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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of earliest event reported - June 29, 1995
ATC Environmental Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-10583 46-0399408
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
104 East 25th Street
Tenth Floor
New York, New York 10010
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (212) 353-8280
- --------------------------------------------------------------------------------
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 6, 1995, ATC Environmental Inc., entered into an
Agreement and Plan of Merger dated as of January 6, 1995, to merge Aurora
Environmental Inc., into and with ATC with ATC as the surviving corporation.
The Merger was subject to various conditions including without limitation
stockholder approval of each respective corporation. Stockholder approval of
each of ATC and Aurora was obtained on June 29, 1995, and the Merger closed and
was deemed effective as of the close of business on the same date, which is also
the date that a Certificate of Merger was deemed filed with the Department of
State of the State of Delaware. The final conversion ratio is .545 of a share
of ATC Common Stock for each l.0 share of Aurora Common Stock.
Prior to the Merger, Aurora owned approximately 57% of the
outstanding shares of ATC. As a result of the Merger, Aurora's 3,258,000 of ATC
Common Stock have been canceled. In connection with the Merger, ATC will issue
3,341,452 shares of Common Stock in exchange for Aurora's stockholder's shares.
Further, ATC is obligated to issue up to an additional 604,950 shares upon the
exercise of certain ATC options/warrants to be issued in replacement of
previously outstanding Aurora options/warrants.
For a complete description of the terms of the Merger, conflicts
of interest of the Board of Directors of ATC and Aurora, financial statements
and proforma financial information and other information required by this Form
8-K, ATC incorporates by reference, in its entirety, its Prospectus/Proxy
Statement dated May 26, 1995, included in the Form S-4 Registration Statement,
File No. 33-88380. See Attachment A.
ITEM 7. EXHIBITS AND FINANCIAL STATEMENTS
(a)-(b) The required pro forma information and audited financial
statements is included in the above referenced Prospectus/Proxy Statement which
is incorporated by reference. See Attachment A.
(c) Exhibits.
10 - Agreement and Plan of Merger dated as of January 6, 1995 by and
between Aurora and the Issuer (incorporated by reference to Exhibit 2(a) filed
as an Exhibit to the Form S-4 Registration Statement, File No. 33-88380, and
included as an attachment to the Prospectus which forms a part of said
Registration Statement. See Attachment A.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ATC Environmental Inc.
---------------------------------
(Registrant)
Dated: July 12, 1995 By:/s/Morry F. Rubin
------------------------------
Morry F. Rubin, President and
Chief Executive Officer
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ATTACHMENT A
Prospectus/Proxy Statement dated May 26, 1995 of
ATC Environmental Inc. contained in its
Form S-4 Registration Statement, File No. 33-88380
4
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PRELIMINARY PROSPECTUS DATED MAY 17, 1995
SUBJECT TO COMPLETION
JOINT LETTER TO STOCKHOLDERS OF
ATC ENVIRONMENTAL, INC. AND
AURORA ENVIRONMENTAL, INC.
Dear Stockholders:
We invite you to attend the Special Meeting of Stockholders of Aurora
Environmental, Inc. ("Aurora") to be held on June 29, 1995 at 10:00 A.M. New
York City Time and the Special Meeting of Stockholders of ATC Environmental Inc.
("ATC") to be held on June 29, 1995 at 12:00 noon, New York City Time, each
meeting to be held at The Williams Club located at 24 East 39th Street, New
York, NY 10036. As explained in the accompanying Prospectus/Proxy Statement,
the Stockholders of ATC and Aurora will each be asked to consider and vote upon
a proposed Agreement and Plan of Merger (the "Merger Agreement") providing for
the merger of Aurora with and into ATC, with ATC to be the Surviving
Corporation.
The Stockholders of Aurora will be further asked to consider and vote upon
the authorization and approval of Morry F. Rubin and/or Richard L. Pruitt to
vote Aurora's 3,258,000 shares of ATC's Common Stock in favor of the Merger
Agreement at ATC's Special Meeting of Stockholders.
The Board of Directors of ATC and Aurora have each carefully considered the
terms and conditions of the proposed Merger and have concluded that the Merger
is fair to, and in the best interests of, the Stockholders of each corporation.
ACCORDINGLY, THE BOARD OF DIRECTORS OF EACH CORPORATION IS RECOMMENDING THAT THE
STOCKHOLDERS OF EACH OF THE RESPECTIVE CORPORATIONS VOTE FOR APPROVAL OF THE
MERGER AGREEMENT AND RELATED RESOLUTIONS BEING VOTED UPON BY THE STOCKHOLDERS
AND THE BOARD OF DIRECTORS OF AURORA IS RECOMMENDING THAT THE STOCKHOLDERS OF
AURORA VOTE FOR APPROVAL OF THE AUTHORIZATION OF MORRY F. RUBIN AND/OR RICHARD
L. PRUITT TO VOTE AURORA'S 3,258,000 SHARES OF ATC'S COMMON STOCK IN FAVOR OF
THE MERGER AGREEMENT AT ATC'S SPECIAL MEETING OF STOCKHOLDERS.
As further described in the Prospectus/Proxy Statement, closing upon the
Merger Agreement will result in the Stockholders of Aurora assuming control of
the Surviving Corporation. Upon closing, each outstanding share of common stock
of Aurora will be exchanged for .545 of a share of ATC's common stock.
The accompanying Prospectus/Proxy Statement provides the Stockholders of
both corporations with a description of the terms of the proposed Merger and
certain additional information all of which you are urged to give your careful
attention. Whether or not you are personally able to attend the Annual Meeting,
please complete, sign, date and return the enclosed Proxy as soon as
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possible. This action will not limit your right to vote in person if you wish
to attend the Special Meeting and vote personally.
Approval of the above referenced proposals require the affirmative vote of
the holders of at least a majority of the issued and outstanding shares of each
respective corporation. Certain officers and directors of ATC and/or Aurora and
other persons who are the holders of approximately 3,034,000 shares (49.7% of
Aurora's Common Stock issued and outstanding) have represented that they intend
to vote for the Merger and authorization of Morry F. Rubin and/or Richard Pruitt
to vote Aurora's Common Stock ownership in ATC at ATC's Special Meeting.
Certain officers and/or directors of ATC who are the holders of approximately
195,000 shares (3.4% of ATC's Common Stock issued and outstanding) have
represented that they intend to vote for the merger.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE YOUR PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOUR ATTENTION IS DIRECTED
TO THE SECTION OF THE PROSPECTUS/PROXY STATEMENT HEADED "THE MERGER-RIGHTS OF
APPRAISAL" WHICH DESCRIBES THE EFFECT OF YOUR VOTE BY PROXY OR IN PERSON UPON
ANY APPRAISAL RIGHTS YOU MAY BE ENTITLED TO UNDER DELAWARE LAW.
Very truly yours,
George Rubin, Chairman of the
Board of Directors of ATC
Environmental, Inc.
Morry F. Rubin, President and
Chief Executive Officer of
ATC Environmental, Inc. and
Aurora Environmental, Inc.
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AURORA ENVIRONMENTAL, INC.
1515 East Tenth Street
Sioux Falls, South Dakota 57103
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
_______________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1995
The Special meeting of Stockholders of Aurora Environmental, Inc. will be
held at The Williams Club located at 24 East 39th Street, New York, NY 10016 on
June 29, 1995, commencing at 10:00 A.M. and at such times thereafter as it may
be from time to time adjourned.
At the meeting, the Stockholders will be asked to:
1. Consider and vote upon the approval of the Agreement and Plan of Merger
("Merger Agreement") to merge Aurora Environmental, Inc. ("Aurora") into ATC
Environmental, Inc. ("ATC") with ATC as the surviving corporation; and each
outstanding share of Aurora Common Stock will represent the right to receive
.545 of a share of ATC Common Stock (other than shares in respect of which
appraisal rights are perfected), all as set forth in the accompanying
Prospectus/Proxy Statement and attachments;
2. Consider and vote upon the authorization and approval of Morry F. Rubin
and/or Richard L. Pruitt to vote Aurora's 3,258,000 shares of ATC's Common Stock
in favor of the Merger Agreement at ATC's Special Meeting of Stockholders; and
3. Transact such other business which may properly be brought before the
meeting.
The Board of Directors of Aurora has fixed the close of business on May 30,
1995 as the record date for the determination of Stockholders entitled to notice
of, and to vote at Aurora's Special Meeting and any adjournment or adjournments
thereof. Only holders of shares of Aurora's Common Stock at the close of
business on May 30, 1995 will be entitled to receive notice of and to vote at
Aurora's Special Meeting and any adjournment or adjournments thereof.
By Order of the Board of Directors.
Richard L. Pruitt, Secretary
Dated: May 30, 1995
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ATC ENVIRONMENTAL, INC.
104 East 25th Street
10th Floor
New York, New York 10010
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
_______________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1995
The Special meeting of Stockholders of ATC Environmental, Inc. will be held
at The Williams Club located at 24 East 39th Street, New York, NY l0016, on June
29, 1995, commencing at 12:00 noon and at such times thereafter as it may be
from time to time adjourned.
At the meeting, the Stockholders will be asked to:
1. Consider and vote upon the approval of the Agreement and Plan of Merger
("Merger Agreement") to merge Aurora Environmental, Inc. ("Aurora") into ATC
Environmental, Inc. ("ATC") with ATC as the surviving corporation; and each
outstanding share of Aurora Common Stock will represent the right to receive
.545 of a share of ATC Common Stock (other than shares in respect of which
appraisal rights are perfected), all as set forth in the accompanying
Prospectus/Proxy Statement and attachments; and
2. Transact such other business which may properly be brought before the
meeting.
The Board of Directors of ATC has fixed the close of business on May 30,
1995 as the record date for the determination of Stockholders entitled to notice
of, and to vote at, ATC's Special Meeting. Only holders of shares of ATC's
Common Stock at the close of business on May 30, 1995 will be entitled to
receive notice of and to vote at ATC's Special Meeting and any adjournment or
adjournments thereof.
By Order of the Board of Directors.
George Rubin, Secretary
Dated: May 30,1995
<PAGE>
PROSPECTUS/PROXY STATEMENT
ATC ENVIRONMENTAL, INC.
PROSPECTUS
3,946,402 SHARES OF COMMON STOCK
PROXY STATEMENT FOR SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON JUNE 29, 1995
______________
AURORA ENVIRONMENTAL, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON JUNE 29, 1995
_______________
This Prospectus/Proxy Statement is being furnished to Stockholders of
Aurora Environmental, Inc., a Delaware corporation ("Aurora"), in connection
with the solicitation of proxies by the Board of Directors of Aurora from
holders of the outstanding common shares, par value $.001 per share, of Aurora
(the "Aurora Common Stock") for use at a Special Meeting of the Stockholders of
Aurora to be held on June 29, 1995 at The Williams Club located at 24 East 39th
Street, New York, NY 10016, at 10:00 a.m. local time and any and all
adjournments thereof (the "Aurora Special Meeting"). This Prospectus/Proxy
Statement, the enclosed Notice of Special Meeting of Stockholders and Proxy are
being first mailed to Stockholders of Aurora on or about May 31, 1995.
This Prospectus\Proxy Statement is being furnished to Stockholders of ATC
Environmental, Inc., a Delaware corporation ("ATC"), in connection with the
solicitation of proxies by the Board of Directors of ATC from holders of the
outstanding common shares, par value $.01 per share, of ATC (the "ATC Common
Stock") for use at a Special Meeting of the Stockholders of ATC to be held on
June 29, 1995 at The Williams Club located at 24 East 39th Street, New York, NY
l0016 at 12:00 noon local time and any and all adjournments thereof (the "ATC
Special Meeting"). This Prospectus/Proxy Statement, the enclosed Notice of
Special Meeting of Stockholders and Proxy are being first mailed to Stockholders
of ATC on or about May 31, 1995.
At the Aurora Special Meeting, Aurora Stockholders will be asked to
consider and vote on (i) a proposal to approve and adopt the Agreement and Plan
of Merger dated as of January 6, 1995 (the "Merger Agreement"), by and between
ATC and Aurora and (ii) the authorization and approval of Morry F. Rubin and/or
Richard L. Pruitt to vote Aurora's 3,258,000 shares of ATC's Common Stock in
favor of the Merger Agreement at ATC's Special Meeting of Stockholders. A copy
of the Merger Agreement is attached to this Prospectus/Proxy Statement as
Exhibit "A." The Merger Agreement provides for the merger (the "Merger") of
Aurora with and into ATC, with ATC to be the surviving corporation of the
Merger. As a result of the Merger, Aurora will cease to be an existing
corporation. At the ATC Special Meeting, ATC Stockholders will be
<PAGE>
asked to consider and vote on a proposal to approve and adopt the Merger
Agreement.
Pursuant to the terms of the Merger Agreement, after (i) the adoption and
approval of the Merger Agreement by the Stockholders of both ATC and Aurora,
(ii) the satisfaction or, where permissible, waiver of other conditions of the
Merger, and (iii) upon the filing of a duly executed Certificate of Merger with
the Department of State of the State of Delaware (the "Effective Time"), each
1.0 share of Aurora Common Stock outstanding immediately prior to the Effective
Time (other than shares of Aurora Common Stock held by any holders who have
properly perfected their appraisal rights in accordance with The General
Corporation Law of the State of Delaware ("GCL")) shall, by virtue of the Merger
be cancelled and extinguished and converted into the right to receive, subject
to adjustment pursuant to the terms of the Merger Agreement, .545 of a share of
ATC Common Stock, $.01 par value. This Prospectus/Proxy Statement relates to
3,341,452 shares of ATC Common Stock, such number of shares being the maximum
number of shares of ATC Common Stock issuable to the Stockholders of Aurora by
ATC at or after the Effective Time. See "The Merger."
At the Effective Time, each holder of outstanding Aurora Common Stock
Purchase Options and Common Stock Purchase Warrants will receive identical
Options and Warrants to purchase shares of ATC Common Stock except that each
such Option or Warrant which originally contained the right to purchase 1.0
share of Aurora Common Stock shall now entitle the holder to purchase .545 of a
share of ATC Common Stock. The total exercise price to be paid upon exercise of
each respective Option or Warrant will remain unchanged although the exercise
price per share will increase proportionately as a result of a change in the
number of shares to be received. Notwithstanding anything contained herein to
the contrary, all options granted under Aurora's 1985 Incentive and Non-
Statutory Stock Option Plan which remain unexercised shall terminate on the
close of business on the day prior to the Effective Time. This Prospectus/Proxy
Statement relates to an aggregate of 604,950 shares of ATC Common Stock which
may be issued upon conversion of Aurora's Options and Warrants which subsequent
to the Merger will be exchanged for ATC Options and Warrants as described above.
See "The Merger."
No fractional shares of ATC Common Stock and no certificates or scrip
therefor will be issued in exchange for Aurora Common Stock in the Merger. In
lieu thereof, each holder of shares of Aurora Common Stock who otherwise would
be entitled to receive a fractional share of ATC Common Stock will, upon
surrender of his certificate for outstanding Aurora Common Stock, be paid,
without interest, an amount in cash equal to the product of (i) the average
closing bid and asked prices of ATC's Common Stock for each of the five business
days immediately preceding the Effective Time of the Merger and (ii) the
fraction of a share of ATC Common Stock to which such holder would otherwise be
entitled.
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Each share of ATC Common Stock outstanding immediately prior to the
Effective Time will continue to represent one share of ATC Common Stock (and in
the case of ATC's Common Stock Options and Common Stock Purchase Warrants will
continue to represent the right to purchase one share of ATC Common Stock) at
and after the Effective Time, except for dissenting shares in respect of which
appraisal rights are perfected under the GCL. See "The Merger."
Based upon the last sales price of ATC Common Stock at January 5, 1995,
which is the day prior to the date of the Merger Agreement, the value of the
consideration to be paid (i.e. 3,341,452 shares) to the Aurora Stockholders at
the Effective Time of the Merger would have been $52,627,869 and would have been
$62,155,832 if all Options and Warrants were exercised prior to such date.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. AFTER THE MERGER, MORRY F. RUBIN AND GEORGE RUBIN, THE CONTROL GROUP,
WILL LIKELY BE IN THE POSITION TO RETAIN THE POWER TO CONTROL THE BOARD OF
DIRECTORS OF ATC BY VIRTUE OF THEIR OWNERSHIP POSITION (APPROXIMATELY 37.5% OF
THE ISSUED AND OUTSTANDING SHARES OF ATC AFTER GIVING EFFECT TO THE MERGER AND
TO THE BENEFICIAL OWNERSHIP OF ATC COMMON STOCK ISSUABLE UPON EXERCISE OF ALL
OPTIONS AND WARRANTS OWNED BY THEM AFTER THE MERGER).
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_________________
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS MAY 26, 1995.
3
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ATC Common Stock and Class C Warrants and Aurora's Common Stock are
included in the small cap market of the NASDAQ Stock Market ("NASDAQ") under the
symbols "ATCE," "ATCEL," and "AURE," respectively. On May 5, 1995, the last
sales prices of ATC's Common Stock and Class C Warrants were 16 7/8 and 8,
respectively. On May 5, 1995, the last sales price of Aurora's Common Stock was
9 1/4. The above prices reflect inter-dealer prices without retail markup,
markdowns or commissions.
On January 5, 1995, representing the day immediately preceding the date
that the Merger Agreement was executed and publicly announced by Aurora and ATC,
the last sale prices of ATC Common Stock and Class C Warrants were 15-3/4 and
6-1/2, respectively. On January 5, 1995, the last sale price of Aurora's Common
Stock was $5.50. The above prices reflect inter-dealer prices without retail
mark-up, markdowns or commissions.
As of May 1, 1995, Aurora owned approximately 57.0% of the issued and
outstanding shares of ATC. The financial statements and information presented
herein for Aurora are on a consolidated basis with ATC and its subsidiaries
unless otherwise indicated.
No person is authorized to give any information or to make any
representation not contained in this Prospectus/Proxy Statement and, if given or
made, such information or representation should not be relied upon as having
been authorized. This Prospectus/Proxy Statement does not constitute an offer
to sell or a solicitation of an offer to purchase the securities offered by this
Prospectus/Proxy Statement or the solicitation of a proxy in any jurisdiction to
any person to whom it is unlawful to make such an offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus/Proxy Statement nor any
distribution of the securities made under this Prospectus/Proxy Statement shall,
under any circumstances, create any implication that there has been no change
since the date hereof in the affairs of ATC or Aurora or in the information set
forth herein.
ALL INFORMATION CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT WITH RESPECT
TO ATC WAS SUPPLIED BY ATC FOR INCLUSION HEREIN, AND ALL INFORMATION CONTAINED
IN THIS PROSPECTUS/PROXY STATEMENT WITH RESPECT TO AURORA WAS SUPPLIED BY AURORA
FOR INCLUSION HEREIN.
4
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AVAILABLE INFORMATION
ATC has filed with the Securities and Exchange Commission, Washington, D.C.
20549, a Registration Statement on Form S-4 under the Securities Act of 1933, as
amended, containing information concerning the securities offered by this
Prospectus/Proxy Statement. For further information with respect to ATC and the
securities offered hereby, reference is made to the Registration Statement and
the Exhibits filed as a part thereof. Statements contained in this
Prospectus/Proxy Statement as to the contents of any contract or other document
referred to are not necessarily complete. In each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Items of information omitted from this Prospectus/Proxy
Statement but contained in the Registration Statement may be obtained from the
Securities and Exchange Commission upon payment of the prescribed fee.
ATC is subject to certain informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith filed reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copies
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the
Commission at 210 South Dearborn Street, Room 1204, Chicago, Illinois 60604; and
7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
ATC and Aurora each distribute to their respective Stockholders annual
reports containing audited financial statements and, ATC distributes quarterly
reports containing unaudited financial and other information as determined by
the Board of Directors. ATC's and Aurora's fiscal years end February 28.
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TABLE OF CONTENTS
Page
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Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Comparison of Certain Unaudited Data . . . . . . . . . . . . . . . . . . . 25
Summary of Financial Information . . . . . . . . . . . . . . . . . . . . . 27
Pro Forma Consolidated Financial Information
of ATC and Aurora . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ATC's Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . . 41
Aurora's Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . . 55
The Aurora Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . 56
The ATC Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . 59
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
ATC's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Aurora's Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . .121
Description of ATC's Securities. . . . . . . . . . . . . . . . . . . . . .123
Description of Aurora's Securities . . . . . . . . . . . . . . . . . . . .125
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127
Tax Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . .F-1
6
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SUMMARY
THE FOLLOWING SUMMARY IS INTENDED TO SET FORTH CERTAIN PERTINENT FACTS AND
HIGHLIGHTS FROM THE MATERIAL CONTAINED IN THE BODY OF THIS PROSPECTUS/PROXY
STATEMENT. THE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT.
INTRODUCTION
This Prospectus/Proxy Statement relates to an Agreement and Plan of Merger
dated as of January 6, 1995 (the "Merger Agreement") providing for the merger of
Aurora, a Delaware corporation into and with ATC, a Delaware corporation, with
ATC as the Surviving Corporation under the laws of the State of Delaware (the
"Merger"). The Merger Agreement will be submitted to a vote of the Stockholders
of each of ATC and Aurora at their respective Special Meeting of Stockholders.
See "The Merger."
ATC has filed a Form S-4 Registration Statement (File No. 33-88380) of
which this Prospectus/Proxy Statement is a part and constitutes the Prospectus
of ATC. This Prospectus/Proxy Statement includes a maximum of 3,946,402 shares
of ATC Common Stock, including 3,341,452 shares which it is estimated will be
issued at or after the Effective Time of the Merger and 604,950 shares that may
be issued upon conversion of Aurora's Options/Warrants which subsequent to the
Merger will be exchanged for ATC Options/Warrants.
LACK OF INDEPENDENT DIRECTORS - CONFLICTS OF INTEREST
The Merger Agreement was unanimously approved by the respective Board of
Directors of each of ATC and Aurora subject to approval of the Stockholders of
each respective corporation. ATC's Board of Directors consists of George Rubin,
Morry F. Rubin and Richard L. Pruitt. Aurora's Board of Directors consists of
Morry F. Rubin and Richard L. Pruitt. Further, George Rubin and Morry F. Rubin
are principal stockholders of Aurora and may be deemed control persons of both
Aurora and ATC under the Securities Act of 1933, as amended. See "The Aurora
Special Meeting - Principal Stockholders of Aurora" and "The ATC Special Meeting
- - Principal Stockholders of ATC" regarding the security ownership of George
Rubin, Morry F. Rubin and Richard L. Pruitt in both Aurora and ATC. As a result
of their directorships and/or stockholdings in Aurora and ATC, possible
conflicts of interest may have arisen in connection with the fiduciary duties of
such persons to ATC and/or Aurora resulting in the Merger transaction not being
negotiated at arms-length, notwithstanding the fairness opinions rendered by
Royce Investment Group, Inc. ("Royce") and Comprehensive Capital Corporation
("Comprehensive") as discussed herein. Accordingly, no assurance can be given
that the terms of the Merger Agreement contain the best possible terms that
could have been obtained for either the stockholders of Aurora or ATC had the
transaction been negotiated at arms-length. Further, the lack of independent
directors (or a special committee of the Board of Directors
7
<PAGE>
composed of independent directors) has had the effect of the respective Board of
Directors of both ATC and Aurora recommending a transaction that each believes
and has determined is fair and in the best interest of the stockholders
(including non-affiliated stockholders) as a group of each respective
corporation without the input and recommendations that might have been obtained
had either corporation had independent directors or a special committee thereof.
The respective Boards of Directors of ATC and Aurora, in compliance with
Sections 144 and 251 of the Delaware General Corporation Law ("GCL"), are
disclosing the relationships and conflicts of interest of their directors to the
Stockholders of ATC and Aurora and are submitting the Merger Agreement to each
of ATC's and Aurora's Stockholders for their respective approvals as required
under the GCL. See "The Merger - Lack of Independent Directors - Conflicts of
Interest."
THE PARTIES
AURORA
Aurora is a publicly held holding company with no significant operations
except those conducted through its subsidiary ATC, as described below. Its
primary asset is the ownership of 3,258,000 shares of Common Stock of ATC which
represents as of May 1, 1995 approximately 57.0% of ATC's issued and outstanding
shares.
The principal executive office of Aurora is located at 1515 East 10th
Street, Sioux Falls, South Dakota 57103 and its telephone number is (605) 338-
0555.
ATC
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. ("ATC Blattert").
Unless the context indicates otherwise, all references to "ATC" include ATC,
Hygeia, Management Co., ATC New England and ATC Blattert.
ATC is an environmental consulting firm that specializes in the
identification, assessment and testing of and corrective action for complex
environmental projects. ATC's strategy is to provide a diversified set of
consulting services including industrial hygiene, environmental site
assessments, ground water and soil management, environmental compliance,
environmental management, lead based paint management, health and safety
training and risk analysis. Currently, a major portion of the ATC's revenues
are derived from industrial hygiene related services. ATC also maintains
independent analytical testing laboratories for analysis of industrial waste
water, drinking water for lead based contamination, radon presence, and certain
hazardous wastes in support of its industrial hygiene, environmental management,
and lead based paint management consulting services. ATC has also commenced
providing services in the area of risk analysis and computerized decision
support and analysis.
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ATC has provided its environmental services nationally through its regional
offices. Clients of ATC have included financial institutions, commercial real
estate owners and management firms, Fortune 500 Companies, insurance companies,
government agencies, educational institutions, architectural and engineering
firms, defense firms, contractors, and the United States military.
ATC'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.
ATC COMMON STOCK OUTSTANDING
The following table and related footnote thereto provides a brief summary
of ATC's outstanding securities both before and after the merger without giving
effect to any capital changes associated with the exercise of outstanding
options and/or warrants that may take place between now and the Effective Time
of the Merger, except for the issuance of the shares in connection with the
Merger. Between the Effective Date of this Prospectus/Proxy Statement and the
Effective Time of the Merger, the term "capital changes" will be limited to the
exercise of the then outstanding options and warrants since no other capital
changes are anticipated.
Common Stock outstanding before Merger 5,738,318 shares*
Common Stock outstanding after Merger 5,821,770 shares*
- -----------------
* Does not include the following: (a) 570,620 shares reserved for issuance
under outstanding Class C Common Stock Purchase Warrants; (b) 407,720
shares reserved for issuance under and outside existing Stock Option Plans;
and (c) 604,950 shares to be reserved for issuance after the Merger under
ATC Options/ Warrants to be issued in exchange for outstanding Aurora
Options/Warrants.
MEETINGS OF STOCKHOLDERS
THE AURORA SPECIAL MEETING
TIME, DATE AND PLACE OF MEETING. This Prospectus/Proxy Statement is being
furnished to Stockholders of Aurora in connection with the solicitation of
proxies by the Board of Directors of Aurora from holders of the outstanding
common shares, par value $.001 per share, of Aurora (the "Aurora Common Stock")
for use at the Aurora Special Meeting of Stockholders to be held on June 29,
1995 at The Williams Club located at 24 East 39th Street, New York, NY l0016 at
10:00 a.m. local time and any and all adjournments thereof. This
Prospectus/Proxy Statement, the enclosed Notice of Special Meeting of
Stockholders and Proxy are being first mailed to Stockholders of Aurora on or
about May 31, 1995.
RECORD DATE AND SECURITIES ENTITLED TO VOTE. Only holders of record of
Aurora Common Stock outstanding at the close of business
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on May 30, 1995 (the "Record Date") will be entitled to vote at
the Aurora Special Meeting. As of May 1, 1995, 6,101,104 shares of Aurora
Common Stock were outstanding. See "The Aurora Special Meeting - Record Date;
Voting Rights; Votes Required for Approval."
PURPOSE OF THE SPECIAL MEETING. At the Aurora Special Meeting, Aurora
Stockholders will consider and vote upon (i) the ratification, adoption and
approval of the Merger Agreement and (ii) the authorization and approval of
Morry F. Rubin and/or Richard L. Pruitt to vote Aurora's 3,258,000 shares in
favor of the Merger at the ATC Special Meeting of Stockholders. See "The Aurora
Special Meeting."
In the event that the Merger is not consummated, an event which is unlikely
to occur, (i) Aurora will continue as a separate and existing holding
corporation, (ii) Aurora will continue to directly control the affairs of ATC
and (iii) the control group consisting of George Rubin and Morry F. Rubin will
continue to directly control the affairs of Aurora and indirectly to control the
affairs of ATC. No other alternative to the proposed Merger is being considered
and/or presented to the stockholders of Aurora at the Aurora Special Meeting.
VOTES REQUIRED. The affirmative votes of the holders of at least a
majority of the shares of Aurora Common Stock issued and outstanding on the
record date are required to approve the Merger Agreement and the authorization
and approval of Morry F. Rubin and/or Richard L. Pruitt to vote Aurora's
3,258,000 shares of ATC's Common Stock in favor of the Merger Agreement at ATC's
Special Meeting of Stockholders. As of May 1, 1995, executive officers and
directors of Aurora and ATC and members of the family of Lester Morse P.C.,
counsel to ATC, own of record beneficially, directly and indirectly, an
aggregate of approximately 3,034,000 shares of Aurora's outstanding Common Stock
(excluding any Common Stock Options and Common Stock Purchase Warrants owned by
them), constituting 49.7% of Aurora's outstanding Common Stock on such date. It
is expected that these shares will be voted in favor of the Merger Agreement at
the Aurora Special Meeting of Stockholders and in favor of authorizing Morry F.
Rubin and/or Richard L. Pruitt to vote Aurora's 3,258,000 shares of ATC's Common
Stock in favor of the Merger Agreement at ATC's Special Meeting of Stockholders.
The Board of Directors of Aurora has unanimously approved the Merger
Agreement. See "The Aurora Special Meeting - Record Date; Voting Rights; Votes
Required for Approval."
EXCHANGE OF AURORA COMMON STOCK FOR ATC COMMON STOCK. The Merger Agreement
provides for a conversion ratio of .545. This means that each full share of
Aurora Common Stock (other than shares of Aurora Common Stock in respect of
which appraisal rights are perfected under the GCL) will be converted into and
exchanged for .545 of a share of ATC Common Stock. For example, if a
stockholder of Aurora owns 1,000 shares, such stockholder will have
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his Aurora Common Stock converted into and exchanged for 545 shares of ATC
Common Stock at or after the Effective Time of the Merger.
BENEFITS AND EFFECTS OF MERGER TO STOCKHOLDERS OF AURORA AND EXECUTIVE
OFFICERS, DIRECTORS AND AFFILIATES.
Morry F. Rubin and Richard L. Pruitt, executive officers and directors of
both ATC and Aurora, George Rubin, an executive officer and director of ATC,
Donald L. Beck and Christopher Vincze, executive officers of ATC, had a
historical premium of approximately $4,072,000, $284,000, $8,059,000, $37,000
and $28,000, respectively, based upon a comparison of the equivalent per share
value of Aurora's Common Stock as of January 5, 1995 as compared to the
historical market value of Aurora's Common Stock on the same date. The
foregoing describes the benefits to be received by certain officers, directors
and affiliates of Aurora and/or ATC if the historical market value remains the
same on the Effective Date of the Merger. The actual market value cannot be
determined in advance of the Effective Date of the Merger. There can be no
assurance that any stockholder of Aurora (including those named herein) will
receive the premium described hereinabove, which is based on historical market
value. As a result of the Merger, George Rubin's and Morry F. Rubin's control
of ATC will shift from indirect control to direct control. All of the foregoing
benefits are to be derived purely based upon their security ownership of Aurora
which will be exchanged for or become exercisable into ATC Common Stock. No
officers, directors or affiliates of ATC and/or Aurora will receive any
quantifiable benefit from the Merger other than by virtue of their ownership of
Aurora Common Stock and/or securities convertible into Aurora Common Stock which
securities will be exchanged and/or become exercisable into ATC Common Stock
based upon the same conversion ratio as is applied to all other Aurora
stockholders.
Except for the possible resale of the ATC Common Stock (pursuant to
exemptions from registration under the Securities Act of 1933, as amended) that
will be issued in connection with the Merger and the depressive impact that such
resale may have on the public market for the ATC Common Stock, Management of
Aurora is not aware of any material adverse affects and/or risks to the
Stockholders of Aurora as a result of the consummation of the Merger; See "The
Merger - Benefits and Effects of Merger to Stockholders of Aurora and Executive
Officers, Directors and Affiliates."
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THE ATC SPECIAL MEETING:
TIME, DATE AND PLACE OF MEETING. This Prospectus/Proxy Statement is being
furnished to Stockholders of ATC in connection with the solicitation of proxies
by the Board of Directors of ATC from holders of the outstanding common shares,
par value $.01 per share, of ATC (the "ATC Common Stock") for use at the ATC
Special Meeting of Stockholders to be held on June 29, 1995 at The Williams Club
located at 24 East 39th Street, New York, NY l0016, at 12:00 noon local time and
any and all adjournments thereof. This Prospectus/Proxy Statement, the enclosed
Notice of Special Meeting of Stockholders and Proxy are being first mailed to
Stockholders of ATC on or about May 31, 1995.
RECORD DATE AND SECURITIES ENTITLED TO VOTE. Only holders of record of ATC
Common Stock outstanding at the close of business on May 30, 1995 (the "Record
Date") will be entitled to vote at the ATC meeting. As of
May 1, 1995, 5,738,318 shares of ATC Common Stock were outstanding. See "The
ATC Special Meeting - Record Date; Voting Rights; Votes Required for Approval."
PURPOSE OF THE SPECIAL MEETING. At the ATC Special Meeting, ATC
Stockholders will consider and vote upon the ratification, adoption and approval
of the Merger Agreement. See "The Aurora Special Meeting."
VOTES REQUIRED. The affirmative votes of the holders of at least a
majority of the shares of ATC Common Stock issued and outstanding on the record
date are required to approve the Merger Agreement. Since Aurora owns
approximately 57.0% of the issued and outstanding Common Stock of ATC as of May
1, 1995, the outcome of the ATC Special Meeting will be determined by the
Stockholders of Aurora at the Aurora Special Meeting at which time Aurora's
Stockholders will be asked to vote on the Merger Agreement as well as a proposal
to authorize Morry F. Rubin and/or Richard Pruitt to vote the 3,258,000 shares
of ATC Common Stock owned by Aurora in favor of approving the Merger Agreement
at the ATC Special Meeting. Since the holders of 49.7% of Aurora's outstanding
Common Stock have represented that at the Aurora Special Meeting, they intend to
vote in favor of the Merger and in favor of authorizing Morry F. Rubin and/or
Richard L. Pruitt to vote Aurora's shares of ATC's Common Stock in favor of the
Merger at the ATC Special Meeting, the outcome of the proposals at both meetings
has been predetermined and all proposals are expected to pass.
The Board of Directors of ATC has unanimously approved the Merger
Agreement. See "The ATC Special Meeting - Record Date; Voting Rights; Votes
Required for Approval."
EFFECTS OF MERGER ON ATC STOCKHOLDERS. Each outstanding share of ATC
Common Stock outstanding immediately prior to the Effective Time of the Merger
will continue to represent one share of ATC Common Stock at and after the
Effective Time except for Dissenting
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Shares in respect of which appraisal rights are perfected under the GCL. See
"The Merger Agreement," and "Exchange of Aurora Stock Certificates."
Management of ATC is not aware of any material adverse effects and/or risks
to the ATC Stockholders arising as a result of the consummation of the Merger
other than (i) the immediate increase in the outstanding shares of ATC Common
Stock by approximately 83,000 shares (net of the cancellation of Aurora's
3,258,000 shares of ATC), (ii) the possible issuance of an additional 604,950
shares of ATC Common Stock upon the future exercise of ATC Options/Warrants
issued to replace currently outstanding Aurora Options/Warrants, (iii) the $.08
increase in ATC net tangible book value per share of Common Stock from $1.10
prior to the Merger to $1.18 after the Merger is less than the $1.09 increase in
net tangible book value per share of Common Stock for Aurora stockholders from
$.09 prior to the Merger to ATC's net tangible book value per share of $1.18
after the Merger based upon the financial position of the aforesaid companies at
February 28, 1995 without taking into account any changes that have occurred or
will occur subsequent to February 28, 1995 except for the consummation of the
merger, (iv) a possible reduction in the market price of the ATC Common Stock
resulting from the resale of up to 3,946,402 shares of Common Stock pursuant to
exemptions from registration under the Securities Act of 1933, as amended,
including 3,341,452 shares which are being originally issued in connection with
the Merger and 604,950 shares referred to in (ii) above and (v) the fact that
the stockholders of Aurora as a group will directly rather than indirectly
control ATC following the consummation of the Merger. See "Risk Factors" and
"The Merger - Benefits and Effects of Merger to Stockholders of Aurora and
Executive Officers, Directors and Affiliates."
THE TRANSACTION
GENERAL. Subject to the approval of holders of at least a majority of the
issued and outstanding shares of Common Stock of each of ATC and Aurora at the
ATC Special Meeting and Aurora Special Meeting respectively, and certain other
conditions, ATC and Aurora have entered into an Agreement and Plan of Merger
dated as of January 6, 1995 (the "Merger Agreement") providing for the merger of
Aurora with and into ATC with ATC as the Surviving Corporation (the "Merger").
Upon consummation of the Merger which will occur at the time that the
Certificate of Merger is filed with the Department of State of the State of
Delaware (the "Effective Time"), Aurora will cease to exist and ATC will survive
the Merger. Pursuant to the Merger Agreement, and at the Effective Time, each
1.0 share of Common Stock of Aurora, $.001 par value (the "Aurora Common
Stock"), issued and outstanding prior to the Effective Time, other than
Dissenting Shares in respect of which appraisal rights are perfected under the
laws of the State of Delaware, will be converted into .545 of a share of Common
Stock, $.01 par value, of ATC (the "ATC" Common Stock"). Each Common Stock
Purchase Option and Common Stock Purchase Warrant of Aurora outstanding
immediately before and immediately after the Effective Time will at and after
the Effective Time of the Merger represent the right to purchase
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.545 of a share of ATC Common Stock. Each share of Common Stock of ATC
outstanding immediately prior to the Effective Time will continue to represent
one share of Common Stock of ATC (and in the case of ATC's Common Stock Options
and Common Stock Purchase Warrants will continue to represent the right to
purchase one share of Common Stock of ATC) at and after the Effective Time,
except for Dissenting Shares in respect of which appraisal rights are perfected
under the laws of the State of Delaware. Notwithstanding anything contained
herein to the contrary, all options granted under Aurora's 1985 Incentive and
Non-Statutory Stock Option Plan which remain unexercised shall terminate on the
close of business on the day prior to the Effective Time. On May 1, 1995,
30,000 of such Options were outstanding. At the Effective Time of the Merger,
all 3,258,000 shares of ATC Common Stock owned by Aurora will be cancelled and
returned to the status of authorized but unissued Common Stock. The Merger is
expected to be accounted for "in a manner similar to a Pooling of Interests."
See Tax Opinions of Deloitte & Touche LLP as to the Federal income tax
consequences of the Merger filed as an exhibit to the Registration Statement of
which this Prospectus/Proxy Statement forms a part. See also "ATC Special
Meeting - Record Date; Voting Rights; Votes Required for Approval and the Aurora
Special Meeting-Record Date; Voting Rights; Votes Required for Approval."
AURORA BOARD OF DIRECTORS' REASONS FOR MERGER
The Board of Directors of Aurora has unanimously approved the Merger and
recommended that the Aurora Stockholders vote at the Aurora Special Meeting: (i)
FOR the approval of the Merger Agreement, and (ii) FOR the authorization of
Morry F. Rubin and/or Richard L. Pruitt to vote Aurora's 3,258,000 shares of
ATC's Common Stock in favor of the Merger at the ATC Special Meeting which will
be held following the Aurora Special Meeting. Aurora's Board of Directors
believes that the Merger is in the best interests of Aurora and its Stockholders
for the reasons summarized below, including: (i) the inability of Aurora to
enter into new lines of business and/or to easily attract additional financing
or investment without a reduction in its ownership interest in ATC, (ii) the
Merger should afford Stockholders of Aurora the opportunity to exchange their
shares, on a tax free basis, for an ownership interest directly in the operating
entity (i.e. ATC) (see Tax Opinions of Deloitte & Touche LLP as to the Federal
income tax consequences of the Merger filed as an exhibit to the Registration
Statement of which this Prospectus/Proxy Statement forms a part); (iii) the
holders of Aurora Common Stock will receive in the Merger shares of ATC Common
Stock which historically have been more liquid than the market for shares of
Aurora Common Stock, although there can be no assurance as to any future market
for ATC Common Stock; (iv) the combined enterprise may be able to experience
cost savings both administratively and professionally from having only one
company and consequently only incurring the cost involved in having one
reporting company under the Securities Exchange Act of 1934, as amended; (v) the
combined enterprise would eliminate the need to incur additional expenses for
the preparation of cross guarantee and/or pledge agreements for Aurora in
connection with future
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third-party agreements, both of which were required in connection with past and
present institutional loan agreements; and (vi) Management of Aurora believes
that future financing could be obtained for the combined entity on better terms
than would be available to the separate companies, although no assurances can be
given in this regard. In addition to its analysis, the Board investigated the
costs of maintaining Aurora and ATC as separate public corporations and
determined that a merger of Aurora and ATC with estimated offering costs of
approximately $125,000 chargeable to Aurora could result in savings of
approximately $40,000 per year in the professional and related costs incurred in
connection with the filing requirements of Aurora under the Securities and
Exchange Act of 1934, as amended; the maintenance of a transfer agent and other
costs relating to Aurora that would be eliminated in the event of a merger of
Aurora and ATC. See "The Merger - Aurora's Board of Directors' Reasons for
Merger."
ATC BOARD OF DIRECTORS' REASONS FOR THE MERGER.
The Board of Directors of ATC has unanimously approved the Merger and
recommended that the ATC Stockholders vote FOR the approval of the Merger
Agreement at the ATC Special Meeting. ATC's Board of Directors believes that the
Merger is in the best interests of ATC and its Stockholders for the reasons
summarized below including: (i) Management of ATC's concern that Aurora could
enter into other business lines (recognizing that it was previously in the
environmental business other than solely through ATC); (ii) Management's concern
about any possible change of Aurora's relationship with ATC that could
constitute a default under ATC's debt instruments; (iii) Management of ATC's
belief that future financing could be obtained for the combined entity on better
terms than would be available to the separate companies, although no assurances
can be given in this regard; (iv) ATC should be able to utilize Aurora's net
operating loss carryforward of $843,207 at November 30, 1994 (see Tax Opinions
of Deloitte & Touche LLP as to the Federal income tax consequences of the Merger
filed as an exhibit to the Registration Statement of which this Prospectus/Proxy
Statement forms a part) (which carry forward subsequently increased to
approximately $970,000 at February 28, 1995); (v) elimination of ATC's notes
payable to Aurora which amounted to $104,135 at November 30, 1994 (which notes
payable subsequently decreased to $39,969 at February 28, 1995); (vi)
elimination of parent guarantee issues with respect to ATC's future debt
financing transactions; (vii) elimination of perceived market and business
confusion with both companies being publicly traded; and (viii) elimination of
the devotion of ATC staff time and effort on behalf of Aurora and then having
ATC allocate costs to Aurora. See "The Merger - ATC's Board of Directors'
Reasons for Merger."
FEDERAL INCOME TAX CONSEQUENCES. In the opinion of Deloitte & Touche LLP
which opinion is based upon various representations and subject to various
assumptions and qualifications the following is a summary of certain of the
federal income tax consequences which will result from the Merger:
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1. The Merger of Aurora with and into ATC, with ATC surviving, should qualify
as a reorganization under Section 368(a)(1)(A) of the Code. Aurora and ATC
should both be a party to a reorganization.
2. No gain or loss should be recognized by the Aurora shareholders upon the
exchange of their Aurora common stock for ATC common stock.
3. The basis of all the ATC common stock (including any fractional shares
which they otherwise might be entitled to receive) received by the shareholders
of Aurora in the exchange should be the same as the basis of the Aurora stock
exchanged.
4. The holding period of the ATC common stock (including any fractional shares
which they otherwise might be entitled to receive) to be received by Aurora
shareholders should, include the holding period of the Aurora shares surrendered
in the exchange, provided Aurora stock was held as a capital asset on the date
of the exchange.
5. Cash received by a shareholder of Aurora otherwise entitled to receive a
fractional share of ATC common stock in exchange for his Aurora stock should be
treated as if the fractional shares were distributed as part of the exchange and
then were redeemed by ATC. These cash payments should be treated as having been
received as distributions in full payment in exchange for the stock redeemed as
provided in Section 302 of the Code.
6. Where cash is received by a dissenting shareholder of Aurora or ATC, such
cash should be treated as received by the dissenting shareholder as a
distribution in redemption of his stock, subject to the provisions and
limitations of Section 302 of the Code.
The Stockholders of ATC and Aurora are referred to the opinions of Deloitte &
Touche LLP as to the Federal income tax consequences of the Merger filed as
exhibits to the Registration Statement of which this Prospectus/Proxy Statement
forms a part and to "The Merger - Federal Income Tax Consequences" for a
complete discussion of material federal income taxes of the Merger.
CONDITIONS AND TERMINATION. The obligations of the respective parties to
cause the Merger to be consummated are subject to the satisfaction (or, where
permitted, the waiver) of certain conditions, including, but not limited to, the
approval of the Merger Agreement by the respective Stockholders of Aurora and
ATC and the consent of ATC's primary institutional lender. See "The Merger -
Conditions to the Merger; Termination Provisions."
EFFECTIVE TIME OF THE MERGER. It is anticipated that the Merger will
become effective on the date that the Certificate of Merger is filed with the
Department of State of the State of Delaware assuming the Merger Agreement is
approved by the respective Stockholders of Aurora and ATC, the Merger Agreement
is not terminated and the conditions to the Merger are satisfied. See "The
Merger - Effective Time of the Merger."
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FINDERS FEES. No finders fees are payable to any party in connection with
the Merger.
RESALE OF ATC COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The shares of ATC Common Stock to be issued to Stockholders of Aurora in
connection with Merger will be freely transferable under the Securities Act,
except for such shares issued to any person who may be deemed an "affiliate" of
ATC or Aurora within the meaning of Rule 145 promulgated under the Securities
Act of 1933, as amended. See "Description of ATC's Securities - Shares Eligible
for Future Sale."
APPRAISAL RIGHTS. Under the General Corporation Law of the State of
Delaware ("GCL"), holders of ATC Common Stock and holders of Aurora Common Stock
are separately entitled to demand payment for, or obtain appraisal of, the value
of their shares in connection with the Merger if they perfect their rights under
Section 262 of the GCL. Stockholders must follow certain statutory procedures
to perfect their appraisal rights under Section 262 of the GCL. ATC and Aurora
are also required to follow certain procedures for stockholders to perfect their
appraisal rights. These procedures are briefly outlined below:
- ATC/Aurora must provide notice to their respective stockholders not
less than 20 days prior to the meeting together with a copy of Section
262 of the GCL.
- ATC/Aurora stockholders wishing to exercise their respective appraisal
rights must deliver to ATC or Aurora, as the case may be, before the
vote of stockholders on the Merger Agreement, a written demand for
appraisal and must vote against the Merger or affirmatively abstain
from voting on the Merger Agreement.
- Within 10 days after the Effective Time, ATC must send a notice as to
the effectiveness of the Merger to each stockholder who has demanded
appraisal and satisfied the requirements of Section 262 of the GCL.
- With 120 days of the Effective Time but not later, the stockholder
demanding appraisal must file a petition in the Delaware Court of
Chancery demanding a determination of the value of his Aurora or ATC
Common Stock, as the case may be. [ATC or Aurora could also file, but
they have no intention of making such filing.] Within 120 days of the
Effective Time, such stockholder may request certain information from
ATC, setting forth the aggregate number of shares of Aurora or ATC
Common Stock not voted in favor of the Merger Agreement and with
respect to which demands for appraisal have been received, including
the number of holders of such shares. Such statement must be mailed
by ATC within 10 days after written request has been received by ATC
or within 10 days after
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the expiration of the period for delivery of demands for appraisal,
whichever is later.
- The Court may require stockholders to submit stock certificates to the
Register in Chancery.
- Upon proper filing and service upon ATC of the petition, ATC has 20
days to file in the Register in Chancery a duly verified list
containing the names and address of all stockholders who have demanded
payment for their shares and with whom agreement as to the value of
their shares have not been reached by ATC.
See "The Merger - Appraisal Rights" for a complete description of the Delaware
statutory appraisal rights.
INDEPENDENT FAIRNESS OPINIONS. Royce Investment Group, Inc. ("Royce"),
Woodbury, New York, has been retained by ATC as investment bankers regarding an
appropriate and fair and equitable share exchange ratio to be proposed by ATC to
the Stockholders of Aurora in connection with the Merger of Aurora into ATC.
Comprehensive Capital Corporation ("Comprehensive") Westbury, New York, has
been retained by Aurora as investment bankers regarding an appropriate and fair
and equitable share exchange ratio to the Stockholders of Aurora in considering
the proposal of ATC received in connection with the Merger of Aurora into ATC.
The exchange ratio recommended by Royce to ATC's Board of Directors was
that ATC should offer to exchange up to .53 share of its Common Stock for each
1.0 share of Aurora Common Stock. The exchange ratio recommended by
Comprehensive to Aurora's Board of Directors was that ATC should offer to
exchange at least .56 share of its Common Stock for each 1.0 share of Aurora
Common Stock.
Although Royce and Comprehensive evaluated the financial terms of the
Merger, i.e. the recommended exchange ratio, the final conversion ratio of .545
of a share of ATC Common Stock for each 1.0 share of Aurora Common Stock was
determined by the Board of Directors by adding the conversion ratios recommended
by the professional opinions of each independent investment banker and dividing
the sum by two, in view of the slight difference in the recommended exchange
ratios received from the aforementioned investment bankers and the lack of
independent directors to negotiate an arms length transaction. See "Risk
Factors."
Pursuant to Royce's and Comprehensive's supplemental opinions dated March
8, 1995, Royce and Comprehensive determined that the final conversion ratio is
fair and equitable to the stockholders of ATC and Aurora, respectively.
The full text of Royce's and Comprehensive's respective written opinions
and supplements thereto which set forth the assumptions made, matters considered
and limitations on the review undertaken are attached as Attachment C and
Attachment D,
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respectively, to this Proxy Statement and are incorporated herein by reference.
See "The Merger - Independent Fairness Opinions."
RISK FACTORS
The Merger Shares offered hereby are speculative and involve a high degree
of risk. Prospective investors should carefully consider, among other things,
the following risk factors:
1. CONTINGENT LIABILITY AND 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. Increased limits as high as $10,000,000 per claim and $10,000,000 in
the aggregate 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 has in the past filed two notices
of claim which, in the aggregate, amounted to $5,540,000 in amount claimed.
Although both of these matters were dismissed in ATC's favor in each case
without the payment of any damages, no assurances can be given that future
claims will not be filed against ATC or that ATC will continue to be able to
obtain insurance coverage on terms satisfactory to ATC. 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 clients may require that ATC maintain liability insurance, the
possible future unavailability of such insurance could adversely affect ATC's
ability to compete effectively. See "Business - Insurance."
2. CHANGING REGULATORY ENVIRONMENT. The environmental services industry
is subject to extensive federal, state and/or local regulations governing, among
other things, hazardous substances, wastes, environmental liability and
emergency response, air quality, water quality, and solid waste. Although ATC
has in the past received citations for minor violations of certain regulations
in New York City, ATC believes that it is substantially in compliance with all
such regulations, standards and/or legislation. However, such regulations,
standards and legislation are subject to change at any time. ATC is not aware
of any pending legislation or regulatory change that would adversely affect ATC
and/or its current arrangements with the New York City Schools. The number of
state and local regulations are growing rapidly due to the public awareness of
the inherent dangers associated with hazardous substances and hazardous
materials. Because of the changing regulatory environment, there can be no
assurance that violations of federal, state or local laws and regulations will
not occur in the future or that future changes in such laws and regulations
would not have a material adverse effect on ATC's business. In addition, in the
event that federal, state and/or local governments show a decreasing interest in
enacting or enforcing legislation pertaining to environmental issues and to
19
<PAGE>
ATC's environmental services, ATC's business prospects may be adversely
effected. See "Business - Environmental Legislation and Regulation."
