<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____ to ____
Commission File No. 0-8836
STARMET CORPORATION
(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
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 and 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 / /
As of May 7, 1998, there were issued and outstanding 4,790,674 shares of the
Registrant's Common Stock.
<PAGE>
STARMET CORPORATION
FORM 10-Q
for the quarterly period ended March 31, 1998
<TABLE>
<CAPTION>
INDEX Page
----- ----
<S> <C>
Part I. Financial Information 2
Item 1. Financial Statements
Consolidated Balance Sheets:
March 31, 1998 and September 30, 1997 2
Consolidated Statements of Income:
Three Months and Six Months Ended March 31, 1998
and March 31, 1997 4
Consolidated Statements of Cash Flow:
Six Months Ended March 31, 1998
and March 31, 1997 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information 16
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STARMET CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $195,000 $247,000
Restricted cash............................................... 73,000 73,000
Accounts receivable, net of allowances for doubtful accounts
of $421,000 as of September 30, 1997 and March 31, 1998....... 5,546,000 7,743,000
Inventories................................................... 11,440,000 11,485,000
Other current assets.......................................... 619,000 261,000
------------- -----------
Total current assets........................................ 17,873,000 19,809,000
------------- -----------
Property, plant and equipment:
Land.......................................................... 2,124,000 2,124,000
Buildings..................................................... 17,656,000 17,779,000
Machinery, equipment, and fixtures............................ 18,472,000 19,380,000
Construction-in-progress...................................... 831,000 2,149,000
------------- -----------
Total property, plant and equipment......................... 39,083,000 41,432,000
Less: accumulated depreciation............................. 24,036,000 24,860,000
------------- -----------
Net property, plant and equipment........................... 15,047,000 16,572,000
Other assets................................................... 1,784,000 2,159,000
------------- -----------
$34,704,000 $38,540,000
------------- -----------
------------- -----------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
------------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations and notes payable to
stockholders................................................... $1,885,000 $5,538,000
Accounts payable............................................... 2,412,000 3,648,000
Accrued payroll and related costs.............................. 1,215,000 1,154,000
Accrued waste disposal......................................... 1,115,000 677,000
Other accrued expenses......................................... 503,000 514,000
------------- -----------
Total current liabilities.................................... 7,130,000 11,531,000
------------- -----------
Long-term obligations........................................... 430,000 336,000
------------- -----------
Notes payable to stockholders................................... 1,048,000 1,515,000
------------- -----------
Commitments and Contingencies (Note 5)
Stockholders' equity:
Common stock, par value $0.10; authorized--15,000,000 shares;
issued and outstanding as of September 30, 1997 and March
31,1998; 4,784,244 and 4,790,274, respectively................. 478,000 479,000
Additional paid-in capital..................................... 14,033,000 14,053,000
Warrants issued................................................ 360,000 687,000
Retained earnings.............................................. 11,225,000 9,939,000
------------- -----------
Total stockholders' equity................................... 26,096,000 25,158,000
------------- -----------
$34,704,000 $38,540,000
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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STARMET CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ -------------------
1997 1998 1997 1998
------ ----- ----- -----
<S> <C> <C> <C> <C>
Net sales and contract revenues................ $5,342,000 $10,690,000 $12,613,000 $18,769,000
Cost of sales.................................. 2,870,000 7,425,000 7,902,000 14,526,000
Selling, general and administrative expenses... 1,848,000 2,228,000 3,273,000 4,475,000
Research and development expenses.............. 451,000 409,000 699,000 567,000
---------- ------------ ------------ -----------
5,169,000 10,062,000 11,874,000 19,568,000
---------- ------------ ------------ -----------
Operating income (loss)........................ 173,000 628,000 739,000 (799,000)
Interest and other income (expense), net....... 2,000 -- 11,000 --
Interest expense............................... (64,000) (356,000) (119,000) (489,000)
---------- ------------ ------------ -----------
Income (loss) before income taxes.............. 111,000 272,000 631,000 (1,288,000)
Provision (benefit) for income taxes........... 2,000 -- (13,000) --
---------- ------------ ------------ -----------
Net income (loss).............................. $109,000 $272,000 $618,000 $(1,288,000)
---------- ------------ ------------ -----------
---------- ------------ ------------ -----------
Per share information (1):
Basic net income (loss) per common share....... $0.02 $0.06 $0.13 $(0.27)
---------- ------------ ------------ -----------
---------- ------------ ------------ -----------
Weighted average number of common shares
outstanding.................................... 4,782,000 4,787,000 4,782,000 4,787,000
---------- ------------ ------------ -----------
---------- ------------ ------------ -----------
Diluted net income (loss) per common and dilutive
potential common shares outstanding............ $0.02 $0.05 $0.13 $(0.27)
Weighed average number of common and dilutive
potential common shares outstanding............ 4,970,000 5,103,000 4,928,000 4,787,000
---------- ------------ ------------ -----------
---------- ------------ ------------ -----------
</TABLE>
- ----------
(1) Adjusted to reflect the two-for-one stock dividend issued on April 7, 1997.
The accompanying notes are an integral part of these consolidated financial
statements.
4
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STARMET CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................. $ 618,000 $ (1,288,000)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization .................... 751,000 999,000
Changes in assets and liabilities, net:
Decrease (increase) in accounts receivable ....... 511,000 (2,197,000)
Decrease (increase) in inventories ............... 346,000 (45,000)
(Decrease) increase in accounts payable and
accrued expenses ............................... (2,650,000) 762,000
Decrease (increase) in other assets .............. (83,000) (17,000)
Other ............................................ (1,000) 1,000
-------------- --------------
Net cash provided (used) by
operating activities ............................ (508,000) (1,785,000)
-------------- --------------
Cash flows from investing activities:
Capital expenditures, net ......................... (785,000) (2,349,000)
Proceeds from sale of property, plant &
equipment ........................................ 12,000 --
-------------- --------------
Net cash used by investing activities ........... (773,000) (2,349,000)
-------------- --------------
Cash flows from financing activities:
Principal payments under long-term
obligations ........................................ (1,994,000) (9,934,000)
Proceeds from bank borrowings .................... 2,422,000 13,220,000
Proceeds from notes payable to stockholders and
warrants ........................................ -- 900,000
-------------- --------------
Net cash provided by financing activities ........ 428,000 4,186,000
-------------- --------------
Net increase (decrease) in cash and cash equivalents (853,000) 52,000
Cash and cash equivalents at beginning of period .. 1,051,000 195,000
-------------- --------------
Cash and cash equivalents at end of period ........ $ 198,000 $ 247,000
</TABLE>
5
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<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------
1997 1998
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest, net of amounts capitalized .............. $ 46,000 $ 158,000
Income taxes ...................................... $ -- $ --
Non-cash investing & financing activities:
Capital lease obligations ......................... $ 6,000 $ 7,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
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STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. The preparation of financial statements in accordance 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 may differ from those estimates and
assumptions.
In the opinion of management, the accompanying financial statements include
all adjustments (consisting only of normal recurring items) necessary for a fair
presentation of the results of operations and financial position of the Company
for the periods and the date presented. Operating results for the three and six
months ended March 31, 1998, are not necessarily indicative of the results that
may be expected for the full fiscal year or for any future period.
The accompanying financial statements should be read in conjunction with the
audited financial statements of the Company for the fiscal year ended September
30, 1997 and the notes thereto contained in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1997.
2. The significant accounting policies followed by the Company in preparing its
consolidated financial statements are set forth in Note (2) to such financial
statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1997.
Certain amounts previously reported in the consolidated financial statements
have been reclassified to conform to the 1998 presentation.
7
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. Inventories are stated at the lower of cost (first-in, first-out) or market,
and include labor, materials, and overheads for manufacturing and engineering.
Inventories at September 30, 1997 and March 31, 1998 consist of:
<TABLE>
<CAPTION>
At September 30, 1997 At March 31, 1998
--------------------- -----------------
<S> <C> <C>
Work-in process............... $2,511,000 $2,288,000
Raw materials................. 8,271,000 8,538,000
Spare parts................... 658,000 659,000
----------- -----------
$11,440,000 $11,485,000
----------- -----------
----------- -----------
</TABLE>
4. Income per share of common stock
The Company has adopted SFAS No. 128, Earnings per Share, effective December
15, 1997. 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. In loss periods, potentially dilutive
securities are excluded as they would be anti-dilutive. All previously reported
amounts for EPS have been restated to conform with SFAS 128.
8
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Common share and common share dilutive potential disclosures are:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1997 1998 1997 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Weighed average common shares
outstanding............................. 4,782,000 4,787,000 4,782,000 4,787,000
Dilutive potential common shares........ 188,000 316,000 146,000 --
Diluted common shares................... 4,970,000 5,103,000 4,928,000 4,787,000
Options and warrants excluded from
diluted income per common share as
their effect would be antidilutive...... -- -- -- 778,000
</TABLE>
5. Commitments and Contingencies
a. Legal Proceedings
On December 9, 1997, Brush Wellman, Inc. ("Brush Wellman") filed a patent
infringement suit against the Company in the United States District Court for
the District of Massachusetts (the "Massachusetts District Court") alleging that
the Company is infringing on a process patent (the "Brush Wellman Patent")
awarded to Brush Wellman for the investment casting of beryllium aluminum
alloys. Brush Wellman is seeking an injunction against the Company's alleged
patent infringement, monetary damages (including treble damages) and attorney
fees.
On March 28, 1998 the U.S. Patent and Trademark Office (the "PTO") granted
the Company's request (filed January 22, 1998) for re-examination (the
"Request") of the Brush Wellman Patent. In the Request, the Company contended,
among other things, that there was sufficient "prior art" in the field of
investment castings and castings of beryllium aluminum alloys such that the
Brush Wellman Patent should not have been issued. In granting the Request, the
patent examiner agreed that the Company's cited examples of prior art raised
substantial new issues of patentability which were not decided in the prior
examination which led to granting the Brush Wellman Patent. The PTO will
undertake a process of reexamination of the validity of the Brush Wellman Patent
that, the Company anticipates, could last for an extended period. There can be
no assurance that the PTO will find the Brush Wellman Patent to be invalid. On
January 27, 1998, the Company filed in the Massachusetts District Court a motion
to stay the court case pending the outcome of the re-examination proceeding. If
the Massachusetts District Court were to grant the motion to stay, the court
case would not proceed until the conclusion of the PTO's re-examination of the
Brush Wellman Patent. Although the Company believes that its motion to stay has
merit, no assurance can be given that the Massachusetts District court will
grant the motion.
Even though the Company has been advised by patent counsel, Iandiorio &
Teska, that Brush Wellman's claims are without merit because the Brush
Wellman Patent is invalid as a matter of law due to "prior art" and due to
the Company's sales of investment cast beryllium aluminum products more than
one year prior to the Brush Wellman Patent application, no assurance can be
given as to the ultimate outcome of the lawsuit. Even if the lawsuit were not
to proceed to trial, the litigation could result in substantial costs to the
Company, and unfavorable settlement of the lawsuit could place the Company at
a competitive disadvantage. An adverse judgment or settlement could subject
the Company to significant liabilities and expenses (e.g., reasonable
royalties, lost profits, attorneys' fees and trebling of damages for
willfulness). An adverse outcome also could cause the Company to incur
substantial costs in redesigning the investment casting process for its
Beralcast products and components. Moreover, there can be no assurance that
redesign alternatives would be available to the Company, and if available,
that any redesign alternative would not place the Company at a competitive
disadvantage. The Company could be required to license the disputed patent
rights from Brush Wellman or to cease using the patented technology. Any such
license, if required, may not be available on terms acceptable or favorable
to the Company, or at all. Any of these results could have a material adverse
effect on the Company's business, financial condition and results of
operations. Even in the event of a successful outcome, the Company may incur
significant legal expenses in its defense.
b. Environmental Matters
For a number of years, ending in 1985, the Company deposited spent acid
and associated depleted uranium waste and other residual materials by
neutralizing them with lime and discharging the neutralized mixture into a
holding basin on its premises in Concord, Massachusetts. Substantially all of
these waste materials were the by-product of work performed for the U.S.
Army. On September 13, 1996, the Army Contract Adjustment Board ("ACAB")
decided, among other things, that the costs to clean up the holding basin
materials would be funded by the Army and that the Army would be obligated to
provide transportation and disposal of the holding basin material pursuant to
a supplement to an existing contract with the Company. In a Supplemental
Memorandum of Decision dated March 5, 1997, ACAB decided to pay the Company
to transport and dispose of the holding basin material. Pursuant to ACAB's
decision, the Company contracted with the U.S. Army to remove and dispose of
the material from the holding basin and then subcontracted with Zhagrus
Environmental, Inc. ("Zhagrus") to perform such work under a contract dated
May 8, 1997. Zhagrus arranged for disposal of the holding basin materials at
a disposal site operated by its parent corporation, Envirocare of Utah, Inc.
("Envirocare"). On May 11, 1998, the Company was notified by Zhagrus that
Zhagrus will incur additional costs in connection with the disposal of the
material from the holding basin as a result of the need for additional work
which must be performed by Envirocare to treat the holding basin material in
order for it to meet the conditions for burial imposed by regulations
applicable to Envirocare's license issued by the State of Utah. Zhagrus has
requested that the Company pay it to the extent of any additional costs which
may be incurred by Envirocare as a result of such additional services which
may be rendered. The Company has requested that Zhagrus provide it with
further information in order to permit the Company to determine whether it
has any liability to Zhagrus under the subcontract and to calculate the
amount, if any, that the Company may be required to pay to Zhagrus under the
subcontract. The Company intends to request a contract price modification for
allowance of any such additional costs under its contract with the U.S. Army,
although there can be no assurance of the timing and amount, if any, of any
recovery of such costs from the U.S. Army. The Company has notified Zhagrus
of its proposed course of action without admitting that the Company has any
liability to Zhagrus or Envirocare for the amount of any such additional
costs which may be incurred by Zhagrus under the subcontract. The Company has
not yet been provided with sufficient information concerning the nature and
extent of any additional work which may be required to allow proper burial by
Envirocare. Accordingly, the Company is unable to determine whether it is
obligated to Zhagrus under the terms of its subcontract or the potential
amount involved. Accordingly, the amount of any additional costs could be
material. In the event that the Company became liable to Zhagrus for any
material amount which is not authorized to be paid by the U.S. Army, such
liability could have a material adverse effect on the Company's business,
results of operations and financial condition.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth certain items in the consolidated statements
of income as a percentage of net sales and contract revenues for the three month
and six month periods ended March 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
-------- --------
1997 1998 1997 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales and contract revenues 100% 100% 100% 100%
Costs and expenses:
Cost of sales.................................... 54 69 63 77
Selling, general and administrative expenses..... 34 21 26 24
Research and development expenses................ 9 4 5 3
Operating income (loss)........................... 3 6 6 (4)
Interest expense.................................. 1 3 1 3
Net income (loss)................................. 2 3 5 (7)
</TABLE>
Three Months Ended March 31, 1998 Compared With Three Months Ended March 31,
1997
Net sales increased by $5,348,000 or 100% to $10,690,000 in the second
quarter of fiscal year ending September 30, 1998 ("fiscal 1998") compared to the
second quarter of fiscal year ended September 30, 1997 ("fiscal 1997"). Sales in
the Uranium Services and Recycle segment increased by $2,681,000 or 928%. Sales
in the Specialty Metal Products segment increased by $486,000 or 16 %. Sales in
the Depleted Uranium Penetrator segment increased by $2,181,000 or 112%.
The sales increase in the Uranium Services and Recycle segment was due
primarily to Atomic Vapor Laser Isotope Separation ("AVLIS") feedstock
production orders which were completed in the second quarter of fiscal 1998.
To be prepared for anticipated AVLIS production, the workforce at Starmet CMI
Corporation was increased significantly during the second quarter of fiscal
1998. The sales increase in the Specialty Metal Products segment was due
primarily to increased sales of Beralcast products and medical powders. The
sales increase in the Depleted Uranium Penetrator segment
10
<PAGE>
was due to a $400,000 increase in the production volume of Depleted Uranium
penetrators pursuant to a production contract with the U.S. government, under
which production is scheduled through the second quarter of fiscal 1999. Due
to anticipated reduced U.S. government procurement plans, the Company expects
that no revenues will be derived from Depleted Uranium penetrator operations
after the second quarter of fiscal 1999. Also, the Company reported a
$1,781,000 increase in revenue recognized in the second quarter of fiscal
1998 compared to the second quarter of fiscal 1997 on the remediation of the
holding basin at the Company's Concord, Massachusetts facility pursuant to a
U.S. Army contract, which revenue generates nominal gross margin.
Gross profit in the second quarter of fiscal 1998 increased by $793,000
to $3,265,000 or 32% from $2,472,000 in the second quarter of fiscal 1997.
Within the Specialty Metal Products segment, gross profit increased by
$1,042,000, including a gross profit increase on Beralcast products of
$911,000 from $(803,000) in the second quarter of fiscal 1997 to $108,000 in
the second quarter of fiscal 1998, principally due to increased sales volumes
and the absence in the second quarter of fiscal 1998 of certain Beralcast
production start-up costs incurred in the second quarter of fiscal 1997. Also
contributing to the gross profit increase within this segment were gross
profit increases in commercial DU and powder products partially offset by a
gross profit decrease associated with other Special Metal Products sales.
Gross profit within the Uranium Services and Recycle segment in the second
quarter of fiscal 1998 increased by $54,000 over gross profit in the second
quarter of fiscal 1997. This increase was largely attributable to gross
profit on AVLIS feedstock, which increased by $738,000 principally due to
increased sales volumes, partially offset by reduced gross margin on
counterweight business. These increases were partially offset by a $303,000
decrease in the gross profit within the Depleted Uranium Penetrators segment,
due primarily to reduced volumes of penetrators and blanks partially offset
by increased sales of other products within this segment. Absent from gross
profit in the second quarter of fiscal 1998 was a reduction of a reserve for
waste disposal in the amount of $811,000 against cost of sales which was
included in gross profit in the second quarter of fiscal 1997. As a
percentage of sales, gross profit was 31% for the second quarter of fiscal
1998 compared to 46% for the second quarter of fiscal 1997.
Selling, general and administrative expenses increased by $380,000 or 21%
in the second quarter of fiscal 1998 compared to the second quarter of fiscal
1997. Of this increase, $197,000 related to an increase in sales and
administrative personnel at its Concord, Massachusetts facility to support
the Company's sales growth. The balance of the increase, $183,000, related
primarily to an increase in sales and administrative personnel at the
Company's South Carolina facility to support sales growth of the AVLIS
feedstock program and remediation contracts for customers. As a percentage of
sales, these expenses were 21% in the second quarter of fiscal 1998 compared
to 35% in the second quarter of fiscal 1997.
Interest expense increased to $356,000 in the second quarter of fiscal 1998
from $64,000 for the second quarter of fiscal 1997. This increase was primarily
attributable to interest expense associated with increased borrowings under the
Company's line of credit and shareholder notes, as well
11
<PAGE>
as the increase in the amortization of warrants issued in connection with an
amendment to the Company's line of credit and the issuance of certain
shareholder notes.
Income taxes in the second quarter of fiscal 1998 and 1997 were at an
effective rate of 0% and 2%, respectively. The Company has unrecognized net
operating loss carryforwards resulting in a minimal effective tax rate.
Six Months Ended March 31, 1998 Compared With Six Months Ended March 31, 1997
Net sales increased by $6,156,000 or 49% to $18,769,000 in the first six
months of fiscal 1998 compared to the first six months of fiscal 1997. Sales in
the Uranium Services and Recycle industry segment increased by $1,746,000 or
104%. Sales in the Specialty Metal Products segment increased by $925,000 or
17%. Sales in the Depleted Uranium Penetrator segment increased by $3,485,000 or
65%.
