
hereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement the date first above written.
STARMET CORPORATION
By: /s/James M. Spiezio
---------------------------
Name: James M. Spiezio
Title: Vice President Finance
STARMET POWDERS, LLC
By: /s/James M. Spiezio
---------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET AEROCAST, LLC
By: /s/James M. Spiezio
---------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMCAST, LLC
By: /s/James M. Spiezio
---------------------------
Name:James M. Spiezio
Title: Treasurer
STARMET NMI CORPORATION
By: /s/ James M. Spiezio
---------------------------
Name: James M. Spiezio
Title: Treasurer
8
<PAGE>
STARMET CMI CORPORATION
By: /s/ James M. Spiezio
---------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
By: /s/ James M. Spiezio
---------------------------
Name: James M. Spiezio
Title: Treasurer
NMI FOREIGN SALES CORPORATION
By: /s/ James M. Spiezio
---------------------------
Name: James M. Spiezio
Title: Treasurer
STATE STREET BANK AND TRUST
COMPANY
By: /s/ William R. Dewey, IV
---------------------------
Name: William R. Dewey, IV
Title: Vice President
9
<PAGE>
EXHIBIT A
A continuing security interest in:
(a) accounts including without limitation all accounts receivable, sums
due from factors, contracts, contract rights, notes, bills, drafts,
acceptances, instruments, documents, chattel paper, choses in action, and all
other debts, obligations and liabilities in whatever form, owing to Borrowers
from any person, firm or corporation or any other legal entity, whether now
existing or hereafter arising, now or hereafter received by or belonging or
owing to Borrowers, for goods sold by it or for services rendered by it, or
however otherwise same may have been established or created, all guaranties
and securities therefor, all right, title and interest of Borrowers in the
merchandise or services which gave rise thereto, including the rights of
reclamation and stoppage in transit and all rights of an unpaid seller of
merchandise or services;
(b) inventory including, without limitation, all goods, merchandise, raw
materials, goods and work in process, finished goods, and other tangible
personal property now owned or hereafter acquired and held for sale or lease
or furnished or to be furnished under contracts of service or consumed in
Borrowers' business;
(c) equipment including without limitation all fixtures, machinery,
equipment, molds, tools, dies, motor vehicles, trailers, boats and other
goods (as defined in the Uniform Commercial Code) whether now owned or
hereafter acquired by Borrowers and wherever located, all replacements and
substitutions therefor or accessions thereto;
(d) general intangibles including without limitation, tax refunds,
insurance premium rebates, pension refunds, trademarks, copyrights, patents,
the corporate name, trade names, trade styles and all products names,
catalogs, product literature, reports, computer programs and information on
electronic media, blueprints, drawings, customer lists, rate lists, purchase
orders, contract rights, rights to payment under royalty or license agreement
infringement claims and choses in action; and
(e) all products and proceeds from any of the foregoing including
without limitation all proceeds of credit, fire or other insurance and
deposit accounts.
10
<PAGE>
Exhibit 10.(z)
Dated: October 1, 1997
PATENT ASSIGNMENT OF SECURITY
WHEREAS, StarMet Corporation, a Massachusetts corporation ("Company"), owns
the patent and patent applications shown on the attached Schedule I (the
"Patents"), for which there are recordings or applications in the United States
Patent and Trademark Office under the numbers shown on Schedule I; and
WHEREAS, pursuant to (i) an Amended and Restated Credit Agreement dated as
of October 1, 1997 by and among the Company, State Street Bank and Trust Company
("Bank") and StarMet Powders, LLC, StarMet AeroCast, LLC, StarMet ComCast, LLC,
StarMet NMI Corporation, StarMet CMI Corporation, StarMet Holdings Corporation,
NMI Foreign Sales Corporation ("Borrowers"); and (ii) an Amended and Restated
Joint Security Agreement dated as of October 1, 1997 by and among the Company,
the Bank and Borrowers (as amended, modified, supplemented and/or restated from
time to time, the "Security Agreement"), the Company is obligated to the Bank;
and
WHEREAS, pursuant to the Security Agreement, the Company has granted to the
Bank a security interest in the Patents, all proceeds thereof, all rights
corresponding thereto and all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, and the recordings and
applications therefor and applications therefor and all goodwill of the business
to which each of the Patents relates.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
acknowledged, the Company does hereby assign unto the Bank and grant to the Bank
a security interest in and to the Patents and recordings and applications
therefor, which assignment and security interest shall secure all of the
"Obligations" as defined in the Security Agreement in accordance with terms and
provisions thereof.
The Company expressly acknowledges and affirms that the rights and remedies
of the Bank with respect to the assignment and security interest granted hereby
are more fully set forth in the Security Agreement.
<PAGE>
In WITNESS WHEREOF, the parties hereto have executed this Patent Assignment
under seal as of on the date first above written.
Dated: Boston, Massachusetts STARMET CORPORATION
October 1, 1997
Witness: By: /s/ J.M. Spiezio
-----------------------
Name: J.M. Spiezio
Title: VP Finance
/s/ Rebecca L Perry
- -------------------
Witness: STATE STREET BANK AND TRUST
COMPANY
/s/ Rebecca L. Perry By: /s/ William R. Dewey, IV
- --------------------- ------------------------
Name: William R. Dewey, IV
Title: Vice President
2
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. October 1, 1997
Then personally appeared, before me, the above-named James M. Spiezio the
Vice President Finance of StarMet Corporation and acknowledged the foregoing
instrument to be the free act and deed of said corporation.
/s/ Douglas C. Reynolds
------------------------
Notary Public
My Commission Expires:_______________
DOUGLAS C. REYNOLDS, Notary Public
The Commonwealth of Massachusetts
My Commission Expires Oct. 4, 2002
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. October 1, 1997
Then personally appeared, before me, the above-named William R. Dewey IV
the Vice President of State Street Bank and Trust Company and acknowledged
the foregoing instrument to be the free act and deed of said corporation.
/s/ Douglas C. Reynolds
------------------------
Notary Public
My Commission Expires:_______________
DOUGLAS C. REYNOLDS, Notary Public
The Commonwealth of Massachusetts
My Commission Expires Oct. 4, 2002
3
<PAGE>
Schedule I
Patent No. Date of Patent
5,603,780 2/18/97
<PAGE>
Exhibit 10 (aa)
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the first day of October, 1997, by
and between Starmet Corporation, a Massachusetts corporation with its principal
office in Concord, Massachusetts (the "Corporation"), and William T. Nachtrab
(the "Employee") of Maynard, 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 Vice President,
Technology; 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 an executive employee of the Corporation.
3. Compensation
3.1 Initial Compensation
The Employee's compensation shall be at the minimum annual rate of
$136,000 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 Increases
The Board of Directors or President 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:
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<PAGE>
4.1 Benefit Plans
The Corporation shall include the Employee in all of its benefit
plans, including stock option plans, vacation, 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 No Reduction of Benefits
The Corporation shall not eliminate or reduce benefits in effect on
the date hereof.
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 determines, 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 Article 3 hereof shall cease; or
(c) prior to a "change of control," as herein defined, by either
party on twelve months' written notice to the other. "Change of control"
shall mean (i) a change (other
-3-
<PAGE>
than a change resulting from death, retirement or disability) in the
identity of a majority of the Board of Directors of the Corporation or in
the identity of both the President and Chairman of the Board of the
Corporation, or (ii) the occurrence of a transaction or event which a
majority of directors of the Corporation in office immediately prior to
such transaction deem to involve a change of control.
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
earlier 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.
5.4 Definition
"Good reason", within the meaning of this Agreement, means "after a
change of control," 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) require
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.
-4-
<PAGE>
5.5 Survival. The provisions of Sections 8, 9 and 10 shall survive
the termination of this Agreement.
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.
8. Non-Compete.
8.1 The Employee agrees to devote his entire business time, attention
and energies to the business and interests of the Corporation during the
Employment Period.
8.2 (i) During the period of employment by the Corporation and for
a period of eighteen (18) months after any termination of employment, the
Employee agrees that he will not, directly or indirectly, alone or as a
partner, officer, director, consultant, employee or direct or indirect
owner (except a less than 2% stockholder of a public company) of any
company or business organization, engage in any business activity which is
directly or indirectly competitive with the products or services being
developed, manufactured or sold by the Corporation, or any subsidiary or
affiliate of the Corporation. The term "directly or indirectly
competitive" shall include the performance
-5-
<PAGE>
of any services as an employee, consultant or otherwise in connection with
any business activity which is competitive with or adverse to the products
and services sold by the Corporation. Such limitations shall apply only
within the continental United States, and in such foreign jurisdictions as
to which there is a distributor or other representative of the Corporation
or a subsidiary, division, licensee or affiliate of the Corporation in
existence on the date of termination.
(ii) During the period of employment by the Corporation and for
a period of eighteen months after any termination thereof, the Employee
agrees that he will not directly or indirectly, either for himself or for
any other person, business, partnership, association, firm, company or
corporation, call upon, solicit, divert or take away or attempt to solicit,
divert or take away, any of the customers, business or prospective
customers of the Corporation. The Employee also agrees that during his
employment with the Corporation and for a period of eighteen months
thereafter, he will not solicit or discuss with any employee of the
Corporation (a "Corporation Employee") the employment of such Corporation
Employee by any business, firm, company, partnership, association,
corporation or any other entity other than the Corporation.
8.3 If any restriction set forth in this Section 8 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
8.4 The restrictions contained in this Section 8 are necessary for
the protection
-6-
<PAGE>
of the business and goodwill of the Corporation and are considered by the
Employee to be reasonable for such purpose. The Employee agrees that any breach
of this Section 8 will cause the Corporation substantial and irrevocable damage
and therefore, in the event of any such breach, in addition to such other
remedies which may be available, the Corporation shall have the right to seek
specific performance and injunctive relief.
9. Nondisclosure.
9.1 The Employee agrees that he will not at any time, whether during
or after the termination of his employment, reveal to any person, entity,
association or company any Proprietary or Confidential Information of the
Corporation, except as may be required in the ordinary course of performing his
duties as an employee of the Corporation (and then with due regard for continued
confidentiality) or as may be required by law, and he shall keep secret all
matters of such nature entrusted to him and shall not use or attempt to use any
such information in any manner for his own benefit or the benefit of others, or
as may injure or cause loss or damage to the Corporation.
9.2 The Employee further agrees that during his employment he shall
not make, use, or permit to be used any notes, memoranda, drawings,
specifications, programs, data or other materials relating to any matter within
the scope of the business of the Corporation or concerning any of its dealings
or affairs otherwise than for the benefit of the Corporation.
9.3 The Employee further agrees
(i) that he shall not, after the termination of his employment,
use or permit to be used any such notes, memoranda, drawings,
specifications, programs, data or other materials, it being agreed that any
of the foregoing shall be and remain the sole
-7-
<PAGE>
and exclusive property of the Corporation and that immediately upon
termination of his employment he shall deliver all of the foregoing, and
all copies thereof, to the Corporation;
(ii) that all files, letters, memoranda, reports, records,
experimental and other data, sketches, drawings, molds, models, patterns,
samples, laboratory notebooks, computer disks or other storage devices for
information, any computer, program listings, or other written,
photographic, or other tangible material containing or incorporating
Proprietary Information, whether created by Employee or others, which shall
come into Employee's custody or possession, shall be and are the exclusive
property of the Corporation to be used only in the performance of
Employee's duties for the Corporation;
(iii) that all such records or copies thereof and all
tangible property of the Corporation in Employee's custody or possession
shall be delivered to the Corporation, upon the earlier of a request by the
Corporation or any termination of employment; and
(iv) that after such delivery, Employee shall not retain any such
records or copies thereof or any such tangible property, and Employee
agrees to destroy any Proprietary Information that may be in his possession
but stored on media (such as computer disks) that themselves are not
property of the Corporation.
9.4 Employee agrees that his obligation not to disclose or to use
information and records of the types set forth above (including knowhow), and
his obligation to return records, copies and tangible property set forth in
paragraph (b) above, also extends to such knowhow and other information,
records, copies and tangible property of customers of the
-8-
<PAGE>
Corporation or suppliers to the Corporation or other third parties who may have
disclosed or entrusted the same to the Corporation or to Employee in the course
of the Corporation's business.
9.5 Proprietary or Confidential Information of the Corporation
includes any process, document, software, technique or other information
possessed or used by the Corporation and not generally known including, without
limiting the foregoing, trade secrets, processes, techniques, data, software,
code, algorithms, marketing plans, unpublished financial statements or
projections, budgets, sales records, licenses, prices, costs, and information as
to existing and prospective customers, employees and suppliers.
10. Assignment of Inventions. The Employee agrees as follows:
10.1 To disclose to the Corporation all inventions, patentable or
unpatentable ideas, and all technical or business innovations developed,
conceived, prepared or created by him solely or in combination with others
during the period of his employment ("Inventions");
10.2 To assign, and Employee hereby does assign, to the Corporation,
as its exclusive property, all Inventions (i) that are in any way within the
scope of or related to the business of the Corporation, or as to which the
Employee may receive information due to his employment, or (ii) that result from
or are suggested by any work which the Employee may do for the Corporation, or
(iii) that otherwise are made through the use of Corporation time, facilities or
materials;
10.3 That any such Invention so required to be assigned shall be
considered a work made for hire for the Corporation as such term is defined in
Section 101 of the United States Copyright Act of 1976, as amended;
-9-
<PAGE>
10.4 To execute all necessary documents and otherwise provide proper
assistance during and subsequent to his employment to enable the Corporation to
obtain for itself or its nominees, copyrights, patents or other legal protection
for such Inventions or innovations;
10.5 To make and maintain for the Corporation adequate and current
written records of all such Inventions or innovations, which records shall at
all times remain on the Corporation's premises.
10.6 Employee hereby represents that, except as he has heretofore
disclosed in writing to the Corporation, he is not bound by the terms of any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or Confidential or Proprietary Information in the
course of his employment with the Corporation, or to refrain from competing,
directly or indirectly, with the business of any such previous employer or any
other party. Employee further represents that his performance of all the terms
of this Agreement and as an employee of the Corporation does not and will not
breach any agreement to keep in confidence Proprietary Information, knowledge or
data acquired by him in confidence or in trust prior to his employment with the
Corporation; and Employee will not disclose to the Corporation or induce the
Corporation to use any Confidential or Proprietary Information or material
belonging to any previous employer or others.
11. Remedies upon Breach. The Employee agrees that any breach of the
provisions of Sections 8, 9 and 10 of this Agreement by him could cause
irreparable damage, and that, in the event of such breach, the Corporation shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of the
Employee's obligations hereunder.
-10-
<PAGE>
12. 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. Annually, the Board of Directors, in its discretion, may extend the
term of this Agreement for an additional 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 12.
13. Miscellaneous
13.1 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.
13.2 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.
13.3 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.
-11-
<PAGE>
13.4 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.
13.5 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.
13.6 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.
13.7 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
-12-
<PAGE>
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.
13.8 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.
STARMET CORPORATION
Attest: /s/ Thomas A. Wooters By: /s/ Robert E. Quinn
----------------------------
Date: 10/1/97
----------------------------
{Corporate Seal}
Attest: /s/ Thomas A. Wooters /s/ William T. Nachtrab
-------------------------- ----------------------------
(employee)
Date: 10/1/97
----------------------------
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<PAGE>
EXHIBIT 10(bb)
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the first day of October, 1997, by
and between Starmet Corporation, a Massachusetts corporation with its
principal office in Concord, Massachusetts (the "Corporation"), and Douglas
F. Grotheer (the "Employee") of Aiken, South Carolina.
WHEREAS, the Corporation is engaged in the business of developing and
marketing metallurgical and other products; and
WHEREAS, the Employee is employed as President of the Corporation's
subsidiary, Starmet CMI,; 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 an executive employee of the Corporation.
3. Compensation
3.1 Initial Compensation
The Employee's compensation shall be at the minimum annual rate of
$135,000 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 Increases
The Board of Directors or President 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 stock option plans, vacation, 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 No Reduction of Benefits
The Corporation shall not eliminate or reduce benefits in effect on
the date hereof.
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 determines, 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 Article 3 hereof shall cease; or
(c) prior to a "change of control," as herein defined, by either
party on twelve months' written notice to the other. "Change of control"
shall mean (i) a change (other
3
<PAGE>
than a change resulting from death, retirement or disability) in the
identity of a majority of the Board of Directors of the Corporation or in
the identity of both the President and Chairman of the Board of the
Corporation, or (ii) the occurrence of a transaction or event which a
majority of directors of the Corporation in office immediately prior to
such transaction deem to involve a change of control.
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
earlier 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.
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) require 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.
4
<PAGE>
5.5 Survival. The provisions of Sections 8, 9 and 10 shall
survive the termination of this Agreement.
