-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, He3ASbJ6cy4JrHvi/3rLCVSXdoIZSeI+1mSpck6tM4XMYNFWFPI9J8a/ncm0Qm7z HR8PAe1KrohWOVjOeLil3w== 0000950172-00-000620.txt : 20000327 0000950172-00-000620.hdr.sgml : 20000327 ACCESSION NUMBER: 0000950172-00-000620 CONFORMED SUBMISSION TYPE: DEFM14A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMTEC INC CENTRAL INDEX KEY: 0000912890 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 840873124 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: DEFM14A SEC ACT: SEC FILE NUMBER: 001-12475 FILM NUMBER: 577122 BUSINESS ADDRESS: STREET 1: 599 LEXINGTON AVE STREET 2: 49TH FL CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123199160 MAIL ADDRESS: STREET 1: 599 LEXINGTON AVENUE STREET 2: 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: AVIC GROUP INTERNATIONAL INC/ DATE OF NAME CHANGE: 19950323 FORMER COMPANY: FORMER CONFORMED NAME: YAAK RIVER MINES LTD DATE OF NAME CHANGE: 19931001 DEFM14A 1 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant |X| Filed by a Party other than the Registrant | | Check the appropriate box: | | Preliminary Proxy Statement | | Confidential, for use of the Commission only (as permitted by Rule 14a-b(e)(2)) |X| Definitive Proxy Statement |_| Definitive Additional Materials |_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12 AMTEC, INC. ----------- (Name of Registrant as Specified in its Charter) - ------------------------------------------------------------------------------ (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check the appropriate box): |X| No fee required. | | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: _________________________________________________________________ 2) Aggregate number of securities to which transaction applies: _________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: (Set forth the amount on which the filing fee is calculated and state how it was determined.) _________________________________________________________________ 4) Proposed maximum aggregate value of transaction: _________________________________________________________________ 5) Total fee paid: _________________________________________________________________ |_| Fee paid previously by written preliminary materials. Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid:__________________________________________ 2) Form, Schedule or Registration Statement No.:____________________ 3) Filing Party:____________________________________________________ 4) Date Filed:______________________________________________________ March 24, 2000 Dear Stockholder: AmTec, Inc. has entered into a merger agreement dated as of November 24, 1999, providing for the merger of Terremark Holdings, Inc., or Terremark, a Florida corporation, into AmTec. AmTec will be the surviving corporation, with our name being changed to Terremark Worldwide, Inc. In connection with the merger agreement, AmTec has also entered into a stock purchase agreement, as amended, with Vistagreen Holdings (Bahamas), Ltd., a Bahamian international business company, Moraine Investments, Inc., a British Virgin Islands company and Paradise Stream (Bahamas) Limited, a Bahamian international business company. These parties with whom AmTec has entered into the stock purchase agreement will be collectively referred to as Vistagreen. The stock purchase agreement provides for the sale of our common stock to Vistagreen upon the occurrence of events set forth in the stock purchase agreement. Together, these agreements contemplate the proposed transactions that are more fully described in the accompanying proxy statement. A special meeting of the stockholders of AmTec will be held at 10:00 a.m., local time, on April 28, 2000, at Waldorf Astoria, Basildon Room, 3rd Floor, 301 Park Avenue, New York, NY 10022. At the special meeting, you will be asked to consider and vote upon proposals to approve: 1. the merger agreement between AmTec and Terremark pursuant to which o each existing share of our common stock will be converted and represent, without any further action by its holder, one share of common stock in the combined company, o 61.5% of the then outstanding shares of the common stock of the combined company, on a fully diluted basis, will be issued to the stockholders of Terremark, and o Terremark will merge with and into AmTec, with AmTec being the surviving corporation with its name changed to Terremark Worldwide, Inc.; 2. the stock purchase agreement between AmTec and Vistagreen, pursuant to which Vistagreen will purchase 35% of AmTec's common stock immediately after the effective time of the merger, provided conditions precedent set forth in the stock purchase agreement are satisfied; the purchase price for those shares is $27.1 million in principal plus interest in the minimum amount of $1 million (the aggregate amount of $28.1 million being the proceeds of payment of a promissory note guaranteed by Terremark issued to Vistagreen for the sale of Terremark Centre to Terremark) plus interest, if any, accruing after the sale of Terremark Centre on that amount through closing of the stock purchase; and 3. any other matters that may be properly brought to the special meeting. Each of these proposals is described more fully in the accompanying notice of special meeting of stockholders and proxy statement. If AmTec closes the merger with Terremark and the sale of our common stock to Vistagreen, each of (1) the holders of our common stock, (2) holders of Terremark's common stock and (3) Vistagreen will hold approximately 25%, 40% and 35%, respectively, of AmTec's common stock on a fully diluted basis. After careful consideration, the AmTec board has approved the merger, the merger agreement and the stock purchase agreement. The AmTec board recommends that you vote in favor of each of the foregoing proposals. You are encouraged to read the accompanying proxy statement, which provides additional information regarding your company, Terremark, Vistagreen and the proposed transactions. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. YOU ARE URGED TO COMPLETE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED BUSINESS REPLY ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU DO ATTEND AND WISH TO VOTE IN PERSON, YOU MAY REVOKE YOUR PROXY AT THAT TIME. If you have any questions regarding the information contained in the proxy statement or the voting process, please do not hesitate to contact Karin-Joyce Tjon, the Secretary of AmTec, at 212-319-9160. Sincerely, Joseph R. Wright, Jr. Chairman and Chief Executive Officer AMTEC, INC. PROXY FOR SPECIAL MEETING OF STOCKHOLDERS, APRIL 28, 2000 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Joseph R. Wright, Jr. and Marvin S. Rosen, and each or either of them, as proxy holders with power to appoint his substitute and hereby authorizes the proxy holders to represent and vote, as designated below, all the shares of AmTec, Inc. held of record by the undersigned on March 15, 2000 at the Meeting of Stockholders to be held on April 28, 2000 at 10:00 A.M. or any and all adjournments thereof. 1. Proposal to approve the merger agreement between AmTec and Terremark pursuant to which, when the merger becomes effective, each existing share of our common stock will be converted and represent, without any further action by its holder, one share of common stock in the combined company, and shares equal to 61.5% of our fully diluted shares will be issued to the shareholders of Terremark, Terremark will be merged with and into AmTec, with AmTec being the surviving corporation, with its name being changed to Terremark Worldwide, Inc. [ ] FOR [ ] AGAINST [ ] ABSTAIN 2. Proposal to approve the stock purchase agreement between AmTec and Vistagreen, pursuant to which Vistagreen will purchase 35% of AmTec's common stock immediately after the effective time of the merger, provided conditions precedent in the stock purchase agreement between Amtec and Vistagreen are satisfied. The purchase price for the shares is $27.1 million in principal plus interest in the minimum amount of $1 million (the aggregate amount of $28.1 million being the proceeds of payment of a promissory note guaranteed by Terremark issued to Vistagreen for the sale of Terremark Centre to Terremark) plus interest, if any, accruing after the sale of Terremark Centre on that amount through closing of the stock purchase. [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. In their discretion, the proxy holders are authorized to vote upon any other business as may properly be brought before the meeting or any and all adjournments thereof. THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, FOR PROPOSALS 1 AND 2 AND AS THE PROXIES DEEM ADVISABLE ON ANY OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY AND ALL ADJOURNMENTS THEREOF. Dated: , 2000 ------------------------------------------------------ Signature ------------------------------------------------------ (Signature, if held jointly) Please sign exactly as your name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by the President or other authorized officer. If a partnership, please sign in partnership name by an authorized partner. PLEASE PROMPTLY MARK, SIGN, DATE, AND RETURN THIS PROXY USING THE ENCLOSED ENVELOPE. March 24, 2000 AMTEC, INC. NOTICE OF SPECIAL MEETING OF STOCKHOLDERS Notice is hereby given that a special meeting of stockholders of AmTec, Inc., a Delaware corporation ("AmTec"), will be held at 10:00 a.m., local time, on April 28, 2000, at Waldorf Astoria, Basildon Room, 3rd Floor, 301 Park Avenue, New York, NY 10022. The meeting is called for the purpose of considering and voting upon the following proposals: PROPOSAL 1. The approval and adoption of the merger agreement dated as of November 24, 1999 between AmTec and Terremark, as amended, attached to the accompanying proxy statement as Annex A, pursuant to which Terremark will merge with and into AmTec, with AmTec as the surviving corporation, with its name changed to Terremark Worldwide, Inc. Pursuant to the merger agreement, when the merger becomes effective, each existing share of our common stock will be converted and represent, without any further action by its holder, one share of common stock in the combined company, and the holders of Terremark common stock will be issued in the aggregate 61.5% of the then outstanding shares of our common stock, on a fully diluted basis, (78,308,842 shares, based on the number of AmTec shares outstanding, on a fully diluted basis on the record date for this meeting). PROPOSAL 2. The approval of the stock purchase agreement between AmTec and Vistagreen Holdings (Bahamas), Ltd., Paradise Stream (Bahamas) Limited, a Bahamian international business company and Moraine Investments, Inc., a British Virgin Islands company, dated as of November 24, 1999, as amended, attached to the accompanying proxy statement as Annex C. The parties with whom AmTec has entered into the stock purchase agreement will be collectively referred to as Vistagreen. The stock purchase agreement provides that AmTec will, provided the conditions precedent set forth in the stock purchase agreement are satisfied, sell to Vistagreen 35% of its outstanding shares of common stock, on a fully diluted basis, after giving effect to the merger. The purchase price for these shares is $27.1 million in principal plus interest in the minimum amount of $1 million (the aggregate amount of $28.1 million being the proceeds of payment of a promissory note guaranteed by Terremark issued to Vistagreen for the sale of Terremark Centre to Terremark) plus interest, if any, accruing after the sale of Terremark Centre on that amount through closing of the stock purchase. When the merger becomes effective and the sale of shares to Vistagreen closes, the existing AmTec stockholders, the Terremark shareholders and Vistagreen, respectively, will hold 48,943,026 (25%), 78,308,842 (40%) and 68,520,236 (35%) shares on a fully diluted basis, but subject to adjustment on the date of closing. PROPOSAL 3. To transact any other business as may properly come before the special meeting or any adjournments or postponements of the special meeting. These proposals are more fully described in the attached proxy statement and its annexes. The board of directors of AmTec has fixed the close of business on March 15, 2000 as the record date for the determination of the stockholders entitled to notice of and to vote at the AmTec special meeting and any adjournments or postponements of that meeting. Only holders of record of our common stock on the record date are entitled to vote at the AmTec special meeting. The affirmative vote of the holders of a majority of the outstanding shares of our common stock is required to approve and adopt the merger agreement. The affirmative vote of the holders of a majority of shares present or represented by proxy at the special meeting and entitled to vote is required for the approval of the stock purchase agreement and the issuance of our shares pursuant to the stock purchase agreement. A failure to vote shares, either by abstention or non-vote, will have the same effect as a vote against approval of the merger. A majority of the outstanding shares of our common stock entitled to vote, represented in person or by proxy, will constitute a quorum at the special meeting. If you would like to attend the special meeting and your shares are held by a broker, bank or other nominee, you must bring to the meeting a recent brokerage statement or a letter from the nominee confirming your beneficial ownership of the shares of our common stock. You must also bring a form of personal identification. In order to vote your shares at the special meeting, you must obtain from the nominee a proxy issued in your name. You can ensure that your shares are voted at the special meeting by signing and dating the enclosed proxy and returning it in the envelope provided. Sending in a signed proxy will not affect your right to attend the meeting and vote in person. You may revoke your proxy at any time before it is voted by giving written notice to the Secretary of AmTec at AmTec's corporate offices, located at 599 Lexington Avenue, 44th Floor, New York, NY 10022, by signing and returning a later dated proxy or by voting in person at the special meeting. All shares represented by properly executed proxies will be voted in accordance with the specifications of the proxy card. If no such specifications are made, proxies will be voted for approval and adoption of the proposals above. All stockholders are cordially invited to attend the AmTec special meeting in person. Whether or not you expect to attend the AmTec special meeting, we urge you to sign and date the enclosed proxy and return it promptly in the envelope provided. By order of the Board of Directors, Joseph R. Wright, Jr. Chairman & Chief Executive Officer PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME PROXY STATEMENT AMTEC, INC. ------------- The board of directors of AmTec approved (1) a merger agreement dated as of November 24, 1999, as amended, which provides for the merger of AmTec, Inc. and Terremark Holdings, Inc. and (2) a stock purchase agreement, as amended, dated as of November 24, 1999 which provides for the sale of our common stock to Vistagreen Holdings (Bahamas), Ltd., Paradise Stream (Bahamas) Limited and Moraine Investments, Inc. The parties with whom AmTec entered into the stock purchase agreement will be referred to collectively as Vistagreen. In the merger, Terremark will be merged with and into AmTec, with AmTec as the surviving corporation, with its name changed to Terremark Worldwide, Inc. In the stock purchase agreement, Vistagreen has agreed to purchase 35% of the issued and outstanding common stock of AmTec on a fully diluted basis immediately after the closing of the merger. When the merger becomes effective, each existing share of our common stock will be converted and represent, without any further action by its holder, one share of common stock in the combined company. Immediately after the merger becomes effective, all existing holders of our common stock will hold in the aggregate and on a fully diluted basis, 38.5% of AmTec's outstanding shares of common stock. Assuming the sale of shares of common stock to Vistagreen, existing holders of our common stock will hold, in the aggregate and on a fully diluted basis, 25% of the outstanding shares of common stock of our company. When the merger becomes effective, we will issue to holders of Terremark's common stock a number of shares of our common stock that will result in holders of Terremark's common stock holding, in the aggregate and on a fully diluted basis, 61.5% of the shares of our common stock. If Vistagreen purchases our shares, Terremark holders will hold, in the aggregate and on a fully diluted basis, 40% of our common stock. Based on the number of issued and outstanding shares of our common stock as of the record date, when the merger becomes effective, 78,308,842 shares of our common stock will be issued to holders of Terremark's common stock. Pursuant to the stock purchase agreement, Vistagreen will purchase shares of our common stock constituting 35% of the fully diluted common shares outstanding after the merger. The purchase price for these shares is $27.1 million in principal plus interest in the minimum amount of $1 million (the aggregate amount of $28.1 million being the proceeds of a promissory note guaranteed by Terremark and issued to Vistagreen for the sale of Terremark Centre to Terremark) plus interest accruing after sale of Terremark Centre on that amount through closing of the stock purchase. For a more detailed discussion of the transactions relating to the promissory note and the sale of Terremark Centre, see "Stock Purchase Agreement" in the proxy statement. We cannot assure you that Terremark will be able to sell Terremark Centre, nor can we assure you at what price Terremark Centre will be sold. Terremark is obligated to make up any shortfall if the Terremark Centre is sold for less than the amount required to repay its note. Any obligation Terremark incurs to fund a shortfall will become the obligation of the combined company. Vistagreen is not obligated to purchase our shares until Terremark Centre is sold and if the sale does not close by December 31, 2000, may terminate its obligation to purchase our shares. Based on the issued and outstanding shares of our common stock as of the record date, Vistagreen will purchase 68,520,236 shares of common stock and hold 35% of our shares outstanding immediately after the effective time of the merger on a fully diluted basis. The number of shares referred to in the proxy statement to be purchased by Vistagreen and Terremark or to be held by existing stockholders of AmTec is subject to adjustment at closing of the merger based on the number of shares of AmTec common stock outstanding immediately prior to the consummation of the merger, calculated on a fully diluted basis. AmTec common stock is listed on the AMEX under the symbol "ATC." Our common stock will be listed on the AMEX under the symbol "TWW" after the merger. This proxy statement provides you with detailed information about the proposed transactions. The proposed transactions are complex and you are strongly encouraged to read the entire document carefully, including "Risk Factors" and the annexes hereto. The proxy statement is dated March 24, 2000, and is first mailed to stockholders on or about March 27, 2000. TABLE OF CONTENTS
PAGE FORWARD LOOKING STATEMENTS...................................................................1 WHERE YOU CAN FIND MORE INFORMATION..........................................................1 QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS.................................................2 SUMMARY ....................................................................................4 AmTec, Inc..........................................................................4 Terremark Holdings, Inc.............................................................4 AmTec Stockholders Meeting..........................................................5 Votes Required; Record Date; Quorum.................................................6 Risk Factors........................................................................6 The Merger..........................................................................6 Stock Purchase Agreement............................................................9 MARKET PRICES...............................................................................12 SUMMARY HISTORICAL FINANCIAL INFORMATION....................................................13 Comparative per Share Data.........................................................16 RISK FACTORS................................................................................18 Risks Related to the Merger........................................................18 Risks Related to both AmTec and Terremark..........................................19 Risks Factors Specific to AmTec....................................................20 Risk Factors Specific to Terremark.................................................24 THE AMTEC SPECIAL MEETING...................................................................26 Date, Place and Time...............................................................27 Record Date........................................................................27 Quorum ..........................................................................27 Required Votes.....................................................................27 Proxies ..........................................................................27 Solicitation of Proxies............................................................28 THE MERGER..................................................................................29 General ..........................................................................29 Effective Time.....................................................................29 Conversion of Shares; Procedures for Exchange of Terremark Certificates............29 Background of the Merger...........................................................29 Recommendation of the AmTec Board..................................................31 Opinion of Financial Advisor to AmTec..............................................33 Interests of Certain Persons in the Merger.........................................35 Material Federal Income ...........................................35 Accounting Treatment...............................................................36 Effect on AmTec Options and Warrants...............................................36 Regulatory Matters.................................................................36 Federal Securities Law Consequences-- Lock up Agreements...........................36 Appraisal and Dissenters' Rights...................................................37 U.S. Real Property Holding Corporation.............................................37 THE MERGER AGREEMENT........................................................................38 General ..........................................................................38 Consideration to Be Received in the Merger.........................................38 Relationship Between the Stock Purchase Agreement and the Merger Agreement.........38 Principal Representations and Warranties...........................................39 Principal Covenants................................................................40 Conditions to the Consummation of the Merger.......................................43 Termination........................................................................45 Termination Fees Payable by AmTec..................................................46 Expenses ..........................................................................46 THE STOCK PURCHASE AGREEMENT................................................................46 General ..........................................................................46 Consideration to be Received in the Stock Purchase; Sale of Terremark Centre.......47 Principal Representations and Warranties...........................................47 Registration Rights................................................................48 Conditions to the Consummation of the Stock Purchase...............................48 Termination........................................................................50 Expenses ..........................................................................51 Lock Up ..........................................................................51 OTHER AGREEMENTS ...........................................................................51 Shareholders Agreement.............................................................51 Bridge Loan........................................................................52 MANAGEMENT OF AMTEC AFTER THE MERGER........................................................52 Employment Agreements..............................................................55 Stock Option Grants................................................................55 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF TERREMARK.................................56 Terremark Relationship with Fusion Telecommunications International, Inc...........56 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ..............................................................58 BUSINESS OF AMTEC...........................................................................65 Cellular Telephone Networks........................................................65 IP.COM, LLC........................................................................65 IXS.NET, Inc.......................................................................66 AmTec Selected Historical Financial Information ...................................66 AMTEC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................68 Results of Operations..............................................................68 Liquidity and Capital Resources....................................................70 Equity Issuance....................................................................70 BUSINESS OF TERREMARK.......................................................................70 General ..........................................................................70 Operations.........................................................................71 Government Regulations and Environmental Matters...................................73 Competition and Market Factors.....................................................73 Employees..........................................................................74 Employment Agreements..............................................................74 Ownership Structure................................................................74 Properties.........................................................................75 Legal Proceedings .................................................................76 TERREMARK SELECTED HISTORICAL FINANCIAL INFORMATION ........................................77 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................................................78 Overview ..........................................................................78 Significant accounting policies and new accounting pronouncements .................78 Results of Operations..............................................................79 Liquidity and Capital Resources ...................................................82 Debt ..........................................................................82 Sources of Liquidity ..............................................................83 Inflation .........................................................................83 Year 2000..........................................................................83 Market Risk........................................................................83 Subsequent Events..................................................................84 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AMTEC............................................................84 DESCRIPTION OF CAPITAL STOCK................................................................85 Description of AmTec Capital Stock ................................................85 REPRESENTATIVE OF INDEPENDENT AUDITORS......................................................86 STOCKHOLDER PROPOSALS.......................................................................86 INDEPENDENT ACCOUNTANTS.....................................................................86 FINANCIAL STATEMENTS INDEX.................................................................F-1 Annex A Agreement and Plan of Merger by and between Terremark Holdings, Inc. and AmTec, Inc., as amended Annex B Opinion of Ramius Capital, LLC Annex C Stock Purchase Agreement by and between Vistagreen Holdings (Bahamas), Ltd., Paradise Stream (Bahamas) Limited, Moraine Investments, Inc. and AmTec, Inc., as amended
FORWARD LOOKING STATEMENTS This proxy statement includes statements that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. The reasons for the merger discussed under the caption "The Merger", statements about the expected impact of the merger on AmTec's businesses, financial performance and condition, accounting and tax treatment and the extent of the charges to be incurred by AmTec relating to the merger are forward-looking statements. Further, any statements contained in this proxy statement that are not statements of historical fact may be deemed to be forward looking statements. Forward-looking statements in this proxy statement are identifiable by use of any of the following words and other similar expressions, among others: o "anticipate" o "may" o "believe" o "might" o "could" o "plan" o "estimate" o "predict" o "expect" o "project" o "intend" o "should" There are a number of important factors that could cause the results of the combined company to differ materially from those indicated by these forward-looking statements, including, but not limited to: o the risk that anticipated synergies from the merger will not be realized, o the significant transaction charges and the potential dilutive effect to the holders of AmTec common stock which will result from the merger, o significant fluctuation in operating results, o the ability to recruit and retain qualified personnel in the telecommunications industry, o the ability to secure additional funding, and o other factors described in this proxy statement under the caption "Risk Factors". WHERE YOU CAN FIND MORE INFORMATION AmTec files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy the materials AmTec files with the Commission at the Commission's public reference room at 450 Fifth Street, N.W. Washington D.C. 20549 and at the Commission's regional offices in Chicago, Illinois and New York, New York. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The Commission also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file with the Commission, including us. The site's address is http://www.sec.gov. You can request copies of those documents, upon payment of a duplicating fee, by writing to the Commission. This proxy statement provides you with detailed information about the proposed transactions. The proposed transactions are complex and you are strongly encouraged to read the entire document carefully, including "Risk Factors" and the annexes hereto. QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS Q: WHAT ARE THE PROPOSED TRANSACTIONS? A: Under the merger agreement, Terremark will be merged with and into AmTec, Inc. Our company will continue as the surviving corporation, with the company's name changed to Terremark Worldwide, Inc. Under the stock purchase agreement, Terremark shareholders will initially own 61.5% of our shares. Vistagreen will purchase shares of our company representing 35% of the issued and outstanding shares of common stock after giving effect to the merger, provided that the merger occurs and other conditions precedent are satisfied. After the proposed transactions close, our stockholders, Terremark shareholders and Vistagreen will own 25%, 40% and 35%, respectively, of our company. Q: AS AN AMTEC STOCKHOLDER, HOW MANY SHARES OF AMTEC COMMON STOCK WILL I OWN AFTER THE MERGER? A: If the merger is approved, you will hold one share of AmTec common stock after the merger for each AmTec share you held prior to the merger. The issuance of shares of common stock to Vistagreen will not affect the number of shares of our common stock that you own. Q: WHAT ARE THE TAX CONSEQUENCES OF THE PROPOSED TRANSACTIONS? A: The proposed transactions will constitute a tax-free reorganization for federal income tax purposes. Generally, AmTec stockholders will not recognize any taxable gain or loss in connection with the proposed transactions. Tax matters, however, are complicated, and the tax consequences of the proposed transactions to you will depend on the facts of your particular situation. We encourage you to contact your tax advisors to determine the tax consequences of the merger to you. Q: IF I AM NOT GOING TO ATTEND THE STOCKHOLDER MEETING, SHOULD I RETURN MY PROXY CARD? A: Yes, please fill out and sign your proxy card and mail it to us in the enclosed return envelope as soon as possible. Returning your proxy card ensures that your shares will be represented at the special meeting. Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD? A: Send in a later-dated, signed proxy card to AmTec's Corporate Secretary before the special meeting or attend the special meeting in person and vote. Q: WHAT DO I NEED TO DO NOW? A: After carefully reading and considering the information contained in this document and completing and signing your proxy card, just call the 1-800 number listed on your proxy card or mail your signed proxy card in the enclosed envelope as soon as possible so that your shares may be represented at the meeting. In order to ensure that your vote is obtained, please give your proxy as instructed on your proxy card, even if you currently plan to attend the meeting in person. The board of directors of AmTec recommend that its stockholders vote in favor of the merger, the stock purchase and related transactions. Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME? A: If you do not provide your broker with instructions on how to vote your "street name" shares, your broker will not be permitted to vote them on the proposals. You should therefore be sure to provide your broker with instructions on how you vote your shares. If you do not give voting instructions to your broker, you will not be counted as voting for the purposes of any of the proposals unless you appear in person at the meeting. Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED? A: We are working toward completing the merger as quickly as possible. Assuming that both AmTec and Terremark satisfy or waive all of the conditions to closing contained in the merger agreement, we anticipate that the merger will occur as soon as practicable after approval of the merger and related transactions at the special meeting. Q: WHEN DO YOU EXPECT THE STOCK PURCHASE TO BE COMPLETED? A: Assuming that the merger is closed and that both AmTec and Vistagreen satisfy or waive all of the conditions to closing contained in the stock purchase agreement, we anticipate that the stock purchase by Vistagreen will occur immediately after the merger closes. Q: WHOM SHOULD STOCKHOLDERS CALL WITH ADDITIONAL QUESTIONS? A: Stockholders who have questions about the proposed transactions should call AmTec's Corporate Secretary, at 212-319-9160. SUMMARY This summary highlights selected information contained elsewhere in this proxy statement and the annexes to this proxy statement. This summary does not contain a complete statement of all material information relating to the merger agreement, the stock purchase agreement or the transactions contemplated thereby and is subject to, and is qualified in its entirety by, the more detailed information, the financial statements and the annexes contained in this proxy statement. To fully understand the proposed transactions, you should read this proxy statement carefully and in its entirety. In this document, references to Terremark will mean Terremark Holding, Inc., a Florida corporation, and its affiliates; references to Vistagreen will mean collectively Vistagreen Holdings (Bahamas), Ltd., a Bahamian international business company, Paradise Stream (Bahamas) Limited, a Bahamian international business company and Moraine Investments, Inc., a British Virgin Islands company; and references to Vistagreen group will mean Vistagreen and its affiliates. AMTEC, INC. AmTec is a company that provides value-added telecommunications services to and from the Far East and has telecommunications investments in the People's Republic of China. We initially focused our business on China because of that country's large and rapidly growing need for telecommunications services and its requirement for foreign capital and technology to meet that need. More recently, we have formed a joint venture with Fusion Telecommunications International to provide telecom services, both voice and data, to and from Asia. We have also invested in IXS.NET, Inc. to provide fax services over the Internet, prepaid credit cards and other Internet Protocol based services. Our joint venture operations in six cellular networks in Hebei Province in Northeast China have been terminated. We continue to have a joint venture with the Electronics Industry Department of Hebei Province and are repositioning that joint venture with a view to providing Internet Protocol fax, voice and other services which can be transmitted over digital telephone lines or the Internet. We were originally founded as a Colorado corporation on May 10, 1982, and were reincorporated under the laws of the state of Delaware on July 10, 1996. Since April 1995, we have been engaged in the business of developing telecommunications networks in the PRC. In January 1996, we sold substantially all of the assets of ITV Communications, Inc., our former primary operating subsidiary. On July 8, 1997, we changed our name to AmTec, Inc. from AVIC Group International, Inc. Our principal executive office is located at 599 Lexington Avenue, 44th Floor, New York, New York 10022. Our telephone number is (212) 319-9160. See "Business of AmTec" and "AmTec Management's Discussion and Analysis of Financial Condition and Results of Operations". TERREMARK HOLDINGS, INC. Terremark Holdings, Inc., formerly known as Terremark Investment Services, Inc., was formed in 1982 and along with its subsidiaries, is engaged in the development, construction, sale, leasing, management and financing of various real estate projects. Terremark has provided these services to private and institutional investors, as well as for its own account. The real estate projects with which Terremark has been involved have included retail, high rise office complexes, mixed use projects, condominiums, condominium hotels, and governmental assisted housing. Terremark is also involved in a number of ancillary businesses which complement its core development operations. Specifically, Terremark engages in brokering financial services, property management, construction, construction management, condominium hotel management, residential sales and commercial leasing and brokerage, and advisory services. Terremark has also been active internationally, although its current projects are all located in South Florida. Terremark believes that its success is attributable both to its team approach, which makes available the resources of all of the divisions to a project, and its focus on the most important step in the development process, which it believes is the identification and analysis of viable opportunities. Terremark's principal executive office is located at 2601 South Bayshore Drive, Miami, Florida. Its telephone number is (305) 856-3200. See "Business of Terremark" and "Terremark Management's Discussion and Analysis of Financial Condition and Results of Operations". AMTEC STOCKHOLDERS MEETING The AmTec special meeting will be held at Waldorf Astoria, Basildon Room, 3rd Floor, 301 Park Avenue, New York, NY 10022 at 10:00 a.m., local time, on April 28, 2000. At the special meeting, AmTec will ask the holders of its common stock to consider and vote upon: PROPOSAL 1. The approval and adoption of the merger agreement, dated as of November 24, 1999, as amended, between AmTec and Terremark, pursuant to which Terremark will merge with and into AmTec, with AmTec as the surviving corporation, with its name changed to Terremark Worldwide, Inc. When the merger becomes effective, each existing share of our common stock will be converted and represent, without any further action by its holder, one share of common stock in the combined company, and the holders of Terremark common stock will be issued in the aggregate 61.5% of the then outstanding shares of the common stock in the combined company, on a fully diluted basis. This will equal 78,308,842 shares, based on the number of AmTec shares outstanding on a fully diluted basis on the record date for this meeting. PROPOSAL 2. The approval of the stock purchase agreement between AmTec and Vistagreen, dated as of November 24, 1999, as amended, pursuant to which AmTec will, provided the conditions precedent set forth in the stock purchase agreement are satisfied, sell to Vistagreen 35% of its outstanding shares of common stock, on a fully diluted basis, after giving effect to the merger. After the merger and the stock purchase close, the existing AmTec stockholders, the Terremark shareholders and Vistagreen, respectively, will hold 48,943,026 (25%), 78,308,842 (40%) and 68,520,236 (35%) shares of our common stock on a fully diluted basis. The purchase price for shares to be sold to Vistagreen is $27.1 million in principal plus interest in the minimum amount of $1 million (the aggregate amount of $28.1 million being the proceeds of a promissory note guaranteed by Terremark and issued to Vistagreen for the sale of Terremark Centre to Terremark) plus interest, if any, accruing after sale of Terremark Centre on such amount through closing of the stock purchase. For a more detailed discussion of the transactions relating to the promissory note and the sale of Terremark Centre, see "Stock Purchase Agreement" herein. We cannot assure you that Terremark will be able to sell Terremark Centre, nor can we assure you at what price Terremark Centre will be sold. Terremark is obligated to make up any shortfall if the Terremark Centre is sold for less than the amount required to repay its note. Any obligation Terremark incurs to fund a shortfall will become the obligation of the combined company. Vistagreen is not obligated to purchase our shares until Terremark Centre is sold and if the sale does not close by December 31, 2000, may terminate its obligation to purchase our shares. PROPOSAL 3. To transact any other business as may properly come before the special meeting or any adjournments or postponements thereof. VOTES REQUIRED; RECORD DATE; QUORUM At the close of the business on AmTec's record date, March 15, 2000, there were 38,104,992 shares of our common stock outstanding, each of which entitles the registered holder thereof to one vote. The affirmative vote of the holders of a majority of the outstanding shares of our common stock is required to approve and adopt the merger agreement. The affirmative vote of the holders of a majority of shares present or represented by proxy at the special meeting and entitled to vote is required for the approval of the stock purchase agreement and the issuance of shares pursuant to the stock purchase agreement. A failure to vote shares, either by abstention or non-vote, will have the same effect as a vote against the approval of the merger. A majority of the outstanding shares of our common stock entitled to vote, represented in person or by proxy, will constitute a quorum at the special meeting. RISK FACTORS See "Risk Factors" for a detailed discussion of the risk factors pertaining to the proposed transactions and the businesses of AmTec and Terremark. Your board of directors believes that the proposed transactions are in the best interests of AmTec and you are being asked to vote in favor of them. THE MERGER GENERAL. Under the merger agreement, Terremark will be merged with and into AmTec. The separate corporate existence of Terremark will cease, and AmTec will continue as the surviving corporation, with our company's name changed to Terremark Worldwide, Inc. On November 9, 1999, the date preceding the public announcement of the merger, the closing price of our stock was $1. When the merger becomes effective, the number of authorized shares of our common stock will be increased from 100,000,000 to 300,000,000, and the holders of Terremark common stock will be issued, in the aggregate, 78,308,842 shares of our common stock, or 61.5% of the then outstanding shares of our common stock, on a fully diluted basis, (calculated based on the number of AmTec shares outstanding, on a fully diluted basis, on the record date for this meeting). AmTec's common stock is currently listed on the AMEX under the symbol "ATC." After the merger, the surviving corporation's common stock will be traded on the AMEX under the symbol "TWW". AmTec has never paid any cash dividends and currently intends to retain future earnings, if any, to fund the development and growth of its business. REASONS FOR THE MERGER AmTec believes that the merger, combined with the sale of AmTec common stock to Vistagreen, will provide the funding it needs to alleviate the significant liquidity constraints under which it currently operates. This will enable AmTec to more rapidly develop its business plan and take advantage of business opportunities. In addition, AmTec believes that the combined company's stronger balance sheet will enable it to accelerate its expansion plans and to raise additional capital. AmTec also believes that the contacts of Terremark in South America and the Lee family (the ultimate beneficial owners of Vistagreen) in South East Asia will be useful in developing and negotiating future telecommunications alliances in those markets. CONDITIONS TO THE MERGER; TERMINATION; FEES. The consummation of the merger is subject to various conditions, including: o the continued accuracy of the parties' representations and warranties and fulfillment of each party's promises contained in the merger agreement; o receiving the required vote of the AmTec stockholders to approve the merger agreement and merger; o the receipt of an opinion from the law firm of Greenberg Traurig, P.A., counsel to Terremark, that the merger will constitute a tax-free reorganization; o the authorization for listing on the AMEX of the AmTec common stock to be issued in the merger; o satisfaction of all conditions precedent (other than the merger) to closing the stock purchase agreement described below; o the receipt of all third party consents required to consummate the merger; and o the absence of any restraining orders, injunctions or other orders preventing the consummation of the merger or other litigation or administrative actions or proceedings. AmTec has agreed that: o if the merger agreement is terminated due to material breach of any representation, warranty, obligation, covenant, agreement or condition set forth in the merger agreement, AmTec will pay to Terremark all Terremark's out-of-pocket expenses incurred in connection with the transaction not to exceed $200,000 and $3.0 million which is the estimated amount of the real estate commission for the sale of Terremark Centre otherwise payable by Vistagreen which Terremark waived in connection with the negotiation of the merger and the stock purchase; or o if the merger agreement is terminated as a result of the board of directors of AmTec withdrawing their approval and recommendation, AmTec will pay to Terremark all Terremark's out-of-pocket expenses incurred in connection with the transaction not to exceed $200,000 and $3.0 million; or o if the merger agreement is terminated due to AmTec accepting a superior offer, in addition to the above fees, AmTec will pay Terremark an amount equal to 25% of the difference between the valuation of AmTec used to formulate that superior proposal and the valuation of AmTec used to formulate the merger. o if AmTec o accepts another business combination proposal, o breaches any term, agreement or covenant of the merger agreement between Terremark and AmTec, or o if the stockholders of AmTec do not approve the merger agreement, o AmTec will have to immediately repay a loan of up to $1.5 million to Terremark. Thus, if the merger is not consummated, AmTec will have to repay its borrowings under the bridge financing arrangement with Terremark in addition to the termination fees that it may owe Terremark under the merger agreement. Unless AmTec obtains alternative financing to repay such borrowings, AmTec's business and financial condition will be materially and adversely affected. DISSENTERS' AND APPRAISAL RIGHTS. Under applicable Delaware law, the holders of AmTec common stock are not entitled to dissenters' or appraisal rights in connection with the merger or any of the other proposed actions. ACCOUNTING TREATMENT. We will account for the merger using the purchase method of accounting, with Terremark treated as the acquirer for accounting purposes. As a result, the assets and liabilities of Terremark will be recorded at historical values without restatement to fair values. The assets and liabilities of AmTec will be recorded at their estimated fair values at the date of the merger, with the excess of the purchase price over the sum of such fair values recorded as goodwill. For this purpose, the purchase price is based upon market capitalization of AmTec using an average trading price of AmTec's shares for a period immediately before and after the announcement of the proposed merger on November 9, 1999, plus certain merger related costs. In subsequent periods, historical information of Terremark will be that of the surviving corporation. OPINION OF FINANCIAL ADVISORS TO AMTEC. In deciding to approve the merger, AmTec's board of directors considered the advice of its financial advisor, Ramius Capital, LLC, that, as of the date of its opinion and subject to the limitations in the opinion, the merger, including the closing of the stock purchase, was the best alternative for carrying out AmTec's plans and programs from a financial point of view. The full text of the Ramius Capital opinion is attached as Annex B to this document. You are encouraged to read this opinion carefully and in its entirety. INTEREST OF CERTAIN PERSONS IN THE TRANSACTIONS. Some members of AmTec and Terremark management and their boards of directors have interests in the proposed transactions that are different from, or in addition to, the interests of the AmTec stockholders generally. The board of directors of AmTec was aware of those interests and considered them, among other matters, in adopting and approving the proposed transactions. MATERIAL FEDERAL INCOME TAX CONSEQUENCES. The merger has been structured so that it will constitute a tax-free reorganization for U.S. federal income tax purposes, so it is expected that no gain or loss will be recognized for federal income tax purposes by AmTec upon the transfer of Terremark assets and liabilities to AmTec pursuant to the merger, except Terremark may recognize gain or loss on any assets held by it that are required to be marked to market as a result of the merger. Neither the merger nor the issuance of our common stock to Vistagreen should result in recognition of a gain or loss for federal income tax purposes by existing AmTec stockholders. See "Material Federal Income Tax Consequences." NO SOLICITATION. Under the merger agreement, except under specified circumstances, each of AmTec and Terremark has agreed not to: o solicit, initiate or encourage any alternate acquisition proposal; o furnish any information regarding itself to any other party in connection with any alternate acquisition proposal; o participate in any discussions or negotiations with any other parties regarding an alternate acquisition proposal; o approve, endorse or recommend any alternate proposal; or o enter into any letter of intent or similar document or any other contract relating to an alternate acquisition proposal. LOCK UP. Although we have agreed to file a registration statement on Form S-3 (or similar form) after the merger and the stock purchase close, registering our shares issued in connection with the proposed transactions, each holder of Terremark's common stock immediately before the merger closes must agree, except as provided below, not to sell, offer to sell, or otherwise dispose of any interest in our common stock received by them for a period of not less than one year after the closing of the merger. This does not preclude open market sales in amounts that would be permitted under Rule 145 as if that rule applied (generally, the greater in any three-month period of one percent of our outstanding shares or the average trading volume of our shares on the AMEX during the four weeks prior to filing a notice of sale with the SEC) or sales by any holder of Terremark to Terremark, any affiliate of Terremark or another holder of Terremark, or to any member of the Vistagreen group or an affiliate of the Vistagreen group, as defined in the merger agreement. STOCK PURCHASE AGREEMENT GENERAL. Concurrent with the signing of the merger agreement, AmTec entered into the stock purchase agreement with Vistagreen. Under the stock purchase agreement, immediately after the close of the merger, AmTec, provided that conditions of the stock purchase agreement are satisfied, will sell to Vistagreen 68,520,236 shares (35%) of outstanding shares of common stock of AmTec, on a fully diluted basis after giving effect to the merger. Vistagreen group is beneficially owned by family trusts for the benefit of Francis Lee and members of his family. The Lee family holds substantial real estate and timber interests in Southeast Asia. SALE OF TERREMARK CENTRE. One of the conditions of the stock purchase agreement is the sale of Terremark Centre, purchased by Terremark from Vistagreen group on December 22, 1999. Prior to the purchase, Terremark managed Terremark Centre for Vistagreen group. Terremark Centre is an office-residential complex which contains approximately 294,000 rentable square feet of office space, 16 residential units and a multistory parking garage, located at 2601 S. Bayshore Drive, Coconut Grove, in Miami-Dade County, Florida. Terremark purchased the Terremark Centre from Vistagreen group for $56.0 million primarily through assumption of an approximate $28.3 million first mortgage and issuance of approximately $27.1 million in purchase money notes to Vistagreen. As of December 31, 1999 the first mortgage had a balance of $28.2 million. Vistagreen group will pay for its shares in AmTec with the proceeds from repayment of the purchase money notes, including accrued interest, and other funds, if required. Terremark intends to sell Terremark Centre before the closing of the merger and began an active marketing program at the end of November 1999. Terremark and the Florida State Board of Administration entered into a Contract for Purchase and Sale of Terremark Centre on February 21, 2000 for $56.5 million. Issues subsequently arose on which the parties could not agree and the contract was terminated prior to expiration of the due diligence period. On March 20, 2000 Terremark entered into a non-binding letter of intent to sell the building to another third party buyer for a purchase price of $56.8 million. This transaction is subject to execution of a binding contract, a 20 day due diligence period and 10 day closing date following expiration of such due diligence period. If Terremark does not sell Terremark Centre, Vistagreen is not obligated to purchase AmTec common stock. In addition, if the merger does not occur on or before December 31, 2000, or the Terremark Centre is not sold, Vistagreen will not be obligated to purchase any AmTec common stock. No assurances can be made as to the timing of, or the amount of value to be received from, a sale of Terremark Centre. If the Terremark Centre is sold for a price which does not yield proceeds adequate to repay the promissory note in full, Terremark is obligated to fund the difference. If the sales proceeds exceed the amount required to fully retire the promissory note, Terremark will be entitled to the excess. Neither AmTec nor Terremark currently anticipate closing the merger before Terremark Centre is sold. However, AmTec may waive this condition and reserves the right to do so. REAL PROPERTY HOLDING COMPANY ISSUES. The stock purchase agreement further provides that Vistagreen will not be obligated to purchase AmTec common stock unless Vistagreen receives an opinion from Greenberg Traurig P.A., counsel to Terremark, that the surviving corporation is not a United States Real Property Holding Corporation (as defined in Section 897(c)(2) of the Internal Revenue Code). You should look at the pro forma financial information provided herein to understand what our company's financial condition would be with and without the sale of common stock to Vistagreen. CONDITIONS TO THE STOCK PURCHASE; TERMINATION. The consummation of the stock purchase is subject to various conditions, including: o the closing of the merger; o the continued accuracy of the parties' representations and warranties and fulfillment of each party's promises contained in the stock purchase agreement; o the sale of Terremark Centre; o Vistagreen's receipt of an opinion from Greenberg Traurig, P.A. that the surviving corporation is not a United States Real Property Holding Corporation (as defined in Section 897(c)(2) of the U.S. Internal Revenue Code) and that the AmTec shares are not interests in U.S. real property; o approval of the merger, the merger agreement, and the stock purchase agreement by the requisite vote of AmTec stockholders; and o the authorization of listing on the AMEX of the common stock to be issued pursuant to the merger and the stock purchase. The stock purchase agreement may be terminated before the sale of the shares of our company to Vistagreen by: o mutual consent of the boards of directors of AmTec and Vistagreen; o Vistagreen if the merger does not occur before December 31, 2000; o any of the parties if a governmental entity or competent jurisdiction issues a final and nonappealable order preventing the merger; o AmTec's board of directors or Vistagreen if the other party materially breaches any representation, warranty, obligation, covenant, agreement or condition in the stock purchase agreement, subject to rights set forth in the stock purchase agreement to cure any breach; o Vistagreen if either AmTec or Terremark materially breaches any representation, warranty, obligation, covenant agreement or condition in the merger agreement, subject to rights set forth in the stock purchase agreement to cure any breach; o AmTec or Vistagreen if requisite stockholder approval of the stock purchase agreement and the merger agreement are not obtained; or o AmTec's board of directors or Vistagreen if AmTec's board of directors withdraws or modifies its approval or recommendation of the merger in a way adverse to Terremark or Vistagreen. REASONS FOR THE STOCK PURCHASE. AmTec's board of directors considered a number of factors in evaluating the stock purchase agreement. After consideration of all factors taken as whole, the board of directors determined that the stock purchase agreement and transactions contemplated thereunder are fair to, and in the best interests of, AmTec's stockholders. LOCK UP. Although we have agreed to file a registration statement on Form S-3 (or similar form) after the merger and the stock purchase close, registering our shares issued in connection with the proposed transactions, Vistagreen group has agreed, except as provided below, not to sell, offer to sell, or otherwise dispose of an interest in our common stock received by Vistagreen group for a period of not less than one year after the closing of the merger. This does not preclude open market sales in amounts that would be permitted under Rule 145 as if that rule applied (generally, the greater in any three-month period of one percent of our outstanding shares or the average trading volume of our shares on the AMEX during the four weeks prior to filing a notice of sale with the SEC) or sales by any member of the Vistagreen group to another member of the Vistagreen group or any family member or affiliate of any member of the Vistagreen group or to Terremark or any affiliate of Terremark, as defined in the stock purchase agreement. MARKET PRICES Our common stock is listed on the AMEX under the symbol "ATC." The following table sets forth, for each fiscal year ended March 31, the high and low sales prices per share of our common stock as reported by the AMEX Composite Tape for the periods indicated. COMMON STOCK --------------------------- FISCAL YEAR 1998 HIGH LOW --------------------------- First Quarter.................................... $5.1875 $2.8125 Second Quarter................................... 3.4375 1.8125 Third Quarter.................................... 2.4375 0.5000 Fourth Quarter................................... 1.1875 0.5625 FISCAL YEAR 1999 First Quarter.................................... 2.2500 1.1875 Second Quarter................................... 1.3750 0.8750 Third Quarter.................................... 1.1250 0.8125 Fourth Quarter................................... 1.6250 0.9375 FISCAL YEAR 2000 First Quarter.................................... 1.4375 1.2500 Second Quarter................................... 2.0625 1.0625 Third Quarter.................................... 2.3750 0.8750 Fourth Quarter through March 17, 2000............ 5.9375 1.8125 On November 9, 1999, the last full trading day before the announcement of the proposed transactions, the closing price was $1.00 per share, as reported by the AMEX Composite Tape. The closing price of our common stock on March 17, 2000, the most recent practicable date before the printing of this proxy statement, was $4.4375 per share, as reported by the AMEX Composite Tape. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS. SUMMARY HISTORICAL FINANCIAL INFORMATION AmTec and Terremark are providing the following summary historical financial information to help you in your analysis of the financial aspects of the merger and related transactions. We derived this information from the audited and unaudited financial statements of AmTec and Terremark for the periods presented. The information provided is only a summary and should be read in conjunction with the financial statements and the notes, which are included in this proxy statement. See "Where You Can Find More Information" and "Index to Financial Statements". AMTEC SUMMARY HISTORICAL FINANCIAL INFORMATION. The summary financial information of AmTec as of and for the years ended March 31, 1999, 1998 and 1997 have been derived from the consolidated financial statements audited by Deloitte & Touche LLP. The summary historical financial information of AmTec as of and for the years ended March 31, 1996 and 1995 have been derived from the consolidated financial statements audited by Singer Lewak Greenbaum & Goldstein LLP. AmTec derived the consolidated statement of operations data for the nine months ended December 31, 1999 and 1998 and the consolidated balance sheet data as of December 31, 1999 and 1998 from unaudited consolidated financial statements. In the opinion of management, the unaudited consolidated interim financial statements for the nine months ended December 31, 1999 and 1998 include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited periods. The historical financial information for the nine months ended December 31, 1999 do not necessarily indicate results that may be expected for the entire fiscal year. TERREMARK SUMMARY HISTORICAL FINANCIAL INFORMATION. The summary financial information of Terremark as of and for the years ended March 31, 1999, 1998 and 1997 have been derived from the consolidated financial statements audited by PricewaterhouseCoopers LLP. The summary historical financial information of Terremark as of and for the years ended March 31, 1996 and 1995 have been derived from unaudited consolidated financial statements. Terremark derived the consolidated statement of operations data for the nine months ended December 31, 1999 and 1998 and the consolidated balance sheet data as of December 31, 1999 and 1998 from unaudited consolidated financial statements. In the opinion of management, the unaudited financial statements for the years ended March 31, 1996 and 1995 and the nine months ended December 31, 1999 and 1998 include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited periods. The historical financial information for the nine months ended December 31, 1999 do not necessarily indicate results that may be expected for the entire fiscal year. The merger transaction will result in Terremark receiving a majority of the combined company's voting common stock. Accordingly, the merger will be treated as a reverse acquisition for accounting purposes, with Terremark as the acquirer. Subsequent to the merger's effective date, comparative historical information of the combined company will be that of Terremark. The financial statement data provided below should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements and the related notes included elsewhere in this proxy statement, "Unaudited Pro Forma Combined Condensed Financial Statements", AmTec's "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Terremark's Management's Discussion and Analysis of Financial Condition and Results of Operations". AMTEC SUMMARY HISTORICAL FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NINE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, DECEMBER 31, ------------------------------------------------------ --------------------- 1999 1998 1997 1996 1995 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Total revenues(1)..................... $ - $ - $ - $ - $ 345 $ - $ - Total expenses........................ 4,650 4,283 3,564 2,516 5,931 2,403 2,850 Total other income (expense).......... (544) (514) (361) (365) 48 46 (422) Loss from continuing operations before equity in losses of unconsolidated subsidiary and affiliate.......... (5,194) (4,797) (3,925) (2,881) (2,357) (3,272) Equity in loss of affiliate (2)....... - - - (500) - (172) - Equity in income (loss of) unconsolidated subsidiaries(3)................... (385) (606) (140) 443 (1,413) Loss from continuing operations....... (5,579) (5,403) (4,065) (3,381) - (2,086) (4,685) Loss from discontinued operations..... - - - (1,901) 5,586 - - Net loss.............................. $ (5,579) $(5,403) (4,065) (5,282) (5,538) (2,086) (4,685) AS OF MARCH 31, AS OF DECEMBER 31, ----------------------------------------------- ------ ------------------- 1999 1998 1997 1996 1995 1999 1998 ---------- ------- ------ --------- ------ -------- -------- BALANCE SHEET DATA: Investment in and advances to unconsolidated subsidiary......... $ 2,496 $ 5,074 $ 2,221 $ - $ - $ 2,439 $ 1,423 Total assets.......................... $ 4,781 $ 7,683 $ 4,005 $ 1,660 $ 3,267 $ 4,447 $ 2,814 Long term obligations................. $ $ $ - $ - $ - $ - $ - Stockholders' equity (deficit)........ $ 3,813 $ 4,897 $ 548 $ (2,241) $ (1,225) $ 2,703 $ 4,608 - -------------------
(1) Revenue for year 1995 was derived from design, manufacture and sale of technologically advanced communication devices by AmTec's wholly-owned subsidiary ITV Communications, Inc., or ITV. In January 1996, AmTecs sold all of the business and operating assets of ITV and is no longer involved in the business in which ITV was engaged. AmTec has no revenues after years 1997 because the results of operations of AmTec's subsidiary Hebei Equipment were accounted for under the equity method of accounting. AmTec recorded only its shares of losses of its unconsolidated subsidiary according to the percentage of its equity interest. (2) AmTec held a 39% ownership interest in Netmatics, Inc., or Netmatics, as of March 31, 1997. In fiscal 1996, AmTec suspended the equity method of accounting for its investment in Netmatics when AmTec's share of losses equaled the carrying amount of its investment in Netmatics. AmTec held a 50% ownership interest in IP.Com, LLC as of December 31, 1999 and AmTec accounted for its investment using the equity method of accounting. Equity loss in affiliate during the nine months period ended December 31, 1999 represented share of loss in IP.Com, LLC. (3) Equity in loss of unconsolidated subsidiary reflects AmTec's share of the losses of its joint venture interests in Hebei Equipment and Hebei Engineering. TERREMARK SUMMARY HISTORICAL FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NINE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, DECEMBER 31, ------------------------------------------------------ --------------------- 1999 1998 1997 1996 1995 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Total revenues........................ $44,456 $37,632 $2,629 $784 $1,422 $13,390 $39,318 Total cost of sales................... 31,148 22,667 742 -- 750 9,100 27,700 Other expenses........................ 12,684 13,869 1,925 982 1,043 7,750 10,021 (Loss) income from continuing operations 624 1,096 (38) (198) (371) (3,460) 1,597 Net income (loss)..................... $624 $1,096 $(38) $(198) $(371) $(3,460) $1,597 AS OF MARCH 31, AS OF DECEMBER 31, ------------------------------------------------------ --------------------- 1999 1998 1997 1996 1995 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Real estate inventories............... $12,888 $33,311 $9,483 $3,679 $2,590 $5,317 $16,188 Total assets.......................... $17,598 $42,931 $15,258 $4,850 $4,077 $68,248 $22,145 Long term obligations (1)............. $8,737 $32,081 $11,928 $3,594 $3,112 $60,783 $15,761 Shareholders' equity ................. $6,510 $1,709 $612 $700 $897 $3,049 $3,306
- ------------------- (1) Long-term obligations include debt, and capitalized lease obligations. (2) Stockholders' equity as of March 31, 1999 and December 31, 1999 include approximately $4,177 in convertible preferred stock. COMPARATIVE PER SHARE DATA The following tabulation reflects the historical net income from continuing operations and book values per share of AmTec and Terremark common stock in comparison with (a) the equivalent pro forma per share amounts after giving effect to the merger of AmTec and Terremark treated as a reverse acquisition for accounting purposes, with Terremark as the acquirer and (b) the equivalent pro forma amounts after giving effect to the merger as discussed in (a) above and the Vistagreen transactions. Equivalent pro forma amounts are calculated by multiplying the pro forma income (loss) per share and pro forma book value per share by the exchange ratios so that the per share amounts are equated to the respective values for one fully diluted share of the (a) merged company and (b) merged company after the Vistagreen transactions. The following tabulation also reflects the historical cash dividends per share of AmTec and Terremark common stock in comparison with (a) the equivalent pro forma per share amounts after giving effect to the merger and to the merger after the Vistagreen transactions. You should read the information below with the selected financial data, the unaudited pro forma condensed financial information and the separate historical financial statements of AmTec and Terremark, and notes thereto, included elsewhere in this proxy statement. The pro forma condensed financial data is not necessarily indicative of the operating results that would have been achieved had the merger and/or the stock purchase been completed as of the beginning of the periods indicated nor is this data necessarily indicative of future financial condition or results of operations. For purposes of comparative per share data, AmTec's financial data for the nine months ended December 31, 1999 has been combined with Terremark's financial data for the nine months ended December 31, 1999.
