<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1996
REGISTRATION NO. 333-01805
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
GTS DURATEK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-2476180
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
</TABLE>
8955 GUILFORD ROAD, SUITE 200
COLUMBIA, MARYLAND 21046
(410) 312-5100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ROBERT E. PRINCE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GTS DURATEK, INC.
8955 GUILFORD ROAD, SUITE 200
COLUMBIA, MARYLAND 21046
(410) 312-5100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
* COPIES TO: *
<TABLE>
<S> <C>
Henry D. Kahn, Esquire Thomas J. Murphy, Esquire
Piper & Marbury L.L.P. McDermott, Will & Emery
36 South Charles Street 227 West Monroe Street
Baltimore, Maryland 21201 Chicago, Illinois 60606
(410) 539-2530 (312) 372-2000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED 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, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, 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, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
GTS DURATEK, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-2 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Principal and Selling Stockholders
8. Plan of Distribution................................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered........... Description of Capital Stock
10. Interests of Named Experts and Counsel............... Not Applicable
11. Information With Respect to the Registrant........... Prospectus Summary; Price Range of Common Stock;
Dividend Policy; Capitalization; Selected
Consolidated Financial Data; Management's Discussion
and Analysis of Results and Operations and Financial
Condition; Business; Management; Principal and
Selling Stockholders; Description of Capital Stock;
Available Information; Financial Statements
12. Incorporation of Certain Information by Reference.... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<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 MARCH 29, 1996
PROSPECTUS
, 1996
3,600,000 SHARES
[LOGO]
COMMON STOCK
Of the 3,600,000 shares of Common Stock offered hereby, 2,500,000 shares are
being sold by GTS Duratek, Inc., and 1,100,000 shares are being sold by the
Selling Stockholders. The Company will not receive any of the proceeds from the
sale of the shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "DRTK." On March 28, 1996, the reported last sale price as quoted on the
Nasdaq National Market was $15 7/8 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE
COMMON STOCK.
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>
- ------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total (3)....................... $ $ $ $
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE SEVERAL 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 $400,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN 30
DAYS HEREOF, TO PURCHASE UP TO AN AGGREGATE OF 540,000 ADDITIONAL SHARES OF
COMMON STOCK AT THE PRICE TO THE PUBLIC LESS UNDERWRITING DISCOUNTS AND
COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF ANY. IF THE
UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO THE PUBLIC,
UNDERWRITING DISCOUNTS AND COMMISSIONS, AND PROCEEDS TO THE COMPANY WILL BE
$ , $ , AND $ , RESPECTIVELY. SEE "UNDERWRITING."
The shares of Common Stock are being offered, subject to prior sale, when,
as and if accepted by the Underwriters named herein and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of shares will be made against payment therefor in New
York, New York on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL
GRUNTAL & CO., INCORPORATED
<PAGE>
GTS Duratek Vendor Treatment facility at
Savannah River's M-Area
Control Room of the Vendor Treatment Facility at Savannah
River's M-Area
Waste Removal by GTS Duratek technician
DuraMelter 5000-TM- located at Savannah River's M-Area
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND CERTAIN SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE AND INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES (I) THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND
(II) THAT THE CERTIFICATE OF INCORPORATION OF GTS DURATEK, INC. WILL BE AMENDED
AT A SPECIAL MEETING OF STOCKHOLDERS CALLED FOR APRIL 16, 1996 TO INCREASE THE
AUTHORIZED COMMON STOCK OF THE COMPANY, PAR VALUE $.01 PER SHARE (THE "COMMON
STOCK"), FROM 20,000,000 SHARES TO 35,000,000 SHARES. UNLESS THE CONTEXT
SUGGESTS OTHERWISE, REFERENCES IN THIS PROSPECTUS TO "GTS DURATEK" OR THE
"COMPANY" MEAN GTS DURATEK, INC. AND ITS SUBSIDIARIES.
THE COMPANY
GTS Duratek provides waste treatment solutions for radioactive, hazardous,
mixed and other wastes. The Company's strategy is (i) to provide the low cost
solution to process contaminated waste streams, (ii) to combine its proprietary
technologies and technical support services to provide full-service waste
treatment, and (iii) to team, where appropriate, with other companies with
complementary expertise to advance GTS Duratek's treatment solutions within its
target markets and into new markets. The Company's vitrification, thermal
desorption and ion exchange technologies convert waste to stable forms for
storage or disposal while achieving significant volume reduction. Accordingly,
the Company believes its customers benefit from significant cost savings as
compared to other commercially-available alternatives. To implement its waste
treatment technologies and provide related technical support services, the
Company has a staff of highly skilled personnel with significant environmental
services experience.
The Company's targeted markets are the former nuclear weapon production
sites administered by the United States Department of Energy ("DOE"), commercial
radioactive waste generators and selected hazardous and other waste generators.
In THE 1995 BASELINE ENVIRONMENTAL MANAGEMENT REPORT, the DOE estimates that the
cleanup of the nuclear wastes at the U.S. facilities under its management will
take at least 75 years and cost $230 billion. The Company estimates that $400
million per year will be spent worldwide on storage and disposal of commercial
low-level radioactive waste. The Company believes it is well positioned to
compete in these markets because it has processed or currently has contracts to
process waste at two DOE sites and two commercial waste sites.
In serving these markets, the Company has achieved the following milestones:
(i) the first to vitrify low-level radioactive waste at a DOE site (Fernald,
Ohio); (ii) the award and construction of the first commercial-scale
vitrification project for low-level radioactive waste at a DOE site (Savannah
River M-Area Project); (iii) the successful conversion of commercial nuclear
power plant radioactive waste into glass and the construction of a
commercial-scale vitrification facility in Barnwell, South Carolina; and (iv)
the selection to design and build a vitrification system for radon-containing
sludge at the DOE's K-65 silos at Fernald, Ohio.
The Company's waste treatment technologies include vitrification, thermal
desorption and ion exchange and can be used independently or in tandem to solve
the waste disposal or storage problems of its customers. The Company's
vitrification technology converts waste to environmentally stable,
leach-resistant glass through a patented high-temperature melter system, known
as a DuraMelter-TM-. The thermal desorption and ion exchange technologies are
used by the Company to treat petrochemical and liquid radioactive waste streams,
respectively, and can be used to separate the waste streams into components that
can either be safely stored, recycled or used as additives in the vitrification
of other waste streams. The Company's ability to integrate its waste treatment
technologies enables it to handle a diversity of waste streams in a cost-
effective manner.
The Company has over 450 engineers, consultants and technicians who support
and complement its waste treatment services and also provide highly specialized
technical support services for the Company's customers. The technical support
services provide a consistent source of revenue and the complementary expertise
for the Company to expand and diversify its waste treatment technologies. The
services provided by the Company include staff augmentation and outage support,
principally to assist nuclear power plants during regular maintenance shutdowns,
environmental and computer consulting and environmental safety
3
<PAGE>
training. Having these technical resources available has enabled the Company to
move its technologies from bench-scale laboratory testing to field operations
and commercial application more rapidly and to handle larger scope waste cleanup
projects.
The Company has developed the following important joint venture and
collaborative arrangements in order to advance the commercialization of its
waste treatment technologies and increase the number of markets that it serves:
- THE VITREOUS STATE LABORATORY OF THE CATHOLIC UNIVERSITY OF AMERICA IN
WASHINGTON, D.C. ("VSL"). The Company has an established research and
development relationship with the VSL, one of the leading research centers
in the world for glass technology, including vitrification of waste.
- CHEM-NUCLEAR SYSTEMS, INC. ("Chem-Nuclear"). In September 1994, the
Company established a joint venture with Chem-Nuclear, a subsidiary of WMX
Technologies, Inc., to jointly pursue the treatment and disposal of
commercial low-level radioactive waste generated by nuclear power plants,
hospitals, research laboratories and industrial facilities. The joint
venture combines the Company's DOE vitrification experience with
Chem-Nuclear's 22 years of experience in providing radioactive waste
services.
- BNFL INC. ("BNFL"). In November 1995, the Company formed a strategic
alliance with BNFL to jointly pursue up to five major DOE waste treatment
projects. BNFL is the U.S. subsidiary of British Nuclear Fuels plc, one of
the largest processors of radioactive waste in the world. The Company
believes the strategic alliance significantly enhances its prospects of
being awarded major DOE cleanup projects and opens opportunities for
international expansion.
- THE CARLYLE GROUP ("Carlyle"). In January 1995, Carlyle, a Washington,
D.C.-based private merchant bank, made a significant investment in the
Company. Carlyle provided the Company with strong financial support and
experience with companies that contract with the federal government.
The Company seeks to utilize the complementary technical expertise or commercial
experience of the other parties in these collaborative arrangements and, where
possible, to develop additional collaborative arrangements, to pursue its
primary markets and expand into new markets.
The Company was incorporated in Delaware in 1982. Its principal executive
office is located at 8955 Guilford Road, Suite 200, Columbia, Maryland 21046 and
its telephone number is (410) 312-5100.
THE OFFERING
<TABLE>
<S> <C> <C>
Common Stock Offered:
By the Company.......................... 2,500,000
shares
By the Selling Stockholders............. 1,100,000
shares
---------------
Total................................. 3,600,000
shares
Common Stock to be outstanding
after the offering....................... 12,079,153 shares (1)
Use of proceeds........................... To expand waste treatment technology operations,
including for working capital, funding of waste
treatment technology projects and research and
development, and for possible acquisitions. See
"Use of Proceeds."
Nasdaq National Market Symbol............. DRTK
</TABLE>
- ------------------------
(1) Based on number of shares outstanding as of February 22, 1996. Does not
include 9,808,823 shares that may be issued upon the conversion of
convertible securities or upon the exercise of options and warrants
outstanding as of such date. See Notes 10, 11 and 12 of Notes to the
Consolidated Financial Statements.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................................... $ 32,820 $ 38,772 $ 33,505 $ 35,968 $ 40,418
Cost of revenues............................................. 27,583 32,674 28,609 28,857 32,220
--------- --------- --------- --------- ---------
Gross profit................................................. 5,237 6,098 4,896 7,111 8,198
Selling, general and administrative expenses................. 6,280 5,616 5,738 5,926 5,876
--------- --------- --------- --------- ---------
Income (loss) from operations................................ (1,043) 482 (842) 1,185 2,322
Interest income (expense), net............................... (517) (406) (372) (595) 57
--------- --------- --------- --------- ---------
Income (loss) before income taxes and proportionate share of
loss of joint venture....................................... (1,560) 76 (1,214) 590 2,379
Income taxes................................................. -- (50) (73) (12) (101)
--------- --------- --------- --------- ---------
Income (loss) before proportionate share of loss of joint
venture..................................................... (1,560) 26 (1,287) 578 2,278
Proportionate share of loss of joint venture................. -- -- -- (321) (824)
--------- --------- --------- --------- ---------
Net income (loss)............................................ (1,560) 26 (1,287) 257 1,454
Preferred stock dividends and charges for accretion.......... -- -- -- -- (1,394)
--------- --------- --------- --------- ---------
Net income (loss) attributable to common stockholders........ $ (1,560) $ 26 $ (1,287) $ 257 $ 60
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share.................................. $ (0.21) $ 0.00 $ (0.16) $ 0.03 $ 0.01
Weighted average common shares outstanding................... 7,360 7,388 7,936 8,656 8,820
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
-------------------------
ACTUAL AS ADJUSTED(1)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................... $ 24,114 $ 61,219
Total assets......................................................................... 38,660 75,765
Long-term debt and convertible debenture............................................. 10,123 10,123
Redeemable convertible preferred stock............................................... 14,609 14,609
Stockholders' equity................................................................. 9,257 46,362
</TABLE>
- ------------------------
(1) Adjusted to reflect the sale of 2,500,000 shares of Common Stock by the
Company hereby at an assumed offering price of $15 7/8 per share. See "Use
of Proceeds."
5
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK OFFERED HEREBY SHOULD
CONSIDER CAREFULLY THE SPECIFIC FACTORS SET FORTH BELOW AS WELL AS THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS IN EVALUATING AN INVESTMENT IN THE
COMMON STOCK.
NO ASSURANCE OF SUCCESSFUL DEVELOPMENT OR ACCEPTANCE OF TECHNOLOGIES
The Company is in the process of developing, refining and implementing its
technologies for the treatment of radioactive, hazardous, mixed (i.e.,
intermingled radioactive and hazardous) and other wastes. The Company's growth
prospects are significantly dependent upon the acceptance and implementation of
these technologies, particularly vitrification and thermal desorption. The
awarding of any future contracts to implement the Company's vitrification
technology is substantially dependent upon the continuing evaluation of the
Company's technology versus several other competing technologies as well as
conventional storage and disposal alternatives. There can be no assurance that
the Company's vitrification and related technologies will prove to be a
commercially viable and cost-effective means of waste treatment or that, even if
effective, the Company's technologies will be selected for use in future waste
treatment projects. In addition, applications of the Company's waste treatment
technologies to hazardous and other wastes are in various stages of development.
Accordingly, there can be no assurance that development of these technologies
will be completed in the near future, or that even if developed, the Company
will be able to commercialize such technologies.
DEPENDENCE ON PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its proprietary
vitrification and other waste treatment technologies. The Company does not own
any of the patents to the vitrification and other waste treatment technologies
but exclusively licenses such rights from the inventors of the technologies.
There can be no assurance concerning the scope, validity or value of such
patents or related intellectual property rights. Further, there can be no
assurance that the steps taken by the Company and the inventors to protect these
proprietary technologies will be adequate to prevent misappropriation of these
technologies by third parties. Any such adverse circumstances could have a
material adverse effect on the Company. Many technology fields are characterized
by the existence of a large number of patents and frequent litigation for
financial gain. Although the Company does not believe any of its proprietary
technologies infringe the patent rights of third parties, there can be no
assurance that infringement claims will not be asserted against the Company in
the future or that any such claims will not require the Company to enter into
royalty arrangements or result in litigation. In the event that the Company
pursues overseas projects, there can be no assurance that steps taken by the
Company and the inventors to protect their proprietary technologies will be
adequate under the laws of certain foreign countries. See "Business -- Patents
and Other Intellectual Property Rights."
DEPENDENCE ON KEY CUSTOMERS
During 1995, the Company's revenues from waste treatment projects were
primarily derived from subcontracts with DOE contractors and subcontractors and
constituted approximately 87.9% of the Company's revenues from waste treatment
projects and 24.2% of the Company's total revenues. Revenues from providing
technical support services constituted approximately 72.4% of the Company's
total revenues in 1995. Revenues from Duke Power Company, Westinghouse Savannah
River Company ("WSRC") and Fernald Environmental Restoration Management Company
("FERMCO"), a subsidiary of Fluor Corporation, accounted for approximately
22.6%, 17.4% and 16.1% of the Company's total revenues in 1995, respectively.
The loss of business from any of its major customers could have a material
adverse effect on the Company.
GOVERNMENT FUNDING AND CONTRACTING
The Company believes that demand for its waste treatment technologies is
directly related to the response of governmental authorities to public concern
over the treatment and disposal of radioactive, hazardous, mixed and other
wastes. The lessening of public concern in this area or other changes in the
political environment could result in a corresponding reduction in demand for
the services offered by the
6
<PAGE>
Company. Additionally, efforts to reduce the federal budget deficit could
adversely affect the availability and timing of government funding for the
cleanup of DOE and other sites at which radioactive and mixed wastes are
present.
The Company's existing government subcontracts can generally be canceled,
delayed or modified at the sole option of the government. The Company believes
that any future government contracts and subcontracts will be structured
similarly. In addition, under the terms of future government contracts and
subcontracts, if any, the federal government may be in a position to obtain
greater rights with respect to the Company's intellectual property than the
Company would grant to other entities. As a result of engaging in the government
contracting business, the Company has been and will be subject to audits, and
may be subject to investigation, by government agencies. The failure by the
Company to comply with the terms of any of its government contracts and
subcontracts could result in substantial civil and criminal fines and penalties
or the Company's suspension or debarment from future government contracts and
subcontracts for a significant period of time. The fines and penalties that
could result from noncompliance with appropriate standards and regulations, or
the Company's suspension or debarment, could have a material adverse effect on
the Company.
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
In order to commercialize its vitrification and other waste treatment
technologies, the Company has developed several collaborative arrangements,
including arrangements with the VSL, Chem-Nuclear and BNFL, and in the future
may seek other collaborative arrangements. The Company's future success will
likely depend, in part, on the success of its existing collaborative
relationships. Collaborative arrangements involve risks that the participating
parties may disagree on business decisions and strategies resulting in potential
delays, additional costs and risks of litigation. The inability of the Company
to successfully maintain existing collaborative relationships or enter into new
collaborative arrangements could have a material adverse effect on the Company.
See "Business -- Joint Venture and Collaborative Arrangements."
ACCUMULATED DEFICIT
As of December 31, 1995, the Company had an accumulated deficit of $9.6
million resulting principally from losses generated by operations prior to 1994,
certain of which related to a line of business discontinued in 1990. There can
be no assurance that in the future the Company will be able to generate
sufficient revenues or control operating expenses in order to achieve and
sustain profitability. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Results of Operations."
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth, attributable
in large part to the expansion of its waste treatment technology operations.
This growth has placed and could continue to place a significant strain on the
Company's management personnel and other resources. The Company's recent growth,
which might accelerate in the event the Company establishes additional
collaborative arrangements or joint ventures or undertakes a significant
acquisition, has resulted in an increased level of responsibility for the
Company's management personnel. The Company's ability to manage growth
effectively will require the Company to effectively manage its collaborative
arrangements and to continue to improve its operational, management and
financial systems and controls and to successfully train, motivate and manage
its employees. If the Company's management is unable to manage growth
effectively, the Company's results of operations could be materially adversely
affected.
The Company's business strategy includes the expansion of its technologies
and services, which may be effected through acquisitions. While there are
currently no commitments with respect to any future acquisitions, the Company
frequently reviews various acquisition prospects of businesses or technologies
complementary to the Company's business and periodically engages in discussions
regarding such possible acquisitions or affiliations. Acquisitions involve
numerous management, financial, operational and financial market risks. There
can be no assurance that any acquisition will result in long-term benefits to
the Company or that the Company's management will be able to manage effectively
the resulting businesses.
7
<PAGE>
COMPETITION
The market for the Company's waste treatment technologies is characterized
by several large companies and numerous small companies. Any of such companies
may possess or develop technologies superior to those of the Company. In
addition, the Company competes with companies offering conventional storage and
disposal alternatives such as special landfills, deep-well injection, on-site
containment in tanks, pits or ponds and incineration and other thermal treatment
methods. In its technical support services business, the Company's competitors
range from major national and regional environmental service and consulting
firms with large environmental remediation staffs to small local firms. Many of
the Company's competitors have greater financial, management and marketing
resources than the Company. To the extent that competitors offer more
cost-effective waste treatment alternatives or offer comparable services at
lower prices, the Company's ability to compete effectively could be adversely
affected. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon the technical expertise and management
experience of Robert E. Prince, President, Chief Executive Officer and a
director of the Company. The Company's operations are also dependent on the
continued efforts of certain technical personnel which include certain of the
Company's senior management as well as certain individuals at the VSL who have
developed and are continuing to refine the proprietary vitrification and ion
exchange technologies licensed by the Company. The loss of the services of any
of these individuals could have a material adverse effect on the Company. Mr.
Prince and certain other members of senior management are subject to employment
agreements which terminate in January 1998, unless extended; however, there are
no "key man" life insurance policies on Mr. Prince, any other members of senior
management or any other personnel.
GOVERNMENT REGULATION
Federal, state and local environmental legislation and regulations require
substantial expenditures and impose liabilities for noncompliance. Environmental
laws and regulations are, and will continue to be, a principal factor affecting
demand for the services offered by the Company. The level of enforcement
activities by federal, state and local environmental protection agencies and
changes in regulations will also affect demand. In the event and to the extent
that the burden of complying with environmental laws and regulations may be
eased, particularly those relating to the transportation, treatment, storage or
disposal of radioactive, hazardous, mixed or other wastes, the demand for the
Company's services could be materially adversely affected.
The Company and its customers operate in a highly regulated environment.
Facilities utilizing the Company's technologies are required to have federal,
state and local governmental permits and approvals. Any of these permits or
approvals may be subject to denial, revocation or modification under various
circumstances. Failure to obtain or comply with the conditions of permits or
approvals may adversely affect the operations of the Company and may subject the
Company to penalties. In addition, if new environmental legislation or
regulations are enacted or existing legislation or regulations are amended or
are interpreted or enforced differently, the Company or its customers may be
required to obtain additional operating permits or approvals. Any changes in
these regulations which increase compliance standards may require the Company to
change or improve its waste treatment technologies to meet more stringent
regulatory requirements. There can be no assurance that the Company will meet
all of the applicable regulatory requirements. See "Business -- Environmental
Matters."
POTENTIAL ENVIRONMENTAL LIABILITY AND INSURANCE
Performance of the Company's services requires exposure of personnel and
equipment to radioactive and hazardous materials and conditions. Although the
Company is committed to a policy of operating safely and prudently, the Company
may be subject to liability claims by employees, customers and third parties. In
addition, the Company may be subject to fines, penalties or other liabilities
arising from its actions imposed under environmental or safety laws. To date,
the Company has been able to obtain liability insurance for the operation of its
business. However, there can be no assurance that the Company's existing
liability insurance
8
<PAGE>
is adequate or that it will be able to be maintained or that all possible claims
that may be asserted against the Company will be covered by insurance. A
partially or completely uninsured claim, if successful and of sufficient
magnitude, could have a material adverse effect on the Company.
FLUCTUATIONS IN QUARTERLY RESULTS
A large component of the Company's technical support services business is
outage support for nuclear power plants. As a result, the Company's revenues
have historically been subject to significant quarterly fluctuations, affected
primarily by the timing of outage support projects at its customers' facilities,
which typically occur in the spring and fall when electrical load demand is at
its lowest. In addition, the timing of new waste treatment projects, including
those pursued jointly with BNFL, the duration of these projects and the form in
which these projects are owned and operated will affect period-to-period
comparisons of the Company's operating results.
CONTROL BY PRINCIPAL STOCKHOLDERS
Carlyle will own approximately 16.9% of the outstanding Common Stock and
94.2% of the outstanding shares of the Company's 8% Cumulative Convertible
Redeemable Preferred Stock (the "Convertible Preferred Stock"), or an aggregate
of 40.6% of the outstanding voting securities of the Company after this
offering. In addition, Carlyle has the option to purchase from the Company an
additional 1,177,278 shares of the Common Stock at any time prior to January 24,
1999 for $3.75 per share. The terms of the Convertible Preferred Stock provide
that the holders thereof, voting as a separate class, have the right to elect a
majority of the Company's Board of Directors so long as Carlyle owns shares of
capital stock having 20% or more of the votes that may be cast at annual or
special meetings of stockholders. The remaining directors shall be elected by
the vote of the holders of the Common Stock and Convertible Preferred Stock,
voting together as a single class. Carlyle, through its beneficial ownership of
the Convertible Preferred Stock, has the unilateral voting power to elect a
majority of the Company's Board of Directors and has ultimate control over the
management and policies of the Company through its control of the Board of
Directors. In addition, Carlyle and National Patent Development Corporation
("National Patent"), which will be the beneficial owner of approximately 15.3%
of the outstanding Common Stock after completion of this offering, have entered
into a stockholders agreement in which each agreed to vote the shares of stock
beneficially owned by them so that a majority of the Company's Board of
Directors will be comprised of the Carlyle designees, and the remaining
directors will be the Company's president and designees of National Patent.