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.
8. Non-Compete.
8.1 The Employee agrees to devote his entire business time,
attention and energies to the business and interests of the Corporation
during the Employment Period.
8.2 (i) During the period of employment by the Corporation and for a
period of eighteen (18) months after any termination of employment, the
Employee agrees that he will not, directly or indirectly, alone or as a
partner, officer, director, consultant, employee or direct or indirect
owner (except a less than 2% stockholder of a public company) of any
company or business organization, engage in any business activity which is
directly or indirectly competitive with the products or services being
developed, manufactured or sold by the Corporation, or any subsidiary or
affiliate of the Corporation. The term "directly or indirectly
competitive" shall include the performance
5
<PAGE>
of any services as an employee, consultant or otherwise in connection with
any business activity which is competitive with or adverse to the products
and services sold by the Corporation. Such limitations shall apply only
within the continental United States, and in such foreign jurisdictions as
to which there is a distributor or other representative of the Corporation
or a subsidiary, division, licensee or affiliate of the Corporation in
existence on the date of termination.
(ii) During the period of employment by the Corporation and for a
period of eighteen months after any termination thereof, the Employee
agrees that he will not directly or indirectly, either for himself or for
any other person, business, partnership, association, firm, company or
corporation, call upon, solicit, divert or take away or attempt to solicit,
divert or take away, any of the customers, business or prospective
customers of the Corporation. The Employee also agrees that during his
employment with the Corporation and for a period of eighteen months
thereafter, he will not solicit or discuss with any employee of the
Corporation (a "Corporation Employee") the employment of such Corporation
Employee by any business, firm, company, partnership, association,
corporation or any other entity other than the Corporation.
8.3 If any restriction set forth in this Section 8 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
8.4 The restrictions contained in this Section 8 are necessary for
the protection
6
<PAGE>
of the business and goodwill of the Corporation and are considered by the
Employee to be reasonable for such purpose. The Employee agrees that any
breach of this Section 8 will cause the Corporation substantial and
irrevocable damage and therefore, in the event of any such breach, in
addition to such other remedies which may be available, the Corporation shall
have the right to seek specific performance and injunctive relief.
9. Nondisclosure.
9.1 The Employee agrees that he will not at any time, whether
during or after the termination of his employment, reveal to any person,
entity, association or company any Proprietary or Confidential Information of
the Corporation, except as may be required in the ordinary course of
performing his duties as an employee of the Corporation (and then with due
regard for continued confidentiality) or as may be required by law, and he
shall keep secret all matters of such nature entrusted to him and shall not
use or attempt to use any such information in any manner for his own benefit
or the benefit of others, or as may injure or cause loss or damage to the
Corporation.
9.2 The Employee further agrees that during his employment he shall
not make, use, or permit to be used any notes, memoranda, drawings,
specifications, programs, data or other materials relating to any matter
within the scope of the business of the Corporation or concerning any of its
dealings or affairs otherwise than for the benefit of the Corporation.
9.3 The Employee further agrees
(i) that he shall not, after the termination of his employment,
use or permit to be used any such notes, memoranda, drawings,
specifications, programs, data or other materials, it being agreed that any
of the foregoing shall be and remain the sole
7
<PAGE>
and exclusive property of the Corporation and that immediately upon
termination of his employment he shall deliver all of the foregoing, and
all copies thereof, to the Corporation;
(ii) that all files, letters, memoranda, reports, records,
experimental and other data, sketches, drawings, molds, models, patterns,
samples, laboratory notebooks, computer disks or other storage devices for
information, any computer, program listings, or other written,
photographic, or other tangible material containing or incorporating
Proprietary Information, whether created by Employee or others, which shall
come into Employee's custody or possession, shall be and are the exclusive
property of the Corporation to be used only in the performance of
Employee's duties for the Corporation;
(iii) that all such records or copies thereof and all
tangible property of the Corporation in Employee's custody or possession
shall be delivered to the Corporation, upon the earlier of a request by the
Corporation or any termination of employment; and
(iv) that after such delivery, Employee shall not retain any such
records or copies thereof or any such tangible property, and Employee
agrees to destroy any Proprietary Information that may be in his possession
but stored on media (such as computer disks) that themselves are not
property of the Corporation.
9.4 Employee agrees that his obligation not to disclose or to use
information and records of the types set forth above (including knowhow), and
his obligation to return records, copies and tangible property set forth in
paragraph (b) above, also extends to such knowhow and other information,
records, copies and tangible property of customers of the
8
<PAGE>
Corporation or suppliers to the Corporation or other third parties who may
have disclosed or entrusted the same to the Corporation or to Employee in the
course of the Corporation's business.
9.5 Proprietary or Confidential Information of the Corporation
includes any process, document, software, technique or other information
possessed or used by the Corporation and not generally known including,
without limiting the foregoing, trade secrets, processes, techniques, data,
software, code, algorithms, marketing plans, unpublished financial statements
or projections, budgets, sales records, licenses, prices, costs, and
information as to existing and prospective customers, employees and suppliers.
10. Assignment of Inventions. The Employee agrees as follows:
10.1 To disclose to the Corporation all inventions, patentable or
unpatentable ideas, and all technical or business innovations developed,
conceived, prepared or created by him solely or in combination with others
during the period of his employment ("Inventions");
10.2 To assign, and Employee hereby does assign, to the Corporation,
as its exclusive property, all Inventions (i) that are in any way within the
scope of or related to the business of the Corporation, or as to which the
Employee may receive information due to his employment, or (ii) that result
from or are suggested by any work which the Employee may do for the
Corporation, or (iii) that otherwise are made through the use of Corporation
time, facilities or materials;
10.3 That any such Invention so required to be assigned shall be
considered a work made for hire for the Corporation as such term is defined
in Section 101 of the United States Copyright Act of 1976, as amended;
9
<PAGE>
10.4 To execute all necessary documents and otherwise provide proper
assistance during and subsequent to his employment to enable the Corporation
to obtain for itself or its nominees, copyrights, patents or other legal
protection for such Inventions or innovations;
10.5 To make and maintain for the Corporation adequate and current
written records of all such Inventions or innovations, which records shall at
all times remain on the Corporation's premises.
10.6 Employee hereby represents that, except as he has heretofore
disclosed in writing to the Corporation, he is not bound by the terms of any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or Confidential or Proprietary Information in the
course of his employment with the Corporation, or to refrain from competing,
directly or indirectly, with the business of any such previous employer or
any other party. Employee further represents that his performance of all the
terms of this Agreement and as an employee of the Corporation does not and
will not breach any agreement to keep in confidence Proprietary Information,
knowledge or data acquired by him in confidence or in trust prior to his
employment with the Corporation; and Employee will not disclose to the
Corporation or induce the Corporation to use any Confidential or Proprietary
Information or material belonging to any previous employer or others.
11. Remedies upon Breach. The Employee agrees that any breach of the
provisions of Sections 8, 9 and 10 of this Agreement by him could cause
irreparable damage, and that, in the event of such breach, the Corporation
shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of the Employee's obligations hereunder.
10
<PAGE>
12. 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. Annually, the Board of Directors, in its discretion, may extend
the term of this Agreement for an additional 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 12.
13. Miscellaneous
13.1 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.
13.2 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.
13.3 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.
11
<PAGE>
13.4 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.
13.5 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.
13.6 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.
13.7 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
12
<PAGE>
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.
13.8 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.
STARMET CORPORATION
Attest: /s/ Thomas A. Wooters By: /s/ Robert E. Quinn
--------------------- ----------------------
Date: 10/1/97
----------------------
{Corporate Seal}
Attest: /s/ Thomas A. Wooters /s/ Douglas F. Grotheer
--------------------- ----------------------
(employee)
Date: 10/1/97
----------------------
13
<PAGE>
Exhibit 10(cc)
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the first day of October, 1997, by
and between Starmet Corporation, a Massachusetts corporation with its principal
office in Concord, Massachusetts (the "Corporation"), and Kevin R. Raftery (the
"Employee") of Boxboro, 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 of
the Company's Starmet Comcast and Starmet Aerocast subsidiaries; 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 an executive employee of the Corporation.
3. Compensation
3.1 Initial Compensation
The Employee's compensation shall be at the minimum annual rate of
$100,000 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 Increases
The Board of Directors or President 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:
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<PAGE>
4.1 Benefit Plans
The Corporation shall include the Employee in all of its benefit
plans, including stock option plans, vacation, 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 No Reduction of Benefits
The Corporation shall not eliminate or reduce benefits in effect on
the date hereof.
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 determines, 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 Article 3 hereof shall cease; or
(c) prior to a "change of control," as herein defined, by either
party on twelve months' written notice to the other. "Change of control"
shall mean (i) a change (other
-3-
<PAGE>
than a change resulting from death, retirement or disability) in the
identity of a majority of the Board of Directors of the Corporation or in
the identity of both the President and Chairman of the Board of the
Corporation, or (ii) the occurrence of a transaction or event which a
majority of directors of the Corporation in office immediately prior to
such transaction deem to involve a change of control.
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
earlier 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.
5.4 Definition
"Good reason", within the meaning of this Agreement, means "after a
change of control," circumstances which, (a) 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) require 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.
-4-
<PAGE>
5.5 Survival. The provisions of Sections 8, 9 and 10 shall survive
the termination of this Agreement.
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.
8. Non-Compete.
8.1 The Employee agrees to devote his entire business time, attention
and energies to the business and interests of the Corporation during the
Employment Period.
8.2 (i) During the period of employment by the Corporation and for a
period of eighteen (18) months after any termination of employment, the
Employee agrees that he will not, directly or indirectly, alone or as a
partner, officer, director, consultant, employee or direct or indirect
owner (except a less than 2% stockholder of a public company) of any
company or business organization, engage in any business activity which is
directly or indirectly competitive with the products or services being
developed, manufactured or sold by the Corporation, or any subsidiary or
affiliate of the Corporation. The term "directly or indirectly
competitive" shall include the performance
-5-
<PAGE>
of any services as an employee, consultant or otherwise in connection with
any business activity which is competitive with or adverse to the products
and services sold by the Corporation. Such limitations shall apply only
within the continental United States, and in such foreign jurisdictions as
to which there is a distributor or other representative of the Corporation
or a subsidiary, division, licensee or affiliate of the Corporation in
existence on the date of termination.
(ii) During the period of employment by the Corporation and for a
period of eighteen months after any termination thereof, the Employee
agrees that he will not directly or indirectly, either for himself or for
any other person, business, partnership, association, firm, company or
corporation, call upon, solicit, divert or take away or attempt to solicit,
divert or take away, any of the customers, business or prospective
customers of the Corporation. The Employee also agrees that during his
employment with the Corporation and for a period of eighteen months
thereafter, he will not solicit or discuss with any employee of the
Corporation (a "Corporation Employee") the employment of such Corporation
Employee by any business, firm, company, partnership, association,
corporation or any other entity other than the Corporation.
8.3 If any restriction set forth in this Section 8 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
8.4 The restrictions contained in this Section 8 are necessary for
the protection
-6-
<PAGE>
of the business and goodwill of the Corporation and are considered by the
Employee to be reasonable for such purpose. The Employee agrees that any breach
of this Section 8 will cause the Corporation substantial and irrevocable damage
and therefore, in the event of any such breach, in addition to such other
remedies which may be available, the Corporation shall have the right to seek
specific performance and injunctive relief.
9. Nondisclosure.
9.1 The Employee agrees that he will not at any time, whether during
or after the termination of his employment, reveal to any person, entity,
association or company any Proprietary or Confidential Information of the
Corporation, except as may be required in the ordinary course of performing his
duties as an employee of the Corporation (and then with due regard for continued
confidentiality) or as may be required by law, and he shall keep secret all
matters of such nature entrusted to him and shall not use or attempt to use any
such information in any manner for his own benefit or the benefit of others, or
as may injure or cause loss or damage to the Corporation.
9.2 The Employee further agrees that during his employment he shall
not make, use, or permit to be used any notes, memoranda, drawings,
specifications, programs, data or other materials relating to any matter within
the scope of the business of the Corporation or concerning any of its dealings
or affairs otherwise than for the benefit of the Corporation.
9.3 The Employee further agrees
(i) that he shall not, after the termination of his employment,
use or permit to be used any such notes, memoranda, drawings,
specifications, programs, data or other materials, it being agreed that any
of the foregoing shall be and remain the sole
-7-
<PAGE>
and exclusive property of the Corporation and that immediately upon
termination of his employment he shall deliver all of the foregoing, and
all copies thereof, to the Corporation;
(ii) that all files, letters, memoranda, reports, records,
experimental and other data, sketches, drawings, molds, models, patterns,
samples, laboratory notebooks, computer disks or other storage devices for
information, any computer, program listings, or other written,
photographic, or other tangible material containing or incorporating
Proprietary Information, whether created by Employee or others, which shall
come into Employee's custody or possession, shall be and are the exclusive
property of the Corporation to be used only in the performance of
Employee's duties for the Corporation;
(iii) that all such records or copies thereof and all
tangible property of the Corporation in Employee's custody or possession
shall be delivered to the Corporation, upon the earlier of a request by the
Corporation or any termination of employment; and
(iv) that after such delivery, Employee shall not retain any such
records or copies thereof or any such tangible property, and Employee
agrees to destroy any Proprietary Information that may be in his possession
but stored on media (such as computer disks) that themselves are not
property of the Corporation.
9.4 Employee agrees that his obligation not to disclose or to use
information and records of the types set forth above (including knowhow), and
his obligation to return records, copies and tangible property set forth in
paragraph (b) above, also extends to such knowhow and other information,
records, copies and tangible property of customers of the
-8-
<PAGE>
Corporation or suppliers to the Corporation or other third parties who may have
disclosed or entrusted the same to the Corporation or to Employee in the course
of the Corporation's business.
9.5 Proprietary or Confidential Information of the Corporation
includes any process, document, software, technique or other information
possessed or used by the Corporation and not generally known including, without
limiting the foregoing, trade secrets, processes, techniques, data, software,
code, algorithms, marketing plans, unpublished financial statements or
projections, budgets, sales records, licenses, prices, costs, and information as
to existing and prospective customers, employees and suppliers.
10. Assignment of Inventions. The Employee agrees as follows:
10.1 To disclose to the Corporation all inventions, patentable or
unpatentable ideas, and all technical or business innovations developed,
conceived, prepared or created by him solely or in combination with others
during the period of his employment ("Inventions");
10.2 To assign, and Employee hereby does assign, to the Corporation,
as its exclusive property, all Inventions (i) that are in any way within the
scope of or related to the business of the Corporation, or as to which the
Employee may receive information due to his employment, or (ii) that result from
or are suggested by any work which the Employee may do for the Corporation, or
(iii) that otherwise are made through the use of Corporation time, facilities or
materials;
10.3 That any such Invention so required to be assigned shall be
considered a work made for hire for the Corporation as such term is defined in
Section 101 of the United States Copyright Act of 1976, as amended;
-9-
<PAGE>
10.4 To execute all necessary documents and otherwise provide proper
assistance during and subsequent to his employment to enable the Corporation to
obtain for itself or its nominees, copyrights, patents or other legal protection
for such Inventions or innovations;
10.5 To make and maintain for the Corporation adequate and current
written records of all such Inventions or innovations, which records shall at
all times remain on the Corporation's premises.
10.6 Employee hereby represents that, except as he has heretofore
disclosed in writing to the Corporation, he is not bound by the terms of any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or Confidential or Proprietary Information in the
course of his employment with the Corporation, or to refrain from competing,
directly or indirectly, with the business of any such previous employer or any
other party. Employee further represents that his performance of all the terms
of this Agreement and as an employee of the Corporation does not and will not
breach any agreement to keep in confidence Proprietary Information, knowledge or
data acquired by him in confidence or in trust prior to his employment with the
Corporation; and Employee will not disclose to the Corporation or induce the
Corporation to use any Confidential or Proprietary Information or material
belonging to any previous employer or others.
11. Remedies upon Breach. The Employee agrees that any breach of the
provisions of Sections 8, 9 and 10 of this Agreement by him could cause
irreparable damage, and that, in the event of such breach, the Corporation shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of the
Employee's obligations hereunder.
-10-
<PAGE>
12. 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. Annually, the Board of Directors, in its discretion, may extend the
term of this Agreement for an additional 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 12.
13. Miscellaneous
13.1 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.
13.2 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.
13.3 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.
-11-
<PAGE>
13.4 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.
13.5 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.
13.6 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.
13.7 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
-12-
<PAGE>
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.
13.8 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.
