THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT ON FORM 10-K FILED ON JUNE 30TH,
1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
ENDED MARCH 31, 1998.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ____________ TO ____________.
Commission file number 0-22520
AMTEC, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1989122
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
599 Lexington Avenue, 44th Floor, New
York, New York 10022 (Address of
principal executive offices, including zip code)
212-319-9160
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Name of Each Exchange
Class so Registered On Which Registered
Common Stock, $0.001 par value per share American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Indicate by check mark whether the registrant: (i) 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 (ii) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The issuer's revenues for the fiscal year ended March 31, 1998 were
$216,348.
The number of shares outstanding of the registrant's common stock as of
June 26, 1998 was 26,998,076 shares. The aggregate market value of the
common stock (26,346,996 shares) held by non-affiliates, based on the
closing price ($1.3125) of the common stock as of June 26, 1998 was
approximately $34.6 million.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995.
Except for the historical information contained herein, the
matters discussed in this Annual Report are forward-looking statements
which involve risks and uncertainties, including but 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 in this Annual Report.
PART I
ITEM 1. BUSINESS
AmTec, Inc. ("AmTec" or "the Company") is a telecommunications company with
operations in the People's Republic of China ( the "PRC" or "China"). The
Company has focused its operations on China because of China's large and
rapidly growing need for telecommunications services, China's requirement
for foreign capital and technology to meet that need, and the opportunity
to obtain cash flow sharing and technical services agreements with
operators who hold exclusive or semi-exclusive communications licenses. The
Company's current operations primarily consist of a series of cellular
telephone networks in the northeastern province of Hebei, which has 11
major cities and a population of approximately 65 million people. In
addition, the Company has interests in other projects and networks in
various stages of development, including a multimedia network for cable
television programming transmission. Developing existing network interests
and obtaining additional interests in communications networks in China in
the future are key components of the Company's business strategy.
CHINA TELECOMMUNICATIONS MARKET
Through the Company's interest in cellular telephone networks in Hebei
Province and relationships that the Company has developed with key policy
makers and decision makers in Chinese governmental agencies, AmTec has
focused its business to capitalize on the growth of the Chinese
telecommunications market, which is among the world's largest, fastest
growing, and most under-serviced telecommunications markets. Due to the
importance of a well-developed communications infrastructure to China's
continuing economic development, the PRC government has targeted
communications network development as a high priority in the country's
economic reform program. It is expected that before the year 2000, China
will surpass the United States as both the largest cellular telephone and
cable television markets in the world.
Since the establishment of China United Telecommunications, Incorporated
("Unicom") in 1994, China has had only two licensed competitors for
cellular, fixed wire and long-distance telephony. The cable television
market in China is a monopoly run by the Ministry of Information Industry,
which also regulates telecommunications in China. While other
communications markets in China have experienced greater competition, most
notably paging and value-added services, communications licenses have
generally been limited to a small number of competitors relative to markets
in the United States. The Company believes that both the overall market
size and the environment of limited competition are attractive aspects of
the Chinese communications market.
Although Chinese regulations currently prohibit direct foreign ownership or
operation of communications networks, the regulatory environment has shown
recent indications of continuing a policy of partial deregulation.
And while there can be no assurance that this policy of partial
deregulation will continue, the Company believes that it is well-positioned
to benefit from deregulation permitting direct foreign ownership and
operation of communications networks, if such deregulation were to occur in
the future.
JOINT VENTURES IN CHINA
AmTec holds a 70% interest in Hebei United Telecommunications Equipment
Company Limited ("Hebei Equipment"), a joint venture with a wholly-owned
subsidiary of the Electronics Industry Department of Hebei Province. Hebei
Equipment, in turn, holds a 51% interest in Hebei United Telecommunications
Engineering Company Limited ("Hebei Engineering"), a joint venture with NTT
International ("NTTI") and Itochu Corp. Both Hebei Equipment and Hebei
Engineering are organized as Sino-foreign equity joint ventures under the
laws of China and are headquartered in Shijiazhuang, the capital of Hebei
Province.
CELLULAR TELEPHONE NETWORKS
Currently, legal restrictions in China prohibit foreign participation in
the operation and ownership of communications networks. Therefore, the
Company has established majority ownership in joint ventures with Chinese
and other partners to provide financing, network construction and
operational consulting services to licensed Chinese network operators.
Substantially all of the Company's revenues are derived from contractual
arrangements for the sharing of cash flow generated from network operations
rather than from ownership or operation of the networks. Until regulations
in China change to permit direct foreign ownership and operations of
communications networks, all future revenues of the Company will continue
to be derived from these contractual arrangements.
Through Hebei Engineering, AmTec entered into an agreement (the "Unicom
Agreement") on February 9, 1996 with Unicom to (i) finance and assist
Unicom in the construction of cellular networks (the "GSM Networks" or "GSM
Project") in the ten largest cities in Hebei Province and (ii) provide
consulting and management support services to Unicom in its operation of
the GSM Networks in the 10 largest cities of Hebei Province. This GSM
Project will have a capacity of up to 70,000 subscribers. The first of
these networks commenced operations in February 1997. Hebei Engineering is
entitled to 78% of the distributable cash flow (defined as activation
charges plus depreciation plus net income) from the GSM Networks for a
15-year period commencing February 9, 1996.
The construction and operational plan for the GSM Networks consists of a
"roll-out" across Hebei Province on a city-by-city basis. As of June 26,
1998 two cities, Shijiazhuang and Tangshan, were providing commercial
service, with approximately 11,000 subscribers; construction in five
additional cities was substantially completed, with commercial launch dates
scheduled during 1998 for these additional five cities.
As of March 31, 1998, construction of the GSM Networks had been financed by
Hebei Engineering with $3 million of equity capital, approximately $11
million of vendor financing guaranteed by NTTI, and a $20 million Term Loan
facility from Bank of Tokyo Mitsubishi also guaranteed by NTTI and Ito Chu.
Of the $3 million of equity raised by Hebei Engineering, $1.17 million
was contributed by Hebei Equipment.
Achievement of the Company's business objectives is dependent upon Unicom's
operation of the GSM Networks, among other factors. The implementation of
the GSM Networks involves systems design, site procurement, construction,
electronics installation, initial systems optimization and receipt of
necessary permits and business licenses prior to commencing commercial
service. Each stage can involve various risks and contingencies, the
outcome of which cannot be predicted with a high degree of assurance as
interconnection of the GSM Networks with the public switched telephone
network is sometimes difficult and time consuming, and the successful
completion of all planned sites of the GSM Networks will be dependent, to a
significant degree, upon the ability of the parties to lease or acquire
sites for the location of their base station equipment. While no
difficulties have been encountered to date in procuring such sites, future
site acquisition can not be assured.
COMPETITION
Unicom currently faces competition from China Telecom, which has
substantially more experience in operating cellular telephone networks,
greater financial resources, scientific and marketing personnel and
facilities. China Telecom is the operating organization of the former
Ministry of Posts and Telecommunications ("MPT"), previously the
telecommunications policy setting and regulatory arm of the Chinese
government.
China Telecom has a dominant market share in all sectors of
telecommunications in China, and already has established a fixed-wire
network in the country. Formerly the MPT regulated and licensed all
telecommunications networks in China, including network access, and the
ability to make important regulatory decisions with respect to China
Telecom's competitors. Although the MPT has been abolished and succeeded by
the Ministry of Information Industry ("MII"), there can be no assurance
that the new regulatory structure for telecommunications operations in
China (i) will be more favorable to Unicom or the Company or (ii) will not
be adverse to Unicom's operations in Hebei. In addition, new competitors
may enter the market, including Code Division Multiple Access ("CDMA")
cellular service offered by the People's Liberation Army and China Telecom
through their joint venture, Great Wall Communications Group ("Great
Wall").
At present there are four small commercial CDMA cellular trial
networks being tested by Great Wall in China. None of these commercial
trial networks are in Hebei, but there can be no assurances in the future
that Great Wall will not enter the Hebei market.
CONSTRUCTION AND OPERATION OF TELECOMMUNICATIONS NETWORKS
The telecommunications networks in the PRC which the Company's joint
ventures are currently engaged in developing may experience difficulties
and delays relating to the construction and operation of such
telecommunications networks. While Unicom has successfully commenced
commercial operation in two cities in Hebei, and although Hebei Engineering
has substantially completed network construction in five additional cities
in Hebei, there can be no assurance that such additional networks will be
completed and that commercial operations in these five cities will
commence. Currently, the Company has no reason to believe that such
additional networks will not commence commercial operations.
ADDITIONAL FUNDING OF JOINT VENTURE PROJECTS
At present, all network construction for a 40,000 subscriber capacity
network in seven cities in Hebei has been funded. Expansion of network
capacity from 40,000 subscribers to 70,000 subscribers will require
additional capital. Since the Unicom Agreement contains no specified
deadline for expansion of the GSM Network to 70,000 subscribers, these
future capital requirements for the GSM Network will depend largely on the
market acceptance of the Unicom GSM Network cellular service, among other
factors. It is anticipated that debt or equity contributions made by the
Company and its partners to the joint ventures, as well as potential
investment from third parties, will be used to increase the capacity of the
GSM Network as required.
GOVERNMENT CONTROL OF CURRENCY CONVERSION AND EXCHANGE RATE RISKS
The PRC government imposes control over its foreign currency reserves,
in part through direct regulation of the conversion of Renminbi, the legal
tender currency of the PRC, into foreign exchange and through restrictions
on foreign trade.
Unicom's revenues are denominated in Renminbi. The Company's joint
ventures will consequently receive almost all of their joint venture
distributions in Renminbi, which is freely convertible only for current
accounts. Approval of the State Administration of Foreign Exchange will be
needed under current regulations for conversion of Renminbi for foreign
currencies.
The Company believes that it will be able to obtain all required
approvals for the conversion and remittance abroad of foreign currency
necessary for the operations of the Company's business. However, such
approvals do not guarantee the availability of foreign currency and no
assurance can be given that the Company will be able to convert sufficient
amounts of foreign currencies in the PRC's foreign exchange markets in the
future at acceptable rates.
Although the Renminbi to US dollar exchange rate has been relatively
stable since January 1, 1994, there can be no assurance that exchange rates
will not again become volatile or that the Renminbi will not devalue
significantly against the US dollar.
During late 1997 and early 1998, there have been a number of currency
devaluations in Asia and unstable and volatile capital markets and foreign
exchange markets. The PRC has not devalued the Renminbi. However, there can
be no assurances that the Renminbi will not be devalued in the future.
OTHER CONTRACTS AND PROJECTS
In addition to the GSM network projects mentioned above, the Company has
entered into a Long Term Cooperation Agreement with Hebei Province to
finance and develop telecommunications projects designated for foreign
investment, including a multimedia fiber optic and microwave network. See
Footnote 4 to the Consolidated Financial Statements - "Investment in
Multimedia Project."
The Company is also considering several other opportunities in cellular,
cable television and VSAT networks in other provinces in China.
EMPLOYEES
As of June 26, 1998, the Company had 13 full time employees in New
York and China. The Company intends to hire additional personnel as the
development of the Company's business continues and makes such action
appropriate.
The Company employs a policy of staffing and managing its joint-venture
subsidiaries and hiring PRC nationals for its China operations. As of June
26, 1998, the Company's subsidiaries had 6 employees in Hebei Equipment and
17 employees in Hebei Engineering. It is the intention of the Company to
add employees to its Chinese subsidiaries for operational purposes.
The Company's employees are not represented by a labor union and are not
covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This document contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information
currently available to the Company's management. When used in this
document, the words "anticipate," "believe," "estimate," "expect," "going
forward" and similar expressions, as they relate to the Company or Company
management, are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
described in this Form 10-K. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated or expected. The Company does not
intend to update these forward-looking statements.
ITEM 2. PROPERTIES
The Company leases a 7,600 square foot office located at 599
Lexington Avenue, 44th Floor, New York, New York 10022. The facility serves
as the Company's principal executive offices. The Company pays an annual
rent of $334,400 on a lease which expires in May 2000. The Company has
obtained an option to extend the lease for an additional five year term
based on the fair market value of the leased premises at or about the time
of the expiration of the initial term of the lease.
ITEM 3. LEGAL PROCEEDINGS
A first amended complaint, dated April 15, 1996, was filed against
the Company, ITV Communications, Inc., a subsidiary of the Company ("ITV"),
and other parties, including certain of the Company's officers, directors
and principal stockholders, by Jacqueline Brandwynne, a stockholder of the
Company, in a matter captioned "Jacqueline B. Brandwynne vs. AVIC Group
International, Inc., et al," civil action number BC145036. The complaint,
filed in the Superior Court of California, County of Los Angeles, alleges
fraud, misrepresentation and breach of contract with respect to the sale of
666,667 shares of ITV stock for $1,000,000 prior to the completion of the
Reorganization Agreement between the Company and ITV (the "Reorganization
Agreement") in February 1995, in connection with which the shares of ITV
were exchanged on a two for one basis for shares of the Company. The
complaint alleges that certain misrepresentations were made in connection
with the sale of the 666,667 shares and that the claimant was entitled to
receive 666,667 shares of the Company after the completion of the
Reorganization Agreement. The complaint seeks rescission of the transaction
and damages of no less than $1,000,000. The complaint also alleges a claim
in connection with an alleged oral employment agreement for 125,000 options
to purchase shares of the Company's Common Stock at an exercise price of
$0.35 per share and the right to purchase additional shares of Common Stock
at $1.00 per share, plus other benefits, including a salary of no less than
$130,000. Management of the Company believes that these claims are without
merit, that there are valid defenses to each claim and is in the process of
vigorously defending the matter. The matter is in the discovery phase and
it is not possible to predict with any degree of certainty the likely
outcome. The Company is represented by the law firm of Matthias & Berg LLP,
515 South Flower Street, Seventh Floor, Los Angeles, California 90071, on
this matter.
The Company is not aware of any pending litigation that could have
a material adverse effect on the Company's business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the
quarter ended March 31, 1998.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of June 26, 1998, the authorized capital stock of the Company
consisted of 100,000,000 shares of common stock, par value $0.001 per share
(the "Common Stock"), and 10,000,000 shares of preferred stock, par value
$0.001 per share (the "Preferred Stock"). As of June 26, 1998, there were
issued and outstanding 26,998,076 shares of Common Stock, options to
purchase 12,460,102 shares of Common Stock, 69 shares of Series E
Convertible Preferred Stock. Further, there were issued and outstanding
warrants to purchase 4,206,375 shares of Common Stock. As of June 26, 1998,
there were approximately 2,680 holders of record of the Common Stock.
The Company's Common Stock was originally listed for trading in the
over-the-counter market on March 4, 1996 under the name AVIC Group
International, Inc. and was quoted on the NASDAQ Bulletin Board or in the
"pink sheets" maintained by the National Quotation Bureau, Inc. under the
symbol "AVIC." The Company changed its listing on November 20, 1996, when
its Common Stock was approved for listing on the American Stock Exchange
under the ticker symbol "AVI." On July 8, 1997, the Company changed its
name to AmTec, Inc. and it currently trades on the American Stock Exchange
under the symbol "ATC". The high and low sales prices of the Common Stock,
as quoted on the American Stock Exchange, on June 26, 1998 were $1.375 and
$1.250, respectively.
No dividend has been declared or paid by the Company on its shares
of Common Stock since its inception. The payment of dividends by the
Company on its shares of Common Stock is within the discretion of the
Company's Board of Directors and will depend on the earnings, capital
requirements, restrictions in any future credit agreements and operating
and financial condition of the Company, among other factors. Except for
dividends which may be payable on and according to the terms of shares of
Preferred Stock, which may be issued from time to time, the Company does
not anticipate that any dividends will be declared or paid in the future.
There can be no assurance that the Company will ever pay a dividend on its
shares of Common Stock.
The following table sets forth for the period indicated the high
and low sales price of the Company's Common Stock as reported on the
American Stock Exchange.
<TABLE>
<CAPTION>
Fiscal Year Ending March 31
----------------------------------------------
1997 1998
---------- -----------------------------------
4th Q 1st Q 2nd Q 3rd Q 4th Q
---------- ----------- ----------- ------------------- ---------
COMMON STOCK PRICE(1)
<S> <C> <C> <C> <C> <C>
High $6.250 $5.1875 $3.4375 $2.4375 $1.1875
Low $2.125 $2.8125 $1.8125 $0.5000 $0.5625
- ---------------
(1) High and low sales price as reported on the American Stock Exchange.
</TABLE>
The transfer agent for the Company is Chasemellon Shareholder
Services, LLC, 450 West 33rd Street, New York, New York, 10001. Its
telephone number is (800) 851-9677.
CERTAIN SALES OF UNREGISTERED SECURITIES
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 cash dividends but are
entitled to an 8% in-kind dividend. 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 of a 10% premium to the 10 day average trading
price six months after the close or (ii) a discount to the lowest trade
during the five (5) trading days prior to the conversion. 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 by which fifty shares of the Series E Shares
could 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, October 22, 1998. 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 had 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 Securities and Exchange
Commission (the "SEC") no later than March 2, 1998. The shares were
registered on January 16, 1998.
Of the $7,400,000 gross proceeds from the sale of the Series E Shares,
approximately $641,000 was distributed as fees and expenses to a placement
agent for the offering, and the balance of approximately $6,759,000 was
held 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.
ITEM 6. SELECTED FINANCIAL DATA
The Company has focused its business solely on establishing
Sino-foreign joint ventures to develop telecommunications networks in the
PRC, following the sale of the assets of its subsidiary ITV Communications,
Inc. in January 1996. Accordingly, the following historical financial data
is not necessarily indicative of future results of operations. The selected
financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $ 216,348 $ -0- $ 683,733 $ 345,276 $ 194,885
(Loss) from
operations (6,220,729) (3,996,151) (4,448,531) (5,585,596) (3,388,833)
Net (Loss) (5,403,368) (4,064,885) (5,281,730) (5,538,303) (3,737,542)
Net (Loss)
per common (0.23) (0.14) (0.21) (0.32) (7,475.08)
share
Total Assets 40,392,720 29,418,203 1,660,000 3,267,488 3,094,157
Total Long
Term Debt 22,458,303 24,233,781 4,081,606 -0- -0-
Shareholders'
Equity 4,896,911 548,088 (2,421,606) (1,255,412) 1,402,532
</TABLE>
Financial information for the years 1994, 1995 and 1996, is not
comparable to the financial information provided for 1997 and 1998, because
prior to 1997 the Company was not engaged in the development of
telecommunications networks in the PRC.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As of March 31, 1998, the Company had $10,442,334 in cash in
United States and PRC banks of which approximately $5,100,000 can be used
for operating expenses which can finance current operations until December
1999.
The Company devotes substantially all of its efforts to financing
and developing Sino-foreign joint ventures to establish telecommunications
networks in the PRC.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through equity
investments and bank and vendor financing.
Approximately $4,634,000 of cash was provided by the Company's
operations for the fiscal year ended March 31, 1998, compared to cash
provided of approximately $3,558,000 for the year ended March 31, 1997. The
cash flow from operating activities relates to increased expenses as a
result of the continuing build out of the GSM networks and increased
selling, general & administrative expenses. The cash provided by operations
for the year ended March 31, 1997, (the first year the Company's
Sino-foreign joint venture was consolidated) reflects increases in other
current payables of approximately $9,784,000. During the fiscal year ended
March 31, 1996, the Company used approximately $2,887,000 in its operating
activities.
The Company used approximately $7,993,000 in its investing
activities in the year ended March 31, 1998, compared to approximately
$15,715,000 in the year ended March 31, 1997. These uses are related
primarily to the build out of the Company's GSM networks in Hebei province,
PRC.
The cash inflows from financing activities during the year ended
March 31, 1998 were generated primarily from the following sources: (i)
approximately $8,000,000 in loans from Bank of Tokyo Mitsubishi and vendor
financing for the development of the Hebei GSM networks, which the Company
has reported through the consolidation of its PRC joint ventures. The
decrease in other payables is the result of approximately $10,000,000 of
vendor financing becoming due in fiscal 1999 and thus reclassified as a
current liability, and the sale of $9,900,000 of Preferred Stock through
two offerings: (1) On June 12, 1997, the Company issued 250 shares of
Series C Convertible Preferred Stock at a purchase price of $10,000 per
share in consideration of $2,500,000. Proceeds from this offering were
approximately $2,093,000, which is net of $406,100 of the Series C Shares
which were repurchased by the Company. (2) On October 22, 1997, the Company
issued 74 shares of the Company's Series E Convertible Preferred Stock, at
a purchase price of $100,000 per share, for which the Company received
$6,759,000 after placement agent's fees.