Accordingly, if Carlyle and National Patent vote the shares beneficially owned
by them in accordance with the terms of the stockholders agreement, no
additional votes are required to elect the Company's Board of Directors. See
"Principal and Selling Stockholders" and "Description of Capital Stock."
EFFECT OF CERTAIN OUTSTANDING SECURITIES
At February 22, 1996, the Company had reserved 9,808,823 shares of Common
Stock for issuance upon conversion or exercise of the Convertible Preferred
Stock and options issued to Carlyle in 1995, the convertible debenture issued to
BNFL in 1995, and options and warrants issued to employees and others. The
exercise or conversion prices of these securities are substantially below the
current market price for the Company's Common Stock. Investors may experience
dilution as a result of shares of Common Stock being issued upon conversion or
exercise of these securities. In addition, the Company's income per common share
will be significantly affected by their future conversion or exercise or at such
time, if ever, as the level of the Company's net income causes any or all of
these securities to be included in earnings per share computations. See
"Principal and Selling Stockholders," "Description of Capital Stock," and Notes
to the Consolidated Financial Statements.
AVAILABILITY OF SKILLED PROFESSIONALS
The Company's success in providing technical support services to its
customers is dependent upon its ability to staff customer projects with skilled
technical specialists and experts in a wide range of scientific, engineering,
health and safety, data processing and communications disciplines. The Company
does not retain all such skilled professionals on a full-time basis but
contracts with these individuals on an as-needed
9
<PAGE>
basis. The market for skilled professionals in these disciplines is highly
competitive and there can be no assurance that the Company will be able to hire
these professionals when needed to staff customer projects or that the cost of
such labor will not significantly increase.
VOLATILITY OF STOCK PRICE
There has been a history of volatility in the market prices for securities
of technology and other emerging growth companies. In the case of the Company,
factors such as the announcements of new contracts or technological
developments, status of collaborative arrangements of the Company or its
competitors, government regulatory action, patent or proprietary rights
developments, changes in recommendations and estimates by security analysts and
market conditions in general could have a significant impact on the future
market price of the Common Stock. See "Price Range of Common Stock."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be approximately $37.1 million,
assuming an offering price of $15 7/8 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
($45.2 million if the Underwriters' over-allotment option is exercised in full).
The Company intends to use the net proceeds to expand its waste treatment
technology operations, including for working capital, funding of waste treatment
technology projects, and research and development . The Company may use a
portion of the net proceeds for the acquisition of businesses or technologies
complementary to the Company's business, although no such acquisition is being
negotiated or planned as of the date of this Prospectus. Pending such uses, the
net proceeds are expected to be invested in short-term, investment grade
securities.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders. See "Principal and Selling Stockholders."
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
DRTK. The following table sets forth, for the periods indicated, the high and
low sale prices of the Common Stock (bid prices prior to September 19, 1994,
when the Common Stock commenced trading on the Nasdaq National Market). The
reported last sale price of the Common Stock on the Nasdaq National Market on
March 28, 1996 was $15 7/8.
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK
--------------------
HIGH LOW
<S> <C> <C>
Year Ended December
31, 1994:
1st Quarter......... $ 5 $ 4 1/4
2nd Quarter......... 4 1/2 3 5/8
3rd Quarter......... 4 1/2 2 3/4
4th Quarter......... 4 3/8 3
Year Ended December
31, 1995:
1st Quarter......... $ 5 $ 3 5/8
2nd Quarter......... 6 1/8 4 1/4
3rd Quarter......... 6 1/4 5 3/8
4th Quarter......... 17 7/8 5 1/2
Year Ended December
31, 1996:
1st Quarter through
March 28, 1996..... $ 17 7/8 $11 1/4
</TABLE>
As of February 22, 1996, there were 678 holders of record of the Common
Stock and the Company estimates that there were approximately 1,700 beneficial
holders.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock
and is currently prohibited from paying dividends under its revolving line of
credit with its principal lender. The Company will pay dividends on the
Convertible Preferred Stock out of funds legally available therefor in
accordance with the terms of the Convertible Preferred Stock which require the
payment of quarterly dividends of $320,000 or $2.00 per share. The Company may
not pay dividends on any of the Common Stock unless the Company has paid all
accumulated dividends on all of the outstanding shares of Convertible Preferred
Stock. To date, the Company has paid all dividends on all of the outstanding
shares of the Convertible Preferred Stock. Except with respect to the dividends
on the Convertible Preferred Stock, the Company currently intends to retain
earnings primarily for working capital and development of waste treatment
technologies and therefore does not anticipate paying any cash dividends in the
foreseeable future. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Liquidity and Capital Resources."
11
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and total capitalization
of the Company as of December 31, 1995 and as adjusted to reflect the 2,500,000
shares of Common Stock offered by the Company hereby (assuming an offering price
of $15 7/8 per share) pursuant to this offering. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1995
----------------------
<S> <C> <C>
(IN THOUSANDS)
<CAPTION>
ACTUAL AS ADJUSTED
<S> <C> <C>
Current maturities of long-term debt.................................................... $ 471 $ 471
--------- -----------
--------- -----------
Long-term debt.......................................................................... $ 36 $ 36
--------- -----------
Convertible debenture................................................................... 10,087 10,087
--------- -----------
8% Cumulative Convertible Redeemable Preferred Stock - $.01 par value; 160,000 shares
authorized, issued and outstanding (liquidation value $16,320,000)..................... 14,609 14,609
--------- -----------
Stockholders' equity:
Preferred Stock - $.01 par value; authorized 4,840,000 shares; none issued............ -- --
Common Stock - $.01 par value, authorized 35,000,000 shares; 9,475,878 shares issued;
11,975,878 shares issued, as adjusted (1)............................................ 95 120
Capital in excess of par value.......................................................... 18,913 55,993
Deficit................................................................................. (9,579) (9,579)
Treasury stock, 70,458 shares, at cost.................................................. (172) (172)
--------- -----------
Total stockholders' equity........................................................ 9,257 46,362
--------- -----------
Total capitalization.............................................................. $ 33,989 $ 71,094
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) At December 31, 1995, the Company had reserved 9,909,706 shares of Common
Stock for issuance upon conversion or exercise of the Convertible Preferred
Stock and options issued to Carlyle in 1995, the convertible debenture
issued to BNFL in 1995, and options and warrants issued to employees and
others. The Company's Board of Directors recently approved an amendment to
the Company's stock option plan to increase the maximum number of shares of
Common Stock which may be purchased pursuant to options granted under such
plan from 1,800,000 to 2,800,000 shares. See Notes 10, 11 and 12 of Notes to
the Consolidated Financial Statements.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of and
for each of the years in the five-year period ended December 31, 1995, have been
derived from the consolidated financial statements of the Company, which have
been audited by KPMG Peat Marwick LLP, independent certified public accountants.
This selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and with the Company's Consolidated Financial Statements including
notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................................... $ 32,820 $ 38,772 $ 33,505 $ 35,968 $ 40,418
Cost of revenues............................................. 27,583 32,674 28,609 28,857 32,220
--------- --------- --------- --------- ---------
Gross profit................................................. 5,237 6,098 4,896 7,111 8,198
Selling, general and administrative expenses................. 6,280 5,616 5,738 5,926 5,876
--------- --------- --------- --------- ---------
Income (loss) from operations................................ (1,043) 482 (842) 1,185 2,322
Interest income (expense), net............................... (517) (406) (372) (595) 57
--------- --------- --------- --------- ---------
Income (loss) before income taxes and proportionate share of
loss of joint venture....................................... (1,560) 76 (1,214) 590 2,379
Income taxes................................................. -- (50) (73) (12) (101)
--------- --------- --------- --------- ---------
Income (loss) before proportionate share of loss of joint
venture..................................................... (1,560) 26 (1,287) 578 2,278
Proportionate share of loss of joint venture................. -- -- -- (321) (824)
--------- --------- --------- --------- ---------
Net income (loss)............................................ (1,560) 26 (1,287) 257 1,454
Preferred stock dividends and charges for accretion.......... -- -- -- -- (1,394)
--------- --------- --------- --------- ---------
Net income (loss) attributable to common stockholders........ $ (1,560) $ 26 $ (1,287) $ 257 $ 60
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share.................................. $ (0.21) $ 0.00 $ (0.16) $ 0.03 $ 0.01
Weighted average common shares outstanding................... 7,360 7,388 7,936 8,656 8,820
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................................... $ 916 $ 1,265 $ (127) $ (78) $ 24,114
Total assets................................................. 9,350 13,127 12,754 19,200 38,660
Long-term debt and convertible debenture..................... 1,418 123 288 502 10,123
Redeemable convertible preferred stock....................... -- -- -- -- 14,609
Stockholders' equity......................................... 2,796 4,529 6,159 6,933 9,257
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
GTS Duratek has historically derived substantially all of its revenues from
technical support services to government agencies, electric utilities,
industrial facilities and commercial businesses. Technical support services are
generally provided pursuant to multi-year time-and-materials contracts. Revenues
are recognized as costs are incurred according to predetermined rates. The
contract costs primarily include direct labor, materials and the indirect costs
related to contract performance.
Historically, the Company's waste treatment revenues have been generated
from projects in which the Company acts as a subcontractor for the DOE pursuant
to fixed-price and cost-plus-fixed-fee contracts. The Company began to offer
vitrification services for wastes from the DOE's Fernald Environmental
Management Project in 1991 and began to operate its first field-based
DuraMelter-TM- at Fernald in 1993. Substantially all of the Company's waste
treatment revenues during 1993 and 1994 were derived from the Fernald project
and during 1995 were derived from the DOE's Savannah River M-Area project.
Revenues from these projects are recognized on the percentage-of-completion
method as costs are incurred as measured by the cost-to-cost method. See
"Business -- Status of Current and Potential Waste Treatment Projects" and Note
2 of Notes to Consolidated Financial Statements.
The Company to date has generated minimal revenues from waste treatment
projects for commercial customers. Revenues from the operations of commercial
waste treatment facilities will be recognized as waste is processed. The
Company's current commercial waste treatment projects are the DuraChem joint
venture with Chem-Nuclear ("DuraChem") and DuraTherm, Inc. ("DuraTherm"), which
owns the San Leon, Texas thermal desorption facility. Income or loss from the
Company's 45% share in the DuraChem joint venture will be recorded by the
Company on the equity method. DuraTherm is expected to commence commercial
operations in the second quarter of 1996. The Company consolidates the results
of DuraTherm adjusting for the 20% minority interest in consolidation. The
timing of new waste treatment projects, including those pursued jointly with
BNFL, the duration of these projects, and the form in which these projects are
owned and operated will affect period-to-period comparisons of the Company's
operating results. See "Business -- Status of Current and Potential Waste
Treatment Projects."
Pursuant to the terms of the Company's strategic alliance with BNFL, the
Company will receive a $1.0 million teaming fee each time that BNFL and the
Company agree to jointly pursue a major DOE waste treatment project, up to a
maximum of five projects. The Company reached agreements to pursue the first two
projects in November 1995 and February 1996 and recognized as revenue the $1.0
million fees in the fourth quarter of 1995 and the first quarter of 1996,
respectively. The Company is unable to predict the timing of recognition of
future teaming fees, if any. In addition, BNFL will provide the Company with
research and development funding of $500,000 annually for five years, which will
be used to offset certain of the Company's research and development expenses.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues increased by $4.4 million or 12.4%, from $36.0 million in 1994 to
$40.4 million in 1995. The increase was primarily the result of an increase in
revenues from waste treatment projects, which were $6.7 million in 1994 and
$11.1 million in 1995. The most significant of the waste treatment projects is
the Savannah River M-Area project. Under this three-year, $14.1 million
contract, the Company has constructed a vitrification facility at the Savannah
River site in South Carolina to convert approximately 90,000 cubic feet of mixed
waste to stable glass. Revenues from this contract were $2.3 million in 1994 and
$6.1 million in 1995. Revenues in 1995 also include a $1.0 million teaming fee
received from BNFL in exchange for the Company's agreement to exclusively team
with BNFL on a DOE waste treatment project in Hanford, Washington. Revenues from
technical support services were $29.3 million in 1994 and $29.3 million in 1995.
Gross profit increased by $1.1 million or 15.3%, from $7.1 million in 1994
to $8.2 million in 1995. The teaming fee from BNFL represented approximately
$1.0 million of the increase. As a percentage of
14
<PAGE>
revenues, gross profit increased from 19.8% in 1994 to 20.3% in 1995. Gross
profits from waste treatment projects were lower in 1995 as compared to 1994
principally as a result of project mix and modifications to the estimated costs
to complete the Savannah River M-Area project. The estimated cost to complete
the Savannah River M-Area project was increased due to the Company's decision to
make additional investments in the on-site facility to better position the
Company to handle additional waste streams at that site. Gross profits from
technical support services were $4.0 million in 1994 and $4.1 million in 1995.
Selling, general and administrative expenses declined by $50,000 or 0.8%,
from 1994 to 1995. As a percentage of revenues, selling, general and
administrative expenses declined from 16.5% in 1994 to 14.5% in 1995. The
decline was principally the result of higher utilization of the Company's
engineering staff on waste treatment projects and joint ventures, as well as
increased revenues without a corresponding increase in administrative overhead.
In 1994, the Company had net interest expense of $595,000 compared to net
interest income of $57,000 in 1995. In January 1995, the Company issued $16.0
million of Convertible Preferred Stock, the net proceeds of which were utilized
to repay outstanding short-term borrowings with the balance being invested in
short-term investment grade securities.
Income tax expense was $12,000 in 1994 compared to $101,000 in 1995.
Utilization of net operating loss carryforwards in 1994 and 1995 resulted in no
federal income taxes other than alternative minimum tax. The 1994 and 1995 state
income tax amounts relate to income taxes payable to states which do not
recognize net operating loss carryforwards. At December 31, 1995, the Company
has a net operating loss carryforward of approximately $2.2 million of which
approximately $1.1 million resulted from the exercise by employees of the
Company of non-qualified stock options in 1995. Accordingly, utilization of this
$1.1 million of the net operating loss carryforward will result in a credit to
capital in excess of par.
The Company's proportionate share in the loss of its 50% owned joint
venture, Vitritek Environmental, Inc. ("Vitritek"), increased from $321,000 in
1994 to $824,000 in 1995. Vitritek's 1995 loss was the result of limited
business activity, as well as a $1.2 million write-off of Vitritek's intangible
assets related to asbestos vitrification technology rights. In 1995, management
of Vitritek concluded that the market for asbestos vitrification would not
develop quickly enough to generate the cash flows necessary to recover the
intangible assets acquired by Vitritek in 1993.
Net income increased by $1.2 million or approximately 465% from $257,000 in
1994 to $1.5 million in 1995. The increase resulted from higher revenues from
waste treatment projects, the receipt of the BNFL $1.0 million teaming fee and
lower interest expense offset by the higher loss resulting from the write-off of
intangible assets realized from the Vitritek joint venture.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues increased by $2.5 million or 7.4%, from $33.5 million in 1993 to
$36.0 million in 1994. The increase was primarily a result of revenues
recognized on the Company's waste treatment projects, which were $3.7 million in
1993 and $6.7 million in 1994, particularly the Savannah River M-Area project
which commenced in 1994. Revenues from technical support services declined from
$29.8 million in 1993 to $29.3 million in 1994.
Gross profit increased by $2.2 million or 45.2%, from $4.9 million in 1993
to $7.1 million in 1994. As a percentage of revenues, gross profit increased
from 14.6% in 1993 to 19.8% in 1994. The increase primarily resulted from gross
profits achieved on waste treatment projects which generally have a higher gross
profit margin than technical support services. Gross profits from technical
support services were $3.7 million in 1993 and $4.0 million in 1994.
Selling, general and administrative expenses increased by $188,000 or 3.3%,
from $5.7 million in 1993 to $5.9 million in 1994. As a percentage of revenues,
selling, general and administrative expenses declined from 17.1% in 1993 to
16.5% in 1994. This decline was principally the result of higher utilization of
the Company's engineering staff on waste treatment projects and joint ventures.
15
<PAGE>
Net interest expense increased from $372,000 in 1993 to $595,000 in 1994.
The $223,000 increase was primarily the result of higher short-term borrowings
on the Company's line of credit and higher interest rates.
Income tax expense was $73,000 in 1993 compared to $12,000 in 1994. The 1993
and 1994 income tax amounts relate to state income taxes payable.
The Company's 50% owned joint venture, Vitritek, began operations in 1994.
The Company's proportionate share in the loss of Vitritek was $321,000.
Vitritek's 1994 loss was the result of the entity's startup costs and limited
business activity.
In 1993, the Company had a net loss of $1.3 million compared to net income
of $257,000 in 1994. The improvement in earnings resulted primarily from higher
revenues from waste treatment projects.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company completed two significant capital transactions,
which provided net proceeds of approximately $24.5 million. In January 1995, the
Company issued to Carlyle for $16.0 million, 160,000 shares of Convertible
Preferred Stock and an option to purchase an additional 1,250,000 shares of
Common Stock, at any time prior to January 24, 1999 for $3.75 per share.
Proceeds to the Company, net of offering expenses, were $14.7 million. In
November 1995, the Company issued to BNFL a $10.0 million convertible debenture,
which accrues interest at the one-year London Interbank Offered Rate (LIBOR) for
a period of five years, for $9.8 million, net of debt issue cost. In addition,
the Company generated $2.0 million upon the exercise of stock options and
warrants held by employees and others. The Company used certain of the proceeds
from these transactions to retire short-term borrowings of $7.6 million with the
balance being used for working capital needs and to further the Company's waste
treatment technologies through acquisitions, joint ventures and strategic
alliances.
During 1995, the Company invested approximately $4.5 million in property,
plant and equipment, the DuraChem joint venture and an acquisition. The
investments in property, plant and equipment and DuraChem related principally to
the construction of DuraMelters-TM- and related components. In November 1995,
the Company acquired 80% of the outstanding capital stock of DuraTherm, formerly
Bird Environmental Gulf Coast, Inc. ("BEGCI"), a company which operates a RCRA
Part B-permitted waste facility using thermal desorption technology in San Leon,
Texas. The Company purchased its interest in DuraTherm for one dollar and
incurred approximately $260,000 of transaction costs. In connection with the
acquisition, the Company agreed to invest up to $5.1 million in DuraTherm (of
which up to $2.7 million is for capital improvements and up to $2.4 million is
for working capital) in exchange for preferred stock of DuraTherm. The Company
presently expects to invest in the aggregate approximately $6.4 million in
property, plant and equipment, DuraTherm and the DuraChem joint venture during
1996.
During 1995, the Company used $847,000 of cash flows for operating
activities. Cash flows from operations were primarily impacted by the $4.0
million increase in accounts receivable and costs and estimated earnings in
excess of billings on uncompleted contracts. Of the $17.0 million in accounts
receivable and costs and estimated earnings in excess of billings on uncompleted
contracts at December 31, 1995, $10.5 million relates to contracts with two DOE
contractors which are expected to be collected in 1996. The Company has a
backlog of orders of approximately $48.0 million at December 31, 1995, of which
approximately $23.0 million is expected to be completed in 1996.
The Company has a revolving line of credit agreement with a bank providing
for borrowings up to $7.0 million based upon eligible amounts of accounts
receivable, as defined in the agreement. Borrowings outstanding under the
agreement are due on demand and bear interest at the bank's prime interest rate
plus 1% (9.25% as of March 28, 1996). At December 31, 1995, no borrowings were
outstanding and the Company had available borrowings of $5.9 million.
16
<PAGE>
The Company believes cash flows from operations, cash resources available at
December 31, 1995, the net proceeds of this offering and, if necessary,
borrowings available under the bank line of credit will be sufficient to fund
currently planned capital improvements and meet its operating needs, including
the quarterly preferred dividend requirement of $320,000.
SEASONALITY
Seasonality generally does not affect the Company's waste treatment
technology operations; however, it does have an effect on the Company's
technical support services business. A large component of the Company's staff
augmentation business is devoted to nuclear power plant outage support. The
seasonal nature of this work is caused by utilities' desire to schedule their
nuclear unit refueling and maintenance outages during spring and fall when, due
to moderate temperatures, electrical load demand is lowest. In addition, a
significant portion of the Company's computer and communications consulting
services client base is in the federal, state and local government sectors.
Funding appropriations for many of these clients' projects are coordinated with
the government's fiscal years which causes some seasonal impact on this
business. In contrast to the outage support business, demand for computer and
communications consulting services typically peaks in winter and summer months.
ACCOUNTING MATTERS
The Company will adopt the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" and SFAS No. 123,
"Accounting for Stock-Based Compensation" in 1996. Adoption of SFAS No. 121 is
not expected to have a material impact on the Company's financial position or
results of operations for 1996. Beginning in 1996, the Company expects to
present information required by SFAS No. 123 with respect to stock compensation
on a pro forma basis and will continue to measure stock compensation based upon
the guidance provided in Accounting Principles Board Opinion No. 25.
17
<PAGE>
BUSINESS
OVERVIEW
GTS Duratek provides waste treatment solutions for radioactive, hazardous,
mixed and other wastes. The Company's strategy is (i) to provide the low cost
solution to process contaminated waste streams, (ii) to combine its proprietary
technologies and technical support services to provide full-service waste
treatment, and (iii) to team, where appropriate, with other companies with
complementary expertise to advance GTS Duratek's treatment solutions within its
target markets and into new markets. The Company's vitrification, thermal
desorption and ion exchange technologies convert waste to stable forms for
storage or disposal while achieving significant volume reduction. Accordingly,
the Company believes its customers benefit from significant cost savings as
compared to other commercially-available alternatives. To implement its waste
treatment technologies and provide related technical support services, the
Company has a staff of highly skilled personnel with significant environmental
services experience.
The Company's targeted markets are the former nuclear weapon production
sites administered by the DOE, commercial radioactive waste generators and
selected hazardous and other waste generators. In THE 1995 BASELINE
ENVIRONMENTAL MANAGEMENT REPORT, the DOE estimates that the cleanup of the
nuclear wastes at the U.S. facilities under its management will take at least 75
years and cost $230 billion. The Company estimates that $400 million per year
will be spent worldwide on storage and disposal of commercial low-level
radioactive waste. The Company believes it is well positioned to compete in
these markets because it has processed or currently has contracts to process
waste at two DOE sites and two commercial waste sites.
In serving these markets, the Company has achieved the following milestones:
(i) the first to vitrify low-level radioactive waste at a DOE site (Fernald,
Ohio); (ii) the award and construction of the first commercial-scale
vitrification project for low-level radioactive waste at a DOE site (Savannah
River M-Area Project); (iii) the successful conversion of commercial nuclear
power plant radioactive waste into glass and the construction of a
commercial-scale vitrification facility in Barnwell, South Carolina; and (iv)
the selection to design and build a vitrification system for radon-containing
sludge at the DOE's K-65 silos at Fernald, Ohio.
The Company's waste treatment technologies include vitrification, thermal
desorption and ion exchange and can be used independently or in tandem to solve
the waste disposal or storage problems of its customers. The Company's
vitrification technology converts waste to environmentally stable,
leach-resistant glass through a patented high-temperature melter system, known
as a DuraMelter-TM-. The thermal desorption and ion exchange technologies are
used by the Company to treat petrochemical and liquid radioactive waste streams,
respectively, and can be used to separate the waste streams into components that
can either be safely stored, recycled or used as additives in the vitrification
of other waste streams. The Company's ability to integrate its waste treatment
technologies enables it to handle a diversity of waste streams in a cost-
effective manner.