STARMET CORPORATION
Attest: /s/ Thomas A. Wooters By: /s/ Robert E. Quinn
---------------------- -------------------------
Robert E. Quinn
Date: 10/1/97
----------------------
{Corporate Seal}
Attest: /s/ Thomas A. Wooters /s/ Kevin R. Raftery
---------------------- ----------------------------
(employee)
Date: 10/1/97
----------------------
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<PAGE>
Exhibit 10(dd)
FIRST AMENDMENT TO CREDIT AGREEMENT
Agreement is made as of this 9th day of December, 1997 among STARMET
CORPORATION, a Massachusetts corporation (f/k/a Nuclear Metals, Inc.)
("StarMet"), STARMET POWDERS, LLC, a Delaware limited liability corporation
("Powders"), STARMET AEROCAST, LLC, a Delaware limited liability corporation
("AeroCast"), STARMET COMCAST, LLC, a Delaware limited liability corporation
("ComCast"), STARMET NMI CORPORATION, a Massachusetts corporation ("NMI"),
STARMET CMI CORPORATION, a Delaware corporation (f/k/a Carolina Metals, Inc.)
("CMI"), STARMET HOLDINGS CORPORATION, a Massachusetts corporation
("Holdings"), NMI FOREIGN SALES CORPORATION, a U.S. Virgin Islands
corporation ("FSC", and together with StarMet, Powders, AeroCast, ComCast,
NMI, CMI and Holdings, the "Borrowers") and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts chartered trust company ("Bank").
WHEREAS, the Borrowers and the Bank are parties to an Amended and
Restated Credit Agreement dated as of October 1, 1997 (the "Credit
Agreement"); and
WHEREAS, the parties have agreed to certain modifications;
NOW THEREFORE, the parties agree as follows:
1. Section 1.01. Section 1.01 of the Credit Agreement is hereby
amended by deleting the reference to $6,500,000 in the third line and
$6,050,000 in the last line and replacing both references with $8,050,000.
2. Section 1.02(a). Section 1.02(a) of the Credit Agreement is hereby
amended by:
(a) deleting the reference to $6,550,000 in the seventh line and
replacing it with $8,050,000; and
(b) deleting the proviso at the end of Section 1.02(a) and substituting
therefor the following:
provided that (i) up to January 10, 1998, the aggregate of all Advances
outstanding shall not exceed $8,050,000 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 and (ii) from
and after January 10, 1998 up to the Maturity Date, the aggregate of all
Advances outstanding shall not exceed $6,550,000 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").
-1-
<PAGE>
3. Section 1.02(b). Section 1.02(b) of the Credit Agreement is hereby
amended by adding the following at the end:
"As provided in Section 1.02(a), the Revolving Credit shall reduce from
$8,050,000 to $6,550,000 on January 10, 1998 and any amount in excess of
$6,550,000 shall be paid on or before January 10, 1998".
4. Section 1.02(c). Section 1.02(c) of the Credit Agreement is hereby
amended by deleting the first sentence in Section 1.02(c) its entirety and
substituting therefor the following:
"Amounts owed to Bank with respect to Advances made by Bank shall be
evidenced by Bank's books and records and may, at the request of the Bank,
be further evidenced by one or more revolving credit notes (collectively,
the "Revolving Credit Note"). As of the date of this First Amendment, the
Advances are evidenced by an Amended and Restated Revolving Credit Note
dated as of March 31, 1995 (as amended and restated October 1, 1997) in the
principal amount of $6,550,000 (the "Original Note") and an Additional
Revolving Credit Note dated as of the date of this First Amendment in the
principal amount of $1,500,000 (the "Additional Note"). All Advances shall
be deemed made pursuant to the Original Note up to the maximum principal
amount thereof and thereafter pursuant to the Additional Note. Any
repayments of principal shall be applied first to the Additional Note, then
to the Original Note".
5. Effectiveness; Conditions to Effectiveness. This First Amendment to
Credit Agreement shall become effective upon (a) execution of this First
Amendment by the Borrowers and the Bank, (b) execution by the Borrowers of
the Additional Revolving Credit Note substantially in the form of Exhibit A
attached hereto, and (c) receipt by the Bank of evidence satisfactory to the
Bank that the Borrowers are authorized to execute this First Amendment.
6. Miscellaneous.
(a) The Borrowers hereby confirm to the Bank that the representations
and warranties of the Borrowers set forth in Article II of the Credit
Agreement are true and correct as of the date hereof, as if set forth
herein in full.
(b) There is no Event of Default, and no condition which, with the
passage of time or giving of notice or both, would constitute an Event of
Default under the Credit Agreement.
(c) Except as set forth above, the Credit Agreement remains in full
force and effect.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Credit Agreement under seal as of the date first above written.
STARMET CORPORATION
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
Title: VP Finance
STARMET POWDERS, LLC
By: /s/ James M. Spiezio
----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET AEROCAST, LLC
By: /s/ James M. Spiezio
----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMCAST, LLC
By: /s/ James M. Spiezio
----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET NMI CORPORATION
By: /s/ James M. Spiezio
----------------------------
Name: James M. Spiezio
Title: Treasurer
-3-
<PAGE>
STARMET CMI CORPORATION
By: /s/ James M. Spiezio
------------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
By: /s/ James M. Spiezio
------------------------------
Name: James M. Spiezio
Title: Treasurer
NMI FOREIGN SALES CORPORATION
By: /s/ James M. Spiezio
------------------------------
Name: James M. Spiezio
Title: Treasurer
STATE STREET BANK AND TRUST
COMPANY
By: /s/ William R. Dewey IV
------------------------------
Name: William R. Dewey IV
Title: Vice President
-4-
<PAGE>
EXHIBIT A
ADDITIONAL REVOLVING CREDIT NOTE
$1,500,000 December 9, 1997
FOR VALUE RECEIVED, the undersigned, STARMET CORPORATION, STARMET
POWDERS, LLC, STARMET AEROCAST, LLC, STARMET COMCAST, LLC, STARMET NMI
CORPORATION, STARMET CMI CORPORATION, STARMET HOLDINGS CORPORATION, NMI
FOREIGN SALES CORPORATION (the "Borrowers"), hereby jointly and severally,
promise to pay to the order of STATE STREET BANK AND TRUST COMPANY, a
Massachusetts 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 ONE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($1,500,000) or such lesser sum as may from time to time be
outstanding under the terms of the 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 on January 10, 1998 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.
-5-
<PAGE>
This Note shall be governed and construed under the laws of the
Commonwealth of Massachusetts and shall be deemed to be under seal.
STARMET CORPORATION
WITNESS:
/s/ Rebecca Perry By: /s/ James M. Spiezio
- ----------------------- -------------------------
Name: James M. Spiezio
Title: VP Finance
STARMET POWDERS, LLC
WITNESS:
/s/ Rebecca Perry By: /s/ James M. Spiezio
- ----------------------- -------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET AEROCAST, LLC
WITNESS:
/s/ Rebecca Perry By: /s/ James M. Spiezio
- ----------------------- -------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMCAST, LLC
WITNESS:
/s/ Rebecca Perry By: /s/ James M. Spiezio
- ----------------------- -------------------------
Name: James M. Spiezio
Title: Treasurer
-6-
<PAGE>
STARMET NMI CORPORATION
WITNESS:
/s/ Rebecca Perry By: /s/ James M. Spiezio
- ---------------------------- -----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET CMI CORPORATION
WITNESS:
/s/ Rebecca Perry By: /s/ James M. Spiezio
- ---------------------------- -----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
WITNESS:
/s/ Rebecca Perry By: /s/ James M. Spiezio
- ---------------------------- -----------------------------
Name: James M. Spiezio
Title: Treasurer
NMI FOREIGN SALES CORPORATION
WITNESS:
/s/ Rebecca Perry By: /s/ James M. Spiezio
- ---------------------------- -----------------------------
Name: James M. Spiezio
Title: Treasurer
-7-
<PAGE>
Exhibit 10(ee)
THIRD AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of August 7, 1997 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") which
has expired; and
WHEREAS, a Forbearance and Amendment Agreement dated as of January 11, 1996
further amended the Credit Agreement (as amended, the "Forbearance Agreement");
and
WHEREAS, the Credit Agreement was further amended by a Second Amendment
dated as of December 24, 1996 ("Second Amendment"); and
NOW THEREFORE, the parties hereby agree as follows:
1. 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 $6,550,000
(the "Credit"). The Credit consists of a revolving line of
credit of $6,550,000 (the "Revolving Credit").
2. Section 1.02 The Revolving Credit, subsections (a) is amended in its
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 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 $6,550,000 less the
<PAGE>
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").
3. Section 1.02(d) The Revolving Credit Note is amended by substituting
the form of note attached hereto for Exhibit 1.02(d).
4. Section 1.05 Letters of Credit, subsections (c) and (e) are amended in
their entirety to read as follows:
(c) Commission. The Borrowers agree to pay Bank in
advance two percent (2%) per year (prorated based upon the
number of days from the issue date to the expiration date)
of the face amount of any Letters of Credit issued or
renewed after the date hereof, together with any
transactional fees at the Bank's customary rates.
(e) Amount. The aggregate amount of Letters of Credit
outstanding at any time shall not exceed $3,550,000.
5. 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, are true and accurate as of the date hereof subject
to any changes set forth on the Exhibits hereto and (ii) no Event of Default
exists.
6. Except as forth herein and in the First Amendment, the Forbearance
Agreement and the Second Amendment, 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: /s/ James M. Spiezio
-----------------------------
CAROLINA METALS, INC.
By: /s/ James M. Spiezio
----------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ William R. Dewey IV
------------------------------
Vice President
<PAGE>
Exhibit 10(ff)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement, effective October 1, 1997 amends and restates an
agreement made effective as of the first day of February 8, 1995, by and
between Starmet Corporation (formerly 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 and a Director of the Corporation.
3. Compensation
3.1 Initial Compensation
The Employee's minimum annual compensation shall be at the annual rate
of $200,000 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) 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, life, 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.
4.4 No Reduction of Benefits
3
<PAGE>
The Corporation shall not eliminate or reduce benefits in effect on
the date hereof.
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
4
<PAGE>
payable upon termination.
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) require 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 a term ending February 28,
2002, unless terminated by either party in accordance herewith. On February
28th of each year after 1998, the term hereof automatically shall be extended
for an additional one-year period, unless either party gives written notice
to the other prior to such date of its or his intention not to extend the
term of this Agreement. 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.
9.8 Law Governing
This Agreement shall be governed by and construed in accordance with
the laws
8
<PAGE>
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.
STARMET CORPORATION
Attest: /s/ Thomas A. Wooters By: /s/ George J. Matthews
--------------------- ----------------------
George J. Matthews
Date: 10/1/97
--------------------
{Corporate Seal}
Attest: /s/ Thomas A. Wooters By: /s/ Robert E. Quinn
--------------------- ---------------------
Robert E. Quinn
Date: 10/1/97
--------------------
9
<PAGE>
Exhibit 10(gg)
September 22, 1997
Mr. Roger M. Marino
c/o David M. Duchesneau, Esq.
The Duchesneau Group, Inc.
Riverside Office Park
13 Riverside Road
Weston, MA 02193
Re: Sale of Nuclear Metals, Inc. Debenture and Warrant
Dear Roger:
The purpose of this letter is to set forth the following terms and
conditions which shall apply to the sale of a $500,000 Nuclear Metals, Inc.
10% Subordinated Debenture (the "Debenture") and accompanying Warrant to
purchase 60,000 shares of Nuclear Metals, Inc. Common Stock (the "Warrant")
by the Company to you.
The purchase price for the Debenture and Warrant shall be Five Hundred
Thousand ($500,000) Dollars.
You acknowledge and understand that the Debenture and Warrant, and the
underlying stock (the "Securities") are being offered and sold without
registration under the Securities Act of 1933, as amended (the "Act") and in
reliance upon an exemption from the registration requirements contained in
the Act and the rules and regulations promulgated thereunder.
You hereby make the following representations and warranties to the
Company:
(1) You are an "accredited investor" within the meaning of Rule 501(a)
under the Act.
(2) You have sufficient knowledge and experience in financial and business
matters which enable you to evaluate the merits and risks of making an
investment in the Company. We have provided you with any and all
public information concerning the Company which you deem relevant.
You have had the opportunity to ask and have received answers to any
questions you have with respect to the business and prospects of the
Company. You recognize and agree that non-public information provided
to you may be used only for purposes of evaluating the investment
described above, and for no other purpose.
(3) You are acquiring the Securities with your own funds, for your own
benefit, for investment, and not with a view to the resale or
distribution thereof or any interest therein.
<PAGE>
Mr. Roger M. Marino
September 22, 1997
Page 2
(4) You agree with the Company that, as the Securities are unregistered
under the Act, they must be held indefinitely unless they are
subsequently registered under the Act or an exemption from such
registration is available. In addition, you agree not to transfer or
dispose of any of the Securities, or any interest therein, except in
accordance with all applicable Federal and state laws. You agree that
there may be affixed to any certificate representing the Securities
and to all certificates issued thereafter representing such Securities
(until in the opinion of counsel, which opinion must be satisfactory
to counsel to the Company, it is no longer necessary or required) an
appropriate legend evidencing the applicable restrictions under the
Act.
Please acknowledge the foregoing by signing the acknowledgement below and
returning it to me. If you have any questions or comments, feel free to give
me a call. I look forward to having you aboard.
Very truly yours,
Nuclear Metals, Inc.
By: /s/ James M. Spiezio
-------------------------------
Acknowledgement of :
/s/ Roger M. Marino
- ---------------------------
Roger M. Marino
<PAGE>
Exhibit 10(hh)
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 September 21, 2000
($500,000.00) September 22, 1997
Nuclear Metals, Inc., a Massachusetts corporation (the "Company"), for
value received, hereby promises to pay to Roger Marino or registered assigns
(the "Holder"), the principal sum of Five Hundred Thousand Dollars ($500,000.00)
on September 21, 2000 (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 the last day of each March and of each September (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.
1. General. This debenture (the "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 Debenture 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
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<PAGE>
acceleration and its consequences if (i) all existing Events of Default, other
than the non-payment of the principal of the Debenture 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.
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<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
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<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/ George J. Matthews
----------------------
George J. Matthews
Chairman
Attest:
/s/ Thomas A. Wooters
- -----------------------------
Thomas A. Wooters
Clerk
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<PAGE>
FEDERAL EXPRESS
December 23, 1997
Investors
c/o Dr. Melvin B. Chrein
21 Copper Beech Lane
Lawrence, NY 11559
Re: Sale of Starmet Corporation (formerly Nuclear Metals, Inc.)
Convertible Debentures
Gentlemen:
The purpose of this letter is to set forth the following terms and
conditions which shall apply to the sale of an aggregate of $900,000 Starmet
Corporation 10% Convertible Subordinated Debentures (the "Debentures") by the
Company to you.
The purchase price for the Debentures shall be Nine Hundred Thousand
($900,000) Dollars.
You acknowledge and understand that the Debentures and the underlying
stock (the "Securities") are being offered and sold without registration
under the Securities Act of 1933, as amended (the "Act") and in reliance upon
an exemption from the registration requirements contained in the Act and the
rules and regulations promulgated thereunder.
Each of you hereby makes the following representations and warranties to
the Company:
(1) You are an "accredited investor" within the meaning of Rule
501(a) under the Act.
(2) You have sufficient knowledge and experience in financial and
business matters which enable you to evaluate the merits and
risks of making an investment in the Company. We have provided
you with any and all public information concerning the Company
which you deem relevant. You have had the opportunity to ask and
have received answers to any questions you have with respect to
the business and prospects of the Company. You recognize and
agree that non-public information provided to you may be used
only for purposes of evaluating the investment described above,
and for no other purpose.
(3) You are acquiring the Securities with your own funds, for your
own benefit, for investment, and not with a view to the resale or
distribution thereof or any
<PAGE>
Investors
December 23, 1997
Page 2
interest therein.
(4) You agree with the Company that, as the Securities are unregistered
under the Act, they must be held indefinitely unless they are
subsequently registered under the Act or an exemption from such
registration is available. In addition, you agree not to transfer or
dispose of any of the Securities, or any interest therein, except in
accordance with all applicable Federal and state laws. You agree that
there may be affixed to any certificate representing the Securities
and to all certificates issued thereafter representing such Securities
(until in the opinion of counsel, which opinion must be satisfactory
to counsel to the Company, it is no longer necessary or required) an
appropriate legend evidencing the applicable restrictions under the
Act.
Please acknowledge the foregoing by signing the acknowledgement below and
returning it to me. If you have any questions or comments, feel free to give
me a call.
Very truly yours,
Starmet Corporation
By: /s/ James M. Spiezio
------------------------
Acknowledgement of :
/s/ Melvin B. Chrein /s/ Marshall J. Chrein
- --------------------------- ---------------------------
Melvin B. Chrein Marshall J. Chrein
WIAF Investors Co.
