UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999.
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.
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(Exact name of registrant as specified in its charter)
Delaware 52-1989122
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
599 Lexington Avenue, 44th Floor, New York, New York 10022
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(Address of principal executive offices, including zip code)
212-319-9160
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(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
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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, 1999 were zero.
The number of shares outstanding of the registrant's common stock as of
June 25, 1999 was 32,015,468 shares. The aggregate market value of the
common stock (14,946,981) shares held by non-affiliates, based on the
closing price ($1.1250) of the common stock as of June 25, 1999 was
approximately $16.8 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 company that provides
value-added telecommunications services to and from the Far East and has
telecommunications investments in the People's Republic of China (the "PRC"
or "China"). The Company initially focused its business on China because of
that country's large and rapidly growing need for telecommunications
services, 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. In its first three years, the Company's joint
venture operations have launched six cellular telephone networks with
38,000 subscribers in the northeastern province of Hebei, which has a
population of approximately 65 million people. The Company is using its
presence in China to expand to other telecom services and other Far East
markets. It has formed a joint venture with Fusion Telecommunictions
International to provide telecom services, both voice and data, to and
from Asia; has invested in IXS.NET, Inc. to provide fax services over the
Internet, prepaid credit cards and other Internet Protocol ("IP") based
services; and is expanding its joint venture in China to provide IP fax,
voice and other services which can be transmitted over digital telephone
lines or the Internet. Developing existing network interests in China and
expanding interests or joint ventures in communications networks in the Far
East are key components of the Company's future 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, measured by number of users.
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. The Internet is
established in China and there are a large number of Internet service
providers licensed and operating in China. However, the quality of their
service is slow and while the industry is growing rapidly, it is still in
an early stage of development. 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. Similarly, the Company's announced IP Fax and
Internet telephony businesses are positioned to benefit from deregulation
throughout the Far East.
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. The
Company's investments in Hebei Equipment and Hebei Engineering are
accounted for under the equity method. Hebei Equipment and Hebei
Engineering are both organized as Sino-foreign equity joint ventures
("SFJVs")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.
Hebei Engineering, 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 has
been and continues to be 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
20, 1999 six cities, were providing commercial service, with approximately
38,000 subscribers; construction in one additional city was substantially
completed, with a commercial launch date scheduled during 1999.
As of March 31, 1999, 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 Itochu. Of the $3 million of equity raised by Hebei Engineering,
$1.17 million was contributed by AmTec through its interest in Hebei
Equipment.
Realization of the Company's investment in its SFJVs is dependent
upon UNICOM's operation of the GSM Networks and the payback of outstanding
loans by Hebei Engineering, 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 cannot 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 which has been offered by the People's Liberation Army and
China Telecom through their joint venture, Great Wall Communications Group
("Great Wall"). It is now reported that UNICOM may be licensed to provide
CDMA service some time in the future.
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 six cities in Hebei, and has substantially
completed network construction in an additional city in Hebei, there can be
no assurance that this additional network will be completed and that
commercial operations in the seventh city will commence. Currently, Hebei
Engineering has no reason to believe that this additional network 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. The Company has no mandatory capital requirements to increase the
capacity from 40,000 to 70,000 subscribers. It is anticipated that debt or
equity contributions made by the Company and/or 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 beyond 70,000
subscribers. (See LEGAL AND REGULATORY RISKS)
LEGAL & REGULATORY RISKS
The PRC's legal system is a civil law system based on written
statutes and is a system in which decided legal cases have little
precedential value. The PRC Government began to promulgate a comprehensive
system of laws in 1979. Many laws and regulations governing economic
matters in general have been promulgated. The general effect of this
legislation has been to enhance the protection afforded to foreign invested
enterprises in the PRC. However, as these laws and regulations are
relatively new, their interpretation and enforcement involve significant
uncertainty.
The current PRC regulations prohibit foreign investors and foreign
invested enterprises from operating or participating in the operation of
telecommunications networks in China. The relevant PRC laws and regulations
do not define what constitutes foreign operations or participation in
operations, and it is not clear what rights or actions would violate such
laws and regulations. Based on advice of its Chinese legal counsel,the
Company has structured its investments in China by establishing
Chinese-foreign joint ventures in the PRC to provide financing and
consultancy services to licensed telecommunications operators, i.e.,
utilizing the commonly-known Chinese-Chinese-Foreign ("CCF") structure. The
PRC Government is currently undertaking a review of the CCF structure used
by Unicom. It has been reported that Unicom has been instructed by the PRC
Government not to use the CCF structure in the future and that the PRC
Government is examining and evaluating the existing CCF contracts. It is
unclear if, and to what extent, the existing CCF contracts entered into by
Unicom will be required to be amended. It is also unclear whether foreign
entities involved in the CCF structures will be required to divest
themselves of all or part of their respective interests in the
Chinese-foreign joint venture companies. The evaluation of the CCF
structure by the PRC Government may have a material adverse impact on the
contracts entered into by Hebei Engineering and by the Company which
utilize the CCF structure and may have a material adverse effect on the
Company's business, financial condition and results of operations.
In order to provide a uniform regulatory framework to encourage the
orderly development of the PRC telecommunications industry, the PRC
authorities are currently preparing a draft Telecommunications Law. Once
formulated, the draft law will be submitted to the National People's
Congress for review and adoption. It is unclear if and when the
Telecommunications Law will be adopted. The nature and the scope of the
regulation envisaged by the Telecommunications Law is not fully known but
the Company believes that, if adopted, the Telecommunications Law will have
a positive effect on the overall development of the telecommunications
industry in the PRC. However, the Telecommunications Law, if adopted, may
have an adverse effect on the Company's business, financial condition or
results of operations.
The Chinese laws and regulations governing the telecommunications
industry may also be changed or applied in a manner which would have a
material adverse effect on the business, financial condition and results of
operations of the Company.
During the Spring of 1999, the PRC started negotiating accession to
the World Trade Organization ("WTO"). While there is no assurance that
China will join the World Trade Organization, all parties have publicly
expressed the intention of attempting to negotiate an agreement to be
concluded before the WTO ministerial in December 1999. And, the PRC has
confirmed that its proposed concessions to gain admission that were
published in the press were accurate. If the PRC were to join the WTO, the
Telecommunication Protocol of the WTO Agreement assures certain national
treatment of foreign investors in the telecommunications sector, including
minimum direct ownership percentages in licensed telecommunication
operators.
The PRC's pending application to the WTO, the evaluation of the CCF
structure by the government, the draft Telecommunications Law, which may be
substantially affected by a PRC agreement to join the WTO, plus the procedural
issues relating to the establishment of Hebei Equipment and its investment
in Hebei Engineering, create uncertainty. Resolution of these matters may
materially adversely affect the Company's current or future investments in
China and its provision of telecommunication services to China. The Company
believes that most, if not all, foreign telecommunications investors in the
CCF structure face similar uncertainties at this time, and are awaiting
resolution of these questions.
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 its SFJV will be able to obtain all
required approvals for the conversion and remittance abroad of foreign
currency. 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 were 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 other agreements with Hebei Province to develop and
finance telecommunications projects designated for foreign investment. (See
SUBSEQUENT EVENTS)
UIH TRANSACTION
On December 23, 1998, AmTec signed an agreement to acquire 100% of
the common stock of UIH Hunan from UIH China Holdings, a subsidiary of UIH
Asia/Pacific Communications, Inc., a subsidiary of United International
Holdings (doing business as UnitedGlobalCom) for consideration of $12
million, which shall consist of shares of Series F Preferred Stock
convertible into Common Stock at a price equal to the average closing price
of Common Stock during the ten trading days ending three days prior to the
closing of the United International Holdings transaction.
UIH Hunan holds a 49% interest in HITC, a joint venture in Hunan
Province (population 64 million) with a wholly-owned subsidiary of the
Hunan Broadcasting and Television Bureau, the provincial monopoly operator
of cable television in Hunan. HITC holds revenue sharing agreements with
the Hunan Broadcasting and Television Bureau in connection with a microwave
network that is currently transmitting four television channels to 255,000
cable television subscribers in seven cities in Hunan. Revenue sharing
payments made by the Hunan Broadcasting and Television Bureau to HITC are
based on the number of channels transmitted, the number of subscribers
reached and the level of advertising revenues generated.
The consummation of this transaction with UIH China Holdings is
subject to various conditions, including receipt of necessary governmental
approvals and other customary closing conditions. In addition, under the
American Stock Exchange guidelines the Company will be required to obtain
shareholder approval for the number of Common Stock related to this
issuance that is in excess of 19.9% of the Common Stock outstanding on the
date of issuance. Once all of the conditions in China necessary for the
consummation of the transaction are completed, the Company's shareholders
will be asked to approve the necessary increase in the shares to be issued to
UIH Asia/Pacific Communications. At present, UIH is working to complete the
pre-closing conditions in China, including necessary governmental
approvals. The successful completion of this merger is subject to final due
diligence and shareholder approval, among other conditions.
GLOBAL TELESYSTEMS TRANSACTION.
On August 26, 1998, AmTec signed an agreement to acquire a 75%
interest in Shanghai V-Tech Telecom from SFMT-China for consideration of
5,925,357 Shares, valued by AmTec and SFMT-China at $1.35 per Share.
SFMT-China is a subsidiary of Global TeleSystems, Inc. ("GTS").
Shanghai V-Tech Telecom is a joint venture with SSTIC, a Chinese
investment company based in Shanghai. SSTIC holds ownership interest in
numerous telecommunications and technology companies located in Shanghai.
These interests are in networks providing VSAT services, frame relay
services, and data networking for closed user groups not interconnected to
the Publicly Switched Telephone Network ("PSTN"). Shanghai V-Tech Telecom's
revenues will be derived primarily from profit-sharing and revenue-sharing
arrangements.
The consummation of this transaction with GTS is subject to various
conditions, including receipt of necessary governmental approvals and other
customary closing conditions. In addition, under the American Stock
Exchange guidelines the Company will be required to obtain shareholder
approval for the number of shares related to this issuance that is in
excess of 19.9% of the Common Stock outstanding on the date of issuance.
Once all of the conditions in China necessary for the consummation of the
transaction are completed, the Company's shareholders will be asked to
approve the necessary increase in the shares to be issued to SFMT-China. At
present, SFMT-China and GTS are working to complete the pre-closing
conditions in China, including obtaining the necessary governmental
approvals. The successful completion of this merger is subject to final due
diligence and shareholder approval, among other conditions.
OTHER
The Company is also considering several other opportunities in
telecommunications network development and provision of IP based value
added fax and telephony services in China and the Far East. The Company has
begun to focus on these IP service opportunities as the telecommunications
market in China has developed over the last two years. (See SUBSEQUENT
EVENTS.)
EMPLOYEES
As of June 20, 1999, the Company had 13 full time employees in New
York and China.
The Company employs a policy of staffing and managing its
joint-venture subsidiaries and hiring PRC nationals for its China
operations. As of June 20, 1999, the Company's subsidiary Hebei Equipment
had 6 employees. Additionally, Hebei Engineering had 17 employees as of the
same date. It is the intention of the Company to add employees to its
Chinese and Far Eastern subsidiaries and joint ventures 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.
SUBSEQUENT EVENTS
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
On April 28, 1999, the Company formed a 50-50% joint venture,
IP.TEL, LLC with Fusion Telecommunications International, Inc. ("Fusion"),
a private facilities-based, multinational long-distance company. Fusion's
current service offerings include voice and data, switched and dedicated,
domestic and international long-distance and domestic and international
prepaid calling cards, provided through a network of owned and leased
facilities, leased lines and resale agreements.
The joint venture will provide value-added telecommunication
services, including telephony and data, to and from Asia. Utilizing the
Company's established presence in China and Fusion's telecommunication
franchise, the companies plan to expand the service offerings of the joint
venture to include a fully integrated Internet protocol based network to
provide voice and fax services. The joint venture agreement includes
language that gives both parties the right of first refusal regarding
projects in China within the scope of IP.TEL, LLC's business proposition.
IXS.NET, INC.
During May 1999, the Company formed a three-way alliance with Fusion
and IXS.NET, a private IP fax service provider, to develop IP fax services in
Asia. The Company and Fusion agreed to make an equal convertible debt
investment into IXS.NET and the Company has an option to acquire up to 50%
of IXS.NET. The Company has invested $175,000 under a loan agreement to
IXS.NET and expects to enter into an eighteen months convertible debt
agreement shortly. The convertible debt agreement will allow for the
Company to advance up to $575,000 over the eighteen months period, subject
to certain terms and conditions. The business is in the process of starting
up in Hebei Province as per an arrangement with Hebei Equipment. During the
next quarter, the Company anticipates obtaining licenses to expand the
service in Sichuan, Beijing, Tanjain and other provinces in China.
The IXS.NET business equips a local business with a modem that
transfers international fax calls through a local phone call on the PSTN to
an Internet node in the city of origin, then transmits the fax on the
Internet internationally to the city of destination, converts the fax call
to a local telephone call in the city of destination on city's PSTN which
is transmitted to the destination fax telephone number. This model saves
the standard international telephone phone call charges, which are very
expensive to and from China. This business model can result in a
significant savings to any business that faxes internationally on a regular
basis. There are other competitors offering similar or essentially the same
service in China and there can be no assurance that the Hebei
Equipment-IXS.NET joint venture will be profitable.
According to the International Data Corporation, the Asia/Pacific
Rim will lead the global Internet fax market with a 169% compound annual
growth rate, boosting regional volume from approximately 350 million
minutes in 1999 to an estimated 4.3 billion minutes in 2002. In the
Internet Fax arena, China is already the leading national market and is
forecasted to supplant Japan as the new leader in overall Asian fax
traffic. Traditional faxing remains very expensive because deregulation and
competition has yet to eliminate high long-distance phone rates. The
IXS.NET joint venture allows the Company to capitalize on this opportunity.
MANAGEMENT
The Company, as of June 30, 1999, promoted R.T. McNamar as President
and Chief Operating Officer and Mr. Wilfred Chow as Controller/Treasurer.
Ms. Karin-Joyce Tjon was promoted to Vice President Finance. Concurrently,
the Company's Chief Financial Officer, Albert G. Pastino, resigned on a
fulltime basis, but will remain involved in the Company's business as a
consultant.
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 Company is represented by the law firm
of Matthias & Berg LLP, 515 South Flower Street, Seventh Floor, Los
Angeles, California 90071, on this matter.
As of June 18, 1999, the Company and Jacqueline B. Brandwynne have
reached a settlement in principle of the legal proceedings. Subject to
documentation and signing of the final agreement, the parties have agreed
to release each other from all claims. The Company has agreed to pay Ms.
Brandwynne $250,000 in AmTec Common Stock, which includes her claim for
attorney's fees. Such amount has been reserved for as of March 31, 1999.
While the management of the Company believes that these claims are without
merit, and that there are valid defenses to each claim, management believes
it is in the best interest of the Company to settle the litigation,
eliminate any possible liability exposure, and avoid additional legal fees
to defend the litigation.
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, 1999.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 31, 1999, 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 March 31, 1999, there were
issued and outstanding 30,736,721 shares of Common Stock, options to
purchase 9,987,602 shares of Common Stock, 29.764 shares of Series E
Convertible Preferred Stock, 20 shares of Series G Convertible Preferred
Stock. Further, there were issued and outstanding warrants to purchase
4,196,514 shares of Common Stock. As of March 31, 1999, there were
approximately 2,362 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 25, 1999 were $1.1250 and
$1.0625, 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>
1998 1999
COMMON 1ST Q 2ND Q 3RD Q 4TH Q 1ST Q 2ND Q 3RD Q 4TH Q
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STOCK PRICE
High $5.1875 $3.4375 $2.4375 $1.1875 $2.2500 $1.3750 $1.1250 $1.6250
Low $2.8125 $1.8125 $0.5000 $0.5625 $1.1875 $0.8750 $0.8125 $0.9375
</TABLE>
High and low sales price as reported on the American Stock Exchange.
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 March 16, 1999 the Company completed the sale of 20 shares of its
Series G Convertible Preferred Stock (the "Series G Stock" or "Series G
Shares") for proceeds of $2,000,000.
The Series G Shares were sold pursuant to Reg. D at $100,000 per
share and the holders of the Series G Stock have no rights to cash
dividends but are entitled to an 8% in-kind dividend. Conversion of the
Series G Shares into Common Stock is based on $1.25 (the closing price of
the Company's Common Stock on the last business day immediately preceding
the closing of the transaction). In addition to the shares, warrants were
issued to the Series G Investors to purchase 600,000 shares of the
Company's Common Stock at an exercise price of $1.25. Holders of the Series
G Shares also have a registration right requiring the Company to file a
registration statement covering the Common Stock underlying the Series G
Preferred Shares and related warrants with the Securities and Exchange
Commission (the "SEC") no later than August 2, 1999.
The Series G Shares have a stated liquidation preference value of
$100,000 per share plus an 8% accrued in-kind dividend since the date of
issuance, and is senior to all common stock. The holders of the Series G
Shares have no voting rights except with respect to certain matters that
affect the rights related to the Series G Shares.
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>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $ -0- $ -0- $ -0- $ -0- $ 345,276
Loss from continuing
operations (4,649,770) (4,282,613) (3,563,568) (3,380,633) -0-
Loss from discontinued
operations -0- -0- -0- (1,932,977) (5,585,596)
Gain on sale of
discontinued
operations -0- -0- -0- 31,888 -0-
Net Loss (5,579,444) (5,403,368) (4,064,885) (5,281,730) (5,538,303)
Loss from continuing
operation per
common share (0.23) (0.23) (0.14) (0.13) -0-
Loss from discontinued
operation per
common share -0- -0- -0- (0.08) (0.32)
Basic Loss per common
share (0.23) (0.23) (0.14) (0.21) (0.32)
Total Assets 4,781,085 7,683,358 4,004,966 1,660,000 3,267,488
Shareholders' Equity
(Deficit) 3,813,342 4,896,911 548,088 (2,421,606) (1,255,412)
</TABLE>
Financial information for the years 1995 and 1996, is not comparable
to the financial information provided for 1997, 1998 and 1999, 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
The Company had previously consolidated the revenues and expenses of
its Sino-foreign joint venture subsidiary Hebei Equipment and its
Sino-foreign joint venture subsidiary Hebei Engineering. The Company is now
accounting for such subsidiaries under the equity method of accounting. The
Company's share of Hebei Equipment's net loss is reported on one line in
its income statement and its investment is reported on one line the balance
sheet as "Investments in and Advances to Unconsolidated Subsidiary". The
Company has filed an amended Form 10-K/A for the year ended March 31, 1998
to reflect this change.
INVESTMENT IN JOINT VENTURES
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. Due to
certain participating rights held by the minority partners of each joint
venture, the Company accounts for its investment in Hebei Equipment, and
Hebei Equipment accounts for its investment in Hebei Engineering, by the
equity method of accounting.
As of March 31, 1999, AmTec's equity interest in Hebei Equipment
was $966,465 which included a total investment of $2,100,000 and its share
of equity losses in Hebei Equipment which amounted to $1,133,535. As of
March 31, 1999, Hebei Equipment's equity interest in Hebei Engineering was
zero. The total investment of $1,530,000 made by Hebei Equipment in Hebei
Engineering was offset by its share of equity losses in Hebei Engineering.
Hebei Equipment stopped recognizing additional losses as it is not required
either contractually or otherwise to make any additional capital
investments. In addition, Hebei Equipment has not guaranteed any of Hebei
Engineering debts.
Hebei Equipment, through its 51%-owned subsidiary, Hebei
Engineering has borrowed approximately $33,560,000 to purchase equipment
which was contributed to China United Communications Company ("UNICOM") to
construct the GSM networks in Hebei Province and has received the right to
receive future cash flow. Initially, Hebei Engineering owned 100% of the
assets prior to contributing such assets to UNICOM and once contributed,
Hebei Engineering owned and retained title to a 70% interest in the assets
and UNICOM owned and retained title to a 30% interest in the assets.
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. Each year, Hebei Engineering will transfer
ownership of assets to UNICOM equal in value to the Distributable Cash Flow
received up to 60% of the assets. The maximum amount of assets transferred
will not exceed 90% of the assets until termination of the Project
Cooperation Contract. Upon the termination of the contract the remaining
10% of the network assets shall be assigned to UNICOM without any further
consideration. 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 investment entities, such as Hebei
Engineering, are not permitted to own or operate telecommunications
networks. Substantially all of the Hebei Engineering'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. Hebei
Engineering has recorded its investment (GSM Construction Costs) as a right
to receive future cash flow at cost and is amortizing the cost of these
rights based upon the greater of the amount computed using (a) the ratio
that current gross revenues from the GSM networks to the total of current
and anticipated future gross revenues from the GSM networks or (b) the
straight-line method over 15 years which was the remaining estimated
economic life of the GSM networks at the inception of this investment.
Amortization of the Investment in GSM Networks for the year ended March 31,
1998 amounted to approximately $4,600,000.
Income from the GSM networks is recognized at the time when Hebei
Engineering can estimate or calculate the portion of its Distributable Cash
Flow from the networks. UNICOM commenced operation of the GSM networks in
February 1997. Net revenue from GSM Networks recognized by Hebei
Engineering for the year ended December 31, 1998 and 1997 was $781,745 and
$216348, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through equity
investments.
Approximately $3,737,000 of cash was used in the Company's
operations for the fiscal year ended March 31, 1999, compared to cash used
of approximately $3,924,000 for the year ended March 31, 1998. The cash
flow from operating activities decreased primarily due to cost control over
selling, general & administrative expenses. During the fiscal year ended
March 31, 1997, the Company used approximately $3,382,000 in its operating
activities.
The Company used approximately $13,000 in its investing activities
in the year ended March 31, 1999, compared to approximately $390,000 in the
year ended March 31, 1998. The decrease in investing activities is related
primarily to the fact that no additional investment was made by the Company
to its subsidiaries in Hebei province, PRC.
The cash inflows from financing activities during the year ended
March 31, 1999 were generated primarily from the repayment of an advance to
Hebei Equipment of $2,200,000 and the offering of 20 shares of Series G
Convertible Preferred Stock for a consideration of $2,000,000.
The Company wrote off its Notes Payable to Shareholders for
approximately $2.3 million, including accrued interest.
During the year ended March 31, 1998, the Company made 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 $2,093,900,
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.
During fiscal year ended 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.
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 1999, the Company issued 5,554,424 shares of its
Common Stock upon conversion of 40.356 outstanding shares of the Company's
Series E Convertible Preferred Shares.
Common stock issued in connection with stock option plans and
services performed:
During fiscal 1999 the Company did not issue any common stock in
connection with stock option plans. In connection with services performed,
the Company issued 85,000 options to members of its Board of Directors.
During fiscal 1998 the Company issued (i) 10,000 shares of common
stock 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 were
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 fiscal 1998, 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 would have been
issued to Promethean if the Company drew on funds from Promethean pursuant
to the Common Stock Investment Agreement. This agreement was subsequently
cancelled during fiscal 1999.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1999 AND MARCH 31, 1998
The Company's indirect subsidiary, Hebei Engineering, recorded
revenues of RmB 6,488,482 (approximately $811,000) for the year ended
December 31, 1998, and RmB 1,706,499 (approximately $213,000) for the year
ended December 31, 1997. (See Page F-34). The Company has no revenues on
its consolidated financial statements because the results of operations of
the Company's subsidiary Hebei Equipment were accounted for under the equity
method of accounting. The Company recorded only its share of losses of its
unconsolidated subsidiary according to the percentage of its equity
interest. The Company had net losses of $5,579,444 and $5,403,368 during
the fiscal years ended March 31, 1999 and 1998, respectively.
Selling, general and administrative expenses ("SG&A") increased from
$4,282,613 during the year ended March 31, 1998, to $4,649,770 during the
year ended March 31, 1999, due to increases in salaries, and legal and
professional expenses incurred during the past year.
The equity in losses of the Company's unconsolidated subsidiary of
$606,647 recorded during the year ended March 31, 1998 and $385,139 during
the year ended March 31, 1999 represents the Company's share of losses
reported by Hebei Equipment for the year ended December 31, 1997 and
December 31, 1998, during which period the Company owned a 60.8% and a
70.0% equity interest respectively of Hebei Equipment.
Amortization of stock options granted to non employees was related
to the three million options issued to the Hebei Provincial Government 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 recorded their estimated value of $1,837,500 during
the year ended March 31, 1998, and amortized approximately $459,000 during
each of the years ended March 31, 1998 and 1999. The amortization of these
options is a non-cash expense. The options were cancelled as of December
31, 1998.
Other expense of approximately $85,000 was primarily franchise and
other tax paid during the year ended March 31, 1999. The Company received a
tax refund of approximately $70,000 during the year ended March 31, 1998.
The Company's loss applicable to common shareholders decreased 9%
from $6,802,054 during the year ended March 31, 1998, to $6,251,901 during
the year ended March 31, 1999. This decrease in loss applicable to common
shares was primarily due to a decrease in the recognition of Preferred
Stock Dividends as well as a decrease in the share of equity loss from
Hebei Equipment, offset by increases in selling, general & administrative
expenses.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
The Company has experienced net losses of $5,403,368 and $4,064,885
during the fiscal years ended March 31, 1998 and 1997, respectively.
Selling, general and administrative expenses increased from
$3,563,568 during the year ended March 31, 1997, to $4,282,613 during the
year ended March 31, 1998, due to increased levels of salaries paid to
employees and legal and professional expenses incurred during the past
year.
The equity in losses of the Company's unconsolidated subsidiary of
$140,526 recorded during the year ended March 31, 1997 and $606,647 during
the year ended March 31, 1998 represents the Company's share of losses
reported by Hebei Equipment for the year ended December 31, 1996 and
December 31, 1997, during which period the Company owned a sixty point
eight percent (60.8%) equity interest Hebei Equipment.
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) of approximately $70,000 during the year ending
March 31, 1998 was related to a tax refund 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 share of equity loss
from Hebei Equipment, amortization of stock options issued to the Hebei
Provincial Government, as well as increases in selling, general &
administrative expenses.
IMPACT OF THE YEAR 2000
The "Year 2000" problem is the result of computer programs being
written using two digits, rather than four digits, to define the applicable
year. Any of the programs used in the Company's operations that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Company has previously instituted a thorough
program to identify these computer programs and modify or replace its key
financial information and operational systems so that they will function
properly in the year 2000. Remaining financial and operational systems have
been assessed, and detailed plans have been developed and are being
implemented to make the necessary modifications to ensure Year 2000
compliance. The financial impact of making the required system changes for
Year 2000 compliance are not expected to have any material effect on the
Company's financial statements.
However, even as the Company's assessment is completed without
identifying any material non-compliant systems operated by, or in the
control of, the Company, or of third parties, the most reasonable likely
worse case scenario would be a systems failure beyond the control of the
Company to remedy. Such a failure could materially prevent the Company from
operating its business. The Company believes that such a failure could lead
to lost revenues, increased operating cost, or other business interruptions
of a material nature.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments and hedging
activities. Generally, it requires that an entity recognizes all derivatives
as either an asset or liability and measures those instruments at fair
value, as well as identifies the conditions for which a derivative may be
specifically designed as a hedge. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999. Management is currently addressing the
financial reporting measures that will be needed in order to comply with
this disclosure. The Company has not participated in any hedging activities
in connection with foreign currency exposure.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company has not entered into any financial instruments for
trading or hedging purposes.
The Company is not exposed to fluctuations in foreign currencies
relative to the U.S. dollar, as its revenues, costs, assets and liabilities
are, for the most part, denominated in local currencies. The results of
operations of the Company's subsidiaries were as reported in their local
currencies.
The Company's carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses is a reasonable
approximation of their fair value.
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. 60 Chairman of the Board of Directors,
Chief Executive Officer and President
Richard T. McNamar 60 Vice Chairman of the Board of Directors
Richard S. Braddock 57 Director
Marvin S. Rosen 58 Director
James R. Lilley 71 Director
Michael H. Wilson 61 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 information technology support to government and private
entities, Co-Chairman of Baker & Taylor Holdings, Inc., an international
book and video distribution company, and a member of the Board of PanAm
Sat, the largest private satellite operator. From 1989 to 1994, Mr. Wright
served as Executive Vice President, Vice Chairman and Director 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 a former member of the President's Export
Council and a former member of the Board of Directors of Travelers;
Harcourt Brace Janovich; and Hampton University.
Richard T. McNamar, prior to serving as President and Chief Operating
Officer, 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, the Board of the Institute
of the Americas, and a member of Home EquiVest, LLC..
Richard S. Braddock has served as a Director of the Company since
August 1997. He is Chairman and Chief Executive Officer of priceline.com, a
position he has held since August of 1998. He has served as the Chairman of
True North Communications, Inc. (a public company) from December 1997 to
January 1999. 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 priceline.com, all publicly-held
companies; and NewSub Services, Inc., Prime Response Ltd. and Walker
Digital, all private 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.
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. Mr. Wilson serves on the Board of
Directors of BP Amoco plc, Manufacturers Life Insurance Company and Rio
Algom Limited. He is also active in a number of professional and community
organizations in Canada and the United States.
Marvin S. Rosen has served as Director of the Company since March
1999. Mr. Rosen is a Principal Shareholder and Member of the Executive
Committee of Greenberg Traurig, P.A., a national law firm. From September
1995 through January 1997, Mr. Rosen served as the Finance Chairman of the
Democratic National Committee. Mr. Rosen currently serves on the Board of
Directors of the Children's Health Fund (New York City) (since 1994), the
Robert F. Kennedy Memorial (since 1995), Bio-Medical Disposal, Inc. (since
1998) and Fusion Telecommunications International (since 1997), where he
has also been Vice-Chairman since December 1998. Mr. Rosen received his
B.S. in Commerce from the University of Virginia, his LL.B. from Dickinson
School of Law and his LL.M. in Corporations from New York University Law
School.
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. Mr. Lim
resigned from the Company as of June 30, 1999.
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 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. Mr. Pastino resigned from the Company on a fulltime basis as of
June 30, 1999, and will remain a Consultant to the Company.
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. Mr. O'Brien resigned from the Company as of
March 31, 1999.
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.
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, 1999 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, as of the most
recent shareholder meeting, were Richard S. Braddock, Chairman of the
Committee, Drew Lewis and Joseph R. Wright, Jr. Mr. Lewis resigned from the
Board of Directors and the Compensation Committee during the quarter ending
December 1998.
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, 1999 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, 1999, 1998 and 1997 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 1999 483,333 (2)$35,000
Chief Executive 1998 392,967 50,000 (2)$30,000
Officer(1) 1997 256,250 (2)$30,000 $281,250 3,000,000
R. T. McNamar 1999 100,000
Vice Chairman (3) 1998 100,000 (4)$37,500
1997 500,000
Michael J. Lim 1999 307,500 50,000
Executive Vice 1998 253,417 75,000 250,000
President (5) 1997 167,333
Albert G, Pastino 1999 205,000 30,000
Senior Vice 1998 125,000 50,000 467,500
President, Chief 1997
Financial Officer &
Treasurer (6)
James F. O'Brien 1999 222,916
Senior Vice 1998 125,000 50,000 467,500
President, General 1997
Counsel & Corporate
Secretary(7)
Xiao Jun 1999 175,000
Executive Vice 1998 175,000
President-AVIC 1997 123,958
China (8)
</TABLE>
- -----------------
(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.
OPTION AND SAR GRANTS DURING LAST FISCAL YEAR
The Company issued 375,000 stock options at fair market value and no
SARs to its Named Executive Officers during the fiscal year ended March 31,
1999.
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 1999 and
options held by such Named Executive Officers on March 31, 1999:
<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> <C>
Joseph R. Wright - - 6,000,000 200,000 $3,262,500 $112,500
R. T. McNamar - - 500,000 - - -
Michael J. Lim - - 1,125,000 225,000 1,173,438 142,188
Albert G. Pastino - - 430,000 112,500 - 42,188
James F. O'Brien - - 446,875 88,125 - -
Xiao Jun - - 515,000 - 559,488 -
</TABLE>
- ----------------
(1) Based on a per share price of $1.4375, the closing price of the
Common Stock as reported on the American Stock Exchange on March 31,
1999, minus the exercise price of the option, multiplied by the
number of shares underlying the Option.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with five of its
executive officers, Messrs. Joseph R. Wright, Jr. which superseded his
earlier agreement, Richard T. McNamar, Michael J. Lim, Albert G. Pastino
and James F. O'Brien.
The Company entered into a two year employment agreement dated as of
January 1, 1999, 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 agreement provides for
an annual base salary of $450,000, ten year options to purchase 200,000
shares of Common Stock at an exercise price of $0.875 (the market price at
the date of grant), vesting over a two year period, and a stock award of
100,000 shares of Common Stock.
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 signed a three year employment agreement
on June 30, 1999 whereby Mr. McNamar will serve as President and Chief
Operating Officer of the Company. The agreement provides for a base salary
of $150,000 and ten year options to acquire 200,000 shares of the Company's
Common Stock at an exercise price at the fair market value of Company's
Common Stock at the date of grant, vesting over a two year period.
On January 1, 1999, the Company entered into a two year contract
with Michael J. Lim, whereby Mr. Lim will serve as an Executive Vice
President of the Company. The agreement provides for an annual base salary
of $330,000, ten year options to purchase 100,000 shares of Common Stock at
an exercise price of $0.875 (the market price at the date of grant),
vesting over a two year period, and a stock award of 50,000 shares of
Common Stock. Mr. Lim has resigned from the Company as of June 30, 1999.
On January 1, 1999, the Company entered into a two year contract
with Albert G. Pastino, whereby Mr. Pastino will serve as a Senior Vice
President and Chief Financial Officer of the Company. The agreement
provides for an annual base salary of $220,000, ten year options to
purchase 75,000 shares of Common Stock at an exercise price of $0.875 (the
market price at the date of grant), vesting over a two year period, and a
stock award of 30,000 shares of Common Stock. Mr. Pastino resigned from the
Company on a fulltime basis as of June 30, 1999, and will remain a
Consultant to the Company.
On October 15, 1997, the Company entered into a five-year employment
agreement with James F. O'Brien. 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. 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 grant was made. Mr. O'Brien
resigned from the Company as of March 31, 1999.
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 385,000 shares of
Common Stock under the 1995 Stock Option Plan, 260,000 of which have been
exercised as of June 25, 1999.
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 and amended on January 1, 1999. 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 9,867,602
shares of Common Stock under the 1996 Stock Option Plan, 10,000 of which
have been exercised. Of the 9,867,602 options granted as of the date of
this Report, 9,241,994 options have vested, and the remaining 625,608
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
385,000 shares of Common Stock, 260,000 of which have been exercised.
375,000 ISOs have an exercise price of $0.3555 per share and 10,000 ISOs
have an exercise price of $1.50 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 372,380 shares of Common Stock. These options have the
following per share exercise prices: 285,714 shares ($0.35), 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 1996
Stock Option Plan to purchase up to 9,495,222 shares of Common Stock,
subject to certain vesting schedules. These options have exercise prices
that range from $0.35 to $3.00.
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 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 2, 1999, was renewed as of
April 12, 1999 and will expire March 31, 2000.
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 March 31, 1999 by : (i) each person known by the Company to
beneficially own 5% or more of the outstanding Shares, (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, except to the extent authority is shared by spouses under
applicable law. The information set forth in the table and accompanying
footnoes has been furnished by the named beneficial owners:
NAME OF NO. OF
BENEFICIAL OWNER SHARES PERCENT (1)
---------------- ------ -----------
Joseph R. Wright, Jr. (2) 6,515,144 21.13%
Richard T. McNamar (3) 525,000 1.70%
Richard S. Braddock (4) 231,092 *
James R. Lilley (5) 78,574 *
Michael H. Wilson (6) 125,722 *
Marvin S. Rosen (7) 1,276,530 4.14%
Michael J. Lim (8) 1,181,900 3.83%
Albert G. Pastino (9) 621,057 2.01%
James F. O'Brien (10) 446,875 1.45%
Xiao Jun (11) 525,000 1.70%
All executive officers and
directors as a group (12) 11,526,894 37.39%
Jenny Sun (13) 5,541,593 17.98%
Polmont Investments
Limited (14) 5,541,593 17.98%
Occidental Worldwide
Corporation (15) 5,541,593 17.98%
Max Chian Yi Sun (16) 5,541,593 17.98%
- ----------------------
* 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 subject to
options currently exercisable, or exercisable within 60 days of
March 31, 1999, 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) Includes 42,148 Shares held by Austin Trading Partners, LP, of which
Mr. Wright is a limited partner. Also includes options to purchase
6,000,000 Shares. The address of Mr. Wright is c/o AmTec, Inc., 599
Lexington Avenue, 44th Floor, New York, New York 10022.
(3) Includes options to purchase 500,000 Shares.
(4) Includes options to purchase 52,500 Shares.
(5) Includes options to purchase 47,500 Shares.
(6) Includes options to purchase 52,500 Shares.
(7) Includes options to purchase 12,500 Shares.
(8) Includes options to purchase 1,125,000 Shares.
(9) Includes options to purchase 430,000 Shares.
(10) Includes options to purchase 446,875 Shares.
(11) Includes options to purchase 515,000 Shares.
(12) Includes options to purchase 9,201,017 Shares
(13) Includes 2,450,000 Shares held by Polmont Investments Limited and
2,797,691 Shares held by Occidental Worldwide Corporation of which
Ms. Sun has voting power. It also includes 293,402 Shares currently
held by Chian Jeng Sun & Chieh Siong Soon and 500 Shares held by Max
Sun. The address of Ms. Sun is 1052 North Beverly Drive, Beverly
Hills, CA 90210. The Company believes that Ms. Sun is currently out
of compliance with her required filings of Statements of Beneficial
Ownership based on available information related to her ownership of
the Company's securities.
(14) Includes 2,797,691 Shares held by Occidental Worldwide Corporation
and 293,402 Shares currently held by Chian Jeng Sun & Chieh Siong
Soon and 500 Shares held by Max Sun. The address of Polmont
Investments Limited is c/o Havelet Trust Company, P.O. Box 3136,
Road Town, Tortola, British Virgin Islands.
(15) Includes 2,450,000 Shares held by Polmont Investments Limited and
293,402 Shares currently held by Chian Jeng Sun & Chieh Siong Soon
and 500 Shares held by Max Sun. The address of Occidental Worldwide
Corporation is Mr. Vincent Lim, c/o Rabobank, Shell Tower, 1 Raffles
Place, Singapore.
(16) Includes 2,450,000 Shares held by Polmont Investments Limited and
2,797,691 Shares held by Occidental Worldwide Corporation of which
Mr. Sun has voting power. It also includes 293,402 Shares currently
held by Chian Jeng Sun & Chieh Siong Soon. The address of Mr. Sun is
126 JLN DEDAP, Taman Ampang, Selangor, Malaysia. The Company
believes that Mr. Sun is currently out of compliance with his
required filings of Statements of Beneficial Ownership based on
available information related to his ownership of the Company's
securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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, 1999.
(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)
2.3 Purchase Agreement by and among SFMT-China, Inc., AmTec Hebei
Telecom Holdings, Ltd. and the Company; dated August 26, 1998
2.4 Agreement and Plan of Merger among the Company, AmTec Acquisition
Corporation and UIH Hunan, Inc. dated as of December 23, 1998
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 Restated Bylaws of the Company (13)
4.1 Certificate of Designations of Preferences of Series C
Convertible Preferred Stock of the Company(9)
4.2 Certificate of Designations of Preferences of Series D
Convertible Preferred Stock of the Company(7)
4.3 Certificate of Designations of Preferences of Series E
Convertible Preferred Stock of the Company(10)
4.4 Certificate of Designations of Preferences of Series G
Convertible Preferred Stock of the Company
4.5 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(13)
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)
10.23 Employment Agreement between Joseph R. Wright, Jr. and the
Company dated as of January 1, 1999
10.24 Employment Agreement between Michael J. Lim. and the Company
dated as of January 1, 1999
10.25 Employment Agreement between Albert G. Pastino and the Company
dated as of January 1, 1999
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP(13)
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.
(13) Previously filed as part of the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1998.
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: August 23, 1999
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joseph R. Wright, Jr. Chairman of the Board of August 23, 1999
- ----------------------------- Directors, Chief Executive
Joseph R. Wright, Jr. Officer and President
(Principal Executive Officer)
/s/ Richard T. McNamar Vice Chairman of the Board August 23, 1999
- ----------------------------- of Directors
Richard T. McNamar
/s/ Richard S. Braddock Director August 23, 1999
- -----------------------------
Richard S. Braddock
/s/ Marvin S. Rosen Director August 23, 1999
- -----------------------------
Marvin S. Rosen
/s/ James R. Lilley Director August 23, 1999
- -----------------------------
James R. Lilley
/s/ Michael H. Wilson Director August 23, 1999
- -----------------------------
Michael H. Wilson
/s/ Wilfred Chow Controller and Treasurer August 23, 1999
- ----------------------------- (Principal Accounting
Wilfred Chow Officer)
FINANCIAL STATEMENTS
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
PAGE
AMTEC, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
MARCH 31, 1999, 1998 AND 1997:
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity (Deficit) F-4
Consolidated Statements of Cash Flows F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-22
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
INDEPENDENT AUDITORS' REPORT F-23
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE PERIOD FROM APRIL 29, 1997, (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 1997
Balance Sheets F-24
Statements of Operations F-25
Statements of Investors' Equity F-26
Statements of Cash Flows F-27
Notes to Financial Statements F-28 - F-33
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
INDEPENDENT AUDITORS' REPORT F-34
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998,
1997 AND PERIOD FROM JANUARY 31, 1996 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER, 1996:
Balance Sheets F-35
Statements of Operations F-36
Statements of Investors' Equity (Deficit) F-37
Statements of Cash Flows F-38
Notes to Financial Statements F-39 - F-46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
AmTec Inc.
We have audited the accompanying consolidated balance sheets of AmTec Inc.
and subsidiaries as of March 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended March 31, 1999. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March
31, 1999 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 1999, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
June 29, 1999
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
- -----------------------------------------------------------------------------
1999 1998
ASSETS
CURRENT ASSETS:
Cash $ 2,093,141 $ 2,134,662
Accounts receivable -- 114,661
Prepaid expenses and other current assets 38,805 108,082
------------ ------------
Total current assets 2,131,946 2,357,405
Investments in and advances to
unconsolidated subsidiary 2,496,480 5,074,217
Property, plant and equipment, net 96,926 139,136
Office lease deposit 55,733 112,600
------------ ------------
Total assets $ 4,781,085 $ 7,683,358
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 439,195 $ 541,888
Accrued expenses 528,548 792,006
Loans payable - shareholders -- 1,452,553
------------ ------------
Total current liabilities 967,743 2,786,447
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock: authorized 10,000,000
shares:
Series E Convertible Preferred Stock:
$.001 par value; 74 shares issued,
73.2 and 29.8 shares outstanding in
1999 and 1998, respectively 1 1
Series G Convertible Preferred Stock:
$.001 par value; 20 and 0 shares
issued and outstanding in 1999 and 1998,
respectively 1 --
Common Stock: $.001 par value, authorized
100,000,000 shares;
30,736,721 and 26,532,502 issued and
outstanding in 1999 and 1998, respectively 30,737 26,533
Additional Paid-In Capital 36,947,244 33,149,142
Accumulated deficit (33,646,491) (27,394,590)
Nonemployee deferred option cost, net -- (1,378,125)
Warrants 481,850 493,950
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,813,342 4,896,911
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,781,085 $ 7,683,358
============ ============
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- ----------------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
------------ ------------ ------------
EXPENSES
Selling, general and administrative 4,649,770 4,282,613 3,563,568
------------ ------------ ------------
LOSS FROM OPERATIONS (4,649,770) (4,282,613) (3,563,568)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Amortization of stock options
granted to non-employees (459,374) (459,375) --
Interest expense -- (125,586) (129,039)
Other - net (85,161) 70,853 (33,216)
Write off of investment in affiliate -- -- (198,538)
------------ ------------ ------------
Total other expense (544,535) (514,108) (360,793)
------------ ------------ ------------
LOSS BEFORE EQUITY IN LOSSES OF
UNCONSOLIDATED SUBSIDIARY (5,194,305) (4,796,721) (3,924,361)
Equity in losses of unconsolidated
subsidiary (385,139) (606,647) (140,524)
------------ ------------ ------------
NET LOSS (5,579,444) (5,403,368) (4,064,885)
PREFERRED STOCK DIVIDEND 672,457 1,398,686 10,000
------------ ------------ ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (6,251,901) $ (6,802,054) $ (4,074,885)
============ ============ ============
BASIC LOSS PER COMMON SHARE $ (0.23) $ (0.23) $ (0.14)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 27,495,213 29,843,712 29,102,347
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
YEARS ENDED MARCH 31, 1999,1998 AND 1997
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)
- -------------------------------------------------------------------------------------------------------------------------------
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, 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 as
compensation 212,500 213 - - - - - - - -
Common shares issued for
directors fees 10,000 10 - - - - - - - -
Sale of common shares 1,000,000 1,000 - - - - - - - -
Cumulative foreign
currency exchange loss - - - - - - - - - -
Preferred dividends - - - - - - - - - -
Warrants - - - - - - - - - -
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 stock - - - - - - 250 1 - -
Common shares issued for
services rendered 23,233 23 - - - - - - - -
Conversion of Series D
shares to common stock 2,236,507 2,237 - - - - - - (150) (1)
Common stock investment
agreement - net of
cancellation 1,019,465 1,019 - - - - - - - -
Common shares issued for
directors fees 40,000 40 - - - - - - - -
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 common stock 4,507,639 4,508 - - - - (219) (1) - -
Issuance of Series E
preferred stock - - - - - - - - - -
Conversion of Series E
shares to common stock 106,646 107 - - - - - - - -
Buyback of Series C
preferred stock - - - - - - (31) - - -
Deferred financing costs,
net of amortization - - - - - - - - - -
Stock options issued to
third party - - - - - - - - - -
Cumulative foreign
currency exchange loss - - - - - - - - - -
Advance to joint venture
partner - - - - - - - - - -
Preferred stock dividends - - - - - - - - - -
Cancellation of Warrants - - - - - - - - - -
Net loss - - - - - - - - - -
------------ ------------- ----------- -------- ----- ----- ----- ----- ------ -------
BALANCE, March 31, 1998 26,532,502 $26,533 - $ - - $ - - $ - - $ -
Conversion of Series E
shares to common stock 5,554,484 5,554 - - - - - - - -
Common Shares buyback (330,800) (331) - - - - - - - -
Preferred Shares buyback
- - - - - - - - - -
Cancellation of common
stocks investment
agreement (1,019,465) (1,019) - - - - - - - -
Issuance of Series G
preferred stock - - - - - - - - - -
Issuance of Warrants - - - - - - - - - -
Cancellation of Warrants - - - - - - - - - -
Cancellation of
shareholders loans and
accrual interest - - - - - - - - - -
Cumulative foreign
currency exchange loss - - - - - - - - - -
Preferred stock dividends - - - - - - - - - -
Cancellation of Stock
options issued to third
party - - - - - - - - - -
Options issued for
services rendered - - - - - - - - - -
Net loss - - - - - - - - - -
------------ ------------- ----------- -------- ----- ----- ----- ----- ------ -------
BALANCE, March 31, 1999 30,736,721 $30,737 - $ - - $ - - $ - - $ -
============ ============= =========== ======== ===== ===== ===== ===== ====== =======
See notes to consolidated
financial statements
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SERIES E SERIES G
PREFERRED STOCK PREFERRED STOCK ADDITIONAL EQUIPMENT DEFERRED
-------------- --------------- PAID-IN ACCUMULATED PURCHASE OPTION
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL DEFICIT DEPOSIT COSTS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---- --- ------ ------ ------- ----------- ------------ ----------- -------- -----------
BALANCE, March 31, 1996 - $- - $ - $ - $18,648,620 ($16,527,651) ($4,572,536) $ - ($2,421,606)
Issuances of Series B
preferred stock - - - - - 2,341,218 - - - 2,341,219
Conversion of Series B
shares - - - - - (1,506) - - - -
Issuance of Series D
preferred stock - - - - - 1,499,999 - - - 1,500,000
Common shares issued for
services rendered - - - - - 316,249 - - - 316,340
Common shares issued to
employees as
compensation - - - - - 318,538 - - - 318,751
Common shares issued for
directors fees - - - - - 89,990 - - - 90,000
Sale of common shares - - - - - 1,999,000 - - - 2,000,000
Cumulative foreign
currency exchange loss - - - - - (1,231) - - - (1,231)
Preferred dividends - - - - - (10,000) - - - (10,000)
Warrants - - - - 479,500 - - - - 479,500
Net loss - - - - - - (4,064,885) - - (4,064,885)
---- --- ------ ------ ------- ----------- ------------ ------------ -------- ----------
BALANCE, March 31, 1997 - $- - $ - $479,500 $25,200,877 ($20,592,536) ($4,572,536) $ - $ 548,088
Exercise of employee
stock options - - - - - 34,681 - - - 34,750
Issuance of Series C
preferred stock - - - - - 2,499,999 - - - 2,500,000
Common shares issued for
services rendered - - - - - 66,934 - - - 66,958
Conversion of Series D
shares to common stock - - - - - 129,673 - - - 131,909
Common stock investment
agreement - net of
cancellation - - - - - (1,019) - - - 0
Common shares issued for
directors fees - - - - - 84,960 - - - 85,000
Cancellation of Series A
preferred - - - - - (4,571,012) - 4,572,536 - 0
Cancellation of common
stock - - - - - 12,728 - - - 0
Tweedia loan cancellation - - - - - 25,000 - - - 25,000
Allocation of
non-refundable deposit
from former affiliate - - - - - 850,000 - - - 850,000
Other - - - - - (580) - - - (580)
Conversion of Series C
shares to common stock - - - - - (4,508) - - - (1)
Issuance of Series E
preferred stock 74 1 - - - 6,759,000 - - - 6,759,001
Conversion of Series E
shares to common stock (1) - - - - (107) - - - 0
Buyback of Series C
preferred stock - - - - - (406,100) - - - (406,100)
Deferred financing costs,
net of amortization - - - - 161,450 (229,415) - - - (67,965)
Stock options issued to
third party - - - - - 1,837,500 - - (1,378,125) 459,375
Cumulative foreign
currency exchange loss - - - - - 1,844 - - - 1,844
Advance to joint venture
partner - - - - - (540,000) - - - (540,000)
Preferred stock dividends - - - - - 1,398,686 (1,398,686) - - 0
Cancellation of Warrants - - - - (147,000) - - - - (147,000)
Net loss - - - - - - (5,403,368) - - (5,403,368)
---- --- ------ ------ ------- ----------- ------------ --------- ----------- ----------
BALANCE, March 31, 1998 73 $1 - $ - $493,953 $33,149,142 ($27,394,590) $ - ($1,378,125) $4,896,911
Conversion of Series E
shares to common stock (40) - - - - 138,821 - - - 144,375
Common Shares buyback - - - - - (383,052) - - - (383,383)
Preferred Shares buyback (3) - - - - (100,000) - - - (100,000)
Cancellation of common
stocks investment
agreement - - - - - 1,019 - - - 0
Issuance of Series G
preferred stock - - 20 1 - 2,000,000 - - - 2,000,001
Issuance of Warrants - - - - 210,400 (210,400) - - - 0
Cancellation of Warrants - - - - (222,500) 222,500 - - - 0
Cancellation of
shareholders loans and
accrual interest - - - - - 2,359,621 - - - 2,359,621
Cumulative foreign
currency exchange loss - - - - - (613) - - - (613)
Preferred stock dividends - - - - - 672,457 (672,457) - - 0
Cancellation of Stock
options issued to third
party - - - - - (918,751) - - $1,378,125 459,374
Options issued for
services rendered - - - - - 16,500 - - - 16,500
Net loss - - - - - - (5,579,444) - - (5,579,444)
---- --- ------ ------ ------- ----------- ------------ --------- ---------- ----------
BALANCE, March 31, 1999 30 $1 20 $1 $481,850 $36,947,244 ($33,646,491) $ - $ - $3,813,342
==== === ====== ====== ======== =========== ============ ========= ========== ==========
</TABLE>
See notes to consolidated
financial statements
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,579,444) $(5,403,368) $(4,064,885)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred option cost 459,375 459,375 --
Depreciation 55,250 43,432 28,905
Loss from abandoned assets -- 87,441 --
Gain from sale of assets 137 -- --
Issuance of warrants for services
rendered -- -- 479,500
Issuance of common stock in connection
with Series E buyback transaction 144,375 -- --
Issuance of common stock and options
for directors' fees and professional
services rendered 16,500 151,957 725,091
Equity in losses of unconsolidated
subsidiary 385,139 606,647 140,524
(Increase) decrease in:
Accounts receivable 114,661 (114,661) --
Prepaid expenses and other current
assets 69,277 63,839 (111,243)
Office lease deposit 56,867 (1,100) 55,700
Increase (decrease) in:
Accounts payable and accrued expenses 540,917 293,027 (485,959)
Loans payable - stockholders -- (111,000) (150,000)
----------- ----------- -----------
Net cash used in operating activities (3,736,946) (3,924,411) (3,382,367)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Netmatics -- (87,441) --
Purchase of property and equipment (13,427) (29,212) (106,028)
Investment in unconsolidated subsidiary -- (276,000) (654,000)
Proceeds from sale of assets 250 -- --
----------- ----------- -----------
Net cash used in investing activities (13,177) (392,653) (760,028)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Warrants issued for services rendered -
net of charges to APIC -- (215,546) --
Buyback common stock (383,383) -- --
Buyback Series E convertible preferred
stock (100,000) -- --
Loans payable to stockholders -- 25,000 --
Repayment from(Advance to) unconsolidated
subsidiary 2,191,985 (3,724,000) (538,000)
Proceeds from sale of common stock -- 166,659 2,000,000
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 --
Proceeds from sale of Series G convertible
preferred stock 2,000,000 -- --
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,708,602 5,105,013 5,303,219
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (41,521) 787,949 1,160,824
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,134,662 1,346,713 185,889
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,093,141 $ 2,134,662 $ 1,346,713
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- -----------------------------------------------------------------------------
1. SUPPLEMENTAL CASH INFORMATION:
No interest or income taxes were paid during fiscal 1999, 1998 and
1997.
