SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant | |
Check the appropriate box:
| | Preliminary Proxy Statement
| | Confidential, for use of the Commission only
(as permitted by Rule 14a-b(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
AMTEC, INC.
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(Name of Registrant as Specified in its Charter)
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: (Set forth
the amount on which the filing fee is calculated and
state how it was determined.)
_________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________
5) Total fee paid:
_________________________________________________________________
|_| Fee paid previously by written preliminary materials.
Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:__________________________________________
2) Form, Schedule or Registration Statement No.:____________________
3) Filing Party:____________________________________________________
4) Date Filed:______________________________________________________
March 24, 2000
Dear Stockholder:
AmTec, Inc. has entered into a merger agreement dated as of
November 24, 1999, providing for the merger of Terremark Holdings, Inc., or
Terremark, a Florida corporation, into AmTec. AmTec will be the surviving
corporation, with our name being changed to Terremark Worldwide, Inc. In
connection with the merger agreement, AmTec has also entered into a stock
purchase agreement, as amended, with Vistagreen Holdings (Bahamas), Ltd., a
Bahamian international business company, Moraine Investments, Inc., a
British Virgin Islands company and Paradise Stream (Bahamas) Limited, a
Bahamian international business company. These parties with whom AmTec has
entered into the stock purchase agreement will be collectively referred to
as Vistagreen. The stock purchase agreement provides for the sale of our
common stock to Vistagreen upon the occurrence of events set forth in the
stock purchase agreement. Together, these agreements contemplate the
proposed transactions that are more fully described in the accompanying
proxy statement.
A special meeting of the stockholders of AmTec will be held at
10:00 a.m., local time, on April 28, 2000, at Waldorf Astoria, Basildon
Room, 3rd Floor, 301 Park Avenue, New York, NY 10022.
At the special meeting, you will be asked to consider and vote
upon proposals to approve:
1. the merger agreement between AmTec and Terremark pursuant to
which
o each existing share of our common stock will be
converted and represent, without any further action by
its holder, one share of common stock in the combined
company,
o 61.5% of the then outstanding shares of the common
stock of the combined company, on a fully diluted
basis, will be issued to the stockholders of Terremark,
and
o Terremark will merge with and into AmTec, with AmTec
being the surviving corporation with its name changed
to Terremark Worldwide, Inc.;
2. the stock purchase agreement between AmTec and Vistagreen,
pursuant to which Vistagreen will purchase 35% of AmTec's
common stock immediately after the effective time of the
merger, provided conditions precedent set forth in the stock
purchase agreement are satisfied; the purchase price for
those shares is $27.1 million in principal plus interest in
the minimum amount of $1 million (the aggregate amount of
$28.1 million being the proceeds of payment of a promissory
note guaranteed by Terremark issued to Vistagreen for the
sale of Terremark Centre to Terremark) plus interest, if
any, accruing after the sale of Terremark Centre on that
amount through closing of the stock purchase; and
3. any other matters that may be properly brought to the
special meeting.
Each of these proposals is described more fully in the
accompanying notice of special meeting of stockholders and proxy statement.
If AmTec closes the merger with Terremark and the sale of our common stock
to Vistagreen, each of (1) the holders of our common stock, (2) holders of
Terremark's common stock and (3) Vistagreen will hold approximately 25%,
40% and 35%, respectively, of AmTec's common stock on a fully diluted
basis.
After careful consideration, the AmTec board has approved the
merger, the merger agreement and the stock purchase agreement. The AmTec
board recommends that you vote in favor of each of the foregoing proposals.
You are encouraged to read the accompanying proxy statement, which provides
additional information regarding your company, Terremark, Vistagreen and
the proposed transactions.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED, REGARDLESS OF THE
NUMBER OF SHARES YOU HOLD. YOU ARE URGED TO COMPLETE THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED BUSINESS REPLY ENVELOPE, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU DO ATTEND AND WISH TO VOTE
IN PERSON, YOU MAY REVOKE YOUR PROXY AT THAT TIME.
If you have any questions regarding the information contained in
the proxy statement or the voting process, please do not hesitate to
contact Karin-Joyce Tjon, the Secretary of AmTec, at 212-319-9160.
Sincerely,
Joseph R. Wright, Jr.
Chairman and Chief Executive Officer
AMTEC, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS, APRIL 28, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph R. Wright, Jr. and Marvin S.
Rosen, and each or either of them, as proxy holders with power to appoint
his substitute and hereby authorizes the proxy holders to represent and
vote, as designated below, all the shares of AmTec, Inc. held of record by
the undersigned on March 15, 2000 at the Meeting of Stockholders to be held
on April 28, 2000 at 10:00 A.M. or any and all adjournments thereof.
1. Proposal to approve the merger agreement between AmTec and
Terremark pursuant to which, when the merger becomes effective, each
existing share of our common stock will be converted and represent, without
any further action by its holder, one share of common stock in the combined
company, and shares equal to 61.5% of our fully diluted shares will be
issued to the shareholders of Terremark, Terremark will be merged with and
into AmTec, with AmTec being the surviving corporation, with its name being
changed to Terremark Worldwide, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to approve the stock purchase agreement between AmTec
and Vistagreen, pursuant to which Vistagreen will purchase 35% of AmTec's
common stock immediately after the effective time of the merger, provided
conditions precedent in the stock purchase agreement between Amtec and
Vistagreen are satisfied. The purchase price for the shares is $27.1
million in principal plus interest in the minimum amount of $1 million (the
aggregate amount of $28.1 million being the proceeds of payment of a
promissory note guaranteed by Terremark issued to Vistagreen for the sale
of Terremark Centre to Terremark) plus interest, if any, accruing after the
sale of Terremark Centre on that amount through closing of the stock
purchase.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxy holders are authorized to vote
upon any other business as may properly be brought before the meeting or
any and all adjournments thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, FOR
PROPOSALS 1 AND 2 AND AS THE PROXIES DEEM ADVISABLE ON ANY OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING AND ANY AND ALL ADJOURNMENTS THEREOF.
Dated: , 2000
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Signature
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(Signature, if held jointly)
Please sign exactly as your name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by
the President or other authorized officer. If a
partnership, please sign in partnership name by an
authorized partner.
PLEASE PROMPTLY MARK, SIGN, DATE, AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.
March 24, 2000
AMTEC, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Notice is hereby given that a special meeting of stockholders of
AmTec, Inc., a Delaware corporation ("AmTec"), will be held at 10:00 a.m.,
local time, on April 28, 2000, at Waldorf Astoria, Basildon Room, 3rd
Floor, 301 Park Avenue, New York, NY 10022.
The meeting is called for the purpose of considering and voting
upon the following proposals:
PROPOSAL 1. The approval and adoption of the merger agreement
dated as of November 24, 1999 between AmTec and Terremark, as amended,
attached to the accompanying proxy statement as Annex A, pursuant to which
Terremark will merge with and into AmTec, with AmTec as the surviving
corporation, with its name changed to Terremark Worldwide, Inc. Pursuant to
the merger agreement, when the merger becomes effective, each existing
share of our common stock will be converted and represent, without any
further action by its holder, one share of common stock in the combined
company, and the holders of Terremark common stock will be issued in the
aggregate 61.5% of the then outstanding shares of our common stock, on a
fully diluted basis, (78,308,842 shares, based on the number of AmTec
shares outstanding, on a fully diluted basis on the record date for this
meeting).
PROPOSAL 2. The approval of the stock purchase agreement between
AmTec and Vistagreen Holdings (Bahamas), Ltd., Paradise Stream (Bahamas)
Limited, a Bahamian international business company and Moraine Investments,
Inc., a British Virgin Islands company, dated as of November 24, 1999, as
amended, attached to the accompanying proxy statement as Annex C. The
parties with whom AmTec has entered into the stock purchase agreement will
be collectively referred to as Vistagreen. The stock purchase agreement
provides that AmTec will, provided the conditions precedent set forth in
the stock purchase agreement are satisfied, sell to Vistagreen 35% of its
outstanding shares of common stock, on a fully diluted basis, after giving
effect to the merger. The purchase price for these shares is $27.1 million
in principal plus interest in the minimum amount of $1 million (the
aggregate amount of $28.1 million being the proceeds of payment of a
promissory note guaranteed by Terremark issued to Vistagreen for the sale
of Terremark Centre to Terremark) plus interest, if any, accruing after the
sale of Terremark Centre on that amount through closing of the stock
purchase. When the merger becomes effective and the sale of shares to
Vistagreen closes, the existing AmTec stockholders, the Terremark
shareholders and Vistagreen, respectively, will hold 48,943,026 (25%),
78,308,842 (40%) and 68,520,236 (35%) shares on a fully diluted basis, but
subject to adjustment on the date of closing.
PROPOSAL 3. To transact any other business as may properly come
before the special meeting or any adjournments or postponements of the
special meeting.
These proposals are more fully described in the attached proxy
statement and its annexes.
The board of directors of AmTec has fixed the close of business on
March 15, 2000 as the record date for the determination of the stockholders
entitled to notice of and to vote at the AmTec special meeting and any
adjournments or postponements of that meeting. Only holders of record of
our common stock on the record date are entitled to vote at the AmTec
special meeting. The affirmative vote of the holders of a majority of the
outstanding shares of our common stock is required to approve and adopt the
merger agreement. The affirmative vote of the holders of a majority of
shares present or represented by proxy at the special meeting and entitled
to vote is required for the approval of the stock purchase agreement and
the issuance of our shares pursuant to the stock purchase agreement. A
failure to vote shares, either by abstention or non-vote, will have the
same effect as a vote against approval of the merger. A majority of the
outstanding shares of our common stock entitled to vote, represented in
person or by proxy, will constitute a quorum at the special meeting.
If you would like to attend the special meeting and your shares
are held by a broker, bank or other nominee, you must bring to the meeting
a recent brokerage statement or a letter from the nominee confirming your
beneficial ownership of the shares of our common stock. You must also bring
a form of personal identification. In order to vote your shares at the
special meeting, you must obtain from the nominee a proxy issued in your
name.
You can ensure that your shares are voted at the special meeting
by signing and dating the enclosed proxy and returning it in the envelope
provided. Sending in a signed proxy will not affect your right to attend
the meeting and vote in person. You may revoke your proxy at any time
before it is voted by giving written notice to the Secretary of AmTec at
AmTec's corporate offices, located at 599 Lexington Avenue, 44th Floor, New
York, NY 10022, by signing and returning a later dated proxy or by voting
in person at the special meeting.
All shares represented by properly executed proxies will be voted
in accordance with the specifications of the proxy card. If no such
specifications are made, proxies will be voted for approval and adoption of
the proposals above.
All stockholders are cordially invited to attend the AmTec special
meeting in person. Whether or not you expect to attend the AmTec special
meeting, we urge you to sign and date the enclosed proxy and return it
promptly in the envelope provided.
By order of the Board of Directors,
Joseph R. Wright, Jr.
Chairman & Chief Executive Officer
PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME
PROXY STATEMENT
AMTEC, INC.
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The board of directors of AmTec approved (1) a merger agreement
dated as of November 24, 1999, as amended, which provides for the merger of
AmTec, Inc. and Terremark Holdings, Inc. and (2) a stock purchase
agreement, as amended, dated as of November 24, 1999 which provides for the
sale of our common stock to Vistagreen Holdings (Bahamas), Ltd., Paradise
Stream (Bahamas) Limited and Moraine Investments, Inc. The parties with
whom AmTec entered into the stock purchase agreement will be referred to
collectively as Vistagreen. In the merger, Terremark will be merged with
and into AmTec, with AmTec as the surviving corporation, with its name
changed to Terremark Worldwide, Inc. In the stock purchase agreement,
Vistagreen has agreed to purchase 35% of the issued and outstanding common
stock of AmTec on a fully diluted basis immediately after the closing of
the merger.
When the merger becomes effective, each existing share of our
common stock will be converted and represent, without any further action by
its holder, one share of common stock in the combined company. Immediately
after the merger becomes effective, all existing holders of our common
stock will hold in the aggregate and on a fully diluted basis, 38.5% of
AmTec's outstanding shares of common stock. Assuming the sale of shares of
common stock to Vistagreen, existing holders of our common stock will hold,
in the aggregate and on a fully diluted basis, 25% of the outstanding
shares of common stock of our company.
When the merger becomes effective, we will issue to holders of
Terremark's common stock a number of shares of our common stock that will
result in holders of Terremark's common stock holding, in the aggregate and
on a fully diluted basis, 61.5% of the shares of our common stock. If
Vistagreen purchases our shares, Terremark holders will hold, in the
aggregate and on a fully diluted basis, 40% of our common stock. Based on
the number of issued and outstanding shares of our common stock as of the
record date, when the merger becomes effective, 78,308,842 shares of our
common stock will be issued to holders of Terremark's common stock.
Pursuant to the stock purchase agreement, Vistagreen will purchase
shares of our common stock constituting 35% of the fully diluted common
shares outstanding after the merger. The purchase price for these shares is
$27.1 million in principal plus interest in the minimum amount of $1
million (the aggregate amount of $28.1 million being the proceeds of a
promissory note guaranteed by Terremark and issued to Vistagreen for the
sale of Terremark Centre to Terremark) plus interest accruing after sale of
Terremark Centre on that amount through closing of the stock purchase. For
a more detailed discussion of the transactions relating to the promissory
note and the sale of Terremark Centre, see "Stock Purchase Agreement" in
the proxy statement. We cannot assure you that Terremark will be able to
sell Terremark Centre, nor can we assure you at what price Terremark Centre
will be sold. Terremark is obligated to make up any shortfall if the
Terremark Centre is sold for less than the amount required to repay its
note. Any obligation Terremark incurs to fund a shortfall will become the
obligation of the combined company. Vistagreen is not obligated to purchase
our shares until Terremark Centre is sold and if the sale does not close by
December 31, 2000, may terminate its obligation to purchase our shares.
Based on the issued and outstanding shares of our common stock as of the
record date, Vistagreen will purchase 68,520,236 shares of common stock and
hold 35% of our shares outstanding immediately after the effective time of
the merger on a fully diluted basis.
The number of shares referred to in the proxy statement to be
purchased by Vistagreen and Terremark or to be held by existing
stockholders of AmTec is subject to adjustment at closing of the merger
based on the number of shares of AmTec common stock outstanding immediately
prior to the consummation of the merger, calculated on a fully diluted
basis.
AmTec common stock is listed on the AMEX under the symbol "ATC."
Our common stock will be listed on the AMEX under the symbol "TWW" after
the merger.
This proxy statement provides you with detailed information about
the proposed transactions. The proposed transactions are complex and you
are strongly encouraged to read the entire document carefully, including
"Risk Factors" and the annexes hereto.
The proxy statement is dated March 24, 2000, and is first mailed
to stockholders on or about March 27, 2000.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
FORWARD LOOKING STATEMENTS...................................................................1
WHERE YOU CAN FIND MORE INFORMATION..........................................................1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS.................................................2
SUMMARY ....................................................................................4
AmTec, Inc..........................................................................4
Terremark Holdings, Inc.............................................................4
AmTec Stockholders Meeting..........................................................5
Votes Required; Record Date; Quorum.................................................6
Risk Factors........................................................................6
The Merger..........................................................................6
Stock Purchase Agreement............................................................9
MARKET PRICES...............................................................................12
SUMMARY HISTORICAL FINANCIAL INFORMATION....................................................13
Comparative per Share Data.........................................................16
RISK FACTORS................................................................................18
Risks Related to the Merger........................................................18
Risks Related to both AmTec and Terremark..........................................19
Risks Factors Specific to AmTec....................................................20
Risk Factors Specific to Terremark.................................................24
THE AMTEC SPECIAL MEETING...................................................................26
Date, Place and Time...............................................................27
Record Date........................................................................27
Quorum ..........................................................................27
Required Votes.....................................................................27
Proxies ..........................................................................27
Solicitation of Proxies............................................................28
THE MERGER..................................................................................29
General ..........................................................................29
Effective Time.....................................................................29
Conversion of Shares; Procedures for Exchange of Terremark Certificates............29
Background of the Merger...........................................................29
Recommendation of the AmTec Board..................................................31
Opinion of Financial Advisor to AmTec..............................................33
Interests of Certain Persons in the Merger.........................................35
Material Federal Income ...........................................35
Accounting Treatment...............................................................36
Effect on AmTec Options and Warrants...............................................36
Regulatory Matters.................................................................36
Federal Securities Law Consequences-- Lock up Agreements...........................36
Appraisal and Dissenters' Rights...................................................37
U.S. Real Property Holding Corporation.............................................37
THE MERGER AGREEMENT........................................................................38
General ..........................................................................38
Consideration to Be Received in the Merger.........................................38
Relationship Between the Stock Purchase Agreement and the Merger Agreement.........38
Principal Representations and Warranties...........................................39
Principal Covenants................................................................40
Conditions to the Consummation of the Merger.......................................43
Termination........................................................................45
Termination Fees Payable by AmTec..................................................46
Expenses ..........................................................................46
THE STOCK PURCHASE AGREEMENT................................................................46
General ..........................................................................46
Consideration to be Received in the Stock Purchase; Sale of Terremark Centre.......47
Principal Representations and Warranties...........................................47
Registration Rights................................................................48
Conditions to the Consummation of the Stock Purchase...............................48
Termination........................................................................50
Expenses ..........................................................................51
Lock Up ..........................................................................51
OTHER AGREEMENTS ...........................................................................51
Shareholders Agreement.............................................................51
Bridge Loan........................................................................52
MANAGEMENT OF AMTEC AFTER THE MERGER........................................................52
Employment Agreements..............................................................55
Stock Option Grants................................................................55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF TERREMARK.................................56
Terremark Relationship with Fusion Telecommunications International, Inc...........56
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS ..............................................................58
BUSINESS OF AMTEC...........................................................................65
Cellular Telephone Networks........................................................65
IP.COM, LLC........................................................................65
IXS.NET, Inc.......................................................................66
AmTec Selected Historical Financial Information ...................................66
AMTEC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................68
Results of Operations..............................................................68
Liquidity and Capital Resources....................................................70
Equity Issuance....................................................................70
BUSINESS OF TERREMARK.......................................................................70
General ..........................................................................70
Operations.........................................................................71
Government Regulations and Environmental Matters...................................73
Competition and Market Factors.....................................................73
Employees..........................................................................74
Employment Agreements..............................................................74
Ownership Structure................................................................74
Properties.........................................................................75
Legal Proceedings .................................................................76
TERREMARK SELECTED HISTORICAL FINANCIAL INFORMATION ........................................77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..........................................................78
Overview ..........................................................................78
Significant accounting policies and new accounting pronouncements .................78
Results of Operations..............................................................79
Liquidity and Capital Resources ...................................................82
Debt ..........................................................................82
Sources of Liquidity ..............................................................83
Inflation .........................................................................83
Year 2000..........................................................................83
Market Risk........................................................................83
Subsequent Events..................................................................84
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF AMTEC............................................................84
DESCRIPTION OF CAPITAL STOCK................................................................85
Description of AmTec Capital Stock ................................................85
REPRESENTATIVE OF INDEPENDENT AUDITORS......................................................86
STOCKHOLDER PROPOSALS.......................................................................86
INDEPENDENT ACCOUNTANTS.....................................................................86
FINANCIAL STATEMENTS INDEX.................................................................F-1
Annex A Agreement and Plan of Merger by and between Terremark Holdings, Inc. and AmTec, Inc.,
as amended
Annex B Opinion of Ramius Capital, LLC
Annex C Stock Purchase Agreement by and between Vistagreen Holdings (Bahamas), Ltd., Paradise
Stream (Bahamas) Limited, Moraine Investments, Inc. and AmTec, Inc., as amended
</TABLE>
FORWARD LOOKING STATEMENTS
This proxy statement includes statements that may constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934. The reasons for the merger discussed under the
caption "The Merger", statements about the expected impact of the merger on
AmTec's businesses, financial performance and condition, accounting and tax
treatment and the extent of the charges to be incurred by AmTec relating to
the merger are forward-looking statements. Further, any statements
contained in this proxy statement that are not statements of historical
fact may be deemed to be forward looking statements. Forward-looking
statements in this proxy statement are identifiable by use of any of the
following words and other similar expressions, among others:
o "anticipate" o "may"
o "believe" o "might"
o "could" o "plan"
o "estimate" o "predict"
o "expect" o "project"
o "intend" o "should"
There are a number of important factors that could cause the
results of the combined company to differ materially from those indicated
by these forward-looking statements, including, but not limited to:
o the risk that anticipated synergies from the merger will not
be realized,
o the significant transaction charges and the potential
dilutive effect to the holders of AmTec common stock which
will result from the merger,
o significant fluctuation in operating results, o the ability
to recruit and retain qualified personnel in the
telecommunications industry,
o the ability to secure additional funding, and
o other factors described in this proxy statement under the
caption "Risk Factors".
WHERE YOU CAN FIND MORE INFORMATION
AmTec files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange
Commission. You may read and copy the materials AmTec files with the
Commission at the Commission's public reference room at 450 Fifth Street,
N.W. Washington D.C. 20549 and at the Commission's regional offices in
Chicago, Illinois and New York, New York. Please call the Commission at
1-800-SEC-0330 for further information on the operation of the public
reference rooms. The Commission also maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers that file with the Commission, including us. The site's
address is http://www.sec.gov. You can request copies of those documents,
upon payment of a duplicating fee, by writing to the Commission.
This proxy statement provides you with detailed information about
the proposed transactions. The proposed transactions are complex and you
are strongly encouraged to read the entire document carefully, including
"Risk Factors" and the annexes hereto.
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: WHAT ARE THE PROPOSED TRANSACTIONS?
A: Under the merger agreement, Terremark will be merged with and into
AmTec, Inc. Our company will continue as the surviving corporation, with
the company's name changed to Terremark Worldwide, Inc. Under the stock
purchase agreement, Terremark shareholders will initially own 61.5% of our
shares. Vistagreen will purchase shares of our company representing 35% of
the issued and outstanding shares of common stock after giving effect to
the merger, provided that the merger occurs and other conditions precedent
are satisfied. After the proposed transactions close, our stockholders,
Terremark shareholders and Vistagreen will own 25%, 40% and 35%,
respectively, of our company.
Q: AS AN AMTEC STOCKHOLDER, HOW MANY SHARES OF AMTEC COMMON STOCK WILL I OWN
AFTER THE MERGER?
A: If the merger is approved, you will hold one share of AmTec common stock
after the merger for each AmTec share you held prior to the merger. The
issuance of shares of common stock to Vistagreen will not affect the number
of shares of our common stock that you own.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE PROPOSED TRANSACTIONS?
A: The proposed transactions will constitute a tax-free reorganization for
federal income tax purposes. Generally, AmTec stockholders will not
recognize any taxable gain or loss in connection with the proposed
transactions. Tax matters, however, are complicated, and the tax
consequences of the proposed transactions to you will depend on the facts
of your particular situation. We encourage you to contact your tax advisors
to determine the tax consequences of the merger to you.
Q: IF I AM NOT GOING TO ATTEND THE STOCKHOLDER MEETING, SHOULD I RETURN MY
PROXY CARD?
A: Yes, please fill out and sign your proxy card and mail it to us in the
enclosed return envelope as soon as possible. Returning your proxy card ensures
that your shares will be represented at the special meeting.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY
CARD?
A: Send in a later-dated, signed proxy card to AmTec's Corporate Secretary
before the special meeting or attend the special meeting in person and vote.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in
this document and completing and signing your proxy card, just call the
1-800 number listed on your proxy card or mail your signed proxy card in the
enclosed envelope as soon as possible so that your shares may be
represented at the meeting. In order to ensure that your vote is obtained,
please give your proxy as instructed on your proxy card, even if you
currently plan to attend the meeting in person. The board of directors of
AmTec recommend that its stockholders vote in favor of the merger, the
stock purchase and related transactions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: If you do not provide your broker with instructions on
how to vote your "street name" shares, your broker will not be permitted to
vote them on the proposals. You should therefore be sure to provide your
broker with instructions on how you vote your shares. If you do not give
voting instructions to your broker, you will not be counted as voting for
the purposes of any of the proposals unless you appear in person at the
meeting.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible.
Assuming that both AmTec and Terremark satisfy or waive all of the
conditions to closing contained in the merger agreement, we anticipate that
the merger will occur as soon as practicable after approval of the merger
and related transactions at the special meeting.
Q: WHEN DO YOU EXPECT THE STOCK PURCHASE TO BE COMPLETED?
A: Assuming that the merger is closed and that both AmTec and Vistagreen
satisfy or waive all of the conditions to closing contained in the stock
purchase agreement, we anticipate that the stock purchase by Vistagreen
will occur immediately after the merger closes.
Q: WHOM SHOULD STOCKHOLDERS CALL WITH ADDITIONAL QUESTIONS?
A: Stockholders who have questions about the proposed transactions should
call AmTec's Corporate Secretary, at 212-319-9160.
SUMMARY
This summary highlights selected information contained elsewhere
in this proxy statement and the annexes to this proxy statement. This
summary does not contain a complete statement of all material information
relating to the merger agreement, the stock purchase agreement or the
transactions contemplated thereby and is subject to, and is qualified in
its entirety by, the more detailed information, the financial statements
and the annexes contained in this proxy statement. To fully understand the
proposed transactions, you should read this proxy statement carefully and
in its entirety. In this document, references to Terremark will mean
Terremark Holding, Inc., a Florida corporation, and its affiliates;
references to Vistagreen will mean collectively Vistagreen Holdings
(Bahamas), Ltd., a Bahamian international business company, Paradise Stream
(Bahamas) Limited, a Bahamian international business company and Moraine
Investments, Inc., a British Virgin Islands company; and references to
Vistagreen group will mean Vistagreen and its affiliates.
AMTEC, INC.
AmTec 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. We initially focused our business on China
because of that country's large and rapidly growing need for
telecommunications services and its requirement for foreign capital and
technology to meet that need. More recently, we have formed a joint venture
with Fusion Telecommunications International to provide telecom services,
both voice and data, to and from Asia. We have also invested in IXS.NET,
Inc. to provide fax services over the Internet, prepaid credit cards and
other Internet Protocol based services. Our joint venture operations in six
cellular networks in Hebei Province in Northeast China have been
terminated. We continue to have a joint venture with the Electronics
Industry Department of Hebei Province and are repositioning that joint
venture with a view to providing Internet Protocol fax, voice and other
services which can be transmitted over digital telephone lines or the
Internet.
We were originally founded as a Colorado corporation on May 10,
1982, and were reincorporated under the laws of the state of Delaware on
July 10, 1996. Since April 1995, we have been engaged in the business of
developing telecommunications networks in the PRC. In January 1996, we sold
substantially all of the assets of ITV Communications, Inc., our former
primary operating subsidiary. On July 8, 1997, we changed our name to
AmTec, Inc. from AVIC Group International, Inc. Our principal executive
office is located at 599 Lexington Avenue, 44th Floor, New York, New York
10022. Our telephone number is (212) 319-9160. See "Business of AmTec" and
"AmTec Management's Discussion and Analysis of Financial Condition and
Results of Operations".
TERREMARK HOLDINGS, INC.
Terremark Holdings, Inc., formerly known as Terremark Investment
Services, Inc., was formed in 1982 and along with its subsidiaries, is
engaged in the development, construction, sale, leasing, management and
financing of various real estate projects. Terremark has provided these
services to private and institutional investors, as well as for its own
account. The real estate projects with which Terremark has been involved
have included retail, high rise office complexes, mixed use projects,
condominiums, condominium hotels, and governmental assisted housing.
Terremark is also involved in a number of ancillary businesses
which complement its core development operations. Specifically, Terremark
engages in brokering financial services, property management, construction,
construction management, condominium hotel management, residential sales
and commercial leasing and brokerage, and advisory services.
Terremark has also been active internationally, although its
current projects are all located in South Florida. Terremark believes that
its success is attributable both to its team approach, which makes
available the resources of all of the divisions to a project, and its focus
on the most important step in the development process, which it believes is
the identification and analysis of viable opportunities.
Terremark's principal executive office is located at 2601 South
Bayshore Drive, Miami, Florida. Its telephone number is (305) 856-3200. See
"Business of Terremark" and "Terremark Management's Discussion and Analysis
of Financial Condition and Results of Operations".
AMTEC STOCKHOLDERS MEETING
The AmTec special meeting will be held at Waldorf Astoria,
Basildon Room, 3rd Floor, 301 Park Avenue, New York, NY 10022 at 10:00 a.m.,
local time, on April 28, 2000. At the special meeting, AmTec will ask the
holders of its common stock to consider and vote upon:
PROPOSAL 1. The approval and adoption of the merger agreement,
dated as of November 24, 1999, as amended, between AmTec and Terremark,
pursuant to which Terremark will merge with and into AmTec, with AmTec as
the surviving corporation, with its name changed to Terremark Worldwide,
Inc. When the merger becomes effective, each existing share of our common
stock will be converted and represent, without any further action by its
holder, one share of common stock in the combined company, and the holders
of Terremark common stock will be issued in the aggregate 61.5% of the then
outstanding shares of the common stock in the combined company, on a fully
diluted basis. This will equal 78,308,842 shares, based on the number of
AmTec shares outstanding on a fully diluted basis on the record date for
this meeting.
PROPOSAL 2. The approval of the stock purchase agreement between
AmTec and Vistagreen, dated as of November 24, 1999, as amended, pursuant
to which AmTec will, provided the conditions precedent set forth in the
stock purchase agreement are satisfied, sell to Vistagreen 35% of its
outstanding shares of common stock, on a fully diluted basis, after giving
effect to the merger. After the merger and the stock purchase close, the
existing AmTec stockholders, the Terremark shareholders and Vistagreen,
respectively, will hold 48,943,026 (25%), 78,308,842 (40%) and 68,520,236
(35%) shares of our common stock on a fully diluted basis. The purchase
price for shares to be sold to Vistagreen is $27.1 million in principal
plus interest in the minimum amount of $1 million (the aggregate amount of
$28.1 million being the proceeds of a promissory note guaranteed by
Terremark and issued to Vistagreen for the sale of Terremark Centre to
Terremark) plus interest, if any, accruing after sale of Terremark Centre
on such amount through closing of the stock purchase. For a more detailed
discussion of the transactions relating to the promissory note and the sale
of Terremark Centre, see "Stock Purchase Agreement" herein. We cannot
assure you that Terremark will be able to sell Terremark Centre, nor can we
assure you at what price Terremark Centre will be sold. Terremark is
obligated to make up any shortfall if the Terremark Centre is sold for less
than the amount required to repay its note. Any obligation Terremark incurs
to fund a shortfall will become the obligation of the combined company.
Vistagreen is not obligated to purchase our shares until Terremark Centre
is sold and if the sale does not close by December 31, 2000, may terminate
its obligation to purchase our shares.
PROPOSAL 3. To transact any other business as may properly come
before the special meeting or any adjournments or postponements thereof.
VOTES REQUIRED; RECORD DATE; QUORUM
At the close of the business on AmTec's record date, March 15,
2000, there were 38,104,992 shares of our common stock outstanding, each of
which entitles the registered holder thereof to one vote.
The affirmative vote of the holders of a majority of the
outstanding shares of our common stock is required to approve and adopt the
merger agreement. The affirmative vote of the holders of a majority of
shares present or represented by proxy at the special meeting and entitled
to vote is required for the approval of the stock purchase agreement and
the issuance of shares pursuant to the stock purchase agreement. A failure
to vote shares, either by abstention or non-vote, will have the same effect
as a vote against the approval of the merger. A majority of the outstanding
shares of our common stock entitled to vote, represented in person or by
proxy, will constitute a quorum at the special meeting.
RISK FACTORS
See "Risk Factors" for a detailed discussion of the risk factors
pertaining to the proposed transactions and the businesses of AmTec and
Terremark.
Your board of directors believes that the proposed transactions
are in the best interests of AmTec and you are being asked to vote in favor
of them.
THE MERGER
GENERAL. Under the merger agreement, Terremark will be merged with
and into AmTec. The separate corporate existence of Terremark will cease,
and AmTec will continue as the surviving corporation, with our company's
name changed to Terremark Worldwide, Inc. On November 9, 1999, the date
preceding the public announcement of the merger, the closing price of our
stock was $1.
When the merger becomes effective, the number of authorized shares
of our common stock will be increased from 100,000,000 to 300,000,000, and
the holders of Terremark common stock will be issued, in the aggregate,
78,308,842 shares of our common stock, or 61.5% of the then outstanding
shares of our common stock, on a fully diluted basis, (calculated based on
the number of AmTec shares outstanding, on a fully diluted basis, on the
record date for this meeting).
AmTec's common stock is currently listed on the AMEX under the
symbol "ATC." After the merger, the surviving corporation's common stock
will be traded on the AMEX under the symbol "TWW".
AmTec has never paid any cash dividends and currently intends to
retain future earnings, if any, to fund the development and growth of its
business.
REASONS FOR THE MERGER
AmTec believes that the merger, combined with the sale of AmTec
common stock to Vistagreen, will provide the funding it needs to alleviate
the significant liquidity constraints under which it currently operates.
This will enable AmTec to more rapidly develop its business plan and take
advantage of business opportunities. In addition, AmTec believes that the
combined company's stronger balance sheet will enable it to accelerate its
expansion plans and to raise additional capital. AmTec also believes that
the contacts of Terremark in South America and the Lee family (the ultimate
beneficial owners of Vistagreen) in South East Asia will be useful in
developing and negotiating future telecommunications alliances in those
markets.
CONDITIONS TO THE MERGER; TERMINATION; FEES. The consummation of the
merger is subject to various conditions, including:
o the continued accuracy of the parties' representations and
warranties and fulfillment of each party's promises
contained in the merger agreement;
o receiving the required vote of the AmTec stockholders to
approve the merger agreement and merger;
o the receipt of an opinion from the law firm of Greenberg
Traurig, P.A., counsel to Terremark, that the merger will
constitute a tax-free reorganization;
o the authorization for listing on the AMEX of the AmTec
common stock to be issued in the merger;
o satisfaction of all conditions precedent (other than the
merger) to closing the stock purchase agreement described
below;
o the receipt of all third party consents required to
consummate the merger; and
o the absence of any restraining orders, injunctions or other
orders preventing the consummation of the merger or other
litigation or administrative actions or proceedings.
AmTec has agreed that:
o if the merger agreement is terminated due to material breach
of any representation, warranty, obligation, covenant,
agreement or condition set forth in the merger agreement,
AmTec will pay to Terremark all Terremark's out-of-pocket
expenses incurred in connection with the transaction not to
exceed $200,000 and $3.0 million which is the estimated
amount of the real estate commission for the sale of
Terremark Centre otherwise payable by Vistagreen which
Terremark waived in connection with the negotiation of the
merger and the stock purchase; or
o if the merger agreement is terminated as a result of the
board of directors of AmTec withdrawing their approval and
recommendation, AmTec will pay to Terremark all Terremark's
out-of-pocket expenses incurred in connection with the
transaction not to exceed $200,000 and $3.0 million; or
o if the merger agreement is terminated due to AmTec accepting
a superior offer, in addition to the above fees, AmTec will
pay Terremark an amount equal to 25% of the difference
between the valuation of AmTec used to formulate that
superior proposal and the valuation of AmTec used to
formulate the merger.
o if AmTec
o accepts another business combination proposal,
o breaches any term, agreement or covenant of the merger
agreement between Terremark and AmTec, or
o if the stockholders of AmTec do not approve the merger
agreement,
o AmTec will have to immediately repay a loan of up to
$1.5 million to Terremark. Thus, if the merger is not
consummated, AmTec will have to repay its borrowings
under the bridge financing arrangement with Terremark
in addition to the termination fees that it may owe
Terremark under the merger agreement. Unless AmTec
obtains alternative financing to repay such borrowings,
AmTec's business and financial condition will be
materially and adversely affected.
DISSENTERS' AND APPRAISAL RIGHTS. Under applicable Delaware law,
the holders of AmTec common stock are not entitled to dissenters' or
appraisal rights in connection with the merger or any of the other proposed
actions.
ACCOUNTING TREATMENT. We will account for the merger using the
purchase method of accounting, with Terremark treated as the acquirer for
accounting purposes. As a result, the assets and liabilities of Terremark
will be recorded at historical values without restatement to fair values.
The assets and liabilities of AmTec will be recorded at their estimated
fair values at the date of the merger, with the excess of the purchase
price over the sum of such fair values recorded as goodwill. For this
purpose, the purchase price is based upon market capitalization of AmTec
using an average trading price of AmTec's shares for a period immediately
before and after the announcement of the proposed merger on November 9,
1999, plus certain merger related costs. In subsequent periods, historical
information of Terremark will be that of the surviving corporation.
OPINION OF FINANCIAL ADVISORS TO AMTEC. In deciding to approve the
merger, AmTec's board of directors considered the advice of its financial
advisor, Ramius Capital, LLC, that, as of the date of its opinion and
subject to the limitations in the opinion, the merger, including the
closing of the stock purchase, was the best alternative for carrying out
AmTec's plans and programs from a financial point of view. The full text of
the Ramius Capital opinion is attached as Annex B to this document. You are
encouraged to read this opinion carefully and in its entirety.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTIONS. Some members of
AmTec and Terremark management and their boards of directors have interests
in the proposed transactions that are different from, or in addition to,
the interests of the AmTec stockholders generally. The board of directors
of AmTec was aware of those interests and considered them, among other
matters, in adopting and approving the proposed transactions.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES. The merger has been
structured so that it will constitute a tax-free reorganization for U.S.
federal income tax purposes, so it is expected that no gain or loss will be
recognized for federal income tax purposes by AmTec upon the transfer of
Terremark assets and liabilities to AmTec pursuant to the merger, except
Terremark may recognize gain or loss on any assets held by it that are
required to be marked to market as a result of the merger. Neither the
merger nor the issuance of our common stock to Vistagreen should result in
recognition of a gain or loss for federal income tax purposes by existing
AmTec stockholders. See "Material Federal Income Tax Consequences."
NO SOLICITATION. Under the merger agreement, except under specified
circumstances, each of AmTec and Terremark has agreed not to:
o solicit, initiate or encourage any alternate acquisition
proposal;
o furnish any information regarding itself to any other party
in connection with any alternate acquisition proposal;
o participate in any discussions or negotiations with any
other parties regarding an alternate acquisition proposal;
o approve, endorse or recommend any alternate proposal; or
o enter into any letter of intent or similar document or any
other contract relating to an alternate acquisition
proposal.
LOCK UP. Although we have agreed to file a registration statement
on Form S-3 (or similar form) after the merger and the stock purchase
close, registering our shares issued in connection with the proposed
transactions, each holder of Terremark's common stock immediately before
the merger closes must agree, except as provided below, not to sell, offer
to sell, or otherwise dispose of any interest in our common stock received
by them for a period of not less than one year after the closing of the
merger. This does not preclude open market sales in amounts that would be
permitted under Rule 145 as if that rule applied (generally, the greater in
any three-month period of one percent of our outstanding shares or the
average trading volume of our shares on the AMEX during the four weeks
prior to filing a notice of sale with the SEC) or sales by any holder of
Terremark to Terremark, any affiliate of Terremark or another holder of
Terremark, or to any member of the Vistagreen group or an affiliate of the
Vistagreen group, as defined in the merger agreement.
STOCK PURCHASE AGREEMENT
GENERAL. Concurrent with the signing of the merger agreement,
AmTec entered into the stock purchase agreement with Vistagreen. Under the
stock purchase agreement, immediately after the close of the merger, AmTec,
provided that conditions of the stock purchase agreement are satisfied,
will sell to Vistagreen 68,520,236 shares (35%) of outstanding shares of
common stock of AmTec, on a fully diluted basis after giving effect to the
merger. Vistagreen group is beneficially owned by family trusts for the
benefit of Francis Lee and members of his family. The Lee family holds
substantial real estate and timber interests in Southeast Asia.
SALE OF TERREMARK CENTRE. One of the conditions of the stock
purchase agreement is the sale of Terremark Centre, purchased by Terremark
from Vistagreen group on December 22, 1999. Prior to the purchase,
Terremark managed Terremark Centre for Vistagreen group. Terremark Centre
is an office-residential complex which contains approximately 294,000
rentable square feet of office space, 16 residential units and a multistory
parking garage, located at 2601 S. Bayshore Drive, Coconut Grove, in
Miami-Dade County, Florida.
Terremark purchased the Terremark Centre from Vistagreen group for
$56.0 million primarily through assumption of an approximate $28.3 million
first mortgage and issuance of approximately $27.1 million in purchase
money notes to Vistagreen. As of December 31, 1999 the first mortgage had a
balance of $28.2 million. Vistagreen group will pay for its shares in AmTec
with the proceeds from repayment of the purchase money notes, including
accrued interest, and other funds, if required.
Terremark intends to sell Terremark Centre before the closing of
the merger and began an active marketing program at the end of November
1999. Terremark and the Florida State Board of Administration entered into
a Contract for Purchase and Sale of Terremark Centre on February 21, 2000
for $56.5 million. Issues subsequently arose on which the parties could not
agree and the contract was terminated prior to expiration of the due
diligence period. On March 20, 2000 Terremark entered into a non-binding
letter of intent to sell the building to another third party buyer for a
purchase price of $56.8 million. This transaction is subject to
execution of a binding contract, a 20 day due diligence period and 10 day
closing date following expiration of such due diligence period. If
Terremark does not sell Terremark Centre, Vistagreen is not obligated to
purchase AmTec common stock. In addition, if the merger does not occur on
or before December 31, 2000, or the Terremark Centre is not sold,
Vistagreen will not be obligated to purchase any AmTec common stock. No
assurances can be made as to the timing of, or the amount of value to be
received from, a sale of Terremark Centre. If the Terremark Centre is sold
for a price which does not yield proceeds adequate to repay the promissory
note in full, Terremark is obligated to fund the difference. If the sales
proceeds exceed the amount required to fully retire the promissory note,
Terremark will be entitled to the excess. Neither AmTec nor Terremark
currently anticipate closing the merger before Terremark Centre is sold.
However, AmTec may waive this condition and reserves the right to do so.
REAL PROPERTY HOLDING COMPANY ISSUES. The stock purchase agreement
further provides that Vistagreen will not be obligated to purchase AmTec
common stock unless Vistagreen receives an opinion from Greenberg Traurig
P.A., counsel to Terremark, that the surviving corporation is not a United
States Real Property Holding Corporation (as defined in Section 897(c)(2)
of the Internal Revenue Code). You should look at the pro forma financial
information provided herein to understand what our company's financial
condition would be with and without the sale of common stock to Vistagreen.
CONDITIONS TO THE STOCK PURCHASE; TERMINATION. The consummation of
the stock purchase is subject to various conditions, including:
o the closing of the merger;
o the continued accuracy of the parties' representations and
warranties and fulfillment of each party's promises contained
in the stock purchase agreement;
o the sale of Terremark Centre;
o Vistagreen's receipt of an opinion from Greenberg Traurig,
P.A. that the surviving corporation is not a United States
Real Property Holding Corporation (as defined in Section
897(c)(2) of the U.S. Internal Revenue Code) and that the
AmTec shares are not interests in U.S. real property;
o approval of the merger, the merger agreement, and the stock
purchase agreement by the requisite vote of AmTec
stockholders; and
o the authorization of listing on the AMEX of the common stock
to be issued pursuant to the merger and the stock purchase.
The stock purchase agreement may be terminated before the sale of
the shares of our company to Vistagreen by:
o mutual consent of the boards of directors of AmTec and
Vistagreen;
o Vistagreen if the merger does not occur before December 31, 2000;
o any of the parties if a governmental entity or competent
jurisdiction issues a final and nonappealable order
preventing the merger;
o AmTec's board of directors or Vistagreen if the other party
materially breaches any representation, warranty, obligation,
covenant, agreement or condition in the stock purchase
agreement, subject to rights set forth in the stock purchase
agreement to cure any breach;
o Vistagreen if either AmTec or Terremark materially breaches
any representation, warranty, obligation, covenant agreement
or condition in the merger agreement, subject to rights set
forth in the stock purchase agreement to cure any breach;
o AmTec or Vistagreen if requisite stockholder approval of the
stock purchase agreement and the merger agreement are not
obtained; or
o AmTec's board of directors or Vistagreen if AmTec's board of
directors withdraws or modifies its approval or
recommendation of the merger in a way adverse to Terremark or
Vistagreen.
REASONS FOR THE STOCK PURCHASE. AmTec's board of directors
considered a number of factors in evaluating the stock purchase agreement.
After consideration of all factors taken as whole, the board of directors
determined that the stock purchase agreement and transactions contemplated
thereunder are fair to, and in the best interests of, AmTec's stockholders.
LOCK UP. Although we have agreed to file a registration statement
on Form S-3 (or similar form) after the merger and the stock purchase
close, registering our shares issued in connection with the proposed
transactions, Vistagreen group has agreed, except as provided below, not to
sell, offer to sell, or otherwise dispose of an interest in our common
stock received by Vistagreen group for a period of not less than one year
after the closing of the merger. This does not preclude open market sales
in amounts that would be permitted under Rule 145 as if that rule applied
(generally, the greater in any three-month period of one percent of our
outstanding shares or the average trading volume of our shares on the AMEX
during the four weeks prior to filing a notice of sale with the SEC) or
sales by any member of the Vistagreen group to another member of the
Vistagreen group or any family member or affiliate of any member of the
Vistagreen group or to Terremark or any affiliate of Terremark, as defined
in the stock purchase agreement.
MARKET PRICES
Our common stock is listed on the AMEX under the symbol "ATC." The
following table sets forth, for each fiscal year ended March 31, the high
and low sales prices per share of our common stock as reported by the AMEX
Composite Tape for the periods indicated.
COMMON STOCK
---------------------------
FISCAL YEAR 1998 HIGH LOW
---------------------------
First Quarter.................................... $5.1875 $2.8125
Second Quarter................................... 3.4375 1.8125
Third Quarter.................................... 2.4375 0.5000
Fourth Quarter................................... 1.1875 0.5625
FISCAL YEAR 1999
First Quarter.................................... 2.2500 1.1875
Second Quarter................................... 1.3750 0.8750
Third Quarter.................................... 1.1250 0.8125
Fourth Quarter................................... 1.6250 0.9375
FISCAL YEAR 2000
First Quarter.................................... 1.4375 1.2500
Second Quarter................................... 2.0625 1.0625
Third Quarter.................................... 2.3750 0.8750
Fourth Quarter through March 17, 2000............ 5.9375 1.8125
On November 9, 1999, the last full trading day before the
announcement of the proposed transactions, the closing price was $1.00 per
share, as reported by the AMEX Composite Tape. The closing price of our
common stock on March 17, 2000, the most recent practicable date before
the printing of this proxy statement, was $4.4375 per share, as reported by
the AMEX Composite Tape. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS.
SUMMARY HISTORICAL FINANCIAL INFORMATION
AmTec and Terremark are providing the following summary historical
financial information to help you in your analysis of the financial aspects
of the merger and related transactions. We derived this information from
the audited and unaudited financial statements of AmTec and Terremark for
the periods presented. The information provided is only a summary and
should be read in conjunction with the financial statements and the notes,
which are included in this proxy statement. See "Where You Can Find More
Information" and "Index to Financial Statements".
AMTEC SUMMARY HISTORICAL FINANCIAL INFORMATION. The summary
financial information of AmTec as of and for the years ended March 31,
1999, 1998 and 1997 have been derived from the consolidated financial
statements audited by Deloitte & Touche LLP. The summary historical
financial information of AmTec as of and for the years ended March 31, 1996
and 1995 have been derived from the consolidated financial statements
audited by Singer Lewak Greenbaum & Goldstein LLP. AmTec derived the
consolidated statement of operations data for the nine months ended
December 31, 1999 and 1998 and the consolidated balance sheet data as of
December 31, 1999 and 1998 from unaudited consolidated financial
statements. In the opinion of management, the unaudited consolidated
interim financial statements for the nine months ended December 31, 1999
and 1998 include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the
unaudited periods. The historical financial information for the nine months
ended December 31, 1999 do not necessarily indicate results that may be
expected for the entire fiscal year.
TERREMARK SUMMARY HISTORICAL FINANCIAL INFORMATION. The summary
financial information of Terremark as of and for the years ended March 31,
1999, 1998 and 1997 have been derived from the consolidated financial
statements audited by PricewaterhouseCoopers LLP. The summary historical
financial information of Terremark as of and for the years ended March 31,
1996 and 1995 have been derived from unaudited consolidated financial
statements. Terremark derived the consolidated statement of operations data
for the nine months ended December 31, 1999 and 1998 and the consolidated
balance sheet data as of December 31, 1999 and 1998 from unaudited
consolidated financial statements. In the opinion of management, the
unaudited financial statements for the years ended March 31, 1996 and 1995
and the nine months ended December 31, 1999 and 1998 include all
adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the unaudited periods. The historical
financial information for the nine months ended December 31, 1999 do not
necessarily indicate results that may be expected for the entire fiscal
year.
The merger transaction will result in Terremark receiving a
majority of the combined company's voting common stock. Accordingly, the
merger will be treated as a reverse acquisition for accounting purposes,
with Terremark as the acquirer. Subsequent to the merger's effective date,
comparative historical information of the combined company will be that of
Terremark.
The financial statement data provided below should be read in
conjunction with, and is qualified in its entirety by reference to, the
financial statements and the related notes included elsewhere in this proxy
statement, "Unaudited Pro Forma Combined Condensed Financial Statements",
AmTec's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Terremark's Management's Discussion and
Analysis of Financial Condition and Results of Operations".
AMTEC SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
TWELVE MONTHS ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------ ---------------------
1999 1998 1997 1996 1995 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues(1)..................... $ - $ - $ - $ - $ 345 $ - $ -
Total expenses........................ 4,650 4,283 3,564 2,516 5,931 2,403 2,850
Total other income (expense).......... (544) (514) (361) (365) 48 46 (422)
Loss from continuing operations before
equity in losses of unconsolidated
subsidiary and affiliate.......... (5,194) (4,797) (3,925) (2,881) (2,357) (3,272)
Equity in loss of affiliate (2)....... - - - (500) - (172) -
Equity in income (loss of) unconsolidated
subsidiaries(3)................... (385) (606) (140) 443 (1,413)
Loss from continuing operations....... (5,579) (5,403) (4,065) (3,381) - (2,086) (4,685)
Loss from discontinued operations..... - - - (1,901) 5,586 - -
Net loss.............................. $ (5,579) $(5,403) (4,065) (5,282) (5,538) (2,086) (4,685)
AS OF MARCH 31, AS OF DECEMBER 31,
----------------------------------------------- ------ -------------------
1999 1998 1997 1996 1995 1999 1998
---------- ------- ------ --------- ------ -------- --------
BALANCE SHEET DATA:
Investment in and advances to
unconsolidated subsidiary......... $ 2,496 $ 5,074 $ 2,221 $ - $ - $ 2,439 $ 1,423
Total assets.......................... $ 4,781 $ 7,683 $ 4,005 $ 1,660 $ 3,267 $ 4,447 $ 2,814
Long term obligations................. $ $ $ - $ - $ - $ - $ -
Stockholders' equity (deficit)........ $ 3,813 $ 4,897 $ 548 $ (2,241) $ (1,225) $ 2,703 $ 4,608
- -------------------
</TABLE>
(1) Revenue for year 1995 was derived from design, manufacture and sale of
technologically advanced communication devices by AmTec's wholly-owned
subsidiary ITV Communications, Inc., or ITV. In January 1996, AmTecs
sold all of the business and operating assets of ITV and is no longer
involved in the business in which ITV was engaged. AmTec has no
revenues after years 1997 because the results of operations of AmTec's
subsidiary Hebei Equipment were accounted for under the equity method
of accounting. AmTec recorded only its shares of losses of its
unconsolidated subsidiary according to the percentage of its equity
interest.
(2) AmTec held a 39% ownership interest in Netmatics, Inc., or Netmatics,
as of March 31, 1997. In fiscal 1996, AmTec suspended the equity
method of accounting for its investment in Netmatics when AmTec's
share of losses equaled the carrying amount of its investment in
Netmatics. AmTec held a 50% ownership interest in IP.Com, LLC as of
December 31, 1999 and AmTec accounted for its investment using the
equity method of accounting. Equity loss in affiliate during the nine
months period ended December 31, 1999 represented share of loss in
IP.Com, LLC.
(3) Equity in loss of unconsolidated subsidiary reflects AmTec's share of
the losses of its joint venture interests in Hebei Equipment and Hebei
Engineering.
TERREMARK SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
TWELVE MONTHS ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------ ---------------------
1999 1998 1997 1996 1995 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................ $44,456 $37,632 $2,629 $784 $1,422 $13,390 $39,318
Total cost of sales................... 31,148 22,667 742 -- 750 9,100 27,700
Other expenses........................ 12,684 13,869 1,925 982 1,043 7,750 10,021
(Loss) income from continuing operations 624 1,096 (38) (198) (371) (3,460) 1,597
Net income (loss)..................... $624 $1,096 $(38) $(198) $(371) $(3,460) $1,597
AS OF MARCH 31, AS OF DECEMBER 31,
------------------------------------------------------ ---------------------
1999 1998 1997 1996 1995 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate inventories............... $12,888 $33,311 $9,483 $3,679 $2,590 $5,317 $16,188
Total assets.......................... $17,598 $42,931 $15,258 $4,850 $4,077 $68,248 $22,145
Long term obligations (1)............. $8,737 $32,081 $11,928 $3,594 $3,112 $60,783 $15,761
Shareholders' equity ................. $6,510 $1,709 $612 $700 $897 $3,049 $3,306
</TABLE>
- -------------------
(1) Long-term obligations include debt, and capitalized lease obligations.
(2) Stockholders' equity as of March 31, 1999 and December 31, 1999
include approximately $4,177 in convertible preferred stock.
COMPARATIVE PER SHARE DATA
The following tabulation reflects the historical net income from
continuing operations and book values per share of AmTec and Terremark
common stock in comparison with (a) the equivalent pro forma per share
amounts after giving effect to the merger of AmTec and Terremark treated as
a reverse acquisition for accounting purposes, with Terremark as the
acquirer and (b) the equivalent pro forma amounts after giving effect to
the merger as discussed in (a) above and the Vistagreen transactions.
Equivalent pro forma amounts are calculated by multiplying the pro forma
income (loss) per share and pro forma book value per share by the exchange
ratios so that the per share amounts are equated to the respective values
for one fully diluted share of the (a) merged company and (b) merged
company after the Vistagreen transactions.
The following tabulation also reflects the historical cash
dividends per share of AmTec and Terremark common stock in comparison with
(a) the equivalent pro forma per share amounts after giving effect to the
merger and to the merger after the Vistagreen transactions.
You should read the information below with the selected financial
data, the unaudited pro forma condensed financial information and the
separate historical financial statements of AmTec and Terremark, and notes
thereto, included elsewhere in this proxy statement. The pro forma
condensed financial data is not necessarily indicative of the operating
results that would have been achieved had the merger and/or the stock
purchase been completed as of the beginning of the periods indicated nor is
this data necessarily indicative of future financial condition or results
of operations. For purposes of comparative per share data, AmTec's
financial data for the nine months ended December 31, 1999 has been
combined with Terremark's financial data for the nine months ended December
31, 1999.
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS
ENDED AS OF AND FOR THE
DECEMBER 31, YEAR ENDED
1999 MARCH 31, 1999
--------------------------------------
<S> <C> <C>
INCOME (LOSS) FROM CONTINUING OPERATIONS PER COMMON SHARE:
Historical
AmTec........................................................ $(0.07) $(0.23)
Terremark.................................................... $(3.09) $ 0.56
Pro Forma - merged company
AmTec(1)..................................................... $(0.04) $(0.05)
Terremark(2)................................................. $(0.07) $(0.08)
Pro Forma - merged company after Vistagreen transactions
AmTec(3)..................................................... $(0.02) $(0.02)
Terremark(4)................................................. $(0.03) $(0.04)
BOOK VALUE PER SHARE:
Historical
AmTec........................................................ $ 0.06 $ 0.14
Terremark.................................................... $ 2.72 $ 5.81
Pro Forma - merged company
AmTec(1)..................................................... $ 0.17 N/A
Terremark(2)................................................. $ 0.28 N/A
Pro Forma - merged company after Vistagreen transactions
AmTec(3)..................................................... $ 0.11 N/A
Terremark(4)................................................. $ 0.17 N/A
CASH DIVIDENDS PER SHARE (5):
Historical
AmTec........................................................ $- $-
Terremark.................................................... $- $-
Pro Forma - merged company
AmTec........................................................ $- $-
Terremark.................................................... $- $-
Pro Forma - merged company after Vistagreen transactions
AmTec........................................................ $- $-
Terremark.................................................... $- $-
</TABLE>
- ---------------------------
NOTES TO UNAUDITED COMPARATIVE PER SHARE DATA:
(1) Pro forma amounts for AmTec multiplied by 0.385 (the fully diluted
rate of exchange in the merger).
(2) Pro forma amounts for Terremark multiplied by 0.615 (the fully diluted
rate of exchange in the merger).
(3) Pro forma amounts for AmTec multiplied by 0.25 (the fully diluted
ownership percentage after the merger and Vistagreen transactions).
(4) Pro forma amounts for Terremark multiplied by 0.40 (the fully diluted
ownership percentage after the merger and Vistagreen transactions).
(5) Since AmTec and Terremark have historically not paid or declared
dividends on common stock and the surviving company does not expect to
change its current policy as a result of the merger, all amounts are
zero.
RISK FACTORS
THE PROPOSED TRANSACTIONS INVOLVE A HIGH DEGREE OF RISK. AMTEC
STOCKHOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN
EVALUATING WHETHER TO APPROVE THE PROPOSED TRANSACTIONS. YOU SHOULD
CONSIDER THESE FACTORS IN CONJUNCTION WITH THE OTHER INFORMATION IN THIS
PROXY STATEMENT AND THE ANNEXES AND EXHIBITS TO THIS PROXY STATEMENT. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THE BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PROSPECTS OF AMTEC, TERREMARK OR THE
COMBINED COMPANY MAY BE SERIOUSLY HARMED. IN THIS CASE, THE TRADING PRICE
OF AMTEC COMMON STOCK MAY DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATED TO THE MERGER
Integration of the operations of AmTec and Terremark may be
difficult and lead to adverse effects. Realization of the anticipated
benefits of the merger will depend in part on whether AmTec and Terremark
can integrate their operations in an efficient and effective manner.
Successful integration will require combining the companies' respective:
o management cultures;
o strategic goals;
o boards of directors; and
o business development efforts.
AmTec and Terremark may not accomplish this integration smoothly
or successfully. The diversion of the attention of management to the
integration effort could cause the interruption of, or a loss of momentum
in, the activities of either or both of the companies' businesses.
Furthermore, employee morale may suffer, and AmTec and Terremark may have
difficulties retaining key managerial personnel. If the combined company is
unable to address any of the foregoing risks, it could materially harm the
combined company's business and impair the value of the combined company's
stock.
The merger will result in costs of integration and transaction
expenses that could adversely affect the combined company's financial
results. If the benefits of the merger do not exceed the costs associated
with the merger, including dilution to AmTec's stockholders resulting from
the issuance of shares of AmTec common stock in connection with the merger,
the combined company's financial results could be adversely affected.
Although AmTec and Terremark estimate that they will incur total
transaction costs of approximately $2 million associated with the merger,
actual costs may substantially exceed the parties' estimates. In addition,
unexpected expenses associated with integrating the two companies may
arise.
We have recently changed the focus of our business. If we are not
successful in this business, the value of your investment may decline. The
combined company's primary business will involve both telecommunications
and real estate. Because of this new focus, our results of operations to
date may not reflect future results. In addition, we will encounter
challenges and difficulties frequently encountered by early-stage companies
in new and evolving markets. We may not successfully address any of these
challenges and the failure to do so would seriously harm our business and
operating results. These challenges include our:
o Dependence on our telecommunications joint ventures;
o Dependence on the growth of our new and evolving markets;
o Need to expand our customer base;
o Need to develop new services and projects;
o Need to compete effectively;
o Need to manage expanding operations;
o Need to establish strategic partnership, marketing and
distribution arrangements; and
o Dependence on key personnel.
In addition, because of our lack of operating history in combining
telecommunications and real estate operations, we have limited insight into
trends that may emerge and affect our business. Addressing these challenges
may require us to incur significant expenditures.