3. COMPETITION. The environmental services industry is subject to
intense competition, particularly in the geographic areas in which ATC operates,
with no single dominate firm. In addition to the approximately 3,500 small
consulting and testing firms operating nationally, ATC competes with several
national environmental engineering testing and consulting firms such as Law
Engineering, Inc. and The Earth Technology Corp. 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 services industry is
continually evolving. See "Business - Competition."
4. DEPENDENCE UPON KEY PERSONNEL. ATC is substantially dependent upon
its executive officers in implementing its marketing plans and in overseeing its
operations. ATC does not have any employment contracts with its executive
officers and does not have any key man life insurance on the lives of its
executive officers. See "Management."
5. ADDITIONAL FINANCING. It is possible that ATC may require additional
financing in order to support its expansion efforts; and, of course, there can
be no assurance that ATC's operations will supply such financing. If ATC should
require additional financing in the future, there is no certainty that financing
will be available in the amount required, or, if available, that it can be
obtained on terms satisfactory to ATC.
6. CONTROL BY GEORGE RUBIN AND MORRY F. RUBIN. As of May 1, 1995, ATC
has 5,738,318 shares of Common Stock issued and outstanding, 3,258,000 shares of
which are owned by Aurora, which is controlled by George Rubin and Morry F.
Rubin (see "Management") who together beneficially own approximately 47.3% of
the issued and outstanding shares of Common Stock of Aurora, without giving
effect to the beneficial ownership of certain outstanding Aurora Options and
Warrants which would increase such beneficial ownership interest to
approximately 55%. Since ATC's Certificate of Incorporation does not provide
for cumulative voting, the holders of more than 50% of the outstanding shares
can elect all of the directors if they choose to do so, in which event the
holders of the remaining shares can not elect any directors. At and after the
Effective Time of the Merger, George Rubin and Morry F. Rubin are expected to
beneficially own, in the aggregate, (including Options and Warrants owned by
them to purchase additional ATC Common Stock) approximately 37.5% of the then
outstanding ATC Common Stock. As a result of the Merger, George Rubin's and
Morry F. Rubin's control of ATC will shift from indirect control to direct
control and such persons are more likely than not to be in a position to elect
all of ATC's directors and to thereby control all of the affairs of ATC. See
"The ATC Meeting - Principal Stockholders of ATC."
20
<PAGE>
7. PUBLIC MARKET. ATC's Common Stock and Class C Warrants are traded in
the over-the-counter market on NASDAQ as a Small Cap Issue under the symbols
"ATCE" and "ATCEL", respectively. No assurance can be given that there will be
an established market for ATC's securities in the future or that ATC will be
able to meet the maintenance requirements set by NASDAQ in order to keep ATC's
securities trading in such market place. See "The Merger - ATC Market
Information."
8. NO DIVIDENDS. ATC has not previously 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 loan agreement with its
principal lender, ATC may not pay dividends without such lender's consent. Any
Stockholder who anticipates the need for dividends from their investments should
consider exercising and perfecting their Appraisal Rights which, among other
things, requires an actual vote against the Merger or affirmatively abstaining
from voting on the Merger. See "The Merger - Appraisal Rights" and "Dividend
Policy."
9. SHARES AVAILABLE FOR RESALE. At the Effective Time of the Merger,
Aurora's 3,258,000 shares of ATC Common Stock will be cancelled (and returned to
the status of authorized but unissued shares) and ATC will issue as of the
Effective Time a maximum of 3,341,452 shares of its Common Stock to Stockholders
of Aurora and will reserve for issuance an aggregate of 604,950 shares of ATC
Common Stock issuable upon exercise of Aurora Common Stock Purchase Warrants and
Aurora Common Stock Purchase Options which are outstanding at and after the
Effective Time. Of the 3,341,452 shares to be received by Stockholders of
Aurora, except for approximately 1,644,000 shares of ATC Common Stock to be
received by affiliates, all of the aforesaid shares are expected to be eligible
to be resold without further restriction unless the holders of these ATC shares
subsequently become affiliates of ATC. Further, such 1,644,000 shares that may
be issued to affiliates plus 604,950 shares issuable upon exercise of
Options/Warrants are eligible to be resold commencing on or after the Effective
Date in compliance with certain exemptions from registration under the
Securities Act of 1933, as amended, pursuant to Rule 145(d) and Rule 144 of such
Act. Stockholders of Aurora and ATC should be aware that the possibility of
sales within a reasonably short period of time after the Effective Time may have
a depressive effect on the market price of ATC's Securities if any market then
exists and therefore the ability of an investor to sell his securities may be
adversely affected by the number of shares that may be sold.
10. POTENTIAL SUBSTANTIAL INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING IF EXISTING ATC WARRANTS ARE EXERCISED. If all of ATC's Redeemable
Class C Warrants covering an aggregate of a maximum of 570,620 shares were
to be exercised (as to which there can be no assurance whatsoever),
there would be a 570,620
21
<PAGE>
share increase in the number of outstanding shares of Common Stock of ATC.
If such exercise of Warrants occurs after the date of this Prospectus/Proxy
Statement, this increase in the amount of Common Stock of ATC combined
with the shares to be issued in connection with or after the Merger,
may substantially reduce the then market price of the Common Stock.
11. CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS. As
permitted by the Delaware General Corporation Law, the Certificate of
Incorporation of each of ATC and Aurora provide that a director of ATC
and/or Aurora, as the case may be, will not be personally liable to
such corporation or its Stockholders for monetary damages for breach
of the fiduciary duty of care as a director, except under certain limited
circumstances including breach of the director's duty of loyalty to the
corporation or its Stockholders or any transaction from which the director
derived an improper personal benefit.
The by-laws of each of ATC and Aurora provide for the indemnification
of such companies' officers and directors to the fullest extent permitted by
Delaware law. In this respect, ATC and Aurora have entered into indemnification
agreements with their respective 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 and/or officer of such company
or served any other corporation in any capacity at the request of such company
in the manner and to the extent permitted by law.
ATC and Aurora have been advised that it is the position of the
Securities and Exchange Commission that insofar as the foregoing provisions may
be invoked to disclaim liability for damages arising under the Securities Laws,
that such provisions are against public policy as expressed in the Securities
Laws and are therefore unenforceable.
12. LACK OF INDEPENDENT DIRECTORS/CONFLICTS OF INTEREST OF AURORA AND ATC
BOARD MEMBERS. The Merger Agreement was unanimously approved by the respective
Board of Directors of each of ATC and Aurora subject to approval of the
Stockholders of each respective corporation. ATC's Board of Directors consists
of George Rubin, Morry F. Rubin and Richard L. Pruitt. Aurora's Board of
Directors consists of Morry F. Rubin and Richard L. Pruitt. Further, George
Rubin and Morry F. Rubin are principal stockholders of Aurora and may be deemed
control persons of both Aurora and ATC under the Securities Act of 1933, as
amended. See" The Aurora Special Meeting - Principal Stockholders of Aurora"
and "The ATC Special Meeting - Principal Stockholders of ATC" regarding the
security ownership of George Rubin, Morry F. Rubin and Richard L. Pruitt in both
Aurora and ATC. As a result of their directorships and/or stockholdings in
Aurora and ATC, possible conflicts of interest may have arisen in connection
with the fiduciary duties of such persons
22
<PAGE>
to ATC and/or Aurora resulting in the Merger transaction not being negotiated at
arms-length, notwithstanding the fairness opinions rendered by Royce and
Comprehensive as discussed herein. Accordingly, no assurance can be given that
the terms of the Merger Agreement contain the best possible terms that could
have been obtained for either the stockholders of Aurora or ATC had the
transaction been negotiated at arms-length. Further, the lack of independent
directors (or a special committee of the Board of Directors composed of
independent directors) has had the effect of the respective Board of Directors
of both ATC and Aurora recommending a transaction that each believes and has
determined is fair and in the best interest of the stockholders (including non-
affiliated stockholders) as a group of each respective corporation without the
input and recommendations that might have been obtained had either corporation
had independent directors or a special committee thereof.
The respective Boards of Directors of ATC and Aurora, in compliance with
Section 144 of the Delaware General Corporation Law, are disclosing the
relationships and conflicts of interest of their directors to the Stockholders
of ATC and Aurora and are submitting the Merger Agreement to each of ATC's and
Aurora's Stockholders for their respective approvals. The approval of the
Merger Agreement by the respective stockholders of ATC and Aurora and the
approval by the Stockholders of Aurora of the authorization of Morry F. Rubin
and/or Richard L. Pruitt to vote Aurora's 3,258,000 shares of ATC in favor of
the Merger at the ATC Special Meeting, are all assured since George Rubin, Morry
F. Rubin and certain other officers and directors of ATC and Aurora and other
persons who are holders of an aggregate of 49.7% of the issued and outstanding
shares of Aurora intend to vote in favor of such proposals. Accordingly any
vote by stockholders who are not interested directors will have no effect on the
approval or disapproval of the Merger. The exchange rate of .545 of a share of
ATC Common Stock for each 1.0 Aurora share of Common Stock was determined by
adding the conversion ratios recommended by the professional opinions of each
independent investment banker and dividing the sum by two, in view of the slight
difference in the recommended exchange ratios received from the aforementioned
investment bankers and the lack of independent directors to negotiate an arms
length transaction. See "Independent Fairness Opinions." Except for the
conflicts noted above, there are no known conflicts of interest involving
affiliates of ATC and/or Aurora in connection with this transaction. See "The
Merger - Lack of Independent Directors - Conflicts of Interest."
13. BENEFITS OF MERGER TO EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES OF
AURORA AND ATC. Morry F. Rubin and Richard L. Pruitt, executive officers and
directors of both ATC and Aurora, George Rubin, an executive officer and
director of ATC, Donald L. Beck and Christopher Vincze, executive officers of
ATC, had a historical premium of approximately $4,072,000, $284,000, $8,059,000,
$37,000 and $28,000, respectively, based upon a comparison of the equivalent per
share value of Aurora's Common Stock as of January 5, 1995 as compared to the
historical market
23
<PAGE>
value of Aurora's Common Stock on the same date. The foregoing describes the
benefits to be received by certain officers, directors and affiliates of Aurora
and/or ATC if the historical market value remains the same on the Effective Date
of the Merger. The actual market value cannot be determined in advance of the
Effective Date of the Merger. There can be no assurance that any stockholder of
Aurora (including those named herein) will receive the premium described
hereinabove, which is based on historical market value. As a result of the
Merger, George Rubin's and Morry F. Rubin's control of ATC will shift from
indirect control to direct control. All of the foregoing benefits are to be
derived purely based upon their security ownership of Aurora which will be
exchanged for or become exercisable into ATC Common Stock. No officers,
directors or affiliates of ATC and/or Aurora will receive any quantifiable
benefit from the Merger other than by virtue of their ownership of Aurora Common
Stock and/or securities convertible into Aurora Common Stock which securities
will be exchanged and/or become exercisable into ATC Common Stock based upon the
same conversion ratio as is applied to all other Aurora stockholders.
Except for the possible resale of the ATC Common Stock (pursuant to
exemptions from registration under the Securities Act of 1933, as amended) that
will be issued in connection with the Merger and the depressive impact that such
resale may have on the public market for the ATC Common Stock, Management of
Aurora is not aware of any material adverse affects and/or risks to the
Stockholders of Aurora as a result of the consummation of the Merger.
14. EFFECTS OF MERGER ON ATC STOCKHOLDERS. Management of ATC is aware of
certain material adverse effects and/or risks to the ATC Stockholders arising as
a result of the consummation of the Merger which include (i) the immediate
increase in the outstanding shares of ATC Common Stock by approximately 83,000
shares (net of the cancellation of Aurora's 3,258,000 shares of ATC), (ii) the
possible issuance of an additional 604,950 shares of ATC Common Stock upon the
future exercise of ATC Options/Warrants issued to replace currently outstanding
Aurora Options/Warrants, (iii) the $.08 increase in ATC net tangible book value
per share of Common Stock from $1.10 prior to the Merger to $1.18 after the
Merger is less than the $1.09 increase in net tangible book value per share of
Common Stock for Aurora stockholders from $.09 prior to the Merger to ATC's net
tangible book value per share of $1.18 after the Merger based upon the
financial position of the aforesaid companies at February 28, 1995 without
taking into account any changes that have occurred or will occur subsequent to
February 28, 1995 except for the consummation of the Merger, (iv) a possible
reduction in the market price of the ATC Common Stock resulting from the resale
of up to 3,946,402 shares of Common Stock pursuant to exemptions from
registration under the Securities Act of 1933, as amended, including 3,341,452
shares which are being originally issued in connection with the Merger and
604,950 shares referred to in (ii) above and (v) the fact that the stockholders
of Aurora as a group will directly rather than indirectly control ATC following
24
<PAGE>
the consummation of the Merger. See "The Merger - Benefits and Effects of
Merger to Stockholders of Aurora and Executive Officers, Directors and
Affiliates."
15. CONFLICT OF INTEREST OF COUNSEL. The Merger Agreement provides that
ATC and Aurora have acknowledged that the law firm of Lester Morse, P.C.
represents ATC and Aurora in certain matters unrelated to this transaction and
has been requested by the parties to represent ATC in connection with the merger
transaction. Further, as of February 28, 1995, members of Lester Morse's family
own 50,000 shares of Common Stock of Aurora, Warrants to purchase an additional
60,000 shares of Common Stock of Aurora and Options to purchase 5,000 shares of
ATC. Further, ATC and Aurora acknowledge that the law firm of Kaufmann, Feiner,
Yamin, Gildin & Robbins has in the past represented Aurora and ATC in connection
with a certain matter unrelated to the merger transaction and has been requested
by the parties to represent Aurora. Aurora and ATC have agreed to waive any and
all claims of conflicts of interest resulting from actions.
COMPARISON OF CERTAIN UNAUDITED DATA
The following table contains certain unaudited comparative data (i) on a
historical basis as to balance sheet data for ATC and on a pro forma combined
basis (to give effect to the acquisition of Con-Test) as to operating data for
ATC, (ii) on a historical basis for Aurora, (iii) on a pro forma combined basis
for ATC (as described in (i) above) and Aurora and (iv) on an equivalent pro
forma basis per share of Aurora Common Stock assuming that each share is
converted into .545 shares of ATC stock. Such information is based on the
Merger of ATC and Aurora being accounted for "In a manner similar to a Pooling
of Interests." The information below should be read in conjunction with the
consolidated historical statements and notes thereto of ATC and Aurora, and the
selected historical financial data and Pro Forma Consolidated Financial
Information of ATC and Aurora, including notes thereto, appearing elsewhere
herein.
25
<PAGE>
<TABLE>
<CAPTION>
ATC Combined Pro
Forma AURORA Pro Forma Adjustments Pro Forma Combined
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
(YEAR ENDED FEB. 28, 1995)
Total revenue $41,391,933 $36,271,557 ($36,271,557) $41,391,933
Net income 2,757,502 1,830,086 (1,938,568) 2,649,020
Net income per common share
Primary $0.47 $0.27 -- $0.43
Fully diluted $0.47 $0.26 -- $0.41
Weighted average number of common shares:
Primary 5,821,847 6,861,606 -- 6,224,064
Fully diluted 5,918,224 6,916,816 -- 6,419,454
Dividends per share -- -- -- --
BALANCE SHEET DATA-FEBRUARY 28, 1995
Total assets 25,009,222 25,186,984 ($24,784,176) 25,412,030
Total indebtedness 4,862,362 4,822,393 (4,862,362) 4,822,393
Total stockholders'equity 13,813,194 8,046,505 (7,489,836) 14,369,863
Book value per common share $2.41 $1.32 -- $2.47
<FN>
"The Notes accompanying the combined pro forma financial statements (pages 34 to
40) are an integral part of the financial data."
</TABLE>
26
<PAGE>
Year Ended
Feb. 28,
1995
----------
Pro Forma Earnings per Share:
Primary $0.43
Fully Diluted 0.41
Pro Forma Combined Equivalent
Per Share Data:
Earnings per equivalent share
Primary $0.23
Fully Diluted 0.22
Dividends per equivalent share --
Feb. 28,
1995
----------
Book value per equivalent share $1.35
SUMMARY OF FINANCIAL INFORMATION
The following summary financial information has been abstracted from,
qualified in its entirety by, and should be read in conjunction with the
financial statements of ATC and Aurora and the notes thereto, appearing
elsewhere herein and reference should be made to such statements for more
detail. The statement of operations data and balance sheet data for each of ATC
and Aurora set forth below for the five fiscal years ended February 28, 1995 are
derived from their respective audited financial statements and in the case of
the three fiscal years ended February 28, 1995, are derived from the audited
financial statements included elsewhere in this Prospectus/Proxy Statement.
27
<PAGE>
COMPARATIVE SELECTED FINANCIAL DATA OF ATC
The following is selected financial information only, and is derived from the
ATC's consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Statement of Operations February 28, February 29, February 28, February 28, February 28,
Data: 1991 1992 (4) 1993 (3) 1994 (2)(3) 1995 (1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $10,437,344 $10,578,187 $16,539,254 $26,664,385 $36,271,557
Income (Loss) before
income taxes 433,988 (375,397) 653,144 3,077,048 5,300,520
Net Income (Loss) 223,563 (236,003) 353,144 1,867,048 3,256,520
Earnings (Loss) per Common
and Dilutive Common
Equivalent Share:
Primary .04 (.05) .07 .35 .57
Fully Diluted .04 (.05) .07 .35 .56
Cash Dividends per Share -0- -0- -0- -0- -0-
<CAPTION>
Balance Sheet Data: February 28, February 29, February 28, February 28, February 28,
1991 1992 1993 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working Capital $ 3,829,985 $ 3,469,569 $3,342,527 $6,049,013 $8,113,738
Long-Term Debt Less
Current Maturities 714,726 508,606 1,114,489 2,182,119 3,892,766
Total Assets 7,881,425 6,991,403 9,335,277 14,156,887 25,009,222
Stockholders' Equity 5,344,476 5,091,777 5,812,901 7,659,485 13,813,194
<FN>
(1) On October 1, 1994, ATC acquired certain assets of Con-test, Inc. - see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) On April 30, 1993, ATC acquired certain assets of BSE Management, Inc. -
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(3) On June 10, 1992, ATC entered into an agreement to acquire Bio/West, Inc.
On October 14, 1993, this agreement was rescinded - see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) On July 23, 1991, ATC acquired certain assets of Dennison Environmental,
Inc.
</TABLE>
28
<PAGE>
COMPARATIVE SELECTED FINANCIAL DATA OF AURORA
The following is selected financial information only, and is derived from
Aurora's consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Statement of Operations Feb. 28, Feb. 29, Feb. 28, Feb. 28, Feb. 28,
Data: 1991 1992 (4) 1993 (3) 1994 (2)(3) 1995 (1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $10,444,412 $10,578,187 $16,539,254 $26,664,385 $36,271,557
Income (Loss)
before Income Taxes
and Minority Interest 375,592 (436,195) 616,573 3,029,222 5,174,126
Net Income (Loss) 113,365 (214,466) 180,830 1,099,672 1,830,086
Earnings (Loss) per Common
and Dilutive Common
Equivalent Share:
Primary .02 (.04) .03 .17 .27
Fully Diluted .02 (.04) .03 .17 .26
Cash Dividends per Share -0- -0- -0- -0- -0-
<CAPTION>
Balance Sheet Data: February 28, February 29, February 28, February 28, February 28,
1991 1992 1993 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working Capital $ 3,789,951 $ 3,479,204 $3,328,021 $6,160,043 $8,317,111
Long-Term Debt Less
Current Maturities 714,726 508,606 1,114,489 2,182,119 3,892,766
Total Assets 8,005,429 7,092,109 9,431,314 14,173,167 25,186,984
Stockholders' Equity 3,522,424 3,314,406 3,563,916 4,828,961 8,046,505
<FN>
(1) On October 1, 1994, ATC acquired certain assets of Con-test, Inc. - see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) On April 30, 1993, ATC acquired certain assets of BSE Management, Inc. -
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(3) On June 10, 1992, ATC entered into an agreement to acquire Bio/West, Inc.
On October 14, 1993, this agreement was rescinded - see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) On July 23, 1991, ATC acquired certain assets of Dennison Environmental,
Inc.
</TABLE>
29
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
OF ATC AND AURORA
The selected pro forma consolidated financial information below has been
prepared by consolidating, on a pro forma basis, the balance sheets and the
statements of operations of ATC and Aurora for the periods indicated. The
proposed Merger will be accounted for "In a manner similar to a Pooling of
Interests." The following is qualified in its entirety by the more complete
information contained in the unaudited pro forma consolidated financial
statements and accompanying notes which are an integral part thereof included
elsewhere in this Prospectus/Proxy Statement.
30
<PAGE>
AURORA ENVIRONMENTAL INC. AND ATC ENVIRONMENTAL INC.
PRO FORMA FINANCIAL INFORMATION
____________________________________________________________________________
The following unaudited pro forma combined condensed financial statements
for Aurora and ATC have been prepared based upon the historical financial
results of the companies. The pro forma combined financial data give effect
to the merger of ATC and Aurora under a method of accounting similar to a
pooling of interests, based upon the assumptions set forth in the notes to
the pro forma combined condensed financial statements included herein.
The pro forma combined results are not necessarily indicative of the results
which would have been attained if the merger had been consummated at the
beginning of Aurora's and ATC's 1995 fiscal year or which may be attained
in the future.
The pro forma combined condensed balance sheet and statement of operations
set forth the combination of the financial positions of Aurora and ATC as of
February 28, 1995 and the combination of their results of operations for the
twelve month period ended February 28, 1995, after giving effect to the merger
and the applicable adjustments to reflect the accounting method used, similar
to a pooling of interests, and to reflect the acquisition of Con-Test, Inc.
(Con-Test) by ATC, under the purchase method of accounting, as though it
occurred at the beginning of the 1995 fiscal year.
The pro forma combined condensed financial information should be read in
conjunction with the notes thereto and with the audited financial statements of
Aurora and ATC for their fiscal years ended February 28, 1995 and of Con-Test
for its years ended December 31.
31
<PAGE>
AURORA ENVIRONMENTAL INC. AND ATC ENVIRONMENTAL INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
FEBRUARY 28, 1995
____________________________________________________________________________
<TABLE>
<CAPTION>
Note (3)
---------------------
ATC Aurora Pro Forma Pro Forma
ASSETS (Audited) (Audited) Adjustments Notes Combined
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,377,862 $ 1,555,124 $ (1,397,862) (F) $ 1,535,124
Trade accounts receivable - net 11,859,991 11,859,991 (11,859,991) (A) 11,859,991
Costs in excess of billings on uncompleted contracts 447,000 447,000 (447,000) (A) 447,000
Prepaid expenses and other assets 431,791 432,291 (431,791) (A) 432,291
Deferred income taxes 132,700 132,700 112,346 (D) 377,746
----------- ----------- ------------ -----------
Total current assets 14,249,344 14,427,106 (14,024,298) 14,652,152
Property & Equipment - net 3,151,286 3,151,286 (3,151,286) (A) 3,151,286
Goodwill - net 7,166,998 7,166,998 (7,166,998) (A) 7,166,998
Covenants not to compete - net 317,979 317,979 (317,979) (A) 317,979
Other 123,615 123,615 (123,615) (A) 123,615
----------- ----------- ------------ -----------
$25,009,222 $25,186,984 $(24,784,176) $25,412,030
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term debt $ 88,720 $ 88,720 $ (88,720) (A) $ 88,720
Current maturities of long-term debt 840,907 840,907 (840,907) (A) 840,907
Accounts payable 1,963,484 1,977,842 (1,963,484) (A) 1,977,842
Income taxes payable 128,250 128,250 (256,500) (D) -
Due to related company 39,969 - (39,969) (B) -
Accrued compensation 2,053,797 2,053,797 (2,053,797) (A) 2,053,797
Accrued expenses 1,020,479 1,020,479 (1,020,479) (A) 1,020,479
----------- ----------- ------------ -----------
Total current liabilities 6,135,606 6,109,995 (6,263,856) 5,981,745
----------- ----------- ------------ -----------
Long-term debt, less current maturities 3,892,766 3,892,766 (3,892,766) (A) 3,892,766
Other long term liabilities 1,087,056 1,087,056 (1,087,056) (A) 1,087,056
Deferred income taxes 80,600 80,600 (80,600) (A) 80,600
Minority interest in subsidiary - 5,970,062 (5,970,062) (C) -
STOCKHOLDERS' EQUITY:
Common stock, par value 57,380 6,101 (5,266) (C) 58,215
Additional paid-in capital 7,484,453 5,729,363 (5,536,794) (C) 7,677,022
Notes receivable - common stock (15,000) (15,000) 15,000 (A) (15,000)
Retained earnings 6,286,361 2,326,041 (1,962,776) (G) 6,649,626
----------- ----------- ------------ -----------
Total stockholders' equity 13,813,194 8,046,505 (7,489,836) 14,369,863
----------- ----------- ------------ -----------
$25,009,222 $25,186,984 $(24,784,176) $25,412,030
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
</TABLE>
See notes to pro forma combined condensed financial statements.
32
<PAGE>
AURORA ENVIRONMENTAL INC. AND ATC ENVIRONMENTAL INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1995
____________________________________________________________________________
<TABLE>
<CAPTION>
Note 2 ATC & Note 3
ATC ------------------------------ Con-Test ------------------------
Note (1) Con-Test Pro Forma Pro Forma Aurora Pro Forma Pro Forma
(Audited) (Unaudited) Adjustments Note(s) Combined (Audited) Adjustments Note(s)Combined
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $36,271,557 $5,120,376 $ - $41,391,933 $36,271,557 $(36,271,557)(A) $41,391,933
COST OF REVENUES 18,355,493 1,820,215 - 20,175,708 18,355,493 (18,355,493)(A) 20,175,708
----------- ----------- --------- ----------- ----------- ------------- -----------
Gross profit 17,916,064 3,300,161 - 21,216,225 17,916,064 (17,916,064) 21,216,225
OPERATING EXPENSES:
Selling 1,105,937 290,427 - 1,398,364 1,105,837 (1,105,837)(A) 1,396,364
General and administrative 10,996,709 3,652,236 (60,063) (A) 14,586,882 11,052,572 (10,946,709)(E) 14,694,745
Provision for bad debts 188,819 16,367 - 205,186 188,919 (188,919)(A) 205,186
----------- ----------- --------- ----------- ----------- ------------- -----------
12,291,465 3,959,030 (60,063) 16,190,432 12,347,328 (12,241,465) 16,296,295
----------- ----------- --------- ----------- ----------- ------------- -----------
Operating income (loss) 5,624,599 (658,869) 60,063 5,025,793 5,568,736 (5,674,599) 4,919,930
NONOPERATING EXPENSE:
Interest expense 285,570 94,121 125,752 (B) 505,443 285,570 (285,570)(A) 505,443
Interest income (34,073) (1,448) - (35,521) (35,212) 34,073 (A) (36,660)
Other, net 72,582 (5,820) - 66,762 144,252 (72,582)(A) 138,432
----------- ----------- --------- ----------- ----------- ------------- ----------
324,079 86,853 125,752 536,684 394,610 (324,079) 607,215
----------- ----------- --------- ----------- ----------- ------------- ----------
Income (loss) before taxes 5,300,520 (745,722) (65,689) 4,489,109 5,174,126 (5,350,520) 4,312,715
INCOME TAX EXPENSE (BENEFIT) 2,044,000 - (312,393) (C) 1,731,607 2,044,000 (2,111,912)(D) 1,663,695
----------- ----------- --------- ----------- ----------- ------------- ----------
INCOME (L0SS) BEFORE MINORITY INTEREST 3,256,520 (745,722) 246,704 2,757,502 3,130,126 (3,238,608) 2,649,020
MINORITY INTEREST IN NET INCOME (LOSS)
OF SUBSIDIARY - - - - (1,300,040) 1,300,040(C) -
----------- ----------- --------- ----------- ----------- ------------- ----------
NET INCOME (LOSS) $3,256,520 $(745,722) $246,704 $2,757,502 $1,830,086 $(1,938,568) $2,649,020
----------- ----------- --------- ----------- ----------- ------------- ----------
----------- ----------- --------- ----------- ----------- ------------- ----------
EARNINGS PER COMMON AND DILUTIVE COMMON
EQUIVALENT SHARE:
Primary $ 0.57 (D) $ 0.47 $ 0.27 (H) $ 0.43
----------- ----------- ------------- ----------
----------- ----------- ------------- ----------
Fully diluted $ 0.56 (D) $ 0.47 $ 0.26 (H) $ 0.41
----------- ----------- ------------- ----------
----------- ----------- ------------- ----------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD:
Primary 5,753,856 (D) 5,821,847 6,861,606 (H) 6,224,064
----------- ----------- ------------- ----------
----------- ----------- ------------- ----------
Fully diluted 5,850,233 (D) 5,918,224 6,916,816 (H) 6,419,454
----------- ----------- ------------- ----------
----------- ----------- ------------- ----------
</TABLE>
See notes to pro forma combined condensed financial statements.
33
<PAGE>
AURORA ENVIRONMENTAL INC. AND ATC ENVIRONMENTAL INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
____________________________________________________________________________
1. GENERAL
The pro forma combined condensed balance sheet sets forth the combination of
the financial positions of Aurora and ATC as of February 28, 1995.
The pro forma combined condensed statement of operations sets forth the
results of operations of Aurora and ATC for the year ended February 28,
1995. ATC's results of operations for the year ended February 28, 1995
have been adjusted to reflect the acquisition of Con-Test as though it
occurred on March 1, 1994, the beginning of the fiscal year.
The pro forma combined condensed financial statements should be read in
conjunction with the other pro forma financial information contained in
this Proxy Statement/Prospectus and the companies' financial statements and
notes thereto.
CON-TEST: The pro forma combined condensed statement of operations for the
year ended February 28, 1995 assumes the acquisition occurred on March 1,
1994, the beginning of the 1995 fiscal year. The pro forma adjustments were
based on Con-Test's 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.
ATC acquired most of the assets of Con-Test and entered into a five year
covenant not to compete with the former owner for the consideration and
costs summarized as follows:
Consideration to seller:
Cash $2,100,000
ATC restricted common stock-116,556 shares 492,905
Note payable, due in three annual installments of $178,333
beginning September 30, 1995; interest accrues at 8.5%
and is payable quarterly 535,000
----------
3,127,905
----------
Liabilities assumed:
Current liabilities 1,908,465
Non-current liabilities 478,027
Notes payable 1,981,982
----------
4,368,474
----------
Direct costs of acquisition 131,910
----------
Total purchase price $7,628,289
----------
----------
The stock issued as consideration to the seller is unregistered stock and,
as such, is subject to certain restrictions on its sale or transfer. Because
of these restrictions, the shares have been recorded at a discount from the
market price of the Company's publicly traded stock. The restricted stock
was valued at $4.23 per share when the market price was $9.40 per share,
pursuant to an independent valuation.
34
<PAGE>
The note payable and restricted common shares are subject to offset if
the purchased accounts receivable, net of recorded allowances, are not
collected within one year and under certain other conditions.
The acquisition has been accounted for as a purchase. Assets acquired and
liabilities assumed are included in ATC's balance sheet at their
estimated fair market value at the date of purchase. The purchase price
has been allocated as follows:
Accounts receivable - net $2,615,469
Property and equipment - net 633,945
Goodwill 4,265,516
Covenant not to compete 100,000
Other assets 13,359
----------
Total purchase price $7,628,289
==========
2. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF CON-TEST
The pro forma financial statements reflect the following adjustments
related to the acquisition of Con-Test:
(A) To record the change in General and Administrative expenses resulting
from depreciation and amortization:
YEAR ENDED
FEBRUARY 28, 1995
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 a 5 year term 11,667
---------
$ (60,063)
=========
(B) To record interest expense on acquisition debt:
DEBT
INCURRED
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
--------
$125,752
========
35
<PAGE>
(C) To record the imputed Federal income tax expense (benefit as though
Con-Test had not been a Subchapter S corporation) and the income tax
effect of the pro forma adjustments:
YEAR ENDED
FEBRUARY 28, 1995
Reported loss before taxes $(745,722)
Income adjustments:
Depreciation 154,671
Goodwill amortization (82,941)
Covenant amortization (11,667)
Interest expense (125,752)
---------
Adjusted loss before taxes (811,411)
Tax rate, net of state effect 38.5%
---------
Calculated tax benefit (312,393)
Recorded expense --
---------
Net adjustment $(312,393)
=========
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.
(D) Assumes the ATC shares issued for Con-Test are outstanding as of the
beginning of the fiscal year.
3. 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 assets and liabilities included in Aurora's
consolidated assets and liabilities.
(B) The ATC liability to Aurora, which is to be forgiven pursuant to the
terms of the merger agreement, is eliminated with a corresponding
benefit to retained earnings (Note G).
36
<PAGE>
(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 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:
SHARES
ATC shares issued from merger:
Aurora's shares outstanding at February 28, 1995 6,101,104
Exercise of Aurora's stock options assumed prior to merger 30,000
-----------
Aurora shares assumed 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 actual and assumed 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 163,404
-----------
$(5,536,794)
===========
37
<PAGE>
(D) To reflect the benefit of Aurora's net operating loss carryforward
which can be utilized in future consolidated income tax returns and
the elimination of ATC's income tax amounts included in Aurora's
consolidated results as follows:
Net operating loss carryforward at February 28, 1995 $969,601
Effective tax rate 38.5 %
--------
Tax benefit $373,296
--------
--------
Reduction of current income taxes payable $128,250
Increase in deferred income tax benefit 245,046
--------
$373,296
--------
--------
Income tax benefit for the year ended February 28,
1995 based on Aurora's net loss of $126,394 plus
merger costs $ 67,912
--------
--------
The net adjustments are as follows:
<TABLE>
<CAPTION>
ELIMINATION OF EFFECT OF NET
CONSOLIDATED OPERATING
AMOUNTS LOSSES NET
(NOTE A) (ABOVE) ADJUSTMENT
<S> <C> <C> <C>
Deferred income taxes (asset) $ (132,700) $ 245,046 $ 112,346
Current income taxes (liability) $ (128,250) $(128,250) $ (256,500)
Income tax expense:
Year ended February 28, 1995 $(2,044,000) $ (67,912) $(2,111,912)
</TABLE>
(E) To reflect expected costs of the transaction and corresponding
reduction of cash and retained earnings.
Additional merger costs $ 50,000
------------
------------
The net adjustment to General and Administrative
expenses for the year ended February 28, 1995 is
as follows:
Elimination of ATC's expense included in the
consolidated results $(10,996,709)
Estimated additional merger costs 50,000
------------
$(10,946,709)
------------
------------
38
<PAGE>
(F) The adjustment to cash is comprised of the following:
Elimination of ATC's cash included in Aurora's
consolidated balance (Note A) $(1,377,862)
Cash from actual and assumed exercise of Aurora
stock options (Note C) 30,000
Estimated costs of transaction paid from available
cash (Note E) (50,000)
-----------
$(1,397,862)
-----------
-----------
(G) The adjustment to retained earnings is comprised of the following:
Elimination of Aurora's retained earnings resulting
from the merger (Note A) $(2,326,041)
Tax benefit of Aurora net operating losses (Note D) 373,296
Estimated costs of transaction paid from available
cash (Note E) (50,000)
Elimination of ATC's liability to Aurora forgiven
under terms of merger (Note B) 39,969
-----------
$(1,962,776)
-----------
-----------
(H) 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 convert in the merger (Note C) are
outstanding from the beginning of the fiscal year.
4. SUPPLEMENTAL INFORMATION
The indebtedness of the Companies at February 28, 1995 is as follows:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ATC AURORA ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Short term debt $ 840,907 $ 840,907 $ (840,907) $ 840,907
Notes payable 88,720 88,720 (88,720) 88,720
Due to related company 39,969 - (39,969) -
Long term debt 3,892,766 3,892,766 (3,892,766) 3,892,766
---------- ---------- ----------- ----------
Total indebtedness $4,862,362 $4,822,393 $(4,862,362) $4,822,393
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
39
<PAGE>
The calculation of book value per common share at February 28, 1995 is as
follows:
<TABLE>
PRO FORMA PRO FORMA
ATC AURORA ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Stockholders' equity $13,813,194 $8,046,505 $(7,489,836) $14,369,863
----------- ---------- ----------- -----------
Common shares
outstanding:
ATC (Note C) 5,738,018 - 83,452 5,821,470
Aurora - 6,101,104 (6,101,104) -
----------- ---------- ----------- -----------
5,738,018 6,101,104 (6,017,652) 5,821,470
----------- ---------- ----------- -----------
Book value per common
share $ 2.41 $ 1.32 $ 2.47
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
The calculation of tangible net worth at February 28, 1995 is as follows:
<TABLE>
PRO FORMA PRO FORMA
ATC AURORA ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Stockholders' equity $13,813,194 $ 8,046,505 $(7,489,836) $14,369,863
Less goodwill (7,166,998) (7,166,998) 7,166,998 (7,166,998)
Less covenants not to
compete (317,979) (317,979) 317,979 (317,979)
----------- ---------- ----------- -----------
Tangible net worth 6,328,217 561,528 (4,859) 6,884,886
Common shares 5,738,018 6,101,104 5,821,470
----------- ---------- -----------
Tangible net worth per
share $ 1.10 $ 0.09 $ 1.18
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
40
<PAGE>
ATC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
ATC is an environmental consulting firm that specializes in the
identification, assessment and testing of and corrective action for complex
environmental projects. ATC's strategy is to provide a diversified set of
consulting services including industrial hygiene, environmental site
assessments, ground water and soil management, environmental compliance,
environmental management, lead based paint management, health and safety
training and risk analysis. Currently, a major portion of the ATC's revenues
are derived from industrial hygiene related services. ATC also maintains
independent analytical testing laboratories for analysis of industrial waste
water, drinking water for lead based contamination, radon presence, and certain
hazardous wastes in support of its industrial hygiene, environmental management,
and lead based paint management consulting services. ATC has also commenced
providing services in the area of risk analysis and computerized decision
support and analysis.
ACQUISITION OF ASSETS OF CON-TEST, INC.
As of October 1, 1994, ATC through a newly formed wholly owned subsidiary,
namely, ATC New England Corp. ("ATC New England"), purchased certain assets and
assumed certain liabilities of Con-Test, Inc. ("Con-Test"), a Massachusetts
based environmental consulting company having branch offices in New England, New
York and Pennsylvania.
This acquisition was accounted for as a purchase. The assets acquired by
ATC consist of intangible assets including customer contract rights, customer
lists, order backlog, customer records, trademarks and names and certain
tangible assets consisting of accounts receivable, prepaid insurance, deposits,
and property, including laboratory, field and office equipment, supplies and
general records. Con-Test reported unaudited total assets of approximately
$5,500,000 at September 10, 1994. Total consideration paid for the assets and
non-compete covenants is approximately $7,628,000. This includes $2,100,000
cash down payment, $493,000 consisting of 116,556 restricted common shares, a
three year promissory note aggregating $535,000, $4,368,000 of liabilities
assumed and $132,000 of acquisition costs. The consideration paid was based
upon arms-length negotiations between the parties and was in part based upon
pro-forma anticipated earnings and discounted cash flow analysis.
The cash consideration paid by ATC was paid from funds borrowed from the
Atlantic Bank of New York. Prior to the completion of the transactions
described herein, there existed no material relationship between Con-Test and
ATC and its affiliates.
41
<PAGE>
ATC entered into nonsolicitation/nondisclosure arrangements with key
employees and obtained non-compete covenants from the former owners.
Con-Test's primary services include industrial hygiene, environmental and
industrial health and safety, and lead based paint management. It also
maintained an analytical laboratory, and has developed an extensive line of
environmental facilities management software which is presently in use by
several industrial firms and federal government agencies.
The purchase price related to the Con-Test acquisition is comprised of the
following:
Cash paid to seller $2,100,000
Note payable to seller 535,000
ATC restricted stock 492,905
Liabilities assumed 4,368,474
Direct expenses related acquisition 131,910
----------
$7,628,289
----------
----------
Con-Test's assets and liabilities are included in the consolidated balance
sheet at fair value at the date of purchase. The purchase price allocation is
summarized as follows:
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
----------
----------
ACQUISITION OF CERTAIN ASSETS OF BSE MANAGEMENT INC.
On April 30, 1993, ATC purchased from National Bank of Long Beach (the
"National Bank"), Long Beach, California certain business assets of BSE
Management Inc. ("BSE"), an environmental consulting company and three of its
operating subsidiaries, Diagnostic Environmental Inc., Hygeia Environmental
Laboratories, Inc. and The Environmental Institute Inc. (the "BSE
Subsidiaries"). This acquisition has been accounted for as a purchase. The
assets acquired by ATC consist of customer contract rights, customer lists,
order backlog, customer records, trademarks and names, certain tangible property
including specified items of equipment, supplies and general records. The
purchase price for these assets was approximately $170,000 which was agreed to
between the parties following independent appraisals conducted by appraisers
engaged by the National Bank. Certain vacation liabilities of former BSE
employees hired by ATC were assumed and other cash payments were made by ATC
totaling $193,335 as an incident of hiring these persons.
ATC signed certain consulting, employment and non-compete agreements with
certain key employees of the BSE Subsidiaries.
42
<PAGE>
These agreements were signed in connection with the purchase transaction.
Payments to these individuals, the majority of which will be paid to the former
President and the majority shareholder of BSE, are a portion of the purchase
price and consist of $400,000 cash and contingent payments not to exceed
approximately $1,356,000; paid at a rate of 8.3% of collected gross receipts
from certain customers, subject to adjustments, over a period not to exceed five
years. As of February 28, 1995, ATC had made payments of approximately
$1,155,000. The consideration paid for this acquisition was based upon arms-
length negotiations between the parties.
In June 1993, ATC agreed to issue 5,000 restricted shares of ATC's Common
Stock (with a fair market value at that date of $29,700) and a 40 month non-
interest bearing promissory note (which for financial accounting purposes ATC
has imputed interest at 7% per annum) payable at $10,000 per month in exchange
for notes with a face value of $1,000,000 and a general release from an
institutional lender of BSE. ATC has attributed no value to the notes because
they are unsecured subordinate notes for which the likelihood of any collection
is remote. As of February 28, 1995, no collections have been received. This
action to secure a general release and to buy out the institutional lender's
subordinated position was taken to preclude any attempt on the part of the
lender to seek recourse against ATC for BSE's debt.
The original purchase price and subsequent contingent payments related to the
acquisition are comprised of the following:
Cash paid to secured party $ 169,670
Cash paid to stockholders 400,000
Liabilities assumed and other cash payments 193,335
Issuance of note payable to financial institution 355,840
Issuance of common stock to financial institutions 29,700
Direct expenses related to acquisition 142,442
Contingent payment portion of purchase price $1,155,498
----------
$2,446,485
----------
----------
BSE's assets and liabilities are included in the consolidated balance sheets at
fair value at date of purchase plus additional contingent purchase price
payments which have been recorded as goodwill. The purchase price allocation is
summarized as follows:
Net property and equipment $ 103,670
Other non-current assets 53,000
Non-compete agreement 150,000
Goodwill 2,139,815
----------
$2,446,485
----------
----------
RESCISSION OF THE PURCHASE AGREEMENT OF BIO/WEST, INC.
On June 10, 1992, ATC entered into an agreement to purchase 100% of the
issued and outstanding capital stock of Bio/West, Inc. ("Bio/West"), an
environmental consulting firm specializing in the ecological services industry.
The purchase price approximated
43
<PAGE>
$1,500,000, which included a $750,000 cash payment and $750,000 in long term
debt. In addition, the purchase agreement provided for future payments of up to
$1,500,000 to the former owners, contingent on future profits of Bio/West.
During the first quarter of fiscal 1994, ATC's management engaged in
preliminary discussions with the former Stockholders of Bio/West regarding the
contract terms of the Bio/West acquisition by ATC. These discussions arose as a
result of a dispute involving the amount and timing of certain contingent profit
payments coupled with certain facts of which ATC became aware involving a major
Bio/West contract.
On or about June 1, 1993, ATC notified the former Stockholders of Bio/West
of its intent to rescind the purchase agreement ab initio on grounds of failure
of the parties to reach agreement on a material issue in the purchase agreement
and on other grounds.
On October 14, 1993, ATC and the former Stockholders of Bio/West entered
into an agreement for restitution following rescission which provided for an
orderly rescission of the purchase agreement. The agreement effected a refund
of the purchase price by the former Bio/West Stockholders to ATC and a return to
the former Stockholders all ownership and stock of Bio/West. Under this
agreement, the former Stockholders of Bio/West have refunded the $750,000 cash
payment to ATC, forgave the $750,000 in long-term debt, forgave all amounts
payable under the profit contingent portion of the original purchase agreement
and reimbursed ATC $28,000 for expenses incurred by it on behalf of Bio/West.
In order to provide sufficient funds for the former Stockholders of Bio/West to
make full restitution provided in the rescission, ATC loaned these former
Stockholders $375,000 supported by promissory notes. $250,000 of these
promissory notes were to be repaid from income tax refunds anticipated as a
result of the rescission. At November 30, 1994, the notes supported by income
tax refunds had been paid in full. ATC has 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 financial statements during the period March 1, 1993 to May 31, 1993
also include the results of Bio/West, a former subsidiary of ATC, unless the
context indicates otherwise.
ACQUISITION OF CERTAIN ASSETS OF MICROBIAL ENVIRONMENTAL SERVICES, INC.
On January 4, 1995, ATC agreed to assume the service performance
obligations under certain contracts of Microbial Environmental Services, Inc.
("MES"), a wholly-owned subsidiary of Pioneer Hi-Bred International, Inc. MES
was engaged in the business of remediation of contaminated soils and water
utilizing enhanced naturally occurring biological processes. Their services
also included assessment of contaminated properties, design of bio-remediation
systems, management of bio-remediation projects and monitoring of compliance
with clean-up standards. Further, ATC
44
<PAGE>
agreed to assume 30% of MES's facility lease obligations in Des Moines, Iowa.
As consideration for ATC's agreement to assume these obligations, MES assigned
to ATC (i) accounts receivable and work in process totaling $812,000 and (ii)
its service marks and logo relating to the name Microbial Environmental
Services, Inc. ATC also paid a finder's fee of $250,000 in cash plus a $200,000
note payable quarterly over a period of three years to Robert Blattert, a person
who was not previously affiliated with ATC and Aurora and their respective
affiliates prior to becoming an employee of ATC in January 1995 after the sale
of a business owned by him to ATC. (See "Acquisition of Certain Assets of R.E.
Blattert and Associates.") MES sold to ATC certain tangible property consisting
of office, field and laboratory equipment for $100,000, payable over a period of
16 months.
The assets and liabilities acquired from MES are included in the consolidated
balance sheet at fair value at the date of purchase. The purchase price related
to the MES acquisition is comprised of the following:
Note payable for equipment $ 100,000
Cash paid for finder's fee 250,000
Note payable for finder's fee 200,000
Liabilities assumed 812,208
----------
$1,362,208
----------
----------
The purchase price allocation is summarized as follows:
Accounts receivable, net $ 812,208
Equipment 100,000
Goodwill 450,000
----------
$1,362,208
----------
----------
ACQUISITION OF CERTAIN ASSETS OF R. E. BLATTERT AND ASSOCIATES
On January 13, 1995, ATC through a newly formed wholly owned subsidiary
named ATC Blattert Inc. ("ATC Blattert") acquired substantially all the assets
(excluding foreign business contracts) and assumed certain specified liabilities
with dollar limitations (specifically excluding liabilities for pre-existing
errors and omissions) of R.E. Blattert and Associates ("R.E. Blattert"). The
consideration paid was 16,327 restricted shares of ATC Common Stock plus a
contingent earnout to be paid to the former owner of R.E. Blattert. The
contingent earnout provision provides for Robert Blattert to receive additional
purchase consideration up to a maximum of $850,000 over a four year period
based on achieving agreed upon revenue and earnings targets. In addition, Mr.
Blattert will manage the business conducted by ATC Blattert and for that will
receive an annual salary and benefits. Mr. Blattert was formerly the President,
Chief Executive Officer and sole owner of R.E. Blattert. R.E. Blattert's main
area of expertise was in groundwater resource management, but it also had
significant capability in the areas of environmental assessments, design and
45
<PAGE>
remediation management, evaluation and management of solid and hazardous waste,
underground storage management, geotechnical services, computer modeling,
geophysical surveys, mapping studies and forensic engineering.
ATC Blattert's assets and liabilities are included in the consolidated balance
sheet at fair value at the date of purchase. The purchase price related to the
ATC Blattert acquisition is comprised of the following:
ATC restrictive stock $ 112,503
Liabilities assumed 875,759
Direct expenses related to acquisition 23,209
----------
$1,011,471
----------
----------
The purchase price allocation is summarized as follows:
Current assets $ 378,663
Other assets 14,269
Equipment 99,030
Covenant not to compete 80,000
Goodwill 439,509
-----------
$ 1,011,471
-----------
-----------
Purchase price may increase by up to $850,000 contingent upon future revenues
and profits of the Blattert operation. These contingent payments will be
recorded as goodwill if and when they are earned under the purchase agreement.
46
<PAGE>
RESULTS OF OPERATIONS FISCAL 1995 VS. FISCAL 1994
Revenues increased from $26,664,385 during fiscal 1994 to $36,271,557 for
fiscal 1995, an increase of $9,607,172 or 36%. This increase was attributable
to continued growth of ATC's existing branches and the effect of acquisitions as
summarized in the following table:
<TABLE>
<CAPTION>
Revenues for
Amount Percentage
Source Fiscal 1994 Fiscal 1995 of Change Change(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ATC existing branches $17,965,654 $20,340,764 $ 2,375,110 13%
BSE 8,230,000 11,754,623 3,524,623 43
Con-Test -0- 3,679,708 3,679,708 Not Applicable
ATC Blattert -0- 332,401 332,401 Not Applicable
Microbial -0- 164,061 164,061 Not Applicable
Bio/West 468,731 -0- (468,731) (100)
Total $26,664,385 $36,271,557 $9,607,172 36%
<FN>
- ----------------
(1) The percentage of change is calculated by dividing the applicable amount of
the source change by the applicable amount of source revenues for fiscal
1994.
</TABLE>
During fiscal 1995, strong growth in ATC existing branch locations was
experienced as ATC continues to penetrate its existing markets. The 13%
increase in revenue from ATC existing branch offices in fiscal 1995 comes on top
of a 32% increase from fiscal 1993 to fiscal 1994. As the amounts above
indicate, ATC is benefiting as anticipated from its acquisition of assets of
BSE, which was effective April 30, 1993, acquisition of assets of Con-Test which
was effective October 1, 1994, acquisition of assets of Microbial which was
effective January 4, 1995 and acquisition of assets of R.E. Blattert which was
effective January 13, 1995.
During fiscal 1995, the New York City School Construction Authority
("NYCSCA") accounted for approximately 11% of revenues as compared to 12% of
revenues for fiscal 1994. During fiscal 1995, ATC's revenues benefitted from an
increase of approximately $850,000 in asbestos management consulting and testing
services provided to the NYCSCA as part of its New York City school asbestos
cleanup program as compared to the comparable period of the prior year. Since
NYCSCA's cleanup program is ongoing and is expected to continue over a period of
several years, ATC is providing and
47
<PAGE>
reasonably expects to continue to provide additional asbestos and other
industrial hygiene services to NYCSCA. Although Management believes that
revenues from the NYCSCA are expected to continue in future periods at levels
similar to those received in fiscal 1995, no assurances can be given in this
respect since revenues are dependent upon many factors such as enforcement of
regulations, budgeting constraints, competition and ATC's performance.
During fiscal 1995, revenues from the Army Corps of Engineers, amounted to
approximately $3,213,000, as compared to approximately $1,560,000 for the
comparable period of the prior year. These revenues relate to certain asbestos
management services. The project is expected to continue at diminished revenue
levels into fiscal 1996.