On March 31, 1997, the Company issued 150 shares of the Company's
Series D Convertible Preferred Stock at a purchase price of $10,000 per
share in consideration of $1,500,000.
During fiscal 1996, the Company received approximately $2,934,000
from its financing activities through: (i) the sale of approximately
$2,194,000 in Common Stock, and (ii) the receipt of shareholder loans of
approximately $740,000.
The Company anticipates that its cash and cash equivalents should
be adequate to finance the Company's operating requirements for the current
fiscal year.
EQUITY ISSUANCE AND SERVICE AGREEMENTS
Common Stock issued in connection with conversion of Preferred Stock:
During fiscal 1998, the Company issued 2,236,507 shares of its
Common Stock upon conversion of all outstanding shares of the Company's
Series D Convertible Preferred Shares, 4,507,639 shares of its Common
Stock upon conversion of all shares of its Series C Convertible Preferred
Stock and 106,646 shares of its Common Stock upon conversion of 0.8 share
of the Company's Series E Preferred Stock.
Common stock issued in connection with stock option plans and
services performed:
During fiscal 1998 the Company issued (i) 10,000 shares of
common stock were issued to a former employee of the Company, upon the
exercise of an option issued pursuant to the Company's 1996 Stock Option
Plan. The option had an exercise price of $0.35 per share, (ii) 10,000
shares of common stock issued to each of its four outside directors as
compensation for services. The shares issued had a combined value of
$85,000, which was expensed as directors compensation, (iii) 8,500 shares
of its common stock were issued at market to its legal firm in lieu of
$25,500 of legal billings, and (iv) 14,734 shares issued in connection with
other services at a market value of $41,457.
During the fiscal year, the Company issued 1,019,465 shares of its
Common Stock, net of cancellation, 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 if the Company draws on funds from Promethean pursuant to the
Common Stock Investment Agreement.
On July 30, 1996, the Company entered into an agreement with
Merrill Lynch (Asia Pacific) Limited ("Merrill Lynch") pursuant to which
Merrill Lynch was to act as a financial advisor to the Company and was to
assist the Company with strategic financing alternatives with respect to
the Company's PRC projects. The agreement was terminated in accordance with
its terms in December 1997.
In October 1996, the Company entered into an agreement with two of
its law firms, to settle a portion of their accrued fees through the
issuance of stock options. Accordingly, the Company converted accrued legal
fees in the aggregate of approximately $98,000 into options to purchase an
aggregate of 65,064 shares of the Company's Common Stock at an exercise
price of $1.50 per share, the market value of the Company's common stock at
that time. A portion of the accrued legal fees were credited against gains
made by actual resale price. In addition, one firm continues to hold
options to purchase 10,102 additional shares of Common Stock against future
legal fees. The Company also agreed to register the underlying shares with
the Commission on Form S-8. The registration statement relating to these
shares was filed with the Commission on or about November 11, 1996.
On October 15, 1996, the Company agreed to issue warrants to an
individual to purchase 200,000 shares of the Company's Common Stock. These
warrants were issued for services related to advising the Company with
respect to its Sino-foreign joint ventures and marketing activities in the
PRC. The warrants issued have a three year term and an exercise price of
$1.50, which was the market value of the Company's Common Stock at the time
of issuance of the warrants.
On December 10, 1996, the Company agreed to issue to a consultant
5,000 shares of the Company's Common Stock with a market value of $18,125
(based on the fair market value at the time of issuance), in addition to
5,000 shares issued to the consultant in May 1996, which had a market value
of $45,625 (based on the fair market value at the time of issuance), for
professional executive search consulting services the consultant has been
providing to the Company in developing the composition of its management
and Board of Directors.
The Company agreed to register shares of Common Stock underlying
the warrants issued to the individual referenced above and shares of Common
Stock issued to the consultant for consulting services, and certain shares
of Common Stock issued to the Company's Chief Executive Officer in lieu of
cash compensation. On or about December 31, 1996, the Company filed a
registration statement on Form S-8. The total number of shares covered by
the registration statement was 397,500.
On or about October 19, 1996, the Company entered into a twelve
month financial advisory services agreement with an investment bank. The
services provided under this agreement relate to financial advisory
services, including, but not limited to, the development of a financing
strategy for the Company and the Company's projects in the PRC. The
agreement called for a $50,000 retainer and the payment of success fees for
raising capital for the Company and its projects. In addition, the Company
issued a warrant to purchase up to 600,000 shares of the Company's Common
Stock to the investment bank. This warrant has an exercise price of $2.00
per share, which was the market value of the Company's Common Stock at the
time of the issuance of the warrant. 300,000 of the warrants are vested,
and the additional 300,000 warrants will vest only if the investment bank
has raised a minimum of ten million dollars in any form of financing for
the Company.
Future sales of shares of Common Stock by the Company and its
stockholders could adversely affect the prevailing market price of the
Common Stock. Pursuant to its Certificate of Incorporation, the Company has
the authority to issue 73,001,924 additional shares of Common Stock and
8,475,248 additional shares of preferred stock. The issuance of such shares
could result in the dilution of the voting power and other rights of the
currently issued and outstanding shares of Common Stock.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
The Company has a limited operating history and has incurred
cumulative net losses since its inception. To date, the Company has
generated $216,348 of revenue from its telecommunications operations and
has experienced net losses of $5,403,368 and $4,064,885 during the fiscal
years ended March 31, 1998 and 1997, respectively.
The Company reported revenues of $216,348 for the year ended March
31, 1998, from the operation of its GSM Network in Hebei. These were the
first revenues related to the networks.
Selling, general and administrative expenses ("SG&A") increased
6% from $3,996,151 during the year ended March 31, 1997, to $4,254,009
during the year ended March 31, 1998, due to increased operating levels as
a result of the continuing build out of the GSM networks, increased levels
of salaries paid to employees and legal and professional expenses incurred
during the past year.
Rental income during the year ended March 31, 1998, increased from
$42,420 in 1997 to $95,667, as a result of the Company's real estate
arrangements in the PRC.
Interest income increased from approximately $153,000 during the
year ended March 31, 1997, to approximately $239,000 during the year ended
March 31, 1998, primarily due to funds on deposit in the United States and
the PRC in anticipation of future funding requirements for new projects.
Through consolidation of its Chinese subsidiaries, the Company
initiated the amortization of the GSM Networks. This non-cash expense item
amounted to approximately $2,183,000.
The Company issued to the Hebei Provincial Government three
million options to purchase an equal number of shares of the Company's
Common Stock at a price of $3.0625 per share. In accordance with Generally
Accepted Accounting Principles, the Company has recorded their value of
$1,837,500 and has amortized approximately $459,000. The issuance of these
options is a non-cash expense.
Loss from abandoned assets relates to the assets of Netmatics which
have been written off for the total amount of $87,441.
Interest expense during the year ended March 31, 1998, decreased
to approximately $125,000 from approximately $129,000 during the year ended
March 31, 1997, due to a reduction in the outstanding balance of
shareholder loans payable.
Other income (net) increased by approximately $113,000 during the
year ending March 31, 1998, as a result of refunds from costs previously
paid.
The Company's net loss increased 33% from $4,064,885 during the
year ended March 31, 1997, to $5,403,368 during the year ended March 31,
1998. This increase in net loss was primarily due to the amortization of
the GSM Networks, amortization of stock options issued to the Hebei
Provincial Government, as well as increases in selling, general &
administrative expenses.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Following the sale by the Company of the assets of its subsidiary
ITV in January 1996 (the "Asset Sale"), the Company has focused its
business solely on establishing Sino-foreign joint ventures to develop
telecommunications networks in the PRC. In light of this change in
operations, net sales decreased from $683,733 during the year ended March
31, 1996 to $0 during the year ended March 31, 1997. Net sales during the
year ended March 31, 1996 reflected the former operations of ITV. The
decrease in net sales during the year ended March 31, 1997 is attributable
to cessation of operations of the Company's ITV subsidiary after the Asset
Sale of ITV.
Selling, general and administrative expenses increased 25% from
$3,207,570 during the year ended March 31, 1996 to $3,996,151 during the
year ended March 31, 1997 due to increased levels of salaries paid to
employees and legal and professional expenses incurred over the past year.
Net research and development expenses decreased from $1,287,629
during the year ended March 31, 1996 to $0 during the year ended March 31,
1997. As a result of the closing of the Asset Sale Agreement in January
1996, the Company ceased all activities related to research and
development.
The equity in losses of unconsolidated subsidiary of $500,000
recorded during the year ended March 31, 1996 represents the Company's
share of losses reported by Netmatics between January 17, 1996 and March
31, 1996, during which period the Company owned thirty-three percent (33%)
of the issued and outstanding common shares of Netmatics. Through a series
of secured debentures issued by Netmatics to its shareholders, and the
conversion of a note in the amount of 2,250,000 to equity, the Company's
ownership in Netmatics increased to 39%. Further, the Company has written
off $198,538 of investments it has made in Netmatics.
Interest expense during the year ended March 31, 1997 decreased to
approximately $130,000 from approximately $241,856 during the year ended
March 31, 1996 due to a reduction in outstanding balance of shareholder
loans payable during the year ended March 31, 1997.
The loss from abandoned assets of $130,840 recorded during the
year ended March 31, 1996 represents a non-recurring "write-off" of certain
remaining assets of ITV that were not sold in the ITV Asset Sale.
The Company's net loss decreased 23% from $5,281,730 during the
year ended March 31, 1996 to $4,064,885 during the year ended March 31,
1997. This decrease in net loss was due to reductions in losses and
"write-offs" associated with the operations of ITV, which were terminated
following the ITV Asset Sale.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements required by this Item 8 are attached
hereto as "Exhibit (a)(1)".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
The directors of the Company currently have terms which will end at
the next annual meeting of the stockholders of the Company or until their
successors are elected and qualified, subject to their prior death,
resignation or removal. Officers are appointed by and serve at the
discretion of the Board of Directors, subject to the rights of the officers
under their respective employment agreements. There are no family
relationships among any of the Company's directors and executive officers.
NAME AGE POSITION
--------------------- ----- ------------------------------------
Joseph R. Wright, Jr. 59 Chairman of the Board of Directors,
Chief Executive Officer and President
Richard T. McNamar 59 Vice Chairman of the Board of Directors
Richard S. Braddock 56 Director
Drew Lewis 66 Director
Liang Jiangli 59 Director
James R. Lilley 70 Director
Michael H. Wilson 60 Director
Michael J. Lim 34 Executive Vice President
Albert G. Pastino 56 Senior Vice President, Chief Financial
Officer and Treasurer
James F. O'Brien 52 Senior Vice President, General Counsel
and Corporate Secretary
Xiao Jun 41 Executive Vice President - AVIC China
Joseph R. Wright, Jr. has served as the Company's Chairman of the
Board of Directors since May 1995, Chief Executive Officer since March 1996
and President since May 1996. Mr. Wright also serves as Chairman and member
of the Board of GRC International, Inc. a U.S. public company that provides
technical support to government and private entities, Co-Chairman of Baker
& Taylor Holdings, Inc., an international book and video distribution
company, a member of the Board of Travelers Group, a public company, and
PanAm Sat, a public company. From 1989 to 1994, Mr. Wright served as
Executive Vice President and Vice Chairman of W. R. Grace & Co., an
international chemicals and health care company, President of Grace Energy
Corporation and Chairman of Grace Environmental Company. From 1982 to 1989,
Mr. Wright held the positions of Director and Deputy Director of the Office
of Management and Budget, The White House, and was a member of President
Reagan's cabinet. Prior to 1982, he served as Deputy Secretary, United
States Department of Commerce, President of Citicorp Retail Services and
Retail Consumer Services, held posts in the United States Department of
Agriculture and the United States Department of Commerce, and was Vice
President and Partner of Booz. Allen & Hamilton, a management consulting
firm. He is also currently a member of the Board of Advisors of Barington
Capital Corporation and Great Lakes Pulp and Fiber Corporation, and a
Trustee of Hampton University.
Richard T. McNamar has served as the Company's Vice Chairman of the
Board of Directors since September 1996. He was the founder and Chairman of
International Franchise, Inc., a firm that specialized in international
financial transactions, from 1995 to 1997. He was a Managing Director of
Oppenheimer & Co. from 1991 to 1994. Formerly, he was the Vice-Chairman of
The Bank of New England Corporation and subsidiaries from 1990 to 1991. Mr.
McNamar served as Deputy Secretary of the United States Treasury from 1981
to 1985. He served in the Nixon and Ford Administrations from 1972 to 1977,
where he served as the Executive Director of the Federal Trade Commission
from 1973 through 1977. Mr. McNamar is also currently a member of the
Executive Board of the Bretton Woods Committee and the Board of the
Institute of the Americas.
Richard S. Braddock has served as a Director of the Company since
August 1997. He has been the Chairman of True North Communications, Inc. (a
public company) since 1997. He has served as a principal of Clayton,
Dubilier & Rice, Inc. from 1994 to 1995 and as the Chief Executive Officer
of Medco Containment Services from January 1993 to December 1993. Mr.
Braddock held various positions at Citicorp from 1973 through 1992
including that of President and Chief Operating Officer of Citicorp and its
principal subsidiary, Citibank, N.A., from January 1990 to November 1992
and as sector executive for worldwide consumer activities from 1985 to
1990. Mr. Braddock served as a director of Citicorp from 1985 to 1992. Mr.
Braddock serves on the Board of Directors of E*Trade Group, Inc., Eastman
Kodak Company, Cadbury Schweppes plc adr and True North Communications,
Inc., all publicly-held companies, and of Lincoln Center for the Performing
Arts. He is a trustee of the Cancer Research Institute. Mr. Braddock
received his bachelors degree from Dartmouth College and his M.B.A from the
Harvard Graduate School of Business Administration.
Drew Lewis has served as a Director of the Company since May 1997.
Mr. Lewis served as Chairman and Chief Executive Officer of Union Pacific
Corporation from October 1987 to January 1997, and served as the Chief
Operating Officer of Union Pacific Corporation from April 1986 to October
1987. Prior to his positions with Union Pacific Corporation, Mr. Lewis
served as Chairman and Chief Executive Officer of Union Pacific Railroad
Company from April to October 1986. From 1983 to 1986, Mr. Lewis was
Chairman and Chief Executive Officer of Warner Amex Cable Communications.
He served in the Reagan Administration from January 1981 to February 1983
as U.S. Secretary of Transportation. Mr. Lewis also serves as a director to
American Express Company, FPL Group, Inc., Gannett Co., Inc., Gulfstream
Aerospace Corporation, Lucent Technologies and Union Pacific Resources
Group, Inc., all of which are publicly held companies.
Liang Jiangli has served as a Director of the Company since October
1997. He has served as the Director of Hebei Electronics Industry
Department since September 1993. Mr. Liang also serves as the Chairman of
the Board of Hebei United Telecommunications Equipment Company Limited, the
joint venture subsidiary of the Company. From 1987 to September 1993, Mr.
Liang served as the Director of Hebei Electronics Bureau and the Deputy
Director of Hebei Machinery and Electronics Industry Department. From 1983
to 1987, Mr. Liang served as the Deputy Director of Hebei Electronics
Industry Bureau. From 1963 to 1983, Mr. Liang worked in a state owned
institute, focusing on technology studies and management. Mr. Liang is a
graduate of the Beijing Post and Telecommunications Institute.
James R. Lilley has served as a Director of the Company since May
1997. Ambassador Lilley is currently a resident director at the American
Enterprise Institute ("AEI") which he joined in January 1993, and has
directed the Institute for Global Chinese Affairs at the University of
Maryland since 1996. Prior to his joining AEI, Ambassador Lilley served in
President Bush's Administration as the Assistant Secretary of Defense for
International Security Affairs from November 1991 to January 1993.
Ambassador Lilley was U.S. Ambassador to the People's Republic of China
from April 1989 to May 1991, and to the Republic of Korea from 1986 to
1989. Ambassador Lilley is the co-editor of Beyond MFN: Trade with China
and American Interests and is the author of the forward for the AEI
publication, Chinese Military Modernization. He has represented Hunt Oil of
Texas and United Technologies of Hartford, Connecticut in 1979 to 1980.
Ambassador Lilley worked for Archer-Daniels-Midland Co. and Westinghouse as
a business consultant.
Michael H. Wilson has served as a Director of the Company since May
1997. He has been Vice-Chairman of RBC Dominion Securities, Inc. in
Toronto, Canada since 1995. Prior to 1994, Mr. Wilson held senior Federal
Cabinet posts with the Government of Canada in Finance, Industry, Science
and Technology and International Trade. Prior to his career in public
service, Mr. Wilson was Executive Vice-President of Dominion Securities
Limited. Mr. Wilson also serves on the Board of Directors of Amoco
Corporation and Rio Algom Limited, both publicly held companies. He is also
active in a number of professional and community organizations, including
The Clarke Institute of Psychiatry, The Aspen Institute and The Institute
of the Americas.
Michael J. Lim has served as the Executive Vice President of the
Company since November 1995 and as the Chief Financial Officer from May
1996 through June 1997. Prior to his joining the Company, Mr. Lim was an
investment banker with Bear, Stearns & Co., Inc. from 1986 to 1988 and from
1991 to 1995. During the two and a half years prior to his joining the
Company, Mr. Lim served as Vice President of Bear Stearns Asia Limited,
where he advised Asian enterprises on a wide variety of financing
transactions, with particular focus on telecommunications and
infrastructure financings. Mr. Lim also worked as an investment banker with
the Chase Manhattan Bank from 1990 to 1991. Mr. Lim received his A.B. from
Harvard College in English Literature in 1985 and his M.B.A. from the Amos
Tuck School of Business Administration at Dartmouth in 1990.
Albert G. Pastino was appointed in June 1997 to serve as a Senior
Vice President and Chief Financial Officer of the Company and was appointed
Treasurer of the Company in December 1997. From 1993 to 1997, Mr. Pastino
served as the President of Kisco Capital Company, Inc., an affiliate of
Kohlberg & Company, a private equity investment company. He also served on
the boards of directors of a number of Kohlberg & Company's portfolio
companies. From 1989 through 1992, Mr. Pastino served as Senior Vice
President and Chief Operating Officer of Fortis Private Capital, Inc., a
private equity investment company investing in expansion financing and
management buyouts. Mr. Pastino began his business career at Deloitte &
Touche LLP where he served as senior partner, and gained his investment
banking experience at Alex Brown & Sons, Incorporated. Mr. Pastino received
an M.B.A. from Fairleigh Dikinson University and a B.S. from St. Joseph's
University.
James F. O'Brien was appointed in June 1997 to serve as a Senior
Vice President and General Counsel of the Company and was appointed
Corporate Secretary of the Company in May 1998. Mr. O'Brien was a senior
litigation partner at the law firm of Goulston and Storrs in Boston,
Massachusetts where he founded the litigation practice in 1978 and
specialized in complex financial transactions. He has served as an advisor
to U.S. corporations seeking business opportunities in Southeast Asia. Mr.
O'Brien received a J.D. from Boston College Law School and an A.B. from St.
John's Seminary in Boston.
Xiao Jun has served as Executive Vice President - AVIC China since
December 1995. He also served as a Director from February 1995 through
October 1997, the Company's Secretary from February 1995 to January 1996
and as Chief Financial Officer from June 1995 to May 1996. He has been the
President of Xiao Hua International, Inc., an international steel trading
business based in California since June 1993. He served as the Vice
President of ITV from December 1994 to January 1996. From March 1990 to May
1993, Mr. Xiao was the Vice President of Chong Qing Special Metals Industry
Co. From 1985 to 1990, Mr. Xiao served as an engineer and project manager
at the representative office of IBM China/HK Corp. (Beijing). Mr. Xiao
received a bachelor's degree in physics from the Beijing Polytechnic
University in 1982.
Timothy P. F. Crowley joined the Company in May 1995 and has served
as the Assistant Secretary of the Company since May 1998, and served as the
Secretary of the Company from January 1996 though May 1998. Prior to
joining the Company, Mr. Crowley worked in Corporate Administration at
Travelers Group. Mr. Crowley received his B.A. from Connecticut College in
Anthropology and Art History, and was enrolled in a graduate program in the
History of Art at New York University's Institute of Fine Arts from 1993 to
1994.