AS OF AND FOR THE NINE MONTHS ENDED AS OF AND FOR THE DECEMBER 31, YEAR ENDED 1999 MARCH 31, 1999 -------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS PER COMMON SHARE: Historical AmTec........................................................ $(0.07) $(0.23) Terremark.................................................... $(3.09) $ 0.56 Pro Forma - merged company AmTec(1)..................................................... $(0.04) $(0.05) Terremark(2)................................................. $(0.07) $(0.08) Pro Forma - merged company after Vistagreen transactions AmTec(3)..................................................... $(0.02) $(0.02) Terremark(4)................................................. $(0.03) $(0.04) BOOK VALUE PER SHARE: Historical AmTec........................................................ $ 0.06 $ 0.14 Terremark.................................................... $ 2.72 $ 5.81 Pro Forma - merged company AmTec(1)..................................................... $ 0.17 N/A Terremark(2)................................................. $ 0.28 N/A Pro Forma - merged company after Vistagreen transactions AmTec(3)..................................................... $ 0.11 N/A Terremark(4)................................................. $ 0.17 N/A CASH DIVIDENDS PER SHARE (5): Historical AmTec........................................................ $- $- Terremark.................................................... $- $- Pro Forma - merged company AmTec........................................................ $- $- Terremark.................................................... $- $- Pro Forma - merged company after Vistagreen transactions AmTec........................................................ $- $- Terremark.................................................... $- $-
- --------------------------- NOTES TO UNAUDITED COMPARATIVE PER SHARE DATA: (1) Pro forma amounts for AmTec multiplied by 0.385 (the fully diluted rate of exchange in the merger). (2) Pro forma amounts for Terremark multiplied by 0.615 (the fully diluted rate of exchange in the merger). (3) Pro forma amounts for AmTec multiplied by 0.25 (the fully diluted ownership percentage after the merger and Vistagreen transactions). (4) Pro forma amounts for Terremark multiplied by 0.40 (the fully diluted ownership percentage after the merger and Vistagreen transactions). (5) Since AmTec and Terremark have historically not paid or declared dividends on common stock and the surviving company does not expect to change its current policy as a result of the merger, all amounts are zero. RISK FACTORS THE PROPOSED TRANSACTIONS INVOLVE A HIGH DEGREE OF RISK. AMTEC STOCKHOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING WHETHER TO APPROVE THE PROPOSED TRANSACTIONS. YOU SHOULD CONSIDER THESE FACTORS IN CONJUNCTION WITH THE OTHER INFORMATION IN THIS PROXY STATEMENT AND THE ANNEXES AND EXHIBITS TO THIS PROXY STATEMENT. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THE BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS OF AMTEC, TERREMARK OR THE COMBINED COMPANY MAY BE SERIOUSLY HARMED. IN THIS CASE, THE TRADING PRICE OF AMTEC COMMON STOCK MAY DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. RISKS RELATED TO THE MERGER Integration of the operations of AmTec and Terremark may be difficult and lead to adverse effects. Realization of the anticipated benefits of the merger will depend in part on whether AmTec and Terremark can integrate their operations in an efficient and effective manner. Successful integration will require combining the companies' respective: o management cultures; o strategic goals; o boards of directors; and o business development efforts. AmTec and Terremark may not accomplish this integration smoothly or successfully. The diversion of the attention of management to the integration effort could cause the interruption of, or a loss of momentum in, the activities of either or both of the companies' businesses. Furthermore, employee morale may suffer, and AmTec and Terremark may have difficulties retaining key managerial personnel. If the combined company is unable to address any of the foregoing risks, it could materially harm the combined company's business and impair the value of the combined company's stock. The merger will result in costs of integration and transaction expenses that could adversely affect the combined company's financial results. If the benefits of the merger do not exceed the costs associated with the merger, including dilution to AmTec's stockholders resulting from the issuance of shares of AmTec common stock in connection with the merger, the combined company's financial results could be adversely affected. Although AmTec and Terremark estimate that they will incur total transaction costs of approximately $2 million associated with the merger, actual costs may substantially exceed the parties' estimates. In addition, unexpected expenses associated with integrating the two companies may arise. We have recently changed the focus of our business. If we are not successful in this business, the value of your investment may decline. The combined company's primary business will involve both telecommunications and real estate. Because of this new focus, our results of operations to date may not reflect future results. In addition, we will encounter challenges and difficulties frequently encountered by early-stage companies in new and evolving markets. We may not successfully address any of these challenges and the failure to do so would seriously harm our business and operating results. These challenges include our: o Dependence on our telecommunications joint ventures; o Dependence on the growth of our new and evolving markets; o Need to expand our customer base; o Need to develop new services and projects; o Need to compete effectively; o Need to manage expanding operations; o Need to establish strategic partnership, marketing and distribution arrangements; and o Dependence on key personnel. In addition, because of our lack of operating history in combining telecommunications and real estate operations, we have limited insight into trends that may emerge and affect our business. Addressing these challenges may require us to incur significant expenditures. RISKS RELATED TO BOTH AMTEC AND TERREMARK AmTec has a history of operating losses and the combined company may not generate sufficient revenue to achieve profitability. AmTec has incurred operating losses on a quarterly basis since inception. AmTec had net operating losses of $5.6 million during the fiscal year ended March 31, 1999 and $2.1 million for the nine months ended December 31, 1999. AmTec had no revenues in 1999, 1998 or 1997. In light of AmTec's operating history, we can not assure you when, if ever, we would be able to achieve profitability from AmTec's operations. Terremark had operating income of $624,000 during the fiscal year ended March 31, 1999 and incurred operating losses of $3.3 million for the nine months ended December 31, 1999. Terremark has a retained deficit of $9.2 million as of December 31, 1999. The combined company may not be able to generate enough revenue to achieve profitability in the event of continued or growing operating losses from AmTec's or Terremark's operations. The combined company's inability to secure additional funding could lead to loss of your investment. The resources of the combined company augmented by proceeds from the sale of our shares to Vistagreen will be sufficient to meet its capital needs for at least one year. After that, the combined company will require additional resources in order to fulfill its business plan. If the sale of our shares to Vistagreen does not occur, the company will require additional financing in the near term. There is no guarantee that the combined company will be able to obtain additional financing on favorable terms, if at all. Further, if the combined company issues equity securities, the ownership percentage of our stockholders would be reduced and the holders of new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If the combined company cannot raise funds needed on acceptable terms, it may not be able to take advantage of future opportunities or to respond to competitive pressures or unanticipated requirements, which could materially harm its business, operating results and financial condition. The combined company's business could be harmed by intense competition. Both the telecommunications industry and the real estate industry are intensely competitive. There can be no assurance that the combined company can compete effectively in either market place. The combined company will be dependent on key personnel. The combined company will be highly dependent on the services of Manuel D. Medina, Chairman and Chief Executive Officer of Terremark, and Joseph R. Wright, Jr., Chairman and Chief Executive Officer of AmTec, who will serve as Chairman and director respectively after the merger. The loss of the services of Mr. Medina or Mr. Wright could materially harm the combined company's business. The integration of the separate businesses of AmTec and Terremark, and the combined company's potential growth and expansion, are expected to place increased demands on the combined company's management skills and resources. We cannot assure you that the combined company will be able to retain and attract skilled and experienced management. The failure to attract and retain personnel could materially harm the company's business and impair the price of the combined company's stock. The combined company will face potential volatility in its stock price. The market prices for telecommunications and real estate companies have in the past been and can in the future be expected to be especially volatile. The market price of the combined company's common stock after the merger will continue to be subject to substantial volatility as a result of many factors, including: o regulatory changes and developments that affect the combined company's business; o establishment of additional corporate partnerships or joint ventures; o economic and other external factors; and o fluctuations in the combined company's financial results and degree of trading liquidity in its common stock. One or more of these factors could significantly harm the combined company's business and decrease the price of its common stock in the public market. The combined company may face substantial liabilities for indemnification of tax obligations if the Company is or becomes a United States real property holding corporation. If our company is or becomes a United States real property holding corporation as defined in Section 897(c)(2) of the U.S. Internal Revenue Code, at the time of the merger closing or thereafter while Vistagreen continues to hold at least one percent of our common stock purchased pursuant to the stock purchase agreement, then AmTec could be liable to Vistagreen for any U.S. tax liability Vistagreen incurs on dispositions of our common stock. The amount of this tax liability would depend on the amount of any gains Vistagreen recognizes on dispositions of our common stock and on the effective U.S. tax rate payable by Vistagreen at this time it recognizes those gains. RISKS FACTORS SPECIFIC TO AMTEC AmTec stockholders face immediate dilution as a result of the merger. AmTec stockholders will experience immediate and substantial dilution as a result of the shares of AmTec common stock issued to Terremark shareholders in the merger and the issuance of shares of common stock to Vistagreen. Transfer of Control to Terremark Shareholders and Vistagreen. Current stockholders of AmTec common stock control AmTec through their ability to elect the Board of Directors of AmTec and to vote on various matters affecting AmTec. The merger and the stock purchase will transfer control of AmTec from the current stockholders to current shareholders of Terremark and to a lesser extent, Vistagreen. After the merger and the stock purchase have taken place, shareholders of Terremark and Vistagreen will each hold, respectively, approximately 40% and 35% of the outstanding common stock of the combined company. As a result, former stockholders of AmTec will no longer have the ability to influence the management policies of AmTec as a result of their relatively small percentage of the voting stock of the combined company. Going concern risk. There is a risk that AmTec on a stand alone basis may not be able to continue as a going concern. Throughout AmTec's second and third quarters of the fiscal year ending March 31, 2000, it was unable to raise money for operating expenses or capital investments. Had Terremark not extended a bridge loan to AmTec, AmTec would not have been able to meet its obligations as they became due. We may not be able to repay the bridge loan. There is a risk that AmTec may default on its $1.5 million bridge loan from Terremark. The bridge loan will become immediately due and payable if the merger agreement is not approved by our stockholders. AmTec pledged all its assets to Terremark and if AmTec were to default on any of the terms of the bridge loan or the merger is not approved by stockholders, all AmTec's assets could be foreclosed under the terms of the bridge loan. This would leave AmTec as a corporate shell with no assets. We could be sued as a result of an uncompleted transaction. During 1998, AmTec entered into an agreement to acquire an investment in a cable television network venture located in Hunan province, PRC, from United International Holdings or UIH. AmTec terminated the agreement because, among other reasons, the closing had not occurred by December 31, 1999 through no fault of AmTec. On December 30, 1999, UIH had indicated that it was ready to close the agreement. Should UIH seek judicial relief to require AmTec to close, its superior financial resources could limit AmTec's ability to defend itself. AmTec believes that it had clear rights to terminate the agreement. China telecommunications regulations could impact our business. Chinese laws and regulations have prohibited foreign investors and foreign invested enterprises from owning or operating telecommunication networks in China. Since the fall of 1998, the Chinese government has taken a number of actions which have changed the legal environment in which AmTec is operating in China: o preparing a new telecommunications law not yet issued; and o seeking admission to the World Trade Organization. The result of these actions is difficult to predict since negotiations with relevant parties are ongoing and political uncertainties exist in China. Among other possibilities: o AmTec may be unable to convert returns of or on its investment it receives, if any, to U.S. currency or repatriate funds from China; o The new telecommunications law may facilitate entry into telecommunications businesses in China by national and international entities and increase competition; and o WTO accession will require China to abide by certain rules which assures foreign investors minimum direct ownership percentages in licensed telecommunications operators and may foster competition from Chinese or foreign telecommunications operators or investors. The result of the foregoing may have a material adverse effect on AmTec. A number of regulatory bodies in China seek to control and regulate the Internet; most notably, the Ministry of Information Industry, which combines the former Ministry of Posts & Telecommunications, Ministry of Electronics Industry and Ministry of Radio, Film and Television, and regulates the telecommunications and information industries. In addition, China Telecom, under direct authority of the Ministry of Information and Industry, has significant control over the development of the Internet infrastructure in China as it owns China's largest Internet backbone and operates telecoms and datacomms services. Internet regulation in China is unclear, and no single regulatory act has been promulgated to govern the Internet in China. Consequently, AmTec's ability to operate or invest in Internet-based services is unclear. To date, Chinese Internet operating licenses have been available to Chinese companies only. Through its joint venture with Fusion Communications and alliance with IXS.NET, AmTec seeks to participate in Internet-based businesses in China. If the Chinese government liberalizes its policy toward foreign participation in Internet operating licenses, it could substantially increase competition in the markets where AmTec's strategic partners operate. The Chinese government, while currently open to joint ventures, could at any time restrict operations or expropriate foreign participants' assets in China. Furthermore, China Telecom has challenged the ability of Internet service providers to provide Internet telephone and fax services. This action could have materially adverse consequences to the company's business and financial condition. On November 15, 1999, the United States and China reached a trade agreement whereby China agreed to reduce tariffs on various industrial and agricultural products and lift many of the barriers that prevent US companies from doing business in China. Under the agreement, China agreed, among other things to permit: o foreign entities to invest in Chinese Internet businesses; o foreign entities to own up to 49% of Chinese telephone service providers, which would increase up to 50% in two years; The United States agreed that in return for these concessions, that it would support China's entry into the World Trade Organization, the group that sets the rules for international commerce. Entry into the WTO would give China access to international economic protections, such as protection from unfair trade practices abroad, but also would impose a body of rules on China's internal economy and put China under the jurisdiction of international courts that enforce the World Trade Organization's rules. The agreement is subject to approval by the United States Congress. We cannot predict the impact of the new trade agreement between China and the United States. China also must negotiate trade agreements with each of the European Union and Japan in order to gain the support of these groups to China's entry into the WTO. It is impossible to predict how entry into the World Trade Organization would affect China's economy or the manner in which it conducts business domestically and internationally. We have limited operating control in our joint venture. Because AmTec does not have majority voting rights in certain of its joint ventures, it cannot completely control or direct the operation of these entities. In addition, AmTec's ability to derive revenues from each joint venture depends upon its ability to receive distributions, so it is possible that AmTec may receive little or no revenue from its joint ventures. The market for AmTec's common stock is highly volatile. There may be no regular trading market for our common stock. The market price for our common stock may be significantly affected by such factors as our financial performance, the market price of our competitors' stock, or market conditions in general. AmTec's common stock price has been volatile. During the past 12 months, our common stock has traded in a range between $0.8125 per share and $2.25 per share. As of February 1, 2000, the closing price of our common stock on the AMEX was $3.1875. These wide price fluctuations are not necessarily related to the operating performance of our company. We face severe competition. The Internet service provider market is highly competitive in China. There are five national ISPs owned and operated by the national government. There are over 150 private ISPs licensed to operate in various provinces. Thus, privately owned ISPs often compete with government owned or affiliated ISPs. The playing field is unequal, with government-affiliated ISPs having access to subsidized dial up lines, leased lines and Internet bandwidth. AmTec's strategic partners may face severe competition as the Internet develops in China. Political risks in China may adversely affect AmTec's business operations. China has been a socialist state since 1949 and is controlled by the Communist Party of China. Changes in the political leadership of China may have a significant effect on laws and policies related to the current economic reforms program. These changes may also affect other policies affecting business and the general political, economic and social environment in China, including the introduction of measures to control inflation, changes in the rate or method of taxation and imposition of additional restrictions on currency conversion, remittances abroad and foreign investment. These effects could substantially impair our business, profits or prospects in China. In addition, economic reforms and growth in China have been more successful in some provinces than in others. The continuation or increases of such disparities could affect the political or social stability of China. Technological advances may make AmTec's operations obsolete. The market in the telecommunications industry is characterized by rapidly changing technology. Technologies developed by others may render obsolete or otherwise significantly diminish the value of the business operations of the joint ventures in which we participate. You should not expect to receive dividends on AmTec's common stock. AmTec has not paid dividends on its common stock to date and has no plans for paying dividends on the common stock in the foreseeable future. AmTec has certain obligations to pay dividends in kind, which are to be paid in common stock to holders of the Series G preferred shares. Except for the dividends in kind which we will pay on the shares of issued and outstanding preferred stock and other preferred stock that may be issued in the future that require dividends, we intend to retain any earnings to pay for the expansion of our business. RISK FACTORS SPECIFIC TO TERREMARK Economic, interest rates and other conditions greatly impact the real estate market. It is possible that Terremark's operations will not generate income sufficient to meet its operating expenses or will generate income and capital appreciation, if any, at a rate less than that anticipated or available through comparable real estate or other investments. The real estate industry is cyclical and affected by changes in general and local economic and other conditions including employment levels, demographic considerations, availability of financing, interest rate levels, consumer confidence and real estate demand. In addition, developers are subject to various risks, many of them outside their control including competitive overbuilding, availability and cost of property, materials and labor, adverse weather conditions which can cause delays in construction schedules, cost overruns, changes in government regulations pertaining to building standards or environmental matters, increases in real estate taxes and other local government fees and acts of God, such as hurricanes and floods. Terremark cannot predict whether interest rates will be at levels attractive to prospective tenants or buyers and any increase in interest rates could affect Terremark's business adversely. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business of Terremark --Competition and Market Factors." Terremark's investments are highly leveraged and Terremark may not be able to make the debt service payments. As of December 31, 1999, the outstanding indebtedness of Terremark was approximately $65.2 million and Terremark had shareholders' equity of approximately $3.2 million. Terremark will likely incur additional indebtedness in the future, some of which may be secured. The ability of the combined company to make required debt service payments in the future will be dependent on its operating results, which are subject to financial, economic and other factors affecting it that are beyond its control. The degree to which the combined company is leveraged could have an adverse impact on it, including: o increased vulnerability to adverse general economic and market conditions; o impaired ability to expand and to respond to increased competition; o impaired ability to obtain additional financing for future working capital, capital expenditures, general corporate or other purposes; and o requiring that a significant portion of cash provided by operating activities be used for the payment of debt obligations, thereby reducing funds available for operations and future business opportunities. A significant portion of Terremark's financing is structured as balloon payments, which may be harder for our company to pay off. Most of Terremark's financings provide for the repayment of a significant part of the loan at maturity. These financings involve greater risks than financings structured such that the principal amount is amortized over the term of the loan because the ability of Terremark to repay the outstanding principal amount at maturity may depend on Terremark's ability to obtain adequate refinancing or dispose of the assets before maturity, which in turn depend upon economic conditions in general and the value of the underlying properties in particular. Further, a shrinkage in value of the underlying property could result in a loss of the property by Terremark through foreclosure and result in a possible deficiency judgment for the difference between the amount of the underlying debt and value of the collateral. Increases in variable mortgage rates could negatively impact Terremark. Most of Terremark's borrowing is pursuant to agreements which provide for the periodic adjustment of the interest rate to be consistent with prevailing interest rates. An increase in prevailing interest rates would result in higher borrowing costs to Terremark and, therefore, a reduction in income or, in extreme cases, project failure. Management contracts are generally cancellable on short notice. In the real estate industry, contracts to manage buildings are generally subject to cancellation on 30 to 90 days notice. If Terremark's property management contracts with third parties were cancelled, there could be a material adverse impact on Terremark's results of operations. Our geographic concentration exposes us to certain risks. Terremark's operations are situated primarily in South Florida. For fiscal 1999, all of Terremark's revenue and operating income were derived from operations in South Florida. Adverse general economic conditions in South Florida could have a material adverse impact on the operations of Terremark. New markets may prove to be less stable and may involve delays, problems and expenses not typically found by Terremark in the markets with which it is familiar. Up front cash requirements may create cash flow problems. Terremark develops real estate projects. Acquiring land and committing the financial and managerial resources to develop such projects involve significant risks. Before a development generates any revenue, material expenditures are required for items such as acquiring land, professional fees, construction, financing costs, sales and marketing. The occurrence of uninsured losses could have a material adverse effect on our financial condition. Terremark carries comprehensive insurance with respect to its properties and operations. However, there are certain types of losses, generally of a catastrophic nature, such as significant construction defects, hurricanes, floods or war, which are either uninsurable or not economically insurable. In the event of such a disaster, Terremark could lose both its capital investment in certain properties and the anticipated profits from such properties. In addition, Terremark may have liability for services it renders to others if those services are negligently provided and losses are sustained. Terremark carries errors and omissions insurance for some of its service operations, but for some other types of losses (e.g. general contracting), that insurance is either not available or not economical. We may not be able to compete in the highly competitive real estate market. The real estate development industry is highly competitive and fragmented. Terremark competes in the acquisition of property with many other entities engaged in real estate investment activities, including real estate investment trusts and insurance companies, many of which have greater assets and financial resources than Terremark. There may be intense competition in obtaining properties of the type in which Terremark intends to invest. The number of entities and the amount of funds available for investment in properties of a type suitable for investment by Terremark may increase, resulting in increased competition for those investments. Competition among purchasers of real property may result in increases in the prices paid by Terremark for real property investments. In its construction and development activities, Terremark competes for buyers and tenants. See "Business of Terremark--Competition and Market Factors." Terremark faces similar intense competition in its brokerage, property management and advisory and consulting businesses from well established local and national organizations which specialize in the provision of those services. Governmental regulation may adversely impact our business. Terremark is subject to a variety of federal, state and local statutes, ordinances, rules and regulations concerning land use. Land use and zoning laws can vary greatly and may result in delays, cause Terremark to incur substantial compliance and other costs and prohibit or severely restrict development in certain regions or areas, any of which could have an adverse effect on Terremark's business and results of operations. See "Business of Terremark--Government Regulation and Environmental Matters." In developing real estate, Terremark must obtain the approval of numerous government authorities regulating such matters as permitted land uses and levels of density and the installation of utility services such as water and waste disposal. Several authorities in Florida and other states have imposed impact fees as a means of defraying the cost of providing certain governmental services to developing areas and the amount of these fees has increased significantly during recent years. Many state laws require the use of specific construction materials which reduce the need for energy-consuming heating and cooling systems. Also, local governments, at times, declare moratoriums on the issuance of building permits and impose other restrictions for various reasons, including but not limited to, when sewage treatment facilities and other public facilities do not reach minimum standards. To varying degrees, certain permits and approvals will be required to complete the residential developments currently being planned by Terremark. The ability of Terremark to obtain necessary approvals and permits for these projects is often beyond Terremark's control, and could restrict or prevent the development of otherwise desirable property. The length of time necessary to obtain permits and approvals increases the carrying costs of unimproved property acquired for the purpose of development and construction. In addition, the continued effectiveness of permits already granted is subject to factors such as changes in policies, rules and regulations and their interpretation and application. Liability relating to environmental contamination may adversely impact our business. Applicable laws impose strict liability on property owners to remediate environmental contamination found on land they own. This means that they can be liable regardless of how or when the contamination occurred, even if the contamination occurred before the purchase of such land. As an owner of real estate, Terremark may be held responsible for remediation of this kind. Although Terremark engages environmental engineers to evaluate real estate before a purchase, such evaluations are not capable of detecting all contamination. Insurance for these risks is either not available or not economical. THE AMTEC SPECIAL MEETING At the AmTec special meeting, the AmTec stockholders will consider and vote upon the approval of the proposed transactions and any other matters as may properly come before the AmTec special meeting or any adjournments or postponements thereof. THE AMTEC BOARD OF DIRECTORS HAS APPROVED THE MERGER, THE STOCK PURCHASE AGREEMENT AND THE ISSUANCE OF AMTEC COMMON STOCK PURSUANT THERETO AND RECOMMENDS THAT AMTEC STOCKHOLDERS VOTE FOR EACH OF THESE PROPOSALS. DATE, PLACE AND TIME The AmTec special meeting will be held at Waldorf Astoria, Basildon Room, 3rd Floor, 301 Park Avenue, New York, NY 10022 at 10:00 a.m., local time, on April 28, 2000. RECORD DATE The AmTec board of directors has fixed the close of business on March 15, 2000 as the record date for determining AmTec stockholders entitled to notice of and to vote at the AmTec special meeting. QUORUM The presence in person or by properly executed proxy of holders of a majority of the issued and outstanding shares of AmTec common stock is necessary to constitute a quorum at the AmTec special meeting. Abstentions and broker non-votes will each be included in determining whether a quorum is present. REQUIRED VOTES At the close of the business on AmTec's record date, there were 38,104,992 shares of our common stock outstanding, each of which entitles the registered holder thereof to one vote. The affirmative vote of the holders of a majority of the outstanding shares of our common stock is required to approve and adopt the merger agreement. The issuance by AmTec of AmTec common stock to the Terremark and Vistagreen shareholders is subject to stockholder approval pursuant to the applicable rules of the AMEX. Section 712(b) of the AMEX Listing Standards, Policies and Requirements requires companies that are listed on the AMEX to obtain stockholder approval as a prerequisite to approval of applications to list additional shares to be issued as consideration for an acquisition of the stock or assets of another company before issuing those common shares where the issuance of the common shares could result in an increase of outstanding common shares of 20% or more. Therefore, the affirmative vote of the holders of a majority of shares present or represented by proxy at the special meeting and entitled to vote is required for the approval of the stock purchase agreement and the issuance of shares pursuant thereto. A failure to vote shares, either by abstention or non-vote, will have the same effect as a vote against the approval of the merger. A majority of the outstanding shares of our common stock entitled to vote, represented in person or by proxy, will constitute a quorum at the special meeting. PROXIES All shares of AmTec common stock represented by properly executed proxies will, unless such proxies have been previously revoked, be voted in accordance with the instructions indicated in those proxies. IF NO INSTRUCTIONS ARE INDICATED, THE SHARES OF AMTEC COMMON STOCK WILL BE VOTED IN FAVOR OF APPROVAL OF THE MERGER AND OF THE STOCK PURCHASE AGREEMENT. AmTec does not know of any matters other than as described in the accompanying notice of the AmTec special meeting that are to come before the AmTec special meeting. If any other matter or matters are properly presented for action at the AmTec special meeting, the persons named in the enclosed form of proxy and acting thereunder will have the discretion to vote on the matters in accordance with their best judgment, unless authorization is withheld. An AmTec stockholder giving a proxy under this proxy solicitation may revoke it at any time before it is exercised by delivering to the Secretary of AmTec at the address of AmTec provided elsewhere in this proxy statement a written notice of revocation before voting the proxy at the AmTec special meeting, or attending the AmTec