<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) APRIL 28, 2000
------------------------------
TERREMARK WORLDWIDE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
------------------------------------------------------
(State or other jurisdiction of incorporation)
0-22520 84-0873124
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
599 LEXINGTON AVENUE
44TH FLOOR NEW YORK, NEW YORK 10022
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(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code (212) 319-9160
---------------------------
AMTEC, INC.
---------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 1. CHANGE IN CONTROL.
On April 28, 2000, at a special meeting, the stockholders of AmTec,
Inc., a Delaware corporation ("AmTec"), approved and adopted the agreement and
plan of merger, dated as of November 24, 1999, as amended (the "Merger
Agreement"), by and between AmTec and Terremark Holdings, Inc., a Florida
corporation ("Terremark"). Pursuant to the Merger Agreement, Terremark merged
with and into AmTec, with AmTec as the surviving corporation, and its name has
been changed to Terremark Worldwide, Inc. ("Terremark Worldwide"). Each existing
share of AmTec's common stock outstanding prior to the merger now represents one
share of common stock in the combined company. The holders of Terremark common
stock were issued in the aggregate 78,539,832 shares.
At the special meeting, the AmTec stockholders also approved the stock
purchase agreement, dated as of November 24, 1999, as amended (the "Stock
Purchase Agreement"), by and between AmTec and Vistagreen Holdings (Bahamas),
Ltd., a Bahamian international business company ("Vistagreen"). Pursuant to the
Stock Purchase Agreement, AmTec sold to Vistagreen, Paradise Stream (Bahamas)
Limited, a Bahamian international business company, and Moraine Investments,
Inc., a British Virgin Islands company (collectively, the "Vistagreen Group"),
in the aggregate, 68,722,349 shares of its common stock.
After the merger and the stock purchase closed, the existing AmTec
stockholders, the Terremark shareholders and Vistagreen, respectively, hold 25%,
40% and 35% shares of AmTec's common stock on a fully diluted basis.
In connection with the merger, the Vistagreen Group and all of the
Terremark shareholders entered into a shareholders agreement, dated May 12,
2000, which, among other things, provides that (i) the Terremark shareholders
agree to nominate or cause to be nominated and to vote all of their shares to
elect two Vistagreen Group nominees to the board of directors of Terremark
Worldwide; (ii) the Vistagreen Group agrees to nominate or cause to be nominated
and to vote all of their shares to elect to the board all of the individuals who
are nominated for directorships by the Terremark Worldwide, Inc. board of
directors; and (iii) the Terremark shareholders agree to cause the
non-Vistagreen designated directors to elect a Vistagreen designated director to
the Executive Committee of the board.
In addition, on April 21, 2000, various Terremark shareholders entered
into a Shareholders Agreement agreeing to vote all shares of Terremark Worldwide
held by them as directed by Manuel D. Medina.
The foregoing summary of the merger, stock purchase and shareholders
agreements is qualified in its entirety by reference to the text of the Merger
Agreement, the Stock Purchase Agreement, the Vistagreen Shareholders Agreement,
the Terremark Shareholders Agreement and Terremark Worldwide's press release
dated May 1, 2000, which are attached hereto as Exhibits 2.1, 2.2, 9.1, 9.2 and
99.1, respectively, and are incorporated herein by reference.
2
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The financial statements required by Rule 3-05(b) of
Regulation S-X are included as Exhibit 99.2 hereto.
(b) Pro Forma Financial Information.
The pro forma financial information required by Article 11 of
Regulation S-X are included as Exhibit 99.3 hereto.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
2.1 Agreement and Plan of Merger, dated as of November 24, 1999, as amended, by and
among AmTec and Terremark.
2.2 Stock Purchase Agreement, dated as of November 24, 1999, as amended, by and
between Vistagreen and AmTec.
9.1 Shareholders Agreement, dated as of May 12, 2000, by and among Vistagreen
Holdings (Bahamas), Ltd., Moraine Investments, Inc., Paradise Stream (Bahamas) Limited,
Brian Goodkind, Michael L. Katz, William Biondi, Edward P. Jacobsen, Irving J. Padron, Jr.,
Aviva Budd, Grapevine, Ltd., Manuel Medina and William Burmayo.
9.2 Shareholders Agreement, dated as of April 21, 2000, by and among Manuel D.
Medina, Grapevine, Ltd., William Burmayo, Brian Goodkind, Michael Katz, William
Biondi, Edward Jacobsen, Irving Padron, Jr. and Aviva Budd.
99.1 Press Release of Terremark Worldwide, Inc., dated May 1, 2000.
99.2 Financial Statements of AmTec and Terremark, as of December 31, 1999.
99.3 Pro Forma Financial Information of AmTec and Terremark, as of December 31, 1999.
</TABLE>
3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TERREMARK WORLDWIDE, INC.