The Board of Directors currently has an Audit Committee and a
Compensation Committee. The members appointed to the Audit Committee of the
Board of Directors during the fiscal year ended March 31, 1998 were Michael
H. Wilson, Chairman of the Committee, James R. Lilley and Richard T.
McNamar. The members appointed to the Compensation Committee of the Board
of Directors during the fiscal year ended March 31, 1998 were Richard S.
Braddock, Chairman of the Committee, Drew Lewis and Joseph R. Wright, Jr.
Section 16(a) Beneficial Ownership Reporting Compliance. Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers and beneficial holders of more
than 10% of any class of the Company's equity securities to file with the
Commission initial reports of ownership and reports of changes in ownership
of such equity securities of the Company. Based solely upon a review of
such forms furnished to the Company, and on written representations from
certain reporting persons that no other reports were required for such
persons, the Company believes that all reports required pursuant to Section
16(a) with respect to its executive officers, directors and 10% beneficial
stockholders for the fiscal year ended March 31, 1997 were timely filed.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following tables set forth certain information concerning
compensation for the fiscal years ended March 31, 1998, 1997 and 1996 of
certain of the Company's executive officers, including the Company's Chief
Executive Officer and all executive officers whose total annual salary and
bonus exceeded $100,000, for the fiscal year ended March 31, 1998 (the
"Named Executive Offices").
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
Name and Other Annual Stock Options/
Principal Position Year Salary ($) Bonus ($) Compensation Awards ($) SARS (#)
- ------------------ ------ ----------- ---------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joseph R. Wright 1998 392,967 50,000 (2)$30,000
Chief Executive 1997 256,250 (2)$30,000 $281,250 3,000,000
Officer(1) 1996 143,750 (2)$30,000 3,000,000
R. T. McNamar 1998 100,000 (4)$37,500
Vice Chairman (3) 1997 500,000
1996
Michael J. Lim 1998 253,417 75,000 250,000
Executive Vice 1997 167,333
President (5) 1996 79,615 1,000,000
Albert G, Pastino 1998 125,000 50,000 467,500
Senior Vice 1997
President, Chief 1996
Financial Officer &
Treasurer (6)
James F. O'Brien 1998 125,000 50,000 467,500
Senior Vice 1997
President, General 1996
Counsel &
Corporate Secretary(7)
Xiao Jun 1998 175,000
Executive Vice 1997 123,958
President-AVIC 1996 57,990 400,000
China (8)
- -----------------
(1) Mr. Wright has served as the Company's Chief Executive Officer
since March 14, 1996. He joined the Company as the Chairman of the
Board of Directors on May 1, 1995.
(2) During fiscal 1996, 1997 and 1998, the Company paid approximately
$30,000 per year on behalf of Mr. Wright for certain personal tax
and accounting services rendered by third parties for Mr. Wright.
(3) Mr. McNamar joined the Company on September 3, 1996 as Vice
Chairman of the Board of Directors.
(4) Mr. McNamar received 25,000 shares of the Company's Common Stock
pursuant to his terms of employment with the Company, such shares
having a value of $37,500 at the time of issuance in September
1997.
(5) Mr. Lim joined the Company as the Executive Vice President -
Operations on November 7, 1995 and served as the Company's Chief
Financial Officer from May 1996 through June 15, 1997.
(6) Mr. Pastino joined the Company as the Senior Vice President and
Chief Financial Officer on June 16, 1997. He became the Treasurer
of the Company on December 8, 1997.
(7) Mr. O'Brien joined the Company as Senior Vice President and General
Counsel on June 16, 1997. He became the Secretary of the Company on
May 14, 1998.
(8) Mr. Xiao joined the Company in 1995 as the Executive Vice President
of AVIC-China.
</TABLE>
OPTION AND SAR GRANTS DURING LAST FISCAL YEAR
The Company issued 1,185,000 stock options and no SARs to its Named
Executive Officers during the fiscal year ended March 31, 1998.
OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding option
exercises by the Named Executive Officers during the fiscal year 1998 and
options held by such Named Executive Officers on March 31, 1998:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at Fiscal Year End at Fiscal Year End(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C>
Joseph R. Wright.... 6,000,000 $5,775,000
R. T. McNamar 250,000 250,000
Michael J. Lim...... 1,062,500 187,500 997,656 $105,469
Albert G. Pastino 300,625 166,875
James F. O'Brien 300,625 166,875
Xiao Jun............ 515,000 495,113
- ----------------
(1) Based on a per share price of $1.3125, the closing price of the
Common Stock as reported on the American Stock Exchange on June
26, 1998, minus the exercise price of the option, multiplied by
the number of shares underlying the Option.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with six of its
executive officers, Messrs. Joseph R. Wright, Jr., Richard T. McNamar,
Michael J. Lim, Albert G. Pastino, James F. O'Brien and Xiao Jun.
The Company entered into a five year employment agreement dated as
of April 15, 1995, and as amended on November 21, 1995 and September 6,
1996, with Joseph R. Wright, Jr., pursuant to which Mr. Wright agreed to
serve as the Company's Chairman of the Board of Directors, Chief Executive
Officer and President and to operate out of the Company's executive offices
located in New York, New York. The employment agreement initially provided
for an annual base salary of $50,000 during the year commencing April 15,
1995 and $300,000 during the year thereafter. The September 6, 1996
amendment to the employment agreement provides for the issuance of shares
of Common Stock in lieu of cash compensation as payment for the salary that
Mr. Wright had accrued from June 1995 through August 1996, at $1.50 per
share, the market price of the Common Stock on September 6, 1996. Further,
the amendment offers Mr. Wright an automatic extension of his contract of
one year on each April 14, unless the Board of Directors notifies Mr.
Wright 90 days prior to such date that such extension will not be made. The
Board of Directors also approved revising his salary for the first year
commencing on April 15, 1997 to $150,000, revising his salary for the
second year to $300,000, and increasing his salary in each year thereafter
by $100,000. The Board of Directors of the Company also approved the
issuance of an additional three million options to Mr. Wright on September
12, 1996. These options have an exercise price of $3.00 per share, the fair
market value on the date of grant, and vest with respect to fifty percent
of said options on each April 15, 1997 and April 15, 1998.
In September 1996 the Company approved the issuance of 187,500
shares of the Company's Common Stock to Mr. Wright, paid in lieu of a
portion of cash compensation Mr. Wright had been accruing from June 1995
through October 15, 1996. The amount of salary accrued through October 15,
1996 was $281,250. The Common Stock was issued at $1.50 per share, the fair
market value of such shares at the time of the grant.
Pursuant to the employment agreement, Mr. Wright was granted an
option to acquire 3,000,000 shares of Common Stock at an exercise price of
$0.35 per share, and an additional 3,000,000 shares at an exercise price of
$3.00 per share were granted on September 6, 1996. The option has vested
with respect to the 3,000,000 shares which have an exercise price of $0.35
per share, and with respect to 3,000,000 shares which have an exercise
price of $3.00 per share. The options issued to Mr. Wright have been issued
pursuant to the Company's 1996 Stock Option Plan and were based on the
market value of the Common Stock on the date of grant.
On September 6, 1996, the Company entered into a one year verbal
employment agreement with Richard T. McNamar pursuant to which Mr. McNamar
will serve as Vice Chairman of the Company. He received 25,000 shares of
the Company's Common Stock upon commencing employment. Initially, Mr.
McNamar was part time, and negotiated to receive a contingent success fee
for financings he introduced or arranged for the Company. On October 1,
1996 Mr. McNamar became a full time employee and waived his rights to any
success fees. In his part time capacity, Mr. McNamar was issued an option
to purchase 250,000 shares of the Company's Common Stock at an exercise
price of $1.50 per share on September 6, 1996. He received an additional
option for 250,000 shares at an exercise price of $1.50 per share when he
became a full time employee on October 1, 1996. The exercise price of the
options were based on the market value of the Common Stock on the date of
grant. The Company and Mr. McNamar intend to sign a more definitive
employment agreement during the current fiscal year.
On January 23, 1998, the Company entered into a five-year contract
with Mr. Lim, whereby Mr. Lim will serve as an Executive Vice President of
the Company. In his first year, Mr. Lim will receive an annual base salary
of $300,000 and stock options to acquire 250,000 shares of Common Stock at
an exercise price of $0.75 per share, the market price of the Company's
Common Stock, as reported on the American Stock Exchange, at the time the
grant was made. The base salary and additional option grants for subsequent
years of the contract will be determined by the Compensation Committee of
the Board of Directors.
On October 15, 1997, the Company entered into five-year employment
agreements with each of Albert G. Pastino and James F. O'Brien. Mr. Pastino
will serve as a Senior Vice President and Chief Financial Officer of the
Company and will receive an annual base salary of $200,000 for the first
year and stock options to acquire 467,500 shares of Common Stock at an
exercise price of $2.125 per share. Mr. O'Brien will serve as a Senior Vice
President and General Counsel of the Company and will receive an annual
base salary of $200,000 for the first year and stock options to acquire
467,500 shares of Common Stock at an exercise price of $2.125 per share.
The exercise price of the options for Mr. Pastino and Mr. O'Brien was based
on the market price of the Company's Common Stock, as reported on the
American Stock Exchange, at the time the grants were made
EMPLOYEE STOCK OPTION PLANS
As of February 8, 1995, the Company's Board of Directors and
stockholders approved the Company's 1995 Stock Option Plan (the "1995 Stock
Option Plan") in connection with the closing of the transactions
contemplated by the Reorganization Agreement. The Company has reserved up
to 500,000 shares of Common Stock for issuance under the 1995 Stock Option
Plan. The Company has granted options to purchase up to 321,800 shares of
Common Stock under the 1995 Stock Option Plan, 185,000 of which have been
exercised as of June 26, 1998.
The 1996 Stock Option Plan (the "1996 Stock Option Plan" and together with
the 1995 Stock Option Plan, the "Stock Option Plans") was adopted by the
Board of Directors on March 14, 1996 and by the Company's stockholders on
May 7, 1996. The Company has reserved for issuance thereunder an aggregate
of 12,000,000 shares of Common Stock. The Company has granted options to
purchase up to 9,350,000 shares of Common Stock under the 1996 Stock Option
Plan, 10,000 of which have been exercised. Of the 9,350,000 options granted
as of the date of this Report, 8,578,750 options have vested, and the
remaining 771,250 options may vest subject to certain schedules. The Board
of Directors has approved a provision in the 1996 Stock Option Plan which
will place a 6,000,000 share limit on the number of options that may be
granted under the 1996 Stock Option Plan to an employee in the fiscal year
ended March 31, 1996, and a 1,500,000 share limit in each fiscal year
thereafter.
A description of each of the Company's Stock Option Plans is set
forth below. The description is intended to be a summary of the material
provisions of the Company's Stock Option Plans and does not purport to be
complete.
Administration of and Eligibility Under Stock Option Plans. Each of
the Stock Option Plans, as adopted, provides for the issuance of options to
purchase shares of Common Stock to officers, directors, employees,
independent contractors and consultants of the Company and its
subsidiaries. The Stock Option Plans authorize the issuance of incentive
stock options ("ISOs"), and non-qualified stock options ("NSOs") and stock
appreciation rights ("SARs") to be granted by a committee (the "Committee")
to be established by the Board of Directors to administer the Stock Option
Plans.
Subject to the terms and conditions of the Stock Option Plans, the
Committee will have the sole authority to determine: (a) the persons
("optionees") to whom options to purchase shares of Common Stock and SARs
will be granted, (b) the number of options and SARs to be granted to each
such optionee, (c) the price to be paid for each share of Common Stock upon
the exercise of such option, (d) the period within which each option and
SAR will be exercised and any extensions thereof, and (e) the terms and
conditions of each such stock option agreement and SAR agreement which may
be entered into between the Company and any such optionee.
All officers, directors and employees of the Company and its
subsidiaries and certain consultants and other persons providing
significant services to the Company and its subsidiaries will be eligible
to receive grants of options and SARs under the Stock Option Plans.
However, only employees of the Company and its subsidiaries are eligible to
be granted ISOs.
Stock Option Agreements. All options granted under the Stock Option
Plans will be evidenced by an option agreement or SAR agreement between the
Company and the optionee receiving such option or SAR. Provisions of such
agreements entered into under the Stock Option Plans need not be identical
and may include any term or condition which is not inconsistent with the
respective Stock Option Plan and which the Committee deems appropriate for
inclusion.
Incentive Stock Options. Except for ISOs granted to stockholders
possessing more than ten percent (10%) of the total combined voting power
of all classes of the securities of the Company or its subsidiaries to whom
such ownership is attributed on the date of grant ("Ten Percent
Stockholders"), the exercise price of each ISO must be at least 100% of the
fair market value of the Company's Common Stock as determined on the date
of grant. ISOs granted to Ten Percent Stockholders must be at an exercise
price of not less than 110% of such fair market value.
Each ISO must be exercised, if at all, within ten (10) years from
the date of grant, but, within five (5) years of the date of grant in the
case of ISOs granted to Ten Percent Stockholders.
An optionee of an ISO may not exercise an ISO granted under the
Stock Option Plans so long as such person holds a previously granted and
unexercised ISO.
The aggregate fair market value (determined as of time of the grant
of the ISO) of the Common Stock with respect to which the ISOs are
exercisable for the first time by the optionee during any calendar year
shall not exceed $100,000.
As of the date of this Report, ISOs have been granted under the
1995 Stock Option Plan, subject to certain vesting schedules, to purchase
up to 300,000 shares of Common Stock, 185,000 of which have been exercised.
The 300,000 ISOs have an exercise price of $0.3555 per share.
Further, as of the date of the Report, ISOs have been granted under
the 1996 Stock Option Plan, subject to certain vesting schedules, to
purchase up to 622,380 shares of Common Stock. These options have the
following per share exercise prices: 285,714 shares ($0.35), 250,000 shares
($0.75), 76,666 shares ($3.00) and 10,000 shares ($1.50).
Non-Qualified Stock Options. The exercise price of each NSO will be
determined by the Committee on the date of grant. However, the exercise
price for the NSOs under the 1995 Stock Option Plan will in no event be
less than 85% of the fair market value of the Common Stock on the date the
option is granted, or not less than 110% of the fair market value of the
Common Stock on the date such option is granted in the case of an option
granted to a Ten Percent Stockholder. No such restriction exists with
respect to the exercise prices of NSOs granted under the 1996 Stock Option
Plan.
The exercise period for each NSO will be determined by the
Committee at the time such option is granted, but in no event will such
exercise period exceed ten (10) years from the date of the grant.
As of the date of this Report, NSOs have been granted under the
1995 Stock Option Plan, subject to certain vesting schedules, to purchase
up to 20,000 shares of Common Stock at an exercise price of $0.15 per share
and up to 1,800 shares of Common Stock at an exercise price of $5.00 per
share.
As of the date of this Report, NSOs have been granted under the
1996 Stock Option Plan to purchase up to 8,727,620 shares of Common Stock,
subject to certain vesting schedules. These options have the following per
share exercise prices: 2,966,667 shares ($3.00), 935,000 shares ($2.125),
515,000 shares ($1.50) and 4,310,953 shares ($0.35).
Stock Appreciation Rights. Each SAR granted under the Stock Option
Plans will entitle the holder thereof, upon exercise of the SAR, to receive
from the Company, in exchange therefor, an amount equal in value to the
excess of the fair market value on the date of exercise of one share of
Common Stock over its fair market value on the date of grant (or in the
case of an SAR granted in connection with an option, the excess of the fair
market value of one share of Common Stock at the time of exercise over the
option exercise price per share under the option to which the SAR relates),
multiplied by the number of shares of Common Stock covered by the SAR or
the option, or portion thereof, that is surrendered.
SARs will be exercisable only at the time or times established by
the Committee. If an SAR is granted in connection with an option, the SAR
will be exercisable only to the extent and on the same conditions that the
related option could be exercised. The Committee may withdraw any SAR
granted under the Stock Option Plans at any time and may impose any
conditions upon the exercise of an SAR or adopt rules and regulations from
time to time affecting the rights of holders of SARs.
As of the date of this Report, no SARs have been granted pursuant
to the 1995 Stock Option Plan, as part of the issuance of the 20,000 NSOs
and no SARs have been granted under the 1996 Stock Option Plan.
Termination of Option and Transferability. In general, any
unexpired options or SARs granted under the Stock Option Plans will
terminate: (a) in the event of death or disability, pursuant to the terms
of the option agreement or SAR agreement, but not less than six (6) months
or more than twelve (12) months after the applicable date of such event,
(b) in the event of retirement, pursuant to the terms of the option
agreement or SAR agreement, but no less than thirty (30) days or more than
three (3) months after such retirement date, or (c) in the event of
termination of such person other than for death, disability or retirement,
until thirty (30) days after the date of such termination. However, the
Committee may in its sole discretion accelerate the exercisability of any
or all options or SARs upon termination of employment or cessation of
services.
The options and SARs granted under the Stock Option Plans generally
will be non-transferable, except by will or the laws of descent and
distribution.
Adjustments Resulting from Changes in Capitalization. The number of
shares of Common Stock reserved under the Stock Option Plans and the number
and price of Common Stock covered by each outstanding option or SAR under
the Stock Option Plans will be proportionately adjusted by the Committee
for any increase or decrease in the number of issued and outstanding shares
of Common Stock resulting from any stock dividends, split-ups,
consolidations, recapitalizations, reorganizations or like event.
Amendment or Discontinuance of Stock Option Plan. The Board of
Directors has the right to amend, suspend or terminate the Stock Option
Plans at any time. Unless sooner terminated by the Board of Directors, the
1995 Stock Option Plan and the 1996 Stock Option Plan will terminate on
February 8, 2005 and May 7, 2006, respectively, the tenth anniversary date
of the effectiveness of each such Stock Option Plan.
Directors and Officers Liability Insurance. The Company has
obtained directors' and officers' liability insurance with an aggregate
liability for the policy year, inclusive of costs of defense, in the amount
of $3,000,000. The insurance policy ending April 3, 1998, was renewed as of
April 4, 1998 and will expire April 3, 1999.
Indemnification of Officers and Directors. The Company's
Certificate of Incorporation and Bylaws designate the relative duties and
responsibilities of the Company's officers, establish procedures for
actions by directors and stockholders and other items. The Company's
Certificate of Incorporation and Bylaws also contain extensive
indemnification provisions that will permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law.
In addition, the Company has adopted a form of indemnification
agreement (the "Indemnification Agreement") which provides the indemnitee
with the maximum indemnification allowed under applicable law. The Company
has not entered into Indemnification Agreements with any of its directors,
executives, employees or consultants as of the date of this Report. Since
the Delaware statute is non-exclusive, it is possible that certain claims
beyond the scope of the statute may be indemnifiable. The Indemnification
Agreements provide a scheme of indemnification which may be broader than
that specifically provided by Delaware law. It has not yet been determined,
however, to what extent the indemnification expressly permitted by Delaware
law may be expanded, and therefore the scope of indemnification provided by
the Indemnification Agreements may be subject to future judicial
interpretation.
The Indemnification Agreement provides, in pertinent part, that the
Company shall indemnify an indemnitee who is or was a party or is
threatened, pending or completed action or proceeding whether civil,
criminal, administrative or investigative by reason of the fact that the
indemnitee is or was a director, officer, key employee or agent of the
Company or any subsidiary of the Company. The Company shall advance all
expenses, judgments, fines, penalties and amounts paid in settlement
(including taxes imposed on indemnitee on account of receipt of such
payouts) incurred by the indemnitee in connection with the investigation,
defense, settlement or appeal of any civil or criminal action or proceeding
as described above. The indemnitee shall repay such amounts advanced only
if it shall be ultimately determined that he or she is not entitled to be
indemnified by the Company. The advances paid to the indemnitee by the
Company shall be delivered within 20 days following a written request by
the indemnitee. Any award of indemnification to an indemnitee, if not
covered by insurance, would come directly from assets of the Company,
thereby affecting a stockholder's investment.
