<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STARMET CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 3350 04-2506761
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION NUMBER)
</TABLE>
------------------------
2229 MAIN STREET, CONCORD, MASSACHUSETTS 01742
(978) 369-5410
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
ROBERT E. QUINN, PRESIDENT
STARMET CORPORATION
2229 MAIN STREET
CONCORD, MASSACHUSETTS 01742
(978) 369-5410
(Name and address, including zip code and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
THOMAS A. WOOTERS, ESQ. JAMES C. SCOVILLE, ESQ.
GREGORY L. WHITE, ESQ. Debevoise & Plimpton
Peabody & Arnold LLP 875 Third Avenue
50 Rowes Wharf New York, New York 10022
Boston, Massachusetts 02110
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after this Registration Statement becomes effective. If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the
"Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE (1)
<TABLE>
<CAPTION>
TITLE OF EACH
CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE (1)(2) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.10 par value per share $ 80,000,000 $ 23,600
</TABLE>
(1) Includes up to 750,000 shares previously issued to Selling Stockholders, and
detailed as provided in the Registration Statement, and includes shares of
Common Stock which the Underwriters have the option to purchase from the
Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
DATED APRIL 8, 1998
PROSPECTUS
SHARES
[STARMET NAME/LOGO]
COMMON STOCK
----------------
Of the shares of common stock, $0.10 par value per share (the
"Common Stock"), offered hereby, shares are being offered by Starmet
Corporation, a Massachusetts corporation (the "Company" or "Starmet"), and
750,000 shares are being offered by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"STMT." On April 3, 1998, the last reported sale price of the Common Stock was
$36.50 per share. See "Price Range of Common Stock."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total (3)........................... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional shares of Common Stock on the same terms and conditions
set forth above solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ and , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about , 1998, at
the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York
10167.
------------------------
BEAR, STEARNS & CO. INC. FURMAN SELZ
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[Appear in a circle (listed clockwise from top center):]
[Picture of disk drive components representing the market for Beralcast disk
drive armsets.]
[Picture of Comanche helicopter in flight representing military applications of
the Company's products.]
[Picture of a satellite representing the aerospace applications of the Company's
products.]
[Picture of Beralcast heat sink castings for electronic applications.]
[Picture of UF(6) gas by-products cylinder being brought in for recycling
representing the Company's recycling technologies.]
[Picture of U.S. Army's M1-A2 Main Battle Tank representing the Company's
depleted uranium penetrator business.]
[Picture of complex Beralcast casting.]
[Picture of golfer swinging a golf club representing the market for Beralcast
golf clubs.]
[Appears in Center of page:]
[Starmet logo]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ALSO ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
[Appears on upper left:]
RIGID DISK DRIVE ASSEMBLY
[Picture of disk drive assembly and components. There are two arrows pointing to
the picture.]
[Appears on upper right:]
MACHINED BERALCAST - Registered Trademark - ARMSET
[Picture of finished Beralcast disk drive armset. There is an arrow pointing to
the left.]
[Appears on middle right:]
BERALCAST - Registered Trademark - ARMSET CASTINGS
[Picture of pre-finished Beralcast disk drive armsets. There is an arrow
pointing to the left.]
[Appears on lower left:]
HIP JOINT REPLACEMENT
[Picture of artificial hip joint replacement. There is an arrow pointing to the
picture.]
[Appears on lower center:]
BIO-COMPATIBLE METAL POWDERS FOR POROUS COATINGS
[Picture of porous metal powders. There is an arrow pointing up and to the
left.]
[Appears on lower right:]
PROTOTYPE BERALCAST - Registered Trademark - GOLF PRODUCTS
[Picture of various Beralcast golf club heads.]
<PAGE>
[Appears on upper left:]
BERALCAST - Registered Trademark - OPTICAL PLATFORM
[Picture of Beralcast optical platform. There is an arrow that points to the
right.]
[Appears on upper right:]
U.S. ARMY RAH-66 COMANCHE
[Picture of Comanche helicopter in flight. There is an arrow pointing to the
picture.]
[Appears on middle left:]
SATELLITE BUS STRUCTURE
[Picture of partially assembled satellite. There is an arrow pointing to the
right.]
[Appears on lower left:]
SEAMLESS BERYLLIUM TUBING
[Picture of beryllium tubing. There is an arrow pointing to the right.]
[Appears on lower right:]
[Picture of satellite. There are two arrows pointing to the picture.]
COMMUNICATION SATELLITE
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
DATA INCLUDING THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
(THE "CONSOLIDATED FINANCIAL STATEMENTS") APPEARING ELSEWHERE IN THIS
PROSPECTUS. FOR PURPOSES OF THIS PROSPECTUS, UNLESS OTHERWISE INDICATED OR THE
CONTEXT OTHERWISE REQUIRES, REFERENCES TO "STARMET" AND THE "COMPANY" REFER TO
STARMET CORPORATION AND ITS SUBSIDIARIES. REFERENCES HEREIN TO A "FISCAL YEAR"
REFER TO THE COMPANY'S FISCAL YEAR WHICH ENDS ON SEPTEMBER 30 (E.G., FISCAL 1997
MEANS THE COMPANY'S FISCAL YEAR ENDED SEPTEMBER 30, 1997).
BERALCAST-REGISTERED TRADEMARK-, REP-REGISTERED TRADEMARK- AND
PREP-REGISTERED TRADEMARK- ARE TRADEMARKS OF THE COMPANY. THIS PROSPECTUS ALSO
CONTAINS TRADEMARKS AND TRADE NAMES OF PERSONS OTHER THAN THE COMPANY WHICH ARE
THE PROPERTY OF THEIR RESPECTIVE OWNERS. EXCEPT AS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT
OPTION IS NOT EXERCISED. SEE "UNDERWRITING."
THE COMPANY
Starmet is an innovator in the design, development and processing of
specialty metals, a precision manufacturer of technologically sophisticated
metal components and products, and a leader in certain advanced materials
conversion and recycling technologies. A central aspect of the Company's
strategy is to continue to capitalize on its metallurgical, materials science
and manufacturing expertise, developed primarily for military applications, in
order to introduce new products for what the Company believes are high-growth
opportunities in large commercial markets.
In its specialty metals business, Starmet produces a wide range of products
and components from advanced metals and alloys. Key among these materials is
Beralcast, the Company's family of beryllium aluminum alloys, which is being
commercially introduced for use in certain advanced applications. Based upon
initial responses by the Company's customers and testing by independent
laboratories, the Company believes that Beralcast is a cutting edge material
with advanced properties which is ideally suited for certain demanding
commercial and aerospace applications. Among its superior performance
characteristics are its light weight, dimensional stability, stiffness,
vibration damping qualities and workability. In its advanced recycling
technologies and uranium services businesses, Starmet is a fully integrated
processor of depleted uranium ("DU"), converting uranium hexafluoride ("UF(6)")
to uranium tetrafluoride ("UF(4)") and DU metal which it manufactures into DU
products such as feedstock used in the manufacture of nuclear reactor fuel by a
third party, radiation shielding, anti-armor tank penetrator munitions and
billets for conversion into tank armor.
Starmet focuses its research and business development efforts on markets it
has identified as offering significant opportunities for growth, including
computer data storage, military and commercial aerospace and premium golf
products, among others. For example, the Company has produced prototype and pre-
production quantities of high-end disk drive arm sets, precision devices used in
rigid computer disk drives, for evaluation by leading disk drive manufacturers
in their high-speed, high-capacity disk drives. Among its customers in this
market, Quinta Corporation, a subsidiary of Seagate Technologies, Inc., has
informed the Company that is has selected Beralcast disk drive arm sets for use
in its high-end disk drives utilizing Quinta's next generation laser-optical
technology and that it anticipates purchasing production levels of Beralcast
disk drive arm sets. Beralcast's low density, high stiffness to weight ratio and
enhanced vibration damping qualities when compared to competing materials
results in significantly increased data storage capacity and reduced data access
time in high-end disk drives equipped with Beralcast disk drive arm sets,
according to certain customers of the Company. For military applications, the
Company has received contracts from Lockheed Martin Corporation ("Lockheed
Martin") for 58 separate Beralcast components to be used in its most advanced
electro-optical and target acquisition systems that will be fitted on the RAH-66
Comanche ("Comanche"), the U.S. Army's next generation advanced reconnaissance
and attack helicopter. According to the U.S. Army, Beralcast is the only known
material capable of meeting critical Comanche requirements without significant
costly redesigns. In addition, U.S. and other military forces have identified
opportunities for the use of Beralcast components for other advanced military
programs,
3
<PAGE>
such as the F-22 advanced tactical fighter, the updated Patriot missile, LANTIRN
(a low altitude navigation and targeting system) and the French Rafael advanced
fighter aircraft. The Company has delivered prototype parts pursuant to
contracts for these applications and is awaiting follow-on funding for the next
phases of development. The Company believes that further significant
opportunities exist for the use of Beralcast products and components beyond
these currently identified applications in commercial and military markets.
The Company is expanding its manufacturing capacity and plans to invest a
substantial portion of the proceeds of the offering in order to meet anticipated
demand for Beralcast materials. One of the goals of the Company's planned
capital expenditure program is to further reduce product costs, which the
Company believes is essential to the commercialization of Beralcast. Since the
introduction of its Beralcast alloys, the Company has realized significant
reductions in manufacturing costs primarily as a result of its Comanche
development work and anticipates that its manufacturing expansion program and
ongoing experience with Beralcast will result in continued cost reductions. In
addition, the Company is committed to maintaining its high quality manufacturing
standards. The Company was recently certified under ISO 9002 at its Concord,
Massachusetts facility and is the first small business and one of only fourteen
companies nationwide to qualify for the U.S. Army's highest quality
manufacturing certification. Furthermore, the Company holds regulatory
facilities licenses for the processing of low-level radioactive materials, which
management believes represent a competitive advantage and a significant barrier
to entry to potential new competitors. The Company believes that it operates the
only licensed U.S. production facility capable of offering a broad spectrum of
processing, conversion, recycling, manufacturing and shielding services for DU
and other low-level radioactive materials.
Since its origins as a metallurgical laboratory affiliated with the
Massachusetts Institute of Technology ("MIT") in 1942, the Company has developed
a strong platform in the research and development of various materials science
technologies. Throughout its history, the Company has maintained close
relationships with MIT and several of the principal research laboratories
affiliated with the United States government, including those at Los Alamos, Oak
Ridge, Lawrence Livermore and Idaho Falls. The Company believes that these
relationships, together with the Company's internal and customer funded research
and development efforts, position Starmet at the forefront of the development
and commercialization of various materials science technologies. Over the course
of its history, the Company has undergone several transitions in response to
fundamental changes in its markets and to take advantage of new business
opportunities. From its focus on high-volume commercial production of specialty
metal powders during the 1970s and the precision manufacture of DU penetrators
used in anti-armor munitions during the 1980s and 1990s, to the recent
introduction of Beralcast, the Company has a history of developing and bringing
to market products that are extensions of its strong foundation in materials
science.
SPECIALTY METAL PRODUCTS
Starmet develops and manufactures a wide range of advanced metal products
and components for commercial and aerospace applications. These products are
manufactured from various metals and alloys, including the Company's Beralcast
alloys, pure beryllium, titanium, steel and zirconium. Beralcast is an
investment-castable family of beryllium aluminum alloys designed for use in
secondary structural and electronic applications. The Company believes that it
is the technological leader in the development and production of beryllium
aluminum alloys. The Company's patented Beralcast alloys are more than 3 times
stiffer than aluminum with 22 percent less weight and can be precision cast to
simple and complex configurations. For many applications, product requirements
demand lightweight, dimensionally stable, high stiffness and workable materials
such as Beralcast. In such applications, certain customers have reported
achieving up to 50% weight savings using Beralcast in place of aluminum. Certain
disk drive manufacturers for which the Company has produced prototype and
pre-production quantities of disk drive arm sets have advised the Company that
Beralcast provides distinct performance advantages compared
4
<PAGE>
with competing materials for high-end disk drives. The Company believes that
there is significant potential to penetrate the market for high-end disk drives.
Shipments of rigid disk drives are expected to grow from an estimated 126
million units in 1997 to 201 million units in 2000 according to Disk/Trend, Inc.
The Company estimates that high-end disk drives represent between 5% and 10% of
this market. The Company also believes that Beralcast's light weight,
dimensional stability, workability and other performance characteristics make it
an ideal material for a number of other commercial applications including
commercial satellite components and premium golf club heads and shafts. The
Company expects that Beralcast's advantageous characteristics will generally
offset the higher costs of Beralcast products. In addition to Beralcast products
and components, the Company manufactures high-quality spherical metal powders
which are used in porous adhesion coatings on medical prostheses and in other
products. Management believes the Company's metal powders offer performance
advantages over competing powders in these markets since they are cleaner, more
uniformly spherical and have a higher percentage of particles within a desired
size range from a given amount of raw material.
ADVANCED RECYCLING TECHNOLOGIES AND URANIUM SERVICES
Starmet develops and provides a variety of products and services based upon
its longstanding metallurgical, radiological and chemical know-how, including,
in particular, its expertise in processing and converting UF(6) and its
derivative UF(4) into materials and products that can be utilized in a variety
of specialized applications. Starmet owns and operates the only production
facility in North America capable of converting natural UF(6) and depleted UF(6)
into UF(4). Depleted UF(6) is a low-level radioactive by-product of the
enrichment of uranium. From UF(4), the Company produces DU and natural uranium
("NU") metal which it manufactures into various uranium metal products. The
Company's uranium metal products include DU penetrators used as anti-armor
munitions, DU billets for conversion into tank armor, NU and DU feedstock
supplied to the United States Enrichment Corporation's ("USEC") Atomic Vapor
Laser Isotope Separation ("AVLIS") program for laser-based enrichment into
nuclear reactor fuel, and industrial and medical shielding devices. Starmet also
owns and operates the only FAA-approved facility in the United States licensed
to repair DU counterweights, which are used in various wide-body commercial and
military aircraft and which are periodically required to be refurbished. Within
its shielding technology business, the Company has received exclusive commercial
production rights to a patented shielding product known as DUCRETE shielding,
which uses a uranium oxide aggregate mixed with concrete to form an enhanced
radiation shielding product. The Company is exploring with the Department of
Energy ("DoE") and several commercial customers specific applications for the
use of DUCRETE shielding, including as containment vessels for spent fuel and
other high-level radioactive waste products. In addition, the Company has the
capability to recycle radioactively contaminated steel into storage boxes for
containment of various radioactive wastes. Due to anticipated reduced U.S.
government procurement plans, the Company expects that no revenues will be
derived from DU penetrator operations after the second quarter of fiscal 1999.
STRATEGY
The Company's strategy is to grow revenues and profits by exploiting its
materials expertise to manufacture products for currently identified markets and
develop new applications for its technologies. Specific components of the
Company's strategy include:
APPLY TECHNOLOGICAL EXPERTISE TO COMMERCIAL APPLICATIONS. The Company
intends to continue to capitalize on its metallurgical, materials science and
manufacturing expertise, developed primarily for military applications, in order
to introduce new products for what the Company believes are high-growth
opportunities in large commercial markets. In these efforts, the Company will
apply its skills in materials development, investment casting difficult alloys,
manipulating and forming complex components, and manufacturing, processing and
recycling certain advanced materials. An example is the development of the
5
<PAGE>
Company's Beralcast technology which the Company is applying to various
applications in commercial and aerospace markets.
DEVELOP NEW PRODUCTS AND MARKETS THROUGH CONTINUED RESEARCH AND
DEVELOPMENT. The Company intends to continue to focus its own and customer
funded research and development efforts on technological innovation designed to
yield sophisticated, high-performance commercial products, materials and
services. The Company intends to pursue this strategy by maintaining a strong
internal research and development team, continuing its longstanding research
relationships with major government research centers and working closely with
customers. The primary goal of the Company's research and development efforts is
to accelerate commercialization of its materials science technologies by
addressing customer identified applications with significant market potential.
INCREASE MANUFACTURING CAPACITY AND REDUCE MANUFACTURING COSTS. The Company
intends to leverage its manufacturing expertise by shifting from prototype to
full-scale production in order to meet anticipated customer demands. A
substantial portion of the proceeds of the offering will be used to purchase
additional manufacturing equipment, including new furnaces and automated
production equipment, principally for the Company's Beralcast products. Among
the goals of the Company's planned capital expenditure program are to increase
manufacturing capacity, improve manufacturing efficiencies, enhance product
quality and further reduce manufacturing costs.
MAINTAIN FOCUS ON CUSTOMER SATISFACTION. The Company seeks to continue
providing the highest possible level of customer service and customer
satisfaction. For example, the Company engages in concurrent engineering with
its customers to create value-added, customized products that provide solutions
to specific technical issues. The Company seeks to implement design-to-cost
programs with its customers to lower overall product costs. In addition, the
Company has technical field offices at certain customer sites so that the
Company can cooperate in design optimization and provide technical and sales
support. The Company at its Concord facility is the first small business and one
of only fourteen companies nationwide to qualify for the U.S. Army's highest
quality manufacturing certification, and this facility is also ISO 9002
certified. The Company intends to continue its commitment to high-quality
manufacturing.
PURSUE SELECTED COOPERATIVE RELATIONSHIPS. In order to penetrate new
markets and accelerate its expansion, the Company intends to pursue selected
teaming arrangements, licenses, joint ventures and other cooperative business
relationships. This strategy is designed to leverage the Company's technological
expertise by increasing production capacity for the Company's products without
the Company having to fund all related capital expenditures. This strategy is
further designed to allow Starmet to take advantage of the existing distribution
channels of its current or potential partners. As part of this strategy and to
facilitate such cooperative relationships, in October 1997 the Company completed
an internal restructuring to organize the Company's subsidiaries along
functional business lines. A recent example of this co-development strategy is
Trio Star, LLC ("Trio Star"), a business venture formed by the Company with R-
Cubed Composites, Inc. (a subsidiary of Perstorp AB) and Advanced Product Labs,
to jointly market, develop and supply structural components to the commercial
satellite and aerospace markets.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ shares
Common Stock offered by the Selling Stockholders... 750,000 shares
Total Common Stock offered hereby (1).............. shares
Common Stock to be outstanding after the offering
(1)(2)............................................. shares
</TABLE>
<TABLE>
<S> <C>
Use of Proceeds.................................... The Company intends to use the net
proceeds of the offering to fund
capital expenditures on fixed assets
and equipment to increase manufacturing
capacity, to repay all borrowings
outstanding under the Company's
Existing Credit Facility (as defined
herein), to repay certain indebtedness
owed to certain stockholders and for
working capital and general corporate
purposes. The Company will not receive
any of the proceeds from the sale of
shares of Common Stock offered by the
Selling Stockholders. See "Use of
Proceeds" and "Principal and Selling
Stockholders."
Nasdaq National Market symbol...................... STMT
</TABLE>
- ------------------------
(1) Assumes that the Underwriters' over-allotment option is not exercised.
(2) Based on shares of Common Stock outstanding as of , 1998. Does
not include (i) an aggregate of 721,420 shares of Common Stock reserved for
issuance upon the exercise of outstanding options or that may be granted
under the Company's stock option plans (of which, options to purchase
594,920 shares were outstanding as of April 3, 1998), (ii) 126,044 shares of
Common Stock reserved for issuance upon conversion of outstanding and
immediately convertible subordinated debentures and (iii) 182,786 shares of
Common Stock reserved for issuance upon exercise of outstanding and
immediately exercisable warrants (not giving effect to anti-dilution
provisions in the First Warrant (as defined herein) held by the Company's
principal bank lender that will be triggered as a result of the offering).
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" and "Shares Eligible for
Future Sale."
RISK FACTORS
See "Risk Factors" beginning on page 9 for a discussion of certain risks
that should be considered in connection with an investment in the Common Stock
offered hereby.
7
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION)
The summary statement of operations and other data set forth below for each
of the years ended September 30, 1995, 1996 and 1997 have been derived from the
Company's Consolidated Financial Statements included elsewhere herein and should
be read in conjunction with such financial statements. The summary statement of
operations and other data set forth below for each of the years ended September
30, 1993 and 1994 have been derived from audited financial statements of the
Company that are not included herein. The summary statement of operations and
other data for the three month periods ended December 31, 1996 and 1997 and the
summary balance sheet data as of December 31, 1997 have been derived from the
unaudited financial statements of the Company included elsewhere herein and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations and financial position of the Company for the periods and at the date
presented. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
FISCAL YEAR ENDING SEPTEMBER 30, DEC. 31,
----------------------------------------------------- ---------
1993 1994 1995 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales and contract revenues........................ $ 17,019 $ 19,004 $ 18,784 $ 28,694 $ 28,062 $7,271
Operating income (loss)................................ (10,496) (10,954) (1,924) (2,560) 1,811 566
Interest expense, net.................................. 953 550 350 387 296 55
Net income (loss)...................................... (6,207) (10,196) 510 (3,037) 1,482 509
Basic net income (loss) per share (1)(2)............... (1.35) (2.22) 0.11 (0.64) 0.31 0.11
Basic weighted average shares outstanding (1).......... 4,590 4,600 4,701 4,779 4,783 4,782
Diluted net income (loss) per share (1)(2)............. (1.35) (2.22) 0.11 (0.64) 0.30 0.10
Diluted weighted average shares outstanding (1)........ 4,590 4,600 4,706 4,779 4,959 4,883
OTHER DATA:
Research & development expense......................... 1,031 575 439 876 1,309 247
Customer funded research and development (3)........... 503 792 557 1,812 793 131
Capital expenditures................................... 1,265 709 777 1,449 1,788 406
Pro forma diluted net income (loss) per share before
extraordinary item (1)(2)(4).........................
Pro forma diluted weighted average shares outstanding
(1)(2)(4)............................................
<CAPTION>
1997
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales and contract revenues........................ $ 8,079
Operating income (loss)................................ (1,427)
Interest expense, net.................................. 135
Net income (loss)...................................... (1,561)
Basic net income (loss) per share (1)(2)............... (0.33)
Basic weighted average shares outstanding (1).......... 4,784
Diluted net income (loss) per share (1)(2)............. (0.33)
Diluted weighted average shares outstanding (1)........ 4,784
OTHER DATA:
Research & development expense......................... 158
Customer funded research and development (3)........... 291
Capital expenditures................................... 797
Pro forma diluted net income (loss) per share before
extraordinary item (1)(2)(4).........................
Pro forma diluted weighted average shares outstanding
(1)(2)(4)............................................
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, 1997
--------------------------
ACTUAL AS ADJUSTED (4)
--------- ---------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................... $ 11,726 $
Total assets.............................................................................. 36,816
Total liabilities......................................................................... 11,954
Stockholders' equity...................................................................... 24,862
</TABLE>
- ------------------------------
(1) Adjusted to reflect the two-for-one stock dividend issued on April 7, 1997.
(2) Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE. Basic net income
(loss) per share was computed by dividing net income (loss) by the weighted
average shares outstanding. Diluted net income per share was computed by
dividing net income (loss) by the weighted average number of shares and
dilutive potential shares outstanding during the relevant period. In loss
periods, dilutive potential shares are excluded as they would be
anti-dilutive.
(3) Such amounts are included in net sales and contract revenues.
(4) Adjusted to give effect to (i) the sale of shares of Common Stock by
the Company at an assumed price of $ per share after deducting
underwriting discounts and estimated expenses of $ and the application
of the estimated net proceeds therefrom and (ii) additional shares
issuable under the First Warrant held by the Company's principal bank lender
pursuant to anti-dilution provisions that will be triggered as a result of
the offering. Pro forma data do not include an extraordinary loss of
$ ($ per share) associated with early extinguishment of
indebtedness expected to occur upon the closing of the offering. Balance
sheet data are also adjusted to reflect (a) an extraordinary loss of
$ associated with early extinguishment of indebtedness, (b) the
anticipated payment by the Company of a fee of approximately $235 under the
Facility Restructuring Agreement (as defined herein) to eliminate certain
anti-dilution provisions of warrants held by its principal bank lender and
(c) the assumed conversion of approximately $1,401 in principal amount of
outstanding and immediately convertible subordinated debentures held by
certain stockholders. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
8
<PAGE>
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN ADDITION
TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED HEREBY. CERTAIN
STATEMENTS IN THIS PROSPECTUS CONTAIN FORWARD-LOOKING STATEMENTS CONCERNING THE
COMPANY'S OPERATIONS, ECONOMIC PERFORMANCE AND FINANCIAL CONDITION. SEE
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."
HISTORY OF LOSSES; RISK OF FUTURE LOSSES
The Company has experienced significant financial difficulties and liquidity
problems in recent years due primarily to the sharp decline in sales of DU
penetrators and a lack of orders for certain other DU products. As a result, the
Company has had to seek financing from stockholders, waivers of non-compliance
with certain covenants in its debt instruments (including a waiver under the
Existing Credit Facility in February 1998) and additional borrowings under the
Existing Credit Facility. Historically, a substantial portion of the Company's
revenues have been derived from the sale of products for defense munitions and
tank armor programs; however, revenues from these applications have declined
sharply in recent years due primarily to the general decline in defense
spending. In fiscal 1997, the Company derived 37% of its revenues from the sale
of products for defense munitions and tank armor. The Company expects that no
revenues will be derived from sales of penetrator defense munitions after the
second quarter of fiscal 1999, and only limited revenue will be derived from
sales of billets for conversion into tank armor thereafter. The Company incurred
operating losses in four of its last five fiscal years and during the first
quarter of fiscal 1998. In addition, the Company's accountants, in their report
to the Board of Directors and stockholders of the Company for fiscal 1995,
stated that there was substantial doubt at that time about the Company's ability
to continue as a going concern. Although the Company was profitable in fiscal
1997, reserve reversals and other non-recurring income items accounted for the
profitability. Excluding these items, the Company would have reported a net loss
in fiscal 1997. There can be no assurance that the Company will not incur losses
in fiscal 1998 or in subsequent fiscal periods.
The Company expects to expend substantial resources on commercial growth
opportunities, in many cases before it can be certain of market acceptance of
its current and planned products and services. The Company's ability to realize
the objectives of its business strategy and to achieve its plans for commercial
growth and profitability are subject to a number of business, industry, economic
and other factors, many of which are beyond the control of the Company, such as
the Company's ability to successfully market its products and services,
particularly in new applications for its materials and technologies, the
Company's ability to manage planned expansion and large-scale commercial
production of new products, customer demand, competition in the industries which
the Company serves and general economic conditions. The failure of the Company
to realize the objectives of its business strategy, in particular, the
full-scale commercialization of Beralcast disk drive arm sets, would have a
material adverse effect on the Company's business, financial condition and
results of operations. Ongoing losses would hinder the Company's ability to
respond effectively to market conditions, to make capital expenditures and to
take advantage of business opportunities, the failure to perform any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
PENDING BERALCAST PATENT LITIGATION; PATENTS AND OTHER INTELLECTUAL PROPERTY
On December 9, 1997, Brush Wellman, Inc. ("Brush Wellman") filed a patent
infringement suit against the Company in the United States District Court for
the District of Massachusetts (the "Massachusetts District Court") alleging that
the Company is infringing on a process patent (the "Brush Wellman Patent")
awarded to Brush Wellman for the investment casting of beryllium aluminum
alloys. Brush Wellman is seeking an injunction against the Company's alleged
patent infringement, monetary damages
9
<PAGE>
(including treble damages) and attorney fees. On March 28, 1998 the U.S. Patent
and Trademark Office (the "PTO") granted the Company's request (filed January
22, 1998) for re-examination (the "Request") of the Brush Wellman Patent. In the
Request, the Company contended, among other things, that there was sufficient
"prior art" in the field of investment castings and castings of beryllium
aluminum alloys such that the Brush Wellman Patent should not have been issued.
In granting the Request, the patent examiner agreed that the Company's cited
examples of prior art raised substantial new issues of patentability which were
not decided in the prior examination which led to granting the Brush Wellman
Patent. The PTO will undertake a process of re-examination of the validity of
the Brush Wellman Patent that, the Company anticipates, could last for an
extended period. There can be no assurance that the PTO will find the Brush
Wellman Patent to be invalid. On January 27, 1998, the Company filed in the
Massachusetts District Court a motion to stay the court case pending the outcome
of the re-examination proceeding. If the Massachusetts District Court were to
grant the motion to stay, the court case would not proceed until the conclusion
of the PTO's re-examination of the Brush Wellman Patent. Although the Company
believes that its motion to stay has merit, no assurance can be given that the
Massachusetts District Court will grant the motion.
Even though the Company has been advised by patent counsel that Brush
Wellman's claims are without merit because the Brush Wellman Patent is invalid
as a matter of law due to "prior art" and due to the Company's sales of
investment cast beryllium aluminum products more than one year prior to the
Brush Wellman Patent application, no assurance can be given as to the ultimate
outcome of the lawsuit. Even if the lawsuit were not to proceed to trial, the
litigation could result in substantial costs to the Company, and an unfavorable
settlement of the lawsuit could place the Company at a competitive disadvantage.
An adverse judgment or settlement could subject the Company to significant
liabilities and expenses (E.G., reasonable royalties, lost profits, attorneys'
fees and trebling of damages for willfulness). An adverse outcome also could
cause the Company to incur substantial costs in redesigning the investment
casting process for its Beralcast products and components. Moreover, there can
be no assurance that redesign alternatives would be available to the Company,
and if available, that any redesign alternative would not place the Company at a
competitive disadvantage. The Company could be required to license the disputed
patent rights from Brush Wellman or to cease using the patented technology. Any
such license, if required, may not be available on terms acceptable or favorable
to the Company, or at all. Any of these results could have a material adverse
effect on the Company's business, financial condition and results of operations.
Even in the event of a successful outcome, the Company may incur significant
legal expenses in its defense.
The Company's success depends in substantial part on its proprietary
technology, in particular, Beralcast, the Company's family of beryllium aluminum
alloys. Although the Company protects and intends to continue to protect its
intellectual property rights through patents, copyrights, trade secrets, license
agreements and other measures, there can be no assurance that the Company will
be able to protect its technology adequately or that competitors will not be
able to develop similar technology independently. In addition, the laws of
certain foreign countries in which the Company's products may be licensed do not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States. If the Company were unable to maintain
the proprietary nature of its intellectual property with respect to its
significant current or proposed products, the Company's business, financial
condition and results of operation could be materially adversely affected. There
can be no assurance that the Company will be able to obtain patent protection
for products or processes discovered using the Company's technologies.
Furthermore, there can be no assurance that any patents issued to the Company
will not be challenged, invalidated, narrowed or circumvented, or that the
rights granted thereunder will provide significant proprietary protection or
competitive advantages to the Company. Although the Company believes that its
products, patents and other proprietary rights do not infringe upon the
proprietary rights of third parties, as discussed above, the Company has been
sued by Brush Wellman with respect to the process of investment casting of
beryllium aluminum alloys, and there can be no assurance that other third
parties will not assert other infringement claims against the Company.
10
<PAGE>
RISKS RELATED TO MANAGEMENT OF PLANNED GROWTH
The Company's anticipated growth could place a significant strain on its
management, operations, financial and other resources. The Company's ability to
manage its growth will require it to continue to invest in its operational,
financial and management information systems, procedures and controls and to
attract, retain, motivate and effectively manage its employees. The Company
intends to use a substantial portion of the proceeds of the offering to expand
its Beralcast manufacturing capacity. The Company may experience design and
start-up difficulties, such as cost overruns, manufacturing and operational
difficulties and significant delays. Moreover, there can be no assurance that
the Company will realize the goals of the planned capital expenditure program,
such as reductions in product costs and enhanced product quality. If the Company
is successful in achieving its growth plans, such growth is likely to place a
significant burden on the Company's operating and financial systems, resulting
in increased responsibility for senior management and other personnel within the
Company. There can be no assurance that the Company's existing management or any
new members of management will be able to augment or improve existing systems
and controls or implement new systems and controls in response to anticipated
future growth. The Company's failure to manage its growth could have a material
adverse effect on the Company's business, financial condition and results of
operation.
The Company may from time to time pursue selected teaming arrangements,
licenses, joint ventures and other cooperative relationships to increase its
production capacity or to complement or expand its existing businesses. Any of
these relationships may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, reductions of existing cash
balances, and charges to operations, any of which could have a material adverse
effect on the Company's business, results of operation and financial condition.
Selected teaming arrangements, licenses, joint ventures and other cooperative
relationships involve a number of risks that could adversely affect the
Company's operating results including the diversion of management's attention,
the entry into markets in which the Company has little or no direct prior
experience and the disruption of the Company's business. No assurance can be
given that any such relationship will not materially and adversely affect the
Company or that any such relationship will enhance the Company's business.
COMPETITION
The Company faces significant competition from established companies in
certain of its product lines. In addition, the Company's Beralcast alloys and
other products face competition from alternative or competing materials,
products and technologies, some of which are better established than those of
the Company. Many of the Company's current and potential competitors have
significantly greater financial, technical, marketing, purchasing and other
resources than the Company, and, as a result, may be able to respond more
quickly to new or emerging technologies or standards and to changes in customer
requirements, devote greater resources to the development, promotion and sale of
products, or deliver competitive products at lower prices. Current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition is likely to
result in price reductions, reduced operating margins and loss of market share,
any of which could have a material adverse effect on the Company's business,
results of operation and financial condition. Although the Company believes that
it has certain technological and other advantages over its competitors,
realizing and maintaining these advantages will require continued investment in
manufacturing capacity, research and development, sales and marketing, and
customer service and support. There can be no assurance that the Company will
have sufficient resources to continue to make such investments or that the
Company will be successful in maintaining such advantages. The Company believes
that its ability to compete successfully depends on a number of factors both
within and outside of its control, including price, product quality, success in
developing and introducing new products, and general market and
11
<PAGE>
economic conditions. There can be no assurance that the Company will be able to
compete as to these or other factors or that competitive pressures faced by the
Company will not materially adversely affect its business, results of operation
and financial condition. See "Business--Competition."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
Expansion of the Company's operations, including anticipated growth in its
Beralcast business, the planned increase in manufacturing capacity and the
continued financing of research and development, will require the Company to
make significant expenditures. In particular, due to planned new product and
process introductions, principally to support anticipated large volume Beralcast
production, the Company anticipates spending up to approximately $90 million
over the next four years, subject to various factors, to increase the capacity
at the Company's facilities. Of this amount, the Company expects to spend
approximately $60 million on the expansion of its Beralcast business. The
Company intends to fund such capital expenditures with the proceeds of the
offering and cash expected to be generated from operations. If additional funds
in excess of the proceeds of the offering and the amount of cash available from
operations are required to permit future expansion, the Company may be required
to seek additional financing, including the issuance of additional debt and
equity securities, or curtail its expansion activities. There can be no
assurance that such funds will be sufficient to support the Company's business
strategy or that if additional financing is required it will be available in
amounts and on terms satisfactory to the Company, if at all. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and
"Business--Manufacturing and Operations."
RISKS RELATED TO NEW PRODUCT INTRODUCTIONS, RAPID TECHNOLOGICAL CHANGE AND
INDUSTRY CONDITIONS
The success of new product introductions is dependent on several factors,
including timely completion and introduction of new products, quality of new
products, market acceptance and timeliness of market acceptance, production
efficiency, costs, competition, the availability of substitute products and
customer service. Although the Company attempts to determine the specific needs
of new markets, there can be no assurance that the identified markets will in
fact materialize or that the Company's products designed for these markets will
achieve any significant degree of market acceptance or that any such acceptance
will be sustained for any significant period. In particular, the Company's
Beralcast materials, which are central to its strategy, are generally more
expensive than other materials currently employed in the markets in which the
Company intends to compete. There can be no assurance that the performance
characteristics of Beralcast alloys will outweigh the greater expense of
Beralcast compared to competing materials. The Company's Beralcast products and
components currently are in the development stage and have not been brought to
market, and there can be no assurance that significant commercial business will
develop as anticipated by the Company or that these products will gain
acceptance in commercial markets. While the Company believes that there are
additional commercial applications for its Beralcast alloys, there can be no
assurances that any of its products or services will be successful or produce
revenue for the Company. Failure of new products to achieve or sustain market
acceptance could have a material adverse effect on the Company's business,
results of operation and financial condition. New product introductions will
also require substantial expenditures, and there can be no assurance that
constraints on the Company's financial resources will not adversely affect its
ability to develop and market new products. In addition, the anticipated
commercial markets for the Company's principal new products are characterized by
rapid technological change, changing customer needs, frequent new product
introduction, evolving industry standards and short product lifecycles. Failure
to successfully keep pace with technological developments could have a material
adverse affect on the Company's business, results of operation and financial
condition.
The Company plans to focus its efforts on sales of its specialty metal
products to the commercial markets and military aerospace industries. The
Company currently is developing, among other things,
12
<PAGE>
prototypes and pre-production quantities of disk drive arm sets, prototype parts
for military and commercial aerospace applications and prototypes of premium
golf club products. The market for computer storage devices historically has
grown rapidly but at varying rates, and there can be no assurance that this
market will continue to grow at historical rates. The markets for aerospace
products and sporting goods have fluctuated historically. There can be no
assurance that factors relative to general economic conditions or particular
industries will not materially adversely affect orders for the Company's
products. While certain disk drive manufacturers have provided estimates of
future demand, industry practice generally is to place only short-term orders,
accompanied by projections of demand for future operations. Accordingly, the
Company expects to commit to the cost of expanding its production capacity
without firm orders for products. Failure of markets for the Company's products
to develop, cancellation of orders or deferrals of scheduled delivery dates all
could materially adversely affect the Company's business, results of operation
and financial condition.
AVAILABILITY AND COST OF BERYLLIUM AND OTHER RAW MATERIALS
Raw materials used by the Company include a number of metals and minerals
used to produce the alloys included in its products and castings, including
beryllium, titanium, aluminum, nickel, cobalt, chromium and molybdenum, among
others. Prices of these materials can be volatile due to a number of factors
beyond the control of the Company, including domestic and international economic
conditions and competition. This volatility could significantly effect the
availability and prices of raw materials used by the Company. There can be no
assurance that the Company will be able to pass price fluctuations through to
customers, and price moves may adversely affect sales, operating margins and net
income. Depending upon certain market conditions, the Company may engage in
forward purchases of some of these materials. However, the Company ordinarily
does not attempt to hedge the price risk of its raw materials and has no
long-term, fixed price contracts or arrangements for the raw materials it
purchases. Commercial deposits of certain metals, such as beryllium, cobalt,
nickel, titanium, chromium and molybdenum, that are required for the alloys used
in the Company's precision castings and specialty metal powders, are found in
only a few parts of the world. The availability and prices of these metals may
be influenced by private or governmental cartels, changes in world politics,
unstable governments in exporting nations and inflation. In particular, the
Company currently purchases beryllium, a metal which is used to form its
Beralcast alloys, principally from a producer-supplier located in Kazakhstan and
from multiple distributors located in Estonia, Kazakhstan, Sweden, the United
States, China and Russia. The Company also purchases scrap beryllium from
domestic and foreign distributors. The only three producers of beryllium
worldwide are located in Kazakhstan, the United States and China. For
competitive reasons, the Company does not procure significant quantities of
beryllium raw materials from Brush Wellman, the sole U.S. producer of beryllium,
which is the Company's principal competitor for beryllium aluminum products and
the plaintiff in the pending patent lawsuit. The Company believes that a
sufficient supply of beryllium remains available for its current demand.
However, if its Beralcast products receive broad commercial acceptance, the
Company's demand for beryllium will increase. The cost of beryllium could
increase as a result of the Company's increased demand, and supplies of
beryllium could also be affected. Although the Company has not experienced
shortages of raw materials in the past, there can be no assurance that such
shortages will not occur in the future. Any substantial increase in raw material
prices or a continued interruption in supply of raw materials, in particular of
beryllium from the Company's producer-supplier located in Kazakhstan, could have
a material adverse effect on the Company's business, results of operation and
financial condition. See "Business--Sources of Raw Materials."
ENVIRONMENTAL, HEALTH AND REGULATORY MATTERS
The Company is subject to comprehensive and changing federal, state, local
and international laws, regulations and ordinances (together, "Environmental
Laws") that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and
13
<PAGE>
certain damages resulting from, sites of past spills, disposals or other
releases of hazardous substances and materials, including liability under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA," the federal "Superfund" statute), and similar state statutes for the
investigation and remediation of environmental contamination at properties owned
and/or operated by it and at off-site locations where it has arranged for the
disposal of hazardous substances. Furthermore, depleted uranium, a material
regularly processed by the Company, is a low-level radioactive material and the
Company is subject to governmental licensing and regulation.
If it is determined that the Company is not in compliance with current
Environmental Laws, the Company could be subject to fines and penalties. The
amount of any such fines and penalties could be material. In addition, the
Company uses depleted uranium, beryllium and other hazardous substances, and as
is the case with manufacturers in general, if a release of hazardous substances
occurs on or from the Company's properties or from an off-site disposal
facility, the Company may be held liable and may be required to pay the cost of
remedying the condition. The amount of any such liability could be material.
The Company has made, and expects to continue to make, expenditures to
comply with current and future Environmental Laws. The Company anticipates that
it could incur additional capital and operating costs in the future to comply
with existing Environmental Laws and new requirements arising from new or
amended statutes and regulations. In addition, because the applicable regulatory
agencies have not yet promulgated final standards for some existing
environmental programs, the Company cannot at this time reasonably estimate the
cost for compliance with these additional requirements. The amount of any such
compliance costs could be material. The Company cannot predict the impact that
future regulations will impose upon the Company's business. The Company is
currently remediating the holding basin site at its Concord facility and may
incur costs in excess of its fixed price contract with the United States Army
for remediation of the holding basin. The Company believes that any additional
remediation costs would not be material in part because the United States Army
has agreed to recognize additional costs to remediate the holding basin as
allowable and recoverable costs through the Company's overhead structure on
government contracts. See "Business--Environmental, Safety and Regulatory
Matters" and "Business-- Concord Site Remediation and Decommissioning Planning
Requirements."
DU and beryllium, materials regularly processed by the Company, have
characteristics considered to be health or safety hazards by various federal,
state and local regulatory agencies. The processing of these materials requires
a high level of safety consciousness, personnel monitoring devices and special
equipment. DU in a finely divided state, such as grinding dust or machine
turnings, is combustible at room temperature and requires special handling for
safe operations and disposal of process wastes. Airborne beryllium in respirable
form, such as powder, dusts or mists generated in some manufacturing processes
can represent a hazard to the lungs in certain susceptible individuals.
Processing this material requires use of extensive ventilation and dust
collecting systems. All of these operations are performed under strict
environmental and health safety controls consistent with the Occupational Safety
and Health Administration ("OSHA") and the Environmental Protection Agency
("EPA") regulations for pure beryllium. There can be no assurance that the
Company will be able to control all health and safety problems. The Company may
be held liable and may be required to pay the costs of remedying any such
problems. The amount of any such liability and costs could be material. See
"Business--Environmental, Safety and Regulatory Matters."
DEPENDENCE ON SALES TO PUBLIC SECTOR AND GOVERNMENT CONTRACTORS
The Company derives, and plans to continue to derive, substantial revenues
from public sector customers or contractors for such customers, including the
United States military. There are significant risks inherent in sales to such
customers which may cause material fluctuations in the Company's operating
results. For each contract with a public sector customer, the Company typically
is subject to a protracted procurement process which includes sealed competitive
bids, systems demonstrations and the integration of Company and third-party
products. The process also can include political influences, award protests
14
<PAGE>
initiated by unsuccessful bidders and changes in budgets or appropriations which
are beyond the Company's control. Contracts of public sector customers typically
are subject to procurement policies which may be onerous and may include profit
limitations and rights on the part of the government to terminate for
convenience. Sales to the United States Department of Defense (the "DOD") are
subject to a number of significant uncertainties, including timing and
availability of funding, unforeseen changes in the timing and quantity of
government orders and the competitive nature of government contracting
generally. Furthermore, the DOD has been reducing total expenditures, and there
can be no assurance that funding will not be reduced in the future. A
significant loss of sales to the U.S. government or contractors for the U.S.
government could have a material adverse effect on the Company's business,
results of operation and financial condition.
The Company is directly and indirectly subject to various rules, regulations
and orders applicable to government contractors. Violation of applicable
government rules and regulations could result in civil liability, in
cancellation or suspension of existing contracts or in ineligibility for future
contracts or subcontracts funded in whole or in part with federal funds.
Similarly, changes in the regulations or other requirements relating to parts
manufactured by the Company could materially adversely affect the Company.
CONCENTRATION OF CUSTOMERS
A substantial portion of the Company's business currently is conducted with
a relatively small number of large customers. The Company's ten largest
customers accounted for approximately 78% and 83% of the Company's net sales in
the fiscal years ended September 30, 1997 and September 30, 1996, respectively.
While the Company's planned expansion into new commercial markets may result in
a substantial portion of its revenues being derived from new customers, the
dominance of a few companies in certain of these targeted markets is likely to
continue to result in a substantial portion of the Company's revenues being
derived from a small number of significant customers. The loss of one of its key
customers or any significant portion of orders from any such customers could
have a material adverse effect on the Company's business, results of operation
and financial condition. In addition, the Company also could be materially
adversely affected by any substantial work stoppage or interruption of
production at any of its major customers or if one or more of its key customers
were to reduce or cease conducting operations. See "Business--Significant
Customers."
UNCERTAINTIES RELATING TO USEC AND UF(6) CONVERSION
USEC, a government-owned global energy company created by the U.S. Congress
in 1992 to operate the DoE's uranium enrichment program, is the only customer
for the Company's AVLIS feedstock material. USEC is in the process of
privatizing, and the Company is unable to predict the impact of the
privatization process and resulting change of ownership on the Company's
business. There can be no assurance that USEC, or any successor to USEC as a
result of privatization or otherwise, will not abandon the AVLIS program or
reduce resources directed to the program or that the Company will continue to
receive contracts from USEC. In addition, USEC's privatization process may delay
the awarding of contracts to the Company. There can be no assurance that USEC,
or any successor to as a result of privatization or otherwise, will provide the
Company with business which is sufficient to sustain the profitability of the
Company's South Carolina facility. Failure of the Company to be awarded such
contracts could have a material adverse effect on the Company's business,
results of operation and financial condition. Furthermore, following
privatization, USEC will own all the new depleted UF(6) produced by its
enrichment plants and will not be allowed to store depleted UF(6) as has been
done by DoE, thereby necessitating that USEC develop a method for disposing of
depleted UF(6). The Company also intends to pursue opportunities with DoE for
the conversion of its depleted UF(6) stockpile. Although the Company owns and
operates the only production facility in North America capable of converting
natural UF(6) and depleted UF(6) into UF(4), there can be no assurance that USEC
or DoE will award contracts to the
15
<PAGE>
Company for the conversion of depleted UF(6). See "Business--Industries and
Markets--AVLIS and UF(6) Conversion."
DEPENDENCE ON KEY PERSONNEL
The Company's performance depends to a significant extent upon a number of
senior management and technical personnel. The loss of the services of one or
more key employees could have a material adverse effect on the Company. The
Company does not maintain key person life insurance on any of its employees. The
Company's future financial results will depend in large part on its ability to
continue to attract and retain highly skilled, technical, managerial and
marketing personnel and the ability of its officers and key employees to manage
growth successfully, to implement appropriate management information systems and
controls, and to continue successful development of new products and services
and enhancements to existing products and services. Competition for such
personnel is intense and there can be no assurance that the Company will
continue to be successful in attracting and retaining the personnel required to
successfully develop new and enhanced products.
RISK OF BUSINESS INTERRUPTION
The Company's specialty metal products (including Beralcast) business is
concentrated at its Concord facility and its advanced recycling technologies and
uranium services business is concentrated at its South Carolina facility. Any
prolonged disruption at any of the Company's production facilities due to
equipment failure, destruction of or material damage to such facility, labor
difficulties, or other reasons, could have a material adverse effect on the
Company's business, results of operations and financial condition. Although the
Company maintains property and business interruption insurance to protect
against any such disruptions (other than for labor-related disruptions), there
can be no assurance that the proceeds from such insurance would be adequate to
compensate the Company for losses, including the loss of customers, incurred
during the period of any such disruption or thereafter.
YEAR 2000 COMPLIANCE
The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's computer systems and applications will function
properly beyond 1999. The Company believes that adequate resources have been
allocated for this purpose and expects the Company's Year 2000 date conversion
programs to be completed on a timely basis. The Company does not expect to incur
significant expenditures to address this issue. However, there can be no
assurance that the Company will identify all Year 2000 problems in its computer
and other systems in advance of their occurrence or that the Company will be
able to successfully remedy any problems that are discovered. The expenses of
the Company's efforts to address such problems, or the expenses or liabilities
to which the Company may become subject as a result of such problems, could have
a material adverse effect on the Company's business, results of operations and
financial condition. In addition, the revenue stream and financial stability of
existing customers may be adversely impacted by Year 2000 problems, which could
cause fluctuations in the Company's revenues and operating profitability.
FLUCTUATION OF STOCK PRICE; ABSENCE OF ACTIVE TRADING
In recent periods there has been relatively little trading in the Company's
Common Stock and the market price per share of the Company's Common Stock has
fluctuated significantly. Although both the number of shares of the Common Stock
outstanding in the public float and the number of the Company's stockholders are
expected to increase significantly following the offering, there can be no
assurance that a more active trading market for the Common Stock will develop or
be sustained following the offering. Factors such as quarterly variations in the
Company's result of operations, changes in the Company's industry and market
conditions generally, the presence of a limited number of market makers for the
Company's Common Stock, the lack of availability of institutional market
research concerning the
16
<PAGE>
Company, and the limited and sporadic trading volume of the Company's Common
Stock have caused and may continue to cause the market price of the Company's
Common Stock to fluctuate significantly. In addition, future announcements
concerning the Company or its competitors, including quarterly results,
innovations, new product introductions, government regulations or proceedings,
or litigation may cause the market price of the Common Stock to fluctuate
significantly. Furthermore, the stock markets have experienced extreme price and
volume fluctuations during certain periods. These broad market fluctuations and
other factors may adversely affect the market price of the Company's Common
Stock for reasons unrelated to the Company's operating performance. Accordingly,
the price at which shares are offered hereby should not be considered an
indication of any price at which the Common Stock may trade in the future.
EFFECTS OF MASSACHUSETTS CONTROL SHARE ACQUISITION ACT
The Company is subject to Chapter 110D of the Massachusetts General Laws
which governs "control share acquisitions," which are certain acquisitions of
beneficial ownership of shares which raise the voting power of the acquiring
person (which can be a group of persons or entities sharing beneficial
ownership) above any one of three thresholds: one-fifth, one-third or one-half
of the total voting power. Each time one of these thresholds is crossed, all
shares acquired by the person making the control share acquisition within the
period beginning 90 days before and ending 90 days after such threshold is
crossed ("Affected Shares") obtain voting rights only (i) upon authorization by
a majority of the stockholders other than the holder of the Affected Shares,
officers of the Company and directors of the Company who also are employees of
the Company or (ii) when disposed of in non-control share acquisitions. Chapter
110D may have the effect of delaying or preventing a change of control of the
Company at a premium price. In addition, because the number of shares of Common
Stock currently entitled to vote is substantially less than the total number of
outstanding shares of Common Stock, holders of shares of Common Stock purchased
in transactions which are not control share acquisitions, and which occur at a
time when there are Affected Shares outstanding, will obtain voting rights which
are disproportionate to the number of shares held as a percentage of all
outstanding shares (including Affected Shares), which may facilitate the
acquisition of shareholdings which may permit the exercise of a controlling
influence on the management or policies of the Company. See "-- Substantial
Influence of Principal Stockholders" and "Description of Capital Stock."
SUBSTANTIAL INFLUENCE OF PRINCIPAL STOCKHOLDERS
The Company believes that certain control share acquisitions have occurred
and that members of the group which effected such control share acquisitions,
namely Wiaf Investors Co., Charles Alpert, Joseph Alpert, Melvin B. Chrein,
Meryl J. Chrein and Marshall J. Chrein (collectively, the "Investor Group"), as
of April 3, 1998 were the beneficial owners of 2,495,537 shares of Common Stock
(assuming full conversion of debentures and exercise of all warrants held by
certain members of the Investor Group), or approximately 50% of the Company's
outstanding shares of Common Stock. Of these shares, 1,759,255 are Affected
Shares (and thus not entitled to vote). The remaining 736,282 shares (assuming
full conversion of debentures and exercise of all warrants held by certain
members of the Investor Group) represent approximately 23% of the shares
entitled to vote. Directors and executive officers of the Company beneficially
own in the aggregate 1,012,918 shares of Common Stock (assuming full conversion
of debentures and exercise of all currently exercisable options and warrants
held by certain directors and executive officers), or approximately 31% of the
shares entitled to vote. The shares to be sold in the offering by members of the
Investor Group who are Selling Stockholders will become voting shares upon the
closing of the offering. Following the closing of the offering, the Investor
Group will beneficially own in the aggregate 2,045,537 shares of Common Stock
(assuming full conversion of debentures and exercise of all warrants held by
certain members of the Investor Group), or approximately % of the shares of
Common Stock (assuming no exercise of the Underwriters' over-allotment option).
Of the shares to be beneficially owned by the Investor Group, not more than
shares will be entitled to vote, or approximately % of the shares
entitled to vote (assuming no exercise of the Underwriters' over-
17
<PAGE>
allotment option). Following the closing of the offering, directors and
executive officers of the Company, in the aggregate, will beneficially own
717,918 of the outstanding shares of Common Stock (assuming full conversion of
debentures and exercise of all currently exercisable options and warrants held
by certain directors and executive officers), or approximately % of the
shares entitled to vote (assuming no exercise of the Underwriters'
over-allotment option). As a result, the Investor Group and/or the Company's
directors and executive officers could have substantial influence on matters
requiring approval of stockholders of the Company, including the election of
directors or the approval of significant corporate matters. This concentration
of ownership by existing stockholders may also have the effect of delaying or
preventing a change of control of the Company. See "Principal and Selling
Stockholders."
SHARES AVAILABLE FOR FUTURE SALE
Upon the completion of the offering, the Company will have shares of
Common Stock outstanding ( if the Underwriters' over-allotment option is
exercised in full). Of these shares, approximately shares (including the
shares to be sold in the offering, assuming no exercise of the
Underwriters' over-allotment option) will be freely tradeable, without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except for shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act, or
persons who have been affiliates within the preceding three months. The
remaining outstanding shares are owned by existing stockholders and are
currently deemed "restricted securities" under Rule 144. In connection with the
offering, the Company, and certain stockholders, including directors and
officers of the Company, holding in the aggregate shares of Common Stock
after giving effect to the offering, are expected to enter into lock-up
agreements providing that for a period of 180 days from the date of this
Prospectus, the Company and each such stockholder will not, directly or
indirectly, without the prior written consent of Bear, Stearns & Co. Inc.,
issue, sell, offer or agree to sell, grant any option to purchase or otherwise
transfer or dispose of any Common Stock or any securities substantially similar
to the Common Stock. In addition, as of April 3, 1998, 721,420 shares of Common
Stock have been reserved for issuance upon the exercise of stock options
outstanding or which may be granted under the Company's stock option plans.
Furthermore, the Company has reserved 126,044 shares of Common Stock for
issuance upon conversion of the Company's convertible subordinated debentures
and 182,786 shares ( shares after the completion of offering, giving effect
to anti-dilution provisions in the First Warrant held by the Company's principal
bank lender and assuming no exercise of the Underwriters' over-allotment option)
of Common Stock for issuance upon exercise of outstanding and immediately
exercisable warrants, all of which will be deemed "restricted securities" under
Rule 144 upon issuance. It is possible that some or all of these shares issued
or which could be issued could be available for future sales. Sales of
substantial amounts of shares of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock. See "Use of Proceeds," "Shares Eligible for Future Sale" and
"Underwriting."
ABSENCE OF DIVIDENDS
The Company has not recently declared or paid cash dividends on its Common
Stock and intends to retain all available funds for use in the operation and
expansion of its business. The Company therefore does not anticipate that any
cash dividends will be declared or paid in the foreseeable future. Any future
decisions as to the payment of dividends will be at the discretion of the
Company's Board of Directors, subject to applicable law and any restrictions
contained in any bank loan or other debt agreements to which the Company may be
subject from time to time. See "Dividend Policy."
18
<PAGE>
THE COMPANY
The Company originated in 1942 at MIT as the metallurgical component of the
Manhattan Project. In the late 1940s, the Company separated from MIT while
remaining located on campus and operated as an independent business corporation
known as Nuclear Metals, Inc. Work commenced during this period with zirconium
and its alloys led to the development of a process, subsequently patented by the
Company, for the production of metal powders. In 1958, the Company was acquired
by Arthur D. Little, and was moved to its present headquarters in Concord,
Massachusetts. After a period of operation as a division of Textron, the
business of the Company was acquired by Whittaker Corporation and, in 1972, was
sold by Whittaker Corporation to a newly-organized company led by George
Matthews and Wilson Tuffin, who continue to serve the Company as Chairman and
Vice-Chairman of its Board of Directors, respectively.
In the 1970s and 1980s, a substantial portion of the Company's business
involved the supply of metal powders to Xerox Corporation for use in
photocopiers. During this period, the Company also developed expertise in the
production of beryllium alloys, including powder metallurgy and investment
casting, which eventually led to the development of the Company's family of
Beralcast alloys and techniques for investment casting beryllium alloy products.
In the late 1970s, the Company experienced a sharp decline in the sale of
powders to Xerox due to technological and market changes which largely obviated
the need for the Company's powders for these applications. As a result, the
Company shifted its focus to military applications for its metallurgical
expertise and began producing DU penetrators and billets for conversion into
tank armor, successfully moving into the defense contracting business. In the
late 1980s and the 1990s, the decline in U.S. defense spending resulted in
sharply reduced revenues from the sale of the Company's defense-related DU
products. The expectation that U.S. defense spending will continue at or below
current levels has also resulted in the writedown of the Company's equipment and
inventory related to its DU penetrators and tank armor businesses.
On October 1, 1997, the Company changed its name from "Nuclear Metals, Inc."
to "Starmet Corporation" and reorganized itself into a parent corporation with
the following five principal wholly-owned subsidiaries: Starmet NMI Corporation;
Starmet Powders, LLC; Starmet Commercial Castings, LLC; Starmet Aerocast, LLC;
and Starmet CMI Corporation (formerly known as Carolina Metals Inc.). This
reorganization was designed to allow management of the Company's operating
subsidiaries to assume substantial responsibility for day-to-day operations, new
business development, marketing and ultimately profitability. The Company's
management believes that the reorganization will result in concentration of
technical and human resources along functional business lines, which will allow
the Company, through its operating subsidiaries, to develop specialized
operational and marketing expertise, and to pursue selected teaming
arrangements, licenses, joint ventures and other cooperative relationships. On
October 1, 1997, the Company changed its Nasdaq National Market trading symbol
to "STMT."
The Company's principal executive offices are located at 2229 Main Street,
Concord, Massachusetts 01742, and the Company's telephone number is (978)
369-5410.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company are estimated to be approximately
$ , based on an assumed offering price of $ per share, and after
deduction of underwriting discounts and commissions and estimated offering
expenses payable by the Company. The Company will not receive any proceeds from
the sale of shares by the Selling Stockholders.