special meeting and informing the Secretary of AmTec in writing that the stockholder wishes to vote his or her shares in person. However, attending the AmTec special meeting will not in and by itself have the effect of revoking the proxy. Votes cast by proxy or in person at the AmTec special meeting will be tabulated by the inspector of election appointed for the meeting and the inspector will determine whether or not a quorum is present. The election inspector will treat abstentions as shares that are present and entitled to vote for purposes of determining the presence of a quorum. If a broker indicates on the proxy that it does not have discretionary authority as to some shares to vote on a particular matter, those shares will be treated as present for purpose of determining whether or not a quorum is present, but will not be considered as present and entitled to vote with respect to that matter. Deloitte & Touche LLP is expected to be present at the meeting and will have an opportunity to make a statement if they desire and will be available to respond to appropriate questions from AmTec's stockholders. SOLICITATION OF PROXIES The solicitation of proxies for use at the AmTec special meeting is made by and the expenses relating to such solicitation will be borne by AmTec. In addition to solicitation by mail, proxies may be solicited by directors, officers or other employees of AmTec or, at the request of AmTec, ChaseMellon Shareholder Services LLC, in person or by telephone, telegram or other means of communication. These persons will receive no additional compensation for solicitation of proxies, but may be reimbursed for reasonable out-of-pocket expenses in connection with the solicitation, except for ChaseMellon Shareholder Services, LLC, which will be paid a fee estimated to be approximately $10,000 in connection with the solicitation plus reasonable out-of-pocket expenses. THE MATTERS TO BE CONSIDERED AT THE AMTEC SPECIAL MEETING ARE OF GREAT IMPORTANCE TO THE AMTEC STOCKHOLDERS. ACCORDINGLY, THE AMTEC STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE. THE MERGER The following discussions of the merger and the merger agreement do not purport to be complete and are qualified in their entirety by reference to the merger agreement, which is attached as Annex A to this proxy statement. All stockholders are urged to read the merger agreement in its entirety. GENERAL The merger agreement provides for the merger of Terremark with and into AmTec, and AmTec will continue as the surviving corporation, with our name changing to Terremark Worldwide, Inc. The former shareholders of Terremark will become stockholders of AmTec. The merger agreement provides that the merger will be consummated if the required approval of the AmTec is obtained and all other conditions to the merger are satisfied or waived. Concurrent with the signing of the merger agreement, AmTec entered into a stock purchase agreement with Vistagreen. Under the stock purchase agreement, provided that conditions of the stock purchase agreement are satisfied, AmTec will sell to Vistagreen 68,520,236 shares of outstanding shares of common stock of the combined company, representing 35% of the outstanding common stock of the combined company on a fully diluted basis, after giving effect to the merger. See "The Stock Purchase Agreement." EFFECTIVE TIME The merger will become effective upon the filing and acceptance of appropriate documents with each of the Secretary of State of Delaware and of Florida. The filing of the certificate of merger will occur as soon as practicable after the approval of the merger by the AmTec stockholders, subject to the satisfaction or waiver of the other conditions in the merger agreement. CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF TERREMARK CERTIFICATES The conversion of Terremark capital stock into AmTec capital stock will occur automatically when the merger becomes effective. BACKGROUND OF THE MERGER On June 9, 1999, Manuel D. Medina, the Chairman of the Board and Chief Executive Officer of Terremark met with Joseph R. Wright, Jr., the Chairman of the Board and Chief Executive Officer of AmTec, Marvin S. Rosen, a director of AmTec and Vice Chairman of Fusion Telecommunications International, Ken Starr of Starr & Company, representing a group of AmTec investors, R. Tim McNamar, Vice Chairman of the Board of Directors of AmTec, and Albert G. Pastino, former Senior Vice President and Chief Financial Officer of AmTec. In this meeting, the parties discussed potential business combinations or ventures between AmTec, Fusion, IXS.NET, Inc. and IP.Com, LLC (formerly known as IP.TEL) and, among other things, discussed that it might be in the best interest of these organizations that all or some of the businesses be combined in some fashion. At the end of June 1999, several telephone conferences took place among Messrs. Medina, Wright, Rosen and Starr during which they reviewed the discussions that had taken place at the June 9 meeting. During these discussions, it became apparent that AmTec would not have the capital to pursue the various opportunities that were being considered by its management. A meeting among Messrs. Medina, Wright, McNamar and Ms. Karin-Joyce Tjon, Vice President of AmTec, took place on July 21, 1999, to review future AmTec funding requirements, the status of its joint venture projects and the potential transactions that were discussed in the June 9 meeting. Within a few days, Mr. Medina met with Mr. Rosen in New York to further discuss the potential transactions first considered at the June 9 meeting. Terremark had been engaged in conversations with another real estate company regarding a potential business combination in July. Those discussions ended in the middle of August 1999. Mr. Medina called Mr. Wright in middle of August and suggested that the transactions which they had been discussing could be structured as a merger between Terremark and AmTec. Mr. Wright indicated that he would seriously consider this proposal. On August 20, 1999, Mr. Medina sent Mr. Wright a package of information on Terremark to review when considering the proposed merger. On August 23, 1999, Mr. Wright prepared and forwarded to Mr. Medina materials setting forth his analysis of the advantages and disadvantages for each company of a possible merger and a proposed valuation of each of the entities. Messrs. Wright and Medina discussed relative valuation issues over the following several days, tentatively agreeing to a 75% / 25% equity split as the likely structure of the transaction assuming a substantial incremental equity investment arranged by Terremark. On August 26, 1999, Messrs. Starr and Rosen were each notified of the proposed merger. On August 30, 1999, Mr. Medina and the Terremark executives met with Mr. Wright and Ms. Karin-Joyce Tjon at Terremark's offices in Miami to further discuss the transaction. They made a decision to move forward with the discussions. Mr. Wright began notifying members of AmTec's Board of Directors about these discussions. On September 8, 1999, Messrs. Medina, Wright, Rosen, McNamar, and Ms. Karin-Joyce Tjon met at the AmTec offices to further discuss the combination and its possible impact on the Fusion/AmTec joint ventures. During the course of the month of September, Mr. Wright and Peter Cohen of Ramius Capital Group, LLC, an investment firm, began discussions on the transaction and a valuation analysis. Ramius Capital was later engaged as the financial advisor for AmTec. During September, Mr. Medina contacted Timothy Elwes, advisor to the Lee family, then owner of the Terremark Centre, about his participating in the combination and providing, through sale or contribution of Terremark Centre, substantial equity. On October 1, 1999, Mr. Medina, Brian K. Goodkind, Executive Vice President and General Counsel of Terremark, Messrs. Wright, and McNamar, Ms. Karin-Joyce Tjon and Timothy Elwes, advisor to the Lee family, met at the AmTec offices to discuss the transaction further and to explore the possibility of the Lee family participating financially in the combined company. On October 3, 1999, Messrs. Medina and Wright, and Ms. Tjon began a seven-day diligence trip. During this trip, they met with Messrs. Francis Lee, Elwes and McNamar in Singapore and they met in the PRC with the Beijing and Hebei executives who are responsible for developing the future AmTec related businesses. By October 10, Mr. Lee authorized his representatives to negotiate the terms of the Lee family participation through Terremark Centre in the proposed transactions. On October 15, 1999, the AmTec board of directors met by telephone to discuss the proposed transactions and review AmTec's difficulties in raising funds and substantial pressing needs for cash. The board of directors was advised of a possible bridge loan from Terremark to address these issues. The board of directors authorized continued negotiations regarding the proposed transactions and the execution of a non-binding letter of intent. Mr. Rosen abstained from this vote due to his position as Vice Chairman of Fusion and as partner of Greenberg Traurig P.A., which had acted, and continues to act, as counsel to Terremark. On October 19, 1999, Messrs. Medina, Wright and Rosen met and discussed the Fusion/AmTec joint ventures, funding requirements and the proposed transaction structure. On October 20, 1999, Messrs. Medina, Wright and McNamar and Ms. Tjon met and prepared a draft term sheet for the proposed transactions. On October 28, 1999, Messrs. Medina, Goodkind, Wright and McNamar and Ms. Tjon met with representatives of Ramius Capital to discuss the possibility of Ramius Capital rendering an opinion with respect to the financial aspects of the transaction. Thereafter, a letter of intent was negotiated by Messrs. Medina, Goodkind, Elwes, Wright and McNamar and Ms. Tjon. On November 3, 1999, the AmTec board of directors met by telephone to discuss the letter of intent, bridge loan financing, and proceeding with the proposed transactions. The board of directors authorized the officers of AmTec to sign the letter of intent and enter into the bridge loan with Terremark for $1.5 million. On November 9, 1999, AmTec and Terremark executed the non-binding letter of intent and a press release on November 10, 1999, announcing the same was made. That same day, a press release was issued by AmTec announcing its second quarter results and AmTec's receipt of funding from Terremark. From November 10 to November 23, 1999, Messrs. Medina, Goodkind, Elwes, Wright and McNamar and Ms. Tjon negotiated a number of changes in the terms of the agreements, including break-up fees and tax issues. On November 24, 1999, the board of directors of AmTec conducted a telephone meeting and approved the merger agreement. The merger agreement was signed by AmTec and Terremark late that evening. On November 29, 1999, a press release was issued by AmTec announcing the execution of the definitive Merger Agreement. RECOMMENDATION OF THE AMTEC BOARD The AmTec board of directors has determined that the terms of the merger agreement and the merger, including the stock purchase agreement with Vistagreen, are fair to, and in the best interests of, the AmTec stockholders. Accordingly, the AmTec board of directors has approved the merger agreement and the merger, as well as the stock purchase agreement, and recommends that the AmTec stockholders vote FOR approval of the merger and the stock purchase agreement. In reaching its determination, the AmTec board of directors consulted with AmTec's management, as well as its legal counsel, accountants and financial advisor, and gave significant consideration to a number of factors bearing on its decision. The post-merger ownership between AmTec stockholders and Terremark shareholders and Vistagreen was determined in arm's-length negotiation. The ownership allocation ultimately agreed to by the board of directors of AmTec was approved, based upon your board of directors's evaluation of a number of factors, including the value of AmTec, the value of each of AmTec's joint ventures, the value of the Terremark business and operations and the relative contributions of each company to assets, earnings and cash flow. The AmTec board of directors believes that the merger, including the stock purchase, should result in greater value to AmTec's stockholders than would otherwise be realized through the continued operation of AmTec as an independent entity. The following are the primary reasons the AmTec board of directors believes the merger, and the stock purchase, will be beneficial to AmTec and its stockholders: o The fact that AmTec is operating under significant liquidity constraints that could affect its ability to continue its current operations; o The fact that AmTec has sought out various financing and capitalization alternatives over the last year without success; o The belief that the merger represents an opportunity to more rapidly develop AmTec's business plan and take advantage of the opportunities that it has due to the infusion of capital expected from the merger and the sale of AmTec common stock to Vistagreen; o The belief that the combined company's stronger balance sheet will enable it to accelerate its expansion plans and to raise additional capital; o The belief that AmTec will be able to use Terremark's contacts in South America to develop and negotiate future telecommunications alliances in that market; and o The belief that AmTec will be able to use the contacts in South East Asia of the Lee family to develop and negotiate future telecommunications alliances in that market. In addition to the reasons described above, during the course of its deliberations concerning the merger, the AmTec board consulted with AmTec's legal counsel and financial advisors as well as AmTec's management, and reviewed a number of other factors relevant to the merger, including: o Information concerning the business, assets, operations, properties, management, financial condition, operating results, competitive position and prospects of AmTec and Terremark; o Reports from its legal counsel on specific terms of the merger agreement; and o The opinion of Ramius Capital, LLC to the effect that, as of November 24, 1999, and based upon and subject to specific matters stated in the opinion, the merger was the best alternative for AmTec to carry out its business plans and programs from a financial point of view. The AmTec board of directors also considered a number of potentially negative factors in its deliberations concerning the merger, including: o The uncertainty as to the cash equity which the Terremark Centre will provide; o The risk that the combined company may not achieve expected synergies in terms of operations and financing opportunities; o The risk that some key employees or members of management of either AmTec or Terremark may decide not to continue employment with the combined company; o The substantial dilution of existing AmTec stockholders in terms of percentage ownership; and o The risk that other benefits sought to be achieved by the merger would not be obtained. After carefully considering the potentially negative factors described above, among others, the AmTec board of directors concluded that the potential benefits from the merger outweighed the negative factors and determined that the merger is fair to and in the best interests of AmTec and the AmTec stockholders. The foregoing discussion of the information and positive and negative factors considered by the AmTec board of directors in approving the merger proposal is not intended to be exhaustive, but include some of the material factors considered by the AmTec board of directors in their analysis of the merger proposal. In considering the merger proposal, given the number and diversity of the potentially positive and negative factors considered, the AmTec board of directors did not find it practical or feasible to quantify or otherwise attempt to assign any relative or specific values to any of the foregoing factors. In making their determination, individual directors may have accorded different values to different factors. OPINION OF FINANCIAL ADVISOR TO AMTEC AmTec retained Ramius Capital, LLC as its exclusive financial advisor in connection with its merger with Terremark to render an opinion as to whether the merger, including the stock purchase, was in the best interest of AmTec's stockholders. Ramius Capital delivered its verbal opinion to AmTec's board of directors on November 24, 1999. Ramius Capital based its opinion on a number of factors with the principal factor being the contribution of Terremark, together with the equity of the Terremark Centre, to enable AmTec to fulfill its business plan. AmTec selected Ramius Capital as an advisor because of its expertise and reputation as a nationally recognized investment banking firm, its experience in the real estate industry, and the involvement of its principal, Mr. Peter Cohen, directing the efforts of its staff. Ramius Capital did not determine the consideration to be received in the merger. On November 24, 1999 during a meeting of the board of directors of AmTec, Ramius Capital rendered its opinion that, as of the date of the opinion, the transaction was the best alternative available to AmTec to carry out its business plans and programs from a financial point of view. In formulating their recommendation, Ramius Capital: o reviewed publicly available business and financial information relating to AmTec and Terremark that it deemed relevant; o read the letter of intent, memorandum of understanding and draft merger and stock purchase agreements relating to the proposed transactions; o reviewed the base case and management case valuation of AmTec, dated November 1, 1999, prepared by AmTec; o spoke with CIBC World Markets regarding the activities they engaged in on behalf of AmTec over the last year; o reviewed the terms of alternative financing provided by AmTec it had considered; o visited Terremark Centre; o visited potential development sites; o reviewed relevant documentation relating to the operating business of Terremark; o reviewed internal information provided by AmTec and Terremark, primarily financial, including financial forecasts and other financial and operating data relating to strategic implications and operational benefits anticipated to result from the proposed transactions; and o conducted discussions with senior management of AmTec and Terremark about their respective operations, historical financial statements and future prospects. In arriving at its opinion, Ramius Capital considered information provided by AmTec and Terremark, without independent investigation: o that AmTec has been unsuccessful in finding financing for over a year; o that AmTec has cash flow difficulties and requires an immediate and substantial capital infusion to fund its initiatives and operating expenses; and o that Terremark has been operating as a "pass through" real estate company. The full text of the written opinion of Ramius Capital dated November 24, 1999 which describes the assumptions made, matters considered and limitations on the review undertaken, is attached hereto as Annex B and is incorporated herein by reference. AmTec stockholders are urged to read this opinion carefully in its entirety. Ramius Capital's opinion is directed only to the appropriateness of the merger as an alternative to AmTec, does not address any other aspect of the merger related transactions and does not constitute a recommendation to any stockholder as to how the stockholder should vote at the AmTec special meeting. The summary of the opinion of Ramius Capital set forth in this the combined company is qualified in its entirety by reference to the full text of the opinion. INTERESTS OF CERTAIN PERSONS IN THE MERGER Some members of the AmTec board of directors and its executive officers have interests in the merger that are in addition to the interests of the AmTec shareholders and Terremark shareholders generally. Mr. Wright, Chief Executive Officer and a director of AmTec, has entered into an employment agreement, which is described in more detail under "Management of AmTec After the Merger." Mr. Rosen, a director of AmTec, is also a shareholder of Fusion Telecommunications. Fusion Telecommunications is AmTec's joint venture partner. Fusion Telecommunications is also affiliated with Terremark because Mr. Medina, a Terremark shareholder, is a shareholder of Fusion Telecommunications. For more details on the relation between Fusion Telecommunications and Terremark, see "Certain Relationships and Related Transactions of Terremark." Mr. Rosen is also a shareholder of Greenberg Traurig, P.A., counsel to Terremark. MATERIAL FEDERAL INCOME TAX CONSEQUENCES The merger has been structured so that it will constitute a "reorganization" under Section 368(a) of the U.S. Internal Revenue Code, and that AmTec and Terremark will each be a party to the reorganization under Section 368(b) of the Internal Revenue Code. It is a condition to Terremark's obligation to consummate the merger that counsel reasonably acceptable to Terremark render Terremark an opinion to this effect at the effective time of the merger. In rendering its opinion, counsel will rely upon customary representations of officers of Terremark and AmTec reasonably requested by counsel. We anticipate that: o neither AmTec nor Terremark will recognize any gain or loss as a result of the merger; except Terremark may recognize gain or loss on any assets held by it that are required to be marked to market as a result of the merger; o AmTec stockholders will not recognize any gain or loss as a result of the merger or the issuance of AmTec common shares to Vistagreen. The foregoing discussion is a summary of the material United States federal income tax consequences of the merger to a United States shareholder who holds our common stock as a capital asset but does not purport to be a complete analysis or description of all potential tax effects of the merger. In addition, the discussion does not address all of the tax consequences that may be relevant to particular taxpayers in light of their personal circumstances or to taxpayers subject to special treatment under the Internal Revenue Code. For example, those taxpayers may include insurance companies, financial institutions, dealers in securities, traders that mark to market, tax-exempt organizations, stockholders who acquired the AmTec common shares through the exercise of options or otherwise as compensation or through a tax-qualified retirement plan, foreign corporations, foreign partnerships or other foreign entities and individuals who are not citizens or residents of the United States. We have not provided any information in this document relating to any tax consequences of the merger under applicable foreign, state, local and other tax laws. We have based the foregoing discussion upon the provisions of the Internal Revenue Code, applicable Treasury regulations, and IRS rulings and judicial decisions, as in effect as of the date of this document. We cannot assure you that future legislative, administrative or judicial changes or interpretations will not affect the accuracy of the statements or conclusions set forth herein. Any such change could apply retroactively and could affect the accuracy of this discussion. No rulings have been or will be sought from the IRS concerning the tax consequences of the merger and the opinion of counsel as to the federal income tax consequences set forth above will not be binding on the IRS. The preceding discussion does not purport to be a complete analysis or discussion of all potential tax effects relevant to the merger and specifically does not discuss any such tax effects on Terremark shareholders. Accordingly, we expect that Terremark shareholders will consult their own tax advisors as to the specific tax consequences to them of the merger, including tax return reporting requirements, the applicability and effect of federal, state, local, and other applicable tax laws and the effect of any proposed changes in the tax laws. ACCOUNTING TREATMENT The surviving corporation will account for the merger using the purchase method of accounting, with Terremark treated as the acquirer for accounting purposes. As a result, the assets and liabilities of Terremark will be recorded at historical values without restatement to fair values. The assets and liabilities of AmTec will be recorded at their estimated fair values at the date of the merger, with the excess of the purchase price over the sum of such fair values recorded as goodwill. For this purpose, the purchase price is based upon market capitalization of AmTec using an average trading price of AmTec ordinary shares for a period immediately before and after the announcement of the proposed merger on November 9, 1999, plus certain merger related costs. In periods subsequent to the merger, historical financial information of Terremark will be that of the surviving corporation. EFFECT ON AMTEC OPTIONS AND WARRANTS Other than adjustments to the options granted to Messrs. Wright pursuant to his employment agreement with AmTec, no adjustments to any outstanding AmTec stock options or warrants will occur as a result of the merger. REGULATORY MATTERS The consummation of the merger is not subject to the expiration or termination of the relevant waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. FEDERAL SECURITIES LAW CONSEQUENCES -- LOCK UP AGREEMENTS Shares of our common stock issued to Vistagreen and Terremark shareholders in connection with the merger and the stock purchase will not be registered and will not be freely transferable by the recipients. However, the combined company has agreed to file, within ten business days after the merger and the stock purchase close, a registration statement with the SEC. Once this registration statement has become effective, the AmTec shares issued in connection with the merger will be freely transferable under the federal securities laws. However, the Vistagreen and Terremark shareholders have contractually agreed not to sell those shares for one year after the merger becomes effective, except that they may sell to enumerated persons and that they may sell that amount of shares that they would be permitted to sell under Rule 145 of the Securities Act were this rule to apply. In general, under Rule 145, for one year following the merger, an affiliate, together with related persons, would be entitled to sell shares of the combined company's common stock acquired in connection with the merger only through unsolicited brokers transactions or in transactions directly with a market maker, as those terms are defined in Rule 145. Additionally, the number of shares to be sold by an affiliate within any three-month period for purposes of Rule 145, may not exceed the greater of 1% of the outstanding shares of the combined company's common stock or the average weekly trading volume of the stock during the four calendar weeks preceding the sale. Rule 145 would only remain available, however, to affiliates if the combined company remained current with its informational filings under the Exchange Act. APPRAISAL AND DISSENTERS' RIGHTS Under applicable Delaware law, the holders of common stock of AmTec are not entitled to dissenters' or appraisal rights in connection with the merger. U.S. REAL PROPERTY HOLDING CORPORATION If AmTec is or becomes a United States real property holding corporation, or USRPHC, as defined in Section 897(c)(2) of the Internal Revenue Code at any time after of the merger becomes effective while Vistagreen continues to hold at least one percent of the outstanding common stock of AmTec and the stock was obtained pursuant to the stock purchase agreement, then AmTec could be liable to Vistagreen for any U.S. tax liability Vistagreen incurs on dispositions of its AmTec common stock. The amount of this tax liability would depend on the amount of any gains Vistagreen recognizes on dispositions of its AmTec common stock and on the effective U.S. tax rate payable by Vistagreen at the time it recognizes those gains. Terremark believes that as of December 31, 1999, its assets totaled approximately $45.0 million as calculated in accordance with the provisions governing USRPHCs, of which $5 million would conservatively be excluded as non-qualifying cash and $10 million would conservatively be allocable to real estate assets. Accordingly, Terremark could acquire nearly $19 million of additional real estate assets (assuming acquisition solely with equity) before potentially jeopardizing its non-USRPHC status. Terremark is not aware of any currently pending or contemplated event that could jeopardize its non-USRPHC status. After the merger, non-real estate assets (e.g., management contracts, brokerage listings and construction contracts) are expected to increase as the company expands its growth in the service side of the real estate sector. In addition, with the inclusion of the telecommunication business of AmTec and a concentrated emphasis on growth in the telecommunications business, it is expected that non-real estate assets will significantly exceed real estate assets. Although Terremark does intend to expand its Fortune House brand and, in doing so, expects to acquire additional real property for Fortune House locations, management will be cautious to avoid acquisitions that would result in USRPHC status. THE MERGER AGREEMENT GENERAL The merger agreement contemplates the merger of Terremark with and into AmTec, with AmTec surviving the merger. As part of the merger, our certificate of incorporation will be amended to increase the number of authorized shares of our common stock from 100,000,000 to 300,000,000, and the name of our company will be changed to Terremark Worldwide, Inc. The merger will become effective at the date and time that the appropriate documents are filed with each of the Secretary of State of the State of Delaware and of Florida. We anticipate that we will make these filings as soon as practicable after the last of the conditions precedent to the merger, as set forth in the merger agreement, has been satisfied or waived. The merger agreement obligates AmTec to have the AmTec common shares to be issued in connection with the merger approved for listing on the American Stock Exchange, subject to official notice of issuance, before the merger becomes effective. The following description of the merger agreement is only a summary and therefore is not complete. We encourage stockholders to refer to the complete text of the merger agreement, which is attached as Annex A. CONSIDERATION TO BE RECEIVED IN THE MERGER Immediately after the merger becomes effective, those stockholders of AmTec who were holders immediately before the time the merger becomes effective will hold, in the aggregate and on a fully diluted basis, 38.5% of AmTec's outstanding shares of common stock. Assuming the sale of shares of common stock to Vistagreen pursuant to the stock purchase agreement, effective upon the merger, those holders will hold in the aggregate and on a fully diluted basis 25% of AmTec's outstanding shares of common stock. When the merger becomes effective and assuming no issuance of shares of common stock to Vistagreen, holders of Terremark's common stock shall have the right to receive that number of shares of common stock of our company such that holders of Terremark's common stock will, in the aggregate and on a fully diluted basis, hold 61.5% of the shares of our then outstanding common stock. Based on the number of issued and outstanding shares of our common stock as of the record date, when the merger becomes effective, the number of shares of AmTec common stock to be held by AmTec stockholders and Terremark stockholders will be 48,943,026 and 78,308,842 shares, respectively. RELATIONSHIP BETWEEN THE STOCK PURCHASE AGREEMENT AND THE MERGER AGREEMENT Concurrent with the merger agreement, AmTec executed the stock purchase agreement with Vistagreen, pursuant to which AmTec will, provided the conditions precedent set forth in the stock purchase agreement are satisfied, sell to Vistagreen 35% of its outstanding shares of common stock, on a fully diluted basis, after giving effect to the merger. The purchase price for these shares is a minimum of $27.1 million in principal plus interest in the minimum amount of $1 million (such aggregate amount being the proceeds of the promissory note issued to Vistagreen for the sale of Terremark Centre to Terremark), plus interest accruing after sale of Terremark Centre on that amount through the closing of the stock purchase. Each of AmTec and Terremark's obligation to close the merger is conditioned on, among other things, the satisfaction, unless those conditions are waived by the parties, of the terms and conditions (except the merger's closing) of the stock purchase agreement. For a more detailed discussion of the transactions relating to the promissory note and the sale of Terremark Centre, see the section titled "Stock Purchase Agreement" in this proxy statement. One of the conditions of the stock purchase agreement is the sale of an office building, Terremark Centre, purchased by Terremark from Vistagreen group on December 22, 1999. Before the purchase, Terremark managed Terremark Centre for Vistagreen group. PRINCIPAL REPRESENTATIONS AND WARRANTIES The merger agreement contains a number of reciprocal representations and warranties of AmTec and Terremark as to, among other things: o due incorporation and good standing; o corporate authority to enter into the contemplated transactions; o capitalization; o required consents and filings with government entities; o absence of conflicts with organizational documents and material agreements; o financial statements; o absence of material changes or events; o compliance with laws; o litigation; o absence of required governmental authorization; o insurance coverage; o absence of any casualty; o the propriety of past payments; o employee benefit plans; o employee relations and agreements; o client relations; o contracts and commitments; o sufficiency of assets; and o the completeness and accuracy of information supplied for use in connection with the transaction and compliance of this document, to the extent information is provided by either Terremark or AmTec, with SEC disclosure requirements applicable to SEC registrants. Representations and warranties are made solely by AmTec as to title to property and full disclosure of any encumbrances thereon, that AmTec has received the opinion of a financial advisor that there is no bar in state law or corporate governance documents to the merger and that AmTec is current with its disclosure requirements applicable to SEC registrants. Representations and warranties are made solely by Terremark as to its real property and the absence of any bar to the ownership or operation of this property by AmTec after the merger, its leases, liability for broker fees and environmental laws and regulations. Many of these representations and warranties are qualified by material adverse effect, which, for purposes of the merger agreement, means with respect to AmTec or Terremark, as the case may be, a material adverse effect on the business, properties, assets, liabilities, operations, results of operations, condition (financial or otherwise) or prospects of either party and its subsidiaries, taken as a whole, other than any material adverse effects arising out of: o any change in general U.S. or global economic or general economic conditions in industries in which either party competes; o the announcement of the transaction contemplated by the merger agreement or any action required to be taken pursuant to the merger agreement; o any decrease in AmTec's stock price in and of itself; and/or o any deterioration in AmTec's financial condition which is a direct and proximate result of its agreements with Hebei United