Dated: May 15, 2000 By:/s/ MANUEL D. MEDINA
---------------------------------------
Name: Manuel D. Medina
Its: Chairman and Chief Executive Officer
4
<PAGE> 1
EXHIBIT 2.1
=====================================================================
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
TERREMARK HOLDINGS, INC.
AND
AMTEC, INC.
Dated as of November 24, 1999
=====================================================================
<PAGE> 2
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
<PAGE> 3
(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
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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
<PAGE> 5
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."
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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.
2
<PAGE> 7
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
3
<PAGE> 8
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
4
<PAGE> 9
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
5
<PAGE> 10
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.
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<PAGE> 11
(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
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<PAGE> 12
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,
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<PAGE> 13
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
9
<PAGE> 14
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
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<PAGE> 15
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
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<PAGE> 16
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
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<PAGE> 17
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
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<PAGE> 18
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
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<PAGE> 19
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
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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.
------------------------------------------------------
(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
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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.
--------------------------------
(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
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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
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<PAGE> 23
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,
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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
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<PAGE> 25
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
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<PAGE> 26
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
22
<PAGE> 27
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
23
<PAGE> 28
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
24
<PAGE> 29
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
25
<PAGE> 1
EXHIBIT 2.2
==============================================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
VISTAGREEN HOLDINGS (BAHAMAS), LTD.
AND
AMTEC, INC.
Dated as of November 24, 1999
==============================================================================
<PAGE> 2
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
<PAGE> 3
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
<PAGE> 4
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):
1
<PAGE> 5
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
2
<PAGE> 6
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
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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;
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<PAGE> 8
(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
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<PAGE> 9
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
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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.
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(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
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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
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<PAGE> 13
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
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<PAGE> 14
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
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<PAGE> 15
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
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<PAGE> 16
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,
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<PAGE> 17
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
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<PAGE> 18
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
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<PAGE> 19
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
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<PAGE> 20
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
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<PAGE> 21
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,
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<PAGE> 22
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
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<PAGE> 23
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
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<PAGE> 1
Exhibit 9.1
SHAREHOLDERS AGREEMENT
THIS AGREEMENT is entered into as of this 12th day of May, 2000, by and
between VISTAGREEN HOLDINGS (BAHAMAS), LTD., a Bahamas international business
company ("Vistagreen"), MORAINE INVESTMENTS, INC., a British Virgin Islands
international business corporation ("Moraine"), and PARADISE STREAM (BAHAMAS)
LIMITED ("Paradise Stream"), a Bahamas international business company, each
having an address c/o Karp & Genauer, P.A., 2 Alhambra Plaza, Suite 1202, Coral
Gables, FL 33134, Attention: Joel J. Karp (Vistagreen, Moraine and Paradise
Stream are hereinafter collectively referred to as the "Vistagreen Parties"),
and the persons and entities listed on EXHIBIT "A" attached hereto, each having
an address c/o Terremark Holdings, Inc., 2601 South Bayshore Drive, PH 1-B,
Coconut Grove, Florida 33133, Attention: Brian Goodkind (collectively, the
"Terremark Shareholders").
W I T N E S S E T H :
WHEREAS, Terremark Holdings, Inc., a Florida corporation ("Terremark")
and AmTec, Inc., a Delaware corporation ("AmTec") entered into the Agreement and
Plan of Merger dated as of November 24, 1999 ("Merger Agreement") pursuant to
which Terremark will merge into AmTec and the Terremark Shareholders will
receive shares of common stock of AmTec, $0.001 par value ("AmTec Common Stock")
as provided in the Merger Agreement; and
WHEREAS, Vistagreen and AmTec entered into the Stock Purchase Agreement
dated as of November 24, 1999 ("Stock Purchase Agreement") pursuant to which,
immediately following the closing of the Merger Agreement, AmTec will sell to
the Vistagreen Parties or their assignees shares of AmTec Common Stock as
provided in the Stock Purchase Agreement in exchange for Note Proceeds (as
defined in the Stock Purchase Agreement), together with all interest earned
thereon; and
WHEREAS, immediately following the closing of the Merger Agreement and
the closing of the Stock Purchase Agreement the percentage ownership of the
existing holders of AmTec Common Stock and Preferred Stock, Warrants, Options
and other securities upon total exercise
<PAGE> 2
or conversion prior to such closings shall be 25%, the percentage ownership of
the Vistagreen Parties shall be 35% and the percentage ownership of the
Terremark Shareholders shall be 40%, each such percentage representing the
respective ownership of such parties of the AmTec Common Stock on a fully
diluted basis immediately following such closings; and
WHEREAS, certain affiliates of the Vistagreen Parties and certain
affiliates of Terremark entered into the Contract for the Purchase and Sale of
the General and Limited Partnership Interests of Terremark Centre, Ltd. dated as
of November 24, 1999 ("Terremark Centre Purchase Agreement"), which requires,
among other things, that the parties hereto enter into this Shareholders
Agreement with respect to certain matters relating to their ownership and voting
of AmTec Common Stock following the closings of the Merger Agreement and the
Stock Purchase Agreement.