Gross profit, which is service fee revenue less cost of revenues for fiscal
1995 and fiscal 1994 was $17,916,064 and $12,294,424 and the gross profit
percentage was 49% and 46%, respectively. The fiscal 1994 gross profit
percentage was 47% after adjusting for the rescission of Bio/West. During
fiscal 1995, ATC's margins improved due to labor force efficiencies which were
due in part to the acquisition of assets of Con-Test and merging of its branches
into existing ATC branches.
Operating expenses (which include Selling, General and Administrative and
provision for bad debts) for fiscal 1995 and fiscal 1994 were $12,291,465 and
$9,067,881, respectively. ATC's operating expenses expressed as a percentage of
revenues remain constant at approximately 34%. Employee salaries and wages and
related employment costs such as payroll taxes and employee insurance benefits
represent the largest component of operating expenses. Employee costs increased
approximately $1,692,000 in fiscal 1995 as compared to fiscal 1994. This
correlates to a 44% increase in the number of employees. These increases were
due to employees hired in connection with the Con-Test and other acquisitions
and increases from the growth in services in existing ATC branch offices. Other
increases in operating expenses resulted from higher depreciation and equipment
costs, supplies, insurance costs, travel and employee related training and
licensing costs which resulted from the increased revenue and employee levels.
Amortization of goodwill and intangibles increased from $37,000 in fiscal 1994
to $212,000 in fiscal 1995 reflecting the additional goodwill from the BSE
contingent purchase payments and acquisitions of Con-Test, R.E Blattert and MES.
Facility costs as a percentage of revenues have decreased from 6% in fiscal 1994
to 5% in fiscal 1995.
Other nonoperating expenses increased to $324,079 in fiscal 1995 from
$149,495 in fiscal 1994. This increase can be attributed to an increase in
interest expense due to increased current year borrowings and the current year
expenses of approximately $83,000 related to the pending merger of Aurora into
ATC.
48
<PAGE>
Income tax expense was $2,044,000 in fiscal 1995 and $1,210,000 in fiscal
1994 representing an effective tax rate of approximately 39% for both periods.
Net income was $1,867,048 in fiscal 1994 compared to $3,256,520 in fiscal
1995. The increase is due to increased revenues and operating efficiencies
achieved, net of higher interest and goodwill amortization expenses and certain
expenses incurred in connection with the pending merger of ATC and Aurora.
ATC typically experiences a slowdown in business activities during the
period commencing on or about December 15 through January 15 when clients are
generally performing less construction management and reduced environmental
remediation activities.
There are no known trends, contingencies, demands or commitments that are
expected to impact ATC except as may be described herein under "ATC's
Management's Discussion and Analysis and Results of Operations."
49
<PAGE>
RESULTS OF OPERATIONS - FISCAL 1994 VS. FISCAL 1993
ATC's revenues increased from $16,539,254 during fiscal 1993 to $26,664,385
for fiscal 1994, an increase of $10,125,131 or 61%. This increase was
attributable to the acquisition of assets of BSE, the strong performance of ATC
existing branches, partially offset by the rescission of the Bio/West purchase
agreement. These changes are reflected in the table below:
<TABLE>
<CAPTION>
Revenues for Revenues for Percentage of
Source Fiscal 1993 Fiscal 1994 Change Change (1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ATC existing branches $13,614,964 $17,965,654 $ 4,350,690 32%
BSE -0- 8,230,000 8,230,000 Not Applicable
Bio/West 2,924,290 468,731 (2,455,559) (84%)
Total $16,539,254 $26,664,385 $10,125,131 61%
<FN>
- ---------------
(1) The percentage of change is calculated by dividing the applicable amount of
the source change by the applicable amount of source revenues for the
fiscal year ended February 28, 1993.
</TABLE>
During fiscal 1994, strong growth in ATC existing branch locations was
experienced as ATC continues to penetrate its existing markets. As the amounts
above indicate, ATC is benefiting as anticipated from its acquisition of assets
of BSE, which was effective April 30, 1993. The rescission of the Bio/West
purchase, which was deemed effective on June 1, 1993, resulted in an offset to
revenue increases described above.
During fiscal 1994, the New York City School Construction Authority
("NYCSCA") accounted for approximately 12% of revenues. During fiscal 1994,
ATC's revenues benefitted from an increase of approximately $3,000,000 in
asbestos management consulting and testing services provided to the NYCSCA as
part of its New York City school asbestos management program as compared to the
comparable period of the prior year.
The gross profit, which is service fee revenue less costs of revenues for
fiscal 1994 and fiscal 1993 was $12,294,424 and $6,649,642 and the gross profit
percentage was 46% and 40%, respectively. During fiscal 1994, ATC's margins
improved due to labor force efficiencies and the rescission of its purchase of
Bio/West which historically operated at a lower profit margin. Excluding the
operations of Bio/West, the gross profit percentages were 47% and 44% for fiscal
1994 and fiscal 1993, respectively.
Operating expenses (which include Selling, General and Administrative and
provision for bad debts) for fiscal 1994 and
50
<PAGE>
fiscal 1993 were $9,067,881 and $5,922,120 respectively. Operating expenses
expressed as a percentage of revenues for fiscal 1994 was 34% as compared to 36%
for fiscal 1993. This decrease was achieved by integrating certain BSE
operations with ATC's existing branch operations.
In the past, ATC's business with educational institutions and other clients
has resulted in them having increased revenues during the summer months of June,
July and August when these projects are normally performed. For example, ATC's
revenues from educational institutions for fiscal 1994 and 1993 amounted to 17%
and 5%, respectively, of total revenues. ATC traditionally hires additional
personnel during the summer months as a result of the increased business
activity. ATC typically experiences a slowdown in business activities during
the period commencing on or about December 15 through January 15 when clients
are generally performing less construction management and conducting
environmental remediation services.
For fiscal 1994 and fiscal 1993, ATC's net income was $1,867,048 and
$353,144 respectively. ATC's net income and earnings per share for fiscal 1994
and 1993 adjusted to exclude the operations of Bio/West, would have been
$1,976,894 and $326,488, and $.37 and $.06, respectively. See "Rescission of the
Purchase Agreement of Bio/West Inc."
ATC adopted Statement of Financial Accounting Standards ("SFAS") SFAS
No. 109, "Accounting for Income Taxes", effective March 1, 1993. This Statement
supersedes SFAS No. 96 "Accounting for Income Taxes," which was adopted by ATC
in 1990. The statement's objective is to recognize current and deferred taxes
based on the liability method for all events that have been reported in the
financial statements by applying the provisions of all enacted tax laws. There
was no significant effect of adopting SFAS No. 109 on ATC's financial
statements, results of operations or earnings per share for fiscal 1994.
IMPACT OF INFLATION
ATC believes that inflation and changing prices have not had a material
impact on ATC's operations.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1995 working capital was $8,113,738 as compared to 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 assets
of Con-Test.
During fiscal 1995, net cash of approximately $3,000,000 was provided from
operating activities due to ATC's growth and profitable operations. Net cash
flows from changes in operating assets and liabilities included uses of cash
toward payment of current income taxes due and increases in accounts receivable
as well as payments of Con-Test's accounts payable assumed in
51
<PAGE>
connection with that acquisition. This was offset in part by an increase in
accrued compensation expense. During this period, net cash was used in
investing activities toward the purchase of BSE, Con-Test and MES and to
purchase property and equipment. Also during this period, cash was provided by
financing activities primarily from the exercise of ATC's Class B Common Stock
Purchase Warrants and borrowing under ATC's credit line. These sources of cash
were reduced by principal debt repayments, including Con-Test's and R.E.
Blattert's assumed bank debt of $1,961,000.
During fiscal 1994, ATC's operations used cash. Net cash flows from
changes in operating assets and liabilities included a use of cash as a result
of a large increase in accounts receivable due to a substantial increase in
revenues as a result of ATC's acquisition of assets of BSE. This was partially
offset by a large increase in accrued expenses and income taxes payable and
ATC's continued strong operating results. During this period, net cash was used
in investing activities to purchase certain assets of BSE and property and
equipment. These uses were partially offset by cash received related to the
Bio/West rescission. Cash was provided by financing activities as a result of
proceeds from notes payable and long-term debt, partially offset by the
principal payments on long-term debt including capital lease obligations.
During fiscal 1993, ATC's operations generated cash flow. Net cash flows
from changes in operating assets and liabilities included a use of cash as a
result of a large increase in accounts receivable due to a substantial increase
in revenues as a result of ATC's Bio/West acquisition. This use was partially
offset by the increase in current income taxes payable and ATC's strong
operating results. During this period, net cash flows from investing activities
were used to purchase Bio/West and property and equipment. These uses were
partially offset by proceeds from maturity of investments. Cash was used in
financing activities as a result of the principal payments on long term debt
including capitalized lease obligations and continuing registration costs
relating to the publicly held Warrants, partially offset by proceeds from long-
term debt and sale of ATC Common Stock.
ATC's standard credit policy is that all amounts are due upon receipt of
invoice. ATC generally does not provide extended payment terms to customers;
however, a significant portion of receivables are not collected within 30 days.
Management calculates that ATC's collections on accounts receivable have
averaged 98 days, 82 days and 87 days for fiscal years 1995, 1994, and 1993,
respectively. (The 1995 calculation, adjusted to exclude uncollected purchase
accounts receivable of Con-Test is 86 days.) ATC's clients are diversified and,
except for the NYCSCA and the Army Corps of Engineers, ATC is not dependent upon
any major customers, industry, or geographical area. Management believes that
these factors, along with its aggressive collection policies and advanced credit
checks are the reasons why ATC has not experienced significant losses on the
collection of accounts receivable. ATC recognizes the importance of timely
collection of accounts receivable and has involved senior financial personnel in
52
<PAGE>
the decision making process to maintain strong credit extension policies. All
new accounts are investigated and approved based upon pre-determined criteria by
the corporate credit department. Ongoing accounts that have a history of
delinquency are periodically checked for credit references, trade references and
banks and Dun and Bradstreet reports, if available. Management reviews accounts
receivable monthly to determine if a collection agency, legal counsel or
mechanic liens are necessary. Management believes that its reserve for bad
debts is adequate but a comparison with other companies similar to ATC is
unavailable.
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 Aurora for the benefit of the other. During
fiscal 1995, 1994 and 1993, the amount of expense incurred by Aurora that were
allocated to ATC were $14,948, $18,137 and $42,071, respectively. ATC incurred
expenses which were allocated to Aurora of $82,120, $18,700 and $18,000 in
fiscal 1995, 1994 and 1993, respectively. Management allocates these expenses
between the companies based on estimates of time spent, square footage and use
of the services received. For example, Aurora currently allocates to ATC its
share of the legal expenses incurred by Aurora on behalf of ATC and charges ATC
interest on the amount owed to Aurora. ATC, in turn, allocates to Aurora,
Aurora's share of the general and administrative expenses relating to rent,
internal accounting costs and management's time spent on Aurora. During fiscal
1995, 1994 and 1993, approximately $15,000, $41,100 and $66,000, respectively,
were transferred from ATC to Aurora. Such funds were utilized to reduce the
amount owed by ATC to Aurora which at February 28, 1995 aggregated $39,969
compared to $122,141 at February 28, 1994. Such debt is repayable upon demand
together with accrued interest at the rate of 8% per annum during fiscal 1995
and fiscal 1994 and at the rate of 12% during fiscal 1993.
ATC may open additional offices in the future at presently undetermined
sites based upon potential sales growth and whether 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
such as the acquisition of the assets from BSE as of April 30, 1993 and the
acquisition of assets from Con-Test as of October 1, 1994 and may add additional
offices through acquisition(s) in the future, although no assurances can be
given in this regard. Since ATC's acquisition of certain assets of Con-Test,
R.E. Blattert and MES, ATC has no other signed agreements for new office
expansion or any material acquisition.
At various times in the past, ATC's liquidity and cash resources have been
substantially attributable to externally rather than internally generated funds
as a result of the completion of ATC's initial public offering in June, 1988,
capital lease transactions, financing from the exercise of outstanding Options
and Warrants and institutional financing. In fiscal 1995, ATC increased its
credit facilities with the Atlantic Bank of New York
53
<PAGE>
to approximately $5,000,000. Management believes that ATC's working capital,
credit facilities with the Atlantic Bank of New York, funds received from the
exercise of ATC's Class B Warrants totalling $2,278,424 from March 1, 1994 to
September 30, 1994 and anticipated funds generated internally from operations
are sufficient to finance ATC's internal expansion activities, if any, to make
payments as they come due on ATC's completed acquisitions and to meet ATC's
short-term and long-term liquidity requirements.
The Note underlying ATC's credit facility, which is currently due September
30,1996, provides that the Bank 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 as defined in the Note. The Note contains
certain representations, warranties, affirmative covenants, negative covenants
and financial covenants so long as the Note remains unpaid or the Bank shall
have any commitments under the Note. As of May 1, 1995, ATC is in compliance
with all covenants under the Note. Events of default under the Note include but
are not limited to a change in control of ATC or any guarantor. The Note and
installment note are currently guaranteed by Hygeia and Aurora. Hygeia has also
executed a separate security agreement with the bank. On February 9, 1995, the
Atlantic Bank of New York consented to the Merger of Aurora into ATC so that
such Merger and loss of Aurora as a Guarantor will not be an event of default.
ATC purchases property and equipment on a cash and capital lease
transaction basis. During fiscal 1995, 1994 and 1993 purchases of property and
equipment (excluding equipment purchased through ATC's recent acquisitions) by
ATC were approximately $756,000, $731,000, and $567,000, respectively.
In December, 1990, the Financial Accounting Standards Board issued
Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions. ATC has no postretirement benefits other than pensions and,
therefore, the statement is not expected to have any effect on the ATC's
financial statements.
CLASS B AND CLASS C WARRANTS
Under the original terms of ATC's Class B and Class C Warrants, each
Class B Redeemable Warrant entitle the holder to purchase one share of ATC's
Common Stock and one Class C Redeemable Warrant at a combined purchase price of
$8.00 until October 11, 1991. Each Class C Redeemable Warrant entitled the
holder to purchase one share of Common Stock at an exercise price of $10.00 per
share until January 11, 1992.
On September 30, 1991, ATC extended the expiration date of the Class B and
Class C Warrants for a period of one year until October 11, 1992 and
January 11, 1993, respectively.
On September 24, 1992, ATC extended the expiration date of the Class B and
Class C Warrants for a period of one year until October 12, 1993 and
January 11, 1994, respectively.
54
<PAGE>
On September 30, 1993, ATC extended the expiration date of the Class B and
Class C Warrants until September 30, 1994.
On June 30, 1994, ATC extended the expiration date of its Class C Warrants
until September 30, 1996. The expiration date of the Class B Warrants was left
unchanged at September 30, 1994. Prior to the expiration of the Class B
Warrants, ATC received $2,278,424 from the exercise of 284,803 Class B Warrants
and issued 284,803 shares of Common Stock and 284,803 Class C Warrants. As of
May 1, 1995, there are 570,620 Class C Warrants issued and outstanding.
AURORA'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the three years ended February 28, 1995, Aurora was a holding
company with no business operations outside of those conducted by Aurora's
subsidiary, ATC (including the subsidiaries of ATC). During the three years
ended February 28, 1995, all consolidated revenues, gross profits and income and
acquisitions were the result of the operations of ATC. See ATC's Management's
Discussion and Analysis of Financial Condition and Results of Operations."
During the three years ended February 28, 1995, selling, general and
administrative expenses of Aurora on a consolidated basis were substantially all
attributed to the operations of ATC. At present, operating expenses of Aurora
on an unconsolidated basis are estimated to be between $30,000 and $40,000 per
annum exclusive of the costs incurred in connection with the Merger. During the
fiscal years ended February 28, 1995, February 28, 1994 and February 28, 1993,
operating expenses on an unconsolidated basis were $55,863, $34,118 and $14,388,
respectively. Further, Aurora has no employees and ATC has been allocating
certain costs incurred by ATC to Aurora and vice versa as described more fully
under "ATC's Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LIQUIDITY AND CAPITAL RESOURCES
On a consolidated basis, the Liquidity and Capital Resources of Aurora are
substantially all attributable to ATC. See "ATC's Management's Discussion and
Analysis of Financial Condition and Results of Operations." As of February 28,
1994, Aurora on an unconsolidated basis excluding its investment in ATC had
total assets totalling $138,421 consisting of $3,541 in cash and cash
equivalents, other assets of $12,739 and $122,141 in amounts due from ATC. At
February 28, 1994, Aurora had unconsolidated liabilities of $14,652. At
February 28, 1995, Aurora on an unconsolidated basis excluding its investment in
ATC had total assets totalling $217,731 consisting of $177,262 in cash and cash
equivalents, other assets of $500 and $39,969 in amounts due from
55
<PAGE>
ATC. At February 28, 1995, Aurora had unconsolidated liabilities of $14,358.
Aurora intends to utilize its cash assets to meet its obligations as they come
due including without limitation under the terms of the Merger Agreement and
this Registration Statement. Estimated expenses of the Merger chargeable to
Aurora are approximately $125,000, of which approximately $72,000 were expensed
during fiscal 1995. It is anticipated that two executive officers of ATC who
own options to purchase 30,000 shares of Aurora Common Stock in the aggregate at
an exercise price of $1.00 per share will likely exercise their options
immediately prior to the Effective Time of the Merger since these options are in
the money (i.e. the market price of Aurora's Common Stock exceeds the exercise
price as of February 28, 1995) and expire on the day preceding the Effective
Time. If the above referenced options are exercised, the funds received by
Aurora would supplement its cash requirements, if any, prior to the Merger. If
the Merger is not consummated, Aurora anticipates that it will meet its
liquidity and capital resource needs from the following: (i) its existing cash,
(ii) cash that may be received from the exercise of outstanding options and
warrants owned by certain employees, officers and directors of Aurora, (iii)
cash owed by ATC to Aurora under intercompany loans, and (iv) the sale of a
portion of Aurora's ownership interest in ATC Common Stock if such sale is
necessary and does not result in a change in control of ATC. Any sale of
control of ATC would result in an event of default under ATC's credit agreement
with the Atlantic Bank of New York. See "ATC Management's Discussion and
Analysis of Financial Condition and Results of Operations."
THE AURORA SPECIAL MEETING
RECORD DATE; VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
The Board of Directors of Aurora has fixed the close of business on May
30, 1995 (the "Record Date") as the Record Date for determining holders of
outstanding shares of Aurora Common Stock entitled to notice of and to vote at
the Aurora Special Meeting. Only holders of record of Aurora Common Stock as of
the close of business on May 30, 1995 will be entitled to vote at the Aurora
Special Meeting or any adjournment or adjournments thereof. As of May 1, 1995
there were 6,101,104 shares of Aurora Common Stock issued and outstanding. With
respect to those matters relating to the proposed Merger which are submitted to
a vote at the Aurora Special Meeting, each Stockholder of Aurora is entitled to
one vote for each share of Aurora Common Stock held.
The affirmative votes of the holders of at least a majority of the shares
of Aurora Common Stock issued and outstanding on the record date are required to
approve the Merger Agreement and authorize Morry F. Rubin and/or Richard L.
Pruitt to vote Aurora's 3,258,000 shares of ATC's Common Stock in favor of the
Merger Agreement at ATC's Special Meeting of Stockholders. At the Aurora
Special Meeting, votes will be counted by two inspectors of election chosen at
the Meeting. Since at least a majority of the
56
<PAGE>
issued and outstanding shares of Aurora Common Stock is required to approve both
proposals, affirmative abstentions and broker non-votes will have the same
effect as voting against each proposal. However, in determining whether or not
a majority of the issued and outstanding shares of Aurora Common Stock is
present at the meeting for a quorum, affirmative abstentions and broker non-
votes will be counted.
As of May 1, 1995, executive officers and directors of Aurora and ATC and
members of the family of Lester Morse P.C., counsel to ATC own of record
beneficially, directly and indirectly, an aggregate of approximately 3,034,000
shares of Aurora's outstanding Common Stock (excluding any Common Stock Option
and Common Stock Purchase Warrants owned by them), constituting 49.7% of
Aurora's outstanding Common Stock on such date. It is expected that these
shares will be voted in favor of the Merger Agreement at the Aurora Special
Meeting of Stockholders and in favor of authorizing Morry F. Rubin and/or
Richard L. Pruitt to vote Aurora's 3,258,000 shares of ATC's Common Stock in
favor of the Merger Agreement at ATC's Special Meeting of Stockholders.
The Board of Directors of Aurora has unanimously approved the Merger
Agreement.
SOLICITATION, REVOCATION AND USE OF PROXIES
Shares of Aurora Common Stock represented by properly executed proxies
received by Aurora or its transfer agent, American Stock Transfer & Trust
Company, prior to the vote at the Aurora Special Meeting will be voted at the
Aurora Special Meeting in accordance with the instructions specified on the
proxies. If no instructions are specified on such proxies, such shares will be
voted in favor of approval of the Merger Agreement and in the discretion of the
proxy holder as to any other matter which properly may come before the Aurora
Special Meeting.
Any Aurora Stockholder who executes and returns a proxy has the power to
revoke such proxy at any time before it is exercised by filing with the
Secretary of Aurora written notice of such revocation or a duly executed proxy
bearing a later date, or by attending and voting in person at the Aurora Special
Meeting. Attendance at the Aurora Special Meeting will not in and of itself
constitute revocation of a proxy.
Although ATC and Aurora will each bear their own costs of solicitation of
proxies from their respective Stockholders if the Merger is consummated, all
assets of Aurora will become assets of ATC and, therefore, any amount expended
by Aurora prior to the Effective Time of the Merger will reduce the assets being
acquired by ATC. Proxies will be solicited only by the mailing of this
Prospectus/Proxy Statement and accompanying materials. No individual is
authorized to solicit proxies by personal interview, telephone, telegram or any
other means.
57
<PAGE>
PRINCIPAL STOCKHOLDERS OF AURORA
As of May 1, 1995 the only persons of record who held or were known to own
(or believed by Aurora to own) more than 5% of the 6,101,104 shares of the
Common Stock of Aurora (only voting security) and the amounts owned by officers
and directors both individually and as a group are listed below. For purposes
of calculating the amount of beneficial ownership and the respective
percentages, the number of shares of Common Stock which may be acquired by a
person upon the exercise of outstanding options, are considered outstanding, but
shall not be deemed to be outstanding for the purpose of computing the
percentage of Common Stock owned by any other person.
Approximate
Number of Percent
Name and Address Shares of Class
- ----------------------- ----------- --------
Morry F. Rubin * (2)(3) 1,322,000 21.1
104 East 25th Street
10th Floor
New York, NY 10010
George Rubin * (2)(4) 2,616,500 37.4
104 East 25th Street
10th Floor
New York, NY 10010
Richard L. Pruitt (1) 92,167 1.5
1515 East 10th Street
Sioux Falls, SD 57103
All officers and directors 1,414,167 22.6
as a group (two persons)
- ----------------
* May be deemed to be a founder, control person or affiliate of Aurora under
the Securities Act of 1933, as amended.
(1) Includes options to purchase 15,000 shares of Common Stock.
(2) George Rubin and Morry F. Rubin are father and son, respectively. Shares
owned by George Rubin do not include shares owned by Morry F. Rubin and
shares owned by Morry F. Rubin do not include shares owned by George Rubin.
(3) Includes Options to purchase 150,000 shares of Common Stock.
(4) Includes Common Stock Purchase Warrants to purchase 900,000 shares of
Aurora's Common Stock.
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<PAGE>
THE ATC SPECIAL MEETING
RECORD DATE; VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
The Board of Directors of ATC has fixed the close of business on May 30,
1995 (the "Record Date") as the Record Date for determining holders of
outstanding shares of ATC Common Stock entitled to notice of and to vote at
the ATC Special Meeting. Only holders of record of ATC Common Stock as of the
close of business on May 30, 1995 will be entitled to vote at the ATC Special
Meeting or any adjournment or adjournments thereof. As of May 1, 1995,
there were 5,738,318 shares of ATC Common Stock issued and outstanding. With
respect to those matters relating to the proposed ATC Merger which are
submitted to a vote at the ATC Special Meeting, each Stockholder of ATC is
entitled to one vote for each share of ATC Common Stock held.
The affirmative votes of the holders of at least a majority of the shares
of ATC Common Stock issued and outstanding on the record date are required to
approve the Merger Agreement. At the ATC Special meeting, votes will be counted
by two inspectors of election chosen at the Meeting. Since at least a majority
of the issued and outstanding shares of ATC Common Stock is required to approve
the Merger Agreement, affirmative abstentions and broker non-votes will have the
same effect as voting against the Merger Agreement. However, in determining
whether or not a majority of the issued and outstanding shares of ATC Common
Stock is present at the meeting for a quorum, affirmative abstentions and broker
non-votes will be counted. Since Aurora owns approximately 57.0% of the issued
and outstanding Common Stock of ATC as of May 1, 1995, the outcome of the ATC
Special Meeting will be determined by the Stockholders of Aurora at the Aurora
Special Meeting at which time Aurora's Stockholders will be asked to vote on the
Merger Agreement as well as a proposal to authorize Morry Rubin and/or Richard
Pruitt to vote the 3,258,000 shares of ATC Common Stock owned by Aurora in favor
of approving the Merger Agreement at the ATC Special Meeting. Since the holders
of 49.7% of Aurora's outstanding Common Stock have represented that at the
Aurora Special Meeting, they intend to vote in favor of the Merger and in favor
of authorizing Morry F. Rubin and/or Richard L. Pruitt to vote Aurora's shares
of ATC's Common Stock in favor of the Merger at the ATC Special Meeting, the
outcome of the proposals at both meetings has been predetermined and all
proposals are expected to pass.
The Board of Directors of ATC has unanimously approved the Merger
Agreement.
SOLICITATION, REVOCATION AND USE OF PROXIES
Shares of ATC Common Stock represented by properly executed proxies
received by ATC or its transfer agent, American Stock Transfer & Trust Company
prior to the vote at the ATC Special Meeting will be voted at the ATC Special
Meeting in accordance with
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the instructions specified on the proxies. If no instructions are specified on
such proxies, such shares will be voted in favor of approval of the Merger
Agreement and in the discretion of the proxy holder as to any other matter which
properly may come before the ATC Special Meeting.
Any ATC Stockholder who executes and returns a proxy has the power to
revoke such proxy at any time before it is exercised by filing with the Transfer
Agent or Secretary of ATC written notice of such revocation or a duly executed
proxy bearing a later date, or by attending and voting in person at the ATC
Special Meeting. Attendance at the ATC Special Meeting will not in and of
itself constitute revocation of a proxy.
Although ATC and Aurora will each bear their own costs of solicitation of
proxies from their respective Stockholders if the Merger is consummated, all
assets of Aurora will become assets of ATC and, therefore, any amount expended
by Aurora prior to the Effective Time of the Merger will reduce the assets being
acquired by ATC. Proxies will be solicited only by the mailing of this
Prospectus/Proxy Statement and accompanying materials. No individual is
authorized to solicit proxies by personal interview, telephone, telegram or any
other means.
PRINCIPAL STOCKHOLDERS OF ATC
The following table sets forth information as of May 1, 1995 with respect
to the share ownership by ATC's directors individually, officers and directors
as a group, and by the record and/or beneficial owners of more than 5% of the
outstanding amount of such stock. For purposes of calculating the amount of
beneficial ownership and the respective percentages, the number of shares of ATC
Common Stock which may be acquired by a person upon the exercise of outstanding
options, if any, notwithstanding the options vesting schedule, are considered
outstanding, but shall not be deemed to be outstanding for the purpose of
computing the percentage of Common Stock owned by any other person.
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<TABLE>
<CAPTION>
Number of Approximate
Shares Owned Percent of
Name and Address (1) Position Beneficially (2) Class (3)
- -------------------- -------- ---------------- ---------
<S> <C> <C> <C>
Aurora Environmental Founder 3,258,000 56.7
Inc. (4)(5)(8) Corporation
George Rubin (5)(9) Chairman of 3,450,000 60.1
the Board
Morry F. Rubin President, 3,338,000 57.4
(5)(7)(9) Treasurer,
Chief
Executive
Officer and
Director
Richard L. Pruitt Vice-President, 9,800 *
(8)(10) Principal
Financial
and Accounting
Officer and
Director
All Officers and All 3,631,800 61.4
Directors of ATC
as a Group
(eight persons) (6)
<FN>
- ----------------
* Represents less than 1%.
(1) Each person has sole voting power and investment power with respect to the
shares indicated as owned beneficially by such person.
(2) All shares listed are owned both of record and beneficially.
(3) Based upon 5,738,318 shares of Common Stock outstanding as of May 1, 1995.
(4) May be deemed to be a "parent" or a "founder" (or both) of ATC for the
purpose of the Securities Act of 1933, as amended.
(5) Includes 3,258,000 shares owned by Aurora Environmental Inc., a publicly
held corporation, which is controlled by George Rubin and Morry F. Rubin.
Morry F. Rubin is also an officer and director of Aurora. Morry F. Rubin
is the son of George Rubin.
(6) Includes options to purchase 180,300 shares of Common Stock.
(7) Includes options to purchase 80,000 shares of Common Stock.
(8) Address: 1515 East Tenth Street, Sioux Falls, SD 57103.
(9) Address: 104 East 25th St. 10th Floor, New York, NY 10010.
(10) Includes options to purchase 8,300 shares of Common Stock.
</TABLE>
ATC does not know of any arrangement or pledge of its securities by persons
now considered in control of ATC that might result in a change of control of
ATC.
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THE MERGER
GENERAL
At the Aurora Special Meeting and ATC Special Meeting, the stockholders of
both corporations will be asked to consider and vote upon the ratification,
adoption and approval of the Merger Agreement. Further, Aurora's stockholders
will be asked to consider and vote upon the authorization and approval of Morry
F. Rubin and/or Richard L. Pruitt to vote Aurora's 3,258,000 shares in favor of
the Merger at the ATC Special meeting of Stockholders. See "The Aurora Special
Meeting" and "The ATC Special Meeting."
The Merger Agreement is being submitted to the stockholders of Aurora and
to the stockholders of ATC for their respective approvals in accordance with the
requirements of Sections 144 and 251 of the GCL. Section 144 of the GCL
contemplates that no contract or transaction in which directors or officers have
a financial interest shall be void or voidable solely for this reason or solely
because a director or officer is present at or participates in the meeting of
the Board which authorizes the contracted transaction, or solely because his or
their votes are counted for such purpose, if the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by a vote of the
stockholders. See "Lack of Independent Directors - Conflicts of Interest" and
"Board of Director Approval." Section 251(c) of the GCL requires stockholder
approval of the Merger by both ATC and Aurora and that stockholders as they
appear on the records of each respective corporation must be mailed due notice
of the time, place and purpose of the meeting a least 20 days prior to the date
of the meeting. The notice must contain a copy of the Merger Agreement or a
brief summary thereof as the Board of Directors of each respective corporation
shall deem advisable.
The Merger Agreement provides for a conversion ratio of .545. This means
that each full share of Aurora Common Stock (other than shares of Aurora Common
Stock in respect of which approval rights are perfected) will be converted into
and exchanged for .545 of a share of ATC Common Stock. For example, if a
stockholder of Aurora owns 1,000 shares, such stockholder will have his Aurora
Common Stock converted into and exchanged for 545 shares of ATC Common Stock at
or after the Effective Time of the Merger. Each outstanding share of ATC Common
Stock outstanding immediately prior to the Effective Time of the Merger will
continue to represent one share of ATC Common Stock at and after the Effective
Time except for Dissenting Shares in respect of which appraisal rights are
perfected. See "The Merger Agreement," and "Exchange of Aurora Stock
Certificates."
Based upon the number of shares of Aurora Common Stock outstanding on the
date of this Prospectus and assuming no additional shares are issued by Aurora
prior to the Effective Time
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of the Merger, without making adjustment for fractional share interests and
assuming no appraisal rights are exercised in respect of the Aurora Common
Stock, ATC will be required to issue an aggregate of approximately 3,341,452
shares of ATC Common Stock at the Effective Time of the Merger. Such shares
will constitute approximately 57.4% of the issued and outstanding shares of
ATC's Common Stock assuming no additional ATC shares are issued upon exercise of
Options and/or Warrants of ATC or Aurora or otherwise after giving effect to the
cancellation of the 3,258,000 shares of ATC Common Stock owned by Aurora.
If the Merger Agreement is approved by the Stockholders of each of Aurora
and ATC, and the Merger Agreement is not terminated and all conditions to the
Merger are satisfied, the Merger will become effective upon the filing of a
Certificate of Merger with the Department of State of the State of Delaware.
The description of the terms and conditions of the Merger, the Merger
Agreement and any related documents included in this Prospectus/Proxy Statement
are qualified in their entirety by reference to the Attachments hereto which
Attachments are hereby incorporated by reference as if set forth herein.
AURORA'S BOARD OF DIRECTORS' REASONS FOR THE MERGER
Since December 1989 when Aurora, because of their unprofitability,
discontinued the last of its business operations other than as conducted through
ATC, its sole business has been the ownership of its interest in ATC.
Aurora's Board, recognizing that with Aurora having no material assets
other than its ownership of approximately 57% of ATC's capital stock and that
any change of control of either ATC or Aurora would constitute a default under
ATC's debt to its primary lender which could result in the enforcement by the
lender of Aurora's guarantee thereof, determined that it would be difficult for
Aurora to acquire and/or commence additional business activities, directly or
indirectly, other than those conducted through ATC, and believed it was
appropriate to consider the future prospects of Aurora other than solely in its
present role as the majority owner of ATC.
Without access to any material assets other than its ownership interest in
ATC, which if substantially reduced would constitute a default under ATC's loan
and could result in the enforcement of Aurora's guarantee thereof, the Board
concluded that it was most likely that Aurora would, for an undeterminable
period of time, not be in a position to have available cash assets to either
commence or acquire a new line of business in addition to the business conducted
through ATC. The receipt of a substantial return on its investment in ATC was
also found to be not expected in the foreseeable future since ATC's loan terms
prohibit the declaration of dividends by ATC without the consent of the lender
and ATC does not intend to pay dividends for the foreseeable future.
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In light of the Board's conclusion that Aurora could not reasonably expect
to have material funds available in the foreseeable future to embark upon
additional business ventures, the Board determined that it was in the best
interest of Aurora and its shareholders to consider the merger of Aurora and
ATC, since, under the terms of ATC's debt and Aurora's guarantee thereof, Aurora
was not in a position to substantially reduce its position of ownership in ATC
in order to raise monies for other activities without causing a default under
ATC's primary lending agreement.
The Board briefly considered the merger of ATC into Aurora, with Aurora as
the surviving corporation, but since this would require substantial expense and
delay in the re-issuance of a wide variety of federal, state and local licenses,
permits and certificates, the Board determined that such a merger was not the
best avenue to pursue.
Having considered the future business prospects of Aurora outside of its
ownership interest in ATC and the business interruption risks and expenses of a
merger of ATC into Aurora, the Board then considered a merger of Aurora into
ATC, with ATC as the surviving corporation.
The Board requested its accountants, Deloitte & Touche LLP to provide
certain information regarding the tax treatment that would be accorded to its
shareholders in the event of a merger and engaged the investment banking firm of
Comprehensive Capital Corporation to assist it in the determination of a price
per share in the event of such a merger.
Representatives of Deloitte & Touche LLP discussed with the Board of Aurora
various federal tax and accounting aspects of the proposed Merger, including (a)
the classification of the proposed Merger as a Section 368(a)(1)(A)
reorganization under the Code; (b) the gain or loss recognition and capital
gains treatment effects on Aurora and/or its stockholders; (c) the tax basis of
the ATC stock to be received in the Merger and the holding periods attributable
thereto; (d) ATC's ability to utilize Aurora's net operating loss carryforward
and (e) the accounting treatment of the Merger "in a manner similar to a pooling
of interest" not requiring the recording of any goodwill in connection with the
Merger.
The Aurora Board discussed with Comprehensive Capital Corporation the
methodology used and conclusions reached in its fairness opinion which was
presented to the Board, including the methods used to determine ATC and Aurora
market values and each of Comprehensive's adjustments thereto.
In addition to its analysis, the Board investigated the costs of
maintaining Aurora and ATC as separate public corporations and determined that a
merger of Aurora and ATC with estimated offering costs of approximately $125,000
chargeable to Aurora could result in savings of approximately $40,000 per year
in the professional and related costs incurred in connection with the filing
requirements of Aurora under the Securities Exchange Act of 1934,
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as amended; the maintenance of a transfer agent and other costs relating to
Aurora that would be eliminated in the event of a merger of Aurora and ATC.
The Board also considered the negative effect of the dual corporate
entities on future financing activities of both Aurora and ATC, that future loan
documentation costs would be reduced and that the previous loan negotiation
experience of the Directors reflected, in their collective opinions, beliefs,
that a single entity structure rather than a holding company structure would be
likely to receive more favorable terms from the financial community.
Additionally, and finally, the Board considered the fairness opinion rendered by
its investment banker, Comprehensive Capital Corporation, in connection with the
offer it received from ATC.
The inability of Aurora to easily place itself in a position to enter into
additional business ventures without seriously endangering the credit facility
of ATC, which ownership interest is Aurora's sole material asset, was a primary
motivating factor for the Board's action. Since a change of control in ATC
would be a loan default, it effectively prevents Aurora from raising substantial
funds for other activities by reducing its ownership position in ATC and, as a
guarantor of ATC's debt, with no other substantial assets or activities, it
would not be in a position to easily attract additional financing directly for
Aurora.
Once a determination was made to look into the wisdom of maintaining
Aurora's existence as a holding company, the Board evaluated each other factor
previously discussed, as well as a review of Aurora's net operating loss
carryforward of approximately $843,207 at November 30, 1994, which Aurora would
not be in a position to utilize in the foreseeable future, and ATC's
indebtedness to Aurora of $104,135 at November 30, 1994 payable on Aurora's
demand, to attempt to determine what action was in the best interest of its
stockholders. (It should be noted that at February 28, 1995, Aurora's net
operating loss carryforward was approximately $970,000 and ATC's indebtedness to
Aurora was $39,969. The Board has been advised by Deloitte & Touche LLP that
the change in net operating loss carried forward has no impact on its tax
opinions.)
Each of the factors previously discussed, when coupled with the fact that
the market for ATC shares has historically been more liquid than Aurora shares,
led the Board of Aurora to conclude a Merger of Aurora with and into ATC was in
the best interest of Aurora's Stockholders. The merger price was a settlement
price calculated by adding the conversion ratios determined by ATC's and
Aurora's independent investment bankers and dividing the sum by two, which the
Board expected to result in an increase in the per share value of Aurora's
Stockholders.
Each factor considered by the Board weighed favorably in the decision to
proceed with the Merger, except the inability to obtain the exchange ratio of
.56 of a share of ATC Common Stock for each 1.0 Aurora share initially sought
weighed as a negative factor.
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As previously discussed, the merger price was a half-way settlement of the
conversion ratios suggested by ATC's and Aurora's investment bankers. This
additional payment to Aurora shareholders over the amount proposed by ATC's
investment bankers was key to obtaining Aurora's Board's approval.
AURORA BOARD OF DIRECTORS' RECOMMENDATIONS
The Board of Directors of Aurora has unanimously approved the Merger and
recommended that the Aurora Stockholders vote at the Aurora Special Meeting: (i)
FOR the approval of the Merger Agreement, and (ii) FOR the authorization of
Morry F. Rubin and/or Richard L. Pruitt to vote Aurora's 3,258,000 shares of
ATC's Common Stock in favor of the Merger at the ATC Special Meeting which will
be held following the Aurora Special Meeting. Aurora's Board of Directors
believes that the Merger is in the best interests of Aurora and its
Stockholders. The Board's conclusion is based upon a number of factors as set
forth under the immediately preceding heading, including: (i) the inability of
Aurora to enter into new lines of business and/or to easily attract additional
financing or investment without a reduction in its ownership interest in ATC,
(ii) the Merger should afford Stockholders of Aurora the opportunity to exchange
their shares, on a tax free basis, for an ownership interest directly in the
operating entity (i.e. ATC) (see Tax Opinions of Deloitte & Touche LLP in
Attachments C and D as to the Federal income tax consequences of the Merger;
(iii) the holders of Aurora Common Stock will receive in the Merger shares of
ATC Common Stock which historically have been more liquid than the market for
shares of Aurora Common Stock, although there can be no assurance as to any
future market for ATC Common Stock; (iv) the combined enterprise may be able to
experience cost savings both administratively and professionally from having
only one company and consequently only incurring the cost involved in having one
reporting company under the Securities Exchange Act of 1934, as amended; (v) the
combined enterprise would eliminate the need to incur additional expenses for
the preparation of cross guarantee and/or pledge agreements for Aurora in
connection with future third-party agreements, both of which were required in
connection with past and present institutional loan agreements; and (vi)
Management of Aurora believes that future financing could be obtained for the
combined entity on better terms than would be available to the separate
companies, although no assurances can be given in this regard. The Merger will
eliminate the need for ATC to make payments to Aurora with respect to the notes
payable owing to Aurora and allow the combined entity to utilize Aurora's net
operating loss carryforward.
The Board of Directors of Aurora considered the possibility of proposing a
Merger of ATC into Aurora and recommended against this form of merger since if
Aurora were the surviving corporation, it could expect to experience significant
problems with the transfer of ATC's environmental facilities and other permits
and/or licensing, which could result in economic and transactional costs being
prohibitive.
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ATC BOARD OF DIRECTORS' REASONS FOR THE MERGER
Since June 1988, ATC has been a publicly held corporation, which is
currently 57% owned by Aurora.
ATC's Board, being acutely aware that (i) any material change in the
relationship of Aurora to ATC would constitute a default under its loan
agreement with its primary lender and (ii) that any direct entry by Aurora into
the environmental services industry could have a material negative impact upon
ATC's business, felt it was appropriate to consider a merger with Aurora.
Were Aurora to expand its operations to include significant business
activities conducted outside of its ownership in ATC, the time and efforts
currently devoted to ATC's activities by ATC's directors and executive officers,
three of whom are directors, officers and/or principal shareholders of Aurora,
could be reduced to the detriment of ATC.
The Board, in addition to the previously discussed motivations, gave
substantial consideration to ATC's possible utilization of Aurora's $843,207 net
operating loss carryforward at November 30, 1994 and the elimination of ATC's
$104,135 debt at November 30, 1994 to Aurora. (It should be noted that at
February 28, 1995, Aurora's net operating loss carryforward was approximately
$970,000 and ATC's indebtedness to Aurora was $39,969. The Board has been
advised by Deloitte & Touche LLP that the change in net operating loss carried
forward has no impact on its tax opinions.)
The Board also considered the following additional factors to be of
significance in its deliberations: (i) eliminating the need of ATC to be
beholden to a controlling stockholder for its debt guarantee; (ii) eliminating
the loss of the time of key ATC personnel to performance of present functions
for Aurora (even if cost allocated); and (iii) the possibility of an increased
perception by the financial marketplace of ATC's credit worthiness and future
potential.
Inasmuch as a majority of ATC's directors are directors of Aurora, ATC's
Board was aware of the fact that Aurora's Board would be reevaluating its role
as a holding company with no significant activities outside of its ownership
interest in ATC.
The Board requested its accountants, Deloitte & Touche, to investigate the
utilization by ATC of Aurora's net operating loss carryforward, and engaged the
investment banking firm of Royce Investment Group, in connection with the
formulation of an offer to merge Aurora into ATC, with ATC as the surviving
corporation.
Representatives of Deloitte & Touche presented to the Board of ATC a
discussion of various federal tax and accounting aspects of the proposed Merger,
including (a) the classification of the proposed Merger as a Section
368(a)(1)(A) reorganization under the Code; (b) the gain or loss recognition to
ATC on the receipt of Aurora's assets and assumption of Aurora's liabilities;
(c) the tax basis of the assets of Aurora to be received in the Merger and the
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holding periods attributable thereto; (d) ATC's ability to utilize Aurora's net
operating loss carryforward; (e) ATC's succession to Aurora's earnings and
profits and treatment of Aurora's deficits by ATC; and (f) the accounting
treatment of the Merger "in a manner similar to a pooling of interest" not
requiring the recording of any goodwill in connection with the Merger.
Royce Investment Group presented to the ATC Board a discussion of the
methodology used and conclusions reached in its fairness opinion, including the
modified methods used to determine ATC's and Aurora's net asset values, and each
of Royce's adjustments thereto.
The Board in light of the agreed upon exchange ratio, reviewed the expected
increase in per share value for Aurora's stockholders and expected slight
increase in per share value for ATC stockholders, resulting from the Merger,
together with the overall expected dilutive effect of the Merger on the ATC
shareholders. The Board's receipt and review of the requested information from
its accountants and investment banking firm together with consideration of each
of the aforementioned factors led the Board to conclude that a merger of Aurora
into ATC, with ATC as the surviving corporation, was in the best interest of the
stockholders of ATC despite the fact that the final exchange price for Aurora
Stockholders would result in a smaller increase in the per share value for ATC's
Stockholders than the resultant increase applying to Aurora's Stockholders.
While the slight increase in share value and effects of the Merger on ATC were
negatively weighted together with the inability to obtain the exchange ratio
initially sought of .53 of a share of ATC Common SDtock for each 1.0 Aurora
share, each other factor discussed weighted in favor of the Merger.
The Merger price was a settlement price calculated by adding the conversion
ratios determined by ATC's and Aurora's independent investment bankers and
dividing the sum by two which settlement resulted in an increased exchange ratio
for Aurora's Stockholders, in excess of the maximum price suggested by ATC's
investment bankers. The Board reevaluated the entire transaction in light of
the increased exchange ratio and resultant decrease in the per share value for
ATC's Stockholders, but upon such reconsideration, it was the unanimous
consensus of the Board that the transaction was still in the best interest of
ATC's Stockholders in light of all the factors previously discussed.
ATC BOARD OF DIRECTORS' RECOMMENDATIONS
The Board of Directors of ATC has unanimously approved the Merger and
recommended that the ATC Stockholders vote FOR the approval of the Merger
Agreement at the ATC Special Meeting. ATC's Board of Directors believes that the
Merger is in the best interests of ATC and its Stockholders. The Board's
conclusion is based upon a number of factors as set forth under the immediately
preceding heading, including: (i) Management of ATC's concern that Aurora could
enter into other business lines (recognizing that it was previously in the
environmental business other than solely through ATC); (ii) Management's concern
about any possible change
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of Aurora's relationship with ATC that could constitute a default under ATC's
debt instruments; (iii) Management of ATC's belief that future financing could
be obtained for the combined entity on better terms than would be available to
the separate companies, although no assurances can be given in this regard; (iv)
ATC should be able to utilize Aurora's net operating loss carryforward (see Tax
Opinions of Deloitte & Touche LLP as to the Federal income tax consequences of
the Merger filed as an exhibit to the Registration Statement of which this
Prospectus/Proxy Statement forms a part); (v) elimination of ATC's notes payable
to Aurora; (vi) elimination of parent guarantee issues with respect to ATC's
future debt financing transactions; (vii) elimination of perceived market and
business confusion with both companies being publicly traded; and (viii)
elimination of the devotion of ATC staff time and effort on behalf of Aurora and
then having ATC allocate costs to Aurora.
INDEPENDENT FAIRNESS OPINIONS
Royce Investment Group, Inc. ("Royce"), Woodbury, New York, has been
retained by ATC as investment bankers regarding an appropriate and fair and
equitable share exchange ratio to be proposed by ATC to the Stockholders of
Aurora in connection with the Merger of Aurora into ATC. The selection of Royce
was at the recommendation of counsel to ATC and was based on the firm's (and its
principals') experience and expertise as an investment banking firm and the
favorable evaluation of such firm's capabilities as determined by the Company's
Board of Directors. As part of its investment banking business, Royce is
engaged in the business of public distributions of securities, private
placements, valuation of businesses and securities in connection with mergers
and acquisitions and valuations for corporate and other purposes. Prior to the
engagement of Royce, there were no material relationships between Royce and
either party to the proposed Merger at any time nor is any relationship mutually
contemplated other than the fees payable in connection with the Merger.
Comprehensive Capital Corp. ("Comprehensive") Westbury, New York, has been
retained by Aurora as investment bankers regarding an appropriate and fair and
equitable share exchange ratio to the Stockholders of Aurora in considering the
proposal of ATC received in connection with the Merger of Aurora into ATC. The
selection of Comprehensive was based on a prior dealing with Comprehensive by
ATC and was based on the firm's (and its principals') experience and expertise
as an investment banking firm and a favorable evaluation of such firm's
capabilities as determined by Aurora's Board of Directors. As part of its
investment banking business, Comprehensive is engaged in the business of public
distributions of securities, private placements, valuation of businesses and
securities in connection with mergers and acquisitions and valuations for
corporate and other purposes. Prior to the engagement of Comprehensive, except
as described below, there were no material relationships between Comprehensive
and either party to the proposed Merger at any time nor is any relationship
mutually
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contemplated other than the fees payable in connection with the Merger. In
connection with ATC's acquisition of the business and assets of Con-Test, Inc.,
Comprehensive was engaged by ATC to provide an independent evaluation of the
fair market value of the 116,556 restricted common shares paid by ATC in
connection with that transaction. See "ATC's Management Discussion and Analysis
of Financial Condition and Results of Operations - Acquisition of Assets of Con-
Test, Inc."
The exchange ratio recommended by Royce to ATC's Board of Directors was
that ATC should offer to exchange up to .53 share of its Common Stock for each
1.0 share of Aurora Common Stock. The exchange ratio recommended by
Comprehensive to Aurora's Board of Directors was that ATC should offer to
exchange at least .56 share of its Common Stock for each 1.0 share of Aurora
Common Stock.
The full text of Royce's and Comprehensive's respective written opinions
and supplements thereto which set forth the assumptions made, matters considered
and limitations on the review undertaken are attached as Attachment C and
Attachment D, respectively, to this Proxy Statement and are incorporated herein
by reference. Holders of ATC and Aurora Common Stock are urged to read these
opinions and supplements carefully in their entirety. Royce's and
Comprehensive's respective written opinions are directed to the Board of
Directors of ATC and Aurora, respectively, and may be relied upon by the
respective stockholders of each corporation as to the fairness of the Exchange
Ratio from a financial point of view, and do not address any other aspect of the
Merger. The summary of the opinions of Royce and Comprehensive set forth in
this Proxy Statement are qualified in their entirety by reference to the full
text of such opinions.
In arriving at their respective opinions, Royce and Comprehensive (i)
reviewed the Merger Agreement, the Form S-4 Registration Statement of which this
Prospectus/Proxy Statement is a part and certain publicly available business and
financial information relating to ATC and Aurora; (ii) certain financial and
other information concerning ATC and Aurora; (iii) certain historical and
current market data for ATC's and Aurora's Common Stock; and (iv) certain other
information obtained during extensive discussions with management of ATC and
Aurora, in light of general economic, financial and market conditions as they
now exist and can be evaluated by the independent investment bankers. Their
opinions were also based upon certain other non-quantifiable benefits which they
believe will likely accrue to ATC should the Merger occur. These include, inter
alia, the simplification of and reduction of the administrative and professional
efforts and costs associated with the present two public company structure, the
elimination of any potential parent company guarantee issues in respect of
future debt financing by ATC, the elimination of possible equity market
confusion engendered by the parent-subsidiary relationship now prevailing with
both companies being publicly owned and traded on NASDAQ and the likelihood that
future financing could be more easily obtainable and on better terms by the
combined companies than by ATC alone.
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In connection with their review, neither Royce nor Comprehensive
independently verified any of the information provided to or otherwise reviewed
by them and relied upon its being complete and accurate in all respects. In
addition, neither Royce nor Comprehensive made an independent evaluation or
appraisal of the assets of ATC and Aurora, nor were Royce and Comprehensive
furnished with any such evaluations or appraisals. Royce's and Comprehensive's
respective opinions are necessarily based on information available to them and
financial stock market and other conditions and circumstances as they existed
and could be evaluated on the date of their respective opinions. Although Royce
and Comprehensive evaluated the financial terms of the Merger, i.e. the
recommended exchange ratio, the final conversion ratio was determined by the
Board of Directors in the manner set forth below.