By: /s/ Charles Alpert /s/ George J. Matthews
---------------------- ---------------------------
George J. Matthews
Joshua M. Feibusch, MD, PC
By: /s/ Joshua M. Feibusch
----------------------
TAW:cy
Enclosure
cc: Robert E. Quinn, President
<PAGE>
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.
STARMET CORPORATION
10% Convertible Subordinated Debenture
Due December 31, 1999
($500,000.00) December 23, 1997
Starmet Corporation., 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 Five Hundred Thousand Dollars
($500,000.00) on December 31, 1999 (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 the last day of each June and of each December (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.
1. General. This debenture (the "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.
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;
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<PAGE>
(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 Debenture 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 acceleration and
its consequences if (i) all existing Events of Default, other than the
non-payment of the principal of the Debenture 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.
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<PAGE>
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.
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
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<PAGE>
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 including, without limiting the foregoing, that 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," now Starmet CMI, Inc.), and the Lender, as it has
been and 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. 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 (the
"Debenture Shares") of fully paid and non-assessable shares of common stock,
$.01 par value (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
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<PAGE>
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 accrued prior to conversion on the relevant
Interest Payment Date.
6. 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 addresses) 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.
7. 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.
8. Conversion Price Adjustments. (a) For purposes of this Debenture:
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<PAGE>
"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; or
(ii) in lieu of interest on the Debentures.
"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 $21.50. 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 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 8B as of the time of actual
payment of such dividends or distributions.
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<PAGE>
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 8 with respect to the rights of the holders of this
Debenture.
D. Adjustment 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 8, 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 issuable upon conversion of this Debenture (other
than a change in par value, or from par value to no 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), (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
-7-
<PAGE>
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.
9. 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 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.
10. 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.
11. Miscellaneous.
(a) THIS DEBENTURE SHALL BE GOVERNED BY THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS WITHOUT REFERENCE TO CONFLICT 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.
-8-
<PAGE>
(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.
STARMET CORPORATION.
By: /s/ James M. Spiezio
--------------------
SCHEDULE TO EXHIBIT 10(JJ)
Other similar 10% Convertible Subordinated Debentures of the Company dated
December 23, 1997:
Holder Amount
Melvin B. Chrein $150,000
Joshua M. Feibusch $150,000
Marshall J. Chrein $50,000
George J. Matthews $50,000
-9-
<PAGE>
Exhibit 10(kk)
SECOND AMENDMENT TO CREDIT AGREEMENT
Agreement is made as of this 29th day of December, 1997 among STARMET
CORPORATION, a Massachusetts corporation (f/k/a Nuclear Metals, Inc.)
("StarMet"), STARMET POWDERS, LLC, a Delaware limited liability corporation
("Powders"), STARMET AEROCAST, LLC, a Delaware limited liability corporation
("AeroCast"), STARMET COMCAST, LLC, a Delaware limited liability corporation
("ComCast"), STARMET NMI CORPORATION, a Massachusetts corporation ("NMI"),
STARMET CMI CORPORATION, a Delaware corporation (f/k/a Carolina Metals, Inc.)
("CMI"), STARMET HOLDINGS CORPORATION, a Massachusetts corporation ("Holdings"),
NMI FOREIGN SALES CORPORATION, a U.S. Virgin Islands corporation ("FSC", and
together with StarMet, Powders, AeroCast, ComCast, NMI, CMI and Holdings, the
"Borrowers") and STATE STREET BANK AND TRUST COMPANY, a Massachusetts chartered
trust company ("Bank").
WHEREAS, the Borrowers and the Bank are parties to an Amended and Restated
Credit Agreement dated as of October 1, 1997 (the "Credit Agreement"); and
WHEREAS, the parties have agreed to certain modifications;
NOW THEREFORE, the parties agree as follows:
1. Section 1.01. The Credit. Section 1.01 of the Credit Agreement is
hereby amended by deleting the reference to "$8,050,000" in the third line and
"$8,050,000" in the last line and replacing both references with "$9,550,000".
2. Section 1.02(a). Amount. Section 1.02(a) of the Credit Agreement is
hereby amended by deleting the proviso at the end of Section 1.02(a) and
substituting therefor the following:
"provided that the aggregate of all Advances outstanding at any time 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 shall not exceed (i) $9,550,000 through June 30, 1998,
(ii) $8,050,000 from July 1, 1998 through September 30, 1998, and (iii)
$6,550,000 on October 1, 1998 and thereafter (such amount as in effect from
time to time may be referred to as the "Maximum Credit")."
3. Section 1.02(b). Revolving Credit Agreement. Section 1.02(b) of the
Credit Agreement is hereby amended by adding the following at the end:
<PAGE>
"As provided in Section 1.02(a), the Maximum Credit shall reduce from
$9,550,000 to $8,050,000 on July 1, 1998 and from $8,050,000 to $6,550,000
on October 1, 1998, and any amount in excess of the Maximum Credit as so
reduced shall be paid on or before such dates".
4. Section 1.02(c). The Revolving Credit Note. Section 1.02(c) of the
Credit Agreement is hereby amended by deleting the first sentence in Section
1.02(c) its entirety and substituting therefor the following:
"Amounts owed to Bank with respect to Advances made by Bank shall be
evidenced by Bank's books and records and may, at the request of the Bank,
be further evidenced by one or more revolving credit notes (collectively,
the "Revolving Credit Note"). As of the date of this Second Amendment, the
Advances are evidenced by an Amended and Restated Revolving Credit Note
dated as of March 31, 1995 (as amended and restated October 1, 1997) in the
principal amount of $6,550,000 (the "Original Note") and a Second
Additional Revolving Credit Note dated as of the date of this Second
Amendment in the principal amount of $3,000,000 (the "Additional Note").
All Advances shall be deemed made pursuant to the Original Note up to the
maximum principal amount thereof and thereafter pursuant to the Additional
Note. Any repayments of principal shall be applied first to the Additional
Note, then to the Original Note".
5. Section 4.20. Debt-Tangible Capital Base. The first sentence is
amended in its entirety to read as follows:
"The ratio of Debt to Tangible Capital Base of the Borrowers on a
consolidated basis shall not exceed 0.60 to 1.00."
6. Section 4.21. Tangible Capital Base shall be amended in its entirety
to read as follows:
"The Tangible Capital Base of the Borrowers on a consolidated basis shall
be not less than $26,750,000 as of January 10, 1998, and $26,750,000 plus
an increase equal to the aggregate of 75% of the Borrowers' Net Income for
each fiscal quarter after December 31, 1997 in which the Borrowers have
positive net income (with no reduction for fiscal quarters in which the
Borrowers incur a loss) determined as of the end of each fiscal quarter
commencing March 31, 1998."
7. Section 4.22. Net Income shall be amended in its entirety as follows:
"The Net Income of the Borrowers for the periods set forth below shall be
not less than the amounts set forth opposite such periods:
-2-
<PAGE>
Period Net Income
------ ----------
Quarter ending December 31, 1997 ($1,100,000)
Quarter ending March 31, 1998 $1
Quarter ending June 30, 1998 $300,000
Quarter ending September 30, 1997
and thereafter $750,000"
"Net Income" shall mean the consolidated net income of the Borrowers before
interest and taxes, plus (a) to the extent deducted in calculating Net Income
prior to March 31, 1998, any reserves established as a result of the litigation
commenced by Brush Wellman, and (b) costs associated with the execution of the
Second Amendment including the fees set forth in paragraph 11 of the Second
Amendment."
8. Section 4.23. Capital Expenditures. The amount "$1,000,000" is
amended to read "$2,000,000". The Bank waives compliance with this covenant for
the year ending September 30, 1997.
9. Subordinated Debt. The Bank acknowledges that the following
constitutes Subordinated Debt: $900,000 principal amount of 10% Convertible
Subordinated Debentures Due December 31, 1999 substantially in the form
delivered to the Bank on December 26, 1997.
10. IRB Waiver. The Bank waives defaults under the CMI Industrial
Development Bond through September 30, 1998.
11. Fees. The Borrowers shall (a) pay a closing fee of $15,000 upon
execution of this Second Amendment, (b) issue prior to January 31, 1998 a
seven-year warrant to purchase 25,000 shares of the common stock of StarMet at a
price equal to the average closing price on the ten consecutive trading days
ending December 29, 1997 and otherwise on the terms of warrants previously
issued to the Bank. If the Advances (exclusive of letters of credit) exceed the
amounts set forth below on or after the indicated date, the Borrowers shall pay
an additional fee of $50,000 as of each such date:
amounts date
------- ----
$4,750,000 March 15, 1997
$3,000,000 July 15, 1997
-3-
<PAGE>
If the Borrowers Net Income for the three month period ended 3/31/98 is
less then $300,000 or less then $750,000 for the three month period ended
6/30/98, the Borrowers shall pay a further fee of $10,000 as of each such
date.
12. Effectiveness. This Second Amendment to Credit Agreement shall become
effective upon (a) execution of this Second Amendment by the Borrowers and the
Bank, (b) execution by the Borrowers of the Additional Note substantially in the
form of Exhibit A attached hereto, (c) receipt by the Bank of evidence
satisfactory to the Bank that the Borrowers are authorized to execute this First
Amendment.
13. Miscellaneous.
(a) The Borrowers hereby confirm to the Bank that the representations
and warranties of the Borrowers set forth in Article II of the Credit
Agreement are true and correct as of the date hereof, as if set forth
herein in full.
(b) There is no Event of Default, and no condition which, with
the passage of time or giving of notice or both, would constitute an Event
of Default under the Credit Agreement except as amended or waived in this
Second Amendment.
(c) Except as set forth above and in the First Amendment dated
as of December 19, 1997, the Credit Agreement remains in full force and
effect.
14. Section 1.02(a). Amount. Section 1.02(a) of the Credit Agreement is
hereby amended by deleting in the fourth line reference to February 28, 1998
(the ""Maturity Date'') and substituting therefor February 28, 1999 (the
""Maturity Date'').
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Credit Agreement under seal as of the date first above written.
STARMET CORPORATION
By: /s/ James M. Spiezio
-------------------------
Name: James M. Spiezio
Title: VP Finance
STARMET POWDERS, LLC
By: /s/ James M. Spiezio
-------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET AEROCAST, LLC
By: /s/ James M. Spiezio
-------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMCAST, LLC
By: /s/ James M. Spiezio
-------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET NMI CORPORATION
By: /s/ James M. Spiezio
-------------------------
Name: James M. Spiezio
Title: Treasurer
-5-
<PAGE>
STARMET CMI CORPORATION
By: /s/ James M. Spiezio
-------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
By: /s/ James M. Spiezio
-------------------------
Name: James M. Spiezio
Title: Treasurer
NMI FOREIGN SALES CORPORATION
By: /s/ James M. Spiezio
-------------------------
Name: James M. Spiezio
Title: Treasurer
STATE STREET BANK AND TRUST
COMPANY
By: /s/ William R. Dewey, IV
-------------------------
Name: William R. Dewey, IV
Title: Vice President
-6-
<PAGE>
EXHIBIT A
SECOND ADDITIONAL REVOLVING CREDIT NOTE
$3,000,000 December 29, 1997
FOR VALUE RECEIVED, the undersigned, STARMET CORPORATION, STARMET POWDERS,
LLC, STARMET AEROCAST, LLC, STARMET COMCAST, LLC, STARMET NMI CORPORATION,
STARMET CMI CORPORATION, STARMET HOLDINGS CORPORATION, NMI FOREIGN SALES
CORPORATION (the "Borrowers"), hereby jointly and severally, promise to pay to
the order of STATE STREET BANK AND TRUST COMPANY, a Massachusetts 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 THREE MILLION DOLLARS ($3,000,000) or such lesser sum
as may from time to time be outstanding under the terms of the 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.
The principal balance of this Note shall be reduced as provided in the
Credit Agreement and the remaining balance shall become due and payable on July
15, 1998 and earlier upon the occurrence of an Event of Default (as defined in
the Credit Agreement). This Note replaces an Additional Revolving Credit Note
dated December 19, 1997 in the principal amount of $1,500,000. 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.
-7-
<PAGE>
This Note shall be governed and construed under the laws of the
Commonwealth of Massachusetts and shall be deemed to be under seal.
STARMET CORPORATION
WITNESS: /s/ Rebecca Perry
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
Title: VP Finance
STARMET POWDERS, LLC
WITNESS: /s/ Rebecca Perry
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET AEROCAST, LLC
WITNESS: /s/ Rebecca Perry
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMCAST, LLC
WITNESS: /s/ Rebecca Perry
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET NMI CORPORATION
WITNESS: /s/ Rebecca Perry
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
Title: Treasurer
-8-
<PAGE>
STARMET CMI CORPORATION
WITNESS: /s/ Rebecca Perry
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
WITNESS: /s/ Rebecca Perry
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
Title: Treasurer
NMI FOREIGN SALES CORPORATION
WITNESS: /s/ Rebecca Perry
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
Title: Treasurer
<PAGE>
Exhibit 10(ll)
SECOND ADDITIONAL REVOLVING CREDIT NOTE
$3,000,000 December 29, 1997
FOR VALUE RECEIVED, the undersigned, STARMET CORPORATION, STARMET POWDERS,
LLC, STARMET AEROCAST, LLC, STARMET COMCAST, LLC, STARMET NMI CORPORATION,
STARMET CMI CORPORATION, STARMET HOLDINGS CORPORATION, NMI FOREIGN SALES
CORPORATION (the "Borrowers"), hereby jointly and severally, promise to pay to
the order of STATE STREET BANK AND TRUST COMPANY, a Massachusetts 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 THREE MILLION DOLLARS ($3,000,000) or such lesser sum
as may from time to time be outstanding under the terms of the 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.
The principal balance of this Note shall be reduced as provided in the
Credit Agreement and the remaining balance shall become due and payable on July
15, 1998 and earlier upon the occurrence of an Event of Default (as defined in
the Credit Agreement). This Note replaces an Additional Revolving Credit Note
dated December 19, 1997 in the principal amount of $1,500,000. 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.
STARMET CORPORATION
WITNESS: /s/ Rebecca Perry By: /s/ James M. Spiezio
----------------- ---------------------
Name: James M. Spiezio
Title: VP Finance
STARMET POWDERS, LLC
WITNESS: /s/ Rebecca Perry By: /s/ James M. Spiezio
----------------- ---------------------
Name: James M. Spiezio
Title: Treasurer
STARMET AEROCAST, LLC
WITNESS: /s/ Rebecca Perry By: /s/ James M. Spiezio
----------------- ---------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMCAST, LLC
WITNESS: /s/ Rebecca Perry By: /s/ James M. Spiezio
----------------- ---------------------
Name: James M. Spiezio
Title: Treasurer
STARMET NMI CORPORATION
WITNESS: /s/ Rebecca Perry By: /s/ James M. Spiezio
----------------- ---------------------
Name: James M. Spiezio
Title: Treasurer
<PAGE>
STARMET CMI CORPORATION
WITNESS: /s/ Rebecca Perry By: /s/ James M. Spiezio
----------------- ---------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
WITNESS: /s/ Rebecca Perry By: /s/ James M. Spiezio
----------------- ---------------------
Name: James M. Spiezio
Title: Treasurer
NMI FOREIGN SALES CORPORATION
WITNESS: /s/ Rebecca Perry By: /s/ James M. Spiezio
----------------- ---------------------
Name: James M. Spiezio
Title: Treasurer
<PAGE>
[LOGO]
[PHOTOS]
TAKING THE WORLD TO NEW PLACES...
1997 Annual Report
<PAGE>
CORPORATION
2229 Main St, Concord, Massachusetts 01742
Telephone (978) 369-5410 Fax (978) 369-4045
Internet address www.starmet.com
VISION
TECHNOLOGY
AGILITY
QUALITY
SOLUTIONS
SPEED
PERFORMANCE
<PAGE>
"WE ARE COMMITTED TO PROVIDING
SUPERIOR METALLURGICAL TECHNOLOGY,
PRODUCTS AND SERVICES TO OUR
CUSTOMERS BY CONTINUOUSLY STRIVING
FOR EXCELLENCE IN ALL WE DO."
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS 1997 1996 OUR BUSINESS
<S> <C> <C> <C>
Net Sales $28,062,000 $28,694,000 Starmet Corporation
Net Income (loss) $ 1,482,000 $(3,037,000) develops & manufactures
Earnings (loss) per share $ 0.30 $ (0.64)
Weighted Average Number a variety of advanced
of Shares of Common
Stock Outstanding 4,973,870 4,778,928 metal products serving a
Number of Employees
at Year-end 235 190 diverse customer base.
