<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1995
REGISTRATION NO. 33-61921
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ATC ENVIRONMENTAL INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4950 46-0399408
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
ATC ENVIRONMENTAL INC.
104 EAST 25TH STREET, 10TH FLOOR
NEW YORK, NEW YORK 10010
(Address of principal place of business)
MORRY F. RUBIN, PRESIDENT
ATC ENVIRONMENTAL INC.
104 EAST 25TH STREET, 10TH FLOOR
NEW YORK, NEW YORK 10010
(212) 353-8280/(212) 598-4283(FAX)
(Name, address, and telephone number of principal executive offices and agent
for service)
COPIES TO:
<TABLE>
<S> <C>
Steven Morse, Esq. Joel I. Papernik, Esq.
Lester Morse P.C. Squadron, Ellenoff, Plesent &
111 Great Neck Road Sheinfeld, LLP
Great Neck, New York 11021 551 Fifth Avenue
(516) 487-1446/(516) 487-1452 (Fax) New York, New York 10176
(212) 661-6500/(212) 697-6686 (Fax)
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE
AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933 CHECK THE FOLLOWING BOX. / /
IF THE REGISTRANT ELECTS TO DELIVER ITS LATEST ANNUAL REPORT TO SECURITY
HOLDERS OR A COMPLETE AND LEGIBLE FACSIMILE THEREOF, PURSUANT TO ITEM 11(A)(1)
OF THIS FORM, CHECK THE FOLLOWING BOX. / /
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX
AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. / /
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. / /
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
Common Stock, par value $.01 per
share 2,760,000 shares $15.1875 $41,917,500 $14,454.31
<S> <C> <C> <C> <C>
</TABLE>
>(1)Includes 360,000 shares of Common Stock, par value $.01 per share, which the
Underwriters have the option to acquire solely to cover over-allotments, if
any and 700,000 shares to be sold by a Selling Stockholder.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933, as amended.
>THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM S-2
<TABLE>
<CAPTION>
LOCATION OR CAPTION
ITEM NUMBER OF FORM S-2 IN PROSPECTUS
------------------------------------------------------------- ----------------------------------------------
<C> <S> <C>
1. Front of the Registration Statement and
Outside Front Cover Page of Prospectus....................... Cover Pages of Registration Statement and
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus................................................ Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................................. Prospectus Summary; Risk Factors
4. Use of Proceeds.............................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.............................. Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution..................................................... Not applicable
7. Selling Security Holders..................................... Principal and Selling Stockholders
8. Plan of Distribution......................................... Outside Front and Inside Front Cover Page of
Prospectus; Price Range of Common Equity;
Dividend Policy; Underwriting; Outside Back
Cover Page of Prospectus
9. Description of Securities to be Registered................... Description of Capital Stock
10. Interests of Named Experts and Counsel....................... Legal Matters; Experts
11. Information with Respect to the Registrant................... Outside Front Cover Page; Price Range of
Common Equity; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Recent Developments;
Index to Consolidated Financial Statements
12. Incorporation of Certain Information
by Reference................................................. Incorporation of Certain Information by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities............... Description of Capital Stock
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1995
2,400,000 SHARES
[LOGO]
COMMON STOCK
Of the 2,400,000 shares of Common Stock offered hereby, 1,700,000 shares are
being sold by ATC Environmental Inc. (the "Company") and 700,000 shares are
being sold by a selling stockholder (the "Selling Stockholder"). The Company
will not receive any proceeds from the sale of shares by the Selling
Stockholder.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"ATCE." The last reported sale price of the Common Stock on September 7, 1995,
as reported by the Nasdaq National Market, was $14.75 per share. See "Price
Range of Common Equity."
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING
ON PAGE 6 HEREOF.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND SELLING
PRICE TO COMMISSIONS PROCEEDS TO STOCKHOLDER
PUBLIC (1) COMPANY (2) (2)
Per Share.................. $ $ $ $
<S> <C> <C> <C> <C>
Total (3).................. $ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting offering expenses estimated to be approximately $500,000
payable by the Company and approximately $4,729 payable by the Selling
Stockholder. See "Principal and Selling Stockholders."
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 360,000 additional shares of Common Stock solely to cover
over-allotments, if any, on the same terms and conditions as the shares
offered hereby. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholder will be $ , $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Rodman & Renshaw, Inc., New York, New
York, on or about , 1995.
------------------------
RODMAN & RENSHAW, INC. PENNSYLVANIA MERCHANT GROUP LTD
The date of this Prospectus is , 1995.
<PAGE>
[MAP]
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") (File No. 1-10583) pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K, for the fiscal year ended
February 28, 1995;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended May
31, 1995; and
3. The Company's Form 8-K dated June 29, 1995 relating to the merger of
Aurora Environmental Inc. with and into the Company.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus and the
Registration Statement on Form S-2 (herein, together with all amendments and
exhibits, referred to as the "Registration Statement") of which it is a part to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, in its
unmodified form, to constitute a part of this Prospectus or such Registration
Statement.
The Company will provide, without charge, upon written or oral request from
any person to whom a copy of the Prospectus is delivered, a copy of any of the
documents incorporated herein by reference in this Prospectus, not including
exhibits to such documents. Such requests should be directed to ATC
Environmental Inc., 104 East 25th Street, Tenth Floor, New York, New York 10010,
Attention: Stockholder Relations, telephone (212) 353-8280.
--------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS
AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS AND
INCORPORATED HEREIN BY REFERENCE. UNLESS OTHERWISE INDICATED, ALL SHARE, PER
SHARE AND FINANCIAL INFORMATION SET FORTH HEREIN ASSUMES A PUBLIC OFFERING PRICE
OF $14.75 PER SHARE, AND NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
ON JUNE 29, 1995, AURORA ENVIRONMENTAL INC. ("AURORA") MERGED WITH AND INTO ATC
ENVIRONMENTAL INC., WITH THE COMPANY AS THE SURVIVING CORPORATION (THE "AURORA
MERGER"). UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES IN THIS PROSPECTUS
TO "ATC" OR THE "COMPANY" REFER TO ATC ENVIRONMENTAL INC., ITS SUBSIDIARIES AND
PREDECESSORS.
THE COMPANY
ATC is a national environmental consulting and engineering firm that
provides specialized technical and project management products and services to a
large, diverse client base of businesses and federal, state and local
governments. Since entering the environmental consulting and engineering
business in 1982, ATC has completed several acquisitions and expanded its
internal operations, enabling it to increase its market penetration and the
variety of products and services it offers. The Company currently operates a
network of over 30 branch offices located throughout the United States,
supported by in-house testing laboratories.
The public's concern regarding exposure to contaminants stimulated the push
for environmental regulations in the 1970s and 1980s. Today, the public's
continuing demand for responsible action regarding human health and safety and
the potential adverse impact of environmental liabilities drive the market for
environmental consulting and engineering services. Independent industry
estimates of the consulting and engineering services sector of the environmental
market for 1994 ranged from $13 to $15 billion, with annual growth projected at
5% to 8% through the next three to four years.
ATC has focused on five areas of specialization: (i) industrial hygiene
consulting, including asbestos management, classical industrial hygiene and
indoor air quality; (ii) environmental management, including environmental
audits, site assessments, remedial action planning and design, and soil and
groundwater remediation management; (iii) lead-based paint risk management; (iv)
health and safety consulting, including health and safety training, hazardous
materials site safety planning and industrial safety consulting; and (v)
management information systems for comprehensive environmental risk assessment
and management. These areas of specialization contributed approximately 65%,
19%, 10%, 5% and 1%, respectively, of the Company's revenues in fiscal 1995.
The Company believes that certain sectors of the environmental consulting
and engineering market will experience significant growth over the next several
years with demand for products and services growing even in the absence of
increased governmental regulations. Independent industry sources project annual
growth rates of 10%, 13%, 15% and 20% for lead-based paint management,
occupational safety and industrial hygiene services, indoor air quality
consulting and environmental software, respectively.
The Company has experienced substantial increases in revenues and net income
over the past three fiscal years. ATC's revenues were $16,539,254, $26,664,385
and $36,271,557, respectively, in its 1993, 1994 and 1995 fiscal years,
representing a compounded annual growth rate of 48.1% over such periods.
Furthermore, ATC's net income was $353,144, $1,867,048 and $3,256,520,
respectively, in such fiscal years, representing a compounded annual growth rate
of 203.7% over such periods. For the Company's first fiscal quarter of 1996,
revenues increased 32.4% to $10,814,953 over the comparable period of fiscal
1995, while net income increased 29.8%, to $895,128.
ATC attributes these positive operating results to its integrated strategy
which includes: (i) an aggressive, but disciplined, acquisition program; (ii)
the enhancement of operations through the integration of acquired businesses
with the Company's existing operations; (iii) a focus on certain higher growth
sectors of the environmental consulting and engineering services market, and
certain higher margin services such as policy development and decision support;
(iv) an emphasis on basic business management issues, such as employee
utilization, credit and collections management, and regional profit center
accountability; and
3
<PAGE>
(v) the development of a national presence in a market typified by local and
regional firms. Upon the completion of this offering, the Company intends to
employ this strategy as it seeks to further penetrate the markets for its core
services and to expand its range of products and services through strategic
acquisitions and internal growth.
The Company's principal executive office is located at 104 East 25th Street,
Tenth Floor, New York, New York 10010 and its telephone number is (212)
353-8280.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company................... 1,700,000 shares
Common Stock to be Offered by the Selling 700,000 shares
Stockholder...........................................
Common Stock to be Outstanding after the Offering..... 7,557,390 shares (1)
Use of Proceeds....................................... To expand the Company's operations
through acquisitions and internal
growth; to repay the debt
outstanding under the Company's
revolving credit facility; and for
general working capital purposes.
Nasdaq National Market Symbol......................... "ATCE"
</TABLE>
------------------------
(1) Does not include the following: (a) 570,620 shares reserved for issuance
under outstanding Class C Common Stock Purchase Warrants (see "Description
of Capital Stock"); (b) 393,020 shares reserved for issuance upon exercise
of currently outstanding stock options issued under the Company's existing
Stock Option Plans (see Note F of the Company's Notes to Consolidated
Financial Statements for the year ended February 28, 1995); and (c) 572,250
shares reserved for issuance upon exercise of currently outstanding stock
options and stock purchase warrants issued in exchange for previously
outstanding stock options and stock purchase warrants of Aurora pursuant to
the Aurora Merger. See "Recent Developments."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth, for the periods and at the dates indicated,
summary historical and pro forma consolidated financial data of the Company. The
unaudited consolidated financial statements of the Company as of and for the
three months ended May 31, 1994 and 1995 reflect all adjustments necessary in
the opinion of the Company's management (consisting only of normal recurring
adjustments), for a fair presentation of such financial data. The summary
consolidated historical financial data has been derived from the audited and
unaudited historical consolidated financial statements of the Company and should
be read in conjunction with such financial statements and the notes thereto
included elsewhere in this Prospectus.
The pro forma unaudited combined financial data has been derived from the
audited and unaudited financial statements of the Company, Aurora and Con-Test,
Inc. ("Con-Test") and should be read in conjunction with the pro forma unaudited
combined financial data and notes thereto included elsewhere in this Prospectus.
The pro forma results of operations for the year ended February 28, 1995 and
three months ended May 31, 1995 are not necessarily indicative of the results of
operations that would have been achieved had the transactions reflected therein
been consummated prior to the periods in which they were completed, or that
might be attained in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY
FISCAL YEAR ENDED FEBRUARY 28, 31,
-------------------------------------------------- ------------------------
PRO FORMA
1993(1) 1994(1)(2) 1995(3) 1995(4) 1994(2) 1995(3)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 16,539 $ 26,664 $ 36,272 $ 40,808 $ 8,168 $ 10,815
Gross profit.................................... 6,650 12,294 17,916 20,683 3,870 5,270
Operating income................................ 728 3,227 5,625 5,746 1,179 1,527
Income before income taxes...................... 653 3,077 5,301 5,379 1,124 1,463
Net income...................................... $ 353 $ 1,867 $ 3,257 $ 3,305 $ 690 $ 895
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
SELECTED PER SHARE DATA:
Earnings per common share:
Primary......................................... $ .07 $ .35 $ .57 $ .53 $ .13 $ .15
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Fully diluted................................... $ .07 $ .35 $ .56 $ .51 $ .12 $ .15
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Weighted average number of shares outstanding:
Primary......................................... 5,294 5,377 5,754 6,224 5,481 6,123
Fully diluted................................... 5,298 5,396 5,850 6,419 5,561 6,123
<CAPTION>
PRO FORMA
1995(4)
-----------
<S> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 10,815
Gross profit.................................... 5,270
Operating income................................ 1,470
Income before income taxes...................... 1,408
Net income...................................... $ 862
-----------
-----------
SELECTED PER SHARE DATA:
Earnings per common share:
Primary......................................... $ .13
-----------
-----------
Fully diluted................................... $ .13
-----------
-----------
Weighted average number of shares outstanding:
Primary......................................... 6,724
Fully diluted................................... 6,724
</TABLE>
<TABLE>
<CAPTION>
AT MAY 31, 1995
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
--------- ------------- ---------------
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital.................................................... $ 9,440 $ 9,971 $ 29,041
Total assets....................................................... 25,612 25,833 44,903
Short-term and long-term debt...................................... 5,421 5,421 1,546
Stockholders' equity............................................... 14,731 15,262 38,208
</TABLE>
(1) On June 10, 1992, ATC entered into an agreement to acquire Bio/West, Inc.
This transaction was rescinded effective as of May 31, 1993.
(2) ATC acquired the operations of BSE Management, Inc. effective April 30,
1993.
(3) ATC acquired certain assets of Con-Test effective October 1, 1994. See
"Recent Developments."
(4) The pro forma operating data gives effect to the acquisition of certain
assets of Con-Test and the Aurora Merger as if they had occurred at the
beginning of the period presented. Pro forma fully diluted earnings per
share after giving effect to the Con-Test acquisition, but without giving
effect to the Aurora Merger, is $.56 for the fiscal year ended February 28,
1995. The pro forma balance sheet at May 31, 1995 gives effect to the
Aurora Merger as if it had occurred on May 31, 1995. See "Recent
Developments."
(5) Adjusted to reflect receipt by the Company of estimated net proceeds from
the issuance of 1,700,000 shares and to repay the debt outstanding under
the Company's revolving credit facility. See "Use of Proceeds" and
"Capitalization."
5
<PAGE>
RISK FACTORS
In evaluating an investment in the Common Stock being offered hereby,
investors should consider carefully, among other things, the following risk
factors, as well as the other information contained in this Prospectus and the
documents incorporated herein by reference.
GROWTH AND ACQUISITION RISKS
One of the Company's primary strategies is to increase its revenues and the
markets it serves through the acquisition of other companies. Although the
Company has successfully completed several acquisitions, there can be no
assurance that the Company will be able to identify, acquire or profitably
manage additional companies or successfully integrate such additional companies
into ATC's operations without substantial costs, delays or other problems. In
addition, there can be no assurance that any companies acquired will be
profitable at the time of their acquisition or will achieve sales and
profitability that justify the investment therein. Acquisitions may involve a
number of special risks, including adverse effects on the Company's reported
operating results, diversion of management's attention, dependence on retention
and hiring of key personnel, risks associated with unanticipated problems or
legal liabilities and amortization of acquired intangible assets, some or all of
which could have a material adverse effect on the Company's operations and
financial performance. The expansion of the Company's operations, whether
through acquisitions or internal growth, may place substantial burdens on the
Company's management resources and financial controls. There is no assurance
that the increasing burdens on the Company's management resources and financial
controls will not have an adverse effect on the Company's operations. See "Use
of Proceeds" and "Business -- Strategy."
POTENTIAL LIABILITY AND INSURANCE
The Company is engaged in a wide range of advisory services, from lead-based
paint risk management and industrial hygiene to health and safety training
programs. Due to the nature of the Company's services, ATC is exposed to a
significant risk of professional liability for environmental damage, property
damage, personal injury and economic loss which may substantially exceed the
fees derived from such services. ATC currently maintains a "claims made"
professional liability insurance policy, including contractor's pollution
liability coverage, for claims with a limit of $2,000,000 and a deductible of
$150,000, although increased limits have been obtained on a specific endorsement
basis to meet the needs of particular clients or contracts. The Company's policy
covers both errors and omissions. A "claims made" policy only insures against
claims filed during the period in which the policy is in effect. Although the
Company believes that its current level of insurance coverage is adequate to
protect it from the type and level of liability exposure that it can reasonably
expect to encounter during its ordinary course of business, the coverage would
most likely be inadequate if a catastrophic event occurred for which the Company
was found to be liable. The relatively low dollar amount of the policy limit
currently maintained, the possible future unavailability or modification of this
insurance or any significant increase in insurance rates could have a material
adverse effect on ATC's operations. Further, because clients may require that
ATC maintain liability insurance, the possible future unavailability of such
insurance could adversely affect ATC's ability to compete effectively. In the
event the Company expands its services into new markets, no assurance can be
given that the Company will be able to obtain insurance coverage for such
activities or, if insurance is obtained, that the dollar amount of any
liabilities incurred in connection with the performance of such services will
not exceed policy limits. See "Business -- Insurance."
CHANGING REGULATORY ENVIRONMENT
The growth of the environmental consulting and engineering services industry
has been largely attributed to the increase in environmental regulation and the
response of governmental and commercial entities and financial institutions to
public concern with environmentally contaminated facilities. The demand for
environmental consulting and engineering services has been, in part, the result
of facility owners or operators attempting to comply with or avoid liability
under environmental regulations at the federal, state or local levels. Because
of the burden imposed with respect to complying with such regulations, various
groups have sought to relax or repeal certain forms of environmental regulation.
There can be no assurance that such
6
<PAGE>
regulation will not be curtailed in the future. While the Company believes that
the demand for its services is also attributable to factors other than
regulatory compliance, there can be no assurance that changes in environmental
laws and regulations would not have a material adverse effect on the Company's
business. See "Business -- The Environmental Consulting and Engineering Services
Industry" and "-- Environmental Regulation."
POTENTIAL ENVIRONMENTAL LIABILITY
The Company's operations include advising clients on the handling, storage
and disposal of hazardous material, toxic wastes and other pollutants and the
remediation of contamination. These services may expose the Company's employees
and others to dangerous elements and may involve a significant risk to the
Company for liability for environmental damage, personal injury, property damage
and fines and costs imposed by regulatory agencies. Claims may be asserted
against the Company under federal and state statutes and regulations, common
law, contractual indemnification agreements or otherwise. There can be no
assurance that the Company will not be subject to claims which could materially
and adversely affect the operations of the Company. See "Business --
Environmental Regulation."
COMPETITION
The environmental consulting and engineering services industry is fragmented
and subject to intense competition. In addition to several thousand local and
regional consulting firms, ATC competes with several national environmental
consulting and engineering firms such as Law Engineering, Inc., The Earth
Technology Corporation (USA), Professional Service Industries, Inc. and Dames &
Moore, Inc. Many of ATC's present and future competitors may have greater
financial, technical and personnel resources than ATC. Historically, competition
in the environmental consulting and engineering services industry has been based
primarily on the quality, timeliness and costs of services. Competition is
likely to increase as the industry continues to mature and consolidate. See
"Business -- Competition."
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary from period to period due to a
variety of factors, including the size and timing of the Company's projects and
the impact of acquisitions.
7
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,700,000 shares of
Common Stock being offered by the Company are estimated to be approximately
$22,945,000 after deducting underwriting discounts and estimated offering
expenses payable by the Company. The Company will not receive any of the
proceeds from the sale of the shares offered by the Selling Stockholder.
The Company plans to utilize a portion of the net proceeds of this offering
to repay the debt outstanding under its revolving credit facility. At September
7, 1995, $5,000,000 was outstanding under the revolving credit facility. It is
anticipated that a substantial portion of the remaining net proceeds of this
offering will be utilized to expand the Company's operations through strategic
acquisitions of companies with complementary services, products or technologies,
as well as through internal expansion. In addition, the net proceeds of this
offering will be available for general working capital purposes.
The Company is actively exploring acquisition opportunities, has identified
a number of companies which it might wish to acquire and has engaged in certain
preliminary due diligence activities. These activities have not resulted in any
contract, understanding or arrangement for an acquisition as of the date of this
Prospectus. Because a significant portion of the net proceeds will be available
for acquisitions, internal expansion and general working capital purposes, the
Company's Board of Directors will have broad discretion with respect to the
application of such proceeds. The Company may not be able to consummate
acquisitions or identify and obtain projects that meet the Company's
requirements.
Pending the application of such proceeds, the Company intends to invest the
net proceeds of this offering in bank deposits and short-term, investment grade
securities, including government obligations and money market instruments.
8
<PAGE>
PRICE RANGE OF COMMON EQUITY
The Company's Common Stock and Class C Common Stock Purchase Warrants
("Class C Warrants") are listed on the Nasdaq National Market under the symbols
"ATCE" and "ATCEL," respectively. Prior to August 23, 1995, the Company's Common
Stock and Class C Warrants were listed on the Nasdaq Small Cap Market under the
same symbols. The Class C Warrants are exercisable at $10.00 per share and
expire September 30, 1996, subject to the Company's right to call such warrants
on 30 days prior notice. The following table sets forth, for the quarters
indicated, the high and low bid prices of these securities on the Nasdaq Small
Cap Market and the high and low sales prices on the Nasdaq National Market, as
applicable.
COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
----- ---
<S> <C> <C>
FISCAL YEAR ENDED FEBRUARY 28, 1994:
First Quarter.......................................................... $ 41/2 $ 3
Second Quarter......................................................... 61/2 46/16
Third Quarter.......................................................... 77/8 5
Fourth Quarter......................................................... 71/2 65/8
FISCAL YEAR ENDED FEBRUARY 28, 1995:
First Quarter.......................................................... $ 12 $ 65/8
Second Quarter......................................................... 111/2 91/4
Third Quarter.......................................................... 173/4 91/8
Fourth Quarter......................................................... 175/8 131/4
FISCAL YEAR ENDED FEBRUARY 28, 1996:
First Quarter.......................................................... $ 183/8 $ 87/8
Second Quarter (through August 22, 1995)............................... 153/4 131/4
Second Quarter (August 23 through August 31, 1995)*.................... 151/8 133/4
Third Quarter (through September 7, 1995)*............................. 151/8 141/2
</TABLE>
CLASS C WARRANTS
<TABLE>
<CAPTION>
HIGH LOW
----- ---
<S> <C> <C>
FISCAL YEAR ENDED FEBRUARY 28, 1994:
First Quarter.......................................................... $ 3/16 $ 1/8
Second Quarter......................................................... 3/4 1/8
Third Quarter.......................................................... 5/8 1/8
Fourth Quarter......................................................... 1/2 1/4
FISCAL YEAR ENDED FEBRUARY 28, 1995:
First Quarter.......................................................... $ 21/8 $ 11/32
Second Quarter......................................................... 21/4 7/8
Third Quarter.......................................................... 73/4 15/16
Fourth Quarter......................................................... 8 55/8
FISCAL YEAR ENDED FEBRUARY 28, 1996:
First Quarter.......................................................... $ 81/2 $ 3
Second Quarter (through August 22, 1995)............................... 75/8 51/2
Second Quarter (August 23 through August 31, 1995)*.................... 7 51/2
Third Quarter (through September 7, 1995)*............................. 7 61/4
<FN>
------------------------
* Represents high and low sales prices on the Nasdaq National Market.
</TABLE>
The quotations in the tables above reflect inter-dealer prices without
retail markups, markdowns or commissions. In addition, for all periods prior to
August 23, 1995, they do not represent actual transactions.
On September 7, 1995, the last reported sale price for the Company's Common
Stock and Class C Warrants on the Nasdaq National Market were $14.75 and $6.25,
respectively.
As of August 16, 1995, there were approximately 800 stockholders of record
of the Common Stock.
9
<PAGE>
DIVIDEND POLICY
The Company has not paid any dividends since its inception and for the
foreseeable future intends to follow a policy of retaining all of its earnings,
if any, to finance the development and continued expansion of its business.
There can be no assurance that dividends will ever be paid by ATC. Additionally,
under the terms of its revolving credit facility with its principal lender, ATC
may not pay dividends without such lender's consent.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at May 31, 1995, and as adjusted, to reflect: (i) the Aurora Merger; and
(ii) the sale of 1,700,000 shares of Common Stock offered by the Company hereby
and the application of the net proceeds therefrom. The following table should be
read in conjunction with the pro forma unaudited combined financial data and
notes thereto included elsewhere in this Prospectus and the respective
consolidated financial statements and notes thereto of the Company and Aurora
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MAY 31, 1995
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
--------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current maturities of long-term debt ......... $ 827 $ 827 $ 827
Long-term debt, less current maturities (2)................................ 4,593 4,593 718
--------- ------------- -----------
Total indebtedness......................................................... 5,421 5,421 1,546
Stockholders' equity:
Common stock, par value $.01 per share; authorized 20,000,000 shares:
issued and outstanding: 5,738,318; pro forma: 5,821,770 shares; and pro
forma as adjusted: 7,521,770 shares (3)................................. 57 58 75
Additional paid-in capital (4)........................................... 7,493 7,636 30,564
Retained earnings........................................................ 7,181 7,569 7,569
--------- ------------- -----------
Total stockholders' equity................................................. 14,731 15,262 38,208
--------- ------------- -----------
Total capitalization................................................... $ 20,152 $ 20,683 $ 39,753
--------- ------------- -----------
--------- ------------- -----------
</TABLE>
------------------------
Note: Numbers may not add due to rounding.
(1) Reflects the issuance of .545 shares of Common Stock for each of Aurora's
6,131,104 outstanding shares of common stock and the cancellation of
3,258,000 shares of Common Stock held by Aurora upon the effectiveness of
the Aurora Merger. See "Recent Developments."
(2) For a description of the Company's long-term debt, see Note D of the
Company's Notes to Consolidated Financial Statements for the year ended
February 28, 1995.
(3) Does not include the following: (a) 570,620 shares reserved for issuance
under outstanding Class C Warrants (see "Description of Capital Stock"); (b)
393,020 shares reserved for issuance upon exercise of currently outstanding
stock options issued under the Company's existing Stock Option Plans (see
Note F of the Company's Notes to Consolidated Financial Statements for the
year ended February 28, 1995); (c) 572,250 shares reserved for issuance upon
exercise of currently outstanding stock options and stock purchase warrants
issued in exchange for previously outstanding stock options and stock
purchase warrants of Aurora pursuant to the Aurora Merger (see "Recent
Developments"); and (d) 40,120 shares of Common Stock issued after May 31,
1995.
(4) Amount is net of notes receivable for Common Stock purchased in the amount
of $15,000.
10
<PAGE>
RECENT DEVELOPMENTS
MERGER OF AURORA INTO ATC
Effective June 29, 1995, ATC and Aurora were merged, with ATC as the
surviving corporation. Prior to the Aurora Merger, Aurora was a holding company
which owned approximately 57% of ATC's outstanding Common Stock and had
substantially no other assets. In connection with the merger, each outstanding
share of Aurora common stock was exchanged for .545 shares of Common Stock. ATC
issued 3,341,452 shares of Common Stock in exchange for 6,131,104 shares of
Aurora's common stock, and issued options and warrants entitling the holders
thereof to purchase up to 604,950 shares of Common Stock upon exercise in
replacement of previously outstanding options and warrants to purchase Aurora's
common stock. As a result of the Aurora Merger, ATC anticipates that it will be
able to utilize Aurora's net operating loss carryforward of approximately
$970,000 at May 31, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
ACQUISITION OF ASSETS OF CON-TEST
Effective October 1, 1994, ATC purchased certain assets and assumed certain
liabilities of Con-Test, a Massachusetts-based environmental consulting and
engineering company with branch offices in Massachusetts, Connecticut, Vermont,
Rhode Island, New York and Pennsylvania. Con-Test's primary services included
industrial hygiene, environmental and industrial health and safety, and
lead-based paint management. It also maintained an analytical laboratory and had
developed a line of environmental facilities management software used by several
industrial firms and federal government agencies. The total consideration for
this acquisition was approximately $7,760,000, consisting of $2,100,000 in cash,
restricted shares of Common Stock valued at $493,000, $535,000 in a three-year
promissory note, $4,500,000 of assumed liabilities and $132,000 for acquisition
costs. Certain of this consideration is contingent upon collection of
outstanding receivables acquired by ATC. Immediately upon acquiring the assets
of Con-Test, the Company instituted several cost-saving measures, including the
elimination of certain employees and facilities, to improve Con-Test's
operations and integrate it with the existing operations of the Company. See pro
forma unaudited combined financial data and notes thereto included elsewhere in
this Prospectus.
OTHER RECENT ACQUISITIONS
On January 4, 1995, ATC agreed to assume the service performance obligations
under certain contracts of Microbial Environmental Services, Inc. ("MES"). MES
was engaged in the business of remediation of contaminated soils and water
utilizing enhanced naturally occurring biological processes. The services
provided by MES also included assessment of contaminated properties, design of
bio-remediation systems, management of bio-remediation projects and monitoring
of compliance with clean up standards.
On January 13, 1995, ATC acquired certain assets and assumed certain
specified liabilities of R.E. Blattert and Associates ("R.E. Blattert"). R.E.
Blattert's main area of expertise was in groundwater resource management.
EXERCISE OF CLASS B WARRANTS
Between August 1, 1994 and September 30, 1994, the Company received gross
proceeds of $2,278,424 from the exercise of 284,803 of the 285,817 issued and
outstanding Class B Common Stock Purchase Warrants ("Class B Warrants"), which
were exercised at an exercise price of $8.00 per share. Upon exercise, each
Class B Warrant holder received one share of Common Stock and one Class C
Warrant. The Class B Warrants that were not exercised expired as of September
30, 1994. The Class B Warrants were issued by the Company in 1990 in connection
with an exchange offer pursuant to which holders of the Company's then
outstanding Common Stock Purchase Warrants received Class B Warrants in addition
to other consideration. See "Description of Capital Stock."
11
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth, for the periods and at the dates indicated,
selected historical and pro forma consolidated financial data of the Company.
The unaudited consolidated financial statements of the Company as of and for the
three months ended May 31, 1994 and 1995 reflect all adjustments necessary in
the opinion of the Company's management (consisting only of normal recurring
adjustments), for a fair presentation of such financial data. The selected
consolidated historical financial data has been derived from the audited and
unaudited historical consolidated financial statements of the Company, and in
the case of fiscal years ended February 28, 1993, 1994 and 1995 and the three
months ended May 31, 1994 and 1995 should be read in conjunction with such
financial statements and the notes thereto included elsewhere in this
Prospectus.
The pro forma unaudited combined financial data has been derived from the
audited and unaudited financial statements of the Company, Aurora and Con-Test,
and should be read in conjunction with the pro forma unaudited combined
financial data and notes thereto included elsewhere in this Prospectus. The pro
forma results of operations for the fiscal year ended February 28, 1995 and the
three months ended May 31, 1995 are not necessarily indicative of the results of
operations that would have been achieved had the transactions reflected therein
been consummated prior to the periods in which they were completed, or that
might be attained in the future.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED MAY
FISCAL YEAR ENDED FEBRUARY 28, 31,
-------------------------------------------------------------------- ---------
PRO FORMA
1991 1992(1) 1993(2) 1994(2)(3) 1995(4) 1995(5) 1994(3)
--------- --------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 10,437 $ 10,578 $ 16,539 $ 26,664 $ 36,272 $ 40,808 $ 8,168
Cost of revenues........................ 4,986 5,433 9,890 14,370 18,355 20,124 4,298
--------- --------- --------- ----------- --------- ----------- ---------
Gross profit............................ 5,451 5,146 6,650 12,294 17,916 20,683 3,870
Operating expenses:
Selling................................. 632 674 686 785 1,106 1,396 224
General and administrative.............. 4,316 4,634 5,151 8,140 10,997 13,335 2,427
Provision for bad debts................. 74 100 85 143 189 205 40
--------- --------- --------- ----------- --------- ----------- ---------
5,022 5,407 5,922 9,068 12,291 14,937 2,691
--------- --------- --------- ----------- --------- ----------- ---------
Operating income (loss)................. 430 (262) 728 3,227 5,625 5,746 1,179
Nonoperating expense (income):
Interest expense........................ 107 115 115 185 286 421 65
Interest income......................... (119) (130) (50) (45) (34) (37) (10)
Other expense (income), net............. 8 128 9 9 73 (16) --
--------- --------- --------- ----------- --------- ----------- ---------
4 114 74 149 324 368 55
--------- --------- --------- ----------- --------- ----------- ---------
Income (loss) before taxes.............. 434 (375) 653 3,077 5,301 5,379 1,124
Income tax expense (benefit)............ 210 (139) 300 1,210 2,044 2,074 434
--------- --------- --------- ----------- --------- ----------- ---------
Net income (loss)....................... $ 224 $ (236) $ 353 $ 1,867 $ 3,257 $ 3,305 $ 690
--------- --------- --------- ----------- --------- ----------- ---------
--------- --------- --------- ----------- --------- ----------- ---------
SELECTED PER SHARE DATA:
Earnings (loss) per common share:
Primary............................... $ .04 $ (.05) $ .07 $ .35 $ .57 $ .53 $ .13
--------- --------- --------- ----------- --------- ----------- ---------
--------- --------- --------- ----------- --------- ----------- ---------
Fully diluted......................... $ .04 $ (.05) $ .07 $ .35 $ .56 $ .51 $ .12
--------- --------- --------- ----------- --------- ----------- ---------
--------- --------- --------- ----------- --------- ----------- ---------
Weighted average number of shares
outstanding:
Primary............................... 5,142 5,027 5,294 5,377 5,754 6,224 5,481
Fully diluted......................... 5,142 5,027 5,298 5,396 5,850 6,419 5,561
<CAPTION>
PRO FORMA
1995(4) 1995(5)
--------- -----------
<S> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 10,815 $ 10,815
Cost of revenues........................ 5,545 5,545
--------- -----------
Gross profit............................ 5,270 5,270
Operating expenses:
Selling................................. 330 330
General and administrative.............. 3,366 3,423
Provision for bad debts................. 47 47
--------- -----------
3,743 3,800
--------- -----------
Operating income (loss)................. 1,527 1,470
Nonoperating expense (income):
Interest expense........................ 110 110
Interest income......................... (44) (44)
Other expense (income), net............. (2) (3)
--------- -----------
64 62
--------- -----------
Income (loss) before taxes.............. 1,463 1,408
Income tax expense (benefit)............ 568 546
--------- -----------
Net income (loss)....................... $ 895 $ 862
--------- -----------
--------- -----------
SELECTED PER SHARE DATA:
Earnings (loss) per common share:
Primary............................... $ .15 $ .13
--------- -----------
--------- -----------
Fully diluted......................... $ .15 $ .13
--------- -----------
--------- -----------
Weighted average number of shares
outstanding:
Primary............................... 6,123 6,724
Fully diluted......................... 6,123 6,724
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AT MAY 31, 1995
AT FEBRUARY 28, ------------------------
------------------------------------------------------- PRO FORMA
1991 1992(1) 1993(2) 1994(2)(3) 1995(4) ACTUAL(4) 1995(5)
--------- --------- --------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital......................... $ 3,828 $ 3,470 $ 3,343 $ 6,049 $ 8,114 $ 9,440 $ 9,971
Total assets............................ 7,881 6,991 9,335 14,157 25,009 25,612 25,833
Short-term and long-term debt........... 971 771 1,637 2,841 4,822 5,421 5,421
Stockholders' equity.................... 5,344 5,092 5,813 7,659 13,813 14,731 15,262
</TABLE>
------------------------
Note: Numbers may not add due to rounding.
(1) ATC acquired the operations of Dennison Environmental, Inc. effective July
23, 1991.
(2) On June 10, 1992, ATC entered into an agreement to acquire Bio/West, Inc.
This transaction was rescinded effective as of May 31, 1993.
(3) ATC acquired the operations of BSE Management, Inc. effective April 30,
1993.
(4) ATC acquired certain assets of Con-Test effective October 1, 1994.
(5) The pro forma operating data gives effect to the Con-Test acquisition and
the Aurora Merger as if they had occurred at the beginning of the period
presented. Pro forma fully diluted earnings per share after giving effect to
the Con-Test acquisition, but without giving effect to the Aurora Merger, is
$.56 for the fiscal year ended February 28, 1995. The pro forma balance
sheet at May 31, 1995 gives effect to the Aurora Merger as if it had
occurred on May 31, 1995.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the Company's audited and unaudited consolidated
financial statements, pro forma unaudited combined financial data and the
respective notes thereto appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data of the
Company expressed as a percentage of revenues.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28, THREE MONTHS ENDED MAY 31,
-------------------------------------------- ---------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 1994 1995 1995
--------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.............................. 59.8 53.9 50.6 49.3 52.6 51.3 51.3
--------- --------- --------- ----- --------- --------- -----
Gross profit.................................. 40.2 46.1 49.4 50.7 47.4 48.7 48.7
Operating expenses:
Selling....................................... 4.1 2.9 3.0 3.4 2.7 3.0 3.0
General and administrative.................... 31.1 30.5 30.3 32.7 29.7 31.1 31.7
Provision for bad debts....................... 0.5 0.5 0.5 0.5 0.5 0.4 0.4
--------- --------- --------- ----- --------- --------- -----
35.8 34.0 33.9 36.6 32.9 34.6 35.1
--------- --------- --------- ----- --------- --------- -----
Operating income.............................. 4.4 12.1 15.5 14.1 14.4 14.1 13.6
Nonoperating expense (income):
Interest expense.............................. 0.7 0.7 0.8 1.0 0.8 1.0 1.0
Interest income............................... (0.3) (0.2) (0.1) (0.1) (0.1) (0.4) (0.4)
Other expense, net............................ 0.1 0.0 0.2 0.0 0.0 0.0 0.0
--------- --------- --------- ----- --------- --------- -----
0.4 0.6 0.9 0.9 0.7 0.6 0.6
--------- --------- --------- ----- --------- --------- -----
Income before income taxes.................... 3.9 11.5 14.6 13.2 13.7 13.5 13.0
Income tax expense............................ 1.8 4.5 5.6 5.1 5.3 5.2 5.1
--------- --------- --------- ----- --------- --------- -----
Net income.................................... 2.1% 7.0% 9.0% 8.1% 8.4% 8.3% 8.0%
--------- --------- --------- ----- --------- --------- -----
--------- --------- --------- ----- --------- --------- -----
</TABLE>
--------------
Note: Numbers may not add due to rounding.
THREE MONTHS ENDED MAY 31, 1995 COMPARED WITH THREE MONTHS ENDED MAY 31, 1994
Revenues in the first quarter of fiscal 1996 increased 32.4% to $10,814,953,
compared with $8,167,900 in the first quarter of fiscal 1995. This increase was
primarily attributable to the positive effect of acquisitions completed during
the second half of fiscal 1995. During the first quarter of fiscal 1996,
increased revenues from certain existing operations were offset by lower
revenues due to delays in funding for certain projects for a significant
customer and the completion of certain work for another significant customer.
Revenues in the first quarter of fiscal 1996 from ATC's branch offices
having comparable operations in the first quarter of fiscal 1995 decreased 1.8%
to $8,017,359, compared with $8,167,900 in the first quarter of fiscal 1995. In
the first quarter of fiscal 1996, ATC continued to penetrate its existing
markets and benefitted from the acquisitions of certain assets of Con-Test, MES
and R.E. Blattert. Revenues attributable to operations resulting from these
acquisitions totaled $2,797,594, or 25.9% of revenues, for the three months
ended May 31, 1995. If revenues from certain large projects for two significant
customers discussed below are eliminated in each period, ATC's revenues from
existing branch offices having comparable operations in the first quarter of
fiscal 1996 would have increased 22.2% to $7,077,609, compared with $5,791,183
in the first quarter of fiscal 1995.