The Company has embarked upon a multi-year capital expenditure program under
which it plans to invest a substantial portion of the net proceeds of the
offering to expand its commercial Beralcast manufacturing capabilities through
fixed asset additions including the purchase of production equipment and
facility upgrades. See "Business--Manufacturing and Operations."
The Company intends to use a portion of the net proceeds of the offering to
repay all amounts outstanding under the Existing Credit Facility. As of April 3,
1998, borrowings of approximately $5.0 million were outstanding under the
Existing Credit Facility (excluding approximately $3.6 million in letters of
credit outstanding thereunder). Borrowings under the Existing Credit Facililty
bear interest, payable monthly in arrears, at a rate equal to the lender's prime
rate plus one-half percent. Under the terms of the Existing Credit Facility,
$1.5 million is due July 1, 1998, $1.5 million is due October 1, 1998 and the
balance is due February 28, 1999.
The Company has outstanding in the aggregate $2,250,500 in principal amount
under debt instruments to certain of its principal stockholders, consisting of
the following: $500,500 in principal amount of its 10% Convertible Subordinated
Debentures due December 10, 1998, which are convertible at any time into Common
Stock at $5.945 per share; $350,000 in principal amount of its 10% Subordinated
Debentures due December 10, 1998, with three-year warrants to purchase 42,000
shares of Common Stock at an exercise price of $7.50 per share; $500,000 in
principal amount of its 10% Subordinated Debentures due December 10, 2000, with
three-year warrants to purchase 60,000 shares of Common Stock at an exercise
price of $17.875 per share; and $900,000 in principal amount of its 10%
Convertible Subordinated Debentures due December 31, 1999, the principal amount
of which is convertible at any time into Common Stock at $21.50 per share. The
Company intends to use a portion of the proceeds of the offering to repay all of
the 10% Subordinated Debentures. The Company intends to offer to repay all of
the 10% Convertible Subordinated Debentures but expects that the holders thereof
will convert such debentures into shares of Common Stock instead of accepting
repayment. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The amounts and timing of actual expenditures will depend upon numerous
factors, including the timing and size of orders, the progress of the Company's
research and development programs, product marketing strategies, cooperative
business relationships and the competitive environment. Pending these uses, the
net proceeds from the offering will be invested in short-term, investment grade
securities.
DIVIDEND POLICY
The Company anticipates that, for the foreseeable future, all earnings will
be retained to support operations and finance expansion. The Company has not
paid cash dividends in recent years, and does not intend to pay cash dividends
on the Common Stock for the foreseeable future. The Company's ability to pay
cash dividends is limited by its dependence upon the receipt of cash from its
subsidiaries to make such dividend payments. The Company's Existing Credit
Facility contains financial covenants and other restrictions that prohibit or
restrict the payment of dividends and intercompany loans among Starmet and its
subsidiaries and by the Company to its stockholders. Upon completion of the
offering, the Company expects to enter into the Proposed Credit Facility (as
defined herein) which it anticipates will not so prohibit or restrict dividends.
See "Risk Factors--Absence of Dividends" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
20
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol STMT. As reported by the Nasdaq National Market, the high and low bid
prices for the two years ended September 30, 1996 and 1997, the first two
quarters of fiscal 1998 and the third quarter of fiscal 1998 (through April 3,
1998) are reflected in the following table. This information reflects
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1996:
1st Quarter.................................................................................. $ 7.00 $ 5.25
2nd Quarter.................................................................................. 10.50 5.50
3rd Quarter.................................................................................. 9.25 6.75
4th Quarter.................................................................................. 9.38 6.00
Fiscal 1997:
1st Quarter.................................................................................. 10.75 7.25
2nd Quarter.................................................................................. 17.63 9.00
3rd Quarter.................................................................................. 18.50 14.00
4th Quarter.................................................................................. 19.00 14.50
Fiscal 1998:
1st Quarter.................................................................................. 31.00 14.25
2nd Quarter.................................................................................. 36.00 21.50
3rd Quarter (through April 3, 1998).......................................................... 38.00 30.63
</TABLE>
The stock prices listed above for fiscal 1996 and the first three quarters
of fiscal 1997 have been adjusted to reflect the Company's two-for-one stock
dividend paid on April 7, 1997.
On April 3, 1998 the last reported sale price for the Company's Common Stock
on the Nasdaq National Market was $36.50 per share. As of April 3, 1998, there
were approximately 300 holders of record of the Company's Common Stock. The
Company believes the actual number of beneficial owners of the Company's Common
Stock is greater because a large number of shares are held in custodial or
nominee accounts.
21
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the capitalization of the Company as of
December 31, 1997 and as adjusted to reflect the sale of shares of
Common Stock offered by the Company hereby, at an assumed public offering price
of $ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, the
application of the net proceeds therefrom and the further adjustments described
below. See "Use of Proceeds." This table should be read in conjunction with the
Consolidated Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
Short-term borrowings:
Bank credit facility, net of unamortized discount of $327......................... $ 844 $
Current portion of notes payable to stockholders and other long-term debt of
$58............................................................................. 1,035
--------- --------------
Total short-term borrowings................................................... 1,879
--------- --------------
--------- --------------
Long-term debt:
Bank credit facility.............................................................. 3,000
Notes payable to stockholders, net of unamortized discount of $211................ $ 1,139 $
Other long-term obligations....................................................... 322
--------- --------------
Total long-term debt.......................................................... 4,461
--------- --------------
Stockholders' equity:
Common Stock, $0.10 par value, 15,000,000 shares authorized, 4,790,274 shares issued
and outstanding ( shares outstanding as adjusted)(1)........................ 478
Additional paid-in capital........................................................ 14,033
Warrants issued................................................................... 687
Retained earnings................................................................. 9,664
--------- --------------
Total stockholders' equity.................................................... 24,862
--------- --------------
Total capitalization.......................................................... $ 29,323 $
--------- --------------
--------- --------------
</TABLE>
- ------------------------
(1) Based on shares of Common Stock outstanding as of April 3, 1998. Does not
include (i) an aggregate of 721,420 shares of Common Stock reserved for
issuance upon the exercise of outstanding options or that may be granted
under the Company's stock option plans (of which, options to purchase
594,920 shares were outstanding as of April 3, 1998), (ii) 126,044 shares of
Common Stock reserved for issuance upon conversion of outstanding and
immediately convertible subordinated debentures and (iii) 182,786 of Common
Stock reserved for issuance upon exercise of outstanding and immediately
exercisable warrants (not giving effect to anti-dilution provisions in the
First Warrant held by the Company's principal bank lender that will be
triggered as a result of the offering). See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources" and "Shares Eligible for Future Sale."
(2) Adjusted to reflect (i) the sale by the Company of Common Stock in the
offering, (ii) the application of the proceeds therefrom, (iii) an
extraordinary loss of $ associated with early extinguishment of
indebtedness, (iv) the anticipated payment by the Company of a fee of
approximately $235 under the Facility Restructuring Agreement to eliminate
certain anti-dilution provisions of warrants held by the Company's principal
bank lender and (v) the assumed conversion of approximately $1,401 in
principal amount of outstanding and immediately convertible subordinated
debentures held by certain stockholders. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Capital Resources."
22
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION)
The selected statement of operations and other data set forth below for each
of the years ended September 30, 1995, 1996 and 1997 have been derived from the
Company's Consolidated Financial Statements included elsewhere herein and should
be read in conjunction with such financial statements. The selected statement of
operations and other data set forth below for each of the years ended September
30, 1993 and 1994 have been derived from audited financial statements of the
Company that are not included herein. The selected statement of operations and
other data for the three month periods ended December 31, 1996 and 1997 and the
selected balance sheet data as of December 31, 1997 have been derived from the
unaudited financial statements of the Company included elsewhere herein and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations and financial position of the Company for the period and at the date
presented. The selected statement of operations and other data set forth below
should be read in conjunction with the Consolidated Financial Statements and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The results of the Company's operations
for the three months ended December 31, 1997 are not necessarily indicative of
results to be expected for any future period or fiscal 1998.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 31,
FISCAL YEAR ENDING SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales and contract revenues................ $ 17,019 $ 19,004 $ 18,784 $ 28,694 $ 28,062 $ 7,271 $ 8,079
Cost of Sales.................................. 19,861 21,590 15,452 25,053 19,136 5,270 7,101
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................... (2,842) (2,586) 3,332 3,641 8,926 2,001 978
Selling, general & administration.............. 6,623 4,209 4,817 5,325 5,448 1,188 2,247
Research and development 1,031 575 439 876 1,309 247 158
Loss on fixed asset writedown.................. -- 3,584 -- -- 358 -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........................ (10,496) (10,954) (1,924) (2,560) 1,811 566 (1,427)
Interest and other income (expense), net 396 120 232 (89) (2) 9 1
Interest expense, net.......................... 953 550 350 387 296 55 135
Income (loss) before taxes & extraordinary
item......................................... (11,053) (11,384) (2,042) (3,036) 1,513 520 (1,561)
Income tax provision (benefit)................. (3,746) (1,188) (1,967) 1 31 11 --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) (1).......................... $ (6,207) $ (10,196) $ 510 $ (3,037) $ 1,482 $ 509 $ (1,561)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic net income (loss) per share (2)(3)....... $ (1.35) $ (2.22) $ 0.11 $ (0.64) $ 0.31 $ 0.11 $ (0.33)
Basic weighted average shares outstanding
(2).......................................... 4,590 4,600 4,701 4,779 4,783 4,782 4,784
Diluted net income (loss) per share (2)(3)..... $ (1.35) $ (2.22) $ 0.11 $ (0.64) $ 0.30 $ 0.10 $ (0.33)
Diluted weighted average shares outstanding
(2).......................................... 4,590 4,600 4,706 4,779 4,959 4,883 4,784
OTHER DATA:
Research & development expense................. 1,031 575 439 876 1,309 247 158
Customer funded research and development (4)... 503 792 557 1,812 793 131 291
Capital expenditures........................... 1,265 709 777 1,449 1,788 406 797
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, 1997
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED (5)
--------- ---------------
(UNAUDITED)
BALANCE SHEET DATA:
Working capital....................................................................... $ 11,726
Total assets.......................................................................... 36,816
Total liabilities..................................................................... 11,954
Stockholders' equity.................................................................. 24,862
</TABLE>
- ------------------------------
(1) Net income for fiscal 1995 includes an extraordinary gain of $585 on the
extinguishment of debt, net of taxes of $10.
(2) Adjusted to reflect the two-for-one stock dividend issued on April 7, 1997.
(3) Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE. Basic net income
(loss) per share was computed by dividing net income (loss) by the weighted
average shares outstanding. Diluted net income per share was computed by
dividing net income (loss) by the weighted average number of shares and
dilutive potential shares outstanding during the relevant period. In loss
periods, dilutive potential shares are excluded as they would be
anti-dilutive.
(4) Such amounts are included in net sales and contract revenues.
(5) Adjusted to give effect to (i) the sale of shares of Common Stock by
the Company at an assumed price of $ per share after deducting
underwriting discounts and estimated expenses of $ and the application
of the estimated net proceeds therefrom, (ii) an extraordinary loss of
$ associated with early extinguishment of indebtedness, (iii) the
anticipated payment by the Company of a fee of approximately $235 under the
Facility Restructuring Agreement to eliminate certain anti-dilution
provisions of warrants held by its principal bank lender, (iv) the assumed
conversion of approximately $1,401 in principal amount of outstanding and
immediately convertible subordinated debentures held by certain
stockholders, and (v) additional shares issuable under the First
Warrant held by the Company's principal bank lender pursuant to anti-
dilution provisions that will be triggered as a result of the offering. See
"Use of Proceeds" and "Managements' Discussion and Analysis of Financial
Condition and Results of OPerations--Liquidity and Capital Resources."
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL
DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
GENERAL
The following discussion and analysis of the Company's financial condition
and results of operations is based on the three business segments in which the
Company currently reports its results, namely Specialty Metal Products, Depleted
Uranium Penetrators and Uranium Services and Recycle. The Specialty Metal
Products segment consists of the manufacture of the Company's Beralcast alloys,
specialty metal powders, billets for tank armor, and industrial and medical
shielding products. The Depleted Uranium Penetrators segment consists of the
manufacture of DU penetrators for military munitions applications. The Uranium
Services and Recycle segment consists of the manufacture of DU and NU metal for
use as uranium feedstock supplied to USEC's AVLIS program, conversion of UF(6)
to UF(4), recycling of various low-level radioactive metals, DUCRETE shielding
capabilities and repair of counterweights for commercial and military aircraft.
In the late 1980s and the 1990s, the decline in U.S. defense spending
resulted in sharply reduced revenues from the sale of the Company's
defense-related depleted uranium products, including DU penetrators and billets
for conversion into tank armor. The Company expects that no revenue will be
derived from sales of DU penetrators after the second quarter of fiscal 1999 and
that only limited revenue will be derived from sales of billets for conversion
into tank armor thereafter. As revenues from defense-related DU products decline
overall and as a percentage of revenues, the Company may provide information on
two business segments in future periods. In order to facilitate an understanding
of the Company's business as currently anticipated to be conducted in future
periods, the discussion of the Company's business elsewhere in this Prospectus
combines the Company's Uranium Services and Recycle and Depleted Uranium
Penetrators segments under the designation Advanced Recycling Technologies and
Uranium Services. See "--Segment Information."
A central aspect of the Company's strategy is to concentrate its efforts and
resources on commercial applications for its technology. In particular, the
Company intends to focus on the commercialization of its family of Beralcast
alloys. To date, the Company's Beralcast business has received most of its
orders and funding from military aerospace applications. In particular, the
Company has received contracts from Lockheed Martin for Beralcast components to
be used in its Electro Optic Sensor System ("EOSS"), the night vision and target
acquisition system on the Comanche helicopter, which is scheduled for full-scale
production commencing in 2003. The Company is applying its Beralcast technology
to develop, among other things, disk drive arm sets for high-end disk drives as
well as for satellite components, premium golf products and other products.
These products currently are in the development and, for certain customers, the
pre-production stages. The Company believes that as a result of the general
practice of manufacturers in the disk drive industry and other targeted
commercial industries of placing only short-term orders, the Company could
experience substantial fluctuations in revenues and earnings from quarter to
quarter. The Company is also developing additional commercial applications for
its Beralcast alloys. See "Risk Factors--Risks Related to New Product
Introductions, Rapid Technological Change and Industry Conditions."
In the third quarter of fiscal 1996, the Company reduced its workforce at
its South Carolina facility due to the completion of a contract for a foreign
customer and lack of anticipated new orders. During most of fiscal 1996, the
Company operated this facility at approximately 40% of capacity on a one-shift
basis. In the fourth quarter of fiscal 1996, the Company took a $2,100,000
reserve for estimated fiscal 1997 losses associated with then current production
contracts, which reserve was fully utilized during fiscal 1997.
24
<PAGE>
Losses at the facility continued through the first quarter of fiscal 1998 due to
underutilization. At the same time, the Company increased its workforce in
preparation for the receipt of an AVLIS production contract. USEC recently
exercised production options under its existing AVLIS contract with the Company,
and the Company anticipates receiving additional contractual work from USEC in
the summer of 1998. The Company's operations in South Carolina are currently
substantially dependent on orders from USEC and are expected to remain so.
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 quarter 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. See "Risk Factors--History of Losses;
Risk of Future Losses" and "--Results of Operations." 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 certain covenants in its debt instruments (including a
waiver under the Existing Credit Facility in February 1998), additional
borrowings under the Existing Credit Facility, and additional equipment
financing from another bank for capital expenditures required at its South
Carolina facility. See "--Liquidity and Capital Resources."
In connection with additional borrowings under the Existing Credit Facility
in December 1997, the Company issued the Second Warrant (as defined herein) to
its principal bank lender, which has been recorded as a discount to the related
debt at fair value. The fair value attributable to the Second Warrant, $327,000,
will be amortized as interest expense for the period January 1, 1998 through
October 1, 1998. On April 1, 1998, the Company and the lender entered into the
Facility Restructuring Agreement under which the Company received an option to
pay a fee of $235,313 to eliminate certain anti-dilution provisions of the
lender's warrants upon the closing of the offering. See "--Liquidity and Capital
Resources."
25
<PAGE>
SEGMENT INFORMATION
The following table sets forth certain information regarding the revenue,
operating profit (loss) and identifiable assets attributable to the three
business segments in which the Company currently operates.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales and contract revenues:
Specialty Metal Products................................. $ 12,102 $ 13,730 $ 13,170 $ 2,446 $ 2,886
Depleted Uranium Penetrators............................. 1,713 8,775 9,927 3,433 4,736
Uranium Services & Recycle............................... 4,969 6,189 4,965 1,392 457
Operating profit (loss):
Specialty Metal Products................................. (341) 1,432 (2,085) (505) (358)
Depleted Uranium Penetrators............................. (237) (942) (415) 472 (1,021)
Uranium Services & Recycle............................... (996) (2,700) 4,661 689 42
Identifiable assets:
Specialty Metal Products................................. 5,140 6,195 6,155 3,678 5,649
Depleted Uranium Penetrators............................. 12,158 8,441 7,965 11,744 10,288
Uranium Services & Recycle............................... 16,609 13,749 14,849 14,429 14,706
</TABLE>
The following table sets forth segment information based on segmentation of
the Company's business into two segments, namely Specialty Metal Products and
Advanced Recycling Technologies and Uranium Services. See "--General."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales and contract revenues:
Specialty Metal Products (1)............................. $ 9,184 $ 11,744 $ 9,884 $ 2,108 $ 2,339
Advanced Recycling Technologies and Uranium Services
(2).................................................... 9,600 16,950 18,178 5,163 5,740
Operating profit (loss):
Specialty Metal Products................................. (169) 1,415 (2,379) (575) (414)
Advanced Recycling Technologies and Uranium Services..... (1,405) (3,625) 4,540 1,231 (923)
Identifiable assets:
Specialty Metal Products................................. 4,097 5,565 5,315 3,170 5,214
Advanced Recycling Technologies and Uranium Services..... 29,810 22,820 23,654 26,681 25,429
</TABLE>
- ------------------------
(1) Specialty Metal Products excludes the production of DU billets for
conversion into tank armor and DU industrial and medical shielding products.
(2) Advanced Recycling Technologies and Uranium Services includes the Company's
current Depleted Uranium Penetrators and Uranium Services & Recycle
segments, plus production of DU tank armor billets and shielding products.
26
<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 fiscal
years 1995, 1996 and 1997 and the three months ended December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales and contract revenues............................. 100% 100% 100% 100% 100%
Costs and expenses:
Cost of sales............................................. 82 87 68 72 88
Selling, general and administrative expenses.............. 26 19 19 16 28
Research and development expenses......................... 2 3 5 3 2
Loss on write-off of fixed asset.......................... -- -- 1 -- --
Operating income (loss)..................................... (10) (9) 6 8 (18)
Interest and other income (expense), net.................... 1 -- -- -- --
Interest expense............................................ 2 1 1 1 2
Income (loss) before income taxes and extraordinary item.... (11) (11) 5 7 (19)
Provision (benefit) for income taxes........................ (10) -- -- -- --
Income (loss) before extraordinary item..................... -- (11) 5 7 (19)
Net income (loss)........................................... 3 (11) 5 7 (19)
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1996
Net sales increased by $808,000 or 11% to $8,079,000 in the first quarter of
fiscal 1998 compared to the first quarter of fiscal 1997. Sales in the Uranium
Services and Recycle segment decreased by $935,000 or 67%. Sales in the
Specialty Metal Products segment increased by $440,000 or 18%. Sales in the
Depleted Uranium Penetrator segment increased by $1,303,000 or 38%.
The sales decrease in the Uranium Services and Recycle segment was due
primarily to a delay in expected AVLIS feedstock production orders which were
received in the first quarter of fiscal 1998 and which the Company expects will
result in revenue recognition beginning in the second quarter of fiscal 1998. To
be prepared for anticipated AVLIS production, the workforce at Starmet CMI
Corporation was increased significantly during the first quarter of fiscal 1998.
The sales increase in the Specialty Metal Products segment was due primarily to
increased customer demand for medical powders. The sales increase in the
Depleted Uranium Penetrator segment was primarily due to $2,025,000 in revenue
recognized on the remediation of the holding basin at the Company's Concord
facility pursuant to a U.S. Army contract, and such revenues generate nominal
gross margin. This increase was partially offset by a reduction in foreign
penetrator sales.
Gross profit in the first quarter decreased by $1,023,000 to $978,000 or 51%
in the first quarter of fiscal 1997 from $2,001,000 in the first quarter of
fiscal 1996. The decrease in gross profit for the quarter is attributable in
part to changes in product mix. As a percentage of sales, gross profit was 12%
as compared to 28% for the first quarter of fiscal 1997.
Selling, general and administrative expenses increased by $1,059,000 or 89%
compared to the first quarter of fiscal 1997. This increase was primarily
attributable to increased administrative expenses at the Company's South
Carolina facility in anticipation of AVLIS feedstock production described above
and to expenses associated with the reorganization of the Company in October
1997. As a percentage of sales, these expenses were 28% in the first quarter of
fiscal 1998 as compared to 16% in the first quarter of fiscal 1997.
27
<PAGE>
Other income decreased by $8,000 to $1,000 for the first quarter of fiscal
1998 compared to the first quarter of fiscal 1997.
Interest expense increased to $135,000 in the first quarter of fiscal 1998
from $55,000 for the first quarter of fiscal 1997. This increase was primarily
attributable to interest expense associated with increased borrowings and the
effect of the amortization of the value associated with warrants issued in
conjunction with shareholder notes.
Income taxes in the first 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.
FISCAL 1997 COMPARED WITH FISCAL 1996
Net sales decreased by $632,000 or 2% to $28,062,000 in fiscal 1997 compared
to $28,694,000 in fiscal 1996. Sales in the Uranium Services and Recycle segment
decreased by $1,224,000 or 20%. Sales in the Specialty Metal Products segment
decreased by $560,000 or 4%. Sales in the Depleted Uranium Penetrator segment
increased by $1,152,000 or 13%.
The sales decrease in the Uranium Services and Recycle segment was primarily
due to lack of volume in depleted uranium products due to completion of a
production contract for a foreign customer in fiscal 1996. This decrease was
partially offset by increases in AVLIS feedstock production for USEC. The sales
decrease in the Specialty Metal Products industry segment was a result of
decreased volumes of beryllium products due to a delay in expected orders,
partially offset by an increase in commercial depleted uranium products. The
sales increase in the Depleted Uranium Penetrator segment was the result of
higher production volume of penetrators for a foreign customer as a result of an
order which was expected to receive government funding in fiscal 1996 but which
was not funded until fiscal 1997 and the revenue recognized pursuant to the
Company's contract with the United States Army to remediate the holding basin at
the Company's Concord facility.
Gross profit increased by $5,285,000 to $8,926,000 or 32% of sales in fiscal
1997 compared to $3,641,000 or 13% of sales in fiscal 1996. This increase in
gross profit was primarily due to reduction of certain accruals in fiscal 1997
for site remediation and waste burial costs of $1,750,000 and a reduction of
inventory reserves of $1,000,000. In addition, gross profit for fiscal 1996 was
reduced by an accrual of a $2,100,000 reserve for anticipated fiscal 1997
operating losses associated with production contracts in the Uranium Services
and Recycle segment. As of September 30, 1997, the accrual had been fully
utilized.
Selling, general and administrative expenses increased by $123,000 or 2% to
$5,448,000 in fiscal 1997 compared to fiscal 1996. This increase was primarily
due to additional employees required to support the forecasted growth in
business. As a percentage of sales, these expenses remained at 19% in fiscal
1997 compared to fiscal 1996.
Company-sponsored research and development expenses increased by 49% or
$433,000 to $1,309,000 for fiscal 1997. As a percentage of sales, these expenses
were 5% compared to 3% in fiscal 1996.
Interest and other income decreased to ($2,000) in fiscal 1997 as compared
to ($89,000) in fiscal 1996. This decrease was mainly due to the absence in
fiscal 1997 of a restructuring fee associated with amendments to the Company's
credit facility during the third quarter of fiscal 1996.
Interest expense decreased by $91,000 to $296,000 in fiscal 1997 as compared
to fiscal 1996. This decrease was primarily the result of higher interest rates
and fees associated with outstanding debt during fiscal 1996.
Income taxes provided during 1997 and 1996 were at effective rates of 2% and
0%, respectively. The 1997 effective rate of 2% differs from the statutory rate
of 34% due to a reduction in the valuation allowance associated with to the
benefit of net operating loss carryforwards.
28
<PAGE>
FISCAL 1996 COMPARED WITH FISCAL 1995
Net sales increased by $9,910,000 or 53% to $28,694,000 in fiscal 1996
compared to $18,784,000 in fiscal 1995. Sales in the Uranium Services and
Recycle segment increased by $1,220,000 or 25%. Sales in the Specialty Metal
Products segment increased by $1,628,000 or 13%. Sales in the Depleted Uranium
Penetrator segment increased by $7,062,000 or 412%.
The sales increase in the Uranium Services and Recycle segment was primarily
due to increases in AVLIS feedstock production for USEC. The sales increase in
the Specialty Metal Products segment was a result of higher sales of beryllium
products and commercial depleted uranium. The sales increase in the Depleted
Uranium Penetrator segment was the result of higher sales of large caliber
penetrators.
During the third quarter of fiscal 1996, the Company reduced its workforce
from 55 to 24 employees at its South Carolina facility due to the completion of
a multi-year contract for the manufacture of depleted uranium for a foreign
customer and the lack of anticipated new orders. The Company had expected to
obtain orders from USEC and the DoE in the second half of fiscal 1996. These
orders did not materialize and as a result this facility operated at
approximately 40% capacity on a one-shift basis through most of fiscal 1996. In
the fourth quarter of fiscal 1996, the Company established a $2,100,000 reserve
for estimated fiscal 1997 losses associated with then current production
contracts.
Gross profit increased by $309,000 to $3,641,000 or 13% of sales in fiscal
1996 compared to $3,332,000 or 18% of sales in fiscal 1995. This increase in
gross profit was primarily due to increased sales volume during fiscal 1996. As
a percentage of sales, the decrease in gross profit was primarily due to the
establishment of a $2,100,000 reserve for estimated losses associated with CMI's
production contracts.
Selling, general and administrative expenses increased by $507,000 to
$5,324,000 in fiscal 1996 compared to fiscal 1995. This increase was primarily
due to additional employees required to support the growth in business. As a
percentage of sales, these expenses decreased to 19% in fiscal 1996 compared to
26% in fiscal 1995, as a result of sales increasing at a higher rate than
expenses.
Company-sponsored research and development expenses increased by 100% or
$437,000 to $876,000 in fiscal 1996 compared to fiscal 1995 due to increased
research and development costs related to the use of the Company's Beralcast
technology in certain military aerospace applications. As a percentage of sales,
these expenses were 3% in fiscal 1996 compared to 2% in fiscal 1995.
Interest and other income decreased to $89,000 of expense in fiscal 1996
compared to $232,000 of income for fiscal 1995. This decrease was mainly from a
$150,000 restructuring fee associated with amendments to the Company's credit
facility during the third quarter of fiscal 1996 and a gain of $175,000
recognized during the second quarter of fiscal 1995 on the sale of an office
building.
Interest expense increased by $37,000 to $387,000 in fiscal 1996 compared to
fiscal 1995. This increase was primarily the result of higher interest rates and
fees associated with outstanding debt during fiscal 1996.
During fiscal 1995, the Company realized a $585,000 extraordinary gain net
of taxes of $10,000 on the early extinguishment of debt.
Income taxes provided during 1996 were at an effective rate of 0%. The 1996
effective rate of 0% differed from the statutory rate of 34% due to a reduction
in the valuation allowance associated with to the benefit of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
In recent fiscal years, the Company's primary sources of liquidity have been
borrowings under the Existing Credit Facility, borrowings from shareholders and,
to a limited extent, cash from operations. The Company has experienced
significant financial difficulties and liquidity problems in recent years due
29
<PAGE>
primarily to the sharp decline in sales of DU penetrators and a lack of orders
for certain other DU products. As a result, the Company has had to seek
financing from stockholders, waivers of non-compliance with certain covenants in
its debt instruments (including a waiver under the Existing Credit Facility in
February 1998) and additional borrowings under the Existing Credit Facility.
Bank borrowings and borrowings from stockholders were effected to fund working
capital requirements, capital expenditures and a number of expenses which were
incurred in expectation of future business and revenues from the Company's
Beralcast business and its South Carolina facility.
The Company's future liquidity needs are expected to arise primarily from
its capital expenditure program, which is designed primarily to increase
manufacturing capacity to support its Beralcast business. In order to obtain and
satisfy orders for large scale commercial production of its Beralcast products,
the Company plans to significantly increase capital expenditures to expand its
commercial Beralcast manufacturing capabilities through fixed asset additions
including furnaces, automated production equipment and facility upgrades. The
Company anticipates spending up to approximately $90 million over the next four
years, subject to various factors, to increase the capacity at the Company's
facilities. Of this amount, the Company expects to spend approximately $60
million on the expansion of its Beralcast business. The Company expects to fund
such capital expenditures with the proceeds of the offering and cash expected to
be generated from operations. See "Business--Manufacturing and Operations."
Net cash provided (used) by operating activities in fiscal years 1997, 1996
and 1995 was ($921,000), $3,776,000 and ($278,000), respectively. Differences in
cash flows from operating activities over this three-year period were primarily
related to significant year-to-year changes in accounts receivable, inventories
and accounts payable. The Company used net cash of $1,788,000, $1,107,000 and
provided $36,000 in fiscal years 1997, 1996 and 1995, respectively, primarily to
fund investing activities largely related to capital expenditures made in
anticipation of future commercial business. Net cash flows from financing
activities for fiscal years 1997, 1996 and 1995 were $1,676,000, ($2,444,000)
and $105,000, respectively. Net cash provided for financing activities in fiscal
1997 was primarily the result of an increase in bank borrowings of approximately
$1,700,000 and $500,000 in borrowings from shareholders. Fiscal 1996 net cash
used by financing activities was primarily the result of reduction of bank debt
in accordance with credit terms. As a result of the foregoing, net cash
increased (decreased) in fiscal years 1997, 1996 and 1995 by $(1,033,000),
$225,000 and $(137,000), respectively.
Net cash used by operating activities in the three months ending December
31, 1996 and 1997 was $920,000 and $2,484,000, respectively. Differences in cash
flows from operating activities were primarily related to significant changes in
accounts receivable, inventories and accounts payable. The Company used net cash
of $406,000 and $797,000 for periods ended December 31, 1996 and 1997,
respectively, primarily to fund investing activities largely related to capital
expenditures made in anticipation of future commercial business. Net cash
provided by financing activities for periods ending December 31, 1996 and 1997
was $572,000 and $3,272,000, respectively and resulted primarily from increases
in bank borrowings and borrowings from stockholders. As a result of the
foregoing, net cash decreased in the periods ended December 31, 1996 and 1997 by
$754,000 and $9,000, respectively.
At December 31, 1997, the Company had working capital of $11,726,000, an
increase of $1,040,000 since the end of fiscal 1997. At December 31, 1997, the
Company's accounts receivable and inventories increased by $1,416,000 and
$170,000, respectively, compared to September 30, 1997. Cash (less restricted
cash) at December 31, 1997 was $186,000.
At December 31, 1997, current indebtedness decreased to $1,879,000, net of
unamortized discount, from $1,885,000 as of September 30, 1997. At the end of
the first quarter of fiscal 1998, notes payable to shareholders, net of
unamortized discount, increased to $1,932,000 from $1,048,000 as of September
30, 1997. As of December 31, 1997, the Company had $4,349,000 outstanding under
the Existing Credit Facility, with $1,651,000 available for borrowing
thereunder, in addition to $3,550,000 in letters of credit issued thereunder. As
of December 31, 1997, the Company was not in compliance with certain of its
30
<PAGE>
financial covenants pursuant to the Existing Credit Facility. On February 23,
1998, the Company received a waiver for this non-compliance. As of April 3,
1998, the Company had $4,975,000 outstanding under the Existing Credit Facility,
$3,550,000 outstanding in letters of credit and $1,025,000 available for
borrowing under the Existing Credit Facility.
On October 1, 1997, the Company and its principal bank lender, State Street
Bank & Trust Company, entered into an Amended and Restated Credit Agreement
providing for a credit facility (as amended, the "Existing Credit Facility") of
$6.6 million, including $3.6 million in letters of credit. Borrowings under the
Existing Credit Facility bear interest, payable monthly in arrears, at a rate
equal to the lender's prime rate plus one-half of one percent and the Company
pays a fee of one-half of one percent of the unused portion of the facility.
Borrowings are secured by a security interest in all of the Company's accounts,
inventory and general intangibles. The Company and its lender entered into the
First Amendment to Credit Agreement dated December 9, 1997 which provided for an
increase in the Existing Credit Facility to $8.0 million. On December 29, 1997,
the Company entered into the Second Amendment to the Credit Agreement which
provided for the following: (i) an increase in the total amount of credit
available to the Company from $8.0 million to $9.6 million consisting of a $6.0
million line of credit and $3.6 million letters of credit; (ii) a revised
amortization schedule whereby $1.5 million is due July 1, 1998, $1.5 million is
due October 1, 1998 and the balance, $3.0 million, is due on February 28, 1999;
and (iii) waiver of non-compliance by the Company with certain covenants in the
Existing Credit Facility and amendment of certain financial covenants. As a
result of the loss in the first quarter of fiscal 1998, the Company sought and
obtained a waiver of non-compliance with certain covenants in the Existing
Credit Facility. The Company intends to use a portion of the proceeds of the
offering to repay all amounts outstanding under the Existing Credit Facility.
In September 1995, in connection with an increase of the Company's borrowing
capacity under the Existing Credit Facility as then in effect, the Company
issued to the lender a warrant (the "First Warrant") to purchase 55,786 shares
of Common Stock (as adjusted for a two-for-one stock dividend paid on April 7,
1997 and certain subsequent anti-dilution adjustments) at an exercise price of
$5.95, based on the market price of the Common Stock at that time. The First
Warrant has a ten-year exercise period. In consideration of the Second Amendment
to the Credit Agreement, the Company issued to the lender a warrant (the "Second
Warrant" and, together with the First Warrant, the "Warrants") to purchase
25,000 shares of Common Stock at an exercise price of $23.58, based on the
market price of the Common Stock at that time. The Second Warrant has a
seven-year exercise period. The Second Warrant has been valued at approximately
$327,000, which amount will be amortized as interest expense over the period
ending October 1, 1998. Under the original terms of each of the Warrants, the
holder of the Warrants would be entitled to receive, without further
consideration, a number of shares of Common Stock which would permit the holder
to maintain its percentage ownership in the Company, on a fully-diluted basis,
upon any future issuances of Common Stock by the Company.
On April 1, 1998, the Company entered into an agreement (the "Facility
Restructuring Agreement") with its principal bank lender pursuant to which,
contingent upon the closing of the offering, the Company received an option to
make a payment of $235,313 to the lender whereupon no further adjustments for
issuances of Common Stock by the Company will be made under the First Warrant
(other than an adjustment related to the closing of the offering) and no
adjustments for issuances of Common Stock by the Company will be made under the
Second Warrant. After the completion of the offering, the number of shares
issuable upon exercise of the First Warrant will equal shares (
shares assuming the Underwriters' over-allotment option is exercised in full).
Upon the closing of the offering and the repayment of all amounts outstanding
under the Company's Existing Credit Facility and certain stockholder
subordinated indebtedness, the Company expects to record an extraordinary loss
on the early extinguishment of debt of $ ($ per share), as a result of
writing off all unamortized deferred financing costs and discounts. See
"--General" and Notes 6 and 8 to the Consolidated Financial Statements.
31
<PAGE>
The Company has been notified by its principal bank lender that, effective
upon the closing of the offering, the lender proposes to extend to the Company a
$10,000,000 unsecured revolving credit facility maturing on February 28, 2000
(the "Proposed Credit Facility"). The Company expects that borrowings under the
Proposed Credit Facility will bear interest, payable monthly in arrears, at the
Company's option, at either a variable rate equal to the bank's prime rate or at
a fixed rate equal to the London Inter-Bank Offered Rate ("LIBOR") plus 1.75%.
Borrowings under the Proposed Credit Facility will be used for working capital
and standby letters of credit and will be subject to the satisfaction of certain
financial covenants. The Proposed Credit Facility terms provide that the Company
will not pledge its assets to any third party.
The Company's subsidiary, Starmet CMI Corporation, has a term loan
obligation in the amount of $370,000 to Palmetto Federal Savings and Loan
Association of South Carolina ("Palmetto"). 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. Both the first and
second loans are guaranteed by the Company and secured by mortgages on CMI's
South Carolina property. The second loan will be used to expand CMI's
manufacturing capabilities at its South Carolina facility.
The Company has outstanding in the aggregate $2,250,500 in principal amount
under debt instruments issued to certain of its principal stockholders,
consisting of the following: $500,500 in principal amount of its 10% Convertible
Subordinated Debentures due December 10, 1998, which are convertible at any time
into Common Stock at $5.945 per share; $350,000 in principal amount of its 10%
Subordinated Debentures due December 10, 1998, with three-year warrants to
purchase 42,000 shares of Common Stock at an exercise price of $7.50 per share;
$500,000 in principal amount of its 10% Subordinated Debentures due December 10,
2000, with three-year warrants to purchase 60,000 shares of Common Stock at an
exercise price of $17.875 per share; and $900,000 in principal amount of its 10%
Convertible Subordinated Debentures due December 31, 1999, the principal amount
of which is convertible at any time into Common Stock at $21.50 per share. The
Company intends to use a portion of the proceeds of the offering to repay all of
the 10% Subordinated Debentures. The Company intends to offer to repay all of
the 10% Convertible Subordinated Debentures but expects that the holders thereof
will convert such debt into Common Stock instead of accepting repayment.
The Company believes, based on assumptions concerning backlog fulfillment
and the expected timing of new orders, that the proceeds of the offering, cash
from operations, and borrowings which it expects to be available under the
Proposed Credit Facility will be sufficient to sustain operations for the
foreseeable future and to fund anticipated capital expenditures.
The Company anticipates that, for the foreseeable future, all earnings will
be retained to support operations and finance expansion. The Company has not
paid cash dividends in recent years, and does not intend to pay cash dividends
on the Common Stock for the foreseeable future. The Company's ability to pay
cash dividends is limited by its dependence upon the receipt of cash from its
subsidiaries to make such dividend payments. The Company's Existing Credit
Facility contains financial covenants and other restrictions that prohibit or
restrict the payment of dividends and intercompany loans among Starmet and its
subsidiaries and by the Company to its stockholders. The Company expects that
the Proposed Credit Facility will not prohibit or restrict payment of dividends.
The Company has not invested in derivative securities or any other financial
instrument that involves a high level of complexity or risk. Management expects
that, in the future, cash in excess of current requirements will be invested in
investment-grade, interest-bearing securities.
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ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to comprehensive and changing Environmental Laws that
(i) govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for solid and hazardous wastes, and (ii) impose liability for the costs of
cleaning up, and certain damages resulting from, sites of past spills, disposals
or other releases of hazardous substances and materials, including liability
under CERCLA, and similar state statutes for the investigation and remediation
of environmental contamination at properties owned and/or operated by it and at
off-site locations where it has arranged for the disposal of hazardous
substances. Furthermore, depleted uranium, a material regularly processed by the
Company, is a low-level radioactive material and the Company is subject to
governmental licensing and regulation.
If it is determined that the Company is not in compliance with current
Environmental Laws, the Company could be subject to fines and penalties. The
amount of any such fines and penalties could be material. In addition, the
Company uses depleted uranium, beryllium and other hazardous substances, and as
is the case with manufacturers in general, if a release of hazardous substances
occurs on or from the Company's properties or from an off-site disposal
facility, the Company may be held liable and may be required to pay the costs of
remedying the condition. The amount of any such liability and costs could be
material. See "Risk Factors--Environmental, Health and Regulatory Matters"
"Business--Environmental, Safety and Regulatory Matters" and "Business--Concord
Site Remediation and Decommissioning Planning Requirements."
LEGAL PROCEEDINGS
On December 9, 1997, Brush Wellman filed a patent infringement suit against
the Company in the Massachusetts District Court alleging that the Company is
infringing on the Brush Wellman Patent for the process of investment casting of
beryllium aluminum alloys. Brush Wellman is seeking an injunction against the
Company's alleged patent infringement, monetary damages (including treble
damages) and attorney fees. On March 28, 1998, the PTO granted the Company's
request for re-examination (filed January 27, 1998). In the Request, the Company
contended, among other things, that there was sufficient "prior art" in the
field of investment castings and castings of beryllium aluminum alloys such that
the Brush Wellman Patent should not have been issued. In granting the Request,
the patent examiner agreed that the Company's cited examples of prior art raised
substantial new issues of patentability which were not decided in the prior
examination which led to granting the Brush Wellman Patent. The PTO will
undertake a process of re-examination of the validity of the Brush Wellman
patent that, the Company anticipates, could last for an extended period. There
can be no assurance that the PTO will find the Brush Wellman Patent to be
invalid. On January 27, 1998, the Company filed in the Massachusetts District
Court a motion to stay the court case pending the outcome of the re-examination
proceeding. If the Massachusetts District Court were to grant the motion to
stay, the court case would not proceed until the conclusion of the PTO's
re-examination of the Brush Wellman Patent. Although the Company believes that
its motion to stay has merit, no assurance can be given that the Massachusetts
District Court will grant the motion.
Even though the Company has been advised by patent counsel that Brush
Wellman's claims are without merit because the Brush Wellman Patent is invalid
as a matter of law due to "prior art" and due to the Company's sales of
investment cast beryllium aluminum products more than one year prior to the
Brush Wellman Patent application, no assurance can be given as to the ultimate
outcome of the lawsuit. Even if the lawsuit were not to proceed to trial, the
litigation could result in substantial costs to the Company, and an unfavorable
settlement of the lawsuit could place the Company at a competitive disadvantage.
An adverse judgment or settlement could subject the Company to significant
liabilities and expenses (e.g., reasonable royalties, lost profits, attorneys'
fees or trebling of damages for willfulness). An adverse outcome also could
cause the Company to incur substantial costs in redesigning the investment
casting process for its Beralcast products and components. Moreover, there can
be no assurance that redesign alternatives would be available to the Company,
and if available, that any redesign alternative
33
<PAGE>
would not place the Company at a competitive disadvantage. The Company could be
required to license the disputed patent rights from Brush Wellman or to cease
using the patented technology. Any such license, if required, may not be
available on terms acceptable or favorable to the Company, or at all. Any of
these results could have a material adverse effect on the Company's business,
financial condition and results of operations. Even in the event of a successful
outcome, the Company may incur significant legal expenses in its defense. See
"Risk Factors--Pending Beralcast Patent Litigation; Patents and Other
Intellectual Property " and "Business--Legal Proceedings."
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. See "Risk Factors--Year 2000 Compliance."
INFLATION
Inflation has not had a material impact on the Company's cost of doing
business. Management attempts to protect the Company by adjusting prices where
market conditions permit and by reviewing and improving production processes
where possible. There can be no assurance that the Company's business will not
be affected by inflation.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for public business enterprises to report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement supersedes FASB Statement No. 14, "Financial Reporting for
Segments of a Business Enterprise," but retains the requirement to report
information about major customers. SFAS 131 requires, among other items, that a
public business enterprise report a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets, information about the
revenues derived from the enterprise's products or services, and major
customers. SFAS 131 also requires that the enterprise report descriptive
information about the way that the operating segments were determined and the
products and services provided by the operating segments. SFAS 131 is effective
for financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated. SFAS 131 need not be applied to interim financial statements in the
initial year of its application, but comparative information for interim periods
in the initial year of application is to be reported in financial statements for
interim periods in the second year of application.
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus, including, without limitation, those
concerning (i) the Company's business and growth strategies, (ii) the Company's
new business and expansion plans, (iii) the effects on the Company of certain
legal proceedings and environmental matters, (iv) the effects on the Company of
changes in the businesses in which it operates or in economic conditions
generally, (v) the use of proceeds of the offering and (vi) the effect on the
Company of actions taken or not taken by its customers, suppliers and
competitors, contain certain 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
expressed or implied by such forward-looking statements. Factors that could
cause such differences include, but are not limited to, those discussed in "Risk
Factors," elsewhere herein. 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. See "Risk
Factors."
35
<PAGE>
BUSINESS
GENERAL
Starmet is an innovator in the design, development and processing of
specialty metals, a precision manufacturer of technologically sophisticated
metal components and products, and a leader in certain advanced materials
conversion and recycling technologies. A central aspect of the Company's
strategy is to continue to capitalize on its metallurgical, materials science
and manufacturing expertise, developed primarily for military applications, in
order to introduce new products for what the Company believes are high-growth
opportunities in large commercial markets.
In its specialty metals business, Starmet produces a wide range of products
and components from advanced metals and alloys. Key among these materials is
Beralcast, the Company's family of beryllium aluminum alloys, which is being
commercially introduced for use in certain advanced applications. Based upon
initial responses by the Company's customers and testing by independent
laboratories, the Company believes that Beralcast is a cutting edge material
with advanced properties which is ideally suited for certain demanding
commercial and aerospace applications. Among its superior performance
characteristics are its light weight, dimensional stability, stiffness,
vibration damping qualities and workability. In its advanced recycling
technologies and uranium services businesses, Starmet is a fully integrated
processor of DU, converting UF(6) to UF(4) and DU metal which it manufactures
into DU products such as feedstock used in the manufacture of nuclear reactor
fuel by a third party, radiation shielding, anti-armor tank penetrator munitions
and billets for conversion into tank armor.
Starmet focuses its research and business development efforts on markets it
has identified as offering significant opportunities for growth, including
computer data storage, military and commercial aerospace and premium golf
products, among others. For example, the Company has produced prototype and pre-
production quantities of high-end disk drive arm sets, precision devices used in
rigid computer disk drives, for evaluation by leading disk drive manufacturers
in their high-speed, high-capacity disk drives. Among its customers in this
market, Quinta Corporation, a subsidiary of Seagate Technologies, Inc., has
informed the Company that is has selected Beralcast disk drive arm sets for use
in its high-end disk drives utilizing Quinta's next generation laser-optical
technology and that it anticipates purchasing production levels of Beralcast
disk drive arm sets. Beralcast's low density, high stiffness to weight ratio and
enhanced vibration damping qualities when compared to competing materials
results in significantly increased data storage capacity and reduced data access
time in high-end disk drives equipped with Beralcast disk drive arm sets,
according to certain customers of the Company. For military applications, the
Company has received contracts from Lockheed Martin for 58 separate Beralcast
components to be used in its most advanced electro-optical and target
acquisition systems that will be fitted on the Comanche, the U.S. Army's next
generation advanced reconnaissance and attack helicopter. According to the U.S.
Army, Beralcast is the only known material capable of meeting critical Comanche
requirements without significant costly redesigns. In addition, U.S. and other
military forces have identified opportunities for the use of Beralcast
components for other advanced military programs, such as the F-22 advanced
tactical fighter, the updated Patriot missile, LANTIRN (a low altitude
navigation and targeting system) and the French Rafael advanced fighter
aircraft. The Company has delivered prototype parts pursuant to contracts for
these applications and is awaiting follow-on funding for the next phases of
development. The Company believes that further significant opportunities exist
for the use of Beralcast products and components beyond these currently
identified applications in commercial and military markets.
The Company is expanding its manufacturing capacity and plans to invest a
substantial portion of the proceeds of the offering in order to meet anticipated
demand for Beralcast materials. One of the goals of the Company's planned
capital expenditure program is to further reduce product costs, which the
Company believes is essential to the commercialization of Beralcast. Since the
introduction of its Beralcast alloys, the Company has realized significant
reductions in manufacturing costs primarily as a result of its Comanche
development work, and anticipates that its manufacturing expansion program and
its ongoing
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experience with Beralcast will result in continued cost reductions. In addition,
the Company is committed to maintaining its high quality manufacturing
standards. The Company was recently certified under ISO 9002 at its Concord,
Massachusetts facility and is the first small business and one of only fourteen
companies nationwide to qualify for the U.S. Army's highest quality
manufacturing certification. Furthermore, the Company holds regulatory
facilities licenses for the processing of low-level radioactive materials, which
management believes represent a competitive advantage and a significant barrier
to entry to potential new competitors. The Company believes that it operates the
only licensed U.S. production facility capable of offering a broad spectrum of
processing, conversion, recycling, manufacturing and shielding services for DU
and other low-level radioactive materials.
Since its origins as a metallurgical laboratory affiliated with MIT in 1942,
the Company has developed a strong platform in the research and development of
various materials science technologies. Throughout its history, the Company has
maintained close relationships with MIT and several of the principal research
laboratories affiliated with the United States government, including those at
Los Alamos, Oak Ridge, Lawrence Livermore and Idaho Falls. The Company believes
that these relationships, together with the Company's internal and customer
funded research and development efforts, position Starmet at the forefront of
the development and commercialization of various materials science technologies.
Over the course of its history, the Company has undergone several transitions in
response to fundamental changes in its markets and to take advantage of new
business opportunities. From its focus on high-volume commercial production of
specialty metal powders during the 1970s and the precision manufacture of DU
penetrators used in anti-armor munitions during the 1980s and 1990s, to the
recent introduction of Beralcast, the Company has a history of developing and
bringing to market products that are extensions of its strong foundation in
materials science.
INDUSTRIES AND MARKETS
BERALCAST
The Company's Beralcast products and components were initially developed for
the military aerospace industry. To date, the Company has supplied prototype
products and subassemblies made of Beralcast for several high-performance weapon
systems including Comanche. Comanche is the U.S. Army's next generation advanced
reconnaissance and attack helicopter. The U.S. government has appropriated $300
million for the Comanche helicopter program for fiscal 1998 and full-scale
production is anticipated in 2003.
In addition to use in military aerospace applications, the Company believes
opportunities exist for Beralcast alloys in a number of commercial applications,
such as computer disk drive arm sets. According to Disk/Trend, Inc., an industry
source, sales of rigid disk drives are expected to grow from $34 billion in 1997
to over $75 billion in 2000. Approximately 105 million rigid disk drives were
shipped in 1996, and shipments of rigid disk drives are expected to grow from an
estimated 126 million units in 1997 to 201 million units in 2000, according to
Disk/Trend, Inc. Within the computer disk drive market, the Company has
identified high-end computer disk drives as the target for its Beralcast
products, a market which the Company believes represents between 5% and 10% of
the total rigid disk drive market. Disk drive manufacturers have historically
increased storage capacity of their disk drives at a very rapid rate and
anticipate that their next generation disk drives will double current storage
capacity. According to International Business Machines Corporation ("IBM"), disk
drive storage density has grown by 60% annually since 1991, while semiconductor
density grew 47% to 50% each year. The four largest disk drive manufacturers,
Quantum Corporation, Seagate Technology, Inc. (including its subsidiary Quinta
Corporation), Western Digital Corporation and IBM, represent approximately 76%
of the rigid disk drive market. Based upon input from certain disk drive
manufacturers, Starmet believes that its Beralcast disk drive arm sets will be
an instrumental part of enabling high-end disk drive manufacturers to develop
and introduce their next generation disk drives.
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<PAGE>
The Company is also seeking to apply its technology and expertise in the
satellite and commercial aerospace industries. Trio Star was formed to develop
structural components using Beralcast and other lightweight materials for
commercial satellite and aerospace applications by combining the engineering and
manufacturing talents of its partners. For these applications, customers seek
components and subassemblies that are fabricated using a combination of
lightweight metals and non-metallic composites. With the anticipated significant
growth in low-Earth-orbit satellite applications, major aerospace corporations
are focusing their internal manufacturing resources on the assembly of major
component subsystems and outsourcing the manufacturing of the individual
components and subassemblies. Teledesic LLC ("Teledesic"), in conjunction with
its manufacturing partner, The Boeing Company ("Boeing"), has begun the
development of a network of 300 low-Earth-orbit satellites to provide global,
broadband, high-speed data and video communications worldwide. Trio Star has
submitted a proposal to the Boeing/Teledesic team to manufacture certain
structural components for these satellites. If the contract is awarded to Trio
Star, pre-production would be expected to commence in 1999, with full-scale
production expected in 2000. Trio Star also expects to bid on subassemblies for
other commercial satellite programs.
The Company believes that Beralcast's light weight, stiffness and design
flexibility as compared to titanium and other competing materials also make it
an ideal material for premium golf club heads and shafts. Beralcast club heads
offer the potential of having a larger "sweet spot" and better mass
distribution, thereby increasing performance, and the Company is exploring
opportunities to introduce Beralcast alloys into extruded seamless tubing for
premium golf shaft applications requiring increased stiffness.
AVLIS AND UF(6) CONVERSION
The Company supplies DU and NU feedstock to USEC's AVLIS program for
laser-enrichment into nuclear reactor fuel. USEC is a government-owned global
energy company created by the U.S. Congress in 1992 to operate the DoE uranium
enrichment program. Uranium enrichment is an essential step in transforming NU
into nuclear fuel, which is used by nuclear power plants to produce electric
power. Two technologies are currently used to enrich uranium for commercial
nuclear power plants, gaseous diffusion and gas centrifuge. USEC currently uses
gaseous diffusion as its primary method for enriching uranium and is investing
in AVLIS, a next-generation, laser-based enrichment process. USEC expects that
AVLIS will replace the current gaseous diffusion process beginning in 2005. The
principal advantage of AVLIS over the current gaseous diffusion process is that
it consumes significantly less electric power. Based upon engineering studies
and demonstrated systems performance, USEC expects that a fully deployed AVLIS
facility will use only about five percent of the electric power currently used
by gaseous diffusion plants. According to USEC, electric power represents about
60 percent of the cost of operating gaseous diffusion plants.
Current methods for enrichment of uranium for use as a nuclear fuel generate
depleted UF(6). USEC's predecessors, including DoE, have been enriching uranium
for defense and commercial nuclear fuel purposes since the 1940s. Over the
years, DoE has stockpiled over 1 billion pounds of depleted UF(6) in steel
cylinders at three uranium enrichment sites. Since USEC continues to enrich
uranium for commercial nuclear power customers in the United States and abroad,
approximately 2,500 cylinders are added to this inventory each year.
The Company believes that the large stockpile of depleted UF(6) cylinders
will have to be reprocessed and will not be allowed to continue to be stored.
DoE is currently considering several alternatives for the long-term management
of depleted UF(6). Of these alternatives, DoE's preferred solution is to convert
its depleted UF(6) inventory into DU oxide and/or DU metal. DoE has estimated
the cost for such disposition in the $3 billion range. USEC is in the process of
privatizing, and following its privatization, USEC will no longer be permitted
to store depleted UF(6) produced as a result of its uranium enrichment process
as DoE has done. Rather, USEC will be required to dispose of it or use it.
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Starmet believes that USEC's privatization and the aging DoE depleted UF(6)
stockpile will create opportunities for the Company's processing and conversion
technology. Starmet has developed an expertise in processing and converting
UF(6) and its derivative UF(4) into several uranium metal and uranium oxide
products and owns and operates the only production facility in North America
capable of this process. The Company believes its ability to convert UF(6) and
UF(4) into useful products, such as AVLIS feedstock and DUCRETE shielding, will
permit useful recycling of depleted UF(6). Conversion of depleted UF(6) can
generate fluorine or fluorine compounds such as hydrogen fluoride which have
economic uses, thus rendering the conversion process more economically
attractive. The Company has filed applications for three patents on new
processes which it believes can be advantageously employed in the conversion of
UF(6) into performance fluorine products and a variety of other products.
According to DoE, conversion of depleted UF(6) would begin as early as
practicable and could begin as soon as 2005. The Company believes that its new
processing and conversion technology could accelerate the DoE's conversion
program due to the increased economic benefits which could result from the
production of performance fluorine products.
STRATEGY
The Company's strategy is to grow revenues and profits by exploiting its
materials expertise to manufacture products for currently identified markets and
develop new applications for its technologies. Specific components of the
Company's strategy include:
APPLY TECHNOLOGICAL EXPERTISE TO COMMERCIAL APPLICATIONS. The Company
intends to continue to capitalize on its metallurgical, materials science and
manufacturing expertise, developed primarily for military applications, in order
to introduce new products for what the Company believes are high-growth
opportunities in large commercial markets. In these efforts, the Company will
apply its skills in materials development, investment casting difficult alloys,
manipulating and forming complex components, and manufacturing, processing and
recycling certain advanced materials. An example is the development of the
Company's Beralcast technology which the Company is applying to various
applications in commercial and aerospace markets.
DEVELOP NEW PRODUCTS AND MARKETS THROUGH CONTINUED RESEARCH AND
DEVELOPMENT. The Company intends to continue to focus its own and customer
funded research and development efforts on technological innovation designed to
yield sophisticated, high-performance commercial products, materials and
services. The Company intends to pursue this strategy by maintaining a strong
internal research and development team, continuing its longstanding research
relationships with major government research centers and working closely with
customers. The primary goal of the Company's research and development efforts is
to accelerate commercialization of its materials science technologies by
addressing customer identified applications with significant market potential.
INCREASE MANUFACTURING CAPACITY AND REDUCE MANUFACTURING COSTS. The Company
intends to leverage its manufacturing expertise by shifting from prototype to
full-scale production in order to meet anticipated customer demands. A
substantial portion of the proceeds of the offering will be used to purchase
additional manufacturing equipment, including new furnaces and automated
production equipment, principally for the Company's Beralcast products. Among
the goals of the Company's planned capital expenditure program are to increase
manufacturing capacity, improve manufacturing efficiencies, enhance product
quality and further reduce manufacturing costs.
MAINTAIN FOCUS ON CUSTOMER SATISFACTION. The Company seeks to continue
providing the highest possible level of customer service and customer
satisfaction. For example, the Company engages in concurrent engineering with
its customers to create value-added, customized products that provide solutions
to specific technical issues. The Company seeks to implement design-to-cost
programs with its customers to lower overall product costs. In addition, the
Company has technical field offices at certain customer sites so that the
Company can cooperate in design optimization and provide technical and sales
support. The Company at its Concord facility is the first small business and one
of only fourteen companies
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<PAGE>
nationwide to qualify for the U.S. Army's highest quality manufacturing
certification, and this facility is also ISO 9002 certified. The Company intends
to continue its commitment to high-quality manufacturing.
PURSUE SELECTED COOPERATIVE RELATIONSHIPS. In order to penetrate new
markets and accelerate its expansion, the Company intends to pursue selected
teaming arrangements, licenses, joint ventures and other cooperative business
relationships. This strategy is designed to leverage the Company's technological
expertise by increasing production capacity for the Company's products without
the Company having to fund all related capital expenditures. This strategy is
further designed to allow Starmet to take advantage of the existing distribution
channels of its current or potential partners. As part of this strategy and to
facilitate such cooperative relationships, in October 1997 the Company completed
an internal restructuring to organize the Company's subsidiaries along
functional business lines. A recent example of this co-development strategy is
Trio Star, a business venture formed by the Company with R-Cubed Composites,
Inc. (a subsidiary of Perstorp AB) and Advanced Product Labs, to jointly market,
develop and supply structural components to the commercial satellite and
aerospace markets.