2. NONCASH FINANCING ACTIVITIES:
In fiscal 1999, shareholder loans payable of $1,452,553 and related
accrued interest of $907,068 were cancelled and credited to Additional
Paid-In Capital.
In fiscal 1999, the Company paid a dividend in kind of $210,400 as part
of the issuance of Series G Preferred Stock.
In fiscal 1999, 40.4 shares of Series E Convertible Preferred Stock
were converted into 5,554,424 shares of common stock (inclusive of
conversions of preferred dividends of $462,057).
In fiscal 1999, warrants valued at $222,500 were cancelled and
credited to Additional Paid-In Capital.
In fiscal 1999, the Company cancelled a Common Stock Investment
Agreement, as permitted by the Agreement, with Promethean Investment
Group. 1,019,465 shares previously held in escrow designated for
issuance under terms of the agreement were cancelled.
In fiscal 1999, the option 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 was cancelled. Unamortized Deferred Option Cost
valued at $918,751 was charged to Additional Paid in Capital.
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 canceled upon
determination that the full purchase price for such shares was not
paid.
In fiscal 1998, $850,000 Notes Payable related to a nonrefundable
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 canceled 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.
See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- -----------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND LINE OF BUSINESS - AmTec Inc. (the "Company" or
"AmTec") through its majority-owned subsidiary (accounted for under
the equity method of accounting) in the People's Republic of China
("PRC") is involved in providing financing and assistance in 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. ITV remains inactive during
the year ended March 31, 1999.
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
years ended March 31, 1999 and 1998.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the Company's wholly- owned subsidiaries, ITV Communications,
Inc, and the Bermuda company and the British Virgin Island company, as
noted above, all dormant companies. All significant intercompany
accounts and transactions are eliminated in consolidation.
EQUITY METHOD OF ACCOUNTING - The Company accounts for its subsidiary
Hebei United Telecommunications Equipment Co., Ltd. ("Hebei
Equipment") (a limited life Sino-foreign joint venture) using the
equity method of accounting as minority shareholders of Hebei
Equipment have substantive participating rights under the joint
venture contracts. The Company reports its investment in Hebei
Equipment under the caption Investments in and advances to
unconsolidated subsidiary. Under the equity method, the investment is
carried at cost of acquisition, plus the Company's equity in
undistributed earnings or losses since acquisition. Equity in the
losses of the unconsolidated subsidiary is recognized according to the
Company's percentage ownership in the unconsolidated subsidiary until
the Company contributed capital has been fully depleted. Reserves are
provided where management determines that the investment or equity in
earnings is not realizable. For the period ending March 31, 1998, the
Company used an ownership percentage of 60.8% for purposes of
calculating the share of losses of its unconsolidated subsidiary since
it did not increase its ownership percentage in Hebei Equipment to 70%
until after the close of Hebei Equipment's fiscal year-end on December
31, 1997. For the year ended March 31, 1999, the Company recognized
70% of losses of its unconsolidated subsidiary. Hebei Equipment owns
51% of Hebei United Telecommunications Engineering Company, Ltd.
("Hebei Engineering"). Hebei Equipment also accounts for its
investment using equity method of accounting as minority shareholders
of Hebei Engineering have substantive participating rights under the
joint venture contracts.
DIFFERENCE IN YEAR END - The Company's share of equity in losses of
Hebei Equipment included in the consolidated financial statements are
as of and for the years ended December 31, 1998 and 1997, Hebei
Equipment's year-end. Since inception the Company has had a March 31
year-end. The Company kept this year-end even though its subsidiaries
have a calendar year-end so that delays in receiving information from
China would not cause problems for the Company in meeting its
reporting deadlines. However, the Company does monitor events in the
lag period and, where appropriate, would disclose the occurrence of
any significant event during such lag period. All companies
established under PRC law are required to have a December 31 fiscal
year-end date. Hebei Equipment and Hebei Engineering are equity joint
venture companies established under PRC law.
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:
Furniture, fixtures and equipment 5 years
Leasehold improvement 5 years
Computer software 3 years
LONG-LIVED ASSETS - The Company evaluates long-lived assets and
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the net carrying amount may not be
recoverable. When such events occur, the Company measures impairment
by comparing the carrying value of the long-lived asset to the
estimated undiscounted future cash flows expected to result from the
use of the assets and their eventual disposition. If the sum of the
expected undiscounted future cash flows is less than the carrying
amount of the assets, the Company would recognize an impairment loss.
The impairment loss, if determined, would be measured as the amount by
which the carrying amount of the asset exceeds the fair value of the
asset. The Company determined that, as of March 31, 1999 and 1998,
there had been no impairment in the carrying value of the long-lived
assets.
INCOME TAX - Deferred income taxes are provided for using the
liability method. Under the liability method, deferred income taxes
are recognized for all significant temporary differences between the
tax and financial statement bases of assets and liabilities. The tax
consequences of those differences are classified as current or
non-current based upon the classification of the related assets or
liabilities in the financial statements. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is
considered more likely than not that some portion of, or all of, the
deferred tax assets will not be realized.
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.
COMPREHENSIVE INCOME - Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" establishes new
rules for reporting and display of comprehensive income and its
components. Other than an insignificant amount of foreign currency
transactions, the Company has no other items of other comprehensive
income and the net loss reported in the statement of operations is
equivalent to the total comprehensive loss.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION - SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information"
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 adopted FASB 131 during the year and
since the Company only invested in the Hebei Equipment, no other
reportable segments were reported in the financial statements.
NEW ACCOUNTING STANDARD NOT YET ADOPTED - The Financial Accounting
Standards Board has issued a new standard SFAS No. 133 "Derivative
Instruments and Hedging Activities", which is effective for fiscal
years beginning after June 15, 1999. Management has not yet completed
the analysis of the impact this would have on the financial statements
of the Company and has not adopted this standard.
2. INVESTMENT IN AND ADVANCE TO UNCONSOLIDATED SUBSIDIARY
The Company determined that it should conduct its operations in the
PRC through a Sino Foreign Joint Venture ("SFJV"), Hebei Equipment. 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%. An
additional $3,722,000 was advanced as a loan to the joint venture
during the fiscal year March 31, 1998. $ 2,191,985 was repaid by Hebei
Equipment during the fiscal year March 31, 1999. The Company's
investments in the joint venture were accounted for by the equity
method of accounting because minority shareholders of Hebei Equipment
and Hebei Engineering have substantive participating rights under the
provision of the Joint Venture contracts.
The following summarizes the total equity investment by the Company in
Hebei Equipment:
1999 1998
Investment in
unconsolidated subsidiary $ 2,100,000 $ 2,100,000
Less: Share of equity losses (1,133,535) (747,783)
------------- -------------
966,465 1,352,217
Add: Advance to
unconsolidated subsidiary 1,530,015 3,722,000
------------- -------------
Investment in and advanced
to unconsolidated subsidiary $ 2,496,480 $ 5,074,217
============= =============
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. As of March 31, 1999, Hebei Equipment's equity interest
in Hebei Engineering was zero. The total investment of $1,530,000 made
by Hebei Equipment in Hebei Engineering was offset by its share of
equity losses in Hebei Engineering. Hebei Equipment stopped
recognizing additional losses as it is not required either
contractually or otherwise to make any additional capital investments.
In addition, Hebei Equipment has not guaranteed any of Hebei
Engineering debts.
The following summarized the major activities of Hebei Equipment and
its subsidiary:
A. HEBEI ENGINEERING'S INVESTMENT IN GSM NETWORKS
Hebei Equipment, through its 51%-owned subsidiary, Hebei Engineering
has borrowed approximately $33,560,000 to purchase equipment which was
contributed to China United Communications Company ("UNICOM") to
construct the GSM networks in Hebei Province and has received the
right to receive future cash flow. The GSM networks are being built
pursuant to a 15-year Project Cooperation Contract. Terms of the
Project Cooperation contract include the following:
Initially, Hebei Engineering owned 100% of the assets prior to
contributing such assets to UNICOM and once contributed, Hebei
Engineering owned and retained title to a 70% interest in the assets
and UNICOM owned and retained title to a 30% interest in the assets.
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.
Each year, Hebei Engineering will transfer ownership of assets to
UNICOM equal in value to the Distributable Cash Flow received up to
60% of the assets in any one year. The maximum amount of assets
transferred will not exceed 90% of the assets until termination of the
Project Cooperation Contract.
Upon the termination of the contract the remaining 10% of the network
assets shall be assigned to UNICOM without any further consideration.
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 investment entities, such as Hebei Engineering,
are not permitted to own or operate telecommunications networks.
Substantially all of the Hebei Engineering'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.
Hebei Engineering has recorded its investment as right to future cash
flow (GSM Construction Costs) at cost and is amortizing its cost of
these rights based upon the greater of the amount computed using (a)
the ratio that current gross revenue from the GSM notworks to the
total of current and anticipated future gross revenues from the GSM
networks or (b) the straight-line method over 15-years which was the
remaining estimated economic life of the GSM networks at the inception
of this investment. Amortization of the Investment in GSM Networks for
the year ended March 31, 1999 amounted to approximately $4,600,000.
Income from the GSM Networks is recognized at the time when Hebei
Engineering can estimate or calculate the portion of its Distributable
Cash Flow from the Networks. UNICOM commenced operation of the GSM
Networks in February 1997.
Net revenue from GSM Networks recognized by Hebei Engineering for the
year ended December 31, 1998 and 1997 was $781,745 and $216,348
respectively.
B. SUMMARY FINANCIAL INFORMATION FOR THE UNCONSOLIDATED SUBSIDIARY
The following tables represent summary financial information for the
Joint Venture (Hebei Equipment) as of and for the years ended December
31, 1998 and 1997:
HEBEI HEBEI
EQUIPMENT EQUIPMENT
1998 1997
Revenues $ - $ -
============ =============
Net (loss) income $ (548,806) $ (1,239,100)
============ =============
Current assets $ 2,698,980 $ 4,891,936
Non-current assets 46,904 587,612
------------ -------------
Total assets $ 2,745,884 $ 5,479,548
============ =============
Current liabilities $ 1,530,994 $ 3,715,850
Non-current liabilities - -
----------- -------------
Total liabilities $ 1,530,994 $ 3,715,850
============ =============
HEBEI HEBEI
ENGINEERING ENGINEERING
1998 1997
Revenues $ 781,745 $ 216,348
============ =============
Net (loss) income $(1,729,431) $ (1,972,013)
============ =============
Current assets $ 3,755,416 $ 3,642,561
Non-current assets 29,605,048 29,093,456
------------ -------------
Total assets $33,360,464 $ 32,736,017
============ =============
Current liabilities $ 5,385,717 $ 10,354,023
Non-current liabilities 28,653,783 21,331,600
------------ -------------
Total liabilities $34,039,500 $ 31,685,623
============ =============
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1999 1998
Furniture, fixtures and equipment $ 208,277 $ 201,258
Leasehold improvements 18,009 17,498
Computer software 15,385 12,273
--------- ---------
241,671 231,029
Less accumulated depreciation 144,745 91,893
--------- ---------
$ 96,926 $ 139,136
========= =========
Depreciation expense for fiscal years ended March 31, 1999, 1998 and
1997 was $55,250, $43,432 and $28,905 respectively.
4. 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,
2000 $ 334,400
2001 55,733
---------
$ 390,133
=========
Rent expense for fiscal years ended March 31, 1999, 1998 and 1997 was
$356,357, $337,763 and $369,969 respectively.
EMPLOYMENT AGREEMENTS - The Company has entered into employment
agreements with officers expiring through January 2001 with aggregate
annual salaries of $1,000,000.
LITIGATION - A first amended complaint, dated April 15, 1996, was
filed against 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." 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. (See note 10)
The Company is not aware of any pending litigation that could have a
materially adverse effect on the Company's business, financial
condition or results of operations.
REGULATION - The PRC's legal system is a civil law system based on
written statutes and is a system in which decided legal cases have
little precedential value. The PRC Government began to promulgate a
comprehensive system of laws in 1979. Many laws and regulations
governing economic matters in general have been promulgated. The
general effect of this legislation has been to enhance the protection
afforded to foreign invested enterprises in the PRC. However, as these
laws and regulations are relatively new, their interpretation and
enforcement involve significant uncertainty.
The current PRC regulations prohibit foreign investors and foreign
invested enterprises from operating or participating in the operation
of telecommunications networks in China. The relevant PRC laws and
regulations do not define what constitutes foreign operations or
participation in operations, and it is not clear what rights or
actions would violate such laws and regulations. Based on advice of
its Chinese legal counsel, the Company has structured its investments
in China by establishing Chinese-foreign joint ventures in the PRC to
provide financing and consultancy services to licensed
telecommunications operators, i.e., utilizing the commonly-known
Chinese-Chinese-Foreign ("CCF") structure. The PRC Government is
currently undertaking a review of the CCF structure used by Unicom. It
has been reported that Unicom has been instructed by the PRC
Government not to use the CCF structure in the future and that the PRC
Government is examining and evaluating the existing CCF contracts. It
is unclear if, and to what extent, the existing CCF contracts entered
into by Unicom will be required to be amended. It is also unclear
whether foreign entities involved in the CCF structures will be
required to divest themselves of their respective interests in the
Chinese-foreign joint venture companies. The evaluation of the CCF
structure by the PRC Government may have a material adverse impact on
the contracts entered into by Hebei Engineering and by the Company
which utilize the CCF structure and may have a material adverse effect
on the Company's business, financial condition and results of
operations.
In order to provide a uniform regulatory framework to encourage the
orderly development of the PRC telecommunications industry, the PRC
authorities are currently preparing a draft Telecommunications Law.
Once formulated, the draft law will be submitted to the National
People's Congress for review and adoption. It is unclear if and when
the Telecommunications Law will be adopted. The nature and the scope
of the regulation envisaged by the Telecommunications Law is not fully
known but the Company believes that, if adopted, the
Telecommunications Law will have a positive effect on the overall
development of the telecommunications industry in the PRC. However,
the Telecommunications Law, if adopted, may have an adverse effect on
the Company's business, financial condition or results of operations.
The Chinese laws and regulations governing the telecommunications
industry may also be changed or applied in a manner which would have a
material adverse effect on the business, financial condition and
results of operations of the Company.
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 of 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 noncurrent account
items, known as "capital account" items, remain subject to SAFE
approval.
5. STOCKHOLDERS' EQUITY
CANCELLATION OF LOANS PAYABLE TO SHAREHOLDERS - In fiscal 1999, loans
payable and accrued interest in the amount of $2,359,621 were
cancelled and credited to Additional Paid-In Capital account.
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 canceled shares represented approximately
thirty-eight percent of the total number of the Company's common
shares outstanding prior to the cancellation of such shares.
REPURCHASE OF COMMON STOCK - On September 14, 1998 the Company
announced its intention to purchase up to $1 million of its Common
Stock on the open market. As of March 31, 1999, the Company had
purchased 330,800 shares under this program for a total cost of
approximately $383,383. All common stock repurchased was cancelled as
of March 31, 1999.
SALE OF COMMON STOCK - 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 issued in connection
with the exercise of certain employee stock options. Proceeds from
these issuance aggregated $34,750.
SERIES A CONVERTIBLE PREFERRED STOCK - On August 19, 1997, upon
determination that the entire amount of a nonrefundable deposit had
been forfeited by a former affiliate, the Company canceled 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 nonrefundable 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 canceled.
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 warrants to purchase
common stock of the Company. Each warrant entitled 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 warrants 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 for consideration of $406,100 and
retired 31 Series C shares. 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
(the "Series E Preferred"), par value $.001 per share and at a price
of $100,000 per share and paying an 8% in-kind dividends. The net
proceeds the Company received were approximately $6,759,000. The
Series E Preferred has a stated liquidation preference value of
$100,000 per share plus accrued in-kind 8% dividends since the date of
issuance. Such liquidation preference is senior to all common stock
but in parity with other series of preferred stock of the Company. The
holders of Series E Preferred have no voting rights except with
respect to certain matters that affect the rights related to the
Series E Preferred.
Conversion of the Series E Preferred into Common Stock, which are
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 Preferred,
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, 1999, 41.16 share of the Series E Preferred
Stock was converted into 5,661,070 shares of the Company's common
stock.
On November 10, 1998, 38.5 of the Company's Series E Preferred were
acquired from an investment fund by the Company and investors known to
the Company. As a result of this transaction, the Company bought back
3.08 shares of its Series E Preferred for $100,000. All of the Series
E Preferred repurchased by the Company, which have 53,655 warrants
attached, were retired and cancelled on January 20, 1999. 35.42 of the
Series E Preferred bought by other investors were converted to Common
Stocks on November 11, 1998. In connection to the conversion, the
investors entered into a non-binding agreement to hold the converted
Common Stock for a specified period of time. An additional 141,680
shares of Common Stocks were issued to the investors with respect to
the agreement entered and $144,375 was charged to expenses in the
statement of operations.
SERIES G CONVERTIBLE PREFERRED STOCK - In March 1999, the Company
completed a $2,000,000 offering of its Series G Convertible Preferred
Stock ("Series G Preferred"). The offering consisted of 20 shares of
Series G Preferred at $100,000 per share and warrants to purchase
common stock of the Company. Each warrant entitled the holder to
purchase one share of common stock at a fixed exercise price of $1.25
per share. The Company allocated $210,400 for the warrants issued
using a Black-Scholes model. The value allocated to the Series G
Preferred was $1,789,600. In connection with the warrants on the
Series G Preferred, the Company credited Additional Paid-in Capital
$210,400 and charged preferred dividends in an equal amount.
The Series G Preferred has a stated liquidation preference value of
$100,000 per share plus 8% accrued in-kind dividends since the date of
issuance. Such liquidation preference is senior to all common stock
but in parity with other series of preferred stock of the Company. The
holders of Series G Preferred have no voting rights except with
respect to certain matters that affect the rights related to the
Series G Preferred.
There was no conversion on Series G Preferred up to March 31, 1999.
STOCK WARRANTS - During fiscal 1999, the Company issued 600,000
warrants to purchase the Company's common stock at a fixed exercise
price of $1.25 per share. The warrants were issued in connection with
the Company's issuance of Series G Preferred (see Series G Convertible
Preferred Stock).
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
Preferred described above. These warrants 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 canceled 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 (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 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 been
cancelled during 1999, 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. During fiscal 1997, 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. The warrants were not exercised and were subsequently
cancelled during fiscal 1999. The value of such warrants was credited
to Additional Paid-In Capital upon cancellation.
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 issuance 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 would provide a $10 million equity line to the Company. The
agreement was cancelled during fiscal year 1999 by the Company in
accordance with the terms in the 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. During the year
ended March 31, 1999, this agreement was cancelled and all the shares
issued into escrow on behalf of Promethean 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, 1999, 1998 and 1997 and changes during the years then
ended is presented below:
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1997
------------------------- ------------------------- -----------------------
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 12,460,102 $ 1.42 7,905,000 $ 1.40 7,635,000 $ 1.39
Granted 527,500 1.14 4,624,102 2.55 280,000 1.74
Exercised 0 (69,000) 0.35 0
Cancelled (3,000,000) 3.06 0 (10,000) 8.25
----------- ----------- ----------
Outstanding at end
of year 9,987,602 $ 1.43 12,460,102 $ 1.42 7,905,000 $ 1.40
=========== ======== =========== ======== ========== ========
Options exercisable
at end of year 9,111,994 $ 1.46 7,671,102 $ 1.28 4,155,000 $ 0.42
========== ======== =========== ======== ========== ========
Weighted average
fair value of
options granted
during the year $ 0.19 $ 0.53 $ 0.69
=========== =========== ==========
</TABLE>
The above options include options granted to the Hebei Provincial
Government during fiscal 1998 to acquire 3,000,000 shares of the
Company's common stock at a price of $3.0625 per share. These options,
which vest 25% every six months from the date of grant, were cancelled
during fiscal 1999. 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
the quarter ended December 31, 1998, the Company cancelled these
option granted. Deferred Option Cost of $918,751 was amortized through
the cancellation date of these options. The unamortized Deferred
Option Cost up to the date of cancellation was charged to Additional
Paid in Capital.
The Company followed the guidelines under SFAS No. 123 to determine
the fair value of options at the date of grant. The value was
determined using an adjusted Black-Scholes option pricing model. The
Black-Scholes model is generally accepted as appropriate primarily for
short-term, exchange-traded options. The Company's management has
determined that the longer term options it has issued do not have the
liquidity of an exchange traded option and where the underlying common
stock is not highly liquid (as is the case with the Company's Common
Stock), the Black-Scholes formula needs to be adjusted, especially in
reference to the volatility measurement used. The Company's stock is
thinly traded, averaging around 100,000 shares per day, and cannot be
considered highly liquid. For the purpose of valuing the Company's
options, which can have up to a ten year life, the following
assumptions were used, where the volatility measurement was based on
management's expectations and judgement:
Risk-free rate 4.69 - 5.64%
Volatility 20-23%
Expected Life 3 - 5 years
Expected Dividends 0%
The following table summarizes information about options outstanding
at March 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED NUMBER
RANGE NUMBER AVERAGE EXERCISABE
OF OUTSTANDING REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES MARCH 31, 1999 LIFE (YEARS) PRICE MARCH 31, 1999 PRICE
<S> <C> <C> <C> <C> <C>
$0.35-0.355 4,625,000 7.00 0.350 4,625,000 0.350
0.75 640,000 9.00 0.823 140,000 0.747
1.5 165,000 9.00 1.114 165,000 1.114
2.125 527,602 8.00 1.501 277,602 1.502
3.000 1,012,500 8.00 2.128 886,892 2.128
3.05-3.10 3,017,500 7.00 3.000 3,017,500 3.000
--------- ---------
9,987,602 9,111,994
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its employee plans. Accordingly, no compensation cost
has been recognized with respect to such 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:
1999 1998
Net loss applicable to common shares -
as reported $(6,251,901) $(6,802,054)
============ ============
Net loss - pro forma $(6,812,194) $(8,635,367)
============ ============
Loss per common share - as reported $ (0.23) $ (0.23)
============ ============
Loss per common share share - pro forma $ (0.25) $ (0.29)
============ ============
6. NONREFUNDABLE DEPOSIT
On March 31, 1998, the Company reduced notes payable of $850,000
related to a nonrefundable deposit it received from a former
affiliate. Additional Paid-In Capital was credited for an equal
amount.
7. INCOME TAXES
The Company had net losses for 1999, 1998 and 1997 and, therefore, no
income taxes have been provided.
As of March 31, 1999, the Company has federal net operating loss carry
forwards of approximately $8,933,722 through 2014.
Significant components of the Company's deferred assets and tax
liabilities for federal income taxes consist of the following:
1999 1998
Deferred tax assets:
Net operating loss carryforwards 4,125,593 6,394,688
Start-up and other costs 6,623,557 3,027,575
Research credit 266,000 266,000
---------- ----------
Total deferred tax assets 11,015,150 9,688,263
Valuation allowance for deferred tax
assets (11,015,150) (9,688,263)
---------- ----------
Net deferred tax assets $ - $ -
=========== ==========
The net change in the valuation allowance for the years ended March
31, 1999 and 1998 was an increase of $1,326,887 and $1,976,552,
respectively.
8. ITEMS RECORDED IN THE FOURTH QUARTER
The Company recorded the following noncash items in the fourth quarter
of fiscal 1999:
In connection to Series E Preferred conversion, an additional 141,680
shares of Common Stocks were issued to some investors with respect to
a non-binding agreement to hold the converted Common Stock for a
specified period of time and $144,375 was charged to expenses in the
statement of operations.
The Company recorded the following noncash items in the fourth quarter
of fiscal 1998:
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.
9. SIGNIFICANT TRANSACTIONS
On August 27, 1998 the Company signed an agreement with a subsidiary
of Global TeleSystems, Inc. ("GTS"), under which a subsidiary of GTS
will acquire approximately 5.9 million shares of the Company's common
stock and the Company, through a subsidiary, will acquire GTS's 75%
interest in a Shanghai-based joint venture. This joint venture hold
the rights to a majority share of the cash flow generated by Shanghai
VSAT Network Systems (SVC), the premier satellite-based
telecommunications network operator in China.
The consummation of this transaction with GTS is subject to various
conditions, including receipt of necessary governmental approvals and
other customary closing conditions. In addition, under the American
Stock Exchange guidelines the Company will be required to obtain
shareholder approval for the number of shares related to this issuance
that are in excess of 19.9% of the Common Stock outstanding on the
date of issuance. Once all of the conditions in China necessary for
the consummation of the transaction are completed, the Company's
shareholders will be asked to approve the necessary increase in the
shares to be issued for such transaction. At present, GTS is working
to complete the pre-closing conditions in China, including obtaining
the necessary governmental approvals. The successful completion of
this merger is subject to final due diligence and shareholder
approval, among other conditions.
On December 23, 1998, the company signed an agreement with UIHH, an
indirect subsidiary of United International Holdings, Inc., under
which AmTec will issue to UIHH's direct parent company $12 million of
convertible preferred stock ("Series F Shares") in exchange for 100%
of the common stock of UIHH. UIHH holds a 49% interest in a
Sino-foreign joint venture with the Broadcasting Bureau of Hunan, the
monopoly cable television operator in Hunan Province, People's
Republic of China.
The consummation of this transaction with UIHH is subject to various
conditions, including receipt of necessary governmental approvals and
other customary closing conditions. In addition, under the American
Stock Exchange guidelines the Company will be required to obtain
shareholder approval for the number of Common Stock related to this
issuance that are in excess of 19.9% of the Common Stock outstanding
on the date of issuance. Once all of the conditions in China necessary
for the consummation of the transaction are completed, the Company's
shareholders will be asked to approve the necessary increase in the
shares to be issued for the transaction. At present, UIH is working to
complete the pre-closing conditions in China, including necessary
governmental approvals. The successful completion of this merger is
subject to final due diligence and shareholder approval, among other
conditions.
10. SUBSEQUENT EVENTS
On April 28, 1999, the Company formed a 50-50% joint venture, IP.TEL,
LLC with Fusion Telecommunications International, Inc. ("Fusion"), a
private facilities-based, multinational long-distance company.
Fusion's current service offerings include voice and data, switched
and dedicated, domestic and international long-distance and domestic
and international prepaid calling cards, provided through a network of
owned and leased facilities, leased lines and resale agreements.
The joint venture will provide value-added telecommunication services,
including telephony and data, to and from Asia. Utilizing the
Company's established presence in China and Fusion's telecommunications
franchise, the companies plan to expand the service offerings of the
joint venture to include a fully integrated Internet protocol based
network to provide voice and fax services. The joint venture agreement
includes language that gives both parties the right of first refusal
regarding projects in China within the scope of IP.TEL, LLC's business
proposition.
During May 1999, the Company formed a three-way alliance with Fusion
and IXS.NET, a private IP fax service provider, to develop IP fax
services Asia. The Company and Fusion agreed to make an equal
convertible debt investment into IXS.NET and the Company has an option
to acquire up to 50% of IXS.NET. The Company has invested $175,000
under a loan agreement to IXS.NET and expects to enter into an
eighteen months convertible debt agreement shortly. The convertible
debt agreement will allow for the Company to advance up to $575,000
over the eighteen months period, subject to certain terms and
conditions. The business is in the process of starting up in Hebei
Province. During the next quarter, the Company anticipates obtaining
licenses to expand the service in Sichuan, Beijing, Tanjain and other
provinces in China.
With respect to the complaint related to the "Jacqueline B. Brandwynne
vs. AVIC Group International, Inc., et al.", on June 18, 1999, the
Company and Jacqueline B. Brandwynne have reached a settlement in
principle of the legal proceedings. Subject to documentation and
signing of the final agreement, the parties have agreed to release
each other from all claims. The Company has agreed to pay Ms.
Brandwynne $250,000 in AmTec Common Stock, which includes her claim
for attorney's fees. A full provision for the settlement amount was
made during the year ended March 31, 1999. While the management of the
Company believes that these claims are without merit, and that there
are valid defenses to each claim, management believes it is in the
best interest of the Company to settle the litigation, eliminate any
possible liability exposure, and avoid additional legal fees to defend
the litigation.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
We have audited the accompanying balance sheets of Hebei United
Telecommunications Equipment Co., Ltd. as of December 31, 1998 and
1997 and the related statements of operations, investors' equity and
cash flows for the year ended December 31, 1998 and the period April
29, 1997 (commencement of operations) to December 31, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audits 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 the management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Hebei United
Telecommunications Equipment Co., Ltd. as of December 31, 1998 and
1997 and the results of its operations and its cash flows for the year
ended December 31, 1998 and the period April 29, 1997 (commencement of
operations) to December 31, 1997 in conformity with accounting
principles generally accepted in the United States of America.
Deloitte Touche Tohmatsu
Beijing, People's Republic of China
June 1, 1999
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
December 31, December 31,
1998 1997
-------------- ---------------
RMB RMB
ASSETS
Current Assets:
Cash and cash equivalents 16,232,535 39,500,312
Other receivables 6,169,000 1,102,753
-------------- ---------------
Total current assets 22,401,535 40,603,065
Property and equipment, net 389,305 493,430
Investments in a Joint Venture - 4,383,750
-------------- ---------------
Total Assets 22,790,840 45,480,245
============== ===============
LIABILITIES AND INVESTORS' EQUITY
Current Liabilities:
Amount due to an investor 12,656,909 30,808,631
Other payables 50,340 32,925
-------------- ---------------
Total current liabilities 12,707,249 30,841,556
-------------- ---------------
Total Liabilities 12,707,249 30,841,556
-------------- ---------------
Commitments and Contingencies
Investors' Equity:
Capital contribution 24,923,218 24,923,218
Accumulated deficit (14,839,627) (10,284,529)
-------------- ---------------
Total Investors' Equity 10,083,591 14,638,689
-------------- ---------------
Total Liabilities and Investors' Equity 22,790,840 45,480,245
============== ===============
See notes to financial statements
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD APRIL 29, 1997
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
April 29, 1997
Year ended (commencement of
December 31, operations) to
1998 December 31, 1997
--------------- ------------------
RMB RMB
General and administrative expenses (1,508,326) (758,658)
Other (expense) income:
Operation set up expense - (2,000,000)
Share of losses of investment
in Joint Venture (4,383,750) (8,347,533)
Exchange loss - (24,680)
Interest income 1,336,978 846,342
--------------- -----------------
Net loss (4,555,098) (10,284,529)
=============== ==================
See notes to financial statements
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
STATEMENTS OF INVESTORS' EQUITY
DECEMBER 31, 1998 AND 1997
Capital Accumulated
Contribution Deficit Total
------------ -------------- ------------
RMB RMB RMB
Balance, April 29, 1997 - - -
Capital contribution 24,923,218 - 24,923,218
Net loss - (10,284,529) (10,284,529)
------------ -------------- ------------
Balance, December 31, 1997 24,923,218 (10,284,529) 14,638,689
Net loss - (4,555,098) (4,555,098)
------------ -------------- -------------
Balance, December 31, 1998 24,923,218 (14,839,627) 10,083,591
============ ============== =============
See notes to financial statements
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD APRIL 29, 1997
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
April 29, 1997
(commencement
Year ended of operations)
December 31, to December 31,
1998 1997
------------ --------------
RMB RMB
Cash flows from operating activities:
Net loss (4,555,098) (10,284,529)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 95,981 37,928
Loss on disposal of equipment 10,944 --
Equity in losses of investment in Joint
Venture 4,383,750 8,347,533
Changes in assets and liabilities:
Other receivables (5,066,247) (1,102,753)
Amount due to an investor (18,151,722) 30,808,631
Other payables 17,415 32,925
------------ -------------
Net cash (used in) provided by operating
activities (23,264,977) 27,839,735
------------ -------------
Cash flows from investing activities:
Additions of property and equipment (2,800) (531,358)
------------ -------------
Net cash used in investing activities (2,800) (531,358)
------------ -------------
Cash flow from financing activities:
Capital contribution - 12,191,935
------------ -------------
Net cash provided by financing activities - 12,191,935
------------ -------------
Net (decrease) increase in cash and cash
equivalents (23,267,777) 39,500,312
Cash and cash equivalents, beginning of
period 39,500,312 -
------------ -------------
Cash and cash equivalents, end of period 16,232,535 39,500,312
============ =============
Non-cash transactions:
During the period ended December 31, 1997, DEVELOPMENT CO. and CATCH
contributed their interest in a Joint Venture valued at RMB 12,731,283 into
the Company as capital contribution.
See notes to financial statements
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD APRIL 29, 1997
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
1. ORGANIZATION
Hebei United Telecommunications Equipment Co., Ltd (`the Company")
was established on April 29, 1997 as a limited liability joint
venture company in the People's Republic of China ("PRC"). The
period of operation is twenty years. The registered capital of the
Company was US$3 million, of which 60.8% (US$ 1.824 million) was
contributed by AmTec, Inc. (formerly known as AVIC Group
International, Inc.), 9.2% (US$ 276,000) by CATCH Telecommunication
Co., Ltd. (the "CATCH") and 30% (US$ 900,000) by Hebei United
Telecommunications Development Co., Ltd. (the "DEVELOPMENT CO."). On
November 7, 1997, CATCH agreed to transfer its interest in the
Company to AmTec, Inc. Subsequent to the transfer (which occurred
after December 31, 1997), AmTec, Inc. owns 70% (US$ 2.1 million) and
DEVELOPMENT CO. owns 30% (US$900,000) of the Company's registered
capital. The Company's major activity to date is an investment in a
Chinese joint venture which is mainly engaged in the development and
construction of telecommunication systems, and providing related
technical consulting and repair services.
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America ("US
GAAP"). This basis of accounting differs from that used in the
statutory financial statements of the Company, which are required to
be prepared in accordance with the accounting principles and
relevant financial regulations as established by the Ministry of
Finance of the PRC.
The principal adjustments made to conform the statutory financial
statements of the Company to US GAAP included the following:
o Adjustment to write off organization and operation set up
expenses.
o Adjustment to write off exchange loss.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies which have been adopted in
preparing the financial statements set out in this report, and which
conform with accounting principles generally accepted in the United
States of America are as follows:
Cash and cash equivalents - Cash and cash equivalents include cash
on hand, demand deposits and highly liquid instruments with a
maturity of three months or less at the time of purchase.
Property and equipment - Property and equipment is stated at cost
less accumulated depreciation. Depreciation is provided using the
straight-line method to write off the cost of property and
equipment, net of the estimated residual value of 10% of cost, over
their estimated useful lives as follows:
Furniture, fixture and equipment 5 years
Motor vehicles 5 years
Long lived assets - The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that
the net carrying amount may not be recoverable. When such events
occur, the Company measures impairment by comparing the carrying
value of the long-lived asset to the estimated undiscounted future
cash flows expected to result from the use of the assets and their
eventual disposition. If the sum of the expected undiscounted future
cash flows is less than the carrying amount of the assets, the
Company would recognize an impairment loss. The impairment loss, if
determined, would be measured as the amount by which the carrying
amount of the asset exceeds the fair value of the asset.
Investment in Joint Venture - Hebei Equipment owns 51% of Hebei
United Telecommunications Engineering Company, Ltd. ("Hebei
Engineering"). Hebei Equipment accounts for its investment using
equity method of accounting as minority shareholders of Hebei
Engineering have substantive participating rights under the joint
venture contracts. Under the equity method, the investment is
carried at cost of acquisition, plus the Company's equity in
undistributed earnings or losses since acquisition. Equity in the
losses of the unconsolidated subsidiary is recognized according to
the Company's percentage ownership in the unconsolidated subsidiary
until the Company contributed capital has been fully depleted.
Income tax - Deferred income taxes are provided for using the
liability method. Under the liability method, deferred income taxes
are recognized for all significant temporary differences between the
tax and financial statement bases of assets and liabilities. The tax
consequences of those differences are classified as current or
non-current based upon the classification of the related assets or
liabilities in the financial statements. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is
considered more likely than not that some portion of, or all of, the
deferred tax assets will not be realized.
Foreign currency translation - The Company's financial statements
are prepared using Renminbi as the reporting currency. Foreign
currency transactions are translated at the rates ruling on the
dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated at the rates ruling
on the balance sheet date. Exchange gains and losses are reported in
the statement of operation.
Comprehensive Income - Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" establishes new
rules for reporting and display of comprehensive income and its
components. The Company has no items of other comprehensive income
and the net loss reported in the statement of operations is
equivalent to the total comprehensive loss.
Segments of an Enterprise and Related Information - SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information"
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 adopted FASB 131 during
the year and since the Company only invested in the Hebei
Engineering, no other reportable segments were reported in the
financial statements.
Concentration of credit risk - Financial instruments that
potentially subject the Company to concentrations of credit risk
consists principally of temporary cash investments. The Company
places its temporary cash investments with various financial
institutions in the PRC. The Company believes that no significant
credit risk exists as these investments are made with high-credit,
quality financial institutions.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
recorded amounts of assets and liabilities and disclosures of
contingent assets and liabilities in the financial statements and
recorded amounts of revenue and expenses during the period. Actual
results could differ from these estimates.
Fair value of financial instrument - The carrying values of cash and
cash equivalents, other receivables, other payables, and amount due
to an investor approximate fair value because of the short maturity
of these instruments.
New accounting standard not yet adopted - The Financial Accounting
Standards Board has issued a new standard SFAS No. 133, "Derivative
Instruments and Hedging Activities", which is effective for fiscal
years beginning after June 15, 1999. Management has not yet
completed the analysis of the impact this would have on the
financial statements of the Company and has not yet adopted this
standard.
4. OPERATION SET UP EXPENSE
Amount represents payment to CATCH for services provided in
connection with the formation of the Company.
5. INCOME TAX
The statutory income tax rate of the Company is 33%. There is no
provision for the income taxes during the year ended December 31,
1998 and the period from April 29, 1997 (commencement of operations)
to December 31, 1997 as the Company incurred losses during the
relevant periods.
Deferred tax assets of RMB695,754 and RMB639,209 existed as at the
end of 1998 and 1997, respectively, arising from a temporary
difference. A valuation allowance has been established for the full
amount of the deferred tax assets since it is considered more likely
than not that all of the deferred assets will not be realized.
Deferred tax assets are composed of the following:
December 31,
----------------------------------
1998 1997
--------------- ---------------
RMB RMB
Operation set up expense 660,000 660,000
Organization expenses 20,948 (60,980)
Exchange gain/loss 8,144 8,144
Other 6,662 32,045
Valuation allowance (695,754) (639,209)
--------------- ---------------
- -
=============== ===============
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
--------------- ---------------
1998 1997
--------------- ---------------
RMB RMB
<S> <C> <C>
At cost:
Furniture, fixtures and equipment 222,358 233,958
Motor vehicles 297,400 297,400
--------------- ---------------
519,758 531,358
Less: Accumulated depreciation 130,453 37,928
--------------- ---------------
389,305 493,430
=============== ===============
All assets are located in the PRC.
</TABLE>
7. INVESTMENT IN A JOINT VENTURE
The Company 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.
The Company's investment in the joint venture were accounted for by
the equity method of accounting because minority shareholders of Hebei
Engineering have substantive participating rights under the provision
of the Joint Venture contracts.(See Note 3)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
-------------- --------------
RMB RMB
<S> <C> <C>
Cost 12,731,283 12,731,283
Less: Share of losses (12,731,283) (8,347,533)
------------- -------------
- 4,383,750
============= =============
</TABLE>
Hebei Engineering is a Sino-foreign equity joint venture established
on January 31, 1996 in the PRC. The period of operation is
twenty-five years. The registered capital of the Company is US$ 3
million. The Company is mainly engaged in the development and
construction of telecommunication systems, and providing related
technical consulting services.
The summarized balance sheet of Hebei Engineering as of December 31,
1998 and 1997 and its statement of operations for the years ended
December 31, 1998 and the period April 29, 1997 (commencement of
operations) to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Balance Sheet
December 31, December 31,
1998 1997
--------------- ---------------
RMB RMB
ASSETS
<S> <C> <C>
Current Assets: 31,169,950 30,233,253
Other assets 5,336,274 5,840,362
Investment in GSM networks 240,385,622 235,635,325
--------------- ---------------
Total Assets 276,891,846 271,708,940
=============== ===============
LIABILITIES AND INVESTORS' (DEFICIT) EQUITY
Current liabilities 44,701,454 85,938,393
Long-term Liabilities: 237,826,398 177,052,277
--------------- ---------------
Total Liabilities 282,527,852 262,990,670
--------------- ---------------
Investors' (deficit) equity: (5,636,006) 8,718,270
--------------- ---------------
Total Liabilities and Investors'(deficit)
equity 276,891,846 271,708,940
=============== ===============
Statement of operations
Year ended Year ended
December 31, December 31,
1998 1997
--------------- ----------------
RMB RMB
Net revenue from GSM networks 6,488,482 1,706,499
Total expenses (22,726,394) (20,348,240)
--------------- ----------------
Net loss from operations (16,237,912) (18,641,741)
Total other income, net 1,883,636 2,274,029
--------------- ----------------
Net loss (14,354,276) (16,367,712)
=============== ================
</TABLE>
8. AMOUNT DUE TO AN INVESTOR
The amount represents funds advanced to the Company by AmTec, Inc.
These amounts are payable on demand and bear no interest.
9. CAPITAL CONTRIBUTION
December 31, 1998 and 1997
-------------------------------
Ownership RMB
Capital contributed by:
DEVELOPMENT CO. 30% 7,480,150
AmTec Inc. 70% 17,443,068
------------- ---------------
100% 24,923,218
============ ================
10. COMMITMENTS
The Company leases certain buildings under operating leases, which
expire through March 1999. Rental expense under operating leases was
RMB 100,128 and RMB 62,580 in 1998 and 1997 respectively.
The aggregate annual minimum operating lease commitments under all
non-cancellable leases at December 31, 1998 is RMB 16,700 for a
lease expiring during the fiscal year 1999.
11. RETIREMENT BENEFITS
The Company's employees are entitled to a retirement pension
calculated with reference to their basic salaries on retirement and
their length of service in accordance with a government managed
pension plan. The PRC government is responsible for the pension
liability to these retired employees. The Company is required to
make contributions to the state retirement plan at rates ranging
from 18% to 20% of the adjusted monthly basic salaries of the
current employees. The expense of such arrangements to the Company
was insignificant for the periods presented. The Company is not
obligated under any other post-retirement plans and post-employment
benefits are not material.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
We have audited the accompanying balance sheets of Hebei United
Telecommunications Engineering Co., Ltd. as of December 31, 1998 and
1997 and the related statements of operations, investors' equity and
cash flows for the years ended December 31, 1998 and 1997 and the period
from January 31, 1996 (commencement of operations) to December 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Hebei United
Telecommunications Engineering Co., Ltd. as of December 31, 1998 and
1997 and the results of its operations and its cash flows for the year
ended December 31, 1998, 1997 and the period from January 31, 1996
(commencement of operations) to December 31, 1996 in conformity with
accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 13 to
the financial statements, the Company has suffered recurring losses from
operations and has negative working capital that rises substantial doubt
about the ability to continue as a going concern. Management's
explanations in regard to these matters are also described in Note 13.
The financial statements do not include any adjustments that might
result from the outcome of the uncertainty.
Deloitte Touche Tohmatsu
Beijing, People's Republic of China
June 1, 1999
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31
------------------------------
1998 1997
------------- -------------
RMB RMB
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents 23,869,946 29,278,905
Accounts receivable 6,829,981 -
Other receivables 470,023 954,348
------------- -------------
Total current assets 31,169,950 30,233,253
Property and equipment, net 5,273,129 5,783,117
Deferred assets 63,145 57,245
Investment in GSM networks, net 240,385,622 235,635,325
------------- -------------
Total Assets 276,891,846 271,708,940
============= =============
LIABILITIES AND INVESTORS' EQUITY (DEFICIENCY)
Current Liabilities:
Amount due to investors 844,392 997,597
Other payables 10,675,770 84,888,076
Accrued expenses 66,492 52,720
Long-term loan due within 1 year 33,114,800 -
------------- -------------
Total current liabilities 44,701,454 85,938,393
------------- -------------
Long-term Liabilities:
Long-term loans 230,313,434 165,816,800
Other payables 7,512,964 11,235,477
------------- -------------
237,826,398 177,052,277
------------- -------------
Total Liabilities 282,527,852 262,990,670
------------- -------------
Commitments and Contingencies
Investors' equity (deficit):
Capital contribution 24,963,300 24,963,300
Capital reserve (4,800) (4,800)
Accumulated deficit (30,594,506) (16,240,230)
------------- -------------
Total investors' (deficit) equity (5,636,006) 8,718,270
------------- -------------
Total Liabilities and Investors' Equity 276,891,846 271,708,940
============= =============
See notes to financial statements
</TABLE>
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD JANUARY 31, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
January 31, 1996
Year ended Year ended (commencement
December 31, December 31, of operations)
1998 1997 to December
31, 1996
--------------- -------------- ----------------
RMB RMB RMB
<S> <C> <C> <C>
Net revenue from GSM networks 6,488,482 1,706,499 -
--------------- -------------- ----------------
Expenses:
General and administrative expenses (2,694,259) (2,222,446) (1,340,568)
Amortization of GSM networks (20,032,135) (18,125,794) -
--------------- -------------- ----------------
Total expenses (22,726,394) (20,348,240) (1,340,568)
--------------- -------------- ----------------
Net loss from operations (16,237,912) (18,641,741) (1,340,568)
--------------- -------------- ----------------
Other income (expense) :
Rental income, net 461,784 736,965 352,724
Other income, net - 250,000 -
Interest income 1,266,668 1,328,727 1,277,390
Exchange (gain) loss 233,713 (41,663) (162,064)
Interest expense (78,529) - -
--------------- -------------- ----------------
Total other income (expense) 1,883,636 2,274,029 1,468,050
--------------- -------------- ----------------
Net (loss) income (14,354,276) (16,367,712) 127,482
=============== ============== ================
See notes to financial statements
</TABLE>
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
STATEMENTS OF INVESTORS' EQUITY/ (DEFICIT)
DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Retained
Capital Capital earning/
contribution reserve (Accumulated Total
deficit)
------------- ------------- ---------------- --------------
RMB RMB RMB RMB
<S> <C> <C> <C> <C>
Balance, January 31, 1996 - - - -
Capital contribution 24,963,300 - - 24,963,300
Exchange difference on capital
contribution - (4,800) - (4,800)
Net income - - 127,482 127,482
------------- ------------- ---------------- --------------
Balance, December 31, 1996 24,963,300 (4,800) 127,482 25,085,982
Net loss - - (16,367,712) (16,367,712)
------------- ------------- ---------------- --------------
Balance, December 31, 1997 24,963,300 (4,800) (16,240,230) 8,718,270
Net loss - - (14,354,276) (14,354,276)
------------ ------------- ---------------- --------------
Balance, December 31, 1998 24,963,300 (4,800) (30,594,506) (5,636,006)
============= ============= ================ ==============
See notes to financial statements
</TABLE>
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM JANUARY 31, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
January 31, 1996
Year ended Year ended (commencement
December 31, December 31, of operations)
1998 1997 to December
31, 1996
-------------- -------------- ----------------
RMB RMB RMB
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss)/income (14,354,276) (16,367,712) 127,482
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Loss on disposals of equipment 6,043 9,407 -
Depreciation 501,745 358,278 119,003
Amortization of investment in GSM networks 20,032,135 18,125,794 -
Changes in assets and liabilities:
Accounts receivable (6,829,981) - -
Other receivables 484,325 (869,654) (84,694)
Other payables 364,203 369,218 324,892
Accrued expenses 13,772 28,160 24,560
-------------- -------------- ----------------
Net cash provided by operating activities 217,966 1,653,491 511,243
-------------- -------------- ----------------
Cash flows from investing activities:
Short-term investment - 270,300 (270,300)
Additions of property and equipment - (3,113,736) (3,156,070)
Proceeds from disposal of equipment 2,200 - -
Investment in GSM networks (103,234,659) (69,144,541) (88,189,538)
Others (5,900) (8,500) (48,744)
-------------- -------------- ----------------
Net cash used in investing activities (103,238,359) (71,996,477) (91,664,652)
-------------- -------------- ----------------
Cash flow from financing activities:
Proceeds from loans 107,211,434 66,238,400 161,997,650
Repayment of loans (9,600,000) - (62,419,250)
Capital contribution - - 24,958,500
-------------- -------------- ----------------
Net cash provided by financing activities 97,611,434 66,238,400 124,536,900
-------------- -------------- ----------------
(Decrease) increase in cash and cash
equivalents (5,408,959) (4,104,586) 33,383,491
Cash and cash equivalents, beginning of
period 29,278,905 33,383,491 -
-------------- -------------- ----------------
Cash and cash equivalents, end of period 23,869,946 29,278,905 33,383,491
============== ============== ================
Supplemental disclosures of cash
flows information:
Interest paid 20,602,968 8,144,426 -
============== ============== ================
See notes to financial statements
</TABLE>
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
Hebei United Telecommunications Engineering Co., Ltd (the "Company")
was established on January 31, 1996 as a limited liability joint
venture company in the People's Republic of China ("PRC"). The
period of operation is twenty-five years. The registered capital of
the Company is US$3 million, of which 51% (US$1.53 million) was
contributed by Hebei United Telecommunications Equipment Co., Ltd.