The Board of Directors of both ATC and Aurora have approved, subject to
Stockholder approval, an exchange rate of .545 of a share of ATC Common Stock
for each 1.0 share of Aurora Common Stock which exchange rate was determined by
adding the conversion ratios recommended by the professional opinions of each
independent investment banker and dividing the sum by two, in view of the slight
difference in the recommended exchange ratios received from the aforementioned
investment bankers and the lack of independent directors to negotiate an arms
length transaction. See "Risk Factors."
The following is a summary of the material analyses performed by Royce in
connection with its opinion dated December 20, 1994, which it delivered to ATC's
Board of Directors.
MODIFIED NET ASSET ANALYSIS. Royce reviewed the operations of Aurora and
noted that Aurora is a holding corporation whose only material asset is its
ownership of approximately 57% of the total shares outstanding of ATC. Using a
modified net asset analysis measured in shares rather than in dollars, Royce
determined that an appropriate exchange ratio may be derived by first comparing
the quantity of or portion of one ATC share derivatively held by each one share
of Aurora common Stock and then by adjusting the ratio by appropriate
quantitative and qualitative factors.
Royce reviewed the number of outstanding shares of Aurora at December 15,
1994 (i.e. 6,101,104) and compared this number to the number of ATC shares owned
by Aurora (i.e. 3,258,000) and determined that the number of ATC shares held
derivatively by each Aurora share of Common Stock equalled .534 (i.e. 3,258,000
divided by 6,101,104 = .534).
Royce reviewed various quantitative factors that it evaluated would result
in modest adjustments to the conversion ratio in both directions. These
included the following:
1. Aurora has outstanding Warrants and Options to purchase 1,140,000
shares which are largely exercisable at between $.56 and $2.90 per share.
These represent an approximate gross potential dilution of about 18% to the
Aurora share basis
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before giving any effect to the resultant cash in-flow of about $1.4
million dollars. Royce evaluated this factor and determined that the
conversion ratio should be decreased by approximately 10%.
2. Aurora has no material assets or liabilities aside from its 57%
ownership in ATC, except for cash of approximately $200,000 which would be
substantially utilized to fund operating expenses and the Merger costs
until closing and a loan receivable from ATC of slightly in excess of
$100,000. However, Aurora has a net operating loss carryforward as
determined by Deloitte & Touche LLP of approximately $850,000 which would
become available to ATC after the Merger. This has an after tax value to
ATC of about $340,000 which when combined with the relief of indebtedness
to Aurora, has a value of approximately $450,000 to ATC. Royce determined
that these factors required a five percent upward adjustment in the
conversion ratio.
After netting out the 10% decrease specified in (1) above and the 5%
increase specified in (2) above, Royce arrived at a net 5% decrease in the
conversion ratio from .534 per share to .507 per share of ATC Common Stock for
each one share of Aurora Common Stock.
Royce then analyzed certain meaningful qualitative benefits which would
accrue to ATC if the proposed Merger were in fact consummated. These factors
include the reduction or likely termination of stock market confusion engendered
by the present parent-subsidiary relationship now existing with a possible
enhancement of stock market recognition of the combined companies,
simplification of banking and finance issues regarding such matters as inter-
company loans and guarantees and relief of administrative expense and
professional fees for the present two companies instead of one. While
essentially impossible, in Royce's opinion, to value in a specific quantitative
manner, Royce evaluated these benefits to ATC to justify a modest further
increase in the recommended ration from .507 to .53 share of ATC Common Stock
per one share of Aurora Common Stock.
When Royce recommended a conversion ratio to ATC's Board of Directors of up
to .53, it brought to the attention of the ATC Board that the valuation of
certain of the various factors analyzed by Royce were difficult of exact
valuation and reasonable people might differ slightly. Subsequent to Royce's
earlier opinion of December 20, 1994, Royce reviewed the latest financial
statements of ATC and Aurora as set forth in the Form 10-Q's filed by each of
ATC and Aurora for the quarter ended November 30, 1994, the price range of ATC's
and Aurora's Common Stock as reflected in trading on NASDAQ since December 20,
1994, the Form S-4 Registration Statement, File No. 33-88380 and the conversion
ratio of .545 share of ATC Common Stock for each one share of Aurora Common
Stock approved by the ATC Board of Directors and agreed to by ATC and Aurora in
the Merger Agreement. Based upon Royce's review of the foregoing, it was
Royce's opinion as expressed in its letter
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supplement dated March 8, 1995 to the Board of Directors of ATC, that the
conversion ratio of .545, which is within 2.8% of the ratio recommended by Royce
in its original opinion letter dated December 20, 1994 of .53 share of ATC
Common Stock for each one share of Aurora Common Stock, is within a band of
reasonable value as contemplated by Royce and advised by Royce to the ATC Board
of Directors. Accordingly, in Royce's opinion, it determined that the
conversion ratio of .545 is fair and equitable to the stockholders of ATC. In
Management's opinion, since the Supplemental Opinion dated March 8, 1995, no
event has occurred (including without limitation the release of earnings for the
year ended February 28, 1995) that would materially impact the valuation given
by Royce.
The following is a summary of the material analyses performed by
Comprehensive Capital Corp. in connection with its opinion dated January 6,
1995, which it delivered to Aurora's Board of Directors.
STOCK VALUE ANALYSIS. Comprehensive reviewed the operations of Aurora and
noted that Aurora is a holding corporation whose only material asset is its
ownership of approximately 57% of the total shares outstanding of ATC.
In determining the final conversion ratio, Comprehensive first determined
the ATC market value of its 5,721,091 issued and outstanding shares at December
15, 1994 and arrived at a market value of approximately $95,500,000 based upon a
market price of $16.70 per ATC share. Aurora's 57% ownership interest of the
ATC market value was approximately $54,500,000. Comprehensive then determined
Aurora's market value of its 6,101,104 issued and outstanding shares at December
15, 1994 and arrived at a market value of approximately $34,044,000 based upon a
market price of $5.58 per Aurora share. Comprehensive then subtracted Aurora's
interest in the ATC market value of approximately $54,500,000 less
the Aurora market value of approximately $34,044,000 and arrived at an
understatement of Aurora's interest in ATC's market value of approximately
$20,415,000 which is equal to $3.35 per Aurora share (the "intrinsic market
adjustment") based upon 6,101,104 shares issued and outstanding. To the Aurora
market price of $5.58 at December 15, 1994, Comprehensive added the intrinsic
market adjustment of $3.35 and arrived at a price of $8.93. Comprehensive then
adjusted the market price up to $10.72 per Aurora share based upon a control
premium of 20% of the $8.93 equal to $1.79 per Aurora share. In Comprehensive's
opinion the payment of a premium in the acquisition of a controlling position is
not uncommon and is generally accepted in connection with such a transaction.
Comprehensive determined that Aurora's net operating loss carryforward of
approximately $850,000, which is expected to be approximately $340,000 after tax
adjustment, would result in a further upward adjustment to the Aurora Base Price
of $.06 per Aurora share.
Comprehensive also determined that the merger would relieve ATC of the need
to pay approximately $110,000 of intercorporate debt to Aurora, for which
Comprehensive calculated a cost savings
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of approximately $.02 per Aurora share, resulting in a further upward adjustment
to the Aurora base price of $.02 per Aurora share. The Aurora base price per
share as adjusted for the two preceding paragraphs is $10.80 per Aurora share.
Comprehensive evaluated a negative adjustment to the Aurora adjustment base
price. In its analysis it observed that Aurora's outstanding Warrants/Options
to purchase 1,140,000 Aurora shares, which are exercisable at prices ranging
from $.56 to $2.90 per Aurora share, could result in a maximum 18% dilution of
the Aurora shares offset by an approximate $1.4 million maximum equity infusion
of all options/warrants are exercised, should, in Comprehensive's opinion,
offset the adjusted Aurora per share price by approximately 13-1/2%, reducing
the Aurora adjusted per share price to $9.34 per Aurora share.
Comprehensive then evaluated the economics to be realized by the
elimination of a reporting company under the Securities Exchange Act of 1934,
the anticipated value of creating a more favorable image to the business market
place by eliminating confusion of corporate identities and presenting a single
combined entity, which is expected to result in a more favorable reception, and
possibly more favorable financing rates, from the financial community. In
Comprehensive's opinion the foregoing analysis would justify rounding of the
adjusted Aurora per share market price to $9.35 per share. The $9.35 adjusted
Aurora per share market price as calculated above, divided by the ATC market
value of $16.70 per share at December 15, 1994 would result in our proposed
exchange rate of .56 of an ATC share for each one share of Aurora.
On March 8, 1995, Comprehensive reviewed the latest financial statements of
ATC and Aurora as set forth in the Form 10-Q's filed by each of ATC and Aurora
for their respective quarters ended November 30, 1994. Comprehensive also
reviewed the price range of each company's common stock as reflected in trading
on NASDAQ for the prior thirty days through March 3, 1995. Finally,
Comprehensive reviewed the Form S-4 Registration Statement (File No. 33-88380)
as filed by ATC (the Registration Statement). Based upon the review of the
foregoing, it was Comprehensive's opinion as expressed in its letter supplement
dated March 8, 1995 to the Board of Directors of Aurora, that the conversion
ratio of .545 is within 2.7% of the ratio recommended by Comprehensive in its
original opinion letter dated January 6, 1995 of .56 share of ATC common stock
for each one share of Aurora common stock and is within a margin of reasonable
value from its original opinion and advice to the Aurora Board of Directors.
Accordingly, in Comprehensive's opinion, it determined that the conversion ratio
of .545 is fair and equitable to the stockholders of Aurora. In Management's
opinion, since the Supplemental Opinion dated March 8, 1995, no event has
occurred (including without limitation the release of earnings for the year
ended February 28, 1995) that would materially impact the valuation given by
Comprehensive.
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INTEREST OF CERTAIN PERSONS IN THE MERGER
All of ATC's executive officers, (including its subsidiaries) namely,
George Rubin-Chairman of the Board; Morry F. Rubin-President and Chief Executive
Officer; Nicholas J. Malino-Senior Vice President-Financial and General
Operations; Christopher P. Vincze-Senior Vice President-Financial and General
Operations; Donald Beck-Senior Vice President; Richard L. Pruitt-Vice President,
Principal Financial and Accounting Officer; Wayne A. Crosby-President and
Treasurer of ATC Management, Inc.; and John J. Smith-Secretary of ATC
Management, Inc. may be deemed affiliates of both ATC and Aurora under the
Securities Act of 1933, as amended. Further, as of January 5, 1995, George
Rubin, Morry Rubin and Richard L. Pruitt, directors of ATC, own 1,716,500
shares, 1,172,000 shares and 77,167 shares of Aurora, respectively, and
Options/Warrants to purchase an additional 900,000 shares, 150,000 shares and
15,000 shares of Aurora, respectively. At the Effective Date, George Rubin,
Morry F. Rubin and Richard L. Pruitt are expected to be the beneficial owners of
1,617,992 shares, 800,490 shares and 58,531 shares of ATC (including all
securities convertible into ATC Common Stock), respectively. See "Counsel"
regarding certain conflicts of interest involving legal counsel which the boards
of directors of ATC and Aurora have waived in connection with the Merger
Agreement and related transactions.
LACK OF INDEPENDENT DIRECTORS - CONFLICTS OF INTEREST
The Merger Agreement was unanimously approved by the respective Board of
Directors of each of ATC and Aurora subject to approval of the Stockholders of
each respective corporation. ATC's Board of Directors consists of George Rubin,
Morry F. Rubin and Richard L. Pruitt. Aurora's Board of Directors consists of
Morry F. Rubin and Richard L. Pruitt. Further, George Rubin and Morry F. Rubin
are principal stockholders of Aurora and may be deemed control persons of both
Aurora and ATC under the Securities Act of 1933, as amended. See "The Aurora
Special Meeting - Principal Stockholders of Aurora" and "The ATC Special Meeting
- - Principal Stockholders of ATC" regarding the security ownership of George
Rubin, Morry F. Rubin and Richard L. Pruitt in both Aurora and ATC. As a result
of their directorships and/or stockholdings in Aurora and ATC, possible
conflicts of interest may have arisen in connection with the fiduciary duties of
such persons to ATC and/or Aurora resulting in the Merger transaction not being
negotiated at arms-length, notwithstanding the fairness opinions rendered by
Royce and Comprehensive as discussed herein. Accordingly, no assurance can be
given that the terms of the Merger Agreement contain the best possible terms
that could have been obtained for either the stockholders of Aurora or ATC had
the transaction been negotiated at arms-length. Further, the lack of
independent directors (or a special committee of the Board of Directors composed
of independent directors) has had the effect of the respective Board of
Directors of both ATC and Aurora recommending a transaction that each believes
and has determined is fair and in the best interest of the stockholders
(including non-affiliated stockholders) as a group of each respective
corporation without the
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input and recommendations that might have been obtained had either corporation
had independent directors or a special committee thereof.
The respective Boards of Directors of ATC and Aurora, in compliance with
Section 144 of the Delaware General Corporation Law, are disclosing the
relationships and conflicts of interest of their directors to the Stockholders
of ATC and Aurora and are submitting the Merger Agreement to each of ATC's and
Aurora's Stockholders for their respective approvals. The approval of the
Merger Agreement by the respective stockholders of ATC and Aurora and the
approval by the Stockholders of Aurora of the authorization of Morry F. Rubin
and/or Richard L. Pruitt to vote Aurora's 3,258,000 shares of ATC in favor of
the Merger at the ATC special meeting, are all assured since George Rubin, Morry
F. Rubin and certain other officers and directors of ATC and Aurora and other
persons who are holders of an aggregate of 49.7% of the issued and outstanding
shares of Aurora intend to vote in favor of such proposals. Accordingly any
vote by stockholders who are not interested directors will have no effect on the
approval or disapproval of the Merger. The exchange rate of .545 of a share of
ATC Common Stock for each 1.0 Aurora share of Common Stock established in the
Merger Agreement was determined by adding the conversion ratios recommended by
the professional opinions of each independent investment banker and dividing the
sum by two, in view of the slight difference in the recommended exchange ratios
received from the aforementioned investment bankers and the lack of independent
directors (or a committee thereof) to negotiate an arms length transaction. See
"Independent Fairness Opinions." Except for the conflicts noted above, there
are no known conflicts of interest involving affiliates of ATC and/or Aurora in
connection with this transaction.
BENEFITS AND EFFECTS OF MERGER TO STOCKHOLDERS OF AURORA AND EXECUTIVE
OFFICERS, DIRECTORS AND AFFILIATES
As of January 5, 1995, the day preceding the date of the Merger Agreement,
the historical market values of ATC's and Aurora's Common Stock based upon the
last sales prices on that date were $15.75 and $5.50 per share, respectively.
The equivalent per share value of Aurora's Common Stock as of January 5, 1995
was $8.58 determined by multiplying ATC's last sales price of $15.75 by the
conversion ratio of .545 (.545 of a share of ATC Common Stock for each 1.0 share
of Aurora Common Stock) and rounding the result to the nearest penny. A premium
of $3.08 per share, which represents the amount of the historical premium to be
received by the Stockholders of Aurora on the day preceding the execution and
public announcement of the Merger Agreement, is calculated by taking the
difference between $8.58 per share (the equivalent value per share) and $5.50
per share (the historical market value of Aurora's Common Stock as of January 5,
1995).
George Rubin beneficially owns 2,616,500 shares of Aurora Common Stock.
Based upon the historical market value of the last sales price of ATC Common
Stock (i.e. $15.75 per share) as of the
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day preceding the date of the Merger Agreement (i.e. January 5, 1995) multiplied
by the conversion ratio of .545, George Rubin's 2,616,500 shares of Aurora's
Common Stock beneficially owned by him with an equivalent per share value of
approximately $8.58 would have had an equivalent value of $22,459,382 as
compared to $14,390,750 based upon the historical market value (i.e. $5.50 per
share) of Aurora Common Stock on the same date.
Morry F. Rubin beneficially owns 1,322,000 shares of Aurora Common Stock.
Based upon the historical market value of the last sales price of ATC Common
Stock (i.e. $15.75 per share) as of the day preceding the date of the Merger
Agreement (i.e. January 5, 1995) multiplied by the conversion ratio of .545,
Morry Rubin's 1,322,000 shares of Aurora's Common Stock beneficially owned by
him with an equivalent per share value of approximately $8.58 the would have had
an equivalent value of $11,347,718 as compared to $7,271,000 based upon the
historical market value (i.e. $5.50) of Aurora Common Stock on the same date.
Richard L. Pruitt beneficially owns 92,167 shares of Aurora Common Stock.
Based upon the historical market value of the last sales price of ATC Common
Stock (i.e. $15.75 per share) as of the day preceding the date of the Merger
Agreement (i.e. January 5, 1995) multiplied by the conversion ratio of .545,
Richard L. Pruitt's 92,167 shares of Aurora's Common Stock beneficially owned by
him with an equivalent per share value of approximately $8.58 would have had an
equivalent value of $791,138 as compared to $506,919 based upon the historical
market value (i.e. $5.50 per share) of Aurora Common Stock on the same date.
Donald Beck beneficially owns 12,000 shares of Aurora Common Stock. Based
upon the historical market value of the last sales price of ATC Common Stock
(i.e. $15.75 per share) as of the day preceding the date of the Merger Agreement
(i.e. January 5, 1995) multiplied by the conversion ratio of .545, Donald Beck's
12,000 shares of Aurora's Common Stock beneficially owned by him with an
equivalent per share value of approximately $8.58 would have had an equivalent
value of $103,005 as compared to $66,000 based upon the historical market value
(i.e. $5.50 per share) of Aurora Common Stock on the same date.
Christopher Vincze beneficially owns 9,200 shares of Aurora Common Stock.
Based upon the historical market value of the last sales price of ATC Common
Stock (i.e. $15.75 per share) as of the day preceding the date of the Merger
Agreement (i.e. January 5, 1995) multiplied by the conversion ratio of .545,
Christopher Vincze's 9,200 shares of Aurora's Common Stock beneficially owned by
him with an equivalent per share value of approximately $8.58 would have had an
equivalent value of $78,971 as compared to $50,600 based upon the historical
market value of Aurora Common Stock on the same date.
The foregoing describes the benefits to be received by certain officers,
directors and affiliates of Aurora and/or ATC if the historical market value
remains the same on the Effective Date of the Merger. The actual market value
cannot be determined in advance of the Effective Date of
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the Merger. There can be no assurance that any stockholder of Aurora (including
those named herein) will receive the premium described hereinabove, which is
based on historical market value. Such benefits are to be derived purely based
upon their security ownership of Aurora which will be exchanged for or become
exercisable into ATC Common Stock. No officers, directors or affiliates of ATC
and/or Aurora will receive any quantifiable benefit from the Merger other than
by virtue of their ownership of Aurora Common Stock and/or securities
convertible into Aurora Common Stock which securities will be exchanged and/or
become exercisable into ATC Common Stock based upon the same conversion ratio as
is applied to all other Aurora stockholders.
As a result of the Merger, while George Rubin's and Morry F. Rubin's
control of ATC will shift from indirect control to direct control, it should be
noted that their present indirect control of ATC through Aurora is greater prior
to the Effective Time of the Merger than the anticipated direct control of ATC
that they will enjoy after the Effective Time. In this respect, the control
group consisting of George Rubin and Morry F. Rubin will change from
beneficially owning approximately 55% of Aurora's Common Stock (including
Options and Warrants convertible into Common Stock), and indirectly controlling
ATC through Aurora's approximate 57% direct ownership interest in ATC to the
control group directly beneficially owning approximately 37.5% of ATC's Common
Stock (including Options and Warrants).
Management of ATC and Aurora are not aware of any material adverse effects
and/or risks to their respective stockholders arising as a result of the
consummation of the Merger other than (i) the immediate increase in the
outstanding shares of ATC Common Stock by approximately 83,000 shares (net of
the cancellation of Aurora's 3,258,000 shares of ATC), (ii) the possible
issuance of an additional 604,950 shares of ATC Common Stock upon the future
exercise of ATC Options/Warrants issued to replace currently outstanding Aurora
Options/Warrants, (iii) the $.08 increase in ATC net tangible book value per
share of Common Stock from $1.10 prior to the Merger to $1.18 after the Merger
is less than the $1.09 increase in net tangible book value per share of Common
Stock for Aurora stockholders from $.09 prior to the Merger to ATC's net
tangible book value per share of $1.18 after the Merger based upon the
financial position of the aforesaid companies at February 28, 1995 without
taking into account any changes that have occurred or will occur subsequent to
February 28, 1995 except for the consummation of the merger, (iv) a possible
reduction in the market price of the ATC Common Stock resulting from the resale
of up to 3,946,402 shares of Common Stock pursuant to exemptions from
registration under the Securities Act of 1933, as amended, which shares are
being originally issued in connection with the Merger (including the shares
referred to in (ii) above, and (v) the fact that the stockholders of Aurora as a
group will directly rather than indirectly control ATC following the
consummation of the Merger.
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In the event that the Merger is not consummated, an event which is unlikely
to occur, (i) Aurora will continue as a separate and existing holding
corporation, (ii) Aurora will continue to directly control the affairs of ATC
and (iii) the control group consisting of George Rubin and Morry F. Rubin will
continue to directly control the affairs of Aurora and indirectly to control the
affairs of ATC. No other alternative to the proposed Merger is being considered
and/or presented to the stockholders of Aurora at the Aurora Special Meeting.
BOARD OF DIRECTOR APPROVAL
Morry F. Rubin and Richard L. Pruitt comprise the entire board of directors
of Aurora and together with George Rubin, a principal stockholder of Aurora,
make up the entire board of directors of ATC. Further, Aurora owns
approximately 57% of the outstanding shares of ATC Common Stock. Due to the
nature of the common directorships and the affiliation of Aurora and ATC, no
formal negotiations took place between Aurora and ATC to finalize the terms of
the Merger prior to the January 6, 1995 board meetings of Aurora and ATC.
Prior to January 6, 1995, Morry F. Rubin, in his capacity as President of
both ATC and Aurora and George Rubin in his capacity as Chairman of the Board of
ATC had several separate preliminary discussions with each company's
professional advisors (i.e. counsel, independent certifying public accountants
and investment bankers) as to the legal, tax, accounting and other ramifications
of a merger of Aurora and ATC, possible conversion ratios, the anticipated costs
of the Merger and time delays that may be encountered in completing same. These
informal discussions occurred from time to time during calendar 1993 and 1994
culminating in Aurora and ATC retaining their respective professionals in
December 1994 to prepare the Form S-4 Registration Statement of which this
Prospectus/Proxy Statement is a part, the Merger Agreement, the Independent
Fairness Opinions and related documents and the execution of the Merger
Agreement on Friday evening, January 6, 1995.
On January 6, 1995, ATC convened a special meeting of the board of
directors to consider and vote on a proposal to merge Aurora into ATC. After a
thorough analysis of the Proposed Merger Agreement and the ramifications of the
Merger to ATC and its stockholders and after giving due consideration to the
fairness opinion of Royce, the board of ATC authorized a proposal to Aurora to
merge based upon a conversion ratio of .53 of a share of ATC Common Stock to be
exchanged for each 1.0 share of Aurora Common Stock, subject to the approval of
ATC's stockholders in accordance with both the requirements of the GCL and in
recognition of the lack of independence of the ATC board in recommending the
Merger proposal.
On January 6, 1995, Aurora convened a Special Meeting of its board of
directors to consider and vote upon ATC's proposal to merge
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Aurora into ATC which was conveyed to the Aurora meeting by George Rubin,
Chairman of the Board of ATC. After a thorough analysis and discussion of the
proposed Merger Agreement and the ramifications of the Merger to Aurora and its
stockholders and after giving due consideration to the fairness opinion of
Comprehensive, the board of Aurora rejected ATC's proposal and authorized the
Merger to proceed based upon a counter offer to include a conversion ratio of
.56 share of ATC Common Stock for each 1.0 share of Aurora Common Stock, subject
to the stockholder approval due to the requirements of the GCL and the lack of
independence of the Aurora board in recommending its counter offer to ATC.
On the same date, the directors of ATC and Aurora then held a joint meeting
and agreed to set the conversion ratio at .545 of a share of ATC Common Stock
for each 1.0 share of Aurora Common Stock. The exchange rate was determined by
adding the conversion ratios recommended by each independent investment banker
and dividing the sum by two, in view of the slight difference in the recommended
exchange ratios received from the aforementioned investment bankers and lack of
independent directors or committee thereof to negotiate an arms length
transaction. After the joint meeting, each of the boards of directors of ATC
and Aurora both approved the terms of the Merger Agreement dated as of January
6, 1995, and authorized the filing of the Registration Statement on Form S-4 of
which the Prospectus/Proxy Statement is a part.
THE MERGER AGREEMENT
Pursuant to the terms of the Merger Agreement, after the adoption and
approval of the Merger Agreement by the Stockholders of both ATC and Aurora and
the satisfaction or, where permissible, waiver of other conditions of the Merger
and upon the filing of a duly executed Certificate of Merger with the Department
of State of the State of Delaware (the "Effective Time"), each 1.0 share of
Aurora Common Stock outstanding immediately prior to the Effective Time (other
than shares of Aurora Common Stock held by any holders who have properly
perfected their appraisal rights in accordance with the GCL shall, by virtue of
the Merger be cancelled and extinguished and converted into the right to
receive, subject to adjustment pursuant to the terms of the Merger Agreement,
.545 of a share of ATC Common Stock, $.01 par value.
At the Effective Time, each holder of outstanding Aurora Common Stock
Purchase Options and Common Stock Purchase Warrants will receive identical
Options and Warrants to purchase shares of ATC Common Stock except that each
Option or Warrant which originally contained the right to purchase 1.0 share of
Aurora Common Stock shall now entitle the holder to purchase .545 of a share of
ATC Common Stock. The total exercise price to be paid upon exercise of each
respective Option/Warrant will remain unchanged although the exercise price per
share will increase proportionately as a result of a change in the number of
shares to be received. Notwithstanding anything contained herein to the
contrary, all options granted under Aurora's 1985 Incentive and
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Non-Statutory Stock Option Plan which remain unexercised shall terminate on the
close of business on the day prior to the Effective Time. At the Effective
Time of the Merger, all 3,258,000 shares of ATC Common Stock owned by Aurora
will be cancelled and returned to the status of authorized but unissued shares
of ATC Common Stock.
CONDITIONS TO THE MERGER; TERMINATION PROVISIONS
The Merger is expressly conditioned on (i) Stockholder approval by the
record holders of Aurora Common Stock and ATC Common Stock; (ii) the non-
existence of any injunction preventing consummation of the transactions
contemplated by the Merger; (iii) the delivery at closing of certified copies of
resolutions by the Boards of Directors and Stockholders of Aurora and ATC,
approving the execution and delivery of the Merger Agreement; (iv) certification
of the truth and accuracy of all representations and warranties and compliance
with all agreements and covenants in the Merger Agreement by Aurora and ATC; (v)
receipt of an opinion by the respective counsels of Aurora and ATC as to certain
matters relating to corporate formation and proposed actions; (vi) the consent
of Atlantic Bank of New York, ATC's primary lending institution, which consent
was obtained on February 9, 1995; (vii) the total cash consideration that will
be paid in the transaction to the Aurora shareholders, instead of issuing
fractional shares of ATC Common Stock, will not exceed 1% of the total
consideration that will be issued in the transaction to the Aurora shareholders
in exchange for their shares of Aurora Common Stock; (viii) the Post Effective
Amendment to ATC's Registration Statement covering the shares of Common Stock
issuable upon exercise of ATC's outstanding Class C Warrants be declared
effective by the Securities and Exchange Commission at least thirty days prior
to the record date of the ATC Special Meeting, which condition was fulfilled
when the Registration Statement was declared effective on April 28, 1995, which
is at least 30 days prior to the record date of May 30, 1995; and (ix) receipt
of satisfactory comfort letters from Deloitte & Touche LLP. Conditions (iii),
(iv), (v) and/or (ix) may be waived by Aurora and/or ATC as the case may be.
The Merger Agreement may be terminated by (i) the mutual consent of Aurora
and ATC; (ii) the Board of Directors of either Aurora and ATC if the Merger is
not consummated by September 30, 1995; or (iii) either Aurora or ATC if the
other party breaches the Merger Agreement including, without limitation, issuing
a material number of securities not contemplated by the Merger Agreement or
entering into any transaction or series of transactions that could have a
material adverse effect as defined in the Merger Agreement. In the event that
the Board of Directors of either ATC or Aurora believes that the other has
caused to be issued a material number of securities or entered into any
transaction or series of transactions that could have a material adverse effect
as defined in the Merger Agreement, such Board may demand that new fairness
opinions be obtained by both constituent corporations forthwith. If such new
fairness opinions are obtained forthwith and the Board of Directors of both ATC
and Aurora agree on a new (or the same)
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exchange ratio, the constituent corporations shall amend the terms of the Merger
Agreement in lieu of termination as described above and file an appropriate
supplement to this Prospectus/Proxy Statement or an amendment to the Form S-4
Registration Statement of which this Prospectus/Proxy Statement is a part as
required pursuant to the rules and regulations of the Securities Act of 1933 as
amended. Such procedure for new fairness opinions in lieu of termination of the
Merger Agreement is not available to Aurora and/or ATC after stockholder vote on
the Merger.
CONFLICT OF INTEREST OF COUNSEL
The Merger Agreement provides that ATC and Aurora have acknowledged that the
law firm of Lester Morse, P.C. represents ATC and Aurora in certain matters
unrelated to this transaction and has been requested by the parties to represent
ATC in connection with the merger transaction. Further, as of February 28,
1995, members of Lester Morse's family own 50,000 shares of Common Stock of
Aurora, Warrants to purchase an additional 60,000 shares of Common Stock of
Aurora and Options to purchase 5,000 shares of ATC. Further, ATC and Aurora
acknowledge that the law firm of Kaufmann, Feiner, Yamin, Gildin & Robbins has
in the past represented Aurora and ATC in connection with a certain matter
unrelated to the merger transaction and has been requested by the parties to
represent Aurora. Aurora and ATC have agreed to waive any and all claims of
conflicts of interest resulting from these transactions.
CLOSING DATE
Unless the Merger Agreement has been terminated and the Merger abandoned by
the mutual consent of Aurora and ATC, a closing will be held following the
satisfaction or waiver of the conditions to the Merger, but no later than the
Effective Time.
EFFECTIVE TIME OF THE MERGER
It is anticipated that the Merger will become effective on the date that
the Certificate of Merger is filed with the Department of State of the State of
Delaware assuming the Merger Agreement is approved by the respective
Stockholders of Aurora and ATC, the Merger Agreement is not terminated and the
conditions to the Merger are satisfied.
FINDERS FEES
No finders fees are payable to any party in connection with the Merger.
EXPENSES AND FEES
Aurora and ATC shall bear their own costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby.
However, if the Merger is consummated, all assets of Aurora will become assets
of ATC and,
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therefore, any amount spent by Aurora prior to the Effective Time of the Merger
will reduce the assets being acquired by ATC.
EXCHANGE OF AURORA STOCK CERTIFICATES
Each Certificate representing outstanding shares of Aurora Common Stock
(other than shares of Aurora Common Stock in respect of which appraisal rights
are perfected) immediately prior to the Effective Time of the Merger will, at
the Effective Time of the Merger and thereafter, evidence for all corporate
purposes the right to receive the number of full shares of ATC Common Stock and
the cash value of any fraction of a share of ATC Common Stock to which the
Stockholder of Aurora Common Stock represented by such certificate shall be
entitled pursuant to the Merger Agreement.
Each Warrant and Option representing the right to purchase one share of
Aurora Common Stock immediately prior to the Effective Time of the Merger and
thereafter until the respective expiration dates of each Warrant and Option,
subject to the anti-dilution provisions contained therein and as such provisions
may apply to future ATC transactions wherein such rights were applicable to
Aurora transactions, evidence for all corporate purposes the right to receive
.545 of a share of ATC Common Stock and the cash value of any fraction of a
share of ATC Common Stock to which the Warrant and/or Option holder would be
entitled pursuant to the Merger Agreement. The total purchase price paid upon
exercise of each Warrant and Option will remain unchanged resulting in a
proportionate increase in the exercise price per share of each Warrant and
Option. Notwithstanding anything contained herein to the contrary, all options
granted under Aurora's 1985 Incentive and Non-Statutory Stock Option Plan which
remain unexercised shall terminate on the close of business on the day prior to
the Effective Time. On February 28, 1995, 30,000 of such Options were
outstanding.
Each certificate representing shares of ATC Common Stock (other than shares
of ATC Common Stock in respect of which appraisal rights are perfected)
immediately prior to the Effective Time of the Merger will, at the Effective
Time of the Merger and thereafter, evidence for all corporate purposes one full
share of ATC Common Stock. Each Warrant and Option representing the right to
purchase one share of ATC Common Stock immediately prior to the Effective Time
of the Merger will, at the Effective Time of the Merger and thereafter, evidence
for all corporate purposes the right to purchase one share of Common Stock of
ATC subject to the expiration dates of each applicable Option and Warrant and
further subject to the anti-dilution provisions contained therein as such
provisions may apply to future transactions.
ATC will designate its transfer agent, American Stock Transfer & Trust
Company, 40 Wall Street, New York, N.Y. 10005, to effect the exchange in the
Merger (the "Exchange Agent"). Further, ATC will designate Richard L. Pruitt,
1515 East 10th Street, Sioux Falls, South Dakota 57103, as agent to receive
notices of exercise of Options and Warrants of Aurora which will become Options
and
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Warrants of ATC at and after the Effective Time. As soon as practicable, but
not later than thirty days after the Effective Time of the Merger, the Exchange
Agent will mail to each holder of record of an outstanding certificate which
formerly evidenced shares of Aurora Common Stock a form of letter of transmittal
and instructions for use in exchanging Aurora Common Stock certificates for ATC
Common Stock Certificates and cash for any fractional shares to which they would
otherwise be entitled.
At and after the Effective Time of the Merger, there will be no further
registration or transfers on the records or stock transfer book of shares of
Aurora Common Stock. If, at or after the Effective Time of the Merger, a
certificate representing such shares is presented, it shall be canceled and a
certificate or certificates for ATC Common Stock shall be issued in exchange
therefor.
Until a certificate which formerly represented shares of Aurora Common
Stock is actually surrendered for exchange and received by the Exchange Agent,
the holder thereof will not be entitled to receive any dividends or other
distributions declared and payable to the holders of record thereof after the
Effective Time of the Merger with respect to any shares of ATC Common Stock into
which such shares will be converted or, subject to applicable law, to vote any
such shares after the Effective Time of the Merger. Subject to applicable law,
upon surrender of Aurora Stock Certificates, such dividends or other
distributions will be remitted, without interest, to the record holder of
certificates for ATC Common Stock issued and exchanged therefor. The preceding
should not be construed to imply that ATC intends to declare dividends or other
distributions after the Merger. It is anticipated that for the foreseeable
future all earnings of ATC, if any, will be used to fund its future capital
requirements.
After one year from the Effective Time of the Merger, all such dividends or
distributions and all cash to be paid in lieu of fractional shares held for
payment by the Exchange Agent shall, at such time, be redelivered by the
Exchange Agent to ATC acting solely in its corporate capacity. After such
redelivery, any holder of a certificate which formerly represented shares of
Aurora Common Stock shall, subject to applicable law, look as a general creditor
only to ATC for payment or delivery of such dividends, distributions or cash, as
the case may be.
No fractional shares of ATC Common Stock and no certificates or scrip
therefor will be issued in exchange for Aurora Common Stock in the Merger. In
lieu thereof, each holder of shares of Aurora Common Stock who otherwise would
be entitled to receive a fractional share of ATC Common Stock will, upon
surrender of his certificate for outstanding Aurora Common Stock, be paid,
without interest, an amount in cash equal to the product of (i) the average
closed bid and asked prices of ATC's Common Stock for each of the five business
days immediately preceding the Effective Time of the Merger and (ii) the
fraction of a share of ATC Common Stock to which such holder would otherwise be
entitled. Based on an examination of the stock ledger of Aurora, Management of
ATC
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believes the total amount of payments for fractional shares will not exceed
$1,000.
FEDERAL INCOME TAX CONSEQUENCES
Neither Aurora nor ATC has requested or will receive an advance ruling
from the Internal Revenue Service ("IRS") as to any of the federal income tax
consequences to holders of Aurora common stock of the Merger or of any of the
federal income tax consequences to Aurora or ATC of the Merger. Instead ATC and
Aurora will rely upon the opinions of Deloitte & Touche LLP as to the federal
income tax consequences of the Merger. The opinion of Deloitte & Touche LLP is
based entirely upon the Internal Revenue Code of 1986 as amended (the "Code"),
regulations now in effect thereunder, current administrative rulings and
practice, and judicial authority, all of which are subject to change. Unlike a
ruling from the IRS, an opinion is not binding on the IRS and there can be no
assurance, and none is hereby given, that the IRS will not take a position
contrary to one or more positions reflected herein or that the opinion will be
upheld by the courts if challenged by the IRS.
In the opinion of Deloitte & Touche LLP which opinion is based upon
various representations and subject to various assumptions and qualifications
the following federal income tax consequences will result from the Merger:
1. The Merger of Aurora with and into ATC, with ATC surviving, should qualify
as a reorganization under Section 368(a)(1)(A) of the Code. Aurora and ATC
should both be a party to a reorganization.
2. No gain or loss should be recognized by the Aurora shareholders upon the
exchange of their Aurora common stock for ATC common stock.
3. The basis of all the ATC common stock (including any fractional shares
which they otherwise might be entitled to receive) received by the shareholders
of Aurora in the exchange should be the same as the basis of the Aurora stock
exchanged.
4. The holding period of the ATC common stock (including any fractional shares
which they otherwise might be entitled to receive) to be received by Aurora
shareholders should, include the holding period of the Aurora shares surrendered
in the exchange, provided Aurora stock was held as a capital asset on the date
of the exchange.
5. Cash received by a shareholder of Aurora otherwise entitled to receive a
fractional share of ATC common stock in exchange for his Aurora stock should be
treated as if the fractional shares were distributed as part of the exchange and
then were redeemed by ATC. These cash payments should be treated as having been
received as distributions in full payment in exchange for the stock redeemed as
provided in Section 302 of the Code.
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6. Where cash is received by a dissenting shareholder of Aurora or ATC, such
cash should be treated as received by the dissenting shareholder as a
distribution in redemption of his stock, subject to the provisions and
limitations of Section 302 of the Code.
7. Aurora should recognize no gain or loss upon the transfer of its assets to
ATC in exchange for the distribution of ATC common stock to the former Aurora
shareholders, and the assumption of its liabilities by ATC.
8. No gain or loss should be recognized to Aurora upon the distribution of the
ATC common stock to the Aurora shareholders.
9. No gain or loss will be recognized by ATC on the receipt of Aurora's assets
in exchange for ATC common stock, and the assumption by ATC of Aurora's
liabilities.
10. The basis of the assets of Aurora in the hands of ATC should be the same as
the basis of such assets in the hands of Aurora immediately prior to the
reorganization.
11. The holding period of the property acquired by ATC from Aurora should
include the holding period of such property in the hands of Aurora immediately
prior to the reorganization.
12. ATC as the survivor should succeed to and take into account as of the close
of the day of the distribution or transfer the items of Aurora described in
Section 381(c) of the Code, subject to the conditions and limitations specified
in Sections 381(b) and 381(c) of the Code.
13. ATC should succeed to and take into account the earnings and profits, of
deficit in earnings and profits, of Aurora as of the date or dates of transfer.
Any deficit in earnings and profits of either Aurora or ATC will be used only to
offset earnings and profits accumulated after the date or dates of transfer.
14. The Merger of Aurora into ATC should not subject the net operating loss
carryforward of Aurora to limitation under Section 382 of the Code.
The opinion of Deloitte & Touche is rendered solely with respect to certain
federal income tax consequences of the Merger under the Code, and does not
extend to the income or other tax consequences of the Merger under the laws of
any State or any political subdivision of any State nor does it extend to any
tax effects or consequences of the Merger to ATC or Aurora other than those
expressly stated in the opinion. Furthermore, no opinion is expressed as to the
federal or state tax treatment of the transaction under any other provisions of
the Code and regulations, or about the tax treatment of any conditions existing
at the time of, or effects resulting from, the transaction that is not
specifically covered by the opinion.
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THE OPINIONS REFERRED TO ABOVE HAVE BEEN RENDERED BY THE CERTIFIED PUBLIC
ACCOUNTANTS. NO OPINIONS HAVE BEEN RENDERED WITH RESPECT TO THE STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF THE TRANSACTION, AND INDIVIDUAL STOCKHOLDERS SHOULD
CONSULT WITH THEIR OWN TAX ADVISORS. NO LEGAL OPINION AS TO TAX CONSEQUENCES OF
ANY NATURE HAS BEEN RENDERED BY LEGAL COUNSEL TO ATC OR AURORA. SEE "COUNSEL."
COMPARISON OF RIGHTS OF STOCKHOLDERS OF AURORA AND ATC
General
At the Effective Time of the Merger, the Stockholders of Aurora, a Delaware
corporation, will become Stockholders of ATC, a Delaware corporation.
Accordingly, the rights of Stockholders of Aurora following the Merger will
continue to be governed by Delaware law, as well as the ATC Certificate of
Incorporation and By-laws.
The Certificate of Incorporation of ATC and Aurora are substantially the
same except that ATC's Certificate of Incorporation provides for authorized
capital stock consisting of 20,000,000 shares $.01 par value as opposed to
Aurora's Certificate of Incorporation which provides for authorized capital
stock consisting of 25,000,000 shares, $.001 par value. The By-Laws of ATC and
Aurora have no material differences.
The comparative rights of stockholders of Aurora and ATC will not be
materially adversely affected by the Merger of Aurora into ATC.
LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION
The Certificate of Incorporation of each of ATC and Aurora contains
provisions eliminating the liability of directors to the corporation and its
Stockholders to the fullest extent permissible under Delaware General
Corporation Law ("GCL"). The GCL prohibits the elimination of director
liability (i) for any breach of the director's duty of loyalty to the
corporation or its Stockholders, (ii) for acts or omissions not in good faith
which involve intentional misconduct or knowing violation of law (iii) for
payment of unlawful dividends or unlawful stock purchases or redemptions in
violation of the GCL, or (iv) for any transaction from which the director
derived an improper personal benefit. Under each corporation's Certificate, a
director of the corporation is not personally liable to the corporation or its
Stockholders for monetary damages of breach of fiduciary duty as a director,
except for liabilities which the GCL provides shall not be eliminated. The
corporation's Bylaws provide for indemnification of persons who are made or
threatened to be made a party to proceedings by reason of the fact such person
is or was a director, officer, employee or other agent of the Corporation's.
Such indemnification is to the maximum extent permitted by the GCL.
TAKEOVER LEGISLATION
Section 203 of the GCL ("Section 203") makes it more difficult to effect
certain transactions between a corporation (or its
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majority-owned subsidiaries) and any person holding 15% or more of the
corporation's outstanding voting stock together with the affiliates or
associates of such person (an "Interested Stockholder"). Section 203 prevents,
for a period of three years following the date that a person became an
Interested Stockholder, the following types of transactions between the
corporation and the Interested Stockholder (unless certain conditions, described
below, are met): (i) mergers or consolidations; (ii) sales, leases, exchanges or
other transfers of 10% or more of the aggregate assets of the corporation;
(iii) issuances or transfers by the corporation of any stock of the corporation
which would have the effect of increasing the Interested Stockholder's
proportionate share of the stock of any class or series of the corporation;
(iv) any other transaction which has the effect of increasing the proportionate
share of the stock of any class or series of the corporation which is owned by
the Interested Stockholder; and (v) receipt by the Interested Stockholder of the
benefit (except proportionately as a Stockholder) of loans, advances,
guarantees, pledges or other financial benefits provided by the corporation.
Section 203 does not apply to transactions involving persons who became
Interested Stockholders prior to December 23, 1987 through a tender officer
commenced prior to December 23, 1987 or as a result of action taken solely by
the corporation.
The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder becomes an Interested
Stockholder is approved by the board of directors of the corporation prior to
the date such Stockholder becomes an Interested Stockholder. Additionally an
Interested Stockholder may avoid the statutory restriction if, upon consummation
of the transaction whereby such Stockholder becomes an Interested Stockholder,
the Stockholder owns at least 85% of the outstanding voting stock of the
corporation without regard to those shares owned by the corporation's officers
and directors or certain employee stock plans. Business combinations are also
permitted within the three-year period if approved by the board of directors and
authorized at an annual or special meeting of Stockholders by the holders of at
least 66-2/3% of the outstanding voting stock not owned by the Interested
Stockholder.
A corporation, at its option, could have excluded itself from the coverage
of Section 203 by action of its board of directors prior to May 2, 1988 or may
exclude itself by amending its Certificate of Incorporation or bylaws at any
time to exempt itself from coverage provided that any bylaw or charter amendment
adopted on or after May 2, 1988 could not become effective for 12 months after
the date such amendment is adopted. In addition, any transaction is exempt from
the statutory ban if it is proposed at a time when the corporation has proposed,
and a majority of certain continuing directors of the corporation has approved,
a transaction with a party who is not an Interested Stockholder of the
corporation (or who became such with board approval) if the proposed transaction
involves (i) certain mergers or consolidations involving the corporation; (ii) a
sale or other transfer of over 50% of the aggregate assets of the corporation;
or (iii) a tender
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or exchange offer for 50% or more of the outstanding voting stock of the
corporation. Neither ATC nor Aurora have excluded themselves from the coverage
of Section 203.
The Merger of Aurora into ATC is not impacted by Section 203 of the GCL
since Aurora has owned ATC for more than the past three years and Messrs. George
Rubin and Morry F. Rubin have each been interested stockholders of both Aurora
and ATC for more than the past three years.
REGULATORY REQUIREMENTS
No Federal or State regulatory requirements must be complied with or
approvals obtained in connection with the Merger.
RESALE OF ATC COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The shares of ATC Common Stock to be issued to Stockholders of Aurora in
connection with the Merger (including the shares of ATC Common Stock which will
become issuable pursuant to the anti-dilution provisions contained in Aurora's
Common Stock Purchase Options and Warrants in accordance with the Merger
Agreement at and after the Effective Time of the Merger) will be freely
transferable under the Securities Act, except for such shares issued to any
person who may be deemed an "affiliate" of ATC or Aurora within the meaning of
Rule 145 promulgated under the Securities Act of 1933, as amended.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for "In a manner similar to a
Pooling of Interests." Under this method of accounting, the recorded assets and
liabilities of Aurora and ATC will be combined based on their existing carrying
amounts, at the date the Merger is consummated.
RIGHTS OF APPRAISAL
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the Delaware General Corporation Law (the "GCL") and
is qualified in its entirety by the full text of Section 262 of the GCL attached
to the Prospectus/Proxy Statement as Attachment B. ANY AURORA OR ATC
STOCKHOLDER OF RECORD WHO WISHES TO EXERCISE SUCH APPRAISAL RIGHTS OR WHO WISHES
TO PRESERVE HIS RIGHT TO DO SO SHOULD REVIEW THE FOLLOWING DISCUSSION AND
ATTACHMENT B CAREFULLY BECAUSE FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE
EXACT PROCEDURES SPECIFIED WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS UNDER THE
GCL.
Pursuant to the GCL, any Stockholder who is the record holder of Aurora or
ATC Common Stock on the Record Date of the Special Meeting and holds such shares
of record continuously through the Effective Time and who follows the procedures
set forth in Section 262 of the GCL, will be entitled to have such stock
appraised by the Delaware Court of Chancery and to receive payment in cash of
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the "fair value" of such Aurora or ATC Common Stock, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, as
determined by such Court.
Under Section 262 of the GCL, where a merger is to be submitted for
approval at a meeting of Stockholders, the corporation, not less than 20 days
prior to the meeting, must notify each of its Stockholders entitled to appraisal
rights that such appraisal rights are available and include in such notice a
copy of Section 262 of the GCL. THIS PROSPECTUS/PROXY STATEMENT CONSTITUTES
NOTICE UNDER SECTION 262 OF THE GCL TO THE STOCKHOLDERS OF AURORA AND ATC AND
THE APPLICABLE STATUTORY PROVISIONS OF THE GCL ARE ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS ATTACHMENT B.
An Aurora or ATC Stockholder of record, as the case may be, wishing to
exercise appraisal rights must deliver to Aurora or ATC, as the case may be,
before the vote of Stockholders on the Merger Agreement, a written demand for
appraisal (the "Demand") of his shares and must not vote in favor of the Merger
Agreement. Such demand will be sufficient if it reasonably informs Aurora or
ATC, as the case may be, of the identity of the Stockholder and that the
Stockholder intends thereby to demand the appraisal of his shares. Because a
proxy which does not contain voting instructions will, unless revoked, be voted
FOR adoption of the Merger Agreement, an Aurora or ATC Stockholder, as the case
may be, who votes by proxy and who wishes to exercise his appraisal rights must
(1) vote AGAINST the adoption of the Merger Agreement, or (2) affirmatively
ABSTAIN from voting on the adoption of the Merger Agreement. A vote against
the Merger Agreement, in person or by proxy, will not in and of itself
constitute a written demand for appraisal satisfying the requirements of Section
262 of the GCL.
Only a holder of record of Aurora or ATC Common Stock is entitled to assert
appraisal rights for the Aurora or ATC Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record, fully and correctly, exactly as the holder of record's name appears
on each such stock certificate. If the shares of Aurora or ATC Common Stock are
owned of record in a fiduciary capacity such as by a trustee, guardian or
custodian, execution of the demand should be made in that capacity, and if the
shares of Aurora or ATC Common Stock are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including one
or more joint owners, may execute a demand for appraisal on behalf of a holder
of record; however, the agent must identify the record owner or owners and
expressly disclose the fact that in executing the demand, the agent is acting as
agent for such owner or owners. A record holder, such as the broker, who holds
Aurora or ATC Common Stock, as the case may be, as nominee for several
beneficial owners, may exercise appraisal rights with respect to Aurora or ATC
Common Stock held for one or more beneficial owners. In such case, the written
demand should set forth the number of shares of Aurora or ATC Common Stock as to
which appraisal is sought. Where no
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number of shares of Aurora or ATC Common Stock is expressly mentioned, the
demand will be presumed to cover all shares of Aurora or ATC Common Stock held
in the exactly stated name of the record owner.
Within 10 days after the Effective Time, the surviving corporation must
send a notice as to the effectiveness of the Merger to each person who has
satisfied the foregoing provisions of Section 262. Within 120 days after the
Effective Time, but not thereafter, the surviving corporation or any Aurora or
ATC Stockholder entitled to appraisal rights under Section 262 of the GCL may
file a petition in the Delaware Court of Chancery demanding a determination of
the value of his Aurora or ATC Common Stock. The surviving corporation does not
intend to file any such petition. Accordingly, the dissenting Stockholder will
need to initiate all necessary action to perfect his appraisal rights within the
time periods prescribed in Section 262.
Within 120 days after the Effective Time, any Aurora or ATC Stockholder, as
the case may be, who has complied with the requirements for exercise of
appraisal rights will be entitled, upon written request, to receive from the
surviving corporation a statement setting forth the aggregate number of shares
of Aurora or ATC Common Stock not voted in favor of the Merger Agreement and
with respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such statement must be mailed within 10 days
after a written request therefor has been received by the surviving corporation
or within 10 days after expiration of the period for delivery of demands for
appraisal, whichever is later.
Upon proper filing and service upon the surviving corporation of the
petition, the surviving corporation shall within 20 days file in the proper
office of the Register in Chancery a duly verified list containing the names and
addresses of all Stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving corporation. The Register in Chancery, if approved by the Court,
shall give the required notice as to the time and place fixed for the hearing of
such petition. The costs of the required notice shall be borne by the surviving
corporation.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the Stockholders
entitled to appraisal rights and will appraise the "fair value" of the Aurora or
ATC Common Stock, as the case may be, exclusive of any element of value arising
from the accomplishment or expectation of the Merger. As part of its
determination, the Court may require Stockholders who have demanded appraisal
rights to submit their certificates to the Register in Chancery. Failure to do
so may result in the Court dismissing the proceedings as to such Stockholder.
