<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
---------------------------------
Commission File Number: 0-22520 .
--------------------------------
AMTEC, INC.
- -----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 84-0873124
- --------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
599 Lexington Avenue, 44th Floor
New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(212) 319-9160
--------------
(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes x No
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Class Outstanding as of November 19, 1997
- ------------------ --------------------------------------
Common Stock, par value $.001 per share 33,308,862
<PAGE>
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995.
Except for the historical information contained herein, the
matters discussed in this Quarterly Report are forward-looking statements
which involve risks and uncertainties. In addition to the risks and
uncertainties set forth in this Form 10-Q, other factors that could cause
actual results to differ materially include, but are not limited to,
economic, competitive, governmental, international and technological factors
affecting the Company's revenues, joint ventures, operations, markets and
prices, and other factors discussed from time to time in the Company's
periodic reports filed with the Securities and Exchange Commission, including
without limitation those listed in the section entitled "Risk Factors" on
pages 7 through 11 of the Company's Annual Report on Form 10-KSB, filed with
the Securities and Exchange Commission on July 15, 1997.
2
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PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
---------
<S> <C>
Consolidated Balance Sheets as of September 30, 1997 and March
31, 1997............................................................ 4
Consolidated Statement of Operations for the three and six months
ended September 30, 1996 and 1997................................... 5
Consolidated Statement of Cash Flows for the six months ended
September 30, 1996 and 1997......................................... 6
Notes to Consolidated Financial Statements........................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Result of Operations................................................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 15
Item 2. Changes in Securities................................................ 15
Item 6. Exhibits and Reports on Form 8-K..................................... 15
SIGNATURES....................................................................... 16
</TABLE>
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AMTEC, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND MARCH 31, 1997
<TABLE>
<CAPTION>
SEPT. 30 MARCH 31,
1997 1997
------------- -------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash........................................................................... $ 6,661,743 $ 5,390,871
Accounts Receivable (Net)...................................................... 100,000
Prepaid expenses and other current assets...................................... 605,632 182,090
------------- -------------
Total current assets......................................................... 7,367,375 5,572,961
------------- -------------
------------- -------------
Property and equipment, net...................................................... 498,913 518,020
GSM Construction Costs........................................................... 27,953,130 22,017,869
Office lease deposit............................................................. 112,521 111,500
Deferred expenses................................................................ 17,518 5,853
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Total assets................................................................. $ 35,949,457 $ 28,226,203
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LIABILITIES AND STOCKHOLDERS(1) EQUITY:
CURRENT LIABILITIES:
Accounts payable and accrued expenses.......................................... $ 588,814 $ 991,194
Accrued interest............................................................... 841,568 780,902
Loans payable--stockholders.................................................... 2,413,553 2,413,553
Current portion of Other Payables.............................................. 450,685
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Total current liabilities.................................................... 3,843,935 4,636,334
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Loans payable.................................................................... 17,959,342 11,956,486
Other payables................................................................... 12,457,793 10,290,128
Minority interest................................................................ 1,147,496 1,987,167
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STOCKHOLDERS(1) EQUITY/(DEFICIT):
Series A Convertible Preferred Stock:
$.001 par value, authorized 10,000,000 shares; 0 and 1,524,178 shares issued
and outstanding in September 1997 and March 1997............................. 1,524
Series D Convertible Preferred Stock:
$.001 par value, authorized 10,000,000 shares; 127 and 0 shares issued and
outstanding in September 1997 and March 1997, respectively................... 1 1
Series C Convertible Preferred Stock:
$.001 par value, authorized 10,000,000 shares; 250 and 0 shares issued and
outstanding in September 1997 and March 1997, respectively................... 1
Common stock:....................................................................
$.001 par value, authorized 100,000,000 shares; 33,143,966 and 31,257,921
issued and outstanding in September 1997 and March 1997, respectively........ 33,315 31,258
Additional paid-in capital..................................................... 25,906,142 25,202,108
Accumulated deficit............................................................ (23,492,115) (20,592,536)
Cumulative foreign currency exchange loss...................................... (1,231)
Non-refundable equipment purchase deposit...................................... (4,572,536)
Common Stock Investment Agreement--Subscription Receivable..................... (2,385,953)
Warrants....................................................................... 479,500 479,500
------------- -------------
Total stockholders(1) equity/(deficit)....................................... 540,891 548,088
------------- -------------
Total Liabilities and Equity..................................................... $ 35,949,457 $ 29,418,203
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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AMTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPT 30 QUARTER ENDED SEPT 30
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
----------- ------------- ------------- -------------
REVENUE
Net sales
EXPENSES
Selling, general, and administrative............... 2,922,779 1,863,181 553,147 $ 1,112,072
----------- ------------- ------------- -------------
Total expenses................................... 2,922,779 1,863,181 553,147 1,112,072
----------- ------------- ------------- -------------
Income/(Loss) from operations...................... (2,922,779) (1,863,181) (553,147) (1,112,072)
----------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Write off of investment............................ (87,441) (87,441)
Interest expense................................... (60,933) (32,170) (60,933) 289
Other.............................................. (42,127) (32,774) (21,110) (23,085)
Income taxes....................................... (1,829)
----------- ------------- ------------- -------------
INCOME/(LOSS) BEFORE MINORITY INTEREST................. (3,113,280) (1,929,954) (722,631) (1,134,868)
----------- ------------- ------------- -------------
MINORITY INTEREST IN LOSS OF SUBSIDIARIES.............. (321,701) (164,451) 476,721 (164,451)
PREFERRED STOCK DIVIDEND REQUIREMENT................... 108,000
----------- ------------- ------------- -------------
NET INCOME/(LOSS)...................................... (2,899,579) ($1,765,503) (1,199,352) ($ 970,417)
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
NET EARNINGS/(LOSS) PER SHARE.......................... (0.09) ($0.06) (0.04) ($ 0.04)
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............ 31,701,320 28,450,896 32,119,009 28,464,659
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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AMTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPT 30,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Cash flows from operating activities:
Net loss.......................................................................... ($ 2,899,579) ($ 1,765,503)
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of common stock for services........................................... 392,381 117,775
Amortization of capitalized software development costs
Depreciation.................................................................... 55,234 12,283
Loss from abandoned assets
Gain from sale of assets
Equity in losses of unconsolidated subsidiary
(Increase) decrease in:
Accounts receivable........................................................... (100,000) (24,960)
Inventories
Prepaid expenses and other current assets..................................... (436,228) 52,598
Other assets.................................................................. (3,380)
Increase (decrease) in:
Accounts payable and accrued expenses......................................... (402,380) (35,643)
Accrued interest.............................................................. 60,666 64,919
Minority interest............................................................. (839,671)
------------- -------------
Net cash used in operating activities....................................... (4,169,577) (1,581,911)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery and equipment............................................... (36,126) (6,157)
Subsidiary cash acquired (Note 2)................................................. 7,719,703
GSM construction costs and additional investments................................. (4,743,261)
Increase in capitalized computer software development costs
------------- -------------
Net cash Provided by/(used in) investing activities......................... (4,779,387) 7,713,546
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings........................................................................ 7,719,836
Increase in loans payable-stockholders, net....................................... 50,000
Receipt of common stock subscription receivable
Sale of preferred stock........................................................... 2,500,000
Proceeds from sale of Series C Convertible Preferred Stock........................ 2,500,000
Sale of common stock
------------- -------------
Net cash provided by financing activities................................... 10,219,836 2,550,000
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 1,270,872 8,681,635
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................... 5,390,871 185,889
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................ 6,661,743 $ 8,867,524
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financials.