Telecommunication Equipment Company. None of the representations and warranties contained in the merger agreement will survive the effective time of the merger. PRINCIPAL COVENANTS Conduct of the Business. From the date of the merger agreement until the merger closes, both AmTec and Terremark have agreed that, except as contemplated in the merger agreement or as consented to by the other party in writing, which consent is not to be unreasonably withheld or delayed: Each of them will, and will cause each of their subsidiaries to, conduct their operations only according to their ordinary and usual course of business and will use their best efforts to: o preserve intact their respective business organization; and o maintain satisfactory relationships with licensors, suppliers, distributors, clients and others having business relationships with them. Neither party will, nor will they permit any of their subsidiaries to: o amend their governing corporate documents; o issue or sell shares of their capital stock or any of their other securities, or issue any securities convertible into, or options, warrants or rights to buy, or enter into an arrangement with respect to the sale of, any shares of their capital stock or any of their other securities or make any changes to their corporate structure, provided that Terremark must cause its outstanding Series A Convertible Preferred Stock to be converted to Terremark common stock before the merger is consummated; o declare, pay or make any dividend or other distribution or payment with respect to any shares of capital stock or split, redeem or reclassify any shares of their capital stock; o enter into any contract or commitment, except contracts in the ordinary course of business, including any acquisition or disposition of a material amount of assets or securities; o release or relinquish any material contract right; o amend any employee or non-employee benefit plan or program, employment agreement, license agreement or retirement agreement, or pay any bonus or contingent compensation, provided that Terremark may take these actions to the extent they are consistent with past practices; o agree to the settlement of any litigation involving a payment of more than $100,000 in total; o change any method of accounting or accounting practices used by it, unless it is not material or is required by generally accepted accounting principles; o agree to take any of the foregoing actions; or o make or change any material tax election. Neither party will, nor will they permit any of their subsidiaries to, take any action, engage in any transaction or enter into any agreement which would cause any of the representations or warranties set forth in the merger agreement to be untrue when the merger closes. No solicitation of transactions. Pursuant to the merger agreement: AmTec has agreed to immediately cease any discussions or negotiations with any parties that may have been on-going with respect to an acquisition proposal, which is defined in the merger agreement to include an offer to acquire 20% or more of the assets or common shares of AmTec, or any other transaction, the consummation of which could reasonably be expected to materially prevent or materially delay the merger or which could reasonably be expected to materially dilute the benefits to the Terremark shareholders of the merger. AmTec has agreed that it will not, nor will it authorize or knowingly permit any officer, director, employee, accountant, counsel, consultant, advisor, agent or representative, investment banker or financial advisor of AmTec, directly or indirectly, to: o solicit, initiate or knowingly encourage, or knowingly take any other action to facilitate, any inquiries or the making of any proposal which may reasonably be expected to lead to an acquisition proposal; or o participate in any discussions or negotiations regarding any such acquisition proposal. AmTec may take any action(s) described in the foregoing clauses if its board of directors determines in good faith, after consultation with independent legal counsel, that it may be necessary to do so to comply with its fiduciary duties under applicable law. If AmTec receives an unsolicited superior proposal, which is defined in the merger agreement to be an acquisition proposal, made by a third party on terms which the board of directors of AmTec, after consultation with an experienced investment banker, determines in its good faith judgment to be more favorable to AmTec's shareholders than the transaction proposed in this merger agreement: o AmTec may furnish information with respect to AmTec to the person making the unsolicited superior proposal pursuant to a confidentiality agreement; and o participate in discussions or negotiations regarding such superior proposal. If the board of directors of AmTec determines in good faith, after consultation with independent legal counsel, that it may be necessary to do so to comply with its fiduciary duties under applicable law, the board of directors of AmTec may: o withdraw or modify its approval or recommendation of the merger agreement and the merger; o approve or recommend a superior proposal, as defined in the merger agreement; or o cause AmTec to enter into an agreement with respect to a superior proposal, as defined, or terminate the merger agreement; provided that, in each case, only at a time that is after the fifth business day following Terremark's receipt of written notice advising Terremark that the board of directors of AmTec has received a superior proposal, as defined in the merger agreement, specifying the material terms and conditions of that superior proposal and identifying the person making such superior proposal. Upon receipt of the notice of the superior proposal, Terremark shall have an opportunity to amend the merger agreement. If, after that amendment, the board of directors of AmTec determines that the acquisition proposal still constitutes a superior proposal, it may proceed as indicated above. Notwithstanding the foregoing, nothing contained in the merger agreement will prevent AmTec's board of directors from complying with Rule 14e-2 under the Exchange Act with respect to any acquisition proposal or making any other disclosure required by applicable law. Indemnification and Insurance. Under the merger agreement, AmTec has agreed to the following: o For a period of three years commencing when the merger becomes effective, AmTec will maintain all rights to indemnification that are currently enjoyed by the directors and officers of AmTec, as provided for in AmTec's governing corporate documents, with respect to acts and omissions occurring before the merger becomes effective. However, AmTec will not be liable for any settlement effected without its consent; o For a period of three years commencing at the effective time, AmTec will use its reasonable best efforts to maintain a policy or policies of directors' and officers' liability insurance covering directors and officers of AmTec, on terms which are at least as favorable as the policies maintained by AmTec on the date of the merger agreement, with respect to acts and omissions occurring before the merger becomes effective. That insurance coverage shall continue to be available, provided that the annual premium to maintain or procure that insurance coverage shall not exceed $110,000. If AmTec is unable to maintain or obtain that insurance, AmTec will maintain or obtain, for the remainder of that three year period, as much comparable insurance as shall be available for a premium of $110,000. U.S. Real Property Holding Corporation. If Vistagreen purchases shares in AmTec pursuant to the stock purchase agreement, AmTec will be contractually prohibited from becoming a United States real property holding corporation as defined in the Internal Revenue Code, until after such time as Vistagreen ceases to hold one percent or more of the outstanding common stock of AmTec, which stock was obtained pursuant to the stock purchase agreement. Other covenants. The merger agreement contains additional covenants, including covenants relating to access to information, keeping each other mutually informed, confidentiality, public announcements and cooperation regarding filings with governmental agencies and organizations. In addition, the merger agreement contains a general covenant requiring each of the parties thereto to use its reasonable best efforts to effect the consummation of the merger. CONDITIONS TO THE CONSUMMATION OF THE MERGER Conditions to Each Party's Obligations to Effect the Merger. Each party's obligation to consummate the merger is subject to the satisfaction of the following conditions: o Stockholder Approvals. AmTec's stockholders having duly approved and adopted the merger agreement. o Litigation. No governmental entity shall have instituted any suit, action or proceeding which questions time validity or legality of the transactions contemplated by the merger agreement. o Injunction. No injunction or other order shall have been issued by any court or any governmental or regulatory entity which has the effect of making the merger illegal or otherwise prohibiting consummation of the merger. o Statutes. No statute, rule, regulation, executive order, decree or order of any kind shall have been enacted or enforced by any court or governmental authority which prohibits the consummation of the merger. o AMEX Listing. The shares to be issued pursuant to the merger shall have been approved for listing on the AMEX, upon final notice of issuance. Additional Conditions to the Obligations of Terremark. The obligation of Terremark to consummate the merger is subject to satisfaction of the following conditions, which may be waived by Terremark: o Accuracy of Representations and Warranties. All representations and warranties of AmTec contained in the merger agreement shall be true and correct in all material respects as of the date of consummation of the merger, except for those items which do not, individually or in the aggregate, have a material adverse effect on the business, properties, assets, liabilities, operations, results of operations, condition (financial or otherwise) or prospects of AmTec. o Performance by AmTec. AmTec shall have performed in all material respects all its obligations under the merger agreement required to be performed by it before the merger becomes effective. o Tax Opinion. Terremark shall have received an opinion of counsel reasonably satisfactory to Terremark to the effect that the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and that the U.S. shareholders of Terremark will not recognize any gain or loss on the receipt of AmTec common stock pursuant to the merger. o Employment Agreement. Mr. Wright shall have entered into an employment contract with AmTec in form and substance acceptable to Terremark. o Vistagreen Stock Purchase Agreement. The stock purchase agreement pursuant to which Vistagreen is to acquire stock of AmTec shall remain in full force and effect, all conditions precedent to that agreement (except for the merger) shall have been satisfied, all representations and warranties in that agreement made by Vistagreen shall be true and correct and the parties to the merger agreement shall have no reasonable basis to believe that the transactions contemplated in such stock purchase agreement will not be consummated immediately after the merger becomes effective. Additional Conditions to the Obligations of AmTec. The obligation of AmTec to consummate the merger is subject to satisfaction of the following conditions, which may be waived by AmTec: o Vistagreen Stock Purchase Agreement. The stock purchase agreement pursuant to which Vistagreen is to acquire stock of AmTec shall remain in full force and effect, all conditions precedent to that agreement (except for the merger) shall have been satisfied, all representations and warranties in that agreement made by Vistagreen shall be true and correct and the parties to the merger agreement shall have no reasonable basis to believe that the transactions contemplated in such stock purchase agreement will not be consummated immediately after the merger becomes effective. o Accuracy of Representations and Warranties. All representations and warranties of Terremark contained in the merger agreement shall be true and correct in all material respects as of time date of consummation of the merger, except for those items which do not, individually or in the aggregate, have a material adverse effect on the business, properties, assets, liabilities, operations, results of operations, condition (financial or otherwise) or prospects of Terremark. o Performance by Terremark. Terremark shall have performed in all material respects all its obligations under the merger agreement required to be performed by it before the merger becomes effective. o Lock Up Letters. Notwithstanding the registration statement on Form S-3 (or similar form) that we have agreed to file within ten business days after the merger and stock purchase close, each holder of Terremark common stock immediately before the merger becomes effective, shall have executed a letter in substance and form reasonably acceptable to AmTec providing that such holder shall not sell, offer to sell, or otherwise dispose of any AmTec common stock received in the merger for at least one year after the effective time of the merger, other than in amounts which would be permitted under the volume restrictions of Rule 145 (as if that rule were applicable) of the Securities Act, or sales by any Terremark common stockholder to other Terremark common stockholders, to any affiliate of Terremark or to Terremark itself, or sales to any member of the Vistagreen group or Affiliate of the Vistagreen group, as defined in the Merger Agreement. TERMINATION The merger agreement may be terminated at any time before the merger becomes effective, whether before or after approval of the matters presented in connection with the merger by the AmTec stockholders or the Terremark shareholders: o by mutual written consent of the boards of directors of AmTec and Terremark; o by the board of directors of either AmTec or Terremark, if the merger has not been consummated by July 1, 2000; provided, however, that the right to terminate the merger agreement will not be available to any party whose breach of any obligation under the merger agreement has been the cause of or resulted in the failure of the merger to occur on or before that date; o by either AmTec or Terremark, if any permanent injunction, order, decree or ruling by any governmental entity having competent jurisdiction preventing the consummation of the merger shall have become final and nonappealable; o by the board of directors of either AmTec or Terremark if there has been a material breach of any representation, warranty, obligation, covenant, agreement or condition set forth in the merger agreement on the part of the other party, provided that the breaching party shall have the right to cure their breach within three days after written notice of such breach is given by the other party; o by either AmTec or Terremark if, at the AmTec special stockholders' meeting, including any adjournment or postponement, the requisite vote of AmTec's stockholders to approve the merger agreement and the merger is not obtained, provided that, if the failure to obtain the requisite vote is the result of the failure of AmTec to obtain a quorum at the special stockholders' meeting, AmTec will immediately call an additional meeting if requested to do so by Terremark; o by the board of directors of Terremark, if AmTec's board of directors has withdrawn or modified its approval or recommendation of the merger in any manner adverse to Terremark; or o by the board of directors of AmTec, if Terremark's board of directors has withdrawn or modified its approval or recommendation of the merger in any manner adverse to AmTec. The right to terminate provided in the merger agreement is not available to a party that has breached in any material respects its obligations under the merger agreement in any manner that has proximately contributed to the failure of the merger to be consummated. TERMINATION FEES PAYABLE BY AMTEC If the merger agreement is either terminated by Terremark because of AmTec's material breach of any representation, warranty or obligation, contract, covenant or condition in the merger agreement pursuant to termination by either party's board of directors because of a material breach of the merger agreement or terminated by AmTec because the board of directors of AmTec withdraws or modifies adversely its recommendation of the merger, AmTec will pay to Terremark, within three days of that termination, all Terremark's out-of-pocket expenses incurred in connection with the transactions contemplated by the merger agreement, not to exceed $200,000, plus $3.0 million. If AmTec enters into a definitive agreement pursuant to a superior proposal within twelve months after that termination of the agreement, AmTec shall also pay Terremark an amount equal to 25% of the difference between the valuation of AmTec used to formulate that superior proposal and the valuation of AmTec used to formulate the transaction pursuant to the merger agreement. This amount is payable by AmTec to Terremark regardless of whether the transactions contemplated by that superior proposal are consummated. In addition, promissory notes in the aggregate amount up to $1.5 million and interest accrued thereon will become immediately payable if (1) AmTec accepts another business combination proposal, (2) breaches any term, agreement or covenant of the merger agreement or (3) AmTec stockholders do not approve the merger agreement. EXPENSES If AmTec has to pay termination fees as described above, we cannot assure you that AmTec will have the ability to do so, unless it obtains financing to pay for those fees. All fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement, other than termination fees payable upon termination under "Termination Fees Payable by AmTec" above, will be paid by the party incurring those expenses, whether or not the merger is consummated. THE STOCK PURCHASE AGREEMENT GENERAL Concurrent with the signing of the merger agreement, AmTec entered into the stock purchase agreement with Vistagreen. Vistagreen is beneficially owned by family trusts for the benefit of Francis Lee and members of his family. The Lee family operates timber, plantations and real estate in Southeast Asia. Under the stock purchase agreement, immediately after the close of the merger, AmTec, provided that conditions of the stock purchase agreement are satisfied, will sell to Vistagreen 68,520,236 shares, representing 35% of outstanding shares of common stock of AmTec, on a fully diluted basis after giving effect to the merger. The following description of the stock purchase agreement is only a summary and therefore is not complete. We encourage stockholders to refer to the complete text of the stock purchase agreement, which is attached as Annex C. CONSIDERATION TO BE RECEIVED IN THE STOCK PURCHASE; SALE OF TERREMARK CENTRE One of the conditions of the stock purchase agreement is the sale of Terremark Centre, purchased by Terremark from Vistagreen group on December 22, 1999. Before the purchase, Terremark managed Terremark Centre for Vistagreen group. Terremark Centre is an office-residential complex which contains approximately 294,000 rentable square feet of office space, 16 residential units and a multistory parking garage, located at 2601 S. Bayshore Drive, Coconut Grove, in Miami-Dade County, Florida. Vistagreen group sold the Terremark Centre to Terremark, subject to a first mortgage with a balance of $28.3 million, for a promissory note in the amount of $27.1 million in principal plus interest in the minimum amount of $1 million. Vistagreen will pay for the shares with the proceeds of sale of Terremark Centre and other funds from Terremark, if required, to repay the promissory note in full, together with interest, if any, accruing after sale of Terremark Centre on the repayment after sale of Terremark Centre through the closing of the purchase of the shares. Terremark intends to sell Terremark Centre before the merger closes and began an active marketing program at the end of November 1999. Terremark and the Florida State Board of Administration entered into a Contract for Purchase and Sale of Terremark Centre on February 21, 2000 for $56.5 million. Issues subsequently arose on which the parties could not agree and the contract was terminated prior to expiration of the due diligence period. On March 20, 2000 Terremark entered into a non-binding letter of intent to sell the building to another third party buyer for a purchase price of $56.8 million. This transaction is subject to execution of a binding contract, a 20 day due diligence period and 10 day closing date following expiration of such due diligence period. If Terremark does not sell Terremark Centre, Vistagreen is not obligated to purchase AmTec common stock. In addition, if the merger does not occur on or before December 31, 2000, Vistagreen will not be obligated to purchase any AmTec common stock. We cannot assure the timing of the sale of Terremark Centre, nor can we assure at what price Terremark Centre will be sold. Terremark is obligated to make up any shortfall if the Terremark Centre is sold for less than the amount required to repay its note. Any obligation Terremark incurs to fund a shortfall will become the obligation of the combined company. PRINCIPAL REPRESENTATIONS AND WARRANTIES The stock purchase agreement contains a number of representations and warranties of AmTec as to, among other things: o due incorporation and good standing; o corporate authority to enter into the contemplated transactions; o capitalization; o required consents and filings with government entities; o absence of conflicts with organizational documents and material agreements; o financial statements; o absence of material changes or events; o title to property and full disclosure of any encumbrances thereon; o compliance with laws; o litigation; o absence of required governmental authorization; o insurance coverage; o absence of any casualty; o the propriety of past payments; o employee relations and agreements; o client relations; o contracts and commitments; o sufficiency of assets; and o the completeness and accuracy of information supplied for use in connection with the transaction and compliance of the stock purchase agreement to the extent information is provided by AmTec, with SEC disclosure requirements applicable to SEC registrants. Representations and warranties are made solely by Vistagreen as to its qualification as an accredited investor as defined under the securities laws and that Vistagreen is purchasing our common stock for investment purposes and not with a view to distribution. None of the representations and warranties contained in the stock purchase agreement will survive the closing of the stock purchase. REGISTRATION RIGHTS Pursuant to the stock purchase agreement, AmTec has undertaken to effect a registration of the common stock to be purchased by Vistagreen by promptly filing, as soon as practicable after the stock purchase closes, a "shelf" registration statement on Form S-3 or other applicable form that is mutually satisfactory. Expenses of the registration will be borne by AmTec, except that Vistagreen will bear the expenses of advisors retained by Vistagreen. However, AmTec will pay the expenses of one counsel for Vistagreen not exceeding $10,000. Selling expenses will be borne by Vistagreen. CONDITIONS TO THE CONSUMMATION OF THE STOCK PURCHASE Conditions to Vistagreen's Obligations to Effect the Stock Purchase. The obligation of Vistagreen to consummate the stock purchase is subject to satisfaction of, among other things, the following conditions, which may be waived by Vistagreen: o Merger Agreement Closing. The merger shall have closed. o Accuracy of Representations and Warranties. All representations and warranties of AmTec contained in the stock purchase agreement shall be true and correct in all material respects as of the date of the stock purchase agreement and of consummation of the stock purchase, except those representations and warranties which relate to a specific date other than the date of the stock purchase agreement, which shall be true and correct as of that specific date. o Performance by AmTec. AmTec shall have performed in all material respects all its obligations and agreements, and complied in all material respects with all covenants and conditions, contained in the merger agreement and the stock purchase agreement required to be performed or complied with by it before the stock purchase is consummated. o Sale of Terremark Centre. Either the partnership interests in the partnership which owns the Terremark Centre or Terremark Centre itself shall have been sold to a party not related to any party to the stock purchase agreement before the stock purchase is consummated. o United States Real Property Holding Corporation. Neither the combined company nor AmTec, as of the effective time of the merger, is a United States Real Property Holding Corporation (as defined in Section 897(c)(2) of the Internal Revenue Code), and the common stock acquired by Vistagreen will not, at the effective time of the merger, constitute a United States real property interest (as defined in Section 897(c)(1)(A)(ii) of the Internal Revenue Code). o Legal Opinion. Vistagreen shall have received an opinion of counsel to the combined company reasonably satisfactory to Vistagreen to the effect that the common stock purchased by Vistagreen pursuant to the stock purchase agreement will be duly and validly issued, fully paid and non-assessable and will be issued in compliance with all applicable federal and state securities laws, as well as an opinion stating that the combined company does not constitute a USRPHC and that the interests acquired are not interests in U.S. real property. o Employment Agreement. Mr. Wright, Jr. shall have entered into an employment contract with AmTec in form and substance acceptable to Terremark. o Approval of AmTec stockholders. The merger, the merger agreement and the stock purchase agreement shall have been approved and adopted by the requisite vote of AmTec stockholders. o Litigation. No governmental entity shall have instituted any suit, action or proceeding which questions the validity or legality of the transactions contemplated by the merger agreement or the stock purchase agreement. o Injunction. No injunction or other order shall have been issued by any court or any governmental or regulatory entity which has the effect of making the merger or the stock purchase illegal or otherwise prohibiting consummation of the merger or the stock purchase agreement. o Statutes. No statute, rule, regulation, executive order, decree or order of any kind shall have been enacted or enforced by any court or governmental authority which prohibits the consummation of the merger or the stock purchase agreement. o AMEX Listing. The shares to be issued pursuant to the stock purchase agreement shall have been approved for listing on the AMEX, upon final notice of issuance. Conditions to the Obligations of AmTec. The obligation of AmTec to consummate the stock purchase is subject to satisfaction of the following conditions, which may be waived by AmTec: o Accuracy of Representations and Warranties. All representations and warranties of Vistagreen contained in the stock purchase agreement shall be true and correct in all material respects as of the date of the stock purchase agreement and of consummation of the stock purchase agreement, except for any such representation and warranty which relates to a specific date, which shall be true and correct as of that specific date. o Merger Agreement Closing. The merger shall have closed. TERMINATION The stock purchase agreement and the transactions contemplated thereby may be terminated at any time before the closing of the stock purchase, o by mutual written consent of the boards of directors of AmTec and Vistagreen; o by Vistagreen if the merger does not close on or before December 31, 2000; o by either AmTec or Vistagreen, if any permanent injunction, order, decree or ruling by any governmental entity having competent jurisdiction preventing the consummation of the merger or the transaction contemplated by the stock purchase agreement shall have become final and nonappealable; o by the board of directors of either AmTec or Vistagreen if there has been a material breach of any representation, warranty, obligation, covenant, agreement or condition set forth in the stock purchase agreement on the part of the other party, provided that the breaching party shall have the right to cure their breach within three days after written notice of that breach is given by the other party; o by Vistagreen if there has been a material breach of any representation, warranty, obligation, covenant, agreement or condition set forth in the merger agreement by either AmTec or Terremark; provided that the breaching party shall have the right to cure their breach within three days after written notice of that breach is given by the other party; o by the board of directors of AmTec or Vistagreen if the requisite vote of AmTec's stockholders to approve the merger agreement and the stock purchase agreement is not obtained. If the requisite vote is not obtained because AmTec failed to obtain a quorum at the special stockholders' meeting, AmTec will immediately call an additional meeting if requested to do so by Vistagreen; or o by the board of directors of AmTec or Vistagreen if AmTec's board of directors has withdrawn or modified its approval or recommendation of the merger in any manner adverse to Terremark or Vistagreen. The rights to terminate the stock purchase agreement described above are not available to a party which has breached in any material respect its obligations under the stock purchase agreement in any manner that has proximately contributed to the failure of the merger to be consummated. EXPENSES All costs and expenses incurred in connection with the stock purchase shall be paid by the party incurring that costs and expenses. LOCK UP Although we have agreed to file a registration statement on Form S-3 (or similar form) within ten business days after the merger and stock purchase close registering our common stock issued in connection with the merger and stock purchase, Vistagreen group has agreed that no sale, offer to sell, or other disposition of any interest in the combined company's common stock held by it will be sold before one year expires after the merger becomes effective. Vistagreen group is permitted, however, to make: o open market sales of up to, in any three-month period, the greater of one percent of our outstanding shares or the average weekly volume of our sales during the four calendar weeks before the sale or o sales by any member of the Vistagreen group to another member of Vistagreen group or any family member or affiliate of any member of Vistagreen group or to Terremark or any affiliate of Terremark. OTHER AGREEMENTS SHAREHOLDERS AGREEMENT Vistagreen group, which is ultimately beneficially owned by the Lee family, and all the Terremark shareholders have entered into a shareholders agreement which, among other things, provides for the following: o the Terremark shareholders agree to nominate or cause to be nominated and to vote all their AmTec shares to elect two Vistagreen nominees to the board of directors of AmTec; o the Terremark shareholders agree to elect or appoint or cause to be elected or appointed one Vistagreen nominee to the executive committee of the board of directors; o the Vistagreen parties agree to nominate or cause to be nominated and to vote all of their AmTec shares to elect all Terremark nominees who are nominated for directorships; and o in the event any party to the shareholders agreement proposes to sell, dispose of or otherwise transfer any of its AmTec common stock, other than pursuant to an open market sale through a national stock exchange or interdealer sale system or if the shares proposed to be sold represent less than 10% of the issued and outstanding shares of AmTec Common Stock, the other parties to the shareholders agreement will have the opportunity to join in that sale, subject to a number of conditions, on a pro-rata basis. BRIDGE LOAN In connection with the letter of intent dated November 9, 1999 announcing AmTec and Terremark's proposal to enter into a definitive merger agreement, AmTec and Terremark signed a Security and Loan Agreement on November 17, 1999. In that agreement, Terremark agreed to provide AmTec with a secured bridge financing of up to $1.5 million to help meet AmTec's capital requirements and working capital needs. As security for the payment and performance when due of AmTec's obligations under the Security and Loan Agreement, AmTec granted Terremark a first priority security interest in all AmTec assets, except for those assets on which a lien cannot be granted without the consent of any United States or foreign governmental authority including licenses, permits or other governmental approvals. Pursuant to the Security and Loan Agreement, AmTec has delivered promissory notes in the aggregate principal amount of $1.5 million, which provide for interest on the outstanding principal amount at the rate of 10% per annum in favor of Terremark. Principal and interest on the promissory notes are payable in full upon the earlier of an event of default as defined in the promissory notes or July 1, 2000. Events of default under the promissory notes will result in acceleration of payment. For example, the promissory notes provide that Terremark may demand immediate payment on the promissory note if (1) AmTec accepts another business combination proposal, (2) breaches any term, agreement or covenant of the merger agreement, or (3) if the stockholders of AmTec do not approve the merger agreement. In addition, if the merger agreement is terminated without consummation of the merger, the promissory notes become payable within five business days of that termination. Thus if the merger is not consummated, AmTec will have to repay its borrowings under the bridge financing arrangement with Terremark in addition to the termination fees that it may owe Terremark under the merger agreement. Unless AmTec obtains alternative financing to repay those borrowings and fees, AmTec's business and financial condition will be materially and adversely affected. MANAGEMENT OF AMTEC AFTER THE MERGER The executive officers and directors of AmTec after the merger, and their ages as of January 1, 2000, will be as follows:
NAME AGE POSITION - --------------------------------- --------- --------------------------------------------------------------- Manuel D. Medina................. 47 Chairman of Board, President and Chief Executive Officer Joseph R. Wright, Jr............. 61 Director and President of Terremark Communications Group, Inc. Joel A. Schleicher............... 47 Director Marvin S. Rosen.................. 58 Director Kenneth I. Starr................. 51 Director Timothy Elwes.................... 64 Director Miguel J. Rosenfeld.............. 50 Director Brian K. Goodkind................ 42 Executive Vice President and General Counsel Irving A. Padron, Jr............. 29 Senior Vice President and CFO Michael L. Katz.................. 50 President and COO of Terremark Real Estate Group, Inc. William J. Biondi................ 54 President of Terremark Management Services, Inc., Terremark Realty, Inc., and Terremark Financial Services, Inc. Aviva D. Budd.................... 59 President of Terremark Northeast, Inc. Edward P. Jacobsen............... 44 President of Terremark Construction Services, Inc. Karin-Joyce Tjon................. 37 Executive Vice President of Terremark Communications Group, Inc.