RISKS RELATED TO BOTH AMTEC AND TERREMARK
AmTec has a history of operating losses and the combined company
may not generate sufficient revenue to achieve profitability. AmTec has
incurred operating losses on a quarterly basis since inception. AmTec had
net operating losses of $5.6 million during the fiscal year ended March 31,
1999 and $2.1 million for the nine months ended December 31, 1999. AmTec
had no revenues in 1999, 1998 or 1997. In light of AmTec's operating
history, we can not assure you when, if ever, we would be able to achieve
profitability from AmTec's operations. Terremark had operating income of
$624,000 during the fiscal year ended March 31, 1999 and incurred operating
losses of $3.3 million for the nine months ended December 31, 1999.
Terremark has a retained deficit of $9.2 million as of December 31, 1999.
The combined company may not be able to generate enough revenue to achieve
profitability in the event of continued or growing operating losses from
AmTec's or Terremark's operations.
The combined company's inability to secure additional funding
could lead to loss of your investment. The resources of the combined
company augmented by proceeds from the sale of our shares to Vistagreen
will be sufficient to meet its capital needs for at least one year. After
that, the combined company will require additional resources in order to
fulfill its business plan. If the sale of our shares to Vistagreen does not
occur, the company will require additional financing in the near term.
There is no guarantee that the combined company will be able to obtain
additional financing on favorable terms, if at all. Further, if the
combined company issues equity securities, the ownership percentage of our
stockholders would be reduced and the holders of new equity securities may
have rights, preferences or privileges senior to those of existing holders
of our common stock. If the combined company cannot raise funds needed on
acceptable terms, it may not be able to take advantage of future
opportunities or to respond to competitive pressures or unanticipated
requirements, which could materially harm its business, operating results
and financial condition.
The combined company's business could be harmed by intense
competition. Both the telecommunications industry and the real estate
industry are intensely competitive. There can be no assurance that the
combined company can compete effectively in either market place.
The combined company will be dependent on key personnel. The
combined company will be highly dependent on the services of Manuel D.
Medina, Chairman and Chief Executive Officer of Terremark, and Joseph R.
Wright, Jr., Chairman and Chief Executive Officer of AmTec, who will serve
as Chairman and director respectively after the merger. The loss of the
services of Mr. Medina or Mr. Wright could materially harm the combined
company's business. The integration of the separate businesses of AmTec and
Terremark, and the combined company's potential growth and expansion, are
expected to place increased demands on the combined company's management
skills and resources. We cannot assure you that the combined company will
be able to retain and attract skilled and experienced management. The
failure to attract and retain personnel could materially harm the company's
business and impair the price of the combined company's stock.
The combined company will face potential volatility in its stock
price. The market prices for telecommunications and real estate companies
have in the past been and can in the future be expected to be especially
volatile. The market price of the combined company's common stock after the
merger will continue to be subject to substantial volatility as a result of
many factors, including:
o regulatory changes and developments that affect the combined
company's business;
o establishment of additional corporate partnerships or joint
ventures;
o economic and other external factors; and
o fluctuations in the combined company's financial results and
degree of trading liquidity in its common stock.
One or more of these factors could significantly harm the combined
company's business and decrease the price of its common stock in the public
market.
The combined company may face substantial liabilities for
indemnification of tax obligations if the Company is or becomes a United
States real property holding corporation. If our company is or becomes a
United States real property holding corporation as defined in Section
897(c)(2) of the U.S. Internal Revenue Code, at the time of the merger
closing or thereafter while Vistagreen continues to hold at least one
percent of our common stock purchased pursuant to the stock purchase
agreement, then AmTec could be liable to Vistagreen for any U.S. tax
liability Vistagreen incurs on dispositions of our common stock. The amount
of this tax liability would depend on the amount of any gains Vistagreen
recognizes on dispositions of our common stock and on the effective U.S.
tax rate payable by Vistagreen at this time it recognizes those gains.
RISKS FACTORS SPECIFIC TO AMTEC
AmTec stockholders face immediate dilution as a result of the
merger. AmTec stockholders will experience immediate and substantial
dilution as a result of the shares of AmTec common stock issued to
Terremark shareholders in the merger and the issuance of shares of common
stock to Vistagreen.
Transfer of Control to Terremark Shareholders and Vistagreen.
Current stockholders of AmTec common stock control AmTec through their
ability to elect the Board of Directors of AmTec and to vote on various
matters affecting AmTec. The merger and the stock purchase will transfer
control of AmTec from the current stockholders to current shareholders of
Terremark and to a lesser extent, Vistagreen. After the merger and the
stock purchase have taken place, shareholders of Terremark and Vistagreen
will each hold, respectively, approximately 40% and 35% of the outstanding
common stock of the combined company. As a result, former stockholders of
AmTec will no longer have the ability to influence the management policies
of AmTec as a result of their relatively small percentage of the voting
stock of the combined company.
Going concern risk. There is a risk that AmTec on a stand alone
basis may not be able to continue as a going concern. Throughout AmTec's
second and third quarters of the fiscal year ending March 31, 2000, it was
unable to raise money for operating expenses or capital investments. Had
Terremark not extended a bridge loan to AmTec, AmTec would not have been
able to meet its obligations as they became due.
We may not be able to repay the bridge loan. There is a risk that
AmTec may default on its $1.5 million bridge loan from Terremark. The
bridge loan will become immediately due and payable if the merger agreement
is not approved by our stockholders. AmTec pledged all its assets to
Terremark and if AmTec were to default on any of the terms of the bridge
loan or the merger is not approved by stockholders, all AmTec's assets
could be foreclosed under the terms of the bridge loan. This would leave
AmTec as a corporate shell with no assets.
We could be sued as a result of an uncompleted transaction. During
1998, AmTec entered into an agreement to acquire an investment in a cable
television network venture located in Hunan province, PRC, from United
International Holdings or UIH. AmTec terminated the agreement because,
among other reasons, the closing had not occurred by December 31, 1999
through no fault of AmTec. On December 30, 1999, UIH had indicated that it
was ready to close the agreement. Should UIH seek judicial relief to
require AmTec to close, its superior financial resources could limit
AmTec's ability to defend itself. AmTec believes that it had clear rights
to terminate the agreement.
China telecommunications regulations could impact our business.
Chinese laws and regulations have prohibited foreign investors and foreign
invested enterprises from owning or operating telecommunication networks in
China. Since the fall of 1998, the Chinese government has taken a number of
actions which have changed the legal environment in which AmTec is
operating in China:
o preparing a new telecommunications law not yet issued; and
o seeking admission to the World Trade Organization.
The result of these actions is difficult to predict since
negotiations with relevant parties are ongoing and political uncertainties
exist in China. Among other possibilities:
o AmTec may be unable to convert returns of or on its
investment it receives, if any, to U.S. currency or
repatriate funds from China;
o The new telecommunications law may facilitate entry into
telecommunications businesses in China by national and
international entities and increase competition; and
o WTO accession will require China to abide by certain rules
which assures foreign investors minimum direct ownership
percentages in licensed telecommunications operators and may
foster competition from Chinese or foreign
telecommunications operators or investors.
The result of the foregoing may have a material adverse effect on
AmTec.
A number of regulatory bodies in China seek to control and
regulate the Internet; most notably, the Ministry of Information Industry,
which combines the former Ministry of Posts & Telecommunications, Ministry
of Electronics Industry and Ministry of Radio, Film and Television, and
regulates the telecommunications and information industries. In addition,
China Telecom, under direct authority of the Ministry of Information and
Industry, has significant control over the development of the Internet
infrastructure in China as it owns China's largest Internet backbone and
operates telecoms and datacomms services.
Internet regulation in China is unclear, and no single regulatory
act has been promulgated to govern the Internet in China. Consequently,
AmTec's ability to operate or invest in Internet-based services is unclear.
To date, Chinese Internet operating licenses have been available to Chinese
companies only. Through its joint venture with Fusion Communications and
alliance with IXS.NET, AmTec seeks to participate in Internet-based
businesses in China. If the Chinese government liberalizes its policy
toward foreign participation in Internet operating licenses, it could
substantially increase competition in the markets where AmTec's strategic
partners operate. The Chinese government, while currently open to joint
ventures, could at any time restrict operations or expropriate foreign
participants' assets in China. Furthermore, China Telecom has challenged
the ability of Internet service providers to provide Internet telephone and
fax services. This action could have materially adverse consequences to the
company's business and financial condition.
On November 15, 1999, the United States and China reached a trade
agreement whereby China agreed to reduce tariffs on various industrial and
agricultural products and lift many of the barriers that prevent US
companies from doing business in China. Under the agreement, China agreed,
among other things to permit:
o foreign entities to invest in Chinese Internet businesses;
o foreign entities to own up to 49% of Chinese telephone
service providers, which would increase up to 50% in two
years;
The United States agreed that in return for these concessions,
that it would support China's entry into the World Trade Organization, the
group that sets the rules for international commerce. Entry into the WTO
would give China access to international economic protections, such as
protection from unfair trade practices abroad, but also would impose a body
of rules on China's internal economy and put China under the jurisdiction
of international courts that enforce the World Trade Organization's rules.
The agreement is subject to approval by the United States Congress. We
cannot predict the impact of the new trade agreement between China and the
United States.
China also must negotiate trade agreements with each of the
European Union and Japan in order to gain the support of these groups to
China's entry into the WTO.
It is impossible to predict how entry into the World Trade
Organization would affect China's economy or the manner in which it
conducts business domestically and internationally.
We have limited operating control in our joint venture. Because
AmTec does not have majority voting rights in certain of its joint
ventures, it cannot completely control or direct the operation of these
entities. In addition, AmTec's ability to derive revenues from each joint
venture depends upon its ability to receive distributions, so it is
possible that AmTec may receive little or no revenue from its joint
ventures.
The market for AmTec's common stock is highly volatile. There may
be no regular trading market for our common stock. The market price for our
common stock may be significantly affected by such factors as our financial
performance, the market price of our competitors' stock, or market
conditions in general. AmTec's common stock price has been volatile. During
the past 12 months, our common stock has traded in a range between $0.8125
per share and $2.25 per share. As of February 1, 2000, the closing price of
our common stock on the AMEX was $3.1875. These wide price fluctuations are
not necessarily related to the operating performance of our company.
We face severe competition. The Internet service provider market
is highly competitive in China. There are five national ISPs owned and
operated by the national government. There are over 150 private ISPs
licensed to operate in various provinces. Thus, privately owned ISPs often
compete with government owned or affiliated ISPs. The playing field is
unequal, with government-affiliated ISPs having access to subsidized dial
up lines, leased lines and Internet bandwidth. AmTec's strategic partners
may face severe competition as the Internet develops in China.
Political risks in China may adversely affect AmTec's business
operations. China has been a socialist state since 1949 and is controlled
by the Communist Party of China. Changes in the political leadership of
China may have a significant effect on laws and policies related to the
current economic reforms program. These changes may also affect other
policies affecting business and the general political, economic and social
environment in China, including the introduction of measures to control
inflation, changes in the rate or method of taxation and imposition of
additional restrictions on currency conversion, remittances abroad and
foreign investment. These effects could substantially impair our business,
profits or prospects in China. In addition, economic reforms and growth in
China have been more successful in some provinces than in others. The
continuation or increases of such disparities could affect the political or
social stability of China.
Technological advances may make AmTec's operations obsolete. The
market in the telecommunications industry is characterized by rapidly
changing technology. Technologies developed by others may render obsolete
or otherwise significantly diminish the value of the business operations of
the joint ventures in which we participate.
You should not expect to receive dividends on AmTec's common
stock. AmTec has not paid dividends on its common stock to date and has no
plans for paying dividends on the common stock in the foreseeable future.
AmTec has certain obligations to pay dividends in kind, which are to be
paid in common stock to holders of the Series G preferred shares. Except
for the dividends in kind which we will pay on the shares of issued and
outstanding preferred stock and other preferred stock that may be issued in
the future that require dividends, we intend to retain any earnings to pay
for the expansion of our business.
RISK FACTORS SPECIFIC TO TERREMARK
Economic, interest rates and other conditions greatly impact the
real estate market. It is possible that Terremark's operations will not
generate income sufficient to meet its operating expenses or will generate
income and capital appreciation, if any, at a rate less than that
anticipated or available through comparable real estate or other
investments.
The real estate industry is cyclical and affected by changes in
general and local economic and other conditions including employment
levels, demographic considerations, availability of financing, interest
rate levels, consumer confidence and real estate demand. In addition,
developers are subject to various risks, many of them outside their control
including competitive overbuilding, availability and cost of property,
materials and labor, adverse weather conditions which can cause delays in
construction schedules, cost overruns, changes in government regulations
pertaining to building standards or environmental matters, increases in
real estate taxes and other local government fees and acts of God, such as
hurricanes and floods.
Terremark cannot predict whether interest rates will be at levels
attractive to prospective tenants or buyers and any increase in interest
rates could affect Terremark's business adversely. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Business of Terremark --Competition and Market Factors."
Terremark's investments are highly leveraged and Terremark may not
be able to make the debt service payments. As of December 31, 1999, the
outstanding indebtedness of Terremark was approximately $65.2 million and
Terremark had shareholders' equity of approximately $3.2 million. Terremark
will likely incur additional indebtedness in the future, some of which may
be secured. The ability of the combined company to make required debt
service payments in the future will be dependent on its operating results,
which are subject to financial, economic and other factors affecting it
that are beyond its control. The degree to which the combined company is
leveraged could have an adverse impact on it, including:
o increased vulnerability to adverse general economic and
market conditions;
o impaired ability to expand and to respond to increased
competition;
o impaired ability to obtain additional financing for future
working capital, capital expenditures, general corporate or
other purposes; and
o requiring that a significant portion of cash provided by
operating activities be used for the payment of debt
obligations, thereby reducing funds available for operations
and future business opportunities.
A significant portion of Terremark's financing is structured as
balloon payments, which may be harder for our company to pay off. Most of
Terremark's financings provide for the repayment of a significant part of
the loan at maturity. These financings involve greater risks than
financings structured such that the principal amount is amortized over the
term of the loan because the ability of Terremark to repay the outstanding
principal amount at maturity may depend on Terremark's ability to obtain
adequate refinancing or dispose of the assets before maturity, which in
turn depend upon economic conditions in general and the value of the
underlying properties in particular. Further, a shrinkage in value of the
underlying property could result in a loss of the property by Terremark
through foreclosure and result in a possible deficiency judgment for the
difference between the amount of the underlying debt and value of the
collateral.
Increases in variable mortgage rates could negatively impact
Terremark. Most of Terremark's borrowing is pursuant to agreements which
provide for the periodic adjustment of the interest rate to be consistent
with prevailing interest rates. An increase in prevailing interest rates
would result in higher borrowing costs to Terremark and, therefore, a
reduction in income or, in extreme cases, project failure.
Management contracts are generally cancellable on short notice. In
the real estate industry, contracts to manage buildings are generally
subject to cancellation on 30 to 90 days notice. If Terremark's property
management contracts with third parties were cancelled, there could be a
material adverse impact on Terremark's results of operations.
Our geographic concentration exposes us to certain risks.
Terremark's operations are situated primarily in South Florida. For fiscal
1999, all of Terremark's revenue and operating income were derived from
operations in South Florida. Adverse general economic conditions in South
Florida could have a material adverse impact on the operations of
Terremark. New markets may prove to be less stable and may involve delays,
problems and expenses not typically found by Terremark in the markets with
which it is familiar.
Up front cash requirements may create cash flow problems.
Terremark develops real estate projects. Acquiring land and committing the
financial and managerial resources to develop such projects involve
significant risks. Before a development generates any revenue, material
expenditures are required for items such as acquiring land, professional
fees, construction, financing costs, sales and marketing.
The occurrence of uninsured losses could have a material adverse
effect on our financial condition. Terremark carries comprehensive
insurance with respect to its properties and operations. However, there are
certain types of losses, generally of a catastrophic nature, such as
significant construction defects, hurricanes, floods or war, which are
either uninsurable or not economically insurable. In the event of such a
disaster, Terremark could lose both its capital investment in certain
properties and the anticipated profits from such properties. In addition,
Terremark may have liability for services it renders to others if those
services are negligently provided and losses are sustained. Terremark
carries errors and omissions insurance for some of its service operations,
but for some other types of losses (e.g. general contracting), that
insurance is either not available or not economical.
We may not be able to compete in the highly competitive real
estate market. The real estate development industry is highly competitive
and fragmented.
Terremark competes in the acquisition of property with many other
entities engaged in real estate investment activities, including real
estate investment trusts and insurance companies, many of which have
greater assets and financial resources than Terremark. There may be intense
competition in obtaining properties of the type in which Terremark intends
to invest. The number of entities and the amount of funds available for
investment in properties of a type suitable for investment by Terremark may
increase, resulting in increased competition for those investments.
Competition among purchasers of real property may result in increases in
the prices paid by Terremark for real property investments.
In its construction and development activities, Terremark competes
for buyers and tenants. See "Business of Terremark--Competition and Market
Factors." Terremark faces similar intense competition in its brokerage,
property management and advisory and consulting businesses from well
established local and national organizations which specialize in the
provision of those services.
Governmental regulation may adversely impact our business.
Terremark is subject to a variety of federal, state and local statutes,
ordinances, rules and regulations concerning land use. Land use and zoning
laws can vary greatly and may result in delays, cause Terremark to incur
substantial compliance and other costs and prohibit or severely restrict
development in certain regions or areas, any of which could have an adverse
effect on Terremark's business and results of operations. See "Business of
Terremark--Government Regulation and Environmental Matters." In developing
real estate, Terremark must obtain the approval of numerous government
authorities regulating such matters as permitted land uses and levels of
density and the installation of utility services such as water and waste
disposal. Several authorities in Florida and other states have imposed
impact fees as a means of defraying the cost of providing certain
governmental services to developing areas and the amount of these fees has
increased significantly during recent years. Many state laws require the
use of specific construction materials which reduce the need for
energy-consuming heating and cooling systems. Also, local governments, at
times, declare moratoriums on the issuance of building permits and impose
other restrictions for various reasons, including but not limited to, when
sewage treatment facilities and other public facilities do not reach
minimum standards.
To varying degrees, certain permits and approvals will be required
to complete the residential developments currently being planned by
Terremark. The ability of Terremark to obtain necessary approvals and
permits for these projects is often beyond Terremark's control, and could
restrict or prevent the development of otherwise desirable property. The
length of time necessary to obtain permits and approvals increases the
carrying costs of unimproved property acquired for the purpose of
development and construction. In addition, the continued effectiveness of
permits already granted is subject to factors such as changes in policies,
rules and regulations and their interpretation and application.
Liability relating to environmental contamination may adversely
impact our business. Applicable laws impose strict liability on property
owners to remediate environmental contamination found on land they own.
This means that they can be liable regardless of how or when the
contamination occurred, even if the contamination occurred before the
purchase of such land. As an owner of real estate, Terremark may be held
responsible for remediation of this kind. Although Terremark engages
environmental engineers to evaluate real estate before a purchase, such
evaluations are not capable of detecting all contamination. Insurance for
these risks is either not available or not economical.
THE AMTEC SPECIAL MEETING
At the AmTec special meeting, the AmTec stockholders will consider
and vote upon the approval of the proposed transactions and any other
matters as may properly come before the AmTec special meeting or any
adjournments or postponements thereof.
THE AMTEC BOARD OF DIRECTORS HAS APPROVED THE MERGER, THE STOCK
PURCHASE AGREEMENT AND THE ISSUANCE OF AMTEC COMMON STOCK PURSUANT THERETO
AND RECOMMENDS THAT AMTEC STOCKHOLDERS VOTE FOR EACH OF THESE PROPOSALS.
DATE, PLACE AND TIME
The AmTec special meeting will be held at Waldorf Astoria,
Basildon Room, 3rd Floor, 301 Park Avenue, New York, NY 10022 at 10:00
a.m., local time, on April 28, 2000.
RECORD DATE
The AmTec board of directors has fixed the close of business on
March 15, 2000 as the record date for determining AmTec stockholders
entitled to notice of and to vote at the AmTec special meeting.
QUORUM
The presence in person or by properly executed proxy of holders of
a majority of the issued and outstanding shares of AmTec common stock is
necessary to constitute a quorum at the AmTec special meeting. Abstentions
and broker non-votes will each be included in determining whether a quorum
is present.
REQUIRED VOTES
At the close of the business on AmTec's record date, there were
38,104,992 shares of our common stock outstanding, each of which entitles the
registered holder thereof to one vote.
The affirmative vote of the holders of a majority of the
outstanding shares of our common stock is required to approve and adopt the
merger agreement. The issuance by AmTec of AmTec common stock to the
Terremark and Vistagreen shareholders is subject to stockholder approval
pursuant to the applicable rules of the AMEX. Section 712(b) of the AMEX
Listing Standards, Policies and Requirements requires companies that are
listed on the AMEX to obtain stockholder approval as a prerequisite to
approval of applications to list additional shares to be issued as
consideration for an acquisition of the stock or assets of another company
before issuing those common shares where the issuance of the common shares
could result in an increase of outstanding common shares of 20% or more.
Therefore, the affirmative vote of the holders of a majority of shares
present or represented by proxy at the special meeting and entitled to vote
is required for the approval of the stock purchase agreement and the
issuance of shares pursuant thereto. A failure to vote shares, either by
abstention or non-vote, will have the same effect as a vote against the
approval of the merger. A majority of the outstanding shares of our common
stock entitled to vote, represented in person or by proxy, will constitute
a quorum at the special meeting.
PROXIES
All shares of AmTec common stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in those proxies.
IF NO INSTRUCTIONS ARE INDICATED, THE SHARES OF AMTEC COMMON STOCK
WILL BE VOTED IN FAVOR OF APPROVAL OF THE MERGER AND OF THE STOCK PURCHASE
AGREEMENT.
AmTec does not know of any matters other than as described in the
accompanying notice of the AmTec special meeting that are to come before
the AmTec special meeting. If any other matter or matters are properly
presented for action at the AmTec special meeting, the persons named in the
enclosed form of proxy and acting thereunder will have the discretion to
vote on the matters in accordance with their best judgment, unless
authorization is withheld. An AmTec stockholder giving a proxy under this
proxy solicitation may revoke it at any time before it is exercised by
delivering to the Secretary of AmTec at the address of AmTec provided
elsewhere in this proxy statement a written notice of revocation before
voting the proxy at the AmTec special meeting, or attending the AmTec
special meeting and informing the Secretary of AmTec in writing that the
stockholder wishes to vote his or her shares in person. However, attending
the AmTec special meeting will not in and by itself have the effect of
revoking the proxy.
Votes cast by proxy or in person at the AmTec special meeting will
be tabulated by the inspector of election appointed for the meeting and the
inspector will determine whether or not a quorum is present. The election
inspector will treat abstentions as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. If a broker
indicates on the proxy that it does not have discretionary authority as to
some shares to vote on a particular matter, those shares will be treated as
present for purpose of determining whether or not a quorum is present, but
will not be considered as present and entitled to vote with respect to that
matter. Deloitte & Touche LLP is expected to be present at the meeting and
will have an opportunity to make a statement if they desire and will be
available to respond to appropriate questions from AmTec's stockholders.
SOLICITATION OF PROXIES
The solicitation of proxies for use at the AmTec special meeting
is made by and the expenses relating to such solicitation will be borne by
AmTec. In addition to solicitation by mail, proxies may be solicited by
directors, officers or other employees of AmTec or, at the request of
AmTec, ChaseMellon Shareholder Services LLC, in person or by telephone,
telegram or other means of communication. These persons will receive no
additional compensation for solicitation of proxies, but may be reimbursed
for reasonable out-of-pocket expenses in connection with the solicitation,
except for ChaseMellon Shareholder Services, LLC, which will be paid a fee
estimated to be approximately $10,000 in connection with the solicitation
plus reasonable out-of-pocket expenses.
THE MATTERS TO BE CONSIDERED AT THE AMTEC SPECIAL MEETING ARE OF
GREAT IMPORTANCE TO THE AMTEC STOCKHOLDERS. ACCORDINGLY, THE AMTEC
STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION
PRESENTED IN THIS PROXY STATEMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
THE MERGER
The following discussions of the merger and the merger agreement
do not purport to be complete and are qualified in their entirety by
reference to the merger agreement, which is attached as Annex A to this
proxy statement. All stockholders are urged to read the merger agreement in
its entirety.
GENERAL
The merger agreement provides for the merger of Terremark with and
into AmTec, and AmTec will continue as the surviving corporation, with our
name changing to Terremark Worldwide, Inc. The former shareholders of
Terremark will become stockholders of AmTec. The merger agreement provides
that the merger will be consummated if the required approval of the AmTec
is obtained and all other conditions to the merger are satisfied or waived.
Concurrent with the signing of the merger agreement, AmTec entered
into a stock purchase agreement with Vistagreen. Under the stock purchase
agreement, provided that conditions of the stock purchase agreement are
satisfied, AmTec will sell to Vistagreen 68,520,236 shares of outstanding
shares of common stock of the combined company, representing 35% of the
outstanding common stock of the combined company on a fully diluted basis,
after giving effect to the merger. See "The Stock Purchase Agreement."
EFFECTIVE TIME
The merger will become effective upon the filing and acceptance of
appropriate documents with each of the Secretary of State of Delaware and
of Florida. The filing of the certificate of merger will occur as soon as
practicable after the approval of the merger by the AmTec stockholders,
subject to the satisfaction or waiver of the other conditions in the merger
agreement.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF TERREMARK CERTIFICATES
The conversion of Terremark capital stock into AmTec capital stock
will occur automatically when the merger becomes effective.
BACKGROUND OF THE MERGER
On June 9, 1999, Manuel D. Medina, the Chairman of the Board and
Chief Executive Officer of Terremark met with Joseph R. Wright, Jr., the
Chairman of the Board and Chief Executive Officer of AmTec, Marvin S.
Rosen, a director of AmTec and Vice Chairman of Fusion Telecommunications
International, Ken Starr of Starr & Company, representing a group of AmTec
investors, R. Tim McNamar, Vice Chairman of the Board of Directors of
AmTec, and Albert G. Pastino, former Senior Vice President and Chief
Financial Officer of AmTec. In this meeting, the parties discussed
potential business combinations or ventures between AmTec, Fusion, IXS.NET,
Inc. and IP.Com, LLC (formerly known as IP.TEL) and, among other things,
discussed that it might be in the best interest of these organizations that
all or some of the businesses be combined in some fashion.
At the end of June 1999, several telephone conferences took place
among Messrs. Medina, Wright, Rosen and Starr during which they reviewed
the discussions that had taken place at the June 9 meeting. During these
discussions, it became apparent that AmTec would not have the capital to
pursue the various opportunities that were being considered by its
management.
A meeting among Messrs. Medina, Wright, McNamar and Ms.
Karin-Joyce Tjon, Vice President of AmTec, took place on July 21, 1999, to
review future AmTec funding requirements, the status of its joint venture
projects and the potential transactions that were discussed in the June 9
meeting. Within a few days, Mr. Medina met with Mr. Rosen in New York to
further discuss the potential transactions first considered at the June 9
meeting.
Terremark had been engaged in conversations with another real estate
company regarding a potential business combination in July. Those
discussions ended in the middle of August 1999. Mr. Medina called Mr.
Wright in middle of August and suggested that the transactions which they
had been discussing could be structured as a merger between Terremark and
AmTec. Mr. Wright indicated that he would seriously consider this proposal.
On August 20, 1999, Mr. Medina sent Mr. Wright a package of information on
Terremark to review when considering the proposed merger.
On August 23, 1999, Mr. Wright prepared and forwarded to Mr.
Medina materials setting forth his analysis of the advantages and
disadvantages for each company of a possible merger and a proposed
valuation of each of the entities. Messrs. Wright and Medina discussed
relative valuation issues over the following several days, tentatively
agreeing to a 75% / 25% equity split as the likely structure of the
transaction assuming a substantial incremental equity investment arranged
by Terremark.
On August 26, 1999, Messrs. Starr and Rosen were each notified of the
proposed merger. On August 30, 1999, Mr. Medina and the Terremark
executives met with Mr. Wright and Ms. Karin-Joyce Tjon at Terremark's
offices in Miami to further discuss the transaction. They made a decision
to move forward with the discussions. Mr. Wright began notifying members of
AmTec's Board of Directors about these discussions.
On September 8, 1999, Messrs. Medina, Wright, Rosen, McNamar, and
Ms. Karin-Joyce Tjon met at the AmTec offices to further discuss the
combination and its possible impact on the Fusion/AmTec joint ventures.
During the course of the month of September, Mr. Wright and Peter Cohen of
Ramius Capital Group, LLC, an investment firm, began discussions on the
transaction and a valuation analysis. Ramius Capital was later engaged as
the financial advisor for AmTec.
During September, Mr. Medina contacted Timothy Elwes, advisor to
the Lee family, then owner of the Terremark Centre, about his participating
in the combination and providing, through sale or contribution of Terremark
Centre, substantial equity.
On October 1, 1999, Mr. Medina, Brian K. Goodkind, Executive Vice
President and General Counsel of Terremark, Messrs. Wright, and McNamar,
Ms. Karin-Joyce Tjon and Timothy Elwes, advisor to the Lee family, met at
the AmTec offices to discuss the transaction further and to explore the
possibility of the Lee family participating financially in the combined
company.
On October 3, 1999, Messrs. Medina and Wright, and Ms. Tjon began
a seven-day diligence trip. During this trip, they met with Messrs. Francis
Lee, Elwes and McNamar in Singapore and they met in the PRC with the
Beijing and Hebei executives who are responsible for developing the future
AmTec related businesses. By October 10, Mr. Lee authorized his
representatives to negotiate the terms of the Lee family participation
through Terremark Centre in the proposed transactions.
On October 15, 1999, the AmTec board of directors met by telephone
to discuss the proposed transactions and review AmTec's difficulties in
raising funds and substantial pressing needs for cash. The board of
directors was advised of a possible bridge loan from Terremark to address
these issues. The board of directors authorized continued negotiations
regarding the proposed transactions and the execution of a non-binding
letter of intent. Mr. Rosen abstained from this vote due to his position as
Vice Chairman of Fusion and as partner of Greenberg Traurig P.A., which had
acted, and continues to act, as counsel to Terremark.
On October 19, 1999, Messrs. Medina, Wright and Rosen met and
discussed the Fusion/AmTec joint ventures, funding requirements and the
proposed transaction structure. On October 20, 1999, Messrs. Medina, Wright
and McNamar and Ms. Tjon met and prepared a draft term sheet for the
proposed transactions.
On October 28, 1999, Messrs. Medina, Goodkind, Wright and McNamar and
Ms. Tjon met with representatives of Ramius Capital to discuss the
possibility of Ramius Capital rendering an opinion with respect to the
financial aspects of the transaction. Thereafter, a letter of intent was
negotiated by Messrs. Medina, Goodkind, Elwes, Wright and McNamar and Ms.
Tjon.
On November 3, 1999, the AmTec board of directors met by telephone
to discuss the letter of intent, bridge loan financing, and proceeding with
the proposed transactions. The board of directors authorized the officers
of AmTec to sign the letter of intent and enter into the bridge loan with
Terremark for $1.5 million.
On November 9, 1999, AmTec and Terremark executed the non-binding
letter of intent and a press release on November 10, 1999, announcing the
same was made. That same day, a press release was issued by AmTec
announcing its second quarter results and AmTec's receipt of funding from
Terremark.
From November 10 to November 23, 1999, Messrs. Medina, Goodkind,
Elwes, Wright and McNamar and Ms. Tjon negotiated a number of changes in
the terms of the agreements, including break-up fees and tax issues.
On November 24, 1999, the board of directors of AmTec conducted a
telephone meeting and approved the merger agreement. The merger agreement
was signed by AmTec and Terremark late that evening. On November 29, 1999,
a press release was issued by AmTec announcing the execution of the
definitive Merger Agreement.
RECOMMENDATION OF THE AMTEC BOARD
The AmTec board of directors has determined that the terms of the
merger agreement and the merger, including the stock purchase agreement
with Vistagreen, are fair to, and in the best interests of, the AmTec
stockholders. Accordingly, the AmTec board of directors has approved the
merger agreement and the merger, as well as the stock purchase agreement,
and recommends that the AmTec stockholders vote FOR approval of the merger
and the stock purchase agreement. In reaching its determination, the AmTec
board of directors consulted with AmTec's management, as well as its legal
counsel, accountants and financial advisor, and gave significant
consideration to a number of factors bearing on its decision. The
post-merger ownership between AmTec stockholders and Terremark shareholders
and Vistagreen was determined in arm's-length negotiation. The ownership
allocation ultimately agreed to by the board of directors of AmTec was
approved, based upon your board of directors's evaluation of a number of
factors, including the value of AmTec, the value of each of AmTec's joint
ventures, the value of the Terremark business and operations and the
relative contributions of each company to assets, earnings and cash flow.
The AmTec board of directors believes that the merger, including the stock
purchase, should result in greater value to AmTec's stockholders than would
otherwise be realized through the continued operation of AmTec as an
independent entity. The following are the primary reasons the AmTec board
of directors believes the merger, and the stock purchase, will be
beneficial to AmTec and its stockholders:
o The fact that AmTec is operating under significant liquidity
constraints that could affect its ability to continue its
current operations;
o The fact that AmTec has sought out various financing and
capitalization alternatives over the last year without
success;
o The belief that the merger represents an opportunity to more
rapidly develop AmTec's business plan and take advantage of
the opportunities that it has due to the infusion of capital
expected from the merger and the sale of AmTec common stock
to Vistagreen;
o The belief that the combined company's stronger balance sheet
will enable it to accelerate its expansion plans and to raise
additional capital;
o The belief that AmTec will be able to use Terremark's
contacts in South America to develop and negotiate future
telecommunications alliances in that market; and
o The belief that AmTec will be able to use the contacts in
South East Asia of the Lee family to develop and negotiate
future telecommunications alliances in that market.
In addition to the reasons described above, during the course of
its deliberations concerning the merger, the AmTec board consulted with
AmTec's legal counsel and financial advisors as well as AmTec's management,
and reviewed a number of other factors relevant to the merger, including:
o Information concerning the business, assets, operations,
properties, management, financial condition, operating
results, competitive position and prospects of AmTec and
Terremark;
o Reports from its legal counsel on specific terms of the
merger agreement; and
o The opinion of Ramius Capital, LLC to the effect that, as of
November 24, 1999, and based upon and subject to specific
matters stated in the opinion, the merger was the best
alternative for AmTec to carry out its business plans and
programs from a financial point of view.
The AmTec board of directors also considered a number of
potentially negative factors in its deliberations concerning the merger,
including:
o The uncertainty as to the cash equity which the Terremark
Centre will provide;
o The risk that the combined company may not achieve expected
synergies in terms of operations and financing
opportunities;
o The risk that some key employees or members of management of
either AmTec or Terremark may decide not to continue
employment with the combined company;
o The substantial dilution of existing AmTec stockholders in
terms of percentage ownership; and
o The risk that other benefits sought to be achieved by the
merger would not be obtained.
After carefully considering the potentially negative factors
described above, among others, the AmTec board of directors concluded that
the potential benefits from the merger outweighed the negative factors and
determined that the merger is fair to and in the best interests of AmTec
and the AmTec stockholders.
The foregoing discussion of the information and positive and
negative factors considered by the AmTec board of directors in approving
the merger proposal is not intended to be exhaustive, but include some of
the material factors considered by the AmTec board of directors in their
analysis of the merger proposal. In considering the merger proposal, given
the number and diversity of the potentially positive and negative factors
considered, the AmTec board of directors did not find it practical or
feasible to quantify or otherwise attempt to assign any relative or
specific values to any of the foregoing factors. In making their
determination, individual directors may have accorded different values to
different factors.
OPINION OF FINANCIAL ADVISOR TO AMTEC
AmTec retained Ramius Capital, LLC as its exclusive financial
advisor in connection with its merger with Terremark to render an opinion
as to whether the merger, including the stock purchase, was in the best
interest of AmTec's stockholders. Ramius Capital delivered its verbal
opinion to AmTec's board of directors on November 24, 1999. Ramius Capital
based its opinion on a number of factors with the principal factor being
the contribution of Terremark, together with the equity of the Terremark
Centre, to enable AmTec to fulfill its business plan.
AmTec selected Ramius Capital as an advisor because of its
expertise and reputation as a nationally recognized investment banking
firm, its experience in the real estate industry, and the involvement of
its principal, Mr. Peter Cohen, directing the efforts of its staff. Ramius
Capital did not determine the consideration to be received in the merger.
On November 24, 1999 during a meeting of the board of directors of
AmTec, Ramius Capital rendered its opinion that, as of the date of the
opinion, the transaction was the best alternative available to AmTec to
carry out its business plans and programs from a financial point of view.
In formulating their recommendation, Ramius Capital:
o reviewed publicly available business and financial
information relating to AmTec and Terremark that it deemed
relevant;
o read the letter of intent, memorandum of understanding and
draft merger and stock purchase agreements relating to the
proposed transactions;
o reviewed the base case and management case valuation of
AmTec, dated November 1, 1999, prepared by AmTec;
o spoke with CIBC World Markets regarding the activities they
engaged in on behalf of AmTec over the last year;
o reviewed the terms of alternative financing provided by
AmTec it had considered;
o visited Terremark Centre;
o visited potential development sites;
o reviewed relevant documentation relating to the operating
business of Terremark;
o reviewed internal information provided by AmTec and
Terremark, primarily financial, including financial
forecasts and other financial and operating data relating to
strategic implications and operational benefits anticipated
to result from the proposed transactions; and
o conducted discussions with senior management of AmTec and
Terremark about their respective operations, historical
financial statements and future prospects.
In arriving at its opinion, Ramius Capital considered information
provided by AmTec and Terremark, without independent investigation:
o that AmTec has been unsuccessful in finding financing for
over a year;
o that AmTec has cash flow difficulties and requires an
immediate and substantial capital infusion to fund its
initiatives and operating expenses; and
o that Terremark has been operating as a "pass through" real
estate company.
The full text of the written opinion of Ramius Capital dated
November 24, 1999 which describes the assumptions made, matters considered
and limitations on the review undertaken, is attached hereto as Annex B and
is incorporated herein by reference. AmTec stockholders are urged to read
this opinion carefully in its entirety. Ramius Capital's opinion is
directed only to the appropriateness of the merger as an alternative to
AmTec, does not address any other aspect of the merger related transactions
and does not constitute a recommendation to any stockholder as to how the
stockholder should vote at the AmTec special meeting. The summary of the
opinion of Ramius Capital set forth in this the combined company is
qualified in its entirety by reference to the full text of the opinion.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some members of the AmTec board of directors and its executive
officers have interests in the merger that are in addition to the interests
of the AmTec shareholders and Terremark shareholders generally.
Mr. Wright, Chief Executive Officer and a director of AmTec, has
entered into an employment agreement, which is described in more detail
under "Management of AmTec After the Merger."
Mr. Rosen, a director of AmTec, is also a shareholder of Fusion
Telecommunications. Fusion Telecommunications is AmTec's joint venture
partner. Fusion Telecommunications is also affiliated with Terremark
because Mr. Medina, a Terremark shareholder, is a shareholder of Fusion
Telecommunications. For more details on the relation between Fusion
Telecommunications and Terremark, see "Certain Relationships and Related
Transactions of Terremark." Mr. Rosen is also a shareholder of Greenberg
Traurig, P.A., counsel to Terremark.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The merger has been structured so that it will constitute a
"reorganization" under Section 368(a) of the U.S. Internal Revenue Code,
and that AmTec and Terremark will each be a party to the reorganization
under Section 368(b) of the Internal Revenue Code. It is a condition to
Terremark's obligation to consummate the merger that counsel reasonably
acceptable to Terremark render Terremark an opinion to this effect at the
effective time of the merger. In rendering its opinion, counsel will rely
upon customary representations of officers of Terremark and AmTec
reasonably requested by counsel.
We anticipate that:
o neither AmTec nor Terremark will recognize any gain or loss
as a result of the merger; except Terremark may recognize
gain or loss on any assets held by it that are required to be
marked to market as a result of the merger;
o AmTec stockholders will not recognize any gain or loss as a
result of the merger or the issuance of AmTec common shares
to Vistagreen.
The foregoing discussion is a summary of the material United
States federal income tax consequences of the merger to a United States
shareholder who holds our common stock as a capital asset but does not
purport to be a complete analysis or description of all potential tax
effects of the merger. In addition, the discussion does not address all of
the tax consequences that may be relevant to particular taxpayers in light
of their personal circumstances or to taxpayers subject to special
treatment under the Internal Revenue Code. For example, those taxpayers may
include insurance companies, financial institutions, dealers in securities,
traders that mark to market, tax-exempt organizations, stockholders who
acquired the AmTec common shares through the exercise of options or
otherwise as compensation or through a tax-qualified retirement plan,
foreign corporations, foreign partnerships or other foreign entities and
individuals who are not citizens or residents of the United States.
We have not provided any information in this document relating to
any tax consequences of the merger under applicable foreign, state, local
and other tax laws. We have based the foregoing discussion upon the
provisions of the Internal Revenue Code, applicable Treasury regulations,
and IRS rulings and judicial decisions, as in effect as of the date of this
document. We cannot assure you that future legislative, administrative or
judicial changes or interpretations will not affect the accuracy of the
statements or conclusions set forth herein. Any such change could apply
retroactively and could affect the accuracy of this discussion. No rulings
have been or will be sought from the IRS concerning the tax consequences of
the merger and the opinion of counsel as to the federal income tax
consequences set forth above will not be binding on the IRS.
The preceding discussion does not purport to be a complete
analysis or discussion of all potential tax effects relevant to the merger
and specifically does not discuss any such tax effects on Terremark
shareholders. Accordingly, we expect that Terremark shareholders will
consult their own tax advisors as to the specific tax consequences to them
of the merger, including tax return reporting requirements, the
applicability and effect of federal, state, local, and other applicable tax
laws and the effect of any proposed changes in the tax laws.
ACCOUNTING TREATMENT
The surviving corporation will account for the merger using the
purchase method of accounting, with Terremark treated as the acquirer for
accounting purposes. As a result, the assets and liabilities of Terremark
will be recorded at historical values without restatement to fair values.
The assets and liabilities of AmTec will be recorded at their estimated
fair values at the date of the merger, with the excess of the purchase
price over the sum of such fair values recorded as goodwill. For this
purpose, the purchase price is based upon market capitalization of AmTec
using an average trading price of AmTec ordinary shares for a period
immediately before and after the announcement of the proposed merger on
November 9, 1999, plus certain merger related costs. In periods subsequent
to the merger, historical financial information of Terremark will be that
of the surviving corporation.
EFFECT ON AMTEC OPTIONS AND WARRANTS
Other than adjustments to the options granted to Messrs. Wright
pursuant to his employment agreement with AmTec, no adjustments to any
outstanding AmTec stock options or warrants will occur as a result of the
merger.
REGULATORY MATTERS
The consummation of the merger is not subject to the expiration or
termination of the relevant waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
FEDERAL SECURITIES LAW CONSEQUENCES -- LOCK UP AGREEMENTS
Shares of our common stock issued to Vistagreen and Terremark
shareholders in connection with the merger and the stock purchase will not
be registered and will not be freely transferable by the recipients.
However, the combined company has agreed to file, within ten business days
after the merger and the stock purchase close, a registration statement
with the SEC. Once this registration statement has become effective, the
AmTec shares issued in connection with the merger will be freely
transferable under the federal securities laws. However, the Vistagreen and
Terremark shareholders have contractually agreed not to sell those shares
for one year after the merger becomes effective, except that they may sell
to enumerated persons and that they may sell that amount of shares that
they would be permitted to sell under Rule 145 of the Securities Act were
this rule to apply.
In general, under Rule 145, for one year following the merger, an
affiliate, together with related persons, would be entitled to sell shares
of the combined company's common stock acquired in connection with the
merger only through unsolicited brokers transactions or in transactions
directly with a market maker, as those terms are defined in Rule 145.
Additionally, the number of shares to be sold by an affiliate within any
three-month period for purposes of Rule 145, may not exceed the greater of
1% of the outstanding shares of the combined company's common stock or the
average weekly trading volume of the stock during the four calendar weeks
preceding the sale. Rule 145 would only remain available, however, to
affiliates if the combined company remained current with its informational
filings under the Exchange Act.
APPRAISAL AND DISSENTERS' RIGHTS
Under applicable Delaware law, the holders of common stock of
AmTec are not entitled to dissenters' or appraisal rights in connection
with the merger.
U.S. REAL PROPERTY HOLDING CORPORATION
If AmTec is or becomes a United States real property holding
corporation, or USRPHC, as defined in Section 897(c)(2) of the Internal
Revenue Code at any time after of the merger becomes effective while
Vistagreen continues to hold at least one percent of the outstanding common
stock of AmTec and the stock was obtained pursuant to the stock purchase
agreement, then AmTec could be liable to Vistagreen for any U.S. tax
liability Vistagreen incurs on dispositions of its AmTec common stock. The
amount of this tax liability would depend on the amount of any gains
Vistagreen recognizes on dispositions of its AmTec common stock and on the
effective U.S. tax rate payable by Vistagreen at the time it recognizes
those gains.
Terremark believes that as of December 31, 1999, its assets
totaled approximately $45.0 million as calculated in accordance with the
provisions governing USRPHCs, of which $5 million would conservatively
be excluded as non-qualifying cash and $10 million would conservatively be
allocable to real estate assets. Accordingly, Terremark could acquire
nearly $19 million of additional real estate assets (assuming acquisition
solely with equity) before potentially jeopardizing its non-USRPHC status.
Terremark is not aware of any currently pending or contemplated event that
could jeopardize its non-USRPHC status. After the merger, non-real estate
assets (e.g., management contracts, brokerage listings and construction
contracts) are expected to increase as the company expands its growth in
the service side of the real estate sector. In addition, with the inclusion
of the telecommunication business of AmTec and a concentrated emphasis on
growth in the telecommunications business, it is expected that non-real
estate assets will significantly exceed real estate assets. Although
Terremark does intend to expand its Fortune House brand and, in doing so,
expects to acquire additional real property for Fortune House locations,
management will be cautious to avoid acquisitions that would result in
USRPHC status.
THE MERGER AGREEMENT
GENERAL
The merger agreement contemplates the merger of Terremark with and
into AmTec, with AmTec surviving the merger. As part of the merger, our
certificate of incorporation will be amended to increase the number of
authorized shares of our common stock from 100,000,000 to 300,000,000, and
the name of our company will be changed to Terremark Worldwide, Inc. The
merger will become effective at the date and time that the appropriate
documents are filed with each of the Secretary of State of the State of
Delaware and of Florida. We anticipate that we will make these filings as
soon as practicable after the last of the conditions precedent to the
merger, as set forth in the merger agreement, has been satisfied or waived.
The merger agreement obligates AmTec to have the AmTec common shares to be
issued in connection with the merger approved for listing on the American
Stock Exchange, subject to official notice of issuance, before the merger
becomes effective. The following description of the merger agreement is
only a summary and therefore is not complete. We encourage stockholders to
refer to the complete text of the merger agreement, which is attached as
Annex A.
CONSIDERATION TO BE RECEIVED IN THE MERGER
Immediately after the merger becomes effective, those stockholders
of AmTec who were holders immediately before the time the merger becomes
effective will hold, in the aggregate and on a fully diluted basis, 38.5%
of AmTec's outstanding shares of common stock. Assuming the sale of shares
of common stock to Vistagreen pursuant to the stock purchase agreement,
effective upon the merger, those holders will hold in the aggregate and on
a fully diluted basis 25% of AmTec's outstanding shares of common stock.
When the merger becomes effective and assuming no issuance of shares of
common stock to Vistagreen, holders of Terremark's common stock shall have
the right to receive that number of shares of common stock of our company
such that holders of Terremark's common stock will, in the aggregate and on
a fully diluted basis, hold 61.5% of the shares of our then outstanding
common stock. Based on the number of issued and outstanding shares of our
common stock as of the record date, when the merger becomes effective, the
number of shares of AmTec common stock to be held by AmTec stockholders and
Terremark stockholders will be 48,943,026 and 78,308,842 shares,
respectively.
RELATIONSHIP BETWEEN THE STOCK PURCHASE AGREEMENT AND THE MERGER AGREEMENT
Concurrent with the merger agreement, AmTec executed the stock
purchase agreement with Vistagreen, pursuant to which AmTec will, provided
the conditions precedent set forth in the stock purchase agreement are
satisfied, sell to Vistagreen 35% of its outstanding shares of common
stock, on a fully diluted basis, after giving effect to the merger. The
purchase price for these shares is a minimum of $27.1 million in principal
plus interest in the minimum amount of $1 million (such aggregate amount
being the proceeds of the promissory note issued to Vistagreen for the sale
of Terremark Centre to Terremark), plus interest accruing after sale of
Terremark Centre on that amount through the closing of the stock purchase.
Each of AmTec and Terremark's obligation to close the merger is conditioned
on, among other things, the satisfaction, unless those conditions are
waived by the parties, of the terms and conditions (except the merger's
closing) of the stock purchase agreement. For a more detailed discussion of
the transactions relating to the promissory note and the sale of Terremark
Centre, see the section titled "Stock Purchase Agreement" in this proxy
statement.
One of the conditions of the stock purchase agreement is the sale
of an office building, Terremark Centre, purchased by Terremark from
Vistagreen group on December 22, 1999. Before the purchase, Terremark
managed Terremark Centre for Vistagreen group.
PRINCIPAL REPRESENTATIONS AND WARRANTIES
The merger agreement contains a number of reciprocal
representations and warranties of AmTec and Terremark as to, among other
things:
o due incorporation and good standing;
o corporate authority to enter into the contemplated transactions;
o capitalization;
o required consents and filings with government entities;
o absence of conflicts with organizational documents and material
agreements;
o financial statements;
o absence of material changes or events;
o compliance with laws;
o litigation;
o absence of required governmental authorization;
o insurance coverage;
o absence of any casualty;
o the propriety of past payments;
o employee benefit plans;
o employee relations and agreements;
o client relations;
o contracts and commitments;
o sufficiency of assets; and
o the completeness and accuracy of information supplied for use
in connection with the transaction and compliance of this
document, to the extent information is provided by either
Terremark or AmTec, with SEC disclosure requirements
applicable to SEC registrants.
Representations and warranties are made solely by AmTec as to
title to property and full disclosure of any encumbrances thereon, that
AmTec has received the opinion of a financial advisor that there is no bar
in state law or corporate governance documents to the merger and that AmTec
is current with its disclosure requirements applicable to SEC registrants.
Representations and warranties are made solely by Terremark as to its real
property and the absence of any bar to the ownership or operation of this
property by AmTec after the merger, its leases, liability for broker fees
and environmental laws and regulations. Many of these representations and
warranties are qualified by material adverse effect, which, for purposes of
the merger agreement, means with respect to AmTec or Terremark, as the case
may be, a material adverse effect on the business, properties, assets,
liabilities, operations, results of operations, condition (financial or
otherwise) or prospects of either party and its subsidiaries, taken as a
whole, other than any material adverse effects arising out of:
o any change in general U.S. or global economic or general
economic conditions in industries in which either party
competes;
o the announcement of the transaction contemplated by the
merger agreement or any action required to be taken pursuant
to the merger agreement;
o any decrease in AmTec's stock price in and of itself; and/or
o any deterioration in AmTec's financial condition which is a
direct and proximate result of its agreements with Hebei
United Telecommunication Equipment Company.
None of the representations and warranties contained in the merger
agreement will survive the effective time of the merger.
PRINCIPAL COVENANTS
Conduct of the Business. From the date of the merger agreement
until the merger closes, both AmTec and Terremark have agreed that, except
as contemplated in the merger agreement or as consented to by the other
party in writing, which consent is not to be unreasonably withheld or
delayed:
Each of them will, and will cause each of their subsidiaries to,
conduct their operations only according to their ordinary and usual course
of business and will use their best efforts to:
o preserve intact their respective business organization; and
o maintain satisfactory relationships with licensors,
suppliers, distributors, clients and others having business
relationships with them.
Neither party will, nor will they permit any of their subsidiaries
to:
o amend their governing corporate documents;
o issue or sell shares of their capital stock or any of their
other securities, or issue any securities convertible into,
or options, warrants or rights to buy, or enter into an
arrangement with respect to the sale of, any shares of their
capital stock or any of their other securities or make any
changes to their corporate structure, provided that
Terremark must cause its outstanding Series A Convertible
Preferred Stock to be converted to Terremark common stock
before the merger is consummated;
o declare, pay or make any dividend or other distribution or
payment with respect to any shares of capital stock or
split, redeem or reclassify any shares of their capital
stock;
o enter into any contract or commitment, except contracts in
the ordinary course of business, including any acquisition
or disposition of a material amount of assets or securities;
o release or relinquish any material contract right;
o amend any employee or non-employee benefit plan or program,
employment agreement, license agreement or retirement
agreement, or pay any bonus or contingent compensation,
provided that Terremark may take these actions to the extent
they are consistent with past practices;
o agree to the settlement of any litigation involving a
payment of more than $100,000 in total;
o change any method of accounting or accounting practices used
by it, unless it is not material or is required by generally
accepted accounting principles;
o agree to take any of the foregoing actions; or
o make or change any material tax election.
Neither party will, nor will they permit any of their subsidiaries
to, take any action, engage in any transaction or enter into any agreement
which would cause any of the representations or warranties set forth in the
merger agreement to be untrue when the merger closes.
No solicitation of transactions. Pursuant to the merger agreement:
AmTec has agreed to immediately cease any discussions or
negotiations with any parties that may have been on-going with respect to
an acquisition proposal, which is defined in the merger agreement to
include an offer to acquire 20% or more of the assets or common shares of
AmTec, or any other transaction, the consummation of which could reasonably
be expected to materially prevent or materially delay the merger or which
could reasonably be expected to materially dilute the benefits to the
Terremark shareholders of the merger.
AmTec has agreed that it will not, nor will it authorize or
knowingly permit any officer, director, employee, accountant, counsel,
consultant, advisor, agent or representative, investment banker or
financial advisor of AmTec, directly or indirectly, to:
o solicit, initiate or knowingly encourage, or knowingly take
any other action to facilitate, any inquiries or the making
of any proposal which may reasonably be expected to lead to
an acquisition proposal; or
o participate in any discussions or negotiations regarding any
such acquisition proposal.
AmTec may take any action(s) described in the foregoing clauses if
its board of directors determines in good faith, after consultation with
independent legal counsel, that it may be necessary to do so to comply with
its fiduciary duties under applicable law.
If AmTec receives an unsolicited superior proposal, which is
defined in the merger agreement to be an acquisition proposal, made by a
third party on terms which the board of directors of AmTec, after
consultation with an experienced investment banker, determines in its good
faith judgment to be more favorable to AmTec's shareholders than the
transaction proposed in this merger agreement:
o AmTec may furnish information with respect to AmTec to the
person making the unsolicited superior proposal pursuant to
a confidentiality agreement; and
o participate in discussions or negotiations regarding such
superior proposal.
If the board of directors of AmTec determines in good faith, after
consultation with independent legal counsel, that it may be necessary to do
so to comply with its fiduciary duties under applicable law, the board of
directors of AmTec may:
o withdraw or modify its approval or recommendation of the
merger agreement and the merger;
o approve or recommend a superior proposal, as defined in the
merger agreement; or
o cause AmTec to enter into an agreement with respect to a
superior proposal, as defined, or terminate the merger
agreement;
provided that, in each case, only at a time that is after the fifth
business day following Terremark's receipt of written notice advising
Terremark that the board of directors of AmTec has received a superior
proposal, as defined in the merger agreement, specifying the material terms
and conditions of that superior proposal and identifying the person making
such superior proposal. Upon receipt of the notice of the superior
proposal, Terremark shall have an opportunity to amend the merger
agreement. If, after that amendment, the board of directors of AmTec
determines that the acquisition proposal still constitutes a superior
proposal, it may proceed as indicated above.
Notwithstanding the foregoing, nothing contained in the merger
agreement will prevent AmTec's board of directors from complying with Rule
14e-2 under the Exchange Act with respect to any acquisition proposal or
making any other disclosure required by applicable law.
Indemnification and Insurance. Under the merger agreement, AmTec has
agreed to the following:
o For a period of three years commencing when the merger
becomes effective, AmTec will maintain all rights to
indemnification that are currently enjoyed by the directors
and officers of AmTec, as provided for in AmTec's governing
corporate documents, with respect to acts and omissions
occurring before the merger becomes effective. However,
AmTec will not be liable for any settlement effected without
its consent;
o For a period of three years commencing at the effective
time, AmTec will use its reasonable best efforts to maintain
a policy or policies of directors' and officers' liability
insurance covering directors and officers of AmTec, on terms
which are at least as favorable as the policies maintained
by AmTec on the date of the merger agreement, with respect
to acts and omissions occurring before the merger becomes
effective. That insurance coverage shall continue to be
available, provided that the annual premium to maintain or
procure that insurance coverage shall not exceed $110,000.
If AmTec is unable to maintain or obtain that insurance,
AmTec will maintain or obtain, for the remainder of that
three year period, as much comparable insurance as shall be
available for a premium of $110,000.
U.S. Real Property Holding Corporation. If Vistagreen purchases
shares in AmTec pursuant to the stock purchase agreement, AmTec will be
contractually prohibited from becoming a United States real property
holding corporation as defined in the Internal Revenue Code, until after
such time as Vistagreen ceases to hold one percent or more of the
outstanding common stock of AmTec, which stock was obtained pursuant to the
stock purchase agreement.
Other covenants. The merger agreement contains additional
covenants, including covenants relating to access to information, keeping
each other mutually informed, confidentiality, public announcements and
cooperation regarding filings with governmental agencies and organizations.
In addition, the merger agreement contains a general covenant requiring
each of the parties thereto to use its reasonable best efforts to effect
the consummation of the merger.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligations to Effect the Merger. Each
party's obligation to consummate the merger is subject to the satisfaction
of the following conditions:
o Stockholder Approvals. AmTec's stockholders having duly
approved and adopted the merger agreement.
o Litigation. No governmental entity shall have instituted any
suit, action or proceeding which questions time validity or
legality of the transactions contemplated by the merger
agreement.
o Injunction. No injunction or other order shall have been
issued by any court or any governmental or regulatory entity
which has the effect of making the merger illegal or
otherwise prohibiting consummation of the merger.
o Statutes. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted or
enforced by any court or governmental authority which
prohibits the consummation of the merger.
o AMEX Listing. The shares to be issued pursuant to the merger
shall have been approved for listing on the AMEX, upon final
notice of issuance.
Additional Conditions to the Obligations of Terremark. The
obligation of Terremark to consummate the merger is subject to satisfaction
of the following conditions, which may be waived by Terremark:
o Accuracy of Representations and Warranties. All
representations and warranties of AmTec contained in the
merger agreement shall be true and correct in all material
respects as of the date of consummation of the merger, except
for those items which do not, individually or in the
aggregate, have a material adverse effect on the business,
properties, assets, liabilities, operations, results of
operations, condition (financial or otherwise) or prospects
of AmTec.
o Performance by AmTec. AmTec shall have performed in all
material respects all its obligations under the merger
agreement required to be performed by it before the merger
becomes effective.
o Tax Opinion. Terremark shall have received an opinion of
counsel reasonably satisfactory to Terremark to the effect
that the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code and that the U.S.
shareholders of Terremark will not recognize any gain or loss
on the receipt of AmTec common stock pursuant to the merger.
o Employment Agreement. Mr. Wright shall have entered into an
employment contract with AmTec in form and substance acceptable
to Terremark.
o Vistagreen Stock Purchase Agreement. The stock purchase
agreement pursuant to which Vistagreen is to acquire stock of
AmTec shall remain in full force and effect, all conditions
precedent to that agreement (except for the merger) shall
have been satisfied, all representations and warranties in
that agreement made by Vistagreen shall be true and correct
and the parties to the merger agreement shall have no
reasonable basis to believe that the transactions
contemplated in such stock purchase agreement will not be
consummated immediately after the merger becomes effective.
Additional Conditions to the Obligations of AmTec. The obligation
of AmTec to consummate the merger is subject to satisfaction of the
following conditions, which may be waived by AmTec:
o Vistagreen Stock Purchase Agreement. The stock purchase
agreement pursuant to which Vistagreen is to acquire stock of
AmTec shall remain in full force and effect, all conditions
precedent to that agreement (except for the merger) shall
have been satisfied, all representations and warranties in
that agreement made by Vistagreen shall be true and correct
and the parties to the merger agreement shall have no
reasonable basis to believe that the transactions
contemplated in such stock purchase agreement will not be
consummated immediately after the merger becomes effective.
o Accuracy of Representations and Warranties. All
representations and warranties of Terremark contained in the
merger agreement shall be true and correct in all material
respects as of time date of consummation of the merger,
except for those items which do not, individually or in the
aggregate, have a material adverse effect on the business,
properties, assets, liabilities, operations, results of
operations, condition (financial or otherwise) or prospects
of Terremark.
o Performance by Terremark. Terremark shall have performed in
all material respects all its obligations under the merger
agreement required to be performed by it before the merger
becomes effective.
o Lock Up Letters. Notwithstanding the registration statement on
Form S-3 (or similar form) that we have agreed to file
within ten business days after the merger and stock purchase
close, each holder of Terremark common stock immediately
before the merger becomes effective, shall have executed a
letter in substance and form reasonably acceptable to AmTec
providing that such holder shall not sell, offer to sell, or
otherwise dispose of any AmTec common stock received in the
merger for at least one year after the effective time of the
merger, other than in amounts which would be permitted under
the volume restrictions of Rule 145 (as if that rule were
applicable) of the Securities Act, or sales by any Terremark
common stockholder to other Terremark common stockholders,
to any affiliate of Terremark or to Terremark itself, or
sales to any member of the Vistagreen group or Affiliate of
the Vistagreen group, as defined in the Merger Agreement.
