<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1997 .
-----------------------------
Commission File Number: 0-22520 .
------------
AMTEC, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 52-1989122.
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
599 Lexington Avenue, 44th Floor
New York, New York 10022.
----------------------------------------
(Address of principal executive offices)
(212) 319-9160
-------------------------------
(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Class Outstanding as of February 17, 1998
- --------------------------------------- ------------------------------------
Common Stock, par value $.001 per share 25,786,576
Transitional Small Business Format (Check one): Yes No X .
----- -----
<PAGE>
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995.
Except for the historical information contained herein, the matters
discussed in this Quarterly Report are forward-looking statements which involve
risks and uncertainties, 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 the section entitled "Risk Factors" on pages 7 through 11 of the
Company's Annual Report on Form 10-KSB, filed with the Securities and Exchange
Commission on July 15, 1997.
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
3
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<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1997
- --------------------------------------------------------------------------------
DEC. 31 MARCH 31,
1997 1997
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $12,976,000 $ 5,390,871
Accounts receivable 116,215
Prepaid expenses and other current assets 165,973 182,090
----------- -----------
Total current assets 13,258,187 5,572,961
Property and equipment, net 543,119 518,020
GSM construction costs 31,119,574 22,017,869
Additional investment in joint venture - 1,192,000
Office lease deposit 112,526 111,500
Deferred expenses - 5,853
----------- -----------
Total assets (Note 3) $45,033,406 $29,418,203
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable and accrued expenses $484,539 $ 991,194
Accrued interest 874,028 780,902
Loans payable - stockholders 2,413,553 2,413,553
Other payables 11,678,182 450,685
----------- -----------
Total current liabilities 15,450,303 4,636,334
Loans payable 22,649,909 11,956,486
Other payables 1,487,615 10,290,128
Minority interest 1,967,085 1,987,167
----------- -----------
Total Liabilities (Note 4) 41,554,913 28,870,115
----------- -----------
STOCKHOLDERS' EQUITY/(DEFICIT):
Preferred Stock, $.001 par value, authorized
10,000,000 shares Series A Convertible
Preferred Stock: $.001 par value, authorized
1,524,178 shares; 0 and 1,524,178 shares
issued and outstanding in 1997 and 1996 - 1,524
Series D Convertible Preferred Stock:
$.001 par value, authorized 150 shares; 0
and 150 shares issued and outstanding in
1997 and 1996, respectively. - 1
Series C Convertible Preferred Stock:
$.001 par value, authorized 250 shares; 247
and 0 shares issued and outstanding in 1997
and 1996, respectively. - -
Series E Convertible Preferred Stock:
$.001 par value, authorized 74 shares; 74 and
0 shares issued and outstanding in 1997 and
1996, respectively. 1 -
Common stock: $.001 par value, authorized
100,000,000 shares; 21,980,877 and 28,436,952
issued and outstanding in 1997 and 1996,
respectively 19,549 31,258
Additional paid-in capital (Note 5) 29,049,109 25,202,108
Accumulated deficit (24,520,400) (20,592,536)
Cumulative foreign currency exchange loss (953) (1,231)
Non-refundable equipment purchase deposit - (4,572,536)
Common Stock Investment Agreement -
Subscription Receivable (1,548,313)
Warrants 479,500 479,500
----------- -----------
Total stockholders' equity (Note 5) 3,478,493 548,088
----------- -----------
Total Liabilities and Equity $45,033,406 $29,418,203
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
Nine months ended Dec. 31, Quarter ended Dec. 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ - $ - $ - $ -
----------- ----------- ----------- -----------
Expenses:
Cost of sales
Selling, general and administrative 3,672,582 2,863,128 1,207,104 999,947
----------- ----------- ----------- -----------
Total expenses 3,672,582 2,863,128 1,207,104 999,947
----------- ----------- ----------- -----------
Loss from operations (3,672,582) (2,863,128) (1,207,104) (999,947)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (93,587) (535,523) (32,654) (503,353)
Exchange loss
Other - net 11,866 (147,835) 53,993 (115,061)
Income Taxes - (2,629) - (800)
----------- ----------- ----------- -----------
Loss before minority interest $(3,754,303) $(3,549,115) $(1,185,765) $(1,619,161)
----------- ----------- ----------- -----------
Minority interest in loss of subsidiaries 49,330 587,812 272,371 423,361
----------- ----------- ----------- -----------
Net Loss $(3,704,973) $(2,961,303) $ (913,394) $(1,195,800)
Dividend on Preferred stock 222,891 - 114,891 -
----------- ----------- ----------- -----------
Net loss attributable to common
shareholders $(3,927,864) $(2,961,303) $(1,028,285) $(1,195,800)
=========== =========== =========== ===========
Net loss attributable to common
shareholders $ (0.13) $ (0.10) $ (0.04) $ (0.04)
=========== =========== =========== ===========
Weighted average common
shares outstanding 30,728,346 28,779,625 29,210,664 29,433,510
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------
Nine months ended
Dec. 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows form operating activities:
Net loss $(3,704,973) $(2,961,303)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 58,072 14,312
