<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 June 30, 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)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 August 11, 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 June 30, 1998
<TABLE>
<CAPTION>
INDEX
-----
Page
----
<S> <C>
Part I. Financial Information 2
Item 1. Financial Statements
Consolidated Balance Sheets:
September 30, 1997 and June 30, 1998 3
Consolidated Statements of Operations:
Three Months and Nine Months Ended June 30, 1997
and June 30, 1998 4
Consolidated Statements of Cash Flow:
Nine Months Ended June 30, 1997
and June 30, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information 21
Item 1. Legal Proceedings 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE>
STARMET CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1998
------------- -----------
(as restated) (unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ...................... $ 195,000 $ 457,000
Restricted cash ................................ 73,000 73,000
Accounts receivable, net of allowances
for doubtful accounts of $421,000 as of
September 30, 1997 and $421,000 as of
June 30, 1998 .............................. 5,546,000 7,048,000
Inventories .................................... 5,239,000 5,833,000
Other current assets ........................... 619,000 726,000
----------- -----------
Total current assets ....................... 11,672,000 14,137,000
----------- -----------
Property, plant and equipment: ................. 39,083,000 42,304,000
Less: accumulated depreciation ............. 24,036,000 25,196,000
----------- -----------
Net property, plant and equipment .......... 15,047,000 17,108,000
----------- -----------
Non-current inventory .......................... 5,851,000 5,851,000
Other assets ................................... 1,784,000 2,173,000
----------- -----------
$34,354,000 $39,269,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations and
notes payable to stockholders ................ $ 1,885,000 7,072,000
Accounts payable and accrued expenses......... 5,245,000 7,830,000
----------- -----------
Total current liabilities .................. 7,130,000 14,902,000
----------- -----------
Long-term obligations .......................... 430,000 1,081,000
----------- -----------
Notes payable to stockholders .................. 1,048,000 1,228,000
----------- -----------
Commitments and Contingencies (Note 5)
Stockholders' equity:
Common stock, par value $0.10; authorized-
15,000,000 shares; 4,784,244 issued and
outstanding at September 30, 1997 and
4,790,674 issued and outstanding at
June 30, 1998................................. 478,000 479,000
Additional paid-in capital.................... 14,033,000 14,067,000
Warrants issued............................... 360,000 687,000
Retained earnings............................. 10,875,000 6,825,000
----------- -----------
Total stockholders' equity................ 25,746,000 22,058,000
----------- -----------
$34,354,000 $39,269,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
STARMET CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
(as restated) (as restated)
<S> <C> <C> <C> <C>
Net sales and contract revenues .................. $ 7,013,000 $ 7,429,000 $19,627,000 $26,198,000
Cost of sales .................................... 4,611,000 6,812,000 13,253,000 21,337,000
Selling, general and administrative expenses ..... 1,674,000 2,507,000 4,948,000 6,982,000
Research and development expenses ................ 329,000 411,000 1,027,000 977,000
----------- ----------- ----------- -----------
6,614,000 9,730,000 19,228,000 29,296,000
----------- ----------- ----------- -----------
Operating income (loss) .......................... 399,000 (2,301,000) 399,000 (3,098,000)
Interest and other income (expense), net ......... (13,000) -- (2,000) --
Interest expense ................................. (87,000) (464,000) (206,000) (953,000)
----------- ----------- ----------- -----------
Income (loss) before income taxes ................ 299,000 (2,765,000) 191,000 (4,051,000)
Provision (benefit) for income taxes ............. (6,000) -- (20,000) --
----------- ----------- ----------- -----------
Net income (loss) ................................ $ 293,000 $(2,765,000) $ 171,000 $(4,051,000)
=========== =========== =========== ===========
Per Share Information:(1)
Basic net income (loss) per common share ......... $ 0.06 $ (0.58) $ 0.04 $ (0.85)
=========== =========== =========== ===========
Weighed average number of common
shares outstanding ............................... 4,782,000 4,791,000 4,782,000 4,788,000
=========== =========== =========== ===========
Diluted net income (loss) per common and dilutive
potential common shares outstanding .............. $ 0.06 $ (0.58) $ 0.03 $ (0.85)
=========== =========== =========== ===========
Weighted average number of common and
dilutive potential common shares outstanding ..... 4,974,000 4,791,000 4,938,000 4,788,000
=========== =========== =========== ===========
</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
<PAGE>
STARMET CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------------
1997 1998
----------- -----------
(as restated)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .............................. $ 171,000 $(4,051,000)
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation and amortization ................ 1,127,000 1,471,000
Changes in assets and liabilities, net :
Decrease (increase) in accounts receivable ... 483,000 (1,502,000)
Decrease (increase) in inventories ........... (540,000) (594,000)
Decrease (increase) in other current assets .. (120,000) (107,000)
Decrease (increase) in accounts payable and
accrued expenses ........................... (3,573,000) 2,585,000
Decrease (increase) other assets ............. 118,000 (389,000)
----------- -----------
Net cash provided (used) by operating
activities ................................. (1,254,000) (2,587,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures, net ...................... (1,150,000) (3,221,000)
Proceeds from sale of property, plant &
equipment .................................... 12,000 --
----------- -----------
Net cash used by investing activities ........ (1,138,000) (3,221,000)
----------- -----------
Cash flows from financing activities:
Principal payments under long-term
obligations .................................. (2,988,000) (14,839,000)
Proceeds from bank borrowings .................. 4,542,000 19,974,000
Proceeds from notes payable to stockholders
and warrants ................................. -- 900,000
Proceeds from stock issuance ................... -- 35,000
----------- -----------
Net cash provided by financing activities .... 1,554,000 6,070,000
----------- -----------
Net increase (decrease) in cash and cash
equivalents .................................... (838,000) 262,000
Cash and cash equivalents at beginning of
period ....................................... 1,301,000 268,000
----------- -----------
Cash and cash equivalents at end of period ..... $ 463,000 $ 530,000
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest, net of amounts capitalized .......... $ 189,000 $ 634,000
Income taxes ................................... $ 20,000 $ --
Non-cash investing & financing activities:
Capital lease obligations ...................... $ 61,000 $ 50,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
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 nine months ended June 30, 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/A (Amendment No. 2) for the fiscal year ended
September 30, 1997.
Due primarily to the sharp decline in sales of DU penetrators and lack of
orders in its uranium services and recycle business, the Company incurred losses
in three of its last four previous fiscal years and in the first nine months of
fiscal 1998. The Company's accountants, in their report to the Board of
Directors and stockholders of the Company on the Company's financial statements
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 reductions and other non-recurring income
items accounted for the profitability. Excluding these items, the Company would
have reported a net loss in fiscal 1997. As a result, the Company has
experienced significant financial difficulties and liquidity problems in recent
years and has had to seek financing from stockholders, waivers of non-compliance
with, and amendments of, certain covenants and other provisions in its debt
instruments (including waivers and amendments under its bank credit facility in
February, May, June and August of 1998), additional borrowings and extensions of
maturities under its bank credit facility, and additional equipment financing
from another bank for capital expenditures required at its South Carolina
facility.
As of June 30, 1998 the Company was out of compliance with the
capital expenditure and net income financial covenants under its credit
agreement with its principal bank lender. On August 7, 1998, the Company
received a waiver for these events of non-compliance and any events of
non-compliance as a result of the restatement of the Company's financial
statements for the years ended September 30, 1997 and 1996. In addition, the
credit agreement was modified such that the availability was increased to
$11,050,000 through September 30, 1998; $8,050,000 from October 1, 1998
through December 31, 1998, $6,550,000 through January 1, 1999 and thereafter
until maturity on February 28, 1999. As of August 12, 1998, the Company had
$6,438,000 outstanding under its line of credit, $3,550,000 outstanding in
letters of credit and $1,062,000 available for borrowing thereunder. Of the
$6,438,000 outstanding indebtedness under the Company's line of credit
agreement, on August 12, 1998, $1,938,000 is due on October 1, 1998,
$1,500,000 is due on January 1, 1999 and $3,000,000 is due on February 28,
1999. There can be no assurance that the Company will be able to repay the
bank on the stated maturity dates. Pursuant to the amendment, the tangible
capital base required by the agreement must not be less than $22,500,000 as
of September 30, 1998 plus an increase equal the aggregate of 75% of the
Company's net income for each fiscal quarter after September 30, 1998. In
addition, the Company's net income (loss) may not be less than $(500,000) for
the quarter ending September 30, 1998 and $750,000 for the quarter ending
December 31, 1998 and each quarter thereafter.
In August 1998, the Company restated its September 30, 1996 and September
30, 1997 consolidated financial statements. The restatement related to the
Company's accounting for inventory reserves. During the year ended September 30,
1996, the Company had provided approximately $3.3 million of reserves for DU
inventory, of which approximately $1.0 million of such reserves were reversed
into income during the year ended September 30, 1997, based upon management's
estimate of the future recoverability of DU inventory. After further review,
management of the Company has determined, based on consideration of the
applicable accounting literature and all of the relevant information available
at the time of the release of the Company's September 30, 1996 financial
statements, that the reserves provided in 1996 should have been lower by
approximately $650,000 ($0.14 per diluted share) and the reversal of
approximately $1.0 million ($0.20 per diluted share) of such reserves in 1997
should not have been recorded. In the future, inventory reserves will not be
reversed until the related inventory is sold or disposed of. The following table
summarizes the effects of the restatement on net income (loss) and the related
income (loss) per share amounts in the years ended September 30, 1996 and
6
<PAGE>
1997 and the nine months ended June 30, 1997. The restatement had no effect on
net income (loss) and the related income (loss) per share amounts for the three
months ended June 30, 1997.
<TABLE>
<CAPTION>
1996 1997
-------------------------- --------------------------
AS REPORTED AS RESTATED AS REPORTED AS RESTATED
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $(3,037,000) $(2,387,000) $ 1,482,000 $ 482,000
Income (loss) per share:
Basic $ (0.64) $ (0.50) $ 0.31 $ 0.10
Diluted $ (0.64) $ (0.50) $ 0.30 $ 0.10
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1997
----------- --------------------------
AS REPORTED AS REPORTED AS RESTATED
----------- ----------- -----------
Net income (loss) $ 293,000 $ 911,000 $ 171,000
Income (loss) per share:
Basic $ 0.06 $ 0.19 $ 0.04
Diluted $ 0.06 $ 0.18 $ 0.03
</TABLE>
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.
The Company provides for inventory reserves by charges to cost of sales when it
is determined that such reserves are necessary for matters such as excess and
obsolete inventories. Increases in estimated reserve requirements, based on
relevant information, management's experience, and the timing of expected
inventory usage, are charged to cost of sales in the period in which the
increase is determined. Inventory reserves are not reversed until the related
inventory is sold or disposed of. Inventories at September 30, 1997 and June 30,
1998 consist of:
<TABLE>
<CAPTION>
At September 30, 1997 At June 30, 1998
--------------------- ----------------
(as restated) (unaudited)
<S> <C> <C>
Work-in process .................... $ 2,511,000 $ 3,030,000
Raw materials ...................... 7,921,000 8,181,000
Spare parts ........................ 658,000 473,000
----------- -----------
Total inventory .................... $11,090,000 $11,684,000
=========== ===========
Less current inventory ............. $ 5,239,000 $ 5,833,000
=========== ===========
Non-current inventory .............. $ 5,851,000 $ 5,851,000
=========== ===========
</TABLE>
As of June 30, 1998, approximately $5.9 million of the Company's
inventory, net of $3.2 million reserve, consisted of DU in various stages of
production. This amount consisted of $3.9 million value added costs to
government owned material which is used for U.S. Military contracts and $2.0
million of material which the Company has acquired from other sources. During
fiscal 1995, the U.S. Army notified the Company that the Army would provide
the DU for production for the most recent penetrator contract.
Management strongly believes that the Army is responsible to compensate
the Company for the value-added costs of this material for non-U.S. military
contracts at no additional cost to the Company. Management is pursuing several
Department of Energy programs that would require more DU inventory over the next
several years than the Company currently has on hand. Management believes that
the carrying cost of the inventory on hand will be fully realizable through
these possible programs or from its ongoing usage for U.S. and foreign military
procurements; however, it is uncertain how much of the inventory balance will be
utilized in fiscal 1998.
8
<PAGE>
The Company expects to sell approximately $400,000 of DU inventory during the
remainder of fiscal 1998, approximately $1.9 million during fiscal 1999 and
the balance thereafter.
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.
Common share and common share dilutive potential disclosures are:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(as restated)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding ........................ 4,782,000 4,791,000 4,782,000 4,788,000
Dilutive potential common shares ... 192,000 -- 156,000 --
--------- --------- --------- ---------
Diluted common shares .............. 4,974,000 4,791,000 4,938,000 4,788,000
========= ========= ========= =========
Options and warrants excluded
from diluted income per common
share as their effect would be
anti-dilutive ...................... -- 778,000 -- 778,000
========= ========= ========= =========
</TABLE>
5. Commitments and Contingencies
a. Legal Proceedings
On May 26, 1998, Brush Wellman submitted its response to the U.S. Patent
and Trademark Office's ("PTO") order granting the reexamination of a process
patent owned by Brush Wellman, and on July 8, 1998, the Company submitted a
reply to that response. Also, on July 30, 1998, in response to a motion to stay
the suit filed by Brush Wellman against the Company pending the outcome of the
reexamination proceeding which was filed by the Company on January 27, 1998, the
United States District Court for the District of Massachusetts dismissed the
suit without prejudice to either party's moving to restore it to the docket upon
the decision of the PTO relative to the reexamination. See also Part II, Item 1,
"Legal Proceedings" of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
b. Environmental Matters
The Company currently estimates that the cost of remediating the
holding basin at its Concord, Massachusetts facility will exceed the amounts
covered by the Company's fixed price contract with the U.S. Army (the "Army
Contract"), pursuant to which the holding basin clean-up is being done, by
approximately $1.3 million. (The exact amount of the excess costs presently
is unknown, but the Company believes that the potential range of such costs
is between $1.3 million and $3.4 million.) The Company believes that such
costs, subject to confirmation by government auditors, are recoverable as
allowable overhead on future government contracts, which the Company expects
to be awarded. Alternatively, the Company believes that all or a certain
portion of such excess costs may also be recoverable pursuant to a contract
modification request or pursuant to an additional application for relief
under Public Law 85-804, pursuant to which the Army Contract was granted. The
Company has submitted a proposal to the Army requesting the award to the
Company of a contract, which, in addition to other work proposed therein,
would provide the Company with funding to cover such estimated excess
remediation costs. The Company is awaiting a response from the Army.
In addition to the matters described above, the Company is subject to
certain environmental matters which could have a material adverse effect on
the Company's business, results of operations and financial condition. For a
discussion of these matters see Part I, Item 1 "Business--Update Relative to
Concord Site Remediation Status" and Part I, Item 3 "Update Relative to Legal
Proceedings" of the Company's Form 10-K/A for the fiscal year ended
September 30, 1997.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Due primarily to the sharp decline in sales of DU penetrators and lack of
orders in its uranium services and recycle business, the Company incurred losses
in three of its last four previous fiscal years and in the first nine months of
fiscal 1998. The Company's accountants, in their report to the Board of
Directors and stockholders of the Company on the Company's financial statements
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 reductions and other non-recurring income
items accounted for the profitability. Excluding these items, the Company would
have reported a net loss in fiscal 1997. As a result, the Company has
experienced significant financial difficulties and liquidity problems in recent
years and has had to seek financing from stockholders, waivers of non-compliance
with, and amendments of, certain covenants and other provisions in its debt
instruments (including waivers and amendments under its bank credit facility in
February, May, June and August of 1998), additional borrowings and extensions of
maturities under its bank credit facility, and additional equipment financing
from another bank for capital expenditures required at its South Carolina
facility. See "--Liquidity and Capital Resources."
10
<PAGE>
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 nine month periods ended June 30, 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(as restated)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales and contract revenues 100% 100% 100% 100%
Costs and expenses:
Cost of sales ......................... 66 92 68 81
Selling, general and administrative
expenses .......................... 24 34 25 27
Research and development expenses ..... 5 6 5 4
Operating income (loss) ............... 6 (31) 2 (12)
Interest expense ...................... 1 6 1 4
Net income (loss) ..................... 4 (37) 1 (15)
</TABLE>
Note Concerning Restatement
In August 1998, the Company restated its September 30, 1996 and
September 30, 1997 consolidated financial statements. The restatement related
to the Company's accounting for inventory reserves. As a result of such
restatement, DU inventory reserves provided in 1996 were reduced by
approximately $650,000 ($0.14 per diluted share) and the reversal of
approximately $1.0 million ($0.20 per diluted share) of such reserves in 1997
was eliminated. The restatement resulted in a decrease in net income of
approximately $740,000 ($0.15 per diluted share) for the nine months ended
June 30, 1997. The restatement had no impact on the three months ended June
30, 1997. The restatement also included the reclassification of approximately
$5.9 million of inventory at September 30, 1996 and at September 30, 1997
from current inventory to non-current inventory. The results of operations
during fiscal 1997 are discussed in this Management's Discussion and Analysis
on an as restated basis. The effect of the restatement is set forth in the
Company's Annual Report on Form 10-K/A (Second Amendment) filed on August 11,
1998. For additional information describing the restatement, see the
Company's Current Report on Form 8-K filed on August 10, 1998.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1996 1997 JUNE 30, NINE MONTHS ENDED
1997 JUNE 30, 1997
----------------------- ----------------------- ----------- ------------------------
AS REPORTED AS RESTATED AS REPORTED AS RESTATED AS REPORTED AS REPORTED AS RESTATED
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $(3,037,000) $(2,387,000) $1,482,000 $482,000 $293,000 $911,000 $171,000
Income (loss) per share:
Basic................. $ (0.64) $ (0.50) $ 0.31 $ 0.10 $ 0.06 $ 0.19 $ 0.04
Diluted............... $ (0.64) $ (0.50) $ 0.30 $ 0.10 $ 0.06 $ 0.18 $ 0.03
</TABLE>
The Company had established inventory reserves totaling approximately
$1.6 million at the end of fiscal 1995. During fiscal 1996, the Company
established additional inventory reserves of approximately $2.7 million
related to its DU inventory, which consisted of DU metal and UF(4). These
additional reserves were established based on management's evaluation of the
risks associated with the DU inventory, including risks associated with
excess and obsolete inventory, and had the effect of writing down
approximately 20% of the Company's UF(4) inventory to zero. In conducting
this evaluation, management considered the type and quantity of inventory on
hand, historical sales volumes and expectations concerning the timing and
amounts of then anticipated sales of current and proposed products (based
upon longer than expected sales cycles for certain products). At September
30, 1996, the Company's utilization of DU inventory was uncertain. In
particular, the Company considered future use of DU inventory for munitions
contracts with the U.S. Army as unlikely. At that time, the Company was also
discussing with USEC the possibility, timing and volume of Atomic Vapor Laser
Isotope Separation ("AVLIS") feedstock production, and was evaluating the
potential use of DU inventory in other proposed products and the timing of
inventory usage with respect to such products. Although the Company believed
the long-term possibilities for DU inventory usage were numerous, the
uncertainties related to the usage of the DU inventory were significant.
Based on these uncertainties, management's judgment and discussions between
the Company and its independent public accountants, inventory reserves were
increased by such $2.7 million amount, bringing the total inventory reserves
at September 30, 1996 to approximately $4.2 million. Of this amount,
approximately $3.2 million was allocated to DU inventory, with the balance
allocated to various other inventories. As of September 30, 1996, gross DU
inventory was approximately $11.9 million and consisted of approximately $7.2
million of DU metal and $4.7 million of UF(4). As of September 30, 1996, DU
inventory, net of reserves, was approximately $8.7 million and consisted of
approximately $6.4 million of DU metal and approximately $2.3 million of
UF(4).
During the nine months of fiscal 1997, the Company used approximately
$2.6 million of DU metal inventory principally in connection with a munitions
contract with a foreign customer and to a lesser extent in connection with an
AVLIS feedstock production contract. Revenues related to a munitions contract
with a foreign customer and an AVLIS feedstock production contract for fiscal
1997 were $5.4 million and $3.9 million, respectively, as compared to $3.1
million and $1.3 million, respectively, for fiscal 1996. Revenues during the
first nine months of fiscal 1997 under these two contracts were approximately
$6.9 million. At June 30, 1998, the Company had approximately $9.1 million of
gross DU inventory or approximately $5.9 million, net of reserves and
consisted of approximately $3.8 million of DU metal inventory, net and
approximately $2.1 million of UF(4) inventory, net. Based on current
discussions with customers, the Company presently expects to sell
approximately $400,000 of DU inventory during the remainder of fiscal 1998,
and approximately $1.9 million of DU inventory during fiscal 1999. Subject to
the uncertainties described above, the Company expects to sell the balance of
DU inventory, including DU inventory written down to zero, thereafter. In the
event that the Company sells DU inventory in the future which has been
written down to zero, the Company will generate revenues with higher gross
margins than if such inventory had not been written down to zero. In the
event that the actual usage of any DU inventory, or the timing of such usage,
differs materially from the Company's current expectations, any such
differences could have a material adverse effect on results of operations of
the Company's South Carolina facility and accordingly, on the Company's
overall liquidity. In such event, the Company's liquidity, cash flows and
results of operations would be dependent upon the Company's other business
segments, particularly its Specialty Metal Products business segment.