TERMINATION
The merger agreement may be terminated at any time before the
merger becomes effective, whether before or after approval of the matters
presented in connection with the merger by the AmTec stockholders or the
Terremark shareholders:
o by mutual written consent of the boards of directors of AmTec and
Terremark;
o by the board of directors of either AmTec or Terremark, if
the merger has not been consummated by July 1, 2000;
provided, however, that the right to terminate the merger
agreement will not be available to any party whose breach of
any obligation under the merger agreement has been the cause
of or resulted in the failure of the merger to occur on or
before that date;
o by either AmTec or Terremark, if any permanent injunction,
order, decree or ruling by any governmental entity having
competent jurisdiction preventing the consummation of the
merger shall have become final and nonappealable;
o by the board of directors of either AmTec or Terremark if
there has been a material breach of any representation,
warranty, obligation, covenant, agreement or condition set
forth in the merger agreement on the part of the other party,
provided that the breaching party shall have the right to
cure their breach within three days after written notice of
such breach is given by the other party;
o by either AmTec or Terremark if, at the AmTec special
stockholders' meeting, including any adjournment or
postponement, the requisite vote of AmTec's stockholders to
approve the merger agreement and the merger is not obtained,
provided that, if the failure to obtain the requisite vote is
the result of the failure of AmTec to obtain a quorum at the
special stockholders' meeting, AmTec will immediately call an
additional meeting if requested to do so by Terremark;
o by the board of directors of Terremark, if AmTec's board of
directors has withdrawn or modified its approval or
recommendation of the merger in any manner adverse to
Terremark; or
o by the board of directors of AmTec, if Terremark's board of
directors has withdrawn or modified its approval or
recommendation of the merger in any manner adverse to AmTec.
The right to terminate provided in the merger agreement is not
available to a party that has breached in any material respects its
obligations under the merger agreement in any manner that has proximately
contributed to the failure of the merger to be consummated.
TERMINATION FEES PAYABLE BY AMTEC
If the merger agreement is either terminated by Terremark because
of AmTec's material breach of any representation, warranty or obligation,
contract, covenant or condition in the merger agreement pursuant to
termination by either party's board of directors because of a material
breach of the merger agreement or terminated by AmTec because the board of
directors of AmTec withdraws or modifies adversely its recommendation of
the merger, AmTec will pay to Terremark, within three days of that
termination, all Terremark's out-of-pocket expenses incurred in connection
with the transactions contemplated by the merger agreement, not to exceed
$200,000, plus $3.0 million. If AmTec enters into a definitive agreement
pursuant to a superior proposal within twelve months after that termination
of the agreement, AmTec shall also pay Terremark an amount equal to 25% of
the difference between the valuation of AmTec used to formulate that
superior proposal and the valuation of AmTec used to formulate the
transaction pursuant to the merger agreement. This amount is payable by
AmTec to Terremark regardless of whether the transactions contemplated by
that superior proposal are consummated.
In addition, promissory notes in the aggregate amount up to $1.5
million and interest accrued thereon will become immediately payable if (1)
AmTec accepts another business combination proposal, (2) breaches any term,
agreement or covenant of the merger agreement or (3) AmTec stockholders do
not approve the merger agreement.
EXPENSES
If AmTec has to pay termination fees as described above, we cannot
assure you that AmTec will have the ability to do so, unless it obtains
financing to pay for those fees.
All fees and expenses incurred in connection with the merger
agreement and the transactions contemplated by the merger agreement, other
than termination fees payable upon termination under "Termination Fees
Payable by AmTec" above, will be paid by the party incurring those
expenses, whether or not the merger is consummated.
THE STOCK PURCHASE AGREEMENT
GENERAL
Concurrent with the signing of the merger agreement, AmTec entered
into the stock purchase agreement with Vistagreen. Vistagreen is
beneficially owned by family trusts for the benefit of Francis Lee and
members of his family. The Lee family operates timber, plantations and real
estate in Southeast Asia. Under the stock purchase agreement, immediately
after the close of the merger, AmTec, provided that conditions of the stock
purchase agreement are satisfied, will sell to Vistagreen 68,520,236
shares, representing 35% of outstanding shares of common stock of AmTec, on
a fully diluted basis after giving effect to the merger. The following
description of the stock purchase agreement is only a summary and therefore
is not complete. We encourage stockholders to refer to the complete text of
the stock purchase agreement, which is attached as Annex C.
CONSIDERATION TO BE RECEIVED IN THE STOCK PURCHASE; SALE OF TERREMARK CENTRE
One of the conditions of the stock purchase agreement is the sale
of Terremark Centre, purchased by Terremark from Vistagreen group on
December 22, 1999. Before the purchase, Terremark managed Terremark Centre
for Vistagreen group. Terremark Centre is an office-residential complex
which contains approximately 294,000 rentable square feet of office space,
16 residential units and a multistory parking garage, located at 2601 S.
Bayshore Drive, Coconut Grove, in Miami-Dade County, Florida.
Vistagreen group sold the Terremark Centre to Terremark, subject
to a first mortgage with a balance of $28.3 million, for a promissory note
in the amount of $27.1 million in principal plus interest in the minimum
amount of $1 million. Vistagreen will pay for the shares with the proceeds
of sale of Terremark Centre and other funds from Terremark, if required, to
repay the promissory note in full, together with interest, if any, accruing
after sale of Terremark Centre on the repayment after sale of Terremark
Centre through the closing of the purchase of the shares.
Terremark intends to sell Terremark Centre before the merger
closes and began an active marketing program at the end of November 1999.
Terremark and the Florida State Board of Administration entered into a
Contract for Purchase and Sale of Terremark Centre on February 21, 2000 for
$56.5 million. Issues subsequently arose on which the parties could not
agree and the contract was terminated prior to expiration of the due
diligence period. On March 20, 2000 Terremark entered into a non-binding
letter of intent to sell the building to another third party buyer for a
purchase price of $56.8 million. This transaction is subject to
execution of a binding contract, a 20 day due diligence period and 10 day
closing date following expiration of such due diligence period. If
Terremark does not sell Terremark Centre, Vistagreen is not obligated to
purchase AmTec common stock. In addition, if the merger does not occur on
or before December 31, 2000, Vistagreen will not be obligated to purchase
any AmTec common stock. We cannot assure the timing of the sale of
Terremark Centre, nor can we assure at what price Terremark Centre will be
sold. Terremark is obligated to make up any shortfall if the Terremark
Centre is sold for less than the amount required to repay its note. Any
obligation Terremark incurs to fund a shortfall will become the obligation
of the combined company.
PRINCIPAL REPRESENTATIONS AND WARRANTIES
The stock purchase agreement contains a number of
representations and warranties of AmTec as to, among other things:
o due incorporation and good standing;
o corporate authority to enter into the contemplated transactions;
o capitalization;
o required consents and filings with government entities;
o absence of conflicts with organizational documents and material
agreements;
o financial statements;
o absence of material changes or events;
o title to property and full disclosure of any encumbrances
thereon;
o compliance with laws;
o litigation;
o absence of required governmental authorization;
o insurance coverage;
o absence of any casualty;
o the propriety of past payments;
o employee relations and agreements;
o client relations;
o contracts and commitments;
o sufficiency of assets; and
o the completeness and accuracy of information supplied for use
in connection with the transaction and compliance of the
stock purchase agreement to the extent information is
provided by AmTec, with SEC disclosure requirements
applicable to SEC registrants.
Representations and warranties are made solely by Vistagreen as to
its qualification as an accredited investor as defined under the securities
laws and that Vistagreen is purchasing our common stock for investment
purposes and not with a view to distribution.
None of the representations and warranties contained in the stock
purchase agreement will survive the closing of the stock purchase.
REGISTRATION RIGHTS
Pursuant to the stock purchase agreement, AmTec has undertaken to
effect a registration of the common stock to be purchased by Vistagreen by
promptly filing, as soon as practicable after the stock purchase closes, a
"shelf" registration statement on Form S-3 or other applicable form that is
mutually satisfactory. Expenses of the registration will be borne by AmTec,
except that Vistagreen will bear the expenses of advisors retained by
Vistagreen. However, AmTec will pay the expenses of one counsel for
Vistagreen not exceeding $10,000. Selling expenses will be borne by
Vistagreen.
CONDITIONS TO THE CONSUMMATION OF THE STOCK PURCHASE
Conditions to Vistagreen's Obligations to Effect the Stock
Purchase. The obligation of Vistagreen to consummate the stock purchase is
subject to satisfaction of, among other things, the following conditions,
which may be waived by Vistagreen:
o Merger Agreement Closing. The merger shall have closed.
o Accuracy of Representations and Warranties. All
representations and warranties of AmTec contained in the
stock purchase agreement shall be true and correct in all
material respects as of the date of the stock purchase
agreement and of consummation of the stock purchase, except
those representations and warranties which relate to a
specific date other than the date of the stock purchase
agreement, which shall be true and correct as of that
specific date.
o Performance by AmTec. AmTec shall have performed in all
material respects all its obligations and agreements, and
complied in all material respects with all covenants and
conditions, contained in the merger agreement and the stock
purchase agreement required to be performed or complied with
by it before the stock purchase is consummated.
o Sale of Terremark Centre. Either the partnership interests in
the partnership which owns the Terremark Centre or Terremark
Centre itself shall have been sold to a party not related to
any party to the stock purchase agreement before the stock
purchase is consummated.
o United States Real Property Holding Corporation. Neither the
combined company nor AmTec, as of the effective time of the
merger, is a United States Real Property Holding Corporation
(as defined in Section 897(c)(2) of the Internal Revenue
Code), and the common stock acquired by Vistagreen will not,
at the effective time of the merger, constitute a United
States real property interest (as defined in Section
897(c)(1)(A)(ii) of the Internal Revenue Code).
o Legal Opinion. Vistagreen shall have received an opinion of
counsel to the combined company reasonably satisfactory to
Vistagreen to the effect that the common stock purchased by
Vistagreen pursuant to the stock purchase agreement will be
duly and validly issued, fully paid and non-assessable and
will be issued in compliance with all applicable federal and
state securities laws, as well as an opinion stating that
the combined company does not constitute a USRPHC and that
the interests acquired are not interests in U.S. real
property.
o Employment Agreement. Mr. Wright, Jr. shall have entered into
an employment contract with AmTec in form and substance
acceptable to Terremark.
o Approval of AmTec stockholders. The merger, the merger
agreement and the stock purchase agreement shall have been
approved and adopted by the requisite vote of AmTec
stockholders.
o Litigation. No governmental entity shall have instituted any
suit, action or proceeding which questions the validity or
legality of the transactions contemplated by the merger
agreement or the stock purchase agreement.
o Injunction. No injunction or other order shall have been
issued by any court or any governmental or regulatory entity
which has the effect of making the merger or the stock
purchase illegal or otherwise prohibiting consummation of the
merger or the stock purchase agreement.
o Statutes. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted or
enforced by any court or governmental authority which
prohibits the consummation of the merger or the stock
purchase agreement.
o AMEX Listing. The shares to be issued pursuant to the stock
purchase agreement shall have been approved for listing on
the AMEX, upon final notice of issuance.
Conditions to the Obligations of AmTec. The obligation of AmTec to
consummate the stock purchase is subject to satisfaction of the following
conditions, which may be waived by AmTec:
o Accuracy of Representations and Warranties. All
representations and warranties of Vistagreen contained in the
stock purchase agreement shall be true and correct in all
material respects as of the date of the stock purchase
agreement and of consummation of the stock purchase
agreement, except for any such representation and warranty
which relates to a specific date, which shall be true and
correct as of that specific date.
o Merger Agreement Closing. The merger shall have closed.
TERMINATION
The stock purchase agreement and the transactions contemplated
thereby may be terminated at any time before the closing of the stock
purchase,
o by mutual written consent of the boards of directors of
AmTec and Vistagreen;
o by Vistagreen if the merger does not close on or before
December 31, 2000;
o by either AmTec or Vistagreen, if any permanent injunction,
order, decree or ruling by any governmental entity having
competent jurisdiction preventing the consummation of the
merger or the transaction contemplated by the stock purchase
agreement shall have become final and nonappealable;
o by the board of directors of either AmTec or Vistagreen if
there has been a material breach of any representation,
warranty, obligation, covenant, agreement or condition set
forth in the stock purchase agreement on the part of the
other party, provided that the breaching party shall have
the right to cure their breach within three days after
written notice of that breach is given by the other party;
o by Vistagreen if there has been a material breach of any
representation, warranty, obligation, covenant, agreement or
condition set forth in the merger agreement by either AmTec
or Terremark; provided that the breaching party shall have
the right to cure their breach within three days after
written notice of that breach is given by the other party;
o by the board of directors of AmTec or Vistagreen if the
requisite vote of AmTec's stockholders to approve the merger
agreement and the stock purchase agreement is not obtained.
If the requisite vote is not obtained because AmTec failed
to obtain a quorum at the special stockholders' meeting,
AmTec will immediately call an additional meeting if
requested to do so by Vistagreen; or
o by the board of directors of AmTec or Vistagreen if AmTec's
board of directors has withdrawn or modified its approval or
recommendation of the merger in any manner adverse to
Terremark or Vistagreen.
The rights to terminate the stock purchase agreement described above are
not available to a party which has breached in any material respect its
obligations under the stock purchase agreement in any manner that has
proximately contributed to the failure of the merger to be consummated.
EXPENSES
All costs and expenses incurred in connection with the stock
purchase shall be paid by the party incurring that costs and expenses.
LOCK UP
Although we have agreed to file a registration statement on Form
S-3 (or similar form) within ten business days after the merger and stock
purchase close registering our common stock issued in connection with the
merger and stock purchase, Vistagreen group has agreed that no sale, offer
to sell, or other disposition of any interest in the combined company's
common stock held by it will be sold before one year expires after the
merger becomes effective. Vistagreen group is permitted, however, to make:
o open market sales of up to, in any three-month period, the
greater of one percent of our outstanding shares or the
average weekly volume of our sales during the four calendar
weeks before the sale or
o sales by any member of the Vistagreen group to another member
of Vistagreen group or any family member or affiliate of any
member of Vistagreen group or to Terremark or any affiliate
of Terremark.
OTHER AGREEMENTS
SHAREHOLDERS AGREEMENT
Vistagreen group, which is ultimately beneficially owned by the
Lee family, and all the Terremark shareholders have entered into a
shareholders agreement which, among other things, provides for the
following:
o the Terremark shareholders agree to nominate or cause to be
nominated and to vote all their AmTec shares to elect two
Vistagreen nominees to the board of directors of AmTec;
o the Terremark shareholders agree to elect or appoint or cause
to be elected or appointed one Vistagreen nominee to the
executive committee of the board of directors;
o the Vistagreen parties agree to nominate or cause to be
nominated and to vote all of their AmTec shares to elect all
Terremark nominees who are nominated for directorships; and
o in the event any party to the shareholders agreement proposes
to sell, dispose of or otherwise transfer any of its AmTec
common stock, other than pursuant to an open market sale
through a national stock exchange or interdealer sale system
or if the shares proposed to be sold represent less than 10%
of the issued and outstanding shares of AmTec Common Stock,
the other parties to the shareholders agreement will have the
opportunity to join in that sale, subject to a number of
conditions, on a pro-rata basis.
BRIDGE LOAN
In connection with the letter of intent dated November 9, 1999
announcing AmTec and Terremark's proposal to enter into a definitive merger
agreement, AmTec and Terremark signed a Security and Loan Agreement on
November 17, 1999. In that agreement, Terremark agreed to provide AmTec
with a secured bridge financing of up to $1.5 million to help meet AmTec's
capital requirements and working capital needs.
As security for the payment and performance when due of AmTec's
obligations under the Security and Loan Agreement, AmTec granted Terremark
a first priority security interest in all AmTec assets, except for those
assets on which a lien cannot be granted without the consent of any United
States or foreign governmental authority including licenses, permits or
other governmental approvals.
Pursuant to the Security and Loan Agreement, AmTec has delivered
promissory notes in the aggregate principal amount of $1.5 million, which
provide for interest on the outstanding principal amount at the rate of 10%
per annum in favor of Terremark. Principal and interest on the promissory
notes are payable in full upon the earlier of an event of default as
defined in the promissory notes or July 1, 2000.
Events of default under the promissory notes will result in
acceleration of payment. For example, the promissory notes provide that
Terremark may demand immediate payment on the promissory note if (1) AmTec
accepts another business combination proposal, (2) breaches any term,
agreement or covenant of the merger agreement, or (3) if the stockholders
of AmTec do not approve the merger agreement. In addition, if the merger
agreement is terminated without consummation of the merger, the promissory
notes become payable within five business days of that termination. Thus if
the merger is not consummated, AmTec will have to repay its borrowings
under the bridge financing arrangement with Terremark in addition to the
termination fees that it may owe Terremark under the merger agreement.
Unless AmTec obtains alternative financing to repay those borrowings and fees,
AmTec's business and financial condition will be materially and adversely
affected.
MANAGEMENT OF AMTEC AFTER THE MERGER
The executive officers and directors of AmTec after the merger,
and their ages as of January 1, 2000, will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --------- ---------------------------------------------------------------
<S> <C> <C>
Manuel D. Medina................. 47 Chairman of Board, President and Chief Executive Officer
Joseph R. Wright, Jr............. 61 Director and President of Terremark Communications Group, Inc.
Joel A. Schleicher............... 47 Director
Marvin S. Rosen.................. 58 Director
Kenneth I. Starr................. 51 Director
Timothy Elwes.................... 64 Director
Miguel J. Rosenfeld.............. 50 Director
Brian K. Goodkind................ 42 Executive Vice President and General Counsel
Irving A. Padron, Jr............. 29 Senior Vice President and CFO
Michael L. Katz.................. 50 President and COO of Terremark Real Estate Group, Inc.
William J. Biondi................ 54 President of Terremark Management Services, Inc., Terremark Realty, Inc.,
and Terremark Financial Services, Inc.
Aviva D. Budd.................... 59 President of Terremark Northeast, Inc.
Edward P. Jacobsen............... 44 President of Terremark Construction Services, Inc.
Karin-Joyce Tjon................. 37 Executive Vice President of Terremark Communications Group, Inc.
</TABLE>
Manuel D. Medina has served as the Chairman of the Board and Chief
Executive Officer of Terremark since its founding in 1982. In addition, Mr.
Medina is a managing partner of Communications Investors Group, the holder
of AmTec Series G Preferred Stock. Mr. Medina has been a director of Fusion
Telecommunications International since December 14, 1998. Before founding
Terremark, Mr. Medina, a certified public accountant, worked with
PricewaterhouseCoopers LLP. Subsequently, he established and operated an
independent financial and real estate consulting company. Mr. Medina earned
a Bachelors of Science degree in Accounting from Florida Atlantic
University in 1974.
Joseph R. Wright, Jr. has served as AmTec'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. Before 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.
Joel A. Schleicher has served as director of AmTec since August
1999. Mr. Schleicher has been President and Chief Executive Officer for
Exp@nets since June of 1998. Exp@nets is a leading nationwide provider of
networked communication solutions to business. His previous communications
industry experience started as the Chief Operating Officer, President and
director of Nextel Communications, Inc. from 1989 to 1995 and subsequently
with ProCommunications, Inc. from 1996 to 1997. He has been a member of the
board of directors of NovAtel, Inc., a global GPS provider, since 1997,
Fusion Telecommunications, an international long distance service provider,
since 1998, and TechTronic Industries, a Hong Kong based manufacturer of
consumer appliances, since 1998. Before Nextel, Mr. Schleicher spent 10
years in the consumer durables and energy sectors of industry and four
years with KPMG Peat Marwick in various capacities. He is a graduate of the
Carlson School of the University of Minnesota.
Marvin S. Rosen was a co-founder of Fusion Telecommunications
International and has served as its Vice Chairman since December 1998. Mr.
Rosen has served as director of AmTec since March 1999. Mr. Rosen is a
principal shareholder and member of the executive committee of Greenberg
Traurig, P.A., an international 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, Inc. (since 1997), where he has
also been Vice-Chairman since December 1998. Mr. Rosen received his
Bachelor of Science degree 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.
Kenneth I. Starr has served as the Chairman and Chief Executive
Officer of Starr & Company, a New York City-based accounting and business
management firm, since he founded such firm in 1986.
Miguel J. Rosenfeld has served as a Senior Vice President of Delia
Feallo Productions, Inc. since November 1991, where he was responsible for
the development of soap opera productions in Latin America. From January
1995 until May 1998, he was the Director of Affiliates and Cable for Latin
America for Protele, a division of Televisa International LLC. From
December 1984 until September 1998, he was a sales manager for
Capitalvision International Corporation. Mr. Rosenfeld holds a Bachelors
degree in Administration from the University of Buenos Aires which he
earned in 1975.
Timothy Elwes served as a director of Timothy Elwes & Partners Ltd.,
a financial services company, from May 1978 until October 1994, the
business of which was merged into Fidux Trust Co. Ltd. in December 1995.
Mr. Elwes is a director of Fidux Trust Co. Ltd. He is also a non-executive
director of Partridge Fine Arts plc, a public company since 1989. He has
served as a director of Makecater Ltd., a property-developing company,
since 1995. Since 1989 he has served as a director of Tagring Ltd., a
financial services company.
Brian K. Goodkind has served as Vice-Chairman, Executive Vice
President, and General Counsel to Terremark since April 1998. In this
capacity, Mr. Goodkind oversees the operations, office management, risk
management, development of systems, human resources, and legal matters for
Terremark. Mr. Goodkind has been a member of the Florida Bar since 1982,
and was in private practice for 16 years, specializing in commercial
litigation, employment law, international transactions and real estate. His
experience includes over 11 years from 1986 until 1998 as one of two
founding partners of a seventy-attorney full-service law firm, for which he
served as managing partner for over five years. Mr. Goodkind received his
Bachelor of Arts degree from the University of Alabama and his J.D. from
the University of Florida.
Irving A. Padron, Jr. has been the Senior Vice President and Chief
Financial Officer of Terremark since 1997. From 1992 until joining
Terremark, Mr. Padron was a Manager with KPMG Peat Marwick's financial
service practice in Miami, Florida, focusing on the development of that
firm's real estate practice. His experience also includes providing audit
and consulting services to multinational manufacturing, retailing and
distribution clients as well as to international banks. Mr Padron holds a
Certified Public Accountant License and is a licensed real estate sales
person in the State of Florida.
Michael L. Katz has served as President and Chief Operating Officer
of Terremark Group, Inc. with primary responsibility for supervising all
operations of Terremark Group and all its subsidiaries since 1998. Mr. Katz
co-founded KB Commercial and served as its Chairman from 1987 to 1997. KB
Commercial provided a full range of real estate services, primarily focused
on asset management and all of its discipline for its institutional
clients. Mr. Katz has been a member of the Florida Bar since 1974. Mr. Katz
received his Bachelor of Arts degree from the University of Maryland and
his J.D. from the University of Florida.
William J. Biondi joined the senior management of Terremark Group
upon the merger of Terremark with KB Commercial Real Estate Group in 1998.
As President of Terremark Management Services, Inc., Terremark Realty,
Inc., and Terremark Financial Services, Inc., Mr. Biondi has overseen the
management, brokerage, and leasing activities of these three divisions, as
well as being responsible for business generation. Mr. Biondi has over 25
years of commercial real estate experience covering all aspects of office
building development, rehabilitation, sales, leasing and day-to-day
portfolio management in the South Florida marketplace. The positions he has
held have included President, CEO and Co-founder of Clark-Biondi Company,
President and CEO of Grubb & Ellis of Florida, and President and CEO of KB
Commercial Real Estate Group.
Aviva D. Budd has served as President of Terremark Northeast, Inc.
since April, 1999. From April 1997 until April 1999, Ms. Budd was a Senior
Vice President of U.S. Realty Advisors, L.L.C. From February 1995 until
April 1997, Ms. Budd served as Principal Investment Officer for real estate
for Combined Retirement and Trust Funds of the State of Connecticut. Ms.
Budd received her Bachelor of Arts degree from the University of
Connecticut and her J.D. from Harvard Law School.
Edward P. Jacobsen has served as President of Terremark
Construction Services, Inc., where he administers all construction
operations for the company. This role includes research and analysis of
potential development opportunities, as well as feasibility, construction,
and budget analysis. Mr. Jacobsen joined Terremark in 1991 to help
establish offices and manage post-war construction projects in Kuwait and
Saudi Arabia. In 1993, he returned to Terremark's corporate headquarters in
Miami to assume managerial responsibility of all development, construction,
and property management operations. Mr. Jacobsen holds licenses as a
professional engineer, general contractor, and real estate salesperson in
the State of Florida.
Karin-Joyce Tjon has served as Vice President of AmTec since April
1999 and as Financial Analyst from November 1997 through March 1999. Before
joining AmTec, Ms. Tjon was Associate Managing Director of Western Pacific
Capital Company, a Hong Kong based private equity fund, from 1992 through
1997. She was a merchant banker with Eastern Atlantic Trust of Luxembourg,
based in Asia, from 1987 through January 1996, working on a wide variety of
financing transactions in the areas of project finance and mergers &
acquisitions. Ms. Tjon graduated summa cum laude from Ohio University with
a Bachelor's Degree in Management & Organizational Behavior and holds an
M.B.A. in Finance from Columbia University's Graduate School of Business.
EMPLOYMENT AGREEMENTS
Mr. Wright has entered into a one year employment contract
whereby, in the combined company, he will be employed as President and Vice
Chairman of Terremark Communications Group, Inc. The agreement provides for
an annual base salary of $250,000 and a surrender by him of options to
purchase two million shares of the common stock at $3 per share and of
options to purchase one million shares of common stock at $0.35 per share.
STOCK OPTION GRANTS
Pursuant to the merger agreement, AmTec and Terremark have agreed
to grant options to purchase up to an aggregate of 1,000,000 of our shares
to certain AmTec and Terremark employees. These options will be granted at
the effective time of the merger and will have a price equal to the closing
price of our stock on the day before the merger. The options will be
exercisable over ten years. The options will vest immediately upon a change
in control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF TERREMARK
In November 1998, an affiliate of Terremark, the Communications
Investors Group, a general partnership which is 50% owned by Manuel D.
Medina, Chief Executive Officer, Chairman and a principal Shareholder of
Terremark, purchased 5.39 Series E Convertible Preferred Shares of AmTec
for $175,000. The Series E Convertible Preferred Shares were subsequently
converted into 807,821 shares of AmTec's common stock. In addition, CIG
received 93,899 warrants with an exercise price of $2.475 associated with
this purchase.
In March 1999, CIG purchased 20 Series G Convertible Preferred
Shares of AmTec for a consideration of $2.0 million in cash. The Series G
Convertible Preferred Shares have a fixed conversion price of $1.25 and a
payment-in-kind dividend of 8% per annum. The Series G Convertible
Preferred Shares can be converted into approximately 1,688,022 shares of
AmTec's common stock as of November 24, 1999 prior to the merger. In
addition, CIG received 600,000 warrants with an exercise price of $1.25,
associated with this purchase.
Preferred Stock. The 4,176,693 outstanding shares of Terremark's
10% cumulative preferred stock is beneficially owned by Centre Credit
Corporation. This preferred stock is convertible into Terremark common
stock upon the occurrence of specified events, including the effectiveness
of the merger. It is anticipated that the preferred stock will convert into
a number of Terremark common shares such that the holders of the preferred
stock will receive approximately 10% of the AmTec shares received by all
Terremark shareholders pursuant to the merger. A number of members of
Terremark's senior management have agreed to purchase all the outstanding
preferred stock from Centre Credit Corporation before the effective date of
the merger at its issuance price plus accrued dividends. Pursuant to these
preferred stock purchase agreements, the 4,176,693 outstanding shares of
Terremark preferred stock will be acquired by the following individuals or
their assigns:
Michael Katz........................... 1,609,006
Brian Goodkind......................... 1,206,747
Edward Jacobson........................ 272,188
Irving Padron.......................... 272,188
William Biondi......................... 272,188
Aviva Budd............................. 545,376
----------
4,176,693
TERREMARK RELATIONSHIP WITH FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
Fusion, a private facilities-based, multinational long-distance
company, is a joint venture partner with AmTec in IXS.NET, Inc., and in
IP.COM LLC. Terremark and its affiliates have various relationships with
Fusion Telecommunications International, Inc. First, Mr. Medina, Chief
Executive Officer, Chairman and a principal shareholder of Terremark is a
member of the board of directors of Fusion and, through his interest in a
general partnership, owns approximately 695,500 shares of Fusion common
stock, along with options and warrants. Second, there are interlocking
directors between Fusion, AmTec and Terremark. The interlocking directors
consist of Mr. Medina who is currently a director of Fusion and Terremark,
and Messrs. Rosen, Schleicher and Wright, all of whom are directors of both
AmTec and Fusion. Finally, a subsidiary of Terremark, Terremark Financial
Services, Inc., acts as a consultant to a subsidiary of Fusion, Fusion
Asia, LLC, in connection with telecommunications operations in China.
On January 24, 2000, AmTec agreed to lend up to $150,000 to Fusion
Asia under a note which is convertible into 50% of the equity of Fusion
Asia. AmTec has advanced $25,000 as of January 24, 2000. The note can only
be converted, however, after such time as AmTec has $5 million in cash.
Terremark has entered into a consulting agreement with Fusion Asia
providing that Terremark will assist Fusion Asia with management and
development of comprehensive business in China and South America for a
period of one year. Fusion Asia is to pay Terremark $5,000 per month for
Terremark's services. The consulting agreement may be terminated by either
party on 30 days notice.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are derived from
historical financial statements of AmTec and Terremark, and have been
prepared to illustrate the effects of the transactions described below.
The unaudited pro forma condensed balance sheet gives effect to
each of the following transactions as if those transactions had occurred on
December 31, 1999; (i) the merger of Terremark and AmTec and (ii) the
Building Transactions of (a) Terremark's sale of Terremark Centre for its
estimated net sales price based on a signed letter of intent and repayment
of related debt, including purchase money notes payable to Vistagreen and
(b) Vistagreen's acquisition of a 35% ownership interest in the merged
company with proceeds from repayment of the notes delivered by Terremark to
Vistagreen for the purchase of Terremark Centre. The unaudited pro forma
condensed statements of operations for the nine months ended December 31,
1999 and for the year ended March 31, 1999 give effect to the merger of
Terremark and AmTec as if that transaction had occurred on April 1, 1999
and 1998, respectively. The unaudited pro forma condensed consolidated
statements of operations for the nine months ended December 31, 1999 and
for the year ended March 31, 1999 also give effect to the following
Vistagreen transactions as if those transactions had occurred on April 1,
1999 and 1998, respectively; (a) Terremark's acquisition of Terremark
Centre for its purchase price, (b) Terremark's resale of Terremark Centre
for its estimated net sales price based on a signed letter of intent and
repayment of all related debt and (c) Vistagreen's acquisition of a 35%
ownership interest in the merged company. The foregoing transactions are
referred to as the Building Transactions in these pro forma financial
statements.
The pro forma financial statements are unaudited and do not
purport to be indicative of the actual results of operations or financial
position that would have been reported had such events actually occurred on
the dates specified, nor do they purport to be indicative of AmTec's future
results or position. No estimates of future cost savings related to among
other things, administrative consolidations and other efficiencies have
been reflected in these pro forma financial statements. The pro forma
financial statements, including the notes thereto, should be read in
conjunction with the audited historical financial statements thereto, of
Terremark and AmTec appearing elsewhere in this document.
The merger transaction will result in Terremark receiving a
majority of the combined company's voting common stock. Accordingly, the
merger will be treated as a reverse acquisition for accounting purposes,
with Terremark as the acquirer. After the merger is effective, comparative
historical information of the combined company will be that of Terremark.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
TERREMARK AMTEC MERGER MERGED BUILDING COMPANY
HISTORICAL HISTORICAL ADJUSTMENTS (A) COMPANY TRANSACTIONS (B) PRO FORMA
-------------- --------------- --------------- --------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate inventories, net $ 5,317 $ - $ - $ 5,317 $ - $ 5,317
Cash and cash equivalents 1,390 630 - 2,020 27,746 29,766
Restricted cash 281 - - 281 (263) 18
Investment in unconsolidated
subsidiaries - 2,439 - 2,439 - 2,439
Investment in affiliate - 632 - 632 - 632
Real estate held for sale 55,850 - - 55,850 (55,850) -
Deposit on real estate 500 - - 500 - 500
Accounts receivable 1,075 - - 1,075 (183) 892
Notes receivable 1,717 575 (1,125) 1,167 - 1,167
Property, plant and equipment 369 62 431 - 431
Goodwill - - 47,803 47,803 - 47,803
Other assets 1,749 109 - 1,858 (1,026) 832
------------ ------------- ------------- ---------- ----------- -----------
Total assets $ 68,248 $ 4,447 $ 46,678 $ 119,373 $ (29,576) $ 89,797
============ ============= ============= ========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES:
Notes payable $ 60,518 $ 1,125 $ (1,125) $ 60,518 $ (55,414) $ 5,104
Trade payable and other
liabilities 3,415 594 2,000 6,009 (1,778) 4,231
Interest payable 752 25 - 777 (149) 628
Customer deposits 514 - - 514 (333) 181
------------ ------------- ------------- ---------- ----------- -----------
Total liabilities 65,199 1,744 875 67,818 (57,674) 10,144
------------ ------------- ------------- ---------- ----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock 4,177 - (4,177) - - -
Common stock 11 36 67 114 69 183
Paid in capital 8,013 38,267 13,830 60,110 28,029 88,140
Retained deficit (9,152) (36,082) 36,082 (9,152) - (9,152)
Warrants - 482 - 482 - 482
------------ ------------- --------------- ------------ ------------- -----------
3,049 2,703 45,803 51,555 28,098 79,653
------------ ------------- ------------- ---------- ----------- -----------
Total liabilities and
stockholders' equity $ 68,248 $ 4,447 $ 46,678 $ 119,373 $ (29,576) $ 89,797
============ ============= ============= ========== =========== ===========
</TABLE>
- ------------------
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1999
(a) Merger adjustments include estimated adjustments necessary under the
purchase method of accounting, with Terremark treated as the acquirer,
including $2.0 million in estimated offering costs in connection with
the transaction. Merger adjustments also include the elimination of
$1.125 million loaned by Terremark to AmTec. The goodwill adjustment
amount reflects the excess purchase price over the estimated fair
value of AmTec's identifiable assets and liabilities . The goodwill
calculation assumes a purchase price of $50.5 million based upon the
market capitalization of AmTec, using an average closing price of
AmTec's ordinary shares over a seven day period commencing three days
before November 9, the date the proposed merger was announced. The
calculated purchase price per share of $.9911 is for accounting
purposes only and is not indicative of the price at which AmTec's
shares will trade immediately before the consummation of the merger or
the value of AmTec's shares to be received by shareholders of
Terremark or Vistagreen in connection with the merger.
(b) Building Transactions represent Terremark's sale of Terremark Centre
for its net estimated sales price based on a signed letter of intent
and repayment of all related debt. Building Transactions also include
Vistagreen's acquisition of 35% of the combined company for $28.1
million (the anticipated proceeds from liquidation of $27.1 million in
promissory notes held by Vistagreen plus $1.0 million in minimum
interest due under the notes.)
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31,
1999 (DOLLARS IN THOUSANDS EXCEPT PER
SHARE DATA)
TERREMARK
TERREMARK CENTRE TERREMARK AMTEC MERGER MERGED BUILDING COMPANY
HISTORICAL PRO FORMA (A) PRO FORMA HISTORICAL ADJUSTMENTS(B) COMPANY TRANSACTION(C) PRO FORMA
--------- ------------ ---------- ---------- -------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL REVENUES $ 13,390 $ - $ 13,390 $ - $ - $ 13,390 $ - $ 13,390
EXPENSES -
COST OF REAL ESTATE SOLD
AND SERVICES 9,100 - 9,100 - - 9,100 - 9,100
EQUITY IN (INCOME) LOSSES
OF AFFILIATE AND
UNCONSOLIDATED SUBSIDIARY - - - (271) - (271) - (271)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,941 - 6,941 2,403 - 9,344 - 9,344
DEPRECIATION 63 - 63 - - 63 - 63
AMORTIZATION - - - - 7,170 7,170 - 7,170
--------- ------------ ---------- ---------- -------------- ---------- ------------- ---------
OPERATING EXPENSES 16,104 - 16,104 2,132 7,170 25,406 - 25,406
--------- ------------ ---------- ---------- -------------- ---------- ------------- ---------
INCOME (LOSS) FROM OPERATIONS (2,714) - (2,714) (2,132) (7,170) (12,016) - (12,016)
OTHER INCOME (EXPENSE)
INTEREST INCOME 186 - 186 - - 186 - 186
INTEREST EXPENSE (614) - (614) - - (614) (948) (1,562)
OTHER INCOME (EXPENSE) (7) - (7) 46 - 39 - 39
INCOME (LOSS) ON OPERATIONS OF
TERREMARK CENTRE 2 (553) (551) - - (551) 551 -
DIVIDEND ON PREFERRED STOCK $ (313) - (313) (350) 313 (350) - (350)
--------- ------------ ---------- ---------- -------------- ---------- ------------- ---------
TOTAL OTHER (EXPENSE) INCOME (746) (553) (1,299) (304) 313 (1,290) (397) (1,687)
--------- ------------ ---------- ---------- -------------- ---------- ------------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES (3,460) (553) (4,013) (2,436) (6,857) (13,306) (397) (13,703)
INCOME TAXES
CURRENT TAX EXPENSE - - - - - - - -
DEFERRED TAX (BENEFIT) - - - - - - - -
--------- ------------ ---------- ---------- -------------- ---------- ------------- ---------
TOTAL INCOME TAX EXPENSE (BENEFIT) - - - - - - - -
--------- ------------ ---------- ---------- -------------- ---------- ------------- ---------
NET INCOME (LOSS) $ (3,460) $ (553) $ (4,013) $ (2,436 $ (6,857) $ (13,306) $ (397) $(13,703)
========= ============ ========== ========== ============== ========== ============= =========
EARNINGS PER SHARE:
BASIC AND DILUTED $ (0.07) $ (0.12) $ (0.07)
========= ========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED (D) 32,924,478 81,693,364 114,617,842 68,520,236 183,138,078
========== =========== ============ ========== ===========
</TABLE>
- ----------------------
NOTES TO PRO FORMA STATEMENT OF OPERATIONS FOR NINE MONTHS ENDED
DECEMBER 31, 1999
(a) Terremark Centre Pro Forma represents the additional estimated net
loss on Terremark Centre from April 1, 1999 through December 22, 1999,
the date of its acquisition by Terremark, which would have been
recorded by Terremark if it had acquired Terremark Centre on April 1,
1999.
(b) Merger adjustments include estimated amortization of goodwill
resulting from the excess purchase price over the estimated fair value
of AmTec's identifiable assets and liabilities over a five year
period. The five year period is supported by the nature of the
telecommunications and Internet industries. However, amortization will
ultimately be based upon the results of the valuation of AmTec by a
third party.
(c) Building Transactions represent the adjustment to eliminate the income
recorded by Terremark resulting from its investment in Terremark
Centre plus the additional estimated net loss which would have been
recorded by Terremark if it had acquired Terremark Centre on April 1,
1999. Building Transactions also represent the adjustment which would
have been recorded if Terremark had resold Terremark Centre on April
1, 1999 for its estimated net sales price based on a signed letter of
intent.
(d) Basic weighted average shares represents the total estimated shares to
be issued to related shareholders in the merger. Basic and diluted
weighted average shares are the same because the inclusion of the
dilutive effect of preferred stocks and stock warrants in the merged
company would be antidilutive, due to the net loss position.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
Terremark
Terremark Centre Terremark AmTec Merger Merged Building Company
Historical Pro Forma (a) Pro Forma Historical Adjustments (b) Company Transaction(c) Pro Forma
---------- ------------- --------- --------- ----------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $ 44,456 $ - $ 44,456 $ - $ - $ 44,456$ - $ 44,456
Expenses -
Cost of real estate sold and
services 31,148 - 31,148 - - 31,148 - 31,148
Equity in losses of affiliated
consolidated subsidiary - - - 385 - 385 - 385
Selling, general and
Administrative 11,571 - 11,571 4,650 - 16,221 - 16,221
Depreciation 50 - 50 - - 50 - 50
Amortization - - - - 9,561 9,561 - 9,561
--------- ------------ ---------- --------- -------------------------------------- ------------
Operating Expenses 42,769 - 42,769 5,035 9,561 57,365 - 57,365
--------- ------------ ---------- --------- -------------------------------------- ------------
Income (loss) from operations 1,687 - 1,687 (5,035) (9,561) (12,909) - (12,909)
Other income (expense)
Interest income 263 - 263 - - 263 - 263
Interest expense (1,493) - (1,493) - - (1,493) 1,000) (2,493)
Other income (expense) 167 - 167 (544) - (377) (150) (527)
Loss on operations of
Terremark Centre - (426) (426) - - (426) 426 -
Dividend on preferred stock - - - (672) - (672) - (672)
--------- ------------ ---------- --------- -------------------------------------- ------------
Total other (expense) income (1,063) (426) (1,489) (1,216) - (2,705) (724) (3,429)
--------- ------------ ---------- --------- -------------------------------------- ------------
Income (loss) before income taxes 624 (426) 198 (6,251) (9,561) (15,614) (724) (16,338)
Income taxes
Current tax expense - - - - - - - -
Deferred tax (benefit) - - - - - - - -
--------- ------------ ---------- --------- -------------------------------------- ------------
Total income tax expense (benefit) - - - - - - -
--------- ------------ --------- --------- ------------- --------- --------- ----------
Net income (loss) $ 624 $ (426) $ 198 $ (6,251) $ (9,561) $(15,614) $ (724) $ (16,338)
========= ============ ========= ========= ============= ========= ========= ==========
Loss per share
Basic and Diluted $ (0.23) $ (0.14) $ (0.09)
========= =========== ============
Weighted average shares
outstanding
Basic and Diluted (d) 27,495,213 87,122,629 114,617,842 68,520,236 183,138,078
========== =========== ============ =========== ===========
</TABLE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31,
1999:
(a) Terremark Centre Pro Forma represents the estimated net loss on
Terremark Centre from April 1,1998 through March 31, 1999 which would
have been recorded by Terremark if it had acquired Terremark Centre on
April 1, 1998.
(b) Merger adjustments include estimated amortization of goodwill
resulting from the excess purchase price over the estimated fair value
of AmTec's identifiable assets and liabilities over a five year
period. The five year period is supported by the nature of the
telecommunications and internet industries. However, amortization will
ultimately be based upon the results of the valuation of AmTec by a
third party.
(c) Building Transactions represent the adjustment to eliminate the
estimated net loss which would have been recorded by Terremark if it
had acquired Terremark Centre on April 1, 1998. Building Transactions
also represent the adjustment which would have been recorded if
Terremark had resold Terremark Centre on April 1, 1998 for its
estimated net sales price based on a signed letter of intent.
(d) Basic weighted average shares represents the total estimated shares to
be issued and converted for related shareholders in the merger. Basic
and diluted weighted average shares are the same because the inclusion
of the dilutive effect of preferred stocks and stock warrants in the
merged company would be antidilutive, due to the net loss position.
BUSINESS OF AMTEC
AmTec 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. We initially focused our business on China
because of that country's large and rapidly growing need for
telecommunications services and its requirement for foreign capital and
technology to meet that need. More recently, we have formed a joint venture
with Fusion Telecommunications International to provide telecom services,
both voice and data, to and from Asia. We have also invested in IXS.NET,
Inc. to provide fax services over the Internet, prepaid credit cards and
other Internet Protocol based services. Our joint venture operations in six
cellular networks in Hebei Province in Northeast China have been
terminated. We continue to have a joint venture with Electronics Industry
Department of Hebei Province and are repositioning this joint venture with
a view to providing Internet Protocol fax, voice and other services which
can be transmitted over digital telephone lines or the Internet.
We were originally founded as a Colorado corporation on May 10,
1982, and were reincorporated under the laws of the state of Delaware on
July 10, 1996. Since April 1995, we have been engaged in the business of
developing telecommunications networks in the PRC. In January 1996, we sold
substantially all of the assets of ITV Communications, Inc., our former
primary operating subsidiary. On July 8, 1997, we changed our name to
AmTec, Inc. from AVIC Group International, Inc. Our principal executive
office is located at 599 Lexington Avenue, 44th Floor, New York, New York
10022. Our telephone number is (212) 319-9160. For additional details on
our business, see "AmTec Management's Discussion and Analysis of Financial
Condition and Results of Operations".
CELLULAR TELEPHONE NETWORKS
AmTec holds a 70% interest in Hebei United Telecommunications
Equipment Company Limited, or Hebei Equipment, a Sino-foreign joint venture
with a wholly-owned subsidiary of the Electronics Industry Department of
Hebei Province. Hebei Equipment, in turn, held a 51% interest in Hebei
United Telecommunications Engineering Company Limited, or Hebei
Engineering, a joint venture with NTT International, or NTTI, and Itochu
Corp. Since the fall of 1998, the government of the People's Republic of
China has taken a number of actions that have changed the legal environment
in which we operate in China, including the requirement that Unicom
terminate or revise its agreements with foreign invested companies.
Consequently, Unicom terminated Hebei Engineering's cash flow sharing and
technical services agreement. With the termination of that agreement, Hebei
Engineering was liquidated and our joint venture interests in six cellular
networks in Hebei Province have been transferred to Unicom. As of January
24, 2000, Hebei Equipment received approximately $817,000 as a result of
the liquidation of Hebei Engineering.
IP.COM, LLC
On April 28, 1999, AmTec formed IP.Com, LLC, a 50-50% joint
venture, with Fusion Telecommunications International, Inc., or 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.
IP.Com provides value-added international telecommunication
services, including telephony and data, to and from Asia. Utilizing AmTec'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, or IP based network to
provide voice and fax services to China, and when and if permitted by
relevant laws, to provide such services within China. Currently IP.Com
markets its services only outside China. The joint venture agreement
provides both AmTec and Fusion with a right of first refusal to participate
as equal partners in new projects in China.
IXS.NET, INC.
During May 1999, AmTec formed a three-way alliance with Fusion and
IXS.NET, a private IP fax service provider, to develop IP fax services in
Hong Kong, Taiwan and Guangdong Province and to act as a value-added
reseller for Jitong Communications Corp., one of the three licensed IP fax
operators in China. AmTec and Fusion agreed to make an equal convertible
debt investment into IXS.NET and AmTec has an option to acquire up to a 50%
interest in IXS.NET. The convertible debt agreement provides for AmTec to
advance up to $575,000 over the eighteen month period, subject to specified
terms and conditions.
The IXS.NET business equips a local business with a modem that
transfers international fax calls through a local phone call on the Public
Switched Telephone Network, or 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.
IXS.NET purchases network and transmission services from
established carriers at discounted prices and resells the services to its
customers. Revenue derived from the provision of telecommunications
services are recognized in the period during which the call terminates.
Revenues are derived from the sale of IP fax, IP phone and calling card
services. For the quarter ended December 31, 1999, revenues were $724,553.
AMTEC SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial data set forth below with
respect to AmTec's consolidated statements of operations for each of the
three years in the period ended March 31,1999, and with respect to AmTec's
consolidated balance sheets at March 31,1999, 1998 and 1997, are derived
from the audited consolidated financial statements of AmTec, which have
been audited by Deloitte & Touche LLP, independent public accountants.
Auditors' reports for financial statements for years 1997 through 1999 are
included elsewhere in this proxy statement. The selected historical
financial data for AmTec for the nine months ended December 31, 1999 and
1998 are derived from the unaudited consolidated financial statements of
AmTec. The unaudited consolidated financial statements include all
adjustments, consisting of normal recurring adjustments, that the
management of AmTec considers necessary for a fair presentation of the
financial position and results of operations for the periods presented.
The selected historical consolidated financial data of AmTec have
been derived from, and should be read in conjunction with, and is qualified
in its entirety by reference to, the financial statements and the related
notes included elsewhere in this proxy statement, "Unaudited Pro Forma
Combined Condensed Financial Statements", "AmTec's Management's Discussion
and Analysis of Financial Condition and Results of Operations."
AMTEC SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
TWELVE MONTHS ENDED MARCH 31, ENDED DECEMBER 31,
--------------------------------- -------------------------
1999 1998 1997 1999 1998
--------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues(1)................................. $ -- $ -- $ -- $ -- $ --
Total expenses.................................... 4,650 4,283 3,564 2,403 2,850
Total other income (expense)...................... (544) (514) (361) 46 (422)
Loss from continuing operations before equity in
of unconsolidated subsidiary.................. (5,194) (4,797) (3,925) (2,357) (3,272)
Equity in loss of affiliate (2)................... -- -- -- (172) --
Equity in income (loss of) unconsolidated
subsidiaries(3)................................. (385) (606) (140) 443 (1,413)
------------ ----------- ----------- ------------ ----------
Net loss.......................................... (5,579) (5,403) (4,065) (2,086) (4,685)
Preferred stock dividend.......................... 672 1,399 10 350 614
------------ ----------- ----------- ------------ ----------
Loss applicable to common shareholders............ $ (6,251) $ (6,802) $ (4,075) $ (2,436) $ (5,299)
============ =========== =========== ============ ==========
Basic loss per common share $ (0.23) $ (0.23) $ (0.14) $ (0.07) $ (0.20)
Weighted average common shares outstanding 27,495,213 29,843,712 29,102,347 32,924,478 26,458,488
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
--------------------------- -------------------------
1999 1998 1999 1998
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in and advances to unconsolidated
subsidiary ..................................... $ 2,496 $ 5,074 $ 2,439 $ 1,423
Total assets...................................... $ 4,781 $ 7,683 $ 4,447 $ 2,814
Long term obligations............................. $ -- $ -- $ -- $ --
Stockholders' equity (deficit).................... $ 3,813 $ 4,897 $ 2,703 $ 2,608
- ------------------
</TABLE>
(1) AmTec has no revenues because the results of operations of AmTec's
subsidiary Hebei Equipment and its joint venture IP.COM, LLC, were
accounted for under the equity method of accounting. AmTec recorded
only its share of losses of its unconsolidated subsidiary and its
joint venture according to the percentage of its equity interest.
(2) Equity in loss of affiliate reflects AmTec's share of loss in IP.COM,
LLC.
(3) Equity in income (loss of) unconsolidated subsidiary reflects AmTec's
joint venture partners' equity interests in Hebei Equipment and Hebei
Engineering.
AMTEC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of results of operations and financial
condition is based upon and should be read in conjunction with AmTec's
Consolidated Financial Statements and Notes thereto, the selected
consolidated financial data and other financial data appearing elsewhere in
this Proxy Statement.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
AS COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 1998.
AmTec's joint venture, IP.Com, LLC, started its operations
beginning late September 1999 and it recorded revenues of $1.1 million for
the period from September 15, 1999 through December 31, 1999. AmTec
reported no revenues on its consolidated financial statements because the
results of operations of AmTec's subsidiary Hebei Equipment and its
subsidiary, Hebei Engineering, as well as its joint venture IP.Com, LLC
have been accounted for under the equity method of accounting. AmTec has
recorded only its share of income (losses) of its unconsolidated subsidiary
and joint venture according to the percentage of its equity interest. AmTec
had net losses of $2.1 million and $4.7 million during the nine months
ended December 31, 1999 and 1998, respectively.
General and administrative expenses decreased from approximately
$2.8 million during the nine months ended December 31, 1998 to
approximately $2.4 million during the nine months ended December 31, 1999.
The decrease is primarily related to a reduction in legal and professional
fees related to the pending GTS and UIHH merger transactions and a
reduction in salaries and fringe benefits as some employees resigned in
June 1999.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1999 AND
MARCH 31, 1998
AmTec's indirect subsidiary, Hebei Engineering, recorded revenues
of RmB 6,488,482 (approximately $786,000) for the year ended December 31,
1998, and RmB 1,706,499 (approximately $216,000) for the year ended
December 31, 1997. AmTec has no revenues on its consolidated financial
statements because the results of operations of AmTec's subsidiary Hebei
Equipment were accounted for under the equity method of accounting. AmTec
recorded only its share of losses of its unconsolidated subsidiary
according to the percentage of its equity interest. AmTec had net losses of
$5.6 million and $5.4 million during the fiscal years ended March 31, 1999
and 1998, respectively.
Selling, general and administrative expenses increased from $4.3
million during the year ended March 31, 1998, to $4.6 million 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 AmTec's unconsolidated subsidiary of
$607,000 recorded during the year ended March 31, 1998 and $385,000 during
the year ended March 31, 1999 represents AmTec's share of losses reported
by Hebei Equipment for the year ended December 31, 1997 and December 31,
1998, during which period AmTec 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 AmTec's common stock at a price of
$3.0625 per share. In accordance with generally accepted accounting
principles, AmTec 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. AmTec received a tax
refund of approximately $70,000 during the year ended March 31, 1998.
AmTec's loss applicable to common shareholders decreased 9% from
$6.8 million during the year ended March 31, 1998, to $6.3 million 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 and administrative
expenses.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998 AND
MARCH 31, 1997
AmTec has experienced net losses of $5.4 million and $4.1 million
during the fiscal years ended March 31, 1998 and 1997, respectively.
Selling, general and administrative expenses increased from $3.6
million during the year ended March 31, 1997, to $4.3 million 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 AmTec's unconsolidated subsidiary of
$141,000 recorded during the year ended March 31, 1997 and $607,000 during
the year ended March 31, 1998 represents AmTec's share of losses reported
by Hebei Equipment for the year ended December 31, 1996 and December 31,
1997, during which period AmTec owned a 60.8% equity interest Hebei
Equipment.
AmTec issued to the Hebei Provincial Government three million
options to purchase an equal number of shares of AmTec's common stock at a
price of $3.0625 per share. In accordance with generally accepted
accounting principles, AmTec has recorded their value of $1.8 million 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, 000.
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 ended
March 31, 1998 was related to a tax refund previously paid.
AmTec's net loss increased 33% from $4.1 million during the year
ended March 31, 1997, to $5.4 million 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 and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
AmTec had an operating loss of approximately $2.1 million and a
loss applicable to common shares of $2.4 million during the nine months
ended December 31, 1999.
During the nine months ended December 31, 1999, AmTec's cash
decreased by approximately $1.4 million, primarily due to cash used to fund
current operations, loans to IXS.NET and investments made in IP.COM. AmTec
received $0.5 million repayment of some of its advances to its subsidiary
in September 1999. During the quarter ended December 31, 1999, AmTec
obtained a bridge loan for up to $1.5 million from Terremark of which AmTec
has borrowed approximately $1,125,000. This bridge loan is collateralized
by all of AmTec's tangible and intangible assets. If the merger does not
close by July 1, 2000, AmTec is obligated to repay any outstanding balance
on the bridge loan. It is expected that AmTec will need to borrow
additional funds from the bridge loan to meet its obligations as they
become due, or delay payments on such obligations, during the quarter
ending March 31, 2000.
If the bridge loan becomes due and the merger is not completed,
AmTec is unlikely to have the means to repay it. Since the bridge loan is
secured by all AmTec's assets, nonpayment will likely render AmTec
insolvent and could lead to insolvency proceeding or liquidation.
EQUITY ISSUANCE
During the nine months ended December 31, 1999, AmTec issued:
o 3,858,346 shares of its common stock upon conversion of 29.8
shares of AmTec's Series E Convertible Preferred by holders
of the Series E Shares;
o 1,373,597 shares of its common stock upon the exercise of
stock options by former employees;
o 180,000 shares of its common stock as stock awards granted
to some of its officers pursuant to their employment
agreements;
o 20,000 shares of its common stock as compensation paid to
some of its directors; and
o 210,525 shares of its common stock upon settlement of a
legal proceeding filed against AmTec by a former
stockholder.
BUSINESS OF TERREMARK
GENERAL
Terremark Holdings, Inc. (formerly known as Terremark Investment
Services, Inc.) was formed in 1982 and along with its subsidiaries, is
engaged in the development, construction, sale, leasing, management and
financing of various real estate projects. Terremark provides services to
private and institutional investors, as well as for its own account. The
real estate projects with which Terremark has been involved have included
retail, high rise office complexes, mixed use projects, condominiums,
condominium hotels, and governmental assisted housing.
Terremark is also involved in certain ancillary businesses which
complement its core development operations. Specifically, Terremark engages
in brokering financial services, property management, construction,
construction management, condominium hotel management, residential sales
and commercial leasing and brokerage, and advisory services, all of which
are described in more detail below.
Terremark evaluates acquisition opportunities on an on-going
basis. Terremark does not believe that any transactions currently under
consideration are probable. Announcements concerning these or other
potential acquisitions could be made by Terremark at any time, including
before or shortly after the merger closes.
OPERATIONS
Development. Terremark's development activities involve the
creation of a concept, the acquisition of land, the design of the project,
arranging for equity and financing, construction, sales and leasing and
ultimate disposition. Terremark's history of development operations has
included variations from this full scale concept of development to an exit
strategy which has involved reselling undeveloped land, selling a project
before completion, joint ventures and redevelopment of existing projects.
Terremark intends to build on the success of its Fortune House
condominium hotel development by creating a brand name for similar future
developments and to manage similar projects for other developers. Terremark
currently has over two acres of oceanfront property in Ft. Lauderdale under
contract, on which it intends to build the second Fortune House Condominium
Hotel.
Other current development projects include the following:
o the Four Seasons Hotel and Tower, a 63 story, 1.2 million
square foot mixed use project located in Miami, Florida
including five star hotel, class A office, retail and ultra
luxury condominium units, for which Terremark is acting as
the co-developer along with New York based Millennium
Partners and for which Terremark is also providing mortgage
brokerage, sales, construction management, leasing and
property management services;
o Brickell Village, an 11 acre development on the Miami River
in Miami's central business district, for which Terremark is
also acting as co-developer along with Millennium Partners,
and which project will include, in phases, approximately
900,000 square feet of retail entertainment and 2 million
square feet of residential and office towers;
o Fortune House-Fort Lauderdale Beach, a 280 unit four star
condominium hotel which Terremark is developing for its own
account and which is located on the property facing the ocean
in the heart of Fort Lauderdale Beach; and
o Royal Palm Doral Center III, a 105,000 square foot office
building overlooking the Doral Golf Course in the western
part of Miami-Dade County and which is being developed by
Terremark for a German investor with which Terremark has
previously done business, and for which leasing, property
management and mortgage brokerage services are also being
provided.
Real-Estate and Mortgage Brokerage. Terremark is also engaged in
construction or permanent financing opportunities for its own account or
its third party projects and clients. Terremark's mortgage and real estate
brokerage subsidiaries are involved in providing diverse brokerage services
to Terremark projects and for other developers and owners, on a third party
basis. For example, Terremark is arranging for $100 million of construction
loan financing for the Four Seasons Hotel and Tower, has recently arranged
permanent financing for Galloway I, a 50,000 square foot medical office
building, and is in the process of obtaining construction financing for the
owner of a 70,000 square foot office building in western Miami-Dade County,
Florida. In addition, Terremark is currently developing pre-marketing sales
and leasing strategies for the Four Seasons Hotel and Tower and the
Brickell Village and active leasing efforts are underway for Kendall
Village, Galloway II and Royal Palm Doral Center III, among other projects.
Terremark's real estate brokerage subsidiary is involved with both
commercial and residential properties. Terremark currently represents, as
the owners' exclusive leasing agent, various office buildings containing
collectively, over 1.2 million square feet of office space. In addition,
Terremark has a number of exclusive and non-exclusive appointments as the
agents for various tenants who are in the market for new or additional
office space. On the residential side, Terremark handles condominium sales
for its own projects such as the Fortune House Condominium Hotels (Brickell
Avenue and Fort Lauderdale Beach locations), and the Four Seasons Hotel and
Tower (once units are ready for the market). In addition, Terremark has
recently been retained by another developer to be the developer's exclusive
agent at two condominium projects located on Miami Beach: The Bentley Beach
Club and the Bentley Bay, and acting as the exclusive sales agent for
Segovia Tower, in connection with advisory services being rendered by
Terremark for that property.