Manuel D. Medina has served as the Chairman of the Board and Chief Executive Officer of Terremark since its founding in 1982. In addition, Mr. Medina is a managing partner of Communications Investors Group, the holder of AmTec Series G Preferred Stock. Mr. Medina has been a director of Fusion Telecommunications International since December 14, 1998. Before founding Terremark, Mr. Medina, a certified public accountant, worked with PricewaterhouseCoopers LLP. Subsequently, he established and operated an independent financial and real estate consulting company. Mr. Medina earned a Bachelors of Science degree in Accounting from Florida Atlantic University in 1974. Joseph R. Wright, Jr. has served as AmTec's Chairman of the Board of Directors since May 1995, Chief Executive Officer since March 1996 and President since May 1996. Mr. Wright also serves as Chairman and member of the Board of GRC International, Inc. a U.S. public company that provides technical information technology support to government and private entities, Co-Chairman of Baker & Taylor Holdings, Inc., an international book and video distribution company, and a member of the Board of PanAm Sat, the largest private satellite operator. From 1989 to 1994, Mr. Wright served as Executive Vice President, Vice Chairman and Director of W.R. Grace & Co., an international chemicals and health care company, President of Grace Energy Corporation and Chairman of Grace Environmental Company. From 1982 to 1989, Mr. Wright held the positions of Director and Deputy Director of the Office of Management and Budget, The White House, and was a member of President Reagan's cabinet. Before 1982, he served as Deputy Secretary, United States Department of Commerce, President of Citicorp Retail Services and Retail Consumer Services, held posts in the United States Department of Agriculture and the United States Department of Commerce, and was Vice President and Partner of Booz Allen & Hamilton, a management consulting firm. He is a former member of the President's Export Council and a former member of the Board of Directors of Travelers; Harcourt Brace Janovich; and Hampton University. Joel A. Schleicher has served as director of AmTec since August 1999. Mr. Schleicher has been President and Chief Executive Officer for Exp@nets since June of 1998. Exp@nets is a leading nationwide provider of networked communication solutions to business. His previous communications industry experience started as the Chief Operating Officer, President and director of Nextel Communications, Inc. from 1989 to 1995 and subsequently with ProCommunications, Inc. from 1996 to 1997. He has been a member of the board of directors of NovAtel, Inc., a global GPS provider, since 1997, Fusion Telecommunications, an international long distance service provider, since 1998, and TechTronic Industries, a Hong Kong based manufacturer of consumer appliances, since 1998. Before Nextel, Mr. Schleicher spent 10 years in the consumer durables and energy sectors of industry and four years with KPMG Peat Marwick in various capacities. He is a graduate of the Carlson School of the University of Minnesota. Marvin S. Rosen was a co-founder of Fusion Telecommunications International and has served as its Vice Chairman since December 1998. Mr. Rosen has served as director of AmTec since March 1999. Mr. Rosen is a principal shareholder and member of the executive committee of Greenberg Traurig, P.A., an international law firm. From September 1995 through January 1997, Mr. Rosen served as the Finance Chairman of the Democratic National Committee. Mr. Rosen currently serves on the Board of Directors of the Children's Health Fund (New York City) (since 1994), the Robert F. Kennedy Memorial (since 1995), Bio-Medical Disposal, Inc. (since 1998) and Fusion Telecommunications International, Inc. (since 1997), where he has also been Vice-Chairman since December 1998. Mr. Rosen received his Bachelor of Science degree in Commerce from the University of Virginia, his LL.B. from Dickinson School of Law and his LL.M. in Corporations from New York University Law School. Kenneth I. Starr has served as the Chairman and Chief Executive Officer of Starr & Company, a New York City-based accounting and business management firm, since he founded such firm in 1986. Miguel J. Rosenfeld has served as a Senior Vice President of Delia Feallo Productions, Inc. since November 1991, where he was responsible for the development of soap opera productions in Latin America. From January 1995 until May 1998, he was the Director of Affiliates and Cable for Latin America for Protele, a division of Televisa International LLC. From December 1984 until September 1998, he was a sales manager for Capitalvision International Corporation. Mr. Rosenfeld holds a Bachelors degree in Administration from the University of Buenos Aires which he earned in 1975. Timothy Elwes served as a director of Timothy Elwes & Partners Ltd., a financial services company, from May 1978 until October 1994, the business of which was merged into Fidux Trust Co. Ltd. in December 1995. Mr. Elwes is a director of Fidux Trust Co. Ltd. He is also a non-executive director of Partridge Fine Arts plc, a public company since 1989. He has served as a director of Makecater Ltd., a property-developing company, since 1995. Since 1989 he has served as a director of Tagring Ltd., a financial services company. Brian K. Goodkind has served as Vice-Chairman, Executive Vice President, and General Counsel to Terremark since April 1998. In this capacity, Mr. Goodkind oversees the operations, office management, risk management, development of systems, human resources, and legal matters for Terremark. Mr. Goodkind has been a member of the Florida Bar since 1982, and was in private practice for 16 years, specializing in commercial litigation, employment law, international transactions and real estate. His experience includes over 11 years from 1986 until 1998 as one of two founding partners of a seventy-attorney full-service law firm, for which he served as managing partner for over five years. Mr. Goodkind received his Bachelor of Arts degree from the University of Alabama and his J.D. from the University of Florida. Irving A. Padron, Jr. has been the Senior Vice President and Chief Financial Officer of Terremark since 1997. From 1992 until joining Terremark, Mr. Padron was a Manager with KPMG Peat Marwick's financial service practice in Miami, Florida, focusing on the development of that firm's real estate practice. His experience also includes providing audit and consulting services to multinational manufacturing, retailing and distribution clients as well as to international banks. Mr Padron holds a Certified Public Accountant License and is a licensed real estate sales person in the State of Florida. Michael L. Katz has served as President and Chief Operating Officer of Terremark Group, Inc. with primary responsibility for supervising all operations of Terremark Group and all its subsidiaries since 1998. Mr. Katz co-founded KB Commercial and served as its Chairman from 1987 to 1997. KB Commercial provided a full range of real estate services, primarily focused on asset management and all of its discipline for its institutional clients. Mr. Katz has been a member of the Florida Bar since 1974. Mr. Katz received his Bachelor of Arts degree from the University of Maryland and his J.D. from the University of Florida. William J. Biondi joined the senior management of Terremark Group upon the merger of Terremark with KB Commercial Real Estate Group in 1998. As President of Terremark Management Services, Inc., Terremark Realty, Inc., and Terremark Financial Services, Inc., Mr. Biondi has overseen the management, brokerage, and leasing activities of these three divisions, as well as being responsible for business generation. Mr. Biondi has over 25 years of commercial real estate experience covering all aspects of office building development, rehabilitation, sales, leasing and day-to-day portfolio management in the South Florida marketplace. The positions he has held have included President, CEO and Co-founder of Clark-Biondi Company, President and CEO of Grubb & Ellis of Florida, and President and CEO of KB Commercial Real Estate Group. Aviva D. Budd has served as President of Terremark Northeast, Inc. since April, 1999. From April 1997 until April 1999, Ms. Budd was a Senior Vice President of U.S. Realty Advisors, L.L.C. From February 1995 until April 1997, Ms. Budd served as Principal Investment Officer for real estate for Combined Retirement and Trust Funds of the State of Connecticut. Ms. Budd received her Bachelor of Arts degree from the University of Connecticut and her J.D. from Harvard Law School. Edward P. Jacobsen has served as President of Terremark Construction Services, Inc., where he administers all construction operations for the company. This role includes research and analysis of potential development opportunities, as well as feasibility, construction, and budget analysis. Mr. Jacobsen joined Terremark in 1991 to help establish offices and manage post-war construction projects in Kuwait and Saudi Arabia. In 1993, he returned to Terremark's corporate headquarters in Miami to assume managerial responsibility of all development, construction, and property management operations. Mr. Jacobsen holds licenses as a professional engineer, general contractor, and real estate salesperson in the State of Florida. Karin-Joyce Tjon has served as Vice President of AmTec since April 1999 and as Financial Analyst from November 1997 through March 1999. Before joining AmTec, Ms. Tjon was Associate Managing Director of Western Pacific Capital Company, a Hong Kong based private equity fund, from 1992 through 1997. She was a merchant banker with Eastern Atlantic Trust of Luxembourg, based in Asia, from 1987 through January 1996, working on a wide variety of financing transactions in the areas of project finance and mergers & acquisitions. Ms. Tjon graduated summa cum laude from Ohio University with a Bachelor's Degree in Management & Organizational Behavior and holds an M.B.A. in Finance from Columbia University's Graduate School of Business. EMPLOYMENT AGREEMENTS Mr. Wright has entered into a one year employment contract whereby, in the combined company, he will be employed as President and Vice Chairman of Terremark Communications Group, Inc. The agreement provides for an annual base salary of $250,000 and a surrender by him of options to purchase two million shares of the common stock at $3 per share and of options to purchase one million shares of common stock at $0.35 per share. STOCK OPTION GRANTS Pursuant to the merger agreement, AmTec and Terremark have agreed to grant options to purchase up to an aggregate of 1,000,000 of our shares to certain AmTec and Terremark employees. These options will be granted at the effective time of the merger and will have a price equal to the closing price of our stock on the day before the merger. The options will be exercisable over ten years. The options will vest immediately upon a change in control. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF TERREMARK In November 1998, an affiliate of Terremark, the Communications Investors Group, a general partnership which is 50% owned by Manuel D. Medina, Chief Executive Officer, Chairman and a principal Shareholder of Terremark, purchased 5.39 Series E Convertible Preferred Shares of AmTec for $175,000. The Series E Convertible Preferred Shares were subsequently converted into 807,821 shares of AmTec's common stock. In addition, CIG received 93,899 warrants with an exercise price of $2.475 associated with this purchase. In March 1999, CIG purchased 20 Series G Convertible Preferred Shares of AmTec for a consideration of $2.0 million in cash. The Series G Convertible Preferred Shares have a fixed conversion price of $1.25 and a payment-in-kind dividend of 8% per annum. The Series G Convertible Preferred Shares can be converted into approximately 1,688,022 shares of AmTec's common stock as of November 24, 1999 prior to the merger. In addition, CIG received 600,000 warrants with an exercise price of $1.25, associated with this purchase. Preferred Stock. The 4,176,693 outstanding shares of Terremark's 10% cumulative preferred stock is beneficially owned by Centre Credit Corporation. This preferred stock is convertible into Terremark common stock upon the occurrence of specified events, including the effectiveness of the merger. It is anticipated that the preferred stock will convert into a number of Terremark common shares such that the holders of the preferred stock will receive approximately 10% of the AmTec shares received by all Terremark shareholders pursuant to the merger. A number of members of Terremark's senior management have agreed to purchase all the outstanding preferred stock from Centre Credit Corporation before the effective date of the merger at its issuance price plus accrued dividends. Pursuant to these preferred stock purchase agreements, the 4,176,693 outstanding shares of Terremark preferred stock will be acquired by the following individuals or their assigns: Michael Katz........................... 1,609,006 Brian Goodkind......................... 1,206,747 Edward Jacobson........................ 272,188 Irving Padron.......................... 272,188 William Biondi......................... 272,188 Aviva Budd............................. 545,376 ---------- 4,176,693 TERREMARK RELATIONSHIP WITH FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. Fusion, a private facilities-based, multinational long-distance company, is a joint venture partner with AmTec in IXS.NET, Inc., and in IP.COM LLC. Terremark and its affiliates have various relationships with Fusion Telecommunications International, Inc. First, Mr. Medina, Chief Executive Officer, Chairman and a principal shareholder of Terremark is a member of the board of directors of Fusion and, through his interest in a general partnership, owns approximately 695,500 shares of Fusion common stock, along with options and warrants. Second, there are interlocking directors between Fusion, AmTec and Terremark. The interlocking directors consist of Mr. Medina who is currently a director of Fusion and Terremark, and Messrs. Rosen, Schleicher and Wright, all of whom are directors of both AmTec and Fusion. Finally, a subsidiary of Terremark, Terremark Financial Services, Inc., acts as a consultant to a subsidiary of Fusion, Fusion Asia, LLC, in connection with telecommunications operations in China. On January 24, 2000, AmTec agreed to lend up to $150,000 to Fusion Asia under a note which is convertible into 50% of the equity of Fusion Asia. AmTec has advanced $25,000 as of January 24, 2000. The note can only be converted, however, after such time as AmTec has $5 million in cash. Terremark has entered into a consulting agreement with Fusion Asia providing that Terremark will assist Fusion Asia with management and development of comprehensive business in China and South America for a period of one year. Fusion Asia is to pay Terremark $5,000 per month for Terremark's services. The consulting agreement may be terminated by either party on 30 days notice. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated financial statements (the "Pro Forma Financial Statements") are derived from historical financial statements of AmTec and Terremark, and have been prepared to illustrate the effects of the transactions described below. The unaudited pro forma condensed balance sheet gives effect to each of the following transactions as if those transactions had occurred on December 31, 1999; (i) the merger of Terremark and AmTec and (ii) the Building Transactions of (a) Terremark's sale of Terremark Centre for its estimated net sales price based on a signed letter of intent and repayment of related debt, including purchase money notes payable to Vistagreen and (b) Vistagreen's acquisition of a 35% ownership interest in the merged company with proceeds from repayment of the notes delivered by Terremark to Vistagreen for the purchase of Terremark Centre. The unaudited pro forma condensed statements of operations for the nine months ended December 31, 1999 and for the year ended March 31, 1999 give effect to the merger of Terremark and AmTec as if that transaction had occurred on April 1, 1999 and 1998, respectively. The unaudited pro forma condensed consolidated statements of operations for the nine months ended December 31, 1999 and for the year ended March 31, 1999 also give effect to the following Vistagreen transactions as if those transactions had occurred on April 1, 1999 and 1998, respectively; (a) Terremark's acquisition of Terremark Centre for its purchase price, (b) Terremark's resale of Terremark Centre for its estimated net sales price based on a signed letter of intent and repayment of all related debt and (c) Vistagreen's acquisition of a 35% ownership interest in the merged company. The foregoing transactions are referred to as the Building Transactions in these pro forma financial statements. The pro forma financial statements are unaudited and do not purport to be indicative of the actual results of operations or financial position that would have been reported had such events actually occurred on the dates specified, nor do they purport to be indicative of AmTec's future results or position. No estimates of future cost savings related to among other things, administrative consolidations and other efficiencies have been reflected in these pro forma financial statements. The pro forma financial statements, including the notes thereto, should be read in conjunction with the audited historical financial statements thereto, of Terremark and AmTec appearing elsewhere in this document. The merger transaction will result in Terremark receiving a majority of the combined company's voting common stock. Accordingly, the merger will be treated as a reverse acquisition for accounting purposes, with Terremark as the acquirer. After the merger is effective, comparative historical information of the combined company will be that of Terremark.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) TERREMARK AMTEC MERGER MERGED BUILDING COMPANY HISTORICAL HISTORICAL ADJUSTMENTS (A) COMPANY TRANSACTIONS (B) PRO FORMA -------------- --------------- --------------- --------- ---------------- ---------- 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 ============ ============= ============= ========== =========== ===========
- ------------------ 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.)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) TERREMARK TERREMARK CENTRE TERREMARK AMTEC MERGER MERGED BUILDING COMPANY HISTORICAL PRO FORMA (A) PRO FORMA HISTORICAL ADJUSTMENTS(B) COMPANY TRANSACTION(C) PRO FORMA --------- ------------ ---------- ---------- -------------- ---------- ------------- --------- 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 ========== =========== ============ ========== ===========
- ---------------------- 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.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1999 (DOLLARS IN THOUSANDS EXCEPT SHARE DATA) Terremark Terremark Centre Terremark AmTec Merger Merged Building Company Historical Pro Forma (a) Pro Forma Historical Adjustments (b) Company Transaction(c) Pro Forma ---------- ------------- --------- --------- ----------------- -------- ----------- --------- 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 ========== =========== ============ =========== ===========
NOTES TO PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1999: (a) Terremark Centre Pro Forma represents the estimated net loss on Terremark Centre from April 1,1998 through March 31, 1999 which would have been recorded by Terremark if it had acquired Terremark Centre on April 1, 1998. (b) Merger adjustments include estimated amortization of goodwill resulting from the excess purchase price over the estimated fair value of AmTec's identifiable assets and liabilities over a five year period. The five year period is supported by the nature of the telecommunications and internet industries. However, amortization will ultimately be based upon the results of the valuation of AmTec by a third party. (c) Building Transactions represent the adjustment to eliminate the estimated net loss which would have been recorded by Terremark if it had acquired Terremark Centre on April 1, 1998. Building Transactions also represent the adjustment which would have been recorded if Terremark had resold Terremark Centre on April 1, 1998 for its estimated net sales price based on a signed letter of intent. (d) Basic weighted average shares represents the total estimated shares to be issued and converted for related shareholders in the merger. Basic and diluted weighted average shares are the same because the inclusion of the dilutive effect of preferred stocks and stock warrants in the merged company would be antidilutive, due to the net loss position. BUSINESS OF AMTEC AmTec is a company that provides value-added telecommunications services to and from the Far East and has telecommunications investments in the People's Republic of China. We initially focused our business on China because of that country's large and rapidly growing need for telecommunications services and its requirement for foreign capital and technology to meet that need. More recently, we have formed a joint venture with Fusion Telecommunications International to provide telecom services, both voice and data, to and from Asia. We have also invested in IXS.NET, Inc. to provide fax services over the Internet, prepaid credit cards and other Internet Protocol based services. Our joint venture operations in six cellular networks in Hebei Province in Northeast China have been terminated. We continue to have a joint venture with Electronics Industry Department of Hebei Province and are repositioning this joint venture with a view to providing Internet Protocol fax, voice and other services which can be transmitted over digital telephone lines or the Internet. We were originally founded as a Colorado corporation on May 10, 1982, and were reincorporated under the laws of the state of Delaware on July 10, 1996. Since April 1995, we have been engaged in the business of developing telecommunications networks in the PRC. In January 1996, we sold substantially all of the assets of ITV Communications, Inc., our former primary operating subsidiary. On July 8, 1997, we changed our name to AmTec, Inc. from AVIC Group International, Inc. Our principal executive office is located at 599 Lexington Avenue, 44th Floor, New York, New York 10022. Our telephone number is (212) 319-9160. For additional details on our business, see "AmTec Management's Discussion and Analysis of Financial Condition and Results of Operations". CELLULAR TELEPHONE NETWORKS AmTec holds a 70% interest in Hebei United Telecommunications Equipment Company Limited, or Hebei Equipment, a Sino-foreign joint venture with a wholly-owned subsidiary of the Electronics Industry Department of Hebei Province. Hebei Equipment, in turn, held a 51% interest in Hebei United Telecommunications Engineering Company Limited, or Hebei Engineering, a joint venture with NTT International, or NTTI, and Itochu Corp. Since the fall of 1998, the government of the People's Republic of China has taken a number of actions that have changed the legal environment in which we operate in China, including the requirement that Unicom terminate or revise its agreements with foreign invested companies. Consequently, Unicom terminated Hebei Engineering's cash flow sharing and technical services agreement. With the termination of that agreement, Hebei Engineering was liquidated and our joint venture interests in six cellular networks in Hebei Province have been transferred to Unicom. As of January 24, 2000, Hebei Equipment received approximately $817,000 as a result of the liquidation of Hebei Engineering. IP.COM, LLC On April 28, 1999, AmTec formed IP.Com, LLC, a 50-50% joint venture, with Fusion Telecommunications International, Inc., or Fusion, a private facilities-based, multinational long-distance company. Fusion's current service offerings include voice and data, switched and dedicated, domestic and international long-distance and domestic and international prepaid calling cards, provided through a network of owned and leased facilities, leased lines and resale agreements. IP.Com provides value-added international telecommunication services, including telephony and data, to and from Asia. Utilizing AmTec's established presence in China and Fusion's telecommunication franchise, the companies plan to expand the service offerings of the joint venture to include a fully integrated Internet Protocol, or IP based network to provide voice and fax services to China, and when and if permitted by relevant laws, to provide such services within China. Currently IP.Com markets its services only outside China. The joint venture agreement provides both AmTec and Fusion with a right of first refusal to participate as equal partners in new projects in China. IXS.NET, INC. During May 1999, AmTec formed a three-way alliance with Fusion and IXS.NET, a private IP fax service provider, to develop IP fax services in Hong Kong, Taiwan and Guangdong Province and to act as a value-added reseller for Jitong Communications Corp., one of the three licensed IP fax operators in China. AmTec and Fusion agreed to make an equal convertible debt investment into IXS.NET and AmTec has an option to acquire up to a 50% interest in IXS.NET. The convertible debt agreement provides for AmTec to advance up to $575,000 over the eighteen month period, subject to specified terms and conditions. The IXS.NET business equips a local business with a modem that transfers international fax calls through a local phone call on the Public Switched Telephone Network, or PSTN, to an Internet node in the city of origin, then transmits the fax on the Internet internationally to the city of destination, converts the fax call to a local telephone call in the city of destination on city's PSTN which is transmitted to the destination fax telephone number. This model saves the standard international telephone phone call charges, which are very expensive to and from China. This business model can result in a significant savings to any business that faxes internationally on a regular basis. IXS.NET purchases network and transmission services from established carriers at discounted prices and resells the services to its customers. Revenue derived from the provision of telecommunications services are recognized in the period during which the call terminates. Revenues are derived from the sale of IP fax, IP phone and calling card services. For the quarter ended December 31, 1999, revenues were $724,553. AMTEC SELECTED HISTORICAL FINANCIAL INFORMATION The selected historical financial data set forth below with respect to AmTec's consolidated statements of operations for each of the three years in the period ended March 31,1999, and with respect to AmTec's consolidated balance sheets at March 31,1999, 1998 and 1997, are derived from the audited consolidated financial statements of AmTec, which have been audited by Deloitte & Touche LLP, independent public accountants. Auditors' reports for financial statements for years 1997 through 1999 are included elsewhere in this proxy statement. The selected historical financial data for AmTec for the nine months ended December 31, 1999 and 1998 are derived from the unaudited consolidated financial statements of AmTec. The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, that the management of AmTec considers necessary for a fair presentation of the financial position and results of operations for the periods presented. The selected historical consolidated financial data of AmTec have been derived from, and should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements and the related notes included elsewhere in this proxy statement, "Unaudited Pro Forma Combined Condensed Financial Statements", "AmTec's Management's Discussion and Analysis of Financial Condition and Results of Operations." AMTEC SELECTED HISTORICAL FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NINE MONTHS TWELVE MONTHS ENDED MARCH 31, ENDED DECEMBER 31, --------------------------------- ------------------------- 1999 1998 1997 1999 1998 --------------------------------- ------------------------- STATEMENT OF OPERATIONS DATA: Total revenues(1)................................. $ -- $ -- $ -- $ -- $ -- Total expenses.................................... 4,650 4,283 3,564 2,403 2,850 Total other income (expense)...................... (544) (514) (361) 46 (422) Loss from continuing operations before equity in of unconsolidated subsidiary.................. (5,194) (4,797) (3,925) (2,357) (3,272) Equity in loss of affiliate (2)................... -- -- -- (172) -- Equity in income (loss of) unconsolidated subsidiaries(3)................................. (385) (606) (140) 443 (1,413) ------------ ----------- ----------- ------------ ---------- Net loss.......................................... (5,579) (5,403) (4,065) (2,086) (4,685) Preferred stock dividend.......................... 672 1,399 10 350 614 ------------ ----------- ----------- ------------ ---------- Loss applicable to common shareholders............ $ (6,251) $ (6,802) $ (4,075) $ (2,436) $ (5,299) ============ =========== =========== ============ ========== Basic loss per common share $ (0.23) $ (0.23) $ (0.14) $ (0.07) $ (0.20) Weighted average common shares outstanding 27,495,213 29,843,712 29,102,347 32,924,478 26,458,488 AS OF MARCH 31, AS OF DECEMBER 31, --------------------------- ------------------------- 1999 1998 1999 1998 -------------- ------------ ---------- ----------- BALANCE SHEET DATA: Investment in and advances to unconsolidated subsidiary ..................................... $ 2,496 $ 5,074 $ 2,439 $ 1,423 Total assets...................................... $ 4,781 $ 7,683 $ 4,447 $ 2,814 Long term obligations............................. $ -- $ -- $ -- $ -- Stockholders' equity (deficit).................... $ 3,813 $ 4,897 $ 2,703 $ 2,608 - ------------------
(1) AmTec has no revenues because the results of operations of AmTec's subsidiary Hebei Equipment and its joint venture IP.COM, LLC, were accounted for under the equity method of accounting. AmTec recorded only its share of losses of its unconsolidated subsidiary and its joint venture according to the percentage of its equity interest. (2) Equity in loss of affiliate reflects AmTec's share of loss in IP.COM, LLC. (3) Equity in income (loss of) unconsolidated subsidiary reflects AmTec's joint venture partners' equity interests in Hebei Equipment and Hebei Engineering. AMTEC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of results of operations and financial condition is based upon and should be read in conjunction with AmTec's Consolidated Financial Statements and Notes thereto, the selected consolidated financial data and other financial data appearing elsewhere in this Proxy Statement. RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 1998. AmTec's joint venture, IP.Com, LLC, started its operations beginning late September 1999 and it recorded revenues of $1.1 million for the period from September 15, 1999 through December 31, 1999. AmTec reported no revenues on its consolidated financial statements because the results of operations of AmTec's subsidiary Hebei Equipment and its subsidiary, Hebei Engineering, as well as its joint venture IP.Com, LLC have been accounted for under the equity method of accounting. AmTec has recorded only its share of income (losses) of its unconsolidated subsidiary and joint venture according to the percentage of its equity interest. AmTec had net losses of $2.1 million and $4.7 million during the nine months ended December 31, 1999 and 1998, respectively. General and administrative expenses decreased from approximately $2.8 million during the nine months ended December 31, 1998 to approximately $2.4 million during the nine months ended December 31, 1999. The decrease is primarily related to a reduction in legal and professional fees related to the pending GTS and UIHH merger transactions and a reduction in salaries and fringe benefits as some employees resigned in June 1999. RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1999 AND MARCH 31, 1998 AmTec's indirect subsidiary, Hebei Engineering, recorded revenues of RmB 6,488,482 (approximately $786,000) for the year ended December 31, 1998, and RmB 1,706,499 (approximately $216,000) for the year ended December 31, 1997. AmTec has no revenues on its consolidated financial statements because the results of operations of AmTec's subsidiary Hebei Equipment were accounted for under the equity method of accounting. AmTec recorded only its share of losses of its unconsolidated subsidiary according to the percentage of its equity interest. AmTec had net losses of $5.6 million and $5.4 million during the fiscal years ended March 31, 1999 and 1998, respectively. Selling, general and administrative expenses increased from $4.3 million during the year ended March 31, 1998, to $4.6 million during the year ended March 31, 1999, due to increases in salaries and legal and professional expenses incurred during the past year. The equity in losses of AmTec's unconsolidated subsidiary of $607,000 recorded during the year ended March 31, 1998 and $385,000 during the year ended March 31, 1999 represents AmTec's share of losses reported by Hebei Equipment for the year ended December 31, 1997 and December 31, 1998, during which period AmTec owned a 60.8% and a 70.0% equity interest respectively of Hebei Equipment. Amortization of stock options granted to non employees was related to the three million options issued to the Hebei Provincial Government to purchase an equal number of shares of AmTec's common stock at a price of $3.0625 per share. In accordance with generally accepted accounting principles, AmTec recorded their estimated value of $1,837,500 during the year ended March 31, 1998, and amortized approximately $459,000 during each of the years ended March 31, 1998 and 1999. The amortization of these options is a non-cash expense. The options were cancelled as of December 31, 1998. Other expense of approximately $85,000 was primarily franchise and other tax paid during the year ended March 31, 1999. AmTec received a tax refund of approximately $70,000 during the year ended March 31, 1998. AmTec's loss applicable to common shareholders decreased 9% from $6.8 million during the year ended March 31, 1998, to $6.3 million during the year ended March 31, 1999. This decrease in loss applicable to common shares was primarily due to a decrease in the recognition of preferred stock dividends as well as a decrease in the share of equity loss from Hebei Equipment, offset by increases in selling, general and administrative expenses. RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997 AmTec has experienced net losses of $5.4 million and $4.1 million during the fiscal years ended March 31, 1998 and 1997, respectively. Selling, general and administrative expenses increased from $3.6 million during the year ended March 31, 1997, to $4.3 million during the year ended March 31, 1998, due to increased levels of salaries paid to employees and legal and professional expenses incurred during the past year. The equity in losses of AmTec's unconsolidated subsidiary of $141,000 recorded during the year ended March 31, 1997 and $607,000 during the year ended March 31, 1998 represents AmTec's share of losses reported by Hebei Equipment for the year ended December 31, 1996 and December 31, 1997, during which period AmTec owned a 60.8% equity interest Hebei Equipment. AmTec issued to the Hebei Provincial Government three million options to purchase an equal number of shares of AmTec's common stock at a price of $3.0625 per share. In accordance with generally accepted accounting principles, AmTec has recorded their value of $1.8 million and has amortized approximately $459,000. The issuance of these options is a non-cash expense. Loss from abandoned assets relates to the assets of Netmatics which have been written off for the total amount of $87, 000. Interest expense during the year ended March 31, 1998, decreased to approximately $125,000 from approximately $129,000 during the year ended March 31, 1997, due to a reduction in the outstanding balance of shareholder loans payable. Other income (net) of approximately $70,000 during the year ended March 31, 1998 was related to a tax refund previously paid. AmTec's net loss increased 33% from $4.1 million during the year ended March 31, 1997, to $5.4 million during the year ended March 31, 1998. This increase in net loss was primarily due to the share of equity loss from Hebei Equipment, amortization of stock options issued to the Hebei Provincial Government, as well as increases in selling, general and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES AmTec had an operating loss of approximately $2.1 million and a loss applicable to common shares of $2.4 million during the nine months ended December 31, 1999. During the nine months ended December 31, 1999, AmTec's cash decreased by approximately $1.4 million, primarily due to cash used to fund current operations, loans to IXS.NET and investments made in IP.COM. AmTec received $0.5 million repayment of some of its advances to its subsidiary in September 1999. During the quarter ended December 31, 1999, AmTec obtained a bridge loan for up to $1.5 million from Terremark of which AmTec has borrowed approximately $1,125,000. This bridge loan is collateralized by all of AmTec's tangible and intangible assets. If the merger does not close by July 1, 2000, AmTec is obligated to repay any outstanding balance on the bridge loan. It is expected that AmTec will need to borrow additional funds from the bridge loan to meet its obligations as they become due, or delay payments on such obligations, during the quarter ending March 31, 2000. If the bridge loan becomes due and the merger is not completed, AmTec is unlikely to have the means to repay it. Since the bridge loan is secured by all AmTec's assets, nonpayment will likely render AmTec insolvent and could lead to insolvency proceeding or liquidation. EQUITY ISSUANCE During the nine months ended December 31, 1999, AmTec issued: o 3,858,346 shares of its common stock upon conversion of 29.8 shares of AmTec's Series E Convertible Preferred by holders of the Series E Shares; o 1,373,597 shares of its common stock upon the exercise of stock options by former employees; o 180,000 shares of its common stock as stock awards granted to some of its officers pursuant to their employment agreements; o 20,000 shares of its common stock as compensation paid to some of its directors; and o 210,525 shares of its common stock upon settlement of a legal proceeding filed against AmTec by a former stockholder. BUSINESS OF TERREMARK GENERAL Terremark Holdings, Inc. (formerly known as Terremark Investment Services, Inc.) was formed in 1982 and along with its subsidiaries, is engaged in the development, construction, sale, leasing, management and financing of various real estate projects. Terremark provides services to private and institutional investors, as well as for its own account. The real estate projects with which Terremark has been involved have included retail, high rise office complexes, mixed use projects, condominiums, condominium hotels, and governmental assisted housing. Terremark is also involved in certain ancillary businesses which complement its core development operations. Specifically, Terremark engages in brokering financial services, property management, construction, construction management, condominium hotel management, residential sales and commercial leasing and brokerage, and advisory services, all of which are described in more detail below. Terremark evaluates acquisition opportunities on an on-going basis. Terremark does not believe that any transactions currently under consideration are probable. Announcements concerning these or other potential acquisitions could be made by Terremark at any time, including before or shortly after the merger closes. OPERATIONS Development. Terremark's development activities involve the creation of a concept, the acquisition of land, the design of the project, arranging for equity and financing, construction, sales and leasing and ultimate disposition. Terremark's history of development operations has included variations from this full scale concept of development to an exit strategy which has involved reselling undeveloped land, selling a project before completion, joint ventures and redevelopment of existing projects. Terremark intends to build on the success of its Fortune House condominium hotel development by creating a brand name for similar future developments and to manage similar projects for other developers. Terremark currently has over two acres of oceanfront property in Ft. Lauderdale under contract, on which it intends to build the second Fortune House Condominium Hotel. Other current development projects include the following: o the Four Seasons Hotel and Tower, a 63 story, 1.2 million square foot mixed use project located in Miami, Florida including five star hotel, class A office, retail and ultra luxury condominium units, for which Terremark is acting as the co-developer along with New York based Millennium Partners and for which Terremark is also providing mortgage brokerage, sales, construction management, leasing and property management services; o Brickell Village, an 11 acre development on the Miami River in Miami's central business district, for which Terremark is also acting as co-developer along with Millennium Partners, and which project will include, in phases, approximately 900,000 square feet of retail entertainment and 2 million square feet of residential and office towers; o Fortune House-Fort Lauderdale Beach, a 280 unit four star condominium hotel which Terremark is developing for its own account and which is located on the property facing the ocean in the heart of Fort Lauderdale Beach; and o Royal Palm Doral Center III, a 105,000 square foot office building overlooking the Doral Golf Course in the western part of Miami-Dade County and which is being developed by Terremark for a German investor with which Terremark has previously done business, and for which leasing, property management and mortgage brokerage services are also being provided. Real-Estate and Mortgage Brokerage. Terremark is also engaged in construction or permanent financing opportunities for its own account or its third party projects and clients. Terremark's mortgage and real estate brokerage subsidiaries are involved in providing diverse brokerage services to Terremark projects and for other developers and owners, on a third party basis. For example, Terremark is arranging for $100 million of construction loan financing for the Four Seasons Hotel and Tower, has recently arranged permanent financing for Galloway I, a 50,000 square foot medical office building, and is in the process of obtaining construction financing for the owner of a 70,000 square foot office building in western Miami-Dade County, Florida. In addition, Terremark is currently developing pre-marketing sales and leasing strategies for the Four Seasons Hotel and Tower and the Brickell Village and active leasing efforts are underway for Kendall Village, Galloway II and Royal Palm Doral Center III, among other projects. Terremark's real estate brokerage subsidiary is involved with both commercial and residential properties. Terremark currently represents, as the owners' exclusive leasing agent, various office buildings containing collectively, over 1.2 million square feet of office space. In addition, Terremark has a number of exclusive and non-exclusive appointments as the agents for various tenants who are in the market for new or additional office space. On the residential side, Terremark handles condominium sales for its own projects such as the Fortune House Condominium Hotels (Brickell Avenue and Fort Lauderdale Beach locations), and the Four Seasons Hotel and Tower (once units are ready for the market). In addition, Terremark has recently been retained by another developer to be the developer's exclusive agent at two condominium projects located on Miami Beach: The Bentley Beach Club and the Bentley Bay, and acting as the exclusive sales agent for Segovia Tower, in connection with advisory services being rendered by Terremark for that property. Property Management. Terremark currently manages buildings that total in excess of 1.5 million square feet of property, two of which are included in the top ten largest office buildings in the Miami-Dade area. Construction Services. Terremark has, in the past, provided construction management and general contracting