Three Months Ended June 30, 1998 Compared with Three Months Ended June 30, 1997
Net sales increased by $416,000 or 6% to $7,429,000 in the third quarter
of fiscal 1998 compared to the third quarter of fiscal 1997. Net sales in the
Uranium Services and Recycle segment increased by $1,415,000, net sales in the
Specialty Metal Products segment decreased by $536,000 and net sales in the
Depleted Uranium Penetrator segment decreased by $464,000, compared to net sales
in the comparable period of fiscal 1997. The sales increase in the Uranium
Services and Recycle segment was due primarily to Atomic Vapor Laser Isotope
Separation
11
<PAGE>
("AVLIS") feedstock production orders which were completed in the third
quarter of fiscal 1998. The sales decrease in the Specialty Metal Products
segment was due primarily to decreased sales of commercial Depleted Uranium
("DU"), principally medical shielding products. The sales decrease in the
Depleted Uranium Penetrator segment was due primarily to a $958,000 decrease
in revenue (such revenue resulted in minimal gross margins in fiscal 1997) on
the remediation of the holding basin at the Company's Concord, Massachusetts
facility pursuant to a U.S. Army contract, as a result of a change in the
estimate of the cost to complete the remediation. This decrease was partially
offset by a $461,000 increase in the production volume of DU penetrators and
blanks, which production the Company expects to complete during the second
quarter of fiscal 1999.
Gross profit in the third quarter of fiscal 1998 decreased by
$1,785,000 to $617,000 or 74% from $2,402,000 in the third quarter of fiscal
1997. Gross profit for the third quarter of fiscal 1998 was primarily
affected by a decrease in gross profit within the Depleted Uranium Penetrator
segment of $1,525,000, due primarily to an increase of $1,297,000 in the
estimated costs of remediating the holding basin, and also due to a reduction
in gross margins on sales of penetrators and blanks. As a percentage of
sales, gross profit was 8% for the third quarter of fiscal 1998 compared to
34% for the third quarter of fiscal 1997.
The third quarter of fiscal 1998 also included a $671,000 decrease in
gross profit within the Specialty Metal Products segment primarily due to an
increase in losses on Beralcast(R) products, including an increase in losses
under a government contract for certain defense-related Beralcast(R)
components. Revenue for the third quarter of fiscal 1998 does not include
approximately $1.0 million billed in July to a customer as a cumulative
adjustment of overhead rates attributable to work done and costs incurred
through the end of the third quarter. Such overhead rates are subject to
government audit and the timing of payment is uncertain; however, the Company
believes that such audit would not result in a material change in the amount
which it expects to receive. The Company's gross margin in the Specialty
Metal Products segment in the third quarter also reflects substantial
expenditures associated with Company's efforts on Beralcast(R) projects in
the
12
<PAGE>
product development and pre-production phases during which the Company
receives only minimal revenues. Although the Company has received
pre-production or tooling orders from eighteen customers (primarily with
respect to defense applications), the Company has not received any full-scale
production orders.
The decreases in gross profit in the Depleted Uranium Penetrator
segment and the Specialty Metal Products segment were partially offset by a
gross profit increase within the Uranium Services and Recycle segment of
$411,000 due primarily to increased sales volumes of AVLIS feedstock, which
was partially offset by an increase in losses on the Company's counterweight
business.
Selling, general and administrative expenses increased by $833,000 or
50% in the third quarter of fiscal 1998 compared to the third quarter of
fiscal 1997, primarily due to an increase in sales and administrative
personnel in expectation of growth in its business. As a percentage of sales,
these expenses were 34% in the third quarter of fiscal 1998 compared to 24%
in the third quarter of fiscal 1997.
Interest expense and amortization of warrants increased to $464,000 in
the third quarter of fiscal 1998 from $87,000 for the third quarter of fiscal
1997, primarily due to interest expense associated with increased borrowings.
Income taxes in the third 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.
Nine Months Ended June 30, 1998 Compared With Nine Months Ended June 30, 1997
Net sales increased by $6,571,000 or 33% to $26,198,000 in the nine
months ended June 30, 1998 from $19,627,000 for the comparable period in
1997. Sales in the Uranium Services and Recycle segment increased to
$6,254,000 from $3,093,000, an increase of 102%. Sales in the Specialty
13
<PAGE>
Metal Products segment increased to $9,859,000 from $9,470,000, an increase of
4%. Sales in the Depleted Uranium Penetrator segment increased to $10,085,000
from $7,064,000, an increase of 43%.
The sales increase in the Uranium Services and Recycle segment was due
primarily to AVLIS feedstock production orders which were completed in the
second and third quarter of fiscal 1998. To be prepared for the anticipated
AVLIS production, the workforce at Starmet CMI Corporation was increased
significantly during the first nine months of fiscal 1998. Sales in the
Specialty Metal Products segment for the nine months ended June 30, 1998 were
comparable to the prior year. The sales increase in the Depleted Uranium
Penetrator segment was principally due to a $2,848,000 increase in revenue
recognized in the first nine months of fiscal 1998 on the remediation of the
holding basin at the Company's Concord facility pursuant to a U.S. Army
contract.
Gross profit in the first nine months of fiscal 1998 decreased by
$1,513,000 to $4,861,000 or 24% from $6,374,000 in the first nine months of
fiscal 1997. As a percentage of sales, gross profit was 19% for the first
nine months of fiscal 1998 compared to 32% for the first nine months of
fiscal 1997. Gross profit in the first nine months of fiscal 1998 was
primarily affected by a gross profit decrease of $2,179,000 within the
Depleted Uranium Penetrator segment primarily due to an increase of
$1,297,000 in the estimated costs of remediating the holding basin and also a
$1,071,000 decrease in gross profit related to sales of penetrators and
blanks. The first nine months of fiscal 1998 also included a $51,000 decrease
in gross profit within the Uranium Services and Recycle segment due to a
decrease of $444,000 on the Company's counterweight business and the absence
of a reserve reduction for waste disposal of $670,000, which was partially
offset by a gross profit increase of $1,014,000 related to increased sales
volumes of AVLIS feedstock. The gross profit decreases in the Depleted
Uranium Penetrator and Uranium Services and Recycle segments were partially
offset by a gross profit increase within the Specialty Metal Products segment
of $717,000 due to an increase in gross profit of $492,000 on medical powders
and a decrease in losses of $431,000 on Beralcast(R) products,
14
<PAGE>
which was partially offset by a gross profit decrease on sales of other products
in the Specialty Metal Products segment.
Selling, general and administrative expenses increased by $2,034,000 or
41% in the first nine months of fiscal 1998, primarily due to an increase in
sales and administrative personnel in expectation of growth in its business.
As a percentage of sales, these expenses were 27% in the first nine months of
fiscal 1998 compared to 25% in the first nine months of fiscal 1997.
Interest expense and amortization of warrants increased to $953,000 in
the first nine months of fiscal 1998 from $206,000 for the first nine months
of fiscal 1997, primarily due to interest expense associated with increased
borrowings.
Income taxes during the first nine months of fiscal 1998 and 1997 were at
an effective rate of 0% and 1% respectively. The Company has unrecognized net
operating loss carryforwards resulting in a minimal effective tax rate.
Backlog
Backlog as of June 30, 1998, was $31.4 million as compared to $27.7
million as of September 30, 1997.
Liquidity and Capital Resources
Net cash used by operating activities in the nine months ending June
30, 1997 and 1998 was $1,254,000 and $2,587,000, respectively. Differences in
cash flows from operating activities were primarily related to significant
changes in accounts receivable and accounts payable. The Company used net
cash for investing activities of $1,138,000 and $3,221,000 for periods ending
June 30, 1997 and 1998, respectively, largely related to capital expenditures
made in anticipation of future commercial business. Net cash provided by
15
<PAGE>
financing activities for periods ending June 30, 1997 and 1998 was $1,554,000
and $6,070,000, 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 June 30, 1997 by $838,000 and increased in
the period ended June 30, 1998 by $262,000.
At June 30, 1998, the end of the third quarter of fiscal 1998, the
Company had working capital of $(765,000), a decrease of $5,307,000 since the
end of fiscal 1997. At June 30, 1998, the Company's accounts receivable and
inventories increased by $1,502,000 and $594,000, respectively, compared to
September 30, 1997 levels. Cash (less restricted cash) at June 30, 1998 was
$457,000. Current indebtedness increased to $14,902,000 from $7,130,000 as a
result of increased borrowings under the Company's bank line of credit and
increased borrowings from shareholders and the short-term nature of these
obligations. As of June 30, 1998 the Company had $6,156,000, exclusive of the
value of warrants, outstanding under its bank line of credit, with $1,344,000
available for borrowing thereunder (after subtraction of $3,550,000 in
letters of credit issued thereunder). As of June 30, 1998, notes payable to
shareholders increased to $2,250,000 from $1,350,000 as of September 30,
1997, excluding the unamortized discount. As of August 12, 1998, the Company
had $6,438,000 outstanding under its line of credit, $3,550,000 outstanding
in letters of credit and $1,062,000 available for borrowing thereunder. Of
the $6,438,000 outstanding indebtedness under the Company's line of credit
agreement, on August 12, 1998, $1,938,000 is due on October 1, 1998,
$1,500,000 is due on January 1, 1999 and $3,000,000 is due on February 28,
1999. There can be no assurance that the Company will be able to repay the
bank on the stated maturity dates.
As of June 30, 1998 the Company was out of compliance with the
capital expenditure and net income financial covenants under its credit
agreement with its principal bank lender. On August 7, 1998, the Company
received a waiver for these events of non-compliance and any events of
non-compliance as a result of the restatement of the Company's financial
statements for the years ended September 30, 1997 and 1996. In addition, the
credit agreement was modified such that the availability was increased to
$11,050,000 through September 30, 1998; $8,050,000 from October 1, 1998 through
December 31, 1998, $6,550,000 through January 1, 1999 and thereafter until
maturity on February 28, 1999. Pursuant to the amendment, the tangible capital
base required by the agreement must not be less than $22,500,000 as of September
30, 1998 plus an increase equal the aggregate of 75% of the Company's net income
for each fiscal quarter after September 30, 1998. In addition, the Company's net
income (loss)
16
<PAGE>
may not be less than $(500,000) for the quarter ending September 30, 1998 and
$750,000 for the quarter ending December 31, 1998 and each quarter thereafter.
The Company's subsidiary, Starmet CMI Corporation, has a term loan
facility in the amount of $370,000 with Palmetto Federal Savings and Loan
Association of South Carolina ("Palmetto"). As of June 30, 1998 the
outstanding balance on this term loan obligation was approximately $300,000.
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 August 12, 1998 the Company had drawn $400,000
against each of these loan facilities for a total of $800,000. Both the first
and second loans are guaranteed by the Company and secured by mortgages on
Starmet CMI's South Carolina property. The second loan will be used to expand
Starmet CMI's manufacturing capabilities at its South Carolina facility.
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 third quarter of fiscal 1998. The Company
invested approximately $3,221,000 on capital expenditures in the first nine
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.
Subject to the availability of funds, the Company also has plans to invest
approximately an additional $1,000,000 in the last three months of fiscal 1998
and substantial additional funds over the next four years primarily to continue
to expand its commercial Beralcast manufacturing
17
<PAGE>
capabilities through fixed asset additions including the purchase of production
equipment and facility upgrades. The Company believes that in order to obtain
and perform orders for large scale commercial production of its Beralcast
products, it will be necessary for it to significantly increase capital
expenditures to expand its commercial Beralcast manufacturing capabilities to
meet anticipated customer demand through fixed asset additions, including
furnaces, automated 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. The Company
has filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission registering an offering 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.
Environmental Matters
The Company currently estimates that the cost of remediating the holding
basin at its Concord, Massachusetts facility will exceed the amounts covered by
the Company's fixed price contract with the U.S. Army (the "Army Contract"),
pursuant to which the holding basin clean-up is being done, by approximately
$1.3 million. (The exact amount of the excess costs presently is unknown, but
the Company believes that the potential range of such costs is between $1.3
million and $3.4 million.) The Company believes that such costs, subject to
confirmation by government auditors, are recoverable as allowable overhead on
future government contracts, which the Company expects to be awarded.
Alternatively, the Company believes that all or a certain portion of such excess
costs may also be recoverable pursuant to a contract modification request or
pursuant to an additional application for relief under Public Law 85-804,
pursuant to which the Army Contract was granted. The Company has submitted a
proposal to the Army requesting the award to the Company of a contract, which,
in addition to other work proposed
18
<PAGE>
therein, would provide the Company with funding to cover such estimated excess
remediation costs. The Company is awaiting a response from the Army.
In addition to the matters described above, the Company is subject to
certain environmental matters which could have a material adverse effect on the
Company's business, results of operations and financial condition. For a
discussion of these matters see Part I, Item 1 "Business--Update Relative to
Concord Site Remediation Status" and Part I, Item 3 "Update Relative to Legal
Proceedings" of the Company's Form 10-K/A for the fiscal year ended September
30, 1997.
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 compliant 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
19
<PAGE>
Certain statements in this Quarterly Report, including, without
limitation, those concerning (i) the Company's new business and expansion plans,
(ii) the possible effects on the Company of certain legal proceedings and
environmental matters, (iii) the possible 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, (v) estimated and
actual excess costs of remediation of its Concord, Massachusetts holding basin
(vi) the likelihood and timing of expected full-scale Beralcast(R) production
orders and the prospects for profitability, (vii) backlog and anticipated
fulfillment, (viii) the possible outcome of the Company's request for an
additional Army contract for estimated excess costs relating to the remediation
of the Company's holding basin and (ix) the outcome of a government audit
related to its adjustment of overhead rates, 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 the Company's Quarterly
Report on Form 10-Q/A for the quarter ended March 31, 1998. 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.
20
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
On May 26, 1998, Brush Wellman submitted its response to the U.S. Patent
and Trademark Office's ("PTO") order granting the reexamination of a process
patent owned by Brush Wellman, and on July 8, 1998, the Company submitted a
reply to that response. Also, on July 30, 1998, in response to a motion to stay
the suit filed by Brush Wellman against the Company pending the outcome of the
reexamination proceeding which was filed by the Company on January 27, 1998, the
United States District Court for the District of Massachusetts dismissed the
suit without prejudice to either party's moving to restore it to the docket upon
the decision of the PTO relative to the reexamination. See also Part II, Item 1,
"Legal Proceedings" of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
Item 5. Other Information
Contract with United States Enrichment Corporation
The Company's wholly-owned subsidiary, Starmet CMI Corporation, entered
into a Deconversion Technology and Services Contract dated June 30, 1998 with
United States Enrichment Corporation ("USEC"), pursuant to which the Company
expects to receive approximately $13 million for the conversion of depleted
uranium hexaflouride ("UF6") over a 32 month period at its Barnwell, South
Carolina facility, subject to certain conditions. The contract contains a
follow-on option under which the Company would expect to receive up to $26
million, which is exercisable by USEC during the first 28 months of the
contract. The Company will take title to the UF6 delivered to it by USEC, as
well as the uranium tetraflouride ("UF4") resulting from the conversion of such
UF6. Under the contract, USEC has the exclusive right, during the first 32
months of the contract, to form a joint venture company or enter into a similar
arrangement with the Company to commercially exploit business opportunities
involving the [utilization of the Company's pending patents on a new process to
recover and convert flourine and related products from UF4] conversion of
depleted UF6 to metal and/or oxide or other by-products. In addition, under the
terms of the contract, the Company granted to USEC an irrevocable, world-wide,
non-exclusive, perpetual license in and to the Company's technologies relating
to the conversion of UF6 into uranium oxide and/or other by-products for which
the Company is to receive a royalty from USEC. However, USEC has agreed not to
operate under or sublicense the Company's technologies unless and until USEC and
the
21
<PAGE>
Company are unable to reach an agreement on a joint venture within 32 months of
the effective date of the contract.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10(bbb): Fourth Amendment to Credit Agreement dated as of
August 7, 1998 among the Company, Starmet Powders, LLC,
Starmet Aerocast, LLC, Starmet Commercial Castings, LLC,
Starmet NMI Corporation, Starmet CMI Corporation, Starmet
Holdings Corporation, NMI Foreign Sales Corporation and State
Street Bank and Trust Company.
Exhibit 10(ccc): Amended and Restated Revolving Credit Note dated as
of August 7, 1998 among the Company, Starmet Powders, LLC,
Starmet Aerocast, LLC, Starmet Commercial Castings, LLC,
Starmet NMI Corporation, Starmet CMI Corporation, Starmet
Holdings Corporation, NMI Foreign Sales Corporation and State
Street Bank and Trust Company.
Exhibit 10(ddd): Deconversion Technology and Services contract dated as of
June 17, 1998 between Starmet CMI Corporation and United
States Enrichment Corporation. +
Exhibit 27: Financial Data Schedule
- ----------
+ Indicates that portions of the Exhibit have been omitted pursuant to a request
for Confidential Treatment and such material has been filed separately with the
Securities and Exchange Commission.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
22
<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: August 14, 1998 By: /s/ Robert E. Quinn
------------------- ---------------------------
Robert E. Quinn,
President and Chief Executive Officer
Date: August 14, 1998 By: /s/ James M. Spiezio
------------------- ---------------------------
James M. Spiezio
Vice President, Finance and Administration
23
<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
Agreement is made as of this 7th day of August, 1998 among STARMET
CORPORATION, a Massachusetts corporation (f/k/a Nuclear Metals, Inc.)
("StarMet"), STARMET POWDERS, LLC, a Delaware limited liability corporation
("Powders"), STARMET AEROCAST, LLC, a Delaware limited liability corporation
("AeroCast"), STARMET COMMERCIAL CASTINGS, LLC, a Delaware limited liability
corporation ("ComCast"), STARMET NMI CORPORATION, a Massachusetts corporation
("NMI"), STARMET CMI CORPORATION, a Delaware corporation (f/k/a Carolina Metals,
Inc.) ("CMI"), STARMET HOLDINGS CORPORATION, a Massachusetts corporation
("Holdings"), NMI FOREIGN SALES CORPORATION, a U.S. Virgin Island corporation
("FSC", and together with StarMet, Powders, AeroCast, ComCast, NMI, CMI and
Holdings, (the "Borrowers") and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts chartered trust company ("Bank").
WHEREAS, the Borrowers and the Bank are parties to an Amended and
Restated Credit Agreement dated as of October 1, 1997 (as amended, the "Credit
Agreement"); and
WHEREAS, the parties have agreed to certain modifications;
NOW, THEREFORE, the parties agree as follows:
1. Section 1.01. The Credit. Section 1.01 of the Credit Agreement is
hereby amended by deleting the reference to "$9,550,000" in the third line and
"$9,550,000" in the last line and replacing both references with "$11,050,000".
2. Section 1.02(a). Amount. Section 1.02(a) of the Credit Agreement is
hereby amended by deleting the provision at the end of Section 1.02(a) and
substituting therefor the following:
"provided that the aggregate of all Advances outstanding at any time
less the maximum aggregate liability of the Borrowers under any
outstanding letters of credit issued prior to the date hereof or
pursuant to this Credit Agreement shall not exceed (i) $11,050,000
through September 30, 1998, (ii) $8,050,000 from October 1, 1998
through December 31, 1998, and (iii) $6,550,000 on January 1, 1999 and
thereafter (such amount as in effect from time to time may be referred
to as the "Maximum Credit")."
3. Section 1.02(b). Revolving Credit Agreement. Section 1.02(b) of the
Credit Agreement is hereby amended by adding the following at the end:
1
<PAGE>
"As provided in Section 1.02(a), the Maximum Credit shall reduce from
$11,050,000 to $8,050,000 on October 1, 1998, and from $8,050,000 to
$6,550,000 on January 1, 1999, and any amount in excess of the Maximum
Credit as so reduced shall be paid on or before such dates".
