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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the fiscal year ended December 31, 1998.
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from ________ to _________.
Commission File Number 0-23781
ATG INC.
(Exact name of registrant as specified in its charter)
California 94-2657762
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
47375 Fremont Boulevard
Fremont, California 94538
(Address of principal executive offices)
(510) 490-3008
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act: Common Stock, No
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days:
Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K (Paragraph 229.405 of this Chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_]
On March 12, 1999, there were issued and outstanding 14,042,333 shares of Common
Stock. The aggregate market value of Common Stock held by non-affiliates of the
Registrant on that date was approximately $84,345,000 based on the closing sale
price of the Common Stock, as reported by the NASDAQ National Market.
Documents Incorporated By Reference
Portions of the Registrant's definitive proxy statement for its 1999 Annual
Meeting of Shareholders are incorporated by reference into Part III hereof.
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PART I
Item 1. Business
Forward-Looking Information
Statements in this report concerning expectations for the future constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements are subject to a number of known and unknown risks, uncertainties and
other factors which may cause actual results, performance or achievements of the
Company or industry trends to differ materially from those expressed or implied
by such forward-looking statements. Such risks and uncertainties include,
among others, those discussed in Item I of Part I under the heading "Factors
Affecting Future Operating Results" and elsewhere in this report and those
described from time to time in the Company's other filings with the Securities
and Exchange Commission, press releases and other public communications.
General
ATG Inc. (the "Company"), founded in 1976, is a radioactive and hazardous waste
management company that offers comprehensive treatment solutions for low level
radioactive waste ("LLRW") and low level mixed waste ("LLMW") generated by the
Department of Defense ("DOD"), the Department of Energy ("DOE") and commercial
entities such as nuclear power plants, medical facilities and research
institutions. The Company's thermal treatment technologies achieve substantial
volume and mass reductions for treated waste streams while encapsulating the
non-volatile waste remains in a glass matrix (Richland, WA) or metal matrix (Oak
Ridge, TN) for final disposal. Both of these final waste forms offer intrinsic
safety and environmental benefits at competitive prices when compared to
incinerator ash or waste disposal without thermal treatment.
The Company operates through its Fixed Facilities Group, which manages its waste
treatment operations, and its Field Engineering Group, which addresses
decontamination and decommissioning ("D&D") of radioactive facilities and
environmental restoration of sites contaminated with radioactive and hazardous
waste. The synergies between the on-site remediation services of its Field
Engineering Group and the waste treatment operations of its Fixed Facilities
Group enhance the Company's ability to compete for commercial and government
LLRW and LLMW treatment contracts. The Company directs waste removed from the
field to its fixed facilities for treatment when more cost-effective for the
customer. In addition, the Company's radioactive material licenses issued by the
State of Washington with respect to its Richland facilities and the State of
Tennessee with respect to its Oak Ridge facilities include reciprocity
provisions that the Company believes allow it to thermally and non-thermally
treat radioactive waste at customer sites in all fifty states.
In December 1998, the Company acquired certain assets and business lines from
the former Molten Metal Technologies, Inc. (the "MMT Assets"). The MMT Assets
included substantially all of the operating assets, contracts, licenses and
permits associated with the wet waste treatment and catalytic extraction
processing for ion exchange resins used to clean various nuclear power plant
water streams.
The Company believes that it possesses a number of competitive advantages which
distinguish it from other radioactive and hazardous waste management companies,
including the broad and comprehensive spectrum of the services it offers, the
extensive portfolio of licenses and permits it holds or is in the process of
obtaining, the cost-efficiency and environmental integrity of its waste
treatment technologies, and its established positioning with both commercial and
government customers, as well as with U.S. federal, state and local
environmental regulators.
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Market Overview
General. The worldwide environmental services industry is diverse and
growing. This growth has been driven by extensive legislation and governmental
regulation aimed at protecting the environment and requiring responsible parties
to clean up existing environmental hazards. According to industry sources, the
overall market for environmental services, including solid waste management and
water treatment services, is approximately $190 billion a year in the United
States and $25 billion a year in Asia (excluding Japan), and is projected to
grow at an annual rate of 4% in the U.S. and 17% in Asia (excluding Japan)
through the year 2001.
The Company believes that the specific environmental services markets within
which it competes have evolved so that actual remediation and site clean-up,
including the treatment and disposal of LLRW, LLMW and hazardous waste, will
command a growing portion of environmental resources worldwide. The following
is a description of each of these types of waste and a summary of the potential
market for the services offered by the Company.
LLRW Treatment Market. Radioactive waste is categorized as either high-level
radioactive waste or low-level radioactive waste. Such waste is generated by
government facilities and by commercial enterprises such as nuclear power
plants, medical laboratories and university and industrial research and
development facilities. LLRW is all radioactive material other than high-level
radioactive waste ("HLW"). HLW 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. LLRW consists of relatively large
amounts of common industrial waste materials that have become contaminated with
small amounts of radioactivity, such as contaminated equipment, protective
clothing, paper, rags, packing material, liquids and sludge. Ion exchange resins
("IER"), used to clean various nuclear power plant water streams, result in a
form of LLRW that requires specialized handling. Through that cleaning process,
these resins accumulate significantly higher concentrations of radioactive
materials than other LLRW which, accordingly, increases their handling and
disposal costs. The Company has targeted the IER treatment market for its
SAFGLAS process and began offering thermal processing for certain resins in
early 1998. The acquisition of the MMT Assets in December 1998 moved the Company
into the leadership position for IER treatment offerings. The Company currently
is the only provider of the full range of services leading to final disposal of
used IER serving the US market. The Company has been engaged in the business of
handling, treating, storing, and disposing of LLRW since 1988. As of December
31, 1998, the Company was providing at least one of its LLRW service lines to
90% of the commercial nuclear power plants in the U.S.
The Company estimates that currently between $150 and $200 million is spent
annually in the United States on the treatment of commercial LLRW. The Company
believes that the size of the commercial LLRW treatment market in the United
States will increase significantly as the result of the LLRW required to be
treated in connection with the expected decommissioning of up to ten nuclear
power plants in the United States over the next decade. The Company also
believes that significant demand exists in the United States for the volume and
mass reduction of commercially generated LLRW, as there are at present only two
full-service disposal sites in the nation accepting such waste. These sites,
which are located in Barnwell, South Carolina and Richland, Washington, base the
disposal fees charged to customers on the volume and mass of the waste to be
disposed. The Barnwell disposal site, which currently services the majority of
commercial LLRW generators in the United States, has increased its disposal fees
by approximately 300% over the past five years. The current disposal fees at
this site are approximately $4.00 to $7.00 per pound ($400 per cubic foot),
depending upon the waste's density and activity levels. The disposal fees
charged by the Richland site are significantly lower than those charged by the
Barnwell site, but this site is only permitted to accept waste generated
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in the eleven Northwestern states. There is also a disposal facility in Clive,
Utah that also charges disposal fees significantly lower than those charged by
the Barnwell site, but it is currently permitted to accept LLRW with only small
concentrations of radioactivity. At the present time ATG is the only company
providing a full range of thermal treatment services for LLRW in the U.S. GTS
Duratek, Inc. ("Duratek") provides incineration of some LLRW (but not IER) and a
new entrant, Studvik, Inc. ("Studvik") intends to provide pyrolysis services
strictly for IER.
Significant amounts of LLRW are also generated by and stored on federal
government sites, principally the former nuclear weapon production facilities
administered by the DOE. The DOE estimates that there is in excess of 53
million cubic feet of LLRW either currently stored or expected to be generated
during the next 20 years at DOE facilities throughout the United States alone.
Of this estimated total, the DOE's Hanford and Savannah River Reservations
account for approximately 6% and 34%, respectively. The DOE also estimates that
the total treatment costs for the LLRW at these two sites alone will exceed $850
million through the year 2010.
LLMW Treatment Market. Low-level mixed waste is low-level radioactive waste
co-mingled with hazardous substances regulated by the Resource Conservation and
Recovery Act of 1976 ("RCRA") and/or toxic substances regulated by the Toxic
Substances Control Act of 1976 ("TSCA"). LLMW results from a variety of
activities, including the processing of nuclear materials used in nuclear weapon
production, nuclear energy research and the generation of nuclear energy. The
clean-up of government-generated LLMW is driven by the Federal Facilities
Compliance Act of 1992 (the "FFCA"), which requires that radioactivity-
contaminated federal facilities meet waste clean-up targets by specified dates.
For example, DOE-Hanford is required to commence non-thermal treatment of the
LLMW stored there by September 30, 1999, and thermal treatment of such waste by
December 31, 2000.
Significant quantities of untreated LLMW have accumulated in the United
States, as approved treatment solutions applicable to a broad range of such
waste streams have previously not been available. The DOE estimates that there
is in excess of 7.7 million cubic feet of LLMW either currently stored or
anticipated to be generated over the next two decades throughout the United
States at DOE facilities alone, with approximately 16% and 9% of this estimated
total allocated to the DOE's Hanford and Savannah River Reservations,
respectively. The DOE also estimates that the treatment cost for the LLMW at
these sites will exceed $580 million through the year 2010. The Company is not
aware of any reliable estimates of the existing backlog of commercially
generated LLMW awaiting treatment at generators' sites. However, according to a
survey study sponsored by the Nuclear Regulatory Commission ("NRC") and the
Environmental Protection Agency ("EPA"), approximately 140,000 cubic feet of
LLMW was commercially generated in the United States in 1990. The Company
believes that the size of the commercial LLMW treatment market in the United
States will increase significantly in connection with the expected
decommissioning of nuclear power plants in the United States over the next
decade.
The Company has developed its GASVIT vitrification system for LLMW treatment
and anticipates completing the pending licensing process for both thermal and
non-thermal LLMW treatment methods at its Richland facilities in the second
quarter of 1999. Thereafter, the Company expects to take approximately three and
eight months, respectively, to place its non-thermal and thermal treatment
processing in operation. The Company believes that its mixed waste treatment
facility will, upon completion of the pending licensing process, be the first
privately owned facility in the United States licensed to thermally and non-
thermally treat a broad spectrum of commercial and government-generated LLMW.
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Hazardous Waste Treatment Market. Hazardous waste is waste that is classified
as hazardous under RCRA and/or toxic under TSCA. The list of "hazardous
substances" covered by these laws is extensive and includes a large number of
chemicals, metals, pesticides, biological agents, toxic pollutants and other
substances. The Company to date has not attempted to penetrate the large and
highly competitive hazardous waste treatment market, except as a component of
the environmental restoration and D&D services provided by its Field Engineering
Group. Historically, the Company has processed a broad range of hazardous
substances at client sites in the execution of environmental restoration and D&D
projects.
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approvals. Consequently, the Company may have several years in which to
establish its position in this market before experiencing significant
competition.
Enhance its Ability to Compete for Large Project Contract Awards. The
Company intends to increase its participation on project teams led by large
firms when such relationships are a practical requirement to compete
successfully for large project contract awards. Increasingly, large-scale,
multi-year D&D and environmental restoration contracts, whether to be
performed domestically or overseas, require a team of companies with
complementary expertise and skills within the industry, usually led by a
large, multinational engineering or construction company. The Company
believes that its expertise in niche areas within the radioactive and
hazardous waste management industry makes it an attractive candidate for
inclusion in teams competing for such contracts. In the last three years, the
Company has been a member of teams executing DOE and DOD projects led by,
among others, Lockheed Martin, Bechtel, Morrison Knudsen, Foster Wheeler and
Jacobs Engineering.
Expand into Pacific Rim Markets. The Company intends to offer its SAFGLAS
and GASVIT vitrification technologies for local treatment of LLRW and LLMW in
selected Pacific Rim markets. The high cost of LLRW and LLMW disposal costs
in a number of Pacific Rim countries favors thermal treatment for such wastes,
while regulatory restrictions and other environmental concerns may limit
incineration as a treatment process. The Company also believes there is a
significant market for vitrification in the treatment and recycling of fly ash
resulting from incineration of municipal waste in certain Pacific Rim markets
where scarce land resources make landfill disposal of the ash uneconomical.
Vitrification of fly ash through the Company's GASVIT system will allow the
ash to be recycled for use as construction material and for other reuse
purposes. To further promote use of its technologies and to establish
strategic alliance relationships designed to accelerate penetration of these
markets, the Company has entered into exclusive technology transfer agreements
covering its technologies for Hong Kong, Taiwan and The People's Republic of
China.
Enhance On-Site Full-Service Treatment Capabilities. In order to enhance
its ability to provide in-house a full range of D&D and environmental
restoration services, including the application of vitrification treatment
technology on-site, the Company is in the process of developing smaller-scale,
transportable field applications of its GASVIT technology. The Company
believes there is a significant trend in favor of D&D and environmental
restoration contractors able to provide in-house a full range of such services
on-site, including site assessment, feasibility study preparation, remediation
design, remediation and removal actions, and thermal and non-thermal waste
treatment. The Company believes that the development of smaller-scale,
transportable GASVIT units will further distinguish it from most other
radioactive and hazardous waste management companies.
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Waste Treatment Technologies
A summary description of the Company's principal waste treatment technologies
for LLRW and LLMW is provided in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PRINCIPAL TECHNOLOGIES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Waste
Streams Nature of
Technology Treated Process Operating Status
- ---------------------------------------------------------------------------------------------------
SAFGLAS LLRW Thermal Commercial operation commenced in September
1997
- ---------------------------------------------------------------------------------------------------
GASVIT LLMW Thermal Commercial operation scheduled for early 2000
- ---------------------------------------------------------------------------------------------------
CATALYTICS IER Thermal Commercial operation commenced in 1997
- ---------------------------------------------------------------------------------------------------
WET WASTE IER De-Watering Commercially operational for over five years
SERVICES
- ---------------------------------------------------------------------------------------------------
AWPS LIQUIDS Filtration First system delivered March 1999
- ---------------------------------------------------------------------------------------------------
RVR LIQUIDS/ Thermal Commercially operational for over five years
SLUDGES
- ---------------------------------------------------------------------------------------------------
</TABLE>
The core technology employed in the SAFGLAS and GASVIT systems is vitrification.
Vitrification technologies have been successfully used in Europe for over thirty
years, principally in the area of HLW treatment and are used by the DOE
currently for HLW. The EPA has identified vitrification as the Best
Demonstrated Achievable Technology (BDAT) for the treatment of HLW, and the
Company believes that vitrification will prove to be equally effective in the
treatment of waste contaminated with lower levels of radioactivity. In
addition, the vitrification process results in significantly less effluents than
the more traditional incineration methods of waste treatment. Accordingly, the
Company believes vitrification is widely perceived as an environmentally
superior waste treatment method.
SAFGLAS-Thermal Treatment of LLRW by Vitrification. The SAFGLAS system
treats a broad spectrum of LLRW in the form of dry active wastes (protective
clothing, paper, rags, plastics, wood), low level activity resins, aqueous
based liquids and sludges, and oils, which eliminates the customer's need to
pre-sort wastes to fit the specialized capabilities of a particular waste
processor's technology. The primary unit is a Joule-heated glass melter with
a multi-zone process chamber based on a technology that has been successfully
used for over 15 years in research on hazardous waste treatment. LLRW is fed
into a closed pool of molten glass at temperatures in excess of 2000oF. The
organic constituents are destroyed and the radioactive solids are captured
within the glass, which is periodically drained for disposal. The Company
adapted the basic process to the treatment of LLRW, including devising the
systems for feed preparation, waste feeding, and effluent treatment and
monitoring. The SAFGLAS system can reduce the volume of the input waste by a
factor of up to 200 to 1 and the mass of the input waste by up to 96%. The
Company believes that the highly stable and leach-resistant nature of the
glass produced by the SAFGLAS process, as compared to incineration ash, will
be significant for waste generators concerned with the potential long-term
liabilities associated with the land disposal of LLRW.
The basic SAFGLAS system has been enhanced through the addition of a high
temperature bulk processing unit (BPU) that processes a wide range of LLRW.
The BPU exhausts into the second chamber of the basic SAFGLAS unit. The
Company therefore refers to the combination of these integrated technologies
as the SAFGLAS system. The combination of these processes is permitted to
treat approximately 24,000 pounds per day at full capacity,
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depending on the type of feedstock. The Company's license allows it to
operate SAFGLAS 24 hours a day.
GASVIT-Thermal Destruction of LLMW by Gasification/Vitrification. The
Company has acquired licensing rights to use a proprietary plasma arc
technology developed by Integrated Environmental Technologies, LLC ("IET"),
for the treatment of LLMW. The IET plasma arc technology is being integrated
with the Company's technologies to form the GASVIT system. The GASVIT system
will be used as the primary component in the Company's LLMW thermal processing
facility. Materials are fed into a process chamber where a combination of a
carbon induced plasma and joule heating at temperatures in excess of 2200oF
transforms complex organic materials into a mixture of hydrogen and carbon
monoxide that is destroyed in a subsequent flameless oxidation process. As
with the SAFGLAS system process, the end result of the GASVIT system process
is a glass material. The GASVIT system can reduce the volume of the input
waste by a factor of up to 200 to 1, and the mass of the input waste by a
factor of up to 96%. A 50 lbs./hr. prototype gasification/ vitrification
process chamber has been in operation at IET's facilities in Richland,
Washington since June, 1997. IET's process chamber is based on several
prototype units constructed and tested for the DOE, including a 100 lbs./hr.
process chamber which has been tested at the DOE's Hanford Reservation since
1996. The GASVIT system is being licensed for a total throughput of 12,000
pounds per day; however, the initial unit will provide only 50% of the
permitted capacity. The Company intends to add another unit as its capacity
needs increase.
CATALYTICS-Thermal Destruction of IER. IER with significant radionuclide
concentrations are destroyed in a patented and licensed high temperature
thermal process and the non-volatile remains are encapsulated in a metal
matrix for disposal.
WET WASTE SERVICES-Dewatering, packaging, and shielded transportation of
IER. The Company holds patent and other rights for a variety of licensed High
Integrity Containers (HICs) used to hold IER during transportation and
disposal as well as for the heavily shielded casks that are used to safely
transport IER for processing and disposal. The Company's shielded cask fleet
for IER is believed to be the largest in the country. Additionally, the
Company provides proprietary equipment and services to remove water from IER
prior to transportation and disposal to meet Department of Transportaion and
disposal site criteria achieving moisture removal levels considerably beyond
those achievable by competing technologies.
AWPS-Advanced Treatment Through Filtration. AWPS is used for the removal
of suspended and dissolved impurities from nuclear power reactor water
streams. The Company employs a variety of technologies for which it holds
either patent or licensing rights to treat a broad range of nuclear power
plant liquid waste/process streams. The Company believes the market for these
services will exceed $100 million annually as nuclear power reactor operators
focus more on their core competency areas (electricity production) and
outsource service areas.
RVR-Radioactive Volume Reduction of Liquid Wastes and Sludges. This
patented, moderate temperature, vacuum evaporation process provides a portable
and economic method for transforming radioactive liquids and sludges into dry
powders and, if desirable, recovering the water for reuse. ATG employs RVR
systems at its Tennessee facilities and at nuclear projects throughout the US.
It also sells RVR units to international power reactor operators.
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Operations and Services
The Company provides radioactive and hazardous waste management services through
two operating units, the Fixed Facilities Group and the Field Engineering Group.
Fixed Facilities Group. The core of the Company's fixed facilities
operations, situated on a 45-acre site in Richland, Washington adjacent to the
DOE's Hanford Reservation, is one of the largest commercial radioactive waste
treatment and storage centers in the United States. This facility is currently
licensed to handle, treat and store a wide variety of LLRW and the Company is in
the process of securing the licenses, permits and approvals required in order
for this facility to thermally and non-thermally treat a broad spectrum of LLMW
streams produced by both commercial and government generators. The Company also
owns a 40,000 square foot licensed facility on a seven acre site in Oak Ridge,
TN where it thermally processes IER and non-thermally processes both IER and
radioactive sludges that are not suitable for thermal processing. A third
licensed site owned by the Company is a 16 acre facility in Columbia, SC which
is used to maintain and store equipment used for wet waste field projects
throughout the US. Finally, the Company owns a four-acre facility in Fremont,
California which houses the Company's corporate offices, as well as an LLRW
storage and transfer station that supports its Richland operations. The Company
utilizes a fleet of Company-owned trucks to transport waste intra-state to or
from its Richland and Fremont facilities, and utilizes third party commercial
carriers to transport waste inter-state to or from these facilities.
LLRW Treatment Services. Since 1988, the Company has treated and recycled
several million pounds of LLRW at its Richland facilities. Since being placed
in operation in September 1997, the SAFGLAS system has processed in excess of 2
million pounds of LLRW. In addition to the DOE, DOD and other agencies of the
U.S. government, customers for the Company's LLRW treatment services include
over 90% of the nation's nuclear power plants, many major corporations, and
numerous universities, laboratories, hospitals and other research and medical
institutions.
LLMW Treatment Services. In early 1995, the Company began the licensing,
design and facility construction process for a mixed waste treatment and storage
facility to be sited at its Richland facilities. The Company is in the final
comment period for issuance of the permit and expects the permit to be issued in
the second quarter of 1999. Construction of the facility will begin upon
issuance of the permit. The Company intends to use the mixed waste facility to
treat LLMW, initially from the Hanford reservation, and subsequently from other
DOE and other U.S. government and commercial generators of LLMW. The Company
intends to thermally treat LLMW by means of its GASVIT system; when it is
uneconomical or impractical to treat LLMW by a thermal method, the Company
intends to employ a number of stabilization and encapsulation processes,
including the Company's PLASTIMELT process.
In November 1995, the DOE awarded the Company, in a competitive bidding
process, the first privatized contract to thermally treat LLMW generated by the
Hanford Reservation. This contract has a maximum value to the Company of $24
million for treating 175,000 cubic feet of waste over ten years. In addition,
the DOE awarded the Company in September 1997, in a competitive bidding process,
the first privatized contract to non-thermally treat LLMW generated by the
Hanford Reservation. This contract has a maximum value to the Company of $5
million over a three-year period commencing when the Company begins LLMW
treatment thereunder.
Field Engineering Group. The principal services provided by the Company's
Field Engineering Group are (i) D&D of nuclear power plants and other facilities
contaminated with LLRW, LLMW and hazardous waste, and (ii) environmental
restoration of sites contaminated
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with LLRW, LLMW and hazardous waste. The Company's comprehensive capabilities
include site investigation, characterization and assessment, negotiation with
regulatory agencies and procurement of required regulatory approvals,
preparation of feasibility and remedial design studies, removal and remediation
actions, construction, waste brokerage and transportation, waste treatment using
the Company's technologies on-site or at the Company's fixed facilities, and
storage of waste at the Company's fixed facilities.
Decontamination and Decommissioning Services. Historically, D&D services have
been the Company's core specialty area. The Company has been involved in D&D
projects for over a decade and currently is involved in several D&D projects for
the DOE. Customers for the Company's D&D services include nuclear power plants,
universities and other research institutions that utilize radioactive isotopes
in a variety of research projects, hospitals with radiological medicine
departments, companies employing nuclear materials in manufacturing and the DOE
and DOD, which oversee the nation's nuclear weapon production facilities.
The Company believes that there are significant near-term opportunities in
domestic D&D, particularly in the commercial D&D market, as up to ten U.S.
nuclear power plants are expected to be decommissioned over the next decade.
Based on recent studies prepared by utilities regarding the costs to
decontaminate and decommission nuclear power plants, as reported by the Nuclear
Energy Institute, a nuclear energy industry policy organization, the Company
estimates that the average total cost of decontaminating and decommissioning a
domestic nuclear power plant is approximately $300-$400 million. In addition,
there are over 5,000 radioactivity-contaminated DOD and DOE facilities, which
are scheduled to be decommissioned over the next decade.
Environmental Restoration Services. The Company has historically concentrated
on environmental removal and remediation actions at contaminated DOD sites.
There are over 420 DOD sites contaminated with LLRW or LLMW. According to the
Defense Environmental Restoration Program Annual Report to Congress for Fiscal
Year 1996, allocations for funding environmental restoration work on DOD sites
are projected to be $2 billion a year through the year 2000.
Since 1989 the Company has executed more than 200 field-engineering projects
relating to the environmental restoration of sites contaminated with LLRW, LLMW,
or hazardous waste throughout the United States and U.S. territories. In
addition, the Company is currently performing under three Total Environmental
Restoration Contracts (TERCs) with the U.S. Army Corps of Engineers, two Pre-
placed Remedial Action Contracts (PRACs) with the U.S. Army Corps of Engineers,
two Remedial Action Contracts (RACs) with the U.S. Navy and four environmental
restoration contracts with the DOE, collectively covering a 40 state area.
For its military and industrial clients, the Company executes environmental
restoration projects either on a planned or quick response basis. In the
execution of both planned and quick response environmental restoration projects
involving both LLRW and LLMW, the Company believes that it is one of only six
domestic companies having the in-house capability of providing on-site full-
service solutions from site investigation through the waste treatment stage for
D&D and environmental restoration projects involving LLRW and LLMW.
Customers
The Company's services are provided to a broad range of commercial, federal,
state and local government clients in the United States. Demand for the
Company's services and the distribution of such demand are influenced by the
level of implementation and enforcement of existing and
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new environmental regulations, funding levels for government projects and
spending patterns of commercial clients.
Primarily due to its technical expertise, extensive portfolio of environmental
licenses and permits and full-service capabilities on-site, the Company has
successfully bid on and executed a substantial number of waste treatment,
environmental restoration, D&D and other contracts with commercial customers,
the DOD, DOE and a number of other federal government agencies, as both a prime
contractor and as a subcontractor. In fiscal 1998, 1997 and 1996, the percentage
of the Company's total revenue attributable to federal contracts was
approximately 55%, 71% and 77%, respectively. One contract with the U.S. Air
Force accounted for 14% of the Company's total revenue in the year ended
December 31, 1998. One contract with the U.S. Army Corps of Engineers-Sacramento
District accounted for 21.0% of the Company's total revenue in the year ended
December 31, 1997. One contract with the U.S. Army-Fort Irwin accounted for
12.5% of the Company's total revenue in the year ended December 31,1996. A
contract with the U.S. Army-Presidio accounted for 12.0% of the Company's total
revenue in the year ended December 31, 1996. The Company also serves numerous
commercial clients, including large industrial concerns, nuclear power plants,
hospitals, laboratories and other medical institutions, and universities. A
substantial portion of the Company's commercial work represents new contracts
awarded by existing clients. No single commercial client accounted for 10% or
more of the Company's revenue in fiscal years 1998, 1997 or 1996.
Sales and Marketing
The Company relies on a direct sales and marketing staff of 10 employees, its
executive management team and project managers, and brokers and other
intermediaries, to market its waste treatment and field engineering services
nationwide and internationally. Historically, the Company relied on discrete
waste treatment projects and limited term remediation projects that typically
involved planned clean-ups of sites that were contaminated in the normal course
of manufacturing activity or quick response clean-ups of spills. The Company
now targets its marketing efforts on large, multi-year private sector and
government site-specific and term contracts in the areas of LLRW and LLMW
treatment, environmental restoration and D&D.
The Company's key marketing strategy in the waste treatment area is to focus
its resources on emerging or underserved markets in which it has technological
or licensing advantages over existing and potential competitors. The Company
intends to further develop its network of strong client relationships with
commercial customers, the DOD, the DOE, other federal government agencies,
leading domestic and foreign industrial concerns and its other most significant
clients, and with major national and multinational engineering, construction and
architectural engineering firms and other of its co-participants in teams
executing large, multi-year environmental restoration and D&D projects. The
Company believes that relationship selling is becoming increasingly important as
customers display an increasing desire for good, reliable service. Accordingly,
Company strategies include deploying operators at customer sites and increasing
the frequency and quality of customer interactions by its sales force to better
identify and resolve customer problems. The Company believes that these
strategies have been validated by the significant number of additional contracts
awarded to it by existing customers for which it previously provided significant
services, and the number of teams on which it has participated in recent years
in the execution of large, multi-year environmental restoration and D&D
projects.
The Company intends to offer its SAFGLAS and GASVIT vitrification technologies
for local treatment of LLRW and LLMW in selected Pacific Rim markets. The
Company believes that the high cost of LLRW and LLMW disposal costs in a
number of Pacific Rim countries favors thermal treatment for such wastes,
while regulatory restrictions and other environmental concerns may limit
incineration as a treatment process.
To further promote use of its technologies and to establish strategic
alliances designed to accelerate its penetration of selected Pacific Rim
markets, the Company has entered into exclusive technology transfer agreements
covering its technologies for Hong Kong, Taiwan, and The People's Republic of
China. These agreements require the Company to provide assistance
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and know-how to its alliance partners, who have the right to market the
Company's technologies in these territories. The Company will share in any
profits generated from these efforts and is also entitled to a royalty on
revenue generated by the use of its vitrification technologies in these
territories. The Company is entitled to independently pursue opportunities
within these territories if its alliance partners decline to do so, and, if
certain minimum revenue is not achieved in these territories within an agreed
upon period, the Company may terminate the agreement.
Competition
In general, the radioactive and hazardous waste management industry is highly
competitive. The Company faces varying levels of competition in its principal
current and planned business lines. The Company believes that it currently has
only one principal competitor, Duratek, for the thermal treatment of domestic
LLRW, a handful of small to mid-size competitors in the non-thermal treatment of
domestic LLRW and one competitor for thermally treating IER, Studvik, a new
market entrant. The Company is party to a non-compete agreement with Duratek
that precludes Duratek from processing IER. With respect to the domestic LLMW
treatment market, the Company believes that there are only four other companies
currently processing LLMW at their own facilities, all of which are doing so
under limited licenses which restrict them from accepting a broad spectrum of
low-level mixed waste streams. Upon completion of the pending licensing process
for its mixed waste treatment facility, the Company believes that it will
operate the first private facility in the nation licensed to thermally and non-
thermally treat a broad spectrum of LLMW streams produced by both commercial and
government generators.
The commercial LLRW disposal site in Clive, Utah recently expanded its
acceptance criteria so that it can receive waste with radioactivity levels
higher than it was previously permitted to accept, and the Company is aware that
one or more additional domestic commercial LLRW disposal sites have commenced
the licensing process. Any increase in the number of licensed commercial LLRW
disposal sites in the United States or any decrease in the disposal fees for
LLRW charged by such sites could increase the competition faced by the Company
or reduce the competitive advantage of certain of the Company's treatment
technologies.
The market for D&D and environmental restoration services is highly
competitive, with numerous companies of varying size, geographical presence and
capabilities participating. The Company believes that fewer than six of these
companies have the in-house capability of providing on-site full-service
solutions from site investigation through the waste treatment stage for D&D and
environmental restoration projects involving LLRW and LLMW.
The Company believes that the principal competitive factors applicable to all
areas of its business are price, breadth of services offered, range and breadth
of environmental licenses and permits held, reputation for customer service and
dependability, technical proficiency and environmental integrity, operational
experience, quality of working relations with federal, state and local
environmental regulators and proximity to customers and licensed waste disposal
sites. The Company believes that it is, and will continue to be, able to
compete favorably on the basis of these factors. The Company also believes that
it has several competitive advantages, including its vitrification and IER
technologies, the patents it holds, broad range of environmental services
offered, ability to provide in-house full-service environmental solutions at
customers' sites, the range and breadth of environmental licenses and permits
held and applied for, geographical positioning, and integrated technological
approach to waste treatment solutions. Many of the Company's competitors have
substantially greater managerial, technical and marketing 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 or
field service capabilities that
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are superior to or more cost effective than those of the Company. In certain
aspects of the Company's business, substantial capital resources are required
for facilities and equipment, and many of the Company's competitors have
substantially greater financial resources than the Company.
Intellectual Property
The Company regards aspects of its waste treatment technologies and know-how
as proprietary and relies primarily on a combination of trade secret and
trademark laws, employee and third party non-disclosure agreements, licenses
from owners of patents and other intellectual property rights, and other methods
to protect such technologies and know-how. The Company has received a patent for
the SAFGLAS system as incorporating a multi-zone process chamber. The Company
holds a number of patents on the thermal and non-thermal processes and equipment
it utilizes for IER processing at its Oak Ridge, TN facilities and at its
customer's sites, as well as for the HICs and shielded shipping casks used for
the transportation of IER. It also holds the licenses and permits for its
Washington and Tennessee facilities and possesses the engineering craft
knowledge required to cost-effectively operate, maintain, and enhance the
permitted status of those facilities. The Company believes that the ownership of
patents is not presently a significant factor in its business and that its
success does not depend on the ownership of patents. However, there can be no
assurance that the Company will be successful in protecting the proprietary
aspects of its technology, nor that its proprietary rights will preclude
competitors from developing waste treatment technologies equivalent or superior
to that of the Company. In addition, effective protection for the proprietary
aspects of the Company's technologies may be unavailable or limited in certain
foreign countries. While the Company is not aware that any of its waste
treatment technologies infringe the rights of any third parties, there can be no
assurance that third parties will not claim infringement by the Company with
respect to its existing or future waste treatment technologies.
The Company from time to time licenses the rights to use the intellectual
property of third parties embodied in certain subsystems of the Company's
technologies. In particular, the Company licenses certain such rights from the
owner of the patented technology embodied in the basic SAFGLAS system melter and
from IET in connection with the design, construction and use of the melter
incorporated into the GASVIT system. The former license is non-exclusive and
royalty-free, but requires the Company to pay to the owner of the patent a
license fee in the amount of $35,000 for each SAFGLAS process chamber built by
the Company during a five-year period. With respect to any melter purchased by
the Company from IET, other than the two units it has initially contracted to
purchase, the Company's license with IET requires the payment of a royalty fee
to IET in the amount of 3% of the gross revenue generated by the Company from
processing radioactive waste using a treatment system incorporating such a
melter. The Company from time to time receives letters of inquiry from the
owners of patents requesting that the Company demonstrate that the technology
licensed to the Company by third parties does not infringe such patents. The
Company routinely refers these letters of inquiry to such licensors, who are
required pursuant to the terms of their license agreements with the Company to
defend the Company against infringement claims asserted by third parties
relating to the licensed technology and to indemnify the Company against any
resulting losses. With respect to each such letter of inquiry previously
received by the Company, the Company has been advised by the licensor that, in
the judgement of the licensor, the licensed technology as used by the Company
did not infringe the subject patents.
The Company requires each of its technical and engineering 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
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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.
Environmental Laws and Regulations; Licensing Processes Applicable to LLRW and
LLMW Treatment Facilities
Environmental Laws and Regulations. Extensive and evolving environmental
protection laws and regulations have been adopted in the United States during
recent decades in response to public concern over the environment. The
operations of the Company and of the Company's customers are subject to these
evolving laws and regulations. The requirements of these laws and regulations
impose substantial potential liabilities. For example, a failure to comply with
current or future regulations could result in substantial fines, suspension of
production, alteration of manufacturing processes, cessation of operations, or
the expenditure of substantial clean-up costs. The requirements also create a
demand for many of the services offered by the Company.
