As filed with the Securities and Exchange Commission on February 12, 2001
Registration No. 333-46248
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Amendment No. 2
to
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
__________
ATG INC.
(Exact name of registrant as specified in its charter)
California 4955 94-2657762
(State or jurisdiction of (Primary Standard Industrial IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
47375 Fremont Boulevard
Fremont California 94538
(510) 490-3008
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Doreen M. Chiu
President and Chief Executive Officer
47375 Fremont Boulevard
Fremont, California 94538
(510) 490-3008
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
_______________
Copies of communications to:
J. BRAD WIGGINS, ESQ.
CHRISTINA LYCOYANNIS, ESQ.
TORRIE BYERS, ESQ.
Miller & Holguin
1801 Century Park East, Seventh Floor
Los Angeles, California 90067
(310) 556-1990
________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
Calculation of Additional Registration Fee
- ---------------------------------------------------------------------------------
Proposed
Title of each maximum Proposed
class of offering maximum Amount of
securities to Amount price aggregate registration
be registered to be registered per unit offering price fee
- ---------------------------------------------------------------------------------
Common Stock 339,300 shares(1) $1.125(2) $381,712.50 $95.43
- ---------------------------------------------------------------------------------
(1) The Registration Statement as originally filed on September 20, 2000
covered the sale of 2,942,500 shares, for which a registration fee of
$1,844.95 was paid. This Amendment No. 2 covers an additional 339,300
shares, resulting in an additional registration fee as shown in the table.
(2) Estimated solely for the purpose of calculating the registration fee, and
based, pursuant to Rule 457(c), on the average of the high and low prices
of the Registrant's Common Stock as reported by Nasdaq for February 5,
2001, which date is within 5 business days prior to the initial filing date
of this Amendment to the Registration Statement.
_______________________________________________________________________________
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
_______________________________________________________________________________
Prospectus
Subject to Completion, Dated February 12, 2001
ATG INC.
3,281,800 Shares of Common Stock
Shareholders of ATG Inc may offer and sell up to 3,281,800 shares of ATG
common stock. The selling shareholders may, from time to time, offer their
shares through public or private transactions at prevailing market prices or
privately negotiated prices. See "Sales by Selling Shareholders."
ATG's common stock is traded on the Nasdaq National Market under the symbol
"ATGC." On January 25, 2001, the last reported sale price of our common stock on
Nasdaq was $1.4375. We will not receive any proceeds from the offering.
The selling shareholders do not plan to use any underwriter or broker-dealer
to assist in the offering.
Our principal executive offices are located at 47375 Fremont Boulevard,
Fremont, California 94538, and our telephone number is (510) 490-3008.
___________
The information in this prospectus is not complete and may be changed. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. The selling shareholders may not sell these
securities until the registration statement is effective. This prospectus is
not an offer to sell or a solicitation of an offer to buy securities in any
state or other jurisdiction where the offer or sale would be unlawful.
An investment in these securities is risky. You should purchase these
securities only if you can afford to lose your entire investment. See "Risk
Factors" beginning on page 3 for a discussion of factors you should consider
before you invest in these securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of disclosures in this prospectus. Any representation to
the contrary is a criminal offense.
This prospectus is dated ________, 2001.
TABLE OF CONTENTS
Page
Risk Factors........................................................................... 3
Caution about Forward-Looking Statements............................................... 8
Sales by Selling Shareholders.......................................................... 9
Use of Proceeds........................................................................ 13
Market for Registrant's Common Equity and Related Stockholder Matters.................. 14
Dividend Policy........................................................................ 14
Determination of Offering Price........................................................ 14
Selected Consolidated Financial Data................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 17
Business............................................................................... 28
Management............................................................................. 48
Certain Relationships and Related Party Transactions................................... 58
Security Ownership of Certain Beneficial Owners and Management......................... 60
Plan of Distribution................................................................... 61
Description of Securities.............................................................. 63
Legal Matters.......................................................................... 66
Experts................................................................................ 66
Where You Can Find More Information.................................................... 66
Index to Consolidated Financial Statements............................................. F-1
We have not authorized anyone to give you any information or make any
representations other than those contained in this prospectus. You should rely
only on the information and representations given in this prospectus.
The information included in this prospectus is subject to change; however, the
selling shareholders will be required to provide you with an amended prospectus
or a prospectus supplement to inform you of any change that is material to an
investment decision.
The selling shareholders reserve the right to reject any offer to purchase
shares.
RISK FACTORS
An investment in shares of ATG common stock involves a high degree of risk.
You should carefully consider the following factors and the other information
contained in this prospectus before deciding to invest.
We are in default under one of our credit facilities; as a result, our lenders
could at any time elect to accelerate repayment of all amounts owed under the
credit facilities. ATG is in violation of a requirement under one of its credit
facilities to make a mandatory paydown of approximately $5,750,000 by June 30,
2000, is late in paying $269,000 interest due October 31, 2000, $252,343
interest due November 30, 2000, $243,931 interest due December 31, 2000 and
$257,183 interest due January 31, 2001 under its credit facilities, and is in
violation of financial covenants in the credit facility agreements. ATG also
was unable to pay a $1,500,000 short-term loan from an individual lender which
was originally due on October 5, 2000 and was subsequently extended to December
15, 2000. ATG is seeking to obtain an extension of the December 15, 2000 due
date, but to date has not obtained this extension. ATG will not be able,
without obtaining concessions from its banks or obtaining new financing, to make
the mandatory $5,750,000 paydown, to bring its interest payments current, to
comply with current financial covenants in the credit facility agreements or to
repay its $1,500,000 loan. At any time ATG's lenders could elect to enforce
their rights and remedies under the credit facilities agreements to accelerate
repayment of all amounts owed. ATG does not have the funds to repay all its
loans if the lenders accelerate repayment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
We may not be able to continue as a going concern if our lenders elect to
accelerate the payment of indebtedness under our credit facilities. Since we do
not currently have sufficient funds to repay all of our indebtedness under our
credit facilities, we may not be able to continue as a going concern if our
lenders elect to accelerate payment under the credit facilities. In that case,
we would likely become insolvent and subject to voluntary or involuntary
bankruptcy proceedings, and the value of our equity securities, including the
shares of common stock offered under this prospectus, would likely be
significantly diminished. The report of our independent auditors appearing on
page F-2 of this prospectus includes a "going concern" qualification.
If we cannot raise additional capital, we will need to curtail or scale back
our planned expansion. We believe that ATG will need additional financing for
working capital and capital expenditure requirements in order to implement its
long-term business plan. If we are not successful in raising additional
working capital we may not be able to implement and complete thermal
demonstration testing of our Richland, Washington mixed waste facility which is
currently scheduled for testing in 2001 and to make mandatory paydowns and
payoffs of loans currently due or which will be due in 2001. Our working
capital deficit as of September 30, 2000 is $20.5 million, a decrease of $23.8
from working capital of $3.3 million at December 31, 1999. The working capital
excludes restricted cash of $1.0 million and accounts payable of $1.0 million at
September 30, 2000, and restricted cash of $16.0 million and accounts payable of
$3.5 million at December 31, 1999, that are exclusively for the construction of
ATG's Richland, Washington facility. If we are not successful in raising
additional capital, we may need to curtail or scale back
3
our planned operation of this facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
We have experienced a downward trend in our revenue and net income for fiscal
2000. To date, we have experienced a downward trend in revenue and net income
for fiscal 2000 compared to fiscal 1999, and those trends will continue if we
cannot generate significant additional revenues in our Oak Ridge, Tennessee and
Richland, Washington facilities. ATG recorded revenue of $33.0 million and a
net loss of $1.6 million for the nine months ended September 30, 2000, compared
to revenue of $45.6 million and net income of $4.2 million for the same period
in 1999. The decrease in revenue and net income was principally due to a major
shortfall in receipts from spent ion exchange resin at our Oak Ridge facility in
the first and second quarter of fiscal 2000, a consolidation of our operations
and workforce reduction at our Oak Ridge facility in the second quarter of
fiscal 2000, and the transition of our thermal waste processing system at our
Oak Ridge facility to a more cost effective non-thermal resin decontamination
process which commenced in the second quarter of fiscal 2000. As a result of
the restructuring of the Oak Ridge facility, ATG recorded a $500,000 inventory
writedown charge to cost of revenue and a $1.9 million restructuring charge in
the second quarter of fiscal 2000. Additionally, ATG has completed construction
and is processing low level mixed waste steams as we prepare for demonstration
testing in 2001 of our new thermal mixed waste facility in Richland, Washington.
While we anticipate an increase in revenue and net income for fiscal 2001 at
both our Oak Ridge and Richland facilities, in the absence of significant
revenue generation at these facilities, ATG will continue to experience this
downward trend in revenue and net income for the foreseeable future.
The book value and earnings per share of our common stock may be diluted
significantly and the price of our common stock may also decline because of our
current and future obligations to issue additional shares of common stock to the
selling shareholders, holders of outstanding options and warrants, and
purchasers in future equity financings. Under agreements with the selling
shareholders, ATG is currently required to issue a total of 113,099 shares and
may be required to issue up to a maximum of 339,300 shares of common stock to
the selling shareholders without payment of additional consideration. ATG may
also be required to issue up to a total of 1,616,000 shares of common stock upon
the exercise of outstanding warrants and options, which on December 31, 2000 had
a weighted average exercise price of $4.32 per share. Additionally, because of
existing defaults on our credit facility, we will likely be required to raise
significant additional financing in the near future through the sale of equity
securities, which could have a further dilutive effect. See "Description of
Securities - Common Stock."
We may not be able to comply with all of the environmental and other
regulatory requirements applicable to our business, which could prevent us from
operating our business according to our business plan. If we fail to timely
obtain, or to comply with the conditions of applicable federal, state and local
governmental licenses, permits or approvals for our waste treatment facilities
and services, we could be prevented from operating our facilities and providing
services, resulting in a significant loss of revenue. We are scheduled to
complete our thermal demonstration testing to receive approval to become fully
operational at our processing facility for low-level mixed waste in Richland,
Washington in 2001. Currently, the regulatory authorities are
4
allowing ATG to process contracted waste streams as we prepare for demonstration
testing. If our demonstration testing of the Richland facility does not meet
governmental standards, this would delay or prevent this facility from becoming
operational for thermal decontamination of mixed waste, resulting in a loss of
significant revenue potential at this facility. In addition, licenses, permits
and approvals for our existing, operational facilities and services are subject
to revocation or modification under a variety of circumstances. As our business
expands and as we introduce new technologies, we will be required to obtain
additional operating licenses, permits or approvals. We may also be required to
obtain additional operating licenses, permits or approvals if new environmental
legislation or regulations are enacted or existing legislation or regulations
are amended, reinterpreted or enforced differently than in the past. Any new
governmental requirements which raise compliance standards may require us to
modify our waste treatment technologies to conform to more stringent regulatory
requirements. We may not be able to continue to comply with all of the
environmental and other regulatory requirements applicable to our business.
We may not be able to grow our business if we cannot develop commercially
viable technologies for treatment of wastes in a manner which is responsive to
our clients' requirements. Our future growth is dependent upon our ability to
implement our technologies for the treatment of low-level radioactive waste,
low-level mixed waste and other waste, particularly our vitrification
technologies and technologies for treatment of ion exchange resin waste streams,
in a manner which makes them commercially viable and responsive to our clients'
requirements. Our technologies for treatment of waste compete with other
technologies, as well as with more traditional treatment, storage and disposal
alternatives. Our success depends on our ability to convince our clients that
our vitrification and related technologies are at least as cost-effective as
other waste treatment or waste disposal methods. Furthermore, our ability to
comply with the terms of our contracts will affect whether clients will continue
to utilize our technologies. For example, our contract for treatment of low-
level mixed waste with the Department of Energy's Hanford Reservation requires
us to obtain all of the required licenses, permits and approvals for, and to
build and place in operation, our treatment facility for low-level mixed waste
by November 10, 2000. Before ATG can acquire all required licenses, permits and
approvals for the facility and place this facility in permanent operation, it
must complete demonstration testing of the facility. Demonstration testing is
scheduled to be completed in 2001. The Department of Energy has been notified of
the schedule for completion of demonstration testing and ATG's violation of the
November 10, 2000 deadline. To date, the Department of Energy has not notified
ATG of any corrective actions nor has ATG obtained a waiver of this violation.
A substantial relaxation of the requirements of compliance with environmental
laws or a substantial reduction of enforcement activities by governmental
agencies would reduce the demand for our services. In excess of 90% of our
revenues are generated as a result of requirements arising under federal and
state laws, regulations and programs related to protection of the environment.
If the requirements of compliance with environmental laws and regulations were
substantially relaxed in the future or were less vigorously enforced,
particularly those relating to the transportation, treatment, storage or
disposal of low-level radioactive waste, low-level mixed waste, or other wastes,
the demand for our services would decrease, and our revenues would be
significantly reduced.
5
The cancellation or modification of our government contracts or a reduction in
government funding could significantly reduce our revenues. Our government
contracts are generally subject to cancellation or modification at the sole
option of the government at any time, to annual funding limitations and public
sector budget constraints and, in many cases, to actual delivery orders being
released. Any cancellation or modification of our federal government contracts
could result in a significant reduction in our revenues. Efforts to reduce the
federal budget deficit and reduce government appropriations could adversely
affect the availability and timing of government funding for the cleanup of
Department of Energy, Department of Defense and other federal government sites
resulting in cancellations, modifications or reductions in the government
contracts for the restoration of clean-up sites with ATG, and a consequential
reduction in ATG's revenues. The percentage of ATG's revenues attributable to
federal government contracts for the fiscal years ending 1997, 1998 and 1999 are
71%, 55% and 27%, respectively, and 31% for the nine month period ended
September 30, 2000.
We are subject to fines and penalties if we fail to comply with the
requirements of government contracts. As a provider of services to federal and
other government agencies, we must comply with government contracting
requirements which are complex, highly technical and subject to varying
interpretations. If we fail to comply with governmental contracting
requirements, the government could impose on us fines and penalties for failure
to follow procurement integrity and bidding rules and employing improper billing
practices or otherwise failing to follow prescribed cost accounting standards,
including disqualification from future government contract projects for a
significant period of time. We have been, and expect to be in the future, the
subject of audits, and may in the future be subject to investigations, by
government agencies regarding our compliance with government contracting
requirements.
Fluctuations in quarterly results due to seasonal factors may cause our
operating results to fail to meet analysts' and investors' expectations, which
could cause the price of our common stock to decline. Our revenue is dependent
on our contract backlog and the timing and performance requirements of each
contract. Our revenue is also affected by the timing of our clients' planned
remediation activities and need for waste treatment services, which generally
increase during the third and fourth quarters based largely on weather
conditions. Due to this variation in demand and resulting fluctuation in
quarterly results, future quarterly operating results may not meet the
expectations of securities analysts and investors which could result in the
decline in the price of our stock.
If we fail to manage our growth effectively, our financial, operational and
managerial resources may be inadequate. Our rapid growth has placed, and any
future growth may place, significant demands on our financial resources and to a
lesser extent, our operational and managerial resources which could impact the
timing and operation of waste treatment facilities. We have had and continue to
have substantial working capital deficits as a result of the strain on our
financial resources due to our rapid growth. These working capital deficits may
impact the timing and our ability to successfully implement the operation of our
waste treatment facilities in Richland, Washington and Oak Ridge, Tennessee. Our
growth has increased significantly since 1994, when we experienced a significant
increase in the number and size of contracts awarded. In December 1998, we
acquired new business lines that contributed to increased growth in 1999. Also
in 1999, we began construction of our new Richland, Washington facility for
processing of
6
low-level mixed waste that is anticipated to contribute to increased growth in
2001 and beyond. In the second quarter of fiscal 2000 at our Oak Ridge,
Tennessee facility, we discontinued our Q-CEP thermal process for
decontaminating resin and are replacing it with a more cost effective non-
thermal resin decontamination process which has a greater long-term commercial
viability.
Our facilities may be shut down due to equipment failure or failure to comply
with government regulations, which could significantly reduce our revenues. If
any of our principal waste treatment systems were to be shut down for any
appreciable period of time, because of either equipment breakdown or regulatory
action in response to an alleged safety or other violation of the terms of the
licenses under which we operate, our revenues could be significantly reduced.
Not only could we lose revenues from shut downs, but we could also lose
potential revenues from future contracts if we could not bid for contracts
successfully because the waste treatment systems at our fixed facilities did not
perform consistently in conformance with safety and other requirements. Our
fixed facilities are subject to frequent routine inspections by the regulatory
authorities issuing the licenses. Our SAFGLAS(TM) system was shut down from
September 5 to September 28, 1999 due to an equipment failure, and we have
experienced other shutdowns of our facilities for short periods of time in the
past.
We face competition from companies with greater resources and potentially more
cost-effective waste treatment solutions. Any increase in the number of
licensed commercial treatment facilities or disposal sites for low-level
radioactive waste or low-level mixed waste in the United States, or any decrease
in the treatment or disposal fees charged by the facilities or sites, could
reduce the competitive advantage of ATG's treatment technologies. The market
for radioactive and hazardous waste management services is highly competitive
and we face competition in our current and planned business lines from both
established domestic companies and foreign companies attempting to introduce
European waste treatment technologies into the United States.
Risks associated with foreign markets could impede our planned expansion into
the Pacific Rim. A key component of our long-term business plan is to expand
our business into select Pacific Rim markets, which requires that we or our
strategic alliance partners be able to market our technologies or services
successfully in foreign markets. However, our expansion into the Pacific Rim
region could be delayed or prevented by various risks which are inherent in
foreign operations, including general economic conditions in each country,
varying regulations applicable to our business, seasonal reductions in business
activities, fluctuations in foreign currencies or the U.S. dollar,
expropriation, nationalization, war, insurrection, terrorism and other political
risks, the overlap of different tax structures, risks of increases in taxes,
tariffs and other governmental fees and involuntary renegotiation of contracts
with foreign governments.
A loss on one or more of our larger contracts could significantly reduce our
revenues. If ATG is unable to accurately calculate or integrate the cost of
performing a large, multi-year contract in its contract bid and the costs are
understated significantly, ATG would likely incur a loss which would
significantly reduce our revenues. ATG increasingly pursues large, governmental
and private sector, multi-year contracts as a method of achieving more
predictable revenue, more consistent utilization of equipment and personnel, and
greater leverage of sales and marketing costs. The government contracts in
particular are usually awarded as a result of a
7
competitive bidding process requiring ATG to estimate and accurately predict its
cost of performance. These large contracts impose significant risks if actual
costs are higher than those estimated by ATG at the time of bid.
If we were to lose a pending wrongful death civil action against us, we might
become subject to a potentially large damage award. ATG is a defendant in a
pending wrongful death civil action seeking damages in excess of $8 million,
including exemplary damages of $5 million, for the death of an employee of a
scrap metal dealer who died as a result of an exploding piece of ordnance. The
action alleges that ATG's sub-contractor supplied the ordnance to the scrap
dealer. A second lawsuit was filed by three other persons alleging physical
injuries and emotional distress caused by the accident. ATG is a named defendant
in this action as well. See "Business - Legal Proceedings."
If we fail to maintain a Nasdaq listing for our common stock, it will become
more difficult for owners of our common stock to dispose of their shares. Our
common stock is presently traded on the Nasdaq National Market. If we fail to
maintain our listing for our common stock, and no other exclusion from the
definition of "penny stock" under the Exchange Act of 1934 is available, then
any broker engaging in a transaction in our securities would be required to
provide any customer with a risk disclosure document and the compensation of the
broker-dealer in the transaction and monthly account statements showing the
market values of ATG's securities held in the customer's accounts. If brokers
become subject to the "penny stock" rules when engaging in transactions in our
securities, they may become less willing to engage in the offer and sale of our
securities. This, in turn, may make it more difficult for owners of our common
stock to dispose of their shares.
CAUTION ABOUT FORWARD-LOOKING STATEMENTS
To the extent that the information presented in this prospectus, and in other
documents which are incorporated by reference in this prospectus under the
section of this prospectus entitled "Where You Can Find More Information,"
discusses financial projections, information or expectations about our business
plans, results of operations, products or markets, or otherwise makes statements
about future events, these statements are forward-looking. These forward-looking
statements can be identified by the use of words such as "intends,"
"anticipates," "believes," "estimates," "projects," "forecasts," "expects,"
"plans," and "proposes." Although we believe that the expectations reflected in
these forward-looking statements are based on reasonable assumptions, there are
a number of risks and uncertainties that could cause actual results to differ
materially from these forward-looking statements. These include, among others,
the cautionary statements in the "Risk Factors" section of this prospectus
beginning on page 4. These cautionary statements identify important factors that
could cause actual results to differ materially from those described in the
forward-looking statements. When considering forward-looking statements in this
prospectus, you should keep in mind the cautionary statements in the "Risk
Factors" section and other sections of this prospectus.
8
SALES BY SELLING SHAREHOLDERS
The holders of ATG's common stock who are identified as selling
shareholders in this prospectus may offer and sell from time to time up to
3,281,800 shares of ATG's common stock by using this prospectus. ATG sold
2,750,000 of these shares in a private placement transaction to the selling
shareholders in two tranches on June 30, 2000 and July 7, 2000. Additionally,
in connection with the private placement, ATG issued warrants to purchase a
total of 192,500 shares of ATG common stock to the selling shareholders who
served as placement agent or to the placement agent's designees.
The following table sets forth as of the date of the prospectus, the name
of each of the selling shareholders, the number of shares of common stock that
each selling shareholder beneficially owns as of January 25, 2001, the number of
shares of common stock beneficially owned by each selling shareholder that may
be offered for sale from time to time by this prospectus and the number of
shares and percentage of common stock to be held by each selling shareholder
assuming the sale of all the common stock offered hereby.
The terms of the agreements with the selling shareholders require ATG to
prepare and file a registration statement to register for resale both the shares
of common stock and the shares of common stock issuable upon exercise of the
warrants issued in the private placement. ATG was required to file the
registration statement relating to these shares within 45 days of the closing
date of the private placement. The agreements with the selling shareholders,
including the placement agent, provide that if ATG has not filed the
registration statement within 45 days of the closing date of the private
placement or if the registration statement has not been declared effective
within 120 days of the closing date, then the selling shareholders are entitled,
at no cost, to additional shares of common stock of ATG, accruing at the end of
each 30 day period for which ATG has not filed or had the registration statement
declared effective after the 45 and 120 day periods required by the agreements,
up to an aggregate maximum number equal to 36% of the total number of shares of
common stock issued in the private placement and issuable upon the exercise of
the warrants. ATG did not file its registration statement or have it declared
effective on a timely basis and is therefore required to issue additional shares
in accordance with the terms of the agreements. Although the number of shares
of common stock issued in the private placement and the number of shares of
common stock issuable upon the exercise of the warrants total 2,942,500, due to
an agreement between ATG and three of the selling shareholders holding 2,000,000
of these shares in which these selling shareholders waived their rights to
receive the additional shares of stock being issued as a result of the delayed
filing and effectiveness of this registration statement, the maximum additional
shares that ATG will be required to issue is 339,300. (See "Certain
Relationships and Related Party Transactions"). The terms of the purchase
agreements require ATG to include any additional shares being issued in the
registration statement of which this prospectus is a part. This prospectus
therefore covers the resale of the 2,750,000 shares of ATG common stock issued
in the private placement, the 192,500 shares of common stock underlying the
warrants that were issued in the private placement, and up to 339,300 additional
shares of common stock that are or may become issuable because of the delayed
registration statement filing and effectiveness.
9
The agreements with the selling shareholders, including the placement
agent, required ATG to use its reasonable best efforts to raise an additional
$3,000,000 within 90 days of the closing date of the private placement, by
closing on the sale of convertible securities unless during this 90 day period,
ATG obtained additional financing of at least $3,000,000 from an institution,
including, without limitation, a bank, insurance company or leasing company, in
which case ATG was not required to use its reasonable best efforts to close on
the additional offering. In the event the additional offering of convertible
securities occurred, the agreements with the selling shareholders required ATG
to provide the selling shareholders with the right to participate in the
additional offering by means of an opportunity to exchange their shares of
common stock acquired in the private placement for the convertible securities.
ATG did not issue convertible securities within 90 days of the closing date of
the private placement, and therefore the selling shareholders did not have the
opportunity to exchange their shares of common stock.
The 3,281,800 shares being offered by this prospectus represent 18.8% of
the total outstanding shares of ATG as of January 25, 2001, assuming the
issuance of all shares underlying the private placement warrants and the maximum
number of additional shares that may be issued as described above.
None of the selling shareholders has held any position or office or had a
material relationship with ATG other than as a result of the ownership of ATG
common stock except the selling shareholders named Taglich Brothers and Taglich
Brothers' designees identified by the "+" next to such selling shareholders'
name in the table below. Taglich Brothers served as placement agent to ATG in
connection with the private placement wherein the selling shareholders obtained
the shares which are being sold pursuant to this prospectus. ATG may amend or
supplement this prospectus from time to time to update the disclosures set forth
herein.
Securities Beneficially
Owned Prior to Offering(1)
-------------------------------------
Shares Beneficially
Owned Prior to Securities Percentage
Name of Offering, exclusive Securities Beneficially Ownership
Selling of Additional Additional Offered Owned After After
Shareholder Shares Shares for Sale Offering(2) Offering(3)
- ----------- ------ ------ -------- ----------- -----------
Ahdoot, Michael 5,000 1,800 6,800 0 0
Arnold, E. H. 75,000(4) 18,000 68,000 25,000 *
Arnold, Gary** 15,000 5,400 20,400 0 0
Becker, Keith 25,000 9,000 34,000 0 0
Bernier, Russel J. 1,000+ 360 1,360+ 0 0
Brunone, Michael R. 1,400+ 504 1,904+ 0 0
Chaney, William E. 5,000 1,800 6,800 0 0
Clifford, John C. 30,000(5) 9,000 34,000 5,000 *
Clough, Francisco J. 2,000+ 720 2,720+ 0 0
Conroy, Laura A. 4,000+ 1,440 5,440+ 0 0
Crow, John W. 10,500(6) 3,600 13,600 500 *
Dolphin Offshore Partners, 250,000 90,000 340,000 0 0
L.P.
D'Silva, Tere 500+ 180 680+ 0 0
10
Finnel, Elsa V. 5,000 1,800 6,800 0 0
Fortin, Denis 40,000(7) 10,800 40,800 10,000 *
Hailey, Douglas E. 54,225+ 19,521 73,746+ 0 0
Johnson, Ronald 25,000 9,000 34,000 0 0
Kasson, Joseph C. 600+ 216 816+ 0 0
Light, Andrew K. 5,000 1,800 6,800 0 0
Main, Robert W. 5,000 1,800 6,800 0 0
Martha, Joseph A. 5,000 1,800 6,800 0 0
Martins, Luis 2,000+ 720 2,720+ 0 0
Metz, Emmanuel 50,000 18,000 68,000 0 0
Morrissey, Thomas P. 20,000(8) 3,600 13,600 10,000 *
Oh, Richard C. 5,000+ 1,800 6,800+ 0 0
Palmieri, Vincent 6,000+ 2,160 8,160+ 0 0
Paul, Robert G. 38,000(9) 10,800 40,800 8,000 *
Random, David A. 20,500(10) 6,300 23,800 3,000 0
Rechter, Arthur J. 5,000 1,800 6,800 0 0
Regan, Joseph F. 20,000 7,200 27,200 0 0
Roesler, Michael C. 2,000+ 720 2,720+ 0 0
Ryon, William G. 6,000+ 2,160 8,160+ 0 0
Schroeder, Robert C. 5,000+ 1,800 6,800+ 0 0
Sciannameo, Gina 500+ 180 680+ 0 0
Shadow Capital LLC 27,500 9,900 37,400 0 0
Sydnor, Jr., Garland S. 16,500(11) 3,600 13,600 6,500 *
Special Situations Cayman Fund, L.P. 300,000 300,000 0 0
Special Situations Fund III, L.P. 900,000 900,000 0 0
Special Situations Private 800,000 800,000 0 0
Equity Fund, L.P.
Taglich Brothers, Inc. 50,638+ 18,230 68,868+ 0 0
Taglich Brothers, Inc. 50,637+ 18,229 68,866+ 0 0
Taglich, Michael 30,000(12) 7,200 27,200 10,000 *
Taglich, Michael 73,000(13) 18,000 68,000 23,000 *
Taglich, Robert 50,000 18,000 68,000 0 0
Thieme, Heiko H. 1,000+ 360 1,360+ 0 0
- ---------------------------
+ Issuable upon the exercise of common stock purchase warrants.
(1) Except as otherwise noted herein, the number and percentage of shares
beneficially owned is determined in accordance with Rule 13d-3 of the
Exchange Act, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under Rule 13d-3, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days of the date of this prospectus
through the exercise of any stock option or other right. Unless otherwise
indicated in the footnotes, each person has sole voting and investment
power, or shares voting and investment power with his or her spouse, with
respect to the shares shown as beneficially owned.
11
(2) Assumes the sale of all shares of common stock offered hereby.
(3) Based upon 16,935,993 shares of common stock outstanding as of January 25,
2001, plus the 192,500 shares underlying the warrants and the 339,300
maximum additional shares owing to the shareholders.
(4) 50,000 of these shares are from the private placement and are being offered
for sale.
(5) 25,000 of these shares are from the private placement and are being offered
for sale.
(6) 10,000 of these shares are from the private placement and are being offered
for sale.
(7) 30,000 of these shares are from the private placement and are being offered
for sale.
(8) 10,000 of these shares are from the private placement and are being offered
for sale.
(9) 30,000 of these shares are from the private placement and are being offered
for sale.
(10) 17,500 of these shares are from the private placement and are being offered
for sale.
(11) 10,000 of these shares are from the private placement and are being offered
for sale.
(12) 20,000 of these shares are from the private placement and are being offered
for sale.
(13) 50,000 of these shares are from the private placement and are being offered
for sale.
* Less than 1%.
** Beneficial ownership is shared with Patricia A. Arnold.
12
USE OF PROCEEDS
ATG will not receive any proceeds from the sale of shares of common stock
offered by the selling shareholders under this prospectus.
ATG received an aggregate net amount of $5,100,000 from the private placement
with the selling shareholders on June 30, 2000 and July 7, 2000. The gross
amount received from the private placement was $5,240,000 and $260,000,
respectively, for a total of $5,500,000. The price per share of the common
stock sold in the private placement was $2 a share with 2,620,000 shares sold in
the first tranche of the private placement and 130,000 shares sold in the second
tranche.
In connection with the private placement, ATG issued warrants to purchase
192,500 shares of the common stock to the placement agent or its designees. The
warrants expire on June 30, 2005 and are exercisable at a price of $2.75 per
share. ATG will also be required to issue, for no additional consideration, up
to 339,300 additional shares of common stock to the selling shareholders because
ATG did not meet the deadlines for filing and making effective the SEC
registration statement for this offering. See "Certain Relationships and
Related Party Transactions."
The proceeds from the private placement were primarily used for capital
improvement projects at our facilities in Tennessee and Washington in addition
to general working capital purposes. The Tennessee facility improvement project
included equipment and installation for our non-thermal resin decontamination
process. The Washington facilities improvement project included the upgrade of
our SAFGLAS(TM) thermal processing system in addition to expenditures required
in the construction of our new mixed waste processing facility.
13
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"ATGC". The following table sets forth, for the periods indicated, the high and
low sales prices of the common stock (as reported by Nasdaq):
2000 HIGH LOW
---- ---- ---
First Quarter 2000 $ 6 1/4 $4 1/8
Second Quarter 2000 $4 5/16 $ 2
Third Quarter 2000 $ 2 5/8 $ 1/2
Fourth Quarter 2000 $ 1 7/8 $21/32
1999 HIGH LOW
---- ---- ---
First Quarter 1999 $10 $6 1/8
Second Quarter 1999 $8 1/2 $6 1/2
Third Quarter 1999 $7 $4 9/16
Fourth Quarter 1999 $5 3/4 $4
As of January 25, 2001, the closing market price of our common stock was
$1.4375. As of January 25, 2001, there were over 1800 holders of record of our
common stock.
DIVIDEND POLICY
ATG currently intends to retain any future earnings for use in the operation
and growth of its business. We have never paid, and do not anticipate paying in
the foreseeable future, any cash dividends on our common stock. Any future
decision to declare or pay cash dividends on our common stock will depend upon
our results of operations, financial condition and our capital expenditure plans
at that time, as well as other factors that our board of directors, in its sole
discretion, may consider relevant. In addition, the terms of our bank
borrowings currently prohibit the payment by ATG of cash dividends on its common
stock without the lender's prior approval.