6
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Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements at September 30, 1997 and
for the six months then ended are unaudited and reflect all adjustments
which are, in the opinion of management, necessary for a fair presentation
of the financial position and operating results for the interim period.
All of the adjustments are of a normal recurring nature. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto together with
management's discussion and analysis of financial condition and results of
operations, contained in the Annual Report on Form 10-KSB filed by the
Company on July 15, 1997. The results of operations for the six months
ended September 30, 1997 are not necessarily indicative of the results for
the entire year ending March 31, 1998.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, as expected by management, during
the six months ended September 30, 1997, the Company had a net loss of
$2,889,579. Realization of a major portion of the assets in the
accompanying balance sheet is dependent upon the Company's continued
ability to meet its future project financing requirements for its existing
projects (as described in Management's Disucssion and Analysis of
Financial Condition and Results of Operations), as well as the Company's
existing projects developing profitable operations and the ability of
the Company to obtain operating capital until its projects begin to
generate sufficient cash-flow to support operations.
Since January 1996, the Company has focused its business solely on
establishing Sino-foreign joint ventures ("SFJVs") to develop
telecommunications networks in the People's Republic of China ("PRC"). The
Company does not currently generate sales or market any products. The
SFJV's telecommunications networks are in the construction stage and, as
expected by management, do not currently generate any sales.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company, its 60.8% owned
subsidiary Hebei United Telecommunications Equipment Co., Ltd. and
subsidiary ("Hebei Equipment") (a limited life Sino-foreign joint venture)
and the Company's wholly owned subsidiary, ITV Communications, Inc. All
significant intercompany accounts and transactions are eliminated in
consolidation. Hebei Equipment owns 51% of Hebei United Telecommunications
Engineering Company, Ltd. ("Hebei Engineering").
The financial statements of Hebei Equipment included in the consolidated
financial statements are as of and for the period ended June 30, 1997. In
the period from April 1, 1997 to the end of the Company's second quarter,
an additional $1,000,000 has been invested by the Company in Hebei
Equipment. Such amount is eliminated upon consolidation of the Company's
joint venture subsidiaries. As such, the amount that had been included in
the consolidated balance sheet as of June 30, 1997 as "Additional
Investment in Joint Venture" is not included in the balance sheet as of
September 30, 1997.
The financial statements of ITV Communications, Inc. included in the
consolidated financial statements are as of September 30, 1997. These
financial statements consist in their entirety of shareholder loans in the
amount of $2,327,553 and interest expense associated with such debt in the
amount of $60,933 for the six months ending September 30, 1997.
7
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NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
The financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," and
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," in September 1997. The
Company believes these statements will not have a material impact on the
Consolidated Financial Statements of the Company when adopted in fiscal
1998.
NOTE 4 - SUBSEQUENT EVENTS
On October 22, 1997, the Company completed the sale of seventy-four shares
of its Series E Convertible Preferred Stock for gross proceeds of
$7,400,000. The sale of this security is more fully described in Item 2 of
this Section 1, "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
8
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Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operation
AmTec, Inc. (the "Company") develops and finances communications networks in
the People's Republic of China ("PRC"). The Company's first interests in its
Chinese communications networks include a Global Service Mobile system
("GSM") and a planned broadband telecommunications network, both in the
northern province of Hebei, PRC. The Company holds these interests through
Sino-foreign joint ventures ("SFJVs"), which are the legally authorized
vehicle for foreign investment in China and expects to hold interests in
future networks through the same vehicles. Consistent with PRC laws and
regulations, the Company's SFJVs have entered into contracts with authorized
network operators in the PRC to build networks and sell the assets of such
networks to the operators for a portion of the cash-flow generated by
operations of the networks. On July 8, 1997, the Company changed its name to
"AmTec, Inc." from "AVIC Group International, Inc."