14
<PAGE>
Revenues in the first quarter of fiscal 1996 from the New York City School
Construction Authority (the "NYCSCA") decreased 36.4% to $596,147, compared with
$937,907 in the first quarter of fiscal 1995. As a percentage of revenues,
revenues from the NYCSCA decreased to 5.5% in the first quarter of fiscal 1996,
compared with 11.5% in the first quarter of fiscal 1995. During the first
quarter of fiscal 1996, delays in the approval of the NYCSCA's program budget
and funding requests for the New York City school construction and maintenance
program resulted in diminished service levels in asbestos management consulting
and testing services and, consequently, lower revenues to ATC under this
program. The NYCSCA's construction and maintenance program is ongoing and is
expected to continue over a period of years. ATC believes it has established a
strong relationship with the NYCSCA and expects to continue to provide asbestos
and other industrial hygiene services to the NYCSCA over the next several years;
however, no assurance can be made regarding the amount of revenues, if any, that
ATC will receive from the NYCSCA in the future once current projects are
completed. ATC's revenues under programs such as this one are not predictable
and will be dependent upon many factors such as the scope of work necessary at
particular sites, budgeting constraints and the timing of projects.
Revenues in the first quarter of fiscal 1996 from the Army Corps of
Engineers (the "Corps") decreased 76.1% to $343,603, compared with $1,438,810 in
the first quarter of fiscal 1995. As a percentage of revenues, revenues from the
Corps decreased to 3.2% in the first quarter of fiscal 1996, compared with 17.6%
in the first quarter of fiscal 1995. The Company's revenues from the Corps
relate to certain asbestos management services and decreased due to the
completion of the larger phases of the project during the first six months of
fiscal 1995. Revenues from the Corps are expected to continue at current levels
for the remainder of fiscal 1996 and work on this project is expected to
continue through 1999 as part of the federal Base Realignment and Closure
project. However, no assurance can be made as to the amount of revenues, if any,
that ATC will receive from the Corps in the future once current projects are
completed.
Gross profit in the first quarter of fiscal 1996 increased 36.2% to
$5,269,542, compared with $3,869,644 in the first quarter of fiscal 1995. Gross
margin increased to 48.7% in the first quarter of fiscal 1996, compared with
47.4% in the first quarter of fiscal 1995. ATC's gross margin improved due to
the integration of certain acquired operations with ATC's existing operations.
Operating expenses in the first quarter of fiscal 1996 increased 39.1% to
$3,742,993, compared with $2,691,003 in the first quarter of fiscal 1995.
Operating expenses increased as a percentage of total revenues to 34.6% in the
first quarter of fiscal 1996, compared with 32.9% in the first quarter of fiscal
1995. Operating expenses as a percentage of revenues have increased primarily
due to increased labor costs. Employee costs increased 44.8% to $2,029,976, or
18.8% of revenues, in the first quarter of fiscal 1996 compared with $1,401,879,
or 17.2% of revenues, in the first quarter of fiscal 1995. These increases were
due in part to employees hired in connection with the expansion of ATC's
operations. Other increases in operating expenses resulted from higher facility
costs, equipment and supply costs and travel expenses resulting from the growth
in operations and increased employee levels. Additionally, in the first quarter
of fiscal 1996, amortization of goodwill and intangibles increased to $95,379,
compared with $44,644 in the first quarter of fiscal 1995 reflecting the
additional goodwill amortization resulting from acquisitions.
Operating income in the first quarter of fiscal 1996 increased 29.5% to
$1,526,549, compared with $1,178,641 in the first quarter of fiscal 1995.
Operating income decreased marginally as a percentage of revenues to 14.1% in
the first quarter of fiscal 1996, compared with 14.4% in the first quarter of
fiscal 1995.
Nonoperating expenses in the first quarter of fiscal 1996 increased 16.8% to
$63,921, compared with $54,727 in the first quarter of fiscal 1995. The increase
in nonoperating expenses is primarily attributable to higher interest expenses
due to increased borrowings.
Income tax expense in the first quarter of fiscal 1996 was $567,500,
compared with $434,400 in the first quarter of fiscal 1995. During the first
quarter of fiscal 1996 and the first quarter of fiscal 1995, the Company's
effective tax rates were 38.8% and 38.7%, respectively.
As a result of the foregoing, net income in the first quarter of fiscal 1996
increased 29.8% to $895,128, or $.15 per share on a fully diluted basis,
compared with $689,514, or $.12 per share on a fully diluted basis, in
15
<PAGE>
the first quarter of fiscal 1995. The fully diluted weighted average number of
shares outstanding increased 562,693 shares to 6,123,312 shares primarily due to
the exercise of the Class B Warrants. Net income remained relatively flat as a
percentage of revenues at 8.3% in the first quarter of fiscal 1996, compared
with 8.4% in the first quarter of fiscal 1995.
YEAR ENDED FEBRUARY 28, 1995 COMPARED WITH YEAR ENDED FEBRUARY 28, 1994
Revenues in fiscal 1995 increased 36.0% to $36,271,557, compared with
$26,664,385 in fiscal 1994. This increase was attributable to increased revenues
in ATC's existing branches and the positive effect of acquisitions.
Revenues in fiscal 1995 from ATC's branch offices having comparable
operations in fiscal 1994 increased 13.2% to $20,340,764, compared with
$17,965,654 in fiscal 1994.
Revenues in fiscal 1995 from operations resulting from the acquisition of
assets of BSE Management, Inc. ("BSE") effective as of April 30, 1993 increased
42.8% to $11,754,623, compared with $8,230,000 in fiscal 1994. Of these revenue
amounts, $3,213,000 and $1,560,000 for fiscal 1995 and fiscal 1994,
respectively, were from the Corps for asbestos management services. The fiscal
1995 data reflects 12 months of operations from BSE while the fiscal 1994 data
reflects only 10 months of such operations.
Revenues from operations resulting from the acquisitions of assets of
Con-Test, MES, and R.E. Blattert, contributed $4,176,170 in fiscal 1995. In
fiscal 1994, revenues of $468,731 and a net loss of $109,846 were contributed by
former branch offices of Bio/West, Inc. ("Bio/West"). The Company entered into
an agreement to acquire Bio/West on June 10, 1992; however, the acquisition
transaction was rescinded effective as of May 31, 1993.
During fiscal 1995, ATC's revenues benefitted from asbestos management
consulting and testing services provided to the NYCSCA as part of its New York
City school construction and maintenance program. Revenues in fiscal 1995 from
the NYCSCA increased 14.2% to $3,859,595, compared with $3,379,100 in fiscal
1994. As a percentage of total revenues, revenues from the NYCSCA decreased to
10.6% in fiscal 1995, compared with 12.7% in fiscal 1994.
Gross profit in fiscal 1995 increased 45.7% to $17,916,064, compared with
$12,294,424 in fiscal 1994. Similarly, gross margin increased to 49.4% in fiscal
1995, compared with 46.1% in fiscal 1994. During fiscal 1995, ATC's margins
improved due to labor force efficiencies which were due in part to the Con-Test
acquisition, the acquisition of certain assets of BSE and the integration of
certain of their operations with ATC's existing operations.
Operating expenses in fiscal 1995 increased 35.5% to $12,291,465, compared
with $9,067,881 in fiscal 1994. Operating expenses remained almost constant as a
percentage of revenues at 33.9% and 34.0% during fiscal 1995 and fiscal 1994,
respectively. Employee costs increased 36.6% to $6,284,627, or 17.3% of
revenues, in fiscal 1995, compared with $4,599,951, or 17.3% of revenues, in
fiscal 1994. Other increases in operating expenses resulted from higher
depreciation, equipment and supply costs and travel expenses resulting from the
growth in operations and increased employee levels. Additionally, amortization
of goodwill and intangibles increased to $212,320 in fiscal 1995 from $37,716 in
fiscal 1994, reflecting the additional goodwill amortization resulting from
acquisitions. Facility costs as a percentage of revenues in fiscal 1995 were
5.0%, compared with 6.0% in fiscal 1994.
Operating income in fiscal 1995 increased 74.3% to $5,624,599, compared with
$3,226,543 in fiscal 1994. Operating income increased as a percentage of
revenues to 15.5% in fiscal 1995, compared with 12.1% in fiscal 1994.
Nonoperating expenses in fiscal 1995 increased 116.8% to $324,079, compared
with $149,495 in fiscal 1994. The increase in nonoperating expenses is primarily
attributable to higher interest expenses due to increased borrowings and
expenses of approximately $83,000 related to the Aurora Merger.
Income tax expense in fiscal 1995 was $2,044,000, compared with $1,210,000
in fiscal 1994. The Company's effective tax rates in fiscal 1995 and fiscal 1994
were 38.6% and 39.3%, respectively.
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As a result of the foregoing, net income in fiscal 1995 was $3,256,520, or
$.56 per share on a fully diluted basis, compared with $1,867,048, or $.35 per
share on a fully diluted basis, in fiscal 1994. The fully diluted weighted
average number of shares outstanding increased 453,860 shares to 5,850,233
shares primarily due to the exercise of the Class B Warrants. Net income in
fiscal 1995 increased as a percentage of revenues to 9.0%, compared with 7.0% in
fiscal 1994.
YEAR ENDED FEBRUARY 28, 1994 COMPARED WITH FEBRUARY 28, 1993
Revenues in fiscal 1994 increased 61.2% to $26,664,385, compared with
$16,539,254 in fiscal 1993. This increase was attributable to the acquisition of
assets of BSE and the strong performance of ATC's existing branches, and was
partially offset by the rescission of the Bio/West purchase agreement.
Revenues in fiscal 1994 from ATC's branch offices having comparable
operations in fiscal 1993 increased 32.0% to $17,965,654, compared with
$13,614,964 in fiscal 1993. During fiscal 1994, ATC's revenues began to benefit
from its asbestos management consulting and testing services provided to the
NYCSCA as part of its New York City school construction and maintenance program.
Revenues in fiscal 1994 from the NYCSCA were $3,379,100 or 12.7% of total
revenues.
Revenues in fiscal 1994 from operations resulting from the acquisition of
assets of BSE, contributed $8,230,000. Of this revenue amount, $1,560,000, or
5.9%, was from the Corps for certain asbestos management services.
Revenues in fiscal 1994 from former Bio/West branch offices were $468,731,
compared with $2,924,290 in fiscal 1993.
Gross profit in fiscal 1994 increased 84.9% to $12,294,424, compared with
$6,649,642 in fiscal 1993. Similarly, gross margin increased to 46.1% in fiscal
1994, compared with 40.2% in fiscal 1993. During fiscal 1994, ATC's margins
improved primarily due to labor force efficiencies achieved through the
integration of acquired companies and the rescission of its purchase of
Bio/West, which historically operated at a lower gross profit margin than ATC's
other operations.
Operating expenses in fiscal 1994 increased 53.1% to $9,067,881, compared
with $5,922,120 in fiscal 1993. Operating expenses decreased as a percentage of
revenues in fiscal 1994 to 34.0%, compared with 35.8% in fiscal 1993. This
decrease was achieved by integrating certain BSE operations with ATC's existing
branch operations.
Operating income in fiscal 1994 increased 343.5% to $3,226,543, compared
with $727,522 in fiscal 1993. Operating income increased as a percentage of
revenues to 12.1% in fiscal 1994, compared with 4.4% in fiscal 1993.
Nonoperating expenses in fiscal 1994 increased 101.0% to $149,495, compared
with $74,378 in fiscal 1993. The increase in nonoperating expenses was primarily
attributable to higher interest expenses due to increased borrowings.
Income tax expense in fiscal 1994 was $1,210,000, compared with $300,000 in
fiscal 1993. The Company's effective tax rates in fiscal 1994 and fiscal 1993
were 39.3% and 45.9%, respectively. The fiscal 1993 effective tax rate was
higher than the fiscal 1994 rate because the Company could not utilize the tax
benefits of the net operating losses of Bio/West as a result of the rescission
of such transaction.
As a result of the foregoing, net income in fiscal 1994 was $1,867,048, or
$.35 per share on a fully diluted basis, compared with $353,144, or $.07 per
share on a fully diluted basis, in fiscal 1993. The fully diluted weighted
average number of shares outstanding increased nominally to 5,396,373.
Similarly, net income in fiscal 1994 increased as percentage of revenues to
7.0%, compared with 2.1% in fiscal 1993.
SEASONALITY
ATC typically experiences a slow down in business activities during the
winter months and an increase in business activities during the summer months.
This is due to seasonal fluctuations in construction and remediation activities.
Thus, operating results may vary from quarter to quarter.
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LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1995, working capital was $9,440,052 compared with working
capital of $8,113,738 at February 28, 1995, an increase of $1,326,314. This
increase in working capital is, in part, a result of ATC's acquisition of
current assets of R.E. Blattert and MES, and the reduction of current
liabilities using long-term borrowings under the Company's revolving credit
facility with the Atlantic Bank of New York ("Atlantic"). At February 28, 1995
working capital was $8,113,738 compared with working capital of $6,049,013 at
February 28, 1994, an increase of $2,064,725. This increase in working capital
is, in part, a result of ATC's acquisition of certain assets of MES and
Con-Test.
During the three months ended May 31, 1995, net cash flows used in operating
activities were $1,006,823. Net cash flows used in investing activities were
$416,126, resulting from the Con-Test and R.E. Blattert acquisitions, additional
contingent purchase obligations in connection with the BSE acquisition and
purchases of property and equipment. Net cash flows provided by financing
activities were $523,990, primarily representing proceeds from an $816,660
increase in outstanding debt under the Company's revolving credit facility with
Atlantic, less payments made on long-term debt and notes payable of $293,309.
During the three months ended May 31, 1994, net cash flows used in operating
activities were $23,248. Net cash flows used in investing activities were
$318,852 consisting of the payment of contingent purchase obligations related to
the acquisition of BSE and the purchase of property and equipment. Also during
this period, net cash flows used in financing activities were $238,069,
primarily for principal payments on long-term debt and notes payable of
$217,915.
During fiscal 1995, net cash flows provided by operating activities were
$3,030,703. Net cash flows used in investing activities were $4,099,812,
consisting primarily of the purchase of certain assets of BSE, Con-Test and MES,
and property and equipment. Also during this period, net cash flows provided by
financing activities were $1,052,082, primarily from the exercise of ATC's Class
B Warrants and borrowing under the Company's revolving credit facility with
Atlantic. These sources of cash were reduced by principal debt repayments,
including payments of $1,961,000 with respect to bank debt assumed in connection
with the Con-Test and R.E. Blattert acquisitions.
During fiscal 1994, net cash flows used in operating activities were
$28,653. Net cash flows used in investing activities were $1,476,300, primarily
to purchase certain assets of BSE and property and equipment. These uses of cash
were partially offset by cash received related to the rescission of the Bio/West
purchase agreement. Net cash flows provided by financing activities were
$1,835,002, resulting from the proceeds of notes payable and long-term debt,
partially offset by the principal payments on long-term debt, including capital
lease obligations of $1,174,756.
During fiscal 1993, net cash flows provided by operating activities were
$602,583. Net cash flows used in investing activities were $291,656, resulting
from the purchase of certain assets of Bio/West and property and equipment, and
the partial offset by proceeds from maturity of investments. Net cash flows used
in financing activities were $157,250, as a result of the principal payments on
long-term debt including capitalized lease obligations of $400,292.
In fiscal 1995, ATC increased its revolving credit facility with Atlantic to
$5,000,000. The note underlying ATC's credit facility with Atlantic, which is
currently due September 30, 1996 (the "Note"), provides that Atlantic is not
obligated to make loans to ATC if doing so would cause the aggregate outstanding
principal amount of all loans under the Note to exceed the borrowing base
prescribed in the Note. The Note contains certain representations, warranties,
affirmative covenants, negative covenants and financial covenants. Events of
default under the Note include, but are not limited to, a change in control of
ATC or any guarantor. As of the date hereof, ATC is in compliance with all
covenants under the Note, with advances of $4,775,000 outstanding at July 31,
1995. Although the Company intends to use a portion of the proceeds of this
offering to repay in full the outstanding debt under its revolving credit
facility, the Company intends to maintain a revolving credit facility following
this offering. The Company is engaged in discussions with Atlantic with respect
to an extension and modification of the Company's revolving credit facility. See
"Use of Proceeds."
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The Company anticipates using Aurora's net operating loss carryforward of
approximately $970,000 as of May 31, 1995, to offset a portion of the Company's
consolidated federal taxable income over the next two years, subject to certain
limitations.
ATC may open additional offices in the future at presently undetermined
sites based upon potential sales growth and upon a determination of whether or
not an office can meet Management's profitability objective. In addition, ATC
has added regional offices in the recent past as a result of the completion of
certain acquisitions and may add additional offices through acquisitions in the
future. As of the date of this Prospectus, ATC has no definitive agreements for
new office expansion or any material acquisition.
The Company's working capital and liquidity will increase substantially upon
receipt of the net proceeds from this offering. Management believes that
following this offering ATC's working capital, revolving credit facility with
Atlantic and anticipated funds generated internally from operations and this
offering will be sufficient to finance ATC's anticipated growth through
acquisitions and internal expansion, to make payments as they come due on ATC's
completed acquisitions and to meet ATC's short-term and long-term liquidity
requirements.
On March 1, 1996, the Company intends to adopt Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Management
anticipates that the adoption of SFAS No. 121 will not have a material effect on
the Company's financial statements.
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BUSINESS
OVERVIEW
ATC is a national environmental consulting and engineering firm that
provides specialized technical and project management products and services to a
large, diverse client base of businesses and federal, state and local
governments. Since entering the environmental consulting and engineering
business in 1982, ATC has completed several acquisitions and expanded its
internal operations, enabling it to increase its market penetration and the
variety of products and services it offers. The Company currently operates a
network of over 30 branch offices located throughout the United States,
supported by in-house testing laboratories.
The public's concern regarding exposure to contaminants stimulated the push
for environmental regulations in the 1970s and 1980s. Today, the public's
continuing demand for responsible action regarding human health and safety and
the potential adverse impact of environmental liabilities drive the market for
environmental consulting and engineering services. Independent industry
estimates of the consulting and engineering services sector of the environmental
market for 1994 ranged from $13 to $15 billion, with annual growth projected at
5% to 8% through the next three to four years.
ATC has focused on five areas of specialization: (i) industrial hygiene
consulting, including asbestos management, classical industrial hygiene and
indoor air quality; (ii) environmental management, including environmental
audits, site assessments, remedial action planning and design, and soil and
groundwater remediation management; (iii) lead-based paint risk management; (iv)
health and safety consulting, including health and safety training, hazardous
materials site safety planning and industrial safety consulting; and (v)
management information systems for comprehensive environmental risk assessment
and management. These areas of specialization contributed approximately 65%,
19%, 10%, 5% and 1%, respectively, of the Company's revenues in fiscal 1995.
The Company believes that certain sectors of the environmental consulting
and engineering market will experience significant growth over the next several
years with demand for products and services growing even in the absence of
increased governmental regulations. Independent industry sources project annual
growth rates of 10%, 13%, 15% and 20% for lead-based paint management,
occupational safety and industrial hygiene services, indoor air quality
consulting and environmental software, respectively.
The Company has experienced substantial increases in revenues and net income
over the past three fiscal years. ATC's revenues were $16,539,254, $26,664,385
and $36,271,557, respectively, in its 1993, 1994 and 1995 fiscal years,
representing a compounded annual growth rate of 48.1% over such periods.
Furthermore, ATC's net income was $353,144, $1,867,048 and $3,256,520,
respectively, in such fiscal years, representing a compounded annual growth rate
of 203.7% over such periods. For the Company's first fiscal quarter of 1996,
revenues increased 32.4% to $10,814,953 over the comparable period of fiscal
1995, while net income increased 29.8% to $895,128.
ATC attributes these positive operating results to its integrated strategy
which includes: (i) an aggressive, but disciplined, acquisition program; (ii)
the enhancement of operations through the integration of acquired businesses
with the Company's existing operations; (iii) a focus on certain higher growth
sectors of the environmental consulting and engineering services market, and
certain higher margin services such as policy development and decision support;
(iv) an emphasis on basic business management issues, such as employee
utilization, credit and collections management, and regional profit center
accountability; and (v) the development of a national presence in a market
typified by local and regional firms. Upon the completion of this offering, the
Company intends to employ this strategy as it seeks to further penetrate the
markets for its core services and to expand its range of products and services
through strategic acquisitions and internal growth.
THE ENVIRONMENTAL CONSULTING AND ENGINEERING SERVICES INDUSTRY
During the 1980s, the market for environmental consulting and engineering
services grew significantly, due in part to a high level of federal expenditures
and stringent regulations mandating actions to identify and
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mitigate asbestos hazards, hazardous waste sites, industrial emissions and a
host of other concerns. The industry's growth slowed in the early 1990s as the
industry was adversely effected by a down turn in the national economy.
Presently, the industry is viewed as having stabilized, with declining
demand in some sectors being offset by growth in others. According to two
independent market evaluations, one by THE ENVIRONMENTAL BUSINESS JOURNAL
("EBJ") and the other by the independent marketing firm of Richard K. Miller &
Associates, Inc. ("RKM&A"), the size of the environmental consulting and
engineering services market for 1994 was estimated at between $13 and $15
billion, with annual growth projected at 5% to 8% through the next three to four
years.
Although estimated growth rates for the industry over the next few years are
well below the growth rates experienced in the industry in the 1980s, the
Company believes that for the next few years growth in demand from private
sector clients and in certain service areas will exceed the average growth rate
of the overall industry. These service areas include lead-based paint management
and indoor air quality consulting services, which RKM&A estimates to increase
10% and 15%, respectively. RKM&A estimates that the occupational safety and
industrial hygiene sectors of the market will grow at an average annual rate of
13% and that environmental software services will increase 20% annually. The
Company believes risk analysis services will also emerge in response to a desire
for closer matching of limited clean up funds with the problems that are most
serious.
Industry observers believe that the asbestos market will show little growth
and the hazardous waste services market will experience some decline in the
coming years. The current sizes of these markets, however, are $3 billion and $6
billion, respectively, and the Company believes that based on the sizes of these
markets and current clean up rates, these markets will remain significant for
the next several years. Furthermore, while governmental expenditures are
expected to evidence slower growth in the coming years as a result of changes in
political priorities, private sector spending on environmental services is
expected to increase, particularly in certain sectors.
Notwithstanding the recent public discourse concerning regulatory reform,
new regulations have been promulgated which the Company believes will create new
business opportunities in certain sectors of the environmental consulting and
engineering services industry. In February 1994, the United States Department of
Labor promulgated new asbestos regulations for the construction industry which
are more stringent than the previous regulations. Lead-based paint is another
area of increasing regulatory activity, partially in response to the provisions
of Title X of the Housing and Community Development Act of 1992, and partially
as a result of increasing concern arising from evidence of the severe health
effects of childhood lead poisoning.
While the historical growth in environmental consulting and engineering
services has been stimulated by regulatory compliance concerns, the Company
believes that future growth will, in large part, be driven by private
litigation, asset preservation and productivity considerations. As companies
have become increasingly sensitive to the potential adverse consequences of
environmental problems and the potential impact of environmental liabilities,
they have taken an active approach to managing environmental health and safety
risks and liabilities, whether or not the subject of regulations. This trend is
currently being observed in such areas as steel structure repainting projects,
real estate transactional assessments and indoor air quality initiatives.
Bridge and tunnel authorities undertaking the removal of lead-based paint
from large steel structures are seeking to establish monitoring systems to
prevent the dispersion of lead dust into the environment. The Company believes
that such actions are motivated in large part by concerns regarding the
potential liabilities associated with lead contamination. Similarly, concerns
over environmental risks have made environmental assessments an integral
component of the due diligence process for commercial transactions. Financial
institutions frequently require environmental assessments prior to loan
originations and foreclosure activities, while insurance companies increasingly
require environmental assessments before issuing environmental insurance
liability policies. Another industry segment that is experiencing growth even in
the absence of
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extensive regulation is indoor air quality. Indoor air quality is viewed as an
important environmental concern which may significantly impact worker
productivity. Published estimates of productivity losses as a result of poor
indoor air quality range from $40 to $50 billion per year in the United States.
Many governmental agencies and businesses are looking at risk-based analysis
as the new model for decision-making instead of rote application of rigid rules.
This trend presents new service opportunities for the environmental consulting
and engineering services industry in several areas from which the Company is
positioned to benefit. The absence of adequate funding to immediately address
the full cost of clean ups requires the employment of risk assessment and
planning techniques that direct funding toward the problems presenting the
highest levels of risk. In addition, RKM&A sees a trend toward "outsourcing" of
environmental functions by corporations. Under outsourcing contracts,
environmental consulting firms function as the environmental departments of
large corporations. The Company views outsourcing as a future growth
opportunity.
STRATEGY
The Company's integrated strategy focuses on increasing revenues through
acquisitions and internal growth by promoting its core services and introducing
new and innovative services while continuing to achieve profitability in
existing and acquired operations through the implementation of rigorous
financial and operational controls. Through strategic acquisitions, the Company
has been able to increase the variety of services that it offers and develop a
nationwide network of offices and facilities capable of servicing national
accounts.
ATC's acquisition strategy includes identifying target companies in specific
geographical areas in which ATC does not have a strong presence or target
companies with new, transferable technologies or exploitable areas of expertise.
The environmental consulting and engineering services market is fragmented, with
over 3,600 environmental consulting and engineering companies in the United
States, of which only 31 have over $100 million in annual sales. There are many
specific service specialties, many small-sized companies and thus, many
potential acquisition candidates. Acquisitions can lead to bi-directional
technology transfers with the acquired company's services offered to ATC's
existing client base and ATC's core services offered to clients of the acquired
company. Furthermore, when acquisitions are located close to existing ATC
branches, economic consolidations are frequently possible.
In recent years, the Company has, through the acquisitions of Dennison
Environmental, Inc. ("Dennison") and Con-Test, entered two of the fastest
growing sectors of the environmental consulting and engineering services
industry, lead-based paint risk management and management information systems
and services. The Company believes that in many cases, like Dennison and
Con-Test, opportunities exist to improve the historical operating results of
acquired companies by: (i) reducing general and administrative costs through
consolidating facilities, reducing administrative personnel costs, improving
purchasing power and taking advantage of other economies of scale; (ii) reducing
costs of sales by decreasing reliance on subcontractors; and (iii) improving
financial and operational control systems.
The Company believes that its positive operating results in recent years are
due, at least in part, to its disciplined approach to the management of basic
business fundamentals. ATC's professional administrative staff monitors and
oversees the financial and administrative functions of the business. ATC strives
to manage profit center accountability through a combination of goals and
incentives and performance monitoring.
SERVICES AND PRODUCTS
The Company provides a range of specialized environmental consulting and
engineering services, including asbestos management, classical industrial
hygiene, lead-based paint risk management, health and safety training,
environmental audits, remedial action planning, design and management, and
comprehensive environmental risk assessment and management. The Company's
services are offered individually or together as part of the Company's full
service approach to environmental consulting. During the first fiscal quarter of
1995, ATC provided services to over 1,000 clients ranging from small site
investigations to large comprehensive assessment and remediation management
projects.
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INDUSTRIAL HYGIENE
The Company offers a variety of industrial hygiene services which include
asbestos management, classical industrial hygiene investigations and analyses,
indoor air quality services and laboratory services.
ASBESTOS MANAGEMENT. ATC provides comprehensive asbestos testing and
consulting services. These services may begin with a survey of facilities to
determine the condition, type, quantity and location of asbestos. After
gathering field samples, the Company utilizes polarized light microscopy, phase
contrast microscopy and transmission electron microscopy to analyze asbestos
fibers. Other services include risk assessment, remediation design for asbestos
abatement, industrial hygiene services before, during and after the asbestos
removal process, development of operations and maintenance training programs for
facilities personnel, development of operations and maintenance programs for
custodial and maintenance personnel, and providing asbestos awareness seminars
for client personnel.
ATC's services are designed to enable building owners and operators to
comply with federal, state and local regulations for asbestos control, by
providing a comprehensive approach for controlling or removing asbestos. ATC's
technical personnel include registered architects, professional engineers,
certified industrial hygienists, certified safety professionals and asbestos
specialists, with extensive experience managing hazardous materials. Such
personnel are licensed and certified by federal, state and local agencies.
CLASSICAL INDUSTRIAL HYGIENE. ATC evaluates potential health hazards in
occupational settings, including physical hazards and hazards arising from
exposure to chemical or biological substances. Potential hazards include
solvents, corrosive chemicals, gases, toxic dusts, radiation, lasers, noise,
lighting, heat, bacteria and molds. Evaluations determine the extent of exposure
to potentially hazardous substances and methods to control and minimize
associated risks. Field measurements are evaluated to determine compliance with
governmental regulations and other standards. After corrective measures are
designed and implemented, ATC provides follow-up monitoring designed to ensure
that workplace exposures have been minimized.
INDOOR AIR QUALITY. Healthy indoor air quality is recognized as an
essential factor in promoting comfort and welfare. ATC provides investigations
designed to identify: (i) sources of indoor air pollution; (ii) route of
exposure to individuals; (iii) route of entry into the body; and (iv) possible
effects on occupants. The investigatory process typically includes interviews of
occupants and air monitoring of indoor and outdoor ambient environments to
evaluate exposures, symptoms and concerns. A thorough building system
investigation evaluates mechanical and ventilation systems which may impact
habitable space. An inventory of chemicals, air contaminants, office equipment,
plants, water sources and other potentially harmful substances, process
equipment and maintenance practices may also be part of the evaluation. After
completing a facility evaluation, ATC recommends solutions that are customized
to the specific facility and problem.
LABORATORY SERVICES. ATC maintains analytical testing laboratories which
provide analyses of a wide spectrum of materials, including suspected
asbestos-containing materials, suspected lead-based paint substances, industrial
and municipal waste water, air and certain hazardous wastes. These laboratories
support ATC's consulting and remediation management services, and also operate
independently. ATC's operations incorporate chain-of-custody and quality
assurance procedures and professionally recognized laboratory practices.
ENVIRONMENTAL MANAGEMENT
ATC's environmental management services range from real property
investigations for environmental contamination, to turn-key remediation. These
services can include soil and ground water analysis, installation of monitoring
wells, recovery system design, regulatory permitting, contractor selection and
remediation oversight. Financial institutions, as well as certain states,
mandate pre-purchase or pre-loan real property environmental assessments prior
to property transfer, closure or sale. An environmental audit by ATC can help to
detect the presence of pollutants and, in some cases, to determine costs for
clean up.
GROUNDWATER ASSESSMENTS. At sites where the quality of groundwater is in
question, due to a confirmed or suspected spill or release of hazardous
substances, ATC performs assessments to identify the depth to static water,
define pressure zones or confining conditions, determine gradient and sample
groundwater.
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Once analytical results are known and soil and groundwater conditions
established, ATC's hydrologists, geologists and engineers analyze the data
through the use of predictive tools such as groundwater models to determine the
movement and ultimate destination of the contaminants.
SITE ASSESSMENTS AND CHARACTERIZATIONS. Site assessment and
characterization investigations involve defining the important physical and
chemical parameters of a contaminated site. A site assessment provides a
baseline for understanding subsurface conditions and is necessary before any
clean up can be designed or implemented.
GROUNDWATER AND SOIL REMEDIATION MANAGEMENT. ATC's services include the
management and oversight of clean up projects through the use of a variety of
diverse traditional and innovative technologies including bioremediation, land
farming, soil venting, air sparging, pump and treat, and thermal oxidation
systems. ATC's management services can include testing, scheduling,
coordination, documentation and approval of progress payments, and interaction
with regulatory agencies throughout the life of the project.
LEAD RISK MANAGEMENT
Lead in paint, drinking water and soil is a major environmental problem
facing the United States. Lead has no known useful function in the human body
and is known to be toxic to virtually all organs in the body, even at relatively
low doses. In children, excessive exposure to lead can result in brain damage
leading to learning disabilities and, in some cases, retardation. Adult
exposures to excessive amounts of lead can cause reproductive, hematological and
nervous system disorders.
As the first state-accredited lead risk management training institute in the
nation, ATC was one of the first companies to provide national lead risk
management services. Furthermore, ATC co-authored and edited the first
comprehensive textbook on lead risk management. ATC is a co-founder of the
National Lead Abatement Council, the first trade organization representing
contractors, inspectors, vendors, attorneys and public officials engaged in
managing lead risks. ATC maintains a high degree of visibility and credibility
in the lead services arena through participation in professional and consensus
standard setting organizations and through publishing articles in trade
publications.
Until recently, lead risk management services were sought primarily to
establish compliance with lead poisoning prevention regulations. However, the
market is now expanding as clients increasingly seek voluntary risk reduction
programs and defend against a proliferation of lead poisoning lawsuits.
Federal law requires lead paint testing of all federally assisted public
housing authority projects nationwide, and the full lead paint abatement of
these projects. To date, ATC has provided lead paint testing and abatement
project management services to over 125 public housing authorities. As this work
proceeds, ATC is also pursuing opportunities created by two new federally funded
programs. The first program authorized approximately $25 million of federal
grants to public housing authorities to conduct specialized lead hazard risk
assessments and develop property management programs to maintain "lead-safe"
dwellings until such time that lead paint can be abated. The second program
authorized approximately $279 million of federal grants to state and local
regulatory agencies to conduct innovative lead paint inspection and abatement.
ATC has identified and is aggressively marketing the grantee agencies.
Additional opportunities are presented by federal regulations under Title X
of the Housing and Community Development Act of 1992 which, among other things:
(i) established a national requirement for training and certification of all
lead contractor workers and supervisors, inspectors, risk assessors, project
designers and other individuals involved in lead paint activities; and (ii)
established new disclosure requirements applicable to all property transactions
affecting residential properties built prior to 1978.
ATC's lead management services are broadly categorized as: (i) corporate
lead risk management services; (ii) steel structure and industrial compliance
services; and (iii) residential lead paint testing and project management
services.
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CORPORATE LEAD RISK MANAGEMENT SERVICES. ATC provides corporate lead risk
management programs, primarily to insurance companies, lending institutions, law
firms and large real estate managers. ATC's services enable corporations to
effectively address lead-related liabilities by advising these institutions in
their development and implementation of lead risk management policies and
procedures.
Policy development typically entails an examination of a client's real
estate with respect to potential lead liabilities. Working closely with
corporate legal and technical divisions, ATC recommends policies and procedures
to ensure lead-safe management of properties and compliance with applicable lead
poisoning prevention regulations. ATC also designs and implements special
studies or demonstration programs to provide empirical data for validating the
efficacy of property management guidelines. ATC's policy recommendations
therefore include provisions for clients to anticipate, guard against, and
effectively respond to lead poisoning complaints, regulatory violations and
lawsuits.
The Company's corporate lead risk management services include designing and
implementing compliance training seminars and workshops tailored to the needs of
the different program participants. ATC's corporate training programs are
periodically revised to reflect changes in accepted work practices.
ATC offers lead paint litigation support services exclusively in support of
property owners, managers, lending institutions and insurers. These services
include case consultation, regulatory analysis, document and deposition review,
expert testimony, as well as site investigation and testing services.
STEEL STRUCTURE AND INDUSTRIAL COMPLIANCE SERVICES. Nationwide, hundreds of
thousands of petroleum storage tanks, water tanks, transportation bridges and
other major structures are made of steel and painted with coats of lead-based
paints and leaded primers. These structures require periodic maintenance,
including full removal of the leaded paints and primers followed by re-priming
and re-painting to prevent them from corroding.
ATC provides comprehensive environmental monitoring of surface preparation
activities that include the removal of lead and associated coatings from steel
structures. ATC employs trained engineers and has the expertise to prepare
abatement specifications and guide agencies, engineers and contractors through
lead removal activities in accordance with all federal, state and local
regulations. ATC prepares and has submitted numerous environmental monitoring
and sampling protocols to assist in protecting the public community, workers and
the environment from potential contamination resulting from lead removal
activities.
RESIDENTIAL SERVICES. ATC provides residential property owners and managers
with services for the analysis of lead in paint, soil, air and drinking water.
Consultation services include surveys to identify lead problems, to design safe
and responsible procedures for the removal of lead paint and to control lead
dust and contaminated debris while reducing clean up costs. ATC provides the
necessary detailed specifications where exterior and internal surfaces coated
with lead paint must be abated. ATC also designs worker health and safety plans
for lead removal activities, and provides construction monitoring of lead
projects to prevent occupant, worker and third-party exposure to lead dust.
HEALTH AND SAFETY
The Company has established several health and safety training and advisory
programs.
EDUCATION AND TRAINING. ATC operates training schools under the name The
Environmental Institute, as well as under ATC Environmental Inc. The Company
develops and presents public and private training courses each year for those
involved in environmental, asbestos, lead, hazardous materials and safety and
health issues. "Right-to-Know" programs in accordance with mandates by the
federal Occupational Safety and Health Administration ("OSHA"), the federal
Environmental Protection Agency ("EPA") and some state regulations are designed
to communicate information regarding the hazards of chemicals to workers and
communities. Instructors present practical, comprehensive courses, many of which
feature "hands-on" training. ATC routinely customizes courses to meet specific
client needs.
HEALTH AND SAFETY CONSULTING. ATC's occupational health and safety programs
enable employers and property owners to meet or exceed the requirements
established by federal, state or local regulations,
25
<PAGE>
particularly OSHA regulations. A review of work practices can result in the
recognition, evaluation and design of proper safe work policies and procedures
to minimize or eliminate work-related injuries and illnesses.
SITE SAFETY, HEALTH AND EMERGENCY RESPONSE PLAN. ATC offers a full range of
technical support services for site-specific safety and health programs required
for hazardous waste operations. Employers that are subject to OSHA standards for
hazardous waste operations utilize ATC to provide assistance in many areas.
MANAGEMENT INFORMATION SYSTEMS AND RISK MANAGEMENT
The assessment of environmental liability involves the identification of the
liability, the development of an optimal response and the quantification of the
cost of the response. An environmental hazard situation usually does not have
only one possible response alternative, but rather a variety of alternatives.
ATC offers a variety of products and services to assist in the performance of
these functions.
COMPREHENSIVE ENVIRONMENTAL MANAGEMENT SYSTEM. ATC has developed various
environmental facili-
ties management software modules. These modules are marketed to current and
prospective clients and are also used in ATC's branch locations. The modules are
designed to function as the prime environmental database for a company's
facilities. This software can be used to keep track of scheduled environmental
responses and to maintain training for personnel whose jobs involve
environmental response or exposure to environmental hazards. The modules can
also be used to establish audit trails of environmental responses to emergencies
for regulatory agencies and ease the burden of environmental compliance
reporting and manage the client's exposure to liabilities.
There are seven different modules that are currently available: asbestos,
lead paint, storage tanks, hazardous materials, hazardous waste,
training/certification and environmental compliance. Each of these modules is
presently available for MS DOS-TM- operating systems and several are currently
available for use under MS Windows-TM- or MS Windows 95-TM- environments.
RISK MODELING/RISK ASSESSMENT. ATC provides decision support by
quantitatively analyzing the risk associated with the outcomes of differing
environmental responses. ATC can also provide computerized modeling to simulate
complex, uncertain decision scenarios by combining experience in proven risk and
economic risk analysis with its core expertise in a wide range of environmental
hazard areas.
CUSTOM SYSTEM DESIGN AND IMPLEMENTATION. ATC offers customized design and
implementation services in conjunction with object based development tools in a
client/server architecture to develop custom computer systems.