Total Assets $34,704,000 $35,118,000
Working Capital $10,743,000 $ 9,249,000
Stockholders' Equity $26,096,000 $24,370,000
</TABLE>
CONTENTS
President's Letter...................................... 1
Market Profile.......................................... 6
Selected Financial Data................................. 18
Management's Discussion and Analysis of Operations...... 20
Consolidated Balance Sheets............................. 26
Consolidated Statements of Operations................... 27
Consolidated Statements of Stockholders' Equity......... 28
Consolidated Statements of Cash Flows................... 29
Notes to Consolidated Financial Statements.............. 30
Report of Independent Public Accountants................ 56
Corporate Directory
<PAGE>
PRESIDENT'S LETTER
Dear Stockholder:
Fiscal 1997 was a good year for Starmet Corporation (formerly Nuclear
Metals, Inc.). While revenues were essentially level with Fiscal 1996, net
income of $1.5 million in Fiscal 1997 compared favorably with a $3.1 million
loss in the prior year. In November 1997 Starmet CMI, our wholly owned
subsidiary, announced new orders and options valued at $5.5 million for work
to be performed in Fiscal 1998 with revenues beginning in the second quarter.
This unique facility for uranium conversion had been without a major
customer since the fourth quarter of Fiscal 1996, resulting in negative cash
flow during this period. The new orders to restart our uranium conversion
process and further expand our Department of Energy licensed DUCRETE-TM-
stabilization technology should result in Starmet CMI returning to revenue
growth.
FINANCIAL HIGHLIGHTS
Revenues in Fiscal 1997 of $28.1 million compared to $28.7 million in
Fiscal 1996. Net income of $1.5 million compared favorably to a loss of $3.1
million the prior year. Year-end backlog increased to $27.7 million from
$23.3 million the prior year. Capital expenditures of $1.8 million compared
to $1.4 million the prior year. Research and development spending of $1.3
million compared to $0.9 million the prior year.
The Fiscal 1997 year-end balance sheet showed an increase in the current
ratio (current assets / current liabilities) to 2.5 : 1 from 1.99 : 1 in the
prior year. Our quick ratio (current assets less inventory / current
liabilities) increased to 0.9 : 1 from 0.7 : 1 the prior year. Year-end cash
and cash equivalents decreased
1
<PAGE>
to $0.27 million from $1.30 million the prior year. Long term debt increased
to $3.4 million from $1.9 million in the prior year. State Street Bank &
Trust Company, our commercial bank, increased the Company's line of credit to
$6.0 million in December 1997.
[CHART]
NAME CHANGE AND NEW SUBSIDIARIES
In late September 1997 shareholders voted to change the name of the Company
to Starmet Corporation and to create several wholly owned subsidiaries. This
name change and new organizational structure should help us grow our business
more rapidly by providing greater flexibility to create strategic alliances and
otherwise finance the growth of our diverse technologies and markets.
STARMET CMI & NMI
The Company's uranium processing technology, used primarily for shielding
applications and feed rod for advanced laser enrichment, is the foundation of
the new Starmet CMI and NMI subsidiaries. Restart of our uranium
hexafluoride (UF(6)) conversion process beginning in the second quarter of
Fiscal 1998 will dramatically improve plant utilization and is expected to
provide the basis for profitability for Starmet CMI. Growing customer
acceptance of DUCRETE-TM- as a commercially viable stabi-
2
<PAGE>
lization technology with beneficial reuse of the depleted uranium as a
shielding material for high level wastes should result over the longer term
in significant new business from the Department of Energy and commercial
power companies.
STARMET POWDERS
The PREP-TM- powder technology for producing spherical powder of a
uniform size which is free of ceramic contamination is the cornerstone of
this subsidiary. There are several niche markets for high-quality spherical
powders, particularly in the medical products area, such as porous coatings
for implants. Additionally, the Company is developing new innovative
technology to produce finer size spherical powders that can be consolidated
into fully dense parts. We are targeting commercial parts made from our
titanium powders due to the growing commercial interest in this aerospace
metal.
STARMET AEROCAST & COMCAST
Over the past six years, ongoing development efforts on our patented
Beralcast-Registered Trademark- technology for producing lightweight,
precision castings for aerospace applications have resulted in a significant
cost reduction using present equipment and installation of automated
production equipment will result in further cost reductions that are expected
to be significant. This has significantly improved this exciting material's
economic viability in numerous applications. Our Beralcast-Registered
Trademark- hardware is now in demonstration and prototype manufacture on its
way to production for several new aerospace programs. Having our patented
alloys selected and proven as a reliable "bill of material" on specific
military programs is of the utmost importance and a good indicator of future
performance.
Commercial applications for Beralcast-Registered Trademark- components have
a much faster but
3
<PAGE>
shorter product life cycle. Commercial applications require materials that
are cost effective and are reliably manufactured. New computer disc drive
armatures designed in Beralcast-Registered Trademark- now are being evaluated
by four leading disc drive manufacturers. In commercial applications, the
ramp from demonstration quantities to production quantities is generally only
18 months vs. 10 years for most military applications. Now that substantial
manufacturing cost savings have been demonstrated by aerospace applications
we are rapidly approaching sizable production opportunities for several
commercial applications.
COMMITMENT TO QUALITY
During Fiscal 1997 the Company became the first small business in the
United States to qualify for the US Army's highest Quality Certification.
This ISO 9002 based quality system which the Army has called its Contractor
Performance Certification Program required a two and a half year total
company effort. Broad-based employee teams have worked together to improve
and document processes and procedures and then to develop charts and graphs
to monitor ongoing performance. Extensive employee participation in the
measurement and review process has been essential to our success. This
never-ending process has a single goal of continuously increasing customer
satisfaction. In addition to receiving Army certification, the Company has
been recommended for ISO 9002 Certification by an international registrar.
We expect to receive the formal ISO 9002 certification in early Calendar 1998.
THE FUTURE
The name change, creation of several new subsidiaries, the Army funding
to remove a holding basin on our Concord, Massachusetts property, the
increasing Beralcast-Registered Trademark- requirements including
4
<PAGE>
a growing number of commercial applications and the return to meaningful
production volumes at Starmet CMI beginning in the second quarter of Fiscal
1998, all position the Company well to continue growth and diversification.
We have outstanding employees who very much join in the excitement of meeting
our customers' needs today and tomorrow.
We are committed to following a growth strategy and taking demonstrative
actions that will enhance shareholder value.
Thank you for your continued support and confidence.
[PHOTO W/CAPTION]
STANDING: KENNETH A. SMITH, FRANK H. BRENTON, THOMAS A. WOOTERS
SEATED: WILSON B. TUFFIN, GEORGE J. MATTHEWS, ROBERT E. QUINN
/s/ ROBERT E. QUINN /s/ GEORGE J. MATTHEWS
- ------------------------------ ------------------------------
Robert E. Quinn George J. Matthews
President Chairman of the Board
5
<PAGE>
Starmet
STARMET CORPORATION'S
DEDICATION TO SOLVING
CUSTOMERS MATERIALS
RELATED ISSUES IS THE
FOUNDATION OF OUR ABILITY
TO ADAPT AND INNOVATE
Solutions
The ability of a Company to adapt to a changing marketplace while
maintaining strong customer relationships defines success. Starmet
Corporation's dedication to solving customers' material related issues is the
foundation of our ability to adapt and innovate. Our company has been
transformed over the past three years from principally a manufacturer of
depleted uranium for Government defense applications to a manufacturer
offering a broad range of metal products and services. Our capabilities
offer product solutions to complex issues in the aerospace, energy, medical,
defense, sporting goods, and computer industries. These products range from
Beralcast-Registered Trademark- computer disc drive armatures, enabling
significantly improved data storage and retrieval, to uranium feed material
for the Atomic Vapor Laser Isotope Separation process, the most advanced
uranium isotope separation process currently being deployed for nuclear fuel
production. Starmet Corporation's primary mission is to support its newly
formed business units with research and development, customer and financial
support, and operational capabilities consistent with the needs of our
customers. The Company's business units include Starmet NMI, Starmet CMI,
Starmet Aerocast, Starmet Comcast and Starmet Powders Starmet Corporate also
provides advanced material products and services directly to customers in
aerospace-related industries consistent with Nuclear Metals' legacy of
advanced metalworking processes.
6
<PAGE>
[Photographs]
TUBULAR DISSIMILAR METAL TRANSITION JOINTS ARE USED TO CONNECT THE TITANIUM FUEL
TANKS IN SATELLITES TO THE STAINLESS STEEL TUBING RUNNING TO THE DIRECTIONAL
THRUSTERS. BERYLLIUM SATELLITE TUBING AND OTHER SPECIALITY METAL PRODUCTS ARE
DISPLAYED AS WELL.
7
<PAGE>
Starmet NMI
WE ARE PROUD OF OUR ROLE IN
PROVIDING OUR SOLDIERS WITH THE
BEST AMMUNITION IN THE WORLD
Performance
"Transition" describes our status in support of the Armed Forces for
Depleted Uranium (DU) ammunition. Starmet NMI has provided DU ammunition to
all branches of the United States Armed Forces. We are proud of our role in
providing our soldiers with the best ammunition in the world. When we were
visited by two Desert Storm tank commanders this past year we were told
emphatically that lives are saved when our soldiers are able to rely
completely on the quality, consistency, and performance of DU ammunition.
However, events in the former Soviet Union, combined with the effectiveness
of the ammunition deployed in Desert Storm, lead the Army to the conclusion
that fewer rounds needed to be stockpiled. As we produce 120MM DU rounds for
the M1A2 Abrams tank at a tenth of previous rates, the need to transition
from the ordnance marketplace to the commercial marketplace is evident. A
versatile material, DU is used in commercial applications ranging from
shielding devices for the medical industry to counterweight materials in wide
body aircraft. While facilities in Concord, MA previously used for DU
penetrator manufacture are being cleaned and readied for production expansion
of our patented Beryllium Aluminum alloy, Beralcast-Registered Trademark-,
Starmet will continue to support the Army's DU ammunition needs with
consolidation of facilities and technical expertise at CMI in Barnwell, SC.
8
<PAGE>
[Photographs]
PRODUCT PHOTO DEPICTS A VARIETY OF COMMERCIAL DEPLETED URANIUM PRODUCTS.
9
<PAGE>
Starmet CMI
CMI BRINGS VALUE
TO CUSTOMERS THROUGH
TECHNICAL EXCELLENCE
AND PROVEN TECHNOLOGIES
Quality
Novel technologies for difficult issues are the trademark of this unique
business unit of Starmet. CMI is the only fully integrated DU processing
facility in the United States. Customer needs for uranium and related
materials are served by utilizing our patented technologies and a team of
engineering specialists. Whether it involves transforming radioactive scrap
metals into useable shielding products, refurbishing commercial and military
aircraft counterweights, or producing feed materials for the Atomic Vapor
Laser Isotope Separation process, CMI brings value to customers through
technical excellence and proven technologies. The answer to the question of
how to manage the growing inventory of uranium hexafluoride may be found in
DUCRETE-TM- shielding, a patented form of ultra dense concrete using uranium
oxide briquettes as aggregate in concrete. We have formed a partnership
which ensures exclusive rights to DUCRETE-TM- shielding containers and
barriers for use by nuclear utilities for mandated above-ground storage of
spent fuel. Respect for the environment, innovative technologies, a skilled
workforce and room to grow on 340 acres in South Carolina position the
CMI for success in the future.
10
<PAGE>
[Photographs]
RADIOACTIVE SCRAP METALS HAVE BEEN TRANSFORMED INTO USABLE LOW LEVEL WASTE
CANISTERS.
11
<PAGE>
Starmet Aerocast
INVESTMENT CASTINGS
ARE DESIGNED TO MEET
VOLUME DEMAND AT
A COMPETITIVE
AFFORDABLE PRICE
FOR THE CUSTOMER
Speed
Imagine the potential of an affordable aerospace material that is 22
percent lighter than aluminum, 300% stiffer, with strength comparable to
A356 aluminum aerospace castings, and has six to ten times better vibration
damping characteristics. Optical structures, electronic boxes, stable members,
battery cases, navigational housings, satellite structures, tubular struts, and
a seemingly endless number of additional possibilities are candidates for use of
Starmet's patented Beralcast-Registered Trademark-. Investment castings are
designed to meet volume demand at a competitive price for the
customer. Starmet's engineering staff works closely with all of our customers
to ensure that delivered product meets their needs for long-term production of
low cost hardware. The value of this new material is in the flexibility now
afforded the design engineer to increase the performance of new and existing
hardware for tomorrow's aerospace needs.
Working closely with customers' engineers as products are designed
assures future production costs are as low as possible. Teaming with our
customers also ensures that we not only understand their needs, but share in
their future.
12
<PAGE>
[Photographs]
BERALCAST-Registered Trademark- COMPONENTS FOR THE ARMY'S COMANCHE HELICOPTER
ELECTRO OPTIC SENSOR SYSTEM (EOSS).
13
<PAGE>
Starmet Comcast
SOME GOLFERS
TELL US BERALCAST-Registered Trademark-
IS THE TITANIUM
OF THE FUTURE
Vision
Cost-effective, light, durable, and flexible are words that can be used
to describe Beralcast-Registered Trademark-'s advantageous use for aerospace
components. The commercial marketplace is equally demanding of such
qualities in engineering materials. Where production of commercial products
advance at dizzying rates, engineers are increasingly pressured to design
with smaller and lighter components manufactured by innovative suppliers.
Today's premium golf club heads are investment cast or forged from Titanium
and its alloys. Titanium is twice the density of Beralcast-Registered
Trademark- and offers less flexibility in its manufacture. Some golfers tell
us Beralcast-Registered Trademark- is the Titanium of the future. In the
computer hardware market Beralcast-Registered Trademark- offers significantly
better performance characteristics than conventional materials. For example,
Beralcast-Registered Trademark- will allow a vast increase in the data
storage capacity and retrieval of tomorrow's computer disc drives. Prototypes
using Starmet's Beralcast-Registered Trademark- are currently being qualified
for this use. Other commercial applications for this material include those
where a small premium can be paid for significantly enhanced performance and
design flexibility. Imagine using Beralcast-Registered Trademark- instead of
aluminum to enhance high speed assembly and inspection devices where
Beralcast-Registered Trademark-'s vibration damping qualities can result in a
five to ten fold performance improvement.
14
<PAGE>
[Photographs]
ADVANCED DISC DRIVE ARMATURES MADE FROM BERALCAST-Registered Trademark-
15
<PAGE>
Starmet Powders
COMBINING A SOLID
REPUTATION FOR ULTRA-CLEAN
POWDER PROCESSING
TECHNIQUES WITH NEW
AND DEDICATED
ENGINEERING RESOURCES,
OPENS A WORLD OF POSSIBILITIES
FOR CREATING PRODUCTS
Technology
Metal powders can be used effectively in a variety of applications where
exacting sizes, shapes, and cleanliness are important. Clean cobalt chrome
and titanium powders, made by our patented Plasma Rotating Electrode Process
(PREP-TM-), are used in medical implants to effectively bond prosthetic
devices to bone and tissue. Uniform steel powders are used not only in
photocopiers and sophisticated rapid prototyping applications, but in
magnetic paint for children's books, wallpaper, and toys. Materials that are
difficult to fabricate from castings or forgings are candidates for powder.
Oftentimes metallurgy approach castings are converted to powders, which are
in turn, reconsolidated into semi-finished components with improved
mechanical properties. Fine titanium powders consolidated into semi-finished
components represent tomorrow's challenge for advanced metal powder-making
technologies at Starmet Powders. Combining a solid reputation for
ultra-clean powder processing techniques with new and dedicated engineering
resources, opens a world of possibilities for creating products. We have
realized that such possibilities exist even more clearly when we combine our
resources with other innovative companies whose enthusiasm for producing high
value powder metallurgy products matches our own. We have a vision that
includes consolidation of fine powders into complex shapes.
16
<PAGE>
[Photographs]
ULTRA CLEAN POWDERS MADE BY THE PLASMA ROTATING ELECTRODE PROCESS ARE FREE
FLOWING AND UNIFORMLY SPHERICAL.