DETERMINATION OF OFFERING PRICE
The selling shareholders may, from time to time, offer their shares through
public or private transactions at prevailing market prices or privately
negotiated prices.
14
Selected Consolidated Financial Data
(in thousands, except for share data)
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statements
of operations data for the years ended December 31, 1997, 1998 and 1999 and the
balance sheet data as of December 1998 and 1999 are derived from our
consolidated financial statements that are included elsewhere in this
prospectus. The statements of operations data for the years ended December 31,
1995 and 1996 and the balance sheet data as of December 31, 1995, 1996 and 1997
are derived from our consolidated financial statements that are not included in
this prospectus. The consolidated statements of operations data for the nine
month periods ended September 30, 1999 and 2000 and the consolidated balance
sheet data as of September 30, 2000 are derived from our unaudited consolidated
financial statements that include, in the opinion of our management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the information set forth therein. Historical results are not
necessarily indicative of results to be expected in any future period.
Nine Months
Ended
Years Ended December 31, September 30,
--------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------- --------
Statement of Operations Data (1):
Revenue $16,070 $18,235 $19,107 $35,900 $60,662 $45,621 $33,046
Cost of revenue 9,659 11,082 11,172 19,816 36,359 28,007 20,841
------- ------- ------- ------- ------- ------- -------
Gross profit 6,411 7,153 7,935 16,084 24,303 17,614 12,205
Restructuring charge --- --- --- --- --- --- 1,900
Sales, general and administrative expenses 6,202 6,656 7,020 7,952 14,685 9,914 12,124
------- ------- ------- ------- ------- ------- -------
Operating income (loss) 209 497 915 8,132 9,618 7,700 (1,819)
Other income --- --- --- --- --- --- 841
Interest income (expense), net (141) 13 58 173 (996) (687) (1,642)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes 68 510 973 8,305 8,622 7,013 (2,620)
Income tax expense (benefit) 2 2 (45) 3,156 3,449 2,805 (1,048)
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 66 $ 508 $ 1,018 $ 5,149 $ 5,173 $ 4,208 $(1,572)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share (2)
Basic $0.09 $0.40 $0.37 $0.30 $(0.10)
Diluted $0.08 $0.38 $0.35 $0.29 $(0.10)
Weighted average shares outstanding (2)
Basic 11,516 12,975 14,048 14,040 15,024
Diluted 12,284 13,698 14,596 14,624 15,024
15
December 31, Sept. 30,
--------------------------------------------- ---------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- -------- ---------
Balance Sheet Data (1):
Adjusted working capital (deficit) (3).................... $ 3,903 $ 4,333 $ (151) $ 1,645 $ 3,320 $(20,512)
Total assets.............................................. 21,182 26,976 37,227 79,569 136,079 135,718
Total long-term debt (4).................................. 4,080 2,930 6,202 11,246 56,595 35,909
Mandatorily redeemable preferred stock.................... 9,403 16,319 19,416 --- --- ---
Total shareholders equity................................. 890 630 296 40,745 46,658 50,244
- -----------------------------
(1) See Note 3 of Notes to Consolidated Financial Statements for the fiscal
year ended December 31, 1999 for a discussion of the acquisition of
significant assets and businesses. The acquisition was completed December
1, 1998.
(2) See Note 2 of Notes to Consolidated Financial Statements for the fiscal
year ended December 31, 1999 -- Computation of Net Income Per Share.
Historic net income (loss) per share and net income (loss) available to
common shareholders have not been presented in Statement of Operations Data
since these amounts are not deemed meaningful due to the automatic
conversion immediately prior to the closing of the initial public offering
of the company's Common Stock in May 1998 of all shares of preferred stock
issued by the company and ATG Richland Corporation, a subsidiary of the
company. Historic net income (loss) per share for the fiscal years ended
December 31, 1995, 1996 and 1997 was $(0.10), $(0.10) and $(0.06),
respectively. Net income (loss) available to common shareholders for the
fiscal years ended December 31, 1995, 1996 and 1997 was $(770), $(780) and
$(451), respectively.
(3) At September 30, 2000, adjusted working capital deficit of $20.5 million
excluded restricted cash of $1.0 million and accounts payable of $1.0
million that are exclusively for the construction of the company's low-
level mixed waste facility. At December 31, 1999, working capital of $3.3
million excluded restricted cash of $16.0 million and accounts payable of
$3.5 million that are exclusively for the construction of the company's
low-level mixed waste facility. The decrease in working capital is due to
the reclassification of $23.75 million of long-term debt to short-term
borrowing pursuant to the lender's credit facility forbearance and consent
agreement with the Company, dated June 1, 2000.
(4) See Note 9 of Notes to Consolidated Financial Statements for the fiscal
year ended December 31, 1999 for a discussion of long-term debt.
The following table presents our unaudited quarterly results of operations
for each of the eleven quarters ended September 30, 2000. You should read the
following table in conjunction with our consolidated financial statements and
the notes related thereto. We have prepared this unaudited information on a
basis consistent with the audited consolidated financial statements. This table
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair statement of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from our quarterly results of operations.
16
Financial Results By Fiscal Quarter (Unaudited)
(in thousands, except per share data)
Three Months Ended
------------------------------------------------------------------------------------------------------
Mar. 31 June 30 Sep. 30 Dec. 31 Mar. 31 June 30 Sep. 30 Dec. 31 Mar. 31 June 30 Sep. 30
1998 1998 1998 1998 1999 1999 1999 1999 2000 2000 2000
------ ------ ------ ------- ------- ------- ------- ------- ------- ------- -------
Revenue $5,495 $6,773 $9,021 $14,612 $12,944 $16,060 $16,617 $15,041 $11,103 $11,120 $10,823
Gross Profit 2,865 3,426 4,226 5,567 5,202 6,252 6,160 6,689 4,416 3,434 4,355
Net income (loss) 670 879 1,529 2,071 1,110 1,694 1,404 965 6 (1,650) 72
Net income (loss)
per share
Basic 0.05 0.07 0.11 0.15 0.08 0.12 0.10 0.07 0.00 (0.12) 0.00
Diluted 0.05 0.07 0.11 0.14 0.08 0.12 0.10 0.07 0.00 (0.12) 0.00
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
known and unknown risks and uncertainties which may cause our actual results in
future periods to differ materially from those indicated herein as a result of a
number of factors, including those set forth under "Risk Factors." We
undertake no obligation to publicly release updates or revisions to these
statements.
The following discussion should be read in conjunction with unaudited
condensed consolidated financial statements and the notes thereto for the nine
months ended September 30, 2000 included elsewhere in this prospectus and the
audited consolidated financial statements and notes thereto for the fiscal year
ended December 31, 1999, also included elsewhere in this prospectus.
Overview
ATG is a radioactive and hazardous waste management company that offers
comprehensive treatment solutions for low-level radioactive waste, low-level
mixed waste, and other waste generated by the U.S. Department of Defense, the
U.S. Department of Energy and commercial entities including, nuclear power
plants, medical facilities and research institutions. ATG principally derives
its revenue from the waste treatment operations of its Fixed Facilities Group
and the on-site remediation services of its Field Engineering Group. ATG
currently focuses a significant portion of its business on SAFGLAS(TM)
vitrification of low-level radioactive waste and on its newly acquired business
interests in Tennessee for treating ion exchange resins and on processing of
low-level mixed waste. During the quarter ended June 30, 1999, ATG's permit
application for its low-level mixed waste processing facility in Richland,
Washington was granted, and in the quarter ended September 30, 1999, we began
construction of this processing facility. ATG commenced non-thermal processing
of low-level mixed waste at this facility in late December 1999.
17
The U.S. government represented approximately 27%, 55% and 71% of ATG's total
revenue for the years 1999, 1998 and 1997, respectively. Revenue from
commercial entities, primarily nuclear power plants, industrial concerns and
medical and research institutions, has increased in recent years and represents
an increasing portion of ATG's business. Revenue from waste treatment
processing is generally recognized upon the substantial completion of the waste
treatment process. Field engineering services are provided under fixed price,
cost plus or unit price contracts. Revenue from fixed price and cost plus
contracts is recognized utilizing the percentage of completion method of
accounting; revenue from unit price contracts is recognized as the units are
processed and completed. Revenue also includes non-refundable fees received
under the terms of technology transfer agreements.
Gross profit percentages reflect the mix of ATG's business, which varies from
time to time. Gross profit margins are generally higher for technology transfer
agreements involving up-front, non-refundable, licensing fees payable to ATG,
and due to the extensive expertise we have has developed in this area, when we
are processing radioactive waste, while margins on nonradioactive waste projects
generally are lower. In 1999, we focused a significant portion of our business
on SAFGLAS(TM) vitrification of low-level radioactive waste, on our newly
acquired Tennessee business interests and processing of low-level mixed waste,
and we intend to continue this focus in 2000. During 1998 we focused a
significant portion of our business on SAFGLAS(TM) vitrification of low-level
radioactive waste. During 1997 we entered into two technology transfer
agreements with licensees in selected Asian territories and we intend to
continue to seek additional similar licensing arrangements as appropriate
opportunities arise.
ATG operates its fixed facilities under regulation of, and licenses and
permits issued by, various federal, state and local agencies. We cannot assure
you as to the successful outcome of any pending licensing and permitting
efforts. The licensing and permitting process is subject to regulatory
approval, time delays, community opposition and potentially stricter
governmental regulation. Our inability to obtain licenses or permits on a
timely basis, delays or changes in facility construction programs or the
cancellation of pending projects could have a material adverse effect on our
financial condition and results of operations.
ATG has historically relied upon the integration of proven technologies with
ATG's know-how and processes, and has not incurred significant levels of
research and development spending. Most of the research and development
activities conducted to date have related to the design and construction of our
fixed operating facilities, particularly in connection with the SAFGLAS(TM)
system. We anticipate that our research and development efforts will continue
to be moderate and that the costs associated with future research and
development will not be material to our results of operations.
ATG increasingly pursues multi-year and longer term contracts as a method of
achieving more predictable revenue, more consistent utilization of equipment and
personnel, and greater leverage of sales and marketing costs. ATG currently
focuses on large, multi-year site-specific and term contracts in the areas of
treatment of low-level radioactive waste and low-level mixed waste,
environmental restoration and D&D. In recent years we have been awarded a
number of large government term contracts which, in most cases, require several
years to complete. These
18
government term contracts are subject to cancellation, delay or modification at
the sole option of the government at any time, to annual funding limitations and
public sector budget constraints and, in many cases, to actual delivery orders
being released. These projects, which may create an opportunity for ATG to
realize margins higher than on other types of contracts, also impose heightened
risks of loss if, for example, actual costs are higher than those estimated at
the time of bid. A loss on one or more of these larger contracts could have a
material adverse effect on our financial condition and results of operations. In
addition, failure to obtain, or delay in obtaining, targeted large, multi-year
contracts could result in significantly less revenue to ATG than anticipated.
During April 2000, ATG announced the consolidation of its Oak Ridge,
Tennessee, operations and a workforce reduction of 110 employees. The announced
workforce reduction was completed by the end of the second quarter of fiscal
2000. At the same time, ATG's Q-CEP thermal process was being replaced by a more
cost effective non-thermal resin decontamination process. See the section
entitled "Comparison of Nine Months Ended September 30, 2000 and 1999 -- Results
of Operations -- Revenue and Net Income" for further discussion.
Results of Operations
The following table sets forth a portion of the statement of operations data
as a percentage of total revenue for the periods indicated:
Nine Months
Years Ended December 31 Ended September 30 (Unaudited)
----------------------- --------------------------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
Revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue 58.5 55.2 59.9 61.4 63.1
----- ----- ----- ----- -----
Gross profit 41.5 44.8 40.1 38.6 36.9
Restructuring charge -- -- -- -- 5.8
Sales, general and administrative 36.7 22.2 24.2 21.7 36.6
expenses ----- ----- ----- ----- -----
Operating income 4.8 22.6 15.9 16.9 (5.5)
Other income (loss) -- -- -- -- 2.5
Interest income (expense), net 0.3 0.5 (1.6) (1.5) (5.0)
(Provision) benefit for income taxes 0.2 (8.8) (5.7) (6.2) 3.2
----- ----- ----- ----- -----
Net income (loss) 5.3% 14.3% 8.5% 9.2% (4.8)%
===== ===== ===== ===== =====
Comparison of Nine Months Ended September 30, 2000 and 1999
Results of Operations
Revenue and Net Income. For the nine months ended September 30, 2000 revenue
was $33.0 million, a decrease of 28% from the $45.6 million recorded for the
same period in 1999. ATG recorded a net loss of $1.6 million, or $0.10 per share
for the nine months ended September 30, 2000, compared to net income of $4.2
million, or $0.29 per share fully diluted, for the same period in 1999. The
decrease in revenue is principally attributable to a major shortfall in spent
ion exchange resin receipts at our facility in Oak Ridge, Tennessee. The
facility processes spent ion exchange resins from nuclear power plants, reducing
the volume of waste going to final disposal. The processed resin waste is
disposed of at the Barnwell waste disposal site in South Carolina. The operator
of the Barnwell site offered customers a very deep discount to dispose of the
resins without volume reduction, prior to the sale of the Barnwell operations in
May 2000.
19
The deep discount program by the Barnwell disposal site was completed by the end
of the second quarter of 2000. The second quarter of fiscal 2000 was the final
quarter in which revenues are impacted by this deep discounted pricing due to
South Carolina legislation that removes the site operator's ability to set
pricing and places that authority with a multi-state appointed oversight board.
During April 2000, we announced the consolidation of our Oak Ridge, Tennessee,
operations and a workforce reduction of 110 employees. The announced workforce
reduction was completed by the end of the second quarter of fiscal 2000. At the
same time, ATG's Q-CEP thermal process was being replaced by a more cost
effective non-thermal resin decontamination process. ATG's transition to the
non-thermal resin decontamination process continued during the third and fourth
quarters of fiscal 2000 and is anticipated to be completed in the first half of
fiscal 2001. As a result of the restructuring, ATG recorded a $500,000 inventory
writedown charge to cost of revenue and a $1.9 million restructuring charge in
the second quarter of fiscal 2000 related to the plant consolidation and
workforce reduction.
Gross Profit. Gross profit for the nine months ended September 30, 2000, was
$12.2 million, or 37% of revenue, compared to $17.6 million, or 39% of revenue,
for the comparable period in 1999.
The gross profit percentage may change from year to year and is related to the
varying mixes of business during these periods. Overall gross profit on waste
processing services was approximately 41% in the nine months ended September 30,
2000, compared to 48% in the nine months ended September 30, 1999. The
percentage decrease is principally due to low-level radioactive waste thermal
capacity constraints at the Richland, Washington facilities which caused a
number of waste streams to be processed non-thermally resulting in increased
waste disposal charges that unfavorably impacted gross profit. We have
completed Phase II of an equipment upgrade of our Richland low-level radioactive
waste thermal facility and brought increased capacity online at the end of the
third quarter of fiscal 2000. The percentage decrease in the nine months ended
September 30, 2000, was further impacted by decreased utilization of the
Tennessee fixed facilities as discussed previously under the section entitled
"Revenue and Net Income." The fixed facilities operations generally have a
larger percentage of fixed costs versus variable costs, so increases in
utilization favorably impact gross profit while decreases in utilization
unfavorably impact gross profit. The overall cost of revenue for waste
processing services for the nine months ended September 30, 2000 was $15.8
million compared to $18.2 million for the comparable period in 1999. The
decrease in costs is primarily attributable to the Tennessee plant consolidation
and workforce reduction that resulted in a decrease in costs for labor,
supplies, utilities, maintenance, and waste disposal expenditures.
Overall gross profit on field service projects was approximately 20% in the nine
months ended September 30, 2000, compared to 9% in the nine months ended
September 30, 1999. The principal reason for the percentage difference is the
mix of projects and stage of completion as many projects were utilizing fewer
subcontractor services in the current periods and the company's margin is
typically higher for contract services provided by the company as compared to
utilizing subcontractor services. The overall cost of revenue for field service
projects for the nine months ended September 30, 2000 was $5.0 million compared
to $9.8 million for the comparable period in 1999. The decrease in costs is
primarily attributable to a
20
reduction in the volume of projects under contract that resulted in a decrease
in costs for subcontracts, labor, material, equipment rental, and waste disposal
expenditures.
Sales, General and Administrative Expenses. Sales, general and administrative
expenses for the nine months ended September 30, 2000 were $12.1 million or 37%
of revenue, compared to $9.8 million or 22% of revenue for the comparable period
in 1999. The increase in spending from year to year is principally due to an
increase in infrastructure at our Richland facility and includes general and
administrative expense increases primarily attributable to labor, supplies,
utilities, equipment rental, and depreciation. The increased infrastructure is
required for ATG to meet its contractual obligations regarding the start-up of
its mixed waste processing operations. The overall increase in sales, general
and administrative expenses as a percentage of revenue is principally due to
decreased utilization of the Tennessee fixed facilities as discussed previously
under the section entitled "Revenue and Net Income."
Restructuring Charge. During April 2000, we announced the consolidation of our
Oak Ridge, Tennessee, operations and a workforce reduction of 110 employees
along with replacing our Q-CEP thermal process with a more cost effective non-
thermal resin decontamination process. The announced workforce reduction was
completed by the end of the second quarter of fiscal 2000 resulting in the
company recording a $500,000 charge to cost of revenue for the write-down of the
maintenance supply inventory, and a $1.9 million restructuring charge in the
second quarter of fiscal 2000 that is comprised of plant consolidation costs of
$408,000, workforce reduction costs of $692,000, and non-cash charges of
$800,000 for equipment taken out of service, of which an accrued liability of
$307,000 remains unpaid at September 30, 2000. Actual termination benefits paid
were $589,000 and the actual number of terminated employees was 99 as of
September 30, 2000. Actual plant consolidation costs charged against the
liability were $204,000 as of September 30, 2000 and consist of firm fixed
minimum pricing for electricity, equipment rental contracts, and disposal site
access fees that were not in use. See the section entitled "Revenue and Net
Income" for further discussion.
Other Income. During the second quarter of fiscal 2000, we completed the sale
and leaseback of our corporate offices in Fremont, California, resulting in a
pre-tax gain of $1.7 million. The gain is being recognized in equal increments
of $420,000 each over the next four quarters beginning in the second quarter of
fiscal 2000. We have recorded $841,000 of gain for the nine months ended
September 30, 2000.
Provision for Income Taxes. ATG provides for income taxes during interim
periods at an estimated combined Federal and state annual rate to be expected
for the full year. The actual rate for 1999 was approximately 40% and ATG is
providing for income taxes at this same rate.
Comparison of Years Ended December 31, 1999 and 1998
Revenue. Revenue for 1999 was $60.7 million, an increase of $24.8 million, or
69.1%, compared to $35.9 million in 1998. The growth in revenue is derived from
ATG's Fixed Facilities Group and is principally attributable to new customers
and service offerings resulting from the acquisition of assets and related
businesses in Oak Ridge, Tennessee, and the increasing commercial utilization of
ATG's Richland, Washington facility. The newly acquired Tennessee
21
operations have been integrated with the Richland, Washington waste processing
operations to provide a broad range of customer service offerings. Customer
waste is directed to the processing location capable of providing the most
efficient and economical treatment. The Fixed Facilities Group generated waste
processing revenue of $46.9 million during 1999, an increase of $28.0 million,
compared to $18.9 million in 1998.
Our revenue for the last two quarters of 1999 was impacted by an unscheduled
shutdown of the SAFGLAS(TM) thermal treatment system and the related bulk-
processing unit (BPU) at our facilities in Richland, Washington. Both the glass
melter and BPU units ceased operation on September 5, 1999, due to the failure
of a SAFGLAS(TM) glass drain. Both the SAFGLAS(TM) thermal treatment system and
BPU returned to operational status on September 28, 1999. The required slow
startup of the thermal treatment systems during October had a further negative
impact on revenue.
Field Engineering Group revenue during 1999 was $13.8 million, a decrease of
$3.2 million, compared to $17.0 million in 1998. The revenue decrease was due to
a decrease in new contract awards and weather related delays.
Gross Profit. Gross profit for 1999 was $24.3 million, an increase of $8.2
million, or 50.9%, compared to $16.1 million for 1998. Gross profit as a
percentage of revenue decreased to 40.1% in 1999 compared to 44.8% in 1998.
Gross profit percentages reflect the various mixes of ATG's business services
from time to time. The Fixed Facilities Group experienced a decline in gross
margin during 1999, compared to 1998, due principally to delayed customer
shipments of low-level radioactive waste, the unscheduled SAFGLAS(TM) outage in
September, competitive pricing pressures, and a delay in shipments of non-
thermal low-level mixed waste. The Field Engineering Group also experienced a
decline in gross margin during 1999, compared to 1998, due to its 1999 project
mix being weighted towards fixed fee and fixed unit price contracts.
Sales, General and Administrative Expenses. Sales, general and administrative
expenses (including stock-based compensation expense) were $14.7 million for
1999, an increase of $6.7 million, or 83.8%, compared to $8.0 million in 1998.
Sales, general and administrative expenses were 24.2% of revenue in 1999,
compared to 22.2% of revenue in 1998. The increases in spending from year to
year reflect the growth in ATG's operations, addition of sales and
administrative personnel related to the acquisition of the Tennessee operations
and the increased costs of being a public company. In addition, the increased
1999 spending also includes the recording of a $1.4 million charge to bad debt
expense related primarily to slow payment of government contracts completed
prior to 1999. ATG is maintaining its collection efforts. Sales, general and
administrative expenses include indirect engineering and operating overhead,
depreciation and amortization, and expenses to support the domestic sales and
marketing activities and the financial and administrative functions.
Interest Income and Interest Expense. Net interest expense was $996,000 in
1999 (interest expense for 1999 was $1.3 million, net of capitalized interest),
compared to net interest income of $188,000 in 1998 (interest expense for 1998
was $15,000, net of capitalized interest). The increase in net interest expense
during 1999 is due to our increased business activity that required debt
financing to support our working capital requirements. Interest expense was nil
in 1998 as the result of ATG capitalizing approximately $1.0 million of interest
on construction in
22
progress in accordance with generally accepted accounting principles. During
1999, ATG capitalized $1.4 million of interest on construction in progress.
Provision for Income Taxes. In 1999 and 1998, ATG provided for income taxes
at a combined federal and state effective tax rate of 40% and 38% respectively.
The increase in effective rate during 1999, compared to 1998, is due to the
estimated increase in state income taxes, non-deductible and other items.
Comparison of Years Ended December 31, 1998 and 1997
Revenue. Revenue for 1998 was $35.9 million, an increase of $16.8 million, or
87.9%, compared to $19.1 million in 1997. The growth in revenue was principally
due to the increasing commercial utilization of our SAFGLAS(TM) thermal
treatment system. The SAFGLAS(TM) system began treating customer waste streams
in late 1997 and there was a steady increase in the volume being processed
during 1998. At the end of 1997, we had general service agreements in place with
only four nuclear power reactors, a key target customer for the SAFGLAS(TM)
technology. By the fourth quarter of 1998, customer service agreements were in
place with over 50 nuclear power reactors. With the acquisition of new business
lines in Oak Ridge, Tennessee, the number of the reactors utilizing at least one
of our technologies increased to over 90 at December 31, 1998. In addition to
the increase in waste for thermal treatment utilizing SAFGLAS(TM), these same
customers were sending us increasing volumes of waste to be treated through non-
thermal means.
In addition to SAFGLAS(TM) related revenue increases, ATG's revenues from
field service engineering grew by approximately 30% as a result of several large
awards from Department of Defense and Department of Energy customers. One
contract with the U.S. Air Force accounted for 14% of our total revenue in the
year ended December 31, 1998. Finally, approximately 7% of the revenue for 1998
resulted from the new business acquired for the processing of ion exchange resin
waste streams.
Gross Profit. Gross profit for 1998 was $16.1 million, an increase of $8.1
million, or 102.7%, compared to $7.9 million for 1997. Gross profit as a
percentage of revenue increased to 44.8% in 1998 compared to 41.5% in 1997.
Gross profit percentages reflect the various mixes of our business services from
time to time. Gross profit margins are generally higher, reflecting its
extensive expertise and operating efficiencies, when we are processing
radioactive waste, while margins on non-radioactive waste projects generally are
lower. The fixed facility operations, like SAFGLAS(TM), have a larger
percentage of fixed costs versus variable costs, so increases in utilization,
which occurred in 1998, favorably impact gross profit realized.
Sales, General and Administrative Expenses. Sales, general and administrative
expenses (including stock-based compensation expense) were $8.0 million for
1998, an increase of $0.9 million, or 13.3%, compared to $7.0 million in 1997.
Sales, general and administrative expenses were 22.2% of revenue in 1998,
compared to 36.7% of revenue in 1997. The increase in spending from year to
year reflected the growth in ATG's operations, addition of sales personnel and
the increased costs of being a public company, offset by increased absorption of
indirect engineering and operating overhead. The overall decrease as a
percentage of revenue was
23
attributable to our effort to maintain a level of costs that does not increase
at the same rate as revenue. Sales, general and administrative expenses include
indirect engineering and operating overhead, depreciation and amortization, and
expenses to support domestic sales and marketing activities and financial and
administrative functions.
Interest Income and Interest Expense. Interest income was $188,000 in 1998,
compared to $58,000 in 1997. The increase in interest income was directly
related to the investment of the proceeds from our initial public offering
completed in May 1998. Interest expense was nil in 1998 as the result of
capitalizing approximately $1.0 million of interest on construction in progress
in accordance with generally accepted accounting principles.
Provision for Income Taxes. In 1998, we provided for income taxes at a
combined federal and state effective tax rate of 38%. In prior years ATG
realized the benefit of net operating loss carry forwards. All net operating
loss carry forwards were fully recognized by the end of 1997.
Liquidity and Capital Resources
Total cash and cash equivalents were $1.2 million at September 30, 2000, a
decrease of $1.6 million from December 31, 1999. The working capital deficit of
the company was approximately $20.5 million at September 30, 2000, a decrease of
$23.8 million from working capital of $3.3 million at December 31, 1999. The
working capital calculation excludes restricted cash of $1.0 million and
accounts payable of $1.0 million at September 30, 2000, and restricted cash of
$16.0 million and accounts payable of $3.5 million at December 31, 1999, that
are exclusively for the construction of our low-level mixed waste facility. The
decrease in working capital is due to the reclassification of $23.75 million of
long-term debt to short-term borrowing pursuant to the lender's credit facility
forbearance and consent agreement with the Company, dated June 1, 2000. See
discussion of our credit facility below.
Total cash and cash equivalents were $2.8 million at December 31, 1999, a
decrease of $1.0 million from December 31, 1998. ATG's working capital was
approximately $3.3 million at December 31, 1999, an increase of $1.7 million
from December 31, 1998. The working capital calculation excludes restricted
cash of $16.0 million and accounts payable of $3.5 million that are exclusively
for the construction of our low-level mixed waste facility. The increase in
working capital is primarily due to ATG completing a $45 million credit
facility, as described below, whereby its revolving line of credit is under a
long term agreement, net of cash used to acquire property and equipment.
During June and July 2000, we completed a $5.5 million private placement of
2.75 million shares of common stock at $2 per share. On June 30, 2000, we
completed the first tranche of the private placement by issuing 2.62 million
shares of common stock for an aggregate price of $5.24 million. On July 7, 2000,
we completed the second tranche of the private placement, issuing 130,000 shares
of common stock for an aggregate purchase price of $260,000. In connection with
the private placement, the company issued warrants to purchase a total of
192,500 shares of common stock. The warrants expire on June 30, 2005 and are
exercisable at a price of $2.75 per share, subject to adjustment for:
24
. amendments to ATG's Articles of Incorporation which change the rights,
privileges, restrictions or conditions of ATG's common stock or effect a
division of ATG's common stock;
. a division of our common stock into a greater number of shares of our
common stock or a declaration of a dividend or the making of any other
distribution upon the common stock payable in shares of common stock; or
. a capital reorganization or classification of the capital stock of ATG, or
any consolidation or merger of ATG with another corporation or entity, or
the sale of all or substantially all of ATG's assets to another
corporation or entity wherein holders of ATG common stock shall be
entitled to receive stocks, securities, other evidence of equity ownership
or assets with respect to or in exchange for shares of ATG common stock.
ATG received a total of approximately $5.1 million in net proceeds from this
private placement.
Significant outlays of cash have been needed to acquire property and equipment
and to secure or expand regulatory licenses, permits and approvals, primarily
for improvements to our low-level radioactive waste facility and construction of
the low-level mixed waste facility in Richland, Washington and for improvements
to and the restructuring of our fixed facilities in Oak Ridge, Tennessee.
Property and equipment acquisitions totaled $33.2 million, $5.0 million and $7.8
million for the years ended December 31, 1999, 1998 and 1997, respectively, and
totaled $21.1 million for the nine months ended September 30, 2000. In
addition, we used approximately $3.0 million of cash during 1999 relating to the
purchase accounting for our acquisition of the assets of Molten Metal
Technologies. See Note 3 to the company's Consolidated Financial Statements for
the periods ended December 31, 1999 and 1998, entitled "Acquisition," for
further details. ATG also used approximately $3.2 million of cash during the
nine months ended September 30, 2000 relating to the waste acquisition accrued
liability associated with its 1999 purchase accounting for its acquisition of
the assets of Molten Metals Technology.
In November 1999, ATG completed an agreement with a consortium of banks for a
credit facility in the amount of $45 million. The credit facility includes a
letter of credit in support of tax-exempt Solid Waste Revenue Bonds in the
aggregate face amount of $26.5 million. The bonds were issued during November
1999, and bear interest at a floating rate (5.60% at September 30, 2000), based
upon prevailing market conditions, which is redetermined every seven days. The
bonds are due October 31, 2014 and may be prepaid at any time without penalty.
The proceeds, including the remaining restricted cash balance of $16.0 million
as of December 31, 1999, are to be applied exclusively for the construction of
low-level mixed waste facility in Richland, Washington. The credit facility also
includes a five year revolving working capital line of credit, due October 2004,
in the amount of $18 million, including a letter of credit facility of $5
million. Borrowings, when made, bear a variable interest rate based on financial
ratio criteria. The credit facility is collateralized by accounts receivable,
inventory and equipment.
25
The credit facility agreement requires ATG to comply with a number of
covenants, including capital asset acquisition limits, limits on additional
debt, minimum levels of tangible net worth, dividend payment restrictions and
maintenance of financial ratios. At December 31, 1999, ATG was in violation of
some of these financial ratio covenants. ATG obtained a permanent waiver,
subsequent to year-end, in respect of these violations as of December 31, 1999.
In connection with the waiver, the banks agreed to revise and lower some of the
financial ratio covenants that ATG failed to meet as of December 31, 1999, and
substitute new covenants, for which ATG was in compliance for the original
violated covenants and revise and lower some of the financial covenants for each
of the quarterly periods in the year ended December 31, 2000, and increase the
borrowings available to ATG by $6 million, for a total of $24 million, through
June 30, 2000. The borrowing limit subsequent to June 30, 2000 is $18 million.
In addition, the interest rate applied to the working capital facility was
revised.
At March 31, 2000 ATG was in violation of the revised financial ratios under
the credit facility. Pursuant to a forbearance and consent agreement dated as of
June 1, 2000, the lenders agreed to forbear in the exercise of any of their
rights or remedies with respect to March 31, 2000 covenant defaults through June
30, 2000.
At June 30, 2000 ATG was in violation of the revised financial ratios under
the credit facility. Furthermore, at June 30, 2000, ATG failed to make a
required payment of principal in the approximate amount of $5,750,000 as a
mandatory paydown under the revolving credit facility, so as to bring total
borrowings under that facility to the $18 million limit. ATG currently has
borrowings of $23.75 million and is paying interest at the default rate of
12.75%.
ATG has requested that the banks grant a forbearance in respect of the
violations described above beyond June 30, 2000. As one of the conditions to
granting a forbearance, the banks requested that ATG deposit into a segregated
account the amount of $1,500,000 to finance the completion and demonstration
testing of the company's new low level mixed waste facility in Richland,
Washington which is currently under construction. Consequently, on August 11,
2000, ATG obtained a short-term loan in the amount of $1,500,000 bearing a
maturity date of October 5, 2000 from an individual lender. The loan bears
interest at a rate of 12% per annum. ATG was unable to repay the loan on its
stated maturity date and subsequently obtained an extension until December 15,
2000. ATG is seeking to obtain an extension to the December 15, 2000 due
date, but to date has not obtained this extension. ATG anticipates that it will
need to obtain additional financing or obtain another extension on the due date
in order to repay the loan.