Joint Ventures in Hebei Province
In March 1996, the Company formed a joint venture with a 60.8% equity
interest in Hebei United Telecommunication Equipment Company Limited ("Hebei
Equipment"). As a result, Hebei Equipment was converted from a PRC enterprise
into a Sino-foreign joint venture company. On April 15, 1997, all PRC
governmental approvals were finalized for the conversion of Hebei Equipment
to a Sino-foreign joint venture company. At the time of the Company's
acquisition of the majority stake in Hebei Equipment, Hebei United
Telecommunications Development Co. ("Hebei Development") held a 30% ownership
in Hebei Equipment and Beijing CATCH held subscription rights to a 9.2%
ownership of Hebei Equipment. On April 22, 1997, the Board of Directors of
Hebei Equipment resolved to terminate Beijing CATCH's ownership participation
in Hebei Equipment. Further, on October 9, 1997 the Company and Hebei
Development agreed to transfer the 9.2% ownership of Hebei Equipment to the
Company. Of an additional one million dollars invested in Hebei Equipment by
AmTec, $276,000 was allocated as a capital contribution to acquire the
additional 9.2% interest in Hebei Equipment. PRC governmental approvals for
this transfer are currently pending. The increased ownership of Hebei
Equipment by the Company is not reflected in the financial statements of the
Company for the period ending September 30, 1997.
The Company, through Hebei Equipment, developed a digital cellular telephone
network (the "GSM Network") and is developing a province-wide broadband
network (the "Hebei Broadband Network"). The GSM Network is being
constructed by Hebei United Telecommunications Engineering Company Limited
("Hebei Engineering"), which is a 51%-owned subsidiary of Hebei Equipment and
is 49%-owned by Nippon Telegraph and Telephone International ("NTTI"), a
subsidiary of Nippon Telegraph & Telephone Corporation. The Hebei Broadband
Network (the "Broadband Network"), which will link existing cable television
systems in Hebei Province, will be constructed by Hebei Equipment.
The Company expects its joint venture subsidiaries to generate revenues from
its GSM network during the second half of fiscal year 1998.
The Hebei GSM Network
Hebei Engineering is constructing the GSM Network pursuant to a 15-year
agreement (the "UNICOM Agreement"), dated February 9, 1996, with China United
Communications Co. ("UNICOM"). UNICOM holds one of two licenses to operate
cellular telephone networks in the PRC. Under the terms of the UNICOM
Agreement, Hebei Engineering will build the GSM Network and sell ownership of
the GSM Network over the life of the agreement to UNICOM in exchange for a
majority share of cash flow generated by UNICOM from UNICOM's operation of the
GSM Network. Hebei Engineering will also
9
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provide consulting assistance to UNICOM in the operation of the GSM Network.
Hebei Engineering will receive 78% of up front connection fees paid by new
subscribers to connect to the GSM Network, 78% of depreciation of fixed assets
and 78% of net income generated by UNICOM from operation of the GSM Network
until February 9, 2011. Through the Company's 60.8% interest in Hebei Equipment
and Hebei Equipment's 51% interest in Hebei Engineering, the Company holds an
indirect 31% interest in Hebei Engineering.
In February 1997, the GSM Network commenced commercial operations in
Shijiazhuang, the capital of Hebei Province. Construction in six additional
cities is anticipated to conclude before the end of fiscal year 1998.
Construction in the remaining three major cities of Hebei Province is
anticipated to commence during the second half of calendar 1998.
As of November 19, 1997, construction of the first phase of the GSM Network
had been financed with a $3 million equity investment from Hebei Equipment
and NTTI, vendor financing guaranteed by NTTI and a $20 million Term Loan
facility from Bank of Tokyo Mitsubishi also guaranteed by NTTI. Of these
amounts, the Company has provided $1.17 million of equity funding to Hebei
Engineering through the Company's investment in Hebei Equipment. At present,
all funding required for completion of the first phase of construction to
service 40,000 subscribers in ten cities has been obtained by Hebei
Engineering.
The Hebei Broadband Network
On April 8, 1997, Hebei Equipment entered into a 20-year
agreement (the "Hebei Broadband Agreement") with Hebei Cable Television
Station, the only provider of cable television service in Hebei Province,
pursuant to which Hebei Equipment will (i) build a fiber-optic and microwave
network to connect the existing cable television systems in the eleven major
cities in Hebei Province, (ii) upgrade one city on a trial basis to a hybrid
fiber coaxial network ("HFC"), and (iii) hold the option to upgrade the
entire network to an HFC network. Under the Hebei Broadband Agreement, Hebei
Equipment will sell ownership of the Hebei Broadband Network to Hebei Cable
Television Station in exchange for a majority share of cash flow generated by
Hebei Cable Television Station from operation of the Hebei Broadband Network.
(Operating cash flow from the network will be derived from revenues
generated from a government mandated rate increase plus system-wide
advertising revenue less operating expenses.) Hebei Equipment will also
provide operating personnel and assistance to Hebei Cable Television Station
in the operation of the Hebei Broadband Network. Until Hebei Equipment has
recovered its investment in the Broadband Network, it will receive 80% of
depreciation of fixed assets and 80% of net income generated by Hebei Cable
Television Station from operation of the Hebei Broadband Network. Thereafter,
for the balance of the 20 years from the commencement date of formal
commercial operations, Hebei Equipment will receive 30% of depreciation of
fixed assets and 30% of net income generated by Hebei Cable Television
Station from operation of the Hebei Broadband Network. Hebei Cable
Television Station is a subsidiary enterprise of the Hebei Radio and
Television Department, under the jurisdiction of the Ministry of Radio, Film
and Television in the PRC.
The current funding requirement to link cable systems in the
eleven largest cities in Hebei Province for the Hebei Broadband Network is
estimated at approximately $14 million. As of November 20, 1997, the Company
had invested approximately $4.0 million in Hebei Equipment for purposes of
investment in the Hebei Broadband Network, leaving approximately $4 million
remaining to be invested after considering capital invested in the form of
equipment and other assets by the government of the PRC. The Company
anticipates that the balance of required funding will be provided in the form
of equity and debt investments in Hebei Equipment from the Company and other
sources over the next eighteen months, including additional joint venture
entities that may be established with strategic partners.