Issuance of common stock and options for
compensation, directors' fees and services rendered 392,381 180,862
(Increase) decrease in:
Accounts receivable (116,215) (16,811,203)
Prepaid expenses and other current assets 16,117 1,635,322
Other assets 4,827 74,164
Increase (decrease) in:
Accounts payable and accrued expenses (506,655) 10,053,224
Accrued interest 93,126 600,033
Minority interest (20,082) -
----------- -----------
Net cash used in operating activities (3,783,401) (7,214,589)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (83,171) (115,622)
Subsidiary cash acquired - 7,719,703
Investment in Netmatics - (60,281)
Timing reversal of investment in joint venture (Note 3) 1,192,000 -
GSM construction costs and additional investments
(Note 3) (9,101,705) -
----------- -----------
Net cash used in investing activities (7,992,876) 7,543,800
----------- -----------
Cash flows from financing activities:
Borrowings (Note 4) $10,392,983
Preferred Stock Dividend (222,891)
Increase in loans payable-stockholders, net - 1,011,472
Sale of preferred stock-net (Note 5) 6,691,035 2,500,000
Proceeds from sale of Series C Convertible Preferred
Stock (Note 5) 2,500,000
Sale of Common Stock - 2,248,107
Foreign Exchange Loss 278 (3,007)
----------- -----------
Net cash provided by financing activities 19,361,405 5,756,572
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,585,129 6,085,783
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,390,871 185,889
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $12,976,000 $ 6,271,672
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements at December 31, 1997 and
for the nine months and three months then ended are unaudited and reflect
all adjustments which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
interim period. All of the adjustments are of a normal recurring nature.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
together with management's discussion and analysis of financial condition
and results of operations, contained in the Annual Report on Form 10-KSB
filed by the Company on July 15, 1997. The results of operations for the
nine months ended December 31, 1997 are not necessarily indicative of the
results for the entire year ending March 31, 1998.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which are based on continuation
of the Company as a going concern. Realization of a major portion of the
assets in the accompanying balance sheet is dependent upon the Company's
existing projects developing profitable operations. Since January 1996,
the Company has focused its business on establishing Sino-foreign joint
ventures ("SFJVs") to develop telecommunications networks in the People's
Republic of China ("PRC") which do not yet generate revenues.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company, its 60.8% owned
subsidiary Hebei United Telecommunications Equipment Co., Ltd. ("Hebei
Equipment") (a limited life Sino-foreign joint venture) and subsidiary, and
the Company's wholly owned subsidiary, ITV Communications, Inc. All
significant intercompany accounts and transactions are eliminated in
consolidation. Hebei Equipment owns 51% of Hebei United
Telecommunications Engineering Company, Ltd. ("Hebei Engineering").
Included in the consolidated financial statements are the financial
statements of the Company for the nine months ended December 31, 1997
and the financial statements of its joint venture subsidiaries for the
nine months ended September 30, 1997.
NOTE 3 - ASSETS
The accompanying consolidated balance sheet as of December 31, 1997 is
comprised of current assets of $13.3 million, fixed assets of $31.6 million
and other assets of $0.1 million. Of the $13 million of cash included in
current assets, $6.2 million is on deposit in an account maintained by one
of the Company's subsidiaries and will be used as part of the funding
required for the build out of the Company's cellular telephone network in
China. The remaining $6.8 million is available for general operating and
investment purposes. Fixed assets are comprised primarily of assets
related to the Company's cellular telephone network in China, while other
assets relate to the activities of the Company and its subsidiaries.
The cash position of the Company at the parent level could support
operations of the Company through December 31, 1999.
7
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NOTE 4 - LIABILITIES
The consolidated balance sheet includes total liabilities of approximately
$41.6 million. Of this amount, approximately $38.4 million are liabilities
of AmTec's subsidiaries, with no recourse to AmTec, including $2,327,553 of
shareholder loans and interest expense associated with such debt in the
amount of $93,587 for the nine months ending December 31, 1997. The
Company has also established a $2.6 million reserve for potential
liabilities in connection with certain securities cancelled. The increase
in consolidated liabilities primarily relates to project financing of the
Hebei GSM Network. The increase in current other payables is primarily a
result of the certain notes payable related to the construction of the GSM
network becoming due.
AmTec's direct liabilities amount to approximately $0.6 million.
NOTE 5 - CHANGES TO EQUITY
Stockholders' Equity increased $2,930,405 from $548,088 on March 31, 1997
to $3,478,493 on December 31, 1997, primarily reflecting increases in
additional paid in capital associated with $9.9 million raised by the
Company through the sale of its Series C and E Convertible Preferred Stock.