At October 31, 2000, November 30, 2000, December 31, 2000 and January 31, 2001
ATG failed to make required payments of interest in the amounts of $269,166,
$252,343, $243,931, and $257,183 respectively.
ATG will not be able, without obtaining concessions from the banks or new
financing, to make the mandatory principal paydown of approximately $5,750,000,
the $269,166 interest which was due October 31, 2000, the $252,343 interest
which was due November 30, 2000, the $243,931 interest which was due December
31, 2000 and the $257,183 interest which was due January 31, 2001 under the
credit facility, or to comply with the current financial covenants set forth in
the agreements governing the credit facility.
26
As of January 25, 2001, the banks have not granted a forbearance in respect of
the violations of the credit agreement beyond June 30, 2000. The lenders could
elect at any time to enforce their rights and remedies under the credit
agreement. The banks' remedies could include a demand for repayment of all
outstanding loans, which raises substantial doubt about the ability of the
company to continue as a going concern if it cannot obtain additional cash to
repay or restructure the debt. ATG is continuing to negotiate with the lenders
to modify the financial covenants and the time frame for the mandatory paydown.
ATG is seeking alternative forms of financing in order to make the mandatory
paydown. ATG is also reviewing its business plan with its financial advisors
and lenders with the objective of seeking appropriate accommodations and to
ascertain what actions can be taken to enhance liquidity and thereby generate
cash to assist in paying the company's debt service. ATG is also evaluating
potential changes in its capital structure and additional financial resources.
If ATG is unable to service its indebtedness, we may be required to alter our
business plans, seek to restructure or refinance our indebtedness or seek
additional equity capital.
We will not have sufficient cash generated from operations to meet our working
capital requirements for the next twelve months unless we are able to negotiate
accommodations from our lenders or refinance our indebtedness.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument, including some
derivative instruments embedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS 133 is effective for ATG in fiscal year 2000
and will not require retroactive restatement of prior period financial
statements. The adoption of SFAS 133 will not have a material impact on our
financial position and results of operations.
In December 1999, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. The adoption of SAB 101 will have no material impact on our financial
position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB 25 (the
"Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option
27
or award, and (d) the accounting for an exchange of stock compensation awards in
a business combination. This Interpretation is effective July 1, 2000, but some
of the conclusions in this Interpretation cover specific events that occur after
either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. The adoption of FIN 44 will have no material impact on
statement of operations.
Quantitative and Qualitative Disclosures About Market Risk
We considered the provisions of Financial Reporting Release No. 48,
"Disclosure about Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Qualitative Information
about Market Risk Inherent in Derivative Financial Instruments, Other Financial
Instruments and Derivative Commodity Instruments". We had no derivative
financial or commodity instruments at December 31, 1999. Our long term credit
facility provides for interest at a floating or variable rate that may fluctuate
over time based on changes, as applicable, in the prevailing market conditions
or in designated financial ratios applicable ATG pursuant to its terms. Our
short term line of credit has an interest rate based on the bank's reference
rate that may fluctuate over time based on changes in the prevailing market
conditions. We are subject to interest rate risk, and could be subjected to
increased interest payments if market interest rates fluctuate. An effective
increase or decrease of 10% in these interest rates would not have a material
adverse effect on our results of operations.
BUSINESS
Forward-Looking Information
Statements in this report concerning expectations for the future constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements are subject to a number of known and unknown risks, uncertainties and
other factors which may cause actual results, performance or achievements of ATG
or industry trends to differ materially from those expressed or implied by the
forward-looking statements. These risks and uncertainties include, among
others, those discussed in the "Risk Factors" section of this prospectus
beginning on page 3 and elsewhere in this report and those described from time
to time in ATG's other filings with the Securities and Exchange Commission,
press releases and other public communications.
General
ATG Inc. was incorporated in Texas in 1976 under the name Allied Nuclear,
Inc., reincorporated in California in 1980 and changed its name to "ATG Inc." in
1987. ATG is a radioactive and hazardous waste management company that offers
comprehensive treatment solutions for low-level radioactive waste and low-level
mixed waste generated by the U.S. Department of Defense, the U.S. Department of
Energy and commercial entities such as nuclear
28
power plants, medical facilities and research institutions. Our thermal
treatment technologies achieve substantial volume and mass reductions for
treated waste streams while encapsulating the non-volatile waste remains in a
glass matrix or metal matrix for final disposal. Both of these final waste forms
offer greater intrinsic safety and environmental benefits at competitive prices
than either incinerator ash or non-thermal waste processing techniques.
ATG operates through two primary business lines, the Fixed Facilities Group
and the Field Engineering Group. The Fixed Facilities Group operates ATG's fixed
facilities in Richland, Washington and Oak Ridge, Tennessee, which are used to
process low-level radioactive waste and low-level mixed waste. The Fixed
Facilities Group also performs nuclear related work at its customer sites which
normally results in waste being sent to its fixed facilities for processing
prior to disposal. ATG's fixed facilities operate under radioactive material
licenses issued by the State of Washington for its Richland facilities and the
State of Tennessee for its Oak Ridge facilities. Our radioactive materials
licenses include reciprocity provisions that allow us to treat radioactive waste
at customer sites in all fifty states. Our licenses and permits for our
Richland, Washington facilities also include the most comprehensive mixed waste
processing permit in the United States. Our mixed waste processing capabilities
are presently anticipated to result in both substantial mixed waste revenue
starting in 2000 and to also help attract additional wastes to our processing
facilities for low-level radioactive waste.
The Field Engineering Group performs a broad range of construction management
projects and hazardous waste remediation projects at customer sites. Its
primary customer base is private industry and the Department of Defense. It
carries out both fixed price and time and materials contracts related to the
clean-up of customer sites under the U.S. Comprehensive Environmental Response,
Compensation and Liability Act of 1980, commonly referred to as CERCLA, and the
U.S. Resources Conservation and Recovery Act of 1976, commonly referred to as
RCRA, asbestos abatement projects, as well as various specialized construction
management projects, such as the construction of levies.
In December 1998, ATG acquired assets and business lines from the former
Molten Metal Technologies, Inc. The assets acquired from Molten Metal
Technologies included substantially all of the operating assets, contracts,
licenses and permits associated with the wet waste treatment and catalytic
extraction processing for ion exchange resins used to clean various nuclear
power plant waste streams. Building upon the natural synergy between the
acquired business lines and our nuclear fixed facility business lines, in 1999
we integrated the assets acquired from Molten Metal Technologies with our
Richland, Washington waste processing operations. The integration permits
customer waste processing needs to be addressed and directed to the processing
location capable of providing the most efficient and economical treatment.
We believe that we possess a number of competitive advantages which
distinguish our company from other radioactive and hazardous waste management
companies. These include:
. a very comprehensive range of services;
. an extensive portfolio of licenses and permits that are both necessary to do
business and that create barriers to entry for new competitors;
29
. the inherent cost-efficiency and environmental integrity of our waste
treatment technologies; and
. our established positioning with commercial and government customers and
federal, state and local regulators.
In particular, our radioactive material licenses and our mixed waste permits are
considered to be major competitive factors in our fixed facility business lines.
The very long time periods, ranging from three to five years, and extensive
public interactions required to obtain these licenses and permits constitute
extensive barriers to entry that we believe provide far greater protection
against competition than do the proprietary protections and patents associated
with the technologies that we employ.
Market Overview
General. The worldwide environmental services industry is diverse and
growing. Both in the United States and abroad, this growth has been driven by
extensive legislation and governmental regulations that are aimed at protecting
the environment by requiring responsible parties to responsibly manage the
nuclear and hazardous wastes that they generate and to clean up any already
existing environmental hazards. According to industry sources, in 1998 U.S.
companies generated $190 billion in environmental industry related revenue on a
worldwide basis representing approximately 2.0% growth over 1997 revenue.
Although much of the U.S. environmental market is mature and marked by
significant competition for environmental project work, we believe that the
specific environmental services markets that we focus on and, in particular, the
treatment and disposal of low-level radioactive waste and low-level mixed waste
as well as the decommissioning of facilities contaminated with those wastes,
face much more limited competition and thereby continue to command greater
margins than many other environmental service areas. The following is a
description of each of the markets ATG focuses on relative to the types of waste
each market addresses.
Treatment Market in Low-Level Radioactive Waste. Radioactive waste is
categorized as either high-level radioactive waste or low-level radioactive
waste. This waste is generated by government facilities and by commercial
enterprises such as nuclear power plants, medical laboratories and university
and industrial research and development facilities. High-level radioactive waste
is primarily comprised of spent nuclear fuel rods from nuclear reactors and
highly radioactive waste generated by the processing of nuclear materials for
weapons production. ATG does not handle or process high-level radioactive waste.
Low-level radioactive waste is all radioactive material other than high-level
radioactive waste.
Low-level radioactive waste consists of relatively large amounts of common
industrial waste materials that have become contaminated during use with
generally small amounts of radioactivity. These materials include equipment and
tools that have been used in nuclear facilities and laboratories; protective
clothing worn by radiation workers; and paper, rags, packing materials, and
miscellaneous liquids and sludges that are waste by-products from
30
nuclear manufacturing, power production, or medical or research applications. A
special case of low-level radioactive waste is ion exchange resins that are used
to clean various nuclear power plant process water streams. The ion exchange
resins act in a manner analogous to that of a magnet, pulling dissolved
radioactive ions out of the nuclear process water via a chemical attraction for
those ions. Through these cleaning processes, ion exchange resins tend to
accumulate significantly higher concentrations of radioactive materials than
other low-level radioactive waste which, accordingly, increases their handling
and disposal costs.
ATG had targeted the ion exchange resin treatment market for its SAFGLAS(TM)
process in early 1998 and began offering thermal processing for resins with
relatively low contamination levels. Our acquisition of the assets of Molten
Metal Technologies in December 1998 moved ATG into the leadership position for
ion exchange resin treatment offerings and allowed ATG to process ion exchange
resins with significantly greater levels of radioactive contamination, thereby
opening a broader spectrum of the ion exchange resin market to ATG. ATG
currently is the only provider of the full range of services leading to the
final disposal of used ion exchange resins serving the U.S. market. These
services include dewatering the resins at customer sites or at ATG's fixed
facilities to meet disposal requirements, selling a spectrum of proprietary high
integrity containers that are required for the disposal of ion exchange resins
and other very radioactive materials, thermally processing ion exchange resins
to achieve large volume and mass reductions of 100 to 1, and providing shielded
transportation services via a large fleet of shielded casks in order to
transport the ion exchange resins in accordance with regulations of the U.S.
Department of Transportation and U.S. Nuclear Regulatory Commission, commonly
referred to as the NRC.
ATG has been engaged in the business of handling, treating, storing, and
disposing of low-level radioactive waste since 1988. As of December 31, 1999,
ATG was providing at least one of its low-level radioactive waste service lines
to greater than 90% of the commercial nuclear power plants in the United States.
ATG estimates that currently between $150 and $200 million is spent annually in
the United States on the treatment of commercial low-level radioactive waste.
We believe that the size of the commercial market in the United States for
treatment of low-level radioactive waste will continue to increase over the next
decade as the result of the expected decommissioning of older nuclear power
plants in the United States. We also believe that significant demand exists in
the United States for the volume and mass reduction of commercially generated
low-level radioactive waste, as there are at present only two full-service
disposal sites in the nation accepting this waste. Moreover, one of those,
Barnwell in South Carolina, has announced substantial graduated cutbacks in the
quantities of nuclear wastes it will accept that will result in phasing out all
wastes from outside the Atlantic Compact over the next seven years.
The Barnwell disposal site, which currently services the majority of
commercial low-level radioactive waste generators in the United States, has
increased its disposal fees by approximately 300% over the past five years. The
current disposal fees at this site are approximately $4.00 to $7.00 per pound,
or $400 per cubic foot, depending upon the waste's density and activity levels.
The disposal fees charged by the disposal site in Richland, Washington, the
other fully permitted low-level radioactive waste disposal site, are
significantly lower than those charged by the Barnwell site, but this site is
only permitted to accept waste generated in the eleven Northwestern states.
There is also a disposal facility in Clive, Utah that also charges disposal fees
significantly
31
lower than those charged by the Barnwell site, but it is currently permitted to
accept only low-level radioactive waste with lower concentrations of
radioactivity than that accepted by either Barnwell or the Richland site.
At the present time ATG is the only company providing a full range of thermal
treatment services for low-level radioactive waste in the United States. GTS
Duratek, Inc. provides incineration of some low-level radioactive waste but not
ion exchange resins. A new market entrant, Studvik Inc., began proving pyrolysis
services for ion exchange resins during 2000.
The federal government, principally the Department of Energy and Department of
Defense, have generated very significant amounts of low-level radioactive wastes
that are largely stored on federal government sites. The Department of Energy,
which owns most of those wastes, estimates that it has in excess of 53 million
cubic feet of low-level radioactive waste either currently stored or expected to
be generated during the next 20 years at its facilities throughout the United
States. ATG estimates that the minimum processing value will exceed $1.8 billion
based on a processing cost of $35.00 per cubic foot.
Treatment Market for Low-Level Mixed Waste. Low-level mixed waste is low-
level radioactive waste co-mingled with hazardous substances regulated by RCRA
and/or toxic substances regulated by the Toxic Substances Control Act of 1976,
commonly referred to as TSCA. Low-level mixed waste results from a variety of
activities such as the processing of nuclear materials used in nuclear weapon
production, nuclear energy research, and the generation of nuclear power. The
clean-up of government-generated low-level mixed waste is driven by the Federal
Facilities Compliance Act of 1992 which requires that radioactivity-contaminated
federal facilities meet waste clean-up targets by specified dates. For example,
the Department of Energy's Hanford Reservation is required to commence non-
thermal treatment of the low-level mixed waste stored there by September 30,
1999, and thermal treatment of this waste by December 31, 2000.
Significant quantities of untreated low-level mixed waste have accumulated in
the United States, as approved treatment solutions applicable to a broad range
of low-level mixed waste streams have previously not been available. The
Department of Energy estimates that there is in excess of 7.7 million cubic feet
of low-level mixed waste either currently stored or anticipated to be generated
over the next two decades throughout the United States at Department of Energy
facilities alone. The Department of Energy also estimates that the treatment
costs for its low-level mixed waste will exceed one billion dollars through the
year 2010. We are not aware of any reliable estimates of the existing backlog
of commercially generated low-level mixed waste awaiting treatment at
generators' sites, as there are no requirements for commercial generators to
report that information. However, according to a survey study sponsored by the
NRC and the U.S. Environmental Protection Agency, approximately 140,000 cubic
feet of low-level mixed waste was commercially generated in the United States in
1990. We believe that the size of the commercial low-level mixed waste
treatment market in the United States will increase significantly in connection
with the expected decommissioning of nuclear power plants in the United States
over the next decade.
32
ATG has successfully permitted and financed, and has substantially completed
construction of, the most comprehensive commercial low-level mixed waste
treatment facility in the United States. That facility, a portion of which
commenced operations in December of 1999, will provide non-thermal treatment of
mixed wastes requiring stabilization under RCRA and will provide thermal
treatment of mixed wastes that require high temperature treatment under both
RCRA and TSCA to destroy hazardous constituents prior to disposal. Currently,
the regulatory authorities are allowing ATG to process contracted mixed waste
streams as we prepare for demonstration testing. Demonstration testing of this
facility for thermal treatment of mixed waste is scheduled during 2001.
ATG has already won seven commercial and five federal contracts for the
treatment of mixed wastes and initiated the non-thermal treatment of mixed
wastes generated by the Department of Energy under one mixed waste contract in
December of 1999. These contracts are anticipated to provide in excess of $67.6
million of revenues to ATG over the term of these contracts. We anticipate that
all of our mixed waste treatment service lines will be operational during the
year 2001 as the construction of our low-level mixed waste facilities is
complete and we are currently processing thermal mixed waste streams as we
proceed with the startup of thermal operations.
Hazardous Waste Treatment Market. Hazardous waste is waste that is classified
as hazardous under RCRA and/or toxic under TSCA. The list of "hazardous
substances" covered by these laws is extensive and includes a large number of
chemicals, metals, pesticides, biological agents, toxic pollutants and other
substances. ATG is not engaged in the large but highly competitive hazardous
waste treatment market other than through the environmental restoration services
provided by its Field Engineering Group. Historically, ATG has processed a
broad range of hazardous substances at client sites during the execution of
environmental restoration projects.
33
Waste Treatment Technologies
A summary description of ATG's principal waste treatment technologies for low-
level radioactive waste and low-level mixed waste is provided in the following
table:
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL TECHNOLOGIES
- ------------------------------------------------------------------------------------------------------------------------
Waste Streams
Technology Treated Nature of Process Operating Status
- ------------------------------------------------------------------------------------------------------------------------
SAFGLAS(TM) LOW-LEVEL High Commercial operation commenced in September 1997
RADIOACTIVE Temperature
WASTE Thermal
- -------------------------------------------------------------------------------------------------------------------------
GASVIT LOW-LEVEL High Commercial operation scheduled for December 2000
MIXED Temperature
WASTE Thermal
- ------------------------------------------------------------------------------------------------------------------------
CATALYTICS ION High Commercial operation commenced in 1997
EXCHANGE Temperature
RESINS Thermal
- -------------------------------------------------------------------------------------------------------------------------
WET WASTE SERVICES ION De-Watering Commercially operational for over five years
EXCHANGE
RESINS
- -------------------------------------------------------------------------------------------------------------------------
AWPS LIQUIDS Polymer Assisted First system delivered March 1999
High Efficiency
Water Filtration
- -------------------------------------------------------------------------------------------------------------------------
RVR LIQUIDS/ Moderate Commercially operational for over five years
SLUDGES Temperature
Thermal
- -------------------------------------------------------------------------------------------------------------------------
The core technology employed in the SAFGLAS(TM) and GASVIT systems is
vitrification. Vitrification technologies have been successfully used in Europe
for over thirty years, principally in the area of treatment of high-level
radioactive waste and are used by the Department of Energy currently for high-
level radioactive waste. The EPA has identified vitrification as what it refers
to as the best demonstrated achievable technology for the treatment of high-
level radioactive waste. We believe that vitrification will prove to be equally
effective in the treatment of waste contaminated with lower levels of
radioactivity. In addition, the vitrification process results in significantly
less effluents than the more traditional incineration methods of waste
treatment. Accordingly, we believe vitrification is widely perceived as an
environmentally superior waste treatment method.
SAFGLAS(TM)-Thermal Treatment of Low-Level Radioactive Waste by Vitrification.
The SAFGLAS(TM) system treats a broad spectrum of low-level radioactive waste in
the form of dry active wastes, such as protective clothing, paper, rags,
plastics and wood, low-level activity resins, aqueous based liquids and sludges,
and oils, which eliminates the customer's need to
34
presort wastes to fit the specialized capabilities of a particular waste
processor's technology. The SAFGLAS(TM) system can reduce the volume of the
input waste by a factor of up to 200 to 1 and the mass of the input waste by up
to 96%. We believe that the highly stable and leach-resistant nature of the
glass produced by the SAFGLAS(TM) process, as compared to incineration ash, will
be significant for waste generators concerned with the potential long-term
liabilities associated with the land disposal of low-level radioactive waste.
The basic SAFGLAS(TM) system has been enhanced through the addition of a high
temperature bulk processing unit, commonly known as a BPU, that processes a wide
range of low-level radioactive waste. Because the BPU exhausts into the second
chamber of the basic SAFGLAS(TM) unit, ATG refers to the combination of these
integrated technologies as the SAFGLAS(TM) system. The BPU offers the advantage
of allowing each customer's waste to keep its own identity and not to be
commingled during processing. We believe from that this will offer a
significant competitive advantage when the Barnwell site limits its acceptance
of wastes and some customers opt for having the waste processed for volume
reduction and then returned for on-site storage.
GASVIT-Thermal Destruction of Low-Level Mixed Waste by Gasification/
Vitrification. ATG has acquired licensing rights to use a proprietary plasma
arc technology developed by Integrated Environmental Technologies, LLC for the
treatment of low-level mixed waste. We are integrating the plasma technology
from Integrated Environmental Technologies with our own technologies to form the
GASVIT system. The GASVIT system will be used as the primary component in our
thermal processing facility for low-level mixed waste. Materials are fed into a
process chamber where the organic materials are destroyed in a flameless
process. As with the SAFGLAS(TM) system process, the end result of the GASVIT
system process is a glass material. The GASVIT system can reduce the volume of
the input waste by a factor of up to 200 to 1, and the mass of the input waste
by a factor of up to 96%. A 50 lbs./hr. prototype gasification/vitrification
process chamber has been in operation at IET's facilities in Richland,
Washington since June, 1997. The GASVIT system is being licensed for a total
throughput of 12,000 pounds per day; however, the initial unit will provide only
50% of the permitted capacity. We intend to add another unit as its capacity
needs increase.
CATALYTICS-Thermal Destruction of Ion Exchange Resins. Ion exchange resins
with significant radionuclide concentrations are destroyed in a patented and
licensed high temperature non-incineration process which provides high volume
and mass reductions similar to those provided by SAFGLAS(TM). The non-volatile
remains are encapsulated in a metal matrix for disposal.
WET WASTE SERVICES-Dewatering, packaging, and shielded transportation of Ion
Exchange Resins. We hold patent and other rights for a variety of licensed high
integrity containers used to hold ion exchange resins during transportation and
disposal. ATG also has the patent rights and ownership for approximately 50% of
the nation's heavily shielded casks that are used to safely transport ion
exchange resins in accordance with Department of Transportation regulations.
Additionally, ATG provides proprietary equipment and services to remove water
from ion exchange resins prior to transportation and disposal to meet Department
of
35
Transportation and disposal site criteria, achieving in the process moisture
removal levels considerably beyond those achievable by competing technologies.
AWPS - Advanced Treatment Through Filtration. AWPS is used for the removal of
suspended and dissolved impurities from nuclear power reactor water streams.
ATG employs a variety of technologies for which it holds either patent or
licensing rights to treat a broad range of nuclear power plant liquid
waste/process streams. Our proprietary processes pretreat the water in a manner
that increases the efficiency of filtration and the filter lifetimes ten-fold
greater than competing technologies. One of our AWPS units was installed in a
commercial nuclear power plant in late 1999, one unit in 2000 and one unit is
scheduled for installation and testing at a commercial nuclear power plant in
2001.
RVR-Radioactive Volume Reduction of Liquid Wastes and Sludges. This patented,
moderate temperature, vacuum evaporation process provides a portable and
economic method for transforming radioactive liquids and sludges into dry
powders and, if desirable, recovering the water for reuse. ATG employs RVR
systems at its Tennessee facilities to treat its own secondary wastes as well as
customer wastes. The RVR process has also been used for commercial nuclear
projects throughout the United States. In addition, we also sell RVR units to
foreign power reactor operators.
Operations and Services
ATG provides radioactive and hazardous waste management services through its
Fixed Facilities Group and its Field Engineering Group.
Fixed Facilities Group. The Fixed Facilities Group operates ATG's treatment
facilities for low-level radioactive waste and low-level mixed waste in
Richland, Washington and Oak Ridge, Tennessee and also provides shielded
transportation services and on-site services at its customers' facilities. The
primary treatment facilities are located on a 45-acre parcel of land owned by
ATG in Richland, Washington which is adjacent to the Department of Energy's
Hanford Reservation. Our Richland facility is one of the largest commercial
radioactive waste treatment facilities in the United States. This facility is
currently licensed to handle, treat and store a wide variety of low-level
radioactive waste. In addition, the facility is currently licensed to handle,
treat and store a wide variety of non-thermal low-level mixed waste and must
complete its demonstration testing to become fully operational for thermal low-
level mixed waste treatment for both commercial and government generators. ATG
also owns a 40,000 square foot licensed facility on a seven acre site in Oak
Ridge, Tennessee where it thermally processes ion exchange resins and non-
thermally processes both ion exchange resins and radioactive sludges that are
not suitable for thermal processing. ATG also owns a third licensed site, a 16
acre facility in Columbia, South Carolina which is used to maintain and store
equipment used for wet waste field projects throughout the United States.
Finally, ATG leases a four-acre facility in Fremont, California which houses
ATG's corporate offices, as well as a storage and transfer station for low-level
radioactive waste that supports its Richland operations. ATG utilizes a fleet
of company-owned trucks to transport waste intra-state to or from its Richland
and Fremont facilities, and utilizes third party commercial carriers to
transport waste inter-state to or from these facilities.
36
Treatment Services for Low-Level Radioactive Waste. Since 1988, ATG has
treated and recycled several million pounds of low-level radioactive waste at
its Richland facilities. Since being placed in operation in September 1997, the
SAFGLAS(TM) system has processed in excess of 4 million pounds of low-level
radioactive waste. In addition to the Department of Energy, Department of
Defense and other agencies of the U.S. government, customers for the company's
low-level radioactive waste treatment services include over 90% of the nation's
nuclear power plants, many major corporations, and numerous universities,
laboratories, hospitals and other research and medical institutions.
Treatment Services for Low-Level Mixed Waste. In early 1995, ATG began the
licensing, design and facility construction process for a mixed waste treatment
and storage facility to be sited at its Richland facilities. That permit was
issued in July 1999 and construction of the facility commenced shortly
thereafter financed by the proceeds from the issuance of $27 million in tax-
exempt Solid Waste Revenue Bonds by the Port of Benton in Washington State.
The construction of ATG's mixed waste facilities is being carried out in a
phased manner so that those portions of the facility that can be brought on line
more rapidly are completed and made operational first. Accordingly, although
the overall facility will not be fully operational until sometime in 2001, we
were able to successfully receive and process non-thermal mixed wastes in late
1999 and throughout 2000. The mixed waste processing can generally be
categorized as thermal and non-thermal consistent with requirements established
by the EPA that dictate how various types of mixed wastes must be processed
prior to disposal.
Non-thermal mixed waste processes are generally intended to chemically
stabilize mixed waste materials and/or encapsulate the wastes in a manner that
renders them sufficiently immobile for land disposal. Our permit provides for
four non-thermal mixed waste process lines designed to meet the EPA's RCRA mixed
waste treatment specifications. Our mixed waste permit also provides for one
thermal process line that is designed to thermally destroy RCRA and TSCA organic
constituents in the mixed wastes that the EPA has determined require thermal
destruction prior to disposal. We will use a proprietary high temperature
plasma process to destroy RCRA and TSCA organic mixed wastes. That process,
which the company calls "GASVIT", will destroy the organic constituents in the
mixed wastes in a manner that fully meets the EPA requirements without the use
of incineration.
In November 1995, the Department of Energy awarded ATG, in a competitive
bidding process, the first privatized contract to thermally treat low-level
mixed waste generated by the Department of Energy's Hanford Reservation. This
contract has a minimum value to ATG of $10.4 million and a maximum value to ATG
of $24 million for treating 175,000 cubic feet of waste over ten years.
Subsequently, in September 1997, the Department of Energy awarded us the first
privatized contract to non-thermally treat low-level mixed waste generated by
the Hanford Reservation. This contract has a minimum value to ATG of $2.6
million and a maximum value to ATG of $5 million over a three-year period which
commenced in December 1999 when we began to non-thermally treat low-level mixed
waste under that contract. More recently we have been awarded several
additional contracts to treat mixed wastes generated by
37
several other Department of Energy facilities across the United States, by
various commercial research and manufacturing companies, and by commercial
nuclear utility companies.
ATG commenced the non-thermal treatment portion of these contracts in December
1999. ATG has also commenced the thermal treatment portion of these contracts
on December 31, 2000, by the start-up treatment of contracted thermal mixed
waste streams.
Field Engineering Group. The principal services provided by ATG's Field
Engineering Group are the environmental restoration of sites contaminated with
hazardous wastes and construction management contracts such as levee
construction. Our comprehensive capabilities include site investigation,
characterization and assessment, negotiation with regulatory agencies and
procurement of required regulatory approvals, preparation of feasibility and
remedial design studies, removal and remediation actions, construction, waste
brokerage and transportation.
Decontamination and Decommissioning Services. Historically, providing
services for decontamination and decommissioning of facilities contaminated with
radioactivity, commonly referred to as D&D, have been ATG's core specialty area.
ATG has been involved in D&D projects for over a decade and currently is
involved in several D&D projects for the Department of Energy. Customers for
ATG's D&D services include nuclear power plants, universities and other research
institutions that utilize radioactive isotopes in a variety of research
projects, hospitals with radiological medicine departments, companies employing
nuclear materials in manufacturing and the Department of Energy and Department
of Defense, which oversee the nation's nuclear weapon production facilities.
We believe that there are significant near-term opportunities in domestic D&D,
particularly in the commercial D&D market, as up to ten U.S. nuclear power
plants are expected to be decommissioned over the next decade. Based on recent
studies prepared by utilities regarding the costs to decontaminate and
decommission nuclear power plants, as reported by the Nuclear Energy Institute,
a nuclear energy industry policy organization, we estimate that the average
total cost of decontaminating and decommissioning a domestic nuclear power plant
is approximately $300-$400 million. In addition, there are over 5,000
radioactivity-contaminated Department of Defense and Department of Energy
facilities, which are scheduled to be decommissioned over the next decade.
Environmental Restoration Services. ATG has historically concentrated on
environmental removal and remediation actions at contaminated Department of
Defense sites. There are over 420 Department of Defense sites contaminated with
low-level radioactive waste or low-level mixed waste. According to industry
sources, subcontracted spending by the Department of Energy for environmental
remediation in 1998 was $1.85 billion, up 7% from 1997, and is projected to
continue growing for 10 to 15 years. Environmental restoration spending by the
Department of Defense is approximately 50% of Department of Energy spending, or
approximately $0.94 billion, for 1998.
Since 1989 ATG has executed more than 225 field-engineering projects relating
to the environmental restoration of sites contaminated with low-level
radioactive waste, low-level mixed waste, or hazardous waste throughout the
United States and U.S. territories. In addition,
38
ATG is currently performing under three Total Environmental Restoration
Contracts with the U.S. Army Corps of Engineers, two Pre-placed Remedial Action
Contracts with the U.S. Army Corps of Engineers, two Remedial Action Contracts
with the U.S. Navy and four environmental restoration contracts with the
Department of Energy, collectively covering a 40 state area.
For its military and industrial clients, ATG executes environmental
restoration projects either on a planned or quick response basis. In the
execution of both planned and quick response environmental restoration projects
involving both low-level radioactive waste and low-level mixed waste, ATG
believes that it is one of only six domestic companies having the in-house
capability of providing on-site full-service solutions from site investigation
through the waste treatment stage for D&D and environmental restoration projects
involving low-level radioactive waste and low-level mixed waste.
Revenues of Fixed Facilities Group and Field Engineering Group. Prior to
1998, ATG evaluated its operations as one business unit. Thermal processing of
large volumes of waste began in 1998 and ATG commenced evaluating its business
as two business segments in the fourth quarter of 1998. ATG segregates revenue
and gross profit by business segment. Selling, general and administrative
expenses are not allocated to the business segments.
For the year ended 1998, the Fixed Facilities Group had revenue of
$18,889,000 and gross profits of $11,082,000. For the year ended 1999, the
Fixed Facilities Group had revenue of $46,854,000 and gross profits of
$22,845,000.
For the year ended 1998, the Fixed Engineering Group had revenue of
$17,011,000 and gross profits of $5,002,000. For the year ended 1999, the
Fixed Facilities Group had revenue of $13,808,000 and gross profits of
$1,458,000.
Customers
We provide our services to a broad range of commercial and federal, state and
local government clients in the United States. Demand for our services and the
distribution of this demand are influenced by the level of implementation and
enforcement of existing and new environmental regulations, funding levels for
government projects and spending patterns of commercial clients.
Primarily due to our technical expertise, extensive portfolio of environmental
licenses and permits and full-service capabilities on-site, we have successfully
bid on and executed a substantial number of waste treatment, environmental
restoration, D&D and other contracts with commercial customers, the Department
of Defense, Department of Energy and a number of other federal government
agencies, as both a prime contractor and as a subcontractor. In general, our
business mix has recently been trending towards an increase in the percentage of
revenue attributable to commercial clients, due to the commercial business
volume handled by our fixed facilities since the commencement of SAFGLAS(TM)
operation in late 1997 and our acquisition of the assets of Molten Metal
Technologies in late 1998. In fiscal 1999, 1998, and 1997, the percentage of
our total revenue attributable to federal government contracts was approximately
27%, 55%, and 71%, respectively. While we expect our commercial revenues to
continue to
39
grow, the fact that most of the mixed waste in the United States is owned by the
federal government is anticipated to result in significant growth in its federal
revenue as well. One contract with the U.S. Air Force accounted for 14% of our
total revenue in the year ended December 31, 1998. One contract with the U.S.