10
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Long Term Cooperation Agreement
On July 22, 1997, the Company entered into a Long Term Cooperation Agreement
(the "Long Term Cooperation Agreement") with the Electronics Industry Department
of the Hebei Provincial Government. The Long Term Cooperation Agreement expands
the Company's relationship with the Electronics Industry Department of Hebei
Province, a partner in the Company's joint venture, Hebei Equipment. It further
establishes the groundwork for the participation of the Company in every major
telecommunications and technology business opportunity in Hebei Province
designated for foreign investment by giving the Company the right of first
refusal to develop, finance and participate in such projects. The Long Term
Cooperation Agreement specifically provides for the Company's participation in
(i) all future expansion of the Company's existing cellular, cable television
and data network agreements in Hebei Province; (ii) a fixed wire telephone
network; (iii) import and export of high technology equipment and products; (iv)
a telecommunications network for the Highway and Transportation Department of
Hebei Province and (v) any other communications and technology projects
designated for foreign investment in Hebei Province. In exchange for the
development rights described, the Long Term Cooperation Agreement provides for
the issuance by the Company of options to purchase three million shares of the
Company's Common Stock at $3.25 per share, the market value of the Company's
Common Stock as reported on the American Stock Exchange at the time the
agreement was made. The options are issuable to the Hebei Provincial
Government. The Long Term Cooperation Agreement is subject to the execution of
a definitive agreement with the Hebei Provincial government which is expected
to be completed by the end of the Company's fiscal year ending March 31, 1998.
RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AS
COMPARED TO THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 1996.
The Company reported no sales during either the six months ended September
30, 1996 or, as expected by management, during the six months ended September
30, 1997, which was attributable to the early stage construction of the
Company's GSM Network and the early stage of development of its Broadband
Network in Hebei Province, PRC, and the Company's sale of the assets and
business of its operating subsidiary, ITV Communications, Inc., in January
1996.
As a result of the Company's sale of the assets of ITV Communications, Inc.,
the Company eliminated Research and Development costs or costs related to
sales of products.
Selling, general and administrative expenses increased from $1,863,181 during
the six months ended September 30, 1996 to $2,922,779 during the six months
ended September 30, 1997. The increase primarily related to the consolidation
of approximately $585,000 of operating expenses of the Company's joint
venture subsidiaries in the PRC. Further this increase reflects: (i)
non-cash expenses in the amount of $250,000 related to the issuance of
options to executives of the Company with an exercise price at a 9% discount
to the market price of the Company's Common Stock at the time of issuance,
(ii) a $250,000 reserve established to offset a $350,000 loan to American
Network Technologies, Inc., an unaffiliated entity, and (iii) increases in
salary expenses related to an increased number of employees during the
quarter ending September 30, 1997.
For the three months ending September 30, 1997 the Company's selling, general
and administrative costs declined by $558,925 to $553,147 from the three
months ending September 30, 1996. Management allocates certain expenditures
to GSM construction costs and selling, general and administrative expenses.
For the quarter ended September 30, 1997, management allocated $844,377 of
expenditures previously charged to selling, general and administrative
activity to GSM construction costs, thus resulting in the decrease of selling
general and administrative costs for the quarter ending September 30, 1997
compared to the quarter ending September 30, 1996.
The Company's net loss increased from $1,765,503 during the six months ended
September 30, 1996 to $2,889,579 during the six months ended September 30,
1997. The increase in net loss primarily relates to increases in subsidiary
operations that were not offset through consolidation.
11
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The Company's assets increased $7,723,254 during the first half of fiscal year
1998, from $28,226,203 to $35,949,457. This increase is principally the result
of an increase in capitalized costs related to the construction of the GSM
network being built by the Company's joint ventures in Hebei Province, PRC,
which the Company reports through consolidation.
Liquidity and Capital Resources
The Company has financed its current activities primarily through equity
investments since the Company does not yet have cash flow from operations to
support existing business operations due to the early stage of the Company's
joint venture projects.
The Company generated no sales during the quarter ended September 30, 1997.
Further, the Company generated an operating loss of $2,922,779 and a net loss
of $2,899,579 during the six months then ended. While the Company expects to
achieve profitable operations within several years, there can be no
assurances that the Company will ever achieve profitable operations.
During the six months ended September 30, 1997, the Company used $4,169,577
of cash in its operating activities, primarily the result of the net loss of
$2,889,579. Further, the Company used $4,779,387 of cash from investing
activities during this period. During the period ending September 30, 1997,
the Company gained $10,219,836 in its financing activities. This increase of
cash was the result of an increase in borrowings of $7,719,836 and proceeds
of $2,500,000 from the sale of the Company's Series C Convertible Preferred
Stock in June 1997. Subsequently, the Company has raised $7,400,000 through
the sale of its Series E Convertible Preferred Stock in October 1997, which
is not included in the financial statements for the quarter ended September
30, 1997.
Cancellation of Series A Convertible Preferred Stock
On December 19, 1995, the Company issued 1,524,178 shares of the Company's
Series A Convertible Preferred Stock (the "Series A Shares") to Tweedia
International Limited ("Tweedia") in consideration of the transfer of a
non-refundable equipment purchase deposit made pursuant to a contract between
Motorola, Inc. and Beijing CATCH Communications Group Co., an affiliate of
Tweedia. The Subscription Agreement for the Series A Convertible Preferred
Stock provided that, if all or any portion of the deposit should be forfeited at
any time and for any reason whatsoever by Tweedia, an equivalent number of the
Series A Shares issued to Tweedia would be cancelled on the books and records of
the Company. On August 19, 1997, upon determination that the entire deposit had
been forfeited by Beijing CATCH Communications Group Co. to Motorola, the
Company cancelled the outstanding shares of Series A Convertible Preferred Stock
from the books and records of the Company and all rights and privileges offered
Tweedia as a holder of the Series A Shares were terminated.
Financing Activities
During the quarter ended September 30, 1997, the Company completed no
financings. However, on October 22, 1997 the Company completed the sale of 74
shares of its Series E Convertible Preferred Stock (the "Series E Stock" or
"Series E Shares") for gross proceeds of $7,400,000.