17
<PAGE>
SELECTED FINANCIAL DATA
(NOT COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF EMPLOYEES)
<TABLE>
<CAPTION>
OPERATING RESULTS FOR THE YEAR 1997 1996 1995 1994 1993
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Sales and Contract Revenues............ $ 28,062 $ 28,694 $18,784 $19,004 $ 17,019
Cost and Expenses.......................... 26,251 31,254 20,708 29,958 27,515
Operating Income (Loss).................... 1,811 (2,560) (1,924) (10,954) (10,496)
Other Income (Expense), Net................ (298) (476) (118) (430) (557)
Income (Loss) Before Taxes................. 1,513 (3,036) (2,042) (11,384) (11,053)
Provision (Benefit) for Income Taxes....... 31 1 (1,967) (1,188) (3,746)
Extraordinary Gain......................... -- -- 585 -- --
Cumulative Change in Accounting Principle.. -- -- -- -- 1,100
Net Income (Loss).......................... 1,482 (3,037) 510 (10,196) (6,207)
Earnings (Loss) per Share*................. 0.30 (0.64) 0.11 (2.22) (1.35)
Capital Expenditures, Net.................. 1,788 1,449 777 709 1,265
Research and Development................... 1,309 876 439 575 1,031
FINANCIAL POSITION AT YEAR-END
Stockholders' Equity....................... 26,096 24,370 27,245 26,252 36,371
Shares Outstanding*........................ 4,784 4,782 4,776 4,614 4,590
Net Book Value per Common Share
Outstanding*............................. 5.45 5.10 5.70 5.69 7.92
Dividends Paid............................. -- -- -- -- 459
Dividend per Share*........................ -- -- -- -- 0.13
Total Assets............................... 34,704 35,118 40,886 40,542 57,223
Working Capital............................ 10,743 9,249 15,866 17,477 24,532
Long-term Debt, net of Unamortized
Discount (including current
installments)............................ 3,363 1,874 4,480 4,859 8,986
OTHER DATA
Weighted Average Number of Shares
of Common Stock Outstanding*............ 4,959 4,779 4,706 4,600 4,590
Backlog (at Year-end)...................... 27,654 23,248 30,709 14,512 8,285
Number of Employees (at Year-end).......... 235 190 200 189 169
</TABLE>
* ADJUSTED TO REFLECT TWO FOR ONE STOCK SPLIT IN 1997
18
<PAGE>
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
$ 42,083 $ 48,250 $ 47,662 $ 49,760 $ 45,714
39,791 44,930 44,734 45,350 42,378
2,292 3,320 2,928 4,410 3,336
(745) (1,029) (1,706) (1,191) (1,182)
1,547 2,291 1,222 3,219 2,154
626 871 489 972 506
-- -- -- -- --
-- -- -- -- --
921 1,420 733 2,247 1,648
0.20 0.30 0.15 0.43 0.31
1,015 1,349 2,270 3,306 2,812
1,233 1,357 685 1,007 1,186
43,037 42,614 41,756 43,135 41,592
4,590 4,670 4,768 5,192 5,264
9.38 9.13 8.76 8.31 7.90
276 238 251 263 --
0.06 0.05 0.05 0.05 --
66,391 70,810 73,603 76,520 75,461
32,571 33,034 32,772 35,578 36,231
11,372 13,759 16,040 18,405 19,756
4,604 4,738 4,894 5,244 5,354
10,729 10,398 14,758 19,352 16,016
231 456 455 574 585
19
<PAGE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF
OPERATIONS
FISCAL 1997 COMPARED WITH FISCAL 1996
Net sales decreased by $632,000 or 2% in fiscal 1997. Sales in the
Uranium Services and Recycle industry segment decreased by $1,224,000 or 20%;
sales in the Specialty Metal Products industry segment decreased by $560,000
or 4% and sales in the Depleted Uranium Penetrator industry segment increased
by $1,152,000 or 13%.
The decrease in the Uranium Services and Recycle industry segment was
mainly due to lack of volume in depleted uranium products due to completion
of a production contract for a foreign customer in fiscal 1996. This
decrease was partially offset by increases in AVLIS feedstock production for
the United States Enrichment Corporation (USEC). The decrease in the
Specialty Metal Products industry segment was a result of decreased volumes
of beryllium products partially offset by an increase in commercial depleted
uranium products. The increase in the Depleted Uranium Penetrator industry
segment was the result of higher production volume of penetrator blanks for
a foreign customer and the revenue recognized pursuant to the Company's
contract with the United States Army to remediate the holding basin facility
(see Note 11).
Gross profit (net sales and contract revenues less cost of sales)
increased by $5,285,000 to $8,926,000 or 32% of sales as compared to
$3,641,000 or 13% of sales for fiscal 1996. This increase in gross profit is
primarily due to reduction of certain accruals in fiscal 1997 for site
remediation and waste burial costs of $1,750,000 and a reduction of inventory
reserves of $1,000,000. Also, gross profit for fiscal 1996 was reduced by an
accrual of a $2,100,000 for anticipated fiscal 1997 operating losses associated
with CMI's production contracts. As of September 30, 1997 the accrual has
been fully utilized.
Selling, general and administrative expenses increased by $124,000 to
$5,448,000. This increase was primarily due to additional
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
20
<PAGE>
employees required to support the forecasted growth in business. As a
percentage of sales, these expenses remained at 19% as compared to the prior
year.
Company-sponsored research and development expenses increased by 49% or
$433,000 to $1,309,000 for fiscal 1997. As a percentage of sales, these
expenses were 5% as compared to 3% in fiscal 1996.
Interest and other income/(expense), net, decreased to ($2,000) for the
fiscal year as compared to ($89,000) for the prior year. This decrease was
mainly from the absence in fiscal 1997 of a restructuring fee associated with
amendments to the Company's credit facility during the third quarter of fiscal
1996.
Interest expense decreased by $91,000 to $296,000 as compared to fiscal
1996. This decrease was primarily the result of higher interest rates and
fees associated with out standing debt during fiscal 1996.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have data-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company is in the process of installing a new accounting software
system. Management believes that subject to successful installation of the new
accounting system, the Year 2000 issue will not have a material adverse impact
to the Company's operations or financial position.
INCOME TAXES
Income taxes provided during 1997 and 1996 were at effective rates of 2%
and 0%, respectively. The 1997 effective rate of 2% differs from the
statutory rate of 34% due to a reduction in the valuation allowance
associated with to the benefit of net operating loss carryforwards.
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 the year ended September 30,
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTS)
21
<PAGE>
1997, the Company's primary sources of capital have been shareholder notes
payable and borrowings through its revolving credit facility with its
commercial bank. On August 7, 1997, the Company entered into a Third
Amendment to the Credit Agreement dated March 31, 1995, which increased the
principal amount of the credit facility from $4.25 million to $6.55 million.
The increase in the credit facility was to provide the Company with a letter
of credit to satisfy its financial assurance requirements as defined by DHEC
in connection with the Company's license to operate in South Carolina.
On October 1, 1997, the Company amended and restated its Credit
Agreement dated March 31, 1995, as amended, with its lender, pursuant to the
terms of an Amended and Restated Credit Agreement ("Credit Agreement"). The
total amount of the credit thereunder available to the Company remained at
$6.55 million, and the Company and all its subsidiaries became borrowers
under the Credit Agreement. The Credit Agreement is secured by an Amended
and Restated Joint Security Agreement, whereby the Company and its
subsidiaries granted to the lender a first priority security interest in all
accounts, inventory and general intangibles. The Company is subject to
certain operating and financial covenants, including minimum tangible
capital, as defined and net income requirements in connection with the credit
facility.
The Company has entered into a First Amendment to the Credit Agreement
with its lender dated December 9, 1997, which provides for an increase in the
credit facility to $8.05 million.
On December 29, 1997, the Company entered into a Second Amendment to the
Credit Agreement which provides for the following; (a) an increase in the
total amount of credit available to the Company from $8.05 million to $9.55
million; (b) the terms of repayment for the line of credit have been revised
so that $1.5 million is due July 1, 1998, $1.5 million is due October 1, 1998
and the balance, $3.0 million is due on February 28, 1999; and (c) all previous
events of non-compliance with the Credit Agreement have been waived and
certain financial covenants have been amended.
In consideration of the Second Amendment to the Credit Agreement the
Company has issued to the lender a warrant to purchase 25,000 shares of
common stock at the ten day average of fair market value as of December 29,
1997. These warrants have a seven year exercise period. The Company also paid
its lender $15,000 upon execution of the Amendment.
During the quarter ended September 30, 1997, the Company sold $500,000 of
subor-
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTS)
22
<PAGE>
dinated debt, with warrants to purchase common stock, to a shareholder,
bringing the principal amount of such subordinated debt to $1,350,500. This
additional capital was provided to the Company in support of growth in new
product areas. The Company also issued convertible debt in the original
principal amount of $900,000 to certain shareholders on December 23, 1997.
(See note 6 of the notes to consolidated financial statements for details of
the Credit Agreement and subordinated debt issued to certain of the Company's
shareholders).
The Company has outstanding approximately $180,000 in principal amount on
industrial revenue bond indebtedness related to the Starmet CMI facility.
The Company also has a term note in the amount of $370,000 with Palmetto
Federal Savings Bank of South Carolina. This loan is secured by a mortgage
on Starmet CMI's South Carolina property. The Company is a guarantor under
the Palmetto loan.
The Company is expanding its facilities by adding new equipment and
modifying manufacturing floor space to accomodate changing product lines and
customer demands. The Company anticipates that this will require capital
expenditures totaling approximately $2,000,000 during fiscal 1998.
The Company did not declare any cash dividends during its last three
fiscal years. The Company does not expect to pay cash 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 Credit Agreement also prohibits the
declaration or payment of dividends without the lender's 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 1998 and to fund required capital expenditures.
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
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTS)
23
<PAGE>
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 1997, which could result in a further write-
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
24
<PAGE>
down 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 $(476,000) 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.
25
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 195,000 $ 1,051,000
Restricted cash 73,000 250,000
Accounts receivable, net of allowances for doubtful accounts
of $421,000 in 1997 and $821,000 in 1996 5,546,000 4,931,000
Inventories 11,440,000 12,025,000
Other current assets 619,000 376,000
----------- -----------
Total Current Assets 17,873,000 18,633,000
----------- -----------
Property, Plant and Equipment:
Land 2,124,000 2,178,000
Buildings 17,656,000 18,040,000
Machinery, equipment, and fixtures 18,472,000 26,179,000
Construction-in-progress 831,000 583,000
----------- -----------
Total Property, Plant and Equipment 39,083,000 46,980,000
Less: Accumulated depreciation 24,036,000 31,834,000
----------- -----------
Net property, plant, and equipment 15,047,000 15,146,000
Other Assets 1,784,000 1,339,000
----------- -----------
$34,704,000 $35,118,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations $ 1,885,000 $ 510,000
Accounts payable 3,123,000 2,143,000
Accrued payroll and related costs 1,215,000 1,170,000
Other accrued expenses 907,000 5,561,000
----------- -----------
Total Current Liabilities 7,130,000 9,384,000
----------- -----------
Long-term Obligations 430,000 644,000
----------- -----------
Notes Payable to Shareholders 1,048,000 720,000
----------- -----------
Stockholders' Equity:
Common stock, par value $.10; authorized - 15,000,000 shares;
issued and outstanding for 1997 and 1996; 4,784,244 shares
and 4,781,928 shares, respectively 478,000 478,000
Additional paid-in capital 14,033,000 14,019,000
Warrants Issued 360,000 130,000
Retained earnings 11,225,000 9,743,000
----------- -----------
Total Stockholders' Equity 26,096,000 24,370,000
----------- -----------
$34,704,000 $35,118,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
26
<PAGE>
Consolidated Statement of Operations
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales and contract revenues $28,062,000 $28,694,000 $18,784,000
----------- ----------- -----------
Cost and expenses
Cost of sales 19,136,000 25,053,000 15,452,000
Selling, general, and administrative expenses 5,448,000 5,324,000 4,817,000
Research and development expenses 1,309,000 876,000 439,000
Loss on write-off of fixed assets 358,000 -- --
----------- ----------- -----------
26,251,000 31,253,000 20,708,000
----------- ----------- -----------
Operating Income (loss) 1,811,000 (2,560,000) (1,924,000)
Interest and other income (expense), net (2,000) (89,000) 232,000
Interest expense (296,000) (387,000) (350,000)
----------- ----------- -----------
Income (Loss) before income taxes and extraordinary item 1,513,000 (3,036,000) (2,042,000)
Provision (Benefit) for income taxes 31,000 1,000 (1,967,000)
----------- ----------- -----------
Income (Loss) before extraordinary item 1,482,000 (3,037,000) (75,000)
Extraordinary gain on extinguishment of debt net of taxes of $10,000 -- -- 585,000
----------- ----------- -----------
Net income (loss) $ 1,482,000 $(3,037,000) $ 510,000
----------- ----------- -----------
----------- ----------- -----------
Per Share Information*
- ---------------------
Income (Loss) before extraordinary item 0.30 (0.64) (0.01)
Extraordinary gain on extinguishment of debt net of taxes of $10,000 -- -- 0.12
----------- ----------- -----------
Net income (loss) per common and common equivalent share $ 0.30 $ (0.64) $ 0.11
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common and common equivalent shares
outstanding 4,958,870 4,778,928 4,705,512
----------- ----------- -----------
----------- ----------- -----------
Dividends per share $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
* Adjusted to reflect 2 for 1 stock split in the 2nd quarter of 1997.
The accompanying notes are an integral part of
these consolidated financial statements.
27
<PAGE>
Consolidated Statement of Stockholders' Equity
<TABLE>
Common Stock
---------------------- Additional
Number Par Paid-in Retained
of Shares Value Capital Warrants Earnings Total
--------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 4,614,928 $ 460,000 $ 13,522,000 $ -- $ 12,270,000 $ 26,252,000
--------- --------- ------------ ---------- ------------ ------------
Stock options exercised 161,000 18,000 465,000 -- -- 483,000
Net Income for Year -- -- -- -- 510,000 510,000
--------- --------- ------------ ---------- ------------ ------------
Balance at September 30, 1995 4,775,928 $ 478,000 $ 13,987,000 $ -- $ 12,780,000 $ 27,245,000
--------- --------- ------------ ---------- ------------ ------------
Warrants Issued -- -- -- 130,000 -- 130,000
Stock options excercised 6,000 -- 32,000 -- -- 32,000
Net Loss for Year -- -- -- -- (3,037,000) (3,037,000)
--------- --------- ------------ ---------- ------------ ------------
Balance at September 30, 1996 4,781,928 $ 478,000 $ 14,019,000 $ 130,000 $ 9,743,000 $ 24,370,000
--------- --------- ------------ ---------- ------------ ------------
Warrants Issued -- -- -- 230,000 -- 230,000
Stock options excercised 2,316 -- 14,000 -- -- 14,000
Net Income for Year -- -- -- -- 1,482,000 1,482,000
--------- --------- ------------ ---------- ------------ ------------
Balance at September 30, 1997 4,784,244 $ 478,000 $ 14,033,000 $ 360,000 $ 11,225,000 $ 26,096,000
--------- --------- ------------ ---------- ------------ ------------
--------- --------- ------------ ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
28
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,482,000 $(3,037,000) $ 510,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 1,588,000 1,493,000 1,339,000
Loss on write-off of fixed assets 358,000 -- --
Changes in assets and liabilities, net-
Decrease (increase) in accounts receivable (616,000) (201,000) 725,000
Decrease (increase) in inventories 585,000 2,099,000 (2,982,000)
(Decrease) increase in accounts
payable and accrued expenses (3,629,000) 3,358,000 1,387,000
Gain on sale of building -- (75,000) (175,000)
Changes in accrued and deferred taxes -- -- (1,000)
Changes in other long-term liabilities -- (301,000) (981,000)
Other (689,000) 440,000 (100,000)
------------ ------------ ------------
Net cash provided (used) by operating activities (921,000) 3,776,000 (278,000)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures, net (1,788,000) (1,449,000) (777,000)
Sales of marketable securities, net -- 170,000 326,000
Proceeds from sale of Property, Plant & Equipment -- 172,000 487,000
------------ ------------ ------------
Net cash (used) provided by investing activities (1,788,000) (1,107,000) 36,000
------------ ------------ ------------
Cash flows from financing activities:
Principal payments under long-term obligations (545,000) -- --
Payments on bank debt (9,801,000) (4,856,000) (4,103,000)
Proceeds from bank debt 11,508,000 1,530,000 3,725,000
Proceeds from Notes Payable to Shareholders and
Warrants 500,000 850,000 --
Proceeds from Stock issuance 14,000 32,000 483,000
------------ ------------ ------------
Net cash (used) provided by financing activities 1,676,000 (2,444,000) 105,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents: (1,033,000) 225,000 (137,000)
Cash and cash equivalents at beginning of year 1,301,000 1,076,000 1,213,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 268,000 $ 1,301,000 $ 1,076,000
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest, net of amounts capitalized $ 266,000 $ 345,000 $ 280,000
Income tax refunds received $ 14,000 $ 11,000 $ 978,000
Non-cash investing & Financing activities:
Capital lease obligations $ -- $ 75,000 $ --
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
Starmet Corporation (The Company) is a manufacturer of specialized metal
products which are fabricated by a variety of metalworking processes.