The Company has over 450 engineers, consultants and technicians who support
and complement its waste treatment and stabilization services and also provides
highly specialized technical support services for the Company's customers. The
technical support services provide a consistent source of revenue and the
complementary expertise for the Company to expand and diversify its waste
treatment technologies. The services provided by the Company include staff
augmentation and outage support, principally to assist nuclear power plants
during regular maintenance shutdowns, environmental and computer consulting and
environmental safety training. Having these technical resources available has
enabled the Company to move its technologies from bench-scale laboratory testing
to field operations and commercial application more rapidly and to handle larger
scope waste cleanup projects.
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MARKET OVERVIEW
The primary markets for the Company's waste treatment technologies include:
(i) the former nuclear weapon production sites administered by the DOE, (ii)
commercial radioactive waste generators and (iii) selected hazardous and other
waste generators. The following is a summary of the types of wastes that are
generated by these entities which require treatment, remediation, storage or
disposal:
RADIOACTIVE WASTE
Radioactive waste, which is generated either by government facilities
(usually DOE weapons facilities) or by private sector commercial enterprises
such as nuclear power plants, medical laboratories and university and industrial
research and development facilities, is categorized as either high-level
radioactive waste or low-level radioactive waste. High-level radioactive waste
is primarily comprised of spent nuclear fuel rods from nuclear reactors and
highly radioactive waste generated by the processing of nuclear materials for
weapons production. Low-level radioactive waste generally consists of ordinary
materials that have become contaminated due to their proximity to more potent
radioactive material. According to the DRAFT WASTE MANAGEMENT PROGRAMMATIC
ENVIRONMENTAL IMPACT STATEMENT, the DOE estimates that there are approximately
52.4 million cubic feet of low-level radioactive waste stored throughout the
United States at DOE facilities (not including mixed waste), and approximately
14.1 million cubic feet of high-level radioactive waste. In THE 1995 BASELINE
ENVIRONMENTAL MANAGEMENT REPORT, the DOE estimates that the cleanup of the
nuclear wastes at the U.S. facilities under its management will take at least 75
years and cost $230 billion.
For the commercial low-level radioactive waste market, the Company estimates
that $400 million per year will be spent worldwide on storage and disposal. The
demand for the treatment and disposal of commercially-generated low-level
radioactive waste has been created by the limited number of available low-level
radioactive waste disposal sites. GTS Duratek's DuraChem facility is adjacent to
Barnwell, which the Company believes is a strategic advantage since Barnwell is
one of the few facilities permitted to receive commercially-generated low-level
radioactive waste.
MIXED WASTE
Mixed waste is radioactive waste intermingled with hazardous materials. The
cleanup of this waste is a high priority for the federal government, because it
falls directly under the mandate of the Federal Facility Compliance Act which
requires meeting waste cleanup targets by specified dates. Mixed waste poses
certain cleanup difficulties since the radioactive and hazardous components are
governed by separate sets of administrative rules and regulations and companies
handling such waste must comply with both sets of rules and regulations. The
radioactive component is governed by the Atomic Energy Act of 1954 ("AEA") and
is regulated by the DOE for waste at DOE facilities and by the Nuclear
Regulatory Commission ("NRC") for commercially-generated waste. The hazardous
waste component is governed by RCRA and is regulated by the EPA and by the laws
of individual states.
The following table illustrates estimated volume in cubic feet of
radioactive waste at major DOE sites according to the DRAFT WASTE PROGRAMMATIC
ENVIRONMENTAL IMPACT STATEMENT (AUGUST 1995).
CURRENT INVENTORY OF RADIOACTIVE WASTE
AT MAJOR DOE SITES
(CUBIC FEET IN THOUSANDS) (1)
<TABLE>
<CAPTION>
LOW-LEVEL WASTE MIXED WASTE HIGH-LEVEL WASTE
<S> <C> <C> <C>
Savannah River Site................................... 18,008 706 4,481
Oak Ridge Reservation................................. 8,828 2,083 0
Los Alamos National Laboratory........................ 5,296 106 0
Idaho National Engineering Laboratory................. 3,884 1,236 403
Hanford Site.......................................... 3,107 1,271 9,138
All other DOE Sites................................... 13,277 2,578 56
------ ----- ------
Total All DOE Sites................................... 52,400 7,980 14,078
------ ----- ------
------ ----- ------
</TABLE>
- ------------------------
(1) Represents currently stored inventory plus 20 year projected volume.
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HAZARDOUS AND OTHER WASTE
Hazardous waste is waste that is classified as hazardous under the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA") or the Toxic
Substances Control Act ("TSCA"). Based on data obtained from the United States
Environmental Protection Agency ("EPA"), it is estimated that more than 258
million tons of hazardous waste, as classified under RCRA or TSCA, was generated
in the United States in 1993. Other wastes that the Company has targeted or may
target for processing using its waste treatment technologies include
petrochemical waste, asbestos and laboratory and medical waste.
PROPRIETARY WASTE TREATMENT TECHNOLOGIES
The Company has developed several waste treatment technologies for use on a
variety of radioactive, hazardous, mixed and other waste streams. The Company's
existing waste treatment technologies include vitrification, thermal desorption
and ion exchange and can be used independently or in tandem to solve the waste
disposal or storage problems of its customers. The following is a brief summary
of the Company's waste treatment technologies.
VITRIFICATION
GTS Duratek's vitrification technology involves combining radioactive,
hazardous, mixed and other waste with glass-forming additives in a high
temperature melter, known as a DuraMelter-TM-, that reaches temperatures of
1150 DEG.C to 1450 DEG.C (or 2100 DEG.F to 2640 DEG.F). The high temperatures of
the DuraMelter-TM- cause the waste and any additives, to form a molten liquid
that becomes solid glass as it cools. As the molten liquid cools, the
radioactive or hazardous atoms become chemically bonded in the molecular
structure of the glass for long-term storage or disposal, thereby virtually
eliminating contamination of the environment. For certain waste streams, the
Company's vitrification technology can achieve volume reductions of up to 97%.
The principal advantages of the Company's vitrification technology compared
to conventional methods are that it (i) provides a safe, stable and long-term
means of storing wastes and (ii) results in significant cost savings over the
waste life-cycle (i.e., the cycle from waste generation through permanent
storage or disposal) due to the considerable volume reduction that is achieved.
The Company estimates that for certain wastes the total handling and disposal
costs could be 50% lower than conventional landfill methods, even when
considering the capital costs of the DuraMelter-TM-. For certain forms of
non-radioactive waste, there is no storage or disposal cost because the
vitrification process eliminates the contaminants and the resulting glass can be
recycled.
The DuraMelter-TM- is a proprietary melter system within a refractory-lined
cavity incorporating submerged electrodes which heat up the materials within the
cavity. Contaminated waste materials are deposited onto a melt surface in either
a liquid (slurry) or a solid form. Glass forming additives are also introduced
into the system and the amount of such additives is dependent upon the
characteristics of the waste stream. As the electrodes in the DuraMelter-TM-
raise the temperature above 600 DEG.C, the waste and additive mixture becomes
electrically conductive. Resistance to the passage of electricity through the
mixture causes further heating and maintains the waste and additive mixture in a
molten state. This process is known as "joule heating" and typically requires
temperatures of about 1150 DEG.C. Within the DuraMelter-TM-, water evaporates
and organic substances are oxidized forming simple gases which are channeled
into the patented off-gas treatment system. The inorganic radioactive or
hazardous substances in the waste are dissolved into the molten glass mixture.
The molten glass exits through a side opening near the floor of the melting
cavity and, depending upon the characteristics of the waste stream, is either
discharged in bulk or directed into the proprietary GTS Duratek gem machine
where it forms into beads, 1 to 2 centimeters in diameter, for long-term
storage. As the beads of molten mixture cool, the inorganic radioactive or
hazardous substances become chemically bonded or "locked" into the molecular
structure of the glass.
DuraMelters-TM- range in size from small bench-scale units used for testing
and characterization of waste streams to commercial sized melters designed for
large waste treatment and remediation projects. Currently, the Company's largest
commercial operating DuraMelters-TM- can process up to approximately 400 cubic
feet of waste per day. The design of the DuraMelter-TM- can be modified
depending upon the characteristics of the waste stream to be processed. To
process waste streams that have a higher content of soil or sand, the Company
has designed a DuraMelter-TM- with higher temperature capability (up to
1450 DEG.C or 2640 DEG.F). To
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<PAGE>
process waste streams that include a high content of corrosive elements such as
sulfates, phosphates, lead and nitrates, the Company has designed a
DuraMelter-TM- with multiple waste chambers to protect the electrodes from the
corrosiveness of the waste stream.
THERMAL DESORPTION TECHNOLOGY
The Company's thermal desorption technology separates hazardous wastes into
more stable waste components that can either be safely stored, recycled or used
as additives in the processing of other waste streams. The overall result is a
reduction in the costs of treating and disposing of such wastes. In this
process, hydrocarbon sludges and cakes are placed in a thermal desorber which
utilizes temperatures in excess of 635 DEG.C (or 1175 DEG.F) to separate the
waste into four components. The components include solids which meet universal
treatment standards land disposal restrictions, water amenable to low-cost
conventional waste water treatment or deep well disposal, reusable oil and
noncondensable gases. The Company's thermal desorption technology will initially
be used at its DuraTherm facility in San Leon, Texas for the processing of high
solid content petroleum refinery and petrochemical manufacturing wastes. The
high temperature thermal desorption process is protected by three patents
exclusively licensed by the Company. See "Business -- Status of Current and
Potential Waste Treatment Projects -- DuraTherm Facility in San Leon, Texas."
ION EXCHANGE
The Company manufactures and supplies highly specialized waste water
purification systems and patented ion exchange media, known as
DURASIL-Registered Trademark-, for commercial nuclear power plants, DOE
facilities and industrial clients. DURASIL-Registered Trademark- is formulated
to separate specific contaminants from liquid waste streams thereby allowing
radioactive and hazardous ions to be removed and separated into their respective
species. Since radioactive and hazardous materials are regulated by two
different government agencies, this ability to separate mixed waste greatly
simplifies its disposal. DURASIL-Registered Trademark- also has physical
characteristics that enable it to endure extreme waste water processing
conditions. It is mechanically stable and nonflammable, does not shrink or
swell, is virtually immune to radiation damage and has no effect on the pH of
the waste stream. The Company has developed different
DURASIL-Registered Trademark- ion exchange media depending on the
characteristics of the liquid waste stream. To complement its line of
DURASIL-Registered Trademark- ion exchange media, the Company also developed the
DURA C-TM- line of activated carbons which are high capacity, specialty
filtration media designed for treatment of water containing mixed waste.
The Company utilizes its proprietary ion exchange technology and its
abilities in designing and implementing waste water treatment systems to solve
the liquid waste treatment and disposal problems of its customers. At the DOE
site in Fernald, Ohio, the Company studied liquid samples from waste streams and
conducted bench-scale evaluations of its DURASIL-Registered Trademark- and other
nonproprietary ion exchange media in conjunction with various other treatment
methods. After successful completion of the first phase of the project, the
Company was awarded the second phase in which it designed, constructed and
operated a demonstration unit on site at Fernald. In addition, the Company
designed, constructed and operated a waste water treatment system for mixed
waste for Martin Marrieta Energy Systems, Inc. at its Oak Ridge Facility and
designed and built three waste water cleanup systems for the Taiwan Power
Company's Kuosheng Nuclear Power Plant. In February 1995, the Company was
awarded an $800,000 subcontract by WSRC to provide ion exchange water treatment
services at the DOE's Savannah River site.
INTEGRATED APPROACH TO WASTE TREATMENT
The Company believes that its ability to integrate its waste treatment
technologies gives it a competitive advantage by enabling it to handle a
diversity of waste streams in a cost-effective manner. The Company has the
ability to use its thermal desorption and ion exchange technologies to
"pre-treat" the waste stream, separating it into components that can either be
safely stored using cost-effective conventional methods, recycled or used as
additives in the processing of other waste streams. For example, the Company
utilizes its ion exchange technology on liquid waste streams to separate the
water from the radioactive or hazardous contaminants before further treatment of
the waste in a DuraMelter-TM-. In thermal desorption, one of the byproducts of
the process is a powdery residue that has good glass-making qualities and may be
able to be used as an additive in the vitrification of other waste streams.
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<PAGE>
As part of its integrated strategy, the Company provides important ancillary
services in support of its technologies. In the pre-treatment or "upstream"
phase of a waste treatment project, the Company provides waste characterization
analyses. In addition, the Company can create and implement environmental safety
and health plans and other training programs for personnel at the waste
treatment site. Following the pre-treatment phase, the Company provides a
variety of "in-stream" and post-treatment services. The Company provides
radiation monitoring and technical and operational personnel during the
processing of the waste and is involved in the decontamination and cleanup of
the facilities following the waste treatment operations. This integrated
approach has been essential in the Company's cleanup of low-level radioactive
wastes at the DOE's Savannah River site. In addition to designing, constructing
and operating the DuraMelter-TM- to vitrify the DOE's waste on site, the
Company's technical personnel are providing additional technical support
services. By having these technical resources available, the Company has been
able to move its technologies from bench-scale laboratory testing to field
operations and commercial application more rapidly and to handle larger scope
waste cleanup projects.
STATUS OF CURRENT AND POTENTIAL WASTE TREATMENT PROJECTS
The Company has completed, is currently involved in or is bidding on several
vitrification projects for the DOE through subcontracts with DOE site managers
and in the application of its waste treatment technologies to the
commercially-generated low-level radioactive waste and hazardous waste markets.
The following is a summary of the status of several of the Company's major waste
treatment projects.
SAVANNAH RIVER M-AREA PROJECT
The DOE's Savannah River site near Aiken, South Carolina has approximately
18.7 million cubic feet in total currently stored inventory and twenty years'
projected volume of low-level radioactive and mixed wastes. This represents
about 31% of all of such wastes throughout the DOE weapons facilities. The
Savannah River site is the largest single repository of low-level radioactive
and mixed wastes among all DOE sites.
In November 1993, the Company was awarded a subcontract by the site
management and operations contractor, WSRC, to vitrify 90,000 cubic feet of
low-level mixed waste sludge stored in the M-Area tanks at Savannah River. GTS
Duratek's subcontract represents only 0.5% of the total mixed waste inventoried
and projected to be generated at Savannah River. The Company's obligations under
this subcontract entail vitrifying the waste and performing ancillary services
related to the handling of the waste, including removal of the radioactive
sludges from the storage tanks, cleanup and decontamination of the storage tanks
and placement of the containers of the glass waste in a secure storage area. The
project is expected to take approximately three years to complete.
Construction of the melter began in July 1995 and was completed on January
10, 1996. The Company designed and constructed the DuraMelter-TM- and will serve
as the operator. WSRC began an operational readiness assessment of the facility
in January 1996 which will allow the Company to begin operation of the
DuraMelter-TM- upon completion of a short testing period using non-radioactive,
simulated waste material. The M-Area contract represents the first
"privatization" type contract entered into by the DOE for waste cleanup at its
facilities. Pursuant to this contract, the Company will own and operate the
DuraMelter-TM- under its subcontract with WSRC. The Company believes that the
DOE will enter into more of these privatization arrangements with commercial
vendors and that the Company's contract at Savannah River has been extensively
used as a model for contemplated future privatized DOE waste cleanup projects.
FERNALD MAWS PROJECT
The Company's first vitrification project, which began in 1991, was the
Minimum Additive Waste Stabilization ("MAWS") project at the DOE's Fernald
Environmental Management Project near Cincinnati, Ohio under a subcontract with
Argonne National Laboratories. The MAWS project involved the Company's
demonstration of minimum additive waste vitrification, or blending waste streams
of varying chemical and physical characteristics in a melter and exploiting the
natural glass-forming properties of each component waste. The Company believes
that the application of the MAWS concept to future waste treatment projects will
result in much lower operating costs and achieve significant volume reduction by
producing glass that is almost entirely composed of waste materials. GTS Duratek
designed, constructed and
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<PAGE>
operated a DuraMelter-TM- vitrification facility at Fernald and began processing
simulated wastes in September 1993 and actual Fernald mixed radioactive wastes
in July 1994 in accordance with its subcontract with Argonne National
Laboratories. Through the MAWS project, the Company became the first in the
country to process mixed waste at a DOE facility. Through MAWS and an additional
related project, the Company gained extensive knowledge of waste streams at the
DOE's facilities, which the Company believes provides it with a competitive
advantage in procuring future subcontracts for DOE projects.
FERNALD K-65 PROJECT
In September 1994, FERMCO awarded the Company a subcontract to design a
DuraMelter-TM- to vitrify the sludge in the K-65 silos at Fernald. The sludge in
the K-65 silos contains substantial amounts of radon, lead, nickel, phosphates,
nitrates and sulfates.
The initial K-65 subcontract called for the Company to provide a pilot-scale
melter and associated gem machine capable of processing up to three tons per day
of the K-65 silo waste. With GTS Duratek's assistance, FERMCO began assembly of
the DuraMelter-TM- at Fernald in July 1995 and completed construction at the end
of 1995. The Company is advising FERMCO during construction tests and will
provide consulting support for the startup of the melter. FERMCO, the site
environmental restoration management contractor, will own and operate the
DuraMelter-TM-. Although the Company has substantially completed its obligations
under the initial subcontract for the pilot-scale melter, the unit will process
only a small fraction of the radioactive waste contained in the K-65 silos at
Fernald. FERMCO recently awarded the Company a new subcontract to develop the
process chemistry for the operation of a pilot-scale vitrification system.
FERMCO plans to build a vitrification system five times the size of the
pilot-scale vitrification system for the cleanup of the K-65 waste and has
issued an expression of interest to identify companies, like GTS Duratek,
capable of designing and constructing such a vitrification system.
HANFORD TANK WASTE REMEDIATION SYSTEM PROJECT
The Hanford, Washington site is the single largest DOE facility and contains
the largest amount of high-level radioactive waste in the United States. Hanford
contains approximately 61 million gallons of high-level radioactive waste and
spent nuclear fuel which is contained in 177 underground storage tanks. The DOE
has recently released a request for proposals ("RFP") for the cleanup of this
waste. According to estimates prepared by the DOE, the cleanup project at
Hanford could take at least 20 years and cost over $40 billion.
The final RFP for Phase I of the project was released in February 1996 with
the DOE expected to award contracts for Phase I around August 1996. According to
the RFP, the first part of Phase I involves a 16 month developmental period to
establish technical and operational elements of the privatized facilities. The
second part of Phase I involves parallel vitrification test demonstrations that
will treat about 6% to 13% of the Hanford tank waste by the year 2004. The RFP
indicates that the DOE will select at least two contractor teams to perform the
Phase I vitrification tests. Each team will be responsible for vitrifying
between one and two million gallons of the Hanford waste with one team
vitrifying both high-level and low-level radioactive wastes and the other team
storing high-level radioactive wastes and vitrifying low-level radioactive
wastes. The Phase I portion of the project will conclude with a decontamination
and decommissioning of the cleaned tanks, followed by RCRA closure and site
decontamination, all of which is expected to last an additional two years. Phase
II of the cleanup of the Hanford tank waste is not expected to start until 2004.
The Company has agreed to jointly pursue the Hanford project with BNFL. See
"Business -- Joint Venture and Collaborative Arrangements -- BNFL."
IDAHO ADVANCED MIXED WASTE TREATMENT PROJECT
The Company and BNFL have also recently agreed to exclusively team on the
DOE's advanced mixed waste treatment project in Idaho. The DOE has recently
issued an RFP for this project and is expected to award contracts by October
1996. The DOE is required, under an agreement with the State of Idaho, to begin
processing the mixed waste on site by 2003 and to have the waste removed from
the State of Idaho by no later than 2018. There is an estimated 2.3 million
cubic feet of inventoried and non-inventoried waste and an additional 1.4
million cubic feet of contaminated soil that may require processing. This waste
is currently being stored in drums and crates in buildings and in earthen berms.
See "Business -- Joint Venture and Collaborative Arrangements -- BNFL."
23
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DURACHEM FACILITY IN BARNWELL, SOUTH CAROLINA
As part of the DuraChem joint venture, the Company and Chem-Nuclear
constructed a vitrification facility at Chem-Nuclear's radioactive waste
processing center at Barnwell, South Carolina. During 1995, the Company designed
and constructed a new DuraMelter-TM- at the facility and will be responsible for
the vitrification operations. The facility was granted its initial operating
permit in November 1995. Chem-Nuclear manages the overall facility and is
responsible for procuring all required operating permits, obtaining the
low-level radioactive waste from its customers, transporting the waste to the
facility and removing the waste for ultimate disposal once it has been
vitrified. Through the DuraChem joint venture, GTS Duratek has become the first
company in the United States to convert commercially generated low-level
radioactive waste to glass. See "Joint Venture and Collaborative Arrangements --
DuraChem."
DuraChem's Barnwell facility will process contaminated filtration and ion
exchange resins from nuclear power plants and contaminated wastes from hospitals
and laboratories. In initial test runs on contaminated nuclear power plant
resins, the DuraMelter-TM- achieved significant waste volume reductions of up to
97%. On other types of wastes, the Company believes that it will be able to
achieve volume reductions of 93% or better. The DuraChem facility is located
adjacent to the Barnwell landfill, one of the few facilities in the United
States permitted to accept commercially-generated low-level radioactive waste.
Over the last 15 years, no new radioactive waste storage sites have been built
or licensed in the United States. The Company believes that DuraChem's location
is advantageous because of its proximity to the nation's primary facility for
handling low-level radioactive waste.
DURATHERM FACILITY IN SAN LEON, TEXAS
The Company acquired an 80% interest in BEGCI, since renamed DuraTherm, on
November 30, 1995. DuraTherm is a RCRA Part B-permitted hazardous waste
recycling center located in San Leon, Texas which uses a patented thermal
desorption technology to treat and produce recyclable materials from hazardous
oil refinery and petrochemical plant sludges. The Company purchased the 80%
interest for one dollar from a subsidiary of Bird Corporation and agreed with
the remaining stockholders to invest up to $5.1 million for capital improvements
and working capital for the facility. The 20% minority interest is owned by the
operators of the DuraTherm facility, each of which has entered into an
employment agreement providing for incentive compensation tied directly to the
financial performance of the facility. Operations at the facility have been
suspended until completion of the capital improvements. The Company expects to
complete the capital improvements and resume operations in the second quarter of
1996.
DuraTherm has a patented thermal desorption process that removes volatile
gases and recovers oil from contaminated sludges generated by oil refineries and
processing operations. The oil recovered can be recycled. The thermal desorption
process is effective on sludges with a Btu content of between 2,000 and 5,000
per ton. Most incinerators and cement kilns, alternative processing methods,
typically cannot cost-effectively handle sludges with Btu levels within the
effective range for the thermal desorption process. The DuraTherm facility
provides the Company a permitted site to demonstrate and use other technologies
including vitrification and ion exchange.
JOINT VENTURE AND COLLABORATIVE ARRANGEMENTS
In order to commercialize its vitrification technology more rapidly and
cost-effectively, the Company has developed several important joint venture and
collaborative arrangements. The following is a summary of certain of these
relationships.
VSL
The Company has established a research and development relationship with the
VSL of The Catholic University in Washington, D.C. pursuant to which the VSL
provides ongoing research and development capabilities and technical services in
support of the Company's waste cleanup projects. In this complementary
relationship, the VSL provides the necessary technology and research and
development support while the Company advances the technology to commercial
application.