The Company believes that its compliance with environmental laws and
regulations will not have a material effect on its capital expenditures,
earnings or competitive position, except with respect to capital expenditures
for environmental control facilities. The Company expects that the amount of
such expenditures required to be made in 1999, particularly in connection with
the construction of the mixed waste facility to be sited at the Company's
Richland facilities, will be material.
Under the Atomic Energy Act of 1954 (the "AEA") and the Energy Reorganization
Act of 1974, the NRC regulates the receipt, possession, use and transfer of
radioactive materials. Pursuant to its authority under the AEA, the NRC has
adopted regulations that address the management and disposal of LLRW and that
require the licensing of commercial LLRW disposal sites.
RCRA provides a comprehensive framework for regulation of the handling,
transportation, treatment, storage and disposal of hazardous waste. Strict
standards are imposed under RCRA on hazardous waste generators and transporters,
and on operators of hazardous waste treatment, storage and disposal facilities.
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 Achievable Technology
(BDAT) treatment standards, subject to certain exemptions. Under current
regulations, waste residues derived from listed hazardous wastes are generally
considered to be hazardous wastes subject to RCRA standards unless they are
delisted through a formal rulemaking process that may last for several years.
Liability under RCRA may be imposed for improper handling, transportation,
treatment, storage or disposal of hazardous wastes, or for failure to take
corrective action to address releases of hazardous wastes.
CERCLA, and subsequent amendments including the Superfund Amendments and
Reauthorization Act ("SARA"), imposes strict, joint and several liability upon
(among other parties) 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. Liability
under CERCLA may be imposed on the Company if releases of hazardous substances
occur at treatment, storage, or disposal sites used by the Company. This
liability potentially extends to off-site storage and disposal facilities used
by the Company, any LLMW treatment and storage facilities owned by the Company,
and releases at a customer's facility caused by the Company.
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Because customers of the Company also face the same type of liabilities, CERCLA
and SARA create incentives for potential customers of the Company to avoid off-
site treatment and disposal of hazardous substances in favor of on-site
treatment and recycling.
The radioactive and hazardous components of LLMW are governed by separate sets
of laws and regulations discussed above. The radioactive component is governed
by the AEA and is regulated by the DOE for waste at DOE facilities and by the
NRC for commercially generated waste. The hazardous waste component is governed
by RCRA, CERCLA, and/or TSCA, and is regulated by the EPA, and by the laws of
the individual states. The Company designs its LLMW and hazardous waste
treatment and processing systems with the goal of minimizing the potential for
release of hazardous substances into the environment. In 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 of 1970, as amended (the "Clean Air Act"), imposes strict
requirements upon owners and operators of facilities and equipment which emit
pollutants into the environment, including incinerators. Although the Company
believes that its waste treatment systems effectively trap most particulates and
generally prevent hazardous emissions from being released into the environment,
the Company is required to secure additional permits from local authorities
responsible for implementing the Clean Air Act.
TSCA provides the EPA with the authority to regulate certain commercially
produced chemical substances. TSCA also established a comprehensive regulatory
program for polychlorinated biphenyls ("PCBs") which is analogous to the RCRA
program for hazardous waste.
Other federal, state, and local environmental, health and safety requirements
may also be applicable to the Company's business. For example, the federal
Occupational Safety and Health Act imposes requirements designed to protect the
health and safety of workers, and the NRC has set regulatory standards for
worker exposure to radioactive materials. In addition, the requirements of
various other statutes, including the FFCA and the Uranium Mill Tailings
Radiation Control Act, may create opportunities for additional use of the
Company's services.
Licensing Processes Applicable to LLRW and LLMW Treatment Facilities. The
process of applying for and obtaining the licenses and permits necessary to
operate a radioactive waste treatment facility is lengthy and complex. The
basic requirement is to obtain a radioactive materials license from the state in
which the facility is to be located. The first step in this process is securing
site and land use designation approval from local authorities. Most local
authorities require a public hearing before such an approval is granted. Due to
public concern about the safety of radioactive material handling, the initial
site approval step is often the most difficult. Upon site approval, the
applicant must submit an application to the NRC or the state's nuclear
regulatory agency if the state has signed an agreement to implement the NRC's
regulations. This stage of the process may take two years or longer, and in
some cases, may result in denial of a license. If the applicant intends to use
a thermal treatment method at its site, then additional permits would be needed
from the local authorities responsible for implementing the Clean Air Act
regulations. The process for approving a thermal treatment method will
generally include public hearings, environmental assessments and numerous
interactions with regulators to resolve licensing and permitting issues.
The licensing requirements applicable to a mixed waste facility are even more
complex. In addition to the steps summarized above, the applicant must submit a
RCRA Part A and Part B
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permit application to the appropriate agencies. For processing of PCBs, a TSCA
permit from the EPA must also be obtained. In parallel with the RCRA/TSCA Part B
permitting process, the applicant must submit an application to the agencies
that issue radioactive material licenses and those that issue permits pursuant
to the Clean Air Act. Several revisions to each document submitted may have to
be made before the review process is complete and the application is granted.
From the time the initial application is filed, the mixed waste licensing and
permitting process could take as long as five years.
The Company initiated the mixed waste licensing process for its Richland
facilities in 1995 and expects to be able to commence non-thermal mixed waste
treatment there in the third quarter of 1999. In March of 1995, the Company
submitted a siting application to the Washington State Department of Ecology
("WDOE"). After conducting two different public hearings, WDOE approved the
Company's siting application in December of 1995. Immediately after procuring
this approval, the Company submitted a RCRA Part A and Part B permit application
to WDOE for an integrated waste treatment plant utilizing stabilization, macro-
encapsulation, physical extraction and other non-thermal treatment processes.
In 1996, the application was amended to include the processing of mixed wastes
using the GASVIT thermal treatment technology. A copy of the application was
also submitted to the EPA for a joint EPA/WDOE permitting process covering PCBs
under TSCA regulation. The Company presently anticipates receiving final
approval from WDOE and the EPA of its applications relating to non-thermal and
thermal treatment prior to the end of the second quarter of fiscal 1999.
In the event that the Company were to engage in the business of treating LLRW
and LLMW received from foreign generators at its fixed facilities, it would be
required to obtain a radioactive waste import permit from the NRC.
Employees
At December 31, 1998, the Company employed 319 full-time employees. To date,
the Company has been successful in attracting and retaining qualified managerial
and technical personnel, although there can be no assurance that this success
will continue.
At December 31, 1998, 50 of the Company's employees were represented by labor
unions under collective bargaining agreements. The Company cannot predict
whether any of its employees who currently are not represented by unions will
elect to be so represented in the future. The Company considers its relations
with its employees to be good and has never experienced a work stoppage or
strike.
Factors Affecting Future Operating Results
The Company's business is subject to the following risks and uncertainties, in
addition to those described elsewhere.
Dependence on Government Licenses, Permits and Approvals
The radioactive and hazardous waste management industry is highly regulated.
The Company is required to have federal, state and local governmental licenses,
permits and approvals for its waste treatment facilities and services. The
Company is currently processing its permit application for its LLMW processing
facility in Richland, WA. There can be no assurance as to the successful outcome
of any pending application by the Company for any such license, permit or
approval, and the Company's existing licenses, permits and approvals are subject
to revocation or modification under a variety of circumstances. Failure to
obtain timely, or to
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comply with the conditions of, applicable licenses, permits or approvals could
adversely affect the Company's business, financial condition and results of
operations. As its business expands and as it introduces new technologies, the
Company will be required to obtain additional operating licenses, permits or
approvals. It may be required to obtain additional operating licenses, permits
or approvals if new environmental legislation or regulations are enacted or
promulgated or existing legislation or regulations are amended, re-interpreted
or enforced differently than in the past. Any new requirements which raise
compliance standards may require the Company to modify its waste treatment
technologies to conform to more stringent regulatory requirements. There can be
no assurance that the Company will be able to continue to comply with all of the
environmental and other regulatory requirements applicable to its business.
No Assurance of Successful Development, Commercialization or Acceptance of
Technologies
The Company is in the process of developing, refining and implementing its
technologies for the treatment of LLRW, LLMW and other wastes. The Company's
future growth will be dependent in part upon the acceptance and implementation
of these technologies, particularly its recently developed vitrification
technologies for the thermal treatment of LLRW and LLMW and its recently
acquired technologies for treatment of IER waste streams. There can be no
assurance that successful development of all these technologies will occur in
the near future, or even if successfully developed, that the Company will be
able to successfully commercialize such technologies. The successful
commercialization of the Company's vitrification technologies may depend in
part on ongoing comparisons with other competing technologies and more
traditional treatment, storage and disposal alternatives, as well as the
continuing high cost and limited availability of commercial disposal options.
There can be no assurance that the Company's vitrification and related
technologies will prove to be commercially viable or cost-effective, or if
commercially viable and cost-effective, that the Company will be successful in
timely securing the requisite regulatory licenses, permits and approvals for
such technologies or that such technologies will be selected for use in future
waste treatment projects. The Company's LLMW thermal treatment contract with
the DOE's-Hanford Reservation requires the Company to obtain all of the
required licenses, permits and approvals for, and to build and place in
operation, its LLMW treatment facility by November 10, 2000. The Company's
inability to develop, commercialize or secure the requisite licenses, permits
and approvals for its waste treatment technologies on a timely basis could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Dependence on Environmental Laws and Regulations
A substantial portion of the Company's revenue is generated as a result of
requirements arising under federal and state laws, regulations and programs
related to protection of the environment. 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 such
laws and regulations also affect the demand for such services. If the
requirements of compliance with environmental laws and regulations were to be
modified in the future, particularly those relating to the transportation,
treatment, storage or disposal of LLRW, LLMW or other wastes, the demand for the
Company's services, and its business, financial condition and results of
operations, could be materially adversely affected.
Dependence on Federal Government; Limits on Government Spending; Government
Contracting
The Company expects that the percentage of its revenue attributable to federal
government contracts will continue to be substantial for the foreseeable future.
The Company's government
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contracts generally are subject to cancellation, delay or modification at the
sole option of the government at any time, to annual funding limitations and
public sector budget constraints and, in many cases, to actual delivery orders
being released.
The Company is dependent on government appropriations to fund many of its
contracts. Efforts to reduce the federal budget deficit could adversely affect
the availability and timing of government funding for the clean-up of DOE, DOD
and other federal government sites. The failure by the government to fund
future restoration of such sites could have an adverse effect on the Company's
business, financial condition and results of operations.
As a provider of services to federal and other government agencies, the
Company also faces risks associated with government contracting, which include
substantial fines and penalties for, among other matters, failure to follow
procurement integrity and bidding rules and employing improper billing practices
or otherwise failing to follow prescribed cost accounting standards. Government
contracting requirements are complex, highly technical and subject to varying
interpretations. As a result of its government contracting business, the
Company has been, and expects to be in the future, the subject of audits, and
may in the future be subject to investigations, by government agencies. Failure
to comply with the terms of one or more of its government contracts could result
in damage to the Company's business reputation and the Company's suspension or
disqualification from future government contract projects for a significant
period of time. The fines and penalties which could result from noncompliance
with applicable standards and regulations, or the Company's suspension or
disqualification, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Need for Additional Capital
The Company believes that it will need additional capital in order to
implement its long-term business plan. In particular, the Company will need
approximately $20 million to finance the construction of the LLMW facility in
Richland, WA. The Company is presently considering tax exempt industrial
development bond financing for this facility. There can be no assurance that
the Company will be successful in raising the requisite amount of capital when
needed, or, that if successful, the terms of the financing will be favorable to
the Company. If the Company is not successful in raising such additional
capital, it will need to curtail or scale back its planned expansion, which
could adversely affect the Company's business, financial condition and results
of operations.
Seasonality and Fluctuation in Quarterly Results
The Company's revenue is dependent on its contract backlog and the timing and
performance requirements of each contract. Revenue in the first and second
quarters has historically been lower than in the third and fourth quarters, as
the Company's customers have tended to ship waste during the months in which
transportation is less likely to be adversely affected by weather conditions.
The Company's revenue is also affected by the timing of its clients' planned
remediation activities and need for waste treatment services, which generally
increase during the third and fourth quarters. Due to this variation in demand,
the Company's quarterly results fluctuate. Accordingly, specific quarterly or
interim results should not be considered indicative of results to be expected
for any future quarter or for the full year. Due to the foregoing factors, it
is possible that in future quarters, the Company's operating results will not
meet the expectations of securities analysts and investors. In such event, the
price of the Common Stock could be materially adversely affected.
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Management of Growth
Since 1994, the Company has experienced significant growth, attributable in
large part to an increase in the number and size of contracts awarded. Also, in
December 1998 the Company acquired new business lines that are anticipated to
contribute to increased growth in 1999 and beyond. The Company is currently
pursuing a business plan intended to further expand its business domestically
and internationally. The Company's historical growth has placed, and any future
growth may place, significant demands on its operational, managerial and
financial resources. There can be no assurance that the Company's current
management and systems will be adequate to address any future expansion of the
Company's business. In such event, any inability to manage the Company's growth
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations.
Equipment Performance; Safety and License Violations
The Company's ability to perform under current waste treatment contracts and
to successfully bid for future contracts is dependent upon the consistent
performance of its waste treatment systems at its fixed facilities in conformity
with safety and other requirements of the licenses under which the Company
operates. The Company's fixed facilities are subject to frequent routine
inspections by the regulatory authorities issuing such licenses. The Company
has experienced shut downs of its facilities for short periods of time in the
past. In the event that any of the Company's principal waste treatment systems
were to be shut down for any appreciable period of time, either due to equipment
breakdown or as the result of regulatory action in response to an alleged safety
or other violation of the terms of the licenses under which the Company
operates, the Company's business, financial condition and results of operations
could be materially adversely affected.
Competition
In general, the market for radioactive and hazardous waste management services
is highly competitive. The Company faces competition in its principal current
and planned business lines from both established domestic companies and foreign
companies attempting to introduce European waste treatment technologies into the
United States. Many of the Company's competitors have greater financial,
managerial, technical and marketing resources than the Company. To the extent
that competitors possess or develop superior or more cost-effective waste
treatment solutions or field service capabilities, or otherwise possess or
acquire competitive advantages compared to the Company, the Company's ability to
compete effectively could be materially adversely affected. Any increase in the
number of licensed commercial LLRW treatment facilities or disposal sites in the
United States or any decrease in the treatment or disposal fees charged by such
facilities or sites could increase the competition faced by the Company or
reduce the competitive advantage of certain of the Company's treatment
technologies.
International Expansion
A key component of the Company's long-term business plan is to expand its
business into selected Pacific Rim markets. There can be no assurance that the
Company or its strategic alliance partners will be able to market its
technologies or services successfully in foreign markets. In addition, there are
certain risks inherent in foreign operations, including general economic
conditions in each country, varying regulations applicable to the Company's
business, seasonal reductions in business activities, fluctuations in foreign
currencies or the U.S. Dollar, expropriation, nationalization, war,
insurrection, terrorism and other political risks, the overlap of
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different tax structures, risks of increases in taxes, tariffs and other
governmental fees and involuntary renegotiation of contracts with foreign
governments. In particular, recent economic instability in certain Pacific Rim
countries could substantially impede the Company's targeted expansion into that
region. In such event, the Company's business, financial condition and results
of operations could be materially adversely affected. There can be no assurance
that laws or administrative practices relating to taxation, foreign exchange or
other matters of foreign countries within which the Company operates or will
operate will not change. Any such change could have a material adverse effect on
the Company's business, financial condition and results of operations.
Dependence on Key Personnel
The Company's future success depends on its continuing ability to attract,
retain and motivate highly qualified managerial, technical and marketing
personnel. The Company is highly dependent upon the continuing contributions
of its key managerial, technical and marketing personnel. The Company's
employees may voluntarily terminate their employment with the Company at any
time, and competition for qualified technical personnel, in particular, is
intense. The loss of the services of any of the Company's managerial, technical
or marketing personnel could materially adversely affect the Company's business,
financial condition and results of operations.
Focus on Larger Projects
The Company increasingly pursues large, multi-year contracts as a method of
achieving more predictable revenue, more consistent utilization of equipment and
personnel, and greater leverage of sales and marketing costs. These larger
projects impose significant risks if actual costs are higher than those
estimated at the time of bid. A loss on one or more of such larger contracts
could have a material adverse effect on the business, financial condition and
results of operations of the Company. In addition, failure to obtain, or delay
in obtaining, targeted large, multi-year contracts could result in significantly
less revenue to the Company than anticipated.
Item 2. Properties
The Company's principal properties, all of which are owned by the Company, are
located in Richland, Wash., Fremont, Calif., Oak Ridge, Tenn., Columbia, S.C.
and Aiken, S.C., and occupy 45, four, seven, 16, and 30 acres, respectively.
The facilities sited on the Richland property presently consist of 13 buildings,
covering an area of approximately 100,000 square feet, devoted to the Company's
existing LLRW and future LLMW treatment operations. The Company presently plans
to construct two additional buildings on this site of approximately 14,000
square feet in aggregate. The facilities sited on the Fremont property consist
of a 40,000 square foot corporate office building and LLRW storage area. The
facilities cited on the Oak Ridge property consist of a 40,000 square foot
building devoted to LLRW resin treatment operations and several modular office
buildings. The Columbia property includes a 10,000 square foot building and is
principally used for storage and maintenance of equipment used in wet waste
treatment. The Company's Aiken property has not been developed to date.
In addition, the Company leases an approximately 1,200 square foot project
management office in Honolulu, Hawaii, and two approximately 4,000 square foot
project management offices in Oak Ridge, Tennessee. The Honolulu lease expires
in June 2000 and the Oak Ridge leases expire in August 1999 with three one-year
extensions available.
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The Company's Fremont property is encumbered by a deed of trust (the "First
Deed of Trust") securing the performance of the Company under a $1.5 million
Promissory Note held by Midland Loan Services. The First Deed of Trust provides
for an interest rate of 9.5% per annum, a maturity date of December 2001,
monthly payments of principal and interest of $13,736 and a balloon payment at
maturity. At December 31, 1998, the principal amount secured by the First Deed
of Trust was approximately $1,403,000.
The Company's Fremont property is also encumbered by a second deed of trust
(the "Second Deed of Trust") securing the performance of the Company under a
$400,000 Term Loan Agreement with Sanwa Bank California. The Term Loan
Agreement provides for a variable annual interest rate of prime plus 1.75%, a
maturity date of September 30, 2002, and monthly payments of principal and
interest of $6,667. At December 31, 1998, the principal amount secured by the
Second Deed of Trust was approximately $300,000.
The Company's Richland property is encumbered by a deed of trust (the
"Richland Deed of Trust") securing the payment by the Company of a $750,000
Promissory Note held by West One Bank (the "West One Note"). The West One Note
provides for an interest rate of 8.75% during the first 42 months and an
interest rate of prime plus 2.75% (with a ceiling of 12% and a floor of 5.5%)
during the final 42 months until maturity. At December 31, 1998, the principal
balance secured by the Richland Deed of Trust was approximately $224,000. There
are no encumbrances on the Company's Oak Ridge, Tennessee or Columbia or Aiken,
South Carolina properties.
The Company believes that its existing and planned facilities will support its
operations for the foreseeable future and are adequately covered by insurance.
Item 3. Legal Proceedings
In June 1992, the Company entered into a contract with the U.S. Army under
which the Company acted as the prime contractor to "surface clear" expended
ordnance from a firing range at Fort Irwin, California (the "Fort Irwin
Contract"). In March 1997, a piece of ordnance exploded on the premises of a
scrap metal dealer (the "Scrap Dealer") in Fontana, California. An employee of
the Scrap Dealer died in the accident. Although the Scrap Dealer had purchased
expended ordnance and other military scrap metal from a number of military
facilities, including Fort Irwin, the Scrap Dealer indicated that the ordnance
which exploded was purchased from Fort Irwin. The U.S. Army contended that a
subcontractor to the Company on the Fort Irwin Contract (the "Subcontractor")
had improperly certified ordnance cleared from the Fort Irwin firing range as
free of hazardous and explosive material prior to the sale of such ordnance to
the Scrap Dealer. As a result, the U.S. Army terminated the Fort Irwin Contract
for default, and demanded repayment from the Company of alleged reprocurement
costs totaling $945,000. The Company believes it fully complied with the terms
of the Fort Irwin Contract and applicable laws and regulations and challenged
the default termination in an action against the U.S. Army filed in the Court of
Federal Claims in July 1997. In July 1998, the U.S. Army and the Company
settled the matter. The termination for default was rescinded and the Company
agreed to no longer bid on surface-cleaning work at active U.S. Army firing
ranges.
In connection with the accident, in March 1998 a wrongful death civil action
was filed in San Bernardino County Superior Court against the Subcontractor, a
supervisory employee of the Subcontractor, the owners of the premises occupied
by the Scrap Dealer, and the Company, seeking damages in excess of $8 million,
including exemplary damages of $5 million. A second action was filed at the
same time in San Bernardino County Superior Court against the same defendants by
three other persons alleging physical injuries and emotional distress caused by
the accident. The Company has tendered the defense of each of these actions to
its insurance carrier, which is presently handling the matters for the Company,
and the Company intends to vigorously
21
<PAGE>
contest all of the claims asserted in these actions. The Company believes that
it acted properly with respect to the Fort Irwin Contract, and that it should
not be liable for the injuries caused by the accident. The Company also intends
to seek indemnification from the Subcontractor for the full amount of any costs,
damages and liabilities which may be incurred by the Company in connection with
or as a result of these lawsuits. The Subcontractor has advised the Company that
the Subcontractor's comprehensive general liability insurance policy covers the
claims asserted against the Subcontractor, and that the policy coverage limit is
$7 million per occurrence. Although the Company believes that all of the claims
asserted against the Company are without legal merit, the outcome of these
lawsuits is uncertain. Any judgment of liability against the Company, especially
to the extent damages exceed or are not covered by insurance or are not
recoverable by the Company from the Subcontractor, could have a material adverse
effect on the Company's business, financial condition and results of operations.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of shareholders during the fourth quarter of
the Company's 1998 fiscal year.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters
The Common Stock of the Company is traded on the NASDAQ National Market under
the symbol "ATGC." The following table sets forth, for the periods indicated,
the high and low sales prices of the Common Stock (as reported by NASDAQ):
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
May 7, 1998 to June 30, 1998 10 7 1/4
Third Quarter 1998 8 7/8 5
Fourth Quarter 1998 8 1/2 4 5/8
</TABLE>
As of February 28, 1999, there were over 1,400 holders of record of the
Company's Common Stock. The Company has never declared or paid a cash dividend
on its Common Stock and is at present restricted from paying any such dividends
by the terms of its existing line of credit facility. The Company currently
intends to retain earnings to finance the growth and development of its business
and does not anticipate paying dividends in the foreseeable future.
22
<PAGE>
Item 6. Selected Consolidated Financial Data (In Thousands, Except Per Share
Data)
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data (1):
Revenue.................................................. $35,900 $19,107 $18,235 $16,070 $11,723
Cost of revenue.......................................... 19,816 11,172 11,082 9,659 7,194
------- ------- ------- ------- -------
Gross profit............................................. 16,084 7,935 7,153 6,411 4,529
Sales, general and administrative expenses............... 7,952 7,020 6,656 6,202 4,876
------- ------- ------- ------- -------
Operating income (loss).................................. 8,132 915 497 209 (347)
Interest income (expense), net........................... 173 58 13 (141) (19)
------- ------- ------- ------- -------
Income (loss) before income taxes........................ 8,305 973 510 68 (366)
Income tax expense (benefit)............................. 3,156 (45) 2 2 (2)
------- ------- ------- ------- -------
Net income (loss)........................................ $ 5,149 $ 1,018 $ 508 $ 66 $ (364)
======= ======= ======= ======= =======
Net income per share (2)
Basic.................................................. $ 0.40 $ 0.09
Diluted................................................ $ 0.38 $ 0.08
Weighted average shares outstanding (2)
Basic.................................................. 12,975 11,516
Diluted................................................ 13,698 12,284
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data: (1)
Working capital.......................................... $ 1,645 $ (151) $ 4,333 $ 3,903 $ 2,359
Total assets............................................. 79,569 37,227 26,976 21,182 15,699
Total long-term debt..................................... 11,246 6,202 2,930 4,080 4,007
Mandatorily redeemable preferred stock................... --- 19,416 16,319 9,403 5,444
Total shareholder's equity............................... 40,745 296 630 890 1,491
</TABLE>
- -----------------------------------
(1) See Note 3 of Notes to Consolidated Financial Statements for a discussion
of the acquisition of significant assets and businesses. The acquisition
was completed on December 1, 1998.
(2) See Note 2 of Notes to Consolidated Financial Statements--Computation of
Net Income Per Share. Historic net income (loss) per share and net income
(loss) available to common shareholders have not been presented in
Statement of Operations Data since such amounts are not deemed meaningful
due to the automatic conversion immediately prior to the closing of the
initial public offering of the Company's Common Stock in May 1998 of all
shares of preferred stock issued by the Company and ATG Richland
Corporation, a subsidiary of the Company. Historic net income (loss) per
share for the fiscal years ended December 31, 1994, 1995, 1996 and 1997 was
$(0.10), $(0.10), $(0.10) and $(0.06), respectively. Net income (loss)
available to common shareholders for the fiscal years ended December 31,
1994, 1995, 1996 and 1997 was $(730), $(770), $(780) and $(451),
respectively.
23
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Overview
The Company is a radioactive and hazardous waste management company that
offers comprehensive treatment solutions for LLRW, LLMW and other waste
generated by the DOD, DOE and commercial entities such as nuclear power plants,
medical facilities and research institutions. The Company principally derives
its revenue from the waste treatment operations of its Fixed Facilities Group
and the on-site remediation services of its Field Engineering Group.
The U.S. government represented approximately 55%, 71% and 77% of the
Company's total revenue for the years 1998, 1997 and 1996, respectively. Revenue
from commercial entities, primarily nuclear power plants, industrial concerns
and medical and research institutions has increased in recent years and is
expected to represent an increasing portion of the Company's business. Revenue
from waste treatment processing is generally recognized upon the substantial
completion of the waste treatment process. Field engineering services are
provided under fixed price, cost plus or unit price contracts. Revenue from
fixed price and cost plus contracts is recognized utilizing the percentage of
completion method of accounting; revenue from unit price contracts is
recognized as the units are processed and completed. Revenue also includes non-
refundable fees received under the terms of technology transfer agreements.
Gross profit percentages reflect the mix of the Company's business, which
varies from time to time. Gross profit margins are generally higher for
technology transfer agreements involving up-front, non-refundable, licensing
fees payable to the Company, and due to the extensive expertise the Company has
developed in this area, when the Company is processing radioactive waste, while
margins on nonradioactive waste projects generally are lower. The Company has
focused a significant portion of its business on SAFGLAS vitrification of LLRW
in 1998 and intends to focus on its newly acquired Tennessee business interests
and LLMW processing in 1999. During 1997 the Company entered into two technology
transfer agreements with licensees in selected Asian territories and intends to
continue to seek additional such licensing arrangements as appropriate
opportunities arise.
The Company operates its fixed facilities under regulation of, and licenses
and permits issued by, various federal, state and local agencies. There can be
no assurance as to the successful outcome of any pending licensing and
permitting efforts. The licensing and permitting process is subject to
regulatory approval, time delays, community opposition and potentially stricter
governmental regulation. The Company's inability to obtain licenses or permits
on a timely basis, delays or changes in facility construction programs or the
cancellation of pending projects could have a material adverse effect on the
Company's financial position and results of operations.
The Company has historically relied upon the integration of proven
technologies with the Company's know-how and processes, and has not incurred
significant levels of research and development spending. Most of the research
and development activities conducted to date have related to the design and
construction of its fixed operating facilities, particularly in connection with
the SAFGLAS system. The Company anticipates that its research and development
efforts will continue to be moderate and that the costs associated with future
research and development will not be material to the Company's results of
operations.
24
<PAGE>
The Company increasingly pursues multi-year and longer term contracts as a
method of achieving more predictable revenue, more consistent utilization of
equipment and personnel, and greater leverage of sales and marketing costs. The
Company currently focuses on large, multi-year site-specific and term contracts
in the areas of LLRW and LLMW treatment, environmental restoration and D&D, and
has in recent years been awarded a number of large government term contracts
which, in most cases, require several years to complete. These government term
contracts are subject to cancellation, delay or modification at the sole option
of the government at any time, to annual funding limitations and public sector
budget constraints and, in many cases, to actual delivery orders being released.
Such projects, which may create an opportunity for the Company to realize
margins higher than on other types of contracts, also impose heightened risks of
loss if, for example, actual costs are higher than those estimated at the time
of bid. A loss on one or more of such larger contracts could have a material
adverse effect on the Company's financial condition and results of operations.
In addition, failure to obtain, or delay in obtaining, targeted large, multi-
year contracts could result in significantly less revenue to the Company than
anticipated.
Results of Operations
The following table sets forth certain statement of operations data as a
percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
---------------- ------------- -----------
<S> <C> <C> <C>
Revenue............................................ 100.0% 100.0% 100.0%
Cost of revenue.................................... 55.2 58.5 60.8
----- ----- -----
Gross profit....................................... 44.8 41.5 39.2
Sales, general and administrative expenses......... 22.2 36.7 36.5
----- ----- -----
Operating income................................... 22.6 4.8 2.7
Interest income , net.............................. 0.5 0.3 0.1
(Provision) benefit for income taxes............... (8.8) 0.2 --
----- ----- -----
Net income......................................... 14.3% 5.3% 2.8%
===== ===== =====
</TABLE>
Comparison of Years Ended December 31, 1998 and 1997
Revenue. Revenue for 1998 was $35.9 million, an increase of $16.8 million,
or 87.9%, compared to $19.1 million in 1997. The growth in revenue is
principally due to the increasing commercial utilization of the Company's
SAFGLAS thermal treatment system. The SAFGLAS system began treating customer
waste streams in late 1997 and there has been a steady increase in the volume
being processed. At the end of 1997, the Company had general service agreements
in place with only four nuclear power reactors, a key target customer for the
SAFGLAS technology. By the fourth quarter of 1998, customer service agreements
were in place with over 50 nuclear power reactors. With the acquisition of new
business lines in Oak Ridge, Tennessee, the number of such reactors utilizing at
least one of the Company's technologies has increased to over 90 at December 31,
1998. In addition to the increase in waste for thermal treatment utilizing
SAFGLAS, these same customers are sending the Company increasing volumes of
waste to be treated through non-thermal means.
In addition to SAFGLAS related revenue increases, the Company's revenue
from field engineering services grew by approximately 30% as a result of several
large awards from DOD and DOE customers. One contract with the U.S. Air Force
accounted for 14% of the Company's total revenue in the year ended December 31,
1998. Finally, approximately 7% of the revenue for 1998 resulted from the new
business
25
<PAGE>
acquired for the processing of IER waste streams.
Gross Profit. Gross profit for 1998 was $16.1 million, an increase of $8.1
million, or 102.7%, compared to $7.9 million for 1997. Gross profit as a
percentage of revenue increased to 44.8% in 1998 compared to 41.5% in 1997.
Gross profit percentages reflect the various mixes of the Company's business
services from time to time. Gross profit margins are generally higher,
reflecting its extensive expertise and operating efficiencies, when the Company
is processing radioactive waste, while margins on non-radioactive waste projects
generally are lower. The fixed facility operations, such as SAFGLAS, have a
larger percentage of fixed costs versus variable costs, so increases in
utilization, such as occurred in 1998, favorably impact gross profit realized.
Sales, General and Administrative Expenses. Sales, general and
administrative expenses (including stock-based compensation expense) were $8.0
million for 1998, an increase of $0.9 million, or 13.3%, compared to $7.0
million in 1997. Sales, general and administrative expenses were 22.2% of
revenue in 1998, compared to 36.7% of revenue in 1997. The increase in spending
from year to year reflects the growth in the Company's operations, addition of
sales personnel and the increased costs of being a public company, offset by
increased absorption of indirect engineering and operating overhead. The overall
decrease as a percentage of revenue is attributable to the Company's effort to
maintain a level of costs that does not increase at the same rate as revenue.
Sales, general and administrative expenses include indirect engineering and
operating overhead, depreciation and amortization, and expenses to support the
domestic sales and marketing activities and the financial and administrative
functions of the Company.
Interest Income and Interest Expense. Interest income was $188,000 in
1998, compared to $58,000 in 1997. The increase in interest income is directly
related to the investment of the proceeds from the Company's initial public
offering completed in May 1998. Interest expense was nil in 1998 as the result
of the Company capitalizing approximately $1.0 million of interest on
construction in progress in accordance with generally accepted accounting
principles.
Provision for Income Taxes. In 1998, the Company provided for income taxes
at a combined federal and state effective tax rate of 38%. In prior years the
Company realized the benefit of net operating loss carry forwards. All net
operating loss carry forwards were fully recognized by the end of 1997.
Comparison of Years Ended December 31, 1997 and 1996
Revenue. Revenue for 1997 was $19.1 million, an increase of $0.9 million, or
4.8%, compared to $18.2 million in 1996. The growth in revenue resulted from a
change in mix of the business services and the receipt of fees for technology
transfer agreements. Revenue from waste treatment services was $9.6 million in
1997 compared to $8.9 million in 1996. Revenue from field engineering services
was $9.5 million in 1997 compared to $9.3 million in 1996. During 1997 the
Company entered into two technology transfer agreements (with total 1997 revenue
of approximately $2.0 million derived from up-front, non-refundable, licensing
fees) that provided for the transfer of rights to the processes and technology
of the Company on an exclusive basis in selected Asian territories. Revenue
from various agencies of the U.S. government accounted for approximately 71% and
77% of total revenue in 1997 and 1996, respectively. One contract with an
agency of the U.S. government accounted for approximately 21% of the Company's
total revenue for 1997. Two contracts with agencies of the U.S. government
accounted for 12.5% and 12%, respectively, of the Company's total revenue for
1996.
26
<PAGE>
Gross Profit. Gross profit for 1997 was $7.9 million, an increase of $0.7
million, or 10.9%, compared to $7.2 million for 1996. Gross profit as a
percentage of revenue increased to 41.5% in 1997 compared to 39.2% in 1996.
Gross profit percentages reflect the various mixes of the Company's business
services from time to time. Gross profit in 1997 includes the effect of the
technology transfer licensing fee revenue. Gross profit margins are generally
higher for technology transfer agreements and, due to the extensive expertise
the Company has developed in this area, when the Company is processing
radioactive waste, while margins on nonradioactive waste projects are generally
lower.
Sales, General and Administrative Expenses. Sales, general and administrative
expenses (including stock-based compensation expense) were $7.0 million for
1997, an increase of $0.3 million, or 5.5%, compared to $6.7 million in 1996.
Sales, general and administrative expenses were 36.7% of revenue in 1997
compared to 36.5% of revenue in 1996. The overall increase as a percentage of
revenue is attributable to the Company's hiring in 1997 of senior management
personnel to support the Company's future growth.
