-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WnadzKUj3wudOumTEPSKi7gI0hAs9wUIh2MNQLa+CSQP1zqqJpaxKvJjJ7mpypw5 X5OsHQRvPRVW//O2av/7zw== 0000828828-97-000012.txt : 19970723 0000828828-97-000012.hdr.sgml : 19970723 ACCESSION NUMBER: 0000828828-97-000012 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970531 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970722 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATC ENVIRONMENTAL INC CENTRAL INDEX KEY: 0000828828 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 460399408 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10583 FILM NUMBER: 97643802 BUSINESS ADDRESS: STREET 1: 104 E 25TH ST 10TH FLR CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2123538280 MAIL ADDRESS: STREET 1: 104 EAST 25TH STREET STREET 2: 10TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10010 8-K 1 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A #2 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Earliest Event Reported - May 24, 1996 ATC GROUP SERVICES INC. ----------------------- (Exact name of Registrant as specified in its charter) Delaware 1-10583 46-0399408 ------------------------------- -------------- ------------------- (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File Number) Identification No.) 104 East 25th Street, 10th Floor New York, New York 10010 ----------------------------------------------- ------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 353-8280 Item 7. Exhibits and Financial Statements (a)(1) Included are the American Testing and Engineering Corporation financial statements as of December 31, 1995 and 1994 and for the Years Ended December 31, 1995 and 1994, the Three Months Ended December 31, 1993 and the Year Ended September 30, 1993 and Independent Auditors' Report dated January 31, 1997 (June 25, 1997 as to Note 11) issued by Deloitte & Touche LLP. These financial statements are being filed in replacement of previously filed financial statements of American Testing and Engineering Corporation for similar periods audited by Coopers & Lybrand LLP. The reported amounts of total assets, liabilities and shareholders' equity and of earnings and loss for each period do not differ from those reported in the previous filing. 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 GROUP SERVICES INC. --------------------------- (Registrant) July 22, 1997 By: /s/ RICHARD L. PRUITT - ------------- ---------------------------- (Dated) RICHARD L. PRUITT Vice President and Principal Accounting Officer AMERICAN TESTING AND ENGINEERING CORPORATION Financial Statements as of December 31, 1995 and 1994 and for the Years Ended December 31, 1995 and 1994, the Three Months Ended December 31, 1993 and the Year Ended September 30, 1993 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders American Testing and Engineering Corporation We have audited the accompanying balance sheets of American Testing and Engineering Corporation (the Company) as of December 31, 1995 and 1994, and the related statements of operations, shareholders' equity and cash flows for the years ended December 31, 1995 and 1994, the three months ended December 31, 1993 and the year ended September 30, 1993. 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 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years ended December 31, 1995 and 1994, the three months ended December 31, 1993 and the year ended September 30, 1993 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP - -------------------------- Omaha, Nebraska January 31, 1997 (June 25, 1997 as to Note 11) AMERICAN TESTING AND ENGINEERING CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 - -------------------------------------------------------------------------------
ASSETS ........................................................................... 1995 1994 Current assets: Cash ........................................................................... $ 46,693 $ 62,285 Receivables: Trade accounts receivable .................................................... 20,282,027 20,732,006 Unbilled revenue on work in progress ......................................... 6,795,912 6,395,647 ------------ ------------ 27,077,939 27,127,653 Less allowance for doubtful accounts ......................................... (690,500) (814,600) ------------ ------------ 26,387,439 26,313,053 Collateral bonds ............................................................... 801,430 1,110,652 Other current assets ........................................................... 779,722 825,214 ------------ ------------ Total current assets .................................................. 28,015,284 28,311,204 Property and equipment, net (Note 3) ............................................. 5,901,641 9,041,493 Other Assets: Cash surrender value of life insurance ......................................... 1,824,437 1,872,902 Advances to related parties (Note 4) ........................................... 156,712 114,141 Other .......................................................................... 