Stockholders considering seeking appraisal should be aware that the fair value
of their shares as determined under Section 262 could be more than, the same as
or less than the consideration they would receive pursuant to
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the Merger Agreement if they did not seek appraisal of their shares. Any
judicial determination of the "fair value" of the Aurora or ATC Common Stock
could be based on numerous considerations including, but not limited to, the
market value of the ATC or Aurora Common Stock prior to the Merger and the net
asset value and earnings value of Aurora or ATC. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceeding. The Court will also
determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares have been appraised. The costs of the action
may be determined by the Court and taxed upon the parties as the Court deems
equitable. The Court may also order that all or a portion of the expenses
incurred by any Stockholder in connection with an appraisal, including, without
limitation, reasonable attorneys' fees and expenses of experts used in the
appraisal proceeding, be charged pro rata against the value of all the shares
entitled to appraisal.
Any Stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
of Aurora or ATC Common Stock subject to such demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares of
Aurora or ATC Common Stock (except for any dividends or other distributions
payable to Stockholders of record as of a date prior to the Effective Time of
the Merger).
If any Stockholder who demands appraisal of his Aurora or ATC Common Stock
under Section 262 fails to perfect, or effectively withdraws or loses, his right
to appraisal, the Aurora Common Stock of such holder will be converted into ATC
Common Stock in accordance with the Merger Agreement and the ATC Common Stock
holder will continue to own his shares. A Stockholder will fail to perfect, or
effectively lose, his right to appraisal if no petition for appraisal is filed
within 120 days after the Effective Time. A Stockholder who demands appraisal
but wishes to withdraw such demand may do so as a matter of right within 60 days
of the Effective Time or thereafter subject to the written approval of ATC.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE GCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
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ATC MARKET INFORMATION
Since June, 1988, ATC's Common Stock and since April 12, 1991, ATC's
Class C Warrants, have been quoted in the Over-The-Counter market on the
National Association of Securities Dealers Automated System ("NASDAQ") as Small
Cap Issues under the symbols ATCE and ATCEL, respectively. The high and low bid
and asked prices of these securities are shown for the periods indicated. (All
references to first quarter, second quarter, third quarter and fourth quarter
refer to the quarters March 1 through May 31, June 1 through August 31,
September 1 through November 30 and December 1 through February 28,
respectively).
ATC COMMON STOCK
Bid Prices Asked Prices
High Low High Low
---- ----- ---- -----
FISCAL 1994
First Quarter 4-1/2 3 4-3/4 3-3/16
Second Quarter 6-1/2 4-7/16 6-5/8 4-5/8
Third Quarter 7-7/8 5 8-1/8 5-1/8
Fourth Quarter 7-1/2 6-5/8 7-3/4 6-7/8
FISCAL 1995
First Quarter 12 6-5/8 12-1/8 6-7/8
Second Quarter 11-l/2 9-1/4 11-3/4 9-1/2
Third Quarter 17-3/4 9-1/8 18-1/8 9-3/8
Fourth Quarter 17-5/8 13-1/4 17-7/8 13-1/2
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ATC CLASS C WARRANTS
Bid Prices Asked Prices
High Low High Low
---- --- ---- -----
FISCAL 1994
First Quarter 3/16 1/8 3/8 7/32
Second Quarter 3/4 1/8 1 1/4
Third Quarter 5/8 1/8 7/8 5/16
Fourth Quarter 1/2 1/4 3/4 1/2
FISCAL 1995
First Quarter 2-1/8 11/32 2-3/8 17/32
Second Quarter 2-1/4 7/8 2-3/8 1
Third Quarter 7-3/4 1-5/16 8-1/8 1-7/16
Fourth Quarter 8 5-5/8 8-1/4 5-7/8
The above quotations in the tables above reflect inter-dealer prices
without retail markups, markdowns or commissions. They do not represent actual
transactions. Such quotations should not be viewed as necessarily indicative of
the price that could have been obtained on that date for a substantial number of
shares of the securities.
Although management has been advised by its transfer agent (American Stock
Transfer & Trust Company) that it had 652 record holders as of January 4, 1995,
the approximate number of beneficial holders of ATC's Common Stock, as of August
15, 1994, the record date for ATC's last annual meeting, was 4,000. No cash
dividends have been paid by ATC on its Common Stock and no such payment is
anticipated in the foreseeable future.
ATC's Common Stock was approved for trading on the Pacific Stock Exchange.
Trading on the exchange commenced in August, 1990 under the symbol "AEI." In
February, 1993, ATC filed a request with the Pacific Stock Exchange (the
"Exchange") to have its Common Stock removed from the Exchange due to the
relative lack of any substantial trading on the Exchange as compared to trading
on NASDAQ and for cost cutting measures. In March 1993, the Pacific Stock
Exchange Equity Listing Committee raised no objections to the delisting and ATC
filed a request with the Securities and Exchange Commission for removal of
listing and registration which request was granted. ATC has not experienced any
adverse effects of the delisting upon the marketability and/or value of ATC's
Common Stock.
At 4:00 P.M. New York City time on January 5, 1995, the day immediately
preceding the date of the Merger Agreement, the last sales prices of ATC's
Common Stock and Class C Warrants were 15-3/4 and 6-1/2, respectively. The
above prices reflect an inter-dealer price without retail markups, markdowns or
commissions.
The following table provides the market value of Aurora Common Stock on a
historical and equivalent per share basis as compared to
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the market value of ATC Common Stock on a historical basis as of January 5,
1995, based upon the last sales prices on that date as reported by NASDAQ.
Market Value
-----------
ATC - historical $15.75
Aurora - historical 5.50
equivalent per share (1) 8.58
_____________
(1) Determined by taking ATC's last sale price at the close of business on
January 5, 1995 and multiplying such price by the conversion ratio of
.545 and rounding the result to the nearest penny. If the Merger is
consummated, each holder of 1.0 share of Aurora Common Stock will
exchange such stock for .545 of a share of ATC Common Stock.
AURORA MARKET INFORMATION
Aurora's Common Stock has been quoted in the Over-The-Counter market, and
since August 1988, on the National Association of Securities Dealers Automated
System ("NASDAQ") as a Small Cap Issue under the symbol "AURE." The high and
low bid and asked prices of the Common Stock are shown for the periods
indicated. (All references to first quarter, second quarter, third quarter and
fourth quarter refer to the quarters March 1 through May 31, June 1 through
August 31, September 1 through November 30 and December 1 through February 28,
respectively).
Bid Prices Asked Prices
---------- ------------
FISCAL 1994 High Low High Low
---- --- ---- ---
First Quarter 1-3/4 1-3/8 2 1-1/2
Second Quarter 2-11/16 1-5/8 2-3/4 1-3/4
Third Quarter 3 1-11/16 3-1/8 1-7/8
Fourth Quarter 3-1/16 2-3/4 3-5/16 2-13/16
FISCAL 1995 High Low High Low
---- --- ---- ---
First Quarter 3-15/16 2-7/8 4-3/16 3
Second Quarter 3-5/8 2-13/16 4 3
Third Quarter 5-7/8 2-3/4 6-1/8 2-7/8
Fourth Quarter 7-3/8 4-5/8 7-1/2 4-7/8
The above quotations reflect inter-dealer prices without retail
markups, markdowns or commissions. They do not represent actual transactions.
Such quotations should not be viewed as necessarily indicative of the price that
could have been obtained on that date for a substantial number of shares of the
Common Stock.
At 4:00 P.M. New York City time on January 5, 1995, the day immediately
preceding the date of the Merger Agreement, the last sale price of Aurora's
Common Stock was 5-1/2. The above price
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reflects an inter-dealer price without retail markups, markdowns or commissions.
Although management has been advised by its transfer agent (American Stock
Transfer & Trust Company) that the number of record holders was 250 as of
January 4, 1995, the approximate number of beneficial holders of Aurora's Common
Stock, as of August 15, 1994, the record date for ATC's last annual meeting, was
2,200. No cash dividends have been paid by Aurora on its Common Stock and no
such payment is anticipated in the foreseeable future.
DIVIDEND POLICY
ATC has not previously 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 loan agreement with its principal
lender, ATC may not pay dividends without such lender's consent. Any
Stockholder who anticipates the need for dividends from their investments should
consider exercising and perfecting their Appraisal Rights which among other
things, requires an actual vote against the Merger or affirmatively abstaining
from voting on the Merger. See "The Merger - Appraisal Rights" and "Dividend
Policy."
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ATC'S BUSINESS
GENERAL
ATC was incorporated in the State of Delaware on December 14, 1987, as a
subsidiary of ATC Laboratories, Inc., (formerly Analytica Laboratories Inc.), a
South Dakota Corporation. On January 27 1988, ATC Laboratories, Inc. was merged
into ATC which was organized solely for the acquisition of the assets,
liabilities and operations of ATC Laboratories, Inc. for the purpose of
reincorporating in Delaware. ATC New England, Hygeia, Management Co. and ATC
Blattert are wholly owned subsidiaries of ATC. All references to ATC include
ATC, ATC New England, Hygeia, Management Co. and ATC Blattert unless the context
indicates otherwise. At May 1, 1995, ATC was approximately 57.0% owned by
Aurora, a holding corporation which has no significant business operations
outside of those conducted by ATC.
ATC is an environmental consulting firm that specializes in the
identification, assessment and testing of and corrective action for complex
environmental projects. ATC's strategy is to provide a diversified set of
consulting services including industrial hygiene, environmental site
assessments, ground water and soil management, environmental compliance,
environmental management, lead based paint management, health and safety
training and risk analysis. Currently, a major portion of the ATC's revenues
are derived from industrial hygiene related services. ATC also maintains
independent analytical testing laboratories for analysis of industrial waste
water, drinking water for lead based contamination, radon presence, and certain
hazardous wastes in support of its industrial hygiene, environmental management,
and lead based paint management consulting services. ATC has also commenced
providing services in the area of risk analysis and computerized decision
support and analysis.
ATC has provided its environmental services nationally through its regional
offices. Clients of ATC have included, financial institutions, commercial real
estate owners and operators, Fortune 500 Companies, insurance companies,
government agencies, educational institutions, architectural and engineering
firms, defense firms, contractors, and the United States military.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" regarding ATC's recent acquisitions and the rescission of
ATC's purchase of Bio/West.
ATC was incorporated in the State of Delaware on December 14, 1987, as a
subsidiary of ATC Laboratories, Inc., (formerly Analytica Laboratories Inc.), a
South Dakota corporation, which was incorporated on July 23, 1982. On January
27, 1988, ATC Laboratories, Inc. was merged into ATC, which was organized solely
for the acquisition of the assets, liabilities and operations of ATC
Laboratories, Inc. for the purpose of reincorporating in the State of Delaware.
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ENVIRONMENTAL LEGISLATION AND REGULATION
The environmental services industry is subject to extensive federal, state
and local governmental regulations. In its operations, ATC and its employees are
subject to various regulatory, certification and licensing requirements.
Those federal agencies whose regulations have the greatest potential impact
on ATC are:
1. The United States Department of Labor - Occupational Safety and Health
Administration ("OSHA"), 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;
2. The United States Environmental Protection Agency ("EPA"), which,
through its National Emissions Standards for Hazardous Air Pollutants
regulations ("NESHAPS") 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; and
3. 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.
4. The United States Department of Transportation ("DOT"), which regulates
packaging and transportation of hazardous waste by all who transport or cause
the transport of hazardous waste.
The EPA, HUD and OSHA have each published regulations/ guidelines to
safeguard employees and public occupants from certain environmental exposures,
and when applicable, Management believes that ATC's services are performed in
compliance with such regulations.
Federal Regulations restrict the use of asbestos and lead products in new
buildings, specify work practices for removal of asbestos and lead containing
materials from buildings, require identification of asbestos in schools and lead
based paint in public housing, and require the removal of asbestos and lead
paint under certain circumstances. The Asbestos Hazard Emergency Response Act
of 1986 ("AHERA") requires schools to clean up damaged asbestos containing
materials and mandates that schools inspect their buildings for asbestos
containing materials and prepare a management plan for state review for remedial
action. Regulations and guidelines of the United States Department of Housing
and Urban Development ("HUD") require testing of public housing for lead based
paint.
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Federal law 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 in 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.
The Comprehensive Environmental Response Compensation and Liability Act of
1980 ("CERCLA") established strict liability of owners and operators for clean-
up of pollutants and hazardous substances. Fault is not an issue and the
penalties for non-compliance are substantial. Thus, increasingly, land
purchasers, banks taking property as collateral, industrial land lessors, and
building purchasers are requiring inspections of properties prior to buying or
selling, leasing, or using them as security. ATC provides environmental
assessment services and investigates properties and buildings for compliance
with environmental laws and regulations.
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
("NVLAP") and expects to continue to participate in all future National
Institute of Standards and Technology ("NIST") 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.
SERVICES
ATC operates two analytical testing laboratories in Massachusetts and full
service asbestos testing laboratories in New York, Georgia, Massachusetts, and
California. ATC provides environmental consulting services through a network of
offices. ATC has five primary service groups which include Industrial Hygiene,
Environmental Management, Lead Management, Health and Safety and Risk Management
services. These service groups are described below.
INDUSTRIAL HYGIENE
ASBESTOS MANAGEMENT ATC provides total asbestos testing and consulting services.
This includes without limitation initial assessment survey of facilities to
determine condition, type, concentration quantity and location of suspect
asbestiform material; analysis of the contents of material samples utilizing
polarized light microscopy (PLM) and of air samples utilizing phase contrast
microscopy (PCM) and transmission electron microscopy
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(TEM) to analyze for asbestos fibers; risk assessment; remediation design for
asbestos abatement where appropriate, including the development of written
specifications for asbestos removal; industrial hygiene services before, during
and after the asbestos removal process which includes on-site ambient and
personnel air monitoring, project management and analysis; laboratory services;
development of operations and maintenance training programs for client
facility's personnel; development of operation and maintenance programs for
client custodial and maintenance building personnel; and providing asbestos
awareness seminars for client personnel.
ATC's services enable building owners and operators to comply with federal,
state and local regulations for asbestos control, while providing a
comprehensive approach for controlling or removing asbestos in all types of
buildings. ATC's personnel resources include Registered Architects,
Professional Engineers, Certified Industrial Hygienists, Certified Safety
Professionals and Asbestos Specialists, all of whom have extensive experience
managing hazardous materials, and are licensed and certified by EPA, state, and
local agencies.
CLASSICAL INDUSTRIAL HYGIENE - ATC's classical industrial hygiene services
evaluate potential health hazards in occupational settings. Hazards may be
physical or may arise from exposures to chemicals, or biological substances as
well as ergonomic factors. Examples of hazards include solvents, corrosive
chemicals, gases, toxic dusts, radiation, lasers, noise, lighting, heat, stress,
bacteria, and molds. Evaluations determine the extent of exposure to
potentially hazardous substances and methods to control and minimize them. On-
site investigations serve to anticipate, recognize, evaluate, and control
exposures. Interviews are conducted, observations made, and measurements taken
with a variety of sampling instruments in order to detect contaminants. Field
measurements are evaluated to determine compliance with governmental regulations
and other standards. After corrective measures are designed and implemented,
follow-up monitoring ensures that workplace exposures have been minimized.
LABORATORY SERVICES - ATC's laboratory division, Hygeia ProScience Laboratories,
analyzes industrial hygiene and environmental samples collected from air, water,
and solids. Standard analyses include asbestos, volatile organic compounds, and
metals (including lead). ATC's laboratory instrumentation provides accurate and
precise analyses for low-level detection, as well as automated analysis and data
handling. Information management for certain analyses is computerized, so data
can be passed from on-line real-time sources to a file server for quicker, more
accurate report generation. ATC's operations incorporate standard
methodologies, chain-of-custody and Quality Assurance procedures, and
professionally recognized laboratory practices. ATC's laboratories are operated
under all required national, state, and professional association accreditations.
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NOISE MEASUREMENT AND ANALYSIS - ATC offers consultation services to measure
noise and vibration levels in comparison to occupational and environmental
standards, and to design controls for achieving acceptable personal exposures.
Among the noise reduction techniques used are source power limitation,
transmission path/barrier controls, and receiver protection and enclosure.
Typical applications include industrial noise control to protect hearing, and
building interior and exterior environments to minimize annoyance of the
affected population. ATC consults in commercial, office, educational, and
recreational facility acoustical environments where sources can include traffic,
machinery, heating and ventilating equipment, as well as other people and
activities.
INDOOR AIR QUALITY - Healthy indoor air quality is recognized as an essential
factor in promoting comfort and welfare. ATC studies and investigations
identify (1) sources of indoor air pollution, (2) route of exposure to
individuals, (3) route of entry into the body, and (4) effect 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 electrical 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 be part of the evaluation. Responses are customized to the
client's specific facility and problem. Once problems are identified, solutions
can be designed and implemented.
ENVIRONMENTAL MANAGEMENT
ATC's services range from property examination/investigation for
environmental contamination, to turnkey remedial feasibility studies, design and
groundwater management services. These services often include: soil and/or
ground water analysis, installation of monitoring wells, recovery system design,
regulatory permitting, contractor selection and remediation oversight.
Pre-purchase or pre-loan real property environmental audits are
increasingly required by financial institutions and a growing number of states
which mandate an environmental audit prior to property transfer, closure or
sale. An audit by ATC helps quantify the degree of contamination from
pollutants such as asbestos, petroleum, hazardous wastes, radon and PCB's, and
determine costs for clean up.
Federal regulations require underground storage tank testing, long term
monitoring and tank management. ATC provides these services for its clients.
GROUNDWATER ASSESSMENTS - ATC performs assessments at sites where there is a
confirmed or suspected spill or release of hazardous substances and the quality
of groundwater is in question. These
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assessments include identifying the depth to static water, defining pressure
zones or confining conditions, determining gradient, and sampling groundwater.
Because each site has unique parameters, well locations must be custom selected,
well structure and systems properly designed, and samples collected under proper
conditions. Once analytical results are known and soil and ground water
conditions established, ATC's hydrologists, geologists, and engineers analyze
the data. ATC also conducts "hot spot" investigations and full aquifer
assessments. Predictive tools such as groundwater models can then be used to
determine the movement and ultimate destination of the contaminants.
SITE ASSESSMENTS AND CHARACTERIZATIONS - Site assessment and characterization
investigations involve defining all the important physical and chemical
parameters of a site. At a minimum, these parameters include soil types,
estimated permeabilities, stratigraphy, presence of ground and surface water,
and profiling the types of chemicals found. In defining these parameters,
distribution of the hazardous materials is also identified. Definition of the
vertical and lateral extent of contamination in soil and groundwater is
important in designing a strategy for remediation. Proper definition of the
plume is a paramount requirement of regulatory agencies which oversee
investigation of subsurface releases. The site assessment phase of a project
provides a baseline for understanding subsurface conditions and is necessary
before any cleanup can be designed or implemented. Both the formal written
reports provided to clients as well as the procedures by which assessments are
conducted conform to standard practices.
GROUNDWATER AND SOIL REMEDIATION MANAGEMENT - ATC has designed and provided
management and oversight on a variety of cleanup projects, using diverse
traditional and innovative technologies including bioremediation, land farming,
soil venting, air sparging, pump and treat, and thermal oxidation systems. ATC
has managed several site clean-ups and provides construction management services
and testing, scheduling, coordination, documentation and approval of progress
payments, and interaction with regulatory agencies.
LEAD MANAGEMENT
LEAD ANALYSIS AND CONSULTING - Lead in paint, drinking water and soil is an
important environmental problem facing the United States. Contamination from
lead exposure often results in brain damage leading to learning disabilities and
retardation in some cases.
ATC provides services for the analysis of lead in paint, soil, air, and
drinking water. Consultation services include surveys to identify lead problems
and the design of 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,
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and provides construction monitoring of lead projects to prevent worker and
third-party exposure to lead dust. ATC also provides design and oversight
services on lead abatement projects involving large steel structures such as
bridges, tunnels and sea vessels.
HEALTH AND SAFETY
ENVIRONMENTAL EDUCATION AND TRAINING - ATC's training schools are operated under
ATC and the name The Environmental Institute (TEI). ATC 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 mandated by federal OSHA, EPA, and some state
regulations are designed to communicate information regarding the hazards of
chemicals to workers and communities. ATC provides comprehensive Right-to-Know
programs. Instructors rely upon many years of on-site and teaching experience
combined with regulatory knowledge to present practical, comprehensive courses,
many of which feature "hands-on" training. ATC also routinely customizes
courses to meet specific client needs.
HEALTH AND SAFETY CONSULTING - ATC's occupational health and safety programs
enable employers and building owners to meet or exceed the requirements
established by federal, state, or local regulations, particularly OSHA
regulations. A review of work practices is performed to recognize, evaluate,
and design proper safe work policies and procedures. Programs which include
proper training are established to minimize or eliminate work-related injuries
and illnesses. Examples include comprehensive electrical safety, fire
protection, safety training, machine guarding, vehicle safety, safety awareness,
safety equipment, respiratory protection, and accident investigation programs.
ATC also conducts audits on a routine basis to provide third-party evaluations
of ongoing programs.
SITE SAFETY, HEALTH AND EMERGENCY RESPONSE PLAN - ATC can provide a full range
of technical support services for site-specific safety and health programs
required for hazardous waste operations. Employers involved in activities that
are subject to the OSHA standard for hazardous waste operations as well as
emergency response utilize ATC to provide assistance in many areas including
without limitation the following: Written Safety and Health Plans; Site
Characterization and Analysis; Site Control Programs; Training; Medical
Surveillance Programs; Engineering Controls, Work Practices, and Personnel
Protective Equipment; Materials Handling Procedures; Decontamination Procedures;
and Emergency Response Procedures.
RISK MANAGEMENT SERVICES
C.E.M.S. - COMPREHENSIVE ENVIRONMENTAL MANAGEMENT SYSTEM - ATC sells and
supports an integrated set of packaged software tools that can be used to
support the management of a range of critical environmental activities and to
assist customers in maintaining
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compliance with changing environmental regulations. There are seven different
modules that are currently available together or separately: Asbestos, Lead
Paint, Storage Tanks, Hazardous Materials, Hazardous Waste,
Training/Certification, and Environmental Compliance.
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, and does so 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 well defined,
structured design and implementation methods in conjunction with object based
development tools in a client/server architecture to develop custom computer
systems.
CLIENTS OF ATC/BACKLOG/PERFORMANCE BONDS
Clients of ATC have included, without limitation, Fortune 500 corporations,
banks, educational institutions, insurance and commercial firms, commercial and
residential building owners, and governmental agencies. During the three years
ended February 28, 1995, no customer accounted for more than ten percent of
ATC's consolidated revenues except for the New York City School Construction
Authority, which accounted for approximately 11% and 12% of revenues for fiscal
1995 and fiscal 1994, respectively. During fiscal 1995, 1994 and 1993 74%, 68%
and 75% of ATC's total revenues were derived from industrial hygiene services
and the balance of ATC's consolidated revenues were derived from ATC's other
services.
At February 28, 1995, ATC's project backlog amounted to approximately
$11,900,000 consisting of contracts and written service orders believed to be
firm, approximately 90% of which is expected to be completed during fiscal 1996.
At May 15, 1994, ATC's project backlog amounted to approximately $9,455,000
consisting of contracts and written service orders from clients believed to be
firm, substantially all of which were completed during fiscal 1995. Management
estimates that ATC's backlog at May 15, 1993 was approximately $6,800,000
consisting of contracts and written service orders substantially all of which
were completed during fiscal 1994.
Certain aspects of ATC's business may occasionally require it to obtain
performance bonds from insurance carriers. Performance bonds are sometimes
required by educational institutions and government agencies depending upon the
type of bid requested by them. ATC has been able to secure performance bonds
when, as, and if needed, on the few occasions that such bonds are required.
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MARKETING
ATC presently markets its environmental consulting services through its
network of regional offices located in various states including California,
Colorado, Connecticut, Florida, Georgia, Massachusetts, Michigan, Minnesota,
Missouri, Nebraska, New York, Ohio, Oregon, Pennsylvania, Rhode Island, South
Dakota, Texas, Vermont and Washington. ATC may open additional offices in
states within the continental United States. Direct marketing is accomplished
by technical sales representatives, technical personnel and senior management
who call on prospective financial institutions, insurance companies, government
agencies, building and property owners, property managers, engineering firms,
architectural firms, and the U. S. military. ATC also utilizes telemarketing,
direct mail solicitation, national trade advertising, and attendance at local
and national trade shows and conferences for business development. ATC also
markets its services through its environmental seminars and training courses to
ongoing and prospective clients and by submission of competitive bids for
potential governmental projects listed in industry publications.
COMPETITION
The environmental services industry is subject to intense competition,
particularly in the geographic areas in which ATC operates, with no single firm
dominating. In addition to the approximately 3,500 small consulting and testing
firms operating nationally, ATC competes with several national environmental
engineering testing and consulting firms such as Law Engineering, Inc. and The
Earth Technology Corp. 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 services industry continues to evolve. 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, the availability of
insurance, and the availability of capital to finance its operations and meet
escalating costs. ATC competes on the basis of price, turnaround and
availability of services at any time, day or night, and on weekends. ATC's
training schools compete against many other schools offering the same or similar
type of classes.
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. Increased limits as high as
$10,000,000 per claim and $10,000,000 in the aggregate 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
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omissions. ATC's policy has been renewed in each of the last several years that
the policy has been in effect. ATC has in the past filed two notices of claim
which, in the aggregate, amounted to $5,540,000. Although both of these matters
were dismissed in ATC's favor in each case without the payment of damages, no
assurances can be give that future claims will not be filed against ATC or that
ATC will continue to be able to secure insurance coverage on terms satisfactory
to ATC. 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.
PERSONNEL
As of May 1, 1995, ATC employed 632 employees, including 506 full-time
employees. These full-time employees consist of 371 professional personnel
(which include industrial hygienists, environmental scientists, engineers,
biologists, geologists and legal), 17 marketing persons, and 118 administrative
employees inclusive of executive officers. The staff background includes
amongst other things environmental engineering, industrial hygiene and
hydrogeology, chemistry, biology and geology. ATC also hires additional
personnel when needed.
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
improved 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.
FACILITIES
ATC leases office space, laboratory facilities, temporary housing
facilities and storage space under thirty-six 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 adequate
facilities, if necessary, under terms similar to those enjoyed under current
leases. The following described leases could be considered material leases to
ATC. ATC's principal executive offices are located in leased premises
consisting of executive, administrative, operations and laboratory facilities
aggregating approximately 20,000 square feet of space at 104 East 25th Street,
New York, NY 10010 at a base rate of $170,000 per annum with a term ending on
September 30, 2001. On September 30, 1994, in conjunction with its purchase of
the assets of Con-Test, Inc., ATC entered into a ten-year lease for office and
laboratory premises
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aggregating 15,100 square feet at 39 Spruce Street, East Longmeadow,
Massachusetts 01028 at a base rate of approximately $160,000 per annum. ATC and
its Hygeia subsidiary have three separate lease and sublease agreements
(aggregated for the purpose of determining material leases) covering the
premises housing its consulting and laboratory operations at 600 West Cummings
Park, Woburn, Massachusetts, comprising approximately 13,400 square feet
combined at an annual aggregate base rent of approximately $140,000. Although
each separate lease of this group has a different term, the terms generally run
through the summer of 1997. The final material lease covers ATC's approximate
9700 square feet of office space at 40 East Foothill Boulevard, Arcadia,
California 91006. This lease runs through March 31, 1997, at an annual base
rental of $105,600.
In its business, ATC utilizes various laboratory, field and computer
equipment owned and/or leased by ATC. ATC also rents equipment on a project-by-
project basis.
LEGAL PROCEEDINGS
Neither ATC nor Aurora is presently a party to any material litigation nor
are any such proceedings pending or threatened.
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<PAGE>
AURORA'S BUSINESS
GENERAL
Aurora Environmental Inc was incorporated under the laws of the State of
Delaware on November 3, 1987, as a subsidiary of Aurora, Incorporated, a South
Dakota corporation, which was incorporated under the laws of the State of South
Dakota on August 23, 1982. On December 24, 1987, Aurora, Incorporated was
merged into Aurora Environmental Inc. ("Aurora") which was organized solely for
the acquisition of assets, liabilities and operations of Aurora, Incorporated
for the purpose of reincorporating in Delaware.
Aurora is a holding company with no operations outside of those conducted
by its approximate 57% owned subsidiary, ATC (including the subsidiaries of
ATC). At February 28, 1995, Aurora owns 3,258,000 shares of ATC Common Stock.
At February 28, 1995, Aurora on an unconsolidated basis excluding its investment
in ATC had total assets totalling $217,731 consisting of $177,262 in cash and
cash equivalents, other assets of $500 and $39,969 in amounts due from ATC. At
February 28, 1995, Aurora had unconsolidated liabilities of $14,358. Aurora has
no employees. Aurora meets its obligations as a publicly-held corporation
through the use of ATC personnel.
ATC leases office space from a non-affiliated person at 1515 East 10th
Street, Sioux Falls, SD 57103. These facilities are shared with Aurora.
Although no specific allocations of space are made between the two companies,
Aurora pays ATC $400 per month for approximately 950 square feet of office
space. These facilities are adequate for the needs of Aurora. See "Certain
Transactions."
Certain expenses including salaries, fringe benefits, insurance, rent,
legal and accounting and other general and administrative expenses are paid by
ATC and by Aurora, for the benefit of the other. Management allocates these
expenses based on estimates of time spent, square footage and use of the
services received. For example, Aurora allocates to ATC its share of any legal
expenses incurred by Aurora on behalf of ATC and charges ATC interest on the
amount owed to Aurora. ATC, in turn, allocates to Aurora, Aurora's share of the
general and administrative expenses relating to rent, internal accounting costs
and management's time spent on Aurora. See "Certain Transaction" and "ATC
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
For a description of the business of ATC and its subsidiaries, see "ATC's
Business."
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF ATC
The Directors and Executive Officers of ATC and its subsidiaries are as
follows (all persons hold their respective positions with ATC, unless otherwise
indicated):
Name Age Position
---- --- --------
George Rubin 66 Chairman of the Board
and Secretary
Morry F. Rubin 35 President; Chief
Executive Officer and
Treasurer
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
Richard L. Pruitt 54 Vice President and
Principal Accounting
and Financial Officer
Wayne A. Crosby 41 President and
Treasurer of ATC
Management, Inc.
John J. Smith 44 Secretary of ATC
Management, Inc.
George Rubin has been an executive officer and director of ATC since 1988.
Mr. Rubin devotes approximately 40 hours per week to the affairs of ATC
Environmental Inc. and is responsible for assisting in long and short term
financial planning including reviewing budgets, liaison with financial
institutions and in charge of merger and acquisition activities. Mr. Rubin
served as President, Treasurer and a director of Staff Builders, Inc. from its
organization in 1961 to 1987. Staff Builders, Inc., was then a publicly held
corporation with over $100,000,000 in revenues operating through 100 offices,
engaged in the business of providing temporary personnel primarily in the health
care field. Since December 1989, Mr. Rubin has been Chairman of the Board of
Directors of National Diversified Services, Inc., a publicly held corporation,
which completed a public offering as a "blank check offering" in December 1986
and currently has no business operations other than searching for acquisition
candidates. See "Conflicts of Interest; Limitation on Directors' Liability;
Indemnification." George Rubin is the father of Morry F. Rubin.
Morry F. Rubin has been an executive officer and director of ATC since
1988. Mr. Rubin has also been President, Chief Executive Officer and Treasurer
of Aurora since May, 1985, and has been a
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<PAGE>
director of Aurora since September, 1983. Since 1986, Mr. Rubin has been
President of National Diversified Services, Inc., a publicly held corporation,
which completed a public offering as a blank check offering in December, 1986
and currently has no business operations other than searching for acquisition
candidates. See "Conflicts of Interest; Limitation on Directors' Liability;
Indemnification." 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.
Mr. Rubin graduated from Long Island University in 1981 with a Bachelor of Arts
degree in Management and Marketing. Mr. Rubin is a full-time employee of ATC.
Morry F. Rubin is the son of George Rubin.
Nicholas J. Malino has been an executive officer since 1993. Mr. Malino
has over fourteen years of experience in managing professional service
organizations. Mr. Malino is responsible for the overall operations and
profitability of ATC branch offices. He is involved in the analysis of mergers
and acquisitions, office operations, and strategic planning and implementation.
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-January 1991, he was the Operations Manager
for the New York City branch of Professional Service Industries ("PSI"). During
this time he was responsible for PSI's operations management and business
development activities. PSI employs over 3,000 people nationwide and performed
various environmental management services. During 1981 to 1989, he served as a
district manager for Corning Glass Works Inc. in its laboratory sciences group
where he managed two laboratories and twelve patient services centers with over
one hundred employees. He also founded the National Scientific Products Company
(1984) which is an international distributor of scientific supplies and
instrumentation. Mr. Malino filed a Form 4 late on one occasion only during
fiscal 1995.
Christopher P. Vincze has been an executive officer of ATC since 1993, a
regional manager of ATC since 1991 and has been Vice President of Hygeia 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. His responsibilities include managing the branch operations,
reviewing mergers and acquisitions and implementing marketing and business
strategies of all of ATC's regional operations. Mr. Vincze filed a Form 4 late
on one occasion only during fiscal 1995.
Donald W. Beck has been an executive officer of ATC since 1988 and is
responsible for managing the operations of certain ATC offices. Mr. Beck also
served as Director of ATC Laboratories, Inc. 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. Mr. Beck received a BA
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<PAGE>
degree in May, 1982 from Augustana College, Sioux Falls, South Dakota. Mr.
Beck's analytical experience includes general wet chemistry, selective ion
analysis, atomic absorption, emission and graphite rod spectroscopy, flow
injection analysis, phase contrast microscopy for asbestos, blood alcohol and
drug analysis by gas chromatography, thin layer chromatography and toxicology.
His professional affiliations include National Asbestos Council, American
Chemical Society, Association of Official Analytical Chemists and American Water
Works Association.
Richard L. Pruitt has been an executive officer and director of ATC since
1988. Mr. Pruitt is responsible for ATC's financial matters, health benefits,
insurance and auditor liaison functions. Mr. Pruitt has been the Principal
Financial Officer and a Director of Aurora since May, 1985 and has served as
financial manager of Aurora since February, 1982. Mr. Pruitt is a full-time
employee of ATC. Mr. Pruitt also served as Secretary, Treasurer and a Director
of ATC Laboratories, Inc. from November, 1985 until January, 1988 at which time
ATC Laboratories, Inc. was merged into ATC.
Wayne A. Crosby has been an employee of ATC since December 1993. Since
December 1994, he became president and treasurer of ATC Management, Inc., a
wholly owned subsidiary of ATC, which provides management, administrative and
licensing services to the ATC group of companies. Administrative services
include accounting and financial management, insurance, legal and human resource
services. Since his employment Mr. Crosby has been responsible for
investigating and analyzing acquisition prospects and supporting the integration
of acquired companies. He has also implemented and provided support of branch
office accounting systems. Prior to joining ATC, Mr. Crosby was the Chief
Financial Officer of BSE Management Inc. since 1991 and of Compex Systems, Inc.
from 1986 through 1990. Mr. Crosby is a certified public accountant and was
employed by Deloitte Haskins & Sells (currently named Deloitte & Touche LLP) for
eight years.
John J. Smith has been an officer of ATC Management, Inc. since December
1993 and was an officer of ATC Environmental, Inc. from September 1990 through
December 1993. An attorney, Mr. Smith has served as counsel for ATC's operating
units since August 1989. Prior to joining ATC and for the previous five years,
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. Mr. Smith graduated
from Columbia University in New York in 1972 and received his J.D. from the
University of South Dakota in 1977.
All directors of ATC will hold office 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
they resign or are removed by the Board of Directors. The Board of Directors of
ATC does not have any committees.
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<PAGE>
EXECUTIVE COMPENSATION
The following table provides a summary compensation table with respect to
the compensation of ATC's Chief Executive Officer (CEO) and its executive
officers other than the CEO who were serving as executive officers at the end of
fiscal 1995 whose total annual salary and bonus, if any, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name Year Annual Restricted Other
and Ended Compen- Stock Number of LTIP Compen-
Principal February Salary Bonus sation Award(s) Options Payouts sation
Position 28 ($) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Morry Rubin, 1995 225,000 132,500 -0- -0- -0- -0- -0-
President and 1994 120,000 62,500 -0- -0- -0- -0- -0-
Chief Executive 1993 95,000 5,000 -0- -0- 80,000 -0- -0-
Officer
George Rubin, 1995 225,000 132,500 -0- -0- -0- -0- -0-
Chairman of 1994 144,231 62,500 -0- -0- -0- -0- -0-
the Board and 1993 125,000 5,000 379,200(1) -0- -0-(2) -0- -0-
Secretary
Christopher 1995 105,385 86,500 5,550(3) -0- 17,500 -0- -0-
Vincze, Senior 1994 96,682 98,000 4,200(3) -0- 2,500 -0- -0-
Vice-President 1993 96,358 10,000 4,200(3) -0- 17,500 -0- -0-
Nicholas Malino 1995 105,385 86,500 -0- -0- 37,500 -0- -0-
Senior Vice 1994 96,154 98,000 -0- -0- 2,000 -0- -0-
President 1993 36,104 -0- -0- -0- -0- -0- -0-
<FN>
- ----------------
(1) Represents compensation with respect to non-qualified options granted
in 1988 and exercised in April 1992.
(2) Does not include options granted in 1988 and exercised in April 1992.
(3) Represents compensation relating to a car allowance.
</TABLE>
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<PAGE>
OPTION GRANTS TABLE
The information provided in the table below provides information with
respect to individual grants of stock options by ATC during fiscal 1995 of each
of the executive officers named in the summary compensation table above.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term (2)
- --------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of
Total
Options
Granted to
Options Employees Exercise Expira-
Granted in Fiscal Price tion
Name (#) Year (1) ($/Sh) Date 5% ($) 10% ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Morry Rubin 0 0 N/A N/A 0 0
George Rubin 0 0 N/A N/A 0 0
Christopher Vincze (3) 10,000 8.9 6.75 3/7/99 18,600 41,200
7,500 6.7 9.50 9/19/99 19,650 43,500
Nicholas Malino (3) 10,000 8.9 6.75 3/7/99 18,600 41,200
27,500 24.5 9.50 9/19/99 72,050 159,500
<FN>
N/A - not applicable
- ----------------
(1) The percentage of total options granted to employees in fiscal year is
based upon options granted by ATC to officers, directors and employees.
(2) The potential realizable value of each grant of options assumes that the
market price of ATC's Common Stock appreciates in value from the date of
grant to the end of the option term at annualized rates of 5% and 10%,
respectively, after subtracting out the applicable exercise price.
(3) The options granted to Messrs. Malino and Vincze are exercisable over a
period of five years with one-fifth vesting in the date of grant and
thereafter an additional one-fifth vesting on the four subsequent
anniversaries of the date of grant.
</TABLE>
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The information provided in the table below provides information with respect to
each exercise of stock options granted by ATC during fiscal 1995 by each of the
executive officers named in the summary compensation table and the fiscal year
end value of unexercised options.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options
Value FY-End (#) at Fy-End($)
Shares Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Unexercisable Unexercisable(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Morry Rubin -0- -0- 80,000/0 861,600/0
George Rubin -0- -0- 0/0 0/0
Christopher Vincze -0- -0- 16,000/21,500 143,813/139,000
Nicholas Malino -0- -0- 8,300/31,200 38,825/142,300
<FN>
- ----------------
(1) The aggregate dollar values in column (c) and (e) are calculated by
determining the difference between the fair market value of the Common
Stock underlying the options and the exercise price of the options at
exercise or fiscal year end, respectively. ATC's last sale price at the
close of business on February 28, 1995 was $13.25.
</TABLE>
114
<PAGE>
AGGREGATED OPTION AND WARRANT EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR OPTION AND WARRANT VALUES
The information provided in the table below provides information with
respect to each exercise of stock options and Warrants granted by Aurora during
fiscal 1995 by each of the executive officers named in the Summary Compensation
Table and the fiscal year end value of unexercised options.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/ Options/
Shares Acquired on Value Warrants at Warrants
Exercise (#) Realized FY-End (#) at Fy-End($)
Name ($)(1) Exercisable/ Exercisable/
(2) Unexercisable Unexercisable(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Morry Rubin 45,000 178,650 150,000/0 633,750/0
George Rubin 155,000 615,350 900,000/0 5,550,500/0
Christopher Vincze -0- -0- 0/0 0/0
Nicholas Malino -0- -0- 0/0 0/0
<FN>
- ----------------
(1) The aggregate dollar values in column (c) and (e) are calculated by
determining the difference between the fair market value of Aurora's or
ATC's Common Stock underlying the options, as the case may be, and the
exercise price of the options at exercise or fiscal year end, respectively.
(2) During fiscal 1995, no options or warrants of Aurora were granted to the
persons named in Summary Compensation Table.
</TABLE>
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of ATC is composed of three members, namely, George
Rubin, Chairman of the Board, Morry F. Rubin, ATC's Chief Executive Officer
("CEO"), and Richard L. Pruitt, Vice President, Principal Financial and
Accounting Officer. Each member of the Board of Directors is a full-time
employee of ATC. The Board is responsible for reviewing and determining the
annual salary, bonuses, stock option grants and other compensation of the
executive officers of ATC.
Morry F. Rubin and Richard L. Pruitt are officers and directors of Aurora.
In addition, George Rubin and Morry F. Rubin are officers and/or directors of
ATC's subsidiaries. Morry F. Rubin, George Rubin and Richard L. Pruitt each
receive all of their respective cash compensation through ATC. However,
derivative securities such as options or warrants have in the past been granted
to each of the aforesaid persons by Aurora, although none were granted during
fiscal 1995. During fiscal 1994, the only derivative securities granted to the
above named persons by Aurora were options to purchase 150,000 shares granted to
Morry Rubin and Common Stock Purchase Warrants to purchase 100,000 shares
granted to George Rubin. These Options/Warrants were granted at no less than
the fair market value of Aurora's Common Stock as determined by Aurora's Board
of Directors in reliance upon the price at which shares were publicly traded or
quoted on either the date of grant or the preceding trading day.
Morry F. Rubin and George Rubin are the only two directors of National
Diversified Services, Inc. ("National"). During National's fiscal year ended
December 31, 1994, no cash compensation was paid to either Morry F. Rubin or
George Rubin. Aurora, ATC and National are controlled by Morry F. Rubin and
George Rubin; however, during ATC's past fiscal year, Aurora, ATC and their
subsidiaries had no business relationship with National.
In June, 1987, George Rubin loaned Aurora $200,000 and received an 18 month
non-negotiable promissory note (the "note") bearing interest at the rate of 10-
1/2% per annum (with interest payable monthly and principal payable at maturity)
and five-year Common Stock Purchase Warrants (the "1987 Warrants") to purchase
400,000 shares of Aurora's Common Stock at an exercise price of $1.125 per
share. On November 30, 1988, Mr. Rubin extended the maturity date of the note
to November 30, 1989 and received five year Common Stock Purchase Warrants to
purchase 300,000 shares at an exercise price of $.53 per share which Warrants
were exercised in 1993. On November 30, 1989, Mr. Rubin extended the maturity
date of the note to November 30, 1990 and received five year Common Stock
Purchase Warrants (the "1989 Warrants") to purchase 200,000 shares at an
exercise price of $1.20 per share. In September, 1990, Mr. Rubin extended the
maturity date of the note to November 30, 1991 and received an extension of the
expiration date of his 1987 and 1989 Warrants to November 30, 2000 and the
exercise price of the 1987 and 1989 Warrants was lowered to $1.00 per share. In
November 1991, Mr. Rubin extended the maturity date
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<PAGE>
of the note to November 30, 1992 and received Warrants to purchase 200,000
shares at an exercise price of $.56 per share until November 30, 2000.
In December 1992, Mr. Rubin agreed to convert the note into a demand note
bearing interest at the rate of 10-1/2% per annum with interest payable monthly.
In May 1993, Mr. Rubin agreed to change his $200,000 demand note into a term
note due on May 31, 1994 with interest payable monthly at the rate of 10 1/2%
per annum. As consideration for changing the demand note into a term note, Mr.
Rubin received ten year Common Stock Warrants to purchase 100,000 shares of
Aurora's Common Stock at an exercise price of $1.50 per share. In October 1993,
Aurora prepaid the note. In each case, the exercise price of the Warrants were
granted at no less than the fair market value of Aurora's Common Stock as
determined by Aurora's Board of Directors in reliance upon the price at which
shares were publicly traded or quoted on either the date of grant or the
preceding trading day. Aurora also agreed to grant to Mr. Rubin certain demand
registration rights and "piggyback rights" during the term of each of the
aforesaid Warrants regarding the shares of Common Stock which are issuable upon
exercise thereof. All registration costs relating to the registration rights
will be paid by Aurora. The purpose of the aforesaid loan to Aurora by George
Rubin was for working capital and for subsequent loans from Aurora to ATC.
EMPLOYMENT CONTRACTS AND OTHER COMPENSATING ARRANGEMENTS
George Rubin, Morry Rubin, Nicholas Malino and Christopher P. Vincze
receive annual salaries of approximately $225,000, $225,000, $110,000 and
$110,000, respectively. Salaries of all executive officers of ATC, currently
aggregate approximately $948,000. ATC has no employment contracts with its
executive officers. All salaries and bonuses are at the discretion of the Board
of Directors; however, ATC's Board of Directors has agreed to pay bonuses to
each of George Rubin and Morry F. Rubin of 2-1/2% of pre-tax profits based upon
fiscal 1995 operating results and to Christopher Vincze and Nicholas Malino as
described below. The bonuses to be paid to George Rubin and Morry F. Rubin for
fiscal 1995 are based upon resolutions adopted by the Board of Directors and are
not pursuant to any written agreements. These bonus arrangements are expected
to continue into fiscal 1996.
The bonuses of Christopher Vincze and Nicholas Malino are determined on the
basis of senior executive bonus plan agreements. The bonuses are based solely
upon pre-tax branch office operating level profits before allocation of
corporate charges and in accordance with a schedule which provides for the
earning of specific bonus amounts upon attainment of specific branch profit
objectives. This schedule includes both incremental-increase and milestone-
attainment incentives.
During fiscal 1990, ATC approved an employee savings plan which allows
voluntary contributions by eligible employees into designated investment funds.
ATC may, at the discretion of its Board of Directors, make additional
contributions on behalf of the
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<PAGE>
Plan's participants. No ATC contributions were made in fiscal years 1995, 1994,
and 1993.
ATC has no other annuity, pension or retirement benefits for its
employees. ATC provides life, dental and health insurance, which is available
to all full-time employees. ATC has not afforded any of its officers or
directors any personal benefits, the value of which exceeds 10% of his salary,
which are not directly related to job performance or provided generally to all
salaried employees. Directors do not receive compensation for serving on the
Board. Depending upon the number of meetings and the time required for ATC's
operations, ATC may decide to compensate its directors in the future.
ATC'S STOCK OPTION PLANS
On January 12, 1988, the Board of Directors of ATC adopted a Stock Option
Plan (the "Plan") which was ratified by Stockholders on January 12, 1988. The
Plan covers 200,000 shares of Common Stock and is intended to strengthen ATC's
ability to attract and retain in its employ experienced persons and to attract
other persons to become associated with, and/or to maintain their association
with, ATC and its subsidiaries in various capacities (e.g. consultants,
salespersons) other than that of an employee, by affording such employees and
other persons an opportunity to hold a proprietary interest in ATC. The Plan
authorizes the issuance of the options covered thereby as either "Incentive
Stock Options" within the meaning of the Internal Revenue Code of 1986, as
amended, or as "Non-Statutory Stock Options." While any person is eligible to
receive Non-Statutory Options, only employees are eligible to receive an
Incentive Option under the provisions of applicable law. The Plan also provides
that no options may be granted after January 11, 1998.
The Plan is administered by ATC's Board of Directors, which has the
authority to determine the persons to whom options shall be granted, whether any
particular option shall be an Incentive Option or a Non-Statutory Option, the
number of shares to be covered by each option, the time or times at which
options will be granted or may be exercised and the other terms and provisions
of the options except that the Plan prohibits the exercise of an Incentive Stock
Option unless the Optionee has been continuously employed by ATC from the date
of grant to the date of exercise. Accordingly, Incentive Stock Options terminate
upon termination of the Optionee's employment with ATC for any reason
whatsoever. The Plan also provides that: (i) the exercise price of options
granted thereunder shall not be less than 100% (or in the case of an Incentive
Option, 110% if the optionee owns 10% or more of the outstanding voting
securities of ATC) of the fair market value of such shares on the date of grant,
as determined by the Board, and (ii) no option by its terms may be exercised
more than ten years (five years in the case of an Incentive Option, where the
optionee owns 10% or more of the outstanding voting securities of ATC) after the
date of grant. Any options which are canceled or not exercised within the
option period become available for future grants.
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<PAGE>
On July 16, 1993, ATC adopted the 1993 Incentive and Non-Qualified Stock
Option Plan covering 200,000 shares (the "1993 Plan"). The 1993 Plan provides
no options may be granted after July 15, 2003. The 1993 Plan is similar in all
respects to the 1988 Stock Option Plan described above.
As of February 28, 1995, ATC has options outstanding to purchase 271,420
shares under the 1988 and 1993 Stock Option Plans at exercise prices ranging
from $1.875 per share to $17.00 per share. Included in the 271,420 options are
127,000 options which are currently exercisable.
AURORA'S 1985 STOCK OPTION PLAN
On November 15, 1985, the Board of Directors of Aurora adopted a Stock
Option Plan (the "Plan") which was ratified by Stockholders in November 1986 and
amended by Stockholders in December, 1987. The Plan covers 2,000,000 shares of
Common Stock and is intended to strengthen Aurora's ability to attract and
retain in its employ, and in the employ of its subsidiaries, persons of
training, experience and ability and to attract other persons to become
associated with, and/or to maintain their association with, Aurora in various
capacities (e.g. consultants, salespersons) other than that of an employee, by
affording such employees and other persons an opportunity to hold a proprietary
interest in Aurora and/or to increase their existing proprietary interest. The
Plan authorizes the issuance of the options covered thereby as either "Incentive
Stock Options" within the meaning of the Internal Revenue Code of 1986, as
amended, or as "Non-Statutory Stock Options." While any person is eligible to
receive Non-Statutory Options, only employees are eligible to receive an
Incentive Option under the provisions of applicable law. The Plan also provides
that no options may be granted after November 14, 1995.
The Plan is administered by Aurora's Board of Directors, which has the
authority to determine the persons to whom options shall be granted, whether any
particular option shall be an Incentive Option or a Non-Statutory Option, the
number of shares to be covered by each option, the time or times at which
options will be granted or may be exercised and the other terms and provisions
of the options, except that the Plan prohibits the exercise of an Incentive
Stock Option unless the optionee has been continuously employed by Aurora from
the date of grant to the date of exercise. Accordingly, Incentive Stock Options
terminate upon the termination of the Optionee's employment with ATC for any
reason whatsoever. The Plan also provides that: (i) the exercise price of
options granted thereunder shall not be less than 100% (or in the case of an
Incentive Option, 110% if the optionee owns 10% or more of the outstanding
voting securities of Aurora) of the fair market value of such shares on the date
of grant, as determined by the Board, and (ii) no option by its terms may be
exercised more than ten years (five years in the case of an Incentive Option,
where the optionee owns 10% or more of the outstanding voting securities of
Aurora) after the date of grant. Any options which are canceled or not
exercised within the option period become available for future grants.
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<PAGE>
As of May 1, 1995, Incentive and Non-Statutory Stock Options covering
approximately 30,000 of Aurora's shares of Common Stock were outstanding at
exercise price of $1.00 per share. Of the 30,000 options, 15,000 each are
owned by Richard L. Pruitt and Donald Beck.
AURORA'S 1987 STOCK OPTION PLAN
On November 11, 1987, the Board of Directors of Aurora adopted a 1987 Non-
qualified Stock Option Plan, which was ratified by Stockholders in December,
1987, in order to attract and retain qualified employees, officers and
directors. Under the Plan, options to purchase a maximum of 1,500,000 shares of
Common Stock may be granted to employees, officers and directors of Aurora. If
any options granted under the Plan expire or terminate for any reason without
having been exercised in full, the unpurchased shares shall become available for
further options pursuant to the Plan. The Plan also provides that no options
may be granted after November 10, 1997.