CLIENTS AND MARKETING
The Company provides its services to Fortune 500 companies, small companies,
real estate property managers and federal, state and local governments. The
Company relies on referrals from existing and former clients, architects and
engineers for a large portion of its contract leads. The Company performs a
substantial amount of repeat business for certain large companies and government
entities. The Company's contracts are obtained by the Company's sales force
through a bidding process and other forms of engagement.
Consistent with trends towards focusing on litigation, liability and cost
control management, there is an increasing tendency for companies to obtain a
greater share of their environmental consulting and engineering services from a
smaller number of larger providers. This trend is evidenced by findings reported
in EBJ that revenues for the largest environmental consulting firms grew at
almost twice the industry average during 1994. RKM&A attributes this trend to
such issues as the greater insurance protection and indemnity coverage that
larger firms can provide. The Company believes that this trend presents a
significant opportunity for firms, such as ATC, that have the technical and
financial resources to both perform the services and provide the insurance and
indemnity protection demanded by large corporate and government clients.
To take advantage of this trend, ATC's overall marketing strategy is a
combined national and regional approach. National efforts are directed by senior
professionals of the Company, while regional efforts are
26
<PAGE>
typically directed either by a regional or branch manager, or by a sales and
marketing professional. ATC currently has 28 sales and marketing professionals
working at ATC offices across the United States. The Company's regional sales
and marketing departments generate leads, act as proposal administrators,
perform technical writing and generally support the Company's sales efforts.
ATC presently markets its environmental consulting and engineering services
through its network of branch offices located in 22 states. The Company intends
to establish additional offices within the continental United States. Direct
marketing is accomplished by technical sales representatives, technical and
management personnel who call on prospective clients. ATC also relies on
telemarketing, direct mail solicitation, national trade advertising and
submission of competitive bids for potential governmental projects listed in
industry publications. In addition, ATC markets its services through its
environmental seminars and training courses for existing and potential clients.
COMPETITION
The environmental consulting and engineering services industry is subject to
intense competition. In addition to the thousands of small consulting and
testing firms operating nationally, ATC competes with several national
environmental engineering and consulting firms such as Law Engineering, Inc.,
The Earth Technology Corporation (USA), Dames & Moore, Inc. and Professional
Service Industries, Inc. Many of ATC's present and future competitors may have
greater financial, technical and personnel resources than ATC. It is not
possible to predict the extent of competition which ATC will encounter in the
near future as the environmental consulting and engineering services industry
continues to mature and consolidate. Historically, competition has been based
primarily on the quality, timeliness and costs of services. The ability of ATC
to compete successfully will depend upon its marketing efforts, its ability to
accurately estimate costs, the quality of the work it performs, its ability to
hire and train qualified personnel and the availability of insurance.
ENVIRONMENTAL REGULATION
Most environmental laws and regulations are promulgated by Congress and
departments and agencies of the federal government. Many of the federal
regulations contemplate enforcement by state agencies and adoption by the states
of similar regulations which must meet the minimum federal requirements. In
areas of environmental law where federal regulation is silent, the states may
adopt their own environmental laws. Local governments such as counties and
municipalities may also enact and enforce environmental laws that address local
concerns.
Additionally, in its operations, ATC and its employees are subject to
various regulatory, certification and licensing requirements.
Those federal agencies whose regulations, guidelines or standards have the
greatest potential impact on ATC are:
THE UNITED STATES DEPARTMENT OF LABOR--OCCUPATIONAL SAFETY AND HEALTH
ADMINISTRATION, which requires particular work practices, sets limits for worker
exposure on the job, requires employers to provide employees with personal
protective devices such as respirators, and requires employers to maintain
records for periods of up to 30 years;
THE UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, which, through its
National Emissions Standards for Hazardous Air Pollutants, regulations requires
that it be notified of asbestos removal or disturbance during renovation and
demolition projects and requires specific work practices at such projects, and
which through other statutes and regulations regulates a very broad spectrum of
industrial and commercial activities, including the disposal of hazardous waste;
THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ("HUD"), which
sets the standards for the testing and remediation of lead-based paint in
publicly funded housing, and which provides funding for housing rehabilitation
including lead-based paint remediation; and
27
<PAGE>
THE UNITED STATES DEPARTMENT OF TRANSPORTATION, which regulates packaging
and transportation of hazardous waste by all who transport or cause the
transport of hazardous waste.
The EPA, OSHA and HUD have each published regulations and guidelines to
safeguard employees and public occupants from certain environmental exposures.
Federal regulations specify work practices for removal of asbestos and lead
containing materials from buildings. Federal law also presently requires
employers to inform workers, and in some places the general public, of the
dangers connected with hazardous chemicals in the workplace. These
"Right-to-Know" laws usually require employers to list all hazardous chemicals
in the workplace, to instruct workers about safe work practices, and to train
workers on how to respond in the case of exposure to or release of the hazardous
chemical. OSHA's Hazard Communication Standard requires all employers to provide
information and training regarding hazardous chemicals in the workplace.
Most states and local governments have adopted licensing and certification
requirements for workers engaged in the environmental industry, which require
workers to attend training classes. ATC is currently accredited by the National
Voluntary Laboratory Program and expects to continue to participate in all
future National Institute of Standards and Technology programs. In addition, ATC
maintains various licenses and certifications pertaining to its laboratories and
certain field testing equipment. ATC has not experienced, and does not
contemplate, any material difficulties in complying with regulatory and
licensing provisions applicable to its business. ATC has received citations from
governmental authorities, none of which have had a material adverse effect on
the Company's business operations.
INSURANCE
ATC has secured a "claims made" professional liability insurance policy,
including contractor's pollution liability coverage, for claims with a limit of
$2,000,000 and a deductible of $150,000, although increased limits have been
obtained on a specific endorsement basis to meet the needs of particular clients
or contracts. A "claims made" policy only insures against claims filed during
the period in which the policy is in effect. This policy covers both errors and
omissions. ATC's policy has been renewed in each of the last several years that
the policy has been in effect. The relatively low dollar amount of the policy
limit currently offered, the possible future unavailability or modification of
this insurance or any significant increase in insurance rates could have a
materially adverse effect on ATC's operations. Further, because customers may
require that ATC maintain liability insurance, the possible future
unavailability of such insurance could adversely affect ATC's ability to compete
effectively.
ATC has in the past filed two notices of claims which, in the aggregate,
amounted to $5,540,000 in amount claimed. Although both of these matters were
dismissed in the Company's favor, in each case without the payment of any
damages, no assurances can be given that future claims will not be filed against
the Company or that the Company will continue to be able to obtain insurance
coverage on terms satisfactory to the Company.
PERSONNEL
As of August 1, 1995, ATC employed 641 employees, including 497 full-time
employees. The Company's employees consist of 475 technical and professional
personnel, 28 sales and marketing persons and 138 administrative employees
inclusive of executive officers. The backgrounds of ATC's technical and
professional staff include, among other disciplines, environmental engineering,
industrial hygiene and hydrogeology, chemistry, biology and geology. ATC from
time to time hires additional personnel on a temporary basis.
ATC believes that it has been able to establish and maintain a stable work
force of experienced personnel by paying competitive wages and by providing
standard benefits. ATC also pays the costs as they arise to have its workers
certified for its asbestos and environmental requirements, including tuition at
a certified training program and fees for certification, testing and licensing.
ATC believes that its own training school has helped to ensure the availability
of a trained work force.
28
<PAGE>
FACILITIES
ATC leases office space, laboratory facilities, temporary housing facilities
and storage space under 36 operating lease agreements, which expire at varying
dates. Although ATC's utilization of these leased facilities is near maximum
capacity at all locations, there is no location at which ATC foresees any
material difficulty in leasing adequate supplementary sites, if necessary, under
terms similar to those enjoyed under current leases.
In its business, ATC utilizes various laboratory, field and computer
equipment which are owned or leased. ATC also rents equipment on a
project-by-project basis.
LEGAL PROCEEDINGS
ATC is not presently a party to any material litigation; nor are any such
proceedings pending or threatened.
29
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the Company's
directors, executive officers and a key employee.
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
OFFICERS AND DIRECTORS
George Rubin........................ 67 Chairman of the Board and Secretary
Morry F. Rubin...................... 35 President, Chief Executive Officer, Treasurer and
Director
Nicholas J. Malino.................. 43 Senior Vice President, Financial and General Operations
Christopher P. Vincze............... 34 Senior Vice President, Financial and General Operations
Donald W. Beck...................... 36 Senior Vice President
Wayne A. Crosby..................... 41 Chief Financial Officer
Richard L. Pruitt................... 54 Vice President, Principal Accounting Officer and
Director
Richard S. Greenberg, Esq. ......... 46 Director
Julia S. Heckman.................... 46 Director
KEY EMPLOYEE
John J. Smith, Esq.................. 44 General Counsel
</TABLE>
The business experience, principal occupations and employment, as well as
the periods of service, of each of the directors, executive officers and a key
employee of the Company during at least the last five years are set forth below.
GEORGE RUBIN has been Chairman of the Board of ATC since 1988. From 1961 to
1987, Mr. Rubin served as President, Treasurer and a director of Staff Builders,
Inc. Staff Builders, Inc., was a publicly held corporation engaged in the
business of providing temporary personnel primarily in the health care field
operating through approximately 100 offices and with revenues over $100 million.
Since December 1986, Mr. Rubin has been a principal stockholder, executive
officer and a director of National Diversified Services, Inc., a publicly held
corporation which completed a public offering in December 1986 and currently has
no business operations. George Rubin is the father of Morry F. Rubin.
MORRY F. RUBIN has been President, Chief Executive Officer, Treasurer and a
director of ATC since 1988. Mr. Rubin was also President, Chief Executive
Officer and Treasurer of Aurora from May 1985 to June 1995, and was a director
of Aurora from September 1983 to June 1995. Since 1986, Mr. Rubin has been a
principal stockholder and from 1986 to July 1995, Mr. Rubin was President and a
director of National Diversified Services, Inc., a publicly held corporation,
which completed a public offering in December 1986 and currently has no business
operations. From 1981 to 1987, Mr. Rubin was employed in sales and as director
of acquisitions for Staff Builders, Inc., a publicly held company engaged in
providing temporary personnel primarily in the health care field. Morry F. Rubin
is the son of George Rubin.
NICHOLAS J. MALINO has been Senior Vice President, Financial and General
Operations of ATC, since July 1993 and an employee of ATC since October 1992.
Mr. Malino has over fourteen years of experience in managing professional
service organizations. From February 1991 to September 1993, Mr. Malino was the
New York Regional Manager for Kemron Inc., a hazardous waste consulting company
headquartered in McLean, Virginia. From August 1989 to January 1991, he was the
Operations Manager for the New York City branch of Professional Service
Industries, Inc.
30
<PAGE>
CHRISTOPHER P. VINCZE has been Senior Vice President, Financial and General
Operations of ATC since July 1993, a regional manager of ATC since July 1991 and
Vice President of a subsidiary of ATC since 1992. Mr. Vincze joined Dennison
Environmental, Inc. in 1984 as an industrial hygienist and served as Vice
President of Marketing and Operations from 1987 to July 1991.
DONALD W. BECK has been Senior Vice President of ATC since April 1990 and
Vice President since January 1988. Mr. Beck is responsible for managing the
operations of certain ATC offices. Mr. Beck also served as a director of ATC
Laboratories, Inc., a predecessor company of ATC, from November 1985 until
January 1988, President of ATC Laboratories, Inc. from May 1986 until January
1988 and as Vice President of ATC Laboratories, Inc. from November 1985 until
May 1986. Mr. Beck has been a full-time employee of ATC (and formerly ATC
Laboratories, Inc.) since May 1982.
WAYNE A. CROSBY has been Chief Financial Officer of ATC since July 1995.
Prior to joining ATC, Mr. Crosby was the Chief Financial Officer of BSE
Management, Inc. from 1991 to 1993 and Chief Financial Officer of Compex
Systems, Inc. from 1986 through 1990. Mr. Crosby is a certified public
accountant and was employed by Deloitte Haskins & Sells for eight years.
RICHARD L. PRUITT is a Vice President, the Principal Accounting Officer and
a director of ATC. Mr. Pruitt has served as Vice President of ATC since
September 1990, as Principal Accounting Officer of ATC since April 1988 and as a
director of ATC since January 1988. Mr. Pruitt served as Principal Financial
Officer of ATC from September 1989 to April 1992 and from May 1993 to July 1995.
Mr. Pruitt served as the Principal Financial Officer and a director of Aurora
from May 1985 to June 1995 and served as Financial Manager of Aurora from
February 1982.
RICHARD S. GREENBERG, ESQ. has been a director of ATC since July 1995. Mr.
Greenberg has been a director of the Environmental Management Consulting
Services Group at Coopers & Lybrand since October 1989. Mr. Greenberg has over
20 years of experience in the areas of environmental management consulting,
environmental litigation support and legislative policy analysis.
JULIA S. HECKMAN has been a director of ATC since August 1995. Mrs. Heckman
has been a Managing Director with Rodman & Renshaw, Inc.'s Investment Banking
Group since April 1995 and had been a Managing Director with Mabon Securities
Corp.'s Investment Banking Group since 1991. Prior to joining Mabon Securities
Corp., Mrs. Heckman was a Managing Director with PaineWebber Group Inc.'s
Corporate Finance Group. Mrs. Heckman serves as a member of the Company's Board
of Directors pursuant to the Underwriting Agreement between Rodman & Renshaw,
Inc. and the Company. See "Underwriting."
JOHN J. SMITH, ESQ. has been General Counsel since August 1989 and served as
a Vice President of ATC from September 1990 through December 1993. Prior to
joining ATC, from 1986 to 1989, Mr. Smith was the Secretary of the South Dakota
Department of Water and Natural Resources, a cabinet level position responsible
for managing all of the State's environmental and natural resource development
programs.
The Board of Directors has recently appointed an Audit Committee and a
Compensation Committee consisting of three directors including Morry F. Rubin
and the newly elected independent directors, Richard S. Greenberg and Julia S.
Heckman. The Audit Committee will be responsible, among other things, for
approving any transactions between the Company and any of its directors,
officers or affiliates. The Compensation Committee will be responsible for
setting compensation of the executive officers of the Company and for granting
any further options to purchase Common Stock.
All directors of ATC will hold offices until the next annual stockholders'
meeting and until the election and qualification of their successors. Officers
hold their respective positions until their successors are duly qualified or
until they resign or are removed by the Board of Directors.
31
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of August 31, 1995,
and as adjusted to reflect the sale of 1,700,000 shares of Common Stock by the
Company and 700,000 shares by the Selling Stockholder in this offering,
regarding the beneficial ownership of the Company's Common Stock by: (i) all
persons known by the Company to own beneficially more than 5% of the Company's
Common Stock; (ii) each director and officer of the Company (including a key
employee who is an officer of a subsidiary of the Company); (iii) all directors
and officers and a key employee of the Company as a group; and (iv) the Selling
Stockholder. All information with respect to ownership by the Selling
Stockholder has been furnished by the Selling Stockholder.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
AMOUNT AND SHARES STOCK OWNED
NATURE OF SHARES OWNED ------------------------
BENEFICIAL BEING AFTER BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNERSHIP OFFERED OFFERING OFFERING OFFERING
-------------------------------------------------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
George Rubin(2)................................... 1,612,541 700,000 912,541 25.4% 11.3%
Morry F. Rubin(3)................................. 800,490 -- 800,490 13.3% 10.4%
Nicholas J. Malino(4)............................. 23,838 -- 23,838 * *
Christopher P. Vincze(5).......................... 29,680 -- 29,680 * *
Donald W. Beck(6)................................. 17,715 -- 17,715 * *
Wayne A. Crosby(7)................................ 1,800 -- 1,800 * *
Richard L. Pruitt(8).............................. 55,351 -- 55,351 * *
Richard S. Greenberg(9)........................... 3,750 -- 3,750 * *
Julia S. Heckman(9)............................... 3,750 -- 3,750 * *
John J. Smith(10)................................. 6,000 -- 6,000 * *
All officers, directors and a key employee as a
group (10 persons)(11)........................... 2,554,915 700,000 1,854,915 38.8% 22.4%
</TABLE>
------------------------
* Less than one percent of the issued and outstanding shares.
(1) The address for Messrs. G. Rubin, M. Rubin, Malino and Beck is 104 East 25th
Street, Tenth Floor, New York, NY 10010. The address for Mr. Vincze is 600
West Cummings Park, Suite 6500, Woburn, MA 01801. The address for Messrs.
Pruitt, Crosby and Smith is 1515 East Tenth Street, Sioux Falls, SD 57103.
The address for Mr. Greenberg is 370 17th Street, Suite 3300, Denver, CO
80202. The address for Mrs. Heckman is One Liberty Plaza, 31st Floor, New
York, NY 10006.
(2) Includes warrants to purchase 490,500 shares. A portion of the 700,000
shares being offered by Mr. Rubin may be sold by a trust created for the
lifetime benefit of Mr. Rubin.
(3) Includes options to purchase 161,750 shares.
(4) Includes options/warrants to purchase 23,838 shares.
(5) Includes options to purchase 27,500 shares.
(6) Includes options to purchase 3,000 shares.
(7) Includes options to purchase 1,800 shares.
(8) Includes options to purchase 5,800 shares.
(9) Represents options to purchase 3,750 shares.
(10) Represents options to purchase 6,000 shares.
(11) Includes options/warrants to purchase 727,688 shares.
32
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of ATC consists of 20,000,000 shares of Common
Stock, $.01 par value each. The shares of Common Stock: (i) have equal ratable
rights to dividends from funds legally available therefore, when, as and if
declared by the Board of Directors of ATC; (ii) are entitled to share ratably in
all of the assets of ATC available for distribution to holders of Common Stock
upon liquidation, dissolution or winding up of the affairs of ATC; (iii) do not
have pre-emptive, subscription or conversion rights and there are no redemption
or sinking fund provisions applicable thereto; and (iv) are entitled to one
non-cumulative vote per share on all matters upon which Stockholders may vote at
all meetings of Stockholders. All shares of Common Stock now outstanding are
fully paid and non-assessable and all shares of Common Stock which are the
subject of this offering, when issued, will be fully paid and non-assessable.
CLASS C WARRANTS
Each Class C Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $10.00 per share until September 30, 1996. ATC has
the right to redeem the Class C Warrants at a price of $.001 per Class C Warrant
upon 30 days prior written notice. The holders of the Class C Warrants do not
have any of the rights or privileges of stockholders of ATC prior to the
exercise of warrants. The exercise price of the Class C Warrants and the number
of shares issuable upon exercise of the Class C Warrants are subject to
anti-dilution adjustment to protect against stock dividends, stock splits,
mergers and recapitalizations. In accordance with the terms of the Class C
Warrants, ATC is required to maintain a current and effective registration of
the securities issuable upon exercise of the Class C Warrants.
DELAWARE LAW
Section 203 of the Delaware General Corporation Law prohibits a
publicly-held Delaware corporation from engaging in "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock.
INDEMNIFICATION
As permitted by the Delaware General Corporation Law, ATC's Certificate of
Incorporation provides that a director of ATC will not be personally liable to
ATC or its Stockholders for monetary damages for breach of the fiduciary duty of
care as a director, except under certain circumstances including breach of the
director's duty of loyalty to ATC or its Stockholders or any transaction from
which the director derived an improper personal benefit.
ATC's By-Laws provide for the indemnification of ATC's officers and
directors to the fullest extent permitted by Delaware law. In this respect, ATC
entered into indemnification agreements with its officers and directors to hold
them harmless and to indemnify each person from and against all fines, amounts
paid in settlements and expenses, including attorneys' fees incurred as a result
of or in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal or administrative or investigative, by
reason of the fact that the person was a director or officer of ATC or served
any other corporation in any capacity at the request of ATC, in the manner and
to the extent permitted by law.
ATC has been advised that it is the opinion of the Commission that insofar
as the foregoing provisions may be invoked to disclaim liability for damages
arising under the federal securities laws, that such provisions are against
public policy as expressed in such securities laws and are therefore
unenforceable.
TRANSFER AGENT AND EXCHANGE AGENT
American Stock Transfer & Trust Company, New York, New York, is acting as
transfer agent and warrant agent for ATC's securities.
33
<PAGE>
UNDERWRITING
The Underwriters below, for whom Rodman & Renshaw, Inc. ("Rodman") and
Pennsylvania Merchant Group Ltd are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholder the number of shares of Common Stock set forth below
opposite their respective names.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------------------------------------------------------------------- -----------------
<S> <C>
Rodman & Renshaw, Inc..................................................
Pennsylvania Merchant Group Ltd........................................
-----------------
Total.......................................................... 2,400,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other considerations. The nature of the Underwriters'
obligations is such that the Underwriters are committed to purchase and pay for
all of the above shares of Common Stock if any are purchased.
The Underwriters, through the Representatives, have advised the Company that
they propose to offer the Common Stock initially at the public offering price
set forth on the cover page of this Prospectus, that the Underwriters may allow
to selected dealers a concession of $ per share, and that such dealers may
reallow a concession of $ per share to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
the Underwriters. The Common Stock is included for quotation on the Nasdaq
National Market.
The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to an aggregate of 360,000 additional shares of Common Stock,
exercisable at the public offering price less the underwriting discount. If the
Underwriters exercise such over-allotment option, then each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares of Common
Stock to be purchased by it, as shown in the above table, bears to the 2,400,000
shares of Common Stock offered hereby. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the shares of
Common Stock offered hereby.
The Underwriting Agreement provides that for a period of three years
following the consummation of this offering, Rodman has the right to appoint a
member to the Company's Board of Directors. Rodman has designated Julia S.
Heckman as its initial designee to the Board of Directors. The Company has
agreed to indemnify Rodman's designee to the fullest extent permitted by law.
The officers and directors of the Company and the Selling Stockholder have
agreed that they will not sell or dispose of any shares of Common Stock of the
Company for a period of 180 days after the later of the date on which the
Registration Statement is declared effective by the Commission or the first date
on which the shares are bona fide offered to the public, without the prior
written consent of the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act"), or to contribute to payments that
the Underwriters may be required to make in respect thereof.
34
<PAGE>
In connection with the offering made hereby, certain Underwriters and
selling group members (if any) or their respective affiliates who are qualified
registered market makers on the Nasdaq National Market may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 10b-6A under the Exchange Act, during the two business day
period before commencement of offers or sales of the Common Stock. The passive
market making transactions must comply with applicable volume and price limits
and be identified as such. In general, a passive market maker may display its
bid at a price not in excess of the highest independent bid for such security;
if all independent bids are lowered below the passive market maker's bid,
however, such bid must then be lowered when certain purchase limits are
exceeded.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Lester Morse P.C., Great Neck,
New York. Certain matters in connection with the sale of Common Stock offered
hereby will be passed on for the Underwriters by Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, New York, New York. Prior to this offering, Lester Morse P.C.
and members of the firm, own of record and beneficially less than 2% of ATC's
outstanding shares of Common Stock.
EXPERTS
The financial statements of ATC and Aurora as of February 28, 1995 and 1994
and for each of the three years in the period ended February 28, 1995 included
and incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports which are included
and incorporated by reference herein, and have been so included and incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of Con-Test as of December 31, 1993 and 1992 and
for each of the two years in the period ended December 31, 1993 included in this
Prospectus have been audited by James J. Slawski, C.P.A., as stated in his
report included herein, and have been so included in reliance upon the report of
such individual given upon his authority as an expert in accounting and
auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements, and other information with
the Commission. Such reports, proxy statements, and other information can be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048; and at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. In addition, copies of such reports, proxy
statements, and other information concerning the Company may also be inspected
and copied at the library of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006, upon which the Common Stock of the Company is listed.
The Company has filed with the Commission the Registration Statement under
the Securities Act, with respect to the Common Stock being offered pursuant to
this Prospectus. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement and the documents
incorporated herein by reference which may be examined without charge at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies thereof may be obtained from the
Commission upon payment of the prescribed fees. Statements contained in this
Prospectus or in any document incorporated herein by reference as to the
contents of any contract or document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement or such
other document, each such statement being qualified in all respects by such
reference.
35
<PAGE>
ATC ENVIRONMENTAL INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ATC ENVIRONMENTAL INC.
Introduction to Pro Forma Unaudited Combined Financial Data.............................................. F-3
Pro Forma Combined Balance Sheet at May 31, 1995 (unaudited)............................................. F-4
Pro Forma Combined Statement of Operations for the Three Months
Ended May 31, 1995 (unaudited)......................................................................... F-5
Pro Forma Combined Statement of Operations for the Year Ended
February 28, 1995 (unaudited).......................................................................... F-6
Notes to Pro Forma Combined Financial Statements......................................................... F-7
Independent Auditors' Report............................................................................. F-12
Consolidated Balance Sheets as of February 28, 1994 and 1995............................................. F-13
Consolidated Statements of Operations for the Years Ended February 28, 1993,
1994 and 1995.......................................................................................... F-14
Consolidated Statements of Stockholders' Equity for the Years Ended February 28, 1993, 1994 and 1995..... F-15
Consolidated Statements of Cash Flows for the Years Ended February 28, 1993,
1994 and 1995.......................................................................................... F-16
Notes to Consolidated Financial Statements............................................................... F-17
Consolidated Balance Sheets as of February 28, 1995 and May 31, 1995 (unaudited)......................... F-30
Consolidated Statements of Operations for the Three Months Ended
May 31, 1994 and 1995 (unaudited)...................................................................... F-31
Consolidated Statements of Stockholders' Equity for the Three Months
Ended May 31, 1994 and 1995 (unaudited)................................................................ F-32
Consolidated Statements of Cash Flows for the Three Months Ended
May 31, 1994 and 1995 (unaudited)...................................................................... F-33
Notes to Consolidated Financial Statements (unaudited)................................................... F-34
AURORA ENVIRONMENTAL INC.
Independent Auditors' Report............................................................................. F-37
Consolidated Balance Sheets as of February 28, 1994 and 1995............................................. F-38
Consolidated Statements of Operations for the Years Ended
February 28, 1993, 1994 and 1995....................................................................... F-39
Consolidated Statements of Stockholders' Equity for the Years Ended
February 28, 1993, 1994 and 1995....................................................................... F-40
Consolidated Statements of Cash Flows for the Years Ended
February 28, 1993, 1994 and 1995....................................................................... F-41
Notes to Consolidated Financial Statements............................................................... F-42
Consolidated Balance Sheets as of February 28, 1995 and
May 31, 1995 (unaudited)............................................................................... F-55
Consolidated Statements of Operations for the Three Months
Ended May 31, 1994 and 1995 (unaudited)................................................................ F-56
Consolidated Statements of Cash Flows for the Three Months Ended
May 31, 1994 and 1995 (unaudited)...................................................................... F-57
Notes to Consolidated Financial Statements (unaudited)................................................... F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
CON-TEST, INC. ---------
<S> <C> <S> <C>
Independent Auditor's Report....................................................... F-59
Balance Sheets as of December 31, 1992 and 1993.................................... F-60
Statements of Operations and Retained Earnings for the Years Ended December 31,
1992 and 1993.................................................................... F-61
Statements of Cash Flows for the Years Ended December 31, 1992 and 1993............ F-62
Notes to Financial Statements...................................................... F-63
Balance Sheet as of September 10, 1994 (unaudited)................................. F-66
Statement of Operations and Retained Earnings for the Six Months Ended September
10, 1994 (unaudited)............................................................. F-67
Statement of Cash Flows for the Six Months Ended September 10, 1994 (unaudited).... F-68
Notes to Financial Statements (unaudited).......................................... F-69
</TABLE>
F-2
<PAGE>
PRO FORMA UNAUDITED COMBINED FINANCIAL DATA
The following Pro Forma Unaudited Combined Financial Data for ATC and Aurora
have been prepared based upon the historical financial results of the companies,
adjusted to give effect to the Aurora Merger and the Company's acquisition of
Con-Test. The Pro Forma Combined Unaudited Financial Data give effect to the
merger of ATC and Aurora under a method of accounting similar to a pooling of
interests and the acquisition of Con-Test by ATC, under the purchase method of
accounting, based upon the assumptions set forth in the notes to the pro forma
unaudited combined financial data.
The pro forma combined balance sheet sets forth the combination of the
financial positions of ATC and Aurora as if the Merger had occurred on May 31,
1995. The pro forma combined statements of operations for the three months ended
May 31, 1995 and for the year ended February 28, 1995, reflect the merger of ATC
and Aurora and the acquisition of Con-Test as if each had occurred at the
beginning of the period presented.
The Pro Forma Unaudited Combined Financial Data should be read in
conjunction with the audited and unaudited consolidated financial statements of
the Company, Aurora and Con-Test appearing elsewhere in this Prospectus.
The pro forma combined results are intended for information purposes only
and are not necessarily indicative of the results which would have been attained
if the merger and acquisition had been consummated at the beginning of the
period presented or which may be attained in the future.
F-3
<PAGE>
ATC ENVIRONMENTAL INC.
PRO FORMA COMBINED BALANCE SHEET
MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NOTE (2)
------------------------
PRO FORMA
MERGER
ADJUSTMENTS NOTES PRO FORMA
------------- --------- ------------
ATC AURORA
------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................. $ 478,903 $ 624,569 $ (448,903) (A,C) $ 654,569
Trade accounts receivable, net............ 12,496,667 12,496,667 (12,496,667) (A) 12,496,667
Costs in excess of billing on uncompleted
contracts................................ 1,198,900 1,198,900 (1,198,900) (A) 1,198,900
Prepaid expenses and other current
assets................................... 284,634 286,034 (284,634) (A) 286,034
Deferred income taxes..................... 132,700 132,700 (69,918) (D) 195,482
Due from related company.................. 18,924 0 (18,924) (B) 0
------------ ------------ ------------- ------------
Total current assets.................. 14,610,728 14,738,870 (14,517,946) 14,831,652
Property and equipment, net................. 3,108,475 3,108,475 (3,108,475) (A) 3,108,475
Goodwill, net............................... 7,467,189 7,467,189 (7,467,189) (A) 7,467,189
Covenants not to compete, net............... 301,063 301,063 (301,063) (A) 301,063
Other assets................................ 124,754 124,754 (124,754) (A) 124,754
------------ ------------ ------------- ------------
$ 25,612,209 $ 25,740,351 $ (25,519,427) $ 25,833,133
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt........................... $ 47,210 $ 47,210 $ (47,210) (A) $ 47,210
Current maturities of long-term debt...... 780,286 780,286 (780,286) (A) 780,286
Accounts payable.......................... 1,831,192 1,864,496 (1,831,192) (A) 1,864,496
Income taxes payable...................... 343,392 343,392 (686,784) (D) 0
Accrued compensation...................... 1,433,627 1,433,627 (1,433,627) (A) 1,433,627
Accrued expenses.......................... 734,969 734,969 (734,969) (A) 734,969
------------ ------------ ------------- ------------
Total current liabilities............. 5,170,676 5,203,980 (5,514,068) 4,860,588
------------ ------------ ------------- ------------
Long-term debt, less current maturities... 4,593,248 4,593,248 (4,593,248) (A) 4,593,248
Other long-term liabilities............... 1,036,224 1,036,224 (1,036,224) (A) 1,036,224
Deferred income taxes..................... 80,600 80,600 (80,600) (A) 80,600
Minority interest in subsidiary........... 0 6,356,937 (6,356,937) (C) 0
Stockholders' Equity:
Common stock, par value................... 57,383 6,101 (5,266) (C) 58,218
Additional paid-in capital................ 7,507,589 5,729,363 (5,586,436) (C) 7,650,516
Notes receivable - common stock........... (15,000) (15,000) 15,000 (A) (15,000)
Retained earnings......................... 7,181,489 2,748,898 (2,361,648) (E) 7,568,739
------------ ------------ ------------- ------------
Total stockholders' equity............ 14,731,461 8,469,362 (7,938,350) 15,262,473
------------ ------------ ------------- ------------
$ 25,612,209 $ 25,740,351 $ (25,519,427) $ 25,833,133
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-4
<PAGE>
ATC ENVIRONMENTAL INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NOTE (2)
--------------------------
PRO FORMA
MERGER
ADJUSTMENTS NOTE PRO FORMA
--------------- --------- -------------
ATC AURORA
------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 10,814,953 $ 10,814,953 $(10,814,953) (A) $ 10,814,953
Cost of revenues........................... 5,545,411 5,545,411 (5,545,411) (A) 5,545,411
------------- ------------- --------------- -------------
Gross profit........................... 5,269,542 5,269,542 (5,269,542) 5,269,542
Operating expenses:
Selling.................................. 329,629 329,629 (329,629) (A) 329,629
General and administrative............... 3,365,964 3,422,536 (3,365,964) (A) 3,422,536
Provision for bad debts.................. 47,400 47,400 (47,400) (A) 47,400
------------- ------------- --------------- -------------
3,742,993 3,799,565 (3,742,993) 3,799,565
------------- ------------- --------------- -------------
Operating income....................... 1,526,549 1,469,977 (1,526,549) 1,469,977
Nonoperating expense:
Interest expense......................... 109,508 109,508 (109,508) (A) 109,508
Interest income.......................... (43,772) (44,273) 43,772 (A) (44,273)
Other, net............................... (1,815) 27,510 (28,977) (F) (3,282)
------------- ------------- --------------- -------------
63,921 92,745 (94,713) 61,953
------------- ------------- --------------- -------------
Income before taxes.................... 1,462,628 1,377,232 (1,431,836) 1,408,024
Income tax expense......................... 567,500 567,500 (588,522) (D) 546,478
------------- ------------- --------------- -------------
Income before minority interest........ 895,128 809,732 (843,314) 861,546
Minority interest in net income of
subsidiary................................ 0 (386,875) 386,875 (C) 0
------------- ------------- --------------- -------------
Net income................................. $ 895,128 $ 422,857 $ (456,439) $ 861,546
------------- ------------- --------------- -------------
------------- ------------- --------------- -------------
Earnings per common share and dilutive
common equivalent share:
Primary.................................. $ .15 (G) $ .13
------------- -------------
------------- -------------
Fully diluted............................ $ .15 (G) $ .13
------------- -------------
------------- -------------
Weighted average number of shares
outstanding:
Primary.................................. 6,123,312 (G) 6,724,391
------------- -------------
------------- -------------
Fully diluted............................ 6,123,312 (G) 6,724,391
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-5
<PAGE>
ATC ENVIRONMENTAL INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NOTE (3) NOTE (2)
------------------------ ATC -----------
PRO FORMA AND CON-TEST PRO FORMA
ACQUISITION PRO FORMA MERGER
ATC CON-TEST ADJUSTMENTS NOTE COMBINED AURORA ADJUSTMENTS
---------- ---------- ----------- ----- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $36,271,557 $4,620,376 $ (84,333) (A ) $40,807,600 $36,271,557 ($36,271,557)
Cost of revenues.................... 18,355,493 1,820,215 (51,529) (B ) 20,124,179 18,355,493 (18,355,493)
---------- ---------- ----------- ------------ ---------- -----------
Gross profit.................... 17,916,064 2,800,161 (32,804) 20,683,421 17,916,064 (17,916,064)
Operating expenses:
Selling........................... 1,105,937 290,427 -- 1,396,364 1,105,937 (1,105,937)
General and administrative........ 10,996,709 3,652,236 (1,369,399) (C ) 13,279,546 11,052,572 (10,996,709)
Provision for bad debts........... 188,819 16,367 -- 205,186 188,819 (188,819)
---------- ---------- ----------- ------------ ---------- -----------
12,291,465 3,959,030 (1,369,399) 14,881,096 12,347,328 (12,291,465)
---------- ---------- ----------- ------------ ---------- -----------
Operating income (loss)......... 5,624,599 (1,158,869) 1,336,595 5,802,325 5,568,736 (5,624,599)
Nonoperating expense:
Interest expense.................. 285,570 94,121 41,178 (D ) 420,869 285,570 (285,570)
Interest income................... (34,073) (1,448) -- (35,521) (35,212) 34,073
Other, net........................ 72,582 (5,820) -- 66,762 144,252 (227,420)
---------- ---------- ----------- ------------ ---------- -----------
324,079 86,853 41,178 452,110 394,610 (478,917)
---------- ---------- ----------- ------------ ---------- -----------
Income (loss) before taxes...... 5,300,520 (1,245,722) 1,295,417 5,350,215 5,174,126 (5,145,682)
Income tax expense.................. 2,044,000 0 19,133 (E ) 2,063,133 2,044,000 (2,033,049)
---------- ---------- ----------- ------------ ---------- -----------
Income (loss) before minority
interest....................... 3,256,520 (1,245,722) 1,276,284 3,287,082 3,130,126 (3,112,633)
Minority interest in net income of
subsidiary......................... 0 0 -- 0 (1,300,040) (1,300,040)
---------- ---------- ----------- ------------ ---------- -----------
Net income (loss)................... $3,256,520 $(1,245,722) $1,276,284 $3,287,082 $1,830,086 ($1,812,593)
---------- ---------- ----------- ------------ ---------- -----------
---------- ---------- ----------- ------------ ---------- -----------
Earnings per common share and
dilutive common equivalent share:
Primary........................... $ .57 (F ) $ .56
---------- ------------
---------- ------------
Fully diluted..................... $ .56 (F ) $ .56
---------- ------------
---------- ------------
Weighted average number of shares
outstanding:
Primary........................... 5,753,856 (F ) 5,821,847
---------- ------------
---------- ------------
Fully diluted..................... 5,850,233 (F ) 5,918,224
---------- ------------
---------- ------------
<CAPTION>
NOTE PRO FORMA
----- ----------
<S> <C> <C>
Revenues............................ (A ) $40,807,600
Cost of revenues.................... (A ) 20,124,179
----------
Gross profit.................... 20,683,421
Operating expenses:
Selling........................... (A ) 1,396,364
General and administrative........ (A ) 13,335,409
Provision for bad debts........... (A ) 205,186
----------
14,936,959
----------
Operating income (loss)......... 5,746,462
Nonoperating expense:
Interest expense.................. (A ) 420,869
Interest income................... (A ) (36,660)
Other, net........................ (F ) (16,406)
----------
367,803
----------
Income (loss) before taxes...... 5,378,659
Income tax expense.................. (D ) 2,074,084
----------
Income (loss) before minority
interest....................... 3,304,575
Minority interest in net income of
subsidiary......................... (C ) 0
----------
Net income (loss)................... $3,304,575
----------
----------
Earnings per common share and
dilutive common equivalent share:
Primary........................... (G ) $ .53
----------
----------
Fully diluted..................... (G ) $ .51
----------
----------
Weighted average number of shares
outstanding:
Primary........................... (G ) 6,224,064
----------
----------
Fully diluted..................... (G ) 6,419,454
----------
----------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-6
<PAGE>
ATC ENVIRONMENTAL INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- GENERAL
MERGER OF AURORA INTO ATC
Effective June 29, 1995, ATC and Aurora were merged, with ATC as the
surviving corporation. Prior to the Aurora Merger, Aurora was a holding company
which owned approximately 57% of ATC's outstanding Common Stock and had
substantially no other assets. In connection with the merger, each outstanding
share of Aurora common stock was exchanged for .545 shares of Common Stock. ATC
issued 3,341,452 shares of Common Stock in exchange for 6,131,104 shares of
Aurora's common stock, and issued options and warrants entitling the holders
thereof to purchase up to 604,950 shares of Common Stock upon exercise in
replacement of previously outstanding options and warrants to purchase Aurora's
common stock. The merger was accounted for in a manner similar to a pooling of
interests. Under this method of accounting, recorded assets and liabilities of
Aurora are combined with ATC and the results of operations of ATC and Aurora are
combined as of the effective date of the merger.