428,621 324,125 ------------ ------------ 2,409,770 2,311,168 ------------ ------------ Total assets .......................................................... $ 36,326,695 $ 39,663,865 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Working capital loans (Note 5) ................................................. $ 1,679,756 $ 632,235 Current portion of long-term debt (Note 5) ..................................... 11,043,881 3,548,168 Accounts payable, trade ........................................................ 7,804,426 7,211,534 Accrued salaries, wages and other compensation ................................. 3,948,186 4,774,441 Accrued legal liabilities (Note 11) ............................................ 1,288,265 1,391,875 Other accrued expenses ......................................................... 2,914,423 2,918,901 ------------ ------------ Total current liabilities ............................................. 28,678,937 20,477,154 Long-term debt (Note 5) .......................................................... 877,095 10,255,382 Performance share obligation (Notes 2 and 7) ..................................... 688,147 1,139,894 Lease and revenue reserve ........................................................ 187,739 76,190 Minority interest ................................................................ 7,173 5,011 Commitments and contingencies (Notes 5, 7 and 11) Shareholders' equity: Common stock, no par value, 2,000,000 shares authorized; 1,585,000 shares issued and outstanding ...................................... 79,250 79,250 Additional paid-in capital ..................................................... 633,131 633,131 Advances to shareholders (Note 4) .............................................. (21,266) (17,947) Retained earnings .............................................................. 5,196,489 7,015,800 ------------ ------------ Total shareholders' equity ............................................ 5,887,604 7,710,234 ------------ ------------ Total liabilities and shareholders' equity ............................ $ 36,326,695 $ 39,663,865 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 2 AMERICAN TESTING AND ENGINEERING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993 AND THE YEAR ENDED SEPTEMBER 30, 1993 - -------------------------------------------------------------------------------
Three Years Ended Months Ended Year Ended December 31, December 31, September 30, ------------------------------ ------------- ------------- 1995 1994 1993 1993 Revenues: Service revenue ................................... $ 95,130,122 102,253,268 $ 28,354,269 $ 117,609,574 Cost of service revenue (Note 2) .................. 26,926,568 30,116,429 11,832,987 38,794,916 ------------- ------------- ------------- ------------- Net service revenue ...................... 68,203,554 72,136,839 16,521,282 78,814,658 ------------- ------------- ------------- ------------- Cost and expenses: Engineering and consulting costs .................. 31,064,366 31,189,662 11,122,048 35,075,967 General and administrative expenses ............... 37,291,935 38,760,752 10,726,126 46,082,281 Interest expense .................................. 1,664,066 1,539,513 398,232 1,485,275 Legal judgment (Note 11) .......................... -- -- 704,375 -- ------------- ------------- ------------- ------------- Total costs and expenses ................. 70,020,367 71,489,927 22,950,781 82,643,523 ------------- ------------- ------------- ------------- Income (loss) before cumulative effect of change in accounting method ............ (1,816,813) 646,912 (6,429,499) (3,828,865) Cumulative effect of change in accounting method (Note 2) ................................... -- 470,611 -- -- ------------- ------------- ------------- ------------- Net income (loss) before minority interest (1,816,813) 1,117,523 (6,429,499) (3,828,865) Minority interest ................................... 2,162 (3,904) (5,814) 3,751 ------------- ------------- ------------- ------------- Net income (loss) ........................ $ (1,818,975) $ 1,121,427 $ (6,423,685) $ (3,832,616) ============= ============= ============= =============
The accompanying notes are an integral part of the consolidated financial statements. 3 AMERICAN TESTING AND ENGINEERING CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993 AND THE YEAR ENDED SEPTEMBER 30, 1993 - -------------------------------------------------------------------------------