The Plan is administered by the Board of Directors of Aurora or by a Stock
Option Committee appointed by the Board which shall consist of not less than
three directors. The maximum term of any option under the Plan is ten years.
The Board of Directors or a Committee appointed by the Board determines which
employee, officer or director shall have options under the Plan, the number of
shares of Common Stock that may be purchased under each option, the option price
and all other provisions of the respective option agreements (which need not be
identical), including provisions concerning the time or times when, and the
extent to which, the options may be exercised, the conditions of exercise
(including non-competition with Aurora after termination of service) and the
effect of approved leaves of absence on continuity of service and the terms and
conditions of payment for shares in full or in installments, the issue of
certificates for shares to be paid for in installments, any limitations upon the
transferability of such shares and the voting and dividend rights to which the
holders of such shares may be entitled, if any, though the full amount of the
consideration therefor has not been paid. At May 1, 1995, Non-Qualified Stock
Options to purchase 150,000 shares at an exercise price of $2.90 per share were
issued and outstanding and owned by Morry F. Rubin.
Upon the completion of the Merger, ATC will adopt a stock option plan
identical to the above referenced 1987 stock option plan, except that the number
of stock options under the Plan will be limited to 81,750 which represents the
number of options to be granted to Morry F. Rubin to replace the Aurora Options
owned by him pursuant to the anti-dilution provisions contained therein. No
separate stockholder approval will be sought by ATC in connection with the
establishment of this stock option plan or the issuance of the stock options to
Mr. Rubin in accordance with the provisions contained in Section 1.05(c) of the
Merger Agreement since no such separate approval is required under Delaware Law
or pursuant to the federal income tax laws.
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<PAGE>
CONFLICTS OF INTEREST; LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION
Morry F. Rubin and Richard L. Pruitt, two of ATC's executive officers and
directors, are officers and the only directors of Aurora Environmental Inc.
George Rubin and Morry F. Rubin are currently officers and directors of another
publicly held corporation. See "Directors and Executive Officers."
Accordingly, possible conflicts of interest may arise in the future in
connection with the performance of their duties. Such potential conflicts of
interest may include, among other things, time, effort and corporate
opportunity. As no policy has been established by ATC for the resolution of any
such conflicts, ATC may be adversely affected should they choose to place their
other business interests before that of ATC.
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
intends to enter 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 and/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 position of the Securities and Exchange
Commission that insofar as the foregoing provisions may be invoked to disclaim
liability for damages arising under the Securities Laws, that such provisions
are against public policy as expressed in the Securities Laws and are therefore
unenforceable.
CERTAIN TRANSACTIONS
(i) ATC leases office space from a non-affiliated person at 1515 East 10th
Street, Sioux Falls, South Dakota 57103. These facilities are presently shared
with Aurora. Although no specific allocations of space are made between the two
companies, Aurora pays ATC $400 per month for approximately 950 square feet of
office space.
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 Aurora for the benefit of the other. During
fiscal 1995, 1994 and 1993, the amount of expense incurred by Aurora that were
allocated to ATC
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<PAGE>
were $14,948, $18,137 and $42,071, respectively. ATC incurred expenses which
were allocated to Aurora of $82,120, $18,700 and $18,000 in fiscal 1995, 1994
and 1993, respectively. Management allocates these expenses between the
companies based on estimates of time spent, square footage and use of the
services received. For example, Aurora currently allocates to ATC its share of
the legal expenses incurred by Aurora on behalf of ATC and charges ATC interest
on the amount owed to Aurora. ATC, in turn, allocates to Aurora, Aurora's share
of the general and administrative expenses relating to rent, internal accounting
costs and management's time spent on Aurora. During fiscal 1995, 1994 and 1993,
approximately $15,000, $41,100 and $66,000, respectively, were transferred from
ATC to Aurora. Such funds were utilized to reduce the amount owed by ATC to
Aurora which at February 28, 1995 aggregated $39,969 compared to $122,141 at
February 28, 1994. Such debt is repayable upon demand together with accrued
interest at the rate of 8% per annum during fiscal 1995 and fiscal 1994 and at
the rate of 12% during fiscal 1993.
The transactions described above originated at a time when ATC was a
wholly-owned subsidiary of Aurora and were not made on terms comparable to those
that would have been obtained from unrelated third parties.
(ii) For a description of related party transactions between George
Rubin and Aurora, see "Compensation Committee Interlocks and Insider
Participation."
(iii) In 1993, ATC obtained a $2,000,000 revolving credit facility which
was subsequently increased to $3,500,000 and which has been increased to
$5,000,000 and a $600,000 term loan from the Atlantic Bank of New York as more
fully described herein and in the Notes to Consolidated Financial Statements.
Aurora is a guarantor of ATC's obligations to the Atlantic Bank of New York.
(iv) The impact of the Merger of Aurora into ATC will be to eliminate each
of the certain transactions described in sub-paragraphs (i), (ii) and (iii)
above as of the Effective Time of the Merger.
(v) ATC has in the past loaned approximately $15,000 to an
officer/director of ATC secured by promissory notes for the purpose of enabling
him to exercise certain stock options in ATC. This loan is currently due in
1996. This loan was approved by a majority of the disinterested members of the
Board of Directors. Further, any future loans or advances will also be made for
a bona fide business purpose and approved by a majority of the disinterested
members of the Board of Directors.
ATC has in the past, and may in the future, enter into transactions with
officers, directors and other affiliates which may be deemed to be non-arms-
length transactions (i.e. transactions between related parties). Any new
transactions would be approved by a majority of disinterested Board of Directors
and would be expected to be made on terms no less favorable to ATC than could be
arranged with independent third parties. All material transactions
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<PAGE>
during the past three years between ATC and Aurora are set forth above.
DESCRIPTION OF ATC'S SECURITIES
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.
NON-CUMULATIVE VOTING
As of May 1, 1995, ATC has 5,738,318 shares of Common Stock issued and
outstanding, 3,258,000 shares of which are owned by Aurora, which is controlled
by George Rubin and Morry F. Rubin (see "Management") who together beneficially
own approximately 47.3% of the issued and outstanding shares of Common Stock of
Aurora, without giving effect to the beneficial ownership of certain outstanding
Aurora Options and Warrants which would increase such beneficial ownership
interest to approximately 55%. Since ATC's Certificate of Incorporation does
not provide for cumulative voting, the holders of more than 50% of the
outstanding shares can elect all of the directors if they choose to do so, in
which event the holders of the remaining shares can not elect any directors. At
and after the Effective Time of the Merger, George Rubin and Morry F. Rubin are
expected to beneficially own, in the aggregate, (including Options and Warrants
owned by them to purchase additional ATC Common Stock) approximately 37.5% of
the then outstanding ATC Common Stock. As a result of the Merger, George
Rubin's and Morry F. Rubin's control of ATC will shift from indirect control to
direct control and such persons are more likely than not to be in a position to
elect all of ATC's directors and to thereby control all of the affairs of ATC.
DIVIDENDS
ATC has not previously 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 loan agreement with its principal
lender,
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<PAGE>
ATC may not pay dividends without such lender's consent. Any Stockholder who
anticipates the need for dividends from their investments should consider
exercising and perfecting their Appraisal Rights which among other things,
requires an actual vote against the Merger or affirmatively abstaining from
voting on the Merger.
REDEEMABLE WARRANTS
Each Class C Redeemable Common Stock Purchase Warrant ("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 Warrant upon 30 days prior written
notice.
The holders of the 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
Warrants are subject to anti-dilution adjustment to protect against stock
dividends, stock splits, mergers, and recapitalizations.
ATC must have a current and effective registration statement on file with
the Securities and Exchange Commission in order for a Class C Warrant holder to
be able to exercise the Class C Warrants. The shares of Common Stock issuable
upon exercise of the Class C Warrants are registered pursuant to a separate
Registration Statement, File #33-79172. In accordance with the terms of the
Class C Warrants, ATC is required to file for, and endeavor to secure, such
current and effective registration of the securities issuable upon exercise of
the Class C Warrants. Various state securities laws relating to qualification
of securities (or an exemption therefrom) for sale in such states may also be
applicable. Necessarily there can be no assurance that ATC will, at all times
during the life of the Warrants, be able to secure or maintain such registration
or qualification; and in the event it is unable to do so, the Class C Warrants
will not be exercisable and may be valueless. If ATC is unable to qualify the
securities underlying the Warrants for sale in particular states, Warrant
holders in those states will have no choice but to sell their Class C Warrants
or let them expire.
TRANSFER AGENT AND EXCHANGE AGENT
American Stock Transfer & Trust Co., 40 Wall Street, New York, NY 10005 is
acting as transfer agent for ATC's and Aurora's securities and as Warrant Agent
for ATC's Redeemable Warrants. American will also act as Exchange Agent in
connection with the Merger.
REPORTS TO STOCKHOLDERS
ATC furnishes to Stockholders, after the close of each fiscal year (i.e.
February 28) an annual report relating to the operations of ATC, containing
financial statements audited and reported upon, and with opinions expressed, by
independent certified public
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<PAGE>
accountants. In addition, ATC furnishes to Stockholders quarterly reports
containing unaudited financial information as determined by the Board of
Directors.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 397,000 shares of ATC's Common Stock may be deemed
"restricted securities" as that term is defined under the Securities Act of
1933, as amended (the "Act"), and in the future may be sold pursuant to a
registration under the Act, in compliance with Rule 144 under the Act, or
pursuant to an exemption therefrom. Rule 144 provides, in essence, that a
person holding "restricted securities" for a period of two years may sell every
three months an amount equal to the greater of 1% of ATC's outstanding shares or
the average weekly trading volume during the four preceding calendar weeks. A
person who is not an affiliate of ATC may sell restricted shares held for three
years without such limitation. The investor should be aware that the
possibility of sales under Rule 144 may, in the future, have a depressive effect
on the prices of ATC's securities in any market which may develop and therefore
the ability of any investor to sell his securities may be adversely affected by
the number of shares that may be sold under Rule 144.
The shares of the ATC Common Stock to be issued to Stockholders of Aurora
in connection with the Merger (including the shares of ATC Common Stock which
will become issuable pursuant to the anti-dilution provisions contained in
Aurora's Common Stock Purchase Options and Warrants in accordance with the
Merger Agreement at and after the Effective Time of the Merger) will be freely
transferable under the Securities Act, except for such shares issued to any
person who may be deemed an "affiliate" of ATC or Aurora within the meaning of
Rule 145 promulgated under the Securities Act of 1933, as amended. Under Rule
145, in the case of affiliates, such persons shall be deemed to be engaged in a
distribution and therefore to be an Underwriter within the meaning of Section
2(11) of the Securities Act of 1933, as amended, unless such securities are
sold by such affiliate in accordance with the provisions of Rule 144 (except
that the holding period as required by Rule 144(d) is not applicable).
DESCRIPTION OF AURORA'S SECURITIES
COMMON STOCK
The authorized capital stock of Aurora consists of 25,000,000 shares of
Common Stock, $.001 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 Aurora; (ii) are entitled to share
ratably in all of the assets of Aurora available for distribution to holders of
Common Stock upon liquidation, dissolution or winding up of the affairs of
Aurora; (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
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<PAGE>
may vote at all meetings of Stockholders. All shares of Common Stock now
outstanding are fully paid and non-assessable.
NON-CUMULATIVE VOTING
As of May 1, 1995, Aurora has 6,101,104 shares of Common Stock issued and
outstanding, approximately 47% of which are beneficially owned by Morry F. Rubin
and George Rubin ("the control group") without giving effect to their beneficial
ownership of certain outstanding Options/Warrants which would increase such
beneficial ownership interest to approximately 55%. Since Aurora's Certificate
of Incorporation does not provide for cumulative voting, the holders of more
than 50% of the outstanding shares can elect all of the directors if they choose
to do so, in which event the holders of the remaining shares can not elect any
directors.
DIVIDENDS
Aurora has not previously paid any dividends since its inception and for
the foreseeable future intends to follow a policy of retaining all of its
consolidated earnings, if any. There can be no assurance that dividends will
ever be paid by Aurora. Additionally, it is the position of the Atlantic Bank
of New York, ATC's institutional lender, that Aurora may not pay dividends
without such lender's consent.
OUTSTANDING OPTIONS AND WARRANTS
As of May 1, 1995, Aurora has outstanding the following securities:
(i) Warrants to purchase 660,000 shares of Aurora's Common Stock
exercisable at $1.00 per share until November 30, 2000;
(ii) Warrants to purchase 100,000 shares of Aurora's Common Stock at an
exercise price of $1.50 per share until May 13, 2003;
(iii) Warrants to purchase 200,000 shares of Aurora's Common Stock
exercisable at $.56 per share until November 30, 2000;
(iv) Options to purchase 150,000 shares of Aurora's Common Stock at an
exercise price of $2.90 per share until January 10, 2004; and
(v) Options to purchase 30,000 shares of Aurora's Common Stock at an
exercise price of $1.00 per share until November 1, 1997. These Options are
expected to be exercised by executive officers of ATC prior to the Effective
Time of the Merger.
The options referred to in (v) above, if not exercised prior to the
Effective Time, will terminate immediately prior to the Effective Time of the
Merger. All other Aurora Options and Warrants referred to above will become
Options and Warrants of ATC commencing at and after the Effective Date of the
Merger. Each Aurora Warrant/Option will become exercisable into .545 share of
ATC's Common Stock until the original expiration date of the Aurora
Warrant/Option. The total exercise price to be paid upon exercise of each
Warrant/Option will remain unchanged although the exercise price per share will
increase proportionately as a result of a change in the number of shares to be
received. All of Aurora's
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<PAGE>
Options and Warrants that will survive and become ATC Options and Warrants are
exercisable at and after the Effective Time of the Merger into ATC Common Stock
and are subject to certain anti-dilution provisions to protect against stock
dividends, stock splits, recapitalizations and mergers.
COUNSEL
Lester Morse P.C., 111 Great Neck Road, Suite 420, Great Neck, New York
11021, has acted as counsel for ATC. Kaufmann, Feiner, Yamin, Gildin & Robbins,
777 Third Avenue, New York, New York 10017 has acted as special counsel for
Aurora in connection with this transaction. See "Risk Factor - 15" regarding
the waiving of certain conflicts of interest and the security ownership of
members of Lester Morse's family in both ATC and Aurora.
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 have
been audited by Deloitte & Touche LLP independent auditors, as stated in their
reports appearing in the Registration Statement, and have been so included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of Con-Test, Inc. as of December 31, 1993 and 1992
and for each of the two years in the period ended December 31, 1993 and the
related financial statement schedules included elsewhere in the Registration
Statement have been audited by James Slawski independent auditor, as stated in
his reports appearing herein and elsewhere in the Registration Statement, and
have been so included in reliance upon the reports of such firm given upon its
authority as experts in accounting and auditing.
TAX OPINIONS
Deloitte & Touche LLP has issued their tax opinions as to certain Federal
income tax matters relating to the Merger. A copy of their opinions are
included in the exhibits to the Registration Statement of which this Prospectus
is a part.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
___________________________________________________________________________
PAGE
ATC ENVIRONMENTAL INC.
Financial Statements and Independent Accountants'
Report-Year Ended February 28, 1995 F-2 to F-19
Pro Forma Combined Condensed Financial Statement
Con-Test Acquisition
Year Ended February 28, 1995 F-20 to F-24
AURORA ENVIRONMENTAL INC.
Financial Statements and Independent Accountants'
Report-Year Ended February 28, 1995 F-25 to F-43
Pro Forma Combined Condensed Financial Statement
Con-Test Acquisition
Year Ended February 28, 1995 F-44 to F-48
CON-TEST, INC.
Financial Statements and Independent Accountants'
Report-Year Ended December 31, 1993 and 1992 F-49 to F-57
F-1
<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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
May 4, 1995
Omaha, Nebraska
F-2
<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>
See notes to consolidated financial statements.
F-3
<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 $ 0.07 $ 0.35 $ 0.57
=========== =========== ===========
Fully diluted $ 0.07 $ 0.35 $ 0.56
=========== =========== ===========
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>
See notes to consolidated financial statements.
F-4
<PAGE>
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 TOTALS
<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>
See notes to consolidated financial statements.
F-5
<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>
See notes to consolidated financial statements.
F-6
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
- -----------------------------------------------------------------
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 collectively 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
Leasehold improvements life of the 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 or 5 year periods.
F-7
<PAGE>
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.
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>
F-8
<PAGE>
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>
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>
F-9
<PAGE>
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 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 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 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>
F-10
<PAGE>
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 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.
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>
<S> <C> <C>
PRO FORMA
YEARS ENDED FEBRUARY 28,
--------------------------
1994 1995
----------- -----------
Total revenues $39,469,717 $41,391,933
Net income $ 990,055 $ 2,757,502
Net income per share $ 0.18 $ 0.47
</TABLE>
F-11
<PAGE>
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-12
<PAGE>
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-13
<PAGE>
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>
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.
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-14
<PAGE>
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, 1995 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>
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 receiver 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 $0.01 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-15
<PAGE>
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 7.7 0.8 0.5
---- ---- ----
45.9% 39.3% 38.6%
---- ---- ----
---- ---- ----
</TABLE>
F-16
<PAGE>
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>
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.
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.
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.
F-17
<PAGE>
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 on 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.
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>
F-18
<PAGE>
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>
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.
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 $41,391,833
Net income $914,517 $2,649,020
Earnings per share $0.15 $0.41
</TABLE>
F-19
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
IN CONNECTION WITH THE ACQUISITION OF CON-TEST, INC.
- --------------------------------------------------------------------------------
The following unaudited pro forma combined condensed financial statements for
ATC Environmental Inc. and Subsidiaries (ATC) and Con-Test, Inc. (Con-Test)
have been prepared based upon the historical financial results of the
companies. The pro forma combined financial data give effect to the
acquisition of Con-Test under the purchase method of accounting, based upon
the assumptions set forth in the notes to the pro forma combined condensed
financial statement included herein.
The pro forma combined condensed statement of operations included herein sets
forth the combination of ATC's and Con-Test's results of operations for the
twelve month period ended February 28, 1995, after giving effect to the
applicable purchase accounting adjustments.
The pro forma combined results are not necessarily indicative of the results
which would have been attained if the acquisition had been consummated at the
beginning of ATC's fiscal year or which may be attained in the future. The
pro forma statements of operations do not reflect the effect of integrating
several Con-Test operations with existing ATC operations and the resulting
efficiencies achieved.
The pro forma combined condensed financial information should be read in
conjunction with the notes thereto and with the audited financial statements
of ATC for its fiscal years ended February 28, 1995 and of Con-Test for its
years ended December 31.
F-20
<PAGE>
ATC ENVIRONMENTAL INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NOTE 2
---------------------------------------
ATC CON-TEST PRO FORMA PRO FORMA
(AUDITED) (UNAUDITED) ADJUSTMENTS NOTES(S) COMBINED
<S> <C> <C> <C> <C> <C>
REVENUES $36,271,557 $5,120,376 $ -- $41,391,933
COST OF REVENUES 18,355,493 1,820,215 -- 20,175,708
----------- ----------- ------------ ----------
Gross profit 17,916,064 3,300,161 -- 21,216,225
OPERATING EXPENSES:
Selling 1,105,937 290,427 -- 1,396,364
General and administrative 10,996,709 3,652,236 (60,063) (A) 14,588,882
Provision for bad debts 188,819 16,367 -- 205,186
----------- ----------- ------------ ----------
12,291,465 3,959,030 (60,063) 16,190,432
----------- ----------- ------------ ----------
Operating income (loss) 5,624,599 (658,869) 60,063 5,025,793
NONOPERATING EXPENSE:
Interest expense 285,570 94,121 125,752 (B) 505,443
Interest income (34,073) (1,448) -- (35,521)
Other, net 72,582 (5,820) -- 66,762
----------- ----------- ------------ ----------
324,079 86,853 125,752 536,684
----------- ----------- ------------ ----------
Income (loss) before taxes 5,300,520 (745,722) (65,689) 4,489,109
INCOME TAX EXPENSE (BENEFIT) 2,044,000 -- (312,393) (C) 1,731,607
----------- ----------- ------------ ----------
NET INCOME (LOSS) $3,256,520 $(745,722) $246,704 $2,757,502
----------- ----------- ------------ ----------
----------- ----------- ------------ ----------
EARNINGS PER COMMON AND DILUTIVE COMMON
EQUIVALENT SHARE:
Primary $0.57 (D) $0.47
-----------
-----------
Fully diluted $0.56 (D) $0.47
-----------
----------- ----------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD:
Primary 5,753,856 (D) 5,821,847
----------- ----------
----------- ----------
Fully diluted 5,850,233 (D) 5,918,224
----------- ----------
----------- ----------
</TABLE>
See notes to pro forma combined condensed financial statement.
F-21
<PAGE>
ATC ENVIRONMENTAL INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENT
1. GENERAL
At February 28, 1995, the historical balance sheet of ATC
reflects the acquisition of Con-Test and therefore no pro forma
balance sheet is included.
The pro forma combined condensed statement of operations sets
forth the results of operations of ATC and Con-Test for the year ended
February 28, 1995.
The pro forma combined condensed financial statements should be
read in conjunction with the other pro forma financial information
contained in this Proxy Statement/Prospectus and the companies'
financial statements and notes thereto.
CON-TEST: The pro forma combined condensed statement of
operations for the year ended February 28, 1995 assumes the
acquisition occurred on March 1, 1994, the beginning of the 1995
fiscal year. The pro forma adjustments were based on Con-Test's
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.
ATC acquired most of the assets of Con-Test and entered into a
five year covenant not to compete with the former owner for the
consideration and costs summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Consideration to seller:
Cash $2,100,000
ATC restricted common stock-115,556 shares 492,905
Note payable, due in three annual installments of $178,333
beginning September 30, 1995; interest accrues at 8.5%
and is payable quarterly 535,000
----------
3,127,905
----------
Liabilities assumed:
Current liabilities 1,908,465
Non-current liabilities 478,027
Notes payable 1,981,982
----------
4,368,474
----------
Direct costs of acquisition 131,910
----------
Total purchase price $7,628,289
----------
----------
</TABLE>
The stock issued as consideration to the seller is unregistered
stock and, as such, is subject to certain restrictions on its sale or
transfer. Because of these restrictions, the shares have been
recorded at a discount from the market price of the Company's publicly
traded stock. The restricted stock was valued at $4.23 per share when
the market price was $9.40 per share, pursuant to an independent
valuation.
F-22
<PAGE>
The note payable and restricted common shares are subject to
offset if the purchased accounts receivable, net of recorded
allowances, are not collected within one year and under certain other
conditions.
The acquisition has been accounted for as a purchase. Assets
acquired and liabilities assumed are included in ATC's balance sheet
at their estimated fair market value at the date of purchase. The
purchase price has been allocated as follows:
Accounts receivable - net $2,615,469
Property and equipment - net 633,945
Goodwill 4,265,516
Covenant not to compete 100,000
Other assets 13,359
----------
$7,628,289
----------
----------
2. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF CON-TEST
The pro forma financial statements reflect the following
adjustments related to the acquisition of Con-Test:
(A) To record the change in General and Administrative expenses
resulting from depreciation and amortization:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995
-----------------
<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 a 5 year term 11,667
--------
$(60,063)
--------
--------
</TABLE>
(B) To record interest expense on acquisition debt:
<TABLE>
<CAPTION>
DEBT
INCURRED
--------
<S> <C> <C>
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
--------
$125,752
--------
--------
</TABLE>
F-23
<PAGE>
(C) To record the imputed Federal income tax expense (benefit as though
Con-Test had not been a Subchapter S corporation and the income
tax effect of the pro forma adjustments:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995
-----------------
<S> <C>
Reported loss before taxes $(745,722)
Income adjustments:
Depreciation 154,671
Goodwill amortization (82,941)
Covenant amortization (11,667)
Interest expense (125,752)
---------
Adjusted loss before taxes (811,411)
Tax rate, net of state effect 38.5%
---------
Calculated tax benefit (312,393)
Recorded expense -
---------
Net adjustment $(312,393)
---------
---------
</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.
(D) Assumes the ATC shares issued for Con-Test are outstanding as of
the beginning of the fiscal year.
F-24
<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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 4, 1995
F-25
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1994 AND 1995
- -------------------------------------------------------------------------------------------------------
ASSETS 1994 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,398,430 $ 1,555,124
Trade accounts and notes 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>
See notes to consolidated financial statements.
F-26
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
<TABLE>
<CAPTION>>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
- --------------------------------------------------------------------------------------
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 $ 0.03 $ 0.17 $ 0.27
----------- ----------- -----------
----------- ----------- -----------
Fully diluted $ 0.03 $ 0.17 $ 0.26
----------- ----------- -----------
----------- ----------- -----------
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>
See notes to consolidated financial statements.
F-27
<PAGE>
AURORA ENVIRONMENTAL INC. & 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>
See notes to consolidated financial statements
F-28
<PAGE>
AURORA ENVIRONMENTAL INC. & 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>
See notes to consolidated financial statements
F-29
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1993, 1994 AND 1995
- -------------------------------------------------------------------------------
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) (collectively,
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:
Office equipment 5 years
Transportation equipment 4-5 years
Laboratory and field equipment 5-7 years
Leasehold improvements life of the lease
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 or 5 year periods.
F-30
<PAGE>
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.
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:
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
----------
----------
F-31
<PAGE>
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:
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
----------
----------
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:
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
----------
----------
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:
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
----------
----------
F-32
<PAGE>
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:
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
----------
----------
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:
Accounts receivable, net $ 812,208
Equipment 100,000
Goodwill 450,000
----------
$1,362,208
----------
----------
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 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:
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
----------
----------
F-33
<PAGE>
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:
Property and equipment $ 103,670
Other non-current assets 53,000
Covenants not to compete 150,000
Goodwill 2,139,815
----------
$2,446,485
----------
----------
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.
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:
PRO FORMA
YEARS ENDED FEBRUARY 28,
----------------------------
1994 1995
Total revenues $39,469,717 $41,391,933
Net income $ 547,229 $ 1,439,108
Net income per share $ 0.08 $ 0.21
F-34
<PAGE>
C. PROPERTY AND EQUIPMENT
Property and equipment consists of:
1994 1995
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
---------- ----------
---------- ----------
The following is a summary of capital leases by major asset class:
1994 1995
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
---------- ----------
---------- ----------
Lease amortization is included in depreciation expense.
F-35
<PAGE>
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-36
<PAGE>
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>
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.
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-37
<PAGE>
The changes 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
grant.
Additionally, in January 1988, ATC granted options for the purchase of
342,000 shares of its 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-38
<PAGE>
The changes in the outstanding stock options of ATC under the plans 1988
and 1993 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>
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>
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 receiver 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.
F-39
<PAGE>
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.
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>
F-40
<PAGE>
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>
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 shares of these transactions is recorded within
stockholders' equity as part of the adjustments resulting from capital
transactions of its subsidiary.
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.
F-41
<PAGE>
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)
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>
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 could be combined with ATC and the
results of operations of ATC and Aurora could 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-42
<PAGE>
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 $41,391,833
Net income $ 914,517 $ 2,649,020
Earnings per share $ 0.15 $ 0.41
</TABLE>
F-43
<PAGE>
AURORA ENVIRONMENTAL INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
IN CONNECTION WITH THE ACQUISITION OF CON-TEST, INC.
- --------------------------------------------------------------------------------
The following unaudited pro forma combined condensed financial statements for
Aurora Environmental Inc. and Subsidiary (Aurora) and Con-Test, Inc.
(Con-Test) have been prepared based upon the historical financial results of
the companies. The pro forma combined financial data give effect to the
acquisition of Con-Test by ATC Environmental Inc., a subsidiary of Aurora,
under the purchase method of accounting, based upon the assumptions set forth
in the notes to the pro forma combined condensed financial statement included
herein.
The pro forma combined condensed statement of operations included herein sets
forth the combination of Aurora's and Con-Test's results of operations for
the twelve month period ended February 28, 1995, after giving effect to the
applicable purchase accounting adjustments.
The pro forma combined results are not necessarily indicative of the results
which would have been attained if the acquisition had been consummated at the
beginnning of the 1995 fiscal year or which may be attained in the future.
The pro forma statements of operations do not reflect the effect of
integrating several Con-Test operations with existing ATC operations and the
resulting efficiencies achieved.
The pro forma combined condensed financial information should be read in
conjunction with the notes thereto and with the audited financial statements
of Aurora for its fiscal years ended February 28, 1995 and of Con-Test for
its years ended December 31.
F-44
<PAGE>
AURORA ENVIRONMENTAL INC.
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (Unaudited)
FOR THE YEAR ENDED FEBRUARY 28, 1995
- ------------------------------------------------------------------------------------------------------------------------------
Note 2
--------------------------------------------
Aurora Con-Test Pro Forma Pro Forma
(Audited) (Unaudited) Adjustments Note(s) Combined
<S> <C> <C> <C> <C> <C>
REVENUES $36,271,557 $5,120,376 $ - $41,391,933
COST OF REVENUES 18,355,493 1,820,215 - 20,175,708
----------- ---------- ----------- ------------
Gross profit 17,916,064 3,300,161 - 21,216,225
OPERATING EXPENSES:
Selling 1,105,937 290,427 - 1,396,364
General and administrative 11,052,272 3,652,236 (60,063) (A) 14,644,745
Provision for bad debts 188,819 16,367 - 205,186
----------- ---------- ----------- ------------
12,347,328 3,959,030 (60,063) 16,246,295
----------- ---------- ----------- ------------
Operating income (loss) 5,568,736 (658,869) 60,063 4,969,930
NONOPERATING EXPENSE:
Interest expense 285,570 94,121 125,752 (B) 505,443
Interest income (35,212) (1,448) - (36,660)
Other, net 144,252 (5,820) - 138,432
----------- ---------- ----------- ------------
394,610 86,853 125,752 607,215
----------- ---------- ----------- ------------
Income (loss) before taxes 5,174,126 (745,722) (65,689) 4,362,715
INCOME TAX EXPENSE (BENEFIT) 2,044,000 - (312,393) (C) 1,731,607
----------- ---------- ----------- ------------
Income (loss) before minority
interest 3,130,126 (745,722) 246,704 2,631,108
MINORITY INTEREST IN NET INCOME (LOSS) OF
SUBSIDIARY (1,300,040) - 108,040 (D) (1,192,000)
----------- ---------- ----------- ------------
NET INCOME (LOSS) $ 1,830,086 $ (745,722) $ 354,744 $ 1,439,108
----------- ---------- ----------- ------------
----------- ---------- ----------- ------------
EARNINGS PER COMMON AND DILUTIVE COMMON
EQUIVALENT SHARE:
Primary $ 0.27 $ 0.21
----------- ------------
----------- ------------
Fully diluted $ 0.26 $ 0.21
----------- ------------
----------- ------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD:
Primary 6,861,606 6,861,606
----------- ------------
----------- ------------
Fully diluted 6,916,816 6,916,816
----------- ------------
----------- ------------
</TABLE>
See notes to pro forma combined condensed financial statements.
F-45
<PAGE>
AURORA ENVIRONMENTAL INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENT
- -------------------------------------------------------------------------------
1. GENERAL
At February 28, 1995, the historical balance sheet of Aurora
reflects the acquisition of Con-Test and therefore no pro forma
balance sheet is included.
The pro forma combined condensed statement of operations sets
forth the results of operations of ATC and Con-Test for the year ended
February 28, 1995.
The pro forma combined condensed financial statements should be
read in conjunction with the other pro forma financial information
contained in this Proxy Statement/Prospectus and the companies'
financial statements and notes thereto.
CON-TEST: The pro forma combined condensed statement of
operations for the year ended February 28, 1995 assumes the
acquisition occurred on March 1, 1994, the beginning of the 1995
fiscal year. The pro forma adjustments were based on Con-Test's
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.
ATC acquired most of the assets of Con-Test and entered into a
five year covenant not to compete with the former owner for the
consideration and costs summarized as follows:
<TABLE>
<S> <C>
Consideration to seller:
Cash $2,100,000
ATC restricted common stock-116,556 shares 492,905
Note payable, due in three annual installments of $178,333
beginning September 30, 1995; interest accrues at 8.5%
and is payable quarterly 535,000
----------
3,127,905
----------
Liabilities assumed:
Current liabilities 1,908,465
Non-current liabilities 478,027
Notes payable 1,981,982
----------
4,368,474
----------
Direct costs of acquisition 131,910
----------
Total purchase price $7,628,289
----------
----------
</TABLE>
The stock issued as consideration to the seller is unregistered
stock and, as such, is subject to certain restrictions on its sale or
transfer. Because of these restrictions, the shares have been
recorded at a discount from the market price of the Company's publicly
traded stock. The restricted stock was valued at $4.23 per share when
the market price was $9.40 per share, pursuant to an independent
valuation.
F-46
<PAGE>
The note payable and restricted common shares are subject to
offset if the purchased accounts receivable, net of recorded
allowances, are not collected within one year and under certain other
conditions.
The acquisition has been accounted for as a purchase. Assets
acquired and liabilities assumed are included in ATC's balance sheet
at their estimated fair market value at the date of purchase. The
purchase price has been allocated as follows:
Accounts receivable - net $2,615,469
Property and equipment - net 633,945
Goodwill 4,265,516
Covenant not to compete 100,000
Other assets 13,359
----------
$7,628,289
----------
----------
2. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF CON-TEST
The pro forma financial statements reflect the following
adjustments related to the acquisition of Con-Test:
(A) To record the change in General and Administrative expenses
resulting from depreciation and amortization:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995
<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 a 5 year term 11,667
--------
$ (60,063)
--------
--------
</TABLE>
(B) To record interest expense on acquisition debt:
<TABLE>
<CAPTION>
DEBT
INCURRED
<S> <C> <C>
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
--------
$125,752
--------
--------
</TABLE>
F-47
<PAGE>
(C) To record the imputed Federal income tax expense (benefit as though
Con-Test had not been a Subchapter S corporation) and the income
tax effect of the pro forma adjustments:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995
<S> <C>
Reported loss before taxes $(745,722)
Income adjustments:
Depreciation 154,671
Goodwill amortization (82,941)
Covenant amortization (11,667)
Interest expense (125,752)
---------
Adjusted loss before taxes (811,411)
Tax rate, net of state effect 38.5%
---------
Calculated tax benefit (312,393)
Recorded expense -
---------
Net adjustment $(312,393)
---------
---------
</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.
(D) To record minority interest in Con-Test's results of operations and
the pro forma purchase adjustments. $108,040
---------
---------
F-48
<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.
/s/ James J. Slawski CPA
James J. Slawski, CPA
April 21, 1994, except for Note 2, as to
which the date is September 10, 1994
F-49
<PAGE>
CON-TEST, INC.
Balance Sheet
December 31, 1993 and 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
<S> <C> <C>
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 oblig. 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>
See notes to financial statements.
F-50
<PAGE>
CON-TEST, INC.
Statements of Operations and Retained Earnings
for the Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Revenue $11,866,786 $9,994,171
Operating expenses
Advertising & 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>
See Notes to Financial Statements
F-51
<PAGE>
CON-TEST, INC.
Statements of Cash Flows
for the 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 payables 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>
See Notes to Financial Statements
F-52
<PAGE>
CON-TEST, INC.
Notes to Financial Statements
December 31, 1993 and 1992
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 expenses.
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>
Equipment 8-10 years
Furniture and fixtures 5-7 years
Motor vehicles 5 years
Leasehold improvements 15 years
</TABLE>
F-53
<PAGE>
CON-TEST, INC.
Notes to Financial Statements
December 31, 1993 and 1992
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.
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>
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.
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%.
F-54
<PAGE>
CON-TEST, INC.
Notes to Financial Statements (cont.)
December 31, 1993 and 1992
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-55
<PAGE>
CON-TEST, INC.
Notes to Financial Statements (cont.)
December 31, 1993 and 1992
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 21,000
----------
$1,056,546
----------
----------
</TABLE>
5. Accrued Liabilities
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Accrued liabilities consist of the following:
Accrued vacation & 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>
6. Profit-Sharing Plan
The Company has a profit-sharing plan covering all eligible employees. No
contributions were recorded in 1993 and 1992.
7. Related Party Transaction
A. Leases
The Company leases its buildings from its owners under two five-year
triple net leases. Total lease expenses 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>
F-56
<PAGE>
CON-TEST, INC.
Notes to Financial Statements (cont.)
December 31, 1993 and 1992
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>
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-57
<PAGE>
ATTACHMENT A
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger dated as of January 6, 1995 by and between ATC
Environmental Inc., a Delaware corporation ("ATC"), and Aurora Environmental
Inc., a Delaware corporation ("Aurora") ("ATC" and "Aurora" collectively the
"Constituent Corporations").
WHEREAS, each of the Boards of Directors of ATC and Aurora desire to enter
into this Agreement each having approved the merger of Aurora with and into ATC
(the "Merger"), upon the terms and subject to the conditions set forth herein;
and
WHEREAS, under and pursuant to the terms of this Agreement, and at the
Effective Time (as defined in Section 1.02 hereof), each share of Common Stock
of Aurora, $.001 par value, issued and outstanding immediately prior to the
Effective Time, other than Dissenting Shares (as defined in Section 1.03 (f)
hereof) which are to be canceled pursuant to Section 1.03(f) of this Agreement
will be converted into .545 of a share of Common Stock, $.01 par value, of ATC,
in accordance with the exchange ratio set forth, in Section 1.03(a) of this
Agreement; and
WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of setting forth certain representations, warranties and covenants made
by each to the others as an inducement to the execution and delivery of this
Agreement and the conditions precedent to and the consummation of the Merger;
and
WHEREAS, on January 6, 1995, each of the Boards of Directors of ATC and
Aurora, respectively, have approved and adopted this Agreement as a Plan of
Reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual covenants, representations
and warranties herein set forth, and for the purpose of setting forth certain
terms and conditions of the Merger and the mode of carrying the same into
effect, ATC and Aurora hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.02), Aurora shall be
merged with and into ATC in accordance with the General Corporation Law of the
State of Delaware ("GCL"), whereupon the separate existence of Aurora shall
cease and ATC shall be the surviving corporation (the "Surviving Corporation")
and shall continue its corporate existence under the laws of the State of
Delaware. From and after the Effective Time, the status, rights and liabilities
of, and the effect of the Merger on, each of
A-1
<PAGE>
the Constituent Corporations which is a party to the Merger and the Surviving
Corporation shall be as provided in Section 251 of the GCL.
SECTION 1.02. FILING OF CERTIFICATE OF MERGER; EFFECTIVE TIME. As soon as
practicable after the satisfaction of the conditions to the consummation of the
Merger set forth herein, the Constituent Corporations will deliver for filing,
or cause to be delivered for filing, with the Secretary of State of the State of
Delaware, a Certificate of Merger executed in accordance with Section 103 of the
GCL and the requirements of Section 251 of the GCL to effect the Merger. The
Merger shall become effective on the date and time when the Certificate of
Merger has been filed with the Secretary of State of the State of Delaware. The
date and time of such effectiveness is herein referred to as the "Effective
Time".
SECTION 1.03. CONVERSION OF OUTSTANDING SHARES.
(a) From and after the Effective Time, each share of Common Stock, $.001
par value, of Aurora, ("Aurora Common Stock") outstanding immediately prior to
the Effective Time, except (i) shares held by Aurora in treasury, if any, and
(ii) shares with respect to which appraisal rights have been properly exercised
in accordance with Section 262 of the GCL and canceled pursuant to Section
1.03(f) below, shall, by virtue of the Merger and without any action on the part
of ATC or Aurora, or any holder thereof, cease to exist and be converted into
and become .545 of a share of Common Stock of ATC $.01 par value per share ("ATC
Common Stock").
(b) The consideration referred to in (a) above, together with any cash
payments in lieu of fractional shares as provided herein, is hereinafter
referred to as the "Merger Consideration".
(c) Each share of ATC Common Stock outstanding immediately prior to the
Effective Time shall, after the Merger, continue to represent one share of ATC
Common Stock, except shares with respect to appraisal rights that have been
properly exercised in accordance with Section 262 of the GCL. Each outstanding
option and/or Warrant of ATC outstanding immediately prior to the Effective Time
shall, after the merger, continue to represent the right to acquire shares of
ATC Common Stock in accordance with the terms of the applicable Option and/or
Warrant.
(d) No fractional shares of ATC Common Stock shall be issued pursuant to
the Merger and no holder of Aurora Stock immediately prior to the Effective Time
shall, by reason of such ownership, be entitled to any rights or privileges
pertaining to any fraction of any share of ATC Common Stock. Any person who, by
reason of the ownership of ATC Common Stock, shall be entitled but for the
provisions of this Section, to receive a fractional share of ATC Common Stock,
shall be entitled to receive from ATC an amount in cash equal to the fractional
interest multiplied by the average of the closing sales price per share of ATC
Common stock as reported on the National Association of Securities Dealers, Inc.
Small Cap Market for the five days immediately preceding the Effective Time
A-2
<PAGE>
on which there have been sales of ATC Common Stock. ATC will pay the respective
amounts to the persons entitled thereto in accordance with Section 1.04 hereof.
(e) Each share of Aurora Common Stock held by Aurora as treasury stock
immediately prior to the Effective Time, if any, shall be canceled, and no
payment shall be made with respect thereto.
(f) Notwithstanding anything in this Agreement to the contrary, shares of
Aurora Common Stock or ATC Common Stock outstanding immediately prior to the
Effective Time and which are held by shareholders who have not voted such shares
in favor of the approval and adoption of this Agreement and shall have delivered
to Aurora and/or ATC, as the case may be, prior to the taking of the vote on the
Merger at the meeting of Aurora shareholders and/or ATC shareholders, as the
case may be with respect to each such company's shares, to be held pursuant to
Section 6.01 hereof, a written notice of intention to demand payment of the fair
value of such shares and shall otherwise meet the requirements of Section 262 of
the GCL applicable to entitlement to appraisal rights ("Dissenting Shares")
shall not be converted into or be exchangeable for the Merger Consideration in
the case of Aurora, or continued ownership as provided in Subsection 1.03(c)
above in the case of ATC, but shall instead be entitled to receive such
consideration as shall be determined pursuant to Section 262 of the GCL;
provided, however, that if such holder shall have failed to perfect or shall
have withdrawn or lost his right to receive payment of the fair value of his
shares under the GCL, his Aurora Common Stock shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the Effective
Time, the right to receive the Merger Consideration, without any interest
thereon, in accordance with Section 1.03 hereof and/or his ATC Common Stock in
the case of an ATC shareholder shall, as of the Effective Time, be treated as
provided in Subsection 1.03(c) above. Aurora and ATC each shall give the other
prompt notice of any demands received for appraisal, and each shall have the
right to participate in all negotiations and proceedings with respect to such
demands. Neither Aurora nor ATC shall, except with the prior written consent of
the other, settle or offer to settle any such demands or make any payment with
respect thereto, except as shall be required by a final, non-appealable judgment
of a court of competent jurisdiction. Payment in respect of Dissenting Shares
shall be made by Aurora or ATC.
SECTION 1.04. EXCHANGE OF AURORA COMMON STOCK; SURRENDER OF CERTIFICATES.
(a) Prior to the Effective Time, ATC shall designate its present transfer agent
as an exchange agent ("Exchange Agent") in connection with the Merger pursuant
to an Exchange Agent Agreement providing for, among other things, the matters
set forth in this Section 1.04. After the Effective Time, each holder of an
outstanding certificate or certificates, which immediately prior to the
Effective Time represent Aurora Common Stock, may surrender such certificate to
the Exchange Agent and promptly receive one or more stock certificates for the
number of full shares of ATC Common Stock into which the Aurora Common Stock
represented by the
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certificate or certificates so surrendered have been converted as a result of
the Merger and a check representing cash payable in lieu of a fractional share
of ATC Common Stock, as provided in Section 1.03(d) hereof; provided, however,
that the holder is otherwise entitled hereby to receive the Merger
consideration. Subject to the next subsection hereof, until so surrendered for
exchange, each such certificate nominally representing Aurora Common Stock shall
be deemed for all corporate purposes to evidence the ownership of the number
of full shares of ATC Common Stock which the holder thereof would be entitled
to receive upon its surrender to the Exchange Agent; provided, however,
that holders of Dissenting Shares who have properly exercised their appraisal
rights in accordance with the GCL, shall not be entitled to vote
or to exercise any other rights as a shareholder of ATC.
(b) Unless and until such outstanding certificate or certificates shall be
so surrendered for exchange, no holder thereof shall be entitled to receive any
payment for any fractional share interest or any dividend or distribution,
whether in cash or otherwise, payable to holders of record of ATC, but upon the
surrender and exchange of such certificate or certificates there shall be paid
to the record holder of the certificate or certificates of ATC Common Stock
issued and exchanged therefor, the amount of any cash payable in lieu of a
fractional share and all dividends and distributions (without interest thereon)
which have become payable with respect to whole shares of ATC Common Stock
represented by the certificate or certificates issued upon such surrender and
exchange as if such certificates of ATC Common Stock had been issued at the
Effective Time. Promptly after the Effective Time, ATC and Aurora will cause
the Exchange Agent to send to all holders of Aurora Common Stock a letter of
transmittal for use in exchanging their certificates for certificates
representing ATC Common Stock.
(c) If any shares of ATC Stock are to be issued in a name other than that
in which the certificate representing Aurora Stock surrendered for exchange is
registered, it shall be a condition of such exchange that (i) the certificate so
surrendered be properly endorsed or otherwise in proper form for transfer and
that the person requesting such exchange either pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of ATC Common Stock
to persons other than the registered holder of the certificate surrendered or
establish to the satisfaction of ATC that such tax has been paid or is not
payable and (ii) upon request by ATC, the person requesting such exchange shall
provide to ATC an opinion of counsel, satisfactory to ATC, to the effect that
the transfer does not require registration under the Securities Act of 1933, as
amended (the "Securities Act"), or that an exemption from the requirement of
such registration is available.
(d) After the Effective Time, there shall be no further registry of
transfers on the records of Aurora of Aurora Common Stock outstanding
immediately prior to the Effective Time and if certificates representing such
shares are presented to the Surviving Corporation, they shall be forwarded to
the Exchange Agent and exchanged for ATC Common Stock as herein provided.
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Holders of Aurora Common Stock who have lost their stock certificates evidencing
Aurora Common Stock will be entitled to receive certificates evidencing the ATC
Common Stock into which their Aurora Common Stock has been converted upon
compliance with the procedures, which may include requests for the furnishing of
appropriate indemnifications, affidavits and bonds, established by ATC pursuant
to its By-Laws, or otherwise, for replacement of lost ATC stock certificates.
(e) Notwithstanding the foregoing, neither ATC nor any other party hereto
shall be liable to a holder of Aurora Common Stock for any amount paid to a
public official pursuant to applicable abandoned property laws. If any holders
of certificates representing shares of Aurora Common Stock are entitled to
receive the Merger Consideration pursuant to Section 1.03(a) hereof and shall
not have surrendered their certificates prior to the seventh anniversary of the
Effective Time (or prior to such earlier date on which any payment in respect
thereof would otherwise escheat to or become the property of any governmental
agency or other governmental entity) the amount receivable in respect of such
ATC Common Stock shall, to the extent permitted by applicable law, become the
property of ATC, free and clear of all claims or interest of any person
previously entitled thereto.
SECTION 1.05. OPTIONS AND WARRANTS OF AURORA.
(a) As of the Effective Time, all options under Aurora's 1985 Incentive and
non-statutory Stock Option Plan to acquire shares of Aurora's Common Stock shall
be extinguished and shall be of no force and effect on and after the Effective
Time.
(b) Prior to the Effective Time, there are two holders of outstanding
Warrants to purchase shares of Aurora Common Stock (i.e., George Rubin and
Goldie Morse). After the Effective Time, each share covered by the Warrant will
represent the right to receive .545 of a share of ATC Common Stock for each
share of Aurora Common Stock for which each such Warrant was exercisable, all in
accordance with the terms of said Warrants.
(c) Prior to the Effective Time, there are outstanding Options to purchase
shares of Aurora's Common Stock owned by Morry F. Rubin under Aurora's 1987 Non-
Qualified Stock Option Plan. After the Effective Time, each share covered by
the Option will represent the right to receive .545 of a share of ATC Common
Stock for each share of Aurora Common Stock for which each such Option was
exercisable, all in accordance with the terms of said Non-Qualified Stock
Option.
(d) ATC shall take all such action as may be necessary and proper in order
to preserve the rights of the holders of Warrants and Options referred to in
subsections 1.05(b) and (c) above including, to the extent necessary, the
issuance of Warrants of ATC and/or the adoption of ATC Option plans with respect
to such Options.
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SECTION 1.06. ARTICLES OF INCORPORATION. The Articles of Incorporation of
ATC, as in effect immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until amended in accordance with
applicable law.
SECTION 1.07. BY-LAWS. The By-Laws of ATC, as in effect immediately prior
to the Effective Time shall be the By-Laws of the Surviving Corporation until
amended in accordance with applicable law.
SECTION 1.08. DIRECTORS AND OFFICERS OF ATC AND AURORA.
(a) The Board of Directors of ATC as the Surviving Corporation immediately
after the Effective Time shall consist of the following persons: George Rubin,
Morry F. Rubin and Richard L. Pruitt. The directors shall hold office from and
after the Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Articles of Incorporation
and By-Laws of the Surviving Corporation, or as otherwise provided by law. If
at or after the Effective Time a vacancy shall exist on the Board of Directors
of the Surviving Corporation, such vacancy may thereafter be filled in the
manner provided in the By-Laws of the Surviving Corporation.
(b) The officers of ATC, the Surviving Corporation, immediately before the
Effective Term shall continue to be the officers of ATC after the Effective
Time. The officers shall hold office from and after the Effective Time at the
pleasure of the Board of Directors of the Surviving Corporation, subject to the
provisions set forth in the By-Laws of the Surviving Corporation.
SECTION 1.09. CANCELLATION OF ATC COMMON STOCK OWNED BY AURORA. At the
Effective Time the 3,258,000 shares of ATC Common Stock held of record by Aurora
shall be cancelled. Aurora shall deliver the certificates representing such
shares to the Exchange Agent for cancellation effective as of the Effective
Time.
SECTION 1.10. CERTAIN EFFECTS OF THE MERGER. From and after the Effective
Time, the Surviving Corporation shall (a) possess all the rights, privileges,
powers and franchises, of a public or of a private nature, of the Constituent
Corporations, (b) be subject to all restrictions, disabilities, liabilities and
duties of each of ATC and Aurora, all with the effect and to the extent provided
in the GCL, and (c) continue its corporate existence as a Delaware corporation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF AURORA
Aurora represents and warrants to ATC, except as set forth on the
Disclosure Schedules attached hereto (the "Schedules"), that:
SECTION 2.01. CORPORATE EXISTENCE AND POWER. Aurora is a corporation duly
organized, validly existing and in good standing
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under the laws of the State of Delaware and has all corporate power,
authority and legal right to conduct its business as it is now being
conducted and to own the properties and assets it now owns. Schedule 2.01
sets forth a true and correct list of each jurisdiction in which Aurora
is qualified or licensed to do business as a foreign corporation
or foreign entity, or where such qualification is necessary. Except as set
forth on Schedule 2.01, Aurora is duly qualified or licensed to do business as a
foreign corporation and is in good standing in every jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary. Aurora has previously delivered to ATC true
and correct copies of Aurora's Articles of Incorporation and By-Laws, as
presently in effect.
SECTION 2.02. CORPORATE AUTHORIZATION. Subject to obtaining the
shareholder approval required under the GCL and obtaining all necessary consents
from ATC's institutional lender, which debt Aurora has guaranteed, (a) Aurora
has full corporate power and authority to enter into this Agreement and to carry
out the transactions contemplated hereby, (b) the Board of Directors of Aurora
has taken all action required by law, its Articles of Incorporation and By-Laws
or otherwise to authorize the execution and delivery by Aurora of this Agreement
and the performance by Aurora of the transactions contemplated hereby, (c) this
Agreement has been duly and validly executed and delivered by Aurora and no
other corporate action is necessary in connection therewith, and (d) this
Agreement is a valid and binding agreement of Aurora enforceable against Aurora
in accordance with its terms, except to the extent that enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting creditors' rights generally and by general equitable principles
(regardless of whether enforcement is sought in equity or at law).