Army Corps of Engineers- Sacramento District accounted for 21% of our total
revenue in the year ended December 31, 1997. We also serve numerous commercial
clients, including large industrial concerns, nuclear power plants, hospitals,
laboratories and other medical institutions, and universities. No single
commercial client accounted for 10% or more of our revenue in fiscal years 1999,
1998 or 1997.
Sales and Marketing
ATG relies on a direct sales and marketing staff of approximately 10
employees, its executive management team and project managers, and brokers and
other intermediaries, to market its waste treatment and field engineering
services nationwide and internationally. Historically, we relied on discrete
waste treatment projects and limited term remediation projects that typically
involved planned clean-ups of sites that were contaminated in the normal course
of manufacturing activity or quick response clean-ups of spills. We now target
our marketing efforts on large, multi-year private sector and government site-
specific and term contracts in the areas of treatment of low-level radioactive
waste and low-level mixed waste, environmental restoration and nuclear facility
D&D.
We focus our marketing resources on higher margin markets where we have
technological or licensing advantages over potential competitors. We also focus
on continually strengthening our relationships with existing and target
customers. We believe that relationship selling is important as customers
display an increasing desire for good, reliable service. Accordingly, we deploy
operators at customer sites and target a high frequency of quality customer
interactions by our sales force directed at better identifying and resolving its
customers' problems. We believe that these strategies have been validated by
the significant revenue growth we have experienced over the past three years.
We also intend to offer our SAFGLAS(TM) and GASVIT vitrification technologies
for on-site treatment of low-level radioactive waste and low-level mixed waste
in selected Pacific Rim markets. We believe that the high cost of disposal of
low-level radioactive waste and low-level mixed waste disposal in a number of
Pacific Rim countries favors thermal treatment for low-level radioactive waste
and low-level mixed waste, while regulatory restrictions and other environmental
concerns may limit incineration as a treatment process.
To further promote use of its technologies and to establish strategic
alliances designed to accelerate its penetration of selected Pacific Rim
markets, ATG has entered into exclusive technology transfer agreements covering
its technologies for Hong Kong, Taiwan, and The People's Republic of China. ATG
currently has two technology transfer agreements. One of these agreements,
dated September 30, 1997, is with Alliance Technology Group, Incorporated, and
the second agreement, dated June 28, 1997, is with Pacific Trading Company.
These agreements require ATG to provide assistance and know-how to its alliance
partners who, in turn, have the right to market ATG's technologies in these
territories. ATG will share in any profits generated from those efforts and
will also receive a royalty on revenue generated by the
40
use of its vitrification technologies. ATG is entitled to independently pursue
opportunities or to terminate the agreements within those territories if its
alliance partners are not actively and successfully marketing its technologies,
or, if designated levels of minimum revenues are not achieved in those
territories within specified periods. Although we believe that these agreements
and similar agreements may become important to our business in the future, our
two existing agreements are not material to our business because there is no
current activity and no revenues are being generated under those agreements.
Competition
In general, the radioactive and hazardous waste management industry is highly
competitive. We face varying levels of competition in our current and planned
business lines. We believe that we currently have only one principal competitor,
Duratek, for the thermal treatment of domestic low-level radioactive waste, a
handful of small to mid-size competitors in the non-thermal treatment of
domestic low-level radioactive waste, and one potential competitor for thermally
treating ion exchange resins. We have a non-compete agreement with Duratek that
precludes Duratek from processing commercial ion exchange resins. The term of
the non-compete with Duratek expires December 2001. With respect to the
domestic treatment market for low-level mixed waste, we believe that there are
only four other companies currently commercially processing low-level mixed
waste at their own facilities, all of which are doing so under limited licenses
which restrict them from accepting a broad spectrum of low-level mixed waste
streams. We believe that our mixed waste permit and mixed waste processing
facility provide the most comprehensive commercial mixed waste treatment
capabilities in the United States.
We also face competition from disposal facilities for low-level radioactive
waste in that the volume and mass reduction achieved by our processing must be
at a cost that provides an economic incentive to the generator relative to the
options of direct disposal at a facility, as most low-level radioactive waste
does not require treatment in order to meet the acceptance criteria of at least
one U.S. facility. For example, when the commercial disposal site for low-level
radioactive waste in Clive, Utah recently expanded its acceptance criteria,
allowing it to receive waste with radioactivity levels higher than it was
previously permitted to accept, we saw a greater level of competition for the
affected wastes, as some generators in the geographic area proximate to this
facility that previously would have had the waste treated prior to disposal have
found it economical to apt for direct disposal. While we are aware that one or
more other companies are interested in developing commercial disposal sites for
low-level radioactive waste, the likelihood of their success does not appear to
be high based upon the public sensitivity to radioactive materials in the United
States. Nonetheless, any change in the pricing of licensed commercial disposal
of low-level radioactive waste in the United States will affect the competition
we face, with increasing prices decreasing the competition and decreasing prices
increasing the competition which we face.
The nuclear facility D&D market is highly competitive, with numerous companies
of varying size, geographical presence and capabilities participating in a
variety of niche areas. The two predominant trends are for nuclear facility
owners to either procure the services of a large engineering construction
company to be the general manager for D&D services or for the owners to self
perform the general management function. We believe that fewer than six
companies have
41
the capability of fulfilling the general management role for commercial nuclear
power plant D&D, and that none of those companies nor owners also have
sufficient in-house commercial waste processing capabilities to fully address
the waste management issues presented by D&D. We believe that this will require
the general managers for commercial nuclear power plant D&D activities, whether
a contractor or the owner, to procure the services of one of the two full
service nuclear waste processing companies to assist them with waste management.
We further believe that the forward going trend will be for the general managers
to avail themselves of the services of more than one waste processing company in
order to ensure competitive pricing for D&D waste management services.
We believe that the principal competitive factors applicable to all areas of
our business are price, breadth of services offered, range and breadth of
environmental licenses and permits held, reputation for customer service and
dependability, technical proficiency and environmental integrity, operational
experience, quality of working relations with federal, state and local
environmental regulators and proximity to customers and licensed waste disposal
sites. We believe that we are, and will continue to be, able to compete
favorably on the basis of these factors. We also believe that we have several
competitive advantages, including our vitrification and ion exchange resins
technologies, the patents we hold, broad range of environmental services
offered, ability to provide in-house full-service environmental solutions at
customers' sites, the range and breadth of environmental licenses and permits
held and applied for, including, without limitations, our radioactive material
licenses and mixed waste permits, geographical positioning, and integrated
technological approach to waste treatment solutions.
Many of our competitors have substantially greater managerial, technical and
marketing resources than we do, and there can be no assurance that one or more
of our competitors do not possess or will not develop waste treatment
technologies or field service capabilities that are superior to or more cost
effective than ours. In some aspects of our business, substantial capital
resources are required for facilities and equipment, and many of our competitors
have substantially greater financial resources than ATG.
Intellectual Property
We regard aspects of our waste treatment technologies and know-how as
proprietary and use a combination of trade secret and trademark laws, employee
and third party non-disclosure agreements, licenses from owners of patents and
other intellectual property rights, and other methods to protect our
technologies and know-how. We have received a patent for the SAFGLAS(TM) system
as incorporating a multi-zone process chamber. We hold a number of patents on
the thermal and non-thermal processes and equipment which we utilize for
processing of ion exchange resins at our Oak Ridge, Tennessee facilities and at
our customer's sites, as well as for the high integrity containers and shielded
shipping casks used for the transportation of ion exchange resins. We also hold
the licenses and permits for our Washington and Tennessee facilities and possess
the engineering craft knowledge required to cost-effectively operate, maintain,
and enhance the permitted status of those facilities. While our patents provide
us with technological efficiency and provide us with revenue through licenses to
other companies by means of technology transfer agreements, we believe that the
ownership of patents is not presently a significant factor in our business and
that our success does not depend on the
42
ownership of patents. We cannot assure you that we will be successful in
protecting the proprietary aspects of our technology, nor that our proprietary
rights will preclude competitors from developing waste treatment technologies
equivalent or superior to ours. In addition, effective protection for the
proprietary aspects of our technologies may be unavailable or limited in many
foreign countries. While we are not aware that any of our waste treatment
technologies infringe the rights of any third parties, we cannot assure you
third parties will not claim infringement by ATG with respect to its existing or
future waste treatment technologies.
From time to time we license the rights to use the intellectual property of
third parties embodied in subsystems of our technologies. In particular, we
license rights from the owner of the patented technology embodied in the basic
SAFGLAS(TM) system melter and from Integrated Environmental Technologies in
connection with the design, construction and use of the melter incorporated into
the GASVIT system. The former license is non-exclusive and royalty-free, but
requires ATG to pay to the owner of the patent a license fee in the amount of
$35,000 for each SAFGLAS(TM) process chamber built by ATG during a five-year
period. With respect to any melter we purchase from Integrated Environmental
Technologies, other than the two units we have initially contracted to purchase,
our license with Integrated Environmental Technologies requires the payment of a
royalty fee to Integrated Environmental Technologies in the amount of 3% of the
gross revenue generated by ATG from processing radioactive waste using a
treatment system incorporating such a melter. ATG from time to time receives
letters of inquiry from the owners of patents requesting that ATG demonstrate
that the technology licensed to ATG by third parties does not infringe their
patents. We routinely refer these letters of inquiry to the licensors, who are
required pursuant to the terms of their license agreements with ATG to defend
ATG against infringement claims asserted by third parties relating to the
licensed technology and to indemnify ATG against any resulting losses. With
respect to each letter of inquiry previously received by ATG, we have been
advised by the licensor that, in the judgement of the licensor, the licensed
technology as used by ATG did not infringe the subject patents.
We require each of our technical and engineering employees to enter into
standard agreements pursuant to which the employee agrees to keep confidential
all proprietary information of ATG and to assign to ATG all rights in any
proprietary information or technology developed by the employee during his or
her employment or made thereafter as a result of any inventions conceived or
work done during his or her employment. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use our technology
without authorization or to develop similar technology independently.
Environmental Laws and Regulations; Licensing Processes Applicable to Treatment
Facilities for Low-Level Radioactive Waste and Low-Level Mixed Waste
Environmental Laws and Regulations. Extensive and evolving environmental
protection laws and regulations have been adopted in the United States during
recent decades in response to public concern over the environment. Our
operations and those of our customers are subject to these evolving laws and
regulations. The requirements of these laws and regulations impose substantial
potential liabilities. For example, a failure to comply with current or future
regulations could result in substantial fines, suspension of production,
alteration of
43
manufacturing processes, cessation of operations, or the expenditure of
substantial clean-up costs. The requirements also create a demand for many of
our services.
We believe that our compliance with environmental laws and regulations will
not have a material effect on our capital expenditures, earnings or competitive
position, except with respect to capital expenditures for environmental control
facilities. We had $6.5 million in expenditures for environmental control
facilities in 2000, primarily in connection with the construction of the
Richland mixed waste facility; however, we expect that the amount of
expenditures for environmental control facilities required to be made in 2001
and immediate subsequent years will be less than $100,000.
Under the Atomic Energy Act of 1954, commonly referred to as the AEA, and the
Energy Reorganization Act of 1974, the NRC regulates the receipt, possession,
use and transfer of radioactive materials. Pursuant to its authority under the
AEA, the NRC has adopted regulations that address the management and disposal of
low-level radioactive waste and that require the licensing of commercial
disposal sites for low-level radioactive waste.
RCRA provides a comprehensive framework for regulation of the handling,
transportation, treatment, storage and disposal of hazardous waste. Strict
standards are imposed under RCRA on hazardous waste generators and transporters,
and on operators of hazardous waste treatment, storage and disposal facilities.
The Land Disposal Restrictions developed under the Hazardous and Solid Waste
Amendments of 1984 prohibit land disposal of specified wastes unless these
wastes meet or are treated to meet best demonstrated achievable technology
treatment standards, subject to specified exemptions. Under current
regulations, waste residues derived from listed hazardous wastes are generally
considered to be hazardous wastes subject to RCRA standards unless they are
delisted through a formal rulemaking process that may last for several years.
Liability under RCRA may be imposed for improper handling, transportation,
treatment, storage or disposal of hazardous wastes, or for failure to take
corrective action to address releases of hazardous wastes.
CERCLA, and subsequent amendments including the Superfund Amendments and
Reauthorization Act, commonly referred to as SARA, imposes strict, joint and
several liability upon owners or operators of facilities where a release of
hazardous substances has occurred, upon parties who generated hazardous
substances that were released at these facilities and upon parties who arranged
for the transportation of hazardous substances to these facilities. Liability
under CERCLA may be imposed on ATG if releases of hazardous substances occur at
treatment, storage, or disposal sites used by ATG. This liability potentially
extends to off-site storage and disposal facilities used by ATG, any facilities
owned by ATG for treatment and storage of low-level mixed waste, and releases at
a customer's facility caused by ATG. Because our customers also face the same
type of liabilities, CERCLA and SARA create incentives for our potential
customers to avoid off-site treatment and disposal of hazardous substances in
favor of on-site treatment and recycling.
The radioactive and hazardous components of low-level mixed waste are governed
by separate sets of laws and regulations discussed above. The radioactive
component is governed by the AEA and is regulated by the Department of Energy
for waste at Department of Energy
44
facilities and by the Nuclear Regulatory Commission for commercially generated
waste. The hazardous waste component is governed by RCRA, CERCLA, and/or TSCA,
and is regulated by the EPA, and by the laws of the individual states. ATG
designs its treatment and processing systems for low-level mixed waste and
hazardous waste with the goal of minimizing the potential for release of
hazardous substances into the environment. In addition, we have developed plans
to manage and minimize the risk of CERCLA or RCRA liability, including the
training of operators, use of operational controls and structuring of its
relationships with the entities responsible for the handling of waste materials
and by-products.
The Clean Air Act of 1970 imposes strict requirements upon owners and
operators of facilities and equipment which emit pollutants into the
environment, including incinerators. Although we believe that our waste
treatment systems effectively trap most particulates and generally prevent
hazardous emissions from being released into the environment, we are required to
secure additional permits from local authorities responsible for implementing
the Clean Air Act.
TSCA provides the EPA with the authority to regulate various types of
commercially produced chemical substances. TSCA also established a
comprehensive regulatory program for polychlorinated biphenyls, commonly
referred to as PCBs, which is analogous to the RCRA program for hazardous waste.
Other federal, state, and local environmental, health and safety requirements
may also be applicable to our business. For example, the federal Occupational
Safety and Health Act imposes requirements designed to protect the health and
safety of workers, and the Nuclear Regulatory Commission has set regulatory
standards for worker exposure to radioactive materials. In addition, the
requirements of various other statutes, including the Federal Facilities
Compliance Act of 1992 and the Uranium Mill Tailings Radiation Control Act, may
create opportunities for additional use of our services.
Licensing Processes Applicable to Treatment Facilities for Low-Level
Radioactive Waste and Low-Level Mixed Waste. The process of applying for and
obtaining the licenses and permits necessary to operate a radioactive waste
treatment facility is lengthy and complex. The basic requirement is to obtain a
radioactive materials license from the state in which the facility is to be
located. The first step in this process is securing site and land use
designation approval from local authorities. Most local authorities require a
public hearing before a land use designation approval is granted. Due to public
concern about the safety of radioactive material handling, the initial site
approval step is often the most difficult. Upon site approval, the applicant
must submit an application to the NRC or the state's nuclear regulatory agency
if the state has signed an agreement to implement the NRC's regulations. This
stage of the process may take two years or longer, and in some cases, may result
in denial of a license. If the applicant intends to use a thermal treatment
method at its site, then additional permits would be needed from the local
authorities responsible for implementing the Clean Air Act regulations. The
process for approving a thermal treatment method will generally include public
hearings, environmental assessments and numerous interactions with regulators to
resolve licensing and permitting issues.
45
The licensing requirements applicable to a mixed waste facility are even more
complex. In addition to the steps summarized above, the applicant must submit a
RCRA Part A and Part B permit application to the appropriate agencies. For
processing of PCBs, a TSCA permit from the EPA must also be obtained. In
parallel with the RCRA/TSCA Part B permitting process, the applicant must submit
an application to the agencies that issue radioactive material licenses and
those that issue permits pursuant to the Clean Air Act. Several revisions to
each document submitted may have to be made before the review process is
complete and the application is granted. From the time the initial application
is filed, the mixed waste licensing and permitting process could take as long as
five years.
We initiated the mixed waste licensing process for our Richland facilities in
1995 and commenced non-thermal mixed waste treatment there in the fourth quarter
of 1999. In March of 1995, the company submitted a siting application to the
Washington State Department of Ecology. After conducting two different public
hearings, WDOE approved our siting application in December of 1995. Immediately
after procuring this approval, ATG submitted a RCRA Part A and Part B permit
application to WDOE for an integrated waste treatment plant utilizing
stabilization, macro-encapsulation, physical extraction and other non-thermal
treatment processes. In 1996, the application was amended to include the
processing of mixed wastes using the GASVIT thermal treatment technology. A
copy of the application was also submitted to the EPA for a joint EPA/WDOE
permitting process covering PCBs under TSCA regulation. Currently, the
regulatory authorities are allowing ATG to process contracted waste streams as
we prepare for demonstration testing. We presently anticipate completion of our
thermal demonstration testing during 2001.
We are required to obtain a radioactive waste import permit from the NRC when
we are engaged in the business of treating low-level radioactive waste and low-
level mixed waste received from foreign generators at our fixed facilities.
Employees
At September 30, 2000, ATG employed 350 full-time employees. To date, ATG has
been successful in attracting and retaining qualified managerial and technical
personnel, although we cannot assure you that this success will continue.
At September 30, 2000, 125 of our employees were represented by labor unions
under collective bargaining agreements. We cannot predict whether any of our
employees who currently are not represented by unions will elect to be so
represented in the future. We consider our relations with our employees to be
good and have never experienced a work stoppage or strike.
Properties
ATG's principal properties, all of which are owned by ATG, are located in
Richland, Washington, Oak Ridge, Tennessee, Columbia, South Carolina and Aiken,
South Carolina, and occupy 45, 12, 16, and 30 acres, respectively. The
facilities sited on the Richland property presently consist of 17 buildings,
covering an area of approximately 166,000 square feet, devoted
46
to ATG's existing operations for treatment of low-level radioactive waste and
existing and future operations for treatment of low-level mixed waste. The
facilities located on the Oak Ridge property consist of a 40,000 square foot
building devoted to resin treatment operations for low-level radioactive waste,
a 6,000 square foot office building, and several modular office buildings. The
Columbia property includes a 10,000 square foot building that is principally
used for storage and maintenance of equipment used in wet waste treatment. Our
Aiken property has not been developed to date.
In addition, ATG leases facilities in Fremont, California consisting of a
40,000 square foot corporate office building and a storage area for low-level
radioactive waste and two approximately 4,000 square foot project management
offices in Oak Ridge, Tennessee. The Fremont facilities are leased on a month-
to-month basis and the Oak Ridge premises are occupied pursuant to leases which
expire in August 2000 with three one-year extensions available.
Our Oak Ridge property is encumbered by a first mortgage securing our payment
of a $401,000 promissory note held by Suntrust Bank. The Suntrust note provides
for an interest rate of 8.125% per annum, a maturity date of July 2006, monthly
payments of principal and interest of $4,900 and a balloon payment at maturity.
As of January 10, 2001, the principal balance secured by the mortgage on the Oak
Ridge property is approximately $367,000. There are no encumbrances on ATG's
Columbia or Aiken, South Carolina properties.
We believe that our existing and planned facilities will support its
operations for the foreseeable future and are adequately covered by insurance.
Legal Proceedings
In June 1992, ATG entered into a contract with the U.S. Army under which ATG
acted as the prime contractor to "surface clear" expended ordnance from a firing
range at Fort Irwin, California. In March 1997, a piece of ordnance exploded on
the premises of a scrap metal dealer in Fontana, California. An employee of the
scrap dealer died in the accident. Although the scrap dealer had purchased
expended ordnance and other military scrap metal from a number of military
facilities, including Fort Irwin, the scrap dealer indicated that the ordnance
which exploded was purchased from Fort Irwin. The U.S. Army contended that a
subcontractor to ATG on the Fort Irwin contract had improperly certified
ordnance cleared from the Fort Irwin firing range as free of hazardous and
explosive material prior to the sale of ordnance to the scrap dealer. As a
result, the U.S. Army terminated the Fort Irwin contract for default, and
demanded repayment from ATG of alleged reprocurement costs totaling $945,000.
ATG believes it fully complied with the terms of the Fort Irwin contract and
applicable laws and regulations and challenged the default termination in an
action against the U.S. Army filed in the Court of Federal Claims in July 1997.
In July 1998, the U.S. Army and ATG settled the matter. The termination for
default was rescinded and ATG agreed to no longer bid on surface-clearing work
at active U.S. Army firing ranges.
In connection with the accident, in March 1998 a wrongful death civil action
was filed in San Bernardino County Superior Court against the subcontractor, a
supervisory employee of the
47
subcontractor, the owners of the premises occupied by the scrap dealer, and ATG,
seeking damages in excess of $8 million, including exemplary damages of $5
million. A second action was filed at the same time in San Bernardino County
Superior Court against the same defendants by three other persons alleging
physical injuries and emotional distress caused by the accident. ATG has
tendered the defense of each of these actions to its insurance carrier, which is
presently handling the matters for ATG, and we intend to vigorously contest all
of the claims asserted in these actions. We believe that we acted properly with
respect to the Fort Irwin contract, and that we should not be liable for the
injuries caused by the accident. We also intend to seek indemnification from the
subcontractor for the full amount of any costs, damages and liabilities which we
may incur in connection with or as a result of these lawsuits. The subcontractor
has advised ATG that the subcontractor's comprehensive general liability
insurance policy covers the claims asserted against the subcontractor, and that
the policy coverage limit is $7 million per occurrence. Although we believe that
all of the claims asserted against ATG are without legal merit, the outcome of
these lawsuits is uncertain. Any judgment of liability against ATG, especially
to the extent damages exceed or are not covered by insurance or are not
recoverable by ATG from the subcontractor, could have a material adverse effect
on our business, financial condition and results of operations.
From time to time we are a party to litigation or administrative proceedings
relating to claims arising from our operations in the normal course of business.
Management, on the advice of counsel, believes that the ultimate resolution of
litigation currently pending against ATG is unlikely, either individually or in
the aggregate, to have a material adverse effect on our business, financial
condition or results of operations.
MANAGEMENT
The executive officers and directors of ATG and their ages as of the date of
this prospectus are as follows:
- ----------------------------------------------------------------------------------------------------------
Name Age Position
- ---- --- --------
- ----------------------------------------------------------------------------------------------------------
Doreen M. Chiu 46 Chairman of the Board, President and Chief Executive
Officer
- ----------------------------------------------------------------------------------------------------------
Frank Y. Chiu 46 Executive Vice-President and Director
- ----------------------------------------------------------------------------------------------------------
Danyal F. Mutman 42 Chief Financial Officer
- ----------------------------------------------------------------------------------------------------------
Vik Mani 60 Chief Operating Officer
- ----------------------------------------------------------------------------------------------------------
Fred Feizollahii 54 Vice-President - Technology and Engineering
- ----------------------------------------------------------------------------------------------------------
George Doubleday, II 60 Director
- ----------------------------------------------------------------------------------------------------------
David F. Chan 48 Director
- ----------------------------------------------------------------------------------------------------------
David R. Sebastian 40 Director
- ----------------------------------------------------------------------------------------------------------
James E. Thomas 63 Director
- ----------------------------------------------------------------------------------------------------------
Doreen M. Chiu, 46, has served as President, Chief Executive Officer and
Chairman of the Board since joining ATG in 1984. Prior to joining ATG, Ms. Chiu
owned her own certified
48
public accounting firm. Ms. Chiu is a California CPA and holds a Bachelor of
Arts degree in Business Administration from the University of Wisconsin. Ms.
Chiu is the wife of Frank Chiu.
Frank Y. Chiu, 46, joined ATG in 1980 as Financial Controller, became Vice-
President and a director of ATG in 1984, and became Executive Vice-President in
1992. Mr. Chiu holds a Bachelor of Arts degree in Business Administration and a
Master's degree in Business Administration from the University of Wisconsin.
Mr. Chiu is the husband of Doreen Chiu.
Danyal F. Mutman, 42, joined ATG in July 1999 as Corporate Controller, and
became Chief Financial Officer in February 2000. From 1998 until joining ATG,
Mr. Mutman was a financial consultant with Deloitte & Touche LLP's Resources
Connection subsidiary, where he provided accounting and financial services for
public corporate clients. From 1997 to 1998, he was the Director of Finance for
Kokusai Semiconductor Equipment Corporation. From 1983 to 1997, Mr. Mutman was
Chief Financial Officer for Egizii Electric, Inc., a privately held group of
affiliated companies with interests in construction contracting, commercial real
estate, hotel and restaurants, agriculture and manufacturing. He is a CPA and
holds a Bachelor of Science degree in Accounting from Southern Illinois
University at Carbondale.
Vik Mani, 60, joined ATG in November 2000 as Chief Operating Officer. Before
joining ATG Mr. Mani was Senior Vice President, Nuclear Systems and Services for
CH2M Hill, an engineering company, where Mr. Mani worked for 7 years. Before
joining CH2M Hill, Mr. Mani held several senior management positions in the
nuclear industry serving both commercial nuclear facilities and the Department
of Energy, including two years as Senior Vice President for Rust Federal
Services, and service as Vice President of Government Services of Rayhead
Engineers and Construction. Mr. Mani has over 30 years experience in the
nuclear industry and graduated with a Master of Science degree in Engineering
Management and Nuclear Engineering from Drexel University.
Fred Feizollahi, 54, joined ATG in 1995 as Director of Technology and
Engineering, and since 1995 has been Vice-President--Technology and Engineering.
Mr. Feizollahi has over 28 years of experience in radioactive and hazardous
waste remediation and management, decontamination and decommissioning, and the
design and operation of waste treatment equipment and technologies. Prior to
joining ATG, he worked as a Senior Project Manager for Morrison Knudsen from
1991 to 1995 and as a Staff Engineer/Project Engineer for Bechtel Power
Corporation from 1981 to 1991. Mr. Feizollahi, who holds a Bachelor of Science
degree in Mechanical Engineering from the University of Maryland, is a
registered California Professional Engineer.
George Doubleday II, 60, has been a director of ATG since April 1999. Mr.
Doubleday has been a private investor and advisor to companies for 18 years,
principally through his investment vehicle, Nathan M. Malle Associates. Since
1983 he has also been Chairman of the InnerAsia Group, a family of companies
with interests in international tourism, trade, and manufacturing. From 1965 to
1981, he served with Pan American World Airways as Staff Vice President -
Operations Control and Regional Managing Director - Southeast Asia. From 1961
to 1965, he served as a fighter pilot with the U.S. Marine Corps. He holds a
Bachelor of Science degree in Industrial Administration from Yale University.
49
David F. Chan, 48, was elected as a director of ATG in July 2000. Mr. Chan
has over 25 years of experience in public accounting and auditing, and in
corporate executive positions. He is presently the Vice Chairman and major
shareholder of American Safari Cruises, an upscale yacht cruising company in
Seattle Washington. Mr. Chan founded American Safari in 1996 and served as its
President and CEO until 1999. From 1994 to 1996, he served as an International
Business Consultant at Coopers & Lybrand, providing advisory services to
international and U.S. clients in merger and acquisition of companies in Asia
and North America. From 1988 to 1995, he was the Chief Financial Officer of
Cruise West, a cruise ship company specializing in the Pacific Northwest and
Alaska. From 1984 to 1988, Mr. Chan was in public accounting at Ernst & Young,
and Coopers & Lybrand. Prior to 1984, Mr. Chan was the Controller of Glendale
Federal Savings Bank, a California commercial bank, for a period of five years.
He holds a Bachelor of Business Administration degree from University of Oregon
at Eugene and a Master of Business Administration degree in Finance from
California State University at Hayward.
David R. Sebastian, 40, was elected as a director of ATG in July 2000. Mr.
Sebastian has over 15 years of experience in investment banking and commercial
banking. Since 1999 he has been the President of Sebastian & Associates, a
financial advisory and investment banking consulting company he founded. From
1997 to 1999, Mr. Sebastian served as a Managing Director of Prudential
securities, Inc., working as an investment banker primarily in the Consumer
Products, Agribusiness and Automotive sectors. From 1987 to 1997, he served in
various investment banking and merger and acquisition positions at Lehman
Brothers, Inc. From 1982 to 1985, Mr. Sebastian served as the Vice President -
Commercial Lending Group at the Inter-First Bankcorp, a Houston, Texas
commercial banking corporation, responsible for lending, trust and investment
services. He holds a Bachelor of Arts degree in Economics from Rice University
and a Master of Business Administration degree in Finance from the University of
Texas at Austin.
James E. Thomas, 63, was elected as a director of ATG in July 2000. Mr.
Thomas has over 40 years of executive and managerial experience in the
commercial lending business. Since 1980, Mr. Thomas has been the chief
executive officer of various commercial lending institutions, in which capacity
he has total management responsibility including credit, public relations,
marketing, finance, collections and day-to-day operations. Since 1997 he has
been the founder and president of Westmark Financial Company, an equipment
leasing company based in Bellevue, Washington, in which Doreen and Frank Chiu
hold a controlling equity interest. From 1984 to 1997, Mr. Thomas was the
General Manager of Great Western Leasing Inc., based in Redmond, Washington.
From 1980 to 1984, Mr. Thomas was the President of JET Leasing Inc., of
Bellevue, Washington. From 1960 to 1980, Mr. Thomas served as a Regional Manager
or Vice President at Old National Leasing Company, Inter-Regional Financial
Group, Northwest General Leasing, and Trans Pacific Financial Corporation. Mr.
Thomas graduated with an Associate of Arts degree from Pasadena City College.
The Board of Directors and Committees
The directors serve until the next annual meeting of shareholders or until
successors are elected and qualified. ATG's executive officers are appointed by
and serve at the discretion of
50
the Board. There are currently six members on the Board. One position on the
Board is currently vacant, and the company is continuing its search for an
additional member. The Board of Directors conducted seven (7) meetings during
fiscal year 1999. All of the persons who were directors immediately prior to the
last annual shareholders' meeting held on July 14, 2000 attended at least
seventy-five percent (75%) of the aggregate of: (i) the total number of meetings
of the board of directors, and (ii) the total number of meetings held by the
committee(s) on which they served during fiscal year 1999. The Board of
Directors has two committees, the Audit Committee and the Compensation
Committee.
Compensation of Directors
Each non-employee director receives a cash fee of $2,000 per Board meeting
attended (but not including conference calls) and an additional $2,000 per Board
Committee meeting attended, if the committee meeting is held on a day different
from that of a Board meeting. Each non-employee Board member, upon appointment
or election to the Board and pursuant to the company's 1998 Non-Employee
Directors' Stock Option Plan, as described below, receives an automatic option
grant to purchase 20,000 shares of common stock at an option exercise price
equal to 100% of the market price of the common stock on the date of grant, with
each option having a maximum term of ten (10) years and becoming immediately
exercisable as to 5,000 of the option shares upon the date of grant. The
balance of the option shares vest at 5,000 shares each on the succeeding three
anniversaries of the grant date.
Non-Employee Directors' Stock Option Plan
In February 1998, the Board adopted the 1998 Non-Employee Directors' Stock
Option Plan to provide for the automatic grant of options to purchase shares of
Common Stock to non-employee directors of ATG. The plan is administered by the
Board. To date, 120,000 options have been granted under the plan.
The maximum number of shares of common stock that may be issued pursuant to
options granted under the plan is 200,000. Pursuant to the terms of the plan,
each person serving as a director of ATG who is not an employee of ATG shall
automatically be granted an option to purchase 20,000 shares of common stock
upon the date the person first becomes a non-employee director, with 5,000 of
his or her shares vesting immediately and the balance vesting in three equal
installments on the three succeeding anniversaries of the grant date.
The exercise price of the options granted under the plan must equal or exceed
the fair market value of ATG's common stock on the date of grant. No option
granted under the plan may be exercised after the expiration of ten years from
the date it was granted. Options granted under the plan are generally non-
transferable except by will or by the laws of descent and distribution. The plan
will terminate at the discretion of the Board; provided, however, that in no
event will the term of the plan extend beyond the tenth anniversary of its
adoption by the Board.
In the event of changes of control of ATG, as defined in the plan, any
outstanding options will automatically become fully vested and will terminate if
not exercised prior to the change of control.