Termination of Employment and Change of Control Agreements. Except
as set forth in employment agreements and stock option agreements of
certain employees of the Company and its subsidiaries, the Company has no
compensatory plans or arrangements which relate to the resignation,
retirement or any other termination of an executive officer or key employee
with the Company or a change in control of the Company or a change in such
executive officer's or key employee's responsibilities following a change
in control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common
Stock as of June 26, 1998 by: (i) each person known by the Company to
beneficially own 5% or more of the outstanding shares of Common Stock, (ii)
each director of the Company, (iii) each Named Executive Officer of the
Company and (iv) all directors and executive officers of the Company as a
group. Unless otherwise indicated below, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect
to their shares of Common Stock, except to the extent authority is shared
by spouses under applicable law. The information set forth in the table and
accompanying footnotes has been furnished by the named beneficial owners:
NAME OF NO. OF
BENEFICIAL OWNER SHARES(1) PERCENT(1)
---------------- --------- ----------
Polmont Investments Limited(2) ........ 2,450,000 9.10
Jenny Sun(3) .......................... 2,450,000 9.10
Max Chian Yi Sun(4).................... 2,798,191 10.40
Joseph R. Wright, Jr.(5)............... 6,237,700 18.90
Richard T. McNamar(6).................. 275,000 1.01
Richard S. Braddock(7)................. 208,592 *
Drew Lewis(8).......................... 197,518 *
Liang Jiangli.......................... 0 *
James R. Lilley(9)..................... 61,074 *
Michael H. Wilson(10).................. 103,222 *
Michael J. Lim(11)..................... 1,069,400 3.81
Albert G. Pastino(12) ................. 359,199 1.31
James F. O'Brien(13) .................. 338,125 1.24
Xiao Jun(14)........................... 525,000 1.91
All executive officers and 9,474,830 26.52
Directors as a group (12 persons)(15)
- --------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of
Common Stock subject to options currently exercisable, or
exercisable within 60 days of June 26, 1998, are deemed outstanding
for computing the percentage of the person holding such options
but are not deemed outstanding for computing the percentage of any
other person.
(2) The address of Polmont Investments Limited is c/o Havelet Trust
Company, PO Box 3136, Road Town, Tortola, British Virgin Islands.
(3) Includes 2,450,000 shares of Common Stock held by Polmont
Investments Limited, of which Ms. Sun purports to have voting
power. The address of Ms. Sun is 1052 North Beverly Drive, Beverly
Hills, CA, 90210.
(4) Includes 2,797,691 shares of Common Stock held by Occidental
Worldwide Corporation of which Mr. Sun purports to have sole
voting and investment power. The address of Mr. Sun is 126 JLN
DEDAP, Taman Ampang Jaya, Trima Jaya, 68000 Ampang, Selangor,
Malyasia.
(5) Includes options to purchase 6,000,000 shares of Common Stock. The
address of Mr. Wright is c/o AmTec, Inc., 599 Lexington Avenue,
44th Floor, New York, New York 10022.
(6) Includes options to purchase 250,000 shares of Common Stock.
(7) Includes options to purchase 30,000 shares of Common Stock.
(8) Includes options to purchase 30,000 shares of Common Stock.
(9) Includes options to purchase 30,000 shares of Common Stock.
(10) Includes options to purchase 30,000 shares of Common Stock.
(11) Includes options to purchase 1,062,500 shares of Common Stock.
(12) Includes options to purchase 338,125 shares of Common Stock.
(13) Includes options to purchase 338,125 shares of Common Stock.
(14) Includes options to purchase 515,000 shares of Common Stock.
(15) Includes options to purchase 8,723,750 shares of Common Stock
of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Footnote 16 to the Consolidated Financial Statements - "Related Party
Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS: The following financial statements and
supplemental data are filed:
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES: All applicable financial statement
schedules have been omitted because the required information is included in
the consolidated financial statements and notes thereto filed as Exhibit
(a) (1).
(b) REPORTS ON FORM 8-K. No Reports on Form 8-K were filed by the Company
during the fourth quarter of the fiscal year ending March 31, 1998.
(c) EXHIBITS
The following exhibits, which are furnished with this Annual Report
or incorporated herein by reference, are filed as part of this Annual
Report:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2.1 Agreement for Sale of Assets by and between ITV Communications,
Inc. and Netmatics, Inc., dated January 11, 1996, and Promissory
Note and Security Agreement dated January 16, 1996(1)
2.2 Agreement of Merger between AVIC Group International, Inc., a
Colorado corporation, with and into AVIC Group International,
Inc., a Delaware corporation dated July 10, 1996(8)
3.1 Amendments to Articles of Incorporation of the Company dated June
7, 1996 and June 10, 1996(5)
3.2 Restated Certificate of Incorporation of the Company(7)
3.3 Certificate of Ownership and Merger Merging China
Telecommunications and Technologies, Inc. into the Company(9)
3.4 Certificate of Designations of Preferences of Series C
Convertible Preferred Stock of the Company(9)
3.5 Certificate of Designations of Preferences of Series D
Convertible Preferred Stock of the Company(7)
3.6 Certificate of Designations of Preferences of Series E
Convertible Preferred Stock of the Company(10)
3.7 Restated Bylaws of the Company
4.1 Specimen Common Stock Certificate(9)
10.1 1995 Stock Option Plan(2)
10.2 1996 Stock Option Plan(2)
10.3 Real Property lease between Lexreal Associates and the Company
dated May 8, 1995(2)
10.4 Employment Agreement between Joseph R. Wright, Jr. and the
Company dated as of April 15, 1995(3), and amendments thereto
dated as of November 21 1995(4) and September 12, 1996(6)
10.5 Employment Agreement between Michael J. Lim and the Company dated
as of November 6, 1995(4)
10.6 Employment Agreement between Xiao Jun and the Company dated as of
January 1, 1996(4)
10.7 Employment Agreement between Albert G. Pastino and the Company
dated as of October 15, 1997(12)
10.8 Employment Agreement between James F. O'Brien and the Company
dated as of October 15, 1997(12)
10.9 Employment Agreement between Michael J. Lim and the Company dated
January 23, 1998
10.10 Form of Indemnification Agreement for directors and officers of
the Company(8)
10.11 Common Stock Investment Agreement between Promethean Investment
Group L.L.C. and the Company dated March 31, 1997, as amended on
April 29, 1997(9)
10.12 China Paging Networks Preliminary Agreement between Beijing CATCH
Communications Group Co. and the Company dated April 1995(3)
10.13 Mobile Telephone Network Preliminary Agreement between Beijing
CATCH Communications Group Co. and the Company dated April 27,
1995(3)
10.14 Cellular Telephone Network Preliminary Agreement between Beijing
CATCH Communications Group Co., Tweedia International Limited and
the Company dated April 1995(3)
10.15 Memorandum of Understanding between Hebei United Communications
Equipment Company and the Company dated May 1, 1995(3)
10.16 Letter of Intent between Hebei United Communications Equipment
Company and the Company dated October 10, 1995(4)
10.17 Joint Venture Contract between Hebei United Communications
Equipment Company and NTTI dated December 22, 1995(5)
10.18 Agreement between Hebei United Communications Equipment Company
and the Company dated March 22, 1996(5)
10.19 Joint Venture Contract between Hebei United Telecommunications
Development Company, Beijing CATCH Communications Group Co. and
the Company dated September 20, 1996(9)
10.20 Project Cooperation Contract between China United
Telecommunications Co. and Hebei United Telecommunications
Engineering Company Limited dated February 9, 1996(9)
10.21 Term Loan Agreement between Hebei United Telecommunications
Engineering Company Limited and Bank of Tokyo-Mitsubishi, Ltd.
dated August 5, 1996(9)
10.22 Project Cooperation Contract between Hebei Cable Television
Station and Hebei United Communications Equipment Company Limited
dated April 8, 1997(9)
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Singer, Lewak, Greenbaum & Goldstein
27 Financial Data Schedule
- ---------------
(1) Previously filed as part of the Company's Current Report on Form 8-K
dated January 19, 1996.
(2) Previously filed as part of the Company's Transition Report on Form
10-KSB for the transition period from October 1, 1994 to March 31,
1995.
(3) Previously filed as part of the Company's Current Report on Form 8-K
dated May 1, 1995.
(4) Previously filed as part of the Company's Current Report on Form 8-K
dated December 22, 1995.
(5) Previously filed as part of the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1996.
(6) Previously filed as part of the Company's Registration Statement on
Form S-8 filed on January 31, 1997.
(7) Previously filed as part of the Company's Current Report on Form 8-K
dated March 6, 1997.
(8) Previously filed as part of the Company's Definitive Proxy Statement
dated April 18, 1996.
(9) Previously filed as part of the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1997.
(10) Previously filed as part of the Company's Quarterly Report on Form
10-Q/A dated September 30, 1997.
(11) Previously filed as part of the Company's Current Report on Form 8-K
dated December 8, 1997.
(12) Previously filed as part of the Company's Quarterly Report on Form
10-Q dated December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMTEC, INC.
By /s/ Joseph R. Wright, Jr.
____________________________
Joseph R. Wright, Jr.
Chairman of the Board,
Chief Executive Officer and
President
Date: June 26, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Joseph R. Wright, Jr.
- -------------------------------- Chairman of the Board of June 26, 1998
Joseph R. Wright, Jr. Directors, Chief Executive Officer
and President (Principal Executive
Officer)
/s/Richard T. McNamar
- -------------------------------- Vice Chairman of the Board of June 26, 1998
Richard T. McNamar Directors
/s/Richard S. Braddock Director June 26, 1998
- -------------------------------
Richard S. Braddock
/s/Drew Lewis Director June 26, 1998
- -------------------------------
Drew Lewis
/s/Liang Jiangli Director June 25, 1998
- -------------------------------
Liang Jiangli
/s/James R. Lilley Director June 25, 1998
- --------------------------------
James R. Lilley
/s/Michael H. Wilson Director June 24, 1998
- ---------------------------------
Michael H. Wilson
/s/Albert G. Pastino
- -------------------------------- Senior Vice President, Chief June 26, 1998
Albert G. Pastino Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
AmTec, Inc. (formerly AVIC
Group International Inc. and subsidiaries)
We have audited the accompanying consolidated balance sheets of AmTec, Inc.
and subsidiaries (formerly AVIC Group International, Inc. and subsidiaries)
as of March 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March
31, 1998 and 1997, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
June 11, 1998
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
AmTec, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of AmTec, Inc. and Subsidiaries
(formerly AVIC Group International, Inc. and Subsidiaries) for the year
ended March 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of AmTec, Inc. and Subsidiaries (formerly AVIC
Group International, Inc. and Subsidiaries) for the year ended March 31,
1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. During the year
ended March 31, 1996, the Company had a net loss of $5,281,730. Recovery of
the Company's assets is dependent upon future events, the outcome of which
is indeterminable. In addition, successful completion of the Company's
development program and its 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. These factors, among others, as
discussed in Note 1 to the financial statements raise substantial doubt
about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from thew outcome of this uncertainty.
/S/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
June 18, 1996
<TABLE>
<CAPTION>
AMTEC INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998, AND MARCH 31, 1997 MARCH 31, 1998 MARCH 31, 1997
- -------------------------------------------------------- --------------------------------------
ASSETS
Current assets
<S> <C> <C>
Cash $10,442,334 $5,390,871
Accounts receivable 114,661
Prepaid expenses and other current assets 356,554 182,090
---------------------------------
Total current assets 10,913,549 5,572,961
Property, plant & equipment, net 897,265 518,020
Investment in GSM network, net of amortization 28,461,810 22,017,869
Additional investment in joint-venture 1,192,000
Office lease deposit 113,180 111,500
Deferred expenses 6,916 5,853
=================================
TOTAL ASSETS $40,392,720 $29,418,203
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $551,705 $991,194
Accrued expenses 798,376 780,902
Loans payable - shareholders 1,452,553 2,413,553
Other current payables 10,234,872 450,685
---------------------------------
Total current liabilities 13,037,506 4,636,334
Loans payable 20,028,602 11,956,486
Other payables 1,487,727 10,290,128
Minority interest 941,974 1,987,167
---------------------------------
TOTAL LIABILITIES 35,495,809 28,870,115
STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock:
$.001 par value; authorized 10,000,000 shares; 0 and 1,524,178
shares issued and outstanding in 1998 and 1997, respectively 1,524
Series D Convertible Preferred Stock:
$.001 par value; authorized 10,000,000 shares; 0 and 150 shares
issued and outstanding in 1998 and 1997, respectively. 1
Series E Convertible Preferred Stock:
$.001 par value; authorized 10,000,000 shares; 73 and 0 shares
issued and outstanding in 1998 and 1997, respectively. 1
Common stock: $.001 par value; authorized 100,000,000 shares;
26,532,502 and 31,257,921 issued and outstanding in 1998
and 1997, respectively 26,533 31,258
Additional paid-in capital 33,148,529 25,202,108
Accumulated deficit (27,394,590) (20,592,536)
Cumulative foreign currency exchange loss 613 (1,231)
Non-refundable equipment purchase deposit (4,572,536)
Non employee deferred option cost, net (1,378,125)
Warrants 493,950 479,500
---------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,896,911 548,088
=================================
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $40,392,720 $29,418,203
=================================
See notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDING YEAR ENDING YEAR ENDING
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
- -------------------------------------------------------------------------------- ------------------- -------------------
<S> <C> <C> <C>
Revenues $ 216,348 $ -- $ 683,733
------------------- ------------------- -------------------
Expenses:
Cost of revenues 637,065
Selling, general and administrative 4,254,009 3,996,151 3,207,570
Amortization of GSM networks 2,183,068
Research and development 1,287,629
------------------- ------------------- -------------------
Total Expenses 6,437,077 3,996,151 5,132,264
------------------- ------------------- -------------------
Loss from operations (6,220,729) (3,996,151) (4,448,531)
------------------- ------------------- -------------------
Other income (expense)
Rental income 95,667 42,420
Interest income 239,067 152,824
Gain from sale of assets 31,880
Amortization stock options granted non employees (459,375)
Loss from abandoned assets (87,441) (130,840)
Equity in losses of unconsolidated subsidiary (500,000)
Interest expense (125,586) (129,039) (241,856)
Exchange loss (3,484) (19,490)
Other - net 113,320 7,617
Write off investment in affiliate (198,538)
------------------- ------------------- -------------------
Total other income (expense) (227,832) (151,823) (833,199)
------------------- ------------------- -------------------
Loss before minority interest (6,448,561) (4,147,974) (5,281,730)
Minority interest in loss of subsidiaries (1,045,193) 83,089
------------------- ------------------- -------------------
Net loss (5,403,368) (4,064,885) (5,281,730)
Preferred stock dividend 1,398,686 10,000 -
=================== =================== ===================
Loss applicable to common shares $ (6,802,054) $ (4,074,885) $ (5,281,730)
=================== =================== ===================
Basic loss per common share $ (0.23) $ (0.14) $ (0.21)
=================== =================== ===================
Weighted average common shares outstanding 29,843,712 29,102,347 25,651,045
=================== =================== ===================
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STAETMENTS OF STOCKHOLDERS' EQUITY/(DEFICIENCY)
- ----------------------------------------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------- ----------------- --------------- --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1995 25,243,409 25,244 - - - - - - - -
Issuance of Series A preferred
stock for interest in deposit,
December 1995 - - 1,524,178 1,524 - - - -
Sale of common stock for cash 1,302,020 1,302 - - - - - -
Conversion of stockholders'
loans to common stock,
February 1996 1,891,553 1,891 - - - - - - - -
Exercise of options, February
1996 - - - - - - - - - -
Equipment purchase deposit - - - - - - - -
Net loss - - - - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1996 28,436,982 28,437 1,524,178 1,524 - - - - - -
Issuances of Series B preferred
stock - - - - 100 1 - - - -
Conversion of Series B shares 1,507,477 1,507 - - (100) (1) - - - -
Issuance of Series D preferred-
stock - - - - - - - - 150 1
Common shares issued for services
rendered 90,962 91 - - - - - - - -
Common shares issued to employees 212,500 213 - - - - - - - -
as compensation
Common shares issued for
directors fees 10,000 10 - - - - - - - -
Sale of common shares 1,000,000 1,000 - - - - - - - -
Preferred dividends - - - - - - - - - -
Warrants - - - - - - - - - -
Cumulative foreign exchange loss - - - - - - - - - -
Net loss - - - - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1997 31,257,921 31,258 1,524,178 1,524 - - - - - 150 1
- -----------------------------------------------------------------------------------------------------------------------------
Exercise of employee stock
options 69,000 69 - - - - - - - -
Issuance of Series C preferred - - - - - - 250 -1 - -
stock
Common shares issued for services
rendered 23,233 23 - - - - - - - -
Conversion of Series D shares to 2,236,507 2,237 - - - - - - (150) (1)
common stock
Common stock investment agreement
- net of cancellation 1,019,465 1,019 - - - - - - - -
Common shares issued for 40,000 40 - - - - - - - -
directors fees
Cancellation of Series A preferred - - (1,524,178) (1,524) - - - - - -
Cancellation of common stock (12,727,909)(12,728) - - - - - - - -
Tweedia loan cancellation
Allocation of non-refundable
deposit from former affiliate
Other - - - -
Conversion of Series C shares to
stock 4,507,639 4,508 - - - - (219) (1) - -
Issuance of Series E preferred - - - - - - - - - -
stock
Conversion of Series E shares to 106,646 107 - - - - - - - (1)
common stock
Buyback of Series C preferred - - - - - - (31) - - -
stock
Deferred financing costs, net
of amortization - - - - - - - - - -
Stock options issued to third
party - - - - - - - - - -
Advance to joint venture partner - - - - - - - - - -
Preferred stock dividends
Cancellation of Warrants - - - - - - - - - -
Dividends related to discount on
conversion of preferred shares - - - - - - - - - -
Net loss
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1998 26,532,502 $26,533 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
SERIES E CUMULATIVE ADVANCE
PREFERRED STOCK ADDITIONAL FOREIGN TO JOINT EQUIPMENT
---------------- PAID-IN ACCUMULATED EXCHANGE VENTURE PURCHASE
SHARES AMOUNT WARRANTS CAPITAL DEFICIT GAIN (LOSS) PARTNER DEPOSIT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1995 - - - 9,995,265 (11,245,921) - - -
Issuance of Series A preferred
stock for interest in deposit,
December 1995 - - - 4,571,012 - - - -
Sale of common stock for cash - - - 2,192,681 - - - -
Conversion of stockholders'
loans to common stock,
February 1996 - - - 1,889,662 - - - -
Exercise of options, February
1996 - - - - - - - -
Equipment purchase deposit - - - - - - - (4,572,536)
Net loss - - - - (5,281,730) - - -
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1996 - - - 18,648,620 (16,527,651) - - (4,572,536)
Issuances of Series B preferred
stock - - - 2,341,218 - - - -
Conversion of Series B shares - - - (1,506) - - - -
Issuance of Series D preferred-
stock - - - 1,499,999 - - - -
Common shares issued for services
rendered - - - 316,249 - - - -
Common shares issued to employees - - - 318,538 - - - -
Common shares issued for
directors fees - - - 89,990 - - - -
Sale of common shares - - - 1,999,000 - - - -
Preferred dividends (10,000)
Warrants - - 479,500 - - - - -
Cumulative foreign exchange loss - - - - - (1,231) - -
Net loss - - - - (4,064,885) - - -
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1997 - - 479,500 25,202,108 20,592,536) (1,231) - (4,572,536)
- ---------------------------------------------------------------------------------------------------------------------------
Exercise of employee stock
options - - - 34,681 - - - -
Issuance of Series C preferred - - - 2,499,999 - - - -
stock
Common shares issued for services
rendered - - - 66,934 - - - -
Conversion of Series D shares to - - - 129,673 - - - -
common stock
Common stock investment agreement
- net of cancellation - - - (1,019) - - - -
Common shares issued for - - - 84,960 - - - -
directors fees
Cancellation of Series A
preferred - - - (4,571,012) - - 4,572,536
Cancellation of common stock - - - 12,728
Tweedia loan cancellation 25,000
Allocation of non-refundable
deposit from former affiliate 850,000 - - - -
Other - - - (580) - - - -
Conversion of Series C shares to
stock - - - (4,507) - - - -
Issuance of Series E preferred - - - 6,759,000 - - - -
stock
Conversion of Series E shares - - - - - - -
to common stock (107)
Buyback of Series C preferred - - - (406,100) - - - -
stock
Deferred financing costs, net
of amortization - - 161,450 (229,415) - - - -
Stock options issued to third 1,837,500 - - - -
party - -
Advance to joint venture partner - - - - (540,000)
Preferred stock dividends 1,398,686 (1,398,686) - - -
Cancellation of Warrants - - (147,000) - - - -
Cumulative foreign exchange gain - - 1,844
Net loss - - - - (5,403,368) - - -
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1998 73 $1 $493,950 $33,688,529 ($27,394,590) $613 (540,000) $0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------
DEFERRED
OPTION
COSTS TOTAL
<S> <C> <C>
BALANCE, April 1, 1995 - (1,255,412)
Issuance of Series A preferred
stock for interest in deposit,
December 1995 - 4,572,536
Sale of common stock for cash - 2,193,983
Conversion of stockholders'
loans to common stock,
February 1996 - 1,891,553
Exercise of options, February
1996 - -
Equipment purchase deposit - (4,572,536)
Net loss - (5,281,730)
- ----------------------------------------------------------
BALANCE, March 31, 1996 - (2,421,606)
Issuances of Series B preferred
stock - 2,341,219
Conversion of Series B shares - -
Issuance of Series D preferred-
stock - 1,500,000
Common shares issued for service
rendered - 316,340
Common shares issued to employee - 318,751
Common shares issued for
directors fees - 90,000
Sale of common shares - 2,000,000
Preferred dividends - (10,000)
Warrants - 479,500
Cumulative foreign exchange loss - (1,231)
Net loss - (4,064,885)
- ------------------------------------------------------------
BALANCE, March 31, 1997 - 548,088
- ------------------------------------------------------------
Exercise of employee stock
options - 34,750
Issuance of Series C preferred - 2,500,000
stock
Common shares issued for service
rendered - 66,957
Stock options issued to employee - 250,000
Conversion of Series D shares to - 131,909
common stock
Common stock investment agreemen
- net of cancellation - 0
Common shares issued for - 85,000
directors fees -
Cancellation of Series A
preferred - -
Cancellation of common stock 0
Tweedia loan cancellation 25,000
Allocation of non-refundable
deposit from former affiliate - 850,000
Other - (580)
Conversion of Series C shares to
stock -
Issuance of Series E preferred - 6,759,001
stock
Conversion of Series E shares -
to common stock
Buyback of Series C preferred - (406,100)
stock
Deferred financing costs, net
of amortization - (67,965)
Stock options issued to third (1,378,125) 459,375
party
Advance to joint venture partner (540,000)
Preferred stock dividends - -
Cancellation of Warrants (147,000)
Cumulative foreign exchange gain 1,844
Net loss (5,403,368)
- -----------------------------------------------------------
BALANCE, March 31, 1998 ($1,378,125) $4,896,911
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDING YEAR ENDING YEAR ENDING
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
- ---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (5,403,368) $ (4,064,885) $ (5,281,730)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred option costs 459,375
Amortization of capitalized software development cost 281,250
Depreciation and amortization of GSM investment 2,274,443 43,193 346,005
Loss from abandoned assets 87,441 130,840
Gain from sale of assets (31,880)
Minority Interest in net loss 83,089
Issuance of warrants for services rendered 479,500
Issuance of common stock and options for
directors' fees, and professional services rendered 151,957 725,091
Equity in losses of unconsolidated subsidiary 500,000
(Increase) Decrease in:
Accounts receivable (114,661) 98,895
Inventories (96,091)
Prepaid expenses and other current assets (174,464) 5,948,801 (91,200)
Office lease deposit (1,680) 55,700
Other assets (131,887)
Deferred expenses (1,063) 59,412
Increase (decrease) in:
Accounts payable and accrued expenses (422,015) 98,221 1,251,464
Other current payables 9,784,187
Loans payable - stockholders (111,000) 129,839 136,982
Minority Interest (1,045,193)
--------------- --------------- ---------------
Net cash provided by (used in) operating activities 5,483,959 3,557,961 (2,887,352)
--------------- --------------- ---------------
Cash flows from investing activities:
Investment in Netmatics (87,441)
Purchase of property and equipment (470,620) (362,417) (119,592)
Joint venture deposit
1,170,000 (1,170,000)
Proceeds from sale of assets
250,000
GSM construction cost (8,627,007) (21,880,584)
Joint venture's net liabilities assumed 6,549,703
Timing reversal of investment in joint venture 1,192,000 (1,192,000)
--------------- --------------- ---------------
Net cash used in investing activities (7,993,068) (15,715,298) (1,039,592)
--------------- --------------- ---------------
Cash flows from financing activities
Warrants issued for services rendered -
net of charges to APIC (215,546)
Borrowings 8,072,116 11,521,100 739,952
Other long term payables (8,802,401)
Loans payable to stockholders 25,000
Advance to joint venture partner (540,000)
Proceeds from sale of common stock 166,659 2,000,000 2,193,983
Proceeds from sale of Series B convertible
preferred stock 2,341,219
Proceeds from sale of Series D convertible
preferred stock 1,500,000
Proceeds from sale of Series C convertible
preferred stock - net 2,093,900
Proceeds from sale of Series E convertible
preferred stock 6,759,000
--------------- --------------- ---------------
Net cash provided by financing activities 7,558,728 17,362,319 2,933,935
--------------- --------------- ---------------
Effect of exchange rate changes on cash 1,844 -- --
-------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents 5,051,463 5,204,982 (993,009)
Cash and cash equivalents, beginning of period 5,390,871 185,889 1,178,898
--------------- --------------- ---------------
Cash and cash equivalents, end of period $ 10,442,334 $ 5,390,871 $ 185,889
=============== =============== ===============
</TABLE>
AMTEC., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------
SUPPLEMENTAL CASH INFORMATION:
No interest or income taxes were paid during fiscal 1998, 1997, and 1996
NON CASH FINANCING ACTIVITIES:
In fiscal 1998, preferred stock dividends of $1,398,686 were recognized upon
conversion of the Convertible Preferred Series C, D, and E.