Interest Income and Interest Expense. Interest income was $58,000 in 1997
compared to $142,000 in 1996. The decrease in interest income is attributable
to a lower overall average of cash available for investment in 1997. In 1996
the Company sold $5.9 million of preferred stock and invested the net proceeds
in interest bearing accounts until they were needed for capital expenditures and
working capital. In 1997 the Company sold $1.7 million in additional preferred
stock. Interest expense was nil in 1997 as the result of the Company
capitalizing $891,000 of interest on construction in progress in accordance with
generally accepted accounting principles. Interest expense in 1996 was
$129,000, which was net of $446,000 of interest capitalized on construction in
progress.
Liquidity and Capital Resources
In May 1998, the Company completed an initial public offering of 1,900,000
shares of common stock and in June 1998, sold an additional 285,000 shares of
common stock at $8.50 per share. The net proceeds of the offering were
approximately $15.7 million. Approximately $4.0 million of the proceeds were
used to pay off bank lines of credit. The balance of the proceeds have been used
to acquire property and equipment.
Total cash and cash equivalents were $3.8 million at December 31, 1998, an
increase of $1.2 million from December 31, 1997. The working capital of the
Company was approximately $1.6 million at December 31, 1998, an increase of $1.8
million from December 31, 1997. The increases are attributable to the proceeds
of the initial public offering and cash flow from operations, net of cash used
for acquisition of property and equipment.
Significant outlays of cash have been needed to acquire property and
equipment and to secure or expand regulatory licenses, permits and approvals,
primarily for the Company's fixed facilities operations in Richland, Washington
and, in December 1998, for the acquisition of the MMT Assets. Property and
equipment acquisitions totaled $5.0 million, $7.8 million and $4.6 million for
the years ended December 31, 1998, 1997 and 1996, respectively. In addition, the
Company used approximately $10.7 million of cash to acquire the MMT Assets. The
Company anticipates spending in excess of $20 million to construct a mixed waste
treatment facility beginning in 1999. The Company has already invested
approximately $4 million in the design and permitting of this facility. The
Company has applied and been approved for the issuance of an industrial
development bond in the State of Washington to finance this construction. The
bond is expected to qualify as a tax exempt bond and the offering is expected to
be completed in the second quarter of 1999.
27
<PAGE>
The Company has a bank line of credit that provides for $9.5 million of
available borrowings, including a $3.0 million sub-limit for letters of credit.
Borrowings under this credit agreement were $6.8 million at December 31, 1998,
bear interest equal to the bank's reference rate (7.75% at December 31, 1998)
and are collateralized by accounts receivable, inventory and equipment.
The Company utilized a significant amount of cash and line of credit
borrowings to finance the acquisition of the MMT Assets. The Company plans to
re-finance this acquisition with term notes at current market rates for long
term financing. The Company believes that its current cash and cash equivalents,
together with its credit facility, cash generated from operations, and re-
financing of the MMT Assets will be sufficient to meet the Company's working
capital requirements for the next 12 months. Depending on its rate of growth and
profitability, the Company may require additional equity or debt financing to
meet its future working capital or capital expenditure needs and it will require
additional equity or debt financing to construct its mixed waste facility. There
can be no assurance that such additional financing will be available or, if
available, that such financing can be obtained on terms satisfactory to the
Company.
Year 2000 Impact
The year 2000 (Y2K) computer issue relates to computer software that
utilizes a two-digit field versus a four-digit field for the calendar year
identification. Unless corrected, some computer programs and the systems that
are dependent upon these programs may be unable to function properly after
December 31, 1999. An uncorrected condition could subject the Company to
potentially significant legal liabilities, although the Company currently has no
reason to believe that these consequences are likely to ensue.
The Company is not highly dependent on internal computer systems, and does
not, as a general matter, interact electronically with its customers or
suppliers. The Company has been reviewing and is continuing to review and
update its existing software programs and interfaces for Y2K compliance.
Substantially all of the Company's software is provided by third party suppliers
and the Company has been upgrading to Y2K compliant versions of this software.
To date the costs for upgrading to Y2K compliant systems has been less than
$100,000 and the costs to complete this effort are expected to be less than an
additional $100,000. The final upgrades are currently expected to be implemented
in the second quarter of 1999 and undergo testing thereafter. The Company
believes that, as a result of these measures, its systems will be substantially
compliant by the year 2000. If there continue to be deficiencies after testing,
the Company believes it will be able to conduct its business without significant
interruption using already compliant systems.
The Company has been surveying and is continuing to survey its major
service providers as to their Y2K readiness. Responses to date indicate
substantial compliance by such providers with ongoing programs in effect.
The cost associated with upgrading internal systems to more current
versions of vendor supplied software have not been material to date. The
Company believes that it is unlikely to experience a material adverse impact on
its financial condition or results of operations due to Y2K compliance issues.
Since the Y2K updating is still ongoing, the full range of potential
complications and the full potential impact of the Y2K issue on the Company's
business, operations and financial condition is not known at this time.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company considered the provisions of Financial Reporting Release No. 48
"Disclosure about Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Qualitative Information
about Market Risk Inherent in Derivative Financial Instruments, Other Financial
Instruments and Derivative Commodity Instruments". The Company had no derivative
financial or commodity instruments at December 31, 1998. The Company's line of
credit has an interest rate based on the bank's reference rate that may
fluctuate over time based on changes in the economic environment. The company is
subject to interest rate risk, and could be subjected to increased interest
payments if market interest rates fluctuate. An effective increase or decrease
of 10% in such interest rates would not have a material adverse effect on the
Company's results of operations.
28
<PAGE>
Item 8. Consolidated Financial Statements And Supplementary Data
See pages 31 through 48.
Item 9. Changes In And Disagreements With Accountants On Accounting
And Financial Disclosure
None.
PART III
Item 10. Directors And Executive Officers Of The Registrant
The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Doreen M. Chiu.................. 45 Chairman of the Board, President and Chief Executive Officer
Frank Y. Chiu................... 45 Executive Vice-President and Director
William M. Hewitt............... 52 President--Waste Management Services and Director
Steven J. Guerrettaz............ 53 Chief Financial Officer and Director
Fred Feizollahi................. 53 Vice-President--Technology and Engineering
Eric C. Su...................... 38 Vice-President--Marketing and Planning
</TABLE>
Doreen M. Chiu has served as President, Chief Executive Officer and Chairman
of the Board since joining the Company in 1984. Prior to joining the Company,
Ms. Chiu owned her own certified public accounting firm. Ms. Chiu is a
California CPA and holds a Bachelor of Arts degree in Business Administration
from the University of Wisconsin. Ms. Chiu is the wife of Frank Chiu.
Frank Y. Chiu joined the Company in 1980 as Financial Controller, became Vice-
President and a director of the Company in 1984, and became Executive Vice-
President in 1992. Mr. Chiu holds a Bachelor of Arts degree in Business
Administration and a Master's degree in Business Administration from the
University of Wisconsin. Mr. Chiu is the husband of Doreen Chiu.
William M. Hewitt joined the Company in April 1997 as President--Waste
Management Services. Mr. Hewitt has over 26 years of domestic and international
professional management experience, primarily in the waste minimization and
environmental fields. From 1994 until joining the Company, Mr. Hewitt was the
President of Hewitt Management Services, Inc., a consulting firm providing
strategic planning and other business advice in the areas of pollution
prevention, waste minimization and strategic environmental management. During
this period, Mr. Hewitt also served as a Group President of Philip Environmental
Services Companies, in which capacity he designed and implemented the strategic,
organizational and marketing approach for integrating that group of companies.
From 1990 to 1994, he held a number of positions with companies in the WMX
Technologies Affiliates group, including Vice-President, Strategic Planning, of
Rust International, Inc. from 1993 to 1994, and President of Rust Federal
Environmental Services (formerly CWM FES) from 1991 to 1993. Mr. Hewitt holds a
Bachelor of Science degree in Chemical Engineering from the University of Rhode
Island and a Master of Science degree in Mechanical/Nuclear Engineering from
Catholic University of America.
29
<PAGE>
Steven J. Guerrettaz has served as Chief Financial Officer since joining the
Company in December 1997. From May 1994 until joining the Company, Mr.
Guerrettaz was the Vice President--Finance of Thermatrix Inc., a publicly traded
supplier of flameless thermal oxidation equipment for the thermal treatment of
volatile organic compounds and hazardous air pollutants. From 1988 to 1994, Mr.
Guerrettaz was the Vice President Regional Controller for Chemical Waste
Management, Inc. Mr. Guerrettaz is a former audit partner of Arthur Andersen
LLP. He is a California CPA and holds a Bachelor of Science degree in
accounting from San Jose State University.
Fred Feizollahi joined the Company in 1995 as Director of Technology and
Engineering, and since 1995 has been Vice-President--Technology and Engineering.
Mr. Feizollahi has over 27 years of experience in radioactive and hazardous
waste remediation and management, decontamination and decommissioning, and the
design and operation of waste treatment equipment and technologies. Prior to
joining the Company, he worked as a Senior Project Manager for Morrison Knudsen
from 1991 to 1995 and as a Staff Engineer/Project Engineer for Bechtel Power
Corporation from 1981 to 1991. Mr. Feizollahi, who holds a Bachelor of Science
degree in Mechanical Engineering from the University of Maryland, is a
registered California Professional Engineer.
Eric C. Su has served as Vice-President--Marketing and Planning since 1995.
Mr. Su joined the Company in 1993 as Director of Business Development. Prior to
joining the Company, he acted as a sales and marketing consultant for a number
of companies, including the Company, from 1990 to 1993. From 1987 to 1990, Mr.
Su held various marketing positions with General Electric Company. Prior
thereto, he held positions in sales and marketing with W.R. Grace and Company
from 1984 to 1987, and in process engineering with E.I. DuPont de Nemours and
Company from 1982 to 1984. Mr. Su holds a Bachelor of Science degree in
Chemical Engineering from Arizona State University.
Information concerning the Company's Directors and compliance with Section 16
of the Securities Exchange Act of 1934 is incorporated herein by reference to
the Company's definitive proxy statement for its Annual Meeting of Shareholders
to be held on June 2, 1999, which is intended to be filed with the Securities
and Exchange Commission no later than 120 days after the close of the fiscal
year ended December 31, 1998.
Items 11, 12 and 13.
The information called for by Part III (Items, 11, 12, and 13) is incorporated
herein by reference to the Company's definitive proxy statement for its Annual
Meeting of Shareholders to be held on June 2, 1999, which is intended to be
filed with the Securities and Exchange Commission no later than 120 days after
the close of the fiscal year ended December 31, 1998.
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
ATG Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
ATG Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
February 26, 1999
31
<PAGE>
ATG INC.
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 3,789 $ 2,586
Accounts receivable, net of allowance for doubtful
accounts of $305 at December 31, 1998 and
$119 at December 31, 1997............................................. 22,561 5,935
Prepayments and other current assets....................................... 2,096 2,174
------- -------
Total current assets................................................... 28,446 10,695
Property and equipment, net....................................................... 42,988 22,104
Other assets...................................................................... 8,135 4,428
------- -------
Total assets..................................................... $ 79,569 $ 37,227
======== ========
LIABILITIES
Current liabilities:
Short term borrowings...................................................... $ 6,750 $ 3,996
Current portion of long term debt and capitalized leases................... 4,733 1,380
Accounts payable........................................................... 6,096 3,246
Accrued liabilities........................................................ 9,222 944
Payable to related parties................................................. -- 1,280
------- -------
Total current liabilities........................................ 26,801 10,846
Long term debt and capitalized leases, net of current portion..................... 11,246 6,202
Deferred income taxes............................................................. 777 467
------- -------
Total liabilities................................................ 38,824 17,515
------- -------
Commitments and contingencies (Note 12)
Mandatorily Redeemable Preferred Stock:
Series A and ATG Richland Series A and B, no par value
Authorized: 6,000,000 shares at December 31, 1997
Issued and outstanding 3,029,291 shares at
December 31, 1997.......................................................... -- 19,416
------- -------
SHAREHOLDERS' EQUITY
Common Stock, no par value:
Authorized: 20,000,000 shares. Issued and outstanding:
13,851,709 shares and 7,532,301 shares at December 31,
1998 and 1997, respectively................................................ 41,517 6,337
Deferred compensation............................................................. (152) (272)
Accumulated deficit............................................................... (620) (5,769)
------- -------
Total common stock, deferred compensation and
accumulated deficit.............................................. 40,745 296
------- -------
Total liabilities and shareholders' equity....................... $79,569 $37,227
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
ATG INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue.......................................................... $ 35,900 $ 19,107 $ 18,235
Cost of revenue.................................................. 19,816 11,172 11,082
-------- -------- --------
Gross profit............................................. 16,084 7,935 7,153
Sales, general and administrative expenses....................... 7,832 6,903 6,487
Stock based compensation expense................................. 120 117 169
-------- -------- --------
Operating income......................................... 8,132 915 497
-------- -------- --------
Interest income (expense):
Interest income.............................................. 188 58 142
Interest expense............................................. (15) -- (129)
-------- -------- --------
Interest income, net..................................... 173 58 13
-------- -------- --------
Income before income taxes....................................... 8,305 973 510
Provision (benefit) for income taxes............................. 3,156 (45) 2
-------- -------- --------
Net income............................................... 5,149 1,018 508
Accretion of mandatorily redeemable preferred stock.............. -- (1,469) (1,288)
-------- -------- --------
Net income (loss) available to common shareholders............... $ 5,149 $ (451) $ (780)
======== ======== ========
Net income (loss) per share
Basic........................................................ $ 0.40 $ (0.06) $ (0.10)
Diluted...................................................... $ 0.38 $ (0.06) $ (0.10)
Shares used in calculating net income (loss)
per share
Basic........................................................ 12,975 7,532 7,532
Diluted...................................................... 13,698 7,532 7,532
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
ATG INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands)
<TABLE>
<CAPTION>
Total common
stock, deferred
Common Stock compensation
------------ Deferred Accumulated and accumulated
Shares Amount Compensation Deficit deficit
------ ------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996..................... 7,439 $ 5,598 $ (169) $ (4,538) $ 891
Issuance of common stock................ 93 350 -- -- 350
Accretion on redeemable preferred
stock................................. -- -- -- (1,288) (1,288)
Amortized deferred compensation......... -- -- 169 -- 169
Net income.............................. -- -- -- 508 508
------- ------- ------ -------- -------
Balance, December 31, 1996................... 7,532 5,948 -- (5,318) 630
Accretion on redeemable preferred
stock................................. -- -- -- (1,469) (1,469)
Stock based compensation................ -- 389 (389) -- --
Amortized deferred compensation......... -- -- 117 -- 117
Net income.............................. -- -- -- 1,018 1,018
------- ------- ------ -------- -------
Balance, December 31, 1997................... 7,532 6,337 (272) (5,769) 296
Conversion of redeemable preferred
stock................................. 3,984 19,416 -- -- 19,416
Issuance of common stock, on initial
public offering, net of expenses...... 2,185 15,658 -- -- 15,658
Exercise of stock options............... 147 83 -- -- 83
Issuance of common stock under
Employee Stock Purchase Plan.......... 4 23 -- -- 23
Amortized deferred compensation......... -- -- 120 -- 120
Net income.............................. -- -- -- 5,149 5,149
------- ------- ------ -------- -------
Balance, December 31, 1998................... 13,852 $41,517 $ (152) $ (620) $40,745
======= ======= ====== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
ATG INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 5,149 $ 1,018 $ 508
Adjustments to reconcile net income with cash
flow from operations:
Depreciation and amortization............................... 824 746 671
Provision for doubtful accounts............................. 210 73 6
Compensation expense for shares issued and
options granted.......................................... 120 117 169
Income tax benefit.......................................... -- (45) --
Change in current assets and liabilities:
Accounts receivable.................................... (16,836) 899 534
Prepayments and other current assets................... 78 (140) 230
Other assets........................................... -- -- 290
Accounts payable and accrued liabilities............... 11,128 1,085 455
Deferred income taxes.................................. 310 (230) --
-------- ------- -------
Net cash provided by
operating activities................................. 983 3,523 2,863
-------- ------- -------
Cash flows from investing activities:
Property and equipment acquisitions........................... (5,015) (3,505) (4,647)
Acquisition of MMT assets..................................... (10,731) -- --
Other assets.................................................. (3,763) (3,710) (23)
-------- ------- -------
Net cash used in investing activities....................... (19,509) (7,215) (4,670)
-------- ------- -------
Cash flows from financing activities:
Loans from (payments to) related parties...................... (1,280) 1,177 (61)
Repayment of capital leases................................... (1,226) (461) (735)
Borrowing (Repayment) of long term debt, net.................. 3,717 (196) (216)
Short term borrowings, net of repayments...................... 2,754 1,160 48
Proceeds from issuance of preferred stock, net................ -- 1,629 5,627
Proceeds from issuance of common stock, net................... 15,764 -- --
-------- ------- -------
Net cash provided by financing activities................... 19,729 3,309 4,663
-------- ------- -------
Increase (decrease) in cash and cash equivalents................ 1,203 (383) 2,856
Cash and cash equivalents, beginning of period.................. 2,586 2,969 113
-------- ------- -------
Cash and cash equivalents, end of period........................ $ 3,789 $ 2,586 $ 2,969
======== ======= =======
Supplemental Disclosures, of non cash investing and
financing activities:
Income taxes paid........................................... $ 64 $ 2 $ 2
======== ======= =======
Interest paid, net of interest capitalized.................. $ 15 $ -- $ 622
======== ======= =======
Acquisition of equipment with capital lease financing....... $ 906 $ 4,256 $ --
======== ======= =======
Acquisition of MMT assets with long term debt............... $ 5,000 $ -- $ --
======== ======= =======
Compensation expense for shares issued and options
granted................................................... $ 120 $ 117 $ 169
======== ======= =======
Conversion of notes payable to common stock................. $ -- $ -- $ 350
======== ======= =======
Reclassification of machinery and equipment to
inventory................................................. $ (475) $ -- $ --
======== ======= =======
Conversion of redeemable prefered stock..................... $ 19,416 $ -- $ --
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands, except per share data)
--------------------
1. Formation and Business of the Company
ATG Inc. (the "Company" or "ATG") provides technical personnel and specialized
services and products primarily to the U.S. government and the nuclear power
industry throughout the United States. Services principally consist of
compaction, reduction, decontamination, vitrification and disposal of low-level
dry active nuclear and other hazardous waste, dewatering and thermal treatment
of ion exchange resins and site remediation and construction projects.
In May 1998, the Company completed an initial public offering of 1,900,000
shares of common stock and, in June 1998, sold an additional 285,000 shares of
common stock at $8.50 per share. Total proceeds to the Company, net of
underwriting discounts and other direct expenses, were approximately $15.7
million.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, ATG Richland Corporation ("ATG Richland") and ATG
Nuclear Services LLC ("ATG Nuclear") and its majority owned subsidiary, ATG
Catalytics LLC ("ATG Catalytics"). All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying disclosures. These estimates include assessing the collectibility
of accounts receivable, contracts in process and the recoverability of self-
constructed assets and provisions for contingencies. Actual results could
materially differ from the Company's estimates.
Revenue Recognition
Revenue includes fees for waste processing services and technology license
fees. Revenue under cost plus fixed fee and fixed unit price contracts mainly
relating to site remediation is recorded as costs are incurred or units are
completed and includes estimated fees earned according to the terms of the
contracts. Revenue from U.S. government contracts includes estimates of
reimbursable overhead and general administrative expenses, which are subject to
final determination by the U.S. federal government upon project completion.
Revisions to costs and income resulting from contract settlements, which are due
to differences between actual and budgeted performance, are recognized in the
period in which the revisions are determined. Revenue from waste processing is
generally recognized upon the substantial completion of the waste treatment
process. Revenue from licensing or technology transfer agreements is recognized
when received unless there are future commitments, in which case the revenues
are recognized over the term of the agreement. Revenues of $1,975 were
recognized pursuant to technology transfer agreements in 1997. Losses on
contracts are charged to cost of revenue as soon as such losses become known.
36
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
Change orders are modifications of an original contract that effectively change
the provisions of the contract. They may be initiated by either the Company or
the customer. Claims for additional contract revenue resulting from change
orders are recognized if it is probable that the claims will result in
additional revenue and the amount can be reliably estimated. Change order work
may be performed prior to approval of the change order by the customer.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost and are depreciated on the straight-
line basis over the estimated useful lives of the assets, which range from three
to forty years. Cost includes expenditures for major improvements and
replacements and the net amount of interest costs related to qualifying
construction projects. Expenditures for major renewals and betterments are
capitalized and expenditures for maintenance and repair expenses are charged to
expense as incurred. The Company's policy is to regularly review the carrying
amount of specialized assets and to evaluate the remaining life and
recoverability of such equipment in light of current market conditions.
Risks and Uncertainties
The Company operates its fixed facilities under regulations of, and permits
issued by, various state and federal agencies. The Company, typically, is in
the process of seeking new permits, renewals and/or expansion permits. There can
be no assurance of the successful outcome of any permitting efforts. The
permitting process is subject to regulatory approval, time delays, local
opposition and potentially stricter governmental regulation. Substantial losses
which would have a material adverse effect on the Company's consolidated
financial position, could be incurred by the Company in the event a permit is
not granted, if facility construction programs are delayed or changed, or if
projects are otherwise abandonded. The Company reviews the status of permitting
projects on a periodic basis to assess realizability of related asset values. As
of December 31, 1998, management believes that assets which could currently be
affected by permitting efforts are recoverable at their recorded values.
The market for the Company's services is substantially dependent on state and
federal legislation and regulations. The availability of new contracts depends
significantly on government authorities. In order to build or retain its market
share the Company must continue to successfully compete for new government and
private sector contracts.
Income Taxes
The Company accounts for income taxes under the liability method, whereby
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the
37
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Concentration of Credit Risk
The majority of the Company's cash, cash equivalents and short-term
investments are held with major banks in the United States. The Company's
customers consist mainly of agencies of the U.S. government and large U.S.
companies. The Company performs ongoing credit evaluation of its customers'
financial condition. As of December 31, 1998, agencies of the U.S. government
represented 51% of accounts receivable and 55% of total revenue for the year
then ended. As of December 31, 1997, agencies of the U.S. government
represented 47% of accounts receivable and 71% of total revenue for the year
then ended. As of December 31, 1996, agencies of the U.S. government
represented 70% of accounts receivable and 77% of total revenue for the year
then ended. The Company generally does not require collateral.
Computation of Net Income Per Share
Basic income per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted income per share is computed giving effect to all dilutive
potential common shares that were outstanding during the period. Dilutive
potential common shares consist of the incremental common shares issuable upon
the conversion of convertible preferred stock (using the "if converted" method)
and exercise of stock options for all periods.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year's presentation.
3. Acquisition of MMT Assets
Effective December 1, 1998, the Company, through its wholly-owned subsidiary,
ATG Nuclear, and through its 90% owned subsidiary, ATG Catalytics, acquired
certain assets and business lines from the trustee ("Seller") for debtors of
Molten Metal Technologies, Inc. or its affiliates, under Chapter 11 of the
United States Bankruptcy Code (the "MMT Assets").
The assets acquired by ATG Nuclear include substantially all of the assets,
contracts, licenses and permits associated with the Seller's wet waste business
based in Oak Ridge, Tennessee, and a facility in Columbia, South Carolina. The
assets acquired by ATG Catalytics include substantially all of the assets,
contracts, licenses and permits associated with the Seller's catalytic
extraction processing business conducted substantially in Oak Ridge, Tennessee.
38
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
The total purchase price of the MMT assets and business lines acquired was
approximately $15.7 million. The purchase price was allocated as follows:
property and equipment - $15.4 million; accounts receivable - $2.8 million;
restricted cash and other assets - $2.7 million; accrued liabilities - $5.2
million. The Company paid $10.5 million in cash at closing, agreed to pay $1.0
million in cash one year from closing and agreed to make future payments of 5%
of the earnings before interest, taxes, depreciation and amortization of ATG
Catalytics, but not less than $800 annually for five years (minimum total of
$4.0 million).
The transaction has been accounted for as a purchase and accordingly, results
of operations include the operations of the new businesses since the date of
acquisition. The purchase price has been allocated to the assets acquired and
will be amortized over the lives of those assets. There was no goodwill
recorded in the transaction. The Company is unable to provide pro forma
financial information as of the filing of this annual report on Form 10-K. An
amended Form 10-K will be filed when such information becomes available.
4. Accounts Receivable
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
--------------- -------------
<S> <C> <C>
U.S. Government:
Amounts billed........................................... $ 8,483 $3,142
Amounts unbilled......................................... 3,037 845
------- ------
Total U.S. Government............................... 11,520 3,987
------- ------
Commercial customers:
Amounts billed........................................... 9,008 2,067
Amounts unbilled......................................... 2,338 --
------- ------
Total commercial.................................... 11,346 2,067
------- ------
Total accounts receivable................................ 22,866 6,054
Less: allowances for doubtful accounts........................ (305) (119)
------- ------
$22,561 $5,935
======= ======
</TABLE>
Recoverable costs and accrued profit on progress completed but not billed on
U.S. government contracts is based on estimates of reimbursable overhead and
general and administrative expenses calculated in accordance with contractually
determined methods of calculation. These amounts are subject to final
determination by the U.S. federal government after the contracts have been
completed. As such, the actual recoverable amounts on these contracts may
differ from these estimates. The U.S. federal government has reviewed and
approved reimbursable expenses for contracts in progress through 1995.
5. Restricted Investments
The Company owns several certificates of deposit, Treasury bills and bonds,
which are collateral for performance bonds. The certificates of deposit, which
are included in intangible and other assets, have an aggregate value of $223 at
December 31, 1998 and $210 at December 31, 1997, respectively, bear interest at
5.1% per annum, and have an original maturity of twelve months. The Treasury
bills, which are included in intangible and other assets, have an aggregate
value of $254 at December 31, 1998 and 1997, bear interest at 5.8% and have an
original maturity
39
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
of twelve months. The bonds, which are included in prepayments and other
current assets, have an aggregate value of $477 and $959 at December 31, 1998
and December 31, 1997, respectively, and have an original maturity of between
one and five years.
6. Property and Equipment
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Land.................................................................. $ 2,310 $ 761
Buildings and improvements............................................ 21,205 2,848
Machinery and equipment............................................... 14,876 5,183
Office furniture and equipment........................................ 1,470 1,427
------- -------
Property and equipment at cost........................................ 39,861 10,219
Less: accumulated depreciation and amortization....................... (3,072) (2,840)
------- -------
36,789 7,379
Construction-in-progress............................................... 6,199 14,725
------- -------
$42,988 $22,104
======= =======
</TABLE>
Property and equipment costs include capitalized labor and overhead, including
interest costs related to the construction of buildings, building improvements
and equipment. Capitalized interest costs totaled $1,027, $891 and $446 in
1998, 1997 and 1996, respectively. All property and equipment serve as
collateral to notes payable agreements to banks and other creditors.
As of December 31, 1998 and 1997, machinery and equipment included assets
acquired under capital leases with a capitalized cost of $6,876 and $7,256,
respectively. Related accumulated amortization totaled $333 and $498 in 1998 and
1997, respectively.
7. Accrued Liabilities
Accrued liabilities at December 31, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Income taxes payable.................................................. $ 2,647 $ -
Legacy waste.......................................................... 2,788 -
Other................................................................. 3,787 944
------- -------
$ 9,222 $ 944
======= =======
</TABLE>
The legacy waste accrual arose out of the purchase of the assets and
businesses described in Note 3--Acquisition of Tennessee Assets.
8. Payable to Related Parties
The Company had a payable to its Chairman and Chief Executive Officer of
$1,280 at December 31, 1997. The amount was repaid in 1998.
40
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
The Company has a payable to a former Director of $225 at December 31, 1998
and 1997. The amount is repayable on July 1, 2000 and is non-interest bearing.
The amount is included in long term debt.
9. Short-Term Borrowings
Under a line of credit facility with a bank, the Company may borrow up to
$9,500. Borrowings under this credit agreement were $6,750 at December 31,
1998, bear interest equal to the bank's reference rate (7.75% at December 31,
1998) and are collateralized by accounts receivable, inventory and equipment.
Borrowings under the credit agreement were $3,996 as of December 31, 1997, and
bore interest at prime plus 0.50% (9.0% at December 31, 1997). The facility
agreement expires June 30,1999.
The credit agreement requires the Company to comply with certain covenants
including capital asset acquisition limits, limits on additional debt, minimum
levels of tangible net worth, dividend payment restrictions and maintenance of
certain financial ratios. At December 31, 1998 and at various dates throughout
the year the Company was in violation of certain covenants. The Company has
obtained waivers in respect of these violations as of December 31, 1998.
10. Long Term Debt
Long term debt consists of mortgage debt, notes payable and equipment notes
payable. The mortgage debt bears interest at 9.5%, matures in 2001, and is
collateralized by certain of the Company's buildings. The notes payable bear
interest at annual rates between 8% and 10%, mature between 1999 and 2005, and
are collateralized by certain of the Company's equipment. Equipment notes bear
interest at annual rates between 0.9% and 9.6%, mature between 1999 and 2002,
and are collateralized by specific equipment.
Future minimum principal payments are as follows as of December 31, 1998:
<TABLE>
<CAPTION>
Mortgage Notes Equipment Total Long
Debt Payable Notes Term Debt
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
1999................................................ $ 159 $ 3,374 $ 26 $ 3,559
2000................................................ 128 2,186 19 2,333
2001................................................ 1,341 2,162 3 3,506
2002................................................ -- 826 2 828
2003................................................ -- 828 -- 828
Thereafter.......................................... -- 77 -- 77
------ ------ ------ -------
1,628 9,453 50 11,131
Less: current portion............................... 159 3,374 26 3,559
------ ------ ------ -------
$1,469 $6,079 $ 24 $ 7,572
====== ====== ====== =======
</TABLE>
41
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
11. Capital Lease Obligations
As of December 31, 1998, future minimum lease payments under non-cancelable
capital leases are as follows:
<TABLE>
<S> <C>
1999......................................................................................... $1,623
2000......................................................................................... 1,540
2001......................................................................................... 1,203
2002......................................................................................... 998
2003......................................................................................... 619
------
Total minimum lease payments................................................................. 5,983
Less amount representing interest............................................................ 1,135
------
Present value of future minimum lease payments............................................... 4,848
Less: current portion........................................................................ 1,174
------
Total capital lease obligations, net of current portion...................................... $3,674
======
</TABLE>
12. Commitments and Contingencies
In March 1998, two civil suits were filed against the Company and a Company
subcontractor, among other persons, in connection with a contract under which
the Company acted as prime contractor and the subcontractor acted as
subcontractor to "surface clear" expended ordnance from a U.S. Army firing range
at Fort Irwin, California. The suits arise out of an explosion which occurred
in March 1997 on the premises of a scrap metal dealer which had in the past
purchased military scrap metal from a number of military facilities, including
Fort Irwin. One employee of the scrap metal dealer died in the accident, and
three other persons have alleged physical injuries and emotional distress
arising from this incident. One of the suits alleges wrongful death, seeking
general damages of $3,000, special damages of $110, and exemplary damages of
$5,000. In the other suit, the three persons alleging physical injuries and
emotional distress are seeking general damages in the aggregate amount of $800,
while reserving the right to seek punitive damages in the aggregate amount of
$1,500. The Company has tendered the claims to its insurance carrier, and the
insurance carrier has accepted defense of these claims. In addition, the
Company intends to seek indemnification from its subcontractor for the full
amount of costs, damages, and liabilities, if any, incurred by the Company as a
results of these suits.
The aforementioned claims are in various stages of discovery. Management
believes that all claims asserted against the Company in each of the suits are
without legal merit. If the Company were to be found liable in the
aforementioned suits and the amount awarded exceeded available insurance limits
and amounts recoverable from its subcontractors, it could have a material
adverse effect on the Company's financial condition and results of operations.
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 business, financial condition or results of operations.
42
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
13. Stock Based Compensation Plans
1994 Stock Option Plan ("1994 Plan")
A total of 909,878 shares of common stock have been reserved for issuance
under the 1994 Plan. Options granted under the 1994 Plan generally expire ten
years from the date of grant. During 1998, the Company adopted new stock plans
(see below); accordingly, the Company does not plan to issue further options to
purchase common stock under the 1994 Plan.
1998 Stock Ownership Incentive Plan ("Incentive Plan")
A total of 500,000 shares of common stock have been reserved for issuance
under the Incentive Plan. The Board of Directors may grant incentive stock
options or non-statutory stock options to employees at 100% of the fair market
value of the stock on the date of grant. Vesting terms are to be determined by
the Board of Directors (typically three years) and options generally expire ten
years from the date of grant.
1998 Non-Employee Directors' Stock Option Plan ("Directors' Plan")
A total of 200,000 shares of common stock has been reserved for issuance under
the Directors' Plan. The Directors' Plan provides for an automatic grant of
options to purchase 20,000 shares of common stock upon the date such person
becomes a non-employee director. Twenty-five percent of the shares subject to
the option are immediately vested and twenty-five percent vest each year
thereafter. The exercise price of the options granted under the Directors' Plan
must equal or exceed the fair market value of the Common Stock on the date of
grant. All grants expire ten years from the date of grant.
1998 Consultants and Advisors Stock Option Plan ("Consultants Plan")
A total of 200,000 shares of common stock has been reserved for issuance under
the Consultants Plan. The Consultants Plan is administered by the Board of
Directors who may grant options to purchase common stock to consultants and
advisors to the Company at prices and upon terms as determined by the Board.
43
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
The following option activity occurred in all stock option plans in the three
years ended December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Options Average
Available Outstanding Exercise Exercise
for Grant Options Price Price
----------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1996....................... 630,000 440,000 $0.01-$7.50 $2.08
Granted.................................... (76,000) 76,000 $ 0.10 $0.10
-------- ---------
Balance, December 31, 1996..................... 554,000 516,000 $0.01-$7.50 $1.79
Granted.................................... (554,000) 554,000 $1.00-$5.00 $2.10
-------- ---------
Balance, December 31, 1997..................... - 1,070,000 $0.01-$7.50 $1.95
Authorized................................. 900,000 -
Granted.................................... (607,500) 607,500 $5.00-$8.56 $6.55
Exercised.................................. - (147,122) $0.01-$1.00 $0.23
Terminated................................. - (13,000) $0.01-$5.00 $0.62
Cancelled.................................. 143,500 (143,500) $8.50-$8.56 $8.54
-------- ---------
Balance, December 31, 1998 436,000 1,373,878 $0.01-$8.50 $3.49
======== =========
</TABLE>
As of December 31, 1998, options to purchase 419,457 shares of Common Stock at
$0.01 to $8.50 per share were fully vested and exercisable under the Plans.
During August 1998, the Company cancelled options granted to employees to
acquire 125,500 shares of Common Stock with prices ranging from $8.50 to $8.56
and issued new options to acquire the same number of shares at a price of
$6.375.