Property Management. Terremark currently manages buildings that
total in excess of 1.5 million square feet of property, two of which are
included in the top ten largest office buildings in the Miami-Dade area.
Construction Services. Terremark has, in the past, provided
construction management and general contracting services as a part of its
development activities and not as a separate activity. However, Terremark
has expanded this aspect of its business to include post-shell construction
and general contracting services for limited risk projects, such as
mid-size office buildings and retail boxes, on behalf of owners and
developers with whom Terremark has existing relationships.
Terremark is currently the general contractor for a 70,000 square
feet office building in western Miami-Dade County and is acting as
construction manager for the re-development of a 106,000 square foot office
building in downtown Coral Gables, Florida. In addition, Terremark has been
retained to construct both the shell of the building and the tenant
improvements of Galloway II, a 30,000 square-foot facility in Miami-Dade
County and is providing construction management services in connection with
its position as the court appointed receiver for Segovia Tower, a partially
completed luxury condominium high-rise located in Coral Gables, Florida.
Condominium Hotel Management. Terremark developed the Fortune
House brand of condominium hotel to enable purchasers to buy furnished
condominium suites, which can then be rented to guests when the owner is
not in residence. Terremark provides hotel management services for Fortune
House. The second Fortune House, which is located on Fort Lauderdale Beach,
is currently in the development stage. Once Fortune House Fort Lauderdale
is completed, Terremark will operate and manage that property.
Advisory and Consulting. Closely related to its financial services
and property management operations is Terremark's ability to provide
institutional and private advisory and consulting services.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS
In developing real estate, Terremark must obtain the approval of
numerous government authorities regulating such matters as permitted land
uses, levels of density and the availability of utility services such as
water and waste disposal. Several authorities in Florida and other states
have imposed impact fees as a means of defraying the cost of providing
certain governmental services to developing areas and the amount of these
fees has increased significantly during recent years. Many state laws
require the use of specific construction materials. Local governments also,
at times, declare moratoriums on the issuance of building permits and
impose other restrictions.
To date, the governmental approval processes and the restrictive
zoning and moratoriums discussed above have not had a material adverse
effect on Terremark's development activities. However, there is no
assurance that these and other restrictions will not adversely affect
Terremark in the future.
Terremark is subject to a variety of federal, state and local
statutes, ordinances, rules and regulations concerning land use. Land use
and zoning laws can vary greatly and may result in delays, cause Terremark
to incur substantial compliance and other costs and prohibit or severely
restrict development in some environmentally sensitive regions or areas.
Before consummating the purchase of land, Terremark engages independent
environmental engineers to evaluate that land for the presence of hazardous
or toxic materials, wastes or substances. Terremark has not been materially
affected to date by the presence or potential presence of such materials.
We cannot assure you that these inspections will uncover all environmental
hazards and Terremark will not be adversely affected by such hazards.
To varying degrees, permits and approvals will be required to
complete the developments currently being planned by Terremark. The ability
of Terremark to obtain necessary approvals and permits for these projects
is often beyond Terremark's control, and could restrict or prevent the
development of otherwise desirable property. The length of time necessary
to obtain permits and approvals increases the carrying costs of unimproved
property acquired for the purpose of development and construction. In
addition, the continued effectiveness of permits already granted is subject
to factors such as changes in policies, rules and regulations and their
interpretation and application.
In recent years, regulation by federal and state authorities
relating to the sale and advertising of residential real estate has also
become more restrictive. In order to advertise and sell condominiums and
other residential real estate in many jurisdictions, Terremark has been
required to prepare registration statements or other disclosure documents
and, in some cases, to file such materials with designated regulatory
agencies.
COMPETITION AND MARKET FACTORS
The development and sale of real estate is a highly competitive
and fragmented industry. Terremark is not able to estimate the total number
of competitors it faces, but is aware that it competes with numerous
national, regional and local developers, including some developers with
greater financial resources. Developers compete not only for tenants and
buyers, but also for desirable properties. When marketing its properties,
Terremark must compete with sales and leases of existing properties. The
real estate industry is cyclical and affected by consumer confidence
levels, prevailing economic conditions generally and, in particular, by
interest rate levels. A variety of other factors affect the real estate
industry and demand for new construction, including the availability of
labor and materials and increases in the costs thereof, changes in
associated costs such as increases in property taxes and energy costs,
changes in consumer preferences, demographic trends, the availability of
and changes in financing programs, and changing economic conditions in
ancillary markets (e.g., South America).
EMPLOYEES
At December 31, 1999, Terremark employed approximately 95 people.
Although none of Terremark's employees are covered by collective bargaining
agreements, some of the subcontractors which Terremark engages have
employees which are represented by labor unions or are subject to
collective bargaining agreements. Terremark believes that its relations
with its employees and subcontractors are good.
EMPLOYMENT AGREEMENTS
Messrs. Medina, Katz, Goodkind, Biondi, Jacobson and Padron and
Ms. Budd have entered into employment agreements with Terremark. These
agreements are each for a term of one year, automatically renewable for
additional terms of one year absent written notice by either party to the
contrary. The employment agreements contain customary non-competition,
non-disclosure and non-solicitation restrictions. Each employment agreement
may be terminated at Terremark's option at any time for cause, as defined
in the agreement. If an employment agreement is terminated by Terremark
other than for cause, then Terremark must pay salary and benefits to the
employee for the remainder of the term, up to a maximum of six months. The
employee may terminate the employment agreement at any time at 60 days
notice, in which case salary and benefits will continue to be paid until
the agreement is so terminated. However, if the employee terminates the
employment agreement for good reason, as defined in the agreement, then
Terremark must pay salary and benefits to the employee for the remainder to
the term, up to a maximum of six months. In the event of a change in
control, as defined in the agreement, if the employee is terminated without
cause or terminates the employment agreement for good reason, then the
employee is entitled to base salary through the effective date of
termination, plus a lump sum payment equal to twice his base salary,
incentive compensation and the value of annual fringe benefits and plus the
value of any benefits under any pension or savings plan which are forfeit
as a result of the termination. In addition, any stock options shall
immediately vest.
OWNERSHIP STRUCTURE
Common Stock. Terremark's common stock is beneficially owned as follows:
<TABLE>
<S> <C> <C>
Manuel D. Medina............................................. 510,214 45.6%
ATTU Services, Inc, beneficially owned by Eugene Patry....... 66,511 5.9%
TCO Company Limited, beneficially owned by Luis Lanciotti.... 540,775 48.2%
Willy Bermello............................................... 3,750 0.3%
---------- ---------
Total........................................................ 1,121,250 100.0%
========== =========
</TABLE>
Preferred Stock. The 4,176,693 outstanding shares of Terremark's
10% cumulative preferred stock is owned by Centre Credit Corporation. This
preferred stock is convertible into Terremark common stock upon the
occurrence of certain events, including the effectiveness of the merger. It
is anticipated that the preferred stock will convert into a number of
Terremark common shares such that the holders of the preferred stock will
receive approximately 10% of the AmTec shares received by all Terremark
shareholders pursuant to the merger. Certain members of Terremark's senior
management have agreed to purchase all the outstanding preferred stock from
Centre Credit Corporation before the merger becomes effective at the
issuance price plus accrued dividends. Pursuant to these preferred stock
purchase agreements, the 4,176,693 outstanding shares of Terremark preferred
stock will be acquired by the following individuals or their assigns:
Michael Katz............................ 1,609,006
Brian Goodkind.......................... 1,206,747
Edward Jacobson......................... 272,188
Irving Padron........................... 272,188
William Biondi.......................... 272,188
Aviva Budd.............................. 545,376
-------------
4,176,693
=============
PROPERTIES
Terremark's executive office is located in Terremark Centre.
Before Terremark's acquisition of Terremark Centre, office space was
provided to it at no cost as part of Terremark's fee for managing the
building. Effective April 1, 2000, Terremark will begin paying market rent
for its office space. Terremark also maintains small offices in downtown
Miami, downtown Coral Gables and in Manhattan in addition to maintaining
temporary sales and construction offices.
Terremark Centre, situated on 3.2 acres of land in Miami, Florida,
is a 21-story contemporary Class A office tower completed in 1990. The
office tower contains 294,000 leasable square feet of office and service
related retail space. The building is one of only two class-A buildings in
the Coconut Grove sub-market. Including leases which are currently under
negotiation and expected to be signed, the building is 97% leased. The
building's tenants are a mix of local companies, many of which are
professional service providers. Of these tenants, those occupying 82,007
square feet have leases expiring during calendar year 2000 and those
occupying 33,600 square feet have not yet renewed. In addition to the
office and retail space, the building includes 16 town houses and 1100
parking spaces. In the opinion of management, the building is adequately
insured and in excellent condition. There is little deferred maintenance,
if any and no significant capital expenditures are anticipated over the
next operating year.
Terremark and the Florida State Board of Administration entered
into a Contract for Purchase and Sale of Terremark Centre on February 21,
2000 for $56.5 million. Issues subsequently arose on which the parties
could not agree and the contract was terminated prior to expiration of the
due diligence period. On March 20, 2000 Terremark entered into a
non-binding letter of intent to sell the building to another third party
buyer for a purchase price of $56.8 million. This transaction is
subject to execution of a binding contract, a 20 day due diligence period
and 10 day closing date following expiration of such due diligence period.
In addition, Terremark has developed and is selling condominium
units in Fortune House, a 29 story, 296 unit residential condominium
building in the Brickell Avenue area of Miami, Florida.
LEGAL PROCEEDINGS
Terremark is involved from time to time in litigation arising in
the ordinary course of business, none of which is expected to have a
material adverse effect on Terremark's consolidated financial position or
results of operations.
TERREMARK SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial data set forth below with
respect to Terremark's consolidated statements of operations for each of
the three years in the period ended March 31,1999, and respect to
Terremark's consolidated balance sheets at March 31, 1999 and 1998, are
derived from the audited consolidated financial statements of Terremark,
which have been audited by PricewaterhouseCoopers LLP, independent
certified public accountants. Auditors' reports for financial statements
for years 1999 and 1998 are included elsewhere in this proxy statement. The
selected historical financial data for Terremark for the nine months ended
December 31, 1999 and 1998 are derived from the unaudited consolidated
financial statements of Terremark. The unaudited consolidated financial
statements include all adjustments, consisting of normal recurring
adjustments, that the management of Terremark considers necessary for a
fair presentation of the financial position and results of operations for
the periods presented.
The selected historical consolidated financial data of Terremark
have been derived from, and should be read in conjunction with, and is
qualified in its entirety by reference to, the financial statements and the
related notes included elsewhere in this proxy statement, "Unaudited Pro
Forma Combined Condensed Financial Statements," "Terremark's Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
TERREMARK SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NINE MONTHS
TWELVE MONTHS ENDED MARCH 31, ENDED DECEMBER 31,
-------------------------------------- ---------------------------
1999 1998 1997 1999 1998
----------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues......................... $ 44,456 $ 37,632 $ 2,629 $ 13,390 $ 39,318
Total cost of sales..................... 31,148 22,667 742 9,100 27,700
Other expenses.......................... 12,684 13,869 1,925 7,750 10,021
----------- ----------- ------------ ------------- ------------
Income (loss) from continuing operations 624 1,096 (38) (3,460) 1,597
----------- ----------- ------------ ------------- ------------
Net (loss) income....................... $ 624 $ 1,096 $ (38) $ (3,460) $ 1,597
=========== =========== ============ ============= ============
Basic and Diluted earnings (loss) per
common share............................ $ 0.56 $ 0.98 $ (0.03) $ (3.09) $ 1.42
Weighted average common shares
outstanding........................... 1,121,250 1,121,250 1,125,000 1,121,250 1,121,250
AS OF MARCH 31, AS OF DECEMBER 31,
------------------------------- ---------------------------
1999 1998 1999 1998
-------------- -------------- ------------- -----------
BALANCE SHEET DATA:
Real estate inventories.................. $ 12,888 $ 33,311 $ 5,317 $ 16,188
Total assets............................. $ 17,598 $ 42,931 $ 68,248 $ 22,145
Long-term obligations (1)................ $ 8,737 $ 32,081 $ 60,783 $ 15,761
Shareholders' equity (2)................. $ 6,510 $ 1,709 $ 3,049 $ 3,306
</TABLE>
(1) Long-term obligations include debt and capitalized lease obligations.
(2) Stockholders' equity as of March 31, 1999 and December 31, 1999
include approximately $4,177 in convertible preferred stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
information contained in Terremark's Consolidated Financial Statements and
related notes thereto included elsewhere in this proxy statement. The
information is intended to facilitate an understanding and assessment of
significant changes and trends related to the financial condition and
results of operations of Terremark.
OVERVIEW
Terremark Holdings, Inc. was formed in 1982 and along with its
subsidiaries, is engaged in the development, construction, sale, leasing,
management and financing of various real estate projects. Terremark is also
involved in certain ancillary business which complement its core
development operations. Specifically, Terremark engages in brokering
financial services, property management, construction, construction
management, condo hotel management, residential sales and commercial
leasing and brokerage, and advisory services.
SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS
Significant Accounting Policies. Real estate inventories consist
of completed condominiums and condominiums under development. Real estate
inventories, including capitalized interest and real estate taxes, are
carried at the lower of cost or fair value determined by evaluation of
individual projects. Acquisition, development, interest and other indirect
costs related to acquisition and development of real estate projects are
capitalized. The capitalized costs are charged to earnings as the related
revenue is recognized. Sales and marketing costs and the carrying costs of
condominium units completed and held for sale are expensed as incurred.
Total land, development, and common costs are apportioned on the relative
sales value method for each project.
Revenues from construction and development activities are
recognized on a completed contract basis. The related profit is recognized
in full when collectibility of the sale price is reasonably assured and the
earnings process is substantially complete. Revenues and expenses related
to the leasing, management and financing activities are recognized at the
time service is provided.
New Accounting Pronouncements. In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 131 (FASB 131), "Disclosures about Segments of an Enterprise
and Related Information," which becomes effective and is required to be
adopted in years beginning after December 15, 1997. FASB 131 establishes
standards for the way that the public business enterprises report
information about segments. Terremark believes it does not have any
reportable segments.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (FASB 133), "Accounting
for Derivative Instruments and Hedging Activities." FASB 133, as amended,
becomes effective and is required to be adopted in years beginning after
June 15, 2000. FASB 133 requires all derivatives to be recorded in the
balance sheet at fair value. FASB 133 establishes the accounting procedures
for hedges that will affect the timing of recognition and the manner in
which hedging gains and losses are recognized in Terremark's financial
statements. Derivatives that are not hedges must be adjusted to fair value
through income. If derivatives are hedges, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or will be recognized in other comprehensive
income until the hedged item is recognized in earnings. Terremark has no
derivative instruments.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1998
Revenue. Revenue from real estate sales decreased $27.1 million,
or 72.3%, from $37.5 million for the nine months ended December 1998
compared to $10.4 million for the nine months ended December 1999. In
August 1998 a condominium project obtained a partial certificate of
occupancy. This permitted Terremark to close the sales of condominium units
and resulted in approximately $34.6 million in revenue during the nine
months ended December 31, 1998 compared to approximately $9.2 million in
revenue for the nine months ended December 31, 1999. In addition, in
December 1999, Terremark sold for approximately $1.2 million three
condominium units. Commission income decreased $237,000 or 29.4% from
$807,000 for the nine months ended December 1998 compared to $570,000 for
the nine months ended December 1999 and is directly related to the timing
of lease renewals. Management fees increased from $529,000 for the nine
months ended December 1998 compared to $1,006,000 for the nine months ended
December 1999 due to the signing of several building management contracts.
Development fees increased $562,000, or 121.2%, from $463,000 for the nine
months ended December 1998 compared to $1,025,000 for the nine months ended
December 1999 due to the signing of new development contracts.
Cost of Real Estate Sold. Cost of real estate sold decreased by
$18.9 million, or 68.2%, from $27.7 million for the nine months ended
December 1998 to $8.8 million for the nine months ended December 1999,
which is attributable to a decrease in condominium unit sales. The decrease
in gross margin as a percentage of sales revenue from 26.1% in 1998 to
15.5% in 1999, is attributable to 1998 real estate sales including the sale
of land for $1.05 million above cost basis. Also, in 1998, we sold
furniture packages with condominium units which had a 33.3% gross margin.
As a sales incentive in 1999, furniture packages were included with
purchased units.
General and Administrative Expenses. General and administrative
expenses increased by 18.2% from approximately $4.4 million for the nine
months ended December 1998 to approximately $5.2 million for the nine
months ended December 1999, due to an increase in payroll and related costs
associated with the hiring of 36 new employees. In November 1998, Terremark
formed a hotel subsidiary. As such, only one month of expenses were
included for the nine months ended December 1998 compared to nine months of
related expenses included for the nine months ended December 31, 1999.
Sales and Marketing Expenses. Sales and marketing expenses
decreased from $4.7 million, or 61.7% for the nine months ended December
1998 compared to $1.8 million for the nine months ended December 1999 due
to the decrease in commission expense directly related to the sales of
condominium units. Sales and marketing expenses were used to promote sales
of condominium units.
Depreciation Expense. Depreciation expense increased from $22,000
for the nine months ended December 1998 compared to $63,000 for the nine
months ended December 1999, an increase of 186.4%, which resulted from the
increase in furniture and computer equipment.
Interest Income. Interest income changed from $188,000 for the
nine months ended December 1998 to $186,000 for the nine months ended
December 1999. Interest income is earned on cash held in banks. The average
cash balances were not significantly different for the comparative periods.
Interest Expense, Net of Capitalized Interest. Interest expense
decreased $503,000 from $1,116,000 for the nine months ended December 1998
compared to $613,000 for the nine months ended December 1999 due to a
reduction of debt used to finance condominium projects, as well as the
conversion of $3.6 million in debt to preferred stock in March 1999.
Other Income. Other income (expense) decreased from $122,000 in
income for the nine months ended December 1998 compared to approximately
$5,000 in expense for the nine months ended December 1999, which is
primarily attributable to the $150,000 write down during the period ending
December 31, 1999 of Terremark Centre's carrying value to its estimated net
sales price.
Net Income. Overall net income decreased 318.8% from $1.6 million
for the nine months ended December 1998 to a $3.5 million loss for the nine
months ended December 1999. This was primarily due to the reduced amount of
condominium unit sales.
YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 1998
Revenue. Revenue from real estate sales increased $5.0 million, or
13.5%, from $37.0 million in 1998 to $42.0 million in 1999. Revenue in 1999
from real estate sales includes condominium unit sales of $47.0 million.
Revenue from real estate sales in 1998 includes the sale of land for $23.8
million and condominium unit sales of $13.2 million. Commission income
earned from leasing increased $860,000, from $162,000 in 1998 to $1,022,000
in 1999 due to the timing of lease renewals. The increase in development
fees from $0 in 1998 to $625,000 in 1999 is due to the signing of various
project development agreements in 1999. Management fees charged with
respect to the management of commercial and residential property more than
doubled, increasing from $312,000 in 1998 to $768,000 in 1999 as a result
of the acquisition of various office building management contracts.
Construction fees in 1998 were related to the management of a construction
project. Terremark did not generate any construction fees in 1999.
Cost of Real Estate Sold. Cost of real estate sold increased by
$8.4 million, or 37.0%, from $22.7 million for the year ended March 1998 to
$31.1 million for the year ended March 1999, which is attributable to an
increase in condominium unit sales. The decrease in gross margin as
percentage of sales revenue from 38.8% in 1998 to 25.9% in 1999 is mainly
attributable to the sale of land in 1998 which had a gross margin of 55.0%.
General and Administrative Expenses. General and administrative
expenses fell by 14.3% from approximately $7.0 million in 1998 to
approximately $6.0 million in 1999. This decrease is attributable to a fee
to a financial institution for a loan commitment, internal costs related to
the sale of land and an increase in compensation to existing employees, all
of which were paid in 1998.
Sales and Marketing Expenses. Sales and marketing expenses
increased from $1.8 million in 1998 to $5.5 million in 1999, representing
an increase of over 200%. Sales and marketing expenses were used to promote
sales of condominium units.
Depreciation Expense. Depreciation expense increased from $19,000 to
$50,000, an increase of 163.2%, which resulted from purchases of furniture
and computer equipment.
Interest Income. Interest income increased 224.7% from $81,000 in
1998 to $263,000 in 1999, due to an increase in cash balances.
Interest Expense, net of capitalized interest. Interest expense
increased 25.0% in 1999, from $1.2 million in 1998 to $1.5 million in 1999
due to an increase in debt financing used to fund completion of a
condominium project.
Other Income. Other income increased 173.8% in 1999, from $61,000
in 1998 to $167,000 in 1999. This increase is a result of rental income
from condominium units and a lease cancellation fee.
Net Income. Overall net income decreased 43.3%, from $1.1 million
in 1998 to $624,000 in 1999. This was primarily due to the reduced gross
margin realized on the sale of real estate compared to 1998.
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997
Revenue. Revenue from real estate sales was $37.0 million in
fiscal 1998 compared to $300,000 in 1997. During February 1998, Terremark
sold land for $23.8 million, and $13.2 million from condominium sales were
generated during 1998. The $300,000 in real estate sales in 1997 consisted
of the sale of an office building. Commission income earned from the sale
of condominium units fell $718,000, or 81.6%, from $880,000 in 1997 to
$162,000 in 1998. Management fees were basically unchanged at around
$300,000 as the same number of properties were under management in 1997 and
1998. Terremark did not realize any development fees in 1998, after earning
$333,000 in 1997 for the development of a condominium project. Construction
fees earned in 1998 of $120,000 represented a decrease of 85.3% from the
$815,000 earned in 1997 due to the completion of a condominium project in
1997.
Cost of Real Estate Sold. Cost of real estate sold increased from
$0 in 1997 to $22.7 million in 1998. This increase is attributable to the
sale of condominium units and the sale of land in 1998. During 1997,
Terremark had real estate under development which was not then available
for sale.
General and Administrative Expenses. General and administrative
expenses increased from $976,000 in 1997 to $7.0 million in 1998,
representing a 617.21% increase. This is attributable to a fee to a
financial institution for a loan commitment, internal costs related to the
sale of land and an increase in compensation paid to existing employees.
Provision for Write Down of Real Estate. In 1998, an impairment of
$3.9 million was provided against real estate inventory. This impairment
was due to the estimated sales value exceeding the carrying value of the
real estate assets.
Sales and Marketing. Sales and marketing expenses almost doubled,
increasing from $935,000 in 1997 to $1.8 million in 1998 due to the
increased promotion of a condominium project in 1998.
Depreciation Expense. Depreciation expense decreased 34.5% from
$29,000 in 1997 to $19,000 in 1998, which resulted from the disposal of
furniture and computer equipment.
Interest Income. Interest income fell from $95,000 in 1997 to
$81,000 in 1998 due to a decline in cash on hand.
Interest Expense, net of capitalized interest. Interest expense
increased from $77,000 in 1997 to $1.2 million in 1998. This increase was
attributable to high borrowings used for the financing of condominium
projects and the assumption of debt from the acquisition of condominiums.
Other Income. Other income increased in from $0 in 1997 to $61,000
in 1998. This increase is a result of rental income from the rental of
condominium units.
Net Income. Net income of $1.1 million represented an improvement
compared to the loss of $38,000 reported for 1997. This improvement was
primarily due to gross margin on the sale of real estate, which was
partially offset by an increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1998
Cash provided by operations for the nine months ended December 31,
1998 was $12.7 million compared to $3.5 million for the same period in
1999, a decrease of $9.2 million or approximately 72.4%. The decrease in
cash provided by operations resulted primarily from a reduction in the
sales of real estate inventories.
Cash used in investing activities for the nine months ended
December 31, 1998 was $152,000 compared to cash used by investing
activities of $1.4 million for the same period in 1999, an increase of $1.2
million. The increase in cash used by investing activities resulted
primarily from the addition of $1.125 million in receivables from AmTec in
the current period.
Cash used in financing activities for the nine months ended
December 31, 1998 was $16.3 million compared to $3.5 million used by
financing activities for the same period in 1999, a decrease of $12.8
million. The decrease in cash used by financing activities resulted
primarily from higher repayments on construction financing related to
condominium projects in the prior period.
DEBT
Terremark's long-term capital requirements consist of funds for
investment in development projects and for debt service. Historically,
Terremark has met its capital requirements primarily through debt financing
and operating cash flow.
Terremark Centre was purchased subject to a nonrecourse mortgage
loan from a life insurance company, the principal balance of which was
$28.3 million on December 31, 1999. Terremark Centre is also subject to a
$27.1 million second mortgage and a perfected security interest in the
partnership interests of the partnership that owns Terremark Centre. The
first mortgage loan matures on June 1, 2001. The second mortgage loan
matures at the earlier of (1) the sale of Terremark Centre, or (2) December
31, 2000 if the AmTec merger has not closed by that date, in which case the
seller may extend the note or take a deed in lieu of foreclosure to fully
satisfy the debt.
Terremark intends to sell Terremark Centre before the closing of
the AmTec merger and began an active marketing program at the end of
November 1999. Terremark has executed a letter of intent with a potential
purchaser for the purchase of Terremark Centre for a purchase price of
$56.8 million, subject to the execution of a binding contract, due
diligence and other conditions. In addition, if the merger does not occur
on or before December 31, 2000 or the Terremark Centre is not sold,
Vistagreen has the option to extend the maturity date of its note or will
be entitled to the Terremark Centre via a deed in lieu of foreclosure. No
assurances can be made as to the timing of, or the amount of value to be
received from, a sale of Terremark Centre. If Terremark Centre is sold for
a price which does not yield proceeds adequate to repay the promissory note
in full, Terremark is obligated to fund the difference. If the sales
proceeds exceed the amount required to fully retire the promissory note,
Terremark will be entitled to the excess.
SOURCES OF LIQUIDITY
Terremark believes that its cash and cash equivalents, cash
generated from operations, borrowing capacity and access to other financing
sources will be adequate to meet its anticipated short-term and long-term
liquidity requirements, including scheduled debt repayments and capital
expenditures.
INFLATION
The general rate of inflation in the United States has been
insignificant over the past several years and has not had a material impact
on Terremark's results of operations.
YEAR 2000
The Year 2000 issue is the result of computer programs and other
business systems being written using two digits rather than four to
represent the year. Terremark's computer systems and those of Terremark's
business partners may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in system failure or disruption of
operations.
Terremark has reviewed the possible effect of the Year 2000 on the
computer systems currently in use by Terremark and believes that it has
achieved Year 2000 readiness with regard to its information technology
systems. While it is likely that some non-information technology systems in
its offices such as elevators, heating and air-conditioning systems, etc.,
with date sensitive software and embedded microprocessors may be affected
by the Year 2000 issue, the estimates of costs of correcting or replacing
critical non-information technology systems indicate that these costs will
not be material to Terremark.
MARKET RISK
Major risks of developing and investing in real estate are the
possibilities that properties will not generate income sufficient to meet
operating expenses or will generate income and capital appreciation at a
rate less than that anticipated or obtainable through investment in other
real estate or other investments. The real estate industry is cyclical and
affected by changes in general and local economic and other conditions
including employment levels, demographics considerations, availability of
financing, interest rate levels, consumer confidence and real estate
demand. Economic conditions in ancillary markets.
Developers are also subject to various risks, many of them outside
their control including competitive overbuilding, availability and cost of
property, materials and labor, adverse weather conditions (which can cause
delays in construction schedules or physical damage), cost overruns,
changes in government regulations pertaining to building standards or
environmental matters, increases in real estate taxes and other local
government fees. Terremark cannot predict the impact increasing interest
rates have on prospective tenants or buyers and any increase in interest
rates could affect Terremark's business adversely.
SUBSEQUENT EVENTS
Centre Credit Corporation, a foreign lender and investor, owns
approximately 4,176,693 shares of Terremark Holdings, Inc.'s 10% cumulative
convertible preferred stock. CCC's basis in the stock is $1.00 per share
plus accrued dividends. It has entered into agreements with certain members
of Terremark's management to sell the stock for approximately $4.2 million
in total. These agreements will not be executed until after January 1, 2000
and will close only if and when the merger closes.
On March 9, 2000, Terremark agreed to acquire all the issued and
outstanding stock of Telecom Real Estate Exchange Developers, Inc., formerly
known as T-REX Property Services, Inc., a Delaware corporation, in exchange
for eight million shares of Terremark Worldwide common stock, assuming that
the merger of Terremark and AmTec is consummated by December 31, 2000.
T-REX is a fee for service entity which operates in conjunction with
Telecom Realty Partners, LLC, a Delaware limited liability company, and MP
Telecom, LLC, a Delaware limited liability company, both of which are
affiliated with the current shareholders of T-REX. These entities are
involved in the business of acquiring, developing, renovating, managing and
operating real property to be principally used as telecommunications routing
exchange facilities, sometimes referred to in the industry as "telecom
hotels." T-REX's role in this business is to provide operational support and
development expertise in exchange for fees and a minority interest in
profits. Affiliated entities have acquired one property in Cleveland and
have binding contracts to acquire properties in Boca Raton, Florida and
Hartford, Connecticut. Negotiations are in progress for several other
properties in the United States.
The T-REX acquisition agreement provides that the two current
shareholders of T-REX will be employed by T-REX after the acquisition.
Thomas M. Mulroy will be employed as Chief Executive Officer of T-REX for at
least one year at a salary of $250,000. Clifford J. Preminger will employed
as President of T-REX, also for at least one year and at a salary of $250,000.
On March 10, 2000, Terremark's subsidiary Terremark Fortune House #2,
Ltd. completed the purchase of the Riviera Hotel in Fort Lauderdale,
Florida. The acquisition price of the property was $8.0 million, which was
paid through a $15.0 million line of credit with Ocean Bank at an interest
rate of prime plus 1% for a term of one year. The balance of the credit line
will be used for working capital. Terremark plans to demolish the existing
improvements and construct a luxury condominium hotel containing 280 units.
Unit sizes are studios and 1 bedrooms, which can be combined to create 2
bedroom suites.
In March, 2000, Terremark received and accepted a non-binding
letter of intent from a third party buyer to purchase Terremark Centre,
subject to the execution of a binding contract and due diligence. Terremark
management believes the buyer has financial resources to complete the
transaction. The net sales price is expected to be $55,850,000.00.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF AMTEC
The following table sets forth the beneficial ownership of common
Stock as of December 31, 1999 by : (i) each person known by AmTec to
beneficially own 5% or more of the outstanding common stock, (ii) each
director of AmTec, (iii) each Named Executive Officer of AmTec, and (iv)
all directors and executive officers of AmTec as a group. Unless otherwise
indicated below, to the knowledge of AmTec, 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.
NAME OF NO. OF PERCENT
BENEFICIAL OWNER SHARES (1)
---------------- --------- --------
Joseph R. Wright, Jr. (2)(13) 6,665,144 18.36%
Richard T. McNamar (3)(13) 525,000 1.45%
Richard S. Braddock (4)(13) 263,592 *
James R. Lilley (5)(13) 111,074 *
Michael H. Wilson (6)(13) 158,222 *
Marvin S. Rosen (7)(13) 1,189,030 3.27%
Joel Schleicher (8)(13) 32,500 *
Karin-Joyce Tjon (9)(13) 50,000 *
Wilfred Chow (10)(13) 25,000 *
Xiao Jun (11)(13) 525,000 1.45%
All executive officers and
directors as a group (12) 9,544,562 26.29%
Jenny Sun (14) 5,541,593 15.26%
Polmont Investments Limited (15) 5,541,593 15.26%
Occidental Worldwide
Corporation (16) 5,541,593 15.26%
Max Chian Yi Sun (17) 5,541,593 15.26%
- ----------------------
* 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
December 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
6,100,000 Shares. As part of the merger agreement, Mr. Wright
forfeits 3,000,000 options upon the merger taking place.
(3) Includes options to purchase 500,000 Shares.
(4) Includes options to purchase 80,000 Shares.
(5) Includes options to purchase 75,000 Shares.
(6) Includes options to purchase 80,000 Shares.
(7) Includes options to purchase 25,000 Shares.
(8) Includes options to purchase 17,500 Shares.
(9) Includes options to purchase 50,000 Shares.
(10) Includes options to purchase 25,000 Shares.
(11) Includes options to purchase 515,000 Shares.
(12) Includes options to purchase 7,467,500 Shares.
(13) The address of Messrs. Wright, McNamar, Braddock, Lilley, Wilson,
Rosen, Schleicher, Ms. Tjon and Messrs. Chow and Xiao is c/o AmTec,
Inc., 599 Lexington Avenue, 44th Floor, New York, New York 10022.
(14) 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.
(15) 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.
(16) 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.
(17) 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.
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF AMTEC CAPITAL STOCK
The authorized capital stock of AmTec consists of 100,000,000 shares
of common stock and 10,000,000 shares of preferred stock. As of the record
date, there were 38,104,992 shares of AmTec common stock outstanding held
beneficially by approximately 9,695 shareholders and 20 shares of AmTec
preferred stock. AmTec's common stock is listed on the AMEX under the
symbol ATC.
AmTec common stock. Holders of AmTec common stock are entitled to
one vote per share on all matters to be voted upon by the shareholders. The
holders of AmTec common stock are entitled to receive ratably any
dividends, as may be declared from time to time by the AmTec board of
directors, out of legally available funds. In the event of a liquidation,
dissolution or winding up of AmTec, the holders of AmTec common stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of AmTec preferred stock,
if any. The AmTec common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund
provisions applicable to the AmTec common stock. All outstanding shares of
AmTec common stock are fully paid and non-assessable, and the shares of
AmTec common stock to be issued and outstanding upon consummation of the
merger will be fully paid and non-assessable.
REPRESENTATIVE OF INDEPENDENT AUDITORS
A representative of Deloitte & Touche is expected to be present at
the special meeting and will have an opportunity to make a statement if he
or she desires to do so, and will be available to respond to appropriate
questions from AmTec stockholders.
STOCKHOLDER PROPOSALS
Stockholders are advised that any stockholder proposal, including
nominations to the Board of Directors, intended for consideration at the
annual meeting for the fiscal year ended March 31, 2000 ("2000 Annual
Meeting") must be received by the Company no later than April 7, 2000 to be
included in the proxy material for the 2000 Annual Meeting. It is
recommended that stockholders submitting proposals direct them to
Karin-Joyce Tjon, Vice President of the Company, and utilize certified
mail, return-receipt requested, in order to ensure timely delivery.
INDEPENDENT ACCOUNTANTS
The financial statements of AmTec, Inc. as of March 31, 1999 and
1998 and for each of the three years in the period ended March 31, 1999
included in this proxy statement pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended, had been audited by Deloitte &
Touche LLP, independent accountants as stated in their report appearing
herein.
The financial statements of Terremark Holdings, Inc. as of March 31,
1999 and 1998 and for each of the three years in the period ended March 31,
1999 included in this proxy statement pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended, have been audited by
PricewaterhouseCoopers LLP, independent accountants as stated in their
report appearing herein.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS INDEX
PAGE
<S> <C>
AMTEC, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT.....................................................................................F-3
FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997:
Consolidated Balance Sheets.................................................................................F-4
Consolidated Statements of Operations.......................................................................F-5
Consolidated Statements of Stockholders' Equity (Deficit)...................................................F-6
Consolidated Statements of Cash Flows.......................................................................F-8
Notes to Consolidated Financial Statements..................................................................F-9
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
INDEPENDENT AUDITORS' REPORT....................................................................................F-26
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-27
Statements of Operations...................................................................................F-28
Statements of Investors' Equity............................................................................F-29
Statements of Cash Flows...................................................................................F-30
Notes to Financial Statements..............................................................................F-31
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
INDEPENDENT AUDITORS' REPORT....................................................................................F-37
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-38
Statements of Operations...................................................................................F-39
Statements of Investors' Equity (Deficit)..................................................................F-40
Statements of Cash Flows...................................................................................F-41
Notes to Financial Statements..............................................................................F-42
AMTEC, INC. AND SUBSIDIARIES
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1998 AND
1999:
Condensed Consolidated Balance Sheets......................................................................F-50
Condensed Consolidated Statements of Operations............................................................F-51
Condensed Consolidated Statements of Cash Flows............................................................F-52
Notes to Condensed Consolidated Financial Statements.......................................................F-54
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEARS ENDED
MARCH 31, 1999 AND 1998:
Report of Independent Certified Public Accountants.........................................................F-58
Consolidated Balance Sheets................................................................................F-59
Consolidated Statements of Operations......................................................................F-60
Consolidated Statements of Stockholders' Equity ...........................................................F-61
Consolidated Statements of Cash Flows......................................................................F-62
Notes to Consolidated Financial Statements.................................................................F-64
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1999 AND
1998:
Consolidated Balance Sheets................................................................................F-78
Consolidated Statements of Operations and
Changes in Stockholders' Equity .......................................................................F-79
Consolidated Statements of Cash Flows......................................................................F-81
Notes to Consolidated Financial Statements.................................................................F-83
TERREMARK CENTRE
Report of Independent Certified Public Accountants.........................................................F-87
Statement of Revenue and Certain Expenses..................................................................F-88
Notes to Statement of Revenue and Certain Expenses.........................................................F-89
</TABLE>
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
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
- ---------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
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, 29.8 and 73.2 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 $7,683,358
==================== ====================
See notes to consolidated financial statements.
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------- --------------- ----------------
<S> <C> <C> <C>
Revenues........................................................$ $ $ - -
-------------- --------------- ----------------
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
============== =============== ================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------------------------------------------------------------------------------
SERIES A SERIES B
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <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.................. -- -- -- -- -- --
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 -- --
Exercise of employee stock options.................... 69,000 69 -- -- -- --
Issuance of Series C preferred stock.................. -- -- -- -- -- --
Common shares issued for services rendered............ 23,233 23 -- -- -- --
Conversion of Series D shares to common stock......... 2,236,507 2,237 -- -- -- --
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 -- -- -- --
Issuance of Series E preferred stock.................. -- -- -- -- -- --
Conversion of Series E shares to common stock......... 106,646 107 -- -- -- --
Buyback of Series C preferred stock................... -- -- -- -- -- --
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 stock 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 -- $-- -- $--
=========== =========== ========== ========= ======= ========
<CAPTION>
AMTEC INC. AND SUBSIDIARIES
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------------------------------------------------------
SERIES C SERIES D SERIES E SERIES G
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1996............................... -- $-- -- $-- -- $-- -- $--
Issuances of Series B preferred stock................. -- -- -- -- -- -- -- --
Conversion of Series B shares......................... -- -- -- -- -- -- -- --
Issuance of Series D preferred Stock.................. -- -- 150 1 -- -- -- --
Common shares issued for services rendered............ -- -- -- -- -- -- -- --
Common shares issued to employees as compensation..... -- -- -- -- -- -- -- --
Common shares issued for directors' fees.............. -- -- -- -- -- -- -- --
Sale of common shares................................. -- -- -- -- -- -- -- --
Cumulative foreign currency exchange loss............. -- -- -- -- -- -- -- --
Preferred dividends................................... -- -- -- -- -- -- -- --
Warrants.............................................. -- -- -- -- -- -- -- --
Net loss.............................................. -- -- -- -- -- -- -- --
-------- -------- ------ -------- -------- -------- ------- -------
BALANCE, March 31, 1997............................... -- -- 150 1 -- -- -- --
Exercise of employee stock options.................... -- -- -- -- -- -- -- --
Issuance of Series C preferred stock.................. 250 1 -- -- -- -- -- --
Common shares issued for services rendered............ -- -- -- -- -- -- -- --
Conversion of Series D shares to common stock......... -- -- (150) (1) -- -- -- --
Common stock investment agreement-- net of cancellation -- -- -- -- -- -- -- --
Common shares issued for directors' fees.............. -- -- -- -- -- -- -- --
Cancellation of Series A Preferred.................... -- -- -- -- -- -- -- --
Cancellation of common stock.......................... -- -- -- -- -- -- -- --
Tweedia loan cancellation............................. -- -- -- -- -- -- -- --
Allocation of non-refundable deposit from former
affiliate........................................... -- -- -- -- -- -- -- --
Other................................................. -- -- -- -- -- -- -- --
Conversion of Series C shares to common stock......... (219) (1) -- -- -- -- -- --
Issuance of Series E preferred stock.................. -- -- -- -- 74 1 -- --
Conversion of Series E shares to common stock......... -- -- -- -- (1) -- -- --
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............................... -- -- -- -- 73 1 -- --
Conversion of Series E shares to common stock......... -- -- -- -- (40) -- -- --
Common Shares buyback................................. -- -- -- -- -- -- -- --
Preferred Shares buyback.............................. -- -- -- -- (3) -- -- --
Cancellation of common stock investment agreement..... -- -- -- -- -- -- -- --
Issuance of Series G preferred stock.................. -- -- -- -- -- -- 20 1
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 $ 1 20 $ 1
======== ======== ====== ======== ======== ========= ====== ========
</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) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL ACCUMULATED
WARRANTS PAID-IN CAPITAL DEFICIT
--------------- --------------------- -------------------
<S> <C> <C> <C>
BALANCE, March 31, 1996............................................ $ -- $18,648,620 $(16,527,651)
Issuances of Series B preferred stock.............................. -- 2,341,218 --
Conversion of Series B shares...................................... -- (1,506) --
Issuance of Series D preferred Stock............................... -- 1,499,999 --
Common shares issued for services rendered......................... -- 316,249 --
Common shares issued to employees as compensation.................. -- 318,538 --
Common shares issued for directors' fees........................... -- 89,990 --
Sale of common shares.............................................. -- 1,999,000 --
Cumulative foreign currency exchange loss.......................... -- (1,231) --
Preferred dividends................................................ -- (10,000) --
Warrants........................................................... 479,500 -- --
Net loss........................................................... -- -- (4,064,885)
--------------- --------------------- -------------------
BALANCE, March 31, 1997............................................ 479,500 25,200,877 (20,592,536)
Exercise of employee stock options................................. -- 34,681 --
Issuance of Series C preferred stock............................... -- 2,499,999 --
Common shares issued for services rendered......................... -- 66,934 --
Conversion of Series D shares to common stock...................... -- 129,673 --
Common stock investment agreement-- net of cancellation............ -- (1,019) --
Common shares issued for directors' fees........................... -- 84,960 --
Cancellation of Series A Preferred................................. -- (4,571,012) --
Cancellation of common stock....................................... -- 12,728 --
Tweedia loan cancellation.......................................... -- 25,000 --
Allocation of non-refundable deposit from former affiliate......... -- 850,000 --
Other.............................................................. -- (580) --
Conversion of Series C shares to common stock...................... -- (4,508) --
Issuance of Series E preferred stock............................... -- 6,759,000 --
Conversion of Series E shares to common stock...................... -- (107) --
Buyback of Series C preferred stock................................ -- (406,100) --
Deferred financing costs, net of amortization...................... 161,450 (229,415) --
Stock options issued to third party................................ -- 1,837,500 --
Cumulative foreign currency exchange loss.......................... -- 1,844 --
Advance to joint venture partner................................... -- (540,000) --
Preferred stock dividends.......................................... -- 1,398,686 (1,398,686)
Cancellation of Warrants........................................... (147,000) -- --
Net loss........................................................... -- -- (5,403,368)
--------------- --------------------- -------------------
BALANCE, March 31, 1998............................................ 493,950 33,149,142 (27,394,590)
Conversion of Series E shares to common stock...................... -- 138,821
Common Shares buyback.............................................. -- (383,052) --
Preferred Shares buyback........................................... -- (100,000) --
Cancellation of common stock investment agreement.................. -- 1,019 --
Issuance of Series G preferred stock............................... -- 2,000,000 --
Issuance of Warrants............................................... 210,400 (210,400) --
Cancellation of Warrants........................................... (222,500) 222,500 --
Cancellation of shareholders' loans and accrual interest........... -- 2,359,621 --
Cumulative foreign currency exchange loss.......................... -- (613) --
Preferred stock dividends.......................................... -- 672,457 (672,457)
Cancellation of Stock options issued to third party................ -- (918,751) --
Options issued for services rendered............................... -- 16,500 --
Net loss........................................................... -- -- (5,579,444)
--------------- --------------------- -------------------
BALANCE, March 31, 1999............................................ $481,850 $36,947,244 $(33,646,491)
=============== ===================== ===================
<CAPTION>
PURCHASE DEFERRED
DEPOSIT OPTION COSTS TOTAL
------------------ --------------- -----------------
<S> <C> <C> <C>
BALANCE, March 31, 1996............................................ $(4,572,536) $-- $(2,421,606)
Issuances of Series B preferred stock.............................. -- -- 2,341,219
Conversion of Series B shares...................................... -- -- --
Issuance of Series D preferred Stock............................... -- -- 1,500,000
Common shares issued for services rendered......................... -- -- 316,340
Common shares issued to employees as compensation.................. -- -- 318,751
Common shares issued for directors' fees........................... -- -- 90,000
Sale of common shares.............................................. -- -- 2,000,000
Cumulative foreign currency exchange loss.......................... -- -- (1,231)
Preferred dividends................................................ -- -- (10,000)
Warrants........................................................... -- -- 479,500
Net loss........................................................... -- -- (4,064,885)
------------------ --------------- -----------------
BALANCE, March 31, 1997............................................ (4,572,536) -- 548,088
Exercise of employee stock options................................. -- -- 34,750
Issuance of Series C preferred stock............................... -- -- 2,500,000
Common shares issued for services rendered......................... -- -- 66,958
Conversion of Series D shares to common stock...................... -- -- 131,909
Common stock investment agreement-- net of cancellation............ -- -- 0
Common shares issued for directors' fees........................... -- -- 85,000
Cancellation of Series A Preferred................................. 4,572,536 -- 0
Cancellation of common stock....................................... -- -- 0
Tweedia loan cancellation.......................................... -- -- 25,000
Allocation of non-refundable deposit from former affiliate......... -- -- 850,000
Other.............................................................. -- -- (580)
Conversion of Series C shares to common stock...................... -- -- (1)
Issuance of Series E preferred stock............................... -- -- 6,759,001
Conversion of Series E shares to common stock...................... -- -- 0
Buyback of Series C preferred stock................................ -- -- (406,100)
Deferred financing costs, net of amortization...................... -- -- (67,965)
Stock options issued to third party................................ -- (1,378,125) 459,375
Cumulative foreign currency exchange loss.......................... -- -- 1,844
Advance to joint venture partner................................... -- -- (540,000)
Preferred stock dividends.......................................... -- -- 0
Cancellation of Warrants........................................... -- -- (147,000)
Net loss........................................................... -- -- (5,403,368)
------------------ --------------- -----------------
BALANCE, March 31, 1998............................................ -- (1,378,125) 4,896,911
Conversion of Series E shares to common stock...................... -- 144,375
Common Shares buyback.............................................. -- -- (383,383)
Preferred Shares buyback........................................... -- -- (100,000)
Cancellation of common stock investment agreement.................. -- -- 0
Issuance of Series G preferred stock............................... -- -- 2,000,001
Issuance of Warrants............................................... -- -- 0
Cancellation of Warrants........................................... -- -- 0
Cancellation of shareholders' loans and accrual interest........... -- -- 2,359,621
Cumulative foreign currency exchange loss.......................... -- -- (613)
Preferred stock dividends.......................................... -- -- 0
Cancellation of Stock options issued to third party................ -- 1,378,125 459,374
Options issued for services rendered............................... -- -- 16,500
Net loss........................................................... -- -- (5,579,444)
------------------ --------------- -----------------
BALANCE, March 31, 1999............................................ $-- $-- $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 year 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 ended 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 improvements 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, as amended, is effective for
fiscal years beginning after July 1, 2000. 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:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
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
============= ============
</TABLE>
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 (GSM Construction Costs) as a right to receive
future cash flow 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 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,
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 of the
Company's subsidiary, Hebei Equipment, and its indirect subsidiary, Hebei
Engineering, 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 the
common stock repurchased were 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 shares 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 discount 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 $0.19 $0.53 $0.69
granted during the year =========== =========== ==============
</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 Average Number
Range of Outstanding Remaining Average Exercisable Average
Exercise At Contractual Exercise Options 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:
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
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 - pro forma $ (0.25) $ (0.29)
================= ================
</TABLE>
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
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ----------------
RMB RMB
<S> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
April 29, 1997
Year ended (commencement of
December 31, operations) to
1998 December 31, 1997
--------------- -----------------
RMB RMB
<S> <C> <C>
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
</TABLE>
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD.
STATEMENTS OF INVESTORS' EQUITY
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Capital Accumulated Total
Contribution Deficit
------------------ ------------------- ------------------
RMB RMB RMB
<S> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
April 29, 1997
(commencement of
Year ended operations) to
December 31, 1998 December 31, 1997
---------------------- -----------------
RMB RMB
<S> <C> <C>
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
============ ============
</TABLE>
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:
DECEMBER 31, DECEMBER 31,
1998 1997
------------------- --------------
RMB RMB
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.
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)
DECEMBER 31, DECEMBER 31,
1998 1997
------------------ -------------------
RMB RMB
Cost 12,731,283 12,731,283
Less: Share of losses (12,731,283) (8,347,533)
------------------ --------------------
- 4,383,750
================== ===================
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
<S> <C> <C>
Assets
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
===================== =====================
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
--------------------- ---------------------
RMB RMB
<S> <C> <C>
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
<TABLE>
<CAPTION>
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
DECEMBER 31
------------------------------------
1998 1997
---------------- ----------------
RMB RMB
<S> <C> <C>
Current Assets:
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' (Deficit) 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
(COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS)
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 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
EARNING/
CAPITAL CAPITAL (ACCUMULATED
CONTRIBUTION RESERVE DEFICIT) TOTAL
------------- ------------- ------------- ----------------
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
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
YEAR ENDED DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1998 1997 1996
-------------------- ------------------- -------------------
RMB RMB RMB
<S> <C> <C> <C>
Cash flows from operating activities:
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 investing 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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1998 1997
--------------------- --------------------
<S> <C> <C>
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)
--------------------- --------------------
- -
===================== ====================
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1998 1997
--------------------- ---------------------
RMB RMB
<S> <C> <C>
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.
</TABLE>
6. INVESTMENT IN GSM NETWORKS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1998 1997
--------------------- ---------------------
RMB RMB
<S> <C> <C>
Cost of investment 278,543,551 253,761,119
Less: accumulated amortization (38,157,929) (18,125,794)
--------------------- ---------------------
240,385,622 235,635,325
===================== =====================
</TABLE>
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.
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DEC. 31, 1999
------------------
(UNAUDITED)
<S> <C>
Assets
Current Assets:
Cash..................................................................................... $ 629,960
Prepaid expenses and other current assets................................................ 53,295
------------------
Total current assets................................................................. 683,255
Investments in and advances to unconsolidated subsidiary................................. 2,439,300
Investments in affiliate................................................................. 631,453
Property, plant and equipment, net....................................................... 62,226
Loans receivable......................................................................... 575,000
Office lease deposit and other assets.................................................... 55,733
------------------
Total assets......................................................................... $ 4,446,967
==================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable......................................................................... $ 593,666
Accrued expenses......................................................................... 25,034
Loans payable............................................................................ 1,125,050
------------------
Total current liabilities..................................................................... 1,743,750
------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock: authorized 10,000,000 shares:
Series E Convertible Preferred Stock: $.001 par value; 74 shares
issued, 0 outstanding at Dec. 31, 1999............................................. -
Series G Convertible Preferred Stock: $.001 par value; 20
shares issued and outstanding at Dec. 31, 1999 ...................................... 1
Common Stock: $.001 par value, authorized 100,000,000 shares;
36,309,189 issued and outstanding at Dec. 31, 1999................................... 36,309
Additional Paid-In Capital............................................................... 38,267,202
Accumulated deficit...................................................................... (36,082,145)
Warrants................................................................................. 481,850
------------------
Total Stockholders' Equity.................................................................... 2,703,217
------------------
Total Liabilities & Stockholders' Equity...................................................... $ 4,446,967
==================
See notes to consolidated financial statements.
</TABLE>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED DEC. 31
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Revenues................................................................ $ - $ -
Expenses
General and administrative......................................... 2,402,917 2,849,742
------------------ ------------------
Loss from Operations.................................................... (2,402,917) (2,849,742)
------------------ ------------------
Other Income (Expense):
Amortization of stock options granted to non-employees............. - (459,376)
Other - net........................................................ 46,435 37,304
------------------ ------------------
Total other expense............................................ 46,435 (422,072)
------------------ ------------------
Loss Before Equity in Income (Losses) of Unconsolidated Subsidiary and
Affiliate............................................................... (2,356,482) (3,271,814)
Equity in Losses of Affiliate........................................... (171,730) -
Equity in Income from (Losses of) Unconsolidated Subsidiary
and Affiliate......................................................... 442,820 (1,412,881)
------------------ ------------------
Net Loss................................................................ (2,085,392) (,4,684,695)
Preferred Stock Dividend................................................ 350,262 614,051
------------------ ------------------
Loss Applicable to Common Shareholders.................................. $ (2,435,654) $ (5,298,746)
================== ==================
Basic Loss per Common Share............................................. $ (0.07) $ (0.20)
================== ==================
Weighted Average Common Shares Outstanding.............................. 32,924,478 26,458,488
================== ==================
See notes to consolidated financial statements.
</TABLE>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DEC. 31
------------------------------------------
1999 1998
------------------- --------------------
UNAUDITED UNAUDITED
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (2,085,392) $ (4,684,695)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred option cost - 459,374
Depreciation 34,200 35,699
Issuance of common stock for directors' fees 25,000 -
Equity in losses of affiliate 171,730 -
Equity in (income) losses of unconsolidated subsidiary (442,820) 1,458,765
(Increase) decrease in:
Prepaid expenses and other current assets (14,490) 82,225
Office lease deposit and other assets - 55,186
Increase (decrease) in:
Accounts payable and accrued expenses 58,453 (222,796)
------------------- --------------------
Net cash used in operating activities (2,253,319) (2,816,242)
------------------- --------------------
Cash Flows from Investing Activities:
Sale (purchase) of property and equipment 500 (13,427)
Loans receivable (575,000) -
Investment in affiliate (803,183) -
------------------- --------------------
Net cash used in investing activities (1,377,683) (13,427)
------------------- --------------------
Cash Flows from Financing Activities:
Common stock buy back (88,633) (321,606)
Series E Preferred stock buy back - (100,000)
Repayment of advance form unconsolidated subsidiary 500,000 -
Proceeds from loans payable 1,125,050 -
Proceeds from exercise of employee stock options 631,404 2,191,986
------------------- --------------------
Net cash provided by financing activities 2,167,821 1,770,380
------------------- --------------------
Net Decrease in Cash and Cash Equivalents (1,463,181) (1,059,289)
Cash and Cash Equivalents, Beginning of Period 2,093,141 2,134,662
------------------- --------------------
Cash and Cash Equivalents, End of Period $ 629,960 $ 1,075,373
=================== ====================
See notes to consolidated financial statements.
</TABLE>
AMTEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL CASH INFORMATION:
No interest or income taxes were paid during the first nine months
of fiscal 1999 or 1998.
NON CASH FINANCING ACTIVITIES:
NINE MONTHS ENDED DECEMBER 31, 1999
29.8 shares of Series E Convertible Preferred Stock were converted
into 3,858,346 shares of common stock.
A total of 180,000 shares of Common Stock were issued to officers
of the Company as stock awards pursuant to their employment agreements. And
a total of 20,000 shares of its Common Stock were issued to some of its
directors as compensations.
On June 18, 1999, the Company and Jacqueline B. Brandwynne reached
a settlement in principle of the legal proceedings filed against the
Company on April 15, 1996. The Company has paid Ms. Brandwynne $250,000 in
AmTec Common Stock, which includes her claim for attorney's fees. A total
of 210,525 shares of Common Stock were issued to Ms. Brandwynne and her
attorney in September 1999 pursuant to the settlement agreement.
NINE MONTHS ENDED DECEMBER 31, 1998
Shareholder loans payable of $1,452,553 and related accrued
interest of $906,488 were credited to Additional paid-in capital
34.9 shares of Series E Convertible Preferred Stock were converted
into 4,776,188 shares of common stock (inclusive of conversions of
preferred dividends).
Warrants valued at $222,500 were cancelled and credited to
Additional paid-in capital.
The Company cancelled a Common Stock Investment Agreement, as
permitted by the Agreement, with Promethean Investment Group on August 12,
1998. 1,019,465 shares previously held in escrow designated for issuance
under terms of the agreement were cancelled.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements at December 31, 1999 are
unaudited and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. All of the adjustments are of a
normal recurring nature. The consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto together with management's discussion and analysis of financial
condition and results of operations, contained in the Annual Report on Form
10-K/A filed by the Company on August 23, 1999 for the Company's fiscal
year ended March 31, 1999. The results of operations for the nine months
ended December 31, 1999 are not necessarily indicative of the results for
the entire year ending March 31, 2000.
Basis of Presentation - The accompanying financial statements have
been prepared in conformity with generally accepted accounting principles.
Realization of a major portion of the assets in the accompanying balance
sheet is dependent upon the Company's existing investments developing
profitable operations.
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING
Consolidation - The consolidated financial statements include the
Company's wholly- owned subsidiary, ITV Communications, Inc. 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. and
subsidiary ("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
contract. The Company reports its investment in Hebei Equipment under the
caption "Investment 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's contributed capital has been fully depleted.
Reserves are provided where management determines that the investment or
equity in earnings is not realizable. The Company has used its ownership
percentage of 70% for purposes of calculating the share of earnings of its
unconsolidated subsidiary, Hebei Equipment. Hebei Equipment owns 51% of
Hebei United Telecommunications Engineering Company, Ltd. ("Hebei
Engineering"). Hebei Equipment also accounts for its investment in Hebei
Engineering by using the equity method of accounting as minority
shareholders of Hebei Engineering have substantive participating rights
under the joint venture contract.
Included in the financial statements are the financial statements
of the Company for the nine months ended December 31, 1999 and 1998. The
Company's share of equity in losses of Hebei Equipment included in the
consolidated financial statements are as of and for the nine months ended
September 30, 1999 and 1998. This is done so that the Company can ensure
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
under Subsequent Events. The summary financial information of Hebei
Equipment and Hebei Engineering are included in Note 6 to the financial
statements.
The Company owns 50% of IP.Com, LLC and accounts for its
investments using the equity method of accounting. The summary financial
information of IP.Com, LLC are included in Note 7 to the financial
statements. The Company reports its investment in IP.Com, LLC under the
caption "Investment in affiliate."
NOTE 3 - ASSETS
The December 31,1999 consolidated balance sheet includes total
current assets of approximately $0.7 million and total assets of
approximately $4.4 million. Of these amounts, approximately $0.6 million of
cash is planned for parent company operations, approximately $2.4 million
represents an investment in and advance to Hebei Equipment and
approximately $0.6 million represents a loan receivable from IXS.NET, a
private IP fax service provider. See Note 8.
NOTE 4 - LIABILITIES
The December 31, 1999 consolidated balance sheet includes total
liabilities of approximately $1.7 million. Approximately $0.6 million were
accounts payable and accrued expenses which are mainly legal and
professional fees payable. During the quarter ended December 31, 1999,
Terremark Holdings, Inc. ("Terremark"), a privately held, full service real
estate and development company based in Miami, Florida, agreed to provide
short-term capital requirements and working capital needs. The bridge loan
bears 10% annual interest and will become immediately due and payable if
the merger agreement is not approved by AmTec's stockholders. Additionally,
if the merger does not close by July 1, 2000, AmTec is obligated to repay,
if any, the outstanding balance on the bridge loan. As of December 31,
1999, AmTec has obtained approximately $1.1 million under this facility.
AmTec has collateralized the bridge financing by pledging all of its
tangible and intangible assets to secure the bridge loan.
NOTE 5 - CHANGES TO EQUITY
The decrease in Stockholders' Equity of approximately $1.1 million
for the nine months ended December 31, 1999 was primarily due to the
operating net loss of approximately $2.1 million and was partly offset by
the issuance of common stock for approximately $1.0 million.
As per Section 5 (d) of the Certificate of Designations of
Preferences of the Series E Convertible Preferred Stock, all Series E
Shares outstanding as of the second anniversary of the issuance, which is
October 22, 1999, were subject to automatic conversion into the Company's
common stock. On October 22, 1999, the 19.404 Series E Preferred Shares
outstanding all converted into 2,679,599 shares of Common Stock. During the
nine months ended December 31, 1999, the Company issued a total of
3,858,346 shares of its Common Stock upon the conversion of 29.8 shares of
its Series E Convertible Preferred Stock.