In fiscal 1998, 150 shares of Series D Convertible Preferred Stock were
converted into 2,236,507 shares of common stock (inclusive of conversions
of preferred dividends and related warrants).
In fiscal 1998, 219 shares of Series C Convertible Preferred Stock were
converted into 4,507,639 shares of common stock.
In fiscal 1998, 0.8 share of Series E Convertible Preferred Stock was
converted into 106,646 shares of common stock.
In fiscal 1998, 12,727,909 shares of common stock were cancelled upon
determination that the full purchase price for such shares was not paid.
In fiscal 1998, $850,000 Notes Payable related to a non-refundable deposit
received from a former affiliate was credited to Additional Paid in
Capital.
In fiscal 1998, 1,524,178 shares of the Company's Series A Convertible
Preferred Shares were cancelled in accordance with the terms of a
subscription agreement.
In fiscal 1998, the Company issued stock options valued at $1,837,500 to
the Hebei provincial government in exchange for a long term cooperation
agreement.
In fiscal 1997, 100 shares of Series B Preferred Stock were converted into
1,507,477 shares of common stock.
In fiscal 1996, loans from stockholders of $1,891,553 were converted into
1,891,553 shares of common stock.
In fiscal 1996, 1,524,178 shares of Series A Preferred Stock were issued in
exchange for the rights to a deposit totaling $4,572,536.
In fiscal 1996, a deposit from a stockholder of $850,000 was converted to a
note payable.
See notes to consolidated financial statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND LINE OF BUSINESS - AmTec, Inc. (the "Company" or
"AmTec") through its majority-owned subsidiary in the People's
Republic of China ("PRC") is involved in providing financing and
building telecommunications networks for third parties in the PRC. The
Company, through its wholly-owned subsidiary ITV Communications, Inc.
("ITV") was engaged in the design, manufacture and sale of
technologically advanced communication devices. In January 1996, the
Company sold all of the business and operating assets of ITV and is no
longer involved in the business that ITV was engaged in.
On July 8, 1997, the Company changed its name from AVIC Group
International, Inc. to AmTec, Inc.
During fiscal 1998 the Company organized two wholly-owned
subsidiaries, one a Bermuda company and the other a British Virgin
Island company. There was no activity in either company during the
year ended March 31, 1998.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the Company, its 70% owned subsidiary Hebei United
Telecommunications Equipment Co., Ltd. and subsidiary ("Hebei
Equipment") (a limited life Sino-foreign joint venture) and its
wholly-owned subsidiary, ITV Communications, Inc. For the period
ending March 31, 1998, the Company used an ownership percentage of
60.8% for purposes of consolidation since it did not increase its
ownership percentage in Hebei Equipment until after the close of Hebei
Equipment's fiscal year end on December 31, 1997. 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 periods ended
December 31, 1997 and 1996, Hebei Equipment's year-end. During the
period January 1, 1997 to March 31, 1997, the Company's fiscal year
end, an additional $1,192,000 had been advanced by the Company to
Hebei Engineering. Such amount did not eliminate in the 1997
consolidation due to the different year-end dates between AmTec and
Hebei Equipment. As such, the amount has been included in the balance
sheet at March 31, 1997, as Additional Investment in Joint Venture.
MANAGEMENT ESTIMATES - 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 and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expense during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS - For purposes of the statements of cash flows, the
Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is provided using the straight line method, to write off
the cost of property and equipment over their estimated useful lives,
after deducting the estimated salvage value of the assets as follows:
Land and buildings 20 years
Furniture, fixtures and equipment 5 years
Motor vehicles 5 years
Leasehold improvements 5 years
Computer equipment 3 years
The Company evaluates the operating and financial performance of its
long-lived assets for potential impairments in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which prescribes the method for measuring
impairment. If an asset is determined to be impaired, the capitalized
costs are written down to fair value.
REVENUE RECOGNITION - Revenue related to the Company's cellular
telephone networks is recognized only upon receipt of payment from the
networks' operator. As such, the Company does not accrue revenue. (See
Note 3 as to the current cellular telephone project.) Revenue related
to the Company's former operations of ITV was derived primarily from
product sales, and was recognized upon shipment of the products.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs of ITV
were charged to expense as incurred. These costs consisted primarily
of salaries and consulting fees.
INCOME TAXES - The Company uses the asset and liability method of
accounting for income taxes pursuant to Statement of Financial
Accounting Standards, No. 109 "Accounting for Income Taxes."
FOREIGN CURRENCY TRANSLATION - The functional currency for the
Company's foreign operations is the applicable local currency. The
translation of the applicable foreign currency into U.S. dollars is
performed for the balance sheet accounts using current exchange rates
in effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the period. The
gains and losses, net of applicable deferred income taxes if any,
resulting from such translation are included in Stockholders' Equity.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying
amount reported in the balance sheets for cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses
approximates fair value because of the immediate short-term maturity
of these financial instruments.
LOSS PER SHARE - Basic loss per common share is based on the weighted
average number of common shares outstanding during the year. The
effect of shares issuable upon exercise of warrants and stock options
is anti-dilutive, therefore diluted earnings per share is not
presented. The Company adopted the provisions of FASB 128 during the
fiscal year ended March 31, 1998. Adoption of such statement did not
have a material effect on results of operations and financial
condition.
RECLASSIFICATION - Certain amounts for the fiscal years ended March
31, 1997 and 1996 have been reclassified to conform to the current
year's presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Comprehensive Income - In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive
Income." This statement is effective for financial statements issued
for periods beginning after December 15, 1997. Management has
evaluated the effect on its financial reporting of the adoption of
this statement and has found the majority of required disclosures not
to be applicable and the remainder not to be significant.
Segments of an Enterprise and Related Information - In June 1997, the
FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information." This statement is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 requires the reporting
of profit and loss, specific revenue and expense items, and assets for
reportable segments. It also requires the reconciliation of total
segment revenues, total segment profit or loss, total segment assets,
and other amounts disclosed for segments, in each case to the
corresponding amounts in the general purpose financial statements. The
Company has not yet determined what additional disclosures may be
required in connection with adopting SFAS 131.
2. CONSOLIDATION OF MAJORITY OWNED SUBSIDIARY
The Company determined that it should conduct its operations in the
PRC through a Sino Foreign Joint Venture ("SFJV"). In March 1996, the
Company invested $1,170,000 in a PRC joint venture, advanced $540,000
to its joint venture partner and requested from the Hebei Provincial
government approval for conversion of such company to an SFJV. In
September 1996, preliminary regulatory approval for Hebei Equipment
was granted and the SFJV was formed with the Company holding a 60.8%
interest in the entity. In April 1997, the Company received final PRC
regulatory approval for the SFJV. The Company invested an additional
$276,000 in Hebei Equipment during the fiscal year ended March 31,
1998, resulting in an increase in its holding to 70%.
Hebei Equipment holds a 51% interest in Hebei Engineering, which is
developing GSM networks in the ten largest cities in Hebei Province,
PRC. Nippon Telegraph and Telephone International, Inc. ("NTTI") and
Itochu Corporation hold the remaining 49% interest in Hebei
Engineering.
3. INVESTMENT IN GSM PROJECT
Hebei Equipment, through its 51%-owned subsidiary, Hebei Engineering,
has invested approximately $30,650,000 in the construction of GSM
telecommunications networks (the "GSM networks") in Hebei Province of
the PRC. The GSM networks are being built pursuant to a 15-year
agreement with China United Communications Company ("UNICOM"). Terms
of the agreement include the following:
o Initially, UNICOM will own 30% of the assets while Hebei
Engineering will own 70% of the assets.
o Both parties agree to distribute the profit according to the
"Distributable Cash Flow" (as defined) with 22% going to
UNICOM and 78% going to Hebei Engineering.
o Each year, Hebei Engineering will transfer assets equal in
value to the Distributable Cash Flow received up to 60% of
the assets.
o Upon the termination of the contract the remaining 10% of the
network assets shall be assigned to UNICOM without any
further consideration.
o Hebei Engineering will continue to receive 78% of the
Distributable Cash Flow after transfer of all the assets for
the remainder of the 15-year period.
Under PRC law, foreign entities, such as Hebei Engineering, are not
permitted to own or operate telecommunications networks. Substantially
all of the Company's revenues are derived from contractual
arrangements for the sharing of cash flow from network operations
rather than from ownership or operation of the networks. The Company
has recorded its investment (Investment in GSM network) at cost and is
amortizing it over the remaining life of the project beginning with
the fiscal year ending March 31, 1998. Income is recognized on receipt
of Distributable Cash Flow. Management's current cash flow projections
indicate the investment is fully realizable. UNICOM commenced
operation of the GSM network in February 1997.
Amortization of the Investment in GSM network for the year ended March
31, 1998 amounted to approximately $2,183,000.
4. INVESTMENT IN MULTIMEDIA PROJECT
Through Hebei Equipment, AmTec entered into a 20-year agreement (the
"Hebei Multimedia Agreement") on April 8, 1997 with Hebei Cable
Television Station ("Hebei CATV") to (i) finance and assist Hebei CATV
in the construction of an advanced fiber-optic and microwave network
(the "Multimedia Network") that will connect the existing cable
television systems in the eleven major cities in Hebei Province, and
(ii) provide consulting and management support services to Hebei CATV
in its operation of the Multimedia Network. Hebei Equipment is
entitled to a share of the distributable cash flow (defined as net
income plus depreciation) from the Multimedia Network for a 20-year
period commencing on the date of completion of the Multimedia Network.
Prior to repayment of Hebei Equipment's investment, Hebei Equipment
will receive 80% of distributable cash flow thereafter, Hebei
Equipment will receive 30% of distributable cash flow.
The Multimedia Network began operations in October 1997 and, upon
completion, will be used to transmit cable television programming on a
province-wide basis to the eleven cities connected by the Multimedia
Network. Hebei CATV will derive revenues from the cable operators in
the eleven cities for providing this programming and will also receive
advertising revenues. Further, spare capacity will be available for
leasing to telecommunications operators and data network users in
Hebei.
As of March 31, 1998, the Company had invested approximately $120,000
in the Multimedia Network in the form of a loan to Hebei CATV to fund
construction work. The Company is currently in discussions, through
Hebei Equipment, to determine the extent of its future involvement in
this project.
As of June 1998, Hebei CATV had completed substantial construction
work on the Multimedia Network. However, due to the announced
restructuring of the Ministry of Radio, Film and Television, the
ultimate regulator of cable television operations in China, Hebei CATV
has put further construction of the Multimedia Network on hold pending
the completion of this restructuring.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1998 1997
---- ----
Land and buildings $ 559,235 $ 195,350
Furniture, fixtures and
equipment 240,197 249,268
Motor vehicles 153,538 111,298
Computer software 80,921 12,273
Leasehold improvements 17,498 12,580
-------------- -------------
1,051,389 580,769
Less accumulated
depreciation 154,124 62,749
------------- ------------
$ 897,265 $ 518,020
============== ===========
Depreciation expense for fiscal 1998, 1997, and 1996 was $91,375,
$43,193, and $346,005 respectively.
6. OTHER PAYABLES
Included in Other Current Payables are amounts due for equipment
purchases related to construction of the GSM network. These amounts
are due vendors under deferred payment terms with such terms and
payments being guaranteed by NTTI and Ito Chu Corporation with no
recourse to the Company. Liabilities are payable as follows:
LIABILITIES PAYABLE
Current $ 10,234,872
1999 520,789
2000 495,909
2001 471,029
----------
Total 11,722,599
Less: current portion 10,234,872
----------
$1,487,727
===========
7. LOANS PAYABLE
Loans payable consists of the following:
1998 1997
---- ----
Amounts due to $ 1,452,553 $ 2,413,553
shareholders(1)
Bank loan(2) 20,028,602 11,956,486
---------- ----------
21,481,155 14,370,039
Less: current maturities 1,452,553 2,413,553
----------- ----------
$20,028,602 $11,956,486
============ ===========
(1) The amounts are payable on demand by ITV, a wholly owned
subsidiary, and bear interest at 8.5% per annum. There is no
recourse to AmTec, Inc. for these loans.
(2) On August 5, 1996, Hebei Engineering obtained a loan facility of
approximately $20,000,000 from the Bank of Tokyo - Mitsubishi,
Ltd. Beijing Branch at an annual rate of 6.82%, all of which was
borrowed as of December 31, 1997. The obligation of the borrower
under the agreement was guaranteed by NTTI, with no recourse to
AmTec, Inc. The principal of the loan shall be repaid in five
equal, consecutive, semi-annual installments, each in an amount
equal to one-fifth of the principal amount of the loan
outstanding on the third anniversary of the date of the agreement
with subsequent installments on the last day of each of the next
four six-month periods thereafter, provided, however, that the
last such installment shall be in the amount necessary to repay
in full the unpaid principal amount of the loan. Borrowings under
this facility are repayable as follows:
YEAR ENDING MARCH 31,
1998 $ 0
1999 0
2000 8,000,000
2001 8,000,000
2002 4,028,602
---------
$ 20,028,602
============
8. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases a facility for its corporate and
operations offices under a long-term lease agreement. Minimum annual
rental commitments under this lease are as follows:
MARCH 31,
1999 $ 334,400
2000 334,400
2001 139,332
--------
$ 808,132
=========
Rent expense for fiscal 1998, 1997 and 1996 was $337,763, $369,969 and
$399,992 respectively.
EMPLOYMENT AGREEMENTS - The Company has entered into employment
agreements with officers expiring through April 2002 with aggregate
annual salaries of $1,475,000.
LITIGATION - The Company and its subsidiaries are involved in
litigation matters which involve certain claims which arise in the
normal course of business, none of which, in the opinion of
management, is expected to have a materially adverse effect on the
Company's consolidated financial statements.
REGULATION - Each of the Company's joint ventures, Hebei Equipment and
Hebei Engineering, is organized under the laws of the PRC as a
Sino-foreign equity joint venture enterprise, a distinct legal entity
with limited liability. Such entities are governed by the Law of the
PRC on Joint Ventures Using Chinese and Foreign Investments, and
implementing regulations related thereto. The parties to an equity
joint venture have rights to the financial returns of the joint
venture in proportion to the joint venture interests that they hold.
The operation of equity joint ventures is subject to an extensive body
of law governing such matters as formation registration, capital
contribution, capital distributions, accounting, taxation, foreign
exchange, labor and liquidation. The transfer or increase of an
interest in a Sino-foreign equity joint venture enterprise requires
agreement among the parties to the venture and is effective upon
approval of relevant government agencies.
FOREIGN CURRENCY EXCHANGE - The Company's joint ventures will receive
nearly all of their revenue in Renminbi, which will need to be
converted to other currencies, primarily U.S. dollars, and remitted
outside the PRC. Although the Renminbi is not a freely convertible
currency at present, effective July 1, 1996, foreign currency "current
account" transactions by foreign investment enterprises, including
Sino-foreign joint ventures, are no longer subject to the approval of
State Administration of Foreign Exchange ("SAFE", formerly, "State
Administration of Exchange Control"). These transactions need only a
ministerial review, according to the Administration of the Settlement,
Sale and Payment of Foreign Exchange Provisions promulgated in 1996.