The VSL, a research facility with a staff of 90 researchers, is one of the
leading research centers in the world for glass technology, including
vitrification. The laboratories at the VSL are equipped with highly
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<PAGE>
sophisticated analytical tools which enable the researchers to perform a
comprehensive array of analyses. The VSL's research and development capabilities
include waste characterization, testing of radioactive waste-loaded glasses to
evaluate glass durability, processability and leachability, glass dissolution
computer modeling, batch melting and the study of ion exchange media for
removing specific contaminants from liquid waste streams. Various DuraMelter-TM-
models have been designed and constructed at the VSL for use by the staff of the
VSL in its research and analytical work. In addition, the facility is fully
licensed for radioactive
and hazardous materials research. The VSL is led by Pedro B. Macedo, Ph.D. and
Theodore A. Litovitz, Ph.D. who are the inventors and owners of the technology
licensed exclusively to the Company for ion exchange and the vitrification of
radioactive, hazardous, mixed and other wastes. See "Business -- Patents and
Other Intellectual Property Rights."
In addition to being the source of the vitrification technologies used by
the Company, the VSL provides ongoing services to the Company in support of its
waste treatment projects. The VSL conducts expert waste composition and glass
treatability studies before any project is commenced, assists in the initial
test melt phase of each project and works with the Company's engineers in the
design adaptation of the DuraMelter-TM- technology to fit the waste
characteristics of each new cleanup project. In addition, the VSL conducts
ongoing research and development into improvements on the existing vitrification
technologies and into entirely new vitrification techniques, serving in effect
as the research and development arm of the Company. The primary advantage to the
Company from its relationship with the VSL is the access to leading
vitrification technologies and ongoing vitrification research without having to
incur the ongoing overhead and administrative expenses if such capabilities were
in house.
In return, the Company provides ongoing project funding for research
conducted at the VSL on behalf of the Company. During 1994 and 1995, the Company
paid $1.9 million and $789,000, respectively, in research and development
funding to the VSL. For Company waste cleanup projects in which the VSL's
technical services are utilized by the Company, the Company pays the VSL on a
time and expense basis and includes the estimated cost for such services in its
formal bid proposal. The VSL is a not-for-profit institution so it does not
include extra fees or percentage profits in its cost estimates.
BNFL
On November 7, 1995, the Company and BNFL entered into a strategic alliance
agreement. BNFL is the U.S. subsidiary of British Nuclear Fuels plc, a United
Kingdom-based company with annual revenues of approximately $2 billion
worldwide. British Nuclear Fuels plc is one of the largest processors of
radioactive waste in the world and is one of only two companies worldwide with
commercial experience in processing and stabilizing high-level radioactive
wastes. The strategic alliance with BNFL enhances the Company's prospects of
obtaining major DOE waste treatment projects such as Hanford and Idaho and opens
opportunities for international expansion. BNFL has been active in the U.S.
radioactive waste market for the past five years, including being selected as a
member of the team to manage the DOE's nuclear waste facility in Rocky Flats,
Colorado.
Under the terms of the strategic alliance, the Company and BNFL have agreed
to jointly pursue up to five major DOE waste treatment projects, with the first
project being the separation and vitrification of high-level radioactive waste
at the DOE's Hanford, Washington facility. The terms of the strategic alliance
provide that BNFL pays to the Company a fee of $1.0 million each time the two
companies agree to exclusively pursue a waste treatment project. Upon the
execution of the strategic alliance agreement, the Company received the $1.0
million fee for its agreement to pursue the Hanford project exclusively with
BNFL. See "Business -- Status of Current and Potential Waste Treatment Projects
- -- Hanford Tank Waste Remediation System Project," and "-- Idaho Advanced Mixed
Waste Treatment Project."
As part of the strategic alliance, BNFL invested $10.0 million in the
Company in the form of a convertible debenture. The debenture accrues non-cash
interest during the first five years at the one-year London Interbank Offered
Rate (LIBOR) and is convertible at the option of BNFL into 1,381,575 shares of
the Common Stock prior to November 7, 2000. If the debenture is not converted or
extended, the Company must repay principal and interest in installments over the
five year period beginning on November 8, 2000. BNFL also agreed to provide the
Company with research and development funding of at least $500,000 per
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<PAGE>
year over the next five years. The two parties will mutually agree on how the
research and development funding will be spent, but the Company will retain the
rights to the vitrification processes that it develops through this funding. The
Company has agreed as part of the strategic alliance to sublicense its
radioactive waste vitrification technologies to BNFL for use only in the United
Kingdom.
DURACHEM
In September 1994, the Company formed a joint venture with Chem-Nuclear to
design, construct and operate vitrification facilities to process commercial
radioactive waste for disposal, including low-level radioactive wastes from
nuclear power plants, hospitals, research laboratories and industrial
facilities. The joint venture entity, called DuraChem, is 55% owned by
Chem-Nuclear and 45% by the Company. The joint venture represents the
combination of the Company's proprietary vitrification technology and Chem-
Nuclear's 22 years of experience in providing radioactive waste handling and
processing services. DuraChem will first pursue the disposal market for ion
exchange resins which are generated by nuclear power plants. The first
vitrification facility of this joint venture is located at Chem-Nuclear's waste
processing center at Barnwell, South Carolina. The need for the services
provided by DuraChem was created by the closure of nationally accessible
low-level radioactive waste disposal sites and the delay by state compacts in
opening new regional sites. The scarcity of disposal capacity has forced
commercial generators of low-level radioactive waste to store their waste at
their facilities until regional sites are opened. See "Business -- Status of
Current and Potential Waste Treatment Projects -- DuraChem Facility in Barnwell,
South Carolina."
VITRITEK
Through a joint venture with Vitritek Holdings LLC, a privately-held entity,
the Company has extended its vitrification technology to non-radioactive wastes.
The joint venture entity, called Vitritek, is 50% owned by each of the Company
and Vitritek Holdings LLC. The joint venture, formed in December 1993,
represents the consolidation of co-licensing rights to non-radioactive
vitrification technologies previously acquired by the Company and Vitritek
Holdings LLC. Under the terms of the joint venture arrangement, all funding
requirements and all profits are shared equally.
In November 1994, Vitritek, along with the VSL, completed a demonstration
project for the White House in Washington, D.C. converting approximately one ton
of asbestos-laden construction debris from the White House renovation project
into recyclable glass. Vitritek was awarded its first, and only to date,
commercial subcontract in September 1994 by WSRC to conduct a comparative
vitrification study on asbestos materials at the Savannah River site in order to
determine which of two melting technologies is better suited for converting the
Savannah River asbestos to glass. In the study, the Company conducted parallel
tests using joule-heated and plasma-arc furnaces to vitrify about 25 tons of
asbestos-laden waste material.
TECHNICAL SUPPORT SERVICES
The Company has over 450 engineers, consultants and technicians, some of
whom are full-time employees and the balance of whom are contract employees.
These employees support and complement the Company's waste treatment services
and also provide highly specialized technical support services for the Company's
customers. This business provides a consistent source of revenue and the
necessary complementary expertise for the Company to expand and diversify its
waste treatment technologies business in the future. The primary services
provided by the Company include staff augmentation and outage support,
principally to assist nuclear power plants during regular maintenance shutdowns,
environmental and computer consulting, and environmental safety training. The
Company provides these technical services either as a prime contractor or as a
subcontractor to a diverse group of government agencies, electric utilities,
industrial facilities and commercial businesses including the DOE, Duke Power
Company, New York Power Authority, UNISYS Corporation and WSRC.
STAFF AUGMENTATION AND OUTAGE SUPPORT SERVICES
The Company provides trained personnel to assist nuclear power plants
undergoing periodic refueling, maintenance outages, construction or
decommissioning. There are 119 nuclear power generating units in the United
States, of which 108 are operational. To control costs, utilities maintain their
permanent staffs at the
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level needed for steady-state power operations. They supplement their full-time
staffs during refueling and maintenance outages with skilled contract personnel.
Every 12 to 24 months, nuclear power plants are shut down for scheduled
maintenance that typically takes 30 to 90 days. This shutdown and maintenance
operation costs the nuclear power facility on average $1 million for every day
it is closed. Accordingly, there is a strong economic incentive for the nuclear
power facilities to hire trained and experienced personnel for these maintenance
operations in order to complete the servicing as quickly and efficiently as
possible. The Company's trained technicians and personnel are experienced in
outage support procedures and are effective at helping to minimize the cost of
the power facilities' down time.
The offering of services for operating nuclear power plants provides a
considerable market for the Company, despite the fact that no new plants have
been ordered in over 10 years. The demand for the Company's services results
from the extensive overhaul required to extend the life of aging plants,
replacement of major components of existing plants, startup of plants recovering
from long-term shutdown, modifications to the plants resulting from changing
legislation and the decommissioning of plants that have reached the end of their
useful lives.
The Company's largest customer for staff augmentation services is Duke Power
Company, which accounted for approximately 23% of the Company's total revenues
in 1994 and 1995. Duke Power currently has seven nuclear power units at three
sites. Under a series of contracts between the Company and Duke Power which
expire between 1997 and 1998, the Company provides a group of technicians to the
Duke Power system year-round and provides additional personnel to Duke Power
during planned maintenance outages. Other nuclear power utilities to which the
Company provides augmentation and outage support services include New York Power
Authority, Tennessee Valley Authority, PECO Energy, Vermont Yankee Power Company
and Southern Nuclear Operating Company.
ENVIRONMENTAL AND COMPUTER CONSULTING SERVICES
The Company provides extensive environmental consulting services to clients
in the areas of environmental remediation, facility decommissioning,
Occupational Safety and Health Act ("OSHA") and EPA compliance audits, site
characterization, licensing and permitting and air quality and emission studies.
The Company either supplies professionals and technical personnel to supplement
client staffs or assumes responsibility for entire projects. Included among the
Company's available personnel for such environmental consulting projects are
chemical, civil and environmental engineers, certified health physicists,
chemists, toxicologists, safety and health experts, regulatory compliance
specialists, remediation experts, radiological control technicians, hazardous
material technicians, decontamination experts and others. The Company also
supplies professionals and technical specialists in a wide range of scientific,
engineering, data processing and communications disciplines. These individuals
perform computer consulting services such as program assessment/development,
computer software development, quality assurance audits, non-destructive
examination and computer training for a broad base of clients. In January 1996,
GTS Duratek acquired Analytical Resources, Inc., a small environmental
consulting firm that has been involved in many DOE consulting projects. The
Company's management believes that this acquisition adds senior environmental
management and consulting resources to the Company.
ENVIRONMENTAL SAFETY TRAINING
The Company provides radiation protection and hazardous waste training
services nationwide. During 1995, the Company's training specialists prepared
candidates, consisting of health physics technicians and professionals from
nuclear power plants, universities and laboratories nationwide, for the National
Registry of Radiation Protection Technologists and American Board of Health
Physics certification examinations. The Company's training programs enable
customers to realize cost savings through increased worker competence and
productivity, enhanced workplace safety and improved compliance with regulatory
requirements.
CUSTOMERS
The Company derives revenues related to its proprietary vitrification
technologies principally through subcontracts with a combination of DOE
contractors and subcontractors including WSRC and FERMCO. Revenues derived from
DOE-related subcontracts represented 22.7% and 35.0% of the Company's total
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revenues during 1994 and 1995, respectively. The Company provides technical
support services to a diverse group of government agencies, including the DOE,
the DOD, the EPA and state environmental protection agencies, electric
utilities, including Duke Power Company, New York Power Authority, Tennessee
Valley Authority, Vermont Yankee Nuclear Power Corporation, PECO Energy and
Southern Nuclear Operating Company, and industrial facilities and commercial
businesses, including UNISYS Corporation. Revenues from Duke Power, WSRC and
FERMCO accounted for approximately, 22.6%, 17.4% and 16.1%, respectively, of the
Company's revenues for 1995. The Company has multiple contracts with Duke Power
which expire between 1997 and 1998 and pursuant to which it provides technical
support services and personnel.
SALES AND MARKETING STRATEGY
The Company's operations to date have provided it with extensive knowledge
of DOE and other waste stream composition and the factors that influence the
remediation of those waste streams. The Company's internal sales force uses and
will continue to use that knowledge and operating experience to strengthen the
Company's competitive position when pursuing DOE and other waste remediation
projects. In addition, through its collaborative arrangements, the Company will
seek to utilize complementary technical expertise, marketing resources and
commercial experience of the other parties to develop additional business in its
primary markets, expand its capabilities in handling a greater diversity of
waste streams and replicate its operating model to pursue international markets.
The Company pursues markets where it can be the most cost-effective processor of
the waste due to its technologies, geographical proximity to a waste stream or
government regulation.
In its technical support services business, GTS Duratek will seek to
strengthen its relationships with its large utility customers, such as Duke
Power Company, Tennessee Valley Authority, PECO Energy and Southern Nuclear
Operating Company, which are significant contributors to the Company's total
revenues. For its consulting and staff business, the Company is also pursuing
arrangements in which single-nuclear-unit utilities can form users' alliances
with the Company as the sole staff support contractor. These arrangements would
emulate the Company's contracts with large, multiple-nuclear-plant utilities.
The Company is also pursuing opportunities with utilities that are downsizing
and outsourcing service work as well as DOE sites that are privatizing
departments such as training and radiological controls. To enhance the overall
profitability of the technical support services business, the Company is
focusing on increasing market share in environmental and computer consulting,
radiation instrument services and environmental safety training, all of which
generate relatively higher profit margins than staff augmentation and outage
support.
ENVIRONMENTAL MATTERS
ENVIRONMENTAL LAWS AND REGULATIONS CREATING A DEMAND FOR THE COMPANY'S WASTE
TREATMENT TECHNOLOGIES
Various environmental protection laws have been enacted and amended during
recent decades in response to public concern over the environment. The
operations of the Company's customers are subject to these evolving laws and the
implementing regulations. The Company believes that the obligations to comply
with the requirements of the following laws contribute to the demand for its
services:
The AEA and the Energy Reorganization Act of 1974 (the "ERA") authorize the
NRC to regulate the receipt, possession, use and transfer of radioactive
materials, including "source material," "special nuclear material," and
"byproduct material." Pursuant to its authority under the AEA, the NRC has
adopted regulations that address the management and disposal of low-level
radioactive waste and that require the licensing of commercial low-level
radioactive waste disposal sites.
The storage and disposal of high-level nuclear waste are subject to the
requirements of the Nuclear Waste Policy Act, as amended by the Nuclear Waste
Policy Act Amendments. These statutes regulate the disposal of high-level
nuclear waste by establishing procedures and schedules for siting geologic
repositories for such waste. The statutes also direct EPA to promulgate
environmental standards for the disposal of high-level nuclear waste, and
require the NRC to promulgate standards covering the licensing of waste
repositories. The NRC has issued regulations that address the storage and
disposal of high-level nuclear waste.
The Uranium Mill Tailings Radiation Control Act ("UMTRCA") and the Uranium
Mill Tailings Remedial Action Amendments Act are intended to protect public
health and the environment from hazards
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associated with uranium ore milling wastes at active and inactive uranium mills.
UMTRCA designates specific inactive mill sites for remedial action, and gives
the DOE the responsibility for carrying out remedial actions at these sites.
The locations for future low-level radioactive waste disposal facilities
also may be affected by the Low-Level Radioactive Waste Policy Act of 1980
("LLRWPA") and the Low-Level Radioactive Waste Policy Amendments Act ("LLRWPA
Amendments"). The LLRWPA addresses the siting of new low-level radioactive waste
disposal facilities and establishes that each state is responsible for providing
disposal capacity for most low-level commercial radioactive waste generated
within its borders. The statute also encourages groups of states to enter into
compacts providing for the development and operation of low-level radioactive
waste disposal facilities. Incentives for the formation of interstate compacts,
and the deadlines and procedures which states must meet in designating disposal
facilities were modified by the LLRWPA Amendments. At the present time, no new
radioactive waste disposal facilities have been opened by state compacts and
none are expected to open in the near future.
RCRA provides a comprehensive framework for the regulation of the
generation, transportation, treatment, storage and disposal of hazardous waste.
The intent of RCRA is to control hazardous wastes from the time they are
generated until they are properly recycled or treated and disposed. RCRA
prohibits improper hazardous waste disposal and imposes criminal and civil
liability for failure to comply with its requirements. RCRA requires that
hazardous waste generators, transporters and operators of hazardous waste
treatment, storage and disposal facilities meet strict standards set by
government agencies. In certain circumstances, RCRA also requires operators of
treatment, storage and disposal facilities to obtain and comply with RCRA
permits. The Land Disposal Restrictions developed under the Hazardous and Solid
Waste Amendments of 1984 prohibit land disposal of specified wastes unless these
wastes meet or are treated to meet Best Demonstrated Available Technology
("BDAT") treatment standards, unless certain exemptions apply.
TSCA provides EPA with the authority to regulate over 60,000 commercially
produced chemical substances. EPA may impose requirements involving
manufacturing, record keeping, reporting, importing and exporting. TSCA also
established a comprehensive regulatory program for PCBs which is analogous to
the RCRA program for hazardous waste.
The Clean Water Act establishes standards, permits and procedures for
controlling the discharge of pollutants from industrial and municipal wastewater
sources.
The Clean Air Act of 1970, as amended (the "Clean Air Act"), empowers the
EPA to establish and enforce ambient air quality standards and limits of
emissions of pollutants from facilities. This has resulted in tight control over
emissions from technologies like incineration.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), and subsequent amendments under the
Superfund Amendments and Reauthorization Act ("SARA") impose continuing
liability upon generators of hazardous substances (among other parties) and such
potential liability may significantly affect a generator's decision on how to
dispose of the wastes. The Community Right-to-Know mandate established by SARA
requires full disclosure of all environmental releases to the public and
contributes to public awareness and activism regarding corporate environmental
management issues. To the extent a generator's waste can be reported as being
recycled, potential liability and public pressure can be eliminated or
significantly reduced.
CERCLA and SARA, as implemented by the National Contingency Plan, provide
for the investigation and remediation of sites containing hazardous substances.
The Superfund program's regulations require that any remediation of the
hazardous substances meet applicable and relevant and/or appropriate regulatory
requirements. Superfund's remedy selection process includes a preference for
innovative technology. Superfund also establishes strict liability for parties
who generated or transported hazardous substances or owned and operated the
sites containing them. This may create a strong incentive to avoid on-site waste
treatment in favor of utilizing technologies like the Company's waste treatment
technologies, which can, in certain instances, effectively recycle wastes.
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The Pollution Prevention Act of 1990 establishes pollution prevention as a
national objective, naming it a primary goal wherever feasible. The Act states
that if pollution cannot be prevented, materials should be recycled in an
environmentally safe manner.
Under the mandate of the Federal Facility Compliance Act ("FFCA"), the DOE
is currently engaged in a program to treat and dispose of the mixed waste
currently stored at its facilities. The FFCA required DOE to develop and comply
with treatment and disposal plans for each of its facilities and charges DOE
with developing treatment and disposal capacity for these wastes where it does
not currently exist. The plans must also address the need to treat and dispose
of mixed wastes generated from the remediation of contaminated DOE sites.
ENVIRONMENTAL LAWS AND REGULATIONS AFFECTING THE USE OF THE COMPANY'S WASTE
TREATMENT TECHNOLOGIES
Pursuant to the mandate of the AEA and the ERA, NRC regulations and guidance
address the classification and management of low-level radioactive waste. The
NRC regulations also govern the technical, monitoring and safety-related aspects
of developing and operating low-level radioactive waste disposal facilities.
Pursuant to its authority under the AEA, the NRC also has established licensing
requirements and operating procedures for such facilities. The NRC requirements
address siting criteria, site stability, the development and implementation of
institutional controls for the facility (e.g., access restrictions,
environmental monitoring and site maintenance), facility operation, closure, and
site stabilization.
Under RCRA, wastes are classified as hazardous either by specific listings
or because they display certain hazardous characteristics. Under current
regulations, waste residues derived from listed hazardous wastes are generally
considered to be hazardous wastes unless they are delisted through a formal
rulemaking process that may last a few months to several years. For this reason,
waste residue that is generated by the treatment of listed hazardous wastes but
which has no beneficial use, including waste treated with the Company's
vitrification technologies, may be considered a hazardous waste without regard
to the fact that this waste residue may be environmentally benign. Subsequent
management of such waste residue would be subject to full RCRA regulation,
including the prohibition against land disposal without treatment in compliance
with BDAT. The RCRA regulation classifying such waste residue as hazardous has
been overturned by the District of Columbia Court of Appeals, but has been
temporarily reinstated until the EPA develops a revised regulatory approach.
Under EPA's proposed Hazardous Waste Identification Rule, listed wastes would
leave the hazardous waste regulatory system if they met specified concentration
limits for hazardous constituents. The Company's ownership and operation of
vitrification facilities also exposes the Company to potential liability for
cleanup of releases of hazardous wastes under RCRA.
If the Company engages in the transportation of radioactive materials it
will be subject to the requirements of the Hazardous Materials Transportation
Act, as amended by the Hazardous Materials Transportation Uniform Safety Act.
Pursuant to these statutes, the United States Department of Transportation
regulates the transportation of hazardous materials, including radioactive
materials, in commerce. Shippers and carriers of radioactive materials must
comply with both the general requirements for hazardous materials transportation
and with specific requirements for the transportation of radioactive materials.
If the Company engages in the storage and disposal of high-level nuclear waste
it may be subject to the Nuclear Waste Policy Act, as amended by the Nuclear
Waste Policy Act Amendments.
CERCLA effectively imposes strict, joint and several liability upon owners
or operators of facilities where a release of hazardous substances has occurred,
upon parties who generated hazardous substances that were released at such
facilities and upon parties who arranged for the transportation of hazardous
substances to such facilities. The Company's ownership and operation of
vitrification facilities on-site expose the Company to potential liability under
CERCLA for releases of hazardous substances into the environment at those sites.
In the event that off-site storage or disposal facilities utilized by the
Company for final disposition of the glass and resulting residues from the
Company's vitrification process are targeted for investigation and cleanup under
CERCLA, the Company could incur liability as a generator of such materials or by
virtue of having arranged for their transportation and disposal. The Company
designs its DuraMelters-TM- to minimize the potential for release of hazardous
substances into the environment. In
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addition, the Company has developed plans to manage and minimize the risk of
CERCLA or RCRA liability, including the training of operators, use of
operational controls and structuring of its relationships with the entities
responsible for the handling of waste materials and by-products.
The Clean Air Act imposes strict requirements upon owners and operators of
facilities which discharge pollutants into the environment. Although the Company
believes that its proprietary off-gas treatment system effectively traps
particulates and prevents hazardous emissions from being released into the
environment, which releases would violate the Clean Air Act, the Clean Air Act
may require a permit prior to the construction and operation of the Company's
facilities and may require additional controls.
The Clean Water Act establishes standards, permits and procedures for
controlling the discharge of pollutants from industrial and municipal wastewater
sources. The Company believes that DuraMelters-TM- generally will not be subject
to the water pollution control requirements of the Clean Water Act because
DuraMelters-TM- are designed to have no residual wastewater discharge. However,
the Clean Water Act's standards permits and procedures are potentially
applicable to wastewater treatment systems designed by the Company, using its
ion exchange technology.
OSHA provides for the establishment of standards governing workplace safety
and health requirements, including setting permissible exposure levels for
hazardous chemicals which may be present in mixed wastes. The Company is
required to follow OSHA standards, including the preparation of material safety
data sheets, hazardous response training and process safety management. The NRC
has set regulatory standards for exposure to radioactive materials.
To the extent that the Company is engaged in the processing or disposal of
mixed waste, the radioactive components are subject to the NRC regulations
promulgated under the AEA, while the hazardous components of the waste are
regulated by the EPA under RCRA.
Company facilities may have to obtain permits under state laws that
correspond to the Clean Water Act and the Clean Air Act. The necessity to obtain
such permits depends upon the facility's location and the expected emissions
from the facility. Additional state licenses or approvals may also be required.