The Series E Shares were sold pursuant to Reg. D at $100,000 per share and
the holders of the Series E Stock have no rights to dividends. Conversion of
the Series E Shares into Common Stock is based on the lower of (i) a 10%
premium to the market price of the Company's Common Stock, as reported on the
American Stock Exchange, at the time of closing or (ii) a discount to the
lowest trade during the five (5) trading days prior to the conversion. The
discount (the "Discount"), which ranges from 15% to 20%, is based on the date
of the shareholder's conversion of the Series E shares, with the discount
increasing as the period the shares are held increases. The Conversion of
the Series E Shares is restricted by certain "lock-up" agreements between the
Company and the holders of the Series E Stock under which fifty shares of the
Series E Shares
12
<PAGE>
may not be converted prior to March 2, 1998, and the remaining twenty four
shares may not be converted prior to the first anniversary of the close of
the offering. The Series E Shares are subject to optional redemption by the
Company for cash at any time at a redemption price per share equal to
$100,000 (the "Issue Price") multiplied by the sum of (i) one plus (ii) an
amount equal to 8% of the Issue Price per annum for the period that has
passed since the date of issuance of the Series E Shares (the "Premium") plus
(iii) the Discount then in effect. The Series E stock ranks prior to the
Company's Common Stock and on parity with the Company's Series C Preferred
Stock and Series D Preferred Stock upon liquidation, dissolution or winding
up of the Company. In the event of any of the foregoing, each share of Series
E Stock shall be entitled to receive, after any distributions with respect to
any then outstanding senior-ranking securities, an amount equal to the Issue
Price plus the Premium.
In addition to the shares, warrants were issued to five of the Series E
Investors to purchase 1,236,346 shares of the Company's Common Stock at a
price equal to 120% of the market price of the Company's Common Stock at the
time of closing based on the amount invested by the shareholders and the
length of the "lock-up" agreed upon between the Company and certain
investors. Holders of the Series E Shares also have a registration right
requiring the Company to file a registration statement covering the Common
Stock underlying the Series E Preferred Shares and related warrants with the
SEC no later than March 2, 1998.
Of the $7,400,000 gross proceeds from the sale of the Series E Shares,
$3,000,000 was invested into the Broadband Network in Hebei Province,
approximately $707,000 was distributed as fees and expenses to a placement agent
for the offering, and the balance of approximately $3,693,000 will be maintained
by the Company for working capital and possible investment in additional
projects. The Company also issued warrants to purchase 326,171 shares of the
Company's Common Stock to the Placement Agent as fees for services. These
Warrants have an exercise price of $2.475 per share.
Equity Issuances
The Company issued 10,000 shares of common stock to each of its four outside
directors as compensation for services. The shares were issued on September 9,
1997 and had a combined value of $85,000, $84,960 of which was expensed as
directors compensation. The Company also issued 8,500 shares of its Common
Stock at the then current market price to its legal firm in lieu of $25,500 of
legal billings, which was the then market value of the shares at the time of
issuance. The Company further issued, pursuant to a settlement of claims, an
additional 14,590 shares with a then market value of $41,458, which shares were
classified as settlement expenses on the books of the Company. On August 8,
1997, the Company issued 1,570,998 shares of its Common Stock into escrow for
Promethean Investment Group, LLC ("Promethean") pursuant to a Common Stock
Investment Agreement entered into between the Company and Promethean. The
shares will be issued to Promethean at such time as the Company draws on funds
from Promethean pursuant to the Common Stock Investment Agreement.
Risk Factors
Some of the Company's agreements relating to Sino-foreign joint ventures that
will engage in telecommunications business in the PRC are preliminary in nature
and are subject to the receipt of significant approvals and permits from various
governmental agencies in the PRC and, in certain cases, the execution of more
definitive agreements. There can be no assurances that, in connection with those
joint ventures that require more definitive agreements and further approvals,
such definitive agreements will ever be consummated or that such approvals and
permits will be obtained for the benefit of the Company.
The Company does not anticipate acquiring the necessary technical capability,
personnel or resources to build, service or maintain a telecommunications
network and instead plans to form alliances with strategic partners and/or
technical partners rather than maintain a high internal cost structure. As a
result, the consummation of all or any of the Company's proposed transactions
may require the participation of additional third parties, other than PRC
governmental agencies and NTTI, who may be investors in or independent
contractors with any such proposed Sino-foreign joint ventures, for the purpose
of building, servicing or maintaining any such telecommunications network. There
can be no assurances that the Company will be able to obtain the requisite
cooperation or participation of any such third parties with respect to the
Company's proposed business operations. Further, certain of the Company's
agreements will require significant financings necessary to fund the
construction of such networks.
13
<PAGE>
In addition, the Company's proposed business operations in the PRC are always
subject to significant risks. These risks include, but are not limited to the
limited precedent for the establishment of Sino-foreign ventures for the purpose
of engaging in the telecommunications industry in the PRC, governmental
restrictions on foreign business ventures in the PRC, PRC regulation of it's
economy and foreign currency exchange and the general political environment in
the PRC.
The Company's successful transition to profitable operations is dependent upon
obtaining adequate financing to fund current operations, projects under
agreement and the development of a market for the Company's products. The
Company will continue to seek funds in the form of lines of credit and /or
equity and debt securities from third party sources as well as from its existing
stockholders.
The Company's auditors have included an explanatory paragraph in their
Independent Auditor's Report to the effect that recovery of the Company's assets
is dependent upon future events, the outcome of which is undeterminable, and
that the successful completion of the Company's development program and it's
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost structure.
There can be no assurances that such a financing can be completed on terms
favorable to the Company, or at all, or that the business of the Company will
ever achieve profitable operations.