51
Audit Committee
The Audit Committee of the Board is currently composed of Messrs. Doubleday,
Chan, Sebastian and Thomas and is chaired by Mr. Chan. Prior to the annual
shareholders' meeting of the company held on July 14, 2000, the Audit Committee
of the Board was composed of Messrs. Gjelde, Doubleday and Kadak and was chaired
by Mr. Gjelde. The Audit Committee met two (2) times in fiscal year 1999. The
functions performed by the Audit Committee include making recommendations to the
Board of Directors regarding the selection of independent accountants to serve
the company for the ensuing year and reviewing with the independent accountants
and management the general scope and results of the company's annual audit, the
fees charged by the independent accountants and other matters relating to
internal control systems. In addition, the Audit Committee is responsible for
reviewing and monitoring the performance of non-audit services by the company's
auditors and for recommending the engagement or discharge of the company's
independent accountants.
Compensation Committee
The Compensation Committee of the Board is currently composed of Messrs.
Doubleday, Chan, Sebastian and Thomas and is chaired by Mr. Doubleday. Prior to
the annual shareholders' meeting of the company held on July 14, 2000, the
Compensation Committee of the Board was composed of Messrs. Kadak, Doubleday and
Gjelde, and was chaired by Mr. Kadak. All members of this Committee are non-
employee directors. The responsibilities of the Compensation Committee include
establishing the compensation of the Chief Executive Officer, reviewing and
approving executive compensation policies and practices, reviewing salaries and
bonuses for key executive officers of the company and administering the
company's stock option plans. The Compensation Committee met two (2) times
during fiscal year 1999.
Compensation Committee Interlocks and Insider Participation
The following persons served on the Compensation Committee of the company's
Board of Directors during fiscal year 1999: Andrew C. Kadak, Earl E. Gjelde, and
George Doubleday, II. None of these persons is a current or former officer or
employee of the company. There are no "interlocks," as defined by the
Securities and Exchange Commission, with respect to any member of the
Compensation Committee.
Compensation of Executive Officers
The following table discloses compensation received by ATG's Chief Executive
Officer and the four (4) remaining most highly paid executive officers who
received total compensation in excess of $100,000 for the previous years ended
December 31, 2000, 1999 and 1998.
52
Summary Compensation Table
Long-Term
Compensation
Awards
Annual Compensation (4) ------
------------------------ Securities 401(k) Matching
Name and Principal Position Year Salary Bonus Underlying Options Compensation
- ------------------------------ ---------- ------------- ------------ --------------------- ---------------------
Doreen M. Chiu 2000 $250,000 * 5,000 $1,688
Chief Executive Officer 1999 245,154 60,000 * 1,443
1998 156,000 * 50,000 *
Frank Y. Chiu 2000 230,000 * 5,000 1,762
Executive Vice President 1999 225,846 60,000 * 1,521
1998 130,000 * 50,000 *
Fred Feizollahi 2000 126,000 37,000 5,000 2,038
VP Technology & 1999 112,191 30,000 * 1,433
Engineering 1998 100,000 * * *
William M. Hewitt 2000 240,808 * 5,000 *
President - Waste 1999 220,846 60,000 * *
Management Services (1) 1998 157,038 * 40,000 *
Danyal F. Mutman 2000 144,230 * 50,000 1,803
Chief Financial Officer (2) 1999 54,923 * 20,000 288
1998 * * * *
Eric C. Su 2000 140,000 * * 1,010
Vice-President - Marketing & 1999 140,000 50,000 * 942
Planning (3) 1998 112,086 * 40,000 *
_______________________
* None
(1) Resigned as a corporate officer in November 2000 and left the company's
employ in December 2000.
(2) Joined the company in July 1999 as corporate controller and was promoted to
CFO in February 2000.
(3) Resigned as a corporate officer in February 2000 and left the company's
employ in December 2000.
(4) Each of the named executive officers received perquisites and other
personal benefits, the aggregate amount of which did not exceed the lesser
of $50,000 or 10% of the annual base salary reported.
53
Stock Option Grants and Exercises
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concerning stock options granted during
the fiscal year ended December 31, 2000.
Option Grants in Last Fiscal Year
Individual Grants Potential Realizable
----------------------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise for Option Term ($) (1)
Options Employees in Price Per Expiration -----------------------
Name Granted (#) Fiscal Year Share ($) Date(2) 5% 10%
- ---- ----------- ------------ ---------- ------------ -------- -------
Doreen M. Chiu 5,000 2.0% $4.88 1/3/10 $ 15,349 $ 38,897
Frank Y. Chiu 5,000 2.0% $4.88 1/3/10 $ 15,349 $ 38,897
Fred Feizollahi 5,000 2.0% $4.44 1/3/10 $ 13,954 $ 35,361
William M. Hewitt 5,000 2.0% $4.44 1/3/10 $ 13,954 $ 35,361
Danyal F. Mutman 50,000 20.2% $4.13 3/31/10 $129,710 $328,709
Eric C. Su 0 n.a. n.a. n.a. n.a. n.a.
________________________
(1) Potential realizable value is based on the assumption that the common stock
appreciates at the annual rate shown (compounded annually) from the date of
grant until the expiration of the ten-year option term. These numbers are
calculated based on the requirements promulgated by the Securities and
Exchange Commission and do not reflect the company's estimate of future
stock price growth.
(2) Options may terminate before their expiration date if the optionee's status
as an employee is terminated.
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concerning stock options exercised during
the fiscal year ended December 31, 2000 and the value of unexercised options at
such date.
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised
Options at Value of Unexercised
December 31, 2000 (#) In-the-Money Options
--------------------- at December 31, 2000($)(1)
Shares Acquired Value Exercisable/ Exercisable/
On Exercise (#) Realized ($) Unexercisable Unexercisable
---------------- ------------ --------------------- --------------------------
Doreen M. Chiu........ -- -- 159,000/5,000 0/0
Fank Y. Chiu.......... -- -- 221,900/5,000 36,104/0
Fred Feizollahi....... -- -- 60,000/45,000 0/0
William M. Hewitt..... -- -- 96,667/13,333 0/0
Danyal F. Mutman...... -- -- 6,667/63,333 0/0
Eric C. Su............ -- -- 76,667/13,333 20,436/0
________________________
(1) Based on the fair market value of the Common Stock at December 31, 2000 of
$0.7812 per share, less the exercise price paid for such shares.
54
Employee Benefit Plans
Stock Ownership Incentive Plan
In February 1998, the Board adopted the 1998 Stock Ownership Incentive Plan.
The plan authorizes the award of stock options, shares of restricted stock and
performance units (which may be paid in cash or shares of common stock). The
plan reserves for issuance an aggregate of 1,000,000 shares of common stock, no
more than 250,000 shares of which may be issued in the form of shares of
restricted stock. The plan is intended to advance the interests of ATG by
encouraging the employees who contribute to ATG's long-term success and
development to acquire and retain an ownership interest in the company.
The plan is administered by the Board. The Board selects employees to receive
awards under the plan and determine the terms, conditions and limitations
applicable to each award. Each award will be evidenced by a grant letter from
the Board to the recipient setting forth the terms and conditions of the award.
The plan will terminate at the discretion of the Board; provided, however, that
in no event will the term of the Incentive Plan extend beyond the tenth
anniversary of its adoption by the Board.
Stock options granted pursuant to the plan may either be incentive stock
options ("ISOs") intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or stock options not intended to so
qualify. Each stock option awarded under the plan must have an exercise price
equal to at least 100% of the fair market value of the common stock on the date
of grant, and ISOs granted to any employee possessing more than 10% of the
combined voting power of all classes of stock of ATG must have an exercise price
equal to at least 110% of the fair market value. Optionees may exercise options
under the plan by paying cash, by tendering shares of common stock, by using a
cashless exercise procedure provided for in the plan, or by a combination
thereof, as permitted by the Board. Options vest in equal installments over a
five year period and, upon a change of control of ATG, as defined in the plan,
any outstanding options become fully vested and immediately exercisable.
Options granted under the plan are generally non-transferable except by will or
by the laws of descent and distribution. No option granted under the plan may be
exercised after the expiration of ten years from the date it was granted.
Employee Stock Purchase Plan
In February 1998, the Board approved the ATG Employee Stock Purchase Plan
covering an aggregate of 200,000 shares of common stock. The plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Code. Under the plan, the Board may authorize participation by eligible
employees of the company, including officers, in periodic offerings following
the adoption of the Purchase Plan. The offering period for any offering will be
determined by the Board, but in no event will be more than 27 months.
55
Employees are eligible to participate if they are employed by ATG or an
affiliate of ATG designated by the Board. Employees who participate in an
offering may have up to 15% of their earnings (provided that this amount does
not exceed $25,000 in value per calendar year) withheld pursuant to the plan and
applied, on specified dates determined by the Board, to the purchase of shares
of common stock. The price of common stock purchased under the plan will be
equal to 85% of the lower of the fair market value of the common stock on the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with ATG.
In the event of changes of control of ATG, as defined in the plan, the Board
has discretion to provide that each right to purchase common stock will be
assumed or an equivalent right substituted by the successor corporation, or the
Board may shorten the offering period and provide for all sums collected by
payroll deductions to be applied to purchase stock immediately prior to the
change in control. The plan will terminate at the discretion of the Board.
401(k) Plan
In 1995, ATG established a 401(k) tax-qualified employee savings and
retirement plan covering all of its employees. Pursuant to the 401(k) plan,
employees may elect to reduce their current compensation by up to the lower of
15% of their compensation or the annual limit prescribed by statute ($9,500 in
1997) and contribute the amount of the reduction to the 401(k) plan. The 401(k)
plan allows for matching contributions to the 401(k) Plan by ATG, which matching
and the amount of this matching to be determined at the sole discretion of the
Board. During 1999, ATG contributed $61,000 in matching funds through the
issuance of shares of its common stock to the 401(k) plan. The trustee under
the 401(k) plan, at the direction of each participant, invests the assets of the
401(k) plan in numerous investment options. The 401(k) plan is intended to
qualify under Section 401 of the Code so that contributions by employees to the
401(k) plan, and income earned on plan contributions, are not taxable until
withdrawn, and so that the contributions by employees will be deductible by ATG
when made.
Limitation on Directors' Liability
ATG's Articles of Incorporation provide that, pursuant to the California
Corporations Code, the liability of ATG's directors for monetary damages shall
be eliminated to the fullest extent permissible under California law. This is
intended to eliminate the personal liability of a director for monetary damages
in an action brought by, or in the right of, ATG for breach of a director's
duties to ATG or its shareholders. This provision in the Articles does not
eliminate the directors' fiduciary duty and does not apply to the following
liabilities:
. for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law;
. for acts or omissions that a director believes to be contrary to the best
interests of ATG or its shareholders or that involve the absence of good
faith on the part of the director;
56
. for any transaction from which a director derived an improper personal
benefit;
. for acts or omissions that show a reckless disregard for the director's
duty to ATG or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to ATG or its shareholders;
. for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to ATG or its
shareholders;
. with respect to transactions or the approval of transactions in which a
director has a material financial interest as set forth in Section 310 of
the California Corporations Code; and
. expressly imposed by statute for approval of improper distributions to
shareholders or certain loans or guarantees.
This provision also does not limit or eliminate the rights of ATG or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care.
The inclusion of the above provision in the Articles may have the effect of
reducing the likelihood of shareholder derivative suits against directors and
may discourage or deter shareholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though this type of an
action, if successful, might otherwise have benefited ATG and its shareholders.
ATG believes that it is the position of the Securities and Exchange Commission
that insofar as the foregoing provision may be invoked to disclaim liability for
damages arising under the Securities Act if 1933, the provision is against
public policy as expressed in that act and is therefore unenforceable. ATG
believes that the foregoing provision of its Articles is necessary to attract
and retain qualified persons as directors.
57
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a summary of significant transactions to which ATG was or is
a party and in which executive officers, directors or shareholders who own more
than 5% of the shares of ATG had or have a direct or indirect material interest.
From 1992 to 1997, Doreen M. Chiu, ATG's Chairman of the Board and Chief
Executive Officer, extended a series of loans to ATG, each of which was
repayable in full upon demand. The loans, which were unsecured, bore interest
at an annual rate of 10%, payable concurrently with principal. The outstanding
principal balance of the loans, including accrued interest, at December 31, 1997
was $1,280,180. These loans were repaid in full in May 1998.
Doreen M. Chiu and Frank Y. Chiu, the Executive Vice-President and a director
of ATG, have each guaranteed the obligations of ATG under the following:
. two promissory notes issued June 1997 and May 1999 in the principal
amounts of $2,069,604 and $1,996,075 held by Safeco Credit Company, Inc.;
. an equipment lease between ATG and Great Western Leasing issued April 1995
that provides for an aggregate rental amount of $32,522;
. a commercial lease agreement between ATG and U.S. Bancorp issued June 1997
with an aggregate rental amount of $103,341; and
. a note issued August 11, 2000 in the amount of $1,500,000 payable to Jack
Chau.
In connection with the issuance of bonds, undertakings and other instruments
of guarantee in favor of ATG, Doreen M. Chiu and Frank Y. Chiu have each
executed the following:
. a blanket indemnity agreement issued June 1996 in favor of ACSTAR
Insurance Company, indemnifying ACSTAR against any losses that ACSTAR may
incur in connection with the issuance of any of these bonds, undertakings
or other instruments of guarantee;
. a blanket Continuing Agreement of Indemnity-Contractor's Form for the
benefit of Reliance Insurance Company, United Pacific Insurance, Reliance
National Indemnity Company and Reliance Surety Company, issued March 1998
indemnifying these entities against any losses that these entities may
incur in connection with the issuance of any of these bonds, undertakings
or other instruments of guarantee.
As of December 31, 1999, the potential aggregate liability of Mr. and Mrs.
Chiu under the blanket indemnities was approximately $35,500.
In June 1998, ATG entered into a contract to provide engineering, remediation
and construction services to Mission Ranch Center, a California limited
partnership. Doreen M. Chiu
58
and Frank Y. Chiu are general partners and own a 50% partnership interest in
Mission Ranch. ATG reported revenues of $1,403,000 and costs of $1,354,000
related to services provided under this contract in 1999. ATG reported revenues
of $785,000 and costs of $432,000 related to services provided under this
contract in 1998. The total project contract value is approximately $4,695,000
and is expected to be completed in early 2001.
On October 5, 2000 and October 13, 2000 Mr. and Mrs. Chiu advanced $307,500
and $252,500, respectively to ATG. Mrs. Chui also advanced $400,000 in various
months of 2000 for expenses of ATG.
On June 30, 2000, ATG sold a total of 2,000,000 shares of common stock for
$2.00 per share in a private placement to Special Situations Fund III, L.P.,
Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund,
L.P., each of which is a selling shareholder in this prospectus. The stock
purchase agreements require ATG to file a registration statement with the SEC to
register the resale of the private placement shares. If the registration
statement is not filed within 45 days and effective within 120 days, then the
stock purchase agreements require ATG to issue additional shares of common stock
to the funds in amounts calculated based on the length of the delays, but not to
exceed 36% of the number of private placement shares. Because the registration
statement was filed after more than 45 days and was not effective within 120
days, the funds became entitled to receive additional shares of common stock as
provided in the stock purchase agreements.
However, on December 29, 2000, ATG entered into a settlement agreement with
the funds whereby ATG and the funds settled disputes about their respective
rights and obligations under the stock purchase agreements. The funds agreed to
waive their rights under the stock purchase agreements to receive additional
shares of common stock and other alleged rights in exchange for a one-time
right, exercisable by written notice to ATG on or before November 15, 2001, to
have the price of their private placement shares reset. The reset right will be
based on the average closing price of ATG common stock for the 30 trading days
prior to November 1, 2001 if less than $2.00 per share, except that the price
may not be reset to a price that is lower than the average closing price of ATG
common stock for the 15 trading days prior to December 27, 2000. Under the
settlement agreement, ATG is not required to honor any reset notice from the
funds if, within ten business days after receiving the notice, ATG repurchases
all of the funds' private placement shares for $2.00 per share. The settlement
agreement further provides that if ATG's registration statement is not effective
by March 31, 2001, then the funds' rights to receive additional shares under the
stock purchase agreements will automatically be reinstated.
59
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the common stock of
ATG as of January 25, 2001, by each person known by ATG to own beneficially more
than five percent of our outstanding common stock, by each director, by each
executive officer named in the Summary Compensation Table and by all named
directors and executive officers as a group. All shares are subject to the
named person's sole voting and investment power, except where otherwise
indicated.
Number Percent of
Name and Address Of Shares (1) Shares Outstanding
- ---------------- ------------- ------------------
Doreen M. Chiu (2)** 2,719,926 16.1%
George Doubleday, II (3)** 532,243 3%
Eric C. Su (4)** 121,333 *
William M. Hewitt (5)** 97,288 *
Danyal F. Mutman(6)** 23,334 *
Fred Feizollahi (7)** 81,667 *
David F. Chan (8)** 5,000 *
David R. Sebastian (8)** 5,000 *
James E. Thomas (8)** 5,000 *
Special Situations Cayman Fund, L.P.(9) 300,000 1.8%
Special Situations Fund III, L.P.(9) 900,000 5.3%
Special Situations Private Equity Fund, L.P.(9) 800,000 4.7%
All directors and executive officers as
a group (8 persons) (10) 3,590,791 21.2%
- ---------------
* The number of shares owned is less than 1%
** The address of each beneficial owner identified is c/o ATG, 47375 Fremont
Boulevard, Fremont, CA 94538.
(1) Beneficial ownership includes shares of Common Stock subject to options
held by the named person that are currently exercisable or will become
exercisable within 60 days.
(2) Includes all shares beneficially owned by Frank Y. Chiu as community
property and options to purchase 20,000 shares of Common Stock.
(3) Includes options to purchase 15,000 shares of Common Stock.
(4) Includes options to purchase 76,667 shares of Common Stock. Mr. Su
resigned as a corporate officer in February 2000 and left the company's
employ in December 2000.
(5) Includes options to purchase 96,667 shares of Common Stock. Mr. Hewitt
resigned as a corporate officer in November 2000 and left the employ of the
company in December 2000.
(6) Represents options to purchase 23,334 shares of Common Stock.
(7) Represents options to purchase 81,667 shares of Common Stock.
(8) Represents options to purchase 5,000 shares of Common Stock.
(9) The address of each beneficial owner identified is E. 53rd Street, 55th
Floor, New York, NY.
(10) Includes 196,666 shares of Common Stock that may be issued upon the
exercise of options outstanding and beneficially owned by the directors and
executive officers as a group.
60
PLAN OF DISTRIBUTION
The shares being offered by this prospectus will be offered and sold by the
selling shareholders named in this prospectus, by their donees or transferees,
or by their other successors in interest. ATG will not receive any of the
proceeds from the sale of the shares pursuant to this prospectus. ATG has agreed
to bear the expenses of the registration of the shares, including legal and
accounting fees, other than fees of counsel, if any, retained individually by
the selling shareholders, and any discounts or commissions payable with respect
to sales of the shares.
The aggregate 192,500 shares of ATG common stock issuable upon the exercise
of warrants which were issued to the selling shareholders named Taglich Brothers
and Taglich Brothers' designees identified by the "+" next to those selling
shareholders' names in the table of selling shareholders in "Sales by Selling
Shareholders," were issued pursuant to ATG's obligations in the agreement with
Taglich Brothers as placement agent for the private placement. That agreement
required ATG to issue warrants for the purchase of 7% of the number of shares
sold in the private placement. The number of shares sold in the private
placement was 2,750,000, resulting in the issuance of warrants to purchase an
aggregate 192,500 to Taglich Brothers and its designees. Additionally, Michael
Taglich and Robert Taglich also purchased 70,000 and 50,000 shares,
respectively, in the private placement as individuals.
The selling shareholders may offer and sell the shares from time to time in
transactions in the over-the-counter market or in negotiated transactions, at
market prices prevailing at the time of sale or at negotiated prices. The
selling shareholders have advised ATG that they have not entered into any
agreements, understandings or arrangements with any underwriters or broker-
dealers regarding the sale of their shares, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of shares by the
selling shareholders. Sales may be made directly or to or through broker-
dealers who may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders or the purchasers of shares for whom
these broker-dealers may act as agent or to whom they may sell as principal, or
both. This compensation may be in excess of customary commissions.
From time to time, one or more of the selling shareholders may pledge or grant
a security interest in some or all of the shares owned by them. If the selling
shareholders default in performance of their secured obligations, the pledgees
or secured parties may offer and sell the shares from time to time by this
prospectus (except, in some cases, if the pledgees or secured parties are
broker-dealers or are affiliated with broker-dealers). The selling shareholders
also may transfer and donate shares in other circumstances. Transferees and
donees may also offer and sell the shares from time to time by this prospectus
(except, in some cases, if the transferees or donees are broker-dealers or are
affiliated with broker-dealers). The number of shares beneficially owned by
selling shareholders will decrease as and when the selling shareholders transfer
or donate their shares or default in performing obligations secured by their
shares. The plan of distribution for the shares offered and sold under this
prospectus will otherwise remain unchanged, except that the transferees, donees,
pledgees, other secured parties or other successors in interest will be selling
shareholders for purposes of this prospectus. If we are notified that a donee,
pledgee or other successor in interest of a selling shareholder intends to sell
more than 500 shares of our common stock, we will file a supplement to this
prospectus which
61
includes all of the information required to be disclosed by Item 507 of
Regulation S-K. Further, ATG will file a post-effective amendment to this
registration statement upon any change in the plan of distribution.
The selling shareholders and any broker-dealers acting in connection with the
sale of the shares hereunder may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933, and any commissions
received by them and any profit realized by them on the resale of the shares as
principals may be deemed underwriting compensation under the Securities Act of
1933.
ATG has agreed to indemnify the selling shareholders against liabilities they
may incur as a result of any untrue statement or alleged untrue statement of any
material fact in the registration statement of which this prospectus forms a
part, or any omission or alleged omission herein to state a material fact
necessary in order to make the statements herein not misleading. The
indemnification includes liabilities that the selling shareholders may incur
under the Securities Act of 1933. ATG does not have to give this indemnification
if the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
in writing to ATG by the selling shareholder for use in the registration
statement.
ATG has advised the selling shareholders of (1) the requirement for delivery
of this prospectus in connection with any sale of the shares, and (2) the
relevant cooling off period specified by Regulation M and restrictions upon the
selling shareholders' bidding for or purchasing securities of ATG during the
distribution of shares.
62
DESCRIPTION OF SECURITIES
The following is a description of the capital stock of ATG and material
provisions of its articles of incorporation.
The authorized capital stock of the company currently consists of 50,000,000
shares consisting of 42,000,000 shares of common stock, no par value per share,
of which 16,935,993 shares are currently outstanding, and 8,000,000 shares of
preferred stock, of which no shares are currently outstanding. As of January 25,
2001, there were over 1800 record holders of our common stock.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. The holders of
common stock are entitled to cumulative voting rights with respect to the
election of directors so long as at least one shareholder has given notice at
the meeting of shareholders prior to the voting of that shareholder's desire to
cumulate votes. Under cumulative voting, each shareholder may give any one
candidate whose name is placed in nomination prior to the commencement of voting
a number of votes equal to the number of directors to be elected, multiplied by
the number of votes to which the shareholder's shares are normally entitled, or
distribute the number of votes among as many candidates, in whatever
proportions, as the shareholder sees fit. The effect of cumulative voting is
that the holders of a majority of the outstanding shares of common stock may not
be able to elect all of ATG's directors. Subject to the rights of holders of any
preferred stock that may be outstanding, holders of common stock are entitled to
receive ratably dividends as may be declared by the Board out of assets legally
available therefor at times and in amounts as the Board of Directors may, from
time to time, determine. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of ATG, subject to the rights of holders of any
preferred stock that may be outstanding, the holders of common stock are
entitled to share ratably in all assets of ATG remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no preemptive rights and no right to
convert their common stock into any other securities. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable.
Pursuant to agreements with the selling shareholders, including the
placement agent, ATG is required to prepare and file a registration statement
to register for resale both the shares of common stock and the shares of common
stock issuable upon exercise of the warrants issued in the private placement.
ATG was required to file the registration statement relating to these shares
within 45 days of the closing date of the private placement. The agreements with
the selling shareholders, including the placement agent, provide that if ATG has
not filed the registration statement within 45 days of the closing date of the
private placement or if the registration statement has not been declared
effective within 120 days of the closing date, then the selling shareholders are
entitled, at no cost, to additional shares of common stock of ATG, accruing at
the end of each 30 day period for which ATG has not filed or had the
registration
63
statement declared effective after the 45 and 120 day periods required by the
agreements, up to an aggregate maximum number equal to 36% of the total number
of shares of common stock issued in the private placement and issuable upon the
exercise of the warrants. ATG did not file its registration statement or have it
declared effective on a timely basis and is therefore required to issue
additional shares in accordance with the terms of the agreements. Although the
number of shares of common stock issued in the private placement and the number
of shares of common stock issuable upon the exercise of the warrants total
2,942,500, due to an agreement between ATG and certain of the selling
shareholders holding 2,000,000 of these shares in which these selling
shareholders waived their rights to receive the additional shares of stock being
issued as a result of the delayed filing and effectiveness of this registration
statement, the maximum additional shares that ATG will be required to issue is
339,300. (See "Certain Relationships and Related Party Transactions").
The rate of accrual of additional shares owing to the selling shareholders
is, subject to the maximum number of shares of 339,300, the sum of:
. the product of 3% of the number of each selling shareholder's shares
acquired in the private placement, and the number of 30 day periods, or
any part of a 30 day period, beyond the 45 day period until the
registration statement is filed with the SEC; and
. the product of 2% of the number of each selling shareholder's shares
acquired in the private placement, and the number of 30 day periods, or
any part of a 30 day period, beyond the 120 day period until the
registration statement is declared effective.
The terms of the purchase agreements require ATG to include any additional
shares being issued in the registration statement of which this prospectus is a
part. This prospectus covers the resale of the 2,750,000 shares of ATG common
stock issued in the private placement, the 192,500 shares of common stock
underlying the warrants that were issued in the private placement, and up to
339,300 additional shares of common stock issuable because of the delayed
registration statement filing and effectiveness.
The agreements with the selling shareholders, including the placement
agent, required ATG to use its reasonable best efforts to raise an additional
$3,000,000 within 90 days of the closing date of the private placement, by
closing on the sale of convertible securities unless during this 90 day period,
ATG obtained additional financing of at least $3,000,000 from an institution,
including, without limitation, a bank, insurance company or leasing company, in
which case ATG was not required to use its reasonable best efforts to close on
the additional offering. In the event the additional offering of convertible
securities occurred, the agreements with the selling shareholders required ATG
to provide the selling shareholders with the right to participate in the
additional offering by means of an opportunity to exchange their shares of
common stock acquired in the private placement for the convertible securities.
ATG did not issue convertible securities within 90 days of the closing date of
the private placement, and therefore the selling shareholders did not have the
opportunity to exchange their shares of common stock.
64
Shares of common stock covered by this prospectus are also entitled to "piggy-
back" registration rights.
Preferred Stock
The following is a brief summary of the material rights, preferences,
privileges, restrictions and limitations of the outstanding shares of ATG's
preferred stock.
Under its Amended and Restated Articles of Incorporation, ATG is authorized to
issue 8,000,000 shares of "blank check" preferred stock. The Board of Directors
of ATG is authorized from time to time to provide by resolution for the issuance
of shares of preferred stock in one or more classes or series. The Board of
Directors of ATG is also authorized to designate, and to fix the number of
shares constituting, each class or series; and to determine with respect to each
class or series the voting powers, if any (which voting powers if granted may be
full or limited), designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions applicable thereto, including, without limiting the generality of
the foregoing, the voting rights applicable to any class or series (which may be
any whole or fractional number of votes per share, and which may be applicable
generally or only upon stated matters, events or conditions); the rate of
dividend to which holders of preferred stock of any class or series may be
entitled (which may or may not be cumulative and/or participating); the rights
of holders of preferred stock of any class or series in the event of
liquidation, dissolution or winding up of the affairs of this corporation or
other circumstances; the rights, if any, of holders of preferred stock of any
class or series to convert or exchange the shares of preferred stock for shares
of any other class of capital stock of this corporation or any other entity or
to convert or exchange the preferred stock for any other form of property
(including in each case the determination of the price or prices or the rate or
rates applicable to the rights to convert or exchange and the adjustment
thereof, the time or times during which the right to convert or exchange shall
be applicable and the time or times during which a particular price or rate
shall be applicable); and the rights, if any, to redeem any class or series of
preferred stock (which may be mandatory at a fixed time or upon the occurrence
of a specified event, or may be optional on the part of this corporation and/or
the shareholder).
Unless otherwise provided by law or in a resolution or resolutions
establishing a particular class or series of preferred stock, the aggregate
number of authorized shares of preferred stock may be increased by an amendment
to ATG's Amended and Restated Articles of Incorporation approved solely by the
holders of common stock and of any preferred stock which is entitled pursuant to
its voting rights designated by the Board to vote thereon, if at all, voting
together as a class.
The Board of Directors shall be entitled to increase or decrease the number of
shares previously designated by the Board to a class or series of preferred
stock without prior shareholder approval, provided that at no time shall the
Board of Directors be entitled to decrease the number of shares previously so
designated to a class or series to a number that is less than the number of
shares of the series then issued and outstanding.
65
Before ATG shall issue any shares of preferred stock of any class or series, a
certificate, setting forth a copy of the resolution or resolutions of the Board
of Directors, fixing the attributes of the class or series shall be filed in the
manner prescribed by the laws of the State of California.
Options and Warrants
At December 31, 2000, options and warrants to purchase up to 1,616,000 shares
of common stock, at a weighted average exercise price of $4.32 per share, were
outstanding, 1,240,000 of which were exercisable on this date.
Transfer Agent and Registrar
The transfer agent and registrar for ATG's common stock is U.S. Stock Transfer
Corporation.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
offered hereby will be passed upon for ATG by Miller & Holguin, attorneys at
law, Los Angeles, California.
EXPERTS
The financial statements of ATG Inc. at December 31, 1999 and 1998, and for
each of the three years in the period ended December 31, 1999 appearing in this
prospectus have so been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy and information
statements and other information with the Securities and Exchange Commission.
Our SEC filings are available to the public over the Internet at the SEC's web
site at http://www.sec.gov. You may also read and copy any document we file at
the SEC's public reference rooms located at Room 1024, Judiciary Plaza, 450 5th
Street, N.W., Washington, D.C. 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may obtain information on the operation of the
SEC's public reference rooms by calling the SEC at 1-800-SEC-0330.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Consolidated Balance Sheets--As of December 31, 1998 and 1999 F-3
Consolidated Statements of Operations--For the Three Years Ended
December 31, 1999 F-4
Consolidated Statements of Shareholders' Equity--For the Three Years Ended
December 31, 1999 F-5
Consolidated Statements of Cash Flows--For the Three Years Ended
December 31, 1999 F-6
Notes to Consolidated Financial Statements F-7
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2000 F-27
Unaudited Condensed Consolidated Statement of Operations for the
six months ended September 30, 2000 and 1999 F-28
Unaudited Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 2000 and 1999 F-29
Notes to Unaudited Condensed Consolidated Financial Statements as of
September 30, 2000 F-30
(2) Financial Statement Schedules. For years ended December 31, 1999,
1998 and 1997: F-38
Schedule II. Valuation and Qualifying Accounts and Reserves F-39
All other schedules are omitted because they are not applicable or the
required information has been included in the consolidated financial statements
or notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
ATG Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of ATG
Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1, 9 and 18 to
the financial statements, the Company is in default of certain provisions
related to the Company's credit facility. The default allows the bank consortium
to demand repayment of the outstanding balance, which raises substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
March 28, 2000
except for the matters discussed in the third paragraph of Note 1, the third
paragraph of Note 9, and Note 18, as to which the date is August 16, 2000,
except paragraphs two and six of Note 18, as to which the date is February 2,
2001.
F-2
ATG INC.