4. Section 1.02(c). The Revolving Credit Note. Section 1.02(c) of the
Credit Agreement is hereby amended by deleting the first sentence in Section
1.02(c) in its entirety and substituting therefor the following:
"Amounts owed to Bank with respect to Advances made by Bank shall be
evidenced by Bank's books and records and may, at the request of the
Bank, be further evidenced by one or more revolving credit notes
(collectively, the "Revolving Credit Note"). As of the date of this
Fourth Amendment, the Advances are evidenced by an Amended and Restated
Revolving Credit Note dated as of the date of this Fourth Amendment in
the principal amount of $11,050,000, which replaces and supersedes all
prior revolving credit notes issued under this Credit Agreement (the
"Restated Note"). Any repayments of principal shall be applied to the
Revolving Credit Note in such order as the Bank in its discretion shall
determine.
5. Section 4.21. Tangible Capital Base. Section 4.21 of the Credit
Agreement is hereby amended in its entirety to read as follows:
"The Tangible Capital Base of the Borrowers on a consolidated basis
shall be not less than $22,500,000 as of September 30, 1998, and
$22,500,000 plus an increase equal to the aggregate of 75% of the
Borrowers' Net Income for each fiscal quarter after September 30, 1998,
in which the Borrowers have positive net income (with no reduction for
fiscal quarters in which the Borrowers incur a loss) determined as of
the end of each fiscal quarter commencing December 31, 1998."
6. Section 4.22. Net Income. The first sentence of Section 4.22 of the
Credit Agreement is hereby amended in its entirety to read as follows:
2
<PAGE>
"The Net Income of the Borrowers for the periods set forth below shall
be not less than the amounts set forth opposite such periods:
<TABLE>
<CAPTION>
Period Net Income
------ ----------
<S> <C>
Quarter ending September 30, 1998 ($500,000)
Quarter ending December 31, 1998
and thereafter $750,000."
</TABLE>
7. Fees. The Borrowers shall pay a closing fee of $50,000 and shall
also pay to the Bank past due performance fees of $100,000 upon execution of
this Fourth Amendment, provided that payment of the $100,000 in past due
performance fees shall be deferred until October 1, 1998, and provided further
that payment of such $100,000 in performance fees shall be forever waived if
(but only if) on October 1, 1998, the Borrower is in compliance with all of its
covenants and agreements with the Bank.
8. Effectiveness. This Fourth Amendment to Credit Agreement shall
become effective upon (a) execution of this Fourth Amendment by the Borrowers
and the Bank, (b) execution by the Borrowers of the Restated Note substantially
in the form of Exhibit A attached hereto, (c) receipt by the Bank of evidence
satisfactory to the Bank that the Borrowers are authorized to execute this
Fourth Amendment and the Restated Note.
9. Miscellaneous.
(a) The Borrowers hereby confirm to the Bank that the
representations and warranties of the Borrowers set forth in Article II
of the Credit Agreement are true and correct as of the date hereof, as
if set forth herein in full.
(b) There is no Event of Default, and no condition which, with
the passage of time or giving of notice or both, would constitute an
Event of Default under the Credit Agreement except as amended or waived
in this Fourth Amendment.
(c) Except as set forth above and in the First Amendment dated
as of December 19, 1997, in the Second Amendment dated as of December
29, 1997, and in the Third Amendment dated as of June 11, 1998, the
Credit Agreement remains in full force and effect.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment to
Credit Agreement under seal as of the date first above written.
STARMET CORPORATION
By:/s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: VP Finance
STARMET POWDERS, LLC
By:/s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET AEROCAST, LLC
By:/s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMMERCIAL CASTINGS, LLC
By:/s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
Signatures continued on next page
4
<PAGE>
STARMET NMI CORPORATION
By:/s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET CMI CORPORATION
By:/s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
By:/s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
NMI FOREIGN SALES CORPORATION
By:/s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
STATE STREET BANK AND
TRUST COMPANY
By:/s/ William R. Dewey
-----------------------------
Name: William R. Dewey, IV
Title: Vice President
5
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$11,050,000 August 7, 1998
FOR VALUE RECEIVED, the undersigned, STARMET CORPORATION, STARMET
POWDERS, LLC, STARMET AEROCAST, LLC, STARMET COMMERCIAL CASTINGS, LLC, STARMET
NMI CORPORATION, STARMET CMI CORPORATION, STARMET HOLDINGS CORPORATION, NMI
FOREIGN SALES CORPORATION (the "Borrowers"), hereby jointly and severally,
promise to pay to the order of STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company ("Bank"), in lawful money of the United States of
America in immediately available funds at its office at 225 Franklin Street,
Boston, Massachusetts 02110 the principal sum of ELEVEN MILLION FIFTY THOUSAND
DOLLARS ($11,050,000) or such lesser sum as may from time to time be outstanding
under the terms of the Credit Agreement between the Borrowers and Bank of even
date herewith, as amended, modified, supplemented and/or restated from time to
time (the "Credit Agreement").
The Borrowers promise to pay interest on the unpaid principal balance
at the rates and at the times provided in the Credit Agreement. This Note may be
prepaid only in accordance with the terms of the Credit Agreement.
The principal balance of this Note shall be reduced as provided in the
Credit Agreement and the remaining balance shall become due and payable on
February 28, 1999, and earlier upon the occurrence of an Event of Default (as
defined in the Credit Agreement). This Note replaces and supersedes all prior
revolving credit notes issued pursuant to the Credit Agreement. The Borrowers
agree to pay all reasonable legal fees and other costs of collection of this
Note.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right, nor shall any waiver on one
occasion be deemed to be an amendment or waiver of any such right with respect
to any future occasion. The Borrowers hereby waive presentment, demand, protest
and notice of every kind and assents to any one or more indulgences, to any
substitution, exchange or release of collateral (if at any time there be
available collateral to the holder of this Note) and to the addition or release
of any other party or persons primarily or secondarily liable.
A-1
<PAGE>
This Note shall be governed and construed under the laws of the
Commonwealth of Massachusetts and shall be deemed to be under seal.
STARMET CORPORATION
WITNESS:
- -------------------------------
By:
------------------------------
Name: James M. Spiezio
Title: VP Finance
STARMET POWDERS, LLC
WITNESS:
- -------------------------------
By:
------------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET AEROCAST, LLC
WITNESS:
- -------------------------------
By:
------------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMMERCIAL CASTINGS, LLC
WITNESS:
- -------------------------------
By:
------------------------------
Name: James M. Spiezio
Title: Treasurer
Signatures continued on next page
A-2
<PAGE>
STARMET NMI CORPORATION
WITNESS:
- -------------------------------
By:
------------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET CMI CORPORATION
WITNESS:
- -------------------------------
By:
------------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
WITNESS:
- -------------------------------
By:
------------------------------
Name: James M. Spiezio
Title: Treasurer
NMI FOREIGN SALES CORPORATION
WITNESS:
- -------------------------------
By:
------------------------------
Name: James M. Spiezio
Title: Treasurer
A-3
<PAGE>
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$11,050,000 August 7, 1998
FOR VALUE RECEIVED, the undersigned, STARMET CORPORATION, STARMET
POWDERS, LLC, STARMET AEROCAST, LLC, STARMET COMMERCIAL CASTINGS, LLC, STARMET
NMI CORPORATION, STARMET CMI CORPORATION, STARMET HOLDINGS CORPORATION, NMI
FOREIGN SALES CORPORATION (the "Borrowers"), hereby jointly and severally,
promise to pay to the order of STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company ("Bank"), in lawful money of the United States of
America in immediately available funds at its office at 225 Franklin Street,
Boston, Massachusetts 02110 the principal sum of ELEVEN MILLION FIFTY THOUSAND
DOLLARS ($11,050,000) or such lesser sum as may from time to time be outstanding
under the terms of the Credit Agreement between the Borrowers and Bank of even
date herewith, as amended, modified, supplemented and/or restated from time to
time (the "Credit Agreement").
The Borrowers promise to pay interest on the unpaid principal balance
at the rates and at the times provided in the Credit Agreement. This Note may be
prepaid only in accordance with the terms of the Credit Agreement.
The principal balance of this Note shall be reduced as provided in the
Credit Agreement and the remaining balance shall become due and payable on
February 28, 1999, and earlier upon the occurrence of an Event of Default (as
defined in the Credit Agreement). This Note replaces and supersedes all prior
revolving credit notes issued pursuant to the Credit Agreement. The Borrowers
agree to pay all reasonable legal fees and other costs of collection of this
Note.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right, nor shall any waiver on one
occasion be deemed to be an amendment or waiver of any such right with respect
to any future occasion. The Borrowers hereby waive presentment, demand, protest
and notice of every kind and assents to any one or more indulgences, to any
substitution, exchange or release of collateral (if at any time there be
available collateral to the holder of this Note) and to the addition or release
of any other party or persons primarily or secondarily liable.
A-1
<PAGE>
This Note shall be governed and construed under the laws of the
Commonwealth of Massachusetts and shall be deemed to be under seal.
STARMET CORPORATION
WITNESS:
/s/ Gregory L. White
- -------------------------------
By:/s/James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: VP Finance
STARMET POWDERS, LLC
WITNESS:
/s/ Gregory L. White
- -------------------------------
By:/s/James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET AEROCAST, LLC
WITNESS:
/s/ Gregory L. White
- -------------------------------
By:/s/James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET COMMERCIAL CASTINGS, LLC
WITNESS:
/s/ Gregory L. White
- -------------------------------
By:/s/James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
Signatures continued on next page
A-2
<PAGE>
STARMET NMI CORPORATION
WITNESS:
/s/ Gregory L. White
- -------------------------------
By /s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET CMI CORPORATION
WITNESS:
/s/ Gregory L. White
- -------------------------------
By /s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
STARMET HOLDINGS CORPORATION
WITNESS:
/s/ Gregory L. White
- -------------------------------
By /s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
NMI FOREIGN SALES CORPORATION
WITNESS:
/s/ Gregory L. White
- -------------------------------
By /s/ James M. Spiezio
-----------------------------
Name: James M. Spiezio
Title: Treasurer
A-3
<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
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
UNITED STATES ENRICHMENT CORPORATION
Deconversion Technology and Services Contract
CONTRACT NUMBER: 80623
CONTRACTOR:
Starmet CMI
365 Metal Drive, Highway 80
Barnwell, SC 29812
DATE: June 17, 1998
Fixed Price Services Contract
USEC PROPRIETARY INFORMATION
<PAGE>
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 - DEFINITIONS.........................................................1
1.1 "AVLIS" ...............................................................................1
1.2 "Business Day".........................................................................1
1.3 "Buyer"................................................................................1
1.4 "Background Rights" ...................................................................1
1.5 "Contractor Technology"................................................................2
1.6 "Data" ................................................................................2
1.7 "Deliverables" ........................................................................2
1.8 "DUCRETE(TM)Technology"................................................................2
1.9 "J.V. Formation Period"................................................................2
1.10 "Material" ............................................................................2
1.11 "New Technology".......................................................................2
1.12 "Physical Delivery," "Physically Deliver," and "Physically Delivered"..................2
1.13 "Price" ...............................................................................3
1.14 "Services" ............................................................................3
1.15 "SODW Deliverables"....................................................................3
1.16 "SOTDW Deliverables" ..................................................................3
1.17 "Statement of Deconversion Work" or "SODW" ............................................3
1.18 "Statement of Technology Development Work" or "SOTDW"..................................3
1.19 "Technical Representative".............................................................3
1.20 "Technology"...........................................................................3
1.21 "UF(4)"................................................................................3
1.22 "UF(6)"................................................................................3
ARTICLE 2 - SCOPE...............................................................4
2.1 Statements of Work.....................................................................4
2.2 Cooperation With Other USEC Contractors................................................4
ARTICLE 3 - TERM................................................................4
3.1 Term...................................................................................4
3.2 Option to USEC.........................................................................4
3.3 Option to Terminate....................................................................5
ARTICLE 4 - PAYMENT.............................................................5
4.1 Fixed Price............................................................................5
4.2 Invoices...............................................................................5
4.3 Payment................................................................................6
4.4 Delivery Reconciliation................................................................7
i
</TABLE>
<PAGE>
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 5 - DELIVERY SCHEDULE...................................................7
5.1 Delivery Schedule......................................................................7
5.2 Delivery Suspension....................................................................7
5.3 Deliveries at End of Term..............................................................7
ARTICLE 6 - TRANSPORTATION, TITLE, AND RESPONSIBILITY FOR UF(6) AND
UF(4)...............................................................................................7
6.1 USEC to Ship UF(6).....................................................................7
6.2 Contractor to Inspect..................................................................7
6.3 Acceptance.............................................................................8
6.4 Contractor to Take Title...............................................................8
6.5 Contractor to Empty and Return Cylinders...............................................8
6.6 Weight.................................................................................8
6.7 Resulting UF(4)........................................................................8
6.8 Weight Disputes........................................................................8
ARTICLE 7 - INSPECTION..........................................................9
7.1 Inspection of Services and Deliverables. ..............................................9
7.2 Rejection. ............................................................................9
7.3 Inspection of Contractor's Facility(ies)...............................................9
7.4 No Effect on Other USEC Rights.........................................................9
ARTICLE 8 - WARRANTIES.........................................................10
8.1 Standards.............................................................................10
8.2 Contractor's Representations, Warranties, and Certain Covenants.......................10
8.3 USEC's Representations and Warranties.................................................11
8.4 Mutual Representations and Warranties.................................................12
8.5 Remedies Available to USEC............................................................12
ARTICLE 9 - SUBCONTRACTS AND CONSULTANTS.......................................13
9.1 USEC Consent Required.................................................................13
9.2 Subcontracts and Purchase Orders Subject to the Terms of this Contract................13
9.3 Subcontractor Conflicts of Interest...................................................13
ARTICLE 10 - INSURANCE.........................................................14
10.1 Required Insurance....................................................................14
10.2 Additional Insured....................................................................15
10.3 Evidence of Insurance.................................................................15
10.4 Notice of Cancellation/Coverage Reduction.............................................15
10.5 USEC Furnished Property...............................................................15
</TABLE>
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USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 11 - CONTRACTOR REPORTS................................................15
ARTICLE 12 - CONFLICTS OF INTEREST.............................................15
12.1 Conflicts of Interest.................................................................15
ARTICLE 13 - SECURITY OF CLASSIFIED INFORMATION AND CONTROLLED
AREAS..............................................................................................16
13.1 Classified Information Access.........................................................16
13.2 Site Access...........................................................................17
13.3 Technology Transfer Controls..........................................................17
ARTICLE 14 - INTELLECTUAL PROPERTY AND PROPRIETARY
INFORMATION.......................................................................................17
14.1 Definitions...........................................................................17
14.2 USEC Proprietary Information..........................................................18
14.3 Contractor Proprietary Information. .................................................19
14.4 Required Disclosure...................................................................20
14.5 Standard of Care......................................................................20
14.6 Allocation of Technology Rights. .....................................................20
14.7 Infringements.........................................................................22
14.8 Contractor's Acquisition of Rights in Technology......................................23
14.9 Third Party Licensed Technology.......................................................23
14.10 Commercial Business Options...........................................................23
14.11 Indemnification.......................................................................25
14.12 Arbitration of Royalties and Fees.....................................................26
ARTICLE 15 - INCORPORATION OF ADDITIONAL CONTRACT CLAUSES......................27
15.1 Additional Clauses and Provisions.....................................................27
15.2 References............................................................................27
15.3 General Terms and Conditions..........................................................27
ARTICLE 16 - NOTICES...........................................................27
ARTICLE 17 - COMPLIANCE WITH LAWS AND REGULATIONS..............................28
17.1 Authorizations........................................................................28
17.2 Compliance............................................................................28
17.3 Health and Safety Standards...........................................................28
17.4 Violations of Law.....................................................................28
17.5 License Restrictions..................................................................29
17.6 Investigations and Claims.............................................................29
</TABLE>
iii
<PAGE>
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 18 - DELIVERY..........................................................29
18.1 F.O.B. Destination....................................................................29
18.2 Receiving Addresses...................................................................30
ARTICLE 19 - WAIVER OF CLAIMS..................................................30
SCHEDULE A-1 Statement of Deconversion Work for Deconversion of Depleted Uranium
Hexafluoride......................................................................................A-1
SCHEDULE A-2 Statement of Technology Development Work............................................A-5
SCHEDULE B Additional Contract Clauses...........................................................B-1
SCHEDULE C Representations and Certificates.......................................................C-1
SCHEDULE D Designated USEC Personnel.............................................................D-1
SCHEDULE E Contractor Reports...................................................................E-1
SCHEDULE F USEC Furnished Property...............................................................F-1
SCHEDULE G New Technology........................................................................G-1
SCHEDULE H Components of the Technology and Contract Data Subject to Third Party
Licenses..........................................................................................H-1
</TABLE>
iv
<PAGE>
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
DECONVERSION TECHNOLOGY AND SERVICES CONTRACT
BETWEEN
THE UNITED STATES ENRICHMENT CORPORATION
AND
STARMET CMI
In consideration of the mutual promises hereinafter set forth, the United States
Enrichment Corporation, a U.S. Government corporation ("USEC"), and Starmet CMI,
a Massachusetts corporation ("Contractor") (USEC and Contractor being referred
to herein individually as a "Party" and together, as the "Parties") hereby agree
to the following (which, including the General Terms and Conditions and the
Schedules attached hereto, is hereinafter referred to as the "Contract")
effective as of June 18, 1998 (the "Effective Date"):
ARTICLE 1 - DEFINITIONS
The following terms when used with initial capitalization shall have the
following definitions, whether used in the singular or plural.
1.1 "AVLIS" means atomic vapor laser isotope separation technology.
1.2 "Business Day" means a day that is not a Saturday, Sunday or United States
Legal Holiday. Unless qualified by the term "Business," references in this
Contract to "day" or "days" shall refer to a calendar day or calendar days,
respectively. For this purpose, "United States Legal Holiday" means any holiday
for which employees of the United States Federal government are excused from
work with pay pursuant to a Federal statute or executive order.
1.3 "Buyer" means the individual designated in Schedule D, authorized by the
Chief Executive Officer of USEC to execute this Contract and to undertake all
other actions of USEC under this Contract.
1.4 "Background Rights" means all inventions, developments, discoveries,
know-how, methods, improvements, processes, information, Data, and trade
secrets, except for the inventions described in the patent applications set
forth on Exhibit G (which shall be considered part of the New Technology)
whether or not patented or patentable or copyrightable, relating to
1
<PAGE>
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
the conversion of UF(6) into uranium oxide and/or other byproducts, excluding
the DUCRETE-TM- Technology, which are owned or controlled by Contractor or
licensed to Contractor as of the date hereof including all patents, patent
applications or copyright registrations issued or filed with respect to any
of the foregoing, whether such issuances, filings or registrations are now
existing or are made hereafter.
1.5 "Contractor Technology" means all inventions, developments, discoveries,
know-how, methods, improvements, processes, information, Data, and trade
secrets, whether or not patented, patentable or copyrightable, owned or
controlled by or licensed to Contractor, at any time, other than the Technology.
1.6 "Data" means recorded information regardless of form or medium on which it
is recorded.
1.7 "Deliverables" means the tangible and intangible products of the Services to
be performed pursuant to this Contract as contemplated in the SODW and SOTDW,
including, but not limited to, the required certifications and reports.
1.8 "DUCRETE-TM- Technology" means the composition and method of making
uranium oxide aggregate and shielding products as covered by all valid claims
in United States Patent Application Serial Number 08/378,161 and Patent
Cooperation Treaty Application Serial Number 96/00903.
1.9 "J.V. Formation Period" means the thirty-two (32) month period beginning
from the Effective Date of this Agreement.
1.10 "Material" means, as the context requires, the UF(6) to be provided by
USEC, and the UF(4) to be produced hereunder.
1.11 "New Technology" means the inventions described in the patent
applications set forth in Schedule G hereto and all inventions, developments,
discoveries, know-how, methods, improvements, processes, information, Data,
and trade secrets, whether or not patented or patentable or copyrightable,
relating to the conversion or deconversion of UF(6) into uranium oxide and/or
other byproducts, which are conceived, developed, or acquired by, or licensed
to Contractor during the Term of this Contract including, but not limited to,
all improvements, modifications or enhancements of or to the Technology, and
all patents, patent applications or copyright registrations issued or filed
with respect to any of the foregoing, whether such issuances, filings, or
registrations are made during the Term of this Contract or thereafter.