Operators of hazardous waste treatment, storage and disposal facilities are
required to obtain RCRA Part-B permits from the EPA or from states authorized to
implement the RCRA program. Obtaining such permits is a lengthy and costly
process that requires regulatory inspection and approval of, among other things,
the facility design, equipment and operating plans and procedures. In addition,
applicants for a RCRA permit for a treatment, storage or disposal facility must
submit detailed information regarding all past waste management practices at
that facility and may be required to undertake corrective action for past
contamination of the site. The Company's DuraTherm facility in San Leon, Texas
is a RCRA Part-B permitted facility. The Company has developed procedures to
ensure compliance with RCRA permit provisions at the DuraTherm facility,
including procedures for ensuring appropriate waste acceptance and scheduling,
waste tracking, manifesting and reporting, and employee training.
COMPETITION
The market for the Company's waste treatment technologies is characterized
as the treatment and stabilization of certain radioactive, hazardous, mixed and
other wastes. The Company is aware of some competition from several large
companies and numerous small companies. Any of such companies may possess or
develop technologies superior to those of the Company. While the Company is
aware of competition from companies with similar waste treatment technologies,
the primary competition comes from companies which provide waste treatment and
disposal services. The predominant waste treatment and disposal methods include
landfilling, deep-well injection, on-site containment and incineration or other
thermal treatment methods. Competition is based primarily on cost, regulatory
and permit restrictions, technical performance, dependability and environmental
integrity. The Company believes that it will be able to compete favorably on the
basis of these factors. The Company also believes that it has several
competitive advantages over its competitors including its proprietary
vitrification technologies, integrated approach to waste treatment, demonstrated
commercial success of its technologies and strategic alliances. Many of the
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Company's competitors have substantially greater financial and technical
resources than the Company and there can be no assurance that one or more of the
Company's competitors do not possess or will not develop waste treatment
technologies that are superior to those of the Company.
In its technical support services, the Company's competitors range from
major national and regional environmental service and consulting firms which
have large environmental remediation staffs to small local firms. Many of the
major national and regional environmental service and consulting firms have
greater financial, management and marketing resources than the Company. The
availability of skilled technical personnel, quality of performance, safety,
diversity of services and price are the key competitive factors.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company's research and development activities are conducted primarily by
the VSL for the enhancement of the Company's existing vitrification and ion
exchange technologies or the introduction of new vitrification technologies.
During 1995, 1994 and 1993, research and development activities were conducted
at the VSL under contracts totaling $789,000, $1.9 million and $1.3 million,
respectively. The Company did not incur any additional research and development
costs during those years. In connection with various Company contracts or
subcontracts, the VSL conducts research and development under fixed-price and
cost-plus-fixed fee contracts. Under these contracts, the research is supervised
by Drs. Macedo and Litovitz and all inventions and discoveries are owned by them
and licensed to the Company under the exclusive license agreement. The Company
expects to spend a significant portion of the research and development funding
provided by BNFL with the VSL. See "Business -- Joint Venture and Collaborative
Arrangements -- VSL" and "-- BNFL."
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company licenses all of the patent and other intellectual property
rights to its proprietary vitrification and other waste treatment technologies
from the inventors of such technologies. Drs. Macedo and Litovitz, the inventors
of the Company's vitrification and ion exchange technologies, license the
patents and proprietary rights to such technologies to the Company under an
exclusive license agreement. Under this agreement, which was renewed in August
1992, Drs. Macedo and Litovitz collectively receive annual royalties equal to
the greater of (i) $100,000 or (ii) 1% to 3% of net revenues, depending on the
level of net revenues, which are generated by the Company from the application
of the licensed technology to encapsulate liquids and solids in porous glass
matrices, remove radioactive and hazardous materials from liquids and stabilize
low-level radioactive or mixed waste. During the three years ended December 31,
1995, the Company paid Drs. Macedo and Litovitz the $100,000 minimum annual
royalty each year. The exclusive license agreement with Drs. Macedo and Litovitz
expires upon the expiration of the last patent covered by the license agreement
which is currently in the year 2012. Drs. Macedo and Litovitz also received
options to purchase 250,000 shares of the Common Stock at the time the exclusive
license was renewed. The exclusive license agreement, which currently
encompasses 22 patents and one patent application, also includes any process
patents or technology rights related to the licensed field which is subsequently
developed by the VSL or Drs. Macedo and Litovitz.
Drs. Macedo and Litovitz own all of the vitrification and ion exchange
patents relating to the research and development work conducted by them at the
VSL. The Catholic University of America has agreed that all patents and
technologies developed at the VSL belong to Drs. Macedo and Litovitz and not to
the University. In turn, Drs. Macedo and Litovitz exclusively license the
vitrification technology rights and process patents developed by them at the VSL
to the Company.
The rights to the proprietary vitrification technology for the treatment of
non-radioactive hazardous wastes and the treatment of radioactive waste in
Germany are held by Vitritek and are licensed to Vitritek by Drs. Macedo and
Litovitz. Under the terms of this license agreement, the Company's allocable
share of revenues from the joint venture are included within the royalty payment
obligations under the Company's exclusive license agreement with Drs. Macedo and
Litovitz for the vitrification of radioactive and mixed wastes.
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The Company also licenses the rights to the thermal desorption technology
used in the processing of petrochemical waste by DuraTherm from the inventor of
such technology. The Company and DuraTherm are co-licensees under the license
agreement and are collectively obligated to pay to the inventor of the
technology an annual royalty payment equal to the greater of (i) $50,000 or (ii)
1.0% of the net revenues generated from the operation of the desorber equipment
(excluding net revenues generated from equipment acquired in the DuraTherm
acquisition) incorporating the technology and 5.0% of the sales of any such
equipment. Once certain aggregate royalty obligations have been satisfied, the
royalty payment structure will be modified. The license agreement grants to the
Company and DuraTherm the exclusive rights to such technology and any
subsequently developed related technology and provides that any subsequently
developed unrelated technology which results from research and development
funded or sponsored by the Company or DuraTherm shall be assigned to such
entities. The license agreement currently covers three patents relating to
thermal desorption, one pending patent and a European patent application.
DuraTherm recently received an attorneys' letter on behalf of a company that
owns certain thermal desorption patent rights. The letter offers to license
these rights to DuraTherm. These attorneys have brought several patent
infringement cases relating to these patents which are currently pending before
federal courts or have been settled upon the execution of license agreements.
Although the letter does not assert patent infringement claims, no assurance can
be given that infringement claims will not be asserted in the future. Management
of the Company and special patent counsel for the Company have reviewed the
matter and have determined that most of the patents cited in the letter relate
to waste streams containing contaminants that DuraTherm does not process or
intend to process and that no infringement of these patent claims exists. Two
patent claims cited in the letter are so broad as to cover many waste treatment
processes. With respect to these patent claims, GTS Duratek has been advised by
its special patent counsel that it is doubtful whether the scope of these patent
claims can be expanded to cover DuraTherm's process in view, among other things,
of a significant body of prior art. Accordingly, management of the Company
believes that the ultimate outcome of this matter is unlikely to have a material
adverse effect on DuraTherm or on the Company taken as a whole.
The Company requires each of its employees to enter into standard agreements
pursuant to which the employee agrees to keep confidential all proprietary
information of the Company and to assign to the Company all rights in any
proprietary information or technology developed by the employee during his or
her employment or made thereafter as a result of any inventions conceived or
work done during such employment. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use the Company's technology
without authorization or to develop similar technology independently. In
addition, effective patent and trade secret protection may be unavailable or
limited in certain foreign countries.
DURASIL-Registered Trademark- is a registered trademark held by the Company
and DuraMelter-TM- and DuraGem-TM- are common law trademarks.
EMPLOYEES
As of December 31, 1995, the Company employed 512 employees, including 403
field-assigned employees performing services for clients, 68 full-time technical
personnel and 41 in finance and administration. The Company contracts with most
of the field-assigned personnel on an as-needed basis and such personnel are not
full-time employees of the Company. Due to the seasonality of the technical
support services business, the number of field-assigned employees generally
increases to approximately 500 during the fall peak outage season at the
nation's nuclear power plants. To date, the Company has been successful in
attracting and retaining qualified technical personnel, although there can be no
assurance that this success will continue. None of the Company's employees are
subject to a collective bargaining agreement. The Company has never experienced
a work stoppage and believes that its relations with its employees are good.
PROPERTIES
The Company leases approximately 14,200 square feet of office space in
Columbia, Maryland which it uses as its administrative and general corporate
offices. The initial lease term expired in 1995 but has been extended through
November 1996. The Company also leases 2,400 square feet of space in Laurel,
Maryland,
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which the Company uses as a warehouse for DURASIL-Registered Trademark- ion
exchange media and related equipment, and 4,800 square feet in Pittsburgh,
Pennsylvania which houses the Company's instrument repair and rental facility.
The Company is outgrowing its current office facilities and is actively
seeking new office, research and development and warehouse facilities having
initial availability of approximately 35,000 square feet. The Company expects to
enter into a long-term lease in the near future at lease rates per square foot
comparable to what it is paying under its current lease arrangement.
The Company's 80%-owned subsidiary, DuraTherm, owns a RCRA-permitted
hazardous waste recycling center located in San Leon, Texas that was previously
operated by BEGCI. The facility is located on 14.5 acres of land and consists of
a recycling center on 8.5 acres and 4,500 square feet of office and laboratory
space. The facility and the land are owned by DuraTherm.
LEGAL PROCEEDINGS
From time to time the Company is a party to litigation or administrative
proceedings relating to claims arising from its operations in the normal course
of business. Management of the Company, on the advice of counsel, believes that
the ultimate resolution of litigation currently pending against the Company is
unlikely, either individually or in the aggregate, to have a material adverse
effect on the Company's results of operations or financial condition.
34
<PAGE>
MANAGEMENT
The following table sets forth the executive officers, key employees and
directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Daniel A. D'Aniello.................. 49 Chairman of the Board of Directors
Robert E. Prince..................... 48 President, Chief Executive Officer and Director
Robert F. Shawver.................... 39 Executive Vice President and Chief Financial Officer
Craig T. Bartlett.................... 33 Controller and Treasurer
C. Paul Deltete...................... 47 Senior Vice President, Environmental Operations and Support
Diane L. Leviski..................... 35 Vice President, Human Resources
Bradley W. Bowan..................... 34 Director of Engineering and Technology Development
Mark H. Clements..................... 41 Director of Technology Projects
William G. Greenman.................. 47 Director of Business Development, Environmental Operations
Robert A. Hensel..................... 54 President of DuraTherm
Ian S. Howard........................ 40 Project Director, DuraChem
James W. Orr......................... 38 Director of Outage Services
Christine L. Wruck................... 33 Director of Computer Services
William E. Conway, Jr................ 46 Director
Jerome I. Feldman.................... 67 Director
Steven J. Gilbert.................... 48 Director
Martin M. Pollak..................... 68 Director
Earle C. Williams.................... 66 Director
</TABLE>
DANIEL A. D'ANIELLO has been Chairman of the Board and a director of the
Company since January 1995. He has been a Managing Director for Carlyle since
1987. Mr. D'Aniello was Vice President, Finance and Development for Mariott
Corporation, a hospitality company, from 1981 to 1987. He currently serves on
the Board of Directors for Baker & Taylor, Inc., a wholesale distributor of
books, and CB Commercial Real Estate Group, Inc., a commercial real estate firm.
Mr. D'Aniello is a magna cum laude graduate of Syracuse University, where he was
a member of Beta Gamma Sigma, and a graduate of the Harvard Business School,
where he was a Teagle Foundation Fellow.
ROBERT E. PRINCE has been President and Chief Executive Officer of the
Company since November 1990 and a director since May 1991. He founded General
Technical Services, Inc., the predecessor to the Company, in October 1984 and
was President and Chief Executive Officer from 1987 to 1990. Mr. Prince, a
graduate of the U.S. Naval Academy, served as an officer on nuclear submarines.
He also has a Masters in Business Administration from the Wharton School of
Finance of the University of Pennsylvania. Mr. Prince is a certified naval
nuclear engineer.
ROBERT F. SHAWVER has been the Executive Vice President of the Company since
May 1993. He has been the Chief Financial Officer and Chief Administrative
Officer of the Company since 1987. Mr. Shawver was the Vice President of the
Company from 1987 to 1993. He was also the Controller of the Company from 1985
to 1987. Prior to his work at the Company, he was employed by Deloitte and
Touche LLP as a Certified Public Accountant and a Certified Managerial
Accountant. Mr. Shawver holds a Masters of Business Administration from the
University of Maryland.
CRAIG T. BARTLETT has served as Treasurer of the Company since February
1996. He has served as Controller and Principal Accounting Officer of the
Company since February 1993. He was Director,
35
<PAGE>
Financial Operations from 1991 to 1993 and Assistant Controller from 1988 to
1991. Prior to his work at the Company, Mr. Bartlett was employed by Arthur
Andersen & Co. LLP as a Certified Public Accountant. Mr. Bartlett holds a
Masters of Business Administration from Loyola College of Maryland.
C. PAUL DELTETE has been Senior Vice President of Environmental Operations
and Support of the Company since January 1996. Mr. Deltete was President of
Analytical Resources, Inc. from 1984 to January 1996. Mr. Deltete holds a Master
of Science in Nuclear Engineering from the Rensselaer Polytechnic Institute and
a Bachelor of Science in Applied Mathematics from the U.S. Naval Academy after
which he served as an officer on nuclear submarines.
DIANE L. LEVISKI has been Vice President of Human Resources of the Company
since February 1996. She was Director of Human Resources from 1988 to 1996 and
Manager of Recruiting from 1985 to 1988. Ms. Leviski holds a Bachelor of Arts in
Psychology from Dickinson College.
BRADLEY W. BOWAN has been Director of Engineering and Technology Development
and Chief Engineer of the Company since November 1993. Mr. Bowan was Manager of
Project Engineering of the VSL from 1991 to 1993. Mr. Bowan holds both a
Bachelor of Science and a Master of Science in Ceramic Engineering from Alfred
University.
MARK H. CLEMENTS has been Director of Technology Projects of the Company
since March 1994 and was Director of Environmental Services of the Company from
August 1993 to March 1994. Mr. Clements was Senior Program Manager for Martin
Marietta from January 1990 to August 1993. Mr. Clements holds a Masters of
Business Administration from Harvard University and is a graduate of the U.S.
Naval Academy after which he served as an officer on nuclear submarines.
WILLIAM G. GREENMAN has been Director of Business Development, Environmental
Operations of the Company since November 1990. Mr. Greenman was Vice President
of Operations of the Company from January 1989 to November 1990. Mr. Greenman
holds a Bachelor of Science in Radiological Health Science from Manhattan
College and is a graduate of the U.S. Navy Nuclear Power School.
ROBERT A. HENSEL has been President of DuraTherm since November 1995. Mr.
Hensel was President of Thermal Operations and Vice President of the Midwest
Region for Chemical Waste Management, Inc. from 1991 to 1995. Mr. Hensel holds a
Bachelor of Science in Chemistry and Mathematics from Muskingum College.
IAN S. HOWARD has been director of the DuraChem project since February 1995.
Mr. Howard was director of the MAWS Project from October 1993 to February 1995
and was Director of Operations and Engineering from 1987 to 1993. Mr. Howard is
a Juris Doctor candidate at the University of Maryland School of Law and holds a
Bachelor of Science in Business Management from the University of Maryland. Mr.
Howard is also a graduate of the U.S. Navy Nuclear Power School.
JAMES W. ORR has been Director of Outage Services and Instrument Shop since
May 1991. He had been acting director of Health Physics Service since March
1990. Mr. Orr has an A.S. in Nuclear Engineering Technology from the
Pennsylvania State University.
CHRISTINE L. WRUCK has been Director of Computer Services since August 1994.
Ms. Wruck was Director of Staffing Services from August 1990 to 1994. Ms. Wruck
has an M.A.S. in Human Resources Management from The Johns Hopkins University
and a Bachelor of Arts in History from The College of William and Mary.
WILLIAM E. CONWAY, JR. has been a director of the Company since January
1995. He has been a Managing Director of Carlyle since 1987. Mr. Conway was
Senior Vice President and Chief Financial Officer of MCI Communications, an
international telecommunications company, from 1984 to 1987. He currently serves
on the Board of Directors for BDM International, Inc., a professional and
technical services firm, Tracor, Inc., a defense electronics and services firm,
HighwayMaster Communications, Inc., a communication services company, and
several privately held companies controlled by Carlyle. Mr. Conway received his
Bachelor of Arts with a concentration in Economics and Russian at Dartmouth
College and his Masters of Business Administration in Finance at the University
of Chicago.
36
<PAGE>
JEROME I. FELDMAN has been a director since 1982 and served as Chairman of
the Board of Directors of the Company from 1985 until January 1995. He is a
founder of, and since 1959 has been President and Chief Executive Officer and a
director of National Patent. He has been Chairman of the Executive Committee and
a director of Interferon Sciences, Inc., a biopharmaceutical company engaged in
the manufacture and sale of Alferon N Injection, since 1981; Chairman of the
Executive Committee of General Physics Corporation, a provider of personnel
training and technical support services to the domestic commercial nuclear power
industry and the DOE, since 1988, and a director of such company since 1987;
Chief Executive Officer, Chairman of the Executive Committee and a director of
SGLG, Inc., a holding company, since 1991; and a director and a consultant to
American Drug Company, a generic drug distribution company, since January 1994.
He has been a Director of Hamilton Financial Services, Inc., a financial
services holding company since 1983. Mr. Feldman is also a Trustee of the New
England Colleges Fund and of Bard College.
STEVEN J. GILBERT has been a director of the Company since January 1995. He
has been Managing General Partner of Soros Capital, L.P., the principal venture
capital and leveraged transaction entity of the Quantum Group of Funds, since
1992. Mr. Gilbert is also the Managing Director of Commonwealth Capital
Partners, L.P., a private equity investment fund, and was Managing General
Partner until 1988 of Chemical Venture Partners, which he founded in 1984. He is
also a director of the Asian Infrastructure Fund Ltd., an investment vehicle for
investment in Asian infrastructure projects, NFO Research, Inc., a panel market
research company; Peregrine Indonesia Fund Limited, an investment fund for
Indonesian industrial companies, Terra Nova (Bermuda) Holdings Limited, a London
market insurance and re-insurance company, Sydney Harbour Casino Holdings, Ltd.,
an operator of casinos, Digicon, Inc., an independent marine seismic company;
and UroMed Corporation, a company which develops and markets products to treat
urological and gynecological disorders.
MARTIN M. POLLAK has been a director of the Company since 1982 and was
Chairman of the Executive Committee from 1985 to 1995. He is a founder of, and
since 1959 has been Executive Vice President and Treasurer and a director of
National Patent. He has been Chairman of the Board of Interferon Sciences, Inc.
since 1981; Chairman of the Board of General Physics Corporation since 1988 and
a director since 1987; and Chairman of the Board of SGLG, Inc. since 1991; and
President and Chief Executive Officer and a director of American Drug Company, a
generic drug distribution company, since January 1994. Mr. Pollak has been
Chairman of the Czech and Slovak United States Economic Council and a member of
the Board of Trustees of the Worcester Foundation for Experimental Biology and a
director of Brandon Systems Corporation, a personnel recruiting company, since
1986.
EARLE C. WILLIAMS has been a director of the Company since January 1995. He
has served on the Board of Directors of BDM International, Inc. since 1972 and
was the President and Chief Executive Officer of that company from 1972 to 1992.
Mr. Williams also serves on the Board of Directors of the following companies:
Gamma-A Technologies, Inc., a start-up bio-technology company, Nortel Federal
Systems, Inc., a provider of communication equipment and services to the federal
government, and The Parsons Corporation, an international engineering firm.
37
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of February 22, 1996, and as adjusted to
reflect the sale of the shares of Common Stock in this offering, certain
information with respect to beneficial ownership of the Common Stock by (i) each
person or entity known by the Company to own beneficially more than 5% of the
Common Stock outstanding, (ii) each director of the Company, (iii) all executive
officers and directors of the Company as a group and (iv) the Selling
Stockholders. Except as indicated by footnote, the persons or entities named in
the table below have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
------------------------- -------------------------
NUMBER OF NUMBER OF SHARES NUMBER OF
NAME SHARES PERCENT BEING OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
The Carlyle Group (1)........................... 8,240,960 52.2% -- 8,240,960 45.1%
National Patent Development Corporation (2)..... 2,947,972 30.8 1,100,000(12) 1,847,972 15.3
BNFL Inc. (3)................................... 1,381,575 12.6 -- 1,381,575 10.3
Soros Capital Offshore Partners LDC (4)......... 509,040 5.1 -- 509,040 4.1
Daniel A. D'Aniello (5)......................... 8,240,960 52.2 -- 8,240,960 45.1
Robert E. Prince (6)............................ 74,300 * -- 74,300 *
William E. Conway, Jr. (5)...................... 8,240,960 52.2 -- 8,240,960 45.1
Jerome I. Feldman (7)(8)........................ 2,998,972 31.2 1,050,000(13) 1,948,972 16.1
Steven J. Gilbert (9)........................... 509,040 5.1 -- 509,040 4.1
Martin M. Pollak (7)(10)........................ 3,006,742 31.3 1,050,000(13) 1,956,742 16.1
Earle C. Williams............................... 1,000 * -- 1,000 *
All executive officers and directors as a group
(11 persons)(11)............................... 11,964,542 73.0 1,100,000(13) 10,864,542 57.5
</TABLE>
- ------------------------
* Less than 1%.
(1) Represents (i) 5,023,066 shares of Common Stock issuable upon the conversion
of the outstanding shares of Convertible Preferred Stock beneficially owned
by Carlyle, (ii) 2,040,616 shares of Common Stock purchased from National
Patent and (iii) 1,177,278 shares of Common Stock which may be acquired by
Carlyle from the Company upon the exercise of a presently exercisable
option. In all instances, the shares are owned by investment partnerships
sponsored and controlled by Carlyle. Carlyle's address is 1001 Pennsylvania
Avenue, N.W., Suite 220 South, Washington, D.C. 20004.
(2) National Patent has granted to certain of its officers, directors and
employees, options which are presently exercisable at an average price of
$1.90 per share, to purchase 481,750 shares of the Common Stock owned by it.
If all of the options were exercised, National Patent would own 2,466,222
shares of Common Stock (25.8%). National Patent's address is 9 West 57th
Street, New York, New York 10019.
(3) Represents shares of Common Stock issuable upon conversion of the
convertible debenture issued by the Company to BNFL in connection with the
formation of a strategic alliance. See "Business -- Joint Venture and
Collaborative Arrangements -- BNFL." BNFL's address is 9302 Lee Highway,
Suite 950, Fairfax, Virginia 22031.
(4) Represents (i) 310,267 shares of Common Stock issuable upon the conversion
of the outstanding shares of Convertible Preferred Stock held by Soros
Capital Offshore Partners LDC ("Soros Capital"), (ii) 126,051 shares of
Common Stock held by Soros Capital and (iii) 72,722 shares of Common Stock
38
<PAGE>
which may be acquired upon the exercise of a presently exercisable option
held by Soros Capital. All of these securities were acquired from Carlyle.
Soros Capital's address is c/o Coutts & Co. (Cayman) Limited, West Bay Road,
George Town, Grand Cayman, Cayman Islands, British West Indies.
(5) Messrs. D'Aniello and Conway are each Managing Directors of Carlyle and, as
a result, may be deemed to beneficially own the shares of Common Stock and
Convertible Preferred Stock beneficially owned by Carlyle. However, Messrs.
D'Aniello and Conway disclaim beneficial ownership of such shares.