This also reflects (i) the cancellation of the Company's Series A
Convertible Preferred Stock, and a related reduction in paid in capital of
approximately $4.6 million; (ii) an increase in subscription receivables of
approximately $1.5 million related to a Common Stock Investment Agreement
with Promethean Investment Group, L.L.C.; and (iii) a decrease in
additional paid in capital of $2.6 million related to the cancellation of
certain shares.
During the quarter ending December 31, 1997, the Company issued seventy
four shares of its Series E Convertible Preferred Stock for gross proceeds
of $7,400,000. Of the total gross proceeds, $6,692,000 was allotted to
additional paid in capital and approximately $707,000 was paid as financing
fees related to the sale of the shares. During the quarter ended December
31, 1997, the Company also (i) reduced its outstanding Common Stock to
20,790,361 shares as a result of cancelling 12,727,909 shares of its common
stock related to unfulfilled agreements related to the purchase of the
shares; as a result, the Company reduced its additional paid in capital
by $2,600,000, (ii) cancelled 551,533 shares of its common stock issued
to an escrow account associated with a subscription receivable, resulting
in a reduction to the subscription receivable of $837,640 and
(iii) issued 10,000 shares of its Common Stock upon the exercise of
certain employee options with an exercise price of $0.35 per share.
NOTE 6 - SUBSEQUENT EVENTS
On January 16, 1998, the Company redeemed 31 shares of its outstanding
Series C Convertible Preferred Stock (the "Series C Shares") from certain
holders of the Series C Shares, at a total cost of $406,100, which included
accrued dividends and a premium
8
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of 25% to the principal plus dividends, the redemption value ("Redemption
Value") established in the Series C Convertible Preferred Stock's
Certificate of Designation and Rights of Preferences. Pursuant to the
Company's Certificate of Incorporation, as amended, such shares have been
retired and returned to the status of authorized, but unissued shares of
undesignated preferred stock.
On February 12, 1998, PRC governmental approval for the transfer to the
Company of an additional 9.2% interest in Hebei Equipment was obtained,
thus increasing the Company's equity interest in Hebei Equipment to 70%.
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," and
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," in September 1997. The
Company believes these statements will not have a material impact on the
Consolidated Financial Statements of the Company when adopted in fiscal
1999.
9
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
AmTec, Inc. (the "Company") develops and finances communications networks in the
People's Republic of China ("PRC"). The Company has interests in assets of a
digital cellular telephone network and a multimedia network, both in the
northern province of Hebei, PRC. The Company holds these interests through
Sino-foreign joint ventures, and each of the Company's joint ventures, Hebei
United Communications Equipment Company Limited ("Hebei Equipment") and Hebei
United Telecommunications Engineering Company Limited ("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. These entities are
governed by the Law of the People's Republic of China on Joint Ventures Using
Chinese and Foreign Investments, and implementing regulations related thereto.
The parties to the joint ventures have contractual rights to the financial
returns of the joint venture in proportion to the joint venture interests that
they hold.
Joint Ventures in Hebei Province
In March 1996, the Company decided to focus its efforts to develop
telecommunications networks in China's Hebei Province, with a population of
64 million people, surrounding Beijing, and formed a joint venture with a
60.8% equity interest in Hebei Equipment. On April 15, 1997, all PRC
governmental approvals were finalized for the conversion of Hebei Equipment
to a Sino-foreign joint venture company. At the time of the Company's
acquisition of the majority stake in Hebei Equipment, Hebei United
Telecommunications Development Co. ("Hebei Development") held a 30% ownership
interest in Hebei Equipment and another PRC entity held subscription rights
to a 9.2% ownership interest in Hebei Equipment. On April 22, 1997, the Board
of Directors of Hebei Equipment resolved to terminate the other PRC entity's
ownership participation in Hebei Equipment, and, on October 9, 1997, the
Company and Hebei Development agreed to transfer this ownership interest to
the Company. PRC governmental approvals for the transfer were obtained on
February 12, 1998, thus increasing the Company's equity interest in Hebei
Equipment to 70%.
The Company, through Hebei Equipment, is currently involved in the development
of two communications networks in Hebei Province: a digital cellular telephone
network (the "GSM Network") and a province-wide multimedia network (the "Hebei
Multimedia Network"). The GSM Network is being constructed by Hebei Engineering,
a 51%-owned subsidiary of Hebei Equipment that is 49%-owned by Nippon Telegraph
and Telephone International ("NTTI"), a subsidiary of Nippon Telegraph &
Telephone Corporation, and Itochu, a Japanese Corporation. The Hebei Multimedia
Network will link existing cable television systems in Hebei Province and is
currently under construction.
10
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The Company expects its joint venture subsidiaries to report revenues from the
GSM network during the second half of fiscal year 1998.