WHEREAS, the parties intend by entering into this Shareholders
Agreement ("Shareholders Agreement") to supercede by this Shareholders Agreement
all prior agreements with respect to the subject matter hereof; and
NOW THEREFORE, in order to satisfy the above described requirements
contained in the Terremark Centre Purchase Agreement and in consideration of the
premises and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. GENERAL AND DEFINITIONS. The recitals hereto are true and correct
and are hereby incorporated herein by this reference. For purposes of this
Agreement, a "Terremark Shareholder" shall include the persons and entities
listed on EXHIBIT "A" attached hereto and any Affiliate of any such persons or
entities. For purposes hereof, the "Vistagreen Parties" shall mean Vistagreen,
Paradise Stream and Moraine and any Affiliate of Vistagreen, Paradise Stream or
Moraine. For purposes hereof, "Affiliate" shall mean any person or entity that
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such person or entity, and, in
the case of natural persons, shall also include any Family Member of any such
natural person, but only with regard to AmTec Common Stock received by such
Family Member from a party which acquired the same pursuant to the Merger
Agreement or the Stock Purchase Agreement. For purposes hereof, "Family Member"
of a natural person shall include the
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<PAGE> 3
following relationships to such natural person: father, mother, son, daughter,
adopted son, adopted daughter, brother, sister, aunt, uncle, nephew, niece,
grandfather, grandmother and first cousin. For purposes hereof, "Vistagreen
Nominees" shall mean those persons designated by the Vistagreen Parties to serve
as members of the Board of Directors of AmTec. For purposes hereof, "Terremark
Nominees" shall mean those persons designated by the Terremark Shareholders to
serve as members of the Board of Directors of AmTec.
2. ELECTION OF DIRECTORS. In connection with any and all elections of
Directors to the Board of Directors of AmTec, the Terremark Shareholders agree
to nominate or to cause to be nominated and to vote all of their shares of AmTec
Common Stock to elect two (2) Vistagreen Nominees to the Board of Directors of
AmTec. In addition, in connection with the election or appointment of members of
the Executive Committee of the Board of Directors of AmTec, the Terremark
Shareholders agree to elect or appoint or to cause all Terremark Nominees who
become Directors of AmTec to elect or appoint one (1) of the Vistagreen Nominees
to be a member of such Executive Committee. The Vistagreen Nominees shall advise
the Terremark Nominees regarding which of the Vistagreen Nominees shall be a
member of such Executive Committee. In connection with any and all elections of
Directors to the Board of Directors of AmTec, the Vistagreen Parties agree to
vote all of their shares of AmTec Common Stock in favor of electing all
Terremark Nominees who are nominated for directorships in connection with such
elections. In addition, in connection with the election or appointment of
members of any committee of the Board of Directors of AmTec, the Vistagreen
Parties agree to elect or appoint or to cause the Vistagreen Nominees who serve
as members of the Board of Directors of AmTec to elect or appoint such
Vistagreen Nominees as the Terremark Shareholders shall designate to be members
of such committees of the Board of Directors of AmTec as the Terremark
Shareholders shall designate.
3. TAGALONG RIGHTS.
(a) If any of the Vistagreen Parties or the Terremark
Shareholders propose to
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<PAGE> 4
sell, dispose of or otherwise transfer any AmTec Common Stock (each a "Disposing
Stockholder"), such Disposing Stockholder shall refrain from effecting such
transaction unless, prior to the consummation thereof, each other stockholder of
AmTec who is a Vistagreen Party or a Terremark Stockholder (each a "Nondisposing
Stockholder") shall have been afforded the opportunity to join in such sale on a
pro-rata basis, as hereinafter provided, but subject to the limitations
hereinafter provided.