In connection with the grant of options for the purchase of 554,000 shares of
Common Stock to employees during the period from January 1, 1997 through
December 31, 1997, the Company recorded aggregate deferred compensation expense
of approximately $389 representing the difference between the deemed fair value
of the Common Stock and the option exercise price at date of grant. Such
deferred compensation will be amortized over the vesting period relating to
these options, of which $120 and $117 has been amortized during the years ended
December 31, 1998 and 1997, respectively, and is included in the statement of
operations within the caption "Stock-based compensation expense".
44
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
Stock Compensation
Effective January 1, 1996 the Company has adopted the disclosure-only
provision of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123). The Company, however, applies APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock-based compensation. Determination
of compensation cost for stock-based compensation based on the fair value at the
grant date for awards consistent with provisions of SFAS No. 123 would not
result in a significant difference from the reported net income for the periods
presented.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1998 1997 1996
---------------- ------------------ -------------------
<S> <C> <C> <C>
Net income............................................. $5,149 $ 1,018 $ 508
Accretion on mandatorily redeemable preferred stock.... --- (1,469) (1,288)
------ ------- -------
Net income (loss) available to common shareholders..... 5,149 (451) (780)
Net income (loss) FAS 123 adjusted..................... 4,917 (593) (780)
Earnings per share as reported:
Basic................................................ 0.40 (0.06) (0.10)
Diluted.............................................. 0.38 (0.06) (0.10)
Earnings per share-FAS 123 adjusted:
Basic................................................ 0.38 (0.08) (0.10)
Diluted.............................................. 0.36 (0.08) (0.10)
</TABLE>
The fair value of each option grant under the Plans is estimated on the date
of the grant using the Black-Scholes option-pricing model with weighted average
risk free interest rates of 4.89%, 6.47%, and 6.16% at December 31, 1998, 1997
and 1996, respectively, and an expected life of 5 years, no dividends and 0%
volatility in 1997 and 1996 and an expected life of 2.6 years, no dividends and
67.4 % volatility in 1998. The weighted average fair value at date of grant of
the options granted during the years ended December 31, 1998 and 1997 was $3.17
and $2.80, respectively.
The following table summarizes the stock options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------- ---------------------------------------
Weighted
Weighted Average
Average Weighted Weighted Fair
Range of Remaining Average Average Value at
Exercise Number Contractual Exercise Number Exercise Date of
Prices Outstanding Life Price Exercisable Price Grant
- --------- ------------- ------------ ------------ -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$0.01 55,000 4.5 $0.01 45,000 $0.01 $0.01
$0.10 205,500 6.9 $0.10 136,355 $0.10 $0.10
$1.00 369,878 8.0 $1.00 41,644 $1.00 $2.00
$5.00-$6.50 581,500 9.3 $5.37 161,458 $5.11 $5.37
$6.75-$8.50 162,000 7.4 $7.86 35,000 $7.93 $7.86
</TABLE>
45
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
Employee Stock Purchase Plan ("Purchase Plan")
A total of 200,000 shares of common stock are reserved for issuance under the
Purchase Plan. The Purchase Plan enables eligible employees to purchase common
stock at the lower of 85% of the fair market value of the Company's common stock
on the first or last day of each six-month offering period. The first offering
period ended on October 31, 1998, whereupon 3,691 shares were purchased under
the plan. The next offering period ends April 30, 1999.
14. Mandatorily Redeemable Preferred Stock
ATG issued 900,000 shares of Series A Preferred Stock in 1994 at $5.00 per
share. ATG Richland issued 860,000 shares of Series A Preferred Stock in 1995
at $5.00 per share and 990,355 and 278,936 shares of Series B Preferred Stock in
1996 and 1997, respectively, at $6.00 per share. All outstanding shares of the
mandatorily redeemable preferred stock were automatically converted into
3,983,595 shares of common stock on the effective date of the Company's initial
public offering.
15. Common Stock Warrants
Warrants to purchase 190,000 shares of Common Stock were granted upon the
completion of the Company's initial public stock offering. These warrants
become exercisable in May 1999 and expire in May 2003. The warrant exercise
price is $10.20 per share.
16. Income Taxes
The components of income tax expense (benefit) are approximately as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Current
Federal................................................... $2,439 $(383) $ __
State..................................................... 406 158 2
Deferred:
Federal................................................... 304 214 __
State..................................................... 7 (34) __
-------------- ------------ -----------
Total................................................... $3,156 $ (45) $ 2
============== ============ ===========
</TABLE>
46
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
The Company's effective tax rate differs from the U.S. federal statutory tax
rate, as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax provision at statutory rate......................... 34.0% 34.0% 34.0%
State taxes, net of federal tax effect......................... 3.3 1.6 0.1
Non-deductible items........................................... 0.4 3.2 0.5
Net operating loss benefit..................................... __ (48.3) (29.5)
Other.......................................................... 0.3 4.9 (4.8)
------- ------- -------
Effective tax rate............................................. 38.0% (4.6)% 0.3%
======= ======= =======
</TABLE>
Components of the deferred income tax balance are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets
Net operating loss carryforwards.............................. $ __ $ 308 $ 569
Accrued expenses.............................................. 183 245 34
Tax credits................................................... __ 120 100
Other......................................................... __ 24 17
------- ------- -------
Deferred tax assets........................................ $ 183 $ 697 $ 720
======= ======= =======
Deferred tax liabilities
Depreciation and amortization.............................. $ 473 $ 467 $ 310
======= ======= =======
Valuation allowance............................................ __ __ (410)
------- ------- -------
Net deferred tax asset (liability)............................. $ (290) $ 230 $ __
======= ======= =======
</TABLE>
47
<PAGE>
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all dollar amounts in thousands, except per share data)
--------------------
17. Earnings per Share (EPS)
In accordance with the disclosure requirements of SFAS 128, a reconciliation
of the numerator and denominator of basic and diluted EPS is provided as
follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Numerator - Basic and Diluted EPS
Net income........................................... $ 5,149 $ 1,018 $ 508
Accretion on mandatorily redeemable
preferred stock...................................... __ (1,469) (1,288)
------------- ------------- -------------
Net income (loss) available to
common shareholders.................................. $ 5,149 $ (451) $ (780)
============= ============= =============
Denominator - Basic EPS
Common shares outstanding............................ 12,975 7,532 7,532
------------- ------------- -------------
Basic earnings (loss) per share........................... $ 0.40 $ (0.06) $ (0.10)
============= ============= =============
Denominator - Diluted EPS
Denominator - Basic EPS................................... 12,975 7,532 7,532
Effect of Dilutive Securities
Common stock options................................. 723 __ __
------------- ------------- -------------
13,698 7,532 7,532
------------- ------------- -------------
Diluted earnings (loss) per share......................... $ 0.38 $ (0.06) $ (0.10)
============= ============= =============
</TABLE>
Options and warrants to purchase 352,000 shares of Common Stock at exercise
prices in excess of the average market price of the Company's Common Stock were
excluded from the computation of diluted earnings per share as their effect
would be anti-dilutive.
18. Employee Retirement Plan
The Company maintains a Qualified Retirement Plan (401(k) Plan) which covers
substantially all employees. Eligible employees may contribute up to 15% of
their annual compensation, as defined, to this plan. The Company may also make
a discretionary contribution. To date the Company has not made contributions to
the 401(k) Plan.
19. Business Segments
Effective December 31, 1998, the Company adopted SFAS No. 131, " Disclosures
about Segments of an Enterprise and Related Information." Statement 131 requires
enterprises to report information about operating segments in annual financial
statements and selected information about reportable segments in interim
financial reports issued to shareholders.
ATG manages its operations within two business segments: waste processing,
conducted by its Fixed Facilities Group (FFG); and field services, conducted by
its Field Engineering Group (FEG). FFG processes customer waste utilizing the
Company's thermal and non-thermal technologies. FEG performs remediation,
construction or various engineering services for customers under long-term
contracts.
Prior to 1998, the Company evaluated its operations as one business unit.
Thermal processing of large volumes of waste began in 1998 and the Company
commenced evaluating its business as two business segments in the fourth quarter
of the year. The Company segregates revenue and gross profit by business
segment. Selling, general and administrative expenses are not allocated to the
business segments. The accounting policies of the business segments are the same
as those described in the summary of significant accounting policies.
Information about business segments in 1998:
FFG FEG OTHER TOTAL
------- ------ ----- -------
Revenue $ 18,889 $ 17,011 - $ 35,900
Gross profit 11,082 5,002 - 16,084
Sales, General and
Administrative expenses 7,832
Stock-based compensation 120
Interest income, net 173
Provision for income taxes 3,156
-------
Net income $ 5,149
=======
Segment assets 42,030 650 3,380 $ 46,060
=======
Expenditures for long -
lived assets 21,490 40 120 $ 21,650
=======
Substantially all of the segment revenues in 1998 were from customers in North
America, denominated in U.S.dollars.
48
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements. The following Consolidated Financial Statements of
ATG Inc. and Report of Independent Accountants are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants....................................................... 31
Consolidated Balance Sheets--As of December 31, 1997 and 1998........................... 32
Consolidated Statements of Operations--For the Three Years Ended
December 31, 1998........................................................................ 33
Consolidated Statements of Shareholders' Equity--For the Three Years Ended
December 31, 1998...................................................................... 34
Consolidated Statements of Cash Flows--For the Three Years Ended
December 31, 1998........................................................................ 35
Notes to Consolidated Financial Statements............................................... 36-48
2. Financial Statement Schedules. For years ended December 31, 1998,
1997 and 1996:
Schedule II. Valuation and Qualifying Accounts.......................................... 50
</TABLE>
All other schedules are omitted because they are not applicable or the
required information has been included in the consolidated financial statements
or notes thereto.
3. Exhibits
2.1 Final bankruptcy court bid dated November 13, 1998**
2.2 Form of letter agreement dated December 1, 1998 among the
purchasers and the Trustee**
3.1 Articles of Incorporation of the Company*
3.2 Bylaws of the Company*
3.3 Certificate of Amendment of Articles of Incorporation*
4.1 Specimen Common Stock Certificate*
9.1 Voting Trust Agreement*
10.1 Assumption Agreement, dated September 2, 1992, between the
Company, as transferee, Tippett-Richardson, as transferor, and
Confederation Life Insurance Company, as lender*
10.2 Deed of Trust (Non-Construction) & Assignment of Rents, dated
September 18, 1997, between the Company, as trustor, First
Bancorp, as trustee, and Sanwa Bank California, as beneficiary*
10.3 Deed of Trust, dated August 5, 1993, between the Company and ATG
Richland, collectively as trustor, Chicago Title Insurance
Company, as trustee, and West One Bank, as beneficiary*
10.4 Term Loan Agreement, dated September 18, 1997, between the
Company and Sanwa Bank California*
10.5 Letter from the Company to Steve Guerrettaz, dated December 2,
1997, regarding terms of employment*
10.6 Letter from the Company to Fred Feizollahi, dated February 20,
1995, regarding terms of employment*
10.7 Consultant Agreement, dated as of July 1, 1992, between the
Company and Edward Vinecour*
10.8 Non-Competition Agreement, dated as of July 1, 1992, between the
Company and Edward Vinecour*
10.9 Collective Bargaining Agreement between the Company and the
International Union of Operating Engineers No. 280*
10.10 Form of Stock Purchase Agreement*
10.11 Continuing Guaranty, dated as of April 19, 1996, provided by
Doreen Chiu in favor of Sanwa Bank*
10.12 Continuing Guaranty, dated as of April 19, 1996, provided by
Frank Chiu in favor of Sanwa Bank*
10.13 Continuing Guaranty, dated as of May 20, 1997, provided by
Doreen Chiu in favor of Safeco Credit Company, Inc.*
10.14 Continuing Guaranty, dated as of May 20, 1997, provided by Frank
Chiu in favor of Safeco Credit Company, Inc.*
10.15 Small Business Administration (SBA) Guaranty, dated August 6,
1993, provided by Doreen Chiu and Frank Chiu in favor of West
One Bank*
10.16 Guaranty Agreement, dated September 1, 1994, provided by Doreen
Chiu and Frank Chiu in favor of Great Western Leasing*
10.17 Guaranty, dated January 13, 1994, provided by Doreen Chiu and
Frank Chiu in favor of The CIT Group/Equipment Financing Inc.*
10.18 Guaranty of Commercial Lease Agreement, dated December 20, 1994,
provided by Doreen Chiu and Frank Chiu in favor of California
Thrift & Loan*
10.19 Contract No. MGK-SBB-A26602, dated September 5, 1997, awarded to
the Company by Waste Management Federal Services of Hanford,
Inc.*
10.20 Purchase Order No. MW6-SBV-357079, dated November 3, 1995,
issued to the Company by Westinghouse Hanford Company*
10.21 Contract No. DE-AC06-95RL13129, dated January 4, 1995, among the
U.S. Department of Energy, as the procuring agency, the U.S.
Small Business Administration, as contractor, and the Company,
as subcontractor*
10.22 Gasification Vitrification Chamber Purchase and License
Agreement, dated August 1997, between the Company and Integrated
Environmental Technologies, LLC*
10.23 Purchase Agreement between the Company and Integrated
Environmental Technologies, LLC*
10.24 Technology Transfer Purchase and Royalty Fee Agreement, dated
September 30, 1997, between the Company and Regent Star Ltd.*
10.25 Technology Transfer and Purchase Agreement, dated June 28, 1997,
between the Company and Pacific Trading Company*
10.26 Contract No. DACW05-98-C-0001, dated September 24, 1997, awarded
to the Company by the U.S. Army Corps of Engineers, Sacremento
District*
10.27 Contract No. DAKF04-92-D-0007, dated February 8, 1991, among the
Fort Irwin Directorate of Contracting, as the procuring agency,
the U.S. Small Business Administration, as contractor, and the
Company, as subcontractor*
10.28 Promissory Note, dated December 31, 1997, provided by the
Company to Doreen M. Chiu*
10.29 1998 Stock Ownership Incentive Plan*
10.30 Employee Stock Purchase Plan*
10.31 1998 Non-Employee Directors Stock Option Plan*
10.32 Letter of Credit Agreement, dated March 6, 1998, between the
Company and Sanwa Bank California*
10.33 Continuing Guaranty, dated as of March 6, 1998, provided by
Doreen M. Chiu in favor of Sanwa Bank California*
10.34 Continuing Guaranty, dated as of March 6, 1998, provided by
Frank Y. Chiu in favor of Sanwa Bank California*
10.35 Indemnity Agreement, dated August 12, 1992, made and entered
into by Doreen M. Chiu, Frank Y. Chiu, the Company and National
Safety Consultants, Inc. in favor of ACTSTAR Insurance Company*
10.36 Continuing Agreement of Idemnity--Contractors' Form, dated March
19, 1998, made and entered into by Doreen M. Chiu, Frank Y. Chiu
and the Company for the benefit of Reliance Insurance Company,
United Pacific Insurance Company, Reliance National Indemnity
Company and Reliance Surety Company*
10.37 Purchase Order, dated February 10, 1996, issued by the Company
to ToxGon Corporation*
10.38 Amendments to Letter of Credit Agreement***
10.39 Line of Credit Agreement***
10.40 Amendment to Line of Credit Agreement
10.41 Term Loan Agreement Sanwa Bank California
10.42 ATG Catalytics L.L.C. Operating Agreement
21.1 List of Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
- -----------------------
(*) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-46107) which became effective May 6,
1998.
(**) Incorporated by reference to exhibits filed with the Registrant's Form 8-K
dated December 1, 1998
(***) Incorporated by reference to exhibits filed with the Registrant's Form
10-Q for the quarter ended June 30, 1998.
49
<PAGE>
(b) Reports on Form 8-K
A report on Form 8-K, dated December 1, 1998, was filed during the last
quarter of 1998, covering the acquisition of certain assets and business lines
from the trustee for debtors in bankruptcy. The assets and business lines were
formerly owned by Molten Metal Technologies, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
ATG Inc., and its Subsidiaries:
In connection with our audits of the consolidated financial statements
of ATG Inc. and its subsidiaries as of December 31, 1998 and 1997, and for each
of the three years in the period ended December 31, 1998, which financial
statements are included in this Form 10-K, we have also audited the financial
statement schedule listed in Item 14(a) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
February 26, 1999
Schedule II
ATG INC.
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning of Costs and at End of
Description Period Expenses Deductions(1) Period
----------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31,1996.............
Allowance for doubtful accounts $ 40 $ 6 $ -- $ 46
Year ended December 31, 1997............
Allowance for doubtful accounts $ 46 $ 73 $ -- $119
Year ended December 31, 1998............
Allowance for doubtful accounts $119 $210 $ (24) $305
</TABLE>
- ----------------------
(1) Deductions represent accounts receivable amounts that were considered
doubtful and previously reserved for that became uncollectible and were written
off in the year.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ATG INC.
By: /s/ Doreen M. Chiu
------------------
Doreen M. Chiu
Chairman of the Board
President and CEO
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Doreen M. Chiu Chairman, President and Chief March 31, 1999
- ---------------------------------------- Executive Officer
Doreen M. Chiu
/s/ Frank Y. Chiu Executive Vice-President March 31, 1999
- ---------------------------------------- Director
Frank Y. Chiu
/s/ William M. Hewitt President-Waste Mgmt. Services March 31, 1999
- ---------------------------------------- Director
William M. Hewitt
/s/ Steven J. Guerrettaz Chief Financial Officer March 31, 1999
- ---------------------------------------- Director
Steven J. Guerrettaz
/s/ Earl E. Gjelde Director March 31, 1999
- ----------------------------------------
Earl E. Gjelde
/s/ Andrew C. Kadak Director March 31, 1999
- ----------------------------------------
Andrew C. Kadak
</TABLE>
51
<PAGE>
EXHIBIT INDEX
2.1 Final bankruptcy court bid dated November 13, 1998**
2.2 Form of letter agreement dated December 1, 1998 among the
purchasers and the Trustee**
3.1 Articles of Incorporation of the Company*
3.2 Bylaws of the Company*
3.3 Certificate of Amendment of Articles of Incorporation*
4.1 Specimen Common Stock Certificate*
9.1 Voting Trust Agreement*
10.1 Assumption Agreement, dated September 2, 1992, between the
Company, as transferee, Tippett-Richardson, as transferor, and
Confederation Life Insurance Company, as lender*
10.2 Deed of Trust (Non-Construction) & Assignment of Rents, dated
September 18, 1997, between the Company, as trustor, First
Bancorp, as trustee, and Sanwa Bank California, as beneficiary*
10.3 Deed of Trust, dated August 5, 1993, between the Company and ATG
Richland, collectively as trustor, Chicago Title Insurance
Company, as trustee, and West One Bank, as beneficiary*
10.4 Term Loan Agreement, dated September 18, 1997, between the
Company and Sanwa Bank California*
10.5 Letter from the Company to Steve Guerrettaz, dated December 2,
1997, regarding terms of employment*
10.6 Letter from the Company to Fred Feizollahi, dated February 20,
1995, regarding terms of employment*
10.7 Consultant Agreement, dated as of July 1, 1992, between the
Company and Edward Vinecour*
10.8 Non-Competition Agreement, dated as of July 1, 1992, between the
Company and Edward Vinecour*
10.9 Collective Bargaining Agreement between the Company and the
International Union of Operating Engineers No. 280*
10.10 Form of Stock Purchase Agreement*
10.11 Continuing Guaranty, dated as of April 19, 1996, provided by
Doreen Chiu in favor of Sanwa Bank*
10.12 Continuing Guaranty, dated as of April 19, 1996, provided by
Frank Chiu in favor of Sanwa Bank*
10.13 Continuing Guaranty, dated as of May 20, 1997, provided by
Doreen Chiu in favor of Safeco Credit Company, Inc.*
10.14 Continuing Guaranty, dated as of May 20, 1997, provided by Frank
Chiu in favor of Safeco Credit Company, Inc.*
10.15 Small Business Administration (SBA) Guaranty, dated August 6,
1993, provided by Doreen Chiu and Frank Chiu in favor of West
One Bank*
10.16 Guaranty Agreement, dated September 1, 1994, provided by Doreen
Chiu and Frank Chiu in favor of Great Western Leasing*
10.17 Guaranty, dated January 13, 1994, provided by Doreen Chiu and
Frank Chiu in favor of The CIT Group/Equipment Financing Inc.*
10.18 Guaranty of Commercial Lease Agreement, dated December 20, 1994,
provided by Doreen Chiu and Frank Chiu in favor of California
Thrift & Loan*
10.19 Contract No. MGK-SBB-A26602, dated September 5, 1997, awarded to
the Company by Waste Management Federal Services of Hanford,
Inc.*
10.20 Purchase Order No. MW6-SBV-357079, dated November 3, 1995,
issued to the Company by Westinghouse Hanford Company*
10.21 Contract No. DE-AC06-95RL13129, dated January 4, 1995, among the
U.S. Department of Energy, as the procuring agency, the U.S.
Small Business Administration, as contractor, and the Company,
as subcontractor*
10.22 Gasification Vitrification Chamber Purchase and License
Agreement, dated August 1997, between the Company and Integrated
Environmental Technologies, LLC*
10.23 Purchase Agreement between the Company and Integrated
Environmental Technologies, LLC*
10.24 Technology Transfer Purchase and Royalty Fee Agreement, dated
September 30, 1997, between the Company and Regent Star Ltd.*
10.25 Technology Transfer and Purchase Agreement, dated June 28, 1997,
between the Company and Pacific Trading Company*
10.26 Contract No. DACW05-98-C-0001, dated September 24, 1997, awarded
to the Company by the U.S. Army Corps of Engineers, Sacremento
District*
10.27 Contract No. DAKF04-92-D-0007, dated February 8, 1991, among the
Fort Irwin Directorate of Contracting, as the procuring agency,
the U.S. Small Business Administration, as contractor, and the
Company, as subcontractor*
10.28 Promissory Note, dated December 31, 1997, provided by the
Company to Doreen M. Chiu*
10.29 1998 Stock Ownership Incentive Plan*
10.30 Employee Stock Purchase Plan*
10.31 1998 Non-Employee Directors Stock Option Plan*
10.32 Letter of Credit Agreement, dated March 6, 1998, between the
Company and Sanwa Bank California*
10.33 Continuing Guaranty, dated as of March 6, 1998, provided by
Doreen M. Chiu in favor of Sanwa Bank California*
10.34 Continuing Guaranty, dated as of March 6, 1998, provided by
Frank Y. Chiu in favor of Sanwa Bank California*
10.35 Indemnity Agreement, dated August 12, 1992, made and entered
into by Doreen M. Chiu, Frank Y. Chiu, the Company and National
Safety Consultants, Inc. in favor of ACTSTAR Insurance Company*
10.36 Continuing Agreement of Idemnity--Contractors' Form, dated March
19, 1998, made and entered into by Doreen M. Chiu, Frank Y. Chiu
and the Company for the benefit of Reliance Insurance Company,
United Pacific Insurance Company, Reliance National Indemnity
Company and Reliance Surety Company*
10.37 Purchase Order, dated February 10, 1996, issued by the Company
to ToxGon Corporation*
10.38 Amendments to Letter of Credit Agreement***
10.39 Line of Credit Agreement***
10.40 Amendment to Line of Credit Agreement
10.41 Term Loan Agreement-Sanwa Bank California
10.42 ATG Catalytics L.L.C. Operating Agreement
21.1 List of Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
- --------------
(*) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-46107) which became effective May
6, 1998.
(**) Incorporated by reference to exhibits filed with Registrant's Form 8-K
dated December 1, 1998.
(***) Incorporated by reference to exhibits filed with the Registrant's Form
10-Q for the quarter ended June 30, 1998.
<PAGE>
EXHIBIT 10.40
[LOGO OF SANWA BANK CALIFORNIA APPEARS HER]
AMENDMENT OF COMMERCIAL CREDIT AGREEMENT
This Amendment of Commercial Credit Agreement ("Amendment") is made and entered
into this 1st day of December, 1998 by and between SANWA BANK CALIFORNIA (the
"Bank") and ATG INC. (the "Borrower") with respect to the following:
This Amendment shall be deemed to be a part of and subject to that certain
commercial credit agreement between the parties hereto and dated as of July 1,
1998, as it may have been or be amended from time to time, and any and all
addenda, riders, exhibits and schedules thereto (collectively, the "Agreement").
Unless otherwise defined herein, all terms used in this Amendment shall have the
same meanings as in the Agreement. To the extent that any of the terms or
provisions of this Amendment conflict with those contained in the Agreement, the
terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend, amend and/or
modify the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the
Bank agree as follows:
1. REVISED LINE OF CREDIT FACILITY. The dollar amount provided for in section
2.02 of the Agreement, which is currently $8,000,000.00. is hereby modified and
changed to be $9,500,000.00.
2. REVISED LOCATION AND MAINTENANCE OF EQUIPMENT. Section 6.04 A of the
Agreement is hereby modified and changed to add the following new location: 1556
Bearcreek Road, Oak Ridge, TN 37831.
3. REVISED LOCATION AND QUALITY OF INVENTORY. Section 6.05 of the Agreement is
hereby modified and changed to add the following new location: 1556 Bearcreek
Road, Oak Ridge, TN 37831.
4. REVISED NET WORTH. Section 6.16 A of the Agreement is hereby deleted and is
replaced by the following new section 6.16 A which reads in its entirety as
follows: Section 6.16 A, Net Worth. A minimum Effective Tangible Net Worth of
not less than $38,000,000.00 plus 75% of net income after tax at each fiscal
year end plus the proceeds of any secondary equity offering.
5. REVISED DEBT SERVICE COVERAGE RATIO. The ratio provided for in section 6.16
D of the Agreement, which is currently 1.05 to 1.00, is hereby modified and
changed to be 1.40 to 1.00.
6. REVISED CAPITAL EXPENSES. Section 6.18 of the Agreement is hereby deleted
and is replaced by the following new section which reads in its entirety as
follows: Section 6.18. Capital Expenses. Not make any fixed capital expenditures
or any commitment therefor, including, but not limited to, incurring liability
for uses which would be, in accordance with generally accepted accounting
principles, reported as capital leases, or purchase any real or personal
property except for (i) expenditures in an aggregate amount not exceeding
$12.000,000.00 for the purchase of Molten Metal Technology. Inc.'s Wet Waste
Service Division: and (ii) expenditures in an aggregate amount not exceeding
$5,000,000.00 in any one fiscal year.
7. LOAN FEE. As a condition precedent to the effectiveness of this Amendment,
the Borrower hereby promises and agrees to pay to the Bank a loan fee in the
amount of $5.000.00, which fee shall be due upon the execution of this
Amendment.
8. INCORPORATION INTO AGREEMENT. On and after the effective date of this
Amendment, each reference in the Agreement to "this Agreement", "hereunder",
"hereof, "herein" or words of like import referring to the Agreement shall mean
and be referenced to the Agreement as amended by this Amendment.
9. NO WAIVER. The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provision
of, or operate as a waiver of any right, power or remedy of the Bank under, the
Agreement.
10. CONFIRMATION OF OTHER TERMS AND CONDITIONS. Except as specifically provided
in this Amendment, all other terms, conditions and covenants of the Agreement
which are unaffected by this Amendment shall remain unchanged and shall continue
in full force and effect and the Borrower hereby covenants and agrees to perform
and observe all terms, covenants and agreements provided for in the Agreement,
as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of
the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA ATG INC.
By: /s/ John Norawong By: /s/ Doreen Chiu
-------------------------------- -------------------------------
John Norawong, Authorized Officer Doreen Chiu, President
(1)
<PAGE>
RIDER TO LINE OF CREDIT AGREEMENT
This Rider shall be deemed to be subject to the terms of that certain Line
of Credit Agreement dated as of July 1, 1998 by and between Bank and Borrower,
as it may be amended from time to time. and any and all addenda and riders
thereto (collectively the "Agreement"). Unless otherwise defined herein, all
terms used in this Rider shall have the same meanings as in the Agreement. To
the extent that any of the terms or provisions of this Rider conflict with those
contained in the Agreement, the terms and provisions contained herein shall
control.
In addition to the covenants contained in Section 6 of the Agreement,
Borrower shall perform all acts reasonably necessary to ensure that Borrower
becomes Year 2000 Compliant in a timely manner. Such acts shall include
performing a review and assessment of all of Borrower's systems and adopting a
plan with a budget for the remediation and testing of such systems. For the
purposes hereof. "Year 2000 Compliant" shall mean that all software, hardware,
firmware, equipment, goods or systems, utilized by and material to the business
operations or financial condition of the Borrower. will properly perform date
sensitive functions before, during and after the Year 2000. Borrower shall use
its best efforts to remain informed as to whether its major customers, suppliers
and vendors are Year 2000 Compliant. Borrower shall, upon the Bank's request.
provide Bank with such certifications or other evidence of Borrower's compliance
with the terms hereof as Bank may from time to time require.
Except as specifically provided in this Rider, all other terms, conditions
and covenants contained in the Agreement shall remain unchanged and shall
continue in full force and effect.
IN WITNESS WHEREOF, this Rider has been executed by the parties hereto
as of 12/1/98, 1998.
BANK: BORROWER:
SANWA BANK CALIFORNIA ATG INC.
By: /s/ John Norawong By: /s/ Doreen Chiu
--------------------------------- ---------------------------------
John Norawong, Authorized Officer Doreen Chiu, President
<PAGE>
EXHIBIT 10.41
[LOGO]
TERM LOAN AGREEMENT
This Term Loan Agreement ("Agreement") is made and entered into this 1st day of
December, 1998 by and between SANWA BANK CALIFORNIA (the "Bank") and ATG INC.
(the "Borrower").
SECTION I
DEFINITIONS
1.01. CERTAIN DEFINED TERMS. Unless elsewhere defined in this Agreement the
following terms shall have the following meanings (such meanings to be generally
applicable to the singular and plural forms of the terms defined):
A. "BUSINESS DAY" shall mean a day, other than a Saturday or Sunday, on
which commercial banks are open for business in California.
B. "COLLATERAL" shall mean the property in which the Bank is granted a
security interest pursuant to provisions of the section herein entitled
"Collateral", together with any other personal or real property in which
the Bank may be granted a lien or security interest to secure payment of
the Obligations.
C. "DEBT" shall mean all liabilities of the Borrower less Subordinated
Debt.
D. "EFFECTIVE TANGIBLE NET WORTH" shall mean the Borrower's stated net
worth plus Subordinated Debt but less all intangible assets of the
Borrower (i.e., goodwill, trademarks, patents, copyrights, organization
expense and similar intangible items).
E. "ENVIRONMENTAL CLAIMS" shall mean all claims, however asserted, by any
governmental authority or other person alleging potential liability or
responsibility for violation of any Environmental Law or for release or
injury to the environment or threat to public health, personal injury
(including sickness, disease or death), property damage, natural resources
damage, or otherwise alleging liability or responsibility for damages
(punitive or otherwise), cleanup, removal, remedial or response costs,
restitution, civil or criminal penalties, injunctive relief, or other type
of relief, resulting from or based upon (i) the presence, placement,
discharge, emission or release (including intentional and unintentional,
negligent and non-negligent, sudden or non-sudden, accidental or non-
accidental placement, spills, leaks, discharges, emissions or releases) of
any Hazardous Materials at, in, or from property owned, operated or
controlled by the Borrower, or (ii) any other circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
F. "ENVIRONMENTAL LAWS" shall mean all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
governmental authorities, in each case relating to environmental, health,
safety and land use matters: including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air
Act. the Federal Water Pollution Control Act of 1972, the Solid Waste
Disposal Act, the Federal Resource Conservation and Recovery Act. the
Toxic Substances Control Act, the Emergency Planning and Community Right-
to-Know Act, the California Hazardous Waste Control Law, the California
Solid Waste Management, Resource, Recovery and Recycling Act, the
California Water Code and the California Health and Safety Code.
G. "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, including (unless the context otherwise
requires) any, rules or regulations promulgated thereunder.
H. "EVENT OF DEFAULT" shall have the meaning set forth in the section
herein entitled "Events of Default".
I. "HAZARDOUS MATERIALS" shall mean all those substances which are
regulated by, or which may form the basis of liability under any
Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous waste, hazardous
constituent, special waste, hazardous substance, hazardous material, or
toxic substance, or petroleum or petroleum derived substance or waste.
J. "INDEBTEDNESS" shall mean, with respect to the Borrower, (i) all
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which the Borrower is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which the Borrower otherwise assures a creditor against loss
and (ii) obligations under leases which shall have been or should be, in
accordance with generally accepted accounting principles, reported as
capital leases in respect of which the Borrower is liable, contingently or
otherwise, or in respect of which the Borrower otherwise assures a
creditor against loss.
K. "OBLIGATIONS" shall mean all amounts owing by the Borrower to the Bank
pursuant to this Agreement.
L. "PERMITTED LIENS" shall mean: (i) liens and security interests securing
indebtedness owed by the Borrower to the Bank; (ii) liens for taxes,
assessments or similar charges either not yet due or being contested in
good faith, provided proper reserves are maintained therefor in accordance
with generally accepted accounting procedure; (iii) liens of materialmen,
mechanics, warehousemen, or carriers or other like liens arising in the
ordinary course of business and securing obligations which are not yet
delinquent; (iv) purchase money liens or purchase money security
interests upon or in any property acquired or held by the Borrower in the
ordinary course of business to secure Indebtedness outstanding on the date
hereof or permitted to be incurred pursuant to this Agreement; (v) liens
and security interests which, as of the date hereof, have been disclosed
to and approved by the Bank in writing; and (vi) those liens and security
interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of the
Borrower's assets.
M. "REFERENCE RATE" shall mean an index for a variable interest rate which
is quoted, published or announced from time to time by the Bank as its
reference rate and as to which loans may be made by the Bank at, below or
above such reference rate.
N. "SUBORDINATED DEBT" shall mean such liabilities of the Borrower which
have been subordinated to those owed to the Bank in a manner acceptable to
the Bank.
1.02. ACCOUNTING TERMS. All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in
accordance with generally accepted accounting principles consistently applied
and, except where otherwise specified, all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
1.03. OTHER TERMS. Other terms not otherwise defined shall have the meanings
attributed to such terms in the California Uniform Commercial Code.
(1)
<PAGE>
SECTION II
CREDIT FACILITIES
2.01. COMMITMENT TO LEND. Subject to the terms and conditions of this Agreement
and so long as no Event of Default occurs, the Bank agrees to extend to the
Borrower the credit accommodations that follow.
2.02. TERM LOAN. The Bank agrees to lend to the Borrower up to the maximum
amount of $4,000,000.00 (the "Term Loan").
A. PURPOSE. The Term Loan shall be used to assist with the purchase of the
Wet Waste Division of Molten Metal Technology, Inc.
B. INTEREST RATE. Interest shall accrue on the outstanding principal
balance under this Term Loan at a variable rate equal to the Bank's
Reference Rate, per annum, as it may change from time to time. (Such rate
is referred to in this Section 2.02 as the "Variable Rate".) The Variable
Rate shall be adjusted concurrently with any change in the Reference Rate.