"Current account" items include international commercial transactions,
which occur on a regular basis, such as those relating to trade and
provision of services. Distributions to joint venture parties also are
considered a "current account transaction." Other non-current account
items, known as "capital account" items, remain subject to SAFE
approval.
EMPLOYEE RETIREMENT BENEFITS AND POST-RETIREMENT BENEFITS - The
Company's Chinese employees in the PRC are entitled to a retirement
pension calculated with reference to their basic salaries on
retirement and their length of services in accordance with a
government managed pension plan. The PRC government is responsible for
the pension liability to these retired staff. The Company is required
to make contributions to the state retirement plan at 18% of the
adjusted monthly basic salaries of the current employees. The Company
is not obligated under any other post-retirement plans and
post-employment benefits are not material.
9. STOCKHOLDERS' EQUITY
CANCELLATION OF SERIES A CONVERTIBLE PREFERRED STOCK - On August 19,
1997, upon determination that the entire amount of a non-refundable
deposit had been forfeited by a former affiliate, the Company
cancelled all of the outstanding Series A Convertible Preferred Stock
(the "Series A Shares"). On December 19, 1995, the Company had issued
1,524,178 shares of the Company's Series A Shares in consideration of
the transfer of a $4,572,536 non-refundable equipment purchase deposit
to the Company from a former affiliate. 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 the former affiliate an equivalent number of the
Series A Shares issued to it would be cancelled.
CANCELLATION OF CERTAIN SHARES OF COMMON STOCK - On December 8, 1997,
the Company reduced its outstanding common stock and credited its
Additional Paid in Capital $12,728 as a result of canceling 12,727,909
shares of its common stock and 318,182 options to purchase its common
stock issued to Tweedia International, Ltd. The cancellation was based
on a determination that the full purchase price for the shares was
never paid. The 12,727,909 cancelled shares represented approximately
thirty-eight percent of the total number of the Company's common
shares outstanding prior to the cancellation of such shares.
In addition, the Company cancelled an agreement with a former
affiliate, which gave the Company a right of first refusal on certain
investment opportunities in the Peoples Republic of China. (See Note
16-"Related Party Transactions".)
CONVERSION OF LOANS PAYABLE - In December 1995, loans payable and
accrued interest in the amount of $1,891,553 were converted to common
stock at a price per share of $1.00 (based on other market sales at
the time).
SALE OF COMMON STOCK - In September and November 1995, and February
1996, the Company sold an aggregate of 976,000 shares of common stock
for $976,000. In March 1996, the Company entered into a stock purchase
agreement to sell 191,020 shares of common stock for $1,170,000, a
price of $6.125 per share.
In November 1996, the Company sold 1,000,000 shares of the Company's
common stock through subscription agreements. The Company received $2
million in proceeds with respect to these subscriptions. The price per
share reflected the quoted market value of the common shares at the
time of the transactions.
During fiscal 1998, 69,000 common shares were sold in connection with
the exercise of certain employee stock options. Proceeds from these
sales aggregated $34,750.
SERIES B CONVERTIBLE PREFERRED STOCK - In June 1996, the Company
completed a $2,500,000 offering of its Series B Convertible Preferred
Stock ("Series B Preferred"). The net proceeds the Company received
were approximately $2,341,000. The offering consisted of 100 shares of
Series B Preferred at $25,000 per share and 1,506,677 warrants to purchase
common stock of the Company. Each warrant entitles the holder to
purchase one share of common stock at a fixed conversion price. During
fiscal 1997, all outstanding Series B shares were converted to
1,507,477 common shares.
SERIES D CONVERTIBLE PREFERRED STOCK - In March 1997, the Company
completed a $1,500,000 offering of its Series D Convertible Preferred
Stock ("Series D Preferred"). The offering consisted of 150 shares of
Series D Preferred at $10,000 per share and warrants to purchase
common stock of the Company. The holder was entitled to cumulative
dividends at the annual rate of 8% per annum per share, payable
quarterly in shares of Common Stock or, in cash in connection with any
payment pursuant to a Conversion Default at the election of the
Company's board of directors. During fiscal 1998, the Series D
Preferred was converted into common stock of the Company at a
conversion rate equal to the lowest trading price of the Company's
common stock during the 30 days preceding each conversion date. In
addition, the Series D Preferred shareholders converted their warrants
into common stock at prices aggregating $131,909. Such Series D
Preferred and warrant conversions aggregated 2,236,507 shares. In
connection with the discount for the above conversion, the Company
credited Additional Paid in Capital $48,677 and charged preferred
dividends in an equal amount.
SERIES C CONVERTIBLE PREFERRED STOCK - In June 1997, the Company
completed a $2,500,000 offering of its Series C Convertible Preferred
Stock ("Series C Preferred"). The offering consisted of 250 shares of
Series C Preferred at $10,000 per share and entitled the holder to
cumulative dividends at an annual rate of 8% per annum per share. The
dividends were payable quarterly in shares of Common Stock or, in cash
in connection with any payment pursuant to a Conversion Default at the
election of the Company's board of directors. Such Series C shares
were converted at conversion rates equal to the lowest trading price
of the Company's common stock during the 30 business days immediately
preceding each conversion date. During fiscal 1998, 219 outstanding
Series C shares were converted into 4,507,639 common shares. In
addition, the Company repurchased and retired 31 Series C shares for
consideration of $406,100. In connection with the discount for the
above conversion, the Company credited Additional Paid in Capital
$260,784 and charged preferred dividends in an equal amount.
SERIES E CONVERTIBLE PREFERRED STOCK - On October 22, 1997, the
Company issued 74 shares of its Series E Convertible Preferred Stock,
par value $.001 per share (the "Series E Preferred Shares") at a price
of $100,000 per share and paying an 8% in-kind dividend. The net
proceeds the Company received were approximately $6,759,000. The
holders of Series E Preferred Stock have no voting rights except with
respect to certain matters that affect the rights related to the
Series E Preferred Stock.
Conversion of the Series E Shares into Common Stock,which is
restricted by certain "lock-up" agreements, is based on the lower of:
(i) the lesser of a 10% premium to the market price of the Company's
Common Stock, as reported on the American Stock Exchange, at the time
of the investment's closing or of a 10% premium to the 10 day average
trading price six months after the close or (ii) a discount to the
lowest trade during the five (5) trading days prior to each
conversion. The discount, which ranges from 15% to 20%, depends upon
the date of the shareholders' conversion of the Series E shares, with
the discount increasing as the period the shares are held increases.
Warrants were issued to five of the Series E Investors to purchase up
to 1,236,364 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
the investment's closing. The number of warrants issued to each
investor depended upon the amount invested and the length of the
"lock-up" agreed upon between the Company and investor.
The Company registered 13,832,792 shares of common stock on January
16, 1998, to cover the common stock issuable to the Series E Holders
upon conversion of their Series E shares and exercise of their
warrants. As of March 31, 1998, 0.8 share of the Series E Preferred
Stock was converted into 106,646 shares of the Company's common stock.
In connection with the discount for the above conversion, the Company
credited Additional Paid in Capital $1,089,225 and charged preferred
dividends in an equal amount.
STOCK WARRANTS - During fiscal 1998, the Company issued warrants to
purchase 326,171 shares of the Company's Common Stock to the Placement
Agent as fees for services in connection with the placement of the
Series E Convertible Preferred Stock described above. These warrants,
which are exercisable one year from the closing date, have an exercise
price of $2.475 per share and expire on October 22, 2002.
The Company has assigned a value of $161,450 to these warrants.
During fiscal 1998, the Company rescinded an agreement it entered into
in July 1996 with an investment banking firm in which such firm was to
act as a financial advisor to the Company. As part of this rescission
the Company cancelled warrants to purchase 200,000 shares of the
Company's common stock. Professional fees and Warrants were reduced by
$147,000 to reflect this cancellation.
During fiscal 1997, the Company issued 186,111 warrants to purchase
the Company's common stock at a conversion price of 110% of the quoted
market value at the time of grant. The warrants were issued in
connection with the Company's issuance of Series B Preferred Shares
(see Series B Convertible Preferred Stock).
On October 15, 1996, the Company agreed to issue warrants to purchase
200,000 shares of the Company's Common Stock to an advisor for
services related to advising the Company with respect to its
Sino-foreign joint ventures and marketing activities in the PRC. The
warrants issued have a three year term and an exercise price of $1.50,
which was the market value of the Company's Common Stock when the
warrants were issued. In connection with this agreement, the Company
recorded $110,000 in professional fees which management determined to
be the fair value of the warrants.
In connection with a financial services agreement which has since been
cancelled, the Company issued 600,000 warrants to an investment
banking firm, 300,000 of which vested at the time the agreement was
entered into and 300,000 which were to vest when such firm had raised
a minimum of $10 million. With respect to the vested 300,000 warrants,
the Company recorded $222,500 in professional fees which management
determined to be the fair value of the warrants.
ISSUANCE OF COMMON STOCK FOR SERVICES - During the year ended March
31, 1998 the Company issued shares of its common stock for services
rendered. The number of shares issued in each case was based upon the
quoted market value of the stock at the issue date and the value of
the services rendered. Total shares issued in connection with these
services amounted to 63,233 covering the $151,957 of expenses which
are included in the accompanying financial statements.
In April 1996, two outside directors each received 5,000 shares of
common stock for a total value of $90,000 which was recorded as
compensation expense. The number of shares issued was based on the
quoted market value of the common stock at the time of issuance.
In May 1996, 5,000 shares of the Company's common stock were issued as
payment for $45,625 of services rendered. In December 1996, 5,000
shares of the Company's common stock were issued as payment for
$18,125 for services rendered. Both issuances have been recorded as
professional fees at a value of the quoted market price of the common
stock at the time of the transaction.
In October 1996, the Company entered into agreements to settle $98,000
of outstanding professional fees through the issuance of options to
purchase 44,962 common shares. The number of shares was determined
based upon the quoted market value of the shares at the time of
issuance.
THE PROMETHEAN COMMON STOCK EQUITY AGREEMENT - On March 31, 1997 the
Company entered into a Common Stock Investment Agreement with
Promethean Investment Group L.L.C. ("Promethean") pursuant to which
Promethean will provide a $10 million equity line to the Company. The
agreement, which is cancelable, by either party, was amended on April
29, 1997 to increase the equity line to $25 million.
Pursuant to the Common Stock Investment Agreement, the Company may
sell from time to time shares of Common Stock to Promethean by
providing a notice (the "Put Notice") containing the dollar amount
(the "Required Dollar Amount") of the shares of Common Stock to be
sold during the thirteen business day period commencing after the date
of the Put Notice (the "Purchase Period"). Promethean shall be
obligated to purchase the shares of Common Stock in the Required
Dollar Amount specified in the Put Notice with the election to
purchase an additional 30% of the Required Dollar Amount during the
Purchase Period. Each of the shares of Common Stock covered by the
Required Dollar Amount (and any additional amount of the shares of
Common Stock to be sold during the Purchase Period) shall be sold at
90% of the lowest of the daily low trading price of the Common Stock,
as quoted on the American Stock Exchange, during the three trading
days preceding the date of the Put Notice. The Required Dollar Amount
for each Put Notice shall be in increments of $250,000 and shall not
exceed the lesser of (i) $1,500,000, subject to reductions of $75,000
for each trading day during the Purchase Period in which the average
per share dollar value of the Common Stock traded on the American
Stock Exchange is less than $2.50, and (ii) 10% of the dollar value of
the Common Stock traded on the American Stock Exchange during the
first ten trading days of the Purchase Period if the average per share
of such dollar value is equal to or greater than $2.50 (subject to
certain adjustments to account for stock splits, stock dividends and
other similar transactions). The Company may not deliver a Put Notice
to sell the shares of Common Stock if the closing price of the Common
Stock on the date prior to the date of the intended Put Notice as
reported on the American Stock Exchange is less than $2.50 or if
certain other conditions exist. The Company has agreed to provide a
minimum of $4,000,000 in Put Notices to Promethean within two years
following the effective date of a registration statement covering the
shares to be sold pursuant to the Common Stock Investment Agreement.
Initially, 1,570,998 shares were issued into escrow on behalf of
Promethean. During the year ended March 31, 1998, none of the shares
issued under this agreement were released from escrow. As of March 31,
1998, this agreement has not been utilized, no shares have been issued
and no monies have been received under this agreement. 551,533 of the
shares issued into escrow were cancelled.
STOCK OPTIONS - The Company has adopted two stock option plans (the
AmTec, Inc. 1995 Stock Plan and the AmTec, Inc. 1996 Stock Option
Plan). Incentive and nonqualified options and stock appreciation
rights may be granted to employees, officers, directors, and
consultants of the Company. There are 12,500,000 shares of common
stock reserved for issuance under these plans. The exercise price of
the options are determined by the board of directors, but in the case
of an incentive stock option, the exercise price may not be less than
100% of the fair market value on the date of grant. Options vest over
periods not to exceed ten years.
A summary of the status of all of the Company's stock options issued
as of March 31, 1998, 1997 and 1996 and changes during the years then
ended is presented below:
<TABLE>
<CAPTION>
MARCH 31, MARCH MARCH
1998 31, 1997 31, 1996
------------- ----------- -----------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning
of year 7,905,000 $ 1.40 7,635,000 $ 1.39 350,000 $ 0.36
Granted 4,624,102 2.55 280,000 1.74 7,520,000 1.41
Exercised (69,000) (185,000) 0.36
Cancelled (10,000) 8.25
Forefeited (50,000) 0.36
Expired
----------------------------------------------------------------------------
Outstanding
at end
of year 12,460,102 $ 1.42 7,905,000 $ 1.40 7,635,000 $ 1.39
========== ======= ========= ======= ========= ========
Options
exercisable
at end
of year 7,671,102 $ 1.28 4,155,000 $ 0.42 3,135,000 $ 0.35
========= ======= ========= ========= ========= =========
Weighted
average
fair
value of
options
granted
during
the year $ 0.53 $ 0.69 $ 0.44
======= ======= =======
</TABLE>
The above options include options granted to the Hebei Provincial
Government to acquire 3,000,000 shares of the Company's common stock
at a price of $3.0625 per share. These options vest 25% every six
months from the date of grant. In connection with granting these
options, $1,837,500 was recorded as a charge to Deferred Option Cost
and a corresponding credit was made to Additional paid in capital.
During fiscal 1998, Deferred option cost was amortized by $459,375.
The above options do not include 318,182 options granted and
subsequently cancelled to Tweedia, a former affiliate.
The fair value of a stock option or warrant has been determined by
management. Management has developed an internal measure of fair
value for its stock options and warrants which it believes
approximates the fair value of such options and warrants in relation
to the true value of the underlying equity instruments.
The following table summarizes information about options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER
RANGE OF NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES AT 3/31/98 LIFE (YEARS) PRICE AT 3/31/98 PRICE
-------------- --------------- ----------------- ------------------- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$0.35-0.355 4,625,000 8.11 0.350 4,625,000 0.350
0.750 250,000 10.00 0.750 125,000 0.750
1.500 520,102 9.00 1.500 145,102 1.500
2.125 1,055,000 10.00 2.125 523,500 2.125
3.000 3,010,000 9.00 3.000 1,502,500 3.000
3.05-3.10 3,000,000 9.00 3.0625 750,000 3.063
--------- -------
12,460,102 7,671,102
========== =========
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized with respect to the plans. Had compensation cost for the
Company's stock option plans been determined consistent with
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), the Company's net earnings
and earnings per share would have approximated the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net loss applicable to common shares $(6,802,054) $(4,074,885)
- as reported ============ ============
Net loss applicable to common shares
pro forma $(8,635,367) $(4,268,970)
============ ============
Basic loss per common share - as $ (0.23) $ (0.14)
reported ================ =============
Basic loss per common share share - $ (0.29) $ (0.15)
pro forma ================ =============
</TABLE>
10. NON-REFUNDABLE DEPOSIT
On March 31, 1998, the Company reduced notes payable of $850,000
related to a non-refundable deposit it received from a former
affiliate. Additional paid in capital was credited for an equal
amount.
11. INCOME TAXES
The Company had net losses for 1998, 1997 and 1996 therefore, no
income taxes have been provided.
As of March 31, 1998, the Company has federal net operating loss
carryforwards of approximately $13,848,606 through 2012.
Significant components of the Company's deferred assets and tax
liabilities for federal income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997
Deferred tax assets
<S> <C> <C>
Net operating loss carryforwards $6,394,688 $ 5,085,404
Start-up and other costs 3,027,575 2,360,307
Research credit 266,000 266,000
------------ ----------
Total deferred tax assets 9,688,263 7,711,711
Valuation allowance for deferred tax assets (9,688,263) (7,711,711)
----------- -----------
Net deferred tax assets $ -0- $ -0-
=========== ============
</TABLE>
The net change in the valuation allowance for the years ended March
31, 1998 and 1997 was an increase of $1,976,552 and $3,249,171,
respectively.
12. SIGNIFICANT FOREIGN SUBSIDIARY
As stated in Footnote 1, the Company provides financing and builds
telecommunications networks for third parties in the PRC.
Accordingly, substantially all of its revenues, assets and
liabilities are held by its limited liability Sino-foreign joint
venture subsidiary. A summary of revenues, net loss, assets and
liabilities is as follows:
1998 1997
Revenues $216,348 $0
Net loss $997,774 $231,125
Total assets $37,782,997 $26,442,713
Total liabilities $36,003,069 $24,903,513
13. MAJOR CUSTOMERS
During the year ended March 31, 1996, the Company's wholly owned
subsidiary, ITV, conducted business with two customers whose sales
comprised substantially all of the Company's revenues. In January
1996, the Company sold substantially all of the assets related to
that business.
14. SALE OF BUSINESS
In January 1996, the Company sold the business and the related
operating assets in which its wholly owned subsidiary, ITV, was
engaged. The sale price was $2,500,000 (which consisted of $250,000
in cash and $2,250,000 in the form of a note receivable). In
addition, the Company received an equity interest in another company,
which was valued at $500,000. Due to the uncertainty of the
collection of the $2,250,000 note receivable, the amount of the note
has not been recognized. The gain associated with the note will be
recognized when the note receivable is collected. The sale of the
assets resulted in a gain from sale of the assets of $31,880. (See
Note 15 as to the write-off of the investment.)
15. INVESTMENT IN NETMATICS
The Company held a 39% (as of March 31, 1997) ownership interest in
Netmatics, Inc. ("Netmatics"), which it acquired in January 1996 in
connection with the sale by the Company of the ITV business and
operating assets. In fiscal 1996, the Company suspended the equity
method of accounting for its investment in Netmatics when the
Company's share of losses equaled the carrying amount of the
investment. In fiscal 1996, the Company's share of Netmatics' loss
charged to operations was $500,000. During fiscal 1997, the Company
advanced $12,000 to and purchased $186,538 of debentures from
Netmatics. Such amounts were written-off as of March 31, 1997.
16. RELATED PARTY TRANSACTIONS (SEE NOTE 9 REGARDING THE CANCELLATION OF
THE 12,727,909 SHARES OF COMMON STOCK AND THE MASTER AGREEMENT)
GENERAL - In February 1995, pursuant to a Reorganization Agreement,
Tweedia International, Ltd. became the owner of approximately
12,727,909 shares, or 41%, of the Company's issued and outstanding
Common Stock. The Company was informed that Beijing CATCH
Communications Group Co. ("Beijing CATCH") has an option to acquire
100% of the outstanding capital stock of Tweedia. However, this
option may not be exercised without the receipt by Beijing CATCH of
all PRC regulatory approvals applicable to such exercise. After
discussions with PRC counsel, management believes that these
approvals to own securities listed on non-PRC stock exchanges are
substantive in nature and are not normally readily obtained in the
PRC.
As of December 21, 1995, pursuant to the terms of a Master Agreement
and Right of First Refusal (the "Master Agreement"), Beijing CATCH
agreed to grant the Company a right of first refusal to participate
as a majority investor and provide financial, operating and technical
consulting services with respect to all rights granted, sold,
licensed, or otherwise transferred to Beijing CATCH, directly or
indirectly, that relate to the construction, operation or acquisition
of any type of telephony, telecommunications, equipment, paging
equipment or related forms of communication in the PRC. As
consideration for this right of first refusal, the Company agreed to
issue up to 50,000,000 shares of Common Stock to Tweedia based on the
receipt of certain agreed upon amounts of net income by the Company
relating to prospective Sino-foreign joint ventures involving the
Company and Beijing CATCH. The Master Agreement supersedes certain
terms of other prior agreements between the Company and Beijing CATCH
concerning cooperation on telecommunications projects. The Company
has not entered into, and management has no current intent of
entering into, any Sino-foreign joint ventures with Beijing CATCH
under the terms of the Master Agreement. As a result, no obligation
for future issuances of Common Stock to Beijing CATCH under the
Master Agreement exist or are contemplated.