Effective October 1, 1997 the company changed its name from Nuclear Metals,
Inc. to Starmet Corporation. Export sales to foreign unaffiliated customers
are 25% of total net sales and contract revenues in fiscal 1997, 28% in
fiscal 1996, and 33% in fiscal 1995. A significant portion of the Company's
sales revenue has been derived from major customers as follows:
1997 1996 1995
Royal Ordnance............. 19% 11% --%
United States
Enrichment Corp............ 14 5 --
Primex Technologies........ 12 20 8
Lockheed Martin............ 7 16 18
Lockheed Idaho
Falls...................... 5 4 9
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Starmet Corporation and its wholly owned subsidiaries: Starmet Powders,
LLC, Starmet Aerocast, LLC, Starmet Comcast, LLC, Starmet NMI Corporation,
Starmet CMI Corporation, Starmet Holdings Corporation and NMI Foreign Sales
Corporation. All material intercompany transactions and balances have been
eliminated in consolidation.
30
<PAGE>
FISCAL YEARS
References in these financial statements to 1997, 1996, and 1995 are for
the fiscal years ended September 30, 1997, September 30, 1996, and
September 30, 1995, respectively. The accompanying financial statements and
all share and per share information have been restated to reflect a 2 for 1
stock split effective in April 1997.
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 to date to the total units to be completed under the
respective contract or by relating total costs incurred to total estimated
costs at completion. When the estimated total cost on a contract indicates a
loss, the Company's policy is to record the entire loss currently.
Performance incentives and penalties 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 1997, 1996 and in 1995) 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
31
<PAGE>
recorded at cost, which approximates market value. Cash equivalents include
certificates of deposit with a maturity of one year or less.
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 betterments are capitalized. When property, plant, and equipment are
sold, retired or disposed of, the asset cost and accumulated depreciation are
removed from the accounts, and the resulting gain or loss is included in
operations.
In Fiscal 1997, the Company adopted the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and of Long-Lived
Assets to be Disposed of." This statement requires a review of impairment
for long-lived assets and certain identifiable intangibles to be held and
used by an entity whether events or changes in circum-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
32
<PAGE>
stances indicate that the carrying amount of the assets may not be
recoverable. An impairment loss is 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. The effect of adopting this statement was not material to
the Company's financial position or results of operation.
In the fourth quarter of fiscal 1996, the Company established a $2,100,000
reserve for estimated losses associated with Starmet CMI's production contracts.
The Company was obligated to complete these contracts, which were fixed price.
The contracts have been completed and the reserve is $0 as of September 30,
1997.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Accordingly, the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return. The
Company records a valuation allowance against any net deferred tax assets
whose realizability is uncertain.
The deferred federal and state income taxes result primarily from using
accelerated depreciation on property, plant, and equipment for income tax
reporting purposes and from establishing reserves which are not currently
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
33
<PAGE>
deductible for income tax purposes, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development incurred under customer contracts are expensed through cost of
sales in the period incurred.
INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
The Company currently calculates earnings per common share under
Accounting Principles Board Opinion (APB) No. 15, "Earnings Per Share."
Income/(loss) per share was computed by dividing the net income by the
weighted average number of shares of common stock outstanding during each
year. Common stock equivalents (stock options and stock warrants) were
considered in the computation of earnings per common and common equivalent
share for 1997. Stock options and stock warrants were not considered in
computing the loss and income per share in 1996 and 1995, as the effect would
have been antidilutive.
RECLASSIFICATIONS
Certain amounts previously reported in the consolidated financial
statements have been reclassified to conform to the 1997 presentation.
NEW ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share," which establishes standards for computing and
presenting earnings per share for entities with publicly held common stock or
potential common stock. SFAS No. 128 is effective for periods ending after
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
34
<PAGE>
December 15, 1997 and early adoption is not permitted. SFAS No. 128 replaces
primary earnings per share with "basic earnings per common share." Basic
earnings per common share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. No
dilution for any potentially dilutive securities is included. In addition,
SFAS No. 128 replaces fully diluted earnings per common share with "diluted
earnings per common share." Dilution for options and warrants under SFAS No.
128 is computed using the average share price of the Company's common stock
for the period, rather than the more dilutive greater than average share
price or end-of-period share price required by APB No. 15. For fiscal years
1997, 1996, and 1995 there would be no material change from primary and fully
diluted earnings per common share to basic and diluted earnings per share
under SFAS No. 128.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
35
<PAGE>
equivalents, restricted cash, accounts receivable, notes receivable from
officers, accounts payable and notes payable. The carrying amounts of the
Companys 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 approximates the fair value, based on rates available to
the Company for debt with similar terms and remaining maturities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
36
<PAGE>
3. OTHER ACCRUED EXPENSES
Accrued expenses consist of the following at September 30, 1997 and 1996
<TABLE>
1997 1996
------------ ------------
<S> <C> <C>
Waste burial cost $ 404,000 $ 2,884,000
Estimated loss on contracts -- 2,100,000
Other 503,000 577,000
------------ ------------
$ 907,000 $ 5,561,000
------------ ------------
------------ ------------
</TABLE>
During 1997, the Company reduced certain accruals by $1,750,000 for site
remediation and waste burial costs which were deemed no longer necessary.
4. ACCOUNTS RECEIVABLE
The following is an analysis of accounts receivable (net of allowances for
doubtful accounts):
<TABLE>
1997 1996
------------ ------------
<S> <C> <C>
Accounts receivable $ 5,460,000 $ 3,479,000
Unbilled Receivables and
Retainages due upon completion
of contracts 86,000 1,452,000
------------ ------------
$ 5,546,000 $ 4,931,000
------------ ------------
------------ ------------
</TABLE>
5. INVENTORIES
Inventories (net of reserves) at September 30, 1997, and September 30, 1996,
were as follows:
<TABLE>
1997 1996
------------ ------------
<S> <C> <C>
Work-in-process $ 2,511,000 $ 805,000
Raw materials 8,271,000 10,512,000
Spare parts 659,000 708,000
------------ ------------
$ 11,441,000 $ 12,025,000
------------ ------------
------------ ------------
</TABLE>
As of September 30, 1997, approximately $6.9 million 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,
($3.6 million), which is used for U.S. Military contracts and for material
which the Company has acquired from other sources, ($3.3 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
37
<PAGE>
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 1998. During 1997,
the Company reduced inventory reserves by approximately $1,000,000 which were
deemed no longer necessary.
6. LONG-TERM OBLIGATIONS AND NOTES PAYABLE
Long-term obligations and notes payable of the Company at September 30, 1997,
and September 30, 1996, are as follows:
<TABLE>
1997 1996
------------ ------------
<S> <C> <C>
Term Credit, interest rate of prime
plus 0.5% due in monthly principal
payments through 1996 $ -- $ 133,000
Line of Credit, interest rate of prime
plus 0.5% (9.0% at September 30, 1997) 1,706,000 --
Industrial Development Revenue Notes,
variable interest rates (5.6524% at
September 30, 1997) due in quarterly
principal payments through 2000 180,000 492,000
Notes payable to shareholders, interest
only payments of 10% until maturity 1,350,000 850,000
Note Payable, monthly interest and principal
payments through November 2000, interest
rate of 10.25% 370,000 457,000
Capital Leases 59,000 72,000
------------ ------------
$ 3,665,000 $ 2,004,000
Less Unamortized discount on Shareholder
Debentures 302,000 130,000
Less Current portion of long-term obligations 1,885,000 510,000
------------ ------------
Total Long-Term obligations and Shareholder
Debentures $ 1,478,000 $ 1,364,000
------------ ------------
------------ ------------
</TABLE>
CREDIT FACILITY
On August 7, 1997 the Company and its commercial bank, State Street Bank
& Trust Company signed the Third Amendment to their credit agreement date
March 31, 1995 (as amended, the "Credit Agreement"). The Third Amendment
increases the Company's credit facilities from $4.25 million to $6.55
million, with a maturity date of February 28, 1998. The $6.55 million
consists of $3.55 million of letters of credit and $3.0 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
38
<PAGE>
of 1% on the unused portion of the credit facilities.
As of September 30, 1997 the Company was not in compliance with certain
financial covenants contained in the Credit Agreement.
On October 1, 1997, the Company amended and restated the Company's
revolving credit facility with its lender, pursuant to the terms of an
Amended and Restated Credit Agreement ("Credit Agreement"), which amended and
restated the Credit Agreement dated March 31, 1995. The total amount of the
credit available to the Company remained at $6.55 million, and the Company
and all its subsidiaries became borrowers under the Credit Agreement. The
Credit Agreement is secured by an Amended and Restated Joint Security
Agreement, whereby the Company and its subsidiaries granted to the lender a
first priority security interest in all accounts, inventory and general
intangibles. The Company is subject to certain operating and financial
covenants, including minimum tangible capital, as defined and net income
requirements in connection with the credit facility.
The Company has entered into a First Amendment to the Credit Agreement
with its lender dated December 9, 1997, which provides for an increase in the
credit facility to $8.05 million.
On December 29, 1997, the Company entered into a Second Amendment to the
Credit Agreement which provides for the following; a. the total amount of
credit available to the Company increased from $8.05 million to $9.55
million; b. the terms of repayment for the line of credit have been revised
as such, $1.5 million is due July 1, 1998, $1.5 million is due October 1,
1998 and the balance, $3.0 million is due in February 1999; c. all previous
events of non-compliance with the Credit Agreement have been waived and
certain financial covenants have been amended.
In consideration of the Second Amendment to the Credit Agreement the
Company has issued to their lender a warrant to purchase 25,000 shares of
common stock at the ten day average of fair market value as of December 29,
1997. The Company also paid its lender $15,000 upon execution of the
Amendment.
As of September 30, 1997, and December 29, 1997, $1.7 million and $4.5
million were outstanding under the line of credit, respectfully. The
Company had $3.55 million letters of credit outstanding, at December 29,
1997.
NOTES PAYABLE TO SHAREHOLDERS
On January 10, 1996, the Company issued $500,500 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 $5.945 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
39
<PAGE>
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 42,000 shares of common stock
at an exercise price of $7.50 per share, subject to antidilution adjustments.
On September 22, 1997 the Company issued an additional $500,000 in
principal amount pursuant to its 10% Subordinated Debentures due December 10,
2000 which were issued to a shareholder of the Company. In consideration for
the Debentures, the holders were issued three-year warrants to purchase an
aggregate of 60,000 shares of common stock at an exercise price of $17.875
per share, subject to antidilution adjustments.
On December 23, 1997 the Company issued an additional $950,000 in
principal amount pursuant to its 10% Convertible Subordinated Notes due
December 31, 1999 which were issued to certain significant shareholders of
the Company. The principal amount of the Notes are convertible at the option
of the holder into shares of the Company's Common Stock at the rate of $21.50
per share.
THE INDUSTRIAL REVENUE BONDS
The Industrial Revenue Bonds (the "IRBs") outstanding consists of one
note issue. The interest rates on this note is 66.5% of the lenders bank's
prime interest rate. This note is secured by property, plant and equipment.
The IRBs contain restrictive covenants including, among others, a
requirement to maintain minimum working capital, consolidated net worth and a
minimum current ratio. As of September 30, 1997, the Company was not in
compliance with certain of these financial covenants. The Company has
received a waiver from the trustee for these events of non-compliance.
Maturities of long term obligations subsequent to September 30, 1997 are:
1998 -$1,885,000, 1999 - $1,052,000; 2000 - $655,000; thereafter $73,000.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
40
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Statutory rate 34.0% (34.0)% (34.0)%
Increase (reduction) in taxes resulting from:
State taxes, net of federal effect 6.0 (6.0) (6.0)
Valuation allowance (38.0) 40.0 (2.0)
Tax reserves no longer required -- -- (48.0)
Other -- -- (6.0)
------ ------ ------
2.0% -- % (96.0)%
------ ------ ------
------ ------ ------
</TABLE>
As of September 1997, the Company has a federal net operating loss
carryforward of approximately $11.1 million of which $3.2 million expires in
2009, $1.8 million expires in 2010, $3.0 million expires in 2011, and $3.1
million in 2012. State net operating loss carryforwards of approximately
$20.2 million, which expire between 1999 through 2009. These net operating
loss carryforwards are fully reserved by valuation allowances due to
uncertainty regarding their realizability.
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current (Benefit) Provision:
Federal $ (961,000) $ (363,000) $ (766,000)
State (299,000) (112,000) (135,000)
Valuation allowance 1,260,000 475,000 901,000
---------- ---------- -----------
Total current (Benefit) Provision $ -- $ -- $ --
---------- ---------- -----------
---------- ---------- -----------
Deferred (Benefit) Provision:
Federal $(1,310,000) $ (592,000) $ (1,819,000)
State (451,000) (183,000) (148,000)
Valuation Allowance 1,792,000 776,000 --
---------- ---------- -----------
Total deferred (Benefit) Provision: 31,000 1,000 (1,967,000)
---------- ---------- -----------
Total (Benefit) Provision: $ 31,000 $ 1,000 $(1,967,000)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
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 its valuation
allowance by $978,000 upon receipt of this amount.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
41
<PAGE>
The Company has provided a full valuation allowance on the net deferred
tax assets as of September 30, 1997, and 1996. 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 1997 and 1996 fiscal years are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets:
Reserves not currently deductible for tax purpose $ 1,665,000 $ 2,475,000
Accrued employee health benefits 36,000 38,000
Federal operating loss carryforward 3,344,000 1,850,000
State operating loss carryforwards and other assets 1,903,000 1,438,000
Other 460,000 1,867,000
Valuation allowance (4,082,000) (4,653,000)
----------- -----------
Total deferred tax assets 3,326,000 3,015,000
Alternative minimum tax credit 407,000 407,000
----------- -----------
$ 3,733,000 $ 3,422,000
----------- -----------
----------- -----------
Liabilities:
Fixed asset basis difference $ 2,422,000 $ 2,549,000
Employee benefits 813,000 715,000
Other 498,000 158,000
----------- -----------
$ 3,733,000 $ 3,422,000
----------- -----------
----------- -----------
</TABLE>
8. STOCK OPTIONS AND WARRANTS AGREEMENTS
STOCK OPTION PLANS
A total of 342,680 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 $3.32 expire in 2003, those with an exercise
price of $6.75, $7.00, or $8.00 expire in 2004, those with an exercise price
of $6.13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
42
<PAGE>
expire in 2005, those with an exercise price of $7.38 expire in 2006, and
those with an exercise price of $15.56 expire in 2007, in each case on the
anniversary of the date of grant.
Common shares under option are presented:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ -------------------------------- ----------------------------
Weighted Weighted Range of
Number Average Number Average Number Exercise
of Shares Exercise Price of Shares Exercise Price of Shares Prices
------------ ---------------- ------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year 211,000 $6.20 77,000 $6.25 197,800 $3.00-8.00
Exercised (2,316) 6.13 -- -- (161,000) 3.00
Granted 128,000 11.53 136,000 6.13 50,600 6.75-7.00
Canceled (3,334) 6.88 (2,000) 3.32 (10,400) 3.00-3.25
------------ ---------------- ------------ ----------------- ------------- -------------
Options outstanding, end of year 333,350 $8.24 211,000 $6.20 77,000 $3.32-8.00
------------ ---------------- ------------ ----------------- ------------- -------------
------------ ------------ -------------
Options exercisable 205,361 100,444 25,719
------------ ------------ -------------
------------ ------------ -------------
Options available for future grants 9,330
------------
------------
Weighted average fair value
per share of options granted
during the year $8.18 $4.41
The following summarizes certain data for options outstanding at September 30, 1997
</TABLE>
<TABLE>
<CAPTION>
Weighted
Weighted Average
Range of Average Remaining
Number Exercise Exercise Contractual
of Shares Prices Prices Life (in years)
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Options outstanding, end of year: 15,000 $3.32-4.98 $3.32 6.21
243,350 4.98-7.47 6.60 8.02
10,000 7.47-11.21 8.00 6.79
65,000 11.21-15.56 15.56 9.85
---------
333,350 8.24 8.26
---------
---------
Options Exercisable: 15,000 $3.32-4.98 $3.32
158,651 4.98-7.47 6.60
10,000 7.47-11.21 8.00
21,710 11.21-15.56 15.56
---------
205,361
---------
---------
</TABLE>
WARRANT AGREEMENTS
In consideration of entering into a credit agreement with its lender, in
January 1996, the Company issued the lender a warrant to purchase 50,000
shares of the Company's common stock for $5.95 per share, which was the
approximate market value of the Company's common stock at the date of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
43
<PAGE>
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 Notes due
December 10, 2000, the Company issued the holder of the Note three-year
warrants to purchase 42,000 shares of common stock for $7.50 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.