The sales increase in the Uranium Services and Recycle segment was due
primarily to AVLIS feedstock production orders which were completed in the
second quarter of fiscal 1998. To be prepared for anticipated AVLIS
production, the workforce at Starmet CMI Corporation was increased
significantly during the first six months of fiscal 1998. The sales increase
in the Specialty Metal Products segment was due primarily to increased
production volume of Beralcast products and medical powders. The sales
increase in the Depleted Uranium Penetrator segment was due to a $3,806,000
increase in revenue recognized on the remediation of the holding basin at the
Company's Concord facility pursuant to a U.S. Army contract, which revenue
generates nominal gross margin. That increase was partially offset by a
$321,000 decrease in sales of Depleted Uranium penetrators and blanks. Due to
anticipated reduced U.S. government procurement plans, the Company expects
that no revenues will be derived from the Depleted Uranium penetrator
operations after the second quarter of fiscal 1999.
Gross profit in the first six months of fiscal 1998 decreased by $468,000
to $4,243,000 or 9% from $4,711,000 in the first six months of fiscal 1997.
Within the Specialty Metal Products segment, gross profit increased by
$1,386,000, including a gross profit increase on Beralcast products of
$1,031,000 from $(1,379,000) in the first six months of fiscal 1997 to
$(348,000) in the first six months of fiscal 1998, principally due to
increased sales volumes and the absence in the second quarter of fiscal 1998
of certain Beralcast production start-up costs incurred in the second quarter
of fiscal 1997. Also contributing to the gross profit increase within this
segment were gross profit increases in commercial DU and powder products,
partially offset by a gross profit decrease associated with other Specialty
Metal Products sales. Gross profit within the Uranium Services and Recycle
segment in the first six months of fiscal 1998 decreased by $878,000 over the
comparable period of fiscal 1997. This decrease was largely attributable to
the absence in the first six months of fiscal 1998 of a reserve reduction for
waste disposal of $811,000 which occurred in the comparable period of fiscal
1997. The first six months of fiscal 1998 also included a $982,000 decrease
in gross profit within the Depleted Uranium Penetrator segment due primarily
to reduced volumes of penetrators and blanks partially offset by increased
sales, of other products within this segment. As a percentage of
12
<PAGE>
sales, gross profit was 22% for the first six months of fiscal 1998 compared to
37% for the first six months of fiscal 1997.
Selling, general and administrative expenses increased by $1,202,000 or
37% in the first six months of fiscal 1998 compared to the first six months
of fiscal 1997. Of this increase, $719,000 related to an increase in sales
and administrative personnel at its Concord, Massachusetts facility to
support the Company's sales growth. The balance of the increase,
approximately $483,000, related to an increase in sales and administrative
personnel at the Company's South Carolina facility to support sales growth of
the AVLIS feedstock program and remediation contracts for customers. As a
percentage of sales, these expenses were 24% in the first six months of
fiscal 1998 compared to 26% in the first six months of fiscal 1997.
Interest expense increased to $489,000 in the first six months of fiscal
1998 from $119,000 for the first six months of fiscal 1997. This increase was
primarily attributable to interest expense associated with increased borrowings
under the Company's line of credit and shareholder notes, as well as the
increase in the amortization of warrants issued in connection with an amendment
to the Company's line of credit and the issuance of certain shareholder notes.
Income taxes during the first six months of fiscal 1998 and 1997 were at an
effective rate of 0% and 2%, respectively. The Company has unrecognized net
operating loss carryforwards resulting in a minimal effective tax rate.
Liquidity and Capital Resources
Net cash used by operating activities in the six months ending March 31,
1997 and 1998 was $509,000 and $1,785,000, respectively. Differences in cash
flows from operating activities were primarily related to significant changes
in accounts receivable, inventories and accounts payable. The Company used
net cash of $773,000 and $2,349,000 for periods ending March 31, 1997 and
1998, respectively, primarily to fund investing activities largely related to
capital expenditures made in anticipation of future commercial business. Net
cash provided by financing activities for periods ending March 31, 1997 and
1998 was $428,000 and $4,186,000, respectively and resulted primarily from
increases in bank borrowings and borrowings from stockholders. As a result of
the foregoing, net cash decreased in the period ended March 31, 1997 by
$853,000 and increased in the period ended March 31, 1998 by $52,000.
At March 31, 1998, the end of the second quarter of fiscal 1998, the
Company had working capital of $8,278,000, a decrease of $2,465,000 since the
end of fiscal 1997. At March 31, 1998, the Company's accounts receivable and
inventories increased by $2,197,000 and $45,000, respectively, compared to
September 30, 1997 levels. Cash (less restricted cash) at March 31, 1998 was
$247,000. Current indebtedness increased to $11,531,000 from $7,130,000 as a
result of increased borrowings under the Company's bank line of credit and
increased borrowings from shareholders. As of March 31, 1998, the Company had
$5,113,000, exclusive of the value of warrants, outstanding under its bank
line of credit, with $887,000 available for borrowing thereunder (after
subtraction of $3,550,000 in letters of credit issued thereunder). As of
March 31, 1998, notes payable to shareholders increased to $2,250,000 from
13
<PAGE>
$1,350,000 as at September 30, 1997, excluding the unamortized discount. As
of May 14, 1998, the Company had $5,114,000 outstanding under its line of
credit, $3,550,000 outstanding in letters of credit and $886,000 available
for borrowing thereunder.
The Company's subsidiary, Starmet CMI Corporation, has a term loan
obligation in the amount of $370,000 to Palmetto Federal Savings and Loan
Association of South Carolina ("Palmetto"). As of March 31, 1998 the
outstanding balance on this term loan obligation was approximately $323,000.
On March 20, 1998, Starmet CMI Corporation entered into a second loan with
Palmetto and the Lower Savannah Regional Development Corporation in the
aggregate principal amount of $995,000, which bears interest at a rate of 10%
and matures in ten and one-half years with a rate adjustment at the end of
five and one-half years. As of March 31, 1998 nothing had been drawn on the
second loan. As of May 15, 1998, the Company had drawn $500,000 against the
second loan. Both the first and second loans are guaranteed by the Company
and secured by mortgages on CMI's South Carolina property. The second loan
will be used to expand CMI's manufacturing capabilities at its South Carolina
facility.
As of March 31, 1998 the Company was out of compliance with the capital
expenditure financial covenant under its credit agreement which prohibits the
Company from making capital expenditures above $2,000,000 annually. On May 15,
1998 the Company received a waiver for this event of non-compliance and
compliance with the capital expenditure financial covenant for the remainder
of fiscal 1998.
These increases in bank borrowings and borrowings from shareholders were
necessary to fund a number of expenses, including expansion of Beralcast and
AVLIS feedstock manufacturing capabilities, which were incurred in
expectation of future business and revenues from the Company's Beralcast
business and its Starmet CMI facility in Barnwell, South Carolina, which
business and revenues were not fully realized in the second quarter of fiscal
1998. The Company invested approximately $2,349,000 on capital expenditures
in the first six months of fiscal 1998 to expand its commercial Beralcast and
AVLIS manufacturing capabilities. The Company purchased production equipment
and upgraded its facilities with these capital expenditures. The Company
believes that cash from operations together with cash available under its
line of credit will permit it to sustain operations at current capacity
levels in the near term.
The Company also has plans to invest approximately an additional
$9,698,000 in the last six months of fiscal 1998 and approximately an
additional $75,000,000 over the next four years primarily to continue to
expand its commercial Beralcast manufacturing capabilities through fixed
asset additions including the purchase of production equipment and facility
upgrades. The Company's ability to fund such capital expenditure plans will
depend upon the availability of substantial funding in addition to its
current capital resources. On April 8, 1998, the Company filed a Registration
Statement on Form S-1 with the Securities and Exchange Commission registering
an offering of $80 million of its Common Stock, a portion of which may be
sold by selling shareholders. If such offering is completed, the Company
expects to use the net proceeds to the Company of the offering to complete
currently planned capital expenditures, as well as for general corporate
purposes including the repayment of certain indebtedness. There can be no
assurance that the offering will proceed and be completed as planned.
14
<PAGE>
Environmental Matters
For a number of years, ending in 1985, the Company deposited spent acid
and associated depleted uranium waste and other residual materials by
neutralizing them with lime and discharging the neutralized mixture into a
holding basin on its premises in Concord, Massachusetts. Substantially all of
these waste materials were the by-product of work performed for the U.S.
Army. On September 13, 1996, the Army Contract Adjustment Board ("ACAB")
decided, among other things, that the costs to clean up the holding basin
materials would be funded by the Army and that the Army would be obligated to
provide transportation and disposal of the holding basin material pursuant to
a supplement to an existing contract with the Company. In a Supplemental
Memorandum of Decision dated March 5, 1997, ACAB decided to pay the Company
to transport and dispose of the holding basin material. Pursuant to ACAB's
decision, the Company contracted with the U.S. Army to remove and dispose of
the material from the holding basin and then subcontracted with Zhagrus
Environmental, Inc. ("Zhagrus") to perform such work under a contract dated
May 8, 1997. Zhagrus arranged for disposal of the holding basin materials at
a disposal site operated by its parent corporation, Envirocare of Utah, Inc.
("Envirocare"). On May 11, 1998, the Company was notified by Zhagrus that
Zhagrus will incur additional costs in connection with the disposal of the
material from the holding basin as a result of the need for additional work
which must be performed by Envirocare to treat the holding basin material in
order for it to meet the conditions for burial imposed by regulations
applicable to Envirocare's license issued by the State of Utah. Zhagrus has
requested that the Company pay it to the extent of any additional costs which
may be incurred by Envirocare as a result of such additional services which
may be rendered. The Company has requested that Zhagrus provide it with
further information in order to permit the Company to determine whether it
has any liability to Zhagrus under the subcontract and to calculate the
amount, if any, that the Company may be required to pay to Zhagrus under the
subcontract. The Company intends to request a contract price modification for
allowance of any such additional costs under its contract with the U.S. Army,
although there can be no assurance of the timing and amount, if any, of any
recovery of such costs from the U.S. Army. The Company has notified Zhagrus
of its proposed course of action without admitting that the Company has any
liability to Zhagrus or Envirocare for the amount of any such additional
costs which may be incurred by Zhagrus under the subcontract. The Company has
not yet been provided with sufficient information concerning the nature and
extent of any additional work which may be required to allow proper burial by
Envirocare. Accordingly, the Company is unable to determine whether it is
obligated to Zhagrus under the terms of its subcontract or the potential
amount involved. Accordingly, the amount of any additional costs could be
material. In the event that the Company became liable to Zhagrus for any
material amount which is not authorized to be paid by the U.S. Army, such
liability could have a material adverse effect on the Company's business,
results of operations and financial condition.
Impact of Year 2000 Issue
The Company is in the process of updating its accounting and information
systems to ensure that its computer systems are Year 2000 complaint and to
improve the Company's overall manufacturing, planning and inventory related
systems. In fiscal 1997, the Company invested approximately $250,000 to ensure
that the Company is Year 2000 compliant and will continue to make investments in
its computer systems and applications to ensure that the Company is Year 2000
compliant. The Company believes that the Company's computer system is Year 2000
compliant. In addition, the Company maintains a year 2000 expert on its staff.
The financial impact to the Company of its Year 2000 compliance programs has not
been and is not anticipated to be material to its financial position or results
of operations in any given year. While the Company does not believe it will
suffer any major effects from the Year 2000 issue, it is possible that such
effects could materially impact future financial results, or cause reported
financial information not to be necessarily indicative of future operating
results or future financial condition. In addition, if any of the Company's
significant customers or suppliers do not successfully and timely achieve
Year 2000 compliance, the Company's business could be adversely affected.
Special Note Regarding Forward-Looking Statements
Certain statements in this Quarterly Report, including, without limitation,
those concerning (i) the Company's new business and expansion plans, (ii) the
effects on the Company of certain legal proceedings and environmental matters,
(iii) the effects on the Company of changes in the business in which it operates
or in economic conditions generally, (iv) the Company's expectations concerning
required additional financings to permit expansion, including the currently
proposed public offering, contain forward-looking statements concerning the
Company's operations, economic performance and financial condition. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements of the Company expressed or implied by such forward-looking
statements. Factors that could cause such differences include, but are not
limited to, those discussed in Exhibit 99 to this Quarterly Report. The words
"believe," "expect," "anticipate," "intend" and "plan" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statement was made.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 9, 1997, Brush Wellman, Inc. ("Brush Wellman") filed a patent
infringement suit against the Company in the United States District Court for
the District of Massachusetts (the "Massachusetts District Court") alleging that
the Company is infringing on a process patent (the "Brush Wellman Patent")
awarded to Brush Wellman for the investment casting of beryllium aluminum
alloys. Brush Wellman is seeking an injunction against the Company's alleged
patent infringement, monetary damages (including treble damages) and attorney
fees.
On March 28, 1998 the U.S. Patent and Trademark Office (the "PTO") granted
the Company's request (filed January 22, 1998) for re-examination (the
"Request") of the Brush Wellman Patent. In the Request, the Company contended,
among other things, that there was sufficient "prior art" in the field of
investment castings and castings of beryllium aluminum alloys such that the
Brush Wellman Patent should not have been issued. In granting the Request, the
patent examiner agreed that the Company's cited examples of prior art raised
substantial new issues of patentability which were not decided in the prior
examination which led to granting the Brush Wellman Patent. The PTO will
undertake a process of reexamination of the validity of the Brush Wellman Patent
that, the Company anticipates, could last for an extended period. There can be
no assurance that the PTO will find the Brush Wellman Patent to be invalid. On
January 27, 1998, the Company filed in the Massachusetts District Court a motion
to stay the court case pending the outcome of the re-examination proceeding. If
the Massachusetts District Court were to grant the motion to stay, the court
case would not proceed until the conclusion of the PTO's re-examination of the
Brush Wellman Patent. Although the Company believes that its motion to stay has
merit, no assurance can be given that the Massachusetts District court will
grant the motion.
Even though the Company has been advised by patent counsel, Iandiorio &
Teska, that Brush Wellman's claims are without merit because the Brush Wellman
Patent is invalid as a matter of law due to "prior art" and due to the Company's
sales of investment cast beryllium aluminum products more than one year prior to
the Brush Wellman Patent application, no assurance can be given as to the
ultimate outcome of the lawsuit. Even if the lawsuit were not to proceed to
trial, the litigation could result in substantial costs to the Company, and
unfavorable settlement of the lawsuit could place the Company at a competitive
disadvantage. An adverse judgment or settlement could subject the
16
<PAGE>
Company to significant liabilities and expenses (e.g., reasonable royalties,
lost profits, attorneys' fees and trebling of damages for willfulness). An
adverse outcome also could cause the Company to incur substantial costs in
redesigning the investment casting process for its Beralcast products and
components. Moreover, there can be no assurance that redesign alternatives would
be available to the Company, and if available, that any redesign alternative
would not place the Company at a competitive disadvantage. The Company could be
required to license the disputed patent rights from Brush Wellman or to cease
using the patented technology. Any such license, if required, may not be
available on terms acceptable or favorable to the Company, or at all. Any of
these results could have a material adverse effect on the Company's business,
financial condition and results of operations. Even in the event of a successful
outcome, the Company may incur significant legal expenses in its defense.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on March 18, 1998,
shareholders acted affirmatively to elect nominees for directors proposed by
management. Each director is to serve until the next Annual Meeting of
Stockholders and thereafter until his or her successor is elected and qualified.
<TABLE>
<CAPTION>
Name Votes "For" Votes "Withheld"
---- ----------- ----------------
<S> <C> <C>
George J. Matthews 2,568,912 4,240
Robert E. Quinn 2,568,952 4,200
Wilson B. Tuffin 2,568,912 4,240
Kenneth A. Smith 2,568,952 4,200
Frank H. Brenton 2,568,912 4,240
William J. Shea 2,568,952 4,200
</TABLE>
Shareholders also approved the 1998 Stock Plan. A total of 1,526,841 votes
were cast in favor of the proposal, 1,034,153 votes were cast against, and there
were 12,158 abstentions.
17
<PAGE>
Shareholders also voted to ratify the action of the Board of Directors in
selecting Arthur Andersen LLP as auditors of the Company. A total of 2,570,350
votes were cast in favor of the proposal, 2,502 votes were cast against, and
there were 300 abstentions.
Item 5. Other Information
For a number of years, ending in 1985, the Company deposited spent acid
and associated depleted uranium waste and other residual materials by
neutralizing them with lime and discharging the neutralized mixture into a
holding basin on its premises in Concord, Massachusetts. Substantially all of
these waste materials were the by-product of work performed for the U.S.
Army. On September 13, 1996, the Army Contract Adjustment Board ("ACAB")
decided, among other things, that the costs to clean up the holding basin
materials would be funded by the Army and that the Army would be obligated to
provide transportation and disposal of the holding basin material pursuant to
a supplement to an existing contract with the Company. In a Supplemental
Memorandum of Decision dated March 5, 1997, ACAB decided to pay the Company
to transport and dispose of the holding basin material. Pursuant to ACAB's
decision, the Company contracted with the U.S. Army to remove and dispose of
the material from the holding basin and then subcontracted with Zhagrus
Environmental, Inc. ("Zhagrus") to perform such work under a contract dated
May 8, 1997. Zhagrus arranged for disposal of the holding basin materials at
a disposal site operated by its parent corporation, Envirocare of Utah, Inc.
("Envirocare"). On May 11, 1998, the Company was notified by Zhagrus that
Zhagrus will incur additional costs in connection with the disposal of the
material from the holding basin as a result of the need for additional work
which must be performed by Envirocare to treat the holding basin material in
order for it to meet the conditions for burial imposed by regulations
applicable to Envirocare's license issued by the State of Utah. Zhagrus has
requested that the Company pay it to the extent of any additional costs which
may be incurred by Envirocare as a result of such additional services which
may be rendered. The Company has requested that Zhagrus provide it with
further information in order to permit the Company to determine whether it
has any liability to Zhagrus under the subcontract and to calculate the
amount, if any, that the Company may be required to pay to Zhagrus under the
subcontract. The Company intends to request a contract price modification for
allowance of any such additional costs under its contract with the U.S. Army,
although there can be no assurance of the timing and amount, if any, of any
recovery of such costs from the U.S. Army. The Company has notified Zhagrus
of its proposed course of action without admitting that the Company has any
liability to Zhagrus or Envirocare for the amount of any such additional
costs which may be incurred by Zhagrus under the subcontract. The Company has
not yet been provided with sufficient information concerning the nature and
extent of any additional work which may be required to allow proper burial by
Envirocare. Accordingly, the Company is unable to determine whether it is
obligated to Zhagrus under the terms of its subcontract or the potential
amount involved. Accordingly, the amount of any additional costs could be
material. In the event that the Company became liable to Zhagrus for any
material amount which is not authorized to be paid by the U.S. Army, such
liability could have a material adverse effect on the Company's business,
results of operations and financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10(a)*: Holding Basin Remediation and Waste Disposal Agreement
dated as of May 8, 1997, by and between the Company and
Zhagrus Environmental, Inc.
Exhibit 27: Financial Data Schedule
Exhibit 99: "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
-------------
* Indicates that portions of the exhibit have been omitted pursuant to a request
for confidential treatment.
18
<PAGE>
SIGNATURES
Pursuant to the requirements 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
Date: May 14, 1998 By: /s/ Robert E. Quinn
----------------------- --------------------------------
Robert E. Quinn
President and Chief Executive Officer
Date: May 14, 1998 By: /s/ James M. Spiezio
----------------------- --------------------------------
James M. Spiezio
Vice President, Finance and Administration
19
<PAGE>
*=THE MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
NUCLEAR METALS, INC. & ZHAGRUS ENVIRONMENTAL, INC.
HOLDING BASIN REMEDIATION AND WASTE DISPOSAL AGREEMENT
USG CONTRACT# DAAK10-81-C-0320, MODIFICATION P00010
THIS AGREEMENT made and entered into as of this 8th day of May, 1997,
by and between NUCLEAR METALS, INC., a Massachusetts corporation, having its
general offices at 2229 Main Street, Concord, Massachusetts 01742, (hereinafter
called "NMI") and ZHAGRUS ENVIRONMENTAL, INC., a Utah corporation, having its
general offices at 46 West Broadway, Suite 240, Salt Lake City, Utah 84101
(hereinafter called "Zhagrus").