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
December 31,
---------------------------
1999 1998
--------- -------
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 2,776 $ 3,789
Accounts receivable, net of allowance for doubtful
accounts of $1,522 at December 31, 1999 and
$305 at December 31, 1998............................................. 24,488 22,561
Prepayments and other current assets........................................ 5,396 2,096
-------- -------
Total current assets................................................... 32,660 28,446
Property and equipment, net....................................................... 80,428 42,988
Restricted cash................................................................... 16,014 -
Other assets, net................................................................. 6,977 8,135
-------- -------
Total assets..................................................... $136,079 $79,569
======== =======
LIABILITIES
Current liabilities:
Short-term borrowings..................................................... $ 1,721 $ 6,750
Current portion of long-term debt and capitalized leases.................. 4,259 4,733
Accounts payable.......................................................... 11,649 6,096
Accrued liabilities....................................................... 15,197 9,222
-------- -------
Total current liabilities......................................... 32,826 26,801
Long-term debt and capitalized leases, net of current portion..................... 56,595 11,246
Deferred income taxes............................................................. - 777
-------- -------
Total liabilities................................................. 89,421 38,824
-------- -------
See Commitments and Contingencies (Note 10)
SHAREHOLDERS' EQUITY
Common Stock, no par value:
Authorized: 20,000,000 shares. Issued and outstanding:
14,082,734 shares and 13,851,709 shares at December 31,
1999 and 1998, respectively................................................ 42,137 41,517
Deferred compensation............................................................. (32) (152)
Retained earnings (deficit)....................................................... 4,553 (620)
-------- -------
Total shareholders' equity.......................................... 46,658 40,745
-------- -------
Total liabilities and shareholders' equity.......................... $136,079 $79,569
======== =======
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ATG INC.
CONSOLIDATION STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share data)
For the Years Ended December 31,
------------------------------------------
1999 1998 1997
---- ---- ----
Revenue ------------------------------------------------------- $60,662 $35,900 $19,107
Cost of revenue (Note 6)--------------------------------------- 36,359 19,816 11,172
------- ------- -------
Gross profit -------------------------------- 24,303 16,084 7,935
Sales, general and administrative expenses (Note 6)------------ 14,565 7,832 6,903
Stock-based compensation expense ------------------------------ 120 120 117
------- ------- -------
Operating income ---------------------------- 9,618 8,132 915
------- ------- -------
Interest income (expense):
Interest income -------------------------------------- 291 188 58
Interest expense ------------------------------------- (1,287) (15) -
------- ------- -------
Interest income, net ------------------------- (996) 173 58
------- ------- -------
Income before income taxes ------------------------------------ 8,622 8,305 973
Provision (benefit) for income taxes -------------------------- 3,449 3,156 (45)
------- ------- -------
Net income ---------------------------------- 5,173 5,149 1,018
Accretion of mandatorily redeemable preferred stock ----------- - - (1,469)
------- ------- -------
Net income (loss) available to common shareholders ------------ $ 5,173 $ 5,149 $ (451)
======= ======= =======
Net income (loss) per share
Basic ------------------------------------------------ $ 0.37 $ 0.40 $ (0.06)
Diluted ---------------------------------------------- $ 0.35 $ 0.38 $ (0.06)
Shares used in calculating net income (loss)
per share
Basic ------------------------------------------------ 14,048 12,975 7,532
Diluted ---------------------------------------------- 14,596 13,698 7,532
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
ATG INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands)
------------
Common Stock Earnings Total
------------ Deferred (Accumulated Shareholders'
Shares Amount Compensation Deficit) Equity
------ ------ ------------ ------------ -------------
Balance, December 31, 1996...................... 7,532 $ 5,948 $ - $(5,318) $ 630
Accretion on redeemable preferred
stock....................................... - - - (1,469) (1,469)
Stock based compensation...................... - 389 (389) - -
Amortized deferred compensation............... - - 117 - 117
Net income.................................... - - - 1,018 1,018
------ ------- ----- ------- -------
Balance, December 31, 1997..................... 7,532 6,337 (272) (5,769) 296
Conversion of redeemable preferred
stock......................................... 3,984 19,416 - - 19,416
Issuance of common stock, on initial
public offering, net of expenses............ 2,185 15,658 - - 15,658
Exercise of stock options..................... 147 83 - - 83
Issuance of common stock under
Employee Stock Purchase Plan................ 4 23 - - 23
Amortized deferred compensation............... - - 120 - 120
Net income.................................... - - - 5,149 5,149
------ ------- ----- ------- -------
Balance, December 31, 1998...................... 13,852 41,517 (152) (620) 40,745
Exercise of stock options..................... 204 476 - - 476
Issuance of common stock under -
Employee Stock Purchase Plan................ 15 83 - - 83
Issuance of common stock under -
Employee 401k Plan Match.................... 12 61 - - 61
Amortized deferred compensation............... - - 120 - 120
Net income.................................... - - - 5,173 5,173
------ ------- ----- ------- -------
Balance, December 31, 1999...................... 14,083 $42,137 $(32) $ 4,553 $46,658
====== ======= ===== ======= =======
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ATG INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
For the Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income....................................................... $ 5,173 $ 5,149 $ 1,018
Adjustments to reconcile net income with cash
flow from operations:
Depreciation and amortization................................. 1,911 824 746
Provision for doubtful accounts............................... 1,359 210 73
Compensation expense for shares issued and
options granted............................................ 120 120 117
Income tax benefit............................................ - - (45)
Change in current assets and liabilities:
Accounts receivable........................................ (1,750) (16,836) 899
Prepayments and other current assets....................... (2,722) 78 (140)
Accounts payable and accrued liabilities................... 6,361 11,128 1,085
Deferred income taxes...................................... (152) 310 (230)
-------- -------- -------
Net cash provided by operating activities.......... 10,300 983 3,523
-------- -------- -------
Cash flows from investing activities:
Property and equipment acquisitions.............................. (28,281) (5,015) (3,505)
Acquisition of MMT Assets........................................ - (10,731) -
Restricted cash.................................................. (16,014) - -
Other assets..................................................... (2,582) (3,763) (3,710)
-------- -------- -------
Net cash used in investing activities......................... (46,877) (19,509) (7,215)
-------- -------- -------
Cash flows from financing activities:
Loans from (payments to) related parties......................... - (1,280) 1,177
Borrowing (repayment) of capital leases.......................... (490) (1,226) (461)
Borrowing (repayment) of long-term debt, net..................... 40,463 3,717 (196)
Short-term borrowing (repayment), net............................ (5,029) 2,754 1,160
Proceeds from issuance of preferred stock, net................... - - 1,629
Proceeds from issuance of common stock, net...................... 620 15,764 -
-------- -------- -------
Net cash provided by financing activities...................... 35,564 19,729 3,309
-------- -------- -------
Increase (decrease) in cash and cash equivalents................... (1,013) 1,203 (383)
Cash and cash equivalents, beginning of period..................... 3,789 2,586 2,969
-------- -------- -------
Cash and cash equivalents, end of period........................... $ 2,776 $ 3,789 $ 2,586
======== ======== =======
Supplemental Disclosures, including non-cash investing and
financing activities:
Income taxes paid.............................................. $ 1,495 $ 64 $ 2
======== ======== =======
Interest paid, net of interest capitalized..................... $ 1,287 $ 15 $ -
======== ======== =======
Acquisition of equipment with capital lease financing.......... $ 4,902 $ 906 $ 4,256
======== ======== =======
Acquisition of MMT Assets with long-term debt.................. $ - $ 5,000 $ -
======== ======== =======
Acquisition of MMT Assets with accrued liabilities............. $ 5,200 $ - $ -
======== ======== =======
Reclassification of machinery and equipment to
other current assets......................................... $ (426) $ (475) $ -
======== ======== =======
Reclassification of other assets to property and equipment..... $ 1,325 $ - $ -
======== ======== =======
Conversion of redeemable preferred stock....................... $ - $ 19,416 $ -
======== ======== =======
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
1. Formation and Business of the Company
ATG Inc. (the "Company" or "ATG") provides technical personnel and specialized
services and products primarily to the U.S. government and the nuclear power
industry. Services principally consist of compaction, reduction,
decontamination, vitrification and disposal of low-level nuclear waste,
dewatering and thermal treatment of ion exchange resins, decontamination,
stabilization and volume reduction of low-level mixed waste, site remediation
and construction projects.
In May 1998, the Company completed an initial public offering of 1,900,000
shares of common stock and in June 1998, sold an additional 285,000 shares of
common stock. Total proceeds to the Company, net of underwriting discounts and
other direct expenses, were approximately $15.7 million.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 and 18 to the
financial statements, the Company is in default of certain provisions related to
the Company's credit facility. The default allows the bank consortium to demand
repayment of the outstanding balance, which raises substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, ATG Richland Corporation ("ATG Richland") and ATG
Nuclear Services LLC ("ATG Nuclear") and its subsidiary, ATG Catalytics LLC
("ATG Catalytics"). All significant intercompany balances and transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying disclosures. These estimates include assessing the collectibility
of accounts receivable, contracts in process and the recoverability of self-
constructed assets and provisions for contingencies. Actual results could
materially differ from the Company's estimates.
Revenue Recognition
Revenue includes fees for waste processing services and technology license
fees. Revenue from waste processing is recognized upon the substantial
completion of the waste treatment process. Revenue from licensing or technology
transfer agreements is recognized when received unless there are future
commitments, in which case the revenue is recognized over the term of the
F-7
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
agreement. Revenue of $1,975 was recognized pursuant to technology transfer
agreements in 1997.
Revenue under cost plus, fixed fee and fixed unit price contracts mainly
relating to site remediation is recorded as costs are incurred or units are
completed and include estimated fees earned according to the terms of the
contracts. Revenue from U.S. federal government contracts include estimates of
reimbursable overhead and general administrative expenses, which are subject to
final determination by the U.S. federal government upon project completion.
Change orders are modifications of an original contract that effectively change
the provisions of the contract. They may be initiated by either the Company or
the customer. Change order work may be performed prior to approval of the change
order by the customer. Revisions in contract revenue and cost estimates are
reflected in the accounting period when known. Provision for the entire amount
of estimated losses on uncompleted contracts is made in the period such losses
are determined. Claims for additional contract revenue are recognized if it is
probable that the claim will result in additional revenue and the amount can be
reliably estimated.
Disclosure of Significant Estimates - Revenue
As outlined in the Summary of Significant Accounting Policies - Revenue
Recognition, the Company's site remediation revenue for fixed price and cost
plus contracts is recognized on the percentage of completion basis.
Consequently, construction revenue and gross margin for each reporting period is
determined on a contract-by-contract basis by reference to estimates by the
Company's engineers of expected costs to be incurred to complete each project.
These estimates include provisions for known and anticipated cost overruns, if
any exist or are expected to occur. These estimates may be subject to revision
in the normal course of business.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Balance Sheet Classifications
The Company includes in current assets and liabilities amounts receivable and
payable under construction contracts, which may extend beyond one year. A one-
year time period is used as the basis for classifying all other current assets
and liabilities.
Property and Equipment
Property and equipment are stated at cost and are depreciated on the straight-
line basis over the estimated useful lives of the assets, which range from three
to forty years. The Company self constructs substantially all of its waste
processing facilities, and includes as captialized costs, direct materials and
labor and related overhead and an allocation for general and administrative
costs. Cost includes expenditures for major improvements and replacements and
the net amount of interest costs related to qualifying construction projects.
Expenditures for major renewals and betterments are capitalized. Expenditures
for maintenance and repair expenses are charged to expense as incurred. The
Company's policy is to regularly review the carrying amount of specialized
assets and to evaluate the remaining life and recoverability of such equipment
in light of current market conditions.
F-8
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
Intangible Assets
Intangible assets are stated at acquisition cost and are amortized on the
straight-line basis over the estimated useful lives of the assets, which range
from three to twentyfive years. Acquisition cost includes the value of patents,
licenses, non-compete covenants and goodwill. The Company's policy is to
capitalize only such costs which are purchased. The Company's policy is to
regularly review the carrying amount of intangible assets and to evaluate the
remaining life and recoverability of such assets in light of current market
conditions. As of December 31, 1999, management believes there is no impairment
with respect to these assets.
Risks and Uncertainties
The Company operates its fixed facilities under regulations of, and permits
issued by, various state and federal agencies. The Company, typically, is in
the process of seeking new permits, renewals and/or expansion permits. There
can be no assurance of the successful outcome of any permitting efforts. The
permitting process is subject to regulatory approval, time delays, local
opposition and potentially stricter governmental regulation. In the event a
permit is not granted, facility construction programs could be delayed, changed,
or abandoned and could result in substantial losses which would have a material
adverse effect on the Company's consolidated financial position. The Company
reviews the status of permitting projects on a periodic basis to assess
realizability of related asset values. As of December 31, 1999, management
believes that assets which could currently be affected by permitting efforts are
recoverable at their recorded values.
The market for the Company's services is substantially dependent on state and
federal legislation and regulations. The availability of new contracts depends
significantly on the regulatory environment. In order to build or retain its
market share the Company must continue to successfully compete for new
government and private sector contracts.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Concentration of Credit Risk
The majority of the Company's cash and cash equivalents are held with major
banks in the United States. The Company's customers consist mainly of agencies
of the U.S. government and large U.S. companies. The Company performs ongoing
credit evaluation of its customers' financial condition. As of December 31,
1999, agencies of the U.S. government represented 39% of accounts receivable and
27% of total revenue for the year then ended. As of December 31, 1998, agencies
of the U.S. government represented 51% of accounts receivable and 55% of total
revenue for the year then ended. As of December 31, 1997, agencies of the U.S.
government represented 47% of accounts receivable and 71% of total revenue for
the year then ended. The Company generally does not require collateral.
F-9
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
Computation of Net Income Per Share
Basic income per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted income per share is computed giving effect to all dilutive
potential common shares that were outstanding during the period.
Stock Options
The Company accounts for stock-based awards to employees in accordance with
APB No. 25 ("APB 25"), Accounting for Stock Issued to Employees, and has adopted
the disclosure-only alternative of Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), Accounting for Stock Based Compensation. See Note 11,
Stock Based Compensation Plans for further details.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year's presentation.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities, and is effective for fiscal
years beginning after June 15, 2000, as amended by SFAS No. 137. The adoption
of this pronouncement will have no material impact on the Company's financial
position and results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. The adoption of SAB 101 will have no material impact on the Company's
financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB 25 (the
"Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. The adoption of FIN 44 will have no material impact on
statement of operations.
F-10
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
Comprehensive Income
In the first quarter of 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which specifies
the computation, presentation and disclosure requirements for comprehensive
income. There was no impact on the Company's financial position, results of
operations or cash flows as a result of adoption. Comprehensive income and net
income are the same.
3. Acquisition
Effective December 1, 1998, the Company, through its wholly-owned subsidiary,
ATG Nuclear, and through its subsidiary, ATG Catalytics, acquired certain assets
and business lines from the trustee ("Seller") for debtors of Molten Metal
Technologies, Inc. or its affiliates, under Chapter 11 of the United States
Bankruptcy Code (the "MMT Assets").
The assets acquired by ATG Nuclear include substantially all of the assets,
contracts, licenses and permits associated with the Seller's wet waste business
based in Oak Ridge, Tennessee, and a facility in Columbia, South Carolina. The
assets acquired by ATG Catalytics include substantially all of the assets,
contracts, licenses and permits associated with the Seller's catalytic
extraction processing business conducted substantially in Oak Ridge, Tennessee.
These assets were acquired throught a combination of cash, notes payable, and
the assumption of certain debts, including the obligation to provide for
disposal of certain legacy wastes which were in process at the date of
acquisition. The Company paid $10.5 million in cash at closing, agreed to pay
$1.0 million in cash one year from closing and agreed to make future payments of
5% of the earnings before interest, taxes, depreciation and amortization of ATG
Catalytics, but not less than $800 annually for five years (minimum of $4.0
million).
The transaction has been accounted for as a purchase and, accordingly, results
of operations include the operations of the new businesses since the date of
acquisition. The purchase price has been allocated to the assets acquired and
will be amortized over the lives of those assets. During 1999 the final purchase
price allocation was concluded and as result the purchase price allocation was
revised as follows:
(Dollars in millions) Original Ending
- --------------------- Valuation Adjustments Valuation
--------- ----------- ---------
Restricted cash and other assets $ 2.7 $ -- $ 2.7
Accounts receivable 2.8 -- 2.8
Property and equipment 15.4 6.8 22.2
Intangibles including goodwill -- 1.4 1.4
Accrued liabilities (5.2) (8.2) (13.4)
----- ---- ------
Net assets acquired $15.7 $ -- $ 15.7
===== ===== ======
The value of property and equipment was increased by $6.8 million, not to
exceed its fair market value (FMV) appraisal of $22.2 million. The Company
recorded $1.4 million in goodwill which is the amount of increase in accrued
liabilities of $8.2 million less the increase of $6.8 million in property and
equipment value from the FMV appraisal. The revised purchase price allocation is
the result of the Company's final assessment of the cost to treat unprocessed
waste
F-11
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
on site at the MMT facilities. The revision reflects the Company's refined
estimate for waste processing and disposal costs associated with waste materials
on site at the time of the acquisition. As of December 31, 1999, the Company has
accrued $5.2 million for the future cost of waste processing and disposal for
waste materials on site at the time of the acquisition.
4. Accounts Receivable
December 31,
------------------------------
1999 1998
--------------- -------------
U.S. Government:
Amounts billed ................................................. $ 2,867 $ 8,483
Amounts unbilled ............................................... 7,314 3,037
------- -------
Total U.S. Government .......................................... 10,181 11,520
------- -------
Commercial customers:
Amounts billed ................................................. 10,847 9,008
Amounts unbilled ............................................... 4,982 2,338
------- -------
Total commercial ............................................... 15,829 11,346
------- -------
Total accounts receivable ...................................... 26,010 22,866
Less: allowances for doubtful accounts .............................. (1,522) (305)
------- -------
$24,488 $22,561
======= =======
Recoverable costs and accrued profit on progress completed but not billed on
U.S. government contracts are based on estimates of reimbursable overhead and
general and administrative expenses calculated in accordance with contractually
determined methods of calculation. These amounts are subject to final
determination by the U.S. federal government after the contracts have been
completed. As such, the actual recoverable amounts on these contracts may
differ from these estimates.
Included in the unbilled portion within the above amounts is $3,595 and none,
as of December 31, 1999 and 1998, respectively, related to claims for additional
services rendered. The number of claims is two and none as of December 31, 1999
and 1998 respectively. These amounts have been recognized as revenue and include
only direct costs associated with the claim and do not include profit margin.
The Company is in the process of submitting contract documents related to these
claims. The customer may accept or reject the Company's claim. Should the
customer reject the claim, the Company may be required to seek alternative
remedies, including litigation.
5. Restricted Investments
The Company has restricted cash of $16,014 as of December 31, 1999, from the
issuance of tax-exempt Solid Waste Revenue Bonds, that is to be utilized
exclusively for the construction of its mixed waste treatment facility in
Richland, WA. See Note 9 - Borrowing Arrangements for further details.
F-12
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
----------
6. Property and Equipment
December 31,
------------------------------
1999 1998
-------------- --------------
Land.................................................................. $ 2,957 $ 2,310
Buildings and improvements............................................ 32,530 21,205
Machinery and equipment............................................... 23,921 14,876
Office furniture and equipment........................................ 1,635 1,470
------- -------
Property and equipment at cost........................................ 61,043 39,861
Less: accumulated depreciation and amortization....................... (4,795) (3,072)
------- -------
56,248 36,789
Construction-in-progress.............................................. 24,180 6,199
------- -------
$80,428 $42,988
======= =======
Property and equipment costs include capitalized labor and overhead, including
interest costs related to the construction of buildings, building improvements
and equipment. Capitalized interest costs totaled $1,410, $1,027, and $891 in
1999, 1998, and 1997 respectively. Depreciation and amortization expense on
property and equipment was $1,809, $765, and $717 in 1999, 1998, and 1997
respectively, and a portion is included in cost of revenue in the amount of
$675, zero, and zero in 1999, 1998, and 1997, respectively. All property and
equipment serve as collateral to notes payable agreements to banks and other
creditors.
As of December 31, 1999 and 1998, machinery and equipment included assets
acquired under capital leases with a capitalized cost of $12,489 and $6,876,
respectively. Related accumulated amortization totaled $663 and $333 in 1999
and 1998, respectively.
Mixed Waste Facility
During 1999, construction of the Company's new mixed waste treatment facility
in Richland, Washington was begun resulting in a significant increase in
construction in progress over the prior year. The facility began operations in
some treatment lines in late 1999. The facility is financed by the issuance of
$26.5 million of tax-exempt Solid Waste Revenue Bonds. See Note 9 - Borrowing
Arrangements for further details.
7. Accrued Liabilities
Accrued liabilities at December 31, 1999 and 1998 consisted of:
December 31,
----------------------------
1999 1998
-------------- ------------
Income taxes payable........................ $ 4,075 $2,647
Waste acquisition........................... 5,167 2,788
Other....................................... 5,955 3,787
------- ------
$15,197 $9,222
======= ======
The waste acquisition accrual arose out of the purchase of the assets and
businesses described in Note 3 - Acquisition.
F-13
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
----------
8. Transactions with Related Parties
The Company has a note payable to a former Director of $225 at December 31,
1999 and 1998. The amount is due July 1, 2000. The amount is included in short
term debt at December 31, 1999.
The President and Executive Vice-President and directors of ATG, have each
guaranteed the obligations of ATG under (i) two promissory notes in the
principal amounts of $2,069 and $1,996 held by a financial institution; (ii) an
equipment lease between ATG and a financial institution that provides for an
aggregate rental amount of $32; and (iii) a commercial lease agreement between
ATG and another financial institution with an aggregate rental amount of $103.
In connection with the issuance of certain bonds, undertakings and other
instruments of guarantee in favor of ATG, the President and Executive Vice-
President have each executed (i) a blanket indemnity agreement in favor of an
insurance company, indemnifying the insurance company against any losses that
the insurance company may incur in connection with the issuance of any such
bonds, undertakings or other instruments of guarantee, and (ii) a blanket
Continuing Agreement of Indemnity - Contractor's Form for the benefit of three
other insurance companies, indemnifying such entities against any losses that
such entities may incur in connection with the issuance of any such bonds,
undertakings or other instruments of guarantee. As of December 31, 1999, the
potential aggregate liability of the President and Executive Vice-President
under the blanket indemnities was approximately $35.
In 1998, the Company entered into a demolition and construction management
project with a partnership in which the President and Executive Vice President
of the Company have a combined 50% ownership interest. The total contract value
is $4,695 of which revenues of $1,403 and $785 were recognized in 1999 and 1998
respectively. Costs of $1,354 and $482 in 1999 and 1998, respectively, are
associated with this project. The related accounts receivable include $857 and
$785 at December 31, 1999 and 1998, respectively.
9. Borrowing Arrangements
In November 1999, the Company completed an agreement with a consortium of
banks (the Banks) for a credit facility in the amount of $45 million. The credit
facility includes a letter of credit in support of tax-exempt Solid Waste
Revenue Bonds (the Bonds) in the aggregate face amount of $26.5 million (the
"letter of credit"). The Bonds were issued during November 1999, and bear
interest at a floating rate (5.60% at December 31, 1999), based upon prevailing
market conditions, which is redetermined every seven days. The Bonds are due
October 31, 2014 and may be prepaid at any time without penalty. The proceeds,
including the remaining restricted cash balance of $16.0 million as of December
31, 1999, are to be applied exclusively for the construction of the Company's
Low Level Mixed Waste facility in Richland, Washington. The credit facility also
includes a five year revolving working capital line of credit, due October 2004,
in the amount of $18 million, including a letter of credit facility of $5
million. Borrowings, when made, bear a variable interest rate based on certain
financial ratio criteria. The Company currently has borrowings of $17.5 million
and qualifies for the Banks' reference rate of 9.25%. The credit facility is
collateralized by accounts receivable, inventory and equipment.
F-14
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
----------
The credit facility agreement requires the Company to comply with certain
covenants, including capital asset acquisition limits, limits on additional
debt, minimum levels of tangible net worth, dividend payment restrictions and
maintenance of certain financial ratios. At December 31, 1999 the Company was
in violation of certain financial ratio covenants. The Company has obtained a
waiver, subsequent to year-end, in respect of these violations as of December
31, 1999. In connection with the waiver, the Banks agreed to revise and lower
certain financial ratio covenants that the Company failed to meet as of December
31, 1999, for each of the quarterly periods in the year ended December 31, 2000,
and increase the borrowings available to the Company by $6 million, for a total
of $24 million, through June 30, 2000. The borrowing limit subsequent to June
30, 2000 is $18 million. In addition, the interest rate applied to the working
capital facility was revised.
At March 31, 2000 ATG was in violation of the revised financial ratios under
the credit facility. Pursuant to a forbearance and consent agreement dated as of
June 1, 2000, the lenders agreed to forbear in the exercise of any of their
rights or remedies with respect to March 31, 2000 covenant defaults until no
later than June 30, 2000. As discussed in Note 18, at June 30, 2000 ATG was in
violation of the revised financial ratios under the credit facility.
Furthermore, at June 30, 2000, ATG failed to make a required payment of
principal in the approximate amount of $5,750,000 as a mandatory pay-down under
the revolving credit facility, so as to bring total borrowings under that
facility to the $18 million limit. The occurrence of an event of default would
permit the lenders to accelerate the maturity of borrowings already made under
the credit facility and to prohibit ATG from making additional borrowings under
the facility. To date the lenders have allowed ATG to draw under the facility
and have not notified ATG of their intention to accelerate repayment. Management
believes that ATG will not be able, on a prospective basis, to comply with the
financial covenants in the agreements governing the credit facility without
significant accommodations from the lending syndicate.
Under a short term line of credit facility with a bank, the Company may borrow
up to $1.9 million. Borrowings under this credit agreement were $1.7 million at
December 31, 1999, bear interest equal to the bank's reference rate (9.25% at
December 31, 1999) and are secured by the Company's Fremont, CA building
property.
Long Term Debt
Long term debt consists of mortgage debt, notes payable, equipment notes
payable and obligation under the letter of credit. The mortgage debt bears
interest at annual rates between 8.125% and 11.0%, matures between 2001 and
2006, and is collateralized by certain of the Company's buildings. The notes
payable bear interest at annual rates between 8% and 10%, mature between 1999
and 2005, and are collateralized by certain of the Company's equipment. In
addition, notes payable includes the Banks' five year long term revolving credit
line that is discussed in the previous section. Equipment notes bear interest at
annual rates between 0.9% and 9.6%, mature between 1999 and 2002, and are
collateralized by specific equipment.
F-15
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
----------
Future minimum principal payments are as follows as of December 31, 1999:
Mortgage Notes Equipment Revolving Working Letter of credit Total Long
Debt Payable Notes Capital Credit Line Obligation/Bonds Term Debt
------------ ------------- ------------ --------------------- ------------------- ------------
2000.................... $ 164 $1,084 $ 835 $ -- $ -- $ 2,083
2001.................... 1,398 826 888 -- -- 3,112
2002.................... 33 823 325 -- -- 1,181
2003.................... 36 824 -- -- -- 860
2004.................... 39 26 -- 17,518 -- 17,583
Thereafter.............. 227 48 -- -- 26,500 26,775
------ ------ ------ ------- ------- -------
1,897 3,631 2,048 17,518 26,500 51,594
Less: current portion... 164 1,084 834 -- -- 2,082
------ ------ ------ ------- ------- -------
$1,733 $2,547 $1,214 $17,518 $26,500 $49,512
====== ====== ====== ======= ======= =======
Capital Lease Obligations
As of December 31, 1999, future minimum lease payments under capital leases
are as follows:
2000............................................. $ 2,970
2001............................................. 2,717
2002............................................. 2,533
2003............................................. 2,118
2004............................................. 912
-------
Total minimum lease payments..................... 11,250
Less amount representing interest................ 1,990
-------
Present value of future minimum lease payments... 9,260
Less: current portion............................ 2,177
-------
Total capital lease obligations, net of current
portion........................................ $ 7,083
=======
10. Commitments and Contingencies
In June 1992, the Company entered into a contract with the U.S. Army under
which the Company acted as the prime contractor to "surface clear" expended
ordnance from a firing range at Fort Irwin, California (the "Fort Irwin
Contract"). In March 1997, a piece of ordnance exploded on the premises of a
scrap metal dealer (the "Scrap Dealer") in Fontana, California. An employee of
the Scrap Dealer died in the accident. Although the Scrap Dealer had purchased
expended ordnance and other military scrap metal from a number of military
facilities, including Fort Irwin, the Scrap Dealer indicated that the ordnance
which exploded was purchased from Fort Irwin. The U.S. Army contended that a
subcontractor to the Company on the Fort Irwin Contract (the "Subcontractor")
had improperly certified ordnance cleared from the Fort Irwin firing range as
free of hazardous and explosive material prior to the sale of such ordnance to
the Scrap Dealer. As a result, the U.S. Army terminated the Fort Irwin Contract
for default, and demanded repayment from the Company of alleged reprocurement
costs totaling $945,000. The Company believes it fully complied with the terms
of the Fort Irwin Contract and applicable laws and regulations and challenged
the default termination in an action against the U.S. Army filed in the Court of
Federal Claims in July 1997. In July 1998, the U.S. Army and the Company
settled the matter. The termination for default was rescinded and the Company
agreed to no longer bid on surface-clearing work at active U.S. Army firing
ranges.
F-16
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
----------
In connection with the accident, in March 1998 a wrongful death civil action
was filed in San Bernardino County Superior Court against the Subcontractor, a
supervisory employee of the Subcontractor, the owners of the premises occupied
by the Scrap Dealer, and the Company, seeking damages in excess of $8 million,
including exemplary damages of $5 million. A second action was filed at the
same time in San Bernardino County Superior Court against the same defendants by
three other persons alleging physical injuries and emotional distress caused by
the accident. The Company has tendered the defense of each of these actions to
its insurance carrier, which is presently handling the matters for the Company,
and the Company intends to vigorously contest all of the claims asserted in
these actions. The Company believes that it acted properly with respect to the
Fort Irwin Contract, and that it should not be liable for the injuries caused by
the accident. The Company also intends to seek indemnification from the
Subcontractor for the full amount of any costs, damages and liabilities which
may be incurred by the Company in connection with or as a result of these
lawsuits. The Subcontractor has advised the Company that the Subcontractor's
comprehensive general liability insurance policy covers the claims asserted
against the Subcontractor, and that the policy coverage limit is $7 million per
occurrence. Although the Company believes that all of the claims asserted
against the Company are without legal merit, the outcome of these lawsuits is
uncertain. Any judgment of liability against the Company, especially to the
extent damages exceed or are not covered by insurance or are not recoverable by
the Company from the Subcontractor, could have a material adverse effect on the
Company's business, financial condition and results of operations.
From time to time the Company is a party to litigation or administrative
proceedings relating to claims arising from its operations in the normal course
of business. Management of the Company, on the advice of counsel, believes that
the ultimate resolution of litigation currently pending against the Company is
unlikely, either individually or in the aggregate, to have a material adverse
effect on the Company's business, financial condition or results of operations.
11. Stock Based Compensation Plans
1994 Stock Option Plan ("1994 Plan")
A total of 909,878 shares of common stock have been reserved for issuance
under the 1994 Plan. Options granted under the 1994 Plan generally expire ten
years from the date of grant. The Company does not plan to issue further options
to purchase common stock under the 1994 Plan.
1998 Stock Ownership Incentive Plan ("Incentive Plan")
A total of 500,000 shares of common stock have been reserved for issuance
under the Incentive Plan. The Board of Directors may grant incentive stock
options or non-statutory stock options to employees at 100% of the fair market
value of the stock on the date of grant. Vesting terms are to be determined by
the Board of Directors (typically three years) and options generally expire ten
years from the date of grant.
1998 Non-Employee Directors' Stock Option Plan ("Directors' Plan")
A total of 200,000 shares of common stock has been reserved for issuance under
the Directors' Plan. The Directors' Plan provides for an automatic grant of
options to purchase 20,000 shares of common stock upon the date a person becomes
a non-employee director. Twenty-five percent of the shares subject to the
option are immediately vested and twenty-five percent vest each year thereafter.
The exercise price of the options granted under the Directors'
F-17
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
----------
Plan must equal or exceed the fair market value of the Common Stock on the date
of grant. All options expire ten years from the date of grant.
1998 Consultants and Advisors Stock Option Plan ("Consultants Plan")
A total of 200,000 shares of common stock has been reserved for issuance under
the Consultants Plan. The Consultants Plan is administered by the Board of
Directors who may grant options to purchase common stock to consultants and
advisors to the Company at prices and upon terms as determined by the Board.