Additional Advances Total Common Paid-in to Retained Shareholders' Stock Capital Shareholders Earnings Equity ------------ ------------ ------------ ------------ ------------ Balance, September 30, 1992 .................. $ 79,250 $ 384,240 $ -- $ 15,911,335 $ 16,374,825 Distributions to shareholders .............. -- -- -- (391,157) (391,157) Advances to shareholders ................... -- -- (70,048) -- (70,048) Reclassification of shareholder distribution (Note 4) ................................. -- -- (630,496) 630,496 -- Net loss ................................... -- -- -- (3,832,616) (3,832,616) ------------ ------------ ------------ ------------ ------------ Balance, September 30, 1993 .................. 79,250 384,240 (700,544) 12,318,058 12,081,004 Advances to shareholder .................... -- -- (11,376) -- (11,376) Net loss ................................... -- -- -- (6,423,685) (6,423,685) ------------ ------------ ------------ ------------ ------------ Balance, December 31, 1993 ................... 79,250 384,240 (711,920) 5,894,373 5,645,943 Shareholder contribution ................... -- 248,891 -- -- 248,891 Repayment of shareholder advances .......... -- -- 693,973 -- 693,973 Net income ................................. -- -- -- 1,121,427 1,121,427 ------------ ------------ ------------ ------------ ------------ Balance, December 31, 1994 ................... 79,250 633,131 (17,947) 7,015,800 7,710,234 Distributions to shareholders .............. -- -- -- (336) (336) Advance to shareholder ..................... -- -- (3,319) -- (3,319) Net loss ................................... -- -- -- (1,818,975) (1,818,975) ------------ ------------ ------------ ------------ ------------ Balance, December 31, 1995 ................... $ 79,250 $ 633,131 $ (21,266) $ 5,196,489 $ 5,887,604 ============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 4 AMERICAN TESTING AND ENGINEERING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993 AND THE YEAR ENDED SEPTEMBER 30, 1993 - -------------------------------------------------------------------------------
Three Months Years Ended Ended Year Ended December 31, December 31, September 30, ------------ ------------ ------------ ------------ 1995 1994 1993 1993 Cash flows from operating activities: -- -- -- -- Net income (loss) $ (1,818,975) $ 1,121,427 $ (6,423,685) $ (3,832,616) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,913,346 4,311,092 1,174,178 5,076,527 Revenue and lease reservations 111,549 76,190 -- -- Provision for doubtful accounts (124,049) (1,154,000) 288,600 281,000 (Gain) loss on sale of property and equipment 221,749 (76,446) (17,090) 176,382 Appreciation (depreciation) in performance share value (126,608) 217,433 -- -- Cumulative effect of change in accounting method -- (470,611) -- -- Appreciation of performance shares redeemed by issuance of note payable -- -- -- 134,511 Changes in assets and liabilities: Trade accounts receivable 449,979 2,095,995 3,480,946 2,756,359 Unbilled revenue on work in progress (400,316) 2,452,964 (2,502,053) (2,658,219) Accounts payable 175,131 1,691,361 (4,736,242) 2,256,065 Accrued salaries and expenses (779,940) (5,277,894) 7,235,340 1,206,256 Collateral bonds 309,222 477,656 412,304 (847,024) Other, net (60,949) 427,311 107,265 (1,144,252) ------------ ------------ ------------ ------------ Net cash provided by operating activities 1,870,139 5,892,478 (980,437) 3,404,989 ------------ ------------ ------------ ------------ Cash flows from investing activities: Purchase of property and equipment (1,310,662) (1,869,058) (474,064) (2,198,370) Proceeds from sale of property and equipment 325,418 295,010 53,063 346,603 ------------ ------------ ------------ ------------ Net cash used in investing activities (985,244) (1,574,048) (421,001) (1,851,767) ------------ ------------ ------------ ------------ Cash flows from financing activities: Net (deposits) borrowings (to) from cash collateral account 1,047,521 (1,767,190) -- -- Proceeds from obligations to banks and notes payable 2,059,189 7,175,000 11,015,000 23,765,000 Payments on obligations to banks and notes payable (3,941,762) (8,565,195) (10,823,825) (24,545,218) Advances and distributions to shareholders (3,655) -- (11,376) (391,157) Performance shares redeemed (479,542) (43,159) (14,517) (128,477) Change in cash overdraft 417,762 (2,058,354) 1,215,597 (236,671) Shareholder contribution -- 248,891 -- -- Proceeds from repayment of shareholder advances -- 693,973 -- -- ------------ ------------ ------------ ------------ Net cash used in financing activities (900,487) (4,316,034) 1,380,879 (1,536,523) ------------ ------------ ------------ ------------ Increase (decrease) in cash (15,592) 2,396 (20,559) 16,699 Cash, beginning of period 62,285 59,889 80,448 63,749 ------------ ------------ ------------ ------------ Cash, end of period $ 46,693 62,285 $ 59,889 80,448 ============ ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 1,554,879 1,489,863 $ 376,429 1,487,936 ============ ============ ============ ============ Income taxes (Note 2) $ -- $ -- $ -- 577,043 ============ ============ ============ ============