The Hebei GSM Network
Hebei Engineering is constructing the GSM Network pursuant to a 15-year
agreement (the "UNICOM Agreement"), dated February 9, 1996, with China United
Communications Co. ("UNICOM"). UNICOM holds one of two licenses to operate
cellular telephone networks in the PRC. Under the terms of the UNICOM Agreement,
Hebei Engineering will build the GSM Network and sell ownership of the GSM
Network over the life of the agreement to UNICOM in exchange for a majority
share of cash flow generated by UNICOM from UNICOM's operation of the GSM
Network. Hebei Engineering will also provide consulting assistance to UNICOM in
the operation of the GSM Network. Hebei Engineering will receive 78% of up front
connection fees paid by new subscribers to connect to the GSM Network, 78% of
depreciation of fixed assets and 78% of net income generated by UNICOM from
operation of the GSM Network until February 9, 2011. Through the Company's 60.8%
interest in Hebei Equipment and Hebei Equipment's 51% interest in Hebei
Engineering, the Company holds an indirect 31% interest in Hebei Engineering.
Under the UNICOM Agreement, the GSM Network will provide cellular telephone
service, using the Global Service for Mobile ("GSM") telecommunications
technology, in the ten major cities of Hebei Province, which have a total
population, including surrounding metropolitan areas, of approximately 50
million, or approximately 78% of Hebei Province's total population of
approximately 64 million. In the first phase of construction, the GSM Network
will be built in 7 major cities, and have a subscriber capacity of 40,000. In
the second phase of construction, the GSM Network will be built in the remaining
three major cities of Hebei Province, thereby expanding the total network
capacity to 70,000. Based on market demand, management believes the capacity of
the GSM Network may be expanded in the future beyond 70,000 subscribers. In
February 1997, the GSM Network commenced commercial operations in Shijiazhuang,
the capital of Hebei Province.
Construction of the first phase of the GSM Network had been financed with a
$3 million equity investment from Hebei Equipment and NTTI, and vendor
financing guaranteed by NTTI and a $20 million Term Loan facility from Bank
of Tokyo Mitsubishi guaranteed by NTTI. This financing is non-recourse to
Hebei Equipment and the Company. Of these amounts, the Company had provided
$1.17 million of equity funding to Hebei Engineering through the Company's
investment in Hebei Equipment.
At present, all funding commitments required for completion of the first
phase of construction have been obtained by Hebei Engineering.
THE HEBEI MULTIMEDIA NETWORK
On April 8, 1997, Hebei Equipment entered into a 20-year agreement (the "Hebei
Multimedia Agreement") with Hebei Cable Television Station, the exclusive
operator of the province-wide network for cable television service in Hebei
Province and a wholly-owned subsidiary of the regulator of cable television
service in Hebei Province to (i) finance construction of the only fiber-optic
and microwave network to connect the existing cable television systems in the
eleven major cities in Hebei Province and (ii) hold the option to upgrade and
expand the network. Under the Hebei Multimedia Agreement, Hebei Equipment will
provide operating personnel and assistance to Hebei Cable Television Station
and, over the life of the contract, will sell ownership in the assets of the
Hebei Multimedia Network to Hebei Cable Television Station in exchange for
contractually agreed upon percentages of cash
11
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flow generated by Hebei Cable Television Station from operation of the Hebei
Multimedia Network. Until Hebei Equipment has recovered its investment, Hebei
Equipment will receive cash payments equivalent to 80% of depreciation of fixed
assets and 80% of net income generated by Hebei Cable Television Station from
operation of the Hebei Multimedia Network. Thereafter, for the balance of 20
years from the commencement date of formal commercial operations, Hebei
Equipment will receive 30% of depreciation of fixed assets and 30% of net income
generated by Hebei Cable Television Station from operation of the Hebei
Multimedia Network. Hebei Cable Television Station is a subsidiary enterprise of
the Hebei Radio and Television Department, under the jurisdiction of the
Ministry of Radio, Film and Television in the PRC.
The current funding requirement for the Hebei Multimedia Network is estimated at
approximately $13 million to link cable systems in the eleven largest cities in
Hebei Province. The Company anticipates that the required funding will be
provided through equity, vendor and/or debt financing.
RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED DECEMBER 31, 1997 AS
COMPARED TO THE NINE AND THREE MONTHS ENDED DECEMBER 31, 1996.
Stockholders' Equity increased $2,930,405 from $548,088 on March 31, 1997 to
$3,478,493 on December 31, 1997, primarily due to increases in additional
paid in capital associated with $9.9 million raised by the Company through
the sale of its Series C and E Convertible Preferred Stock. This also
reflects (i) the cancellation of the Company's Series A Convertible Preferred
Stock, and a related reduction in paid in capital of approximately $4.6
million; (ii) an increase in subscription receivables of approximately $1.5
million related to a Common Stock Investment Agreement; and (iii) a decrease
in additional paid in capital of $2.6 million related to the cancellation of
certain shares.