SECTION 2.03. CONSENTS AND APPROVALS OF GOVERNMENT AUTHORITIES. Except as
set forth on Schedule 2.03, and except for the requirements of (a) the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (b) the
Securities Act, (c) state securities laws, and (d) the filing and recordation of
a Certificate of Merger as required by the GCL, no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority, United States or foreign, is required in connection
with the execution, delivery and performance of this Agreement by Aurora and the
consummation of the transactions contemplated hereby.
SECTION 2.04. NO VIOLATION. Except as set forth on Schedule 2.04, the
execution, delivery and performance of this Agreement by Aurora (a) will not
violate Aurora's Articles of Incorporation or By-Laws, (b) will not violate, or
be in conflict with, or constitute a default (or an event which, with or without
due notice or lapse of time, or both, would constitute a default) (a "Default")
under, or result in the termination of or accelerate the performance required
by, or result in the creation of imposition of any security interest, lien or
other encumbrance upon, any material properties or assets of Aurora under, any
debt, obligation,
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contract, lease, commitment, license, permit or other agreement to which
Aurora is a party or by which it is bound or to which it is subject,
nor result in the loss of any rights by Aurora, and (c) will not
violate any law, judgment, decree, order, regulation or rule of any court or
governmental authority.
SECTION 2.05. CAPITALIZATION. The authorized capital stock of Aurora
consists of 25,000,000 shares of Common Stock, $.001 par value. As of the date
hereof, there are issued and outstanding 6,101,104 shares of Aurora Common
Stock. All issued and outstanding shares of Aurora Stock have been duly
authorized and validly issued and are fully paid and nonassessable. Except (i)
with respect to 30,000 shares of Common Stock reserved to be issued prior to the
Effective Time to certain affiliates of Aurora upon exercise of certain
incentive Stock options under Aurora's 1985 Incentive and Non-Statutory Stock
Option Plan; (ii) with respect to 1,110,000 shares of Common Stock reserved to
be issued pursuant to the exercise of Warrants to purchase 960,000 of such
Shares and 150,000 of such Shares reserved to be issued under the 1987 Non-
Qualified Stock Option Plan; and, (iii) as set forth on Schedule 2.05, there are
no other outstanding shares of, no securities of Aurora convertible into or
exchangeable for, no options, Warrants or other rights (including any preemptive
rights), to acquire from Aurora, and no other contracts, understandings,
arrangements or obligations (whether or not contingent) providing for the
issuance or sale by Aurora, directly or indirectly, of any capital stock or
other equity or debt security of Aurora. There are no outstanding contractual
obligations of Aurora to repurchase, redeem or otherwise acquire any outstanding
shares of Aurora Common Stock or other securities issued by Aurora. Except as
set forth on Schedule 2.05 and except with respect to the Merger Consideration
and other securities to be registered in the Merger Registration Statement, no
holder of any shares of capital stock or ownership interest of Aurora is
entitled to any dividend or distribution in respect of such capital stock of
Aurora which are currently held by Aurora as treasury shares.
SECTION 2.06. SUBSIDIARIES. Aurora, except as to and through its
ownership of 3,258,000 shares of ATC Common Stock which will be canceled at the
Effective Time, does not directly own securities or other ownership interests in
any other entity, which securities or ownership interests have voting power to
elect a majority of the Board of Directors or other persons performing similar
functions of such entity.
SECTION 2.07. SEC FILINGS. Aurora has previously delivered to ATC the
following (collectively, the "Aurora Filings"): (i) its Annual Report on Form
10-K for the year ended February 28, 1994, as amended, (ii) all of its other
reports, registration Statements and proxy statements filed with the SEC since
February 28, 1991, and (iii) all amendments and supplements to the foregoing.
Except as set forth on Schedule 2.07, each of the Aurora Filings, (a) has been
timely filed subject to any allowable extensions, (b) was prepared in all
material respects in accordance with the requirements of the Securities Act or
Exchange Act, as the case may be, and the rules and regulations thereunder and
(c) did not
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contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading (other than statements or omissions believed by Aurora
to be correct at the time of filing and correctly stated in subsequent filings).
Aurora has timely filed all reports and other documents required to be filed
with the SEC. Aurora covenants and agrees to continue to timely make all further
Aurora filings through the Effective Time.
SECTION 2.08. FINANCIAL STATEMENTS. The audited financial statements of
Aurora for the years ended February 28, 1994, 1993 and 1992 (the "Aurora Audited
Financial Statements") fairly present the financial position of Aurora as of the
date thereof and its results of operations, cash flows and stockholders' equity
for the periods then ended, all in conformity with generally accepted accounting
principles applied on a consistent basis. The unaudited financial statements of
Aurora for the six months ended August 31, 1994 and 1993 (the "Aurora Unaudited
Financial Statements"), and collectively with the Aurora Audited Financial
Statements (the "Aurora Financial Statements"), were prepared in a manner
consistent with the basis of presentation used in the Aurora Audited Financial
Statements and reflect all adjustment necessary, in the opinion of management
(consisting of only normal recurring adjustments) for a fair presentation of the
financial position and condition of Aurora as of and for the periods indicated.
SECTION 2.09. NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule
2.09 (the Aurora Disclosed Liabilities), Aurora has no liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise) (herein
Aurora Liabilities), required by generally accepted accounting principles to be
disclosed, except (a) Aurora Liabilities which are accrued or otherwise
reflected on the Aurora Financial Statements, (b) Aurora Liabilities incurred in
the ordinary course of business since August 31, 1994 and consistent, in type
and amount, with past practice, and (c) expenses incurred in connection with
this Agreement.
SECTION 2.10. NO MATERIAL ADVERSE CHANGE. Except as set forth on Schedule
2.10, since August 31, 1994, there has been no material adverse change in the
business, financial position, results of operations, operations or prospects of
Aurora, from that reflected in the Aurora Financial Statements.
SECTION 2.11. ABSENCE OF CERTAIN CHANGES. Except as otherwise
contemplated herein or as set forth on Schedule 2.11, since the date of the
Aurora Unaudited Financial Statements Aurora has not:
(a) borrowed or agreed to borrow any funds or incurred, or assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
obligation or liability (absolute or contingent) except in the ordinary course
of business and consistent with past practice;
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(b) paid, discharged or satisfied any Aurora liabilities other than
the payment, discharge or satisfaction in the ordinary course of business
consistent with past practice of Aurora Liabilities reflected or reserved
against in the Aurora Financial Statements or incurred in the ordinary course of
business and consistent with past practices;
(c) permitted or allowed any of its material properties or assets to
be subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, except Aurora Permitted Exceptions under
Section 2.12 hereof;
(d) written off as uncollectible any notes or accounts receivable
(other than those reserved against in the Aurora Audited Financial Statements);
(e) canceled any debts or waived any claims or rights of substantial
value, or sold, transferred or otherwise disposed of any of its material
properties or assets, except in the ordinary course of business and consistent
with past practice;
(f) made any loan to or investment in, or acquired the assets,
business or securities of, any person other than loans to ATC and/or ATC's
subsidiaries;
(g) paid or granted any increase in the aggregate compensation of
directors, officers, agents or employees (including any such increase pursuant
to any bonus, insurance, pension, profit-sharing or other employee benefit plan
or commitment) or any increase in the aggregate compensation payable or to
become payable to any director, officer, agent or employee, in excess of such
compensation paid or payable by Aurora as of August 31, 1994, except for normal
periodic increases resulting from the application of existing plans, agreements
or policies of Aurora applied on a consistent basis or otherwise in the ordinary
course of business or as otherwise provided for in any employment agreement;
(h) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or other securities, or, directly
or indirectly, redeemed, purchased or otherwise acquired any shares of its
capital stock or other securities;
(i) made any change in any accounting principles or practices, except
as required by the Financial Accounting Standards Board and reflected in the
Aurora Financial Statements;
(j) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to or from, or entered into any agreement or
arrangement with, any of its officers or directors or any "affiliate" or
"associate" of any of its officers or directors (as such terms are defined in
the Rules and Regulations of the SEC under the Securities Act), except for
(i) directors' fees and compensation to officers, (ii) payments contemplated in
subsection (g) hereof, and (iii) advances for business expenses in the ordinary
course of business, except for
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any such transactions entered into with ATC and/or any ATC Subsidiaries
(as defined in Section 3.07 hereof);
(k) made any capital expenditures in excess of $25,000 in the
aggregate; or
(l) agreed, whether in writing or otherwise, to take any action
described in this Section 2.11, except as otherwise contemplated herein.
SECTION 2.12. TITLE TO PROPERTIES; ENCUMBRANCES. Except as set forth on
Schedule 2.12:
(a) to the best knowledge of Aurora, Aurora has good and marketable
title to all its properties and assets, including without limitation, all such
properties and assets reflected in the Aurora Financial Statements and all such
properties and assets purchased by Aurora since the date of the Aurora Unaudited
Financial Statements, except in each case for properties and assets sold or
disposed of since such date in the ordinary course of business and consistent
with past practice;
(b) to the best knowledge of Aurora, none of its properties or assets
is subject to any mortgage, pledge, lien, guarantee, security interest,
encumbrance or charge of any kind except for guarantees of ATC indebtedness to
the Atlantic Bank of New York and current taxes, assessments and charges
not yet due.
SECTION 2.13. LITIGATION. Except as set forth on Schedule 2.13, there are
no material actions, suits, proceedings or investigations pending against or, to
the knowledge of Aurora, threatened against Aurora before any court or
arbitrator or any governmental body, agency or official, and Aurora does not
know or have reason to know of any basis for any such action, suit, proceeding,
investigation or claim.
SECTION 2.14. TAXES. (a) Except as set forth on Schedule 2.14, Aurora
has duly filed or caused to be filed with the appropriate governmental
authorities all Federal, State, local and foreign tax reports and returns
required to be filed by it, subject to any allowable extension periods, and has
maintained, or caused to be maintained, all required records with respect to
taxes, and has duly paid in full or caused to be duly paid in full, or has
established or caused to be established in the Aurora Financial Statements
reserves adequate for payment of, all Federal, State, local and foreign taxes
and other charges due or claimed to be due from each of them by Federal, State,
local or foreign taxing authorities for all periods up to and including the date
of this Agreement. As of the time of filing, the foregoing tax reports and
returns correctly reflected the facts regarding the income, business, assets,
operations and activities of Aurora or any other information to be shown
thereon. Aurora has timely paid all taxes that have been shown as due and
payable on such tax reports and returns. Aurora is not delinquent in the
payment of any taxes.
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(b) Except as set forth on Schedule 2.14, the Federal, State and local tax
returns of Aurora have not been audited by the respective governmental
authorities, or the statute of limitations with respect to income taxes have all
expired for all taxable periods ending prior to the date hereof.
(c) All deficiencies and assessments resulting from any examination of the
Federal, State and local tax returns and reports of Aurora have been paid,
finally settled, or adequately provided for in the Aurora Financial Statements,
and no issue resulting in an adjustment has been raised by the Internal Revenue
Service ("IRS") or relevant State or local authorities in any examination which,
by application of similar principles, reasonably could be expected to result in
a proposed deficiency for any other period not so examined.
(d) Except as set forth in Schedule 2.14, the tax returns of Aurora
required to be filed in any jurisdiction outside of the United States have been
audited (or its applicable equivalent) by the relevant taxing authorities or
have been closed without audit (or its applicable equivalent) or the statutes of
limitation in such jurisdictions have all expired for all taxable periods ending
prior to the date hereof.
(e) All deficiencies and assessments resulting from any examination of the
tax returns and reports referred to in subparagraph (d) hereof of Aurora have
been paid, finally settled, or adequately provided for in the Aurora Financial
Statements, and no issue has been raised by any of the relevant taxing
authorities in any such examination resulting in an adjustment which, by
application of similar principles, could reasonably be expected to result in a
proposed deficiency for any other period not so examined.
(f) Except as set forth on Schedule 2.14, to the best knowledge of Aurora,
no deficiency for any taxes has been proposed, asserted, or assessed against
Aurora (other than deficiencies or assessments referred to in subparagraphs (c)
or (e) hereof, which deficiencies or assessments have either been paid, finally
settled, or adequately provided for in the Aurora Financial Statements), and
Aurora has no reason to believe that any such deficiency will be proposed,
asserted or assessed. There has been no intentional disregard of any statute,
regulation, rule or revenue ruling in the preparation of any tax return that
would result in a material increase in any tax liability for any period that
remains open to adjustment.
(g) Except as set forth on Schedule 2.14, amounts have been withheld and
paid over to the appropriate governmental authorities by Aurora from its
employees for all prior periods in compliance with the tax withholding
provisions of all applicable Federal, State, local and foreign laws.
(h) Except as set forth on Schedule 2.14, amounts have been withheld and
paid over to the appropriate governmental authorities by Aurora from any
payments made in respect of which a withholding
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obligation is imposed, in compliance with the withholding provisions or
"collection at source" provisions of all applicable Federal, State, local
and foreign laws.
SECTION 2.15. NO FINDERS' FEES. There is no investment banker, broker,
finder or other intermediary which or who has been retained by, or is authorized
to act for Aurora in connection with the transactions contemplated by this
Agreement or is otherwise entitled to payment of any fee or commission.
SECTION 2.16. AURORA'S BENEFIT PLANS.
(a) Aurora does not maintain or contribute to any "employee pension
benefit plan" ("Aurora Pension Plan") as such term is defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, solely for the purpose of this subsection, a plan excluded from
coverage by Section 4(b)(4) or Section 4(b)(5) of ERISA.
(b) Aurora does not maintain or contribute to any "employee welfare
benefit plan" ("Aurora Welfare Plan"), as such term is defined in Section 3(1)
of ERISA (including a plan excluded from coverage by Section 4(b)(4) of ERISA),
whether insured or otherwise, Aurora has not established or contributed to any
"voluntary employees' beneficiary association" within the meaning of Section
501(c)(9) of the Code.
SECTION 2.17. BANK ACCOUNTS. Schedule 2.17 sets forth the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which Aurora maintains accounts of any nature and the
names of all persons authorized to draw thereon or make withdrawals therefrom.
Except as set forth on Schedule 2.17, amounts on deposit in any account
maintained by Aurora with any financial institution do not exceed the amount of
depository insurance available from any federal or state authority with respect
to such account; provided, however, that nothing herein shall be deemed to
require Aurora to maintain accounts only with financial institutions whose
deposits are so insured.
SECTION 2.18. CONTRACTS AND COMMITMENTS. Except as set forth on Schedule
2.18, with respect to subsections (a) through (j) below, Aurora:
(a) has no contract, arrangement or commitment which is material to
its business, operations or prospects (for the purpose of this subsection, any
contract, arrangement or commitment shall be deemed "material" if, together with
all related and similar contracts, it calls for fixed and/or contingent payments
thereunder of more than $5,000 in the aggregate) except those which are
cancelable by Aurora on notice of not longer than thirty (30) days and without
liability, penalty or premium, or were entered into for the benefit, in whole or
in part, of ATC and/or any ATC Subsidiaries (as defined in Section 3.07 hereof);
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(b) has no contract, arrangement or commitment with any director,
officer, employee, agent, consultant, advisor, salesman, or representative
providing for future compensation of more than $25,000 that is no cancelable by
it on notice of not longer than thirty (30) days and without liability, penalty
or premium;
(c) has no employment agreement with any officer, employee or agent,
nor any agreement that contains any severance or termination pay liabilities or
obligations;
(d) has no collective bargaining or union contracts or agreements;
(e) has no agreement restricting it from carrying on its business or
any part thereof anywhere in the world or from competing in any line of business
with any person;
(f) has no debt obligation for borrowed money, including guarantees
of or agreements to acquire any such debt obligation of others, except any such
obligations incurred in connection with a debt obligation for borrowed money of
and/or for the benefit of ATC and/or any ATC Subsidiaries (as defined in Section
3.07 hereof);
(g) has no outstanding loan to any person other than advances to ATC
and/or directors, officers and employees of Aurora for business expenses in the
ordinary course of business not exceeding $10,000 in the aggregate;
(h) has no obligation or liability as guarantor, surety, co-signer,
endorser, co-maker, indemnitor or otherwise in respect of the obligation of any
other person, other than endorsements in the ordinary course of business, except
any such liabilities or obligations incurred in connection with an obligation or
liability of ATC and/or any ATC Subsidiaries (as defined in Section 3.07
hereof); or
(i) has not given any irrevocable power of attorney to any person
except any agent for service of process in foreign jurisdictions.
Each of the material contracts, agreements and instruments set forth on Schedule
2.18 (copies of which have been previously furnished to ATC) is a valid and
binding obligation of Aurora and, to the best knowledge of Aurora, the other
party or parties thereto, and there have been no uncured or unwaived Defaults by
Aurora or, to the best knowledge of Aurora, by the other party or parties
thereto, or claims of Default, and there are no facts or conditions that have
occurred or that are anticipated to occur which, through the passage of time or
the giving of notice, or both, would constitute a Default by Aurora or, to the
best knowledge of Aurora, by the other party or parties thereto, under any of
such contracts, agreements or instruments.
SECTION 2.19. PROXY MATERIALS AND REGISTRATION STATEMENTS. The
information regarding Aurora to be contained in the proxy statement to be mailed
to the shareholders of Aurora pursuant to
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Section 6.02 hereof (the "Proxy Statement") and the information pertaining
to Aurora in the Registration Statement (the "Registration Statement") of
ATC to be filed pursuant to Section 6.02 will be correct in all material
respects, will not contain any untrue statement of a material fact and will not
omit any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. Aurora will promptly inform
ATC of the happening of any event prior to the Effective Time which would
render any such information materially incorrect or require the amendment
of the Registration Statement and/or the Joint Proxy Statement.
SECTION 2.20. DISCLOSURE. No representation or warranty made by Aurora in
this Agreement or the Schedules hereto and no statement relating to Aurora
contained in any document, financial statement, disclosure statement,
certificate or other writing furnished or to be furnished by Aurora to ATC
and/or any other persons pursuant to the provisions hereof or in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated therein or herein or necessary in order to make the
statements herein or therein not misleading; provided, however, that no
representation or warranty is made hereby with respect to ATC or any ATC
Subsidiary (as defined in Section 3.07 hereof).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ATC
ATC represents and warrants to Aurora that:
SECTION 3.01. CORPORATE EXISTENCE AND POWER. ATC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all corporate power, authority and legal right to conduct its
business as it is now being conducted and to own the properties and assets it
now owns. ATC is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not in the aggregate, have a material adverse effect on ATC
and not in the aggregate, have a material adverse effect on ATC and ATC
Subsidiaries (as defined in Section 3.07 hereof), taken as a whole.
SECTION 3.02. CORPORATE AUTHORIZATION. Subject to obtaining the
shareholder approval referred to in Section 6.01 hereof, and the consent of
Atlantic Bank of New York, ATC's institutional lender, ATC (a) has full
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby, (b) the Board of Directors of ATC has taken
all action required by law, its Certificate of Incorporation and By-Laws or
otherwise to authorize the execution and delivery of this Agreement and the
performance by ATC of the transactions contemplated hereby, (c) this Agreement
has been duly and validly executed and delivered
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by ATC and no other corporate action is necessary in connection therewith,
and (d) this Agreement is a valid and binding Agreement of ATC enforceable
against ATC in accordance with its terms, except to the extent that enforcement
may be limited by applicable bankruptcy, insolvency, reorganization or
other similar laws affecting creditors' rights generally and by general
equitable principles (regardless of whether enforcement is sought in equity
or at law).
SECTION 3.03. VALIDITY OF ATC STOCK TO BE ISSUED. The ATC Common Stock
to be issued pursuant to the Merger (including Shares to be issued upon exercise
of issued and outstanding Aurora Options/Warrants) will, upon issuance, be
validly issued, fully paid and nonassessable.
SECTION 3.04. CONSENTS AND APPROVALS OF GOVERNMENT AUTHORITIES. Except as
set forth on Schedule 3.04, and except for the requirements of (a) the Exchange
Act, (b) the Securities Act, (c) the filing of a report on Form 10-C in the
manner contemplated by Section 6.10 hereof, (d) the filing of an additional
listing application with the National Association of Securities Dealers, Inc.
("NASD") and (e) applicable state securities laws, no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required in connection with the execution, delivery
and performance of this Agreement by ATC and the consummation of the
transactions contemplated hereby.
SECTION 3.05. NO VIOLATION. Except as set forth on Schedule 3.05, the
execution, delivery and performance of this Agreement by ATC (a) will not
violate ATC's Certificate of Incorporation or By-Laws, (b) will not violate, or
be in conflict with, or constitute a Default under, or result in the termination
of or accelerate the performance required by, or result in the creation or
imposition of any security interest, lien or other encumbrance upon, any
properties or assets of ATC under, any debt, obligation, contract, lease,
commitment license, permit or other agreement to which ATC is a party, or by
which it is bound or to which it is subject, nor the loss of any rights by ATC
and (c) will not violate any law, judgment, decree, order, regulation or rule of
any court of governmental authority.
SECTION 3.06. CAPITALIZATION OF ATC. The authorized capital stock of ATC
consists of 20,000,000 shares of Common Stock, par value $.01 per share ("ATC
Common Stock"). As of the date hereof, there are issued and outstanding
5,721,691 shares of ATC Common Stock. All issued and outstanding shares of ATC
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable. On the date hereof, ATC has 570,620 Class C Redeemable Common
Stock Purchase Warrants outstanding ("Class C Warrants"). Each Class C Warrant
entitles the holder to purchase one share of ATC Common Stock at an exercise
price of $10.00 per share. Class C Warrants are exercisable until September 30,
1996 and ATC has the right to redeem such Warrants at a price of $.001 per
Warrant upon 30 days prior written notice. Additionally, ATC has reserved for
issuance an aggregate of 408,020 shares of ATC
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Common Stock under its existing stock option plans and for options granted
outside the plans. Except as set forth on Schedule 3.06, there are no other
outstanding shares of, no securities convertible into or exchangeable for,
no options or other rights (including any preemptive rights) to acquire from
ATC, and no other contracts, understandings, arrangements or obligations
(whether or not contingent) providing for the issuance or sale by ATC, directly
or indirectly, of any capital stock or other equity or debt security of ATC,
other than pursuant to this Agreement. Except as set forth on Schedule 3.06,
there are no outstanding contractual obligations of ATC or any ATC Subsidiaries
(as defined in Section 3.07) to repurchase, redeem or otherwise acquire any
outstanding shares of ATC Stock or other securities issued by ATC. Except
as set forth on Schedule 3.06, no holder of any securities of ATC has any
registration rights with respect thereto and no holder of any shares of
capital stock or ownership interest of ATC is entitled to any dividend or
distribution in respect of such capital stock. There are no shares of any
class or series of capital stock of ATC which are currently held by ATC as
treasury shares.
SECTION 3.07. SUBSIDIARIES. The subsidiaries of ATC include ATC
Management Inc., Hygiea Pro Science Laboratories, Inc. and ATC New England Corp.
("ATC Subsidiaries").
SECTION 3.08. SEC FILINGS. ATC has previously delivered to Aurora the
following (collectively, the "ATC Filings"): (a) its annual report on Form 10-K
for the year ended February 28, 1994, (b) its proxy statements relating to
ATC's meetings of shareholders (whether annual or special) held since February
28, 1991; (c) all of its other reports or registration statements filed with the
SEC since February 28, 1991 (including but not limited to quarterly reports on
Form 10-Q, and current reports on Form 8-K), (d) all amendments and supplements
to the foregoing, and (e) all Schedule 13D's and amendments thereto received by
ATC. Except as set forth on Schedule 3.08, each of the ATC Filings (i) has been
timely filed, subject to any allowable extensions, (ii) was prepared in all
material respects in accordance with the requirements of the Securities Act or
Exchange Act, as the case may be, and the Rules and Regulations thereunder and
(iii) did not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. The ATC Filings constitute all of the documents
required to be filed with the SEC since February 28, 1991.
SECTION 3.09. FINANCIAL STATEMENTS. The audited financial statements of
ATC for the years ending February 28, 1994, 1993 and 1992 (the "ATC Audited
Financial Statements") fairly present the financial position of ATC and its
consolidated subsidiaries as of the date thereof and their consolidated results
of operations, cash flows and stockholders' equity for the periods then ended,
all in conformity with generally accepted accounting principles applied on a
consistent basis. The unaudited consolidated financial statements of ATC for
the six months ended August 31, 1994 and 1993 (the "ATC Unaudited Financial
Statements"), and, collectively with
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the ATC Audited Financial Statements (the "ATC Financial Statements"), were
prepared in a manner consistent with the basis of presentation used in
the ATC Audited Financial Statements and reflect all adjustments necessary,
in the opinion of management (consisting of only normal recurring adjustments),
for a fair presentation of the financial position and condition of ATC and its
consolidated subsidiaries as of and for the periods indicated.
SECTION 3.10. NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule
3.10 (the "ATC Disclosed Liabilities"), ATC has no liabilities or obligations of
any nature (absolute, accrued, contingent or otherwise) herein "ATC
Liabilities"), required by generally accepted accounting principles to be
disclosed, except (a) ATC Liabilities which are accrued in the ATC Financial
Statements, (b) ATC Liabilities incurred in the ordinary course of business
since August 31, 1994 and consistent, in type and amount, with past practice,
(c) ATC Liabilities incurred in connection with its acquisition of the asset of
Contest, Inc. on October 1, 1994, and (d) expenses incurred in connection with
this Agreement and its performance, the ATC meeting and the implementation of
the business to be transacted and the preparation and filing of the S-4
Registration Statement.
SECTION 3.11. NO MATERIAL ADVERSE CHANGE. Except as set forth on Schedule
3.11, since August 31, 1994, there has been no material adverse change in the
consolidated financial position, business, operations, consolidated results of
operations or prospects of ATC and ATC Subsidiaries taken as a whole, from that
reflected in the ATC Financial Statements.
SECTION 3.12. ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule
3.12 and except as otherwise permitted or contemplated by this Agreement, since
August 31, 1994, neither ATC nor any ATC Subsidiary has:
(a) borrowed or agreed to borrow any funds or incurred, or assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
obligation or liability (absolute or contingent) except ATC Liabilities incurred
in the ordinary course of business and consistent with past practice and ATC
Liabilities incurred in connection with its acquisition of assets of Contest,
Inc. on October 1, 1994;
(b) paid, discharged or satisfied any Liabilities other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of ATC Liabilities reflected or reserved against
in the ATC Financial Statements or incurred in the ordinary course of business
and consistent with past practice;
(c) permitted or allowed any of its properties or assets to be
subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, exceptas to those items set forth on Schedule
3.13;
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(d) written off as uncollectible any notes (other than those reserved
against in the ATC Financial Statements);
(e) canceled any debts or waived any claims or rights of substantial
value, or sold, transferred or otherwise disposed of any of its properties or
assets, except in the ordinary course of business and consistent with past
practice;
(f) made any loan to or investment in, or acquired the assets,
business or securities of, any person (excluding intercompany obligations
between and among ATC and ATC Subsidiaries in the normal course of business and
the acquisition of assets of Contest, Inc.);
(g) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or other securities, or, directly
or indirectly, redeemed, purchased or otherwise acquired any shares of its
capital stock or other securities;
(h) made any change in any accounting principles or practices, except
as required by the Financial Accounting Standards Board and reflected in the ATC
Financial Statements;
(i) made any material capital expenditures except in the ordinary
course of business and consistent with past practice; or
(j) agreed, whether in writing or otherwise, to take any action
described in this Section 3.12, except as otherwise contemplated herein.
SECTION 3.13. TITLE TO PROPERTIES; ENCUMBRANCES. Except as set forth on
Schedule 3.13, to the best knowledge of ATC, ATC and each ATC Subsidiary have
good and marketable title to all their respective properties and assets,
including without limitation, all such properties and assets reflected in the
ATC Financial Statements and all such properties and assets purchased by ATC and
each ATC Subsidiary since August 31, 1994, except in each case for properties
and assets sold or disposed of since August 31, 1994 in the ordinary course of
business and consistent with past practice.
SECTION 3.14. LITIGATION. Except as set forth on Schedule 3.14, there are
no material actions, suits, proceedings or investigations pending against or, to
the knowledge of ATC, threatened against ATC or any ATC Subsidiary, before any
court or arbitrator or any governmental body, agency or official, and ATC does
not know or have reason to know of any basis for any such action, suit,
proceeding, investigation or claim.
SECTION 3.15. TAXES. (a) Except as set forth on Schedule 3.15, ATC has
duly filed or caused to be filed with the appropriate governmental authorities
all Federal, State, local and foreign tax reports and returns required to be
filed by it or any ATC Subsidiary, subject to any allowable extension periods,
and has maintained, or caused to be maintained, all required records with
respect to taxes, and has duly paid in full or caused to be duly
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paid in full, or has established or caused to be established in the ATC
Financial Statements reserves adequate for payment of, all Federal,
State, local and foreign taxes and other charges due or claimed to
be due from each of them by Federal, State, local or foreign taxing
authorities for all periods up to and including the date of this Agreement.
As of the time of filing, the foregoing tax reports and returns correctly
reflected the facts regarding the income, business, assets, operations and
activities of ATC and ATC Subsidiaries or any other information
to be shown thereon. ATC and all ATC Subsidiaries have timely paid all taxes
that have been shown as due and payable on such tax reports and returns. ATC
and ATC Subsidiaries are not delinquent in the payment of any taxes.
(b) Except as set forth on Schedule 3.15, the Federal, State and local tax
returns of ATC and ATC Subsidiaries have not been audited by the respective
governmental authorities, or the statute of limitations with respect to income
taxes have all expired for all taxable periods ending prior to the date hereof.
(c) All deficiencies and assessments resulting from any examination of the
Federal, State and local tax returns and reports of ATC and all ATC Subsidiaries
have been paid, finally settled, or adequately provided for in the ATC Financial
Statements, and no issue resulting in an adjustment has been raised by the IRS
or relevant State or local authorities in any examination which, by application
of similar principles, reasonably could be expected to result in a proposed
deficiency for any other period not so examined.
(d) Except as set forth in Schedule 3.15, the tax returns of ATC and each
ATC Subsidiary required to be filed in any jurisdiction outside of the United
States have been audited (or its applicable equivalent) by the relevant taxing
authorities or have been closed without audit (or its applicable equivalent) or
the statutes of limitation in such jurisdictions have all expired for all
taxable periods ending prior to the date hereof.
(e) All deficiencies and assessments resulting from any examination of the
tax returns and reports referred to in subparagraph (d) hereof of ATC and each
ATC Subsidiary have been paid, finally settled, or adequately provided for in
the ATC Financial Statements, and no issue has been raised by any of the
relevant taxing authorities in any such examination resulting in an adjustment
which, by application of similar principles, could reasonably be expected to
result in a proposed deficiency for any other period not so examined.
(f) Except as set forth on Schedule 3.15, to the best knowledge of ATC, no
deficiency for any taxes has been proposed, asserted, or assessed against ATC or
ATC Subsidiaries (other than deficiencies or assessments referred to in
subparagraphs (c) or (e) hereof, which deficiencies or assessments have either
been paid, finally settled, or adequately provided for in the ATC Financial
Statements), and neither ATC nor any ATC Subsidiary has reason to believe that
any such deficiency will be proposed, asserted or assessed. There has been no
intentional disregard of any statute,
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regulation, rule or revenue ruling in the preparation of any tax return that
would result in a material increase in any tax liability for any period
that remains open to adjustment.
(g) Except as set forth on Schedule 3.15, amounts have been withheld and
paid over to the appropriate governmental authorities by ATC and ATC
Subsidiaries from their respective employees for all prior periods in compliance
with the tax withholding provisions of all applicable Federal, State, local and
foreign laws.
(h) Except as set forth on Schedule 3.15, amounts have been withheld and
paid over to the appropriate governmental authorities by ATC and ATC
Subsidiaries from any payments made in respect of which a withholding obligation
is imposed, in compliance with the withholding provisions or "collection at
source" provisions of all applicable Federal, State, local and foreign laws.
SECTION 3.16. NO FINDERS' FEES. There is no investment banker, broker,
finder or other intermediary which or who has been retained by, or is authorized
to act for, ATC in connection with the transactions contemplated by this
Agreement or is otherwise entitled to payment of any fee or commission.
SECTION 3.17. INSURANCE. All policies of fire, liability, workmen's
compensation, title and other forms of insurance owned or held by ATC or any of
the ATC Subsidiaries which are material to the business, properties or financial
condition of ATC, and ATC Subsidiaries taken as a whole (a) are in full force
and effect, (b) are sufficient for compliance with all requirements of law and
of all agreements to which ATC or any of the ATC Subsidiaries is a party, (c)
provide, in ATC's best judgment adequate insurance coverage for the assets and
operations of ATC and the ATC Subsidiaries and (d) will not in any way be
affected by or terminate or lapse by reason of the transactions contemplated by
this Agreement. Additionally, ATC will use its best efforts (including but not
limited to, making timely payment of all premiums due and performing all other
obligations imposed on ATC by such policies) to cause such policies to remain in
full force and effect through the effective dates.
SECTION 3.18. BENEFIT PLANS.
(a) Except as set forth on Schedule 3.18, ATC does not maintain or
contribute to any "employee pension benefit plan" ("ATC Pension Plan") as such
term is defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), including, solely for the purpose of this
subsection, a plan excluded from coverage by Section 4(b)(4) or Section 4(b)(5)
of ERISA. All such ATC Pension Plans have been maintained in substantial
compliance with ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"). No ATC Pension Plan is a "multi-employer plan" as defined in Section
3(37) or Section 4001(a)(3) or ERISA. ATC does not have any obligation to
contribute to (or any other liability or potential liability with respect to)
any multi-employer plan and ATC has not incurred any current or potential
withdrawal liability as a result of a complete or partial withdrawal (or
potential withdrawal) from any multi-employer plan.
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ATC has no liability with respect to any ATC Pension Plan, except for those
liabilities reflected on the ATC Financial Statements.
(b) Except as set forth on Schedule 3.18, ATC does not maintain or
contribute to any "employee welfare benefit plan" ("ATC Welfare Plan"), as such
term is defined in Section 3(1) of ERISA (including a plan excluded from
coverage by Section 4(b)(4) of ERISA), whether insured or otherwise, ATC has not
established or contributed to any "voluntary employees' beneficiary association"
within the meaning of Section 501(c)(9) of the Code. All such ATC Welfare Plans
have been maintained in substantial compliance with the Code and with ERISA.
ATC has no liability with respect to any ATC Welfare Plan, except for those
liabilities reflected on the ATC Financial Statements.
(c) (i) With respect to all ATC Pension Plans and ATC Welfare Plans, and
all related trusts, insurance contracts and funds (the "Plans"), ATC is in
substantial compliance with the requirements prescribed by any and all statutes,
governmental or court orders, or governmental rules or regulations currently in
effect, including but not limited to ERISA and the Code applicable to the Plans.
Neither ATC nor any fiduciary (as defined in Section 3(21) of ERISA) has engaged
in any transaction with respect to the Plans which could subject ATC, any
fiduciary of the Plans or any party dealing with the Plans to a civil penalty
assessed pursuant to Section 502(i) or ERISA or the tax or penalty on prohibited
transactions imposed by Section 4975 of the Code. No fiduciary has any
liability for breach of any fiduciary duty or any other failure to act or comply
in connection with the administration or investment of the assets of the Plans.
No actions, suits or claims with respect to the assets of the Plans (other than
routine claims for benefits) are pending or threatened which could result in or
subject ATC to any liability, and ATC does not have any knowledge, after due
inquiry, of any facts which could give rise to or be expected to give rise to
any such actions, suits or claims;
(ii) all required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, and Summary Plan Descriptions) with respect to
all ATC Pension Plans and all ATC Welfare Plans, have been appropriately filed
or distributed to participants, and ATC is in substantial compliance with the
requirements of Part 6 of Subtitle B of Title I of ERISA and Section 162(k) or
Section 4980(B) of the Code and the accompanying regulations, whether proposed
or final.
(iii) with respect to all ATC Pension Plans and all ATC Welfare Plans,
ATC has furnished Aurora true and complete copies of (a) the plan documents and
summary plan descriptions, (b) the most recent determination letters received by
the Internal Revenue Service, (c) the latest Form 5500 which was filed, and (d)
all related trust agreements, insurance contracts or other funding agreements
which implement all ATC Pension Plans and all ATC Welfare Plans; and
(iv) with respect to all ATC Pension Plans and ATC Welfare Plans, all
contributions which are due (including all
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employer contributions and employee salary reduction contributions) have been
paid to such plans. All contributions for prior plan years which are not yet
due and with respect to the current plan year through the date hereof have
been made or accrued. ATC has not received any notice from the insurer, agent
or broker of the cancellation of, or disallowance of any claim under or any
increase in premium in respect of, the ATC Pension Plans, ATC Welfare Plans
or insurance contracts underlying any of such policies.
(d) Except as set forth on Schedule 3.18, ATC does not maintain or
contribute to any bonus, incentive compensation, stock option, stock purchase,
or other fringe benefit plan or program, whether formal or informal.
(e) ATC has no commitment which is legally binding or has been
communicated to employees to create any additional ATC Pension Plan or ATC
Welfare Plan, or to modify or change any existing ATC Pension or ATC Welfare
Plan.
SECTION 3.19. BANK ACCOUNTS. Except as set forth on Schedule 3.19,
amounts on deposit in any account maintained with any financial institution do
not exceed the maximum amount of depository insurance available from any federal
or state authority with respect to such account; provided, however, that nothing
herein shall be deemed to require ATC or any ATC Subsidiary to maintain accounts
only with financial institutions whose deposits are so insured.
SECTION 3.20. CONTRACTS AND COMMITMENTS. Except as set forth on Schedule
3.20, with respect to subsections (a) through (d) below, neither ATC nor any ATC
Subsidiary:
(a) is a party to any material contract, agreement, arrangement or
commitment of whatever nature, kind or description which was not entered into
the normal course of business and consistent with past practice;
(b) has any agreement restricting it from carrying on its business or
any part thereof anywhere in the world or from competing in any line of business
with any person;
(c) has any outstanding loan to any person;
(d) has any obligation or liability as guarantor, surety, consignor,
endorser, co-maker, indemnitor or otherwise in respect of the obligation of any
other person.
SECTION 3.21. PROXY MATERIALS AND REGISTRATION STATEMENTS. The
information regarding ATC and ATC Subsidiaries to be contained in the Proxy
Statement to be mailed to the shareholders of Aurora pursuant to Section 6.02
hereof, the information regarding ATC and ATC Subsidiaries in the Registration
Statement of ATC filed pursuant to Section 6.02, and all other information
included in such Proxy Statement and Registration Statement (except information
furnished by Aurora expressly for use therein) will be correct in all material
respects, will not contain any untrue statement of a
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material fact and will not omit any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. ATC will
promptly inform Aurora of the happening of any event prior to the Effective
Time which would render any such information materially incorrect or require
the amendment of the Registration Statement and/or the Joint Proxy Statement.
SECTION 3.22. PERMITS AND OTHER OPERATING RIGHTS; COMPLIANCE WITH LAWS.
Except as set forth on Schedule 3.22, to the best knowledge of ATC,
(a) (i) neither ATC nor any ATC Subsidiary requires the consent of any
third party to permit it to operate its business in the manner in which it
presently is being conducted, except as heretofore obtained and presently in
effect.
(ii) ATC and each ATC Subsidiary possess all permits and other
authorizations from third parties, including without limitation, federal,
foreign, state and local governmental authorities, presently required by
applicable provisions of law, including statutes, regulations and existing
judicial decisions, and by the property and contract rights of third parties,
necessary to permit them to operate their businesses in the manner in which they
presently are being conducted, or in which it is contemplated that they will be
conducted, and
(iii) none of the permits and authorizations are dependent on
retention of any person, organization, agent or employee or the maintenance of
any relationship or arrangement, other than performance of contractual
obligations under contracts disclosed elsewhere herein;
(b) ATC and ATC Subsidiaries have complied with, and are not in default
under, any laws, rules, regulations, ordinances or orders applicable to the
business or operations of ATC or any ATC Subsidiary. Any failure to comply with
any laws, rules, regulations, ordinances or orders or any default thereof would
not in the aggregate have a material adverse effect on the business, financial
condition, results of operations, operations or prospects of ATC and ATC
Subsidiaries taken as a whole; and
(c) neither ATC nor any ATC Subsidiary, nor to ATC's knowledge, any
officer or director of ATC or any ATC Subsidiary, nor any employee, agent or
representative, of ATC or any ATC Subsidiary has made, directly or indirectly,
with respect to the business of ATC or any ATC Subsidiary, any political
contributions, payments from corporate funds not recorded on the books and
records of ATC or any ATC Subsidiary, payments from corporate funds that were
falsely recorded on the books and records of ATC or any ATC Subsidiary, or
payments from corporate funds to governmental officials in their individual
capacities for the purpose of affecting their action or the action of the
government they represent to obtain favorable treatment in securing business or
licenses or to obtain special concessions or illegal payments from corporate
funds to obtain or retain business.
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SECTION 3.23. FACILITIES AND EQUIPMENT. Except as set forth on Schedule
3.23, neither ATC nor any ATC Subsidiary has received notification that it is in
violation of any applicable building, zoning, anti-pollution, health or other
law, ordinance or regulation in respect of its facilities or structures or their
operations and no such violation exists.
SECTION 3.24. PROPRIETARY RIGHTS. To the best knowledge of ATC, neither
ATC nor any ATC Subsidiary has infringed, and is not now infringing, on any
Proprietary Rights belonging to any other person, which infringement, in the
aggregate, would have a material adverse effect on the business, financial
condition, results of operations, operations or prospects of ATC and the ATC
Subsidiaries, taken as a whole. Except as set forth on Schedule 3.24, neither
ATC nor any ATC Subsidiary is a party to any material license, agreement or
arrangement with respect to any Proprietary Rights. ATC and the ATC
Subsidiaries hold adequate licenses or other rights to use all Proprietary
Rights used in or necessary for the business of ATC and the ATC Subsidiaries,
taken as a whole.
SECTION 3.25. CERTAIN TRANSACTIONS. ATC is not indebted, either directly
or indirectly to any of its officers, directors or any "affiliate" or
"associate" (as such terms are defined in the Rules and Regulations of the SEC
under the Securities Act) of ATC or of its officers or directors in any amount
whatsoever; nor are any of its officers, directors, affiliates or associates
indebted to ATC, except as set forth on Schedule 3.25, nor are there, except as
described in ATC's Form 10-K for the year ended February 28, 1994, any
transactions of a continuing nature between ATC and any of its officers,
directors, affiliates or associates not subject to cancellation which will
continue beyond the Effective Time, including without limitation, use of ATC's
assets for personal benefit with or without adequate compensation.
SECTION 3.26. CERTAIN TAX REPRESENTATIONS.
(a) The fair market value of the ATC Common Stock to be received by each
shareholder of Aurora will be approximately equal to the fair market value of
the Aurora stock surrendered in exchange therefor.
(b) Following the transaction, ATC will continue the historic business of
Aurora (which, in accordance with Rev. Rul. 85-197, 1985-2 C.B. 120, would be
the historic business of ATC) or use a significant portion of Aurora's historic
business assets (which in accordance with Rev. Rul. 85-197, 1985-2 C.B. 120,
would be ATC's historic business assets) in a business.
(c) No two parties to the transaction are "investment companies" as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. An investment
company is defined, in general terms, as (a) a regulated investment company, (b)
a real estate investment trust, or (c) a corporation 50% or more of the value of
whose total assets are stock and securities and 80% or more of the value of
whose total assets are assets held for investment. Total assets exclude cash
and cash items. In making the 50% and 80% determination,
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stock and securities in any subsidiary corporation should be disregarded and the
parent corporation is deemed to own its ratable share of the subsidiary's
assets.
(d) There is no intercorporate indebtedness existing between Aurora and
ATC which was issued, or will be settled at a discount.
(d) ATC has no plan or intention to reacquire any of its stock issued to
the shareholders of Aurora in the proposed transaction.
(f) ATC and the shareholders of Aurora will each pay their own expenses,
if any, incurred in connection with the transaction.
(g) ATC has no plan or intention to sell or otherwise dispose of any of
the assets of Aurora acquired in the transaction, except for dispositions made
in the ordinary course of business or transfers described in Section
368(a)(2)(C) of the Internal Revenue Code.
(h) The payment of cash in lieu of fractional shares of ATC Common Stock
is solely for the purpose of avoiding the expense and inconvenience to ATC of
issuing fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the
transaction to the Aurora shareholders, instead of issuing fractional shares of
ATC Common Stock, will not exceed 1% of the total consideration that will be
issued in the transaction to the Aurora shareholders in exchange for their
shares of Aurora Common Stock. The fractional share interests of each Aurora
shareholder will be aggregated, and no Aurora shareholder will receive cash in
an amount equal to or greater than the value of one full share of ATC stock.
(i) The fair market value of the assets of Aurora transferred to ATC will
exceed the sum of the liabilities to be assumed by ATC plus the amount of
liabilities, of any, to which the transferred assets are subject.
(j) The adjusted basis of the assets of Aurora transferred to ATC will
exceed the sum of the liabilities to be assumed by ATC plus the liabilities, if
any, to which the transferred assets are subject.
(k) No consideration other than shares of ATC Common Stock, cash in lieu
of fractional shares and cash paid to holders who dissent to the Merger will be
received, either directly or indirectly in the Merger, by holders of the shares
of Aurora Common Stock.
(l) None of the compensation received by any shareholder-employee of
Aurora will be separate consideration for, or allocable to, any of their shares
of Aurora Common Stock; none of the shares of ATC Common Stock received by any
such shareholder-employees will be separate consideration for, or allocable to,
any employment agreement; and the compensation paid to any such shareholder-
employees will be for services actually rendered and will be
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commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
(m) ATC at or before the Effective Time will have ascertained that there
is no plan or intention by the shareholders of Aurora who own five percent or
more of the Aurora stock, and to the best of the knowledge of the management of
Aurora and ATC (the knowledge of Management of ATC being inclusive of the
Management of Aurora) there is no plan or intention on the part of remaining
shareholders of Aurora to sell, exchange or otherwise dispose of a number of
shares of ATC Common Stock received in the transaction that will reduce the
Aurora shareholders' ownership of such stock to a number of shares having, as of
the date of the transaction, a value of less than fifty percent of the total
value of all the formerly outstanding stock of Aurora as of the same date. For
purposes of this representation, shares of Aurora Common Stock and shares of ATC
Common Stock held by Aurora shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the transaction will be considered in making
this representation.
(n) The liabilities of Aurora to be assumed by ATC and the liabilities to
which the transferred assets of Aurora are subject were ascertained by ATC to
have been incurred by Aurora in the ordinary course of business and are
associated with the assets to be transferred.
SECTION 3.27. DISCLOSURE. No representation or warranty made by ATC in
this Agreement or the Schedules hereto and no statement relating to ATC and the
ATC Subsidiaries contained in any document, financial statement, disclosure
statement, certificate or other writing furnished or to be furnished by ATC to
Aurora and/or any person pursuant to the provisions hereof or in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated herein or therein or necessary in order to make the
statements herein or therein not misleading; provided, however, that no
representation or warranty is made hereby with respect to Aurora.
ARTICLE IV
CONDUCT OF AURORA BUSINESS PENDING THE EFFECTIVE TIME
Pending the Effective Time, and except as otherwise consented to or
approved by ATC in writing, which consent or approval shall not be unreasonably
withheld:
SECTION 4.01. REGULAR COURSE OF BUSINESS. Aurora will conduct its
business in substantially the same manner as heretofore conducted and Aurora
will not engage in any transaction or activity, enter into any agreement or make
any commitment, except for (a) changes which are not in the aggregate material;
(b) otherwise in the ordinary course of business and consistent as to the type
of action and amounts involved with past practice; or (c) the continuation of
present or proposed capital formation through debt or equity financing. Aurora
will not take any action
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the taking of which, or omit to take any action the omission of which, would
cause any of the representations or warranties contained in Article II to fail
to be true in any material respect at and as of any time prior to the Effective
Time, except as otherwise permitted by this Agreement.
SECTION 4.02. CHARTER DOCUMENTS AND CAPITAL CHANGES. Except as expressly
contemplated by this Agreement, Aurora will not (a) change or amend its Articles
of Incorporation, By-Laws or organizational documents, (b) issue or sell, nor
issue options, warrants to purchase or rights to subscribe to, or enter into
any arrangement or contract with respect to, any share of its capital stock or
any of its other securities or ownership interest (other than employee options
to new hires), or (c) make any other changes in its capital structure.
SECTION 4.03. COMPENSATION. Aurora will not, without the consent of ATC,
adopt any new compensation arrangement for the benefit of officers, directors,
agents, consultants, partners or employees or amend any existing compensation
arrangement for the benefit of officers, directors, agents, consultants,
partners or employees where such amendment provides for terms more favorable
than presently provided for.
SECTION 4.04. STOCK OPTION PLANS. No further options will be issued under
Aurora's Stock Option Plans at or before the Effective Time.
SECTION 4.05. COMPLIANCE WITH LAWS. Aurora will use its best efforts to
duly comply with all laws applicable to it and its properties, operations,
business and employees.
SECTION 4.06. TAX RETURNS. Aurora will prepare and file all federal,
state, local and foreign tax returns and amendments thereto required to be filed
by it for all periods ending at the Effective Time, subject to any extensions of
time granted with respect thereto. Aurora shall provide ATC a reasonable
opportunity to review all income tax returns and amendments thereto, whether
filed or being prepared for filing, and Aurora shall file such returns and any
amendments thereto that ATC determines are reasonably necessary or desirable.
SECTION 4.07. PROPERTIES; CONTRACTS. Aurora will (a) maintain and keep
its properties in good repair and condition in all material respects, except for
ordinary wear and tear and damage due to casualty or other extraordinary
occurrence, and (b) perform all its material obligations under contracts, leases
and other agreements relating to or affecting Aurora's business.
SECTION 4.08. DIVIDENDS, ETC. Aurora will not declare, pay or set aside
for payment any dividend or distributions, including a distribution of rights,
in respect of its capital stock or redeem, purchase or otherwise acquire any
shares of its capital stock, except as otherwise contemplated by the terms of
this Agreement.
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SECTION 4.09. PAYMENT OBLIGATIONS. Except as required pursuant to Section
4.08 hereof or otherwise in accordance with Aurora's business in the ordinary
course (as hereinafter defined), Aurora will not pay, discharge or satisfy any
claim, liability or obligation (absolute, accrued, contingent or otherwise)
where the amount of each such payment, discharge or satisfaction exceeds $10,000
individually and $30,000 in the aggregate. "Ordinary course" for purposes of
this Section shall mean claims, liabilities or obligations incurred on a regular
basis consistent as to type and in amount with past practice and which are
reasonably expected to occur on a regular basis in the future.
ARTICLE V
CONDUCT OF ATC BUSINESS OF
PENDING THE EFFECTIVE TIME
Pending the Effective Time, and except as otherwise consented to or
approved by Aurora in writing, which consent or approval shall not be
unreasonably withheld:
SECTION 5.01. REGULAR COURSE OF BUSINESS. ATC will use its best efforts
to, and will use its best efforts to cause each ATC Subsidiary to, conduct its
business with sound business policy and efficient and economical management, in
the same manner as heretofore conducted.
SECTION 5.02. CHARTER DOCUMENTS. Except as otherwise permitted or
contemplated by this Agreement, ATC will not, and will use its best effort to
not permit any ATC Subsidiary to change or amend its Certificate of
Incorporation, By-Laws or organizational documents, except to effect the
amendment to its Certificate of Incorporation to the extent (if at all) and in
the manner contemplated herein.
SECTION 5.03. ORGANIZATION AND GOOD WILL. ATC will, and will use its best
efforts to cause each ATC Subsidiary to, use its reasonable efforts consistent
with the terms of this Agreement to preserve its business, business organization
and good will, keep available to ATC or such ATC Subsidiary its present officers
and key employees, and preserve its present relationships with persons having
business dealings with it.