RECITAL:
A. NMI owns certain property and premises, as drawn in reference
documents listed in Attachment "A" attached hereto and made part hereof, located
at 2229 Main Street, Concord, Massachusetts 01742 (hereinafter called "The
Site"). On The Site exists an area blanketed by a cover defined in said
reference drawings as "The Basin" or "Holding Basin" (hereinafter called "The
Basin") and certain waste materials contained in The Basin (hereinafter called
"Waste Material") and as identified in Attachment "A". NMI desires that Zhagrus
perform, or cause to be performed, certain work and services (hereinafter called
"The Work"), as more particularly described in attached Attachment "B" including
the disposal of said Waste Material at that certain waste disposal facility at
Clive, Utah (hereinafter called "The Facility") owned and operated by Envirocare
of Utah, Inc. (hereinafter called "Envirocare"). The Facility has been duly
licensed by the State of Utah and the United States Environmental Protection
Agency for receipt and disposal of the Waste Material. Envirocare is under
contract of Zhagrus for the disposal of the waste material, however, the volume
of Waste material disposed during The Work shall be considered as additive
volume NMI's waste disposal contract with Envirocare.
B. Attached hereto, and made a part hereof is NMI's license #SMB-179,
with amendments, issued by the U.S. Nuclear Regulatory Commission (transferred
to the Massachusetts Department of Health), and which permits NMI to possess and
process uranium products. Said license is hereinafter called "NMI's License".
Attached hereto, and made a part hereof is Envirocare's license #UT2300249, with
amendments, issued by the State of Utah, and which permits Envirocare to handle
and dispose of the Waste Material. Said license is hereinafter called
"Envirocare's License".
C. Zhagrus is capable of performing and/or obtaining the performance of
The Work and acknowledges the toxic nature and physical characteristics of the
Waste Material, as described in Attachment "A," and is willing to provide or
cause to be provided all of The
<PAGE>
Work, including disposal of the Waste Material, pursuant to all applicable
governmental laws, rules and regulations (hereinafter collectively called the
"Regulations") and this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, NMI hereby engages Zhagrus to perform and provide and Zhagrus
does hereby agree to so perform and provide The Work as described in this
Agreement and upon the terms and conditions as herein set forth, including the
Defense and Federal Acquisition Regulations imposed on NMI by USG Contract
DAAK10-81-C-0320, Modification P00010 as identified in Attachment "E".
1. SCOPE OF WORK. Zhagrus shall perform or cause to be performed The
Work as described in Attachment "B" and, except with NMI's written consent,
without modification of deviation.
2. COMMENCEMENT AND COMPLETION OF WORK. The first Work shall commence
on or before the agreement date of this document. The first shipment of Waste
Material to The Facility shall be on or before July 14, 1997 and the last
shipment on or before October 31, 1997. All of The Work at The Site shall be
completed on or before December 1, 1997. Extension of any of the dates specified
in this paragraph may be granted with NMI's written consent.
3. WASTE MATERIAL.
(a) The Waste Material with regard to which Zhagrus is to perform The
Work is of the type and quantities set forth in Attachment "A". Zhagrus shall
ship the Waste Material for disposal only at The Facility. If Zhagrus discovers
what it believes to be a material nonconformity with respect to Attachment "A"
or Envirocare's License, it will, as soon as reasonably possible after
discovery, give to NMI a written notice of the characteristics, conditions and
circumstances which Zhagrus believes constitutes such nonconformity. If Zhagrus
is required to reasonably excavate, handle, move, load or store non-conforming
waste material in order to have access to the Waste Material and properly
perform The Work, Zhagrus shall then prepare and submit to NMI a proposed
written change order identifying the additional work required to so handle the
nonconforming waste material and price to be paid by NMI in consideration for
the performance of that additional work. Said additional work shall not be
undertaken until a written change order has been agreed to and signed by Zhagrus
and NMI.
(b) Zhagrus shall not mix or otherwise combine the Waste Material with
any other material or products from any other party or source, load the same for
shipment, or ship the same to Envirocare.
2
<PAGE>
4. NONCONFORMING WASTE MATERIAL.
Zhagrus shall have no obligation to ship or deliver to The Facility any
waste material which does not in fact conform to and/or comply with Envirocare's
License, the Regulations, and Attachment "A" of this Agreement. Waste Material
which, after delivery to The Facility, is not in compliance with the standards
for treated waste material as set forth in the Regulations, shall constitute
nonconforming waste material and shall not be disposed at The Facility. Upon
receiving notification from Envirocare of any nonconformity or noncompliance,
Zhagrus shall give written notification thereof to NMI. Except as limited or
precluded by action or demand of governmental regulatory authority, said
notification to NMI shall be given not less than five (5) working days after
receipt of notification from Envirocare. Zhagrus' contract with Envirocare shall
provide that, in the event that Envirocare discovers any such nonconformity,
then Envirocare, at its sole option: (1) may perform treatment of the
nonconforming waste material so to permit disposal, or (2) may return
nonconforming waste material to NMI. Said Agreement shall provide that
Envirocare shall not exercise any of said options unless it gives not less than
five (5) working days' prior notice to Zhagrus, except where limited or
precluded by action or demand of governmental regulatory authority. Zhagrus
shall make payment to Envirocare of Envirocare's fees and expenses for any
treatment of the waste material. Any fines and penalties levied against
Envirocare and generated by non-conforming waste material and all costs,
expenses and/or fees for or resulting from the receipt of the waste material and
the preparation for burial of the waste material, including analysis and
handling of the same, shall be paid by NMI. NMI shall make payment to Zhagrus
for any such fees, expenses, fines and penalties for which Zhagrus becomes
liable to Envirocare with regard to said nonconforming waste material, and shall
make payment of all costs, expenses and fees in transporting and preparing to
transport the waste material from The Facility to The Site. If the return of the
waste material to The Site is arranged for by Envirocare or Zhagrus, it shall be
transported by such means of transportation as Zhagrus shall reasonably select
in accordance with the Regulations.
5. DEVELOPMENT AND COMPLETION OF WORK PLAN.
(a) Zhagrus shall prepare a detailed Excavation/Disposal Work Plan and
obtain the approval of the plan by NMI prior to the commencement of The Work.
The plan shall include a schedule for completion of The Work, proposed methods
and procedures for performance of The Work, and a health and safety plan for
work performed at The Site.
(b) As soon as reasonably possible after Zhagrus determines that The
Work has been completed in full and in accordance with this Agreement, it shall
notify NMI in writing of the completion. Within a reasonable time but not more
than 20 days after receiving notice, authorized representatives of NMI shall
conduct a walk-through inspection of The Site to determine whether The Work has
been completed in accordance with this Agreement. NMI may conduct additional
inspections as it reasonably determines necessary to confirm completion of The
Work. Any governmental entity, person or other entity to whom NMI is
contractually obligated for the performance of the work may participate with NMI
in making
3
<PAGE>
the inspections. Within a reasonable time but not more than 20 days
after each inspection, NMI shall give written notice to Zhagrus of any
deficiencies in The Work. Within a reasonable time but not more than 20 days
after the completion of The Work and the correction of any deficiencies, NMI
shall give Zhagrus written notice of acceptance of The Work.
(c) Within 30 days after receipt of notice of acceptance of The Work,
Zhagrus shall prepare and submit to NMI a Work Completion Report. The report
shall include a narrative description of The Work performed, the actual work
attachment, including actual commencement and completion dates, and a
certification that The Work has been completed in accordance with this Agreement
and any modifications agreed to by NMI.
6. TRANSPORTATION AND DELIVERY.
Zhagrus shall transport and deliver the Waste Material or cause it to
be transported and delivered to The Facility in accordance with the Regulations,
including 49 CFR Regulations for radioactive material, unless determined by
intermediate testing to be non-conforming as described herein. FOB: Concord,
Massachusetts.
7. NMI INITIAL CLASSIFICATION OF WASTE MATERIAL.
NMI shall supply Zhagrus with results of NMI's initial sampling,
testing and classification, together with results of any testing, sampling and
other classification of the Waste Material received by NMI from other persons
and entities. The information provided by NMI is so provided only for
information purposes and shall not be by way of substitution or in lieu of
sampling and testing to be performed by Zhagrus.
8. ZHAGRUS PERSONNEL - TRAINING AND COMPLIANCE.
Zhagrus shall insure that all of its personnel engaged in the
performance of The Work are properly trained in the performance of their duties,
the use of equipment entrusted to them in the performance of those duties, and
applicable chain-of-custody procedures. Laboratories used by Zhagrus with regard
to applicable testing and sampling shall have a documented Quality Assurance
Program in compliance with United States Environmental Protection Agency
Guidance Document QAMS-005/80 and shall perform their services regarding The
Work in compliance therewith.
9. QUALITY CONTROL OF THE WORK.
Zhagrus shall provide for a full-time on-site inspector during all work
on The Site. On-site inspections shall be conducted on not less frequently than
a semi-monthly basis during The Work on The Site to verify compliance with this
Agreement and the Regulations, including all health and environmental
requirements, and shall be documented in Zhagrus files. Upon written request by
NMI, results of these inspections shall be provided to NMI
4
<PAGE>
and such other persons and entities as NMI may reasonably require. Zhagrus shall
review all aspects of The Work and all daily reports to verify that the work is
in compliance with this Agreement and shall promptly note and properly resolve
any variances and discrepancies.
10. PROTECTION OF THE SITE - LIENS.
During the time of the performance of The Work, Zhagrus shall adopt and
implement appropriate policies and procedures for the protection of The Site
from unauthorized entry and vandalism and injury to persons or property
resulting therefrom and shall require its subcontractors engaged in any of The
Work at The Site to implement and follow similar policies and procedures.
Zhagrus shall maintain The Site free and clear of all liens, claims or
encumbrances of any type or description arising out of the failure of Zhagrus
and any of its subcontractors to make timely and proper payment for labor and
materials provided at The Site.
11. SAFETY.
All Zhagrus personnel working at The Site shall meet and comply with
all safety standards and requirements imposed by NMI and the Regulations, as
more particularly described in Attachment "D". Zhagrus shall contractually bind
its subcontractors, engaged in the performance of The Work at The Site, to be in
compliance with the safety standards, agreed to between Zhagrus and NMI, at The
Site.
12. REPORTS - RECORDKEEPING.
Zhagrus shall prepare progress reports during the performance of The
Work and maintain the reports for a minimum of three years after completion of
The Work. The reports shall be made available upon reasonable notice and at
reasonable times for inspection by NMI and any governmental entity, person or
other entity to whom NMI is contractually obligated with regard to The Work. NMI
expects that the reports will be updated weekly for weekly status meetings. All
of those entitled to inspect the reports shall be provided a copy of the same by
Zhagrus upon request. The reports shall include a description of The Work
performed, The Work planned for the next 60 days, a descriptions of any problems
encountered, any actual or anticipated delays, the results of all sampling,
testing and other data received or produced by Zhagrus during the course of The
Work, and any work performed which Zhagrus has determined as not having been in
compliance with this Agreement.
13. LICENSES AND PERMITS.
Zhagrus shall obtain, or cause to be obtained, all local, state and
Federal licenses and permits required from each governmental body having
jurisdiction over the transportation of the Waste Material to The Facility.
Zhagrus shall perform The Work and transportation in compliance therewith.
5
<PAGE>
14. COMPLIANCE WITH LAW.
Zhagrus shall comply with the Regulations and all applicable federal,
state and local laws, ordinances and requirements, including but not limited to,
the provisions of the Fair Labor Standards Act of 1938, as amended, and shall
require compliance by its subcontractors with the Regulations and all federal,
state and local laws, ordinances and requirements applicable to said
subcontractors with regard to The Work and the Waste Material.
15. REPRESENTATIONS AND WARRANTIES.
ZHAGRUS. Zhagrus acknowledges the toxic nature and physical
characteristics of all of the Waste Material identified in Attachment "A", it
represents and warrants that it shall perform its services in compliance with
this Agreement and the Regulations.
NMI. NMI represents and warrants that (1) it has title to The Site and
the Waste Material and has authority to make this Agreement (2) it has no
knowledge that the type, radioactive characteristics and quantities of Waste
Material, as identified in Attachment "A", are not accurate in all material
respects, (3) all Waste Material subject of The Work shall conform in every
material respect to the description contained in Attachment "A".
16. INDEMNIFICATION.
(a) Zhagrus shall indemnify, defend and save harmless NMI, and NMI's
officers, directors, employees agents, against any and all liability whatsoever,
including all costs, expenses, and/or attorney's fees, which may arise out of
the breach of any representation or warranty of Zhagrus contained in paragraph
15.
(b) NMI shall indemnify, defend and save harmless Zhagrus, and
Envirocare and their officers, directors, employees, and agents, against any and
all liability whatsoever, including all costs, expenses, and/or attorney's fees,
which may arise out of the breach of any representation or warranty of NMI
contained in paragraph 15.
17. PAYMENT.
(a) In consideration of Zhagrus performing and providing The Work as
herein agreed to be performed and provided by Zhagrus, NMI shall make payment to
Zhagrus at the rates and prices set forth in Attachment "C," which is attached
hereto and by reference made a part hereof. In addition, NMI shall reimburse
Zhagrus for any and all amounts which Zhagrus is required to pay by way of
reimbursement to Envirocare for fees assessed subsequent to delivery of the
Waste Material to The Facility.
(b) Zhagrus shall submit appropriate invoices to NMI and shall keep
copies of said invoices for a period of at least three years as a partial record
of the performance of The
6
<PAGE>
Work. All invoices shall be due and payable by NMI within 30 days of the invoice
date. Any payment not received at Zhagrus' place of business within 30 days of
receipt of invoice at NMI shall accrue on the delinquent amount 30 days from the
invoice receipt date at one and one-half percent (1.5%) per month (but not to
exceed the lawful applicable rate). Said charge and interest is payable at the
time of the delinquent payment. Failure to pay invoices within 90 days of
receipt shall constitute a material breach of this Agreement.
18. TITLE TO WASTE MATERIAL.
Upon Envirocare accepting and taking possession at The Facility of
Waste Material conforming to the description in Attachment "A", Title, risk of
loss, and all other incidents of ownership to the Waste Material shall thereupon
be held by Envirocare. NMI shall have no right to recovery of any material
contained in the Waste Material nor any credit for its potential value.
19. LIABILITY COVERAGE/PERFORMANCE BOND.
Zhagrus shall maintain, at its expense, at least the following
liability insurance coverage during the time that it is performing or providing
for the performance of The Work under this Agreement.
<TABLE>
<CAPTION>
COVERAGE LIMITS
-------- ------
<S> <C> <C>
(a) Workman's Compensation *
(b) Employer's Liability *
(c) General Liability *
(Bodily Injury and
Property Damage)
(d) Automotive Liability *
(Bodily Injury and
Property Damage)
</TABLE>
In addition to the above insurance coverage, Zhagrus shall procure and maintain
a performance bond in an amount equal to 100% of the agreed to contract value of
this agreement less the cost of the bond. Zhagrus shall vary the value of such
bond as necessary and called for by the bonding company to equal price
adjustments. NMI will reimburse Zhagrus for the cost of such bond upon contract
completion at a cost not to exceed 1.5% of the contract value.
7
<PAGE>
20. FORCE MAJEURE.
The performance of this Agreement, except for the payment of money
owing for work and services actually rendered hereunder, may be suspended by
either party in the event of national defense requirements, any act of God, war,
riot, fire, explosion, accident, flood, sabotage, an order directive or request
of an authorized governmental agency (including the Northwest Interstate Compact
Commission) that delivery, transportation, acceptance, treatment or disposal of
the Waste Material be suspended or terminated, the lack of adequate fuel, power,
raw materials labor, Containers or transportation facilities, any material
noncompliance by the other party with the Regulations, governmental
requirements, law, regulations, orders or actions, a breakage or failure of
machinery or apparatus, any labor trouble, strike, lockout or injunction
(provided that neither party shall be required to settle a labor dispute against
it sown best judgment), or any event beyond the reasonable control of such
party, which event prevents The Work, any material part thereof or the
transportation, delivery, acceptance, treatment of disposal of the Waste
Material.
21. INDEPENDENT ZHAGRUS.
NMI and Zhagrus are each separate entities. Neither of them, nor their
employees or agents, shall be deemed to be employees or agents of the other.
22. WAIVER.
Any waiver by either party of the breach of any provision or condition
of this Agreement shall not be construed or deemed to be a waiver of a
subsequent breach of the same provision or condition, unless such waiver be
expressed in writing and signed by the party to be bound.
23. NOTICE.
Any notice, communication or statement required or permitted to be
given hereunder shall be in writing and deemed to have been sufficiently given
when delivered in person or by mail, postage prepaid or by telefax machine
addressed as follows:
NMI: Nuclear Metals, Inc. ZHAGRUS: Zhagrus Environmental, Inc.
2229 Main Street 46 West Broadway, Suite 240
Concord, Massachusetts 01742 Salt Lake City, Utah 84101
Attention: Mr. Michael Duquette Attention: Mr. Larry Shelton
Telephone # (508) 369-5410 Telephone # (801) 532-1330
Telefax # (508) 371-3275 Telefax # (801) 537-7345
or at such other address as a party shall hereafter, in writing, direct.
8
<PAGE>
24. TERMINATION/SUSPENSION.
Notwithstanding any language to the contrary contained herein, if
either party is in default under this Agreement, the accusing party may, at its
sole election, (1) waive any such default on such terms as determined; (2)
suspend further performance under this Agreement; or (3) declare accused party
in default of this Agreement. Either party may terminate this Agreement by
notice in writing in the event that the other party either is in default of this
Agreement and continues in default for a period of ten (10) days after receipt
of written notice to cure said default; makes an assignment for the benefit of
creditors; admits in writing an inability to pay debts as they mature; a trustee
or receiver of the other or of any substantial part of the other's assets is
appointed by any court; or a proceeding is instituted under any provision of the
Federal Bankruptcy Code by the other or against the other, and is acquiesced in
or is not dismissed within 60 days, or results in an adjudication in bankruptcy.
25. CONFIDENTIALITY.
The parties shall treat as confidential property and not disclose to
others during or subsequent to the term of this Agreement, except as is
necessary to perform this Agreement hereunder and then only on a confidential
basis satisfactory to both parties, any information, including technical
information, experience or data, regarding the other party's plans, programs,
plants, processes, products, disposal costs, equipment, operations, NMI's and/or
the specific contractual terms contained herein which may come within the
knowledge of the parties, their officers of their employees in the performance
of this Agreement without in each instance securing the prior written consent of
the other party. Zhagrus shall also treat as confidential and shall not disclose
to others, except as required by law, governmental rules, regulations and/or
orders, information relating to the composition of the Waste Material, any
treatment performed and/or the quantity of Waste Material delivered to it by
NMI. Zhagrus may disclose to its agents and contractors information relating to
the composition, type, treatment and quantity of the Waste Material as required
to perform this Agreement, without written authorization from NMI, including but
not limited to its general Zhagrus, its laboratories. Nothing herein, however,
shall prevent either Zhagrus or NMI from disclosing to others or using in any
manner information which either party can show:
(a) Has been published and become part of the public domain other
than by acts, omissions, or fault of Zhagrus or NMI or their
employees.
(b) Has been furnished or made known to Zhagrus or NMI by third
parties other than those acting directly or indirectly for, or
on behalf of, Zhagrus or NMI as a matter of legal right
without restriction against disclosure.
(c) Was in the other party's possession prior to the disclosure
thereof by Zhagrus or NMI to each other.
(d) The information is supplied to a governmental agency pursuant to
its request.
9
<PAGE>
Nothing in this paragraph shall be deemed to affect NMI's disclosure obligations
as a public company. Prior to filing a copy of this Agreement with the
Securities and Exchange Commission or otherwise disclosing its terms. NMI shall
notify Zhagrus of the nature to develop terms of a request for confidential
treatment.
26. SURVIVAL.
The representations, warranties, covenants, and agreements made herein
shall survive expiration and/or termination of this Agreement.
27. AMENDMENT/ASSIGNMENT.
This Agreement may be amended or assigned only by the written agreement
of the parties.
28. BINDING.
This Agreement shall be binding upon, and shall inure to the benefit
if, the parties hereto and their respective successors and permitted assigns.
29. DEFAULT.
In the event any party to this Agreement defaults in any of the
covenants or agreements contained herein, the defaulting party shall pay all
damages, costs and expenses, including reasonable attorney's fees incurred by
the other party in enforcing its rights arising hereunder.