The Company reported assets of $45,033,406 at December 31, 1997, an increase of
53% or $15,615,204 from March 31, 1997. This increase primarily related to an
increase of $7,585,129 in cash and an increase in capitalized costs of
$9,101,705 related to the construction of the GSM network being built by the
Company's joint ventures in Hebei Province, PRC. Further, the Company had
reported an additional investment of $1,192,000 at March 31, 1997 which was
reclassified though consolidation of the Company's financial statements at
December 31, 1997 and those of its Chinese subsidiaries at September 30, 1997.
12
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The consolidated balance sheet of the Company includes total liabilities of
approximately $41.6 million. Of this amount, approximately $38.4 million are
liabilities of AmTec's subsidiaries, with no recourse to AmTec, including
$2,327,553 of shareholder loans and interest expense associated with such
debt in the amount of $93,587 for the nine months ending December 31, 1997.
The Company has also established a $2.6 million reserve for potential
liabilities in connection with certain securities cancelled. AmTec's direct
liabilities amount to approximately $0.6 million. The increase in
consolidated liabilities primarily relates to project financing of the Hebei
GSM Network.
As expected by management, due to the early stage of development of the GSM
Network and the Multimedia Network, the Company reported no revenues during
either the three or nine months ended December 31, 1996 or 1997.
The Company's net loss increased from $2,961,303 during the nine months ended
December 31, 1996 to $3,704,973 during the nine months ended December 31, 1997
primarily because selling, general and administrative expenses increased from
approximately $2.9 million to approximately $3.7 during the same period. The
increase primarily related to an increase of operating expenses incurred by the
Company's operating Chinese subsidiary related to the build out of the Hebei GSM
Network. Further, this increase reflects: (i) a $250,000 bad debt allowance
established to offset a $350,000 loan to an unaffiliated entity and (ii)
increases in administrative expenses to support the expanding business
operations of the Company during the period ending December 31, 1997.
For the three months ending December 31, 1997 the Company's selling, general and
administrative costs were $1.2 million, which represented an increase of
$207,157 from the three months ended December 31, 1996. This increase was a
result of increased operations related to the buildout of the Hebei GSM Network
and associated increases in personnel related expenses at the parent company.
LIQUIDITY AND CAPITAL RESOURCES
Because of the development stage of the Hebei GSM Network and the Hebei
Multimedia Network, the Company generated no revenues during the nine months
ended December 31, 1997, and generated an operating loss of $3,672,582 and a net
loss of $3,704,973 during this period. While the Company expects to achieve
profitable operations within several years, there can be no assurances that the
Company will achieve this goal. As a result, the Company has financed its
current activities through private equity placements.
During the nine months ended December 31, 1997, the Company used $3,783,401
of cash in its operating activities, primarily the result of the net loss of
$3,704,973. Further, the Company used $7,992,875 of cash primarily for the
acquisition of fixed assets in the build-out of the Hebei GSM Network.
During the period ending December 31, 1997, the Company gained $19,361,405 in
its financing activities. This increase in cash was the result of an
increase in borrowings related to project financing by Hebei Engineering of
$10,392,983, increases in non-cash accrued preferred stock dividends of
$222,891 and proceeds of $9,900,000 from the sale of the Company's Series C
Convertible Preferred Stock in June 1997 and the sale of its Series E
Convertible Preferred Stock in October 1997.
The cash position at the parent level of $6.8 million could support
operations of the Company though December 31, 1999.
Cancellation of Certain Shares of Common Stock
13
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As reported by the Company in its Current Report on Form 8-K filed on December
17, 1997, on December 8, 1997, the Company cancelled 12,727,909 shares of Common
Stock of the Company and options to purchase 318,182 shares of the Company's
Common Stock which were issued to Tweedia International, Ltd. ("Tweedia")
pursuant to a Stock Purchase Agreement between Tweedia and the Company's
predecessor, ITV Communications, Inc. ("ITV"), a private California corporation.
Upon the Company's recent review of the facts and circumstances surrounding the
purchase of the Tweedia shares and options, it was determined that the full
purchase price for the shares was never paid . On December 8, 1997, the Company
served notice to Tweedia that its shares and options were cancelled on the books
and records of the Company, and that Tweedia had no further rights or privileges
as a holder of said shares and options apart from a right to return of the cash
portion of the consideration originally paid ($2,600,000), subject to such
claims and offsets to which the Company may be entitled, upon the return by
Tweedia to the Company of the certificate evidencing those shares and
presentation of legal documentation sufficient to establishing its authority.
Although the Company believes that its cancellation of the shares of Common
Stock and options held by Tweedia is justified and appropriate, there can be no
assurances that Tweedia will not object to such cancellation or attempt to
reverse such cancellation.