CHARACTERISTICS OF BERALCAST
The first beryllium aluminum material commercially produced (called
"Lockalloy") was developed in the 1960s by Lockheed Corporation and NASA as a
replacement for magnesium alloys in certain advanced aircraft structures.
Starmet participated in the early development of Lockalloy as a subcontractor to
Lockheed Corporation. Lockalloy was a light weight material with the equivalent
stiffness of steel. However, Lockalloy was made from pre-alloyed powder, and was
available only in wrought product forms (i.e., extrusions and sheet). Because of
the complex processing and low yield inherent in the production of Lockalloy,
the cost was high, even for a beryllium-based material. The cost and
difficulties in producing the alloy limited it to special applications, and in
the late 1970s Lockalloy was withdrawn from commercial production.
Many of today's advanced systems for aerospace applications require
materials with high stiffness and low weight that maintain dimensional
stability. Traditional materials possessing the desired properties, like pure
beryllium, are often difficult and expensive to fabricate. Common lightweight
metal and composite investment castable materials such as aluminum, titanium,
magnesium and aluminum silicon carbide composite alloys do not offer the
stiffness and light weight which these applications require. Ceramics and
ceramic-matrix composites are mostly restricted to specialized applications due
to low ductility and machining difficulties. Beryllium and beryllium alloys
produced through powder metallurgy meet the criteria of being lightweight and
stiff but are inherently expensive and limited to configurations that can be
machined or hot pressed.
In an effort to eliminate the primary limitations of the powder metallurgy
technology while retaining the benefits of the beryllium aluminum material,
Starmet developed a family of castable beryllium aluminum alloys suited for
production using a proprietary investment casting process. These new alloys,
named Beralcast, yield a fine grain homogenous microstructure with attractive
mechanical, physical and thermal properties, which permit economical precision
machining. Beralcast incorporates the best attributes of its component materials
and eliminates many individual shortcomings. Beralcast combines the high
stiffness and low density characteristics of beryllium with the excellent
processing capabilities of aluminum. Certain customers have reported that
Beralcast's combination of properties have provided a weight savings of up to
50% in designs requiring high levels of stiffness by, in addition to straight
density advantages, reducing casting section thickness requirements. Beralcast
can be precision cast to comparable specifications of aluminum. In contrast,
pure beryllium is not investment castable. Due to its homogenous fine grain
microstructure, Beralcast can be fabricated using conventional processes, such
as welding, joining, rolling, extrusion, machining, straightening, finishing and
heat treatment. Until recently, such materials have been available only in a
pre-alloyed powder metal wrought form. In aerospace applications, this
limitation has typically resulted in "buy to fly" ratios of up to 20 to 1, where
the majority of the material used for the part ends up as low value machined
scrap, most of which is not economic to recycle.
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Beralcast is a metal matrix composite material. The Company's patented
Beralcast alloys contain approximately 65 weight percent beryllium, 31 weight
percent aluminum and the balance minor alloying additions, including silver,
cobalt, germanium and silicon. These Beralcast compositions, developed for
specific properties and applications, are as follows:
BERALCAST 363: General, high-strength composition used primarily for
precision cast structural applications.
BERALCAST 191: Moderate strength composition used primarily for cast
electronic and thermal packaging applications.
BERALCAST 310: Composition used for cast and wrought products. Used
primarily for select directional high-strength applications.
The Company's patented Beralcast alloys have numerous advantages over other
competing materials and particularly over its primary elemental component
materials, aluminum and beryllium. Utilizing the synergistic effects of an
alloyed metal matrix of the two primary components, Beralcast materials offer a
combination of improvements as shown below, based on analyses by certain
customers and independent testing laboratories.
<TABLE>
<CAPTION>
ADVANTAGES OVER ALUMINUM ADVANTAGES OVER BERYLLIUM
- -------------------------------------------- --------------------------------------------
<S> <C>
- - 22% lower density with essentially - Castable for complex and precise net shape
equivalent strength of cast aluminum configurations
- - 3 times higher modulus (stiffness) - 25% of the raw material input cost
- - 6 to 10 times better in damping - 3 times greater ductility than hot pressed
coefficient for stability and jitter beryllium
reduction depending upon the resonant
frequency
- - 2 to 4 times more dimensionally stable - Reduced scrap generation, machining and
environmental process concerns
- - 30% lower coefficient of thermal expansion - Weldable for defect repair and structural
joining
</TABLE>
In addition, the Company is producing other proprietary Beralcast alloys
that are extensions of the Company's current Beralcast technologies. The Company
is currently offering these and its patented Beralcast alloys to its customers.
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As shown in the table below, Beralcast has a high stiffness to weight ratio
("specific stiffness"), making it an ideal structural material for certain
applications compared to conventional and certain other advanced materials such
as aluminum silicon carbide composites and aluminum boron carbide composites (or
Boralyn-Registered Trademark-).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SPECIFIC STIFFNESS - SELECTED MATERIALS
<S> <C>
(Ratio of stiffness to weight in 10(8)
inches)
Conventional Materials
Magnesium (AZ91) 0.98
Steel (4131Cr-Mo) 1.00
Titanium (6AL-4V) 1.01
Aluminum (6061) 1.04
Advanced Materials
AlSiC (F3S.ZOs) 1.43
Boralyn(Registered Trademark) (A1B4C) (H-15) 1.46
Beralcast(Registered Trademark) (363) 3.83
</TABLE>
[Diagram comparing specific stiffness of selected materials to Beralcast
- -Registered Trademark-.]
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PRODUCTS AND SERVICES
SPECIALTY METAL PRODUCTS
Starmet develops and manufactures a range of advanced metal products and
components for commercial and aerospace applications. These products are
manufactured from various metals and alloys, including the Company's Beralcast
beryllium aluminum alloys, pure beryllium, titanium, steel and zirconium.
Beralcast is an investment-castable beryllium aluminum alloy designed for
secondary structural and electronic applications. The Company believes that it
is the technological leader in the development and production of beryllium
aluminum alloys. The Company also manufactures high-quality spherical metal
powders for niche markets which are used in porous adhesion coatings on medical
prostheses and in other products.
DISK DRIVES. Using Beralcast alloys, disk drive designers have reduced the
thickness of individual arm sets in the disk stack and placed additional disks
within the same volume. This arm set thickness reduction enables manufacturers
to achieve increased storage capacity while maintaining current disk drive
dimensional standards. In addition, the higher vibration damping properties of
Beralcast, which certain customers have determined to be 6 to 10 times greater
than aluminum, significantly increase data retrieval speeds compared to
conventional materials by facilitating higher disk rotational speeds and
reducing arm vibration. Furthermore, Beralcast has lower thermal expansion and
is more dimensionally stable than aluminum, which is critical in certain next
generation disk drive systems which are being developed to incorporate
laser-optical technology. Based in part upon input from customers concerning
performance and component requirements for doubling data storage capacity in
future disk drive applications, the Company believes Beralcast will be a
critical aspect of achieving these goals. The Company has produced prototype and
pre-production Beralcast disk drive arm sets for evaluation by several of the
leading disk drive manufacturers. Among its customers in this market, Quinta
Corporation, a subsidiary of Seagate Technologies, Inc., has informed the
Company that it has selected Beralcast disk drive arm sets for use in its
high-end disk drives utilizing Quinta's next generation laser-optical
technology, known as Optically Assisted Winchester Technology, and that it
anticipates purchasing production levels of Beralcast disk drive arm sets.
Leading disk drive manufacturers have funded research, development, prototype
work and production tooling to support initial production plans. Certain
customers have indicated, subject to various factors, that typical
full-production requirements for their high-end disk drives may eventually
require between 30,000 and 60,000 Beralcast arm sets per week.
MILITARY AEROSPACE. Beralcast components have been specified for use on
such high performance defense applications as the Comanche. In addition, the
Company has manufactured prototype parts for the F-22, LANTIRN, the PAC-3, the
French Rafael and a number of other advanced design programs. As compared to
various competing materials, including other beryllium aluminum alloys, the
Company has been advised by customers that the Company's Beralcast products
uniquely meet performance requirements for certain demanding applications where
stiffness, vibration damping, lightweight, workability and material uniformity
are critical, including the Comanche program. The Company has developed defense
applications for Beralcast primarily through its work with Lockheed Martin over
the past seven years. The Company has received contracts from Lockheed Martin
for 58 separate Beralcast components to be used in EOSS, the night vision and
target acquisition system on the Comanche helicopter. The EOSS consists of the
night vision, target acquisition, and accessory equipment giving Comanche its
advanced night vision capabilities. The qualities of Beralcast make it optimal
for use in this type of aerospace application because of its light weight,
stiffness and vibration damping characteristics, which are required by the very
sensitive operations of this night vision and laser acquisition system. The U.S.
Army has stated that if it were required to design the EOSS without the benefits
of Beralcast, it would increase costs of the Comanche project by approximately
$300 million.
In addition to its work on Comanche, Starmet was recently advised by
Lockheed Martin that it has received funding to upgrade the night vision system
of the Apache helicopter with its EOSS. The U.S.
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Army has approved funding a development program, which is managed by the
Sikorsky Aircraft Corp., to investigate building the Comanche main gear
transmission housing with Beralcast. The Company has been advised that Beralcast
is being considered by two aerospace engine manufacturers for applications in
hydraulic and fuel system components for next generation high performance
military engines. Although Starmet expects to provide Beralcast components to
support these programs, it has not received related contracts.
SATELLITES AND COMMERCIAL AEROSPACE. Since the early 1960s, the Company has
produced bi-metallic transition joints and seamless beryllium tubes for
satellite applications. In addition to continuing to produce these products, the
Company recently formed Trio Star, a joint venture with R-Cubed Composites Inc.
(a subsidiary of Perstorp AB) and Advanced Product Laboratories, to develop
structural components using Beralcast and other lightweight materials for
commercial satellite and aerospace applications. The Company holds an
approximate 44% interest in Trio Star. Trio Star's target launch customer is
Teledesic, which, together with Boeing, is developing a system of 300
low-Earth-orbit satellites to provide global, broadband, high-speed data and
video communications worldwide. The program requirements call for the launch of
satellites over a 3-year period beginning in the year 2000. If Trio Star is
successful in obtaining orders from the Boeing/Teledesic team, revenue is
anticipated to be recognized beginning in 1999. Trio Star is also marketing its
capabilities to other commercial aerospace companies. Applications include
Beralcast structural components and extruded heat pipes for heat dissipation
requirements.
GOLF PRODUCTS. The Company is pursuing the premium golf products market
where it plans to market Beralcast as a high-end golf products material.
Beralcast is 50% lighter than, and twice as stiff as, titanium and can be
investment cast to a thinner wall thickness than titanium. With these qualities,
engineers can design a lighter club head, permitting additional perimeter
weighting which achieves a larger "sweet spot." The Company has delivered
prototype Beralcast golf club heads to a leading golf club manufacturer that has
completed initial testing and has concluded that the club heads meet performance
requirements. The customer is now in the process of design optimization. The
Company believes that if this design optimization is successful, production of
these golf clubs could commence by 2001. Starmet is also exploring with a
leading golf shaft manufacturer the introduction of extruded Beralcast alloys
for seamless tubing in premium golf club shafts.
POWDERS. The Company manufactures certain metal powders for niche markets
through its proprietary processes called the Rotating Electrode Process ("REP")
and the Plasma Rotating Electrode Process ("PREP"), which produce spherical
metal particles within a relatively controllable size range, including steel,
titanium alloy and several nickel and cobalt-based alloys generally known in the
industry as specialty powders. Metal powders can be used effectively in a
variety of applications where exacting sizes, shapes and cleanliness are
important. For example, clean cobalt, chrome and titanium powders, made through
PREP, are used in medical implants to effectively bond prosthetic devices to
bone and tissue, and uniform steel powders made through PREP are used in
photocopiers, sophisticated rapid prototyping applications, and magnetic paint
for children's' books, wallpaper, and toys. Management believes the Company's
metal powders offer performance advantages in these markets over competing
powders since they are cleaner, more uniformly spherical and have a higher
percentage of particles within a desired size range from a given amount of raw
material.
ADVANCED RECYCLING TECHNOLOGIES AND URANIUM SERVICES
Starmet develops and provides a variety of products and services based upon
its longstanding metallurgical, radiological and chemical know-how, including,
in particular, its expertise in processing and converting UF(6) and its
derivative UF(4) into materials and products that can be utilized in a variety
of specialized applications. Starmet owns and operates the only production
facility in North America capable of converting natural UF(6) and depleted UF(6)
into UF(4). Depleted UF(6) is a low-level radioactive by-product
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<PAGE>
of the enrichment of uranium. From UF(4), the Company produces DU and NU metal
which it manufactures into various uranium metal products. The Company's uranium
metal products include DU penetrators used as anti-armor munitions, DU billets
for conversion into tank armor, NU and DU feedstock supplied to USEC's AVLIS
program for laser-based enrichment into nuclear reactor fuel, and industrial and
medical shielding devices. Starmet also owns and operates the only FAA-approved
facility in the United States licensed to repair DU counterweights, which are
used in various wide-body commercial and military aircraft and which are
periodically required to be refurbished. Within its shielding technology
business, the Company has received exclusive commercial production rights to a
patented shielding product known as DUCRETE shielding, which uses a uranium
oxide aggregate mixed with concrete to form a radiation shielding product. The
Company is exploring with DoE and several commercial customers specific
applications for the use of DUCRETE shielding, including as containment vessels
for spent fuel and other high-level radioactive wastes. In addition, the Company
has the capability to recycle radioactively contaminated steel into storage
boxes for containment of various radioactive wastes and other products.
The following diagram depicts the processing of uranium supplied by DoE and
USEC into various products offered by the Company.
[DIAGRAM]
[Diagram showing conversion of UF(6) into UF(4) and UF(4) into DU Metal products
(ALVIS Feedstock, Penetrators and Tank Armor, Industrial and Medical Shielding
and Aircraft Counterweights) and DU Oxide products (DU Aggregate, DUCRETE
Shielding and Performance Fluorine and Other Chemicals - underdevelopment).]
45
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PENETRATORS AND TANK ARMOR. DU is a dense, heavy metal that is 67% heavier
than lead. Because of its density and workability, DU is an effective material
for anti-armor munitions, or penetrators, and is used in numerous United States
government and foreign government weapons systems. The U.S. government has
funded and owns a portion of the manufacturing machinery and equipment used by
the Company for producing penetrators. The Company continues to produce
penetrators under a production contract with production scheduled through the
second quarter of fiscal 1999. The Company plans to consolidate its DU
operations at its South Carolina facility. Due to anticipated reduced U.S.
government procurement plans, the Company expects that no revenues will be
derived from DU penetrator operations in after the second quarter of fiscal
1999. The Company will continue, however, under a multi-year contract with
Lockheed Martin Idaho Technologies Corporation ("LMITCO"), to produce DU billets
in support of the Army's tank armor program, which contract is expected to run
through 2001.
AVLIS FEEDSTOCK. The Company supplies DU and NU alloy material to USEC for
use as AVLIS feedstock. AVLIS, a laser based enrichment process, is expected to
replace the current gaseous diffusion process for producing enriched fuel used
in nuclear reactors, according to USEC. USEC expects full-scale AVLIS production
to commence by 2005. The Company is currently supplying AVLIS feedstock to USEC
under an existing contract and anticipates receiving additional contractual work
from USEC in the summer of 1998. The Company is currently the primary supplier
to USEC of AVLIS feedstock; however, other companies are expected to compete for
future business. See "--Industries and Markets."
COUNTERWEIGHTS. Starmet operates the only FAA-approved facility in the
United States licensed to repair DU aircraft counterweights. Aircraft
counterweights are used in wide body commercial and certain miliary aircraft,
such as the Boeing 747, DC-10 and L-1011, and are periodically required to be
refurbished. The Company refurbishes DU counterweights for many international
and domestic carriers flying wide body aircraft, and has begun work on certain
military aircraft as well. The Company also has the capability to produce
replacement counterweights.
UF(6) CONVERSION. Starmet owns and operates the only production facility in
North America capable of converting natural UF(6) and depleted UF(6) into UF(4).
DoE has stockpiled over 1 billion pounds of UF(6) which Starmet believes must
eventually be dispositioned. Additionally, USEC will be generating new depleted
UF(6) following its privatization which it will be required to dispose of or
use. The Company also has patents pending on a new process to recover and
convert the fluorine and related products from UF(4) which is the by-product of
the UF(6) conversion step. The Company believes that such fluorine processing
has the potential to produce a valuable by-product that can be readily sold in
the open market. To date, the Company has not received contracts for UF(6)
conversion from DoE or USEC, other than UF(6) conversion related to production
of AVLIS feedstock for USEC. See "--Industries and Markets."
DUCRETE SHIELDING. The Company has received exclusive commercial production
rights to a patented shielding product known as DUCRETE shielding, which was
developed by the DoE's Idaho National Engineering Laboratory. DUCRETE uses a
uranium oxide aggregate mixed with concrete to form a stable and economical
shielding for spent fuel and other high-level radioactive waste products.
According to DoE studies, DUCRETE shielding has been shown to have two and
one-half times the shielding capabilities of commercial grade concrete. DUCRETE
shielding containers could serve as shielding for above ground storage of spent
fuel and high-level wastes, providing an economical means of disposing of
stockpiled depleted UF(6), the raw material for the DU oxide aggregate in
DUCRETE shielding. A variety of shielding barriers and structures have been
identified as potential applications for use of DUCRETE shielding. The Company
installed pilot facilities during 1997 to convert DU oxide into high density
DUCRETE shielding aggregate. The Company is actively pursuing a contract with
the DoE for conversion of uranium oxide into DU aggregate for DUCRETE shielding
production. To date, the Company has not received contracts for DUCRETE
shielding products.
RECYCLING AND RECOVERY. The Company has demonstrated the technical
feasibility of recycling radioactively contaminated steel into storage boxes for
containment of various radioactive wastes at DoE sites.
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DoE facilities have millions of tons of radioactively contaminated steel in the
form of structural components and various types of processing equipment. In
addition to the DoE facilities, it is estimated that several million tons of
low-level contaminated steel will be generated as a result of decommissioning
the more than 100 currently operating commercial nuclear power plants over the
next 30 years. The Company is exploring with the DoE funding of a potential
contract to develop full-scale reprocessing of contaminated steel.
SOURCES OF RAW MATERIALS
Raw materials used by the Company include a number of metals and minerals
used to produce the alloys included in its products and castings, including
beryllium, titanium, aluminum, nickel, cobalt, chromium and molybdenum, among
others. The Company currently purchases beryllium, a metal which is used to form
its Beralcast alloys, principally from a producer-supplier located in Kazakhstan
and from multiple distributors located in Estonia, Kazakhstan, Sweden, the
United States, China and Russia. The Company also purchases scrap beryllium from
domestic and foreign distributors. The only three producers of beryllium
worldwide are located in Kazakhstan, the United States and China. For
competitive reasons, the Company does not procure significant quantities of
beryllium raw materials from Brush Wellman, the sole U.S. producer of beryllium,
which is the Company's principal competitor for beryllium aluminum products and
the plaintiff in the pending Brush Wellman patent lawsuit. The Company believes
that a sufficient supply of beryllium remains available for its current demand.
However, if its Beralcast products receive broad commercial acceptance, the
Company's demand for beryllium will increase. The cost of beryllium could
increase as a result of the Company's increased demand, and supplies of
beryllium could also be affected. Prices of raw materials used by the Company
can be volatile, which could significantly effect their availability and price.
The Company has no long-term, fixed price contracts or arrangements for the raw
materials it purchases. Commercial deposits of certain metals, such as
beryllium, cobalt, nickel, titanium, chromium and molybdenum, that are required
for the alloys used in the Company's precision castings and specialty metal
powders, are found in only a few parts of the world. See "Risk Factors--
Availability and Cost of Beryllium and Other Raw Materials."
The principal raw material for the Company's steel powders is cold-rolled
steel bars, which are readily available. Other metal powders are manufactured to
customer specifications, and the metals for these powders are generally
available for purchase in job lots from specialty metal suppliers.
UF(6), the raw material for DU products, is currently available in abundant
supply from DoE's inventory and from USEC's ongoing operations.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company intends to continue to focus its own and customer funded
research and development efforts on technological innovation designed to yield
sophisticated, high-performance commercial products, materials and services. The
Company intends to pursue this strategy by maintaining a strong internal
research and development team, continuing its longstanding research
relationships with major government research centers and working closely with
customers. The primary goal of the Company's research and development efforts is
to accelerate commercialization of its materials science technology by
addressing customer identified applications with significant market potential.
The Company is involved in research covering a variety of product areas for
applications of Beralcast castings, metal powders, and uranium processing
technologies. Research and development activities in the Company's specialty
metals products business are focused on Beralcast technology. New development
efforts include new casting processes and technologies, extrusion and rolling of
wrought materials, alternate alloy compositions to meet specialized
applications, processes to convert beryllium ore to metal economically, advanced
beryllium and beryllium aluminum recycling technologies, and casting simulation
and solidification modeling to improve product quality and reduce product
development lead times. The
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focus of research and development activities in the Company's advanced recycling
technologies and uranium services businesses is on advanced casting technologies
for AVLIS feed material, the development of fluorine recovery from UF(6)
conversion, the manufacture of DUCRETE as a means of incorporating depleted
uranium oxide aggregate in a cement matrix to make shielded concrete structures
and recycling processes for radioactively contaminated steel scrap.
The Company participates in certain cooperative research and development
activities through arrangements with selected customers and government agencies
where there is potential for utilizing proprietary technology or specialized
resources not directly available to the Company. Such research and development
activities are funded both by the Company and through customer sponsored
programs. During the past fiscal year, funded research and development has been
sponsored by the DOD, DoE, and various aerospace and commercial customers. This
includes research and development of the use of Beralcast products for the
Comanche program, disk drive applications and other applications. The Company
employs a staff of six Ph.D. technologists with backgrounds in chemistry,
mechanical and metallurgical engineering to conduct research and new product
development. The cost for Company-sponsored research and development activities
was $1,309,000 in fiscal 1997, $876,000 in fiscal 1996, and $439,000 in fiscal
1995. Total revenues from customer-funded research and development were $793,000
in fiscal 1997, $1,812,000 in fiscal 1996 and $557,000 in fiscal 1995.
MANUFACTURING AND OPERATIONS
Beralcast is produced using a proprietary investment casting technology. The
alloys are vacuum-induction melted and cast into pre-heated ceramic shells.
Vacuum melting is not required but is preferred because it prevents oxidation
and also serves to de-gas the melt. A typical casting cycle begins with
preparation of the elemental charge materials and alloy additions. The charge is
loaded into the crucible, the furnace chamber is evacuated and power is applied
to melt the charge. The charge is heated and stirred to ensure complete melting
and homogenization. A separate preheated mold chamber is evacuated for the
investment shells. Once the optimal temperatures for the cast alloy and mold
have been achieved, the melting chamber and mold chamber interlocks are opened
and the metal is poured into the ceramic mold. Following the metal pouring, the
chambers are isolated and the mold is control cooled to optimize the alloy
microstructure. Residual material inside the crucible is reheated and poured
into additional ceramic molds once the metal and mold temperatures have been
achieved. Once the casting has cooled sufficiently, the ceramic mold is removed
and the casting is cut from the gating and feed network. The residual gating and
feed materials are recycled back into the casting process. The casting is
subsequently finished by grinding, deburring, straightening, welding and
sandblasting for final inspection. Following inspection, the castings are
delivered to machining facilities for finish machining into the final
configuration.
The investment molds used in the process are produced from a formulation
developed specifically for Beralcast. These molds are fabricated using either
conventional wax patterns or rapid prototype patterns. Pursuant to a teaming
agreement between Starmet and Nu-Cast Inc., a producer of thin-walled,
lightweight aluminum castings, the molds are fabricated in accordance with
Starmet's specifications at Nu-Cast Inc. using a dedicated mold fabrication line
which was installed to support the manufacture of Beralcast investment molds. To
support the future growth of Beralcast, the Company intends to establish ceramic
mold manufacturing capabilities at its Concord facility.
The majority of the Company's activities are conducted at a Company-owned
site in Concord, Massachusetts which comprises approximately 46 acres and
includes a 180,000 square feet building used for manufacturing activities,
offices and warehousing. Beralcast investment castings are currently produced at
the Company's Concord, Massachusetts facility. The Company's current facilities
in Concord, Massachusetts may not be adequate depending upon the demand for
Beralcast products, and possible alternatives sites for additional production
facilities are being explored. The Company plans to consolidate its DU
operations at its South Carolina facility.
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The Company owns and operates a facility in Barnwell, South Carolina located
on over 300 acres of land which includes a 109,000 square foot facility housing
two manufacturing units (one unit provides the capability of converting UF(6) to
UF(4) and a second unit houses a reduction process to convert UF(4) to metallic
depleted uranium), a 70,000 square foot facility adjacent to the manufacturing
facility to provide recovery and recycle of DU and other materials, and a
full-scale analytical laboratory.
Due to planned new product and process introductions, principally to support
anticipated large volume Beralcast production, the Company anticipates spending
up to approximately $90 million over the next four years, subject to various
factors, to increase the capacity at the Company's facilities. Specifically, the
Company has embarked upon a multi-year capital expenditure program, under which
it plans to invest approximately $60 million in five phases to expand its
commercial Beralcast manufacturing capabilities to meet anticipated customer
demand through fixed asset additions, including production equipment, such as
casting furnaces, shell lines, wax mold lines, de-waxing lines and finishing
lines, and facility upgrades. The Company intends to fund such capital
expenditures with the proceeds of the offering and cash expected to be generated
from operations. Depending upon the demand for Beralcast products, this program
may be accelerated, delayed or otherwise adjusted. See "Risk Factors--Future
Capital Needs; Uncertainty of Additional Financing" and "Management's Discussion
and Analysis of Financial Condition and Results of Operation--Liquidity and
Capital Resources."
The Company at its Concord facility is the first small business and one of
only fourteen companies nationwide to qualify for the U.S. Army's highest
quality manufacturing certification, and this facility is ISO 9002 certified.
The Company intends to continue its commitment to high quality manufacturing.
SALES AND MARKETING
The Company relies on a variety of marketing strategies, including
advertising and direct sales. Technical papers given at industry symposia,
presented by Starmet and in conjunction with customers, are also used as
marketing vehicles for the Company's advanced metal products and services. In
addition, the Company has developed concurrent engineering procedures between
customers, suppliers and Starmet. The benefit of concurrent engineering is to
provide customers cost-effective solutions to product designs which mitigate
technical and scheduling risks. Furthermore, understanding the importance of
design-to-cost principles especially those of a major aerospace firm such as
Lockheed Martin, is essential to supporting the Company's Beralcast customers.
The Company expects concentrated efforts on cost reduction in the form of
concurrent engineering, low cost beryllium metal production, facility expansion,
and other efforts, to enhance its competitive position.
Sales of Beralcast products at present are made directly to manufacturers of
assemblies and systems. In addition, the Company markets its products through a
multi-step process consisting of initial discussions of the products,
highlighting the advantages of beryllium aluminum, an engineering and marketing
evaluation by the prospective customer of sample material and demonstration
products, appropriate agreements allowing the customer to use and market
Beralcast in the relevant application and market and, finally, a production
program where appropriate expenditures are made on tooling, equipment and
quality control necessary to fulfill market requirements. The Company intends to
continue to sell primarily to OEM customers, with distribution from the
Company's manufacturing site to customer facilities.
The Company's sales and marketing organization consists of sales offices in
Concord, Massachusetts, San Jose, California, Washington, DC, Oak Ridge,
Tennessee, Idaho Falls, Idaho, Aiken, South Carolina, Barnwell, South Carolina
and sales representatives in Europe and Japan. The Company's marketing
activities also include the use of applications engineering support
professionals to assist in the development of products for specific customers
and markets, evaluations by institutions that specialize in technology
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and/or markets of this type, development of appropriate sales materials such as
specification sheets and corporate brochures, and promotion through appearances
at selected trade shows and selective advertising in journals and the trade
press.
In order to penetrate new markets and accelerate its expansion, the Company
intends to pursue selected teaming arrangements, licenses, joint ventures and
other cooperative relationships. This strategy is designed to leverage the
Company's technological expertise by increasing production capacity for the
Company's products without the Company having to fund all related capital
expenditures and to leverage the existing distribution channels of partners.
PATENTS, TRADEMARKS AND LICENSES
The Company's future success depends in substantial part on its proprietary
technology, in particular, Beralcast, the Company's family of beryllium aluminum
alloys. It seeks to protect its interests and competitive position through a
combination of patent protection, confidentiality agreements with key employees,
and restricted access to certain of the Company's critical information.
The Company pursues a diligent patent application program in the United
States and abroad. The Company's holds three U.S. patents on the alloy
compositions for Beralcast materials, which provide patent rights through the
year 2012 and certain Beralcast process details are trade secrets.
The Company holds a U.S. patent relating to developments in REP production
equipment for metal powders, which provide patent rights through the year 2001.
The Company has also filed and effected this patent in certain European
countries, Canada, Israel and Japan.
In addition, the Company has also filed applications for three patents on
new processes which it believes can be advantageously employed in the processing
and conversion of UF(6) into a variety of products, including performance
fluorine chemicals.
The Company has received exclusive commercial production rights to a
patented shielding product known as DUCRETE shielding, which uses a uranium
oxide aggregate mixed with concrete to form a stable radiation shielding
product. DUCRETE shielding was developed and patented by DoE's Idaho National
Engineering Laboratory.
The Company believes that its current and anticipated businesses do not
infringe on any patent owned by others; however, the Company has been sued by
Brush Wellman for alleged infringement of Brush Wellman's investment casting
process patent. There can also be no assurance that the Company's products will
not infringe upon the patent rights of others or that it will not be forced to
expend substantial funds to defend against infringement claims of, or to obtain
licenses from, third parties. See "Risk Factors-- Pending Beralcast Patent
Litigation; Patents and Other Intellectual Property."
COMPETITION
The Company faces significant competition from established companies in
certain of its product lines. In addition, the Company's Beralcast alloys and
other products and services face competition from alternative or competing
materials, products, services and technologies. Many of the Company's current
and potential competitors have significantly greater financial, technical,
marketing, purchasing and other resources than the Company, and, as a result,
may be able to respond more quickly to new or emerging technologies or standards
and to changes in customer requirements, or may be able to devote greater
resources to the development, promotion and sale of products, or to deliver
competitive products at lower prices. Increased competition is likely to result
in price reductions, reduced operating margins and loss of market share, any of
which could have a material adverse effect on the Company's business, results of
operation and financial condition. Although the Company believes that it has
certain technological and other advantages over its competitors, realizing and
maintaining these advantages will require continued investment in research and
development, sales and marketing, and customer service and support. There
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can be no assurance that the Company will have sufficient resources to continue
to make such investments or that the Company will be successful in maintaining
such advantages. The Company believes that its ability to compete successfully
depends on a number of factors both within and outside of its control including
price, product quality, success in developing or otherwise introducing new
products, and general market and economic conditions. See "Risk
Factors--Competition."
The Company competes with Brush Wellman in the production of beryllium
products, specifically beryllium aluminum alloys. Historically, Brush Wellman,
the current sole U.S. producer of beryllium metal, was the dominant supplier of
beryllium and beryllium alloys. With the development of Starmet's Beralcast
alloys, the Company has become the leading producer of investment cast beryllium
aluminum alloys in direct competition with Brush Wellman. The Company and
several of its customers believe that the Company's Beralcast products offer
mechanical and other benefits superior to Brush Wellman's materials. Brush
Wellman has attempted to enter into cross-licensing arrangements with the
Company related to the Company's patented Beralcast alloys, but the Company has
not licensed any of its Beralcast patents to Brush Wellman or any other
companies. See "--Legal Proceedings."
Beralcast investment castings compete directly with aluminum, magnesium,
titanium, aluminum silicon carbide and aluminum boron carbide castings. Use of
Beralcast depends largely on the customer's weight, stiffness, and vibration
damping needs, in combination with a willingness to pay a premium for the
materials' performance benefits.
Key competitive factors in the metal powders market are price and the
ability to meet exact dimensional, metallurgical and other specifications. The
steel powder marketed by the Company for photocopy applications competes with
less expensive powders produced by larger manufacturers.
The Company has historically competed with Aerojet Ordnance, a division of
GenCorp Inc., as one of two domestic DU penetrator manufacturers. Since the
requirements for DU penetrator munitions have declined, the Company believes
that Aerojet Ordnance will attempt to compete with Starmet in the production of
AVLIS feedstock. Although the Company has been the primary supplier of AVLIS
feedstock to USEC, it expects other companies to compete for future USEC
business.
SIGNIFICANT CUSTOMERS
A substantial portion of the Company's business is currently conducted with
a relatively small number of large customers. The Company's ten largest
customers accounted for approximately 78% and 83% of the Company's sales in the
fiscal years 1997 and 1996, respectively. While the Company's planned expansion
into new commercial markets may result in a substantial portion of its revenues
being derived from new customers, the dominance of a few companies in certain of
these targeted markets is likely to continue to result in a substantial portion
of the Company's revenues being derived from a small number of significant
customers. The loss of one of its key customers or any significant portion of
orders from any such customers could have a material adverse affect on the
Company's business, results of operation and financial condition. See "Risk
Factors--Concentration of Customers," "Risk Factors--Uncertainties Relating to
USEC" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
Royal Ordnance, a U.K. defense contractor, is a significant customer of the
Company's DU penetrator business. In fiscal 1997, sales to Royal Ordnance
accounted for 19% of sales. The Company currently is under contract to
manufacture penetrator blanks for Royal Ordnance with a completion date of
December 1998. USEC is the only customer of the Company's AVLIS feedstock
material. In fiscal 1997, sales to USEC accounted for 14% of sales. Primex
Technologies is also a significant customer of the Company's DU penetrator
business. In fiscal 1997, sales to Primex Technologies accounted for 12% of
sales. The Company currently is under contract to provide Primex Technologies
with 120mm penetrators for the U.S. Army's ABRAMS Tank program through the
second quarter of fiscal 1999. Lockheed Martin is a significant customer of the
Company's specialty metal products business. In fiscal 1997, sales to
51
<PAGE>
Lockheed Martin accounted for 7% of sales. The Company currently is under
several contracts with Lockheed Martin to provide Beralcast hardware for the
Comanche helicopter program.
BACKLOG
The following table sets forth certain information with respect to the
Company's backlog at September 30, 1997, 1996 and 1995, and at December 31, 1997
and December 31, 1996 including the portions thereof represented by orders from
the Company's principal customers, Lockheed Martin, LMITCO, Primex Technologies
and USEC. The backlog for the Company is affected by the timing of orders from
these customers. The Company believes all orders in backlog are firm. The
following information is based on the Company's anticipated future business
segments.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Specialty Metal Products................................... $ 9,749 $ 10,532 $ 8,098 $ 11,072 $ 8,898
Advanced Recycling Technologies and Uranium Services....... 20,960 12,712 19,556 16,510 15,749
--------- --------- --------- --------- ---------
Total.................................................... 30,709 23,244 27,654 27,582 24,647
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
ENVIRONMENTAL, SAFETY AND REGULATORY MATTERS
Two of the materials regularly processed by the Company, depleted uranium
and beryllium, have characteristics considered to be health or safety hazards by
various federal, state and local regulatory agencies. The processing of these
materials requires a high level of safety consciousness, personnel monitoring
devices and special equipment. Depleted uranium is a low-level radioactive
material, and the Company is subject to government licensing and regulation.
Depleted uranium in the finely divided state, such as grinding dust or machine
turnings, is combustible at room temperature and requires special handling for
safe operations and disposal of process wastes. Airborne beryllium in respirable
form, such as powder, dusts or mists generated in some manufacturing processes
can represent a hazard to the lungs in certain, susceptible individuals.
Processing this material requires use of extensive ventilation and dust
collecting systems. All of these operations are performed under strict
environmental and health safety controls consistent with OSHA and EPA
regulations for pure beryllium. Management believes that the experience gained
in its many years of working with these metals has resulted in capabilities for
dealing effectively with the health and safety concerns associated with these
materials.
The Company is subject to Environmental Laws that (i) govern activities or
operations that may have adverse environmental effects, such as discharges to
air and water, as well as handling and disposal practices for solid and
hazardous wastes, and (ii) impose liability for the costs of cleaning up, and
certain damages resulting from, sites of past spills, disposals or other
releases of hazardous substances and materials, including liability under CERCLA
and similar state statutes for the investigation and remediation of
environmental contamination at properties owned and/or operated by it and at
off-site locations where it has arranged for the disposal of hazardous
substances. In 1997, the Company's licenses at its Concord and South Carolina
facilities were renewed for a period of five years.
If it is determined that the Company is not in compliance with current
Environmental Laws, the Company could be subject to fines and penalties. The
amount of any such fines and penalties could be material. In addition, the
Company uses depleted uranium, beryllium and other hazardous substances, and as
is the case with manufacturers in general, if a release of hazardous substances
occurs on or from the Company's properties or from an off-site disposal
facility, the Company may be held liable and may be required to pay the cost of
remedying the condition. The amount of any such liability could be material.
52
<PAGE>
The Company's facilities have made, and will continue to make, expenditures
to comply with current and future Environmental Laws. The Company anticipates
that it could incur additional capital and operating costs in the future to
comply with existing Environmental Laws and new requirements arising from new or
amended statutes and regulations. In addition, because the applicable regulatory
agencies have not yet promulgated final standards for some existing
environmental programs, the Company cannot at this time reasonably estimate the
cost for compliance with these additional requirements. The amount of any such
compliance costs could be material. The Company cannot predict the impact that
future regulations will impose upon the Company's business.
In the process of manufacturing depleted uranium products, the Company
generates low-level radioactive waste materials that must be disposed of at
sites licensed by federal, state, and local governments. The operation of these
disposal sites is at the discretion of these regulatory entities, which may at
times result in temporary closures and limited access. For this reason, the
Company does not rely upon any one disposal site for its waste, but, rather,
seeks to use all sites available on the basis of user rates and contract terms.
The Company has benefitted recently from a resurgence of competition in the
waste disposal industry where rates are again being driven by market forces. New
disposal sites and options are becoming available to the Company while at the
same time the Company has made significant progress in developing and
instituting technical alternatives to the generation and disposal of its waste.
The Company intends to continue the development of technologies and processes
aimed at the reduction and elimination of waste materials associated with its
manufacturing processes.
For a number of years, ending in 1985, the Company deposited spent acid and
associated depleted uranium waste and other residual materials by neutralizing
them with lime and discharging the neutralized mixture to a holding basin on its
premises in Concord. In 1986, the holding basin was covered with Hypalon, an
impervious material used to prevent rain and surface run-off water from leaching
through the holding basin. The Company now uses a proprietary "closed loop"
process that it developed to discontinue such discharges. The Company believes
that both practices were and are in compliance with all applicable regulations.
The Company is now near completion of the process of removing and disposing of
material in the holding basin. For a discussion of the status of remediation of
the holding basin at the Company's Concord facility, see "--Concord Site
Remediation and Decommissioning Planning Requirements."
CONCORD SITE REMEDIATION AND DECOMMISSIONING PLANNING REQUIREMENTS
The Company is required to maintain certain licenses issued by the
Massachusetts Department of Public Health ("DPH") and the South Carolina
Department of Health and Environmental Control ("DHEC") in order to possess and
process depleted uranium materials at its facilities in Concord and South
Carolina, respectively. Under applicable licensing regulations pertaining to
decommissioning and disposal of certain hazardous materials ("D&D") at licensed
sites, the Company submitted to the Nuclear Regulatory Commission ("NRC") (the
predecessor of DPH, in this regard) and the applicable state agencies a
Decommissioning Funding Plan ("DFP") to provide for possible future
decommissioning of its facilities. The Concord facility DFP estimated cost is
$11.7 million and the South Carolina Facility DFP estimate is $2.9 million. The
Company is required to provide financial assurance for such decommissioning
pursuant to applicable regulations. The Company has satisfied these
requirements, and as a result, the site licenses for both locations have been
renewed.
Substantially all of the depleted uranium materials to which the DFP
requirements apply were processed by the Company for the United States
government. Based on the terms of certain contracts that the Company entered
into with the United States government to process such depleted uranium
materials, the Company believes that such materials continue to be owned by the
United States government and that the United States government is obligated,
under applicable law, to pay for its percentage of eventual D&D. The Company's
DFP's reflect its position that it is obligated to provide financial assurance
only with respect to the portion of the materials which are attributable to the
Company's commercial production for
53
<PAGE>
parties other than the United States government and that this obligation has
been satisfied by a letter of credit to each geographic location's regulatory
agency.
The United States Army, in a Memorandum of Decision dated September 13, 1996
(the "Memorandum of Decision"), pursuant to Public Law 85-804, agreed that it
would fund remediation of the Company's Concord holding basin site as well as
D&D related to that facility, based in part on the Army's determination that the
Company's activities are essential to the national defense. The United States
Army has issued to the Company a fixed price subcontract for remediation of the
holding basin and the Company entered into a fixed price subcontract with a
contractor to perform this remediation. The Company's contract with the
contractor is fixed price based on a specified volume of waste to be removed
from the basin and delivered to a disposal site. If the volume of the material
removed exceeds the specified level, then the Company is obligated to pay an
additional fee per cubic yard of excess material removed. Based on currently
available information, management believes that the costs to complete remediaton
of the holding basin may exceed the fixed price contract with the United States
Army. The Company believes that any additional remediation costs would not be
material in part because the United States Army has agreed to recognize
additional costs to remediate the holding basin as allowable and recoverable
costs through the Company's overhead structure on government contracts. Subject
to funding appropriations, the Army has provided written assurances of its
intention to provide funding for D&D costs at the Concord facility under future
contracts or under an existing contract in the event that no future contracts
are awarded. D&D costs for the Company's South Carolina facility are covered by
the existing letter of credit. The Company has no assurance that the Army will
accept responsibility for the share of the estimated cost of D&D at its South
Carolina facility which directly resulted from production work under U.S.
government contracts on government supplied materials. However, management
believes that the Army is responsible for its estimated share of D&D.
LEGAL PROCEEDINGS
On December 9, 1997, Brush Wellman filed a patent infringement suit against
the Company in the Massachusetts District Court alleging that the Company is
infringing on the Brush Wellman Patent for the process of investment casting of
beryllium aluminum alloys. Brush Wellman is seeking an injunction against the
Company's alleged patent infringement, monetary damages (including treble
damages) and attorney fees. On March 28, 1998, the PTO granted the Company's
request for re-examination (filed January 22, 1998). In the Request, the Company
contended, among other things, that there was sufficient "prior art" in the
field of investment castings and castings of beryllium aluminum alloys such that
the Brush Wellman Patent should not have been issued. In granting the Request,
the patent examiner agreed that the Company's cited examples of prior art raised
substantial new issues of patentability which were not decided in the prior
examination which led to granting the Brush Wellman Patent. The PTO will
undertake a process of re-examination of the validity of the Brush Wellman
patent that, the Company anticipates, could last for an extended period. There
can be no assurance that the PTO will find the Brush Wellman Patent to be
invalid. On January 27, 1998, the Company filed in the Massachusetts District
Court a motion to stay the court case pending the outcome of the re-examination
proceeding. If the Massachusetts District Court were to grant the motion to
stay, the court case would not proceed until the conclusion of the PTO's
re-examination of the Brush Wellman Patent. Although the Company believes that
its motion to stay has merit, no assurance can be given that the Massachusetts
District Court will grant the motion.
Even though the Company has been advised by patent counsel that Brush
Wellman's claims are without merit because the Brush Wellman Patent is invalid
as a matter of law due to "prior art" and due to the Company's sales of
investment cast beryllium aluminum products more than one year prior to the
Brush Wellman Patent application, no assurance can be given as to the ultimate
outcome of the lawsuit. Even if the lawsuit were not to proceed to trial, the
litigation could result in substantial costs to the Company, and an unfavorable
settlement of the lawsuit could place the Company at a competitive disadvantage.
An adverse judgment or settlement could subject the Company to significant
liabilities and
54
<PAGE>
expenses (e.g., reasonable royalties, lost profits, attorneys' fees or trebling
of damages for willfulness). An adverse outcome also could cause the Company to
incur substantial costs in redesigning the investment casting process for its
Beralcast products and components. Moreover, there can be no assurance that
redesign alternatives would be available to the Company, and if available, that
any redesign alternative would not place the Company at a competitive
disadvantage. The Company could be required to license the disputed patent
rights from Brush Wellman or to cease using the patented technology. Any such
license, if required, may not be available on terms acceptable or favorable to
the Company, or at all. Any of these results could have a material adverse
effect on the Company's business, financial condition and results of operations.
Even in the event of a successful outcome, the Company may incur significant
legal expenses in its defense. See "Risk Factors--Pending Beralcast Patent
Litigation; Patents and Other Intellectual Property " and "Business--Legal
Proceedings."
The Company is named as a Potentially Responsible Party ("PRP") in regard to
the Maxey Flats, Kentucky, Superfund Site. This site was used until 1977 as a
licensed and approved low level radioactive waste disposal site. A committee of
PRP's, including the Company, has submitted a remedial investigation and
feasibility study report to the Environmental Protection Agency. The agreement
signed by the settling parties in July 1995 outlines the responsibilities of all
PRPs and states that the PRPs will undertake the initial remedial phase ("IRP")
of the site remediation at an estimated cost of $60 million. Based upon the
percentage of responsibility allocated to the Company, its liability at this
site is expected to be approximately $80,000 over 10 years.
EMPLOYEES
As of March 31, 1998, the Company employed 272 employees. Of these
employees, 136 were involved in manufacturing, 36 in health and safety, 34 in
engineering, 32 in administration, 18 in finance and 16 in sales. No employees
are covered by any collective bargaining agreements. The Company believes that
its relationships with its employees are good.
55
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of April 3, 1998 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---------------------------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Robert E. Quinn (1)................................. 44 President, Chief Executive Officer, Treasurer and
Director
George J. Matthews (1).............................. 68 Chairman of the Board of Directors
Wilson B. Tuffin (1)................................ 66 Vice Chairman of the Board of Directors
Kenneth A. Smith (2)................................ 61 Director
Frank H. Brenton (2)................................ 72 Director
William J. Shea (2)................................. 50 Director
Kevin R. Raftery.................................... 39 President, Starmet Commercial Castings, LLC and
Starmet Aerocast, LLC
Douglas F. Grotheer................................. 39 President, Starmet CMI Corporation
William T. Nachtrab................................. 44 Vice President, Engineering & Technology
James M. Spiezio.................................... 50 Vice President, Finance & Administration
James H. Scarboro................................... 58 Vice President, Marketing
Frank J. Vumbaco.................................... 44 Vice President, Health/Safety & Corporate
Communications
Bruce E. Zukauskas.................................. 47 Vice President, Operations
</TABLE>
- ------------------------
(1) Member of Stock Option Committee
(2) Member of Audit Committee.
The term of office for each director and executive officer of the Company is
the earlier of one year or until a successor is chosen and qualified. The
executive officers are elected by the directors at their first meeting following
the annual meeting of stockholders. There are no family relationships among the
directors and executive officers.
ROBERT E. QUINN was elected President of the Company on November 30, 1994
and Chief Executive Officer and Treasurer on January 20, 1998. Prior to November
30, 1994, he held the position of Vice President, Sales with the Company for six
years. Mr. Quinn is also a director of the Company. Upon graduation from
college, Mr. Quinn joined the Company as a sales administrator. At age 34, he
became the youngest Vice President in the Company's history. Mr. Quinn is a
graduate of Tufts University and has a Masters of Business Administration from
Babson College. Mr. Quinn is a member of the Massachusetts High Technology
Council, National Defense Industrial Association, Tufts University Alumni
Admissions and sits on the Board of Governors of the Concord Museum.
GEORGE J. MATTHEWS has been Chairman of the Board of Directors since 1972,
when he and his partner, Mr. Wilson B. Tuffin, purchased the Company from
Whittaker Corporation. From November 1994 to January 1998, Mr. Matthews held the
positions of Chief Executive Officer and Treasurer of the Company. Mr. Matthews
currently is Chairman of the Board of Trustees of Northeastern University,
Chairman of the Gorbachev Institute of North America, and Chairman, Globalview
Associates Limited. He is a graduate of Northeastern University's DDA Management
Program majoring in Electrical Engineering. He received his M.S. in Business
Administration at Suffolk University. Mr. Matthews has received honorary degrees
from Ricker College and Northeastern University. He is also the recipient of
several educational, civic and philanthropic honors and awards.
WILSON B. TUFFIN has been Vice Chairman of the Board of Directors since
November 1994. From 1972 when he and his partner, Mr. Matthews, purchased the
Company from Whittaker Corporation, to
56
<PAGE>
November 1994, Mr. Tuffin held the positions of President, Chief Executive
Officer and Treasurer of the Company. Mr. Tuffin is an alumnus of the Tufts
University School of Engineering.
KENNETH A. SMITH was elected a member of the Company's Board of Directors in
1985. Dr. Smith has been an Edwin R. Gilliland Professor of Chemical Engineering
at Massachusetts Institute of Technology since 1989 and was the Associate
Provost at MIT from 1980 to 1991. Dr. Smith has done extensive consulting for
major international petroleum and chemical companies and other companies
including E.I. DuPont de Nemours & Co., Inc., Air Products and Chemicals, Inc.,
Qatar General Petroleum Corporation, Arthur D. Little, Inc., Cabot Corporation,
and Stone and Webster Engineering Corp. Dr. Smith received his S.B., S.M., and
ScD. in Chemical Engineering from MIT. He has written over 100 articles in
journals on fluid mechanics, heat and mass transfer, polymer characterization,
desalination, liquified natural gas and biomedical engineering.
FRANK H. BRENTON was elected a member of the Company's Board of Directors in
1986. Mr. Brenton is also a principal of Frank H. Brenton Associates, a business
consulting firm. From 1984 to 1986, Mr. Brenton was Chairman of the board of
directors of Marshall's Incorporated, an off-price retailer and division of
Melville, Inc. He also served as Vice President of Melville Corporation during
that period. Mr. Brenton served as CFO of Mammoth Mart from 1962 to 1975.
WILLIAM J. SHEA was elected a member of the Company's Board of Directors in
February 1998. From 1992 to 1997, Mr. Shea served as Vice-Chairman, Chief
Financial Officer and Treasurer of BankBoston, NA. Prior to joining BankBoston,
NA in 1992, Mr. Shea spent 19 years with Coopers & Lybrand, where he was a
Senior Partner and a member of the Firm Council, the partnership's governing
body. Mr. Shea is currently Chairman of the board of directors of Centennial
Technologies, Inc. and serves on the boards of directors of View Tech, Inc. and
Miros, Inc. Mr. Shea received his B.A. and M.A. in Economics from Northeastern
University.
KEVIN R. RAFTERY became President of Starmet Commercial Castings, LLC and
Starmet Aerocast, LLC (both subsidiaries of the Company) in October 1997. Prior
to that he was the Manager of the Company's Beralcast business unit. Mr. Raftery
joined the Company in 1976 as a technician working for several project
engineers. He quickly advanced into project engineering becoming the lead
project engineer for several demanding aerospace programs. Mr. Raftery was
promoted to Program Manager in 1994 and Business Unit Manager in 1996. Mr.
Raftery is a recognized expert in casting, extrusion, heat treating, coating,
welding and joining technologies for aerospace specialty metals. During his
twenty year tenure with the Company, Mr. Raftery has authored and co-authored
several technical publications and is a co-inventor of two Beralcast patents.
Mr. Raftery received his B.S. in Mechanical Engineering Technology from the
University of Massachusetts.
DOUGLAS F. GROTHEER became President of Starmet CMI Corporation (a
subsidiary of the Company) in 1997. Prior to this promotion, Mr. Grotheer was
Vice President of Engineering, Programs and Quality for the Company since 1994.
Mr. Grotheer joined the Company as a project engineer directly after graduating
from college in 1980. He was promoted to Manager of Ordnance Programs. Mr.
Grotheer is a recognized expert in uranium metallurgy and processing, as well as
ISO 9002 Quality Systems. Mr. Grotheer received his degree in Materials
Engineering from Rensselaer Polytechnic Institute.
WILLIAM T. NACHTRAB, PH.D. has held the position of Vice President,
Engineering and Technology with the Company since 1997 and Vice President of
Technology since 1994. Dr. Nachtrab is the Company's senior technologist. Dr.
Nachtrab, who joined the Company in 1988, is the author and co-author of
numerous technical and scientific publications and an inventor of four of the
Company's patents. He is a recognized expert in beryllium, titanium, alloy
steels, uranium metallurgy and extrusion and powder metal processing. Before
joining the Company, Dr. Nachtrab was a Senior Member of the Technical Staff of
the GE/RCA Corporation. Prior to that he was a Division Research Engineer for
Lukens Steel Company, a Research Engineer for Lehigh University, and a
Metallurgist for LTV Steel Company. Dr. Nachtrab has a Ph.D. in Metallurgical
and Materials Engineering from Lehigh University.
57
<PAGE>
JAMES M. SPIEZIO has been Vice President, Finance and Administration since
October 1993. Prior to October 1993, he held the position of Corporate
Controller and prior to April 1989, he served as Manager of Business Planning
and Financial Analysis for four years. Before joining the Company, Mr. Spiezio
held positions of increasing responsibility in finance at Pratt & Whitney
Company, United Technologies Inc., and the General Electric Company. Mr. Spiezio
also held the position of President of Starmet CMI Corporation from October 1993
to July 1997. Mr. Spiezio is a graduate of Indiana University School of
Business.
JAMES H. SCARBORO became Vice President in December 1997 and is responsible
for government relations and strategic business development for the Company. Mr.
Scarboro has been with the Company for over five years. Mr. Scarboro was
Assistant Program Manager for the U.S. Army's Tank Main Armament Systems and
Program Manager for the Abrams Tank. Mr. Scarboro is a graduate of Rawlins
College, Ball State University, the U.S. Army Command and General Staff College
and the DOD Systems Management College and retired from the U.S. Army with the
rank of Lieutenant Colonel.
FRANK J. VUMBACO has held the position of Vice President, Health/Safety and
Corporate Communications with the Company since November 1995. Prior to November
1995, he held the position of Vice President, Health/Safety since November 1993.
Prior to November 1993, he was Manager of Health/Safety for over five years.
Before joining the Company in 1980, Mr. Vumbaco served as the Manager of Health,
Safety & Security for National Lead Industries, Albany, NY. He is a director of
the New England Consortium of Radioactive Material Users (NELRAD) and a member
of the Massachusetts Nuclear Incident Advisory Team. Mr. Vumbaco is a graduate
of Siena College and has a Masters in Applied Business Management from Lesley
College.
BRUCE E. ZUKAUSKAS has held the position of Vice President, Operations since
October 1994. Prior to October 1994, he was Quality Manager for over five years.
Before joining the Company, Mr. Zukauskas served as Operations Engineer for
Babcock and Wilcox Tubular Products Group. Mr. Zukauskas is a graduate of the
U.S. Military Academy at West Point and the U.S. Army Command and General Staff
College and received his Masters in Industrial Engineering from the University
of Pittsburgh. Mr. Zukauskas is a Colonel in the U.S. Army, Reserves.
DIRECTOR COMPENSATION
Each outside director of the Company receives an annual fee of $15,000 and
is eligible to receive options under the Company's 1995 Directors Option Plan
(the "1995 Directors Plan"). Messrs. Brenton and Smith, the Company's two
non-employee directors during fiscal 1997, were each granted options to purchase
3,000 shares of Common Stock at an exercise price of $15.56 per share in fiscal
1997. During the second fiscal quarter of fiscal 1998, the Company granted to
each of Messrs. Matthews, Tuffin, Smith, Brenton and Shea options to purchase
7,500 shares of Common Stock at an exercise price of $23.67 per share, based on
the market price of the Common Stock at that time. At the same time, the Company
also granted Mr. Quinn (in his capacity as President of the Company) an
incentive stock option to purchase 15,000 shares of Common Stock at the same
exercise price under the Company's 1998 Stock Option Plan.
The Company has entered into a management agreement with Matthews Associates
Limited, a Massachusetts corporation ("MAL"), of which George J. Matthews,
Director and Chairman of the Board of Directors of the Company, is sole owner.
The management agreement is described in the section titled "Employment
Agreements with Certain Officers."
The Company entered into an employment and consulting agreement with Mr.
Tuffin in November 1994, which shall continue in force until February 1999.
Pursuant to such agreement, Mr. Tuffin receives annual compensation of $105,000
for his services as a consultant to the Company. Mr. Tuffin's duties include his
service as a director and Vice Chairman of the Board of Directors of the
Company. During the term of the agreement and for a period of two years after
its expiration, Mr. Tuffin may not compete directly or indirectly with the
Company within the continental United States.
58
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee which is reconstituted at the
first meeting of the Board following the annual meeting of stockholders. The
Audit Committee, which met two times during fiscal 1997, meets with the
Company's independent auditors and principal financial personnel to review the
scope and results of the annual audit and the Company's financial reports. The
Audit Committee also reviews the scope of audit and non-audit services performed
by the independent public accountants, and reviews the adequacy and
effectiveness of internal accounting controls. The present members of the Audit
Committee are Messrs. Brenton, Smith and Shea.
The Board of Directors has a Stock Option Committee which was formed during
fiscal 1997. The Stock Option Committee, which met once during fiscal 1997,
recommends to the Board of Directors for its approval the terms, amounts and
recipients of stock options under the Company's stock option plans. The present
members of the Stock Option Committee are Messrs. Matthews, Tuffin and Quinn.
The Board of Directors does not have standing committees on compensation or
nominations.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Board of Directors of the Company was responsible
for establishing executive compensation (other than stock option compensation).
Messrs. Quinn and Matthews participated in deliberations of the Company's Board
of Directors concerning executive officer compensation. Neither participated in
setting his own compensation. No executive officer of the Company served as a
director or member of a compensation committee, or its equivalent, of another
entity, one of whose executive officers served as a director of the Company.
59
<PAGE>
EXECUTIVE COMPENSATION
The following table and notes present the compensation provided by the
Company during the last three fiscal years for its Chief Executive Officer and
for the four most highly compensated executive officers of the Company, other
than the Chief Executive Officer, whose total compensation exceeded $100,000 for
fiscal 1997 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------- -------------------------- PAYOUTS
OTHER RESTRICTED SECURITIES -----------
ANNUAL STOCK UNDERLYING LTIP
NAME AND COMPEN- AWARD(S) OPTIONS/ PAYOUTS
PRINCIPAL POSITION YEAR(1) SALARY ($) BONUS($) SATION($)(2) $ SARS (#)(3) $
------------------ ----------- ----------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
George J. Matthews................. 1997 350,000 -- -- -- -- --
Chairman of Board of Directors, 1996 350,000 -- -- -- -- --
CEO and Treasurer (4) (5) 1995 350,000 -- -- -- 20,000 --
Robert E. Quinn.................... 1997 200,000 15,000 -- -- 25,000 --
President (5)(6) 1996 173,769 -- -- -- 20,000 --
1995 151,673 200 35,000 -- 60,000 --
James M. Spiezio................... 1997 131,616 13,250 -- -- 8,000 --
Vice President, Finance & 1996 121,058 -- -- -- 10,000 --
Administration 1995 113,270 10,930 -- -- 12,000 --
William T. Nachtrab................ 1997 131,616 9,050 -- -- 8,000 --
Vice President, Engineering and 1996 114,849 -- -- -- -- --
Technology 1995 108,703 10,830 -- -- 12,000 --
Douglas F. Grotheer................ 1997 121,934 6,700 -- -- 5,000 --
President, Starmet CMI 1996 100,252 -- -- -- -- --
Corporation 1995 95,002 10,830 -- -- 5,000 --
<CAPTION>
ALL
OTHER
NAME AND COMPEN-
PRINCIPAL POSITION SATION($)
------------------ -----------
<S> <C>
George J. Matthews................. --
Chairman of Board of Directors, --
CEO and Treasurer (4) (5) --
Robert E. Quinn.................... --
President (5)(6) --
--
James M. Spiezio................... --
Vice President, Finance & --
Administration --
William T. Nachtrab................ --
Vice President, Engineering and --
Technology --
Douglas F. Grotheer................ --
President, Starmet CMI --
Corporation --
</TABLE>
- ------------------------
(1) The Company's fiscal year ends on September 30 of each year.