The following option activity occurred in all stock option plans in the three
years ended December 31, 1999:
Weighted
Average
Options Available Outstanding Exercise Exercise
for Grant Options Price Price
----------------- ----------- --------------- -----------
Balance, December 31, 1996..................... 554,000 516,000 $0.01-$7.50 $1.79
Granted.................................... (554,000) 554,000 $1.00-$5.00 $2.10
-------- ---------
Balance, December 31, 1997..................... - 1,070,000 $0.01-$7.50 $1.95
Authorized................................. 900,000 -
Granted.................................... (607,500) 607,500 $5.00-$8.56 $6.55
Exercised.................................. - (147,122) $0.01-$1.00 $0.23
Terminated................................. - (13,000) $0.01-$5.00 $0.62
Cancelled.................................. 143,500 (143,500) $8.50-$8.56 $8.54
-------- ---------
Balance, December 31, 1998 436,000 1,373,878 $0.01-$8.50 $3.49
======== =========
Granted.................................... (135,000) 135,000 $4.25-$8.62 $5.96
Exercised.................................. - (203,456) $0.10-$5.50 $2.34
Cancelled.................................. 81,612 (81,612) $1.00-$8.50 $6.60
-------- ---------
Balance, December 31, 1999..................... 382,612 1,223,810 $0.01-$8.62 $3.81
======== =========
As of December 31, 1999, options to purchase 501,120 shares of Common Stock at
$0.01 to $8.62 per share were fully vested and exercisable under the Plans.
During August 1998, the Company cancelled options granted to employees to
acquire 125,500 shares of Common Stock with prices ranging from $8.50 to $8.56
and issued new options to acquire the same number of shares at a price of $6.375
per share.
In connection with the grant of options for the purchase of 554,000 shares of
Common Stock to employees during the period from January 1, 1997 through
December 31, 1997, the Company recorded aggregate deferred compensation expense
of approximately $389 representing the difference between the deemed fair value
of the Common Stock and the option exercise price at date of grant. Such
deferred compensation is being amortized over the vesting period relating to
these options, of which $120 and $120 have been amortized during the years ended
December 31, 1999 and 1998, respectively, and is included in the statement of
operations within the caption "Stock-based compensation expense".
Stock Compensation
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its stock-based
compensation. Determination of compensation cost for stock-based compensation
based on the fair value at the grant date for
F-18
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands unless otherwise noted, except per share data)
-----------
awards consistent with provisions of SFAS No. 123 would not result in a
significant difference from the reported net income for the periods presented.
December 31,
------------------------------------------------------
1999 1998 1997
---------------- ---------------- ------------------
Net income............................................... $5,173 $5,149 $ 1,018
Accretion on mandatorily redeemable preferred stock...... -- -- (1,469)
------ ------ -------
Net income (loss) available to common shareholders....... 5,173 5,149 (451)
Net income (loss) - FAS 123 adjusted..................... 4,660 4,917 (593)
Earnings per share - as reported:
Basic................................................ 0.37 0.40 (0.06)
Diluted.............................................. 0.35 0.38 (0.06)
Earnings per share - FAS 123 adjusted:
Basic................................................ 0.33 0.38 (0.08)
Diluted.............................................. 0.32 0.36 (0.08)
The fair value of each option grant under the Plans is estimated on the date
of the grant using the Black-Scholes option-pricing model with weighted average
risk free interest rates of 5.63%, 4.89%, and 6.47%, and an expected life of
1.54, 2.6 and 5 years, and volatility of 71.86%, 67.4% and 0% at December 31,
1999, 1998, and 1997, respectively.
The following table summarizes the stock options outstanding at December 31,
1999:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------
Weighted Weighted
Average Weighted Weighted Average Fair
Range of Remaining Average Average Value at
Exercise Number Contractual Exercise Number Exercise Date of
Prices Outstanding Life Price Exercisable Price Grant
- -------- ----------- ----------- -------- ----------- ------------ --------
$0.01 30,000 1.4 $0.01 25,000 $0.01 $0.01
$0.10 118,000 5.9 $0.10 112,687 $0.10 $0.10
$1.00 356,434 6.6 $1.00 48,155 $1.00 $1.00
$4.25-$5.00 351,876 8.2 $4.91 190,170 $5.00 $5.00
$5.38-$7.25 217,500 9.0 $6.40 65,108 $6.34 $6.40
$6.75-$8.50 150,000 6.3 $7.50 60,000 $7.46 $6.30
Employee Stock Purchase Plan ("Purchase Plan")
A total of 200,000 shares of common stock are reserved for issuance under the
Purchase Plan. The Purchase Plan enables eligible employees to purchase common
stock at the lower of 85% of the fair market value of the Company's common stock
on the first or last day of each six-month offering period. The total shares
purchased under the plan during 1999 and 1998, were 15,000 and 4,000
respectively.
12. Common Stock Warrants
Warrants to purchase 190,000 shares of Common Stock were granted upon the
completion of the Company's initial public stock offering. These warrants
become exercisable in May 1999 and expire in May 2003. The warrant exercise
price is $10.20 per share.
F-19
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands otherwise noted, except per share data)
--------
13. Income Taxes
The components of income tax expense (benefit) are approximately as
follows:
December 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
Current
Federal................................................... $3,659 $2,439 $(383)
State..................................................... 489 406 158
Deferred:
Federal................................................... (635) 304 214
State..................................................... (64) 7 (34)
------ ------ -----
Total................................................... $3,449 $3,156 $ (45)
====== ====== =====
The Company's effective tax rate differs from the U.S. federal statutory
tax rate, as follows:
December 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
Income tax provision at statutory rate....................... 34.0% 34.0% 34.0%
State taxes, net of federal tax effect......................... 3.7 3.3 1.6
Non-deductible items........................................... 1.1 0.4 3.2
Net operating loss benefit..................................... -- -- (48.3)
Other.......................................................... 1.2 0.3 4.9
---- ---- ----
Effective tax rate............................................. 40.0% 38.0% (4.6)%
==== ==== ====
Components of the deferred income tax balance are as follows:
December 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
Deferred tax assets
Net operating loss carryforwards.............................. $ -- $ -- $ 308
Accrued expenses.............................................. 1,252 183 245
Tax credits................................................... -- -- 120
Other......................................................... -- -- 24
------ ----- ------
Deferred tax assets........................................ $1,252 $ 183 $ 697
====== ===== ======
Deferred tax liabilities
Depreciation and amortization.............................. $ 612 $ 473 $ 467
====== ===== ======
Valuation allowance............................................ -- -- --
------ ----- ------
Net deferred tax asset (liability)............................. $ 640 $(290) $ 230
====== ===== ======
F-20
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands otherwise noted, except per share data)
--------
14. Earnings Per Share (EPS)
A reconciliation of the numerator and denominator of basic and diluted EPS is
provided as follows:
For the Years Ended December 31,
-------------------------------------------
1999 1998 1997
------- ------- -------
Numerator - Basic and Diluted EPS
Net income........................................... $ 5,173 $ 5,149 $ 1,018
Accretion on mandatorily redeemable preferred stock.. -- -- (1,469)
------- ------- -------
Net income (loss) available to common shareholders.... $ 5,173 $ 5,149 $ (451)
======= ======= =======
Denominator - Basic EPS
Common shares outstanding............................ 14,048 12,975 7,532
------- ------- -------
Basic earnings (loss) per share........................... $ 0.37 $ 0.40 $ (0.06)
======= ======= =======
Denominator - Diluted EPS
Denominator - Basic EPS................................... 14,048 12,975 7,532
Effect of Dilutive Securities
Common stock options................................. 548 723 --
------- ------- -------
14,596 13,698 7,532
------- ------- -------
Diluted earnings (loss) per share......................... $ 0.35 $ 0.38 $ (0.06)
======= ======= =======
Options and warrants to purchase 888,000 shares of Common Stock at exercise
prices in excess of the average market price of the Company's common stock were
excluded from the computation of diluted earnings per share as their effect
would be anti-dilutive.
15. Employee Retirement Plan
The Company maintains a Qualified Retirement Plan (401(k) Plan) which covers
substantially all employees. Eligible employees may contribute up to 15% of
their annual compensation, as defined, to this plan. The Company may also make a
discretionary contribution. During 1999, the Company contributed $61 in
matching funds through the issuance of shares of its common stock to the 401(k)
Plan. The Company did not contribute to the 401(k) Plan during 1998 and 1997.
16. Sale of Corporate Facilities
The Company has sold to a less than 1% shareholder of the Company, the
Company's facility, building and land, located in Fremont California. The
Company has transferred title to the building to the new owner on December 10,
1999. The terms of the sale agreement includes a sale price of $4.5 million, a
deposit payment of $810 at the time of the agreement, assumption of the mortgage
debt collateralizing the building, and obtaining additional funding to purchase
the
F-21
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands otherwise noted, except per share data)
--------
building. The sale agreement includes a leaseback provision for a month to month
lease provision for the Company at existing market rates and conditions, allows
the Company to vacate the building with 60 day notice subject to other
provisions, and allows the Company the first right of refusal on a third party
sale by the new owner. The sale agreement requires the Company to obtain a
certificate of compliance with respect to certain environmental issues with
regards to the building prior to vacating the premises. The Company estimates
that the certificate of compliance will require, at a cost to the Company, the
incurrence of $100 to clean up the building and the duration of the clean up of
at least 6 months.
The Company has "continuing involvement" with the building subsequent to the
sale and remains the primary debtor of the debt obligation on the building as of
December 31, 1999, and in accordance with generally accepted accounting
principles, the gain on the sale of the building is deferred pending termination
of its continued involvement. The deposit payment of $810 has been included
within the balance sheet caption, "accrued liabilities" as of December 31, 1999.
The Company will continue to depreciate the building and account for the
building asset and debt as if owned by the Company. The Company will apply the
provisions of sale and leaseback accounting to the transaction after the Company
no longer has any "continuing involvement" with the building as defined by
generally accepted accounting principles.
17. Business Segments
The Company manages its operations within two business segments: waste
processing, conducted by its Fixed Facilities Group (FFG); and field services,
conducted by its Field Engineering Group (FEG). FFG processes customer waste
utilizing the Company's thermal and non-thermal technologies. FEG performs
remediation, construction and various engineering services for customers under
long-term contracts.
Prior to 1998, the Company evaluated its operations as one business unit.
Thermal processing of large volumes of waste began in 1998 and the Company
commenced evaluating its business as two business segments in the fourth quarter
of the year. The Company segregates revenue and gross profit by business
segment. Selling, general and administrative expenses are not allocated to the
business segments. The accounting policies of the business segments are the
same as those described in the summary of significant accounting policies.
F-22
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands otherwise noted, except per share data)
--------
Segment Information
1999 FFG FEG Other Total
------- ------- ------- -------
Revenue................................................. $46,854 $13,808 $ -- $60,662
Gross Profit............................................ 22,845 1,458 -- 24,303
Sales, general & administrative expenses................ 14,565
Stock-based compensation................................ 120
Interest expense, net................................... (996)
Provision for income taxes.............................. 3,449
-------
Net income.......................................... $ 5,173
=======
Segment assets.......................................... 81,058 685 3,480 $85,223
Expenditures for long-lived assets...................... 39,028 35 100 $39,163
=======
1998 FFG FEG Other Total
------- ------- ------- -------
Revenue................................................. $18,889 $17,011 $ -- $35,900
Gross Profit............................................ 11,082 5,002 -- 16,084
Sales, general & administrative expenses................ 7,832
Stock-based compensation................................ 120
Interest income, net.................................... 173
Provision for income taxes.............................. 3,156
-------
Net income.......................................... $ 5,149
=======
Segment assets.......................................... 42,030 650 3,380 $46,060
Expenditures for long-lived assets...................... 21,490 40 120 $21,650
=======
The Company earned $3.3 million in international revenue from customers in
Asia during 1999, all of which was performed by FFG. Substantially all of the
segment revenues in 1998 were from customers in North America. All revenues are
denominated in U.S. dollars.
18. Liquidity and Going Concern Considerations
The Company's operating results were adversely affected for the three months
ended June 30, 2000 as a result of a major shortfall in spent ion exchange
processing revenue at our facility in Tennessee. The facility processes spent
ion exchange resins from nuclear power plants, reducing the volume of waste
going to final disposal at other sites not owned by ATG. The processed resin
waste is disposed of at the Barnwell, South Carolina waste disposal site
("Barnwell"). The operator/owner of Barnwell offered customers a substantial
discount to dispose of the resins without volume reduction. In addition,
operating results were adversely affected by the delay in capacity expansion at
its low-level radioactive waste thermal processing facility originally planned
to be completed in the quarter ended March 31, 2000 and rescheduled for
completion in the quarter ended September 30, 2000 due to restrictions imposed
by lenders resulting in lower than projected revenue and gross margin amounts,
and the elimination of a waste processing line at its Tennessee facility, in
June 2000 resulting in a $500,000 inventory writedown charge and a $1.9 million
restructuring charge for the three months ended June 30, 2000. Cash flow was
negatively affected by the Company's inability to collect field services trade
accounts receivable during the three months ended June 30, 2000 as projected. As
a result of the aforementioned factors, the Company is in default of certain
financial ratio covenant provisions related to the
F-23
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands otherwise noted, except per share data)
--------
Company's credit facility at June 30, 2000 (debt service to tangible net worth,
debt service coverage ratio, and quick ratio) and the mandatory repayment of
$5.7 million at June 30, 2000.
ATG has not paid $269,000 interest due October 31, 2000, $252,343 interest due
November 30, 2000, $243,931 interest due December 31, 2000 and $257,183 interest
due January 31, 2001 under its credit facilities. ATG also was unable to pay a
$1,500,000 short-term loan from an individual lender dated August 11, 2000 which
was originally due on October 5, 2000 and was subsequently extended to December
15, 2000. ATG is seeking to obtain an extension of the December 15, 2000 due
date, but to date has not obtained this extension.
The occurrence of an event of default permits the lenders to accelerate the
maturity of borrowings already made under the credit facility and may prohibit
ATG from making additional borrowings under the facility. While the lenders
have allowed ATG to draw under the facility and have not notified ATG of their
intention to accelerate repayment, management believes that ATG will not be
able, on a prospective basis, to comply with the financial covenants in the
agreements governing the credit facility without significant accommodations from
the lending syndicate. The aforementioned raises substantial doubt regarding
ATG's ability to continue as a going concern. The accompanying financial
statements have been prepared assuming that the company will continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ATG is negotiating with the lenders to modify the financial covenants and the
time frame for the mandatory pay-down. In addition, ATG is reviewing alternative
forms of financing in order to comply with the credit facility agreement.
Management is reviewing the company's business plan with financial advisors and
lenders with the objective of seeking appropriate accommodations and to
ascertain what actions can be taken to enhance liquidity and generate cash to
assist in paying the company's debt service. The company is also evaluating
potential changes in its capital structure and additional financial resources.
As discussed in Note 19 to the financial statements, in June 2000 and July 2000
the company raised approximately $5.1 million in additional equity through the
sale of common stock, and $1.5 million in short-term debt during August 2000. In
addition, the company has taken operational measures to ensure timely collection
of trade accounts receivable through the addition and reassignment of employees
and has completed the upgrade of its low-level radioactive waste thermal
processing facility, as previously discussed. In addition, the company's mixed
waste facility is expected to commence scaled down operations in the quarter
ending December 31, 2000.
The company's ability to meet its obligations in the normal course of business
is dependent upon, among other items, its ability to collect trade accounts
receivable, primarily field services trade accounts receivable, competitively
price services with the market at a profit, successfully bring on line its mixed
waste processing facility, add capacity to its low-level radioactive waste
thermal processing facility, return to profitable operations, obtain additional
financing and/or restructure the current debt agreement, and obtain waivers of
debt covenant violations.
19. Sale of Common Stock (unaudited)
During June and July 2000, ATG completed a $5.5 million private placement of
2.75 million shares of common stock at $2 per share. On June 30, 2000, ATG
completed the first tranche of the private placement by issuing 2.62 million
shares of common stock for an aggregate price of $5.24 million. On July 7, 2000,
the company completed the second tranche of
F-24
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands otherwise noted, except per share data)
--------
the private placement, issuing 130,000 shares of common stock for an aggregate
purchase price of $260,000. In addition, the Company issued 192,500 warrants in
connection with the private placement. ATG received a total of approximately
$5.1 million in net proceeds from this private placement.
Among other terms, the agreements with the selling shareholders require ATG to
prepare and file a registration statement to register for resale both the shares
of common stock and the shares of common stock issuable upon exercise of the
warrants issued in the private placement. ATG was required to file the
registration statement relating to these shares within 45 days of the closing
date of the private placement. The agreements with the selling shareholders,
including the placement agent, provide that if ATG has not filed the
registration statement within 45 days of the closing date of the private
placement or if the registration statement has not been declared effective
within 120 days of the closing date, then the selling shareholders are entitled,
at no cost, to additional shares of common stock of ATG, accruing at the end of
each 30 day period for which ATG has not filed or had the registration statement
declared effective after the 45 and 120 day periods required by the agreements,
up to an aggregate maximum number equal to 36% of the total number of shares of
common stock issued in the private placement and issuable upon the exercise of
the warrants. ATG did not file its registration statement or have it declared
effective on a timely basis and is therefore required to issue additional shares
in accordance with the terms of the agreements. The accounting for the
additional shares will be reflected as stock issuance costs in the period
earned. Although the number of shares of common stock issued in the private
placement and the number of shares of common stock issuable upon the exercise of
the warrants total 2,942,500, due to an agreement between ATG and three of the
selling shareholders holding 2,000,000 of these shares in which these selling
shareholders waived their rights to receive the additional shares of stock being
issued as a result of the delayed filing and effectiveness of this registration
statement and a new agreement was entered into dated December 27, 2000 as
discussed in Note 20 to the financial statements, the maximum additional shares
that ATG will be required to issue is 339,300.
The following pro forma information represents earnings per share information,
as if the aforementioned common shares were outstanding as of January 1, 1999:
F-25
ATG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands otherwise noted, except per share data)
--------
1999
Numerator - Basic and Diluted EPS
Net income .................................................... $ 5,173
Net income available to
common shareholders ........................................... $ 5,173
Denominator - Basic EPS
Common shares outstanding, as reported ........................ 14,048
Common shares outstanding, pro forma .......................... 16,798
Basic earnings per share, as reported ........................... $ 0.37
Basic earnings per share, pro forma ............................. $ 0.31
Denominator - Diluted EPS
Denominator - Diluted shares, as reported ..................... 14,596
Denominator - Diluted shares, pro forma ....................... 19,998
Diluted earnings per share as reported .......................... $ 0.35
Diluted earnings per share pro forma ............................ $ 0.26
F-26
Note 20: Related Party Transactions (unaudited):
On October 5, 2000 and October 13, 2000 Mr. and Mrs. Chiu advanced $307,500
and $252,500, respectively to ATG. Mrs. Chiu also advanced $400,000 in various
months of 2000 for expenses of ATG.
On June 30, 2000, ATG sold a total of 2,000,000 shares of common stock for
$2.00 per share in a private placement to Special Situations Fund III, L.P.,
Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund,
L.P., each of which is a selling shareholder in this prospectus. The stock
purchase agreements require ATG to file a registration statement with the SEC to
register the resale of the private placement shares. If the registration
statement is not filed within 45 days and effective within 120 days, then the
stock purchase agreements require ATG to issue additional shares of common stock
to the funds in amounts calculated based on the length of the delays, but not to
exceed 36% of the number of private placement shares. Because the registration
statement was filed after more than 45 days and was not effective within 120
days, the funds became entitled to receive additional shares of common stock as
provided in the stock purchase agreements.
However, on December 29, 2000, ATG entered into a settlement agreement with
the funds whereby ATG and the funds settled disputes about their respective
rights and obligations under the stock purchase agreements. The funds agreed to
waive their rights under the stock purchase agreements to receive additional
shares of common stock and other alleged rights in exchange for a one-time
right, exercisable by written notice to ATG on or before November 15, 2001, to
have the price of their private placement shares reset. The reset right will be
based on the average closing price of ATG common stock for the 30 trading days
prior to November 1, 2001 if less than $2.00 per share, except that the price
may not be reset to a price that is lower than the average closing price of ATG
common stock for the 15 trading days prior to December 27, 2000. Under the
settlement agreement, ATG is not required to honor any reset notice from the
funds if, within ten business days after receiving the notice, ATG repurchases
all of the funds' private placement shares for $2.00 per share. The settlement
agreement further provides that if ATG's registration statement is not effective
by March 31, 2001, then the funds' rights to receive additional shares under the
stock purchase agreements will automatically be reinstated.
F-26A
ATG INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30,
2000
------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,170
Accounts receivable, net 22,519
Prepayments and other current assets 4,364
--------
Total current assets 28,053
Property and equipment, net 99,421
Restricted cash 1,038
Intangible assets, net 2,163
Other assets, net 5,043
--------
Total assets $135,718
========
Current liabilities:
Short-term borrowings $ 25,250
Current portion of long-term debt and capital leases 4,336
Accounts payable 10,738
Accrued liabilities 9,241
--------
Total current liabilities 49,565
Long-term debt and capitalized leases, net 35,909
--------
Total liabilities 85,474
--------
Common stock 47,264
Retained earnings 2,980
--------
Total shareholders' equity 50,244
--------
Total liabilities and shareholders' equity $135,718
========
The accompanying notes are an integral part of these
Condensed Consolidated financial statements.
F-27
ATG INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Nine Months
Ended September 30,
-----------------------------------
2000 1999
------- -------
Revenue $33,046 $45,621
Cost of revenue 20,841 28,007
------- -------
Gross profit 12,205 17,614
Sales, general & administrative expenses 12,092 9,824
Stock-based compensation expense 32 90
Restructuring charge 1,900 -
------- -------
Operating income (1,819) 7,700
Other income 841 -
Net interest income (expense) (1,642) (687
------- -------)
Income before provision for taxes (2,620) 7,013
Provision (benefit) for income taxes (1,048) 2,805
------- -------
Net income (loss) $(1,572) $ 4,208
======= =======
Net income (loss) per share
Basic $(0.10) $ 0.30
Fully diluted $(0.10) $ 0.29
Weighted average shares
Basic 15,024 14,040
Fully diluted 15,024 14,624
The accompanying notes are an integral part of these Condensed Consolidated financial statements.
F-28
ATG INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
-----------------------------------
Sept. 30, Sept, 30,
2000 1999
--------- --------
Cash flows from operating activities:
Net income (loss) $ (1,572) $ 4,208
Adjustments to reconcile net income with cash flow
from operations:
Depreciation and amortization 2,119 1,415
Compensation expense for shares issued and options granted 32 90
Gain from sale of property (841) -
Change in current assets and liabilities:
Accounts receivable 1,969 (2,122)
Prepayment and other current assets 1,032 (1,305)
Accounts payable and accrued liabilities (6,869) 824
--------- --------
Net cash provided by (used in) operating activities (4,130) 3,110
--------- --------
Cash flows from investing activities:
Property and equipment acquisitions (21,112) (15,860)
Resticted cash 14,827 -
Other assets 761 (1,975)
--------- --------
Net cash used in investing activities (5,524) (17,835)
--------- --------
Cash flows from financing activities:
Borrowing (repayment) of long-term debt and capital leases 3,142 19,435
Short-term borrowing (repayment), net (221) (6,750)
Proceeds from issuance of common stock 5,127 519
--------- --------
Net cash provided by financing activities 8,048 13,204
--------- --------
Decrease in cash and cash equivalents (1,606) (1,521)
Cash and cash equivalents, beginning of period 2,776 3,789
--------- --------
Cash and cash equivalents, end of period $ 1,170 $ 2,268
--------- --------
Supplemental cash flow information:
Income taxes paid $ 65 $ 1,388
======== ========
Interest paid, net of capitalized interest $ 1,915 $ 857
======== ========
Acquisition of equipment with capital leases $ 696 $ 4,201
======== ========
Reclassification of machinery and equipment to inventory $ - $ (426)
======== ========
Reclassification of other assets to property and equipment $ - $ 1,325
======== ========
Reclassification of long-term debt to short-term borrowing $ 23,750 $ -
======== ========
The accompanying notes are an integral part of these Condensed Consolidated
financial statements.
F-29
ATG INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
1. BUSINESS OF THE COMPANY
ATG Inc. (the "Company" or "ATG") provides technical personnel and specialized
services and products primarily to the U.S. government and the nuclear power
industry throughout the United States. Services principally consist of
compaction, reduction, decontamination, vitrification and disposal of low-level
dry active nuclear, hazardous, and mixed wastes, dewatering and thermal
treatment of ion exchange resins and site remediation and construction projects.
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned and majority owned subsidiaries.
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in this prospectus elsewhere.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) which
are, in the opinion of management, necessary to state fairly, in all material
respects, the financial position, results of operations and cash flows for the
nine months ended September 30, 2000 and 1999. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect 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 revenues and
expenses during the reporting period. Actual results could differ materially
from those estimates. The results for the nine months ended September 30, 2000
are not necessarily indicative of the results for the full fiscal year.
The Company's operating results were adversely affected for the nine months
ended September 30, 2000 as a result of a major shortfall in spent ion exchange
processing revenue at our facility in Tennessee. The facility processes spent
ion exchange resins from nuclear power plants, reducing the volume of waste
going to final disposal at other sites not owned by ATG. The processed resin
waste is disposed of at the Barnwell, South Carolina waste disposal site
("Barnwell"). The operator/owner of Barnwell offered customers a substantial
discount to dispose of the resins without volume reduction. In addition,
operating results were adversely affected by the delay in capacity expansion
at
F-30
its low-level radioactive waste thermal processing facility originally planned
to be completed in the quarter ended March 31, 2000 and rescheduled for
completion in the quarter ended September 30, 2000 due to restrictions imposed
by lenders resulting in lower than projected revenue and gross margin amounts,
and the elimination of a waste processing line at its Tennessee facility, in
June 2000 resulting in a $500,000 inventory writedown charge to cost of revenue
and a $1.9 million restructuring charge for the three months ended June 30,
2000. Cash flow was negatively affected by the Company's inability to collect
field services trade accounts receivable during the three months ended June 30,
2000 and nine months ended September 30, 2000 as projected. As a result of the
aforementioned factors, the Company is in default of certain financial ratio
covenant provisions related to the Company's credit facility at September 30,
2000 (debt service to tangible net worth, debt service coverage ratio, and quick
ratio) and the mandatory repayment of $5.75 million at June 30, 2000. ATG has
not paid interest due the banks at October 31, 2000, November 30, 2000, December
31, 2000 and January 31, 2001 in the amounts of $269,166, $252,343, $243,931,
and $257,183 respectively. ATG will not be able, without obtaining concessions
from the banks or new financing, to make the mandatory principal paydown of
approximately $5.75 million the $269,166 interest which was due October 31,
2000, the $252,343 interest which was due November 30, 2000, the $243,931
interest which was due December 31, 2000 and the $257,183 interest which was due
January 31, 2001 under the credit facility, or to comply with the current
financial covenants set forth in the agreements governing the credit facility.
ATG also was unable to pay a $1,500,000 short-term loan from an individual
lender dated August 11, 2000 which was originally due on October 5, 2000 and was
subsequently extended to December 15, 2000. ATG is seeking to obtain an
extension of the December 15, 2000 due date, but to date has not obtained this
extension.
The occurrence of an event of default permits the lenders to accelerate the
maturity of borrowings already made under the credit facility and may prohibit
ATG from making additional borrowings under the facility. While the lenders
have allowed ATG to draw under the facility and have not notified ATG of their
intention to accelerate repayment, management believes that ATG will not be
able, on a prospective basis, to comply with the financial covenants in the
agreements governing the credit facility without significant accommodations from
the lending syndicate. The aforementioned raises substantial doubt regarding
ATG's ability to continue as a going concern. The accompanying financial
statements have been prepared assuming that the company will continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ATG is negotiating with the lenders to modify the financial covenants and the
time frame for the mandatory pay-down. In addition, ATG is reviewing
alternative forms of financing in order to comply with the credit facility
agreement. Management is reviewing the company's business plan with financial
advisors and lenders with the objective of seeking appropriate accommodations
and to ascertain what actions can be taken to enhance liquidity and generate
cash to assist in paying the company's debt service. The company is also
evaluating potential changes in its capital structure and additional financial
resources. In
F-31
June 2000 and July 2000 the company raised approximately $5.1 million in
additional equity through the sale of common stock. In addition, the company has
taken operational measures to ensure timely collection of trade accounts
receivable through the addition and reassignment of employees and has completed
the upgrade of its low-level radioactive waste thermal processing facility, as
previously discussed. In addition, the company's mixed waste facility is
expected to commence scaled down operations in the quarter ending March 31,
2001.
The company's ability to meet its obligations in the normal course of business
is dependent upon, among other items, its ability to collect trade accounts
receivable, primarily field services trade accounts receivable, competitively
price services with the market at a profit, successfully bring on line its mixed
waste processing facility, add capacity to its low-level radioactive waste
thermal processing facility, return to profitable operations, obtain additional
financing and/or restructure the current debt agreement, and obtain waivers of
debt covenant violations.
2. NET INCOME/(LOSS) PER SHARE
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted net income
per share is computed giving effect to all dilutive potential common shares that
were outstanding during the period. Dilutive potential common shares consist of
the incremental common shares issuable upon the exercise of stock options for
all periods.
A reconciliation of the numerator and denominator of basic and diluted net
income per share is provided as follows (in thousands, except per share data):
Nine Months
Ended September 30,
2000 1999
------- -------
Numerator - Basic and Diluted
Income per share
Net income (loss) $(1,572) $ 4,208
======= =======
Denominator - Basic
Common shares outstanding 15,024 14,040
------- -------
Basic net income (loss) per share $ (0.10) $ 0.30
======= =======
Denominator - Diluted
Denominator - Basic 15,024 14,040
Common stock options -- 584
------- -------
15,024 14,624
------- -------
Diluted net income (loss) per share $ (0.10) $ 0.29
======= =======
F-32
Diluted net income per share for the Nine months ended September 30, 2000,
excludes options and warrants to acquire 3,443,000 shares of stock which were
anti-dilutive.
3. BUSINESS SEGMENTS
The Company manages its operations within two business segments: waste
processing, conducted by its Fixed Facilities Group (FFG); and field services,
conducted by its Field Engineering Group (FEG). FFG processes customer waste
utilizing the Company's thermal and non-thermal technologies. FEG performs
remediation, construction and various engineering services for customers under
long-term contracts. The Company segregates revenue and gross profit by business
segment. Selling, general and administrative expenses are not allocated to the
business segments.
Segment Information (dollars in millions)
-------------------
Nine months ended September 30, 2000 FFG FEG Other Total
--- --- ----- -----
Revenue....................................... $ 26.8 $6.2 $ -- $ 33.0
Gross Profit................................. 11.0 1.2 -- 12.2
Sales, general & administrative expenses...... 12.1
Restructuring Charge.......................... 1.9 1.9
Other Income.................................. 0.8
Interest expense, net......................... (1.7)
Provision (benefit) for income taxes......... (1.1)
------
Net income (loss)............................. (1.6)
======
Segment assets................................ 101.7 0.7 3.5 $105.9
Expenditures for long-lived assets............ 6.8 -- -- $ 6.8
======
Nine months ended September 30, 1999 FFG FEG Other Total
--- --- ----- -----
Revenue....................................... $34.9 $10.7 $ -- $45.6
Gross Profit.................................. 16.7 0.9 -- 17.6
Sales, general & administrative expenses...... 9.9
Interest expense, net......................... (0.7)
Provision for income taxes.................... 2.8
-----
Net income.................................... $ 4.2
=====
Segment assets............................... 58.6 0.7 3.5 $62.8
Expenditures for long-lived assets............ 6.6 -- 0.1 $ 6.7
=====
F-33
4. RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities, and is effective for fiscal
years beginning after June 15, 2000, as amended by SFAS No. 137. The adoption
of this pronouncement will have no material impact on the Company's financial
position and results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. The adoption of SAB 101 will have no material impact on the Company's
financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB 25 (the
"Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. The adoption of FIN 44 will have no material impact on
statement of operations.
5. COMMITMENTS AND CONTINGENCIES
In June 1992, the Company entered into a contract with the U.S. Army under which
the Company acted as the prime contractor to "surface clear" expended ordnance
from a firing range at Fort Irwin, California (the "Fort Irwin Contract"). In
March 1997, a piece of ordnance exploded on the premises of a scrap metal dealer
(the "Scrap Dealer") in Fontana, California. An employee of the Scrap Dealer
died in the accident. Although the Scrap Dealer had purchased expended ordnance
and other military scrap metal from a number of military facilities, including
Fort Irwin, the Scrap Dealer indicated that the ordnance which exploded was
purchased from Fort Irwin. The U.S. Army contended that a subcontractor to the
Company on the Fort Irwin Contract (the "Subcontractor") had improperly
certified ordnance cleared from the Fort Irwin firing range as free of hazardous
and explosive material prior to the sale of such ordnance to the Scrap Dealer.
As a result, the U.S. Army terminated the Fort Irwin Contract for default, and
demanded
F-34
repayment from the Company of alleged reprocurement costs totaling $945,000. The
Company believes it fully complied with the terms of the Fort Irwin Contract and
applicable laws and regulations and challenged the default termination in an
action against the U.S. Army filed in the Court of Federal Claims in July 1997.