(6) Includes options to purchase 71,000 shares of Common Stock which are
exercisable within 60 days, but does not include options to purchase 349,000
shares of Common Stock which are not presently exercisable.
(7) National Patent beneficially owns an aggregate of 2,947,972 outstanding
shares of Common Stock. Based upon the capital stock of National Patent
outstanding at February 22, 1996, Jerome I. Feldman and Martin M. Pollak,
officers and directors of National Patent and directors of the Company,
controlled in the aggregate approximately 9.9% of the voting power of all
voting securities of National Patent. This percentage for Messrs. Feldman
and Pollak would increase to approximately 45.0% if they exercised all the
presently outstanding options to purchase shares of capital stock of
National Patent held by them. Accordingly, Messrs. Feldman and Pollak,
through the ownership of National Patent capital stock and through their
positions as directors and executive officers of National Patent, may be
deemed to beneficially own the shares of Common Stock of the Company
beneficially owned by National Patent. However, Messrs. Feldman and Pollak
disclaim beneficial ownership of such shares.
(8) Includes (i) 2,947,972 shares of Common Stock beneficially owned by National
Patent, (ii) 40,000 shares of Common Stock issuable upon exercise of
currently exercisable stock options held by Mr. Feldman and (iii) 11,000
shares of Common Stock held personally by Mr. Feldman. Mr. Feldman disclaims
beneficial ownership of the shares of Common Stock owned by National Patent.
(9) Mr. Gilbert is the managing general partner of the majority owner of Soros
Capital and, as a result, may be deemed to beneficially own the shares of
Common Stock and Convertible Preferred Stock held by Soros Capital.
(10) Includes (i) 2,947,972 shares of Common Stock beneficially owned by
National Patent, (ii) 40,000 shares of Common Stock issuable upon exercise
of currently exercisable stock options held by Mr. Pollak and (iii) 18,770
shares of Common Stock held personally by Mr. Pollak. Mr. Pollak disclaims
beneficial ownership of the shares of Common Stock owned by National Patent.
(11) Includes 6,806,133 shares that may be issued upon the conversion of
convertible securities or upon the exercise of options and warrants
outstanding and beneficially owned by the executive officers and directors
as a group.
(12) Includes 100,000 shares of Common Stock being offered by Messrs. Feldman
and Pollak. The shares offered by Messrs. Feldman and Pollak are subject to
options to purchase shares of Common Stock which were granted to them by
National Patent.
(13) Includes the 1,000,000 shares of Common Stock being offered by National
Patent. The shares offered by Messrs. Feldman and Pollak are subject to
options to purchase shares of Common Stock which were granted to them by
National Patent.
MATERIAL RELATIONSHIPS OF CERTAIN SELLING STOCKHOLDERS WITH THE COMPANY
National Patent is, and has been for at least the last three years, a
principal stockholder of the Company. Two of National Patent's designees,
Messrs. Feldman and Pollak, currently serve on the Board of Directors of the
Company. In connection with the financing transaction with Carlyle that was
consummated on January 24, 1995, the Company granted to National Patent certain
registration rights including the right to include shares of Common Stock owned
by it in registration statements filed by the Company with the Securities and
Exchange Commission (the "Commission") and the right, on one occasion, to cause
the Company to register the shares of Common Stock owned by it. The Company may
reduce the number of shares to be sold by National Patent and any other selling
stockholders on a pro rata basis if the number of shares to be registered and
sold would materially and adversely affect the offering price.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 35,000,000 shares of Common Stock, par value $.01 per
share, and 5,000,000 shares of preferred stock, par value $.01 per share.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including the election of directors. There is
no cumulative voting for the election of directors. Subject to the preferential
rights of the Convertible Preferred Stock and any series of preferred stock that
may be authorized and issued hereafter, the holders of Common Stock are entitled
to such dividends as may be declared from time to time by the Board of Directors
from funds available therefor. Upon liquidation, dissolution or winding-up of
the Company, the holders of the Common Stock will be entitled to share ratably
all assets of the Company available for distribution to such holders after
payment of liabilities, subject to prior distribution rights of holders of any
shares of Convertible Preferred Stock and any other preferred stock issued and
outstanding hereafter. No holder of Common Stock has any preemptive rights to
subscribe for any securities of the Company of any kind or class. All
outstanding shares of Common Stock are fully paid and non-assessable and all
shares of Common Stock to be outstanding upon exercise of outstanding warrants
or options will be fully paid and non-assessable. The rights, preferences and
privileges of holders of Common Stock are subject to the rights, preferences and
privileges of the Convertible Preferred Stock, including the voting rights of
the Convertible Preferred Stock, and will be subject to the rights, preferences
and privileges of any series of preferred stock which the Company may authorize
and issue in the future. See "Risk Factors -- Control by Principal
Stockholders."
PREFERRED STOCK
Upon the closing of this offering, the Company will be authorized to issue
5,000,000 shares of preferred stock. As of February 22, 1996, 160,000 shares of
Convertible Preferred Stock are issued and outstanding. The Board of Directors
has the authority, without any further vote or action by the stockholders, to
issue preferred stock in one or more series and to fix the number of shares,
designations, relative rights (including voting rights), preferences and
limitations of such series to the full extent now or hereafter permitted by
Delaware law. The Company has no present intention of issuing additional shares
of preferred stock.
CONVERTIBLE PREFERRED STOCK
The following is a brief summary of the rights, preferences and limitations
of the outstanding shares of Convertible Preferred Stock.
DIVIDENDS. The Convertible Preferred Stock is entitled to cumulative annual
dividends of 8% per share ($8.00) payable quarterly in arrears, when, as and if
declared by the Board of Directors of the Company out of assets legally
available for the payment of dividends.
PREFERENCES. The Convertible Preferred Stock has a preference with respect
to assets and dividends over the Common Stock. In the event of the liquidation,
dissolution or winding-up of the Company, the holders of the Convertible
Preferred Stock are entitled to receive a cash payment equal to the Liquidation
Value of each share, as defined below, before any distribution of assets to any
holder of Common Stock or any other class or series of stock of the Company
ranking junior to the Convertible Preferred Stock as to rights on liquidation,
dissolution or winding up. The Convertible Preferred Stock will be senior to any
existing or future class of capital stock or securities into which convertible
indebtedness is convertible. The "Liquidation Value" per share means an amount
equal to $100 plus the sum of all declared but unpaid dividends. No holder of
the Convertible Preferred Stock has any preemptive rights to subscribe for any
securities of the Company of any kind or class.
CONVERSION. Each share of the Convertible Preferred Stock is, at the option
of the holder, convertible into 33 1/3 shares of Common Stock.
40
<PAGE>
REDEMPTION. The Company is required to redeem all of the outstanding shares
of Convertible Preferred Stock on January 24, 2002 at $100 per share plus
accrued and unpaid dividends.
VOTING RIGHTS. The holders of the Convertible Preferred Stock are entitled
to vote that number of votes equal to the number of shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock and have the right
to vote, together with the Common Stock voting as a single class, on all matters
on which the Common Stock can vote. Additionally, the holders of the Convertible
Preferred Stock have the right, voting as a separate class, to elect a majority
of the Company's Board of Directors as long as Carlyle or its affiliates own
shares of capital stock of the Company having 20% or more of the votes that may
be cast at annual or special meetings of stockholders.
REGISTRATION RIGHTS. If the Company files a registration statement with the
Commission (excluding the Company's current shelf registration statement on file
with the Commission and any registration statements filed in connection with any
of the Company's employee benefit plans or in connection with any acquisition on
Form S-4), the holders of the Convertible Preferred Stock have unlimited
piggyback registration rights to cause the Company to include the shares of
Common Stock issued upon conversion of the Convertible Preferred Stock or
purchased by Carlyle from National Patent in such registration statement for
sale in the same manner and under the same conditions as originally contemplated
in such registration statement. The Company may reduce on a pro rata basis the
number of shares sold by each selling stockholder if the number of shares to be
registered and sold would materially and adversely affect the offering price.
Additionally, the holders of shares of Convertible Preferred Stock have a demand
right on three separate occasions to cause the Company to register their shares
of Common Stock issued upon the conversion of the Convertible Preferred Stock at
the Company's expense. The holders of the Convertible Preferred Stock have an
additional demand registration right at their own expense. Carlyle has agreed
not to sell any of the shares of capital stock of the Company owned by it in
this offering.
BUSINESS COMBINATIONS
Section 203 of the Delaware General Corporation Law contains a provision
restricting Delaware corporations, other than corporations that "opt out" of the
statute, from engaging in a wide range of transactions which may be entered into
by any such corporation and any interested stockholder. The Company has not
opted out of Section 203. Under Section 203, the term "interested stockholder"
is defined to include any person or entity who has acquired 15% or more of any
class or series of stock entitled to vote generally in the election of directors
but does not acquire 85% of such shares in the transaction in which more than
15% of the shares were acquired. Any such stockholder may not engage in certain
"Business Combinations" with the corporation for a period of three years
subsequent to the date on which the stockholder became an "interested
stockholder" unless (i) the Board of Directors prior to the date the interested
stockholder obtained such status approved either the "Business Combination" or
the transaction in which the stockholder became an "interested stockholder," or
(ii) the holders of at least two-thirds of the outstanding voting stock,
excluding those shares owned by the "interested stockholder," approve the
"Business Combination." Section 203 does not apply to Carlyle or National
Patent.
Section 203 defines "Business Combination" to encompass a wide variety of
transactions with or caused by an "interested stockholder" in which the
"interested stockholder" receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the "interested stockholder" in
transactions with the corporation which increase the proportionate interest of
the "interested stockholder" or transactions in which the "interested
stockholder" receives certain other benefits. This statute could deter
unfriendly offers or other efforts to obtain control of the Company that are not
approved by the Board of Directors and thereby possibly deprive the stockholders
of opportunities to sell their shares of Common Stock at prices higher than
prevailing market prices.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust
Company of New York.
41
<PAGE>
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement (a
copy of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part), a syndicate of underwriters named below (the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation,
Deutsche Morgan Grenfell/C. J. Lawrence Inc. and Gruntal & Co., Incorporated are
acting as representatives (the "Representatives"), have severally agreed to
purchase from the Company and the Selling Stockholders an aggregate of 3,600,000
shares of Common Stock. The number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..............................
Deutsche Morgan Grenfell/C. J. Lawrence Inc......................................
Gruntal & Co., Incorporated......................................................
----------
Total........................................................................ 3,600,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the shares of Common Stock offered hereby are subject
to approval of certain legal matters by their counsel and to certain other
conditions. If any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, the Underwriters are
obligated to purchase all such shares (other than those covered by the
over-allotment option described below).
The Company and the Selling Stockholders have been advised by the
Underwriters that they propose 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 dealers (who may include Underwriters) at such price, less a
concession not in excess of $ per share. The Underwriters may allow, and such
dealers may re-allow, a concession not in excess of $ per share to certain
other dealers. After the offering, the price to the public, the concession and
the discount to dealers may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 540,000 additional
shares of Common Stock at the price to the public less underwriting discounts
and commissions, solely to cover over-allotments. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.
In the Underwriting Agreement, the Company, the Selling Stockholders and the
Underwriters have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
The Company, the executive officers and directors of the Company and certain
stockholders of the Company have each agreed that they will not, without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation,
register the sale of, sell, contract to sell, grant any option to purchase or
42
<PAGE>
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, for a period of 120 days
after the date of this Prospectus, except that the Company may issue, and grant
options to purchase, shares of Common Stock under its existing stock plans.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Common Stock
during the "cooling-off" period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit the Underwriters or other members of the selling group, if any, to
continue to make a market in the Common Stock subject to the conditions, among
others, that their bid not exceed the highest bid by a market maker not
connected with the offering and that their net purchases on any one trading day
not exceed prescribed limits. Pursuant to these exemptions, certain Underwriters
and other members of the selling group, if any, may engage in passive market
making in the Common Stock during the cooling-off period.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Piper & Marbury L.L.P., Baltimore, Maryland. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by McDermott, Will & Emery, Chicago, Illinois.
EXPERTS
The consolidated financial statements of GTS Duratek, Inc. and subsidiaries
as of December 31, 1994 and 1995 and for each of the years in the three-year
period ended December 31, 1995 have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The statements of operations, stockholders' equity and cash flows of Bird
Environmental Gulf Coast, Inc. for the year ended December 31, 1994 and the
eleven months ended November 30, 1995 have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549-1004, and at the
Commission's Regional Offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Suite 1300, Seven
World Trade Center, New York, New York 10048. Copies of such materials can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common Stock is
listed on the Nasdaq National Market. Reports, proxy statements and other
information concerning the Company may be inspected at the Nasdaq Department of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement, including the
exhibits thereto. Statements contained herein concerning any document filed as
an exhibit to the Registration Statement are not necessarily complete, and in
each instance reference is made to the copy of such document filed as an exhibit
to the Registration
43
<PAGE>
Statement. The Registration Statement may be inspected by anyone without charge
at the principal office of the Commission in Washington, D.C., and copies of all
or any part of it may be obtained from the Commission upon payment of the
prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act (File No. 0-14292) are incorporated into this Prospectus by
reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1995; and
(b) Amendment No. 1 filed on February 12, 1996 to the Current Report on Form
8-K, dated November 29, 1995, filed on December 11, 1995.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such documents).
Written or telephone requests should be directed to GTS Duratek, Inc., 8955
Guilford Road, Suite 200, Columbia, Maryland 21046, Attention: Robert F.
Shawver, Executive Vice President and Chief Financial Officer, (410) 312-5100.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
GTS DURATEK, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets at December 31, 1994 and 1995.................................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995................. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995....... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
BIRD ENVIRONMENTAL GULF COAST, INC.
Independent Auditors' Report............................................................................... F-16
Statements of Operations for the year ended December 31, 1994 and the eleven months ended November 30,
1995...................................................................................................... F-17
Statements of Stockholders' Equity for the year ended December 31, 1994 and the eleven months ended
November 30, 1995......................................................................................... F-17
Statements of Cash Flows for the year ended December 31, 1994 and the eleven months ended November 30,
1995...................................................................................................... F-18
Notes to Financial Statements.............................................................................. F-19
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Discussion of Pro Forma Information (Unaudited)............................................................ F-21
Pro Forma Consolidated Statement of Operations for the year ended December 31, 1995 (Unaudited)............ F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GTS Duratek, Inc.:
We have audited the accompanying consolidated balance sheets of GTS Duratek,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We have 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 GTS Duratek,
Inc. and subsidiaries as of December 31, 1994 and 1995 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
March 1, 1996
F-2
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
ASSETS 1994 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ -- $11,396,008
Receivables, less allowance for doubtful accounts of $97,732 and
$68,964......................................................... 8,090,614 9,321,513
Costs and estimated earnings in excess of billings on uncompleted
contracts....................................................... 3,119,443 7,707,434
Inventories...................................................... 334,998 274,859
Prepaid expenses and other current assets........................ 141,510 79,686
---------- ----------
Total current assets........................................... 11,686,565 28,779,500
Costs and estimated earnings in excess of billings on uncompleted
contracts, noncurrent............................................. 1,307,728 --
Property, plant and equipment, net................................. 2,137,247 3,541,462
Investments in and advances to joint ventures, net................. 2,417,771 4,059,078
Intangibles, net of accumulated amortization of $874,589 and
$999,454.......................................................... 637,553 553,517
Deferred charges and other assets.................................. 1,013,220 1,726,270
---------- ----------
$19,200,084 $38,659,827
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................................ $7,630,512 $ --
Current maturities of long-term debt............................. 707,094 470,709
Accounts payable and accrued expenses............................ 3,427,236 4,194,713
---------- ----------
Total current liabilities...................................... 11,764,842 4,665,422
Long-term debt..................................................... 502,417 36,000
Convertible debenture.............................................. -- 10,086,931
---------- ----------
Total liabilities.............................................. 12,267,259 14,788,353
---------- ----------
Minority interest of subsidiary.................................... -- 5,610
---------- ----------
8% Cumulative Convertible Redeemable Preferred Stock - $.01 par
value; 160,000 shares authorized, issued and outstanding
(liquidation value $16,320,000)................................... -- 14,608,890
---------- ----------
Stockholders' equity:
Preferred stock - $.01 par value; authorized 4,840,000 shares;
none issued..................................................... -- --
Common stock - $.01 par value; authorized 20,000,000 shares;
issued 8,759,775 shares in 1994 and 9,475,878 shares in 1995.... 87,598 94,758
Capital in excess of par value................................... 16,656,009 18,912,751
Deficit.......................................................... (9,639,005) (9,578,758)
Treasury stock, 70,458 shares, at cost........................... (171,777) (171,777)
---------- ----------
Total stockholders' equity..................................... 6,932,825 9,256,974
Commitments and contingencies......................................
---------- ----------
$19,200,084 $38,659,827
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues......................................................... $33,504,540 $35,967,563 $40,418,066
Cost of revenues................................................. 28,608,831 28,856,910 32,220,569
----------- ----------- -----------
Gross profit..................................................... 4,895,709 7,110,653 8,197,497
Selling, general and administrative expenses..................... 5,737,350 5,925,618 5,875,688
----------- ----------- -----------
Income (loss) from operations.................................... (841,641) 1,185,035 2,321,809
Interest income (expense), net................................... (372,129) (595,475) 57,453
----------- ----------- -----------
Income (loss) before income taxes and proportionate share of loss
of joint venture................................................ (1,213,770) 589,560 2,379,262
Income taxes..................................................... (73,331) (11,487) (100,926)
----------- ----------- -----------
Income (loss) before proportionate share of loss of joint
venture......................................................... (1,287,101) 578,073 2,278,336
Proportionate share of loss of joint venture..................... -- (321,548) (824,025)
----------- ----------- -----------
Net income (loss)................................................ (1,287,101) 256,525 1,454,311
Preferred stock dividends and charges for accretion.............. -- -- (1,394,064)
----------- ----------- -----------
Net income (loss) attributable to common stockholders............ $(1,287,101) $ 256,525 $ 60,247
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per share...................................... $ (0.16) $ 0.03 $ 0.01
Weighted average common shares outstanding....................... 7,936,384 8,655,811 8,820,131
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
------------------ EXCESS OF TREASURY STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT STOCK EQUITY
--------- ------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992.......... 8,009,875 $80,099 $13,373,383 $(8,608,429) $(315,910) $ 4,529,143
Net loss.......................... -- -- -- (1,287,101) -- (1,287,101)
Exercise of options............... 40,400 404 63,196 -- -- 63,600
Issuance of common stock for
compensation expense and
litigation settlement............ 15,000 150 49,850 -- -- 50,000
Issuance of treasury stock for
litigation settlement............ -- -- -- -- 144,133 144,133
Issuance of common stock warrants
in exchange for certain
technology rights................ -- -- 500,000 -- -- 500,000
Issuance of common stock in
exchange for cash and certain
technology rights................ 562,500 5,625 2,154,001 -- -- 2,159,626
--------- ------- ----------- ----------- --------- ------------
Balance, December 31, 1993.......... 8,627,775 86,278 16,140,430 (9,895,530) (171,777) 6,159,401
Net income........................ -- -- -- 256,525 -- 256,525
Exercise of options............... 7,000 70 16,829 -- -- 16,899
Issuance of common stock in
exchange for cash................ 125,000 1,250 498,750 -- -- 500,000
--------- ------- ----------- ----------- --------- ------------
Balance, December 31, 1994.......... 8,759,775 87,598 16,656,009 (9,639,005) (171,777) 6,932,825
Net income........................ -- -- -- 1,454,311 -- 1,454,311
Exercise of options and
warrants......................... 716,103 7,160 1,946,742 -- -- 1,953,902
Income tax benefit from exercise
of non-qualified stock options... -- -- 30,000 -- -- 30,000
Issuance of a common stock option
for cash......................... -- -- 280,000 -- -- 280,000
Preferred stock dividends and
charges for accretion............ -- -- -- (1,394,064) -- (1,394,064)
--------- ------- ----------- ----------- --------- ------------
Balance, December 31, 1995.......... 9,475,878 $94,758 $18,912,751 $(9,578,758) $(171,777) $ 9,256,974
--------- ------- ----------- ----------- --------- ------------
--------- ------- ----------- ----------- --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................................. $(1,287,101) $ 256,525 $ 1,454,311
Adjustments to reconcile to net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization................................ 533,215 508,900 608,165
Proportionate share of loss of joint venture................. -- 321,548 824,025
Income tax benefit from exercise of non-qualified stock
options..................................................... -- -- 30,000
Changes in operating items:
Receivables................................................ 1,796,847 (2,697,259) (759,195)
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... (576,274) (2,843,655) (3,280,263)
Inventories................................................ 114,616 (8,180) 61,180
Prepaid expenses and other current assets.................. 37,286 (6,227) 63,624
Accounts payable and accrued expenses...................... 861,304 441,747 145,995
Other...................................................... 194,133 -- 5,202
----------- ----------- -----------
Net cash provided by (used in) operating activities.............. 1,674,026 (4,026,601) (846,956)
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment..................... (993,902) (269,383) (1,586,062)
Acquisition of DuraTherm, Inc.................................. -- -- (260,619)
Additions to intangibles....................................... (26,816) (5,179) (40,828)
Advances to joint ventures..................................... -- (1,489,319) (2,465,332)
Other.......................................................... (190,871) 42,853 (669,889)
----------- ----------- -----------
Net cash used in investing activities............................ (1,211,589) (1,721,028) (5,022,730)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from (repayments of) short-term borrowings........ (3,129,276) 4,520,946 (7,630,512)
Proceeds from issuance of long-term debt....................... 264,573 1,110,000 --
Reduction of long-term debt.................................... -- (400,216) (702,802)
Proceeds from issuance of convertible debenture, net of debt
issue costs................................................... -- -- 9,830,280
Proceeds from issuance of preferred stock and common stock
options, net of offering expenses............................. -- -- 14,690,026
Preferred stock dividends paid................................. -- -- (875,200)
Proceeds from issuance of common stock......................... 1,473,226 516,899 1,953,902
Other.......................................................... 929,040 -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities.............. (462,437) 5,747,629 17,265,694
----------- ----------- -----------
Net increase in cash and cash equivalents........................ -- -- 11,396,008
Cash and cash equivalents, beginning of year..................... -- -- --
----------- ----------- -----------
Cash and cash equivalents, end of year........................... $ -- $ -- $11,396,008
----------- ----------- -----------
----------- ----------- -----------
Cash paid during the period for:
Interest....................................................... $ 432,018 $ 544,933 $ 189,347
Income taxes................................................... 41,314 11,487 60,091
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. DESCRIPTION OF BUSINESS
GTS Duratek, Inc. (the "Company") provides waste treatment solutions for
radioactive, hazardous, mixed and other wastes. The Company's vitrificaton,
thermal desorption and ion exchange technologies convert waste to stable forms
for storage or disposal while achieving significant volume reduction. To
implement its waste treatment technologies and provide related technical support
services, the Company has a staff of highly skilled personnel with significant
environmental services experience. The services provided by the Company include
staff augmentation and outage support, principally to assist nuclear power
plants during regular maintenance shutdowns, environmental and computer
consulting and environmental safety training.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned except for DuraTherm, Inc.
which is 80% owned. All significant intercompany balances and transactions have
been eliminated in consolidation. Investments in subsidiaries and joint ventures
in which the Company does not have control or majority ownership are accounted
for under the equity method.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with initial maturities, at the date of
purchase, of three months or less to be cash equivalents. Cash equivalents at
December 31, 1995 were $11,121,008.