In the event the Company fails to raise additional funds, and its Sino-foreign
joint venture's telecommunications networks fail to generate revenues from
operations, the Company may not be able to meet all of its obligations past
March 31, 1999, based on its current operating expenditures.
14
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Demand was made by the Company upon American Network Technologies, Inc.
("ANT") for repayment of the $350,000 loaned by the Company to ANT. ANT
failed to comply with that demand, and on July 25, 1997, the Company
initiated an action in the Middlesex Superior Court, Cambridge,
Massachusetts, against ANT and Andrew J. Rodriguez, the Chief Executive
Officer of ANT and a guarantor of a portion of the loan, to recover the
loaned funds.
Item 2. Changes in Securities
Pursuant to a Common Stock Investment Agreement dated as of March 31, 1997
the (the "Common Stock Investment Agreement") with Promethean Investment
Group L.L.C. ("Promethean"), on August 8, 1997, the Company issued into
escrow for Promethean 1,570,998 shares of common stock (the "Escrow Shares").
The shares are to be sold to Promethean, within two years following the
effective date of a registration statement covering the resale of such
shares, at a 10% discount to market price, in connection with $10 million of
equity funding to be provided to the Company by Promethean pursuant to the
Common Stock Investment Agreement. No such funding has yet been provided to
the Company by Promethean and none of the Escrow Shares have yet been sold to
Promethean. The Company believes that the issuance of the Escrow Shares
qualifies as a transaction by an issuer not involving a public offering
within the meaning of Section 4(2) of the Securities Act of 1993, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3. Certificate of Designations of Preferences of
Series & Preferred Stock of AmTec, Inc.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during
the quarterly period ended September 30, 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: November 20, 1997 AmTec, Inc.
By: /s/ Joseph R. Wright, Jr.
-----------------------------
Joseph R. Wright, Jr.
Chief Executive Officer
By: /s/ Albert G. Pastino
-----------------------------
Albert G. Pastino
Principal Financial and
Accounting Officer
16
<PAGE>
CERTIFICATE OF DESIGNATIONS OF PREFERENCES
OF
SERIES E PREFERRED STOCK
OF
AMTEC, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is AmTec,
Inc., a Delaware corporation.
2. The Certificate of Incorporation of the Corporation authorizes the
issuance of 10,000,000 shares of Preferred Stock, and expressly vests in the
Board of Directors of the Corporation the authority provided therein to issue
any or all of said shares in one or more series and by resolution or
resolutions to establish the designation, number, full or limited voting
powers, or the denial of voting powers, preferences and relative,
participating, optional, and other special rights and the qualifications,
limitations, restrictions, and other distinguishing characteristics of each
series to be issued.
3. The Corporation has, as of the date hereof, authorized 1, 524, 178 shares of
Series A Common Stock, of which none are issued and outstanding; the Corporation
has authorized 100 shares of Series B Preferred Stock, of which none are issued
and outstanding; the Corporation has authorized 250 shares of Series C Preferred
Stock, of which 250 shares are issued and outstanding; and the Corporation has
authorized 150 shares of Series D Preferred Stock, of which 122 shares are
issued and outstanding.
4. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series E Preferred Stock:
RESOLVED, that 120 Shares of the Ten Million (10,000,000) authorized shares of
Preferred Stock of the Corporation shall be designated Series E Convertible
Preferred Stock, $0.001 par value per share, and shall possess the rights and
privileges set forth below:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series E Convertible Preferred Stock" (the "Series E Preferred
Stock.") and the number of shares constituting the Series E Preferred Stock
shall be 120. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series E Preferred Stock to a number less than the
number of shares then outstanding plus the number shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series E Preferred Stock.
Section 2. Rank. The Series E Preferred Stock shall rank: (i) prior to all of
the Corporation's Common Stock, par value $0.001 per share ("Common Stock");
(ii) prior to any class or series of capital stock of the Corporation hereafter
created that does not specifically by its terms rank senior to or on parity with
the Series E Preferred Stock of whatever subdivision (collectively, with the
Common Stock, "Junior Securities"); (iii) on parity with the Series C and Series
D Preferred Stock of the Company ("Parity Securities") in each case as to
distributions of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (all such distributions being
<PAGE>
referred to collectively as "Distributions"); and (iv) junior to any Preferred
Stock subsequently created specifically ranking senior to the Series E Preferred
Stock ("Senior Securities") in terms of Distributions.
Section 3. Dividends. The Series E Preferred Stock will bear no dividends, and
the holders of the Series E Preferred Stock shall not be entitled to receive
dividends on the Series E Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the then holders of shares of
Series E Preferred Stock shall be entitled to receive, immediately after
any distributions to Senior Securities required by the Corporation's
Certificate of Incorporation or any statement of designation of
preferences, and prior and in preference to any distribution to Junior
Securities but in parity with any distribution of Parity Securities, an
amount per share equal to the sum of (I) $100,000 for each outstanding
share of Series E Preferred Stock (the "Issue Price") and (ii) an amount
equal to 8% of the Issue Price per annum for the period that has passed
since the date of issuance of the Series E Preferred Stock (such amount
being referred to herein as the "Premium"). If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the
Series E Preferred Stock and Parity Securities shall be insufficient to
permit the payment to such holders of the full preferential amounts due to
the holders of the Series E Preferred Stock and the Parity Securities,
respectively, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the holders of the
Series E Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is
entitled by the Corporation's Certificate of Incorporation and any
statement(s) of designation of preferences.
(b) Upon the completion of the distribution required by subsection 4(a), if
assets remain in this Corporation, they shall be distributed to holders of
Parity Securities (unless holders of Parity Securities have received
distributions pursuant to subsection 4(a) above and Junior Securities in
accordance with the Corporation's Certificate of Incorporation including
any duly adopted certificate(s) of designation of preferences.
(c) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or the effectuation by
the Corporation of a transaction or series of related transactions in which
more than 50% of the voting power of the Corporation is disposed of, shall
not be deemed to be a liquidation, dissolution or winding up within the
meaning of this Section 4, but shall instead be treated pursuant to Section
7 hereof.