(2) Excludes perquisites in amounts less than the threshold level required for
reporting.
(3) Options have been adjusted to reflect Company's two-for-one stock dividend
paid on April 7, 1997.
(4) Mr. Matthews is a consultant to the Company pursuant to a management
agreement between Matthews Associates Limited and the Company. All
compensation under the agreement is paid by the Company to Matthews
Associates Limited. See "Employment Agreements with Certain Officers."
(5) On January 20, 1998, Mr. Matthews resigned as Chief Executive Officer and
Treasurer of the Company and the Company elected Mr. Quinn as Chief
Executive Officer and Treasurer.
(6) Mr. Quinn's compensation for fiscal 1997 was determined pursuant to his
Employment Agreement. See "Employment Agreements with Certain Officers."
EMPLOYMENT AGREEMENTS WITH CERTAIN OFFICERS
EMPLOYMENT AGREEMENT WITH MR. QUINN
In October 1997, the Company entered into an amended employment agreement
with Mr. Quinn. Pursuant to the agreement, Mr. Quinn will receive initial
compensation at the annual rate of $200,000, subject to such annual increases
and bonuses as the Board of Directors may from time to time determine. The
agreement shall continue in force until February 28, 2002, unless terminated by
either party in accordance with its terms, and is subject to annual renewals as
described in the agreement. During the term of the agreement and for a period of
two years after its expiration, or after the termination of Mr. Quinn's
employment with the Company, whichever occurs later, Mr. Quinn may not compete
directly or indirectly with the Company within the continental United States.
The Company shall require any successor to a majority of the Company's business
activities to assume its obligations under this agreement.
60
<PAGE>
EMPLOYMENT AGREEMENTS WITH MESSRS. SPIEZIO, NACHTRAB, GROTHEER AND RAFTERY
In October 1997, the Company entered into employment agreements with Messrs.
Spiezio, Nachtrab, Grotheer and Raftery (each an "Executive"). Under the terms
of their respective agreements, Messrs. Spiezio, Nachtrab, Grotheer and Raftery
are entitled to an annual base salary of $142,000, $136,000, $135,000, and
$100,000, respectively, subject to such annual increases and bonuses as the
Board of Directors may from time to time determine. Each of the agreements shall
continue in force for an initial period of three years, unless such agreement is
terminated by the Company or the Executive in accordance with its terms.
Annually, the Board of Directors, in its discretion, may extend the term of each
agreement for an additional year. During the term of each agreement and for a
period of eighteen months after any termination of employment, each Executive
may neither compete directly or indirectly with the Company within the
continental United States nor solicit any of the Company's customers or
employees. Each of the agreements may be terminated by the Company prior to a
change in control (as defined in the agreements) and upon twelve months written
notice.
MANAGEMENT AGREEMENT WITH MATTHEWS ASSOCIATES LIMITED
The Company has entered into a management agreement with Matthews Associates
Limited, a Massachusetts corporation ("MAL"), of which George J. Matthews,
Director and Chairman of the Board of Directors of the Company, is sole owner.
The agreement provides MAL with a minimum compensation of $350,000 per annum for
services performed under the agreement, including financial management advice,
representation of the Company before government regulatory bodies, Mr. Matthews'
service on the Board and such other duties as assigned by the Board of
Directors. The agreement expires on February 28, 2002, subject to annual
renewals as described in the agreement. In the event of termination of MAL by
the Company, the Company is obligated to pay to MAL all of the amounts due under
the agreement for the remaining term.
PENSION PLAN
The following table sets forth the aggregate annual benefit payable upon
retirement at normal retirement age for each level of remuneration specified at
the listed years of service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
ANNUAL REMUNERATION --------------------------------------------
PRIOR TO RETIREMENT 15 20 25 30 OR MORE
- ------------------------------------------------------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
up to $100,000.............................................. 23,520 31,360 39,220 47,040
100,001--150,000............................................ 38,520 51,360 64,200 77,040
150,001--200,000............................................ 53,520 71,360 89,200 107,040
200,001--300,000............................................ 83,520 111,360 139,200 167,040
300,001--400,000............................................ 113,520 151,360 189,200 227,040
400,000--500,000............................................ 143,520 191,360 239,200 287,040
</TABLE>
The Company has a defined benefit plan (the "Pension Plan") designed to
provide retirement benefits for employees and ancillary benefits to their
beneficiaries, joint annuitants and spouses. All employees of the Company become
participants in the Pension Plan after attaining the later of age 21 or one year
of service with the Company. The Pension Plan provides retirement benefits based
on years of service and compensation. An employee's benefits under the Pension
Plan generally become fully vested after five years of service. At normal
retirement (the later of age 65 and five years of Pension Plan participation),
participants are entitled to a monthly benefit for the remainder of their life
in an amount equal to one-twelfth of the sum of their "Annual Credits" for their
last 30 years or lesser period of employment with the Company and its
predecessors. An employee's "Annual Credit" is 1.25% of the portion of his
annual compensation that is subject to Social Security tax and two percent (2%)
of the balance of his annual compensation. Participants with five years of
service are entitled to retirement at age 55, but the monthly
61
<PAGE>
benefit payable under the Pension Plan is reduced by 0.5% for each month that
early retirement precedes normal retirement but not to less than $100 per month
if the Participant has ten or more years of service. The surviving spouse of a
retiree under the Plan is entitled to receive benefits equal to one-half the
amount the retiree had been receiving. Alternative benefit payments that are
equivalent to the benefit described above are also available to participants.
Benefits payable under the plan are not reduced by Social Security payments to
the retiree. Amounts shown assume benefits commence at age 65. Benefit amounts
shown are straight-life annuities. The executive officers named in the Summary
Compensation Table have the following years of credited service for pension plan
purposes: Robert E. Quinn-21 years; James M. Spiezio-11 years; William T.
Nachtrab-7 years; and Douglas F. Grotheer-17 years. Mr. Matthews does not
participate in the Pension Plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options granted
during fiscal 1997 by the Company to the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OR OPTION TERM(3)
OPTIONS FISCAL BASE PRICE EXPIRATION -------------------------
NAME GRANTED (#) YEAR (1) ($/SHARE)(2) DATE 5%($) 10%($)
- --------------------------------------- ----------- ------------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
George J. Matthews..................... -- -- -- -- -- --
Robert E. Quinn........................ 15,000(4) $ 15.563 8/5/2007 $ 146,812 $ 372,051
10,000(5) 20.8% 7.38 11/19/2006 46,412 117,618
James M. Spiezio....................... 4,000(4) 15.563 8/5/2007 39,150 99,214
4,000(5) 6.7% 7.38 11/19/2006 18,565 47,047
William T. Nachtrab.................... 4,000(4) 15.563 8/5/2007 39,150 99,214
4,000(5) 6.7% 7.38 11/19/2006 18,565 47,047
Douglas F. Grotheer.................... 3,000(4) 15.563 8/5/2007 29,362 74,410
2,000(5) 4.2% 7.38 11/19/2006 9,282 23,524
</TABLE>
- ------------------------
(1) Percentage is total percentage of all options granted to employee in fiscal
1997.
(2) The exercise price per share was based on the market price of the underlying
Common Stock on the date of grant. The exercise price reflects the
two-for-one stock dividend paid on April 7, 1997.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed rates of share price appreciation set by the
Securities and Exchange Commission of five percent and ten percent
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes of the options exercise price or
other expenses associated with the exercise. Actual gains, if any, are
dependent on the performance of the Common Stock and the date on which the
option is exercised. There can be no assurance that the amounts reflected
will be achieved.
(4) These options will vest in three equal annual installments on August 5,
1998, 1999 and 2000.
(5) These options will vest in three equal annual installments on November 19,
1997, 1998 and 1999. The number of shares has been adjusted to reflect the
Company's two-for-one stock dividend paid on April 7, 1997.
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<PAGE>
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning options
exercised during fiscal 1997 by the Named Executive Officers, as well as the
aggregate value of unexercised options held by such executive officers on
September 30, 1997. The Company has no outstanding stock appreciation rights,
either freestanding or in tandem with options.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS
UNDERLYING UNEXERCISED AT
SHARES OPTIONS AT FY-END (#) FY-END(2)
ACQUIRED ON VALUE -------------------------- -----------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ----------------------------------------- ----------------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
George J. Matthews....................... 0 $ 0 13,334 6,666 $ 148,274
Robert E. Quinn.......................... 0 0 46,667 58,333 509,003
James M. Spiezio......................... 0 0 16,333 18,667 193,679
William T. Nachtrab...................... 0 0 13,000 12,000 157,449
Douglas F. Grotheer...................... 0 0 8,334 6,666 83,324
<CAPTION>
NAME UNEXERCISABLE
- ----------------------------------------- -------------
<S> <C>
George J. Matthews....................... $ 74,126
Robert E. Quinn.......................... 487,202
James M. Spiezio......................... 162,599
William T. Nachtrab...................... 90,129
Douglas F. Grotheer...................... 43,327
</TABLE>
- ------------------------
(1) Value realized equals fair market value on the date of exercise, less the
exercise price, times the number of shares acquired, without deducting taxes
or commissions paid by employee.
(2) Value of unexercised options equals fair market value of the shares
underlying in-the-money options on September 30, 1997 (closing price of
Common Stock on September 30, 1997 was $17.25 per share), less the exercise
price, times the number of options outstanding. All such options were "in
the money" as of September 30, 1997.
STOCK OPTION PLANS
1998 STOCK PLAN
On February 20, 1998, the Board of Directors adopted the Company's 1998
Stock Plan (the "1998 Stock Plan") and the 1998 Stock Plan was approved by the
Company's stockholders at a meeting on March 18, 1998. The Company has reserved
300,000 shares of Common Stock for issuance under the 1998 Stock Plan to
employees, officers, directors and consultants of the Company. The Board of
Directors believes that the use of long-term stock incentives is the most
effective tool to motivate and retain key management, other employees,
non-employee directors and consultants of the Company and to provide such
persons with an additional incentive to promote the long-term interests and
financial success of the Company. The purpose of the 1998 Stock Plan is to
benefit the Company through the retention and motivation of its employees by
offering such individuals an opportunity to become owners of the Common Stock of
the Company with an additional incentive to advance the best interests of the
Company by increasing their proprietary interest in the success of the Company.
Accordingly, on March 18, 1998 the Company granted options to purchase 200,000
shares of Common Stock at an exercise price of $23.67 per share, based on the
market price of the Common Stock at that time, under the 1998 Stock Plan, of
which 65,000 were granted to certain Company officers. The remaining options to
purchase were distributed to all of the full-time employees of the Company.
The 1998 Stock Plan provides for the granting of incentive stock options
("ISOs") which are intended to meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), the granting of
non-qualified stock options ("Non-Qualified Options") which do not meet the
requirements of Section 422 of the Code, opportunities to make direct purchases
of the Company's Common Stock ("Purchase Rights") and the making of awards of
the Company's Common Stock ("Awards"). If any unexercised option granted
pursuant to the 1998 Stock Plan lapses or terminates for any reason, the shares
of Common Stock covered thereby are again available for subsequent option grants
under the 1998 Stock Plan.
63
<PAGE>
The 1998 Stock Plan will be administered by the Board of Directors. The
Board of Directors may delegate any or all of its powers under the 1998 Stock
Plan to a committee appointed by the Board of Directors. Subject to the terms of
the 1998 Stock Plan, the Board of Directors determines the recipients to whom
options will be granted, the number of shares to be covered by such options and
the terms of such options.
The Board of Directors may, at its discretion, select any eligible person to
participate in the 1998 Stock Plan. Non-Qualified Options and Purchase Rights
may be granted, and Awards may be made, to any director, officer, employee or
consultant of the Company. Only employees of the Company are eligible to receive
ISOs. The number of options granted to any eligible person is within the
discretion of the Board of Directors, subject to certain conditions concerning
ISOs.
The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to ISOs which first become exercisable in any calendar year by
an employee may not exceed $100,000. ISOs may not be granted at less than the
fair market value of the Common Stock on the date of grant or 110% of fair
market value in the case of ISOs granted to any optionee holding 10% or more of
the total combined voting power of all classes of stock of the Company. On April
3, 1998, the last reported sale price for the Company's Common Stock on the
Nasdaq National Market was $36.50 per share. In addition, no ISO is exercisable
after 10 years from the date on which it is granted, and in the case of ISOs
granted to an employee holding 10% or more of the total combined voting power of
all classes of stock of the Company, the term shall not exceed 5 years from the
date of grant.
Options issued under the 1998 Stock Plan are exercisable only by the
optionee during the life of the optionee and, generally, are not transferable,
except by will or the laws of descent and distribution or as determined by the
Board of Directors. The Board of Directors shall determine the period of time
during which an optionee may exercise an option following the termination of
employment or service to the Company subject to certain restrictions set forth
below with respect to ISOs. ISOs are generally only exercisable while an
optionee is employed by the Company, except that the Board of Directors may
determine to permit exercise within up to three months after termination of
employment to the extent such option has vested at the time of such termination.
If an optionee dies while employed by the Company or within three months of the
termination of his or her employment by the Company, such optionee's ISOs may be
exercised up to twelve months after his or her death. If an optionee is
permanently disabled during his or her employment by the Company, such
optionee's options may be exercised up to one year following termination of his
or her employment due to such disability.
The exercise price of options granted under the 1998 Stock Plan is
determined by the Board of Directors on the date of grant, subject to the
limitation that the exercise price may not be less than par value. However,
there are certain pricing restrictions for ISOs as set forth above. The exercise
price of options granted under the 1998 Stock Plan must be paid in full upon
exercise in cash, by delivery of shares of Common Stock already owned by the
optionee, through the delivery of an assignment to the Company of a sufficient
amount of the proceeds from the sale of the Common Stock acquired upon exercise
of the option, by any other means the Board of Directors deems acceptable, or a
combination thereof.
The Board of Directors may terminate, modify or amend the 1998 Stock Plan
except that no amendment or modification for which stockholder approval is
required under Section 422 of the Code is permissible without the approval of
the stockholders of the Company. With respect to ISOs, the 1998 Stock Plan shall
terminate on the earlier of (i) February 19, 2008 or (ii) the date on which all
shares available for issuance under the 1998 Stock Plan have been issued
pursuant to the exercise or cancellation of options granted under the 1998 Stock
Plan.
1995 DIRECTORS OPTION PLAN
Non-management members of the Board of Directors of the Company and its
subsidiaries participate in the Company's 1995 Directors Plan, which was adopted
to promote the interests of the Company and its
64
<PAGE>
stockholders in strengthening the Company's ability to attract and retain
experienced and knowledgeable non-management directors by enhancing their
incentive to work on behalf of the Company and its stockholders and to encourage
them to acquire an increased proprietary interest in the Company.
The Company has reserved 70,000 shares of Common Stock for issuance under
the 1995 Directors Plan to the Company's non-management directors. All options
granted under the 1995 Directors Plan shall be Non-Qualified Options and have an
exercise price equal to the closing price of the Company's Common Stock on the
day prior to the date of option grant. The 1995 Directors Plan shall expire on
November 20, 2000.
The Company has granted options to purchase 43,500 shares of Common Stock
under the 1995 Directors Plan.
1990 EMPLOYEE, NON-QUALIFIED AND DIRECTORS OPTION PLANS
The Company has a 1990 amended and restated employee stock option plan for
the granting of ISOs to employees, a 1990 amended non-qualified option plan for
the granting of Non-Qualified Options to certain key employees and a 1990
directors plan for the granting of Non-Qualified Options to the Company's
directors. No additional options will be granted under these plans; however,
351,420 options are outstanding under these plans, of which 195,061 are
currently exercisable.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Section 67 of Chapter 156B of the Massachusetts General Laws ("Section 67")
provides that a corporation may indemnify its directors and officers to the
extent specified in or authorized by (i) the articles of organization, (ii) a
by-law adopted by the stockholders, or (iii) a vote adopted by the holders of a
majority of the shares of stock entitled to vote on the election of directors.
In all instances, the extent to which a corporation provides indemnification to
its directors and officers under Section 67 is optional. Article 6 of the
Company's Amended and Restated Articles of Organization provides that the
Company shall indemnify directors and officers of the Company against
liabilities and expenses arising out of legal proceedings brought against them
by reason of their status as directors and officers or by reason of their
agreeing to serve, at the request of the Company, as a director or officer with
another organization. Under this provision, a director or officer of the Company
shall be indemnified by the Company for all costs and expenses (including
attorneys' fees), judgments, liabilities, and amounts paid in settlement of such
proceedings, even if he is not successful on the merits, if he acted in good
faith in the reasonable belief that his or her action was in the best interests
of the Company. The Board of Directors may authorize advancing litigation
expenses to a director or officer at his request upon receipt of an undertaking
by any such director or officer to repay such expenses if it is ultimately
determined that he is not entitled to indemnification for such expenses.
Article 6 of the Company's Articles of Organization eliminates the personal
liability of the Company's directors to the Company or its stockholders for
monetary damages for breach of a director's fiduciary duty, except to the extent
Chapter 156B of the Massachusetts General Laws prohibits the elimination or
limitation of such liability.
65
<PAGE>
CERTAIN TRANSACTIONS
In January 1996, the Company sold $500,500 of its 10% Convertible
Subordinated Debentures due on June 10, 1997 to Wiaf Investors Co. ($334,000),
Melvin Chrein ($83,500), and Kathleen Matthews ($83,000). Such debentures are
convertible into shares of Common Stock at an exercise price of $5.945 per
share. Wiaf Investors Co. and Mr. Chrein have filed Schedules 13DA identifying
themselves as part of an investor group which holds more than five percent of
the Company's outstanding Common Stock and Mrs. Matthews is the wife of George
Matthews, a director of the Company. In September 1996, the Company, Wiaf
Investors Co., Mr. Chrein, and Mrs. Matthews amended the above debentures and
extended the due date to December 10, 1998
In September 1996, the Company sold $350,000 of its 10% Subordinated
Debentures due on December 10, 1998 and issued warrants to purchase 42,000
shares of Common Stock to Melvin Chrein ($100,000 and 12,000 shares), Marshall
Chrein ($25,000 and 3,000 shares), and Charles Alpert ($225,000 and 27,000
shares). Melvin Chrein, Marshall Chrein and Charles Alpert have filed Schedules
13DA identifying themselves as part of an investor group which holds more than
five percent of the Company's outstanding Common Stock.
In December 1997, the Company sold $900,000 of its 10% Convertible
Subordinated Debentures due on December 31, 1999 to Wiaf Investors Co.
($500,000), Melvin Chrein ($150,000), Marshall Chrein ($50,000), George Matthews
($50,000) and $150,000 to an individual not affiliated with the Company. Such
debentures are convertible into shares of Common Stock at an exercise price of
$21.50 per share. Wiaf Investors Co., Melvin Chrein and Marshall Chrein have
filed Schedules 13DA identifying themselves as part of an investor group which
holds more than five percent of the Company's outstanding Common Stock and Mr.
Matthews is currently a director of the Company.
The Company has entered into a management agreement with Mr. Matthews, and
employment agreements with Messrs. Quinn, Spiezio, Nachtrab, Grotheer and
Raftery, as described in "Employment Agreements with Certain Officers" and an
employment and consulting agreement with Mr. Tuffin, as described in "Director
Compensation."
66
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of March 18, 1998, certain information
with respect to the beneficial ownership of the Common Stock by (i) each person
known by the Company to be a beneficial owner of more than five percent of the
Common Stock, (ii) each director of the Company, (iii) each Named Executive
Officer, (iv) all directors and executive officers of the Company as a group,
and (v) each Selling Stockholder. In accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), a person is
deemed to be the beneficial owner, for purposes of this table, of any shares of
Common Stock of the Company if he or she has or shares voting power or
investment power with respect to such security or has the right to acquire
beneficial ownership at any time within 60 days of March 18, 1998. As used
herein "voting power" is the power to vote or direct the voting of shares, and
"investment power" is the power to dispose of or direct the disposition of
shares. Except as otherwise noted, each party included in the table has sole
voting and investment power with respect to the shares beneficially owned.
BENEFICIAL OWNERSHIP PERCENTAGES SET FORTH IN THE FOLLOWING TABLE DO NOT
REFLECT ACTUAL VOTING POWER RESULTING FROM THE APPLICATION OF THE MASSACHUSETTS
CONTROL SHARE ACQUISITION ACT. SEE "RISK FACTORS-- EFFECTS OF MASSACHUSETTS
CONTROL SHARE ACQUISITION ACT," "RISK FACTORS--SUBSTANTIAL INFLUENCE OF
PRINCIPAL STOCKHOLDERS" AND "DESCRIPTION OF CAPITAL STOCK--MASSACHUSETTS
CORPORATE LAW."
<TABLE>
<CAPTION>
PERCENT SHARES PERCENT
BENEFICIALLY NUMBER OF BENEFICIALLY BENEFICIALLY
AMOUNT AND NATURE OWNED PRIOR SHARES OWNED AFTER OWNED AFTER
NAME AND ADDRESS OF BENEFICIAL TO THE BEING THE THE
OF BENEFICIAL OWNER OWNERSHIP OFFERING(1) OFFERED OFFERING OFFERING(1)(2)
- ----------------------------------------- ------------------- ----------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Charles Alpert(1)(3)(4).................. 2,495,537 50.57% 450,000 2,045,537
Joseph Alpert
Wiaf Investors Co.
466 Arbuckle Avenue
Lawrence, NY 11516
and
Melvin B. Chrein, M.D.
Meryl J. Chrein
Marshall J. Chrein
21 Copper Beech Lane
Lawrence, NY 11559
George J. Matthews(5).................... 416,754 8.65% 145,000 271,754
Chairman of the Board of Directors,
Director & Consultant
c/o Matthews Associates Limited
100 Corporate Place
Peabody, MA 01960
Wilson B. Tuffin(6)...................... 401,982 8.39% 150,000 251,982
Vice Chairman and Director
23 Arlington Street
Acton, MA 01720
Dimensional Fund Advisors, Inc.(7)....... 335,500 7.00% -- 335,500
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Robert E. Quinn(8)....................... 85,479 1.76% -- 85,479
President, CEO and Treasurer
James M. Spiezio(9)...................... 23,665 * -- 23,665
Vice President, Finance and
Administration
Eleanor Donelan.......................... 19,788 * 5,000 14,788
27 Beverly Road
Arlington, MA 02174
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
PERCENT SHARES PERCENT
BENEFICIALLY NUMBER OF BENEFICIALLY BENEFICIALLY
AMOUNT AND NATURE OWNED PRIOR SHARES OWNED AFTER OWNED AFTER
NAME AND ADDRESS OF BENEFICIAL TO THE BEING THE THE
OF BENEFICIAL OWNER OWNERSHIP OFFERING(1) OFFERED OFFERING OFFERING(1)(2)
- ----------------------------------------- ------------------- ----------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
William T. Nachtrab(10).................. 16,999 * -- 16,999
Vice President, Engineering &
Technology
Kenneth A. Smith, Director(11)........... 14,000 * -- 14,000
Frank H. Brenton, Director(11)........... 14,000 * -- 14,000
Douglas F. Grotheer(12).................. 11,075 * -- 11,075
President of Starmet CMI Corporation
William J. Shea, Director................ -- -- -- --
All directors and executive officers (13 1,012,918 20.36% 295,000 717,918
persons) as a group(13)..................
</TABLE>
- ------------------------
(1) Does not reflect the effect on voting rights of the Massachusetts Control
Share Acquisition Act. The Company is subject to Chapter 110D of the
Massachusetts General Laws which governs "control share acquisitions," which
are acquisitions of beneficial ownership of shares which would raise the
voting power of the acquiring person above any one of three thresholds:
one-fifth, one-third or one-half of the total voting power. All shares
acquired by the person making the control share acquisition within 90 days
before or after any such threshold is crossed obtain voting rights only upon
the authorization from a majority of the stockholders other than the person
acquiring such shares, officers of the Company and those directors of the
Company who also are employees. Based on certain filings made with the
Securities and Exchange Commission, the Company believes that certain
control share acquisitions have occurred and that the members of the group
which effected such control share acquisitions, namely Wiaf Investors Co.,
Charles Alpert, Joseph Alpert, Melvin B. Chrein, Meryl J. Chrein and
Marshall J. Chrein (collectively, the "Investor Group") are the holders of
1,759,255 shares (the "Affected Shares") which were acquired in control
share acquisitions (within the meaning of Chapter 110D) and accordingly will
have no voting rights unless or until such voting rights are authorized as
described in "Description of Capital Stock." Upon the closing of the
offering, the Investor Group will beneficially own in the aggregate
2,045,537 shares of Common Stock (assuming full conversion of convertible
debentures and including shares issuable upon exercise of all warrants held
by certain members of the Investor Group), or approximately % of the
shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option). Of the shares to be beneficially owned by the
Investor Group, not more than will be entitled to vote, or
approximately % of the total outstanding shares entitled to vote
(assuming no exercise of the Underwriters' over-allotment option).
(2) Assumes that the Underwriters' over-allotment option is not exercised.
(3) Derived from Schedules 13DA, dated March 28, 1997, Forms 5 and stockholder
questionnaires submitted to the Company. The six persons named are described
as a group in such Schedules 13DA. The persons named reported ownership of
the following shares: Wiaf Investors Co. 1,756,756; Melvin B. Chrein
202,300; Meryl J. Chrein 245,500; Charles Alpert 50,000; Joseph Alpert
50,000; and Marshall J. Chrein 46,200. Each person reported sole voting and
dispositive power with respect to the shares owned by such person. Also
includes 21,021, 79,435 and 2,325 shares which Melvin B. Chrein, Wiaf
Investors Co. and Marshall Chrein, respectively, have the right to acquire
upon conversion of outstanding 10% Convertible Subordinated Debentures and
27,000, 12,000 and 3,000 shares which Charles Alpert or nominee, Melvin B.
Chrein and Marshall J. Chrein, respectively, have the right to acquire under
outstanding warrants.
(4) 300,000 shares will be sold by Wiaf Investors Co. and Melvin B. Chrein and
Meryl J. Chrein will each sell 75,000 shares.
(5) Includes (i) 13,334 shares which may be purchased upon the exercise of
currently exercisable options, (ii) 2,325 shares which may be acquired upon
the conversion of an outstanding 10% Convertible Subordinated Debenture,
(ii) 13,961 shares which Mr. Matthews' wife has the right to acquire upon
the conversion of an outstanding 10% Convertible Subordinated Debenture, and
(iii) 1,980 shares owned by Mr. Matthews' wife. Mr. Matthews disclaims
beneficial ownership of the debenture and shares held by Mrs. Matthews.
(6) Includes 6,666 shares which may be purchased upon the exercise of currently
exercisable options.
(7) The officers of Dimensional Fund Advisors, Inc. also serve as officers of
DFA Investment Dimensions Group, Inc. (the "Fund") and The DFA Investment
Trust Company (the "Trust"), each an open-end management investment company
registered under the Investment Company Act of 1940. In their capacity as
officers of the Fund and the Trust, these persons vote 126,100 shares which
are owned by the Fund and 13,000 shares which are owned by the Trust.
(8) Includes 63,333 shares which may be purchased upon the exercise of currently
exercisable options.
(9) Includes 21,665 shares which may be purchased upon the exercise of currently
exercisable options.
(10) Includes 14,999 shares which may be purchased upon the exercise of
currently exercisable options.
(11) Includes 8,000 shares which may be purchased upon the exercise of currently
exercisable options.
(12) Includes 9,001 shares which may be purchased upon the exercise of currently
exercisable options.
(13) See notes (5), (6), (8), (9), (10), (11) and (12) above. Also includes an
additional 24,664 shares which may be purchased upon the exercise of
currently exercisable options.
68
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Company's Articles of
Organization, as amended, its By-laws, as amended, and certain provisions of
Massachusetts law pertaining to the Company's capital stock does not purport to
be complete and the summary of each such document is qualified in its entirety
by reference to the full text of such documents, which are included as exhibits
to the Registration Statement of which this Prospectus is a part. For
information as to how such documents may be obtained, see "Available
Information."
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, $0.10 par value (the "Common Stock"). As of April 3, 1998 there
were issued and outstanding 4,790,274 shares of Common Stock, held of record by
approximately 300 stockholders, options to purchase 594,920 shares of Common
Stock and warrants to purchase 182,786 shares of Common Stock ( shares upon
the completion of the offering, after taking into account anti-dilution
provisions in the First Warrant held by the Company's principal bank lender, and
assuming no exercise of the Underwriters' over-allotment option). Additionally,
126,044 shares are issuable upon the conversion of outstanding convertible
subordinated debentures.
COMMON STOCK
Subject to applicable laws, holders of Common Stock are entitled to one vote
for each share held on all matters submitted to a vote of stockholders and will
not have cumulative voting rights. Accordingly, holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. Holders of the Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered by the Company in
the offering made by this Prospectus will be, when issued and paid for, fully
paid and nonassessable.
MASSACHUSETTS CORPORATE LAW
The Company is subject to Chapter 110D of the Massachusetts General Laws
which governs "control share acquisitions," which are certain acquisitions of
beneficial ownership of shares which raise the voting power of the acquiring
person (which can be a group of persons or entities sharing beneficial
ownership) above any one of three thresholds: one-fifth, one-third or one-half
of the total voting power. Each time one of these thresholds is crossed, all
shares acquired by the person making the control share acquisition within the
period beginning 90 days before and ending 90 days after such threshold is
crossed ("Affected Shares") obtain voting rights only (i) upon authorization by
a majority of the stockholders other than the holder of the Affected Shares,
officers of the Company and directors of the Company who also are employees of
the Company or (ii) when disposed of in non-control share acquisitions. The
Company's stockholders, at a duly-constituted meeting, may, by amendment to the
By-Laws or the Articles of Organization, provide that the provisions of Chapter
110D shall not apply to future control share acquisitions of the Company.
Management currently has no plans to propose such an amendment. Chapter 110D may
have the effect of delaying or preventing a change of control of the Company at
a premium price. In addition, because the number of shares of Common Stock
entitled to vote is substantially less than the total number of outstanding
shares of Common Stock, holders of shares of Common Stock purchased in
transactions which are not control share acquisitions, and which occur at a time
when there are Affected Shares outstanding, will obtain voting rights which are
disproportionate to the number of shares held as a percentage of all outstanding
shares (including Affected Shares), which may facilitate the acquisition of
shareholdings which may permit the exercise of a controlling influence on the
management or policies of the Company.
Pursuant to Section 7 of Chapter 110D, if the question of voting rights for
Affected Shares is, at some later date, presented to the Company's stockholders
for their consideration, and voting rights are
69
<PAGE>
authorized for the Affected Shares and it is determined that the person making
the control share acquisition has acquired beneficial ownership of shares which,
when added to all other shares of the Company beneficially owned by such person,
entitles such person to vote, or direct voting of, shares of the Company having
a majority or more of all voting power in the election of directors, each
stockholder of record of the Company, other than the person making such control
share acquisition, who does not vote in favor of authorizing voting rights for
the shares acquired in such control share acquisition may demand payment for his
stock in an appraisal in accordance with the provisions of Section 86 to 98,
inclusive, of Chapter 156B of the Massachusetts General Laws. Such appraisal
rights would only become operative in the event that the members of the Investor
Group were to demand that the stockholders consider authorization of voting
rights for the Affected Shares and such authorization were granted. The Investor
Group has not requested that the stockholders of the Company consider
authorization of such voting rights. See "Risk Factors--Effects of Massachusetts
Control Share Acquisition Act."
Massachusetts General Laws Chapter 156B, Section 50A generally requires that
publicly-held Massachusetts corporations have a classified board of directors
consisting of three classes as nearly equal in size as possible, unless the
corporation elects to opt out of the statute's coverage. The Company has elected
to opt out of the statute's coverage.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe
LP.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have shares of
Common Stock outstanding, ( shares if the Underwriters' over-allotment
option is exercised in full), assuming no exercise of the Company's outstanding
options and warrants and no conversion of the Company's convertible debentures.
Of these shares, approximately 1,607,548 currently outstanding shares and the
shares sold in this offering will be freely tradable, without
restriction or further registration under the Securities Act, except for shares
purchased by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act, or persons who have been affiliates within the
preceding three months.
The remaining 2,432,726 outstanding shares of Common Stock are owned by
existing stockholders and are currently deemed "restricted securities" under
Rule 144 and are currently eligible for sale under Rule 144, subject to
restrictions on the timing, manner and volume of such shares and the lock-up
agreements described below.
As of April 3, 1998, an aggregate of 721,420 shares of Common Stock have
been reserved for issuance upon exercise of options issued or issuable pursuant
to the Company's stock option plans for employees and directors. The Company has
reserved 126,044 shares of Common Stock for issuance upon conversion of the
Company's convertible subordinated debentures and 182,786 shares of Common Stock
for issuance upon exercise of outstanding and immediately exercisable warrants.
Upon completion of the offering and after giving effect of the offering to the
anti-dilution provisions in the First Warrant held by the Company's principal
bank lender, shares of Common Stock ( shares assuming exercise in
full of the Underwriters' over-allotment option) will be reserved for issuance
upon exercise of outstanding and immediately exercisable warrants.
Pursuant to the agreement related to the issuance to the Company's principal
bank lender of certain warrants, the holder of such warrants is entitled to
certain piggyback registration rights in the event that the Company registers
its securities under the Securities Act for certain transactions (excluding this
offering). These rights are generally subject to certain conditions and
limitations, among them the right of the managing underwriters of an offering to
limit the number of shares included in such registration in
70
<PAGE>
certain circumstances. The Company is obligated to pay all expenses of any such
registration and to indemnify such holder against certain liabilities, including
liabilities under the Securities Act.
In connection with this offering, certain stockholders of the Company, who
will hold in the aggregate shares of Common Stock after giving effect to
the offering, are expected to enter into the lock-up agreements. See "--Lock-up
Agreements."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be "affiliates" of the
Company, who has beneficially owned his or her shares for at least one year
since the later of the date of the acquisition of the securities from the
Company or from an affiliate is entitled to sell within any three-month period
that number of restricted securities that does not exceed the greater of (i) 1%
of the then outstanding shares of securities of the same class or (ii) the
average weekly trading volume of such securities during the four calendar weeks
immediately preceding such sale. Sales under Rule 144 are also subject to
certain requirements relating to the manner and notices of sale and the
availability of the public information concerning the Company. After two years
have elapsed since the later of the date the securities were acquired from the
Company or from an affiliate of the Company, such shares may be sold without
limitation by persons who are not affiliates of the Company and have not been
affiliates of the Company for at least three months prior to the sale under Rule
144(k).
The Company expects to file a registration statement on Form S-8 under the
Securities Act registering all 370,000 shares of Common Stock issuable under the
Company's 1995 Directors Plan and 1998 Stock Plan. Accordingly, such shares may
be immediately sold, except for shares held by affiliates or persons who have
been affiliates within the preceding three months, which are subject to the
restrictions on the timing, manner and volume of sales under Rule 144, and any
shares subject to the lock-up agreements described below.
No prediction can be made as to the effect, if any, that market sales of
additional shares or the availability of such additional shares for sale will
have an impact on the market price of the Common Stock. Nevertheless, sales of
substantial amounts of Common Stock in the public market, or the perception that
such sales may occur, could have an adverse impact on the market price of the
Common Stock.
LOCK-UP AGREEMENTS
Each of the Company, its directors and executive officers, the Selling
Stockholders and certain other significant stockholders of the Company are
expected to agree that for a period of 180 days from the date of this
Prospectus, he or it will not, directly or indirectly, without the prior written
consent of Bear, Stearns & Co. Inc., issue, sell, offer or agree to sell, grant
any option to purchase, or otherwise transfer or dispose of any Common Stock or
any securities substantially similar to the Common Stock, otherwise than in this
offering.
71
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Bear, Stearns & Co. Inc. and Furman Selz LLC, have severally agreed to purchase
from the Company and the Selling Stockholders the number of shares of Common
Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Bear, Stearns & Co. Inc....................................................
Furman Selz LLC............................................................
-----------------
Total......................................................................
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that, if any of the foregoing
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares must be so purchased. The Company and
the Selling Stockholders have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
The Company and the Selling Stockholders have been advised that the
Underwriters propose initially to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain selected dealers (who may include the Underwriters) at such public
offering price less a concession not to exceed per share. The selected
dealers may reallow a concession to certain other dealers not to exceed
per share. After the offering to the public, the public offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
The Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus, solely to
cover over-allotments, if any. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table.
In order to facilitate the offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after this offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company and the Selling Stockholders. The Underwriters
may elect to cover any such short position by purchasing shares of Common Stock
in the open market or by exercising the over-allotment option granted to the
Underwriters. In addition, such persons may stabilize or maintain the price of
the Common Stock by bidding for or purchasing shares of Common Stock in the open
market and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of Common Stock previously distributed in this offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price of
the Common Stock at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the Common
Stock to the extent that it discourages resales thereof. No representation is
made as to the
72
<PAGE>
magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
Certain persons participating in this offering may also engage in passive
market making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103
permits, upon the satisfaction of certain conditions, underwriting and selling
group members participating in a distribution that are also registered Nasdaq
market makers in the security being distributed (or a related security) to
engage in limited passive market making transactions during the period when
Regulation M would otherwise prohibit such activity. In general, a passive
market maker may not bid for or purchase a security at a price that exceeds the
highest independent bid for those securities by a person that is not
participating in the distribution and must identify its passive market making
bids on Nasdaq electronic inter-dealer reporting system. In addition, the net
daily purchases made by a passive market maker generally may not exceed 30% of
such market maker's average daily trading volume in the security for the two
full consecutive calendar months (or any 60 consecutive days ending within 10
days) immediately preceding the date of filing of the Registration Statement of
which this Prospectus forms a part.
Each of the Company, its directors and executive officers, the Selling
Stockholders and certain other significant stockholders of the Company has
agreed that for a period of 180 days from the date of this Prospectus, he or it
will not, directly or indirectly, without the prior written consent of Bear,
Stearns & Co. Inc., issue, sell, offer or agree to sell, grant any option to
purchase or otherwise transfer or dispose of any shares of Common Stock (or any
securities convertible into, exercisable for or exchangeable for shares of
Common Stock).
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Peabody & Arnold LLP,
Boston, Massachusetts. Thomas A. Wooters, Esq., a Partner of Peabody & Arnold
LLP, is the Clerk of the Company. Mr. Wooters currently holds 8,200 shares of
the Company's Common Stock in an Individual Retirement Account. Mr. Wooters also
holds unvested options to purchase 3,000 shares of Common Stock at an exercise
price of $15.56 per share and 7,500 shares of Common Stock at an exercise price
of $23.67, in each case based on the market price of the Common Stock at the
time of the grant. Debevoise & Plimpton is acting as counsel for the
Underwriters in connection with certain legal matters relating to the sale of
the shares of Common Stock offered hereby.
EXPERTS
The Consolidated Financial Statements and the financial statement schedule
included in this Prospectus and elsewhere in the Registration Statement of which
the Prospectus is a part, to the extent of and for the periods indicated in
their reports, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the public reference facilities of Commission's following
Regional Offices: Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and New York Regional Office,
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from
73
<PAGE>
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. Certain of such reports, proxy
statements and other information concerning the Company are also available on
the Commission's Web Site (http://www.sec.gov). In addition, this material may
also be inspected at the offices of The Nasdaq National Market at 1735 K Street,
N.W., Washington, D.C. 20006, where copies may be obtained at prescribed rates.
The Company has filed with the Commission under the Securities Act a
Registration Statement on Form S-1 (the "Registration Statement") with respect
to the shares of Common Stock to be offered and sold hereby. This Prospectus is
included as a part of the Registration Statement, but does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit or appendix to the Registration Statement, each such statement
being qualified in all respects by such reference. The Registration Statement in
full, including the exhibits and schedules thereto, may be inspected without
charge at the Commission's Public Reference Section, Room 1-24, located at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies thereof may also be obtained
from the Commission upon payment of prescribed fees by writing to the Commission
at the above address.
74
<PAGE>
STARMET CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statement of Operations.................................................. F-4
Consolidated Statement of Stockholders' Equity........................................ F-5
Consolidated Statement of Cash Flows.................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Starmet Corporation:
We have audited the accompanying consolidated balance sheets of Starmet
Corporation (formerly Nuclear Metals, Inc.) (a Massachusetts corporation) and
subsidiaries as of September 30, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Starmet
Corporation and subsidiaries as of September 30, 1996 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 14, 1997
(Except with respect to the matters
discussed in Notes 6 and 11 as to which the
date is December 29, 1997)
F-2
<PAGE>
STARMET CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------- -------------
<S> <C> <C> <C>
1996 1997 1997
------------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 1,051,000 $ 195,000 $ 186,000
Restricted cash................................................. 250,000 73,000 73,000
Accounts receivable, net of allowances for doubtful accounts of
$821,000 and $421,000 as of September 30, 1996 and 1997,
respectively and $421,000 as of December 31, 1997............. 4,931,000 5,546,000 6,962,000
Inventories..................................................... 12,025,000 11,440,000 11,610,000
Other current assets............................................ 376,000 619,000 387,000
------------- ------------- -------------
Total current assets.......................................... 18,633,000 17,873,000 19,218,000
------------- ------------- -------------
Property, plant and equipment:
Land............................................................ 2,178,000 2,124,000 2,124,000
Buildings....................................................... 18,040,000 17,656,000 17,656,000
Machinery, equipment, and fixtures.............................. 26,179,000 18,472,000 18,856,000
Construction-in-progress........................................ 583,000 831,000 1,244,000
------------- ------------- -------------
Total property, plant and equipment........................... 46,980,000 39,083,000 39,880,000
Less: accumulated depreciation................................ 31,834,000 24,036,000 24,438,000
------------- ------------- -------------
Net property, plant, and equipment............................ 15,146,000 15,047,000 15,442,000
Other assets........................................................ 1,339,000 1,784,000 2,156,000
------------- ------------- -------------
$ 35,118,000 $ 34,704,000 $ 36,816,000
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations and notes payable to
stockholders.................................................. $ 510,000 $ 1,885,000 $ 1,879,000
Accounts payable................................................ 2,143,000 3,123,000 3,875,000
Accrued payroll and related costs............................... 1,170,000 1,215,000 805,000
Other accrued expenses.......................................... 5,561,000 907,000 933,000
------------- ------------- -------------
Total current liabilities..................................... 9,384,000 7,130,000 7,492,000
------------- ------------- -------------
Long-term obligations............................................. 644,000 430,000 3,322,000
------------- ------------- -------------
Notes payable to stockholders..................................... 720,000 1,048,000 1,140,000
------------- ------------- -------------
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, par value $0.10; authorized--15,000,000 shares;
issued and outstanding as of September 30, 1996 and 1997 and
December 31, 1997; 4,781,928, 4,784,244 and 4,784,244,
respectively.................................................. 478,000 478,000 478,000
Additional paid-in capital...................................... 14,019,000 14,033,000 14,033,000
Warrants issued................................................. 130,000 360,000 687,000
Retained earnings............................................... 9,743,000 11,225,000 9,664,000
------------- ------------- -------------
Total stockholders' equity.................................... 24,370,000 26,096,000 24,862,000
------------- ------------- -------------
$ 35,118,000 $ 34,704,000 $ 36,816,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
STARMET CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER
YEARS ENDED SEPTEMBER 30, 31,
------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales and contract revenues....... $ 18,784,000 $ 28,694,000 $ 28,062,000 $ 7,271,000 $ 8,079,000
Cost of sales......................... 15,452,000 25,053,000 19,136,000 5,270,000 7,101,000
Selling, general, and administrative
expenses............................ 4,817,000 5,325,000 5,448,000 1,188,000 2,247,000
Research and development expenses..... 439,000 876,000 1,309,000 247,000 158,000
Loss on write-off of fixed assets..... -- -- 358,000 -- --
------------- ------------- ------------- ------------- -------------
20,708,000 31,253,000 26,251,000 6,705,000 9,506,000
------------- ------------- ------------- ------------- -------------
Operating income (loss)............... (1,924,000) (2,560,000) 1,811,000 566,000 (1,427,000)
Interest and other income (expense),
net................................. 232,000 (89,000) (2,000) 9,000 1,000
Interest expense...................... (350,000) (387,000) (296,000) (55,000) (135,000)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary item.................. (2,042,000) (3,036,000) 1,513,000 520,000 (1,561,000)
Provision (benefit) for income
taxes............................... (1,967,000) 1,000 31,000 11,000 --
------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary
item................................ (75,000) (3,037,000) 1,482,000 509,000 (1,561,000)
Extraordinary gain on extinguishment
of debt net of taxes of $10,000..... 585,000 -- -- -- --
------------- ------------- ------------- ------------- -------------
Net income (loss)..................... $ 510,000 $ (3,037,000) $ 1,482,000 $ 509,000 $ (1,561,000)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Per share information (1):
- --------------------------------------
Basic income (loss) before
extraordinary item.................. $ (0.02) $ (0.64) $ 0.31 $ 0.11 $ (0.33)
Extraordinary gain on extinguishment
of debt net of taxes of $10,000..... 0.12 -- -- -- --
------------- ------------- ------------- ------------- -------------
Basic net income (loss) per common
share............................... $ 0.11 $ (0.64) $ 0.31 $ 0.11 $ (0.33)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average number of common
shares outstanding.................. 4,701,000 4,779,000 4,783,000 4,782,000 4,784,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Diluted net income (loss) per common
and dilutive potential common shares
outstanding......................... $ 0.11 $ (0.64) $ 0.30 $ 0.10 $ (0.33)
Weighted average number of common and
dilutive potential common shares
outstanding......................... 4,706,000 4,779,000 4,959,000 4,883,000 4,784,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</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.
F-4
<PAGE>
STARMET CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONAL
NUMBER PAR PAID-IN RETAINED
OF SHARES VALUE CAPITAL WARRANTS EARNINGS TOTAL
---------- ---------- ------------- ---------- ------------- -------------
Balance at September 30, 1994.......... 4,614,928 $ 460,000 $ 13,522,000 $ -- $ 12,270,000 $ 26,252,000
---------- ---------- ------------- ---------- ------------- -------------
Stock options exercised................ 161,000 18,000 465,000 -- -- 483,000
Net income for year.................... -- -- -- -- 510,000 510,000
---------- ---------- ------------- ---------- ------------- -------------
Balance at September 30, 1995.......... 4,775,928 $ 478,000 $ 13,987,000 $ -- $ 12,780,000 $ 27,245,000
---------- ---------- ------------- ---------- ------------- -------------
Warrants issued........................ -- -- -- 130,000 -- 130,000
Stock options exercised................ 6,000 -- 32,000 -- -- 32,000
Net loss for year...................... -- -- -- -- (3,037,000) (3,037,000)
---------- ---------- ------------- ---------- ------------- -------------
Balance at September 30, 1996.......... 4,781,928 $ 478,000 $ 14,019,000 $ 130,000 $ 9,743,000 $ 24,370,000
---------- ---------- ------------- ---------- ------------- -------------
Warrants issued........................ -- -- -- 230,000 -- 230,000
Stock options exercised................ 2,316 -- 14,000 -- -- 14,000
Net income for year.................... -- -- -- -- 1,482,000 1,482,000
---------- ---------- ------------- ---------- ------------- -------------
Balance at September 30, 1997.......... 4,784,244 $ 478,000 $ 14,033,000 $ 360,000 $ 11,225,000 $ 26,096,000
---------- ---------- ------------- ---------- ------------- -------------
Warrants issued........................ -- -- -- 327,000 -- 327,000
Net loss for the quarter............... -- -- -- -- (1,561,000) (1,561,000)
---------- ---------- ------------- ---------- ------------- -------------
Balance at December 31, 1997
(unaudited).......................... 4,784,244 $ 478,000 $ 14,033,000 $ 687,000 $ 9,664,000 $ 24,862,000
---------- ---------- ------------- ---------- ------------- -------------
---------- ---------- ------------- ---------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
STARMET CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------- --------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................... $ 510,000 $(3,037,000) $ 1,482,000 $ 509,000 $(1,561,000)
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization................. 1,339,000 1,493,000 1,588,000 384,000 435,000
Loss on write-off of fixed assets............. -- -- 358,000 -- --
Changes in assets and liabilities, net
Decrease (increase) in accounts receivable.. 725,000 (201,000) (616,000) (2,619,000) (1,416,000)
Decrease (increase) in inventories.......... (2,982,000) 2,099,000 585,000 1,117,000 (170,000)
(Decrease) increase in accounts payable and
accrued expenses.......................... 1,387,000 3,358,000 (3,629,000) (322,000) 368,000
(Decrease) increase in other assets......... -- -- -- 11,000 (140,000)
Gain on sale of building...................... (175,000) (75,000) -- -- --
Changes in accrued and deferred taxes......... (1,000) -- -- -- --
Changes in other long-term liabilities........ (981,000) (301,000) -- -- --
Other......................................... (100,000) 440,000 (689,000) -- --
----------- ----------- ----------- ------------ ------------
Net cash provided (used) by operating
activities................................ (278,000) 3,776,000 (921,000) (920,000) (2,484,000)
----------- ----------- ----------- ------------ ------------
Cash flows from investing activities:
Capital expenditures, net....................... (777,000) (1,449,000) (1,788,000) (406,000) (797,000)
Sales of marketable securities, net............. 326,000 170,000 -- -- --
Proceeds from sale of property, plant &
equipment..................................... 487,000 172,000 -- -- --
----------- ----------- ----------- ------------ ------------
Net cash (used) provided by investing
activities................................ 36,000 (1,107,000) (1,788,000) (406,000) (797,000)
----------- ----------- ----------- ------------ ------------
Cash flows from financing activities:
Principal payments under long-term obligations.. -- -- (545,000) (428,000) (43,000)
Net proceeds from bank debt..................... (378,000) (3,326,000) 1,707,000 1,000,000 2,465,000
Proceeds from notes payable to stockholders and
warrants...................................... -- 850,000 500,000 -- 850,000
Proceeds from stock issuance.................... 483,000 32,000 14,000 -- --
----------- ----------- ----------- ------------ ------------
Net cash (used) provided by financing
activities................................ 105,000 (2,444,000) 1,676,000 572,000 3,272,000
----------- ----------- ----------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... (137,000) 225,000 (1,033,000) (754,000) (9,000)
Cash and cash equivalents at beginning of
period........................................ 1,213,000 1,076,000 1,301,000 1,301,000 268,000
----------- ----------- ----------- ------------ ------------
Cash and cash equivalents at end of period...... $ 1,076,000 $ 1,301,000 $ 268,000 $ 547,000 $ 259,000
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest, net of amounts capitalized.......... $ 280,000 $ 345,000 $ 266,000 $ 14,000 $ 68,000
Income taxes.................................. $ 978,000 $ 11,000 $ 14,000 $ -- $ --
Non-cash investing & financing activities:
Capital lease obligations....................... $ -- $ 75,000 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
The Company (Starmet Corporation and its subsidiaries) is an innovator in
the design, development and processing of specialty metals, a precision
manufacturer of technologically sophisticated metal components and products, and
a leader in certain advanced materials conversion and recycling technologies.
Effective October 1, 1997 the Company changed its name from Nuclear Metals, Inc.
to Starmet Corporation. Export sales to foreign unaffiliated customers were 33%
of total net sales and contract revenues in fiscal 1995, 28% in fiscal 1996, 25%
in fiscal 1997 and 24% in the three months ended December 31, 1997. A
significant portion of the Company's sales revenue has been derived from major
customers as follows:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
SEPTEMBER 30, ENDED DECEMBER 31,
------------------------------------- -----------------------
1995 1996 1997 1997
----- ----- ----- -----------------------
<S> <C> <C> <C> <C>
Royal Ordnance................................... 0% 11% 19% 19%
United States Enrichment Corporation............. 0 5 14 2
Primex Technologies.............................. 8 20 12 14
Lockheed Martin.................................. 18 16 7 6
Lockheed Idaho Falls............................. 9 4 5 6
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Starmet Corporation and its wholly owned subsidiaries: Starmet Powders, LLC,
Starmet Aerocast, LLC, Starmet Commercial Castings, LLC, Starmet NMI
Corporation, Starmet CMI Corporation, Starmet Holdings Corporation and NMI
Foreign Sales Corporation. All material intercompany transactions and balances
have been eliminated in consolidation.
FISCAL YEARS
References in these financial statements to 1997, 1996 and 1995 are for the
fiscal years ended September 30, 1997, September 30, 1996, and September 30,
1995, respectively. The accompanying financial statements and all share and per
share information have been restated to reflect the two-for-one stock dividend
issued on April 7, 1997.
INTERIM FINANCIAL STATEMENTS
The financial information at and for the period ending December 31, 1997 and
December 31, 1996 has been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission and is not subject to
audit by independent public accountants. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The information furnished reflects all
adjustments, which, in the opinion of management, are necessary for a fair
statement of results for the interim periods. It should also be noted that
results for the interim periods are not necessarily indicative of the results
expected for any other interim period or the full year.
F-7
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues are recorded when products are shipped, except for revenues on
long-term contracts, which are recorded on the percentage-of-completion method.
The percentage-of-completion method is used for research and development
contracts and for production contracts, which require significant amounts of
initial engineering and development costs. The percentage-of-completion is
determined by relating the actual number of contract units completed to date to
the total units to be completed under the respective contract or by relating
total costs incurred to total estimated cost at completion. When the estimated
total costs on a contract indicates a loss, the Company's policy is to record
the entire loss currently. Performance incentives and penalties incorporated in
certain government contracts are recognized when incentives are earned or
awarded or when penalties are incurred or assessed. Contract revenues include
fees resulting from facilitization contracts with the U.S. Army (contracts to
establish production capacity through the purchase and installation of equipment
to be owned by the U.S. Army). The consolidated balance sheets do not include
the cost of this U.S. Army-owned equipment.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are recorded at cost, which approximates market
value. Cash equivalents include certificates of deposit with a maturity of one
year or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and include materials, labor, and manufacturing and engineering overhead.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at the lower of cost or net
realizable value. For financial reporting purposes, the Company provides
depreciation on the straight-line method over the estimated useful lives of the
assets, which are as follows:
<TABLE>
<S> <C>
Buildings...................................................... 20-30 years
Machinery, equipment, and fixtures............................. 3-10 years
</TABLE>
Maintenance and repairs are charged to operations as incurred; renewals and
betterments are capitalized. When property, plant, and equipment are sold,
retired or disposed of, the asset cost and accumulated depreciation are removed
from the accounts, and the resulting gain or loss is included in operations.
In Fiscal 1997, the Company adopted the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and of Long-Lived Assets to
be Disposed of." This statement requires a review of impairment for long-lived
assets and certain identifiable intangibles to be held and used by an entity
whether events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. An impairment loss is recognized if the sum
of the expected future cash flows to result from the use and eventual
disposition of the asset is less than the carrying amount of the asset. The
amount by which the carrying amount of the asset exceeds the fair value less
costs to sell, is an impairment loss. The effect of adopting this statement was
not material to the Company's financial position or results of operation.
F-8
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In the fourth quarter of fiscal 1996, the Company established a $2,100,000
reserve for estimated losses associated with Starmet CMI's production contracts.
The Company was obligated to complete these contracts, which were fixed price.
The contracts have been completed and the reserve has been fully utilized as of
September 30, 1997.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Accordingly, the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for the year in which
the differences are expected to be reflected in the tax return. The Company
records a valuation allowance against any net deferred tax assets whose
realizability is uncertain.
The deferred federal and state income taxes result primarily from using
accelerated depreciation on property, plant, and equipment for income tax
reporting purposes and from establishing reserves which are not currently
deductible for income tax purposes, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development incurred under customer contracts are expensed through cost of sales
in the period incurred.
INCOME 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.
F-9
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Common share and common share dilutive potential disclosures are:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------- ----------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Weighted average common shares outstanding....... 4,701,000 4,779,000 4,783,000 4,782,000 4,784,000
Dilutive potential common shares................. 5,000 -- 176,000 101,000 --
---------- ---------- ---------- ---------- ----------
Diluted common shares............................ 4,706,000 4,779,000 4,959,000 4,883,000 4,784,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Options and warrants excluded from diluted income
per common share as their effect would be
antidilutive................................... 90,000 303,000 -- -- 510,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
RECLASSIFICATIONS
Certain amounts previously reported in the consolidated financial statements
have been reclassified to conform to the 1997 presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and cash
equivalents, restricted cash, accounts receivable, notes receivable from
officers, accounts payable and notes payable. The carrying amounts of the
Company's cash and equivalents, restricted cash accounts receivable, notes
receivable from officers and accounts payable approximate their fair value due
to the short-term nature of these instruments. The carrying value of the notes
payable also approximates the fair value, based on rates available to the
Company for debt with similar terms and remaining maturities.
F-10
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. OTHER ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------------ ---------------
1996 1997 1997
------------ ---------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Waste burial cost................................. $ 2,884,000 $ 404,000 $ 523,000
Estimated loss on contracts....................... 2,100,000 -- --
Other............................................. 577,000 503,000 410,000
------------ ---------- ---------------
$ 5,561,000 $ 907,000 $ 933,000
------------ ---------- ---------------
------------ ---------- ---------------
</TABLE>
During the fiscal year ended September 30, 1997, the Company reduced certain
accruals by $1,750,000 for site remediation and waste burial costs which were
deemed no longer necessary.