services as a part of its development activities and not as a separate activity. However, Terremark has expanded this aspect of its business to include post-shell construction and general contracting services for limited risk projects, such as mid-size office buildings and retail boxes, on behalf of owners and developers with whom Terremark has existing relationships. Terremark is currently the general contractor for a 70,000 square feet office building in western Miami-Dade County and is acting as construction manager for the re-development of a 106,000 square foot office building in downtown Coral Gables, Florida. In addition, Terremark has been retained to construct both the shell of the building and the tenant improvements of Galloway II, a 30,000 square-foot facility in Miami-Dade County and is providing construction management services in connection with its position as the court appointed receiver for Segovia Tower, a partially completed luxury condominium high-rise located in Coral Gables, Florida. Condominium Hotel Management. Terremark developed the Fortune House brand of condominium hotel to enable purchasers to buy furnished condominium suites, which can then be rented to guests when the owner is not in residence. Terremark provides hotel management services for Fortune House. The second Fortune House, which is located on Fort Lauderdale Beach, is currently in the development stage. Once Fortune House Fort Lauderdale is completed, Terremark will operate and manage that property. Advisory and Consulting. Closely related to its financial services and property management operations is Terremark's ability to provide institutional and private advisory and consulting services. GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS In developing real estate, Terremark must obtain the approval of numerous government authorities regulating such matters as permitted land uses, levels of density and the availability of utility services such as water and waste disposal. Several authorities in Florida and other states have imposed impact fees as a means of defraying the cost of providing certain governmental services to developing areas and the amount of these fees has increased significantly during recent years. Many state laws require the use of specific construction materials. Local governments also, at times, declare moratoriums on the issuance of building permits and impose other restrictions. To date, the governmental approval processes and the restrictive zoning and moratoriums discussed above have not had a material adverse effect on Terremark's development activities. However, there is no assurance that these and other restrictions will not adversely affect Terremark in the future. Terremark is subject to a variety of federal, state and local statutes, ordinances, rules and regulations concerning land use. Land use and zoning laws can vary greatly and may result in delays, cause Terremark to incur substantial compliance and other costs and prohibit or severely restrict development in some environmentally sensitive regions or areas. Before consummating the purchase of land, Terremark engages independent environmental engineers to evaluate that land for the presence of hazardous or toxic materials, wastes or substances. Terremark has not been materially affected to date by the presence or potential presence of such materials. We cannot assure you that these inspections will uncover all environmental hazards and Terremark will not be adversely affected by such hazards. To varying degrees, permits and approvals will be required to complete the developments currently being planned by Terremark. The ability of Terremark to obtain necessary approvals and permits for these projects is often beyond Terremark's control, and could restrict or prevent the development of otherwise desirable property. The length of time necessary to obtain permits and approvals increases the carrying costs of unimproved property acquired for the purpose of development and construction. In addition, the continued effectiveness of permits already granted is subject to factors such as changes in policies, rules and regulations and their interpretation and application. In recent years, regulation by federal and state authorities relating to the sale and advertising of residential real estate has also become more restrictive. In order to advertise and sell condominiums and other residential real estate in many jurisdictions, Terremark has been required to prepare registration statements or other disclosure documents and, in some cases, to file such materials with designated regulatory agencies. COMPETITION AND MARKET FACTORS The development and sale of real estate is a highly competitive and fragmented industry. Terremark is not able to estimate the total number of competitors it faces, but is aware that it competes with numerous national, regional and local developers, including some developers with greater financial resources. Developers compete not only for tenants and buyers, but also for desirable properties. When marketing its properties, Terremark must compete with sales and leases of existing properties. The real estate industry is cyclical and affected by consumer confidence levels, prevailing economic conditions generally and, in particular, by interest rate levels. A variety of other factors affect the real estate industry and demand for new construction, including the availability of labor and materials and increases in the costs thereof, changes in associated costs such as increases in property taxes and energy costs, changes in consumer preferences, demographic trends, the availability of and changes in financing programs, and changing economic conditions in ancillary markets (e.g., South America). EMPLOYEES At December 31, 1999, Terremark employed approximately 95 people. Although none of Terremark's employees are covered by collective bargaining agreements, some of the subcontractors which Terremark engages have employees which are represented by labor unions or are subject to collective bargaining agreements. Terremark believes that its relations with its employees and subcontractors are good. EMPLOYMENT AGREEMENTS Messrs. Medina, Katz, Goodkind, Biondi, Jacobson and Padron and Ms. Budd have entered into employment agreements with Terremark. These agreements are each for a term of one year, automatically renewable for additional terms of one year absent written notice by either party to the contrary. The employment agreements contain customary non-competition, non-disclosure and non-solicitation restrictions. Each employment agreement may be terminated at Terremark's option at any time for cause, as defined in the agreement. If an employment agreement is terminated by Terremark other than for cause, then Terremark must pay salary and benefits to the employee for the remainder of the term, up to a maximum of six months. The employee may terminate the employment agreement at any time at 60 days notice, in which case salary and benefits will continue to be paid until the agreement is so terminated. However, if the employee terminates the employment agreement for good reason, as defined in the agreement, then Terremark must pay salary and benefits to the employee for the remainder to the term, up to a maximum of six months. In the event of a change in control, as defined in the agreement, if the employee is terminated without cause or terminates the employment agreement for good reason, then the employee is entitled to base salary through the effective date of termination, plus a lump sum payment equal to twice his base salary, incentive compensation and the value of annual fringe benefits and plus the value of any benefits under any pension or savings plan which are forfeit as a result of the termination. In addition, any stock options shall immediately vest. OWNERSHIP STRUCTURE Common Stock. Terremark's common stock is beneficially owned as follows: Manuel D. Medina............................................. 510,214 45.6% ATTU Services, Inc, beneficially owned by Eugene Patry....... 66,511 5.9% TCO Company Limited, beneficially owned by Luis Lanciotti.... 540,775 48.2% Willy Bermello............................................... 3,750 0.3% ---------- --------- Total........................................................ 1,121,250 100.0% ========== =========
Preferred Stock. The 4,176,693 outstanding shares of Terremark's 10% cumulative preferred stock is owned by Centre Credit Corporation. This preferred stock is convertible into Terremark common stock upon the occurrence of certain events, including the effectiveness of the merger. It is anticipated that the preferred stock will convert into a number of Terremark common shares such that the holders of the preferred stock will receive approximately 10% of the AmTec shares received by all Terremark shareholders pursuant to the merger. Certain members of Terremark's senior management have agreed to purchase all the outstanding preferred stock from Centre Credit Corporation before the merger becomes effective at the issuance price plus accrued dividends. Pursuant to these preferred stock purchase agreements, the 4,176,693 outstanding shares of Terremark preferred stock will be acquired by the following individuals or their assigns: Michael Katz............................ 1,609,006 Brian Goodkind.......................... 1,206,747 Edward Jacobson......................... 272,188 Irving Padron........................... 272,188 William Biondi.......................... 272,188 Aviva Budd.............................. 545,376 ------------- 4,176,693 ============= PROPERTIES Terremark's executive office is located in Terremark Centre. Before Terremark's acquisition of Terremark Centre, office space was provided to it at no cost as part of Terremark's fee for managing the building. Effective April 1, 2000, Terremark will begin paying market rent for its office space. Terremark also maintains small offices in downtown Miami, downtown Coral Gables and in Manhattan in addition to maintaining temporary sales and construction offices. Terremark Centre, situated on 3.2 acres of land in Miami, Florida, is a 21-story contemporary Class A office tower completed in 1990. The office tower contains 294,000 leasable square feet of office and service related retail space. The building is one of only two class-A buildings in the Coconut Grove sub-market. Including leases which are currently under negotiation and expected to be signed, the building is 97% leased. The building's tenants are a mix of local companies, many of which are professional service providers. Of these tenants, those occupying 82,007 square feet have leases expiring during calendar year 2000 and those occupying 33,600 square feet have not yet renewed. In addition to the office and retail space, the building includes 16 town houses and 1100 parking spaces. In the opinion of management, the building is adequately insured and in excellent condition. There is little deferred maintenance, if any and no significant capital expenditures are anticipated over the next operating year. Terremark and the Florida State Board of Administration entered into a Contract for Purchase and Sale of Terremark Centre on February 21, 2000 for $56.5 million. Issues subsequently arose on which the parties could not agree and the contract was terminated prior to expiration of the due diligence period. On March 20, 2000 Terremark entered into a non-binding letter of intent to sell the building to another third party buyer for a purchase price of $56.8 million. This transaction is subject to execution of a binding contract, a 20 day due diligence period and 10 day closing date following expiration of such due diligence period. In addition, Terremark has developed and is selling condominium units in Fortune House, a 29 story, 296 unit residential condominium building in the Brickell Avenue area of Miami, Florida. LEGAL PROCEEDINGS Terremark is involved from time to time in litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on Terremark's consolidated financial position or results of operations. TERREMARK SELECTED HISTORICAL FINANCIAL INFORMATION The selected historical financial data set forth below with respect to Terremark's consolidated statements of operations for each of the three years in the period ended March 31,1999, and respect to Terremark's consolidated balance sheets at March 31, 1999 and 1998, are derived from the audited consolidated financial statements of Terremark, which have been audited by PricewaterhouseCoopers LLP, independent certified public accountants. Auditors' reports for financial statements for years 1999 and 1998 are included elsewhere in this proxy statement. The selected historical financial data for Terremark for the nine months ended December 31, 1999 and 1998 are derived from the unaudited consolidated financial statements of Terremark. The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, that the management of Terremark considers necessary for a fair presentation of the financial position and results of operations for the periods presented. The selected historical consolidated financial data of Terremark have been derived from, and should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements and the related notes included elsewhere in this proxy statement, "Unaudited Pro Forma Combined Condensed Financial Statements," "Terremark's Management's Discussion and Analysis of Financial Condition and Results of Operations".
TERREMARK SELECTED HISTORICAL FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) NINE MONTHS TWELVE MONTHS ENDED MARCH 31, ENDED DECEMBER 31, -------------------------------------- --------------------------- 1999 1998 1997 1999 1998 ----------- ----------- ------------ ------------- ------------ Statement of Operations Data: Total revenues......................... $ 44,456 $ 37,632 $ 2,629 $ 13,390 $ 39,318 Total cost of sales..................... 31,148 22,667 742 9,100 27,700 Other expenses.......................... 12,684 13,869 1,925 7,750 10,021 ----------- ----------- ------------ ------------- ------------ Income (loss) from continuing operations 624 1,096 (38) (3,460) 1,597 ----------- ----------- ------------ ------------- ------------ Net (loss) income....................... $ 624 $ 1,096 $ (38) $ (3,460) $ 1,597 =========== =========== ============ ============= ============ Basic and Diluted earnings (loss) per common share............................ $ 0.56 $ 0.98 $ (0.03) $ (3.09) $ 1.42 Weighted average common shares outstanding........................... 1,121,250 1,121,250 1,125,000 1,121,250 1,121,250 AS OF MARCH 31, AS OF DECEMBER 31, ------------------------------- --------------------------- 1999 1998 1999 1998 -------------- -------------- ------------- ----------- BALANCE SHEET DATA: Real estate inventories.................. $ 12,888 $ 33,311 $ 5,317 $ 16,188 Total assets............................. $ 17,598 $ 42,931 $ 68,248 $ 22,145 Long-term obligations (1)................ $ 8,737 $ 32,081 $ 60,783 $ 15,761 Shareholders' equity (2)................. $ 6,510 $ 1,709 $ 3,049 $ 3,306
(1) Long-term obligations include debt and capitalized lease obligations. (2) Stockholders' equity as of March 31, 1999 and December 31, 1999 include approximately $4,177 in convertible preferred stock. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the information contained in Terremark's Consolidated Financial Statements and related notes thereto included elsewhere in this proxy statement. The information is intended to facilitate an understanding and assessment of significant changes and trends related to the financial condition and results of operations of Terremark. OVERVIEW Terremark Holdings, Inc. was formed in 1982 and along with its subsidiaries, is engaged in the development, construction, sale, leasing, management and financing of various real estate projects. Terremark is also involved in certain ancillary business which complement its core development operations. Specifically, Terremark engages in brokering financial services, property management, construction, construction management, condo hotel management, residential sales and commercial leasing and brokerage, and advisory services. SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS Significant Accounting Policies. Real estate inventories consist of completed condominiums and condominiums under development. Real estate inventories, including capitalized interest and real estate taxes, are carried at the lower of cost or fair value determined by evaluation of individual projects. Acquisition, development, interest and other indirect costs related to acquisition and development of real estate projects are capitalized. The capitalized costs are charged to earnings as the related revenue is recognized. Sales and marketing costs and the carrying costs of condominium units completed and held for sale are expensed as incurred. Total land, development, and common costs are apportioned on the relative sales value method for each project. Revenues from construction and development activities are recognized on a completed contract basis. The related profit is recognized in full when collectibility of the sale price is reasonably assured and the earnings process is substantially complete. Revenues and expenses related to the leasing, management and financing activities are recognized at the time service is provided. New Accounting Pronouncements. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 (FASB 131), "Disclosures about Segments of an Enterprise and Related Information," which becomes effective and is required to be adopted in years beginning after December 15, 1997. FASB 131 establishes standards for the way that the public business enterprises report information about segments. Terremark believes it does not have any reportable segments. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (FASB 133), "Accounting for Derivative Instruments and Hedging Activities." FASB 133, as amended, becomes effective and is required to be adopted in years beginning after June 15, 2000. FASB 133 requires all derivatives to be recorded in the balance sheet at fair value. FASB 133 establishes the accounting procedures for hedges that will affect the timing of recognition and the manner in which hedging gains and losses are recognized in Terremark's financial statements. Derivatives that are not hedges must be adjusted to fair value through income. If derivatives are hedges, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or will be recognized in other comprehensive income until the hedged item is recognized in earnings. Terremark has no derivative instruments. RESULTS OF OPERATIONS NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1998 Revenue. Revenue from real estate sales decreased $27.1 million, or 72.3%, from $37.5 million for the nine months ended December 1998 compared to $10.4 million for the nine months ended December 1999. In August 1998 a condominium project obtained a partial certificate of occupancy. This permitted Terremark to close the sales of condominium units and resulted in approximately $34.6 million in revenue during the nine months ended December 31, 1998 compared to approximately $9.2 million in revenue for the nine months ended December 31, 1999. In addition, in December 1999, Terremark sold for approximately $1.2 million three condominium units. Commission income decreased $237,000 or 29.4% from $807,000 for the nine months ended December 1998 compared to $570,000 for the nine months ended December 1999 and is directly related to the timing of lease renewals. Management fees increased from $529,000 for the nine months ended December 1998 compared to $1,006,000 for the nine months ended December 1999 due to the signing of several building management contracts. Development fees increased $562,000, or 121.2%, from $463,000 for the nine months ended December 1998 compared to $1,025,000 for the nine months ended December 1999 due to the signing of new development contracts. Cost of Real Estate Sold. Cost of real estate sold decreased by $18.9 million, or 68.2%, from $27.7 million for the nine months ended December 1998 to $8.8 million for the nine months ended December 1999, which is attributable to a decrease in condominium unit sales. The decrease in gross margin as a percentage of sales revenue from 26.1% in 1998 to 15.5% in 1999, is attributable to 1998 real estate sales including the sale of land for $1.05 million above cost basis. Also, in 1998, we sold furniture packages with condominium units which had a 33.3% gross margin. As a sales incentive in 1999, furniture packages were included with purchased units. General and Administrative Expenses. General and administrative expenses increased by 18.2% from approximately $4.4 million for the nine months ended December 1998 to approximately $5.2 million for the nine months ended December 1999, due to an increase in payroll and related costs associated with the hiring of 36 new employees. In November 1998, Terremark formed a hotel subsidiary. As such, only one month of expenses were included for the nine months ended December 1998 compared to nine months of related expenses included for the nine months ended December 31, 1999. Sales and Marketing Expenses. Sales and marketing expenses decreased from $4.7 million, or 61.7% for the nine months ended December 1998 compared to $1.8 million for the nine months ended December 1999 due to the decrease in commission expense directly related to the sales of condominium units. Sales and marketing expenses were used to promote sales of condominium units. Depreciation Expense. Depreciation expense increased from $22,000 for the nine months ended December 1998 compared to $63,000 for the nine months ended December 1999, an increase of 186.4%, which resulted from the increase in furniture and computer equipment. Interest Income. Interest income changed from $188,000 for the nine months ended December 1998 to $186,000 for the nine months ended December 1999. Interest income is earned on cash held in banks. The average cash balances were not significantly different for the comparative periods. Interest Expense, Net of Capitalized Interest. Interest expense decreased $503,000 from $1,116,000 for the nine months ended December 1998 compared to $613,000 for the nine months ended December 1999 due to a reduction of debt used to finance condominium projects, as well as the conversion of $3.6 million in debt to preferred stock in March 1999. Other Income. Other income (expense) decreased from $122,000 in income for the nine months ended December 1998 compared to approximately $5,000 in expense for the nine months ended December 1999, which is primarily attributable to the $150,000 write down during the period ending December 31, 1999 of Terremark Centre's carrying value to its estimated net sales price. Net Income. Overall net income decreased 318.8% from $1.6 million for the nine months ended December 1998 to a $3.5 million loss for the nine months ended December 1999. This was primarily due to the reduced amount of condominium unit sales. YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 1998 Revenue. Revenue from real estate sales increased $5.0 million, or 13.5%, from $37.0 million in 1998 to $42.0 million in 1999. Revenue in 1999 from real estate sales includes condominium unit sales of $47.0 million. Revenue from real estate sales in 1998 includes the sale of land for $23.8 million and condominium unit sales of $13.2 million. Commission income earned from leasing increased $860,000, from $162,000 in 1998 to $1,022,000 in 1999 due to the timing of lease renewals. The increase in development fees from $0 in 1998 to $625,000 in 1999 is due to the signing of various project development agreements in 1999. Management fees charged with respect to the management of commercial and residential property more than doubled, increasing from $312,000 in 1998 to $768,000 in 1999 as a result of the acquisition of various office building management contracts. Construction fees in 1998 were related to the management of a construction project. Terremark did not generate any construction fees in 1999. Cost of Real Estate Sold. Cost of real estate sold increased by $8.4 million, or 37.0%, from $22.7 million for the year ended March 1998 to $31.1 million for the year ended March 1999, which is attributable to an increase in condominium unit sales. The decrease in gross margin as percentage of sales revenue from 38.8% in 1998 to 25.9% in 1999 is mainly attributable to the sale of land in 1998 which had a gross margin of 55.0%. General and Administrative Expenses. General and administrative expenses fell by 14.3% from approximately $7.0 million in 1998 to approximately $6.0 million in 1999. This decrease is attributable to a fee to a financial institution for a loan commitment, internal costs related to the sale of land and an increase in compensation to existing employees, all of which were paid in 1998. Sales and Marketing Expenses. Sales and marketing expenses increased from $1.8 million in 1998 to $5.5 million in 1999, representing an increase of over 200%. Sales and marketing expenses were used to promote sales of condominium units. Depreciation Expense. Depreciation expense increased from $19,000 to $50,000, an increase of 163.2%, which resulted from purchases of furniture and computer equipment. Interest Income. Interest income increased 224.7% from $81,000 in 1998 to $263,000 in 1999, due to an increase in cash balances. Interest Expense, net of capitalized interest. Interest expense increased 25.0% in 1999, from $1.2 million in 1998 to $1.5 million in 1999 due to an increase in debt financing used to fund completion of a condominium project. Other Income. Other income increased 173.8% in 1999, from $61,000 in 1998 to $167,000 in 1999. This increase is a result of rental income from condominium units and a lease cancellation fee. Net Income. Overall net income decreased 43.3%, from $1.1 million in 1998 to $624,000 in 1999. This was primarily due to the reduced gross margin realized on the sale of real estate compared to 1998. YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997 Revenue. Revenue from real estate sales was $37.0 million in fiscal 1998 compared to $300,000 in 1997. During February 1998, Terremark sold land for $23.8 million, and $13.2 million from condominium sales were generated during 1998. The $300,000 in real estate sales in 1997 consisted of the sale of an office building. Commission income earned from the sale of condominium units fell $718,000, or 81.6%, from $880,000 in 1997 to $162,000 in 1998. Management fees were basically unchanged at around $300,000 as the same number of properties were under management in 1997 and 1998. Terremark did not realize any development fees in 1998, after earning $333,000 in 1997 for the development of a condominium project. Construction fees earned in 1998 of $120,000 represented a decrease of 85.3% from the $815,000 earned in 1997 due to the completion of a condominium project in 1997. Cost of Real Estate Sold. Cost of real estate sold increased from $0 in 1997 to $22.7 million in 1998. This increase is attributable to the sale of condominium units and the sale of land in 1998. During 1997, Terremark had real estate under development which was not then available for sale. General and Administrative Expenses. General and administrative expenses increased from $976,000 in 1997 to $7.0 million in 1998, representing a 617.21% increase. This is attributable to a fee to a financial institution for a loan commitment, internal costs related to the sale of land and an increase in compensation paid to existing employees. Provision for Write Down of Real Estate. In 1998, an impairment of $3.9 million was provided against real estate inventory. This impairment was due to the estimated sales value exceeding the carrying value of the real estate assets. Sales and Marketing. Sales and marketing expenses almost doubled, increasing from $935,000 in 1997 to $1.8 million in 1998 due to the increased promotion of a condominium project in 1998. Depreciation Expense. Depreciation expense decreased 34.5% from $29,000 in 1997 to $19,000 in 1998, which resulted from the disposal of furniture and computer equipment. Interest Income. Interest income fell from $95,000 in 1997 to $81,000 in 1998 due to a decline in cash on hand. Interest Expense, net of capitalized interest. Interest expense increased from $77,000 in 1997 to $1.2 million in 1998. This increase was attributable to high borrowings used for the financing of condominium projects and the assumption of debt from the acquisition of condominiums. Other Income. Other income increased in from $0 in 1997 to $61,000 in 1998. This increase is a result of rental income from the rental of condominium units. Net Income. Net income of $1.1 million represented an improvement compared to the loss of $38,000 reported for 1997. This improvement was primarily due to gross margin on the sale of real estate, which was partially offset by an increase in interest expense. LIQUIDITY AND CAPITAL RESOURCES NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1998 Cash provided by operations for the nine months ended December 31, 1998 was $12.7 million compared to $3.5 million for the same period in 1999, a decrease of $9.2 million or approximately 72.4%. The decrease in cash provided by operations resulted primarily from a reduction in the sales of real estate inventories. Cash used in investing activities for the nine months ended December 31, 1998 was $152,000 compared to cash used by investing activities of $1.4 million for the same period in 1999, an increase of $1.2 million. The increase in cash used by investing activities resulted primarily from the addition of $1.125 million in receivables from AmTec in the current period. Cash used in financing activities for the nine months ended December 31, 1998 was $16.3 million compared to $3.5 million used by financing activities for the same period in 1999, a decrease of $12.8 million. The decrease in cash used by financing activities resulted primarily from higher repayments on construction financing related to condominium projects in the prior period. DEBT Terremark's long-term capital requirements consist of funds for investment in development projects and for debt service. Historically, Terremark has met its capital requirements primarily through debt financing and operating cash flow. Terremark Centre was purchased subject to a nonrecourse mortgage loan from a life insurance company, the principal balance of which was $28.3 million on December 31, 1999. Terremark Centre is also subject to a $27.1 million second mortgage and a perfected security interest in the partnership interests of the partnership that owns Terremark Centre. The first mortgage loan matures on June 1, 2001. The second mortgage loan matures at the earlier of (1) the sale of Terremark Centre, or (2) December 31, 2000 if the AmTec merger has not closed by that date, in which case the seller may extend the note or take a deed in lieu of foreclosure to fully satisfy the debt. Terremark intends to sell Terremark Centre before the closing of the AmTec merger and began an active marketing program at the end of November 1999. Terremark has executed a letter of intent with a potential purchaser for the purchase of Terremark Centre for a purchase price of $56.8 million, subject to the execution of a binding contract, due diligence and other conditions. In addition, if the merger does not occur on or before December 31, 2000 or the Terremark Centre is not sold, Vistagreen has the option to extend the maturity date of its note or will be entitled to the Terremark Centre via a deed in lieu of foreclosure. No assurances can be made as to the timing of, or the amount of value to be received from, a sale of Terremark Centre. If Terremark Centre is sold for a price which does not yield proceeds adequate to repay the promissory note in full, Terremark is obligated to fund the difference. If the sales proceeds exceed the amount required to fully retire the promissory note, Terremark will be entitled to the excess. SOURCES OF LIQUIDITY Terremark believes that its cash and cash equivalents, cash generated from operations, borrowing capacity and access to other financing sources will be adequate to meet its anticipated short-term and long-term liquidity requirements, including scheduled debt repayments and capital expenditures. INFLATION The general rate of inflation in the United States has been insignificant over the past several years and has not had a material impact on Terremark's results of operations. YEAR 2000 The Year 2000 issue is the result of computer programs and other business systems being written using two digits rather than four to represent the year. Terremark's computer systems and those of Terremark's business partners may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in system failure or disruption of operations. Terremark has reviewed the possible effect of the Year 2000 on the computer systems currently in use by Terremark and believes that it has achieved Year 2000 readiness with regard to its information technology systems. While it is likely that some non-information technology systems in its offices such as elevators, heating and air-conditioning systems, etc., with date sensitive software and embedded microprocessors may be affected by the Year 2000 issue, the estimates of costs of correcting or replacing critical non-information technology systems indicate that these costs will not be material to Terremark. MARKET RISK Major risks of developing and investing in real estate are the possibilities that properties will not generate income sufficient to meet operating expenses or will generate income and capital appreciation at a rate less than that anticipated or obtainable through investment in other real estate or other investments. The real estate industry is cyclical and affected by changes in general and local economic and other conditions including employment levels, demographics considerations, availability of financing, interest rate levels, consumer confidence and real estate demand. Economic conditions in ancillary markets. Developers are also subject to various risks, many of them outside their control including competitive overbuilding, availability and cost of property, materials and labor, adverse weather conditions (which can cause delays in construction schedules or physical damage), cost overruns, changes in government regulations pertaining to building standards or environmental matters, increases in real estate taxes and other local government fees. Terremark cannot predict the impact increasing interest rates have on prospective tenants or buyers and any increase in interest rates could affect Terremark's business adversely. SUBSEQUENT EVENTS Centre Credit Corporation, a foreign lender and investor, owns approximately 4,176,693 shares of Terremark Holdings, Inc.'s 10% cumulative convertible preferred stock. CCC's basis in the stock is $1.00 per share plus accrued dividends. It has entered into agreements with certain members of Terremark's management to sell the stock for approximately $4.2 million in total. These agreements will not be executed until after January 1, 2000 and will close only if and when the merger closes. On March 9, 2000, Terremark agreed to acquire all the issued and outstanding stock of Telecom Real Estate Exchange Developers, Inc., formerly known as T-REX Property Services, Inc., a Delaware corporation, in exchange for eight million shares of Terremark Worldwide common stock, assuming that the merger of Terremark and AmTec is consummated by December 31, 2000. T-REX is a fee for service entity which operates in conjunction with Telecom Realty Partners, LLC, a Delaware limited liability company, and MP Telecom, LLC, a Delaware limited liability company, both of which are affiliated with the current shareholders of T-REX. These entities are involved in the business of acquiring, developing, renovating, managing and operating real property to be principally used as telecommunications routing exchange facilities, sometimes referred to in the industry as "telecom hotels." T-REX's role in this business is to provide operational support and development expertise in exchange for fees and a minority interest in profits. Affiliated entities have acquired one property in Cleveland and have binding contracts to acquire properties in Boca Raton, Florida and Hartford, Connecticut. Negotiations are in progress for several other properties in the United States. The T-REX acquisition agreement provides that the two current shareholders of T-REX will be employed by T-REX after the acquisition. Thomas M. Mulroy will be employed as Chief Executive Officer of T-REX for at least one year at a salary of $250,000. Clifford J. Preminger will employed as President of T-REX, also for at least one year and at a salary of $250,000. On March 10, 2000, Terremark's subsidiary Terremark Fortune House #2, Ltd. completed the purchase of the Riviera Hotel in Fort Lauderdale, Florida. The acquisition price of the property was $8.0 million, which was paid through a $15.0 million line of credit with Ocean Bank at an interest rate of prime plus 1% for a term of one year. The balance of the credit line will be used for working capital. Terremark plans to demolish the existing improvements and construct a luxury condominium hotel containing 280 units. Unit sizes are studios and 1 bedrooms, which can be combined to create 2 bedroom suites. In March, 2000, Terremark received and accepted a non-binding letter of intent from a third party buyer to purchase Terremark Centre, subject to the execution of a binding contract and due diligence. Terremark management believes the buyer has financial resources to complete the transaction. The net sales price is expected to be $55,850,000.00. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AMTEC The following table sets forth the beneficial ownership of common Stock as of December 31, 1999 by : (i) each person known by AmTec to beneficially own 5% or more of the outstanding common stock, (ii) each director of AmTec, (iii) each Named Executive Officer of AmTec, and (iv) all directors and executive officers of AmTec as a group. Unless otherwise indicated below, to the knowledge of AmTec, all persons listed below have sole voting and investment power with respect to their shares, except to the extent authority is shared by spouses under applicable law. NAME OF NO. OF PERCENT BENEFICIAL OWNER SHARES (1) ---------------- --------- -------- Joseph R. Wright, Jr. (2)(13) 6,665,144 18.36% Richard T. McNamar (3)(13) 525,000 1.45% Richard S. Braddock (4)(13) 263,592 * James R. Lilley (5)(13) 111,074 * Michael H. Wilson (6)(13) 158,222 * Marvin S. Rosen (7)(13) 1,189,030 3.27% Joel Schleicher (8)(13) 32,500 * Karin-Joyce Tjon (9)(13) 50,000 * Wilfred Chow (10)(13) 25,000 * Xiao Jun (11)(13) 525,000 1.45% All executive officers and directors as a group (12) 9,544,562 26.29% Jenny Sun (14) 5,541,593 15.26% Polmont Investments Limited (15) 5,541,593 15.26% Occidental Worldwide Corporation (16) 5,541,593 15.26% Max Chian Yi Sun (17) 5,541,593 15.26% - ---------------------- * Less than 1% (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares subject to options currently exercisable, or exercisable within 60 days of December 31, 1999, are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of any other person. (2) Includes 42,148 Shares held by Austin Trading Partners, LP, of which Mr. Wright is a limited partner. Also includes options to purchase 6,100,000 Shares. As part of the merger agreement, Mr. Wright forfeits 3,000,000 options upon the merger taking place. (3) Includes options to purchase 500,000 Shares. (4) Includes options to purchase 80,000 Shares. (5) Includes options to purchase 75,000 Shares. (6) Includes options to purchase 80,000 Shares. (7) Includes options to purchase 25,000 Shares. (8) Includes options to purchase 17,500 Shares. (9) Includes options to purchase 50,000 Shares. (10) Includes options to purchase 25,000 Shares. (11) Includes options to purchase 515,000 Shares. (12) Includes options to purchase 7,467,500 Shares. (13) The address of Messrs. Wright, McNamar, Braddock, Lilley, Wilson, Rosen, Schleicher, Ms. Tjon and Messrs. Chow and Xiao is c/o AmTec, Inc., 599 Lexington Avenue, 44th Floor, New York, New York 10022. (14) Includes 2,450,000 Shares held by Polmont Investments Limited and 2,797,691 Shares held by Occidental Worldwide Corporation of which Ms. Sun has voting power. It also includes 293,402 Shares currently held by Chian Jeng Sun & Chieh Siong Soon and 500 Shares held by Max Sun. The address of Ms. Sun is 1052 North Beverly Drive, Beverly Hills, CA 90210. The Company believes that Ms. Sun is currently out of compliance with her required filings of Statements of Beneficial Ownership based on available information related to her ownership of the Company's securities. (15) Includes 2,797,691 Shares held by Occidental Worldwide Corporation and 293,402 Shares currently held by Chian Jeng Sun & Chieh Siong Soon and 500 Shares held by Max Sun. The address of Polmont Investments Limited is c/o Havelet Trust Company, P.O. Box 3136, Road Town, Tortola, British Virgin Islands. (16) Includes 2,450,000 Shares held by Polmont Investments Limited and 293,402 Shares currently held by Chian Jeng Sun & Chieh Siong Soon and 500 Shares held by Max Sun. The address of Occidental Worldwide Corporation is Mr. Vincent Lim, c/o Rabobank, Shell Tower, 1 Raffles Place, Singapore. (17) Includes 2,450,000 Shares held by Polmont Investments Limited and 2,797,691 Shares held by Occidental Worldwide Corporation of which Mr. Sun has voting power. It also includes 293,402 Shares currently held by Chian Jeng Sun & Chieh Siong Soon. The address of Mr. Sun is 126 JLN DEDAP, Taman Ampang, Selangor, Malaysia. The Company believes that Mr. Sun is currently out of compliance with his required filings of Statements of Beneficial Ownership based on available information related to his ownership of the Company's securities. DESCRIPTION OF CAPITAL STOCK DESCRIPTION OF AMTEC CAPITAL STOCK The authorized capital stock of AmTec consists of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of the record date, there were 38,104,992 shares of AmTec common stock outstanding held beneficially by approximately 9,695 shareholders and 20 shares of AmTec preferred stock. AmTec's common stock is listed on the AMEX under the symbol ATC. AmTec common stock. Holders of AmTec common stock are entitled to one vote per share on all matters to be voted upon by the shareholders. The holders of AmTec common stock are entitled to receive ratably any dividends, as may be declared from time to time by the AmTec board of directors, out of legally available funds. In the event of a liquidation, dissolution or winding up of AmTec, the holders of AmTec common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior liquidation rights of AmTec preferred stock, if any. The AmTec common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the AmTec common stock. All outstanding shares of AmTec common stock are fully paid and non-assessable, and the shares of AmTec common stock to be issued and outstanding upon consummation of the merger will be fully paid and non-assessable. REPRESENTATIVE OF INDEPENDENT AUDITORS A representative of Deloitte & Touche is expected to be present at the special meeting and will have an opportunity to make a statement if he or she desires to do so, and will be available to respond to appropriate questions from AmTec stockholders. STOCKHOLDER PROPOSALS Stockholders are advised that any stockholder proposal, including nominations to the Board of Directors, intended for consideration at the annual meeting for the fiscal year ended March 31, 2000 ("2000 Annual Meeting") must be received by the Company no later than April 7, 2000 to be included in the proxy material for the 2000 Annual Meeting. It is recommended that stockholders submitting proposals direct them to Karin-Joyce Tjon, Vice President of the Company, and utilize certified mail, return-receipt requested, in order to ensure timely delivery. INDEPENDENT ACCOUNTANTS The financial statements of AmTec, Inc. as of March 31, 1999 and 1998 and for each of the three years in the period ended March 31, 1999 included in this proxy statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, had been audited by Deloitte & Touche LLP, independent accountants as stated in their report appearing herein. The financial statements of Terremark Holdings, Inc. as of March 31, 1999 and 1998 and for each of the three years in the period ended March 31, 1999 included in this proxy statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, have been audited by PricewaterhouseCoopers LLP, independent accountants as stated in their report appearing herein.