30. APPLICABLE LAW.
This Agreement is entered into in the County of Middlesex, State of
Massachusetts and shall be governed and construed in accordance with the laws of
the State of Massachusetts.
31. HEADINGS AND PARAGRAPH NUMBERS.
Headings and paragraph numbers have been inserted herein solely for
convenience and reference and shall not be construed to affect the meanings,
construction or effect of this Agreement.
32. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which may be executed by less than all of the parties hereto, each of which
shall be enforceable against the parties actually executing such counterparts,
and all of which together shall constitute one instrument.
10
<PAGE>
33. SEVERABILITY.
In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, the Agreement shall continue in full force and effect without the said
provision, provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
34. ENTIRE AGREEMENT.
This Agreement constitutes the full and entire understanding and
agreement between the parties hereto, and supersedes any language, term,
condition, or other provision of any prior written materials, including any
request for proposal, and any oral communications between the parties.
IN WITNESS WHEREOF, NMI and Zhagrus have each caused this Agreement to
be executed by its duly authorized representative(s) on the day and year set
forth below effective as of the date of the last signature.
NUCLEAR METALS, INC. ZHAGRUS ENVIRONMENTAL, INC.
By: /S/ Michael Duquette By: /S/ Larry Shelton
-------------------- -----------------
Title: Materials Manager Title: Chief Operating Officer
----------------- -----------------------
Date signed: May 8, 1997 Date signed: 5/19/97
----------- -------
11
<PAGE>
Attachment "A"
DESCRIPTION OF THE WASTE MATERIAL
WASTE MATERIAL FOR DISPOSAL
The Waste Material to be disposed of WITHOUT TREATMENT is described in the
Radiological Evaluation Form(s) (EC-0650), the Waste Profile Record Form(s)
(EC-0175), and the Physical Properties Evaluation Form(s) (EC-0500) captioned
DISPOSAL ONLY/NO TREATMENT and attached hereto and by reference made a part
hereof. The following NMI documents are referenced herein and are part of this
agreement:
Drawings by David W. Perley, Consulting Civil Engineer:
Sheet 1 - entitled "NMI Property, Holding Basin Work Zone and Traffic Flow",
September 24, 1996 Revision
Sheet 2 - entitled "Site Plan, Holding Basin Existing Conditions", September 24,
1996 Revision
Sheet 3 - entitled "Site Plan, Holding Basin Proposed Conditions", September 24,
1996 Revision
Sheet 4 - entitled "Drainage and Erosion Control Details", September 24, 1996
Revision
NMI Reference Drawing D6819, "Holding Basin Contours"
CHARACTER OF THE BASIN.
1. Waste Material
The Basin contained, at the end of the discharge and prior to subsidence,
approximately *cubic yards of Waste Material. Present estimates indicate that
the volume currently is closer to *cubic yards due to the subsidence. Within
this Waste Material are approximately *pounds of copper, and *pounds of depleted
uranium. The chemical form of the copper is for the most part hydrated oxides or
hydroxides, with some water of crystallization chemically bound and mechanically
held with the oxides. the uranium is reported to be calcium diuranium. other
absorbed water also exists which contains nitrates and some percentage of water
soluble machine coolant and oil. Gravel and other inserts are known to exist. In
addition, the original constituents of the lime (calcium and some magnesium) are
also present as hydroxides.
The specific gravity of the Waste Material at the present condition is estimated
to be *(* lbs/CY) which calculates to a total Waste Material weight of about
*pounds. Gravel makes up the balance of the total weight which is calculated to
be *pounds.
A Toxic Characteristic Leaching Procedure (TCLP) protocol was used by an EPA
certified laboratory to show that the Waste Material is not a hazardous waste.
The following chemical
<PAGE>
data of the Waste Material was derived from representative samples taken from
the*pound sample removed in 1989 as part of a process development program.
Major Waste Material Components of Interest:
<TABLE>
<CAPTION>
% Weight On A Natural Moisture Basis
------------------------------------
<S> <C>
Uranium 6.2
Copper 10.9
Moisture 60.0
</TABLE>
Components of the Waste Material as Compounds Derived from Mass Balance
Calculations:
<TABLE>
<CAPTION>
% Weight On A Natural Moisture Basis
------------------------------------
<S> <C>
H2O 60.0
C3H18 (oil) 5.1
CuCO3 3.3
Cu4(OH)3SO4 1.2
Cu(OH)2 11.2
CaCI2 0.4
CaF2 0.1
CaNO3 1.4
CaU2O7 6.7
Ca(OH)2 0.9
Mg(OH)2 7.6
SiO2 1.5
Fe(OH)3 0.8
</TABLE>
The pH of the discharge to The Basin had been kept above 8.
The Waste Material has dried to a depth of 1 to 1 1/2 inches directly below the
cover raising a concern that this layer might have the potential to become
airborne during movement. Below that, the material is non-dispersible, granular
and damp down to about one foot under the cover. Below this, the Waste Material
is clay like and sticky in nature with a very high angle of repose. This
material tends to stick to vertical walls of equipment. It will cause additional
suction force for excavation equipment. It is important to note, however, that
some few areas contain material which is more fluid like with a low angle of
repose. Material which exhibits more fluid like consistency has been seen in the
east/toward the north side of The Basin and to a lesser extent in the north west
section. It is roughly estimated that the more fluid like material represents
about 5 to 15% of the Waste Material. Zhagrus shall take the known condition of
the Waste Material into consideration when proposing an excavation method and
selecting equipment to perform this Scope of Work.
13
<PAGE>
Generally the Waste Material coloration is blue-green of various intensities
with strata of black to all gray in some locations. The black is believed to be
water soluble machining coolant or machine oil.
Fifty one PVC casings of a fifteen inch diameter had been driven into the Waste
Material in 1989 to remove 20,000 pounds of Waste Material for study. The
casings were driven to the Waste Material/gravel interface and left in place
with their tops cut off at The Basin top surface elevation. Foam boards of about
a 0.3" x 24" x 24" in size were used to cover the top opening of the casings and
the hypalon cover re-sealed in each location. The casing lengths vary from few
feet to about 10.5 feet depending on location.
2. Basin Gravel.
The Basin gravel includes that which is presently commingled with the Waste
Material or which may become commingled during excavation. The PVC boring study
described above, showed that this commingled zone is up to 10" in depth. it is
expected that the commingled layer will be excavated with the Waste Material.
The major portion of the sub-Basin gravel is the 26" depth which lies below the
10" commingled layer. This layer is virtually free of visible Waste Material but
does contain sufficient quantity of uranium, copper and nitrates that shall be
removed.
Other gravel which probably will be necessary to be excavated is that which
might slump off during excavation along the steep side of the submerged "sand
bar" toward the south of The Basin.
Still another portion of the gravel that shall be excavated is that which had
been placed on top of the Waste Material along a major portion of The Basin's
perimeter to create a uniform elevation to install and anchor the Hypalon cover.
It is expected that the majority of this overfill can be removed as "clean"
gravel. Other similar gravel had been placed on top of the Waste Material as a
peninsular on the north end at one point in time.
3. Basin Geometry, Volume and Weight.
The Basin is somewhat pear shaped measuring approximately *feet at its widest
point and about *feet long. The total surface area is *square feet. To some
extent, the Waste Material/gravel interface is saucer shaped with the major
abnormality being the submerged sand bar near the south end. The top surface of
the Basin does, to an extent, reflect the shape of the Waste Material/gravel
interface with the deepest parts of The Basin having settled the greatest extent
and areas, like at the sand bar, where the depth is at a minimum having settled
less. NMI drawing D6819, entitled "Holding Basin Contours" shows the depth of
The Basin at various locations with the deepest at *feet.
The estimated volumes in cubic yards of The Basin components are shown in the
following table.
14
<PAGE>
<TABLE>
<CAPTION>
COMPONENT CUBIC YARDS WEIGHT, TONS
--------- ----------- ------------
<S> <C> <C>
Waste Material * *
Commingled Gravel * *
Sub-Basin Gravel * *
Submerged Sandbar * *
Edge Overfill * *
Spot Gravel Locations * *
---------- -----------
TOTAL * *
</TABLE>
15
<PAGE>
Attachment "B"
SCOPE OF WORK
The Work which Zhagrus will perform of cause to be performed pursuant to this
Agreement is as follows:
The project scope involves the excavation, packaging, transportation, and
disposal of Waste Material. The scope of work also includes performing
intermediate and final surveys of The Basin work site in accordance with NUREG
5849 and applicable US Environmental protection Agency (EPA) and Massachusetts
Department of Environmental Protection (MADEP) standards. The scope of work
requires the use of a temporary structure, special air handling equipment, and
special excavation and material handling equipment. The work shall be performed
concurrent to NMI's normal manufacturing operations and in accordance with the
methods described herein, under the direction of NMI's on-site Clerk of The
Works and the conditions of NMI's License. The Waste Material will be disposed,
under the supervision of Zhagrus and the conditions of Envirocare's License.
The project objective is to return The Site to a condition that is considered by
the appropriate regulatory avenues including the Nuclear Regulatory Commission
(NRC), the Commonwealth of Massachusetts Department of Environmental protection,
the Town of Concord, Massachusetts and the United States Environmental
Protection Agency to be releasable for general business use. Additionally, the
work shall be done efficiently, economically and in an environmentally sound
manner that will prevent the spread of contamination.
1. Site Preparation
Site preparation for subcontractor traffic, fabrication of staging area,
construction and excavation, overburden storage areas and as otherwise necessary
to implement the excavation plan shall be the responsibility of Zhagrus. Zhagrus
shall grade the east side of The Site and provide for erosion control as
required. Any movement of earth shall be done in a manner that mitigates
entrainment of particulate into the air. NMI will direct Zhagrus to either bulk
bag the material, removed for site preparation, if it is clearly contaminated or
to temporarily store it on the cleared area to the south of The Site, covered
with plastic sheeting. NMI will test this material to determine if it
contaminated and instruct Zhagrus as appropriate.
Trees and shrubs cut down either because they end up within the enclosure or
because they interfere with construction or for any other reason should be left,
when able, with the stumps and roots in place for embankment stabilization. The
upper portions of the trees and those stumps which provide no bank stabilization
are to be disposed of by Zhagrus, as noncontaminated waste and not inclusive of
the contracted volume of Waste Material, after they are confirmed by NMI to be
free of contamination. After clearance by NMI, Zhagrus is to remove and dispose
of the remaining stumps at the end of the project.
<PAGE>
2. Enclosing Structure
Zhagrus will supply, erect and eventually dismantle and remove, including
footings or foundations, a temporary enclosing structure covering The Basin
(approx. *x*) capable of withstanding summer and winter conditions experienced
in the State of Massachusetts for at least 4 years. The structure shall be a
free span design over the entire * width and (1) keep rain, snow and water
run-ff from entering. The Basin and (2) to contain any potential airborne Waste
Material. It shall be designed to take 90 mph wind speed (including wind
pressure and up-lift) and 40 spf snow load or in accordance with the
Massachusetts State (MA) Building Code, whichever is more restrictive. The
design of the structure shall include any dead loads that Zhagrus' excavation
plan would impose on the structure. The enclosure is to completely encompass the
area of The Basin, excavating equipment, materials handling area,
survey/container release areas and a separated shipping staging area. The
container survey/release and shipping staging areas are to be adjacent but
separated by a step over berm and have a gravel surface. Both are to be located
on the flat area immediately north of The Basin on The Site. Sufficient lighting
within the enclosure is to be provided by Zhagrus so that work can be performed
during night time hours.
All enclosure and any equipment footings or foundations are to be so located
that when gravel overfill material and Waste Material are removed from The Basin
edges, the structure and equipment remain stable even under maximum wind and
snow loads. The inside edges of piles, footings or foundations are also to be
located outside the limits of the Waste Material edge so that any trenching or
boring will not encounter Waste Material during construction. An extra three (3)
feet of separation allowance is to be incorporated to account for any
uncertainty in the location of The Basin edge. These requirements shall be
accomplished while locating the enclosure an additional ten feet from the
existing wooden Tank House. Materials which might be generated from this digging
are to be similarly handled to that stated about during site preparation. While
maintaining the requirements of the MA Building Code, the type footing employed
should be minimized to limit potential burial volume at the end of the project.
The method chosen shall provide for a stable southern slope. Zhagrus is not
responsible for extemporaneous costs resulting from bedrock disturbance for
proper installation of stabilization footings. The fit of the enclosure at The
Basin north end may necessitate that the two square corners be substantially cut
back to fit the terrain, this approach is acceptable to NMI. Equipment access
into the enclosure from the gravel path is to be provided. Man doors are to be
of sufficient number and so located to be in keeping with the MA Building Code.
The enclosure design is to include the appropriate make-up air vents. The
structural and membrane design is to allow for negative air pressure which will
occur due to exhausting air from the enclosure.
No portion of the enclosure or work of any nature, is to occur beyond the chain
link fence that runs along the Sphagnum Bog (Cranberry Bog) side of the gravel
road. Zhagrus is to provide hay bales and provisions for prevention of sail
erosion along that fence line and to the north end of The Basin prior to any
site work. The intent is to restrict any silting into the Bog and Cooling Water
Recharge Pond (See Reference Drawing Sheet 3).
2
<PAGE>
Rain water run-off from adjacent terrain/slopes, from the enclosure outer
surface or snow melt shall be entirely diverted, by Zhagrus, to MNI's Cooling
Water Recharge Pond located to the north of The Basin. Non of the run-off is to
flow beyond the chain link fence into the Sphagnum Bog (Cranberry Bog) buffer
area. The method(s) employed by Zhagrus to accomplish this shall be in
accordance with reference drawings Sheets 3 and 4, at a minimum, but can
incorporate other measures to ensure complete diverting of water to the Pond and
prevention of siltation.
It is Zhagrus' responsibility to provide the required documentation for the
building permit and to obtain that building, including electrical, permit from
the Town of Concord. The required documentation may have to contain certain
conditions imposed on NMI by the Concord Board of Appeals. Zhagrus is
responsible for providing sufficient quantities of the plans and specifications
properly stamped and wet signed by a Professional Engineer or Architect
registered in Massachusetts as required by Concord's Building Inspector to
properly certify that the temporary enclosing structure meets the MA Building
Code. Additionally, the application for building permit shall include a separate
written Preliminary Affidavit, stamped and wet signed, by that Registered
Professional Engineer or Architect that the design is in compliance with the MA
Building Code. In addition, weekly written and wet stamped Inspection Affidavits
are to be provided to the Building Inspector by a Massachusetts registered PE or
Architect, as part of this contract, to certify that construction is taking
place according to the approved plans. When the enclosure is completed, the PE
or Architect is to provide Concord's Building Inspector with a stamped and
signed Final Affidavit that the enclosure was constructed according to the
approved set of plans and specifications.
NMI will provide the required electric power at the adjacent wooden tank house.
It is Zhagrus' responsibility to distribute it to within the enclosure to
support all aspects of the excavation including the conveyor. A
Massachusetts licensed electrician shall be utilized by Zhagrus.
3. Ventilation
Zhagrus will supply sufficient HEPA ventilation and air flow for at least 2 air
changes per hour in the excavation work zone (the portion of the enclosure
around the excavation equipment and exposed Waste Material). This ventilation
and ducting shall be sized by Zhagrus so that it does not reduce the flow by
more than a few hundred cfm. hour. Appropriate make-up air inlet vents for the
enclosure are to be provided. Zhagrus is to consider the affect of any fuel
driven engine exhaust into the enclosure as it relates to air quality for the
workers given the extent the enclosure is being ventilated.
4. Excavation
Zhagrus shall utilize an excavation method that keeps the operator and the
majority of the equipment about and not in contact with the Waste Material.
3
<PAGE>
Prior to any site preparation, Zhagrus is to provide NMI with a certification by
a Professional Engineer (PE) registered in Massachusetts that the excavating and
materials handling equipment is properly designed for safe operation.
Additionally, at the end of construction and before the dry run, Zhagrus is to
supply NMI with a PE Certification that the equipment was installed according to
plan.
Prior to removing any portion of the Hypalon cover, Zhagrus will be required to
perform a 'dry run' to demonstrate proper functioning of the equipment. This dry
run shall (1) include mechanical movement of all equipment to the limits of
their range and (2) loan test, using dummy weights, the excavator, materials
handling equipment and any excavator supporting structure to an extent which
simulates 100 percent of live and deal loading during operation. For the
excavator, the dummy load is to include the dead weight of the full bucket plus
additional load to simulate the adhesion force of the Waste Material estimated
to be experienced during excavation. NMI will review the sufficiency of the deal
loading prior to testing. NMI shall be present during all aspects of this 'dry
run'.
Actions shall be taken by Zhagrus when removing the Hypalon cover sections and
during excavation of the Waste Material not to disperse the dried material which
resides to a depth of about 1 to 1 1/2 inches below the cover. Zhagrus is also
expected to pick-up any fallen Waste Material and to wipe clean the surface in
any location where the Waste Material could be tracked or become airborne.
The Site 'edge overfill' is the overburden in the cover anchor trench area (173'
elevation), which had been filled, in some areas over the outer edge of the
Waste Material to configure a uniform elevation and regular shape to facilitate
installation of the Hypalon cover. See NMI drawing D6819. Another location for
this gravel overburden is the gravel peninsular located at the north end of The
Basin. Sufficient care shall be taken to not contaminate the overburden with any
Waste Material. Zhagrus is responsible for performing radiological monitoring of
soil samples to verify the cleanliness during excavation.
As Zhagrus encounters the PVC casings as described in attachment A, they are to
lay them down on a plastic sheet located on The Site perimeter, wipe the outer
surface substantially free of Waste Material and cut the casings into manageable
lengths for packaging and disposal. The foam boards are to be handled in a
similar fashion. Other random material or articles found in The Basin such as
metal sample tubes and tree branches are to also be similarly handled, packaged,
and disposed.
6. Hypalon Cover
Zhagrus is to remove sections of the Hypalon cover as The Basin excavation
progresses. No more cover material is to be removed than that which covers the
Waste Material to be removed for that day. Zhagrus is to cut the sections of
cover into approximately 5' x 5' pieces (about 10 lbs) during the excavation
process.
4
<PAGE>
7. Packaging and Materials Handling
Zhagrus shall be responsible for procurement and management of all packages and
containers for shipment of Waste Material to The Facility and warrants their
compliance with the Regulations, including 49 CFR regulations for radioactive
material, and all rules, laws and ordinances which may be applicable to the
safety, packaging, storage or transportation of such containers. The Waste
Material shall be packaged in palletized heavy wall corrugated boxes lined with
8 mil thick, water tight polyethylene bags of one cubic yard capacity; the Sub
Basin gravel material may be packaged in one cubic yard capacity; the Sub-Basin
gravel material may be packaged in one cubic yard bulk bags. Zhagrus shall be
responsible for ensuring that there is less than five percent void space in each
bag. Zhagrus is to install a conveying means to transport the Waste Material
filled containers from the north end of the enclosure to a loading platform,
supplied by Zhagrus, along the perimeter road approximately 90' north of the
wooden tank house. it is the responsibility of Zhagrus to tag each container
with its gross weight, contents and excavation location according to the grid
pattern per drawing D6819.
8. Testing, Site Survey, and Final Report
Zhagrus shall perform the necessary Intermediate Surveys, taken during
excavation to identify when sufficient gravel has been removed, and Final Survey
for the gravel zone. The surveys are to be conducted in accordance with the
latest version of NUREG 5849, guidelines for closure of radiologically
contaminated sites.
The Final Survey is to include testing the gravel for the following elements.
The sensitivity of the analytical technique for each element should be capable
of measuring the indicated concentrations.
Copper - 10 ppm
Uranium - 1 ppm
Total Petroleum Hydrocarbon - 10 ppm
Nitrate - 0.5 ppm
Arsenic - 5 ppm
Zhagrus' survey sample pattern shall have a technical basis. NMI will approve
the pattern before sampling will take place for the Final Survey. Replicate
samples are to be taken by Zhagrus following a "chain of custody" convention.
The Zhagrus is to supply a Final Report in accordance with the accepted
regulatory requirement (NUREG 5849) for closure of radiologically contaminated
sites.