During the year ended September 30, 1993, the Company redeemed performance shares with a recorded value of $194,726, a redemption value of $493,856, by issuance of a note payable of $329,237 and a cash payment for the residual. The difference between the recorded and redemption value was recorded as compensation expense and is included in general and administrative expenses. During the year ended December 31, 1995, the three months ended December 31, 1993 and the year ended September 30, 1993, performance shares with a value of $154,403, $120,757 and $72,634, respectively, were issued in lieu of accrued bonuses. The accompanying notes are an integral part of the consolidated financial statements. 5 AMERICAN TESTING AND ENGINEERING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993 AND THE YEAR ENDED SEPTEMBER 30, 1993 - ------------------------------------------------------------------------------- 1. SUBSEQUENT EVENT Effective May 23, 1996, the shareholders of American Testing and Engineering Corporation (the Company) or ("ATEC") transferred substantially all of the Company's tangible and intangible business assets to ATC Environmental, Inc. ("ATC"), an unrelated company. The assets sold included cash, accounts receivable, unbilled work in progress, prepaid expenses, goodwill, customer contract rights and customer lists. In addition, the Company leased to ATC substantially all of its property, plant and equipment under annually renewable leases expiring six years from the date of the closing. ATC additionally has the right to purchase all fixed assets leased at the end of such period. Assets retained by the Company include all nonleased fixed assets, intercompany accounts receivable/payable, certain land, cash surrender value of life insurance policies, and the investment in Waste Abatement Technology, L.P. ("WATEC"). As consideration for the sale, ATC assumed essentially all of the recorded liabilities exclusive of bank debt which was repaid concurrent with the sale of ATEC. In addition, at closing the Company received $6,000,000 in cash and will receive, an additional $16,750,000 in lease payments, rents, and consideration for covenants not to compete over the next six years. In connection with this transaction, the Company recorded a gain of approximately $4.9 million at the closing date, and additional contingent gains approximating $12.5 million are expected to be recorded as certain defined contingencies lapse. The Company's credit agreement with Bank One (Note 5) expired on April 30, 1996. In anticipation of the sale of the Company, the bank amended and extended the credit agreement through July 31, 1996. All amounts due Bank One in connection with the credit agreement, exclusive of WATEC borrowings of approximately $360,000 and contingent amounts due under letters of credit, were paid on May 24, 1996, concurrent with the sale of the Company's business operations to ATC. In connection with the sale, the Company recorded additional 1996 expense of approximately $2.2 million associated with the performance shares and performance share options (see Notes 7 and 8) in accordance with the Performance Share and Performance Share Option Plans. During the period from January 1, 1996 through May 23, 1996, 94,830 additional performance share options were granted at an option price of $7.41 per share. These financial statements are presented on the historical basis of accounting and are not presented on the basis of a liquidation, nor do they reflect fair value accounting principles. 2. SIGNIFICANT ACCOUNTING POLICIES General - ATEC engages in four principal lines of business which contribute to gross revenues. They include traditional services which consist of engineering and materials testing, environmental, hazardous waste, and chemical testing laboratories. The geographic concentration of the 40 plus offices is in the eastern half of the United States. The concentration of revenue by client is largely industrial and small business with approximately 25% of its revenue generated from federal, state and local governmental agencies. 6 Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions affecting the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts and results could differ from the estimated amounts and results. Consolidation Principles and Financial Statement Presentation - These consolidated financial statements include the accounts of ATEC and WATEC, a limited partnership in which the Company holds a 99% interest (together, the "Company"). All significant intercompany accounts have been eliminated. Property and Equipment - Property and equipment are recorded at cost and are depreciated using the straight-line method. Estimated useful lives range from three to ten years for machinery, equipment and office furniture and three to seven years for vehicles. Leasehold improvements are generally amortized over the term of the respective leases. Expenditures for normal repair and maintenance are charged to expense as incurred. Cost and accumulated depreciation of assets disposed are removed from the accounts, and any resulting gain or loss is included in income. Income Taxes - Effective October 1, 1991, the Company elected status as an S Corporation under the provisions of the Internal Revenue Code. Accordingly, it is generally not subject to federal or state income taxes, and the income or loss of the Company is reflected in the personal income tax returns of its shareholders. Revenue and Cost Recognition - The Company's principal business is providing professional engineering and consulting services under cost-plus-fee and