Section 5. Conversion. The record holders of the Series E Preferred Stock shall
have conversion Rights as follows (the "Conversion Rights"):
(a) Right to Convert. The record holder of the Series E Preferred Stock
shall be entitled, as set forth below, subject to the restrictions on
conversion set forth in Section 5(b) below, at the office of the Company
or any transfer agent for the Series E Preferred Stock, to convert the
shares of Series E Preferred Stock held by such holder into that number
of fully-paid and nonassessable shares of the Company's Common Stock at
the Conversion Rate as set forth
2
<PAGE>
below. The number of shares of Common Stock into which this Series E
Preferred Stock may be converted is hereinafter referred to as the
"Conversion Rate" for such Series E Preferred Stock, and is computed
as follows:
Number of shares issued upon conversion of one share of Preferred Stock equals
Issue Price + [(.08)(N/365)(Issue Price)]
-----------------------------------------
Conversion Price
where
*N = the number of days between (I) the date that, in connection with the
consummation of the initial purchase of this Series E Preferred Stock from the
Company, the escrow agent first had in its possession funds representing full
payment for the Series E Preferred Stock for which conversion is being elected,
and (ii) the applicable date of conversion for the Series E Preferred Stock for
which conversion is being elected,
*Issue Price = the Issue Price, as defined in Section 4(a), and
*Conversion Price = the lesser of (x) the Fixed Conversion Price, as may be
adjusted pursuant to Section 5(e) below, or (y) the Adjustable Conversion Price.
For purposes hereof:
* "Fixed Conversion Price" shall equal 110% of the Index Price, provided,
however, that if on March 2, 1998, the average Closing Bid Price for the prior
10 business days has declined 25% or more from the Index Price, then the Fixed
Conversion Price shall be reset to equal 110% of that 10-day average Closing Bid
Price,
* "Adjustable Conversion Price" shall equal:
(a) during the period beginning March 2, 1998 and ending April 30, 1998, 85% of
the average Closing Bid Price of the Company's Common Stock for the five (5)
trading days immediately preceding the Date of Conversion,
(b) during the period beginning May 1, 1998 and ending May 31, 1998, 84% of the
average Closing Bid Price of the Company's Common Stock for the five (5) trading
days immediately preceding the Date of Conversion,
(c) during the period beginning June 1, 1998 and ending June 30, 1998, 83% of
the average Closing Bid Price of the Company's Common Stock for the five (5)
trading days immediately preceding the Date of Conversion,
(d) during the period beginning July 1, 1998 and ending July 31, 1998, 82% of
the average Closing Bid Price of the Company's Common Stock for the five (5)
trading days immediately preceding the Date of Conversion,
3
<PAGE>
(e) during the period beginning August 1, 1998 and ending August 31, 1998, 81%
of the average Closing Bid Price of the Company's Common Stock for the five (5)
trading days immediately preceding the Date of Conversion,
(f) during the period beginning September 1, 1998, 80% of the average Closing
Bid Price of the Company's Common Stock for the five (5) trading days
immediately preceding the Date of Conversion.
* "Index Price" equals the average Closing Bid Price for the ten business days
immediately preceding the Issue Date,
* "Closing Bid Price" shall mean the closing bid price of the Company's Common
Stock as reported by the American Stock Exchange ("AMEX',) (or, if not reported
by AMEX, as reported by such other exchange or market where traded) on the
applicable date.
* "Issue Date" shall mean the date that the Series E Preferred Stock is first
issued.
(b) Mechanics of Conversion. No fractional shares of Common Stock shall be
issued upon conversion of this Series E Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the
number of shares of Common Stock to be received shall be rounded up to the
next whole number of shares. In the case of a dispute as to the calculation
of the Conversion Rate, the Company's calculation shall be deemed
conclusive absent manifest error. In order to convert Series E Preferred
Stock into full shares of Common Stock, the holder shall surrender the
certificate or certificates therefor, duly endorsed, by either overnight
courier or 2 day courier, to the office of the Company or of any transfer
agent for the Series E Preferred Stock, and shall give written notice
("Notice of Conversion") to the Company at such office that he elects to
convert the same, the number of shares of Series E Preferred Stock so
converted and a calculation of the Conversion Rate (with an advance copy of
the certificate(s) and the notice by facsimile). Once the Notice of
Conversion has been so delivered, the conversion set forth therein shall be
irrevocable, and the certificate(s) indicated for conversion shall be
canceled on the Company's books; provided, however, that the Company shall
not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless either the certificates
evidencing such Series E Preferred Stock are delivered to the Company or
its transfer agent as provided above, or the holder notifies the Company or
its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection with such
certificates. The Company shall issue and deliver within three (3)
business days after delivery to the Company of such certificates, or after
such agreement and indemnification, to such holder of Series E Preferred
Stock at the address of the holder on the books of the Company, a
certificate or certificates for the number of shares of Common Stock to
which the holder shall be entitled as aforesaid, and a certificate for any
unconverted shares of Series E Preferred Stock. The date on which
conversion occurs (the "Date of Conversion") shall be deemed to be the date
set forth in the Notice of Conversion.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall at all
times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series E Preferred Stock, such number of its shares
4
<PAGE>
of Common Stock as shall from time to time be suffcient to effect the
conversion of all then outstanding shares of Series E Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be suffcient to effect the conversion of all then outstanding
shares of Series E Preferred Stock, the Company will take such corporate
action as may be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose.
(d) Automatic Conversion. Each share of Series E Preferred Stock outstanding on
the second anniversary of the Issue Date automatically shall be converted
into Common Stock on such date at the Conversion Price then in effect and
the second anniversary of the Issue Date shall be deemed the Date of
Conversion with respect to such Conversion.
(e) Adjustment to Fixed Conversion Price.