4. ACCOUNTS RECEIVABLE
The following is an analysis of accounts receivable (net of allowances for
doubtful accounts):
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------------- ---------------
1996 1997 1997
------------ ------------ ---------------
<S> <C> <C> <C>
(UNAUDITED)
Accounts receivable.............................. $ 3,479,000 $ 5,460,000 $ 6,013,000
Unbilled receivables and retainages due upon
completion of contracts........................ 1,452,000 86,000 949,000
------------ ------------ ---------------
$ 4,931,000 $ 5,546,000 $ 6,962,000
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
5. INVENTORIES
Inventories (net of reserves) were as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
---------------------------- ---------------
1996 1997 1997
------------- ------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Work-in-process............................... $ 805,000 $ 2,511,000 $ 2,472,000
Raw materials................................. 10,512,000 8,271,000 8,461,000
Spare parts................................... 708,000 658,000 677,000
------------- ------------- ---------------
$ 12,025,000 $ 11,440,000 $ 11,610,000
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
As of September 30, 1997, approximately $6.9 million of the Company's
inventory consisted of DU in various stages of production. This amount consisted
of $3.6 million value-added costs to government owned material which is used for
U.S. Military contracts and for $3.3 million 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 and that at
a minimum the Army would allow the Company to use this material for non-U.S.
military contracts at no additional cost to the Company. Management is pursuing
several Department of
F-11
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVENTORIES (CONTINUED)
Energy programs that would require more DU over the next several years than the
Company currently has on hand. Management believes that the carrying cost of the
inventory on hand will be fully realizable through these possible programs or
from its ongoing usage for U.S. and foreign military procurements; however, it
is uncertain how much of the inventory balance will be utilized in fiscal 1998.
During fiscal 1997, the Company reduced inventory reserves by approximately
$1,000,000 which were deemed no longer necessary.
6. LONG-TERM OBLIGATIONS AND NOTES PAYABLE
Long-term obligations and notes payable of the Company are as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------------- ---------------
1996 1997 1997
------------ ------------ ---------------
<S> <C> <C> <C>
(UNAUDITED)
Term credit, interest rate of prime plus 0.5% due in monthly
principal payments through 1996.................................... $ 133,000 $ -- $ --
Line of credit, interest rate of prime plus 0.5% (9.0% at September
30, 1997).......................................................... -- 1,706,000 4,171,000
Industrial development revenue notes, variable interest rates
(5.6524% at September 30, 1997) due in quarterly principal payments
through 2000....................................................... 492,000 180,000 160,000
Notes payable to stockholders interest only payments of 10% until
maturity........................................................... 850,000 1,350,000 2,200,000
Note payable, monthly interest and principal payments through
November 2000, interest rate of 10.25%............................. 457,000 370,000 346,000
Capital leases....................................................... 72,000 59,000 59,000
------------ ------------ ---------------
$ 2,004,000 $ 3,665,000 $ 6,936,000
Less unamortized discount on stockholder debentures and line of
credit............................................................. 130,000 302,000 595,000
Less current portion of long-term obligations........................ 510,000 1,885,000 1,879,000
------------ ------------ ---------------
Total long-term obligations and stockholder debentures............... $ 1,364,000 $ 1,478,000 $ 4,462,000
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
F-12
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM OBLIGATIONS AND NOTES PAYABLE (CONTINUED)
CREDIT FACILITY
On August 7, 1997, the Company and its principal bank lender, State Street
Bank & Trust Company, signed the Third Amendment to the credit agreement dated
March 31, 1995 (as amended, the "Credit Agreement"). The Third Amendment
increased the Company's credit facilities from $4.25 million to $6.55 million,
with a maturity date of February 28, 1998. The $6.55 million consists of $3.55
million of letters of credit and $3.0 million credit line for working capital.
Borrowings under the Credit Agreement bear interest at the prime rate plus 1/2
of 1%. The Company also pays a fee of 1/2 of 1% on the unused portion of the
credit facilities.
As of September 30, 1997, the Company was not in compliance with certain
financial covenants contained in the Credit Agreement.
On October 1, 1997, the Company amended and restated the Credit Agreement
(the "Amended Credit Agreement") which amended and restated the Credit Agreement
dated March 31, 1995. The total amount of the credit available to the Company
remained at $6.55 million, and the Company and all its subsidiaries became
borrowers under the Amended Credit Agreement. The Amended Credit Agreement is
secured by an Amended and Restated Joint Security Agreement, whereby the Company
and its subsidiaries granted to the lender a first priority security interest in
all accounts, inventory and general intangibles. The Company is subject to
certain operating and financial covenants, including minimum tangible capital,
as defined and net income requirements in connection with the credit facility.
The Company has entered into a First Amendment to the Amended Credit
Agreement with its lender dated December 9, 1997, which provided for an increase
in the credit facility to $8.05 million.
On December 29, 1997, the Company entered into a Second Amendment to the
Amended Credit Agreement which provides for the following: (i) the total amount
of credit available to the Company increased from $8.05 million to $9.55
million; (ii) the terms of repayment for the line of credit have been revised as
follows, $1.5 million is due July 1, 1998, $1.5 million is due October 1, 1998
and the balance, $3.0 million is due in February 1999; and (iii) all previous
events of non-compliance with the Amended Credit Agreement have been waived and
certain financial covenants have been amended.
In consideration of the Second Amendment to the Amended Credit Agreement the
Company has issued to the lender a warrant to purchase 25,000 shares of common
stock at the ten day average of fair market value as of December 29, 1997. The
Company also paid its lender $15,000 upon execution of the Second Amendment.
As of September 30, 1997 and December 31, 1997, $1.7 million and $4.5
million were outstanding under the Amended Credit Agreement, respectfully. The
Company had $3.55 million letters of credit outstanding at December 31, 1997.
As of December 31, 1997, the Company was out of compliance with certain of
its financial covenants pursuant to the Amended Credit Agreement. On February
23, 1998, the Company received a waiver from the bank for this event of
non-compliance.
F-13
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM OBLIGATIONS AND NOTES PAYABLE (CONTINUED)
NOTES PAYABLE TO STOCKHOLDERS
On January 10, 1996, the Company issued $500,500 in principal amount of its
10% Convertible Subordinated Debentures, the principal amount of which is
convertible at the option of the holder into shares of the Company's Common
Stock at the rate of $5.945 per share. The original maturity date of these
Debentures, June 10, 1997, has been extended by the holders pursuant to certain
letter agreements until December 10, 1998. These Debentures were issued to
persons who are significant stockholders of the Company or related to such
persons.
On September 16, 1996 the Company issued an additional $350,000 in principal
amount pursuant to its 10% Subordinated Debentures due December 10, 1998 which
were issued to certain significant stockholders of the Company. In consideration
for the Debentures, the holders were issued three-year warrants to purchase an
aggregate of 42,000 shares of common stock at an exercise price of $7.50 per
share, subject to antidilution adjustments.
On September 22, 1997 the Company issued an additional $500,000 in principal
amount pursuant to its 10% Subordinated Debentures due December 10, 2000 which
were issued to a stockholder of the Company. In consideration for the
Debentures, the holder was issued three-year warrants to purchase an aggregate
of 60,000 shares of common stock at an exercise price of $17.875 per share,
subject to antidilution adjustments.
On December 23, 1997 the Company issued $850,000 in principal amount of its
10% Convertible Subordinated Notes due December 31, 1999 which were issued to
certain significant stockholders of the Company. The principal amount of the
notes are convertible at the option of the holder into shares of the Company's
Common Stock at the rate of $21.50 per share. Subsequent to December 31, 1997,
the Company issued an additional $50,000 in principal amount of these
Convertible Subordinated Notes on the same terms.
INDUSTRIAL REVENUE BONDS
The Industrial Revenue Bonds (the "IRBs") outstanding consists of one note
issue. The interest rate on this note is 66.5% of the lenders bank's prime
interest rate. This note is secured by property, plant and equipment.
The IRBs contain restrictive covenants including, among others, a
requirement to maintain minimum working capital, consolidated net worth and a
minimum current ratio. As of September 30, 1997, the Company was not in
compliance with certain of these financial covenants. The Company has received a
waiver from the trustee for these events of non-compliance.
Maturities of long-term obligations subsequent to September 30, 1997 are:
1998--$1,885,000, 1999-- $1,052,000; 2000--$655,000; thereafter $73,000.
F-14
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory federal income tax rate due to the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate................................................ (34.0)% (34.0)% 34.0%
Increase (reduction) in taxes resulting from:
State taxes, net of federal effect.......................... (6.0) (6.0) 6.0
Valuation allowance........................................... (2.0) 40.0 (38.0)
Tax reserves no longer required............................... (48.0) -- --
Other......................................................... (6.0) -- --
--------- --------- ---------
(96.0)% --% 2.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
As of September 1997, the Company has a federal net operating loss
carryforward of approximately $11.1 million of which $3.2 million expires in
2009 and $1.8 million expires in 2010, $3.0 million expires in 2011, and $3.1
million in 2012. State net operating loss carry forwards of approximately $20.2
million, will expire between 1999 through 2009. These net operating loss
carryforwards are fully reserved by valuation allowances due to uncertainty
regarding their realizability.
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Current (benefit) provision:
Federal........................................ $ (766,000) $ (363,000) $ (961,000)
State.......................................... (135,000) (112,000) (299,000)
Valuation allowance............................ 901,000 475,000 1,260,000
------------- ------------- -------------
Total current (benefit) provision............ $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
Deferred (benefit) provision:
Federal........................................ $ (1,819,000) $ (592,000) $ (1,310,000)
State.......................................... (148,000) (183,000) (451,000)
Valuation allowance............................ -- 776,000 1,792,000
------------- ------------- -------------
Total deferred (benefit) provision:.......... (1,967,000) 1,000 31,000
------------- ------------- -------------
Total (benefit) provision:................... $ (1,967,000) $ 1,000 $ 31,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
During 1995, the Company received $978,000 of Federal income tax refunds. As
of September 30, 1994, the Company had established a full valuation allowance
for this amount. Accordingly, the Company reduced its valuation allowance by
$978,000 upon receipt of this amount.
The Company has provided a full valuation allowance on the net deferred tax
assets as of September 30, 1997, and 1996. The Company's alternative minimum tax
credit has an unlimited life. The tax
F-15
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
effects of significant items making up the deferred tax liabilities and deferred
tax assets, as of the end of the 1997 and 1996 fiscal years are as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Assets:
Reserves not currently deductable for tax purpose............... $ 2,475,000 $ 1,665,000
Accrued employee health benefits................................ 38,000 36,000
Federal operating loss carryforward............................. 1,850,000 3,344,000
State operating loss carryforwards and other assets............. 1,438,000 1,903,000
Other........................................................... 1,867,000 460,000
Valuation allowance............................................. (4,653,000) (4,082,000)
------------ ------------
Total deferred tax assets..................................... 3,015,000 3,326,000
Alternative minimum tax credit................................ 407,000 407,000
------------ ------------
$ 3,422,000 $ 3,733,000
------------ ------------
------------ ------------
Liabilities:
Fixed asset basis difference.................................... $ 2,549,000 $ 2,422,000
Employee benefits............................................... 715,000 813,000
Other........................................................... 158,000 498,000
------------ ------------
$ 3,422,000 $ 3,733,000
------------ ------------
------------ ------------
</TABLE>
F-16
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS
STOCK OPTION PLANS
As of September 30, 1997, a total of 342,680 shares of common stock have
been reserved for issuance upon exercise of options issued or issuable pursuant
to the Company's stock option plans for employees and directors. The exercise
price of options issued or issuable under such plans may not be less than 100%
of the fair market value of the shares purchasable on the date of grant of the
options. Information concerning options which have been granted under the plans
and the exercise prices thereof is set forth below. Those options with an
indicated exercise price of $3.32 expire in 2003, those with an exercise price
of $6.75, $7.00, or $8.00 expire in 2004, those with an exercise price of $6.13
expire in 2005, those with an exercise price of $7.38 expire in 2006, and those
with an exercise price of $15.56 expire in 2007, in each case on the anniversary
of the date of the grant.
<TABLE>
<CAPTION>
1996 1997
1995 ------------------------ ------------------------
-------------------- WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICES OF SHARES PRICE OF SHARES PRICE
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of
year................................ 197,800 $3.00-8.00 77,000 $ 6.25 211,000 $ 6.20
Exercised........................... (161,000) 3.00 -- -- (2,316) 6.13
Granted............................. 50,600 6.75-7.00 136,000 6.13 128,000 11.53
Canceled............................ (10,400) 3.00-3.25 (2,000) 3.32 (3,334) 6.88
--------- --------- ----------- ----- ----------- -----------
Options outstanding, end of year...... 77,000 3.32-8.00 211,000 6.20 333,350 8.24
--------- --------- ----------- ----- ----------- -----------
--------- ----------- -----------
Options exercisable................... 25,719 100,444 205,361
--------- ----------- -----------
--------- ----------- -----------
Options available for future grants... 9,330
-----------
-----------
Weighted average fair value per share
of options granted during the
year................................ $ -- $ 4.41 $ 8.18
</TABLE>
F-17
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes certain data for options outstanding at September
30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
RANGE OF AVERAGE REMAINING
NUMBER EXERCISE EXERCISE CONTRACTUAL
OF SHARES PRICES PRICES LIFE
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Options outstanding, end of year:.......... 15,000 $ 3.32 $ 3.32 6.21
243,350 6.13-7.00 6.60 8.02
10,000 8.00 8.00 6.79
65,000 15.56 15.56 9.85
----------- -------------- ----------- -----
333,350 $ 8.24 8.26
----------- ----------- -----
----------- ----------- -----
Options exercisable:....................... 15,000 $ 3.32 $ 3.32
158,651 6.13-7.00 6.60
10,000 8.00 8.00
21,710 15.56 15.56
----------- -------------- -----------
205,361 $ 7.32
----------- -----------
----------- -----------
</TABLE>
On February 20, 1998, the Board of Directors adopted the Company's 1998
Stock Plan (the "1998 Stock Plan") and the 1998 Stock Plan was approved by the
Company's stockholders at a meeting on March 18, 1998. The Company has reserved
300,000 shares of Common Stock for issuance under the 1998 Stock Plan to
employees, officers, directors and consultants of the Company.
The 1998 Stock Plan provides for the granting of incentive stock options
which are intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), the granting of non-qualified
stock options which do not meet the requirements of Section 422 of the Code,
opportunities to make direct purchases of the Company's Common Stock and the
making of awards of the Company's Common Stock. If any unexercised option
granted pursuant to the 1998 Stock Plan lapses or terminates for any reason, the
shares of Common Stock covered thereby are again available for subsequent option
grants under the 1998 Stock Plan.
The Company has granted options to purchase 200,000 shares of Common Stock
at an exercise price of $23.67 per share, based on the market price of the
Common Stock at that time, under the 1998 Stock Plan, of which 65,000 were
granted to certain Company officers. The remaining options to purchase were
granted to all of the full-time employees of the Company.
During the second fiscal quarter of fiscal 1998, the Company granted to each
of its directors options to purchase 7,500 shares of Common Stock at an exercise
price of $23.67 per share, based on the market price of the Common Stock at the
time of grant.
WARRANT AGREEMENTS
In consideration of entering into a credit agreement with its principal bank
lender in September 1995, the Company issued the lender a warrant (the "First
Warrant") to purchase 50,000 shares (subject to adjustment pursuant to
anti-dilution provisions contained in the warrant) of the Company's Common Stock
for $5.95 per share, which was the approximate market value of the Company's
Common Stock at the date of the transaction. The First Warrant expires in 2005.
The holder of the First Warrant has the option to exercise a portion of the
warrant in a cashless transaction by surrendering the remaining portion of the
warrant as defined.
F-18
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
In consideration of the purchase of its 10% Subordinated Notes due December
10, 1998, the Company issued the holders of the notes three-year warrants to
purchase 42,000 shares of Common Stock for $7.50 per share, which was the
approximate market value of the Company's Common Stock at the date of the
transactions. The holders of the warrants have the option to exercise a portion
of the warrant in a cashless transaction by surrendering the remaining portion
of the warrants.
In consideration of the purchase of its 10% Subordinated Notes due December
10, 2000, the Company issued the holder of the Notes three-year warrants to
purchase 60,000 shares of Common Stock for $17.875 per share, which was the
approximate market value of the Company's Common Stock at the date of the
transactions.
In consideration of the Second Amendment to the Amended Credit Agreement the
Company issued to the lender a warrant (the "Second Warrant") to purchase 25,000
shares (subject to adjustment pursuant to anti-dilution provisions of the
warrant) of Common Stock of the Company at an exercise price of $23.58 per
share, based on the average fair market value for the ten days ended December
29, 1997.
On April 1, 1998, the Company entered into the Facility Restructuring
Agreement with its principal bank lender pursuant to which, contingent upon the
closing of a public offering, the Company received an option to make a payment
of $235,313 whereupon no further adjustments for issuances of Common Stock by
the Company will be made under the First Warrant following the closing of the
offering and no adjustments for issuances of Common Stock by the Company will be
made under the terms of the Second Warrant.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which sets forth a fair-value based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the Company has
elected to continue to apply APB No. 25 to account for its stock-based
compensation plans. Had compensation cost for awards in 1997 and 1996 under the
Company's stock-based compensation plans been determined based on fair value at
the grant dates consistent with the method set forth under SFAS No. 123, the
effect on the Company's net income and earnings per share would have been as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1997
------------- ------------
<S> <C> <C>
Net income (loss)................................................ $ (3,037,000) $ 1,482,000
As reported.................................................... (3,100,000) 1,373,000
Pro forma......................................................
Diluted earnings per share:
As reported.................................................... $ (0.64) $ 0.30
Pro forma...................................................... (0.65) 0.28
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expensed in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore future pro forma compensation expense may be greater as
additional options are granted.
F-19
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The fair value of each option granted was estimated on the grant date using
the Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 6.19% to 6.21% and 5.38% to 6.50% for
1997 and 1996, respectively, expected life of 10 years, expected volatility of
51% and 54% for 1997 and 1996, respectively.
9. PENSION PLAN
The Company has a defined benefit pension plan designed to provide
retirement benefits to all employees. This plan provides pension benefits that
are based on the employee's salary and years of service. The Company's policy is
to fund the plan at a level within the range required by applicable regulations.
The Company's net pension cost for 1995, 1996, and 1997 was $165,000,
$281,000, and $375,000, respectively. Net pension cost for the Company's defined
benefit plan included the following components:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Service cost (benefits earned during the
period)........................................ $ 155,000 $ 183,000 $ 308,000
Interest cost on projected benefit obligation.... 954,000 1,022,000 1,056,000
Actual return on plan assets..................... (985,000) (932,000) (1,570,000)
Net amortization and deferral.................... 41,000 8,000 581,000
------------- ------------- -------------
Net pension cost................................. $ 165,000 $ 281,000 $ 375,000
------------- ------------- -------------
------------- ------------- -------------
Assumptions used in determining the plan's funded
status:
Discount rate.................................... 8.0% 8.0% 8.0%
Expected rate of increase in compensation
levels......................................... 5.5% 5.5% 5.5%
Expected long-term rate of return on assets...... 8.5% 8.5% 8.5%
</TABLE>
The following table sets forth the plan's funded status as of September 30,
1996 and September 30, 1997:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Vested benefit obligation..................................... $ (11,869,000) $ (12,421,000)
Accumulated benefit obligation................................ (11,884,000) (12,456,000)
Projected benefit obligation.................................. (13,654,000) (14,164,000)
Plan assets at fair value..................................... 12,517,000 14,418,000
Funded status................................................. (1,137,000) 254,000
Unrecognized prior service costs.............................. 98,000 89,000
Unrecognized net loss......................................... 2,392,000 1,698,000
-------------- --------------
Prepaid pension cost.......................................... $ 1,353,000 $ 2,041,000
-------------- --------------
-------------- --------------
</TABLE>
Plan assets are invested under the provision of a trust agreement with a
bank in common trust funds.
F-20
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. POST RETIREMENT BENEFITS
Effective the beginning of fiscal 1994 the Company adopted Statement of
Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Post Retirement Benefits Other Than Pensions." The statement requires companies
to accrue the cost of post retirement health care and life insurance benefits
within the employees' active service periods.
The Company provides employees who retired from the Company prior to January
1, 1993, with at least ten years of service and under the age of 65, with Group
Health Insurance on a cost-sharing basis. Coverage for an employee's spouse or
dependents will also continue under this plan until the employee has reached age
65 at which time, the coverage ceases. In addition, the Company provides the
same employees who are at least 62 years of age with life insurance equal to
their ending annual salary up to a maximum of $50,000.
For employees who retire after January 1, 1993, the post-retirement benefits
do not include health insurance. In addition, the life insurance benefit, up to
a maximum of $50,000, is provided for one year after retirement.
The accumulated benefit obligation of these benefits as of September 30,
1997, is approximately $767,000 ($5,000 for medical insurance and $762,000 for
life insurance). Plan assets of $401,000 in cash reserves are on hand with an
insurance company to partially cover the cost of the life insurance benefits.
The Company adopted the new standard prospectively as of October 1, 1993, and is
amortizing the transition obligation of $456,000, over three years for the
medical insurance benefits and fifteen years for the life insurance benefits.
Post retirement benefit expense for fiscal 1995, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Service cost of benefits earned........................... $ 1,000 $ 1,000 $ 1,000
Interest cost on liability................................ 57,000 58,000 59,000
Return on plan assets..................................... (10,000) (12,000) (12,000)
Amortization of transition obligation..................... 48,000 24,000 24,000
---------- ---------- ----------
Net postretirement benefit cost........................... $ 96,000 $ 71,000 $ 72,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table sets forth the Benefit Plan's funded status as of
September 30, 1996 and September 30, 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Accumulated post retirement benefit obligation...................... $ (758,000) $ (767,000)
Plan asset at fair value............................................ 401,000 401,000
----------- -----------
Funded status....................................................... (357,000) (366,000)
Transition obligation............................................... 266,000 267,000
----------- -----------
Accrued post retirement benefit cost................................ $ (91,000) $ (99,000)
----------- -----------
----------- -----------
</TABLE>
F-21
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. POST RETIREMENT BENEFITS (CONTINUED)
The following actuarial assumptions were used:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
Salary increase..................................... 5.5% 5.5% 5.5%
Discount rate....................................... 7.0% 8.0% 8.0%
Return on assets.................................... 3.0% 3.0% 3.0%
Medical inflation................................... 10.0% 4-9% 4-9%
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
WASTE DISPOSAL
In the process of manufacturing depleted uranium products, the Company
generates low-level radioactive waste (LLRW) that must be disposed of at sites
licensed by federal, state, and local governments. At present, there is one
licensed commercial repository in the United States available for use by the
Company. For LLRW originating in Concord, no site currently exists and
provisions have been made to accommodate interim storage. State government has
the responsibility to implement the provisions of the federal Low-Level Waste
Policy Amendments Act and provide a state solution for Massachusetts companies
that generate this type of waste. Management is of the opinion that an extended
period of storage can be accommodated within existing buildings and in an
environmentally safe manner acceptable to all regulatory agencies until such
time as an acceptable site is identified.
CONCORD SITE REMEDIATION AND DECOMMISSIONING PLANNING REQUIREMENTS
For a number of years, ending in 1985, the Company disposed of
manufacturing-related depleted uranium waste and the associated spent acid and
other residual materials by neutralizing with lime and discharging the
neutralized mixture to a holding basin on its premises in Concord,
Massachusetts. In 1986 the holding basin was covered with hypalon, an impervious
material used to prevent rain and surface run-off water from leaking through the
holding basin. The Company now uses a proprietary "closed loop" process that it
developed to discontinue such discharges. The Company believes that both
practices were and are in compliance with all applicable regulations.
The Company is required to maintain certain licenses issued by the
Massachusetts Department of Public Health ("DPH") and the South Carolina
Department of Health and Environmental Control ("DHEC") in order to possess and
process depleted uranium materials at its facilities in Massachusetts and South
Carolina, respectively. Under applicable licensing regulations pertaining to
decommissioning and disposal of certain hazardous materials ("D&D") at licensed
sites, the Company submitted to the Nuclear Regulatory Commission ("NRC") and
the applicable state agencies a Decommissioning Funding Plan ("DFP") to provide
for possible future decommissioning of its facilities. The Concord Facility DFP
estimated cost is $11.7 million and the Barnwell Facility DFP estimates is $2.9
million. The Company is required to provide financial assurance for such
decommissioning pursuant to applicable regulations. The Company has satisfied
these requirements and as a result, the site licenses for both locations have
been renewed.
Substantially all of the depleted uranium materials to which the DFP
requirements apply were processed by the Company for the United States
Government. Based on the terms of certain contracts that the Company entered
into with the United States Government to process such depleted uranium
F-22
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
materials, the Company believes that such materials continue to be owned by the
United States Government and that the United States Government is obligated,
under applicable law, to pay for its percentage of eventual D&D. The Company's
DFP reflect its position that it is obligated to provide financial assurance
only with respect to the portion of the materials which are attributable to the
Company's commercial production for parties other than the United States
Government and that this obligation has been satisfied by a letter of credit to
each geographic locations regulatory agency.
The United States Army, in a memorandum of Decision dated September 13,
1996, determined pursuant to Public Law 85-804, that it should fund remediation
of the Concord holding basin site as well as D&D related to the Concord
facility, based in part on the Army's determination that the Company's
activities are essential to the national defense. This work is expected to
continue into the first half of fiscal 1998. The Company's contract with the
contractor is fixed price based on a specified volume of waste to be removed
from the basin and delivered to a burial site. If the volume of the material
removed exceeds the specified level then the Company is obligated to pay an
additional fee per cubic yard of excess material removed. At September 30, 1997,
based on current estimates, management believed that the amount of material to
be removed would not exceed the specified amount and that the fixed price
contract issued by the United States Army would be adequate to fully fund the
remediation of the basin. The Army has provided written assurances (subject to
funding appropriations) of its intention to provide funding for D&D costs at the
Concord facility in addition to the Basin under future contracts or, in the
event that no future contracts were awarded (which the Army has indicated is
unlikely in view of its current plans) under an existing contract. D&D costs for
the Company's CMI facility are adequately covered by the existing letter of
credit, which is currently in place to assure funding for potential D&D
obligations to date. The Company has no written assurance that the Army will
accept responsibility for the share of the estimated cost of D&D at its South
Carolina facility which directly resulted from production work under U.S.
government contracts on government supplied materials. However, based on the
advice of legal counsel, management believes that the Army is responsible for
its estimated share of D&D.
The Company is currently remediating the holding basin site at its Concord
facility and may incur costs in excess of its fixed price contract with the
United States Army for remediation of the holding basin. The Company's
management believes that any additional remediation costs would not be material
in part because the United States Army has agreed to recognize additional costs
to remediate the holding basin as allowable and recoverable costs through the
Company's overhead structure on government contracts.
LEGAL PROCEEDINGS
On December 9, 1997, Brush Wellman, Inc. ("Brush Wellman") filed a patent
infringement suit against the Company in the United States District Court for
the District of Massachusetts (the "Massachusetts District Court") alleging that
the Company is infringing on a process patent (the "Brush Wellman Patent")
awarded to Brush Wellman for the investment casting of beryllium aluminum
alloys. Brush Wellman is seeking an injunction against the Company's alleged
patent infringement, monetary damages (including treble damages) and attorney
fees.
On March 28, 1998 the U.S. Patent and Trademark Office (the "PTO") granted
the Company's request (filed January 22, 1998) for re-examination (the
"Request") of the Brush Wellman Patent. In the Request, the Company contended,
among other things, that there was sufficient "prior art" in the field of
investment castings and castings of beryllium aluminum alloys such that the
Brush Wellman Patent should not have been issued. In granting the Request, the
patent examiner agreed that the Company's cited
F-23
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
examples of prior art raised substantial new issues of patentability which were
not decided in the prior examination which led to granting the Brush Wellman
Patent. The PTO will undertake a process of re-examination of the validity of
the Brush Wellman Patent that, the Company anticipates, could last for an
extended period. There can be no assurance that the PTO will find the Brush
Wellman Patent to be invalid. On January 27, 1998, the Company filed in the
Massachusetts District Court a motion to stay the court case pending the outcome
of the re-examination proceeding. If the Massachusetts District Court were to
grant the motion to stay, the court case would not proceed until the conclusion
of the PTO's re-examination of the Brush Wellman Patent. Although the Company
believes that its motion to stay has merit, no assurance can be given that the
Massachusetts District Court will grant the motion.
Even though the Company has been advised by patent counsel that Brush
Wellman's claims are without merit because the Brush Wellman Patent is invalid
as a matter of law due to "prior art" and due to the Company's sales of
investment cast beryllium aluminum products more than one year prior to the
Brush Wellman Patent application, no assurance can be given as to the ultimate
outcome of the lawsuit. Even if the lawsuit were not to proceed to trial, the
litigation could result in substantial costs to the Company, and an unfavorable
settlement of the lawsuit could place the Company at a competitive disadvantage.
An adverse judgment or settlement could subject the Company to significant
liabilities and expenses (E.G., reasonable royalties, lost profits, attorneys'
fees and trebling of damages for willfulness). An adverse outcome also could
cause the Company to incur substantial costs in redesigning the investment
casting process for its Beralcast products and components. Moreover, there can
be no assurance that redesign alternatives would be available to the Company,
and if available, that any redesign alternative would not place the Company at a
competitive disadvantage. The Company could be required to license the disputed
patent rights from Brush Wellman or to cease using the patented technology. Any
such license, if required, may not be available on terms acceptable or favorable
to the Company, or at all. Any of these results could have a material adverse
effect on the Company's business, financial condition and results of operations.
Even in the event of a successful outcome, the Company may incur significant
legal expenses in its defense.
12. TRANSACTIONS WITH RELATED PARTIES
Under the terms of a management agreement, Matthews Associates Limited
("MAL") is entitled to an annual management fee. George J. Matthews, Chairman of
the Board of Directors, and a significant stockholder, is sole owner of MAL.
These fees, as well as certain expenses of MAL that were reimbursed by the
Company, have been included in selling, general, and administrative expenses.
Management fees were $350,000 in 1997, 1996, and 1995. Mr. Matthews does not
receive any other salary or fee for services as Chairman of the Board of
Directors. The agreement expires on February 28, 2002, subject to annual
renewals as described in the agreement. In the event of termination of MAL by
the Company, the Company is obligated to pay to MAL all of the amounts due under
the agreement for the remaining term. Also see Note 6 concerning Notes Payable
to Shareholders.
Wilson B. Tuffin, Vice Chairman of the Board of Directors, and a significant
stockholder, entered into an employment and consulting agreement with the
Company in November 1994, which shall continue in force until February 1999.
Pursuant to such agreement, Mr. Tuffin receives annual compensation of $105,000
for his services as a consultant to the Company. Mr. Tuffin's duties include his
service as a director and Vice Chairman of the Board of Directors of the
Company. During the term of the agreement
F-24
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
and for a period of two years after its expiration, Mr. Tuffin may not compete
directly or indirectly with the Company within the continental United States.
13. MAINTENANCE AND REPAIRS
Maintenance and repair expenditures, which are charged to cost and expense
as incurred, amounted to $854,000 in 1995, $1,092,000 in 1996, and $1,536,000 in
1997.
14. INDUSTRY SEGMENT INFORMATION
The Company is engaged in the manufacture and sale of various specialty
metal products. The Company currently operates and reports its business in three
industry segments: Uranium Services and Recycle, Specialty Metal Products, and
Depleted Uranium Penetrators.
F-25
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INDUSTRY SEGMENT INFORMATION (CONTINUED)
Information relating to the Company's operations for the industry segments
described above for each of the three years in the period ended September 30 is
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales and contract revenues:
Specialty Metal Products...................... $ 12,102,000 $ 13,730,000 $ 13,170,000
Depleted Uranium Penetrators.................. 1,713,000 8,775,000 9,927,000
Uranium Services & Recycle.................... 4,969,000 6,189,000 4,965,000
------------- ------------- -------------
Total....................................... $ 18,784,000 $ 28,694,000 $ 28,062,000
------------- ------------- -------------
------------- ------------- -------------
Operating income (loss):
Specialty Metal Products...................... $ (341,000) $ 1,432,000 $ (2,085,000)
Depleted Uranium Penetrators.................. (237,000) (942,000) (415,000)
Uranium Services & Recycle.................... (996,000) (2,700,000) 4,661,000
------------- ------------- -------------
Subtotal.................................... (1,574,000) (2,210,000) 2,161,000
General corporate expenses 350,000 350,000 350,000
------------- ------------- -------------
Net operating income (loss)..................... (1,924,000) (2,560,000) 1,811,000
------------- ------------- -------------
Other expense, net.............................. 118,000 476,000 298,000
------------- ------------- -------------
Income (loss) before taxes...................... $ (2,042,000) $ (3,036,000) $ 1,513,000
------------- ------------- -------------
------------- ------------- -------------
Identifiable assets:
Specialty Metal Products...................... $ 5,140,000 $ 6,195,000 $ 6,155,000
Depleted Uranium Penetrators.................. 12,158,000 8,441,000 7,965,000
Uranium Services & Recycle.................... 16,609,000 13,749,000 14,849,000
Corporate..................................... 6,979,000 6,733,000 5,735,000
------------- ------------- -------------
Total....................................... $ 40,886,000 $ 35,118,000 $ 34,704,000
------------- ------------- -------------
------------- ------------- -------------
Depreciation and amortization expenses:
Specialty Metal Products...................... $ 251,000 $ 291,000 $ 275,000
Depleted Uranium Penetrators.................. 443,000 519,000 498,000
Uranium Services & Recycle.................... 404,000 430,000 492,000
Corporate..................................... 241,000 254,000 323,000
------------- ------------- -------------
Total....................................... $ 1,339,000 $ 1,494,000 $ 1,588,000
------------- ------------- -------------
------------- ------------- -------------
Capital expenditures:
Specialty Metal Products...................... $ 85,000 $ 436,000 $ 746,000
Depleted Uranium Penetrators.................. 6,000 77,000 6,000
Uranium Services & Recycle.................... 325,000 379,000 627,000
Corporate..................................... 361,000 557,000 409,000
------------- ------------- -------------
Total....................................... $ 777,000 $ 1,449,000 $ 1,788,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Specialty Metal Products segment includes a large assortment of metal
products fabricated using foundry, extrusion, and machining capabilities
including commercial depleted uranium products and involves the production and
sale of various metal powders manufactured by the Company's patented Rotating
Electrode Process. Operations in the Depleted Uranium Penetrator industry
segment include the
F-26
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INDUSTRY SEGMENT INFORMATION (CONTINUED)
production of various penetrators (a component of armor-piercing ammunition used
in certain U.S. military gun systems) which are sold to the DOD, to prime
contractors manufacturing such ammunition for the DOD or to foreign military
operations. Revenues derived from contract research and development activities
have been included in the above segments based on the nature of the product. The
Uranium Services and Recycle segment includes the manufacture of depleted
uranium products (non-penetrator) and the recycle of low level radioactive
metal.
Net sales and contract revenues by industry segment include sales to
unaffiliated customers (intersegment sales are not significant). A significant
portion of the Company's revenues has been derived from five major customers
(see Note 1). Sales to USEC are included in the Uranium Services & Recycle
industry segment. Sales to Royal Ordnance and Primex Technologies are included
in the Depleted Uranium Penetrators industry segment. Sales to Lockheed Martin
and Lockheed Idaho Falls are included in the Speciality Metal Products industry
segment.
Due to the utilization among segments of common production facilities and
equipment and the involvement of a single management organization in all phases
of the Company's operations, necessary allocations have been made based on
estimates which management believes to be reasonable.
Operating income includes net sales and contract revenues less operating
expenses allocated to the individual segments. General corporate expenses
represent expenses which are not of an operating nature and, therefore, are not
allocable to industry segments.
Identifiable assets shown include accounts receivable, inventory, and plant
and equipment that have been allocated to each of the Company's industry
segments. Corporate assets consist primarily of cash and other assets.
15. QUARTERLY RESULTS (UNAUDITED)
Financial results by quarter for 1997 and 1996 are summarized below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997:
Net sales............................................ $ 7,271 $ 5,342 $ 7,013 $ 8,436
Operating income..................................... 566 173 399 673
Net income........................................... 509 109 293 571
Basic net income per share........................... $ 0.11 $ 0.02 $ 0.06 $ 0.12
Diluted net income per share......................... 0.10 0.02 0.06 0.11
1996:
Net sales............................................ $ 6,671 $ 10,021 $ 6,434 $ 5,568
Operating income (loss).............................. 198 287 523 (3,568)
Net income (loss).................................... 109 238 249 (3,633)
Basic net income (loss) per share.................... $ 0.02 $ 0.05 $ 0.05 $ (0.76)
Diluted net income (loss) per share.................. 0.02 0.05 0.05 (0.76)
</TABLE>
F-27
<PAGE>
STARMET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY RESULTS (UNAUDITED) (CONTINUED)
During 1997 the Company reduced certain accruals by $1,750,000 for site
remediation and waste burial costs, consisting of $670,000 in the second quarter
and $1,080,000 in the fourth quarter. Also during 1997 the Company had reduced
inventory reserves by $1,000,000, consisting of $90,000 in the first quarter,
$650,000 in the second quarter and $260,000 in the fourth quarter.
F-28
<PAGE>
[Appears on upper left:]
AVLIS FEED RODS FOR LASER ENRICHMENT
[Picture of AVLIS feed rods.]
[Appears on upper right:]
D.U. ANTI-TANK PENETRATOR ROUNDS
[Picture of D.U. penetrator. There is an arrow pointing down.]
[Appears on middle right:]
U.S. ARMY M1-A2 MAIN BATTLE TANK
[Picture of M1 - A2 Main Battle Tank. There is an arrow pointing to the
picture.]
[Appears on lower left:]
AIRCRAFT CONTROL SURFACE COUNTERWEIGHTS
[Picture of aircraft counterweights. There is an arrow pointing to the right.]
[Appears on lower center:]
[Picture of tail section of DC-10. There is an arrow pointing to the picture.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF
THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO THIS PROSPECTUS CREATE ANY
IMPLICATION THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................ 3
Risk Factors...................................... 9
The Company....................................... 19
Use of Proceeds................................... 20
Dividend Policy................................... 20
Price Range of Common Stock....................... 21
Capitalization.................................... 22
Selected Financial Data........................... 23
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 24
Business.......................................... 36
Management........................................ 56
Certain Transactions.............................. 66
Principal and Selling Stockholders................ 67
Description of Capital Stock...................... 69
Shares Eligible for Future Sale................... 70
Underwriting...................................... 72
Legal Matters..................................... 73
Experts........................................... 73
Available Information............................. 73
Index to Financial Statements..................... F-1
</TABLE>
SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
FURMAN SELZ
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Stock being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................ $ 23,600
NASD Filing Fee.................................................... 8,500
Printing and Engraving............................................. *
Legal Fees and Expenses............................................ *
Accounting Fees.................................................... *
Blue Sky Qualification Fees and Expenses........................... *
Transfer Agent and Registration Fees............................... *
Miscellaneous...................................................... *
---------
Total............................................................ *
---------
---------
</TABLE>
- ------------------------
(*) To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of Chapter 156B of the Massachusetts General Laws ("Section 67")
provides that a corporation may indemnify its directors and officers to the
extent specified in or authorized by (i) the articles of organization, (ii) a
by-law adopted by the stockholders, or (iii) a vote adopted by the holders of a
majority of the shares of stock entitled to vote on the election of directors.
In all instances, the extent to which a corporation provides indemnification to
its directors and officers under Section 67 is optional. Article 6 of the
Company's Amended and Restated Articles of Organization provides that the
Company shall indemnify directors and officers of the Company against
liabilities and expenses arising out of legal proceedings brought against them
by reason of their status as directors and officers or by reason of their
agreeing to serve, at the request of the Company, as a director or officer with
another organization. Under this provision, a director or officer of the Company
shall be indemnified by the Company for all costs and expenses (including
attorneys' fees), judgments, liabilities, and amounts paid in settlement of such
proceedings, even if he is not successful on the merits, if he acted in good
faith in the reasonable belief that his or her action was in the best interests
of the Company. The Board of Directors may authorize advancing litigation
expenses to a director or officer at his request upon receipt of an undertaking
by any such director or officer to repay such expenses if it is ultimately
determined that he is not entitled to indemnification for such expenses.
Article 6 of the Company's Articles of Organization eliminates the personal
liability of the Company's directors to the Company or its stockholders for
monetary damages for breach of a director's fiduciary duty, except to the extent
Chapter 156B of the Massachusetts General Laws prohibits the elimination or
limitation of such liability.
The underwriting agreement, a form of which is filed as exhibit 1(a) to this
Registration Statement on Form S-1 (the "Underwriting Agreement"), provides that
the Underwriters are obligated under certain circumstances to indemnify
directors, officers and controlling persons of the Company against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Reference is made to the form of Underwriting Agreement.
The Company has obtained directors and officers liability insurance for the
benefit of its directors and certain officers.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In September 1995, the Company issued a warrant to purchase 50,000 shares of
Common Stock (adjusted for the Company's two-for-one stock dividend paid on
April 7, 1997) to its lender in partial consideration for an increase in a line
of credit, without registration under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon the exemption from such registration
provided by Section 4(2) thereof.
In January 1996, the Company raised net proceeds of approximately $500,500
through the sale of convertible subordinated debentures to private investors,
two of whom are participating as Selling Stockholders in this offering, without
registration under the Securities Act in reliance upon the exemption from such
registration provided by Section 4(2) thereof.
In September 1996, the Company raised net proceeds of approximately $350,000
through the sale of subordinated debentures and the issuance of warrants to
purchase 42,000 shares of Common Stock (adjusted for the Company's two-for-one
stock dividend paid on April 7, 1997) to private investors who are participating
as Selling Stockholders in this offering, without registration under the
Securities Act in reliance upon the exemption from such registration provided by
Section 4(2) thereof.
In September 1997, the Company raised net proceeds of approximately $500,000
through the sale of a subordinated debenture and a warrant to purchase 60,000
shares of Common Stock to a private investor, without registration under the
Securities Act in reliance upon the exemption from such registration provided by
Section 4(2) thereof.
In December 1997, the Company issued a warrant to purchase 25,000 shares of
Common Stock to its lender in consideration for an aggregate $3,000,000 increase
in the Company's line of credit and certain amendments to the Company's credit
agreement, without registration under the Securities Act in reliance upon the
exemption from such registration provided by Section 4(2) thereof.
In December 1997 and January 1998, the Company raised net proceeds of
approximately $900,000 through the sale of convertible subordinated debentures
to several private investors, certain of whom are participating as Selling
Stockholders in this offering, without registration under the Securities Act in
reliance upon the exemption from such registration provided by Section 4(2)
thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ------------- ---------------------------------------------------------------------------------------------------
<C> <S>
1(a) Form of Underwriting Agreement **
2 Plan of Reorganization, dated June 24, 1997. (12)
3(a) Articles of Organization, as amended, of the Company. (13)
3(b) By-laws, as amended, of the Company. **
4(a) Financing Agreement, dated September 27, 1984 among Barnwell County, South Carolina, Company and
Carolina Metals, Inc. (a wholly owned-subsidiary) relating to Barnwell County, South Carolina
Industrial Development Revenue Bond (Nuclear Metals, Inc. project) 1984, incorporated by reference
to File No. 0-8836, Part II, Exhibit 4(e).
4(b) Nuclear Metals, Inc. Non-Qualified Stock Option Plan as amended. (1)
4(c) Nuclear Metals, Inc. Restated Employees' Stock Option Plan as amended. (1)
4(d) Nuclear Metals, Inc. Directors' Stock Option Plan as amended. (6)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ------------- ---------------------------------------------------------------------------------------------------
<C> <S>
4(e) Warrant to Purchase 25,000 shares of the Company's Common Stock issued to State Street Bank & Trust
Company. (6)
4(f) Common Stock Purchase Warrant dated September 16, 1996 issued to Melvin B. Chrein and schedule of
similar warrants. (7)
4(g) Common Stock Purchase Warrant dated September 22, 1997 issued to Roger M. Marino for 60,000 shares.
(13)
5(a) Legal opinion of Peabody & Arnold LLP counsel to the Company. **
10(a) Agreement, effective March 1, 1993, between the Company and Matthews Associates Limited. (2)
10(b) Agreement, effective March 1, 1993, between the Company and Wilson B. Tuffin, as amended November
17, 1994. (2)
10(c) Employment Agreement, effective February 8, 1995 between the Company and Robert E. Quinn. (7)
10(d) Agreement with Olin Corporation regarding large caliber penetrators. (Confidential treatment has
been granted for certain portions of this Exhibit). (3)
10(e) Credit Agreement dated March 31, 1995 among the Company, Carolina Metals, Inc. and State Street
Bank & Trust Company. (4)
10(f) First Amendment to Credit Agreement dated as of June 30, 1995 among the Company, Carolina Metals,
Inc. and State Street Bank & Trust Company. (5)
10(g) Amended and Restated Revolving Credit Note dated March 31, 1995 (as amended December 24, 1996 ) of
the Company and Carolina Metals, Inc. (7)
10(h) Second Amendment to Credit Agreement dated as of December 24, 1996 among the Company, Carolina
Metals, Inc. and State Street Bank & Trust Company. (7)
10(i) 10% Convertible Subordinated Debenture dated January 10, 1996 payable to Wiaf Investors Co. in
amount of $334,000 and schedule of similar debentures. (7)
10(j) 10% Subordinated Debenture dated September 16, 1996 payable to Melvin B. Chrein in the amount of
$100,000 and schedule of similar debentures. (7)
10(k) Letter Agreement dated as of September 16, 1996 with Kathleen Matthews and schedule similar letter
agreements. (7)
10(l) Joint Security Agreement dated as of March 31, 1995 among the Company, Carolina Metals, Inc. and
State Street Bank & Trust Company. (6)
10(m) First Amendment to Joint Security Agreement dated September 26, 1995 among the Company, Carolina
Metals, Inc. and State Street Bank & Trust Company. (6)
10(n) Patent Assignment of Security dated September 26, 1995 between the Company and State Street Bank &
Trust Company. (6)
10(o) Trademark Assignment of Security dated September 26, 1995 between the Company and State Street Bank
& Trust Company. (6)
10(p) Purchase order dated August 23, 1995 between the Company and Olin Corporation. (Confidential
treatment requested as to certain portions) (6)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ------------- ---------------------------------------------------------------------------------------------------
<C> <S>
10(q) Forbearance and Amendment Agreement dated as of January 11, 1996 between the Company, Carolina
Metals, Inc. and State Street Bank & Trust Company. (6)
10(r) Waiver of Breach of Covenant, by and among the Company, Carolina Metals, Inc. and State Street Bank
& Trust Company. (7)
10(s) Envirocare of Utah Inc. Low-Activity Radioactive Waste Disposal Agreement. (Confidential treatment
has been granted for certain portions of this Exhibit). (9)
10(t) Amendment of Solicitation/Modification of Contract dated March 10, 1997 issued by Department of the
Army. (10)
10(u) Securities Pledge Agreement dated July 3, 1997 between Khosrow B. Semnoni and Nuclear Metals, Inc.
(11)
10(v) Employment Agreement, effective October 1, 1997 between the Company and James M. Spiezio. (13)
10(w) Amended and Restated Revolving Credit Note dated October 1, 1997 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 & Trust Company. (13)
10(x) Amended and Restated Credit Agreement dated October 1, 1997 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 &
Trust Company. (13)
10(y) Amended and Restated Joint Security Agreement dated October 1, 1997 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 & Trust Company. (13)
10(z) Patent Assignment of Security dated October 1, 1997 between the Company and State Street Bank &
Trust. (13)
10(aa) Employment Agreement, effective October 1, 1997 between the Company and William T. Nachtrab. (13)
10(bb) Employment Agreement, effective October 1, 1997 between the Company and Douglas F. Grotheer. (13)
10(cc) Employment Agreement, effective October 1, 1997 between the Company and Kevin R. Raftery. (13)
10(dd) First Amendment to Credit Agreement dated as of December 9, 1997 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 & Trust Company. (13)
10(ee) Third Amendment to Credit Agreement dated August 7, 1997 among Nuclear Metals, Inc., Carolina
Metals, Inc. and State Street Bank & Trust Company. (13)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ------------- ---------------------------------------------------------------------------------------------------
<C> <S>
10(ff) Amendment to Employment Agreement dated October 1, 1997 between the Company and Robert E. Quinn.
(13)
10(gg) Letter agreement with Roger M. Marino dated September 22, 1997 between the registrant and Roger M.
Marino. (13)
10(hh) 10% Subordinated Debenture dated September 22, 1997 payable to Roger M. Marino in the amount of
$500,000. (13)
10(ii) Letter agreement dated December 23, 1997 regarding issuance of subordinated convertible debentures
among the Company Melvin Chrein, Wiaf Investors Co., Marshall Chrein, Joshua Feibusch and George J.
Matthews. (13)
10(jj) 10% Convertible Subordinated Debenture dated December 23, 1997 payable to Wiaf Investors Co. in
amount of $500,000 and schedule of similar debentures. (13)
10(kk) Second Amendment to Credit Agreement dated as of December 29, 1997 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 & Trust Company. (13)
10(ll) Second Additional Revolving Credit Note dated December 29, 1997 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 &
Trust Company. (13)
10(mm) Operating Agreement for Trio Star LLC dated December 31, 1997 among Starmet Commercial Castings,
LLC, Advanced Products Labs, Inc. and R-Cubed Composites, Inc. (Confidential treatment requested as
to certain portions) (14)
10(nn) Warrant Agreement dated as of December 29, 1997 between the Company and SSB Investments, Inc.*
10(oo) Common Stock Purchase Warrant dated as of December 29, 1997 issued to SSB Investments, Inc.*
10(pp) Promissory Note dated March 20, 1998 payable to Palmetto Federal Savings Bank of South Carolina
from Starmet CMI Corporation in the amount of $495,000.*
10(qq) Promissory Note dated March 20, 1998 payable to Lower Savannah Regional Development Corporation
from Starmet CMI Corporation in the amount of $500,000.*
10(rr) Mortgage, Security Agreement and Financing Statement dated March 20, 1998 from Starmet CMI
Corporation to Palmetto Federal Savings Bank of South Carolina.*
10(ss) Mortgage, Security Agreement and Financing Statement dated March 20, 1998 from Starmet CMI
Corporation to Lower Savannah Regional Development Corporation.*
10(tt) Letter Agreement between Starmet CMI Corporation, Palmetto Federal Savings Bank of South Carolina
and Lower Savannah Regional Development Corporation dated March 20, 1998.*
10(uu) Guaranty by the Company in favor of Palmetto Federal Savings Bank of South Carolina dated March 20,
1998.*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ------------- ---------------------------------------------------------------------------------------------------
<C> <S>
10(vv) Guaranty by the Company in favor of Lower Savannah Regional Development Corporation dated March 20,
1998.*
10(ww) Letter Agreement dated April 1, 1998 between the Company, State Street Bank & Trust Company and SSB
Investment, Inc. regarding the First and Second Warrants.*
11(a) Computation re: per share earnings. **
21 Subsidiaries of the Company. *
23(a) Consent of Independent Public Accountants. *
23(b) Consent of Peabody & Arnold LLP **
24(a) Power of Attorney (included on page II-8)
99(a) Memorandum of Decision dated September 13, 1996 from the United States Army Contract Adjustment
Board. (8)
</TABLE>
- ------------------------
* Filed as exhibit herewith.
** To be filed by amendment.
(1) Incorporated by reference to the similarly numbered Exhibit filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1992.
(2) Incorporated by reference to the similarly numbered Exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.
(3) Incorporated by reference to Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993.
(4) Incorporated by reference to Exhibit 10A to the Company's Form 10-Q for the
Quarter ended March 31, 1995.
(5) Incorporated by reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995.
(6) Incorporated by reference to the similarly numbered Exhibit filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1995.
(7) Incorporated by reference to the similarly numbered Exhibit filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1996.
(8) Incorporated by reference to Exhibit 99 filed with the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996.
(9) Incorporated by reference to Exhibit 10A to Company's Form 10-Q for the
quarter ended March 31, 1997.
(10) Incorporated by reference to Exhibit 10B to Company's Form 10-Q for the
quarter ended March 31, 1997.
(11) Incorporated by reference to Exhibit 10 to Company's Form 10-Q for the
quarter ended June 30, 1997.
(12) Incorporated by reference to Annex A to Company's proxy statement for
special meeting held on September 29, 1997.
(13) Incorporated by reference to similarly numbered Exhibit filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1997.
(14) Incorporated by reference to similarly numbered Exhibit filed with the
Company's Form 10-Q for the quarter ended December 31, 1997.
(b) Financial Statement Schedules.
Report of Independent Auditors on Schedule II--Valuation and Qualifying Accounts
II-6
<PAGE>
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the provisions
described under "Item 14--Indemnification of Directors and Officers" above, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned Company hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Company
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it was declared
effective. (2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on the 7th day of April, 1998.
STARMET CORPORATION
BY: /S/ ROBERT E. QUINN
-----------------------------------------
Robert E. Quinn,
President, CEO
and Treasurer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert E. Quinn and Thomas A. Wooters, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and any subsequent registration statements filed pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
II-8
<PAGE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ROBERT E. QUINN President, CEO, Treasurer
- ------------------------------ and Director April 7, 1998
Robert E. Quinn
/s/ JAMES M. SPIEZIO Vice President Finance and
- ------------------------------ Administration April 7, 1998
James M. Spiezio
/s/ THEODORE CROWELL Controller
- ------------------------------ April 7, 1998
Theodore Crowell
/s/ GEORGE J. MATTHEWS Chairman of the Board of
- ------------------------------ Directors April 7, 1998
George J. Matthews
/s/ WILSON B. TUFFIN Vice Chairman
- ------------------------------ April 7, 1998
Wilson B. Tuffin
/s/ FRANK H. BRENTON Director
- ------------------------------ April 7, 1998
Frank H. Brenton
/s/ KENNETH A. SMITH Director
- ------------------------------ April 7, 1998
Kenneth A. Smith
/s/ WILLIAM J. SHEA Director
- ------------------------------ April 7, 1998
William J. Shea
II-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Starmet Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in this registration statement, and have
issued our report thereon dated November 14, 1997 (except with respect to the
matters discussed in Notes 6 and 11 as to which the date is December 29, 1997).
Our audit was made for the purpose of forming an opinion on those statements
taken as a whole. The schedule listed in the index of the financial statements
is presented for purposes of complying with the Securities and Exchange
Commission rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 14, 1997
<PAGE>
STARMET CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING
ACCOUNTS FOR THE THREE YEARS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND END
CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- --------------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Allowance for doubtful accounts.......................... $ 821,000 $ -- $ 400,000 $ 421,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Inventory Reserves....................................... $ 4,862,000 $ -- $ 1,002,000 $ 3,860,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
YEAR ENDED SEPTEMBER 30, 1996:
Allowance for doubtful accounts.......................... $ 883,000 $ 100,000 $ 162,000 $ 821,000
------------ ------------ ------------ ------------
Inventory Reserves....................................... $ 1,522,000 $ 3,340,000 $ -- $ 4,862,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
YEAR ENDED SEPTEMBER 30, 1995:
Allowance for doubtful accounts.......................... $ 1,290,000 $ 400,000 $ 807,000 $ 883,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Inventory Reserves....................................... $ 2,000,000 $ -- $ -- $ 1,522,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
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<C> <S>
1(a) Form of Underwriting Agreement **
2 Plan of Reorganization, dated June 24, 1997. (12)
3(a) Articles of Organization, as amended, of the Company. (13)
3(b) By-laws, as amended, of the Company. **
4(a) Financing Agreement, dated September 27, 1984 among Barnwell County, South Carolina, Company and
Carolina Metals, Inc. (a wholly owned-subsidiary) relating to Barnwell County, South Carolina
Industrial Development Revenue Bond (Nuclear Metals, Inc. project) 1984, incorporated by reference
to File No. 0-8836, Part II, Exhibit 4(e).
4(b) Nuclear Metals, Inc. Non-Qualified Stock Option Plan as amended. (1)
4(c) Nuclear Metals, Inc. Restated Employees' Stock Option Plan as amended. (1)
4(d) Nuclear Metals, Inc. Directors' Stock Option Plan as amended. (6)
4(e) Warrant to Purchase 25,000 shares of the Company's Common Stock issued to State Street Bank & Trust
Company. (6)
4(f) Common Stock Purchase Warrant dated September 16, 1996 issued to Melvin B. Chrein and schedule of
similar warrants. (7)
4(g) Common Stock Purchase Warrant dated September 22, 1997 issued to Roger M. Marino for 60,000 shares.
(13)
5(a) Legal opinion of Peabody & Arnold LLP counsel to the Company. **
10(a) Agreement, effective March 1, 1993, between the Company and Matthews Associates Limited. (2)
10(b) Agreement, effective March 1, 1993, between the Company and Wilson B. Tuffin, as amended November
17, 1994. (2)
10(c) Employment Agreement, effective February 8, 1995 between the Company and Robert E. Quinn. (7)
10(d) Agreement with Olin Corporation regarding large caliber penetrators. (Confidential treatment has
been granted for certain portions of this Exhibit). (3)
10(e) Credit Agreement dated March 31, 1995 among the Company, Carolina Metals, Inc. and State Street
Bank & Trust Company. (4)
10(f) First Amendment to Credit Agreement dated as of June 30, 1995 among the Company, Carolina Metals,
Inc. and State Street Bank & Trust Company. (5)
10(g) Amended and Restated Revolving Credit Note dated March 31, 1995 (as amended December 24, 1996 ) of
the Company and Carolina Metals, Inc. (7)
10(h) Second Amendment to Credit Agreement dated as of December 24, 1996 among the Company, Carolina
Metals, Inc. and State Street Bank & Trust Company. (7)
10(i) 10% Convertible Subordinated Debenture dated January 10, 1996 payable to Wiaf Investors Co. in
amount of $334,000 and schedule of similar debentures. (7)
10(j) 10% Subordinated Debenture dated September 16, 1996 payable to Melvin B. Chrein in the amount of
$100,000 and schedule of similar debentures. (7)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<C> <S>
10(k) Letter Agreement dated as of September 16, 1996 with Kathleen Matthews and schedule similar letter
agreements. (7)
10(l) Joint Security Agreement dated as of March 31, 1995 among the Company, Carolina Metals, Inc. and
State Street Bank & Trust Company. (6)
10(m) First Amendment to Joint Security Agreement dated September 26, 1995 among the Company, Carolina
Metals, Inc. and State Street Bank & Trust Company. (6)
10(n) Patent Assignment of Security dated September 26, 1995 between the Company and State Street Bank &
Trust Company. (6)
10(o) Trademark Assignment of Security dated September 26, 1995 between the Company and State Street Bank
& Trust Company. (6)
10(p) Purchase order dated August 23, 1995 between the Company and Olin Corporation. (Confidential
treatment requested as to certain portions) (6)
10(q) Forbearance and Amendment Agreement dated as of January 11, 1996 between the Company, Carolina
Metals, Inc. and State Street Bank & Trust Company. (6)
10(r) Waiver of Breach of Covenant, by and among the Company, Carolina Metals, Inc. and State Street Bank
& Trust Company. (7)
10(s) Envirocare of Utah Inc. Low-Activity Radioactive Waste Disposal Agreement. (Confidential treatment
has been granted for certain portions of this Exhibit). (9)
10(t) Amendment of Solicitation/Modification of Contract dated March 10, 1997 issued by Department of the
Army. (10)
10(u) Securities Pledge Agreement dated July 3, 1997 between Khosrow B. Semnoni and Nuclear Metals, Inc.