On September 14, 1998 the Company announced its intention to
purchase up to $1 million of its common stock on the open market. During
the nine months ended December 31, 1999, the Company purchased 70,000
shares under this program for a total cost of approximately $89,000. All
the common stock repurchased was cancelled as of December 31,1999.
During the nine months ended December 31, 1999, the Company issued
1,373,597 shares of its Common Stock upon the exercise of stock options by
former employees. The Company also issued 180,000 shares of its Common
Stock as stock awards to some of its officers pursuant to their employment
agreements.
As of June 18, 1999, the Company and Jacqueline B. Brandwynne
reached a settlement in principle of the legal proceedings filed against
the Company on April 15, 1996. A final agreement has been signed and the
parties have agreed to release each other from all claims. The Company has
paid Ms. Brandwynne $250,000 in AmTec Common Stock, which included her
claim for attorney's fees. A total of 210,525 shares
of Common Stock were issued to Ms. Brandwynne and her attorney during the
quarter ended September 30, 1999 pursuant to the settlement agreement.
NOTE 6 - UNCONSOLIDATED SUBSIDIARIES
The following tables represent summary financial
information of the Company's subsidiary, Hebei Equipment, and its indirect
subsidiary, Hebei Engineering, for the Company's nine months ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31
-------------------------------------- ------------------------------------------
UNAUDITED UNAUDITED
1999 1998 1999 1998
------------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
HEBEI EQUIPMENT
Revenues $ - $ - $ - $ -
=================== ================= =================== =====================
Net (loss) income $ 632,600 $ (1,982,181) $ 743,440 $ (1,505,256)
=================== ================= =================== =====================
HEBEI ENGINEERING
Revenues $ - $ 606,629 $ - $ 173,994
=================== ================= =================== =====================
Net (loss) income $ 3,292,534 $ (1,323,681) $ 3,887,384 $ (526,001)
=================== ================= =================== =====================
</TABLE>
During the quarter ended December 31, 1999, the Company learned
that Unicom terminated its cashflow sharing and technical services
agreement with Hebei Engineering. With the termination of that agreement,
Hebei Engineering ceased to receive revenue from Unicom and Hebei
Engineering's interest in Hebei Province has been transferred to Unicom.
Hebei Engineering recorded a gain of approximately $7.4 million with
respect to the transfer of the networks, of which $0.8 million was
transferred to Hebei Equipment.
NOTE 7 - INVESTMENT IN AFFILIATE
The following tables represent summary financial information of
the Company's investment in an affiliate company, IP.Com. for the quarter
and nine months ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31
-------------------------------------- ------------------------------------------
UNAUDITED UNAUDITED
1999 1998 1999 1998
------------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
IP.COM
Revenues $ 1,143,016 $ - $ 1,101,862 $ -
=================== ================= =================== =====================
Net (loss) income $ (343,459) $ - $ (163,635) $ -
=================== ================= =================== =====================
</TABLE>
AmTec owns 50% of IP.Com LLC and accounts for its investment using
the equity method of accounting. IP.Com began its operations in late
September 1999 and AmTec's shares of its equity loss was $171,730 for the
nine months ended December 31, 1999.
NOTE 8 - LOAN RECEIVABLE
Loan receivable represents a convertible debt investment made by
AmTec in IXS.NET. The loan receivable bears a prime interest rate and a
prime plus 4% interest payable upon defaults. During May 1999, the Company
formed a three-way alliance with Fusion Telecommunications International,
Inc. ("Fusion") and IXS.NET. The Company and Fusion have made an equal
convertible debt investment into IXS.NET and the Company has an option to
acquire up to 50% of IXS.NET. AmTec intends to convert the debt into equity
investment during fiscal year 2001.
IXS.NET purchases network and transmission services from
established carriers at discounted prices and resells the services to its
customers. Revenues derived from the provision of telecommunications
services are recognized in the period during which the call terminates.
Revenues are derived from the sale of IP Fax, IP Phone and calling card
services. The following table represents summary financial information of
IXS.NET for the quarter and nine months ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31
UNAUDITED
Unaudited Unaudited
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
IXS.NET
Revenues $ 955,961 $ - $ 724,553 $ -
================ ================ ================ ===============
Net loss $ (468,496) $ - $ (220,129) $ -
================ ================ ================ ===============
</TABLE>
NOTE 9 - 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 July 1, 2000. 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.
NOTE 10 - UNCOMPLETED TRANSACTIONS
During 1998, AmTec signed an agreement with a subsidiary of Global
TeleSystems, Inc. ("GTS"), under which a subsidiary of GTS would acquire
approximately 5.9 million shares of the Company's common stock and the
Company would 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. AmTec has
terminated the agreement because, among other reasons, necessary
governmental approvals were not granted. GTS has agreed to the termination.
During 1998, AmTec entered into an agreement to acquire an
investment in a cable television network venture located in Hunan province,
PRC, from United International Holdings ("UIH"). AmTec terminated the
agreement during the quarter ended December 31, 1999 because, among other
reasons, the closing had not occurred by December 31, 1999 through no fault
of AmTec. AmTec believes that it had the right to terminate the agreement.
NOTE 11 - PROPOSED ACQUISITION
On November 9, 1999, the Company announced it signed a Letter of
Intent to acquire Terremark Holdings, Inc. ("Terremark"), a privately held,
full service real estate and development company based in Miami, Florida.
AmTec will be the surviving company and under the terms of the proposed
acquisition, will acquire all existing Terremark's net assets, including
real estate, development projects, management and construction contracts
and brokerage operations.
The two companies signed a definitive merger agreement on November
24, 1999. The transaction, which requires the approval of the stockholders
is proceeding and is expected to close in the first half of 2000.
Failure of the AmTec stockholders to approve the terms of the
merger could result in material adverse change to AmTec, including an
impaired ability to fund its capital expenditures to expand its business
opportunities to expand its business opportunities. In turn, this could
result in an inability to fund the Company's ongoing operations. Failure to
repay this loan could have a material adverse effect on the Company's
ability to continue as a going concern.
NOTE 12 - SUBSEQUENT EVENTS
Hebei Engineering ceased its operations and began its winding up
procedures after the transfer of its interests in the cellular networks in
Hebei Province to Unicom. As of January 24, 2000, Hebei Equipment received
approximately $817,000 as a result of the liquidation of Hebei Engineering.
During the month of January and through February 8, 2000, AmTec
received $1,254,599 from a former employee upon the exercise of 590,434
stock options and $61,751 upon the conversion of 24,950 warrants.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Terremark Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Terremark Holdings, Inc. and its subsidiaries at
March 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1999 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
October 28, 1999, except Note 13
dated December 22, 1999
<TABLE>
<CAPTION>
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------
MARCH 31,
---------------------------------------------
1999 1998
----------------------- --------------------
Assets
<S> <C> <C>
Real estate inventories $ 12,888,206 $ 33,310,940
Cash and cash equivalents 2,808,033 6,376,178
Restricted cash 31,317 17,000
Accounts receivable 589,578 62,163
Advance to shareholder - 548,795
Notes receivable 337,050 724,642
Furniture and equipment, net of accumulated 191,018 46,534
depreciation of $52,679 and $20,914
Deferred income tax asset 106,924 106,924
Other assets 645,465 1,737,530
----------------------- --------------------
Total assets $ 17,597,591 $ 42,930,706
======================= ====================
Liabilities and Stockholders' Equity
Notes payable $ 8,630,556 $ 32,081,079
Trade payable and other liabilities 1,734,281 3,463,471
Interest payable 387,696 2,674,063
Customer deposits 235,396 2,578,452
Deferred revenue 100,000 317,934
Income taxes payable - 106,924
----------------------- --------------------
11,087,929 41,221,923
----------------------- --------------------
Preferred stock, $1 par value, 4,176,693 shares authorized, 4,176,693 -
issued and outstanding
Common stock, $.01 par value, 5,000,000 shares 11,212 11,212
authorized, 1,121,250 shares issued and outstanding
Paid in capital 8,013,483 8,013,483
Retained deficit (5,691,726) (6,315,912)
Commitments and contingencies
----------------------- --------------------
6,509,662 1,708,783
----------------------- --------------------
Total liabilities and stockholders' equity $ 17,597,591 $ 42,930,706
======================= ====================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<TABLE>
<CAPTION>
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED MARCH 31,
---------------------------------------------------
1999 1998 1997
----------------- --------------- -----------------
<S> <C> <C> <C>
Revenues
Real estate sales $ 42,041,391 $ 37,038,299 $ 300,000
Commission income 1,021,560 162,367 879,917
Development fees 625,000 - 333,000
Management fees 768,161 311,791 301,214
Construction fees - 120,000 814,949
----------------- --------------- ---------------
Operating revenues 44,456,112 37,632,457 2,629,080
----------------- --------------- ---------------
Expenses
Cost of real estate sold 31,147,530 22,666,891 -
Construction expenses - - 742,287
General and administrative expenses 6,020,047 7,023,862 976,115
Sales and marketing expenses 5,479,561 1,783,621 934,932
Provision for write down of real estate - 3,891,911 -
Bad debt expense 71,472 81,900 -
Depreciation 50,012 19,475 28,981
----------------- --------------- ---------------
Operating expenses 42,768,622 35,467,660 2,682,315
----------------- --------------- ---------------
Income (loss) from operations 1,687,490 2,164,797 (53,235)
Other income (expense)
Interest income 263,179 80,944 94,594
Interest expense (1,493,539) (1,210,191) (76,631)
Other income 167,056 61,000 -
Other expense - - (2,253)
----------------- --------------- ---------------
Total other (expense) income (1,063,304) (1,068,247) 15,710
----------------- -------------- --------------
Income (loss) before income taxes 624,186 1,096,550 (37,525)
Income taxes
Current tax expense - 106,924 -
Deferred tax (benefit) - (106,924) -
----------------- --------------- ---------------
Total income tax expense (benefit) - - -
----------------- --------------- ---------------
Net income (loss) $ 624,186 $ 1,096,550 $ (37,525)
================= =============== ===============
Basic and Diluted earnings (loss) per common share $ 0.56 $ 0.98 $ (0.03)
================= =============== ===============
Weighted average common shares outstanding 1,121,250 1,121,250 1,125,000
================= =============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------
COMMON STOCK
PAR VALUE $.01
---------------------------
ADDITIONAL
PREFERRED ISSUED PAID-IN RETAINED
STOCK SHARES AMOUNT CAPITAL DEFICIT
-------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1996 $- 1,125,000 $ 11,250 $ 8,063,445 $ (7,374,937)
Common stock acquisition and retirement (3,750) (38) (49,962)
Net loss (37,525)
-------------- ------------ ------------- -------------- --------------
Balance at March 31, 1997 - 1,121,250 11,212 8,013,483 (7,412,462)
Net income 1,096,550
-------------- ------------ ------------- -------------- --------------
Balance at March 31, 1998 - 1,121,250 11,212 8,013,483 (6,315,912)
Preferred stock issued in conversion of 4,176,693
debt (4,176,693 shares, $1/share)
Net income 624,186
-------------- ------------ ------------- -------------- --------------
Balance at March 31, 1999 $ 4,176,693 1,121,250 $ 11,212 $ 8,013,483 $ (5,691,726)
============== ============ ============= ============== ==============
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED MARCH 31,
-------------------------------------------------
1999 1998 1997
----------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 624,186 $ 1,096,550 $ (37,525)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation 38,847 19,475 29,959
Amortization of loan costs to interest expense 118,362 169,557 -
Amortization of capital lease 11,165 - -
Write off of bad debt 71,472 81,900 -
Gain on sale of building - (61,690) -
Provision for impairment - 3,891,911 -
(Increase) decrease in:
Restricted cash (14,317) 586,105 (4,000)
Accounts receivable (598,887) 237,511 (320,954)
Shareholder receivable 548,795 (1,377,657) 614,862
Notes receivable 387,592 (371,990) 92,498
Receivable from affiliate - 872,090 (872,090)
Real estate under development:
Additions to real estate inventories (8,940,739) (34,115,795) (4,521,368)
Capitalized interest and real estate taxes (1,784,057) (2,816,879) (1,167,574)
Cost of sales, including amortization of capitalized
interest and real estate taxes 31,147,530 22,666,851 -
Deferred tax asset - (106,924) -
Other assets 973,703 (1,209,299) (614,142)
(Decrease) increase in:
Trade payable and other liabilities (1,880,818) 1,302,035 903,035
Customer deposits (2,343,056) 1,754,552 4,000
Deferred revenue (217,934) 317,934 -
Interest payable (2,286,367) (66,025) 939,621
----------------- --------------- --------------
Net cash provided by (used in) operating activities 15,855,477 (7,129,788) (4,953,678)
----------------- --------------- --------------
Cash flows from investing activities:
Purchase of fixed assets (194,496) (13,290) (162,463)
Sale of building - 564,884 -
Cash acquired in acquisition of Grove Hill, Ltd. - 935,308 -
----------------- --------------- --------------
Net cash (used in) provided by investing activities (194,496) 1,486,902 (162,463)
----------------- --------------- --------------
Cash flows from financing activities:
New borrowings 18,136,761 26,881,503 9,249,925
Payments on loans (37,410,591) (17,850,094) (1,218,000)
Purchase of treasury stock - - (50,000)
Cash overdraft 44,704 - -
----------------- --------------- --------------
Net cash (used in) provided by financing activities (19,229,126) 9,031,409 7,981,925
----------------- --------------- --------------
Net (decrease) increase in cash (3,568,145) 3,388,523 2,865,784
Cash and cash equivalents at beginning of year 6,376,178 2,987,655 121,871
----------------- --------------- --------------
Cash and cash equivalents at end of year $ 2,808,033 $ 6,376,178 $ 2,987,655
================= =============== ==============
Supplemental Disclosure
Non-monetary transactions:
Conversion of debt to equity
Notes payable $ (3,597,474) $ - $ -
Interest payable (579,219) - -
Preferred stock 4,176,693 - -
Assumption of debt
Notes payable - (3,597,474) -
Acquisition of Grove Hill, Ltd. - 3,597,474 -
----------------- --------------- --------------
$ - $ - $ -
================= =============== ==============
Interest paid (net of amount capitalized) $ 990,245 $ 1,315,377 $ -
================= =============== ==============
Taxes paid $ 320,375 $ - $ -
================= =============== ==============
Asset acquired under capital lease $ 111,654 $ - $ -
================= =============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. BUSINESS AND ORGANIZATION
Terremark Holdings, Inc. (formally known as Terremark Investment
Services, Inc.) and its subsidiaries (the Company), are engaged
in project management, development, construction, sales, leasing,
management and financing of various real estate projects. The
Company was founded in 1982.
The Company has developed and is selling condominium units in
Fortune House, a 29 story, 296 unit residential condominium
building in the Brickell Avenue area of Miami, Florida. The
Company purchased a controlling interest in the Grove Hill, Ltd.
partnership effective April 15, 1997. This partnership developed a
77 unit multi-story residential condominium building in Coconut
Grove, Florida, of which, four units remain to be sold at March
31, 1999.
Under various project management agreements, the Company is
overseeing development of the following real estate projects in
the Miami-Dade County area: (a) Four Seasons Hotel and Tower, a
1.4 million square foot, mixed-use urban living center in the
Brickell Avenue area, consisting of hotel, office, residential
condominium, retail, sports club and interval ownership
components; (b) 150 Alhambra, a major renovation of a landmark
Coral Gables office building; (c) Royal Palm Doral Center III, a
110,000 square foot office building overlooking the Doral Golf
Course; (d) Galloway Medical Park II, a 30,000 square foot medical
office building in west Miami-Dade County and (e) a major
mixed-use project on an assemblage of land in the Brickell Avenue
area. As of March 31, 1999, the assemblage totaled 7.9 acres, with
an additional 2.9 acres under contract.
The Company currently has over 1.5 million square feet of
commercial and residential property under management in South
Florida. It is the leasing, management and/or sales agent for
Terremark Centre, SunTrust International Center, 150 Alhambra,
Snapper Creek Medical Center, Royal Palm Doral Center I and III,
Galloway Medical Park I and II, The Four Seasons Hotel and Tower,
Fortune House, Grove Hill, and Fortune House Condo Association.
The Company has been retained to provide mortgage brokerage
services for construction and/or permanent financing of
approximately $260 million for The Four Seasons Hotel and Tower,
Galloway Medical Park I and II, and Royal Palm Doral Center III.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting principles and
practices used in the preparation of the consolidated financial
statements follows.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company's consolidated financial statements include the Company's
wholly-owned subsidiaries, including Terremark Group, Inc.,
Terremark Development, Inc., Terremark Realty, Inc., Terremark
Management Services, Inc., Terremark Financial Services, Inc.,
Terremark Construction Services, Inc. and Terremark Brickell,
Inc. All significant intercompany balances and transactions are
eliminated in consolidation.
The accounts of Grove Hill, Ltd., whose General Partner is also a
shareholder of the Company, are also consolidated in these
financial statements. The Company acquired a 49.5% interest in
Grove Hill through the assumption of a $3,597,473 note due to a
financial institution. At the time of acquisition the only
significant assets of Grove Hill were 32 completed condominium
units held for sale. The fair value of the liabilities assumed of
$25,166,415 were greater than the fair value of the assets, and as
a result an impairment of $3,891,911 was recorded. The Company
also controls the partnership through a voting agreement, and is
responsible for funding 100% of its cash deficits, and is
allocated all of Grove Hill's losses.
USE OF ESTIMATES
The Company prepares its financial statements in conformity with
generally accepted accounting principles. These principles require
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," effective January 1, 1998.
At March 31, 1999 and 1998, the Company had no comprehensive
income.
REVENUE AND PROFIT RECOGNITION
Revenues from construction and development activities are
recognized on a completed contract basis. The related profit is
recognized in full when collectibility of the sale price is
reasonably assured and the earnings process is substantially
complete. Revenues and expenses related to the leasing,
management, and financing activities are recognized at the time
service is provided.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all amounts held in highly liquid
instruments with an original purchased maturity of three months or
less to be cash equivalents. Cash and cash equivalents include
cash balances maintained in the operating and interest-bearing
money market accounts at the Company's banks. Restricted cash
includes escrowed cash balances for tenant security deposits.
FURNITURE AND EQUIPMENT, NET
Furniture and equipment include acquired assets and those
accounted for under a capital lease. These assets are depreciated
on a straight-line method over their estimated remaining useful
lives, which range from 3 to 5 years. In 1999, depreciation
expense of $50,012 includes $11,165 of amortization expense
associated with a capital lease asset.
REAL ESTATE INVENTORIES AND COST OF REAL ESTATE SOLD
Real estate inventories consist of completed condominiums and
condominiums under development. Real estate inventories, including
capitalized interest and real estate taxes, are carried at the
lower of cost or fair value determined by evaluation of individual
projects. Acquisition, development, interest and other indirect
costs related to acquisition and development of real estate
projects are capitalized. The capitalized costs are being charged
to earnings as the related revenue is recognized. Sales and
marketing costs and the carrying costs of condominium units
completed and held for sale are expensed as incurred. Total land,
development, and common costs are apportioned on the relative
sales value method for each project.
The Company subcontracts construction to third parties and the
construction contracts require subcontractors to repair or replace
deficiencies related to their trade.
Whenever events or circumstances indicate that the carrying value
of the real estate inventories may not be recoverable, impairment
losses are recorded and the related assets are adjusted to their
estimated fair market value, less selling costs.
OTHER ASSETS
Other assets primarily consist of prepaid commissions, receivable
for income taxes, loan costs, utility advances and other prepaid
expenses. Loan costs, principally loan origination and related
fees, are deferred and amortized as interest expense over the life
of the respective loan using the straight-line method, which
approximates the effective interest method.
CUSTOMER DEPOSITS
Customer deposits represent amounts received from customers under
condominium sales contracts.
TRADE PAYABLE AND OTHER LIABILITIES
Trade payable and other liabilities includes obligations under
capital lease and license fees payable.
EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (EPS). This statement
supersedes Accounting Principles Board Opinion No. 15 and replaces
primary and fully diluted EPS with a dual presentation of basic
and diluted EPS. Basic EPS equals net income divided by the number
of weighted average common shares. Diluted EPS includes
potentially dilutive securities such as stock options and
convertible securities. At March 31, 1999, 1998 and 1997,
respectively, the Company had no potentially dilutive securities.
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Basic EPS Computation
Net income (loss) $ 624,186 $ 1,096,550 $ (37,525)
Weighted average common shares 1,121,250 1,121,250 1,125,000
--------------- --------------- -----------------
Basic earnings (loss) per common share $ 0.56 $ 0.98 $ (0.03)
=============== =============== =================
Dilutive EPS Computation
Net income (loss) $ 624,186 $ 1,096,550 $ (37,525)
Weighted average common shares 1,121,250 1,121,250 1,125,000
--------------- --------------- ----------------
Dilutive earnings (loss) per common share $ 0.56 $ 0.98 $ (0.03)
=============== =============== ================
</TABLE>
The computation of diluted EPS for 1999 excludes the convertible
preferred stock issued on March 31, 1999 because it is
antidilutive.
EMPLOYEE BENEFIT PLAN
The Company's benefit plan is a Defined Contribution and Profit
Sharing Plan ("401(K) Plan"). The 401(K) Plan is available to
employees on January 1st or July 1st who have completed one year
of service in which they worked at least 1,000 hours and attained
the age of 21. Employees may contribute up to 15% of annual
compensation to the maximum amount set by law. The Company may
make matching contributions to the 401(K) Plan on employee
contributions up to 8%, as determined by the Company. Vesting in
Company matching contributions is at a rate of 20% after two years
of service and 20% for each year thereafter. Company contributions
for fiscal years 1999, 1998 and 1997 were approximately $12,540,
$12,044 and $12,095, respectively.
INCOME TAXES
The Company recognizes income tax currently payable, as well as
deferred tax assets and liabilities resulting from temporary
differences, by applying enacted statutory tax rates applicable to
future years to differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. The
differences related primarily to the timing of recognition on
income from sale of real estate under development, including the
effects of the provision for impairment. Income recognition is
accelerated for tax under percentage of completion requirements.
The deferred tax asset represents the future tax return
consequences of these differences which reverse as real estate
sales are reported for financial statement purposes. Deferred
taxes are also recognized for operating losses and contribution
carryovers which are available to offset future taxable income.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 (FASB 131),
"Disclosures about Segments of an Enterprise and Related
Information", which became effective for years beginning after
December 15, 1997. FASB 131 establishes standards for the way that
public business enterprises report information about segments. The
Company believes it does not have any reportable segments.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (FASB 133),
"Accounting for Derivative Instruments and Hedging Activities."
FASB 133, as amended, becomes effective for years beginning after
June 15, 2000. FASB 133 requires all derivatives to be recorded on
the balance sheet at fair value. FASB 133 establishes the
accounting procedures for hedges that will affect the timing of
recognition and the manner in which hedging gains and losses are
recognized in the Company's financial statements. Derivatives that
are not hedges must be adjusted to fair value through income. If
derivatives are hedges, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or will be
recognized in other comprehensive income until the hedged item is
recognized in earnings. The Company has no derivative instruments.
3. REAL ESTATE INVENTORIES
Real estate inventories are summarized as follows:
MARCH 31,
---------------------------------
1999 1998
---------------- ---------------
Work in progress $ - $ 29,999,695
Completed inventories 14,662,428 7,203,156
---------------- ---------------
14,662,428 37,202,851
Less: impairment allowance (1,774,222) (3,891,911)
---------------- ---------------
$ 12,888,206 $ 33,310,940
================ ===============
As of March 31, 1999, 20 condominium units are under contract in
Fortune House and no units are under contract in the Grove Hill
project.
4. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
March 31,
------------------------
1999 1998
------------------------
<S> <C> <C>
Note receivable from a corporation, $200,000 $ 207,974 $ -
principal, interest accrues annually at 8%.
Interest and principal due upon demand.
Note receivable from a corporation, $439,900 - 439,900
principal, interest accrues annually at 9%.
Interest and principal due June 1998
Other notes receivable 129,076 284,742
---------- -----------
$ 337,050 $ 724,642
========== ===========
</TABLE>
5. OTHER ASSETS
Other assets consist of the following:
March 31,
----------------------------
1999 1998
------------ ---------------
Loan costs, net of accumulated amortization of $ 207,060 $ 228,326
$957,846 and $695,560
Prepaid commissions 71,531 1,204,596
Prepaid insurance 73,552 -
Receivable for income taxes 213,451 -
Other prepaid expenses 79,871 200
Deposits - 304,408
------------ ---------------
$ 645,465 $ 1,737,530
============ ===============
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Note payable to a commercial lender, secured by a first $ 7,217,557 $ 17,531,747
mortgage on the real estate. Principal payable in installments
as condominium units are sold. Interest accrues at prime,
payable through an interest reserve. Principal and unpaid
interest due November 2000, with an option for two six month
extensions guaranteed by majority shareholder.
Note payable to a commercial lender, payable in installments 1,124,999 3,145,000
as condominiums are sold with minimum annual principal
payments of $1.2 million. The loan matures in August 2002.
Interest at 1% over prime, payable monthly. Secured by the condominiums
guaranteed by majority shareholder.
Note payable to corporation in seventy-five monthly 288,000 -
installments of principal and interest beginning January 1,
1999. Interest accrues at 9.5%.
Line of credit facility with offshore financial institution. - 7,733,758
Interest accrues at 15% per annum. Outstanding balance and
unpaid accrued interest due October 1999.
Note payable to offshore financial institution due April 1999. - 3,597,474
Interest accrues at 8.21%, payable annually. Converted to
Preferred stock in 1999 - see Note 8
Other notes payable - 73,100
---------------- ----------------
$ 8,630,556 $ 32,081,079
================ ================
</TABLE>
At March 31, 1999 the Company has $10,000,000 available under the
line of credit facility.
Interest expense of $1,493,539, $1,210,191 and $76,631, net of
amounts capitalized to real estate inventories totaling
$1,657,948, $2,759,694 and $1,063,461, was recognized in fiscal
years 1999, 1998 and 1997, respectively.
The future maturities of the Company's borrowing as of March 31,
1999 are as follows:
2000 $ 8,390,556
2001 48,000
2002 48,000
2003 48,000
2004 48,000
Thereafter 48,000
----------------------
Total $ 8,630,556
======================
7. CONCENTRATION OF RISK
The Company has concentrated its credit risk for cash by
maintaining deposits in banks in excess of federally insured
limits. The maximum loss that would have resulted from the risk
totaled $2.6 million as of March 31, 1999 and $6.9 million as of
March 31, 1998, for the excess of the deposit liabilities reported
by the banks over the amounts that would have been covered by
federal insurance. The funds are on deposit in banks that have
extended credit to the Company in excess of the amounts at risk.
The Company business and customer base is primarily in the Miami,
Florida area. Consequently, any significant economic downturn in
this market could have an effect on the Company's business,
results of operations and financial condition.
8. PREFERRED STOCK
On March 31, 1999, the Company converted $3,597,474 of debt and
$579,219 in accrued interest payable into 4,176,693 shares of
Preferred Stock. The $1 par value preferred stock has a 10%
cumulative preferred dividend, payable annually commencing March
31, 2000. The preferred stock is convertible into common stock, at
the time of a merger transaction or beginning in 2002. The
conversion price is based on the fair market value of the common
stock at time of conversion. The stock has no voting rights and is
callable by the Company at 105% of par plus accumulated but unpaid
dividends beginning in 2002. Preferred stock has preference in
liquidation. At March 31, 1999, there were no cumulative unpaid
dividends.
9. TREASURY STOCK
During fiscal year 1997, the Company bought back 3,750 shares of
common stock and retired them upon acquisition.
10. INCOME TAXES
The deferred tax provision consists of income taxes relating to
differences between the tax bases of assets and liabilities and
their financial reporting amounts.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Excess of tax basis over book basis on real estate investment $ 31,934 $ 1,253,243
Charitable contributions 197,126 43,170
Deferred revenue (percentage of completion vs. completed contract) 309,547 186,989
Net operating loss carryforwards 694,178 -
Tax credits 245,780 245,780
-------------- --------------
Total deferred tax assets 1,478,565 1,729,182
Valuation allowance (1,371,641) (1,622,258)
-------------- --------------
Net deferred tax assets $ 106,924 $ 106,924
============== ==============
</TABLE>
The Company provides a valuation allowance against deferred tax
assets if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will
not be realized. The Company has established a valuation allowance
against deferred tax assets of $1,371,641 and $1,622,258 as of
March 31, 1999 and 1998, respectively since the Company has a
history of operating losses and in the near term does not expect
future taxable income. Accordingly, there is uncertainty regarding
their realizability.
Federal and State net operating loss carryforwards of
approximately $1,800,000 are available to offset future taxable
income and expire in 2019. Utilization of these net operating
losses may be limited if there is a significant change in
ownership.
The reconciliation between the statutory income tax provision and
the actual tax provision for the years ended March 31, 1999 and
1998 is shown as follows:
March 31,
-------------------------
1999 1998 1997
------- -------- -------
Rate reconciliation
Statutory rate 34.0% 34.0% (34.0%)
State income taxes, net of federal income 3.0% 3.0% (3.0%)
tax benefit
Realization of deferred tax asset previously (37.0%) (37.0%) -
subject to valuation allowance
Increase in valuation allowance - - 37.0%
------- -------- -------
Total 0.0% 0.0% 0.0%
======= ======== =======
11. COMMITMENTS AND CONTINGENCIES
LEASING ACTIVITIES
The Company leases space for its property management operations,
office equipment and furniture under operating leases. Equipment
is also leased under a capital lease which is summarized as
follows:
March 31,
--------------------------
1999 1998
---------- ---------
Equipment $ 111,654 $ -
Less: accumulated amortization 11,165 -
---------- ---------
Net capitalized leased asset $ 100,489 $ -
========== =========
At March 31, 1999, future minimum lease payments under operating
and capital leases having a remaining term in excess of one year
are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------------- -------------------
<S> <C> <C>
2000 $ 28,004 $ 51,678
2001 28,004 35,052
2002 28,004 -
2003 28,004 -
2004 11,668 -
------------------- -------------------
Total minimum lease payments 123,684 $ 86,730
===================
Amounts representing interest (24,029)
-------------------
Present value on net minimum lease payments $ 99,655
===================
</TABLE>
Occupancy lease expense amounted to $33,824, $0 and $0 for fiscal
years 1999, 1998 and 1997, respectively.
LITIGATION
The Company is a defendant in various lawsuits arising in the
ordinary course of business. Management, after consultation with
its legal counsel, believes its positions to be meritorious.
However, if the decisions are adverse, management does not believe
the outcome of these matters would have a material effect on the
consolidated financial statements.
CONTINGENT PROFIT
In January 1998, the Company acquired for approximately $10,000 an
interest in real estate. In August 1998, contemporaneously with
the sale of such interest for approximately $1.1 million, the
Company entered into an agreement with the buyer wherein the
Company is entitled to an additional development payment of $2.75
million plus a 10% cumulative return on the payment. The fee is
due once the buyer has recovered their invested capital plus a 10%
return. The Company also has a right to share in additional funds
distributed above these returns. While the Company has recognized
the gain from the sale, it has not recognized any income under the
development payment provisions as of March 31, 1999.
12. RELATED PARTY TRANSACTIONS
Due to the nature of the following relationships, the terms of the
respective agreements might not be the same as those which would
result from transactions among wholly unrelated parties. All
significant related party transactions require approval by the
Company's board of directors.
TERREMARK CENTRE
In 1994, the Company entered into a property management and real
estate brokerage services agreement with Terremark Centre, Ltd.
whose Partners share an officer with the Company. The Company
recorded as income, management fees of $320,964, $311,791 and
$301,214 and brokerage commissions of $456,789, $133,517 and
$167,522 in fiscal 1999, 1998 and 1997, respectively. In
connection with providing these services, the Company also
occupies space in the building rent free.
GROVE HILL, LTD.
In fiscal 1997, prior to its acquisition, the Company recognized
$814,950 in construction management revenue, $706,268 in real
estate brokerage revenue and $125,000 in development revenue to
Grove Hill, Ltd.
DEVELOPMENT FEES
The Company recorded development fee income from an affiliate in
the amount of $20,000 in fiscal 1999 and from a shareholder in the
amount of $120,000 in fiscal 1998.
MANAGEMENT FEES
Certain officers and executives of the Company own partnership
interests in One Merrick Way and Galloway Medical Park Associates,
Ltd., which owns Alhambra Center and Galloway Medical Park,
respectively. The Company provides management services to both
partnerships for a fee. Management fees earned totaled $243,000,
$0 and $0 for the years ended March 31, 1999, 1998 and 1997,
respectively.
In fiscal 1999, the Company provided management services to the
Fortune House Condominium Association. The Company recorded as
income $30,780 relating to the services performed.
13. SUBSEQUENT EVENTS
On December 22,1999, the Company acquired for approximately $56.0
million all partnership interests of Terremark Centre, Ltd.,
("TCL"). TCL is a single purpose entity and is fee simple owner of
a 294,000 square foot 21-story Class A office building with 1100
parking spaces and 16 townhouses on approximately 3.2 acres known
as Terremark Centre, located in Coconut Grove, Florida. The
acquisition was financed primarily through assumption of an
approximate $28.3 million first mortgage on Terremark Centre, and
issuance of approximately $27.1 million in purchase money notes to
the sellers. The purchase money notes are secured by all
partnership interests in TCL , an unrecorded second mortgage and a
pledge not to further encumber Terremark Centre.
On November 24, 1999, the Company entered into an agreement to
merge with AmTec, Inc. (AmTec), a public company, whereby all
outstanding shares of the Company will be exchanged for shares of
AmTec, the surviving company. The transaction is subject to
satisfaction of certain conditions and approval from AmTec's
shareholders. The Company anticipates the exchange will occur
prior to June 30, 2000 and intends to account for the merger under
the purchase method of accounting, with the Company treated as the
acquirer.
Prior to merger, the Company intends to sell Terremark Centre and
repay the existing first mortgage and purchase money notes.
Pursuant to an agreement dated November 24, 1999 between AmTec and
the purchase money notes holders, AmTec has agreed to sell a 35.0%
ownership interest in the merged company for all proceeds from
repayment of the purchase money notes. Subsequent to the merger
and the stock purchase transactions, the Company's shareholders
will hold 40% of the merged company.
The Company has also committed to provide AmTec with up to $1.5
million in bridge loans to assist AmTec in meeting its capital
requirements and working capital needs. If the merger is
unsuccessful, the loan is due five days from termination.
The following summarized unaudited Pro Forma financial information
includes the operations of the Company, which assumes that AmTec
was acquired on April 1, 1998 and 1997, respectively.
FOR THE YEARS ENDED MARCH 31,
1999 1998
------------------- -------------------
(UNAUDITED)
------------------- -------------------
Revenue $ 44,456,000 $ 37,632,000
Net Loss $ (16,338,000) $ (14,594,000)
These amounts include AmTec's actual results for the years ended
March 31, 1999 and 1998, respectively. In preparing the pro forma
information, various assumptions were made, and the
Company does not purport this information to be indicative of what
would have occurred had these transactions been made as of April
1, 1998 and 1997, nor is it indicative of the results of future
combined operations.
On December 17, 1999, the Company sold for approximately $1.2
million all assets of Grove Hill, Ltd., consisting primarily of
three condominium units. The purchaser paid $100,000 in cash,
assumed an existing first mortgage of approximately $740,000 and
provided the Company with a $360,000 purchase money second
mortgage. The Company continues to unconditionally guaranty
payment of the first mortgage and recognized a $33,316 loss on the
sale.
* * * * *
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, DECEMBER 31,
------------------- ----------------- -------------------
1999 1999 1998
------------------- ----------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Assets
Real estate inventories $5,316,889 $12,888,206 $16,188,370
Cash and cash equivalents 1,389,737 2,808,033 2,601,720
Restricted cash 281,307 31,317 31,328
Accounts receivable 1,074,856 589,578 1,722,629
Advance to shareholder - - 12,045
Deposit on real estate 500,000 - 100,000
Notes receivable 1,717,132 337,050 339,227
Furniture and equipment, net of accumulated
depreciation of $106,456, $52,679 and
$43,326, respectively 369,408 191,018 175,890
Real estate held for sale 55,850,000 - -
Deferred income tax asset - 106,924 106,924
Other assets 1,749,012 645,465 866,840
------------------- ----------------- -------------------
Total assets $68,248,341 $17,597,591 $22,144,973
=================== ================= ===================
Liabilities and Stockholders' Equity
Notes payable $60,517,660 $8,630,556 $15,761,659
Trade payable and other liabilities 3,415,270 1,734,281 1,599,288
Interest payable 752,182 387,696 697,828
Customer deposits 514,021 235,396 680,247
Deferred revenue - 100,000 100,000
------------------- ----------------- -------------------
65,199,133 11,087,929 18,839,022
------------------- ----------------- -------------------
Preferred stock, $1 par value 4,176,693 shares
authorized, issued and outstanding 4,176,693 4,176,693 -
Common stock, $.01 par value, 5,000,000
shares authorized, 1,121,250 shares issued
and outstanding 11,212 11,212 11,212
Paid in capital 8,013,483 8,013,483 8,013,483
Retained deficit (9,152,180) (5,691,726) (4,718,744)
Commitments and contingencies
------------------- ----------------- -------------------
3,049,208 6,509,662 3,305,951
------------------- ----------------- -------------------
Total liabilities and stockholders' equity $68,248,341 $17,597,591 $22,144,973
=================== ================= ===================
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
</TABLE>
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998
----------------------------- -------------------------
(UNAUDITED)
<S> <C> <C>
Revenues
Real estate sales $ 10,396,157 $ 37,518,060
Commission income 570,176 807,239
Development fees 1,025,000 463,333
Management fees 1,006,079 529,219
Construction fees 392,185 -
----------------------------- -------------------------
Operating revenues 13,389,597 39,317,851
----------------------------- -------------------------
Expenses
Cost of real estate sold 8,778,438 27,699,541
Construction expenses 321,832 -
General and administrative expenses 5,188,859 4,390,246
Sales and marketing expenses 1,751,897 4,730,943
Bad debt expense - 71,472
Depreciation 63,130 22,412
----------------------------- -------------------------
Operating expenses 16,104,156 36,914,614
----------------------------- -------------------------
(Loss) income from operations (2,714,559) 2,403,237
Other (expense) income
Interest income 185,814 187,607
Interest expense (613,478) (1,115,985)
Other (expense) income (4,979) 122,309
Dividend on preferred stock (313,252) -
----------------------------- -------------------------
Total other expense (745,895) (806,069)
----------------------------- -------------------------
(Loss) income before income taxes (3,460,454) 1,597,168
Income taxes
Current tax expense - -
Deferred tax expense - -
----------------------------- -------------------------
Total income tax expense - -
----------------------------- -------------------------
Net (loss) income (3,460,454) 1,597,168
Retained deficit at beginning of period (5,691,726) (6,315,912)
----------------------------- -------------------------
Retained deficit at end of period $ (9,152,180) $ (4,718,744)
============================= =========================
Basic and Diluted loss per common share $ (3.09) $ 1.42
============================= =========================
Weighted average common shares outstanding 1,121,250 1,121,250
============================= =========================
The accompanying notes are in integral part of these unaudited
consolidated financial statements.
</TABLE>
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998
----------------------------- -------------------------
(UNAUDITED)
<S> <C> <C>
Revenues
Real estate sales $ 2,279,364 $ 20,990,379
Commission income 440,095 172,833
Development fees 341,666 203,333
Management fees 365,837 226,299
Construction fees 358,852 -
----------------------------- -------------------------
Operating revenues 3,785,814 21,592,844
----------------------------- -------------------------
Expenses
Cost of real estate sold 1,695,550 14,607,746
Construction expenses 321,832 -
General and administrative expenses 2,549,979 1,491,042
Sales and marketing expenses 761,897 3,804,307
Depreciation 22,630 7,447
----------------------------- -------------------------
Operating expenses 5,351,888 19,910,542
----------------------------- -------------------------
(Loss) income from operations (1,566,074) 1,682,302
Other income (expense)
Interest income 86,118 8,803
Interest expense (194,662) (670,605)
Other (expense) income (94,382) 72,293
Dividend on preferred stock (104,417) -
----------------------------- -------------------------
Total other (expense) (307,343) (589,509)
----------------------------- -------------------------
(Loss) income before income taxes (1,873,417) 1,092,793
Income taxes
Current tax expense - -
Deferred tax expense - -
----------------------------- -------------------------
Total income tax expense - -
----------------------------- -------------------------
Net (loss) income (1,873,417) 1,092,793
Retained deficit at beginning of period (7,278,763) (5,811,537)
----------------------------- -------------------------
Retained deficit at end of period $ (9,152,180) $ (4,718,744)
============================= =========================
Basic and Diluted (loss) income per common share $ (1.67) $ 0.97
============================= =========================
Weighted average common shares outstanding 1,121,250 1,121,250
============================= =========================
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
</TABLE>
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
--------------------- ---------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (3,460,454) $ 1,597,168
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
Depreciation 63,130 22,412
Amortization of loan costs to interest expense 95,594 67,635
Write off of bad debt - 71,472
Write down of Terremark Centre 150,000 -
(Increase) decrease in:
Restricted cash (13,134) (14,328)
Accounts receivable (133,377) (1,731,938)
Shareholder receivable - 536,750
Real estate inventories:
Additions to real estate inventories (1,207,121) (8,792,914)
Capitalized interest and real estate taxes - (1,784,057)
Cost of sales, including amortization of capitalized
interest and real estate taxes 8,778,438 27,699,541
Notes receivable (255,082) 385,415
Deposits on real estate (500,000) (100,000)
Deferred tax asset 106,924 -
Other assets (82,488) 803,055
(Decrease) increase in:
Trade payables and other liabilities (276,927) (1,971,107)
Customer deposits (54,500) (1,898,205)
Deferred revenue (100,000) (217,934)
Interest payable 327,956 (1,976,235)
--------------------- ---------------------
Net cash provided by operating activities 3,465,227 12,696,730
--------------------- ---------------------
Cash flows from investing activities:
Receivable from AmTec (1,125,000) -
Purchase of fixed assets (241,520) (151,768)
Cash received in acquisition of Terremark Centre 10,250 -
--------------------- ---------------------
Net cash used in by investing activities (1,356,270) (151,768)
--------------------- ---------------------
Cash flows from financing activities:
New borrowings 2,230,000 11,511,426
Payments on loans (5,757,253) (27,830,846)
--------------------- ---------------------
Net cash provided by (used in) financing activities (3,527,253) (16,319,420)
Net increase (decrease) in cash (1,418,296) (3,774,458)
Cash and cash equivalents at beginning of period 2,808,033 6,376,178
--------------------- ---------------------
Cash and equivalents at end of period $ 1,389,737 $ 2,601,720
===================== =====================
Supplemental Disclosure
Interest paid (net of amount capitalized) $ 329,698 $ 1,364,324
===================== =====================
Taxes Paid $ 2,083 $ 276,652
===================== =====================
Assets acquired under capital lease $ 194,934 $ 111,654
===================== =====================
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Non-monetary transactions:
During the nine months ended December 31, 1999, the following assets and
liabilities related to Terremark Centre were acquired:
<S> <C>
Cash and cash equivalents..................................................... $ 10,250
Restricted cash............................................................... 263,124
Accounts receivable........................................................... 351,901
Other assets................................................................... 1,116,653
Real estate held for sale....................................................... 56,000,000
-------------------
Total assets acquired...................................................$ 57,741,928
===================
Trade payable and other liabilities............................................ .$ 1,957,916
Interest Payable.............................................................. 36,530
Customer deposits............................................................. 333,125
Notes Payable................................................................... 55,414,357
-------------------
Total liabilities assumed.............................................. $ 57,741,928
===================
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
1. BUSINESS AND ORGANIZATION
Terremark Holdings, Inc. (formally known as Terremark Investment
Services, Inc.) and its subsidiaries (the "Company"), founded in
1982, are engaged in project management, development,
construction, sales, leasing, management and financing of various
real estate projects.
2. BASIS OF PRESENTATION
The consolidated financial statements include the Company's wholly
owned subsidiaries and Grove Hill, of which the Company had
acquired 49.5% interest. The Company controlled the Grove Hill
partnership through a voting agreement, was responsible for
funding 100% of its cash deficit, and was allocated all of Grove
Hill's losses. All significant intercompany balances and
transactions are eliminated in consolidation.
The Company's financial information contained in the financial
statements and notes thereto as of December 31, 1999 and for the
nine month periods ended December 31, 1999 and 1998, is unaudited.
In the opinion of management, all adjustments necessary for the
fair presentation of such financial information have been
included. These adjustments are of a normal recurring nature.
There have been no changes in accounting policies since the year
ended March 31, 1999. The composition of accounts has not changed
significantly since March 31, 1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
Certain reclassifications have been made to the prior year's
financial statements to conform with the 1999 presentation. These
financial statements, footnotes and discussions should be read in
conjunction with the financial statements and related footnotes
and discussions contained in the Company's 1999 annual financial
statements.
The Company historically has experienced, and expects to
experience, variability in quarterly results. The consolidated
statement of operations for the nine months ended December 31,
1999 is not necessarily indicative of the results to be expected
for the full year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
3. AMTEC TRANSACTION
On November 24, 1999, the Company entered into an agreement to
merge with AmTec, (AmTec), a public company, whereby all
outstanding shares of the Company will be exchanged for shares of
AmTec, the surviving company. The transaction is subject to
satisfaction of certain conditions and approval from AmTec's
shareholders. The Company anticipates the exchange will occur
prior to June 30, 2000 and intends to account for the merger under
the purchase method of accounting, with the Company treated as the
acquirer.
Prior to merger, the Company intends to sell Terremark Centre and
repay the existing first mortgage and purchase money notes (Note
6). Pursuant to an agreement dated November 24, 1999 between AmTec
and the purchase money note holders, AmTec has agreed to sell a
35.0% ownership interest in the merged company for all proceeds
from repayment of the purchase money notes. Subsequent
to the merger and the stock purchase transactions, the Company's
shareholders will hold 40% of the merged company.
The Company has also committed to provide AmTec with up to $1.5
million in bridge loans to assist AmTec in meeting its capital
requirements and working capital needs. If the merger is
unsuccessful, the loans will be due five days from termination. As
of December 31, 1999, approximately $1.1 million has been funded
under the Company's commitment and is included in notes
receivable.
4. REAL ESTATE INVENTORIES
Real estate inventories are summarized as follows:
DECEMBER 31,
-------------------------------------------
1999 1998
------------------- -------------------
Completed condominiums $ 5,316,889 $ 18,406,148
Less: impairment allowance -- (2,217,778)
------------------- -------------------
$ 5,316,889 $ 16,188,370
=================== ===================
As of December 31, 1999 and 1998, 4 and 18 units, respectively,
are under contract in Fortune House.
On December 17, 1999, the Company sold for approximately $1.2
million the remaining three condominium units in the Grove Hill
project. The purchaser paid $100,000 in cash, assumed an existing
first mortgage of approximately $740,000 and provided the Company
with a $360,000 second mortgage. The Company continues to
unconditionally guaranty payment of the first mortgage and
recognized a $33,316 loss on the sale.
5. REAL ESTATE HELD FOR SALE
On December 22, 1999, the Company acquired for approximately $56.0
million all partnership interests of Terremark Centre, Ltd.
("TCL"). TCL is a single purpose entity and is fee simple owner of
a 294,000 square foot 21-story Class A office building with 1100
parking spaces and 16 townhouses on approximately 3.2 acres known
as Terremark Centre, located in Coconut Grove, Florida. The
acquisition was financed through primarily assumption of a first
mortgage of approximately $28.3 million on Terremark Centre and
issuance of approximately $27.1 million in purchase money notes to
the sellers.
6. NOTES PAYABLE
Notes payable at December 31, 1999 consists primarily of a $28.3
million first mortgage payable to a commercial lender and $27.1
million in purchase money notes secured by TCL's partnership
interests, an unsecured second mortgage and a pledge not to
further encumber Terremark Centre for the acquisition of Terremark
Centre, Ltd. The first mortgage accrues interest at 7.74% per
annum payable monthly and requires monthly principal payments and
interest of $254,000 with the remaining balance of $27.1 million
due at maturity in May 2001. The purchase money notes accrue
interest at the greater of 7% per annum or $1 million payable at
the earlier of the sale of the building or December 31, 2000.
7. TAXES
The deferred tax provision consists of income taxes relating to
differences between the tax bases of assets and liabilities and
their financial amounts.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Excess of tax basis over book basis on real estate investment $ 296,756 $ 507,383
Charitable contributions 204,182 158,637
Deferred revenue (percentage of completion vs. completed
contract) 309,548 278,908
Other 12,894 11,696
Net operating loss carryforwards 1,422,443 83,620
Tax credits 245,780 245,780
---------------- ---------------
Total deferred tax asset 2,491,603 1,286,024
Valuation allowance (2,491,603) (1,179,100)
---------------- ---------------
Net deferred tax asset $ - $ 106,924
================ ===============
</TABLE>
The Company provides a valuation against deferred tax assets if,
based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be
realized. The Company has established a valuation allowance
against deferred tax assets of $2,491,603 and $1,179,100 as of
December 31, 1999 and 1998, respectively, since the Company has a
history of operating losses and in the near term does not expect
future taxable income. Accordingly, there is uncertainty regarding
their realizability.
Federal and State net operating loss carryforwards of
approximately $3,700,000 are available to offset future taxable
income and expire in 2019. Utilization of these net operating
losses may be limited if there is a significant change in
ownership.
The reconciliation between the statutory income tax provisions and
the actual tax provision for the periods ended December 31, 1999
and 1998 is shown as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------ --------
<S> <C> <C>
Rate reconciliation
Statutory rate (34.0%) 34.0%
State income taxes, net of federal income tax benefit (3.0%) 3.0%
Realization of deferred tax asset previously subject to
valuation allowance -- (37.0%)
Increase in valuation allowance 37.0% --
-------- ---------
Total 0.0% 0.0%
======== =========
</TABLE>
8. SUBSEQUENT EVENTS
In March, 2000, the Company received and accepted a letter of
intent from a third party buyer to purchase Terremark Centre,
subject to due diligence and negotiation. Management believes the
buyer has financial resources to complete the transaction. The net
sales price is expected to be $55.85 million, which is $150,000
less than cost. The difference between cost and net expected
sales price is reflected as an expense in other income (expense)
in these financial statements.
Centre Credit Corporation, a foreign lender and investor, owns
approximately 4,176,693 shares of Terremark Holdings, Inc.'s 10%
cumulative convertible preferred stock. CCC's basis in the stock
is $1.00 per share plus accrued dividends. It has agreed to enter
into agreements with certain members of Terremark's management to
sell the stock for approximately $4.2 million in total. These
agreements will close only if and when the merger closes.
The Company has agreed to acquire all outstanding stock of Telecom
Real Estate Exchange Developers, Inc. (T-REX) in exchange for
eight million shares of the post merged company of Terremark and
AmTec, assuming the merger is consummated by December 31, 2000.
T-REX's business is to provide operational support and development
expertise in exchange for fees and a minority interest in profits
to entities involved in acquiring, developing, renovating,
managing and operating real property used as telecommunications
routing exchange facilities. The post merged company will employ
T-REX's two current shareholders.
On March 10, 2000, the Company acquired the Riviera Hotel in Fort
Lauderdale, Florida. The acquisition price was $8.0 million and
was paid using a portion of a $15.0 million commercial bank line
of credit at an interest rate of prime plus 1% for a term of one
year. A principal shareholder is a co-maker of the line of credit.
Undrawn amounts may be used for working capital purposes. The
Company plans to demolish the existing hotel and replace it with a
luxury condominium hotel containing 280 units.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Terremark Centre, Ltd.
We have audited the accompanying historical statement of revenue and
certain expenses of Terremark Centre, described in Note 1, for the period
from January 1, 1999 to December 22, 1999 and for the years ended December
31, 1998 and 1997. This historical statement is the responsibility of
Terremark Centre, Ltd.'s management. Our responsibility is to express an
opinion on this historical statement 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 historical statement is free
of material misstatement. An audit includes examining, on a test bases,
evidence supporting the amounts and disclosures in the historical
statement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall presentation of the historical statement. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying historical statement was prepared for the purpose of
complying with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission (for inclusion in the Proxy Statement of AmTec, Inc.) as
described in Note 2 and is not intended to be a complete presentation of
Terremark Centre's revenues and expenses.
In our opinion, the historical statement referred to above presents fairly,
in all material respects, the revenue and certain expenses of Terremark
Centre, described in Note 2, for the period from January 1, 1999 to
December 22, 1999 and for the years ended December 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
December 22, 1999
<TABLE>
<CAPTION>
TERREMARK HOLDINGS, INC.
TERREMARK CENTRE
STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FROM JANUARY
1, 1999 FOR THE YEARS ENDED
TO DECEMBER 22, DECEMBER 31,
----------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
REVENUES
Rental income $ 6,263,757 $ 6,351,692 $ 6,193,843
Recoveries from tenants 746,165 673,469 567,511
Other rent 447,583 439,695 411,611
Miscellaneous income 73,790 62,665 62,961
------------------- ------------------- -------------------
Total revenue 7,531,295 7,527,521 7,235,926
------------------- ------------------- -------------------
EXPENSES
Operating and maintenance 2,737,530 2,637,836 2,542,538
Interest expense 2,331,099 2,287,904 2,340,850
Real estate taxes 1,323,001 1,129,228 309,922
------------------- ------------------- -------------------
Total expenses 6,391,630 6,054,968 5,193,310
Revenue in excess of certain expenses $ 1,139,665 $ 1,472,553 $ 2,042,616
=================== =================== ===================
</TABLE>
The accompanying notes are an integral part of this financial
statement.
TERREMARK HOLDINGS, INC.
TERREMARK CENTRE
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
1. OPERATIONS AND ACQUISITION OF TERREMARK CENTRE
The accompanying statement of revenue and certain expenses relates
to the operations of Terremark Centre (the "Property"), a 294,000
square foot 21-story Class A office building with 1100 parking
spaces and 16 townhouses on approximately 3.2 acres in Coconut
Grove, Florida. The property is owned by Terremark Centre, Ltd. a
Florida Limited Partnership.
On December 22, 1999, Terremark Holdings, Inc. acquired for
approximately $56.0 million all partnership interests of Terremark
Centre, Ltd. The acquisition was financed primarily through
assumption of an approximate $28.3 million first mortgage note and
the giving of purchase money notes totaling $27.1 million which
are secured by a pledge not to further encumber the Property and a
pledge of partnership interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying statement of revenue and certain expenses has
been prepared on the accrual basis of accounting.
The accompanying financial statement is not representative of the
actual operations for the periods presented as certain revenues
and expenses, which may not be comparable to the revenues and
expenses expected to be earned or incurred by Terremark Holdings,
Inc. in future operations of the Property, have been excluded.
Revenues excluded consist of interest and other revenues unrelated
to the continuing operations of the Property. Expenses excluded
consist of depreciation and other general and administrative
expenses not directly related to the future operations of the
Property.
Income Recognition
Rental income is recorded on the straight line basis over the term
of the related lease, including option periods.
Concentration of Risk
The Property is located in Coconut Grove, Florida. The principal
competitive factors in this market are price, location, quality of
space and amenities. The Property represents a small portion of
the total similar space in the market and competes with other
properties for tenants. For the period from January 1, 1999
through December 22, 1999 and for the years ended December 31,
1998 and 1997, four tenants accounted for approximately 50% of the
combined base rents.
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 reported amount of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
=====================================================================
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
TERREMARK HOLDINGS, INC.
AND
AMTEC, INC.
Dated as of November 24, 1999
=====================================================================
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER.....................................................1
1.1. The Merger........................................................1
1.2. Conversion of Stock...............................................2
1.3. Surrender of Certificates.........................................2
1.4. Fractional Shares.................................................3
1.5. Stock Options.....................................................3
1.6. Certificate of Incorporation of the Surviving
Corporation.......................................................3
1.7. By-Laws of the Surviving Corporation..............................4
1.8. Directors and Officers of the Surviving Corporation...............4
1.9. Closing...........................................................4
1.10.Appraisal Rights..................................................4
1.11.Sale of Additional Shares.........................................4
ARTICLE II REPRESENTATIONS AND WARRANTIES.................................5
2.1. Representations and Warranties of the Company.....................5
(a) Due Organization, Good Standing and Corporate
Power........................................................5
(b) Authorization and Validity of Agreement......................5
(c) Capitalization...............................................6
(d) Consents and Approvals; No Violations........................7
(e) Company Reports and Financial Statements.....................7
(f) Absence of Certain Changes...................................8
(g) Title to Properties; Encumbrances............................9
(h) Compliance with Laws.........................................9
(i) Litigation...................................................9
(j) Government Authorization....................................10
(k) Opinion of Financial Advisor................................10
(l) Takeover Statutes and Charter Provisions....................10
(m) Employee Benefit Plans......................................10
(n) Insurance...................................................11
(o) Casualties..................................................12
(p) Propriety of Past Payments..................................12
(q) Employment Relations and Agreements.........................12
(r) Client Relations............................................13
(s) Sufficiency of Assets.......................................13
(t) Contracts and Commitments...................................13
(u) Disclosure Documents........................................13
(v) Full Disclosure.............................................14
2.2. Representations and Warranties of Terremark......................14
(a) Due Organization; Good Standing and Corporate
Power.......................................................14
(b) Authorization and Validity of Agreement.....................14
(c) Capitalization..............................................15
(d) Consents and Approvals; No Violations.......................16
(e) Real Property...............................................16
(f) Leases......................................................17
(g) Contracts and Commitments...................................17
(h) Insurance...................................................17
(i) Casualties..................................................18
(j) Propriety of Past Payments..................................18
(k) Financial Statements; Absence of Certain
Changes.....................................................18
(l) Sufficiency of Assets.......................................19
(m) Information in Disclosure Documents and
Registration Statement......................................19
(n) Broker's or Finder's Fee....................................20
(o) Compliance with Laws........................................20
(p) Litigation..................................................20
(q) Government Authorization....................................20
(r) Employee Benefit Plans......................................21
(i) List of Plans..........................................21
(ii) Status of Plans........................................21
(iii)Contributions..........................................21
(iv) Tax Qualification......................................21
(v) Transactions...........................................21
(vi) Documents..............................................22
(s) Employment Relations and Agreements.........................22
(t) Client Relations............................................22
(u) Environmental Laws and Regulations..........................22
(v) Full Disclosure.............................................23
ARTICLE III ADDITIONAL AGREEMENTS.........................................23
3.1. Access to Information Concerning Properties and
Records..........................................................23
3.2. Confidentiality..................................................24
3.3. Registration Statement...........................................24
3.4. Conduct of the Business Pending the Effective Time...............24
3.5. Company Stockholder Meeting; Proxy Statement; Form
S-4..............................................................25
3.6. Stock Exchange Listing...........................................26
3.7. Reasonable Best Efforts..........................................26
3.8. Supplemental Disclosure..........................................26
3.9. Officers' and Directors' Insurance; Indemnification..............26
3.10.Letters of Company's Accountants.................................27
3.11.Takeover Statutes................................................27
3.12.U.S. Real Property Holding Company Covenant......................27
ARTICLE IV CONDITIONS PRECEDENT TO MERGER................................28
4.1. Conditions Precedent to Obligations of Terremark and
the Company......................................................28
(a) Approval of Company's Stockholders..........................28
(b) Registration Statement......................................28
(c) Litigation..................................................28
(d) Injunction..................................................28
(e) Statutes....................................................28
(f) AMEX Listing................................................29
4.2. Conditions Precedent to Obligations of Terremark.................29
(a) Accuracy of Representations and Warranties..................29
(b) Performance by Company......................................29
(c) Tax Opinion Letter..........................................29
(d) Letters of Company Accountants..............................29
(e) Employment Agreement........................................29
(f) Stock Purchase Agreement....................................30
4.3. Conditions Precedent to Obligation of the Company................30
(a) Accuracy of Representations and Warranties..................30
(b) Performance by Terremark....................................30
(c) Letters of Terremark Accountants............................30
(d) Lock Up Letters.............................................30
ARTICLE V TERMINATION AND ABANDONMENT...................................31
5.1. Termination......................................................31
5.2. Effect of Termination............................................31
ARTICLE VI MISCELLANEOUS.................................................32
6.1. Fees and Expenses................................................32
6.2. Negotiations.....................................................32
6.3. Survival of Representations and Warranties.......................34
6.4. Extension; Waiver................................................34
6.5. Public Announcements.............................................34
6.6. Notices..........................................................34
6.7. Entire Agreement; Severability...................................35
6.8. Binding Effect; Benefit; Assignment..............................36
6.9. Amendment and Modification.......................................36
6.10.Further Actions..................................................36
6.11.Interpretation; Headings.........................................36
6.12.Counterparts.....................................................37
6.13.Applicable Law...................................................37
6.14.Severability.....................................................37
6.15."Person" Defined.................................................37
DEFINITIONS
Page
----
Acquisition Proposal (Section 6.2(a)).......................................34
- -------------------------------------
Affiliate (Section 4.3(d))..................................................32
Agents (Section 3.2)........................................................25
Agreement (Preamble).........................................................1
AMEX (Section 1.4)...........................................................3
- ------------------
Certificate of Merger (Section 1.1(a)).......................................1
- --------------------------------------
Closing (Section 1.9)........................................................4
- ---------------------
Closing Date (Section 1.9)...................................................4
- --------------------------
Commission (Section 2.1(e))..................................................7
- ---------------------------
Commission Filings (Section 2.1(e))..........................................8
- -----------------------------------
Common Stock (Section 1.2(a))................................................2
- -----------------------------
Company (Preamble)...........................................................1
Company Benefit Plans (Section 2.1(m)(i))...................................11
Company Proxy Statement (Section 2.1(u))....................................14
- ----------------------------------------
Company Stock Option (Section 1.5)...........................................3
- ----------------------------------
Company Stock Option Plans (Section 1.5).....................................3
- ----------------------------------------
Company Stockholders Approval (Section 2.1(b))...............................6
- ----------------------------------------------
DGCL (Section 1.1(a))........................................................1
- ---------------------
EC Merger Regulation (Section 2.1(j)).......................................10
- -------------------------------------
Effective Time (Section 1.1(a))..............................................1
- -------------------------------
Environmental Laws (Section 2.2(u)(i))......................................23
ERISA (Section 2.1(m)(i))...................................................11
ERISA (Section 2.2(r)(i))...................................................22
Exchange Act (Section 2.1(d))................................................7
- -----------------------------
FBCA (Section 1.1(a))........................................................1
- ---------------------
Foregone Commission (Section 6.2(e))........................................35
Form S-4 (Section 2.1(u))...................................................14
- -------------------------
Hazardous Material Section 2.2(a)1))........................................23
HSR Act (Section 2.1(d)).....................................................7
- ------------------------
Knowledge (Section 2.1(i))..................................................10
-----------------
Material Adverse Effect (Section 2.1(a)).....................................5
- ----------------------------------------
Maximum Amount (Section 3.9)................................................28
- ----------------------------
Merger (Preamble)............................................................1
- -----------------
Merger Consideration (Section 1.2(c))........................................2
- -------------------------------------
Notice of Superior Proposal (Section 6.2(b))................................34
- --------------------------------------------
Partners (Section 1.11)......................................................4
Permits (Section 2.1(h))....................................................10
Person (Section 6.15).......................................................39
- ---------------------
Post Merger Common Stock (Section 1.2(a))....................................2
- -----------------------------------------
Predecessor (Section 2.2(u)(ii))............................................24
- --------------------------------
Preferred Stock (Section 2.1(c)).............................................6
- --------------------------------
Proceeds (Section 1.11)......................................................4
Securities Act (Section 2.1(d))..............................................7
Stock Purchase Agreement (Section 4.2(f))...................................31
Subsidiary (Section 2.1(a))..................................................5
- ---------------------------
Superior Proposal (Section 6.2(a))..........................................34
- ----------------------------------
Surviving Corporation (Section 1.1(b)).......................................2
-----------------
Terremark (Preamble).........................................................1
Terremark Benefit Plans (Section 2.2(r)(i)).................................22
Terremark Common Stock (Section 1.2(b))......................................2
- ---------------------------------------
Terremark Financial Statements (Section 2.2(k)).............................19
- ------------------------------
Terremark Preferred Stock (Section 2.2(c))..................................15
- ------------------------------------------
Vista Green (Section 4.2(f))................................................31
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 24, 1999
("Agreement"), by and between Terremark Holdings, Inc., a Florida
corporation ("Terremark"), and AMTEC, INC., a Delaware corporation (the
"Company").