The 12,727,909 shares of Common Stock cancelled on the books and records of
the Company represented approximately thirty-eight percent of the total number
of shares of Common Stock of the Company issued and outstanding prior to the
cancellation of such shares. As a result of the share cancellation, the
Company's paid in capital was reduced by $2,600,000, and its contingent
liabilities were increased by $2,600,000, pending the return of the share
certificate evidencing the cancelled shares. The contingent liability is
subject to claims and offsets to which the Company may be entitled.
Further, the Company reduced the number of shares issued to Promethean
Investment Group, LLC ("Promethean"), which are held in escrow pursuant to the
terms of a Common Stock Investment Agreement (the "Common Stock Investment
Agreement") entered into between the Company and Promethean on March 31, 1997.
The number of shares was reduced by 551,533, from 1,570,998 to 1,019,465,
pursuant to the Common Stock Investment Agreement.
Financing Activities
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. For a more detailed discussion of the sale of the
Company's Series Shares, please see Part II, Item 2, "Changes in Securities and
Use of Proceeds."
Equity Issuances
14
<PAGE>
The Company issued 10,000 shares of common stock to a former employee of the
Company, upon the exercise of an option issued to the individual pursuant to the
Company's 1996 Stock Option Plan. The option had an exercise price of $0.35 per
share. The Company also issued 2,043,693 shares of its Common Stock during its
third quarter upon conversion of 127.5 shares of the Company's Series D
Convertible Preferred Shares (the "Series D Shares") by the holders of the
Series D Shares. Further, during its third quarter, the Company issued 62,670
shares of its Common Stock upon conversion of 3 shares of its Series C
Convertible Preferred Stock (the "C Shares") by certain holders of the C Shares.
15
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
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 an exemption from the registration
requirements of the Securities Act of 1933, as amended, at $100,000 per share
and the holders of the Series E Stock have no rights to cash dividends. The
Series E Shares pay 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 (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 may not be converted prior to March
2, 1998, and the remaining twenty four shares may not be converted prior to the
first anniversary of the close of the offering. In addition to the shares,
warrants were issued to five of the Series E Investors to purchase up to
1,236,346 shares of the Company's Common Stock at a price equal to 120% of the
market price of the Company's Common Stock at the time of closing based on the
amount invested by the shareholders and the length of the "lock-up" agreed upon
between the Company and certain investors. Holders of the Series E Shares also
have a registration right requiring the Company to file a registration statement
covering the Common Stock underlying the Series E Preferred Shares and related
warrants with the SEC no later than March 2, 1998.
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 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on October 17, 1997. At the
Company's Annual Meeting of Shareholders, the Company's stockholders met to
consider and vote upon the following two proposals:
(1) A proposal to elect seven Directors of the Company, each to hold
office until his successor is elected and qualified or until his
death, resignation or removal.
(1) A proposal to ratify the appointment of Deloitte & Touche, LLP as the
Company's independent auditors for the fiscal year ending March 31,
1998.
Results with respect to the voting on each of the above proposals were as
follows:
16
<PAGE>
Proposal 1: Richard S. Braddock
FOR-16,650,841 WITHHOLD AUTHORITY-18,000
Drew Lewis
FOR-16,603,174 WITHHOLD AUTHORITY-65,667
Liang Jiangli
FOR-16,650,841 WITHHOLD AUTHORITY-18,000
James R. Lilley
FOR-16,649,841 WITHHOLD AUTHORITY-19,000
Richard T. McNamar
FOR-16,604,174 WITHHOLD AUTHORITY-64,667
Michael H. Wilson
FOR-16,650,841 WITHHOLD AUTHORITY-18,000
Joseph R. Wright, Jr.
FOR-16,649,841 WITHHOLD AUTHORITY-19,000
Proposal 2: 16,523,188 Votes For
6,400 Votes Against
139,253 Abstentions
0 Broker Non-Votes
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS.
10.1 Employment Agreement between the Company and Albert G. Pastino, dated
October 16, 1997.
10.2 Employment Agreement between the Company and James F. O'Brien, dated
October 16, 1997.
17
<PAGE>
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K.
Current Report on Form 8-K dated December 8, 1997, as filed with the
Commission on December 17, 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: February 17, 1998 AmTec, Inc.
By: /s/ Joseph R. Wright, Jr.
------------------------------------
Joseph R. Wright, Jr.
Chief Executive Officer
By: /s/ Albert G. Pastino
------------------------------------
Albert G. Pastino
Principal Financial and
Accounting Officer
19
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of October 15, 1997, is between AmTec,
Inc. ("Employer") and Albert G. Pastino ("Executive").
W I T N E S S E T H
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 commence
on the date hereof and shall terminate on October 14, 2002.
2. Duties. Executive agrees to serve Employer as Senior Vice
President and Chief Financial Officer 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 of the Company and the Chief Executive Officer of the
Company. During the term of this Agreement, Executive will devote no less than
two thirds (2/3) of his time and attention to, and use his best efforts to
advance the business and welfare of Employer, subject to the direction and
control of the Board of Directors.