(b) Prior to consummation of any proposed sale, disposition or
transfer of AmTec Common Stock described in subparagraph (a) above, the
Disposing Stockholder shall cause the person or entity that proposes to acquire
such shares (the "Proposed Purchaser") to offer ("Purchase Offer") in writing to
each Nondisposing Stockholder to purchase shares of AmTec Common Stock owned by
such Nondisposing Shareholder, such that the number of shares of such AmTec
Common Stock so offered to be purchased from such Nondisposing Shareholder shall
be equal to the product obtained by multiplying the total number of shares of
such AmTec Common Stock then owned by such Nondisposing Shareholder, computed on
a fully diluted basis, by a fraction, the numerator of which is the aggregate
number of shares of AmTec Common Stock proposed to be purchased by the Proposed
Purchaser from all stockholders of AmTec (including all Disposing Stockholders)
and the denominator of which is the aggregate number of shares of AmTec Common
Stock then outstanding, computed on a fully diluted basis. Such purchase shall
be made at the highest price per share of AmTec Common Stock and on such other
terms and conditions as the Proposed Purchaser has offered to purchase shares of
AmTec Common Stock to be sold by the Disposing Stockholder. Each Nondisposing
Stockholder shall have twenty (20) days from the date of receipt of the Purchase
Offer in which to accept such Purchase Offer, and the closing of such purchase
shall occur simultaneously with the closing of the purchase of AmTec Common
Stock by the Proposed Purchaser from the Disposing Stockholder. The number of
shares of Common Stock to be sold to the Proposed Purchaser by the Disposing
Stockholder shall be reduced by the aggregate number of shares of Common Stock
purchased by the Proposed Purchaser from the Nondisposing Stockholders pursuant
to the acceptance by them of the Purchase Offer in accordance with the
provisions of
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<PAGE> 5
this subparagraph (b), unless the Proposed Purchase is willing to purchase all
of the available shares of AmTec Common Stock of the Disposing Stockholder and
the Nondisposing Stockholders. In the event that a sale or other transfer
subject to this Section is to be made to a Proposed Purchaser, the Disposing
Stockholder shall notify the Proposed Purchaser that the sale or other transfer
is subject to this Section and shall insure that no sale or other transfer is
consummated without the Proposed Purchaser first complying with this Section. It
shall be the responsibility of each Disposing Stockholder to determine whether
any transaction to which it is a party is subject to this Section.
(c) Notwithstanding the foregoing, a Disposing Stockholder
shall not be subject to the restrictions of this Section in the event that the
Disposing Stockholder proposes to sell in any transaction or series of related
transactions a number of shares of AmTec Common Stock representing less than ten
percent (10%) of the issued and outstanding shares of Common Stock of AmTec. For
purposes of calculating the number of shares of AmTec Common Stock being sold in
any transaction or series of related transactions the shares being sold by all
Terremark Stockholders shall be aggregated as if being sold by one such
Stockholder and a similar aggregation shall apply to the Vistagreen Parties. In
addition, a Disposing Stockholder shall not be subject to the restrictions of
this Section in the event that a Disposing Stockholder proposes to sell shares
of AmTec Common Stock to an Affiliate of such Disposing Stockholder.
(d) The requirements of this paragraph 3 shall not apply to
open market sales through the American or other applicable Stock Exchange in
accordance with the rules of said Exchange (or the NASDAQ or any other
interdealer sale system in accordance with the rules of that system).
Notwithstanding the foregoing, the requirements of this paragraph shall apply to
any transaction involving direct negotiation between a buyer and a seller. For
this purpose, a registered broker dealer acting in the ordinary course of
business as a dealer, shall be deemed an intermediary, rather than a buyer.
4. (a) Neither a Vistagreen Party nor a Terremark Shareholder may sell,
transfer,
5
<PAGE> 6
assign or otherwise dispose of any of its AmTec Common Stock to an Affiliate
unless such Affiliate agrees in writing to acquire such shares of AmTec Common
Stock subject to the terms of this Agreement and to be bound by the terms of
this Agreement. Any party who is not an Affiliate of a Vistagreen Party or a
Terremark Shareholder may acquire shares of AmTec Common Stock from a Vistagreen
Party or a Terremark Shareholder without being subject to the terms of this
Agreement, provided that the transaction pursuant to which such non-Affiliate
acquired such shares of AmTec Common Stock was not in violation of the terms of
this Agreement.
(b) The foregoing restriction shall not apply to open market
sales through the American or other applicable Stock Exchange in accordance with
the rules of said Exchange (or the NASDAQ or any other interdealer sales system
in accordance with the rules of that system). Notwithstanding the foregoing, the
foregoing restriction shall apply to any transaction involving direct
negotiation between a buyer and a seller. For this purpose a registered broker
dealer acting in the ordinary course of business as a dealer shall be deemed an
intermediary, rather than a buyer.