("Hebei Equipment"), and 49% (US$ 1.47 million) by NTT International
Corporation ("NTT"). On October 18, 1996, NTT agreed to transfer
19.6% of the capital in the Company to Itochu Corporation ("ITOCHU")
with effect from December 27, 1996. Subsequent to the transfer,
Hebei Equipment owns 51% (US$1.53 million), NTT owns 29.4%
(US$882,000) and ITOCHU owns 19.6% (US$588,000) of the Company's
registered capital. The Company is mainly engaged in developing and
assisting in construction of telecommunication systems, and
providing related technical consulting services.
The Company has invested approximately RMB 253 million 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 Project Cooperation Contract with China United
Communications Company ("UNICOM"), the operator of the GSM Networks.
Terms of the contract include the following:
Initially, UNICOM will own 30% of the assets while the Company will
own 70% of the assets. Both parties agreed to distribute the profit
according to the "Distributable Cash Flow" (as defined) with 22%
going to UNICOM and 78% going to the Company. Each year, the Company
will transfer ownership of assets to UNICOM equal in value to the
Distributable Cash Flow received up to 60% of the assets. The
maximum amount of assets transferred will not exceed 90% of the
assets until termination of the Project Cooperation Contract. Upon
the termination of the contract the remaining 10% of the network
assets shall be assigned to UNICOM without any further
consideration. The Company 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 investment enterprises, such as the Company,
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 (GSM Construction Costs) at
cost and is amortizing it over the remaining life of the project.
Income from the GSM networks is recognized at the time when the
Company can estimate or calculate the portion of its Distributable
Cash Flow from the network. UNICOM commenced operation of the GSM
networks in February 1997.
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America ("US GAAP"). This basis of accounting differs from that used
in the statutory financial statements of the Company, which are
required to be prepared in accordance with the accounting principles
and relevant financial regulations as established by the Ministry of
Finance of the PRC.
The principal adjustments made to conform the statutory financial
statements of the Company to US GAAP mainly included the following:
o Adjustment to write off organization expenses.
o Adjustment to write off exchange loss.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies which have been adopted in
preparing the financial statements set out in this report, and which
conform with accounting principles generally accepted in the United
States of America are as follows:
Cash and cash equivalents - Cash and cash equivalents include cash
on hand, demand deposits and highly liquid instruments with a
maturity of three months or less at the time of purchase.
Property and equipment - Property and equipment is stated at cost
less accumulated depreciation. Depreciation is provided using the
straight-line method to write off the cost of property and
equipment, net of the estimated residual value of 10% of cost, over
their estimated useful lives as follows:
Land and buildings 20 years
Furniture, fixtures and equipment 5 years
Motor vehicles 5 years
Long lived assets - The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that
the net carrying amount may not be recoverable. When such events
occur, the Company measures impairment by comparing the carrying
value of the long-lived asset to the estimated undiscounted future
cash flows expected to result from the use of the assets and their
eventual disposition. If the sum of the expected undiscounted future
cash flows is less than the carrying amount of the assets, the
Company would recognize an impairment loss. The impairment loss, if
determined, would be measured as the amount by which the carrying
amount of the asset exceeds the fair value of the asset.
Investment in GSM networks - Investment in GSM networks is stated at
cost less accumulated amortization. The investment in GSM networks
is amortized on a straight-line basis over the remaining life of the
Project Cooperation Contract between the Company and UNICOM.
Capitalization of borrowing costs - Borrowing costs directly
attributable to the acquisition, construction or production of
qualifying assets, i.e. assets that necessarily take a substantial
period of time to get ready for their intended use or sale, are
capitalized as part of the cost of those assets. Capitalization of
such borrowing costs ceases when the assets are substantially ready
for their intended use or sale. Interest capitalized at December 31,
1998 and 1997 was RMB20,524,439 and RMB8,144,426, respectively.
Revenue recognition - Revenue related to the GSM networks is
recognized at the time when the Company can estimate or calculate
the portion of its distributable cash flow from the network.
Income tax - Deferred income taxes are provided for using the
liability method. Under the liability method, deferred income taxes
are recognized for all significant temporary differences between the
tax and financial statement bases of assets and liabilities. The tax
consequences of those differences are classified as current or
non-current based upon the classification of the related assets or
liabilities in the financial statements. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is
considered more likely than not that some portion of, or all of, the
deferred tax assets will not be realized.
Foreign currency translation - The Company's financial statements
are prepared using Renminbi as the reporting currency. Foreign
currency transactions are translated at the rates ruling on the
dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated at the rates ruling
on the balance sheet date. Exchange gains and losses are taken to
the statement of operations.
Fair value of financial instruments - The carrying values of cash
and cash equivalents, short-term investments, accounts receivable,
other receivables, other payables, and amount due to investors
approximate fair value because of the short maturity of these
instruments.
Concentration of credit risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of temporary cash investments and trade accounts
receivable.
The Company places its temporary cash investments with various
financial institutions in the PRC. The Company believes that no
significant credit risk exists as these investments are made with
high-credit, quality financial institutions.
The Company's account receivable represents revenue from GSM
networks due from UNICOM, the operator of the GSM networks. The
Company believes that no significant credit risk exists, as UNICOM
is a high-credit PRC state-owned enterprise.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
recorded amounts of assets and liabilities and disclosures of
contingent assets and liabilities in the financial statements and
recorded amounts of revenue and expenses during the period. Actual
results could differ from these estimates.
Comprehensive Income - Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" establishes new
rules for reporting and display of comprehensive income and its
components. The Company has no items of other comprehensive income
and the net loss reported in the statement of operations is
equivalent to the total comprehensive loss.
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 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 adopted FASB 131 during
the year and since the Company only invested in the GSM networks, no
other reportable segments were reported in the financial statements.
New accounting standard not yet adopted - The Financial Accounting
Standards Board has issued a new standard SFAS No. 133 "Derivative
Instruments and Hedging Activities", which is effective for fiscal
years beginning after June 15, 1999. Management has not yet
completed the analysis of the impact this would have on the
financial statements of the Company and has not adopted this
standard.
4. INCOME TAX
The statutory income tax rate of the Company is 33%. There is no
provision for income taxes during the year ended December 31, 1998,
1997 and the period from January 31, 1996 (commencement of
operations) to December 31, 1996 as the Company did not have any
assessable income for the relevant periods.
No provision for deferred taxation has been made in the financial
statements for the period from January 31, 1996 (commencement of
operations) to December 31, 1996 as no significant temporary
differences arose during period and no significant deferred tax
assets and liabilities existed at the relevant balance sheet date.
Deferred tax assets of RMB10,096,188 and RMB5,359,276 existed as at
the end of 1998 and 1997 arising from temporary differences. A
valuation allowance has been established for the full amount of the
deferred tax assets since it is considered more likely than not that
all of the deferred assets will not be realized.
Deferred tax assets are composed of the following:
December 31,
---------------------------------
1998 1997
-------------- ---------------
RMB RMB
Amortization of GSM networks 12,592,117 5,981,512
Organization expense 218,310 (126,321)
Exchange (gain)loss (9,895) 67,230
GSM networks revenue (2,704,344) (563,145)
Valuation allowance (10,096,188) (5,359,276)
-------------- ---------------
- -
============== ===============
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
-----------------------------
1998 1997
------------- ------------
RMB RMB
At cost:
Land and buildings 4,629,909 4,629,909
Furniture, fixtures and equipment 641,751 656,751
Motor vehicles 973,738 973,738
------------- ------------
6,245,398 6,260,398
Less: accumulated depreciation (972,269) (477,281)
------------- ------------
5,273,129 5,783,117
============= ============
All assets are located in the PRC.
6. INVESTMENT IN GSM NETWORKS
December 31,
---------------------------
1998 1997
------------- ------------
RMB RMB
Cost of investment 278,543,551 253,761,119
Less: accumulated amortization (38,157,929) (18,125,794)
------------- ------------
240,385,622 235,635,325
============= ============
The investment represents the investment in a GSM telecommunication
networks in Hebei Province, PRC. The GSM networks were built pursuant
to a 15-year agreement with UNICOM commencing in February 1996.
UNICOM commenced operation of the GSM networks in February 1997. The
investment is being amortized on a straight-line basis over the
remaining 13-year life of the agreement commencing from the operation
of the networks.
7. RELATED PARTY TRANSACTIONS
December 31,
---------------------------
Company Name 1998 1997
--------------- ----------- -------------
RMB RMB
Amount due to NTT 512,300 729,014
Amount due to ITOCHU 332,092 268,583
----------- -------------
Total 844,392 997,597
=========== =============
Guarantee fees paid and payable to NTT and ITOCHU are as follows:
Year ended December 31,
Company Name ----------------------------
----------------------------- 1998 1997
------------ -------------
RMB RMB
Amount paid and payable to NTT 1,541,283 2,167,260
Amount paid and payable to ITOCHU 755,081 467,482
------------ -------------
Total 2,296,364 2,634,742
============ =============
8. OTHER PAYABLES
The Company has acquired a digital microwave system and a GSM mobile
phone system under deferred payment terms with the final installment
payable in 2001 and 1998, respectively. The liabilities are
guaranteed by NTT at December 31, 1998 and are payable as follows:
RMB
Liabilities payable:
1998 -
1999 3,756,482
2000 3,756,482
2001 3,756,482
-------------
11,269,446
Less: Liabilities due within one
year (included in other payables) 3,756,482
-------------
Long-term payables 7,512,964
=============
9. LONG-TERM LOANS
Scheduled repayments for the long-term loans are as follows:
December 31,
1998
--------------
RMB
Liabilities payable:
1999 33,114,800
2000 66,229,600
2001 98,218,496
2002 43,281,044
2003 22,584,294
--------------
263,428,234
Less: Liabilities due within
one year 33,114,800
--------------
230,313,434
==============
On August 5, 1996, the Company was granted a long-term loan facility
of US$ 20,000,000 by the Bank of Tokyo-Mitsubishi, Ltd. Beijing
Branch at an annual interest rate of 6.82%. The Company has utilized
US$20,000,000 (RMB165,574,000). Interest shall be paid on the
outstanding balance six months after the date of the agreement, every
six months thereafter, and at maturity.
On July 10, 1998, the Company was granted a long-term loan facility
of US$5,000,000 by the Bank of Tokyo-Mitsubishi, Ltd. Beijing Branch
at an annual interest equal to the bank's funding rate plus 0.625%.
The Company has utilized US$ 5,000,000 (RMB 41,393,500 ) as of
December 31, 1998. Interest shall be paid on the outstanding balance
on February 5, 1999, every six months thereafter, and at maturity.
On September 30, 1998, the Company was granted a long-term loan
facility of US$6,820,000 by the Bank of Tokyo-Mitsubishi, Ltd.
Beijing Branch at an annual interest equal to the bank's funding rate
plus 0.75%. The Company has utilized US$ 6,820,000 (RMB 56,460,824 )
as of December 31, 1998. Interest shall be paid on the outstanding
balance on February 5, 1999, every six months thereafter, and at
maturity.
All the obligations of the Company under the above agreements are
guaranteed 60% by NTT and 40% by Itochu.
10. CAPITAL CONTRIBUTION
December 31, 1998 and 1997
-----------------------------------------
Ownership RMB
---------------- --------------------
Capital contributed by:
EQUIPMENT CO. 51.00% 12,731,283
NTT 29.40% 7,339,210
Itochu 19.60% 4,892,807
---------------- --------------------
100% 24,963,300
================ ====================
11. COMMITMENTS
The Company leases certain buildings under operating leases, which
expire through March 1999. Rental expense under these operating
leases was both RMB 319,200 for the years 1998 and 1997.
The aggregate annual minimum operating lease commitments under all
non-cancellable leases at December 31, 1998 is RMB 79,800 for a lease
expiring during the fiscal year 1999.
The Company has entered into a Project Cooperation Agreement with
UNICOM relating to the construction of a telecommunication network in
Hebei Province, PRC. The total estimated investment under the terms
of this agreement is RMB320 million for the first phase and RMB279
million has been incurred up to December 31, 1998. The term of this
agreement is fifteen years.
12. EMPLOYEE RETIREMENT BENEFITS AND POST-RETIREMENT BENEFIT
The Company's employees are entitled to a retirement pension
calculated with reference to their basic salaries on retirement and
their length of service in accordance with a government managed
pension plan. The PRC government is responsible for the pension
liability to these retired employees. The Company is required to make
contributions to the state retirement plan at rates ranging from 18%
to 20% of the adjusted monthly basic salaries of the current
employees. The expense of such arrangements to the Company was
immaterial in all the periods presented. The Company is not obligated
under any other post-retirement plans and post-employment benefits
are not material.
13. FINANCIAL RESULTS AND LIQUIDITY
The Company has incurred net losses of RMB14,354,276 and
RMB16,367,712 in 1998 and 1997, respectively. As of December 31,
1998, the Company's total liabilities exceeded its total assets by
RMB5,636,006, and its total current liabilities exceeded its total
current assets by RMB13,531,504.
The Company recognized net revenue of RMB6,488,482 and RMB1,706,499
in 1998 and 1997, respectively. Since the business operation of the
Company highly depends on the operation of GSM network run by
UNICOM, which has made substantial progress in broadening its
subscribers bases and its position in the cellular market, the
Company is expecting share of a larger distributable cash flow in
the following years. The Company will also attempt to obtain
additional financing to support its operation in the future if
necessary.
CONFORMED COPY
- -----------------------------------------------------------------------------
PURCHASE AGREEMENT
BY AND AMONG
SFMT-CHINA, INC.,
AMTEC HEBEI TELECOM HOLDINGS, LTD.
AND
AMTEC, INC.
DATED AS OF AUGUST 26, 1998
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I. CERTAIN DEFINED TERMS........................................1
ARTICLE II. PURCHASE AND SALE...........................................1
SECTION 2.1. Purchase and Sale.................................1
SECTION 2.2. Closing...........................................1
SECTION 2.3. Closing Deliveries by Seller......................2
SECTION 2.4. Closing Deliveries by Purchaser and AmTec.........2
SECTION 2.5. Registration Rights...............................2
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER...................2
SECTION 3.1. Organization of V-Tech............................2
SECTION 3.2. Organization, Authority and Qualification of
Seller............................................2
SECTION 3.3. Capitalization; Ownership of the Interests........3
SECTION 3.4. No Conflict.......................................4
SECTION 3.5. Governmental Consents and Approvals...............4
SECTION 3.6. Undisclosed Liabilities...........................5
SECTION 3.7. No Litigation.....................................5
SECTION 3.8. Events Subsequent to June 30, 1998................5
SECTION 3.9. Guaranties........................................6
SECTION 3.10. Investment Purpose; Experience....................6
SECTION 3.11. Brokers...........................................7
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER.................7
SECTION 4.1. Organization and Authority of Purchaser...........7
SECTION 4.2. Organization and Authority of AmTec...............7
SECTION 4.3. Capitalization of AmTec...........................7
SECTION 4.4. No Conflict.......................................8
SECTION 4.5. Governmental Consents and Approvals...............9
SECTION 4.6. No Litigation.....................................9
SECTION 4.7. Investment Purpose................................9
SECTION 4.8. Condition of Conveyed Interests...................9
SECTION 4.9. Knowledge and Expertise...........................9
SECTION 4.10. Additional Capital Investment.....................9
SECTION 4.11. No Reliance.......................................9
SECTION 4.12. Brokers..........................................10
ARTICLE V. ADDITIONAL AGREEMENTS.......................................10
SECTION 5.1. Conduct of Business Prior to Closing.............10
SECTION 5.2. Access to Information............................10
SECTION 5.3. Intercompany Debt................................11
SECTION 5.4. China Employees..................................11
SECTION 5.5. Consulting Services..............................11
SECTION 5.6. Assignment of Claims.............................11
SECTION 5.7. EQUANT Equipment Lease...........................12
SECTION 5.8. Stockholder Rights...............................12
SECTION 5.9. Restrictions on Transfer.........................12
SECTION 5.10. AmTec's Board of Directors.......................13
SECTION 5.11. Right of Inspection..............................13
SECTION 5.12. Regulatory and Other Authorizations; Notices
and Consents; Releases...........................13
SECTION 5.13. Schedule Supplements.............................14
SECTION 5.14. Further Action...................................14
ARTICLE VI. TAX MATTERS................................................14
SECTION 6.1. Indemnity........................................14
ARTICLE VII. CONDITIONS TO CLOSING.....................................14
SECTION 7.1. Conditions to Obligations of Seller..............14
SECTION 7.2. Conditions to Obligations of Purchaser...........16
ARTICLE VIII. INDEMNIFICATION..........................................17
SECTION 8.1. Survival of Representations and Warranties.......17
SECTION 8.2. Indemnification by Seller........................17
SECTION 8.3. Indemnification by Purchaser.....................17
SECTION 8.4. General Indemnification Procedures...............18
SECTION 8.5. Limits on Indemnification........................19
SECTION 8.6. Tax Matters......................................20
ARTICLE IX. TERMINATION................................................20
SECTION 9.1. Termination......................................20
SECTION 9.2. Effect of Termination............................20
ARTICLE X. GENERAL PROVISIONS..........................................21
SECTION 10.1. Expenses.........................................21
SECTION 10.2. Notices..........................................21
SECTION 10.3. Public Announcements.............................21
SECTION 10.4. Headings.........................................21
SECTION 10.5. Severability.....................................22
SECTION 10.6. Entire Agreement.................................22
SECTION 10.7. Assignment.......................................22
SECTION 10.8. No Third Party Beneficiaries.....................22
SECTION 10.9. Amendment........................................22
SECTION 10.10. Governing Law....................................22
SECTION 10.11. Counterparts.....................................22
SECTION 10.12. Specific Performance.............................22
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of August 26, 1998, by and among
SFMT-CHINA, INC., a Delaware corporation ("Seller"), AMTEC HEBEI TELECOM
HOLDINGS, LTD., a British Virgin Islands corporation ("Purchaser") and
AMTEC, INC., a Delaware corporation, ("AmTec")
W I T N E S S E T H:
WHEREAS, Seller owns 75% of the interests in Shanghai V-Tech
Telecommunications & Engineering Limited Liability Company, a Sino Foreign
equity joint venture limited liability company ("V-Tech") and holds certain
debt and contract rights relating to V-Tech ("Other Interests");
WHEREAS, Purchaser wishes to buy and Seller wishes to sell its 75%
of the limited liability company interest in V-Tech and the Other Interests
(hereinafter, the "Conveyed Interests") for the consideration set forth
herein; and
WHEREAS, as further inducement for Seller to enter into this
Agreement, AmTec wishes to be obligated to perform certain actions as
agreed to herein;
NOW, THEREFORE, in consideration of the premises, the mutual
agreements and covenants hereinafter set forth and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged,
the parties hereby agree as follows:
ARTICLE I.
CERTAIN DEFINED TERMS
As used in this Agreement, unless otherwise defined herein,
capitalized terms shall have the meanings set forth on Schedule A annexed
hereto.
ARTICLE II.
PURCHASE AND SALE
SECTION 2.1. Purchase and Sale. Subject to the terms and conditions
of this Agreement, Seller agrees to sell, transfer and deliver the Conveyed
Interests to Purchaser for a total purchase price of U.S.$8,000,000 (the
"Purchase Price") to be paid by the issuance and delivery in the name of
Seller or in the name of an Affiliate of Seller, as designated by Seller,
5,925,357 shares of the common stock, $.001 par value, of AmTec (the
"Issued Stock").
SECTION 2.2. Closing. Subject to the terms and conditions of this
Agreement, the sale and purchase of the Conveyed Interests contemplated by
this Agreement shall take place at a closing (the "Closing") to be held at
the offices of Seller at 1751 Pinnacle Drive, North Tower, 12th Floor
McLean, Virginia, within 5 business days of the receipt of all necessary
governmental approvals, or at such other place or at such other time or on
such other date as Seller and Purchaser may mutually agree upon in writing
(the day on which the Closing takes place being the "Closing Date").
SECTION 2.3. Closing Deliveries by Seller. At the Closing,
Seller shall deliver or cause to be delivered to Purchaser:
(a) an Assignment of Interests, assigning the Conveyed Interests
to Purchaser; and
(b) the certificates and other documents required to be delivered
pursuant to Section 7.2.
SECTION 2.4. Closing Deliveries by Purchaser and AmTec. At the
Closing, Purchaser and AmTec shall deliver to Seller:
(a) the Issued Stock in the name of Seller or its designate; and
(b) the certificates and other documents required to be delivered
pursuant to Section 7.1.
SECTION 2.5. Registration Rights. Concurrent with the Closing, the
parties covenant and agree that AmTec and Seller shall enter into a
Registration Agreement in substantially the form attached to this Agreement
as Exhibit A (hereinafter, the "Registration Agreement").
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser and AmTec to enter into this
Agreement, Seller hereby represents and warrants to Purchaser and AmTec as
follows:
SECTION 3.1. Organization of V-Tech. V-Tech is a Sino Foreign
equity joint venture limited liability company duly organized, validly
existing and in good standing under the laws of its jurisdiction of
formation or organization, has all requisite power and authority, and has
been duly authorized by all necessary approvals and orders, to own and
operate its assets and properties to the extent owned and operated and to
carry on its business as it has been and is currently conducted.
SECTION 3.2. Organization, Authority and Qualification of Seller.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Seller, the
performance by Seller of its obligations hereunder and the consummation by
Seller of the transactions contemplated hereby have been duly authorized by
all requisite action on the part of Seller. This Agreement has been duly
executed and delivered by Seller, and (assuming due authorization,
execution and delivery by Purchaser and AmTec) this Agreement constitutes a
legal, valid and binding obligation of Seller enforceable against Seller in
accordance with its terms.
SECTION 3.3. Capitalization; Ownership of the Interests.
(a) The Conveyed Interests are as set forth in Schedule 3.3(a),
and such interests are validly issued, fully paid and nonassessable. None
of the Conveyed Interests was issued in violation of any preemptive rights.
There are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to the
Conveyed Interests or obligating Seller or, to Seller's Knowledge, V-Tech
to issue or sell any interest in V-Tech. Except as set forth in the
Operative Documents (as defined below), to Seller's Knowledge there are no
outstanding contractual obligations of V-Tech to repurchase, redeem or
otherwise acquire any interests or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in,
any other Person. The Conveyed Interests are owned of record and
beneficially solely by Seller free and clear of all Encumbrances.
(b) Compliance. Neither Seller nor, to Seller's Knowledge, V-Tech
is in material violation of, is under investigation with respect to any
material violation of, or has been given notice or been charged with any
material violation of, any law, statute, order, rule, regulation, ordinance
or judgment (including, without limitation, any applicable environmental
law, ordinance or regulation) of any Governmental Authority. To Seller's
Knowledge, V-Tech has all permits, licenses, franchises and other
governmental authorizations, consents and approvals necessary to conduct
its businesses as presently conducted in all material respects. Neither
Seller nor, to Seller's Knowledge, V-Tech is in material breach or
violation of or in material default in the performance or observance of any
term or provision of, and no event has occurred which, with lapse of time
or action by a third party, could result in a material default under, (i)
their respective articles of incorporation, certification of formation or
bylaws or (ii) any material contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which each is a party or by which either is bound or to which
any of their respective property is subject.
(c) Attached hereto as Schedule 3.3(c) are true and correct copies
of the following (the "Operative Documents"):
(i) Joint Venture Contract dated April 12, 1995 by and
between SSTIC and Seller;
(ii) April 12, 1995 Conditional Loan Discharge Contract
between Seller and Shanghai Science and Technology Investment
Corporation, Ltd. ("SSTIC");
(iii) October 16, 1994 Engineering Services Contract between
V-tech and SVC;
(iv) Articles of Association of V-Tech;
(v) April 12, 1995 Project Cooperation Contract between
V-Tech and SSTIC;
(vi) April 12, 1995 Technical Support and Consulting Services
Contract between V-Tech and SSTIC; and
(vii) April 12, 1995 Delegated Loan Contract among V-Tech,
SSTIC and The Industrial & Commercial Bank of Shanghai Trust &
Investment Corp.
With the exception of loan agreements to be discharged at Closing and the
documents described in Section 5.7 (the "EQUANT Documents"), neither
Seller, nor to Seller's Knowledge, V-Tech is a party to or bound by any
other agreement, contract, commitment or instrument related to V-Tech or
the business of V-Tech, which is material to the operations of V-Tech or to
Seller's investment in V-Tech. With respect to each document attached on
Schedule 3.3(c) (A) the document is legal, valid, binding, enforceable, and
in full force and effect; (B) to Seller's Knowledge, no party is in breach
or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification
or acceleration, under the obligations thereunder; and (C) no party has
effectively repudiated any provision of the document.
SECTION 3.4. No Conflict. The execution and delivery of this
Agreement and the Registration Agreement by Seller and the consummation or
performance of the transactions contemplated thereby do not and will not at
Closing (a) violate, conflict with or result in the breach of any provision
of the Certificate of Incorporation or By-laws (or similar organizational
documents) of Seller, (b) conflict with or violate (or cause an event which
could have a Material Adverse Effect as a result of) any Law or
Governmental Order applicable to Seller, or any of its assets, properties
or businesses, including (without limitation), the businesses of V-Tech,
and typically applicable to a transaction of this nature, or (c) except to
the extent consent is required under the EQUANT Documents, conflict with,
result in any breach of, constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a default) under,
require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, or
result in the creation of any Encumbrance on any of the Conveyed Interests
or on any of the assets or properties of Seller or (to Seller's Knowledge)
V-Tech pursuant to any note, bond, mortgage or indenture, stock purchase or
sale agreement, contract, agreement, lease, sublease, license, permit,
franchise or other instrument or arrangement to which Seller or, to
Seller's Knowledge, V-Tech is a party or by which the Conveyed Interests or
any of such assets or properties is bound or affected which could have a
Material Adverse Effect.
SECTION 3.5. Governmental Consents and Approvals. Except as set
forth in Schedule 3.5, the execution, delivery and performance of this
Agreement by Seller do not and will not require any consent, approval,
authorization or other order of, action by, filing with or notification to
any Governmental Authority.
SECTION 3.6. Undisclosed Liabilities. To Seller's Knowledge, V-Tech
has no liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due ("Liability")
and there is no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any
Liability), except for (i) Liabilities set forth on the face of V-Tech's
most recent balance sheet (rather than in any notes thereto), (ii)
Liabilities which have arisen after June 30, 1998 in the ordinary course of
business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement, or violation of law), and (iii) Liabilities which are
not material to the business or assets of V-Tech taken as a whole.
SECTION 3.7. No Litigation. Except as set forth on Schedule 3.7,
there are no actions, suits or proceedings pending or threatened against
Seller or (to Seller's Knowledge) V-Tech, at law or in equity before or by
any federal, state, provincial, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
SECTION 3.8. Events Subsequent to June 30, 1998. Since June 30,
1998, to Seller's Knowledge, there has been no change in the business,
financial condition, operations, results of operations, properties or
assets of V-Tech which could have a Material Adverse Effect. Without
limiting the generality of the foregoing, since that date, to Seller's
Knowledge:
(i) V-Tech has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair
consideration in the ordinary course of business;
(ii) V-Tech has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) either involving more than $100,000 or
outside the ordinary course of business except for the
transactions contemplated by the EQUANT Agreement (as defined in
Section 5.7);
(iii) no party (including Seller and V-Tech) has
accelerated, terminated, modified, or cancelled any agreement,
contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $50,000 to
which a subsidiary of V-Tech is a party or by which it is bound
with the exception of intercompany debt to be cancelled pursuant
to this Agreement;
(iv) V-Tech has not imposed any security interest upon any
of its assets, tangible or intangible;
(v) V-Tech has not made any capital expenditure (or
series of related capital expenditures) either involving more
than $100,000 or outside the ordinary course of business;
(vi) except as set forth in Schedule 3.8(vi), V-Tech has
not made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions)
either involving more than $100,000 or outside the ordinary
course of business;
(vii) V-Tech has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
either involving more than $25,000 singly or $100,000 in the
aggregate;
(viii) V-Tech has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and
claims) either involving more than $100,000 or outside the
ordinary course of business;
(ix) there has been no change made or authorized in the
Articles of Association of V-Tech;
(x) V-Tech has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock;
(xi) V-Tech has not experienced any damage, destruction or
loss (whether or not covered by insurance) to its property;
(xii) V-Tech has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and
employees outside the ordinary course of business; and
(xiii) there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside
the ordinary course of business involving V-Tech.
SECTION 3.9. Guaranties. To Seller's Knowledge, V-Tech is not a
guarantor or otherwise liable for any Liability or obligation (including
indebtedness) of any other Person except pursuant to the Conditional Loan
Discharge Contract dated April 12, 1995 between SFMT-China, Inc. and SSTIC.
SECTION 3.10. Investment Purpose; Experience. Seller is acquiring
the Issued Stock solely for the purpose of investment and not with a view
to, or for offer or sale in connection with, any distribution thereof, and
Seller has no present arrangement (whether or not legally binding) to sell
at any time any Issued Stock to or through any Person or entity. Seller is
a sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation
D promulgated under the Securities Act of 1933, as amended, ("Regulation
D")) and an Accredited Investor (as defined in Rule 501 of Regulation D).
Seller is experienced in the evaluation of businesses similar to the
businesses of AmTec, and has such knowledge and experience in financial,
business and other relevant matters as to be competent and fully capable of
examining on its own all the merits, risks and other aspects of receiving
the Issued Stock as contemplated by this Agreement and to make an informed
decision with respect thereto. Seller acknowledges that it has had the
opportunity to review this Agreement and the transactions contemplated by
this Agreement with its own legal counsel and tax advisors.
SECTION 3.11. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Seller. Seller agrees to indemnify and
hold Purchaser harmless for any liability and damage (including reasonable
attorney's fees) suffered as a result of any Person or entity making claims
for fees and commissions based upon arrangements made by Seller or Seller's
parent, Global TeleSystems Group, Inc. (hereinafter, "GTS").
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement, Purchaser
and AmTec hereby represent and warrant to Seller as follows:
SECTION 4.1. Organization and Authority of Purchaser. Purchaser is
a corporation duly organized, validly existing and in good standing under
the laws of the British Virgin Islands and has all necessary corporate
power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Purchaser, the
performance by Purchaser of its obligations hereunder and the consummation
by Purchaser of the transactions contemplated hereby have been duly
authorized by all requisite action on the part of Purchaser. This Agreement
has been duly executed and delivered by Purchaser, and (assuming due
authorization, execution and delivery by Seller) this Agreement constitutes
a legal, valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms.
SECTION 4.2. Organization and Authority of AmTec. AmTec is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all necessary corporate power and
authority to enter into this Agreement (subject to AmTec shareholder
approval), to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by AmTec, the performance by AmTec of its obligations hereunder
and the consummation by AmTec of the transactions contemplated hereby have
been duly authorized by all requisite action on the part of AmTec. This
Agreement has been duly executed and delivered by AmTec, and (assuming due
authorization, execution and delivery by Seller) this Agreement constitutes
a legal, valid and binding obligation of AmTec enforceable against AmTec in
accordance with its terms.
SECTION 4.3. Capitalization of AmTec. (a) The authorized capital
stock of AmTec consists of 100,000,000 shares of its common stock, par
value $.001 per share, and 10,000,000 shares of convertible preferred
stock, having a par value of $.001 per share. As of the close of business
on July 31, 1998, there were issued and outstanding 26,074,871 shares of
AmTec common stock and 68 shares of Series E convertible preferred stock.
All of the issued and outstanding shares of the capital stock of AmTec are,
and the Issued Stock (upon issuance in accordance with this Agreement) will
be, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as set forth in AmTec's SEC Reports or as set forth in
Schedule 4.3(a) hereof, as of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating AmTec or
any AmTec Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of AmTec , or
obligating AmTec to grant, extend or enter into any such agreement or
commitment, other than the agreements contained herein or contemplated
hereby. There are no outstanding stock appreciation rights of AmTec which
were not granted in tandem with a related stock option and no outstanding
limited stock appreciation rights or other rights to redeem for cash
options or warrants of AmTec.
(b) Compliance. Except as disclosed in AmTec's SEC Reports filed
prior to the date hereof, neither Purchaser, AmTec nor any AmTec Subsidiary
is in material violation of, is under investigation with respect to any
material violation of, or has been given notice or been charged with any
material violation of, any law, statute, order, rule, regulation, ordinance
or judgment (including, without limitation, any applicable environmental
law, ordinance or regulation) of any Governmental Authority. Purchaser,
AmTec and each AmTec Subsidiary have all permits, licenses, franchises and
other governmental authorizations, consents and approvals necessary to
conduct their businesses as presently conducted in all material respects.
Neither Purchaser, AmTec nor any AmTec Subsidiary is in material breach or
violation of or in material default in the performance or observance of any
term or provision of, and no event has occurred which, with lapse of time
or action by a third party, could result in a material default under, (i)
its articles of incorporation, certification of formation or bylaws or (ii)
any material contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to
which it is a party or by which it is bound or to which any of its property
is subject.
SECTION 4.4. No Conflict. The execution, delivery and performance
of this Agreement by Purchaser and AmTec and the Registration Agreement by
AmTec do not and will not (a) violate, conflict with or result in the
breach of any provision of the Certificate of Incorporation or By-laws (or
similar organizational documents) of Purchaser or AmTec, (b) conflict with
or violate any Law or Governmental Order applicable to Purchaser or AmTec
or any of their respective assets, properties or businesses, and typically
applicable to a transaction of this nature or (c) conflict with, or result
in any breach of, constitute a default (or event which with the giving of
notice or lapse or time, or both, would become a default) under, require
any consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation, or cancellation of, or result in the
creation of any Encumbrance on any of the respective assets or properties
of Purchaser or AmTec pursuant to any note, bond, mortgage or indenture,
stock purchase and sale agreement, contract, agreement, lease, sublease,
license, permit, franchise or other instrument or arrangement to which
Purchaser or AmTec is a party or by which any of such assets or properties
are bound or affected which would have a material adverse effect on the
ability of Purchaser or AmTec to consummate the transactions contemplated
by this Agreement or the Registration Agreement, as the case may be.
SECTION 4.5. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by Purchaser and AmTec do not
and will not require any consent, approval, authorization or other order
of, action by, filing with, or notification to, any Governmental Authority.
SECTION 4.6. No Litigation. There are no actions, suits or
proceedings pending or threatened against Buyer or AmTec, at law or in
equity before or by any federal, state, provincial, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign except as disclosed in AmTec's SEC
Reports.
SECTION 4.7. Investment Purpose. Purchaser is acquiring the
Conveyed Interests solely for the purpose of investment and not with a view
to, or for offer or sale in connection with, any distribution thereof.
SECTION 4.8. Condition of Conveyed Interests. Purchaser and AmTec
acknowledge that, prior to execution of this Agreement, (i) each has been
afforded access to and the opportunity to inspect the businesses of Seller
and V-Tech and Seller's and V-Tech's files and records related thereto, and
(ii) each has inspected such businesses, files and records to the extent it
deems necessary or advisable. Purchaser accepts the Conveyed Interests on
an "AS IS" and "WHERE IS" basis subject only to the representations and
warranties made explicitly in this Agreement and the faithful undertakings
agreed to herein including (without limitation) the provisions of Section
5.5 hereof, and not subject to any other assurance, warranty or
representation.
SECTION 4.9. Knowledge and Expertise. AmTec is, and Purchaser is a
subsidiary of, a telecommunications company with operations in The People's
Republic of China. Each is familiar with foreign, federal, state and local
statutes, laws, ordinances, rules and regulations applicable to such
businesses and any associated business, and has the expertise necessary to
independently evaluate the Conveyed Interests, and the condition,
operation, suitability, performance and prospects of such businesses.
SECTION 4.10. Additional Capital Investment. Purchaser and AmTec
understand that Shanghai VSAT Network Systems Co. ("SVC"), a company in
which V-Tech holds a 56% equity equivalent interest, plans to raise
additional investment capital in the near future and such investments may
be dilutive to V-Tech.
SECTION 4.11. No Reliance. Except as to the representations and
warranties of Seller expressly set forth in Article III of this Agreement,
neither Purchaser nor AmTec has relied upon any oral or written statements,
representations, warranties which may have been made by or on behalf of
Seller or upon any written reports, financial data, business plans,
projections, forecasts, or any environmental reports, audits, studies or
assessments, or any other written materials, copies of which may have been
furnished to Purchaser or AmTec as to which Purchaser or AmTec may have
been provided access in connection with the transactions contemplated by
this Agreement. TO THE EXTENT THAT PURCHASER OR AMTEC HAS BEEN FURNISHED
COPIES OF OR BEEN PROVIDED ACCESS TO ANY OF THE FOREGOING, PURCHASER AND
AMTEC ACKNOWLEDGE THAT NEITHER SELLER NOR ANY OF ITS AFFILIATES, OR ANY OF
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES AND
AGENTS, HAS MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION, DATA OR MATERIALS (WHETHER WRITTEN OR ORAL) WHICH MAY HAVE
BEEN FURNISHED TO PURCHASER OR AMTEC OR ITS REPRESENTATIVES OR AGENTS BY OR
ON BEHALF OF SELLER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 4.12. Brokers. No broker, finder or investment banker
(other than CIBC Oppenheimer Corp.) is or may be entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of Purchaser or AmTec. Purchaser agrees to indemnify and hold Seller
harmless for any liability and damage (including reasonable attorney's
fees) suffered as a result of any Person or entity making claims against
Seller for fees and commissions based upon arrangements by Purchaser or
AmTec, including but not limited to claims by CIBC Oppenheimer Corp. or
Bruce Kippen or Kippen and Company.
ARTICLE V.
ADDITIONAL AGREEMENTS
SECTION 5.1. Conduct of Business Prior to Closing. Seller covenants
and agrees that, between the date hereof and the time of the Closing,
Seller shall not vote its interests in V-Tech, nor permit V-Tech to conduct
the businesses of V-Tech, other than in the ordinary course and consistent
with prior practice without the prior written consent of Purchaser, which
shall not be unreasonably withheld. Seller agrees to promptly notify
Purchaser in the event of a change in SVC's business which could have a
Material Adverse Effect provided Seller has Knowledge, and in the event of
a change which could have a Material Adverse Effect, including (without
limitation) the severance or resignation of any of the Key Employees and/or
officers or directors of V-Tech prior to Closing.
SECTION 5.2. Access to Information. (a) In order to facilitate the
resolution of any claims made against or incurred by Seller prior to the
Closing or for any other reasonable purpose, for a period of seven years
after the Closing, Purchaser shall (i) retain the books and records of
V-Tech relating to periods prior to the Closing in a manner reasonably
consistent with the prior practice of V-Tech, (ii) upon reasonable notice,
afford the officers, employees and authorized agents and representatives of
Seller reasonable access (including the right to make, at Seller's expense,
photocopies), during normal business hours, to such books and records, and
(iii) give Seller reasonable notice of Purchaser's intention to discard or
otherwise destroy such books and records and, upon Seller's request,
transfer such books and records to Seller for safekeeping rather than
discarding or otherwise destroying same.
(b) Upon execution of this Agreement and prior to Closing,
Seller shall cause V-Tech to provide Purchaser and its representatives,
including an independent auditing firm with access to the books and records
of V-Tech to enable Purchaser to conduct an audit of such books and
records.
(c) In order to facilitate the resolution of any claims made
by or against or incurred by Purchaser after the Closing or for any other
reasonable purpose, for a period of seven years following the Closing,
Seller shall (i) retain or cause to be retained its books and records which
relate to V-Tech and its operations for periods prior to the Closing and
which shall not otherwise have been delivered to Purchaser and (ii) upon
reasonable notice, afford the officers, employees and authorized agents and
representatives of Purchaser reasonable access (including the right to make
photocopies, at the expense of Purchaser) during normal business hours, to
such books and records.
SECTION 5.3. Intercompany Debt. Immediately prior to the Closing,
Seller covenants and agrees to cancel any and all intercompany debt,
including accounts payable and accrued expenses, owed by V-Tech or SVC to
Seller and, to the extent canceled, deliver to Purchaser a written release
of such debt dated the Closing Date and/or return to V-Tech its canceled
promissory note evidencing such debt.
SECTION 5.4. China Employees. Seller agrees that it and its
Affiliates shall permit Purchaser and its Affiliates to offer employment to
any of GTS's employees currently engaged with the businesses of V-Tech with
the exception of Raymond I. Marks ("Mr. Marks"). Purchaser agrees to
provide Seller written advice regarding such employees it intends to hire
concurrent with the execution of this Agreement.
SECTION 5.5. Consulting Services. Seller agrees to provide
consulting services to Purchaser as follows: On an as needed basis GTS will
make Mr. Marks available to Purchaser to provide consulting services to the
extent such services do not interfere or conflict with the responsibilities
and duties of Mr. Marks as a senior executive of GTS or its Affiliates and
are limited to (i) explaining V-Tech's historical performance and (ii)
providing reasonable assistance in the transition of the relationships of
Seller or V-Tech in The People's Republic of China; provided, however, that
(i) Purchaser shall be responsible for the travel, costs and expenses of
Mr. Marks at all times when he is providing such services to Purchaser and
(ii) Purchaser and AmTec, jointly and severally, shall indemnify and hold
GTS and its affiliates harmless from any liability or damage (including
reasonable attorney's fees) resulting from or incurred in connection with
such consulting services.
SECTION 5.6. Assignment of Claims. At Closing, Purchaser or V-Tech
will assign to Seller or GTS any and all rights, choses or causes of action
which V-Tech or Seller has or may have against Gilat Satellite Networks
Ltd., a State of Israel Corporation ("Gilat"), related to or arising out of
Gilat's obligations to V-Tech for goods and services prior to the date
hereof. Purchaser and AmTec will, and will cause their respective
employees, and use their best efforts to cause V-Tech, to cooperate with
Seller with regard to its litigation or settlement of any such claim; to
provide information and assistance in connection with any action taken by
Seller in connection with its or V-Tech's claims against Gilat Satellite
Networks Ltd.; and to take reasonable measures to protect and keep in its
current repair and condition, and return to Seller or its designee, the
equipment supplied by Gilat to V-Tech or Seller, as listed on Schedule 5.6
hereto, and which is the subject of Seller's claims against Gilat The
foregoing undertakings shall be at Seller's sole cost and expense including
the cost of insurance acceptable to Seller in its sole discretion.
SECTION 5.7. EQUANT Equipment Lease. Concurrent with the Closing,
Seller covenants and agrees to cause its affiliate, GTS Equipment, Inc.
("GTS Equipment"), and its parent, GTS, to assign to AmTec or a subsidiary
of AmTec, and AmTec agrees to assume or cause such subsidiary to assume,
all their respective rights and obligations under, pursuant to or in
connection with (i) that certain Equipment Lease Agreement by and between
GTS Equipment and EQUANT U.S., Inc. ("EQUANT") dated July 3, 1998 (the
"EQUANT Agreement"), (ii) any sublease pursuant thereto, and (iii) the
Guarantee dated July 3, 1998 delivered by GTS to EQUANT in connection with
(i) above, in each case subject to any requisite consents to such
assignment, including (but not limited to) the consent of EQUANT.
SECTION 5.8. Stockholder Rights. Seller understands that:
(i) The Issued Stock has not been registered under the
Securities Act or any applicable state securities or "Blue
Sky" laws, and may be required to be held indefinitely,
unless subsequently registered under the Securities Act of
1933 (the "Securities Act") and such applicable Blue Sky
laws, or an exemption from such registration is available.
(ii) other than as set forth in the Registration
Agreement, AmTec is under no obligation to file a
registration statement with the Securities and Exchange
Commission (the "Commission") or any state securities
commission with respect to such Issued Stock; provided,
however, AmTec covenants and agrees to use its best efforts
to complete a public offering of its common stock within the
three years following the Closing in which Seller may tender
the Issued Stock in whole or in part in proportion to the
total holdings requested to be registered and subject to the
discretion of the underwriters.
SECTION 5.9. Restrictions on Transfer. With the exception of any
transfer of the Issued Stock to an Affiliate of Seller which remains its
Affiliate immediately after such transfer, Seller (and its transferee,
successor or assign) agrees that (a) it will not offer, sell or otherwise
dispose of the Issued Stock, unless such offer, sale or other disposition
is effected in accordance with the terms of this Agreement or the
Registration Agreement and such offer, sale or other disposition is (i)
registered under the Securities Act and applicable state securities laws or
is exempt from registration under such laws or (ii) in compliance with an
opinion of counsel to Seller delivered to AmTec hereunder and reasonably
acceptable to AmTec and its counsel to the effect that such offer, sale or
other disposition thereof does not violate the Securities Act or applicable
state securities laws, and (b) the certificate(s) representing such common
stock shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS
AND UNTIL REGISTERED UNDER THE SECURITIES ACT OF 1933 AND SUCH
APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, DOES NOT VIOLATE THE PROVISIONS THEREOF OR UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A OF THE SECURITIES ACT OF 1933.
Upon request of Seller or other person who in accordance with the
provisions of this Section 5.10 becomes a holder of the Issued Stock, AmTec
shall remove the legend set forth above from the certificates evidencing
such Issued Stock or issue to such holder new certificates therefore free
of such legend, if with such request AmTec shall have received an opinion
of counsel that is reasonably acceptable to AmTec and its counsel to the
effect that such Issued Stock, as applicable, is not required by the
Securities Act or other applicable law to continue to bear the legend or a
legend similar thereto.
Notwithstanding the foregoing, Seller covenants and agrees not to
transfer the Issued Stock prior to the third anniversary of the Closing;
provided, however, that Seller may transfer such Issued Stock in whole or
in part (i) after the first anniversary of the Closing and prior to such
third anniversary in a transaction exempt from registration if the
transferee thereof agrees to refrain from any public resale of such Issued
Stock until such third anniversary, (ii) at any time in response to a
tender offer by a third party (not an Affiliate of Seller) for shares of
AmTec's common stock made in accordance with the Securities Exchange Act of
1934, as amended, and the rules and regulations thereof and which would
result in the acquirer in such tender offer obtaining, in the aggregate,
51% or more of AmTec's common stock, or (iii) at any time in a registered
sale effected pursuant to a registration under the Securities Act.
SECTION 5.10. AmTec's Board of Directors. At any time after the
Closing Date, as long as Seller or one of its Affiliates is the holder of
at least 50% of the Issued Stock, upon reasonable notice to AmTec, Seller
shall have the right to nominate one member to AmTec's Board of Directors
and AmTec shall use its best efforts to effect the election to its Board of
Directors of such nominee.
SECTION 5.11. Right of Inspection. AmTec agrees that Seller, as
long as it or one of its Affiliates is the registered owner of the Issued
Stock, shall have the right to the extent provided under the Delaware
General Corporation Law to inspect the books and records of AmTec and to
make copies of such books and records during AmTec's normal business hours.
SECTION 5.12. Regulatory and Other Authorizations; Notices and
Consents; Releases. Seller and Purchaser shall each use their reasonable
efforts to obtain all authorizations, consents, orders and approvals of all
Governmental Authorities and officials that Purchaser determines to be
necessary or appropriate in connection with the transactions contemplated
by this Agreement.
SECTION 5.13. Schedule Supplements. From time to time prior to the
Closing, Seller shall supplement or amend the Schedules hereto with respect
to any matter arising after the date hereof which, if existing or occurring
at or prior to the date hereof, would have been required to be set forth or
described in such Schedules or which is necessary to complete or correct
any information in such Schedules or in any representation or warranty of
the Seller which has been rendered inaccurate thereby.
SECTION 5.14. Further Action. Each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable
under applicable Law, and execute and deliver such documents and other
papers, as may be required to carry out the provisions of this Agreement
and consummate and make effective the transactions contemplated by this
Agreement.
ARTICLE VI.
TAX MATTERS
SECTION 6.1. Indemnity. (a) To Seller's Knowledge, V-Tech has filed
all tax returns required by law, and Seller agrees to indemnify and hold
harmless Purchaser against the following Taxes and against any loss,
damage, liability or expense, including reasonable fees for attorneys and
other outside consultants, incurred in contesting or otherwise in
connection with any such Taxes: Taxes imposed by the United States or The
People's Republic of China or any state, provincial or local taxing
authority in the United States or The People's Republic of China on Seller
with respect to its share of income or gain of V-Tech relating to taxable
periods ending on or before the Closing Date.
(b) Purchaser agrees to indemnify and hold harmless Seller and
its Affiliates against the Taxes imposed by the United States or The
People's Republic of China or any state or local taxing authority in the
United States or The People's Republic of China with respect to its share
of income or gain of V-Tech relating to taxable periods after the Closing
Date and against any loss, damage, liability or expense, including
reasonable fees for attorneys and other outside consultants, incurred in
contesting or otherwise in connection with any such Taxes.
ARTICLE VII.
CONDITIONS TO CLOSING
SECTION 7.1. Conditions to Obligations of Seller. The obligations
of Seller to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing, of each of
the following conditions, any or all of which may be waived in whole or in
part by Seller:
(a) Due Diligence. Seller shall have completed its due diligence
investigation of AmTec and each relevant AmTec Subsidiary to the
satisfaction of Seller and its counsel.