(11)
10(v) Employment Agreement, effective October 1, 1997 between the Company and James M. Spiezio. (13)
10(w) Amended and Restated Revolving Credit Note dated October 1, 1997 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 & Trust Company. (13)
10(x) Amended and Restated Credit Agreement dated October 1, 1997 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 &
Trust Company. (13)
10(y) Amended and Restated Joint Security Agreement dated October 1, 1997 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 & Trust Company. (13)
10(z) Patent Assignment of Security dated October 1, 1997 between the Company and State Street Bank &
Trust. (13)
10(aa) Employment Agreement, effective October 1, 1997 between the Company and William T. Nachtrab. (13)
10(bb) Employment Agreement, effective October 1, 1997 between the Company and Douglas F. Grotheer. (13)
</TABLE>
<PAGE>
<TABLE>
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<C> <S>
10(cc) Employment Agreement, effective October 1, 1997 between the Company and Kevin R. Raftery. (13)
10(dd) First Amendment to Credit Agreement dated as of December 9, 1997 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 & Trust Company. (13)
10(ee) Third Amendment to Credit Agreement dated August 7, 1997 among Nuclear Metals, Inc., Carolina
Metals, Inc. and State Street Bank & Trust Company. (13)
10(ff) Amendment to Employment Agreement dated October 1, 1997 between the Company and Robert E. Quinn.
(13)
10(gg) Letter agreement with Roger M. Marino dated September 22, 1997 between the registrant and Roger M.
Marino. (13)
10(hh) 10% Subordinated Debenture dated September 22, 1997 payable to Roger Marino in the amount of
$500,000. (13)
10(ii) Letter agreement dated December 23, 1997 regarding issuance of subordinated convertible debentures
among the Company Melvin Chrein, WIAF Investors Co., Marshall Chrein, Joshua Feibusch and George J.
Matthews. (13)
10(jj) 10% Convertible Subordinated Debenture dated December 23, 1997 payable to Wiaf Investors Co. in
amount of $500,000 and schedule of similar debentures. (13)
10(kk) Second Amendment to Credit Agreement dated as of December 29, 1997 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 & Trust Company. (13)
10(ll) Second Additional Revolving Credit Note dated December 29, 1997 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 &
Trust Company. (13)
10(mm) Operating Agreement for Trio Star LLC dated December 31, 1997 among Starmet Commercial Castings
Corp., Advanced Products Labs, Inc. and R-Cubed Composites, Inc. (Confidential treatment requested
as to certain portions) (14)
10(nn) Warrant Agreement dated as of December 29, 1997 between the Company and SSB Investments, Inc.*
10(oo) Common Stock Purchase Warrant dated as of December 29, 1997 issued to SSB Investments, Inc.*
10(pp) Promissory Note dated March 20, 1998 payable to Palmetto Federal Savings Bank of South Carolina
from Starmet CMI Corporation in the amount of $495,000.*
10(qq) Promissory Note dated March 20, 1998 payable to Lower Savannah Regional Development Corporation
from Starmet CMI Corporation in the amount of $500,000.*
10(rr) Mortgage, Security Agreement and Financing Statement dated March 20, 1998 from Starmet CMI
Corporation to Palmetto Federal Savings Bank of South Carolina.*
10(ss) Mortgage, Security Agreement and Financing Statement dated March 20, 1998 from Starmet CMI
Corporation to Lower Savannah Regional Development Corporation.*
</TABLE>
<PAGE>
<TABLE>
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- ------------- ---------------------------------------------------------------------------------------------------
<C> <S>
10(tt) Letter Agreement between Starmet CMI Corporation, Palmetto Federal Savings Bank of South Carolina
and Lower Savannah Regional Development Corporation dated March 20, 1998.*
10(uu) Guaranty by the Company in favor of Palmetto Federal Savings Bank of South Carolina dated March 20,
1998.*
10(vv) Guaranty by the Company in favor of Lower Savannah Regional Development Corporation dated March 20,
1998.*
10(ww) Letter Agreement dated April 1, 1998 between the Company, State Street Bank & Trust Company and SSB
Investment, Inc. regarding the First and Second Warrants.*
11(a) Computation re: per share earnings. **
21 Subsidiaries of the Company. *
23(a) Consent of Independent Public Accountants. *
23(b) Consent of Peabody & Arnold LLP **
24(a) Power of Attorney (included on page II-8)
99(a) Memorandum of Decision dated September 13, 1996 from the United States Army Contract Adjustment
Board. (8)
</TABLE>
- ------------------------
* Filed as exhibit herewith.
** To be filed by amendment.
(1) Incorporated by reference to the similarly numbered Exhibit filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1992.
(2) Incorporated by reference to the similarly numbered Exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.
(3) Incorporated by reference to Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993.
(4) Incorporated by reference to Exhibit 10A to the Company's Form 10-Q for the
Quarter ended March 31, 1995.
(5) Incorporated by reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995.
(6) Incorporated by reference to the similarly numbered Exhibit filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1995.
(7) Incorporated by reference to the similarly numbered Exhibit filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1996.
(8) Incorporated by reference to Exhibit 99 filed with the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996.
(9) Incorporated by reference to Exhibit 10A to Company's Form 10-Q for the
quarter ended March 31, 1997.
(10) Incorporated by reference to Exhibit 10B to Company's Form 10-Q for the
quarter ended March 31, 1997.
(11) Incorporated by reference to Exhibit 10 to Company's Form 10-Q for the
quarter ended June 30, 1997.
<PAGE>
(12) Incorporated by reference to Annex A to Company's proxy statement for
special meeting held on September 29, 1997.
(13) Incorporated by reference to similarly numbered Exhibit filed with the
Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997.
(14) Incorporated by reference to similarly numbered Exhibit filed with the
Company's Form 10-Q for the quarter ended December 31, 1997.
<PAGE>
Exhibit 10(NN)
STARMET CORPORATION
As of December 29, 1997
SSB Investments, Inc.
225 Franklin Street
Boston, Massachusetts 02101
Re: Warrant Agreement
Gentlemen:
The undersigned, Starmet Corporation, a Massachusetts corporation (the
"Company"), hereby agrees with you as follows:
Section 1. Authorization of Issue of Warrants. Pursuant to a Second
Amendment to Credit Agreement of even date herewith among the Company, its
various subsidiaries and State Street Bank and Trust Company (the "Second
Amendment"), the Company will authorize the issue of a Warrant (the "Warrant")
evidencing the right to purchase, at any time on or before December 29, 2004,
25,000 shares of the Common Stock, having $.10 par value, of the Company (the
"Common Stock"), at a purchase price of Twenty Three Dollars and Fifty Eight
Cents ($23.58) per share, (as such figure as may be adjusted pursuant to the
Warrant, the "Exercise Price"), with such number of shares and purchase price
being subject to adjustment as provided in the Warrant, and substantially in the
form of Exhibit A hereto. Whenever used in this Agreement and in the Warrant,
the term "fully diluted" when used in connection with the Common Stock of the
Company shall mean, as of any given date, the shares of Common Stock actually
issued and outstanding or which the Company is obligated to issue on such date
together with all shares of such Common Stock that would be issued on such date
assuming conversion or exercise of all warrants, options or other rights or
securities (including, if applicable, shares of the Company's Preferred Stock)
which provide for the acquisition of shares of Common Stock and which are
outstanding or which the Company is obligated to issue.
Section 2. Purchase and Sale of Warrant. Subject to the terms and
conditions herein set forth, the Company hereby agrees to sell to you and you
agree to purchase from the Company the Warrant for $10.00 in hand paid by you to
the Company and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Company. On the date
hereof, the Company will deliver to you the Warrant, registered in your name.
<PAGE>
Section 3. Representations and Covenants.
Section 3.1 Representation of the Company. The Company represents that:
(a) The execution, delivery and performance of this Agreement and the
Warrant have been duly authorized by the Company's Board of Directors and
each of this Agreement and the Warrant constitute the legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms. Neither the execution nor delivery of this
Agreement and the Warrant, nor fulfillment of nor compliance with the terms
and provisions of this Agreement and the Warrant, nor the issuance of
shares of Common Stock upon exercise of the Warrant, will violate the terms
of the charter or by-laws of the Company or, to the best of the Company's
knowledge, any agreement (including any agreement with stockholders),
instrument, judgment, decree or statute to which the Company is subject.
(b) Sufficient shares of authorized but unissued Common Stock of the
Company have been reserved by appropriate corporate action in connection
with the prospective exercise of the Warrant, or the Company has made other
binding appropriate arrangements under which sufficient shares are and will
be available for delivery upon exercise of the Warrant, and the issuance of
either the Warrant or the shares of Common Stock upon exercise of the
Warrant will not require any further corporate action by the stockholders
or directors of the Company, will not be subject to pre-emptive rights
(unless the exercise of the same has been irrevocably waived) in any
present or future stockholders of the Company and will not conflict with
any provision of any agreement to which the Company is a party or by which
it is bound, and such Common Stock, when issued upon exercise of the
Warrant in accordance with its terms, will be duly authorized, fully paid
and non-assessable.
Section 3.2 Your Representation. You represent and in making the sale
of the Warrant contemplated hereby to you it is specifically understood and
agreed that you are acquiring such Warrant and the shares acquired upon exercise
thereof for your own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof. You further
represent and it is specifically understood and agreed that you are acquiring
such Warrant and the shares acquired upon exercise thereof for investment for
your own account with the intention of holding such Warrant or securities for
investment and without the intent of participating directly or indirectly in a
distribution thereof. You further represent that you are an "accredited
investor" as defined in Rule 501(a) of Regulation D under the Securities Act,
that you are able to bear the economic risk of the investment represented by the
Warrant and the Warrant Stock and have had the opportunity to meet with and ask
questions of representatives of the Company.
2
<PAGE>
Section 4. Restrictions on Transfer.
Section 4.1 Applicability. The provisions of this Section 4.1 shall
apply to the transfer of any Warrant issued to any Holder thereof and the shares
of Common Stock purchasable upon exercise of the Warrant, subject to adjustments
from time to time pursuant to the provisions contained in the Warrant (such
securities, together with any shares of stock or warrants or rights issued as,
or resulting from the issuance of, a dividend or other distribution upon such
securities or any other shares of stock or warrants or rights substituted
therefor being herein in the aggregate called "Restricted Securities"). Each
such transfer of a Restricted Security is herein called a "Restricted Action".
The holder of any Restricted Security, by its acceptance thereof, agrees that it
will not take any Restricted Action for so long as the restrictions imposed by
this Section 4 are in effect. The restrictions imposed by this Section 4 upon
the transferability of Restricted Securities (i) shall cease and terminate as to
any particular Restricted Securities when such securities shall have been
effectively registered under the Securities Act and all applicable state
securities laws and disposed of in accordance with the registration statement
covering such Restricted Securities, and (ii) shall cease and terminate as to
any particular Restricted Securities or with respect to any particular
Restricted Action when, in the opinion of counsel for the holder thereof as
shall be reasonably satisfactory to the Company, such opinion to be concurred in
by counsel to the Company (such concurrence not to be unreasonably withheld),
such restrictions are no longer required with respect to such Restricted
Securities or such Restricted Action, as the case may be, in order to insure
compliance with the Securities Act or under any applicable state securities
laws. Whenever such restrictions shall terminate as to any Restricted
Securities, the same shall no longer be deemed to be Restricted Securities, and
the holder thereof shall be entitled to receive from the Company, without
expense (other than transfer taxes, if any), new securities of like tenor not
bearing the applicable legend set forth in Section 4.2 hereof.
Section 4.2 Restrictive Legends. The Warrant, while it is a Restricted
Security, shall be stamped or otherwise imprinted with a legend in substantially
the following form:
THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "FEDERAL ACT") OR UNDER THE PROVISIONS OF ANY APPLICABLE
STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY BE
ACQUIRED UPON THE EXERCISE OF THIS WARRANT MAY BE SOLD, PLEDGED,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT
AND ALL APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF ANY EXEMPTION,
ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE WARRANT
OR THE OTHER SECURITIES. NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY
3
<PAGE>
BE ACQUIRED UPON THE EXERCISE OF THIS WARRANT MAY BE SOLD, PLEDGED,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY
LISTED IN SCHEDULE A TO THIS WARRANT.
Each certificate for Restricted Securities (unless at the time of issuance
such Restricted Securities are registered under the Securities Act) other than a
Warrant, and each certificate issued upon the transfer or exchange of any such
certificate for Restricted Securities (except as otherwise permitted by this
Section 4) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "FEDERAL
ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES LAWS.
NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, PLEDGED,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT
AND ALL APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION,
ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THESE
SECURITIES.
Section 4.3 Notice of Proposed Transfer; Opinion of Counsel. Each holder
of any Restricted Securities agrees and acknowledges that he will not take any
Restricted Action except pursuant to an effective registration statement under
the Securities Act and under all applicable state securities laws, unless the
Holder shall have furnished the Company with an opinion of counsel as shall be
reasonably satisfactory to the Company to the effect that no such registration
is required because of the availability of an exemption from registration under
the Securities Act and under all applicable state securities laws. It shall be
an additional condition to the transfer of a Warrant that any transferee hereof
deliver to the Company its written agreement to accept and be bound by all of
the terms and conditions of the Warrant and the Agreement.
Section 5. Registration Rights.
Section 5.1 (a) Rights to Piggyback. Subject to Section 5.2, if the
Company at any time and from time to time shall determine to register any of its
securities under the Securities Act for itself or for any other person (other
than a registration on a form inappropriate for an
4
<PAGE>
underwritten public offering or relating solely to securities to be issued in a
merger, acquisition of the stock or assets of another entity or in a similar
transaction), the Company will, at its expense:
(i) furnish prompt written notice thereof (which shall include a list
of the jurisdictions, if any, in which the Company intends to register
or qualify such securities under the applicable blue sky or other
state securities laws) to all Holders, and
(ii) include among the securities which it then registers or qualifies
all Registrable Securities specified in a written request or requests,
made within 30 days after receipt of such written notice from the
Company, by any Holder (a "Piggyback Registration"); provided,
however, if the managing underwriters of such registration shall give
written advice to the Company of an Underwriters' Maximum Number, then
the Company may reduce the number of Registrable Securities to be
registered (any such reduction to be allocated among all Persons other
than the Company holding securities which are to be included in such
registration in proportion, as nearly as practicable, to the number of
shares of such securities requested by such Persons other than the
Company to be included in such registration).
Section 5.2 Limitation of Registration. If and to the extent that any
Holder or Holders shall have, at the time of delivery of the written request
referred to in Section 5.1(ii), no present intention of selling or distribution,
the Company shall be obligated to effect such registration, qualification or
compliance with respect to such Holder's or Holders' Registrable Securities only
if and to the extent, in each case, that such registration, qualification and
compliance are at the time permitted by the applicable statutes or rules and
regulations thereunder or the practices of the governmental authority concerned.
Section 5.3 Registration Procedures. In the case of each registration,
qualification or compliance pursuant to this Section 5, the Company will keep
the Holders advised in writing as to the initiation of proceedings for such
registration, qualification and compliance and as to the completion thereof, and
will advise any such Holder, upon request, of the progress of such proceedings.
At the expense of the Company, the Company will (i) keep such registration,
qualification and compliance current and effective for a reasonable period of
time by such action as may be necessary or appropriate, including, without
limitation, the filing of post-effective amendments and supplements to any
registration statement or prospectus, for such period as is necessary to permit
sale or distribution of Registrable Securities not theretofore sold or
distributed, and (ii) take all necessary action under any applicable blue sky or
other state securities laws to permit such exercise, sale or distribution, all
as requested by such Holders.
Section 5.4 Indemnification. The Company will furnish each Holder such
number of registration statements, prospectuses, supplements, amendments,
offering circulars and other
5
<PAGE>
documents incident to any registration, qualification or compliance referred to
in this Section 5, at the expense of the Company, as such Holder from time to
time may reasonably request. The Company will indemnify, defend and hold
harmless each such Holder and each underwriter of Registrable Securities held by
or issuable to such Holder, and each Person, if any, who controls any thereof
within the meaning of the Securities Act, to the fullest extent that such
agreement is enforceable under applicable law against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained therein (or in any related registration statement, notification or the
like) or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder
and each such underwriter and each such Person, if any, for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Holder and stated to be specifically for use
therein. Each Holder, if Registrable Securities held by or issuable to such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, will indemnify, defend and hold
harmless the Company, each of its directors and officers who signs such a
registration statement, and each Person, if any, who controls the Company within
the meaning of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other document
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and such directors, officers or Persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) was made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder with knowledge that the
information set forth in such instrument was to be used therein.
Section 6. Intentionally Omitted.
Section 7. Subsequent Holders of Securities. Whether or not any
express assignment has been made in this Agreement, the provisions of this
Agreement that are for your benefit as the Holder of any Warrant or Warrant
Stock are also for the benefit of, and enforceable by, all permitted subsequent
Holders of Registrable Securities, except any Holder of the Warrant or Warrant
Stock which have been sold pursuant to an effective registration statement under
6
<PAGE>
the Securities Act or pursuant to Rule 144 (or similar successor rule) under
such Act, and except as otherwise expressly provided herein.
Section 8. Definitions. For the purposes of this Agreement, the
following terms shall have the following respective meanings:
"Affiliate" shall have the meaning given to such term in Rule 405
promulgated under the Securities Act.
"Commission" shall mean the Securities and Exchange Commission or any other
governmental authority at the time administering the Securities Act.
"Common Stock" shall mean and include the Company's presently authorized
Common Stock, having $.10 par value, and any other securities constituting
"Common Stock" under Section 11.3 of the Warrant.
"Fully Diluted" See Section 1.
"Holder" means you and all Persons to whom any Registrable Securities are
transferred in accordance with the provisions hereof. A Holder shall, for all
purposes of this Agreement, unless the context shall otherwise require, be
deemed to hold, at any particular time, all shares of Warrant Stock issuable
upon exercise of the Warrant held of record by such Holder at such time.
"Person" shall mean an individual, partnership, corporation, association,
trust, joint venture, unincorporated organization, limited liability company or
partnership and any government, governmental department or agency or political
subdivision thereof.
"registered and registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act and
the declaration or ordering by the Commission of effectiveness of such
registration statement.
"Registrable Securities" means, at any particular time, all shares of
Warrant Stock issuable upon exercise of the Warrant at such time or issued and
outstanding at such time; provided, however, that the term "Registrable
Securities" shall not include any issued and outstanding shares of Warrant Stock
that (i) were previously included in a registration statement under the
Securities Act and sold in the public offering to which such registration
statement relates or (ii) are freely saleable under Rule 144(k) promulgated
under the Securities Act (or a successor provision) at a time when shares of
Common Stock are listed on a national securities exchange or on the National
Market System.
"Restricted Action" See Section 4.1.
"Restricted Securities" See Section 4.1.
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"Second Amendment" See Section 1.
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same may be in effect at the time.
"SSB" means SSB Investments, Inc.
"Underwriters Maximum Number" Underwriters Maximum Number shall mean for
any Piggyback Registration that number of securities to which such registration
should, in the opinion of the managing underwriters of such registration in the
light of marketing factors, be limited.
"Warrant" See Section 1.
"Warrant Stock" means the shares of Common Stock purchasable by the Holders
of the Warrant upon the exercise thereof.
Section 9. Miscellaneous.
Section 9.1 The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
any provisions hereof.
Section 9.2 Except as otherwise expressly provided in this Agreement, all
notices and other communications made or required to be given pursuant to this
Agreement or the Warrant shall be in writing and shall be delivered by hand,
mailed by United States registered or certified first-class mail, postage
prepaid, or sent by telegraph, telecopier or telex and confirmed by letter,
addressed as follows:
(a) If to the Company, at 2229 Main Street, Concord, MA 01742 (telecopy:
508-371-0214), Attention: President, with copies to Peabody & Arnold, 50 Rowes
Wharf, Boston, Massachusetts 02110 (telecopy: 617-951-2125), Attention: Thomas
A. Wooters, Esq.; and
(b) If to SSB, at SSB's office at 225 Franklin Street, Boston,
Massachusetts 02101 (telecopy: 617-338-4417), Attention: William R. Dewey IV,
or such other address for notice as SSB shall last have furnished in writing to
the person giving the notice;
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (a) if delivered by hand to a responsible officer
of the party to which it is directed, at the time of the receipt thereof by such
officer, (b) if sent by registered or certified first-class mail, postage
prepaid, three business days after the posting thereof, and (c) if sent by
telegraph, telecopier, or telex at the time of the dispatch thereof, if in
normal
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business hours in the country of receipt, or otherwise at the opening of
business on the following business day.
Section 9.3 The laws of The Commonwealth of Massachusetts shall govern
the interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under applicable principles of
conflicts of laws.
Section 9.4 The invalidity or unenforceability of any provision of this
Agreement in any jurisdiction shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity or
enforceability of this Agreement, including that provision, in any other
jurisdiction.
Section 9.5 Nothing contained in this Agreement shall be deemed to be a
waiver of, or release from, any obligations any party hereto may have under, or
any restrictions on the transfer of Common Stock imposed by any other agreement.
Section 9.6 The provisions of this Agreement shall be binding upon and
accrue to the benefit of the parties hereto and their respective heirs,
successors and assigns.
Section 9.7 A default by any party to this Agreement in such party's
compliance with any of the conditions or covenants hereof or performance of any
of the obligations of such party hereunder shall not constitute a default by any
other party.
Section 9.8 This Agreement may not be amended, modified or supplemented
and no waivers of or consents to departures from the provisions hereof may be
given unless consented to in writing by the Company and the Holders.
Section 9.9 This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same Agreement.
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If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding agreement between you
and the undersigned.
Very truly yours,
STARMET CORPORATION
By /s/ James M. Spiezio
-----------------------
Name: James M. Spiezio
Title: Chief Financial Officer
The foregoing Agreement is
hereby accepted as of the
date first above written.
SSB INVESTMENTS, INC.
By /s/ William R. Dewey
--------------------------------
Name: William R. Dewey, IV
Title: Vice President
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Exhibit 10(OO)
Right to Purchase 25,000 Shares of
Common Stock of
STARMET CORPORATION
THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "FEDERAL ACT") OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE
SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY BE ACQUIRED
UPON THE EXERCISE OF THIS WARRANT MAY BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT AND ALL APPLICABLE STATE
SECURITIES LAWS; AND IN THE CASE OF ANY EXEMPTION, ONLY IF THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION
DOES NOT REQUIRE REGISTRATION OF THE WARRANT OR THE OTHER SECURITIES. NEITHER
THIS WARRANT NOR THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS
WARRANT MAY BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF TO
ANY PERSON OR ENTITY LISTED IN SCHEDULE A TO THIS WARRANT.
Starmet Corporation
Common Stock Purchase Warrant
Starmet Corporation, a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, SSB Investments, Inc. ("SSB") or assigns
(SSB, or such assigns who may be the registered holder or holders hereof, are
hereinafter referred to as the "Holder") is entitled, subject to the terms set
forth below, to purchase from the Company at any time or from time to time prior
to the Expiration Date, that number of fully paid and non-assessable shares of
Common Stock (as hereinafter defined), as shall be equal to the Initial Warrant
Number (as hereinafter defined) at a purchase price per share equal to the
Initial Exercise Price (as hereinafter defined) subject, however, to adjustment
both as to such number of shares and as to such price as hereinafter set forth
(such price per share as so adjusted from time to time being herein called the
"Exercise Price").
This Warrant is issued pursuant to the Warrant Agreement (the "Agreement")
dated as of December 29, 1997, between the Company and SSB, a copy of which is
on file at the principal office of the Company. The Holder of this Warrant
shall be entitled to all of the benefits of the Agreement as provided therein
and by acceptance of this Warrant the Holder agrees to comply with the terms,
conditions and obligations imposed by the Agreement.
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Section 1. DEFINITIONS. Terms defined in the Agreement and not otherwise
defined herein are used herein with the meanings so defined therein. Certain
terms are used in this Warrant as specifically defined in Section 11 hereof.
Section 2. EXERCISE OF WARRANT.
Section 2.1. Exercise. Subject to the limitations set forth in
Section 3, this Warrant may be exercised by the Holder hereof at any time during
the Warrant Exercise Period by surrender of this Warrant to the Company at its
principal office, together with (i) the form of subscription at the end hereof
duly executed by such Holder, (ii) such other documents, statements,
subscription agreements or other items as may be reasonably requested by the
Company in furtherance of its requirements pursuant to Section 3 below, and
(iii) payment, by certified or official bank check payable to the order of the
Company or by wire transfer to its account, in the amount obtained by
multiplying the number of shares of Common Stock for which this Warrant is then
being exercised by the Exercise Price then in effect (such amount, the "Exercise
Payment"), except that the Holder may, at its option, elect to pay the Exercise
Payment by canceling a portion of this Warrant that is equal to the number of
shares determined by dividing the Exercise Payment by (i) the Current Market
Price as of the date of exercise or (ii) if the Current Market Price cannot be
determined because the Common Stock is not listed or admitted to unlisted
trading on the New York Stock Exchange, another national securities exchange, or
the National Market System, the Estimated Current Market Price (as hereinafter
defined) (such manner of payment, a "Non-Cash Exercise Payment"). The
"Estimated Current Market Price" means the amount most recently determined by
the Company's Board of Directors in its reasonable discretion to represent the
fair market value per share of the Common Stock (including without limitation a
determination for purpose of granting Common Stock options or issuing Common
Stock under an employee benefit plan of the Company). Upon request of the
Holder, the Company's Board of Directors (or a representative thereof) shall
promptly notify the Holder of the Estimated Current Market Price.
Notwithstanding the foregoing, if the Company's Board of Directors has not made
such a determination within the three-month period prior to an exercise of the
Warrant in which the Holder has elected to make a Non-Cash Exercise Payment,
then (A) the Estimated Current Market Price shall be the amount next determined
by the Company's Board of Directors in its reasonable discretion to represent
the fair market value per share of the Common Stock (including without
limitation a determination for purposes of granting Common Stock options or
issuing Common Stock under an employee benefit plan of the Company), (B) the
Company's Board of Directors shall make such a determination within 15 days of a
request by the Holder that it do so, and (C) the exercise of this Warrant
pursuant to this subsection shall be delayed until such determination is made.
In the event the Warrant is not exercised in full, the Company, at its
expense, will forthwith issue and deliver to or upon the order of the Holder
hereof a new Warrant or Warrants of like tenor and dated as of the date of this
Warrant, in the name of the Holder hereof or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may request, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
equal (without giving effect to any adjustment therein) to the number of such
shares called for on the face of this Warrant minus the sum of the number of
such shares
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(without giving effect to any adjustment therein) for which this Warrant shall
have been exercised (including by way of a Non-Cash Exercise Payment).
Section 2.2. Class of Stock Receivable upon Exercise. Any other
provisions hereof to the contrary notwithstanding, no Bank Affiliate shall be
entitled to exercise the right under this Warrant to purchase any share or
shares of Common Stock if, as a result of such purchase, such Bank Affiliate
would own, control or have power to vote a greater quantity of securities of any
kind than the Bank Affiliate shall be permitted to own, control or have power to
vote under any law or under any regulation, rule or other requirement of any
governmental authority at any time applicable to such Bank Affiliate.
Section 3. RESTRICTIONS ON TRANSFER.
Section 3.1. Compliance With Federal and State Securities Laws. Holder
hereby acknowledges that neither this Warrant nor any of the securities that may
be acquired upon exercise of this Warrant have been registered under the
Securities Act of 1933, as amended, or under the securities laws of any state.
The Holder acknowledges that, upon exercise of this Warrant, the securities to
be issued upon such exercise may come under applicable federal and state
securities (or other) laws requiring registration, qualification or approval of
governmental authorities before such securities may be validly issued or
delivered upon notice of such exercise. The Company's sole obligation to any
Holder upon exercise hereof shall be to use its best efforts to obtain
exemptions from registration or qualification for the issuance of such
securities under applicable state and federal securities laws, and the Holder
further agrees that the issuance of such securities shall be deferred until such
exemptions shall have been obtained; and it is further agreed that the Company
shall have no other obligation or liability to the Holder for non-issuance of
such securities except to return the Warrant surrendered and to refund to the
Holder any consideration tendered in respect of the Exercise Price. With
respect to any such securities, this Warrant may not be exercised by, and
securities shall not be issued to, any Holder in any state in which such
exercise would be unlawful. The Holder agrees that the Company may place such
legend or legends on certificates representing securities issued upon exercise
of this Warrant as the Company may reasonably deem necessary to comply with
applicable state and federal securities laws for the issuance of such
securities.
The provisions of this Section 3 shall apply to the transfer of this
Warrant and the shares of Common Stock purchasable upon exercise of this
Warrant, subject to adjustments from time to time pursuant to the provisions
contained in this Warrant (such securities, together with any shares of stock or
warrants or rights issued as, or resulting from the issuance of, a dividend or
other distribution upon such securities or any other shares of stock or warrants
or rights substituted therefor being herein in the aggregate called "Restricted
Securities"). Each such transfer of a Restricted Security is herein called a
"Restricted Action." The holder of any Restricted Security, by its acceptance
thereof, agrees that it will not take any Restricted Action for so long as the
restrictions imposed by this Section 3 are in effect. The restrictions imposed
by this Section 3 upon the transferability of Restricted Securities (i) shall
cease and terminate as to any particular Restricted Securities when such
securities shall have been effectively registered under the Securities Act and
all applicable
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state securities laws and disposed of in accordance with the registration
statement covering such Restricted Securities, and (ii) shall cease and
terminate as to any particular Restricted Securities or with respect to any
particular Restricted Action when, in the opinion of counsel for the Holder
thereof as shall be reasonably satisfactory to the Company, such opinion to be
concurred in by counsel to the Company (such concurrence not to be unreasonably
withheld), such restrictions are no longer required with respect to such
Restricted Securities or such Restricted Action, as the case may be, in order to
insure compliance with the Securities Act or under any applicable state
securities laws. Whenever such restrictions shall terminate as to any
Restricted Securities, the same shall no longer be deemed to be Restricted
Securities and the holder thereof shall be entitled to receive from the Company,
without expense (other than transfer taxes, if any), new securities of like
tenor not bearing the applicable legend set forth on such securities.
Section 4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
Section 4.1. Delivery. Subject to the complete terms and conditions of
this Agreement, including without limitation the limitations set forth in
Section 3 hereof, as soon as practicable after the exercise of this Warrant in
full or in part, and in any event within ten (10) days thereafter, the Company
at its expense (including the payment by it of any applicable issue taxes) will
cause to be issued in the name of and delivered to the Holder hereof, or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock to which such Holder shall be entitled on
such exercise, together with any other stock or other securities and property
(including cash, where applicable) to which such Holder is entitled upon such
exercise.
Section 4.2. Fractional Shares. This Warrant may not be exercised as to
fractional shares of the Common Stock. In the event that the exercise of this
Warrant, in full or in part, results in the issuance of any fractional share of
Common Stock, then in such event the Holder of this Warrant shall be entitled to
cash equal to the fair market value of such fractional share as determined in
good faith and on a reasonable basis by the Company's Board of Directors.
Section 5. ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS.
In case at any time or from time to time, the holders of Common Stock shall
have received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor:
(a) other or additional stock or other securities or property (other
than cash) by way of dividend; or
(b) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate restructuring;
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other than additional shares of Common Stock issued as a stock dividend or in a
stock-split (adjustments in respect of which are provided for in Section 7
hereof), then and in each such case the Holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and other securities and property (including cash in the case referred
to in subsection (b) of this Section 5) which such Holder would have received
prior to or would have held on the date of such exercise if on the date hereof
he had been the holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares and
all such other or additional stock and other securities and property (including
cash in the case referred to in subsection (b) of this Section 5) receivable by
such Holder as aforesaid during such period, giving effect to all further
adjustments called for during such period by Sections 6 and 7 hereof.
Section 6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
Section 6.1. Certain Adjustments. In case at any time or from time to
time, the Company shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii) consolidate with or merge into any other person, or (iii)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the Holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof at any time after the consummation of
such reorganization, recapitalization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Stock) issuable on such exercise prior to such
consummation or effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 5 and 7 hereof.
Section 6.2. Appointment of Trustee for Warrant Holders Upon Dissolution.
In the event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable
by the Holders of the Warrant after the effective date of such dissolution
pursuant to this Section 6 to a bank or trust company having its principal
office in Boston, Massachusetts, as trustee for the Holder or Holders of the
Warrant.
Section 6.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 6 (any such event, a "Business Combination"), this
Warrant shall continue in full force and effect and the terms hereof shall be
applicable to the shares of stock and other securities and property receivable
on the exercise of this Warrant after the consummation of such Business
Combination, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 8 hereof.
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Section 7. STOCK SPLITS, STOCK DIVIDENDS, REDUCTION IN WARRANT NUMBER.
Section 7.1 Stock Events. If at any time there shall occur any stock split,
stock dividend, reverse stock split or other subdivision of the Company's Common
Stock ("Stock Event"), then the number of shares of Common Stock to be received
by the Holder of this Warrant shall be appropriately adjusted such that the
proportion of the number of shares issuable hereunder prior to such Stock Event
to the total number of shares of the Company outstanding (on a fully diluted
basis, as such term is defined in Section 11.11) prior to such Stock Event is
equal to the proportion of the number of shares issuable hereunder after such
Stock Event to the total number of shares of the Company outstanding (on a fully
diluted basis) after such Stock Event. No adjustment to the Exercise Price
shall be made in connection with any adjustment of the number of shares of
Common Stock receivable upon exercise of this Warrant, except that the Exercise
Price shall be proportionately decreased or increased upon the occurrence of any
stock split or other subdivision of the Common Stock.
Section 7.2 Other Issuances of Common Stock. Unless the Holder of this
Warrant shall otherwise agree, if at any time there shall be any increase in the
number of shares of Common Stock outstanding or which the Company is obligated
to issue, or covered by any option, warrant or convertible security which is
outstanding or which the Company is obligated to issue, then the number of
shares of Common Stock to be received by the holder of this Warrant shall be
adjusted to that number determined by multiplying the number of shares of Common
Stock purchasable hereunder prior thereto by a fraction (i) the numerator of
which shall be the number of shares of Common Stock outstanding (on a fully
diluted basis) immediately after such increase, and (ii) the denominator of
which shall be the number of shares of Common Stock outstanding (on a fully
diluted basis) immediately prior to such increase. Thereupon, the Exercise
Price shall be correspondingly reduced so that the aggregate Exercise Price for
all shares of Common Stock covered hereby shall remain unchanged.
Section 8. CERTAIN OBLIGATIONS OF THE COMPANY. The Company will from time
to time, in accordance with the laws of The Commonwealth of Massachusetts, take
action to increase the authorized amount of its Common Stock if at any time the
number of shares of Common Stock authorized but remaining unissued and
unreserved for other purposes shall be insufficient to permit the exercise of
this Warrant.
The Company covenants that it will at all times reserve and keep available
out of its authorized and unissued Common Stock or out of shares of its treasury
stock, solely for the purpose of issue upon exercise of the purchase rights
evidenced by this Warrant, a number of shares of Common Stock equal to the
Warrant Number in effect from time to time.
The Company will not, by amendment of its Articles of Organization,
including without limitation, amendment of the par value of its Common Stock, or
through reorganization, consolidation, merger, dissolution, issuance of capital
stock or sale of treasury stock (otherwise than upon exercise of this Warrant)
or sale of assets, or by any other voluntary act or deed, avoid or seek to avoid
the material performance or observance of any of the covenants, stipulations or
conditions in this Warrant to be observed or performed by the Company. The
Company will at all times in good faith assist, insofar as it is able, in the
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carrying out of all of the provisions of this Warrant in a reasonable manner and
in the taking of all other action which may be necessary in order to protect the
rights of the holder of this Warrant against dilution in the manner required by
the provisions of this Warrant.
The Company will maintain an office where presentations and demands to or
upon the Company in respect of this Warrant may be made. The Company will give
notice in writing to the registered holder of this Warrant, at the address of
the registered holder of this Warrant appearing on the books of the Company, of
each change in the location of such office.
Section 9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any
event that may require any adjustment or readjustment in the shares of Common
Stock issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment, or
stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (i) the number of shares of the Company's Common
Stock then outstanding on a fully diluted basis, and (ii) the number of shares
of Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted (if required by Section 7) on account thereof. The Company will
forthwith mail a copy of each such certificate to each Holder of a Warrant, and
will, on the written request at any time of any Holder of a Warrant, furnish to
such Holder a like certificate setting forth the calculations used to determine
such adjustment or readjustment. At its option, the Holder of a Warrant may
confirm the adjustment noted on the certificate by causing such adjustment to be
computed by an independent certified public accountant at the expense of the
Company.
Section 10. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any consolidation
or merger of the Company with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such event, the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
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winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 30 days prior to the date specified in such notice on which any such
action is to be taken.
Section 11. DEFINITIONS. As used herein the following terms, unless the
context otherwise requires, have the following respective meanings:
Section 11.1. The term Bank Affiliate means any Person which is a bank
holding company or a subsidiary of a bank holding company as defined in the Bank
Holding Company Act of 1956, as amended, or other applicable banking laws of the
United States and the rules and regulations promulgated thereunder.
Section 11.2. The term Company shall include Starmet Corporation, a
Massachusetts corporation, and any corporation which shall succeed to or assume
the obligations of the Company hereunder.
Section 11.3. The term Common Stock includes (i) the Company's Common
Stock, having $.10 par value, (ii) any other capital stock of any class or
classes (however designated) of the Company, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and (iii) any
other securities into which or for which any of the securities described in
clauses (i) or (ii) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
Section 11.4. The term Expiration Date shall mean December 29, 2004.
Section 11.5. The term Initial Exercise Price shall mean Twenty Three
Dollars and Fifty Eight Cents ($23.58).
Section 11.6. The term Initial Warrant Number shall mean 25,000.
Section 11.7. The term Other Stock shall mean stock of the Company other
than the Company's Common Stock.
Section 11.8. The term Outstanding Warrant shall mean the Initial Warrant
Number as adjusted herein minus the number of Warrants exercised pursuant to
Section 2.1 hereof.
Section 11.9. The term Person shall mean an individual, partnership,
corporation, association, trust, joint venture, limited liability company or
partnership, unincorporated organization or any government, governmental
department or agency or political subdivision thereof.
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Section 11.10. The term Warrant Exercise Period shall mean the period
beginning on the date hereof and ending on the Expiration Date.
Section 11.11. The term "fully diluted" when used in connection with the
Common Stock of the Company shall mean, as of any given date, the shares of
Common Stock actually issued and outstanding or which the Company is obligated
to issue on such date together with all shares of such Common Stock that would
be issued on such date assuming conversion or exercise of all warrants, options
or other rights or securities (including shares of the Company's Preferred
Stock) which provide for the acquisition of shares of Common Stock and which are
then outstanding or which the Company is obligated to issue.
Section 12. WARRANT AGENT. The Company may, by written notice to the holder
of this Warrant, appoint an agent having an office in Boston, Massachusetts for
the purpose of issuing Common Stock on the exercise of this Warrant pursuant to
Section 2 hereof, and exchanging or replacing this Warrant pursuant to the
Agreement, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
Section 13. REMEDIES. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
Section 14. NOTICES. All notices and other communications from the Company
to the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, or sent by telecopier, facsimile machine or
telex to such address as may have been furnished to the Company in writing by
such Holder or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder of this Warrant who has so furnished
an address to the Company.
Section 15. TRANSFER. Subject to the provisions of this Agreement and the
Warrant Agreement, including without limitation the provisions of Section 3
hereof, this Warrant and all rights hereunder are transferable, in whole or in
part, at the office or agency of the Company by the registered Holder thereof in
person or by a duly authorized attorney, upon surrender of this Warrant together
with an assignment hereof properly endorsed. Until transfer hereof on the
registration books of the Company, the Company may treat the registered Holder
hereof as the owner hereof for all purposes. Any transferee of this Warrant and
any rights hereunder, by acceptance thereof, agrees to assume all of the
obligations of a Holder thereunder and to be bound by all of the terms and
provisions of the Agreement.
Section 16. MISCELLANEOUS. In case any provision of this Warrant shall be
invalid, illegal or unenforceable, or partially invalid, illegal or
unenforceable, the provision shall be enforced to the extent, if any, that it
may legally be enforced and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby. This
9
<PAGE>
Warrant and any term hereof may be changed, waived, discharged or terminated
only by a statement in writing signed by the party against which enforcement of
such change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the domestic substantive laws (and
not the conflict of law rules) of The Commonwealth of Massachusetts. The
headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof. This Warrant shall take effect as
an instrument under seal.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Clerk.
Dated: As of December 29, 1997 STARMET CORPORATION
(Corporate Seal) By /s/ James M. Spiezio
-----------------------
Name: James M. Spiezio
Title: Chief Financial Officer
Attest:
Secretary
11
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Common Stock Purchase Warrant)
TO: STARMET CORPORATION
The undersigned, the holder of the within Common Stock Purchase Warrant,
hereby irrevocably elects to exercise this Common Stock Purchase Warrant for,
and to purchase thereunder * shares of Common Stock of Starmet
Corporation (the "Company") and herewith makes payment of $__________ therefor,
and requests that the certificates for such shares be issued in the name of, and
delivered to _________________, whose address is ______________________. The
undersigned agrees that this election is subject to the complete terms and
conditions of the Warrant Agreement dated as of December 29, 1997, and the
undersigned agrees to deliver to the Company such additional documentation as
may be requested by the Company in accordance with the Warrant Agreement.
Dated:
(Signature must conform
in all respects to name of
Holder as specified on
the face of the Warrant)
(Address)
_________________
*Insert here the number of shares (all or part of the number of shares
called for in the Common Stock Purchase Warrant) as to which the Common Stock
Purchase Warrant is being exercised without making any adjustment for any other
stock or other securities or property or cash which, pursuant to the adjustment
provisions of the Common Stock Purchase Warrant, may be deliverable on exercise,
it being understood that the exercise of the Common Stock Purchase Warrant with
respect to the number of shares set forth herein is deemed also to be the
exercise of the Common Stock Purchase Warrant with respect to such other stock,
securities, cash or property.
12
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of
Common Stock Purchase Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ________ of _________ the right represented by the within Common Stock
Purchase Warrant to purchase _______ shares of Common Stock of Starmet
Corporation to which the within Common Stock Purchase Warrant relates, and
appoints ____________ as Attorney to transfer such right on the books of Starmet
Corporation with full power of substitution in the premises.
Dated:
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
(Address)
Signed in the presence of:
13
<PAGE>
Exhibit 10(PP)
COMMERCIAL LOAN NOTE
PALMETTO FEDERAL SAVINGS BANK OF S.C., Aiken, S.C.
NAME: Starmet CMI Corporation DATE: March 20, 1998
ADDRESS: P.O. Box 1366, Barnwell, SC 29812 ACCOUNT: 5030012243
US $ 495,000.00
For Value Received, the Undersigned (hereinafter, including collectively all
signatories hereto, "Borrower") promises to pay to the order of Palmetto Federal
Savings Bank of South Carolina (together with any holder or assignee hereof
"Lender") at the above office, in lawful money of the United States of America,
the sum of Four Hundred ninety-five thousand & no/100 ($495,000) Dollars with
interest at the fixed rate of ten Per cent (10%) Per annum or ( %) above the
rate approved by New York Citibank, New York, as its prime rate on the last
business day prior to the first day of each month. This interest rate to be
adjusted ( ) monthly, ( ) quarterly, ( ) other ) _______; due
and payable as follows:
Interest only for 6 months with first due April 20, 1998 to convert to
59 monthly principle and interest payments with first due October 20,
1998 and a final due September 20, 2003. Balance to be refinanced for
remaining 60 payments as per terms of commitment letter. *LOAN TO BE
ACTIVATED BY DRAWS*
(hereinafter, together with all extensions and renewals thereof and all other
promises and agreements contained herein the "Loan") and if the same is not paid
when due, whether by acceleration or otherwise, interest at the rate specified
above until paid in full, regardless of whether or not a judgment has been
obtained hereon, in addition, Borrower promises to pay all reasonable attorney's
or collection fees, deemed to be 15% of the unpaid debt at maturity, whether by
acceleration or otherwise, plus all other costs and expenses incurred in the
collection of the Loan if the same is turned over to an attorney or other third
party for collection. Interest is computed on the basis of a 365 day year. The
loan may be prepaid in full without penalty.
The outstanding principal, with all accrued interest, shall become immediately
due and payable at the option of Lender and collectible without further notice,
and any lien given to secure payment of this Note may be foreclosed, upon the
occurrence of any one or more of the following events: (a) the failure to make
when due any payment called for hereon; (b) the failure to perform when due any
warranty, covenant, or agreement in this Note or in any document incorporated
herein by reference (including any modification, renewal, supplement or other
amendment to this Note or any such document); (c) if the Loan is guaranteed by
one or more individuals, the death or incapacity of any such individual
guarantors; (d) the filing of a petition or other pleading by or with respect to
Borrower or (if applicable) any guarantor of the Loan seeking relief under any
bankruptcy law or other law for the benefit of debtors; (e) the transfer or
assignment by Borrower or (if applicable) any guarantor of the loan of assets
for the benefit of one or more creditors or of all or substantially all of its
assets except in the ordinary course of business; (f) any representation or
warranty made by Borrower and each endorser, guarantor, or surety hereof grants
to Lender as security for the Loan and all other liability or indebtedness of
any one or more of such persons to Lender a Lien upon (a) all property left with
Lender, whether now or hereafter deposited; and (b) any balance of deposit
account subject to withdrawal by or individually owned by any one or more of
such persons; and (c) any notes, bonds, drafts, or other items deposited with
Lender by any one or more of such persons for collection; and (d) the proceeds
of and refunds of premiums with respect to any insurance obtained in connection
with the Loan. Lender shall have authority at any time at or after the maturity
of the loan, whether by acceleration or otherwise, to charge any or all of the
Loan against the same or the proceeds thereof.
CHECK IF APPLICABLE
X The loan is further secured by the real property described below as evidence
- --- by a mortgage dated March 20, 1998.
The loan is further secured by the collateral described below as evidenced
- --- by a security agreement dated _____________.
The loan is subject to a loan agreement dated _____________.
- ---
Each mortgage, security agreement, and loan agreement referred to above contain
terms, conditions, provisions, representations, warranties, covenants, and
agreements, reference to which is hereby made and which are incorporated herein
by reference.
Description of Collateral
Second mortgage on 322 acres plus improvements located at 365 Metal Dr.,
Barnwell, SC.
Borrower and all guarantors, endorsers, sureties, and other parties primarily or
secondarily liable with respect to the Loan: (a) waive presentment and demand,
protest, notice of dishonor or of acceleration; (b) waive any right to require
Lender to retain any collateral securing the Loan or any other liabilities; (c)
waive any right to require the Lender to resort to exercising any remedies it
may have against any collateral securing the Loan; (d) agree and consent to any
extension of time for payment or other modification of any term or condition of
the Loan without limit on the number or duration of such extensions or
modifications; (e) agree that Lender may exchange, substitute, swap, release,
reduce or otherwise permit the disposal of any collateral securing the Loan; (f)
agree that Lender may compromise or receive less than the full amount due on or
value of any collateral and grant any other indulgence to any party; and (g)
acknowledge that the liability of such party is joint and several with all other
parties in the same capacity. All waivers and consents herein are given without
notice, without liability to Lender, and without affecting the liability of such
party. By this paragraph, the parties intend to provide lender with legal
remedies which are in addition to and not in lieu of any other rights or
remedies provided by law, all of which rights and remedies are cumulative and
exercisable simultaneously or consecutively in any order without being deemed to
have been waived for any reason.
<PAGE>
Wherever possible, each provision of the Note shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
or portion of this Note shall be prohibited by or invalid under such law, such
provision or portion shall be ineffective to the extent of such prohibition or
invalidity but without invalidating the remainder of such provision or portion
or the remaining provisions or portions of the Note.
Borrower hereby represents to Lender that the Loan is being obtained primarily
for business, commercial or agricultural purposes.
IN WITNESS WHEREOF, this Note has been duly executed and delivered by Borrower,
or a duly authorized officer of Borrower (as may be appropriate), on the date
first written above.
ADDRESS OF BORROWER (X) Borrower is a business entity
P.O. Box 1366 STARMET CMI Corporation
Barnwell, SC 29812 Name
By: /s/ James M. Spiezio
-----------------------------
By:
-----------------------------
Final Payment Due: September 30, 2003
<PAGE>
Exhibit 10(QQ)
COMMERCIAL LOAN NOTE
LOWER SAVANNAH REGIONAL DEVELOPMENT CORPORATION, Aiken, S.C.
NAME: Starmet CMI Corporation DATE: March 20, 1998
ADDRESS: P.O. Box 1366, Barnwell, SC 29812
US $ 500,000.00
For Value Received, the Undersigned (hereinafter, including collectively all
signatories hereto, "Borrower") promises to pay to the order of Palmetto Federal
Savings Bank of South Carolina (together with any holder or assignee hereof
"Lender") at the above office, in lawful money of the United States of America,
the sum of Five Hundred thousand & no/100 Dollars ($500,000.00) with interest at
the fixed rate of ten Per cent (10%) Per annum or ( %) above the rate
approved by New York Citibank, New York, as its prime rate on the last business
day prior to the first day of each month. This interest rate to be adjusted
( ) monthly, ( ) quarterly, ( ) other ) _______; due and
payable as follows:
Interest only for 6 months with first due April 20, 1998 to convert to
59 monthly principle and interest payments with first due October 20,
1998 and a final due September 20, 2003. Balance to be refinanced for
remaining 60 payments as per terms of commitment letter. *LOAN TO BE
ACTIVATED BY DRAWS*
(hereinafter, together with all extensions and renewals thereof and all other
promises and agreements contained herein the "Loan") and if the same is not paid
when due, whether by acceleration or otherwise, interest at the rate specified
above until paid in full, regardless of whether or not a judgment has been
obtained hereon, in addition, Borrower promises to pay all reasonable attorney's
or collection fees, deemed to be 15% of the unpaid debt at maturity, whether by
acceleration or otherwise, plus all other costs and expenses incurred in the
collection of the Loan if the same is turned over to an attorney or other third
party for collection. Interest is computed on the basis of a 365 day year. The
loan may be prepaid in full without penalty.
The outstanding principal, with all accrued interest, shall become immediately
due and payable at the option of Lender and collectible without further notice,
and any lien given to secure payment of this Note may be foreclosed, upon the
occurrence of any one or more of the following events: (a) the failure to make
when due any payment called for hereon; (b) the failure to perform when due any
warranty, covenant, or agreement in this Note or in any document incorporated
herein by reference (including any modification, renewal, supplement or other
amendment to this Note or any such document); (c) if the Loan is guaranteed by
one or more individuals, the death or incapacity of any such individual
guarantors; (d) the filing of a petition or other pleading by or with respect to
Borrower or (if applicable) any guarantor of the Loan seeking relief under any
bankruptcy law or other law for the benefit of debtors; (e) the transfer or
assignment by Borrower or (if applicable) any guarantor of the loan of assets
for the benefit of one or more creditors or of all or substantially all of its
assets except in the ordinary course of business; (f) any representation or
warranty made by Borrower and each endorser, guarantor, or surety hereof grants
to Lender as security for the Loan and all other liability or indebtedness of
any one or more of such persons to Lender a Lien upon (a) all property left with
Lender, whether now or hereafter deposited; and (b) any balance of deposit
account subject to withdrawal by or individually owned by any one or more of
such persons; and (c) any notes, bonds, drafts, or other items deposited with
Lender by any one or more of such persons for collection; and (d) the proceeds
of and refunds of premiums with respect to any insurance obtained in connection
with the Loan. Lender shall have authority at any time at or after the maturity
of the loan, whether by acceleration or otherwise, to charge any or all of the
Loan against the same or the proceeds thereof.
CHECK IF APPLICABLE
X The loan is further secured by the real property described below as
- --- evidence by a mortgage dated March 20, 1998.
The loan is further secured by the collateral described below as evidenced
- --- by a security agreement dated _____________.
The loan is subject to a loan agreement dated _____________.
- ---
Each mortgage, security agreement, and loan agreement referred to above contain
terms, conditions, provisions, representations, warranties, covenants, and
agreements, reference to which is hereby made and which are incorporated herein
by reference.
Description of Collateral
Second mortgage on 322 acres plus improvements located at 365 Metal Dr.,
Barnwell, SC.
Borrower and all guarantors, endorsers, sureties, and other parties primarily or
secondarily liable with respect to the Loan: (a) waive presentment and demand,
protest, notice of dishonor or of acceleration; (b) waive any right to require
Lender to retain any collateral securing the Loan or any other liabilities; (c)
waive any right to require the Lender to resort to exercising any remedies it
may have against any collateral securing the Loan; (d) agree and consent to any
extension of time for payment or other modification of any term or condition of
the Loan without limit on the number or duration of such extensions or
modifications; (e) agree that Lender may exchange, substitute, swap, release,
reduce or otherwise permit the disposal of any collateral securing the Loan; (f)
agree that Lender may compromise or receive less than the full amount due on or
value of any collateral and grant any other indulgence to any party; and (g)
acknowledge that the liability of such party is joint and several with all other
parties in the same capacity. All waivers and consents herein are given without
notice, without liability to Lender, and without affecting the liability of such
party. By this paragraph, the parties intend to provide lender with legal
remedies which are in addition to and not in lieu of any other rights or
remedies provided by law, all of which rights and remedies are cumulative and
exercisable simultaneously or consecutively in any order without being deemed to
have been waived for any reason.
<PAGE>
Wherever possible, each provision of the Note shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
or portion of this Note shall be prohibited by or invalid under such law, such
provision or portion shall be ineffective to the extent of such prohibition or
invalidity but without invalidating the remainder of such provision or portion
or the remaining provisions or portions of the Note.
Borrower hereby represents to Lender that the Loan is being obtained primarily
for business, commercial or agricultural purposes.
IN WITNESS WHEREOF, this Note has been duly executed and delivered by Borrower,
or a duly authorized officer of Borrower (as may be appropriate), on the date
first written above.
(X) Borrower is a business entity
STARMET CMI Corporation
Name
By: /s/ James M. Spiezio
-----------------------------
By:
-----------------------------
Final Payment Due: September 30, 2003
<PAGE>
Exhibit 10(RR)
STATE OF SOUTH CAROLINA
MORTGAGE, SECURITY AGREEMENT
COUNTY OF BARNWELL AND FINANCING STATEMENT
THIS MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT (the
"Mortgage") is made and entered into as of March 20, 1998 , by StarMet CMI
Corporation, its successors and assigns (the "Mortgagor"), in favor of
PALMETTO FEDERAL SAVINGS BANK OF SOUTH CAROLINA, a federal savings bank,
having as an address 107 Chesterfield Street, Aiken, South Carolina 29801,
its successors and assigns (the "Mortgagee").
WITNESSETH:
WHEREAS, Mortgagor is indebted to Mortgagee pursuant to a promissory note of
even date herewith in the original principal amount of Four Hundred
Ninety-five-Thousand and 00/100 DOLLARS ($495,000.00) (together with any and all
extensions, renewals, or modifications thereof, the "Note"); and
WHEREAS, Mortgagor desires to secure its obligations under the Note by
granting, the Mortgagee a first mortgage lien on and security interest in the
real property, improvements, fixtures, and personal property described below;
NOW, THEREFORE, the Mortgagor in consideration of the aforesaid debt, and
also in consideration of the further sum of Three and No/100 ($3.00) Dollars, to
it in hand paid by the Mortgagee, receipt whereof is hereby acknowledged, and
for the purpose of securing, the Obligations (as hereinafter defined), has
granted, bargained, sold, and released, and by these presents, does grant,
bargain, sell and release unto the Mortgagee, its successors and assigns, as
security for the Obligations (as defined below), the land described on Exhibit A
attached hereto and incorporated by reference (the "Land") including all
improvements (the "Improvements") now existing or hereafter placed on the Land;
TOGETHER, with all rights, privileges, interests, easements, tenements,
hereditaments and appurtenances thereto belonging, including without limitation
all right, title and interest of Mortgagor in and to water, minerals, flowers,
shrubs, crops, trees, timber and other emblements now or hereafter located
therein, and the rents, issues and profits thereof, and any and all improvements
and fixtures now or subsequently attached to or used in connection therewith
(collectively, together with the Land, the Improvements, and the Additional
Property (as hereafter defined), the "Mortgaged Property").
TO HAVE AND TO HOLD, all and singular the Mortgaged Property, unto the
Mortgagee, its successors and assigns forever.
<PAGE>
AND the Mortgagor covenants with the Mortgagee that the Mortgagor is
indefeasibly seized of a good and marketable fee simple title to said Land
and has good and lawful authority to mortgage said Land; that the Mortgagor
hereby fully warrants the title to said Land and will defend the same
against the lawful claims of all persons whomsoever; and that said Land is
free and clear of all encumbrances except those exceptions set forth on
Exhibit B attached hereto and incorporated by reference.
PROVIDED, ALWAYS, that if the Mortgagor shall pay unto the Mortgagee
the said Obligations (including any future advances); AND if the Mortgagor
shall duly, promptly and fully perform, discharge, execute, effect,
complete and comply with and abide by each and every of the stipulations,
agreements, conditions and covenants therein and in this Mortgage, then
this Mortgage and all assignments contained herein shall cease and be null
and void, otherwise to remain in full force and effect.
THIS MORTGAGE secures (a) the obligations of Mortgagor to Mortgagee
under the Note; (b) any and all advances or expenditures made by Mortgagee
pursuant to the terms of this Mortgage; (c) attorneys' fees, court costs,
and other amounts which may be due under the Note, or this Mortgage; (d)
any and all other indebtedness of Mortgagor to Mortgagee, now existing or
hereafter arising, of whatever class or nature, whether or not now
contemplated by the parties, including future advances pursuant to S.C.
Code Ann. Section 29-3-50 (as set forth more fully below); and (e) any and
all extensions, renewals, and modifications of any of the foregoing (all of
(a) through (e) being hereinafter referred to the as "Obligations").
Extensions, renewals, and modifications of the debt secured hereby, and
future advances, may bear interest at a rate or rates higher than the rate
borne by the Note.
THIS MORTGAGE shall secure not only existing indebtedness but all
future advances (in accordance with S.C. Code Ann. Section 29-3-50, as
amended), readvances, and additional indebtedness hereafter arising or
incurred of Mortgagor to Mortgagee, and any notes evidencing the same,
whether such advances or indebtedness is obligatory or to be made at the
option of the Mortgagee, or otherwise, to the, same extent as if such
future advance or indebtedness was made on the date of the execution of
this Mortgage, but the indebtedness secured by this Mortgage shall not
exceed at any one time the maximum principal amount of Four Hundred
Ninety-five Thousand and 00/100 Dollars ($ 495,000.00), plus interest
thereon, reasonable attorneys' fees and court costs, and plus advancements
for taxes, insurance premiums, and repairs made by Mortgagee. All
indebtedness incurred after the date hereof by Mortgagor in favor of
Mortgagee shall be deemed to be a future advance and entitled to the
protection of this provision. Such future indebtedness may bear interest
at a rate or rates greater than the rate set forth in the Note. Interest
on the Note will be deferred, accrued, or capitalized, but Mortgagee shall
not be required to defer, accrue, or capitalize any interest except as
provided in the Note.