5. This Agreement shall be binding on and inure to the benefit of the
respective parties hereto and their successors and assigns. This Agreement may
be executed in counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Agreement
represents the entire understanding of the parties regarding the subject matter
hereof, and supersedes any and all other inconsistent or conflicting prior
agreements between the parties. The terms and provisions of this Agreement
cannot be terminated or modified or amended orally or by course of conduct or
dealing or in any manner except in a writing that is signed by the party against
whom enforcement is sought. This Agreement shall be construed in accordance with
the laws of the State of Florida, and any suit, action or proceeding arising out
of or relating to this Agreement may be commenced and maintained in any court of
competent subject matter jurisdiction in Miami-Dade County, Florida, and each
party waives objection to such jurisdiction and venue. The provisions of this
Agreement are severable, and any invalidity, unenforceability or illegality in
any provision or
6
<PAGE> 7
provisions hereof shall not affect the remaining provisions of this Agreement.
In any suit, action or proceeding arising out of or in connection with this
Agreement, the prevailing party shall be entitled to an award of the reasonable
attorneys' fees and disbursements incurred by such party in connection
therewith, including fees and disbursements in administrative, regulatory,
insolvency, bankruptcy and appellate proceedings. All notices required or
allowed hereunder shall be in writing and shall be deemed given upon (i) hand
delivery or (ii) delivery by reputable overnight courier service, or (iii)
delivery by facsimile with confirmation of receipt, or (iv) deposit of same in
the United States Certified Mail, Return Receipt Requested, first class postage
and registration fees prepaid and correctly addressed to the party for whom
intended at their address written in the first page hereof, or such other
address as is most recently noticed for such party as aforesaid. All references
to gender or number in this Agreement shall be deemed interchangeably to have a
masculine, feminine, neuter, singular or plural meaning, as the sense of the
context requires. This Agreement may be executed in counterparts all of which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, Purchaser and Sellers have executed this Contract
on the day and year first written above.
VISTAGREEN HOLDINGS (BAHAMAS), LTD.
By: /s/ ROGER CARPENTER
-----------------------------------
ROGER CARPENTER
MORAINE INVESTMENTS, INC.
By: /s/ ADRIAN CROSBIE-JONES
-----------------------------------
ADRIAN CROSBIE-JONES
PARADISE STREAM (BAHAMAS) LIMITED)
By: /s/ ADRIAN CROSBIE-JONES
-----------------------------------
ADRIAN CROSBIE-JONES, VICE PRESIDENT
TERREMARK SHAREHOLDERS
/s/ BRIAN GOODKIND
---------------------------------------
BRIAN GOODKIND
/s/ MICHAEL L. KATZ
---------------------------------------
MICHAEL L. KATZ
/s/ WILLIAM BIONDI
---------------------------------------
WILLIAM BIONDI
/s/ EDWARD P. JACOBSEN
---------------------------------------
EDWARD P. JACOBSEN
7
<PAGE> 8
/s/ IRVING I. PADRON, JR.
---------------------------------------
IRVING I. PADRON, JR.
/s/ AVIVA BUDD
---------------------------------------
AVIVA BUDD
TCO COMPANY, LTD.
By: /s/ ADRIAN CROSBIE-JONES
-----------------------------------
Name: ADRIAN CROSBIE-JONES
Title: BUSINESS ADMINISTRATION
LIMITED-DIRECTOR
/s/ MANUEL D. MEDINA
---------------------------------------
MANUEL D. MEDINA
/s/ WILLIAM BURMAYO
---------------------------------------
WILLIAM BURMAYO
ATTU SERVICES, INC.
By: BUSINESS ADMINISTRATION LIMITED
By:
-----------------------------------
ADRIAN CROSBIE-JONES, DIRECTOR
8
<PAGE> 9
EXHIBIT "A"
BRIAN GOODKIND
MICHAEL L. KATZ
WILLIAM BIONDI
EDWARD P. JACOBSEN
IRVING I. PADRON, JR.
AVIVA BUDD
TCO COMPANY LIMITED
MANUEL D. MEDINA
WILLY BERMELLO
ATTU SERVICES, INC.
<PAGE> 1
Exhibit 9.2
SHAREHOLDERS AGREEMENT
THIS AGREEMENT is entered into as of this 21st day of April,
2000, by and between MANUEL D. MEDINA, ATTU Services, Inc., TCO Company Limited,
WILLY BERMELLO, BRIAN GOODKIND, MICHAEL KATZ, WILLIAM BIONDI, EDWARD JACOBSEN,
IRVING PADRON, JR., AND AVIVA BUDD each having an address c/o Terremark
Holdings, Inc., 2601 South Bayshore Drive, 9th Floor, Coconut Grove, Florida
33133, Attention: Brian Goodkind (collectively, the "Terremark Shareholders").