2
<PAGE>
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
1.12 "Physical Delivery," "Physically Deliver," and "Physically Delivered"
means, with respect to the delivery of UF(6) by USEC, the unloading of the
cylinders containing such UF(6) off USEC's truck(s) at Contractor's facility
by Contractor, and with respect to the delivery of empty containers by
Contractor, the loading of such empty containers onto USEC's truck(s) at
Contractor's facility by Contractor. Unloading at Contractor's facility shall
be deemed to be completed when any of Contractor's unloading equipment
contacts the cylinders on USEC's truck(s) when unloading at Contractor's
facility. Loading shall be deemed completed when the cylinder is physically
on USEC's truck and Contractor's loading equipment, if any, is detached from
the cylinder.
1.13 "Price" means the amount to be paid Contractor for its performance of the
Services.
1.14 "Services" means the services the nature and extent of which are described
in the Statement of Deconversion Work and Statement of Technology Development
Work.
1.15 "SODW Deliverables" means the tangible and intangible products of the
Services to be performed pursuant to the Statement of Deconversion Work and this
Contract, including but not limited to, any required certifications and reports.
1.16 "SOTDW Deliverables" means the tangible and intangible products of the
Services to be performed pursuant to the Statement of Technology Development
Work and this Contract, including, but not limited to, any required
certifications and reports, and the Data and information required to be provided
to USEC under Article 14.
1.17 "Statement of Deconversion Work" or "SODW" means the work to be performed
by Contractor, including the requirements for SODW Deliverables, as set forth in
Schedule A-1.
1.18 "Statement of Technology Development Work" or "SOTDW" means the work to be
performed by Contractor, including the requirements for SOTDW Deliverables, as
set forth in Schedule A-2.
1.19 "Technical Representative" means the individual, as set forth in Schedule
D, authorized by USEC to provide "Technical Direction" (as such term is defined
in Paragraph 5 of the attached General Terms and Conditions) under this
Contract.
1.20 "Technology" means, collectively, the Background Rights and the New
Technology.
1.21 "UF(4)" means uranium tetrafluoride and shall have the meaning ascribed
to it in the Statement of Deconversion Work.
3
<PAGE>
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
1.22 "UF(6)" means depleted uranium hexafluoride and shall have the meaning
ascribed to it in the Statement of Deconversion Work.
ARTICLE 2 - SCOPE
2.1 Statements of Work. In consideration of the mutual promises and the Price
set forth in Sections 4.1:
(a) Contractor shall perform the Services and tender the Deliverables
described in the Statement of Deconversion Work.
(b) Contractor shall grant the licenses set forth in Article 14 and
shall apply at least [***] worth of services and material during the Term of the
Contract to perform the Services and tender the Deliverables described in the
Statement of Technical Development Work, such performance to be completed no
later than the end of the J. V. Formation Period.
2.2 Cooperation With Other USEC Contractors. Contractor shall cooperate in the
performance of the Services with all other USEC contractors, including, but not
limited to, the University of California, Lawrence Livermore National Laboratory
and Lockheed Martin Utility Services, Inc.
ARTICLE 3 - TERM
3.1 Term. This Contract shall be effective as of the Effective Date and, unless
earlier terminated or extended under the provisions hereof, shall remain in
force through an initial term of thirty-two (32) months, subject to further
extension if USEC exercises its option under Section 3.2 (the "Term").
Notwithstanding the foregoing, the assignments made pursuant to Article 14 shall
be absolute and shall survive the expiration or the termination of the Contract
for any reason.
3.2 Option to USEC
(a) USEC shall have the option to have up to [***] additional USEC
supplied 14-ton cylinders of UF(6) deconverted to UF(4) by Contractor. This
option may be exercised at USEC's discretion in part or in whole by USEC by
giving notice to Contractor no later than twenty-eight (28) months after the
Effective Date. If USEC exercises this option, USEC shall nevertheless retain
the right to terminate at any time in accordance with Section 3.3(a).
(b) USEC's exercising of this option shall be at its discretion during
the above time frame.
4
<PAGE>
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
(c) Any additional deconversion services purchased under this option
shall not exceed unit prices as stated for Item No. 002 of the SODW.
(d) UNDER NO CIRCUMSTANCES SHALL USEC BE UNDER ANY OBLIGATION TO THE
CONTRACTOR FOR ANY MATERIALS, SERVICES, OR OTHER COSTS OR CHARGES FOR ANY
QUANTITY OF UF(6) EXCEPT FOR UF(6) DELIVERED BY USEC AND DECONVERTED BY
CONTRACTOR.
3.3 Option to Terminate. If USEC terminates this Contract for any reason other
than a Default by Contractor (as defined in Paragraph 19.2 of the General Terms
and Conditions attached hereto) before giving Contractor the opportunity to
deconvert [***] cylinders as contemplated in Item 001 of Schedule A-1 attached
hereto, then USC shall relinquish its license to the Technology set forth in
Section 14.6(b)(ii).
ARTICLE 4 - PAYMENT
4.1 Fixed Price. USEC shall pay to Contractor the fixed unit price ("Price")
of [***] per kilogram of uranium ("KgU") deconverted to UF(4) and to which
Contractor takes possession, responsibility, title, and as more fully
described in Part A-1 to the SODW. The Price includes all of Contractor's
direct and indirect labor, overhead, and general and administrative expenses
for performance of the Services, profit and any other expenses associated
with performance of the Services. Contractor shall not be separately
reimbursed for such items. All applicable federal, state and local taxes are
included in the Price and Contractor shall not be separately reimbursed for
taxes.
4.2 Invoices. All invoices, with supporting documentation, shall be sent to
the attention of "USEC Accounts Payable" at the address provided for USEC
notices set forth in Article 16. Subject to satisfactory performance of the
Services, USEC shall pay appropriate multiples of the Price attributable to
the quantity (KgU) of UF(6) covered by the invoice. Invoices for deconversion
Services shall only be issued for completed Services.
(a) Contractor's invoice shall comply with this Section 4.2 and shall
be accompanied by:
(i) Deliverables required per the SODW and SOTDW which
establish that the Services covered by the invoice meet the applicable
requirements of the SODW, the SOTDW and this Contract and describe the quantity
and physical location of the Material for which the invoice is being submitted;
5
<PAGE>
USEC PROPRIETARY INFORMATION
CONTRACT NO. 80623
(ii) Copies of the shipping documentation received by
Contractor with the USEC-supplied UF(6) cylinder(s) containing the UF(6)
covered by the invoice, accompanied by Contractor's certification that those
cylinders were received and accepted by Contractor and copies of Contractor's
documentation package sent in returning those same cylinders to USEC at
Contractor's facility;
(iii) A partial release of USEC's payment obligation to
Contractor under this Contract commensurate with the amount paid. (Upon request,
Contractor shall obtain, and provide USEC with, a similar release from each
subcontractor and supplier who delivered the goods or services used to complete
the Services covered by such invoice.)
(b) Contractor shall bear all risk of loss or damage for the
USEC-supplied UF(6) cylinders while they are in Contractor's possession and
control. Contractor shall reimburse USEC for any cylinders that are damaged,
lost, stolen, or destroyed, contaminated or encumbered while in the
possession of Contractor or any of its agents or subcontractors.
(c) A delay in payment of an invoice shall not excuse Contractor from
performance of its obligations under this Contract. Payment of an invoice shall
not be deemed acceptance by USEC of the Services or Deliverables covered by the
invoice nor constitute a waiver of any of the rights or remedies of USEC
hereunder.
(d) USEC's rights and remedies under this Section are in addition to
the rights and remedies provided by law or by this Contract and shall not be
affected by delayed, partial, or omitted exercise of any right, remedy, power,
or privilege, nor shall such exercise preclude or impair any further exercise
under this Section or the exercise of any other right, power, or privilege of
USEC.
(e) Contractor shall maintain adequate records and controls to protect
the Material and Deliverables covered by this Contract and to ensure compliance
with the provisions of this Contract applicable to such Material and
Deliverables. No payment shall be made if USEC determines that such records or
controls are inadequate.
(f) Contractor shall also provide for the incorporation of such terms
in any subcontract(s) as may be necessary to implement the invoice and delivery
provisions of this Contract.
(g) Payments shall be subject to acceptance of Services, Deliverables
and SOTDW Deliverables by USEC.
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4.3 Payment. Subject to Section 6.2, USEC shall make any payment required
hereunder within thirty (30) days after receipt of a proper invoice by USEC. If
the thirtieth (30th) day is not a Business Day, then payment shall be due on the
first Business Day thereafter. Prior to its privatization, if USEC fails to make
payment by the due date, then USEC shall pay Contractor interest at the rate
established by the Secretary of the Treasury under Section 12 of the Contract
Disputes Act of 1978, as amended, 41 U.S.C. Section 601 et seq.
4.4 Delivery Reconciliation. Before the Parties finalize the shipping
schedule in Section 5.1, the Parties will agree on a means to reconcile the
quantity of UF(6) delivered by USEC with the quantity of UF(6) deconverted by
Contractor.
ARTICLE 5 - DELIVERY SCHEDULE
5.1 Delivery Schedule. Promptly after the Effective Date, the Parties shall
agree upon a delivery schedule for UF(6) which is consistent with any applicable
limits specified by applicable laws, licenses, or permit conditions. It is
anticipated that the schedule would provide for delivery of approximately [***]
filled 14-ton cylinders per month during the Term of the Contract, beginning
August 1, 1998.
5.2 Delivery Suspension. Contractor may suspend shipments if acceptance of
the applicable UF(6) would cause Contractor to violate the limits specified
by applicable laws, licenses, or permit conditions. Such Contractor's
suspension notice must be received by USEC prior to the actual shipment of
the USEC-supplied cylinders. Contractor's suspension notice shall specify the
basis for the suspension and shall propose a new shipment date which is no
later than required for Contractor's compliance with its license conditions,
or which is no later than is mutually agreed upon by USEC and Contractor.
USEC shall not be responsible for any fines or excess costs resulting from
delivery of excess Material should Contractor not follow the provisions of
this Section, nor shall USEC be obligated to purchase services for UF(6)
that, due to a suspension, were not delivered during the Term. In addition,
any costs incurred by USEC (such as shipment costs) because Contractor failed
to provide the suspension notice required hereunder shall be reimbursed by
Contractor.
5.3 Deliveries at End of Term. Any UF(6) received by Contractor hereunder,
but not deconverted in accordance with this Contract before the end of the
Term shall be deconverted by Contractor as soon as practicable after the end
of the Term. The Contract shall govern Contractor's and USEC's rights and
obligations with respect to such deconversion to the same extent as if the
deconversion had been completed during the Term.
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ARTICLE 6 - TRANSPORTATION, TITLE, AND RESPONSIBILITY FOR UF(6) AND UF(4)
6.1 USEC to Ship UF(6). USEC shall arrange for the transportation of the
UF(6) from its facilities to Contractor's facilities located in Barnwell, SC.
Unless otherwise provided elsewhere in this Contract, USEC shall bear the
costs of such shipment.
6.2 Contractor to Inspect. Contractor shall inspect each shipment from USEC
to ensure it meets the requirements of the SODW and this Contract, and
complies with all applicable regulatory requirements. All UF(6) is provided
to Contractor on an "AS IS" basis, but in no event shall Contractor be
required to accept any shipment of USEC UF(6) which does not conform with any
regulatory restrictions.
6.3 Acceptance. Failure to object to a shipment within ten (10) days after it
is received by Contractor shall be deemed acceptance by Contractor and
Contractor shall have no further right to reject the shipment.
6.4 Contractor to Take Title. Contractor shall take title to, and assume all
responsibility for, all UF(6) Physically Delivered under this Contract.
6.5 Contractor to Empty and Return Cylinders. Contractor shall empty each
filled cylinder of UF(6) promptly after it is delivered to Contractor. USEC
shall arrange for the transportation of each empty cylinder to USEC's gaseous
diffusion plants in Paducah, Kentucky or Piketon, Ohio (as determined by
USEC). Contractor shall take such measures as USEC may reasonably request to
assist USEC or its contractor effect transportation. Unless otherwise
provided elsewhere in this Contract, USEC shall bear the costs of such
shipment.
6.6 Weight. The provisions governing the weighing of the UF(6) in the cylinders
and the heels that may remain in the cylinders after emptying are set forth in
Schedule A-1.
6.7 Resulting UF(4). The UF(4) resulting from the Services are not Deliverables
under this Contract. Contractor shall take title to, and assume full
responsibility for, such UF(4). Contractor hereby represents that it is
Contractor's intention to use the UF(4) in commercial and research
applications.
6.8 Weight Disputes. In the event of a dispute between the Parties concerning
the weight of a filled cylinder of UF(6), Contractor shall conduct a check
weighing during normal business hours using a mutually agreed scale. USEC
shall be given at least seven (7) days notice of such check weighing and
shall be afforded an opportunity to send a representative to observe the
check weighing. If the weight determined by the check weighing is within 5
kilograms of the weight determined by USEC, USEC's weight determination shall
control under the Contract; otherwise,
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Contractor's weight determination shall control. Contractor shall not have
the right to challenge USEC's weight determination if it breaks the seal of
the cylinder before the check weighing is conducted. Contractor's right to
payment for any Services performed on the UF(6) in a cylinder subject to the
check weighing procedure shall be suspended pending the outcome of the check
weighing.
ARTICLE 7 - INSPECTION
7.1 Inspection of Services and Deliverables. The Technical Representative
shall be responsible for inspection of all Deliverables submitted, and all
Services performed under this Contract. In the case of Services performed,
the Technical Representative shall also have the right to test or have tests
performed on the UF(4) or other material under Contractor's control to ensure
conformance with this Contract.
7.2 Rejection. At any time during the Term of this Contract or, if later,
within sixty (60) days after performance of Services, the Technical
Representative, by notice to Contractor, may reject a Deliverable or Service
if the Technical Representative determines that such Deliverable or Service
does not conform to the requirements of this Contract. Contractor shall have
fifteen (15) days after receiving notice of rejection to provide a cure
schedule. Such cure shall be completed within ninety (90) days after
Contractor's receipt of such notice unless otherwise mutually agreed by the
Parties. If Contractor fails to cure, or the cure is deemed unacceptable or
impracticable by the Technical Representative, USEC shall have the right (i)
to disallow that portion of any invoice covering such Service or Deliverable,
if USEC has not yet paid for the rejected Service or Deliverable or (ii) if
payment has already been made, to require Contractor to refund such payment.
USEC may also accept the defective Service and Deliverable, subject to an
equitable reduction in the amount due or paid to Contractor for such Service
or Deliverable. Nothing herein shall limit any other remedy available to USEC
under this Contract or at law or equity.
7.3 Inspection of Contractor's Facility(ies). Contractor's facilities and
operational procedures shall be subject to review, inspection and audit by
USEC representatives (including auditors engaged by USEC for this purpose)
during the Term for the purpose of assuring Contractor's capability and
adherence to applicable laws, license or permit conditions, and Contract
terms and conditions, and for the purposes of gaining a better understanding
of the Services performed by Contractor hereunder and of the Technology.
Contractor shall cooperate with, and provide reasonable access to, USEC
representatives for such review and inspection. USEC shall notify Contractor
at least five (5) days prior to any inspection of Contractor's facilities,
and USEC shall conduct all reviews and inspections in a reasonable manner and
shall use reasonable efforts to minimize any interference with the regular
conduct of Contractor's operations. Reference herein
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to "Contractor facilities and operational procedures" shall be deemed to also
refer to the facilities and operational procedures of Contractor's
subcontractors.
7.4 No Effect on Other USEC Rights. Neither USEC's inspection, approval or
acceptance of, nor payment for, the Services, Deliverables, or Contractor's
facilities required or provided for under this Contract shall be construed to
operate as a waiver of any of USEC's rights under this Contract or of any
cause of action arising out of the performance or non-performance of this
Contract. Further, notwithstanding such inspection, approval, acceptance or
payment, Contractor shall be and remain liable to USEC in accordance with all
applicable laws and regulations for all damages to USEC caused by or
resulting from Contractor's negligence or willful misconduct in performance
of any of the Services or provision of any of the Deliverables or SOTDW
Deliverables.
ARTICLE 8 - WARRANTIES
8.1 Standards. Contractor shall be responsible for the professional quality,
technical accuracy and the coordination of all Services, Deliverables and
SOTDW Deliverables furnished by Contractor under this Contract. Contractor
shall expend its best professional efforts to perform the Services and
prepare the Deliverables and SOTDW Deliverables with all due diligence,
economy and efficiency, in accordance with: the Statement of Deconversion
Work; the Statement of Technology Development Work; generally accepted
techniques and practices in the uranium processing industry; sound management
and technical and engineering practices; and applicable law and regulations.
8.2 Contractor's Representations, Warranties, and Certain Covenants.
(a) Contractor represents, warrants and covenants that:
(i) Contractor understands the requirements, restrictions,
and conditions imposed by governmental laws, regulations, licenses, permits,
and inspections for this Material as both UF(6) and UF(4), and shall abide
by, and conduct its business, perform the Services, and produce the
Deliverables in accordance with, those governmental requirements;
(ii) At its own cost, Contractor shall obtain any licenses
or permits (including amendments to existing licenses and permits) as may be
necessary for Contractor to accept the quantities of UF(6) contemplated by
this Contract, and to perform the Services, in accordance with the schedule
agreed by the Parties;
(iii) At all times required for performance of this Contract,
the decontamination and decommissioning (D&D) plan filed with the South Carolina
Department of Health and
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Environmental Control (DHEC) pursuant to Contractor's radioactive material
license shall cover the activities under, and Material resulting from, this
Contract;
(iv) The Services and Deliverables shall conform to the
applicable specifications and requirements in Schedules A-1 and A-2 of this
Contract;
(v) Contractor is the sole and exclusive owner of the patent
applications set forth on Schedule G hereto. Contractor owns and shall own all
right, title and interest in and to the New Technology or has and shall have the
valid right to use the New Technology in connection with performing services,
granting the licenses required hereunder, and making, having made, using,
selling, and offering for sale the Deliverables. To the best of Contractor's
knowledge and belief, the Background Rights are owned by or licensed to
Contractor, and subject to Section 14.9 of this Contract, Contractor has the
valid right to use the Background Rights in connection with performing services,
granting the licenses required hereunder, and making, having made, using,
selling, and offering for sale the Deliverables.
(vi) Except as specifically set forth in this Section 8.2, the
Technology is furnished "AS IS" and without warranty of any kind and Contractor
shall have no liability for any claim of infringement of any intellectual
property related in any way to the use of the Technology by USEC; provided,
however, that the foregoing limitation of liability shall not be construed to
limit Contractor's obligations under Section 14.11 of this Contract.
(vii) There are no liens, pledges, encumbrances, security
interests or title claims created by Contractor, its agents or others acting on
its behalf, that conflict or interfere with Contractor's ability to convey the
rights to USEC that Contractor purports to convey to USEC by the terms of this
Contract, or with the performance of the Services under this Contract. In the
performance of Services hereunder, Contractor shall only use technology which
Contractor believes at the time of use (A) it has a right to use for such
purpose, and (B) does not infringe upon the intellectual property rights of any
third party.
(viii) The Background Rights and the inventions described
in the patent applications in Schedule G represent all the intellectual
property rights which are presently owned or controlled by or licensed to
Contractor that are related to the conversion of UF(6) into uranium oxide
and/or other byproducts, except for the DUCRETE-TM- Technology.
(ix) All Material shall be used and stored at Contractor's
facility in South Carolina.
(b) To the extent permitted by law and without regard to the fault or
negligence of USEC, its directors, officers, employees, other contractors or
agents, Contractor shall indemnify,
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hold harmless and, at USEC's option, defend USEC against liability and any
resulting damages, costs and expenses (including reasonable attorney's fees)
suffered or incurred by USEC as a result of Contractor's breach of any of the
representations, warranties and covenants in Section 8.2(a).
8.3 USEC's Representations and Warranties. USEC represents and warrants that
it has legal right and ability to ship, and pass the title of, the UF(6) to
Contractor.
8.4 Mutual Representations and Warranties. Each Party represents and warrants to
the other Party that (a) it is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, (b) it
has the corporate power and corporate authority to execute and deliver this
Contract and consummate the transactions contemplated hereby, (c) this Contract
has been duly executed and delivered by it and constitutes, when executed by the
other Party hereto, its valid and binding agreement, enforceable against it in
accordance with its terms, and (d) neither the execution, delivery or
performance of this Contract nor the consummation by it of the transactions
contemplated hereby will (i) result in any breach or violation of any provision
of its certificate of incorporation or by-laws or (ii) result in a default
under, or result in any termination or cancellation under, any of the terms of
any agreement or other contract to which it is a party.