5
<PAGE>
9. Clean-up and Demobilization
Upon completion of the excavation phase and when the NMI Clerk of Works gives
authorization to proceed, Zhagrus shall dismantle the temporary enclosing
structure. Decontamination of the inner surface of the structure, ducting and
excavation equipment shall be assured before removal from the site. Zhagrus will
use disposable plastic to cover the inside surfaces and/or framework of the
structure to minimize contamination to other areas of The Site.
The excavator shall be decontaminated including all sides of the engine exterior
and the bottom side.
All materials, cut trees, stumps, duct work, parts, construction rubble (i.e.
concrete piers), fillings, footings or the like are to be cleaned, removed from
The Site and disposal by Zhagrus. All materials are to be sufficiently cleaned
to pass NMI's releasable criteria.
ADDITIONAL CONDITIONS TO THE SCOPE OF WORK
1. Zhagrus will transport and dispose of up to *cubic yards of excavated
material including any debris that is generated and approved for
disposal by NMI such as PVC piping, liner, basin debris or PPE.
2. Zhagrus will ensure that the waste will meet Envirocare's waste
acceptance criteria with regard to moisture content. Zhagrus will
ensure that the Waste Material is properly conditioned and will be
responsible for any associated increase in volume. Zhagrus is not
responsible for the disposal of any contaminated water.
3. Zhagrus will provide all manifesting and related analytical work,
shipping containers (one yard bags or boxes), manage all shipping
activities including loading at the MNI facility and associated costs
including demurrage and decontamination of shipping vessels at the
Envirocare of Utah, Inc. facility.
4. Zhagrus will provide all health physics support for the project.
5. Zhagrus will not be responsible for remediation of any groundwater
encountered during project.
6. NMI will provide all utilities.
6
<PAGE>
Attachment "C"
PRICE ATTACHMENT
The following charges will apply for The Work described in Attachment "B" which
meets each of the requirements of this Agreement:
Price of *Dollars ($_______) for Waste Material in the minimum volume/amount
(collectively "Volume") specified in Attachment "B". The price for Waste
Material delivered to Envirocare of Utah's facility in excess of the*cubic yards
Volume shall be $* per cubic yard.
For payment purposes, volume or weight measurement of the Waste Material shall
be made by Zhagrus as necessary prior to transport and disposal, and Zhagrus'
measurements shall be conclusive. Volume calculations for milestone progress
payments shall be made based on a density factor of *tons per cubic yard. The
schedule for milestone payments are listed below:
1. State-up/Mobilization * To be invoiced upon signed agreement of
this contract
2. Enclosure construction * Prior to ordering building & necessary
materials for installation
* Upon building arriving at site prior
to installation
* Upon completion of building erection and
NMI written approval
3. Excavate, Load & Transport
To be invoiced in increments of *cubic yards Waste Material removal and
delivery to rail site. Zhagrus will provide documentary evidence that
rail cars have been loaded with *cubic yards.
* Excavation and loading on rail cars of
*cubic yards
* Excavation and loading on rail cars of
*cubic yards
* Excavation and loading on rail cars of
*cubic yards
* Excavation and loading on rail cars of
contaminated Waste Material; Maximum of
*cubic yards
4. Final Survey & Report * Upon completion of final Site survey and
completion of work report
<PAGE>
5. Demobilization/Clean-up * To be invoiced upon demobilization from
Site and NMI written approval
6. Retainer Payment (~10%) * To be invoiced upon regulatory acceptance/
certification by Local State and Federal
Agencies or 60 days after completion of
milestone payment #5 (Demobilization).
2
<PAGE>
Attachment "D"
HEALTH & SAFETY REQUIREMENTS
The area within fencing surrounding The Basin and the Enclosing structure is
considered to be "restricted" (a radiologically access-restricted area). The
requirements imposed by NMI's operating license and compliance with relevant
regulations (Federal, State, and local) are applicable to Zhagrus personnel at
The Site; NMI procedures which apply to restricted areas within the existing
building production areas will also apply. The "work" area is defined as the
area outside the structure and enclosed by fencing along the paved perimeter
road (west of The Basin); the fencing on the level gravel area south of The
Basin; the fencing on the side of the dirt road east of The Basin; and the
fencing by the pond north of The Basin.
The following requirements pertain to the "restricted" and "work" areas:
1. NMI will provide protective clothing and lockers for Zhagrus personnel
and Zhagrus' working on The Site. NMI provided uniforms shall be worn
at all times on The Site.
2. Radiation monitoring devices (film badges) will be provided by NMI, and
shall be properly worn at all times on The Site.
3. Safety work shoes and glasses shall be provided by Zhagrus and worn at
all times in the restricted area. it is expected that contaminated
clothing that cannot be cleaned be disposed of as contaminated waste in
accordance with NMI policy.
4. Forty hours of HAZWOPER (OSHA 29 CFR 1910.120) training with
certification is for Zhagrus personnel working at The Site. In
addition, NMI will provide 16 hours of site specific training.
5. Zhagrus is to provide medical certification that all on-site personnel
have had a recent thoracic examination (within 1 year, maintaining
currency through contract completion), in which no contraindications
regarding use of respiratory protective equipment (full - or half-face
negative-pressure HEPA-filtered respirators) are identified. Zhagrus
shall make their personnel available for quantitative respirator fit
testing conducted by NMI. The specified physician's certification and
successful completion of respirator fit test are required before
Zhagrus personnel can work at/on the site. Maintenance and instructions
for use of respirators will be provided and enforced by NMI>
6. Zhagrus personnel will be required to wear personal air monitoring
(PAM) devices for various tasks, as specified by NMI Health & Safety
representative. At a minimum, it is expected that such monitoring will
be required any time use of respiratory protective equipment is
required, and during initial task or workplace characterization
activities.
7. Zhagrus personnel shall monitor themselves with NMI supplied detectors
prior to leaving the "restricted area" to ensure that no Waste Material
is being tracked out of the
<PAGE>
enclosure, or off The Site. Any equipment ,materials, or personal items
leaving the area shall be surveyed/inspected by NMI Health & Safety
staff or technicians.
8. Zhagrus personnel will be required to conform to all aspects of NMI's
Health & Safety program, including the formal Radiological Work Permit
(RWP) procedures; all activities involving licensed material (DU) shall
be covered by an RWP; describing access restrictions and controls,
monitoring, oversight requirements, and related safety considerations.
Prior to initiation of any task or activity involving licensed material
(Waste Material), or exposure to licensed material, all Zhagrus
personnel are responsible for assuring that those activities are
covered by a specific and current (unexpired) RWP, or more general
"Standing" RWP. Zhagrus is responsible for maintaining current
communications with NMI's operating group, including NMI Health &
Safety personnel; applicable RWPs will be developed by the Zhagrus in
concert with NMI Personnel and are subject to review, modification and
approval by NMI Health & Safety staff.
9. At the end of the work day the areas shall be left in a "packed-up"
condition with all equipment and materials properly stowed.
10. Each person entering the "restricted area" shall put on a Zhagrus
supplied Tyvek jumpsuit over the uniform. It is to be removed upon
leaving that area.
11. Rubber shoe covers (supplied by Zhagrus), or appropriate nonporous
equivalent, shall be worn and removed when leaving the restricted area.
12. At the end of each work day Zhagrus uniformed personnel are to return
to their NMI supplied locker, wash and change into their street
clothing. They are then to monitor themselves again using the hand &
foot monitors located at the employees exit and exit that door.
Entrance the following day is via that same entrance.
Urine samples from each of Zhagrus' personnel, as is also routinely required of
NMI's own employees, will similarly be required before and after the job is
finished plus periodically during the course of the job. This is done for the
sole purpose of monitoring potential uranium intake. After completion of the
work scope, Zhagrus personnel will be required to provide additional urine
samples from designated personnel available (as requested by NMI Health & Safety
staff) for a period of up to 2 additional weeks.
At the start of the first day on the job for each of Zhagrus' personnel, NMI's
Health?Safety Department will provide the individual(s) with an orientation and
site specific training which can be expected to last for 16 hours. Each new
worker that the Zhagrus brings on site is required to receive this orientation
and training. It is therefore desirable to minimize the use of "new" Zhagrus
employees. A full time NMI person will be at the job site to assist with
compliance of the above safety requirements.
2
<PAGE>
Zhagrus shall take precautions to conduct all operations and activities in such
a manner to keep equipment and personnel from unnecessarily coming in contact
with Waste Material thereby minimizing the time required for clean-up prior to
leaving the job site.
It is the responsibility of Zhagrus to remove any snow during the execution of
the scope of work.
NMI reserves the right to demand that any individual on the Zhagrus crew who is
not performing according to contract terms or NMI standards relating to safety
and protection of the environment be removed from the job at no cost or adverse
schedule effects to NMI.
NMI also reserves the right to stop Zhagrus from doing work that is in violation
of NMI safety standards or adversely affecting the environment. This stop work
would be at no cost or adverse schedule effects to NMI.
3
<PAGE>
ATTACHMENT "E"
U. S. GOVERNMENT CONTRACT #DAAK 10-81-C-0320,
MOD P00010 SUPPLEMENTAL TERMS AND CONDITIONS
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTACT ID CODE PAGE OF PAGE
1 19
________________________________________________________________________________________________________________________________
4. AMENDMENT/MODIFICATION NO. 5. EFFECTIVE DATE 6. REQUIREMENT/PURCHAS REG. NO. PROJECT NO. (If applicable)
P00010 03/06/97 2p7AAQ-421A-MOD1
- -----------------------------------------------------------------------------------------------------------------------------------
6. ISSUED BY CODE M15gkm03 7. ADMINISTERED BY (if other than hand) CODE 22206a
---------------- ------------
DEPARTMENT OF ARMY DCMAO BOSTON
AMS1A-AR-PC-A B,10 495 SUMMER STREET
PICATTNY ARSENAL NJ 07206 BOSTON MA 02210-2184
L. Ketter 205(201) 724-4771
- -----------------------------------------------------------------------------------------------------------------------------------
8. NAME AND ADDRESS OF CONTRACTOR (No., county, State and Zip Code) Vender ID: 0-0004845 DQ 8a. AMENDMENT OF SOLICITATION NO.
NUCLEAR METALS INC.
2229 MAIN STREET 9b. DATED (SEE ITEM 11)
CONCORD MA 01742 10a. MODIFICATION OF ADMINISTRATION NO.
X DAAK10-81-C-0323
10b. DATED (SEE ITEM 13)
- -----------------------------------------------------------------------------------------------------------------------------------
CODE 78465 FACILITY CODE
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/ / The above numbered solicitation is amended as set forth in Item 14. The
hour and date specified for receipt of Offer: / / is extended, / / is not
extended, Offers must acknowledge receipt of this amendment prior to the hour
and date specified in the solicitation as amended, by one of the following
methods: (a) By completing Items 8 and 15, and returning copies of
the amendment; (b) By acknowledging receipt of this amendment on each copy
of the offer submitted; or (c) By separate letter or telegram which includes
a reference to the solicitation and amenment nubmers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If by virtue of this amendment you desire to change and offer already
submitted, such change may be made by telegram or letter, provided each
telegram or letter makes reference to the solicitation and this amendment,
and be received prior to the opening hour and date specified.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C>
13. ACCOUNTING AND APPROPRIATION DATA (if required) Obligated Amount US $6,525,979.00
See Attached.
- ---------------------------------------------------------------------------------------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OR CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
- ---------------------------------------------------------------------------------------------------
(X) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: By authority: THE CHANGES SET FORTH IN ITEM 14 ARE
- ----- MADE IN THE CONTRACT ORDER NO.
- ---------------------------------------------------------------------------------------------------
B. THE ABOVE NUMBERED CONTRACT ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such
as changes in paying officer, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO
THE AUTHORITY OF FAR 29, 100
- ---------------------------------------------------------------------------------------------------
x C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
---------------------------------------------------------------------------------------------
D. OTHER (Specify type of modification and authority)
- ---------------------------------------------------------------------------------------------------
E. IMPORTANT: Contractor / / is not, /x/ is required to sign this document and return 2 copies
to the issuing office. ---
- ---------------------------------------------------------------------------------------------------
14. DESCRIPTION OF AMENDMENT MODIFICATION (Organized by UCF section headings, including
modifications/contracts were feasible.)
See attached continuation sheet.
Any attempt as provided herein, all terms and conditions of this reference and in full
force and effect.
- ---------------------------------------------------------------------------------------------------
14A. NAME AND TITLE OF SIGNER (Type or print) 14B. NAME AND TITLE OF CONTRACTING
OFFICER (Type of
/s/ Donald T. King, Mgr. Sales & Contracts Harry Santa
- ---------------------------------------------------------------------------------------------------
15A. CONTRACTOR/ 15C. DATE SIGNED 15C. UNITED STATES OF AMERICA 15D. DATE
SIGNED
/s/ Donald T. King 3/10/97 or /s/ Harry Santa 10 Mar 97
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Page 1A of 19
DAAKIO-81-C-0323
Modification P00010
SUPPLIES OR SERVICES AND PRICES/COSTS
ITEM DESCRIPTION QUANTITY U/I UNIT PRICE AMOUNT
- ---- ----------------------------------- -------- --- -------------- ------------
<S> <C> <C> <C> <C> <C>
0001 This line covers the basic contract 1.00 EA 7317996.000000 7,317,996.00
and mods up to P00009.
PR Number: PreAud-****-0197
0009 PR Number: 2P7AA0-421A-MG01 1.00 EA 6525979.000000 6,525,979.00
</TABLE>
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 2 OF 19
MODIFICATION P00010
The purpose of the Modification is to incorporate the attached Army Contract
Adjustment Board Memorandum of Decision No. 1244, dated 13 Sep 1996 and
implement same by a Supplement Agreement, the terms of which are as follows:
A. The Government shall pay the Contractor a firm fixed price of $6,525,979
for the Contractor to conduct all activities necessary for Decontamination &
Decommissioning (i.e. treat, excavate, transport, bury and otherwise cleanup) of
the Holding Basin at Contractor's Concord facility as specified in the five
performance based milestones set forth in Paragraph D. It is the contractor's
responsibility to comply with all environmental laws, regulations, and
standards, and obtain all environmental permits necessary to do the remediation
effort. Execution of the Modification is implementation of an ACAB Decision and
does not constitute any admission of liability by either party. Cleanup of areas
other than the holding basin will be charged to appropriate overhead and/or G&A
pools in accordance the ACAB decision.
B. Period of Performance is as specified in Performance Milestones and
paragraph H.
C. The attached firm fixed price--services clauses are included in the
contract and made applicable to this modification. None of the cost type clauses
contained in the basic contract apply to this modification.
D. Payments shall be made as performance based payments in accordance with
FAR 52.232-32 and the performance schedule set forth below. Each of the
individual milestone payments will be paid in full when the US Army TACOM-ARDEC
is provided with documentation confirming full performance of each individual
milestone, and has been properly invoiced.
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 3 OF 19
MODIFICATION P00010
1. SUBMITTAL OF Decontamination & Decommissioning/Response
Action Measure for the Holding Basin to Army (30 calendar days
after contract award) $2,000,000.
2. Completion of enclosure construction/obtain equipment. 500,000.
3. Complete excavation and packaging of Basin Material in
accordance with D&D/RAM Plan. NMI is not authorized to
proceed, or to receive any payment under the provisions of
this Modification until it demonstrates and provides to the
Army proof that it has received regulatory approval of all of
the necessary cleanup, decommissioning, and decontamination
plans. The Contracting Officer may suspend payments in the
event NMI does not prepare or submit to regulatory agencies,
any required environmental analysis, environmental reports, or
other information required for regulatory agencies to take
approval action on D&D plans.
a. At the time 1,500 cubic yards of the basin material have
been removed and delivered to the rail site. Expected to
be on or about 15 Jul 97. NMI will provide documentary
evidence with its invoice that a sufficient number of
rail cars have been loaded to achieve a level of 1,500
cubic yards. 1,000,000.
b. At the time 1,500 cubic yards of the basin material have
been removed and delivered to the rail site (in addition
to the item 3.a material). Expected to be on or about 15
Aug 97. NMI will provide documentary evidence with its
invoice that a sufficient number of rail cars have been
loaded to achieve a level of 1,500 cubic yards. 1,000,000.
c. At the time 1,500 cubic yards of the basin material have
been removed and delivered to the rail site (in addition
to the item 3.a and 3.b material). Expected to be on or
about 15 Sep 97. NMI will provide documentary evidence
with its invoice that a sufficient number of rail cars
have been loaded to achieve a level of 1,500 cubic yards.
1,000,000.
NMI is not authorized to proceed on excavation until they have received
prior approval from the appropriate regulatory agencies of the
Decontamination and Decommissioning and Response Action Measure Plans
associated with the holding basin and provide evidence of same to the Army.
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 4 OF 19
<PAGE>
MODIFICATION P00010
4. D&D of basin enclosure certification from regulatory
agency. 250,000.
5. Provide Army with all necessary regulatory
acceptance/certification by Local, State and Federal Agencies
of confirmatory post basin site survey and release of NMI and
the US Army in accordance with regulatory criteria. NMI's
Preliminary Decommissioning Plan will be submitted to the Army
within 90 days after contract award. 775,979.
Total 6,525,979.
E. In consideration of the above, the Contractor agrees to waive, release,
indemnify and hold the Government harmless from any and all claims of any
kind related to existing contamination and/or waste at NMI's concord site,
including, but not limited to, any type of contract, environmental claims,
CERCLA claims, including claims based on being an arranger for disposal, or
an operator, or any claims of active or passive negligence by the Government
or its agents or employees but excluding only claims for decontamination and
disposal of government-furnished equipment maintained and identified under
facilities Contract No. DAAA09-90-E-0013 or any successor facilities
contract. Any and all violations or fines by any authority regarding the
presence, removal, or disposal of waste will be the responsibility of the
contractor.
F. Monthly letter reports and copies of any correspondence between NMI,
regulator or other government agencies (i.e. letters, document, reports,
studies, notices of meetings/ plans, etc.) (contractor format is acceptable)
are to be submitted to US Army, ARDEC, ATTN: Michael Los, AMSTA-AR-SRC,
Building 172, Picatinny Arsenal, NJ 07806-5000.
G. Stop Work Order clause (52.242-15) is amended to include: "should a stop
work order be issued, the contractor must make necessary safeguards at
holding basin and work area to preclude environmental damage during the
stoppage".
H. "Site-wide" environmental assessment plans approved by The Regulatory
Agency shall be completed and provided within 16 months of execution of this
modification. NMI's Preliminary Decommissioning Plan will be submitted to the
Army within 90 days after contract award.
Payment will be made by DFAS Columbus Center DFAS-CO/DPRO West Division, P.O.
Box 182511, Columbus, OH 43218-2225.
As a result of this modification, the contract is increased by $6,525,979.00
from $7,317,996.00 to $13,843,975.00.
All other terms and conditions remain unchanged.
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 5 OF 19
<PAGE>
MODIFICATION P00010
FIRM FIXED PRICE CLAUSES
------------------------
INSPECTION AND ACCEPTANCE:
- --------------------------
52.246-4 INSPECTION OF SERVICES- AUG 1996
FIXED-PRICE
52.242-15 STOP-WORK ORDER. (AUG 1989)
- -------------------------------------
(a) The Contracting Officer may, at any time, by written order to the
Contractor, require the Contractor to stop all, or any part, of the work
called for by this contract for a period of 90 days after the order is
delivered to the Contractor, and for any further period to which the parties
may agree. The order shall be specifically identified as a stop-work order
issued under this clause. Upon receipt of the order, the Contractor shall
immediately comply with its terms and take all reasonable steps to minimize
the incurrence of costs allocable to the work covered by the order during the
period of work stoppage. Within a period of 90 days after a stop-work order
is delivered to the Contractor, or within any extension of that period to
which the parties shall have agreed, the Contracting Officer shall either:
(1) Cancel the stop-work order; or
(2) Terminate the work covered by the order as provided in the Default, or
the Termination for Convenience of the Government, clause of this contract.