Interest shall be calculated on the basis of 360 days per year but charged
on the actual number of days elapsed.
C. PAYMENT OF INTEREST. The Borrower hereby promises and agrees to pay
interest monthly on the last day of each month, commencing on December 31,
1998. If interest is not paid as it becomes due, without waiving any Event
of Default occasioned by such non-payment, the Bank may, at its option but
without any obligation to do so, add such unpaid interest to principal and
it shall thereafter become and be treated as part of the principal and
shall thereafter bear like interest.
D. REPAYMENT OF PRINCIPAL. Unless sooner due in accordance with the terms
of this Agreement, the Borrower hereby promises and agrees to pay
principal in 35 monthly installments of $111,112.00 per installment,
commencing on December 31, 1998 and continuing on the last day of each
month thereafter.
On November 30, 2001 the Borrower hereby promises and agrees to pay to the
Bank in full the aggregate unpaid principal balance then outstanding,
together with all accrued and unpaid interest thereon.
Any payment received by the Bank shall, at the Bank's option, first be
applied to pay any late fees or other fees then due and unpaid, and then
to interest then due and unpaid and the remainder thereof (if any) shall
be applied to reduce principal.
E. LATE FEE. If any regularly scheduled payment of principal and/or
interest (exclusive of the final payment upon maturity), or any portion
thereof, under this Term Loan is not paid within ten (10) calendar days
after it is due, a late payment charge equal to five percent (5%) of such
past due payment may be assessed and shall be immediately payable.
F. FACILITY FEES. The following fees for this facility shall be paid in
cash upon execution of this Agreement or prior to funding of this
facility: Loan Fees in the amount of $20,000.00.
G. TERM LOAN ACCOUNT. The Bank shall maintain on its books a record of
account in which the Bank shall make entries setting forth all payments
made, the application of such payments to interest and principal, accrued
and unpaid interest (if any) and the outstanding principal balance under
the Term Loan (the "Term Loan Account). The Bank shall provide the
Borrower with a monthly statement of the Borrower's Term Loan Account,
which statement shall be considered to be correct and conclusively binding
on the Borrower unless the Bank is notified by the Borrower to the
contrary within thirty (30) days after the Borrower's receipt of any such
statement which is deemed to be incorrect.
SECTION III
COLLATERAL
3.01. GRANT OF SECURITY INTEREST. To secure payment and performance of all of
the Borrower's Obligations under this Agreement and the performance of all the
terms, covenants and agreements contained in this Agreement (and any and all
modifications, extensions and renewals of the Agreement) and in any other
document, instrument or agreement evidencing or related to the Obligations or
the Collateral, and also to secure all other liabilities, loans, guarantees,
covenants and duties owed by the Borrower to the Bank, whether or not evidenced
by this or by any other agreement, absolute or contingent, due or to become
due, now existing or hereafter and howsoever created, the Borrower hereby grants
to the Bank a security interest in and to all of the following property:
A. EQUIPMENT. All goods and equipment ("Equipment") now owned or hereafter
acquired by the Borrower or in which the Borrower now has or may hereafter
acquire any interest including, but not limited to, all machinery,
furniture, furnishings, tools, supplies and motor vehicles of every kind
and description and all additions, accessions, improvements, replacements
and substitutions thereto and thereof.
B. INVENTORY. All inventory ("Inventory") now owned or hereafter acquired
by the Borrower including, but not limited to, all raw materials, work in
process, finished goods, merchandise, parts and supplies of every kind and
description, including inventory temporarily out of the Borrower's custody
or possession, together with all returns on accounts.
C. ACCOUNTS AND CONTRACT RIGHTS. All accounts and contract rights now
owned or hereafter created or acquired by the Borrower, including but not
limited to, all receivables and all rights and benefits due to the
Borrower under any contract or agreement.
D. GENERAL INTANGIBLES. All general intangibles now owned or hereafter
created or acquired by the Borrower, including but not limited to,
goodwill, trademarks, trade styles, trade names, patents, patent
applications, software, customer lists and business records.
E. CHATTEL PAPER AND DOCUMENTS. All documents, instruments and chattel
paper now owned or hereafter acquired by the Borrower.
F. MONIES AND OTHER PROPERTY IN POSSESSION. All monies, and property of
the Borrower now or hereafter in the possession of the Bank or the Bank's
agents, or any one of them, including, but not limited to, all deposit
accounts, certificates of deposit, stocks, bonds, indentures, warrants,
options and other negotiable and non-negotiable securities and
instruments, together with all stock rights, rights to subscribe,
liquidating dividends, cash dividends, payments, dividends paid in stock,
new securities or other property to which the Borrower may become entitled
to receive on account of such property.
3.02. CONTINUING LIEN & PROCEEDS. The Bank's security interest in the Collateral
shall be a continuing lien and shall include all proceeds and products of the
Collateral including, but not limited to, the proceeds of any insurance thereon
as well as all accounts, contract rights, documents, instruments and chattel
paper resulting from the sale or disposition of any Equipment.
3.03. EXCLUSION OF CONSUMER DEBT. The Obligations and performance secured hereby
shall not include any indebtedness of the Borrower incurred for personal, family
or household purposes except to the extent any disclosure required under any
consumer protection law (including but not limited to the Truth in Lending Act)
or any regulation thereto, as now existing or hereafter amended, is or has been
given.
(2)
<PAGE>
SECTION IV
CONDITIONS PRECEDENT
4.01. CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT. The obligation of
the Bank to make the initial extension of credit hereunder is subject to the
conditions precedent that the Bank shall have received before the date of such
extension of credit all of the following, in form and substance satisfactory, to
the Bank:
A. AUTHORITY TO BORROW. Evidence relating to the duly given approval and
authorization of the execution, delivery and performance of this
Agreement, all other documents, instruments and agreements required under
this Agreement and all other actions to be taken by the Borrower hereunder
or thereunder.
B. GUARANTOR. A continuing guaranty in favor of the Bank, in form and
substance satisfactory to the Bank, executed by ATG Richland Corporation
(the "Guarantor"), together with evidence that the execution, delivery
and performance of the Guaranty by the Guarantor has been duly
authorized.
C. LOAN FEES. Evidence that any required loan fees and expenses as set
forth above with respect to each credit facility have been paid or
provided for by the Borrower.
D. AUDIT. The opportunity to conduct an audit of the Borrower's books,
records and operations and the Bank shall be satisfied as to the condition
thereof.
E. MISCELLANEOUS DOCUMENTS. Such other documents, instruments, agreements
and opinions as are necessary, or as the Bank may reasonably require, to
consummate the transactions contemplated under this Agreement, all fully
executed.
4.02. CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The obligation of the
Bank to make any extensions of credit to or on account of the Borrower
(including the initial extension of credit) shall be subject to the further
conditions precedent that, as of the date of each extension of credit and after
the making of such extension of credit:
A. REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in the Section entitled "Representations and Warranties" herein and
in any other document, instrument, agreement or certificate delivered to
the Bank hereunder are true and correct.
B. COLLATERAL. The security interest in the Collateral has been duly
authorized, created and perfected with first priority and is in full force
and effect and the Bank has been provided with satisfactory, evidence of
all flings necessary to establish such perfection and priority.
C. EVENT OF DEFAULT. No event has occurred and is continuing which
constitutes, or, with the lapse of time or giving of notice or both, would
constitute an Event of Default.
D. SUBSEQUENT APPROVALS, Etc. The Bank shall have received such
supplemental approvals, opinions or documents as the Bank may reasonably
request.
4.03. REAFFIRMATION OF STATEMENTS. For the purposes hereof, the Borrower's
acceptance of the proceeds of any extension of credit and the Borrower's
execution of any document or instrument evidencing or creating any Obligation
hereunder shall each be deemed to constitute the Borrower's representation and
warranty that the statements set forth above in this Section are true and
correct.
SECTION V
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to the
Bank, which representations and warranties are continuing:
5.01. STATUS. The Borrower is a corporation duly organized and validly existing
under the laws of the State of California and is properly licensed, qualified to
do business and in good standing in. and, where necessary to maintain the
Borrower's rights and privileges, has complied with the fictitious name statute
of every jurisdiction in which the Borrower is doing business.
5.02, AUTHORITY. The execution, delivery and performance by the Borrower of this
Agreement and any instrument, document or agreement required hereunder have been
duly authorized and do not and will not: (i) violate any provision of any law,
rule, regulation, writ, judgment or injunction presently in effect affecting the
Borrower: (ii} require any consent or approval of the stockholders of the
Borrower or violate any provision of the articles of incorporation or by-laws of
the Borrower: or {iii} result in a breach of or constitute a default under any
material agreement to which the Borrower is a party or by which it or its
properties may be bound or affected.
5.03. LEGAL EFFECT. This Agreement constitutes, and any document, instrument or
agreement required hereunder when delivered will constitute, legal, valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms.
5.04. FICTITIOUS TRADE STYLES. The Borrower currently uses no fictitious trade
styles in connection with its business operations. The Borrower shall notify the
Bank within thirty (30) days of the use of any fictitious trade style at any
future date, indicating the trade style and state(s) of its use.
5.05. FINANCIAL STATEMENTS. All financial statements, information and other data
which may have been and which may hereafter be submitted by the Borrower to the
Bank are true, accurate and correct and have been and will be prepared in
accordance with generally accepted accounting principles consistently applied
and accurately represent the Borrower's financial condition and, as applicable,
the other information disclosed therein. Since the most recent submission of any
such financial statement, information or other data to the Bank, the Borrower
represents and warrants that no material adverse change in the Borrower's
financial condition or operations has occurred which has not been fully
disclosed to the Bank in writing.
5.06. LITIGATION. Except as have been disclosed to the Bank in writing, there
are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or ,the Borrower's
properties before any court or administrative agency which, if determined
adversely to the Borrower. would have a material adverse effect on the
Borrower's financial condition, operations or the Collateral.
5.07. TITLE TO ASSETS. The Borrower has good and marketable title to all of its
assets (including, but not limited to, the Collateral) and the same are not
subject to any security interest, encumbrance, lien or claim of any third person
except for Permitted Liens.
5.08. ERISA. If the Borrower has a pension, profit sharing or retirement plan
subject to ERISA, such plan has been and will continue to be funded in
accordance with its terms and otherwise complies with and continues to comply
with the requirements of ERISA.
5.09. TAXES. The Borrower has filed all tax returns required to be filed and
paid all taxes shown thereon to be due, including interest and penalties, other
than taxes which are currently payable without penalty or interest or those
which are being duly contested in good faith.
5.10. ENVIRONMENTAL COMPLIANCE. The operations of the Borrower comply, and
during the term of this Agreement will at all times comply, in all respects with
all Environmental Laws: the Borrower has obtained licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental
(3)
<PAGE>
Permits") and necessary for its ordinary, operations, all such Environmental
Permits are in good standing, and the Borrower is in compliance with all
material terms and conditions of such Environmental Permits; neither the
Borrower nor any of its present properties or operations are subject to any
outstanding written order from or agreement with any governmental authority, nor
subject to any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Material: there are no
Hazardous Materials or other conditions or circumstances existing, or arising
from operations prior to the date of this Agreement, with respect to any,
property of the Borrower that would reasonably be expected to give rise to
Environmental Claims; provided however, that with respect to property leased
from an unrelated third party., the foregoing representation is made to the best
knowledge of the Borrower. In addition. (i) the Borrower does not have or
maintain any underground storage tanks which are not properly registered or
permitted under applicable Environmental Laws or which are leaking or disposing
of Hazardous Materials off-site, and (ii) the Borrower has notified all of its
employees of the existence, if any, of any health hazard arising from the
conditions of their employment and have met all notification requirements under
Title III of CERCLA and all other Environmental Laws.
SECTION VI
COVENANTS
The Borrower covenants and agrees that. during the term of this Agreement, and
so long thereafter as the Borrower is indebted to the Bank under this Agreement,
the Borrower shall, unless the Bank otherwise consents in writing:
6.01. PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS. Maintain and
preserve its existence and all rights and privileges now enjoyed not liquidate
or dissolve, merge or consolidate with or into, or acquire any other business
organization: and conduct its business in accordance with all applicable laws,
rules and regulations.
6.02. MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and covering
such risks as is usually carried by companies engaged in similar businesses and
Owning similar properties in the same general areas in which the Borrower
operates and maintain such other insurance and coverages as may be required by
the Bank. All such insurance shall be in form and amount and with companies
satisfactory to the Bank. With respect to insurance covering properties in which
the Bank maintains a security interest or lien, such insurance shall be in an
amount not less than the full replacement value thereof, at the Bank's request,
shall name the Bank as loss payee pursuant to a loss payable endorsement
satisfactory to the Bank and shall not be altered or canceled except upon ten
(10) days' prior written notice to the Bank. Upon the Bank's request, the
Borrower shall furnish the Bank with the original policy or binder of all such
insurance.
6.03. MAINTENANCE OF COLLATERAL AND OTHER PROPERTIES. Except for Permitted
Liens, the Borrower shall keep and maintain the Collateral free and clear of all
levies, liens, encumbrances and security interests (including but not limited
to, any lien of attachment, judgement or execution) and defend the Collateral
against any such levy. lien, encumbrance or security interest; comply with all
laws. statutes and regulations pertaining to the Collateral and its use and
operation; execute, file and record such statements, notices and agreements,
take such actions and obtain such certificates and other documents as necessary
to perfect, evidence and continue the Bank's security interest in the Collateral
and the priority thereof: maintain accurate and complete records of the
Collateral which show all sales, claims and allowances; and properly care for.
house, store and maintain the Collateral in good condition, flee of misuse,
abuse and deterioration, other than normal wear and tear. The Borrower shall
also maintain and preserve all its properties in good working order and
condition in accordance with the general practice of other businesses of similar
character and size, ordinary wear and tear excepted.
6.04. LOCATION AND MAINTENANCE OF EQUIPMENT.
A. LOCATION. The Equipment shall at all times be in the Borrower's
physical possession, shall not be held for sale or lease and shall be kept
only at the following location(s): 47375 Fremont Blvd., Fremont. CA 94538:
and 1556 Bearcreek Rd.. Oak Ridge. TN 37831.
The Borrower shall not secrete, abandon or remove, or permit the removal
of, the Equipment. or any part thereof, from the locations) shown above or
remove or permit to be removed any accessories now or hereafter placed
upon the Equipment.
B. EQUIPMENT SCHEDULES. Upon the Bank's demand, the Borrower shall
immediately provide the Bank with a complete and accurate description of
the Equipment including, as applicable, the make. model, identification
number and serial number of each item of Equipment. In addition, the
Borrower shall immediately notify the Bank of the acquisition of any new
or additional Equipment or the replacement of any existing Equipment and
shall supply the Bank with a complete description of any such additional
or replacement Equipment.
C. MAINTENANCE OF EQUIPMENT. The Borrower shall, at the Borrower's sole
cost and expense, keep and maintain the Equipment in a good state of
repair and shall not destroy, misuse, abuse, illegally use or be negligent
in the care of the Equipment or any part thereof. The Borrower shall not
remove, destroy. obliterate, change, cover, paint, deface or alter the
name plates, serial numbers, labels or other distinguishing numbers or
identification marks placed upon the Equipment or any part thereof by or
on behalf of the manufacturer, any dealer or rebuilder thereof, or the
Bank. The Borrower shall not be released from any liability to the Bank
hereunder because of any injury to or loss or destruction of the
Equipment. The Borrower shall allow the Bank and its representatives free
access to and the right to inspect the Equipment at all times and shall
comply with the terms and conditions of any leases covering the real
property on which the Equipment is located and any orders, ordinances,
laws regulations or rules of any federal, state or municipal agency or
authority having jurisdiction of such real property or the conduct of
business of the persons having control or possession of the Equipment.
D. FIXTURES. The Equipment is not now and shall not at any time hereafter
be so affixed to the real property on which it is located as to become a
fixture or a part thereof. The Equipment is now and shall at all times
hereafter be and remain personal property of the Borrower.
6.05. LOCATION AND QUALITY OF INVENTORY. The Inventory (i) is now and shall at
all times hereafter be of good and merchantable quality and free from defects:
(ii) is not now and shall not at any time hereafter be stored with a bailee,
warehouseman or similar party without the Bank's prior written consent and, in
such event, the Borrower will concurrently therewith cause any such bailee,
warehouseman or similar party to issue and deliver to the Bank, in form
acceptable to the Bank. warehouse receipts in the Bank's name evidencing the
storage of inventory; (iii) shall at all times (except as otherwise permitted by
this section) be in the Borrower's physical possession: (iv) shall not be held
by others on consignment, sale on approval, or sale or return: and (v) shall be
kept only at the following locations(s): 47375 Fremont Blvd.. Fremont. CA 94538
and 1556 Bearcreek Rd., Oak Ridge, TN 37831.
6.06. PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all assessments
and taxes and all of its liabilities and obligations including, but not limited
to. trade payables, unless the same are being contested in good faith by
appropriate proceedings with the appropriate court or regulatory agency. For
purposes hereof, the Borrower's issuance of a check, draft or similar instrument
without delivery to the intended payee shall not constitute payment.
6.07. INSPECTION RIGHTS. At any reasonable time and from time to time permit the
Bank or any representative thereof to examine and make copies of the records and
visit the properties of the Borrower and to discuss the business and operations
of the Borrower with any employee or representative thereof. If the Borrower now
or at any time hereafter maintains any records (including. but not limited to.
computer generated records and computer programs for the generation of such
records) in the possession of a third party, the Borrower hereby agrees to
notify such third party to permit the Bank free access to such records at all
reasonable times and to provide the Bank with copies of any records it may
request, all at the Borrower's expense, the amount of which shall be payable
immediately upon demand. In addition, the Bank may. at any reasonable time and
from time to time, conduct inspections and audits of the Collateral and the
Borrower's accounts payable, the cost and expenses of which shall be paid by the
Borrower to the Bank upon demand.
(4)
<PAGE>
6.08. REPORTING REQUIREMENTS. Deliver or cause to be delivered to the Bank in
form and detail satisfactory to the Bank
A. ANNUAL STATEMENTS. Not later than 120 days after the end of each of the
Borrower's fiscal years, a copy of the annual financial report of the
Borrower for such year, which report shall be a CPA audited report.
B. RECEIVABLES AND PAYABLES AGINGS. Not later than 45 days after the end
of each fiscal quarter, an aging of accounts receivable and an aging of
accounts payable.
C. INTERIM STATEMENTS. Not later than 45 days after the end of each of the
first three fiscal quarters of the Borrower, a copy of the Borrower's
financial statement as of the end of such fiscal quarter.
D. OTHER INFORMATION. Promptly upon the Bank's request, such other
information pertaining to the Borrower, the Collateral, or any Guarantor
as the Bank may reasonably request.
6.09. PAYMENT OF DIVIDENDS. The Borrower shall not declare or pay any dividends
on any class of its stock now or hereafter outstanding except dividends payable
solely in the corporation's capital stock.
6.10. REDEMPTION OR REPURCHASE OF STOCK. The Borrower shall not redeem or
repurchase any class of its corporate stock now or hereafter outstanding.
6.11. ADDITIONAL INDEBTEDNESS. Not, after the date hereof, create, incur or
assume, directly or indirectly, any liability or indebtedness other than (i)
indebtedness owed or to be owed to the Bank, (ii) indebtedness to trade
creditors incurred in the ordinary course of the Borrower's business, or (iii)
additional indebtedness up to an aggregate amount not exceeding $2,000,000.00 in
any one fiscal year.
6.12. LOANS. Not make any loans or advances or extend credit to any third
person, including, but not limited to, directors, officers, shareholders,
partners, employees, affiliated entities or subsidiaries of the Borrower, except
for credit extended in the ordinary course of the Borrower's business as
presently conducted and except loans up to an aggregate amount not exceeding
$500,000.00 in any one fiscal year.
6.13. LIENS AND ENCUMBRANCES. Not create, assume or permit to exist any security
interest, encumbrance, mortgage, deed of trust or other lien (including, but not
limited to, a lien of attachment, judgment or execution) affecting any of the
Borrower's properties, or execute or allow to be filed any financing statement
or continuation thereof affecting any such properties, except for Permitted
Liens or as otherwise provided in this Agreement and except for liens or
encumbrances up to an aggregate amount not exceeding $2,000.000.00 in any one
fiscal year.
6.14. TRANSFER ASSETS. Not sell. contract for sale, transfer, convey, assign,
lease or sublet any assets of the Borrower, including, but not limited to, the
Collateral, except in the ordinary course of business as presently conducted by
the Borrower, and then, only for full, fair and reasonable consideration.
6.15. CHANGE IN THE NATURE OF BUSINESS. Not make any material change in the
Borrower's financial structure or in the nature of the Borrower's business as
existing or conducted as of the date of this Agreement.
6.16. FINANCIAL CONDITION. Maintain at all times:
A. DEBT TO NET WORTH RATIO. A Debt to Effective Tangible Net Worth ratio
of not more than 1.00 to 1.00.
B. NET WORTH. A minimum Effective Tangible Net Worth of not less than
$38,000,000.00 plus 75 % of net income after tax at each fiscal year end
plus the proceeds of any secondary equity offering.
C. QUICK RATIO. A ratio of the sum of cash. cash equivalents and accounts
receivable less unbilled receivables to current liabilities of not less
than 1.30) to 1.00.
D. DEBT SERVICE COVERAGE RATIO. A Debt Service Coverage ratio (which is
defined herein as the sum of net profit after tax plus depreciation,
amortization and term interest expense less dividends, distributions and
withdrawals divided by the current portion of long term debt plus term
interest expense) of not less than 1.40 to 1.00, measured at each fiscal
year end.
6.17. COMPENSATION OF EMPLOYEES. Compensate the employees of the Borrower for
services rendered at an hourly rate at least equal to the minimum hourly rate
prescribed by any applicable federal or state law or regulation.
6.18. PROFITABILITY. The Borrower shall not show a net loss in any two
consecutive fiscal quarters.
6.19. CAPITAL EXPENSES. Not make any fixed capital expenditures or any
commitment therefor, including, but not limited to, incurring liability for uses
which would be. in accordance with generally accepted accounting principles,
reported as capital leases, or purchase any real or personal property except for
(i) expenditures in an aggregate amount not exceeding $12,000,000.00 for the
purchase of Molten Metal Technology, Inc.'s Wet Waste Division: and (ii)
expenditures in an aggregate amount not exceeding $5,000.000.00 in any one
fiscal year.
6.20. ENVIRONMENTAL COMPLIANCE. The Borrower shall:
A. Conduct the Borrower's operations and keep and maintain all of its
properties in compliance with all Environmental Laws.
B. Give prompt written notice to the Bank, but in no event later than 10
days after becoming aware, of the following: (i) any enforcement, cleanup,
removal or other governmental or regulatory, actions instituted, completed
or threatened against the Borrower or any of its affiliates or any of its
respective properties pursuant to any applicable Environmental Laws. (ii)
all other Environmental Claims, and (iii) any environmental or similar
condition on any, real property adjoining or in the vicinity, of the
property of the Borrower or its affiliates that could reasonably be
anticipated to cause such property or any part thereof to be subject to
any restrictions on the ownership, occupancy, transferability or use of
such property under any Environmental Laws.
C. Upon the written request of the Bank, the Borrower shall submit to the
Bank, at its sole cost and expense, at reasonable intervals, a report
providing an update of the status of any environmental, health or safety
compliance, hazard or liability issue identified in any notice required
pursuant to this Section.
D. At all times indemnify and hold harmless the Bank from and against any
and all liability arising out of any Environmental Claims.
6.21. NOTICE. Give the Bank prompt written notice of any and all (i) Events of
Default: (ii) litigation, arbitration or administrative proceedings to which the
Borrower is a party and in which the claim or liability exceeds $100,000.00 or
which affects the Collateral: (iii) any change in the place of business of the
Borrower or the acquisition of more than one place of business by the Borrower;
(iv) any proposed or actual change in the name, identity or business nature of
the Borrower; (v) any change in the location of the Equipment or Inventory)" and
(vi) other matters which have resulted in, or might result in a material adverse
change in the Collateral or the financial condition or business operations of
the Borrower.
(5)
<PAGE>
SECTION VII
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an event of
default under this Agreement:
7.01. NON-PAYMENT. The Borrower shall fail to pay any Obligations within 10 days
of when due.
7.02. PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The Borrower shall fail in
any material respect to perform or observe any term, covenant or agreement
contained in this Agreement or in any document, instrument or agreement
evidencing or relating to any indebtedness of the Borrower (whether owed to the
Bank or third persons), and any such failure (exclusive of the payment of money
to the Bank under this Agreement or under any other document, instrument or
agreement, which failure shall constitute and be an immediate Event of Default
if not paid when due or when demanded to be due) shall continue for more than 30
days after written notice from the Bank to the Borrower of the existence and
character of such Event of Default.
7.03. REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any representation
or warranty made by the Borrower under or in connection with this Agreement or
any financial statement given by the Borrower or any Guarantor shall prove to
have been incorrect in any material respect when made or given or when deemed to
have been made or given.
7.04. INSOLVENCY. The Borrower or any Guarantor shall: (i) become insolvent or
be unable to pay its debts as they mature; (ii) make an assignment for the
benefit of creditors or to an agent authorized to liquidate any substantial
amount of its properties or assets; (iii) file a voluntary petition in
bankruptcy or seeking reorganization or to effect a plan or other arrangement
with creditors; (iv) file an answer admitting the material allegations of an
involuntary petition relating to bankruptcy or reorganization or join in any
such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or
consent to the appointment of, or consent that an order be made, appointing any
receiver, custodian or trustee for itself or any of its properties, assets or
businesses; or (vii) any receiver, custodian or trustee shall have been
appointed for all or a substantial part of its properties, assets or businesses
and shall not be discharged within 30 days after the date of such appointment.
7.05. EXECUTION. Any writ of execution or attachment or any judgment lien shall
be issued against any property of the Borrower and shall not be discharged or
bonded against or released within 30 days after the issuance or attachment of
such writ or lien.
7.06. REVOCATION OR LIMITATION OF GUARANTY. Any Guaranty shall be revoked or
limited or its enforceability or validity shall be contested by any Guarantor,
by operation of law, legal proceeding or otherwise or any Guarantor who is a
natural person shall die.
7.07. SUSPENSION. The Borrower shall voluntarily suspend the transaction of
business or allow to be suspended, terminated, revoked or expired any permit,
license or approval of any governmental body necessary to conduct the Borrower's
business as now conducted.
7.08. CHANGE IN OWNERSHIP. There shall occur a sale, transfer, disposition or
encumbrance (whether voluntary or involuntary), or an agreement shall be entered
into to do so, with respect to more than 10% of the issued and outstanding
capital stock of the Borrower.
7.09. IMPAIRMENT OF COLLATERAL. There shall occur any injury or damage to all or
any part of the Collateral or all or any part of the Collateral shall be lost,
stolen or destroyed, which changes cause the Collateral, in the sole and
absolute judgement of the Bank, to become unacceptable as to character and
value.
SECTION VIII
REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default, the Bank may, at its sole election,
without demand and upon only such notice as may be required by law:
8.01. ACCELERATION. Declare any or all of the Borrower's indebtedness owing to
the Bank, whether under this Agreement or under any other document, instrument
or agreement, immediately due and payable, whether or not otherwise due and
payable.
8.02. CEASE EXTENDING CREDIT. Cease extending credit to or for the account of
the Borrower under this Agreement or under any other agreement now existing or
hereafter entered into between the Borrower and the Bank.
8.03. TERMINATION. Terminate this Agreement as to any future obligation of the
Bank without affecting the Borrower's obligations to the Bank or the Bank's
rights and remedies under this Agreement or under any other document, instrument
or agreement.
8.04. SEGREGATE COLLECTIONS. Require the Borrower to segregate all collections
and proceeds of the Collateral so that they are capable of identification and to
deliver such collections and proceeds to the Bank, in kind, without commingling,
at such times and in such manner as required by the Bank.
8.05. RECORDS OF COLLATERAL. Require the Borrower to periodically deliver to the
Bank, records and schedules showing the status, condition and location of the
Collateral and such contracts or other matters which affect the Collateral. In
connection herewith, the Bank may conduct such audits or other examination of
such records, including, but not limited to, verification of balances owing by
any account debtor of the Borrower, as the Bank, in its sole and absolute
discretion, deems necessary.
8.06. NOTIFICATION OF ACCOUNT DEBTORS.
A. Notify any or all of the Borrower's Account Debtors, or any buyers or
transferees of the Collateral or other persons of the Bank's interest in
the Collateral and the proceeds thereof and instruct such person(s) to
thereafter make any payment due the Borrower directly to the Bank.
B. The Borrower hereby irrevocably and unconditionally appoints the Bank
as its attorney-in-fact to: (i) endorse the Borrower's name on any notes,
acceptances, checks, drafts, money orders or other evidence of payment
that may come into the Bank's possession; (ii) sign the Borrower's name on
any invoice or bill of lading relating to any of the Collateral; (iii)
notify post office authorities to change the address for delivery of mail
addressed to the Borrower to such address as the Bank may designate and
take possession of and open mail addressed to the Borrower and remove
therefrom, proceeds of and payments on the Collateral; and (iv) demand,
receive and endorse payment and give receipts, releases and satisfactions
for and sue for all money payable to the Borrower. All of the preceding
may be done either in the name of the Bank or in the name of the Borrower
with the same force and effect as the Borrower could have done had this
Agreement not been entered into.
C. Require the Borrower to indicate on the face of all invoices (or such
other documentation as may be specified by the Bank relating to the sale,
delivery or shipment of goods giving rise to the account) that the account
has been assigned to the Bank and that all payments are to be made
directly to the Bank at such address as the Bank may designate.
8.07. COMPROMISE. Grant extensions, compromise claims and settle any account for
less than the amount owing thereunder, all without notice to the Borrower or
(6)
<PAGE>
any obligor on or guarantor of the Obligations.
8.08. PROTECTION OF SECURITY INTEREST. Make such payments and do such acts as
the Bank. in its sole judgment, considers necessary and reasonable to protect
its security interest or lien in the Collateral. The Borrower hereby irrevocably
authorizes the Bank to pay. purchase, contest or compromise any encumbrance,
lien or claim which the Bank, in its sole judgment, deems to be prior or
superior to its security interest. Further, the Borrower hereby agrees to pay to
the Bank, upon demand therefor, all expenses and expenditures (including
attorneys fees) incurred in connection with the foregoing.
8.09. FORECLOSURE. Enforce any security interest or lien given or provided for
under this Agreement or under any security agreement, mortgage, deed of trust or
other document relating to the Collateral, in such manner and such order, as to
all or any part of the Collateral, as the Bank. in its sole judgment, deems to
be necessary, or appropriate and the Borrower hereby waives any and all rights,
obligations or defenses now or hereafter established by law relating to the
foregoing. In the enforcement of its security interest or lien, the Bank is
authorized to enter upon the premises where any Collateral is located and take
possession of the Collateral or any part thereof, together with the Borrower's
records pertaining thereto, or the Bank may require the Borrower to assemble the
Collateral and records pertaining thereto and make such Collateral and records
available to the Bank at a place designated by the Bank. The Bank may sell the
Collateral or any portions thereof, together with all additions, accessions and
accessories thereto, giving only such notices and following only such procedures
as are required by law. at either a public or private sale. or both, with or
without having the Collateral present at the time of sale, which sale shall be
on such terms and conditions and conducted in such manner as the Bank determines
in its sole judgment to be commercially reasonable. Any deficiency which exists
after the disposition or liquidation of the Collateral shall be a continuing
liability of any obligor on or any guarantor of the Obligations and shall be
immediately paid to the Bank.
8.10. APPLICATION OF PROCEEDS. All amounts received by the Bank as proceeds from
the disposition or liquidation of the Collateral shall be applied to the
Borrower's indebtedness to the Bank as follows: first, to the costs and expenses
of collection, enforcement, protection and preservation of the Bank's lien in
the Collateral, including court costs and reasonable attorneys' fees, whether or
not suit is commenced by the Bank; next. to those costs and expenses incurred by
the Bank in protecting, preserving, enforcing, collecting, selling or disposing
of the Collateral: next, to the payment of accrued and unpaid interest on all of
the Obligations: next, to the payment of the outstanding principal balance of
the Obligations: and last, to the payment of any other indebtedness owed by the
Borrower to the Bank. Any excess Collateral or excess proceeds existing after
the disposition or liquidation of the Collateral will be returned or paid by the
Bank to the Borrower,
8.11. NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the Bank's rights set
forth herein or seek such other rights or pursue such other remedies as may be
provided by law, in equity or in any other agreement now existing or hereafter
entered into between the Borrower and the Bank, or otherwise.
SECTION IX
MISCELLANEOUS PROVISIONS
9.01. DEFAULT INTEREST RATE. If an Event of Default has occurred and is
continuing, the Bank. at its option, may require the Borrower to pay to the Bank
interest on any Indebtedness or amount payable under this Agreement at a rate
which is 3% in excess of the rate or rates otherwise then in effect under this
Agreement.
9.02. RELIANCE. Each warranty, representation, covenant and agreement contained
in this Agreement shall be conclusively presumed to have been relied upon by the
Bank regardless of any investigation made or information possessed by the Bank
and shall be cumulative and in addition to any other warranties,
representations. covenants or agreements which the Borrower shall now or
hereafter give. or cause to be given, to the Bank.
9.03. DISPUTE RESOLUTION.
A. DISPUTES. It is understood and agreed that. upon the request of any
party to this Agreement. any dispute, claim or controversy of any kind.
whether in contract or in tort. statutory or common law. legal or
equitable, now existing or hereinafter arising between the parties in any
way arising out of. pertaining to or in connection with: (i) this
Agreement, or any related agreements, documents or instruments. (ii) all
past and present loans, credits, accounts, deposit accounts (whether
demand deposits or time deposits), safe deposit boxes, safekeeping
agreements, guarantees, letters of credit, goods or services, or other
transactions, contracts or agreements of any kind, (iii) any incidents,
omissions, acts. practices, or occurrences causing injury to any party
whereby another party or its agents, employees or representatives may be
liable, in whole or in part. or (iv) any aspect of the past or present
relationships of the parties, shall be resolved through a two-step dispute
resolution process administered by the Judicial Arbitration & Mediation
Services, Inc. ("JAMS") as follows
B. STEP I - MEDIATION. At the request of any party to the dispute, claim
or controversy, the matter shall be referred to the nearest office of JAMS
for mediation, which is an informal, non-binding conference or conferences
between the parties in which a retired judge or justice from the JAMS
panel will seek to guide the parties to a resolution of the case.