(b) Representations, Warranties and Covenants. The
representations and warranties of Purchaser and AmTec contained in this
Agreement and each considered individually shall have been true and correct
as of the date of this Agreement and shall be true and correct in all
material respects as of the Closing, with the same force and effect as if
made as of the Closing Date, other than such representations and warranties
as are made solely as of another date; the covenants and agreements
contained in this Agreement to be complied with by Purchaser on or before
the Closing shall have been complied with in all material respects; and
Seller shall have received a certificate from Purchaser to such effect
signed by a duly authorized officer thereof.
(c) No Proceeding or Litigation. No action, suit, or proceeding
shall be pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction
or before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any of
the transactions contemplated by this Agreement, or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation; provided, however, that the provisions of this Section 7.1(b)
shall not apply if Seller has directly or indirectly solicited or
encouraged any such Action.
(d) Resolutions. Seller shall have received a true and complete
copy, certified by the Secretary or an Assistant Secretary of Purchaser
and, to the extent applicable, AmTec, of the resolutions duly and validly
adopted by the Board of Directors of Purchaser and the Board of Directors
of AmTec, as the case may be, evidencing their respective authorization of
the execution and delivery of this Agreement and the Registration
Agreement, respectively, and the consummation of the transactions
contemplated hereby or thereby.
(e) Consents. Seller shall have obtained and delivered copies to
Purchaser and AmTec, if in writing, all consents required to be obtained by
Seller in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereunder, including
(without limitation), the consent of the other holder(s) of equity joint
venture limited liability company or similar interests in V-Tech and all
requisite orders, approvals, authorizations and consents of Governmental
Authorities.
(f) Opinion. Seller shall have received an opinion of AmTec's
general counsel, satisfactory in form and substance to Seller, dated as of
the date of Closing, as to the due authority to issue the Issued Stock,
that the Issued Stock is duly and validly issued, and upon closing, will be
fully paid and nonassessable, and that the issuance of the Issued Stock
does not conflict with the charter or by-laws of AmTec or otherwise
conflict with any Law or any contractual restrictions applicable to AmTec.
(g) Registration Agreement. AmTec shall have executed and
delivered the Registration Agreement.
SECTION 7.2. Conditions to Obligations of Purchaser. The
obligations of Purchaser to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to the
Closing, of each of the following conditions, any or all of which may be
waived in whole or in part by Purchaser:
(a) Representations, Warranties and Covenants. The
representations and warranties of Seller contained in this Agreement shall
have been true and correct as of the date of this Agreement and shall be
true and correct in all material respects as of the Closing, with the same
force and effect as if made as of the Closing, other than such
representations and warranties as are made solely as of another date; the
covenants and agreements contained in this Agreement to be complied with by
Seller on or before the Closing shall have been complied with in all
material respects; and Purchaser shall have received a certificate of
Seller to such effect signed by a duly authorized officer thereof.
(b) No Proceeding or Litigation. No action, suit, or proceeding
shall be pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction
or before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any of
the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation; provided, however, that the provisions of this Section 7.2(b)
shall not apply if Purchaser has directly or indirectly solicited or
encouraged any such Action.
(c) Audit. The books and records of V-Tech shall be in such
condition to (i) allow Purchaser and the independent accountant of its
choice to audit same in accordance with United States Generally Accepted
Auditing Standards and, (ii) to permit Purchaser and its accountant to
prepare financial statements for its filings under the Securities Exchange
Act of 1934, as amended, in compliance with Regulation S-X.
(d) Shareholder Approval; Exchange Listing. AmTec shall have
obtained requisite approval of its shareholders for the issuance of the
Issued Stock and approval to issue the Issued Stock from the American Stock
Exchange.
(e) Resolutions. Purchaser shall have received a true and
complete copy, certified by the Secretary or an Assistant Secretary of
Seller, of the resolutions duly and validly adopted by the Board of
Directors of Seller evidencing authorization of the execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby.
(f) Consents. Seller shall have obtained and delivered copies to
Purchaser and AmTec, if in writing, all consents required to be obtained by
it in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereunder, including (without
limitation), the consent of the other holder(s) of equity joint venture
limited liability or similar interests in V-Tech and all requisite orders,
approvals, authorizations and consents of Governmental Authorities.
(g) Opinion. Purchaser and AmTec shall have received an opinion
of Seller's China counsel, acceptable in form and substance to Seller,
Purchaser and AmTec and their respective counsel.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.1. Survival of Representations and Warranties. The
representations and warranties contained in this Agreement, and all
statements contained in this Agreement, the schedules and any certificate
or other document delivered pursuant to this Agreement, or in connection
with the transactions contemplated by this Agreement (collectively, the
"Acquisition Documents"), shall survive the Closing for a period of two
years. Neither the period of survival nor the liability of Seller with
respect to Seller's representations and warranties made explicitly herein
shall be reduced by any investigation made at any time by or on behalf of
Purchaser whether before or after the execution of this Agreement or the
Closing. If written notice of a claim has been given prior to the
expiration of the applicable representations and warranties by either
party, then the relevant representations and warranties shall survive as to
such claim, until such claim has been finally resolved.
SECTION 8.2. Indemnification by Seller. Seller shall indemnify and
hold harmless Purchaser and its Affiliates and their respective
representatives for any and all Liabilities, losses, damages, claims, costs
and expenses, interest, awards, judgments and penalties (including, without
limitation, attorneys' and consultants' fees and expenses) actually
incurred by them (including, without limitation, any Action brought or
otherwise initiated by any of them (hereinafter a "Loss"), arising out of
or resulting from:
(i) the breach of any representation or warranty made by
Seller contained in the Acquisition Documents;
(ii) the breach of any covenant or agreement by Seller
contained in the Acquisition Documents; or
(iii) the rights, choses or causes of action against Gilat (and
any counterclaims by Gilat) assigned to Seller pursuant to
Section 5.9 hereof.
The sole remedy for Purchaser and its Affiliates (including but not limited
to AmTec) and their respective representatives against Seller or its
Affiliates for any liability arising out of this Agreement or the
transactions contemplated hereby shall be as set forth in Section 8.5 of
this Agreement.
SECTION 8.3. Indemnification by Purchaser. Purchaser and AmTec,
jointly and severally, shall indemnify and hold harmless Seller and its
Affiliates and their respective representatives against any and all Losses
actually incurred by any of them arising out of or resulting from (a) the
breach of any representation or warranty made by Purchaser or AmTec in the
Acquisition Documents, (b) the breach by Purchaser or AmTec of any of its
covenants or agreements in the Acquisition Documents (c) the breach by
AmTec (after Closing) of agreements with or made in connection with EQUANT
listed on Schedule 8.3 hereto subject to their assignment at Closing or (d)
if and to the extent such Losses directly or proximately result from
Purchaser's ownership of the Conveyed Interests and operation of V-Tech
after Closing.
SECTION 8.4. General Indemnification Procedures. If Purchaser or
any of its Affiliates or their respective representatives shall seek
indemnification pursuant to Section 8.2 hereof or Seller or any of its
Affiliates or their respective representatives shall seek indemnification
pursuant to Section 8.3 hereof, such party seeking indemnification (the
"Indemnified Party") shall give prompt notice to the party from whom such
indemnification is sought (the "Indemnifying Party"), stating all facts and
circumstances known to the Indemnified Party relating to the claim for
which indemnification is sought, the amount of the Loss, if known, and
method of computation thereof, and containing a reference to the provisions
of this Agreement in respect of which such right of indemnification is
claimed or arises. The obligations and liabilities of the Indemnifying
Party under this Article VIII with respect to Losses arising from claims of
any third party which are subject to the indemnification provided for in
this Article VIII ("Third Party Claims") shall be governed by and
contingent upon the following additional terms and conditions: if an
Indemnified Party shall receive notice of any Third Party Claim, the
Indemnified Party shall give the Indemnifying Party notice of such Third
Party Claim as soon as practicable but in no event later than ten days of
the receipt by the Indemnified Party of such notice; provided, however,
that the failure to provide such notice shall not release the Indemnifying
Party from any of his or its obligations under this Article VIII except to
the extent the Indemnifying Party is materially prejudiced by such failure,
and shall not relieve the Indemnifying Party from any other obligation or
liability that he or it may have to any Indemnified Party otherwise than
under this Article VIII. If the Indemnifying Party acknowledges in writing
his or its obligation to indemnify the Indemnified Party hereunder against
any Losses that may result from such Third Party Claim, then the
Indemnifying Party shall be entitled to assume and control the defense of
such Third Party Claim at his or its expense and through counsel reasonably
satisfactory to the Indemnified Party if he or it gives notice of his or
its intention to do so to the Indemnified Party within ten days of the
receipt of such notice from the Indemnified Party; provided, however, that
if there exists or is reasonably likely to exist a conflict of interest
that would make it inappropriate in the judgment of the Indemnified Party
for the same counsel to represent both the Indemnified Party and the
Indemnifying Party, the Indemnified Party shall be entitled to retain his
or its own counsel, in each jurisdiction for which the Indemnified Party
determines counsel is required, at the expense of the Indemnifying Party.
Notwithstanding the foregoing, if any Indemnified Party determines in good
faith that there is a reasonable probability that an action may materially
and adversely affect him or it or his or its Affiliates, other than as a
result of monetary damages, such Indemnified Party may, by written notice
to the Indemnifying Party, assume the exclusive right to defend, compromise
or settle such action, but the Indemnifying Party shall not be bound by or
required to indemnify the Indemnified Party for any loss or damage incurred
in connection with any determination of an action so defended or any
compromise or settlement thereof effected by the Indemnified Party without
the Indemnifying Party's prior written consent. In the event the
Indemnifying Party exercises the right to undertake a defense against a
Third Party Claim as provided herein, the Indemnified Party shall make
available to the Indemnifying Party, at the Indemnifying Party's expense,
all witnesses, pertinent records, materials and information in the
Indemnified Party's possession or under the Indemnified Party. Similarly,
in the event the Indemnified Party is, directly or indirectly, conducting
the defense against any Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense and make available to
the Indemnified Party, at the Indemnifying Party's expense, all such
witnesses, records, materials and information in the Indemnifying Party's
possession or under the Indemnifying Party's control relating thereto as is
reasonably required by the Indemnified Party. No Third Party Claim may be
settled by the Indemnifying Party in a manner which does not involve the
complete release of the Indemnified Party without the written consent of
the Indemnified Party. The Indemnified Party will have no liability with
respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an Indemnifying Party of the commencement of
any proceeding and the Indemnifying Party does not, within ten days after
the Indemnified Party's notice is given, give notice to the Indemnified
Party of its election to assume the defense of such proceeding, the
Indemnified Party shall have the right to defend such proceeding. However,
if the Indemnifying Party subsequently notifies the Indemnified Party of
its intent to assume the defense of such proceeding, the Indemnified Party
shall permit the assumption of the defense by the Indemnifying Party. In no
event will the Indemnifying Party be bound by any determination made in
such proceeding or any compromise or settlement effected by the Indemnified
Party, without the written consent of the Indemnifying Party.
SECTION 8.5. Limits on Indemnification. Notwithstanding anything to
the contrary contained in this Agreement, the indemnification set forth in
this Article VIII shall not cover any claim until the cumulative amount of
all indemnifiable Losses incurred, suffered or paid by the Indemnified
Party, or the damages claimed against the Indemnified Party in actions for
which the Indemnifying Party is responsible for defending hereunder,
exceeds $50,000 in the aggregate, whereupon the Indemnified Party shall be
entitled to indemnification under this Agreement for the full amount of all
such indemnifiable Losses and any additional indemnifiable Losses
thereafter, subject to the limitation set forth in the following sentence
of this Section 8.5. The sole recourse of Purchaser and its Affiliates
(including, without limitation, AmTec) and their respective
representatives, for their respective indemnifiable Losses shall be
Seller's relinquishment and redelivery of shares of the Issued Stock free
and clear of all encumbrances (valued on the basis of the average low and
high prices during the most recently completed week prior to the Final
Determination of the amount of indemnifiable Losses but in no event less
than $1.35 per share) in a number equal, based on their value, to the
amount of the indemnifiable Losses claimed. In the event Seller shall have
sold all or a portion of the Issued Stock prior to the Final Determination
of the amount of indemnifiable Losses, Seller's liability in the aggregate
shall be limited to (i) the relinquishment and redelivery of shares of the
Issued Stock still beneficially owned by Seller, as provided in the
preceding sentence of this Section 8.5, plus (ii) an amount in cash equal
to the aggregate proceeds received by Seller upon disposition of the
portion of the Issued Stock no longer beneficially held by Seller, provided
that Seller shall have the option, in its sole discretion, to purchase
stock of AmTec in the public market and use such stock to satisfy its
obligations under this Article VIII on the same basis as if such stock was
still owned prior to the Final Determination of the amount of indemnifiable
Losses. In the event that Seller receives assets other than cash upon the
disposition of Issued Stock, for purposes of determining the amount of
proceeds for purposes of this Section 8.5, the assets shall be valued at
their fair market value, as determined by a third party acceptable to both
Purchaser and Seller on the date of their receipt by Seller.
SECTION 8.6. Tax Matters. Anything in this Article VIII to the
contrary notwithstanding, the rights and obligations of the parties with
respect to indemnification for any and all Tax matters shall be governed by
Article VI.
ARTICLE IX.
TERMINATION
SECTION 9.1. Termination. Any party may terminate this agreement
at any time prior to the Closing by written notice to the other parties:
(a) by Purchaser and AmTec, in their discretion, if, between the
date hereof and the time scheduled for the Closing an event or condition
occurs, or fails to occur, that has resulted in or that may reasonably be
expected to result in a Material Adverse Effect;
(b) by either Purchaser and AmTec or Seller in the event that any
Governmental Authority shall have issued an order, decree or ruling or
taken any action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and nonappealable;
(c) by either Purchaser and AmTec, on the one hand, or Seller, on
the other hand, if a material breach of any provision of this Agreement has
been committed by the other party or parties and such breach has not been
waived; or
(d) (i) by Purchaser and AmTec if any of the conditions in
Section 7.2 has not been satisfied as of the Closing or if satisfaction of
such a condition is or becomes impossible (other than through the failure
of Purchaser and AmTec to comply with its obligations under this Agreement)
and Purchaser and AmTec have not waived such condition on or before
Closing; or (ii) by Seller, if any of the conditions in Section 7.1 has not
been satisfied as of the Closing or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Seller to comply
with its obligations under this Agreement) and Seller has not waived such
condition on or before Closing.
SECTION 9.2. Effect of Termination. In the event of termination of
this Agreement as provided in Section 9.1, this Agreement shall forthwith
become void and there shall be no liability on the part of either party
hereto except (a) as set forth in Section 10.1 and (b) that nothing herein
shall relieve either party from liability for any breach of this Agreement
occurring prior to its termination.
ARTICLE X.
GENERAL PROVISIONS
SECTION 10.1. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such costs and expenses, whether or
not the Closing shall have occurred.
SECTION 10.2. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or
made (and shall be deemed to have been duly given or made upon receipt or
refusal upon presentation) by delivery in person, by courier service, by
cable, by telecopy, by telegram, by telex or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties
at the following addresses (or at such other address for a party as shall
be specified in a notice given in accordance with this Section 10.2):
(a) if to Seller:
c/o Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower, 12th Floor
McLean, Virginia 22102
Facsimile: (703) 918-0338
Attention: Grier Raclin, General Counsel
(b) If to Purchaser or AmTec:
AmTec, Inc.
599 Lexington Avenue, 44th Floor
New York, New York 10022-6030
Facsimile: (212) 319-9288
Attention: James O'Brien, General Counsel
SECTION 10.3. Public Announcements. No party to this Agreement
shall make, or cause to be made, any press release or public announcement
in respect of this Agreement or the transactions contemplated hereby or
otherwise communicate with any news media without prior review and prior
written consent by and coordination with the other parties, and the parties
shall cooperate as to the timing and contents of any such press release or
public announcement, subject to their respective disclosure obligations
under applicable securities laws and regulations and applicable Nasdaq or
American Stock Exchange requirements.
SECTION 10.4. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 10.5. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by or under
any Law or public policy, all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such determination that
any term or other provisions is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the
greatest extent possible.
SECTION 10.6. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and undertakings, both written
and oral, between Seller, Purchaser and AmTec with respect to the subject
matter hereof.
SECTION 10.7. Assignment. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of
Seller, Purchaser and AmTec (which consent may be granted or withheld in
the sole discretion of Seller or Purchaser).
SECTION 10.8. No Third Party Beneficiaries. Except for the
provisions of Article VIII relating to Indemnified Parties, this Agreement
shall be binding upon and inure solely to the benefit of the parties hereto
and their permitted assigns, and nothing herein, express or implied, is
intended to or shall confer upon any other Person any legal or equitable
right, benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
SECTION 10.9. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of,
Seller, Purchaser and AmTec.
SECTION 10.10. Governing Law. This Agreement shall be governed by
and construed in accordance with, the laws of the State of New York,
applicable to contracts executed in and to be performed entirely within
that state. Any claim or dispute arising out of or relating to this
Agreement which is not settled by the parties within sixty days after
notice thereof is first given by any party to the others shall be finally
settled under the Commercial Rules of the American Arbitration Association
(the "AAA"). The arbitration shall be conducted in the City of McLean,
Virginia by a panel of three arbitrators, selected by the AAA. Any
arbitration hereunder shall be governed by the United States Arbitration
Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof.
SECTION 10.11. Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original
but all of which taken together shall constitute one and the same
agreement.
SECTION 10.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition
to any other remedy at law or equity.
[Remainder of this page is intentionally blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SFMT-CHINA INC.
By: /s/ Raymond I. Marks
-------------------------
Name: Raymond I. Marks
Title: Senior Vice President
AMTEC, INC.
By: /s/ Joseph R. Wright, Jr.
-----------------------------
Name: Joseph R. Wright, Jr.
Title: Chairman, Chief Executive
Officer and President
AMTEC HEBEI TELECOM HOLDINGS, LTD.
By: /s/ Joseph R. Wright, Jr.
--------------------------
Name: Joseph R. Wright, Jr.
Title: Chairman
SCHEDULE A
CERTAIN DEFINED TERMS
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person, except that (i) Chatterjee Fund Management and (ii) Open Society
Institute shall not be deemed to be Affiliates of Seller or GTS.
"AmTec Subsidiary" means any and all corporations, partnerships,
joint ventures, associations and other entities controlled by AmTec
directly or indirectly.
"Assignment of Interest" shall mean the document or interest
transferring and assigning the Conveyed Interests to Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
"Control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or
more Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities,
as trustee or executor, by contract or otherwise.
"Encumbrance" means any security interest, pledge, mortgage, lien,
charge, encumbrance, adverse claim, preferential arrangement or restriction
of any kind.
"Final Determination" shall mean the date of the order or
determination in which the relevant court or arbitrator fixes the amount of
damages in the relevant case.
"Governmental Authority" means any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or
arbitral body.
"Government Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Key Employees" shall mean Mr. Marks, Howard Wang, Len Jui, Regis
Kwong and Ruby Chan.
"Knowledge" shall mean the actual awareness of a fact or other
matter that an individual who is serving, or who has served, as a director,
officer or Key Employee of Seller has or at any time had.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law.
"Liabilities" means any and all indebtedness, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable, including, without limitation,
those arising under any Law, Action or Governmental Order and those arising
under any contract, agreement, arrangement, commitment or undertaking.
"Material Adverse Effect" means any circumstance, change in, or
effect on the businesses of V-Tech that, individually or in the aggregate
(a) is, or reasonably could be, materially adverse to the business,
operations, assets or Liabilities, employee relationships, customer or
supplier relationships, prospects, results of operations or the condition
(financial or otherwise) of V-Tech, taken as a whole, or (b) could
materially adversely affect the ability of Purchaser, to operate or conduct
such businesses in the manner in which it is currently operated or
conducted by Seller and its Affiliates.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as
any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Securities Exchange Act of 1934, as amended.
"SEC Reports" means each report, schedule, registration statement
and definitive proxy statement filed by AmTec with the Securities and
Exchange Commission since March 31, 1995 (as such documents have since the
time of their filing been amended).
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value added, or gains taxes; license, registration and documentation fees;
and customs duties, tariffs, and similar charges.
Schedule 3.3(a)
CONVEYED INTERESTS
The Conveyed Interests are 75% of the equity of V-Tech based upon
SFMT-China Inc.'s contributions to the Registered Capital of V-Tech in
accordance with the Joint Venture Contract with SSTIC and any and all
rights or obligations of such equity ownership of V-Tech.
Additionally, the Conveyed Interests are the rights and obligations
of SFMT-China, Inc. under the Conditional Loan Discharge Contract dated
April 12, 1995 between SFMT-China, Inc. and SSTIC.
Schedule 3.3(c)
Articles of Association of Shanghai V-Tech Telecommunications & Engineering
Limited Liability Company dated April 12, 1995.
Joint Venture Contract dated April 12, 1995 by and between SSTIC and
SFMT-China, Inc.
Project Cooperation Contract dated April 12, 1995 between V-Tech and SSTIC.
Technical Support and Consulting Services Contract dated April 12, 1995
between V-Tech and SSTIC.
Delegated Loan Contract dated April 12, 1995 among V-Tech, The Industrial &
Commercial Bank of Shanghai Trust & Investment Corp. and SSTIC.
Conditional Loan Discharge Contract dated April 12, 1995 between SFMT-China
and SSTIC.
Engineering Services Contract dated October 16, 1994 between V-Tech and
SVC.
Schedule 3.5
The transfer of the Conveyed Interest is subject to the approval
of the Ministry of Foreign Trade and Economic Cooperation of the People's
Republic of China ("MOFTEC") and the subsequent issuance by MOFTEC of a new
Approval Certificate and the approval of the relevant branch of the State
Administration for Industry and Commerce to change company registration.
Schedule 3.7
Litigation
Shanghai V-Tech Telecommunications Systems Co. Ltd. (PRC) v. Gilat
Satellite Networks Ltd. (Israel), ICC International Court of Arbitration
Case No. 9916CK.
Schedule 3.8(vi)
On or about August 6, 1998 V-Tech made a loan to SVC for working capital in
the amount of approximately 1,000,000 RMB (approximately US$120,000).
Schedule 4.3(a)
As of August 9, 1998, AmTec and United International Holdings, Inc. have
entered into a binding letter of intent (the "Agreement") to combine their
telecommunications business in China. Pursuant to the agreement, AmTec will
purchase 100% of the stock of UIH-Hunan from UIH Asia-Pacific
Communications, Inc. ("UAP") in consideration for shares of AmTec's
preferred stock valued at approximately $12 million and convertible into
approximately 9.6 million shares of AmTec common stock (subject to certain
antidilution provisions to be negotiated). The Agreement also grants to UAP
an option to purchase additional shares of AmTec common stock (up to an
aggregate ownership interest of 25%) at a price of $3.00 per share. The
transaction is expected to close in the third quarter.
Schedule 5.6
Gilat Equipment
EXHIBIT A
Registration Rights Agreement
(See Tab 2)
CONFORMED COPY
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of August 26, 1998 by and between AmTec, Inc., a Delaware
corporation (the "Company") and SFMT-China, Inc., a Delaware corporation,
its successors and assigns ("Shareholder").
This Agreement is made pursuant to that certain Purchase Agreement
dated August 26, 1998 (the "Purchase Agreement"), by and among the Company,
Shareholder, and AmTec Hedei Telecom Holdings, Ltd. In order to induce
Shareholder to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the Closing under the
Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
"Act" shall mean the Securities Act of 1933, as amended.
"Closing Date" shall mean the date of this Agreement.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the issued and outstanding shares of the
Company's common stock, $.001 par value.
"Holders" shall mean Shareholder and any other person holding
Restricted Securities to whom the rights under this Agreement have been
transferred.
"Issued Stock" shall mean the 5,925,357 shares of the Company's
Common Stock issued in accordance with the Purchase Agreement.
"Person" shall mean an individual, partnership, corporation, trust,
limited liability company, unincorporated organization, or a government or
agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by all other amendments thereto, including
post-effective amendments, and all material incorporated by reference into
such Prospectus.
"Registration Statement" shall mean any registration statement of
the Company that covers any of the Restricted Securities pursuant to the
provisions of this Agreement, including the Prospectus included therein,
all amendments thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
"Restricted Securities" shall mean the Issued Stock and any other
securities issued in respect thereof upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, upon original
issuance thereof, and at all times subsequent thereto, until (a) the date
on which it has been registered effectively pursuant to the Securities Act
and disposed of in accordance with the Registration Statement relating to
it, (b) the date on which such shares of common stock are distributed to
the public pursuant to Rule 144 (or any similar provisions then in effect)
promulgated by the Commission pursuant to the Securities Act or (c) the
date on which it ceases to be outstanding.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which securities of the Company are sold to an underwriter
for reoffering to the public.
SECTION 2. PIGGYBACK REGISTRATIONS
(a) Notice and Request to Piggyback. Whenever the Company proposes
to register any of its Common Stock under the Act (a "Piggyback
Registration"), the Company will give written notice to all Holders of its
intention to effect such a registration not later than the earlier to occur
of (i) the fifth day following receipt by the Company of notice of exercise
of any demand registration rights or (ii) 45 days prior to the anticipated
filing date. Subject to the provisions of Sections 2(c) and 2(d), the
Company will include in such Piggyback Registration all Restricted
Securities with respect to which the Company has received written requests
for inclusion therein within fifteen (15) business days after the receipt
by the applicable Holder of the Company's notice. The Holders shall be
permitted to withdraw all or any part of the Restricted Securities from a
Piggyback Registration at any time prior to the effective date of such
Piggyback Registration. If a Piggyback Registration is an Underwritten
Offering effected:
(i) under Section 2(c) hereof, all Holders whose securities
are included in the Piggyback Registration shall be obligated to
sell their securities on the same terms and conditions as apply to
the securities being issued and sold by the Company, or
(ii) under Section 2(d) hereof, all Holders whose securities
are included in the Piggyback Registration shall be obligated to
sell their securities on the same terms and conditions as apply to
the securities being sold by the Person or Persons who initiated the
Piggyback Registration under said Section 2(d).
(b) Piggyback Expenses. All expenses incurred in effecting each of
the registrations provided for in this Section 2 including (without
limitation) all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, fees and disbursements of counsel
for the Holders, underwriting expenses (other than underwriting discounts,
selling concessions or commissions), expenses of any audits incident to or
required by any such registration and expenses of complying with the
securities or blue sky laws of any jurisdictions pursuant to Section 3(d)
hereof, shall be borne and paid by the Company.
(c) Priority on Underwritten Primary Registration. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Company, and the managing underwriters advise the Company in writing that
in their opinion the total number of shares of Common Stock requested to be
included in such registration exceeds the number of shares of Common Stock
which can be sold in such offering, the Company will include in such
registration:
(i) first, all shares of Common Stock the Company proposes to
sell, and
(ii) second, the Restricted Securities and such other shares
of Common Stock requested to be included in such registration in
excess of the number of shares of Common Stock the Company proposes
to sell which, in the opinion of such underwriters, can be sold
(allocated pro rata among the holders of such Restricted Securities
and other shares of Common Stock on the basis of the number of
shares of Common Stock requested to be included therein by each such
holder).
(d) Priority of Underwritten Secondary Registration. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders
of Common Stock and the managing underwriters advise the Company in writing
that in their opinion the number of shares of Common Stock requested to be
included in such registration exceeds the number of shares of Common Stock
which can be sold in such offering, the Company will include in such
registration:
(i) first, the Restricted Securities requested to be included
in such registration by the Holders and
(ii) second, up to the full number of such other shares of
Common Stock requested to be included in such registration by the
securityholders initiating such registration propose to sell which,
in the opinion of such underwriters, can be sold in excess of the
Restricted Securities.
(e) Selection of Underwriters. If any Piggyback Registration is an
Underwritten Offering, the Company will have the right to select the
investment banker or investment bankers and manager or managers to
administer the offering, which investment banker or bankers shall be major
nationally recognized investment bankers.
SECTION 3. REGISTRATION PROCEDURES
Whenever the Company is required by the provisions of this Agreement
to use its best efforts to effect the registration of any Restricted
Securities under the Act, the Company will, as expeditiously as possible:
(a) Prepare and file with the Commission a Registration Statement
with respect to such Restricted Securities and use its best efforts to
cause such Registration Statement to become and remain effective (provided
that before filing a Registration Statement or Prospectus or any amendments
or supplements thereto, the Company will furnish to counsel for the Holders
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel);
(b) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Act with
respect to the sale or other disposition of Restricted Securities covered
by such Registration Statement in accordance with the intended method or
methods of disposition set forth in such Registration Statement;
(c) Furnish to the Holders such number of copies of such
Registration Statement, each amendment and supplement thereto, the
Prospectus included in the Registration Statement (including each
preliminary Prospectus), and such other documents, as the Holders may
reasonably request in order to facilitate the public sale or other
disposition of the Restricted Securities;
(d) Use every reasonable effort to register or qualify all
Restricted Securities covered by such Registration Statement under such
other securities or blue sky laws of such jurisdictions as the Holders
shall reasonably request, and do any and all other acts and things which
may be necessary under such securities or blue sky laws to enable the
Holders to consummate the public sale or other disposition in such
jurisdiction of the Restricted Securities owned by such Holders covered by
such Registration Statement; provided, however, that the Company shall not
be required to (i) qualify to do business as a foreign corporation in any
jurisdiction wherein it would not otherwise be required to qualify but for
this subparagraph, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction;
(e) Notify the Holders at any time when a Prospectus relating to the
Restricted Securities covered by such Registration Statement is required to
be delivered under the Act, of the happening of any event as a result of
which the Prospectus included in such Registration Statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and at the request of the Holders,
prepare a supplement or amendment to such Prospectus so that, as thereafter
delivered to the purchasers of the securities covered by such Registration
Statement, such Prospectus will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements
therein not misleading;
(f) Cause all such securities covered by such Registration Statement
to be listed on each securities exchange on which securities of the same
class are then listed;
(g) Provide a transfer agent and registrar for such securities not
later than the effective date of such Registration Statement;
(h) Enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Holders
may reasonably request in order to expedite or facilitate the disposition
of such securities (including, without limitation, effecting a stock split
or a combination of shares);
(i) Make available for inspection by the Holders, any underwriter
participating in any distribution pursuant to such Registration Statement,
and any attorney, accountant or other agent retained by the Holders or such
underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors
and employees to supply all information reasonably requested by the
Holders, such underwriter, attorney, accountant or agent in connection with
such Registration Statement; and
(j) Obtain a "cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters.
SECTION 4. INDEMNIFICATION
(a) In the event of any registration of any of its securities under
the Act pursuant to this Agreement, the Company, to the extent permitted by
law, shall indemnify and hold harmless the Holders, each underwriter (as
defined in the Act), each other Person who participates in the offering of
such securities, and each other Person, if any, who controls (within the
meaning of the Act) a Holder, such underwriter or participating Person,
against any losses, claims, damages or liabilities, joint or several, to
which a Holder, such underwriter, participating Person or controlling
Person may become subject under the Act or any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any alleged untrue
statement of any material fact contained in (x) any Registration Statement
(on the effective date thereof) under which such securities were registered
under the Securities Act, (y) any preliminary Prospectus or final
Prospectus contained therein, or (z) any summary Prospectus issued in
connection with any securities being registered, or any amendment or
supplement thereto, or (ii) any alleged omission to state in any such
document a material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse the Holder or
any such underwriter, participating Person or controlling Person for any
legal or other expenses reasonably incurred by the Holder, such
underwriter, participating Person or controlling Person in connection with
investigating or defending any such loss, damage, liability or action;
provided, however, that the Company shall not be liable to a Holder, or any
such underwriter, participating Person, or controlling Person in any such
case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary Prospectus, summary
Prospectus, final Prospectus, or amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by Shareholder, specifically for use therein.
(b) The Holders shall indemnify and hold harmless the Company, its
directors and officers, each underwriter (as defined in the Act), and each
other Person, if any, who controls (within the meaning of the Act) the
Company or any underwriter, against any losses, claims, damages, or
liabilities, joint or several, to which the Company, any such director or
officer, any such underwriter, or any such Person may become subject under
the Securities Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any alleged untrue statement of any
material fact contained, on the effective date thereof, in any Registration
Statement under which Restricted Securities are registered under the
Securities Act, any preliminary Prospectus or final Prospectus contained
therein, or any summary Prospectus issued in connection with any such
securities being registered, or any amendment or supplement thereto, or (2)
any alleged omission to state in any such document a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in either case to the extent, but only to the extent, that such
alleged untrue statement or alleged omission was made in such Registration
Statement, preliminary Prospectus, summary Prospectus, final Prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Holders specifically for use
therein, and then only to the extent that such alleged untrue statements or
alleged omissions by the Holders were not based on the authority of an
expert as to which the Holders had no reasonable ground to believe, and did
not believe, that the statements made based on the authority of such expert
were untrue or that there was an omission to state a material fact;
provided, however, that no right of indemnification shall exist under this
Section 4(b) for any alleged untrue statement or alleged omission which the
Holders timely corrected and remained untrue in or omitted from the
relevant Registration Statement or Prospectus as a result of the Company's
failure to correct same therein. Notwithstanding the foregoing provisions
of this Section 4(b), the Holders shall not be required to pay under such
provisions an amount in excess of the proceeds received by the Holders in
payment for the Restricted Securities sold by the Holders pursuant to the
Registration Statement.
(c) Indemnification similar to that specified in Sections 4(a) and
4(b) shall be given by the Company and the Holders of any Restricted
Securities (with such modifications as shall be appropriate) covered by any
registration or other qualification of securities under any federal or
state securities law or regulation other than the Act with respect to any
such registration or other qualification effected pursuant to this
Agreement.
(d) Any Person which proposes to assert the right to be indemnified
under Sections 4(a), 4(b) or 4(c) shall, promptly after receipt of notice
of commencement of any action, suit or proceeding against such Person in
respect of which a claim is to be made against an indemnifying Person under
such Section 4(b), 4(b) or 4(c) notify each such indemnifying Person of the
commencement of such action, suit or proceeding, enclosing a copy of all
papers served. The indemnifying Person shall be entitled to participate in
and, to the extent such indemnifying Person may wish, to assume the defense
of such action at its own expense, with counsel chosen by it and reasonably
satisfactory to the Person claiming indemnification, and after notice from
the indemnifying Person of its election to assume the defense thereof the
indemnifying Person will be liable to the Person claiming indemnification
only for legal fees and expenses incurred by the Person claiming
indemnification prior to the date upon which such Person received notice
that the indemnifying Person had chosen to assume the defense of such
action (including any costs incurred subsequent to that date relating
solely to organization or clean-up of work performed prior to such date).
The Person claiming indemnification shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but
the fees and expenses of such counsel shall not be at the expense of the
Person against whom indemnification is sought; provided, however, that
notwithstanding the foregoing, in any case when indemnification is sought
against the Company and (i) the Person seeking indemnification has been
advised by counsel to the Company that its defenses may be different from
those of the Company and that such counsel cannot represent both it and the
Company due to a conflict of interest, or (ii) the Company has not
proceeded in a timely manner to effect such defense, then the fees and
expenses of counsel for such Person shall be paid by the Company. In no
event shall a Person against whom indemnification is sought be obligated to
indemnify any Person for any settlement of any claim or action effected
without the indemnifying Person's consent.
(e) The indemnification provided for under this Section 6 will
remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and will survive the transfer of
Restricted Securities.
(f) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 4
is for any reason held to be unavailable to an indemnified party under
Sections 4(a), 4(b) or 4(c) above in respect to any losses, claims, damages
or liabilities referred to therein, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities in such proportion as is appropriate
to reflect the relative fault of the parties in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities. The relative fault of a party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party
as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any action or claim. Notwithstanding the provisions of this
Section 4, the Holders shall not be required to contribute any amount in
connection with any Registration Statement in excess of the proceeds
received by the Holders pursuant to such Registration Statement.
SECTION 5. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Person may participate in any Underwritten Registration hereunder
unless such Person (i) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements.
SECTION 6. ASSIGNABILITY OF REGISTRATION RIGHTS
The registration rights set forth in this Agreement shall accrue to
each subsequent Holder of Issued Stock or Restricted Securities who
consents in writing to be bound by the terms and conditions of this
Agreement.
SECTION 7. GRANT OF SUBSEQUENT REGISTRATION RIGHTS
So long as Shareholder has not sold all shares of Issued Stock, the
Company may not grant registration rights to subsequent investors in the
Company unless such rights are not senior to the rights of the Holders or
the grant of such rights is consented to by the Holders.
SECTION 8. SEVERABILITY
Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
SECTION 9. RULE 144
At the written request of Shareholder in compliance with Rule 144
promulgated by the Commission under the Act, the Company shall furnish to
the Holders, within ten days after receipt of such request, a written
statement as to whether or not the Company is in compliance with the filing
requirements of the Commission as set forth in such Rule.
SECTION 10. DESCRIPTIVE HEADINGS
The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
SECTION 11. NOTICES
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given or made (and shall be
deemed to have been duly given or made upon receipt or refusal upon
presentation) by delivery in person, by courier service, by cable, by
telecopy, by telegram, by telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 11):
(a) if to the Shareholder:
SFMT-China, Inc.
c/o Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower, 12th Floor
McLean, Virginia 22102
Facsimile: (703) 918-0338
Attention: Grier Raclin, General Counsel
(b) If to the Company:
AmTec, Inc.
599 Lexington Avenue, 44th Floor
New York, New York 10022-6030
Facsimile: (212) 319-9288
Attention: James O'Brien, General Counsel
SECTION 12. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, applicable to contracts executed in and
to be performed entirely within that state. Any claim or dispute arising
out of or relating to this Agreement which is not settled by the parties
within sixty days after notice thereof is first given by either party to
the other shall be finally settled under the Commercial Rules of the
American Arbitration Association. The arbitration shall be conducted in the
City of McLean, Virginia.
SECTION 13. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall together
constitute one and the same instrument.
SECTION 14. HEADINGS
The headings used herein are solely for the convenience of the
parties and shall not serve to modify or interpret the text of the Sections
at the beginning of which they appear.
[Remainder of this page is intentionally blank.]
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
AMTEC, INC.
By: /s/ Joseph R. Wright, Jr.
----------------------------------------
Name: Joseph R. Wright, Jr.
Title: Chairman, Chief Executive Officer
and President
SFMT-CHINA, INC.
By: /s/ Raymond I. Marks
-----------------------------------------
Name: Raymond I. Marks
Title: Senior Vice President
August 26, 1998
Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower, 12th Floor
McLean, Virginia 22102
Re: Purchase and Sale of Interests of SFMT-China in V-Tech
Ladies and Gentlemen:
We refer to that certain Purchase Agreement by and among SFMT-China,
Inc., AmTec Hebei Telecom Holdings, Ltd. and AmTec Inc. dated August 26,
1998 (the "Purchase Agreement"). Capitalized terms used herein but not
otherwise defined shall have the meaning ascribed to them in the Purchase
Agreement.
As further inducement for AmTec and Purchaser to enter into the
Agreement, GTS has agreed to be obligated to take the actions set forth in
this letter (the "Letter Agreement"). Therefor, for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:
1. Future Projects- For a period of two years after the Closing,
GTS, and its Affiliates will not pursue any New Communications
Project in China without first offering Purchaser or an Affiliate
of Purchaser (including AmTec) the option to participate in such
project to the extent of 49% of GTS's or its Affiliate's
participation in such project and on terms substantially
equivalent to that of GTS or its Affiliates, subject to any grant
of similar rights which GTS or its Affiliates made prior to the
Closing Date. "New Communications Project" shall mean any joint
venture now existing or organized after the Closing Date for the
primary purpose of investing in or providing financing,
operational consulting, technical and engineering services to any
telecommunications network owner or operator in The People's
Republic of China.
2. GTS agrees to be bound by the terms and provisions of Section 5.5
of the Purchase Agreement regarding certain consulting services
to be provided to Purchaser.
This Letter Agreement shall be governed by and construed in accordance
with the laws of the State of New York and may be executed in counterparts
by the parties hereto, each of which counterparts shall be an original and
all of which taken together shall constitute one and the same Letter
Agreement.
Very truly yours,
AmTec, Inc.
By:_____________________________________
Name: Michael J. Lim
Title: Executive Vice President
AmTec Hebei Telecom Holdings, Ltd.
By:_____________________________________
Name: Michael J. Lim
Title: President
Agreed and accepted this ___
day of August, 1998 by:
Global TeleSystems Group, Inc.
By:___________________________
Name:
Title:
- -----------------------------------------------------------------------------
AGREEMENT AND PLAN
OF MERGER
among
AMTEC, INC.,
AMTEC ACQUISITION CORPORATION
and
UIH HUNAN, INC.
dated as of December 23, 1998
- ----------------------------------------------------------------------------
AGREEMENT AND PLAN
OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
December 23, 1998, is among AMTEC, INC., a Delaware corporation ("Parent"),
AMTEC ACQUISITION CORPORATION, a Colorado corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and UIH HUNAN, INC., a Colorado
corporation ("UIHH").
RECITALS
A. The Boards of Directors of Parent and UIHH have determined that
a business combination between Parent and UIHH is in the best interests of
their respective companies and shareholders, and accordingly have approved
this Agreement and the merger provided for herein whereupon Merger Sub
shall merge with and into UIHH upon the terms, and subject to the
conditions, set forth herein.
B. This Agreement, and the exhibits and schedules contemplated
hereby, represent the entire transaction by which Parent is acquiring all
of the issued and outstanding capital stock of UIHH in exchange for an
aggregate of 9,600 shares, subject to adjustment as specified herein, of
the Series F Convertible Preferred Stock, $.001 par value, of Parent (the
"Parent Preferred Stock") to be issued to UIH China Holdings, Inc. (the
"UIHH Shareholder").
C. The merger is intended to qualify, for federal income tax
purposes, as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and this
Agreement is intended to be a "plan of reorganization" within the meaning
of the regulations promulgated under Section 368 of the Code.
D. Parent, Merger Sub and UIHH desire to make certain
representations, warranties and agreements in connection with the merger.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement and the Colorado Business Corporation Act (the "Act"), at the
Effective Time (as defined in Section 1.3), Merger Sub shall be merged with
and into UIHH in accordance herewith and the separate corporate existence
of Merger Sub shall thereupon cease (the "Merger"). UIHH shall be the
surviving corporation in the Merger and, therefore, is sometimes
hereinafter referred to as "Surviving Corporation."
1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at
the offices of Holme Roberts & Owen LLP, 1700 Lincoln Street, Suite 4100,
Denver, Colorado 80203, at 10:00 a.m., local time, within three business
days following the day on which the conditions set forth in Article VIII
shall be fulfilled or waived in accordance herewith, or at such other time
or date as Parent and UIHH agree. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth
in Article VIII shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated as provided in Article X,
the parties hereto shall cause Articles of Merger and a Plan of Merger
meeting the requirements of Section 7-11-101 of the Act to be properly
executed and duly filed in accordance with the Act on the Closing Date.
Forms of the Articles of Merger and Plan of Merger are set forth hereto as
Exhibits 1.3 (a) and (b). The Merger shall become effective at the time
specified in the Articles of Merger on the date they are accepted for
filing by the Secretary of State of the State of Colorado (the "Effective
Time").
1.4 Certain Tax Positions. The parties hereto intend the Merger to
qualify, and will take the position for tax purposes that the Merger
qualifies, as a non-taxable reorganization under Sections 368(a)(1)(A) and
(a)(2)(E) of the Code.
1.5 Effect of Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Articles of Merger and
Plan of Merger and the applicable provisions of the Act. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time
all the property, rights, privileges, powers and franchises of UIHH and
Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of UIHH and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
ARTICLE II
SURVIVING CORPORATION
2.1 Articles of Incorporation. The Articles of Incorporation of
Merger Sub as in effect immediately prior to the Effective Time shall be
the Articles of Incorporation of the Surviving
Corporation until duly amended.
2.2 Bylaws. At the Effective Time, the Bylaws of the Surviving
Corporation shall be deemed amended and restated in the form of the Bylaws
of Merger Sub as in effect immediately prior to the Effective Time, until
duly amended in accordance with applicable law.
2.3 Directors. The directors of the Surviving Corporation shall be
Joseph R. Wright, Jr., Michael Lim and Albert Pastino.
2.4 Officers. The officers the of Surviving Corporation shall be
Joseph R. Wright, Jr., President and Chief Executive Officer, Michael Lim,
Executive Vice President, and Albert Pastino, Senior Vice President and
Chief Financial Officer.
ARTICLE III
EFFECT OF MERGER ON CAPITAL STOCK
3.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, UIHH
or the holders of securities of any of the
foregoing, all of the following shall occur:
(a) Conversion of UIHH Common Stock.
(i) At the Effective Time, all issued and outstanding shares
of UIHH Common Stock (as defined in Section 4.2) shall
automatically be canceled and retired and no longer be outstanding,
but instead shall be converted into the right to receive aggregate
consideration ("Merger Consideration") equal to the greater of (A)
9,600 shares of Parent Preferred Stock, or (B) a number of shares
of Parent Preferred Stock equal to (i) $12,000,000, divided by (ii)
the Average Closing Price Per Share. Each share of Parent Preferred
Stock will be issued pursuant to and have the rights set forth in
the Certificate of Designations, attached hereto as Exhibit
3.1(a)(i).
(ii) Exhibit 3.1(a)(ii) sets forth all shares of UIHH Common
Stock outstanding as of the date of this Agreement, along with a
calculation of the shares of Parent Preferred Stock
issuable as of the Effective Time.
(iii) As used herein, the term "Average Closing Price Per
Share" means the average closing market price per share for shares
of the Parent Common Stock during the ten (10) consecutive trading
days ending on the third trading day prior to the Effective Time,
as reported by the American Stock Exchange.
(b) Fractional Shares. No fraction of a share of Parent Preferred
Stock will be issued in the Merger. In lieu of such issuance, all shares of
Parent Preferred Stock issued to the UIHH Shareholder pursuant to this
Agreement shall be rounded up to the closest whole share of Parent
Preferred Stock.
(c) Capital Stock of Merger Sub. At the Effective Time, by virtue
of the Merger and without any action on the part of any holder of any
capital stock of Parent, Merger Sub or UIHH, each issued and outstanding
share of Common Stock of Merger Sub (the "Merger Sub Common Stock") shall
be converted into one (1) share of the Surviving Corporation's Common
Stock.
3.2 Exchange of Certificates. At the Closing, UIHH shall deliver or
cause to be delivered to Parent stock certificates representing all of the
issued and outstanding shares of UIHH Common Stock endorsed in blank or
accompanied by duly executed assignment documents and Parent shall deliver
to the UIHH Shareholder, in exchange for such shares of UIHH Common Stock
so delivered, the number of shares of Parent Preferred Stock to which the
shareholder of UIHH is entitled pursuant to Section 3.1 (a) hereof.
3.3 No Further Ownership Rights in UIHH Common Stock. All shares of
Parent Preferred Stock issued upon surrender for exchange of shares of UIHH
Common Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
UIHH Common Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of UIHH Common Stock
that were outstanding immediately prior to the Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF UIHH
Except as disclosed in a document of even date herewith and
delivered by UIHH to Parent prior to the execution and delivery of this
Agreement and referring to the section number and subsection of the
representations and warranties in this Agreement (the "UIHH Disclosure
Schedule"), UIHH represents and warrants to Parent and Merger Sub as
follows:
4.1 Organization, Standing and Power. UIHH is a corporation duly
organized and validly existing and in good standing under the laws of the
State of Colorado, has the full corporate power to own its properties and
to carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the
ownership of its properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to be so
qualified and in good standing would not have a Material Adverse Effect (as
defined in Section 10.4) on UIHH. UIHH has delivered to Parent a complete
and correct copy of its Articles of Incorporation and Bylaws, each as
amended to date. UIHH is not in violation of any of the provisions of its
Articles of Incorporation or Bylaws or equivalent organizational documents.
The UIHH Disclosure Schedule lists a complete and correct list of the
officers and directors of UIHH.
4.2 Capitalization; Shareholders. The authorized capital stock of
UIHH consists of 10,000 shares of UIHH Common Stock, par value $1.00 (the
"UIHH Common Stock"), of which there are issued and outstanding 100 shares.
The UIHH Shareholder owns all 100 outstanding shares of UIHH Common Stock.
The sole shareholder of the UIHH Shareholder is UIH Asia/Pacific
Communications, Inc. The UIHH Disclosure Schedule sets forth all
outstanding subscriptions, options, warrants, puts, calls, purchase or sale
rights, conversion rights, exchangeable or convertible securities or other
commitments, agreements, contracts understandings, restrictions,
arrangements and rights of any nature ("Rights Agreements") to which UIHH
is a party or by which UIHH may be bound obligating UIHH to issue, deliver,
sell, purchase, redeem, or cause to be issued, delivered, sold or purchased
additional shares of the capital stock of UIHH or obligating UIHH to enter
into such Rights Agreements. All outstanding shares of UIHH Common Stock
are duly authorized, validly issued, fully paid and non-assessable, are
free and clear of any mortgage, pledge, lien, encumbrance, charge or other
security interest (a "Lien"), and are not subject to preemptive rights or
rights of first refusal created by statute, the Articles of Incorporation
or Bylaws of UIHH or any agreement to which UIHH is a party or by which it
is bound. There are no contracts, commitments or agreements relating to
voting, purchase or sale of UIHH's capital stock. UIHH does not have any
outstanding bonds, debentures, notes or other indebtedness the holders of
which have the right to vote (or convertible or exercisable into securities
having the right to vote) with holders of shares of UIHH Common Stock on
any matter.
4.3 Subsidiaries. Except for a 49 percent interest in the Hunan
International Telecommunications Company Limited, a joint venture limited
liability company organized and existing under the laws of the Peoples'
Republic of China, UIHH does not directly or indirectly own any equity or
similar interest in, or any interest convertible or exchangeable or
exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
4.4 Due Authorization.
(a) UIHH has the full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of UIHH. This Agreement has been duly executed
and delivered by UIHH and, assuming due execution and delivery by all other
parties hereto, constitutes the valid and binding obligation of UIHH
enforceable against UIHH in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar statutes or rules of law
affecting creditors' rights generally or by general principles of equity.