3. Confidential Information and Covenant Not to Compete.
(a) Employer acknowledges that Executive has certain professional
obligations to third parties described in Exhibit "A" hereto and that Executive
will continue to perform those obligations. With respect to such of those
professional obligations as may or may appear to constitute a conflict between
the interests of Employer and the interests of such third parties, Employer and
Executive agree that Executive shall not provide services to Employer or such
third parties in connection with any maters now existing or hereafter arising in
which the interests of Employer or such third parties are adverse or have the
potential to be adverse.
(b) 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 to, 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.
(c) 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
<PAGE>
or records or writings of any other type (including any copy thereof made),
used or obtained by Executive in connection with his employment by Employer.
(d) 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 de hereof or hereafter
conducted, directly or indirectly, by Employer during the term of this
Agreement, in any country where business is then carried on or conducted by
Employer.
(e) 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.
(f) The parties hereto intent 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 this Agreement, Employer shall pay Executive an annual base salary
of Two Hundred Thousand Dollars ($200,000), payable in cash semi-monthly and
subject to income tax withholdings and other payroll deductions as customary in
respect of Employer's salaried employees in general. In addition, Executive
shall receive ten year options to purchase 67,500 shares of Common Stock of the
Employer at a price of $2.125 per share, said options to vest 25% at the end of
each 90 day period during the first year of the term of this Agreement. The
annual base salary of Executive for the second year of this Agreement will be
determined by the Compensation Committee of the Board of Directors, but shall be
no less than Two Hundred Fifty Thousand Dollars ($250,000) plus 67,500 options
to purchase common stock of the Employer at $2.125 per share, said options to
vest at the end of each 90 day period during the second year of the term of this
Agreement. The annual base salary of Executive for the third, fourth and fifth
years of the term of this Agreement will be determined by the Compensation
Committee of the
<PAGE>
Board of Directors, but shall be no less in each year than 110% of the annual
base salary (including cash and options) of Executive for the immediately
preceding year.
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 first year of employment hereunder,
Employer shall pay Executive a bonus of at least $50,000 (and if during the
first year of the term of this Agreement, Employer obtains additional financing,
said bonus shall be no less than $100,000), payable in cash within thirty days
of the end of the first year of employment hereunder. For the second year and
each succeeding year of employment hereunder, Employer shall pay Executive a
bonus at least equal to 50% of Executive's annual base salary for the then
current year of employment hereunder. Criteria for the determination of the
discretionary amount of bonus will be as agreed upon by 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) Long Term Compensation Plan. Executive shall be entitled to
participate in a long-term compensation plan which will be multi-year
performance based over three 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 Board of Directors the equivalent of at least 50% of annual
base pay per year under this plan after three years.
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 Stock Options. Effective the date of this Agreement, Employer
grants stock options to Executive covering 400,000 shares of Common Stock of
Employer. Such options shall be exercisable at a price of $2.125 per share, and
shall have a ten year term. Provided that the Executive is employed by the
Company on each of the vesting dates set forth below, the options shall vest as
follows:
October 15, 1997 - 125,000
January 15, 1998 - 62,500
April 15, 1998 - 62,500
July 15, 1998 - 37,500
<PAGE>
October 15, 1998 - 37,500
January 15, 1999 - 37,500
April 15, 1999 - 37,500
In the event Executive is terminated by the Company without good cause pursuant
to Paragraph 7, all of such stock options shall immediately vest.
4.8 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 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) 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 4.7 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 in Section 3 of this
Agreement;
(b) Executive's conviction by, or entry of a plea of guilty or nolo
contendre 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.
<PAGE>
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, commitments, writings, and understandings and is and shall be
binding upon and 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
attorney's fees and other costs incurred in that action or proceeding, 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.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
EXECUTIVE: EMPLOYER:
AMTEC, INC.
/s/ Albert G. Pastino /s/Joseph R. Wright, Jr.
ALBERT G. PASTINO CHAIRMAN
<PAGE>
EXHIBIT "A"
PROFESSIONAL OBLIGATIONS OF ALBERT G. PASTINO
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of October 15, 1997, is between AmTec,
Inc. ("Employer") and James F. O'Brien ("Executive").
W I T N E S S E T H
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 commence
on the date hereof and shall terminate on October 14, 2002.
2. Duties. Executive agrees to serve Employer as Senior Vice
President and General Counsel 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 of the Company and the Chief Executive Officer of the Company.
During the term of this Agreement, Executive will devote no less than two thirds
(2/3) of his time and attention to, and use his best efforts to advance the
business and welfare of Employer, subject to the direction and control of the
Board of Directors.