W I T N E S S E T H :
WHEREAS, Terremark Holdings, Inc., a Florida corporation ("Terremark")
and AmTec, Inc., a Delaware corporation ("AmTec") entered into the Agreement and
Plan of Merger dated as of November 24, 1999 ("Merger Agreement") pursuant to
which Terremark will merge into AmTec and the Terremark Shareholders will
receive shares of common stock of AmTec, $0.001 par value ("AmTec Common Stock")
as provided in the Merger Agreement; and
WHEREAS, Vistagreen Holdings (Bahamas), Ltd., a Bahamas corporation
("Vistagreen") and AmTec entered into a Stock Purchase Agreement dated as of
November 24, 1999 ("Stock Purchase Agreement") pursuant to which, immediately
following the closing of the Merger Agreement, AmTec will sell to Vistagreen and
Moraine Investments, Inc., a British Virgin Islands international business
corporation (collectively the "Vistagreen Parties"), or their assignees, shares
of AmTec Common Stock as provided in the Stock Purchase Agreement in exchange
for Note Proceeds (as defined in the Stock Purchase Agreement), together with
all interest earned thereon; and
<PAGE> 2
WHEREAS, immediately following the closing of the Merger Agreement and
the closing of the Stock Purchase Agreement the percentage ownership of the
existing holders of AmTec Common Stock and Preferred Stock, Warrants, Options
and other securities upon total exercise or conversion prior to such closings
shall be 25%, the percentage ownership of the Vistagreen Parties shall be 35%
and the percentage ownership of the Terremark Shareholders shall be 40%, each
such percentage representing the respective ownership of such parties of the
AmTec Common Stock on a fully diluted basis immediately following such closings;
and
WHEREAS, Katz, Biondi, Goodkind, Padron, Budd and Jacobsen own
preferred convertible stock (the "Preferred Stock"), which stock is convertible
pursuant to a valuation formula set forth in the statement of preferences for
such Preferred Stock, and the holders of such Preferred Stock are desirous of
converting same and are required to do so by virtue of the Merger Agreement; and
WHEREAS, the Terremark Shareholders wish to enter into this shareholder
agreement (the "Agreement") pursuant to Section 607.0731 of the Florida Business
Corporation Act to ensure that the Terremark Shareholders vote as a group, as
directed by Manual D. Medina;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. CONVERSION OF PREFERRED STOCK. The Terremark Shareholders recognize
that the Preferred Stock must be converted to Terremark common stock prior to
the closing on the Merger Agreement and that either Terremark Holdings or the
holders of the Preferred Stock have the right to force such a conversion. The
parties also recognize that the conversion formula is based on a valuation of
the Company and differs depending upon whether conversion is at the option of
the Company or the holders and, if at the option of the Company, the reason why
it is being required. In order to avoid delay, cost and potential disagreement,
all parties hereto stipulate that, for the purposes of this document, the value
of the Company is $15,000,000, and that pursuant to paragraph E(iv) of the
statement of preferences governing the Preferred Stock, such stock shall
convert into 124,584 shares of common stock, representing 10% of the total of
all then outstanding Terremark Common Stock.
2. VOTING OF AMTEC SHARES. In any vote of the AmTec Common Stock,
whether at a meeting or by written consent, the Terremark Shareholders agree to
vote all shares of AmTec Common Stock received pursuant to the Merger Agreement
and any subsequently acquired, as directed by Manuel D. Medina for one year
from the date of the closing on the Merger Agreement. Thereafter, any one or
more of the Terremark Shareholders can elect to remove themselves from this
voting agreement by providing ninety days written notice to all other Terremark
Shareholders.
3. BINDING NATURE. This Agreement shall be binding on and inure to the
benefit of the respective parties hereto and their successors and assigns.
Section 607.0731 of the Florida Business Corporation Act provides that this
Agreement is binding on the transferees of the parties to this Agreement,
provided that the transferee takes the AmTec Common Stock subject to this
Agreement with notice thereof. The parties hereby, and their successors and
assigns, agree to provide notice of this Agreement to any transferee prior to
any transfer of AmTec Common Stock. Notwithstanding the foregoing, this
Agreement shall not be binding with regard to AmTec Common Stock sold in the
ordinary course over the American Stock Exchange or on any such other exchange
on which the stock may, from time to time, be listed.