The execution and delivery of this Agreement by UIHH do not, and the
consummation of the transactions contemplated hereby will not: (i) conflict
with or violate any provision of the Articles of Incorporation or Bylaws of
UIHH, (ii) violate or conflict with any permit, order, license, decree,
judgment, statute, law, ordinance, rule or regulation applicable to UIHH or
the properties or assets of UIHH, or (iii) result in any breach or
violation of, or constitute a default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of, or result in the creation of any Lien on any of the
properties or assets of UIHH pursuant to or require the consent or approval
of any party to any mortgage, indenture, lease, contract or other agreement
or instrument, bond, note, concession or franchise applicable to UIHH or
any of its properties or assets, except, in the case of this clause (iii)
only, where such conflict, violation, default, termination, cancellation,
acceleration or Lien would not have a Material Adverse Effect on UIHH or
prevent the consummation of the transactions contemplated hereby. Except as
set forth in the UIHH Disclosure Schedule, no consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission, political subdivision or other
governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to UIHH in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for the filing of the Plan of Merger and the
Articles of Merger as provided in Section 1.3 and such other consents,
authorizations, filings, approvals and registrations which, if not obtained
or made, would not have a Material Adverse Effect on UIHH or prevent the
consummation of transactions contemplated hereby.
(b) The UIHH Shareholder has approved, by written consent or
otherwise, this Agreement and the Merger in accordance with applicable law,
and no other consent or approval of any holder of UIHH Common Stock or
other equity securities of UIHH is required for UIHH to execute and deliver
this Agreement and consummate the transactions contemplated hereby. By
virtue of such approval, the UIHH Shareholder has no right to dissent and
obtain payment for its shares under applicable law.
4.5 Financial Statements.
(a) UIHH has delivered to Parent true and complete copies of the
balance sheet of UIHH as of February 28, 1998 (the "Annual UIHH Balance
Sheet"). UIHH also has delivered to Parent true copies of the unaudited
balance sheet of UIHH as of August 31, 1998 (the "Interim UIHH Balance
Sheet"). To the extent applicable, the Annual UIHH Balance Sheet and the
Interim UIHH Balance Sheet have been prepared in accordance with generally
accepted accounting principals as used in the United States of America
("GAAP") applied on a basis consistent with each other (except as indicated
in the notes thereto and, in the case of the Interim UIHH Balance Sheet,
that no notes are included) and fairly present the financial condition of
UIHH at the dates indicated therein, subject, in the case of the Interim
UIHH Balance Sheet, to normal, recurring year-end audit adjustments.
(b) At the respective dates of the balance sheets referred to in
this Section 4.5, UIHH did not have any liability or obligation of any
nature, whether accrued, absolute, fixed or contingent, and whether due or
to become due, that, in accordance with GAAP applied on a consistent basis,
should have been shown or reflected in the balance sheets but were not,
except for the omission of notes in unaudited balance sheets with respect
to contingent liabilities that in the aggregate did not materially exceed
those so reported in the latest unaudited balance sheets previously
delivered and that were of substantially the same type as so reported.
4.6 Absence of Certain Changes. Except as specifically permitted by
this Agreement or as set forth in the UIHH Disclosure Schedule, since the
date of the Annual UIHH Balance Sheet, UIHH has conducted its business in
the ordinary course consistent with past practice and there has not
occurred any change, event or condition (whether or not covered by
insurance) that has resulted in, or would reasonably be expected to result
in, a Material Adverse Effect on UIHH.
4.7 Liabilities. Except as set forth in the UIHH Disclosure
Schedule, UIHH does not have any liability or obligation of any nature
(whether accrued, absolute, contingent, unliquidated, civil, criminal or
otherwise, due or to become due) whether or not any such liability or
obligation would have been required to be disclosed on a balance sheet
prepared in accordance with GAAP.
4.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation (each "Proceeding") pending
before any agency, court or tribunal, foreign or domestic, or, to the
knowledge of UIHH, threatened against UIHH or any of its assets and
properties or any of its officers or directors (in their capacities as
such). There is no judgment, decree or order against UIHH, or, to the
knowledge of UIHH, any of its directors or officers (in their capacities as
such), that could prevent consummation of the transactions contemplated by
this Agreement, or that could reasonably be expected to have a Material
Adverse Effect on UIHH.
4.9 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon UIHH which
has or could reasonably be expected to have the effect of prohibiting or
impairing any current business practice of UIHH or the conduct of
business by UIHH as currently conducted.
4.10 Governmental Authorization. UIHH has obtained each federal,
state, county, local or foreign governmental consent, license, permit,
grant, or other authorization that is necessary for UIHH to own or lease,
operate and use its respective assets and properties and to carry on
business as currently conducted (collectively "UIHH Authorizations"). UIHH
has performed and fulfilled its obligations under the UIHH Authorizations,
and all the UIHH Authorizations are in full force and effect, except where
the failure to obtain or have any of such UIHH Authorizations would not
reasonably be expected to have a Material Adverse Effect on UIHH.
4.11 Contracts and Commitments. Except as set forth on the UIHH
Disclosure Schedule, UIHH is not a party to any oral or written (a)(i)
obligation for borrowed money, (ii) obligation evidenced by bonds,
debentures, notes or other similar instruments, (iii) obligation to pay the
deferred purchase price of property or services (other than trade accounts
arising in the ordinary course of business), (iv) obligation under capital
leases, (v) debt of others secured by a Lien on its property, (vi) guaranty
of liabilities or obligations of others, (vii) agreement under which UIHH
is obligated to make or expects to receive payments, individually or in the
aggregate, in excess of $100,000, or (viii) agreement granting any person a
Lien on any of its properties or assets (except purchase money security
interests created in the ordinary course of business consistent with past
practice); or (b)(i) employment agreement or collective bargaining
agreement or (ii) agreements that limit the right of UIHH, or any of its
employees to compete in any line of business; or (c) agreement that, after
giving effect to the transactions contemplated hereby, purports to restrict
or bind Parent or any of its subsidiaries, other than the Surviving
Corporation, in any respect (other than any such agreement that is not
material to the continued operation and current business practices of UIHH
and does not affect any material business relationship of UIHH). True and
complete copies of all agreements described in the UIHH Disclosure Schedule
have been delivered to Parent. UIHH has not breached in any material way,
and is not in default of any of its material obligations under any of such
agreements. To the knowledge of UIHH, all other parties thereto have
complied in all material respects with the provisions thereof and such
parties are not in breach or violation of, or in default (with or without
notice or lapse of time, or both) under such agreements. With respect to
such agreements, UIHH has not received any notice of termination,
cancellation or acceleration or any notice of breach, violation or default
thereof.
4.12 Intellectual Property. UIHH owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, maskworks,
net lists, schematics, technology, know-how, trade secrets, inventory,
ideas, algorithms, processes, computer software programs or applications
(in both source code and object code form), and tangible or intangible
proprietary information or material that are used in the business of UIHH
as currently conducted, except to the extent that the failure to have such
rights could not reasonably be expected to have a Material Adverse Effect
on UIHH.
4.13 Other Property. UIHH owns no property or assets except as
provided in Sections 4.12 and 4.3.
4.14 Environmental Matters.
(a) UIHH has, since its formation, complied with, and is now in
compliance with, all Environmental Laws (as defined below) applicable to
its current and prior business, properties and assets. No material permits,
approvals, registrations, licenses or other authorizations are required by
any Governmental Entity pursuant to any Environmental Law with respect to
the business, operations, properties and assets, of UIHH. There is no
pending or, to UIHH's knowledge, threatened civil or criminal litigation,
written notice of violation, formal administrative proceeding, or
investigation, inquiry, information request or notice of potential
liability by any Governmental Entity or third party, relating to any
Environmental Law to which UIHH is a party or, to UIHH's knowledge,
threatened to be made a party. For purposes of this Agreement,
"Environmental Law" means any domestic and foreign, federal, state or local
law, statute, ordinance, rule, regulation, order or judgment or the common
law relating to protection of public health, safety or the environment or
occupational health and safety, or that regulates, or creates liability
for, releases or threatened releases of any Hazardous Substance. As used in
this Section 4.14 and Section 5.14, the terms "release" and "environment"
have the meanings set forth in the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), and "Hazardous
Substance" means any substance regulated by, or the presence of which
creates liability under, any Environmental Law (including without
limitation CERCLA) and includes without limitation industrial, toxic or
hazardous substances, pollutants and contaminants, oil or petroleum
products, solid or hazardous waste, chemicals and asbestos.
(b) UIHH has not caused any, and to the knowledge of UIHH there
have been no, releases or threatened releases of any Hazardous Substance in
violation of, or that could reasonably be expected to create any liability
or responsibility for UIHH under, any Environmental Law at any parcel of
real property or any facility currently or formerly owned, leased, operated
or controlled by UIHH. UIHH has not been required to give any notices to
any Governmental Entity, with respect to any release or threatened release
of Hazardous Substances caused by or known to UIHH. UIHH is not aware of
any releases of Hazardous Substance at parcels of real property or
facilities other than those presently or formerly owned, leased, operated
or controlled by UIHH that could reasonably be expected to have an impact
on the real property or facilities owned, leased, operated or controlled by
UIHH.
(c) The UIHH Disclosure Schedule lists all environmental reports,
investigations, audits or similar environmental documents in the possession
of UIHH with respect to the operations of, or real property owned, leased,
operated or controlled by, or liabilities or obligations of, UIHH (whether
conducted by or on behalf of UIHH or a third party and whether done at the
initiative of UIHH or directed by a Governmental Entity or other third
party). True and complete copies of each such document have been provided
to Parent.
(d) UIHH is not subject to, and is not reasonably expected to be
subject to, any liability under any Environmental Law, that could
reasonably be expected to have a Material Adverse Effect, including without
limitation liability arising out of the utilization by UIHH of any
transporter or facility used for treatment, recycling, storage or disposal.
4.15 Taxes.
(a) All material Returns (as defined below) required to be filed by
or on behalf of UIHH have been duly filed on a timely basis and such
Returns (including all attached statements and schedules) are true,
complete and correct in all material respects. All Taxes shown to be
payable on such Returns or on subsequent assessments with respect thereto
have been paid in full on a timely basis, and no other Taxes are payable by
UIHH with respect to items or periods covered by the Returns (whether or
not shown on or reportable on the Returns) for periods ending on or before
February 28, 1998.
(b) UIHH has withheld and paid over to the appropriate Governmental
Entity all material Taxes required to have been withheld and paid over, and
has complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect
thereto, in connection with material amounts paid or owing to any employee,
creditor, independent contractor, or other third party.
(c) There are no Liens on any of the assets of UIHH with respect to
Taxes, other than Liens for Taxes not yet due and payable or for Taxes that
are being contested in good faith through appropriate proceedings and for
which appropriate reserves have been established.
(d) Since its formation, UIHH has been a member of an affiliated
group filing a consolidated federal income tax Returns of which United
International Holdings, Inc. is the common parent.
(e) Except as otherwise disclosed on the UIHH Disclosure Schedule:
(i) no deficiencies have been asserted in writing and no
written notice has been received by UIHH with respect to the
failure to file any Return or pay any Taxes; and
(ii) there is no liability for unpaid Taxes of UIHH for
periods ending on or before February 28, 1998.
(f) In this Agreement, any reference to
(i) the term "Taxes" shall mean all taxes, however,
denominated, including any interest, penalties or other additions
to tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign Governmental Entity,
which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes, payroll and employee
withholding taxes, unemployment insurance, social security taxes,
sales and use taxes, ad valorem taxes, excise taxes, franchise
taxes, gross receipts taxes, business license taxes, occupation
taxes, real and personal property taxes, stamp taxes, environmental
taxes, transfer taxes, workers' compensation, and other obligations
of the same or of a similar nature to any of the foregoing, which
any party hereto is required to pay, withhold or collect; and
(ii) the term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns
relating to, or required to be filed in connection with,
any Taxes, including information returns or reports with respect to
backup withholding and other payments to third parties.
4.16 Employee Benefit Plans. UIHH has no liability with respect to
any employee benefit plan (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
pursuant to ERISA, the Code or otherwise and no event has occurred and no
condition exists that could be reasonably expected to create any such
liability.
4.17 Indebtedness. UIHH is not directly or contingently obligated
under any credit agreements, indentures, purchase agreements, guarantees,
conditional sale contracts, capitalized leases, bonds, debentures, notes,
letters of credit, acceptance facilities, investments, agreements and
other arrangements (collectively "Debt").
4.18 Insurance. As an indirect subsidiary of United International
Holdings, Inc., UIHH is covered by policies of insurance and bonds held by
such company of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of UIHH but will
cease to be covered by these policies upon Closing. There is no material
claim pending under any of such policies or bonds as to which UIHH has
received a denial, or, to UIHH's knowledge, as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or
bonds.
4.19 Compliance With Laws. UIHH has complied with, is not in
violation of, and has not received any notices of violation with respect
to, any federal, state, local or foreign statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of
its business, except for such violations or failures to comply which would
not have a Material Adverse Effect on UIHH.
4.20 Minute Books.
(a) The records and books of account of UIHH are correct and
complete in all material respects, have been maintained in accordance with
good business practices and are reflected accurately in the financial
statements referred to in Section 3.5. UIHH has accounting controls
sufficient to insure that its transactions are (1) executed in accordance
with management's general or specific authorization and (2) recorded in
conformity with GAAP so as to maintain accountability for assets.
(b) The minute books of each of UIHH contain accurate
records of all meetings and accurately reflect all corporate action of the
shareholders and the board of directors (including committees) of UIHH.
(c) The stock books and ledgers of each of UIHH correctly
record all transfer and issuance of all capital stock of the UIHH and
contain all canceled and unused stock certificates of UIHH.
4.21 Brokers' and Finders' Fees. UIHH has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders'
fees and agents' commissions or investment bankers' fees or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
4.22 Disclosure. Except to the extent revised or superseded by a
subsequent certificate, schedule or report furnished to Parent, no
information, certificate, schedule or report furnished by UIHH to Parent in
connection with the negotiation of this Agreement and any Exhibit to this
Agreement or the satisfaction of any condition under this Agreement or any
Exhibit to this Agreement contained as of the date thereof any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statement contained therein, in the light of the circumstances
under which it was made, not misleading.
4.23 Aggregate Material Adverse Effect. There is no circumstance or
event that satisfies all of the following conditions: (1) such circumstance
or event, whether considered individually or in the aggregate with all
other such circumstances and events, constitutes a breach of one or more
representations, warranties, covenants or other agreements of UIHH in this
Agreement or any Exhibit to this Agreement or that would constitute such a
breach if such representation, warranty, covenant or agreement did not
include a reference therein to the possible occurrence of a Material
Adverse Effect, (2) such circumstance or event negatively affects, or could
negatively affect, the value of UIHH, taken as a whole, in the amount of
$50,000 or more, and (3) such circumstance or event, considered in the
aggregate with all other such circumstances and events, could constitute a
Material Adverse Effect.
4.24 Conduct of Business. Except as otherwise disclosed on the UIHH
Disclosure Schedule or as otherwise expressly contemplated hereby, since
the date of the Annual UIHH Balance Sheet, UIHH has carried on its business
in the usual, regular and ordinary course in substantially the same manner
as theretofore conducted and used reasonable efforts to preserve intact its
present business organizations, kept available the services of its present
officers and key employees and preserved its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it. Except as otherwise disclosed on the UIHH Disclosure
Schedule or as otherwise expressly contemplated hereby, since the date of
the Annual UIHH Balance Sheet, UIHH has not
(a) acquired or agreed to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets or, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquired or agreed
to acquire any assets, other than in the ordinary course of business
consistent with past practice;
(b) made or changed any material election in respect of Taxes,
adopted or changed any accounting method in respect of Taxes, filed any
material Return or any amendment to a material Return, entered into any
closing agreement, settled any claim or assessment in respect of Taxes, or
consented to any extension or waiver of the limitation period applicable to
any claim or assessment in respect of Taxes;
(c) revalued any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(d) delayed in the payment of any trade or other payables other
than in the ordinary course of business consistent with past practice;
(e) sold, leased or otherwise transferred or disposed of any
property or asset other than for fair consideration or in the ordinary
course of business consistent with past practice;
(f) changed its accounting methods, practices or policies
(including any change in depreciation or amortization policies or rates);
(g) declared, set aside, or paid any dividend or other distribution
in respect of its capital stock, or made any direct or indirect redemption,
retirement, purchase or other acquisition by UIHH of any of its capital
stock or other securities or options, warrants or other rights to acquire
capital stock;
(h) canceled any debt or waived or released any right or claim by
UIHH, other than in the ordinary course of business consistent with past
practice;
(i) made any payment, or discharged or satisfied any claim,
liability or obligation other than as reflected or reserved against in the
Annual UIHH Balance Sheet or the Interim UIHH Balance Sheet or in the
ordinary course of business consistent with past practice; or
(j) made any loan or advance (other than advances to employees in
the ordinary course of business for travel and entertainment in accordance
with past practice) to any person.
4.25 Reliance. The foregoing representations and warranties are
being made by UIHH with the knowledge and expectation that Parent is
placing reliance thereon.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in a document of even date herewith and
delivered by Parent to UIHH prior to the execution and delivery of this
Agreement and referring to the section number and subsection of the
representations and warranties in this Agreement (the "Parent Disclosure
Schedule"), Parent and Merger Sub represent and warrant to UIHH as follows:
5.1 Organization, Standing and Power. Each of Parent and its
subsidiaries, including Merger Sub, is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, has the full corporate power to own its properties and to
carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the
ownership of its properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to be so
qualified and in good standing would not have a Material Adverse Effect on
Parent. Merger Sub is a newly formed corporation that has not engaged in
any business (other than certain organizational matters) since the date of
its incorporation and was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. As of the date hereof and the
Effective Time, except for obligations or liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Merger Sub has
not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any material obligations or liabilities or engaged
in any business activities of any type or kind whatsoever or entered into
any agreements or arrangements with any Person.
5.2 Capitalization; Stockholders.
(a) The authorized capital stock of Parent consists of 100,000,000
shares of common stock, par value $0.001 per share ("Parent Common Stock"),
10,000,000 shares of preferred stock, par value $0.001 per share, of which,
as of the date hereof, there were issued and outstanding 30,033,492 shares
of Parent Common Stock, 39.088 shares of Series E Convertible Preferred
Stock, and no shares of Parent Preferred Stock. The Parent Disclosure
Schedule sets forth a list of all stockholders of Parent who own
beneficially more than 5 percent of the outstanding shares of common stock
of Parent, and all Rights Agreements to which Parent is a party or by which
Parent may be bound obligating Parent to issue, deliver, sell, purchase,
redeem, or cause to be issued, delivered, sold or purchased additional
shares of the capital stock of Parent or obligating Parent to enter into
such Rights Agreements. All outstanding shares of Parent Common Stock and
Series E Preferred Stock are duly authorized, validly issued, fully paid
and non-assessable, are free and clear of any Lien, and are not subject to
preemptive rights or rights of first refusal created by statute, the
Articles of Incorporation or Bylaws of Parent or any agreement to which
Parent is a party or by which it is bound. The shares of Parent Preferred
Stock to be issued to the UIHH Shareholder pursuant to the Merger will,
when issued, be duly authorized, validly issued, fully paid, and
non-assessable. Each such share of Parent Preferred Stock will have been
issued pursuant to, and will carry the rights set forth in, the Certificate
of Designation. Except as set forth on the Parent Disclosure Schedule,
there are no contracts, commitments or agreements relating to voting,
purchase or sale of Parent's capital stock. Parent does not have any
outstanding bonds, debentures, notes or other indebtedness the holders of
which have the right to vote (or convertible or exercisable into securities
having the right to vote) with holders of shares of Parent Common Stock and
holders of Series E Preferred Stock on any matter.
(b) The authorized capital stock of Merger Sub consists of 1,000
shares of Merger Sub Common Stock, all of which are issued and outstanding
and are held by Parent. Merger Sub has been formed solely for the purpose
of engaging in the transactions contemplated hereby, and immediately prior
to the Effective Time will have engaged in no other business activities,
will have no subsidiaries and will have conducted its operations only as
contemplated hereby.
5.3 Subsidiaries.
(a) Parent owns equity interests in each of Hebei United
Telecommunications Equipment Company Limited ("Hebei Equipment"), Hebei
United Telecommunications Engineering Company Limited ("Hebei
Engineering"), ITV Communications, Inc. ("ITV"), AmTec Telecom Holdings
Ltd. ("Telecom") and AmTec Hebei Telecom Holdings Ltd. ("Hebei Telecom")
and has agreed to acquire a 75% ownership interest in Shanghai V-Tech
Telecommunications and Engineering Limited Liability Company. The
authorized, issued and outstanding equity interests, together with Parent's
ownership interest therein, of Hebei Equipment, Hebei Engineering, ITV,
Telecom and Hebei Telecom (collectively, the "AMTEC Subsidiaries") are as
set forth on Exhibit PDS-3 to the Parent Disclosure Schedule.
(b) Except for Parent's interests in the AMTEC Subsidiaries, Parent
does not, directly or indirectly, own any equity or similar interest in, or
any interest convertible or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
5.4 Due Authorization. Parent and Merger Sub have the full
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of Parent and Merger Sub. This Agreement has been duly executed and
delivered by Parent and Merger Sub and constitutes the valid and binding
obligations of Parent and Merger Sub enforceable against each of Parent and
Merger Sub in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated
hereby will not: (a) conflict with or violate any provision of the Articles
of Incorporation or Bylaws of Parent, the Articles of Incorporation or
Bylaws of Merger Sub, or equivalent charter documents of any of the AMTEC
Subsidiaries, in each case as amended and in effect on the date hereof, (b)
violate or conflict with any permit, order, license, decree, judgment,
statute, law, ordinance, rule or regulation applicable to Parent or the
AMTEC Subsidiaries or the properties or assets of Parent or the AMTEC
Subsidiaries, or (c) result in any breach or violation of, or constitute a
default (with or without notice or lapse of time, or both) under, or give
rise to any right of termination, cancellation or acceleration of, or
result in the creation of any Lien on any of the properties or assets of
Parent or the AMTEC Subsidiaries pursuant to any mortgage, indenture,
lease, contract or other agreement or instrument, bond, note, concession or
franchise applicable to Parent or the AMTEC Subsidiaries or their
properties or assets, except, in the case of this clause (c) only, where
such conflict, violation, default, termination, cancellation or
acceleration would not have a Material Adverse Effect on Parent or the
AMTEC Subsidiaries. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Parent, Merger Sub or the AMTEC Subsidiaries
in connection with the execution and delivery of this Agreement by Parent
and Merger Sub or the consummation by Parent and Merger Sub of the
transactions contemplated hereby, except for (i) the filing, pursuant to
the rules of the American Stock Exchange ("AMEX"), of the proxy statement
to be sent to the stockholders of Parent in connection with the meeting of
Parent's stockholders to consider the transactions contemplated hereby
(such proxy statement as amended or supplemented is referred to herein as
the "Proxy Statement"), (ii) the filing of the Articles of Merger and Plan
of Merger as provided in Section 1.3, (iii) the filing of a Form 8-K with
the Securities and Exchange Commission (the "SEC") and AMEX within 15 days
after the Closing Date, (iv) any filings as may be required under
applicable state securities laws and the securities laws of any foreign
country, and (v) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not have a Material
Adverse Effect on Parent or any of the AMTEC Subsidiaries or would not
prevent or materially alter or delay any of the transactions contemplated
by this Agreement.
5.5 SEC Documents; Financial Statements.
Parent has filed all forms, reports and documents required
to be filed with the SEC and has furnished UIHH with true and complete
copies of its (a) Annual Report on Form 10-K for the fiscal years ended
March 31, 1998 and March 31, 1997, as filed with the SEC, (b) Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998, as filed with the
SEC, (c) proxy statements related to all meetings of its stockholders
(whether annual or special) since March 31, 1996, and (d) all other reports
and registration statements filed by Parent with the SEC since March 31,
1996 (collectively, the "Parent SEC Documents"). As of their respective
filing dates, the Parent SEC Documents were, or will be, prepared in all
material respects in accordance with the requirements of the Securities
Exchange Act of 1934, as amended (together with any successor federal
statute and the rule and regulations promulgated thereunder, the "Exchange
Act") or the Securities Act of 1933, as amended (together with any
successor federal statute and the rule and regulations promulgated
thereunder, the "Securities Act"), as applicable, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC Documents
and did, or will, not at the time they were or are filed (or if amended or
superseded by a filing prior to the date of this Agreement, then
on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of the AMTEC Subsidiaries
is required to file any forms, reports or other documents with the SEC. The
annual and interim financial statements included in the Parent SEC
Documents were and will be prepared in accordance with GAAP applied on a
basis consistent throughout the periods indicated and consistent with each
other (except as indicated in the notes thereto) and fairly present or will
fairly present the consolidated financial condition and operating results
of Parent and its consolidated subsidiaries at the dates and during the
periods indicated therein, subject, in the case of interim financial
statements, to normal, recurring year-end audit adjustments.
5.6 Absence of Certain Changes. Except as disclosed in the Parent
SEC Documents filed with the SEC prior to the date hereof, since March 30,
1998 (the "Parent Balance Sheet Date"), each of Parent and the AMTEC
Subsidiaries has conducted its business in the ordinary course consistent
with past practice and there has not occurred: (a) any change, event or
condition (whether or not covered by insurance) that has resulted in, or
could reasonably be expected to result in, a Material Adverse Effect on
Parent, (b) any declaration, setting aside, or payment of a dividend or
other distribution with respect to the shares of Parent, or any direct or
indirect redemption, retirement, purchase or other acquisition by Parent of
any of its capital stock, or (c) any change, or any development or
combination of developments which would be required to be disclosed as a
material change in response to Item 11(a) of Form S-3. Except as disclosed
in such Parent SEC Documents, Parent is not aware of any facts which are
reasonably likely to have a Material Adverse Effect on Parent.
5.7 Liabilities. Except as set forth in the Parent Disclosure
Schedule, Parent does not have any liability or obligation of any nature
(whether accrued, absolute, contingent, unliquidated, civil, criminal or
otherwise, due or to become due) whether or not any such liability or
obligation would have been required to be disclosed on a balance sheet
prepared in accordance with GAAP.
5.8 Litigation. Except as set forth in the Parent Disclosure
Schedule, there is no private or governmental action, suit, proceeding,
claim, arbitration or investigation pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of Parent or the AMTEC
Subsidiaries, threatened against Parent or any of the AMTEC Subsidiaries or
any of their respective assets and properties or any of their officers or
directors (in their capacities as such) that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect
on Parent. There is no judgment, decree or order against Parent or any of
the AMTEC Subsidiaries, or, to the knowledge of Parent or the AMTEC
Subsidiaries, any of their respective directors or officers (in their
capacities as such), that could prevent consummation of the transactions
contemplated by this Agreement, or that could reasonably be expected to
have a Material Adverse Effect on Parent.
5.9 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Parent or the
AMTEC Subsidiaries which has or could reasonably be expected to have the
effect of prohibiting or impairing any current business practice of Parent
or the AMTEC Subsidiaries, any acquisition of property by Parent or the
AMTEC Subsidiaries or the conduct of business by Parent or the AMTEC
Subsidiaries as currently conducted by Parent.
5.10 Governmental Authorization. Except as set forth in the Parent
Disclosure Schedule, Parent, Merger Sub and each of the AMTEC Subsidiaries
has obtained each federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization that is necessary
for Parent, Merger Sub or such AMTEC Subsidiary to own or lease, operate
and use its respective assets and properties and to carry on its business
as currently conducted (collectively "Parent Authorizations"). Parent,
Merger Sub and such AMTEC Subsidiary has performed and fulfilled its
obligations under the Parent Authorizations, and all the Parent
Authorizations are in full force and effect.
5.11 Contracts and Commitments.
(a) Except as set forth on the Parent Disclosure Schedule, neither
Parent nor any of the AMTEC Subsidiaries is a party to any oral or written
(a)(i) obligation for borrowed money, (ii) obligation evidenced by bonds,
debentures, notes or other similar instruments, (iii) obligation to pay the
deferred purchase price of property or services (other than trade accounts
arising in the ordinary course of business), (iv) obligation under capital
leases, (v) debt of others secured by a Lien on its property, (vi) guaranty
of liabilities or obligations of others, (vii) agreement under which Parent
or any of the AMTEC Subsidiaries is obligated to make or expects to receive
payments, individually or in the aggregate in excess of $100,000, (viii)
agreement under which Parent or any of the AMTEC Subsidiaries is obligated
to provide services, (ix) agreement under which Parent has entered into a
joint venture with another party or (x) agreement granting any Person a
Lien on any of the properties or assets of Parent or such AMTEC Subsidiary;
or (b)(i) employment agreement or collective bargaining agreement or (ii)
agreements that limit the right of Parent or any such subsidiary, or any of
their respective employees to compete in any line of business; or (c)
agreement that, after giving effect to the transactions contemplated
hereby, purports to restrict or bind Parent or any of its subsidiaries,
other than Surviving Corporation, in any respect. True and complete copies
of all agreements described in the Parent Disclosure Schedule have been
delivered to UIHH. Parent has not breached any of its obligations under any
of such agreements. To the knowledge of Parent, all other parties thereto
have complied in all material respects with the provisions thereof and such
parties are not in breach or violation of, or in default (with or without
notice or lapse of time, or both) under such agreements. With respect to
such agreements, neither Parent nor any of its AMTEC Subsidiaries received
any notice of termination, cancellation or acceleration or any notice of
breach, violation or default thereof.
(b) Hebei Engineering and China United Telecommunications Co.
("UNICOM") are parties to a Project Cooperation Contract, dated February 9,
1996, as revised April 8, 1997 (the "Cooperation Contract"). Hebei
Engineering has complied in all material respects with the Cooperation
Contract and is not in breach or violation of, or in default under the
Cooperation Contract. The Cooperation Contract constitutes a legal, valid
and binding obligation of UNICOM and, to the knowledge of Parent, UNICOM
has complied in all material respects with the Cooperation Contract and is
not in breach or violation of, or in default under, the Cooperation
Contract.
5.12 Title to Property. Parent and each of the AMTEC Subsidiaries
has good and marketable title to all of its respective properties and
assets, or in the case of leased properties and assets, valid leasehold
interests in such properties, free and clear of any Lien, except for Liens
for Taxes not yet due and payable and except for such Liens or
imperfections of title as do not materially detract from the value of or
interfere with the current use of the properties or assets affected
thereby. The plants, property and equipment of Parent and each of the AMTEC
Subsidiaries that are used in the operations of its business are in good
operating condition and repair, ordinary wear and tear excepted. The Parent
Disclosure Schedule identifies each parcel of real property leased by
Parent or any of the AMTEC Subsidiaries. Neither Parent nor any of the
AMTEC Subsidiaries has any real property.
5.13 Intellectual Property. Parent and each of the AMTEC
Subsidiaries owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, maskworks, net lists,
schematics, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs or applications (in both
source code and object code form), and tangible or intangible proprietary
information or material that are used in the business of Parent or such
subsidiary as currently conducted, except to the extent that the failure to
have such rights could not reasonably be expected to have a Material
Adverse Effect on Parent.
5.14 Environmental Matters.
(a) Parent and each of the AMTEC Subsidiaries has complied with,
and is now in compliance with, all domestic and foreign Environmental Laws
applicable to its current and prior business, properties and assets. No
material permits, approvals, registrations, licenses or other
authorizations are required by any Governmental Entity pursuant to any
Environmental Law with respect to the business, operations, properties and
assets, of Parent or the AMTEC Subsidiaries. There is no pending or, to the
knowledge of Parent or the AMTEC Subsidiaries, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding,
or investigation, inquiry, information request or notice of potential
liability by any Governmental Entity or third party, relating to any
Environmental Law to which Parent or any of the AMTEC Subsidiaries is a
party or, to the knowledge of Parent or the AMTEC Subsidiaries, threatened
to be made a party.
(b) Neither Parent nor the AMTEC Subsidiaries have caused any, and
to the knowledge of Parent and the AMTEC Subsidiaries, there have been no,
releases or threatened releases of any Hazardous Substance in violation of,
or that could reasonably be expected to create any liability or
responsibility for Parent or the AMTEC Subsidiaries under, any
Environmental Law at any parcel of real property or any facility currently
or formerly owned, leased, operated or controlled by Parent or the AMTEC
Subsidiaries. Neither Parent nor any of the AMTEC Subsidiaries has been
required to give any notices to any Governmental Entity, with respect to
any release or threatened release of Hazardous Substances caused by or
known to Parent or any of the AMTEC Subsidiaries. Neither Parent or the
AMTEC Subsidiaries is aware of any releases of Hazardous Substance at
parcels of real property or facilities other than those presently or
formerly owned, leased, operated or controlled by Parent or any of the
AMTEC Subsidiaries that could reasonably be expected to have an impact on
the real property or facilities owned, leased, operated or controlled by
UIHH or the AMTEC Subsidiaries.
(c) The Parent Disclosure Schedule lists all environmental reports,
investigations, audits or similar environmental documents in the possession
of Parent or the AMTEC Subsidiaries with respect to the operations of, or
real property owned, leased, operated or controlled by, or liabilities or
obligations of, Parent or any of the AMTEC Subsidiaries (whether conducted
by or on behalf of Parent or any of the AMTEC Subsidiaries or a third party
and whether done at the initiative of Parent or directed by a Governmental
Entity or other third party). True and complete copies of each such
document have been provided to UIHH.
(d) Neither Parent nor any of the AMTEC Subsidiaries is subject to,
or is reasonably expected to be subject to, any liability under any
Environmental Law, that could reasonably be expected to have a Material
Adverse Effect, including without limitation liability arising out of the
utilization by Parent or any of the AMTEC Subsidiaries of any transporter
or facility used for treatment, recycling, storage or disposal.
5.15 Taxes.
(a) All material Returns required to be filed by or on behalf of
Parent and the AMTEC Subsidiaries have been duly filed on a timely basis
and such Returns (including all attached statements and schedules) are
true, complete and correct in all material respects. All Taxes shown to be
payable on such Returns or on subsequent assessments with respect thereto
have been paid in full on a timely basis, and no other Taxes are payable by
Parent or any of the AMTEC Subsidiaries with respect to items or periods
covered by the Returns (whether or not shown on or reportable on the
Returns) for periods ending on or before March 31, 1997.
(b) Parent and each of the AMTEC Subsidiaries has withheld and paid
over to the appropriate Governmental Authority all material Taxes required
to have been withheld and paid over, and has complied with all information
reporting and backup withholding requirements, including maintenance of
required records with respect thereto, in connection with material amounts
paid or owing to any employee, creditor, independent contractor, or other
third party.
(c) There are no Liens on any of the assets of Parent or any of the
AMTEC Subsidiaries with respect to Taxes, other than Liens for Taxes not
yet due and payable or for Taxes that are being contested in good faith
through appropriate proceedings and for which appropriate reserves have
been established.
(d) Parent has made available to UIHH true and complete copies of:
(i) all federal and state income and franchise tax Returns of Parent and
each of the AMTEC Subsidiaries for all periods since the date of formation
of Parent and each of the AMTEC Subsidiaries, and (ii) all tax audit
reports, work papers, statements of deficiencies, closing or other
agreements received by Parent or any of the AMTEC Subsidiaries relating to
its Taxes.
(e) Except as otherwise disclosed on the Parent Disclosure
Schedule:
(i) no deficiencies have been asserted in writing and no
written notice has been received by Parent or any of the AMTEC
Subsidiaries with respect to the failure to file any Return or pay
any Taxes; and
(ii) the amount of liability for unpaid Taxes of Parent and
the AMTEC Subsidiaries for all periods ending on or before March
31, 1997, will not, in the aggregate, exceed the amount of the
current liability accruals for Taxes (not including any reserve for
deferred taxes established to reflect timing differences between
book and tax income), as such accruals are reflected on the balance
sheet of Parent or such AMTEC Subsidiary as of such date.
5.16 Employee Benefit Plans.
(a) The Parent Disclosure Schedule lists, with respect to Parent,
and any trade or business (whether or not incorporated) that is treated as
a single employer with Parent (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code: (i) all material employee
benefit plans (as defined in Section 3(3) of ERISA), (ii) each loan to a
non-officer employee in excess of $50,000, loans to officers and directors
and any stock option, stock purchase, phantom stock, stock appreciation
right, supplemental retirement, severance, sabbatical, medical, dental,
vision care, disability, employee relocation, cafeteria benefit (Section
125 of the Code) or dependent care (Section 129 of the Code), life
insurance or accident insurance plans, programs or arrangements, (iii) all
bonus, pension, profit sharing, savings, deferred compensation or incentive
plans, programs or arrangements, (iv) other fringe or employee benefit
plans, programs or arrangements that apply to senior management and that do
not generally apply to all employees, and (v) any current or former
employment or executive compensation or severance agreements, written or
otherwise, as to which unsatisfied obligations remain for the benefit of,
or relating to, any present or former employee, consultant or director
(collectively, the "Parent Employee Plans").
(b) Parent has furnished to UIHH a copy of each of the Parent
Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and, to the extent still in
its possession, any material employee communications relating thereto) and
has, with respect to each Parent Employee Plan which is subject to ERISA
reporting requirements, provided copies of the Form 5500, including all
schedules attached thereto and actuarial reports, if any, filed for the
last three Plan years. Parent has furnished UIHH with the most recent
Internal Revenue Service determination letter issued with respect to each
Parent Employee Plan intended to be qualified under Section 401(a) of the
Code (and each such Plan has received a favorable determination letter and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Parent Employee Plan subject to Section 401(a) of the Code), and all
communications with respect to any such Parent Employee Plan described in
Section 5.16(a) with the Internal Revenue Service, the Department of Labor
or the Pension Benefit Guaranty Corporation. Parent has never established
or maintained in trust any Parent Employee Plan under Section 501(c)(9) of
the Code.
(c) (i) None of the Parent Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there
have been no violations of applicable provisions of the Code or ERISA with
respect to any Parent Employee Plan that could reasonably be expected to
have, in the aggregate, a Material Adverse Effect on Parent; (iii) each
Parent Employee Plan is in compliance with the requirements prescribed by
any and all statutes, rules and regulations (including ERISA and the Code),
except as would not have a Material Adverse Effect on Parent, and Parent
has no knowledge of any default or violation by any other party to any of
the Parent Employee Plans, which default or violation could reasonably be
expected to have a Material Adverse Effect on Parent; (iv) all material
contributions required to be made by Parent to any Parent Employee Plan
have been made on or before their due dates; and (v) Parent has never
maintained or otherwise incurred any obligation under any plan subject to
Title IV of ERISA. No suit, administrative proceeding, action or other
litigation has been brought, or to the knowledge of Parent, is threatened,
against or with respect to any such Parent Employee Plan, including any
audit or inquiry by the Internal Revenue Service or United States
Department of Labor. Parent does not have any obligations under Section
4980A of the Code with respect to any former employees or qualified
beneficiaries thereunder, except as set forth in the Parent Disclosure
Schedule.
(d) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not: (i) entitle
any current or former employee or other service provider or any director of
Parent or any of the AMTEC Subsidiaries to severance benefits or any other
payment (including unemployment compensation, golden parachute, bonus or
otherwise), (ii) increase any benefits otherwise payable, or (iii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee, service provider or director.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by Parent, or change in participation
or coverage under, any Parent Employee Plan which would increase the
expense of maintaining such Plan above the level of expense incurred with
respect to that Plan for the most recent fiscal year included in the annual
financial statements which are included in the Parent SEC Documents.
5.17 Indebtedness.
(a) The Parent Disclosure Schedule lists the following:
(i) all Debt presently in effect providing for or relating
to any amount greater than $10,000 in respect of which Parent or
the AMTEC Subsidiaries is in any manner directly or contingently
obligated;
(ii) the maximum principal or face amounts of such Debt
outstanding or which may be outstanding under each of those
agreements and other arrangements;
(iii) the maturity date or dates of such Debt; and
(iv) whether such Debt is recourse or non-recourse.
(b) Except as set forth in the Parent Disclosure Schedule, the
execution and delivery of this Agreement will not (and will not give any
person a right to) terminate or modify any rights of, or accelerate or
increase any obligation of the Parent or any of the AMTEC Subsidiaries with
respect to any such Debt.
(c) Except as set forth on the Parent Disclosure Schedule, at the
Effective Time, Parent will not be indebted to any shareholder, director,
officer, employee or agent of Parent or any of the AMTEC Subsidiaries
(except for amounts due as normal salaries and bonuses and in reimbursement
of ordinary expenses), and no such person is indebted to Parent or any of
the AMTEC Subsidiaries, and there are no other transactions of the type
required to be disclosed pursuant to Items 402 and 404 of Regulation S-K
under the Securities Act, and the Exchange Act.
5.18 Insurance. Parent and each of the AMTEC Subsidiaries has
policies of insurance and bonds of the type and in amounts customarily
carried by persons conducting businesses or owning assets similar to those
of Parent and each of the AMTEC Subsidiaries. The Parent Disclosure
Schedule sets forth a true and complete listing of all such policies,
copies of each of which have been provided to UIHH. There is no material
claim pending under any of such policies or bonds as to which Parent or any
of the AMTEC Subsidiaries has received a denial, or, to the knowledge of
Parent or any of the AMTEC Subsidiaries, as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have
been paid and Parent and each AMTEC Subsidiary is otherwise in compliance
in all material respects with the terms of such policies and bonds. Parent
has no knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies. To the knowledge of Parent,
each policy or bond is legal, valid, binding, enforceable and in full force
and effect and will continue to be legal, valid, binding, enforceable and
in full force and effect following the consummation of the transactions
contemplated hereby.
5.19 Compliance With Laws. Parent and each of the AMTEC
Subsidiaries has complied with, is not in violation of, and have not
received any notices of violation with respect to, any federal, state,
local or foreign statute, law or regulation with respect to the conduct of
its business, or the ownership or operation of its business, except for
such violations or failures to comply which would not have a Material
Adverse Effect on Parent. Parent and each of the AMTEC Subsidiaries has
since its formation complied with, and is in compliance with, all U.S.
export control laws, including but not limited to the Export Administration
Act, as amended, the International Emergency Economic Powers Act, the Arms
Export Control Act, the Trading With the Enemy Act, and the Foreign Corrupt
Practices Act.
5.20 Brokers' and Finders' Fees. Neither Parent nor any of the
AMTEC Subsidiaries has incurred, or will incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
5.21 Misstatements. Except to the extent revised or superseded by a
subsequent certificate, schedule or report furnished to UIHH, no
information, certificate, schedule or report furnished by Parent to UIHH
with respect to Parent, Merger Sub or the AMTEC Subsidiaries in connection
with the negotiation of this Agreement and any Exhibit to this Agreement or
the satisfaction of any condition under this Agreement or any Exhibit to
this Agreement contained as of the date thereof any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statement contained therein, in the light of the circumstances under which
it was made, not misleading.
5.22 Business Combination Transactions. Except as set forth in the
Parent Disclosure Schedule, none of Parent, Merger Sub and the AMTEC
Subsidiaries has entered into any agreement with any person which has not
been terminated as of the date of this Agreement, and under which there
remains any liability or obligation of any of Parent, Merger Sub and the
AMTEC Subsidiaries with respect to a merger or business combined
transaction.
5.23 Conduct of Business. Except as otherwise disclosed on the
Parent Disclosure Schedule or as otherwise expressly contemplated hereby,
since March 31, 1998, Parent and the AMTEC Subsidiaries have carried on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as theretofore conducted and used reasonable
efforts to preserve intact their present business organizations, kept
available the services of their present officers and key employees and
preserved their relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it. Except
as otherwise disclosed on the Parent Disclosure Schedule or as otherwise
expressly contemplated hereby, since March 31, 1998, neither Parent nor any
AMTEC Subsidiary has
(a) acquired or agreed to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets or, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquired or agreed
to acquire any assets, other than in the ordinary course of business
consistent with past practice;
(b) made or changed any material election in respect of Taxes,
adopted or changed any accounting method in respect of Taxes, filed any
material Return or any amendment to a material Return, entered into any
closing agreement, settled any claim or assessment in respect of Taxes, or
consented to any extension or waiver of the limitation period applicable to
any claim or assessment in respect of Taxes;
(c) revalued any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(d) delayed in the payment of any trade or other payables other
than in the ordinary course of business consistent with past practice;
(e) sold, leased or otherwise transferred or disposed of any
property or asset other than for fair consideration or in the ordinary
course of business consistent with past practice;
(f) changed its accounting methods, practices or policies
(including any change in depreciation or amortization policies or rates);
(g) declared, set aside, or paid any dividend or other distribution
in respect of its capital stock, or made any direct or indirect redemption,
retirement, purchase or other acquisition by Parent or any AMTEC Subsidiary
of any of its capital stock or other securities or options, warrants or
other rights to acquire capital stock;
(h) canceled any debt or waived or released any right or claim by
Parent or any AMTEC Subsidiary, other than in the ordinary course of
business consistent with past practice;
(i) made any payment, or discharged or satisfied any claim,
liability or obligation other than as reflected or reserved against in the
financial statements included in the Parent SEC Documents or in the
ordinary course of business consistent with past practice;
(j) made any loan or advance (other than advances to employees in
the ordinary course of business for travel and entertainment in accordance
with past practice) to any person.
5.24 Reliance. The foregoing representations and warranties are
being made by Parent and Merger Sub with the knowledge and expectation that
UIHH is placing reliance thereon.
ARTICLE VI
COVENANTS
6.1 Access to Information. Each party shall afford the other and
its accountants, counsel and other representatives (collectively,
"Representatives") full access during normal business hours (and at such
other times as the parties hereto agree) during the period prior to the
Effective Time to: (a) all of such party's properties, books, contracts,
commitments and records, and (b) all other information concerning the
business, properties and personnel of such party as the other party may
reasonably request. Each party agrees to provide to the other and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request. Subject to compliance with applicable
law, from the date hereof until the Effective Time, each of Parent and UIHH
shall confer on a regular and frequent basis with one or more
representatives of the other party to report operational matters of
materiality and the general status of ongoing operations. No information or
knowledge obtained in any investigation pursuant to this Section 6.1 shall
affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties hereto to
consummate the Merger.
6.2 Confidentiality. Each party hereto and its Representatives will
treat as confidential and hold in confidence all information concerning the
businesses and affairs of the other that is not already generally available
to the public and is not otherwise known to the party to whom it was
disclosed on a non-confidential basis ("Confidential Information") and
refrain from using any Confidential Information, except in furtherance of
this Agreement or as required by law or regulation. In the event of the
termination of this Agreement, each party will treat and hold as such all
Confidential Information received from the other party hereto, refrain from
using any of such Confidential Information and return or destroy, at the
request of the other party, all tangible embodiments (and all copies) of
such Confidential Information. In the event that a party is requested or
legally required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information, such
party will notify the other promptly of the request or requirement so that
such other party may seek an appropriate protective order or waive
compliance with the provisions of this Section 6.2. If, in the absence of a
protective order or the receipt of a waiver hereunder, a party is, on the
advice of counsel, compelled to disclose any Confidential Information to
any tribunal or else stand liable for contempt, such party may disclose the
Confidential Information to the tribunal; provided, however, that such
party shall use reasonable effort to obtain, at the request of the other
party, an order or other assurance that confidential treatment will be
accorded to such portion of the Confidential Information required to be
disclosed as such other party shall designate.
6.3 Publicity. None of the Parties shall not issue, or cause or
permit to be issued, any press release or otherwise make any public
statement regarding the terms of this Agreement or the transactions
contemplated hereby without Parent's and UIHH's prior written consent,
except as required by applicable Laws.
6.4 Filings; Cooperation. Parent and UIHH shall each take, and
cause their affiliates to take, all actions necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, but not limited to,
(a) making filings required under the Securities Act and the Exchange Act,
and the rules and regulations thereunder, and under applicable Blue Sky or
similar securities laws, (b) obtaining all waivers, consents and approvals
necessary to effect such registrations and filings and all consents of
third parties necessary for consummation of the merger, and (c) lifting any
injunction or other legal bar to the Merger (and, in such case, to proceed
with the Merger as expeditiously as possible).
6.5 Proxy Statement and Shareholder Approval
(a) Preliminary Proxy Statement. Parent shall, as soon as
reasonably practicable, prepare a preliminary form (the "Preliminary Proxy
Statement") of the Proxy Statement. The Parent shall (i) file the
Preliminary Proxy Statement with the SEC promptly after it has been
prepared in a form reasonably satisfactory to UIHH, and (ii) use its
reasonable efforts to respond to the comments of the SEC thereon in a
manner reasonably satisfactory to UIHH. Parent shall promptly prepare any
amendments to the Preliminary Proxy Statement required in response to the
SEC's comments or which Parent, with the advice of counsel, deems necessary
or advisable, and Parent shall use its reasonable efforts to cause the
Proxy Statement to be filed with the SEC as soon as reasonably practicable
after the Preliminary Proxy Statement, as so amended, is cleared by the
SEC.
(b) UIHH Cooperation. To the extent information regarding
UIHH is required to be included in the Proxy Statement, UIHH hereby agrees
to promptly supply such information to Parent upon request. UIHH further
agrees that the information so supplied shall not contain any statement
which, at the time of delivery, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
they are made, not false or misleading. UIHH further agrees promptly to
supply such additional information to Parent as may be necessary to correct
any statement or omission regarding UIHH included in the Proxy Statement
that becomes false or misleading with respect to any material fact prior to
the Closing Date.
(c) Parent Stockholders Meeting. Parent shall take all
action necessary in accordance with applicable law and its Articles of
Incorporation and Bylaws within [30 days] after the date hereof either (i)
to obtain the written consent of the stockholders of Parent to the issuance
of capital stock of Parent in connection with this Agreement (the
"Issuance") or (ii) to convene a special meeting of its stockholders and
solicit from stockholders proxies in favor of the Issuance. In any event,
Parent shall use its best efforts to take all action necessary or advisable
to secure the vote or consent of stockholders required to effect the
Issuance, and subject to the fiduciary duties of Parent's Board of
Directors under applicable law, as advised by counsel, the Board of
Directors of Parent shall recommend a consent or vote in favor of the
Issuance.
6.6 Further Assurances.
(a) Subject to the terms and conditions herein provided, each of
the parties hereto agrees to use all reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals, to effect all necessary registrations and
filings (including, but not limited to, filings with all applicable
Governmental Entities) and to lift any injunction or other legal bar to the
Merger (and, in such case, to proceed with the Merger as expeditiously as
possible).
(b) In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of Parent and the Surviving Corporation
shall take all such necessary action.
(c) UIHH, on the one hand, and Parent on the other shall confirm
and represent to one another, such factual matters as the other may
reasonably request in order for each party to confirm that the Merger will
qualify as a nontaxable reorganization under Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
(d) None of Parent, Merger Sub and UIHH will (both before and after
consummation of the Merger) take any actions, other than those contemplated
by this Agreement, which would prevent the transaction effected through the
Merger from qualifying as a reorganization under the provisions of Section
368(a) of the Code.
6.7 Certain Tax Matters.
(a) Parent shall cause UIHH to continue at least one significant
historical business line of UIHH, or shall use at least a significant
portion of UIHH' historical business assets in a business, in each case
within the meaning of Treasury Regulation Section 1.368-1(d).