SECTION 5.04. COMPLIANCE WITH LAWS. ATC will use its best efforts to, and
will cause each ATC Subsidiary to use its best efforts to, duly comply with all
laws applicable to it and its properties, operations, business and employees.
SECTION 5.05. SEC REPORTS. ATC will duly file all reports required to be
filed by it with the SEC pursuant to the Exchange Act and all other reports
required by law to be filed. None of such reports will contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
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SECTION 5.06. NO DISPOSITIONS. From the date of this Agreement until the
Effective Time, ATC will not enter into any agreement to sell substantially all
of its assets or business or merge or consolidate with any other entity whereby
ATC is not the surviving entity or permit any other person to merge with ATC
where ATC is the surviving entity but, in connection with such merger, the
securities of ATC are changed into or exchanged for stock or other securities or
property of any other person.
SECTION 5.07. INSURANCE. ATC will maintain, and will use its best efforts
to cause each ATC Subsidiary to maintain, insurance on all property, real
personal and mixed, owned or leased by them, in the manner contemplated herein.
SECTION 5.08. TAX RETURNS. ATC will prepare and file all federal, state,
local and foreign tax returns and amendments thereto required to be filed by it
subsequent to the date hereof, subject to any extensions of time granted with
respect thereto.
SECTION 5.09. PROPERTIES; CONTRACTS. ATC will use its best efforts to
cause each ATC Subsidiary to (a) maintain and keep its properties in good repair
and condition in all material respects, except for the ordinary wear and tear
and damage due to casualty or other extraordinary occurrence, and (b) perform
all its material obligations under contracts, leases and other agreements
relating to or effecting its business.
SECTION 5.10. DIVIDENDS, ETC. ATC will not declare, pay or set aside for
payment any dividend or distributions, including a distribution of rights, in
respect of its capital stock or redeem, purchase or otherwise acquire any shares
of its capital stock.
SECTION 5.11. NASDAQ LISTING. ATC will use its best efforts to cause its
shares of Common Stock to be maintained on the NASDAQ System.
ARTICLE VI
COVENANTS OF ATC AND AURORA
Aurora hereby covenants and agrees with ATC, and ATC and Aurora hereby
covenants and agrees with Aurora:
SECTION 6.01. APPROVAL OF SHAREHOLDERS. Each Constituent Corporation
shall (a) cause a meeting of its respective shareholders to be duly called and
held in accordance with the laws of the State of Delaware and its respective
Certificate of Incorporation and By-Laws as soon as reasonably practicable for
the purpose of voting on the adoption and approval of this Agreement and the
Merger (the "Proposal"), (b) recommend to its respective shareholders approval
of the Proposal, (c) use best efforts to obtain the necessary approval of its
respective shareholders and the Atlantic Bank of New York, (d) mail notice of
each Constituent Corporation's shareholders' approval of the Proposal, if
approved, to all of its respective shareholders immediately following each
Constituent Corporation's shareholders' meeting, and (e) in
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cooperation with each other mail to shareholders immediately after the Effective
Time a transmittal letter in form and substance reasonably satisfactory to ATC
to be used by such shareholders in forwarding their certificates for surrender
and exchange.
SECTION 6.02. SECURITIES LAW COMPLIANCE. (a) ATC will promptly prepare
and file a Registration Statement on Form S-4 under the Securities Act (the
"Merger Registration Statement"), covering the issuance of (i) ATC Stock into
which Aurora Stock outstanding at the Effective Time of the Merger is to be
converted, exclusive of shares of Aurora Stock with respect to which appraisal
rights have been properly exercised in accordance with the GCL, and (ii) such
additional securities as may be required to be registered to effectuate the
transactions contemplated hereby, including without limitation the exercise of
Aurora Stock Options and Warrants into shares of Common Stock of ATC at any time
after the Effective Time until the applicable expiration date(s) of each
respective security. The Merger Registration Statement shall contain the Joint
Proxy Statement, a form of proxy in connection with the vote of each Constituent
Corporation's shareholders with respect to the Proposal. (The prospectus
contained in such Proxy Statement or Merger Registration Statement, as the case
may be, together with any amendments thereof or supplements thereto, in the form
mailed to each Constituent Corporation's shareholders, is herein called the
"Prospectus/Proxy Statement"). ATC will use its best efforts to cause the
Merger Registration Statement to become effective as soon as practicable after
the filing thereof. ATC represents and warrants to Aurora that at the time the
Merger Registration Statement becomes effective (it being understood that the
Prospectus/Proxy Statement included within the Merger Registration Statement
will not be publicly distributed prior to its effective date), the Merger
Registration Statement will comply in all material respects with the provisions
of the Securities Act and the Exchange Act and the Rules and Regulations
thereunder, and that it will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading at the time the Merger Registration Statement becomes
effective and as amended or supplemented by ATC at the time of the shareholders'
meeting held by both ATC and Aurora; provided, however, that no representation
or warranty is made hereby with respect to information contained in such Merger
Registration Statement which is furnished by Aurora expressly for use in such
Merger Registration Statement.
(b) ATC will take any action required to be taken under applicable state
securities laws and ATC will also take action to secure all necessary exemptions
or clearance under all state securities laws applicable to the Merger and the
issuance of ATC Stock pursuant thereto.
SECTION 6.03. FULL ACCESS/AUDIT. Each of ATC and Aurora has afforded and
will continue to afford to the other, its counsel, accountants and other
authorized representatives, full access to the offices, properties, books and
records of it and its
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subsidiaries in order that each may have full opportunity to make such
investigations as they shall desire to make of the affairs of the other.
Each of ATC and Aurora will also cause its officers, accountants and
attorneys to furnish such additional financial and operating data and other
information as the other shall from time to time reasonably request.
SECTION 6.04. CONFIDENTIALITY. Until the Effective Time, or, in the event
of the termination of this Agreement pursuant to Article XI, from the date of
such termination, Aurora and ATC and their respective consultants, advisors,
officers and directors shall hold in confidence and not divulge or use any
confidential or proprietary information of the other obtained from any
investigation of the other referred to in the preceding Section, or given to
them by the other or by others performing services for the other or in a
confidential relationship with the other, except with the other parties consent
or to the extent (a) required by law, (b) otherwise available from third parties
or (c) previously known to it. Neither Aurora and ATC will misuse to the
detriment of the other material confidential or proprietary information obtained
from the other.
SECTION 6.05. COOPERATION. ATC and Aurora will generally cooperate with
each other and take such reasonable action as may be necessary to consummate the
Merger in a manner advantageous to all parties as soon as reasonably
practicable, including furnishing to each other, or reviewing, the information
relating to each of them required by applicable statutes, rules and regulations
for the purpose of preparing the Registration Statements and state securities
law filings, using their best efforts to respond to the comments of the SEC or
state securities law administrators, causing the Prospectus/Joint Proxy
Statement to be mailed to each of ATC's and Aurora's shareholders as promptly as
practicable following the Effective Date of the Form S-4 Registration Statement.
Each such corporation covenants that all such information furnished to the
others or reviewed by them will be true and correct to the best knowledge of
such corporation. ATC and Aurora will promptly notify each other of any
comments or requests for additional information from the SEC or state securities
law administrators, and will supply each other with copies of all correspondence
between them or their representatives and the SEC or members of its staff or
state securities law administrators, with respect to the Registration
Statements, state securities law matters, or the Merger.
SECTION 6.06. FILINGS; CONSENTS; REMOVAL OF OBJECTIONS. It is the intent
of the parties to consummate the Merger at the earliest practicable time, and
they respectively agree to exert their best efforts to that end, including,
without limitation, the preparation and filing of all requisite applications,
documents and notifications in connection with the transactions contemplated
herein required by applicable law and will use their best efforts to respond as
promptly as practicable to all inquiries in connection therewith, the removal or
satisfaction, if possible, of any objections to the validity or legality of the
Merger, and the satisfaction of the conditions to consummation of the Merger,
including, without limitation, the obtaining of any consents
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necessary to the consummation of the Merger; provided, however, that in the
event ATC and/or Aurora propose in connection with obtaining any such necessary
consent, to alter or modify in any material respect the terms of any existing
contract, agreement, or arrangement, or to undertake any new material
obligation, the prior consent of the other party shall be required.
SECTION 6.07. PUBLIC ANNOUNCEMENTS. ATC and Aurora will consult with each
other before issuing any press release or making any public statement with
respect to the Merger and, except as may be required by applicable law or NASD
rules, will not issue any such press release or make any such public statement
prior to such consultation.
SECTION 6.08. NOTIFICATION OF CERTAIN MATTERS. Aurora and ATC agree to
give prompt notice to the other parties of (a) the occurrence, or failure to
occur, of any event or circumstance where such occurrence or failure to occur
would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time and (b) any material failure of such party
to comply with or satisfy any covenant, condition or agreement or to be complied
with or satisfied by it hereunder; provided however, that no such notification
shall affect the representations or warranties of the parties or the conditions
to the obligations of the parties hereunder. In addition, the parties will
supplement or amend the Schedules annexed hereto with respect to any matter
arising after the date of this Agreement which, if existing, occurring or known
on such date would have been required to be set forth or described in a Schedule
or which is necessary to correct any information in a Schedule which has been
rendered inaccurate thereby (provided no such supplement shall have any effect
for purpose of satisfaction of the conditions in Sections 7.01 and 8.01 hereof).
SECTION 6.09. FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of Aurora, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
Aurora, any other actions and things to vest, perfect to confirm or record or
otherwise in the Surviving Corporation any and all right, title and interest in,
to and under any of the rights, properties or assets of Aurora acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger.
SECTION 6.10. FORM 10C. ATC will, within ten days following the Effective
Time, file with the SEC and NASD a report on Form 10-C ("Form 10-C") reporting
the issuance of ATC Stock pursuant to the Merger. Within fifteen days prior to
the Effective Time, ATC will notify NASDAQ of the pending merger and will file
an additional listing application as required by NASDAQ.
SECTION 6.11. REPORTS TO AURORA. ATC will promptly furnish to Aurora a
copy of each document publicly filed by it under the Securities Act and the
Exchange Act subsequent to the date of this
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Agreement until the Effective Time, and will promptly advise Aurora in writing
of any material adverse information concerning the business, financial
condition, results of operations, operations or prospects of ATC between
the effective date of the Registration Statement and the Effective Time.
SECTION 6.12. AFFILIATES. Aurora shall, prior to the Effective Time,
cause to be delivered to ATC a list, reviewed by its counsel and reasonably
satisfactory to ATC, identifying all persons who are, in its opinion,
"affiliates" for purposes of Rule 145 under the Securities Act (a "Rule 145
Affiliate"). Aurora shall furnish such information and documents as ATC may
reasonably request for purposes of reviewing such list. ATC shall use its best
efforts to cause each person who is identified as a Rule 145 Affiliate in the
list furnished pursuant to this Section to execute a written agreement on or
prior to the Effective Time, (an "Affiliate Agreement") regarding the resale
of their securities in compliance with Rule 145.
ARTICLE VII
CONDITIONS TO ATC OBLIGATION
TO MAKE THE MERGER EFFECTIVE
The obligations of ATC to cause the Merger to become effective are subject
to the satisfaction, at or before the Effective Time, of each of the following
conditions, all or any of which may be waived by ATC in whole or in part except
for Sections 7.02 and 7.03:
SECTION 7.01. REPRESENTATIONS AND WARRANTIES TRUE; FULL PERFORMANCE. The
representations and warranties of Aurora contained herein and in the Schedules
hereto, and in the written disclosures heretofore provided by Aurora to ATC in
writing, and in all certificates and other documents delivered by Aurora to ATC
pursuant hereto or in connection with the transactions contemplated hereby shall
be in all material respects true and accurate as of the date when made and at
and as of the Effective Time as though such representations and warranties were
made at and as of such date and time. ATC shall have fully performed and
complied in all material respects with all obligations, covenants and agreements
required by this Agreement to be performed or complied with by it at or prior to
the Effective Time, except as otherwise permitted by this Agreement, and shall
have delivered to ATC a certificate of Aurora dated as of the Effective Time,
signed by the President and Treasurer of Aurora and certifying in such detail as
ATC may reasonably request the fulfillment of the conditions set forth in this
Section 7.01 and the taking of all corporate action required to perform all
transactions contemplated by this Agreement.
SECTION 7.02. APPROVAL OF SHAREHOLDERS; APPRAISAL RIGHTS. The approval of
the shareholders of ATC and Aurora of the Proposal, as contemplated by Section
6.01 hereof, shall have been obtained.
SECTION 7.03. REGULATORY APPROVALS. All permits and consents required by
state securities laws shall have been obtained.
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SECTION 7.04. MATERIAL ADVERSE CHANGES. No material adverse change shall
have occurred in the business, financial position, results of operations,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves,
operations or prospects of Aurora since the date of this Agreement, nor shall
any event or events have occurred which may reasonably be expected to have a
material adverse effect on the business, financial condition, results of
operations, operations or prospects of Aurora.
SECTION 7.05. OPINION OF AURORA COUNSEL. Aurora shall have delivered to
ATC an opinion of Kaufmann, Feiner, Yamin, Gildin & Robbins, dated the Effective
Time, in form reasonably acceptable to ATC and its counsel. Such counsel shall
be entitled to rely on opinions of other counsel and certificates of
governmental officials and/or officers of Aurora.
SECTION 7.06. CONSENTS UNDER AGREEMENTS. Aurora shall have obtained the
consent or approval of each person whose consent or approval shall be required
in order to permit the succession by the Surviving Corporation pursuant to the
Merger to any obligation, right or interest of Aurora under any contract,
agreement, note, mortgage, indenture, lease or other agreement or instrument,
except those for which failure to obtain such consents and approvals would not,
in the reasonable option of ATC, individually or in the aggregate, have a
material adverse effect on the business, financial condition, results of
operations, operations or prospects of Aurora or of the Surviving Corporation
upon the consummation of the Merger.
SECTION 7.07. ACCOUNTANT'S LETTER. ATC shall have received a "comfort"
letter from the independent certified public accountants for Aurora, dated not
more than two business days prior to the effective date of the Merger
Registration Statement on Form S-4, addressed to Aurora, ATC, and their
respective counsel, covering such matters as ATC or its counsel shall reasonably
request with respect to facts concerning Aurora's financial condition and
customary for such certified public accountants to deliver in connection with
transactions similar to the Merger.
SECTION 7.08. AFFILIATE AGREEMENTS. Each of the Rule 145 affiliates shall
have executed and delivered an Affiliate Agreement on or before the Effective
Time.
ARTICLE VIII
CONDITIONS TO AURORA'S OBLIGATION TO
MAKE THE MERGER EFFECTIVE
The obligation of Aurora to cause the Merger to become effective is subject
to the satisfaction, on or before the Effective Time, of each of the following
conditions, all or any of which may be waived by Aurora in whole or in part,
except for Sections 8.03 and 8.04:
SECTION 8.01. REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of ATC contained herein and in the
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Schedules and in the disclosures heretofore provided by ATC to Aurora in
writing, and in all certificates and other documents delivered by ATC to Aurora
pursuant hereto or in connection with the transaction contemplated hereby shall
be in all material respects true and accurate as of the date when made and at
and as of the Effective Time as through such representations and warranties were
made at and as of such date and time, ATC shall have fully performed and
complied in all material respects with all obligations required by this
Agreement to be performed or complied with by them at or prior to the Effective
Time, except as otherwise permitted by this Agreement, and shall have delivered
to Aurora certificates of ATC dated as of the Effective Time, signed by the
President and Treasurer of ATC and certifying in such detail as Aurora may
reasonably request the fulfillment of the conditions set forth in this Section
8.01 and the taking of all corporate action required to perform all the
transactions contemplated by this Agreement.
SECTION 8.02. PERFORMANCE. ATC shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by it at or prior to the
Effective Time.
SECTION 8.03. APPROVAL OF SHAREHOLDERS. The approval of the shareholders
of each Constituent Corporation of the Proposal, as contemplated by Section 6.01
hereof, shall have been obtained.
SECTION 8.04. REGULATORY APPROVALS. All permits and consents required by
state securities laws shall have been obtained.
SECTION 8.05. MATERIAL ADVERSE CHANGES. No material adverse change shall
have occurred in the business, financial position, results of operations,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves,
operations or prospects of ATC and the ATC Subsidiaries, taken as a whole, since
the date of this Agreement, nor shall any event or events have occurred which
may reasonably be expected to have a material adverse effect on the business,
financial condition, results of operations, operations or prospects of ATC and
the ATC Subsidiaries, taken as a whole.
SECTION 8.06. OPINION OF ATC COUNSEL. ATC shall have delivered to Aurora
an opinion of Lester Morse, P.C., counsel to ATC, dated the Effective Time, in
the form reasonably acceptable to Aurora and its counsel. Such counsel shall be
entitled to rely on opinions of other counsel and certificates of governmental
officials and/or officers of ATC and ATC Subsidiaries.
SECTION 8.07. ACCOUNTANT'S LETTER. Aurora shall have received a "comfort"
letter from the independent certified public accountants for ATC, dated not more
than two business days prior to the effective date of the Merger Registration
Statement on Form S-4, addressed to Aurora, ATC, and their respective counsel,
covering such matters as Aurora or its counsel shall reasonably request with
respect to facts concerning ATC's financial condition and customary for such
certified public accountants to deliver in connection with transactions similar
to the Merger.
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SECTION 8.08. CONTINUED NASDAQ LISTING. At the Effective Time, ATC shall
be in compliance with all requirements of NASDAQ for the continued listing of
ATC Common Stock in the NASDAQ System and, giving effect to the Merger, on a pro
forma basis, such continued listing will not be adversely affected.
ARTICLE IX
ADDITIONAL CONDITIONS TO THE MERGER
SECTION 9.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of each party to consummate the Merger are subject to the
satisfaction of the following conditions:
(i) there shall not be any statute, rule or regulation, which
makes consummation of the Merger or performance of any of the transactions
contemplated hereby illegal or otherwise prohibited, or any order, decree,
injunction or judgment enjoining consummation of the Merger or performance of
such transaction; and
(ii) the Merger Registration Statement shall have been declared
effective and the prospectuses included therein shall be cleared for mailing by
the SEC, no stop order suspending such effectiveness shall have been issued or
proceeding for that purpose shall have been instituted, and the issuance of the
ATC Stock to be issued in exchange for Aurora Stock pursuant to the Merger shall
have received all Blue Sky Law authorizations necessary to carry out the
transactions contemplated thereby.
(iii) neither Aurora nor ATC shall have issued a material number
of shares or rights with respect thereto of their respective capital stocks
other than as contemplated herein or entered into any transaction or series of
transactions that could have a material adverse effect as defined in Sections
7.04 and/or 8.05 hereof, the only remedy for which shall be as provided in
Section 11.02 hereof which remedy shall not be deemed a waiver.
ARTICLE X
POST EFFECTIVE AMENDMENT TO ATC REGISTRATION STATEMENT
SECTION 10.01. EFFECTIVENESS OF ATC POST EFFECTIVE AMENDMENT TO
REGISTRATION STATEMENT. Contemporaneous with the filing of the Merger
Registration Statement on Form S-4, ATC shall prepare and file a Post Effective
Amendment to its Registration Statement on Form S-1 in connection with shares of
ATC Common Stock issuable on the exercise of ATC's Class C Warrants. Aurora
shall furnish to ATC, for inclusion in the Post Effective Amendment to the
Registration Statement, all information relating to Aurora which ATC and its
counsel may reasonably request in order for the Post Effective Amendment to the
Registration Statement to comply in all material respects with the provisions of
the Securities Act and the Rules and Regulations thereunder, and such
information, as furnished by Aurora, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be
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stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading at the time the Post
Effective Amendment to the Registration Statement becomes effective.
ATC shall cause the Post Effective Amendment to the Registration Statement
to be declared effective by the Securities and Exchange Commission at least
thirty (30) days prior to the record date for determination of shareholders
entitled to vote on the Merger Proposal, as provided for and contemplated by
Section 6.01 hereof.
ARTICLE XI
TERMINATION
SECTION 11.01. TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (whether before
or after approval of this Agreement by the shareholders of Aurora and ATC):
(a) by mutual written consent of Aurora and ATC;
(b) by either ATC or Aurora, if the Merger has not been consummated
by September 30, 1995;
(c) by either Aurora or ATC if there shall be any statute, rule or
regulation which makes consummation of the merger illegal or otherwise
prohibited or any order, decree, injunction or judgment enjoining ATC or Aurora
from consummating the Merger and such order, decree, injunction or judgment
shall have become final and non-appealable;
(d) by ATC upon the occurrence of any event that would result in a
failure of any of the conditions set forth in Articles VII, IX, X and XII
hereof; or
(e) by Aurora upon the occurrence of any event that would result in a
failure of any of the conditions set forth in Articles VIII, IX, X and XII
hereof.
SECTION 11.02. NEW FAIRNESS OPINION IN LIEU OF TERMINATION. In the event
that the Board of Directors of either ATC or Aurora believe that the other has
caused an event described in Subsection 9.01(iii) to have occurred, such Board
may demand that new fairness opinions be obtained by both constituent
corporations forthwith. If such new fairness opinions are obtained forthwith
and the Board of Directors of both ATC and Aurora agree on a new (or the same)
exchange ratio, the constituent corporations shall amend the terms of this
Agreement to reflect any adjustment to the exchange ratio in lieu of termination
under Section 11.01 above.
SECTION 11.03. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 11.01, this Agreement shall become void and of no effect
with no liability on the part of any party hereto, except that (a) the
agreements contained in Section 6.04
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shall survive the termination hereof and (b) nothing herein shall relieve
any party of any liability for wilful breach hereof.
ARTICLE XII
SECTION 12.01. CLOSING. Unless this Agreement shall have been terminated
and the Merger herein contemplated shall have been abandoned as provided in
Article XI, a closing will be held following the satisfaction or waiver of the
conditions specified in Articles VII, VIII, IX and X, but no later than the
Effective Time of the Merger.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including telex or similar writing) and
shall be given,
if to Aurora to:
Aurora Environmental Inc.
1515 East 10th Street
Sioux Falls, South Dakota 57103
Attention: Richard L. Pruitt
with copies to:
Richard H. Rosenblum, Esq.
Kaufmann, Feiner, Yamin, Gildin & Robbins
777 Third Avenue
New York, New York 10017
if to ATC, to:
ATC Environmental Inc.
104 East 25th Street
Tenth Floor
New York, New York 10010
Attention: Morry F. Rubin
with copies to:
Steven Morse, Esq.
Lester Morse, P.C.
111 Great Neck Road
Great Neck, New York 11021
or such other address as such party may hereafter specify by notice or the other
parties hereto. Each such notice, request or other communication shall be
effective (a) if given by telex, when the appropriate answerback is received or
(b) if given by any other means, when delivered at the address specified in this
Section 13.01.
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SECTION 13.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein shall terminate on the Effective
Time. This Section shall not limit any covenant or agreement of the parties
hereto which by its terms contemplates performance after the Effective Time.
SECTION 13.03. AMENDMENTS. Any provision of this Agreement may be amended
by mutual agreement of the parties hereto at any time prior to the Effective
Time; provided, however, that (a) any such amendment made after the approval of
the Proposal to the shareholders of Aurora and ATC shall not (i) alter or change
the amount or kind of consideration to be received in exchange for Aurora Stock,
(ii) alter or change any term of the Articles of Incorporation of the Surviving
Corporation other than as contemplated by this Agreement or (iii) alter or
change any of the terms and conditions of this Agreement if such alteration or
change would adversely affect the holders of any shares of Aurora or ATC Stock.
SECTION 13.04. WAIVERS. At any time prior to the Effective Time, ATC, on
one hand, and Aurora, on the other hand, may (a) extend the time for the
performance of any agreement of another party hereto, (b) waive any inaccuracy
in the representations and warranties contained herein or in any document
delivered pursuant hereto or (c) subject to the proviso in Section 13.03, waive
compliance with any agreement or condition contained herein, except Sections
7.02, 7.03, 8.03, 8.04, 9.01, 10.01 and 11.02. Any agreement on the part of any
party to any such extension or waiver shall be effective only if set forth in a
writing signed on behalf of such party and delivered to the other parties.
SECTION 13.05. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, that no party may assign or
otherwise transfer any of its rights or obligations under this Agreement without
the consent of each of the other parties hereto. This Agreement shall be
binding upon and is solely for the benefit of each of the parties hereto and
their respective successors and assigns, and nothing in this Agreement is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 13.06. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely therein.
SECTION 13.07. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
force and effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by the other parties hereto.
SECTION 13.08. ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits hereto, contains all of the terms,
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conditions and representations and warranties agreed upon by the parties
relating to the subject matter of this Agreement and supersedes all prior
and contemporaneous agreements, negotiations, correspondence, undertakings
and communications of the parties, oral or written, respecting such subject
matter.
SECTION 13.09. EXPENSES. Each of the parties hereto will bear its own
respective costs and expenses incurred in connection with this Agreement and the
transactions contemplated herein.
SECTION 13.10. EXHIBITS. The Exhibits and Schedules attached hereto are
made a part of this Agreement.
SECTION 13.11. CONFLICTS OF INTEREST. The parties to this Agreement
hereby acknowledge that the law firm of Lester Morse, P.C. represents ATC
Environmental Inc. and Aurora Environmental Inc. in certain matters unrelated to
this transaction and has been requested by the parties to represent ATC
Environmental Inc. in connection with this transaction. Further, members of
Lester Morse's family own 60,000 shares of Aurora Common Stock and Warrants to
purchase up to an additional 60,000 shares of Aurora Common Stock and Options to
purchase up to 5,000 shares of ATC Common Stock. Further, the parties to this
Agreement acknowledge that the firm of Kaufmann, Feiner, Yamin, Gildin & Robbins
has in the past represented Aurora and ATC in connection with a certain matter
unrelated to this transaction and has been requested by the parties to represent
Aurora Environmental Inc. Aurora and ATC hereby waive any and all claims of
conflicts of interest resulting from this transaction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
ATTEST: AURORA ENVIRONMENTAL INC.
/s/ Richard L. Pruitt By: /s/ Morry F. Rubin
- --------------------- ------------------
Name: Richard L. Pruitt Name: Morry F. Rubin
Title: Secretary Title: President
ATTEST: ATC ENVIRONMENTAL INC.
/s/ George Rubin By: /s/ Morry F. Rubin
- ---------------- -------------------
Name: George Rubin Name: Morry F. Rubin
Title: Secretary Title: President
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ARTICLE II SCHEDULES - AURORA ENVIRONMENTAL INC.
There are no exceptions with respect to the following schedules:
Schedule 2.03
Schedule 2.05
Schedule 2.07
Schedule 2.10
Schedule 2.12
Schedule 2.13
Schedule 2.14
Schedule 2.18
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SCHEDULE 2.01
New York and South Dakota.
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SCHEDULE 2.04
(b): On December 23, 1994, Aurora and the Atlantic Bank of New York entered
into an unlimited guaranty agreement under which Aurora guarantees all
obligations of ATC under ATC's new $5,000,000 revolving credit grid note (this
note replaced the previous $3,000,000 line) and its pre-existing $600,000 three-
year term note of April 28, 1993. Because the material change in condition and
change in control which will occur to Aurora as a result of this transaction
will constitute defaults by ATC under its term note and grid promissory notes
with the bank and will correspondingly trigger Aurora's guarantee obligations, a
cancellation of the unlimited guaranty agreement between Aurora and the Atlantic
Bank of New York will have to be procured from the bank (in effect providing for
the bank's consent to the transaction).
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SCHEDULE 2.09
On December 23, 1994, Aurora and the Atlantic Bank of New York entered into an
unlimited guaranty agreement under which Aurora guarantees all obligations of
ATC under ATC's new $5,000,000 revolving credit grid note (this note replaced
the previous $3,000,000 line) and its pre-existing $600,000 three-year term note
of April 28, 1993. The effect of this change was to increase the revolving
credit line from $3,000,000 to $5,000,000.
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SCHEDULE 2.11
(a): On December 23, 1994, Aurora and the Atlantic Bank of New York entered into
an unlimited guaranty agreement under which Aurora guarantees all obligations of
ATC under ATC's new $5,000,000 revolving credit grid note (this note replaced
the previous $3,000,000 line) and its pre-existing $600,000 three-year term note
of April 28, 1993.
(c): The guaranty agreement referenced in (a) permits Atlantic Bank to perfect a
security interest in property owned by Aurora.
(d): In November, 1994, Aurora wrote off as uncollectible a $12,239.13 note
receivable from Florida Natives Nursery, Inc.
(e): See (d) above.
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SCHEDULE 2.17
* Aurora Environmental Inc.
First National Bank
2505 West 41st Street
Sioux Falls, SD 57117
Checking ($9,007.64)
Savings $206,347.08*
*This balance exceeds the insurance limits on the account.
The persons entitled to withdraw funds form these accounts are:
George Rubin
Morry Rubin
Richard L. Pruitt
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<PAGE>
ARTICLE III SCHEDULES - ATC ENVIRONMENTAL INC.
There are no exceptions with respect to the following schedules:
Schedule 3.04
Schedule 3.08
Schedule 3.11
Schedule 3.14
Schedule 3.22
Schedule 3.23
Schedule 3.24
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SCHEDULE 3.05
(B): Because this merger transaction may be construed to effect a change of
control of ATC and because Aurora, a guarantor, will in fact undergo a material
change in condition and a change in control as a result of this transaction,
amendments to the term Promissory Note and the Grid Promissory Note (see
Schedule 3.10 and ATC Financial Statements) will have to be entered into with
the Atlantic Bank of New York providing for the bank's consent to the
transaction.
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SCHEDULE 3.06
* McBlue Corporation has been granted options to purchase 20,000 shares of
ATC common stock.
* 388,020 ATC common shares are currently reserved for issuance under the
1988 and 1993 ATC stock option plans. Exercise prices on options currently
issued and outstanding range from $1 7/8 to $17 per share.
* There are currently 570,620 ATC common shares issuable upon exercise of a
like number of outstanding Class C warrants.
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<PAGE>
SCHEDULE 3.10
* On December 23, 1994, ATC and the Atlantic Bank of New York entered into a
new Grid Promissory Note under which ATC will have available to it a revolving
credit line of $5,000,000.00. This note replaced the previous $3,000,000 line,
and the effect of this change was to increase the revolving credit line by
$2,000,000.00. This $5,000,000 credit line under the new grid note is in
addition to ATC's pre-existing $600,000 three-year term note of April 28, 1993,
with Atlantic Bank (this term note has an unpaid balance of $283,000.00).
* Under the finder's fee, consulting, employment and non-competition
agreements related to ATC's purchase of certain assets of BSE Management Inc.,
ATC has a $295,000 unpaid balance of cash receipts-contingent payment
obligations. It is likely that these amounts will be paid over the period
January 6, 1995, through August 1, 1995.
* Under an agreement for the purchase of certain office, laboratory and field
equipment from Microbial Environmental Services, Inc. of January 4, 1994, ATC is
obligated to make installment payments totalling $100,000 over the sixteen (16)
months from January, 1995, through April, 1996.
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<PAGE>
SCHEDULE 3.12
(A):
1. On December 23, 1994, ATC executed a revised revolving credit grid note
with the Atlantic Bank of New York under which ATC's line of available credit
was increased to $5,000,000 (see Schedule 3.10). The wholly-owned ATC
subsidiaries of Hygeia ProScience Laboratories, Inc., ATC Management Inc. and
ATC New England Corp. each guaranteed ATC's payment and other obligations under
this note.
2. Under an agreement for the purchase of certain office, laboratory and field
equipment from Microbial Environmental Services, Inc. ("MES") of January 4,
1994, ATC is obligated to make installment payments totalling $100,000 over the
sixteen (16) months from January, 1995, through April, 1996. ATC also assumed
the performance obligations on seventeen of MES's environmental services
contracts. These contracts are of the same type as many of ATC's other
contracts entered into in the ordinary course, and ATC does not expect these
contracts to result in a loss.
(C): All of ATC's properties are subject to a security interest in favor of the
Atlantic Bank of New York to secure ATC's obligations under its $5,000,000 grid
note (see (a) above).
(F): Under an agreement for the purchase of certain office, laboratory and field
equipment from Microbial Environmental Services, Inc. ("MES") of January 4,
1994, ATC is obligated to make installment payments totalling $100,000 over the
sixteen (16) months from January, 1995, through April, 1996. ATC also assumed
the performance obligations on seventeen of MES's environmental services
contracts.
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<PAGE>
SCHEDULE 3.13
The only known encumbrances on the properties or assets of ATC or its
subsidiaries are the following:
* The Atlantic Bank of New York holds a security interest in essentially all
ATC properties and assets to secure a $600,000 term loan and a $5,000,000
grid note.
* Amplicon Financial of California holds a security interest in certain ATC
office and laboratory equipment to secure payment of a financing lease.
This lease has an outstanding unpaid balance of $65,000.00 and will be
fully paid in April, 1995.
III-6
<PAGE>
SCHEDULE 3.15
(B): An IRS examination is pending for ATC Environmental Inc. for fiscal years
ended February 28, 1992, and February 28, 1994. These examinations are in their
initial phases and management is currently not aware of any proposed adjustments
to the company's tax returns for those years.
ATC is routinely audited by state and local taxing authorities regarding such
state and local taxes as sales, use and rent taxes. None of these audits has
ever produced a finding of underpayment that either taken alone or collectively
would have a material adverse effect on ATC financial position.
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<PAGE>
SCHEDULE 3.18
(A): 401(K) Employee Deferred Compensation Plan. Fidelity Institutional
Investment Services is the plan administrator. ATC has no obligation to make
contributions under the plan. All ATC liabilities related to the plan are fully
recorded on the ATC Financial Statements.
(B): ATC Health and Life Employee Benefit Plan. This is a partially self-funded
plan with a stop loss. Liabilities under the plan are accrued as they occur.
Massachusetts Mutual Insurance Company is the plan administrator and stop loss
insurer.
(D): ATC has in place the following bonus, incentive compensation and stock
option plans:
* 1988 ATC Incentive Stock Option Plan covers 200,000 shares for issuance to
ATC employees.
* 1993 ATC Incentive and Non-Qualified Stock Option Plan covers 200,000
shares for issuance to ATC employees.
* Bonus arrangement for George Rubin, Chairman, and Morry F. Rubin,
President, under which each of them receives two and one-half percent
(2 1/2%) of ATC's net income before taxes.
* Senior Executive Bonus Plan for ATC's Senior Vice Presidents, Operations
and Finance, under which the two ATC senior vice presidents receive bonus
dependant on operating level profitability. In fiscal year 1994, the two
senior vice presidents earned bonuses of $88,000.00 each under this plan.
* ATC Branch Goals and Objectives Program. This program awards a bonus of up
to six and one-half percent (6 1/2%) of a branch's operating level profit
for achievement of the programs profit goals and management objectives.
The profitability goal for 1995 is set at 21% for full participation and at
17% for minimal participation. Besides profit goals, the plan also
requires meeting minimum revenue goals and management objectives (e.g.
collections targets, timely billing and days sales outstanding objectives).
III-8
<PAGE>
SCHEDULE 3.19
ATC has the following bank account with its current balance and balances
routinely in excess of the maximum insurance protection provided for this
account by federal or state insuring institutions:
ATC Environmental Inc. at First National Bank, Western Mall Branch, 2505
West 41st Street, Sioux Falls, SD 57117. Current balances in this account
are:
Checking $ 658,758.93
Savings 4,000.35
The persons entitled to withdraw funds form these accounts are:
George Rubin
Morry Rubin
Richard L. Pruitt
III-9
<PAGE>
SCHEDULE 3.20
(A):
* Arrangement between ATC Acquisition Corp. (subsequently renamed "Dennison
Environmental Services Inc." and subsequently renamed "Hygeia ProScience
Laboratories, Inc."), a wholly-owned subsidiary of ATC, and Leonard Berkal,
assignee for the benefit of the creditors of Dennison Environmental, Inc.,
and James E. and Helen Dennison pursuant to which ATC acquired the assets
of Dennison following Dennison's insolvency. The various documents
evidencing the components of this transaction are dated on various dates in
July, 1991. A complete description of this transaction is contained in the
footnotes to the ATC Financial Statements.
* Contract between ATC and National Bank of Long Beach, California, April 30,
1993, and related agreements with former officers and employees of BSE
Management Inc. under which ATC acquired the assets of BSE Management Inc.
and its subsidiaries following foreclosure. This transaction is fully
described in the auditors' footnotes to the ATC Financial Statements.
* Contract between ATC New England Corp. and T & K Business Trust, September
30, 1994, under which ATC acquired the assets of Con-Test, Inc. This
transaction is fully described under "Management's Discussion and Analysis
of Financial Condition and Results of Operation" in the Registration
Statement, Form S-4 filed with the Securities and Exchange Commission in
regard to this merger tranaction.
(C): ATC has an outstanding loan and note to Richard L. Pruitt, vice president,
principal accounting officer and director, in the amount of $15,000.00 dated
March 20, 1994, with a due date of March 20, 1997.
ATC has an outstanding loan and note to Anthony P. Vetrano, a former ATC vice
president and director in the face amount of $19,250.00 due on demand.
(D): ATC is the guarantor of ATC New England Corp.'s payment and indemnity
obligations under the agreement between ATC New England Corp. and T & K Business
Trust.
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SCHEDULE 3.25
ATC has an outstanding loan to Richard L. Pruitt, Vice President and Principal
Accounting Officer, in the amount of $15,000.00 dated March 20, 1994, with a due
date of March 20, 1997.
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ATTACHMENT B
SECTION 262 OF THE DELAWARE CORPORATION LAW.
APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available to the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement or merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
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a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof.
b. Shares of stock of any other corporation or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the taking of the vote on
the merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or
consolidation shall
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<PAGE>
not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in favor
of or consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after the expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and
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addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by
the surviving or resulting corporation, the petition shall be accompanied by
such a duly verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the hearing of such
petition by registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication
as the Court deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders
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of shares represented by certificates upon the surrender to the corporation
of the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
262, L. '94, eff. 7-1-94.)
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ATTACHMENT C
ROYCE INVESTMENT GROUP, INC.
199 CROSSWAYS PARK DRIVE
WOODBURY, NY 11797
(516) 364-8300
To the Board of Directors December 20, 1994
ATC Environmental, Inc.
104 East 25th St., 10th Floor
New York, NY 10010-2917
Gentlemen:
You have requested that we render our professional opinion as investment bankers
regarding an appropriate and fair and equitable share exchange ratio to be
proposed by ATC Environmental, Inc. ("ATC" or the "Company") in a proposed
merger/acquisition (the "Merger") offer expected to be extended by the Company
to the shareholders of Aurora Environmental, Inc. ("Aurora").
In connection with our opinion and recommendation, we have examined drafts of
the Registration Statement to be filed with the Securities and Exchange
Commission, (the "Registration Statement") including the materials and
disclosures contained therein, certain Securities and Exchange Commission
reports on Forms 10K and 10Q, and in addition certain financial and other
information concerning the Company and Aurora which was publicly available or
furnished to us by the Company or Aurora including information obtained during
our discussions with management of Aurora and of the Company.
Furthermore, we have examined the historical and current market data for the
Company's Common Stock and that of Aurora and other materials relating to the
Merger. We have conducted such other financial analysis as we have determined,
based upon our judgment as investment bankers, to be appropriate for purposes of
this opinion. We have not been requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company or of
Aurora. Furthermore, we have not negotiated the Merger or advised you with
respect to alternatives to the Merger. We have not conducted an independent
audit or appraisal of the assets or liabilities (contingent or otherwise) of the
Company or of Aurora. Based upon the foregoing analysis it became clear to us
that Aurora having no other business or operations apart from its substantial
ownership of the Common Stock of ATC could most effectively be valued through an
analysis of such interest as it relates to the outstanding shares of Aurora.
In rendering this opinion, we have relied, with your consent, without
independent verification, on the accuracy and completeness of all financial and
other information which was publicly available or furnished or otherwise
communicated to us by the Company or Aurora. With respect to any other
projections or analyses reviewed by us, we have assumed that such materials were
reasonably undertaken, based upon assumptions reflecting the best currently
available estimates and good faith judgments of management as to the future
performance of the Company and of Aurora and that the management of the Company
or that of Aurora do not have any
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information or beliefs that would make such information misleading. We
express no view as to the assumptions upon which any such materials are based.
Our opinion is based upon our review and analysis of the foregoing factors in
the light of our assessment of general economic, financial and market conditions
as they now exist and as they can be evaluated by us as of the date hereof. It
is also based upon certain other non-quantifiable benefits which we believe will
likely accrue to ATC should the Merger occur. These include, inter alia, the
simplification of and reduction of the administrative and professional efforts
and costs associated with the present two company corporate structure, the
elimination of any potential parent company guarantee requirement issues in
respect of future debt financing by the Company, the elimination of possible
equity market confusion engendered by the parent-subsidiary relationship now
prevailing with both companies being publicly owned and traded on NASDAQ and the
likelihood that future financing will be obtainable more easily and on better
terms by the combined companies than by ATC alone. Our opinion is not a
recommendation as to whether any stockholder of the Company of Aurora should
vote in favor or in opposition to the proposed Merger.
RECOMMENDED EXCHANGE RATIO
We recommend that ATC offer to exchange up to .53 shares of its Common
Stock for each 1.0 share of Aurora Common Stock.
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be offered to the holders of Aurora Common Stock pursuant to
the recommendation set forth above in connection with the Merger is fair and
equitable to the stockholders of ATC.
In connection with this Fairness Opinion ATC has agreed to indemnify and hold
harmless Royce Investment Group, Inc. and each person, if any, who controls
Royce Investment Group, Inc. as follows:
i) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, commenced or threatened, or any claim whatsoever based upon this
fairness opinion; and
ii) against any and all expense whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever based upon this fairness opinion, to the extent that any such
expense is not paid under clause (i).
Respectfully,
ROYCE INVESTMENT GROUP, INC.
By: /s/ John D. Higgins
----------------------------
John D. Higgins
Senior Vice President/
Director of Corporate Finance
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<PAGE>
ROYCE INVESTMENT GROUP, INC.
199 CROSSWAYS PARK DRIVE
WOODBURY, NY 11797
(516) 364-8300
March 8, 1995
To the Board of Directors
ATC Environmental, Inc.
104 East 25th Street, 10th Floor
New York, New York 10010-2917
Gentlemen:
You have requested that we update and supplement our opinion dated December 20,
1994 (the "Original Opinion Letter") as investment bankers regarding the
fairness of the share exchange ratio tendered by ATC Environmental, Inc. ("ATC"
or the "Company") in a proposed merger/acquisition (the "Merger") offer extended
by the Company to the shareholders of Aurora Environmental, Inc. ("Aurora").
In addition to the material previously reviewed by us and as set forth in the
Original Opinion Letter, we have subsequently reviewed the latest financial
statements of ATC and of Aurora as set forth in the Forms 10-Q filed by each
such company for the quarter ended November 30, 1994. We have also reviewed the
price range of each company's common stock as reflected in trading on NASDAQ
since the date of such opinion. Finally, we have read the Form S-4 Registration
Statement (File No. 33-88380) as filed by ATC (the Registration Statement).
The Registration Statement indicates that the respective Boards of Directors of
both ATC and Aurora have agreed upon an exchange ratio of .545 shares of ATC
common stock for each one (1) share of Aurora common stock (the "Exchange
Ratio").
Based upon our review of the foregoing documents and information, it is our
professional opinion, based upon our experience and expertise as investment
bankers, that the Exchange Ratio, which is within 2.8% of the ratio suggested by
us in the Original Opinion Letter of .53 share of ATC common stock for each one
(1) share of Aurora common stock is fair and equitable to the shareholders of
ATC.
In connection with this Fairness Opinion ATC has agreed to indemnify and hold
harmless Royce Investment Group, Inc., its employees and each person,
if any, who controls Royce Investment Group, Inc. as follows:
i) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, commenced or threatened, or any claim whatsoever based upon this
fairness opinion; and
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<PAGE>
ii) against any and all expense whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever based upon this fairness opinion, to the extent that any such
expense is not paid under clause (i).
If you have any questions regarding this matter, please feel free to contact me.
Very truly yours,
ROYCE INVESTMENT GROUP, INC.
By: /s/ John D. Higgins
--------------------------
John D. Higgins
Senior Vice President/
Director of Corporate Finance
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ATTACHMENT D
COMPREHENSIVE CAPITAL CORPORATION
1600 STEWART AVENUE
WESTBURY, NY 11579
(516) 832-8600
Board of Directors January 6, 1995
Aurora Environmental Inc.
104 East 25th Street - 10th Floor
New York, New York 10010
Gentlemen:
By letter agreement dated December 14, 1994 you have requested us to provide an
independent fairness opinion from a financial point of reference with regard to
the proposed conversion ratio for shares of the common stock of Aurora
Environmental Inc. ("Aurora") to be exchanged for shares of the common stock of
ATC Environmental Inc. ("ATC"). These shares are to be issued by ATC in
connection with the proposed merger of Aurora and ATC in which ATC will be the
surviving entity upon completion of the merger.
In connection herewith, we have made such investigation as we have deemed
necessary and appropriate under the circumstances, and have reviewed the
following documentation as well as other information publicly available.
1) The Annual Report Pursuant To Section 13 or 15 (D) Of The
Securities Exchange Act Of 1934 (the "Exchange Act") on Form 10K for
Aurora and ATC for the fiscal year ended February 28, 1994.
2) All current quarterly reports under Section 13 or 15(d) of the
Exchange Act for both Aurora and ATC.
3) Form S-4 Registration Statement Under The Securities Act of 1933
for ATC.
4) The Agreement and Plan of Merger.
Aurora is a publicly held holding company with no significant operations except
those conducted through its ownership of 3,258,000 shares of common stock
of ATC which represents as of November 30, 1994, fifty seven percent (57%)
of ATC issued and outstanding shares. Aurora's Board of Director's conclusion
as to the purpose of the proposed merger is based upon the following factors
which we shall evaluate so as to advise the Board as to a fair exchange ratio.
1) The proposed merger will be a tax free exchange of shares,
pursuant to Section 368 (a) (1) (A) of the IRS Code of 1986 based upon the
opinion of Deloitte & Touche LLP. ATC shareholders may apply a significant Net
Operating Loss ("NOL") carry forward against potential earnings as well as
certain tax credits.
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<PAGE>
2) Based upon historical price volatility and share trading liquidity Aurora
shareholders should benefit by owning shares in the operating company (ATC). ATC
shares should more readily reflect a multiple of earnings and growth prospects.
3) Significant cost savings should accrue derived from administrative, legal
and accounting professional fees as well as the elimination of costs incurred
due to duplication of regulatory filings under the Exchange Act.
4) Aurora's management believes that any future financing can be obtained on
more favorable terms for the combined entity.
In rendering our opinion, we have assumed and relied upon, without independent
verification, the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise discussed with us.
Our analysis includes, but is not limited to, the following factors:
1) The prior thirty days average closing price of ATC and Aurora.
2) A comparison of both companies' capital structure including the
potential exercise of any outstanding options or warrants.
3) The intrinsic valuation of Aurora's equity ownership of ATC and
potential dilution upon exercise of ATC options and
Warrants.
4) All tax considerations including any NOL carry forward.
5) Analysis of significant cost savings both administrative and
professional.
PROPOSED CONVERSION RATIO
1) The prior thirty day average closing price from November 4, 1994
through December 16, 1994 was $5.58 per share for Aurora and $16.70
per share for ATC.
2) The latest form 10Q for the quarter ending August 31, 1994
reflects 5,600,235 ATC common shares and 5,901,904 Aurora
common shares. As of December 31, 1994 the number of shares
adjusted for exercise of any options or warrants for each company was
5,721,091 and 6,101,104 respectively.
3) Based upon Aurora's intrinsic equity ownership of
approximately 57% of ATC which reflects as a substantial
discount of approximately 40% to the actual market price of
ATC, a significant increase should be adjusted as part of the
final conversion ratio.
4) The NOL carry forward and tax credits would further adjust
upward the conversion ratio based on the thirty day average market
price.
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<PAGE>
5) We have imputed a cost savings value per share to
Aurora's average price to reflect the economies discussed in the
proposed merger.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information disclosed to us as of, the
date of this letter. We are not expressing any opinion as to what the value of
the shares will be when issued to the holders of Aurora stock pursuant to the
merger or the price at which ATC will trade subsequent to the merger. Our
opinion does not constitute a recommendation to any such holder as to how such
holder should vote on the Plan of Merger.
Based upon the forgoing factors we believe that a conversion ratio of at least
.56 shares of ATC be issued to each shareholder and any potential conversion of
any warrants or options currently outstanding. This conversion ratio considers
the discount to intrinsic value to Aurora's shares, the NOL carry forward,
cost savings, and the more subjective benefits of raising additional financing
by the merged companies.
In rendering the foreging opinion, we have assumed and relied upon the accuracy
of all information and documentation provided to us by you and as set forth
herein.
In connection with this opinion Aurora has agreed to indemnify and hold harmless
Comprehensive Capital Corporation and any employee of Comprehensive Capital
Corporation as follows:
i) against any and all loss, liability, claim, damage and expense whatsoever
to the extent of the aggregate amount paid in settlement of any litigation,
commenced or threatened, or any claim whatsoever based upon this fairness
opinion; and
ii) against any and all expense whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever based upon this fairness opinion, to the extent that any such
expense is not paid under clause (i).
Sincerely,
COMPREHENSIVE CAPITAL CORPORATION
By: /s/ Ron Brodis
-----------------------
Ron Brodis
Director of Corporate Finance
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<PAGE>
COMPREHENSIVE CAPITAL CORPORATION
1600 STEWART AVENUE
WESTBURY, NY 11579
(516) 832-8600
March 8, 1995
To the Board of Directors
Aurora Environmental, Inc.
104 East 25th Street, 10th Floor
New York, New York 10010
Gentlemen:
Your Board of Directors has requested that we update and supplement our opinion
dated January 6, 1995 (the "Original Independent Fairness Opinion") as
investment bankers regarding the fairness of the share exchange ratio approved
by the Board of Directors of Aurora Environmental, Inc. ("Aurora") in connection
with a proposed merger (the "Merger") of Aurora into ATC Environmental, Inc.
("ATC").
Subsequent to the material reviewed by us and as identified in the Independent
Fairness Opinion, we have reviewed the latest financial statements of ATC and of
Aurora as set forth in the Forms 10-Q filed by each such company for their
respective quarters ended November 30, 1994. We have also reviewed the price
range of each company's common stock as reflected in trading on NASDAQ for the
prior thirty days through March 3, 1995. Finally, we have read the Form S-4
Registration Statement (File No. 33-88380) as filed by ATC (the Registration
Statement).
The Registration Statement reflects that each of the Board of Directors of ATC
and Aurora have agreed to an exchange ratio of .545 of a share of ATC common
stock for each one share of Aurora common stock including the potential exercise
of any Warrant/Option conversion which by its terms survives the Merger (the
"Exchange Ratio").
In connection herewith, we have made such investigations as we have deemed
necessary. Based upon our review of the foregoing documents and information, it
is our opinion, based upon our analysis as investment bankers, that the Exchange
Ratio, which is within 3% of the ratio suggested by us in the Original Opinion
Letter of .56 share of ATC common stock for each one share of Aurora common
stock is fair and equitable to the shareholders of Aurora and that the
information contained in each of the foregoing documents did not have any
material impact upon the conversion ratio expressed in our opinion letter of
January 6, 1995 except as set forth above with respect to the fairness and
equity of the agreed upon exchange ratio of .545 of a share of ATC common stock
for each share of Aurora common stock.
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<PAGE>
In connection with this Opinion, Aurora has agreed to indemnify and hold
harmless Comprehensive Capital Corp. and any of its employees, as follows:
i) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, commenced or threatened, or any claim whatsoever based upon this
fairness opinion; and
ii) against any and all expense whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever based upon this fairness opinion, to the extent that any such
expense is not paid under clause (i).
If you have any questions regarding this matter, please feel free to contact me.
Very truly yours,
COMPREHENSIVE CAPITAL CORPORATION
By: /s/ Ron Brodis
--------------------
Ron Brodis
Director of Corporate Finance
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