4. OTHER PROVISIONS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Agreement represents the entire
understanding of the parties regarding the subject matter hereof, and supersedes
any and all other inconsistent or conflicting prior agreements between the
parties. The terms and provisions of this Agreement cannot be terminated or
modified or amended orally or by course of conduct or dealing or in any manner
except in a writing that is signed by the party against whom enforcement is
sought. This Agreement shall be construed in accordance with the laws of the
State of Florida, and any suit,
2
<PAGE> 3
action or proceeding arising out of or relating to this Agreement may be
commenced and maintained in any court of competent subject matter jurisdiction
in Miami-Dade County, Florida, and each party waives objection to such
jurisdiction and venue. The provisions of this Agreement are severable, and any
invalidity, unenforceability or illegality in any provision or provisions hereof
shall not affect the remaining provisions of this Agreement. In any suit, action
or proceeding arising out of or in connection with this Agreement, the
prevailing party shall be entitled to an award of the reasonable attorneys' fees
and disbursements incurred by such party in connection therewith, including fees
and disbursements in administrative, regulatory, insolvency, bankruptcy and
appellate proceedings. All notices required or allowed hereunder shall be in
writing and shall be deemed given upon (i) hand delivery or (ii) delivery by
reputable overnight courier service, or (iii) delivery by facsimile with
confirmation of receipt, or (iv) deposit of same in the United States Certified
Mail, Return Receipt Requested, first class postage and registration fees
prepaid and correctly addressed to the party for whom intended at their address
written in the first page hereof, or such other address as is most recently
noticed for such party as aforesaid, or (v) via overnight courier. All
references to gender or number in this Agreement shall be deemed interchangeably
to have a masculine, feminine, neuter, singular or plural meaning, as the sense
of the context requires.
IN WITNESS WHEREOF, the execution of this Agreement as of the date
first above written.
TERREMARK SHAREHOLDERS
/s/ Brian Goodkind
---------------------------------------------
BRIAN GOODKIND
/s/ Michael L. Katz
---------------------------------------------
MICHAEL L. KATZ
/s/ William Biondi
---------------------------------------------
WILLIAM BIONDI
/s/ Edward P. Jacobsen
---------------------------------------------
EDWARD P. JACOBSEN
/s/ Irving I. Padron, Jr.
---------------------------------------------
IRVING I. PADRON, JR.
3
<PAGE> 4
AJR, LLC, a Connecticut Limited Liability
Company
By: /s/ Aviva Budd
-----------------------------------------
Name: AVIVA BUDD
Title: Managing Member
ATTU SERVICES, INC.
By: /s/ Adrian Crosbie-Jones
-----------------------------------------
Name: ADRIAN CROSBIE-JONES
Title: Business Administration Limited -
Director
/s/ Manuel D. Medina
---------------------------------------------
MANUEL D. MEDINA
/s/ William Bermello
---------------------------------------------
WILLIAM BERMELLO
TCO COMPANY, LTD.
By: /s/ Adrian Crosbie-Jones
-----------------------------------------
Name: ADRIAN CROSBIE-JONES
Title: Business Administration Limited -
Director
4
<PAGE> 1
Exhibit 99.1
Merger of Terremark and AmTec Approved by Stockholders
Manuel D. Medina Named President, Chairman and
CEO of Terremark Worldwide, Inc. at First Board Meeting
NEW TELECOMMUNICATIONS - REAL ESTATE COMPANY WILL TRADE
ON THE AMERICAN STOCK EXCHANGE AS TWW
New York (April 28, 2000) - The stockholders of AmTec, Inc., an international
telecommunications services company, approved today its merger with Terremark
Holdings Inc., a full service real estate and development company, during the
shareholders meeting held at 10:00 AM at the Waldorf Astoria. The newly combined
company is TERREMARK WORLDWIDE, INC., which has its headquarters in the
Terremark Centre in Miami, Florida, with offices in several other locations,
including New York and Washington, D.C.. Terremark will continue the focus of
its predecessors by aggressively pursuing opportunities domestically and in
emerging markets in both telecommunications and real estate, as well as
resulting synergies, like the expansion of its T-Rex brand of telcom hotels.
Starting May 1, Terremark Worldwide will be traded on the American Stock
Exchange under the symbol TWW.
At TWW's first meeting of the new Board of Directors, Manuel D. Medina was
elected Chairman of the Company and also appointed President and CEO. Commenting
on the future of the Company, Mr. Medina remarked, "The fundamentals that have
made Terremark Holdings highly successful as a diversified real estate services
company over the last twenty years, combined with the essential elements AmTec
brings into the fold will serve TERREMARK WORLDWIDE well in the geometrically
expanding telecommunications industry. Those fundamentals include dedication,
team work, creativity and a commitment to excellence in all endeavors."
In addition, the TWW Board also ratified the Company's contract to acquire
Telecom Routing Exchanging Developers, Inc. (also known as "T-Rex"). With the
Board's approval satisfying the sole remaining condition to completion of the
acquisition, the formal closing of that transaction is expected in the next 7-10
days.