WHEREAS, Terremark desires to merge with and into the Company and the
Company desires that Terremark be merged with and into it, with the Company
being the surviving corporation;
WHEREAS, the respective Boards of Directors of Terremark and the
Company have approved the execution of this Agreement and the transactions
contemplated hereby including the merger of Terremark into the Company
pursuant to and subject to the terms and conditions of this Agreement and
the laws of the States of Delaware and Florida (the "Merger");
WHEREAS, the Directors of the Company have determined that the terms
of the Merger are in the best interests of, the holders of the issued and
outstanding capital stock of the Company, approved the Merger and recommend
the acceptance of the approval and adoption of this Agreement by the
stockholders of the Company; and
WHEREAS, the terms and conditions of the Merger and the mode of
carrying the same into effect are set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties, conditions and agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. (a) Subject to the terms and conditions of this
Agreement, at the time of the Closing (as defined in Section 1.9 hereof), a
certificate of merger (the "Certificate of Merger") shall be duly prepared,
executed and acknowledged by Terremark and the Company in accordance with
the General Corporation Law of the State of Delaware (the "DGCL") and the
Florida Business Corporation Act (the "FBCA") and shall be filed, together
with all other filings or recordings required by the DGCL and the FBCA to
be made in connection with the Merger, on the Closing Date (as defined in
Section 1.9 hereof). The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the
State of Delaware in accordance with the provisions and requirements of the
DGCL. The date and time when the Merger shall become effective is
hereinafter referred to as the "Effective Time."
(b) At the Effective Time, Terremark shall be merged with and
into the Company whereupon the separate corporate existence of Terremark
shall cease, and the Company shall continue as the surviving corporation
under the laws of the State of Delaware (the "Surviving Corporation").
(c) From and after the Effective Time, the Merger shall have
the effects set forth in Section 607.1106 of the FBCA and Section 259 of
the DGCL.
1.2. Conversion of Stock. At the Effective Time:
-------------------
(a) Each share of the common stock of the Company, $0.001 par
value (the "Common Stock") then issued and outstanding shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into and represent one share of common stock, $0.001 par value,
of the Surviving Corporation (the "Post Merger Common Stock") and any
rights to receive Common Stock (including options, warrants and convertible
preferred stock) shall automatically be converted to a right to receive an
equal number of the Post Merger Common Stock, such that, immediately after
the Effective Time, all holders of the Common Stock, together with the
holders of any rights to receive Common Stock shall, in the aggregate and
on a fully diluted basis, hold 38.5% of the Post Merger Common Stock of the
Surviving Corporation;
(b) Each share of common stock, par value $0.01 per share, of
Terremark (the "Terremark Common Stock") then issued and outstanding shall,
by virtue of the Merger and without any action on the part of the holder
thereof, become the right to receive fully paid and nonassessable shares of
the Post Merger Common Stock, such that, immediately after the Effective
Time, all holders of the Terremark Common Stock shall, in the aggregate and
on a fully diluted basis, hold 61.5% of the Post Merger Common Stock; and
(c) Each share of the Post Merger Common Stock issued as
provided in Sections 1.2 (a) and (b) shall be of the same class and shall
have the same terms as the currently outstanding Common Stock. The shares
of the Post Merger Common Stock to be received as consideration pursuant to
the Merger with respect to the Common Stock (together with cash in lieu of
fractional shares as set forth below) is referred to herein as the "Merger
Consideration."
1.3. Surrender of Certificates.
-------------------------
(a) At the Effective Time, each holder of a certificate or
certificates theretofore representing issued and outstanding shares of the
Terremark Common Stock may surrender such certificates to the Surviving
Corporation and receive in exchange therefor certificates representing the
appropriate number of shares of Post Merger Common Stock as provided in
Section 1.2. In the event that the share certificates for the shares in the
Surviving Corporation are to be registered to a holder other than the
registered owner of a surrendered certificate, it shall be a condition of
such issuance that the certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that all applicable
transfer and other similar taxes shall have been paid. Until so
surrendered, each such certificate shall, from and after the Effective
Time, represent for all purposes, only the right to receive the shares of
the Post Merger Common Stock.
(b) At the Effective Time, the share certificates theretofore
representing issued and outstanding shares of the Common Stock shall
automatically be deemed to represent the same number of shares of Post
Merger Common Stock.
(c) No dividends or other distributions with respect to shares
of the Post Merger Common Stock shall be paid to holders of any
certificates representing the shares of Terremark Common Stock not
surrendered as set forth in this Section 1.3. Subject to applicable laws,
following such surrender, there shall be paid, without interest, to the
record holder of the shares of the Post Merger Common Stock issued in
exchange therefor (i) at the time of such surrender, all dividends and
other distributions payable in respect of such Post Merger Common Stock
with a record date after the Effective Time and a payment on or prior to
the date of such surrender and not previously paid and (ii) at the
appropriate payment date, the dividends or other distributions payable with
respect to such Post Merger Common Stock with a record date after the
Effective Time but with a payment date subsequent to such surrender. For
the purposes of dividends or other distributions in respect of Post Merger
Common Stock, all shares of Post Merger Common Stock to be issued pursuant
to the Merger shall be entitled to dividends pursuant to the immediately
preceding sentence as if issued and outstanding as of the Effective Time.
1.4. Fractional Shares. No fractional shares of the Post Merger
Common Stock shall be issued in the Merger, but in lieu thereof, each
holder of the Terremark Common Stock shall be entitled to receive, in lieu
of the fractional shares, an amount of cash, without interest thereon
(rounded to the nearest whole cent), equal to the product of (i) such
fraction of a share of Post Merger Common Stock, multiplied by (ii) the
average of the closing prices of the shares of the Common Stock on the
American Stock Exchange (the "AMEX") as reported in The Wall Street Journal
(subject to correction for typographical or other manifest errors in such
reporting) over the ten trading-day period immediately preceding the
Closing Date.
1.5. Stock Options. (a) At the Effective Time, each outstanding
option to purchase Common Stock (a "Company Stock Option") granted under
the Company's plans identified in Schedule 1.5 as being the only
compensation or benefit plans or agreements pursuant to which Common Stock
may be issued (collectively, the "Company Stock Option Plans"), whether
vested or not vested, shall be deemed assumed by the Surviving Corporation
and shall thereafter be deemed to constitute an option to acquire, on the
same terms and conditions as were applicable under such Company Stock
Option prior to the Effective Date (in accordance with the past practice of
the Company with respect to interpretation and application of such terms
and conditions), the same number of shares of Post Merger Common Stock. In
addition, prior to the Effective Time, the Company will make any amendments
to the terms of such stock option or compensation plans or arrangements
that are necessary to give effect to the transactions contemplated by this
Agreement. The Company represents that no consents are necessary to give
effect to the transactions contemplated by this Section.
(b) Prior to the Effective Time, the Board of Directors of the
Company shall or shall cause the Plan Committee (as defined in the Company
Stock Option Agreements) to take all actions necessary to ensure that the
Merger will not result in (i) an acceleration of the vesting of any Company
Stock Options or (ii) a change in the number of shares for which
outstanding options are exercisable.
1.6. Certificate of Incorporation of the Surviving Corporation. The
Certificate of Incorporation of the Company, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation; provided, however, that it shall have been amended
to reflect that the total number of shares of capital stock that the
Company is authorized to issue is 300,000,000 shares of common stock.
1.7. By-Laws of the Surviving Corporation. The By-Laws of the
Company, as in effect immediately prior to the Effective Time, shall be the
By-Laws of the Surviving Corporation; provided, however, that the Directors
of the Surviving Corporation shall take all such action as is necessary to
increase the maximum number of directors of the Surviving Corporation to a
number which is not less than 13.
1.8. Directors and Officers of the Surviving Corporation. The Company
agrees to take all necessary actions so that, on the second Business Day
after the Effective Time, the Company's board of directors shall include
not less than seven persons designated by Terremark.
1.9. Closing. The closing of the Merger (the "Closing") shall take
place at the offices of Greenberg Traurig, P.A., 1221 Brickell Avenue,
Miami, Florida, as soon as practicable after the last of the conditions set
forth in Article IV hereof is fulfilled or waived (subject to applicable
law) but in no event later than the fifth business day thereafter, or at
such other time and place and on such other date as Terremark and the
Company shall mutually agree (the "Closing Date").
1.10. Appraisal Rights. In accordance with Section 262 of
the Delaware Law, no appraisal rights shall be available to holders
of shares of the Common Stock, in connection with the Merger.
1.11. Sale of Additional Shares. The parties to this Agreement hereby
acknowledge that Terremark at Bayshore, Inc., Terremark Centre, Inc. and
ACGDI, Inc. (each of which is a Florida corporation and which are
collectively referred to as the "Partners"), has sold to Terremark their
interests in Terremark Centre Limited, a Florida limited partnership, the
owner of certain real property referred to as the Terremark Centre located
at 2601 South Bayshore Drive, Coconut Grove, Florida, for a purchase price
equal to the difference between $56,000,000 and the (at the time of the
sale) outstanding principal balance of the first mortgage loan in favor of
Principal Mutual Insurance Company (the "Proceeds"). The Surviving
Corporation hereby agrees to, at the Effective Time, sell to the Partners,
or their assignees, for the Proceeds, such number of shares of Common Stock
as shall be equal, in the aggregate and on a fully diluted basis, to 35% of
the Post Merger Common Stock of the Surviving Corporation pursuant to that
certain Stock Purchase Agreement which shall be executed contemporaneously
herewith between the Company and Vistagreen Holdings (Bahamas), Ltd., a
Bahamian international business corporation. Upon the closing of this
Agreement and the Stock Purchase Agreement, the percentage ownership of the
holders of the Company Common Stock prior to the Effective Time shall be
25%, the percentage ownership of the Partners shall be 35%, and the
percentage ownership of the existing holders of the Terremark Common Stock
shall be 40%, each such percentage representing the respective ownership of
such persons of the Post Merger Common Stock.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1. Representations and Warranties of the Company. The
Company hereby represents and warrants to Terremark as follows:
(a) Due Organization, Good Standing and Corporate Power. Each
of the Company and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation and each such corporation has all requisite corporate
power and authority to own, lease and operate its properties and to carry
on its business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except in such jurisdictions where the failure to
be so qualified or licensed and in good standing would not have a Material
Adverse Effect on the Company. For the purposes of this Agreement,
"Material Adverse Effect" on any Person means a material adverse effect on
the business, properties, assets, liabilities, operations, results of
operations, condition (financial or otherwise) or prospects of the Person
and its Subsidiaries taken as a whole (i) except to the extent resulting
from (A) any change in general United States or global economic conditions
or general economic conditions in industries in which the Person competes,
or (B) the announcement of the transaction contemplated herein or any
action required to be taken pursuant to the terms hereof, and (ii) except
that the term Material Adverse Effect shall not include, with respect to
the Company (A) any decreases in the Company's stock price in and of itself
or (B) any deterioration in the Company's financial condition which is a
direct and proximate result of its agreements with Hebei United
Telecommunication Equipment Co. The Company has heretofore made available
to Terremark true and complete copies of the Certificate of Incorporation
and Bylaws (or equivalent documents), as amended to date, for itself and
each of its Subsidiaries and copies of the minutes of its Board of
Directors and committees of the Board of Directors (except as the same
relate to transactions contemplated hereby). The term "Subsidiary," as used
in this Agreement, refers to any Person in which the Company or Terremark,
as the case may be, owns any equity interest and shall include all joint
ventures.
(b) Authorization and Validity of Agreement. The Company has
full corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement by the Company, and the consummation by it of the transactions
contemplated hereby, have been duly authorized and approved by its Board of
Directors and no other corporate action on the part of the Company is
necessary to authorize the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby (other than the approval of this Agreement and the
Merger by the holders of a majority of the shares of Common Stock (the
"Company Stockholders Approval"), which is the only vote of the holders of
any equity interest in the Company necessary in connection with the
consummation of the Merger). This Agreement has been duly executed and
delivered by the Company and is a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles. The Company's Board of Directors, at a meeting duly
called and held, has, subject to the provisions of Section 6.2 hereof (i)
determined that this Agreement and the transactions contemplated hereby are
fair to and in the best interests of the Company's stockholders, (ii)
approved and adopted this Agreement and the transactions contemplated
hereby and authorized the execution of this Agreement, and (iii) resolved
to recommend approval and adoption of this Agreement and the Merger by its
stockholders.
(c) Capitalization. (i) The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock and 10,000,000
shares of preferred stock, $0.001 par value (the "Preferred Stock"). As of
the close of business on November 22, 1999, 36,271,689 shares of Common
Stock are issued and outstanding. Set forth on Schedule 2.2(c)(i) are (1)
the number of shares of Common Stock reserved for issuance pursuant to
outstanding Options granted under the Stock Incentive Plans, (2) the number
of such shares which have been issued under such Plans, (3) the number of
shares of Series G Preferred Stock issued and outstanding, and (4) the
number of warrants to purchase the indicated number of shares of Common
Stock. No shares of Common Stock are held in the Company's treasury. The
Series G Preferred Stock converts at the option of the holder into
1,688,022 shares of Common Stock, which number of shares of Common Stock
have been authorized and reserved for issuance by the Company. All issued
and outstanding shares of capital stock of the Company have been validly
issued and are fully paid and nonassessable, and are not subject to, nor
were they issued in violation of, any preemptive rights. Except as set
forth in this Section 2.1(c) or on Schedule 2.1(c) attached hereto, (x)
there are no shares of capital stock of the Company authorized, issued or
outstanding (except for shares subsequently issued pursuant to existing
options, warrants and other rights described in Section 2.1(c)) and (y)
there are not, as of the date hereof, and at the Effective Time there will
not be, any outstanding or authorized options, warrants, rights,
subscriptions, claims of any character, agreements, obligations,
convertible or exchangeable securities, or other commitments, contingent or
otherwise, relating to Common Stock or any other shares of capital stock of
the Company, pursuant to which the Company is or may become obligated to
issue shares of Common Stock, any other shares of its capital stock or any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of the capital stock of the Company.
(ii) Schedule 2.1(c)(ii) lists all of the Company's
Subsidiaries (as defined in Section 2.1(a) hereof). All of the outstanding
shares of capital stock of each of the Company's Subsidiaries have been
duly authorized and validly issued, are fully paid and nonassessable, are
not subject to, nor were they issued in violation of, any preemptive
rights, and are owned, of record and beneficially, by the Company, except
as otherwise set forth on Schedule 2.1(c)(ii), free and clear of all liens,
encumbrances, options or claims whatsoever. No shares of capital stock of
any of the Company's Subsidiaries are reserved for issuance and there are
no outstanding or authorized options, warrants, rights, subscriptions,
claims of any character, agreements, obligations, convertible or
exchangeable securities, or other commitments, contingent or otherwise,
relating to the capital stock of any Subsidiary of the Company, pursuant to
which such Subsidiary is or may become obligated to issue any shares of
capital stock of such Subsidiary or any securities convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of
such Subsidiary. Except for the Subsidiaries listed on Schedule 2.1(c)(ii),
the Company does not own, directly or indirectly, any capital stock or
other equity interest in any Person or have any direct or indirect equity
or ownership interest in any Person and, except as set forth in Schedule
2.1(c)(ii), neither the Company nor any of its Subsidiaries is subject to
any obligation or requirement to provide funds for or to make any
investment (in the form of a loan, capital contribution or otherwise) to or
in any Person. Schedule 2.1(c)(ii), sets forth the equity interests of each
such Subsidiary owned by the Company.
(d) Consents and Approvals; No Violations. Assuming (i)
compliance with any applicable requirements under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii)
compliance with any requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the
"Exchange Act") and any requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the
"Securities Act") relating to the Proxy Statement and registration of the
Post Merger Common Stock to be issued to holders of Terremark Common Stock
are met, (iii) the filing of the Certificate of Merger and other
appropriate merger documents, if any, as required by DGCL, and (iv)
approval of the Merger by a majority of the holders of Common Stock, is
received, the execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby
will not: (1) violate any provision of the Certificate of Incorporation or
By-Laws of the Company or any of its Subsidiaries; (2) violate any statute,
ordinance, rule, regulation, order or decree of any court or of any
governmental or regulatory body, agency or authority applicable to the
Company or any of its Subsidiaries or by which any of their respective
properties or assets may be bound; (3) require any filing with, or permit,
consent or approval of, or the giving of any notice to, any governmental or
regulatory body, agency or authority; or (4) result in a violation or
breach of, conflict with, constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries under, any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, agreement, lease, franchise
agreement or other instrument or obligation to which the Company or any of
its Subsidiaries is a party, or by which it or any of their respective
properties or assets may be bound, excluding from the foregoing clauses
(2), (3) and (4) filings, notices, permits, consents and approvals the
absence of which, and violations, breaches, defaults, conflicts and liens
which, in the aggregate, would not have a Material Adverse Effect on the
Company.
(e) Company Reports and Financial Statements. Since March 31,
1997, the Company has filed all forms, reports and documents with the
Securities and Exchange Commission (the "Commission") required to be filed
by it pursuant to the federal securities laws and the Commission rules and
regulations thereunder, and, except to the extent revised or superseded by
a subsequent filing filed with the Commission prior to the date hereof, all
forms, reports and documents filed with the Commission have complied in all
material respects with all applicable requirements of the federal
securities laws and the Commission rules and regulations promulgated
thereunder. The Company has heretofore made available to Terremark true and
complete copies of all forms, reports, registration statements and other
filings filed by the Company with the Commission since March 31, 1997 (such
forms, reports, registration statements and other filings, together with
any amendments thereto, are sometimes collectively referred to as the
"Commission Filings"). As of their respective dates, except to the extent
revised or superseded by a subsequent filing filed with the Commission
prior to the date hereof, the Commission Filings did not contain any 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 light of
the circumstances under which they were made, not misleading. Each of the
(i) consolidated balance sheets as of the end of the fiscal years ended
March 31, 1997, 1998 and 1999 and as of the end of the fiscal quarters
ended June 30, September 30, and December 31 of each such year, and (ii)
the consolidated statements of operations, consolidated statements of
stockholders' equity and consolidated statements of changes in financial
position for the fiscal years ended March 31, 1997, 1998 and 1999 and for
each of the fiscal quarters ended June 30, September 30 and December 31 of
each such year, as included in the Commission Filings, were all prepared in
accordance with generally accepted accounting principles (as in effect from
time to time) applied on a consistent basis (except as may be indicated
therein or in the notes or schedules thereto) and fairly present in all
material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the results of
their operations and changes in financial position for the periods then
ended (subject to normal year-end adjustments and the absence of notes in
the case of any unaudited interim financial statements, none of which
individually or in the aggregate had or could have a Material Adverse
Effect).
(f) Absence of Certain Changes. Except as previously disclosed
in the Commission Filings, the Company and its Subsidiaries have (i)
conducted their respective businesses in the ordinary course, consistent
with past practice, and (ii) since March 31, 1999, there has not been:
(i) any event, occurrence or development which,
individually or in the aggregate, would have a Material Adverse Effect on
the Company;
(ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock
of the Company, or any repurchase, redemption or other acquisition by the
Company or any of its Subsidiaries of any outstanding shares of their
capital stock or any securities convertible into their capital stock;
(iii) any amendment of any material term of any
outstanding security of the Company or any of its Subsidiaries;
(iv) any material transaction or commitment made, or any
contract, agreement or settlement entered into, by (or judgment, order or
decree affecting) the Company or any of its Subsidiaries relating to its
assets or business (including the acquisition or disposition of any
material amount of assets) or any relinquishment by the Company or any of
its Subsidiaries of any contract or other right, in either case, material
to the Company and its Subsidiaries, taken as a whole, other than
transactions, commitments, contracts, agreements or settlements (including
without limitation settlements of litigation and tax proceedings) in the
ordinary course of business consistent with past practice and those
contemplated by this Agreement;
(v) any change in any method of accounting or accounting
practice by the Company or any of its Subsidiaries, except for any such
change which is not material or which is required by reason of a concurrent
change in GAAP;
(vi) any (1) grant of any severance or termination pay to
(or amendment to any such existing arrangement with) any director, officer
or employee of the Company or any of its Subsidiaries, (2) entering into of
any employment, deferred compensation, supplemental retirement or other
similar agreement (or any amendment to any such existing agreement) with
any director, officer or employee of the Company or any of its
Subsidiaries, (3) increase in, or accelerated vesting and/or payment of,
benefits under any existing severance or termination pay policies or
employment agreements or (4) increase in or enhancement of any rights or
features related to compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any of its Subsidiaries,
in each case, other than in the ordinary course of business consistent with
past practice or as permitted by this Agreement; or
(vii) any material Tax election made or changed, any
material audit settled or any material amended Tax Return filed.
(g) Title to Properties; Encumbrances. The Company and each of
its Subsidiaries has good, valid and marketable title to (i) all its
material tangible properties and assets (real and personal), including,
without limitation, all the properties and assets reflected in the
consolidated balance sheet as of September 30, 1999 except as indicated in
the notes thereto and except for properties and assets reflected in the
consolidated balance sheet as of September 30, 1999 which have been sold or
otherwise disposed of in the ordinary course of business, and (ii) all the
tangible properties and assets purchased by the Company and any of its
Subsidiaries since September 30, 1999 except for such properties and assets
which have been sold or otherwise disposed of in the ordinary course of
business; in each case subject to no encumbrance, lien, charge or other
restriction of any kind or character, except for (1) liens reflected in the
consolidated balance sheet as of September 30, 1999, (2) liens consisting
of zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of real property or irregularities
in title thereto which do not materially detract from the value of, or
impair the use of, such property by the Company or any of its Subsidiaries
in the operation of its respective business, (3) liens for current taxes,
assessments or governmental charges or levies on property not yet due and
delinquent and (4) liens created in connection with the loan from Terremark
to the Company.
(h) Compliance with Laws; Permits. The Company and its
Subsidiaries are in material compliance with all applicable laws,
regulations, orders, judgments and decrees except where the failure to so
comply would not have a Material Adverse Effect on the Company. The Company
has not received any notice alleging non-compliance within the last two
years. Each member of the Company Group (a) has all permits, approvals and
other authorizations ("Permits") necessary for the conduct and operation of
its businesses as currently conducted and (b) uses its assets in compliance
with the terms of such Permits, except for any Permits not obtained or any
noncompliance which would not, individually or in the aggregate, have a
Material Adverse Effect.
(i) Litigation. Except as disclosed in the Commission Filings,
there is no and, in the past two years there has been no, action, suit,
proceeding at law or in equity, or any arbitration or any administrative or
other proceeding by or before (or to the Company's knowledge any
investigation by) any governmental or other instrumentality or agency,
pending, or, to the Company's knowledge, threatened, against or affecting
the Company or any of its Subsidiaries, or any of their properties or
rights which could have a Material Adverse Effect on the Company or prevent
or delay the consummation of the Merger. There are no such suits, actions,
claims, proceedings or investigations pending or, to the Company's
knowledge, threatened, seeking to prevent or challenging the transactions
contemplated by this Agreement. Except as disclosed in the Commission
Filings, neither the Company nor any of its Subsidiaries is subject to any
judgment, order or decree entered in any lawsuit or proceeding which could
have a Material Adverse Effect on the Company or on the ability of the
Company or any Subsidiary to conduct its business as presently conducted.
For the purposes of this Agreement, the term "knowledge" shall mean actual
knowledge.
(j) Government Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority other than (i) the filing of a certificate of merger in
connection with the Merger in accordance with Delaware Law and Florida law,
(ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of Council Regulation No.
4064/89 of the European Community, as amended (the "EC Merger Regulation"),
(iv) compliance with any other applicable requirements of foreign
anti-trust or investment laws, (v) compliance with any applicable
environmental transfer statutes, (vi) compliance with any applicable
requirements of the Exchange Act, (vii) compliance with any applicable
requirements of the Securities Act, or (viii) other actions or filings
which if not taken or made would not, individually or in the aggregate,
have a Material Adverse Effect on the Company or prevent or materially
delay the Company's consummation of the Merger.
(k) Opinion of Financial Advisor. The Company has received the
opinion of Ramius Capital Group, L.L.C. to the effect that, as of the date
of its opinion, the transactions contemplated herein are necessary to the
Company. Except for Ramius Capital Group, L.L.C., the fees of which shall
not exceed $150,000 and such number of shares of Post Merger Common Stock
as shall have a value of $150,000 as determined based upon the closing
price of Common Stock of the Company on the trading day immediately
preceding the day of the Effective Time, no agent, broker, Person or firm
acting on behalf of the Company is, or will be entitled to any fee,
commission or broker's or finder's fees from any of the parties hereto, or
from any Person controlling, controlled by, or under common control with
any of the parties hereto, in connection with this Agreement or any of the
transactions contemplated hereby.
(l) Takeover Statutes and Charter Provisions. The Board of
Directors of the Company has taken the necessary actions to render Section
203 of the DGCL, any other potentially applicable anti-takeover or similar
statute or regulation and the provisions of the Company's charter, if any,
inapplicable to this Agreement, the Merger and the transactions
contemplated hereby.
(m) Employee Benefit Plans.
----------------------
(i) List of Plans. Set forth in Schedule 2.1(m) attached
hereto is an accurate and complete list of all employee benefit plans
("Company Benefit Plans") within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not any such Employee Benefit Plans are otherwise exempt from
the provisions of ERISA, established, maintained or contributed to by the
Company or any of its Subsidiaries (including, for this purpose and for the
purpose of all of the representations in this Section 2.1(m), all employers
(whether or not incorporated) which by reason of common control are treated
together with the Company as a single employer within the meaning of
Section 414 of the Code).
(ii) Status of Plans. Neither the Company nor any of its
Subsidiaries maintains or contributes to any Company Benefit Plan subject
to ERISA which is not in substantial compliance with ERISA. None of the
Company Benefit Plans are subject to the minimum funding requirements of
Section 412 of the Code, or subject to Title IV of ERISA, or multiemployer
plans (as defined in Section 4001(a)(3) of ERISA.
(iii) Contributions. All amounts which the Company or any
of its Subsidiaries is required, under applicable law or under any Company
Benefit Plan or any agreement relating to any Company Benefit Plan to which
Company or any of its Subsidiaries is a party, to have paid as
contributions thereto as of the last day of the most recent fiscal year of
such Company Benefit Plan ended prior to the date hereof, have either been
paid or properly accrued on the Financial Statements. The Company has made
any accruals on its Financial Statements that are required in accordance
with generally accepted accounting principles for contributions that have
not been made because they are not yet due under the terms of any Company
Benefit Plan or related agreements. Benefits under all Company Benefit
Plans are as represented and have not been increased subsequent to the date
as of which documents have been provided to the Company.
(iv) Tax Qualification. The Internal Revenue Service has
issued a favorable determination letter that each Company Benefit Plan
intended to be qualified under Section 401(a) of the Code is so qualified,
and, to the knowledge of the Company, nothing has occurred since the date
of the last such determination which resulted or is likely to result in the
revocation of such determination.
(v) Transactions. Neither the Company nor any of its
Subsidiaries has engaged in any transaction with respect to the Company
Benefit Plans which would subject it to a material tax, penalty or
liability for prohibited transactions under ERISA or the Code nor has any
of their respective directors, officers or employees to the extent they or
any of them are fiduciaries with respect to such Plans, materially breached
any of their responsibilities or obligations imposed upon fiduciaries under
Title I of ERISA or would result in any material claim being made under or
by or on behalf of any such Plans by any party with standing to make such
claim.
(n) Insurance. The Company has made available to Terremark a
schedule of insurance and policies currently maintained by the Company and
its Subsidiaries. Furthermore (a) neither the Company nor any of the
Company's Subsidiaries has received any notice of cancellation or
non-renewal of any such policy or arrangement nor is the termination of any
such policies or arrangements threatened, (b) there is no claim pending
under any of such policies or arrangements as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or
arrangements, (c) neither the Company nor any of the Company's Subsidiaries
has received any notice from any of its insurance carriers that any
insurance premiums will be increased in the future or that any insurance
coverage presently provided for will not be available to the Company or any
of the Company's Subsidiaries in the future on substantially the same terms
as now in effect and (d) none of such policies or arrangements provides for
any retrospective premium adjustment, experienced-based liability or loss
sharing arrangement affecting the Company or any of the Company's
Subsidiaries.
(o) Casualties. Neither the Company nor any of the Company's
Subsidiaries has been affected in any way as a result of flood, fire,
explosion or other casualty (whether or not material and whether or not
covered by insurance). The Company is not aware of any circumstance which
is likely to cause it to suffer any material adverse change in its
business, operations or prospects.
(p) Propriety of Past Payments. (i) No unrecorded fund or asset
of the Company or any of the Company's Subsidiaries has been established
for any purpose, (ii) no accumulation or use of corporate funds of the
Company or any of the Company's Subsidiaries has been made without being
property accounted for in the books and records of the Company or any of
the Company's Subsidiaries, (iii) no payment has been made by or on behalf
of the Company or any of the Company's Subsidiaries with the understanding
that any part of such payment is to be used for any purpose other than that
described in the documents supporting such payment and (iv) none of the
Company, any of the Company's Subsidiaries, any director, officer, employee
or agent of the Company of any of the Company's Subsidiaries has, directly
or indirectly, made any illegal contribution, gift, bribe, rebate, payoff,
influence payment, kickback or other payment to any Person, private or
public, regardless of form, whether in money, property or services, (A) to
obtain favorable treatment for any stockholder, the Company, any of the
Company's Subsidiaries or any affiliate of the Company in securing
business, (B) to pay for favorable treatment for business secured for any
stockholder, the Company, any of the Company's Subsidiaries or any
affiliate of the Company, (C) to obtain special concessions, or for special
concessions already obtained, for or in respect of any stockholder, the
Company or any of the Company's Subsidiaries or any affiliate of the
Company or (iv) otherwise for the benefit of any stockholder, the Company
or any of the Company's Subsidiaries or any affiliate of the Company in
violation of any federal, state, local, municipal, foreign, international,
multinational or other administrative order, constitution, law, ordinance,
principle of common law, regulation, statute, or treaty (including existing
site plan approvals, zoning or subdivision regulations or urban
redevelopment plans relating to Real Property). Neither the Company nor any
of the Company's Subsidiaries nor any current directly, officer, agent,
employee or other Person acting on behalf of the Company or any of the
Company's Subsidiaries, has accepted or received any unlawful contribution,
payment, gift, kickback, expenditure or other item of value.
(q) Employment Relations and Agreements. (i) Each of the
Company and its Subsidiaries is in substantial compliance with all foreign,
federal, state or other applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours, and has not and is not engaged in any unfair labor practice; (ii) no
unfair labor practice complaint against the Company or any of its
Subsidiaries is pending before the National Labor Relations Board; (iii)
there is no labor strike, dispute, slowdown or stoppage actually pending or
threatened against or involving the Company or any of its Subsidiaries;
(iv) no representation question exists respecting the employees of the
Company or any of its Subsidiaries; (v) no grievance which might have a
Material Adverse Effect on the Company and its Subsidiaries or the conduct
of their respective businesses exists, no arbitration proceeding arising
out of or under any collective bargaining agreement is pending and no claim
therefor has been asserted; (vi) no collective bargaining agreement is
currently being negotiated by the Company or any of its Subsidiaries; and
(vii) neither the Company nor any of its Subsidiaries has experienced any
material labor difficulty during the last three years. There has not been,
and to the Company's knowledge, there will not be, any change in relations
with employees of the Company or any of its Subsidiaries as a result of the
transactions contemplated by this Agreement which could have a Material
Adverse Effect on the Company. Except as disclosed in Schedule 2.1(q)
attached hereto, there exist no employment, consulting, severance or
indemnification agreements between the Company and any director, officer or
employee of the Company or any agreement that would give any Person the
right to receive any payment from the Company as a result of the Merger.
(r) Client Relations. There has not been, and to the Company's
knowledge, there will not be, any change in relations with franchisees,
customers or clients of the Company or any of its Subsidiaries as a result
of the transactions contemplated by this Agreement which could have a
Material Adverse Effect on the Company.
(s) Sufficiency of Assets. The rights, properties and other
assets presently owned, leased or licensed by the Company or its
Subsidiaries include all such rights, properties and other assets necessary
to permit the Company and its Subsidiaries to conduct their respective
businesses in all material respects in the same manner as such businesses
have been conducted prior to the date hereof.
(t) Contracts and Commitments. Except as provided in
Schedule 2.1(t):
(i) No purchase contracts or commitments of the Company
or any of its Subsidiaries are in excess of the normal, ordinary and usual
requirements of business or at any excessive price.
(ii) Neither the Company nor any Subsidiary has any
outstanding contracts with Shareholders, directors, officers, employees,
agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are in excess of the normal, ordinary and
usual requirements of business or at any excessive price.
(iii) Neither the Company nor any of its Subsidiaries is
restricted by agreement from carrying on its business anywhere in the
world.
(iv) Neither the Company nor any of its Subsidiaries has
outstanding any agreement to acquire any debt obligations of others.
(u) Disclosure Documents. Neither the proxy statement of the
Company (the "Company Proxy Statement") nor the Registration Statement on
Form S-4 (the "Form S-4"), each to be filed with the Commission in
connection with the Merger, nor any amendment or supplement thereto, will,
at the date the Company Proxy Statement or any such amendment or supplement
is first mailed to stockholders of the Company or at the time such
stockholders vote on the adoption and approval of this Agreement and the
transactions contemplated hereby, with respect to the Company Proxy
Statement, or the date the Form S-4 or any amendment thereto is filed with
the Commission, with respect to the Form S-4, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The Company Proxy Statement and the Form S-4
will, when filed, each comply as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.
Notwithstanding the foregoing, no representation or warranty is made by the
Company in this Section 2.1(u) with respect to statements made or
incorporated by reference therein based on information supplied by
Terremark for inclusion or incorporation by reference in the Company Proxy
Statement or the Form S-4, which shall be deemed to include information by
any third party with respect to any of the assets directly or indirectly
acquired by or furnished to Terremark after the date hereof.
(v) Full Disclosure. The Company has not failed to disclose to
Terremark any facts material to the business, results of operations,
assets, liabilities, financial condition or prospects of the Company or its
Subsidiaries. No representation or warranty by the Company contained in
this Agreement and no statement contained in any document (including
financial statements and the Schedules hereto), certificate, or other
writing furnished or to be furnished by the Company to Terremark or any of
its representatives pursuant to the provisions hereof or in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading.
2.2. Representations and Warranties of Terremark. Terremark
represents and warrants to the Company as follows:
(a) Due Organization; Good Standing and Corporate Power. Each
of Terremark and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and each such corporation has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of Terremark and its Subsidiaries is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except in such jurisdictions where the failure to be so qualified or
licensed and in good standing would not have a Material Adverse Effect on
Terremark. Each member of the Terremark Group has made available to the
Company true and complete copies of its certificate of incorporation, as
amended to date, its by-laws, as amended to date and copies of the minutes
of its Board of Directors and of committees of the Board of Directors
(except as the same relate to the transactions contemplated hereby).
(b) Authorization and Validity of Agreement. Terremark has full
corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement by Terremark, and the consummation by it of the transactions
contemplated hereby, have been duly authorized and approved by its Board of
Directors of Terremark. No other corporate action on the part of Terremark
is necessary to authorize the execution, delivery and performance of this
Agreement by Terremark and the consummation of the transactions
contemplated hereby (other than the approval of this Agreement by the
shareholders of Terremark, if required by the FBCA). This Agreement has
been duly executed and delivered by Terremark and is a valid and binding
obligation of Terremark, enforceable against Terremark in accordance with
its terms, except that such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, and general equitable principles.
Terremark's Board of Directors, at a meeting duly called and held, has
approved and adopted this Agreement and the transactions contemplated
hereby, and resolved to recommend approval an adoption of this Agreement
and the Merger by its shareholders.
(c) Capitalization. (i) The authorized capital stock of
Terremark consists of 5,000,000 shares of Terremark Common Stock and
4,176,693 shares of preferred stock, $1.00 par value, of which 4,176,693
shares of Series A Convertible Preferred Stock are outstanding (the
"Terremark Preferred Stock"). As of November 23, 1999, 1,121,250 shares of
Terremark Common Stock are issued and outstanding, and no shares of
Terremark Common Stock are reserved for issuance. All issued and
outstanding shares of Terremark Common Stock have been validly issued and
are fully paid and nonassessable, and are not subject to, nor were they
issued in violation of, any preemptive rights. Except as set forth in this
Section 2.2(c), (x) there are no shares of capital stock of Terremark
authorized, issued or outstanding (except for shares subsequently issued
pursuant to existing options or other rights described in this Section
2.2(c)) and (y) there are not as of the date hereof, and at the Effective
Time there will not be, any outstanding or authorized options, warrants,
rights, subscriptions, claims of any character, agreements, obligations,
convertible or exchangeable securities, or other commitments, contingent or
otherwise, relating to the Terremark Common Stock or any other shares of
capital stock of Terremark, pursuant to which Terremark is or may become
obligated to issue shares of Terremark Common Stock, any other shares of
its capital stock or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of the capital stock of
Terremark.
(ii) Schedule 2.2(c)(ii) lists all of Terremark's
Subsidiaries, the shareholders of each Subsidiary and the shares they own.
All of the outstanding shares of capital stock of each of Terremark's
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable, are not subject to, nor were they issued in violation
of, any preemptive rights, and are owned, of record and beneficially, by
Terremark, free and clear of all liens, encumbrances, options or claims
whatsoever. No shares of capital stock of any of Terremark's Subsidiaries
are reserved for issuance and there are no outstanding or authorized
options, warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to the capital stock of any
Subsidiary of Terremark, pursuant to which such Subsidiary is or may become
obligated to issue any shares of capital stock of such Subsidiary or any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of such Subsidiary. Except for the Subsidiaries
listed on Schedule 2.2(c)(ii), Terremark does not own, directly or
indirectly, any capital stock or other equity interest in any Person or
have any direct or indirect equity or ownership interest in any Person and
neither Terremark nor any of its Subsidiaries is subject to any obligation
or requirement to provide funds for or to make any investment (in the form
of a loan, capital contribution or otherwise) to or in any Person. With
respect to each of its Subsidiaries, a member of the Terremark Group owns
100% of the stock of each such Person.
(d) Consents and Approvals; No Violations. Assuming (i)
compliance with any applicable requirements under the HSR Act, (ii) the
filing of the Certificate of Merger and other appropriate merger documents,
if any, as required by the laws of the FBCA is made and (iii) approval of
this Agreement by the shareholders of Terremark if required by the laws of
Florida, the execution and delivery of this Agreement by Terremark and the
consummation by Terremark of the transactions contemplated hereby will not:
(1) violate any provision of the Articles of Incorporation or By-Laws of
Terremark; (2) violate any statute, ordinance, rule, regulation, order or
decree of any court or of any governmental or regulatory body, agency or
authority applicable to Terremark or by which its properties or assets may
be bound; (3) require any filing with, or permit, consent or approval of,
or the giving of any notice to any governmental or regulatory body, agency
or authority; or (4) result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration)
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Terremark or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, franchise, permit, agreement, lease or
other instrument or obligation to which Terremark or any of its
Subsidiaries is a party, or by which they or their respective properties or
assets may be bound, excluding from the foregoing clauses (2), (3) and (4)
violations, filings, notices, permits, consents and approvals the absence
of which, and violations, breaches, defaults, conflicts and liens which, in
the aggregate, would not have a Material Adverse Effect on Terremark.
(e) Real Property. (i) All Real Property ("Real Property") that
is owned by Terremark or any Terremark Subsidiary is reflected as an asset
on the Balance Sheet of the Terremark Financial Statements. There are no
proceedings, claims, disputes or conditions affecting any Real Property
that will curtail or interfere with the use of such property. Neither the
whole nor any portion of the Real Property nor any other assets of
Terremark or any Terremark Subsidiary is subject to any governmental decree
or order to be sold or is being condemned, expropriated or otherwise taken
by any public authority with or without payment of compensation therefor,
nor to the knowledge of Terremark has any such condemnation, expropriation
or taking been proposed.
(ii) Neither Terremark nor any Terremark Subsidiary has
received any notice of, or other writing referring to, any requirements or
recommendations by any insurance company that has issued a policy covering
any part of the Real Property or by any board of fire underwriters or other
body exercising similar functions, requiring or recommending any repairs or
work to be done on any part of the Real Property, which repair or work has
not been completed.
(iii) Each of Terremark and each Terremark Subsidiary has
obtained all appropriate certificates of occupancy, licenses, easements and
rights of way, including proofs of dedication, required to use and operate
the Real Property in the manner in which the Real Property is currently
being used and operated, except where the failure to obtain the same would
not have a Material Adverse Effect. Each of Terremark and each Terremark
Subsidiary has all approvals, permits and licenses, and no such approvals,
permits or licenses will be required, as a result of the Merger, to be
issued after the date hereof in order to permit the Company, following the
Closing, to continue to own or operate the Real Property in the same manner
as heretofore, other than any such approvals, permits or licenses that are
ministerial in nature and are normally issued in due course upon
application therefore without the further action by the applicant or when
the failure to obtain the same would not have a Material Adverse Effect.
(f) Leases. Schedule 2.2(f) contains an accurate and complete
description of the terms of each Lease ("Lease" shall mean each lease
pursuant to which Terremark or any Terremark Subsidiary leases any real or
personal property (excluding leases relating solely to personal property
calling for rental or similar periodic payments not exceeding $100,000 per
annum)). To Terremark's knowledge, each Lease is valid, binding and
enforceable in accordance with its terms and is in full force and effect.
The leasehold estate created by each Lease is free and clear of all
encumbrances. Except for defaults which individually or in the aggregate
have not had and will not have a Material Adverse Effect, there are no
existing defaults by Terremark or any Terremark Subsidiary under any of the
Leases. No event has occurred that (whether with or without notice, lapse
of time or the happening or occurrence of any other event) would constitute
a default under any Lease. Neither Terremark nor any of the Terremark
Subsidiaries has received notice, or has any other reason to believe, that
any lessor under any Lease will not consent (where such consent is
necessary) to the consummation of the Merger without requiring any
modification of the rights or obligations of the lessee thereunder.
(g) Contracts and Commitments. Except as provided in
the Terremark Financial Statements:
(i) No purchase contracts or commitments of Terremark or
any Terremark Subsidiary are in excess of the normal, ordinary and usual
requirements of business or at any excessive price.
(ii) Neither Terremark nor any Terremark Subsidiary has
any outstanding contracts with Shareholders, directors, officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are in excess of the normal, ordinary and
usual requirements of business or at any excessive price.
(iii) Neither Terremark nor any Terremark Subsidiary is
restricted by agreement from carrying on its business anywhere in the
world.
(iv) Neither Terremark nor any Terremark Subsidiary has
outstanding any agreement to acquire any debt obligations of others.
(h) Insurance. Terremark has made available to the Company a
schedule of insurance and policies currently maintained by Terremark and
its Subsidiaries. Furthermore (a) neither Terremark nor any Terremark
Subsidiary has received any notice of cancellation or non-renewal of any
such policy or arrangement nor is the termination of any such policies or
arrangements threatened, (b) there is no claim pending under any of such
policies or arrangements as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or arrangements, (c)
neither Terremark nor any Terremark Subsidiary has received any notice from
any of its insurance carriers that any insurance premiums will be increased
in the future or that any insurance coverage presently provided for will
not be available to Terremark or any Terremark Subsidiary in the future or
that any insurance coverage presently provided for will not be available to
Terremark or any Terremark Subsidiary in the future on substantially the
same terms as now in effect and (d) none of such policies or arrangements
provides for any retrospective premium adjustment, experienced-based
liability or loss sharing arrangement affecting Terremark or any Terremark
Subsidiary.
(i) Casualties. Neither Terremark nor any Terremark Subsidiary
has been affected in any way as a result of flood, fire, explosion or other
casualty (whether or not material and whether or not covered by insurance).
Terremark is not aware of any circumstance which is likely to cause it to
suffer any material adverse change in its business, operations or
prospects.
(j) Propriety of Past Payments. (a) No unrecorded fund or asset
of Terremark or any Terremark Subsidiary has been established for any
purpose, (b) no accumulation or use of corporate funds of Terremark or any
Terremark Subsidiary has been made without being properly accounted for in
the books and records of Terremark or such Subsidiary, (c) no payment has
been made by or on behalf of Terremark or any Terremark Subsidiary with the
understanding that any part of such payment is to be used for any purpose
other than that described in the documents supporting such payment and (d)
none of Terremark, any Terremark Subsidiary, any director, officer,
employee or agent of Terremark or any Terremark Subsidiary or any other
Person associated with or acting for or on behalf of Terremark or any
Terremark Subsidiary has, directly or indirectly, made any illegal
contribution, gift, bribe, rebate, payoff, influence payment, kickback or
other payment to any Person, private or public, regardless of form, whether
in money, property or services, (i) to obtain favorable treatment for any
shareholder, Terremark, any Terremark Subsidiary or any affiliate of
Terremark in securing business, (ii) to pay for favorable treatment for
business secured for any shareholder, Terremark, any Terremark Subsidiary
or any affiliate of Terremark, (iii) to obtain special concessions, or for
special concessions already obtained, for or in respect of any shareholder,
Terremark, any Terremark Subsidiary or any affiliate of Terremark or (iv)
otherwise for the benefit of any shareholder, Terremark, any Terremark
Subsidiary or any affiliate of Terremark in violation of any federal,
state, local, municipal, foreign, international, multinational or other
administrative order, constitution, law, ordinance, principle of common
law, regulation, statute, or treaty (including existing site plan
approvals, zoning or subdivision regulations or urban redevelopment plans
relating to Real Property). Neither Terremark nor any Terremark Subsidiary
nor any current director, officer, agent, employee or other Person acting
on behalf of Terremark or any Terremark Subsidiary, has accepted or
received any unlawful contribution, payment, gift, kickback, expenditure or
other item of value.
(k) Financial Statements; Absence of Certain Changes. The
consolidated balance sheets provided by Terremark to the Company as of
March 31, 1999 and 1998 and the consolidated income statements and
statements of cash flow for the periods then ended and the unaudited
balance sheet as of September 30, 1999 and the unaudited consolidated
income statement for the period then ended (the "Terremark Financial
Statements") fairly present the consolidated financial position of
Terremark and its subsidiaries as of such dates and fairly present the
results of operations and changes in cash flow for the periods then ended,
in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be
indicated in notes thereto and as for any unaudited financial statements,
except for normal year-end adjustments and the absence of notes). Terremark
and its Subsidiaries have since March 31, 1999 conducted in all material
respects their respective businesses in the ordinary course, reasonably
consistent with past practice, and there has not been:
(i) any event, occurrence or development which,
individually or in the aggregate, would have a Material Adverse Effect on
Terremark;
(ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock
of Terremark, or any repurchase, redemption or other acquisition by
Terremark or any of its Subsidiaries of any outstanding shares of their
capital stock or any securities convertible into their capital stock;
(iii) any amendment of any material term of any
outstanding security of Terremark or any of its Subsidiaries;
(iv) any transaction or commitment made, or any contract,
agreement or settlement entered into, by (or judgment, order or decree
affecting) Terremark or any of its Subsidiaries relating to its assets or
business (including the acquisition or disposition of any material amount
of assets) or any relinquishment by Terremark or any of its Subsidiaries of
any contract or other right, in either case, material to Terremark and its
Subsidiaries, taken as a whole, other than transactions, commitments,
contracts, agreements or settlements (including without limitation
settlements of litigation and tax proceedings) in the ordinary course of
business consistent with past practice and those contemplated by this
Agreement;
(v) any change in any method of accounting or accounting
practice (other than any change for tax purposes) by Terremark or any of
its Subsidiaries, except for any such change which is not material or which
is required by reason of a concurrent change in GAAP;
(vi) any material Tax election made or changed, any
material audit settled or any material amended Tax Returns filed.
(l) Sufficiency of Assets. The rights, properties and other
assets presently owned, leased or licensed by Terremark or the Terremark
Subsidiaries include all such rights, properties and other assets necessary
to permit Terremark and Terremark Subsidiaries to conduct their respective
businesses in all material respects in the same manner as such businesses
have been conducted prior to the date hereof.
(m) Information in Disclosure Documents and Registration
Statement. None of the information supplied or to be supplied by Terremark
for inclusion in (i) the Form S-4, at the time it becomes effective or, in
the case of the Proxy Statement or any amendments thereof or supplements
thereto, at the time of the initial mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the meeting of
shareholders of Terremark and the stockholders of the Company to be held in
connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Form S-4, as
of its effective date, will comply (with respect to the information
relating to Terremark) as to form in all material respects with the
requirements of the Securities Act, and the rules and regulations
promulgated thereunder, and as of the date of its initial mailing and as of
the date of the Company's stockholders' meeting, the Proxy Statement will
comply (with respect to information relating to Terremark) as to form in
all material respects with the applicable requirements of the Exchange Act,
and the rules and regulations promulgated thereunder. Notwithstanding the
foregoing, Terremark makes no representations as to any statement in the
foregoing documents based on information supplied by the Company for
inclusion therein.
(n) Broker's or Finder's Fee. No agent, broker, Person or firm
acting on behalf of Terremark is, or will be, entitled to any fee,
commission or broker's or finder's fees from any of the parties hereto, or
from any Person controlling, controlled by, or under common control with
any of the parties hereto, in connection with this Agreement or any of the
transactions contemplated hereby.
(o) Compliance with Laws. Terremark and its Subsidiaries are in
material compliance with all applicable laws, regulations, orders,
judgments and decrees except where the failure to so comply would not have
a Material Adverse Effect on Terremark. Terremark has not received any
notice alleging non-compliance within the last two years. Each member of
the Terremark Group (a) has all Permits necessary for the conduct and
operation of its businesses as currently conducted and (b) uses its assets
in compliance with the terms of such Permits, except for any Permits not
obtained or any noncompliance which would not, individually or in the
aggregate, have a Material Adverse Effect.
(p) Litigation. Except as disclosed in the Terremark Financial
Statements or as set forth in Schedule 2.2(p) attached hereto, there is no
action, suit, proceeding at law or in equity, or any arbitration or any
administrative or other proceeding by or before (or to Terremark's
knowledge, any investigation by) any governmental or other instrumentality
or agency, pending, or, to Terremark's knowledge, threatened, against or
affecting Terremark or any of its Subsidiaries, or any of their properties
or rights which could have a Material Adverse Effect on Terremark or
prevent or delay the consummation of the Merger. There are no such suits,
actions, claims, proceedings or investigations pending or, to Terremark's
knowledge, threatened, seeking to prevent or challenging the transactions
contemplated by this Agreement. Except as disclosed in the Terremark
Financial Statements, neither Terremark nor any of its Subsidiaries is
subject to any judgment, order or decree entered in any lawsuit or
proceeding which could have a Material Adverse Effect on Terremark or on
the ability of Terremark or any Subsidiary to conduct its business as
presently conducted.
(q) Government Authorization. The execution, delivery and
performance by Terremark of this Agreement and the consummation by
Terremark of the transactions contemplated hereby require no action by or
in respect of, or filing with, any governmental body, agency, official or
authority other than (i) the filing of a certificate of merger in
connection with the Merger in accordance with Delaware Law and Florida law,
(ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of the EC Merger Regulation,
(iv) compliance with any other applicable requirements of foreign
anti-trust or investment laws, (v) compliance with any applicable
environmental transfer statutes, (vi) compliance with any applicable
requirements of the Exchange Act, (vii) compliance with any applicable
requirements of the Securities Act, (viii) other actions or filings which
if not taken or made would not, individually or in the aggregate, have a
Material Adverse Effect on Terremark or prevent or materially delay
Terremark's consummation of the Merger.
(r) Employee Benefit Plans
(i) List of Plans. Set forth in Schedule 2.2(r) attached
hereto is an accurate and complete list of all employee benefit plans
("Terremark Benefit Plans") within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not any such Employee Benefit Plans are otherwise exempt from
the provisions of ERISA, established, maintained or contributed to by
Terremark or any of its Subsidiaries (including, for this purpose and for
the purpose of all of the representations in this Section 2.2(r), all
employers (whether or not incorporated) which by reason of common control
are treated together with Terremark as a single employer within the meaning
of Section 414 of the Code).
(ii) Status of Plans. Neither Terremark nor any of its
Subsidiaries maintains or contributes to any Terremark Benefit Plan subject
to ERISA which is not in substantial compliance with ERISA. None of the
Terremark Benefit Plans are subject to the minimum funding requirements of
Section 412 of the Code, or subject to Title IV of ERISA, or multiemployer
plans (as defined in Section 4001(a)(3) of ERISA.
(iii) Contributions. All amounts which Terremark or any
of its Subsidiaries is required, under applicable law or under any
Terremark Benefit Plan or any agreement relating to any Terremark Benefit
Plan to which Terremark or any of its Subsidiaries is a party, to have paid
as contributions thereto as of the last day of the most recent fiscal year
of such Terremark Benefit Plan ended prior to the date hereof, have either
been paid or properly accrued on the Financial Statements. Terremark has
made any accruals on its Financial Statements that are required in
accordance with generally accepted accounting principles for contributions
that have not been made because they are not yet due under the terms of any
Terremark Benefit Plan or related agreements. Benefits under all Terremark
Benefit Plans are as represented and have not been increased subsequent to
the date as of which documents have been provided to Terremark.
(iv) Tax Qualification. The Internal Revenue Service has
issued a favorable determination letter that each Terremark Benefit Plan
intended to be qualified under Section 401(a) of the Code is so qualified,
and, to the knowledge of Terremark, nothing has occurred since the date of
the last such determination which resulted or is likely to result in the
revocation of such determination.
(v) Transactions. Neither Terremark nor any of its
Subsidiaries has engaged in any transaction with respect to the Terremark
Benefit Plans which would subject it to a material tax, penalty or
liability for prohibited transactions under ERISA or the Code nor has any
of their respective directors, officers or employees to the extent they or
any of them are fiduciaries with respect to such Plans, materially breached
any of their responsibilities or obligations imposed upon fiduciaries under
Title I of ERISA or would result in any material claim being made under or
by or on behalf of any such Plans by any party with standing to make such
claim.
(vi) Documents. Terremark has delivered or caused to be
delivered to Terremark and its counsel true and complete copies of (1) all
Terremark Benefit Plans as in effect, together with all amendments thereto
which will become effective at a later date, as well as the latest Internal
Revenue Service determination letter obtained with respect to any such
Terremark Benefit Plan qualified under Section 401 or 501 of the Code and
(2) Form 5500 for the most recent completed fiscal year for each Terremark
Benefit Plan required to file such form.
(s) Employment Relations and Agreements. (i) Each of Terremark
and its Subsidiaries is in substantial compliance with all foreign,
federal, state or other applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours, and has not and is not engaged in any unfair labor practice; (ii) no
unfair labor practice complaint against Terremark or any of its
Subsidiaries is pending before the National Labor Relations Board; (iii)
there is no labor strike, dispute, slowdown or stoppage actually pending or
threatened against or involving Terremark or any of its Subsidiaries; (iv)
no representation question exists respecting the employees of Terremark or
any of its Subsidiaries; (v) no grievance which might have a Material
Adverse Effect on Terremark and its Subsidiaries or the conduct of their
respective businesses exists, no arbitration proceeding arising out of or
under any collective bargaining agreement is pending and no claim therefor
has been asserted; (vi) no collective bargaining agreement is currently
being negotiated by Terremark or any of its Subsidiaries; and (vii) neither
Terremark nor any of its Subsidiaries has experienced any material labor
difficulty during the last three years. There has not been, and to
Terremark's knowledge, there will not be, any change in relations with
employees of Terremark or any of its Subsidiaries as a result of the
transactions contemplated by this Agreement which could have a Material
Adverse Effect on Terremark. There exist no employment, consulting,
severance or indemnification agreements between Terremark and any director,
officer or employee of Terremark or any agreement that would give any
Person the right to receive any payment from the Company as a result of the
Merger.
(t) Client Relations. There has not been, and to Terremark's
knowledge, there will not be, any change in relations with franchisees,
customers or clients of Terremark or any of its Subsidiaries as a result of
the transactions contemplated by this Agreement which could have a Material
Adverse Effect on Terremark.
(u) Environmental Laws and Regulations.