8.5 Remedies Available to USEC.
(a) In addition to and not in lieu of the remedies of USEC set forth in
this Contract, Contractor shall, without additional compensation, cure any
errors or deficiencies in the Deliverables or Services, in this Contract, of
which it is notified by USEC during the Term hereof or up to and including one
(1) year after termination or expiration hereof.
(b) If a cure is not feasible, or if Contractor fails to promptly make
such a cure, USEC may (i) reduce the Price or other amount paid or payable for
the non-conforming Deliverable or Service, by an amount equitable under the
circumstances; or (ii) terminate or suspend the Contract pursuant to Paragraph
19 of the General Terms and Conditions of this Contract.
(c) If USEC requires Contractor to cure a non-conforming Service or
Deliverable, Contractor shall have fifteen (15) days after notice thereof to
provide to USEC a cure schedule, and, unless otherwise agreed, such cure shall
be completed within ninety (90) days after Contractor's receipt of such notice.
The cure of the non-conforming Service or Deliverable shall be subject to USEC's
approval and at no cost to USEC.
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(d) If Contractor fails to cure the non-conforming Deliverable and/or
Service within the time established in Section 8.5(c) for such cure, then USEC
may, by contract or otherwise, cure the non-conforming Deliverable and/or
Service. Contractor shall promptly reimburse USEC for any costs incurred by USEC
in curing the non-conforming Service or Deliverable (or, if USEC has not yet
fully paid for such Service or Deliverable, the amount by which such costs
exceed the amounts owed by USEC for the Service or Deliverable that USEC has not
yet previously paid).
(e) If USEC equitably reduces the amount owed for a Service or
Deliverable already paid for by USEC, USEC shall have the right to a prompt
refund from Contractor, with interest, or, at its option, may offset such refund
against any sums owed by USEC to Contractor, whether or not owed under this
Contract. USEC shall have a similar right of offset with respect to amounts owed
by Contractor under Section 8.5(f) or (g).
(f) If Contractor fails to furnish timely disposition instructions,
USEC may dispose of the non-conforming Deliverable for Contractor's account in a
reasonable manner. USEC is entitled to reimbursement from Contractor, and/or
from the proceeds of such disposal, for the reasonable expenses of the care and
disposition of the non-conforming Deliverable, as well as for excess costs
incurred or to be incurred in connection with such care and disposition.
(g) If Contractor disputes responsibility for the non-conforming
Service and/or Deliverable, Contractor shall nevertheless proceed in accordance
with any written request issued by USEC under this Section 8.5 to cure the
non-conforming Service and/or Deliverable. If the Parties subsequently agree
under Paragraph 10 of the General Terms and Conditions of this Contract, that
the Service and/or Deliverable conforms to the terms of this Contract, the Price
will be equitably increased by USEC to compensate Contractor for any additional
Service and/or Deliverable provided.
(h) The rights and remedies of USEC provided in this Article are in
addition to and do not limit any rights afforded to USEC under applicable law or
regulation or any other provision of this Contract, including those under
Article 7.
ARTICLE 9 - SUBCONTRACTS AND CONSULTANTS
9.1 USEC Consent Required. Contractor shall obtain the written approval of USEC
before placing any subcontract under this Contract for performance of Services,
in whole or in part, where such subcontract is estimated to exceed [***] or is
one of a number of subcontracts with a single subcontractor under this Contract
that, in the aggregate, are expected to exceed [***].
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9.2 Subcontracts and Purchase Orders Subject to the Terms of this Contract.
Contractor shall include this Article 9 and Article 10 with appropriate
redesignation of the Parties in any subcontract awarded or purchase order placed
under this Contract for performance of services and provide for the
incorporation of the Federal Acquisition Regulation ("FAR") clauses of Schedules
B and C into any such subcontract or purchase order to the extent that Schedules
B or C specify that a clause listed therein applies to such subcontract or
purchase order. Additionally, Contractor shall incorporate into each subcontract
the waiver of claims in Article 19 and Paragraph 22 of the General Terms and
conditions.
9.3 Subcontractor Conflicts of Interest. Contractor shall ensure that
subcontracts include protection against Conflicts of Interest (as defined in
Section 12.1) acceptable to USEC. If requested by USEC, Contractor shall cause
subcontractors to execute agreements with USEC for the protection of USEC
Proprietary Information (as defined in Section 14.1) prior to engaging
subcontractors in work under this Contract, which requires access to USEC
Restricted Proprietary Information.
ARTICLE 10 - INSURANCE
10.1 Required Insurance. During the Term hereof, Contractor (and each
subcontractor authorized under Article 9 to perform Services) shall maintain, at
no cost to USEC, at least the following kinds and amounts of insurance to cover
bodily injury (including death) and property damage suffered or (in the case of
liability insurance) caused by Contractor (or, if applicable, subcontractor) or
its employees in connection with the performance of the Services:
(a) Excess or Umbrella Liability: [***] per occurrence for both bodily
injury and property damage over any applicable employer's liability, general
liability, automobile liability or professional liability insurance coverage
maintained by Contractor.
(b) Workers Compensation: Maximum statutorily required amount with a
minimum of $1 million in employer's liability insurance per employee, per
accident (if Contractor has any employees that would otherwise be eligible for
workman's compensation under applicable law).
(c) General Liability: [***] per occurrence for both bodily injury and
property damage.
(d) Automobile Liability: [***] per occurrence for bodily injury and
property damage.
(e) Professional Liability Insurance: [***] per occurrence for
professional liability.
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(f) Property Insurance: Property Insurance in the amount of [***]
covering physical loss or damage to the property described in Schedule F while
such property is in the care, custody, or control of Contractor or Contractor's
agent or subcontractor.
(g) Nuclear Liability: Contractor shall, without cost to USEC, obtain
and maintain nuclear liability insurance at each facility at which the Material
is processed or stored or during any portion of the transportation of the
Material to or from any facilities or between facilities. The nuclear liability
insurance shall provide coverage for at least [***] per occurrence for property
damage and bodily injury arising from a nuclear incident, as defined in section
170 of the Atomic Energy Act of 1954.
10.2 Additional Insured. To the extent permitted by applicable law and the
applicable insurance policy, USEC shall be designated as an additional named
insured on Contractor's (and any subcontractor's) liability policies required
under Section 10.1, or, in the case of nuclear liability insurance, included
within the scope of the insured persons under the policy. If USEC cannot be
designated as an additional named insured under a policy and is not included
within the scope of the insured parties under such policy, Contractor shall (and
shall cause its permitted subcontractors to) obtain a waiver of any rights of
recourse or subrogation that the insurer on such policy may have against USEC.
10.3 Evidence of Insurance. Upon demand by USEC, Contractor shall provide
written evidence of all the liability policies required under Sections 10.1 and
any designations or waivers required under Section 10.2.
10.4 Notice of Cancellation/Coverage Reduction. A "notice of
cancellation/coverage reduction" clause shall be included in Contractor's
liability policies required under Section 10.1 that shall require the policy
issuer to give USEC at least thirty (30) days' notice prior to cancellation or
reduction in coverage under such policy.
10.5 USEC Furnished Property. Property furnished by USEC to Contractor for
performance of this Contract is listed in Schedule F and shall be subject to
Paragraph 15 of the attached General Terms and Conditions. Such property shall
remain in the possession of Contractor until delivered to USEC.
ARTICLE 11 - CONTRACTOR REPORTS
Contractor shall prepare and provide a report, on a schedule consistent with
Schedule E, to USEC within ten (10) days following the end of each month during
the Term of this Contract. At any time after receipt of a monthly or quarterly
report, USEC may schedule a conference with Contractor to discuss the report and
the status of Contract performance.
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ARTICLE 12 - CONFLICTS OF INTEREST
12.1 Conflicts of Interest.
(a) Definition. "Conflict of Interest" means that, because of other
activities or relationships with other persons (including, without limitation,
competitors of USEC), Contractor is unable or potentially unable to render
impartial assistance or advice to USEC, or Contractor's objectivity in
performing under this Contract is or might be otherwise impaired, or Contractor
has an unfair competitive advantage over other parties who competed or otherwise
were qualified to compete for the award of this Contract.
(b) Disclosure of Conflicts of Interest. In the event that Contractor
discovers either a Conflict of Interest during the Contract Term or a material
change in a Conflict of Interest that existed as of the Effective Date but that
was waived by USEC, Contractor shall make an immediate and full disclosure
thereof in writing to USEC including a description of the action that Contractor
has taken or proposes to take to avoid or mitigate such new conflict or material
change in a pre-existing conflict. Without limiting any other rights it may have
under law or equity, USEC reserves the right to terminate this Contract for
Default (as defined in the General Terms and Conditions) if it determines that
Contractor was aware of a Conflict of Interest prior to the award of this
Contract and did not disclose the conflict to USEC prior to its award, or if
Contractor becomes aware of a Conflict of Interest after the award of this
Contract and fails to promptly disclose such conflict to USEC.
ARTICLE 13 - SECURITY OF CLASSIFIED INFORMATION AND CONTROLLED AREAS
13.1 Classified Information Access.
(a) Classified Information Defined. "Classified Information" means any
information or material, regardless of its physical form or characteristics that
has been determined pursuant to Executive Order 12356 or prior Executive Orders
to require protection against unauthorized disclosure, and which is so
designated; and all data concerning design, manufacture or utilization of atomic
weapons, the production of special nuclear material, or the use of special
nuclear material in the production of energy, but shall not include the data
declassified or removed from the Restricted Data category pursuant to Section
142 of the Atomic Energy Act of 1954, as amended ("AEA") unless protected under
Section 142d of the AEA.
(b) Security Clearance. The Parties recognize that the Department of
Energy ("DOE") may determine security classifications and issue security
clearances required for performance of all or part of this Contract. Contractor
shall follow the rules and procedures of DOE and other
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responsible governmental authorities regarding access to and safeguarding of
Classified Information, security clearances and other security matters,
including the requirements of DOE Acquisition Regulations (the "DEAR") (see 48
C.F.R. Chapter 9) 952.204-2 Security Matters, DEAR 951.204-20 Classification,
and the procedures with respect to Foreign Ownership Control and Interest
("FOCI") in DEAR 904.7000 et seq., DEAR 952.204-73 and DEAR 952.204-74.
Contractor shall not permit any individual to have access to any level or
category of Classified Information, except in accordance with applicable laws
and procedures. Contractor shall not be granted access to any Classified
Information until USEC has notified Contractor that such access has been
approved by a DOE FOCI determination.
13.2 Site Access. The AVLIS site at Lawrence Livermore National Laboratory and
USEC's gaseous diffusion plants at Piketon, Ohio and Paducah, Kentucky are each
enclosed by a perimeter fence establishing a "controlled" area. At the time of
initial entrance to the site, Contractor's employees shall report to the
applicable badge office for security processing. Processing of Contractor's
employees shall be done without charge to Contractor. All Contractor employees
performing hereunder must be United States citizens. If naturalized, proper
evidence must be furnished. All employees must have picture identification with
them upon arrival at the applicable badge office. The continued presence of
Contractor's employees on-site is subject to review by USEC, DOE and/or other
USEC or DOE contractors based upon a check of appropriate records of law
enforcement agencies.
13.3 Technology Transfer Controls. Even if not classified, information related
to enrichment, an enrichment facility or a component of an enrichment facility,
are subject to U.S. Government restrictions on technology transfers, including
those found in 10 C.F.R. parts 110, 810, or 1017 or 15 C.F.R. part 779.
Accordingly, Contractor shall not disclose such information in any manner
inconsistent with any such U.S. Government restriction. Further, Contractor
shall not use, nor permit any subcontractor to use, any non-U.S. national or
non-U.S. owned entity in connection with delivery to, or work at a controlled
area without first ensuring that such use is consistent with such restrictions.
ARTICLE 14 - INTELLECTUAL PROPERTY AND PROPRIETARY INFORMATION
14.1 Definitions.
(a) "Contract Data" means Data first produced or generated in the
performance of this Contract other than Data already included in the definition
of Technology.
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(b) "Contractor Proprietary Information" means information and Data
provided to USEC by Contractor under this Contract that embodies a trade secret
owned or controlled by or licensed to Contractor.
(c) "Disclosee" and "Disclosor" shall have the meanings ascribed to
them in this Section 14.1.
(e) "Proprietary Information" means, as the context requires, USEC
Proprietary Information and/or, Contractor Proprietary Information.
(f) "USEC Proprietary Information" means (i) all Data acquired by
Contractor from USEC or from a person acting on USEC's behalf, including any
analyses, findings, or other information or know-how or conclusions made
therefrom by Contractor in performing this Contract, and any Data marked with a
restrictive marking such as but not limited to "USEC Restricted Proprietary
Information" and (ii) all other information disclosed in writing or orally by
USEC or others acting on its behalf, or that is otherwise acquired by Contractor
through visual inspection by, or demonstration to, Contractor under this
Contract or any prior contract between Contractor and USEC or USEC's
predecessors.
Notwithstanding the provisions of this Section 14.1, "Proprietary Information"
of a Party (the "Disclosor") shall not include information that the other Party
(the "Disclosee") can produce sufficient documentary evidence to establish (i)
is, or has become, generally available to the public other than as a result of
an unauthorized disclosure by the Disclosee or a person who acquired such
information or Data from the Disclosee, (ii) was within the possession of the
Disclosee prior to its being furnished to the Disclosee hereunder; provided that
the source of such information or Data was not bound by a confidentiality
agreement with, or other obligation of confidentiality to, the Disclosor, (iii)
was received by the Disclosee from a third person who had the right to disclose
such Data or information, or (iv) was, at any time, independently developed by
or for the Disclosee without the benefit or use of the other Party's Proprietary
Information.
14.2 USEC Proprietary Information.
(a) Use and Disclosure. Subject to Section 14.4, Contractor agrees (i)
to keep confidential all USEC Proprietary Information; (ii) not to use any USEC
Proprietary Information for any purpose other than performance of this Contract;
and (iii) not to disclose any USEC Proprietary Information to (A) any employee
of Contractor unless (1) disclosure is necessary to perform this Contract, (2)
such disclosure is limited to the specific information that is necessary for
such performance and (3) such employee has been made aware of the confidential
nature of such information and agreed to abide by the provisions of this Article
applicable thereto or (B) any third party (including subcontractors) unless
Contractor receives USEC's prior written
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consent to such disclosure and such disclosure is subject to a written agreement
which imposes confidentiality obligations that are substantially the same as
those contained herein.
(b) Return of USEC Proprietary Information. Unless otherwise instructed
by USEC in writing, Contractor shall return to USEC all USEC Proprietary
Information within thirty (30) Business Days after the earlier of date of the
termination or expiration of this Contract or the completion of the Services.
14.3 Contractor Proprietary Information.
(a) Identification. Contractor shall identify all Contractor
Proprietary Information that it makes available to USEC under this Contract with
a restrictive marking stating that it is Contractor Proprietary Information,
prior to the delivery of such Contractor Proprietary Information to USEC or
others acting on USEC's behalf. If Contractor Proprietary Information is not so
marked, then Contractor shall notify USEC in writing of the confidential aspects
of such information prior to its disclosure to USEC or others acting on USEC's
behalf. USEC shall not be obligated to keep confidential any Data or other
information provided by Contractor that is not identified as Contractor
Proprietary Information in accordance with Section 14.3(a). Notwithstanding the
foregoing, it is understood and agreed that any and all Technology licensed to
USEC hereunder shall be deemed to be Contractor Proprietary Information, whether
or not so marked.
(b) Disclosure by USEC. Subject to Sections 14.3(c) and 14.4, USEC
agrees (i) to keep confidential all Contractor Proprietary Information; (ii) not
to use any Contractor Proprietary Information for any purpose other than
performance of this Contract, to exercise its rights under the license granted
under Section 14.6(b)(ii), and to evaluate the Technology and business
opportunities utilizing the Technology; and (iii) not to disclose any Contractor
Proprietary Information to (A) any employee of USEC or a person or entity acting
on USEC's behalf, or to a third party, unless (1) disclosure is necessary to
perform this Contract, to exercise its rights under the license granted under
Section 14.6(b)(ii), or to evaluate the Technology and business opportunities
utilizing the Technology and (2) such employee or person or entity acting on
USEC's behalf has been made aware of the confidential nature of such information
and agreed to abide by the provisions of this Article applicable thereto or (3)
with respect to a third party, such third party is subject to a written
agreement which imposes confidentiality obligations that are substantially the
same as those contained herein. Notwithstanding the foregoing, USEC may also
disclose Contractor Proprietary Information to the U.S. Nuclear Regulatory
Commission, the U.S. Department of Energy, the U.S. Environmental Protection
Agency, the U.S. Department of Transportation or any other federal, state and
local agencies or instrumentalities to the extent necessary to (x) comply with
applicable legal or regulatory requirements or (y) perform or enforce this
Contract.
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(c) Successors and Affiliates. The Parties recognize that USEC may need
to disclose Contractor Proprietary Information to affiliates and prospective
assignees, including but not limited to, investors, their representatives and
other Parties in connection with the privatization of USEC pursuant to the
Atomic Energy Act of 1954, as amended. Accordingly, USEC may disclose Contractor
Proprietary Information (i) to such affiliates and prospective assignees,
provided that USEC takes reasonable precautions to protect the confidentiality
of such Contractor Proprietary Information, or (ii) to the extent required by
law, including in connection with an offering of its securities or a sale of its
business. For purposes of this Section 14.3(c), "affiliate" shall mean an entity
that controls, is controlled by, or is under common control with, USEC or its
successor.
(d) Deliverables. Subject to Section 14.6(b)(iii), nothing in this
Article 14 shall be deemed to require USEC to keep confidential any Deliverable.
14.4 Required Disclosure. Except for disclosures authorized under Section
14.3(c), if a Disclosee (as defined in Section 14.1) receives an order, request,
subpoena or similar legal inquiry from a governmental authority which
encompasses the Disclosor's Proprietary Information, or is otherwise required by
law to disclose such Proprietary Information, the Disclosee shall immediately
notify (if permitted by applicable law or regulation) and consult with the other
Party. If the other Party determines that such Proprietary Information (or
portions thereof) should not be disclosed, then the Parties shall cooperate with
each other, to seek relief from the requested disclosure or to secure
confidential treatment and minimization of any such Proprietary Information that
must be disclosed to the governmental authority. This Section shall not be
construed to constrain any Party from complying with lawful governmental orders.
14.5 Standard of Care. Each Party (the "Receiving Party") shall protect the
other Party's Proprietary Information using the same degree of care as the
Receiving Party uses to protect its own confidential information of a like
nature from unauthorized use, disclosure or dissemination, but no less than a
reasonable degree of care.
14.6 Allocation of Technology Rights.
(a) Disclosure of Technology.
(i) As soon as practicable after the execution of this
Contract, Contractor shall deliver to USEC copies of information and Data, in
whatever form, and, to the extent practicable, tangible items, which embody
and/or describe the Technology, as it stands as of the date of such disclosure,
in reasonable detail.
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(ii) Contractor shall provide USEC with a written report on
each item of Technology developed, conceived or acquired by Contractor during
the term of this Contract promptly after its development, conception, or
acquisition, whichever is the earliest. The report shall identify the
inventor(s), and shall be sufficiently complete in technical detail to convey a
clear understanding, to the extent known at the time of the disclosure, of the
nature, purposes, operation, and the physical, chemical, biological, or
electrical characteristics of such Technology. In addition, Contractor shall
make further disclosures to USEC regarding each such item of Technology,
including the delivery to USEC of any information and Data in whatever form and,
to the extent practicable, tangible items which embody and/or describe such
Technology in reasonable detail.
(iii) In addition to its obligations under Section 7.3,
Contractor shall make available to USEC and persons acting on its behalf, access
to such personnel, machinery, equipment and other documents in Contractor's
possession or under its control as USEC may reasonably deem necessary in order
for USEC and persons acting on its behalf to understand the Technology.
(iv) Contractor shall deliver to USEC all Contract Data as
soon as practicable after its compilation.
(b) License of Rights in Technology.
(i) Listed in Schedule G are all the patents and patent
applications, currently owned or controlled by, or licensed to Contractor, that
are included in the New Technology as of the date hereof. Contractor shall
promptly update Schedule G if it identifies additional trade secrets, patents
and patent applications that should be included thereon or upon request of USEC,
to reflect the addition of items of Technology developed, conceived or acquired
by USEC after the date hereof; provided, however, that the failure to so update
Schedule G shall not affect the scope of USEC's licenses hereunder.
(ii) Contractor hereby grants to USEC [***] license [***].
The license shall include, in addition to all other rights of a licensee as a
matter of law, the right to (A) [***], (B) [***], (C) [***] and (D) [***].