<PAGE> 2
Note: Forward-looking statements in this press release are necessarily subject
to risks and uncertainties that may affect the accuracy of such statement. Such
risks may include any political instability in China, any delays in construction
of networks, and market acceptance of and demand for the Company's products and
services. For a discussion of such risks, please refer to the AmTec Inc.'s Form
10(K) filed with the Securities and Exchange Commission for the fiscal year
ending March 31, 1999. (Terremark Holding's was not publicly traded prior to the
merger.) The Company undertakes no obligation to update such factors or to
publicly announce the results of any revisions to the forward-looking statements
contained herein. Investors and security holders of Terremark Worldwide, Inc.
are advised to read the proxy statement regarding the AmTec and Terremark merger
and related transactions referenced in the foregoing information, because
contains important information. Such proxy statement was filed with the
Securities and Exchange Commission by AmTec, Inc. Investors and security holders
may obtain a free copy of the proxy statement and other documents filed by
Terremark Worldwide, Inc. (formerly AmTec, Inc.) at the Securities and Exchange
Commission's website http://www.sec.gov The proxy statement and such other
documents may also be obtained from Terremark Worldwide, Inc. by visiting our
web site, ERROR! BOOKMARK NOT DEFINED. or directing such requests in writing to;
Olga M. Fraga, Vice President, Marketing & Public Relations, 2601 S. Bayshore
Drive, 9th floor, Coconut Grove, Florida 33133; ERROR!
BOOKMARK NOT DEFINED.
# # #
<PAGE> 1
EXHIBIT 99.2
<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
</TABLE>
F-1
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
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
------------ ------------
</TABLE>
F-2
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
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.
</TABLE>
<TABLE>
<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>
F-3
<PAGE> 4
<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 -- $-- -- $--
=========== =========== ========== ========= ======= ========
</TABLE>
<TABLE>
<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.................... -- -- -- -- -- -- -- --
</TABLE>
F-4
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
--------------- --------------------- -------------------
</TABLE>
F-5
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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)
=============== ===================== ===================
</TABLE>
<TABLE>
<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.
F-6
<PAGE> 7
<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.
F-7
<PAGE> 8
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
F-8
<PAGE> 9
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,
F-9
<PAGE> 10
"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
F-10
<PAGE> 11
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
============== ===============
F-11
<PAGE> 12
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
F-12
<PAGE> 13
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
F-13
<PAGE> 14
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,
F-14
<PAGE> 15
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.
F-15
<PAGE> 16
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:
F-16
<PAGE> 17
<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.
F-17
<PAGE> 18
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
F-18
<PAGE> 19
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
------------------ ----------------
</TABLE>
F-19
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C> <C>
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>
F-20
<PAGE> 21
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
F-21
<PAGE> 22
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.
F-22
<PAGE> 23
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
================== ===================
F-23
<PAGE> 24
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.
F-24
<PAGE> 25
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
---------------- ----------------
</TABLE>
F-25
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C> <C>
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>
F-26
<PAGE> 27
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>
F-27
<PAGE> 28
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
F-28
<PAGE> 29
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
F-29
<PAGE> 30
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>
F-30
<PAGE> 31
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$5,000,000 by the Bank of Tokyo-Mitsubishi, Ltd. Beijing
Branch at an annual interest equal to the bank's funding rate plus 0.625%.
F-31
<PAGE> 32
The Company has utilized US$ 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.
F-32
<PAGE> 33
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)
================== ==================
</TABLE>
F-33
<PAGE> 34
<TABLE>
<CAPTION>
<S> <C> <C>
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
F-34
<PAGE> 35
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.
F-35
<PAGE> 36
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)
=================== ================= =================== =====================
</TABLE>
F-36
<PAGE> 37
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
------------------------- -----------------------
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.
F-37
<PAGE> 38
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
F-38
<PAGE> 39
<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) --
----------------- --------------- ---------------
</TABLE>
F-39
<PAGE> 40
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
</TABLE>
F-40
<PAGE> 41
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
F-41
<PAGE> 42
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
F-42
<PAGE> 43
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,
F-43
<PAGE> 44
$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>
F-44
<PAGE> 45
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
F-45
<PAGE> 46
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%
======= ======== =======
F-46
<PAGE> 47
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
F-47
<PAGE> 48
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
F-48
<PAGE> 49
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 --
----------------------------- -------------------------
</TABLE>
F-49
<PAGE> 50
<TABLE>
<CAPTION>
<S> <C> <C>
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 -- --
</TABLE>
F-50
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C> <C>
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>
F-51
<PAGE> 52
<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
F-52
<PAGE> 53
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
</TABLE>
F-53
<PAGE> 54
<TABLE>
<CAPTION>
<S> <C> <C>
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.
F-54
<PAGE> 55
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.
F-55
<PAGE> 56
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.
F-56
<PAGE> 1
EXHIBIT 99.3
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.
1
<PAGE> 2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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>
2
<PAGE> 3
- ------------------
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.)
3
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
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>
4
<PAGE> 5
- ----------------------
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.
5
<PAGE> 6
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
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>
6
<PAGE> 7
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.
7