ACQUISITION OF ASSETS OF CON-TEST
Effective October 1, 1994, ATC purchased certain assets and assumed certain
liabilities of Con-Test, a Massachusetts-based environmental consulting and
engineering company with branch offices in Massachusetts, Connecticut, Vermont,
Rhode Island, New York and Pennsylvania. The acquisition was accounted for as a
purchase. The total consideration for this acquisition was approximately
$7,760,000, consisting of $2,100,000 in cash, restricted shares of Common Stock
valued at $493,000, $535,000 in a three-year promissory note, $4,500,000 of
assumed liabilities and $132,000 of acquisition costs. Certain of this
consideration is contingent upon collection of outstanding receivables acquired
by ATC. Immediately upon acquiring the assets of Con-Test, the Company
instituted several cost-saving measures, including the elimination of certain
employees and facilities, to improve Con-Test's operations and integrate it with
the existing operations of the Company.
The pro forma combined balance sheet sets forth the combination of the
financial positions of ATC and Aurora as of May 31, 1995.
The pro forma combined statements of operations for the three months ended
May 31, 1995 and for the year ended February 28, 1995, reflect the merger of ATC
and Aurora and the acquisition of Con-Test as if each had occurred at the
beginning of the period presented.
NOTE 2 -- PRO FORMA ADJUSTMENTS FOR THE AURORA AND ATC MERGER
The pro forma financial statements reflect the following adjustments related
to the merger of Aurora and ATC:
(A) Elimination of ATC's account balances included in Aurora's consolidated
results.
(B) The ATC receivable from Aurora was forgiven pursuant to the terms of the
merger agreement. The adjustment eliminates the receivable with a
corresponding decrease to retained earnings (Note E).
(C) The adjustment to common stock and additional paid-in capital is the
result of the elimination of Aurora's common stock and additional paid-in
capital upon completion of the merger, the effect of the conversion of
Aurora's minority interest and stockholders' equity in consideration of
ATC
F-7
<PAGE>
ATC ENVIRONMENTAL INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 2 -- PRO FORMA ADJUSTMENTS FOR THE AURORA AND ATC MERGER (CONTINUED)
common stock exchanged, and the effect of the assumed or exercised stock
options under Aurora's 1985 Incentive and Non-statutory Stock Option Plan
prior to the effective date of the merger as follows:
<TABLE>
<CAPTION>
SHARES
-------------
<S> <C>
ATC shares issued from merger:
Aurora's shares outstanding at May 31, 1995...................................................... 6,101,104
Exercise of Aurora's stock options in June 1995 (prior to merger)................................ 30,000
-------------
Aurora shares exchanged.......................................................................... 6,131,104
Conversion rate.................................................................................. 0.545
-------------
ATC common shares issued upon conversion......................................................... 3,341,452
Less: ATC shares owned by Aurora canceled upon merger............................................ (3,258,000)
-------------
Net change in ATC shares from merger............................................................. 83,452
-------------
-------------
The adjustment to common stock and paid-in capital is as follows:
Common stock at $0.01 par value.................................................................. $ 835
Additional paid-in capital....................................................................... 29,165
-------------
Cash from exercise of Aurora stock options....................................................... $ 30,000
-------------
-------------
The net adjustment to common stock is as follows:
Increase from net shares issued upon the merger (above).......................................... $ 835
Elimination of Aurora's common stock resulting from the merger................................... (6,101)
-------------
$ (5,266)
-------------
-------------
The net adjustment to additional paid-in capital is as follows:
Increase from net shares issued upon the merger (above).......................................... $ 29,165
Elimination of Aurora's paid-in capital resulting from the merger................................ (5,729,363)
Less: net assets of Aurora, exclusive of ATC net assets.......................................... 113,762
-------------
$ (5,586,436)
-------------
-------------
</TABLE>
F-8
<PAGE>
ATC ENVIRONMENTAL INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 2 -- PRO FORMA ADJUSTMENTS FOR THE AURORA AND ATC MERGER (CONTINUED)
(D) To reflect the tax benefit of Aurora's net operating loss carryforward
and the elimination of ATC's income tax amounts included in Aurora's
consolidated results as follows:
(i) Balance Sheet Pro Forma Adjustment:
<TABLE>
<S> <C>
Net operating loss carryforward at February 28, 1995 ($969,601)
plus Aurora's net operating losses for the three months ended May
31, 1995......................................................... $1,054,997
Effective tax rate................................................ 38.5%
----------
Tax benefit....................................................... $ 406,174
----------
----------
Reduction of current income taxes payable......................... $ 343,392
Increase in deferred income tax benefit........................... 62,782
----------
$ 406,174
----------
----------
</TABLE>
The net adjustments are as follows:
<TABLE>
<CAPTION>
ELIMINATION EFFECT OF
OF NET
CONSOLIDATED OPERATING
AMOUNTS LOSSES NET
(NOTE A) (ABOVE) ADJUSTMENT
------------ ------------ -----------
<S> <C> <C> <C>
Deferred income taxes (asset)............................. $ (132,700) $ 62,782 $ (69,918)
------------ ------------ -----------
------------ ------------ -----------
Current income taxes (liability).......................... $ (343,392) $ (343,392) $ (686,784)
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
(ii) Income Statement Pro Forma Adjustments:
<TABLE>
<S> <C>
Income tax expense for the three months ended May 31, 1995:
Elimination of ATC's expense (Note A)............................. $ (567,500)
Tax benefit of Aurora's operating loss of $85,396................. (32,877)
Tax effect of eliminating merger expenses (Note F)................ 11,855
----------
$ (588,522)
----------
----------
Income tax expense for the year ended February 28, 1995:
Elimination of ATC's expense (Note A)............................. $(2,044,000)
Tax benefit of Aurora's operating loss of $126,394................ (48,662)
Tax effect of eliminating merger expenses (Note F)................ 59,613
----------
$(2,033,049)
----------
----------
</TABLE>
(E) The adjustment to retained earnings is comprised of the following:
<TABLE>
<S> <C>
Elimination of Aurora's retained earnings resulting from merger
(Note A)........................................................... $(2,748,898)
Tax benefit of Aurora's net operating losses (Note D)............... 406,174
Elimination of ATC's intercompany receivable forgiven under the
terms of merger (Note B)........................................... (18,924)
----------
$(2,361,648)
----------
----------
</TABLE>
F-9
<PAGE>
ATC ENVIRONMENTAL INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 2 -- PRO FORMA ADJUSTMENTS FOR THE AURORA AND ATC MERGER (CONTINUED)
(F) The adjustment to other expense, net is comprised of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
FEB. 28, 1995 MAY 31, 1995
------------- ------------
<S> <C> <C>
Elimination of ATC's accounts included in the consolidated results (Note A)....... $ (72,582) $ 1,815
Elimination of merger costs during the period that would not have been incurred
had the merger been effective as of the beginning of the period.................. (154,838) (30,792)
------------- ------------
$ (227,420) $ (28,977)
------------- ------------
------------- ------------
</TABLE>
(G) Assumes the ATC shares issued to Con-Test are outstanding as of the
beginning of the fiscal year and assumes the outstanding warrants and
options of Aurora which converted in the merger (Note C) are outstanding
from the beginning of the fiscal year.
NOTE 3 -- PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF CON-TEST
The pro forma combined statement of operations for the year ended February
28, 1995 assumes the acquisition occurred March 1, 1994, the beginning of ATC's
1995 fiscal year. The pro forma adjustments were based on Con-Test's interim
unaudited results of operations from March 1, 1994 to September 10, 1994,
representing the last interim accounting period completed prior to the purchase
date. Con-Test's historical financial statements were prepared as of each
interim four-week accounting period.
The pro forma financial statements reflect the following adjustments related
to the acquisition of Con-Test:
<TABLE>
<S> <C>
(A) To eliminate revenues of Con-Test branches not acquired................. $ (84,333)
----------
----------
(B) To eliminate costs of revenues of Con-Test branches not acquired........ $ (51,529)
----------
----------
(C) To record the change in general and administrative expenses as follows:
</TABLE>
(i) Changes in depreciation and amortization as a result of the
acquisition:
<TABLE>
<S> <C>
Depreciation of acquired assets recorded at fair market value....... $ 92,450
Less: Con-Test's historical depreciation............................ (247,121)
----------
Net depreciation adjustment......................................... (154,671)
Goodwill amortization, based on a 30-year amortization period....... 82,941
Covenant not to compete amortization, based on 5-year term.......... 11,667
----------
(60,063)
----------
</TABLE>
F-10
<PAGE>
ATC ENVIRONMENTAL INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 3 -- PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF CON-TEST (CONTINUED)
(ii) Reduction in certain other costs as a result of the integration of
acquired operations into
ATC:
<TABLE>
<S> <C>
Expenses of Con-Test branches not acquired.......................... (146,119)
Employee costs of Con-Test excess employees not hired............... (800,896)
Expenses of Con-Test facilities eliminated by integrating into ATC
facilities......................................................... (214,354)
Certain legal and accounting expenses of Con-Test................... (60,000)
Reduction of professional and general insurance costs............... (87,967)
----------
(1,309,336)
----------
$(1,369,399)
----------
----------
</TABLE>
(D) To record the net additional interest expense calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DEBT INCURRED FEB. 28, 1995
------------- -------------
<S> <C> <C>
ATC additional interest:
Amount borrowed for cash consideration paid at close with interest at 8.1%, the
average rate paid under ATC's bank credit line during fiscal 1995............... $ 2,100,000 $ 99,225
Note payable issued to seller, interest at 8.5%.................................. 535,000 26,527
Elimination of Con-Test interest on bank debt paid by ATC........................ (84,574)
-------------
$ 41,178
-------------
-------------
</TABLE>
(E) To record the imputed Federal income tax expense as though Con-Test had
not been a Subchapter S corporation and the income tax effect of the pro
forma adjustments at ATC's effective tax rate.
<TABLE>
<S> <C>
Reported loss before taxes...................................................... $(1,245,722)
Pro forma income adjustments:
Revenues.................................................................... (84,333)
Cost of revenues............................................................ 51,529
General and administrative.................................................. 1,369,399
Interest expense............................................................ (41,178)
----------
Adjusted income before taxes.................................................. 49,695
Tax rate...................................................................... 38.5%
----------
Net adjustment................................................................ $ 19,133
----------
----------
</TABLE>
The Company has recorded the pro forma income tax benefits of the taxable
loss of Con-Test, without any valuation allowance, because ATC recognized
taxable income sufficient enough to utilize the Con-Test loss during the period
presented.
(F) Assumes the ATC shares issued to Con-Test are outstanding as of the
beginning of the fiscal year.
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
ATC Environmental Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of ATC
Environmental Inc. and subsidiaries as of February 28, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended February 28, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ATC Environmental Inc. and
subsidiaries as of February 28, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
May 4, 1995
Omaha, Nebraska
F-12
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1994 AND 1995
<TABLE>
<CAPTION>
ASSETS 1994 1995
---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................................... $1,394,889 $1,377,862
Trade accounts receivable, less allowance for doubtful accounts
($167,344 in 1994 and $535,886 in 1995) (Note K).............. 7,701,761 11,859,991
Costs in excess of billings on uncompleted contracts........... 370,000 447,000
Notes receivable (Note B)...................................... 250,000 --
Prepaid expenses and other current assets...................... 418,046 431,791
Deferred income taxes (Note H)................................. 152,600 132,700
---------- ----------
Total current assets......................................... 10,287,296 14,249,344
Property and equipment, net (Notes C and D)...................... 2,292,154 3,151,286
Goodwill, net of accumulated amortization
($19,613 in 1994 and $137,470 in 1995) (Note B)................. 1,242,504 7,166,998
Covenants not to compete, net of accumulated amortization
($42,558 in 1994 and $137,021 in 1995) (Note B)................. 232,442 317,979
Other assets..................................................... 102,491 123,615
---------- ----------
$14,156,887 $25,009,222
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt (Note D)....................................... $ 115,603 $ 88,720
Current maturities of long-term debt (Note D).................. 543,268 840,907
Accounts payable............................................... 793,518 1,963,484
Income taxes payable (Note H).................................. 1,130,653 128,250
Due to related company (Note J)................................ 122,141 39,969
Accrued compensation........................................... 1,363,858 2,053,797
Other accrued expenses......................................... 169,242 1,020,479
---------- ----------
Total current liabilities.................................... 4,238,283 6,135,606
Long-term debt, less current maturities (Note D)................. 2,182,119 3,892,766
Other liabilities (Note E)....................................... -- 1,087,056
Deferred income taxes (Note H)................................... 77,000 80,600
---------- ----------
Total liabilities............................................ 6,497,402 11,196,028
---------- ----------
Commitments and contingencies (Notes B, D, E, F, G and L)
Stockholders' equity (Notes B, D, F, G and L):
Common stock, par value $.01 per share; authorized 20,000,000
shares; issued and outstanding 5,303,352 shares in 1994 and
5,738,018 shares in 1995...................................... 53,034 57,380
Additional paid-in capital..................................... 4,610,860 7,484,453
Notes receivable -- common stock............................... (34,250) (15,000)
Retained earnings.............................................. 3,029,841 6,286,361
---------- ----------
Total stockholders' equity................................... 7,659,485 13,813,194
---------- ----------
$14,156,887 $25,009,222
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................................................ $ 16,539,254 $ 26,664,385 $ 36,271,557
Cost of revenues.................................................... 9,889,612 14,369,961 18,355,493
------------- ------------- -------------
Gross profit.................................................... 6,649,642 12,294,424 17,916,064
------------- ------------- -------------
Operating expenses:
Selling........................................................... 685,747 784,795 1,105,937
General and administrative........................................ 5,150,950 8,140,069 10,996,709
Provision for bad debts........................................... 85,423 143,017 188,819
------------- ------------- -------------
5,922,120 9,067,881 12,291,465
------------- ------------- -------------
Operating income................................................ 727,522 3,226,543 5,624,599
------------- ------------- -------------
Nonoperating expense (income):
Interest expense.................................................. 115,204 185,494 285,570
Interest income................................................... (49,968) (45,361) (34,073)
Other expense, net (Note L)....................................... 9,142 9,362 72,582
------------- ------------- -------------
74,378 149,495 324,079
------------- ------------- -------------
Income before income taxes...................................... 653,144 3,077,048 5,300,520
Income tax expense (Note H)......................................... 300,000 1,210,000 2,044,000
------------- ------------- -------------
Net income.......................................................... $ 353,144 $ 1,867,048 $ 3,256,520
------------- ------------- -------------
------------- ------------- -------------
Earnings per common share and dilutive common equivalent share:
Primary........................................................... $ .07 $ .35 $ .57
------------- ------------- -------------
------------- ------------- -------------
Fully diluted..................................................... $ .07 $ .35 $ .56
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of shares outstanding:
Primary........................................................... 5,293,871 5,376,921 5,753,856
------------- ------------- -------------
------------- ------------- -------------
Fully diluted..................................................... 5,298,296 5,396,373 5,850,233
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE-
-------------------- PAID-IN COMMON RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
--------- --------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 29, 1992......................... 5,038,752 $ 50,388 $ 4,265,990 $ (34,250) $ 809,649 $ 5,091,777
Sale of common stock at $.15 per share, upon
exercise of options............................. 254,000 2,540 35,560 -- -- 38,100
Tax benefit from exercise of common stock options
(Note H)........................................ -- -- 344,000 -- -- 344,000
Continuing registration costs applied against
additional paid-in capital...................... -- -- (14,120) -- -- (14,120)
Net income....................................... -- -- -- -- 353,144 353,144
--------- --------- ----------- ----------- ----------- ------------
Balance, February 28, 1993......................... 5,292,752 52,928 4,631,430 (34,250) 1,162,793 5,812,901
Sale of common stock at $1.87 to $4.31 per share,
upon exercise of options........................ 5,600 56 16,090 -- -- 16,146
Issuance of common shares in connection with the
purchase of BSE Management, Inc................. 5,000 50 29,650 -- -- 29,700
Adjustment to tax benefit from exercise of common
stock options (Note H).......................... -- -- (40,927) -- -- (40,927)
Continuing registration costs applied against
additional paid-in capital...................... -- -- (25,383) -- -- (25,383)
Net income....................................... -- -- -- -- 1,867,048 1,867,048
--------- --------- ----------- ----------- ----------- ------------
Balance, February 28, 1994......................... 5,303,352 53,034 4,610,860 (34,250) 3,029,841 7,659,485
Sale of common stock at $1.87 to $5.00 per share,
upon exercise of options........................ 16,980 170 51,354 -- -- 51,524
Sale of common stock at $8.00 per share, upon
exercise of Class B common stock purchase
warrants........................................ 284,803 2,848 2,275,576 -- -- 2,278,424
Issuance of common shares in connection with the
purchase of
Con-Test, Inc................................... 116,556 1,165 491,740 -- -- 492,905
Issuance of common shares in connection with the
purchase of
R.E. Blattert & Associates...................... 16,327 163 112,340 -- -- 112,503
Continuing registration costs applied against
additional paid-in capital...................... -- -- (57,417) -- -- (57,417)
Reduction of notes receivable.................... -- -- -- 19,250 -- 19,250
Net income....................................... -- -- -- -- 3,256,520 3,256,520
--------- --------- ----------- ----------- ----------- ------------
Balance, February 28, 1995......................... 5,738,018 $ 57,380 $ 7,484,453 $ (15,000) $ 6,286,361 $ 13,813,194
--------- --------- ----------- ----------- ----------- ------------
--------- --------- ----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income............................................................ $ 353,144 $ 1,867,048 $ 3,256,520
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and leasehold amortization............................. 602,091 648,473 707,318
Amortization of goodwill and covenants.............................. 24,455 37,716 212,320
Provision for bad debts............................................. 85,423 143,017 188,819
Deferred income taxes............................................... (131,875) (12,000) 23,500
Other liabilities................................................... -- -- (46,179)
Loss (gain) on disposition of fixed assets.......................... 9,142 -- (11,079)
Changes in operating assets and liabilities, net of amounts acquired
in acquisitions:
Accounts and notes receivable..................................... (778,209) (4,754,874) (348,459)
Prepaid expenses and other assets................................. (34,391) (168,443) (22,269)
Accounts payable and other liabilities............................ 93,022 1,068,171 72,615
Income taxes payable.............................................. 379,781 1,142,239 (1,002,403)
------------ ------------ ------------
Net cash flows from operating activities........................ 602,583 (28,653) 3,030,703
------------ ------------ ------------
Cash Flows From Investing Activities:
Purchase of Con-Test, Inc., net of cash acquired...................... -- -- (2,230,551)
Purchase of BSE Management, Inc....................................... -- (1,030,285) (887,325)
Purchase of Microbial Environmental Services, Inc..................... -- -- (250,000)
Purchase of R.E. Blattert & Associates, net of cash acquired.......... -- -- (9,541)
(Purchase) rescission of Bio/West, Inc................................ (750,000) 283,722 --
Purchase of property and equipment.................................... (566,902) (730,737) (756,444)
Proceeds from sale of property and equipment.......................... 7,298 1,000 34,049
Proceeds from maturity of investments................................. 1,017,948 -- --
------------ ------------ ------------
Net cash flows from investing activities.......................... (291,656) (1,476,300) (4,099,812)
------------ ------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt and notes payable............ 219,062 3,018,995 1,580,318
Proceeds from issuance of common stock................................ 38,100 16,146 2,329,948
Principal payments on long-term debt and notes payable, including
capital lease obligations............................................ (400,292) (1,174,756) (2,800,767)
Payments for continuing registration costs............................ (14,120) (25,383) (57,417)
------------ ------------ ------------
Net cash flows from financing activities.......................... (157,250) 1,835,002 1,052,082
------------ ------------ ------------
Net change in cash and cash equivalents........................... 153,677 330,049 (17,027)
Cash and Cash Equivalents, Beginning of year............................ 911,163 1,064,840 1,394,889
------------ ------------ ------------
Cash and Cash Equivalents, End of year.................................. $ 1,064,840 $ 1,394,889 $ 1,377,862
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ATC
Environmental Inc. and its wholly-owned subsidiaries ATC New England Corp., ATC
Blattert Inc., Hygeia Proscience Laboratories, Inc. and ATC Management, Inc. All
significant intercompany accounts and transactions have been eliminated.
NATURE OF BUSINESS
ATC Environmental Inc. and its subsidiaries ("ATC" or the "Company") are
environmental consulting firms providing assessment, monitoring, training,
analytical and management services for environmental projects. These services
are provided nation-wide through a network of regional offices. ATC is a 57%
owned subsidiary of Aurora Environmental Inc. ("Aurora"). Because the Company
conducts its operations in a single industry, segment information is not
presented.
REVENUE RECOGNITION
The Company generally contracts for services to customers on the basis of a
fixed fee per procedure or services performed. Revenue is recognized as services
are performed in accordance with the terms of the contract.
COSTS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
Costs in excess of billings on uncompleted contracts represent unbilled
services and reimbursable expenses associated with ongoing projects
SIGNIFICANT CUSTOMER
In fiscal 1995, revenues from a single customer comprised approximately 11%
of total revenues. In fiscal 1994 revenues from this customer comprised
approximately 12% of total revenues.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed on
either the straight-line or declining balance method over the estimated useful
lives of the assets, as follows:
<TABLE>
<S> <C>
Office equipment.................................................. 5 years
Transportation equipment.......................................... 4-5 years
Laboratory and field equipment.................................... 5-7 years
life of the
Leasehold improvements............................................ lease
</TABLE>
AMORTIZATION OF INTANGIBLE ASSETS
Goodwill associated with acquisitions is being amortized on a straight-line
basis over a 10 to 30 year period. The carrying value of goodwill is
periodically evaluated on the basis of management's estimates of future
undiscounted operating income associated with the acquired business. When the
carrying amount of goodwill is determined not to be recoverable by management,
the associated asset is written off. At February 28, 1995, no such impairment
existed. The covenants not to compete are being amortized over the terms of the
agreements, which are 3 to 5 year periods.
F-17
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The liability method is used to measure deferred tax assets and liabilities
in accordance with Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES, based on temporary differences between financial
and taxable income existing at each balance sheet date using enacted tax rates.
ATC and its wholly-owned subsidiaries file a consolidated income tax return.
CONTINUING REGISTRATION COSTS
Costs associated with the registration and issuance of equity are charged
against additional paid-in capital as incurred. These costs generally include
legal and accounting fees, printing costs and other direct expenses of
registration statement filings.
CREDIT RISK AND FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash, temporary investments and
accounts receivable. The Company places its temporary investments in highly
rated financial institutions and investment grade short-term debt instruments.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers, the proportion of receivables from
governmental entities, generally short payment terms and dispersion across
geographic areas.
EARNINGS PER COMMON SHARE AND DILUTIVE COMMON EQUIVALENT SHARE
Earnings per common share and dilutive common equivalent share have been
computed by using the weighted average number of shares outstanding during the
year. Outstanding dilutive stock warrants and stock options are included in the
computation of weighted average number of shares.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all commercial
paper, money market funds and certificates of deposit purchased with a maturity
of three months or less at acquisition to be cash equivalents.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
F-18
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE B -- BUSINESS ACQUISITIONS
CON-TEST, INC.
On October 1, 1994, ATC acquired substantially all of the assets and
liabilities of Con-Test, Inc. ("Con-Test"), a Massachusetts based environmental
consulting company having branch offices in the New England states, New York and
Pennsylvania. The seller has guaranteed the net receivables purchased. The
acquisition has been accounted for as a purchase. The purchase price was
comprised of the following consideration:
<TABLE>
<S> <C>
Amounts Paid to Seller:
Cash................................................................. $2,100,000
Note payable......................................................... 535,000
ATC restricted common stock.......................................... 492,905
Liabilities Assumed:
Current liabilities.................................................. 1,908,465
Non-current liabilities.............................................. 478,027
Notes payable........................................................ 1,981,982
Direct expenses related to acquisition............................... 131,910
---------
$7,628,289
---------
---------
</TABLE>
Con-Test's assets and liabilities are included in the accompanying
consolidated balance sheet at fair value at the date of purchase. The purchase
price allocation is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net............................................... $2,615,469
Property and equipment................................................. 633,945
Other assets........................................................... 13,359
Covenant not to compete................................................ 100,000
Goodwill............................................................... 4,265,516
---------
$7,628,289
---------
---------
</TABLE>
R.E. BLATTERT & ASSOCIATES
On January 13, 1995, ATC acquired substantially all of the assets and
liabilities of R.E. Blattert & Associates ("Blattert"), an environmental
consulting firm having geologic, environmental engineering and water resource
expertise with offices in Indiana and Iowa. The seller has guaranteed the net
receivables purchased. In addition, the purchase agreement provides for the
seller to receive additional purchase consideration up to a maximum of $850,000
over a four-year period based on achieving agreed upon earnings targets. These
contingent payments will be recorded as goodwill if subsequently earned. At
February 28, 1995, no additional purchase consideration had been earned. The
acquisition was accounted for as a purchase. The purchase price was comprised of
the following consideration:
<TABLE>
<S> <C>
Amounts Paid to Seller:
ATC restricted common stock.......................................... $ 112,503
Liabilities Assumed:
Current liabilities.................................................. 490,889
Notes payable........................................................ 384,870
Direct expenses related to acquisition................................. 23,209
---------
$1,011,471
---------
---------
</TABLE>
F-19
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE B -- BUSINESS ACQUISITIONS (CONTINUED)
Blattert's assets and liabilities are included in the accompanying
consolidated balance sheet at fair value at the date of purchase. The purchase
price allocation is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net............................................... $ 378,663
Property and equipment................................................. 99,030
Other assets........................................................... 14,269
Covenant not to compete................................................ 80,000
Goodwill............................................................... 439,509
---------
$1,011,471
---------
---------
</TABLE>
MICROBIAL ENVIRONMENTAL SERVICES, INC.
On January 4, 1995, ATC acquired certain operations of Microbial
Environmental Services, Inc. ("MES"). ATC agreed to assume service performance
obligations under certain contracts and a lease obligation of MES. In
consideration, MES assigned accounts receivable to ATC. ATC additionally
purchased certain field and laboratory equipment from MES and paid a finder's
fee to an unrelated party. The acquisition was accounted for as a purchase. The
purchase price was comprised of the following consideration:
<TABLE>
<S> <C>
Note payable........................................................... $ 100,000
Non-current liabilities assumed........................................ 812,208
Cash paid for finder's fee............................................. 250,000
Note payable for finder's fee.......................................... 200,000
---------
$1,362,208
---------
---------
</TABLE>
MES's assets and liabilities acquired are included in the accompanying
consolidated balance sheet at fair value at the date of purchase. The purchase
price allocation is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net............................................... $ 812,208
Equipment.............................................................. 100,000
Goodwill............................................................... 450,000
---------
$1,362,208
---------
---------
</TABLE>
BSE MANAGEMENT, INC.
On April 30, 1993, ATC acquired certain assets and liabilities of BSE
Management, Inc. ("BSE"), a California based environmental consulting holding
company and three of its subsidiaries, Diagnostic Environmental Inc., Hygeia
Environmental Laboratories and The Environmental Institute Inc. The acquisition
was accomplished by purchasing certain BSE assets at a foreclosure sale,
acquiring certain BSE unsecured debt from its holder, entering into consulting
and employment contracts and non-compete agreements with certain key BSE
employees, and assuming specified liabilities of BSE. The purchase agreement
also calls for
F-20
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE B -- BUSINESS ACQUISITIONS (CONTINUED)
additional purchase consideration up to a maximum of $1,356,000 over five years
contingent upon future cash receipts of the ongoing business. These contingent
payments are recorded as goodwill as earned. The purchase price was comprised of
the following consideration:
<TABLE>
<S> <C>
Cash paid to stockholders.............................................. $ 400,000
Cash paid to secured party............................................. 169,670
Liabilities assumed and other cash payments............................ 193,335
Issuance of note payable to financial institution...................... 355,840
Issuance of common stock to financial institution...................... 29,700
Direct expenses related to acquisition................................. 142,442
Contingent consideration earned to date................................ 1,155,498
---------
$2,446,485
---------
---------
</TABLE>
BSE's assets and liabilities are included in the accompanying consolidated
balance sheet at fair value at the date of purchase. The purchase price
allocation is summarized as follows:
<TABLE>
<S> <C>
Property and equipment................................................. $ 103,670
Other non-current assets............................................... 53,000
Covenant not to compete................................................ 150,000
Goodwill............................................................... 2,139,815
---------
$2,446,485
---------
---------
</TABLE>
BIO/WEST, INC.
On June 10, 1992, ATC signed a purchase agreement for 100% of the issued and
outstanding common stock of Bio/West, Inc. ("Bio/West"), a privately held
environmental consulting firm specializing in ecological services. The
acquisition was accounted for as a purchase.
On October 14, 1993, because of certain disputes which arose subsequent to
the purchase, the Company and the former stockholders of Bio/West entered into
an agreement for restitution following rescission, which provided for an orderly
rescission of the purchase. The agreement effected a refund of the purchase
price by the former Bio/West stockholders to ATC and a return to the former
stockholders of all ownership and stock of Bio/West. Under this agreement, the
former stockholders of Bio/West refunded the cash payment to ATC, forgave the
notes payable, forgave all amounts payable under the profit contingent portion
of the original purchase agreement and reimbursed ATC for expenses incurred by
it on behalf of Bio/West. In order to provide sufficient funds for the former
shareholders of Bio/West to make full restitution provided in the rescission,
ATC loaned these former stockholders $375,000 supported by promissory notes.
These notes were paid in full as of February 28, 1995. ATC also entered into a
separate non-compete agreement with Bio/West requiring ATC to pay a total of
$137,000 to Bio/West over three years.
The accompanying consolidated statements of operations reflect the revenues
and expenses of the Company and its subsidiaries, including the results of
Bio/West's operations through May 31, 1993, the effective date of the
rescission. The results of operations of Bio/West included in the consolidated
financial statements were revenues of $2,924,290 and $468,731 and net income
(loss) of $29,657 and $(109,846) in fiscal 1993 and 1994, respectively.
F-21
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE B -- BUSINESS ACQUISITIONS (CONTINUED)
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma information sets forth the results of
operations of ATC as though the purchases of BSE and Con-Test and the rescission
of Bio/West had occurred at March 1, 1993:
<TABLE>
<CAPTION>
PRO FORMA
YEARS ENDED FEBRUARY 28,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Total revenues......................................................... $ 39,469,717 $ 40,807,600
Net income............................................................. $ 990,055 $ 3,287,082
Net income per share (fully diluted)................................... $ .18 $ .56
</TABLE>
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Office equipment.......................................................... $ 1,633,933 $ 2,086,889
Laboratory and field equipment............................................ 2,265,765 3,007,651
Transportation equipment.................................................. 107,544 223,397
Leasehold improvements.................................................... 330,184 537,698
------------ ------------
4,337,426 5,855,635
Less accumulated depreciation............................................. 2,045,272 2,704,349
------------ ------------
Property, plant and equipment, net.................................. $ 2,292,154 $ 3,151,286
------------ ------------
------------ ------------
</TABLE>
The following is a summary of capital leases by major asset class:
<TABLE>
<CAPTION>
1994 1995
---------- ------------
<S> <C> <C>
Office equipment............................................................ $ 448,795 $ 448,795
Laboratory equipment........................................................ 513,456 557,376
Leasehold improvements...................................................... 9,844 9,844
---------- ------------
972,095 1,016,015
Less accumulated amortization............................................... 608,081 780,715
---------- ------------
$ 364,014 $ 235,300
---------- ------------
---------- ------------
</TABLE>
Lease amortization is included in depreciation expense.
F-22
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE D -- LONG-TERM DEBT AND CREDIT AGREEMENTS
Long-term debt consists of:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Borrowings from bank under revolving credit facility due September 30, 1996. Interest
is payable monthly at the bank's benchmark rate, which equals or approximates the
prime rate,
9.0% at February 28, 1995............................................................ $ 1,700,000 $ 3,075,000
Note payable to bank, payable in monthly installments plus interest which accrues at
1.0% above the bank's benchmark rate (9.0% at February 28, 1995) through April,
1996................................................................................. 450,060 233,480
8.5% note payable issued in connection with the purchase of Con-Test, payable in three
annual installments commencing September 30, 1995. Interest is payable quarterly..... -- 535,000
7.0% note payable issued in connection with the purchase of BSE, payable in monthly
installments, including interest,
through April, 1996.................................................................. 282,835 179,355
Notes payable assumed in connection with the purchase of Blattert, with fixed interest
rates of 8% and 10.9% payable in monthly installments through April, 1999............ -- 204,559
Notes payable issued in connection with the purchase of MES, with a fixed interest
rate of 8%, payable in monthly and quarterly installments through February, 1998..... -- 300,000
Vehicle loans with interest rates ranging from 7.25% to 11.2% due in monthly
installments at various dates through 1999........................................... 13,300 76,531
Capitalized lease obligations with implicit interest rates ranging from 9% to 14% due
in monthly installments at various dates through July, 1999.......................... 279,192 129,748
------------ ------------
2,725,387 4,733,673
Less current maturities............................................................... 543,268 840,907
------------ ------------
Long-term debt, less current maturities............................................... $ 2,182,119 $ 3,892,766
------------ ------------
------------ ------------
</TABLE>
The Company has a revolving credit facility providing for borrowings up to
$5,000,000, subject to a percentage of its eligible accounts receivable, of
which $1,700,000 and $3,075,000 was outstanding at February 28, 1994 and 1995.
Borrowings are subject to the terms of a promissory note and the outstanding
balance is due on September 30, 1996. Interest is payable monthly and accrues at
the bank's benchmark interest rate which is equal to or approximates the prime
rate of interest (9.0% at February 28, 1995). At February 28, 1995, $657,000 was
available to borrow under the terms of the agreement.
The above mentioned credit facility and note payable to bank contain certain
restrictive financial covenants, including a prohibition of dividend payments by
ATC to its stockholders (including Aurora) until obligations are paid in full,
and are collateralized by substantially all assets of the Company.
At February 28, 1994 and 1995, the Company has short-term notes payable to
financing institutions of $115,603 and $88,720, respectively, with interest
rates of 4.7% and 6.7%, respectively.
F-23
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE D -- LONG-TERM DEBT AND CREDIT AGREEMENTS (CONTINUED)
Aggregate maturities of long-term debt including capitalized lease
obligations at February 28, 1995 are as follows:
<TABLE>
<CAPTION>
NET
MINIMUM LESS PORTION PORTION
LEASE REPRESENTING REPRESENTING NOTES
PAYMENTS INTEREST PRINCIPAL PAYABLE TOTAL DEBT
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1996......................................... $ 71,800 $ 8,999 $ 62,801 $ 778,106 $ 840,907
1997......................................... 22,875 5,386 17,489 3,490,375 3,507,864
1998......................................... 22,875 3,719 19,156 292,895 312,051
1999......................................... 22,875 1,893 20,982 35,512 56,494
2000......................................... 9,537 217 9,320 7,037 16,357
---------- ------------ ------------ ------------ ------------
$ 149,962 $ 20,214 $ 129,748 $ 4,603,925 $ 4,733,673
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
</TABLE>
NOTE E -- COMMITMENTS
OPERATING LEASE COMMITMENTS
The Company leases office space, laboratory facilities, temporary housing
facilities and automobiles under operating lease agreements which expire at
varying dates from March 1994 through September 2001. The Company also rents
equipment on a job-by-job basis. Minimum annual rental commitments as of
February 28, 1995 are as follows: 1996, $1,133,637; 1997, $916,491; 1998,
$644,910; 1999, $488,242; 2000, $439,758 and thereafter $1,147,265 (total
$4,770,303).
Rent expense for fiscal years 1993, 1994 and 1995 was $684,309, $1,129,283
and $1,049,512, respectively, net of sublease rental income of $7,045 in fiscal
year 1993.
OTHER LIABILITIES
Other liabilities consist of long-term lease commitments and other long-term
contractual obligations assumed in connection with business acquisitions.
Contractual obligations representing existing liabilities recorded within the
financial statements that are expected to be realized during fiscal 1996 are
included within other accrued expenses.
NOTE F -- STOCK OPTIONS
A stock option plan, approved by the Board of Directors in 1988, provides
for the granting of 200,000 options to employees for purchase of common stock at
prices which cannot be less than the fair market value at the time of the grant.
Options become exercisable 20% per year for certain participants and 50% per
year for other participants and expire within five years of the date of grant.
Additionally, in January 1988, the Company granted options for the purchase
of 342,000 shares of common stock at a price of $.15 per share in part to
related parties. The Company determined that the option price approximated fair
market value at the date of grant and, accordingly, no compensation was recorded
pursuant to these options. These options have all been exercised as of February
28, 1993.
On July 16, 1993, the Board of Directors approved an additional stock option
plan providing for the granting of 200,000 options to employees for purchase of
common stock at prices which cannot be less than fair market value at the time
of grant. Options become exercisable 20% per year and expire within five years
of the date of grant.
F-24
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE F -- STOCK OPTIONS (CONTINUED)
At February 28, 1995, the Company had granted options under the 1988 and
1993 plans for 291,400 shares, of which options for 19,980 shares had been
exercised and options for 127,000 shares were exercisable. Additionally, in
fiscal 1995, the Board of Directors approved the granting of 20,000 options to
an unrelated consultant for purchase of common stock at $9.50 per share (fair
market value at date of grant). The option shares are subject to changes in
capitalization.
The changes in the outstanding stock options under the 1988 and 1993 plans
described immediately above during fiscal years 1993, 1994 and 1995 are
summarized below:
<TABLE>
<CAPTION>
PRICE PER-
OPTIONS SHARE-RANGE
---------- ----------------
<S> <C> <C>
Balance at February 29, 1992........................................................ 305,550 $ 0.15 - 4.31
Granted........................................................................... 123,550 1.88 - 3.00
Exercised......................................................................... (254,000) 0.15
Expired........................................................................... (42,550) 2.31 - 3.06
---------- ----------------
Balance at February 28, 1993........................................................ 132,550 1.88 - 4.31
Granted........................................................................... 50,750 4.00 - 7.50
Exercised......................................................................... (5,600) 1.88 - 4.31
Expired........................................................................... (7,000) 1.88 - 4.00
---------- ----------------
Balance at February 28, 1994........................................................ 170,700 1.88 - 7.50
Granted........................................................................... 112,350 6.75 - 17.00
Exercised......................................................................... (6,980) 1.88 - 5.00
Expired........................................................................... (4,650) 10.00 - 10.50
---------- ----------------
Balance at February 28, 1995........................................................ 271,420 $ 1.88 - 17.00
---------- ----------------
----------
</TABLE>
NOTE G -- COMMON STOCK WARRANTS
During the year ended February 28, 1995, 284,803 of the 285,817 outstanding
Class B warrants were exercised at an exercise price of $8.00 allowing the
holder to receive one share of common stock per warrant and one Class C warrant.
The remaining Class B warrants not exercised expired as of September 30, 1994.
At February 28, 1995, there are 570,620 Class C warrants outstanding. Each
Class C warrant entitles the holder to purchase one share of common stock at an
exercise price of $10.00. The Company has the right to redeem the Class C
warrants at a price of $0.001 per warrant at any time upon 30 days prior written
notice. The Company has reserved common shares equal to the outstanding warrants
for issuance upon the exercise of the Class C warrants. The expiration date of
the Class C warrants is September 30, 1996.