Royalties shall be payable with respect to USEC's or its sublicensee's use of
the New Technology to Contractor as provided in Section 14.6(b)(v) below.
This license shall survive the expiration or termination of this Contract.
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(iii) Contractor agrees to execute and deliver to USEC any and
all further instruments or documents required by USEC from time to time in order
to confirm or record the license set forth above.
(iv) Contractor shall maintain all patents and diligently
prosecute, at Contractor's sole cost and expense, all patents and patent
applications which are included in the Technology. If, at any time, Contractor
desires to discontinue the payment of prosecution or maintenance expenses with
respect to any patent or patent application included in the Technology or
Contract Data and filed after the date hereof, then Contractor shall notify
USEC. USEC shall have the option of deciding whether USEC wishes to assume the
entire expense of continuing to prosecute or maintain in effect such patent. In
the event USEC elects to assume the entire expense, Contractor shall transfer to
USEC all Contractor's right, title, and interest in the patent or patent
application, subject to the retention of an irrevocable perpetual world-wide
non-exclusive license thereunder.
(v) USEC shall pay to Contractor a mutually-agreeable royalty
with respect to USEC's use or license of the New Technology and Contract Data
for a period of [***]. No royalty shall be payable to Contractor for USEC's use
and/or licensing of the Background Rights. The manner in which the royalty will
be determined, including any reduction due to the expiration of patents will be
governed by Section 14.12 below. No royalty need be paid for the use of the New
Technology in connection with non-commercial research and development
activities.
14.7 Infringements.
(a) Each Party shall promptly notify the other of any infringements, or
unauthorized uses of the Technology, or Contract Data which may come to its
attention.
(b) Contractor shall have the sole initial right to commence any action
to stop such imitation, infringement or unauthorized use of the Technology or
Contract Data pay all expenses and retain all recoveries. In the event that
Contractor does not commence such an action to stop such imitation,
infringement, or unauthorized use within sixty (60) days after notice thereof
from USEC, then USEC may commence such action, pay all expenses and retain all
recoveries. Each Party agrees to cooperate in any action brought solely by the
other Party with respect to any infringement, or unauthorized use of the
Technology or Contract Data including, without limitation, by joining as a party
to any litigation, action or proceeding in order to maintain standing, subject
to the reimbursement of expenses.
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14.8 Contractor's Acquisition of Rights in Technology. Contractor shall require,
by written agreement with its employees, consultants and subcontractors, other
than clerical and nontechnical employees, that such employees, consultants and
subcontractors promptly disclose in writing to Contractor all Technology and
Contract Data conceived or reduced to practice by such employee, consultant or
subcontractor, and to execute all documents necessary to file, patent or
copyright applications with respect thereto and to assign all right, title and
interest in and to such patent applications or copyright applications, or any
resulting patents or copyright applications, to Contractor. Contractor shall
acquire all right, title and interest in and to all copyrights in any Data first
prepared or generated in the performance of this Contract by written assignment
or, to the extent legally possible, as a "work for hire".
14.9 Third Party Licensed Technology. USEC's rights in any component of the
Technology or Contract Data which is licensed to Contractor by an unaffiliated
third party shall be subject to the terms of such license agreements ("Third
Party Licenses"). Schedule H hereto contains a complete and accurate list of all
components of the Technology which are subject to Third Party Licenses and
indicates which licenses are non-transferable. To the extent that the right to
such component of the Technology, or Contract Data can not be sublicensed to
USEC under said Third Party License without such licensor's consent, Contractor
shall make a reasonable commercial effort to obtain such licensor's consent to
provide USEC with a sublicense or equivalent benefit under such Third Party
License. Beginning on the Effective Date, Contractor shall not enter into any
Third Party Licenses which prohibit sublicensing or other relevant restrictions
on use of the Technology or Contract Data licensed thereunder, without USEC's
written consent.
14.10 Commercial Business Options.
(a) USEC agrees that it will not commercially exploit, or enter into
any agreement (other than with Contractor) to commercially exploit the
Technology or Contract Data during the J.V. Formation Period.
(b) During the J.V. Formation Period, USEC shall have the exclusive
right to enter into a joint venture, teaming arrangement, partnering
arrangement, licensing arrangement, or similar agreement or arrangement (a
"Joint Venture"), with Contractor to commercially exploit business
opportunities involving the deconversion of depleted UF(6) to metal and/or
oxide or other byproducts. Among the business opportunities that the Joint
Venture would explore would include the deconversion of depleted UF(6) to
metal and/or oxide for
- [***]
- [***]
- [***]
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- [***]
- [***]
During the J.V. Formation Period, Contractor shall not enter into a Joint
Venture with any other party involving the deconversion of UF(6) or any of the
above products without the express written consent of USEC. Upon USEC's
request, Contractor shall negotiate a Joint Venture with USEC in good faith,
such joint venture to be formed no later than the end of the joint venture
period. Such Joint Venture shall have the following terms:
(i) USEC and Contractor would grant the Joint Venture an
exclusive license in and to the Technology for so long as the Joint Venture
remained in existence. Contractor and USEC would grant the Joint Venture a
non-exclusive license to any other technology owned or controlled by Contractor
and USEC, as may be necessary to exploit the Technology.
(ii) In the event that the Parties desire to pursue a joint
venture arrangement in which each Party would provide capital, the initial
capital contribution and participation would be [***] USEC and [***] Contractor.
To the extent that the Parties provide capital in addition to capital that may
be raised externally, the shares of the Parties would be adjusted in proportion
to their respective contributions. For purposes hereof, a contribution of
technology shall not be considered a capital contribution.
(iii) Except for those terms agreed herein, the specific terms
of the Joint Venture will be negotiated in good faith between the parties.
Neither Party shall be obligated to enter into a Joint Venture with the other.
Third Party participation in the Joint Venture would be by mutual agreement of
both Parties.
(c) If the Parties have not formed the Joint Venture by the end of
the J.V. Formation Period, then:
(i) USEC may utilize the Technology for any purpose,
including to pursue business opportunities by itself or with any third party
involving the deconversion of depleted UF(6) to metal and/or oxide or other
byproducts, subject to payment of a royalty to Contractor for the use of the
New Technology as contemplated under Section 14.6(b)(v).
(ii) Contractor may utilize the Technology for any purpose,
including to pursue business opportunities by itself or with any third party,
involving the deconversion of depleted UF(6) to metal and/or oxide or other
byproducts, subject to payment of a fee to USEC for the use of the New
Technology, as contemplated under Section 14.10(c)(iii) unless the Contractor
uses only its existing UF(4) inventories (those prior to this Contract) to
exploit these opportunities.
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(iii) Contractor shall pay to USEC a mutually-agreeable fee
(the "Fee") with respect to Contractor's use or license of the New Technology
and Contract Data for a period of [***]. No Fee shall be payable to USEC for
Contractor's use or licensing of the Background Rights. The manner in which
the Fee will be determined, including any reduction due to the expiration of
patents shall be governed by Section 14.12 below. No Fee need be paid for the
use of the New Technology in connection with non- commercial research and
development activities.
(d) Nothing herein precludes Contractor from entering into (i)
commercial sale or service arrangements with third parties for the
deconversion of depleted UF(6), or (ii) commercial arrangements for the sale
of products resulting from the deconversion of depleted UF(6); unless, in
either case, the arrangement with a third party is in substance a Joint
Venture or equivalent to a Joint Venture. USEC shall have no right to any
compensation in connection with Contractor's activities under these
arrangements except as follows: During the J.V. Formation Period, Contractor
shall inform USEC in advance of any such business opportunities associated
with the deconversion of depleted UF(6) to metal and/or oxide, and shall give
USEC the right of first refusal to participate therein.
14.11 Indemnification. Contractor shall indemnify, save harmless and, if
requested by USEC, defend USEC, its directors, officers, employees, contractors
and agents from and against any and all liabilities, claims, penalties,
forfeitures, and suits, and the costs and expenses incident thereto (including
costs of defense, settlement and reasonable attorney's fees) which they or any
of them may hereafter incur, become responsible for, or pay out as a result of
any claim that the Services performed by Contractor hereunder and the SODW
Deliverables infringe upon the intellectual property rights of any third party.
14.12 Arbitration of Royalties and Fees.
(a) In the event that the Parties are unable to come to a mutual
agreement as to the amount or manner of calculation of the royalties and Fees
payable under Sections 14.6(b)(v) and 14.10(c)(iii), respectively, either
Contractor or USEC may, upon written notice given to the other, call for
submission of the matter to arbitration pursuant to this Section 14.12. Within
ten
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(10) days after the giving of such notice, each Party shall furnish to the other
party a proposed award ("Proposed Award") setting forth the terms of the award
(on a word-for-word basis) that such Party wishes the arbitrator(s) to make.
Within ten (10) days after the delivery of the two Proposed Awards, the Parties
shall attend a Meeting (the "Meeting") at a mutually acceptable time and place
to discuss fully the content of such Proposed Awards. At the Meeting, the
Parties shall attempt to reconcile the differences between their respective
Proposed Awards so as to avoid the delay and expense of the arbitration
procedure hereinafter set forth. If such reconciliation is not achieved at the
Meeting, each Party may modify its Proposed Award in any way. Any such
modifications shall be discussed with the other Party, so that when each Party
finalizes its Proposed Award, it shall do so with full knowledge of the content
of the other Party's final Proposed Award. The finalization of such Proposed
Awards and the delivery of same by each Party to the other shall occur within a
week after the Meeting.
(b) The arbitration shall be conducted by a person knowledgeable and
experienced in the calculation of royalties for licenses of intellectual
property. In the event the parties are unable to agree upon such person within
ten (10) days after the last Meeting held pursuant to the foregoing paragraph,
then each Party shall select a person that it believes has the qualifications
set forth above as its designated arbitrator (which selection shall be
accomplished by notifying the other party of the identity of such person), and
such arbitrators so designated shall mutually agree upon a similarly-qualified
third person to complete the arbitration panel; provided, however, that if one
of the Parties fails to select its designated arbitrator as specified herein
within ten (10) days of receiving notice from the other party that such other
party has selected its designated arbitrator, then the arbitration shall be
conducted by the one arbitrator so designated. In the event that the persons
selected by the parties are unable to agree on a third member of the panel
within ten (10) days after the selection of the latter of the two arbitrators,
such person shall be designated by the American Arbitration Association.
(c) Upon final selection of the entire panel, such panel shall, as
expeditiously as possible (and if possible, within 30 days after the selection
of the last arbitrator), render its award. Such panel shall be required to adopt
either the Contractor's final Proposed Award or USEC's final Proposed Award
without modification and shall have no power whatsoever to reach any other
result. Such panel shall adopt the Proposed Award that in its judgment is the
more fair, equitable and in conformity with this Agreement. Each Party may
submit to the arbitrator (s) a written statement in support of its Proposed
Award. The arbitration shall be conducted in New York, New York, in accordance
with the then-prevailing Commercial Arbitration Rules of the American
Arbitration Association. Judgment may be entered upon the award in any court of
competent jurisdiction.
ARTICLE 15 - INCORPORATION OF ADDITIONAL CONTRACT CLAUSES
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CONTRACT NO. 80623
15.1 Additional Clauses and Provisions. The additional contract clauses set
forth in Schedule B and the representations and certificates in Schedule C are
incorporated herein by reference and shall take precedence over the provisions
of Articles hereof. Except for specific references to Federal Acquisition
Regulations ("FAR") or supplements thereto in this Contract, and the FAR clauses
in Schedule B incorporated into this Contract and the representations and
certificates in Schedule C, FAR requirements do not otherwise apply to this
Contract.
15.2 References. References in the clauses listed in Schedule B and the
representations and certificates in Schedule C to the Contracting Party shall be
deemed to refer to Contractor, references to Contracting Officer shall be deemed
to refer to Buyer, references to the Contracting agency shall be deemed to be
references to USEC and references to the Government or U.S. Government shall be
deemed to include USEC unless the context thereof indicates otherwise.
15.3 General Terms and Conditions. This Contract is subject to the attached
General Terms and Conditions, which together with all Schedules hereto, is
incorporated by reference into this Contract.
ARTICLE 16 - NOTICES
Any notice, request, demand, claim or other communication related to this
Contract shall be in writing and delivered by hand or transmitted by telecopier,
registered mail (postage prepaid), or overnight courier to the other Party at
the following numbers and addresses:
Contractor: Starmet Corporation
2229 Main Street
Concord, MA 01742
ATTN: Donald T. King
Telephone: 978-369-5410
Telecopier: 978-369-4045
USEC: United States Enrichment Corporation
2 Democracy Center
6903 Rockledge Drive
Bethesda, MD 20817
ATTN: Charles W. Kerner
Telecopier: 301-564-3204
Either Party may change its address, representative or numbers for receiving
notices or Deliverables by giving written notice of such change to the other
Party. Notice is effective upon receipt by the other Party.
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ARTICLE 17 - COMPLIANCE WITH LAWS AND REGULATIONS
17.1 Authorizations. All permits, licenses and government approvals
(collectively, "Permits") of whatever nature relating to the performance of
the Services and storage or use of Material by Contractor under this Contract
shall be obtained by Contractor at its own cost and expense, and Contractor
shall furnish copies of the Permits to USEC prior to the commencement of the
first shipment of UF(6) by USEC (as described in the SODW). Contractor shall
promptly notify USEC of any changes to the status of any Permits which would
prevent or interfere with Contractor from complying with any applicable law
or regulation, or performing this Contract, in whole or in part.
17.2 Compliance. Contractor shall comply with terms and condition of all Permits
and all applicable federal, state and local laws and ordinances and all
governmental orders, rules and regulations including but not limited to those
relating to the Services, Material, storage, activities, labor, equipment,
vehicles, containers, facilities, or recycle areas provided by Contractor in
connection with the performance of this Contract.
17.3 Health and Safety Standards. Contractor shall take all reasonable
precautions in the performance of work under this Contract to protect the health
and safety of employees and to perform work in compliance with applicable
Federal, state and local health, safety and fire protection laws and
regulations, including, but not limited to, to the U.S. Occupational Safety and
Health Administration (OSHA) regulations (29 C.F.R. part 1910).
17.4 Violations of Law.
(a) Contractor warrants that (i) prior to execution of this Contract,
Contractor has disclosed to USEC in writing all past violations of any law(s) or
regulation(s) by Contractor or any permitted subcontractor, and (ii) Contractor
is not under (or any permitted subcontractor) any current investigation(s) by a
governmental authority with respect to any violation(s) of law or regulation.
(b) Contractor shall promptly notify USEC of any future violation(s) of
any law or regulation by Contractor or any permitted subcontractor which may
result in a civil, administrative or criminal penalty or fine, or prevent or
interfere with performance of this Contract, in whole or in part.
17.5 License Restrictions. Contractor warrants that prior to execution of this
Contract, Contractor has disclosed in writing to USEC any restriction in an
applicable Permit which could limit Contractor's ability to fully perform this
Contract, including, but not limited to, any Nuclear Regulatory Commission limit
on possession of UF(6) or other Material. If performance
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CONTRACT NO. 80623
of this Contract could result in Contractor exceeding a limitation on its
authority to perform the Services, or possess Material, Contractor shall either
obtain additional authority to perform the Services or possess Material or
reduce its work for other parties undertaken after the Effective Date or
inventories of other Material acquired after the Effective Date in order to
ensure that it can perform this Contract within the applicable limits.
17.6 Investigations and Claims. Contractor shall promptly notify USEC in writing
if Contractor becomes aware of an investigation by government agency or
authority into, or a claim about, the activities of either USEC or Contractor
under this Contract. For this purpose, "claims" shall be deemed to include
lawsuits, notices of violation, notices of investigation and other written
allegations by governmental or private parties (including employees of
Contractor or its subcontractors), whether or not submitted to Contractor, that
activities under the Contract (a) violate applicable law or regulation, (b) have
caused or could cause damage to property, or injury to persons, or (c) require
environmental clean-up or remediation.
ARTICLE 18 - DELIVERY
18.1 F.O.B. Destination. USEC shall Physically Deliver the UF(6) "F.O.B.
Destination." F.O.B. Destination means that USEC shall be responsible for all
costs associated with the shipping and delivery of the Material. The risk of
loss of or damage to the Material and the cylinders which contain the material
being delivered (to include, without limitation, the responsibility to file
freight claims arising from loss or damage to any Material and/or cylinders)
shall pass to Contractor at Contractor's facility at the completion of the
Physical Delivery of the Material to the Contractor's facility.
18.2 Receiving Addresses.
(a) USEC shall Physically Deliver the UF(6) as prescribed by the
SODW at:
Starmet CMI
85 Metals Drive, Highway 89
Barnwell, South Carolina 29812
(b) Contractor shall deliver the required Deliverables to:
USEC
2 Democracy Center
6903 Rockledge Drive
Bethesda, MD 20817
ATTN: Richard F. Leibson
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ARTICLE 19 - WAIVER OF CLAIMS
Notwithstanding any other provision in this Agreement, in no event shall USEC
be liable to Contractor for (and Contractor hereby waives and releases any
claim it may now or in the future have against USEC arising from):
(a) any loss, damage or loss of use, of any property caused by or
resulting from the UF(6) delivered by USEC hereunder or any material
(including, but not limited to UF(4)) resulting from the Services, including
any damage from a Nuclear Incident (as defined in Section 11 of the Atomic
Energy Act of 1954, as amended): and
(b) any claim for costs of remediation or clean-up associated with,
or resulting from, the activities under this Contract, or the disposal of
USEC-supplied UF(6) or any material (including, but not limited to (UF4))
resulting from the Services.
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18.3
IN WITNESS WHEREOF, the Parties have caused this Contract to be signed by their
duly authorized officers as of the Effective Date.
UNITED STATES ENRICHMENT STARMET CMI
CORPORATION
By: /s/ Charles W. Kerner By: /s/ James M. Spiezio
--------------------------------- -------------------------------
Name: Charles W. Kerner Name: James M. Spiezio
------------------------------- -----------------------------
Title: Title:
------------------------------- -----------------------------
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USEC PROPRIETARY INFORMATION
SCHEDULE A-1
Statement of Deconversion Work for Deconversion of Depleted Uranium
Hexafluoride
A. LISTING OF SERVICES
<TABLE>
<CAPTION>
Not to Exceed
Item Description Quantity(1) Unit Price Unit Total
- ---- ----------- --------- ---------- ---- ------
<S> <C> <C> <C> <C> <C>
001 Deconversion of up to [***] [***] kgU $12,836,000.00
[***] 14-ton cylinders, of USEC-
provided UF(6) to UF(4) and
taking title of same as per the
Contract, including the Statement of
Work below, and as ordered under
Article 5.
TOTAL CONTRACT CEILING PRICE $12,836,000.00
002 Option to have up to an [***] Not to exceed [***] kgU $25,672,000.00
additional [***] 14-ton cylinders,
or any portion thereof, of USEC
provided UF(6) deconverted to UF(4)
and taking title of same as per the
Contract, including the Statement of Work below,
and as ordered under Article 5.
TOTAL CONTRACT CEILING PRICE $25,672,000.00
</TABLE>
PURCHASE NOTE APPLICABLE TO THE ITEMS ABOVE
a. Pricing above includes any and all start-up and tooling charges.
B. STATEMENT OF SERVICES
1. Scope of Services. Contractor shall provide all necessary facilities,
equipment, and personnel, and shall secure all necessary permits and licenses,
in order to perform the service of deconversion of depleted uranium hexafluoride
UF(6) supplied by USEC into uranium tetra-fluoride UF(4), in quantities and
according to a schedule to be determined by mutual agreement between Contractor
and the Technical Representative. The price for this deconversion service and
for optional services, for the SOTDW Deliverables and for the rights granted to
USEC in Article 14 of the Contract is included in the Price stated above in Part
A. Immediately upon
- --------
1 In KgU as UF(6).
A-1
<PAGE>
USEC PROPRIETARY INFORMATION
delivery of UF(6) by USEC to Contractor, Contractor shall take title to, and
assume full responsibility for, such UF(6) as well as for all byproducts,
process chemicals, vessels and waste material used, generated or resulting
from such UF(6) or in the handling or the processing thereof.
2. USEC Supplied Uranium Hexafluoride UF(6)
a. USEC's Containers: The UF(6) shall be delivered in cylinders
that conform to all applicable U.S. Nuclear Regulatory
Commission and U.S. Department of Transportation regulations
and other applicable federal, state and local laws and
regulations. Contractor shall return USEC's cylinders no later
than thirty (30) days after receipt of the filled cylinders,
F.O.B. USEC's facility in Paducah, Kentucky. Contractor shall
bear the risk of loss for USEC's empty cylinders until such
time as USEC receives the containers.
b. UF(6) Specifications: All UF(6) delivered by USEC shall have a
U235 assay of less than 0.711 weigh percent, but otherwise
USEC shall provide, and Contractor shall accept, such UF(6) on
an "AS IS" basis.
c. Determination of KgU. The quantity of UF(6) in KgU in a
cylinder shall be determined by dividing the net weight of
the UF(6) in the cylinder (i.e., gross weight less tare
weight (including heel)) by 1.4790.