fixed-price contracts. Revenues attributable to such contracts and claims for revenue on additional contract revisions are accounted for under the percentage-of-completion (cost-to-cost) method of accounting and are recorded equivalent to costs incurred plus a pro rata portion of estimated profits expected to be realized on the contracts. Profits expected to be realized on contracts are based on total contract value and management's estimates of costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are recorded in the accounting period in which the revisions are made. Provisions for estimated losses on contracts are recorded when they are identified. Costs of service include all direct material and subcontract costs, and those indirect costs related to contract performance. Change in Accounting Method - Performance Share Obligation - Amounts contributed by participants to the Performance Share Plan are recognized as compensation expense when earned. Prior to January 1, 1994, the Company recognized additional expense (appreciation of performance share value) or other income (diminution of performance share value) upon election by the participant to redeem units in accordance with the plan's provisions. To more directly relate the periodic results of its operations with related changes in the valuation of performance shares, the Company changed its method of accounting for changes in the appreciation or diminution of performance share value. As part of this change, during the year ended December 31, 1994, the Company recorded a one-time cumulative benefit of $470,611, which recognizes the cumulative difference in expense recorded under the two methods from the inception of the plan through January 1, 1994. 7 Reclassification - Certain amounts in the prior year's financial statements have been reclassified to conform to the 1995 presentation. 3. PROPERTY AND EQUIPMENT Property and equipment is summarized as follows: December 31, 1995 1994 Machinery and equipment $ 11,584,942 $ 12,102,895 Vehicles 6,285,807 6,828,868 Office furniture and equipment 9,059,094 8,508,533 Leasehold improvements 3,256,232 3,660,734 Building 291,220 291,220 Land 276,480 276,480 Construction in progress 102,221 427,241 ------------ ------------ 30,855,996 32,095,971 Less accumulated depreciation (24,954,355) (23,054,478) ------------ ------------ $ 5,901,641 $ 9,041,493 ============ ============ 4. RELATED PARTY TRANSACTIONS Advances to related parties are summarized as follows: December 31 1995 1994 Mann Realty Co. $ 108,212 $ 68,913 Mann Technology, Inc. 7,085 3,813 ATEC International 41,415 41,415 ------------ ------------ $ 156,712 $ 114,141 The Company has entered into certain noncancelable operating lease agreements for office space with Mann Realty Co., a partnership in which the Company's president is a partner. Minimum annual rental commitments under these leases are included in Note 9 and aggregate $464,959, $323,471, $208,884, $100,800, $100,800, and $756,000 for the years ending December 31, 1996, 1997, 1998, 1999, 2000, and thereafter, respectively. Rents paid to Mann Realty Co. for the years ended December 31, 1995 and 1994 and the three months ended December 31, 1993 and the year ended September 30, 1993 were $607,913, $546,544, $193,230 and $615,144, respectively. The Company also has $125,000 on deposit with Mann Realty Co. pursuant to lease agreements on certain locations. No interest is earned on advances, and there are no agreements identifying specific repayment terms. 8 The Company's president is an officer and shareholder of Mann Technology, Inc., which serves as the corporate general partner and one-percent owner of WATEC. Mann Technology, Inc.'s 1% interest and earnings therefrom have been reflected as minority interest on the Company's consolidated balance sheets and statements of operations. Two shareholders of the Company are also shareholders in ATEC International. Advances to Mann Technology and ATEC International bear no interest, and there are no agreements identifying specific repayment terms. The Company's interim distributions to shareholders for estimated income taxes have been determined by the Company's management to be advances to shareholders until such time as the actual liability is calculated. Advances to shareholders were $21,266 and $17,947 at December 31, 1995 and 1994, respectively. The Company reports shareholder advances as a reduction of shareholders' equity. The Company's Credit Agreement (Note 5) requires that any such shareholder advances in excess of the related tax liability be repaid to the Company when corresponding refunds are received from taxing authorities. 