F-25
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE H -- INCOME TAXES
Income tax expense (benefit) consist of the following:
<TABLE>
<CAPTION>
STATE AND
YEAR ENDED FEBRUARY 28 FEDERAL LOCAL TOTAL
-------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
1995:
Current..................................................... $ 1,725,000 $ 295,500 $ 2,020,500
Deferred.................................................... 19,000 4,500 23,500
------------ ---------- ------------
Total................................................... $ 1,744,000 $ 300,000 $ 2,044,000
------------ ---------- ------------
1994:
Current..................................................... $ 1,009,000 $ 213,000 $ 1,222,000
Deferred.................................................... (9,000) (3,000) (12,000)
------------ ---------- ------------
Total................................................... $ 1,000,000 $ 210,000 $ 1,210,000
------------ ---------- ------------
1993:
Current..................................................... $ 354,000 $ 77,875 $ 431,875
Deferred.................................................... (122,000) (9,875) (131,875)
------------ ---------- ------------
Total................................................... $ 232,000 $ 68,000 $ 300,000
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
The Company made income tax payments of approximately $56,000, $278,000 and
$3,023,000 in fiscal 1993, 1994 and 1995, respectively.
A reconciliation of the statutory U.S. Federal tax rate and effective tax
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 1993 1994 1995
------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Statutory U.S. Federal rate.............................................. 34.0% 34.0% 34.0%
State income taxes, net of federal benefit............................... 4.2 4.5 4.1
Non-deductible expenses.................................................. 7.7 0.8 0.5
--------- --------- ---------
45.9% 39.3% 38.6%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of temporary differences that give rise to a significant
portion of deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Nondeductible liabilities and reserves...................................... $ 172,000 $ 234,300
Other....................................................................... 38,600 31,000
---------- ----------
210,600 265,300
Deferred tax liabilities......................................................
Property and equipment...................................................... 77,000 97,000
Prepaid expenses............................................................ 58,000 101,600
Other....................................................................... -- 14,600
---------- ----------
135,000 213,200
---------- ----------
Net deferred tax asset........................................................ $ 75,600 $ 52,100
---------- ----------
---------- ----------
</TABLE>
F-26
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE H -- INCOME TAXES (CONTINUED)
The current portion of net deferred tax assets of $152,600 and $132,700 at
February 28, 1994 and 1995 is classified in the consolidated balance sheet in
current assets. The noncurrent portion is classified in noncurrent liabilities.
During fiscal 1993, the Company recorded in additional paid-in capital
$344,000 of tax benefit from the exercise of common stock warrants and options.
During fiscal 1994, the Company adjusted its tax benefit recorded in additional
paid-in capital downward by $40,927 to reflect the actual tax benefit realized.
NOTE I -- EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan which allows for voluntary
contributions into designated investment funds by eligible employees. The
Company may, at the discretion of its Board of Directors, make additional
contributions on behalf of the Plan's participants. No Company contributions
were made in fiscal years 1993, 1994 and 1995.
NOTE J -- RELATED PARTY TRANSACTIONS
Certain expenses, including salaries, fringe benefits, insurance, rent,
consulting fees, legal and accounting and other general and administrative
expenses, are paid by ATC and by its parent company, Aurora, for the benefit of
the other. These expenses are allocated between the companies based on estimates
of time spent, square footage and use of the services received which management
believes to be reasonable.
A summary of the related party transactions is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Due to related company, beginning of year.................................... $ 145,733 $ 103,804 $ 122,141
Allocation of depreciation property and equipment owned by Aurora and used by
ATC......................................................................... 21,420 -- --
Interest expense charged..................................................... 10,135 11,800 9,028
Expenses paid by ATC and allocated to Aurora................................. (18,000) (18,700) (82,120)
Expenses paid by Aurora and allocated to ATC................................. 10,516 6,337 5,920
Cash payments to Aurora...................................................... (66,000) (41,100) (15,000)
Cash payments from Aurora.................................................... -- 60,000 --
---------- ---------- ----------
Due to related company, end of year.......................................... $ 103,804 $ 122,141 $ 39,969
---------- ---------- ----------
---------- ---------- ----------
Average balance due to related company....................................... $ 124,769 $ 139,765 $ 106,011
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Aurora charged ATC interest at a rate of 8% during the fiscal years ended
1995 and 1994 and at a rate of 12% during the fiscal year ended 1993. Under the
terms of the merger agreement (Note L), the amount owed would be forgiven upon
the merger's effective date.
F-27
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE K -- SUPPLEMENTAL INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ----------- ------------
<S> <C> <C> <C>
Cash paid for interest................................................... $ 121,092 $ 173,174 $ 276,658
Noncash investing and financing activities:
Tax benefit (adjustment to tax benefit) from exercise of common stock
warrants.............................................................. 344,000 (40,927) --
Note payable to stockholders related to Bio/West acquisition
(rescission).......................................................... 750,000 (750,000) --
Liabilities assumed in connection with business combinations........... 1,022,724 193,335 6,056,441
Common stock issued in connection with business combinations........... -- 29,700 605,408
Notes payable issued in connection with business combinations.......... -- 355,840 835,000
</TABLE>
Supplemental analysis of valuation and qualifying accounts is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Changes in the allowance for doubtful accounts are as follows:
Balance, beginning of year................................................. $ 172,502 $ 130,768 $ 167,344
Provision for bad debts.................................................... 85,423 143,017 188,819
Amounts written-off, net of recoveries..................................... (129,159) (63,941) (136,350)
Adjustment for allowance for doubtful accounts on acquired (rescinded)
accounts receivable:
Con-Test................................................................. -- -- 291,223
Blattert................................................................. -- -- 24,850
Bio/West................................................................. 2,002 (42,500) --
---------- ---------- ----------
Balance, end of year....................................................... $ 130,768 $ 167,344 $ 535,886
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE L -- SUBSEQUENT EVENT -- MERGER AGREEMENT (UNAUDITED)
ATC and Aurora have entered into an agreement to merge, with ATC to be the
surviving corporation. The agreement is subject to certain conditions including
the approval of both ATC's and Aurora's stockholders. Approval of the merger
will require a majority vote of each of the corporations. Under the proposed
agreement, ATC would exchange .545 of a share of ATC stock for each share of
Aurora stock. ATC common shares held by Aurora, 3,258,000 at February 28, 1995,
would be cancelled. The merger would be accounted for in a manner similar to a
pooling of interests. Under this method of accounting, recorded assets and
liabilities of Aurora would be combined with ATC and the results of operations
of ATC and Aurora would also be combined on the date the merger became
effective. After the merger, ATC would be able to utilize Aurora's net operating
loss carryforward, which is $970,000 at February 28, 1995. In addition, ATC's
liability to Aurora would be cancelled at the merger date.
F-28
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
NOTE L -- SUBSEQUENT EVENT -- MERGER AGREEMENT (UNAUDITED) (CONTINUED)
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma information sets forth the results of
operations of ATC and Aurora as if the merger and ATC's purchase of BSE and
Con-Test and rescission of Bio/West had occurred on March 1, 1993:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Revenues............................................................... $ 39,469,717 $ 40,807,600
Net income............................................................. $ 914,517 $ 3,304,575
Earnings per share (fully diluted)..................................... $ .15 $ .51
</TABLE>
NOTE M -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of the Company's quarterly results of operations for
the years ended February 28, 1994 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1994 1994 1994(1) 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues................................................ $ 8,167,900 $ 8,721,212 $9,228,737 $ 10,153,708
Gross profit............................................ 3,775,603 4,411,689 4,382,484 5,346,288
Income before income taxes.............................. 1,123,914 1,592,608 1,298,043 1,285,955
Net income.............................................. $ 689,514 $ 981,008 $ 796,043 $ 789,955
Earnings per common share and dilutive
common equivalent share:
Primary............................................... $ .13 $ .18 $ .13 $ .13
Fully diluted......................................... $ .12 $ .18 $ .13 $ .13
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1993(2) 1993 1993 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................................................. $ 4,727,866 $ 7,396,867 $7,075,684 $ 7,463,968
Gross profit............................................. 1,972,112 3,309,274 3,053,377 3,959,661
Income before income taxes............................... 233,997 1,098,844 711,995 1,032,212
Net income............................................... $ 133,397 $ 646,444 $ 438,995 $ 648,212
Earnings per common share and dilutive
common equivalent share:
Primary................................................ $ .03 $ .12 $ .08 $ .12
Fully diluted.......................................... $ .03 $ .12 $ .08 $ .12
</TABLE>
------------------------
(1) The Company acquired the assets of Con-Test effective October 1, 1994.
(2) The Company acquired the operations of BSE effective April 30, 1993.
F-29
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1995 AND MAY 31, 1995
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
------------- MAY 31,
1995
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................ $ 1,377,862 $ 478,903
Trade accounts receivable, less allowance for doubtful accounts ($535,886 at
February 28, 1995 and $579,449 at May 31, 1995)................................. 11,859,991 12,496,667
Costs in excess of billings on uncompleted contracts............................. 447,000 1,198,900
Prepaid expenses and other current assets........................................ 431,791 284,634
Deferred income taxes............................................................ 132,700 132,700
Due from related company......................................................... -- 18,924
------------- -------------
Total current assets......................................................... 14,249,344 14,610,728
Property and equipment, net........................................................ 3,151,286 3,108,475
Goodwill, net of accumulated amortization
($137,470 at February 28, 1995 and $205,933 at May 31, 1995)...................... 7,166,998 7,467,189
Covenants not to compete, net of accumulated amortization
($137,021 at February 28, 1995 and $163,937 at May 31, 1995)...................... 317,979 301,063
Other assets....................................................................... 123,615 124,754
------------- -------------
$ 25,009,222 $ 25,612,209
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt.................................................................. $ 88,720 $ 47,210
Current maturities of long-term debt............................................. 840,907 780,286
Accounts payable................................................................. 1,963,484 1,831,192
Income taxes payable............................................................. 128,250 343,392
Due to related company........................................................... 39,969 --
Accrued compensation............................................................. 2,053,797 1,433,627
Other accrued expenses........................................................... 1,020,479 734,969
------------- -------------
Total current liabilities...................................................... 6,135,606 5,170,676
Long-term debt, less current maturities............................................ 3,892,766 4,593,248
Other liabilities.................................................................. 1,087,056 1,036,224
Deferred income taxes.............................................................. 80,600 80,600
------------- -------------
Total liabilities.............................................................. 11,196,028 10,880,748
------------- -------------
Stockholders' Equity:
Common stock, par value $.01 per share; authorized 20,000,000 shares; issued and
outstanding 5,738,018 shares at February 28, 1995 and 5,738,318 shares at May
31, 1995........................................................................ 57,380 57,383
Additional paid-in capital....................................................... 7,484,453 7,507,589
Notes receivable -- common stock................................................. (15,000) (15,000)
Retained earnings................................................................ 6,286,361 7,181,489
------------- -------------
13,813,194 14,731,461
------------- -------------
$ 25,009,222 $ 25,612,209
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
Revenues............................................................................. $ 8,167,900 $ 10,814,953
Cost of revenues..................................................................... 4,298,256 5,545,411
------------ -------------
Gross profit................................................................... 3,869,644 5,269,542
Operating expenses:
Selling............................................................................ 223,866 329,629
General and administrative......................................................... 2,427,162 3,365,964
Provision for bad debts............................................................ 39,975 47,400
------------ -------------
2,691,003 3,742,993
------------ -------------
Operating income............................................................... 1,178,641 1,526,549
------------ -------------
Nonoperating expense (income):
Interest expense................................................................... 65,128 109,508
Interest income.................................................................... (10,100) (43,772)
Other.............................................................................. (301) (1,815)
------------ -------------
54,727 63,921
------------ -------------
Income before income taxes..................................................... 1,123,914 1,462,628
Income tax expense................................................................... 434,400 567,500
------------ -------------
Net income........................................................................... $ 689,514 $ 895,128
------------ -------------
------------ -------------
Earnings per common share and dilutive common equivalent share:
Primary............................................................................ $ .13 $ .15
------------ -------------
------------ -------------
Fully diluted...................................................................... $ .12 $ .15
------------ -------------
------------ -------------
Weighted average number of shares outstanding:
Primary............................................................................ 5,481,022 6,123,312
------------ -------------
------------ -------------
Fully diluted...................................................................... 5,560,619 6,123,312
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 31, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------------
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- PAID-IN -COMMON RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
---------- --------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 28,
1994..................................... 5,303,352 $ 53,034 $ 4,610,860 $ (34,250) $ 3,029,841 $ 7,659,485
Continuing registration costs applied
against additional paid-in capital..... -- -- (20,154) -- -- (20,154)
Net income.............................. -- -- -- -- 689,514 689,514
---------- --------- ------------ ----------- ------------ ------------
Balance, May 31, 1994..................... 5,303,352 $ 53,034 $ 4,590,706 $ (34,250) $ 3,719,355 $ 8,328,845
---------- --------- ------------ ----------- ------------ ------------
---------- --------- ------------ ----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------------------
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- PAID-IN -COMMON RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
---------- --------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1995.............. 5,738,018 $ 57,380 $ 7,484,453 $ (15,000) $ 6,286,361 $ 13,813,194
Sale of common stock at $2.13 per
share, upon exercise of stock
options.............................. 300 3 636 -- -- 639
Common stock commitment in connection
with asset purchase.................. -- -- 22,500 -- -- 22,500
Net income............................ -- -- -- -- 895,128 895,128
---------- --------- ------------ ----------- ------------ -------------
Balance, May 31, 1995................... 5,738,318 $ 57,383 $ 7,507,589 $ (15,000) $ 7,181,489 $ 14,731,461
---------- --------- ------------ ----------- ------------ -------------
---------- --------- ------------ ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MAY 31, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income.......................................................................... $ 689,514 $ 895,128
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and leasehold amortization........................................... 138,479 170,133
Amortization of goodwill and covenants............................................ 44,644 95,379
Provision for bad debts........................................................... 39,975 47,400
Other liabilities................................................................. -- (50,832)
Gain on disposal of fixed assets.................................................. -- (3,275)
Changes in operating assets and liabilities, net of amounts acquired in
acquisitions:
Accounts and notes receivable................................................... (367,720) (1,445,500)
Prepaid expenses and other assets............................................... (134,744) 147,542
Accounts payable and other liabilities.......................................... 322,554 (1,077,940)
Income taxes payable............................................................ (755,950) 215,142
------------ ------------
Net cash flows from operating activities...................................... (23,248) (1,006,823)
------------ ------------
Cash Flows From Investing Activities:
Purchase of ConTest, Inc............................................................ -- (123,848)
Purchase of BSE Management, Inc..................................................... (198,626) (103,077)
Purchase of R.E. Blattert and Associates............................................ -- (53,068)
Purchase of property and equipment.................................................. (120,226) (122,649)
Proceeds from sale of property and equipment........................................ -- 5,602
Other............................................................................... -- (19,086)
------------ ------------
Net cash flows from investing activities...................................... (318,852) (416,126)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt and notes payable.......................... -- 816,660
Proceeds from issuance of common stock.............................................. -- 639
Principal payments on long-term debt and notes payable, including capital lease
obligations........................................................................ (217,915) (293,309)
Payments for continuing registration costs.......................................... (20,154) --
------------ ------------
Net cash flows from financing activities...................................... (238,069) 523,990
------------ ------------
Net change in cash and cash equivalents....................................... (580,169) (898,959)
Cash and Cash Equivalents, Beginning of period........................................ 1,394,889 1,377,862
------------ ------------
Cash and Cash Equivalents, End of period.............................................. $ 814,720 $ 478,903
------------ ------------
------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest.......................................................................... $ 65,128 $ 109,508
------------ ------------
------------ ------------
Income taxes...................................................................... $ 1,190,350 $ 352,352
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- GENERAL
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ATC
Environmental Inc. and its wholly-owned subsidiaries ("ATC" or the "Company").
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly, in all material respects, the
financial position as of May 31, 1995, and the results of operations and the
cash flows for the three months ended May 31, 1994 and 1995. These results of
operations are not necessarily indicative of the results to be expected for the
full year due to certain seasonality factors and the effects and timing of large
service projects.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed financial statements should be read in
conjunction with the consolidated financial statements and the notes included in
the Company's financial statements for the fiscal year ended February 28, 1995,
which are included elsewhere in this Prospectus.
NATURE OF BUSINESS
ATC Environmental Inc. and its subsidiaries are environmental consulting
firms providing assessment, monitoring, training, analytical and management
services for environmental projects. These services are provided nation-wide
through a network of regional offices. Because the Company conducts its
operations in a single industry, segment information is not presented.
SIGNIFICANT CUSTOMERS
Revenues from two customers comprised approximately 8.7% of total revenues
during the three months ended May 31, 1995 as compared to 29.1% for the
comparable prior period.
EARNINGS PER SHARE DATA
Earnings per common share and dilutive common equivalent share have been
computed by using the weighted average number of shares outstanding during each
period. Outstanding dilutive stock warrants and options are included in the
computation of weighted average number of shares.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's financial
statements to conform to the current years presentation.
F-34
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE B -- BUSINESS ACQUISITIONS
The following acquisitions have been accounted for as purchases. The
acquired company's assets and liabilities are included in the accompanying
consolidated balance sheet at fair value at the date of purchase. The acquired
company's operations subsequent to acquisition are included in the accompanying
consolidated statement of operations.
CON-TEST, INC.
On October 1, 1994, ATC acquired substantially all of the assets and
liabilities of Con-Test, Inc. ("Con-Test"), a Massachusetts based environmental
consulting company having branch offices in the New England states, New York and
Pennsylvania. The seller has guaranteed the net receivables purchased.
R.E. BLATTERT & ASSOCIATES
On January 13, 1995, ATC acquired substantially all of the assets and
liabilities of R.E. Blattert & Associates ("Blattert"), an environmental
consulting firm having geologic, environmental engineering and water resource
expertise with offices in Indiana and Iowa. The seller has guaranteed the net
receivables purchased. In addition, the purchase agreement provides for the
seller to receive additional purchase consideration up to a maximum of $850,000
over a four-year period based on achieving agreed upon earnings targets. These
contingent payments will be recorded as goodwill if subsequently earned. At May
31, 1995, no additional purchase consideration had been earned.
MICROBIAL ENVIRONMENTAL SERVICES, INC.
On January 4, 1995, ATC acquired certain operations of Microbial
Environmental Services, Inc. ("MES"). ATC agreed to assume service performance
obligations under certain contracts and a lease obligation of MES. In
consideration, MES assigned accounts receivable to ATC. ATC additionally
purchased certain field and laboratory equipment from MES and paid a finder's
fee to an unrelated party.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information sets forth the results of
operations of ATC as though the purchase of Con-Test had occurred at March 1,
1994:
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED MAY 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Revenues........................................................................... $ 10,333,423 $ 10,814,953
Net income......................................................................... $ 552,182 $ 895,128
Earnings per share (fully diluted)................................................. $ .10 $ .15
</TABLE>
F-35
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1995 1995
------------- -------------
<S> <C> <C>
Office equipment................................................................... $ 2,086,889 $ 2,155,308
Laboratory and field equipment..................................................... 3,007,651 3,055,038
Transportation equipment........................................................... 223,397 216,580
Leasehold improvements............................................................. 537,698 545,543
------------- -------------
5,855,635 5,972,469
Less accumulated depreciation...................................................... (2,704,349) (2,863,994)
------------- -------------
$ 3,151,286 $ 3,108,475
------------- -------------
------------- -------------
</TABLE>
NOTE D -- SUBSEQUENT EVENT -- MERGER OF ATC AND AURORA
ATC and its parent, Aurora Environmental Inc. ("Aurora") were merged
pursuant to an agreement ("the Merger Agreement") approved by a majority of
shareholders of each company on June 29, 1995, with ATC being the surviving
corporation. Under the Merger Agreement, ATC exchanged .545 of a share of ATC
stock for each of Aurora's 6,131,104 shares of stock outstanding. ATC's common
shares held by Aurora of 3,258,000 were cancelled. The merger will be accounted
for in a manner similar to a pooling of interests. Under this method of
accounting, recorded assets and liabilities of Aurora will be combined with ATC
and the results of operations of ATC and Aurora will also be combined as of the
effective date of the merger. After the merger, ATC will be able to utilize
Aurora's net operating loss carryforward, which is approximately $970,000 at May
31, 1995. In addition, the intercompany balance between ATC and Aurora was
forgiven.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information sets forth the results of
operations of ATC and Aurora as if the merger and ATC's purchase of Con-Test had
occurred on March 1, 1994:
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED MAY 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Revenues........................................................................... $ 10,333,423 $ 10,814,953
Net income......................................................................... $ 550,148 $ 861,546
Earnings per share (fully diluted)................................................. $ .09 $ .13
</TABLE>
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Aurora Environmental Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Aurora
Environmental Inc. and subsidiary as of February 28, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended February 28, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Aurora Environmental Inc. and
subsidiary as of February 28, 1995 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended February
28, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 4, 1995
F-37
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................... $ 1,398,430 $ 1,555,124
Trade accounts receivable, less allowance for doubtful accounts
($167,344 in 1994 and $535,886 in 1995) (Note J).............................. 7,711,624 11,859,991
Costs in excess of billings on uncompleted contracts........................... 370,000 447,000
Notes receivable (Note B)...................................................... 250,000 --
Prepaid expenses and other current assets...................................... 408,183 432,291
Deferred income taxes (Note H)................................................. 152,600 132,700
------------- -------------
Total current assets......................................................... 10,290,837 14,427,106
Property and equipment, net (Notes C and D)...................................... 2,292,154 3,151,286
Goodwill, net of accumulated amortization
($19,613 in 1994 and $137,470 in 1995) (Note B)................................. 1,242,504 7,166,998
Covenants not to compete, net of accumulated amortization
($42,558 in 1994 and $137,021 in 1995) (Note B)................................. 232,442 317,979
Other assets..................................................................... 115,230 123,615
------------- -------------
$ 14,173,167 $ 25,186,984
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt (Note D)....................................................... $ 115,603 $ 88,720
Current maturities of long-term debt (Note D).................................. 543,268 840,907
Accounts payable............................................................... 808,170 1,977,842
Income taxes payable (Note H).................................................. 1,130,653 128,250
Accrued compensation........................................................... 1,363,858 2,053,797
Other accrued expenses......................................................... 169,242 1,020,479
------------- -------------
Total current liabilities.................................................... 4,130,794 6,109,995
Long-term debt, less current maturities (Note D)................................. 2,182,119 3,892,766
Other liabilities (Note E)....................................................... -- 1,087,056
Deferred income taxes (Note H)................................................... 77,000 80,600
------------- -------------
Total liabilities............................................................ 6,389,913 11,170,417
------------- -------------
Minority interest in subsidiary.................................................. 2,954,293 5,970,062
Commitments and contingencies (Notes B, D, F, G and K)
Stockholders' Equity (Notes B, D, F, G, and K):
Common stock, par value $.001 per share; authorized 25,000,000 shares; issued
and outstanding 5,899,771 shares in 1994 and 6,101,104 shares in 1995......... 5,900 6,101
Additional paid-in capital..................................................... 4,201,218 5,729,363
Notes receivable -- common stock............................................... (15,000) (15,000)
Retained earnings.............................................................. 636,843 2,326,041
------------- -------------
Total stockholders' equity................................................... 4,828,961 8,046,505
------------- -------------
$ 14,173,167 $ 25,186,984
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................................................ $ 16,539,254 $ 26,664,385 $ 36,271,557
Cost of revenues.................................................... 9,889,612 14,369,961 18,355,493
------------- ------------- -------------
Gross profit.................................................... 6,649,642 12,294,424 17,916,064
------------- ------------- -------------
Operating expenses:
Selling........................................................... 685,747 784,795 1,105,937
General and administrative........................................ 5,165,338 8,174,257 11,052,572
Provision for bad debts........................................... 85,423 143,017 188,819
------------- ------------- -------------
5,936,508 9,102,069 12,347,328
------------- ------------- -------------
Operating income................................................ 713,134 3,192,355 5,568,736
------------- ------------- -------------
Nonoperating expense (income):
Interest expense.................................................. 137,891 199,412 285,570
Interest income................................................... (51,110) (45,941) (35,212)
Other expense, net (Note K)....................................... 9,780 9,662 144,252
------------- ------------- -------------
96,561 163,133 394,610
------------- ------------- -------------
Income before income taxes and minority interest................ 616,573 3,029,222 5,174,126
Income tax expense (Note H)......................................... 300,000 1,210,000 2,044,000
------------- ------------- -------------
Income before minority interest..................................... 316,573 1,819,222 3,130,126
Minority interest in net income of subsidiary....................... (135,743) (719,550) (1,300,040)
------------- ------------- -------------
Net income.......................................................... $ 180,830 $ 1,099,672 $ 1,830,086
------------- ------------- -------------
------------- ------------- -------------
Earnings per common share and dilutive common equivalent share:
Primary........................................................... $ .03 $ .17 $ .27
------------- ------------- -------------
------------- ------------- -------------
Fully diluted..................................................... $ .03 $ .17 $ .26
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of shares outstanding:
Primary........................................................... 5,679,338 6,461,302 6,861,606
------------- ------------- -------------
------------- ------------- -------------
Fully diluted..................................................... 5,804,126 6,516,304 6,916,816
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE- RETAINED
--------------------- PAID-IN COMMON EARNINGS
SHARES AMOUNT CAPITAL STOCK (DEFICIT) TOTAL
---------- --------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 29, 1992............. 5,549,771 $ 5,550 $ 3,940,904 $ (15,000) $ (617,048) $ 3,314,406
Adjustments resulting from capital
transactions of subsidiary.......... -- -- 93,779 -- (25,099) 68,680
Net income........................... -- -- -- -- 180,830 180,830
---------- --------- ------------ ----------- ------------ ------------
Balance, February 28, 1993............. 5,549,771 5,550 4,034,683 (15,000 ) (461,317) 3,563,916
Sale of common stock at $.53 to $.56
per share, upon exercise of
warrants............................ 350,000 350 185,750 -- -- 186,100
Adjustments resulting from capital
transactions
of subsidiary....................... -- -- (19,215) -- (1,512) (20,727)
Net income........................... -- -- -- -- 1,099,672 1,099,672
---------- --------- ------------ ----------- ------------ ------------
Balance, February 28, 1994............. 5,899,771 5,900 4,201,218 (15,000 ) 636,843 4,828,961
Sale of common stock at $1.03 per
share, upon exercise of options..... 201,333 201 205,800 -- -- 206,001
Adjustments resulting from capital
transactions of subsidiary.......... -- -- 1,322,345 -- (140,888) 1,181,457
Net income........................... -- -- -- -- 1,830,086 1,830,086
---------- --------- ------------ ----------- ------------ ------------
Balance, February 28, 1995............. 6,101,104 $ 6,101 $ 5,729,363 $ (15,000 ) $ 2,326,041 $ 8,046,505
---------- --------- ------------ ----------- ------------ ------------
---------- --------- ------------ ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income............................................................ $ 180,830 $ 1,099,672 $ 1,830,086
Adjustments to reconcile net income to net cash from operating
activities:
Minority interest in net income of subsidiary....................... 135,743 719,550 1,300,040
Depreciation and leasehold amortization............................. 614,519 648,473 707,318
Amortization of goodwill and covenants.............................. 24,455 37,716 212,320
Provision for bad debts............................................. 85,423 143,017 188,819
Deferred income taxes............................................... (131,875) (12,000) 23,500
Other liabilities................................................... -- -- (46,179)
Loss (gain) on disposition of fixed assets.......................... 9,142 -- (11,079)
Changes in operating assets and liabilities, net of amounts acquired
in acquisitions:
Accounts and notes receivable..................................... (775,047) (4,764,737) (348,459)
Prepaid expenses and other assets................................. (33,766) (158,580) (10,506)
Accounts payable and other liabilities............................ 144,924 1,050,040 154,966
Income taxes payable.............................................. 379,781 1,142,239 (1,002,403)
------------ ------------ ------------
Net cash flows from operating activities........................ 634,129 (94,610) 2,998,423
------------ ------------ ------------
Cash Flows From Investing Activities:
Purchase of Con-Test, Inc., net of cash acquired...................... -- -- (2,230,551)
Purchase of BSE Management, Inc....................................... -- (1,030,285) (887,325)
Purchase of Microbial Environmental Services, Inc..................... -- -- (250,000)
Purchase of R.E. Blattert & Associates, net of cash acquired.......... -- -- (9,541)
(Purchase) rescission of Bio/West, Inc................................ (750,000) 283,722 --
Purchase of property and equipment.................................... (566,902) (730,737) (756,444)
Proceeds from sale of property and equipment.......................... 7,298 1,000 34,049
Proceeds from maturities of investments............................... 1,017,948 -- --
------------ ------------ ------------
Net cash flows from investing activities........................ (291,656) (1,476,300) (4,099,812)
------------ ------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance long-term debt and notes payable............... 219,062 3,018,995 1,580,318
Proceeds from issuance of common stock................................ -- 186,100 206,001
Proceeds from issuance of common stock of subsidiary.................. 38,100 16,146 2,329,948
Principal payments on long-term debt and notes payable, including
capital lease obligations............................................ (400,292) (1,174,756) (2,800,767)
Payments for continuing registration costs............................ (14,120) (25,383) (57,417)
Principal payments on notes payable -- stockholders................... (20,000) (200,000) --
------------ ------------ ------------
Net cash flows from financing activities........................ (177,250) 1,821,102 1,258,083
------------ ------------ ------------
Net change in cash and cash equivalents......................... 165,223 250,192 156,694
Cash and Cash Equivalents, Beginning of year............................ 982,915 1,148,238 1,398,430
------------ ------------ ------------
Cash and Cash Equivalents, End of year.................................. $ 1,148,138 $ 1,398,430 $ 1,555,124
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Aurora
Environmental Inc. ("Aurora") and its majority-owned subsidiary ATC
Environmental Inc. ("ATC" or the "Company"). ATC's financial statements include
the accounts of its wholly-owned subsidiaries ATC New England Corp., ATC
Blattert Inc., Hygeia Proscience Laboratories, Inc. and ATC Management, Inc. All
significant intercompany accounts and transactions have been eliminated.
NATURE OF BUSINESS
Aurora operates solely as a holding company for ATC. Substantially all of
the assets, liabilities and results of operations reflected in the accompanying
financial statements are those of ATC. ATC is a 57% owned subsidiary of Aurora.
ATC is an environmental consulting firm providing assessment, monitoring,
training, analytical and management services for environmental projects. These
services are provided nation-wide through a network of regional offices. Because
the Company conducts its operations in a single industry, segment information is
not presented.
REVENUE RECOGNITION
The Company generally contracts for services to customers on the basis of a
fixed fee per procedure or services performed. Revenue is recognized as services
are performed in accordance with the terms of the contract.
COSTS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
Costs in excess of billings on uncompleted contracts represent unbilled
services and reimbursable expenses associated with ongoing projects.
SIGNIFICANT CUSTOMER
In fiscal 1995, revenues from a single customer comprised approximately 11%
of total revenues. In fiscal 1994, revenues from this customer comprised
approximately 12% of total revenues.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed on
either the straight-line or declining balance method over the estimated useful
lives of the assets, as follows:
<TABLE>
<S> <C>
Office Equipment.................................................. 5 years
Transportation equipment.......................................... 4-5 years
Laboratory and field equipment.................................... 5-7 years
life of the
Leasehold improvements............................................ lease
</TABLE>
AMORTIZATION OF INTANGIBLE ASSETS
Goodwill associated with acquisitions is being amortized on a straight-line
basis over a 10 to 30 year period. The carrying value of goodwill is
periodically evaluated on the basis of management's estimates of future
undiscounted operating income associated with the acquired business. When the
carrying amount of goodwill is determined not to be recoverable by management,
the associated asset is written off. At February 28, 1995, no such impairment
existed. The covenants not to compete are being amortized over the terms of the
agreements, which are 3 to 5 year periods.
F-42
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The liability method is used to measure deferred tax assets and liabilities
in accordance with Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES, based on temporary differences between financial
and taxable income existing at each balance sheet date using enacted tax rates.
Aurora files a separate income tax return; while ATC and its wholly-owned
subsidiaries file a consolidated income tax return.
CONTINUING REGISTRATION COSTS
Costs associated with the registration and issuance of equity are charged
against additional paid-in capital as incurred. These costs generally include
legal and accounting fees, printing costs and other direct expenses of
registration statement filings.
CREDIT RISK AND FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash, temporary investments and
accounts receivable. The Company places its temporary investments in highly
rated financial institutions and investment grade short-term debt instruments.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers, the proportion of receivables from
governmental entities, generally short payment terms and dispersion across
geographic areas.
EARNINGS PER COMMON SHARE AND DILUTIVE COMMON EQUIVALENT SHARE
Earnings per common share and dilutive common equivalent share have been
computed by using the weighted average number of shares outstanding during the
year. Outstanding dilutive stock warrants and stock options are included in the
computation of weighted average number of shares.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all commercial
paper, money market funds and certificates of deposit purchased with a maturity
of three months or less at acquisition to be cash equivalents.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
F-43
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- BUSINESS ACQUISITIONS
CON-TEST, INC.
On October 1, 1994, ATC acquired substantially all of the assets and
liabilities of Con-Test, Inc. ("Con-Test"), a Massachusetts based environmental
consulting company having branch offices in the New England states, New York and
Pennsylvania. The seller has guaranteed the net receivables purchased. The
acquisition has been accounted for as a purchase. The purchase price was
comprised of the following consideration:
<TABLE>
<S> <C>
Amounts Paid to Seller:
Cash................................................................. $2,100,000
Note payable......................................................... 535,000
ATC restricted common stock.......................................... 492,905
Liabilities Assumed:
Current liabilities.................................................. 1,908,465
Non-current liabilities.............................................. 478,027
Notes payable........................................................ 1,981,982
Direct expenses related to acquisition................................. 131,910
---------
$7,628,289
---------
---------
</TABLE>
Con-Test's assets and liabilities are included in the accompanying
consolidated balance sheet at fair value at the date of purchase. The purchase
price allocation is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net............................................... $2,615,469
Property and equipment................................................. 633,945
Other assets........................................................... 13,359
Covenant not to compete................................................ 100,000
Goodwill............................................................... 4,265,516
---------
$7,628,289
---------
---------
</TABLE>
R.E. BLATTERT & ASSOCIATES
On January 13, 1995, ATC acquired substantially all of the assets and
liabilities of R.E. Blattert & Associates ("Blattert"), an environmental
consulting firm having geologic, environmental engineering and water resource
expertise with offices in Indiana and Iowa. The seller has guaranteed the net
receivables purchased. In addition, the purchase agreement provides for the
seller to receive additional purchase consideration up to a maximum of $850,000
over a four-year period based on achieving agreed upon earnings targets. These
contingent payments will be recorded as goodwill if subsequently earned. At
February 28, 1995, no additional purchase consideration had been earned. The
acquisition was accounted for as a purchase. The purchase price was comprised of
the following consideration:
<TABLE>
<S> <C>
Amounts Paid to Seller:
ATC restricted common stock.......................................... $ 112,503
Liabilities Assumed:
Current liabilities.................................................. 490,889
Notes payable........................................................ 384,870
Direct expenses related to acquisition................................. 23,209
---------
$1,011,471
---------
---------
</TABLE>
F-44
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- BUSINESS ACQUISITIONS (CONTINUED)
Blattert's assets and liabilities are included in the accompanying
consolidated balance sheet at fair market value at the date of purchase. The
purchase price allocation is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net............................................... $ 378,663
Property and equipment................................................. 99,030
Other assets........................................................... 14,269
Covenant not to compete................................................ 80,000
Goodwill............................................................... 439,509
---------
$1,011,471
---------
---------
</TABLE>
MICROBIAL ENVIRONMENTAL SERVICES, INC.
On January 4, 1995, ATC acquired certain operations of Microbial
Environmental Services, Inc. ("MES"). ATC agreed to assume service performance
obligation under contracts and a lease obligation of MES. In consideration, MES
assigned accounts receivable to ATC. ATC additionally purchased certain field
and laboratory equipment from MES and paid a finder's fee to an unrelated party.
The acquisition was accounted for as a purchase. The purchase price was
comprised of the following consideration:
<TABLE>
<S> <C>
Note payable to MES.................................................... $ 100,000
Non-current liabilities assumed........................................ 812,208
Cash paid for finder's fee............................................. 250,000
Note payable for finder's fee.......................................... 200,000
---------
$1,362,208
---------
---------
</TABLE>
MES's assets and liabilities acquired are included in the accompanying
consolidated balance sheet at fair value at the date of purchase. The purchase
price allocation is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net............................................... $ 812,208
Equipment.............................................................. 100,000
Goodwill............................................................... 450,000
---------
$1,362,208
---------
---------
</TABLE>
BSE MANAGEMENT, INC.
On April 30, 1993, ATC acquired certain assets and liabilities of BSE
Management, Inc. ("BSE"), a California based environmental consulting holding
company and three of its subsidiaries, Diagnostic Environmental Inc., Hygeia
Environmental Laboratories and The Environmental Institute Inc. The acquisition
was accompanied by purchasing certain BSE assets at a foreclosure sale,
acquiring certain BSE unsecured debt from its holder, entering into consulting
and employment contracts and non-compete agreements with certain key BSE
employees, and assuming specified liabilities of BSE. The purchase agreement
also calls for
F-45
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- BUSINESS ACQUISITIONS (CONTINUED)
additional purchase consideration up to a maximum of $1,356,000 over five years
contingent upon future cash receipts of the ongoing business. These contingent
payments are recorded as goodwill as earned. The purchase price is comprised of
the following consideration:
<TABLE>
<S> <C>
Cash paid to stockholders.............................................. $ 400,000
Cash paid to secured party............................................. 169,670
Liabilities assumed and other cash payments............................ 193,335
Issuance of note payable to financial institution...................... 355,840
Issuance of common stock to financial institution...................... 29,700
Direct expenses related to acquisition................................. 142,442
Contingent consideration earned to date................................ 1,155,498
---------
$2,446,485
---------
---------
</TABLE>
BSE's assets and liabilities are included in the accompanying consolidated
balance sheet at fair value at the date of purchase. The purchase price
allocation is summarized as follows:
<TABLE>
<S> <C>
Property and equipment................................................. $ 103,670
Other non-current assets............................................... 53,000
Covenants not to compete............................................... 150,000
Goodwill............................................................... 2,139,815
---------
$2,446,485
---------
---------
</TABLE>
BIO/WEST, INC.
On June 10, 1992, ATC signed a purchase agreement for 100% of the issued and
outstanding common stock of Bio/West, Inc. ("Bio/West"), a privately held
environmental consulting firm specializing in ecological services. The
acquisition was accounted for as a purchase.
On October 14, 1993, because of certain disputes which arose subsequent to
the purchase, the Company and the former stockholders of Bio/West entered into
an agreement for restitution following rescission, which provided for an orderly
rescission of the purchase. The agreement effected a refund of the purchase
price by the former Bio/West stockholders to ATC and a return to the former
stockholders of all ownership and stock of Bio/West. Under this agreement, the
former stockholders of Bio/West refunded the cash payment to ATC, forgave the
notes payable, forgave all amounts payable under the profit contingent portion
of the original purchase agreement and reimbursed ATC for expenses incurred by
it on behalf of Bio/West. In order to provide sufficient funds for the former
shareholders of Bio/West to make full restitution provided in the recission, ATC
loaned these former stockholders $375,000 supported by promissory notes. These
notes were paid in full as of February 28, 1995. ATC also entered into a
separate non-compete agreement with Bio/West requiring ATC to pay a total of
$137,000 to Bio/West over three years.
The accompanying consolidated statements of operations reflect the revenues
and expenses of the Company and its subsidiaries, including the results of
Bio/West's operations through May 31, 1993, the effective date of the
rescission. The results of operations of Bio/West included in the consolidated
financial statements were revenues of $2,924,290 and $468,731 and net income
(loss) of $29,657 and $(109,846) in fiscal 1993 and 1994, respectively.