3. Contractor's Responsibilities
a. Accept shipment by USEC of UF(6). Contractor shall accept
shipments of USEC-supplied UF(6) for deconversion at its
facilities in Barnwell, South Carolina. Contractor shall sign
shipping documentation to verify acceptance of the quantities
of UF(6) delivered to its site in fourteen-ton cylinders.
b. Process the UF(6) delivered by USEC. Upon receipt of a filled
cylinders from USEC, Contractor shall promptly remove the
UF(6) from the fourteen-ton cylinders, leaving no more than a
nominal 100 lb. "heel," and deconvert the UF(6) into UF(4)
within its own facilities. Contractor invoices can be prepared
once the deconversion is complete for the contents of each
cylinder.
c. Take title to UF(6) provided by USEC. When shipments of UF(6)
have been delivered by USEC to Contractor's facilities in
Barnwell, South Carolina (at USEC's expense), Contractor
shall take title to the UF(6) supplied by USEC and become
totally responsible therefor, including full responsibility
at its own cost and expense for all subsequent handling,
storage, processing and disposal of such UF(6) as well as of
any byproducts, process chemicals, vessels and waste material.
A-2
<PAGE>
USEC PROPRIETARY INFORMATION
Contractor shall have all the necessary licenses and permits
necessary to take title as follows:
i. As necessary to ensure compliance with applicable
laws and regulations, Contractor shall modify its
decontamination and decommissioning (D&D) plan filed
with the South Carolina Department of Health and
Environmental Control (DHEC) pursuant to its
radioactive material license to include coverage of
activities resulting from this contract.
ii. Contractor shall increase the current [***]
level reserved for D&D in the plan filed with the
DHEC by an amount (A) sufficient to cover the
disposal of the resulting UF(4) (regardless of
Contractor's plans for commercial use of the UF(4)),
but in no event less than [***] per year for the
duration of the Contract (i.e., after [***] of
operation the --- reserve shall increase to at
least [***], after [***] of operation it shall
increase to at least [***], etc.) and (B) in a
form acceptable to USEC.
iii. Contractor shall supply USEC with updates to its D&D
funding plans associated with USEC contracts at least
one month prior to submittal to DHEC.
d. Quantity Variance. Contractor shall compare the amounts of
UF(6) withdrawn from USEC's shipping container and compare
with the amount delivered according to USEC's shipping
statements. Variances shall be reported immediately to the
USEC Technical Representative. A variation from the quantity
of USEC provided UF(6) of plus or minus five percent (5%) is
acceptable. When such a variance occurs, the quantity of
UF(4) processed from that UF(6) shall also have the same
variance.
e. Reporting to USEC. Contractor shall prepare monthly reports to
USEC's Technical Representative describing its activities both
over the previous month, and from contract inception to date.
These reports shall detail the dates and amounts of shipments
received , the amounts of UF(6) deconverted into UF(4), and
the amounts of UF(4) in storage. Data and results shall be
identified by UF(6) shipping number. Contractor shall also
provide certified reports including the results of all
finished weights for each shipment of UF(6).
f. Storage Requirements. The UF(6) and UF(4) shall remain at
Contractor's facility at Barnwell, South Carolina until needed
for use in commercial or research applications (including the
project described in the SODTW).
A-3
<PAGE>
USEC PROPRIETARY INFORMATION
g. No other use. Contractor shall remove the UF(6) from the
cylinders for purposes of performing the Services required by
this Contract, and shall not use the UF(6) or the cylinders
for another purpose.
h. Return of Cylinders. Promptly after emptying the cylinders,
Contractor shall make them available for pickup by USEC at the
Contractor's facility.
i. UF(4) Specification: Contractor shall produce UF(4) to the
specifications of its own making or determination as
appropriate to support Contractor's depleted uranium research
and development program.
4. USEC's Responsibilities. Consistent with Section 5.1, USEC shall be
responsible for shipping the UF(6) in fourteen-ton cylinders to Contractor's
facilities at a rate consistent with Contractor's rate of deconverting USEC's
UF(6) to UF(4), not to exceed a rate of [***] 14-ton cylinders of UF(6) per
month unless both Parties otherwise agree.
A-4
<PAGE>
USEC PROPRIETARY INFORMATION
SCHEDULE A-2
Statement of Technology Development Work
A. LISTING OF SERVICES
The Technology Development Work consists of the following three Phases.
Phase I Reaction Kinetics, Heat and Mass Transport Processes
Phase I will [***]. Phase I is expected to be completed in a period of [***].
Phase II Laboratory Pilot Plant
Phase II will [***]. Phase II is expected to be completed in [***].
Phases I and II will cost approximately [***] and have a total duration of
[***].
Phase III Pilot Plant at Starmet CMI
Phase III includes the construction and operation of a pilot plant at the
Starmet CMI facility in Barnwell, South Carolina. The pilot plant will cost
approximately [***] to construct and have an annual operating cost of [***] when
running at full capacity. The pilot plant will have the capacity to consume
[***]. The pilot plant will operate for a period of [***]. During pilot plant
operation Contractor will [***].
All three Phases will be completed in [***].
B. STATEMENT OF SERVICES
Contractor shall provide all necessary facilities, equipment,
personnel and material and shall secure all necessary permits and licenses, in
order to perform all three Phases of the Technology Development Work set forth
above, and to provide USEC with the following reports, on-site briefings, and
other information and/or samples of material:
1. Contractor shall keep USEC apprised of the progress
of the Technology Development Work, including
submitting a detailed technical report to USEC each
calendar quarter and providing USEC personnel with
access to the pilot plant operations and providing
them with on-site briefings thereof at reasonable
times, upon request.
A-5
<PAGE>
USEC PROPRIETARY INFORMATION
2. Contractor shall undertake a thorough market
evaluation to determine the market potential for
silicon tetrafluoride and other potential byprod-
ucts of deconverted UF(6), and Contractor shall
provide USEC with a copy of such evaluation as well
as other information that is known or becomes known
to Contractor concerning actual or potential business
opportunities for any such byproducts.
The SOTDW Services and the rights granted to USEC in Article
14 of the Contract shall be provided to USEC at no additional cost beyond the
Price set forth in Part A of Schedule A-1.
A-6
<PAGE>
USEC PROPRIETARY INFORMATION
SCHEDULE B
Additional Contract Clauses
FAR Clauses
(References are to Federal Acquisition Regulation clauses in 48 C.F.R. Chap. 1)
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
1. FAR 52.203-3 GRATUITIES (APR 1984)
- --------------------------------------------------------------------------------------------------------------------------
2. FAR 52.203-7 ANTI-KICKBACK PROCEDURES Also applies to subcon-
(JUL 1995) tracts over $100,000
(except subparagraph
(c)(1) thereto).
- --------------------------------------------------------------------------------------------------------------------------
3. FAR 52.203-08 CANCELLATION, RESCISSION
AND RECOVERY OF FUNDS FOR
ILLEGAL OR IMPROPER ACTIVI-
TY (JAN 1997)
- --------------------------------------------------------------------------------------------------------------------------
4. FAR 52.203-10 PRICE OR FEE ADJUSTMENT FOR
ILLEGAL OR IMPROPER ACTIVI-
TY (JAN 1997)
- --------------------------------------------------------------------------------------------------------------------------
5. FAR 52.203-12 LIMITATION ON PAYMENTS TO Also applies to subcontracts
INFLUENCE CERTAIN FEDERAL over $100,000.
TRANSACTIONS (JAN 1990)
- --------------------------------------------------------------------------------------------------------------------------
6. FAR 52.209-6 PROTECTING THE
GOVERNMENT'S INTEREST
WHEN SUBCONTRACTING WITH
CONTRACTORS DEBARRED, SUS-
PENDED, OR PROPOSED FOR DE-
BARMENT (JUL 1995)
- --------------------------------------------------------------------------------------------------------------------------
7. FAR 52.215-2 AUDIT AND RECORDS - NEGOTI- Also applies to subcon-
ATION (AUG 1996) tracts over $25,000.
- --------------------------------------------------------------------------------------------------------------------------
8. FAR 52.219-8 UTILIZATION OF SMALL, SMALL
DISADVANTAGED AND WOMEN-
OWNED BUSINESS CONCERNS
(OCT 1995)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE>
USEC PROPRIETARY INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
9. FAR 52.219-9 SMALL, SMALL DISADVAN-
TAGED AND WOMEN-OWNED
BUSINESS SUBCONTRACTING
PLAN (AUG 1996)
- --------------------------------------------------------------------------------------------------------------------------
10. FAR 52.222-3 CONVICT LABOR (AUG 1996)
- --------------------------------------------------------------------------------------------------------------------------
11. FAR 52.222-26 EQUAL OPPORTUNITY (APR 1984) Also applies to subcon-
tract over $10,000.
- --------------------------------------------------------------------------------------------------------------------------
12. FAR 52.222-35 AFFIRMATIVE ACTION FOR SPECIAL Also applies to many
DISABLED AND VIETNAM subcontracts over $10,000.
ERA VETERANS (APR 1984)
- --------------------------------------------------------------------------------------------------------------------------
13. FAR 52.222-36 AFFIRMATIVE ACTION FOR Also subcontracts over
HANDICAPPED WORKERS (APR 1984) $2,500.
- --------------------------------------------------------------------------------------------------------------------------
14. FAR 52.222-37 EMPLOYMENT REPORTS ON SPECIAL Also applies to subcon
DISABLED VETERANS AND tracts over $10,000.
VETERANS OF THE VIETNAM
ERA (JAN 1988)
- --------------------------------------------------------------------------------------------------------------------------
15. FAR 52.222-41 SERVICE CONTRACT ACT OF
1965, AS AMENDED (MAY 1989)
- --------------------------------------------------------------------------------------------------------------------------
16. FAR 52.223-2 CLEAN AIR AND WATER (APR Also applies to subcontracts over
1984) $100,000 or if the facility to be used
by a subcontractor was the subject to a
conviction under the Federal Clean
Air or Federal Clean Water Acts and
the subcontract is not otherwise exempt.
- --------------------------------------------------------------------------------------------------------------------------
17. FAR 52.223-6 DRUG-FREE WORKPLACE (JAN
1997)
- --------------------------------------------------------------------------------------------------------------------------
18. FAR 52.225-3 BUY AMERICAN ACT-SUPPLIES
(JAN 1994)
- --------------------------------------------------------------------------------------------------------------------------
19. FAR 52.225-11 RESTRICTION ON CERTAIN FOR-
EIGN PURCHASES (OCT 1996)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE>
USEC PROPRIETARY INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
20. FAR 52.227-2 NOTICE AND ASSISTANCE REGARDING Also applies to subcontracts
PATENT AND COPYRIGHT over $25,000.
INFRINGEMENT (AUG
1996)
- --------------------------------------------------------------------------------------------------------------------------
21. FAR 52.227-3 PATENT INDEMNITY (APR 1984) Also applies to certain
subcontracts for com-
mercial items.
- --------------------------------------------------------------------------------------------------------------------------
22. FAR 52.227-13 PATENT RIGHTS-ACQUISITION
BY THE GOVERNMENT (JAN
1997)
- --------------------------------------------------------------------------------------------------------------------------
23. FAR 52.247-63 PREFERENCE FOR U.S. FLAG AIR
CARRIERS (JAN 1997)
- --------------------------------------------------------------------------------------------------------------------------
24. FAR 52.247-64 PREFERENCE FOR PRIVATELY
OWNED U.S.- FLAG COMMER-
CIAL VESSELS (JUN 1997)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-3
<PAGE>
USEC PROPRIETARY INFORMATION
SCHEDULE C
Representations and Certificates
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
1. FAR 52.203-11 CERTIFICATE AND DISCLOSURE RE-
GARDING PAYMENTS TO INFLU-
ENCE CERTAIN FEDERAL TRANSAC-
TIONS (APR 1991)
- --------------------------------------------------------------------------------------------------------------------------
2. FAR 52.204-3 TAXPAYER IDENTIFICATION (MAR
1994)
- --------------------------------------------------------------------------------------------------------------------------
3. FAR 52.209-5 CERTIFICATION REGARDING DEBAR-
MENT SUSPENSION, PROPOSED DE-
BARMENT, AND OTHER RESPONSI-
BILITY MATTERS (MAR 1995)
- --------------------------------------------------------------------------------------------------------------------------
4. FAR 52.219-1 SMALL BUSINESS PROGRAM REPRE-
SENTATIONS (JAN 1997)
- --------------------------------------------------------------------------------------------------------------------------
5. FAR 52.222-21 CERTIFICATION OF NONSEGREGAT-
ED FACILITIES (APR 1984)
- --------------------------------------------------------------------------------------------------------------------------
6. FAR 52.222-22 PREVIOUS CONTRACTS AND COM-
PLIANCE REPORTS (APR 1984)
- --------------------------------------------------------------------------------------------------------------------------
7. FAR 52.222-25 AFFIRMATIVE ACTION COMPLIANCE
(APR 1984)
- --------------------------------------------------------------------------------------------------------------------------
8. FAR 52.223-1 CLEAN AIR AND WATER CERTIFICA-
TION (APR 1984)
- --------------------------------------------------------------------------------------------------------------------------
9. FAR 52.223-5 CERTIFICATION REGARDING A
DRUG FREE WORKPLACE (JAN 1997)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE>
USEC PROPRIETARY INFORMATION
SCHEDULE D
Designated USEC Personnel
Buyer - Richard Leibson [301-564-3368]
SODW Technical Representative - Lee Ewing [301-564-3419]
SOTDW Technical Representative - Jack Thereault [301-564-3353]
D-1
<PAGE>
USEC PROPRIETARY INFORMATION
SCHEDULE E
Contractor Reports
Monthly Progress Reports pursuant to the SODW
Monthly Inventory Reports pursuant to the SODW
Quarterly Reports pursuant to the SOTDW
E-1
<PAGE>
USEC PROPRIETARY INFORMATION
SCHEDULE F
USEC Furnished Property
14-ton cylinders
F-1
<PAGE>
USEC PROPRIETARY INFORMATION
SCHEDULE G
New Technology
The patent applications referred to in Section 1.11, New Technology, are as
follows:
<TABLE>
<CAPTION>
U.S. Pat- Country
Date Starmet ent Office of Pat-
No. Title Inventor Filed Number Serial No. ent
- --- ----- -------- ----- ------ --------- ---
<S> <C> <C> <C> <C> <C> <C>
A. [***] [***] [***] [***] [***] [***]
B. [***] [***] [***] [***] [***] [***]
C. [***] [***] [***] [***] [***] [***]
</TABLE>
G-1
<PAGE>
USEC PROPRIETARY INFORMATION
SCHEDULE H
Components of the Technology and Contract Data Subject to Third Party Licenses
[NONE]
H-1
<PAGE>
USEC RESTRICTED PROPRIETARY DATA
CONTRACT NO. ____________
<TABLE>
<CAPTION>
<S> <C>
INDEX TO GENERAL TERMS AND CONDITIONS
1. APPLICABLE LAW...................................................................................GT-1
2. ASSIGNMENT.......................................................................................GT-1
3. BOOKS AND RECORDS; AUDIT; COST CERTIFICATION.....................................................GT-1
4. COMPLIANCE WITH LAWS.............................................................................GT-1
5. CONTRACT MANAGEMENT..............................................................................GT-1
6. CONTRACT MODIFICATIONS...........................................................................GT-2
7. CONTRACTOR STATUS................................................................................GT-3
8. CONTRACTOR'S REPRESENTATIONS.....................................................................GT-3
9. COUNTERPARTS.....................................................................................GT-3
10. DISPUTE RESOLUTION...............................................................................GT-4
11. ENTIRE AGREEMENT.................................................................................GT-5
12. HEADINGS.........................................................................................GT-5
13. INDEMNIFICATION..................................................................................GT-5
14. ORDER OF PRECEDENCE..............................................................................GT-5
15. PROPERTY AND EQUIPMENT...........................................................................GT-5
16. PUBLIC STATEMENTS................................................................................GT-6
17. SEVERABILITY.....................................................................................GT-6
18. SURVIVAL.........................................................................................GT-6
19. TERMINATION AND SUSPENSION OF THIS CONTRACT......................................................GT-6
20. THIRD PARTY BENEFICIARIES........................................................................GT-7
21. VALLEY FEVER.....................................................................................GT-7
22. WAIVER FOR CLAIMS DUE TO NUCLEAR INCIDENTS.......................................................GT-8
</TABLE>
<PAGE>
USEC RESTRICTED PROPRIETARY DATA
CONTRACT NO. ____________
GENERAL TERMS AND CONDITIONS
1. APPLICABLE LAW
This Contract (which is defined as the agreement to which these General Terms
and Conditions are appended, together with all Schedules, Exhibits and other
Appendices attached or appended to such agreement) shall be governed by the
laws of the State of New York (including, without limitation, New York
General Obligations Law Section 5-1401(Choice of Law) if this Contract
exceeds $250,000, but excluding all other New York choice of law rules),
except to the extent that the application of such laws is preempted by
Federal law; provided, however, that in the event the Parties' choice of New
York law is deemed ineffective by a court or arbiter, Maryland law (except
for the choice of law rules thereof) shall apply in place of New York law.
2. ASSIGNMENT
Contractor may not assign this Contract but may, subject to applicable law,
assign payments due to Contractor under this Contract. USEC may assign this
Contract, including all benefits and obligations hereunder without Contractor's
consent (a) in connection with the privatization of USEC pursuant to the Atomic
Energy Act of 1954, as amended, (b) to any entity that succeeds to substantially
all of USEC's assets or uranium enrichment business, (c) to any subsidiary or
affiliate of USEC or (d) to any third party that assumes USEC's obligations
hereunder. Upon such an assignment by USEC, USEC shall be relieved of its
obligations under this Contract other than to pay Contractor for goods supplied
or work performed up to the date of such assignment. In the event of such an
assignment, references herein to "USEC" shall, after the date of such
assignment, be deemed to refer to the assignee; and Contractor shall take
whatever further action is required to transfer to the assignee any agreements,
instruments or documents related to this Contract and entered into by Contractor
that cannot be transferred to such assignee by the operation of their terms.
3. BOOKS AND RECORDS; AUDIT; COST CERTIFICATION
If this Contract provides for the reimbursement of Contractor costs, Contractor
shall, for three (3) years following expiration or termination of this Contract,
maintain a complete set of books and records, documents and other evidence and
accounting procedures and practices (the "Records"), sufficient to reflect
properly all such reimbursable costs. USEC, or its duly authorized
representatives, shall have access at reasonable times to inspect, copy and
audit all pertinent Records, either during the term of or after termination or
expiration of this Contract. At no cost to USEC, Contractor shall provide USEC
proper facilities and make available its personnel at reasonable times for such
inspection, copying and audits. Contractor shall also provide, at USEC's written
request, a certificate executed by Contractor's controller or chief financial
officer stating that any costs invoiced by Contractor that are for the account
of USEC under any provision of this Contract were calculated in accordance with
the terms of this Contract.
4. COMPLIANCE WITH LAWS
Contractor shall comply with all applicable federal, state and local laws,
rules, regulations, orders, codes and standards in performing this Contract. The
cost of such compliance shall be borne by Contractor.
5. CONTRACT MANAGEMENT
5.1 Buyer. Unless otherwise stated in this Contract, any action that may be
taken by USEC in this Contract may only be taken by the Buyer designated
elsewhere in the Contract (such action shall bind USEC unless it exceeded the
authority of the Buyer under this Contract or violates applicable law or
governmental regulations). In addition to the foregoing authority, the Buyer may
also take any action expressly reserved for the Technical
GT-1
<PAGE>
USEC RESTRICTED PROPRIETARY DATA
CONTRACT NO. ____________
Representative, and may override any decision of the Technical Representative.
The USEC Chief Executive Officer or his designee may replace the Buyer and will
provide written notice thereof to Contractor.
5.2 Technical Representative. The Technical Representative designated elsewhere
in this Contract shall be authorized to provide Technical Direction (as defined
in Paragraph 5.3) relating to the performance of Contractor's obligations under
this Contract. USEC may replace the Technical Representative and will provide
written notice thereof to Contractor. All actions taken by the Technical
Representative prior to his or her replacement hereunder shall bind USEC unless
such action exceeded the authority of the Technical Representative under this
Contract or violates applicable law or governmental regulations.