3. Confidential Information and Covenant Not to Compete.
(a) Employer acknowledges that Executive has certain professional
obligations to third parties described in Exhibit "A" hereto and that Executive
will continue to perform those obligations. With respect to such of those
professional obligations as may or may appear to constitute a conflict between
the interests of Employer and the interests of such third parties, Employer and
Executive agree that Executive shall not provide services to Employer or such
third parties in connection with any maters now existing or hereafter arising in
which the interests of Employer or such third parties are adverse or have the
potential to be adverse.
(b) 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 to, 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.
(c) 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
<PAGE>
or records or writings of any other type (including any copy thereof made), used
or obtained by Executive in connection with his employment by Employer.
(d) 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 de hereof or hereafter
conducted, directly or indirectly, by Employer during the term of this
Agreement, in any country where business is then carried on or conducted by
Employer.
(e) 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.
(f) The parties hereto intent 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 this Agreement, Employer shall pay Executive an annual base salary
of Two Hundred Thousand Dollars ($200,000), payable in cash semi-monthly and
subject to income tax withholdings and other payroll deductions as customary in
respect of Employer's salaried employees in general. In addition, Executive
shall receive ten year options to purchase 67,500 shares of Common Stock of the
Employer at a price of $2.125 per share, said options to vest 25% at the end of
each 90 day period during the first year of the term of this Agreement. The
annual base salary of Executive for the second year of this Agreement will be
determined by the Compensation Committee of the
<PAGE>
Board of Directors, but shall be no less than Two Hundred Fifty Thousand Dollars
($250,000) plus 67,500 options to purchase common stock of the Employer at
$2.125 per share, said options to vest at the end of each 90 day period during
the second year of the term of this Agreement. The annual base salary of
Executive for the 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 in each year than 110% of the annual base salary (including
cash and options) of Executive for the immediately preceding year.
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 first year of employment hereunder,
Employer shall pay Executive a bonus of at least $50,000 (and if during the
first year of the term of this Agreement, Employer obtains additional financing,
said bonus shall be no less than $100,000), payable in cash within thirty days
of the end of the first year of employment hereunder. For the second year and
each succeeding year of employment hereunder, Employer shall pay Executive a
bonus at least equal to 50% of Executive's annual base salary for the then
current year of employment hereunder. Criteria for the determination of the
discretionary amount of bonus will be as agreed upon by 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) Long Term Compensation Plan. Executive shall be entitled to
participate in a long-term compensation plan which will be multi-year
performance based over three 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 Board of Directors the equivalent of at least 50% of annual
base pay per year under this plan after three years.
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 Stock Options. Effective the date of this Agreement, Employer
grants stock options to Executive covering 400,000 shares of Common Stock of
Employer. Such options shall be exercisable at a price of $2.125 per share, and
shall have a ten year term. Provided that the Executive is employed by the
Company on each of the vesting dates set forth below, the options shall vest as
follows:
October 15, 1997 - 125,000
January 15, 1998 - 62,500
April 15, 1998 - 62,500
July 15, 1998 - 37,500
<PAGE>
October 15, 1998 - 37,500
January 15, 1999 - 37,500
April 15, 1999 - 37,500
In the event Executive is terminated by the Company without good cause pursuant
to Paragraph 7, all of such stock options shall immediately vest.
4.8 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 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) 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 4.7 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 in Section 3 of this
Agreement;
(b) Executive's conviction by, or entry of a plea of guilty or nolo
contendre 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.
<PAGE>
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, commitments, writings, and understandings and is and shall be
binding upon and 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
attorney's fees and other costs incurred in that action or proceeding, 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.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
EXECUTIVE: EMPLOYER:
AMTEC, INC.
/s/ James F. O'Brien /s/Joseph R. Wright, Jr.
JAMES F. O'BRIEN CHAIRMAN
<PAGE>
EXHIBIT "A"
PROFESSIONAL OBLIGATIONS OF JAMES F. O'BRIEN
Promethean Investment Group, L.L.C. Counsel
Promethean Investment Group, Inc. Counsel
Themis Partners, L. P. Counsel
Heracles Fund Counsel and Member of the Board of
Directors
(The above entities are subject to Paragraph 3(a) of the Employment Agreement.)
The Jetty Fund Counsel
The Longshore Fund Counsel
Compo Asset Management Counsel
Goulston & Storrs, P.C. Co-Counsel
(Involves representations of two clients of Goulston & Storrs in litigation
matters pending in the Superior Court and the Land Court of the Commonwealth of
Massachusetts.)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 12,976,000
<SECURITIES> 0
<RECEIVABLES> 116,215
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,258,187
<PP&E> 543,119
<DEPRECIATION> 58,072
<TOTAL-ASSETS> 45,033,406
<CURRENT-LIABILITIES> 15,450,303
<BONDS> 0
0
321
<COMMON> 21,980,877
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 45,033,406
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,672,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,587
<INCOME-PRETAX> (3,704,973)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,927,864)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,927,864)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