(b) The UIHH Shareholder shall retain and provide to Parent, and
Parent will retain and provide to the UIHH Shareholder, any records or
other information that may be relevant to any Return, audit or examination,
proceeding, or determination that affects any amount required to be shown
on any Return. Without limiting the generality of the foregoing, each party
shall retain, until the applicable statutes of limitations (including any
extensions) have expired, copies of all Returns, supporting work schedules,
and other records or information that may be relevant to such Returns for
all tax periods or portions thereof ending before or including the Closing
Date and shall not destroy or otherwise dispose of any such records without
first providing the other party with a reasonable opportunity to review and
copy the same.
(c) Parent shall exercise complete control over the handling,
disposition, and settlement of any governmental inquiry, examination, or
proceeding that could result in a determination with respect to Taxes due
or payable by the Surviving Corporation for any period ending on or after
the Closing Date and the UIHH Shareholder shall exercise complete control
with respect to any period ending prior to the Closing Date.
(d) Parent shall pay any sales, use, transfer or documentary Taxes
and recording and filing fees, incurred in connection with this Agreement
and shall prepare and timely file all Returns with
respect to such taxes and fees.
6.8 Notice of Breach. Each party hereto shall promptly give written
notice to the others upon becoming aware of the occurrence or impending or
threatened occurrence or nonoccurrence, of any event that could cause or
constitute a breach of any of its representations, warranties or covenants
hereunder or have a material adverse effect on the business of the
companies.
6.9 Notice of Adverse Change. Each party hereto shall promptly give
written notice to the others upon becoming aware of the occurrence or
impending or threatened occurrence or nonoccurrence of any event that could
have a material adverse effect on its or its subsidiaries business
operations or prospects.
6.10 Publication of Financial Information. As promptly as
reasonably practicable after the first complete fiscal quarter after the
Effective Time that includes at least 30 days of combined operations of
Parent and the survivor of the merger between UIHH and Merger Sub, Parent
will cause to be publicly reported in a Quarterly Report on Form 10-Q
financial statements of Parent that include such combined operations.
6.11 Allocation of Taxes.
(a) The UIHH Shareholder shall pay all Taxes of UIHH
allocable to any period ending on or before February 28, 1998, whether such
Taxes are due before or after Closing. Subject to the provisions below, the
Taxes allocable to any period ending on the day before the Closing Date (a
"Pre-Closing Period") shall be determined on the basis of a balance sheet
of UIHH at the end of the day before the Closing Date (the "Closing Date
Balance Sheet").
(b) For purposes of paragraph (a), Taxes allocable to a
Pre-Closing Period shall be determined in accordance with Section 1362 of
the Code and the regulations thereunder.
(c) UIHH shall include the income, gain, loss, deductions,
credits, estimates, withholding amounts, tax information and similar items
(collectively "Tax Items") of UIHH for federal income tax purposes for all
Pre-Closing Periods in the federal income tax Return filed on behalf of
UIHH. UIHH shall take no position on such Returns that is materially
inconsistent with past practice and that would materially adversely affect
Parent or UIHH after the Closing Date. The UIHH Shareholder shall prepare
and deliver to Parent prior to filing, a draft Return that demonstrates the
activities and Tax Items of UIHH for any other Pre-Closing Period if
requested by Parent.
(d) To the extent any determination of Taxes with respect to
UIHH, whether as the result of an audit or examination, a claim for refund,
the filing of an amended return, the application of an overpayment as an
offset, or otherwise, results in a refund of Taxes paid by UIHH (a
"Refund"), the UIHH Shareholder shall be entitled to any part of such
Refund attributable to a Pre-Closing Period (but only to the extent that
the Refund amount that would otherwise be payable to the UIHH Shareholder
exceed the amount for that Refund as reflected on the Closing Date Balance
Sheet) and Parent shall be entitled to the balance of such Refund. The
party receiving a Refund shall, within 10 days after receipt, pay over to
the other party the portion of the Refund to which the other party is
entitled under this paragraph (along with a proportionate share of any
interest amounts received with the Refund).
(e) The UIHH Shareholder and Parent agree to give prompt
notice to each other of any proposed adjustment to Taxes for any
Pre-Closing Period. The UIHH Shareholder and Parent shall cooperate with
each other in the conduct of any audit or other proceedings involving UIHH
for such periods and each may participate at its own expense, provided that
Parent shall have the right to control the conduct of any such audit or
proceeding.
(f) The UIHH Shareholder and Parent agree to furnish or
cause to be furnished to each other, upon request, as promptly as
practicable, such information and assistance (including access to books and
records) relating to UIHH as is reasonably necessary for the preparation of
any Return, claim for refund or audit, and the prosecution or defense of
any claim, suit or proceeding relating to any proposed adjustment.
6.12 Listing. Prior to the Effective Time, Parent shall have
submitted an application to the AMEX to list the shares of Parent Common
Stock underlying the Parent Preferred Stock constituting the Merger
Consideration and Parent shall use its reasonable efforts to cause such
application to become effective at or as soon as reasonably practicable
following the Effective Time.
6.13 Name. Parent acknowledges that it will not received any rights
to the name "UIH Hunan, Inc." pursuant to this Agreement and it agrees that
neither it nor any of its subsidiaries or controlled affiliates shall ever
use such name or any derivative thereof.
6.14 Representations and Warranties. Neither Parent nor the UIHH
Shareholder will take, or agree in writing or otherwise to take, any action
that would result in any of its representations or warranties contained in
this Agreement being untrue, except as otherwise contemplated by this
Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party hereto to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of the
parties hereto:
(a) This Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of the stockholders of
Parent.
(b) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition preventing the
consummation of the Merger, nor any proceeding brought by any Governmental
Entity, domestic or foreign, seeking any of the foregoing, shall be
pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes or seeks to make the consummation of the Merger
illegal.
(c) Parent, UIHH and Merger Sub and their respective subsidiaries,
if any, shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for consummation of or
in connection with the Merger and the several transactions contemplated
hereby, including such approvals, waivers and consents as may be required
under the federal securities and state Blue Sky laws.
7.2 Additional Conditions to Obligations of UIHH to Effect the
Merger. The obligations of UIHH to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any
of which may be waived, in writing, by UIHH:
(a) Parent and Merger Sub shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them on or prior to
the Effective Time and the representations and warranties of Parent and
Merger Sub in this Agreement shall be complete and correct in all material
respects (or in all respects in the case of any representation or warranty
that is qualified by its terms by a reference to Material Adverse Effect or
otherwise the concept of materiality) when made and on and as of the
Effective Time as though such representations and warranties were made on
and as of such time.
(b) UIHH shall have received a certificate, dated as of the
Effective Time, executed on behalf of Parent by its Chief Financial Officer
certifying that the conditions specified in Section 7.2(a) have been
fulfilled.
(c) Parent shall have delivered to the UIHH Shareholder
certificates representing the Parent Preferred Stock, which shall be duly
authorized and issued, fully paid and nonassessable, and free and clear of
any Liens, and shall have been issued pursuant to, and shall have the
rights set forth in, the Certificate of Designations.
(d) UIHH shall have received a legal opinion of legal counsel to
Parent acceptable to UIHH as to such matters as may be reasonably requested
by UIHH.
(e) Parent shall have executed and delivered to the UIHH
Shareholder an agreement with respect to demand and piggyback registration
rights of holders of the Parent Preferred Stock (the "Registration Rights
Agreement"), substantially in the form of Exhibit 7.2(e) attached hereto.
(f) There shall not have occurred any Material Adverse Effect on
Parent or any of the AMTEC Subsidiaries.
(g) UIHH shall have confirmed, to its reasonable satisfaction, that
the Merger will qualify as a nontaxable reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
(h) UIHH shall have received a certificate, dated the Closing Date,
of the Secretary or an Assistant Secretary of Parent certifying as to the
resolutions of the Board of Directors of Parent attached thereto and to
such other corporate proceeding relating to the authorization, execution
and delivery of this Agreement as UIHH may reasonably request.
(i) Parent shall have executed and delivered the Technical
Assistance Agreement, in the form attached hereto as Exhibit 7.2(i).
(j) Parent shall have executed and delivered the Investment
Agreement, in the form attached hereto as Exhibit 7.2(j).
7.3 Additional Conditions to the Obligations of Parent and Merger
Sub to Effect the Merger. The obligations of Parent and Merger Sub to
consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, by Parent:
(a) UIHH shall have performed and complied in all material respects
with all covenants, obligations and conditions of this Agreement required
to be performed and complied with by it at or prior to the Effective Time
and the representations and warranties of UIHH in this Agreement shall be
complete and correct in all material respects (or in all respects in the
case of any representation or warranty that is qualified by its terms by a
reference to Material Adverse Effect or otherwise by the concept of
materiality) when made and on and as of the Effective Time as though such
representations and warranties were made on and as of such time.
(b) Parent shall have received a certificate, dated as of the
Effective Time, executed on behalf of UIHH by its Chief Financial Officer
certifying that the conditions specified in Section 7.3(a) have been
fulfilled.
(c) Parent shall have received a legal opinion from Holme Roberts &
Owen LLP, legal counsel to UIHH, as to such matters as may be reasonably
requested by Parent.
(d) There shall not have occurred any Material Adverse Effect on
UIHH.
(e) UIHH shall have delivered or caused to be delivered to Parent
certificates representing all of the issued and outstanding shares of UIHH
Common Stock pursuant to Section 3.2;
(f) Parent shall have confirmed, to its reasonable satisfaction,
that the Merger will qualify as a nontaxable reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
(g) Parent shall have received a certificate, dated the Closing
Date, of the Secretary or an Assistant Secretary of UIHH certifying as to
the resolutions of the UIHH Shareholder and the Board of Directors of UIHH
attached thereto and to such other corporate proceeding relating to the
authorization, execution and delivery of this Agreement as Parent may
reasonably request.
(h) Parent shall have received a legal opinion from Chinese legal
counsel reasonably acceptable to Parent, as to such matters as may be
reasonably requested by Parent.
ARTICLE VIII
RESTRICTIONS ON TRANSFER
8.1 Legends. Each certificate representing shares of Parent
Preferred Stock issued in connection with the Merger (the "Restricted
Securities") shall bear a legend to the following effect:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THESE SECURITIES CANNOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF, EXCEPT IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS
AND NO TRANSFER WILL BE RECOGNIZED UNLESS MADE IN COMPLIANCE WITH SUCH
LAWS."
Any holder of Restricted Securities (a "Holder") who disposes of Restricted
Securities in accordance with Section 8.2 shall be entitled to have Parent
cause new certificates without legends to be issued promptly to the Holder
in exchange for outstanding certificates with legends representing the
disposed shares if: (a) the opinion of counsel referred to in Section 8.2
is to the further effect that such legend is not required in order to
establish compliance with any provisions of the Securities Act; (b) the
transfer is in connection with a transaction intended to comply with Rule
144 and Rule 145 as promulgated by the SEC under the Securities Act, as
such Rules may be amended from time to time, or any similar successor rule
that may be promulgated by the SEC; or (c) an appropriate registration
statement with respect to such Restricted Securities has been filed by
Parent with the SEC and has been declared effective by the SEC.
8.2 Notice of Proposed Dispositions. Prior to any proposed
disposition of any Restricted Securities (unless there is in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such
registration statement), the holder thereof shall give written notice to
Parent of such Holder's intention to effect such disposition. Each such
notice shall describe the manner and circumstances of the proposed
disposition and shall be accompanied by either (a) a written opinion of
legal counsel addressed to Parent and reasonably satisfactory in form and
substance to Parent, to the effect that the proposed disposition of
Restricted Securities may be effected without registration of such
Restricted Securities or (b) a "no action" letter from the SEC to the
effect that such disposition without registration of such Restricted
Securities will not result in recommendation by the staff of the SEC that
enforcement action be taken with respect thereto, whereupon the Holder of
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the
Holder to Parent. The provisions of this Section 8.2 shall not apply to
Restricted Securities that are then freely tradeable pursuant to Rule
144(k) under the Securities Act, as amended from time to time, or any
similar successor rule that may be promulgated by the SEC.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. At any time prior to the Effective Time, this
Agreement may be terminated:
(a) by mutual consent of Parent and UIHH;
(b) by Parent, if any of the conditions specified in Section 7.3
have not been satisfied or waived at such time as such condition is no
longer capable of satisfaction;
(c) by UIHH, if any of the conditions specified in Section 7.2 have
not been satisfied or waived at such time as such condition is no longer
capable of satisfaction;
(d) by UIHH if the Average Closing Price Per Share is less than
$1.00;
(e) by either Parent or UIHH if the other shall have breached its
respective representations, warranties, covenants or other obligations
under Articles IV through VIII in any material respect and such breach
continues for a period of 10 days after receipt of notice of the breach
from the non-breaching party hereto.
(f) by Parent or UIHH at any time after December 31, 1999, if,
without any fault on the part of the party seeking to terminate this
Agreement pursuant to this Section 9.1(f), the Closing shall
not have occurred on or before such date.
9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent,
Merger Sub or UIHH or their respective officers, directors, shareholders or
affiliates, except to the extent that such termination results from the
breach by a party hereto of any of its representations, warranties or
covenants set forth in this Agreement; provided, however, that the
provisions of this Section 9.2 and Article XI (General Provisions) shall
remain in full force and effect and survive any termination of this
Agreement.
9.3 Amendment. The respective Boards of Directors of the parties
hereto may cause this Agreement to be amended at any time by execution of
an instrument in writing signed on behalf of each of the parties hereto;
provided that an amendment made subsequent to adoption of the Agreement by
the shareholders of UIHH or Merger Sub shall not (a) alter or change the
amount or kind of consideration to be received on conversion of the UIHH
Common Stock, (b) alter or change any term of the Articles of Incorporation
of Surviving Corporation to be effected by the Merger, or (c) alter or
change any of the terms and conditions of this Agreement if such alteration
or change would adversely affect the UIHH Shareholder or Parent without the
prior written approval of the shareholders of UIHH and Parent.
9.4 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations and Warranties. The
representations and warranties of UIHH herein shall survive the Merger and
continue in full force and effect until the earlier of the first
anniversary of the Effective Time or the date on which UIHH publishes
audited financial statements for a period ending after the Effective Time,
except those contained in Sections 4.15 and 4.16, which shall survive the
Merger and continue in full force and effect for one year. The
representations and warranties of Parent and Merger Sub shall survive the
Merger and continue in full force and effect until the second anniversary
of the Effective Time.
10.2 Indemnification by Parent. Parent hereby agrees to indemnify
and hold each of the UIHH Shareholder harmless from, and to reimburse the
UIHH Shareholder for, any Shareholder Indemnity Claims arising under the
terms and conditions of this Agreement. For purposes of this Agreement, the
term "Shareholder Indemnity Claim" shall mean any action, suit, proceeding,
hearing, charge, complaint, claim, demand, injunction, judgment, order,
decree, ruling, damage, dues, penalty, fines, costs, amounts paid in
settlement, liabilities, obligations, Taxes, Liens, losses, expenses and
fees, including court costs and attorneys' fees and expenses ("Losses")
incurred by the UIHH Shareholder resulting from any breach of a
representation, warranty or covenant (as such representation or warranty
would read if all qualifications as to knowledge, materiality and Material
Adverse Effect were deleted from it) of Parent or Merger Sub that is
contained in this Agreement.
10.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail,
return receipt requested, or sent via facsimile, with confirmation of
receipt, to the parties at the following address or at such other address
for a party as shall be specified by notice hereunder:
(a) if to Parent or Merger Sub, to:
AMTEC, Inc.
599 Lexington Avenue, 44th Floor
New York, New York 10022
Attention: Albert Pastino
Facsimile No.: (212) 319-9288
(b) if to UIHH, to:
UIH Asia/Pacific Communications, Inc.
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
Attention: President
Facsimile No.: (303) 770-4207
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln Street
Suite 4100
Denver, Colorado 80203
Attention: Francis R. Wheeler, Esq.
Facsimile No.: (303) 866-0200
10.4 Interpretation. When a reference is made in this Agreement to
Exhibits, Articles, Schedules or Sections, such reference shall be to an
Exhibit, Article, Schedule or Section to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that
the information referred to has been made available if requested by the
party hereto to whom such information is to be made available. The table of
contents, index of defined terms and Article and Section headings contained
in this Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement. In this Agreement,
any reference to any event, change, condition or effect being "material"
with respect to any entity or group of entities means any material event,
change, condition or effect related to the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group of
entities. In this Agreement, any reference to a "Material Adverse Effect"
with respect to any entity or group of entities means any event, change or
effect that is materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business, operations or
results of operations of such entity and its subsidiaries, taken as a
whole. In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge of a particular fact or matter after due and
diligent inquiry of officers, directors and other employees of such party
reasonably believed to have knowledge of such matters. Whenever the context
may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.
10.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed
by each of the parties hereto and delivered to the other parties hereto, it
being understood that all parties hereto need not sign the same
counterpart.
10.6 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement, the Registration Rights Agreement, the Investment Agreement, the
Technical Assistance Agreement and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the UIHH Disclosure Schedule and the Parent
Disclosure Schedule (a) constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties
hereto with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder; and (c)
shall not be assigned by operation of law or otherwise, except as otherwise
specifically provided.
10.7 Severability. In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder
of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto.
The parties hereto further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that
will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
10.8 No Waiver. No failure or delay on the part of any party hereto
in the exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise
thereof or of any other right.
10.9 Governing Law. The Merger shall be governed by the laws of the
State of Delaware. All other aspects of this Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado (without
regard to the principles of conflicts of law thereof).
10.10 Charters and By-Laws. The Surviving Corporation agrees that
all rights to indemnification or exculpation now existing in favor of the
employees, agents, directors or officers of UIHH (the "UIHH Indemnified
Parties") as provided in its Articles of Incorporation or By-Laws shall
continue in full force and effect for a period of not less than six years
from the Closing Date; provided, however, that, in the event any claim or
claims are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims. Any determination required to be
made with respect to whether a UIHH Indemnified Party's conduct complies
with the standards set forth in the Articles of Incorporation or By-Laws of
UIHH or otherwise shall be made by independent counsel selected by the UIHH
Indemnified Party reasonably satisfactory to the Surviving Corporation
(whose fees and expenses shall be paid by the Surviving Corporation).
10.11 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any
law, regulation, holding or rule of construction providing that ambiguities
in an agreement or other document will be construed against the party
drafting such agreement or document.
10.12 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees
and expenses of its advisers, accountants and legal counsel) shall be paid
by the party incurring such expense.
10.13 Attorneys Fees. In the event of any proceeding to enforce
this Agreement, the prevailing party shall be entitled to receive from the
losing party all reasonable costs and expenses, including the reasonable
fees of attorneys, accountants and other experts, incurred by the
prevailing party in investigating and prosecuting (or defending) such
action at trial or upon any appeal.
IN WITNESS WHEREOF, UIHH, Parent and Merger Sub have caused this
Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.
AMTEC, INC.
By:
Name:
Title:
AMTEC ACQUISITION CORPORATION
By:
Name:
Title:
UIH HUNAN, INC.
By:
Name:
Title:
Exhibit 7.2(j)
to Agreement and Plan of Merger
INVESTMENT AGREEMENT
This Investment Agreement (this "Agreement"), dated as of
___________, 199_, is between AMTEC, INC, a Delaware corporation (together
with its successors and assigns, the "Company"), and UIH CHINA HOLDINGS,
INC., a Colorado corporation (together with its successors and assigns,
"UIH China").
RECITALS
A. The Company, AMTEC ACQUISITION CORPORATION, a Colorado
corporation and a wholly-owned subsidiary of the Company ("Merger Sub"),
and UIH HUNAN, INC., a Colorado corporation and a wholly-owned subsidiary
of UIH China Holdings, Inc. ("UIHH"), entered into a Merger Agreement dated
December 23, 1998 (the "Merger Agreement"), pursuant to which UIHH, the
Company and Merger Sub agreed to cause Merger Sub to merge with and into
UIHH, subject to the terms and conditions set forth therein.
B. The parties are entering into this Agreement as a condition to
the closing under the Merger Agreement.
AGREEMENT
In consideration of the foregoing, the parties agree as follows:
Section 1 Definitions. For purposes of this Agreement, the
following terms have the following meanings:
"Additional Common Shares" means all Common Shares (including
treasury shares) issued or sold (or, pursuant to Section 7(a)(iii) or
7(a)(iv), deemed to be issued) by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other
than
(a) Common Shares issued upon: the exercise of the Option;
the exercise of options and warrants issued by the Company in
connection with debt financings of the Company that are outstanding
as of the date hereof; the exercise of employee stock options and
warrants outstanding as of the date hereof; and the exchange of
shares of the Company's Preferred Stock (whether occurring before
or after the date hereof);
(b) Common Shares issued to shareholders of any entity which
merges into the Company in proportion to their stock holdings in
such entity immediately prior to such merger, upon such merger;
(c) Common Shares issued in a bona fide public offering
pursuant to a firm commitment underwriting, but only if and to the
extent that the consideration received by the Company in respect of
each share so issued (as determined pursuant to Section 7(a)(v))
equals or exceeds ninety-five percent (95%) of the Current Market
Price;
(d) Common Shares issued in a bona fide private placement
through a placement agent which is a member firm of the National
Association of Securities Dealers or by the Company, but only if
and to the extent that the consideration received by the Company in
respect of each share so issued (as determined pursuant to Section
7(a)(v)) equals or exceeds ninety percent (90%) of the Current
Market Price;
(e) such additional number of Common Shares as may become
issuable upon the exercise of any of the securities referred to in
the foregoing clause (a) by reason of adjustments required pursuant
to anti-dilution provisions applicable to such securities as in
effect on the date hereof.
"Affiliate" means, with respect to any Person, any entity that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person. For purposes of
this definition, the term "control" means the ownership of fifty percent
(50%) or more of the voting interests of such Person.
"Agreement" means this Investment Agreement as amended, modified,
restated and replaced from time to time.
"Applicable Period" has the meaning set forth in Section 8.
"Business Day" means any day on which banks in New York, New York
are generally open to the public for the conduct of commercial banking
transactions.
"Closing" and "Closing Date" have the meanings set forth in Section
3(a).
"Common Shares" means shares of common stock, par value $0.001, of
the Company.
"Company's Preferred Stock" means the Company's preferred stock,
par value $0.001 per share, of which there are issued and outstanding ___
shares in Series E ("Series E Preferred Stock"), and ___ shares in Series F
("Series F Preferred Stock").
"Current Market Price" means the average daily Market Price during
the period of the most recent twenty (20) days, ending on such date, on
which the national securities exchanges were open for trading, except that
if no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current
Market Price shall be the Market Price on such date.
"Dollars" or "US $" means United States dollars, the lawful
currency of the United States of America.
"Due Diligence Period" has the meaning set forth in Section 2(e).
"Encumbrance" means any debt, charge, attachment, lien, claim or
any other third party right.
"Exercise Period" means the period beginning on the date hereof and
ending on the third anniversary of the date of this Agreement.
"Extraordinary Cash Dividend" means any cash dividend or
distribution with respect to the Common Shares the amount of which exceeds,
when aggregated with all other such dividends or distributions paid on the
Common Shares over the 365-day period immediately preceding the record date
for such dividend or distribution, on a per share basis, the lesser of (i)
twenty-five percent (25%) of the consolidated net income of the Company for
the four fiscal quarters immediately preceding the record date for such
dividend or distribution and (ii) eight percent (8%) of the average of the
Market Prices of the Common Shares on each trading day during the 365-day
period referred to above.
"Financial Statements" has the meaning set forth in Section 5(a).
"Fully Diluted Basis" assumes the exercise of all outstanding
options and warrants of the Company and the conversion of all securities
whether debt or equity that are convertible into capital stock of the
Company and including the exercise of all preemptive rights of any
stockholder of the Company that exist prior to the Closing.
"GAAP" has the meaning set forth in Section 4(a)(v).
"Holder" means UIH China, and all successors and permitted assigns
of UIH China.
"Investment" has the meaning set forth in Section 9.
"Investment Notice" has the meaning set forth in Section 9.
"Market Price" means, on any date specified herein, the amount per
share of the Common Shares, equal to (a) the last sale price of such Common
Shares, on such date or, if no such sale takes place on such date, the
average of the closing bid and asked prices thereof on such date, in each
case as officially reported on the principal national securities exchange
on which such Common Shares are then listed or admitted to trading, or (b)
if such Common Shares are not then listed or admitted to trading on any
national securities exchange but is designated as a national market system
security by the National Association of Securities Dealers, the last
trading price of the Common Shares on such date, or (c) if there shall have
been no trading on such date or if the Common Shares are not so designated,
the average of the closing bid and asked prices of the Common Shares on
such date as shown by the National Association of Securities Dealers
automated quotation system, or (d) if such Common Shares are not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the higher of (x) the book value thereof as
determined by any firm of independent public accountants of recognized
standing selected by the Board of Directors of the Company as of the last
day of any month ending within sixty (60) days preceding the date as of
which the determination is to be made or (y) the fair value thereof
determined in good faith by the Board of Directors of the Company as of a
date which is within eighteen (18) days of the date as of which the
determination is to be made.
"Material Adverse Effect" means any event, change or effect that is
materially adverse to the condition (financial or otherwise), properties,
assets, liabilities, business, operations or results of operations of such
entity and its subsidiaries, taken as a whole.
"Non-Compete Agreement" has the meaning set forth in Section 9.
"Option" has the meaning set forth in Section 2(a).
"Option Exercise Notice" has the meaning set forth in Section 2(b).
"Option Share Price"has the meaning set forth in Section 2(d).
"Option Shares" means the total number of the fully paid and
nonassessable Common Shares to be issued and delivered to Holder by the
Company at the Closing, which shall be calculated in
accordance with Section 2(a).
"Participation Notice" has the meaning set forth in Section 9.
"Person" means any natural person, company, corporation,
partnership, joint venture, trust, association, investment company, fund,
unincorporated entity of any kind or governmental agency
or authority.
"Purchase Price" has the meaning set forth in Section 3(b)(i)(A).
"Registration Rights Agreement" means a Registration Rights
Agreement to be executed and delivered at the Closing by the Company and by
Holder, substantially in the form attached hereto as Exhibit [ ].
"Reorganization Event" means (i) any consolidation or merger of the
Company with or into another entity (including any individual, partnership,
joint venture, corporation, trust or group thereof), or (ii) any sale,
lease, transfer or conveyance of all or substantially all of the property
and assets of the Company.
"Securities" has the meaning set forth in Section 4(b)(iii)(A).
"Termination Notice" has the meaning set forth in Section 9.
"Transfer" has the meaning set forth in Section 2(g).
"UIH China Nominees" has the meaning set forth in Section 8.
Section 2 Option.
(a) Grant of Option. In consideration for UIH China causing UIHH to
enter into the Merger Agreement, and subject to the terms and conditions of
this Agreement, the Company hereby grants to UIH China the right to acquire
upon issue (the "Option") such number of Common Shares (the "Option
Shares") as will result in UIH China beneficially owning, immediately after
the issuance of such Option Shares to UIH China, up to a total of
twenty-five percent (25%) of the issued and outstanding Common Shares of
the Company on a Fully Diluted Basis. The Option may be exercised in whole,
or in part, at any time during the Exercise Period.
(b) Exercise of Option. If Holder desires to exercise the Option,
Holder shall deliver to the Company an Option Exercise Notice in the form
attached hereto as Exhibit 2(b) (the "Option Exercise Notice").
(c) Determination of Number of Option Shares. The number of Common
Shares to be issued to Holder as Option Shares at the Closing shall be a
number, determined by UIH China, not to exceed the number of Common Shares
that will result, after issuance to UIH China, in UIH China beneficially
owning twenty-five percent (25%) of all issued and outstanding Common
Shares of the Company on a Fully Diluted Basis.
(d) Option Share Price. The price of an Option Share ( the "Option
Share Price") shall be US $3.00 per Common Share, subject to adjustment as
provided in Section 7.
(e) Due Diligence. Upon reasonable notice at any time during the
Exercise Period (including during the Due Diligence Period referred to
below), the Company will afford UIH China and its representatives full
access during normal business hours to the properties, books and records of
the Company and its subsidiaries and will cause its officers and employees
and the officers and employees of its subsidiaries to provide UIH China and
its representatives with such financial and operating data and other
information as UIH China and its representatives may reasonably request.
Upon delivery of an Option Exercise Notice pursuant to Section 2(b), UIH
China and its representatives shall have a period of ten (10) Business Days
following delivery of such Option Exercise Notice (the "Due Diligence
Period") to conduct any additional review of the books and records of the
Company and its subsidiaries and any other additional reasonable due
diligence investigation of the Company and its subsidiaries as UIH China in
good faith deems appropriate. At any time prior to the Closing, UIH China
may advise the Company in writing that it does not intend to proceed with
the purchase of the Option Shares based on the results of its due diligence
review. In such case, the Option shall continue to exist after the date the
Option Exercise Notice was revoked.
(f) Termination of Option. The Option will terminate and have no
further force or effect, if the Closing has not occurred on or before the
last day of the Exercise Period.
(g) Transfer of Option. UIH China may sell, assign, pledge,
hypothecate, encumber or in any other manner transfer or dispose of
("Transfer") the Option in whole or in part to any Affiliate of UIH China,
provided that (i) UIH China and such Affiliate have provided the Company
with opinions of counsel reasonably satisfactory to the Company and its
counsel stating that such Transfer complies with all applicable securities
laws; and (ii) UIH China pays any value added, sales, transfer or other tax
imposed on such Transfer by any governmental authority.
Section 3 Closing.
(a) Closing of the Option.
(i) Closing Date. The closing on the purchase of the Option
Shares by UIH China (the "Closing") shall occur at [the Administrative
Office of the Company] on the date (the "Closing Date") that is ten (10)
Business Days after delivery of the Option Exercise Notice. If the Option
Exercise Notice is delivered by UIH China pursuant to a Reorganization
Event, the Closing shall occur concurrently with the closing of the
Reorganization Event.
(b) Conditions to Closing.
(i) Conditions to the Company's Obligations to Effect the
Closing. The Company's obligations to effect the Closing and complete the
transactions contemplated hereby shall be subject to satisfaction or waiver
by the Company, at or prior to the Closing, of the following
conditions:
(A) UIH China shall pay to the Company an amount
equal to (i) the total number of Option Shares to be issued to UIH China,
multiplied by (ii) the Option Share Price (the "Purchase Price") in
immediately available Dollar funds, such payment to be made in accordance
with Section 3(d).
(B) UIH China shall have duly executed and delivered
the Registration Rights Agreement.
(C) There shall be no injunction or other court order
prohibiting or restricting delivery of the Option Shares.
(D) UIH China shall deliver to the Company a
certificate of an officer of UIH China, reasonably acceptable to the
Company, to the effect that the representations and warranties set forth in
Section 4(b) are accurate and correct as of the Closing (except as
otherwise disclosed in writing by UIH China to the Company prior to the
Closing Date), as if made at and as of the Closing.
(ii) Conditions to UIH China's Obligations to Effect the
Closing. UIH China's obligations to effect the Closing and complete the
transactions contemplated hereby shall be subject to satisfaction or waiver
by UIH China, at or prior to the Closing, of the following
conditions:
(A) The Company shall issue the Option Shares in
accordance with applicable law, and deliver duly executed share
certificates of the Company representing the Option Shares to and in the
name of the appropriate recipient(s) thereof, which Option Shares shall
upon the issuance thereof be duly authorized, fully paid, non-assessable
and free and clear of all Encumbrances;
(B) The Company shall have duly executed and
delivered to UIH China the Registration Rights Agreement;
(C) The Company shall deliver to UIH China an opinion
of counsel to the Company, reasonably acceptable to UIH China, stating that
the Option Shares have been duly authorized and validly issued, that the
share certificates of the Company representing the Option Shares has been
duly authorized and executed by the Company, and that the Registration
Rights Agreement has been duly authorized, executed and delivered and
constitutes a binding obligation of the Company in accordance with its
terms; and
(D) The Company shall deliver to UIH China a
certificate of the President or a Vice President of the Company, reasonably
acceptable to UIH China, to the effect that the representations and
warranties set forth in Section 4(a) are accurate and correct as of the
Closing (except as otherwise disclosed in writing by the Company to UIH
China prior to the Closing Date) as if made at and as of the Closing; that
all approvals, consents and authorizations of any third party required for
the consummation by the Company of the transactions contemplated hereby
have been obtained; that none of the disclosures about the Company and its
subsidiaries contained in the filings made by the Company with the United
States Securities and Exchange Commission after March 31, 1997, when all
such disclosures are read together in their entirety, contains any untrue
statement or a material fact, or omits to state any material fact necessary
to make the statements contained therein, in light of the circumstances
under which made, not misleading; and that the Company has complied with
all of the covenants set forth in Section 5.
(c) Obligations in connection with the Closings. The Company shall
bear any and all costs and expenses related to any documentary, stamp or
similar taxes payable or to become payable in respect of the issue or
delivery of the Option Shares.
(d) Payment and Delivery of Certificates.
(i) Payment. On each Closing Date, Holder shall (i) pay to
the Company, in immediately available funds by wire transfer to a bank
account designated by the Company, an amount equal to the Option Purchase
Price multiplied by the number of Option Shares to be purchased on such
Closing Date, and (ii) present this Agreement to the Company at the address
of the Company and the Company shall mark and return this Agreement to
Holder to reflect the exercise of this Option.
(ii) Delivery of Certificates. At each Closing,
simultaneously with the delivery of immediately available funds, and
presentation of this Agreement as provided in Section 3(d)(ii), (1) the
Company shall deliver to Holder (A) a certificate or certificates
representing the Option Shares to be purchased at such Closing, which
Option Shares shall be free and clear of all liens, fully paid and
nonassessable and subject to no preemptive rights, and (B) an executed new
agreement with the same terms as this Agreement evidencing the right to
purchase the balance of the Option Shares purchasable hereunder, if any,
and the remaining rights of the Holder, and (2) Holder shall deliver to the
Company a letter agreeing that Holder shall not offer to sell or otherwise
dispose of such Option Shares in violation of applicable federal and state
law or of the provisions of this Agreement.
(iii) Legend. In addition to any other legend that is
required by applicable law, certificates for the Option Shares delivered at
each Closing shall be endorsed with a restrictive legend which shall read
substantially as follows:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
'SECURITIES ACT'), AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER THE SECURITIES ACT OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH SALE OR TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT.
It is understood and agreed that the portion of the above legend relating
to restrictions on transfer shall be removed by delivery of substitute
certificate(s) without such legend if Holder shall have delivered to the
Company a copy of a letter from the staff of the SEC, or an opinion of
counsel in form and substance reasonably satisfactory to the Company and
its counsel, to the effect that such legend is not required for purposes of
the Securities Act.
Section 4 Representations and Warranties.
(a) Representations and Warranties of the Company. The Company
hereby represents and warrants to UIH China as follows:
(i) Organization, Standing and Qualification. The Company
(1) is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; (2) has all requisite corporate
power and authority to own or lease and operate its properties and to carry
on its business as now conducted and as proposed to be conducted; and (3)
is duly qualified or licensed to do business as a foreign corporation and
is in good standing in all jurisdictions in which it is required to be so
qualified or licensed, except where the failure to be so licensed or
qualified would not have a Material Adverse Effect on the Company.
(ii) Capitalization. The capitalization of the Company is
set forth on Schedule 4(b) hereto. All of the outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. The obligation of the Company to issue the
Option Shares under the terms of this Agreement has been duly authorized by
the Company, and upon the proper exercise of the Option in accordance with
its terms and upon issuance of the Option Shares, the Option Shares will be
validly issued, fully paid, non-assessable and free and clear of all
Encumbrances.
(iii) Authorization and Validity of Agreements. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. All corporate proceedings
on the part of the Company necessary to approve this Agreement and to
consummate the transactions contemplated hereby have been taken and are in
full force and effect.
(iv) No Conflict with Other Instruments; No Approvals
Required. The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby will not violate any provision of law applicable to the
Company, and will not violate the certificate of incorporation, by-laws or
other governing documents of the Company or any material agreement to which
the Company is a party or by which the Company or any of its assets or
properties is bound. Except as set forth on Schedule 4(d), there are no
approvals, consents or authorizations of any third party required for the
Company to consummate the transactions contemplated hereby.
(v) Financial Statements. Except as otherwise stated in the
notes thereto, the Financial Statements of the Company previously delivered
to UIH China have been prepared in conformity with generally accepted
accounting principles as used in the United States of America ("GAAP")
applied on a consistent basis and fairly present the financial position,
results of operations and changes in financial position of the Company as
of the dates and for the periods indicated. Except as reflected in such
Financial Statements and the notes thereto, the Company has no liabilities
that are, individually or in the aggregate, material to the Company other
than ordinary course liabilities incurred since the last date of such
Financial Statements.
(vi) Disclosure. None of the representations or warranties
made by the Company herein or in any Schedule delivered pursuant hereto,
and none of the disclosures about the Company and its subsidiaries
contained in the filings made by the Company with the United States
Securities and Exchange Commission after March 31, 1997, when all such
documents are read together in their entirety, contains any untrue
statement of a material fact, or omits to state any material fact necessary
in order to make the statements contained herein or therein, in the light
of the circumstances under which made, not misleading.
(b) Representations and Warranties of UIH China. UIH China hereby
represents and warrants to the Company as follows:
(i) Organization, Standing and Qualification. UIH China (1)
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; and (2) has all requisite
corporate power and authority to own or lease and operate its properties
and to carry on its business as now conducted and as proposed to be
conducted.
(ii) Authorization and Validity of Agreements. This
Agreement has been duly authorized, executed and delivered by UIH China and
constitutes a valid and binding obligation of UIH China, enforceable
against UIH China in accordance with its terms. All corporate proceedings
on the part of UIH China necessary to approve this Agreement have been
taken and are in full force and effect.
(iii) Investment Representations.
(A) UIH China is acquiring the Option and, upon
exercise of the Option, will acquire the Option Shares (collectively, the
"Securities") for its own account for investment only, and not with a view
to, or for sale in connection with, any distribution of the Securities in
violation of the Securities Act, or any rule or regulation under the
Securities Act.
(B) UIH China acknowledges that (i) the Securities
have not been registered under the Securities Act and are "restricted
securities" within the meaning of Rule 144 under the Securities Act and
(ii) the Securities cannot be sold, transferred or otherwise disposed of
unless they are subsequently registered under the Securities Act or an
exemption from registration is then available.
Section 5 Covenants.
(a) Financial Information, etc. During the term of this Agreement,
the Company will deliver, or will cause to be delivered, to UIH China
copies of the following financial statements, reports and information
(collectively, the "Financial Statements"):
(i) promptly when available, on a best efforts basis within
forty-five (45) days and in any event within sixty (60) days after the
close of each fiscal year of the Company, a balance sheet at the close of
such fiscal year, and related statements of earnings, shareholders' equity
and cash flows for such fiscal year, together with supporting notes
thereto, of the Company (with comparable information at the close of and
for the prior fiscal year) prepared in accordance with GAAP consistently
applied and audited by Deloitte & Touche LLP or comparable firm of
independent public accountants; and
(ii) promptly when available, on a best efforts basis within
twenty (20) days and in any event within thirty (30) days after the close
of each fiscal quarter, a balance sheet at the close of such fiscal quarter
and related statements of earnings, shareholders' equity and cash flows for
such fiscal quarter and for the period commencing at the close of the
previous fiscal quarter and ending with the close of such fiscal quarter
(with comparable information at the close of and for the corresponding
fiscal quarter of the prior fiscal year and for the corresponding portion
of such prior fiscal year) prepared in accordance with GAAP consistently
applied, and certified by the chief financial officer and the principal
accounting officer of the Company.
(b) Reporting by the Company. The Company will deliver, or cause to
be delivered, to UIH China copies of all reports filed by the Company with
the United States Securities and Exchange Commission, and all press
releases of the Company referring to the Company or any of its subsidiaries
within two (2) Business Days after they have been filed or released.
(c) Material Adverse Effect. The Company will notify UIH China in
writing of the occurrence or discovery of any event or circumstance with
respect to the Company or any of its subsidiaries that could reasonably be
expected to have a Material Adverse Effect on the business, operations,
assets or prospects of the Company and its subsidiaries, taken as a whole,
as soon as practicable after such occurrence or discovery, if not already
disclosed in any filing or press release of the Company delivered to UIH
China.
Section 6 Restrictions on Transfer. Neither party to this Agreement
may Transfer this Agreement in whole or in part to any Person without the
prior written consent of the other party, provided, however, that UIH China
may Transfer this Agreement, in whole or in part, to one or more Affiliates
of UIH China subject to Section 2(g).
Section 7 Anti-dilution Provisions.
(a) Adjustment of Option Share Price. The Option Share Price to be
paid by UIH China upon exercise of the Option will be subject to adjustment
as follows:
(i) Issuance of Additional Common Shares. In case the
Company at any time or from time to time after the date hereof shall issue
or sell Additional Common Shares (including Additional Common Shares deemed
to be issued pursuant to Section 7(a)(iii) or 7(a)(iv)) without
consideration or for a consideration per share less than the Current Market
Price, then, and in each such case, subject to Section 7(a)(ii), such
Option Share Price shall be reduced, concurrently with such issue or sale,
to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Option Share Price by a fraction,
(A) the numerator of which shall be (i) the number of
Common Shares outstanding immediately prior to such issue or sale, plus
(ii) the number of Common Shares which the aggregate consideration received
by the Company for the total number of such Additional Common Shares so
issued or sold would purchase at such Current Market Price, and
(B) the denominator of which shall be the number of
Common Shares outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 7(a)(i), (1) immediately
after any Additional Common Shares are deemed to have been issued pursuant
to Section 7(a)(iii) or 7(a)(iv), such Additional Shares shall be deemed to
be outstanding, and (2) treasury shares shall not be deemed to be
outstanding.
(ii) Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the date hereof shall
declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of other or additional stock or other
securities or property by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the Common Shares,
other than dividends or distributions payable in Additional Common Shares
and other than cash dividends or other cash distributions, which do not
constitute Extraordinary Cash Dividends, then, and in each such case,
subject to Section 7(a)(vii), the Option Share Price in effect immediately
prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive
such dividend or distribution shall be reduced, effective as of the close
of business on such record date, to a price (calculated to the nearest .001
of a cent) determined by multiplying such Option Share Price by a fraction,
(A) the numerator of which shall be the Current
Market Price in effect on such record date or, if the Common Shares trade
on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading, less an amount equal to the fair market value of such
dividend or distribution as of the payment date of such dividends or
distributions (as determined in good faith by the Board of Directors of the
Company) applicable to one Common Share, and
(B) the denominator of which shall be such Current
Market Price.
(iii) Treatment of Options and Convertible Securities. In
case the Company at any time or from time to time after the date hereof
shall issue, sell, grant or assume, or shall fix a record date for the
determination of holders of any class of securities entitled to receive,
any options or convertible securities, then, and in each such case, the
maximum number of Additional Common Shares (as set forth in the instrument
relating thereto, without regard to any provisions contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such
options or, in the case of convertible securities and options therefor, the
conversion or exchange of such convertible securities, shall be deemed to
be Additional Common Shares issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed,
as of the close of business on such record date (or, if the Common Shares
trade on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading), provided that such Additional Common Shares shall not
be deemed to have been issued unless the consideration per share
(determined pursuant to Section 7(a)(v)) of such shares would be less than
the Current Market Price immediately prior to such issue, sale, grant or
assumption or immediately prior to the close of business on such record
date (or, if the Common Shares trade on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading), as the case may be, and
provided, further, that in any such case in which Additional Common Shares
are deemed to be issued,
(A) no further adjustment of the Option Share Price
shall be made upon the subsequent issue or sale of convertible securities
or Common Shares upon the exercise of such options or the conversion or
exchange of such convertible securities;
(B) if such options or convertible securities by
their terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Company, or decrease in the
number of Additional Common Shares issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Option Share
Price computed upon the original issue, sale, grant or assumption thereof
(or upon the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such options, or the rights of
conversion or exchange under such convertible securities, which are
outstanding at such time;
(C) upon the expiration (or purchase by the Company
and cancellation or retirement) of any such options which shall not have
been exercised or the expiration of any rights of conversion or exchange
under any such convertible securities which (or purchase by the Company and
cancellation or retirement of any such convertible securities the rights of
conversion or exchange under which) shall not have been exercised, the
Option Share Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
(1) in the case of options for Common Shares or
convertible securities, the only Additional Common Shares issued or
sold were the Additional Common Shares, if any, actually issued or
sold upon the exercise of such options or the conversion or
exchange of such convertible securities and the consideration
received therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
options, whether or not exercised, plus the consideration actually
received by the Company upon such exercise, or for the issue or
sale of all such convertible securities which were actually
converted or exchanged, plus the additional consideration, if any,
actually received by the Company upon such conversion or exchange,
and
(2) in the case of options for convertible
securities, only the convertible securities, if any, actually
issued or sold upon the exercise of such options were issued at the
time of the issue, sale, grant or assumption of such options, and
the consideration received by the Company for the Additional Common
Shares deemed to have then been issued was the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such options, whether or not exercised, plus the
consideration deemed to have been received by the Company (pursuant
to Section 2.5) upon the issue or sale of such convertible
securities with respect to which such options were actually
exercised;
(D) no readjustment pursuant to subdivision (B) or
(C) above shall have the effect of increasing the Option Share Price by an
amount in excess of the amount of the adjustment thereof originally made in
respect of the issue, sale, grant or assumption of such options or
convertible securities; and
(E) in the case of any such options which expire by
their terms not more than 45 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the Option Share Price shall be made
until the expiration or exercise of all such options, whereupon such
adjustment shall be made in the manner provided in subdivision (C) above.
(iv) Treatment of Stock Dividends, Stock Splits, etc. In
case the Company at any time or from time to time after the date hereof
shall declare or pay any dividend on the Common Shares payable in Common
Shares, or shall effect a subdivision of the outstanding Common Shares into
a greater number of Common Shares (by reclassification or otherwise than by
payment of a dividend in Common Shares), then, and in each such case,
Additional Common Shares shall be deemed to have been issued (A) in the
case of any such dividend, immediately after the close of business on the
record date for the determination of holders of any class of securities
entitled to receive such dividend, or (B) in the case of any such
subdivision, at the close of business on the day immediately prior to the
day upon which such corporate action becomes effective.
(v) Computation of Consideration. For the purposes of this
Article 7,
(A) the consideration for the issue or sale of any
Additional Common Shares shall, irrespective of the accounting treatment of
such consideration,
(1) insofar as it consists of cash, be computed at
the net amount of cash received by the Company, without deducting
any expenses paid or incurred by the Company or any commissions or
compensations paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services in
connection with such issue or sale,
(2) insofar as it consists of property (including
securities) other than cash, be computed at the fair value thereof
at the time of such issue or sale, as determined in good faith by
the Board of Directors of the Company, and
(3) in case Additional Common Shares are issued or
sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of
such consideration so received, computed as provided in clauses (i)
and (ii) above, allocable to such Additional Common Shares, all as
determined in good faith by the Board of Directors of the Company;
(B) Additional Common Shares deemed to have been
issued pursuant to Section 7(a)(iii), relating to options and convertible
securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(1) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the options or convertible securities in question,
plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to
any provision contained therein for a subsequent adjustment of such
consideration to protect against dilution) payable to the Company
upon the exercise in full of such options or the conversion or
exchange of such convertible securities or, in the case of options
for convertible securities, the exercise of such options for
convertible securities and the conversion or exchange of such
convertible securities, in each case computing such consideration
as provided in the foregoing subdivision (a),
by
(2) the maximum number of Common Shares (as set forth
in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number to protect against dilution) issuable upon the exercise of
such options or the conversion or exchange of such convertible
securities; and
(C) Additional Common Shares deemed to have been
issued pursuant to Section 7(a)(iv), relating to stock dividends, stock
splits, etc., shall be deemed to have been issued for no consideration.
(vi) Adjustments for Combinations, etc. In case the
outstanding Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of Common Shares, the
Option Share Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
(vii) Minimum Adjustment of Option Share Price. If the
amount of any adjustment of the Option Share Price required pursuant to
this Section 7 would be less than one percent (1%) of the Option Share
Price in effect at the time such adjustment is otherwise so required to be
made, such amount shall be carried forward and adjustment with respect
thereto made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate at least one percent (1%) of such Option Share
Price.
(b) Consolidation, Merger, etc.
(i) Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (A) shall
consolidate with or merge into any other Person other than UIH China or an
Affiliate of UIH China, and shall not be the continuing or surviving
corporation of such consolidation or merger, or (B) shall permit any other
Person other than UIH China or an Affiliate of UIH China, to consolidate
with or merge into the Company and the Company shall be the continuing or
surviving Person but, in connection with such consolidation or merger, the
Common Shares shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (C) shall
transfer all or substantially all of its properties or assets to any other
Person other than UIH China or an Affiliate of UIH China, in a transaction
or series of transactions in connection with which the Common Shares shall
be changed into or exchanged for stock or other securities of any other
Person or cash or any other property, or (D) shall effect a capital
reorganization or reclassification of the Common Shares (other than a
capital reorganization or reclassification resulting in the issue of
Additional Common Shares for which adjustment in the Option Share Price is
provided in Section 7(a)), then, and in the case of each such transaction,
proper provision shall be made so that, upon the basis and the terms and in
the manner provided in this Agreement, the Holder of the Option, upon the
exercise thereof at any time after the consummation of such transaction,
shall be entitled to receive, in lieu of the Common Shares issuable upon
such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such Holder would actually have been
entitled as a shareholder upon such consummation if such Holder had
exercised the rights represented by the Option immediately prior thereto,
subject to adjustments (subsequent to such consummation) as nearly
equivalent as possible to the adjustments provided for in Sections 7(a)(i)
through 7(a)(ii), provided that if a purchase, tender or exchange offer
shall have been made to and accepted by the holders of more than fifty
percent (50%) of the outstanding shares of Common Shares, and if UIH China
so designates in a notice given to the Company on or before the date
immediately preceding the date of the consummation of such transaction, UIH
China shall be entitled to receive the highest amount of securities, cash
or other property to which UIH China would actually have been entitled as a
shareholder if UIH China had exercised the Option prior to the expiration
of such purchase, tender or exchange offer and accepted such offer, subject
to adjustments (from and after the consummation of such purchase, tender or
exchange offer) as nearly equivalent as possible to the adjustments
provided for in Sections 7(a) through (b).