(b) If a stop-work order issued under this clause is canceled or the period
of the order or any extension thereof expires, the Contractor shall resume
work. The Contracting Officer shall make an equitable adjustment in the
delivery schedule or contract price, or both, and the contract shall be
modified, in writing, accordingly, if:
(1) The stop-work order results in an increase in the time required for, or
in the Contractor's cost properly allocable to, the performance of any part
of this contract; and
(2) The Contractor asserts its right to the adjustment within 30 days after
the end of the period of work stoppage; provided, that, if the Contracting
Officer decides the facts justify the action, the Contracting Officer may
receive and act upon a proposal submitted at any time before final payment
under this contract.
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 6 OF 19
MODIFICATION P00010
(c) If a stop-work order is not canceled and the work covered by the order is
terminated for the convenience of the Government, the Contracting Officer
shall allow reasonable costs resulting from the stop-work order in arriving
at the termination settlement.
(d) If a stop-work order is not canceled and the work covered by the order is
terminated for default, the Contracting Officer shall allow, by equitable
adjustment or otherwise, reasonable costs resulting from the stop-work order.
CONTRACT ADMINISTRATION DATA
- ----------------------------
PRON: 2P7AA0421ANG
ACCTG CLASS: 2172034 75H5H00P210 25CZ S28017
CONTRACTOR'S REMIT-TO ADDRESS FOR PAYMENT OF INVOICES
- -----------------------------------------------------
Payment shall be made to the remit-to address shown on the invoice as
authorized by the contractor.
CONTRACTORS INVOICES
- --------------------
Request for Payment: Submit Public Vouchers to the Finance Office FOUND IN
Block 6 of Standard Form 30 (Amendment of Solicitation/ Modification of
Contract)
ADDITIONAL INFORMATION
- ----------------------
Contract Specialist: Linda Kettler
Organization Code: AMSTA-AR-PC-C
Telephone Number: 201-724-4771
Facsimile Number: 201-724-4524 252-201-7000
CONTRACTING OFFICER'S REPRESENTATIVE. (DEC 1991)
- ------------------------------------------------
(a) "Definition. Contracting officer's representative" means an individual
designated in accordance with subsection 201.602-2 of the Defense Federal
Acquisition Regulation Supplement and authorized in writing by the
contracting officer to perform specific technical or administrative functions.
(b) If the Contracting Officer designates a contracting officer's
representative (COR), the Contractor will receive a copy of the written
designation. It will specify the extent of the COR's authority to act on
behalf of the contracting officer. The COR is not authorized to make any
commitments or changes that will affect price, quality, quantity, delivery,
or any other term or condition of the contract.
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 7 OF 19
MODIFICATION P00010
252.223-7001 HAZARD WARNING LABELS. (DEC 1991)
- ----------------------------------------------
(a) "Hazardous material," as used in this clause, is defined in the Hazardous
Material Identification and Material Safety Data clause of this contract.
(b) The Contractor shall label the item package (unit container) of any
hazardous material to be delivered under this contract in accordance with the
Hazard Communication Standard (29 CFR 1910.1200 "et seq"). The Standard
requires that the hazard warning label conform to the requirements of the
standard unless the material is otherwise subject to the labelling
requirements of one of the following statutes:
(1) Federal Insecticide, Fungicide and Rodenticide Act;
(2) Federal Food, Drug and Cosmetics Act;
(3) Consumer Product Safety Act;
(4) Federal Hazardous Substances Act; or\
(5) Federal Alcohol Administration Act.
(c) The Offeror shall list which hazardous material listed in the Hazardous
Material Identification and Material Safety Data clause of this contract will
be labelled in accordance with one of the Acts in paragraphs (b) (1) through
(5) of this clause instead of the Hazard Communication Standard. Any
hazardous material not listed will be interpreted to mean that a label is
required in accordance with the Hazard Communication Standard.
- ----------------------------------------
Material (if none, insert "none.") Act
- ----------------------------------------
- ---------------- ------------------
- ---------------- ------------------
- ----------------------------------------
(d) The apparently successful Offeror agrees to submit, before award, a copy
of the hazard warning label for all hazardous materials not listed in
paragraph (c) of this clause. The Offeror shall submit the label with the
Material Safety Data Sheet being furnished under the Hazardous Material
Identification and Material Safety Data clause of this contract.
(e) The Contractor shall also comply with MIL-STD-129, Marking for Shipment
and Storage (including revisions adopted during the term of this contract).
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 8 OF 19
MODIFICATION P00010
REQUIRED INSURANCE (WRITTEN IN PLAIN ENGLISH)
- ---------------------------------------------
Under FAR 52.228-5, in Section I, you must have the kinds and minimum amounts
of insurance in FAR 28.307-2.
SAFETY REQUIREMENTS FOR HAZARDOUS ITEMS (WRITTEN IN PLAIN ENGLISH)
- ------------------------------------------------------------------
a. The contractor shall use the safety data provided in the Hazardous
Component Safety Data Sheets (HCSDS) to insure the safe handling of the
energetic material. The HCSDS are in Section J of the contract.
b. The contractor shall comply with Paragraph F, Chapter 1 of DOD 4146.26M,
DOD Contractor's Safety Manual for Ammunition and Explosives. This requires
the contractor to submit all site and construction plans through the local
Defense Contract Management District Safety Office to the Contracting Officer
for approval. The contractor must also submit changes for approval.
Contractors will assure that their subcontractors follow the same procedures.
c. Whenever the contractor uses a government facility, he shall comply with
the local safety requirements of that facility.
d. The contractor must obtain written approval from the Contracting Officer
before the award of a subcontract involving explosives, propellants or
pyrotechnic materials. When the contractor requests the Contracting Officer's
approval, the Contracting Officer will arrange a Defense Logistics Agency
preaward safety survey for each subcontractor.
e. The contractor is responsible for decontaminating all facilities/equipment
at the end of the contract unless they intend to continue using the
facilities/equipment for similar purposes. You must include these costs
original contract. The contractor must provide the Contracting Officer with a
certification that you decontaminated all contaminated facilities/equipment.
f. The contractor is responsible for properly disposing of hazardous
materials during this contract. If disposal is done on the subcontractor's
site, the contractor must note this in his site plan per paragraph b. The
Contracting Officer must approve a subcontractor prior to him performing
disposal per paragraph d.
g. The contractor will provide reports of accidents/incidents as required by
Data Item DI-H- 1329A. The government reserves the right to investigate any
accident/incident under Chapter 2, Paragraphs F and G of DOD 4145.26M, DOD
Contractor's Safety Manual for Ammunition and Explosives.
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 9 OF 19
MODIFICATION P00010
GOVERNMENT CONTRACTOR RELATIONSHIPS (WRITTEN IN PLAIN ENGLISH)
- --------------------------------------------------------------
The Government and the Contractor agree that:
a. The Contractor will not perform or be paid for any personal services.
b. The Contractor or its employees will notify the Contracting Officer of
any suspected personal services prior to performance.
c. No employer-employee relationships will exist between the Government
and the Contractor or its employees.
(1) A military or civilian Government employee will not appoint, employ,
supervise, direct or evaluate contractor personnel.
(2) Contractor personnel will not:
(a) make Government policy;
(b) command, supervise, direct, or evaluate Government military or
civilian personnel or other contractor personnel; or
(c) be part of a Government organization.
d. The Contractor and/or its employees will not exercise personal
judgment or discretion on behalf of the Government.
e. Contractor employees will act and exercise personal judgment or
discretion only on behalf of the Contractor.
f. The Contractor and its employees entering Picatinny Arsenal will
follow the installation's rules, regulations, directions and other
requirements for good order, security and administration.
MATERIAL INSPECTION AND RECEIVING REPORT (WRITTEN IN PLAIN ENGLISH)
- -------------------------------------------------------------------
Distribute DD Form 250 to the following:
1 each - ARDEC, ATTN: Michael Los, AMSTA-AR-SRC
Building 172
1 each - Contract Admin Office Block 6 of SF30
1 each - Contract Office Block 5 of SF30
4 each - Payment Office As shown in on Page 4 of this modification.
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 10 OF 19
MODIFICATION P00010
MATERIAL SAFETY DATA SHEETS (MSDS) (WRITTEN IN PLAIN ENGLISH)
- -------------------------------------------------------------
1. The contractor shall send the Material Safety Data Sheets (MSDS) prior to
award to the Contracting Officer and a copy with the first delivery of
supplies to Commander, U.S. Army ARDEC, ATTN: SMCAR-SE, Picatinny Arsenal, NJ
07806-5000, required by FAR 52.223-3, Hazardous Material Identification and
Material Safety Data, FAR 52.223-3.
2. We will not accept a delivery of any hazardous chemical/material when:
a. the applicable MSDS is not delivered with the first delivery of the
supplies; and/or
b. the container label on the supplies is inadequate, unreadable,
missing, or does not agree with the accompanying MSDS.
52.252-2 CLAUSES INCORPORATED BY REFERENCE. (JUN 1988)
- ------------------------------------------------------
This contract incorporates one or more clauses by reference, with the same
force and effect as if they were given in full text. Upon request, the
Contracting Officer will make their full text available.
52.202-1 DEFINITIONS OCT 1995
52.203-3 GRATUITIES APR 1984
52.203-5 COVENANT AGAINST CONTINGENT FEES APR 1984
52.203-6 RESTRICTIONS ON SUBCONTRACTOR SALES JUL 1995
TO THE GOVERNMENT
52.203-7 ANTI-KICKBACK PROCEDURES JUL 1995
52.203-8 CANCELLATION, RESCISSION, AND JAN 1997
RECOVERY OF FUNDS FOR ILLEGAL OR
IMPROPER ACTIVITY
52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL JAN 1997
OR IMPROPER ACTIVITY
52.204-4 PRINTING/COPYING DOUBLE-SIDED ON JUN 1996
RECYCLED PAPER
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 11 OF 19
MODIFICATION P00010
52.209-6 PROTECTING THE GOVERNMENT'S JUL 1995
INTEREST WHEN SUBCONTRACTING WITH
CONTRACTORS DEBARRED, SUSPENDED, OR
PROPOSED FOR DEBARMENT
52.211-15 DEFENSE PRIORITY AND ALLOCATION SEP 1990
REQUIREMENTS
52.215-2 AUDIT AND RECORDS--NEGOTIATION AUG 1996
52.215-23 PRICE REDUCTION FOR DEFECTIVE COST OCT 1995
OR PRICING DATA--MODIFICATIONS
52.215-25 SUBCONTRACTOR COST OR PRICING DATA OCT 1995
-MODIFICATIONS
52.215-27 TERMINATION OF DEFINED BENEFIT MAR 1996
PENSION PLANS
52.215-31 WAIVER OF FACILITIES CAPITAL COST SEP 1987
OF MONEY
52.215-33 ORDER OF PRECEDENCE JAN 1986
52.215-39 REVERSION OR ADJUSTMENT OF PLANS MAR 1996
FOR POST-RETIREMENT BENEFITS OTHER
THAN PENSIONS (PRB)
52.215-40 NOTIFICATION OF OWNERSHIP CHANGES FEB 1995
52.219-8 UTILIZATION OF SMALL, SMALL OCT 1995
DISADVANTAGED AND WOMEN-OWNED SMALL
BUSINESS CONCERNS
52.222-3 CONVICT LABOR AUG 1996
52.222-4 CONTRACT WORK HOURS AND SAFETY JUL 1995
STANDARDS ACT--OVERTIME
COMPENSATION
52.222-26 EQUAL OPPORTUNITY APR 1984
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 12 OF 19
MODIFICATION P00010
52.222-28 EQUAL OPPORTUNITY PREAWARD APR 1984
CLEARANCE OF SUBCONTRACTS
52.222-35 AFFIRMATIVE ACTION FOR SPECIAL APR 1984
DISABLED AND VIETNAM ERA VETERANS
52.222-36 AFFIRMATIVE ACTION FOR HANDICAPPED APR 1984
WORKERS
52.222-37 EMPLOYMENT REPORTS ON SPECIAL JAN 1988
DISABLED VETERANS AND VETERANS OF
THE VIETNAM ERA
52.222-41 SERVICE CONTRACT ACT OF 1965, AS MAY 1989
AMENDED
52.222-44 FAIR LABOR STANDARDS ACT AND MAY 1989
SERVICE CONTRACT ACT--PRICE
ADJUSTMENT
52.223-2 CLEAN AIR AND WATER APR 1984
52.223-6 DRUG-FREE WORKPLACE JAN 1997
52.223-14 TOXIC CHEMICAL RELEASE REPORTING OCT 1996
52.225-11 RESTRICTIONS ON CERTAIN FOREIGN OCT 1996
PURCHASES
52.227-1 AUTHORIZATION AND CONSENT JUL 1995
52.227-2 NOTICE AND ASSISTANCE REGARDING AUG 1996
PATENT AND COPYRIGHT INFRINGEMENT
52.229-4 FEDERAL, STATE, AND LOCAL TAXES JAN 1991
(NONCOMPETITIVE CONTRACT)
52.229-5 TAXES--CONTRACTS PERFORMED IN U.S. APR 1984
POSSESSIONS OR PUERTO RICO
52.230-2 COST ACCOUNTING STANDARDS APR 1996
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 13 OF 19
MODIFICATION P00010
52.230-3 DISCLOSURE AND CONSISTENCY OF COST APR 1996
ACCOUNTING PRACTICES
52.232-32 PERFORMANCE-BASED PAYMENTS OCT 1995
52.232-8 DISCOUNTS FOR PROMPT PAYMENT APR 1989
52.232-9 LIMITATION ON WITHHOLDING OF APR 1984
PAYMENTS
52.232-11 EXTRAS APR 1984
52.232-17 INTEREST JUN 1996
52.232-23 ASSIGNMENT OF CLAIMS JAN 1986
--ALTERNATE I (APR 1984)
52.232-25 PROMPT PAYMENT MAR 1994
52.233-1 DISPUTES OCT 1995
52.233-3 PROTEST AFTER AWARD AUG 1996
52.242-13 BANKRUPTCY JUL 1995
52.243-1 CHANGES--FIXED-PRICE AUG 1987
--ALTERNATE I (APR 1984)
52.244-1 SUBCONTRACTS (FIXED-PRICE FEB 1995
CONTRACTS)
52.244-5 COMPETITION IN SUBCONTRACTING DEC 1996
52.246-25 LIMITATION OF LIABILITY--SERVICES FEB 1997
52.249-2 TERMINATION FOR CONVENIENCE OF THE SEP 1996
GOVERNMENT (FIXED-PRICE)
52.249-8 DEFAULT (FIXED-PRICE SUPPLY AND APR 1984
SERVICE)
52.253-1 COMPUTER GENERATED FORMS JAN 1991
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 14 OF 19
MODIFICATION P00010
252.203-7000 STATUTORY PROHIBITIONS ON NOV 1995
COMPENSATION TO FORMER DEPARTMENT
OF DEFENSE EMPLOYEES
252.203-7001 SPECIAL PROHIBITION ON EMPLOYMENT NOV 1995
252.204-7003 CONTROL OF GOVERNMENT PERSONNEL APR 1992
WORK PRODUCT
252.225-7001 BUY AMERICAN ACT AND BALANCE OF JAN 1994
PAYMENTS PROGRAM
252.225-7002 QUALIFYING COUNTRY SOURCES AS DEC 1991
SUBCONTRACTORS
252.231-7000 SUPPLEMENTAL COST PRINCIPLES DEC 1991
252.242-7000 POSTAWARD CONFERENCE DEC 1991
52.215-42 REQUIREMENTS FOR COST OR PRICING DATA OR INFORMATION OTHER THAN
- -------------------------------------------------------------------------
COST OR PRICING DATA--MODIFICATIONS. (JAN 1997)
- -----------------------------------------------
(a) Exceptions from cost or pricing data.
(1) In lieu of submitting cost or pricing data for modifications under this
contract, for price adjustments expected to exceed the threshold set forth at
FAR 15.804-2(a)(1) on the date of the agreement on price or the date of the
award, whichever is later, the Contractor may submit a written request for
exception by submitting the information described in the following
subparagraphs. The Contracting Officer may require additional supporting
information, but only to the extent necessary to determine whether an
exception should be granted, and whether the price is fair and reasonable--
(i) Identification of the law or regulation establishing the price offered.
If the price is controlled under law by periodic rulings, reviews, or similar
actions of a governmental body, attach a copy of the controlling document,
unless it was previously submitted to the contracting office.
(ii) Information on modifications of contracts or subcontracts for commercial
items.
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 15 OF 19
MODIFICATION P00010
(A) If (1) The original contract or subcontract was granted an exception from
cost or pricing data requirements because the price agreed upon was based on
adequate price competition, or prices set by law or regulation, or was a
contract or subcontract for the acquisition of a commercial item, and (2) the
modification (to the contract or subcontract) is not exempted based on one of
these exceptions, then the Contractor may provide information to establish
that the modification would not change the contract or subcontract from a
contract or subcontract for the acquisition of a commercial item to a
contract or subcontract for the acquisition of an item other than a
commercial item.
(B) For a commercial item exception, the Contractor shall provide, at a
minimum, information on prices at which the same item or similar items have
previously been sold that is adequate for evaluating the reasonableness of
the price of the modification. Such information may include:
(1) For catalog items, a copy of or identification of the catalog and its
date, or the appropriate pages for the offered items, or a statement that the
catalog is on file in the buying office to which the proposal is being
submitted. Provide a copy or describe current discount policies and price
lists (published or unpublished), e.g., wholesale, original equipment
manufacturer, or reseller. Also explain the basis of each offered price and
its relationship to the established catalog price, including how the proposed
price relates to the price of recent sales in quantities similar to the
proposed quantities.
(2) For market-price items, the source and date or period of the market
quotation or other basis for market price, the base amount, and the
applicable discounts. In addition, describe the nature of the market.
(3) For items included on an active Supply Service Multiple Award Schedule
contract, proof that an exception has been granted for the schedule.
(2) The Contractor grants the Contracting Officer or an authorized
representative the right to examine, at any time before award, books,
records, documents, or other directly pertinent records to verify any request
for an exception under this clause, and the reasonableness of price. Access
does not extend to cost or profit information or other data relevant solely
to the Contractor's determination of the prices to be offered in the catalog
or marketplace.
(b) Requirements for cost or pricing data. If the Contractor is not granted
an exception from the requirement to submit cost pricing data, the following
applies:
(1) The Contractor shall submit cost or pricing data on standard Form (SF)
1411 Contract Pricing Proposal Cover Sheet (Cost or Pricing Data Required),
with supporting attachments prepared in accordance with Table 15-2 of FAR
15.804-6(b)(2).
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 16 OF 19
MODIFICATION P00010
(2) As soon as practical after agreement on price, but before
award (except for unpriced actions), the Contractor shall submit a Certificate
of Current Cost or Pricing Data, as prescribed by FAR 15.804-4.
I.3 52.223-3 HAZARDOUS MATERIAL IDENTIFICATION AND MATERIAL SAFETY DATA.
--------------------------------------------------------------------
(JAN 1997)
- ----------
(a) "Hazardous material," as used in this clause, includes any material
defined as hazardous under the latest version of Federal Standard No. 313
(including revisions adopted during the term of the contract).
(b) The offeror must list any hazardous material, as defined in paragraph (a)
of this clause, to be delivered under this contract. The hazardous material
shall be properly identified and include any applicable identification
number, such as National Stock Number or Special Item Number. This
information shall also be included on the Material Safety Data Sheet
submitted under this contract.
Material (if none, insert "None")
________________________________________________________________
________________________________________________________________
________________________________________________________________
Identification No.
________________________________________________________________
________________________________________________________________
________________________________________________________________
(c) This list must be updated during the performance of the contract whenever
the Contractor determines that any other material to be delivered under this
contract is hazardous.
(d) The apparently successful offeror agrees to submit, for each item as
required prior to award, a Material Safety Data Sheet, meeting the
requirements of 29 CFR 1910.1200(g) and the latest version of Federal
Standard No. 313, for all hazardous material identified in paragraph (b) of
this clause. Data shall be submitted in accordance with Federal Standard No.
313, whether or not the apparently successful offeror is the actual
manufacturer of these items. Failure to submit the Material Safety Data Sheet
prior to award may result in the apparently successful offeror being
considered non responsible and ineligible for award.