In July 1998, the U.S. Army and the Company settled the matter. The termination
for default was rescinded and the Company agreed to no longer bid on surface-
clearing work at active U.S. Army firing ranges.
In connection with the accident, in March 1998 a wrongful death civil action was
filed in San Bernardino County Superior Court against the Subcontractor, a
supervisory employee of the Subcontractor, the owners of the premises occupied
by the Scrap Dealer, and the Company, seeking damages in excess of $8 million,
including exemplary damages of $5 million. A second action was filed at the same
time in San Bernardino County Superior Court against the same defendants by
three other persons alleging physical injuries and emotional distress caused by
the accident. The Company has tendered the defense of each of these actions to
its insurance carrier, which is presently handling the matters for the Company,
and the Company intends to vigorously contest all of the claims asserted in
these actions. The Company believes that it acted properly with respect to the
Fort Irwin Contract, and that it should not be liable for the injuries caused by
the accident. The Company also intends to seek indemnification from the
Subcontractor for the full amount of any costs, damages and liabilities which
may be incurred by the Company in connection with or as a result of these
lawsuits. The Subcontractor has advised the Company that the Subcontractor's
comprehensive general liability insurance policy covers the claims asserted
against the Subcontractor, and that the policy coverage limit is $7 million per
occurrence. Although the Company believes that all of the claims asserted
against the Company are without legal merit, the outcome of these lawsuits is
uncertain. Any judgment of liability against the Company, especially to the
extent damages exceed or are not covered by insurance or are not recoverable by
the Company from the Subcontractor, could have a material adverse effect on the
Company's business, financial condition and results of operations.
From time to time the Company is a party to litigation or administrative
proceedings relating to claims arising from its operations in the normal course
of business. Management of the Company, on the advice of counsel, believes that
the ultimate resolution of litigation currently pending against the Company is
unlikely, either individually or in the aggregate, to have a material adverse
effect on the Company's business, financial condition or results of operations.
6. RESTRUCTURING CHARGE
During the quarter ended June 30, 2000, the Company announced and completed a
restructuring plan, which included a workforce reduction of approximately 110
employees. The plan was primarily aimed at improving cost efficiencies and
waste processing processes. The Company recorded a $500,000 inventory
writedown charge to cost of revenue and a $1.9 million restructuring charge
which included non cash charges of $800,000 for equipment taken out of service.
The restructuring charge also included
F-35
charges of $692,000 for severance costs and $408,000 for plant consolidation
costs, of which $307,000 remains unpaid at September 30, 2000.
7. SALE OF COMMON STOCK
During June and July 2000, ATG completed a $5.5 million private placement of
2.75 million shares of common stock at approximately $2 per share. On June 30,
2000, ATG completed the first tranche of the private placement by issuing 2.62
million shares of common stock for an aggregate price of $5.24 million. On July
7, 2000, the company completed the second tranche of the private placement,
issuing 130,000 shares of common stock for an aggregate purchase price of
$260,000. In addition, the Company issued 192,500 warrants in connection with
the private placement. ATG received a total of approximately $5.1 million in
net proceeds from this private placement.
The terms of the agreements with the selling shareholders require ATG to prepare
and file a registration statement to register for resale both the shares of
common stock and the shares of common stock issuable upon exercise of the
warrants issued in the private placement. ATG was required to file the
registration statement relating to these shares within 45 days of the closing
date of the private placement. The agreements with the selling shareholders,
including the placement agent, provide that if ATG has not filed the
registration statement within 45 days of the closing date of the private
placement or if the registration statement has not been declared effective
within 120 days of the closing date, then the selling shareholders are entitled,
at no cost, to additional shares of common stock of ATG, accruing at the end of
each 30 day period for which ATG has not filed or had the registration statement
declared effective after the 45 and 120 day periods required by the agreements,
up to an aggregate maximum number equal to 36% of the total number of shares of
common stock issued in the private placement and issuable upon the exercise of
the warrants. ATG did not file its registration statement or have it declared
effective on a timely basis and is therefore required to issue additional shares
in accordance with the terms of the agreements. The accounting for the
additional shares will be reflected as stock issuance costs in the period
earned. Although the number of shares of common stock issued in the private
placement and the number of shares of common stock issuable upon the exercise of
the warrants total 2,942,500, due to an agreement between ATG and three of the
selling shareholders holding 2,000,000 of these shares in which these selling
shareholders waived their rights to receive the additional shares of stock being
issued as a result of the delayed filing and effectiveness of this registration
statement, with an agreement described in Note 9. The maximum additional shares
that ATG will be required to issue is 339,300.
F-36
The following pro forma information represents earnings per share information,
as if the aforementioned common shares were outstanding as of January 1, 2000:
September 30,
2000
-------------
Numerator - Basic and Diluted EPS
Net loss .................................................... $ 1,572
Net loss available to
common shareholders .................................... $ 1,572
Denominator - Basic EPS
Common shares outstanding, as reported ........................ 15,024
Common shares outstanding, pro forma ............... 17,774
Basic loss per share, as reported ............................ $ 0.10
Basic loss per share, pro forma ................................. $ 0.09
Denominator - Diluted EPS
Denominator - Diluted shares, as reported ..................... 15,024
Denominator - Diluted shares, pro forma ............ 20,164
Diluted loss per share as reported .............................. $ 0.10
Diluted loss per share pro forma ........................... $ 0.08
Diluted net loss excludes options and warrants of 3,443,000 shares of common
stock which were antidilutive.
8. DEBT
On August 11, 2000, ATG obtained a short-term loan in the amount of $1,500,000
bearing a maturity date of October 5, 2000 from an individual lender. The loan
bears interest at a rate of 12% per annum. ATG was unable to repay the loan on
its stated maturity date and subsequently obtained an extension until December
15, 2000. ATG is seeking to obtain an extension to the December 15, 2000 due
date, but to date has not obtained this extension. ATG anticipates that it will
need to obtain additional financing or obtain another extension on the due date
in order to repay the loan.
F-37
9. Related Party Transactions
On October 5, 2000 and October 13, 2000 Mr. and Mrs. Chiu advanced $307,500
and $252,500, respectively to ATG. Mrs. Chiu also advanced $400,000 in various
months of 2000 for expenses of ATG.
On June 30, 2000, ATG sold a total of 2,000,000 shares of common stock for
$2.00 per share in a private placement to Special Situations Fund III, L.P.,
Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund,
L.P., each of which is a selling shareholder in this prospectus. The stock
purchase agreements require ATG to file a registration statement with the SEC to
register the resale of the private placement shares. If the registration
statement is not filed within 45 days and effective within 120 days, then the
stock purchase agreements require ATG to issue additional shares of common stock
to the funds in amounts calculated based on the length of the delays, but not to
exceed 36% of the number of private placement shares. Because the registration
statement was filed after more than 45 days and was not effective within 120
days, the funds became entitled to receive additional shares of common stock as
provided in the stock purchase agreements.
However, on December 29, 2000, ATG entered into a settlement agreement with
the funds whereby ATG and the funds settled disputes about their respective
rights and obligations under the stock purchase agreements. The funds agreed to
waive their rights under the stock purchase agreements to receive additional
shares of common stock and other alleged rights in exchange for a one-time
right, exercisable by written notice to ATG on or before November 15, 2001, to
have the price of their private placement shares reset. The reset right will be
based on the average closing price of ATG common stock for the 30 trading days
prior to November 1, 2001 if less than $2.00 per share, except that the price
may not be reset to a price that is lower than the average closing price of ATG
common stock for the 15 trading days prior to December 27, 2000. Under the
settlement agreement, ATG is not required to honor any reset notice from the
funds if, within ten business days after receiving the notice, ATG repurchases
all of the funds' private placement shares for $2.00 per share. The settlement
agreement further provides that if ATG's registration statement is not effective
by March 31, 2001, then the funds' rights to receive additional shares under the
stock purchase agreements will automatically be reinstated.
F-37A
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of ATG Inc.
In connection with our audits of the consolidated financial statements of ATG
Inc. as of December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999, which consolidated financial statements are
included in the Prospectus, we have also audited the financial statement
schedule on page F-38.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/S/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
San Jose, California
March 28, 2000
F-38
Schedule II
ATG INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance at Charged to Balance
Beginning of Costs and at End of
Description Period Expenses Deductions (1) Period
- ----------- ------------ -------- -------------- ---------
Year ended December 31, 1997.............
Allowance for doubtful accounts $ 46 $ 73 $ -- $ 119
Year ended December 31, 1998............
Allowance for doubtful accounts $119 $ 210 $ (24) $ 305
Year ended December 31, 1999............
Allowance for doubtful accounts $305 $1,359 $(142) $1,522
(1) Deductions represent accounts receivable amounts that were considered
doubtful and previously reserved for that became uncollectible and were
written off in the year.
F-39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth an itemized statement of all expenses to be
incurred in connection with the issuance and distribution of the securities that
are the subject of this registration statement other than underwriting discounts
and commissions. All expenses incurred with respect to the distribution will be
paid by ATG, and these amounts, other than the Securities and Exchange
Commission registration fee, are estimates only.
Securities and Exchange Commission registration fee $ 1,940.38
Printing expenses 5,000.00
Legal fees and expenses 45,000.00
Accounting fees and expenses 10,000.00
Other expenses 0.00
Total $61,940.38
Item 14. Indemnification of Directors and Officers
ATG's Articles of Incorporation provide that, pursuant to the California
Corporations Code, the liability of the directors of the company for monetary
damages shall be eliminated to the fullest extent permissible under California
law. This is intended to eliminate the personal liability of a director for
monetary damages in an action brought by, or in the right of, the company for
breach of a director's duties to the company or its shareholders. This provision
in the Articles does not eliminate the directors' fiduciary duty and does not
apply for the following liabilities:
. for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law;
. for acts or omissions that a director believes to be contrary to the best
interests of ATG or its shareholders or that involve the absence of good
faith on the part of the director;
. for any transaction from which a director derived an improper personal
benefit;
. for acts or omissions that show a reckless disregard for the director's
duty to ATG or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to ATG or its shareholders;
. for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to ATG or its
shareholders;
II-1
. with respect to transactions or the approval of transactions in which a
director has a material financial interest as set forth in Section 310 of
the California Corporations Code; and
. expressly imposed by statute for approval of improper distributions to
shareholders or certain loans or guarantees.
This provision also does not limit or eliminate the rights of the company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care.
Section 317 of the California Corporations Code provides that a California
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative (other than action by
or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 317 also provides that a California corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
the action or suit if he acted under similar standards, except that no
indemnification may be made in respect to any claim, issue or matter as to which
the person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which the action or suit was brought shall
determine that despite the adjudication of liability, the person is fairly and
reasonably entitled to be indemnified for the expenses which the court shall
deem proper.
Section 317 provides further that to the extent a director or officer of a
California corporation has been successful in the defense of any action, suit or
proceeding referred to in the previous paragraphs or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification authorized by Section 317 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in his capacity as a director or officer or arising out of his
status as a director or officer whether or not the corporation would have the
power to indemnify him against these liabilities under Section 317.
II-2
ATG believes that it is the position of the Commission that insofar as any of
the foregoing provisions may be invoked to disclaim liability for damages
arising under the Securities Act, the provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. This limitation
of liability also does not affect the availability of equitable remedies such as
injunctive relief or rescission.
Item 15. Recent Sales of Unregistered Securities
During June and July 2000, ATG completed a $5.5 million private placement of
2.75 million shares of common stock at $2 per share. On June 30, 2000, the
company completed the first tranche of the private placement by issuing 2.62
million shares of common stock for an aggregate price of $5.24 million. On July
7, 2000, the company completed the second tranche of the private placement,
issuing 130,000 shares of common stock for an aggregate purchase price of
$260,000. In connection with the private placement, the company issued to the
placement agent or its designees warrants to purchase a total of 192,500 shares
of common stock. The warrants expire on June 30, 2005 and are exercisable at a
price of $2.75 per share, subject to adjustment for:
. amendments to ATG's Articles of Incorporation which change the rights,
privileges, restrictions or conditions of ATG's common stock or effect a
division of ATG's common stock;
. a division of our common stock into a greater number of shares of common
stock or a declaration of a dividend or the making of any other
distribution upon the common stock payable in shares of common stock; or
. a capital reorganization or classification of capital stock, or any
consolidation or merger of ATG with another corporation or entity, or the
sale of all or substantially all of our assets to another corporation or
entity wherein holders of ATG common stock shall be entitled to receive
stocks, securities, other evidence of equity ownership or assets with
respect to or in exchange for shares of ATG common stock.
Pursuant to the terms of agreements with the private placement investors, ATG
may be obligated to issue up to 339,300 additional shares of common stock for
failure to comply with designated deadlines for filing and effectiveness of this
registration statement.
ATG believes that the issuances of common stock and warrants described above
were exempt from the registration requirements of the Securities Act by virtue
of Section 4(2) thereof and Rule 506 of Regulation D thereunder, and by virtue
of Section 4(6) thereof. Prospective investors, all of whom were pre-existing
clients of the placement agent, were solicited by the placement agent without
any general advertising or general solicitation. Each investor represented to
ATG that it was an accredited investor and was acquiring the securities for
investment and without a view to distribution. The securities were issued
subject to legend condition. Investors were provided with disclosure about the
company and were given the opportunity to ask questions of and receive answers
from the company prior to investing.
II-3
Item 16. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements. The following Consolidated Financial Statements of
ATG Inc. and Report of Independent Accountants are filed as part of this report:
Page
----
Report of Independent Accountants F-2
Consolidated Balance Sheets--As of December 31, 1998 and 1999 F-3
Consolidated Statements of Operations--For the Three Years Ended
December 31, 1999 F-4
Consolidated Statements of Shareholders' Equity--For the Three Years Ended
December 31, 1999 F-5
Consolidated Statements of Cash Flows--For the Three Years Ended
December 31, 1999 F-6
Notes to Consolidated Financial Statements F-7
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2000 F-27
Unaudited Condensed Consolidated Statement of Operations for the
six months ended September 30, 2000 and 1999 F-28
Unaudited Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 2000 and 1999 F-29
Notes to Unaudited Condensed Consolidated Financial Statements as of
September 30, 2000 F-30
(2) Financial Statement Schedules. For years ended December 31, 1999,
1998 and 1997: F-38
Schedule II. Valuation and Qualifying Accounts and Reserves F-39
All other schedules are omitted because they are not applicable or the
required information has been included in the consolidated financial statements
or notes thereto.
(3) Exhibits
2.1 Final bankruptcy court bid dated November 13, 1998 (2)
2.2 Form of letter agreement dated December 1, 1998 among the purchasers
and the Trustee (2)
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
3.3 Certificate of Amendment of Articles of Incorporation (1)
3.4 Certificate of Amendment of Amended and Restated Articles of
Incorporation (8)
4.1 Specimen Common Stock Certificate (1)
5.1 Opinion of Miller & Holguin regarding legality
9.1 Voting Trust Agreement (1)
II-4
10.1 Assumption Agreement, dated September 2, 1992, between the Company,
as transferee, Tippett-Richardson, as transferor, and Confederation
Life Insurance Company, as lender (1)
10.2 Deed of Trust (Non-Construction) & Assignment of Rents, dated
September 18, 1997, between the Company, as trustor, First Bancorp,
as trustee, and Sanwa Bank California as beneficiary (1)
10.3 Deed of Trust, dated August 5, 1993, between the Company and ATG
Richland, collectively as trustor, Chicago Title Insurance Company,
as trustee, and West One Bank, as beneficiary (1)
10.4 Term Loan Agreement, dated September 18, 1997, between the Company
and Sanwa Bank California (1)
10.5 Letter from the Company to Steve Guerrettaz, dated December 2, 1997,
regarding terms of employment (1)
10.6 Letter from the Company to Fred Feizollahi dated February 20, 1995,
regarding terms of employment (1)
10.7 Consultant Agreement, dated as of July 1, 1992, between the Company
and Edward Vinecour (1)
10.8 Non-Competition Agreement, dated as of July 1, 1992, between the
Company and Edward Vinecour (1)
10.9 Collective Bargaining Agreement between the Company and the
International Union of Operating Engineers No. 280 (1)
10.10 Form of Stock Purchase Agreement (1)
10.11 Continuing Guaranty, dated as of April 19, 1996, provided by
Doreen Chiu in favor of Sanwa Bank (1)
10.12 Continuing Guaranty, dated as of April 19, 1996, provided by Frank
Chiu in favor of Sanwa Bank (1)
10.13 Continuing Guaranty, dated as of May 20, 1997, provided by Doreen
Chiu in favor of Safeco Credit Company, Inc. (1)
10.14 Continuing Guaranty, dated as of May 20, 1997, provided by Frank
Chiu in favor of Safeco Credit Company, Inc. (1)
10.15 Small Business Administration (SBA) Guaranty, dated August 6,
1993, provided by Doreen Chiu and Frank Chiu in favor of West One
Bank (1)
10.16 Guaranty Agreement, dated September 1, 1994, provided by Doreen
Chiu and Frank Chiu in favor of Great Western Leasing (1)
10.17 Guaranty, dated January 13, 1994, provided by Doreen Chiu and
Frank Chiu in favor of The CIT Group/Equipment Financing Inc. (1)
10.18 Guaranty of Commercial Lease Agreement, dated December 20, 1994,
provided by Doreen Chiu and Frank Chiu in favor of California Thrift
& Loan (1)
10.19 Contract No. MGK-SBB-A26602, dated September 5, 1997, awarded to
the Company by Waste Management Federal Services of Hanford, Inc.
(1)+
10.20 Purchase Order No. MW6-SBV-357079, dated November 3, 1995, issued
to the Company by Westinghouse Hanford Company (1)
10.21 Contract No. DE-AC06-95RL13129, dated January 4, 1995, among the
U.S. Department of Energy, as the procuring agency, the U.S. Small
Business Administration, as contractor, and the Company, as
subcontractor (1)
II-5
10.22 Gasification Vitrification Chamber Purchase and License Agreement,
dated August 1997, between the Company and Integrated
Environmental Technologies LLC (1)+
10.23 Purchase Agreement between the Company and Integrated
Environmental Technologies LLC (1)
10.24 Technology Transfer Purchase and Royalty Fee Agreement, dated
September 30, 1997, between the Company and Regent Star Ltd. (1)+
10.25 Technology Transfer and Purchase Agreement, dated June 28, 1997,
between the Company and Pacific Trading Company (1)+
10.26 Contract No. DACW05-98-C-0001, dated September 24, 1997, awarded
to the Company by the U.S. Army Corps of Engineers, Sacramento
District (1)
10.27 Contract No. DAKF04-92-D-0007, dated February 8, 1991, among the
Fort Irwin Directorate of Contracting, as the procuring agency,
the U.S. Small Business Administration, as contractor, and the
Company, as subcontractor (1)
10.28 Promissory Note, dated December 31, 1997, provided by the Company
to Doreen M. Chiu (1)
10.29 1998 Stock Ownership Incentive Plan (1)
10.30 Employee Stock Purchase Plan (1)
10.31 1998 Non-Employee Directors Stock Option Plan (1)
10.32 Letter of Credit Agreement, dated March 6, 1998, between the
Company and Sanwa Bank of California (1)
10.33 Continuing Guaranty, dated as of March 6, 1998, provided by Doreen
Chiu in favor of Sanwa Bank California (1)
10.34 Continuing Guaranty, dated as of March 6, 1998, provided by Frank
Y. Chiu in favor of Sanwa Bank California (1)
10.35 Indemnity Agreement, dated August 12, 1992, made and entered into
by Doreen M. Chiu, Frank Y. Chiu, the Company and National Safety
Consultants, Inc. in favor of ACSTAR Insurance Company (1)
10.36 Continuing Agreement of Indemnity-Contractors' Form, dated March
19, 1998, made and entered into by Doreen M. Chiu, Frank Y. Chiu
and the Company for the benefit of Reliance Insurance Company,
Untied Pacific Insurance Company, Reliance National Indemnity
Company and Reliance Surety Company (1)
10.37 Purchase Order, dated February 10, 1996, issued by the Company to
ToxGon Corporation (1)+
10.38 Amendment to Letter of Credit Agreement (3)
10.39 Line of Credit Agreement (3)
10.40 Amendment to Line of Credit Agreement (4)
10.41 Term Loan Agreement - Sanwa Bank California (4)
10.42 ATG Catalytics L.L.C. Operating Agreement (4)
10.43 Credit and Reimbursement Agreement, dated November 1, 1999, among
ATG Inc., Sanwa Bank California and Keybank National Association
(5)
10.44 Loan Agreement, dated November 1, 1999, between Port of Benton
Economic Development Corporation and ATG Inc. (5)
II-6
10.45 Form of First Amendment to Credit and Reimbursement Agreement
dated as of March 27, 2000 among ATG Inc., Sanwa Bank and Keybank
National Association (7)
10.46 Form of Forbearance and Consent Agreement to Credit and
Reimbursement Agreement dated as of June 1, 2000 among ATG Inc.,
Sanwa Bank and Keybank National Association (7)
10.47 Form of Common Stock Purchase Agreement dated June 30, 2000
between ATG Inc. and each of the subscribers named therein (7)
10.48 Form of Common Stock Placement Agreement dated as of June 30, 2000
between ATG Inc. and Taglich Brothers, Inc. (7)
10.49 Form of Common Stock Purchase Warrant dated as of June 30, 2000
issued by ATG Inc. to Taglich Brothers, Inc. or designees of
Taglich Brothers, Inc. (7)
10.50 Form of Settlement, Waiver and General Release Agreement dated
December 29, 2000 among ATG Inc. and Special Situations Fund III,
L.P., Special Situations Cayman Fund, L.P. and Special Situations
Private Equity Fund, L.P.
21.1 List of Subsidiaries of Registrant (6)
23.1 Consent of Miller & Holguin (included in its opinion filed as
Exhibit 5.1 hereto)
23.2 Consent of PricewaterhouseCoopers LLP
____________________________
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-46107) which became effective
May 6, 1998.
(2) Incorporated by reference to exhibits filed with the Registrant's Form 8-K
dated December 1, 1998
(3) Incorporated by reference to exhibits filed with the Registrant's Form 10-Q
for the quarter ended June 30, 1998.
(4) Incorporated by reference to exhibits filed with the Registrant's Form 10-K
for the year ended December 31, 1998.
(5) Incorporated by reference to exhibits filed with the Registrant's Form 8-K
dated February 22, 2000.
(6) Incorporated by reference to exhibits filed with the Registrant's Form 10-K
for the year ended December 31, 1999.
(7) Incorporated by reference to exhibits filed with the Registrant's Form 10-Q
for the quarter ended June 30, 2000.
(8) Incorporated by reference to exhibits filed with the Registrant's Amendment
No. 1 to Registration Statement on Form S-1 (No. 333-46248) filed on
October 10, 2000.
+ Certain portions of this agreement have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for an
order granting confidential treatment pursuant to Rule 406 of the General
Rules and Regulations under the Securities Act.
II-7
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(h) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling
II-8
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Amendment No. 2 to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fremont,
State of California, on February 12, 2001.
ATG INC.
By:/s/ FRANK Y. CHIU
----------------------------------------
Frank Y. Chiu
Executive Vice-President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
2 has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DOREEN M. CHIU Chairman, Chief Executive February 12, 2001
- ------------------------------ Officer and President
Doreen M. Chiu (Principal Executive Officer)
/s/ DANYAL MUTMAN Chief Financial Officer February 12, 2001
- ------------------------------ (Principal Financial and
Danyal Mutman Accounting Officer)
/s/ FRANK Y. CHIU Director February 12, 2001
- ------------------------------
Frank Y. Chiu
/s/ GEORGE DOUBLEDAY, II Director February 12, 2001
- ------------------------------
George Doubleday, II
/s/ DAVID F. CHAN Director February 12, 2001
- ------------------------------
David F. Chan
/s/ DAVID R. SEBASTIAN Director February 12, 2001
- ------------------------------
David R. Sebastian
/s/ JAMES E. THOMAS Director February 12, 2001
- ------------------------------
James E. Thomas
II-10
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
2.1 Final bankruptcy court bid dated November 13, 1998 (2)
2.2 Form of letter agreement dated December 1, 1998 among the purchasers
and the Trustee (2)
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
3.3 Certificate of Amendment of Articles of Incorporation (1)
3.4 Certificate of Amendment of Amended and Restated Articles of
Incorporation (8)
4.1 Specimen Common Stock Certificate (1)
5.1 Opinion of Miller & Holguin regarding legality
9.1 Voting Trust Agreement (1)
10.1 Assumption Agreement, dated September 2, 1992, between the Company,
as transferee, Tippett-Richardson, as transferor, and Confederation
Life Insurance Company, as lender (1)
10.2 Deed of Trust (Non-Construction) & Assignment of Rents, dated
September 18, 1997, between the Company, as trustor, First Bancorp,
as trustee, and Sanwa Bank California as beneficiary (1)
10.3 Deed of Trust, dated August 5, 1993, between the Company and ATG
Richland, collectively as trustor, Chicago Title Insurance Company,
as trustee, and West One Bank, as beneficiary (1)
10.4 Term Loan Agreement, dated September 18, 1997, between the Company
and Sanwa Bank California (1)
10.5 Letter from the Company to Steve Guerrettaz, dated December 2, 1997,
regarding terms of employment (1)
10.6 Letter from the Company to Fred Feizollahi dated February 20, 1995,
regarding terms of employment (1)
10.7 Consultant Agreement, dated as of July 1, 1992, between the Company
and Edward Vinecour (1)
10.8 Non-Competition Agreement, dated as of July 1, 1992, between the
Company and Edward Vinecour (1)
10.9 Collective Bargaining Agreement between the Company and the
International Union of Operating Engineers No. 280 (1)
10.10 Form of Stock Purchase Agreement (1)
10.11 Continuing Guaranty, dated as of April 19, 1996, provided by
Doreen Chiu in favor of Sanwa Bank (1)
10.12 Continuing Guaranty, dated as of April 19, 1996, provided by Frank
Chiu in favor of Sanwa Bank (1)
10.13 Continuing Guaranty, dated as of May 20, 1997, provided by Doreen
Chiu in favor of Safeco Credit Company, Inc. (1)
10.14 Continuing Guaranty, dated as of May 20, 1997, provided by Frank
Chiu in favor of Safeco Credit Company, Inc. (1)
10.15 Small Business Administration (SBA) Guaranty, dated August 6,
1993, provided by Doreen Chiu and Frank Chiu in favor of West One
Bank (1)
10.16 Guaranty Agreement, dated September 1, 1994, provided by Doreen
Chiu and Frank Chiu in favor of Great Western Leasing (1)
10.17 Guaranty, dated January 13, 1994, provided by Doreen Chiu and
Frank Chiu in favor of The CIT Group/Equipment Financing Inc. (1)
10.18 Guaranty of Commercial Lease Agreement, dated December 20, 1994,
provided by Doreen Chiu and Frank Chiu in favor of California Thrift
& Loan (1)
10.19 Contract No. MGK-SBB-A26602, dated September 5, 1997, awarded to
the Company by Waste Management Federal Services of Hanford, Inc.
(1)+
10.20 Purchase Order No. MW6-SBV-357079, dated November 3, 1995, issued
to the Company by Westinghouse Hanford Company (1)
10.21 Contract No. DE-AC06-95RL13129, dated January 4, 1995, among the
U.S. Department of Energy, as the procuring agency, the U.S.
Small Business Administration, as contractor, and the Company, as
subcontractor (1)
10.22 Gasification Vitrification Chamber Purchase and License Agreement,
dated August 1997, between the Company and Integrated Environmental
Technologies LLC (1)+
10.23 Purchase Agreement between the Company and Integrated
Environmental Technologies LLC (1)
10.24 Technology Transfer Purchase and Royalty Fee Agreement, dated
September 30, 1997, between the Company and Regent Star Ltd. (1)+
10.25 Technology Transfer and Purchase Agreement, dated June 28, 1997,
between the Company and Pacific Trading Company (1)+
10.26 Contract No. DACW05-98-C-0001, dated September 24, 1997, awarded
to the Company by the U.S. Army Corps of Engineers, Sacramento
District (1)
10.27 Contract No. DAKF04-92-D-0007, dated February 8, 1991, among the
Fort Irwin Directorate of Contracting, as the procuring agency, the
U.S. Small Business Administration, as contractor, and the Company,
as subcontractor (1)
10.28 Promissory Note, dated December 31, 1997, provided by the Company
to Doreen M. Chiu (1)
10.29 1998 Stock Ownership Incentive Plan (1)
10.30 Employee Stock Purchase Plan (1)
10.31 1998 Non-Employee Directors Stock Option Plan (1)
10.32 Letter of Credit Agreement, dated March 6, 1998, between the
Company and Sanwa Bank of California (1)
10.33 Continuing Guaranty, dated as of March 6, 1998, provided by Doreen
Chiu in favor of Sanwa Bank California (1)
10.34 Continuing Guaranty, dated as of March 6, 1998, provided by Frank
Y. Chiu in favor of Sanwa Bank California (1)
10.35 Indemnity Agreement, dated August 12, 1992, made and entered into
by Doreen M. Chiu, Frank Y. Chiu, the Company and National Safety
Consultants, Inc. in favor of ACSTAR Insurance Company (1)
10.36 Continuing Agreement of Indemnity-Contractors' Form, dated March
19, 1998, made and entered into by Doreen M. Chiu, Frank Y. Chiu and
the Company for the benefit of Reliance Insurance Company, Untied
Pacific Insurance Company, Reliance National Indemnity Company and
Reliance Surety Company (1)
10.37 Purchase Order, dated February 10, 1996, issued by the Company to
ToxGon Corporation (1)+
10.38 Amendment to Letter of Credit Agreement (3)
10.39 Line of Credit Agreement (3)
10.40 Amendment to Line of Credit Agreement (4)
10.41 Term Loan Agreement - Sanwa Bank California (4)
10.42 Catalytics L.L.C. Operating Agreement (4)
10.43 Credit and Reimbursement Agreement, dated November 1, 1999, among
ATG Inc., Sanwa Bank California and Keybank National Association (5)
10.44 Loan Agreement, dated November 1, 1999, between Port of Benton
Economic Development Corporation and ATG Inc. (5)
10.45 Form of First Amendment to Credit and Reimbursement Agreement
dated as of March 27, 2000 among ATG Inc., Sanwa Bank and Keybank
National Association (7)
10.46 Form of Forbearance and Consent Agreement to Credit and
Reimbursement Agreement dated as of June 1, 2000 among ATG Inc.,
Sanwa Bank and Keybank National Association (7)
10.47 Form of Common Stock Purchase Agreement dated June 30, 2000
between ATG Inc. and each of the subscribers named therein (7)
10.48 Form of Common Stock Placement Agreement dated as of June 30, 2000
between ATG Inc. and Taglich Brothers, Inc. (7)
10.49 Form of Common Stock Purchase Warrant dated as of June 30, 2000
issued by ATG Inc. to Taglich Brothers, Inc. or designees of Taglich
Brothers, Inc. (7)
10.50 Form of Settlement, Waiver and General Release Agreement dated
December 29, 2000 among ATG Inc. and Special Situations Fund III,
L.P., Special Situations Cayman Fund, L.P. and Special Situations
Private Equity Fund, L.P.
21.1 List of Subsidiaries of Registrant (6)
23.1 Consent of Miller & Holguin (included in its opinion filed as
Exhibit 5.1 hereto)
23.2 Consent of PricewaterhouseCoopers LLP
____________________________
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-46107) which became effective
May 6, 1998.
(2) Incorporated by reference to exhibits filed with the Registrant's Form 8-K
dated December 1, 1998
(3) Incorporated by reference to exhibits filed with the Registrant's Form 10-Q
for the quarter ended June 30, 1998.
(4) Incorporated by reference to exhibits filed with the Registrant's Form 10-K
for the year ended December 31, 1998.
(5) Incorporated by reference to exhibits filed with the Registrant's Form 8-K
dated February 22, 2000.
(6) Incorporated by reference to exhibits filed with the Registrant's Form 10-K
for the year ended December 31, 1999.
(7) Incorporated by reference to exhibits filed with the Registrant's Form 10-Q
for the quarter ended June 30, 2000.
(8) Incorporated by reference to exhibits filed with the Registrant's Amendment
No. 1 to Registration Statement on Form S-1 (No. 333-46248) filed on
October 10, 2000.
+ Certain portions of this agreement have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for an
order granting confidential treatment pursuant to Rule 406 of the General
Rules and Regulations under the Securities Act.