(ii) Assumption of Obligations. Notwithstanding anything
contained in this Agreement to the contrary, the Company will not effect
any of the transactions described in clauses (A) through (D) of Section
7(b)(i) unless, prior to the consummation thereof, each Person (other than
the Company) which may be required to deliver any stock, securities, cash
or property upon the exercise of the Option as provided herein shall
assume, by written instrument delivered to, and reasonably satisfactory to,
the Holder of the Option, (A) the obligations of the Company under this
Agreement (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release
the Company from, any continuing obligations of the Company under this
Agreement), (B) the obligations of the Company under the Registration
Rights Agreement and (C) the obligation to deliver to such Holder such
shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Section 7(b), such Holder may be entitled to
receive, and such Person shall have similarly delivered to such Holder an
opinion of counsel for such Person, which opinion shall be reasonably
satisfactory to such Holder, stating that the Option shall thereafter
continue in full force and effect and the terms hereof (including, without
limitation, all of the provisions of this Section 7(b)) shall be applicable
to the stock, securities, cash or property which such Person may be
required to deliver upon any exercise of the Option or the exercise of any
rights pursuant hereto.
(c) Other Dilutive Events. In case any event shall occur as to
which the provisions of Section 7(a) or Section 7(b) are not strictly
applicable but the failure to make any adjustment would not fairly protect
the purchase rights represented by the Option in accordance with the
essential intent and principles of such sections, then, in each such case,
the Company shall appoint a firm of independent certified public
accountants of recognized national standing (which may be the regular
auditors of the Company), which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in Sections 7(a) and 7(b), necessary to preserve,
without dilution, the purchase rights represented by this Option. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to
the Holder of the Option and shall make the adjustments described therein.
(d) No Dilution or Impairment. The Company will not, by amendment
of its articles or certificate of incorporation or through any
consolidation, merger, reorganization, transfer of assets, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of the Option, but
will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of the Option
against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (i) will not permit the par value of any shares
of stock receivable upon the exercise of the Option to exceed the amount
payable therefor upon such exercise, (ii) will take all such action as may
be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock on the exercise
of the Option, and (iii) will not take any action which results in any
adjustment of the Option Share Price if the total number of Common Shares
issuable after the action upon the exercise of the Option would exceed the
total number of shares of common stock then authorized by the Company's
articles or certificate of incorporation and available for the purpose of
issue upon such exercise.
Section 8 Management Rights. For such time as UIH China
beneficially owns at least five percent (5%) of the issued and outstanding
Common Shares of the Company and is not entitled as holder of Series F
Preferred Stock to elect two (2) members of the Company's Board of
Directors (the "Applicable Period"), UIH China shall have the right to
nominate two (2) members of the Board of Directors of the Company (together
with all substitutes therefor, the "UIH China Nominees"). The Company
hereby agrees to use its best efforts to cause each of the UIH China
Nominees to be elected to the Company's Board of Director's and to hold
office until it is vacated or until such UIH China Nominee's successor is
duly appointed and qualified. During the Applicable Period, whenever any
UIH China Nominee ceases to be a member of the Board of Directors of the
Company for any reason, the Company agrees to use its best efforts to cause
such vacancy shall be filled by another nominee of UIH China who shall hold
such office until it is vacated or until such Nominee's successor is duly
appointed and qualified. During the Applicable Period, the Company hereby
agrees to use its best efforts to ensure that no UIH China Nominee will be
removed as a member of the Board of Directors of the Company without the
express written consent of UIH China. If UIH China notifies the Company of
UIH China's desire to remove any UIH China Nominee from the Board of
Directors of the Company, the Company agrees to cause a meeting of the
Company's shareholders to be held as soon as practicable thereafter, and at
such meeting the Company agrees to use its best efforts to cause the
removal of such UIH China Nominee. Upon the removal of such UIH China
Nominee, the Company shall use its best efforts to cause another UIH China
Nominee to be elected to the Company's Board of Director's and to hold
office until it is vacated or until such UIH China Nominee's successor is
duly appointed and qualified, as provided herein.
Section 9 Co-Investment Rights. In the event the Company and UIH
China enter into an agreement pursuant to which UIH China agrees not to
compete with the Company in the People's Republic of China (a "Non-Compete
Agreement"), the Company shall not, for such time as the Non- Compete
Agreement is in effect and has not been terminated, participate in any
opportunity in the Peoples' Republic of China without first complying with
the following procedures. If the Company intends to participate in any
opportunity, directly or indirectly, whether through any debt or equity
investment, the provision of services, or otherwise (such participation
referred to as the "Investment"), the Company shall first advise UIH China
of all material terms and conditions related to the Investment (the
"Investment Notice"). UIH China or one or more of its Affiliates shall have
the right to participate in the Investment together with the Company at a
level to be determined by UIH China not to exceed fifty percent (50%) to
the extent that participation by UIH China in the Investment in the manner
proposed by UIH China would not result in the Company becoming an
"investment company" under the Investment Company Act of 1940, as amended.
To exercise such right, UIH China shall provide written notice thereof (a
"Participation Notice") to the Company not later than thirty (30) days
after receipt of the Investment Notice. If a Participation Notice is
received within such thirty (30)-day period, the Company will include UIH
China in all further negotiations regarding terms and conditions of the
opportunity. Should UIH China at any time provide notice to the Company (a
"Termination Notice") that it is no longer willing to participate in the
Investment (in regard to terms and conditions, but not economic interest),
then the Company may pursue the Investment alone, provided, however, that
if any material term or condition of the Investment changes after the
Termination Notice has been delivered, the Company shall advise UIH China
of such change and UIH China may elect to continue to participate in the
Investment on the terms and conditions set forth above.
Section 10 Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
construed in accordance with such laws.
(b) Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or sent via facsimile, with confirmation of
receipt, to the parties at the following address or at such other address
for a party as shall be specified by notice hereunder:
(a) if to the Company, to:
AmTec, Inc.
599 Lexington Avenue
44th Floor
New York, New York 10022
Attention: Albert Pastino
Facsimile No.: (212) 319-9288
(b) if to UIH China, to:
UIH Asia/Pacific Communications, Inc.
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
Attention: President
Facsimile No.: (303) 770-4207
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: Francis R. Wheeler, Esq.
Facsimile No.: (303) 866-0200
(c) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed
by each of the parties hereto and delivered to the other parties hereto, it
being understood that all parties hereto need not sign the same
counterpart.
(d) Entire Agreement. This Agreement and the documents and
instruments and other agreements specifically referred to herein or
delivered pursuant hereto, including the Exhibits and Schedules, constitute
the entire agreement among the parties hereto with respect to the Option
and supersede all prior agreements and understandings, both written and
oral, among the parties hereto with respect thereto.
(e) No Waiver. No failure or delay on the part of any party hereto
in the exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise
thereof or of any other right.
(f) Indemnification. The Company hereby agrees to fully indemnify
UIH China for any loss or damage incurred by UIH China as a consequence of
the Company's failure to timely satisfy all obligations of the Company
under this Agreement. In addition, if the Company fails to perform its
obligations hereunder on or before the Closing Date, UIH China shall have
the right to elect, by providing written notice hereunder to the Company,
to require the Company to fully perform each of its obligations hereunder
including, without limitation, the issuance and delivery of the Option
Shares.
This Agreement is executed by the parties as of the date first
written above.
AMTEC, INC.
By: ___________________________________
Name: ___________________________
Title: ____________________________
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
By: ___________________________________
Name: ___________________________
Title: ____________________________
EXHIBIT A
FORM OF OPTION EXERCISE NOTICE
[Date]
AMTEC, Inc.
[Address]
Gentlemen:
Reference is made to that certain Investment Agreement dated ____________,
199_ (the "Agreement"), between AMTEC, Inc., a Delaware corporation, and
UIH Asia/Pacific Communications, Inc., a Delaware corporation. All
capitalized terms used and not otherwise defined herein shall have the
meaning set forth in the Agreement. In accordance with the provisions of
Section 2 of the Agreement, we hereby exercise the Option to purchase a
total of ______ shares of the Company in accordance with and subject to the
provisions of the Agreement. The Option Shares shall be issued to UIH China
and its Affiliates as follows:
Please provide us on or before the third (3rd) Business Day prior to the
Closing Date with written instructions regarding the transfer to the
Company's account of the Purchase Price and other sums
due from us under the Agreement.
UIH CHINA HOLDINGS, INC., a Colorado
corporation
By: _________________________________
Title: _________________________
Exhibit 7.2(e)
to Agreement and Plan of Merger
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of ________
__, 1999, by and among AMTEC, INC., a Delaware corporation (the "Company")
and UIH CHINA HOLDINGS, INC., a Colorado corporation (together with its
successors and assigns, the "Stockholder").
Recitals
A. The Company, AMTEC ACQUISITION CORPORATION, a Colorado
corporation and a wholly-owned subsidiary of the Company ("Merger Sub"),
and UIH HUNAN, INC., a Colorado corporation and a wholly-owned subsidiary
of UIH China Holdings, Inc. ("UIHH") entered into a Merger Agreement dated
December 23, 1998 (the "Merger Agreement") pursuant to which UIHH, the
Company and Merger Sub agreed to cause Merger Sub to merge with and into
UIHH, subject to the terms and conditions set forth therein.
B. The Stockholder was issued shares of Series F Convertible
Preferred Stock, par value $0.001 per share, of the Company ("Series F
Preferred Stock") pursuant to the Merger Agreement in a transaction exempt
from the registration requirements of the Securities Act of 1933, as
amended (together with any successor federal statute and the rule and
regulations promulgated thereunder, the "Securities Act"), in accordance
with Section 4(2) of the Securities Act and Regulation D thereunder. Shares
of Series F Preferred Stock are convertible into Common Stock, par value
$0.001 per share, of the Company ("Company Common Stock").
C. The parties are entering into this Agreement as a condition to
the closing under the Merger Agreement.
Agreement
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following meanings as used in
this Agreement:
1.1 "Agreement" means this Registration Rights Agreement as
amended, modified, restated and replaced from time to time.
1.2 "Company" has the meaning set forth in the opening statement of
this Agreement.
1.3 "Claim" has the meaning set forth in Section 2.5.
1.4 "Company Common Stock" has the meaning set forth in Recital B.
1.5 "Deadline" has the meaning set forth in Section 2.1(a).
1.6 "Demand Registration" has the meaning set forth in Section
2.1(a).
1.7 "Effective Period" has the meaning set forth in Section 2.1
1.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations
promulgated thereunder.
1.9 "Indemnified Party" has the meaning set forth in Section 3.3.
1.10 "Indemnifying Party" has the meaning set forth in Section 3.3.
1.11 "Inspector" has the meaning set forth in Section 2.3(j).
1.12 "Losses" has the meaning set forth in Section 3.1.
1.13 "Merger Agreement" has the meaning set forth in Recital A.
1.14 "Merger Sub" has the meaning set forth in Recital A.
1.15 "Person" means any individual, corporation, partnership,
limited liability company, trust, organization, association, governmental
body or agency.
1.16 "Piggy-back Registration" has the meaning set forth in Section
2.2(a).
1.17 "Registrable Securities" means any Company Common Stock
issuable or issued upon conversion of the Series F Preferred Stock and any
securities issued or issuable with respect thereto by way of stock dividend
or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation, reclassification or other
reorganization. A Registrable Security shall cease to be a Registrable
Security when: (a) a Registration Statement with respect to the sale of
such security shall have become effective under the Securities Act and such
security shall have been disposed of in accordance with such Registration
Statement; (b) such security shall have been distributed to the public
pursuant to Rule 144 (or any successor provision) under the Securities Act;
(c) such security shall have been otherwise transferred, new certificates
for which, not bearing a legend restricting further transfer, shall have
been delivered by the Company and subsequent disposition of the security to
the public shall not require registration or qualification of such security
under the Securities Act or any similar state law then in force; or (d)
such security shall have ceased to be outstanding.
1.18 "Registration Expenses" means all expenses incurred in
connection with registrations, filings or qualifications pursuant to this
Agreement, including, without limitation, all registration, listing and
filing fees, printing expenses, messenger and delivery expenses, and fees
and disbursements of all counsel, independent certified public accountants,
underwriters (excluding underwriting discounts, commissions spreads or fees
of underwriters, selling brokers, dealer managers or similar securities
industry professionals), and other Persons retained by the Company or the
Stockholder in connection with registrations, filings or qualifications
pursuant to this Agreement.
1.19 "Registration Statement" means any registration statement or
comparable document under Section 5 of the Securities Act through which a
public sale or disposition of Registrable Securities may be registered.
1.20 "Requesting Holders" shall have the meaning set forth in
Section 2.2(a).
1.21 "SEC" means the Securities and Exchange Commission or any
other federal agency administering the Securities Act.
1.22 "Securities Act" has the meaning set forth in Recital B.
1.23 "Series F Preferred Stock" has the meaning set forth in
Recital B.
1.24 "Stockholder" has the meaning set forth in the opening
statement of this Agreement.
ARTICLE II
REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 Demand Registration.
(a) Request and Filing. At any time following the date of
closing under the Merger Agreement, the Stockholder may request that the
Company file a registration statement covering the Registrable Securities
(the "Demand Registration"). Upon receipt of a request, the Company shall
prepare and file a registration statement as promptly as practicable but in
any event no later than 45 days after receipt of notice (the "Deadline");
provided, however, that the Company shall only be obligated to file and
cause to be effective two Registration Statements pursuant to this Section
2.1(a) to which the limitations of Section 2.7 do not apply. The Company
agrees to use its best efforts to cause the Registration Statement to
become effective as promptly as practicable after filing and to use its
best efforts to keep the Registration Statement continuously effective for
the period commencing on the date of effectiveness declared by the SEC and
ending on the earlier of (i) ninety (90) days from the date of
effectiveness; (ii) the date when each of the Registrable Securities ceases
to be Registrable Securities; and (iii) the date when each of the
Registrable Securities not otherwise transferred or sold pursuant to the
Registration Statement may be sold or distributed by the Stockholder in
reliance upon Rule 144 (giving effect to all conditions thereof, including,
without limitation, the volume limitations contained in Rule 144(e)) (the
"Effective Period").
(b) Registration Statement Form. The Registration Statement
under this Section 2.1 shall be on such appropriate registration form of
the SEC as shall be selected by the Company and as shall permit the
disposition of the Registrable Securities in accordance with the intended
method or methods of disposition (including an underwritten offering).
(c) Expenses. The Company shall pay all Registration
Expenses in connection with the registration contemplated by this Section
2.1, provided that the fees and expenses of counsel to the Stockholder that
are paid by the Company pursuant to this Agreement shall not exceed $50,000
per registration in connection with the Demand Registration under Section
2.1(a). The Stockholder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition
of the Registrable Securities pursuant to the Registration Statement.
2.2 Piggy-back Registration.
(a) Piggy-back Rights. If the Company shall propose to file
a registration statement for an offering of equity securities of the
Company, by the Company or for resale by holders of the Company's
securities other than Registrable Securities (the "Requesting Holders"),
the Company shall provide prompt written notice of such proposal, in any
event not less than 30 days before the anticipated date of the first filing
of such registration statement, to the Stockholder of its intention to do
so and of such Stockholder's rights under this Section 2.2(a). The Company
shall include such number of Registrable Securities in such registration
statement which the Company has been so requested to register by
Stockholder (a "Piggy-back Registration"), which request shall be made to
the Company within 15 days after Stockholder receives notice from the
Company of such proposed registration; provided, that (i) if, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register such securities, the Company may, at its election,
give written notice of such determination to Stockholder and, thereupon,
shall be relieved of its obligation to register any Registrable Securities
in connection with such registration, and (ii) if such registration
involves an underwritten offering, the Stockholder must sell all of its
Registrable Securities to the underwriters on the same terms and conditions
as apply to the Requesting Holders, with such differences, including any
with respect to indemnification and liability insurance, as may be
customary or appropriate in secondary offerings..
(b) Expenses. The Company shall pay all Registration
Expenses in connection with the registration contemplated by this Section
2.2, provided that the fees and expenses of counsel to the Stockholder that
are paid by the Company pursuant to this Agreement shall not exceed $15,000
per registration. The Stockholder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition
of the Registrable Securities pursuant to the Registration Statement.
(c) Right to Exercise. There shall be no limit on the number
of times Stockholder shall be allowed to exercise its rights under this
Section 2.2.
(d) Priority in Underwritten Primary Registration. If a
Piggy-back Registration is an underwritten primary registration on behalf
of the Company, and the managing underwriters advise the Company in writing
that in their opinion the total number of shares of Common Stock requested
to be included in such registration exceeds the number of shares of Common
Stock that can be sold in the offering, the Company will include in such
registration:
(i) first, all shares of Common Stock the Company
proposes to sell; and
(ii) second, the Registrable Securities and such other
shares of Common Stock requested to be included in such
registration in excess of the number of shares of Common Stock the
Company proposes to sell which, in the opinion of such managing
underwriters, can be sold (allocated pro rata among the holders of
Registrable Securities and other shares of Common Stock on the
basis of the number of shares of Common Stock requested to be
included therein by such holders).
(e) Priority of Underwritten Secondary Registration. If a
Piggy-back Registration is an underwritten secondary registration on behalf
of holders of Common Stock and the managing underwriters advise the Company
in writing that in their opinion the number of shares of Common Stock
requested to be included in such registration exceeds the number of shares
of Common Stock that can be sold in such offering, the Company will include
in such registration:
(i) first, any shares of Common Stock with priority
under any registration rights agreement disclosed in writing to the
Stockholder prior to December 18, 1998 that are requested to be
included in such registration by the holder of such shares;
(ii) second, the Registrable Securities requested to
be included in such registration by the holders thereof; and
(iii) third, up to the full number of such other
shares of Common Stock requested to be included in such
registration by the securityholders initiating such registration
propose to sell which, in the opinion of the underwriters, can be
sold in excess of the Registrable Securities.
2.3 Registration Procedures -- Company Obligations. In connection
with the Compa ny's obligations to effect the registration of any
Registrable Securities under the Securities Act as provided in this
Agreement, the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC, within any applicable
time periods specified in this Section 2, the requisite registration
statement to effect such registration and thereafter use its best efforts
to cause such registration statement to become and remain effective in
accordance with this Section 2; provided, however, that before filing such
registration statement or any amendments thereto, the Company shall furnish
to the counsel selected by the Stockholder copies of all such documents
proposed to be filed, which documents shall be subject to the review of
such counsel;
(b) prepare and file with the SEC such amendments and
supplements to such registration statements and prospectuses used in
connection therewith as may be necessary to keep such registration
statements effective for the applicable periods specified in this Section 2
and to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statements
during such applicable periods;
(c) furnish, without charge, to the Stockholder and each
underwriter, if any, of the securities being sold by the Stockholder such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, as the Stockholder and underwriter, if any, may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by the Stockholder; the
Company consents to the use of the prospectus or any amendment or
supplement thereto by the Stockholder and underwriter in connection with
the offering and sale of Registrable Securities covered by such prospectus
and any amendment or supplement thereto (subject to the limitations set
forth in the last paragraph of Section 2.4(c));
(d) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities laws or blue sky laws of such
jurisdictions as the Stockholder and any underwriter of the securities
being sold by the Stockholder shall reasonably request, to keep such
registrations or qualifications in effect for so long as such registration
statement remains in effect, and take any other action which may be
reasonably necessary or advisable to enable the Stockholder and
underwriter, if any, to consummate the disposition in such jurisdictions of
the securities owned by the Stockholder, except that the Company shall not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
require ments of this subdivision (d) be obligated to be so qualified, to
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the Stockholder to consummate the disposition of such
Registrable Securities;
(f) furnish the Stockholder and the underwriters, if any,
with:
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offer ing, an opinion
dated the date of the closing under the underwriting agreement),
reason ably satisfactory in form and substance to the Stockholder,
and
(ii) a "comfort" letter (or, in the case of any such
Person which does not satisfy the conditions for receipt of a
"comfort" letter specified in Statement on Auditing Standards No.
72, an "agreed upon procedures" letter), dated the effective date
of such registration statement (and, if such registration includes
an underwritten public offering, a letter of like kind dated the
date of the closing under the underwriting agreement), signed by
the independent public accountants who have certified the Company's
financial state ments included in such registration statement,
each of (i) and (ii) covering substantially the same matters with respect
to such registration statement (and the prospectus included therein) and,
in the case of the accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to the
underwriters in under written public offerings of securities (with, in the
case of an "agreed upon procedures" letter, such modifications or deletions
as may be required under Statement on Auditing Standards No. 35) and in the
case of the legal opinion, such other legal matters, as the Stockholder (or
the underwriters, if any) may reasonably request;
(g) notify the Stockholder and the managing underwriter or
underwriters, if any, promptly and confirm such advice in writing promptly
thereafter:
(i) when the Registration Statement, the prospectus
or any prospectus supplement related thereto or post-effective
amendment to the Registration Statement has been filed, and, with
respect to the Registration Statement or any post-effective
amendment thereto, when the same has become effective;
(ii) of any request by the SEC for amendments or
supplements to the Registration Statement or the prospectus or for
additional information;
(iii) of the issuance by the SEC of any stop order
suspending the effec tiveness of the Registration Statement or the
initiation of any proceedings by any Person for that purpose;
(iv) if at any time the representations and
warranties of the Company made as contemplated by Section 2.6(a)
below cease to be true and correct;
(v) of the receipt by the Company of any notification
with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky
laws of any jurisdiction or the initiation or threat of any
proceeding for such purpose; and
(h) notify the Stockholder at any time when a prospectus
relating to a Registration Statement covering Registerable Securities is
required to be delivered under the Securities Act, upon the Company's
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein in the light of the circumstances under which they were
made not misleading, and at the request of the Stockholder promptly prepare
and furnish to the Stockholder and each underwriter, if any, a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein in the light of the
circumstances under which they were made not misleading; provided, however,
that the Company may delay effecting or causing to be effected a supplement
or post-effective amendment to the Registration Statement or the related
prospectus, for a period not to exceed 90 days in any 365-day period;
provided, further, that the Company shall use all reasonable efforts to
minimize the duration and frequency of any delays hereunder and shall
notify the Stockholder in writing both of its intention to effect such
delay and of the date on which such supplement or post-effective amendment
has been filed with the SEC or declared effective, as the case may be;
(i) use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(j) subject to entering into confidentiality arrangements in
form and substance reasonably satisfactory to the Company, make available
for inspection by a representative or representatives of the Stockholder,
any underwriter participating in any disposition pursuant to the
Registration Statement and any attorney or accountant retained by the
Stockholder or under writer (each, an "Inspector"), all financial and other
records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection with
such registration in order to permit a reasonable investigation within the
meaning of Section 11 of the Securities Act;
(k) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on which
any of the securities of the same class as the Registrable Securities are
then listed;
(l) provide a transfer agent and registrar for all
Registrable Securities covered by such registration statement not later
than the effective date of such registration statement;
(m) cooperate with the Stockholder and the underwriter, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denomi nations and registered in such names as the Stockholder or the
underwriter, if any, may reason ably request at least three business days
prior to any sale of Registrable Securities; and
(n) otherwise use all best efforts to comply with all
applicable rules and regu lations of the SEC, and make available to the
Stockholder as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months, but not more than 18 months,
beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 promulgated
thereunder.
2.4 Additional Registration Procedures.
(a) As a condition to the registration by the Company of
Registrable Securities, the Company may require the Stockholder to furnish
the Company such information regarding the Stockholder and the distribution
of such securities as the Company may from time to time reasonably request
in writing.
(b) The Company shall not file any Registration Statement or
amendment thereto or any prospectus or any supplement thereto (including
such documents incorporated by reference and proposed to be filed after the
initial filing of the Registration Statement) to which the Stockholder or
the underwriter or underwriters, if any, shall reasonably object, provided
that the Company may file such document in a form required by law or upon
the advice of its counsel.
(c) The Stockholder agrees that, upon receipt of any notice
from the Company of the occurrence of any event of the kind described in
subdivision (h) of Section 2.3, the Stockholder shall forthwith discontinue
the Stockholder's disposition of Registrable Securities pursuant to the
Registration Statement relating to such Registrable Securities until the
Stockholder's receipt of the copies of the supplemented or amended
prospectus contemplated by subdivision (h) of Section 2.3 and, if so
directed by the Company, shall deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in the
Stockholder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the period of time for which the
Company shall be required to keep the applicable registration statement
effective shall be ex tended by the length of the period from and including
the date when the Stockholder shall have received such notice to the date
on which the Stockholder has received the copies of the supplemented or
amended prospectus contemplated by paragraph (h) of Section 2.3. Each
holder of Registrable Securities agrees that it will comply at all times
with the requirements of Rule 10b-6.
2.5 Damages. If the Company fails to file the Registration
Statement on or before the Deadline or fails to use best efforts to cause
the Registration Statement to become effective, or if, after the
Registration Statement has been declared effective by the SEC, sales of the
Registrable Securities cannot be made pursuant to the Registration
Statement by reason of a stop order or the Company's failure to update the
Registration Statement or for any other reason outside the control of the
Stockholder, and by reason of any such failure to meet the Deadline or to
cause the Registration Statement to be effective or usable, Stockholder
suffers loss or damage, the provisions of this Agreement shall continue to
remain in effect and the Company shall indemnify and hold harmless
Stockholder for the monetary equivalent of any such loss or damage (the
"Claim"). The Company shall pay each Claim in cash upon receipt of a
written notice from Stockholder demanding payment of the Claim.
2.6 Underwritten Offerings.
(a) Requested Underwritten Offerings. If the Stockholder
elects to effect an underwritten offering pursuant to Section 2.1(a), the
managing underwriter or underwriters for such underwritten offering shall
be selected by the Stockholder and shall be reasonably accept able to the
Company. The underwriters selected by the Stockholder shall be deemed to be
reasonably satisfactory to the Company unless the Company sends a written
notice of objection to the Stockholder within 10 days of receipt of written
notice from the Stockholder stating the identity of the managing
underwriter or underwriters the Stockholder proposes to select. If re
quested by the underwriters for any such underwritten offering, the Company
shall enter into an underwriting agreement with such underwriters for such
offering, such agreement to contain such representations and warranties by
the Company and such other terms as are generally prevailing in agreements
of this type, including, without limitation, indemnities. The Stockholder
shall cooperate with the Company in the negotiation of the underwriting
agreement. The Stockholder shall be a party to any such underwriting
agreement and the Stockholder may, at its option, re quire that any or all
of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of the Stockholder and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of the
Stockholder. The Stockholder shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations and warranties or agreements
regarding the Stockholder, the Stockholder's Registrable Securities and the
Stockholder's intended method of distribution and any other representation
required by law or by the underwriters for such underwritten offering.
(b) Priority in Requested Underwritten Offering. Subject to
Section 2.7, if the Stockholder elects to effect an underwritten offering
pursuant to Section 2.1(a) and, in connection therewith, the managing
underwriter advises the Stockholder and the Company in writing that, in its
opinion, the number of securities requested to be included in such
underwritten offering (including securities of the Company which are not
Registrable Securities) exceeds the number which can be sold in such
offering within a price range acceptable to the Stockholder be included in
such offering, the Company shall include in such offering, to the extent of
the number which the Company is so advised can be sold in such offering,
(i) first, Registrable Secu rities requested to be included in such
offering by the Stockholder, and (ii) second, if and only if all
Registrable Securities requested to be included in such underwritten
offering by the Stockholder thereof are so included, other securities of
the Company requested to be included in such offering by the holders
thereof, pro rata among such holders requesting inclusion in such offering
on the basis of the number of such securities requested to be included by
such holders.
(c) Holdback Agreement.
(i) Except to the extent required by any agreement in
existence as of the date of this Agreement, the Company agrees not to
effect any public sale or distribution of or otherwise dispose of its
equity securities or securities convertible into or exchangeable or exer
cisable for any of such securities during the seven (7) days prior to the
date any underwritten registration pursuant to Section 2.1(a) has become
effective and during the period ending on the earlier of (A) ninety (90)
days after any underwritten registration pursuant to Section 2.1(a) has
become effective, (B) the day on which the underwriting syndicate of such
offering shall have been disbanded, and (C) such date as the Company, the
managing underwriter and the Stockholder shall otherwise agree, except as
part of such underwritten registration and except in connection with a
stock option plan, stock purchase plan, managing directors' plan, savings
or similar plan, or an acquisition of a business, merger or exchange of
stock for stock.
(ii) If (A) during the Effective Period, the Company
shall file a registration statement (other than in connection with the
registration of securities issuable pursuant to an employee stock option,
stock purchase or similar plan or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Securities Act)
with respect to its Common Stock and Stockholder shall not have exercised
its rights under Section 2.2 with respect to the Registration Statement and
(B) with reasonable prior notice, the Company (in the case of a
non-underwritten offering by the Company pursuant to such registration
statement) advises the Stockholder in writing that a public sale or
distribution of the Registrable Securities would have a material adverse
impact on such offering or the managing underwriter or underwriters (in the
case of an underwritten offering by the Company pursuant to such
registration statement) advises the Company in writing (in which case the
Company shall notify the Stockholder) that a public sale or distribution of
Registrable Securities would have a material adverse impact on such
offering, then the Stockholder shall, to the extent not inconsistent with
applicable law, refrain from effecting any public sale or distribution of
Registrable Securities during the seven (7)-day period prior to, and during
the ninety (90)-day period beginning on, the effective date of such
registration statement.
2.7 Certain Limitations and Obligations. If the Company is unable
to honor the Stockholder's priority in any requested underwritten offering
as specified in Section 2.6(b) because of conflicting priorities with any
registration rights agreement disclosed in writing to the Stockholder prior
to December 18, 1998, then the Company shall conduct an underwritten
primary offering in an amount and within the periods specified for a Demand
Registration and, to the extent requested by the Stockholder (but not
exceeding the amount that the managing underwriter advises the Company may
be sold in a primary offering by the Company), the Company upon the closing
of such primary offering shall purchase from the Stockholder for cash the
number of shares or units of Registrable Securities that the Stockholder
requested be included in the underwritten offering but were not. Closing
shall occur simultaneously with the closing of such offering and the amount
to be paid by the Company for each share or other unit of Registrable
Securities pursuant to this Section 2.7 shall be equal to the lesser of (i)
the gross proceeds per share or unit of Registrable Securities received by
the Company or other selling stockholder (before underwriting discounts and
commissions) in such underwriting and (ii) such other amount as the
Stockholder and the Company may agree. The Stockholder shall be entitled to
exercise all rights granted to it under Section 2.6(a), including selecting
the managing underwriter and other rights relative to the manner in which
the offering is conducted, even though it may not be able to sell any
Registrable Securities in the offering because of conflicting priorities.
No demand registration to which the first sentence of this Section 2.7
applies shall count as a registration to which the Stockholder is entitled
under Section 2.1(a).
ARTICLE III
INDEMNIFICATION
3.1 Indemnification by the Company. The Company will indemnify and
hold harmless, to the extent permitted by law, the Stockholder and, if
applicable, the officers and directors of the Stockholder, and each Person
who controls the Stockholder (within the meaning of the Securities Act or
the Exchange Act) from and against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, injunction, judgment,
order, decree, ruling, damage, dues, penalty, fines, costs, amounts paid in
settlement, liabilities, obligations, losses, expenses and fees, including
court costs and attorneys' fees and expenses (collectively, "Losses") that
the Stockholder and, if applicable, the officers and directors of the
Stockholder, and each Person who controls Stockholder may suffer through
and after the date of the claim for indemnification caused by or arising
out of any untrue or alleged untrue statement of material fact contained in
any Registration Statement, prospectus, preliminary prospectus, or any
amendment or supplement to any of the foregoing, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus or a
preliminary prospectus, in light of the circumstances then existing) not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by the Stockholder
expressly for use therein or by the Stockholder's failure to comply with
any legal requirement applicable to the Stockholder and not contractually
assumed by the Company to deliver a copy of the Registration Statement or
prospectus or any amendments or supplements thereto after the Company has
furnished Stockholder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Company shall indemnify the
underwriters, their officers and directors, and each Person who controls
the underwriters (within the meaning of the Securities Act or the Exchange
Act) to the extent customary. Notwithstanding the foregoing provisions of
this Section 3.1, the Company will not be liable to the Stockholder, any
Person who participates as an underwriter in the offering or sale of
Registrable Securities or any other Person, if any, who controls the
Stockholder or underwriter (within the meaning of the Securities Act),
under the indemnity agreement in this Section for any such Losses or
expense that arises out of the Stockholder's or other Person's failure to
send or give a copy of the final Prospectus to the Person asserting an
untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of the
Registrable Securities to such Person if such statement or omission was
corrected in such final Prospectus and the Company has previously furnished
copies thereof in accordance with this Agreement.
3.2 Indemnification by Stockholder. In connection with any
registration in which the Stockholder is participating, the Stockholder
will indemnify and hold harmless, to the extent permitted by law, the
Company, its directors and officers and each Person who controls the
Company (within the meaning of the Securities Act or the Exchange Act) from
all Losses that the Company, its directors and officers and each Person who
controls the Company may suffer through and after the date of the claim for
indemnification caused by or arising out of any untrue or alleged untrue
statement of material fact contained in any Registration Statement,
prospectus, preliminary prospectus, or any amendment or supplement to any
of the foregoing, any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of a prospectus or
preliminary prospectus in light of circumstances then existing), but only
to the extent that the same are caused by or contained in any information
furnished in writing to the Company by the Stockholder expressly for use
therein or by the Stockholder's failure to comply with any legal
requirement applicable to the Stockholder and not contractually assumed by
the Company to deliver a copy of the Registration Statement or prospectus
or any amendments or supplements thereto after the Company has furnished
the Stockholder with a sufficient number of copies of the same.
3.3 Indemnification Procedure. If any Person has a claim for Losses
hereunder (an "Indemnified Party"), the Indemnified Party will: (a) notify
the party or parties hereto from which it is entitled to make such claim
(individually, an "Indemnifying Party" and, together, the "Indemnifying
Parties") of such claim, specifying the nature of the Losses and the amount
or estimated amount thereof if feasible, and (b) unless in the Indemnified
Party's reasonable judgment (based on written advice of counsel) a conflict
of interest between the Indemnified Party and the Indemnifying Parties may
exist with respect to the matter giving rise to such claim, permit the
Indemnifying Party to assume and thereafter conduct the defense of the
matter with counsel of the Indemnifying Party's choice reasonably
satisfactory to the Indemnified Party. If the defense is so assumed, the
Indemnifying Party will not be subject to any liability for any settlement
made with respect to such claim by the Indemnified Party without its
consent, which will not be unreasonably withheld. An Indemnifying Party who
is not entitled to or elects not to assume the defense of a claim, will not
be obligated to pay the fees and expenses of more than one counsel for all
parties it indemnifies with respect to such claim, unless in the reasonable
judgment of any Indemnified Party (based on written advice of counsel) a
conflict of interest may exist between such Indemnified Party and any other
Indemnified Parties with respect to such claim.
ARTICLE IV
GENERAL PROVISIONS
4.1 Remedies. Any Person having rights under this Agreement will be
entitled to enforce them specifically, to recover damages caused by reason
of any breach of any provision of this Agreement, and to exercise all other
rights granted by law.
4.2 Successors and Assigns. This Agreement will bind and inure to
the benefit of the respective successors and assigns of the parties hereto,
whether or not so expressed.
4.3 Amendments; Modifications. This Agreement may be amended or
modified in writing by the Company and Stockholder at the time of such
amendment or modification.
4.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail,
return receipt requested, or sent via facsimile, with confirmation of
receipt, to the parties at the following address or at such other address
for a party as shall be specified by notice hereunder:
(a) if to the Company, to:
AmTec, Inc.
599 Lexington Avenue
44th Floor
New York, New York 10022
Attention: Albert Pastino
Facsimile No.: (212) 319-9288
(b) if to Stockholder, to:
UIH China Holdings, Inc.
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
Attention: Chief Executive Officer
Facsimile No.: (303) 770-3464
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln Street
Suite 4100
Attention: Francis R. Wheeler, Esq.
Facsimile No.: (303) 866-0200
4.5 Entire Agreement. This Agreement and the documents and
instruments and other agreements specifically referred to herein or
delivered pursuant hereto constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties
hereto with respect to the subject matter hereof.
4.6 Severability. In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder
of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto.
The parties hereto further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that
will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
4.7 Remedies Cumulative; No Waiver. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will
be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by a party of
any one remedy will not preclude the exercise of any other remedy. No
failure or delay on the part of any party hereto in the exercise of any
right hereunder shall impair such right or be construed to be a waiver of,
or acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right.
4.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (without
regard to the principles of conflicts of law thereof).
4.9 Interpretation. When a reference is made in this Agreement to
Articles, Recitals or Sections, such reference shall be to an Article,
Recital or Section to this Agreement unless otherwise indicated. The words
"include," "includes" and "including" when used herein shall be deemed in
each case to be followed by the words "without limitation." The phrase
"made available" in this Agreement shall mean that the information referred
to has been made available if requested by the party hereto to whom such
information is to be made available. The table of contents and Article and
Section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. In this Agreement, any reference to a party's "knowledge" means
such party's actual knowledge after due and diligent inquiry of officers,
directors and other employees of such party reasonably believed to have
knowledge of such matters. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.
4.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed
by each of the parties hereto and delivered to the other parties hereto, it
being understood that all parties hereto need not sign the same
counterpart.
SIGNATURE PAGE--REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have duly executed this
Registration Rights Agreement as of the date first written above.
Company:
AMTEC, INC., a Delaware corporation
By: __________________________________
Stockholder:
UIH CHINA HOLDINGS, INC.
a Colorado corporation
By: __________________________________
Exhibit 3.1(a)(i)
to Agreement and Plan of Merger
AMTEC, INC.
CERTIFICATE OF DESIGNATIONS
-----------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CONVERTIBLE PARTICIPATING PREFERRED STOCK, SERIES F"
ADOPTED BY THE BOARD OF DIRECTORS OF AMTEC, INC.
-----------------
The undersigned, [Chairman of the Board and Chief Executive
Officer] of AMTEC, INC., a Delaware corporation (the "Company"), HEREBY
CERTIFIES that the Board of Directors of the Company on ________ __, 1998,
acting pursuant to Section 151(g) of the General Corporation Law of the
State of Delaware, duly adopted the following resolutions creating a new
series of the Company's Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted by
the provisions of Section 4 of the Certificate of Incorporation of the
Company, the Board of Directors hereby creates and authorizes the issuance
of a new series of the Company's Preferred Stock, par value $0.001 per
share ("Preferred Stock"), and hereby fixes the powers, designations,
voting powers, rights on liquidation, conversion rights and other
preferences and relative, participating, optional or other special rights
and the qualifications, limitations or restrictions of the shares of such
series (in addition to any powers, designations, preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof set forth in the Certificate of
Incorporation that are applicable to each series of Preferred Stock) as
follows:
1. Designation; Number of Shares. The designation of the series of
Preferred Stock, par value $0.001 per share, of the Company created hereby
shall be "Convertible Participating Preferred Stock, Series F" ("Series F
Preferred Stock"). The authorized number of shares of Series F Preferred
Stock shall be ________.(1) Each share of Series F Preferred Stock shall
have a stated value of _________(2) ("Stated Value"). Any shares of Series
F Preferred Stock converted or otherwise acquired by the Company shall be
retired, shall not be reissued as shares of Series F Preferred Stock and
shall resume the status of authorized and unissued shares of Preferred
Stock, without designation as to series, until such shares are once more
designated as part of a particular series of Preferred Stock by the Board
of Directors.
- --------------
1 The number of shares of Preferred Stock issuable as specified in
the Merger Agreement.
2 $1,250 if 9,600 shares of Preferred Stock are issued. If more than
9,600 shares of Preferred Stock are issued, the Stated Value would be
reduced to an amount equal to $1,250 multiplied by a fraction the numerator
of which is 9,600 and the denominator of which is the number of shares of
Preferred Stock issued.
2. Certain Definitions. Unless the context otherwise requires, the
terms defined in this Section 2 shall have, for all purposes of this
Certificate of Designations, the meanings herein specified:
"Board of Directors" shall mean the Board of Directors of
the Company, and, unless the context indicates otherwise, shall also mean,
to the extent permitted by law, any committee thereof authorized, with
respect to any particular matter, to exercise the powers of the Board of
Directors of the Company with respect to such matter.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in The City of New York, New
York are not required to be open.
"Capital Stock" shall mean any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents
of or interests in (however designated) corporate stock.
"Closing Price" of a share of Common Stock or of a share of
any other class or series of Capital Stock of the Company into which the
Series F Preferred Stock may hereafter become convertible pursuant to
Section 4, on any day shall mean the last reported per share sale price
(or, if no sale price is reported, the average of the high and low bid
prices) of the Common Stock on the American Stock Exchange, or such other
exchange or market on which the Capital Stock of the Company is traded, as
the case may be.
"Common Stock" shall mean the shares of Common Stock of
AmTec, Inc., $0.001 par value.
"Conversion Date" of a share of Series F Preferred Stock
shall mean the date on which the requirements for conversion of such share
set forth in Section 4(b) of this Certificate of Designations have been
satisfied by the holder thereof.
"Conversion Rate" shall mean the kind and amount of
securities, assets or other property that as of any date are issuable or
deliverable upon conversion of a share of Series F Preferred Stock. The
Conversion Rate of a share of Series F Preferred Stock shall initially be
1,000 shares of Common Stock for each share of Series F Preferred Stock,
subject to adjustment as set forth in Section 4 of this Certificate of
Designations. In the event that pursuant to Section 4 the Series F
Preferred Stock becomes convertible into more than one class or series of
Capital Stock of the Company, the term Conversion Rate, when used with
respect to any such class or series, shall mean the number or fraction of
shares or other units of such Capital Stock that as of any date would be
issued upon conversion of a share of Series F Preferred Stock.
"Converted Basis" shall mean, at any time and with respect
to a share or shares of the Series F Preferred Stock, the number of shares
of Common Stock into which such share or shares of Series F Preferred Stock
may then be converted.
"Convertible Securities" shall mean any or all options,
warrants, securities and rights which are convertible into or exercisable
or exchangeable for Common Stock at the option of the holder thereof, or
which otherwise entitle the holder thereof to subscribe for, purchase or
otherwise acquire Common Stock.
"Current Market Price," on the Determination Date for any
issuance of rights, warrants or options or any distribution or on the
Issuance Date in respect of which the Current Market Price is being
calculated, shall mean the average of the daily Closing Prices of the
Common Stock for the shortest of: (i) the period of 30 consecutive trading
days commencing 45 trading days before such Determination Date or Issuance
Date, as the case may be, or (ii) the period commencing on the date next
succeeding the first public announcement of the issuance of rights,
warrants or options or the distribution in respect of which the Current
Market Price is being calculated and ending on the last full trading day
before such Determination Date or Issuance Date.
"Determination Date" for any issuance of rights, warrants or
options or any distribution to which Section 4(d)(ii) applies shall mean
the record date for the determination of stockholders entitled to receive
the rights, warrants or options or the distribution to which such
Section applies.
"Excluded Issuances" shall mean any issuances of Common
Stock pursuant to (A) employee stock option or purchase plans approved by
the stockholders of the Company, (B) an underwritten public offering of
Common Stock or Convertible Securities or (C) the exercise of Convertible
Securities that were outstanding on July 27, 1998 (other than the Series E
Preferred Stock as to which adjustments are specified in Section 4(e)).
"Holder" shall mean the holder of the Issued Shares.
"Issue Date" shall mean the date on which shares of Series F
Preferred Stock are first issued.
"Issuance Date" shall have the meaning set forth in Section
4(d)(i).
"Issued Shares" shall mean the number of shares of Series F
Preferred Stock issued by the Company.
"Junior Stock" shall mean (i) the Common Stock, (ii) any
other class or series of Capital Stock, whether now existing or hereafter
created, of the Company, other than (A) the Series E Preferred Stock, (B)
any class or series of Parity Stock (except to the extent provided under
clause (iii) hereof) and (C) any class or series of Senior Stock, and (iii)
any class or series of Parity Stock to the extent that it ranks junior to
the Series F Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation, as the case may be. For purposes of clause (iii)
above, a class or series of Parity Stock shall rank junior to the Series F
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of Series F Preferred Stock shall be
entitled to dividend payments, payments on redemption or payments of
amounts distributable upon dissolution, liquidation or winding up of the
Company, as the case may be, in preference or priority to the holders of
shares of such class or series of Parity Stock.
"Liquidation Preference" measured per share of the Series F
Preferred Stock as of any date in question (the "Relevant Date") shall mean
an amount equal to the sum of (a) the Stated Value of such share, plus (b)
an amount equal to all unpaid dividends or other distributions payable on
the Series F Preferred Stock pursuant to Section 5, whether or not such
unpaid dividends or other distributions have been declared or there are any
unrestricted funds of the Company legally available therefor. In connection
with the determination of the Liquidation Preference of a share of Series F
Preferred Stock upon liquidation, dissolution or winding up of the Company,
the Relevant Date shall be the applicable date of distribution of amounts
payable to stockholders in connection with any such liquidation,
dissolution or winding up.
"Officers' Certificate" shall mean a certificate signed by
the Chairman of the Board, the President or any Senior Vice President of
the Company and by the Treasurer or an Assistant Treasurer of the Company.
"Parity Stock" shall mean any class or series of Capital
Stock, whether now existing or hereafter created, of the Company ranking on
a parity basis with the Series F Preferred Stock as to dividend rights,
rights of redemption or rights on liquidation. Capital Stock of any class
or series, whether now existing or hereafter created, shall rank on a
parity as to dividend rights, rights of redemption or rights on liquidation
with the Series F Preferred Stock, whether or not the dividend rates,
dividend payment dates, redemption or liquidation prices per share or
sinking fund or mandatory redemption provisions, if any, are different from
those of the Series F Preferred Stock, if the holders of shares of such
class or series shall be entitled to dividend payments, payments on
redemption or payments of amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in proportion
to their respective accumulated and accrued and unpaid dividends,
redemption prices or liquidations prices, respectively, without preference
or priority, one over the other, as between the holders of shares of such
class or series and the holders of Series F Preferred Stock. No class or
series of Capital Stock that ranks junior to the Series F Preferred Stock
as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Series F Preferred Stock as to dividend rights or rights of
redemption, unless the instrument creating or evidencing such class or
series of Capital Stock otherwise expressly so provides. The Series E
Preferred Stock ranks on a parity basis with the Series F Preferred Stock
as to dividend rights, rights of redemption and rights on liquidation and
constitutes "Parity Stock" for purposes of this Certificate of
Designations.
"Person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated organization, government or agency
or political subdivision thereof, or other entity, whether acting in an
individual, fiduciary or other capacity.
"Senior Stock" shall mean any class or series of Capital
Stock of the Company hereafter created ranking prior to the Series F
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation. Capital Stock of any class or series shall rank prior to the
Series F Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation if the holders of shares of such class or series
shall be entitled to dividend payments, payments on redemption or payments
of amounts distributable upon dissolution, liquidation or winding up of the
Company, as the case may be, in preference or priority to the holders of
shares of Series F Preferred Stock. No class or series of Capital Stock
that ranks on a parity basis with or junior to the Series F Preferred Stock
as to rights on liquidation shall rank or be deemed to rank prior to the
Series F Preferred Stock as to dividend rights or rights of redemption,
notwithstanding that the dividend rate, dividend payment dates, sinking
fund provisions, if any, or mandatory redemption provisions thereof are
different from those of the Series F Preferred Stock, unless the instrument
creating or evidencing such class or series of Capital Stock otherwise
expressly so provides.
"Series E Preferred Stock" shall mean the Company's Series E
Convertible Preferred Stock, par value $.001 per share.
"Stated Value" of a share of Series F Preferred Stock shall
have the meaning set forth in Section 1 of this Certificate of
Designations.
"Subsidiary" shall mean (i) a corporation (other than the
Company) a majority of the Capital Stock of which, having voting power
under ordinary circumstances to elect directors, is at the time, directly
or indirectly, owned by the Company and/or one or more Subsidiaries of the
Company and (ii) any other Person (other than a corporation) in which the
Company and/or one or more Subsidiaries of the Company, directly or
indirectly, has (x) a majority ownership interest and (y) the power to
elect or direct the election of a majority of the members of the governing
body of such entity.
3. Distributions Upon Liquidation, Dissolution or Winding Up. In
the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series F Preferred Stock
shall be entitled to receive from the assets of the Company available for
distribution to stockholders, before any payment or distribution shall be
made to the holders of any Junior Stock, an amount in cash (or, at the
election of the Company, property at its fair market value, as determined
by the Board of Directors in good faith) per share, equal to the
Liquidation Preference of a share of Series F Preferred Stock as of the
date of payment or distribution. If, upon distribution of the Company's
assets in liquidation, dissolution or winding up, the assets of the Company
to be distributed among the holders of the Series F Preferred Stock and
other holders of Parity Stock shall be insufficient to permit payment in
full to such holders of the respective preferential amounts to which they
are entitled, then the entire assets of the Company to be distributed to
holders of the Series F Preferred Stock and other holders of Parity Stock
shall be distributed pro rata to such holders based upon the aggregate of
the full preferential amounts to which all of the shares would otherwise
respectively be entitled. Neither the consolidation or merger of the
Company with or into any other corporation or corporations nor the sale,
transfer or lease of all or substantially all of the assets of the Company
shall itself be deemed to constitute a liquidation, dissolution or winding
up of the Company within the meaning of this Section 3. Notice of the
liquidation, dissolution or winding up of the Company shall be given, not
less than twenty (20) days prior to the date on which such liquidation,
dissolution or winding up is expected to take place or become effective, to
the holders of record of the shares of Series F Preferred Stock.
4. Conversion of Series F Preferred Stock.
(a) Right to Convert. Shares of Series F Preferred Stock may
be converted at the option of the holder thereof, in the manner and upon
the terms and conditions set forth in this Section 4, into fully paid and
nonassessable whole shares of Common Stock at the Conversion
Rate.
(b) Mechanics of Conversion. In order to convert shares of
Series F Preferred Stock, the holder thereof shall surrender the
certificate or certificates representing the shares of Series F Preferred
Stock to be converted at the office of the Company or the office of any
transfer agent for the Series F Preferred Stock, which certificate or
certificates shall be duly endorsed to the Company in blank (or accompanied
by duly executed instruments of transfer to the Company in blank) with
signatures guaranteed (such endorsements or instruments of transfer to be
in form satisfactory to the Company), together with a written notice to the
Company at said office of the election to convert the same, specifying the
number of shares of Series F Preferred Stock to be converted and the name
or names (with addresses) in which the certificate or certificates for
shares of Common Stock are to be issued. If any transfer is involved in the
issuance or delivery of any certificate or certificates for shares of
Common Stock in a name other than that of the registered holder of the
shares of Series F Preferred Stock surrendered for conversion, such holder
shall also deliver to the Company a sum sufficient to pay all taxes, if
any, payable in respect of such transfer or evidence satisfactory to the
Company that such taxes have been paid. Except as provided in the
immediately preceding sentence, the Company shall pay any issue, stamp or
other similar tax in respect of such issuance or delivery.