F-46
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- BUSINESS ACQUISITIONS (CONTINUED)
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma information sets forth the results of
operations of ATC as though the purchases BSE and Con-Test and the rescission of
Bio/West had occurred at March 1, 1993:
<TABLE>
<CAPTION>
PRO FORMA
YEARS ENDED FEBRUARY 28,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Total revenues...................................................... $ 39,469,717 $ 40,807,600
Net income.......................................................... $ 547,229 $ 1,740,968
Net income per share (fully diluted)................................ $ .08 $ .25
</TABLE>
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Office equipment....................................................... $ 1,761,045 $ 2,214,811
Laboratory and field equipment......................................... 2,559,132 3,300,208
Transportation equipment............................................... 107,544 223,397
Leasehold improvements................................................. 332,087 539,601
------------ ------------
4,759,808 6,278,017
Less accumulated depreciation.......................................... 2,467,654 3,126,731
------------ ------------
Property, plant and equipment, net................................. $ 2,292,154 $ 3,151,286
------------ ------------
------------ ------------
</TABLE>
The following is a summary of capital leases by major asset class:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Office equipment....................................................... $ 448,795 $ 448,795
Laboratory equipment................................................... 513,456 557,376
Leasehold improvements................................................. 9,844 9,844
------------ ------------
972,095 1,016,015
Less accumulated amortization.......................................... 608,081 780,715
------------ ------------
$ 364,014 $ 235,300
------------ ------------
------------ ------------
</TABLE>
Lease amortization is included in depreciation expense.
F-47
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- LONG-TERM DEBT AND CREDIT AGREEMENTS
Long-term debt consists of:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Borrowings from bank under revolving credit facility due September 30, 1996. Interest
is payable monthly at the bank's benchmark rate, which equals or approximates the
prime rate,
9.0% at February 28, 1995............................................................ $ 1,700,000 $ 3,075,000
Note payable to bank, payable in monthly installments plus
interest which accrues at 1.0% above the bank's benchmark rate (9.0% at February 28,
1995) through April, 1996............................................................ 450,060 233,480
8.5% note payable issued in connection with the purchase of
Con-Test, payable in three annual installments commencing September 30, 1995.
Interest is payable quarterly........................................................ -- 535,000
7.0% note payable issued in connection with the purchase of
BSE, payable in monthly installments, including interest, through April, 1996........ 282,835 179,355
Notes payable issued in connection with the purchase of Blattert,
with fixed interest rates of 8% and 10.9% payable in monthly installments through
April, 1999.......................................................................... -- 204,559
Notes payable issued in connection with the purchase of MES, with a fixed interest
rate of 8%, payable in monthly and quarterly installments through February 1998...... -- 300,000
Vehicle loans with interest rates ranging from 7.25% to 11.2%
due in monthly installments at various dates through 1999............................ 13,300 76,531
Capitalized lease obligations with implicit interest rates ranging from 9% to 14% due
in monthly installments at various dates through July, 1999.......................... 279,192 129,748
------------ ------------
2,725,387 4,733,673
Less current maturities............................................................... 543,268 840,907
------------ ------------
Long-term debt, less current maturities............................................... $ 2,182,119 $ 3,892,766
------------ ------------
------------ ------------
</TABLE>
The Company has a revolving credit facility providing for borrowings up to
$5,000,000, subject to a percentage of its eligible accounts receivable, of
which $1,700,000 and $3,075,000 was outstanding at February 28, 1994 and 1995.
Borrowings are subject to the terms of a promissory note and the outstanding
balance is due on September 30, 1996. Interest is payable monthly and accrues at
the bank's benchmark interest rate which is equal to or approximates the prime
rate of interest (9.0% at February 28, 1995). At February 28, 1995, $657,000 was
available to borrow under the terms of the agreement.
The above mentioned credit facility and note payable to bank contain certain
restrictive financial covenants, including a prohibition of dividend payments by
ATC to its stockholders (including Aurora) until obligations are paid in full,
and are collateralized by substantially all assets of the Company.
At February 28, 1994 and 1995, the Company has short-term notes payable to
financing institutions of $115,603 and $88,720, respectively, with interest
rates of 4.7% and 6.7%, respectively.
F-48
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- LONG-TERM DEBT AND CREDIT AGREEMENTS (CONTINUED)
Aggregate maturities of long-term debt including capitalized lease
obligations at February 28, 1995 are as follows:
<TABLE>
<CAPTION>
NET LESS
MINIMUM PORTION PORTION
LEASE REPRESENTING REPRESENTING NOTES TOTAL
PAYMENTS INTEREST PRINCIPAL PAYABLE DEBT
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1996................................... $ 71,800 $ 8,999 $ 62,801 $ 778,106 $ 840,907
1997................................... 22,875 5,386 17,489 3,490,375 3,507,864
1998................................... 22,875 3,719 19,156 292,895 312,051
1999................................... 22,875 1,893 20,982 35,512 56,494
2000................................... 9,537 217 9,320 7,037 16,357
---------- ------------ ------------ ------------ ------------
$ 149,962 $ 20,214 $ 129,748 $ 4,603,925 $ 4,733,673
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
</TABLE>
NOTE E -- COMMITMENTS
OPERATING LEASE COMMITMENTS
The Company leases office space, laboratory facilities, temporary housing
facilities and automobiles under operating lease agreements which expire at
varying dates from March 1994 through September 2001. The Company also rents
equipment on a job-by-job basis. Minimum annual rental commitments as of
February 28, 1995 are as follows: 1996, $1,133,637; 1997, $916,491; 1998,
$644,910; 1999, $488,242; 2000, $439,758 and thereafter $1,147,265 (total
$4,770,303).
Rent expense for fiscal years 1993, 1994 and 1995 was $684,309, $1,129,283
and $1,049,512, respectively, net of sublease rental income of $7,045 in fiscal
year 1993.
OTHER LIABILITIES
Other liabilities consist of long-term lease commitments and other long-term
contractual obligations assumed in connection with business acquisitions.
Contractual obligations representing existing liabilities recorded within the
financial statements that are expected to be realized during fiscal 1996 are
included within accrued expenses.
NOTE F -- STOCK OPTIONS
A stock option plan approved by the Board of Directors of Aurora provides
for the granting of 2,000,000 options to employees for the purchase of common
stock at prices which cannot be less than the fair market value at the time of
the grant. Options become exercisable 20% per year and expire five years from
the date of grant. At February 28, 1995, 1,242,000 options were available for
grant under this plan. The option shares are subject to changes in
capitalization.
Under a non-qualified stock option plan, Aurora's Board of Directors may
grant options to employees, officers and directors to purchase shares of
Aurora's common stock at prices to be determined by Aurora's Board of Directors
for a term not to exceed ten years. Aurora has reserved a maximum of 1,500,000
shares of its authorized but unissued shares of common stock for issuance under
the plan and 1,342,000 shares remain available for grant at February 28, 1995.
F-49
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- STOCK OPTIONS (CONTINUED)
The charges in the outstanding stock options of Aurora during fiscal years
ended 1993, 1994 and 1995 under these plans are summarized below:
<TABLE>
<CAPTION>
OPTION
AURORA PRICE PER-
OPTIONS SHARE-RANGE
---------- -------------
<S> <C> <C>
Balance at February 29, 1992........................................................... 540,500 $ 1.00 - 3.00
Granted.............................................................................. 30,000 1.00
Expired.............................................................................. (340,500) 1.00 - 3.00
---------- -------------
Balance at February 28, 1993........................................................... 230,000 1.00 - 1.03
Granted.............................................................................. 150,000 2.90
---------- -------------
Balance at February 28, 1994........................................................... 380,000 1.00 - 2.90
Exercised............................................................................ (200,000) 1.03
---------- -------------
Balance at February 28, 1995........................................................... 180,000 1.00 - 2.90
---------- -------------
----------
Exercisable at February 28, 1995....................................................... 180,000
----------
----------
</TABLE>
A stock option plan, approved by the Board of Directors of ATC in 1988,
provides for the granting of 200,000 options to employees for purchase of common
stock at prices which cannot be less than the fair market value at the time of
the grant. Options become exercisable 20% per year for certain participants and
50% per year for other participants and expire within five years of the date of
the grant.
Additionally, in January 1988, ATC granted options for the purchase of
342,000 shares of common stock at a price of $.15 per share in part to related
parties. ATC determined that the option price approximated fair market value at
the date of grant and, accordingly, no compensation was recorded pursuant to
these options. These options have all been exercised as of February 28, 1993.
On July 16, 1993, the Board of Directors of ATC approved an additional stock
option plan providing for the granting of 200,000 options to employees for
purchase of common stock at prices which cannot be less than fair market value
at the time of grant. Options become exercisable 20% per year and expire within
five years of the date of grant.
At February 28, 1995, ATC had granted options under the 1988 and 1993 plans
for 291,400 shares, of which options for 19,980 shares had been exercised and
options for 127,000 shares were exercisable. Additionally, in fiscal 1995, the
Board of Directors approved the granting of 20,000 options to an unrelated
consultant for purchase of common stock at $9.50 per share (fair market value at
date of grant). The option shares are subject to changes in capitalization.
F-50
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- STOCK OPTIONS (CONTINUED)
The changes in the outstanding stock options of ATC under the 1988 and 1993
plans described immediately above during fiscal years 1993, 1994 and 1995 are
summarized below:
<TABLE>
<CAPTION>
ATC PRICE PER-
OPTIONS SHARE-RANGE
---------- ----------------
<S> <C> <C>
Balance at February 29, 1992........................................................ 305,550 $ 0.15 - 4.31
Granted........................................................................... 123,550 1.88 - 3.00
Exercised......................................................................... (254,000) 0.15
Expired........................................................................... (42,550) 2.31 - 3.06
---------- ----------------
Balance at February 28, 1993........................................................ 132,550 1.88 - 4.31
Granted........................................................................... 50,750 4.00 - 7.50
Exercised......................................................................... (5,600) 1.88 - 4.31
Expired........................................................................... (7,000) 1.88 - 4.00
---------- ----------------
Balance at February 28, 1994........................................................ 170,700 1.88 - 7.50
Granted........................................................................... 112,350 6.75 - 17.00
Exercised......................................................................... (6,980) 1.88 - 5.00
Expired........................................................................... (4,650) 10.00 - 10.50
---------- ----------------
Balance at February 28, 1995........................................................ 271,420 $ 1.88 - 17.00
---------- ----------------
----------
</TABLE>
NOTE G -- COMMON STOCK WARRANTS
In connection with the borrowing of $220,000 from two stockholders and
subsequent extensions of the due dates of the notes, Aurora has issued common
stock purchase warrants to these stockholders, each of which is immediately
exercisable for one share of common stock. (The related notes were repaid in
full at February 28, 1994.) These warrants expire between November 30, 2000 and
May 31, 2003. The changes in warrant activity of Aurora during the fiscal years
ended 1993, 1994 and 1995 are summarized below:
<TABLE>
<CAPTION>
WARRANT
AURORA PRICE PER-
WARRANTS SHARE-RANGE
---------- -------------
<S> <C> <C>
Balance at February 29, 1992.......................................................... 1,210,000 $ 0.53 - 1.00
---------- -------------
Balance at February 28, 1993.......................................................... 1,210,000 0.53 - 1.00
Granted............................................................................. 100,000 1.50
Exercised........................................................................... (350,000) 0.53 - 0.56
---------- -------------
Balance at February 28, 1994.......................................................... 960,000 0.56 - 1.50
---------- -------------
Balance at February 28, 1995.......................................................... 960,000 $ 0.56 - 1.50
---------- -------------
----------
</TABLE>
During the year ended February 28, 1995, 284,803 of the 285,817 outstanding
ATC Class B warrants were exercised at an exercise price of $8.00 allowing the
holder to receive one share of common stock per warrant and one ATC Class C
warrant. The remaining Class B warrants not exercised expired as of September
30, 1994.
At February 28, 1995, there are 570,620 ATC Class C warrants outstanding.
Each Class C warrant entitles the holder to purchase one share of common stock
at an exercise price of $10.00. ATC has the right to redeem the Class C warrants
at a price of $0.01 per warrant at any time upon 30 days prior written notice.
ATC has reserved common shares equal to the outstanding warrants for issuance
upon the exercise of the Class C warrants. The expiration date of the Class C
warrants is September 30, 1996.
F-51
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
STATE AND
YEAR ENDED FEBRUARY 28 FEDERAL LOCAL TOTAL
-------------------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
1995:
Current................................................................. $ 1,725,000 $ 295,500 $ 2,020,500
Deferred................................................................ 19,000 4,500 23,500
------------ ---------- ------------
Total................................................................. $ 1,744,000 $ 300,000 $ 2,044,000
------------ ---------- ------------
------------ ---------- ------------
1994:
Current................................................................. $ 1,009,000 $ 213,000 $ 1,222,000
Deferred................................................................ (9,000) (3,000) (12,000)
------------ ---------- ------------
Total................................................................. $ 1,000,000 $ 210,000 $ 1,210,000
------------ ---------- ------------
------------ ---------- ------------
1993:
Current................................................................. $ 354,000 $ 77,875 $ 431,875
Deferred................................................................ (122,000) (9,875) (131,875)
------------ ---------- ------------
Total................................................................. $ 232,000 $ 68,000 $ 300,000
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
The Company made income tax payments of approximately $56,000, $278,000 and
$3,023,000 in fiscal 1993, 1994 and 1995, respectively.
A reconciliation of the statutory U.S. Federal tax rate and effective tax
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 1993 1994 1995
------------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Statutory U.S. Federal rate.......................................................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit........................................... 4.2 4.5 4.1
Non-deductible expenses of ATC....................................................... 7.7 0.8 0.5
Non-deductible losses of Aurora...................................................... 2.8 0.6 0.9
--- --- ---
48.7% 39.9% 39.5%
--- --- ---
--- --- ---
</TABLE>
The tax effects of temporary differences that give rise to a significant
portion of deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Nondeductible liabilities and reserves.................................................. $ 172,000 $ 234,300
Other................................................................................... 38,600 31,000
Net operating loss carryforward......................................................... 286,620 329,800
Valuation allowance..................................................................... (286,620) (329,800)
---------- ----------
210,600 265,300
---------- ----------
Deferred tax liabilities:
Property and equipment.................................................................. 77,000 97,000
Prepaid expenses........................................................................ 58,000 101,600
Other................................................................................... -- 14,600
---------- ----------
135,000 213,200
---------- ----------
Net deferred tax asset.................................................................... $ 75,600 $ 52,100
---------- ----------
---------- ----------
</TABLE>
F-52
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- INCOME TAXES (CONTINUED)
The current portion of net deferred tax assets of $152,600 and $132,700 at
February 28, 1994 and 1995 is classified in the consolidated balance sheet in
current assets. The noncurrent portion is classified in noncurrent liabilities.
Aurora and ATC file separate income tax returns. At February 28, 1995,
Aurora has net operating loss (NOL) carryforwards of approximately $970,000,
which expire through 2010. The valuation allowance provided for deferred taxes
relates entirely to the Aurora NOL. This valuation allowance will be recorded as
a reduction of income tax expense in future periods if realization of future
deductions becomes more likely than not.
During fiscal 1993, ATC recorded in additional paid-in capital $344,000 of
tax benefit from the exercise of common stock warrants and options. During
fiscal 1994, ATC adjusted its tax benefit recorded in additional paid-in capital
downward by $40,927 to reflect the actual tax benefit realized. Aurora's share
of these transactions is recorded within stockholders' equity as part of the
adjustments resulting from capital transactions of its subsidiary.
NOTE I -- EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan which allows for voluntary
contributions into designated investment funds by eligible employees. The
Company may, at the discretion of its Board of Directors, make additional
contributions on behalf of the Plan's participants. No Company contributions
were made in fiscal years 1993, 1994 and 1995.
NOTE J -- SUPPLEMENTAL INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash paid for interest.................................................. $ 121,092 $ 173,174 $ 276,658
Noncash investing and financing activities:
Tax benefit (adjustment to tax benefit) from exercise of common stock
warrants............................................................. 344,000 (40,927) --
Note payable to stockholders related to Bio/West acquisition
(rescission)......................................................... 750,000 (750,000) --
Liabilities assumed in connection with business combinations.......... 1,022,724 193,335 6,056,441
Common stock issued in connection with business combinations.......... -- 29,700 605,408
Notes payable issued in connection with business combinations......... -- 355,840 835,000
</TABLE>
Supplemental analysis of valuation and qualifying accounts is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Changes in the allowance for doubtful accounts are as follows:
Balance, beginning of year............................................ $ 172,502 $ 130,768 $ 167,344
Provision for bad debts............................................... 85,423 143,017 188,819
Amounts written-off, net of recoveries................................ (129,159) (63,941) (136,350)
Adjustments for allowance for doubtful accounts on acquired
(rescinded) accounts receivable:
Con-Test............................................................ -- -- 291,223
Blattert............................................................ -- -- 24,850
Bio/West............................................................ 2,002 (42,500) --
------------ ------------ ------------
Balance, end of year.................................................. $ 130,768 $ 167,344 $ 535,886
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-53
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- SUBSEQUENT EVENT -- MERGER AGREEMENT (UNAUDITED)
ATC and Aurora have entered into an agreement to merge, with ATC to be the
surviving corporation. The agreement is subject to certain conditions including
the approval of both ATC's and Aurora's stockholders. Approval of the merger
will require a majority vote of each of the corporations. Under the proposed
agreement, ATC would exchange .545 of a share of ATC stock for each share of
Aurora stock. ATC common shares held by Aurora, 3,258,000 at February 28, 1995,
would be cancelled. The merger would be accounted for in a manner similar to a
pooling of interests. Under this method of accounting, recorded assets and
liabilities of Aurora would be combined with ATC and the results of operations
of ATC and Aurora would also be combined on the date the merger became
effective. After the merger, ATC would be able to utilize Aurora's net operating
loss carryforward, which is $970,000 at February 28, 1995. In addition, ATC's
liability to Aurora would be cancelled at the merger date.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma information sets forth the results of
operations of ATC and Aurora as if the merger and ATC's acquisitions of BSE and
Con-Test and rescission of Bio/West had occurred on March 1, 1993:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Revenues........................................................................... $ 39,469,717 $ 40,807,600
Net income......................................................................... 914,517 3,304,575
Earning per share (fully diluted).................................................. $ .15 $ .51
</TABLE>
F-54
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1995 AND MAY 31, 1995
<TABLE>
<CAPTION>
MAY 31,
FEBRUARY 28, 1995
1995 -------------
------------- (UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................... $ 1,555,124 $ 624,569
Trade accounts receivable, less allowance for doubtful accounts ($535,886 at
February 28, 1995 and $579,449 at May 31, 1995)............................... 11,859,991 12,496,667
Costs in excess of billings on uncompleted contracts........................... 447,000 1,198,900
Prepaid expenses and other current assets...................................... 432,291 286,034
Deferred income taxes.......................................................... 132,700 132,700
------------- -------------
Total current assets....................................................... 14,427,106 14,738,870
Property and equipment, net.................................................... 3,151,286 3,108,475
Goodwill, net of accumulated amortization ($137,470 at February 28, 1995 and
$205,933 at May 31, 1995)..................................................... 7,166,998 7,467,189
Covenants not to compete, net of accumulated amortization ($137,021 at February
28, 1995 and $163,937 at May 31, 1995)........................................ 317,979 301,063
Other assets................................................................... 123,615 124,754
------------- -------------
$ 25,186,984 $ 25,740,351
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt................................................................ $ 88,720 $ 47,210
Current maturities of long-term debt........................................... 840,907 780,286
Accounts payable............................................................... 1,977,842 1,864,496
Income taxes payable........................................................... 128,250 343,392
Accrued compensation........................................................... 2,053,797 1,433,627
Other accrued expenses......................................................... 1,020,479 734,969
------------- -------------
Total current liabilities.................................................. 6,109,995 5,203,980
Long-term debt, less current maturities........................................ 3,892,766 4,593,248
Other liabilities.............................................................. 1,087,056 1,036,224
Deferred income taxes.......................................................... 80,600 80,600
------------- -------------
Total liabilities.......................................................... 11,170,417 10,914,052
------------- -------------
Minority interest.............................................................. 5,970,062 6,356,937
Stockholders' Equity:
Common stock, par value $.001 per share; authorized 25,000,000 shares; issued
and outstanding 6,101,104 shares at February 28, 1995 and May 31, 1995........ 6,101 6,101
Additional paid-in capital..................................................... 5,729,363 5,729,363
Notes receivable -- common stock............................................... (15,000) (15,000)
Retained earnings.............................................................. 2,326,041 2,748,898
------------- -------------
8,046,505 8,469,362
------------- -------------
$ 25,186,984 $ 25,740,351
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
Revenues............................................................................. $ 8,167,900 $ 10,814,953
Cost of revenues..................................................................... 4,298,256 5,545,411
------------ -------------
Gross profit................................................................... 3,869,644 5,269,542
Operating expenses:
Selling............................................................................ 223,866 329,629
General and administrative......................................................... 2,430,169 3,422,536
Provision for bad debts............................................................ 39,975 47,400
------------ -------------
2,694,010 3,799,565
------------ -------------
Operating income............................................................... 1,175,634 1,469,977
------------ -------------
Nonoperating expense (income):
Interest expense................................................................... 65,428 109,508
Interest income.................................................................... (10,100) (44,273)
Other.............................................................................. (301) 27,510
------------ -------------
55,027 92,745
------------ -------------
Income before income taxes and minority interest............................... 1,120,607 1,377,232
Income tax expense................................................................... 434,400 567,500
------------ -------------
Income before minority interest...................................................... 686,207 809,732
Minority interest in net income of subsidiary........................................ 265,049 386,875
------------ -------------
Net income........................................................................... $ 421,158 $ 422,857
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MAY 31, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income......................................................................... $ 421,158 $ 422,857
Adjustments to reconcile net income to net cash from operating activities:
Minority interest in net income of subsidiary.................................... 258,143 386,875
Depreciation and leasehold amortization.......................................... 138,479 170,133
Amortization of goodwill and covenants........................................... 44,644 95,379
Provision for bad debts.......................................................... 39,975 47,400
Other liabilities................................................................ -- (50,832)
Gain on disposal of fixed assets................................................. -- (3,275)
Changes in operating assets and liabilities, net of amounts acquired in
acquisitions:
Accounts and notes receivable.................................................. (367,720) (1,445,500)
Prepaid expenses and other assets.............................................. (134,744) 146,142
Accounts payable and other liabilities......................................... 322,777 (1,022,740)
Income taxes payable........................................................... (755,950) 215,142
------------ -------------
Net cash flows from operating activities..................................... (33,238) (1,038,419)
------------ -------------
Cash Flows From Investing Activities:
Purchase of ConTest, Inc........................................................... -- (123,848)
Purchase of BSE Management, Inc.................................................... (198,626) (103,077)
Purchase of R.E. Blattert and Associates........................................... -- (53,068)
Purchase of property and equipment................................................. (120,226) (122,649)
Proceeds from sale of property and equipment....................................... -- 5,602
Other.............................................................................. -- (19,086)
------------ -------------
Net cash flows from investing activities....................................... (318,852) (416,126)
------------ -------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt and notes payable......................... -- 816,660
Proceeds from issuance of common stock............................................. -- 639
Principal payments on long-term debt and notes payable, including capital lease
obligations....................................................................... (217,915) (293,309)
Payments for continuing registration costs......................................... (13,250) --
------------ -------------
Net cash flows from financing activities....................................... (231,165) 523,990
------------ -------------
Net change in cash and cash equivalents........................................ (583,255) (930,555)
Cash and Cash Equivalents, Beginning of period....................................... 1,398,430 1,555,124
------------ -------------
Cash and Cash Equivalents, End of period............................................. $ 815,175 $ 624,569
------------ -------------
------------ -------------
Supplemental disclosures of cash flow information:
Cash payments for:
Interest......................................................................... $ 65,128 $ 109,508
------------ -------------
------------ -------------
Income taxes..................................................................... $ 1,190,350 $ 352,352
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- GENERAL
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Aurora
Environmental Inc.
("Aurora" or the "Company") and its subsidiary, ATC Environmental Inc. ("ATC").
ATC is a 57% owned subsidiary of Aurora.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly, in all material respects, the
financial position as of May 31, 1995, and the results of operations and the
cash flows for the three months ended May 31, 1994 and 1995. These results of
operations are not necessarily indicative of the results to be expected for the
full year due to certain seasonality factors and the effects and timing of large
service projects.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed financial statements should be read in
conjunction with the consolidated financial statements and the notes included in
the Company's financial statements for the fiscal year ended February 28, 1995,
which are included elsewhere in this Prospectus.
NATURE OF BUSINESS
Aurora Environmental Inc. and its subsidiary are environmental consulting
firms providing assessment, monitoring, training, analytical and management
services for environmental projects. These services are provided nation-wide
through a network of regional offices. Because the Company conducts its
operations in a single industry, segment information is not presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's financial
statements to conform to the current years presentation.
NOTE B -- MERGER OF ATC AND AURORA
Aurora and ATC were merged pursuant to an agreement ("the Merger Agreement")
approved by a majority of shareholders of each company on June 29, 1995, with
ATC being the surviving corporation. Under the Merger Agreement, ATC exchanged
.545 of a share of ATC stock for each of Aurora's 6,131,104 shares of stock
outstanding. ATC's common shares held by Aurora of 3,258,000 were cancelled. The
merger will be accounted for in a manner similar to a pooling of interests.
Under this method of accounting, recorded assets and liabilities of Aurora will
be combined with ATC and the results of operations of ATC and Aurora will also
be combined as of the effective date of the merger. After the merger, ATC will
be able to utilize Aurora's net operating loss carryforward, which is
approximately $970,000 at May 31, 1995. In addition, the intercompany balance
between ATC and Aurora was forgiven.
F-58
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Shareholders of Con-Test, Inc.
East Longmeadow, Massachusetts
I have audited the accompanying balance sheets of Con-Test, Inc. as of
December 31, 1993 and 1992, and the related statements of operations and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1993 and 1992, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
James J. Slawski, CPA
April 21, 1994, except for Note 2, as to
which the date is September 10, 1994
F-59
<PAGE>
CON-TEST, INC.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
Cash................................................................................ $ 74,166 $ 153,038
Accounts receivable
Trade, less allowance for doubtful accounts of
$193,212 and $214,542 respectively............................................... 4,856,291 2,780,689
Work in process..................................................................... 1,026,528
Video production costs.............................................................. 165,527
Prepaid expenses and other assets................................................... 258,846 193,610
------------ ------------
Total current assets............................................................ 5,189,303 4,319,392
Furniture, fixtures and equipment, at cost, less accumulated depreciation (Notes 1
and 2)............................................................................. 756,853 1,594,158
------------ ------------
Total assets.................................................................... $ 5,946,156 $ 5,913,550
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade............................................................. 957,569 467,348
Bank loan, line of credit (Note 3).................................................. 1,300,000 982,193
Current portion of long-term debt................................................... 254,133 196,000
Current portion capitalized lease obligation........................................ 84,767 82,884
Accrued and other liabilities (Note 5).............................................. 493,770 337,852
Shareholder loans................................................................... 66,665 66,665
------------ ------------
Total current liabilities....................................................... 3,156,904 2,132,942
Long-term debt, payments due after one year (Note 4)................................ 635,717 653,333
Capitalized lease obligations....................................................... 81,929 166,529
------------ ------------
717,646 819,862
Total liabilities............................................................... 3,874,550 2,952,804
Shareholders' Equity:
Common stock
Authorized 1,000 shares, $6 par value; issued and
outstanding 1,000 shares....................................................... 6,000 6,000
Retained earnings................................................................. 2,065,606 2,954,746
------------ ------------
Total shareholders' equity...................................................... 2,071,606 2,960,746
------------ ------------
Total liabilities and shareholders' equity...................................... $ 5,946,156 $ 5,913,550
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
CON-TEST, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------- ------------
<S> <C> <C>
Revenue.............................................................................. $ 11,866,786 $ 9,994,171
Operating expenses:
Advertising and marketing.......................................................... 75,796 68,039
Bad debts.......................................................................... 113,620 106,808
Certification...................................................................... 97,980 101,080
Contributions...................................................................... 7,269 11,036
Conventions and trade shows........................................................ 15,452 4,013
Depreciation and amortization...................................................... 412,655 368,314
Dues and subscriptions............................................................. 40,412 27,453
Education.......................................................................... 46,122 44,264
Employee travel.................................................................... 161,279 144,764
Heat, light and power.............................................................. 56,478 56,586
Insurance.......................................................................... 407,649 139,042
Maintenance........................................................................ 143,254 125,335
Micrographics...................................................................... 5,329 1,556
Motor vehicle expense.............................................................. 86,750 96,729
Office supplies and expense........................................................ 183,436 126,368
Operating supplies................................................................. 322,555 264,997
Other administrative expenses...................................................... 400,423 314,437
Outside services................................................................... 1,479,244 767,651
Payroll taxes...................................................................... 530,095 479,712
Postage............................................................................ 140,637 94,199
Professional fees.................................................................. 83,984 84,803
Property, sales and use tax........................................................ 49,408 38,928
Rent............................................................................... 553,823 551,256
Salaries........................................................................... 5,431,306 5,066,988
Telephone.......................................................................... 240,451 211,787
Training expense................................................................... 97,436 62,385
Travel and entertainment........................................................... 329,994 168,900
Write-down of long lived assets.................................................... 1,082,933 --
------------- ------------
Total operating expenses....................................................... 12,595,770 9,527,430
------------- ------------
Income (loss) from operations...................................................... (728,984) 466,741
Nonoperating income (expense):
Miscellaneous income............................................................... 334
Interest income.................................................................... 7,516 11,837
Interest expense................................................................... (157,735) (130,640)
------------- ------------
Income (loss) before income taxes.................................................... (878,869) 347,938
Income taxes (Note 1)................................................................ 10,271 9,922
------------- ------------
Net income (loss).................................................................... (889,140) 338,016
Retained earnings, beginning of year................................................. 2,954,746 2,616,730
------------- ------------
Retained earnings, end of year....................................................... $ 2,065,606 $ 2,954,746
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
CON-TEST, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Net income (loss)..................................................................... $ (889,140) $ 338,016
Adjustments:
Depreciation and amortization....................................................... 412,655 368,314
Write-down of long lived assets..................................................... 1,082,933 --
------------ ------------
606,448 706,330
Change in Working Capital Items Other Than Cash:
Accounts receivable................................................................... (2,075,602) (201,760)
Work in process....................................................................... 1,026,528 (497,390)
Video production cost................................................................. 165,527 (50,335)
Prepaid expenses and other assets..................................................... (65,236) (47,330)
Accounts payable...................................................................... 490,221 210,733
Accrued and other liabilities......................................................... 155,918 70,409
------------ ------------
Total cash provided by operations..................................................... 303,804 190,657
Cash Flows From Investment Activities:
Purchase of fixed assets............................................................ (504,183) (413,866)
------------ ------------
Cash used for investment activities................................................... (504,183) (413,866)
Cash Flows From Financing Activities:
Proceeds from notes payable......................................................... 500,000 --
Net payments on line of credit...................................................... (182,193) (17,807)
Proceeds from long-term debt and capital lease obligations.......................... 107,900 1,220,400
Payments on long-term debt and capital lease obligations............................ (304,200) (1,014,113)
------------ ------------
Cash provided by financing activities................................................. 121,507 188,480
Net decrease in cash.................................................................. (78,872) (34,729)
------------ ------------
Cash, Beginning of year............................................................... 153,038 187,767
------------ ------------
Cash, End of year..................................................................... $ 74,166 $ 153,038
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
CON-TEST, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
A. METHOD OF ACCOUNTING AND INCOME TAXES
The financial statements have been prepared using the accrual basis
of accounting. The Company files its income tax returns on the cash basis
whereby revenue associated with trade accounts receivable will be
recognized when payments are received and various operating payables will
be deducted when payments are made. In addition, there are timing
differences in the treatment of depreciation and bad debt expense.
The Company has elected to be taxed as a Subchapter S Corporation in
accordance with the appropriate provisions of the IRS Code. Accordingly,
for federal tax purposes, earnings and/or losses will be included in the
personal returns of the stockholders. Thus, the Company will generally
not incur tax obligations at the federal level. For state purposes, the
tax treatment will vary depending on the tax laws of the states the
Company does business in. The provision for state taxes reflects those
taxes the Company has liability to pay at the corporate level.
B. REVENUE
Revenue is recognized as services are rendered, in accordance with
generally accepted accounting principles.
C. WORK IN PROCESS
Work in process represents management's estimate of services
performed and unbilled at year end.
D. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed
primarily using the straight-line method over the estimated useful lives
of the assets as follows:
<TABLE>
<S> <C>
8-10
Equipment................................. years
Furniture and fixtures.................... 5-7 years
Motor vehicles............................ 5 years
Leasehold improvements.................... 15 years
</TABLE>
Maintenance and repairs are charged to operations as incurred.
Additions and betterments are capitalized. The cost of assets sold or
retired and the related amounts of accumulated depreciation are
eliminated from the accounts in the year of sale or retirement. Any
resulting profit or loss is reflected currently in the income statement.
Furniture, fixtures and equipment have been pledged as security for
debt.
NOTE 2 -- FURNITURE, FIXTURES AND EQUIPMENT
The major categories of assets are as follows:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Leasehold improvements...................................................... $ 271,215 $ 253,963
Equipment................................................................... 1,470,478 2,003,722
Furniture and fixtures...................................................... 581,819 553,550
Motor vehicles.............................................................. 216,005 257,846
------------ ------------
2,539,517 3,069,081
Accumulated depreciation and amortization................................... 1,782,664 1,474,923
------------ ------------
$ 756,853 $ 1,594,158
------------ ------------
------------ ------------
</TABLE>
F-63
<PAGE>
CON-TEST, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- FURNITURE, FIXTURES AND EQUIPMENT (CONTINUED)
Equipment has been written down below cost by $1,082,933 which is the
decrease in the fair market value over the carrying amount of the assets as
determined by the sale of the assets subsequent to December 31, 1993.
NOTE 3 -- NOTES PAYABLE
The Company has a $1,000,000 revolving line of credit with a local bank
at prime, expiring April 30, 1994, secured by the assets of the Company and
the personal guaranty of the owner. The principal balance outstanding at
December 31, 1993 is $800,000 with interest at 6%.
The Company had a $1,000,000 revolving line of credit with a local bank
at prime which expired on April 15, 1993 secured by the assets of the
Company. The principal balance outstanding at December 31, 1992 was
$982,193.
The Company has a 120 day note from a bank at prime, expiring April 30,
1994, secured by the assets of the Company. The principal balance at
December 31, 1993 is $500,000 with interest at 6%.
NOTE 4 -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
Long-term debt at December 31, 1993 and 1992 consists of the following:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Note payable to bank to finance purchase of equipment, due in monthly
installments of principal of $16,333 and interest at prime plus 1/2% through
April 15, 1997. Interest at December 31, 1993 was 6.5%. The note is
collateralized by the assets of the Company..................................... $ 653,333 $ 849,333
Term note payable to bank in monthly installments of principal of $3,650 and
interest at prime plus 1/2% through April 29, 1998. Interest at December 31,
1993 was 6.5%. The note is collateralized by the assets of the Company.......... 197,100 --
Term note payable to bank in monthly installments of principal of $1,194 and
interest at prime plus 1/2% through September 26, 1996. Interest at December 31,
1993 was 6.5%. The note is collateralized by the assets of the Company.......... 39,417 --
Capital lease obligation for computer equipment, payable in monthly lease
payments of $7,861, including interest at an imputed rate of 10.9% through
December, 1995.................................................................. 166,696 249,413
------------ ------------
1,056,546 1,098,746
Less current portion............................................................. 338,900 278,884
------------ ------------
Long-term portion................................................................ $ 717,646 $ 819,862
------------ ------------
------------ ------------
</TABLE>
F-64
<PAGE>
CON-TEST, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED)
Principal payments on the long-term debt due in future years are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
<S> <C>
1994................................................ $ 338,900
1995................................................ 336,062
1996................................................ 250,551
1997................................................ 109,133
1998................................................ 21,900
------------
$ 1,056,546
------------
------------
</TABLE>
NOTE 5 -- ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Accrued liabilities consist of the following:
Accrued vacation and other compensated absences.......................... $ 49,625 $ 54,480
Accrued payroll taxes.................................................... -- 67,477
Accrued payroll.......................................................... 206,511 128,068
Accrued other............................................................ 157,312 87,827
Accrued liabilities -- shareholder....................................... 80,322 --
---------- ----------
$ 493,770 $ 337,852
---------- ----------
---------- ----------
</TABLE>
NOTE 6 -- PROFIT-SHARING PLAN
The Company has a profit-sharing plan covering all eligible employees.
No contributions were recorded in 1993 and 1992.
NOTE 7 -- RELATED PARTY TRANSACTION
A. LEASES
The Company leases its buildings from its owners under two five-year
triple net leases. Total lease expense in 1993 to the owners was
$279,026. Total lease payments over the remaining one year under the
leases will be:
<TABLE>
<S> <C>
1994....................................... $ 260,532
---------
---------
</TABLE>
NOTE 8 -- OTHER LEASES
The Company leases facilities for several of its remote locations. Total
lease payments for those leases over the remaining two years are:
<TABLE>
<S> <C>
1994....................................... 170,601
1995....................................... 78,171
---------
$ 248,772
---------
---------
</TABLE>
NOTE 9 -- CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Amounts paid for --
Interest........................................................................... $ 157,735 $ 130,640
Income taxes....................................................................... 10,271 9,922
</TABLE>
During the year ended December 31, 1993, the Company incurred $154,100
of new debt as a result of its purchases of additional fixed assets.
F-65
<PAGE>
CON-TEST, INC.
BALANCE SHEET
SEPTEMBER 10, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER
10,
ASSETS 1994
----------
<S> <C>
Current Assets:
Cash and equivalents....................................................... $41,835
Trade accounts receivable, net allowance of $124,223....................... 2,782,847
Notes receivable -- current................................................ 50,676
Cost in excess of billings on uncompleted contracts........................ 40,000
Prepaid expenses........................................................... 220,001
----------
Total current assets..................................................... 3,135,359
Property and equipment, net.................................................. 1,870,801
Other assets................................................................. 49,020
----------
Total assets............................................................. $5,055,180
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt....................................... $1,354,358
Accounts payable........................................................... 923,726
Accrued compensation....................................................... 172,397
Other accrued expenses..................................................... 382,017
----------
Total current liabilities.............................................. 2,832,498
Long-term debt, less current maturities...................................... 637,099
Stockholder's Equity:
Common stock, $6 par value, 1,000 shares authorized, 1,000 shares issued and
outstanding................................................................. 6,000
Retained earnings............................................................ 1,579,583
----------
Total stockholder's equity............................................. 1,585,583
----------
Total liabilities and stockholder's equity............................. $5,055,180
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
CON-TEST, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
SIX MONTHS ENDED SEPTEMBER 10, 1994
(UNAUDITED)
<TABLE>
<S> <C>
Revenues........................................................................ $4,620,376
Cost of revenues................................................................ 1,820,215
---------
Gross profit.............................................................. 2,800,161
Operating expenses:
Selling....................................................................... 290,427
General and administrative.................................................... 3,652,236
Provision for bad debts....................................................... 16,367
---------
3,959,030
Operating loss............................................................ (1,158,869)
Nonoperating expense (income):
Interest expense.............................................................. 94,121
Interest income............................................................... (1,448)
Other, net.................................................................... (5,820)
---------
86,853
---------
Loss before income taxes.................................................. (1,245,722)
Income tax...................................................................... 0
Net loss........................................................................ (1,245,722)
Retained earnings, beginning of period.......................................... 2,825,305
---------
Retained earnings, end of period................................................ $1,579,583
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
CON-TEST, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 10, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1994
--------------
<S> <C>
Cash Flows From Operating Activities:
Net loss........................................................................................ $ (1,245,722)
Depreciation and amortization................................................................... 225,395
Provision for bad debts......................................................................... 16,367
Changes in operating assets and liabilities:
Accounts and notes receivable................................................................. 1,552,915
Prepaid expenses.............................................................................. (105,143)
Other assets.................................................................................. 12,992
Accounts payable.............................................................................. (8,469)
Accrued expenses.............................................................................. 28,017
--------------
Net cash flows from operating activities.................................................... 476,352
--------------
Cash Flows From Investing Activities:
Purchase of property and equipment.............................................................. (242,621)
--------------
Cash Flows From Financing Activities:
Payments on long-term debt...................................................................... (358,234)
--------------
Net change in cash and cash equivalents........................................................... (124,503)
Cash and Cash Equivalents, Beginning of period.................................................... 166,338
--------------
Cash and Cash Equivalents, End of period.......................................................... $ 41,835
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
CON-TEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- Con-Test, Inc. (the "Company") is an environmental consulting and
management firm providing industrial hygiene, environmental and lead-based paint
consulting, analytical and training services and environmental risk analysis and
management.