2
<PAGE>
AS FURTHER SECURITY for the Obligations, Mortgagor hereby grants to
Mortgagee, its successors and assigns, a continuing security interest in the
following (the "Additional Property"):
(a) All machinery, apparatus, equipment, fittings, fixtures, and
other personal property (all as defined in the Uniform Commercial Code)
actually or constructively attached to the Land or the Improvements and now
owned or hereafter acquired by the Mortgagor, including, but without
limiting the generality of the foregoing, all heating, air conditioning,
freezing, lighting, pipes; pumps; tanks; motors; conduits; plumbing,
lifting, cleaning, fire prevention, fire extinguishing, refrigerating,
ventilating and communications apparatus, boilers, furnaces, oil burners or
units thereof, ducts and compressors, together with all building materials
and equipment now or hereafter delivered to the Land or the Improvements
and intended to be installed therein;
(b) All of the water, sanitary and storing sewer systems now or
hereafter owned by the Mortgagor which are now or hereafter located by,
over, and/or upon the Land or the Improvements or any part and parcel
thereof, and which water system includes all water mains, service laterals,
hydrants, valves and appurtenances, and which sewer system includes all
sanitary sewer lines, including mains, laterals, manholes and
appurtenances;
(c) All exterior lights, light poles, and related fixtures and
equipment, including, without limitation all parking lot lighting;
(d) All paving for streets, roads, walkways or entrance ways now
or hereafter owned by the Mortgagor and which are now or hereafter located
on the Land or the Improvements or any part or parcel thereof;
(e) Any and all awards or payments, including interest thereon,
and the right to receive the same, as a result of (a) the exercise of the
right of eminent domain, (b) the alteration of the grade of any street, or
(c) any other injury to, taking of, or decrease in the value of the Land or
the Improvements or personal property;
(f) All of the Mortgagor's interest in all utility security
deposits or bonds on the Land or the Improvements or any part or parcel
thereof;
(g) All licenses (including, but not limited to, any operating
"licenses), contracts, management contracts or agreements, franchise
agreements, permits, authorities or certificates required or used in
connection with the ownership of, or the operation or maintenance of the
Improvements;
(h) All names under or by which the Land or the Improvements may
at any time be operated or known, and all rights to carry on business under
any such
3
<PAGE>
names or any variant thereof, and all trademarks, trade names, patents
pending and goodwill;
(i) All utility service bonds and/or cash deposits, site
improvement bonds and/or cash deposits, building permits, sewer connection
and/or tap-in permits, water connection and/or tap-in permits, curb-cut
permits, utility service agreements, site work agreements with any
governmental authority or public utility, and all other permits, approvals
and contracts of any kind relating to the Land or Improvements;
(j) All warranties and guaranties covering any appliances and
fixtures now or hereafter located on or placed upon the Land or used in
connection with the Improvements including without limitation, air
conditioning, heating and other appliances and equipment;
(k) All surveys, agreements, instruments, contracts, documents
of title, choses in action or intangible property or contract rights of any
kind now existing or hereafter arising or created or entered into related
to the Land or the Improvements or ownership or operation of the Land or
Improvements including, but not limited to, the plans and specifications,
all construction, architectural and other contracts, purchase orders,
permits, approvals, licenses, franchises, trademarks, project logos,
building names, surveys, insurance policies, bonds, escrow funds, easement,
exclusive agency licenses or leases and proceeds of any of the foregoing;
(l) All sales agreements, deposit receipts, escrow agreements
and other ancillary documents and agreements entered into with respect to
the sale to any purchasers of any part of the Land or any buildings or
structures on the Land, together with all deposits and other proceeds of
the sale thereof;
(m) All rents, issues, profits, and revenues from the Mortgaged
Property;
(n) All substitutions and replacements of, and accessions and
additions to, any of the foregoing; and
(o) All proceeds of any of the foregoing, including, without
limitation, proceeds of any voluntary or involuntary disposition or claim
respecting any part thereof (pursuant to judgment, condemnation award or
otherwise) and all goods, documents, general intangibles, chattel paper and
accounts, wherever located, acquired with cash proceeds of any of the
foregoing or proceeds thereof.
AND the Mortgagor does hereby expressly covenant and agree as follows:
I . Assignment of Rents and Profits. As further security for the payment
of the Obligations and for the faithful performance of all the covenants,
agreements, terms and provisions of this Mortgage, Mortgagor hereby sells,
mortgages, transfers and assigns unto
4
<PAGE>
Mortgagee and grants Mortgagee a security interest in all the right, title and
interest of the Mortgagor in and to the rents, issues, profits, revenues,
royalties, rights and benefits from the above described property, and to that
end Mortgagor hereby assigns and sets over unto the said Mortgagee all leases
and licenses of said premises now made, executed or delivered, whether written
or verbal, or to be hereafter made, be the same written or verbal, and Mortgagor
does hereby authorize and empower the Mortgagee to collect said rents, issues,
profits, revenues, royalties, rights and benefits, as they shall become due, and
does hereby direct each and all of the tenants of the aforesaid premises to pay
such rents, as they may now be due or shall hereafter become due to the said
Mortgagee, upon demand for payment thereof by said Mortgagee; it being
understood and agreed, however, that no such demand shall be made unless and
until there has occurred an Event of Default hereunder; and until such demand is
made, Mortgagor is authorized to collect or continue collecting said rents,
issues, profits, revenues, royalties, rights and benefits; but that such
privilege to collect or continue collecting, as aforesaid by the Mortgagor shall
not operate to permit the collection of any rents more than thirty (30) days in
advance of the date same are due under the terms and provisions of said lease or
leases.
2. After Acquired Property. The Lien of this Mortgage shall
automatically attach, without further act, to all after acquired property
located in or on, or attached to, or used or intended to be used in connection
with or with the operation of the Mortgaged Property or any part thereof, and
shall likewise automatically attach to any and all subsequent or additional
interests Mortgagor may hereafter acquire in the Mortgaged Property.
3. Payment of Obligations. Mortgagor covenants and agrees to pay the
Obligations in accordance with their terms promptly as the principal and
interest thereon shall become due.
4. Maintenance of Property. Mortgagor shall maintain the Mortgaged
Property in good condition and repair and shall neither permit nor allow waste
thereof. Mortgagor shall promptly repair or restore any portion of the
Mortgaged Property which is damaged or destroyed by any cause whatsoever and
shall promptly pay when due all costs and expenses of such repair or
restoration. Mortgagor shall not remove, demolish, or materially alter any
improvement or fixture which is now or hereafter part of the Mortgaged Property
and shall cut no timber on the Mortgaged Property without the express written
consent of Mortgagee. Mortgagee shall be entitled to specific performance of
the provisions of this paragraph.
5. Insurance. Mortgagor shall maintain with respect to all building,
improvements, fixtures, and tangible personal property which are now or
hereafter part of the Mortgaged Property, fire and extended coverage insurance,
including windstorm and hail, and earthquake insurance, and such other hazard
insurance as Lender may require. If any portion of the Mortgaged Property is
located in a federally designated flood plain, Mortgagor shall also obtain a
flood insurance policy in the maximum amount available under the National Flood
Insurance Act of 1968, but not to exceed the replacement value of all buildings
and improvements located on the Mortgaged Property that are located in a
federally designated flood plain. All such insurance shall be payable to
Mortgagee as the interest of Mortgagee may appear pursuant to the New York
standard form of mortgagee clause or such other form of mortgagee clause as may
5
<PAGE>
be required by the Mortgagee and shall not be cancelable by either the insurer
or the insured without at least thirty (30) days prior written notice to the
Mortgagee. Mortgagor shall keep the Mortgaged Property continuously insured as
herein required and shall deliver to Mortgagee a copy of each policy of
insurance required hereby together with a current certificate of insurance.
Mortgagor shall pay each premium coming due on any such policy of insurance and
will deliver to Mortgagee proof of such payment at least ten (10) days prior to
the date such premium would become overdue or delinquent. Upon the expiration
or termination of any such policy of insurance, Mortgagor shall furnish to
Mortgagee at least ten (10) days prior to such expiration or termination a copy
of a renewal or replacement policy of insurance meeting the requirements hereof
together with a current certificate of insurance. If Mortgagor fails to insure
the Mortgaged Property as herein required, Mortgagee may so insure the Mortgaged
Property in the name of Mortgagor or in the name of Mortgagee or both, and the
premiums for any such insurance obtained by Mortgagee shall be the obligation of
Mortgagor and shall secured by this Mortgage. Upon foreclosure of this
Mortgage, all right, title and interest of Mortgagor in and to any policy of
insurance upon the Mortgaged Property which is in the custody of Mortgagee,
including the right to unearned premiums, shall vest in the purchaser of the
Mortgaged Property at foreclosure, and Mortgagor hereby appoints Mortgagee as
the attorney in fact of Mortgagor to assign all right, title and interest of
Mortgagor in and to any such policy of insurance to such purchaser. This
appointment is coupled with an interest and shall be irrevocable.
6. Proceeds of Insurance. Mortgagor hereby assigns to Mortgagee the
right to collect and receive any indemnity payment otherwise owed Mortgagor upon
any policy of insurance insuring any portion of the Mortgaged Property,
regardless of whether Mortgagee is named in such policy as a person entitled to
collect upon the same. So long as there has occurred no Event of Default
hereunder, or any event which but for the lapse of time or the giving of notice
would constitute an Event of Default, any indemnity payment received by
Mortgagee from any such policy of insurance shall be applied in a manner
reasonably determined by Mortgagee to the replacement, repair or restoration of
the portion of the Mortgaged Property damaged or destroyed. Notwithstanding the
foregoing, if at the time of payment of the insurance proceeds there has
occurred an Event of Default which has not been cured or remedied as permitted
hereunder, or if in the reasonable determination of Mortgagee the insurance
proceeds, together with funds made available by Mortgagor for such purpose, are
insufficient to replace, repair, or restore the Mortgaged Property, then
Mortgagor may apply such proceeds to payment of any sum secured by this Mortgage
in such order as Mortgagee may determine. No portion of any indemnity payment
which is applied to replacement, repair or restoration of any portion of the
Mortgaged Property or which may be released to Mortgagor shall be deemed a
payment against any sums secured by this Mortgage.
7. Taxes. Mortgagor shall pay all taxes, assessments and other charges
which constitute or are secured by a lien upon the Mortgaged Property which is
superior to the lien of this Mortgage and shall deliver to Mortgagee proof of
payment of the same not less than ten (10) days prior to the date the same
becomes delinquent; provided, however, that Mortgagor shall be entitled by
appropriate proceedings to contest the amount of validity of such tax,
assessment or charge so long as the collection of the same by foreclosure of the
lien upon the Mortgaged
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Property is stayed during the pendency of such proceedings and Mortgagor
deposits with the authority to which such tax, assessment or charge is payable
or with the Mortgagee appropriate security for payment of the same, together
with any applicable interest and penalties, should the same be determined due
and owing. Mortgagor shall not claim, demand or be entitled to receive any
credit or credits on the principal or interest payable under the terms of the
Note or on any other Obligations secured hereby, for so much of the taxes,
assessments or similar impositions assessed against the Mortgaged Property or
any part thereof as are applicable to the indebtedness secured hereby or to
Mortgagee's interest in the Mortgaged Property. No deduction shall be claimed
from the taxable value of the Mortgaged Property or any part thereof by reason
of the Note, this Mortgage or any other instrument securing the Note.
8. Advances by Mortgagee Reimbursement. If Mortgagor fails to make
payment for restoration or repair of the Mortgaged Property, for insurance
premiums or for taxes, assessments or other charges as required in this
Mortgage, Mortgagee may, but shall not be obligated to, pay for the same, and
any such payment by Mortgagee will be secured by this Mortgage and have the same
rank and priority as the principal debt secured hereby and bear interest from
the date of payment at the rate provided in the Note. Payments made for taxes
by Mortgagee shall be a first lien on the Mortgaged Property to the extent of
the taxes so paid with interest from the date of payment, regardless of rank or
priority of this Mortgage. Mortgagor shall pay to Mortgagee in cash on demand
an amount equal to any payment made by Mortgagee pursuant to this paragraph plus
interest thereon as herein provided.
9. Extending Time for Payment. Mortgagee, without notice, and as often
as it wishes to, may agree with any party obligated on the Obligations (or any
of them), or having an interest in the Mortgaged Property, to renew or extend
the time for payment of any part or all of the indebtedness secured hereby,
without in any way affecting either the lien hereof or the liability of any
other party.
10. Events of Default. The term "Event of Default," wherever used in
this Mortgage, shall mean any one or more of the following events:
(a) The occurrence of a default under and as defined in the Note, the
giving of any required notice, and the continuation of such default
unremedied beyond any applicable grace period set forth in the Note.
(b) The occurrence of an Event of Default under and as defined in
that certain construction and term loan agreement of even date
herewith between Mortgagor and Mortgagee, the giving of any required
notice, and the continuation of such default unremedied beyond any
applicable grace period set forth in such construction loan agreement.
(c) Failure by the Mortgagor to pay within ten (10) days of the
scheduled payment date any installment of principal and/or interest on
the Obligations or any of them, including but not limited to the Note,
or failure to pay taxes or insurance
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when due, and the continuation of any such failure for ten (10) days
after written notice thereof is provided thereof by Mortgagor to
Mortgagee.
(d) The sale, conveyance, transfer, mortgage, lease or encumbrance of
all or any portion of the Mortgaged Property.
(e) Failure by the Mortgagor to duly observe any other covenant,
condition or agreement of the Obligations, or of this Mortgage, and
the continuation of such failure for a period of thirty (30) days
after written notice thereof is provided by Mortgagee to Mortgagor.
(f) Default in the terms or conditions of any other mortgage which is
a lien upon the Mortgaged Property, and the continuation of such
default beyond any applicable grace period.
(g) The discovery of any material amount of Hazardous Substance (as
hereinafter defined) on the Mortgaged Property, which Mortgagee
reasonably determines has a material, adverse effect on the value of
the Mortgaged Property; provided, however, that the foregoing shall
not be deemed to include petroleum products and related substances
properly stored and used in the ordinary course of business operations
on the Mortgaged Property, and shall further not be deemed to include
minor spills of petroleum and related products having no material,
adverse impact on the value of the Mortgaged Property.
(h) The damage or destruction of a material portion of the
Improvements, which damage or destruction is not promptly repaired or
is not fully covered by insurance.
(i) Mortgagor suffers or permits any lien, encumbrance, or security
interest to arise or attach to the Mortgaged Property that is not
promptly removed or satisfied, or any judgment is entered against
Mortgagor that is not satisfied or appealed and stayed within thirty
days.
(j) Any lien for labor, material, taxes or otherwise shall be filed
against the Mortgaged Property or any part thereof, which lien or
liens shall not be discharged or released within thirty (30) days
after the filing of such lien, whether by payment in satisfaction of
such lien or securing such lien by surety bond.
11. Consequences of Default. If an Event of Default shall occur:
(a) All of the indebtedness secured hereby shall become and be immediately
due and payable at the option of the Mortgagee, without notice or demand, which
are hereby expressly waived, and the Mortgagee may proceed to foreclose this
Mortgage and sell the Mortgaged Property or otherwise pursue any right or remedy
herein or by law provided. At the foreclosure,
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Mortgagee shall be entitled to bid and purchase the Mortgaged Property and shall
be entitled to apply the debt secured hereby, or any portion thereof, in payment
for the Mortgaged Property.
(b) Irrespective of whether Mortgagee accelerates the maturity of all
indebtedness secured hereby, or institutes foreclosure proceedings, Mortgagee
shall be entitled to the appointment of a receiver to enter upon and take and
maintain full control of the Mortgaged Property in order to perform all acts
necessary and appropriate for the operation and maintenance thereof including,
but not limited to, the execution, cancellation or modification of leases, the
making of repairs to the Mortgaged Property and the execution or termination of
contracts providing for the management or maintenance of the Mortgaged Property,
all on such terms as are deemed appropriate to protect the security of this
Mortgage. The receiver shall be entitled to a reasonable fee for so managing
the Mortgaged Property. All rents collected pursuant to this paragraph shall be
applied first to the costs of taking control and managing the Mortgaged Property
and collecting the rents, including but not limited to reasonable attorneys'
fees, receiver's fees, premiums on receiver's bonds, costs of repair to the
Mortgaged Property, premiums on insurance policies, taxes, assessments and other
charges on the Mortgaged Property, and the costs of discharging any liability or
obligation of Mortgagor as lessor or Landlord of the Mortgaged Property and then
to the sums secured by this Mortgage. Mortgagee and the receiver shall have
access to the books and records used in the operation and maintenance of the
Mortgaged Property and shall be liable to account only for those rents actually
received. Mortgagee shall not be liable to Mortgagor, anyone claiming under or
through Mortgagor, or anyone having an interest in the Mortgaged Property by
reason of anything done or left undone by Mortgagee under this paragraph. If
the rents of the Mortgaged Property are not sufficient to meet the costs of
taking control of and managing the Mortgaged Property and collecting the rents,
Mortgagee may at its sole option advance funds to meet the costs. Any funds
expended by Mortgagee for such purposes shall become indebtedness of Mortgagor
to Mortgagee secured by this Mortgage. Such funds shall be payable on demand by
Mortgagee and shall bear interest at the rate provided in the Note. The
entering upon and taking and maintaining of control of the Mortgaged Property by
the Mortgagee or the receiver and the application of the rents as provided
herein shall not cure or waive any default hereunder or invalidate any other
right or remedy of Mortgagee hereunder.
(c) The Mortgagee shall, in addition to all other rights and remedies,
have the rights and remedies of a secured party under the Uniform Commercial
Code, including without limitation, the right to take possession of the
Additional Property, and for that purpose the Mortgagee may: (i) so far as the
Mortgagor can give authority therefor, enter upon any premises on which the
Additional Property may be situated and remove the same therefrom; (ii) take
possession or control of the Additional Property and the premises on which it is
located; (iii) require the Mortgagor to assemble all or any part of the
Additional Property or records concerning the Additional Property and make such
available to the Mortgagee at a place to be designated by the Mortgagee which is
reasonably convenient to both parties; (iv) sell or otherwise dispose of all or
any part of the inventory on any premises where then located without being
liable to the Mortgagor on account of any loss, damage or depreciation that may
occur as a result thereof so long as the Mortgagee shall act in a commercially
reasonable manner; (v) use all trademarks, service marks, trade names, trade
styles, logos, goodwill, trade secrets, franchises,
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licenses and patents which the Mortgagor now has or may hereafter acquire,
including the right to use or license the use of said marks, names, styles,
logos and goodwill in connection with the sale of goods or the rendering of
services, in the conduct of service, advertising, promotion and the like; and
(vi) lease or license third persons or entities for such purpose. Unless the
Additional Property is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Mortgagee shall give
to the Mortgagor at least thirty (30) days' prior written notice (which
Mortgagor agree is "reasonable notification" within the meaning of Section 9-504
of the Uniform Commercial Code of the State of South Carolina) of the time and
place of any public sale or any other intended disposition of the Additional
Property is to be made.
12. Marshalling of Assets. The Mortgagee shall not be required to marshal
any present or future security for (including but not limited to this Mortgage,
and the Mortgaged Property), or guaranties of, the Obligations or any of them,
or to resort to such security of guaranties in any particular order; and all of
the rights hereunder and in respect of such security and guaranties shall be
cumulative and in addition to all other rights, however existing or arising. To
the extent that it lawfully may, the Mortgagor hereby agrees that it will not
invoke any law relating to the marshalling of collateral which might cause delay
in or impede the enforcement of the Mortgagee's rights under this Mortgage or
under any other instrument evidencing any of the Obligations or under which any
of the Obligations is secured or guaranteed, and to the extent that it lawfully
may the Mortgagor hereby irrevocably waives the benefits of all such laws.
13. Costs and Expenses. All reasonable costs and expenses (including
attorneys' fees) incurred or paid by the Mortgagee in connection with
enforcement of the Obligations or the exercise by the Mortgagee of any of its
rights or remedies hereunder, or in retaking, holding, preparing for sale and
selling or otherwise realizing upon any of the Mortgaged Property, including,
without limitation, the reasonable attorneys' fees and expenses of any attorney
to whom this matter is referred (whether or not litigation is commenced), or for
representation in proceedings under any bankruptcy or insolvency law, or in case
the Mortgagee has become a party either as plaintiff or as defendant in any suit
or legal proceeding in relation to the Mortgaged Property or the lien created
herein, shall be repaid by the Mortgagor to the Mortgagee upon demand, with
interest at the rate provided in the Note. In the event said expenses are not
paid by the Mortgagor to the Mortgagee, they shall become part of the
Obligations and shall be secured hereby.
14. Interest. It is agreed that nothing herein contained nor any
transaction related thereto shall be construed or so operate as to require the
Mortgagor to pay interest at a rate greater than is now lawful in such case to
contract for, or to make any payment or to do any act contrary to laws, that if
any clauses or provisions herein contained operated or would prospectively
operate to invalidate this Mortgage or the Note in whole or in part, then such
clauses and provisions only shall be held for naught, as though not herein
contained, and the remainder of this Mortgage shall remain operative and in full
force and effect.
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15. Eminent Domain. The Mortgagee shall be entitled to receive and recover
the entire award made in any eminent domain proceedings to the extent that the
same does not exceed the amount necessary to pay in full all sums secured by the
lien of this Mortgage.
16. Transfer of Property. Mortgagor shall not sell, convey, transfer,
mortgage, lease or further encumber, nor suffer or permit the sale, conveyance,
transfer, mortgage, lease or encumbrance, whether voluntarily or by operation of
law, of any interest in or any part of the Mortgaged Property, the rents and
profits therefrom, or the Additional Property, without the prior written consent
of Mortgagee. If any person or entity should obtain any interest in all or any
part of the Mortgaged Property pursuant to the execution or enforcement any
lien, security interest or other right, whether superior, equal or subordinate
to this Mortgage or the lien hereof, such event shall unless otherwise provided
herein be deemed to be a transfer by Mortgagor. Mortgagor shall not, without
the prior written consent of the Mortgagee, further assign the rents from the
Mortgaged Property nor enter into any agreement or do any act to amend, modify,
extend, terminate or cancel, accept the surrender, subordinate, accelerate the
payment of rent, or change the terms of any renewal option of any lease now or
hereafter covering such property or any part thereof which would in each
instance or in the aggregate materially affect the collateral or the operation
of the Mortgagor or the Mortgaged Property or the ability of the Mortgagor to
repay the Note.
17. Further Assurances. The Mortgagor shall, at its sole expense, do,
make, execute and deliver all such additional and further acts, things, deeds,
assurances and instruments, in each case in form and substance, satisfactory to
the Mortgagee, relating to the creation, validity, or perfection of the mortgage
lien and security interests provided for in this Agreement under the Uniform
Commercial Code or other laws of the State of South Carolina or of any other
state or states in which Mortgagor is doing business or in which any of the
Mortgaged Property is located as the Mortgagee may from time to time reasonably
request, and shall take all such other action as the Mortgagee may reasonably
require more completely to vest in any and assure to the Mortgagee its rights
hereunder or in any of the Mortgaged Property, including without limitation
execution and delivery of financing statements which the Mortgagee deems
appropriate to perfect and continue the security interest hereby granted; and
the Mortgagor hereby irrevocably authorizes the Mortgagee, or its designee, at
the Mortgagor's sole expense, to execute and file such financing statements,
with or without the Mortgagor's signature, as the Mortgagee may deem
appropriate. In the event that any recording or refiling (or the filing of any
statement of continuation of any mortgage lien or financing statement) or any
repledge, or any other action, is required at any time to protect and preserve
such security interests, the Mortgagor shall, at its sole expense, cause the
same to be done or taken at such time and in such manner as may be necessary and
as may be reasonably requested by the Mortgagee.
18. Inspections; Easement. Mortgagor hereby agrees that Mortgagee shall
have the right, at any time during the term of this Mortgage, to conduct an
environmental investigation of the Mortgaged Property, either itself or by or
through designated agents and may exercise such rights from time to time, and in
furtherance of such rights, Mortgagor hereby grants to Mortgagee, its successors
and assigns, a non-exclusive limited easement over and across the
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Mortgaged Property, and its subsurface, for access to the Mortgaged Property and
for the purpose of conducting an environmental investigation of such Mortgaged
Property, provided that any such investigation shall be conducted in such a
manner as to not disrupt the Mortgagor's operations on the Mortgaged Property.
The satisfaction of, or the release of a portion of the Mortgaged Property,
shall evidence a termination of the easement granted herein in full, or as to
the Mortgaged Property released, as the case may be. This easement is
irrevocable so long as this Mortgage is outstanding.
19. Environmental Covenants. The Mortgagor hereby covenants and agrees
with Mortgagee as follows:
(a) Mortgagor will not use, generate, manufacture, produce, store,
release, discharge, or dispose of on, under or about the Mort-aged Property or
transport to or from the Mortgaged Property any material amount of any Hazardous
Substance (as defined herein) or allow any other person or entity to do so, and
shall keep and maintain the Mortgaged Property in compliance with, and shall not
cause or permit the Mortgaged Property to be in violation of any Environmental
Law (as defined herein). Notwithstanding the foregoing, Mortgagor and its
tenants may use and store petroleum and related products in the ordinary course
of business operations on the Mortgaged Property, provided that such use and
storage is in substantial compliance with applicable laws and regulations.
(b) Mortgagor shall give prompt written notice to Mortgagee of: i)
any material proceeding or inquiry by any governmental authority with respect to
the presence of any Hazardous Substance (other than petroleum and related
products properly stored and used in the ordinary course of business) on the
Mortgaged Property, an adverse determination of which could have a material
adverse affect on the value of the Mortgaged Property; ii) all material claims
made or threatened by any third party against Mortgagor or the Mortgaged
Property relating to any loss or injury resulting from any Hazardous Substance,
which if established, could have a material adverse affect on the value of the
Mortgaged Property or the financial condition of Mortgagor or any tenant); and
iii) Mortgagor's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Mortgaged Property that could cause the
Mortgaged Property or any part thereof to be subject to any material restriction
on the ownership, occupancy, transferability, or use of the Mortgaged Property
under any Environmental Law.
(c) Mortgagor shall protect, indemnify, and hold harmless Mortgagee, its
directors, officers, employees, agents, successors, and assigns from and against
any and all loss, damage, cost, expense, or liability (including attorneys' fees
and costs) directly or indirectly arising out of or attributable to the use,
generation, manufacture, production, storage, release, threatened release,
discharge, disposal, or presence of a Hazardous Substance on, under, or about
the Mortgaged Property including without limitation (i) all foreseeable
consequential damages; and (ii) the costs of any required or necessary repair,
cleanup or detoxification of the Mortgaged Property and the preparation and
implementation of any closure, remedial, or other required plans. This
indemnity shall survive the extinguishment of the lien by foreclosure or deed in
lieu thereof, and this covenant shall survive such reconveyance or
extinguishment.
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(d) In the event that any investigation, site monitoring, containment,
cleanup, removal, restoration, or other remedial work of any kind or nature (the
"Remedial Work") is reasonably necessary or desirable under any applicable
local, state, or federal law or regulation, any judicial order, or by any
governmental or nongovernmental entity or person because of, or in connection
with, the current or future presence, suspected presence, release or suspected
release of a Hazardous Substance in or into the air, soil, groundwater, surface
water or soil vapor at, on, about, under or within the Mortgaged Property (or
any portion thereof), Mortgagor shall within thirty (30) days after written
demand for performance thereof by Mortgagee (or such shorter period of time as
may be required under any applicable law, regulation, order, or agreement),
commence to perform, or cause to be commenced, and thereafter diligently
prosecuted to completion, all such Remedial Work. All Remedial Work shall be
performed by one or more contractors, approved in advance in writing by
Mortgagee, and under the supervision of a consulting engineer approved in
advance in writing by Mortgagee. All costs and expenses of such Remedial Work
shall be paid by Mortgagor including, without limitation, the charges of such
contractor(s) and/or the consulting engineer, and Mortgagee's reasonable
attorneys' fees and costs incurred in connection with monitoring or review of
such Remedial Work. In the event Mortgagor shall fail to timely commence, or
cause to be commenced, or fail to diligently prosecute to completion, such
Remedial Work, Mortgagee may, but shall not be required to, cause such Remedial
Work to be performed and all costs and expenses thereof, or incurred in
connection therewith, shall become part of the indebtedness secured hereby.
(e) Mortgagee is authorized by itself, its agents, employees or workmen to
enter at any reasonable time, after three (3) days prior notice, upon any part
of the Mortgaged Property for the purposes of inspecting the same for Hazardous
Substances and Mortgagor's compliance with this Section and such inspections may
include, without limitation, soil borings. Mortgagor agrees to pay to
Mortgagee, upon Mortgagee's demand, all expenses, costs or other amounts
incurred by Mortgagee in performing any reasonably necessary inspection for the
purposes set forth in this clause.
(f) "Environmental Laws" shall mean any federal, state or local law,
statute, ordinance, or regulation pertaining to health, industrial hygiene, or
the environmental conditions on, under or about the Mortgaged Property,
including without limitation the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA") as amended, 42 U.S.C.
Sections 9601 et seq., the Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. Sections 6901 et seq. The term "Hazardous Substances" shall
include without limitation: i) those substances included within the definitions
of "hazardous substances", "hazardous materials," "toxic substances," or "solid
waste" in CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49 U.S.
C. Sections 1801 et seq., and in the regulations promulgated pursuant to said
laws; ii) those substances listed in the United States Department of
Transportation Table (49 CFR 172. 101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous substance
(40 CFR Part 302.4 and amendments thereto); iii) such other substances,
materials and wastes which are or become regulated under applicable local, state
or federal law, or the United States government, or which are classified as
hazardous or toxic under federal, state, or local laws or regulations; and iv)
any
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material, waste or substance which is (A) petroleum, (B) asbestos, (C)
polychlorinated biphenyls, (D) designated as a "hazardous substance" pursuant
to, Section 311 of the Clean Water Act, 33 U.S.C. 1251 et M. (33 U.S.C. 1321) or
listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. 1317); (E)
flammable explosives; or (F) radioactive materials.
(g) Mortgagee and its successors and assigns are hereby granted an
easement to enter, after three (3) days prior notice, and to authorize others to
enter upon the Land for the purposes of conducting environmental investigations
and audits (including taking physical samples) and such other action deemed
necessary by Mortgagee to insure compliance by Mortgagor with all local, state
or federal laws, rules or regulations. Mortgagor acknowledges that no adequate
remedy at law exists for a violation of the easement granted herein and agrees
that Mortgagee is entitled to specific performance of its rights under this
easement. The easement granted herein shall continue until this Mortgage is
cancelled or released of record.
20. Environmental Representations and Warranties. To induce the Mortgagee
to make the Loan evidenced by the Note, the Mortgagor makes the following
representations and warranties:
(a) The Mortgagor's business operations on the Mortgaged
Property and the Mortgaged Property are in substantial compliance with all
Environmental Laws;
(b) There has been no material enforcement, clean up, remedial,
removal, or other governmental or regulatory action, proceeding, or inquiry
instituted with respect to the Mortgagor's business operations or the
Mortgaged Property, except for minor spills of petroleum and related
products having no material, adverse impact on the value of the Mortgaged
Property;
(c) There have been no material claims made or threatened by any
third party against the Mortgagor relating to any damage, contribution,
cost recovery compensation, loss, or injury resulting from any Hazardous
Material used in the Mortgagor's business operation or located on the
Mortgaged Property;
(d) No portion of the property consists of filled land; and
(e) The property does not contain any Hazardous Materials,
except for petroleum and related products properly stored and used in the
ordinary course of business operations on the Mortgaged Property.
21. Additional Assessments. The Mortgagor shall pay when due the cost of
providing to Mortgagee, at Mortgagee's request from time to time, a then-current
environmental site assessment, audit, or survey ("Assessment") of the Mortgaged
Property which Assessment shall be prepared by an environmental auditor
acceptable to Mortgagee, in Mortgagee's sole discretion; provided, however, that
Mortgagee shall make such request no more frequently than once every third year
unless the loan evidenced by the Note is being renewed, extended, modified, or
accelerated, or unless Mortgagee is required by any law, regulation, order, or
other directive from
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any regulatory agency having jurisdiction over Mortgagee to obtain any such
Assessment more frequently than once a year.
22. Governing Law. This instrument is to be governed by and construed in
accordance with the laws of the State of South Carolina and each of the remedies
provided for herein shall be cumulative so that the right of the Mortgagee to
exercise one or more of such remedies shall not be construed to limit or
preclude the right of the Mortgagee to exercise any other remedy or remedies set
forth herein.
23. No Waiver. No delay by Mortgagee in exercising any right or remedy
hereunder, or otherwise afforded by law, shall operate as a waiver thereof or
preclude the exercise thereof during the continuance of any default hereunder.
24. Miscellaneous. The covenants herein contained shall bind, and the
benefits and advantages shall inure to the respective heirs, executors,
administrators, successors and assigns of the parties hereto. Wherever used,
the singular number shall include the plural, the plural the singular, and the
use of any gender shall include all genders.
25. Benefits to Mortgagor. The undersigned Mortgagor represents to
Mortgagee that the Mortgagor is benefitted by the loans evidenced by the Note,
whether or not the Mortgagor is the obligor thereon, and that adequate and
sufficient consideration has been given to Mortgagor for its execution and
delivery of this Mortgage.
26. Security Agreement. This Mortgage creates a lien on the Mortgaged
Property, and to the extent the Mortgaged Property is not real property under
applicable law this Mortgage constitutes a security agreement under the South
Carolina Uniform Commercial Code and any other applicable law.
27. No Derogation. The grant of a security interest to Mortgagee in the
granting clauses of this Mortgage shall not be construed to derogate from or
impair the lien or provisions of or the rights of Mortgagee under this Mortgage
with respect to any property described therein which is real property or which
the parties have agreed to treat as real property. The hereby stated intention
of the Mortgagor and Mortgagee is that everything used in connection with the
production of income from such real property or adapted for use thereon is, and
at all times and for all purposes and in all proceedings, both legal and
equitable, shall be regarded as real property, irrespective of whether or not
the same is physically attached to the land or the improvements thereon. If
required by Mortgagee, at any time during the term of this Mortgage, Mortgagor
will execute and deliver to Mortgagee, in form satisfactory to Mortgagee,
additional security agreements, financing statements and/or other instruments
covering all personal property or fixtures of Mortgagor which may at any time be
furnished, placed on, or annexed or made appurtenant to the real property or
used, useful or held for use, in the operation of the Improvements.
28. Personal Property. As to any part of the Mortgaged Property
constituting personal property, Mortgagee may proceed as to such personal
property in accordance with Mortgagee's
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rights and remedies in respect to such property or sell the personal property
separately and without regard to the remainder of the Mortgaged Property in
accordance with Mortgagee's rights and remedies provided by the South Carolina
Uniform Commercial Code as well as other rights and remedies available at law or
in equity.
29 Financing Statements. With respect to those items of the Additional
Property which are or are to become fixtures related to the herein described
real estate, this Mortgage shall constitute a financing statement filed as a
fixture filing. The lien upon fixtures granted herein and perfected hereby
shall be in addition to and not in lieu of any lien upon fixtures acquired under
real property law.
30. Notices. Whenever this Mortgage requires or permits any notice,
request or demand by one party to the other, the notice, request or demand must
be in writing and shall be deemed to have been given if it is enclosed in an
envelope addressed to the party to be notified at the address stated below (or
such other address as may have been designated by written notice) properly
stamped, sealed, and deposited in the United States mail as certified or
registered mail, return receipt requested. The address of each party for the
purposes of this Section are as follows:
If to the Mortgagor: StarMet CMI Corporation
P. 0. Box 1366 Barnwell
SC 29812
Attn:
If to the Lender: Palmetto Federal Savings Bank Of S.C.
Post Office Box 1116
Aiken, South Carolina 29802
Attn: Frank Townsend
31. Mortgagor Information. The Mortgagor shall maintain full and correct
books and records showing in detail the earnings and expenses of the Mortgaged
Property and shall permit or cause the Mortgagor to permit the Mortgagee and its
representatives of examine said books and records and all supporting vouchers
and data at any time and from time to time upon reasonable request by the
Mortgagee.
32. Satisfaction and Release of Assignment of Rents. The release of all
or any part of the Mortgaged Property from the lien of this Mortgage shall be
deemed a release of such property from the lien of the Assignment of Leases,
Rents, and Profits and Security Agreement of even date herewith executed by the
Mortgagor in favor of the Mortgagee.
33. Severability. If any provision hereof should be held unenforceable or
void, then such provision shall be deemed separable from the remaining
provisions and shall in no way affect the validity of this Mortgage except that
if such provision relates to the payment of any
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monetary sum, then, Mortgagee may, at its option, declare the indebtedness and
all other sums secured hereby immediately due and payable.
34. Construction Mortgage. This Mortgage secures an obligation incurred
for the construction of an improvement on land and is intended to be a
"construction mortgage" as defined in S.C. Code Ann. Section 36-9-313, as
amended.
35. Instrument Under Seal. This Mortgage is intended to be and shall be
construed as an instrument under seal.
36. WAIVER OF STAY. IN THE EVENT OF THE COMMENCEMENT OF BANKRUPTCY
PROCEEDINGS BY OR AGAINST THE MORTGAGOR, TO THE EXTENT PERMITTED BY LAW,
MORTGAGOR HEREBY WAIVES THE BENEFIT OF THE AUTOMATIC STAY PROVIDED FOR BY 11
U.S.C. Section 362 AND/OR ANY STAY, INJUNCTION, OR RESTRAINING ORDER ISSUED
PURSUANT TO 11 U.S. C. Section 105 OR OTHERWISE. TO THAT END, MORTGAGOR AGREES
THAT IT WILL NOT SEEK OR ASSERT ANY SUCH STAY, INJUNCTION, OR RESTRAINING ORDER
AND MORTGAGOR HEREBY IRREVOCABLY CONSENTS TO AND AGREES NOT TO OPPOSE THE
MODIFICATION OF ANY SUCH STAY TO ALLOW FOR THE ENFORCEMENT BY MORTGAGEE OF THIS
MORTGAGE AND THE FORECLOSURE OR OTHER REALIZATION UPON THE COLLATERAL PROVIDED
FOR HEREIN.
37. WAIVER OF JURY TRIAL. MORTGAGOR, ANY OTHER OBLIGORS, AND THE MORTGAGEE
EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING
ON OR ARISING OUT OF THIS NOTE, THE OBLIGATIONS, THE CONDUCT OF THE RELATIONSHIP
BETWEEN MORTGAGEE AND MORTGAGOR, AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN
MORTGAGEE AND ANY OBLIGORS. ANY LITIGATION ARISING HEREUNDER OR RELATED HERETO
MAY BE TRIED BY THE SOUTH CAROLINA COURTS FOR BARNWELL COUNTY OR THE FEDERAL
COURTS OF SOUTH CAROLINA, MORTGAGOR HEREBY CONSENTS TO THE JURISDICTION OF SUCH
COURTS.
38. WAIVER OF APPRAISAL RIGHTS. The laws of South Carolina provide that in
any real estate foreclosure proceeding a defendant against whom a personal
judgment is taken or asked may within thirty days after the sale of the
mortgaged property apply to the court for an order of appraisal. The statutory
appraisal value as approved by the court would be substituted for the high bid
and may decrease the amount of any deficiency owing in connection with the
transaction. THE UNDERSIGNED HEREBY WAIVES AND RELINQUISHES THE STATUTORY
APPRAISAL RIGHTS WHICH MEANS THE HIGH BID AT THE JUDICIAL FORECLOSURE SALE WILL
BE APPLIED TO THE DEBT REGARDLESS OF ANY APPRAISED VALUE OF THE MORTGAGED
PROPERTY.
IN WITNESS WHEREOF, the Mortgagor has hereunto set its Hand and Seal
as of the date first written above.
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/s/ Miles Loadholt STARMET CMI CORPORATION
- ------------------------
By: /s/ James M. Spiezio
- ------------------------ --------------------------
James M. Spiezio
CFO
SOUTH CAROLINA
BARNWELL COUNTY
I, Miles Loadholt, Notary Public for South Carolina, do hereby certify
that Starmet CMI Corporation a Delaware Corporation, by James M. Spiezio its
Chief Financial Officer, personally appeared before me this day and
acknowledged the due execution of the foregoing instrument.
Witness my hand and official seal this the 20th day of March, 1998
/s/ Miles Loadholt
-----------------------------
Notary Public for South Carolina
My Commission Expires:
----------------
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"EXHIBIT A"
THIS IS AN ADDENDUM ATTACHED TO AND MADE A PART OF A REAL ESTATE MORTGAGE FROM
STARMET CMI CORPORATION TO PALMETTO FEDERAL SAVINGS BANK OF SOUTH CAROLINA DATED
MARCH 20, 1998.
All that certain tract of land, with improvements thereon, containing 270 acres,
situate in Barnwell (Red Oak) School District, County of Barnwell, State of
South Carolina, and being more fully shown and delineated on plat prepared for
Carolina Metals, Inc. by J. J. Foy & Associates, R.L.S., dated November 18,
1981, and recorded in Plat Cabinet A, Slide 1, at Page 6, in the office of the
Clerk of Court for Barnwell County, which plat is incorporated into this
description by reference thereto and to which plat reference is made by a metes
and bounds description of said land. Said tract is bounded generally, now or
formerly, as follows: North by lands of Catawba Newsprint Company; East by S.C.
Highway S-6-80; South by lands of the Harper Estate and lands of Catawba
Newsprint Company; and West by lands of the United States Atomic Energy
Commission.
Being the same premises conveyed to Carolina Metals, Inc., now known as StarMet
CMI Corporation, by deed of Catawba Newsprint Company dated November 20, 1981,
and recorded November 23, 1981, in Deed Book 16-L, a Page 34, in the office of
the Clerk of Court for Barnwell County.
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Exhibit 10(SS)
STATE OF SOUTH CAROLINA
MORTGAGE, SECURITY AGREEMENT,
COUNTY OF BARNWELL AND FINANCING STATEMENT
This MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT (the
"Mortgage") is made and entered into as of March 20, 1998, by StarMet CMI
Corporation, its successors and assigns (the "Mortgagor") in favor of LOWER
SAVANNAH REGIONAL DEVELOPMENT CORPORATION, having as an address P.O. Box 850,
Aiken, SC 29802, its successors and assigns (the "Mortgagee").
WITNESSETH:
WHEREAS, Mortgagor is indebted to Mortgagee pursuant to a
promissory note of even date herewith in the original principal amount of
Five Hundred Thousand and 00/100 DOLLARS ($500,000.00) (together with any and
all extensions, renewals, or modifications thereof, the "Note"); and
WHEREAS, Mortgagor desires to secure its obligations under the Note
by granting the Mortgagee a first mortgage lien on and security interest in
the real property, improvements, fixtures, and personal property described
below;
NOW, THEREFORE, the Mortgagor in consideration of the aforesaid
debt, and also in consideration of the further sum of Three and No/100
($3.00) Dollars, to it in hand paid by the Mortgagee, receipt whereof which
is hereby acknowledged, and for the purpose of securing the Obligations (as
hereinafter defined), has granted, bargained, sold, and released, and by
these presents, does grant, bargain, sell and release unto the Mortgagee, its
successors and assigns, as security for the Obligations (as defined below),
the land described on Exhibit A attached hereto and incorporated by reference
(the "Land") including all improvements (the "Improvements") now existing or
hereafter placed on the Land;
TOGETHER, with all rights, privileges, interests, easements, tenements,
hereditaments and appurtenances thereto belonging, including without
limitation all right, title and interest of Mortgagor in and to water,
minerals, flowers, shrubs, crops, trees, timber and other emblements now or
hereafter located therein, and the rents, issues and profits thereof, and any
and all improvements and fixtures now or subsequently attached to or used in
connection therewith (collectively, together with the Land, the Improvements,
and the Additional Property (as hereafter defined), the "Mortgaged Property").
TO HAVE AND TO HOLD, all and singular the Mortgaged Property, unto the
Mortgagee, its successors and assigns forever.
AND the Mortgagor covenants with the Mortgagee that the Mortgagor is
indefeasibly seized of a good and marketable fee simple title to said Land
and has good and lawful authority
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to mortgage said Land; that the Mortgagor hereby fully warrants the title to
said Land and willdefend the same against the lawful claims of all persons
whomsoever; and that said Land is free and clear of all encumbrances except
those exceptions set forth on Exhibit B attached hereto and incorporated by
reference.
PROVIDED, ALWAYS, that if the Mortgagor shall pay unto the Mortgagee the
said Obligations (including any future advances); AND if the Mortgagor shall
duly, promptly and fully perform, discharge , execute, effect, complete and
comply with and abide by each and every of the stipulations, Agreements,
conditions and covenants therein and in this Mortgage, then this Mortgage and
all assignments contained herein shall cease and be null and void; otherwise
to remain in full force and effect.
THIS MORTGAGE secures (a) the obligations of Mortgagor to Mortgagee
under the Note; (b) any and all advances or expenditures made by Mortgagee
pursuant to the terms of this Mortgage; (c) attorneys' fees, court costs, and
other amounts which may be due under the Note, or this Mortgage; (d) any and
all other indebtedness of Mortgagor to Mortgagee, now existing or hereafter
arising, of whatever class or nature, whether or not now contemplated by the
parties, including future advances pursuant to S.C. Code Ann. Section 29-3-50
(as set forth more fully below); and (e) any and all extensions, renewals,
and modifications of any of the foregoing (all of (a) through (e) being
hereinafter referred to the as "Obligations"). Extensions, renewals, and
modifications of the debt secured hereby, and future advances, may bear
interest at a rate or rates higher than the rate borne by the Note.
THIS MORTGAGE shall secure not only existing indebtedness but all future
advances (in accordance with S.C. Code Ann. Section 29-3-50, as amended),
readvances, and additional indebtedness hereafter arising or incurred of
Mortgagor to Mortgagee, and any notes evidencing the same, whether such
advances or indebtedness is obligatory or to be made at the option of the
Mortgagee, or otherwise, to the same extent as if such future advance or
indebtedness was made on the date of the execution of this Mortgage, but the
indebtedness secured by this Mortgage shall not exceed at any one time the
maximum principal amount of Five Hundred Thousand and 00/100 Dollars ($ 500,
000. 00 ), plus interest thereon, reasonable attorneys' fees and court costs,
and plus advancements for taxes, insurance premiums, and repairs made by
Mortgagee. All indebtedness incurred after the date hereof by Mortgagor in
favor of Mortgagee shall be deemed to be a future advance and entitled to the
protection of this provision. Such future indebtedness may bear interest at a
rate or rates greater than the rate set forth in the Note. Interest on the
Note will be deferred, accrued, or capitalized, but Mortgagee shall not be
required to defer, accrue, or capitalize any interest except as provided in
the Note.
AS FURTHER SECURITY for the Obligations, Mortgagor hereby grants to
Mortgagee, its successors and assigns, a continuing security interest in the
following (the "Additional Property"):
(a) All machinery, apparatus, equipment, fittings, fixtures, and
other personal property (all as defined in the Uniform Commercial Code)
actually or constructively
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<PAGE>
attached to the Land or the Improvements and now owned or hereafter
acquired by the Mortgagor, including, but without limiting the generality
of the foregoing, all heating, air conditioning, freezing, lighting, pipes;
pumps; tanks; motors; conduits; plumbing, lifting, cleaning, fire prevention,
fire extinguishing, refrigerating, ventilating and communications apparatus,
boilers, furnaces, oil burners or units thereof, ducts and compressors,
together with all building materials and equipment now or hereafter delivered
to the Land or the Improvements and intended to be installed therein;
(b) All of the water, sanitary and storm sewer systems now or
hereafter owned by the Mortgagor which are now or hereafter located by,
over, and/or upon the Land or the Improvements or any part and parcel
thereof, and which water system includes all water mains, service
laterals, hydrants, valves and appurtenances, and which sewer system
includes all sanitary sewer lines, including mains, laterals, manholes and
appurtenances;
(c) All exterior lights, light poles, and related fixtures and
equipment, including without limitation all parking lot lighting;
(d) All paving for streets, roads, walkways or entrance ways now or
hereafter owned by the Mortgagor and which are now or hereafter located on
the Land or the Improvements or any part or parcel thereof;
(e) Any and all awards or payments, including interest thereon, and
the right to receive the same, as a result of (a) the exercise of the right
of eminent domain, (b) the alteration of the grade of any street, or (c)
any other injury to, taking of, or decrease in the value of the Land or the
Improvements or personal property;
(f) All of the Mortgagor's interest in all utility security deposits
or bonds on the Land or the Improvements or any part or parcel thereof;
(g) All licenses (including, but not limited to, any operating
licenses), contracts, management contracts or agreements, franchise
agreements, permits, authorities or certificates required or used in
connection with the ownership of, or the operation or maintenance of the
Improvements;
(h) All names under or by which the Land or the Improvements may at
any time be operated or known, and all rights to carry on business under
any such names or any variant thereof, and all trademarks, trade names,
patents pending and goodwill;
(i) All utility service bonds and/or cash deposits, site improvement
bonds and/or cash deposits, building permits, sewer connection and/or
tap-in permits, water connection and/or tap-in permits, curb-cut permits,
utility service agreements, site work agreements with any governmental
authority or public utility, and all other permits, approvals and contracts
of any kind relating to the Land or Improvements;
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j) All warranties and guaranties covering any appliances and
fixtures now or hereafter located on or placed upon the Land or used in
connection with the Improvements including without limitation, air
conditioning, heating and other appliances and equipment;
(k) All surveys, agreements, instruments, contracts, documents of
title, choses in action or intangible property or contract rights of any
kind now existing or hereafter arising or created or entered into related
to the Land or the Improvements or ownership or operation of the Land or
Improvements including, but not limited to, the plans and specifications,
all construction, architectural and other contracts, purchase orders,
permits, approvals, licenses, franchises, trademarks, project logos,
building names, surveys, insurance policies, bonds, escrow funds, easement,
exclusive agency licenses or leases and proceeds of any of the foregoing;
(1) All sales agreements, deposit receipts, escrow agreements and
other ancillary documents and agreements entered into with respect to the
sale to any purchasers of any part of the Land or any buildings or
structures on the Land, together with all deposits and other proceeds of
the sale thereof;
(m) All rents, issues, profits, and revenues from the Mortgaged
Property;
(n) All substitutions and replacements of, and accessions and
additions to, any of the foregoing; and
(o) All proceeds of any of the foregoing, including, without
limitation, proceeds of any voluntary or involuntary disposition or claim
respecting any part thereof (pursuant to judgment, condemnation award or
otherwise) and all goods, documents, general intangibles, chattel paper and
accounts, wherever located, acquired with cash proceeds of any of the
foregoing or proceeds thereof.
AND the Mortgagor does hereby expressly covenant and agree as follows:
1. Assignment of Rents and Profits. As further security for the
payment of the Obligations and for the faithful performance of all the
covenants, agreements, terms and provisions of this Mortgage, Mortgagor
hereby sells, mortgages, transfers and assigns unto Mortgagee and grants
Mortgagee a security interest in all the right, title and interest of the
Mortgagor in and to the rents, issues, profits, revenues, royalties, rights
and benefits from the above described property, and to that end Mortgagor
hereby assigns and sets over unto the said Mortgagee all leases and licenses
of said premises now made, executed or delivered, whether written or verbal,
or to be hereafter made, be the same written or verbal, and Mortgagor does
hereby authorize and empower the Mortgagee to collect said rents, issues,
profits, revenues, royalties, rights and benefits, as they shall become due,
and does hereby direct each and all of the tenants of the aforesaid premises
to pay such rents, as they may now be due or shall hereafter become due to
the said Mortgagee, upon demand for payment thereof by said Mortgagee; it
being
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<PAGE>
understood and agreed, however, that no such demand shall be made unless and
until there has occurred an Event of Default hereunder; and until such demand
is made, Mortgagor is authorized to collect or continue collecting said
rents, issues, profits, revenues, royalties, rights and benefits; but that
such privilege to collect or continue collecting, as aforesaid, by the
Mortgagor shall not operate to permit the collection of any rents more than
thirty (30) days in advance of the date same are due under the terms and
provisions of said lease or leases.
2. After Acquired Property. The Lien of this Mortgage shall
automatically attach, without further act, to all after acquired property
located in or on, or attached to, or used or intended to be used in
connection with or with the operation of the Mortgaged Property or any part
thereof, and shall likewise automatically attach to any and all subsequent or
additional interests Mortgagor may hereafter acquire in the Mortgaged
Property.
3. Payment of Obligations. Mortgagor covenants and agrees to pay the
Obligations in accordance with their terms promptly as the principal and
interest thereon shall become due.
4. Maintenance of Property. Mortgagor shall maintain the Mortgaged
Property in good condition and repair and shall neither permit nor allow
waste thereof. Mortgagor shall promptly repair or restore any portion of the
Mortgaged Property which is damaged or destroyed by any cause whatsoever and
shall promptly pay when due all costs and expenses of such repair or
restoration. Mortgagor shall not remove, demolish, or materially alter any
improvement or fixture which is now or hereafter part of the Mortgaged
Property and shall cut no timber on the on the Mortgaged Property without the
express written consent of Mortgagee. Mortgagee shall be entitled to
specific performance of the provisions of this paragraph.
5 . Insurance. Mortgagor shall maintain with respect to all
buildings,improvements,fixtures, and tangible personal property which are now
or hereafter part of the Mortgaged Property, fire and extended coverage
insurance, including windstorm and hail,and earthquake insurance, and such
other hazard insurance as Lender may require. If any portion of the
Mortgaged Property is located in a federally designated flood plain,
Mortgagor shall also obtain a flood insurance policy in the maximum amount
available under the National Flood Insurance Act of 1968, but not to exceed
the replacement value of all buildings and improvements located on the
Mortgaged Property that are located in a federally designated flood plain.
All such insurance shall be payable to Mortgagee as the interest of Mortgagee
may appear pursuant to the New York standard form of mortgagee clause or such
other form of mortgagee clause as may be required by the Mortgagee and shall
not be cancelable by either the insurer or the insured without at least
thirty (30) days prior written notice to the Mortgagee. Mortgagor shall keep
the Mortgaged Property continuously insured as herein required and shall
deliver to Mortgagee a copy of each policy of insurance required hereby
together with a current certificate of insurance. Mortgagor shall pay each
premium coming due on any such policy of insurance and will deliver to
Mortgagee proof of such payment at least ten (10) days prior to the date such
premium would become overdue or delinquent. Upon the expiration or
termination of any such policy of insurance, Mortgagor shall furnish to
Mortgagee at least ten (10) days prior to such
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<PAGE>
expiration or termination a copy of a renewal or replacement policy of
insurance meeting the requirements hereof together with a current certificate
of insurance. If Mortgagor fails to insure the Mortgaged Property as herein
required, Mortgagee may so insure the Mortgaged Property in the name of
Mortgagor or in the name of Mortgagee or both, and the premiums for any such
insurance obtained by Mortgagee shall be the obligation of Mortgagor and
shall secured by this Mortgage. Upon foreclosure of this Mortgage, all
right, title and interest of Mortgagor in and to any policy of insurance upon
the Mortgaged Property which is in the custody of Mortgagee, including the
right to unearned premiums, shall vest in the purchaser of the Mortgaged
Property at foreclosure, and Mortgagor hereby appoints Mortgagee as the
attorney in fact of Mortgagor to assign all right, title and interest of
Mortgagor in and to any such policy of insurance to such purchaser. This
appointment is coupled with an interest and shall be irrevocable.
6. Proceeds of Insurance. Mortgagor hereby assigns to Mortgagee the
right to collect and receive any indemnity payment otherwise owed Mortgagor
upon any policy of insurance insuring any portion of the Mortgaged Property,
regardless of whether Mortgagee is named in such policy as a person entitled
to collect upon the same. So long as there has occurred no Event of Default
hereunder, or any event which but for the lapse of time or the giving of
notice would constitute an Event of Default, any indemnity payment received
by Mortgagee from any such policy of insurance shall be applied in a manner
reasonably determined by Mortgagee to the replacement, repair or restoration
of the portion of the Mortgaged Property damaged or destroyed.
Notwithstanding the foregoing, if at the time of payment of the insurance
proceeds there has occurred an Event of Default which has not been cured or
remedied as permitted hereunder, or if in the reasonable determination of
Mortgagee the insurance proceeds, together with funds made available by
Mortgagor for such purpose, are insufficient to replace, repair, or restore
the Mortgaged Property, then Mortgagor may apply such proceeds to payment of
any sum secured by this Mortgage in such order as Mortgagee may determine. No
portion of any indemnity payment which is applied to replacement, repair or
restoration of any portion of the Mortgaged Property or which may be released
to Mortgagor shall be deemed a payment against any sums secured by this
Mortgage.
7. Taxes. Mortgagor shall pay all taxes, assessments and other
charges which constitute or are secured by a lien upon the Mortgaged Property
which is superior to the lien of this Mortgage and shall deliver to Mortgagee
proof of payment of the same not less than ten (10) days prior to the date
the same becomes delinquent; provided, however, that Mortgagor shall be
entitled by appropriate proceedings to contest the amount of validity of such
tax, assessment or charge so long as the collection of the same by
foreclosure of the lien upon the Mortgaged Property is stayed during the
pendency of such proceedings and Mortgagor deposits with the authority to
which such tax, assessment or charge is payable or with the Mortgagee
appropriate security for payment of the same, together with any applicable
interest and penalties, should the same be determined due and owing.
Mortgagor shall not claim, demand or be entitled to receive any credit or
credits on the principal or interest payable under the terms of the Note or
on any other Obligations secured hereby, for so much of the taxes,
assessments or similar impositions assessed against the Mortgaged Property or
any part thereof as are applicable to the indebtedness secured hereby or to
Mortgagee's interest in the Mortgaged Property. No deduction shall be
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<PAGE>
claimed from the taxable value of the Mortgaged Property or any part thereof
by reason of the Note, this Mortgage or any other instrument securing the
Note.
8. Advances by Mortgagee; Reimbursement. If Mortgagor fails to make
payment for restoration or repair of the Mortgaged Property, for insurance
premiums or for taxes, assessments or other charges as required in this
Mortgage, Mortgagee may, but shall not be obligated to, pay for the same, and
any such payment by Mortgagee will be secured by this Mortgage and have the
same rank and priority as the principal debt secured hereby and bear interest
from the date of payment at the rate provided in the Note. Payments made for
taxes by Mortgagee shall be a first lien on the Mortgaged Property to the
extent of the taxes so paid with interest from the date of payment,
regardless of rank or priority of this Mortgage. Mortgagor shall pay to
Mortgagee in cash on demand an amount equal to any payment made by Mortgagee
pursuant to this paragraph plus interest thereon as herein provided.
9. Extending Time for Payment. Mortgagee, without notice, and as often
as it wishes to, may agree with any party obligated on the Obligations (or
any of them), or having an interest in the Mortgaged Property, to renew or
extend the time for payment of any part or all of the indebtedness secured
hereby, without in any way affecting either the lien hereof or the liability
of any other party.
10. Events of Default. The term "Event of Default, " wherever used in
this Mortgage, shall mean any one or more of the following events:
(a) The occurrence of a default under and as defined in the Note,
the giving of any required notice, and the continuation of such default
unremedied beyond anapplicable grace period set forth in the Note.
(b) The occurrence of an Event of Default under and as defined in
that certain construction and term loan agreement of even date herewith
between Mortgagor and Mortgagee, the giving of any required notice, and
the continuation of such default unremedied beyond any applicable grace
period set forth in such construction loan agreement.