The Company shall, as soon as practicable after the Conversion
Date, deliver to the holder of the shares of Series F Preferred Stock so
surrendered for conversion, or to such holder's nominee(s) or, subject to
compliance with applicable law, transferee(s), a certificate or
certificates for the number of whole shares of Common Stock to which such
holder shall be entitled, together with cash or its check in lieu of any
fractional share as provided in Section 4(m). If the shares of Series F
Preferred Stock represented by a certificate surrendered for conversion are
converted only in part, the Company will also issue and deliver to the
holder, or to such holder's nominee(s) or, subject to compliance with
applicable law, transferee(s), without charge therefor, a new certificate
or certificates representing in the aggregate the unconverted shares of
Series F Preferred Stock.
The Person in whose name the certificate for shares of Common Stock
is issued upon such conversion shall be treated for all purposes as the
stockholder of record of such shares of Common Stock as of the close of
business on the Conversion Date; provided, however, that no surrender of
Series F Preferred Stock on any date when the stock transfer books of the
Company are closed for any purpose shall be effective to constitute the
Person or Persons entitled to receive the shares of Common Stock issuable
upon such conversion as the record holders of such shares of Common Stock
on such date, but such surrender shall be effective (assuming all other
requirements of this Section 4 have been satisfied) to constitute such
Person or Persons as the record holders of such shares of Common Stock for
all purposes as of the opening of business on the next succeeding day on
which such stock transfer books are open, and such conversion shall be at
the Conversion Rate in effect on the date that such shares of Series F
Preferred Stock were surrendered for conversion (and such other
requirements satisfied) as if the stock transfer books of the Company had
not been closed on such date. Upon conversion of shares of Series F
Preferred Stock, the rights of the holder of the shares so converted, as a
holder thereof, will cease.
(c) Adjustments for Changes in Capital Stock. If, after the
Issue Date, the Company: (i) pays a dividend or makes a distribution on the
Common Stock in shares of Common Stock; (ii) subdivides the outstanding
shares of Common Stock into a greater number of shares; (iii) combines the
outstanding shares of Common Stock into a smaller number of shares; (iv)
pays a dividend or makes a distribution on the Common Stock in shares of
its Capital Stock (other than Common Stock); or (v) issues by
reclassification to the holders of shares of Common Stock (other than a
reclassification by way of consolidation or merger that is subject to
Section 4(g)) any shares of its Capital Stock, the conversion privilege and
the Conversion Rate in effect immediately prior to the opening of business
on the record date for such dividend or distribution or the effective date
of such subdivision, combination or reclassification shall be adjusted so
that the holder of shares of Series F Preferred Stock thereafter converted
shall receive the kind and number of shares of Capital Stock of the Company
which such holder would have owned immediately following such event if such
holder had converted his shares of Series F Preferred Stock immediately
prior to the record date for, or effective date of, as the case may be,
such event. The adjustment contemplated by this Section 4(c) shall be made
successively whenever any event listed above shall occur.
If after an adjustment pursuant to this Section 4(c) a holder of
Series F Preferred Stock would be entitled to receive upon conversion
thereof shares of two or more classes or series of Capital Stock of the
Company, the Conversion Rate shall thereafter be subject to adjustment upon
the occurrence of an action taken with respect to any such class or series
of Capital Stock as is contemplated by this Section 4 with respect to the
Common Stock, on terms comparable to those applicable to the Common Stock
pursuant to this Section 4.
(d) Adjustments for Issuances below Certain Prices.
(i) If, after the Issue Date, the Company issues
Common Stock or Convertible Securities (other than Excluded Issuances or
issuances requiring adjustment pursuant to Section 4(c)) at a price (or
having an exercise or conversion price) per share less than the Current
Market Price of the Common Stock on the date of issuance (the "Issuance
Date"), then the Conversion Rate shall be adjusted by multiplying the
Conversion Rate in effect immediately prior to the opening of business on
the Issuance Date by a fraction, of which the numerator shall be (A) the
sum of the number of shares of Common Stock outstanding immediately prior
to the Issuance Date plus the number of shares of Common Stock issuable
upon exercise or conversion of all Convertible Securities outstanding
immediately prior to the Issuance Date plus the number of shares of Common
Stock issued or issuable at a price (or having an exercise or conversion
price) per share less than the Current Market Price of the Common Stock on
the Issuance Date, multiplied by (B) the Current Market Price of the Common
Stock on the Issuance Date, and of which the denominator shall be the sum
of (C) the number of shares of Common Stock outstanding immediately prior
to the Issuance Date plus the number of shares of Common Stock issuable
upon exercise or conversion of all Convertible Securities outstanding
immediately prior to the Issuance Date multiplied by the Current Market
Price of the Common Stock on the Issuance Date plus (D) the gross proceeds
received by the Company upon the issuance of such Common Stock or
Convertible Securities.
(ii) If, after the Issue Date, the Company issues
Common Stock or Convertible Securities (other than Excluded Issuances or
issuances requiring adjustment pursuant to Section 4(c)) at a price (or
having an exercise or conversion price) per share less than $____,(3) then
the Conversion Rate shall be adjusted by multiplying the Conversion Rate in
effect immediately prior to the opening of business on the Issuance Date by
a fraction, of which the numerator shall be (A) the sum of the number of
shares of Common Stock outstanding immediately prior to the Issuance Date
plus the number of shares of Common Stock issuable upon exercise or
conversion of all Convertible Securities outstanding immediately prior to
the Issuance Date plus the number of shares of Common Stock issued or
issuable at a price (or having an exercise or conversion price) per share
less than $____,(4) multiplied by (B) $____,(5) and of which the denominator
shall be the sum of (C) the number of shares of Common Stock outstanding
immediately prior to the Issuance Date plus the number of shares of Common
Stock issuable upon exercise or conversion of all Convertible Securities
outstanding immediately prior to the Issuance Date multiplied by $____(6)
plus (D) the gross proceeds received by the Company upon the issuance of
such Common Stock or Convertible Securities.
(iii) The adjustments contemplated by this Section
4(d) shall be made successively whenever any Common Stock or Convertible
Securities are issued below the respective prices specified above after the
Issue Date, and shall become effective immediately upon such issuance;
provided, however, that in the case of an issuance to which this Section
4(d) applies, only the adjustment specified in Section 4(d)(i) or 4(d)(ii)
that results in the greatest increase in the Conversion Rate shall be
effective for any single issuance, and provided, further, that in the case
of an issuance of Convertible Securities no further adjustment of the
Conversion Rate shall be made upon the subsequent issuance of shares of
Common Stock upon the exercise or conversion of such Convertible
Securities. In the case of any change in the number of shares of
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3 The per share Stated Value of the Series F Preferred Stock divided
by 1,000.
4 The per share Stated Value of the Series F Preferred Stock
divided by 1,000.
5 The per share Stated Value of the Series F Preferred Stock
divided by 1,000. 6The per share Stated Value of the Series F
Preferred Stock divided by 1,000.
Common Stock issuable upon the exercise or conversion of any Convertible
Securities (including but not limited to a change resulting from the
anti-dilution provisions thereof), the Conversion Rate then in effect shall
forthwith be readjusted, upon any such change becoming effective, to the
Conversion Rate that would have obtained had the adjustment been made upon
initial issuance thereof for that portion of such Convertible Securities
not exercised or converted prior to such change. If all shares of Common
Stock subject to Convertible Securities resulting in an adjustment in the
Conversion Rate pursuant to this Section 4(d) have not been issued when the
exercise or conversion right associated with such Convertible Securities
expire (or, in the case of rights, warrants or options to purchase
Convertible Securities which have been exercised, if all of the shares of
Common Stock issuable upon conversion of such Convertible Securities have
not been issued prior to the expiration of the conversion right thereof),
then the Conversion Rate shall promptly be readjusted to the Conversion
Rate which would then be in effect had the adjustment upon the issuance of
such Convertible Securities been made on the basis of the actual number of
shares of Common Stock (or Convertible Securities) issued upon the exercise
of such rights, warrants or options (or the conversion of such Convertible
Securities).
(e) Adjustments for Series E Preferred Stock. For
conversions of Series F Preferred Stock occurring after the earlier of (i)
October 22, 1999 or (ii) the first date on which no shares of Series E
Preferred Stock are outstanding, the Conversion Rate shall be adjusted by
multiplying the Conversion Rate then in effect by a fraction, the numerator
of which is equal to the sum of (A) 43,927,813(7) plus (B) the number of
shares of Common Stock issued upon conversion of shares of Series E
Preferred Stock by such date, and the denominator of which is 51,097,726.(8)
Each number included in the foregoing calculation shall be appropriately
adjusted to reflect stock dividends, stock splits, reverse stock splits and
the like having record dates after the Issue Date and prior to the
effective date of any such conversions. No adjustment shall be made under
this Section 4(e) if the adjusted Conversion Rate would be lower than the
Conversion Rate in effect immediately prior to such adjustment.
(f) Adjustments for Other Distributions. If, after the Issue
Date, the Company distributes to all holders of shares of Common Stock any
Convertible Securities to purchase Capital Stock (excluding dividends or
distributions referred to in Section 4(c)), then, to the extent the holders
of the Series F Preferred Stock do not participate in such distribution on
a Converted Basis pursuant to Section 5, the Conversion Rate shall be
adjusted by dividing the Conversion Rate in effect immediately prior to the
opening of business on the record date for the determination of
stockholders entitled to receive the distribution by a fraction, of which
the numerator shall be the total number of shares of Common Stock
outstanding on such record date or immediately prior to such effective date
multiplied by the Current Market Price on the Determination Date, less the
fair market value (as determined in good faith by the Board of
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7 The number of shares of Common Stock outstanding on July 27, 1998
(27,260,976) plus the number of shares of Common Stock issuable upon
exercise of all options and warrants outstanding on July 27, 1998
(16,666,837).
8 The number of shares of Common Stock outstanding on July 27, 1998
(27,260,976) plus the number of shares of Common Stock issuable upon
exercise of all options and warrants outstanding on July 27, 1998
(16,666,837) plus the number of shares of Common Stock issuable on July 27,
1998 assuming conversion of all shares of Series E Preferred Stock
outstanding on such date (7,169,913).
Directors) on such record date or effective date of the Convertible
Securities so distributed to the holders of Common Stock, and of which the
denominator shall be the total number of shares of Common Stock outstanding
on such record date or immediately prior to such effective date multiplied
by such Current Market Price. Nothing in this Section 4(f) shall be deemed
to authorize any dividend or distribution not otherwise permitted by
Section 5.
For purposes of this Section 4(f), the number of shares of Common
Stock outstanding on any relevant date shall be deemed to include the
maximum number of shares of Common Stock the issuance of which would be
necessary to effect the full exercise, exchange or conversion of all
Convertible Securities outstanding on such date which are then exercisable,
exchangeable or convertible at a price (before giving effect to any
adjustment to such price for the distribution to which this Section 4(e) is
being applied) equal to or less than the Current Market Price on the
applicable Determination Date, if all of such Convertible Securities were
deemed to have been exercised, exchanged or converted immediately prior to
the opening of business on such date.
The adjustment pursuant to the foregoing provisions of this Section
4(f) shall be made successively whenever any distribution to which this
Section 4(f) applies is made, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive
the distribution. Shares of Common Stock owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
adjustment.
No adjustment shall be made under this Section 4(f) if the adjusted
Conversion Rate would be lower than the Conversion Rate in effect prior to
such adjustment. In the event that, with respect to any distribution to
which this Section 4(f) would otherwise apply, the numerator of the
fraction in the formula set forth in the first paragraph of this Section
4(f) is zero or a negative number, then the adjustment provided by this
Section 4(f) shall not be made. If the Company makes a distribution to all
holders of its Common Stock of any of its assets or debt securities or any
rights, warrants or options to purchase securities of the Company that, but
for the immediately preceding sentence, would otherwise result in an
adjustment in the Conversion Rate pursuant to the foregoing provisions of
this Section 4(f), then, from and after the record date for determining the
holders of Common Stock entitled to receive the distribution, a holder of
Series F Preferred Stock that converts such shares in accordance with the
provisions of this Section 4 will upon such conversion be entitled to
receive, in addition to the shares of Common Stock into which such shares
of Series F Preferred Stock are convertible, the kind and amount of
securities, cash or other assets comprising the distribution that such
holder would have received if such holder had converted such shares of
Series F Preferred Stock immediately prior to the record date for
determining the holders of Common Stock entitled to receive the
distribution.
(g) Consolidation, Merger or Sale of the Company. If the
Company consolidates with or merges into, or transfers (other than by
mortgage or pledge) its properties and assets substantially as an entirety
to, another Person or the Company is a party to a merger or binding share
exchange which reclassifies or changes its outstanding Common Stock, the
Company (or its successor in such transaction) or the transferee of such
properties and assets shall make appropriate provision so that the holders
of the shares of Series F Preferred Stock then outstanding shall have the
right thereafter to convert such shares into the kind and amount of
securities, cash or other assets receivable upon such transaction by a
holder of the number of shares of Common Stock into which such shares of
Series F Preferred Stock could have been converted immediately before the
effective date of such transaction (with the holders of Series F Preferred
entitled to full exercise of anti-dilution rights, as set forth in Section
4(d)); provided that (i) effective provision shall be made, in the Articles
or Certificate of Incorporation of the resulting or surviving corporation
or otherwise or in any contracts of sale or transfer, so that the
provisions set forth herein for the protection of the conversion rights of
Series F Preferred Stock shall thereafter be made applicable, as nearly as
reasonably may be, to any such other securities and assets deliverable upon
conversion of the Series F Preferred Stock remaining outstanding or other
convertible preferred stock or other securities received by the holders of
Series F Preferred Stock in place thereof; and (ii) any such resulting or
surviving corporation or transferee shall expressly assume the obligation
to deliver, upon the exercise of the conversion privilege, such securities,
cash or other assets as the holders of the Series F Preferred Stock
remaining outstanding, or other convertible preferred stock or other
securities received by the holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make provision for the
protection of the conversion rights of the Series F Preferred Stock, or of
any other convertible preferred stock or other securities received by the
holders in place thereof, as provided in clause (i) of this sentence.
If this Section 4(g) applies, Sections 4(c), 4(d), 4(e) and 4(f)
shall not apply.
(h) Simultaneous Adjustments. If this Section 4 requires
adjustments to the Conversion Rate under more than one of Section 4(c),
4(d), 4(e) or 4(f) and the record dates for the distributions giving rise
to such adjustments shall occur on the same date, then such adjustments
shall be made by applying, first, the provisions of Section 4(c), second,
the provisions of Section 4(e), third, the provisions of Section 4(d) and
fourth, to the extent applicable, the provisions of Section 4(f).
(i) When Adjustment May Be Deferred. In any case in which
this Section 4 shall require that an adjustment shall become effective
immediately after a record date for an event, the Company may defer until
the occurrence of such event (x) issuing to the holder of any shares of
Series F Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion
before giving effect to such adjustment and (y) paying to such holder cash
or its check in lieu of any fractional interest to which he is entitled
pursuant to Section 4(m); provided, however, that the Company shall deliver
to such holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares of Common Stock, and such
cash, upon the occurrence of the event requiring such adjustment.
(j) Notice of Adjustment. Whenever the provisions of this
Section 4 require an adjustment to the Conversion Rate, the Company shall
promptly compute such adjustment and (i) file with the transfer agent for
the Series F Preferred Stock (or with the books of the Company if there is
no transfer agent) an Officers' Certificate setting forth a description of
the event requiring the adjustment, the new Conversion Rate (including a
reasonably detailed calculation thereof), and the kind and amount of
Capital Stock or other securities or cash or other assets into which the
Series F Preferred Stock shall be convertible after such event, and (ii)
cause a notice containing a summary of the information set forth in said
certificate to be given to the holders of Series F Preferred Stock. Where
appropriate, such notice may be given in advance and included as a part of
the notice required to be given under the provisions of Section 4(k).
(k) Advance Notice of Certain Matters. If the Company: (i)
takes any action which would require an adjustment in the Conversion Rate;
(ii) is a party to a consolidation or merger or transfers all or
substantially all of its assets to another Person, and any stockholders of
the Company must approve the transaction; or (iii) voluntarily or
involuntarily dissolves, liquidates or winds up, then, in any such event,
the Company shall give to the holders of the Series F Preferred Stock, at
least twenty (20) days prior to any record date or other date set for
definitive action if there shall be no record date, a notice stating the
record date for and the anticipated effective date of such action or event;
provided, however, that any notice required hereunder shall in any event be
given no later than the time that notice is given to the holders of Common
Stock. If all shares of Series E Preferred Stock have been converted into
Common Stock prior to October 22, 1998, the Company shall give notice to
the holders of the Series F Preferred Stock on the first date that no
shares of Series E Preferred Stock are outstanding.
(l) Reservation of Common Stock Issuable Upon Conversion.
The Company shall at all times on and after the Issue Date reserve and keep
available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the shares of Series F
Preferred Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding
shares of Series F Preferred Stock; provided that nothing contained herein
shall be construed to preclude the Company from satisfying its obligations
in respect of the conversion of the outstanding shares of Series F
Preferred Stock by delivery of shares of Common Stock held in the treasury
of the Company. The Company shall take all such corporate and other actions
as from time to time may be necessary to insure that all shares of Common
Stock issuable upon conversion of shares of Series F Preferred Stock at the
Conversion Rate in effect from time to time will, when issued, be duly and
validly authorized and issued, fully paid and nonassessable, and free from
all preemptive or similar rights. In order that the Company may issue
shares of Common Stock upon conversion of the Series F Preferred Stock, the
Company will in good faith and as expeditiously as possible endeavor to
comply with all applicable federal and state securities laws and will in
good faith and as expeditiously as possible endeavor to list such shares to
be issued upon conversion on such national securities exchange or national
securities association, if any, on which the Common Stock is then listed.
(m) Fractional Shares. No fractional shares of Common Stock
or scrip shall be issued upon conversion of the Series F Preferred Stock.
Whether or not fractional shares would otherwise be required to be issued
to a holder of Series F Preferred Stock upon such conversion shall be
determined on the basis of the total number of shares of Series F Preferred
Stock the holder is at the time converting into Common Stock and the total
number of shares of Common Stock issuable upon such conversion. In lieu of
the issuance of fractional shares of Common Stock, the Company shall pay
instead an amount in cash or by its check equal to the same fraction of the
Closing Price of a full share of Common Stock on the last full trading day
prior to the Conversion Date.
(n) Impairment. The Company will not, by amendment of this
Certificate of Designations or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, other than as
expressly permitted by this Certificate of Designations or approved by the
holders of Series F Preferred Stock given in accordance with Section 7,
avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Section
4 and in the taking of all such action as may be necessary or appropriate
in order to protect the conversion rights of the holders of Series F
Preferred Stock against impairment. The Company will not amend, alter or
repeal the preferences, rights, powers or other terms of this Certificate
of Designations or otherwise affect adversely the Series F Preferred Stock
without the approval of the holders of the Series F Preferred Stock given
in accordance with Section 7. Without limiting the generality of the
foregoing, the authorization or issuance by the Company of any class or
series of Senior Stock shall be deemed to affect adversely the Series F
Preferred Stock. The issuance of the Company of Parity Stock shall not
require the approval of the holders of the Series F Preferred Stock.
5. Restrictions on Dividends and Redemptions. So long as any shares
of Series F Preferred Stock shall be outstanding, except for the payment by
the Company after the Issue Date and prior to __________ of up to $_____ (9)
for the repurchase of Common Stock in transactions effected pursuant to
Rule 10b-18 under the Securities Exchange Act of 1934, as amended, the
Company shall not declare or pay on any Junior Stock any dividend
whatsoever, whether in cash, property or otherwise (other than dividends
payable in shares of the class or series upon which such dividends are
declared or paid), nor shall the Company make any distribution in respect
of any Junior Stock, nor shall any Junior Stock be purchased or redeemed,
directly or indirectly, by the Company or any Subsidiary, nor shall any
monies be paid or made available for a sinking fund for the purchase or
redemption of any Junior Stock, except to the extent permitted by a waiver
given by the holders of the Series F Preferred Stock pursuant to Section 7.
If any dividend or distribution shall be declared, paid or made on any
Junior Stock upon the vote or consent of the holders of the Series F
Preferred Stock, whether in cash, property or otherwise (other than
dividends for which adjustment is made pursuant to Section 4(c)), such
dividends shall also be paid or declared or such distributions shall also
be made to the holders of the Series F Preferred Stock on a Converted
Basis, except to the extent that the waiver authorizing such dividend or
distribution specifies otherwise (in which case the provisions of Section
4(f) shall apply).
6. Voting Rights and Election of Directors. The holders of Series F
Preferred Stock shall be entitled to vote on all matters that are presented
to the stockholders of the Company for a vote, with such holders entitled
to vote such shares of Series F Preferred Stock with the holders of Common
Stock as a single class on a Converted Basis. So long as shares of Series F
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9 Insert the amount remaining as of the Issue Date to be expended by
the Company pursuant to its stock repurchase plan announced in September
1998.
Preferred Stock convertible at the time into 5% or more of the outstanding
shares of Common Stock are outstanding, the holders of the Series F
Preferred Stock shall have the sole and exclusive right to elect two
members of the Company's Board of Directors.
7. Waiver; Amendment. Any provision of this Certificate of
Designations which, for the benefit of the holders of Series F Preferred
Stock, prohibits, limits or restricts actions by the Company, or imposes
obligations on the Company, including but not limited to provisions
relating to the obligation of the Company to redeem or convert such shares,
may be waived in whole or in part, or the application of all or any part of
such provision in any particular circumstance or generally may be waived,
in each case by the affirmative vote, or with the consent of the holders,
of at least two-thirds of the number of shares of Series F Preferred Stock
then outstanding (or such greater percentage thereof as may be required by
applicable law or any applicable rules of any national securities exchange
or national interdealer quotation system), either in writing or by vote at
an annual meeting or a special meeting called for such purpose at which the
holders of Series F Preferred Stock shall vote or consent as a separate
class. Any amendment to this Certificate of Designations shall be likewise
approved by the holders of the Series F Preferred Stock voting or
consenting as a separate class.
8. Method of Giving Notices. Any notice required or permitted by
the provisions of this Certificate of Designations to be given to the
holders of shares of Series F Preferred Stock shall be deemed duly given if
deposited in the United States mail, first class mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of
the Company or supplied by him in writing to the Company for the purpose of
such notice.
9. Exclusion of Other Rights. Except as may otherwise be required
by law and except for the equitable rights and remedies which may otherwise
be available to holders of Series F Preferred Stock, the shares of Series F
Preferred Stock shall not have any designations, preferences, limitations
or relative rights other than those specifically set forth in this
Certificate of Designations.
10. Headings of Subdivisions. The headings of the various
subdivisions of this Certificate of Designations are for convenience of
reference only and shall not affect the interpretation of any of the
provisions of this Certificate of Designations.
FURTHER RESOLVED, that the appropriate officers of this Company are
hereby authorized to execute and acknowledge a certificate setting forth
these resolutions and to cause such certificate to be filed and recorded in
accordance with the requirements of Section 151(g) of the General
Corporation Law of the State of Delaware."
The undersigned has signed this Certificate of Designations on this
______ day of ____________, 199_.
AMTEC, INC.
BY: __________________________________
Joseph R. Wright, Jr.
Chief Executive Officer
Draft 10-16-98
TECHNICAL ASSISTANCE AGREEMENT
THIS AGREEMENT is made as of the _____ day of ____________________, 1998.
BETWEEN
(1) AMTEC, INC., a U.S. corporation organized and existing under the
laws of the State of Delaware and having its registered office at
599 Lexington Avenue, 44th Floor, New York, New York 10022 (the
"Company"); and
(2) UIH ASIA/PACIFIC COMMUNICATIONS, INC., a U.S. corporation organized
and existing under the laws of the State of Delaware and having its
principal executive offices at 4643 South Ulster Street, Denver,
Colorado 80237, United States of America ("UAP").
WHEREAS
(A) UAP, through its own personnel and through personnel made available
to it by its Affiliates (as defined herein), has extensive
experience in (i) designing, engineering, constructing, marketing,
and managing multi-channel television systems and (ii) designing,
engineering, constructing, marketing and managing broadband
telecommunications systems, including but not limited to telephony
services.
(B) From time to time, the Company wishes to obtain the benefit of UAP's
experience and assistance and desires to engage UAP to perform
services with respect to the management of the Company's
telecommunications projects in the People's Republic of China.
NOW THEREFORE, in consideration of the mutual covenants set forth below,
the Parties agree as follows:
1. Definitions and Interpretations
1.1 In this Agreement, unless the context otherwise requires:
"Affiliate" of a party means any entity that directly or indirectly
through one or more intermediaries, controls or is controlled by, or
is under common control with such party. For purposes of this
definition, the term "control" means effective management control of
the entity, including without limitation control through the power
to elect a sufficient number of directors or to appoint a sufficient
number of senior managers to obtain control, or similar powers. An
entity shall be rebuttably presumed to control another entity if it
owns 50% or more of the beneficial interest or the voting power of
the appropriate entity.
"Related Entity" of a party shall refer to any entity in which such
party holds a beneficial interest, directly or through one or more
intermediaries.
"Systems" shall mean the telephony, multi-channel television and
other telecommunication network businesses owned or operated by the
Company or any Affiliate or Related Entity in the People's Republic
of China.
2. Engagement
The Company hereby engages UAP as its principal technical adviser to
provide services upon written request by the Company, from time to
time, with respect to the design, construction, operation,
maintenance, administration, marketing and programming of the
Systems, and UAP hereby accepts such engagement pursuant to the
provisions of this Agreement.
3. General Duties of UAP
3.1 UAP shall, through its officers, employees, agents and other
personnel, provide technical assistance to the Company as requested
by the Company in writing and in accordance with the terms of this
Agreement.
3.2 UAP shall perform its duties hereunder in a professional, expert and
diligent manner and in accordance with the same standards UAP
customarily applies in the operation or management of multi-channel
television and telecommunications systems owned or managed by UAP.
3.3 UAP agrees to provide whatever personnel (whether employed directly
by UAP or by any of its Affiliates or Related Entities) as are
reasonably required to fulfill its obligations under this Agreement,
and agrees that, as reasonably required by the Company, such
personnel shall provide the services requested by the Company from
time to time on-site at the Systems or the offices of the Company.
4. Specific Duties of UAP
4.1 Project Assistance
UAP shall provide, through advice, consultation and other means,
technical assistance to the Company with respect to such matters as
are reasonably requested by the Company in writing with respect to
the Systems. Such matters may include services with respect to: (i)
design, construction and operation of the Systems; (ii) marketing
for the Systems; (iii) subscriber management; (iv) information
technology for the Systems; and (v) personnel and training.
4.2 Financing Assistance
As requested from time to time by the Company, UAP shall advise the
Company in the structure and conclusion of financial or credit
arrangements with financial institutions or manufacturers,
suppliers, contractors and the like, including, if appropriate and
practicable, introductions to financial advisors or agents and use
of UAP's purchasing services and contracts.
5. Office Work Space and Other Assistance
To the extent reasonably required for the provision of UAP's
services pursuant to this Agreement, the Company shall furnish to
any of UAP's employees and personnel who are assigned to work
on-site at the Systems at the sole cost and expense of the Company,
adequate office or other work space, and secretarial, clerical or
other assistance. Likewise, the Company will make available to UAP's
employees who are performing services under this Agreement access to
all records, equipment, and areas within the control of the Company
as may be reasonably requested by such personnel. UAP undertakes not
to use any facilities or assistance provided by the Company
hereunder other than for the sole purpose of performing its
obligations pursuant to this Agreement.
6. Independent Contractor
In the performance of its duties and responsibilities under this
Agreement, UAP shall be and shall act solely as an independent
contractor, and nothing contained in this Agreement shall constitute
or be construed to be or to create a partnership or joint venture
between the Company and UAP.
7. Fees and Payment
7.1 During the period of this Agreement, the Company shall reimburse UAP
for expenses as set forth in Section 7.2 below and shall pay to UAP
a Fee as set forth in Section 7.3 below.
7.2 The Company shall reimburse UAP for all expenses reasonably incurred
by its employees and personnel in the provision of services pursuant
to this Agreement ("Expenses"), which Expenses shall include the
following:
(a) Travel, meal and lodging expenses,
(b) Salary and reasonable administrative expenses; and
(c) Fees and expenses of advisors, consultants and independent
contractors (such as accountants, market consultants and
attorneys) engaged by UAP with the written consent of the
Company.
7.3 The Company shall pay to UAP a fee equal to 15 % of the Expenses for
each month during the term of this Agreement (the "Fee"), payable in
accordance with Section 7.4 below.
7.4 Thirty days after the end of each calendar month, UAP shall supply
to the Company a report of Expenses and the Company shall pay UAP
for such Expenses and the applicable Fee within 30 days after the
receipt of such report. In the event the Company fails to pay such
Expenses and Fee within such 30 day period, the aggregate amount of
such Expenses and Fee owed to UAP shall bear interest from the last
day of such 30-day period until paid in full at a rate of 10% per
annum on the basis of a 360-day year and actual days elapsed.
7.5 All payments due under this Section 7 shall be made in U.S. dollars.
The U.S. dollar amount for each month shall be based on the
"Exchange Rate" on the business day that is the closest to the 15th
day of such month. For these purposes, "Exchange Rate" shall equal
the midpoint of the Interbank bid and asked quotes on the day of
receipt, as provided by Bank America International, or, if such
quotes are not then available from Bank America International, from
another internationally recognized bank chosen by UAP.
7.6 All payments made to UAP hereunder shall be by means of official
telegraphic transfer remittance, mail transfer remittance or
banker's cheque to an account established at bank(s) designated by
UAP.
8. Warranty and Indemnity
The Company shall indemnify and keep UAP fully indemnified from and
against any loss, claim or damage incurred by UAP or the Company as
a result of any action or claim brought against it by any third
party in respect of the provision by UAP of the services stipulated
under this Agreement, other than any loss, claim or damage caused by
gross negligence and willful misconduct of UAP.
9. Term
(a) Subject to (b) and (c) below, this Agreement shall be
effective upon the date hereof, and shall continue for an
initial term of three (3) years. Thereafter, this Agreement
shall be continued from year to year unless (i) UAP or the
Company provides written notice to the other party ninety
(90) days prior to the end of the initial term or any
extension, or (ii) terminated earlier as set forth in (b) and
(c) below.
(b) This Agreement shall forthwith terminate with respect to one
party upon written notice of termination to it by the other
party if the first party is materially in breach of its
obligations hereunder (including but not limited to the
payment of any sums due hereunder) and such breach, if
capable of remedy, has not been remedied within thirty (30)
days after written notice to that effect is given to the
defaulting party by the other party indicating the steps
required to be taken to remedy the failure.
(c) This Agreement may be terminated by UAP or the Company upon
sixty (60) days written notice in the event UAP or an
Affiliate of UAP, no longer has an equity interest in the
Company on a fully diluted basis.
10. Confidentiality
Each party hereto acknowledges that, in connection with the services
to be provided by UAP hereunder, it may receive confidential and
proprietary information of a business, financial, technical or other
type, from the other party or from an Affiliate of the other party.
The Company agrees that any such information it receives is to be
used by the Company only as required in the businesses of the
Systems. UAP agrees that any such information it receives will be
used only for the performance of its obligations hereunder. Without
limiting the generality of the foregoing, neither party shall
commercially exploit any confidential proprietary information for
purposes other than those contemplated by this Agreement. Each party
shall use its best efforts to keep confidential all information of a
proprietary nature that it receives in connection with this
Agreement; provided, however, that the partys' respective
obligations under this Section 10 shall not apply to (i) information
that is publicly available other than through a breach by a
disclosing party of any agreement with the Company or UAP or their
Affiliates, or (ii) any public announcement or disclosure that a
party considers necessary or appropriate under U.S. securities laws.
The provisions of this Section 10 shall be binding upon the
Affiliates, partners, officers, directors, shareholders, employees
and agents of the parties, and shall survive the termination of this
Agreement.
11. Notices
All notices, demands or other communications given or made under
this Agreement shall be in writing and delivered by reputable
international courier service or sent by telefacsimile to the
relevant party at its address or telecopy fax number set out below
(or such other address or telecopy number as the addressee has by
five (5) days' prior written notice specified to the other parties):
To the Company: AmTec, Inc.
599 Lexington Avenue, 44th Floor
New York, New York 10022
USA
Attn: ____________________
To UAP UIH ASIA/PACIFIC COMMUNICATIONS, INC.
4643 South Ulster, Suite 1300
Denver, Colorado, 80237, USA
Facsimile: 303 770-4207
Telephone: 303 770-4001
Attention: President
Any notice, demand or other communication so addressed to the
relevant party shall be deemed to have been delivered (a) if given
or made by telefacsimile, when dispatched with confirmed
transmission report; and (b) if given or made by courier, when
actually delivered to the relevant address.
12. Miscellaneous
12.1 No amendment or modification of this Agreement shall be effective
unless in writing and signed by or on behalf of all of the parties.
12.2 If any term or provision of this Agreement or application thereof to
any person, entity or circumstance is invalid or unenforceable to
any extent, then the remainder of this Agreement and the application
of such provision to other persons, entities or circumstances shall
not be affected thereby and shall be enforced to the greatest extent
permitted by applicable law. If any provision of Section 7 of this
Agreement is illegal or unenforceable, then UAP may terminate this
Agreement at any time thereafter through written notice to the
Company, such termination to be effective when such notice is given.
Notwithstanding the foregoing, the parties shall negotiate in good
faith to agree on the terms of a satisfactory provision to effect
the intent of any invalid or unenforceable provision to the maximum
extent allowable under applicable law.
12.3 This Agreement shall be governed by the laws of the State of
Delaware, U.S.A.
12.4 No failure or delay by any party in exercising any right, power or
remedy under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of the same preclude any
further exercise thereof or the exercise of any other right, power
or remedy. Without limiting the foregoing, no waiver by any party of
any breach of any provision hereof shall be deemed to be a waiver of
any subsequent breach of that or any other provision hereof.
12.5 No party shall be entitled to assign this Agreement or its rights or
obligations hereunder save as expressly provided herein or with the
written consent of the other party hereto; provided however, that
this Agreement may be assigned by UAP to an Affiliate without any
consent.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above
written.
AMTEC, INC.
By __________________________________
Its ______________________________
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
By __________________________________
Its ______________________________
CERTIFICATE OF DESIGNATION OF PREFERENCES
OF
SERIES G CONVERTIBLE PREFERRED STOCK
OF
AMTEC, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Company") is AmTec,
Inc., a Delaware corporation.
2. The Certificate of Incorporation of the Company authorizes the issuance
of 10,000,000 shares of Preferred Stock, and expressly vests in the Board
of Directors of the Company the authority provided therein to issue any or
all of said shares in one or more series and by resolution or resolutions
to establish the designation, number, full or limited voting powers, or the
denial of voting powers, preferences and relative, participating, optional,
and other special rights and the qualifications, limitations, restrictions,
and other distinguishing characteristics of each series to be issued.
3. The Company has, as of the date hereof, authorized 100,000,000 shares of
Common Stock, of which 30,811,721 are issued and outstanding; the Company
has authorized 10,000,000 shares of Preferred Stock, of which 29.764 shares
are issued and outstanding.
4. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series G Preferred Stock:
RESOLVED, that Twenty (20) Shares of the 10,000,000 authorized shares of
Preferred Stock of the CorporationCompany shall be designated Series G
Convertible Preferred Stock, $0.001 par value per share, and shall possess
the rights and privileges set forth below:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series G Convertible Preferred Stock" (the "Series G
Preferred Stock") and the number of shares constituting the Series G
Preferred Stock shall be 20. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no
decrease shall reduce the number of shares of Series G Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon the conversion of any outstanding securities
issued by the Company convertible into Series G Preferred Stock.
Section 2. Rank. The Series G Preferred Stock shall rank: (i) prior to all
of the Company's Common Stock, par value $0.001 per share ("Common Stock");
(ii) prior to any class or series of capital stock of the Company hereafter
created that does not specifically by its terms rank senior to or on parity
with the Series G Preferred Stock of whatever subdivision (collectively,
with the Common Stock, "Junior Securities"); (iii) on parity with the
Series E Preferred Stock of the Company ("Parity Securities") as to
distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being
referred to collectively as "Distributions"); and (iv) junior to any
Preferred Stock subsequently created specifically ranking senior to the
Series G Preferred Stock ("Senior Securities") in terms of Distributions.
Section 3. Dividends. The Series G Preferred Stock will bear no dividends,
and the holders of the Series G Preferred Stock shall not be entitled to
receive dividends on the Series G Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Company, either voluntary or involuntary, the then holders of
shares of Series G Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required
by the CorporationCompany's Certificate of Incorporation or any
statement of designation of preferences, and prior and in
preference to any distribution to Junior Securities but in parity
with any distribution of Parity Securities, an amount per share
equal to the sum of (i) $100,000 for each outstanding share of
Series G Preferred Stock (the "Issue Price") and (ii) an amount
equal to 8% of the Issue Price per annum, without compounding, for
the period that has passed since the date of issuance of the Series
G Preferred Stock (such amount being referred to herein as the
"Premium.") If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series G Preferred
Stock and Parity Securities shall be insufficient to permit the
payment to such holders of the full preferential amounts due to the
holders of the Series G Preferred Stock and the Parity Securities,
respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the
holders of the Series G Preferred Stock and the Parity Securities,
pro rata, based on the respective liquidation amounts to which each
such series of stock is entitled by the Company's Certificate of
Incorporation and any statement(s) of designation of preferences.
(b) A consolidation or merger of the Company with or into any other
corporation or corporations, or a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related
transactions in which more than 50% of the voting power of the
Company is disposed of, shall not be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 4, but
shall be treated pursuant to Section 6 hereof.
Section 5. Conversion. The record holders of the Series G Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. The record holder of the Series G Preferred
Stock shall be entitled, at any time, as set forth below, subject
to the restrictions on conversion set forth in Section 5(b) below,
at the office of the Company or any transfer agent for the Series G
Preferred Stock, to convert the shares of Series G Preferred Stock
held by such holder into that number of fully-paid and
nonassessable shares of the Company's Common Stock at the
Conversion Rate as set forth below. The number of shares of Common
Stock into which shares of Series G Preferred Stock may be
converted is hereinafter referred to as the "Conversion Rate" for
such Series G Preferred Stock, and is computed as follows:
Number of shares issued upon conversion of one share of Preferred Stock equals
Issue Price + Premium
---------------------
Conversion Price
where
Issue Price = the Issue Price, as defined in Section 4(a);
Premium = the Premium, as defined in Section 4(a); and
Conversion Price = the lesser of (x) $1.50 per share, or (y) the closing
price of the Company's Common Stock, as reported by the American Stock
Exchange, on the last business day immediately preceding the Closing
(b) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of this Series G Preferred Stock.
In lieu of any fractional share to which the holder would otherwise
be entitled, the number of shares of Common Stock to be received
shall be rounded up to the next whole number of shares. In the case
of a dispute as to the calculation of the Conversion Rate, the
Company's calculation shall be deemed conclusive absent manifest
error. In order to convert Series G Preferred Stock into full
shares of Common Stock, the holder shall surrender the certificate
or certificates therefor, duly endorsed, by either overnight
courier or 2 day courier, to the office of the Company or of any
transfer agent for the Series G Preferred Stock, and shall give
written notice ("Notice of Conversion") to the Company at such
office that he elects to convert the same, the number of shares of
Series G Preferred Stock so converted and a calculation of the
Conversion Rate (with an advance copy of the certificate(s) and the
notice by facsimile). Once the Notice of Conversion has been so
delivered, the conversion set forth therein shall be irrevocable,
and the certificate(s) indicated for conversion shall be canceled
on the Company's books; provided, however, that the Company shall
not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless either the
certificates evidencing such Series G Preferred Stock are delivered
to the Company or its transfer agent as provided above, or the
holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. The
Company shall issue and deliver within three (3) business days
after delivery to the Company of such certificates, or after such
agreement and indemnification, to such holder of Series G Preferred
Stock at the address of the holder on the books of the Company, a
certificate or certificates for the number of shares of Common
Stock to which the holder shall be entitled as aforesaid, and a
certificate for any unconverted shares of Series G Preferred Stock.
The date on which conversion occurs (the "Date of Conversion")
shall be deemed to be the date set forth in the Notice of
Conversion.
(c) Reservation of Stock Issuable Upon Conversion. The Company
shall use its best efforts to reserve and keep available at all
times out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the Series G
Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all
then outstanding shares of Series G Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of Series G Preferred Stock, the Company will
take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(e) Automatic Conversion. Each Share of the Series G Preferred
Stock outstanding on the second anniversary of the date of
issuance, automatically shall be converted on such date at the
Conversion Price and the second anniversary of the date of
issuance shall be deemed the Date of Conversion with respect to
such conversion.
(f) Adjustment to Conversion Price.
In computing the Conversion Price for purposes of Section 5(a):
(i) If, prior to the conversion of all of the Series G Preferred
Stock, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, or other similar event,
the Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a
combination or reclassification of shares, or other similar event,
the Conversion Price shall be proportionately increased.
(ii) If, prior to the conversion of all Series G Preferred Stock,
there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a
result of which shares of Common Stock of the Company shall be
changed into the same or a different number of shares of the same
or another class or classes of stock or securities of the Company
or another entity, then the holders of Series G Preferred Stock
shall thereafter have the right to purchase and receive upon
conversion of Series G Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such
shares of stock and/or securities as may be issued or payable with
respect to or in exchange for the number of shares of Common Stock
immediately theretofore purchasable and receivable upon the
conversion of Series G Preferred Stock held by such holders had
such merger, consolidation, exchange of shares, recapitalization or
reorganization not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests
of the holders of the Series G Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for
adjustment of the Fixed Conversion Price and of the number of
shares issuable upon conversion of the Series G Preferred Stock)
shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter
deliverable upon the exercise hereof.
(iii) If any adjustment under this Section 5(f) would create a
fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon conversion
shall be the next higher number of shares.
Section 6. Corporate Change. In the event of a merger, reorganization,
recapitalization or similar event of or with respect to the Company (a
"Corporate Change") this Series G Preferred Stock shall be assumed by the
acquiring entity and thereafter this Series G Preferred Stock shall be
convertible into such class, type and amount of securities as the holder
would have received had the holder converted this Series G Preferred Stock
immediately prior to such Corporate Change.
Section 7. Protective Provision. So long as shares of Series G Preferred
Stock are outstanding, the CorporationCompany shall not without first
obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least two-thirds of the then outstanding shares of Series
G Preferred Stock alter or change the rights, preferences or privileges of
the shares of Series G Preferred Stock or any Senior Securities so as to
affect adversely the Series G Preferred Stock.
Section 8. Redemption.
(a) Holder's Right to Require Redemption. Each holder of the Series
G Preferred Stock shall have the right, in its sole discretion, to
require the Company to redeem ("Redemption at Holder's Election")
all of the shares of Series G Preferred Stock held by such holder
by notice delivered to the Company in accordance with Section (c)
upon the earlier to occur of (i) the first anniversary of the
initial issuance of such Series G Preferred Stock or (ii) the date
30 days following the date upon which the Company first announces
publicly or notifies the holders of the Series G Preferred Stock in
writing that the Company has issued, in one or more issuances after
the date of the issuance of the Series G Preferred Stock (and not
including the Series G Preferred Stock), equity securities
(including Common Stock and Preferred Stock) yielding aggregate net
cash proceeds to the Company of at least $5 million. For the
avoidance of doubt, net cash proceeds do not include any
securities, property or other assets (except cash) that may be
contributed to the Company in exchange of equity securities. The
date upon which the Company is or could be required to effect a
Redemption at Holder's Election is referred to below as the "Date
of Redemption at Holder's Election."
(b) Redemption Price. The Redemption Price shall be a cash amount
per share equal to the Issue Price plus the Premium as of the Date
of Redemption at Holder's Election.
(c) Mechanics of Redemption at Holder's Election. Any Holder that
desires to cause the Company to effect a Redemption at Holder's
Election shall give written notice ("Notice of Redemption at
Holder's Election") to the Company no more than 60 days and no less
than 10 days before the Date of Redemption at Holder's Election,
which Notice of Redemption at Holder's Election shall (unless the
Company agrees otherwise in writing) be irrevocable. Such Notice of
Redemption at Holder's Election shall indicate the number of shares
of Series G Preferred Stock held by such holder (all of which will
be redeemed).
(d) Payment of Redemption Price. Each Holder submitting Series G
Preferred Stock being redeemed under this Section 8 shall send its
Series G Preferred Stock Certificates so redeemed to the
CorporationCompany or its transfer agent no later than the Date of
Redemption at Holder's Election, and the Company shall pay the
applicable redemption price to that holder within five (5) business
days of the Date of Redemption. The Company shall not be obligated
to deliver the redemption price unless the Preferred Stock
Certificates so redeemed are delivered to the Company or its
transfer agent.
Section 9. Status of Converted or Redeemed Stock. In the event any shares of
Series G Preferred Stock shall be converted or redeemed, the shares so
converted or redeemed shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated series, and shall
not be issuable by the CorporationCompany as Series G Preferred Stock.
Section 10. Miscellaneous. As used herein, the term "business day" means a
business day in the City of New York.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series G Preferred Stock and
fixing the number, powers, preferences and relative, optional,
participating, and other special rights and the qualifications,
limitations, restrictions, and other distinguishing characteristics thereof
shall, upon the effective date of said series, be deemed to be included in
and be a part of the certificate of incorporation of the Company pursuant
to the laws of the State of Delaware.
Signed on March 15, 1999.
By:____________________________
Name: Joseph R. Wright, Jr.
Title: Chairman & CEO
By:_____________________________
Name: James F. O'Brien
Title: Corporate Secretary & General Counsel
EMPLOYMENT AGREEMENT
This Employment Agreement is made on the 1st day of January, 1999 between
AmTec, Inc., a Delaware Corporation ("Employer"), and Joseph R. Wright, Jr.
("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 January 1, 1999 and shall terminate on
December 31, 2001.
2. Duties. Executive agrees to serve Employer as Chairman, Chief
Executive Officer and 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 Board of Directors 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 Four Hundred Fifty Thousand Dollars
($450,000), 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, Executive shall receive ten year options to purchase 200,000
shares of common stock of the Employer at a price of $0.875 per share, said
options to vest 25% on June 30, 1999, December 31, 1999, June 30, 2000 and
December 31, 2000. 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
and third years of the term of this Agreement will be determined by the
Compensation Committee of the Board of Directors.
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,
however it is the goal of Employer to pay a bonus in the first year of the
Agreement between $50,000 to $500,000. All bonuses payable to Executive per
the Agreement and will be payable on December 31 of 1999, 2000 and 2001.
The Compensation Committee may consider a bonus to be paid to Executive on
March 31, 1999 for the fiscal year then ended. Criteria for the
determination of the discretionary amount of bonus will be as agreed upon
by the Executive and the Chairman of the Compensation Committee 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 and third
years of the term of this Agreement as determined by the Compensation
Committee of the Board of Directors.
4.2 (b) Stock Grants. The Executive will be entitled
to receive a stock grant of 100,000 shares of the Employer's Common Stock
upon the commencement of this Agreement.
4.2 (c) 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 Benefits, 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. Not withstanding, Executive will be entitled to:
(a) The Company shall reimburse the Executive
promptly for all reasonable club membership dues incurred by him for
membership in two clubs in the New York City area;
(b) Executive shall be entitled to be paid an
allowance of $35,000 per year (subject to required withholding) for
financial planning and tax preparation expenses.
(c) The Company shall provide a car and driver for
the Executive's use in New York City.
5. Expenses. Employer will pay or reimburse Executive for such
reasonable travel (including first class air tarvel), 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.
_______________________ ___________________________
JOSEPH R. WRIGHT, JR. RICHARD S. BRADDOCK
CHAIRMAN, COMPENSATION COMMITTEE
EMPLOYMENT AGREEMENT
This Employment Agreement is made on the 1st day of January, 1999 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 January 1, 1999 and shall terminate on
December 31, 2001.
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 Thirty Thousand Dollars
($330,000), 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, October 15, 1998, Executive shall receive ten year options to
purchase 100,000 shares of common stock of the Employer at a price of
$0.875 per share, said options to vest 25% on June 1, 1999, December 31,
1999, June 1, 2000 and December 31, 2000. Said options will be in addition
to 250,000 options issued to Executive per a contract dated January 23,
1998, which options have an exercise price of $0.75. 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 and third years of the term
of this Agreement will be determined by the Compensation Committee of the
Board of Directors.
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,
however it is the goal of Employer to pay a bonus in the first year of the
Agreement between $50,000 to $350,000. All bonuses payable to Executive per
the Agreement and will be payable on December 31 of 1999, 2000 and 2001.
The Compensation Committee may consider a bonus to be paid to Executive on
March 31, 1999 for the fiscal year then ended. 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 and third
years of the term of this Agreement as determined by the Compensation
Committee of the Board of Directors.
4.2 (b) Stock Grants. The Executive will be entitled
to receive a stock grant of 50,000 shares of the Employer's Common Stock
upon the commencement of this Agreement.
4.2 (c) 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.
_________________________ ______________________
MICHAEL J. LIM JOSEPH R. WRIGHT, JR.
CHAIRMAN
EMPLOYMENT AGREEMENT
This Employment Agreement is made on the 1st day of January, 1999 between
AmTec, Inc., a Delaware Corporation ("Employer"), and Albert G. Pastino
("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 January 1, 1999 and shall terminate on
December 31, 2001.
2. Duties. Executive agrees to serve Employer as Senior Vice
President, Chief Financial Officer and Treasurer 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. Further, as to the "on-call" nature of Executive's duties, it is
anticipated that Executive will maintain a residence in New York City,
within relative proximity to the offices of Employer.
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 Two Hundred Twenty Thousand Dollars ($220,000),
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,
October 15, 1998, Executive shall receive ten year options to purchase
75,000 shares of common stock of the Employer at a price of $0.875 per
share, said options to vest 25% on June 1, 1999, December 31, 1999, June 1,
2000 and December 31, 2000. Said options will be in addition to 467,500
options issued to Executive per a contract dated October 15, 1997, which
options have an exercise price of $2.125. 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 and third years of the term of this
Agreement will be determined by the Compensation Committee of the Board of
Directors.
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,
however it is the goal of Employer to pay a bonus in the first year of the
Agreement between $50,000 to $250,000. All bonuses payable to Executive per
the Agreement and will be payable on December 31 of 1999, 2000 and 2001.
The Compensation Committee may consider a bonus to be paid to Executive on
March 31, 1999 for the fiscal year then ended. 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 and third years of the term
of this Agreement as determined by the Compensation Committee of the Board
of Directors.
4.2(b) Stock Grants. The Executive will be entitled to
receive a stock grant of 30,000 shares of the Employer's Common Stock upon
the commencement of this Agreement.
4.2(c) 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 of 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.
_______________________ __________________________
ALBERT G. PASTINO JOSEPH R. WRIGHT, JR.
CHAIRMAN
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