At the time of the Company's acquisition of the majority stake, Hebei
Development held a 30% ownership of Hebei Equipment and Beijing CATCH
held subscription rights to 9.2% ownership of Hebei Equipment.
Subsequent to Hebei Equipment's conversion to a Sino-Foreign joint
venture company, Beijing CATCH defaulted on its required capital
contribution. On April 22, 1997, the Board of Directors of Hebei
Equipment resolved to terminate Beijing CATCH's ownership
participation in Hebei Equipment, and the Company and Hebei
Development agreed to provide to Hebei Equipment the amount defaulted
on by Beijing CATCH. (See Note 2 as to the Company's acquisition of
Beijing Catch's interest.)
17. ITEMS RECORDED IN THE FOURTH QUARTER
The Company recorded the following non-cash items in the fourth
quarter:
The initial annual amortization of its investment in the Hebei GSM
networks of $2,183,000;
Preferred stock dividends payable in the form of common stock, of
$1,399,000;
A value of stock options awarded to non-employees of $1,837,500 was
recognized and $459,375 of such value was amortized, and
Professional fees were reduced by $147,000 as a result of the
cancellation of 200,000 warrants issued to an investment banking
firm.
AMENDED AND RESTATED
BYLAWS OF
AMTEC, INC.
(a Delaware corporation)
The following are the Bylaws of AMTEC, INC., a Delaware corporation
(the "Corporation"), effective as of December 8, 1997, except with respect
to those provisions which will require a stockholder approved amendment to
the Certificate of Incorporation to become effective, and which, in the
time preceding such amendment, will be construed in accordance with Article
VII hereto:
ARTICLE I
Offices
Section 1.01. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of the Corporation shall be located at 599 Lexington Avenue, 44th
Floor, New York, New York 10022. The Board of Directors of the Corporation
(the "Board of Directors") may change the location of said principal
executive office.
Section 1.02. OTHER OFFICES. The Corporation may also have an office
or offices at such other place or places, either within or without the
State of Delaware, as the Board of Directors may from time to time
determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 2.01. ANNUAL MEETINGS. The annual meeting of stockholders of
the Corporation shall be held at a date and at such time as the Board of
Directors shall determine. At each annual meeting of stockholders,
directors shall be elected in accordance with the provisions of Section
3.03 hereof and any other proper business may be transacted.
Section 2.02. SPECIAL MEETINGS. Special meetings of stockholders for
any purpose or purposes may be called at any time by a majority of the
Board of Directors, by the Chairman of the Board or, by the President.
Special meetings may not be called by any other person or persons. Each
special meeting shall be held at such date and time as is requested by the
person or persons calling the meeting, within the limits fixed by law.
Section 2.03. PLACE OF MEETINGS. Each annual or special meeting of
stockholders shall be held at such location as may be determined by the
Board of Directors or, if no such determination is made, at such place as
may be determined by the Chairman of the Board. If no location is so
determined, any annual or special meeting shall be held at the principal
executive office of the Corporation.
Section 2.04. NOTICE OF STOCKHOLDER MEETINGS. Written notice of each
annual or special meeting of stockholders stating the date and time when,
and the place where, it is to be held shall be delivered either personally
or by mail to stockholders entitled to vote at such meeting not less than
ten (10) nor more than sixty (60) days before the date of the meeting. The
purpose or purposes for which the meeting is called may, in the case of an
annual meeting, and shall, in the case of a special meeting, also be
stated. If mailed, notice is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it
shall appear on the stock books of the Corporation, unless he shall have
filed with the Secretary of the Corporation a written request that notices
intended for him be mailed to some other address, in which case such notice
shall be mailed to the address designated in such request.
Section 2.05. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) Nomination of Directors. Only persons who are nominated in
accordance with the procedures set forth in these By-Laws shall be eligible
to serve as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders (a)
by or at the direction of the Board of Directors or (b) by any stockholder
of the Corporation who is a stockholder of record at the time of giving of
notice for the election of directors at the meeting and who complies with
the notice procedures set forth in this Section 2.5(a). Such nominations,
other than those made by or at the direction of the Board of Directors,
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation
not less than 5 days prior to that date which shall be set by the Board of
Directors as the date by which information is required to be received for
inclusion in the proxy statement; provided, however, that in the event that
less than 55 days' notice or prior public disclosure of the date of the
meeting or, of the date the proxy materials are due, is given or made to
stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the seventh day following the day
on which such notice of the date of the meeting or such public disclosure
was made. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected), and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the Corporation's books,
of such stockholder and (ii) the class and number of shares of the
Corporation which are beneficially owned by such stockholder. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible to serve as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 2.5(a). The
chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the
procedures prescribed by the By-Laws, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded. Notwithstanding the foregoing provisions of this Section
2.5(a), a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in this
Section 2.5(a).
(b) Notice of Business. At any meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting
(a) by or at the direction of the Board of Directors or (b) by any
stockholder of the Corporation who is a stockholder of record at the time
of giving of the notice provided for in this Section 2.5(b), who shall be
entitled to vote at such meeting and who complies with the notice
procedures set forth in this Section 2.5(b). For business to be properly
brought before a stockholder meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation
not less than 5 days prior to that date which shall be set by the Board of
Directors as the date by which information is required to be received for
inclusion in the proxy statement; provided, however, that in the event that
less than 55 days' notice or prior public disclosure of the date of the
meeting or, of the date the proxy materials are due, is given or made to
stockholders, notice by the stockholder to be timely must be received no
later than the close of business on the seventh day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the
meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the
meeting; (b) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (c) the class and number
of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such
business. Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at a stockholder meeting except (i) in
accordance with the procedures set forth in this Section 2.5(b) or (ii)
with respect to nominations of persons for election as directors of the
Corporation, in accordance with the provisions of Section 2.5(a) hereof.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of the By-Laws, and if he
should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 2.5(b), a
stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section.
Section 2.06. CONDUCT OF MEETINGS. All actual and special meetings of
stockholders shall be conducted in accordance with such rules and
procedures as the Board of Directors may determine subject to the
requirements of applicable law and, as to matters not governed by such
rules and procedures, as the chairman of such meeting shall determine. The
chairman of any annual or special meeting of stockholders shall be the
Chairman of the Board. The Secretary, or in the absence of the Secretary, a
person designated by the Chairman of the Board, shall act as secretary of
the meeting.
Section 2.07. QUORUM. At any meeting of stockholders of the
Corporation, the presence, in person or by proxy, of the holders of record
of a majority of the shares then issued and outstanding and entitled to
vote at the meeting shall constitute a quorum for the transaction of
business; provided, however, that this Section 2.07 shall not affect any
different requirement which may exist under statute, pursuant to the rights
of any authorized class or series of stock, or under the Certificate of
Incorporation of the Corporation, as amended or restated from time to time
(the "Certificate"), for the vote necessary for the adoption of any measure
governed thereby. The stockholders present at a duly called or held meeting
at which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
In the absence of a quorum, the stockholders present in person or by
proxy, by majority vote and without further notice, may adjourn the meeting
from time to time until a quorum is attained, but in the absence of a
quorum, no other business may be transacted at that meeting, except as
provided in this section. At any reconvened meeting following such
adjournment at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 2.08. VOTES REQUIRED. The affirmative vote of a majority of
the shares present in person or represented by proxy at a duly called
meeting of stockholders of the Corporation, at which a quorum is present
and entitled to vote on the subject matter, shall be sufficient to take or
authorize action upon any matter which may properly come before the
meeting, except that the election of directors shall be by plurality vote,
unless the vote of a greater or different number thereof is required by
statute, by the rights of any authorized class of stock or by the
Certificate.
Unless the Certificate or a resolution of the Board of Directors
adopted in connection with the issuance of shares of any class or series of
stock provides for a greater or lesser number of votes per share, or limits
or denies voting rights, each outstanding share of stock, regardless of
class or series, shall be entitled to one (1) vote on each matter submitted
to a vote at a meeting of stockholders.
Section 2.09. PROXIES. Every person entitled to vote for directors or
on any other matter shall have the right to do so either in person or by
one or more agents authorized by a written proxy signed by the person and
filed with the Secretary of the corporation. A proxy shall be deemed signed
if the stockholder's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission, or otherwise) by the
stockholder or the stockholder's attorney in fact. A validly executed proxy
which does not state that it is irrevocable shall continue in full force
and effect unless (i) revoked by the person executing it, before the vote
pursuant to that proxy, by a writing delivered to the corporation stating
that the proxy is revoked, or by a subsequent proxy executed by, or as to
any meeting by attendance at such meeting and voting in person by, the
person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before
the vote pursuant to that proxy is counted; provided, however, that no
proxy shall be valid after the expiration of three (3) years from the date
of the proxy, unless otherwise provided in the proxy.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is
an interest in the stock itself or an interest in the corporation
generally.
Section 2.10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Unless
otherwise provided in the Certificate of Incorporation, and subject to the
rights, if any, of the holders, if any, of Preferred Stock to take action
by written consent, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
Section 2.11. RECORD DATE FOR STOCKHOLDER NOTICE AND VOTING. For
purposes of determining the stockholders entitled to notice of any meeting
or to vote or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) days nor
fewer than ten (10) days before the date of any such meeting nor more than
sixty (60) days before any such other action, and in this event only
stockholders at the close of business on the record date are entitled to
notice or to vote, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the General Corporation Law of the State of Delaware.
If the board of directors does not so fix a record date:
(a) The record date for determining the stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the business day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the business
day next preceding the day on which the meeting is held.
(b) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a
new record date for the adjourned meeting.
Section 2.12. LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make (or cause to be prepared and made), at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical
order and showing the address of, and the number of shares registered in
the name of, each stockholder. Such list shall be open to the examination
of any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
duration thereof, and may be inspected by any stockholder who is present.
Section 2.13. VOTING. The stockholders entitled to vote at any meeting
of stockholders shall be determined in accordance with the provisions of
Section 2.12. The stockholders' vote may be by voice vote or by ballot. Any
stockholder may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or vote them against the proposal,
but, if the stockholder fails to specify the number of shares which the
stockholder is voting affirmatively, it will be conclusively presumed that
the stockholder's approving vote is with respect to all shares that the
stockholder is entitled to vote.
Section 2.14. WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS. The
transactions of any meeting of stockholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though
had at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to a holding of the
meeting, or an approval of the minutes. The waiver of notice, consent or
approval need not specify either the business to be transacted or the
purpose of any annual or special meeting of stockholders. All such waivers,
consents or approvals shall be filed with the corporate records or made a
part of the minutes of the meeting. Attendance by a person at a meeting
shall also constitute a waiver of notice of that meeting, except when the
person attends the meeting for the express purpose of objecting and
objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened, and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by law to be included in the notice of
the meeting but not so included if that objection is expressly made at the
meeting.
Section 2.15. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors shall appoint Inspectors of Election
to act at such meeting or at any adjournment or adjournments thereof. If
such Inspectors are not so appointed or fail or refuse to act, the chairman
of any such meeting may (and, upon the demand of any stockholder or
stockholder's proxy, shall) make such an appointment.
The number of Inspectors of Election shall be one (1) or three (3). If
there are three (3) Inspectors of Election, the decision, act or
certificate of a majority shall be effective and shall represent the
decision, act or certificate of all. No such Inspector need be a
stockholder of the Corporation.
Subject to any provisions of the Certificate of Incorporation, the
Inspectors of Election shall determine the number of shares outstanding,
the voting power of each, the shares represented at the meeting, the
existence of a quorum and the authenticity, validity and effect of proxies;
they shall receive votes, ballots or consents, hear and determine all
challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes or consents, determine when the polls
shall close and determine the result; and finally, they shall do such acts
as may be proper to conduct the election or vote with fairness to all
stockholders. On request, the Inspectors shall make a report in writing to
the secretary of the meeting concerning any challenge, question or other
matter as may have been determined by them and shall execute and deliver to
such secretary a certificate of any fact found by them.
ARTICLE III
Directors
Section 3.01. POWERS. The business and affairs of the Corporation
shall be managed by and be under the direction of the Board of Directors.
The Board of Directors shall exercise all the powers of the Corporation,
except those that are conferred upon or reserved to the stockholders by
statute, the Certificate or these Bylaws.
Section 3.02. NUMBER. The number of directors shall be fixed from time
to time by resolution of the Board of Directors but shall not be less than
three (3) nor more than nine (9).
Section 3.03. ELECTION AND TERM OF OFFICE. Effective as of the date of
the amendment to the Certificate of Incorporation which amendment shall
reflect an article consistent with the terms of this Section 3.03 (the
"Effective Date"), the Board of Directors shall consist of three classes of
directors, such classes to be as nearly equal in number of directors as
possible, having staggered three-year terms of office, the term of office
of the directors of the first such class to expire at the first annual
meeting of the Corporation's stockholders following the Effective Date,
those of the second class to expire at the second annual meeting of the
Corporation's stockholders following the Effective Date, and those of the
third class at the third annual meeting of the Corporation's stockholders
following the Effective Date, such that at each such annual meeting of
stockholders, nominees will stand for election for three-year terms to
succeed those directors whose terms are to expire at such meeting.
Likewise, at each other annual meeting of stockholders held from and after
the Effective Date, those nominees elected at such meeting to succeed those
directors whose terms expire at such meeting, shall serve for a term
expiring at the third annual meeting of stockholders following their
election. Members of the Board of Directors shall hold office until the
annual meeting of stockholders for the year in which their term is
scheduled to expire as set forth above in this Section 3.03 and their
respective successors are duly elected and qualified or until their earlier
death, incapacity, resignation, or removal. No decrease in the authorized
number of directors shall shorten the term of any incumbent director, and
additional directors elected in connection with rights to elect such
additional directors under specified circumstances which may be granted to
the holders of any series of Preferred Stock shall not be included in any
class, but shall serve for such term or terms and pursuant to such other
provisions as are specified in the resolution of the Board of Directors
establishing such series.
Section 3.04. ELECTION OF CHAIRMAN OF THE BOARD. At the organizational
meeting immediately following the annual meeting of stockholders, the
directors shall elect a Chairman of the Board from among the directors who
shall hold office until the corresponding meeting of the Board of Directors
in the next year and until his successor shall have been elected or until
his earlier resignation or removal. Any vacancy in such office may be
filled for the unexpired portion of the term in the same manner by the
Board of Directors at any regular or special meeting.
Section 3.05. REMOVAL. Any director may be removed from office only as
provided in the Certificate of Incorporation.
Section 3.06. VACANCIES AND ADDITIONAL DIRECTORSHIPS. Except as the
Delaware General Corporate Laws may otherwise require, and subject to the
rights of the holders of any series of Preferred Stock with respect to the
filling of vacancies or new directorships in the Board of Directors, newly
created directorships resulting from death, resignation, disqualification,
removal or other cause shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been
elected and qualified. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
Section 3.07. REGULAR AND SPECIAL MEETINGS. Regular meetings of the
Board of Directors shall be held immediately following the annual meeting
of the stockholders; without call at such time as shall from time to time
be fixed by the Board of Directors; and as called by the Chairman of the
Board in accordance with applicable law. Special meetings of the Board of
Directors shall be held upon call by or at the direction of the Chairman of
the Board, the President or any two (2) directors, except that when the
Board of Directors consists of one (1) director, then the one director may
call a special meeting. Except as otherwise required by law, notice of each
special meeting shall be mailed to each director, addressed to him at his
residence or usual place of business, at least three days before the day on
which the meeting is to be held, or shall be sent to him at such place by
telex, telegram, cable, facsimile transmission or telephoned or delivered
to him personally, not later than the day before the day on which the
meeting is to be held. Such notice shall state the time and place of such
meeting, but need not state the purpose or purposes thereof, unless
otherwise required by law, the Certificate of Incorporation or these Bylaws
("Bylaws").
Notice of any meeting need not be given to any director who shall
attend such meeting in person (except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened) or who shall waive notice thereof, before or after such meeting,
in a signed writing.
Section 3.08. QUORUM. At all meetings of the Board of Directors, a
majority of the fixed number of directors shall constitute a quorum for the
transaction of business, except that when the Board of Directors consists
of one (1) director, then the one director shall constitute a quorum. In
the absence of a quorum, the directors present, by majority vote and
without notice other than by announcement, may adjourn the meeting from
time to time until a quorum shall be present. At any reconvened meeting
following such an adjournment at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
as originally notified.
Section 3.09. VOTES REQUIRED. Except as otherwise provided by
applicable law or by the Certificate of Incorporation, the vote of a
majority of the directors present at a meeting duly held at which a quorum
is present shall be sufficient to pass any measure.
Section 3.10. PLACE AND CONDUCT OF MEETINGS. Each regular meeting and
special meeting of the Board of Directors shall be held at a location
determined as follows: The Board of Directors may designate any place,
within or without the State of Delaware, for the holding of any meeting. If
no such designation is made: (a) any meeting called by a majority of the
directors shall be held at such location, within the county of the
Corporation's principal executive office, as the directors calling the
meeting shall designate; and (b) any other meeting shall be held at such
location, within the county of the Corporation's principal executive
office, as the Chairman of the Board may designate or, in the absence of
such designation, at the Corporation's principal executive office. Subject
to the requirements of applicable law, all regular and special meetings of
the Board of Directors shall be conducted in accordance with such rules and
procedures as the Board of Directors may approve and, as to matters not
governed by such rules and procedures, as the chairman of such meeting
shall determine. The chairman of any regular or special meeting shall be
the Chairman of the Board, or, in his absence, a person designated by the
Board of Directors. The Secretary, or, in the absence of the Secretary, a
person designated by the chairman of the meeting shall act as secretary of
the meeting. Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another, and all such directors
shall be deemed to be present in person at the meeting.
Section 3.11. FEES AND COMPENSATION. Directors shall be paid such
compensation as may be fixed from time to time by resolution of the Board
of Directors: (a) for their usual and contemplated services as directors;
(b) for their services as members of committees appointed by the Board of
Directors, including attendance at committee meetings as well as services
which may be required when committee members must consult with management
staff; and (c) for extraordinary services as directors or as members of
committees appointed by the Board of Directors, over and above those
services for which compensation is fixed pursuant to items (a) and (b) in
this Section 3.11. Compensation may be in the form of an annual retainer
fee or a fee for attendance at meetings, or both, or in such other form or
on such basis as the resolutions of the Board of Directors shall fix.
Directors shall be reimbursed for all reasonable expenses incurred by them
in attending meetings of the Board of Directors and committees appointed by
the Board of Directors and in performing compensable extraordinary
services. Nothing contained herein shall be construed to preclude any
director from serving the Corporation in any other capacity, such as an
officer, agent, employee, consultant or otherwise, and receiving
compensation therefor.
Section 3.12. COMMITTEES OF THE BOARD OF DIRECTORS. To the full extent
permitted by applicable law, the Board of Directors may from time to time
establish committees, including, but not limited to, standing or special
committees and an executive committee with authority and responsibility for
bookkeeping, with authority to act as signatories on Corporation bank or
similar accounts and with authority to choose attorneys for the Corporation
and direct litigation strategy, which shall have such duties and powers as
are authorized by these Bylaws or by the Board of Directors. Committee
members, and the chairman of each committee, shall be appointed by the
Board of Directors. The Chairman of the Board, in conjunction with the
several committee chairmen, shall make recommendations to the Board of
Directors for its final action concerning members to be appointed to the
several committees of the Board of Directors. Any member of any committee
may be removed at any time with or without cause by the Board of Directors.
Vacancies which occur on any committee shall be filled by a resolution of
the Board of the Directors. If any vacancy shall occur in any committee by
reason of death, resignation, disqualification, removal or otherwise, the
remaining members of such committee, so long as a quorum is present, may
continue to act until such vacancy is filled by the Board of Directors. The
Board of Directors may, by resolution, at any time deemed desirable,
discontinue any standing or special committee. Members of standing
committees, and their chairmen, shall be elected yearly at the regular
meeting of the Board of Directors which is held immediately following the
annual meeting of stockholders. The provisions of Sections 3.07, 3.08, 3.09
and 3.10 of these Bylaws shall apply, mutatis mutandis, to any such
Committee of the Board of Directors.