(c) Failure by the Mortgagor to pay within ten (10) days of the
scheduled payment date any installment of principal and/or interest on the
Obligations or any of them, including but not limited to the Note, or
failure to pay taxes or insurance when due, and the continuation of any
such failure for ten (10) days after written notice thereof is provided
thereof by Mortgagor to Mortgagee.
(d) The sale, conveyance, transfer, mortgage, lease or encumbrance
of all or any portion of the Mortgaged Property.
(e) Failure by the Mortgagor to duly observe any other covenant,
condition or agreement of the Obligations, or of this Mortgage, and the
continuation of such failure
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for a period of thirty (30) days after written notice thereof is provided
by Mortgagee to Mortgagor.
(f) Default in the terms or conditions of any other mortgage which
is a lien upon the Mortgaged Property, and the continuation of such
default beyond any applicable grace period.
(g) The discovery of any material amount of Hazardous Substance (as
hereinafter defined) on the Mortgaged Property, which Mortgagee reasonably
determines has a material, adverse effect on the value of the Mortgaged
Property; provided, however, that the foregoing shall not be deemed to
include petroleum products and related substances properly stored and used
in the ordinary course of business operations on the Mortgaged Property,
and shall further not be deemed to include minor spills of petroleum and
related products having no material, adverse impact on the value of the
Mortgaged Property.
(h) The damage or destruction of a material portion of the
Improvements, which damage or destruction is not promptly repaired or is
not fully covered by insurance.
(i) Mortgagor suffers or permits any lien, encumbrance, or security
interest to arise or attach to the Mortgaged Property that is not promptly
removed or satisfied, or any judgment is entered against Mortgagor that is
not satisfied or appealed and stayed within thirty days.
(j) Any lien for labor, material, taxes or otherwise shall be filed
against the Mortgaged Property or any part thereof, which lien or liens
shall not be discharged or released within thirty (30) days after the
filing of such lien, whether by payment in satisfaction of such lien or
securing such lien by surety bond.
11. Consequences of Default. If an Event of Default shall occur:
(a) All of the indebtedness secured hereby shall become and be
immediately due and payable at the option of the Mortgagee, without notice
or demand, which are hereby expressly waived, and the Mortgagee may proceed
to foreclose this Mortgage and sell the Mortgaged Property or otherwise
pursue any right or remedy herein or by law provided. At the foreclosure,
Mortgagee shall be entitled to bid and purchase the Mortgaged Property and
shall be entitled to apply the debt secured hereby, or any portion thereof,
in payment for the Mortgaged Property.
(b) Irrespective of whether Mortgagee accelerates the maturity of
all indebtedness secured hereby, or institutes foreclosure proceedings,
Mortgagee shall be entitled to the appointment of a receiver to enter
upon and take and maintain full control of the Mortgaged Property in
order to perform all acts necessary and appropriate for the operation
and maintenance thereof including, but not limited to, the execution,
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cancellation or modification of leases, the making of repairs to the
Mortgaged Property and the execution or termination of contracts providing
for the management or maintenance of the Mortgaged Property, all on such
terms as are deemed appropriate to protect the security of this Mortgage.
The receiver shall be entitled to a reasonable fee for so managing the
Mortgaged Property. All rents collected pursuant to this paragraph shall
be applied first to the costs of taking control and managing the Mortgaged
Property and collecting the rents, including but not limited to
reasonable attorneys' fees, receiver's fees, premiums on receiver's
bonds, costs of repair to the Mortgaged Property, premiums on insurance
policies, taxes, assessments and other charges on the Mortgaged
Property, and the costs of discharging any liability or obligation of
Mortgagor as lessor or Landlord of the Mortgaged Property and then to
the sums secured by this Mortgage. Mortgagee and the receiver shall have
access to the books and records used in the operation and maintenance of
the Mortgaged Property and shall be liable to account only for those
rents actually received. Mortgagee shall not be liable to Mortgagor,
anyone claiming, under or through Mortgagor, or anyone having an
interest in the Mortgaged Property by reason of anything done or left
undone by Mortgagee under this paragraph. If the rents of the Mortgaged
Property are not sufficient to meet the costs of taking control of and
managing the Mortgaged Property and collecting the rents, Mortgagee may
at its sole option advance funds to meet the costs. Any funds expended
by Mortgagee for such purposes shall become indebtedness of Mortgagor to
Mortgagee secured by this Mortgage. Such funds shall be payable on demand
by Mortgagee and shall bear interest at the rate provided in the Note. The
entering upon and taking and maintaining of control of the Mortgaged
Property by the Mortgagee or the receiver and the application of the rents
as provided herein shall not cure or waive any default hereunder or
invalidate any other right or remedy of Mortgagee hereunder.
(c) The Mortgagee shall, in addition to all other rights and
remedies, have the rights and remedies of a secured party under the
Uniform Commercial Code, including without limitation, the right to take
possession of the Additional Property, and for that purpose the
Mortgagee may: (i) so far as the Mortgagor can give authority therefor,
enter upon any premises on which the Additional Property may be situated
and remove the same therefrom; (ii) take possession or control of the
Additional Property and the premises on which it is located; (iii)
require the Mortgagor to assemble all or any part of the Additional
Property or records concerning the Additional Property and make such
available to the Mortgagee at a place to be designated by the Mortgagee
which is reasonably convenient to both parties; (iv) sell or otherwise
dispose of all or any part of the inventory on any premises where then
located without being liable to the Mortgagor on account of any loss,
damage or depreciation that may occur as a result thereof so long as the
Mortgagee shall act in a commercially reasonable manner; (v) use all
trademarks, service marks, trade names, trade styles, logos, goodwill,
trade secrets, franchises, licenses and patents which the Mortgagor now
has or may hereafter acquire, including the right to use or license the
use of said marks, names, styles, logos and goodwill in connection with
the sale of goods or the rendering of services, in the conduct of service,
advertising, promotion and the like; and (vi) lease or license third
persons or entities for such purpose.
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Unless the Additional Property is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
the Mortgagee shall give to the Mortgagor at least thirty (30) days' prior
written notice (which Mortgagor agree is "reasonable notification" within
the meaning of Section 9-504 of the Uniform Commercial Code of the State of
South Carolina) of the time and place of any public sale or any other
intended disposition of the Additional Property is to be made.
12. Marshalling of Assets. The Mortgagee shall not be required to
marshal any present or future security for (including but not limited to this
Mortgage and the Mortgaged Property), or guaranties of, the Obligations or
any of them, or to resort to such security or guaranties in any particular
order; and all of the rights hereunder and in respect of such security and
guaranties shall be cumulative and in addition to all other rights, however
existing or arising. To the extent that it lawfully may, the Mortgagor
hereby agrees that it will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of the
Mortgagee's rights under this Mortgage or under any other instrument
evidencing any of the Obligations or under which any of the Obligations is
secured or guaranteed, and to the extent that it lawfully may the Mortgagor
hereby irrevocably waives the benefits of all such laws.
13. Costs and Expenses. All reasonable costs and expenses (including
attorneys' fees) incurred or paid by the Mortgagee in connection with
enforcement of the Obligations or the exercise by the Mortgagee of any of its
rights or remedies hereunder, or in retaking, holding, preparing for sale and
selling or otherwise realizing upon any of the Mortgaged Property, including,
without limitation, the reasonable attorneys' fees and expenses of any
attorney to whom this matter is referred (whether or not litigation is
commenced), or for representation in proceedings under any bankruptcy or
insolvency law, or in case the Mortgagee has become a party either as
plaintiff or as defendant in any suit or legal proceedings, in relation to
the Mortgaged Property or the lien created herein, shall be repaid by the
Mortgagor to the Mortgagee upon demand, with interest at the rate provided in
the Note. In the event said expenses are not paid by the Mortgagor to the
Mortgagee, they shall become part of the Obligations and shall be secured
hereby.
14. Interest. It is agreed that nothing herein contained nor any
transaction related thereto shall be construed or so operate as to require
the Mortgagor to pay interest at a rate greater than is now lawful in such
case to contract for, or to make any payment or to do any act contrary to
laws, that if any clauses or provisions herein contained operate or would
prospectively operate to invalidate this Mortgage or the Note in whole or in
part, then such clauses and provisions only shall be held for naught, as
though not herein contained, and the remainder of this Mortgage shall remain
operative and in full force and effect.
15. Eminent Domain. The Mortgagee shall be entitled to receive and
recover the entire award made in any eminent domain proceedings to the extent
that the same does not exceed the amount necessary to pay in full all sums
secured by the lien of this Mortgage.
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16. Transfer of Property. Mortgagor shall not sell, convey, transfer,
mortgage, lease or further encumber, nor suffer or permit the sale,
conveyance, transfer, mortgage, lease or encumbrance, whether voluntarily or
by operation of law, of any interest in or any part of the Mort-aged
Property, the rents and profits therefrom, or the Additional Property,
without the prior written consent of Mortgagee. If any person or entity
should obtain any interest in all or any part of the Mortgaged Property
pursuant to the execution or enforcement of any lien, security interest or
other right, whether superior, equal. or subordinate to this Mortgage or the
lien hereof, such event shall unless otherwise provided herein be deemed to
be a transfer by Mortgagor. Mortgagor shall not, without the prior written
consent of the Mortgagee, further assign the rents from the Mortgaged
Property nor enter into any agreement or do any act to amend, modify, extend,
terminate or cancel, accept the surrender, subordinate, accelerate the
payment of rent, or change the terms of any renewal option of any lease now
or hereafter covering such property or any part thereof which would in each
instance or in the aggregate materially affect the collateral or the
operation of the Mortgagor or the Mortgaged Property or the ability of the
Mortgagor to repay the Note.
17. Further Assurances. The Mortgagor shall, at its sole expense, do,
make, execute and deliver all such additional and further acts, things,
deeds, assurances and instruments, in each case in form and substance,
satisfactory to the Mortgagee, relating to the creation, validity, or
perfection of the mortgage lien and security interests provided for in this
Agreement under the Uniform Commercial Code or other laws of the State of
South Carolina or of any other state or states in which Mortgagor is doing
business or in which any of the Mortgaged Property is located as the
Mortgagee may from time to time reasonably request, and shall take all such
other action as the Mortgagee may reasonably require more completely to vest
in any and assure to the Mortgagee its rights hereunder or in any of the
Mortgaged Property, including without limitation execution and delivery of
financing statements which the Mortgagee deems appropriate to perfect and
continue the security interest hereby granted; and the Mortgagor hereby
irrevocably authorizes the Mortgagee, or its designee, at the Mortgagor's
sole expense, to execute and file such financing statements, with or without
the Mortgagor's signature, as the Mortgagee may deem appropriate. In the
event that any recording or refiling (or the filing of any statement of
continuation of any mortgage lien or financing statement) or any repledge, or
any other action, is required at any time to protect and preserve such
security interests, the Mortgagor shall, at its sole expense, cause the same
to be done or taken at such time and in such manner as may be necessary and
as may be reasonably requested by the Mortgagee.
18. Inspections; Easement. Mortgagor hereby agrees that Mortgagee
shall have the right, at any time during the term of this Mortgage, to
conduct an environmental investigation of the Mortgaged Property, either
itself or by or through designated agents and may exercise such rights from
time to time, and in furtherance of such rights, Mortgagor hereby grants to
Mortgagee, its successors and assigns, a non-exclusive limited easement over
and across the Mortgaged Property, and its subsurface, for access to the
Mortgaged Property and for the purpose of conducting an environmental
investigation of such Mortgaged Property, provided that any such
investigation shall be conducted in such a manner as to not disrupt the
Mortgagor's operations on the Mortgaged Property. The satisfaction of, or
the release of a portion of the Mortgaged
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Property, shall evidence a termination of the easement granted herein in
full, or as to the Mortgaged Property released, as the case may be. This
easement is irrevocable so long as this Mortgage is outstanding.
19. Environmental Covenants. The Mortgagor hereby covenants and agrees
with Mortgagee as follows:
(a) Mortgagor will not use, generate, manufacture, produce, store,
release, discharge, or dispose of on, under or about the Mortgaged Property
or transport to or from the Mortgaged Property any material amount of any
Hazardous Substance (as defined herein) or allow any other person or entity
to do so, and shall keep and maintain the Mortgaged Property in compliance
with, and shall not cause or permit the Mortgaged Property to be in violation
of any Environmental Law (as defined herein). Notwithstanding the foregoing,
Mortgagor and its tenants may use and store petroleum and related products in
the ordinary course of business operations on the Mortgaged Property,
provided that such use and storage is in substantial compliance with
applicable laws and regulations.
(b) Mortgagor shall give prompt written notice to Mortgagee of: i) any
material proceeding or inquiry by any governmental authority with respect to
the presence of any Hazardous Substance (other than petroleum and related
products properly stored and used in the ordinary course of business) on the
Mortgaged Property, an adverse determination of which could have a material
adverse affect on the value of the Mortgaged Property; ii) all material
claims made or threatened by any third party against Mortgagor or the
Mortgaged Property relating to any loss or injury resulting from any
Hazardous Substance, which if established, could have a material adverse
affect on the value of the Mortgaged Property of the financial condition of
Mortgagor or any tenant); and iii) Mortgagor's discovery of any occurrence or
condition on any real property adjoining or in the vicinity of the Mortgaged
Property that could cause the Mortgaged Property or any part thereof to be
subject to any material restriction on the ownership, occupancy,
transferability, or use of the Mortgaged Property under any Environmental Law.
(c) Mortgagor shall protect, indemnify, and hold harmless Mortgagee,
its directors, officers, employees, agents, successors, and assigns from and
against any and all loss, damage, cost, expense, or liability (including
attorneys' fees and costs) directly or indirectly arising out of or
attributable to the use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal, or presence of a Hazardous
Substance on, under, or about the Mortgaged Property including without
limitation (i) all foreseeable consequential damages; and (ii) the costs of
any required or necessary repair, cleanup or detoxification of the Mortgaged
Property and the preparation and implementation of any closure, remedial, or
other required plans. This indemnity shall survive the extinguishment of the
lien by foreclosure or deed in lieu thereof, and this covenant shall survive
such reconveyance or extinguishment.
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(d) In the event that any investigation, site monitoring,
containment, cleanup, removal, restoration, or other remedial work of any
kind or nature (the "Remedial Work") is reasonably necessary or desirable
under any applicable local, state, or federal law or regulation, any judicial
order, or by any governmental or nongovernmental entity or person because of,
or in connection with, such current, or future presence, suspected presence,
release or suspected release of a Hazardous Substance in or into the air,
soil, groundwater, surface water or soil vapor at, on, about, under or within
the Mortgaged Property (or any portion thereof), Mortgagor shall within
thirty (30) days after written demand for performance thereof by Mortgagee
(or such shorter period of time as may be required under any applicable law,
regulation, order, or agreement), commence to perform, or cause to be
commenced, and thereafter diligently prosecuted to completion, all such
Remedial Work. All Remedial Work shall be performed by one or more
contractors, approved in advance in writing by Mortgagee, and under the
supervision of a consulting engineer approved in advance in writing by
Mortgagee. All costs and expenses of such Remedial Work shall be paid by
Mortgagor including, without limitation, the charges of such contractor(s)
and/or the consulting engineer, and Mortgagee's reasonable attorneys' fees
and costs incurred in connection with monitoring or review of such Remedial
Work. In the event Mortgagor shall fail to timely commence, or cause to be
commenced, or fail to diligently prosecute to completion, such Remedial Work,
Mortgagee may, but shall not be required to, cause such Remedial Work to be
performed and all costs and expenses thereof, or incurred in connection
therewith, shall become part of the indebtedness secured hereby.
(e) Mortgagee is authorized by itself, its agents, employees or workmen
to enter at any reasonable time, after three (3) days prior notice, upon any
part of the Mortgaged Property for the purposes of inspecting the same for
Hazardous Substances and Mortgagor's compliance with this Section and such
inspections may include, without limitation, soil borings. Mortgagor agrees
to pay to Mortgagee, upon Mortgagee's demand, all expenses, costs or other
amounts incurred by Mortgagee in performing any reasonably necessary
inspection for the purposes set forth in this clause.
(f) "Environmental Laws" shall mean any federal, state or local law,
statute, ordinance, or regulation pertaining to health, industrial hygiene,
or the environmental conditions on, under or about the Mortgaged Property,
including without limitation the Comprehensive Environmental Response,
Compensation, and Liability act of 1980 ("CERCLA") as amended, 42 U. S. C.
Sections 9601 et seq., the Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. Sections 6901 et seq. The term "Hazardous Substances"
shall include without limitation: i) those substances included within the
definitions of "hazardous substances" "hazardous materials," "toxic
substances," or "solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S. C. Sections 1801 et M., and in the regulations
promulgated pursuant to said laws; ii) those substances listed in the United
States Department of Transportation Table (49 CFR 172. 101 and amendments
thereto) or by the Environmental Protection Agency (or any successor agency)
as hazardous substance (40 CFR Part 302.4
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and amendments thereto); iii) such other substances, materials and wastes
which are or become regulated under applicable local, state or federal law,
or the United States government, or which are classified as hazardous or
toxic under federal, state, or local laws or regulations; and iv) any
material, waste or substance which is (A) petroleum, (B) asbestos, (C)
polychlorinated biphenyls, (D) designated as a "hazardous substance" pursuant
to Section 311 of the Clean Water Act, 33 U.S.C. 1251 et seq. (33 U.S.C.
1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C.
1317); (E) flammable explosives; or (F) radioactive materials.
(g) Mortgagee and its successors and assigns are hereby granted an
easement to enter, after three (3) days prior notice, and to authorize others
to enter upon the Land for the purposes of conducting environmental
investigations and audits (including taking physical samples) and such other
action deemed necessary by Mortgagee to insure compliance by Mortgagor with
all local, state or federal laws, rules or regulations. Mortgagor
acknowledges that no adequate remedy at law exists for a violation of the
easement granted herein and agrees that Mortgagee is entitled to specific
performance of its rights under this easement. The easement granted herein
shall continue until this Mortgage is cancelled or released of record.
20. Environmental Representations and Warranties. To induce the Mortgagee
to make the Loan evidenced by the Note, the Mortgagor makes the following
representations and warranties:
(a) The Mortgagor's business operations on the Mortgaged Property
and the Mortgaged Property are in substantial compliance with all
Environmental Laws;
(b) There has been no material enforcement, clean up, remedial,
removal, or other governmental or regulatory action, proceeding, or inquiry
instituted with respect to the Mortgagor's business operations or the
Mortgaged Property, except for minor spills of petroleum and related
products having no material, adverse impact on the value of the Mortgaged
Property;
(c) There have been no material claims made or threatened by any
third party against the Mortgagor relating to any damage, contribution,
cost recovery compensation, loss, or injury resulting from any Hazardous
Material used in the Mortgagor's business operation or located on the
Mortgaged Property;
(d) No portion of the property consists of filled land; and
(e) The property does not contain any Hazardous Materials, except for
petroleum and related products properly stored and used in the ordinary
course of business operations on the Mortgaged Property.
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21. Additional Assessments. The Mortgagor shall pay when due the cost
of providing to Mortgagee, at Mortgagee's request from time to time, a
then-current environmental site assessment, audit, or survey ("Assessment")
of the Mortgaged Property which Assessment shall be prepared by an
environmental auditor acceptable to Mortgagee, in Mortgagee's sole
discretion; provided, however, that Mortgagee shall make such request no more
frequently than once every third year unless the loan evidenced by the Note
is being renewed, extended, modified, or accelerated, or unless Mortgagee is
required by any law, regulation, order, or other directive from
any regulatory agency having jurisdiction over Mortgagee to obtain any such
Assessment more frequently than once a year.
22. Governing Law. This instrument is to be governed by and construed
in accordance with the laws of the State of South Carolina and each of the
remedies provided for herein shall be cumulative so that the right of the
Mortgagee to exercise one or more of such remedies shall not be construed to
limit or preclude the right of the Mortgagee to exercise any other remedy or
remedies set forth herein.
23. No Waiver. No delay by Mortgagee in exercising any right or remedy
hereunder, or otherwise afforded by law, shall operate as a waiver thereof or
preclude the exercise thereof during the continuance of any default hereunder.
24. Miscellaneous. The covenants herein contained shall bind, and the
benefits and advantages shall inure to the respective heirs, executors,
administrators, successors and assigns of the parties hereto. Wherever used,
the singular number shall include the plural, the plural the singular, and
the use of any gender shall include all genders.
25. Benefits to Mortgagor. The undersigned Mortgagor represents to
Mortgagee that the Mortgagor is benefitted by the loans evidenced by the
Note, whether or not the Mortgagor is the obligor thereon, and that adequate
and sufficient consideration has been given to Mortgagor for its execution
and delivery of this Mortgage.
26. Security Agreement. This Mortgage creates a lien on the Mortgaged
Property, and to the extent the Mortgaged Property is not real property under
applicable law this Mortgage constitutes a security agreement under the South
Carolina Uniform Commercial Code and any other applicable law.
27. No Derogation. The grant of a security interest to Mortgagee in the
granting clauses of this Mortgage shall not be construed to derogate from or
impair the lien or provisions of or the rights of Mortgagee under this
Mortgage with respect to any property described therein which is real
property or which the parties have agreed to treat as real property. The
hereby stated intention of the Mortgagor and Mortgagee is that everything
used in connection with the production of income from such real property or
adapted for use thereon is, and at all times and for all purposes and in all
proceedings, both legal and equitable, shall be regarded as real property,
irrespective of whether or not the same is physically attached to the land or
the improvements thereon. If required by Mortgagee, at any time during the
term of this Mortgage,
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Mortgagor will execute and deliver to Mortgagee, in form satisfactory to
Mortgagee, additional security agreements, financing statements and/or other
instruments covering all personal property or fixtures of Mortgagor which may
at any time be furnished, placed on, or annexed or made appurtenant to the
real property or used, useful or held for use, in the operation of the
Improvements.
28. Personal Property. As to any part of the Mortgaged Property
constituting personal property, Mortgagee may proceed as to such personal
property in accordance with Mortgagee's rights and remedies in respect to
such property or sell the personal property separately and without regard to
the remainder of the Mortgaged Property in accordance with Mortgagee's rights
and remedies provided by the South Carolina Uniform Commercial Code as well
as other rights and remedies available at law or in equity.
29. Financing Statements. With respect to those items of the
Additional Property which are or are to become fixtures related to the herein
described real estate, this Mortgage shall constitute a financing statement
filed as a fixture filing. The lien upon fixtures granted herein and
perfected hereby shall be in addition to and not in lieu of any lien upon
fixtures acquired under real property law.
30. Notices. Whenever this Mortgage requires or permits any notice,
request or demand by one party to the other, the notice, request or demand
must be in writing and shall be deemed to have been given if it is enclosed
in an envelope addressed to the party to be notified at the address stated
below (or such other address as may have been designated by written notice)
properly stamped, sealed, and deposited in the United States mail as
certified or registered mail, return receipt requested. The address of each
party for the purposes of Section are as follows:
If to the Mortgagor: Starmet CMI Corporation
P.O. Box 1366 Barnwell
SC 29812
Attn:
If to the Lender: Lower Savannah Regional Development Corporation
P.O. Box 850
Aiken, South Carolina 29802
Attn: Eric P. Thompson
31. Mortgagor Information. The Mortgagor shall maintain full and
correct books and records showing in detail the earnings and expenses of the
Mortgaged Property and shall permit or cause the Mortgagor to permit the
Mortgagee and its representatives of examine said books and records and all
supporting vouchers and data at any time and from time to time upon
reasonable request by the Mortgagee.
32. Satisfaction and Release of Assignment of Rents. The release of
all or any part of the Mortgaged Property from the lien of this Mortgage
shall be deemed a release of such
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property from the lien of the Assignment of Leases, Rents, and Profits and
Security Agreement of even date herewith executed by the Mortgagor in favor
of the Mortgagee.
33. Severability. If any provision hereof should be held unenforceable
or void, then such provision shall be deemed separable from the remaining
provisions and shall in no way affect the validity of this Mortgage except
that if such provision relates to the payment of any monetary sum, then,
Mortgagee may, at its option, declare the indebtedness and all other sums
secured hereby immediately due and payable.
34. Construction Mortgage. This Mortgage secures an Obligation
incurred for the construction of an improvement on land and is intended to be
a "construction mortgage" as defined in S.C. Code Ann. Section 36-9-313, as
amended.
35. Instrument Under Seal. This Mortgage is intended to be and shall
be construed as an instrument under seal.
36. WAIVER OF STAY. IN THE EVENT OF THE COMMENCEMENT OF BANKRUPTCY
PROCEEDINGS BY OR AGAINST THE MORTGAGOR, TO THE EXTENT PERMITTED BY LAW,
MORTGAGOR HEREBY WAIVES THE BENEFIT OF THE AUTOMATIC STAY PROVIDED FOR BY 11
U.S. C. Section 362 AND/OR ANY STAY, INJUNCTION, OR RESTRAINING ORDER ISSUED
PURSUANT TO 11 U.S. C. Section 105 OR OTHERWISE. TO THAT END, MORTGAGOR
AGREES THAT IT WILL NOT SEEK OR ASSERT ANY SUCH STAY, INJUNCTION, OR
RESTRAINING ORDER AND MORTGAGOR HEREBY IRREVOCABLY CONSENTS TO AND AGREES NOT
TO OPPOSE THE MODIFICATION OF ANY SUCH STAY TO ALLOW FOR THE ENFORCEMENT BY
MORTGAGEE OF THIS MORTGAGE AND THE FORECLOSURE OR OTHER REALIZATION UPON THE
COLLATERAL PROVIDED FOR HEREIN.
37. WAIVER OF JURY TRIAL. MORTGAGOR, ANY OTHER OBLIGORS, AND THE
MORTGAGEE EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR
PROCEEDING ON OR ARISING OUT OF THIS NOTE, THE OBLIGATIONS, THE CONDUCT OF
THE RELATIONSHIP BETWEEN MORTGAGEE AND MORTGAGOR, AND/OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN MORTGAGEE AND ANY OBLIGORS. ANY LITIGATION ARISING
HEREUNDER OR RELATED HERETO MAY BE TRIED BY THE SOUTH CAROLINA COURTS FOR
BARNWELL COUNTY OR THE FEDERAL COURTS OF SOUTH CAROLINA, MORTGAGOR HEREBY
CONSENTS TO THE JURISDICTION OF SUCH COURTS.
38. WAIVER OF APPRAISAL RIGHTS. The laws of South Carolina provide
that in any real estate foreclosure proceeding a defendant against whom a
personal judgment is taken or asked may within thirty days after the sale of
the mortgaged property apply to the court for an order of appraisal. The
statutory appraisal value as approved by the court would be substituted for
the high bid and may decrease the amount of any deficiency owing in
connection with the transaction. THE UNDERSIGNED HEREBY WAIVES AND
RELINQUISHES THE
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STATUTORY APPRAISAL RIGHTS WHICH MEANS THE HIGH BID AT THE JUDICIAL
FORECLOSURE SALE WILL BE APPLIED TO THE DEBT REGARDLESS OF ANY APPRAISED
VALUE OF THE MORTGAGED PROPERTY.
IN WITNESS WHEREOF, the Mortgagor has hereunto set its Hand and Seal as
of the date first written above.
________________________ STARMET CMI CORPORATION
By: /s/ James M. Spiezio
-----------------------------
James M. Spiezio
CFO
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SOUTH CAROLINA,
BARNWELL COUNTY
I, Miles Loadholt, Notary Public for South Carolina, do hereby certify
that Starmet CMI Corporation a Delaware Corporation, by James M. Spiezio its
CFO, personally appeared before me this day and acknowledged the due
execution of the foregoing instrument.
Witness my hand and official seal this the 20th day of March, 1998
________________________________
Notary Public for South Carolina
My Commission Expires: _____
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"EXHIBIT A"
THIS IS AN ADDENDUM ATTACHED TO AND MADE A PART OF A REAL ESTATE MORTGAGE
FROM STARMET CMI CORPORATION TO LOWER SAVANNAH REGIONAL DEVELOPMENT
CORPORATION DATED MARCH 20, 1998.
All that certain tract of land, with improvements thereon, containing 270
acres, situate in Barnwell (Red Oak) School District, County of Barnwell,
State of South Carolina, and being more fully shown and delineated on plat
prepared for Carolina Metals, Inc. by J. J. Foy & Associates, R.L.S., dated
November 18, 1981, and recorded in Plat Cabinet A, Slide 1, at Page 6, in the
office of the Clerk of Court for Barnwell County, which plat is incorporated
into this description by reference thereto and to which plat reference is
made by a metes and bounds description of said land. Said tract is bounded
generally, now or formerly, as follows: North by lands of Catawba Newsprint
Company; East by S. C. Highway S-6-80; South by lands of the Harper Estate
and lands of Catawba Newsprint Company; and West by lands of the United
States Atomic Energy Commission.
Being the same premises conveyed to Carolina Metals, Inc., now known as
StarMet CMI Corporation, by deed of Catawba Newsprint Company dated November
20, 1981, and recorded November 23, 1981, in Deed Book 16-L, a Page 34, in
the office of the Clerk of Court for Barnwell County.
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Exhibit 10(TT)
March 20, 1998
Palmetto Federal Savings Bank of South Carolina
P.O. Box 1116
Aiken, SC 29802
Lower Savannah Regional Development
Corporation
c/o Palmetto Federal Savings Bank of South Carolina
P.O. Box 1116
Aiken, SC 29802
Ladies and Gentlemen:
Starmet CMI Corporation, a Delaware corporation ("CMI"), has entered
into a credit facility with you (the "Loan") of even date herewith pursuant
to which CMI has executed and delivered (i) a promissory note in the
principal amount of $495,000 in favor of Palmetto Federal Savings Bank of
South Carolina ("Palmetto"); (ii) a promissory note in the principal amount
of $500,000 in favor of Lower Savannah Regional Development Corporation
("Lower Savannah"); (iii) a mortgage, security agreement and financing
statement in favor of Palmetto; and (iv) a mortgage, security agreement and
financing statement in favor of Lower Savannah, each of even date herewith
(and with all other agreements and instruments executed by CMI in connection
with the Loan, the "Loan Documents"). Palmetto and Lower Savannah also
entered into an Inter-Creditor Agreement dated as of March 20, 1998, and
CMI's parent, Starmet Corporation, executed and delivered guarantees in favor
of each of Palmetto and Lower Savannah in connection with the Loan.
The parties hereto agree, notwithstanding contrary provisions of any of
the Loan Documents, that the following states the business deal negotiated by
the parties:
1. The Loan is secured solely by equal and coordinate second mortgages
held by Palmetto and Lower Savannah on the real property (and fixtures
thereto) owned by CMI in Barnwell, South Carolina; such mortgages do not
create or impose any lien or encumbrance upon any other personal or
intangible assets owned by CMI, but relate only to the real property and
fixtures of the Barnwell property;
2. The term of the Loan is ten and one-half years. The promissory
notes evidencing the Loan will be reexecuted and the outstanding balance of
the Loan will be
<PAGE>
Palmetto Federal Savings Bank of South Carolina
Lower Savannah Regional Development
Corporation
April 2, 1998
Page 2
refinanced on September 20, 2003; and
3. Each of the parties hereto agrees to execute such additional
documents as any party may reasonably request to further effectuate the
foregoing.
If you are in agreement with the foregoing, kindly indicate by signing
below, returning one copy of this letter agreement to me, and retaining one
for your files.
Very truly yours,
STARMET CMI CORPORATION
By: /s/ James M. Spiezio
---------------------------
Name: James M. Spiezio
-------------------------
Title: Treasurer, Starmet CMI
Corporation
------------------------
AGREED AND ACCEPTED:
PALMETTO FEDERAL SAVINGS
BANK OF SOUTH CAROLINA
By: /s/ F.A. Townsend
--------------------------
Name: F.A. Townsend
------------------------
Title: Vice President
-----------------------
Date: 4/6/98
------------------------
LOWER SAVANNAH REGIONAL
DEVELOPMENT CORPORATION
By: /s/ Fred Catchings
--------------------------
Name: Fred Catchings
------------------------
Title: Loan Officer
-----------------------
Date: 4/7/98
------------------------
<PAGE>
Exhibit 10(UU)
PALMETTO FEDERAL SAVINGS and LOAN ASSOCIATION OF S.C.
GUARANTY BY CORPORATION
S.C. , 1998
1. For valuable consideration, the receipt whereof by the undersigned is
hereby acknowledged, and to induce PALMETTO FEDERAL SAVINGS & LOAN
ASSOCIATION OF SOUTH CAROLINA (hereinafter, with its successors and assigns,
referred to as the ASSOCIATION), at its option, at any time or from time to
time, to extend financial accommodation, with or without security, to or for
account of
STARMET CMI CORPORATION
(hereinafter referred to as the Borrower), or in respect of which the
Borrower may be liable in any capacity (the term financial accommodation
includes, but is not limited to, the granting of loans, notes, checks,
drafts, bills of exchange, advances, credit, letters of credit or
accommodation, or discount or purchase of, or loans on, accounts, leases,
instruments, securities, documents, chattel paper and other security
arrangements, or other property, or entering into exchange contracts, each
such financial accommodation hereafter referred to as "Credit Arrangement"),
the undersigned (if more than one, jointly and severally) hereby absolutely
and unconditionally guarantee(s) to the Association, irrespective of the
validity, regularity or enforceability of any instrument, writing, or
arrangement relating to or the subject of any such financial accommodation or
of the obligations thereunder and irrespective of any present or future law
or order of any government (whether of right or in fact) or of any agency
thereof purporting to reduce, amend or otherwise affect any obligation of the
Borrower or other obligor or to vary the terms of payment, the prompt payment
of any and all obligations under any and all Credit Arrangements when due
from the Borrower to the Association now or hereafter, up to the amount plus
interest and costs of collection as set out in paragraph two (2), whether at
maturity or earlier by reason of acceleration or otherwise, or, if now due,
when payment thereof shall be demanded by the Association, and, in case of
one or more extensions of time or renewals, in whole or part, of any Credit
Arrangement, that the same will be promptly paid when due, according to each
such extension or renewal, whether at maturity or earlier by reason of
acceleration or otherwise. It is specifically understood and agreed that the
within Guaranty is a Guaranty of payment and not of collection. It is
further specifically understood and agreed that this Guaranty is a continuing
Guaranty that contemplates the possibility of one or more Credit arrangements
between the Borrower and the Association now or in the future, payments of
which are guaranteed by the undersigned under the terms of this agreement.
2. Notwithstanding the aggregate sums which may be or become payable by the
Borrower to the Association under one of the Credit Arrangements at any time
or from time to time, the liability of the undersigned hereunder shall not
exceed
<PAGE>
Four Hundred Ninety-Five Thousand Dollars ($495,000.00), plus such
interest as may accrue thereon and, in addition, the undersigned agree(s) to
pay the costs of collection, including legal expenses and attorney's fees,
paid or incurred by the Association in collecting and/or enforcing the amount
of the obligations of the Borrower guaranteed hereunder; and it is expressly
understood that the obligations of the Borrower under the Credit Arrangements
with the Association may at any time or from time to time be in an amount
less than (including payment in full by the Borrower of obligations under
Credit Arrangements with the Association) or greater than the amount
guaranteed hereunder without affecting the validity of the continuing
guaranty. It is specifically understood and agreed, moreover, that if and to
the extent the Borrower's obligations as aforesaid at any time or from time
to time exceed the amount guaranteed hereunder, and payments made upon any of
these obligations by the Borrower shall be first considered payments upon
that amount of the Borrowers indebtedness to the Association which exceeds
the amount guaranteed and shall affect neither the liability of the
undersigned to the Association for the amount guaranteed hereunder, nor the
validity of the continuing Guaranty.
The undersigned agree(s) that whenever at any time or from time to time the
undersigned shall make any payment to the Association hereunder on account of
the amount guaranteed hereunder, the undersigned will notify the Association
in writing that such payment is made under the Guaranty for such purpose. No
payment by the undersigned pursuant to any provisions hereof shall entitle
the undersigned by subrogation or otherwise to the rights of the Association
to any payment by the Borrower guaranteed hereunder plus the costs of
collection as aforesaid. Any and all payments made by the undersigned may be
applied by the Association upon such obligations of the Borrower as the
Association may determine.
3. The undersigned hereby consent(s) that from time to time, without notice
to or further consent of the undersigned, payment of any obligation hereby
guaranteed may be accelerated in accordance with any agreement between the
Association and any party liable with respect thereto, or may be extended, or
any Credit Agreement may be renewed or altered in whole or in part or any
collateral therefor may be exchanged, surrendered or released in whole or in
part, or otherwise dealt with as the Association may determine, and any of
the acts mentioned in any Credit Arrangement may be done, and there may be
created further Credit Arrangements between the Association and the Borrower
without notice to or further consent of the undersigned, all without
affecting the validity of the continuing Guaranty. The undersigned hereby
waive(s) presentment, protest, demand, notice of dishonor or default, and all
demands and notices of any kind in connection with the Guaranty or the Credit
Arrangements between the Association and Borrower or with respect to any
Security therefor.
4. This Guaranty shall continue in full force and be binding upon the
undesigned and the estate (or, if more than one, the estates) of the
undersigned notwithstanding the death of any of the undersigned or any
Guarantor or any other party liable upon or in respect of any obligation
hereby guaranteed; and neither disability nor bankruptcy of any one or more
of the undersigned shall affect the continuing obligation of any other of the
undersigned; and the Association may continue to act in reliance hereon until
the receipt by the Association of written notice by registered mail from the
undersigned, or, in the event of the death of any of the undersigned, from
the legal representative or representatives of such decedent or
<PAGE>
decedents, not to give further financial accommodation in reliance hereon;
provided, however, that such notice will not affect the liability of the
undersigned under the terms of the Guaranty for financial accommodation
extended to the Borrower by the Association prior to said written notice by
registered mail being received by the Association; provided also, that
further financial accommodation shall not include any extension of time or
renewal by the Association for payment of any Credit Arrangement existing at
the time notice of revocation is received, it being expressly understood that
the Association has the right to extend time for payment or renew the terms
of said Credit Arrangements after receipt of written notice or revocation as
aforesaid without affecting the liability of the undersigned under the terms
of the Guaranty as to said extended or renewed Credit Arrangements.
5. The Association may assign this Guaranty or any of its rights and powers
hereunder, with any or all of the obligations hereby guaranteed, and may
assign and/or deliver to any such assignee any of the Security herefor and,
in the event of such assignment, the assignee hereof or of such rights and
powers and of such Security, if any of such Security be so assigned and/or
delivered, shall have the same rights and remedies as if originally named
herein in place of the Association, and the Association shall be thereafter
fully discharged from all responsibility with respect to any such Security so
assigned and/or delivered.
6. Notice of acceptance of this Guaranty and of the incurring of any and
all of the obligations of the Borrower hereinbefore mentioned is hereby
waived by the undersigned. All of the provisions hereof regarding the
Security of the undersigned shall apply to the Security of any or all of
them, if there be more than one of the undersigned. This Guaranty and all
rights, obligations, and liabilities arising hereunder shall be construed
according to the laws of the State of South Carolina. Unless the context
otherwise requires, all terms used herein which are defined in the Uniform
Commercial Code of South Carolina shall have the meanings therein stated.
7. As security for the amount guaranteed by the undersigned hereunder, the
undersigned hereby grant(s) to the Association a security interest in, a
general lien upon and/or right of set-off of the following (herein referred
to as the Security): The balance of every deposit account, nor or hereafter
existing, of the undersigned with the Association and any other claim of the
undersigned against the Association, now or hereafter existing, and all
money, instruments, securities, documents, chattel paper, credits, claims,
demands and any other property, rights and interest of the undersigned, now
or hereafter existing, which at any time shall come into the possession or
custody or under the control of the Association or any of its agents,
associates or correspondents, for any purpose, and shall include the
proceeds, products and accessions of and to any thereof. The Association
shall be deemed to have possession of any of the Security in transit to or
set apart for it or any of its agents, associates or correspondents. The
right is expressly granted to the Association, at its discretion, to file one
or more financing statements under the Uniform Commercial Code of South
Carolina (which the undersigned agree(s) to sign) naming any one or more of
th undersigned as debtor(s) and the Association as secured party and
indicating therein the types or describing the items of Security herein
specified. The Association shall not be required to take any steps necessary
to preserve any rights against prior parties to any of the Security.
<PAGE>
8. This is a guaranty of payment and not of collection. The liability of
the undersigned on this guaranty shall be direct and immediate and not
conditioned or contingent upon the pursuit of any remedies against the
Borrower or any other person, nor against securities or liens available to
Lender, its successors, endorsees or assigns. The undersigned waives any
right to require that an action be brought against the Borrower or any other
person or to require that resort be had to any security or to any balance of
any deposit account or credit on the books of Lender in favor of the Borrower
or any other person. Upon failure of the undersigned to pay immediately all
amounts due under this Guaranty upon demand as aforesaid, the undersigned
agree(s) to pay all legal and other costs and expenses, including attorney's
fees, paid or incurred by the Association in connection with the enforcement
of this Guaranty. It is further expressly agreed that the Association, upon
such default, may exercise its rights and remedies as a secured party as set
out in paragraph (7) and it may also sell or cause to be sold, in one or more
sales or parcels, for cash or on credit or future delivery, without
assumption of any credit risk, all or any of the Security as described in
paragraph seven (7). The right of the Association to sell the aforesaid
Security and the disposition of proceeds therefrom shall be governed by the
provisions of the Uniform Commercial Code of South Carolina, if applicable.
Proceeds from the sale of any and all Security as aforesaid may be applied by
the Association upon such obligation of the Borrower as the Association may
determine. If the payment of any credit arrangement hereby guaranteed is
secured by a mortgage on real estate each of the undersigned does hereby
waive and relinquish any appraisal rights which any of them may have under
Section 29-3-680 through Section 29-3-760 South Carolina Code of Laws (1976)
as amended and each understands and agrees that if the mortgagor elects to
foreclose, a deficiency judgment, if pursued by the mortgagor, shall be
determined by the highest price bid at the judicial sale of the mortgaged
property.
9. The undersigned submits to the jurisdiction of the courts of the State
of South Carolina. The undersigned does further consent to the service of
process in any such action by certified or registered mail directed to the
undersigned at the address herein set out and that any such service shall be
complete three days after the same shall have been posted as aforesaid.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed by its proper officers this ____ day of _________________________,
199__.
NUCLEAR METALS, INC.
By: /s/ James M. Spiezio
-----------------------------
James M. Spiezio
its V. President
<PAGE>
ATTEST:
______________________________
Secretary
<PAGE>
Exhibit 10(VV)
PALMETTO FEDERAL SAVINGS and LOAN ASSOCIATION OF S.C.
GUARANTY BY CORPORATION
______________ S.C. ______________, 1998
1. For valuable consideration, the receipt whereof by the undersigned is
hereby acknowledged, and to induce LOWER SAVANNAH REGIONAL DEVELOPMENT
CORPORATION (hereinafter, with its successors and assigns, referred to as the
ASSOCIATION), at its option, at any time or from time to time, to extend
financial accommodation, with or without security, to or for account of
STARMET CMI CORPORATION
(hereinafter referred to as the Borrower), or in respect of which the
Borrower may be liable in any capacity (the term financial accommodation
includes, but is not limited to, the granting of loans, notes, checks,
drafts, bills of exchange, advances, credit, letters of credit or
accommodation, or discount or purchase of, or loans on, accounts, leases,
instruments, securities, documents, chattel paper and other security
arrangements, or other property, or entering into exchange contracts, each
such financial accommodation hereafter referred to as "Credit Arrangement"),
the undersigned (if more than one, jointly and severally) hereby absolutely
and unconditionally guarantee(s) to the Association, irrespective of the
validity, regularity or enforceability of any instrument, writing, or
arrangement relating to or the subject of any such financial accommodation or
of the obligations thereunder and irrespective of any present or future law
or order of any government (whether of right or in fact) or of any agency
thereof purporting to reduce, amend or otherwise affect any obligation of the
Borrower or other obligor or to vary the terms of payment, the prompt payment
of any and all obligations under any and all Credit Arrangements when due
from the Borrower to the Association now or hereafter, up to the amount plus
interest and costs of collection as set out in paragraph two (2), whether at
maturity or earlier by reason of acceleration or otherwise, or, if now due,
when payment thereof shall be demanded by the Association, and, in case of
one or more extensions of time or renewals, in whole or part, of any Credit
Arrangement, that the same will be promptly paid when due, according to each
such extension or renewal, whether at maturity or earlier by reason of
acceleration or otherwise. It is specifically understood and agreed that the
within Guaranty is a Guaranty of payment and not of collection. It is
further specifically understood and agreed that this Guaranty is a continuing
Guaranty that contemplates the possibility of one or more Credit arrangements
between the Borrower and the Association now or in the future, payments of
which are guaranteed by the undersigned under the terms of this agreement.
2. Notwithstanding the aggregate sums which may be or become payable by the
Borrower to the Association under one of the Credit Arrangements at any time
or from time to time, the liability of the undersigned hereunder shall not
exceed
<PAGE>
Four Hundred Ninety-Five Thousand Dollars ($495,000.00), plus such
interest as may accrue thereon and, in addition, the undersigned agree(s) to
pay the costs of collection, including legal expenses and attorney's fees,
paid or incurred by the Association in collecting and/or enforcing the amount
of the obligations of the Borrower guaranteed hereunder; and it is expressly
understood that the obligations of the Borrower under the Credit Arrangements
with the Association may at any time or from time to time be in an amount
less than (including payment in full by the Borrower of obligations under
Credit Arrangements with the Association) or greater than the amount
guaranteed hereunder without affecting the validity of the continuing
guaranty. It is specifically understood and agreed, moreover, that if and to
the extent the Borrower's obligations as aforesaid at any time or from time
to time exceed the amount guaranteed hereunder, and payments made upon any of
these obligations by the Borrower shall be first considered payments upon
that amount of the Borrowers indebtedness to the Association which exceeds
the amount guaranteed and shall affect neither the liability of the
undersigned to the Association for the amount guaranteed hereunder, nor the
validity of the continuing Guaranty.
The undersigned agree(s) that whenever at any time or from time to time the
undersigned shall make any payment to the Association hereunder on account of
the amount guaranteed hereunder, the undersigned will notify the Association
in writing that such payment is made under the Guaranty for such purpose. No
payment by the undersigned pursuant to any provisions hereof shall entitle
the undersigned by subrogation or otherwise to the rights of the Association
to any payment by the Borrower guaranteed hereunder plus the costs of
collection as aforesaid. Any and all payments made by the undersigned may be
applied by the Association upon such obligations of the Borrower as the
Association may determine.
3. The undersigned hereby consent(s) that from time to time, without notice
to or further consent of the undersigned, payment of any obligation hereby
guaranteed may be accelerated in accordance with any agreement between the
Association and any party liable with respect thereto, or may be extended, or
any Credit Agreement may be renewed or altered in whole or in part or any
collateral therefor may be exchanged, surrendered or released in whole or in
part, or otherwise dealt with as the Association may determine, and any of
the acts mentioned in any Credit Arrangement may be done, and there may be
created further Credit Arrangements between the Association and the Borrower
without notice to or further consent of the undersigned, all without
affecting the validity of the continuing Guaranty. The undersigned hereby
waive(s) presentment, protest, demand, notice of dishonor or default, and all
demands and notices of any kind in connection with the Guaranty or the Credit
Arrangements between the Association and Borrower or with respect to any
Security therefor.
4. This Guaranty shall continue in full force and be binding upon the
undesigned and the estate (or, if more than one, the estates) of the
undersigned notwithstanding the death of any of the undersigned or any
Guarantor or any other party liable upon or in respect of any obligation
hereby guaranteed; and neither disability nor bankruptcy of any one or more
of the undersigned shall affect the continuing obligation of any other of the
undersigned; and the Association may continue to act in reliance hereon until
the receipt by the Association of written notice by registered mail from the
undersigned, or, in the event of the death of any of the undersigned, from
the legal representative or representatives of such decedent or
<PAGE>
decedents, not to give further financial accommodation in reliance hereon;
provided, however, that such notice will not affect the liability of the
undersigned under the terms of the Guaranty for financial accommodation
extended to the Borrower by the Association prior to said written notice by
registered mail being received by the Association; provided also, that
further financial accommodation shall not include any extension of time or
renewal by the Association for payment of any Credit Arrangement existing at
the time notice of revocation is received, it being expressly understood that
the Association has the right to extend time for payment or renew the terms
of said Credit Arrangements after receipt of written notice or revocation as
aforesaid without affecting the liability of the undersigned under the terms
of the Guaranty as to said extended or renewed Credit Arrangements.
5. The Association may assign this Guaranty or any of its rights and powers
hereunder, with any or all of the obligations hereby guaranteed, and may
assign and/or deliver to any such assignee any of the Security herefor and,
in the event of such assignment, the assignee hereof or of such rights and
powers and of such Security, if any of such Security be so assigned and/or
delivered, shall have the same rights and remedies as if originally named
herein in place of the Association, and the Association shall be thereafter
fully discharged from all responsibility with respect to any such Security so
assigned and/or delivered.
6. Notice of acceptance of this Guaranty and of the incurring of any and
all of the obligations of the Borrower hereinbefore mentioned is hereby
waived by the undersigned. All of the provisions hereof regarding the
Security of the undersigned shall apply to the Security of any or all of
them, if there be more than one of the undersigned. This Guaranty and all
rights, obligations, and liabilities arising hereunder shall be construed
according to the laws of the State of South Carolina. Unless the context
otherwise requires, all terms used herein which are defined in the Uniform
Commercial Code of South Carolina shall have the meanings therein stated.
7. As security for the amount guaranteed by the undersigned hereunder, the
undersigned hereby grant(s) to the Association a security interest in, a
general lien upon and/or right of set-off of the following (herein referred
to as the Security): The balance of every deposit account, nor or hereafter
existing, of the undersigned with the Association and any other claim of the
undersigned against the Association, now or hereafter existing, and all
money, instruments, securities, documents, chattel paper, credits, claims,
demands and any other property, rights and interest of the undersigned, now
or hereafter existing, which at any time shall come into the possession or
custody or under the control of the Association or any of its agents,
associates or correspondents, for any purpose, and shall include the
proceeds, products and accessions of and to any thereof. The Association
shall be deemed to have possession of any of the Security in transit to or
set apart for it or any of its agents, associates or correspondents. The
right is expressly granted to the Association, at its discretion, to file one
or more financing statements under the Uniform Commercial Code of South
Carolina (which the undersigned agree(s) to sign) naming any one or more of
the undersigned as debtor(s) and the Association as secured party and
indicating therein the types or describing the items of Security herein
specified. The Association shall not be required to take any steps necessary
to preserve any rights against prior parties to any of the Security.
<PAGE>
8. This is a guaranty of payment and not of collection. The liability of
the undersigned on this guaranty shall be direct and immediate and not
conditioned or contingent upon the pursuit of any remedies against the
Borrower or any other person, nor against securities or liens available to
Lender, its successors, endorsees or assigns. The undersigned waives any
right to require that an action be brought against the Borrower or any other
person or to require that resort be had to any security or to any balance of
any deposit account or credit on the books of Lender in favor of the Borrower
or any other person. Upon failure of the undersigned to pay immediately all
amounts due under this Guaranty upon demand as aforesaid, the undersigned
agree(s) to pay all legal and other costs and expenses, including attorney's
fees, paid or incurred by the Association in connection with the enforcement
of this Guaranty. It is further expressly agreed that the Association, upon
such default, may exercise its rights and remedies as a secured party as set
out in paragraph (7) and it may also sell or cause to be sold, in one or more
sales or parcels, for cash or on credit or future delivery, without
assumption of any credit risk, all or any of the Security as described in
paragraph seven (7). The right of the Association to sell the aforesaid
Security and the disposition of proceeds therefrom shall be governed by the
provisions of the Uniform Commercial Code of South Carolina, if applicable.
Proceeds from the sale of any and all Security as aforesaid may be applied by
the Association upon such obligation of the Borrower as the Association may
determine. If the payment of any credit arrangement hereby guaranteed is
secured by a mortgage on real estate each of the undersigned does hereby
waive and relinquish any appraisal rights which any of them may have under
Section 29-3-680 through Section 29-3-760 South Carolina Code of Laws (1976)
as amended and each understands and agrees that if the mortgagor elects to
foreclose, a deficiency judgment, if pursued by the mortgagor, shall be
determined by the highest price bid at the judicial sale of the mortgaged
property.
9. The undersigned submits to the jurisdiction of the courts of the State
of South Carolina. The undersigned does further consent to the service of
process in any such action by certified or registered mail directed to the
undersigned at the address herein set out and that any such service shall be
complete three days after the same shall have been posted as aforesaid.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed by its proper officers this ___ day of _________________________,
199__.
STARMET CORPORATION
By: /s/ James M. Spiezio
------------------------------
James M. Spiezio
its V. President
ATTEST:
- ----------------------------------
Secretary
<PAGE>
Exhibit 10(WW)
April 1, 1998
SSB Investments, Inc.
225 Franklin Street
Boston, MA 02101
Ladies and Gentlemen:
Your predecessor in interest State Street Bank and Trust Company ("State
Street") and Starmet Corporation, a Massachusetts corporation formerly known
as Nuclear Metals, Inc. (the "Company"), entered into a certain Warrant
Agreement dated September 26, 1995 (the "First Agreement") pursuant to which
the Company issued to State Street a Common Stock Purchase Warrant dated
September 26, 1995 for the purchase of up to 25,000 shares of Company Common
Stock (the " First Warrant"), all upon the terms and conditions set forth in
the First Agreement and the First Warrant. State Street assigned the First
Agreement and First Warrant to you by way of an assignment dated March 25,
1996. The Company has also entered into a second Warrant Agreement dated as
of December 29, 1997 (the "Second Agreement" and together with the First
Agreement, the "Agreements"), and issued to you a second Common Stock
Purchase Warrant dated as of December 29, 1997 for the purchase of up to
25,000 shares of Company Common Stock (the "Second Warrant", and together
with the First Warrant, the "Warrants").
This letter agreement shall confirm that, notwithstanding the terms of
the Warrants or the Agreements, the parties hereto agree as to the following
provisions set forth below.
The following terms will have the following meanings:
"Initial Amount" means the initial amount of Company Common Stock
purchasable by a holder upon exercise of the First Warrant.
"Initial Common Outstanding" means the total number of shares of Company
Common Stock outstanding on a fully diluted basis, as such term is defined in
Section 11.11 of the First Warrant, on the date of issue of the First
Warrant, which amount was 2,456,514.
"Net Common Outstanding" means the net amount of Company Common Stock
outstanding on a fully diluted basis, as such term is defined in Section
11.11 of the First Warrant (including any shares of Company Common Stock
issued pursuant to the underwriter's over- allotment option and calculated
after giving effect to the adjustment set forth in Section 1 below), upon the
closing of an Offering, provided, however, that such amount shall not include
(i) any shares of Common Stock the Company has issued or is obligated to
issue to you or any of your affiliates since the date of issue of the First
Warrant, and (ii) any shares of Common Stock the Company has issued or is
obligated to issue pursuant to any Company stock option granted to an
employee or director of the Company on or after December 29, 1997; in each
case through the closing of an Offering.
<PAGE>
SSB Investments, Inc.
April 1, 1998
Page 2
"Offering" means any public secondary offering of Company Common Stock
pursuant to a registration statement filed with the Securities and Exchange
Commission in which the Company receives not less than $40 million dollars of
gross proceeds.
"Warrant Ratio" means .010177023%, the ratio of the Initial Amount to
Initial Common Outstanding on the date of issue of the First Warrant.
1. Contingent upon payment of the Fee set forth in Section 4, upon the
closing of an Offering, the anti-dilution formula in the first sentence of
Section 7.2 of the First Warrant will be deleted in its entirety, and a one
time adjustment to the Initial Amount will be made (with the defined terms
used herein incorporated therein by reference), and no further adjustment
shall be made to the Initial Amount pursuant to Section 7.2 either prior to
or after the Offering, so that the number of shares purchasable under the
First Warrant immediately following the closing of the Offering shall equal
the Warrant Ratio multiplied by Net Common Outstanding. This amendment to
Section 7.2 of the First Warrant will be void ab initio if no Offering closes
by April 1, 1999.
2. Contingent upon payment of the Fee set forth in Section 4, upon the
closing of an Offering, Section 7.2 of the Second Warrant will be deleted in
its entirety, and no adjustment will be made to the Initial Warrant Number
(as that term is defined in the Second Warrant) pursuant to such Section 7.2
either prior to or after the Offering. This amendment to the Second Warrant
will be void ab initio if no Offering closes by April 1, 1999.
3. The parties hereto agree that you will (i) not exercise any
"piggyback" registration rights contained in the Agreements in connection
with the first Offering which closes following the date of this letter
agreement and on or before April 1, 1999, and (ii) have demand registration
rights for all Company Common Stock issuable to you under the Agreements and
the Warrants, such demand registration rights to become effective no earlier
than 180 days after the closing of an Offering and to be accomplished by way
of an S-3 registration filing, unless the Company is ineligible to use such
form. Except for the demand nature of any such registration, the terms of
such registration shall be as provided in the Agreements. These amendments
to the First Agreement and the Second Agreement will be void ab initio if no
Offering closes by April 1, 1999.
4. The Company shall have the option to pay to you, as holder of the
First and Second Warrant, a fee (the "Fee") in the principal amount of
$235,313, whereupon the adjustments set forth in Sections 1 and 2 shall take
effect. The Fee will accrue and become payable upon the earlier of (i)
three (3) business days after the closing of an Offering, or (ii) the date of
termination of the Company's existing credit facility with State Street.
<PAGE>
SSB Investments, Inc.
April 1, 1998
Page 3
5. Except as modified hereby, the terms of the Agreements and the
Warrants are hereby ratified and confirmed.
6. The parties hereto agree to execute such additional documentation
as each party reasonably requires to effectuate the foregoing amendments.
If you are in agreement with the foregoing, please so indicate by
signing below, and returning one copy of this letter to us, retaining one
copy for your files.
Sincerely,
STARMET CORPORATION
By: /s/ James M. Spiezio
--------------------------
Name: James M. Spiezio
--------------------------
Title: Vice President/Finance
--------------------------
AGREED AND ACCEPTED:
SSB INVESTMENTS, INC.
By: /s/ William R. Dewey
--------------------------
Name: William R. Dewey
--------------------------
Title: Vice President
--------------------------
Date:
--------------------------
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following are the subsidiaries of the registrant, each of which is wholly
owned by the registrant.
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- ----------------------
<S> <C>
Starmet CMI Corporation Delaware
Starmet NMI Corporation Massachusetts
Starmet Powders, LLC Delaware
Starmet Aerocast, LLC Delaware
Starmet Commercial Castings, LLC Delaware
NMI Foreign Sales Corporation U.S. Virgin Islands
Starmet Holdings Corporation Massachusetts
</TABLE>
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated November 14, 1997 (except with respect to the matters discussed
in Notes 6 and 11 as to which the date is December 29, 1997) and to all
references to our Firm included in or made a part of this registration
statement.
Arthur Andersen LLP
Boston, Massachusetts
April 7, 1998