5. LONG-TERM DEBT AND CREDIT AGREEMENTS Long-term debt and credit agreements are summarized as follows: December 31, 1995 1994 Credit agreement: Working capital loan - ATEC $ 1,345,739 $ 332,810 Working capital loan - WATEC 344,017 299,425 ------------ ------------ Borrowings under working capital loans $ 1,689,756 $ 632,235 ============ ============ Term loan one $ 5,214,793 $ 6,907,321 Term loan two 1,572,648 2,715,048 Term loan three 1,240,313 1,791,563 Term loan four 1,709,033 1,475,000 Equipment acquisition loan 1,180,000 -- ------------ ------------ Borrowings under term loans 10,916,787 12,888,932 Notes payable 1,004,189 914,618 ------------ ------------ 11,920,976 13,803,550 Less current portion (11,043,881) (3,548,168) ------------ ------------ Total long-term debt $ 877,095 $ 10,255,382 ============ ============ Credit Agreement - Under the Company's credit agreement (the "Agreement") with Bank One, Indianapolis, N.A. ("Bank One"), substantially all assets have been pledged as collateral. The Agreement also contains certain financial covenants which require the Company to meet financial ratios and tests, including a minimum current ratio, a minimum tangible capital test, a maximum debt to tangible capital ratio, and a minimum debt service coverage ratio. The Company was in default of substantially all financial ratio covenants as of December 31, 1995. On April 30, 1996, the Company and Bank One amended and extended the Agreement (the "Amended Agreement"). The Amended Agreement established new financial ratios and tests which the Company is required to maintain. Bank One may, at its sole discretion, extend the maturity date of the working capital loans. The Amended Agreement provides for the revision of a previously established cash collateral account, whereby the Company deposits all cash into the account to pay down working capital loans and then draws funds to meet current operating requirements. 9 Under the Amended Agreement, the working capital loans bear interest, payable monthly, at Bank One's prime rate, which was 8.5% at December 31, 1995, plus .75%, and mature on July 31, 1996. ATEC and WATEC may borrow up to $3,000,000 and $1,000,000, respectively, under the working capital loans. Additionally, the Agreement provides for annual short-term equipment acquisition loans. On April 30, 1996, the due date for the equipment acquisition loan was extended to July 31, 1996. The equipment acquisition loan bears interest at Bank One's prime rate plus 1%. Term loan one is due in consecutive monthly principal payments of $116,500 plus interest, with the remaining unpaid principal plus accrued interest due March 1, 1998. The loan bears interest at Bank One's prime rate plus 1%. Term loan two is due in consecutive monthly principal payments of $95,200 plus interest, with the remaining balances of principal and interest due on June 1, 1997. The loan bears interest at an annual rate of 9.51% through February 28, 1996 and at Bank One's prime rate plus 1% thereafter. Term loan three is due in consecutive monthly principal payments of $45,938 plus interest, with the remaining balance of principal and interest due on February 28, 1998. The loan bears interest at Bank One's prime rate plus 1%. Term loan four is due in consecutive monthly principal payments of $41,700 plus interest, with the remaining balance of principal and interest due March 15, 1999. The loan bears interest at Bank One's prime rate plus 1%. The Term loans contain provisions which permit the bank to accelerate payment terms in the event of non-compliance with covenants included in the working capital loan. A $6,000,000 facility for letters of credit is provided under the Agreement with a 1.5% annual fee on outstanding letters of credit (Note 6). In addition, up to a maximum of $5,000,000 of total indebtedness under the credit agreement has been guaranteed by the Company's principle shareholder. Notes Payable - The Company's principal shareholder advanced the Company $750,000 in September 1994. The note bears interest at 12.0% and the principal and accrued interest are due on February 1, 1997. The note is subordinated to the interest of Bank One. In connection with the retirement of certain performance share obligations, a note with a principal balance of $254,189 was issued in 1995. The first payment of $127,094 plus accrued interest is due in May 1996, with the payment of the remaining $127,095 plus accrued interest due on May 19, 1997. Interest is payable at the prime rate of Bank One. 6. LETTERS OF CREDIT The Company has $5,904,353 in letters of credit outstanding at December 31, 1995, which collateralize performance bonds required under certain contracts, certain litigation, and deductibles under workers' compensation insurance. They expire in various amounts through November 1996. 7. PERFORMANCE SHARE OBLIGATION The Company adopted a Performance Share Plan ("Share Plan") intended to operate for the benefit of key employees of the Company. At the beginning of each fiscal year, each Share Plan participant can elect to receive a portion of his bonus payable under the ATEC Incentive Bonus Plan in the form of Performance Shares ("Shares"), for which the Company has agreed to later pay a formula value per Share, subject to adjustment (see below). Except as otherwise determined by the Board, Shares issued in lieu of cash bonuses were initially valued at twice the book value of shares of the Company's common stock through September 30, 1992 and at one and one-half times the book value of common stock, thereafter ("Purchase Price"). 