Section 3.13. WAIVER OF NOTICE. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be
as valid as though had at a meeting duly held after regular call and notice
if a quorum is present and if, either before or after the meeting, each of
the directors not present signs a written waiver of notice, a consent to
holding the meeting or an approval of the minutes. The waiver of notice or
consent need not specify the purpose of the meeting. All such waivers,
consents, and approvals shall be filed with the corporate records or made a
part of the minutes of the meeting. Notice of a meeting shall also be
deemed given to any director who attends the meeting without protesting,
before or at its commencement, the lack of notice to that director.
Section 3.14. ADJOURNMENT. A majority of the directors present,
whether or not constituting a quorum, may adjourn any meeting to another
time and place.
Section 3.15. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given to absent directors if the
time and place are fixed at the meeting adjourned.
Section 3.16. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the board of directors or any committee thereof may be taken
without a meeting, if all members of the board shall individually or
collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent or consents shall be filed with
the minutes of the proceedings of the board.
ARTICLE IV
Officers
Section 4.01. DESIGNATION, ELECTION AND TERM OF OFFICE. The
Corporation shall have a Chairman of the Board, a President, a Treasurer,
such senior vice presidents and vice presidents as the Board of Directors
deems appropriate, a Secretary and such other officers as the Board of
Directors may deem appropriate. These officers shall be elected annually by
the Board of Directors at the organizational meeting immediately following
the annual meeting of stockholders, and each such officer shall hold office
until the corresponding meeting of the Board of Directors in the next year
and until his successor shall have been elected and qualified or until his
earlier resignation, death or removal. Any vacancy in any of the above
offices may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting. Any number of offices may be
held by the same person in accordance with section 4.08 herein.
Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors shall preside at all meetings of the directors and shall have
such other powers and duties as may from time to time be assigned to him by
the Board of Directors.
Section 4.03. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall, subject to the power of the Board of
Directors, have general supervision, direction and control of the business
and affairs of the Corporation. He shall preside at all meetings of the
stockholders and, in the absence of the Chairman of the Board, at all
meetings of the directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and
shall have such other duties as may be assigned to him from time to time by
the Board of Directors.
Section 4.04. TREASURER. The Treasurer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
account of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings and shares. The books of account
shall at all reasonable times be open to inspection by the directors. The
Treasurer shall deposit all moneys and other valuables in the name and to
the credit of the Corporation with such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation
as may be ordered by the Board of Directors, shall render to the President
and directors, whenever they request it, an account of all of his
transactions as the Treasurer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or the Bylaws.
Section 4.05. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, the Board of Directors and all committees. He
shall be the custodian of the corporate seal and shall affix it to all
documents which he is authorized by law or the Board of Directors to sign
and seal. He also shall perform such other duties as may be assigned to him
from time to time by the Board of Directors or the Chairman of the Board or
President.
Section 4.06. ASSISTANT OFFICERS. The President may appoint one or
more assistant secretaries and such other assistant officers as the
business of the Corporation may require, each of whom shall hold office for
such period, have such authority and perform such duties as may be
specified from time to time by the President.
Section 4.07. WHEN DUTIES OF AN OFFICER MAY BE DELEGATED. In the case
of absence or disability of an officer of the Corporation or for any other
reason that may seem sufficient to the Board of Directors, the Board of
Directors or any officer designated by it, or the President, may, for the
time of the absence or disability, delegate such officer's duties and
powers to any other officer of the Corporation.
Section 4.08. OFFICERS HOLDING TWO OR MORE OFFICES. The same person
may hold any two (2) or more of the above-mentioned offices.
Section 4.09. COMPENSATION. The Board of Directors shall have the
power to fix the compensation of all officers and employees of the
Corporation.
Section 4.10. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors, to the President, or to
the Secretary of the Corporation. Any such resignation shall take effect at
the time specified therein unless otherwise determined by the Board of
Directors. The acceptance of a resignation by the Corporation shall not be
necessary to make it effective.
Section 4.11. REMOVAL. Any officer of the Corporation may be removed,
with or without cause, by the affirmative vote of a majority of the entire
Board of Directors. Any assistant officer of the Corporation may be
removed, with or without cause, by the President or by the Board of
Directors.
ARTICLE V
Indemnification of Directors, Officers
Employees and other Corporate Agents
Section 5.01. ACTION, ETC., OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an 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, trustee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (all such persons being referred to hereinafter as an "Agent"),
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit 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 reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which 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, that he had reasonable cause to
believe that his conduct was unlawful.
Section 5.02. ACTION, ETC., BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall 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 he is or was an Agent against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit 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, except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
Corporation by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses which such court shall deem proper.
Section 5.03. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Sections 5.01 or 5.02 (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the Agent is proper in the
circumstances because the Agent has met the applicable standard of conduct
set forth in Sections 5.01 and 5.02 hereof, which determination is made (a)
by the Board of Directors, by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (b)
if such a quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the stockholders.
Section 5.04. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article V, to the extent that
an Agent has been successful on the merits or otherwise, including the
dismissal of an action without prejudice or the settlement of an action
without admission of liability, in defense of any action, suit or
proceeding referred to in Sections 5.01 or 5.02 hereof, or in defense of
any claim, issue or matter therein, such Agent shall be indemnified against
expenses, including attorneys' fees actually and reasonably incurred by
such Agent in connection therewith.
Section 5.05. ADVANCES OF EXPENSES. Except as limited by Section 5.06
of this Article V, expenses incurred by an Agent in defending any civil or
criminal action, suit, or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding, if the
Agent shall undertake to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified as authorized
in this Article V. Notwithstanding the foregoing, no advance shall be made
by the Corporation if a determination is reasonably and promptly made by
the Board of Directors by a majority vote of a quorum of disinterested
directors, or (if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs) by independent legal counsel
in a written opinion, that, based upon the facts known to the Board of
Directors or counsel at the time such determination is made, such person
acted in bad faith and in a manner that such person did not believe to be
in or not opposed to the best interest of the Corporation, or, with respect
to any criminal proceeding, that such person believed or had reasonable
cause to believe his conduct was unlawful.
Section 5.06. RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION;
PROCEDURE UPON APPLICATION. Any indemnification or advance under this
Article V shall be made promptly, and in any event within ninety days, upon
the written request of the Agent, unless a determination shall be made in
the manner set forth in the second sentence of Subsection 5.05 hereof that
such Agent acted in a manner set forth therein so as to justify the
Corporation's not indemnifying or making an advance to the Agent. The right
to indemnification or advances as granted by this Article V shall be
enforceable by the Agent in any court of competent jurisdiction, if the
Board of Directors or independent legal counsel denies the claim, in whole
or in part, or if no disposition of such claim is made within ninety (90)
days. The Agent's expenses incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
proceeding shall also be indemnified by the Corporation.
Section 5.07. OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article V
shall not be deemed exclusive of any other rights to which an Agent seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office, and shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be
an Agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. All rights to indemnification under this
Article V shall be deemed to be provided by a contract between the
Corporation and the Agent who serves in such capacity at any time while
these Bylaws and other relevant provisions of the Delaware General
Corporation Law and other applicable law, if any, are in effect. Any repeal
or modification thereof shall not affect any rights or obligations then
existing.
Section 5.08. INSURANCE. Upon resolution passed by the Board of
Directors, the Corporation may purchase and maintain insurance on behalf of
any person who is or was an Agent against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status
as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Article V.
Section 5.09. CONSTITUENT CORPORATIONS. For the purposes of this
Article V, references to "the Corporation" shall include, in addition to
the resulting corporation, all constituent corporations (including all
constituents of constituents) absorbed in a consolidation or merger as well
as the resulting or surviving corporation, which, if the separate existence
of such constituent corporation had continued, would have had power and
authority to indemnify its Agents, so that any Agent of such constituent
corporation shall stand in the same position under the provisions of the
Article V with respect to the resulting or surviving corporation as that
Agent would have with respect to such constituent corporation if its
separate existence had continued.
Section 5.10. OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S
REQUEST. For purposes of this Article V, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to any employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article V.
Section 5.11. SAVINGS CLAUSE. If this Article V or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the Corporation shall nevertheless indemnify each Agent as to expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or. investigative, and whether internal or
external, including a grand jury proceeding and an action or suit brought
by or in the right of the Corporation, to the full extent permitted by any
applicable portion of this Article V that shall not have been invalidated,
or by any other applicable law.
ARTICLE VI
Stock
Section 6.01. CERTIFICATES. Except as otherwise provided by law, each
stockholder shall be entitled to a certificate or certificates which shall
represent and certify the number and class (and series, if appropriate) of
shares of stock owned by him in the Corporation. Each certificate shall be
signed in the name of the Corporation by the Chairman of the Board or a
Vice-Chairman of the Board or the President or a Vice President, together
with the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. Any or all of the signatures on any certificate may be
a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
Section 6.02. TRANSFER OF SHARES. Shares of stock shall be
transferable on the books of the Corporation only by the holder thereof, in
person or by his duly authorized attorney, upon the surrender of the
certificate representing the shares to be transferred, properly endorsed,
to the Corporation's transfer agent, if the Corporation has a transfer
agent, or to the Corporation's registrar, if the Corporation has a
registrar, or to the Secretary, if the Corporation has neither a transfer
agent nor a registrar. The Board of Directors shall have power and
authority to make such other rules and regulations concerning the issue,
transfer and registration of certificates of the Corporation's stock as it
may deem expedient.
Section 6.03. TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one or more transfer agents and one or more registrars of its stock whose
respective duties the Board of Directors or the Secretary may, from time to
time, define. No certificate of stock shall be valid until countersigned by
a transfer agent, if the Corporation has a transfer agent, or until
registered by a registrar, if the Corporation has a registrar. The duties
of transfer agent and registrar may be combined.
Section 6.04. STOCK LEDGERS. Original or duplicate stock ledgers,
containing the names and addresses of the stockholders of the Corporation
and the number of shares of each class of stock held by them, shall be kept
at the principal executive office of the Corporation or at the office of
its transfer agent or registrar.
ARTICLE VII
Miscellaneous
Section 7.01. RELATIONSHIP BETWEEN BYLAWS, CERTIFICATE OF
INCORPORATION, AND DELAWARE GENERAL CORPORATE LAW. To the extent that the
Certificate of Incorporation or the Delaware General Corporate Laws grant
to any Person any rights which are restricted under these Bylaws and which
are not permitted to be so restricted by the Certificate of Incorporation
or the Delaware General Corporate Laws, than the extent of such right shall
be as stated in the Certificate of Incorporation or the Delaware General
Corporate Laws, as the case may be, and these Bylaws shall be so
interpreted.
EMPLOYMENT AGREEMENT
This Employment Agreement is made on the 23rd day of January, 1998 between
AmTec, Inc., a Delaware Corporation ("Employer"), and Michael J. Lim
("Executive").
1. Term. Employer hereby employs Executive and Executive hereby
accepts employment on the terms and conditions hereinafter set forth.
Subject to the provisions of Section 7 hereof, the term of this Agreement
shall be effective commencing as of November 8, 1997 and shall terminate on
November 7, 2002.
2. Duties. Executive agrees to serve Employer as Executive Vice
President of AmTec, Inc. and in such capacity Executive agrees to render
his services to the best of his ability. Executive will report to the
Chairman of the Board and the Chief Executive Officer of the Company.
During the term of this Agreement, Executive will devote his full time (at
least 35 hours per week) and attention to, and use his best efforts to
advance the business and welfare of Employer, subject to the directions and
control of the Board of Directors.
3. Confidential Information and Covenant Not to Compete.
(a) Executive hereby agrees that, during the term of this
Agreement and thereafter, he will not disclose to any person, or otherwise
use or exploit any of the proprietary or confidential information or
knowledge, including without limitation, trade secrets, processes, records
of research, proposals, reports, methods, processes, techniques, computer
software or programming, or budgets or other financial information,
regarding Employer, its business, properties or affairs obtained by him at
any time prior to or subsequent to the execution of this Agreement, except
in the furtherance of the interests of Employer in the execution of
Executive's duties hereunder or as may be required pursuant to a lawful
order of a judicial tribunal or legislative body of competent jurisdiction.
(b) Upon termination of employment, Executive will deliver to
Employer all processes, records of research, proposals, reports, memoranda,
computer software and programming, budgets and other financial information,
and other materials or records or writings of any other type (including any
copies thereof) made used or obtained by Executive in connection with his
employment by Employer.
(c) During the term of this Agreement, Executive agrees that
he will: (I) neither authorize his name to be used by, (ii) nor engage in
or carry on, directly or indirectly, for himself as a member of a
partnership or as a stockholder (other than as a stockholder of less than
five percent (5%) of the issued and outstanding stock of a publicly held
corporation having assets in excess of $10,000,000), investor, officer, or
director of a corporation (other than Employer, or any parent, subsidiary,
affiliate or successor of Employer), or as an employee, agent, associate,
or consultant of any person, partnership, corporation or other business
entity, in competition with any business carried on, directly or
indirectly, by Employer prior to the date hereof or hereafter conducted,
directly or indirectly, by Employer during the term of this Agreement, in
any county where business is then carried on or conducted by Employer.
(d) Executive agrees that the remedy at law for any breach by
him of any of the covenants and agreements set forth in this Section 3 will
be inadequate and that in the event of any such breach, Employer may, in
addition to the other remedies which may be available to it at law, obtain
injunctive relief prohibiting him (together with all those persons
associated with him) from the breach of such covenants and agreements.
(e) The parties hereto intend that the covenants and
agreements contained in this Section 3 shall be deemed to include a series
of separate covenants and agreements. If, in any judicial proceeding, a
court shall refuse to enforce all of the separate covenants deemed included
in such action, then such unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purposes of such proceeding
to the extent necessary to permit the remaining separate covenants to be
enforced in such proceeding.
4. Compensation.
4.1 Salary. For the services to be rendered by Executive during
the first year of the term of this Agreement, Employer shall pay Executive
an annual base salary of Three Hundred Thousand Dollars ($300,000), payable
in cash in equal installments semi-monthly and subject to income tax
withholdings and other payroll deductions as customary in respect of
Employer's salaried employees in general. On the date of this agreement,
January 23, 1998, Executive shall receive ten year options to purchase
250,000 shares of common stock of the Employer at a price of $0.75 per
share, said options to vest 25% at the end of each of four (4) 180 day
periods, the first such period commencing 180 days from November 8, 1997.
While the amount of additional option awards will be determined at the
discretion of the Compensation Committee of the Board of Directors, it is
intended that Executive will receive stock options in each year of this
Agreement. The annual base salary of Executive for the second, third,
fourth and fifth years of the term of this Agreement will be determined by
the Compensation Committee of the Board of Directors, but shall be no less
than $350,000 in the second year and thereafter.
4.2 Bonus. Executive shall be entitled to participate in such
bonus plans of Employer applicable to senior executives of Employer as
determined by the Board of Directors of Employer in its sole discretion.
Notwithstanding the foregoing, for the 1996-1997 year of employment,
Employer shall pay Executive a bonus of $100,000, payable in cash on April
15, 1998. During the first year of the term of this Agreement, the bonus
shall be no less than $50,000 and will be at least $100,000 if Employer
obtains additional financing, payable in cash within thirty days of the
closing of such financing. For the second year and each succeeding year of
employment hereunder, the annual bonus will be determined by the
Compensation Committee of the Board of Directors. All bonuses payable to
Executive in the second year of the Agreement and thereafter will be
payable on March 31 of 1999, 2000, 2001 and 2002. Criteria for the
determination of the discretionary amount of bonus will be as agreed upon
by the Executive and the Chairman of the Board within forty-five days of
the date of this Agreement and within forty-five days of the commencement
of each succeeding year of employment hereunder.
4.2 (a) Stock Options. The Executive shall receive stock
options as described in section 4.1. It is expected that the Executive will
receive additional option awards in the second, third, fourth and fifth
years of the term of this Agreement as determined by the Compensation
Committee of the Board of Directors.
4.2 (b) Long Term Compensation Plan. Executive shall be
entitled to participate in a long-term compensation plan which will be
multi-year performance based over a number of years starting with the first
contract year. It is the intention of the Employer to pay the Executive on
an incentive basis to be determined by the Compensation Committee of the
Board of Directors under a performance based plan after a number of years
stipulated by the Board of Directors.
4.3 Vacation. Executive shall be entitled to four weeks' paid
vacation for each year during the term of this Agreement.
4.4 Medical Insurance. During the term of this Agreement
Employer shall furnish Executive with the same medical and hospital
insurance furnished to other employees of Employer.
4.5 Disability Insurance. During the term of this Agreement,
Employer shall furnish Executive with Long Term Disability insurance on the
same terms available to all senior executives of Employer.
4.6 Pension and Profit Sharing. Executive shall participate
in such pension and profit sharing plans as are established for senior
executives of Employer.
4.7 Other Rights and Options. In addition to the foregoing,
Executive shall be entitled to such additional rights and options as may be
granted or established for the benefit of senior executive officers of the
Company, including, without limitation, in connection with, any
recapitalization, reorganization, consolidation or merger of the Company.
5. Expenses. Employer will pay or reimburse Executive for such
reasonable travel, entertainment, or other expenses as he may incur at the
request of Employer during the term of this agreement in connection with
the performance of his duties hereunder. Executive shall furnish Employer
with such evidence that such expenses were incurred as Employer may from
time to time require or request.
6. Death or Total Disability of Executive.If Executive dies, or
becomes totally disabled (for a period of more than six(6) consecutive
weeks), during the term of this Agreement, Executive's employment under
this Agreement shall automatically terminate; provided that, in such event
of death or total disability, Executive's stock options under paragraph 4.1
hereof, to the extent not already vested, shall vest immediately.
7. Termination for Cause. Executive's employment under this
Agreement may be terminated by Employer for "good cause." The term "good
cause" is defined as any one or more of the following occurrences:
(a) Executive's breach of any of the covenants contained in
Section 3 of this Agreement;
(b) Executive's conviction by, or entry of a plea of guilty or
nolo contendere to a felony;
(c) Executive's commission of an act of fraud, whether prior
to or subsequent to the date hereof, upon Employer;
(d) Executive's continuing failure or refusal to perform his
duties as required by this Agreement;
(e) Executive's gross negligence, insubordination, material
violation of any duty or loyalty to Employer or any other material
misconduct relating to the business or good will of Employer.
8. Miscellaneous.
8.1 Modification and Waiver of Breach. No waiver or
modification of this Agreement shall be binding unless it is in writing
signed by the parties hereto. No waiver of a breach hereof shall be deemed
to constitute a waiver of a future breach, whether of a similar or
dissimilar nature.
8.2 Complete Agreement. The Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all previous oral and written
and all contemporaneous negotiations, commitment, writings, and
understandings and is and shall be binding upon the inure to the benefit of
Employer, its successors and permitted assigns and Executive, his heirs,
executors and administrators.
8.3 Legal Fees. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of
any alleged dispute, breach, default or misrepresentation in connection
with this Agreement, the successful or prevailing party shall be entitled
to recover reasonable attorneys' fees and other costs it incurred in that
action or preceding, in addition to any other relief to which it may be
entitled.
8.4 Assignment. This Agreement may not be assigned in any
manner whatsoever.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
EXECUTIVE: EMPLOYER:
AMTEC, INC.
/s/ Michael J. Lim /s/ Joseph R. Wright, Jr.
- ---------------------------- --------------------------------
MICHAEL J. LIM JOSEPH R. WRIGHT, JR.
CHAIRMAN
AmTec Hebei Telecom Holdings Ltd., British Virgin Islands
AmTec Telecom Holdings Ltd., Bermuda
Hebei United Communications Equipment Company Limited, People's Republic of
China
Hebei United Telecommunications Engineering Company Limited, People's
Republic of China
ITV Communications, Inc. California
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-15925, No. 333-26435 and No. 333-20839 of AmTec Inc, (formerly AVIC
Group International, Inc.) on Form S-8 and No. 333-33235 and No. 333-44389 on
form S-3 of our report dated June 11, 1998, appearing in this Annual Report on
Form 10-K of AmTec Inc. (formerly AVIC Group International, Inc.) for the year
ended March 31, 1998.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
June 11, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 18, 1996 accompanying the consolidated
financial statements included ion the Annual Report of AmTec, Inc. and
Subsidiaries (formerly AVIC Group International, Inc. and Subsidiaries) on
Form 10-K for the year ended March 31, 1998. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
AmTec, Inc. on Forms S-8 (#333-15925, #333-26435, and #333-20839) and Forms
S-3 (#333-33235 and #333-44389).
/S/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
June 25, 1998
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