In consideration of the purchase of its 10% Subordinated Notes due
December 10, 1998, the Company issued the holder of the Notes three-year
warrants to purchase 60,000 shares of common stock for $17.875 per share,
which was the approximate market value of the Company's common stock at the
date of the transactions.
In consideration of the Second Amendment to the Credit Agreement the
Company issued to their lender a warrant to purchase 25,000 shares of common
stock of the Company at the average fair market value for the ten days ended
December 29, 1997.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which sets forth a fair-value based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the Company
has elected to continue to apply APB No. 25 to account for its stock-based
compensation plans. Had compensation cost for awards in 1997 and 1996 under
the Company's stock-based compensation plans been determined based on fair
value at the grant dates consistent with the method set
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
44
<PAGE>
forth under SFAS No. 123, the effect on the Company's net income and earnings
per share would have been as follows:
In thousands except per share amounts 1997 1996
--------- ----------
Net Income (Loss) $1,482 $(3,037)
As reported 1,373 (3,100)
Pro forma
Primary/Fully Diluted Earnings Per Share:
As reported $0.30 $(0.64)
Pro forma 0.28 (0.65)
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be expensed
in future years. Pro forma compensation expense for options granted is
reflected over the vesting period; therefore future proforma compensation
expense may be greater as additional options are granted.
The fair value of each option granted was estimated on the grant date
using the Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest rates of 6.19% to 6.21% and 5.38% to
6.50% for 1997 and 1996, respectively, expected life of 10 years, expected
volatility of 51% and 54% for 1997 and 1996, respectively.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
45
<PAGE>
by applicable regulations.
The Company's net pension cost for 1997, 1996, and 1995 was $375,000,
$281,000, and $165,000, respectively. During 1997, 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>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 308,000 $ 183,000 $ 155,000
Interest cost on projected benefit obligation 1,056,000 1,022,000 954,000
Actual return on plan assets (1,570,000) (932,000) (985,000)
Net amortization and deferral 581,000 8,000 41,000
---------- ---------- ----------
Net pension cost $ 375,000 $ 281,000 $ 165,000
---------- ---------- ----------
---------- ---------- ----------
Assumptions used in determining the plan's
funded status:
Discount rate 8.0% 8.0% 8.0%
Expected rate of 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,
1997 and September 30, 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Vested benefit obligation $(12,421,000) $(11,869,000)
Accumulated benefit obligation (12,456,000) (11,884,000)
Projected benefit obligation (14,164,000) (13,654,000)
Plan assets at fair value 14,418,000 12,517,000
Funded status 254,000 (1,137,000)
Unrecognized prior service costs 89,000 98,000
Unrecognized net loss 1,698,000 2,392,000
-------------- ---------------
Prepaid pension cost $ 2,041,000 $ 1,353,000
-------------- ---------------
-------------- ---------------
</TABLE>
Plan assets are invested under the provision of a trust agreement with a
bank in common trust funds.
10. POSTRETIREMENT BENEFITS
Effective the beginning of fiscal 1994 the Company adopted Statement of
Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting
for Postretirement Benefits Other Than Pensions". The statement requires
companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
46
<PAGE>
to accrue the cost of postretirement health care and life insurance benefits
within the employees' active service periods.
The Company provides employees who retired from the Company prior to
January 1, 1993, with at least ten years of service and 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 September 30,
1997, is approximately $767,000 ($5,000 for medical insurance and $762,000
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
47
<PAGE>
Postretirement benefit expense for fiscal 1997, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Service cost of benefits earned $ 1,000 $ 1,000 $ 1,000
Interest cost on liability 59,000 58,000 57,000
Return on plan assets (12,000) (12,000) (10,000)
Amortization of transition obligation 24,000 24,000 48,000
--------- -------- --------
Net postretirement benefit cost $ 72,000 $ 71,000 $ 96,000
--------- -------- --------
--------- -------- --------
</TABLE>
The following table sets forth the Benefit Plan's funded status as of
September 30, 1997 and September 30, 1996:
1997 1996
--------- --------
Accumulated Post Retirement Benefit obligation $(767,000) $(758,000)
Plan Asset at Fair Value 401,000 401,000
--------- ---------
Funded Status $(366,000) (357,000)
Transition obligation 267,000 266,000
--------- ---------
Accrued Post-Retirement Benefit Cost $ (99,000) $ (91,000)
--------- ---------
--------- ---------
The following actuarial assumptions were used:
1997 1996 1995
---- ---- ----
Salary increase 5.5% 5.5% 5.5%
Discount rate 8.0% 8.0% 7.0%
Return on Assets 3.0% 3.0% 3.0%
Medical Inflation 4-9% 4-9% 10.0%
11. COMMITMENTS AND CONTINGENCIES
EXPANSION
The Company is expanding its facilities by adding new equipment and
modifying manufacturing floor space to accommodate changing product lines and
customer demands. The Company anticipates that this will require capital
expenditures totaling approximately $2,000,000 during fiscal 1998. These
capital needs will be funded through cash flow from operations, shareholder
notes and long-term debt. There is no guarantee that the Company will be able
to obtain adequate financing at acceptable terms to meet these needs.
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. For LLRW originating in Concord, no site currently exists
and provisions have been made to accommodate interim storage. State
government has the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
48
<PAGE>
responsibility to implement the provisions of the federal Low-Level Waste
Policy Amendments Act and provide a state solution for Massachusetts
companies that generate this type of waste. 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
leaking 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 Company is required to maintain certain licenses issued by the
Massachusetts Department of Public Health ("DPH") 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 Nuclear Regulatory
Commission ("NRC") and the applicable state agencies a Decommissioning
Funding Plan ("DFP") to provide for possible future decommissioning of its
facilities. The Concord Facility DFP estimated cost is $11.7 million and the
Barnwell Facility DFP estimate is $2.9 million. The Company is required to
provide financial assurance for such decommissioning pursuant to applicable
regulations. The Company has satisfied these requirements and as a result,
the site licenses for both locations have been renewed.
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 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 to each geographic locations regulatory agency.
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 United States
Army has issued a fixed price contract, for approximately $6.2 million for
remediation of the holding basin and the Company entered into a fixed price
contract with a contractor to perform this remediation. This work is expected
to continue into the first half of fiscal 1998. The Company's contract with
the contractor is fixed price based on a specified volume of waste to be
removed from the basin and delivered to a burial site. If the volume of the
material removed exceeds the specified level then the Company is obligated to
pay an additional fee per cubic yard of excess material removed. Based on the
current estimates, management believes that the amount of material to be
removed will not exceed the specified amount and that the fixed price
contract issued by the United States Army will be adequate to fully fund the
remediation of the basin. The Army has provided written assurances (subject
to funding appropriations) of its intention to provide funding for D&D costs
at the Concord facility in addition to the Basin 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. D&D costs for the Company's CMI facility are adequately covered by
the existing letter of credit, which is currently in place to assure funding
for potential D&D obligations to date. The Company has no written assurance
that the Army will accept responsibility for the share of the estimated cost
of D&D at its South Carolina facility which directly resulted from production
work under U.S. government contracts on government supplied materials.
However, based on the advice of legal counsel, management believes that the
Army is responsible for its estimated share of D&D.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
49
<PAGE>
LEGAL PROCEEDINGS
On December 9, 1997, Brush Wellman, Inc. ("Brush Wellman") filed a patent
infringement suit against Starmet Corporation in United States District Court
for the District of Massachusetts (Case No. 97-12705-RCO) alleging that the
Company is infringing a patent awarded to Brush Wellman for the investment
casting of aluminum beryllium alloys. Brush Wellman currently holds U.S.
Patent No. 5,642,773 entitled "Aluminum Alloys Containing Beryllium and
Investment Casting of Such Alloys." Brush Wellman is seeking an injunction of
the Company's alleged patent infringement, monetary damages (including treble
damages) and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
50
<PAGE>
attorney fees. The Company has been advised by patent counsel that Brush
Wellman's claims are without merit and that Brush Wellman's patent is
invalid. The Company's answer to Brush Wellman's complaint is due December
30, 1997 and the Company intends to challenge the validity of Brush Wellman's
patent, deny any patent infringement by the Company and assert counterclaims
against Brush Wellman.
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 and a significant shareholder, 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 1997, 1996, and 1995. Mr. Matthews does not receive any other salary or
fee for services as Chairman of the Board of Directors. Also see Note 6 for
Notes Payable to Shareholders.
13. MAINTENANCE AND REPAIRS
Maintenance and repair expenditures, which are charged to cost and
expense as incurred, amounted to $1,536,000 in 1997, $1,092,000 in 1996, and
$854,000 in 1995.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
51
<PAGE>
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>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales and Contract Revenues:
Uranium Services & Recycle $ 4,965,000 $ 6,189,000 $ 4,969,000
Specialty Metal Products 19,170,000 13,730,000 12,102,000
Depleted Uranium Penetrators 9,927,000 8,775,000 1,713,000
----------- ----------- -----------
Total $28,062,000 $28,694,000 $18,784,000
----------- ----------- -----------
----------- ----------- -----------
Operating Income (Loss):
Uranium Services & Recycle $ 1,195,000 $(2,700,000) $ (996,000)
Specialty Metal Products 391,000 1,432,000 (341,000)
Depleted Uranium Penetrators 575,000 (942,000) (237,000)
----------- ----------- -----------
Subtotal 2,161,000 (2,210,000) (1,574,000)
General Corporate Expenses 350,000 350,000 350,000
----------- ----------- -----------
Net Operating Income (Loss) 1,811,000 (2,560,000) (1,924,000)
----------- ----------- -----------
Other Expense, Net 298,000 476,000 118,000
----------- ----------- -----------
Income (Loss) Before Taxes $ 1,513,000 $(3,036,000) $(2,042,000)
----------- ----------- -----------
----------- ----------- -----------
Identifiable Assets:
Uranium Services & Recycle $12,846,000 $13,749,000 $16,609,000
Specialty Metal Products 8,199,000 6,195,000 5,140,000
Depleted Uranium Penetrators 7,691,000 8,441,000 12,158,000
Corporate 5,968,000 6,733,000 6,979,000
----------- ----------- -----------
Total $34,704,000 $35,118,000 $40,886,000
----------- ----------- -----------
----------- ----------- -----------
Depreciation and Amortization Expenses:
Uranium Services & Recycle $ 492,000 $ 430,000 $ 404,000
Specialty Metal Products 275,000 291,000 251,000
Depleted Uranium Penetrators 498,000 519,000 443,000
Corporate 323,000 254,000 241,000
----------- ----------- -----------
Total $ 1,588,000 $ 1,494,000 $ 1,339,000
----------- ----------- -----------
----------- ----------- -----------
Capital Expenditures:
Uranium Services & Recycle $ 627,000 $ 379,000 $ 325,000
Specialty Metal Products 746,000 436,000 85,000
Depleted Uranium Penetrators 6,000 77,000 6,000
Corporate 409,000 557,000 361,000
----------- ----------- -----------
Total $ 1,788,000 $ 1,449,000 $ 777,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
52
<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, including commercial depleted uranium products, 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 1). Sales to United States Enrichment Corporation
are included in the Uranium Services & Recycle industry segment. Sales to
Royal Ordnance and Primex Technologies are included in the depleted Uranium
Penetrators industry segment. Sales to Lockheed Martin and Lockheed Idaho
Falls are included in the Specialty Metal Products 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, nec-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
53
<PAGE>
essary allocations have been made based on estimates which management
believes to be reasonable.
Operating income 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 and other
assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
54
<PAGE>
15. QUARTERLY RESULTS (UNAUDITED)
Financial results by quarter for 1997, 1996 and 1995 are summarized below
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997
Net Sales $7,271 $ 5,342 $7,013 $ 8,436
Operating Income (Loss) 566 173 399 673
Net Income (Loss) 509 109 293 571
Net Income (Loss) per share 0.10 0.02 0.06 0.12
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 0.02 0.05 0.05 (0.76)
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 0.03 (0.06) 0.01 0.01
Extraordinary gain on extinguishment of debt -- 0.12 --
Net Income per share 0.03 0.06 0.01 0.01
</TABLE>
During 1997 the Company reduced certain accruals by $1,750,000 for site
remediation and waste burial costs, $670,000 in the second quarter and
$1,080,000 in the fourth quarter. Also during 1997 the Company has reduced
inventory reserves by $1,000,000, $90,000 in the first quarter, $650,000 in
the second quarter and $260,000 in the fourth quarter.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
55
<PAGE>
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF STARMET CORPORATION:
We have audited the accompanying consolidated balance sheets of Starmet
Corporation (formerly known as Nuclear Metals, Inc.) (a Massachusetts
corporation) and subsidiaries as of September 30, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1997.
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 Starmet Corporation and
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 14, 1997
(except with respect to the matters
discussed in Notes 6 and 11 as to which
the date is December 29, 1997)
56
<PAGE>
COMMON STOCK INFORMATION
The Company's common stock is traded on the NASDAQ Market under the
symbol STMT. 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, 1997, there were approximately 300 holders of record
of the Company's Common Stock. The Company believes th 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 cash dividends during its last two fiscal
years. Given the Company's current cash flow situation, the Company does not
expect to pay cash dividends in the next 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 loan agreement with a bank prohibits the declaration of dividends
without the bank's consent.
1997* High Low
1st Quarter 10 3/4 7 1/4
2nd Quarter 17 5/8 9
3rd Quarter 18 1/2 14
4th Quarter 19 14 1/2
1996* High Low
1st Quarter 7 5 1/4
2nd Quarter 10 1/2 5 1/2
3rd Quarter 9 1/4 6 3/4
4th Quarter 9 3/8 6
1995* High Low
1st Quarter 9 6 5/8
2nd Quarter 8 3/8 5 3/4
3rd Quarter 7 1/4 5 3/4
4th Quarter 7 1/8 5 1/2
* Adjusted to reflect 2 for 1 stock split in the third quarter of
fiscal 1997.
HEADQUARTERS
2229 Main Street, Concord, Massachusetts 01742
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, CEO AND TREASURER
Wilson B. Tuffin, VICE CHAIRMAN OF THE BOARD OF DIRECTORS
Robert E. Quinn, PRESIDENT
Kevin R. Raftery, PRESIDENT STARMET COMCAST & AEROCAST
Douglas F. Grotheer, PRESIDENT STARMET CMI
William T. Nachtrab, VICE PRESIDENT,
TECHNOLOGY & ENGINEERING
James M. Spiezio, VICE PRESIDENT, FINANCE AND ADMINISTRATION
Bruce E. Zukauskas, VICE PRESIDENT, OPERATIONS
James H. Scarboro, VICE PRESIDENT , MARKETING
Frank J. Vumbaco, VICE PRESIDENT, HEALTH/SAFETY
AND CORPORATE COMMUNICATIONS
Thomas A. Wooters, CLERK
Rebecca L. Perry, CONTROLLER
STARMET CMI
Highway 80, Barnwell, South Carolina 29812
TRANSFER AGENT AND REGISTRAR
State Street Bank & Trust Company
225 Franklin Street, Boston, Massachusetts 02110
AUDITORS
Arthur Andersen LLP
225 Franklin Street, Boston, Massachusetts 02110
ANNUAL MEETING
The annual meeting of stockholders will be held on March 18, 1998 at
10:00 A.M. at the offices of State Street Bank & Trust Company,
225 Franklin Street, Boston, Massachusetts 02110.
FORM 10-K
The Company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission will be provided without charge to shareholders on
written request. Request should be directed to the Vice President, Finance
and Administration, Starmet Corporation, 2229 Main Street, Concord,
Massachusetts 01742.
<PAGE>
Starmet Corporation
2229 Main St., Concord, Massachusetts 01742
Telephone (978) 369-5110 - Fax (978) 369-4045
Internet address www.starmet.com
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following are the subsidiaries of the registrant, each of which is wholly
owned by the registrant.
Name State of Incorporation
- ---- ----------------------
Starmet CMI Corporation Delaware
Starmet NMI Corporation Massachusetts
Starmet Powders, LLC Delaware
Starmet Aerocast, LLC Delaware
Starmet Comcast, LLC Delaware
NMI Foreign Sales Corporation U.S. Virgin Islands
Starmet Holdings Corporation Massachusetts
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated November 14, 1997 (except for with respect to the matters
discussed in Notes 6 and 11 as to which the date is December 29, 1997) included
or incorporated by reference in this Form 10-K into the Company's previously
filed Registration Statement File No. 33-36812 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
December 29, 1997
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<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 268,000
<SECURITIES> 0
<RECEIVABLES> 5,967,000
<ALLOWANCES> 421,000
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<COMMON> 478,000
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