10 The Company will satisfy the Performance Share Obligation by cash payments to the Share Plan participants in the event of the Share Plan participant's death, total disability, hardship or termination from the Company, or upon sale of 50% of the Company's common stock or substantially all of the assets of the Company. The value per unit and the right to receive payment for Shares held by a Share Plan participant are determined as follows: Event Causing Unit Redemption Share Value Determined By Death, total disability, hardship The Share Purchase Price plus or or termination minus the change in book value of the common stock of the Company from the date of purchase to the end of the fiscal year immediately preceding the event. Sale or transfer of more than 50% of The payment received by the the issued and outstanding common Company shareholders for each stock of the Company. share of the Company. Sale of substantially all of the The payment received by the assets of the Company, or the Company shareholders for each liquidation of the Company. share of the Company. Activity in the years ended December 31, 1995 and 1994 and the three months ended December 31, 1993 and the year ended September 30, 1993 was as follows: Performance Shares Obligations Balance at September 30, 1992 255,499 $ 1,580,560 Issued 3,721 72,634 Redeemed (55,343) (323,203) ---------- ---------- Balance at September 30, 1993 203,877 1,329,991 Issued 10,677 120,757 Redeemed (1,061) (14,517) ---------- ---------- Balance at December 31, 1993 213,493 1,436,231 Cumulative effect of change in accounting method (Note 1) -- (470,611) Issued -- -- Redeemed (6,558) (43,159) Appreciation in share value -- 217,433 ---------- ---------- Balance at December 31, 1994 206,935 1,139,894 Issued 20,805 154,403 Redeemed (87,211) (479,542) Depreciation in share value -- (126,608) ---------- ---------- Balance at December 31, 1995 140,529 $ 688,147 ========== =========== 8. PERFORMANCE SHARE OPTION PLAN Effective May 3, 1995, the Company adopted a Performance Share Option Plan ("Option Plan") intended to offer incentives beyond current compensation to certain officers and key employees responsible for furthering the Company's long-term earnings growth. Performance share options are issued at the sole discretion of the Performance Share Option Plan Committee (the "Committee"). Under the Plan, 200,000 option shares are available for grant. The option price is determined by the Committee and for 1995 was set at $7.41 per share. Options are exercisable only upon a "Transfer" of ownership as defined in the Option Plan agreement. The options have no stated expiration date but will expire upon termination of the optionee's employment. No compensation expense was recorded during 1995, since the options were granted at fair market value. At December 31, 1995, there were 77,250 shares under option at an option price of $7.41 per share. 9. LEASES Minimum annual rental commitments under noncancelable operating leases at December 31, 1995 (primarily for office space) are as follows: 1996 $ 2,642,509 1997 1,692,026 1998 1,060,172 1999 705,190 2000 302,074 Thereafter 822,097 -------------- $ 7,224,068 ============== Total rental expense for the year ended December 31, 1995 and 1994 and the three months ended December 31, 1993 and the year ended September 30, 1993 was $3,404,000, $3,107,000, $775,000 and $3,216,000, respectively. 10. 401(k) PROFIT SHARING PLAN The Company sponsors a defined contribution 401(k) Profit Sharing Plan ("Plan") covering substantially all employees. Annual contributions made by the Company to the Plan are strictly discretionary in nature and may be discontinued or temporarily suspended for a definite or indefinite period of time. The Company's profit sharing contributions are allocated to the account balance of each participant based upon the ratio of the participant's Plan year compensation to the total Plan year compensation of all participants and vest over a six-year period. There were no profit sharing contributions for any of the periods presented. During the year ended December 31, 1995, the Company contributed $331,064 to the 401(k) portion of the Plan, equivalent to 50% of employees' pre-tax contributions, up to 3% of each employees' pay. These contributions also vest over a six-year period. Participant forfeitures aggregating $49,460 were retained. The Company's contribution for the year ended December 31, 1994 was $273,513 with forfeitures of $46,938. The Company's contributions to the Plan were $113,850 during the three months ended December 31, 1993. During the year ended September 30, 1993, participant forfeitures totaling $321,033 were retained to satisfy the Company's contribution to the Plan. 12 11. LITIGATION A lawsuit was filed on April 24, 1991 against the Company in the Superior Court of Lake County, Indiana. The claim alleged negligent and careless conduct on the part of the Company, which resulted in permanent personal injuries being suffered by the plaintiff