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 17 OF 19
MODIFICATION P00010
(e) If, after award, there is a change in the composition of the item(s) or a
revision to Federal Standard No. 313, which renders incomplete or inaccurate
the data submitted under paragraph (d) of this clause, the Contractor shall
promptly notify the Contracting Officer and resubmit the data.
(f) Neither the requirements of this clause nor any act or failure to act by
the Government shall relieve the Contractor of any responsibility or
liability for the safety of Government, Contractor, or subcontractor
personnel or property.
(g) Nothing contained in this clause shall relieve the Contractor from
complying with applicable Federal, State, or local laws, codes, ordinances,
and regulations (including the obtaining of licenses and permits) in
connection with hazardous material.
(h) The Government's rights in data furnished under this contract with
respect to hazardous material are as follows: (1) To use, duplicate and
disclose any data to which this clause is applicable. The purposes of this
right are to:
(i) Apprise personnel of the hazards to which they may be exposed in using,
handling, packaging, transporting, or disposing of hazardous materials;
(ii) Obtain medical treatment for those affected by the material; and
(iii) Have others use, duplicate, and disclose the data for the Government
for these purposes.
(2) To use, duplicate, and disclose data furnished under this clause, in
accordance with subparagraph (h)(1) of this clause, in precedence over any
other clause of this contract providing for rights in data.
(3) The Government is not precluded from using similar or identical data
acquired from other sources.
52.223-7 NOTICE OF RADIOACTIVE MATERIALS. (JAN 1997)
- ----------------------------------------------------
(a) The Contractor shall notify the Contracting Officer or designee, in
writing, [ ]* days prior to the delivery of, or prior to completion of any
servicing required by this contract of, Items containing either
(1) radioactive material requiring specific licensing under the regulations
issued pursuant to the Atomic Energy Act of 1954, as amended, as set forth in
title 10 of the Code of Federal Regulations, in effect on the date of this
contract; or
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 18 OF 19
MODIFICATION P00010
(2) other radioactive material not requiring specific licensing in which the
specific activity is greater than 0.002 microcuries per gram or the activity
per item equals or exceeds 0.01 microcuries. Such notice shall specify the
part or parts of the items which contain radioactive materials, a description
of the materials, the name and activity of the isotope, the manufacturer of
the materials, and any other information known to the Contractor which will
put users of the items on notice as to the hazards involved (OMB No.
9000-0107).
* The contracting Officer shall insert the number of days required in advance
of delivery of the item or completion of the servicing to assure that
required licenses are obtained and appropriate personnel are notified to
institute any necessary safety and health precautions. See FAR 23.601(d).
(b) If there has been no change affecting the quantity of activity, or the
characteristics and composition of the radioactive material from deliveries
under this contract or prior contracts, the Contractor may request that the
Contracting Officer or designee waive the notice of requirement in paragraph (a)
of this clause. Any such request shall:
(1) Be submitted in writing;
(2) State that the quantity of activity, characteristics, and composition of
the radioactive material have not changed; and
(3) Cite the contract number on which the prior notification was submitted
and the contracting office to which it was submitted.
(c) All items, parts or subassemblies which contain radioactive materials in
which the specific activity is greater than 0.002 microcuries per gram or
activity per item equals or exceeds 0.01 microcuries, and all containers in
which such items, parts or subassemblies are delivered to the Government
shall be clearly marked and labeled as required by the latest version of
MIL-STD 129 in effect on the date of the contract.
(d) This clause, including this paragraph (d), shall be inserted in all
subcontracts for radioactive materials meeting the criteria in paragraph (a) of
this clause.
<PAGE>
CONTINUATION SHEET DAAK10-81-C-0323 PAGE 19 OF 19
MODIFICATION P00010
52.244-6 SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL COMPONENTS.
- ---------------------------------------------------------------------
(OCT 1995)
- ----------
(a) Definition.
Commercial item, as used in this clause, has the meaning contained in the
clause at 52.202-1, Definitions.
Subcontract, as used in this clause, includes a transfer of commercial items
between divisions, subsidiaries, or affiliates of the Contractor or
subcontractor at any tier.
(b) To the maximum extent practicable, the Contractor shall incorporate, and
require its subcontractors at all tiers to incorporate, commercial items or
non developmental items as components of items to be supplied under this
contract.
(c) Notwithstanding any other clause of this contract, the Contractor is not
required to include any FAR provision or clause, other than those listed
below to the extent they are applicable and as may be required to establish
the reasonableness of prices under Part 15, in a subcontract at any tier for
commercial items or commercial components:
(1) 52.222-26, Equal Opportunity (E.O. 11246);
(2) 52.222-35, Affirmative Action for Special Disabled and Vietnam Era
Veterans (38 U.S.C. 4212(a));
(3) 52.222-36, Affirmative Action for Handicapped Workers (29 U.S.C. 793);
and
(4) 52.247-64, Preference for Privately Owned U.S.-Flagged Commercial Vessels
(46 U.S.C. 1241) (flow down not required for subcontracts awarded beginning
May 1, 1996).
(d) The Contractor shall include the terms of this clause, including this
paragraph (d), in subcontracts awarded under this contract.
<PAGE>
U.S. NUCLEAR REGULATORY COMMISSION
MATERIALS LICENSE AMENDMENT NO. 11
Pursuant to the Atomic Energy Act of 1954, as amended, the Energy Reorganization
Act of 1974 (Public Law 93-438), and Tile 10, Code of Federal Regulations,
Chapter 1, Parts 30, 31, 32, 33, 34, 35, 36, 39, 40 and 70, and in reliance on
statements and representations heretofore made by the licensee, a license is
hereby issued authorizing the licensee to receive, acquire, possess, and
transfer byproduct, source, and special nuclear material designated below, to
use such material for the purpose(s) and at the place(s) designated below , to
deliver or transfer such material to persons authorized to receive it in
accordance with the regulations of the applicable Part(s). This license shall be
deemed to contain the conditions specified in Section 183 of the Atomic Energy
Act of 1954, as amended, and is subject to all applicable rules, regulations,
and orders of the Nuclear Regulatory Commission now or hereafter in effect and
to any conditions specified below.
<TABLE>
<CAPTION>
Licensee In accordance with the application
dated April 25, 1989,
<S> <C>
1. Nuclear Metals, Inc. 3. License Number SMB-179 is amended in
its entirety to read as follows:
2. 2229 Main Street
Concord, Massachusetts 01742 4. Expiration Date March 31, 2002
5. Docket or Reference No. 040-00672
</TABLE>
<TABLE>
<CAPTION>
6. Byproduct, Source, and/or 7. Chemical and/or Physical 8. Maximum Amount that Licensee
Special Nuclear Material Form May Possess at Any One Time
Under This License
<S> <C> <C>
A. Uranium A. Depleted uranium, any A. 5,000,000 kilograms
form except hexafluoride
B. Uranium B. Natural uranium, any B. 100,000 kilograms
form except
hexafluoride
C. Thorium C. Natural thorium metal, C. 25,000 kilograms
alloy, or oxide
D. Uranium D. Depleted uranium metal D. 100 kilograms
E. Americium 241 E. Analytical Samples E. 12 nanocuries
F. Curium 242 F. Analytical Samples F. 12 nanocuries
G. Curium 244 G. Analytical Samples G. 12 nanocuries
H. Plutonium 239 H. Analytical Samples H. 12 nanocuries
</TABLE>
9. Authorized use
A. Manufacture or research and development of metallic products in forms
such as derbies, castings, extrusions, machined or formed parts; metal
powders, consolidated powder
<PAGE>
compacts or uranium salts. Distribution of these products to persons
authorized to receive licensed material pursuant to the terms and
conditions of a specific license issued by the U.S. Nuclear Regulatory
Commission or any Agreement State or by the general license contained
in 10 CFR 40.22 or equivalent regulations of any Agreement State.
Distribution of counterweights containing source material pursuant to
10 CFR 40.13(c)(5).
B. through D. Manufacture or research and development of
metallic products in forms such as derbies, castings,
extrusions, machined or formed parts; metal powders,
consolidated powder compacts or uranium salts. Distribution of
these products to persons authorized to receive licensed
material pursuant to the terms and conditions of a specific
license issued by the U.S. Nuclear Regulatory Commission or
any Agreement State or by the general license contained in 10
CFR 40.22 or equivalent regulations of any Agreement State.
E. through H. Analysis of samples and calibration of analytical instruments.
<PAGE>
U.S. NUCLEAR REGULATORY COMMISSION
MATERIALS LICENSE
SUPPLEMENTARY SHEET
CONDITIONS
10. A. Licensed material may be used only at the licensee's
facilities located at 2229 Main Street, Concord,
Massachusetts.
B. Licensed material authorized in Subitem 6.D. may be used at
the licensee's facilities located at 2229 Main Street,
Concord, Massachusetts, and at temporary job sites of the
licensee anywhere in the United States where the U.S. Nuclear
Regulatory Commission maintains jurisdiction for regulating
the use of licensed material.
11. A. Licensed material shall be used by or under the supervision
of individuals who have completed the training described in
application dated September 6, 1996, and have been designated
in writing by the Radiation Safety Officer.
B. The Radiation Safety Officer for this license is Frank J.
Vumbaco.
12. Licensed material shall not be used in or on human beings.
13. This license does not authorize the commercial distribution of
generally licensed material pursuant to 10 CFR 40.25.
14. The licensee shall not acquire licensed material in a sealed source or
device unless the source or device has been registered with the U.S.
Nuclear Regulatory Commission pursuant to 10 CFR 32.210 or equivalent
regulations of an Agreement State.
15. The licensee is authorized to transport licensed material in accordance
with the provisions of 10 CFR Part 71, "Packaging and Transportation of
Radioactive Material."
16. Except as specifically provided otherwise in this license, the licensee
shall conduct its program in accordance with the statements,
representations, and procedures contained in the documents, including
any enclosures, listed below. The Nuclear Regulatory Commission's
regulations shall govern unless the statements, representations, and
procedures in the licensee's application and correspondence are more
restrictive than the regulations.
<PAGE>
A. Application dated September 6, 1996
B. Letter dated January 17, 1997
Subject: "Miscellaneous Information Regarding Site/Facility
Potential Inventories"
For the U.S. Nuclear Regulatory Commission
Date: By:
---------------------- --------------------------------------------
Division of Nuclear Materials Safety
Region I
King of Prussia, Pennsylvania 19406
<PAGE>
U.S. NUCLEAR REGULATORY COMMISSION
MATERIALS LICENSE AMENDMENT NO. 03
Pursuant to the Atomic Energy Act of 1954, as amended, the Energy Reorganization
Act of 1974 (Public Law 93-438), and Tile 10, Code of Federal Regulations,
Chapter 1, Parts 30, 31, 32, 33, 34, 35, 36, 39, 40 and 70, and in reliance on
statements and representations heretofore made by the licensee, a license is
hereby issued authorizing the licensee to receive, acquire, possess, and
transfer byproduct, source, and special nuclear material designated below, to
use such material for the purpose(s) and at the place(s) designated below , to
deliver or transfer such material to persons authorized to receive it in
accordance with the regulations of the applicable Part(s). This license shall be
deemed to contain the conditions specified in Section 183 of the Atomic Energy
Act of 1954, as amended, and is subject to all applicable rules, regulations,
and orders of the Nuclear Regulatory Commission now or hereafter in effect and
to any conditions specified below.
<TABLE>
<CAPTION>
Licensee In accordance with the application
dated February 26, 1990,
<S> <C>
1. Nuclear Metals, Inc. 3. License Number SUB-1452 is amended in
its entirety to read as follows:
2. 2229 Main Street
Concord, Massachusetts 01742 4. Expiration Date March 31, 2002
5. Docket or Reference No. 040-08866
</TABLE>
<TABLE>
<CAPTION>
6. Byproduct, Source, and/or 7. Chemical and/or Physical 8. Maximum Amount that Licensee
Special Nuclear Material Form May Possess at Any One Time
Under This License
<S> <C> <C>
A. Uranium A. Depleted uranium, as A. 1,000 kilograms
contamination in sand
B. Uranium B. Depleted uranium, as B. 99,000 kilograms
contamination on
metallic components,
packaging materials,
equipment or as waste
solids
C. Thorium C. Natural thorium, as C. 10,000 kilograms
contamination on
metallic components,
packaging materials,
equipment or as waste
metals
</TABLE>
9. Authorized use
A. through C. For receipt and possession incident to waste processing,
decontamination, and/or repackaging;
and for transfer to an authorized recipient.
<PAGE>
CONDITIONS
10. Licensed material may be used only at the licensee's facilities
located at 2229 Main Street, Concord, Massachusetts.
11. A. Licensed material shall be used by or under the supervision
of individuals who have completed the training described in
application dated September 6, 1996, and have been designated
in writing by the Radiation Safety Officer.
B. the Radiation Safety Officer for this license is Frank J. Vumbaco.
12. Licensed material shall not be used in or on human beings.
13. This license does not authorize the commercial distribution of licensed
material.
<PAGE>
MATERIALS LICENSE
SUPPLEMENTARY SHEET
14. The licensee is authorized to transport licensed material in accordance
with the provisions of 10 CFR Part 71, "Packaging and Transportation of
Radioactive Material."
15. Except as specifically provided otherwise in this license, the license
shall conduct its program in accordance with the statements,
representations, and procedures contained in the documents, including
any enclosures, listed below. The Nuclear Regulatory Commission's
regulations shall govern unless the statements, representations, and
procedures in the licensee's application and correspondence are more
restrictive than the regulations.
A. Application dated September 6, 1996
B. Letter dated January 17, 1997
Subject: "Miscellaneous Information Regarding Site/Facility
Potential Inventories"
For the U.S. Nuclear Regulatory Commission
Date: By:
-------------------------- ---------------------------------------
Division of Nuclear Materials Safety
Region I
King of Prussia, Pennsylvania 19406
<PAGE>
ACORD. CERTIFICATE OF INSURANCE
Producer THIS CERTIFICATE IS ISSUED AS A MATTER OF
SHERKAT INSURANCE, INC. INFORMATION ONLY AND CONFERS NO RIGHTS
7001 SOUTH 900 EAST, SUITE 230 UPON THE CERTIFICATE HOLDER. THIS
MIDVALE, UT 84047 CERTIFICATE DOES NOT AMEND, EXTEND OR
ALTER THE COVERAGE AFFORDED BY THE
POLICIES BELOW.
COMPANIES AFFORDING COVERAGE
COMPANY
LETTER A American International Group
Commerce and Industry
COMPANY
LETTER B
ENVIROCARE OF UTAH COMPANY
and ZHAGRUS ENVIRONMENTAL LETTER C
46 WEST BROADWAY, SUITE 240
SALT LAKE CITY UT 84101 COMPANY
LETTER D
COMPANY
LETTER E
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO
WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY
THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
<TABLE>
<CAPTION>
POLICY POLICY
OO TYPE OF INSURANCE POLICY NUMBER EFFECTIVE EXPIRA
LTR DATE -TION LIMITS
(MM/DD/YY) DATE
- ----- ----------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
GENERAL LIABILITY General
Aggregate $*
A XX Commercial General GLCM 11/01/96 11/01/97 Products
Liability 3408144 ____ Agg. $*
Claims Made Occur Personal & Adv.
Injury $*
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Owner's & Contract Each Occurrence $*
____ Prot.
Automobile Liability __ Damage (any $*
one fire)
All Owned Autos Med. Expense $*
(any one person)
Scheduled Autos Combined Single
Limit $
Hired Autos Bodily Injury $
(per accident)
Non-Owned Autos Property Damage $
Garage Liability
Excess Liability Each Occurrence $
Umbrella Form Aggregate $
Other than Umbrella
Form
Worker's Compensation STATUTORY LIMITS
and Each Accident $
Employers' Liability Decrease - Policy
Limit $
Decrease - Each
Employee $
Other Per Occurrence *
A POLLUTION Aggregate *
LEGAL LIABILITY 5290219 11/01/96 11/01/97 Deductible *
Description of
Operations
CERTIFICATE CANCELLATION
HOLDER
</TABLE>
ATTENTION: MICHAEL L. DUQUETTE SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE
NUCLEAR METALS, INC. CANCELLED BEFORE THE EXPIRATION DATE THEREOF,
2229 MAIN STREET THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 10
CONCORD, MA 01742 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER
NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH
NOTICE SHALL IMPOSE NO OBLIGATION OR
LIABILITY OF ANY KIND UPON THE COMPANY,
ITS AGENTS OR REPRESENTATIVES.
AUTHORIZED REPRESENTATIVE:
HASSAN A. SHERKAT, LUTCF
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1998
<CASH> 320,000
<SECURITIES> 0
<RECEIVABLES> 8,164,000
<ALLOWANCES> 421,000
<INVENTORY> 11,485,000
<CURRENT-ASSETS> 19,809,000
<PP&E> 41,432,000
<DEPRECIATION> 24,860,000
<TOTAL-ASSETS> 38,540,000
<CURRENT-LIABILITIES> 11,531,000
<BONDS> 0
0
0
<COMMON> 479,000
<OTHER-SE> 24,679,000
<TOTAL-LIABILITY-AND-EQUITY> 38,540,000
<SALES> 18,769,000
<TOTAL-REVENUES> 18,769,000
<CGS> 14,526,000
<TOTAL-COSTS> 19,568,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 489,000
<INCOME-PRETAX> 1,288,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,288,000
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
<PAGE>
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Forward-looking statements made by or on behalf of the Company
represent the Company's reasonable judgement on the future and are subject to
risks and uncertainties. Actual results may differ materially from those
projected in the forward-looking statements. Such risks and uncertainties
include, among others:
History of Losses; Risk of Future Losses
The Company has experienced significant financial difficulties and
liquidity problems in recent years due primarily to the sharp decline in sales
of depleted uranium ("DU") penetrators and a lack of orders for certain other DU
products. As a result, the Company has had to seek financing from stockholders,
waivers of non-compliance with certain covenants in its debt instruments
(including a waiver under its current bank line of credit in February 1998) and
additional borrowings under its current bank line of credit. Historically, a
substantial portion of the Company's revenues have been derived from the sale of
products for defense munitions and tank armor programs; however, revenues from
these applications have declined sharply in recent years due primarily to the
general decline in defense spending. In fiscal 1997, the Company derived 37% of
its revenues from the sale of products for defense munitions and tank armor. The
Company expects that no revenues will be derived from sales of penetrator
defense munitions after the second quarter of fiscal 1999, and only limited
revenue will be derived from sales of billets for conversion into tank armor
thereafter. The Company incurred operating losses in four of its last five
fiscal years and during the first quarter of fiscal 1998. In addition, the
Company's accountants, in their report to the Board of Directors and
stockholders of the Company for fiscal 1995, stated that there was substantial
doubt at that time about the Company's ability to continue as a going concern.
Although the Company was profitable in fiscal 1997, reserve reversals and other
non-recurring income items accounted for the profitability. Excluding these
items, the Company would have reported a net loss in fiscal 1997. There can be
no assurance that the Company will not incur losses in fiscal 1998 or in
subsequent fiscal periods.