In computing the Fixed Conversion Price for purposes of Section 5(a):
(i) If, prior to the conversion of all of the Series E Preferred Stock, the
number of outstanding shares of Common Stock is increased by a stock split,
stock dividend, or other similar event, the Fixed Conversion Price shall be
proportionately reduced, or if the number of outstanding shares of Common
Stock is decreased by a combination or reclassification of shares, or other
similar event, the Fixed Conversion Price shall be proportionately
increased.
(ii) If, prior to the conversion of all Series E Preferred Stock, there
shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of
Common Stock of the Company shall be changed into the same or a different
number of shares of the same or another class or classes of stock or
securities of the Company or another entity, then the holders of Series E
Preferred Stock shall thereafter have the right to purchase and receive
upon conversion of Series E Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such shares of
stock and/or securities as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the conversion of Series E Preferred Stock
held by such holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and
interests of the holders of the Series E Preferred Stock to the end that
the provisions hereof (including, without limitation, provisions for
adjustment of the Fixed Conversion Price and of the number of shares
issuable upon conversion of the Series E Preferred Stock) shall thereafter
be applicable, as nearly as may be practicable in relation to any shares of
stock or securities thereafter deliverable upon the exercise hereof. The
Company shall not effect any transaction described in this subsection 5(e)
unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligation to deliver to the holders of
the Series E Preferred Stock such shares of stock and/or securities as, in
accordance with the foregoing provisions, the holders of the Series E
Preferred Stock may be entitled to purchase.
(iii) If any adjustment under this Section 5(e) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion shall be the next higher number of
shares.
5
<PAGE>
Section 6. Corporate Change. In the event of a merger, reorganization,
recapitalization or similar event of or with respect to the Company (a
"Corporate Change") (other than a Corporate Change in which all or substantially
all of the consideration received by the holders of the Company's equity
securities upon such Corporate Change consists of cash or assets other than
securities issued by the acquiring entity or any affiliate thereof), this Series
E Preferred Stock shall be assumed by the acquiring entity and thereafter this
Series E Preferred Stock shall be convertible into such class, type and amount
of securities as the holder would have received had the holder converted this
Series E Preferred Stoek immediately prior to such Corporate Change.
Section 7. Protective Provisions. So long as shares of Series E Preferred Stock
are outstanding, the Corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least
two-thirds of the then outstanding shares of Series E Preferred Stock:
(a) alter or change the rights, preferences or privileges of the shares of
Series E Preferred Stock or any Senior Securities so as to affect adversely the
Series E Preferred Stock; or
(b) create any new class or series of stock having rights preferential to those
of the Series E Preferred Stock with respect to Distributions (as defined in
Section 2 above).
Section 8. Redemption By Company.
(a) Company's Right to Redeem at its Election. At any time, the Company
shall have the right, in its sole discretion, to redeem ("Redemption at
Company's Election"), from time to time, any or all of the Series E Preferred
Stock provided the Company shall first provide ten (10) days advance written
notice. If the Company elects to redeem some but not all of the Series E
Preferred Stock, the Company shall redeem a pro-rata amount from each holder
of the Series E Preferred Stock.
(b) Redemption Price At Company's Election. The Redemption Price at
Company's Election shall be an amount per share equal to the Issue Price
multiplied by the sum of one (1) plus the Premium plus (one (1) minus the
Adjustable Conversion Price then in effect.)
(c) Mechanics of Redemption at Company's Election. The Company shall effect
each such redemption by giving at least ten (10) days prior written notice
("Notice of Redemption at Company's Election") to (a) the holders of the
Series E Preferred Stock selected for redemption, at the address and
facsimile number of such holder appearing in the Company's Series E Stock
register and (b) the transfer agent, which notice of Redemption at Company's
Election shall be deemed to have been delivered two (2) business days after
the Company's mailing (by overnight or two (2) day courier, with a copy by
facsimile) of such Notice of Redemption at Company's Election. Such Notice of
Redemption at Company's Election shall indicate (i) the number of shares of
Series E Preferred Stock that have been selected for redemption, (ii) the
date on which such redemption is to become effective (the "Date of Redemption
at Company's Election") and (iii) the applicable Redemption Price at
Company's Election. Notwithstanding the above, holder may convert into Common
Stock pursuant to Section 5 prior to the close of business on the Date of
Redemption at Company's Election, any Series E Preferred Stock which it is
otherwise entitled to convert, including Series E Preferred Stock that has
been selected for redemption at Company's Election pursuant to this section.
(d) Payment of Redemption Price. Each holder submitting Series E Preferred
Stock being redeemed under this section shall send its Series E Preferred
Stock Certificates so redeemed to the Company or its transfer agent no later
than the Date of Redemption at Company's Election, and the Company shall pay
the applicable redemption price to that holder within five (5) business days
of the Date of Redemption at Company's Election. The Company shall not be
obligated to deliver the redemption price unless the Preferred Stock
Certificates so redeemed are delivered to the Company or its transfer agent.
Section 9. Status of Converted or Redeemed Stock. In the event any shares of
Series E Preferred Stock shall be converted or redeemed, the shares so converted
or redeemed shall be canceled, shall return to the status of authorized but
unissued Preferred Stock of no designated series, and shall not be issuable by
the Corporation as Series E Preferred Stock.
Section 10. Miscellaneous. As used herein, the term "business day" means a
business day in the City of New York.
FURTHER RESOLVED, that the statements contained in the foregoing resolutions
creating and designating the said Series E Preferred Stock and fixing the
number, powers, preferences and relative, optional, participating, and other
special rights and the qualifications, limitations, restrictions, and other
distinguishing characteristics thereof shall, upon the effective date of said
series, be deemed to be included in and be a part of the certificate of
incorporation of the Corporation pursuant to the laws of the State of Delaware.
Signed on October 17, 1997.
/s/ Albert G. Pastino, CFO /s/ Joseph R. Wright, Jr.
- ------------------------- -------------------------
Attest President
/s/ Timothy P.F. Crowley
-------------------------
Secretary
6
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