as a result of exposure to hazardous materials while operating equipment at a landfill. On March 23, 1995, a trial jury returned a verdict against the Company and awarded the plaintiff $704,375 in damages. The Company filed a motion with the Court to correct errors in May 1995 and, as a result, the Court reduced the judgment against the Company by $70,000. Since that time, the plaintiff has accepted the Company's settlement offer of $500,000 and such amount was paid subsequent to December 31, 1995. The Company has pursued recovery of the settlement amount from its insurance carrier and in June 1997 reached an agreement to recover $550,000 from the insurance carrier related to this claim. On March 1, 1994, the Company and another party were named as defendants in a lawsuit filed in the Court of Common Pleas, Franklin, Ohio. The plaintiff alleges that the Company negligently performed an environmental site assessment which failed to indicate environmental contamination that has made a mortgage on the property in the amount of $15 million worthless. The Company believes it has a meritorious defense with respect to the lawsuit and intends to vigorously defend the action. While the ultimate outcome cannot be determined at this time, management does not believe it will have a material adverse effect on the Company's financial statements. By letter dated December 12, 1993, the Company entered the Voluntary Disclosure Program administered by the U.S. Department of Defense ("DoD"). The bases of the disclosure are allegations that certain former Company employees paid unlawful gratuities to a federal government inspector concerning a contract at a federal government site. Possible violations involve the federal Anti-Kickback Act, federal criminal law against bribery, and the federal civil False Claims Act. The Company retained independent legal counsel to undertake internal investigation of the matter and to prepare a report for presentation to the Office of the Inspector General, DoD. The Company could be responsible for the repayment of any losses suffered by the federal government related to the gratuities, fraud or kickbacks. In January 1995, the Company submitted the internal investigation report to DoD in which it found that the illegal gratuities had been paid by a former Company employee. The Company paid the federal government the losses identified in the internal investigation report. The Company does not believe it has any additional monetary obligation to the federal government as a result of the matters covered by the investigation; however, the federal government accepted the funds with the express reservation that the acceptance did not constitute a limitation of the Company's liability. The federal government conducted a compliance audit of the report in 1995 and requested additional information to determine if fines should be levied against the Company or if the Company should be suspended from participation in future government contracts. As of June 25, 1997, the Company is negotiating a final settlement agreement with the DoD which will include the withdrawal of the Company from all federal government contracting work. The Company has historically derived approximately 10% of its net service revenues from federal government sources. 13 A complaint was filed in December 1995 against the Company and another party in the Circuit Court of Dade County, Florida. The plaintiff alleges that the Company failed to update its report on the suitability of the foundation material after a substitution in those materials was made. As a result of the plaintiff's reliance on this report, the materials used in the foundation were found to be inadequate and the building pad settled, resulting in damages. The Company believes it has a meritorious defense with respect to the lawsuit and intends to vigorously defend the action. While the ultimate outcome cannot be determined at this time, management does not believe it will have a material adverse effect on the Company's financial statements. On December 5, 1996, the Company received notice of a claim by Western Capital Corporation. Western Capital Corporation's claim against the Company arises from a claim made by a third party. The third party allegedly received serious bodily injuries during the removal of underground storage tanks from Western Capital Corporation's property as a subcontracted employee of the Company. The Company believes it has a meritorious defense with respect to the lawsuit and intends to vigorously defend the action. While the ultimate outcome cannot be determined at this time, management does not believe it will have a material adverse effect on the Company's financial statements. The Company has been named or has claims pending arising out of the ordinary conduct of its business. In the opinion of management, these matters are adequately covered by insurance, appropriately provided for in the accompanying financial statements, without merit, or are not material to the Company's financial statements. 14 -----END PRIVACY-ENHANCED MESSAGE-----