NOTE 2 -- In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as of September 10,
1994 the results of operations and cash flows for the period ended September 10,
1994. The results of operations for the period presented is not necessarily
indicative of the results to be expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. The Company suggests that these condensed financial
statements be read in conjunction with the annual financial statements and the
notes which are included elsewhere in this Prospectus.
NOTE 3 -- Effective October 1, 1994, ATC Environmental Inc. ("ATC") acquired
certain assets and liabilities of the Company. Consideration received for the
purchase consists of $2,100,000 in cash at closing, restricted ATC common stock
valued at $493,000, a $535,000 note receivable over three years and payment of
$4,500,000 of liabilities.
No adjustments have been made to these financial statements to reflect the sale
of its assets and liabilities.
F-69
<PAGE>
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANY ONE IN ANY JURISDICTION IN
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Incorporation of Certain Information by
Reference..................................... 2
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 8
Price Range of Common Equity................... 9
Dividend Policy................................ 10
Capitalization................................. 10
Recent Developments............................ 11
Selected Financial Data........................ 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 14
Business....................................... 20
Legal Proceedings.............................. 29
Management..................................... 30
Principal and Selling Stockholders............. 32
Description of Capital Stock................... 33
Underwriting................................... 34
Legal Matters.................................. 35
Experts........................................ 35
Available Information.......................... 35
Index to Financial Statements.................. F-1
</TABLE>
[LOGO]
2,400,000 SHARES
COMMON STOCK
--------------
PROSPECTUS
--------------
RODMAN & RENSHAW, INC.
PENNSYLVANIA MERCHANT GROUP LTD
, 1995
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with this offering are as follows:
AMOUNT TO BE PAID
<TABLE>
<CAPTION>
SELLING
COMPANY SHAREHOLDER TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
SEC Registration Fee........................................................ $ 10,788 $ 3,666 $ 14,454
NASD Registration Fee....................................................... $ 3,629 $ 1,063 $ 4,692
Legal Fees.................................................................. $ 100,000 $ -- $ 100,000
Printing Fees and Expenses.................................................. $ 200,000 $ -- $ 200,000
Accounting Fees............................................................. $ 100,000 $ -- $ 100,000
Blue Sky Fees and Expenses.................................................. $ 20,000 $ -- $ 20,000
Miscellaneous............................................................... $ 65,583 $ -- $ 65,583
-----------
Total............................................................... $ 500,000 $ 4,729 $ 504,729
-----------
-----------
</TABLE>
ITEM 15: INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains a provision which, in
substance, eliminates the personal liability of the directors to the Company and
its stockholders for monetary damages for breaches of their fiduciary duties as
directors to the fullest extent permitted by Delaware law. By virtue of this
provision, under current Delaware law a director of the Company will not be
personally liable for monetary damages for breach of his fiduciary duty, except
for liability for (a) breach of his duty of loyalty to the Company or to its
stockholders, (b) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (c) dividends or stock
repurchases or redemptions that are unlawful under Delaware laws and (d) any
transaction from which he receives an improper personal benefit. This provision
pertains only to breaches of duty by directors as directors and not in any other
corporate capacity, such as officers, and limits liability only for breaches of
fiduciary duties under Delaware corporate law and not for violations of other
laws such as the federal securities laws. As a result of the inclusion of such
provision, stockholders may be unable to recover monetary damages against
directors for actions taken by them that constitute negligence or gross
negligence or that are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with respect to such
actions. The inclusion of this provision in the Company's Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
Management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
the Company and its stockholders.
The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative in nature
to procure a judgment in its favor, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, in a proceeding not by or in
the right of the corporation, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with such suit or
proceeding, if he acted in good faith and in a manner believed to be in or not
opposed to the best interests of the corporation,
II-1
<PAGE>
and, with respect to any criminal action or proceeding, had no reason to believe
his conduct was unlawful. Delaware law further provides that a corporation will
not indemnify any person against expenses incurred in connection with an action
by or in the right of the corporation if such person shall have been adjudged to
be liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for the expenses which such court shall deem
proper.
The indemnification and advancement of expenses provided by, or granted
pursuant to Delaware Corporation Law is not be deemed exclusive of any other
rights to which those seeking indemnification or advance of expenses may be
entitled under any bylaw, agreement, vote of stockholders of disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Article IX of the Company's By-Laws provides that the officers and directors
of the Company shall be entitled to indemnification to the maximum extent
permitted by Delaware law.
The Company has entered into indemnification agreements with officers and
directors of the Company and its subsidiaries (the "Indemnitee") wherein the
Company has agreed to hold such officer and director harmless and to indemnify
each person from and against any and all judgments, fines, amounts paid in
settlements and expenses, including attorneys' fees, incurred as a result of or
in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative or as a
result of or in connection with any appeal therein, whether or not such action,
suit proceeding is by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise which the Indemnitee serves in any capacity at
the request of the Company, to which Indemnitee is, was or at any time becomes a
party, or is threatened to be made a party or as a result of or by reason of the
fact that Indemnitee is, was or at any time becomes a director or officer of the
Company, or is or was serving or at any time services such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, in
any capacity, whether arising out of any breach of Indemnitee's fiduciary duty,
under any state or federal law or otherwise as a director or officer of the
Company or as a director, officer, employee or agent of such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise;
provided, however, that no indemnity pursuant to the indemnification agreements
shall be paid by the Company (1) except to the extent the aggregate of losses to
be indemnified exceeds the amount of such losses for which Indemnitee is
actually paid pursuant to any insurance purchased and maintained by the Company
for the benefit of Indemnitee; (2) if judgment or other final adjudication
established that the Indemnitee's acts were committed in bad faith or were the
result of dishonesty so adjudicated, or that Indemnitee personally gained in
fact a financial profit or other advantage to which Indemnitee was not legally
entitled; or (3) if a final judgment by a court having jurisdiction in the
matter or the Court of Chancery shall determine that Indemnitee is not entitled
to such indemnification. Insofar as indemnification for liabilities arising
under the Act may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933, as amended,
(the "Act") and is therefore unenforceable.
II-2
<PAGE>
ITEM 16: EXHIBITS
<TABLE>
<S> <C>
1 Revised form of Underwriting Agreement *
2 Agreement and Plan of Merger to reincorporate in Delaware (contained in
Exhibits 3(b) and 3(c) (1)
2(a) Agreement and Plan of Merger between ATC Environmental Inc. and Aurora
Environmental Inc. (8)
3(a) Certificate of Incorporation of Registrant (1)
3(b) Certificate of Ownership and Merger of Registrant (Delaware) (1)
3(c) By-Laws (1)
3(d) Certificate of Merger (Aurora Environmental Inc. merging with and into
ATC Environmental Inc.) (11)
4 Specimen of Common Stock (8)
5 Opinion re: legality-Lester Morse, P.C. *
10 Employee Savings (401(k)) Plan (2)
10(a) New York City Lease (3)
10(b) Left blank intentionally
10(c) Form of Indemnity Agreement (12)
10(d) Promissory Notes - Atlantic Bank of New York (6)
10(e) Amended and Restated Grid Promissory Note (8)
10(f) Agreement for sale and purchase of business assets by and among ATC New England
Corp., (a wholly owned subsidiary of ATC Environmental Inc.) T&K Business Trust
(a Massachusetts business trust and successor to Con-Test, Inc.) and Thomas E.
and Kathleen R. Veratti (principal shareholders and key employees) (7)
11 Statements re: computation of per share earnings (4)
21 Subsidiaries of Registrant (5)
23(a) Independent Auditors' Consent - Deloitte & Touche LLP*
23(b) Independent Auditors' Consent - James Slawski CPA*
23(c) Consent of Counsel (contained in Exhibit 5)*
99 1988 Stock Option Plan (9)
99(a) 1993 Stock Option Plan (10)
</TABLE>
------------------------
* Filed herewith.
(1) Reference is made to the Registrant's Registration Statement File #33-19889
on Form S-1, which is incorporated by reference and contains exhibits 2,
3(a), 3(b) and 3(c).
(2) Reference is made to the Registrant's Form 10-K for the fiscal year ended
February 28, 1990 which is incorporated by reference and contains Exhibit
10.
(3) Reference is made to the Registrant's Form 10-K for the fiscal year ended
February 29, 1992 which is incorporated by reference and contains exhibit
10(a).
(4) Reference is made to the Registrant's Form 10-K for the fiscal year ended
February 28, 1995 and Form 10-Q for the quarter ended May 31, 1995 which is
incorporated by reference and contains Exhibit 11.
II-3
<PAGE>
(5) ATC has four wholly-owned subsidiaries, namely, Hygeia ProScience
Laboratories Inc. ("Hygeia"), ATC Management Inc. ("Management Co."), ATC
New England Corp. ("ATC New England") and ATC Blattert Inc. ("Blattert").
Hygeia, Management Co., ATC New England and Blattert are formed under the
laws of the States of Delaware, South Dakota, Delaware and South Dakota,
respectively. Hygeia does business under the name Hygeia ProScience, Inc.
Management Co. does business under the name ATC Management, Inc. ATC New
England does business under its own name and Con-Test. Blattert does
business under ATC Blattert Inc., Blattert & Associates Inc. and Microbial
Environmental Services, Inc.
(6) Reference is made to the Registrant's Form 10-K for its fiscal year ended
February 28, 1993, which is incorporated by reference and contains Exhibit
10(d).
(7) Reference is made to the Registrant's Form 8-K (date of earliest event -
October 1, 1994) which is incorporated by reference and contains Exhibit
10(f).
(8) Reference is made to the Registrant's Form S-4 Registration Statement, file
No. 33-88380 which is incorporated by reference and contains Exhibits 2(a),
4 and 10(e).
(9) Reference is made to the Registrant's Form S-8 Registration Statement, file
#33-55592 which is incorporated by reference and contains Exhibit 99.
(10) Reference is made to the Registrant's Form S-8 Registration Statement, File
#33-77578 which is incorporated by reference and contains Exhibit 99.1.
(11) Reference is made to the Registrant's Form 10-Q for the quarter ended May
31, 1995, which is incorporated by reference and contains Exhibit 3(d).
(12) Reference is made to the Registrant's Form 10-K for its fiscal year ended
February 28, 1995, which is incorporated by reference and contains Exhibit
10(c).
ITEM 17: UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(l) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-2 and has duly caused this Form S-2
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York on the 8th day of
September, 1995.
ATC ENVIRONMENTAL INC.
By: ________/s/ Morry F. Rubin________
Morry F. Rubin, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Morry F. Rubin his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place, and stead, in any and all capacities, to sign
any and all future amendments to the Registration Statement and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agents all authority to do and perform each and every act and thing and
purpose as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Form S-2
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ George Rubin Chairman of the Board, Secretary
George Rubin and Director September 8, 1995
/s/ Morry F. Rubin President, Chief Executive
Morry F. Rubin Officer, Treasurer and Director September 8, 1995
/s/ Richard L. Pruitt Vice President, Principal
Richard L. Pruitt Accounting Officer and Director September 8, 1995
/s/ Wayne Crosby
Wayne Crosby Chief Financial Officer September 8, 1995
Richard E. Greenberg Director , 1995
/s/ Julia S. Heckman
Julia S. Heckman Director September 8, 1995
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
----------- -----------
<S> <C> <C>
1 Revised form of Underwriting Agreement *
2 Agreement and Plan of Merger to reincorporate in Delaware (contained in
Exhibits 3(b) and 3(c) (1)
2(a) Agreement and Plan of Merger between ATC Environmental Inc. and Aurora Environmental Inc. (8)
3(a) Certificate of Incorporation of Registrant (1)
3(b) Certificate of Ownership and Merger of Registrant (Delaware) (1)
3(c) By-Laws (1)
3(d) Certificate of Merger (Aurora Environmental Inc. merging with and into
ATC Environmental Inc.) (11)
4 Specimen of Common Stock (8)
5 Opinion re: legality-Lester Morse, P.C. *
10 Employee Savings (401(k)) Plan (2)
10(a) New York City Lease (3)
10(b) Left blank intentionally
10(c) Form of Indemnity Agreement (12)
10(d) Promissory Notes - Atlantic Bank of New York (6)
10(e) Amended and Restated Grid Promissory Note (8)
10(f) Agreement for sale and purchase of business assets by and among ATC New England Corp., (a
wholly owned subsidiary of ATC Environmental Inc.) T&K Business Trust (a Massachusetts
business trust and successor to Con-Test, Inc.) and Thomas E. and Kathleen R. Veratti
(principal shareholders and key employees) (7)
11 Statements re: computation of per share earnings (4)
21 Subsidiaries of Registrant (5)
23(a) Independent Auditors' Consent - Deloitte & Touche LLP*
23(b) Independent Auditors' Consent - James Slawski CPA*
23(c) Consent of Counsel (contained in Exhibit 5)*
99 1988 Stock Option Plan (9)
99(a) 1993 Stock Option Plan (10)
</TABLE>
------------------------
* Filed herewith.
(1) Reference is made to the Registrant's Registration Statement File #33-19889
on Form S-1, which is incorporated by reference and contains exhibits 2,
3(a), 3(b) and 3(c).
(2) Reference is made to the Registrant's Form 10-K for the fiscal year ended
February 28, 1990 which is incorporated by reference and contains Exhibit
10.
(3) Reference is made to the Registrant's Form 10-K for the fiscal year ended
February 29, 1992 which is incorporated by reference and contains exhibit
10(a).
(4) Reference is made to the Registrant's Form 10-K for the fiscal year ended
February 28, 1995 and Form 10-Q for the quarter ended May 31, 1995 which is
incorporated by reference and contains Exhibit 11.
(5) ATC has four wholly-owned subsidiaries, namely, Hygeia ProScience
Laboratories Inc. ("Hygeia"), ATC Management Inc. ("Management Co."), ATC
New England Corp. ("ATC New England") and ATC Blattert Inc. ("Blattert").
Hygeia, Management Co., ATC New England and Blattert are formed
<PAGE>
under the laws of the States of Delaware, South Dakota, Delaware and South
Dakota, respectively. Hygeia does business under the name Hygeia ProScience,
Inc. Management Co. does business under the name ATC Management, Inc. ATC
New England does business under its own name and Con-Test. Blattert does
business under ATC Blattert Inc., Blattert & Associates Inc. and Microbial
Environmental Services, Inc.
(6) Reference is made to the Registrant's Form 10-K for its fiscal year ended
February 28, 1993, which is incorporated by reference and contains Exhibit
10(d).
(7) Reference is made to the Registrant's Form 8-K (date of earliest event -
October 1, 1994) which is incorporated by reference and contains Exhibit
10(f).
(8) Reference is made to the Registrant's Form S-4 Registration Statement, file
No. 33-88380 which is incorporated by reference and contains Exhibits 2(a),
4 and 10(e).
(9) Reference is made to the Registrant's Form S-8 Registration Statement, file
#33-55592 which is incorporated by reference and contains Exhibit 99.
(10)Reference is made to the Registrant's Form S-8 Registration Statement, File
#33-77578 which is incorporated by reference and contains Exhibit 99.1.
(11)Reference is made to the Registrant's Form 10-Q for the quarter ended May
31, 1995, which is incorporated by reference and contains Exhibit 3(d).
(12)Reference is made to the Registrant's Form 10-K for its fiscal year ended
February 28, 1995, which is incorporated by reference and contains Exhibit
10(c).
<PAGE>
EXHIBIT 1
2,400,000 SHARES
ATC ENVIRONMENTAL INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1995
Rodman & Renshaw, Inc.
Pennsylvania Merchant Group Ltd
c/o Rodman & Renshaw, Inc.
One Liberty Plaza
165 Broadway
New York, New York 10006
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Ladies and Gentlemen:
ATC Environmental Inc., a Delaware corporation (the "Company") and George
Rubin (the "Selling Stockholder"), propose to sell to you and the other
underwriters named in Schedule I attached hereto (the "Underwriters"), for whom
you are acting as the Representatives, an aggregate of 2,400,000 shares (the
"Firm Shares") of the Company's Common Stock, $.01 par value per share (the
"Common Stock") of which 1,700,000 shares (the "Company Shares") are to be
issued and sold by the Company and 700,000 shares (the "Selling Stockholder
Shares") are to be sold by the Selling Stockholder. In addition, the Company
proposes to grant to the Underwriters an option to purchase up to an additional
360,000 shares (the "Option Shares"), of Common Stock for the purpose of
covering over-allotments in connection with the sale of the Firm Shares. The
Firm Shares and the Option Shares are together called the "Shares."
1. SALE AND PURCHASE OF THE SHARES. On the basis of the representations,
warranties and agreements contained in, and subject to the terms and conditions
of, this Agreement:
(a) The Company agrees to issue and sell the Company Shares and the
Selling Stockholder agrees to sell the Selling Stockholder Shares to the
several Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase at the purchase price per share of Common Stock of
$ (the "Initial Price"), the aggregate number of Firm Shares set forth
opposite such Underwriter's name in Schedule I attached hereto. The
Underwriters agree to offer the Firm Shares to the public as set forth in
the Prospectus.
(b) The Company grants to the several Underwriters an option to purchase
all or any part of the 360,000 Option Shares at the Initial Price. The
number of Option Shares to be purchased by each Underwriter shall be the
same percentage (adjusted by the Representative to eliminate fractions) of
the total number of Option Shares to be purchased by the Underwriters as
such Underwriter is purchasing of the Firm Shares. Such option may be
exercised only to cover over-allotments in the sales of the Firm Shares by
the Underwriters and may be exercised in whole or in part at any time on or
before 12:00 noon, New York City time, on the business day before the Firm
Shares Closing Date (as defined below), and from time to time thereafter
within 30 days after the date of this Agreement, upon written or telegraphic
notice, or verbal or telephonic notice confirmed by written or telegraphic
notice, by the Representative to the Company no later than 12:00 noon, New
York City time, on the business day before the Firm Shares Closing Date or
at least two business days before any Option Shares Closing Date (as defined
below), as the case may be, setting forth the number of Option Shares to be
purchased and the time and date (if other than the Firm Shares Closing Date)
of such purchase.
<PAGE>
2. DELIVERY AND PAYMENT. Delivery by the Company and the Selling
Stockholder of the Firm Shares to the Representatives for the respective
accounts of the Underwriters, and payment of the purchase price by certified or
official bank check or checks payable in New York Clearing House (next day)
funds to the Company and the Selling Stockholder, shall take place at the
offices of Rodman & Renshaw, Inc., at One Liberty Plaza, 165 Broadway, New York,
New York, 10006, at 10:00 a.m., New York City time, on the third business day
following the date on which the public offering of the Shares commences (unless
such date is postponed in accordance with the provisions of Section 10(b)), or
at such time and place on such other date, not later than 10 business days after
the date of this Agreement, as shall be agreed upon by the Company, the Selling
Stockholder and the Representatives (such time and date of delivery and payment
are called the "Firm Shares Closing Date"). The public offering of the Shares
shall be deemed to have commenced at the time, which is the earlier of (a) the
time, after the Registration Statement (as defined in Section 4 below) becomes
effective, of the release by you for publication of the first newspaper
advertisement which is subsequently published relating to the Shares or (b) the
time, after the Registration Statement becomes effective, when the Shares are
first released by you for offering by the Underwriters or dealers by letter or
telegram.
In the event the option with respect to the Option Shares is exercised,
delivery by the Company of the Option Shares to the Representatives for the
respective accounts of the Underwriters and payment of the purchase price by
certified or official bank check or checks payable in New York Clearing House
(next day) funds to the Company shall take place at the offices of Rodman &
Renshaw, Inc. specified above at the time and on the date (which may be the same
date as, but in no event shall be earlier than, the Firm Shares Closing Date)
specified in the notice referred to in Section 1(b) (such time and date of
delivery and payment is called the "Option Shares Closing Date"). The Firm
Shares Closing Date and the Option Shares Closing Dates are called,
individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representatives shall request at least two
full business days before the Firm Shares Closing Date or the Option Shares
Closing Date, as the case may be, and shall be made available to the
Representatives for checking and packaging, at such place as is designated by
the Representatives, on the full business day before the Firm Shares Closing
Date or the Option Shares Closing Date, as the case may be.
3. PUBLIC OFFERING. The Company and the Selling Stockholder understand
that the Underwriters propose to make a public offering of the Shares, as set
forth in and pursuant to the Prospectus (as defined in Section 4 below), as soon
after the effective date of the Registration Statement and the date of this
Agreement as the Representatives deem advisable. The Company and the Selling
Stockholder hereby confirm that the Underwriters and dealers have been
authorized to distribute or cause to be distributed each preliminary prospectus
and are authorized to distribute the Prospectus (as from time to time amended or
supplemented if the Company furnishes amendments or supplements thereto to the
Underwriters).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDER.
(a) The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and may have filed one or
more amendments thereto, on Form S-2 (Registration No. 33-61921),
including in such registration statement and each such amendment a
related preliminary prospectus (a "Preliminary Prospectus"), for the
registration of the Shares and the Option Shares, in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"). In
addition, the Company has filed or will promptly file a further amendment
to such registration statement, in the form heretofore delivered to you.
As used in this Agreement, the term "Registration Statement" means such
registration statement, as amended, on file with the Commission at the
time such registration statement becomes effective (including the
prospectus, financial statements, exhibits, and all other documents filed
as a part thereof or incorporated by reference directly or indirectly
therein (such incorporated documents being herein collectively
"Incorporated Documents")), provided that such Registration Statement, at
the time it becomes effective, may omit such information as is permitted
to be omitted from the Registration Statement
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when it becomes effective pursuant to Rule 430A of the General Rules and
Regulations promulgated under the Act (the "Regulations"), which
information ("Rule 430 Information") shall be deemed to be included in
such Registration Statement when a final prospectus is filed with the
Commission in accordance with Rules 430A and 424(b)(1) or (4) of the
Regulations; the term "Preliminary Prospectus" means each prospectus
included in the Registration Statement, or any amendments thereto, before
it becomes effective under the Act, the form of prospectus omitting Rule
430A Information included in the Registration Statement when it becomes
effective, if applicable (the "Rule 430A Prospectus"), and any prospectus
filed by the Company with your consent pursuant to Rule 424(a) of the
Regulations; and the term "Prospectus" means the final prospectus
included as part of the Registration Statement, except that if the
prospectus relating to the securities covered by the Registration
Statement in the form first filed on behalf of the Company with the
Commission pursuant to Rule 424(b) of the Regulations shall differ from
such final prospectus, the term "Prospectus" shall mean the prospectus as
filed pursuant to Rule 424(b) from and after the date on which it shall
have first been used.
(ii) When the Registration Statement becomes effective, and at all
times subsequent thereto to and including the Closing Dates, and during
such longer period as the Prospectus may be required to be delivered in
connection with sales by the Underwriters or a dealer, the Registration
Statement (and any post-effective amendment thereto) and the Prospectus
(as amended or as supplemented if the Company shall have filed with the
Commission any amendment or supplement to the Registration Statement or
the Prospectus) will contain all statements which are required to be
stated therein in accordance with the Act and the Regulations, will
comply with the Act and the Regulations, and will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and no event will have occurred which should have been set
forth in an amendment or supplement to the Registration Statement or the
Prospectus which has not then been set forth in such an amendment or
supplement; if a Rule 430A Prospectus is included in the Registration
Statement at the time it becomes effective, the Prospectus filed pursuant
to Rules 430A and 424(b)(1) or (4) will contain all Rule 430A
Information; and each Preliminary Prospectus, as of the date filed with
the Commission, did not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; except that no
representation or warranty is made in this Section 4(a)(ii) with respect
to statements or omissions made in reliance upon and in conformity with
written information furnished to the Company as stated in Section 7(b)
with respect to any Underwriter by or on behalf of such Underwriter
through the Representatives expressly for inclusion in any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto. Each of the Incorporated Documents
complies in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder.
(iii) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order")
suspending the effectiveness of the Registration Statement, preventing or
suspending the use of any Preliminary Prospectus, the Prospectus, the
Registration Statement, or any amendment or supplement thereto, refusing
to permit the effectiveness of the Registration Statement, or suspending
the registration or qualification of the Firm Shares or the Option Shares
nor has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(iv) Any contract, agreement, instrument, lease, or license required
to be described in the Registration Statement or the Prospectus has been
properly described therein. Any contract agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration Statement
has been filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration Statement.
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(v) The Company has no subsidiary or subsidiaries and does not
control, directly or indirectly, any corporation, partnership, joint
venture, association or other business organization, except for those
permitted to be excluded pursuant to Item 601, Exhibit 21 of Regulation
S-K or those disclosed under Exhibit 21 to the Company's Form 10-K for
the fiscal year ended February 28, 1995 on page 56 thereof (each such
corporation singly a "Subsidiary" and collectively the "Subsidiaries").
Each of the Company and each Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation, with full corporate power and authority, and all necessary
consents, authorizations, approvals, orders, licenses, certificates, and
permits of and from, and declarations and filings with, all federal,
state, local, and other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and assets and
to carry on its business as now being conducted and in the manner
described in the Prospectus. Each of the Company and each Subsidiary has
been duly qualified to do business and is in good standing in each
jurisdiction in which its respective ownership, leasing, licensing, or
character, location or use of property and assets or the conduct of its
respective business makes such qualification necessary. Neither the
Company nor any Subsidiary owns, leases or licenses any property or
conducts any business outside the United States of America.
(vi) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, of which [6,857,390] shares are
outstanding. Each outstanding share of Common Stock has been duly and
validly authorized and issued, fully paid, and non-assessable, without
any personal liability attaching to the ownership thereof and has not
been issued and is not owned or held in violation of any preemptive
rights of stockholders. The Company owns all of the shares of capital
stock of the Subsidiaries, free and clear of all liens, claims, security
interests, restrictions, stockholders' agreements, voting trusts and any
other encumbrances whatsoever. There is no commitment, plan, preemptive
right or arrangement to issue, and no outstanding option, warrant, or
other right calling for the issuance of, shares of capital stock of the
Company or any of the Subsidiaries or any security or other instrument
which by its terms is convertible into, exercisable for, or exchangeable
for capital stock of the Company or any of the Subsidiaries , except as
may be properly described in the Prospectus. There is outstanding no
security or other instrument which by its terms is convertible into or
exchangeable for capital stock of the Company or any of the Subsidiaries,
except as may be properly described in the Prospectus.
(vii) The consolidated financial statements of the Company included in
the Registration Statement and the Prospectus fairly present with respect
to the Company the financial position, the results of operations, and the
other information purported to be shown therein at the respective dates
and for the respective periods to which they apply. Such financial
statements have been prepared in accordance with generally accepted
accounting principles (except to the extent that certain footnote
disclosures regarding any stub period may have been omitted in accordance
with the applicable rules of the Commission under the Exchange Act)
consistently applied throughout the periods involved, are correct and
complete, and are in accordance with the books and records of the
Company. The accountants whose report on the audited financial statements
is filed with the Commission as a part of the Registration Statement are,
and during the periods covered by their report(s) included in the
Registration Statement and the Prospectus were, independent certified
public accountants with respect to the Company within the meaning of the
Act and the Regulations. No other financial statements are required by
Form S-2 or otherwise to be included in the Registration Statement or the
Prospectus. There has at no time been a material adverse change in the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company or any of the
Subsidiaries from the latest information set forth in the Registration
Statement or the Prospectus, except as may be properly described in the
Prospectus.
(viii) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation before any court
or before any public body or board pending, threatened, or in prospect
(or any basis therefor) with respect to the Company or any of the
Subsidiaries, or any of their respective operations, business, properties
or assets, except as may be
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properly described in the Prospectus or such as individually or in the
aggregate do not now have and will not in the future have a material
adverse effect upon the operations, business, properties, assets or
financial condition of the Company and the Subsidiaries. Neither the
Company nor any of the Subsidiaries is involved in any labor dispute, nor
is such dispute threatened, which dispute would have a material adverse
effect upon the operations, business, properties, assets or financial
condition of the Company. Neither the Company nor any of the Subsidiaries
is in violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree; nor is the Company or any of the
Subsidiaries required to take any action in order to avoid any such
violation or default.
(ix) The Company and each of the Subsidiaries has good and marketable
title in fee simple absolute to all real properties and good title to all
other properties and assets which the Prospectus indicates are owned by
it, and has valid and enforceable leasehold interests in each of such
items, free and clear of all liens, security interests, pledges, charges,
encumbrances, and mortgages (except as may be properly described in the
Prospectus). No real property owned, leased, licensed or used by the
Company or any of the Subsidiaries lies in an area which is, or to the
knowledge of the Company will be, subject to zoning, use or building code
restrictions which would prohibit, and no state of facts relating to the
actions or inaction of another person or entity or his or its ownership,
leasing, licensing or use of any real or personal property exists or will
exist which would prevent, the continued effective ownership, leasing,
licensing or use of such real property in the business of the Company or
any of the Subsidiaries as presently conducted or as the Prospectus
indicates it contemplates conducting (except as may be properly described
in the Prospectus).
(x) The Company and each of the Subsidiaries, and to the knowledge of
the Company, any other party, is not now or is not expected by the
Company to be in violation or breach of, or in default with respect to,
complying with any term, obligation or provision of any contract,
agreement, instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding which is material to the
Company or any of the Subsidiaries or by which any of its properties or
business may be bound or affected, and no event has occurred which with
notice or lapse of time or both would constitute such a default, and each
such contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding is in full
force and is the legal, valid and binding obligation of the parties
thereto and is enforceable as to them in accordance with its terms. The
Company and each of the Subsidiaries enjoy peaceful and undisturbed
possession under all leases and licenses under which it is operating.
Neither the Company nor any of the Subsidiaries is a party to or bound by
any contract, agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement or understanding, or subject to any
charter or other restriction, which has had or may in the future have a
material adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities or future prospects
of the Company and the Subsidiaries. Neither the Company nor any of the
Subsidiaries is in violation or breach of, or in default with respect to,
any term of its certificate of incorporation (or other charter document)
or by-laws or of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation.
(xi) The Company and the Subsidiaries have filed all federal, state,
local and foreign tax returns which are required to be filed through the
date hereof, or have received extensions thereof, and have paid all taxes
shown on such returns and all assessments received by it to the extent
that the same are material and have become due.
(xii) Any patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright
applications, franchises, and other intangible properties and assets
listed in the Registration Statement (all of the foregoing being
collectively herein called "Intangibles") that the Company and the
Subsidiaries own, possess or have pending, or under which they are
licensed, are in good standing and uncontested. There is no right under
any Intangible necessary to the business of the Company and the
Subsidiaries as presently conducted or as the Prospectus indicates the
Company contemplates conducting (except as may be so described in the
Prospectus). Neither the Company nor any of the Subsidiaries has
infringed, is infringing, or
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has received any notice of infringement with respect to asserted
Intangibles of others. To the knowledge of the Company, there is no
infringement by others of Intangibles of the Company. To the knowledge of
the Company, there is no Intangible of others which has had or may in the
future have a materially adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities or
future prospects of the Company and the Subsidiaries.
(xiii) Neither the Company nor any Subsidiary, any director, officer,
agent, employee or other person associated with or acting on behalf of
the Company and the Subsidiaries has, directly or indirectly: used any
corporate funds for unlawful contributions, gifts, entertainment, or
other unlawful expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment, kickback,
or other unlawful payment. No transaction has occurred between or among
the Company, the Subsidiaries, or the Selling Stockholder and any of its
or their officers or directors or any affiliates or affiliates of any
such officer or director, except as described in the Prospectus.
(xiv) The Company has all requisite power and authority to execute,
deliver and perform this Agreement. All necessary corporate proceedings
of the Company have been duly taken to authorize the execution, delivery
and performance of this Agreement. This Agreement has been duly
authorized, executed, and delivered by the Company, is the legal, valid
and binding obligation of the Company, and is enforceable as to the
Company in accordance with its terms. No consent, authorization,
approval, order, license, certificate or permit of or from, or
declaration or filing with, any federal, state, local or other
governmental authority or any court or other tribunal is required by the
Company or the Subsidiaries for the execution, delivery or performance by
the Company of this Agreement (except filings under the Act which have
been or will be made before the applicable Closing Date and such consents
consisting only of consents under "blue sky" or securities laws which
have been obtained at or prior to the date of this Agreement). No consent
of any party to any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or understanding to
which the Company or the Subsidiaries are a party, or to which any of its
respective properties or assets are subject, is required for the
execution, delivery or performance of this Agreement, and the execution,
delivery and performance of this Agreement, will not violate, result in a
breach of, conflict with, accelerate the due date of any payments under,
or (with or without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding, or violate or result in a
breach of any term of the certificate of incorporation (or other charter
document) or by-laws of the Company, or violate, result in a breach of,
or conflict with any law, rule, regulation, order, judgment or decree
binding on the Company or any of the Subsidiaries or to which any of
their operations, business, properties or assets are subject.
(xv) The Company Shares and the Option Shares are validly authorized.
The Firm Shares, when issued and delivered in accordance with this
Agreement, and the Option Shares, when delivered in accordance with this
Agreement, will be duly and validly issued, fully paid, and non-
assessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive rights of
stockholders, optionholders, warrantholders and any other persons and the
Underwriters will receive good title to the Company Shares and Option
Shares purchased by them, respectively, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts.
(xvi) The Common Stock, the Firm Shares and the Option Shares conform
to all statements relating thereto contained in the Registration
Statement or the Prospectus.
(xvii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may
otherwise be properly described therein, there has not been any material
adverse change in the assets or properties, business or results of
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operations or financial condition of the Company or the Subsidiaries,
whether or not arising from transactions in the ordinary course of
business; neither the Company nor the Subsidiaries has sustained any
material loss or interference with its business or properties from fire,
explosion, earthquake, flood or other calamity, whether or not covered by
insurance; since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, except as reflected therein,
neither the Company nor the Subsidiaries has undertaken any liability or
obligation, direct or contingent, except for liabilities or obligations
undertaken in the ordinary course of business; and neither the Company
nor the Subsidiaries has (A) issued any securities or incurred any
liability or obligation, primary or contingent, for borrowed money, (B)
entered into any transaction not in the ordinary course of business, or
(C) declared or paid any dividend or made any distribution on any of its
capital stock or redeemed, purchased or otherwise acquired or agreed to
redeem, purchase or otherwise acquire any shares of its capital stock.
(xviii) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the termination of the underwriting
syndicate contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the Company, or
which has caused or resulted in, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the
price of any security of the Company, to facilitate the sale or resale of
any of the Firm Shares or the Option Shares.
(xix) The Company has obtained from each of its executive officers and
directors and the Selling Stockholder, his enforceable written agreement,
in form and substance satisfactory to counsel for the Underwriters, that
for a period of 180 days from the date on which the public offering of
the Shares commences they will not, without your prior written consent,
offer, pledge, sell, contract to sell, grant any option for the sale of,
or otherwise dispose of, directly or indirectly, any shares of Common
Stock or other securities of the Company (or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of the
Company, including, without limitation, any shares of Common Stock
issuable under any employee stock options), beneficially owned by them,
except with respect to Shares being sold in connection herewith or their
being a beneficial owner of any such Shares;
(xx) The Company is not, and does not intend to conduct its business
in a manner in which it would be, an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940 (the "Investment
Company Act").
(xxi) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement, except such person
or entities from whom written waivers of such rights have been received
prior to the date hereof.
(xxii) Except as may be set forth in the Prospectus, the Company has
not incurred any liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(xxiii) No transaction has occurred between or among the Company, the
Subsidiaries, and any of their officers or directors or any affiliates of
any such officer or director, that is required to be described in and is
not described in the Registration Statement and the Prospectus.
(xxiv) The Common Stock, including the Shares, are authorized for
quotation on the NASDAQ National Market.
(xxv) Neither the Company, the Subsidiaries, nor any of their
affiliates is presently doing business with the government of Cuba or
with any person or affiliate located in Cuba. If, at any time after the
date that the Registration Statement is declared effective with the
Commission or with the Florida Department of Banking and Finance (the
"Florida Department"), whichever date is later, and prior to the end of
the period referred to in the first clause of Section 4(a)(ii) hereof,
the
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Company commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba, the Company will so inform
the Florida Department within ninety days after such commencement of
business in Cuba, and during the period referred to in Section 4(a)(ii)
hereof will inform the Florida Department within ninety days after any
change occurs with respect to previously reported information.
(b) The Selling Stockholder, represents and warrants to, and agrees
with, the several Underwriters that:
(i) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation before any court or
beneficiary, public body or board pending, threatened, or in prospect (or
any basis therefor known to the Selling Stockholder) with respect to the
Selling Stockholder. The Selling Stockholder is not in violation of, or
in default with respect to, any law, rule, regulation, order, judgment,
or decree; nor is the Selling Stockholder required to take any action in
order to avoid such violation or default.
(ii) The Selling Stockholder has all requisite power and authority to
execute, deliver, and perform this Agreement. This Agreement has been
duly executed and delivered by or on behalf of the Selling Stockholder,
is the legal, valid and binding obligation of the Selling Stockholder,
and is enforceable as to the Selling Stockholder in accordance with its
terms. No consent, authorization, approval, order, license, certificate,
or permit of or from, or declaration or filing with, any federal, state,
local or other governmental authority or any court or other tribunal is
required by the Selling Stockholder for the execution, delivery or
performance of this Agreement (except filings under the Act which have
been made before the applicable Closing Date and such consents consisting
only of consents under "blue sky" or securities laws which have been
obtained at or prior to the date of this Agreement) by the Selling
Stockholder. No consent of any party to any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of trust, note,
arrangement or understanding to which the Selling Stockholder is a party,
or to which any of the Selling Stockholder's properties or assets are
subject, is required for the execution, delivery or performance of this
Agreement; and the execution, delivery and performance of this Agreement
will not violate, result in a breach of, conflict with, or (with or
without the giving of notice of the passage of time or both) entitle any
party to terminate or call a default under any such contract, agreement,
instrument, lease, license, indenture, mortgage, deed of trust, note,
arrangement or understanding, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment or decree
binding on the Selling Stockholder.
(iii) The Selling Stockholder has good title to the Selling
Stockholder Shares to be sold by the Selling Stockholder pursuant to this
Agreement, free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements and voting trusts and
when delivered in accordance with this Agreement, the Underwriters will
receive good title to the Selling Stockholder Shares purchased by them,
respectively, from the Selling Stockholder, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts.