5.3 Technical Direction.
(a) Contractor's performance of this Contract shall be subject to the
Technical Direction of the Technical Representative. "Technical Direction"
includes, without limitation: (i) directions to Contractor that shift work
emphasis between work areas of this Contract, require pursuit of certain lines
of inquiry, fill in details or otherwise serve to accomplish performance of this
Contract; (ii) provision of written information to Contractor that assists in
the interpretation of drawings, specifications or technical portions of this
Contract; and (iii) review and acceptance, on USEC's behalf, of anything
required to be provided by Contractor under this Contract; provided, however,
that none of the foregoing Technical Direction shall be deemed to alter the
status of Contractor as an independent contractor pursuant to Paragraph 7.
(b) All Technical Direction must be within the scope of this Contract
and significant Technical Direction shall be issued in writing by the Technical
Representative. Any Technical Direction issued pursuant to this Paragraph 5.3
shall not result in any additional payment to Contractor. The Technical
Representative does not have the authority to, and may not, issue any Technical
Direction that: (i) requires additional work outside of the scope of this
Contract; (ii) changes the schedule of performance of this Contract; (iii)
changes the terms of this Contract; or (iv) interferes with Contractor's right
to perform the terms of this Contract.
(c) Contractor shall proceed promptly to perform any Technical
Direction issued by the Technical Representative in the manner prescribed by and
within the Technical Representative's authority under this Paragraph 5.3. If, in
the opinion of Contractor, any Technical Direction violates Section 5.3(b),
Contractor shall: (i) notify the Buyer in writing USEC immediately after receipt
of any such Technical Direction; (ii) request in writing that USEC modify this
Contract accordingly; and (iii) unless otherwise directed by USEC, continue
performance of this Contract, without complying with the Technical Direction in
question, pending a decision by USEC. Upon receiving any such notification from
Contractor, USEC shall: (x) advise Contractor in writing as soon as possible
after receipt of Contractor's letter that the Technical Direction is within the
scope of this Contract and does not constitute a change; or (y) advise
Contractor in writing within a reasonable time that USEC will modify this
Contract in accordance with Paragraph 5. Any disagreement between USEC and
Contractor regarding USEC's determination of whether a Technical Direction is
within the scope of this Contract or whether, or in what amount, to allow for an
equitable adjustment, shall be resolved in accordance with the dispute
resolution provisions of Paragraph 10.
6. CONTRACT MODIFICATIONS
With or without additional consideration, USEC may at any time by written order
and without advance notice or notice to any sureties, make changes within the
general scope of this Contract. If any such modification results in a material
change in the cost of, or the time required for, performance of this Contract,
the USEC shall make an equitable adjustment to the Contract price, delivery
schedule or other affected Contract terms; provided that Contractor has asserted
its right to such an equitable adjustment within thirty (30) days from receipt
of the written order and prior to final payment under this Contract. A dispute
involving any equitable
GT-2
<PAGE>
USEC RESTRICTED PROPRIETARY DATA
CONTRACT NO. ____________
adjustment shall not excuse Contractor from performing the Contract, as
modified. An equitable adjustment in costs made pursuant to this Paragraph shall
not result in an increase of any "Fees" that may be payable under this Contract.
7. CONTRACTOR STATUS
Contractor is an independent contractor. Without limiting (a) USEC's right to
provide Technical Direction as set forth in Paragraph 6 or (b) any requirement
in this Contract regarding subcontractors and consultants, USEC shall have no
right to control or direct the details, means or methods by which Contractor
performs this Contract. Contractor is not authorized to act for, or enter into
any agreement on behalf of, USEC without written authorization therefor.
8. CONTRACTOR'S REPRESENTATIONS
8.1 Contractor's Representations. Contractor, and the person signing this
Contract on Contractor's behalf, each hereby make the following representations
to USEC:
(a) Contractor has all power and authority required to execute, deliver
and perform this Contract; and Contractor has sufficient staff and other
resources to carry out its duties hereunder in a prompt, efficient and diligent
manner;
(b) the execution, delivery and performance of this Contract by
Contractor and by the person signing this Contract on behalf of Contractor have
been duly authorized by all necessary corporate or partnership action;
(c) this Contract constitutes a legal, valid and binding agreement of
Contractor, enforceable against Contractor in accordance with its terms, except
as limited by bankruptcy, insolvency, receivership or other similar laws
affecting or relating to the rights of creditors generally;
(d) Contractor has or will obtain, maintain and comply with all
licenses and permits necessary to legally and validly execute, deliver and
perform this Contract;
(e) the representations and certificates made in, or submitted with,
Contractor's proposal, a list of which is attached as a Schedule to this
Contract, have been duly authorized, made and executed and are true and correct
as if made herein and as of the date hereof;
(f) Contractor has the right to make any the disclosures to USEC
required under this Contract; and
(g) no person or commercial agency has been engaged to solicit or
secure this Contract, and Contractor agrees it shall not pay any compensation to
any person or commercial agency for soliciting or securing this Contract, except
for bona fide employees or bona fide established commercial agencies maintained
or utilized on a continuous basis by Contractor for the purpose of securing
business generally.
9. COUNTERPARTS
This Contract may be signed in two or more counterparts, each of which shall be
treated as an original but which, when taken together, shall constitute one and
the same instrument.
GT-3
<PAGE>
USEC RESTRICTED PROPRIETARY DATA
CONTRACT NO. ____________
10. DISPUTE RESOLUTION
10.1 Disputes Subject to Arbitration. Any controversy or claim between
the Parties arising out of or relating to this Contract, or the breach,
termination or validity hereof (a "Dispute") that is not resolved by mutual
agreement shall be settled by arbitration in accordance with the CPR
Non-Administered Arbitration Rules as in effect on the effective date of this
Contract (the "Rules"), as modified by this Paragraph , by a sole arbitrator
appointed in accordance with the Rules. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss. 1 et seq. The place of arbitration
shall be Washington, D.C.
10.2 Hearings and Award. All hearings shall be held within ninety (90) days
following the appointment of the arbitrator. At a time designated by the
arbitrator, each Party shall simultaneously submit to the arbitrator and
exchange with the other Party its final proposal for damages and/or any other
applicable remedy, and in rendering the final award, the arbitrator shall be
limited to choosing the award proposed by a Party without modification;
provided, however, that in no event shall the arbitrator award damages
inconsistent with any of the terms and conditions of this Contract. The
arbitrator shall issue the final award no later than thirty (30) days after
completion of the hearings, and judgment on any award may be entered in any
court have jurisdiction thereof; provided, however, that for so long as USEC
is an executive agency of the U.S. Government, the Chief Executive Officer
("CEO") of USEC may, within sixty (60) days following the award, vacate and
nullify the award pursuant to the applicable provisions of the Contract
Disputes Act of 1978, as amended, 41 U.S.C. Section 601 et seq. (the "CDA"),
if such provisions are then applicable to USEC. If the award is vacated and
nullified by the CEO of USEC, Contractor shall be entitled to recover all its
expenses of the arbitration (including, without limitation, reasonable
attorney's fees) in accordance with 5 U.S.C. Section 580(g) and to resolve
such dispute in accordance with the CDA.
10.3 Jurisdiction and Venue. To the extent the Parties are permitted under this
Paragraph 10 to pursue a judicial remedy, each Party consents to the
jurisdiction and venue of the federal and state courts located in New York, New
York, but if such New York courts do not have jurisdiction, then the federal and
state courts located in the state of Maryland. Such jurisdiction and venue shall
be exclusive except as to an action brought solely for the purpose of enforcing
an order of a New York or Maryland federal or state court obtained pursuant to
the immediately preceding sentence, or enforcing an award of the arbitrator.
Each Party consents to service of the notice of arbitration, and any other paper
in the arbitration or any proceeding brought pursuant to this Contract, by
registered mail or personal delivery at its address for notices specified in
this Contract. Nothing in this Paragraph 10.3 shall limit the jurisdiction of
other federal courts over suits involving claims against USEC for so long as
USEC is an executive agency of the U.S. Government.
10.4 Confidentiality. The fact that either Party has invoked the provisions of
this Paragraph 10 shall be considered to be USEC Restricted Proprietary
Information.
10.5 Arbitral Award Binding Upon Successors. This agreement to arbitrate and any
award made hereunder shall be binding upon the successors and assigns and any
trustee or receiver of each Party.
10.6 CDA Agreement to Arbitrate. Notwithstanding any other provision of
Paragraph 10, for so long as USEC is an executive agency of the U.S. Government,
Contractor's execution of this Contract shall be deemed to be an agreement by
Contractor to alternative dispute resolution of Disputes in accordance with
Section 6 of the CDA (or any successor thereto). The foregoing shall not relieve
either Party from the procedural requirements of the CDA with respect to
establishing or certifying a claim.
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USEC RESTRICTED PROPRIETARY DATA
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11. ENTIRE AGREEMENT
This Contract embodies the entire agreement between the Parties in relation to
the subject matter hereof and supersedes all prior understandings or agreements,
oral or written, between the Parties.
12. HEADINGS
The headings and subheadings of the Articles, Paragraphs, Sections and Schedules
contained in this Contract are inserted for convenience only and shall not
affect the meaning or interpretation of this Contract or any provision hereof.
13. INDEMNIFICATION
13.1 General Indemnity. To the maximum extent permitted by law and without
limiting any other indemnification in this Contract, Contractor shall indemnify,
save harmless and defend (if requested by USEC) USEC, its directors, officers,
employees, other contractors and agents from and against any and all
liabilities, claims, penalties, forfeitures and suits ("Liabilities") and the
costs and expenses incident thereto (including costs of defense, settlement and
reasonable attorneys' fees) (the "Costs"), which they or any of them may
hereafter incur, become responsible for or pay out as a result of death or
bodily injuries to any person, destruction or damage to any property,
contamination of or adverse effects on the environment, or any violation of
laws, regulations or orders, caused by or arising out of, in whole or in part,
Contractor's obligations imposed under this Contract, or arising from the breach
of any representation or warranty made by Contractor in this Contract. This
indemnification, save harmless and defense obligation shall apply without regard
to the fault or negligence of Contractor or of USEC, its directors, officers,
employees, other contractors and agents except to the extent of any Liabilities
or Costs which arise from the willful misconduct or gross negligence of USEC,
its directors, officers, employees, contractors or agents, as determined on a
comparative negligence basis.
13.2 Counsel. USEC may retain its own counsel to represent and/or advise it in
any lawsuit covered by this indemnity or any other indemnity in this Contract.
14. ORDER OF PRECEDENCE
14.1 General Terms and Conditions. The provisions of the Articles and Sections
of the agreement to which these General Terms and Conditions are appended shall
be read to be consistent with the Paragraphs and Sections of these General Terms
and Conditions; provided, however, in the event there should be a conflict
between them, the particular provisions of the Articles and Sections of such
agreement shall take precedence over the particular Article or Section of these
General Terms and Conditions.
14.2 Schedules, Exhibits. The provisions of the Articles and Sections of the
agreement to which these General Terms and Conditions are appended, together
with the terms of these General Terms and Conditions, shall be read, to the
extent reasonable, to be consistent with the Schedules, Exhibits and other
Appendices to such agreement; provided, however, in the event there should be a
conflict between them, the particular provisions of the Articles and Sections of
such agreement and these General Terms and Conditions shall take precedence.
15. PROPERTY AND EQUIPMENT
Title to all equipment, supplies and materials acquired by Contractor hereunder
shall be transferred to USEC upon USEC's payment therefor. In addition, USEC or
the U.S. Government (if U.S. Government-owned property are provided) shall
retain title to all property furnished to Contractor. Contractor shall establish
a
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USEC RESTRICTED PROPRIETARY DATA
CONTRACT NO. ____________
procedure, subject to USEC's approval, for accounting for all USEC or U.S.
Government property provided to, or obtained by, Contractor under this Contract,
including such property as may be identified in a schedule to this Contract.
Contractor shall be liable for loss or destruction of USEC or U.S. Government
property provided to, or obtained by, Contractor under this Contract or for
expenses incidental to such loss, destruction or damage.
16. PUBLIC STATEMENTS
Subject to applicable law, Contractor shall not issue any press release or make
any public statement regarding this Contract or performance hereunder without
the written approval of USEC.
17. SEVERABILITY
If any provision of this Contract is held invalid by a court of competent
jurisdiction, such provision shall be severed from this Contract and, to the
extent possible, this Contract shall continue without effect to the remaining
provisions.
18. SURVIVAL
Upon expiration or termination (for any reason) of this Contract, the provisions
of this Contract dealing with Organizational Conflicts of Interest, intellectual
property, proprietary data and ownership rights, as well as the provisions of
Paragraphs 8 and 13, and any other provision of this Contract that expressly
state that they will survive expiration or termination hereof, shall survive and
remain binding upon the Parties hereto and upon their successors and assigns.
19. TERMINATION AND SUSPENSION OF THIS CONTRACT
19.1 Termination or Suspension. USEC may terminate or suspend this Contract, in
whole or in part, (a) at USEC's discretion, upon ten (10) days prior written
notice to Contractor or (b) if Contractor Defaults (as defined in Paragraph
19.2) in performing this Contract and fails to cure such Default within five (5)
days (unless extended in writing by USEC) after receiving notice from USEC
specifying the Default.
19.2 Definition of Default. "Default" includes: (a) Contractor is adjudged
bankrupt or insolvent; (b) Contractor makes a general assignment for the benefit
of its creditors; (c) a trustee or receiver is appointed for Contractor or any
of its property; (d) Contractor files a 30-day cure petition to take advantage
of any debtor's act or to reorganize under the bankruptcy or similar laws; (e)
Contractor fails to make prompt payments to subcontractors or vendors for labor,
materials or equipment; or (f) except to the extent caused by Force Majeure, (i)
Contractor fails to make progress in the work so as to endanger performance of
this Contract, (ii) Contractor fails to cure a defect it is required to cure
under the inspection or warranty provisions of the Contract, or (iii) Contractor
breaches any term of this Contract and such breach has or could have a material
adverse effect on the performance of this Contract. Force Majeure shall excuse a
Default by Contractor under Paragraph 19.2(f) if Contractor gives notice to USEC
promptly of the effect of such Force Majeure on performance of this Contract and
the likely duration thereof, if reasonably known, and keeps USEC informed of any
changes in such circumstances, including when such Force Majeure ends; and
provided, that to Contractor shall use all reasonable efforts to continue to
perform this Contract, to remedy the circumstances constituting the Force
Majeure and to mitigate the adverse effects of such Force Majeure on performance
of this Contract. For these purposes, "Force Majeure" means an occurrence beyond
the reasonable control of Contractor and without its fault or negligence such
as, acts of God or the public enemy, acts of the U.S. Government (other than
USEC) in either its sovereign or contractual capacity, fires, floods, epidemics,
quarantine restrictions, strikes, unusually severe weather, and unforeseeable
delays of common carriers.
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USEC RESTRICTED PROPRIETARY DATA
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19.3 Contractor's Obligations Upon Termination or Suspension.
(a) Upon USEC's termination or suspension of this Contract, in whole or
in part, Contractor shall (i) cease work on the terminated or suspended portions
of this Contract on and as of the effective date of termination or suspension,
and shall not incur further expenses in connection with the terminated or
suspended portions of this Contract, unless, in the event of suspension, USEC
notifies Contractor that the suspension has been lifted and that Contractor may
resume work; (ii) continue to perform those portions of this Contract that are
not terminated or suspended; (iii) terminate and/or assign to USEC (at USEC's
discretion) all of Contractor's rights, title and interests in subcontracts and
purchase orders relating to the terminated or suspended portion of this
Contract; and (iv) take actions necessary to protect, preserve and promptly
transfer to USEC (in the case of a termination of this Contract) title to and
possession of all work, materials, equipment and recorded information
(regardless of form) acquired or produced for performance of this Contract.
(b) In the case of a termination of this Contract, Contractor shall
also take all other actions necessary to enable USEC or a replacement contractor
to complete performance of this Contract and, if requested by USEC, sell any
work, material or equipment related to this Contract. All such activities shall
be at USEC's cost, except in the case of a termination for Default.
(c) In the case of a termination of this Contract for Default,
Contractor shall pay (i) USEC's reasonable costs (including reasonable
attorney's fees) incurred in negotiating and executing a contract with a
replacement contractor or supplier to provide the terminated supplies or
services; and (ii) the price charged by, and costs reimbursed to, such
replacement or supplier for such terminated services and supplies, but only to
the extent such price and costs exceed the amount that would have been paid to
Contractor under this Contract for the terminated supplies or services. If USEC
elects to produce the terminated supplies or perform the terminated services
itself, Contractor shall reimburse USEC for the costs thereof, but only to the
extent it exceeds the amount that would have been paid to Contractor under this
Contract for such terminated supplies or services. In either case, USEC may
elect to delay payment of any amount due Contractor under Paragraph 19.4 until
USEC or the replacement contractor or supplier delivers the terminated supplies
or performs the terminated services and may deduct from any amount due
Contractor under Paragraph 19.4 any amount Contractor owes USEC pursuant to this
Paragraph 19.3(c).
19.4 USEC's Obligations Upon Termination or Suspension. Upon USEC's termination
of this Contract and Contractor's fulfillment of its obligations under Paragraph
19.3, USEC shall pay Contractor for (a) the Contract price for any portions of
the supplies delivered, or services performed, as applicable, under this
Contract prior to termination that USEC Accepted and for which USEC has not
previously paid (including the portion of any "Fees", if applicable, earned
prior to such termination) and (b) any costs which USEC is required under
Paragraph 19.3(b) to reimburse Contractor. Payments pursuant to this Paragraph
19.4 shall be the exclusive liability of USEC, and the exclusive remedy of
Contractor, upon USEC's termination of this Contract. USEC shall not have any
liability to Contractor in any event for actual, incidental, consequential or
other damages.
19.5 Other Remedies. Nothing herein shall be deemed to limit any other remedy
that USEC may have under this Contract or applicable law.
20. THIRD PARTY BENEFICIARIES
Except as provided in Paragraph 22, nothing in this Contract shall be
interpreted as creating any right of enforcement of any provision herein by any
person or entity that is not a Party to this Contract.
21. VALLEY FEVER
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USEC RESTRICTED PROPRIETARY DATA
CONTRACT NO. ____________
21.1 Health Hazard. To the extent that this Contract provides for any
performance hereof by Contractor to be at Lawrence Livermore National Laboratory
("LLNL"), Contractor represents that it is aware that the Site 300 area, located
in San Joaquin County, California has dirt formations that contain spores of
Coccidiodomycosis ("Valley Fever"), which is common to San Joaquin County.
Contractor further represents that appropriate precautionary measures shall be
taken by Contractor, at Contractor's expense, to protect the health of
Contractor's employees and other workers, including USEC, LLNL and University of
California employees, who may be involved with Contractor's work at Site 300
under this Contract. These precautionary measures shall be described in the
pamphlet entitled "Cocci (Coccidioidomycosis) -- Facts About Your Lungs"
available from the Technical Representative.
21.2 Indemnification. To the extent permitted by applicable law and without
regard to the fault or negligence of USEC, its directors, officers, employees,
contractors and agents, LLNL, the University of California and DOE, Contractor
shall indemnify, save harmless and defend (if requested by USEC) USEC, its
directors, officers, employees, contractors and agents, LLNL, the University of
California and DOE from and against any and all liabilities, claims, penalties,
forfeitures and suits and the costs and expenses incident thereto (including
costs of defense, settlement and reasonable attorneys' fees), which they or any
of them may hereafter incur, become responsible for or pay out as a result of
death or bodily injuries to any of Contractor's employees who have visited or
may visit the Site 300 Area, or other individuals exposed by such employees
resulting from the natural occurrence of the risks enumerated in Paragraph 21.1.
22. WAIVER FOR CLAIMS DUE TO NUCLEAR INCIDENTS
Certain of USEC's contracts with its customers for uranium enrichment services
or enriched uranium require USEC to seek from its suppliers a waiver of any
claim against USEC's customers for loss, damage or loss of use of, property
resulting from a nuclear incident (as defined in the Atomic Energy Act of 1954,
as amended) at USEC's facilities. To facilitate USEC's compliance with the
foregoing requirement, Contractor hereby waives any such claims it may now or
hereafter have against any and all of USEC's customers (but not against USEC)
that have also waived such claims against Contractor. Contractor shall include
this clause in any subcontract entered into by Contractor in connection with
this Contract and shall require that this clause be included in all lower tier
subcontracts.
GT-8
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