----------------------------------
(i) The term "Environmental Laws" means any federal,
state, local or foreign law, statute, treaty, ordinance, rule, regulation,
permit, consent, approval, license, judgment, order, decree or injunction,
each as currently in effect and applicable, relating to: (i) Releases (as
defined in 42 U.S.C. sec. 9601(22)) or threatened Releases of Hazardous
Material (as hereinafter defined) into the environment; (ii) the
generation, treatment, storage, disposal, use, handling, manufacturing,
transportation or shipment of Hazardous Material; (iii) the health or
safety of employees in the workplace; (iv) protecting or restoring natural
resources; or (v) the environment. The term "Hazardous Material" means: (1)
hazardous substances (as defined in 42 U.S.C. sec. 9601(14)), including
"hazardous waste" as defined in 42 U.S.C. sec. 6903; (2) petroleum,
including crude oil and any fractions thereof; (3) natural gas, synthetic
gas and any mixtures thereof; (4) asbestos and/or asbestos containing
materials; (5) PCBs or materials containing PCBs; (6) any material
regulated as a medical waste; (7) radioactive materials; and (8) "Hazardous
Substance" or "Hazardous Material" as those terms are defined in any
indemnification provision in any contract, lease, or agreement to which
Terremark or any of its subsidiaries is a party.
(ii) The representations in this Section 2.2(u) shall be
deemed to apply to the Terremark Centre to the extent that it is an asset
which Terremark owns as of the Closing. With respect to any property
Terremark or any of its Subsidiaries currently or previously owned, to
Terremark's knowledge (i) there have been no Releases of Hazardous Material
in, on, under or affecting such properties or any surrounding site, and
each property is in compliance in all material respects with applicable
law, (ii) neither Terremark nor any of its Subsidiaries has disposed of any
Hazardous Material in a manner that has led, or could reasonably be
expected to lead, to a Release, except in each case for those Releases
which, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect on Terremark. There have been no Releases
of Hazardous Material in, on, under or affecting their current or
previously owned or leased properties or any surrounding site, except in
each case for those Releases which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on Terremark.
Neither Terremark nor any of its Subsidiaries has received any written
notice of, or entered into any order, settlement or decree relating to: (i)
any violation of any Environmental Laws by Terremark or any of its
Subsidiaries or the institution or pendency of any suit, action, claim,
proceeding or investigation by any Governmental Entity or any third party
against Terremark or any of its Subsidiaries; or (ii) the response to or
remediation of Hazardous Material at or arising from any of Terremark's
properties or any subsidiary's properties. To Terremark's knowledge, there
have been no violations of any Environmental Laws by Terremark or any
Subsidiary or any Predecessor (herein defined) which, individually or in
the aggregate, would reasonably be expected to have a Material Adverse
Effect on Terremark. "Predecessor" means any Person which at any time
directly or indirectly owned any of the properties leased or owned at any
time by any member of the Terremark Group.
(v) Full Disclosure. Terremark has not failed to disclose to
the Company any facts material to the business, results of operations,
assets, liabilities, financial condition or prospects of Terremark or
Terremark Subsidiaries. No representation or warranty by Terremark
contained in this Agreement and no statement contained in any document
(including financial statements and the Schedules hereto), certificate, or
other writing furnished or to be furnished by Terremark to the Company or
any of its representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby, contains or will
contain any untrue statement of material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under
which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE III
ADDITIONAL AGREEMENTS
3.1. Access to Information Concerning Properties and Records. During
the period commencing on the date hereof and ending at the Effective Time,
each of the Company and Terremark shall, and shall cause each of their
respective Subsidiaries to, upon reasonable notice, afford the other party,
and its respective counsel, accountants and other authorized
representatives, full access during normal business hours to the
properties, books and records of itself and its Subsidiaries in order that
they may have the opportunity to make such investigations as they shall
desire. No such investigation shall, however, affect the representations
and warranties made by each party to this Agreement. Each party hereto
agrees to cause its officers and employees to furnish such additional
financial and operating data and other information and respond to such
inquiries as the other party may from time to time request.
3.2. Confidentiality. Prior to the Effective Time and after any
termination of this Agreement each party hereto will hold, and will use its
best efforts to cause its officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, including but not limited to, the Securities law, all
confidential documents and information concerning the other parties hereto
and the Subsidiaries furnished to such party in connection with the
transactions contemplated by this Agreement, except to the extent that such
information can be shown to have been (i) previously known on a
nonconfidential basis by such party, (ii) in the public domain through no
fault of such party, or (iii) later lawfully acquired by such party from
sources other than the parties hereto; provided, however, that such party
may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors, agents and representatives
(collectively, "Agents") in connection with the transactions contemplated
by this Agreement so long as such Persons are informed by such party of the
confidential nature of such information and are directed by such party to
treat such information confidentially and any breach by any such Agent
shall be deemed to conclusively be a breach by the applicable party hereto
for whom such Agent is an Agent. If this Agreement is terminated for any
reason, each party hereto will, and will use its best efforts to cause its
Agents to, destroy or deliver to the party from whom such material was
obtained, upon request, all documents and other materials, and all copies
thereof, obtained by such party or on its behalf from any such other
parties in connection with this Agreement that are subject to such
confidence.
3.3. Registration Statement. As promptly as practicable, Terremark
and the Company shall in consultation with each other prepare and file with
the SEC the Proxy Statement in preliminary form. Each of them shall use its
reasonable best efforts to have the Proxy Statement cleared by the SEC and
the S-4 declared effective as soon as practicable. If at any time prior to
the Effective Time any event or circumstances relating to the Company, any
subsidiary of the Company or Terremark, any of their respective
subsidiaries, or their respective officers or directors, should be
discovered by such party which should be set forth in an amendment or a
supplement to the Form S-4 or Proxy Statement, such party shall promptly
inform the other thereof and take appropriate action in respect thereof.
3.4. Conduct of the Business Pending the Effective Time. The Company
and Terremark each agrees that, except as permitted, required or
specifically contemplated by, or otherwise described in, this Agreement or
otherwise consented to or approved in writing by the other, such consent
not to be unreasonably withheld or delayed, during the period commencing on
the date hereof and ending at the Effective Time:
(a) Each of them and their respective Subsidiaries will conduct
their operations only according to their ordinary and usual course of
business and will use their best efforts to preserve intact their
respective business organization, keep available the services of their
officers and employees and maintain satisfactory relationships with
licensors, suppliers, distributors, clients and others having business
relationships with them;
(b) Neither of them nor any of their respective Subsidiaries
shall, except as otherwise contemplated in this Agreement, (i) make any
change in or amendment to their charter or by-laws (or comparable governing
documents); (ii) issue or sell any shares of their capital stock (other
than in connection with the exercise of Options outstanding on the date
hereof) or any of its other securities, or issue any securities convertible
into, or options, warrants or rights to purchase or subscribe to, or enter
into any arrangement or contract with respect to the issuance or sale of,
any shares of its capital stock or any of its other securities, or make any
other changes in their capital structure; provided, however, that Terremark
shall cause all outstanding shares of its Series A Convertible Preferred
Stock to be converted to Terremark Common Stock prior to the Closing, (iii)
declare, pay or make any dividend or other distribution or payment with
respect to, or split, redeem or reclassify, any shares of their capital
stock; (iv) enter into any contract or commitment except contracts in the
ordinary course of business, including without limitation, any acquisition
of a material amount of assets or securities, any disposition of a material
amount of assets or securities or release or relinquish any material
contract rights (it being understood that the acquisition, development,
leasing, sale, mortgaging or other disposition of real property or rights
with respect thereto is in the ordinary course of business of Terremark);
(v) amend any employee or non-employee benefit plan or program, employment
agreement, license agreement or retirement agreement, or pay any bonus or
contingent compensation; provided, however, that Terremark may take such
actions so long as and to the extent that the same are consistent with
prior practices; (vi) agree to the settlement of any litigation involving a
payment of more than $100,000 in the aggregate; (vii) change or permit to
change any method of accounting or accounting practices used by it, except
for any such change which is not material or which is required by reason of
a concurrent change in GAAP, (viii) agree, in writing or otherwise, to take
any of the foregoing actions or (ix) make or change any material tax
election; and
(c) Neither of them shall, nor permit any of their Subsidiaries
to, take any action, engage in any transaction or enter into any agreement
which would cause any of the representations or warranties set forth in
this Agreement to be untrue as of the Closing Date.
3.5. Company Stockholder Meeting; Proxy Statement; Form S-4.
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(a) The Company, acting through its Board of Directors, shall,
subject to and in accordance with applicable law and its Certificate of
Incorporation, as amended, and its By-Laws, promptly and duly call, give
notice of, convene and hold as soon as practicable following the date upon
which the Form S-4 becomes effective, a meeting of the holders of Company
capital stock for the purpose of voting to approve and adopt this Agreement
and the transactions contemplated hereby, and (i) except as required to
comply with the fiduciary duties of the Board of Directors as advised by
outside counsel, recommend approval and adoption of this Agreement and the
transactions contemplated hereby, by the stockholders of the Company and
include in the Proxy Statement such recommendation and (ii) except as
required to comply with the fiduciary duties of the Board of Directors as
advised by outside counsel, take all reasonable action to solicit and
obtain such approval. Terremark, acting through its Board of Directors,
shall, subject to and in accordance with applicable law and its Certificate
of Incorporation, as amended, and its By-Laws, promptly and duly call, give
notice of, convene and hold as soon a practicable following the date on
which the Form S-4 becomes effective a meeting of the holders of Terremark
Common Stock for the purpose of voting to approve and adopt this Agreement
and the transactions contemplated hereby and (i) except as required to
comply with the fiduciary duties of the Board of Directors as advised by
outside counsel, recommend approval and adoption of this Agreement and the
transactions contemplated hereby, by the shareholders of Terremark and
include in the Proxy Statement such recommendation and (ii) except as
required to comply with the fiduciary duties of the Board of Directors as
advised by outside counsel, take all reasonable action to solicit and
obtain such approval.
(b) The Company, as promptly as practicable, shall cause the
definitive Proxy Statement to be mailed to their respective stockholders.
3.6. Stock Exchange Listing. The Company shall use its
reasonable best efforts to cause the Post Merger Common Stock to be
issued in connection with the Merger to be approved for listing on
AMEX, subject to official notice of issuance.
3.7. Reasonable Best Efforts. Each of the Company and Terremark
shall, and each shall cause its respective Subsidiaries to, cooperate and
use their respective reasonable best efforts to take, or cause to be taken,
all appropriate action, and to make, or cause to be made, all filings
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement, including, without limitation, their respective reasonable best
efforts to obtain, prior to the Closing Date, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company and its
Subsidiaries as are necessary for consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Merger;
provided, however, that no loan agreement or contract for borrowed money
shall be repaid except as currently required by its terms, in whole or in
part, and no contract shall be amended to increase the amount payable
thereunder or otherwise to be more burdensome to the Company or any of its
Subsidiaries in order to obtain any such consent, approval or authorization
without first obtaining the written approval of Terremark.
3.8. Supplemental Disclosure. Each of the Company and Terremark shall
give the other party prompt notice of (i) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence, of which
would be likely to cause (x) any representation or warranty contained in
this Agreement to be untrue or inaccurate or (y) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied
and (ii) any failure of the Company or Terremark, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of
any notice pursuant to this Section shall not have any effect for the
purpose of determining the satisfaction of the conditions set forth in
Article IV of this Agreement or otherwise limit or affect the remedies
available hereunder to any party.
3.9. Officers' and Directors' Insurance; Indemnification. The
Surviving Corporation will, (i) for a period of three years commencing at
the Effective Time, maintain all rights to indemnification now existing in
favor of the directors and officers of the Company as provided in the
Company's Certificate of Incorporation or By-Laws, with respect to acts and
omissions occurring prior to the Effective Time; provided, however, that
the Surviving Corporation will not be liable for any settlement effected
without its consent; and (ii) for a period of three years commencing at the
Effective Time, use its reasonable best efforts to maintain a policy or
policies of directors' and officers' liability insurance covering directors
and officers of the Company and having such terms no less favorable than
the policies presently maintained by the Company on the date of this
Agreement (true and correct copies of which have been delivered to
Terremark) with respect to acts and omissions occurring prior to the
Effective Time; provided further that such insurance coverage shall
continue to be available and provided that the annual premium therefor
shall not exceed $110,000 (the "Maximum Amount") to maintain or procure
such insurance coverage; and provided further that if the Surviving
Corporation shall be unable to maintain or obtain such insurance coverage
as called for by this Section 3.9(ii), the Surviving Corporation will
maintain or obtain, for the remainder of such three year period, as much
comparable insurance as shall be available for the Maximum Amount.
3.10. Letters of Company's Accountants.
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(a) The Company shall use reasonable best efforts to cause to
be delivered to the Company and to Terremark two letters from Deloitte &
Touche LLP, one dated no earlier than three business days prior to the date
on which the Form S-4 shall become effective and one dated no earlier than
three business days prior to the Closing Date, each addressed to the Boards
of Directors of the Company and Terremark, in form reasonably satisfactory
to the Company and Terremark and customary in scope for comfort letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
(b) Terremark shall use reasonable best efforts to cause to be
delivered to the Company and to Terremark two letters from
PricewaterhouseCoopers, one dated no earlier than three business days prior
to the date on which the Form S-4 shall become effective and one dated no
earlier than three business days prior to the Closing Date, each addressed
to the Boards of Directors of the Company and Terremark, in form reasonably
satisfactory to the Company and Terremark and customary in scope for
comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
3.11. Takeover Statutes. If any anti-takeover or similar statute or
regulation is or may become applicable to the transactions contemplated
hereby, each of the parties and its Board of Directors shall grant such
approvals and take all such actions as are legally permissible so that the
transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate
or minimize the effects of any such statute or regulation on the
transactions contemplated hereby.
3.12. U.S. Real Property Holding Company Covenant. For such period of
time as the Vistagreen Group (as defined in the Purchase Agreement) holds,
in the aggregate, Holders Stock acquired pursuant to the Purchase Agreement
(as hereinafter defined) representing at least 1% of the outstanding shares
of Common Stock of the Company, the Company shall not be or become a United
States Real Property Holding Corporation as defined in Section 897(c)(2) of
the Code nor shall the Holders Stock acquired pursuant to the Purchase
Agreement be or become a United States Real Property Interest as defined in
Section 897(c)(1)(A)(ii) of the Code. In addition, as of each determination
date (as defined in Treasury Regulation Section 1.897-2(c)), including
particularly a date of disposition, the Company shall provide to each
member of the Vistagreen Group a statement complying with Treasury
Regulation Section 1.897-2(g)(1)(ii) and shall also comply, on a timely
basis, with the notice requirements of Treasury Regulation Section
1.897-2(h) including without limitation, timely notice to the Internal
Revenue Service as provided in that Treasury Regulation, with a copy to
each member of the Vistagreen Group, together with other Supporting
Documents (as defined in that certain Stock Purchase Agreement by and
between Vistagreen Holdings (Bahamas), Ltd. and the Company as of the date
hereof (the "Purchase Agreement")), but dated as of the determination Date.
Any notice conforming with or under Treasury Regulation Section 1.897-2(h)
need address the status of the Company as a United States Real Property
Holding Corporation and the status of the Company shares as a United States
Real Property Interest only from a date that is no earlier than the day
that is thirty days prior to the Effective Date. These covenants shall in
all respects survive the Closing of this Agreement. The "Vistagreen Group,"
as used herein, shall have the same meaning as in the Purchase Agreement.
ARTICLE IV
CONDITIONS PRECEDENT TO MERGER
4.1. Conditions Precedent to Obligations of Terremark and the
Company. The respective obligations of Terremark, on the one hand, and the
Company, on the other hand, to effect the Merger are subject to the
satisfaction or waiver (subject to applicable law), at or prior to the
Effective Time, of each of the following conditions:
(a) Approval of Company's Stockholders. This Agreement and
the Merger shall have been approved and adopted by the requisite vote or
consent of the stockholders of the Company in accordance with applicable
law, the provisions of the Company's Certificate of Incorporation and
By-Laws, and the requirements of the AMEX;
(b) Registration Statement. The Form S-4 shall have become
effective in accordance with the provisions of the Securities Act. No stop
order suspending the effectiveness of the Form S-4 shall have been issued
by the SEC and no proceedings for that purpose shall have been initiated by
the SEC.
(c) Litigation. There shall not have been instituted or be
pending any suit, action or proceeding by any governmental entity as a
result of this Agreement or any of the transactions contemplated hereby
with questions the validity or legality of the transactions contemplated by
this Agreement.
(d) Injunction. No injunction or other order shall have been
issued by any court or by any governmental or regulatory agency, body or
authority which is then in effect and has the effect of making the Merger
illegal or otherwise prohibiting the consummation of the Merger;
(e) Statutes. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted, entered, promulgated
or enforced by any court or governmental authority which prohibits the
consummation of the Merger; and
(f) AMEX Listing. The shares of Post Merger Common Stock to be
issued pursuant to the Merger shall have been approved for listing on the
AMEX, upon final notice of issuance.
4.2. Conditions Precedent to Obligations of Terremark. The
obligations of Terremark to effect the Merger are also subject to
the satisfaction or waiver by Terremark, at or prior to the
Effective Time, of each of the following conditions:
(a) Accuracy of Representations and Warranties. All
representations and warranties of the Company contained herein shall be
true and correct in all material respects as of the date hereof and at and
as of the Closing, with the same force and effect as though made on and as
of the Closing Date (except as to any such representation and warranty
which relates to a specific date, which shall be true and correct as of
such specific date), except with respect to any such items which do not
have, individually or in the aggregate, a Material Adverse Effect on the
Company; and Terremark shall have received a certificate signed on behalf
of the Company by the chief executive officer or the chief financial
officer of the Company to such effect;
(b) Performance by Company. The Company shall have performed in
all material respects all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by it prior to the Closing Date;
and Terremark shall have received a certificate signed on behalf of the
Company by the chief executive officer or the chief financial officer of
the Company to such effect;
(c) Tax Opinion Letter. Terremark shall have received the
opinion of counsel reasonably satisfactory to Terremark in form and
substance reasonably satisfactory to Terremark, on the basis of customary
representations and assumptions set forth in such opinion, dated the
Effective Time, to the effect that (i) the Merger will be treated for
federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code, (ii) each of the Company and
Terremark will be a party to the reorganization within the meaning of
Section 368(b) of the Code, (iii) a Terremark shareholder will not
recognize gain or loss on the receipt of Post Merger Common Stock in
exchange for Terremark Common Stock pursuant to the Merger, except with
respect to any cash received in lieu of a fractional share, (iv) the
adjusted tax basis of the Post Merger Common Stock that a Terremark
shareholder receives pursuant to the Merger will be equal to the adjusted
tax basis of the Terremark Common Stock exchanged therefor, reduced by the
amount of any basis allocable to any fractional share, and (v) the holding
period of Post Merger Common Stock that a Terremark shareholder receives
pursuant to the Merger will include the holding period of the Terremark
common Stock exchanged therefor (provided that Terremark Common Stock is
held as a capital asset at the Effective Time). In rendering its opinion,
counsel shall be entitled to rely upon customary representations of
officers of the Company and Terremark reasonably requested by counsel;
(d) Letters of Company Accountants. Terremark shall
have received the Accountants Letters set forth in Section 3.10;
(e) Employment Agreement. Joseph Wright, Jr. Shall have entered
into an employment contract in form and substance acceptable to Terremark
which shall provide for, among other things, an annual salary of $250,000
and a surrender by him of all options to purchase shares of Common Stock
other than 1,000,000 options exercisable at $3.00 per share and the
2,000,000 options exercisable at $0.35 per share, none of which shall be
exercised until at least one year after the Effective Time; and
(f) Stock Purchase Agreement. The Stock Purchase Agreement by
and between the Company and Vistagreen Holdings (Bahamas), Ltd., a Bahamian
international business corporation ("Vistagreen") executed concurrently
herewith (the "Stock Purchase Agreement") shall be in full force and
effect, with all conditions precedent thereto (other than the consummation
of this Agreement) having been satisfied, all representations and
warranties of Vistagreen true and correct and with the parties hereto
having no reasonable basis to believe that the transactions contemplated in
the Stock Purchase Agreement would not be closed immediately after the
Effective Time.
4.3. Conditions Precedent to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company, at or prior to the Effective Time,
of each of the following conditions:
(a) Accuracy of Representations and Warranties. All
representations and warranties of Terremark contained herein shall be true
and correct in all material respects as of the date hereof and at and as of
the Closing, with the same force and effect as though made on and as of the
Closing Date (except as to any such representation and warranty which
relates to a specific date, which shall be true and correct as of such
specific date), except with respect to any such items which do not have,
individually or in the aggregate, a Material Adverse Effect on Terremark;
and the Company shall have received a certificate signed on behalf of
Terremark by the chief executive officer or the chief financial officer of
Terremark to such effect;
(b) Performance by Terremark. Terremark shall have performed in
all material respects all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by it prior to the Closing Date;
and the Company shall have received a certificate signed on behalf of
Terremark by the chief executive officer or the chief financial officer of
Terremark to such effect.
(c) Letters of Terremark Accountants. The Company shall have
received the Accountants Letters set forth in Section 3.10.
(d) Lock Up Letters. Each holder of Terremark Common Stock
immediately prior to the Effective Time ("Terremark Holder") shall have
executed a letter in form and substance reasonably satisfactory to the
Company providing that such holder shall not, except as provided below,
sell, offer to sell, pledge or otherwise dispose of any interest in the
Post Merger Common Stock for a period of not less than one (1) year after
the Effective Time; provided, however, that nothing contained herein shall
preclude (i) open market sales pursuant to Rule 144 or (ii) sales by any
Terremark Holder to Terremark, any Affiliate of Terremark or another
Terremark Holder, or to any member of the Vistagreen Group or Affiliate of
the Vistagreen Group. The term "Affiliate" as used herein shall mean any
person that directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such
person.
ARTICLE V
TERMINATION AND ABANDONMENT
5.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether before or after approval of the Merger by the
Company's stockholders:
(a) by mutual consent of the Board of Directors of the Company
and Terremark;
(b) by the Board of Directors of Terremark or the Company if
the Effective Time shall not have occurred by July 1, 2000 through no fault
of the terminating party;
(c) by either of the parties, if any permanent injunction,
order, decree or ruling by any governmental entity or competent
jurisdiction preventing the consummation of the Merger shall become final
and nonappealable;
(d) by the Board of Directors of Terremark or the Company if
there has been a material breach of any representation, warranty,
obligation, covenant, agreement or condition set forth in this Agreement on
the part of the other party; provided, however, that each of the Company
and Terremark shall have the right to cure any such breach within three
days of written notice of any such breach given by the other party;
(e) by the Board of Directors of Terremark or the Company if
the approval of this Agreement and the Merger by the required number of
holders of the Common Stock shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting (including any
adjournment or postponement thereof) of the Company's stockholders or any
adjournment thereof; provided, however, that if the failure to obtain such
required vote is the result of the failure of the Company to obtain a
quorum at its meeting of stockholders, the Company will immediately call an
additional meeting if so requested by Terremark; or
(f) by the Board of Directors of Terremark or the Company if
the Board of Directors of the Company shall have withdrawn or modified its
approval or recommendation of the Merger in any manner adverse to
Terremark;
provided, however, that the right to terminate the Agreement shall not be
available to a party that has breached in any material respect its
obligations under the Agreement in any manner that shall have proximately
contributed to the failure of the Merger to be consummated.
5.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 5.1 hereof by Terremark or the Company,
written notice thereof shall promptly be given to the other party
specifying the provision hereof pursuant to which such termination is made,
and this Agreement shall become void and have no effect, and there shall be
no liability hereunder on the part of Terremark or the Company, except that
Sections 3.2, 6.1 and 6.2 hereof shall survive any termination of this
Agreement. Nothing in this Section 5.2 shall relieve any party to this
Agreement of liability for breach of this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1. Fees and Expenses. (a) Except as set forth in Section 6.2
below, all costs and expenses incurred in connection with this Agreement
and the consummation of the transactions contemplated hereby shall be paid
by the party incurring such costs and expenses.
6.2. Negotiations
(a) The Company and its Agents shall immediately cease any
discussions or negotiations with any parties that may be ongoing with
respect to an Acquisition Proposal (as hereinafter defined). From and after
the date hereof until the Closing, the Company shall not, nor shall it
permit any of its Agents or any investment banker, financial advisor,
attorney, accountant or other representative retained by it to, directly or
indirectly, (i) solicit, initiate or knowingly encourage (including by way
of furnishing non-public information or assistance), or knowingly take any
other action to facilitate, any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal, or (ii) participate in any discussions or
negotiations regarding any Acquisition Proposal; provided, however, that
if, at any time the Board of Directors of the Company determines in good
faith, after consultation with independent legal counsel (who may be the
Company's regularly engaged independent counsel), that it may be necessary
to do so in order to comply with its fiduciary duties to the Company's
stockholders under applicable law, the Company may, in response to an
unsolicited Superior Proposal, and subject to compliance with Section
6.2(c), (x) furnish information with respect to the Company to the person
making such unsolicited Superior Proposal pursuant to a confidentiality
agreement in a form approved by the Company, and (y) participate in
discussions or negotiations regarding such Superior Proposal. For purposes
of this Agreement, "Acquisition Proposal" means any inquiry, proposal or
offer from any person relating to any direct or indirect acquisition or
purchase of 20% or more of the assets of the Company or 20% or more of any
class of equity securities of the Company, any tender offer or exchange
offer that if consummated would result in any person beneficially owning
20% or more of any class of equity securities of the Company, any merger,
consolidation, business combination, sale of all or substantially all the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company (other than the transactions between the parties
hereto contemplated by this Agreement or ordinary course trading of the
Common Stock on the AMEX), or any other transaction the consummation of
which could reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which could reasonably be expected to
materially dilute the benefits to the Terremark shareholders of the
transactions contemplated hereby. For purposes of this Agreement, a
"Superior Proposal" means any bona fide Acquisition Proposal made by a
third party on terms which the Board of Directors of the Company determines
in its good faith judgment (after consultation with an experienced
investment banker) to be more favorable to the Company stockholders than
the terms of the Merger set forth in this Agreement.
(b) Except as set forth in this Section 6.2, neither the Board
of Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Terremark,
the approval or recommendation of this Agreement or the Merger by such
Board of Directors or such committee, (ii) approve or recommend, or propose
to approve or recommend, any Acquisition Proposal, or (iii) cause the
Company to enter into any agreement with respect to any Acquisition
Proposal. Notwithstanding the foregoing, in the event that the Board of
Directors of the Company determines in good faith, after consultation with
independent legal counsel (who may be the Company's regularly engaged
independent counsel), that it may be necessary to do so in order to comply
with its fiduciary duties to the Company's stockholders under applicable
law, the Board of Directors of the Company may (subject to the other
provisions of this Article VI) withdraw or modify its approval or
recommendation of this Agreement and the Merger, approve or recommend a
Superior Proposal, cause the Company to enter into an agreement with
respect to a Superior Proposal or terminate this Agreement, but in each
case only at a time that is after the fifth business day following
Terremark's receipt of written notice (a "Notice of Superior Proposal")
advising Terremark that the Board of Directors of the Company has received
a Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal.
Upon receiving the Notice of Superior Proposal, Terremark shall have the
opportunity to amend this Agreement. If after such amendment, the Board of
Directors of the Company still determines in good faith that the
Acquisition Proposal constitutes a Superior Proposal, the Board may then
(1) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Terremark, the approval or recommendation of this Agreement or
the Merger by such Board of Directors or such committee, (2) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, or
(3) cause the Company to enter into any agreement with respect to any
Acquisition Proposal; provided, however, that in doing so, the Company
shall concurrently pay, or cause to be paid, to Terremark the fees set
forth below in this Section 6.2.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 6.2, the Company shall promptly
advise Terremark orally and in writing of any request for information or of
any Acquisition Proposal, the material terms and the financial
consideration in respect of such request or Acquisition Proposal and the
identity of the person making such request or Acquisition Proposal.
(d) Nothing contained in this Section 6.2 shall prohibit the
Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from
making any disclosure to the Company's stockholders if, in the good faith
judgment of the Board of Directors of the Company, after consultation with
independent legal counsel (who may be the Company's regularly engaged
independent counsel), failure so to disclose would be inconsistent with its
fiduciary duties to the Company's stockholders under applicable law.
(e) The Company acknowledges that Terremark, in proceeding with
the transactions contemplated herein, has foregone the opportunity to
consummate a transaction in which it would have earned a commission in the
amount of $3.0 million (the "Foregone Commission").
(f) In the event the Company terminates this Agreement pursuant
to Section 5.1(f), or Terremark terminates pursuant to Sections 5.1(d) or
5.1(f), the Company shall pay Terremark (A) all fees and expenses incurred
by Terremark in connection with the transactions contemplated hereby, up to
a limit of $200,000 and (B) an amount equal to the Foregone Commission, all
within three (3) days of any such termination. In the event the Company
executes a definitive agreement pursuant to a Superior Proposal within
twelve (12) months after the termination of this Agreement pursuant to the
first sentence of this Section 6.2(f), the Company shall, in addition to
the applicable amounts set forth in the preceding sentence, also pay to
Terremark an amount equal to 25% of the difference between (x) the
valuation of the Company used to formulate the Superior Proposal and (y)
the valuation of the Company used to formulate the transaction pursuant to
this Agreement. The foregoing amount shall be due and owing to Terremark
regardless of whether the transactions contemplated by the Superior
Proposal are ultimately consummated by the Company.
(g) The provisions of this Section 6.2 will survive the
termination of this Agreement prior to the Closing.
6.3. Survival of Representations and Warranties. The respective
representations and warranties of the Company and Terremark contained
herein or in any certificates or other documents delivered prior to or at
the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party. Each and every such representation and
warranty shall expire with, and be terminated and extinguished by, the
Closing and thereafter neither of the Company nor Terremark shall be under
any liability whatsoever with respect to any such representation or
warranty. This Section 6.3 shall have no effect upon any other obligation
of the parties hereto, whether to be performed before or after the
Effective Time.
6.4. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken by or on behalf of the respective Boards of
Directors of the Company or Terremark, may (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document,
certificate or writing delivered pursuant hereto by any other applicable
party or (iii) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of any party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
6.5. Public Announcements. Terremark and the Company will consult
with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and shall not issue any press release or make any public statement
without the prior consent of the other party, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, any such press
release or public statement as may be required by applicable law or any
listing agreement with any national securities exchange may be issued (a)
prior to such consultation, if the party making the release or statement
has, in light of the applicable timing, used its reasonable efforts to
consult with the other party and (b) without the consent of the other
party.
6.6. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall
be in writing and shall be deemed to have been duly given if delivered in
person or mailed, certified or registered mail with postage prepaid, or
sent by telecopier, as follows:
(a) if to the Company, to it at:
AMTEC, INC.
599 Lexington Avenue, 44th Floor
New York, NY 10002
Facsimile Number: (212) 319-9288
Attention: Karin-Joyce Tjon
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Edmund C. Duffy, Esq.
(b) if to Terremark, to it at:
Terremark Holdings Inc.
c/o Terremark Group, Inc.
2601 S. Bayshore Drive, PH-1B
Coconut Grove, FL 33133
Facsimile: (305) 856-8190
Attention: Brian K. Goodkind, Esq.
with a copy to:
Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, FL 33131
Facsimile: (305) 579-0717
Attention: Paul Berkowitz, Esq.
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the
date of delivery unless if mailed, in which case on the third business day
after the mailing thereof except for a notice of a change of address, which
shall be effective only upon receipt thereof.
6.7. Entire Agreement; Severability. This Agreement and the annex,
schedules and other documents referred to herein or delivered pursuant
hereto, and the Promissory Note and Security Agreement executed by the
Company in favor of Terremark collectively contain the entire understanding
of the parties hereto with respect to the subject matter contained herein
and supersede all prior agreements and understandings, oral and written,
with respect thereto, including the letter of intent dated November 9, 1999
previously entered into by the parties. In the event that any provision
hereof would, under applicable law, be invalid or unenforceable in any
respect (a) if such provision is enforceable in part, such provision shall
be enforced to the maximum extent permissible under applicable law, and (b)
the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect, provided, however,
that if enforcement of the Agreement without giving effect to an invalid or
unenforceable provision would deny either party the benefit of the
transaction contemplated hereby, then the Agreement as a whole will
terminate.
6.8. Binding Effect; Benefit; Assignment. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties. Nothing in this Agreement, expressed or implied, is intended to
confer on any Person other than the parties hereto or their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
6.9. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in writing by the
parties hereto in any and all respects before the Effective Time
(notwithstanding any stockholder approval), by action taken by the
respective Boards of Directors of Terremark and the Company or by the
respective officers authorized by such Boards of Directors, provided,
however, that after any such stockholder approval, no amendment shall be
made which by law requires further approval by such stockholders without
such further approval.
6.10. Further Actions. Each of the parties hereto agrees that,
subject to its legal obligations, it will use its best efforts to fulfill
all conditions precedent specified herein, to the extent that such
conditions are within its control, and to do all things reasonably
necessary to consummate the transactions contemplated hereby.
6.11. Interpretation; Headings. Any matter required to be disclosed
in any Schedule which was not disclosed therein shall be deemed to have
been disclosed in the correct Schedule to the extent such matter was
reasonably specifically cross-referenced to another Schedule containing
such disclosure. The parties agree that certain agreements and other
matters may be listed in a Schedule for informational purposes only,
notwithstanding that, because they do not rise to the applicable
materiality thresholds or otherwise, they are not required to be listed
therein by the terms of this Agreement. In no event shall the listing of
any such Contract or the inclusion of any other matter in any Schedule be
deemed or interpreted to broaden or otherwise amplify the representations
and warranties or covenants contained in this Agreement. Furthermore, the
disclosure of any particular item or items of information in any Schedule
shall not be taken as an admission that such disclosure is required to be
made under the terms of any such representations and warranties (including
any admission that any such items establish the required level of
materiality). The descriptive headings of the several Articles and Sections
of this Agreement are inserted for convenience only, do not constitute a
part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement.
6.12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of
which together shall be deemed to be one and the same instrument.
6.13. Applicable Law. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard
to the conflict of laws rules thereof.
6.14. Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its
regulatory policy, the remainder of the terms, provisions, covenants and
restrictions contained in this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
6.15. "Person" Defined. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, a group and a government or other department
or agency thereof.
IN WITNESS WHEREOF, each of Terremark and the Company have caused
this Agreement to be executed by their respective officers thereunto duly
authorized, all as of the date first above written.
TERREMARK HOLDINGS, INC.
/s/ Manuel D. Medina
Chairman & Chief Executive Officer
AMTEC, INC.
/s/ Joseph R. Wright, Jr.
Chairman & Chief Executive Officer
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS ADMENDMENT TO AGREEMENT AND PLAN OF MERGER is dated as of February 11,
2000 ("Amendment"), and is made by and between Terremark Holdings, Inc. a
Florida Corporation ("Terremark'), and AmTec, Inc., a Delaware corporation
("AmTec").
WHEREAS, the parties entered into that certain Agreement and Plan of
merger dated as of November 24, 1999 (the "Merger Agreement"); and
WHEREAS, the parties desire to hereby amend the Merger Agreement, as
set forth herein, effective as of the date forth set forth above.
NOW THEREFORE, for good and valuable consideration, the parties
hereto agree as follows (all capitalization terms not herein defined shall
have the meaning set forth in the Merger Agreement):
1. Terremark and AmTec have determined to prepare and submit to
the stockholders of AmTec a proxy statement and to delay the
filing of a registration statement (which shall be made on a
Form S-3 or similar form) with the SEC relating to the share
to be issued in the Merger Agreement and to be sold pursuant
to the Stock Purchase Agreement until the Effective Time.
All references to the Form S-4, and all obligations,
representations, warranties and references thereto are deemed
to be eliminated from the Merger Agreement.
2. Section 1.6 is revised and restated in its entirety to read
as follows:
1.6 Certificate of Incorporation of the Surviving Corporation.
The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation; provided, however, that
the name of the Surviving Corporation shall be Terremark Worldwide,
Inc. and that the total number of shares of capital stock that the
Company is authorized to issue is 300,000,000 shares of common stock.
3. The following section is added as a new Section 2.2(w):
Investment Intent. Terremark represents and warrants that, to its
knowledge, the holders of Terremark Common Stock (i) are taking the
Post Merger Common Stock issued to them for investment purposes and
not with a view to distribution thereof, and that they (ii) agree not
to make any sale, transfer or other disposition of the Post Merger
Common Stock in violation of any applicable securities law.
4. Section 4.2 (c) is revised and restated in its entirety to
read as follows:
Tax Opinion Letter. Terremark shall have received the option of
counsel reasonably satisfactory to Terremark in form and substance
reasonably satisfactory to Terremark, on the basis of customary
representations and assumptions set forth in or attached to such
opinion, dated the Effective Time, to the effect that (i) the Merger
will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Section 368(a) of the code, (ii)
each of the Company and Terremark will be a party to the
reorganization within the meaning of Section 368(a) of the Code
368(b) of the Code, (iii) a Terremark shareholder that is a United
States person within the meaning of Section 7701(a)(30) of the Code
(a "U.S. Terremark Shareholder") will not recognize gain or loss on
the receipt of Post Merger Common Stock in exchange for Terremark
Common Stock pursuant to the Merger, except with respect to any cash
received in lieu of a fractional share, (iv) the adjusted tax basis
of the Post Merger Common Stock that a U.S. Terremark Shareholder
receives pursuant to the Merger will be equal to the adjusted tax
basis of the Terremark Common Stock exchanged therefor, reduced by
the amount of any basis allocable to any fractional share, and (v)
the holding period of Post Merger Common Stock that a U.S. Terremark
shareholder receives pursuant to the Merger will include the holding
period of the Terremark common Stock exchanged therefor (provided
that Terremark Common Stock is held as a capital asset at the
Effective Time.) In rendering its opinion, counsel shall be entitled
to rely upon customary representations of officers of the Company and
Terremark reasonably requested by counsel;
5. Section 4.3(d) is revised and restated in its entirety to
read as follows:
Lock Up Letters. Each holder of Terremark Common Stock immediately
prior to the Effective Time ("Terremark Holder") shall have executed
a letter in form and substance reasonably satisfactory to the Company
providing that such holder shall not, except as provided below, sell
offer to sell or otherwise dispose of any interest in the Post Merger
Common Stock for a period of not less that one year after the
Effective Time; provided, however, that nothing contained herein
shall preclude (i) open market sales in an amount which would be
permitted under that volume limitations of Rule 145, as if such rule
were applicable, or (ii) sales by any Terremark Holder to Terremark,
any Affiliate of Terremark or another Terremark Holder, or to any
member of the Vistagreen Group of Affiliate of the Vistagreen Group.
The term "Affiliate" as used herein shall mean any person that
directly or indirectly, through one or more intermediaries, controls,
or is controlled by, or is under common control with, such person.
6. The following section is added as a new Section 4.3(e):
Stock Purchase Agreement. The Stock Purchase Agreement shall be in
full force and effect, with all conditions precedent thereto (other
than the consummation of this Agreement) having been satisfied, all
representations and warranties of this Agreement) having been
satisfied, all representations and warranties of Vistagreen true and
correct and with the parties hereto having no reasonable basis to
believe that the transactions contemplated in the Stock Purchase
Agreement would not be closed immediately after the Effective Time.
7. The following section is added as a new Section 3.13:
Stock Option Grants. The parties agree to take all actions necessary
or appropriate to cause the Company or the Surviving Corporation, as
appropriate, to approve the grant of a total of up to 750,000 stock
options to purchase Post Merger Common Stock under the Company's
Amended and Restated 1996 Stock Option Plan (the "Plan") to such
individuals as shall be designated by Terremark. Such grants shall be
made as of the Closing Date, and shall be made in accordance with the
following terms: (a) the options shall be granted with an exercise
price equal to the Fair Market Value of Common Stock as defined in
the Plan (i.e. the closing sales price of the shares on the date of
grant on the American Stock Exchange), (b) the options shall vest
over a three year period (i.e. at the rate of 1/3 on each anniversary
of the date of grant), except as otherwise set forth herein, (c) in
the event of a Change in Control of the Surviving Corporation (as
defined in the Plan) the options shall expire in a ten (10) year
period.
8. Each of the parties hereto agrees that it will use its commercially
reasonable best efforts to do all things reasonably necessary to
consummate the transactions contemplated hereby.
9. This Amendment may be executed in several counterparts, each of which
shall be deemed to be an original, and all of which together shall be
deemed to be one and the same instrument.
10. This Amendment and the legal relations between the parties hereto
shall be goverened by and constructed in accordance with the laws of
the State of Delaware, without regard to the conflict of the laws
rules thereof.
11. Except as specifically amended by the Amendment, all terms and
conditions of the Merger Agreement shall remain unchanged and in full
force and effect.
12. The parties hereby acknowledge and consent to the amendment
as of the date hereof to that certain Stock Purchase
Agreement by and between Vistagreen Holdings (Bahamas), Ltd.,
a Bahamian international business company and AmTec, Inc., a
Delaware Corporation dated as of November 24, 1999.
IN WITNESS WHEREOF, each of Terremark and AmTec have caused this
Amendment to Agreement and Plan of Merger to be executed by their
respective offices thereunto duly authorized, all as of the date first
above written.
TERREMARK HOLDINGS, INC.
/s/ Brian K. Goodkind
Executive Vice-President
AMTEC, INC.
/s/ Joseph R. Wright, Jr.
Chairman & Chief Executive Officer
November 24, 1999
Board of Directors
AmTec, Inc.
599 Lexington Avenue
44th Floor
New York, New York 10022-6030
Ladies and Gentlemen:
We understand that AmTec, Inc. (the "Company") and Terremark
Holdings, Inc. ("Terremark") have entered into an Agreement and Plan of
Merger (the "Agreement") dated November __, 1999, pursuant to which
Terremark will be merged with and into the Company, with the Company being
the surviving entity (the "Merger"). Pursuant to the Agreement, each share
of the common stock of the Company, $0.001 par value (the "Company Common
Stock") then issued and outstanding shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
represent one share of common stock, $0.001 par value, of the Surviving
Corporation (as defined in the Agreement) (the "Post Merger Common Stock")
and any rights to receive Company Common Stock (including options, warrants
and convertible preferred stock) shall automatically be converted to a
right to receive an equal number of the Post Merger Common Stock, such
that, immediately after the Effective Time (as defined in the Agreement),
all holders of the Company Common Stock, together with the holders of any
rights to receive Company Common Stock shall, in the aggregate and on a
fully diluted basis, hold 38.5% of the Post Merger Common Stock of the
Surviving Corporation.
Furthermore, pursuant to the Agreement, each share of common stock,
par value $0.01 per share, of Terremark (the "Terremark Common Stock") then
issued and outstanding shall, by virtue of the Merger and without any
action on the part of the holder thereof, become the right to receive fully
paid and nonassessable shares of the Post Merger Common Stock, such that,
immediately after the Effective Time, all holders of the Terremark Common
Stock shall, in the aggregate and on a fully diluted basis, hold 61.5% of
the Post Merger Common Stock.
In addition, the parties to the Agreement have acknowledged that
Terremark at Bayshore, Inc., Terremark Centre, Inc. and ACGDI, Inc. (each
of which is a Florida corporation and which are collectively referred to as
the "Partners"), has sold to Terremark their interests in Terremark Centre
Limited, a Florida limited partnership, the owner of certain real property
referred to as the Terremark Centre located at 2601 South Bayshore Drive,
Coconut Grove, Florida, for a purchase price equal to the difference
between $56,000,000 and the (at the time of the sale) outstanding principal
balance of the first mortgage loan in favor of Principal Mutual Insurance
Company (the "Proceeds"). The Company has agreed to, at the Effective Time,
sell to the Partners, or their assignees, for the Proceeds, such number of
shares of Post Merger Common Stock as shall be equal, in the aggregate and
on a fully diluted basis, 35% of the Post Merger Common Stock of the
Surviving Corporation (the "Stock Purchase") pursuant to a certain Stock
Purchase Agreement which was executed contemporaneously with the Agreement
between the Company and Vistagreen Holdings (Bahamas), Ltd., a Bahamian
international business corporation. Upon the closing of the Merger and the
Stock Purchase (collectively, the "Transaction"), the percentage ownership
of the holders of the Company Common Stock shall be 25%, the percentage
ownership of the Partners shall be 35%, and the percentage ownership of the
existing holders of the Terremark Common Stock shall be 40%, each such
percentage representing the respective ownership of such persons of the
Post Merger Common Stock.
You have requested our opinion and advice, as investment bankers, as
to the Transaction, as set forth below.
Please be aware that we have not been asked to render, and are not
rendering, an opinion as to the fairness, from a financial point of view,
to the holders of the Company Common Stock, of the consideration to be
offered in the Transaction.
In conducting our analysis and arriving at our conclusion as
expressed herein, we have, among other things:
(i) reviewed certain publicly available business and financial
information relating to the Company and Terremark that we deemed to be
relevant;
(ii) read the letter of intent, memorandum of understanding and draft
merger [and stock purchase]documents;
(iii) reviewed the Base Case and Management Case valuation of the
Company, dated November 1, 1999, compiled by the Company;
(iv) spoke with CIBC World Markets regarding the activities they
engaged in on behalf of the Company over the last year;
(v) reviewed the terms of the financing alternatives as provided by
the Company;
(vi) visited Terremark Centre;
(vii) visited potential development sites;
(viii) reviewed the relevant documentation relating to the operating
business of Terremark;
(ix) reviewed certain internal information, primarily financial in
nature, including financial forecasts and other financial and operating
data relating to strategic implications and operational benefits
anticipated to result from the Transaction, provided to us by management of
the Company and Terremark; and
(x) conducted discussions with members of senior management of the
Company and Terremark concerning the operations, historical financial
statements and future prospects of the Company and Terremark.
We have also met with certain officers and employees of the Company
and Terremark concerning its business and operations, properties, assets,
present condition and prospects and undertook such other studies, analyses
and investigations as we deemed appropriate.
In formulating our opinion as to the Transaction as set forth below,
we have considered, without independent investigation, the following
information which was provided to us by the management of the Company and
Terremark:
(i) The Company, with CIBC World Market's assistance, has tried for
over a year and a half to raise money but has not been successful;
(ii) The Company currently has a serious liquidity problem that cannot
be satisifed from its cash flows and accordingly, the Company needs a
capital infusion to fund the new initiatives and operating expenses;
(iii) The Company's urgent need for capital and lack of other options
for raising funds;
(iv) Terremark has been operating as a "pass through" real estate
company with many different partnerships set up for which they do advisory
business and financing; and
(v) Based on information provided by Terremark, we estimate that
Terremark's current actual value is approximately $10 million which may be
viewed as conservative due to (a) the fact that many of Terremark's
management agreements are not well documented and therefore, are not
accurately reflected in the Company's value and (b) that such valuation
does not take into account the goodwill developed by Terremark and its
principal, Manny Medina, for its business.
In the course of our review, we have relied upon and assumed the
accuracy and completeness of the financial and other information that is
publicly available or that has been provided to us by the Company and
Terremark and have not attempted independently to verify such information,
nor do we assume any responsibility to do so. With respect to financial
forecasts, and other information provided to or reviewed by us, we have
been advised by the management of the Company and Terremark that such
forecasts and other information were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
Company and Terremark as to the expected future financial performance of
the Company and Terremark and the strategic implications and operational
benefits anticipated from the Transaction. We have not assumed any
responsibility for the information provided to us and we have further
relied on the assurances of managements of the Company and Terremark that
they were unaware of any facts that would make the information or forecasts
provided to us incomplete or misleading. We have also assumed with your
consent that (i) the Transaction will be consummated in accordance with the
terms described in the Agreement and (ii) the Stock Purchase will be
consummated in accordance with the terms of the Stock Purchase. In arriving
at our opinion, we have not performed or been furnished with any
independent evaluation or appraisal of the assets, properties or
liabilities (contingent or otherwise) of the Company or Terremark. We have
visited but have not conducted any physical inspection of the properties or
assets of the Company or Terremark. We have also taken into account our
assessment of general economic, market and financial conditions and our
experience in similar transactions, as well as our experience as investment
bankers in general. Our opinion is necessarily based on economic, market,
financial and other conditions, and the information made available to us,
as they exist and can be evaluated as of the date hereof and we assume no
responsibility to update or revise our opinion based upon events or
circumstances occurring after the date hereof. We reserve, however, the
right to withdraw, revise or modify our opinion based upon additional
information which may be provided to or obtained by us, which suggests, in
our judgment, a material change in the assumptions upon which our opinion
is based. Our opinion as expressed below does not imply any conclusion as
to the likely trading range of the Company Common Stock prior to or to Post
Merger Common Stock subsequent to the consummation of the Transaction,
which may vary depending upon, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and
other factors that generally influence the price of securities.
We have acted as financial advisor to the Board of Directors of the
Company in connection with the Transaction and will receive a fee for such
services. In the ordinary course of our business, we actively trade the
securities of the Company for our own account and for the accounts of
others and, accordingly, may at any time hold a long or short position in
such securities. It is understood that this letter is intended for the
benefit and use of the Board of Directors of the Company and is not to be
used for any other purpose, or reproduced, disseminated, summarized,
quoted, excerpted from or referred to at any time, in whole or in part,
without our prior written consent.
Based upon and subject to the foregoing, it is our opinion as
investment bankers, that, as of the date hereof, from a financial point of
view, the Transaction is the Company's best alternative for carrying out
its plans and programs.
Very truly yours,
RAMIUS CAPITAL GROUP, LLC
By:_______________________________
Peter A. Cohen, Manager
==============================================================================
ANNEX C
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
VISTAGREEN HOLDINGS (BAHAMAS), LTD.
AND
AMTEC, INC.
Dated as of November 24, 1999
==============================================================================
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF STOCK.....................................1
1.1. Note Proceeds.....................................................1
1.2. Purchase and Sale of Post-Merger Common Stock.....................2
1.3. Closing...........................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES.................................3
2.1. Representations and Warranties of the Company.....................3
(a) Due Organization, Good Standing and Corporate Power..........3
(b) Authorization and Validity of Agreement......................3
(c) Capitalization...............................................4
(d) Consents and Approvals; No Violations........................5
(e) Company Reports and Financial Statements.....................5
(f) Absence of Certain Changes...................................6
(g) Title to Properties; Encumbrances............................7
(h) Compliance with Laws.........................................7
(i) Litigation...................................................7
(j) Government Authorization.....................................8
(k) Insurance....................................................8
(l) Casualties...................................................8
(m) Propriety of Past Payments...................................8
(n) Employment Relations and Agreements..........................9
(o) Client Relations.............................................9
(p) Sufficiency of Assets.......................................10
(q) Contracts and Commitments...................................10
(r) Disclosure Documents........................................10
(s) Full Disclosure.............................................10
2.2. Representations and Warranties of the Vistagreen Group...........11
(a) Accredited Investor.........................................11
(b) Capitalization..............................................11
ARTICLE III REGISTRATION RIGHTS...........................................11
3.1. Shelf Registration...............................................11
3.2. Expenses of Registration.........................................12
3.3. Registration Procedures..........................................12
3.4. Indemnification..................................................14
3.5. Information by the Holders.......................................17
3.6. Holdback Agreement; Postponement.................................17
3.7. Assignment.......................................................17
3.8. Remedies.........................................................17
3.9. Lockup...........................................................17
ARTICLE IV ADDITIONAL AGREEMENTS.........................................18
4.1. United States Real Property Interests............................18
ARTICLE V CONDITIONS PRECEDENT..........................................18
5.1. Conditions Precedent to Obligations of Vistagreen Group..........18
(a) Closing of Merger Agreement.................................18
(b) Accuracy of Representations and Warranties..................18
(c) Sale of Property............................................18
(d) United States Real Property Holding Company.................18
(e) Legal Opinion...............................................19
(f) Approval of Company's Stockholders..........................19
(g) Registration Statement......................................19
(h) Litigation..................................................20
(i) Injunction..................................................20
(j) Statutes....................................................20
(k) AMEX Listing................................................20
(l) Performance by Company......................................20
(m) Letters of Company Accountants..............................20
(n) Employment Agreement........................................20
5.2. Conditions Precedent to Obligations of the Company...............21
(a) Accuracy of Representations and Warranties..................21
(b) Merger Agreement Closing....................................21
ARTICLE VI TERMINATION AND ABANDONMENT...................................21
6.1. Termination......................................................21
6.2. Effect of Termination............................................22
ARTICLE VII MISCELLANEOUS.................................................22
7.1. Fees and Expenses................................................22
7.2. Survival of Representations and Warranties.......................22
7.3. Extension; Waiver................................................23
7.4. Notices..........................................................23
7.5. Entire Agreement; Severability...................................24
7.6. Binding Effect; Benefit; Assignment..............................24
7.7. Amendment and Modification.......................................24
7.8. Further Actions..................................................25
7.9. Interpretation; Headings.........................................25
7.10.Counterparts.....................................................25
7.11.Applicable Law...................................................25
7.12.Severability.....................................................25
ARTICLE VIII DEFINITIONS...................................................26
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of November 24, 1999 ("Agreement"),
by and between Vistagreen Holdings (Bahamas), Ltd., a Bahamian
international business company ("Purchaser"), and AMTEC, INC., a Delaware
corporation (the "Company").
WHEREAS, as of the date hereof, Terremark Holdings, Inc., a Florida
corporation ("Terremark") and the Company have entered into that certain
Agreement and Plan of Merger pursuant to which Terremark shall merge (the
"Merger")with and into the Company with the Company being the surviving
entity (the "Merger Agreement");
WHEREAS, as of the date hereof, Terremark and certain of its
Affiliates (the "Terremark Group") and Purchaser and its Affiliates (the
"Vistagreen Group") have entered into that certain Contract for Purchase
and Sale, pursuant to which Terremark is purchasing, and the Vistagreen
Group is selling, the general and limited partnership interests (the
"Partnership Interests") of Terremark Center, Ltd., a Florida limited
partnership (the "Purchase Contract");
WHEREAS, upon the closing of the Purchase Contract, the Vistagreen
Group will receive certain promissory notes in the aggregate amount of
$56,000,000 less the outstanding balance of the first mortgage loan on the
property legally described in Exhibit A to the Purchase Contract (the
"Property") in favor of Principal Mutual Insurance Company, in payment of
the purchase price for the sale of the Partnership Interests to the
Terremark Group (the "Note"); and
WHEREAS, in connection with the sale of the Property, the Note shall
be required to be satisfied in full and, subject to certain conditions, all
such proceeds so paid to satisfy the Note in full ("Note Proceeds") shall
be used to purchase certain shares of the Company as set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties, conditions and agreements herein
contained, the parties hereto agree as follows (all capitalized terms not
herein defined shall have the same meaning as set forth in the Merger
Agreement):
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1. Note Proceeds. The parties acknowledge that for the closing of
the transactions contemplated by this Agreement (the "Closing") to occur,
the Property must have been sold. Upon the sale of the Property, the
Terremark Group shall be required to pay the Note Proceeds into an
interest-bearing account in the name of ACGDI, Inc., Terremark at Bayshore,
Inc. and Terremark Centre, Inc. or their permitted assignees, who at such
time hold the note (the "Holders"), at Northern Trust Bank of Florida, N.A.
(the "Escrow Account"). There shall be two authorized signatories (the
"Representatives") with respect to such Escrow Account, one representing
the Holders and the other representing Terremark. The initial
Representative of the Holders shall be Joel J. Karp, Esq., and the initial
Representative of Terremark shall be Brian K. Goodkind, Esq. Any
withdrawals from the Escrow Account shall require the signature of both
such Representatives. The Holders and Terremark, respectively, agree to
cause their respective Representatives to disburse funds from the Escrow
Account in accordance with the provisions of this Agreement.
1.2. Purchase and Sale of Post-Merger Common Stock. Upon the Merger
Agreement Closing, the Surviving Corporation will sell to the Vistagreen
Group and the Vistagreen Group will purchase from the Surviving Corporation
such number of Registered shares of Post Merger Common Stock of the
Surviving Corporation which represents 35% of the issued and outstanding
Post-Merger Common Stock of the Surviving Corporation on a fully diluted
basis ("Holders Stock"). As used herein, any calculation of shares on a
"fully diluted basis" shall mean a calculation of share ownership that
assumes that all options granted under any incentive or other plan of the
Company have been exercised, that all warrants to purchase securities of
the Company or the Surviving Corporation have been exercised and that all
rights to convert any security or other instrument, including, without
limitation, Series E and G Preferred Stock of the Company, into Common
Stock or Post Merger Common Stock have been exercised, each such exercise
to be deemed to have occurred immediately prior to the issuance of the
Post-Merger Common Stock to the Holders. As used herein "Registered" shares
shall mean shares which are registered for lawful public sale pursuant to a
registration statement which has been declared effective by the SEC (and
with respect to which no stop order suspending effectiveness of the same
shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the SEC) under applicable federal and state
securities laws and which have been approved for listing on the AMEX,
subject to final notice of issuance. The purchase price to be paid by the
Vistagreen Group for the Holders Stock shall be an amount equal to the Note
Proceeds, together with all interest earned thereon. At the Closing, the
Surviving Corporation shall deliver to the Vistagreen Group certificates in
the aggregate representing the Holders Stock, which certificates shall be
in such denominations as the Vistagreen Group reasonably request, such
request to be delivered to the Surviving Corporation in writing at least
three (3) business days prior to the Closing. Notwithstanding anything
herein to the contrary, if the Merger Agreement Closing has not occurred on
or before December 31, 2000, then the obligation of the Vistagreen Group to
purchase the Holders Stock shall immediately terminate and be of no further
force and effect. In such event, on the first business day in January 2001,
Terremark and the Holders shall each cause their respective Representatives
to disburse all funds which then remain in the Escrow Account to the
Vistagreen Group in accordance with the Purchase Contract and such
instructions as the Vistagreen Group shall deliver to such Representatives.
1.3. Closing. The Closing shall take place at the same place as and
immediately following the Merger Agreement Closing. Notwithstanding
anything herein to the contrary, in the event that any condition precedent
to the obligation of the Vistagreen Group to purchase the Holders Stock
hereunder is not satisfied as of the Merger Agreement Closing, the
Vistagreen Group shall not be required to so purchase the Holders Stock
regardless of whether Terremark and the Company elect to effect the Merger.
Without limiting the foregoing, no waiver by Terremark of any condition
precedent to Terremark's obligation to effect the Merger shall constitute
or be deemed a waiver of the same condition by the Vistagreen Group.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Vistagreen Group as follows:
(a) Due Organization, Good Standing and Corporate Power. Each
of the Company and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation and each such corporation has all requisite corporate
power and authority to own, lease and operate its properties and to carry
on its business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except in such jurisdictions where the failure to
be so qualified or licensed and in good standing would not have a Material
Adverse Effect on the Company. For the purposes of this Agreement,
"Material Adverse Effect" on any Person means a material adverse effect on
the business, properties, assets, liabilities, operations, results of
operations, condition (financial or otherwise) or prospects of the Person
and its Subsidiaries taken as a whole (i) except to the extent resulting
from (A) any change in general United States or global economic conditions
or general economic conditions in industries in which the Person competes,
or (B) the announcement of the transaction contemplated herein or any
action required to be taken pursuant to the terms hereof, and (ii) except
that the term Material Adverse Effect shall not include, with respect to
the Company (A) any decreases in the Company's stock price in and of itself
or (B) any deterioration in the Company's financial condition which is a
direct and proximate result of its agreements with Hebei United
Telecommunication Equipment Co. The term "Subsidiary," as used in this
Agreement, refers to any Person in which the Company owns any equity
interest and shall include all joint ventures.
(b) Authorization and Validity of Agreement. The Company has
full corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement by the Company, and the consummation by it of the transactions
contemplated hereby, have been duly authorized and approved by its Board of
Directors and no other corporate action on the part of the Company is
necessary to authorize the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
the Company and is a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except to the
extent that such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles.
(c) Capitalization. (i) The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock and 10,000,000
shares of preferred stock, $0.001 par value (the "Preferred Stock"). As of
the close of business on November 22, 1999, (1) 36,271,689 shares of Common
Stock are issued and outstanding. Set forth on Schedule 2.2(c)(i) are (1)
the number of shares of Common Stock reserved for issuance pursuant to
outstanding Options granted under the Stock Incentive Plans, (2) the number
of such shares which have been issued under such Plans, (3) the number of
shares of Series G Preferred Stock issued and outstanding, and (4) the
number of warrants to purchase the indicated number of shares of Common
Stock. No shares of Common Stock are held in the Company's treasury. The
Series G Preferred Stock converts at the option of the holder into
1,688,022 shares of Common Stock, which number of shares of Common Stock
have been authorized and reserved for issuance by the Company. All issued
and outstanding shares of capital stock of the Company have been validly
issued and are fully paid and nonassessable, and are not subject to, nor
were they issued in violation of, any preemptive rights. Except as set
forth in this Section 2.1(c) or on Schedule 2.1(c) attached hereto, (x)
there are no shares of capital stock of the Company authorized, issued or
outstanding (except for shares subsequently issued pursuant to existing
options, warrants and other rights described in Section 2.1(c)) and (y)
there are not, as of the date hereof, and at the Effective Time there will
not be, any outstanding or authorized options, warrants, rights,
subscriptions, claims of any character, agreements, obligations,
convertible or exchangeable securities, or other commitments, contingent or
otherwise, relating to Common Stock or any other shares of capital stock of
the Company, pursuant to which the Company is or may become obligated to
issue shares of Common Stock, any other shares of its capital stock or any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of the capital stock of the Company. The Company
will authorize and reserve and hereby covenants that it will continue to
reserve, free of any preemptive rights or encumbrances, a sufficient number
of its authorized but previously unissued shares of Common Stock to satisfy
the purchase rights of the Vistagreen Group hereunder. The Holders Stock
which is being purchased by the Vistagreen Group hereunder, when issued,
sold and delivered in accordance with the terms hereof, will be duly and
validly issued, fully paid and non-assessable and will be issued in
compliance with all applicable federal and state securities laws.