The Company expects to expend substantial resources on commercial
growth opportunities, in many cases before it can be certain of market
acceptance of its current and planned products and services. The Company's
ability to realize the objectives of its business strategy and to achieve its
plans for commercial growth and profitability are subject to a number of
business, industry, economic and other factors, many of which are beyond the
control of the Company, such as the Company's ability to successfully market its
products and services, particularly in new applications for its materials and
technologies, the Company's ability to manage planned expansion and large-scale
commercial production of new products, customer demand, competition in the
industries which the Company serves and general economic conditions. The failure
of the Company to realize the objectives of its business strategy, in
particular, the full-scale commercialization of Beralcast disk drive arm sets,
would have a material adverse effect on the Company's business, financial
condition and results of operations. Ongoing losses would hinder the Company's
ability to respond effectively to market conditions, to make capital
expenditures and to take advantage of business
1
<PAGE>
opportunities, the failure to perform any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Pending Beralcast Patent Litigation
On December 9, 1997, Brush Wellman, Inc. ("Brush Wellman") filed a
patent infringement suit against the Company in the United States District Court
for the District of Massachusetts (the "Massachusetts District Court") alleging
that the Company is infringing on a process patent (the "Brush Wellman Patent")
awarded to Brush Wellman for the investment casting of beryllium aluminum
alloys. Brush Wellman is seeking an injunction against the Company's alleged
patent infringement, monetary damages (including treble damages) and attorney
fees. On March 28, 1998 the U.S. Patent and Trademark Office (the "PTO") granted
the Company's request (filed January 22, 1998) for re-examination (the
"Request") of the Brush Wellman Patent. In the Request, the Company contended,
among other things, that there was sufficient "prior art" in the field of
investment castings and castings of beryllium aluminum alloys such that the
Brush Wellman Patent should not have been issued. In granting the Request, the
patent examiner agreed that the Company's cited examples of prior art raised
substantial new issues of patentability which were not decided in the prior
examination which led to granting the Brush Wellman Patent. The PTO will
undertake a process of re-examination of the validity of the Brush Wellman
Patent that, the Company anticipates, could last for an extended period. There
can be no assurance that the PTO will find the Brush Wellman Patent to be
invalid. On January 27, 1998, the Company filed in the Massachusetts District
Court a motion to stay the court case pending the outcome of the re-examination
proceeding. If the Massachusetts District Court were to grant the motion to
stay, the court case would not proceed until the conclusion of the PTO's
re-examination of the Brush Wellman Patent. Although the Company believes that
its motion to stay has merit, no assurance can be given that the Massachusetts
District Court will grant the motion.
Even though the Company has been advised by patent counsel that Brush
Wellman's claims are without merit because the Brush Wellman Patent is invalid
as a matter of law due to "prior art" and due to the Company's sales of
investment cast beryllium aluminum products more than one year prior to the
Brush Wellman Patent application, no assurance can be given as to the ultimate
outcome of the lawsuit. Even if the lawsuit were not to proceed to trial, the
litigation could result in substantial costs to the Company, and an unfavorable
settlement of the lawsuit could place the Company at a competitive disadvantage.
An adverse judgment or settlement could subject the Company to significant
liabilities and expenses (e.g., reasonable royalties, lost profits, attorneys'
fees and trebling of damages for willfulness). An adverse outcome also could
cause the Company to incur substantial costs in redesigning the investment
casting process for its Beralcast products and components. Moreover, there can
be no assurance that redesign alternatives would be available to the Company,
and if available, that any redesign alternative would not place the Company at a
competitive disadvantage. The Company could be required to license the disputed
patent rights from Brush Wellman or to cease using the patented technology. Any
such license, if required, may not be available on terms acceptable or favorable
to the Company, or at all. Any of these results could have a
2
<PAGE>
material adverse effect on the Company's business, financial condition and
results of operations. Even in the event of a successful outcome, the Company
may incur significant legal expenses in its defense.
Patents and Other Intellectual Property
The Company's success depends in substantial part on its proprietary
technology, in particular, Beralcast, the Company's family of beryllium aluminum
alloys. Although the Company protects and intends to continue to protect its
intellectual property rights through patents, copyrights, trade secrets, license
agreements and other measures, there can be no assurance that the Company will
be able to protect its technology adequately or that competitors will not be
able to develop similar technology independently. In addition, the laws of
certain foreign countries in which the Company's products may be licensed do not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States. If the Company were unable to maintain
the proprietary nature of its intellectual property with respect to its
significant current or proposed products, the Company's business, financial
condition and results of operation could be materially adversely affected. There
can be no assurance that the Company will be able to obtain patent protection
for products or processes discovered using the Company's technologies.
Furthermore, there can be no assurance that any patents issued to the Company
will not be challenged, invalidated, narrowed or circumvented, or that the
rights granted thereunder will provide significant proprietary protection or
competitive advantages to the Company. Although the Company believes that its
products, patents and other proprietary rights do not infringe upon the
proprietary rights of third parties, as discussed above, the Company has been
sued by Brush Wellman with respect to the process of investment casting of
beryllium aluminum alloys, and there can be no assurance that other third
parties will not assert other infringement claims against the Company.
Competition
The Company faces significant competition from established companies
in certain of its product lines. In addition, the Company's Beralcast alloys
and other products face competition from alternative or competing materials,
products and technologies, some of which are better established than those of
the Company. Many of the Company's current and potential competitors have
significantly greater financial, technical, marketing, purchasing and other
resources than the Company, and, as a result, may be able to respond more
quickly to new or emerging technologies or standards and to changes in
customer requirements, devote greater resources to the development, promotion
and sale of products, or deliver competitive products at lower prices.
Current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the ability of their products to address the needs of the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Increased competition is likely to result
3
<PAGE>
in price reductions, reduced operating margins and loss of market share, any of
which could have a material adverse effect on the Company's business, results of
operation and financial condition. Although the Company believes that it has
certain technological and other advantages over its competitors, realizing and
maintaining these advantages will require continued investment in manufacturing
capacity, research and development, sales and marketing, and customer service
and support. There can be no assurance that the Company will have sufficient
resources to continue to make such investments or that the Company will be
successful in maintaining such advantages. The Company believes that its ability
to compete successfully depends on a number of factors both within and outside
of its control, including price, product quality, success in developing and
introducing new products, and general market and economic conditions. There can
be no assurance that the Company will be able to compete as to these or other
factors or that competitive pressures faced by the Company will not materially
adversely affect its business, results of operation and financial condition.
Risks Related to New Product Introductions, Rapid Technological Change and
Industry Conditions
The success of new product introductions is dependent on several
factors, including timely completion and introduction of new products, quality
of new products, market acceptance and timeliness of market acceptance,
production efficiency, costs, competition, the availability of substitute
products and customer service. Although the Company attempts to determine the
specific needs of new markets, there can be no assurance that the identified
markets will in fact materialize or that the Company's products designed for
these markets will achieve any significant degree of market acceptance or that
any such acceptance will be sustained for any significant period. In particular,
the Company's Beralcast materials, which are central to its strategy, are
generally more expensive than other materials currently employed in the markets
in which the Company intends to compete. There can be no assurance that the
performance characteristics of Beralcast alloys will outweigh the greater
expense of Beralcast compared to competing materials. The Company's Beralcast
products and components currently are in the development stage and have not been
brought to market, and there can be no assurance that significant commercial
business will develop as anticipated by the Company or that these products will
gain acceptance in commercial markets. While the Company believes that there are
additional commercial applications for its Beralcast alloys, there can be no
assurances that any of its products or services will be successful or produce
revenue for the Company. Failure of new products to achieve or sustain market
acceptance could have a material adverse effect on the Company's business,
results of operation and financial condition. New product introductions will
also require substantial expenditures, and there can be no assurance that
constraints on the Company's financial resources will not adversely affect its
ability to develop and market new products. In addition, the anticipated
commercial markets for the Company's principal new products are characterized by
rapid technological change, changing customer needs, frequent new product
introduction, evolving industry standards and short product lifecycles. Failure
to successfully
4
<PAGE>
keep pace with technological developments could have a material
adverse effect on the Company's business, results of operation and financial
condition.
The Company plans to focus its efforts on sales of its specialty metal
products to the commercial markets and military aerospace industries. The
Company currently is developing, among other things, prototypes and
pre-production quantities of disk drive arm sets, prototype parts for military
and commercial aerospace applications and prototypes of premium golf club
products. The market for computer storage devices historically has grown rapidly
but at varying rates, and there can be no assurance that this market will
continue to grow at historical rates. The markets for aerospace products and
sporting goods have fluctuated historically. There can be no assurance that
factors relative to general economic conditions or particular industries will
not materially adversely affect orders for the Company's products. While certain
disk drive manufacturers have provided estimates of future demand, industry
practice generally is to place only short-term orders, accompanied by
projections of demand for future operations. Accordingly, the Company expects to
commit to the cost of expanding its production capacity without firm orders for
products. Failure of markets for the Company's products to develop, cancellation
of orders or deferrals of scheduled delivery dates all could materially
adversely affect the Company's business, results of operation and financial
condition.
Availability and Cost of Beryllium and Other Raw Materials
Raw materials used by the Company include a number of metals and
minerals used to produce the alloys included in its products and castings,
including beryllium, titanium, aluminum, nickel, cobalt, chromium and
molybdenum, among others. Prices of these materials can be volatile due to a
number of factors beyond the control of the Company, including domestic and
international economic conditions and competition. This volatility could
significantly affect the availability and prices of raw materials used by the
Company. There can be no assurance that the Company will be able to pass price
fluctuations through to customers, and price moves may adversely affect sales,
operating margins and net income. Depending upon certain market conditions, the
Company may engage in forward purchases of some of these materials. However, the
Company ordinarily does not attempt to hedge the price risk of its raw materials
and has no long-term, fixed price contracts or arrangements for the raw
materials it purchases. Commercial deposits of certain metals, such as
beryllium, cobalt, nickel, titanium, chromium and molybdenum, that are required
for the alloys used in the Company's precision castings and specialty metal
powders, are found in only a few parts of the world. The availability and prices
of these metals may be influenced by private or governmental cartels, changes in
world politics, unstable governments in exporting nations and inflation. In
particular, the Company currently purchases beryllium, a metal which is used to
form its Beralcast alloys, principally from a producer-supplier located in
Kazakhstan and from multiple distributors located in Estonia, Kazakhstan,
Sweden, the United States, China and Russia. The Company also purchases scrap
beryllium from domestic and foreign distributors. The only three producers of
beryllium worldwide are located in Kazakhstan, the United States and China. For
competitive reasons, the Company does not procure significant
5
<PAGE>
quantities of beryllium raw materials from Brush Wellman, the sole U.S. producer
of beryllium, which is the Company's principal competitor for beryllium aluminum
products and the plaintiff in the pending patent lawsuit. The Company believes
that a sufficient supply of beryllium remains available for its current demand.
However, if its Beralcast products receive broad commercial acceptance, the
Company's demand for beryllium will increase. The cost of beryllium could
increase as a result of the Company's increased demand, and supplies of
beryllium could also be affected. Although the Company has not experienced
shortages of raw materials in the past, there can be no assurance that such
shortages will not occur in the future. Any substantial increase in raw material
prices or a continued interruption in supply of raw materials, in particular of
beryllium from the Company's producer-supplier located in Kazakhstan, could have
a material adverse effect on the Company's business, results of operation and
financial condition.
Environmental, Health and Regulatory Matters
The Company is subject to comprehensive and changing federal, state,
local and international laws, regulations and ordinances (together,
"Environmental Laws") that (i) govern activities or operations that may have
adverse environmental effects, such as discharges to air and water, as well as
handling and disposal practices for solid and hazardous wastes, and (ii) impose
liability for the costs of cleaning up, and certain damages resulting from,
sites of past spills, disposals or other releases of hazardous substances and
materials, including liability under the Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("CERCLA," the federal "Superfund"
statute), and similar state statutes for the investigation and remediation of
environmental contamination at properties owned and/or operated by it and at
off-site locations where it has arranged for the disposal of hazardous
substances. Furthermore, depleted uranium, a material regularly processed by the
Company, is a low-level radioactive material, and the Company is subject to
governmental licensing and regulation.
If it is determined that the Company is not in compliance with current
Environmental Laws, the Company could be subject to fines and penalties. The
amount of any such fines and penalties could be material. In addition, the
Company uses depleted uranium, beryllium and other hazardous substances, and as
is the case with manufacturers in general, if a release of hazardous substances
occurs on or from the Company's properties or from an off-site disposal
facility, the Company may be held liable and may be required to pay the cost of
remedying the condition. The amount of any such liability could be material.
The Company has made, and expects to continue to make, expenditures to
comply with current and future Environmental Laws. The Company anticipates that
it could incur additional capital and operating costs in the future to comply
with existing Environmental Laws and new requirements arising from new or
amended statutes and regulations. In addition, because the applicable regulatory
agencies have not yet promulgated final standards for some existing
environmental programs, the Company cannot at this time reasonably estimate the
cost for compliance with these additional requirements. The amount of any such
6
<PAGE>
compliance costs could be material. The Company cannot predict the impact that
future regulations will impose upon the Company's business. The Company is
currently remediating the holding basin site at its Concord facility and may
incur costs in excess of its fixed price contract with the United States Army
for remediation of the holding basin. The Company believes that any additional
remediation costs would not be material in part because the United States Army
has agreed to recognize additional costs to remediate the holding basin as
allowable and recoverable costs through the Company's overhead structure on
government contracts.
DU and beryllium, materials regularly processed by the Company, have
characteristics considered to be health or safety hazards by various federal,
state and local regulatory agencies. The processing of these materials requires
a high level of safety consciousness, personnel monitoring devices and special
equipment. DU in a 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. Airborne beryllium in respirable
form, such as powder, dusts or mists generated in some manufacturing processes
can represent a hazard to the lungs in certain susceptible individuals.
Processing this material requires use of extensive ventilation and dust
collecting systems. All of these operations are performed under strict
environmental and health safety controls consistent with the Occupational Safety
and Health Administration ("OSHA") and the Environmental Protection Agency
("EPA") regulations for pure beryllium. There can be no assurance that the
Company will be able to control all health and safety problems. The Company may
be held liable and may be required to pay the costs of remedying any such
problems. The amount of any such liability and costs could be material.
Dependence on Sales to Public Sector and Government Contractors
The Company derives, and plans to continue to derive, substantial
revenues from public sector customers or contractors for such customers,
including the United States military. There are significant risks inherent in
sales to such customers which may cause material fluctuations in the Company's
operating results. For each contract with a public sector customer, the Company
typically is subject to a protracted procurement process which includes sealed
competitive bids, systems demonstrations and the integration of Company and
third-party products. The process also can include political influences, award
protests initiated by unsuccessful bidders and changes in budgets or
appropriations which are beyond the Company's control. Contracts of public
sector customers typically are subject to procurement policies which may be
onerous and may include profit limitations and rights on the part of the
government to terminate for convenience. Sales to the United States Department
of Defense (the "DOD") are subject to a number of significant uncertainties,
including timing and availability of funding, unforeseen changes in the timing
and quantity of government orders and the competitive nature of government
contracting generally. Furthermore, the DOD has been reducing total
expenditures, and there can be no assurance that funding will not be reduced in
the future. A significant loss of sales to the U.S.
7
<PAGE>
government or contractors for the U.S. government could have a material adverse
effect on the Company's business, results of operation and financial condition.
The Company is directly and indirectly subject to various rules,
regulations and orders applicable to government contractors. Violation of
applicable government rules and regulations could result in civil liability, in
cancellation or suspension of existing contracts or in ineligibility for future
contracts or subcontracts funded in whole or in part with federal funds.
Similarly, changes in the regulations or other requirements relating to parts
manufactured by the Company could materially adversely effect the Company.
Concentration of Customers
A substantial portion of the Company's business currently is conducted
with a relatively small number of large customers. The Company's ten largest
customers accounted for approximately 78% and 83% of the Company's net sales in
the fiscal years ended September 30, 1997 and September 30, 1996, respectively.
While the Company's planned expansion into new commercial markets may result in
a substantial portion of its revenues being derived from new customers, the
dominance of a few companies in certain of these targeted markets is likely to
continue to result in a substantial portion of the Company's revenues being
derived from a small number of significant customers. The loss of one of its key
customers or any significant portion of orders from any such customers could
have a material adverse effect on the Company's business, results of operation
and financial condition. In addition, the Company also could be materially
adversely affected by any substantial work stoppage or interruption of
production at any of its major customers or if one or more of its key customers
were to reduce or cease conducting operations.
Uncertainties Relating to USEC and UF6 Conversion
United States Enrichment Corporation ("USEC"), a government-owned
global energy company created by the U.S. Congress in 1992 to operate the U.S.
Department of Energy's (DoE") uranium enrichment program, is the only customer
for the Company's AVLIS feedstock material. USEC is in the process of
privatizing, and the Company is unable to predict the impact of the
privatization process and resulting change of ownership on the Company's
business. There can be no assurance that USEC, or any successor to USEC as a
result of privatization or otherwise, will not abandon the AVLIS program or
reduce resources directed to the program or that the Company will continue to
receive contracts from USEC. In addition, USEC's privatization process may delay
the awarding of contracts to the Company. There can be no assurance that USEC,
or any successor to as a result of privatization or otherwise, will provide the
Company with business which is sufficient to sustain the profitability of the
Company's South Carolina facility. Failure of the Company to be awarded such
contracts could have a material adverse effect on the Company's business,
results of operation and financial condition. Furthermore, following
privatization, USEC will own all the new depleted uranium hexaflouride ("UF6")
produced by its enrichment plants and will not be allowed to store depleted UF6
as has been done by DoE, thereby necessitating that
8
<PAGE>
USEC develop a method for disposing of depleted UF6. The Company also intends to
pursue opportunities with DoE for the conversion of its depleted UF6 stockpile.
Although the Company owns and operates the only production facility in North
America capable of converting natural UF6 into uranium tetraflouride ("UF4"),
there can be no assurance that USEC or DoE will award contracts to the Company
for the conversion of depleted UF6.
Dependence on Key Personnel
The Company's performance depends to a significant extent upon a number
of senior management and technical personnel. The loss of the services of one or
more key employees could have a material adverse effect on the Company. The
Company does not maintain key person life insurance on any of its employees. The
Company's future financial results will depend in large part on its ability to
continue to attract and retain highly skilled, technical, managerial and
marketing personnel and the ability of its officers and key employees to manage
growth successfully, to implement appropriate management information systems and
controls, and to continue successful development of new products and services
and enhancements to existing products and services. Competition for such
personnel is intense and there can be no assurance that the Company will
continue to be successful in attracting and retaining the personnel required to
successfully develop new and enhanced products.
Risk of Business Interruption
The Company's specialty metal products (including Beralcast) business
is concentrated at its Concord facility and its advanced recycling technologies
and uranium services business is concentrated at its South Carolina facility.
Any prolonged disruption at any of the Company's production facilities due to
equipment failure, destruction of or material damage to such facility, labor
difficulties, or other reasons, could have a material adverse effect on the
Company's business, results of operations and financial condition. Although the
Company maintains property and business interruption insurance to protect
against any such disruptions (other than for labor-related disruptions), there
can be no assurance that the proceeds from such insurance would be adequate to
compensate the Company for losses, including the loss of customers, incurred
during the period of any such disruption or thereafter.
Year 2000 Compliance
The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's computer systems and applications will function
properly beyond 1999. The Company believes that adequate resources have been
allocated for this purpose and expects the Company's Year 2000 date conversion
programs to be completed on a timely basis. The Company does not expect to incur
significant expenditures to address this issue. However, there can be no
assurance that the Company will identify all Year 2000 problems in its computer
and other systems in advance of their occurrence or that the Company will be
able to successfully remedy any problems that are discovered. The expenses of
the Company's efforts to address such problems, could have a material adverse
effect on the
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Company's business, results of operations and financial condition. In addition,
the revenue stream and financial stability of existing customers may be
adversely impacted by Year 2000 problems, which could cause fluctuations in the
Company's revenues and operating profitability.
Effects of Massachusetts Control Share Acquisition Act
The Company is subject to Chapter 110D of the Massachusetts General
Laws which governs "control share acquisitions," which are certain acquisitions
of beneficial ownership of shares which raise the voting power of the acquiring
person (which can be a group of persons or entities sharing beneficial
ownership) above any one of three thresholds: one-fifth, one-third or one-half
of the total voting power. Each time one of these thresholds is crossed, all
shares acquired by the person making the control share acquisition within the
period beginning 90 days before and ending 90 days after such threshold is
crossed ("Affected Shares") obtain voting rights only (i) upon authorization by
a majority of the stockholders other than the holder of the Affected Shares,
officers of the Company and directors of the Company who also are employees of
the Company or (ii) when disposed of in non-control share acquisitions. Chapter
110D may have the effect of delaying or preventing a change of control of the
Company at a premium price. In addition, because the number of shares of Common
Stock currently entitled to vote is substantially less than the total number of
outstanding shares of Common Stock, holders of shares of Common Stock purchased
in transactions which are not control share acquisitions, and which occur at a
time when there are Affected Shares outstanding, will obtain voting rights which
are disproportionate to the number of shares held as a percentage of all
outstanding shares (including Affected Shares), which may facilitate the
acquisition of shareholding which may permit the exercise of a controlling
influence on the management or policies of the Company.