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL PROPERTY). Should
any dispute, claim or controversy remain unresolved at the conclusion of
the Step I Mediation Phase. then {subject to the restriction at the end of
this subparagraph) all such remaining matters shall be resolved by. final
and binding arbitration before a different judicial panelist, unless the
parties shall agree to have the mediator panelist act as arbitrator. The
hearing shall be conducted at a location determined by the arbitrator in
Los Angeles. California (or such other city) as may be agreed upon by the
parties) and shall be administered by and in accordance with the then
existing Rules of Practice and Procedure of JAMS and judgement upon any
award rendered by the arbitrator may be entered by any State or Federal
Court having jurisdiction thereof. The arbitrator shall determine which is
the prevailing party and shall include in the award that party's
reasonable attorneys' fees and costs. This subparagraph shall apply only
if. at the time of the submission of the matter to JAMS. the dispute or
issues involved do not arise out of any transaction which is secured by
real property collateral or, if so secured, all parties consent to such
submission.
As soon as practicable after selection of the arbitrator, the arbitrator,
or the arbitrator's designated representative, shall determine a
reasonable estimate of anticipated fees and costs of the arbitrator, and
render a statement to each party setting forth that party's pro-rata share
of said fees and costs. Thereafter, each party shall, within 10 days of
receipt of said statement, deposit said sum with the arbitrator. Failure
of any party to make such a deposit shall result in a forfeiture by the
non-depositing party of the right to prosecute or defend the claim which
is the subject of the arbitration, but shall not otherwise serve to abate,
stay or suspend the arbitration proceedings.
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL
PROPERTY). If the dispute, claim or controversy is not one required or
agreed to be submitted to arbitration, as provided in the above
subparagraph, and has not been resolved by Step I mediation, then any
remaining dispute, claim or controversy shall be submitted for
determination by a trial on Order of Reference conducted by a retired
judge or justice from the panel of JAMS appointed pursuant to the
provisions of Section 638(1) of the California Code of Civil Procedure. or
any amendment, addition or successor section thereto, to hear the case and
report a statement of decision thereon. The parties intend this general
reference agreement to be specifically enforceable in accordance with said
section. If the parties are unable to agree upon a member of the JAMS
panel to act as referee, then one shall be appointed by the Presiding
Judge of the county wherein the hearing is to be held. The parties shall
pay in advance, to the referee, the estimated reasonable fees and costs of
the reference, as may be specified in advance by the referee. The parties
shall initially share equally, by paying their proportionate amount of the
estimated fees and costs of the reference. Failure of any party to make
such a fee deposit shall result in a forfeiture by the non-depositing
party of the right to prosecute or defend any cause of action which is the
subject of the reference, but shall not otherwise serve to abate, stay or
suspend the reference proceeding.
(7)
<PAGE>
E. PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision of, or
the exercise of any rights under any portion of this Dispute Resolution
provision, shall limit the right of any party to exercise self help
remedies such as set off, foreclosure against any real or personal
property collateral, or the obtaining of provisional or ancillary,
remedies, such as injunctive relief or the appointment of a receiver, from
any court having jurisdiction before, during or after the pendency of any
arbitration. At the Bank's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of power of sale under the
deed of trust or mortgage, or by judicial foreclosure. The institution and
maintenance of an action for provisional remedies, pursuit of provisional
or ancillary, remedies or exercise of self help remedies shall not
constitute a waiver of the right of any party to submit the controversy or
claim to arbitration.
9.04. WAIVER OF JURY. The Borrower and the Bank hereby expressly and voluntarily
waive any and all rights, whether arising under the California constitution, any
rules of the California Code of Civil Procedure, common law or otherwise, to
demand a trial by jury in any action, matter, claim or cause of action
whatsoever arising out of or in any way related to this Agreement or any other
agreement, document or transaction contemplated hereby.
9.05. RESTRUCTURING EXPENSES. In the event the Bank and the Borrower negotiate
for, or enter into, any restructuring, modification or refinancing of the
Indebtedness under this Agreement for the purposes of remedying an Event of
Default, the Bank, may require the Borrower to reimburse all of the Bank's costs
and expenses incurred in connection therewith, including, but not limited to
reasonable attorneys' fees and the costs of any audit or appraisals required by
the Bank to be performed in connection with such restructuring, modification or
refinancing.
9.06. ATTORNEYS' FEES. In the event of any suit, mediation, arbitration or other
action in relation to this Agreement or any document, instrument or agreement
executed with respect to, evidencing or securing the indebtedness hereunder, the
prevailing party, in addition to all other sums to which it may be entitled,
shall be entitled to reasonable attorneys' fees.
9.07. NOTICES. All notices, payments, requests, information and demands which
either party hereto may desire, or may be required to give or make to the other
party shall be given or made to such party by hand delivery or through deposit
in the United States mail, postage prepaid, or by Western Union telegram,
addressed to the address set forth below such party's signature to this
Agreement or to such other address as may be specified from time to time in
writing by either party to the other.
9.08. WAIVER. Neither the failure nor delay by the Bank in exercising any right
hereunder or under any document, instrument or agreement mentioned herein shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder or under any document, instrument or agreement mentioned herein
preclude other or further exercise thereof or the exercise of any other right:
nor shall any waiver of any right or default hereunder or under any other
document, instrument or agreement mentioned herein constitute a waiver of any
other right or default or constitute a waiver of any other default of the same
or any other term or provision.
9.09. CONFLICTING PROVISIONS. To the extent that any of the terms or provisions
contained in this Agreement are inconsistent with those contained in any other
document, instrument or agreement executed pursuant hereto, the terms and
provisions contained herein shall control. Otherwise, such provisions shall be
considered cumulative.
9.10. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the Borrower and the Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the Bank's prior written consent. The
Bank may sell, assign or grant participations in all or any portion of its
rights and benefits hereunder. The Borrower agrees that, in connection with any
such sale, grant or assignment, the Bank may deliver to the prospective buyer,
participant or assignee financial statements and other relevant information
relating to the Borrower and any guarantor.
9.11. JURISDICTION. This Agreement, any notes issued hereunder, the rights of
the parties hereunder to and concerning the Collateral, and any documents,
instruments or agreements mentioned or referred to herein shall be governed by
and construed according to the laws of the State of California, to the
jurisdiction of whose courts the parties hereby submit.
9.12. HEADINGS, The headings set forth herein are solely for the purpose of
identification and have no legal significance.
9.13. ENTIRE AGREEMENT. This Agreement and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties or pertaining
to the transactions contemplated hereunder that are not incorporated or
referenced in this Agreement or in such documents, instruments and agreements
are superseded hereby.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA ATG INC.
By: /s/ John Narawong By: /s/ Doreen Chiu
--------------------------------- ---------------------------------
JOHN NORAWONG, AUTHORIZED OFFICER DOREEN CHIU, PRESIDENT
ADDRESS: ADDRESS:
Oakland Main Office 47375 Fremont Boulevard
2127 Broadway Fremont, CA 94538
Oakland, CA 94612
(8)
<PAGE>
[LOGO]
CONTINUING GUARANTY
For value received and in consideration of the extension of credit by SANWA BANK
CALIFORNIA (the "Bank") to ATG INC. (the "Debtor") or the benefits to the
undersigned derived therefrom, the undersigned (the "Guarantor"), guarantees and
promises to pay to the Bank any and all Indebtedness (as defined below) and
agrees as follows
1. INDEBTEDNESS. The term "Indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations,
guaranties and liabilities of the Debtor heretofore, now, or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether direct or acquired by the Bank by assignment or succession, whether due
or not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether the Debtor may be liable individually or jointly with
others, or whether recovery upon any Indebtedness may be or hereafter becomes
barred by any statute of limitations or whether any Indebtedness may be or
hereafter becomes otherwise unenforceable.
2. GUARANTY. The Guarantor unconditionally agrees to pay to the Bank or its
order, on demand, an amount equal to the amount of the Indebtedness or otherwise
perform any obligation of the Debtor undertaken pursuant to any Indebtedness. In
addition to any maximum principal liability, hereunder, the Guarantor agrees to
(i) bear the expenses enumerated hereunder in the paragraph herein entitled
"Attorneys' Fees" and (ii) pay interest on the Indebtedness at the rate(s)
applicable thereto. Notwithstanding the foregoing, the Bank may allow the
Indebtedness to exceed the Guarantor's liability hereunder. Any payment by the
Guarantor shall not reduce the maximum principal obligation of the Guarantor
hereunder unless written notice to that effect is actually received by the Bank
at or prior to the time of such payment. Any payment by the Debtor or any other
person shall not reduce the Guarantor's maximum principal liability hereunder.
3. RIGHT TO AMEND OR MODIFY INDEBTEDNESS. The Guarantor authorizes the Bank, at
its sole discretion, with or without notice and without affecting the
Guarantor's liability, hereunder, from time to time to: (i) change the time or
manner of payment of any Indebtedness by renewal, extension, modification.
acceleration or otherwise; (ii) alter or change any provision of any
Indebtedness including, but not limited to, the rate of interest thereon, and
any document, instrument or agreement (other than this Guaranty) evidencing,
guaranteeing, securing or related to any Indebtedness; (iii) release, discharge,
exonerate, substitute or add one or more parties liable on any Indebtedness or
one or more endorsers, cosigners or guarantors for any Indebtedness: (iv) obtain
collateral for the payment of any Indebtedness or any guaranty thereof; (v)
release existing or after-acquired collateral on such terms as the Bank. in its
sole discretion, shall determine; (vi) apply any sums received from the Debtor,
any endorser, cosigner, other guarantor or other person liable on any
Indebtedness or from the sale or collection of collateral or its proceeds to any
indebtedness whatsoever owed or to be owed to the Bank by the Debtor in any
order or amount and regardless of whether or not such indebtedness is guaranteed
hereby, is secured by collateral or is due and payable; and (vii) apply to any
Indebtedness. in any order or amount, regardless of whether such Indebtedness is
secured by collateral or is due and payable, any sums received from the
Guarantor or from the sale of collateral in which the Guarantor has granted the
Bank a security interest.
4. WAIVERS. The Guarantor hereby unconditionally and irrevocably acknowledges
and agrees to the matters set forth below
A. DEFICIENCY. In the event that any Indebtedness is now or hereafter
secured by a deed of trust, the Guarantor waives any defense and all
rights and benefits of those laws purporting to state that no deficiency
judgment may be recovered on certain real property purchase money
obligations (as presently contained in Section 580b of the California Code
of Civil Procedure and as it may be amended or superseded in the future)
and those laws purporting to state that no deficiency judgment may be
recovered after a trustee's sale under a deed of trust (as presently
contained in Section 580d of the California Code of Civil Procedure and as
it may be amended or superseded in the future). THE GUARANTOR ACKNOWLEDGES
THAT A FORECLOSURE BY A TRUSTEE'S SALE UNDER A DEED OF TRUST MAY RESULT IN
THE DESTRUCTION OF THE GUARANTOR'S SUBROGATION RIGHTS THAT MAY OTHERWISE
EXIST AND THAT A DESTRUCTION OF THOSE RIGHTS MAY CREATE A DEFENSE TO A
DEFICIENCY JUDGEMENT. THE GUARANTOR HEREBY SPECIFICALLY WAIVES ANY SUCH
DEFENSE.
B. ELECTION OF REMEDIES. The Guarantor waives any defense based upon the
Guarantor's loss of a right against the Debtor arising from the Bank's
election of a remedy on any Indebtedness under bankruptcy or other debtor
relief laws or under any other laws, including, but not limited to, those
purporting to reduce the Bank's right against the Guarantor in proportion
to the principal obligation of any Indebtedness (as presently contained in
Section 2809 of the California Civil Code and as it may be amended or
superseded in the future).
Without limiting the generality of the foregoing, the Guarantor waives all
rights and defenses arising out of an election of remedies by the Bank,
even though that election of remedies, such as a nonjudicial foreclosure
with respect to security, for a guaranteed obligation, has destroyed the
Guarantor's rights of subrogation and reimbursement against the Debtor by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
C. STATUTE OF LIMITATIONS. The Guarantor waives the benefit of the statute
of limitations affecting the Guarantor's liability, hereunder or the
enforcement hereof.
D. ACTION AGAINST THE DEBTOR AND COLLATERAL (AND OTHER REMEDIES). The
Guarantor waives all right to require the Bank to: (i) proceed against the
Debtor, any endorser, cosigner, other guarantor or other person liable on
any Indebtedness; (ii) join the Debtor or any endorser, cosigner, other
guarantor or other person liable on any Indebtedness in any action or
actions that may be brought and prosecuted by the Bank solely and
separately against the Guarantor on any Indebtedness; (iii) proceed
against any item or items of collateral securing any Indebtedness or any
guaranty thereof; or (iv) pursue or refrain from pursuing any other remedy
whatsoever in the Bank's power.
E. DEBTOR'S DEFENSES. The Guarantor waives any defense arising by reason
of any disability, or other defense of the Debtor, the Debtor's successor
or any endorser, cosigner, other guarantor or other person liable on any
Indebtedness. Until all Indebtedness has been paid in full. even though it
may be in excess of the liability, incurred hereby, the Guarantor shall
not have any right of subrogation and the Guarantor waives any benefit of
and right to participate in any collateral now or hereafter held by the
Bank. The Guarantor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of
dishonor, notices of sale of any collateral securing any Indebtedness or
any guaranty thereof, and notice of the existence, creation or incurring
of new or additional Indebtedness.
F. DEBTOR'S FINANCIAL CONDITION. The Guarantor hereby recognizes,
acknowledges and agrees that advances may be made in the future from time
to time with respect to any Indebtedness without authorization from or
notice to the Guarantor even though the financial condition of the Debtor.
any endorser, cosigner, other guarantor or other person liable on any
Indebtedness may have deteriorated since the date of this Guaranty. The
Guarantor waives all right to require the Bank to disclose any information
with respect to (i) any Indebtedness now existing or hereafter incurred
(ii) the present or future financial condition, credit or character of the
Debtor, any endorser, cosigner, other guarantor or other person liable on
any Indebtedness; (iii) any present or future
(1)
<PAGE>
collateral securing any Indebtedness or any guaranty thereof; or (iv) any
present or future action or inaction on the part of the Bank. the Debtor
or any , endorser, cosigner, other guarantor or other person liable on any
Indebtedness. The Guarantor hereby assumes the responsibility for being
informed of the financial condition, credit and character of the Debtor
and of all circumstances bearing Upon the risk of non-payment of any
Indebtedness which diligent inquiry would reveal.
5. RIGHT OF SET-OFF; GRANT OF SECURITY INTEREST. In addition to all liens upon
and rights of set-off against any monies, securities or other property of the
Guarantor given to the Bank by law, the Bank shall have a security interest in
and a right to set off against all monies, securities and other property of the
Guarantor now or hereafter in the possession of or on deposit with the Bank, the
Bank's agents or any one or more of them, whether held in general or special
account or deposit or for safekeeping or otherwise; and each such security
interest and right of set-off may be exercised without demand upon or notice to
the Guarantor. No action or inaction by the Bank with respect to any security
interest or right of set-off shall be deemed a waiver thereof and every right of
set-off and security interest shall continue in full force and effect until
specifically released by the Bank in writing. The security interest created
hereby shall secure all of the Guarantor's obligations under this Guaranty.
6. RIGHT OF FORECLOSURE. The Bank may foreclose, either by judicial foreclosure
or by exercise of power of sale, any deed of trust securing any Indebtedness
even though such foreclosure may destroy or diminish the Guarantor's rights
against the Debtor. The Guarantor shall be liable to the Bank for any part of
any Indebtedness remaining unpaid after any such foreclosure whether or not
such foreclosure was for fair market value.
7. SUBORDINATION. Any indebtedness of the Debtor or any endorser, cosigner,
other guarantor or other person liable on any Indebtedness now or hereafter owed
to the Guarantor is hereby subordinated to the Indebtedness. Such indebtedness
owed to the Guarantor shall, if the Bank so requests, be collected, enforced and
received by the Guarantor as trustee for the Bank and be paid over to the Bank
on account of the Indebtedness but without reducing or affecting in any manner
the liability of the Guarantor set forth herein. Should the Guarantor fail to
collect the proceeds of any such indebtedness owed to it and pay the proceeds to
the Bank, the Bank, as the Guarantor's attorney-in-fact, may do such acts and
sign such documents in the Guarantor's name as the Bank considers necessary to
effect such collection.
8. INVALID, FRAUDULENT OR PREFERENTIAL PAYMENTS. The Guarantor agrees that, to
the extent the Debtor or any endorser, cosigner, other guarantor or other person
liable on any Indebtedness makes a payment or payments to, or is credited for
any payment or payments made for or on behalf of the Debtor to the Bank, which
payment or payments, or any part thereof, is subsequently invalidated,
determined to be fraudulent or preferential, set aside or required to be repaid
to any trustee, receiver, assignee or any other party whether under any
bankruptcy, state or federal law or under any common law or equitable cause or
otherwise, then. to the extent thereof, the obligation or part thereof intended
to be satisfied thereby shall be revived, reinstated and continued in full force
and effect as if such payment or payments had not originally been made or
credited.
9. JOINT AND SEVERAL OBLIGATIONS; INDEPENDENT OBLIGATIONS. If more than one
Guarantor signs this Guaranty, the obligations hereunder are joint and several.
The Guarantor's obligations hereunder are independent of the obligations of the
Debtor or any endorser, cosigner, other guarantor or other person liable on any
Indebtedness and a separate action or actions may be brought and prosecuted
against the Guarantor on any Indebtedness.
10. ACKNOWLEDGEMENT OF RECEIPT. Receipt of a true copy of this Guaranty is
hereby acknowledged by the Guarantor. The Guarantor understands and agrees that
this Guaranty shall not constitute a commitment of any nature whatsoever by the
Bank to renew or hereafter extend credit to the Debtor. The Guarantor agrees
that this Guaranty shall be effective with or without notice from the Bank of
the Bank's acceptance hereof.
11. CONTINUING GUARANTY. This Guaranty is a continuing guaranty. Revocation
shall be effective only upon written notice personally received by an officer of
the Bank at the originating office indicated below or actually received at the
originating office by United States mail postage prepaid. Notice shall be
effective at any office of the Bank should the originating office no longer be
in existence. Revocation shall be effective at the close of the Bank's business
day when such notice is actually received. Any revocation shall be effective
only as to the revoking party, and shall not affect that party's obligation with
respect to any Indebtedness existing before such revocation is effective.
12. NON-RELIANCE. In executing this Guaranty, the undersigned is not relying,
and has not relied, upon any statement or representation made by the Bank, or
any employee, agent or representative of the Bank, with respect to the status,
financial condition or other matters related to the Debtor or the relationship
between the Debtor and the Bank.
13. MULTIPLE GUARANTIES. If the Guarantor has executed or does execute more than
one guaranty of any indebtedness of the Debtor to the Bank, the limits of
liability thereunder and hereunder shall be cumulative.
14. SEVERABILITY. Should any one or more provisions of this Guaranty be
determined to be illegal or unenforceable, all other provisions shall remain
effective.
15. CORPORATE OR PARTNERSHIP AUTHORITY. If the Debtor is a corporation or
partnership, the Bank need not inquire into the power of the Debtor or the
authority of its officers, directors, partners or agents acting or purporting to
act in its behalf and any credit granted in reliance upon the purported exercise
of such power or authority is guarantied hereunder.
16. SEPARATE PROPERTY. Any married person who signs this Guaranty expressly
agrees that recourse may be had against such person's separate property, for all
obligations hereunder.
17. COLLATERAL. This Continuing Guaranty is secured by a Security Agreement
dated as of December 1, 1998 between the Guarantor and the Bank on behalf of the
Debtor.
18. ASSIGNMENT, The Bank may, with or without notice, assign this Guaranty in
whole or in part. This Guaranty shall inure to the benefit of the Bank, its
successors and assigns, and shall bind the Guarantor and the Guarantor's heirs,
executors, administrators, successors and assigns.
19. WAIVER OF JURY. The Guarantor and the Bank hereby expressly and voluntarily
waive any and all rights, whether arising under the California constitution, any
rules of the California Code of Civil Procedure, common law or otherwise, to
demand a trial by jury in any action, matter, claim or cause of action
whatsoever arising out of or in any way related to this Guaranty or any other
agreement, document or transaction contemplated hereby.
20. DISPUTE RESOLUTION.
A. DISPUTES. It is understood and agreed that. upon the request of any
party to this Guaranty, any dispute, claim or controversy of any kind,
whether in contract or in tort; statutory or common law, legal or
equitable, now existing or hereinafter arising between the parties in any
way arising out of, pertaining to or in connection with: (i) this
Guaranty, or any related agreements, documents or instruments, (ii) all
past and present loans, credits, accounts, deposit accounts (whether
demand deposits or time deposits), safe deposit boxes, safekeeping
agreements, guarantees, letters of credit, goods or services, or other
transactions, contracts or agreements of any kind, (iii) any incidents,
omissions, acts, practices, or occurrences causing injury to any party
whereby another party or its agents, employees or representatives may be
liable, in whole or in part, or (iv) any aspect of the past or present
relationships of the parties, shall be resolved through a two-step dispute
resolution process administered by the Judicial Arbitration & Mediation
Services, Inc. ("JAMS") as follows:
B. STEP I - MEDIATION. At the request of any party, to the dispute, claim
or controversy, the matter shall be referred to the nearest office of JAMS
for mediation, which is an informal, non-binding conference or conferences
between the parties in which a retired judge or justice from the JAMS
panel will seek
(2)
<PAGE>
to guide the parties to a resolution of the case.
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL PROPERTY). Should
any dispute, claim or controversy remain unresolved at the conclusion of
the Step I Mediation Phase, then (subject to the restriction at the end of
this subparagraph) all such remaining matters shall be resolved by final
and binding arbitration before a different judicial panelist, unless the
parties shall agree to have the mediator panelist act as arbitrator. The
hearing shall be conducted at a location determined by the arbitrator in
Los Angeles, California (or such other city as may be agreed upon by the
parties) and shall be administered by and in accordance with the then
existing Rules of Practice and Procedure of JAMS and judgement upon any
award rendered by the arbitrator may be entered by any State or Federal
Court having jurisdiction thereof. The arbitrator shall determine which is
the prevailing party and shall include in the award that party's reasonable
attorneys' fees and costs. This subparagraph shall apply only if, at the
time of the submission of the matter to JAMS, the dispute or issues
involved do not arise out of any transaction which is secured by real
property collateral or, if so secured, all parties consent to such
submission.
As soon as practicable after selection of the arbitrator, the arbitrator,
or the arbitrator's designated representative, shall determine a reasonable
estimate of anticipated fees and costs of the arbitrator, and render a
statement to each party, setting forth that party's pro-rata share of said
fees and costs. Thereafter, each party shall, within 10 days of receipt of
said statement, deposit said sum with the arbitrator. Failure of any party
to make such a deposit shall result in a forfeiture by the non-depositing
party of the right to prosecute or defend the claim which is the subject of
the arbitration, but shall not otherwise serve to abate, stay or suspend
the arbitration proceedings.
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL PROPERTY).
If the dispute, claim or controversy is not one required or agreed to be
submitted to arbitration, as provided in the above subparagraph, and has
not been resolved by Step I mediation, then any remaining dispute, claim or
controversy shall be submitted for determination by a trial on Order of
Reference conducted by a retired judge or justice from the panel of JAMS
appointed pursuant to the provisions of Section 638(1) of the California
Code of Civil Procedure, or any amendment, addition or successor section
thereto, to hear the case and report a statement of decision thereon. The
parties intend this general reference agreement to be specifically
enforceable in accordance with said section. If the parties are unable to
agree upon a member of the JAMS panel to act as referee, then one shall be
appointed by the Presiding Judge of the county wherein the hearing is to be
held. The parties shall pay in advance, to the referee, the estimated
reasonable fees and costs of the reference, as may be specified in advance
by the referee. The parties shall initially share equally, by paying their
proportionate amount of the estimated fees and costs of the reference.
Failure of any party to make such a fee deposit shall result in a
forfeiture by the non-depositing party of the right to prosecute or defend
any cause of action which is the subject of the reference, but shall not
otherwise serve to abate, stay or suspend the reference proceeding.
E. PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision of, or the
exercise of any rights under any portion of this Dispute Resolution
provision, shall limit the right of any party, to exercise self help
remedies such as set off, foreclosure against any real or personal
property, collateral, or the obtaining of provisional or ancillary
remedies, such as injunctive relief or the appointment of a receiver, from
any court having jurisdiction before, during or after the pendency of any
arbitration. At the Bank's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of power of sale under the
deed of trust or mortgage, or by judicial foreclosure. The institution and
maintenance of an action for provisional remedies, pursuit of provisional
or ancillary remedies or exercise of self help remedies shall not
constitute a waiver of the right of any party to submit the controversy or
claim to arbitration.
21. ATTORNEYS' FEES. Whether or not any suit, action, arbitration or other
dispute resolution proceeding is instituted, the Guarantor agrees to pay
reasonable attorneys' fees and all other costs and expenses which may be
incurred in the collection of any Indebtedness, in the protection or
preservation of, or realization on. any collateral securing any Indebtedness and
in the enforcement by the Bank of this Guaranty.
22. GOVERNING LAW, This Guaranty, shall be governed by and construed according
to the laws of the State of California and the Guarantor hereby submits to the
jurisdiction of the courts of the State of California.
23. ENTIRE AGREEMENT. This Guaranty and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties pertaining to
the transactions contemplated hereunder not incorporated or referenced in this
Guaranty, or in such documents, instruments and agreements are superseded
hereby.
24. HEADINGS. The headings used herein are solely for the purpose of
identification and have no legal significance.
25. ADDRESS OF THE BANK. The Bank's originating office under this Guaranty is:
Oakland Main Office, 2127 Broadway, Oakland, CA 94612.
26. MAXIMUM PRINCIPAL LIABILITY. THE MAXIMUM PRINCIPAL LIABILITY UNDER THIS
GUARANTY IS the amount of $20.000,000.00, plus interest at the rate(s)
applicable to any Indebtedness as set forth in the paragraph herein entitled
"Guaranty" and the expenses enumerated in the paragraph herein entitled
"Attorneys' Fees".
This Guaranty is made as of December 1, 1998, which shall be the date of this
Guaranty.
Executed by the undersigned Guarantor as of the date set forth above.
GUARANTOR:
ATG RICHLAND CORPORATION
By: /s/ Doreen Chiu
---------------------------------
DOREEN CHIU, PRESIDENT
ADDRESS
2025 Battelle Boulevard
Richland, WA 99352
(3)
<PAGE>
RIDER TO TERM LOAN AGREEMENT
This Rider shall be deemed to be subject to the terms of that certain Term
Loan Agreement dated as of December 1, 1998 by and between Bank and Borrower, as
it may be amended from time to time, and any and all addenda and riders thereto
(collectively the "Agreement"). Unless otherwise defined herein, all terms used
in this Rider shall have the same meanings as in the Agreement. To the extent
that any of the terms or provisions of this Rider conflict with those contained
in the Agreement. the terms and provisions contained herein shall control.
In addition to the covenants contained in Section 6 of the Agreement.
Borrower shall perform all acts reasonably necessary to ensure that Borrower
becomes Year 2000 Compliant in a timely manner. Such acts shall include
performing a review and assessment of all of Borrower's systems and adopting a
plan with a budget for the remediation and testing of such systems. For the
purposes hereof. "Year 2000 Compliant" shall mean that all software, hardware,
firmware, equipment, goods or systems, utilized by and material to the business
operations or financial condition of the Borrower's, will properly perform date
sensitive functions before, during and after the Year 2000. Borrower shall use
its best efforts to remain informed as to whether its major customers, suppliers
and vendors are Year 2000 Compliant. Borrower shall, upon the Bank's request,
provide Bank with such certifications or other evidence of Borrower's compliance
with the terms hereof as Bank may from time to time require.
Except as specifically provided in this Rider, all other terms, conditions
and covenants contained in the Agreement shall remain unchanged and shall
continue in full force and effect.
IN WITNESS WHEREOF, this Rider has been executed by the parties hereto as
of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA ATG INC.
By: /s/ John Norawong By: /s/ Doreen Chiu
-------------------------------- ------------------------------
John Norawong, Authorized Officer Doreen Chiu, President
<PAGE>
[LOGO OF SANWA BANK CALIFORNIA]
SECURITY AGREEMENT
This Security Agreement ("Agreement") is made and entered into this 1st day of
December, 1998 by and between SANWA BANK CALIFORNIA (the "Bank") and ATG
RICHLAND CORPORATION (the "Grantor").
1. GRANT OF SECURITY INTEREST. The Grantor hereby grants to the Bank a security
interest in and to all of the following property (hereinafter collectively
referred to as the "Collateral"):
A. EQUIPMENT. All goods and equipment ("Equipment") now owned or hereafter
acquired by the Grantor or in which the Grantor now has or may hereafter
acquire any interest including, but not limited to, all machinery,
furniture, furnishings, fixtures, tools, supplies and motor vehicles of
every kind and description and all additions, accessions, improvements,
replacements and substitutions thereto and thereof.
B. INVENTORY. All inventory ("Inventory") now owned or hereafter acquired
by the Grantor including, but not limited to, all raw materials, work in
process, finished goods, merchandise, parts and supplies of every kind and
description, including inventory temporarily out of the Grantor's custody
or possession, together with all returns on accounts.
C. ACCOUNTS AND CONTRACT RIGHTS. All accounts and contract rights now owned
or hereafter created or acquired by the Grantor, including but not limited
to, all receivables and all rights and benefits due to the Grantor under
any contract or agreement.
D. GENERAL INTANGIBLES. All general intangibles now owned or hereafter
created or acquired by the Grantor, including but not limited to,
goodwill,trademarks, trade styles, trade names, patents, patent
applications, software, customer lists and business records.
E. CHATTEL PAPER AND DOCUMENTS. All documents, instruments and chattel
paper now owned or hereafter acquired by the Grantor.
F. MONIES AND OTHER PROPERTY IN POSSESSION. All monies, and property, of
the Grantor now or hereafter in the possession of the Bank or the Bank's
agents, or any one of them, including, but not limited to, all deposit
accounts, certificates of deposit, stocks, bonds, indentures, warrants,
options and other negotiable and non-negotiable securities and instruments,
together with all stock rights, rights to subscribe, liquidating dividends,
cash dividends, payments, dividends paid in stock, new securities or other
property to which the Grantor may become entitled to receive on account of
such property.
The Bank's security interest in the Collateral shall be a continuing lien and
shall include all proceeds and products of the Collateral including but not
limited to, the proceeds of any insurance thereon.
2. THE INDEBTEDNESS. The Collateral secures payment of all obligations and
indebtedness pursuant to that certain Guaranty, in favor of the Bank dated
December 1, 1998, executed by ATG Richland Corporation and with a maximum
principal liability, of $20.000.000.00 plus interest, fees, attorneys' fees and
other costs and expenses related to the indebtedness guarantied. The
indebtedness and obligations secured hereby (hereinafter referred to as the
"Indebtedness") shall include any and all modifications, extensions and renewals
of such obligations or indebtedness and performance of all the terms, covenants
and agreements contained in this Security Agreement and in any other document,
instrument or agreement evidencing or related to the Indebtedness or the
Collateral.
The Indebtedness secured hereby shall not include any indebtedness incurred for
personal, family or household purposes except to the extent any disclosure
required under any consumer protection law (including but not limited to the
Truth in Lending Act) or any regulation thereto, as now existing or hereafter
amended, is or has been given.
3. GRANTOR'S REPRESENTATIONS AND WARRANTIES. The Grantor hereby makes the
following representations and warranties to the Bank, which representations and
warranties are continuing:
A. STATUS. The Grantor is a corporation duly organized and validly existing
under the laws of the State of Washington and is properly licensed,
qualified to do business and in good standing in, and, where necessary to
maintain the Grantor's rights and privileges, has complied with the
fictitious name statute of every jurisdiction in which the Grantor is doing
business.
B. AUTHORITY. The execution, delivery and performance by the Grantor of
this Security Agreement and any instrument, document or agreement required
hereunder have been duly authorized and do not and will not: (i) violate
any provision of any law, rule, regulation, writ. judgment or injunction
presently in effect affecting the Grantor; (ii) require any consent or
approval of the stockholders or violate any provision of the articles of
incorporation or by-laws of the Grantor; or (iii) result in a breach of or
constitute a default under any material agreement to which the Grantor is a
party, or by which the Grantor's properties may be bound or affected.
C. LEGAL EFFECT. This Security Agreement constitutes, and any document,
instrument or agreement required hereunder when delivered will constitute,
legal, valid and binding obligations of the Grantor enforceable against the
Grantor in accordance with their respective terms.
D. FICTITIOUS TRADE STYLES. The Grantor currently uses no fictitious trade
styles in connection with its business operations. The Grantor shall notify
the Bank within thirty (30) days of the use of any fictitious trade style
at any future date, indicating the trade style and state(s) of its use.
E. TITLE TO COLLATERAL; PERMITTED LIENS. The Grantor has good and
marketable title to the Collateral and the same is not now and shall not
become subject to any security interest, encumbrance, lien or claim of any
third person other than (i) liens and security interests securing the
Indebtedness or other indebtedness owed to the Bank; (ii) liens for taxes,
assessments or similar charges either not yet due or being contested in
good faith; (iii) liens of mechanics, materialmen, warehousemen, carriers
or other like liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (iv) purchase money liens or
purchase money security interests upon or in any property, acquired or held
by the Grantor in the ordinary course of business to secure indebtedness
outstanding on the date hereof or permitted to be incurred hereunder; (v)
liens and security interests which, as of the date hereof, have been
disclosed to and approved by the Bank in writing; and (vi) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary, amount with respect to the net value of the
Grantor's assets (collectively, the "Permitted Liens").
F. FINANCIAL STATEMENTS. All financial statements, information and other
data now or hereafter submitted to the Bank by the Grantor in connection
with the transaction with respect to which this Security Agreement is
entered into are true, accurate and correct and have been or will be
prepared in accordance with generally accepted accounting principles
consistently applied. Since the most recent submission of any such
financial statement, information or other data to the Bank, the Grantor
represents and warrants that no material adverse change in the financial
condition or operations as disclosed therein or thereby has
(1)
<PAGE>
occurred which has not been fully disclosed to the Bank in writing.
G. LITIGATION, Except as have been disclosed to the Bank in writing, there
are no actions, suits or proceedings pending or, to the knowledge of the
Grantor. threatened against or affecting the Grantor or the Grantor's
properties before any court or administrative agency which, if determined
adversely to the Grantor, would have a material adverse effect on the
Grantor's financial condition, operations or the Collateral.
H. TAXES. The Grantor has filed all tax returns required to be filed and
paid all taxes shown thereon to be due, including interest and penalties,
other than taxes which are currently payable without penalty or interest or
those which are being duly contested in good faith.
4. GRANTOR'S COVENANTS, The Grantor covenants and agrees that, unless the Bank
otherwise consents in writing, the Grantor shall at all times:
A. MAINTENANCE OF INSURANCE. Keep and maintain the Collateral insured for
not less than its full replacement value against all risks of loss and
damage and maintain such other insurance as is usually carried by companies
engaged in similar businesses and owning similar properties in the same
general areas in which the Grantor operates and maintain such other
insurance and coverages as may be required by the Bank. All such insurance
shall be in form and amount and with companies satisfactory to the Bank.