(ii) Schedule 2.1(c)(ii) lists all of the Company's
Subsidiaries (as defined in Section 2.1(a) hereof). All of the outstanding
shares of capital stock of each of the Company's Subsidiaries have been
duly authorized and validly issued, are fully paid and nonassessable, are
not subject to, nor were they issued in violation of, any preemptive
rights, and are owned, of record and beneficially, by the Company, except
as otherwise set forth on Schedule 2.1(c)(ii), free and clear of all liens,
encumbrances, options or claims whatsoever. No shares of capital stock of
any of the Company's Subsidiaries are reserved for issuance and there are
no outstanding or authorized options, warrants, rights, subscriptions,
claims of any character, agreements, obligations, convertible or
exchangeable securities, or other commitments, contingent or otherwise,
relating to the capital stock of any Subsidiary of the Company, pursuant to
which such Subsidiary is or may become obligated to issue any shares of
capital stock of such Subsidiary or any securities convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of
such Subsidiary. Except for the Subsidiaries listed on Schedule 2.1(c)(ii),
the Company does not own, directly or indirectly, any capital stock or
other equity interest in any Person or have any direct or indirect equity
or ownership interest in any Person and, except as set forth in Schedule
2.1(c)(ii), neither the Company nor any of its Subsidiaries is subject to
any obligation or requirement to provide funds for or to make any
investment (in the form of a loan, capital contribution or otherwise) to or
in any Person. Schedule 2.1(c)(ii), sets forth the equity interests of each
such Subsidiary owned by the Company.
(d) Consents and Approvals; No Violations. Assuming (i)
compliance with any applicable requirements under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii)
compliance with any requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the
"Exchange Act") and any requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the
"Securities Act") relating to the Proxy Statement and registration of the
Holders Stock to be issued to the Vistagreen Group are met, (iii) the
filing of the Certificate of Merger and other appropriate merger documents,
if any, as required by DGCL, and (iv) approval of the Merger by a majority
of the holders of Common Stock, is received, the execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not: (1) violate any provision of the
Certificate of Incorporation or By-Laws of the Company or any of its
Subsidiaries; (2) violate any statute, ordinance, rule, regulation, order
or decree of any court or of any governmental or regulatory body, agency or
authority applicable to the Company or any of its Subsidiaries or by which
any of their respective properties or assets may be bound; (3) require any
filing with, or permit, consent or approval of, or the giving of any notice
to, any governmental or regulatory body, agency or authority; or (4) result
in a violation or breach of, conflict with, constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation, payment or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of the Company or any of its Subsidiaries under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, agreement, lease, franchise
agreement or other instrument or obligation to which the Company or any of
its Subsidiaries is a party, or by which it or any of their respective
properties or assets may be bound, excluding from the foregoing clauses
(2), (3) and (4) filings, notices, permits, consents and approvals the
absence of which, and violations, breaches, defaults, conflicts and liens
which, in the aggregate, would not have a Material Adverse Effect on the
Company.
(e) Company Reports and Financial Statements. Since March 31,
1997, the Company has filed all forms, reports and documents with the
Securities and Exchange Commission (the "Commission") required to be filed
by it pursuant to the federal securities laws and the Commission rules and
regulations thereunder, and, except to the extent revised or superseded by
a subsequent filing filed with the Commission prior to the date hereof, all
forms, reports and documents filed with the Commission have complied in all
material respects with all applicable requirements of the federal
securities laws and the Commission rules and regulations promulgated
thereunder. The Company has heretofore filed all forms, reports,
registration statements and other filings required to be filed by the
Company with the Commission since March 31, 1997 (such forms, reports,
registration statements and other filings, together with any amendments
thereto, are sometimes collectively referred to as the "Commission
Filings"). As of their respective dates, except to the extent revised or
superseded by a subsequent filing filed with the Commission prior to the
date hereof, the Commission Filings did not contain any 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 light of the
circumstances under which they were made, not misleading. Each of the (i)
consolidated balance sheets as of the end of the fiscal years ended March
31, 1997, 1998 and 1999 and as of the end of the fiscal quarters ended June
30, September 30, and December 31 of each such year, and (ii) the
consolidated statements of operations, consolidated statements of
stockholders' equity and consolidated statements of changes in financial
position for the fiscal years ended March 31, 1997, 1998 and 1999 and for
each of the fiscal quarters ended June 30, September 30 and December 31 of
each such year, as included in the Commission Filings, were all prepared in
accordance with generally accepted accounting principles (as in effect from
time to time) applied on a consistent basis (except as may be indicated
therein or in the notes or schedules thereto) and fairly present in all
material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the results of
their operations and changes in financial position for the periods then
ended (subject to normal year-end adjustments and the absence of notes in
the case of any unaudited interim financial statements, none of which
individually or in the aggregate had or could have a Material Adverse
Effect).
(f) Absence of Certain Changes. Except as previously disclosed
in the Commission Filings, the Company and its Subsidiaries have (i)
conducted their respective businesses in the ordinary course, consistent
with past practice, and (ii) since March 31, 1999, there has not been:
(i) any event, occurrence or development which, individually
or in the aggregate, would have a Material Adverse Effect on the Company;
(ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock
of the Company, or any repurchase, redemption or other acquisition by the
Company or any of its Subsidiaries of any outstanding shares of their
capital stock or any securities convertible into their capital stock;
(iii) any amendment of any material term of any outstanding
security of the Company or any of its Subsidiaries;
(iv) any material transaction or commitment made, or any
contract, agreement or settlement entered into, by (or judgment, order or
decree affecting) the Company or any of its Subsidiaries relating to its
assets or business (including the acquisition or disposition of any
material amount of assets) or any relinquishment by the Company or any of
its Subsidiaries of any contract or other right, in either case, material
to the Company and its Subsidiaries, taken as a whole, other than
transactions, commitments, contracts, agreements or settlements (including
without limitation settlements of litigation and tax proceedings) in the
ordinary course of business consistent with past practice and those
contemplated by this Agreement;
(v) any change in any method of accounting or accounting
practice by the Company or any of its Subsidiaries, except for any such
change which is not material or which is required by reason of a concurrent
change in GAAP;
(vi) any (1) grant of any severance or termination pay to
(or amendment to any such existing arrangement with) any director, officer
or employee of the Company or any of its Subsidiaries, (2) entering into of
any employment, deferred compensation, supplemental retirement or other
similar agreement (or any amendment to any such existing agreement) with
any director, officer or employee of the Company or any of its
Subsidiaries, (3) increase in, or accelerated vesting and/or payment of,
benefits under any existing severance or termination pay policies or
employment agreements or (4) increase in or enhancement of any rights or
features related to compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any of its Subsidiaries,
in each case, other than in the ordinary course of business consistent with
past practice or as permitted by this Agreement; or
(vii) any material Tax election made or changed, any
material audit settled or any material amended Tax Return filed.
(g) Title to Properties; Encumbrances. The Company and each of
its Subsidiaries has good, valid and marketable title to (i) all its
material tangible properties and assets (real and personal), including,
without limitation, all the properties and assets reflected in the
consolidated balance sheet as of September 30, 1999 except as indicated in
the notes thereto and except for properties and assets reflected in the
consolidated balance sheet as of September 30, 1999 which have been sold or
otherwise disposed of in the ordinary course of business, and (ii) all the
tangible properties and assets purchased by the Company and any of its
Subsidiaries since September 30, 1999 except for such properties and assets
which have been sold or otherwise disposed of in the ordinary course of
business; in each case subject to no encumbrance, lien, charge or other
restriction of any kind or character, except for (1) liens reflected in the
consolidated balance sheet as of September 30, 1999, (2) liens consisting
of zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of real property or irregularities
in title thereto which do not materially detract from the value of, or
impair the use of, such property by the Company or any of its Subsidiaries
in the operation of its respective business, (3) liens for current taxes,
assessments or governmental charges or levies on property not yet due and
delinquent and (4) liens created in connection with the loan from Terremark
to the Company.
(h) Compliance with Laws; Permits. The Company and its
Subsidiaries are in material compliance with all applicable laws,
regulations, orders, judgments and decrees except where the failure to so
comply would not have a Material Adverse Effect on the Company. The Company
has not received any notice alleging non-compliance within the last two
years. Each member of the Company Group (a) has all permits, approvals and
other authorizations ("Permits") necessary for the conduct and operation of
its businesses as currently conducted and (b) uses its assets in compliance
with the terms of such Permits, except for any Permits not obtained or any
noncompliance which would not, individually or in the aggregate, have a
Material Adverse Effect.
(i) Litigation. Except as disclosed in the Commission Filings,
there is no and, in the past two years there has been no, action, suit,
proceeding at law or in equity, or any arbitration or any administrative or
other proceeding by or before (or to the Company's knowledge any
investigation by) any governmental or other instrumentality or agency,
pending, or, to the Company's knowledge, threatened, against or affecting
the Company or any of its Subsidiaries, or any of their properties or
rights which could have a Material Adverse Effect on the Company or prevent
or delay the consummation of the Merger. There are no such suits, actions,
claims, proceedings or investigations pending or, to the Company's
knowledge, threatened, seeking to prevent or challenging the transactions
contemplated by this Agreement. Except as disclosed in the Commission
Filings, neither the Company nor any of its Subsidiaries is subject to any
judgment, order or decree entered in any lawsuit or proceeding which could
have a Material Adverse Effect on the Company or on the ability of the
Company or any Subsidiary to conduct its business as presently conducted.
For the purposes of this Agreement, the term "knowledge" shall mean actual
knowledge.
(j) Government Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority other than (i) the filing of a certificate of merger in
connection with the Merger in accordance with Delaware Law and Florida law,
(ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of Council Regulation No.
4064/89 of the European Community, as amended (the "EC Merger Regulation"),
(iv) compliance with any other applicable requirements of foreign
anti-trust or investment laws, (v) compliance with any applicable
environmental transfer statutes, (vi) compliance with any applicable
requirements of the Exchange Act, (vii) compliance with any applicable
requirements of the Securities Act, or (viii) other actions or filings
which if not taken or made would not, individually or in the aggregate,
have a Material Adverse Effect on the Company or prevent or materially
delay the Company's consummation of the Merger.
(k) Insurance. The Company has made available to the Vistagreen
Group a schedule of insurance and policies currently maintained by the
Company and its Subsidiaries. Furthermore (a) neither the Company nor any
of the Company's Subsidiaries has received any notice of cancellation or
non-renewal of any such policy or arrangement nor is the termination of any
such policies or arrangements threatened, (b) there is no claim pending
under any of such policies or arrangements as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or
arrangements, (c) neither the Company nor any of the Company's Subsidiaries
has received any notice from any of its insurance carriers that any
insurance premiums will be increased in the future or that any insurance
coverage presently provided for will not be available to the Company or any
of the Company's Subsidiaries in the future on substantially the same terms
as now in effect and (d) none of such policies or arrangements provides for
any retrospective premium adjustment, experienced-based liability or loss
sharing arrangement affecting the Company or any of the Company's
Subsidiaries.
(l) Casualties. Neither the Company nor any of the Company's
Subsidiaries has been affected in any way as a result of flood, fire,
explosion or other casualty (whether or not material and whether or not
covered by insurance). The Company is not aware of any circumstance which
is likely to cause it to suffer any material adverse change in its
business, operations or prospects.
(m) Propriety of Past Payments. (i) No unrecorded fund or asset
of the Company or any of the Company's Subsidiaries has been established
for any purpose, (ii) no accumulation or use of corporate funds of the
Company or any of the Company's Subsidiaries has been made without being
property accounted for in the books and records of the Company or any of
the Company's Subsidiaries, (iii) no payment has been made by or on behalf
of the Company or any of the Company's Subsidiaries with the understanding
that any part of such payment is to be used for any purpose other than that
described in the documents supporting such payment and (iv) none of the
Company, any of the Company's Subsidiaries, any director, officer, employee
or agent of the Company of any of the Company's Subsidiaries has, directly
or indirectly, made any illegal contribution, gift, bribe, rebate, payoff,
influence payment, kickback or other payment to any Person, private or
public, regardless of form, whether in money, property or services, (A) to
obtain favorable treatment for any stockholder, the Company, any of the
Company's Subsidiaries or any affiliate of the Company in securing
business, (B) to pay for favorable treatment for business secured for any
stockholder, the Company, any of the Company's Subsidiaries or any
affiliate of the Company, (C) to obtain special concessions, or for special
concessions already obtained, for or in respect of any stockholder, the
Company or any of the Company's Subsidiaries or any affiliate of the
Company or (iv) otherwise for the benefit of any stockholder, the Company
or any of the Company's Subsidiaries or any affiliate of the Company in
violation of any federal, state, local, municipal, foreign, international,
multinational or other administrative order, constitution, law, ordinance,
principle of common law, regulation, statute, or treaty (including existing
site plan approvals, zoning or subdivision regulations or urban
redevelopment plans relating to Real Property). Neither the Company nor any
of the Company's Subsidiaries nor any current directly, officer, agent,
employee or other Person acting on behalf of the Company or any of the
Company's Subsidiaries, has accepted or received any unlawful contribution,
payment, gift, kickback, expenditure or other item of value.
(n) Employment Relations and Agreements. (i) Each of the
Company and its Subsidiaries is in substantial compliance with all foreign,
federal, state or other applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours, and has not and is not engaged in any unfair labor practice; (ii) no
unfair labor practice complaint against the Company or any of its
Subsidiaries is pending before the National Labor Relations Board; (iii)
there is no labor strike, dispute, slowdown or stoppage actually pending or
threatened against or involving the Company or any of its Subsidiaries;
(iv) no representation question exists respecting the employees of the
Company or any of its Subsidiaries; (v) no grievance which might have a
Material Adverse Effect on the Company and its Subsidiaries or the conduct
of their respective businesses exists, no arbitration proceeding arising
out of or under any collective bargaining agreement is pending and no claim
therefor has been asserted; (vi) no collective bargaining agreement is
currently being negotiated by the Company or any of its Subsidiaries; and
(vii) neither the Company nor any of its Subsidiaries has experienced any
material labor difficulty during the last three years. There has not been,
and to the Company's knowledge, there will not be, any change in relations
with employees of the Company or any of its Subsidiaries as a result of the
transactions contemplated by this Agreement which could have a Material
Adverse Effect on the Company. Except as disclosed in Schedule 2.2(n)
attached hereto, there exist no employment, consulting, severance or
indemnification agreements between the Company and any director, officer or
employee of the Company or any agreement that would give any Person the
right to receive any payment from the Company as a result of the Merger
Agreement Closing.
(o) Client Relations. There has not been, and to the Company's
knowledge, there will not be, any change in relations with franchisees,
customers or clients of the Company or any of its Subsidiaries as a result
of the transactions contemplated by this Agreement which could have a
Material Adverse Effect on the Company.
(p) Sufficiency of Assets. The rights, properties and other
assets presently owned, leased or licensed by the Company or its
Subsidiaries include all such rights, properties and other assets necessary
to permit the Company and its Subsidiaries to conduct their respective
businesses in all material respects in the same manner as such businesses
have been conducted prior to the date hereof.
(q) Contracts and Commitments. Except as provided in Schedule
2.1(q):
(i) No purchase contracts or commitments of the Company
or any of its Subsidiaries are in excess of the normal, ordinary and usual
requirements of business or at any excessive price.
(ii) Neither the Company nor any Subsidiary has any
outstanding contracts with Shareholders, directors, officers, employees,
agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are in excess of the normal, ordinary and
usual requirements of business or at any excessive price.
(iii) Neither the Company nor any of its Subsidiaries is
restricted by agreement from carrying on its business anywhere in the
world.
(iv) Neither the Company nor any of its Subsidiaries has
outstanding any agreement to acquire any debt obligations of others.
(r) Disclosure Documents. Neither the proxy statement of the
Company (the "Company Proxy Statement") nor the Registration Statement on
Form S-4 (the "Form S-4"), each to be filed with the Commission in
connection with the Merger, nor any amendment or supplement thereto, will,
at the date the Company Proxy Statement or any such amendment or supplement
is first mailed to stockholders of the Company or at the time such
stockholders vote on the adoption and approval of this Agreement and the
transactions contemplated hereby, with respect to the Company Proxy
Statement, or the date the Form S-4 or any amendment thereto is filed with
the Commission, with respect to the Form S-4, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The Company Proxy Statement and the Form S-4
will, when filed, each comply as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.
Notwithstanding the foregoing, no representation or warranty is made by the
Company in this Section 2.1(u) with respect to statements made or
incorporated by reference therein based on information supplied by
Terremark or the Vistagreen Group for inclusion or incorporation by
reference in the Company Proxy Statement or the Form S-4, which shall be
deemed to include information by any third party with respect to any of the
assets directly or indirectly acquired by or furnished to Terremark or the
Vistagreen Group after the date hereof.
(s) Full Disclosure. The Company has not failed to disclose to
the Vistagreen Group any facts material to the business, results of
operations, assets, liabilities, financial condition or prospects of the
Company or its Subsidiaries. No representation or warranty by the Company
contained in this Agreement and no statement contained in any document
(including financial statements and the Schedules hereto), certificate, or
other writing furnished or to be furnished by the Company to Terremark or
any of its representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby, contains or will
contain any untrue statement of material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under
which it was made, in order to make the statements herein or therein not
misleading.
2.2. Representations and Warranties of the Vistagreen Group. The
Vistagreen Group represent and warrant to the Company as follows:
(a) Accredited Investors. The Vistagreen Group and/or each
constituent thereof, is an Accredited Investor as defined in Rule 501 of
Regulation D promulgated under the Securities Act and has such knowledge
and experience in financial and business matters to be capable of
evaluating the merits and risks of an investment in the Company and making
an informed investment decision.
(b) Investment Intent. The Vistagreen Group, and each
constituent thereof, represents and warrants to the Company that it is
purchasing the Holders Stock for investment purposes and not with a view to
distribution thereof and agrees that it shall not make a sale, transfer or
other disposition of the Holders Stock in violation of any applicable
securities law.
ARTICLE III
REGISTRATION RIGHTS
3.1. Shelf Registration. If the Company shall receive from the
holders in the aggregate of not less than twenty-five percent (25%) of the
Registrable Securities (collectively, an "Initiating Holder"), at any time
later than nine months after the Effective Date, a written request that the
Company effect a registration of the Registrable Securities (a
"Registration Requirement"), the Company will:
(a) Within thirty (30) days of receipt of a Registration
Request, the Company shall file a "shelf" registration statement on Form
S-3, or other applicable form that is mutually satisfactory, pursuant to
Rule 415 under the Securities Act (the "Shelf Registration") with respect
to that portion of the Registrable Securities (which may be all but shall
not be less than 25% of the Registrable Securities) included in the
Registration Request. The Company agrees that the provisions of this
Section 3.1(a) create a "demand" registration right for the Holders with
respect to the Registrable Securities. The Company shall, subject to
Section 3.1(e) hereof, use its reasonable best efforts to cause the Shelf
Registration to become effective as soon as practicable after the filing
thereof and shall use its reasonable best efforts to keep the Shelf
Registration continuously effective from the date such Shelf Registration
is effective until the date on which all Registrable Securities may be sold
pursuant to Rule 144(k).
(b) Subject to Section 3.2(f) hereof, the Company shall
supplement or amend the Shelf Registration, (A) as required by the
registration form utilized by the Company or by the instructions applicable
to such registration form or by the Securities Act or the rules and
regulations promulgated thereunder, and (B) to include in such Shelf
Registration any additional unregistered securities that become Registrable
Securities by operation of the definition thereof, unless such securities
are otherwise registered under the Securities Act or may be sold pursuant
to an exemption therefrom or (C) if and to the extent reasonably requested
by the Holders of the Registrable Securities, provided however, that such
request and any required supplement or amendment shall relate only to
material information about such Holder and included in or omitted from such
Shelf Registration. The Company shall furnish to the Holders of the
Registrable Securities to which the Shelf Registration relates copies of
any such supplement or amendment no less than five business days in advance
of its use and/or filing with the Commission to allow the Holders to
comment thereon. The failure of the Holders to provide written comments
under such period shall be deemed agreement with such supplement or
amendment.
(c) The Shelf Registration may include other Securities of the
Company which are held by Persons who, by virtue of agreements with the
Company, are entitled to include their Securities in any such registration
("Other Stockholders").
3.2. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
this Article III (including all Registration Expenses incurred in
connection with the Shelf Registration and any supplements or amendments
thereto, whether or not it becomes effective, and whether all, none or some
of the Registrable Securities are sold pursuant to the Shelf Registration)
shall be borne by the Company (provided, however, that the Holders shall
bear the expenses of advisors, including investment bankers, retained by
them, except that the Company shall pay the expenses of one counsel for the
Holders in an amount not to exceed $10,000), and all Selling Expenses shall
be borne by the Holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
3.3. Registration Procedures. In the case of the registration effected
by the Company pursuant to this Article III, the Company will advise the
Holders in writing as to the filing of the Shelf Registration and the
effectiveness thereof. The Company will:
(a) furnish to each Holder, and to any underwriter designated
by the Holder a reasonable number of copies of any registration statement
(including all exhibits) and any prospectus forming a part thereof and any
amendments and supplements thereto (including all documents incorporated or
deemed incorporated by reference therein) prior to the effectiveness of
such registration statement and any prospectus filed under Rule 424 under
the Securities Act, which documents, other than documents incorporated or
deemed incorporated by reference, will be subject to the review of the
Holders and any such underwriter for a period of at least five business
days, and the Company shall not file any such registration statement or
such prospectus or any amendment or supplement to such registration
statement or prospectus to which any Holder or any such underwriter shall
reasonably object in writing, specifying in detail the nature of such
objection, within five business days after the receipt thereof; a Holder
shall be deemed to have reasonably objected to such filing only if the
registration statement, amendment, prospectus or supplement, as applicable,
as proposed to be filed, contains a material misstatement or omission;
(b) furnish to each Holder and to any underwriter designated by
the Holder a reasonable number of conformed copies of the applicable
registration statement and of each amendment and supplement thereto (in
each case including all exhibits) and such number of copies of the
prospectus forming a part of such registration statement and prospectus
filed under Rule 424 under the Securities Act, and such other documents,
including without limitation documents incorporated or deemed to be
incorporated by reference prior to the effectiveness of such registration,
as each of the Holders or any such underwriter from time to time may
reasonably request;
(c) to the extent practicable, promptly prior to the filing of
any document that is to be incorporated by reference into any registration
statement or prospectus forming a part thereof subsequent to the
effectiveness thereof, and in any event no later than the date such
document is filed with the Commission, provide copies of such document to
the Holders and to any underwriter, if requested, and make representatives
of the Company available for discussion of such document and other
customary due diligence matters;
(d) make available at reasonable times for inspection by the
Holders, any underwriter and any attorney or accountant retained by the
Holders or any such underwriter all financial and other records, pertinent
corporate documents and properties of the Company and cause the officers,
directors and employees of the Company to supply all information reasonably
requested by the Holders and any such underwriters, attorneys or
accountants in connection with such registration subsequent to the filing
of the applicable registration statement and prior to the effectiveness of
the applicable registration statement;
(e) use its reasonable best efforts (x) to register or qualify
all Registrable Securities and other securities covered by such
registration under such other securities or blue sky laws of such States of
the United States of America where an exemption is not available and as the
sellers of Registrable Securities covered by such registration shall
reasonably request, (y) to keep such registration or qualification in
effect for so long as the applicable registration statement remains in
effect, and (z) to take any other action which may be reasonably necessary
or advisable to enable such sellers to consummate the disposition in the
United States of the securities to be sold by such sellers, 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 where it is not so
qualified, or to subject itself to taxation in any such jurisdiction, or to
execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations thereunder;
(f) promptly notify each Holder of Registrable Securities
covered by a registration statement (A) upon discovery that, or upon the
happening of any event as a result of which, the prospectus forming a part
of 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, (B)
of the issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or the initiation of
proceedings for that purpose, (C) of any request by the Commission for (1)
amendments to such registration statement or any document incorporated or
deemed to be incorporated by reference in any such registration statement,
(2) supplements to the prospectus forming a part of such registration
statement or (3) additional information, or (D) of the receipt by the
Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction in which the Company has agreed
hereunder to qualify such securities for sale or the initiation of any
proceeding for such purpose, and at the request of any such Holder promptly
prepare and furnish to it 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;
(g) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of any such registration, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction in which the Company has agreed hereunder to qualify such
securities for sale;
(h) if requested by any Initiating Holder, or any underwriter,
promptly incorporate in such registration statement or prospectus, pursuant
to a supplement or post effective amendment if necessary, such information
as the Initiating Holder and any underwriter may reasonably request to have
included therein relating to the "plan of distribution" of the Registrable
Securities, the principal amount or number of shares of Registrable
Securities being sold to such underwriter, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities
to be sold in such offering and make all required filings of any such
prospectus supplement or post-effective amendment as soon as practicable
after the Company is notified of the matters to be incorporated in such
prospectus supplement or post effective amendment;
(i) provide promptly to the Holders upon request any document
filed by the Company with the Commission pursuant to the requirements of
Section 13 and Section 15 of the Exchange Act; and
(j) use its reasonable best efforts to cause all Registrable
Securities included in any registration pursuant hereto to be listed on
each securities exchange on which securities of the same class are then
listed, or, if not then listed on any securities exchange, to be eligible
for trading in any over-the-counter market or trading system in which
securities of the same class are then traded.
3.4. Indemnification.
(a) The Company will indemnify each of the Holders, as
applicable, each of its officers, directors, members and partners, and each
person controlling each of the Holders, with respect to each registration
which has been effected pursuant to this Article III, and each underwriter,
if any, and each person who controls any underwriter, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document (including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance, or
based on 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, or any violation by the Company of the Securities
Act or the Exchange Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and
will reimburse each of the Holders, each such underwriter and each person
who controls any such underwriter, each of its officers, directors, members
and partners, and each person controlling each of the Holders for any legal
and any other expenses reasonably incurred in connection with investigating
and defending any such claim, loss, damage, liability or action, provided
that the Company will not be liable in any such case to the extent that any
such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished
to the Company by the Holders and stated to be specifically for use
therein. It is agreed that the indemnity agreement contained in this
Section 3.4(a) shall not apply to any amounts paid in settlement of any
such claims, loss, damage, liability or expense if such settlement is
effected without the consent of the Company (which consent has not been
unreasonably withheld).
(b) Each of the Holders will, if Registrable Securities held by
it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each
of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter, each Other Stockholder and
each of their officers, directors, members and partners, and each person
controlling such Other Stockholder against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document made by such Holder, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements by such Holder therein not misleading, and will
reimburse the Company and such Other Stockholders, directors, officers,
partners, members, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each
case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of each of the Holders hereunder
and under clause (f) below shall be limited to an amount equal to the net
proceeds to such Holder of securities sold as contemplated herein. It is
agreed that the indemnity agreement contained in this Section 3.4(b) shall
not apply to any amount paid in settlement of any such claim, loss, damage,
liability or expense if such settlement is effected without the consent of
the majority of the Holders (which consent will not be unreasonably
withheld).
(c) Each party entitled to indemnification under this Section
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom; provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld) and
the Indemnified Party may participate in such defense at such party's
expense (unless the Indemnified Party shall have reasonably concluded,
based upon an opinion of counsel, that there may be a conflict of interest
between the Indemnifying Party and the Indemnified Party in such action, in
which case the fees and expenses of one such counsel for all Indemnified
Parties shall be at the expense of the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 3 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party (which
consent shall not be unreasonably withheld or delayed), consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 3.4 is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of
the Indemnified Party on the other in connection with the statements or
omissions which resulted in such loss, liability, claim, damage or expense,
as well as any other relevant equitable considerations. The relative fault
of the Indemnifying Party and of the Indemnified 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 the Indemnifying Party
or by the Indemnified Party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with any underwritten
public offering contemplated by this Agreement are in conflict with the
foregoing provisions, the provisions in such underwriting agreement shall
be controlling.
(f) The foregoing indemnity agreement of the Company and
Holders is subject to the condition that, insofar as they relate to any
loss, claim, liability or damage made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the
Commission at the time the registration statement in question becomes
effective or the amended prospectus filed with the Commission pursuant to
Commission Rule 424 (the "Final Prospectus"), such indemnity or
contribution agreement shall not inure to the benefit of any underwriter or
Holder (but only if such Holder was required to deliver such Final
Prospectus) if a copy of the Final Prospectus was furnished to the
underwriter and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required
by the Securities Act.
3.5. Information by the Holders. Each of the Holders holding
securities included in any registration shall furnish to the Company such
information regarding such Holder and the distribution proposed by such
Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Article III.
3.6. Holdback Agreement; Postponement. Notwithstanding the provisions
of this Article III, if the Board of Directors of the Company determines in
good faith that it is in the best interests of the Company (A) not to
disclose the existence of facts surrounding any proposed or pending
acquisition, disposition, strategic alliance or financing transaction
involving the Company or (B) for any purpose relating to: (aa) a
registration of equity securities of the Company, (bb) a registration of
convertible securities of the Company (including any underlying equity
securities), (cc) a registration of any securities sold pursuant to a Rule
144A transaction, or (dd) a registration of any securities relating to a
transaction described in Rule 145(a), to suspend the registration rights
set forth herein, the Company may, by notice to the Holders in accordance
with the notice provisions hereof, suspend the rights of the Holders to
make sales pursuant to the Shelf Registration for such a period of time as
the Board of Directors may reasonably determine, provided however, that
such suspension shall be terminated by the Company as soon as is reasonably
practicable.
3.7. Assignment. The registration rights set forth in Article III
hereof may be assigned, in whole or in part, to any transferee of
Registrable Securities (who shall be considered thereafter to be a Holder
(provided that any transferee who is not an affiliate of Holder shall be a
Holder only with respect to such Registrable Securities so acquired and any
stock of the Company issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of, such Registrable
Securities) and shall be bound by all obligations and limitations of this
Agreement).
3.8. Remedies. Each Holder of Registrable Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
3.9. Lockup. Notwithstanding the date of effectiveness of the
Registration Statement filed pursuant to Section 3.1 hereof, the Holders
agree that, except as provided below, no sale, offer to sell, pledge or
other disposition of any interest in the Holders Stock shall be made by any
Holder prior to the expiration of one (1) year after the Effective Time;
provided, however, that nothing herein contained shall preclude (i) open
market sales pursuant to Rule 144, or (ii) sales by any member of the
Vistagreen Group to another member of such Group or any family member or
Affiliate of any member of such Group or to Terremark or any Affiliate of
Terremark.
ARTICLE IV
(a)ADDITIONAL AGREEMENTS
4.1. United States Real Property Interests . The Company covenants
and agrees that for so long as the Vistagreen Group holds, in the
aggregate, Holders Stock acquired pursuant to this Agreement representing
at least 1% of the outstanding shares of Common Stock of the Company, the
Company shall not be or become a United States Real Property Holding
Corporation as defined in Section 897(c)(2) of the Code nor shall the
Holders Stock acquired pursuant to this Agreement be or become a United
States Real Property Interest as defined in Section 897(c)(1)(A)(ii) of the
Code. In addition, as of each Determination Date (as defined in Treasury
Regulation Section 1.897-2(c)), including particularly a date of
disposition, the Company shall provide to each member of the Vistagreen
Group a statement complying with Treasury Regulation Section
1.897-2(g)(1)(ii) and shall also comply, on a timely basis, with the notice
requirements of Treasury Regulation Section 1.897-2(h) including without
limitation, timely notice to the Internal Revenue Service as provided in
that Treasury Regulation, with a copy to each member of the Vistagreen
Group, together with other Supporting Documents (as hereinafter defined),
but dated as of the determination date. Any notice conforming with or under
Treasury Regulation Section 1.897-2(h) need address the status of the
Company as a United States Real Property Holding Corporation and the status
of the Company Shares as a United States Real Property Interest only from a
date that is no earlier than the day that is thirty days prior to the
Effective Time. These covenants shall in all respects survive the Closing
of this Agreement.
ARTICLE V
CONDITIONS PRECEDENT
5.1. Conditions Precedent to Obligations of Vistagreen Group. The
obligations of the Vistagreen Group to effect the transactions contemplated
by this Agreement are subject to the satisfaction or waiver at or prior to
the Closing, of each of the following conditions:
(a) Closing of Merger Agreement. The Merger Agreement Closing shall
have been effectuated;
(b) Accuracy of Representations and Warranties. All
representations and warranties of the Company contained herein shall be
true and correct in all material respects as of the date hereof and at and
as of the Closing, with the same force and effect as though made on and as
of the Closing Date (except as to any such representation and warranty
which relates to a specific date other than the date of signing this
Agreement, which shall be true and correct as of such specific date);
(c) Sale of Property. The Property or the Partnership Interests
shall have been sold to a party which is not related to any of the
parties to this Agreement prior to the Closing;
(d) United States Real Property Holding Company. Neither the
Surviving Corporation nor the Company, as of the Effective Time and for
thirty days prior thereto, is or has been a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code), and the
Holders Stock to be acquired by the Holders, at the Effective Time, does
not constitute a United States real property interest (as defined in
Section 897(c)(1)(A)(ii) of the Code) ("USRPHC Condition Precedent"). To
assure that the USRPHC Condition Precedent has been met the following shall
be delivered to the Holders at Closing:
(i) an opinion of counsel to the Surviving Corporation on
a "will" basis (which opinion shall be dated the Closing Date and may be
based on representations of fact made under penalties of perjury by
responsible officers of the Company and/or responsible officers of
Terremark as defined under Treas. Reg. ss. 1.897-2(h)) and confirming the
satisfaction of the USRPHC Condition Precedent (the form and content of
which and the counsel rendering the opinion to be reasonably satisfactory
to the Holders and their counsel);
(ii) a statement under Treas. Reg.ss. 1.897-2(g)(1)(ii)
executed by a responsible corporate officer of the Surviving Corporation to
the Holders conforming with Treas. Reg. Section 1.897-2(h) to the effect
that the Surviving Corporation is not a United States real property holding
corporation as defined above and the Holders Stock being delivered to the
Holders pursuant to the Merger Agreement is not a United States real
property interest (as defined above) (in each case as of the Effective
Time), together with a Notice to the U.S. Internal Revenue Service
concerning the issuance of same which shall be forwarded to the IRS by
legally authorized means on the Closing date; and
(iii) a pro forma balance sheet of the Surviving
Corporation dated as of the Closing date (or applicable determination date
if other than the Closing Date), certified, under penalties of perjury, by
a responsible officer as that term is defined under Treasury Regulation ss.
1.897-2(h), demonstrating that the USRPHC Condition Precedent has been
satisfied (all of the foregoing documents referred to in clauses (i), (ii)
and (iii) being hereinafter referred to as the "Supporting Documents").
(e) Legal Opinion. Holders shall have received a legal opinion
from counsel to the Surviving Corporation in form and substance (and such
counsel to be) reasonably satisfactory to the Holders to the effect that
the Holders Stock which is being purchased by the Holders hereunder, when
issued, sold and delivered in accordance with the terms hereof, will,
assuming that the representations in Section 2.2 are correct, be duly and
validly issued, fully paid and non-assessable and will be issued in
compliance with all applicable federal and state securities laws;
(f) Approval of Company's Stockholders. The Merger, the Merger
Agreement and this Agreement shall have been approved and adopted by the
requisite vote or consent of the stockholders of the Company in accordance
with applicable law, the provisions of the Company's Certificate of
Incorporation and By-Laws, and the requirements of the AMEX;
(g) Registration Statement. The Form S-4 shall have become
effective in accordance with the provisions of the Securities Act. No stop
order suspending the effectiveness of the Form S-4 shall have been issued
by the SEC and no proceedings for that purpose shall have been initiated by
the SEC;
(h) Litigation. There shall not have been instituted or be
pending any suit, action or proceeding by any governmental entity as a
result of this Agreement or any of the transactions contemplated hereby
which questions the validity or legality of the transactions contemplated
by the Merger Agreement or this Agreement;
(i) Injunction. No injunction or other order shall have been
issued by any court or by any governmental or regulatory agency, body or
authority which is then in effect and has the effect of making the Merger
or the transactions contemplated by this Agreement illegal or otherwise
prohibiting the consummation of the Merger or this Agreement;
(j) Statutes. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted, entered, promulgated
or enforced by any court or governmental authority which prohibits the
consummation of the Merger or this Agreement;
(k) AMEX Listing. The shares of Post Merger Common Stock to be
issued pursuant to the Merger and the Holders Shares shall have been
approved for listing on the AMEX, upon final notice of issuance;
(l) Performance by Company. The Company shall have performed in
all material respects all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in the
Merger Agreement and herein to be performed or complied with by it prior to
the Closing, and the Vistagreen Group shall have received a certificate
signed on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect;
(m) Letters of Company Accountants.
------------------------------
(i) The Company shall use reasonable best efforts to
cause to be delivered to Purchaser two letters from Deloitte & Touche LLP,
one dated no earlier than three business days prior to the date on which
the Form S-4 shall become effective and one dated no earlier than three
business days prior to the Closing Date, each addressed to the Purchaser,
in form reasonably satisfactory to the Purchaser and customary in scope for
comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(ii) Terremark shall use reasonable best efforts to cause
to be delivered to Purchaser two letters from PricewaterhouseCoopers, one
dated no earlier than three business days prior to the date on which the
Form S-4 shall become effective and one dated no earlier than three
business days prior to the Closing Date, each addressed to the Purchaser,
in form reasonably satisfactory to the Purchaser and customary in scope for
comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4; and
(n) Employment Agreement. Joseph Wright, Jr. shall have entered
into an employment contract in form and substance acceptable to Terremark
which shall provide for, among other things, an annual salary of $250,000
and a surrender by him of all options to purchase shares of Common Stock
other than 1,000,000 options exercisable at $3.00 per share and the
2,000,000 options exercisable at $0.35 per share, none of which shall be
exercised until at least one year after the Effective Time.
5.2. Conditions Precedent to Obligations of the Company. The
obligations of the Company to effect the transaction contemplated by this
Agreement are subject to the satisfaction or waiver by the Company, at or
prior to the Closing, of each of the following conditions:
(a) Accuracy of Representations and Warranties. All
representations and warranties of the Vistagreen Group contained herein
shall be true and correct in all material respects as of the date hereof
and at and as of the Closing, with the same force and effect as though made
on and as of the Closing Date (except as to any such representation and
warranty which relates to a specific date, which shall be true and correct
as of such specific date); and
(b) Merger Agreement Closing. The Merger Agreement Closing
shall have been effectuated.
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, at any time prior to the
Closing:
(a) by mutual consent of the Board of Directors of the Company
and the Vistagreen Group; or
(b) by the Board of Directors of Terremark or the Company if
the Effective Time shall not have occurred by July 1, 2000 through no fault
of the terminating party;
(c) by the Vistagreen Group if the Merger Agreement Closing
shall not have occurred on or before December 31, 2000; or
(d) by either of the parties, if any permanent injunction,
order, decree or ruling by any governmental entity or competent
jurisdiction preventing the consummation of the Merger, or the transactions
contemplated by this Agreement, shall become final and nonappealable; or
(e) by the Board of Directors of the Company or Vistagreen
Group if there has been a material breach of any representation, warranty,
obligation, covenant, agreement or condition set forth in this Agreement on
the part of the other party; provided, however, that each of the Company
and Vistagreen Group shall have the right to cure any such breach within
three days of written notice of any such breach given by the other party;
or
(f) by Vistagreen Group if there has been a material breach of
any representation, warranty, obligation, covenant, agreement or condition
set forth in the Merger Agreement on the part of the Company or Terremark;
provided, however, that each of the Company and Terremark shall have the
right to cure such breach within three days of written notice of any such
breach; or
(g) by the Board of Directors of the Company or Vistagreen
Group if the approval of this Agreement and the Merger Agreement by the
required number of holders of the Common Stock shall not have been obtained
by reason of the failure to obtain the required vote at a duly held meeting
(including any adjournment or postponement thereof) of the Company's
stockholders or any adjournment thereof; provided, however, that if the
failure to obtain such required vote is the result of the failure of the
Company to obtain a quorum at its meeting of stockholders, the Company will
immediately call an additional meeting if so requested by Vistagreen Group;
or
(h) by the Board of Directors of the Company or Vistagreen
Group if the Board of Directors of the Company shall have withdrawn or
modified its approval or recommendation of the Merger of this Agreement in
any manner adverse to Terremark or Vistagreen Group;
provided, however, that the right to terminate this Agreement shall not be
available to a party that has breached in any material respect its
obligations under this Agreement in any manner that shall have proximately
contributed to the failure of the Merger to be consummated.
6.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 6.1 hereof by Terremark, the Vistagreen Group
or the Company, written notice thereof shall promptly be given to the other
party specifying the provision hereof pursuant to which such termination is
made, and this Agreement shall become void and have no effect, and there
shall be no liability hereunder on the part of Terremark or the Company,
except that Section 7.1 hereof shall survive any termination of this
Agreement, and that, promptly upon any such termination, the
Representatives shall disburse all funds which then remain in the Escrow
Account to the Vistagreen Group in accordance with such instruction as the
Vistagreen Group shall deliver to such Representatives.
ARTICLE VII
MISCELLANEOUS
7.1. Fees and Expenses. (a) All costs and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
7.2. Survival of Representations and Warranties. The respective
representations and warranties of the Company and the Vistagreen Group
contained herein or in any certificates or other documents delivered prior
to or at the Closing shall not be deemed waived or otherwise affected by
any investigation made by any party. Each and every such representation and
warranty shall expire with, and be terminated and extinguished by, the
Closing and thereafter neither of the Company nor the Vistagreen Group
shall be under any liability whatsoever with respect to any such
representation or warranty.
7.3. Extension; Waiver. At any time prior to the Closing, the parties
hereto, by action taken by or on behalf of the respective Boards of
Directors of the Company or Terremark and by the Vistagreen Group, may (i)
extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein by any other applicable
party or in any document, certificate or writing delivered pursuant hereto
by any other applicable party or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
7.4. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall
be in writing and shall be deemed to have been duly given if delivered in
person or mailed, certified or registered mail with postage prepaid, or
sent by telecopier, as follows:
(a) if to the Company, to it at:
AMTEC, INC.
599 Lexington Avenue, 44th Floor
New York, NY 10002
Facsimile Number: (212) 319-9288
Attention: Karin-Joyce Tjon
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Edmund C. Duffy, Esq.
with additional copies to:
Terremark Holdings Inc.
c/o Terremark Group, Inc.
2601 S. Bayshore Drive, PH-1B
Coconut Grove, FL 33133
Facsimile: (305) 856-8190
Attention: Brian K. Goodkind, Esq.
and to:
Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, FL 33131
Facsimile: (305) 579-0717
Attention: Paul Berkowitz, Esq.
(b) if to Vistagreen Group, to it at:
c/o Karp & Genauer, P.A.
2 Alhambra Plaza, Suite 1202
Coral Gables, FL 33134
Facsimile: (305) 461-3545
Attention: Joel Karp, Esq.
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the
date of delivery unless if mailed, in which case on the third business day
after the mailing thereof except for a notice of a change of address, which
shall be effective only upon receipt thereof.
7.5. Entire Agreement; Severability. This Agreement and the annex,
schedules and other documents referred to herein or delivered pursuant
hereto, and the Merger Agreement and the Purchaser Contract and documents
contemplated thereby contain the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersede all prior
agreements and understandings, oral and written, with respect thereto. In
the event that any provision hereof would, under applicable law, be invalid
or unenforceable in any respect (a) if such provision is enforceable in
part, such provision shall be enforced to the maximum extent permissible
under applicable law, and (b) the invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect, provided, however, that if enforcement of the Agreement without
giving effect to an invalid or unenforceable provision would deny either
party the benefit of the transaction contemplated hereby, then the
Agreement as a whole will terminate.
7.6. Binding Effect; Benefit; Assignment. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties. Nothing in this Agreement, expressed or implied, is intended to
confer on any Person other than the parties hereto or their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
7.7. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in writing by the
parties hereto in any and all respects before the Closing, by action taken
by the respective Boards of Directors of Terremark and the Company or by
the respective officers authorized by such Boards of Directors and by the
Vistagreen Group.
7.8. Further Actions. Each of the parties hereto agrees that, subject
to its legal obligations, it will use its best efforts to fulfill all
conditions precedent specified herein, to the extent that such conditions
are within its control, and to do all things reasonably necessary to
consummate the transactions contemplated hereby.
7.9. Interpretation; Headings. Any matter required to be disclosed in
any Schedule which was not disclosed therein shall be deemed to have been
disclosed in the correct Schedule to the extent such matter was reasonably
specifically cross-referenced to another Schedule containing such
disclosure. The parties agree that certain agreements and other matters may
be listed in a Schedule for informational purposes only, notwithstanding
that, because they do not rise to the applicable materiality thresholds or
otherwise, they are not required to be listed therein by the terms of this
Agreement. In no event shall the listing of any such Contract or the
inclusion of any other matter in any Schedule be deemed or interpreted to
broaden or otherwise amplify the representations and warranties or
covenants contained in this Agreement. Furthermore, the disclosure of any
particular item or items of information in any Schedule shall not be taken
as an admission that such disclosure is required to be made under the terms
of any such representations and warranties (including any admission that
any such items establish the required level of materiality). The
descriptive headings of the several Articles and Sections of this Agreement
are inserted for convenience only, do not constitute a part of this
Agreement and shall not affect in any way the meaning or interpretation of
this Agreement.
7.10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of
which together shall be deemed to be one and the same instrument.
7.11. Applicable Law. This Agreement and the legal relations between
the parties hereto shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the conflict of laws
rules thereof.
7.12. Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its
regulatory policy, the remainder of the terms, provisions, covenants and
restrictions contained in this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
ARTICLE VIII
DEFINITIONS
As used in this Agreement, the following terms have the respective
meanings set forth below:
Affiliates: the Affiliate of a person shall mean a person that
directly, or indirectly through one or more intermediaries, controls, or is
controllable by, or is under common control with such person;
Commission: shall mean the Securities and Exchange Commission;
Effective Date: shall mean the date on which the Closing of this
Agreement occurs;
Exchange Act: shall mean the Securities Exchange Act of 1934, as
amended;
Holder: shall mean any holder of Registrable Securities;
Initiating Holder: shall mean any Holder or Holders who in the
aggregate are Holders of more than 25% of the then outstanding Registrable
Securities;
Person: shall mean an individual, partnership, joint stock company,
corporation, trust or unincorporated organization, and a government or
agency or political subdivision thereof;
register, registered and registration: shall mean a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of
such registration statement;
Registrable Securities: shall mean (A) the aggregate number of shares
of Common Stock of the Surviving Company issued to the Vistagreen Group or
their assignees pursuant to this Agreement, and (B) any securities of the
Surviving Company issued as a dividend or other distribution with respect
to, or in exchange for or in replacement of, the shares of Surviving
Company Post Merger Common Stock referred to in clause (A); provided, that
Registrable Securities shall not include (i) securities with respect to
which a registration statement with respect to the sale of such securities
has become effective under the Securities Act and all such securities have
been disposed of in accordance with such registration statement, (ii) such
securities as are actually sold pursuant to Rule 144 (or any successor
provision thereto) under the Securities Act ("Rule 144"), or (iii) such
securities as are acquired by the Surviving Company or any of its
subsidiaries;
Registration Expenses: shall mean all expenses incurred by the
Company in compliance with Section 3 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements
of counsel for the Company, fees and expenses of one counsel for all the
Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in
any event by the Company);
Security, Securities: shall have the meaning set forth in Section
2(1) of the Securities Act;
Securities Act: shall mean the Securities Act of 1933, as amended; and
Selling Expenses: shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees
and disbursements of counsel for each of the Holders other than fees and
expenses of one counsel for all the Holders.
IN WITNESS WHEREOF, each of Vistagreen Holdings (Bahamas) Ltd., and
the Company have caused this Agreement to be executed by their respective
officers thereunto duly authorized, all as of the date first above written.
AMTEC, INC.
/s/ Joseph R. Wright, Jr.
Chairman & Chief Executive Officer
VISTAGREEN HOLDINGS (BAHAMAS), LTD.
/s/ Peter B. Evans
President
Terremark Holdings, Inc., a Florida corporation, hereby confirms its
agreement to all of the provisions in the above Stock Purchase Agreement,
including, without limitation, those contained in Sections 1.1 and 1.2
thereof.
TERREMARK HOLDINGS, INC.
/s/ Manuel D. Medina
Chairman & Chief Executive Officer
AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT TO STOCK PURCHASE AGREEMENT is dated as of February 11, 2000
("Amendment", and is made by and between Paradise Stream (Bahamas) Limited,
a Bahamian international business company ("Paradise Stream"), Vistagreen
Holdings (Bahamas), Ltd., a Bahamian international business company
("Vistagreen"), Moraine Investments, Inc., a British Virgin Islands company
("Moraine"), (Paradise Stream, Vistagreen and Moraine are collectively the
"Purchaser"), and AMTEC, INC., a Delaware corporation ("Company").
WHEREAS, Vistagreen and the Company entered into that certain
Stock Purchase Agreement dated as of November 24, 1999 (the "Stock Purchase
Agreement"): and Vistagreen has assigned a portion of its rights and
interests in the Stock Purchase Agreement to Paradise and Moraine;
WHEREAS, Vistagreen, Paradise Stream and Moraine are the holders
of such portion of the principal amount of the Note as are set forth in
Exhibit "A" attached hereto and, as a result, Vistagreen, Paradise Stream
and Moraine are entitled to receive the percentage interests in the Note
Proceeds described in Exhibit "A" upon satisfaction of the Note; and
WHEREAS, the parties desire to hereby amend the Stock Purchase
Agreement, as set forth herein, effective as of the date first set forth
above.
NOW THEREFORE, for good and valuable consideration, the
parties hereto agree as follows (all capitalized terms not herein defined
shall have the meaning set forth in the Stock Purchase Agreement):
1. All referenced in the Stock Purchase Agreement to the "Vistagreen Group"
shall be deemed to refer to Vistagreen, Paradise Stream and Moraine and,
where applicable, in accordance with their respective percentage interests
in the Note Proceeds described in Exhibit "A".
2. The fourth "Whereas" clause is hereby amended and restated in its
entirety as follows:
WHEREAS, in connection with and upon consummation of the sale of the
Property, the Note shall be required to be satisfied in full and,
subject to certain conditions, all such proceeds so paid to satisfy
the Note in full, including any shortfall amount paid by Terremark in
the event that the proceeds of the sale of the Property are not
sufficient to satisfy the Note in full or a Terremark promissory note
for such shortfall should the Vistagreen Group permit so in its sole
discretion (the "Note Proceeds"), shall be used to purchase certain
shares of the Company as set forth herein.
3. Section 1.2 is hereby amended and restated in its entirety as follows:
1.2 Purchase and Sale of Post-Merger Common Stock. Upon and subject
to the Merger Agreement Closing, the Surviving Corporation will sell
to the Vistagreen Group and the Vistagreen Group will purchase from
the Surviving Corporation such number of shares of duly authorized,
validly issued, fully paid and non-assessable Post Merger Common
Stock of the Surviving Corporation which represents 35% of the issued
and outstanding Post-Merger Common Stock of the Surviving Corporation
on a fully diluted basis after giving effect to such issuance
("Holders Stock"). As used herein, any calculation of shares on a
"fully diluted basis" shall mean a calculation of share ownership
that assumes that all options granted under any incentive or other
plan, agreement or arrangement of the Company or the Surviving
Corporation have been exercised, that all warrants to purchase
securities of the Company or the Surviving Corporation have been
exercised, that all warrants to purchase securities of the Company or
the Surviving Corporation have been exercised and that all rights to
convert any security or other instrument, including, without
limitation, Series E and G Preferred Stock of the Company or the
Surviving Corporation into Common Stock or Post eager Common Stock
have been exercised, and any right or obligation of the Company to
discharge its obligation to pay dividends, interest or any other
obligation of the Company by the issuance of Common Stock or Post
Merger Common Stock shall be deemed to have been paid or discharged
by the issuance of such Common Stock or Post Merger Common Stock and
all other rights whatsoever to acquire any Common Stock or Post
Merger Common Stock have been exercised (including, as to all of the
foregoing, any unvested options or warrants or other rights to
acquire Common Stock or Post Merger Common Stock have been exercised
(including, as to all of the foregoing, any unvested options or
warrants or other rights to acquire Common Stock or Post Merger
Common Stock that are subject to the passage of time, the payment of
money, or any other contingency whatsoever), each such exercise,
conversion or issuance to be deemed to have occurred immediately
prior to the issuance of the Post Merger Common Stock to the Holders.
The total purchase price to be paid by the Vistagreen Group for the
Holders Stock shall be an amount equal to the Note Proceeds, together
with any and all interest earned thereon after the sale of the
Property and before the Merger Agreement Closing. At the Closing,.
the Surviving Corporation shall deliver to the Vistagreen Group
original certificates in the aggregate representing the Holders Stock
(with stamps or other evidence of payment of all taxes payable in
respect of such issuance affixed thereto or accompanying the same),
which certificates shall be in such denominations as the Vistagreen
Group reasonably request, such request to be delivered to the Company
(which shall be deemed notice to the Surviving Corporation) in
writing at least three (3) business days prior to the Closing.
Notwithstanding anything herein to the contrary, if the Merger
Agreement Closing has not occurred on or before December 31, 2000
(time being of the essence of this provision), then the obligation of
the Vistagreen Group to purchase the Holders Stock and the Surviving
Corporation's right to sell the Holders Stock to the Vistagreen Group
shall immediately terminate (without liability to any party) and be
of no further force and effect. In such event, on the first business
day in January 2001, Terremark and the Holders shall each cause their
respective Representatives to disburse the Note Proceeds which then
remain in the Escrow Account to the Vistagreen Group in accordance
with the Purchase Contract and such instructions as the Vistagreen
Group shall deliver to such Representatives. Provided that the
Closing hereunder and the Merger Agreement Closing have each taken
place by December 31, 2000, the Company agrees that the Surviving
Corporation shall file with the SEC, within ten business days after
the date of the later of the two closings to occur, a registration
statement on Form S-3 (or similar form) registering the sale and
disposition of all of the Holders Stock (the "Registration
Statement").
4. The following section is added as a new Section 2.2(c):
Investment Intent. The Vistagreen Group represents and warrants that
it is purchasing the Post Merger Common Stock issued to it for
investment purposes and not with a view to distribution thereof and
agrees that it shall not make any sale, transfer or other disposition
of its Post Merger Common Stock in violation of any applicable
securities law.
5. The following section is added as a new Section 3.1(d):
The filing and effectiveness of the Form S-3 referenced in Section
1.2 above shall be deemed to satisfy the demand registration rights
set forth in Section 3.1(a) hereof, with the terms and conditions of
Sections 3.1 through 3.8 of this Agreement applying to the filing of
such Form S-3.
6. Section 3.9 is hereby revised and restated in its entirety to read as
follows:
3.9 Lockup. Notwithstanding the date of effectiveness of the
Registration Statement filed pursuant to Section 1.2 hereof, the
Holders agree that, except as provided below, no sale, offer to sell
or other disposition of any interest in the Holders Stock shall be
made by any Holder (without the consent of the Surviving Corporation,
to be given or withheld in the Surviving Corporation's sole and
absolute discretion) prior to the expiration of one (1) year after
the Merger Agreement Closing; provided, however, that nothing herein
contained shall impair or affect the Holder's rights to sell Holders
Stock pursuant to I) open market sales in such amounts and at such
times as would be permitted under the volume limitation of Rule 145,
as if such rule were applicable, or (ii) sales by any member of the
Vistagreen Group to another member of such Group or any family member
or Affiliate of any member of such Group or to Terremark or any
affiliate of Terremark (a "Permitted Transferee"). Any transfer to
such Permitted Transferee may be made pursuant to the Registration
Statement so that the Permitted Transferee (to the extent allowed by
law) shall take unlegended shares of Holder Stock, provided that such
Permitted Transferees shall take the Holders Stock so acquired
subject to the applicable lock-up restrictions set forth in this
paragraph.
7. Section 4.1 is hereby revised and restated in its entirety to read as
follows:
United States Real Property Interests. The Company covenants
and agrees that for so long as the Vistagreen Group holds, in the
aggregate, Holders Stock acquired pursuant to this Agreement
representing at least 1% of the outstanding shares of Common Stock of
the Company, the Company shall not be or become a United States Real
Property Holding Corporation as defined in Section 897(c)(2) of the
Code nor shall the Holders Stock acquired pursuant to this Agreement
be or become a United States Real Property Interest as defined in
Section 897(c)(1)(A)(ii) of the Code. In addition, as of each
Determination Date (as defined in Treasury Regulation Section
1.897-2(c)), including particularly a date of disposition, the
Company shall provide to each member of the Vistagreen Group a
statement complying with Treasury Regulation Section 1.897(g)(1)(ii)
and shall also comply, on a timely basis, with the notice
requirements of Treasury Regulation Section 1.897-2(h) including
without limitation, timely notice to the Internal Revenue Service as
provided in that Treasury Regulation, with a copy to each member of
the Vistagreen Group, together with other Supporting Documents (as
hereinafter defined), but dated as of the determination date. Any
notice conforming with or under Treasury Regulation Section
1.897-2(h) need to address the status of the Company as a United
States Real Property Holding Corporation and the status of the
Company Shares as a United States real property Interest only from a
date that is no earlier than the date of the Effective Time. These
covenants shall in all respects survive the Closing of this
Agreement.
8. The introductory paragraph of Section 5.1(d) is hereby revised and
restated in its entirety to read as follows (with subsections (i), (ii) and
(iii) remaining unchanged:
United Stated Real Property Holding Corporation. Neither the
Surviving Corporation nor the Company is, as of the Effective Time, a
United States real property holding corporation (as defined in
Section 897(c)(2) of the Code), and the Holders Stock to be acquired
by the Holders, at the Effective Time, does not constitute a United
States real property interest (as defined in Section 897(c)(1)(A)(ii)
of the Code) ("USRPHC Condition Precedent"). To assure that the
USRPHC Condition Precedent has been met the following shall be
delivered to the Holders at Closing:
9. Section 6.1(b) is hereby deleted in its entirety and the remaining
subsections of Section 6.1 are renumbered accordingly.
10. Each of the parties hereto agrees that it will use its commercially
reasonable best efforts to do all things reasonably necessary to consummate
the transactions contemplated hereby.
11. This Amendment may be executed in several counterparts, each of which
shall be deemed to be an original, and all of which together shall be
deemed to be one and the same instrument.
12. This Amendment and the legal relations between the parties hereto shall
be governed by and construed in accordance with the laws of the State of
Delaware, without regard to the conflict of laws rules thereof.
13. Except as specifically amended by this Amendment, all terms and
conditions of the Stock Purchase Agreement shall remain unchanged and in
full force and effect.
14. The parties hereby acknowledge and consent to the amendment as of the
date hereof to that certain Agreement and Plan of Merger by and between
Terremark Holdings, Inc., a Florida corporation and the Company dated as of
November 24, 1999.
IN WITNESS WHEREOF, each of Purchaser and the Company have caused this
Amendment to Stock Purchase Agreement to be executed by their respective
officers thereunto duly authorized, all as of the date first above written.
AMTEC, INC.
/s/ Joseph R. Wright, Jr., Chairman & Chief Executive Officer
VISTAGREEN HOLDINGS (BAHAMAS), LTD.
/s/ Peter B Evans, President
PARADISE STREAM (BAHAMAS)
/s/ Peter B. Evans, President
MORAINE INVESTMENTS, INC.
/s/ Peter B. Evans, President
Terremark Holdings, Inc., a Florida corporation, hereby acknowledges
and consents to this Amendment to the Stock Purchase Agreement.
TERREMARK HOLDINGS, INC.
/s/ Brian K. Goodkind, Executive Vice President