(iv) Neither the Selling Stockholder nor any of the Selling
Stockholder's affiliates (as defined in the Regulations) has taken or
will take, directly or indirectly, prior to the termination of the
underwriting syndicate contemplated by this Agreement, any action
designed to stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in the future
reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate
the sale or resale of any of the Selling Stockholder Shares.
(v) All information furnished or to be furnished to the Company by or
on behalf of the Selling Stockholder for use in connection with the
preparation of the Registration Statement and the Prospectus is true in
all respects and does not and will not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
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(vi) Except as may be set forth in the Prospectus, the Selling
Stockholder has not incurred any liability for a fee, commission or other
compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement.
(vii) The Selling Stockholder has no knowledge that, and does not
believe that, any representation or warranty of the Company in Section
4(a) is incorrect.
(viii) The Selling Stockholder has not, directly or indirectly: used
any corporate funds for unlawful contributions, gifts, entertainment, or
other unlawful expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment, kickback,
or other unlawful payment.
(ix) The Selling Stockholder Shares to be sold by the Selling
Stockholder pursuant to this Agreement are duly and validly authorized
and issued, fully paid and non-assessable, and have not been issued and
are not owned or held in violation of any preemptive right of
stockholders, optionholders, warrantholders or other persons.
(x) No transaction has occurred between such person and the Company
that is required to be described in the Registration Statement or the
Prospectus.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 6(a)(i) of this Agreement.
(b) No order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus shall have been or shall be in effect and no
order suspending the effectiveness of the Registration Statement shall be in
effect and no proceedings for such purpose shall be pending before or
threatened by the Commission, and any requests for additional information on
the part of the Commission (to be included in the Registration Statement or
the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Representatives.
(c) The representations and warranties of the Company and the Selling
Stockholder contained in this Agreement and in the certificates delivered
pursuant to Section 5(d) shall be true and correct when made and on and as
of each Closing Date as if made on such date and the Company and the Selling
Stockholder shall have performed all covenants and agreements and satisfied
all the conditions contained in this Agreement required to be performed or
satisfied by it or him at or before such Closing Date.
(d) The Representatives shall have received on each Closing Date (i) a
certificate, addressed to the Representatives and dated such Closing Date,
of the chief executive or chief operating officer and the chief financial
officer of the Company to the effect that the persons executing such
certificate have carefully examined the Registration Statement, the
Prospectus and this Agreement and that the representations and warranties of
the Company in this Agreement are true and correct on and as of such Closing
Date with the same effect as if made on such Closing Date and the Company
has performed all covenants and agreements and satisfied all conditions
contained in this Agreement required to be performed or satisfied by it at
or prior to such Closing Date and (ii) certificates, addressed to the
Representatives and dated such Closing Date, of the Selling Stockholder to
the effect that the representations and warranties of the Selling
Stockholder are true and correct on and as of such Closing Date and the
Selling Stockholder has performed all covenants and agreements and satisfied
all conditions contained in this Agreement required to be performed or
satisfied by the Selling Stockholder at or prior to such Closing Date.
(e) The Representatives shall have received at the time this Agreement
is executed and on each Closing Date a signed letter from Deloitte & Touche
LLP, addressed to the Representatives and dated,
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respectively, the date of this Agreement and each such Closing Date, in form
and scope reasonably satisfactory to the Representatives, with reproduced
copies or signed counterparts thereof for each of the Underwriters
confirming that they are independent accountants within the meaning of the
Act and the Regulations, that the response to Item 10 of the Registration
Statement is correct in so far as it relates to them and stating in effect
that:
(i) in their opinion the audited financial statements and financial
statement schedules included or incorporated by reference in the
Registration Statement and the Prospectus and reported on by them comply
as to form in all material respects with the applicable accounting
requirements of the Act, the Exchange Act and the related published rules
and regulations thereunder;
(ii) on the basis of a reading of the amounts included in the
Registration Statement and the Prospectus under the headings "Summary
Financial Data" and "Selected Financial Data," which would not
necessarily reveal matters of significance with respect to the comments
set forth in such letter, a reading of the minutes of the meetings of the
stockholders and directors of the Company, and inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters of the Company as to transactions and events
subsequent to the date of the latest audited financial statements, except
as disclosed in the Registration Statement and the Prospectus, nothing
came to their attention which caused them to believe that:
(A) the amounts in "Summary Financial Data," and "Selected
Financial Data" included or incorporated by reference in the
Registration Statement and the Prospectus do not agree with the
corresponding amounts in the audited financial statements from which
such amounts were derived; or
(B) with respect to the Company, there were, at a specified date
not more than five business days prior to the date of the letter, any
decreases in net sales, income before income taxes and net income or
any increases in long-term debt of the Company or any decreases in
the capital stock, working capital or the stockholders' equity in the
Company, as compared with the amounts shown on the Company's audited
Balance Sheet for the fiscal year ended February 28, 1995 included in
the Registration Statement or the audited Statement of Operations,
for such year; and
(iii) they have performed certain other procedures as a result of
which they determined that information of an accounting, financial or
statistical nature (which is limited to accounting, financial or
statistical information derived from the general accounting records of
the Company) set forth in the Registration Statement and the Prospectus
and reasonably specified by the Representative agrees with the accounting
records of the Company.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at the date of
such letter.
(f) The Representatives shall have received on each Closing Date from
Lester Morse P.C., counsel for the Company, an opinion, addressed to the
Representatives and dated such Closing Date, and in form and scope
satisfactory to counsel for the Underwriters, with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect
that:
(i) The Company has no subsidiary or subsidiaries and does not
control, directly or indirectly, any corporation, partnership, joint
venture, association or other business organization, except for those
permitted to be excluded pursuant to Item 601, Exhibit 21 or Regulation
S-K. Each of the Company and each Subsidiary is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware, with full corporate power and authority to own, lease,
license and use its properties and assets and to conduct its business in
the manner described in the Prospectus. To the knowledge of such counsel,
the Company has all necessary consents, authorizations, approvals,
orders, certificates and permits of and from, and declarations and
filings with, all federal, state, local and other governmental
authorities and all courts and other tribunals, to own, lease, license
and use its properties and assets and to conduct its business in the
manner
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described in the Prospectus. Each of the Company and each Subsidiary is
duly qualified to do business and is in good standing, in each state
where the failure to be so qualified could have a material adverse effect
on the operating condition (financial and otherwise) or business of the
Company. Neither the Company nor any Subsidiary owns, leases or licenses
any property or conducts any business outside the United States of
America. Except as set forth in or incorporated by reference into the
Registration Statement, the Company has no subsidiary or subsidiaries and
does not control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization, other than
those permitted to be excluded pursuant to Item 601, Exhibit 21 or
Regulation S-K.
(ii) The Company has authorized, issued and outstanding capital stock
as set forth under the caption "Capitalization" in the Prospectus. The
certificates evidencing the shares are in due and proper legal form. Each
outstanding share of Common Stock has been duly and validly authorized
and issued, fully paid, and non-assessable, without any personal
liability attaching to the ownership thereof, and has not been issued and
is not owned or held in violation of any preemptive right of
stockholders. The Company owns all of the shares of capital stock of the
Subsidiaries, free and clear of all lines, claims, security interests,
restrictions, stockholders' agreements, voting trusts and any other
encumbrances whatsoever. To the knowledge of such counsel, there is no
commitment, plan, or arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of, any share of capital
stock of the Company or any of the Subsidiaries or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for capital stock of the Company or any of the Subsidiaries,
except as may be properly described in the Prospectus. To the knowledge
of such counsel, there is outstanding no security or other instrument
which by its terms is convertible into, exercisable for or exchangeable
for capital stock of the Company or any of the Subsidiaries, except as
may be properly described in the Prospectus.
(iii) To the knowledge of such counsel, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or
informal), or investigation before any court or before any public body or
board pending, threatened, or in prospect (or any basis therefor) with
respect to the Company or any of the Subsidiaries, the Selling
Stockholder or any of their respective operations, businesses,
properties, assets, or financial condition except as may be properly
described in the Prospectus or such as individually or in the aggregate
do not now have and are not in the future reasonably forseeable to have a
material adverse effect upon the operations, business, properties,
assets, or financial condition of the Company and the Subsidiaries. To
the knowledge of such counsel, neither the Company nor the Selling
Stockholder is involved in any labor dispute, nor is such dispute
threatened, which dispute would have a material adverse effect upon the
operations, business, properties, assets or financial condition of the
Company and the Subsidiaries. Neither the Company, any of the
Subsidiaries nor the Selling Stockholder is in violation of, or in
default with respect to, any law, rule, regulation, order, judgment, or
decree, except as may be properly described in the Prospectus or such as
in the aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business, properties,
assets, or financial condition of the Company and of the Subsidiaries;
nor is the Company, any of the Subsidiaries nor the Selling Stockholder
required to take any action in order to avoid any such violation or
default.
(iv) To the knowledge of such counsel, neither the Company, any of
the Subsidiaries nor any other party is now or is expected by the Company
or the Selling Stockholder to be in violation or breach of, or in default
with respect to, complying with any term, obligation or provision of any
contract, agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement or understanding which is material to
the Company or any of the Subsidiaries or by which any of their
respective properties or businesses may be bound or affected and no event
has occurred which with notice or lapse of time or both would constitute
such a default.
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(v) Neither the Company nor any of the Subsidiaries is in violation
or breach of, or in default with respect to, any term of its certificate
of incorporation (or other charter document) or by-laws.
(vi) Each of the Company, the Subsidiaries and the Selling
Stockholder has all requisite power and authority to execute, deliver and
perform this Agreement and to issue and sell the Shares. All necessary
corporate proceedings of the Company and the Subsidiaries have been taken
to authorize the execution, delivery and performance by the Company of
this Agreement. This Agreement has been duly authorized, executed and
delivered by each of the Company and the Selling Stockholder, is the
legal, valid and binding obligation of each of the Company and of the
Selling Stockholder and (subject to applicable bankruptcy, insolvency,
and other laws affecting the enforceability of creditors' rights
generally) is enforceable as to the Company in accordance with its terms.
No consent, authorization, approval, order, license, certificate or
permit of or from, or declaration or filing with, any federal state,
local or other governmental authority or any court or other tribunal is
required by the Company, the Subsidiaries or the Selling Stockholder, for
the execution, delivery or performance by the Company or the Selling
Stockholder of this Agreement (except filings under the Act which have
been made prior to the Closing Date and consents consisting only of
consents under "blue sky" or securities laws). To the knowledge of such
counsel, no consent of any party to any contract, agreement, instrument,
lease, license, indenture, mortgage, deed of trust, note, arrangement or
understanding to which the Company, the Subsidiaries or the Selling
Stockholder are a party, or to which any of their respective properties
or assets are subject, is required for the execution, delivery or
performance of this Agreement; and the execution, delivery and
performance of this Agreement will not violate, result in a breach of,
conflict with, or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call a default under any
such contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding, in each case
known to such counsel, or violate or result in a breach of any term of
the certificate of incorporation (or other charter document) or by-laws
of the Company, or violate, result in a breach of, or conflict with any
law, rule, regulation, order, judgment, or decree binding on the Company,
any of the Subsidiaries or the Selling Stockholder or to which any of
their respective operations, businesses, properties or assets are
subject.
(vii) The Firm Shares and the Option Shares are duly and validly
authorized. Such opinion delivered at each of the Closing Dates shall
state that each Share, as the case may be, to be delivered on that date
is duly and validly issued, fully paid, and non-assessable, with no
personal liability attaching to the ownership thereof, and is not issued
in violation of any preemptive rights of stockholders, and the
Underwriters have received good title to the Shares purchased by them,
respectively, from the Company and the Selling Stockholder, as
applicable, for the consideration contemplated herein and in good faith
and without notice of any adverse claim within the meaning of the Uniform
Commercial Code, free and clear of any liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, voting trusts
and other claims. The Common Stock, the Firm Shares and the Option Shares
conform to all statements relating thereto contained in the Registration
Statement or the Prospectus.
(viii) To the knowledge of such counsel, any contract, agreement,
instrument, lease or license required to be described in the Registration
Statement or the Prospectus has been properly described therein. To the
knowledge of such counsel, any contract, agreement, instrument, lease or
license required to be filed as an exhibit to the Registration Statement
has been filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration Statement.
(ix) Insofar as statements in the Prospectus purport to summarize the
status of litigation or the provisions of laws, rules, regulations,
orders, judgments, decrees, contracts, agreements, instruments, leases or
licenses, such statements have been prepared or reviewed by such counsel
and to the knowledge of such counsel, accurately reflect the status of
such litigation and provisions purported to be summarized and are correct
in all material respects.
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(x) The Company is not an "investment company" as defined in Section
3(a) of the Investment Company Act and, if the Company conducts its
business as set forth in the Prospectus, will not become an "investment
company" and will not be required to be registered under the Investment
Company Act.
(xi) To the knowledge of such counsel, no person or entity has the
right to require registration of shares of Common Stock or other
securities of the Company because of the filing or effectiveness of the
Registration Statement except such persons or entities from whom written
waivers of such rights have been received prior to the Closing Date.
(xii) The Registration Statement has become effective under the Act.
No Stop Order has been issued and no proceedings for that purpose has
been instituted or are threatened, pending, or to such counsel's
knowledge, contemplated.
(xiii) The Registration Statement, any Rule 430A Prospectus, and the
Prospectus, and any amendment or supplement thereto (other than financial
statements and other financial data and schedules which are or should be
contained in any thereof, as to which such counsel need express no
opinion), comply as to form in all material respects with the
requirements of the Act and the Regulations. To the knowledge of such
counsel, the conditions for the use of Form S-2 have been satisfied with
respect to the Registration Statement.
(xiv) Such counsel has no reason to believe that any of the
Registration Statement, any Rule 430A Prospectus, or the Prospectus, or
any amendment or supplement thereto (other than financial statements and
other financial data and schedules which are or should be contained in
any thereof, as to which such counsel need express no opinion), contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(xv) To the knowledge of such counsel, since the effective date of the
Registration Statement, no event has occurred which should have been set
forth in an amendment or supplement to the Registration Statement or the
Prospectus which has not been set forth in such an amendment or
supplement.
(xvi) The agreement of each officer and director of the Company,
stating that for a period of 180 days from the date on which the public
offering of the Shares commences, such party will not, without the
Representatives' prior written consent, offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly
or indirectly, any shares of Common Stock (or any other securities of the
Company or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares of Common
Stock or other securities of the Company, including, without limitation,
any shares of Common Stock issuable under any employee stock options),
beneficially owned by such party, has been duly and validly authorized,
executed and delivered by such party and constitutes the legal, valid and
binding obligation of such party enforceable against such party in
accordance with its terms.
In addition, such counsel shall state that such counsel has participated in
the preparation of the Registration Statement and the Prospectus and in
conferences with officers and other representative of the Company,
representative of the Representatives and representative of the independent
accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although such counsel has not independently verified and is not passing
upon and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus (except as specified in the foregoing opinion), on the basis of the
foregoing and relying as to materiality upon the representations of executive
officers of the Company after conferring with such executive officers, no facts
have come to the attention of such counsel which lead such counsel to believe
that the Registration Statement at the time it became effective contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus, except for the
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financial statements and other financial and statistical data included therein
as to which counsel need express no opinion, as amended or supplemented on the
date thereof contained any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In rendering their opinion as aforesaid, counsel may rely upon an opinion or
opinions, each dated the Closing Date, of other counsel retained by the Company
as to laws of any jurisdiction other than the Federal laws of the United States,
the laws of the State of New York or the General Corporate Law of the State of
Delaware, provided that (1) each such local counsel is reasonably acceptable to
the Representatives and (2) such reliance is expressly authorized by each
opinion so relied upon and a copy of each such opinion is addressed to the
Representatives and is in form and substance reasonably satisfactory to them and
their counsel. In addition, such counsel may rely, as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers of the
Company, provided that executed copies of such certificates are provided to the
Representatives.
(g) The Representatives shall have received on each Closing date from
, counsel to the Selling Stockholder, an opinion, addressed
to the Representatives, and dated such Closing Date, to the effect that:
(i) The Selling Stockholder has all requisite power and authority to
execute, deliver and perform this Agreement and to issue and sell the
Shares. This Agreement has been duly authorized, executed and delivered
by the Selling Stockholder, is the legal, valid and binding obligation of
the Selling Stockholder and (subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors'
rights generally) is enforceable as to the Selling Stockholder in
accordance with its terms. No consent, authorization, approval, order,
license, certificate or permit of or from, or declaration or filing with,
any federal state, local or other governmental authority or any court or
other tribunal is required by the Selling Stockholder, for the execution,
delivery or performance by the Selling Stockholder of this Agreement
(except filings under the Act which have been made prior to the Closing
Date and consents consisting only of consents under "blue sky" or
securities laws). To the knowledge of such counsel, no consent of any
party to any contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding to which the
Selling Stockholder is a party, or to which any of their respective
properties or assets are subject, is required for the execution, delivery
or performance of this Agreement; and the execution, delivery and
performance of this Agreement will not violate, result in a breach of,
conflict with, or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call a default under any
such contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding, in each case
known to such counsel, or violate, result in a breach of, or conflict
with any law, rule, regulation, order, judgment, or decree binding on the
Selling Stockholder.
(ii) Such opinion delivered at each of the Closing Dates shall state
that each Share, as the case may be, to be delivered on that date is duly
and validly issued, fully paid, and non-assessable, with no personal
liability attaching to the ownership thereof, and is not issued in
violation of any preemptive rights of stockholders, and the Underwriters
have received good title to the Shares purchased by them, respectively,
from the Selling Stockholder, as applicable, for the consideration
contemplated herein and in good faith and without notice of any adverse
claim within the meaning of the Uniform Commercial Code, free and clear
of any liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, voting trusts and other claims.
(h) All proceedings taken in connection with the sale of the Firm Shares
and the Option Shares as herein contemplated shall be satisfactory in form
and substance to the Representatives and their counsel, and the Underwriters
shall have received from Squadron, Ellenoff, Plesent & Sheinfeld, LLP, a
favorable opinion, addressed to the Representatives and dated such Closing
Date, with respect to the
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Shares, the Registration Statement and the Prospectus, and such other
related matters, as the Representatives may reasonably request, and the
Company and the Selling Stockholder shall have furnished to Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, such documents as they may reasonably
request for the purpose of enabling them to pass upon such matters.
6. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
(a) The Company covenants and agrees as follows:
(i) The Company shall use its best efforts to cause the Registration
Statement to become effective as promptly as possible. If the Registration
Statement has become or becomes effective with a form of prospectus omitting
Rule 430A information, or filing of the Prospectus is otherwise required
under Rule 424(b), the Company will file the Prospectus, properly completed,
pursuant to Rule 424(b) within the time period prescribed and will provide
evidence satisfactory to you of such timely filing. The Company shall notify
you immediately, and confirm such notice in writing, (A) when the
Registration Statement and any post-effective amendment thereto become
effective, (B) of the receipt of any comments from the Commission or the
"blue sky" or securities authority of any jurisdiction regarding the
Registration Statement, any post-effective amendment thereto, the
Prospectus, or any amendment or supplement thereto, and (C) of the receipt
of any notification with respect to a Stop Order. The Company shall not file
any amendment to the Registration Statement or supplement to the Prospectus
unless the Company has furnished the Representatives a copy for their review
prior to filing and shall not file any such proposed amendment or supplement
to which the Representatives reasonably object. The Company shall use its
best efforts to prevent the issuance of any Stop Order and, if issued, to
obtain as soon as possible the withdrawal thereof.
(ii) During the time when a prospectus relating to the Shares is
required to be delivered hereunder or under the Act or the Regulations,
comply so far as it is able with all requirements imposed upon it by the
Act, as now existing and as hereafter amended, and by the Regulations, as
from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Shares in accordance with the provisions hereof
and the Prospectus. If, at any time when a prospectus relating to the Shares
is required to be delivered under the Act and the Regulations, any event as
a result of which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall be
necessary to amend or supplement the Prospectus to comply with the Act or
the Regulations, the Company promptly shall prepare and file with the
Commission, subject to the third sentence of paragraph (i) of this Section
6(a), an amendment or supplement which shall correct such statement or
omission or an amendment which shall effect such compliance.
(iii) The Company shall make generally available to its security holders
and to the Representatives as soon as practicable, but not later than 45
days after the end of the 12-month period beginning at the end of the fiscal
quarter of the Company during which the Effective Date (or 90 days if such
12-month period coincides with the Company's fiscal year), an earnings
statement (which need not be audited) of the Company, covering such 12-month
period, which shall satisfy the provisions of Section 11(a) of the Act or
Rule 158 of the Regulations.
(iv) The Company shall furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the Registration
Statement (including all exhibits thereto, Incorporated Documents and
amendments thereto) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto or Incorporated Documents) and all
amendments thereof and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act or the Regulations, as many
copies of any preliminary prospectus and the Prospectus and any amendments
thereof and supplements thereto as the Representatives may reasonably
request.
(v) The Company shall cooperate with the Representatives and their
counsel in endeavoring to qualify the Shares for offer and sale under the
laws of such jurisdictions as the Representatives may
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designate and shall maintain such qualifications in effect so long as
required for the distribution of the Shares; provided, however, that the
Company shall not be required in connection therewith, as a condition
thereof, to qualify as a foreign corporation or to execute a general consent
to service of process in any jurisdiction or subject itself to taxation as
doing business in any jurisdiction.
(vi) For a period of five years after the date of this Agreement, the
Company shall supply to each of the Representatives, and to each other
Underwriter who may so request in writing, copies of such financial
statements and other periodic and special reports as the Company may from
time to time distribute generally to the holders of any class of its capital
stock and to furnish to each of the Representatives a copy of each annual or
other report it shall be required to file with the Commission.
(vii) Without the prior written consent of the Representatives, for a
period of 180 days from the date on which a public offering of the Shares
commences, the Company shall not issue, sell or register with the Commission
or otherwise dispose of, directly or indirectly, any securities of the
Company (or any securities convertible into or exercisable or exchangeable
for securities of the Company), except for the issuance of the Shares
pursuant to the Registration Statement.
(viii) On or before completion of this offering, the Company shall make
all filings required under applicable securities laws and by the NASDAQ
National Market.
(ix) Until the expiration of three years from the Closing Date, or such
later date as the Company and Rodman & Renshaw, Inc. may agree, if Rodman &
Renshaw, Inc., individually and not as a Representative of the Underwriters,
shall so indicate in writing to the Company, the Company shall use its best
efforts to cause an individual selected from time to time by Rodman &
Renshaw, Inc. to be elected as a director of the Company. Such director
shall be entitled to receive reimbursement for expenses and shall be
compensated in the same manner as the other directors of the Company. Rodman
& Renshaw, Inc. and such director shall be indemnified to the same extent as
the other directors of the Company.
(x) Prior to each Closing Date and for a period of 25 days thereafter,
you shall be given reasonable written prior notice of any press release or
other direct or indirect communication and of any press conference with
respect to the Company, the financial conditions, results of operations,
business, properties, assets, liabilities of the Company, or this offering.
(b) The Company agrees to pay, or reimburse if paid by the Representatives,
whether or not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses relating to the registration and
public offering of the Shares including those relating to: (i) the preparation,
printing, filing and distribution of the Registration Statement including all
exhibits thereto, each preliminary prospectus, the Prospectus, all amendments
and supplements to the Registration Statement and the Prospectus, and any
documents required to be delivered with any Preliminary Prospectus or the
Prospectus, and the printing, filing and distribution of the Agreement Among
Underwriters, this Agreement and related documents; (ii) the preparation and
delivery of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the various jurisdictions referred to in Section
6(a)(v), including the fees and disbursements of counsel for the Underwriters in
connection with such registration and qualification and the preparation,
printing, distribution and shipment of preliminary and supplementary Blue Sky
memoranda; (iv) the furnishing (including costs of shipping and mailing) to the
Representatives and to the Underwriters of copies of each preliminary
prospectus, the Prospectus and all amendments or supplements to the Prospectus,
and of the several documents required by this Section to be so furnished, as may
be reasonably requested for use in connection with the offering and sale of the
Shares by the Underwriters or by dealers to whom Shares may be sold; (v) the
filing fees of the National Association of Securities Dealers, Inc. in
connection with its review of the terms of the public offering; (vi) the
furnishing (including costs of shipping and mailing) to the Representatives and
to the Underwriters of copies of all reports and information required by Section
6(a)(vi); (vii) inclusion of the Shares for quotation on the NASDAQ National
Market System; and (viii) all transfer taxes, if any, with respect to the sale
and delivery of the Shares by the Company and the Selling Stockholder to the
Underwriters. Except as otherwise contemplated by Section 9 hereof, the
Underwriters will pay their own counsel fees and expenses to the extent not
otherwise covered by clause (iii) above, and their own travel and
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travel-related expenses in connection with the distribution of the Shares.
Without limiting the Company's obligations set forth above, the Selling
Stockholder agrees to pay all of its other costs and expenses incident to the
performance of its obligations under this Agreement and the sale of the Shares
by it hereunder.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the Act, the
Exchange Act or other Federal or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto, or
arise out of or are based upon any omission or alleged omission to state therein
such fact required to be stated therein or necessary to make such statements
therein not misleading, or (ii) the merger of Aurora Environmental Inc. with and
into the Company, including for such purposes, any untrue statement or alleged
untrue statement of a material fact contained in any proxy statement or
registration statement related to such merger, or any amendment thereof as
supplement thereto, or arise out of or are based upon any omission or alleged
omission to state therein such fact required to be stated therein or necessary
to make such statements therein not misleading. The Selling Stockholder agrees
to indemnify each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any and all losses, claims, damages and liabilities, joint
or several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact with respect to the Selling Stockholder
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto (which amendments or
supplements are furnished to the Selling Stockholder), or which arise out of or
are based upon any omission or alleged omission to state therein such fact
required to be stated therein or necessary to make such statements therein not
misleading, but only with reference to information relating to the Selling
Stockholder furnished in writing to the Company by or on behalf of the Selling
Stockholder expressly for use in connection with the preparation of the
Registration Statement and Prospectus or any amendment thereof or supplement
thereto. Such indemnity shall not inure to the benefit of any Underwriter (or
any person controlling such Underwriter) on account of any losses, claims,
damages or liabilities arising from the sale of the Shares to any person by such
Underwriter if such untrue statement or omission or alleged untrue statement or
omission was made in such preliminary prospectus, the Registration Statement or
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use therein. The
obligations of the Selling Stockholder, pursuant to this Section 7(a) and
Section 8, shall be limited to an amount not exceeding the product of the Per
Share Price to Public of the Shares as set forth on the cover page of the
Prospectus and the number of Shares being sold by each of them. In no event
shall the indemnification agreement contained in this Section 7(a) inure to the
benefit of any Underwriter on account of any losses, claims, damages,
liabilities or actions arising from the sale of the Shares upon the public
offering to any person by such Underwriter if such losses, claims, damages,
liabilities or actions arise out of, or are based upon, a statement or omission
or alleged omission in a preliminary prospectus and if, in respect to such
statement, omission or alleged omission, the Prospectus differs in a material
respect from such preliminary prospectus and a copy of the Prospectus has not
been sent or given to such person at or prior to the confirmation of such sale
to such person. This indemnity agreement will be in addition to any liability
which the Company and the Selling Stockholder may otherwise have.
17
<PAGE>
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
director of the Company, and each officer of the Company who signs the
Registration Statement and the Selling Stockholder, to the same extent as the
foregoing indemnity from the Company and the Selling Stockholder to each
Underwriter, but only insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or omission or alleged
untrue statement or omission which was made in any Preliminary Prospectus, any
Rule 430A Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, which were made in reliance upon and in
conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter for specific use therein; provided,
however, that the obligation of each Underwriter to indemnify the Company
(including any controlling person, director or officer thereof) and the Selling
Stockholder shall be limited to the net proceeds received by the Company and the
Selling Stockholder, respectively, from such Underwriter. For all purposes of
this Agreement, the amounts of the selling concession and reallowance set forth
in the Prospectus constitute the only information furnished in writing by or on
behalf of any Underwriter expressly for inclusion in any Preliminary Prospectus,
any Rule 430A Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto.
(c) Any party that proposes to assert the right to be indemnified under this
Section will, promptly after receipt of notice of commencement of any action,
suit or proceeding against such party in respect of which a claim is to be made
against an indemnifying party or parties under this Section, notify each such
indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided for in
Section 7(a) or 7(b) shall be available to any party who shall fail to give
notice as provided in this Section 7(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified party
shall have reasonably concluded that there may be a conflict of interest between
the indemnifying parties and the indemnified party in the conduct of the defense
of such action (in which case the indemnifying parties shall not have the right
to direct the defense of such action on behalf of the indemnified party), or
(iii) the indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the commencement
thereof, in each of which cases the reasonable fees and expenses of counsel
shall be at the expense of the indemnifying parties. An indemnifying party shall
not be liable for any settlement of any action, suit, proceeding or claim
effected without its written consent.
8. CONTRIBUTION. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in Sections 7(a) and
(b) is due in accordance with its terms but for any reason is held to be
unavailable from the Company, the Selling Stockholder or the Underwriters, the
Company, the Selling Stockholder and the Underwriters shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims asserted,
but after deducting any contribution received by the Company from persons other
than the Underwriters, such as the Selling Stockholder, persons who control the
Company within the meaning of the Act, officers of the Company who
18
<PAGE>
signed the Registration Statement and directors of the Company, who may also be
liable for contribution) to which the Company and the Selling Stockholder and
one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other from the
offering of the Shares or, if such allocation is not permitted by applicable law
or indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 7 hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Selling Stockholder on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company, the Selling Stockholder and the Underwriters shall be deemed to
be in the same proportion as (x) the total proceeds from the Offering (net of
underwriting discounts but before deducting expenses) received by the Company or
the Selling Stockholder from the sale of the Shares, as set forth in the table
on the cover page of the Prospectus (but not taking into account the use of the
proceeds of such sale of Shares by the Company), bear to (y) the underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company, the Selling
Stockholder and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
related to information supplied by the Company, the Selling Stockholder or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Selling Stockholder and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8, (i) in no case shall any Underwriter (except as may be provided
in the Agreement Among Underwriters) be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder, (ii) in no case shall the Selling Stockholder be liable
or responsible for any amount in excess of the product of the Per Share Price to
Public of the Shares as set forth on the cover page of the Prospectus and the
number of Shares being sold by each of them subject to the limitation expressed
in Section 7(a), and (iii) the Company shall be liable and responsible for any
amount in excess of the underwriting discount and the amount referred to in
clause (ii); provided, however (i) that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company within the
meaning of the Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i), (ii) and (iii) in the immediately
preceding sentence of this Section 8. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section, notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties from whom contribution may be sought shall not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have hereunder or otherwise than under this Section. No party
shall be liable for contribution with respect to any action, suit, proceeding or
claim settled without its written consent. The Underwriters' obligations to
contribute pursuant to this Section 8 are several in proportion to their
respective underwriting commitments and not joint.
9. TERMINATION. This Agreement may be terminated with respect to the
Shares to be purchased on any Closing Date by the Representatives by notifying
the Company at any time prior to the purchase of the Shares:
(a) in the absolute discretion of the Representatives at or before any
Closing Date: (i) if on or prior to such date, any domestic or international
event or act or occurrence has materially disrupted, or in the opinion of
the Representatives will in the future materially disrupt, the securities
markets; (ii) if
19
<PAGE>
there has occurred any new outbreak or material escalation of hostilities or
other calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the judgment of the Representatives,
inadvisable to proceed with the Offering; (iii) if there shall be such a
material adverse change in general financial, political or economic
conditions or the effect of international conditions on the financial
markets in the United States such as to make it, in the judgment of the
Representatives, inadvisable or impracticable to market the Shares; (iv) if
trading in the Shares has been suspended by the Commission or trading
generally on the New York Stock Exchange, Inc., the American Stock Exchange,
Inc. or the NASDAQ National Market has been suspended or limited, or minimum
or maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities have been required, by said
exchanges or by order of the Commission, the National Association of
Securities Dealers, Inc., or any other governmental or regulatory authority;
or (v) if a banking moratorium has been declared by any state or federal
authority, or
(b) at or before any Closing Date, if any of the conditions specified in
Section 5 shall not have been fulfilled when and as required by this
Agreement.
If this Agreement is terminated pursuant to any of its provisions, neither
the Company nor the Selling Stockholder shall be under any liability to any
Underwriter, and no Underwriter shall be under any liability to the Company or
the Selling Stockholder, except that (y) if this Agreement is terminated by the
Representatives or the Underwriters because of any failure, refusal or inability
on the part of the Company or the Selling Stockholder or all of them to comply
with the terms or to fulfill any of the conditions of this Agreement, the
Company and the Selling Stockholder will reimburse the Underwriters for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
incurred by them in connection with the proposed purchase and sale of the Shares
or in contemplation of performing their obligations hereunder and (z) no
Underwriter who shall have failed or refused to purchase the Shares agreed to be
purchased by it under this Agreement, without some reason sufficient hereunder
to justify cancellation or termination of its obligations under this Agreement,
shall be relieved of liability to the Company and the Selling Stockholder or to
the other Underwriters for damages occasioned by its failure or refusal.
10. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters shall
fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date:
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting Underwriters shall be obligated to purchase such
Shares on the terms herein set forth in proportion to their respective
obligations hereunder; provided, that in no event shall the maximum number
of Shares that any Underwriter has agreed to purchase pursuant to Section 1
be increased pursuant to this Section 10 by more than one-ninth of such
number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to an additional business day within which it may,
but is not obligated to, find one or more substitute underwriters reasonably
satisfactory to the Representatives to purchase such Shares upon the terms
set forth in this Agreement.
In any such case, either the Representatives or the Company shall have the
right to postpone the applicable Closing Date for a period of not more than five
business days in order that necessary changes and arrangements (including any
necessary amendments or supplements to the Registration Statement or Prospectus)
may be effected by the Representatives and the Company. If the number of Shares
to be
20
<PAGE>
purchased on such Closing Date by such defaulting Underwriter or Underwriters
shall exceed 10% of the Shares that all the Underwriters are obligated to
purchase on such Closing Date, and none of the nondefaulting Underwriters or the
Company shall make arrangements pursuant to this Section within the period
stated for the purchase of the Shares that the defaulting Underwriters agreed to
purchase, this Agreement shall terminate with respect to the Shares to be
purchased on such Closing Date without liability on the part of any
nondefaulting Underwriter to the Company and the Selling Stockholder and without
liability on the part of the Company and the Selling Stockholder, except in both
cases as provided in Sections 6(b), 7, 8 and 9. The provisions of this Section
shall not in any way affect the liability of any defaulting Underwriter to the
Company or the Selling Stockholder or the nondefaulting Underwriters arising out
of such default. A substitute underwriter hereunder shall become an Underwriter
for all purposes of this Agreement.
11. MISCELLANEOUS. The respective agreements, representations, warranties,
indemnities and other statements of the Company or its officers, of the Selling
Stockholder and of the Underwriters set forth in or made pursuant to this
Agreement shall remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or the Company or the Selling
Stockholder or any of the officers, directors or controlling persons referred to
in Sections 7 and 8 hereof, and shall survive delivery of and payment for the
Shares. The provisions of Sections 6(b), 7, 8 and 9 shall survive the
termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the Underwriters, the
Company and the Selling Stockholder and their respective successors and assigns
and, to the extent expressed herein, for the benefit of persons controlling any
of the Underwriters, or the Company, and directors and officers of the Company,
and their respective successors and assigns, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in writing and mailed or
delivered, or by telefax or telegraph if subsequently confirmed by letter, (a)
if to the Representatives, to them in care of Rodman & Renshaw, Inc., One
Liberty Plaza, 165 Broadway, New York, New York 10006, Attention: Peter
Boneparth, Managing Director, telecopy: (212) 346-5099, (b) if to the Company,
to the Company's agent for service as such agent's address appears on the cover
page of the Registration Statement, and (c) if to the Selling Stockholder, to
the Company.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of laws.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, singular or plural, as the identity of the
person or persons or entity or entities require.
All section headings herein are for convenience of reference only and are
not part of this Agreement, and no construction or inference shall be derived
therefrom.
21
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
us.
Very truly yours,
ATC ENVIRONMENTAL INC.
By:___________________________________
Name:
Title:
By: __________________________________
George Rubin
Confirmed on behalf of itself
and as the Representative of the several Underwriters
named in Schedule I annexed hereto:
RODMAN & RENSHAW, INC.
By: __________________________________
Name:
Title:
PENNSYLVANIA MERCHANT GROUP LTD
By:___________________________________
Name:
Title:
22
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM
SHARES TO BE
NAME OF UNDERWRITER PURCHASED
------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Rodman & Renshaw, Inc............................................................................
Pennsylvania Merchant Group Ltd..................................................................
Total........................................................................................ 2,400,000
</TABLE>
23
<PAGE>
LAW OFFICES
LESTER MORSE P.C.
111 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021-5473
------
TELEPHONE (516) 487-1446
TELECOPIER (516) 487-1452
September 8, 1995
Board of Directors
ATC Environmental Inc.
104 East 25th Street, 10th Floor
New York, NY 10010
Re: Form S-2 Registration Statement
File No. 33-61921
Gentlemen:
We have reviewed the Certificate of Incorporation and amendments thereto,
By-Laws (as amended), corporate proceedings and other documents of ATC
Environmental Inc. (the "Company") and based upon the foregoing, it is our
opinion that the securities being registered with the Securities and Exchange
Commission pursuant to the Registration Statement filed on August 18, 1995 (File
No. 33-61921), as amended, will when sold, be legally issued, fully paid and
non-assessable.
No consents, approvals, authorizations or orders of agencies, officers or
other regulatory authorities are necessary for the valid authorization, issuance
or sale of the shares hereunder, except as such may be required under the
Securities Act of 1933, as amended, or state securities, or Blue Sky laws.
We consent to the filing of this opinion as an exhibit to the aforesaid
Registration Statement and further consent to the reference made to us under the
caption "Legal Matters" in the Prospectus constituting a part of such
Registration Statement. Nothing contained herein shall be considered an omission
that we are deemed an expert within the meaning of the Securities Act of 1933,
as amended.
Very truly yours,
LESTER MORSE P.C.
Steven Morse
SM:ag
<PAGE>
EXHIBIT 23(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 of the Registration Statement of
ATC Environmental Inc. on Form S-2 of our report dated May 4, 1995, included in
the Annual Report on Form 10-K of ATC Environmental Inc. for the year ended
February 28, 1995, which is incorporated by reference in this Registration
Statement, and to the use of our reports dated May 4, 1995, relating to the
financial statements of ATC Environmental Inc. and Aurora Environmental Inc.,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
[SIGNATURE]
DELOITTE & TOUCHE LLP
Omaha, Nebraska
September 8, 1995
<PAGE>
JAMES J. SLAWSKI, CPA
1111 ELM STREET, SUITE 16A * WEST SPRINGFIELD, MA 01069
TELEPHONE (413) 739-0020
FAX (413) 739-4162
EXHIBIT 23(B)
INDEPENDENT AUDITOR'S CONSENT
James J. Slawski C.P.A. does hereby consent to the inclusion of the audited
financial statements which I prepared, to wit: Con-Test, Inc. financial
statements for the years ending December 31, 1993 and 1992 and report dated
April 21, 1994, except for Note 2, as to which the date is September 10, 1994 as
part of this Form S-2 Registration Statement of ATC Environmental Inc. with the
Securities and Exchange Commission.
James J. Slawski, C.P.A.
West Springfield, Massachusetts
September 8, 1995