With respect to insurance covering the Collateral, such insurance shall
name the Bank as loss payee pursuant to a loss payable endorsement
satisfactory to the Bank and shall not be altered or canceled except upon
10 days prior written notice to the Bank. Upon the Bank's request, the
Grantor shall furnish the Bank with the original policy or binder of all
such insurance.
B. MAINTENANCE OF COLLATERAL. Except for Permitted Liens, keep and maintain
the Collateral free and clear of all levies, liens, encumbrances and other
security interests (including, but not limited to, any lien of attachment,
judgment or execution) and defend the Collateral against any such levy,
lien. encumbrance or security, interest; comply with all laws, statutes and
regulations pertaining to the Collateral, its use and operation; execute,
file and record such statements, notices and agreements, take such actions
and obtain such certificates and other documents necessary to perfect,
evidence and continue the Bank's security interest in the Collateral and
the priority thereof; maintain accurate and complete records of the
Collateral and properly care for, house, store and maintain the Collateral
in good condition, free of misuse, abuse and deterioration, other than
normal wear and tear.
C. LOCATION AND MAINTENANCE OF EQUIPMENT.
(i) LOCATION, The Equipment shall at all times be in the Grantor's
physical possession, shall not be held for sale or lease and shall be
kept only at the following location(s): 2025 Battelle Boulevard,
Richland, WA 99352. The Grantor shall not secrete, abandon or remove,
or permit the removal of, the Equipment, or any part thereof, from the
location(s) shown above or remove or permit to be removed any
accessories now or hereafter placed upon the Equipment.
(ii) EQUIPMENT SCHEDULES. Upon the Bank's demand, the Grantor shall
immediately provide the Bank with a complete and accurate description
of the Equipment including, as applicable, the make, model,
identification number and serial number of each item of Equipment. In
addition, the Grantor shall immediately notify the Bank of the
acquisition of any new or additional Equipment or the replacement of
any existing Equipment and shall supply the Bank with a complete
description of any such additional or replacement Equipment.
(iii) MAINTENANCE OF EQUIPMENT. The Grantor shall, at the Grantor's
sole cost and expense, keep and maintain the Equipment in a good state
of repair and shall not destroy, misuse, abuse, illegally use or be
negligent in the care of the Equipment or any part thereof. The
Grantor shall not remove. destroy, obliterate, change, cover, paint,
deface or alter the name plates, serial numbers, labels or other
distinguishing numbers or identification marks placed upon the
Equipment or any part thereof by or on behalf of the manufacturer, any
dealer or rebuilder thereof, or the Bank. The Grantor shall not be
released from any liability to the Bank hereunder because of any
injury, to or loss or destruction of the Equipment. The Grantor shall
allow the Bank and its representatives free access to and the right
to-inspect the Equipment at all times and shall comply with the terms
and conditions of any leases covering the real property on which the
Equipment is located and any orders, ordinances, laws, regulations or
rules of any federal, state or municipal agency or authority having
jurisdiction of such real property or the conduct of business of the
persons having control or possession of the Equipment.
(iv) FIXTURES, The Equipment is not now and shall not at any time
hereafter be so affixed to the real property, on which it is located
as to become a fixture or a part thereof. The Equipment is now and
shall at all times hereafter be and remain personal property, of the
Grantor.
D. LOCATION AND QUALITY OF INVENTORY. The Inventory. (i) is now and shall
at all times hereafter be of good and merchantable quality, and free from
defects; (ii) is not now and shall not at any time hereafter be stored with
a bailee, warehouseman or similar party, without the Bank's prior written
consent and, in such event, the Grantor will concurrently therewith cause
any such bailee, warehouseman or similar party to issue and deliver to the
Bank, in form acceptable to the Bank, warehouse receipts in the Bank's name
evidencing the storage of inventory; (iii) shall at all times (except as
otherwise permitted by this section be in the Grantor's physical
possession; (iv) shall not be held by others on consignment, sale on
approval, or sale or return and (v) shall be kept only at the following
locations(s): 2025 Battelle Boulevard, Richland, WA 99352.
E. INSPECTION RIGHTS. At any reasonable time and from time to time, permit
the Bank or any representative thereof to examine and make copies of the
records and visit the properties of the Grantor and discuss the business
and operations of the Grantor with any employee or representative thereof.
If the Grantor now or at any time hereafter maintains any records
(including, but not limited to, computer generated records and computer
programs for the generation of such records) in the possession of a third
party, the Grantor hereby agrees to notify such third party, to permit the
Bank free access to such records at all reasonable times and to provide the
Bank with copies of any records it may request, all at the Grantor's
expense, the amount of which shall be payable immediately upon demand.
F. REPORTING REQUIREMENTS. Promptly upon the Bank's request, deliver or
cause to be delivered to the Bank such information pertaining to the
Grantor, the Collateral or such other matters as the Bank may reasonably
request.
G. TRANSFER OF COLLATERAL. Not sell, contract for sale, convey, transfer,
assign, lease or sublet any of the Collateral except in the ordinary course
of business as presently conducted by the Grantor and then, only for full,
fair and reasonable consideration.
H. PAYMENT OF OBLIGATIONS. Pay all of the Grantor's liabilities and
obligations when due.
I. COMPENSATION OF EMPLOYEES. Compensate the Grantor's employees for
services rendered at an hourly rate at least equal to the minimum hourly
rate prescribed by any able federal or state law or regulation.
J. NOTICES. Give the Bank prompt written notice of: (i) any change in the
Grantor's place of business or the acquisition of more than one place of
business; (ii) any proposed or actual change in the Grantor's name,
identity or business nature; (iii) any change in the location of any
Collateral; (iv) any Event of Default; (v) litigation, arbitration or
administrative proceedings to which the Grantor is a party and which
affects the Collateral and in which the claim or liability exceeds
$100,000.00; and (vi) any other matter which has resulted in, or might
result in, a material adverse change in the Collateral or the financial
condition or business operations of the Grantor.
5. EVENTS OF DEFAULT. Any one or more of the following described events shall
constitute an event of default ("Event of Default") hereunder:
A. NON-PAYMENT. There shall occur a failure to pay when due any payment of
principal or interest or any other sum referred to in this Security
Agreement
(2)
<PAGE>
or under any other document, instrument or agreement evidencing or relating
to any indebtedness owed by the Grantor to the Bank or owed to the Bank by
any obligor on the Indebtedness.
B. PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The Grantor shall fail in
any material respect to perform or observe any term, covenant or agreement
contained in this Security Agreement or in any document, instrument or
agreement evidencing or relating to any indebtedness of the Grantor or any
indebtedness of any obligor on the Indebtedness (whether such indebtedness
is owed to the Bank or third persons), and any such failure (exclusive of
the payment of money to the Bank, which failure shall constitute and be an
immediate Event of Default if not paid when due or when demanded to be due)
shall continue for more than 30 days after written notice from the Bank to
the Grantor or the obligor on the Indebtedness of the existence and
character of such Event of Default.
C. REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any representation
or warranty made under or in connection with this Security Agreement or any
financial statement or information given in connection with the transaction
with respect to which this Security Agreement is entered into shall prove
to have been incorrect in any material respect when made or given or when
deemed to have been made or given.
D. INSOLVENCY. The Grantor or any obligor on or any guarantor of the
Indebtedness shall: (i) become insolvent or be unable to pay its debts as
they mature; (ii) make an assignment for the benefit of creditors or to an
agent authorized to liquidate any substantial amount of its properties or
assets; (iii) file a voluntary petition in bankruptcy or seeking
reorganization or to effect a plan or other arrangement with creditors;
(iv) file an answer admitting the material allegations of an involuntary
petition relating to bankruptcy or reorganization or join in any such
petition; (v) become or be adjudicated a bankrupt; (vi) apply for or
consent to the appointment of, or consent that an order be made appointing,
any receiver, custodian or trustee, for itself or any of its properties,
assets or businesses; or (vii) any receiver, custodian or trustee shall
have been appointed for all or a substantial part of its properties, assets
or businesses and shall not be discharged within 30 days after the date of
such appointment.
E. EXECUTION. Any writ of execution or attachment or any judgment lien
shall be issued against the Collateral and shall not be discharged or
bonded against or released within 30 days after the issuance or attachment
of such writ or lien:
F. IMPAIRMENT OF COLLATERAL. There shall occur any injury or damage to all
or any part of the Collateral or all or any part of the Collateral shall be
lost. stolen or destroyed.
G. REVOCATION OR LIMITATION OF GUARANTY. Any guaranty given with respect to
the Indebtedness shall be revoked or limited or its enforceability or
validity shall be contested by any guarantor, by operation of law, legal
proceeding or otherwise or any guarantor who is a natural person shall die.
H. SUSPENSION. The Grantor or any obligor on the Indebtedness shall
voluntarily suspend the transaction of business or allow to be suspended,
terminated, revoked or expired any permit, license or approval of any
federal, state or municipal agency or authority necessary to conduct such
person's business as now conducted.
I. CHANGE IN OWNERSHIP. There shall occur a sale, transfer, disposition or
encumbrance (whether voluntary or involuntary), or an agreement shall be
entered into to do so, with respect to more than 10% of the issued and
outstanding capital stock of the Grantor or any obligor on the
Indebtedness, if a corporation, or there shall occur a change in any
general partner or a change affecting the control of the Grantor or any
obligor on the Indebtedness, if a partnership.
6. BANK'S RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of
Default, the Bank may at its sole and absolute election, without demand and only
upon such notice as may be required by law:
A. ACCELERATION. Declare the Indebtedness and any or all other indebtedness
owing to the Bank by the Grantor or any obligor on the Indebtedness
(however such indebtedness may be evidenced or secured) immediately due and
payable, whether or not otherwise due and payable.
B. CEASE EXTENDING CREDIT. Cease extending credit to or for the account of
the Grantor or any obligor on the Indebtedness under any agreement now
existing or hereafter entered into with the Bank.
C. TERMINATION. Terminate any agreement as to any future obligation of the
Bank without affecting the Grantor's obligations to the Bank or the Bank's
rights and remedies under this Security Agreement or under any other
document, instrument or agreement.
D. SEGREGATE COLLECTIONS. Require the Grantor to segregate all collections
and proceeds of the Collateral so that they are capable of identification
and to deliver such collections and proceeds to the Bank, in kind, without
commingling, at such times and in such manner as required by the Bank.
E. RECORDS OF COLLATERAL. Require the Grantor to periodically deliver to
the Bank records and schedules showing the status, condition and location
of the Collateral and such contracts or other matters which affect the
Collateral. In connection herewith, the Bank may conduct such audits or
other examinations of such records, including, but not limited to,
verification of balances owing by any account debtor of the Grantor, as the
Bank, in its sole and absolute discretion, deems necessary.
F. NOTIFICATION OF ACCOUNT DEBTORS. Notify any or all of the Grantor's
account debtors, buyers or transferees of the Collateral or other persons
of the Bank's interest in the Collateral and the proceeds thereof and
instruct such person(s) to thereafter make any payment due the Grantor
directly to the Bank.
The Grantor hereby irrevocably constitutes and appoints the Bank as its
attorney-in-fact to (i) endorse the name of the Grantor on any notes,
acceptances, checks, drafts, money orders or other evidence of payment that
may come into the Bank's possession; (ii) sign the name of the Grantor on
any invoice or bill of lading relating to any of the Collateral; (iii)
notify post office authorities to change the address for delivery of mail
addressed to the Grantor to such address as the Bank may designate and take
possession of and open mail addressed to the Grantor and remove therefrom
proceeds of and payments on the Collateral; and (iv) demand, receive and
enforce payment and give receipts, releases and satisfactions for and sue
for all money payable to the Grantor. All of the preceding may be done
either in the name of the Bank or in the name of the Grantor with the same
force and effect as the Grantor could have done had this Security Agreement
not been entered into.
G. COMPROMISE. Grant extensions, compromise claims and settle any account
for less than the amount owing thereunder, all without notice to the
Grantor or any obligor on or any guarantor of the Indebtedness.
H. PROTECTION OF SECURITY INTEREST IN COLLATERAL. Make such payments and do
such acts as the Bank. in its sole judgment, considers necessary and
reasonable to protect its security interest in the Collateral. The Grantor
hereby irrevocably authorizes the Bank to pay, purchase, contest or
compromise any encumbrance, lien or claim which the Bank, in its sole
judgment, deems to be prior or superior to its security interest. Further,
the Grantor hereby agrees to pay to the Bank, upon demand therefor, all
expenses and expenditures (including attorneys' fees) incurred in
connection with the foregoing.
I. FORECLOSURE. Enforce any security interest or lien given or provided for
under this Security Agreement or under any other document relating to the
Collateral, in such manner and such order, as to all or any part of the
Collateral, as the Bank, in its sole judgment, deems to be necessary or
appropriate and the Grantor hereby waives any and all rights, obligations
or defenses now or hereafter established by law relating to the foregoing.
In the enforcement of its security interest in the Collateral, the Bank is
authorized to enter upon the premises where any Collateral is located and
take possession of the Collateral or
(3)
<PAGE>
any part thereof, together with the Grantor's records pertaining thereto,
or the Bank may require the Grantor to assemble the Collateral and records
pertaining thereto and make such Collateral and records available to the
Bank at a place designated by the Bank. The Bank may sell the Collateral or
any portions thereof, together with all additions, accessions and
accessories thereto, giving only such notices and following only such
procedures as are required by law, at either a public or private sale, or
both, with or without having the Collateral present at the time of sale,
which sale shall be on such terms and conditions and conducted in such
manner as the Bank determines in its sole judgment to be commercially
reasonable. Any deficiency which exists after the disposition or
liquidation of the Collateral shall be a continuing liability of any
obligor on or any guarantor of the Indebtedness and shall be immediately
paid to the Bank.
J. APPLICATION OF PROCEEDS. All amounts received by the Bank as proceeds
from the disposition or liquidation of the Collateral shall be applied as
follows: first, to the costs and expenses of collection, including court
costs and reasonable attorneys' fees, whether or not suit is commenced by
the Bank; next, to those costs and expenses incurred by the Bank in
protecting, preserving, enforcing, collecting, selling or disposing of the
Collateral; next, to the payment of accrued and unpaid interest on all of
the Indebtedness; next, to the payment of the outstanding principal balance
of the Indebtedness; and last, to the payment of any other indebtedness
owed by the Grantor to the Bank. Any excess Collateral or excess proceeds
existing after the disposition or liquidation of the Collateral will be
returned or paid by the Bank to the Grantor.
K. NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the Bank's rights
set forth herein or seek such other rights or pursue such other remedies as
may be provided by law, in equity or in any other agreement now existing or
hereafter entered into between the Bank and the Grantor or any obligor on
or guarantor of the Indebtedness, or otherwise.
7. MISCELLANEOUS PROVISIONS.
A. AMOUNTS PAYABLE UNDER THIS SECURITY AGREEMENT. If the Grantor fails to
pay on demand the amount of any obligations referred to in this Security
Agreement, the Bank may pay such amount at its option and without any
obligation to do so and without waiving any default occasioned by the
Grantor's failure to pay such amount. All amounts so paid by the Bank,
together with reasonable attorneys' fees and all other costs, charges and
expenses relating to the Indebtedness, shall be a part of the Indebtedness
and shall bear interest at the highest rate chargeable on any Indebtedness
until paid in full.
B. OTHER TERMS. Terms not otherwise defined in this Security Agreement
shall have the meanings attributed to such terms in the California Uniform
Commercial Code.
C. RELIANCE. Each warranty, representation, covenant and agreement
contained in this Security Agreement shall be conclusively presumed to have
been relied upon by the Bank regardless of any investigation made or
information possessed by the Bank and shall be cumulative and in addition
to any other warranties, representations, covenants or agreements which the
Grantor shall now or hereafter give, or cause to be given, to the Bank.
D. ATTORNEYS' FEES. In the event of any action in relation to this Security
Agreement, the Collateral or any document, instrument or agreement secured
hereby or related hereto, the prevailing party, in addition to all other
sums to which it may entitled, shall be entitled to reasonable attorneys'
fees.
E. NOTICES. All notices, payments, requests, information and demands which
either party hereto may desire, or be required to give or make to the other
party, shall be given or made to such party by hand delivery or through
deposit in the United States mail, postage prepaid, or by Western Union
telegram, addressed to the address set forth below such party's signature
to this Security Agreement or to such other address as may be specified
from time to time in writing by either party to the other.
F. WAIVER. Neither the failure nor delay by the Bank in exercising any
right hereunder or under any document, instrument or agreement mentioned
herein shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder or under any other document, instrument or
agreement mentioned herein preclude other or further exercise thereof or
the exercise of any other right; nor shall any waiver of any right or
default hereunder or under any other document, instrument or agreement
mentioned herein constitute a waiver of any other right or default or
constitute a waiver of any other default of the same or any other term or
provision.
G. ASSIGNMENT. This Security Agreement shall be binding upon and inure to
the benefit of the Grantor and the Bank and their respective successors and
assigns, except that the Grantor shall not have the right to assign the
Grantor's rights hereunder or any interest herein without the Bank's prior
written consent. The Bank may sell or assign all or any portion of its
rights and benefits hereunder and, in connection therewith, may deliver to
such prospective buyer or assignee financial statements and other relevant
information pertaining to the Grantor or any obligor on the Indebtedness.
H. SEVERABILITY. Should any one or more provisions of this Security
Agreement be determined to be illegal or unenforceable, all other
provisions shall remain effective.
I. JURISDICTION. This Security Agreement and the rights of the parties
hereunder to and concerning the Collateral, and any documents, instruments
or agreements mentioned or referred to herein, shall be governed by and
construed according to the laws of the State of California, to the
jurisdiction of whose courts the parties hereby submit.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
executed as of the date first hereinabove written.
BANK: GRANTOR:
SANWA BANK CALIFORNIA ATG RICHLAND CORPORATION
BY: /s/ John Norawong by: /s/ Doreen Chiu
----------------------------------- ----------------------------
JOHN NORAWONG, AUTHORIZED OFFICER DOREEN CHIU, PRESIDENT
ADDRESS: ADDRESS:
Oakland Main Office 2025 Battelle Boulevard
2127 Broadway Richland, WA 99352
Oakland, CA 94612
(4)
<PAGE>
[LOGO OF SANWA BANK CALIFORNIA APPEARS HERE]
CERTIFIED CORPORATE RESOLUTION TO GUARANTY AND
GRANT SECURITY INTERESTS AND LIENS
WHEREAS, ATG INC. (the "Borrower") has made application to SANWA BANK CALIFORNIA
(the "Bank") for credit accommodations which may consist of but shall in no way
be limited to the following: the renewal, continuation or extension of an
existing obligation; the extension of a new loan, line of credit or commitment;
the issuance of letters of credit or banker's acceptances; or the purchase or
sale through the Bank of foreign currencies; and
WHEREAS, the business interests of ATG RICHLAND CORPORATION (the "Corporation")
will be benefited by the credit accommodations extended or to be extended from
the Bank to the Borrower.
RESOLVED. that any one (1) of the following named officers, employees, or agents
of the Corporation, whose signatures are shown below:
<TABLE>
<CAPTION>
NAME POSITION SIGNATURE
---- -------- ---------
<S> <C> <C>
DOREEN CHIU President /s/ Doreen Chiu
---------------------------
FRANK CHIU Vice President/Secretary /s/ Frank Chiu
---------------------------
</TABLE>
is authorized, in the name of and on behalf of the Corporation to take the
following actions:
1. Guaranty repayment of any and all indebtedness of the Borrower to the Bank:
provided, however, that the maximum amount of indebtedness which may be
guaranteed pursuant to this authorization shall not exceed the principal sum
of $520.000.000.00 exclusive of any interest, fees, attorneys' fees and other
costs and expenses related to such indebtedness. Any such guaranty shall be in
such form and content as the officers of the Corporation executing such
guaranty shall approve, which approval shall be evidenced by the execution and
delivery of such guaranty.
2. Grant security interests and liens in any real, personal or other property
belonging to or under the control of the Corporation as security, for any
indebtedness pursuant to a guaranty by the corporation of the Borrower's
obligations to the Bank; execute and deliver to the Bank any and all security
agreements, pledges, mortgages, deeds of trust and such other security
instruments and any other documents to effectuate the grant of such security
interests and liens, which security instruments and other documents shall be
in such form and content as the officers of the Corporation executing such
security instruments and other documents shall approve and which approval
shall be evidenced by the execution and delivery of such security instruments
and other documents; and apply for letters of credit or seek the issuance of
banker's acceptances with respect to any obligations secured.
3. Waive on behalf of the Corporation, and in any agreement, instrument, or
document executed by the Corporation include a waiver of, any and all rights
of the Corporation to require the Bank to adhere to certain processes,
including without limitation, the right to a jury trial in an action or suit
against the Bank.
4. Include in any agreement, instrument or document executed by the
Corporation in connection with the actions herein authorized a provision
requiring that any dispute arising under such agreement, instrument or
document shall be resolved by mediation, arbitration, or other similar dispute
resolution method.
5. Transact any other business with the Bank incidental to the powers
hereinabove stated.
RESOLVED FURTHER, that all documents executed in the name of and on behalf of
the Corporation and all such actions taken on behalf of the Corporation in
connection with the matters described herein are hereby ratified and approved.
RESOLVED FURTHER, that the Bank is authorized to act upon these resolutions
until written notice of their revocation is delivered to the Bank.
RESOLVED FURTHER, that any resolution set forth herein is in addition to and
does not supersede any resolutions previously given by the Corporation to the
Bank.
RESOLVED FURTHER, that the Secretary of the Corporation be, and hereby is,
authorized and directed to prepare, execute and deliver to the Bank a certified
copy of the foregoing resolutions.
I DO HEREBY CERTIFY that I am the Secretary of ATG Richland Corporation, a
Washington corporation, and I do hereby further certify that the foregoing is a
true copy of the resolutions of the Board of Directors of the Corporation
adopted and approved in accordance with all applicable provisions of law and the
Articles and By-Laws of the Corporation either by unanimous written consent or
at a meeting which was duly called and held, at which meeting a majority of the
Board of Directors of the Corporation was present and voted in favor of the
resolutions.
I HEREBY FURTHER CERTIFY that such resolutions are presently in full force and
effect and have not been amended or revoked. I do further certify that the above
persons have been duly elected and qualified as and, this day are officers of
the Corporation, holding their respective offices appearing by their names, and
that the signatures appearing opposite their names are the genuine signatures of
such persons.
(1)
<PAGE>
IN WITNESS WHEREOF, THIS CERTIFICATE IS EXECUTED ON DECEMBER 1, 1998.
CERTIFIED TO AND ATTESTED BY:
X /s/ FRANK CHIU
------------------------------------
*SECRETARY OR ASSISTANT SECRETARY
X ______________________________________
*Note: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this certificate should
also be signed by a second Officer or Director of the Corporation.
(2)
<PAGE>
EXHIBIT 10.42
ATG CATALYTICS L.L.C.
---------------------
OPERATING AGREEMENT
-------------------
THIS OPERATING AGREEMENT, dated as of the 1st day of December 1998, is
adopted, executed and agreed to, for good and valuable consideration, by the
Members, who are set forth on Schedule A attached hereto.
-----------
WHEREAS, ATG CATALYTICS L.L.C. (the "LLC" or the "Company") has been formed
as a limited liability company under the Delaware Limited Liability Company Act
(the "Act") by the filing on November 30, 1998 of a Certificate of Formation
(the "Certificate") in the office of the Secretary of State of the State of
Delaware; and
WHEREAS, the Members and the Company adopted an Operating Agreement wish to
set out their respective rights, obligations and duties with respect to the
Company and its business, management and operations; and
WHEREAS, the Members wish to amend and restate their respective rights,
obligations and duties with respect to the LLC and its business, management and
operations.
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
---------
Definitions
-----------
The following capitalized terms used in this Agreement shall have the
respective meanings ascribed to them below:
"Act" means the Delaware Limited Liability Company Act, in effect at the
time of the initial filing of the Certificate with the Office of the Secretary
of State of the State of Delaware, and as thereafter amended from time to time.
"Affiliate" shall mean, with respect to any specified person or entity,
(i)any person or entity that directly or indirectly controls, is controlled by,
or is under common control with such specified person or entity; (ii) any person
or entity that directly or indirectly controls 10 percent or more of the
outstanding equity securities of the specified entity or of which the specified
person or entity is directly or indirectly the owner of 10 percent or more of
any class of equity securities; (iii)any person or entity that is an officer of,
director of, manager of, partner in, or trustee of, or serves in a similar
capacity with respect to, the specified person or entity or of which the
specified person or entity is an officer, director, partner, manager or trustee,
or with respect to which the specified person or entity serves in a similar
capacity; or (iv) any person that
<PAGE>
is a member of the immediate family (i.e., spouse, father, mother or sibling) of
the specified person.
"Bankruptcy" means the occurrence of any of the following events:
(i) a Member makes an assignment for the benefit of creditors;
(ii) a Member files a voluntary petition in bankruptcy;
(iii) a Member is adjudged a bankrupt or insolvent, or has entered against
it an order for relief, in any bankruptcy or insolvency proceeding;
(iv) a Member files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation;
(v) a Member files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding of this nature;
(vi) a Member seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of the Member or of all or any substantial part
of his or her or its properties; or
(vii) 120 days after the commencement of any proceeding against a Member
seeking reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, if the
proceeding has not been dismissed, or if, within 90 days after the appointment
without its consent or acquiescence of a trustee, receiver or liquidator of the
Member or of all or any substantial part of its properties, the appointment is
not vacated or stayed, or within 90 days after the expiration of any such stay,
the appointment is not vacated.
"Budget" means an annual operating budget of the LLC that has been approved
by the Manager.
"Capital Account" means a separate account maintained for each Member and
adjusted in accordance with Treasury Regulations under Section 704 of the Code.
"Certificate" means the Certificate of Formation creating the LLC, as it
may, from time to time, be amended in accordance with the Act.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Units" means Common Units having the rights and obligations
specified in this Agreement with respect to Common Units.
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"Consent" means the consent or approval of the Members holding Units
representing 51% or more of the Percentage Interests calculated solely with
reference to Units that are entitled to vote.
"Initial Capital Contribution" has the meaning specified in Section 3.01
below.
"Legal Representative" means, with respect to any individual, a duly
appointed executor, administrator, guardian, conservator, personal
representative or other legal representative appointed as a result of the death
or incompetency of such individual.
"Liquidity Event" means a Public Offering or an Approved Sale.
"Manager" shall refer to any person named to serve as a Manager in this
Agreement and any person who becomes an additional, substitute or replacement
Manager as permitted by this Agreement, in each such person's capacity as (and
for the period during which such person serves as) a Manager of the LLC.
"Managers" shall refer collectively to all of such persons in their capacities
(and for the period during which such persons serve) as a Manager of the LLC.
"Member" shall refer severally to any person named as a Member in this
Agreement and any person who becomes an additional, substitute or replacement
Member as permitted by this Agreement. "Members" shall refer collectively to all
such persons.
"Net Profits" and "Net Losses" mean the taxable income or loss, as the case
may be, for a period as determined in accordance with Section 703(a) of the
Code, computed with the following adjustments'
(i) Any tax-exempt income received by the LLC shall be included as an item
of gross income; and
(ii) Any expenditure of the LLC described in Section 705(a)(2)(B) of the
Code, including any expenditures treated as being described in Section
705(a)(2)(B) pursuant to Treasury Regulations under Section 704(b) of the Code,
shall be treated as a deductible expense.
"Non-Voting Common Units" means Units having the preferences, rights and
obligations set forth in this Agreement with respect to Non-Voting Common Units;
provided that such Units shall have no voting rights.
"Percentage Interest" means the percentage interest (rounded to the third
decimal) of a Member, calculated by using a numerator equal to the aggregate
number of Units held by such Member and a denominator equal to the aggregate
number of issued and outstanding Units.
"Securities Act" means the Securities Act of 1933, as amended.
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"Transfer" and any variation thereof shall refer to any sale, exchange,
issuance, redemption, assignment, distribution, encumbrance, hypothecation,
gift, pledge, retirement, resignation, transfer, or other withdrawal,
disposition or alienation in any way (whether voluntarily, involuntarily or by
operation of law) as to any interest as a Member. Transfer shall specifically,
without limitation of the above, include assignments and distributions resulting
from death, incompetency, Bankruptcy, liquidation and dissolution.
"Units" means Common Units and Non-Voting Common Units, as further defined
in Section 3.03 below.
ARTICLE II
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General
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2.01 Name of the Limited Liability Company. The name of the limited
liability company formed hereby is ATG Catalytics L.L.C. The name of the LLC may
be changed at any time or from time to time with the approval of the Manager and
the Consent of the Members.
2.02 Office of the Limited Liability Company; Agent for Service of
Process. The address of the registered office of the LLC for purposes of Section
18-103 of the Act is c/o CT Corporation System, 1209 Orange Street, Wilmington,
Delaware 19801. The name and address of the resident agent for service of
process for the LLC is c/o CT Corporation System, 1209 Orange Street,
Wilmington, Delaware 19801. The Manager may establish places of business of the
LLC within and without the State of Delaware, as and when required by the LLC's
business and in furtherance of its purposes set forth in Section 2.04 hereof,
and may appoint agents for service of process in all jurisdictions in which the
LLC shall conduct business. The Manager may cause the LLC to change from time to
time its resident agent for service of process, or the location of its
registered office in Delaware.
2.03 Organization. The Manager shall cause to be filed such certificates
and documents as may be necessary or appropriate to comply with the Act and any
other applicable requirements for the operation of a limited liability company
in accordance with the laws of the State of Delaware and any other jurisdictions
in which the LLC shall conduct business, and shall continue to do so for so long
as the LLC conducts business therein.
2.04 Purposes and Powers. The general character of the business of the LLC
is to engage in the processing and treatment of hazardous waste, and, any
activities directly or indirectly related or incidental thereto, and to carry on
any business activity permissible under the Act.
Subject to all other provisions of this Agreement, in furtherance of the
conduct of its business, the LLC is hereby authorized:
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(a) to enter into, execute, modify, amend, supplement, acknowledge,
deliver, perform and carry out contracts of any kind, including operating
agreements of limited liability companies (whether as a member or manager),
joint venture agreements, limited partnership and general partnership
agreements, contracts with Affiliates, including other contracts establishing
business arrangements or organizations necessary to, in connection with, or
incidental to the accomplishment of the purposes of the LLC;
(b) to borrow money and issue evidences of indebtedness or guarantees in
furtherance of any or all of the purposes of the LLC, and to secure the same by
mortgages, pledges or other liens on the property of the LLC;
(c) to the extent that funds of the LLC are available therefor, to pay
all expenses, debts and obligations of the LLC,
(d) to enter into or engage in any kind of activity necessary to, in
connection with, or incidental to the accomplishment of the purposes of the LLC,
so long as said activities may be lawfully carried on or performed by an LLC
under the laws of the State of Delaware; and
(e) to take any other action not prohibited under the Act or other
applicable law.
2.05 Members. The Members of the LLC are identified on Schedule A hereto.
-----------
Additional Members may be admitted to the LLC pursuant to and in accordance with
Article III hereof.
2.06 Designation of Manager. ATG, Inc. is hereby designated as the initial
and sole Manager of the LLC. The Manager may hold an interest in the LLC as a
Member, and such person's rights and interest as a Manager shall be distinct and
separate from such person's rights and interest as a Member. Any Manager may
withdraw or be removed as a Manager of the LLC and other persons added or
substituted to serve as Managers pursuant to Section 6.05 herein.
2.07 Liability of Members. The liability of the Members for the losses,
debts and obligations of the LLC shall be limited to their capital
contributions; provided, however, that under applicable law, the Members may
under certain circumstances be liable to the LLC to the extent of previous
distributions made to them in the event that the LLC does not have sufficient
assets to discharge its liabilities. Notwithstanding the foregoing, (i) no
Member, in its capacity as a Member (or, if applicable, as a Manager), shall
have any liability to restore any negative balance in its Capital Account and
(ii) the failure of the LLC to observe any formalities or requirements relating
to the exercise of its powers or the management of its business or affairs under
this Agreement or the Act shall not be grounds for imposing personal liability
on the Members or Managers for liabilities of the LLC.
2.08 Notices of Default. No Member or Manager shall be obliged to give
notice of an existing or potential default of any obligation of the LLC to any
of the Members, nor shall any
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Member or Manager be obligated to make any capital contributions or loans to the
LLC or otherwise supply or make available any funds to the LLC, even if the
failure to do so would result in a default of any of the LLC's obligations or
the loss or termination of all or any part of the LLC's assets or business.
2.09 Investment Representations. Each Member, by execution of this
Agreement or an amendment hereto reflecting such Member's admission to the LLC,
hereby represents and warrants to the LLC the following:
(a) It is acquiring an interest in the LLC for its own account for
investment only, and not with a view to, or for sale in connection with, any
distribution thereof in violation of the Securities Act, or any role or
regulation thereunder.
(b) It understands that (i) the interest in the LLC it is acquiring has
not been registered under the Securities Act or applicable state securities laws
and cannot be resold unless subsequently registered under the Securities Act and
such laws or unless an exemption from such registration is available; (ii) such
registration under the Securities Act and such laws is unlikely at any time in
the future and neither the LLC nor the Members or Manager are obligated to file
a registration statement under the Securities Act or such laws; and (iii) the
assignment, sale, transfer, exchange or other disposition of the interests in
the LLC is restricted in accordance with the terms of this Agreement.
(c) It has had such opportunity as it has deemed adequate to ask
questions of and receive answers from the Manager or other representatives of
the LLC concerning the LLC, and to obtain from representatives of the LLC such
information that the LLC possesses or can acquire without unreasonable effort or
expense, as is necessary to evaluate the merits' and risks of an investment in
the LLC.
(d) It has, either alone or with its professional advisers, sufficient
experience in business, financial and investment matters to be able to evaluate
the merits and risks involved in investing in the LLC and to make an informed
investment decision with respect to such an investment.
(e) It can afford a complete loss of the value of its investment in the
LLC and is able to bear the economic risk of holding such investment for an
indefinite period.
(f) If it is an entity, (i) it is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization; (ii) it has
full organizational power to both execute and deliver this Agreement and perform
its obligations hereunder; (iii) its execution, delivery and performance of this
Agreement has been authorized by all requisite action on behalf of the entity;
and (iv) it has duly executed and delivered this Agreement.
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2.10 No State Law Partnership. The Members intend that the Company shall
not be a partnership (including, without limitation, a limited partnership) or
joint venture, and that no Member or the Company shall be a partner or joint
venturer of any other Member or the Company, for any purposes other than
federal, if applicable, state and local tax purposes, and this Agreement Shall
not be construed to the contrary. The Members intend that the Company shall be
treated as a partnership for federal and, if applicable, state and local tax
purposes, and each Member and the Company shall file all tax returns and shall
otherwise take all tax and financial reporting positions in a manner consistent
with such treatment.