INVENTORIES
Inventories are valued at the lower of cost or market, principally using the
first in, first out (FIFO) method of costing.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are carried at cost. Replacements, maintenance
and repairs which do not extend the lives of the assets are expensed as
incurred. The Company provides for depreciation of property, plant, and
equipment when such assets become operational, primarily on a straight-line
basis over useful lives of three to ten years. Leasehold improvements are
amortized over the shorter of the asset life or the term of the lease.
INTANGIBLES
Intangible assets consist principally of amounts assigned to covenants
not-to-compete and costs incurred to obtain and maintain patents. Covenant and
patent amounts are being amortized over ten and seventeen years, respectively,
on a straight-line basis. The Company assesses the recoverability of intangible
assets by determining whether the amortization over the remaining life of the
asset can be recovered through undiscounted future cash flows. The amount of
impairment, if any, is measured based on projected discounted operating cash
flows.
DEFERRED CHARGES
Deferred charges consist principally of costs related to the maintenance of
the Company's temporary personnel work force data base, including
certifications, security clearances and related information. Such costs are
amortized over the term of the expected benefit which is generally two years.
F-7
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
REVENUE RECOGNITION
The Company generates substantially all of its revenue under fixed-price and
time-and-materials contracts. Revenue from contracts is recognized on the
percentage-of-completion method as costs are incurred and includes estimated
fees at predetermined rates as measured by the cost-to-cost method. Contract
costs include all direct labor, material costs and the indirect costs related to
contract performance. Differences between recorded costs, estimated earnings and
final billings are recognized in the period in which they become determinable.
Costs and estimated earnings in excess of billings on uncompleted contracts are
recorded as assets. Billings in excess of costs and estimated earnings on
uncompleted contracts are recorded as liabilities. Retainages, amounts subject
to future negotiation and amounts related to claims are not material.
In addition, the Company generates revenue from product sales which is
recognized upon product shipment.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities based on enacted tax rates in effect when
such amounts are expected to be realized based on consideration of available
evidence, including tax planning strategies and other factors. The effects of
changes in tax laws or rates on deferred tax assets and liabilities are
recognized in the period that includes the enactment date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments, including accounts
receivable, accounts payable and long-term debt, approximate carrying value.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and their respective
disclosures to prepare these consolidated financial statements in conformity
with generally accepted accounting principles. Actual results could differ
significantly from those estimates.
NET INCOME (LOSS) PER SHARE
The net income (loss) per share for 1993, 1994 and 1995 was computed by
dividing the net income (loss) attributable to common stockholders, which
reflects the preferred stock dividend requirement and accretion, by the weighted
average number of shares of common stock outstanding and common stock
equivalents to the extent they result in additional dilution. The Company has
issued options and warrants which exceed 20% of the common stock outstanding
and, accordingly, the Company determines the dilutive effect of such common
stock equivalents using the modified treasury stock method. For the years ended
December 31, 1993, 1994 and 1995, the common stock equivalents were deemed to be
anti-dilutive and, accordingly, are not included in the weighted average number
of shares used in determining net income (loss) per share.
RECLASSIFICATIONS
Certain amounts for 1993 and 1994 have been reclassified to conform to the
presentation for 1995.
F-8
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Raw materials........................................... $ 55,452 $ 36,256
Finished goods.......................................... 279,546 238,603
-------- --------
$334,998 $274,859
-------- --------
-------- --------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Machinery and equipment............................. $4,608,488 $4,942,753
Leasehold improvements, furniture and fixtures...... 911,333 1,105,851
Construction in progress............................ 354,894 1,650,353
---------- ----------
5,874,715 7,698,957
Less accumulated depreciation and amortization...... 3,737,468 4,157,495
---------- ----------
$2,137,247 $3,541,462
---------- ----------
---------- ----------
</TABLE>
5. JOINT VENTURES AND OTHER AGREEMENTS
In order to commercialize its vitrification technology more rapidly and
cost-effectively, the Company has developed several joint venture and other
arrangements. The following is a summary of those relationships:
BNFL INC.
On November 7, 1995, the Company and BNFL Inc. (BNFL) entered into a
strategic alliance agreement. BNFL is the U.S. subsidiary of British Nuclear
Fuels plc, a United Kingdom-based company experienced in processing and treating
high level radioactive waste. Under the terms of the strategic alliance, the
Company and BNFL have agreed to jointly pursue up to five major United States
Department of Energy (DOE) waste treatment projects. The terms of the strategic
alliance provide that BNFL pay the Company a teaming fee of $1 million each time
the two companies agree to exclusively pursue together a waste treatment
project. Upon the execution of the strategic alliance agreement, the Company
received and recognized as revenue a $1 million fee for its agreement to pursue
a project exclusively with BNFL at the DOE's Hanford, Washington facility.
As part of the strategic alliance, BNFL invested $10 million in the Company
in the form of a convertible debenture (see note 10) and agreed to provide the
Company with research and development funding of at least $500,000 per year over
the next five years.
VITRITEK ENVIRONMENTAL, INC.
Through a joint venture with Vitritek Holdings Company L.L.C. (Vitritek
Holdings), a privately-held entity, the Company has extended its vitrification
technology to non-radioactive hazardous waste. The joint venture entity, called
Vitritek Environmental, Inc. ("Vitritek"), is 50% owned by each of the Company
and Vitritek Holdings. The joint venture, formed in December 1993, represents
the consolidation of co-licensing rights to non-radioactive vitrification
technologies previously acquired by the Company and Vitritek Holdings. Under the
terms of the joint venture arrangement, all funding requirements and all profits
are shared equally.
The Company's investment in, and advances to, Vitritek at December 31, 1994
and 1995 were $1,837,323 and $1,121,027, respectively. As of December 31, 1995,
Vitritek had assets of $2,697,136 and liabilities of $3,500,000 (including
$1,750,000 due to the Company). For the years ended December 31, 1994 and 1995,
Vitritek had net sales of $105,173 and $678,989, respectively, and net losses of
$891,152 and $1,997,655, respectively. For the years ended December 31, 1994 and
1995, the Company recognized its proportionate share of loss in the consolidated
statement of operations after intercompany eliminations.
F-9
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. JOINT VENTURES AND OTHER AGREEMENTS (CONTINUED)
DURACHEM, INC.
In September 1994, the Company and Chem-Nuclear Systems, Inc.
(Chem-Nuclear), a subsidiary of WMX Technologies, Inc., formed a joint venture
to design, build and operate vitrification facilities to process commercial
radioactive waste for disposal, including low-level radioactive wastes from
nuclear power plants, hospitals, research laboratories and industrial
facilities. The Company will contribute 45% of facility construction costs and
share proportionately in the venture's profits or losses. The new venture is
operating, as a limited partnership, under the name "DuraChem." The Company's
investment in, and advances to, DuraChem at December 31, 1994 and 1995 of
$580,448 and $2,938,051, respectively, related to construction of a facility in
Barnwell, South Carolina.
6. ACQUISITION OF DURATHERM, INC.
In November 1995, the Company acquired 80% of the outstanding capital stock
of Bird Environmental Gulf Coast, Inc., since named DuraTherm, Inc.
("DuraTherm"), from Bird Environmental Technologies, Inc., a wholly-owned
subsidiary of Bird Corporation ("Bird") for one dollar and incurred
approximately $260,000 of transaction costs. DuraTherm owns and operates a
hazardous waste facility using thermal desorption technology in San Leon, Texas.
In connection with the acquisition, Bird contributed approximately $1.3 million
of cash to DuraTherm immediately prior to the acquisition to fund DuraTherm's
working capital deficit.
The remaining 20% of the outstanding capital stock of the Company is held by
certain individuals (the "Minority Shareholders") who developed the technology
and have operated and will continue to operate the facility. The Minority
Shareholders have entered into employment agreements providing for incentive
compensation tied directly to the financial performance of the facility. The
Company has entered into a stockholders' agreement pursuant to which, among
other terms and conditions, the Company has agreed to invest up to $5.1 million
(of which up to $2.7 million is for capital improvements and up to $2.4 million
is for working capital) in DuraTherm in exchange for preferred stock of
DuraTherm. The Company provided approximately $645,000 of the capital needed by
DuraTherm during the fourth quarter of 1995 and will make the balance available
during the first quarter of 1996. The Company expects the plant to reopen during
the second quarter of 1996. As part of the purchase transaction the Company also
acquired, through a licensing arrangement, the exclusive rights to the thermal
desorption technology used by the facility.
The Minority Shareholders have the right to "put" their stock to the Company
at fair market value beginning in December 1999 or earlier upon the occurrence
of certain events. The Company has the right to "call" the stock of the Minority
Shareholders at fair market value beginning in December 2001 or earlier upon the
occurrence of certain events.
The acquisition of DuraTherm was accounted for using the purchase method of
accounting. The estimated fair value of the net tangible assets acquired
exceeded the purchase price at November 29, 1995. Accordingly, the net purchase
price in excess of the net carrying value of DuraTherm of approximately $238,000
was allocated to property, plant and equipment. The Company determined the
amount of the minority interest of the subsidiary based upon 20% of the net
assets of DuraTherm at the date of acquisition.
Pro forma results of operations of the Company for the years ended December
31, 1994 and 1995, assuming the acquisition of DuraTherm had occurred on January
1, 1994, are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Revenues.......................................... $39,682,000 $43,276,000
Net loss.......................................... (2,508,000) (1,379,000)
Loss per share.................................... (0.29) (0.27)
</TABLE>
F-10
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACQUISITION OF DURATHERM, INC. (CONTINUED)
The plant was placed into operation in February 1994 and ceased operations
in August 1995. As such, the plant was not fully operational for either of the
pro forma periods presented. The pro forma results of operations are not
indicative of the results that would have occurred had the capital improvements
actually been made by January 1994 or had the plant operated during the entire
pro forma periods presented or of future results of operation of the Company
with DuraTherm under management and control of the Company's personnel.
7. SHORT-TERM BORROWINGS
The Company has a revolving line of credit agreement with a bank providing
for borrowings of up to $7,000,000 based upon eligible amounts of accounts
receivable, as defined in the agreement. Borrowings outstanding under the
agreement are due on demand and bear interest at the bank's prime interest rate
plus 1% (9.5% at December 31, 1995). Borrowings outstanding under the line of
credit are secured by the Company's accounts receivable, inventory and property,
plant and equipment. The line of credit agreement requires the Company to meet
certain financial covenants and restricts the payment of dividends on the
Company's common stock. At December 31, 1994, the Company had outstanding
borrowings of $7,630,512 under the agreement. At December 31, 1995, no amounts
were outstanding and approximately $5.9 million of borrowings were available
under the line of credit agreement.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 consist of the
following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Accounts payable.................................... $2,129,761 $2,165,720
Accrued expenses.................................... 508,934 846,999
Salaries and related costs.......................... 788,541 861,994
Preferred stock dividend payable.................... -- 320,000
---------- ----------
$3,427,236 $4,194,713
---------- ----------
---------- ----------
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of notes payable to a bank requiring monthly
payments of principal plus interest at the bank's prime rate plus 1 1/4% (9.75%
at December 31, 1995). The notes payable are secured by the Company's accounts
receivable, inventory and property, plant and equipment. The notes payable have
aggregate annual maturities of $470,709 in 1996 and $36,000 in 1997.
10. CONVERTIBLE DEBENTURE
In November 1995, in connection with the formation of a strategic alliance,
the Company received proceeds of $9,830,280, net of debt issue costs from
issuance of a $10 million convertible debenture to BNFL. The debenture accrues
interest during the first five years at the one-year London Interbank Offered
Rate (LIBOR). The debenture and the accrued interest are convertible into
1,381,575 shares of the Company's common stock on or before November 7, 2000.
The debenture is to be repaid in annual installments over a five-year period
commencing on November 8, 2000. The conversion and repayment dates can be
extended under certain circumstances. At December 31, 1995, the balance due BNFL
of $10,086,931 included accrued interest of $86,931.
The estimated fair value of the convertible debenture at December 31, 1995
was approximately $14 million.
F-11
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. 8% CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
In January 1995, the Company issued for $16 million, 160,000 shares of 8%
Cumulative Convertible Redeemable Preferred Stock, par value $.01 per share (the
"Convertible Preferred Stock") and an option (the "Carlyle Option") to purchase
up to an additional 1.25 million shares of the Company's common stock, at any
time prior to January 24, 1999 for $3.75 per share to investment partnerships
sponsored and controlled by The Carlyle Group ("Carlyle"). The Convertible
Preferred Stock is initially convertible into the Company's common stock at a
conversion price of $3 per share and, if not previously converted, the Company
is required to redeem the outstanding Convertible Preferred Stock on January 24,
2002 for $100 per share plus accrued and unpaid dividends. The Company is
required to pay quarterly dividends on the Convertible Preferred Stock of
$320,000.
The proceeds, net of offering expenses of $1,309,974, from the issuance of
the Convertible Preferred Stock and Carlyle Option were $14,690,026, of which
$14,410,026 was allocated to the Convertible Preferred Stock and $280,000 was
allocated to the fair value of the Carlyle Option. The difference between the
carrying value of the Convertible Preferred Stock and the redemption value is
being accreted through charges to stockholders' equity over a six-year period to
January 24, 2002.
The estimated fair value of the Convertible Preferred Stock at December 31,
1995 was approximately $53 million.
12. STOCK OPTION PLANS AND WARRANTS
The Company has a non-qualified Stock Option Plan (the "Plan") which
authorizes a committee of the Board of Directors to grant options to purchase
shares of the Company's common stock to directors, officers and employees of the
Company. The exercise price of such options may not be less than 85% of the fair
market value of the common stock on the date of grant and the exercise period
may not be more than ten years after such date. Changes in options and warrants
outstanding, options and warrants exercisable and shares reserved for issuance
are as follows:
<TABLE>
<CAPTION>
PRICE RANGE NUMBER OF
PER SHARE SHARES
------------ ---------
<S> <C> <C>
Balance, December 31, 1992.......................... $1.00 - 3.50 1,060,900
Granted........................................... 3.50 - 4.00 555,000
Exercised......................................... 1.00 - 3.50 (40,400)
---------
Balance, December 31, 1993.......................... 1.00 - 4.00 1,575,500
Granted........................................... 3.50 - 3.88 949,000
Exercised......................................... 1.50 - 3.50 (7,000)
Terminated........................................ 1.50 - 3.75 (27,500)
---------
Balance, December 31, 1994.......................... 1.00 - 4.00 2,490,000
Granted........................................... 2.97 173,401
Carlyle Option.................................... 3.75 1,250,000
Exercised......................................... 1.00 - 4.00 (716,103)
Terminated........................................ 1.50 - 3.75 (2,500)
---------
Balance, December 31, 1995.......................... 1.00 - 4.00 3,194,798
---------
---------
</TABLE>
As of December 31, 1995, 2,534,698 of the options and warrants are
exercisable. At December 31, 1995, the Company has reserved 9,909,706 shares for
issuance of options, warrants and securities convertible into the Company's
common stock.
F-12
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES
The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Current:
State........................................... $73,331 $11,487 $ 50,230
Federal......................................... -- -- 50,696
------- ------- --------
$73,331 $11,487 $100,926
------- ------- --------
------- ------- --------
</TABLE>
The provision for income taxes for the years ended December 31, 1993, 1994,
and 1995 is reconciled to the amount computed by applying the statutory Federal
income tax rate to income (loss) before income taxes and proportionate share of
loss of joint venture as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax at statutory rate.............. $(413,000) $ 200,000 $ 809,000
State income taxes, net of Federal tax benefit.... 73,331 11,487 33,152
Increase in (use of) net operating loss
carryforwards.................................... 413,000 (200,000) (741,226)
--------- --------- ---------
$ 73,331 $ 11,487 $ 100,926
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31 consist of
the following:
<TABLE>
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
Allowance for doubtful accounts................... $ 38,000 $ 27,000
Capitalized inventory costs....................... 50,000 52,000
Proportionate share of loss in investee company... 125,000 446,000
Accelerated depreciation.......................... (513,000) (611,000)
Net operating loss carryforward................... 1,521,000 863,000
Alternative minimum tax........................... -- 20,000
Other............................................. -- 3,000
---------- ---------
1,221,000 800,000
Less valuation allowance.......................... 1,221,000 800,000
---------- ---------
$ -- $ --
---------- ---------
---------- ---------
</TABLE>
In assessing the realizability of deferred tax assets, management considered
whether it was more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of the deferred tax assets is
dependent upon the generation of future taxable income during periods in which
temporary differences become deductible. Management considered income taxes paid
during the previous three years and projected future taxable income in making
this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the temporary
differences are deductible, management has established a valuation allowance at
December 31, 1995 of $800,000.
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $2.2 million which are available to offset future taxable earnings
of the Company through 2008. Approximately $1.1 million of the $2.2 million net
operating loss carryfoward is available as the result of the exercise of non-
qualified stock options by employees of the Company. Income tax benefits
resulting from utilization of this portion of the net operating loss will result
in a credit to capital in excess of par. Utilization of approximately $1.6
million of the $2.2 million net operating loss carryforward is subject to a
separate return limitation, whereby it is only available to offset earnings from
one of the Company's subsidiaries.
F-13
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. PROFIT SHARING PLAN
The Company maintains a Profit Investment Plan (the "Plan") for employees
who have completed one year of service with the Company. The Plan permits
pre-tax contributions to the Plan by participants pursuant to Section 401(k) of
the Internal Revenue Code of 1% to 14% of base compensation. The Company matches
25% of the participants' eligible contributions based on a formula set forth in
the Plan and may make additional matching contributions. Employer contributions
vest at a rate of 20% per year of service. The Company's matching contributions
were $73,000, $74,000 and $162,000 for the years ended December 31, 1993, 1994
and 1995, respectively.
15. BUSINESS AND CREDIT CONCENTRATIONS
The Company's revenues are derived primarily from utilities and through
subcontracts from a combination of DOE contractors and subcontractors. At
December 31, 1995, approximately 87% of the Company's accounts receivable were
due from these entities. Accounts receivable and costs and estimated earnings in
excess of billings on uncompleted contracts relating to DOE contractors and
subcontractors amounted to $2,226,023 and $2,857,336 at December 31, 1994 and
$5,115,785 and $7,591,628 at December 31, 1995, respectively. In 1993, two
customers comprised 20% and 15% of the Company's annual revenues. In 1994, one
customer comprised 23% of the Company's annual revenues. In 1995, three
customers comprised 23%, 17% and 16% of the Company's annual revenues,
respectively. Revenues from DOE contracts and subcontracts were 13%, 23% and 35%
of annual revenues for the years ended December 31, 1993, 1994 and 1995,
respectively.
The Company estimates an allowance for doubtful accounts based on the
creditworthiness of its customers, as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Company's
estimate of its bad debts.
16. COMMITMENTS AND CONTINGENCIES
ROYALTY AGREEMENTS
The Company has entered into an exclusive licensing agreement with the
owners of the vitrification technology, pursuant to which the owners have
granted to the Company the exclusive license and rights to all vitrification
technology and process patents which they developed. The exclusive license
agreement expires 17 years after the last licensed patent is granted, which at
this time will be in 2012. The agreement provides for a guaranteed minimum
royalty of $100,000 per year throughout the term of the agreement. Pursuant to
the agreement, royalty expense was limited to $100,000 in each of the years
ended December 31, 1993, 1994 and 1995. Beginning in 1996, the Company is
obligated to make payments of 1% to 3% of net sales values, as defined. Assuming
the Company achieves a net sales value in 1996 equal to that achieved in 1995,
royalty expense will be approximately $260,000.
The Company also licenses the rights to the thermal desorption technology
used in the processing of petrochemical waste by DuraTherm from the inventor of
such technology. The Company and DuraTherm are co-licensees under the license
agreement and are collectively obligated to pay to the inventor of the
technology an annual royalty payment equal to the greater of (i) $50,000 or (ii)
1% of the net revenues generated from the operation of the desorber equipment
(excluding net revenues generated from equipment acquired in the DuraTherm
acquisition) incorporating the technology and 5% of the sales of any such
equipment.
F-14
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES
The Company has several noncancellable facility leases which expire at
various dates and, in some cases, have options to extend their terms. Rent
expense approximated $316,000, $303,000 and $315,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
The following is a schedule of future minimum annual lease payments for all
long-term operating leases as of December 31, 1995:
<TABLE>
<S> <C>
1996............................................................. $229,000
1997............................................................. 14,000
--------
$243,000
--------
--------
</TABLE>
CLOSURE BOND
Under the State of Texas Civil Statute, the Company is required to fund, in
the form of a closure bond, approximately $1,936,000 over a ten-year period
which will be available to cover closure expenses of the DuraTherm thermal
desorption facility in San Leon, Texas, when and if required. The funding is
maintained in an interest bearing trust account and as of December 31, 1995, the
trust balance was approximately $525,000. Such amount is included as other
assets in the Company's consolidated balance sheet.
LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
17. SUPPLEMENTAL CASH FLOW INFORMATION
In 1993, the Company acquired certain rights to medical and hazardous waste
technologies from an unrelated third party for a warrant valued at $500,000 to
purchase 500,000 shares of the Company's common stock through September 30, 1997
at $4.00 per share.
In 1993, the Company acquired certain rights to asbestos waste technologies
in exchange for 187,500 shares of the Company's common stock. The Company
contributed its interest in the technology rights to Vitritek Environmental,
Inc. (see note 5) in exchange for a $750,000 note bearing interest at the prime
rate plus 1%. The technology rights were previously owned by certain
shareholders of Vitritek Environmental, Inc.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bird Environmental Gulf Coast, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Bird Environmental Gulf Coast, Inc. for the year ended
December 31, 1994 and the eleven months ended November 30, 1995. 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 statements of operations, stockholders' equity and cash
flows referred to above present fairly, in all material respects, the results of
operations and cash flows of Bird Environmental Gulf Coast, Inc. for the year
ended December 31, 1994 and the eleven months ended November 30, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
January 20, 1996
F-16
<PAGE>
BIRD ENVIRONMENTAL GULF COAST, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 AND ELEVEN MONTHS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Net sales.................................................................. $ 3,714,583 $ 2,858,370
Cost of sales.............................................................. 6,221,892 5,491,560
----------- -----------
Gross loss................................................................. (2,507,309) (2,633,190)
Selling, general and administrative expenses............................... 1,053,723 1,124,153
Reserve with respect to property, plant and equipment...................... -- 12,168,746
----------- -----------
Net loss................................................................... $(3,561,032) $(15,926,089)
----------- -----------
----------- -----------
</TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1994 AND ELEVEN MONTHS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
COMMON STOCK CAPITAL DEFICIT TOTAL
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993............................. $ 7 $ 5,755,817 $ (1,597,773) $ 4,158,051
Capital contribution by Bird Environmental
Technologies, Inc................................... -- 13,109,362 -- 13,109,362
Net loss............................................. -- -- (3,561,032) (3,561,032)
--
------------- -------------- --------------
Balance, December 31, 1994............................. 7 18,865,179 (5,158,805) 13,706,381
Capital contribution by Bird Environmental
Technologies, Inc................................... -- 2,247,756 -- 2,247,756
Net loss............................................. -- -- (15,926,089) (15,926,089)
--
------------- -------------- --------------
Balance, November 30, 1995............................. $ 7 $ 21,112,935 $ (21,084,894) $ 28,048
--
--
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
BIRD ENVIRONMENTAL GULF COAST, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994 AND ELEVEN MONTHS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (3,561,032) $(15,926,089)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization............................................. 1,100,000 1,167,125
Reserve with respect to property, plant and equipment..................... -- 12,168,746
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.............................. (1,377,342) 1,377,342
(Increase) decrease in inventories...................................... (15,951) 14,910
Decrease in prepaid expenses............................................ 143,347 41,900
Increase in accounts payable............................................ 1,196,125 211,768
Increase (decrease) in accrued expenses................................. 246,782 (54,977)
------------ ------------
Net cash used in operating activities......................................... (2,268,071) (999,275)
------------ ------------
Cash flow from investing activities:
Additions to property, plant and equipment.................................. (10,375,563) (89,304)
Increase in closure bond.................................................... (316,224) (10,465)
------------ ------------
Net cash used in investing activities......................................... (10,691,787) (99,769)
------------ ------------
Cash provided by financing activities -- Capital contributions by Bird
Environmental Technologies, Inc.............................................. 13,109,362 2,247,756
------------ ------------
Net increase in cash.......................................................... 149,504 1,148,712
Cash at beginning of period................................................... -- 149,504
------------ ------------
Cash at end of period......................................................... $ 149,504 $ 1,298,216
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
BIRD ENVIRONMENTAL GULF COAST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND NOVEMBER 30, 1995
1. NATURE OF BUSINESS AND ACQUISITION BY GTS DURATEK, INC.
Bird Environmental Gulf Coast, Inc. (the "Company") owns and operates a
hazardous waste recycling facility using thermal desorption technology in San
Leon, Texas. As of November 30, 1995, the Company has suspended operations
pending completion of certain capital improvements which are intended to enable
the facility to operate at peak efficiency. The facility is expected to be
operational during the second quarter of 1996. The Company's customers are
principally engaged in the petrochemical industry.