ARTICLE III
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Membership; Member Units
------------------------
3.01 Members. The Company shall, at all times, have one or more Members.
On or prior to the date hereof, each Member has made a contribution to the
capital of the Company in the aggregate amount and in the manner set forth
opposite its name on Schedule A attached hereto (each member's contribution, the
-----------
"Initial Capital Contribution"). Each Member shall execute a counterpart to this
Agreement. When a person or entity is admitted as a new Member in accordance
with the provisions of this Agreement, it shall execute a counterpart to this
Agreement and its name shall be added to Schedule A.
-----------
3.02 No Authority to Bind the Company. No Member (in its capacity as a
Member) shall have the authority or power to represent or act for or on behalf
of the Company, to do any act that would be binding on the Company or to make
any expenditures or incur any obligations on behalf of the Company (unless such
Member is an officer or Manager of the Company authorized to do such act, make
such expenditure or incur such expenditure and such Member is acting in such
capacity). The management of the business and affairs of the Company shall be
vested in the Manager of the Company and, pursuant to the delegation of
authority by the Manager, the Company's officers.
3.03 Member Units; Voting Rights. Each Member's interest in the Company
(including such Member's interest, if any, in the capital, income, gains,
losses, deductions and expenses of the Company and the right to vote, if any, on
certain Company matters as provided herein) shall be represented by "Units"
(each, individually a "Unit," and any number of Units, including fractions
thereof, "Units"). Initially, the Units shall be comprised of Common Units and
Non-Voting Common Units. The ownership by a Member of Units shall entitle such
Member to allocations of profits and losses and other items and distributions of
cash and other property as set forth in Article V hereof. The Company may issue
Common Units in accordance with the terms set forth in this Agreement upon the
approval of the Manager. Except as otherwise expressly provided in this
Agreement, Members holding Non-Voting Common Units shall not be, by reason of
such ownership, entitled to vote on matters voted on by the Members holding
Common Units. The Manager may cause the Company to issue to the Members
certificates representing the Units held by such Members.
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3.04 Issuance of Additional Units and Interests. Subject to Section 3.03
and Article IX, the Manager shall have the right to cause the Company to issue
(a) additional Units or other interests in the Company (including other classes
or series thereof having different rights); (b) obligations, evidences of
indebtedness or other securities or interests convertible or exchangeable into
Units or other interests in the Company; and (c) warrants, options or other
rights to purchase or otherwise acquire Units or other interests in the Company;
provided that the Company shall not issue Units to any person or entity unless
such person or entity shall have executed a counterpart to this Agreement and
completed the information required on Schedule A.
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3.05 Repurchase or Vesting of Units. The Manager may, in his sole
discretion, determine that any or all Units may be subject to vesting and/or
repurchase restrictions. Such vesting and/or repurchase restrictions shall be
set forth in a separate equity restriction agreement by and among the Company
and each such member holding Units subject to vesting and/or repurchase
restrictions.
3.06 Meetings of Members. Meetings of the Members may be called by the
Manager at any time or by Members holding at least 51% of the Percentage
Interests based on then-outstanding Units entitled to vote. The Manager or the
Members calling such meeting, as applicable, shall designate any place as the
place of such meeting of the Members. Written notice stating the place, day and
hour of the meeting and the purpose therefor shall be delivered to each Member
not less than seven nor more than 30 days before such meeting. If all of the
Members meet at any time and place and consent to the holding of a meeting at
such time and place, such meeting shall be valid without notice and any Company
action which may be taken at a meeting of the Members may be taken at such
meeting.
3.07 Quorum; Manner of Acting. At each meeting of the Members, the Members
holding Units representing Percentage Interests of 51% or more, calculated
solely with reference to Units having a right to vote, shall constitute a quorum
for the transaction of any business which may be taken at such a meeting. In the
absence of a quorum, any Member present at such meeting shall have the power to
adjourn such meeting until a quorum shall be constituted. The Consent of the
Members entitled to vote and represented at such meeting where a quorum is
present shall constitute the act of the Members.
3.08 Proxies; Written Actions; Telephonic Participation. At any meeting
of the Members, a Member may vote by proxy executed in writing by such Member.
Any action required to be, or which may be, taken by Members may be taken
without a meeting if Consented thereto in a writing setting forth the action so
taken and signed by Members holding Percentage Interests equal to 51% or more,
calculated solely with reference to Units which are entitled to vote thereon.
Members may participate in any meeting through telephonic or similar
communications equipment by which all persons participating in the meeting can
hear one another and such participation shall constitute presence in person at
such meeting.
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ARTICLE IV
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Capital Accounts
----------------
4.01 Capital Accounts. There shall be established on the books of the
Company a Capital Account for each Member that shall consist of such Member's
Initial Capital Contribution to the Company as reflected in the books and
records of the Company, and shall be:
(a) increased by (i) any additional capital contributions made by
such Member as so reflected, and (ii) any amounts from time to time
added to the Capital Account of such Member pursuant to Article V;
(b) decreased by (i) any distributions made to such Member pursuant
to Article V and (ii) any amounts from time to time subtracted from
the Capital Account of such Member pursuant to Article V; and
(c) otherwise adjusted in accordance with the tax accounting
principles set forth in Treasury Regulations Section 1.704-
1(b)(2)(iv).
4.02 Accounting for Distributions in Kind. For purposes of maintaining
Capital Accounts when Company property is distributed in kind,
(a) the Company shall treat such property as if it had been sold for
its fair market value on the date of distribution,
(b) any difference between the fair market value of such property as
so determined and the adjusted tax basis (determined without regard to any
election made pursuant to Section 754 of the Internal Revenue Code of 1986, as
amended (the "Code")) of such property shall be allocated to the Capital Account
of the Partners pursuant to Article V; and
(c) the Capital Account of any Member receiving a distribution of
such property shall be reduced by the fair market value of the property so
received, net of any liabilities that such Member is considered to assume or
take subject to under Section 752 of the Code.
4.03 Compliance with Treasury Regulations. The foregoing provisions and
the other provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Code Section 704(b) and Treasury
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such regulations.
4.04 Interest. No Member shall be paid interest on any Capital
Contribution to the Company or on the balance of such Member's Capital Account.
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4.05 Loans from Members. Any Member may make a loan to the Company and any
loan by a Member to the Company shall not be considered a Capital Contribution.
4.06 Effect of Assignment. In the event of any assignment of Units
pursuant to Article IX, the assignee shall succeed to the Capital Account of the
assignor with respect to the Units transferred.
ARTICLE V
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Allocations and Distributions
-----------------------------
5.01 General. Subject to the provisions of Section 18-607 of the Act, and
except as required by this Agreement, including Section 5.02 hereof,
distributions may be made to Members holding Units at such time and in such
amounts as the Manager deems necessary or appropriate, in his sole discretion.
Notwithstanding the foregoing, the net proceeds of an Approved Sale shall be
distributed to Members within five business days following the consummation of
such Approved Sale. All distributions (i) shall be subject to the retention and
establishment of such reserves as the Manager deems necessary with respect to
the reasonable business needs of the Company, including reserves with respect to
any contingent liabilities of the Company as a result of an Approved Sale, and
(ii) except with respect to Tax Distributions pursuant to Section 5.02, shall be
made only in the following order and priority'
All distributions shall be made to the Members holding Units pro rata
according to their respective Capital Accounts.
5.02 Tax Distributions. To the extent funds of the Company may be legally
available for distribution by the Company, the Manager shall cause the Company
to distribute to the Members holding Units with respect to each fiscal quarter
of the Company an amount of cash (a "Tax Distribution") which equals (a) the
amount of taxable income allocable to such Members with respect to such fiscal
quarter, multiplied by (b) a percentage determined, in the sole discretion of
the Manager, to be a reasonable estimate of the applicable combined marginal
federal, state and local income tax rates to which a Member may be subject and
taking into account the deductibility of state income tax for federal income tax
purposes, with such distribution to be made to the Members in the same
proportions that taxable income was allocated to the Members during such fiscal
quarter. Tax Distributions shall be made prior to distributions pursuant to
Section 5.01 hereof and shall not be considered distributions of Unreturned
Capital to Members.
5.03 Allocations of Net Profits and Net Losses. Net Profits and Net Losses
for any fiscal year shall be allocated among the Members holding Units in
accordance with their respective Percentage Interests.
5.04 Amounts Withheld. All amounts withheld from or offset against any
distribution to a Member, whether pursuant to Section 10.04 hereof, by reason of
a required tax withholding,
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or pursuant to an equity restriction agreement between the Company and such
Member, shall be treated as amounts distributed to such Member pursuant to this
Article V for all purposes under this Agreement.
5.05 Tax Allocations; Code Section 704(c).
(a) The income, gains, losses, deductions and expenses of the Company
shall be allocated, for federal, state and local income tax purposes, among the
Members holding Units in accordance with the allocation of such income, gains,
losses, deductions and expenses among the Members holding Units for computing
their Capital Accounts, except that if any such allocation is not permitted by
the Code or other applicable law, the Company's subsequent income, gains,
losses, deductions and expenses shall be allocated among the Members holding
Units so as to reflect as nearly as possible the allocation set forth herein in
computing their Capital Accounts.
(b) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gains, loss, deduction and expense with respect
to any property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members holding Units so as to take account of
any variation between the adjusted basis of such property to the Company for
federal income tax purposes and its fair market value at the time of
contribution.
(c) If the Book Value of any Company asset is adjusted pursuant to
Section 4.02, subsequent allocations of items of taxable income, gain, loss,
deduction and expense with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Book Value in the same manner as under Code Section 704(c).
(d) Allocations pursuant to this Section 5.05 are solely for purposes
of federal, state and local taxes and shall not effect, or in any way be taken
into account in computing, any Member's Capital Account or share of profits,
losses, other items or distributions pursuant to any provisions of this
Agreement.
ARTICLE VI
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Management of the Company
-------------------------
6.01 Management of the LLC. Subject to the provisions of this Agreement,
the overall management and control of the business and affairs of the LLC shall
be vested in the Manager, who may, in his discretion, delegate such management
and control to officers of the LLC. The Manager shall devote, and shall cause
the officers to devote, such time to the affairs of the LLC as may be reasonably
necessary for performance of their respective duties hereunder.
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Specifically, but not by way of limitation, and subject to all other
provisions of this Agreement, the Manager shall be authorized in the name of and
on behalf of the LLC, or in its own name and on its own behalf, as appropriate,
to do all things necessary or appropriate to carry on the business and purposes
of the LLC, including, without limitation, the following:
(i) sell all or substantially all of the assets or Units of the LLC;
(ii) liquidate, reorganize or dissolve the Company;
(iii) engage in a Section 351 Transaction (as defined in Section 9.06
herein);
(iv) to acquire by purchase, lease, exchange or otherwise, and to sell,
finance, refinance. encumber and otherwise deal with, any personal property;
(v) to borrow money and issue evidences of indebtedness, guarantee loans
and secure the same by mortgage, deed of trust, pledge or other lien on any
assets or property of the LLC, and pay, prepay, extend, amend or otherwise
modify the terms of any such borrowings;
(vii) to employ executive, administrative and support personnel in
connection with the business of the LLC; and to pay salaries, expense
reimbursements, employee benefits, fringe benefits, bonuses and any other form
of compensation or employee benefit to such persons and entities, at such times
and in such amounts as may be determined by the Manager in his sole discretion;
and to issue Units to such persons and determine the repurchase/vesting
provisions, if any, applicable to such Units;
(viii) to hire or employ such agents, employees, managers, accountants,
attorneys, consultants and other persons necessary or appropriate to carry out
the business and operations of the LLC, and to pay fees, expenses, salaries,
wages and other compensation to such persons;
(ix) to pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or compromise, upon such terms as it may determine and upon
such evidence as it may deem sufficient, any obligation, suit, liability, cause
of action or claim, including taxes, either in favor of or against the LLC;
(x) to determine the appropriate accounting method or methods to be used
by the LLC;
(xi) to establish and maintain reserves for such purposes and in such
amounts as it deems appropriate from time to time;
(xii) to pay all organizational expenses and general and administrative
expenses of the LLC;
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(xiii) to deal with, or otherwise engage in business with, and provide
services to and receive compensation therefor from, any person who has provided
or may in the future provide any services to, lend money to, sell property to or
purchase property from the LLC;
(xiv) to engage in any kind of activity and to perform and carry out
contracts of any kind necessary to, or in connection with, or incidental to the
accomplishment of the purposes of the LLC,
(xv) to pay any and all fees and to make any and all expenditures that
the Manager, in his sole discretion, deems necessary or appropriate in
connection with the organization of the LLC, the management of the affairs of
the LLC, and the carrying out of the LLC's obligations and responsibilities
under this Agreement;
(xvi) to cause the LLC and its properties and assets to be maintained and
operated in such a manner as the Manager may determine; subject, however, to
obligations imposed by applicable laws or by any mortgage or security interest
encumbering the LLC and such properties and assets from time to time, and by any
lease, rental agreement or other agreement pertaining thereto;
(xvii) to cause to be obtained and continued in force all policies of
insurance required by any mortgage, lease or other agreement relating to the
LLC's business or any part thereof, or determined by the Manager to be in the
best interests of the LLC;
(xviii) to cause to be paid any and all taxes, charges and assessments that
may be levied, assessed or imposed on any of the assets of the LLC unless the
same are contested by the Company;
(xix) to perform any other act the Manager may deem necessary, convenient
or desirable for the LLC for the conduct of the LLC's business;
(xx) to approve and adopt the Budget;
(xxi) to acquire the assets or stock of any other business or equity; and
(xxii) to exercise all powers and authority granted by the Act to
Managers, except as otherwise provided in this Agreement.
6.02 Compensation of Managers. Payment shall be made by the LLC to any
Manager or Member for such Manager's or Member's services as a Manager in such
amounts and for such services as is set forth in a Management Agreement to be
entered into by and between the Company and the Manager. The Manager shall be
entitled to reimbursement from the LLC for all expenses incurred by such Manager
in managing and conducting the business and affairs of the LLC.
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6.03 Exculpation and Indemnification; Fiduciary Duty.
(a) The Members' respective obligations to each other are limited to the
express obligations described in this Agreement, which obligations the Members
shall carry out with ordinary prudence and in a manner characteristic of
business persons in similar circumstances. No Member shall be a fiduciary of, or
have any fiduciary obligations to, the other Members in connection with the LLC,
this Agreement, or such Member's performance of its obligations under this
Agreement; and each Member hereby waives to the fullest extent permitted by
applicable law any rights it may have to claim any breach of fiduciary
obligation under this Agreement or in connection with the LLC.
(b) No Manager or its Affiliates shall have any liability to the LLC or
to any Member for any loss suffered by the LLC that arises out of any action or
inaction of any Manager or its Affiliates, if such Manager or its Affiliates, as
the case may be, in good faith, determined that such course of conduct was in
the best interests of the LLC and such course of conduct did not constitute
gross negligence or willful misconduct of such Manager or its Affiliates.
(c) Each Member and Manager and its Affiliates shall be indemnified by
the LLC against any losses, judgments, liabilities, expenses and amounts paid in
settlement of any claims sustained by it with respect to actions taken by such
Member and Manager or its Affiliates on behalf of the LLC; provided that no
indemnification shall be provided for any person or entity with respect to any
matter as to which it shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that its action was in the best
interests of the LLC.
Without limiting the foregoing, the LLC shall cause such indemnification to
include payment by-the LLC of expenses incurred in defending a civil or criminal
action or proceeding in advance of the final disposition of such action or
proceeding, upon receipt of an undertaking by the person or entity indemnified
to repay such payment if it shall be adjudicated not to be entitled to
indemnification under this Section 6.03, which undertaking may be accepted
without reference to the financial ability of such person or entity to make
repayment. Any indemnification to be provided hereunder shall be provided even
if the person or entity to be indemnified is no longer a Member or Manager or an
Affiliate of a Member or Manager.
6.04 Other Activities. The Members, Manager and any of their Affiliates
may engage in and possess interests in other business ventures and investment
opportunities of every kind and description, independently or with others,
including serving as directors, officers, stockholders, managers, members and
general or limited partners of corporations, partnerships or other LLCs with
purposes similar to or the same as those of the LLC. Neither the LLC nor any
other Member or Manager shall have any rights in or to such ventures or
opportunities or the income or profits therefrom.
14
<PAGE>
6.05 Withdrawal or Termination of the Manager. The Manager may resign
from, retire from, abandon or otherwise terminate his, her or its status as a
Manager after 60 days' written notice to all Members. If a Manager has given
such notice, such Manager shall not unreasonably withhold his, her or its
approval of any proposed new Manager who has the Consent of the other Members. A
Manager's status as a Manager may be terminated at any time by action of at
least 70% of the Percentage Interests held by the Common Members. If the
terminated Manager is also a Member, no such termination shall modify such
person's rights or obligations as a Member.
6.06 Additional or Substituted Manager. Managers may be selected from
among the Common Members (or may be admitted, as both Managers and Members, to
the LLC) at any time upon the written approval of, and with such rights,
obligations, responsibilities and economic interest as may be approved by all
other Managers, if any, with the unanimous approval of the Common Members.
6.07 Action by Manager. Any action required to be, or which may be, taken
by the Manager may be taken without a meeting if consented thereto in a writing
setting forth the action so taken and signed by the Manager (or a majority of
the Managers is there is more than one). Such consent shall have the same force
and effect as a vote at a meeting.
ARTICLE VII
-----------
Officers
--------
7.01 Designation of Officers. The Manager may, from time to time,
designate one or more persons to be officers of the Company. No officer need be
a resident of the State of Delaware or a Member. Any officers so designated
shall have such authority and perform such duties as the Manager may, from time
to time, proscribe or as may be provided in this Agreement. The Manager may
assign titles to particular officers and the officers of the Company may
include, without limitation, a Chairman of the Company, a Vice Chairman of the
Company, President, Executive Vice President, Treasurer, Secretary and Assistant
Secretary. Unless the Manager otherwise specifies, if the title is one commonly
used for officers of a business corporation, the assignment of such title shall
constitute the delegation to such officer of the authority and duties that are
normally associated with that office, subject to any specific delegation of
authority and duties made to such officer by the Manager. Each officer shall
hold office until his or her successor shall be duly designated and shall
qualify or until his or her death or until he or she shall resign or shall have
been removed. Any number of offices may be held by the same individual. The
salaries and other compensation, if any, of the officers and agents of the
Company shall be fixed from time to time by the Manager.
7.02 Resignation. Any officer of the Company may resign at any time by
giving written notice to the Manager, and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Any officer may be removed as such, either with or without cause, by the Manager
whenever in its judgment the best interests of the Company shall be served
thereby; provided that such removal shall be without prejudice to the
15
<PAGE>
contract rights, if any, of the individual so removed. Designation of an officer
shall not of itself create contract rights. Any vacancy occurring in any office
of the Company may be filled by the Manager.
7.03 Duties of Officers Generally. Each officer shall owe to the Company
and its Members the same duties of care and loyalty that such person would owe
to a corporation and its stockholders as an officer thereof under the laws of
the State of Delaware.
7.04 Binding the LLC. The signature of the Manager, Chairman, Vice
Chairman, President, or any other officer so designated by the Manager,
Chairman, Vice Chairman or the President, as applicable, on any agreement,
contract, instrument or other document shall be sufficient to bind the LLC in
respect thereof, and conclusively evidence the authority of such officer and the
LLC with respect thereto, and no third party need look to any other evidence or
require the joinder or consent of any other party.
ARTICLE VIII
------------
Fiscal Matters
--------------
8.01 Books and Records. The Company shall keep complete and accurate books
and records of the LLC, which shall be maintained and be available, in addition
to any documents and information required to be furnished to the Members under
the Act, at the office of the LLC for examination and copying by any Member or
Manager, or his, her or its duly authorized representative, at its reasonable
request and at its expense during ordinary business hours. The LLC shall have no
obligation to deliver or mail a copy of the Certificate or any amendment thereto
to the Members.
8.02 Bank Accounts. The Manager shall be responsible for causing one or
more accounts to be maintained in a bank (or banks) which is a member of the
F.D.I.C., which accounts shall be used for the payment of the expenditures
incurred by the Company in connection with the business of the LLC, and in which
shall be deposited any and all cash receipts of the LLC. All deposits and funds
not needed for the operations of the LLC may be invested in short-term
investments, including securities issued or fully guaranteed by United States
government agencies, certificates of deposit of banks, bank repurchase
agreements coveting the securities of the United States government, commercial
paper, money market funds, interest-bearing time deposits in banks and thrift
institutions and such other similar investments as the Manager may approve. All
such amounts (including, without limitation, interest and other investment
profits) shall be and remain the property of the LLC, and shall be received,
held and disbursed by the Manager for the purposes specified in this Agreement.
There shall not be deposited in any of said accounts any funds other than funds
belonging to the LLC, and no other funds shall in any way be commingled with
such funds. Withdrawals from any LLC bank or similar account shall be made and
other activity conducted on such signature or signatures as shall be approved by
the Manager.
16
<PAGE>
8.03 Fiscal Year. The fiscal year of the LLC shall end on December 31 of
each year.
8.04 Tax Matters Partner. The Manager shall designate the "tax matters
partner" of the LLC, who shall initially be William Hewitt. If at any time such
person is not eligible under the Code to serve, or refuses to serve, as the tax
matters partner, another Member shall be designated by the Managers to serve as
the tax matters partner. The tax matters partner is hereby authorized to and
shall perform all duties of a tax matters partner under the Code and shall serve
as tax matters partner until its resignation or until the designation of its
successor, whichever occurs sooner.
ARTICLE IX
-----------
Transfers of Interests
----------------------
9.01 General Restrictions on Transfer of Interests by Member
(a) No Member may Transfer his, her or its legal or beneficial
interest in the LLC (including without limitation, by resignation as a member of
the LLC), unless such Transfer of Units (a) is pursuant to applicable laws of
descent and distribution (b) is Consented to by the Members holding Common
Units, (c) are Units that are repurchased by the Company pursuant to equity
restriction agreements between the Company and the holder of such Units. Except
for transfers pursuant to (c) above, the restrictions on Transfer shall continue
to be applicable to the Units granted after any such transfer, the transferees
of such Units shall have agreed in writing to be bound by the provisions of this
Agreement and the Member effecting such Transfer (the "Transferring Member") or
its estate notifies the Company of the name of the transferees. Unless an
assignee becomes a substituted Member in accordance with the provisions of
Section 9.01 (b), it shall not be entitled to any of the rights granted to a
Member hereunder.
(b) An assignee of the interest of a Member, or any portion thereof,
shall become a substituted Member entitled to all the rights of a Member if, and
only if:
(i) the assignor gives the assignee such right;
(ii) the other Members, acting by Consent, shall have approved
such substitution, and if the Transferring Member is a Manager, which approval
shall specify whether such assignee shall assume the role and duties of Manager
in respect of the assigned interest, and, if such assignee is not to assume such
role and duties, that there is a least one remaining Manager; or, if there is no
remaining Manager, the Members, acting by Consent, shall have elected to
continue the LLC and, if they so desire, have selected a new Manager or Managers
and entered into an agreement with such new Manager(s) as to their economic
interests, if any, in the LLC, and their other rights, duties and
responsibilities;
(iii) the assignee pays to the LLC all costs and expenses
incurred in connection with such substitution, including, specifically, without
limitation, costs incurred in the
17
<PAGE>
review and processing of the assignment and in amending the LLC's current
Certificate and/or Operating Agreement, if required; and
(iv) the assignee executes and delivers an Amendment to this
Agreement (and to the Certificate, if required), which Amendment shall be
executed by the Manager and such assignee, and such other instruments, in form
and substance satisfactory to the Manager (or, if clause (iii), above, is
applicable, to the Members acting by Consent. in connection with such
substitution), as may be necessary, appropriate or desirable to effect such
substitution and to confirm the agreement of the assignee to be bound by the
terms and provisions of this Agreement.
(c) The LLC and the Manager shall be entitled to treat the record
owner of any LLC interest as the absolute owner thereof in all respects, and
shall incur no liability for distributions of cash or other property made in
good faith to such owner until such time as a written assignment of such
interest has been received and accepted by the Manager and recorded in the books
of the LLC. In no event shall any membership interest, or any portion thereof,
be sold, transferred or assigned to a minor or incompetent, and any such
attempted sale, transfer or assignment shall be void and ineffectual and shall
not bind the LLC or the Manager.
9.02 Termination of Restrictions. The restrictions on the transfer of
Units set forth herein shall continue with respect to each Unit following any
transfer thereof.
9.03 Void Transfers. Any transfer by any Member of any Units or other
interests in the Company in contravention of this Agreement shall be void and
ineffectual and shall not bind or be recognized by the Company or any other
party. No purported assignee shall have any right to vote on any matter or any
right to any profits, losses, or distributions, receive reports or other
information or to inspect the records, of the Company.
9.04 Effect of Assignment.
(a) An assignment pursuant to this Agreement entitles the assignee to
receive any allocations of income, gain, loss, deduction, credit or similar
item, and to receive any distribution or distributions, that assignor was
entitled to receive prior to the assignment with respect to the Units assigned.
An assignor shall cease to be a Member, and shall not be entitled to exercise
any rights or powers of a Member, upon assignment of all of the assignor's Units
and the admission of the assignee (or assignees) as a Member (or Members). The
pledge of, or granting of, a security interest, lien or other encumbrance in or
against, any or all of the Units of a Member shall not cause the Member to cease
to be a Member or to cease to have the power to exercise any rights or powers of
a Member
(b) No assignee shall participate in the management, business or
affairs of the Company unless and until such assignee is admitted to the Company
as a Member in the manner provided herein.
18
<PAGE>
(c) Until an assignee of a Unit(s) becomes a Member, the assignee
shall have no liability as a Member solely as a result of the assignment.
9.05 Section 351 Transaction. Upon the Consent of the Members holding
Common Units to a plan to incorporate the Company (the "Incorporation Plan"),
each Member will transfer such Member's Units to a corporation specifically
formed for such purpose (the "Successor Corporation") in exchange for stock of
the Corporation in a transaction (the "Section 351 Transaction") intended to
qualify under Section 351 of the Internal Revenue Code of 1954, as amended. Each
Unit will be valued as if the Company had effectuated a complete liquidation
hereunder. Pursuant to the Incorporation Plan, each Common Unit will be
exchanged for one share of common stock of the Successor Corporation. The
Company shall pay any and all organizational, legal and accounting expenses and
filing fees incurred in connection with the Section 351 Transaction. The
Successor Corporation shall issue its stock in the Section 351 Transaction in
accordance with the Incorporation Plan, which shall specify the classes of stock
for which the Units shall be exchanged and which shall attach as exhibits the
form of organizational document which shall set forth the rights and privileges
of such classes of stock and, if applicable, such other documents and agreements
as shall be necessary to confer the rights, privileges and preferences conferred
on the holders of Units in Article IX of this Agreement on the holders of such
classes or series of stock which shall be issued in exchange for such Units.
ARTICLE X
---------
Miscellaneous
-------------
10.01 Events Causing Dissolution. The LLC shall be dissolved and its
affairs wound up upon the following:
(a) the sale or other disposition of all or substantially all of the
assets of the LLC;
(b) the election to dissolve the LLC made in writing by the Members
holding Common Units;
(c) any consolidation or merger of the LLC with or into any entity,
following which the LLC is not the resulting or surviving entity; or
(d) upon the occurrence of an event specified under the laws of the
State of Delaware as one effecting dissolution; except that where, under the
terms of this Agreement or the Act, the LLC is not to terminate, the LLC shall
immediately be reconstituted and reformed on all the applicable terms,
conditions and provisions of this Agreement.
10.02 Continuation of the LLC. Notwithstanding the occurrence of an event
described in Section 10.01 (a) or (c) above, the LLC shall not be dissolved, and
its business and affairs shall not be discontinued, and the LLC shall remain in
existence as a limited liability company under
19
<PAGE>
the laws of the State of Delaware if the remaining Members, acting by Consent,
elect within 90 days after such occurrence to continue the LLC and the LLC's
business, and designate from among the Members one or more Managers.
10.03 Procedures on Dissolution. Dissolution of the LLC shall be effective
on the day on which occurs the event giving rise to the dissolution, but the LLC
shall not terminate until its Certificate shall have been canceled and the
assets of the LLC shall, have been distributed as provided herein.
Notwithstanding the dissolution of the LLC, prior to the termination of the LLC,
as aforesaid, the business of the LLC and the affairs of the Members, as such,
shall continue to be governed by this Agreement. The remaining Manager or, if
there be none, a liquidator appointed with the Consent of the Members, shall
liquidate the assets of the LLC, apply and distribute the proceeds thereof as
contemplated by this Agreement and cause the cancellation of the Certificate.
10.04 Distributions upon Liquidation.
(a) After paying liabilities owed to creditors, the Manager or such
liquidator shall set up such reserves as it deems reasonably necessary for any
contingent or unforeseen liabilities or obligations of the LLC. Said reserves
may be paid over by such Manager or such liquidator to a bank, to be held in
escrow for the purpose of paying any such contingent or unforeseen liabilities
or obligations and, at the expiration of such period as such Manager or such
liquidator may deem advisable, such reserves shall be distributed to the Members
or their assigns in the manner set forth in paragraph (b), below.
(b) After paying such liabilities and providing for such reserves, the
Manager or liquidator shall cause the remaining net assets of the LLC to be
distributed to and among the Members in the order of priority set forth in
Article V hereof. In the event that any part of such net assets consists of
notes or accounts receivable or other noncash assets, the Manager or liquidator
may take whatever steps it deems appropriate to convert such assets into cash or
into any other form that would facilitate the distribution thereof. If any
assets of the LLC are to be distributed in kind, such assets shall be
distributed on the basis of their fair market value, net of any liabilities.
ARTICLE XI
----------
General Provisions
------------------
11.01 Notices. Any and all notices under this Agreement shall be given in
writing, and shall be effective (a) on the fourth business day after being sent
by registered or certified mail. return receipt requested, postage prepaid; (b)
on the first business day after being sent by express mail, or commercial
overnight delivery service providing a receipt for delivery; (c) on the date of
hand delivery; or (d) on the date actually received, if sent by any other
method. To be effective, all such notices shall be addressed, if to the LLC,
both at its registered office under the Act and
20
<PAGE>
its principal executive offices, and if to a Member or Manager, at the last
address of record on the LLC books.
11.02 Binding Provisions. Subject to the restrictions on transfers set
forth herein, the covenants and agreements contained herein shall be binding
upon, and inure to the benefit of, the parties hereto, their heirs, legal
representatives, successors and assigns.
11.03 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, including the Act, as
interpreted by the courts of the State of Delaware, notwithstanding any roles
regarding choice of law to the contrary.
11.04 Counterparts. This Agreement may be executed in several
counterparts, and, as so executed, shall constitute one agreement binding on all
parties hereto, notwithstanding that all of the parties have not signed the same
counterpart.
11.05 Separability of Provisions. Each provision of this Agreement shall
be considered separable. To the extent that any provision of this Agreement is
prohibited or ineffective under the Act, this Agreement shall be considered
amended to the smallest degree possible to make the Agreement effective under
the Act (and, if the Act is subsequently amended or interpreted in such manner
as to make effective any provision of this Agreement that was formerly rendered
invalid, such provision shall automatically be considered valid from the
effective date of such amendment or interpretation).
11.06 Amendments. Except as otherwise specifically provided in this
Agreement, this Agreement may be amended or modified by the Manager with the
consent of the holders of the Common Units.
11.07 Third-Party Beneficiaries. The provisions of this Agreement are not
intended to be for the benefit of any creditor (other than a Member who is a
creditor) or other person (other than a Member in his, her or its capacity as a
Member) to whom any debts, liabilities or obligations are owed by (or who
otherwise has any claim against) the LLC or any of the Members. Moreover,
notwithstanding anything contained in this Agreement, no such creditor or other
person shall obtain any rights under this Agreement or shall, by reason of this
Agreement, make any claim in respect of any debt, liability or obligation (or
otherwise) against the LLC or any Member or Manager.
11.08 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter. The Members and the Manager hereby agree that each Member and
each Manager shall be entitled to rely on the provisions of this Agreement, and
no Member or Manager shall be liable to the LLC or any other Member or Manager
for any action or refusal to act taken in good faith reliance on the terms of
this Agreement.
21
<PAGE>
11.09 Gender. Whenever used herein, the singular number shall include the
plural, the plural shall include the singular, and the use of any gender shall
include all genders, unless the context requires otherwise.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the day and year first above written.
ATG, INC.
By: /s/ William Hewitt
--------------------------------
Its duly authorized officer
QUANTUM CATALYTIC, LLC
By: /s/ John Preston
-----------------------------------
John Preston, Manager
23
<PAGE>
SCHEDULE A TO OPERATING AGREEMENT
---------------------------------
MEMBERS
NAMES AND ADDRESSES CAPITAL
OF MEMBERS TYPE OF UNIT NO. OF UNITS CONTRIBUTION
- ----------- ------------ ------------ ------------
1. ATG, Inc. Common 900 $900
47375 Freemont Boulevard
Freemont, CA 94538
2. Quantum Catalytics, L.L.C. Non-Voting Common 100 $100
238 Main Street, Suite 201
Cambridge, MA 02142
24
<PAGE>
Exhibit 21.1
ATG INC.
LIST OF SUBSIDIARIES
STATE OF INCORPORATION
----------------------
ATG Richland Corporation Washington
ATG Nuclear Services LLC Delaware
ATG Catalytics LLC Delaware
All subsidiaries also do business as ATG Inc. or as Allied Technology Group,
Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
ATG Inc. on Form S-8 (File No. 333-72349 and File No. 333-62963) of our reports
dated February 26, 1999, on our audits of the consolidated financial statements
and financial statement schedule of ATG Inc. as of December 31, 1998 and 1997
and for the years ended December 31, 1998, 1997 and 1996 which reports are
included in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 3,789 2,586
<SECURITIES> 0 0
<RECEIVABLES> 22,866 6,054
<ALLOWANCES> (305) (119)
<INVENTORY> 0 0
<CURRENT-ASSETS> 28,446 10,695
<PP&E> 46,060 24,944
<DEPRECIATION> 3,072 2,840
<TOTAL-ASSETS> 79,569 37,227
<CURRENT-LIABILITIES> 26,801 10,846
<BONDS> 0 0
0 19,416
0 0
<COMMON> 41,517 6,337
<OTHER-SE> (772) (6,041)
<TOTAL-LIABILITY-AND-EQUITY> 79,569 37,227
<SALES> 35,900 19,107
<TOTAL-REVENUES> 35,900 19,107
<CGS> 19,816 11,172
<TOTAL-COSTS> 19,816 11,172
<OTHER-EXPENSES> 7,952 7,020
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (15) 0
<INCOME-PRETAX> 8,305 973
<INCOME-TAX> 3,156 (45)
<INCOME-CONTINUING> 5,149 1,018
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,149 1,018
<EPS-PRIMARY> .40 .09
<EPS-DILUTED> .38 .08
</TABLE>