On November 29, 1995, GTS Duratek, Inc. acquired 80% of the outstanding
common stock of the Company from Bird Environmental Technologies, Inc., a
wholly-owned subsidiary of Bird Corporation.
The remaining 20% of the outstanding capital stock of the Company is owned
by certain individuals (the "Minority Shareholders") who developed the
technology and have operated and will continue to operate the facility. The
Minority Shareholders have entered into employment agreements providing for
incentive compensation tied directly to the financial performance of the
facility. GTS Duratek, Inc. has entered into a stockholders' agreement with the
Minority Shareholders pursuant to which, among other terms and conditions, it
agreed to invest up to $5.1 million in the Company as needed, up to $2.4 million
of which will be used for general working capital purposes and up to $2.7
million of which will be used for capital and plant start-up expenditures.
As part of the acquisition transaction, GTS Duratek, Inc. also acquired,
through a licensing arrangement with one of the Minority Shareholders, the
exclusive rights to the patented technology used by the Company's facility to
process and treat hazardous waste.
Effective December 12, 1995, the Company changed its name to DuraTherm, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
INVENTORIES
Inventories, principally consisting of supplies used in the recycling
process, are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation on plant and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets, which range from five to fifteen years.
On November 29, 1995, the Company has recorded a reserve for the property,
plant and equipment to reflect the "push down" of Bird Corporation's adjusted
sales prices to GTS Duratek, Inc.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and their respective
disclosures to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ significantly from
those estimates.
F-19
<PAGE>
BIRD ENVIRONMENTAL GULF COAST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
3. CLOSURE BOND
The Company is required under State of Texas Civil Statue to fund, in the
form of a closure bond, $1,936,619 over a ten year period. The funding is
maintained in an interest bearing trust account, in the Company's name, and will
be eventually used to cover closure expenses of the thermal desorption facility,
when and if required. As of December 31, 1994 and November 30, 1995, the trust
balance was $316,224 and $326,689, respectively.
4. INCOME TAXES
During the year ended December 31, 1994 and eleven months ended November 30,
1995, the Company had net operating losses. As a result of the acquisition of
80% of the Company's common stock by GTS Duratek, Inc. any net operating loss
carryforwards at November 30, 1995 will not be available to reduce future
taxable income of the Company.
5. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a number of legal matters certain of which
Bird Corporation has agreed to indemnify the Company and GTS Duratek, Inc. Of
the matters for which the Company is not indemnified, none are expected to have
any material adverse effect on the financial condition of the Company.
In connection with the Company's acquisition by GTS Duratek, Inc. four of
the Company principal employees entered into four year employment agreements
which generally can be terminated without cause upon payment of one year of
severance. The agreements also provide for bonuses in excess of base
compensation in the event the Company achieves certain levels of earnings over
the period of the employment agreements.
F-20
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma financial information should be read in conjunction with the
consolidated financial statements and related notes of GTS Duratek, Inc. and
subsidiaries (the "Company"), and the financial statements of Bird Environmental
Gulf Coast, Inc. ("DuraTherm"), included elsewhere herein.
On November 29, 1995, the Company acquired 80% of the outstanding capital
stock of DuraTherm from Bird Environmental Technologies, Inc., a wholly-owned
subsidiary of Bird Corporation ("Bird") for $1 and incurred approximately
$260,000 of transaction costs. DuraTherm owns and operates a hazardous waste
facility using thermal desorption technology in San Leon, Texas. In connection
with the acquisition, Bird agreed to contribute approximately $1.3 million of
cash to DuraTherm immediately prior to the acquisition to fund DuraTherm's
working capital deficit. The remaining 20% of the outstanding capital stock of
the Company is held by certain individuals (the "Minority Shareholders") who
developed the technology and have operated and will continue to operate the
facility. The Minority Shareholders have entered into employment agreements
providing for incentive compensation tied directly to the financial performance
of the facility. The Company has entered into a stockholders' agreement pursuant
to which, among other terms and conditions, the Company has agreed to invest up
to $5.1 million in DuraTherm in exchange for preferred stock of DuraTherm. Of
the $5.1 million, up to $2.4 million will be used for working capital purposes
and the balance, of up to $2.7 million, will be used for capital and plant
start-up expenditures. The Company began making the capital improvements needed
by DuraTherm during the fourth quarter of 1995 and expects to complete the
capital improvements in the first quarter of 1996. The Company expects the plant
to be operational during the second quarter of 1996. The Company will use its
internal funds for the investment in DuraTherm. As part of the purchase
transaction the Company also acquired, through a licensing arrangement, the
exclusive rights to the thermal desorption technology used by the facility.
The aggregate purchase price for the 80% interest in DuraTherm is as
follows:
<TABLE>
<S> <C>
Cash purchase price................................................... $ 1
Transaction cost...................................................... 259,999
--------
$260,000
--------
--------
</TABLE>
The acquisition of DuraTherm was accounted for using the purchase method of
accounting. The estimated fair value of the net tangible assets acquired
exceeded the purchase price at November 29, 1995. Accordingly, the net purchase
price in excess of the net carrying value of DuraTherm of approximately $238,000
was allocated to property, plant and equipment. The Company has determined the
amount of the minority interest of the subsidiary based upon 20% of the net
assets of DuraTherm at the date of acquisition.
The pro forma consolidated statement of operations for the year ended
December 31, 1995 gives effect to the Company's acquisition of DuraTherm as if
the transaction had occurred on January 1, 1995. Depreciation and amortization
amounts have been adjusted assuming the $2.7 million of capital improvements had
been made as of January 1, 1995 and the plant was operational on that date.
The plant was placed into operation in February 1994 and ceased operations
in August 1995. As such, the plant was not fully operational for the pro forma
period presented. The pro forma consolidated statement of operations is not
indicative of the results that would have occurred had the capital improvements
actually been made by January 1995 or had the plant operated during the entire
pro forma period presented or of future consolidated results of operation of the
Company with DuraTherm under management and control of the Company's personnel.
F-21
<PAGE>
GTS DURATEK, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMPANY DURATHERM ADJUSTMENTS COMBINED
----------- ------------ ---------------- -----------
<S> <C> <C> <C> <C>
Revenues................................... $40,418,066 $ 2,858,370 $ -- $43,276,436
Cost of revenues........................... 32,220,569 5,491,560 (873,307)(1) 36,838,822
----------- ------------ ---------------- -----------
Gross profit (loss)........................ 8,197,497 (2,633,190) 873,307 6,437,614
Selling, general and administrative
expenses.................................. 5,875,688 1,124,153 -- 6,999,841
Reserve with respect to property, plant and
equipment................................. -- (12,168,746) 12,168,746(2) --
----------- ------------ ---------------- -----------
Income (loss) from operations.............. 2,321,809 (15,926,089) 13,042,053 (562,227)
Interest income (expense), net............. 57,453 -- -- 57,453
----------- ------------ ---------------- -----------
Income (loss) before income taxes and
proportionate share of loss of joint
venture................................... 2,379,262 (15,926,089) 13,042,053 (504,774)
Income taxes............................... 100,926 -- (50,696)(3) 50,230
----------- ------------ ---------------- -----------
Income (loss) before proportionate share of
loss of joint venture..................... 2,278,336 (15,926,089) 13,092,749 (555,004)
Proportionate share of loss of joint
venture................................... (824,025) -- -- (824,025)
----------- ------------ ---------------- -----------
Net income (loss).......................... 1,454,311 (15,926,089) 13,092,749 (1,379,029)
Preferred stock dividends and charges for
accretion................................. (1,394,064) -- -- (1,394,064)
----------- ------------ ---------------- -----------
Net income (loss) attributable to common
stockholders.............................. $ 60,247 $(15,926,089) $ 13,092,749 $(2,773,093)
----------- ------------ ---------------- -----------
----------- ------------ ---------------- -----------
Net income (loss) per share................ $ 0.01 $ (0.27)
Weighted average shares.................... 8,820,131 8,820,131
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS:
(1) To adjust depreciation and amortization expense as follows:
<TABLE>
<S> <C>
Eliminate depreciation included in DuraTherm amounts............ $(1,167,125)
Adjusted depreciation for plant and equipment over 10 years..... 23,818
Depreciation of additional $2.7 million of plant and equipment
over 10 years.................................................. 270,000
----------
$ (873,307)
----------
----------
</TABLE>
(2) To eliminate charge included in DuraTherm accounts as the basis of property,
plant and equipment is adjusted in consolidation.
(3) To adjust income tax provision to eliminate Federal income taxes.
F-22
<PAGE>
BACK INSIDE COVER:
[photo of DuraChem operating the Duramelter
3000-TM- at Chem-Nuclear's Barnwell
Facility to be inserted]
DuraChem operates DuraMelter 3000SC-TM-
at Chem-Nuclear's Barnwell Facility
[schematic diagram of waste volume
reduction by 30 times to be inserted]
Volume Reduction of up to 97%
[photo of DuraTherm recycling center in San
Leon, Texas to be inserted]
DuraTherm recycling center in San Leon,
Texas
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE THEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.......................... 3
Risk Factors................................ 6
Use of Proceeds............................. 11
Price Range of Common Stock................. 11
Dividend Policy............................. 11
Capitalization.............................. 12
Selected Consolidated Financial Data........ 13
Management's Discussion and Analysis of
Results of Operations and Financial
Condition.................................. 14
Business.................................... 18
Management.................................. 35
Principal and Selling Stockholders.......... 38
Description of Capital Stock................ 40
Underwriting................................ 42
Legal Matters............................... 43
Experts..................................... 43
Available Information....................... 43
Incorporation of Certain Documents by
Reference.................................. 44
Index to Financial Statements............... F-1
</TABLE>
3,600,000 SHARES
[LOGO]
COMMON STOCK
------------------
PROSPECTUS
------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL
GRUNTAL & CO., INCORPORATED
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the distribution
of the securities being registered, other than underwriting expenses and
commissions. All such expenses are estimated, except for the SEC registration
fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 22,128
NASD filing fee................................................... 6,917
Nasdaq listing fee................................................ 17,500
Accounting fees and expenses...................................... 100,000
Legal fees and expenses........................................... 175,000
Printing.......................................................... 50,000
Transfer agent fees............................................... 5,000
Blue sky fees and expenses (including legal fees)................. 10,000
Miscellaneous..................................................... 13,455
---------
Total......................................................... $ 400,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees), actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under similar standards, except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that despite the adjudication of liability,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) of such section or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees), actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 145 shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled; and that the corporation may purchase and maintain insurance on behalf
of a director or officer of the corporation against any liability asserted
against him or incurred by him in any such capacity or arising out of his status
as such whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
Section 145(d) of the DGCL provides that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon
II-1
<PAGE>
a determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth
above. Such determination shall be made by a majority vote of the directors who
are not parties to such action, suit or proceeding, even though less than a
quorum, or if there are no such directors, or if such directors direct, by
independent legal counsel in a written opinion, or by the stockholders.
The Company's Amended and Restated Certificate of Incorporation provides for
indemnification of directors and officers to the fullest extent permitted by
Delaware law. The directors of the Company may not be held liable to the Company
or its stockholders for monetary damages for a breach of his or her fiduciary
duty as a director, except for a breach of the director's duty of loyalty, for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for willful or negligent violation of sections 160 or
173 of the DGCL respecting unlawful payment of dividends and unlawful stock
purchases and redemptions, or for any transaction from which the director
derived an improper personal benefit.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1 Form of Underwriting Agreement (to be filed by amendment).
4.1 Certificate of Designations of the 8% Cumulative Convertible Redeemable
Preferred Stock dated January 23, 1995. Incorporated herein by reference to
Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed on
February 1, 1995 (File No. 0-14292).
4.2 Stock Purchase Agreement among Carlyle Partners II, L.P., Carlyle
International Partners II, L.P., Carlyle International Partners III, L.P.,
C/S International Partners, Carlyle-GTSD Partners, L.P., Carlyle-GTSD
Partners II, L.P. and GTS Duratek, Inc. and National Patent Development
Corporation dated as of January 24, 1995. Incorporated herein by reference
to Exhibit 4.2 of the Registrant's Current Report on Form 8-K filed on
February 1, 1995 (File No. 0-14292).
4.3 Stockholders Agreement by and among GTS Duratek, Inc., Carlyle Partners II,
L.P., Carlyle International Partners II, L.P., Carlyle International
Partners III, L.P., C/S International Partners, Carlyle-GTSD Partners,
L.P., Carlyle-GTSD Partners II, L.P. and GTS Duratek, Inc. and National
Patent Development Corporation dated as of January 24, 1995. Incorporated
herein by reference to Exhibit 4.3 of the Registrant's Current Report on
Form 8-K filed on February 1, 1995 (File No. 0-14292).
4.4 Registration Rights Agreement by and among GTS Duratek, Inc., Carlyle
Partners II, L.P., Carlyle International Partners II, L.P.,
Carlyle-International Partners III, L.P., C/S International Partners,
Carlyle-GTSD Partners, L.P., Carlyle-GTSD Partners II, L.P. and GTS
Duratek, Inc. and National Patent Development Corporation dated as of
January 24, 1995. Incorporated herein by reference to Exhibit 4.4 of the
Registrant's Current Report on Form 8-K filed on February 1, 1995 (File No.
0-14292).
4.5 Convertible Debenture issued by GTS Duratek, Inc., General Technical
Services, Inc., GTS Instrument Services Incorporated to BNFL Inc. dated
November 7, 1995. Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
(File No. 0-14292).
*5.1 Opinion of Piper & Marbury L.L.P. (filed herewith).
10.1 1984 Duratek Corporation Stock Option Plan, as Amended. Incorporated herein
by reference to Exhibit 10.9 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990 (File No. 0-14292).
10.2 Asset Purchase Agreement dated August 20, 1990 between Chem-Nuclear Systems,
Inc. and Duratek Corporation. Incorporated herein by reference to Exhibit 1
to the Registrant's Current Report on Form 8-K filed on August 20, 1990
(File No. 0-14292).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.3 Loan and Security Agreement dated February 9, 1993 between The Bank of
Baltimore and GTS Duratek, Inc., General Technical Service, Inc., and GTS
Instrument Services, Inc. Incorporated herein by reference to Exhibit 10.8
of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993 (File No. 0-14292).
10.4 License Agreement dated as of August 17, 1992 between GTS Duratek, Inc. and
Dr. Theodore Aaron Litovitz and Dr. Pedro Buarque de Macedo. Incorporated
herein by reference to Exhibit 10.9 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No. 0-14292).
10.5 Purchase Agreement dated October 15, 1993 between GTS Duratek, Inc. and
Environmental Corporation of America. Incorporated herein by reference to
Exhibit 2 of the Registrant's Current Report on Form 8-K dated October 15,
1993 (File No. 0-14292).
10.6 Warrant Agreement dated October 15, 1993 between GTS Duratek, Inc. and
Environmental Corporation of America. Incorporated herein by reference to
Exhibit 2 of the Registrant's Current Report on Form 8-K dated October 15,
1993 (File No. 0-14292).
10.7 Stock Purchase Agreement dated December 22, 1993 between GTS Duratek, Inc.
and Jack J. Spitzer. Incorporated herein by reference to Exhibit 1 of the
Registrant's Current Report on Form 8-K dated December 22, 1993 (File No.
0-14292).
10.8 Stock Purchase Agreement dated December 22, 1993 between GTS Duratek, Inc.
and Joseph H. Domberger. Incorporated herein by reference to Exhibit 2 of
the Registrant's Current Report on Form 8-K dated December 22, 1993 (File
No. 0-14292).
10.9 Stockholders' Agreement dated December 28, 1993 between GTS Duratek, Inc.
and Vitritek Holdings, L.L.C. Incorporated herein by reference to Exhibit 3
of the Registrant's Current Report on Form 8-K dated December 22, 1993
(File No. 0-14292).
10.10 Agreement dated January 14, 1994 between GTS Duratek, Inc. and Westinghouse
Savannah River Company. Incorporated herein by reference to Exhibit 10.17
of the Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 (File No. 0-14292).
10.11 Agreement dated February 24, 1994 between GTS Duratek, Inc. and the
University of Chicago (Operator of Argonne National Laboratory).
Incorporated herein by reference to Exhibit 10.18 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 (File No.
0-14292).
10.12 Agreement dated September 15, 1994 between DuraChem Limited Partnership, a
Maryland limited partnership, by and among CNSI Sub, Inc. and GTSD Sub,
Inc. as the General Partners, and Chemical Waste Management, Inc. and GTS
Duratek, Inc. as the Limited Partners. Incorporated herein by reference to
Exhibit 10.19 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-14292).
10.13 Teaming Agreement by and between GTS Duratek, Inc. and BNFL, Inc. dated
November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995 (File No. 0-14292).
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.14 Sublicense Agreement by and between GTS Duratek, Inc. and BNFL dated
November 7, 1995. Incorporated herein by reference to Exhibit 10.21 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995 (File No. 0-14292).
10.15 Stock Purchase Agreement by and among Bird Environmental Gulf Coast, Inc.,
Bird Environmental Technologies, Inc., Bird Corporation, GTS Duratek, Inc.
and GTSD Sub II, Inc. dated as of November 29, 1995. Incorporated herein by
reference to Exhibit (c)(2) of the Registrant's Current Report on Form 8-K
filed on December 11, 1995 (File No. 0-14292).
10.16 Stockholders' Agreement by and among Bird Environmental Gulf Coast, Inc.,
GTS Duratek, Inc., GTSD Sub II, Inc., Jim S. Hogan, Mark B. Hogan, Barry K.
Hogan and Sam J. Lucas III dated November 29, 1995. Incorporated herein by
reference to Exhibit (c)(3) of the Registrant's Current Report on Form 8-K
filed on December 11, 1995 (File No. 0-14292).
10.17 Technology License Agreement by and among GTS Duratek, Inc., Bird
Environmental Gulf Coast, Inc. and Jim S. Hogan dated November 29, 1995.
Incorporated herein by reference to Exhibit (c)(4) of the Registrant's
Current Report on Form 8-K filed on December 11, 1995 (File No. 0-14292).
13 Registrant's Annual Report on Form 10-K for the year ended December 31,
1995. Incorporated herein by reference.
23.1 Consents of KPMG Peat Marwick LLP (previously filed).
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.1).
24 Power of Attorney (located on p. II-6 of the Registration Statement).
27 Financial Data Schedule (previously filed with Registrant; Annual Report on
Form 10-K for the year ended December 31, 1995).
</TABLE>
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of the Delaware General Corporate Law, the
Amended and Restated Certificate of Incorporation or By-Laws of the registrant
or resolutions of the Board of Directors of the registrant adopted pursuant
thereto, or otherwise, the registrant 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 registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant 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 registrant 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 of 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 registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430(a) and contained in
a form of prospectus filed by the registrant 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 purposes of determining any liability under the Securities Act
of 1933, 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
Registration Statement on Form S-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbia, State of
Maryland, on March 29, 1996.
GTS DURATEK, INC.
By: /s/ ROBERT E. PRINCE
-----------------------------------
Robert E. Prince
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities indicated on March 29, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE AND CAPACITY
- --------------------------------------------------------- ---------------------------
<C> <S> <C>
/s/ ROBERT E. PRINCE President and Chief
------------------------------------------- Executive
Robert E. Prince Officer and Director
Executive Vice President
/s/ ROBERT F. SHAWVER and Chief Financial
------------------------------------------- Officer (Principal
Robert F. Shawver Financial Officer)
/s/ CRAIG T. BARTLETT Controller (Principal
------------------------------------------- Accounting Officer)
Craig T. Bartlett
</TABLE>
MAJORITY OF THE BOARD OF DIRECTORS:
Daniel A. D'Aniello, William E. Conway, Jr., Steven J. Gilbert, Earle C.
Williams, Jerome I. Feldman and Martin M. Pollak.
<TABLE>
<C> <S> <C>
By: /s/ ROBERT F. SHAWVER Attorney-in-Fact
------------------------------------------
Robert F. Shawver
</TABLE>
II-6
<PAGE>
INDEX OF EXHIBITS
FILED WITH THIS REGISTRATION STATEMENT
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT DOCUMENT NUMBERED PAGE
- ----------- ---------------------------------------------------------------------------------------- --------------
<S> <C> <C>
1 Form of Underwriting Agreement (to be filed by amendment)...............................
5.1 Opinion of Piper & Marbury L.L.P........................................................
23.1 Consents of KPMG Peat Marwick LLP. (previously filed)...................................
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.1).............................
24 Powers of Attorney (contained in page II-6 to the Registration Statement)...............
</TABLE>
II-7
<PAGE>
Exhibit 5.1
[Piper & Marbury L.L.P. Letterhead]
March 29, 1996
GTS Duratek, Inc.
8955 Guilford Road, Suite 200
Columbia, Maryland 21046
Registration Statement on Form S-2 (SEC File No. 333-01805)
Dear Sirs:
We have acted as counsel for GTS Duratek, Inc., a Delaware corporation (the
"Company"), in connection with a Registration Statement on Form S-2 which was
filed by the Company under the Securities Act of 1933, as amended (the
"Registration Statement"), and the issuance of up to 3,600,000 Shares (the
"Shares") of the Common Stock, par value $.01 per share, of the Company, of
which 2,500,000 Shares are to be sold by the Company and 1,100,000 Shares are to
be sold by certain stockholders (the "Selling Stockholders") of the Company, and
up to an additional 540,000 Shares which are to be offered by the Company to
cover over-allotments, if any, pursuant to the Registration Statement.
In that capacity, we have reviewed the charter and by-laws of the Company,
the Registration Statement, the corporate action taken by the Company that
provides for the issuance or delivery of the Shares to be issued or delivered
pursuant to the Registration Statement and such other materials and matters as
we have deemed necessary for the issuance of this opinion.
Based upon the foregoing, we are of the opinion and advise you that:
1. The Shares to be sold by the Company have been duly authorized and,
upon issuance and delivery thereof as contemplated in the Registration
Statement, will be validly and legally issued, fully paid and
non-assessable.
2. The Shares to be sold by the Selling Stockholders are duly
authorized and validly and legally issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the heading "Legal Matters" in
the prospectus which is a part of the Registration Statement.
Very truly yours,
Piper & Marbury L.L.P.