FINANCIAL STATEMENTS INDEX PAGE AMTEC, INC. AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT.....................................................................................F-3 FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997: Consolidated Balance Sheets.................................................................................F-4 Consolidated Statements of Operations.......................................................................F-5 Consolidated Statements of Stockholders' Equity (Deficit)...................................................F-6 Consolidated Statements of Cash Flows.......................................................................F-8 Notes to Consolidated Financial Statements..................................................................F-9 HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD. INDEPENDENT AUDITORS' REPORT....................................................................................F-26 FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM APRIL 29, 1997, (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997: Balance Sheets.............................................................................................F-27 Statements of Operations...................................................................................F-28 Statements of Investors' Equity............................................................................F-29 Statements of Cash Flows...................................................................................F-30 Notes to Financial Statements..............................................................................F-31 HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD. INDEPENDENT AUDITORS' REPORT....................................................................................F-37 FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998, 1997 AND PERIOD FROM JANUARY 31, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER, 1996: Balance Sheets.............................................................................................F-38 Statements of Operations...................................................................................F-39 Statements of Investors' Equity (Deficit)..................................................................F-40 Statements of Cash Flows...................................................................................F-41 Notes to Financial Statements..............................................................................F-42 AMTEC, INC. AND SUBSIDIARIES UNAUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1998 AND 1999: Condensed Consolidated Balance Sheets......................................................................F-50 Condensed Consolidated Statements of Operations............................................................F-51 Condensed Consolidated Statements of Cash Flows............................................................F-52 Notes to Condensed Consolidated Financial Statements.......................................................F-54 TERREMARK HOLDINGS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998: Report of Independent Certified Public Accountants.........................................................F-58 Consolidated Balance Sheets................................................................................F-59 Consolidated Statements of Operations......................................................................F-60 Consolidated Statements of Stockholders' Equity ...........................................................F-61 Consolidated Statements of Cash Flows......................................................................F-62 Notes to Consolidated Financial Statements.................................................................F-64 UNAUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1999 AND 1998: Consolidated Balance Sheets................................................................................F-78 Consolidated Statements of Operations and Changes in Stockholders' Equity .......................................................................F-79 Consolidated Statements of Cash Flows......................................................................F-81 Notes to Consolidated Financial Statements.................................................................F-83 TERREMARK CENTRE Report of Independent Certified Public Accountants.........................................................F-87 Statement of Revenue and Certain Expenses..................................................................F-88 Notes to Statement of Revenue and Certain Expenses.........................................................F-89
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS AMTEC INC. We have audited the accompanying consolidated balance sheets of AmTec Inc. and subsidiaries as of March 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 1999, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York June 29, 1999
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1999 AND 1998 - --------------------------------------------------------------------------------------------------------------------- 1999 1998 -------------------- -------------------- Assets Current Assets: Cash.............................................................. $2,093,141 $2,134,662 Accounts receivable............................................... - 114,661 Prepaid expenses and other current assets......................... 38,805 108,082 -------------------- -------------------- Total current assets.......................................... 2,131,946 2,357,405 Investments in and advances to unconsolidated subsidiary.......... 2,496,480 5,074,217 Property, plant and equipment, net................................ 96,926 139,136 Office lease deposit.............................................. 55,733 112,600 -------------------- -------------------- Total assets.................................................. $4,781,085 $7,683,358 ==================== ==================== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable.................................................. $ 439,195 $ 541,888 Accrued expenses.................................................. 528,548 792,006 Loans payable - shareholders...................................... - 1,452,553 -------------------- -------------------- Total current liabilities..................................... 967,743 2,786,447 -------------------- -------------------- Commitments and Contingencies Stockholders' Equity: Preferred Stock: authorized 10,000,000 shares: Series E Convertible Preferred Stock: $.001 par value; 74 shares issued, 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 $7,683,358 ==================== ==================== See notes to consolidated financial statements. AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 1999, 1998 AND 1997 - -------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 -------------- --------------- ---------------- Revenues........................................................$ $ $ - - -------------- --------------- ---------------- 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.
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 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 -- $-- -- $-- =========== =========== ========== ========= ======= ======== 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 BALANCE, March 31, 1996............................... -- $-- -- $-- -- $-- -- $-- Issuances of Series B preferred stock................. -- -- -- -- -- -- -- -- Conversion of Series B shares......................... -- -- -- -- -- -- -- -- Issuance of Series D preferred Stock.................. -- -- 150 1 -- -- -- -- Common shares issued for services rendered............ -- -- -- -- -- -- -- -- Common shares issued to employees as compensation..... -- -- -- -- -- -- -- -- Common shares issued for directors' fees.............. -- -- -- -- -- -- -- -- Sale of common shares................................. -- -- -- -- -- -- -- -- Cumulative foreign currency exchange loss............. -- -- -- -- -- -- -- -- Preferred dividends................................... -- -- -- -- -- -- -- -- Warrants.............................................. -- -- -- -- -- -- -- -- Net loss.............................................. -- -- -- -- -- -- -- -- -------- -------- ------ -------- -------- -------- ------- ------- BALANCE, March 31, 1997............................... -- -- 150 1 -- -- -- -- Exercise of employee stock options.................... -- -- -- -- -- -- -- -- Issuance of Series C preferred stock.................. 250 1 -- -- -- -- -- -- Common shares issued for services rendered............ -- -- -- -- -- -- -- -- Conversion of Series D shares to common stock......... -- -- (150) (1) -- -- -- -- Common stock investment agreement-- net of cancellation -- -- -- -- -- -- -- -- Common shares issued for directors' fees.............. -- -- -- -- -- -- -- -- Cancellation of Series A Preferred.................... -- -- -- -- -- -- -- -- Cancellation of common stock.......................... -- -- -- -- -- -- -- -- Tweedia loan cancellation............................. -- -- -- -- -- -- -- -- Allocation of non-refundable deposit from former affiliate........................................... -- -- -- -- -- -- -- -- Other................................................. -- -- -- -- -- -- -- -- Conversion of Series C shares to common stock......... (219) (1) -- -- -- -- -- -- Issuance of Series E preferred stock.................. -- -- -- -- 74 1 -- -- Conversion of Series E shares to common stock......... -- -- -- -- (1) -- -- -- Buyback of Series C preferred stock................... (31) -- -- -- -- -- -- -- Deferred financing costs, net of amortization......... -- -- -- -- -- -- -- -- Stock options issued to third party................... -- -- -- -- -- -- -- -- Cumulative foreign currency exchange loss............. -- -- -- -- -- -- -- -- Advance to joint venture partner...................... -- -- -- -- -- -- -- -- Preferred stock dividends............................. -- -- -- -- -- -- -- -- Cancellation of Warrants.............................. -- -- -- -- -- -- -- -- Net loss.............................................. -- -- -- -- -- -- -- -------- -------- ------ -------- -------- -------- ------- ------- BALANCE, March 31, 1998............................... -- -- -- -- 73 1 -- -- Conversion of Series E shares to common stock......... -- -- -- -- (40) -- -- -- Common Shares buyback................................. -- -- -- -- -- -- -- -- Preferred Shares buyback.............................. -- -- -- -- (3) -- -- -- Cancellation of common stock investment agreement..... -- -- -- -- -- -- -- -- Issuance of Series G preferred stock.................. -- -- -- -- -- -- 20 1 Issuance of Warrants.................................. -- -- -- -- -- -- -- -- Cancellation of Warrants.............................. -- -- -- -- -- -- -- -- Cancellation of shareholders' loans and accrual interest -- -- -- -- -- -- -- -- Cumulative foreign currency exchange loss............. -- -- -- -- -- -- -- -- Preferred stock dividends............................. -- -- -- -- -- -- -- -- Cancellation of Stock options issued to third party... -- -- -- -- -- -- -- -- Options issued for services rendered.................. -- -- -- -- -- -- -- -- Net loss.............................................. -- -- -- -- -- -- -- -- -------- -------- ------ -------- -------- -------- ------- -------- BALANCE, March 31, 1999............................... -- $-- -- $-- 30 $ 1 20 $ 1 ======== ======== ====== ======== ======== ========= ====== ========
See notes to consolidated financial statements.
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 --------------- --------------------- ------------------- BALANCE, March 31, 1996............................................ $ -- $18,648,620 $(16,527,651) Issuances of Series B preferred stock.............................. -- 2,341,218 -- Conversion of Series B shares...................................... -- (1,506) -- Issuance of Series D preferred Stock............................... -- 1,499,999 -- Common shares issued for services rendered......................... -- 316,249 -- Common shares issued to employees as compensation.................. -- 318,538 -- Common shares issued for directors' fees........................... -- 89,990 -- Sale of common shares.............................................. -- 1,999,000 -- Cumulative foreign currency exchange loss.......................... -- (1,231) -- Preferred dividends................................................ -- (10,000) -- Warrants........................................................... 479,500 -- -- Net loss........................................................... -- -- (4,064,885) --------------- --------------------- ------------------- BALANCE, March 31, 1997............................................ 479,500 25,200,877 (20,592,536) Exercise of employee stock options................................. -- 34,681 -- Issuance of Series C preferred stock............................... -- 2,499,999 -- Common shares issued for services rendered......................... -- 66,934 -- Conversion of Series D shares to common stock...................... -- 129,673 -- Common stock investment agreement-- net of cancellation............ -- (1,019) -- Common shares issued for directors' fees........................... -- 84,960 -- Cancellation of Series A Preferred................................. -- (4,571,012) -- Cancellation of common stock....................................... -- 12,728 -- Tweedia loan cancellation.......................................... -- 25,000 -- Allocation of non-refundable deposit from former affiliate......... -- 850,000 -- Other.............................................................. -- (580) -- Conversion of Series C shares to common stock...................... -- (4,508) -- Issuance of Series E preferred stock............................... -- 6,759,000 -- Conversion of Series E shares to common stock...................... -- (107) -- Buyback of Series C preferred stock................................ -- (406,100) -- Deferred financing costs, net of amortization...................... 161,450 (229,415) -- Stock options issued to third party................................ -- 1,837,500 -- Cumulative foreign currency exchange loss.......................... -- 1,844 -- Advance to joint venture partner................................... -- (540,000) -- Preferred stock dividends.......................................... -- 1,398,686 (1,398,686) Cancellation of Warrants........................................... (147,000) -- -- Net loss........................................................... -- -- (5,403,368) --------------- --------------------- ------------------- BALANCE, March 31, 1998............................................ 493,950 33,149,142 (27,394,590) Conversion of Series E shares to common stock...................... -- 138,821 Common Shares buyback.............................................. -- (383,052) -- Preferred Shares buyback........................................... -- (100,000) -- Cancellation of common stock investment agreement.................. -- 1,019 -- Issuance of Series G preferred stock............................... -- 2,000,000 -- Issuance of Warrants............................................... 210,400 (210,400) -- Cancellation of Warrants........................................... (222,500) 222,500 -- Cancellation of shareholders' loans and accrual interest........... -- 2,359,621 -- Cumulative foreign currency exchange loss.......................... -- (613) -- Preferred stock dividends.......................................... -- 672,457 (672,457) Cancellation of Stock options issued to third party................ -- (918,751) -- Options issued for services rendered............................... -- 16,500 -- Net loss........................................................... -- -- (5,579,444) --------------- --------------------- ------------------- BALANCE, March 31, 1999............................................ $481,850 $36,947,244 $(33,646,491) =============== ===================== =================== PURCHASE DEFERRED DEPOSIT OPTION COSTS TOTAL ------------------ --------------- ----------------- 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 ================== =============== =================
See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 --------------- -------------- --------------- 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 =============== ============== ===============
See notes to consolidated financial statements. AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED MARCH 31, 1999, 1998 AND 1997 - ------------------------------------------------------------------------------ 1. SUPPLEMENTAL CASH INFORMATION: No interest or income taxes were paid during fiscal 1999, 1998 and 1997. 2. NONCASH FINANCING ACTIVITIES: In fiscal 1999, shareholder loans payable of $1,452,553 and related accrued interest of $907,068 were cancelled and credited to Additional Paid-In Capital. In fiscal 1999, the Company paid a dividend in kind of 210,400 as part of the issuance of Series G Preferred Stock. In fiscal 1999, 40.4 shares of Series E Convertible Preferred Stock were converted into 5,554,424 shares of common stock (inclusive of conversions of preferred dividends of $462,057). In fiscal 1999, warrants valued at $222,500 were cancelled and credited to Additional Paid-In Capital. In fiscal 1999, the Company cancelled a Common Stock Investment Agreement, as permitted by the Agreement, with Promethean Investment Group. 1,019,465 shares previously held in escrow designated for issuance under terms of the agreement were cancelled. In fiscal 1999, the option granted to the Hebei Provincial Government to acquire 3,000,000 shares of the Company's common stock at a price of $3.0625 per share was cancelled. Unamortized Deferred Option Cost valued at $918,751 was charged to Additional Paid in Capital. In fiscal 1998, 150 shares of Series D Convertible Preferred Stock were converted into 2,236,507 shares of common stock (inclusive of conversions of preferred dividends and related warrants). In fiscal 1998, 219 shares of Series C Convertible Preferred Stock were converted into 4,507,639 shares of common stock. In fiscal 1998, 0.8 share of Series E Convertible Preferred Stock was converted into 106,646 shares of common stock. In fiscal 1998, 12,727,909 shares of common stock were canceled upon determination that the full purchase price for such shares was not paid. In fiscal 1998, $850,000 Notes Payable related to a nonrefundable deposit received from a former affiliate was credited to Additional Paid in Capital. In fiscal 1998, 1,524,178 shares of the Company's Series A Convertible Preferred Shares were canceled in accordance with the terms of a subscription agreement. In fiscal 1998, the Company issued stock options valued at $1,837,500 to the Hebei provincial government in exchange for a long-term cooperation agreement. In fiscal 1997, 100 shares of Series B Preferred Stock were converted into 1,507,477 shares of common stock. See notes to consolidated financial statements. AMTEC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 1999, 1998 AND 1997 - ------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Line of Business. AmTec Inc. (the "Company" or "AmTec") through its majority-owned subsidiary (accounted for under the equity method of accounting) in the People's Republic of China ("PRC") is involved in providing financing and assistance in building telecommunications networks for third parties in the PRC. The Company, through its wholly-owned subsidiary ITV Communications, Inc. ("ITV") was engaged in the design, manufacture and sale of technologically advanced communication devices. In January 1996, the Company sold all of the business and operating assets of ITV and is no longer involved in the business that ITV was engaged in. ITV remains inactive during the year ended March 31, 1999. On July 8, 1997, the Company changed its name from AVIC Group International, Inc. to AmTec, Inc. During fiscal 1998 the Company organized two wholly-owned subsidiaries, one a Bermuda company and the other a British Virgin Island company. There was no activity in either company during the year ended March 31, 1999 and 1998. Principles of Consolidation. The consolidated financial statements include the Company's wholly-owned subsidiaries, ITV Communications, Inc, and the Bermuda company and the British Virgin Island company, as noted above, all dormant companies. All significant intercompany accounts and transactions are eliminated in consolidation. Equity Method of Accounting. The Company accounts for its subsidiary Hebei United Telecommunications Equipment Co., Ltd. ("Hebei Equipment") (a limited life Sino-foreign joint venture) using the equity method of accounting as minority shareholders of Hebei Equipment have substantive participating rights under the joint venture contracts. The Company reports its investment in Hebei Equipment under the caption Investments in and advances to unconsolidated subsidiary. Under the equity method, the investment is carried at cost of acquisition, plus the Company's equity in undistributed earnings or losses since acquisition. Equity in the losses of the unconsolidated subsidiary is recognized according to the Company's percentage ownership in the unconsolidated subsidiary until the Company contributed capital has been fully depleted. Reserves are provided where management determines that the investment or equity in earnings is not realizable. For the period ended March 31, 1998, the Company used an ownership percentage of 60.8% for purposes of calculating the share of losses of its unconsolidated subsidiary since it did not increase its ownership percentage in Hebei Equipment to 70% until after the close of Hebei Equipment's fiscal year-end on December 31, 1997. For the year ended March 31, 1999, the Company recognized 70% of losses of its unconsolidated subsidiary. Hebei Equipment owns 51% of Hebei United Telecommunications Engineering Company, Ltd. ("Hebei Engineering"). Hebei Equipment also accounts for its investment using equity method of accounting as minority shareholders of Hebei Engineering have substantive participating rights under the joint venture contracts. Difference in Year End. The Company's share of equity in losses of Hebei Equipment included in the consolidated financial statements are as of and for the years ended December 31, 1998 and 1997, Hebei Equipment's year-end. Since inception the Company has had a March 31 year-end. The Company kept this year-end even though its subsidiaries have a calendar year-end so that delays in receiving information from China would not cause problems for the Company in meeting its reporting deadlines. However, the Company does monitor events in the lag period and, where appropriate, would disclose the occurrence of any significant event during such lag period. All companies established under PRC law are required to have a December 31 fiscal year-end date. Hebei Equipment and Hebei Engineering are equity joint venture companies established under PRC law. Management Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Cash Equivalents. For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Property and Equipment. Property and equipment are recorded at cost. Depreciation is provided using the straight-line method, to write off the cost of property and equipment over their estimated useful lives, after deducting the estimated salvage value of the assets as follows: Furniture, fixtures and equipment 5 years Leasehold improvements 5 years Computer software 3 years Long-Lived Assets. The Company evaluates long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. When such events occur, the Company measures impairment by comparing the carrying value of the long-lived asset to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss. The impairment loss, if determined, would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company determined that, as of March 31, 1999 and 1998, there had been no impairment in the carrying value of the long-lived assets. Income tax. Deferred income taxes are provided for using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. The tax consequences of those differences are classified as current or non-current based upon the classification of the related assets or liabilities in the financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized. Disclosure of Fair Value of Financial Instruments. The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the immediate short-term maturity of these financial instruments. Loss Per Share. Basic loss per common share is based on the weighted average number of common shares outstanding during the year. The effect of shares issuable upon exercise of warrants and stock options is anti-dilutive, therefore diluted earnings per share is not presented. The Company adopted the provisions of FASB 128 during the fiscal year ended March 31, 1998. Adoption of such statement did not have a material effect on results of operations and financial condition. Comprehensive Income. Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" establishes new rules for reporting and display of comprehensive income and its components. Other than an insignificant amount of foreign currency transactions, the Company has no other items of other comprehensive income and the net loss reported in the statement of operations is equivalent to the total comprehensive loss. Segments of an Enterprise and Related Information. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" requires the reporting of profit and loss, specific revenue and expense items, and assets for reportable segments. It also requires the reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments, in each case to the corresponding amounts in the general purpose financial statements. The Company adopted FASB 131 during the year and since the Company only invested in the Hebei Equipment, no other reportable segments were reported in the financial statements. New accounting standard not yet adopted. The Financial Accounting Standards Board has issued a new standard SFAS No. 133 "Derivative Instruments and Hedging Activities", which, as amended, is effective for fiscal years beginning after July 1, 2000. Management has not yet completed the analysis of the impact this would have on the financial statements of the Company and has not adopted this standard. 2. INVESTMENT IN AND ADVANCE TO UNCONSOLIDATED SUBSIDIARY The Company determined that it should conduct its operations in the PRC through a Sino Foreign Joint Venture ("SFJV"), Hebei Equipment. In March 1996, the Company invested $1,170,000 in a PRC joint venture, advanced $540,000 to its joint venture partner and requested from the Hebei Provincial government approval for conversion of such company to an SFJV. In September 1996, preliminary regulatory approval for Hebei Equipment was granted and the SFJV was formed with the Company holding a 60.8% interest in the entity. In April 1997, the Company received final PRC regulatory approval for the SFJV. The Company invested an additional $276,000 in Hebei Equipment during the fiscal-year ended March 31, 1998, resulting in an increase in its holding to 70%. An additional $3,722,000 was advanced as a loan to the joint venture during the fiscal year March 31, 1998. $ 2,191,985 was repaid by Hebei Equipment during the fiscal year March 31, 1999. The Company's investments in the joint venture were accounted for by the equity method of accounting because minority shareholders of Hebei Equipment and Hebei Engineering have substantive participating rights under the provision of the Joint Venture contracts. The following summarizes the total equity investment by the Company in Hebei Equipment:
1999 1998 Investment in unconsolidated subsidiary..................... $ 2,100,000 $ 2,100,000 Less: Share of equity losses................................ (1,133,535) (747,783) ------------- ------------ 966,465 1,352,217 Add: Advance to unconsolidated subsidiary................... 1,530,015 3,722,000 ------------- ------------ Investment in and advanced to unconsolidated subsidiary..... $ 2,496,480 $ 5,074,217 ============= ============
Hebei Equipment holds a 51% interest in Hebei Engineering, which is developing GSM networks in the ten largest cities in Hebei Province, PRC. Nippon Telegraph and Telephone International, Inc. ("NTTI") and Itochu Corporation hold the remaining 49% interest in Hebei Engineering. As of March 31, 1999, Hebei Equipment's equity interest in Hebei Engineering was zero. The total investment of $1,530,000 made by Hebei Equipment in Hebei Engineering was offset by its share of equity losses in Hebei Engineering. Hebei Equipment stopped recognizing additional losses as it is not required either contractually or otherwise to make any additional capital investments. In addition, Hebei Equipment has not guaranteed any of Hebei Engineering debts. The following summarized the major activities of Hebei Equipment and its subsidiary: A. HEBEI ENGINEERING'S INVESTMENT IN GSM NETWORKS Hebei Equipment, through its 51%-owned subsidiary, Hebei Engineering has borrowed approximately $33,560,000 to purchase equipment which was contributed to China United Communications Company ("UNICOM") to construct the GSM networks in Hebei Province and has received the right to receive future cash flow. The GSM networks are being built pursuant to a 15-year Project Cooperation Contract. Terms of the Project Cooperation contract include the following: Initially, Hebei Engineering owned 100% of the assets prior to contributing such assets to UNICOM and once contributed, Hebei Engineering owned and retained title to a 70% interest in the assets and UNICOM owned and retained title to a 30% interest in the assets. Both parties agree to distribute the profit according to the "Distributable Cash Flow" (as defined) with 22% going to UNICOM and 78% going to Hebei Engineering. Each year, Hebei Engineering will transfer ownership of assets to UNICOM equal in value to the Distributable Cash Flow received up to 60% of the assets in any one year. The maximum amount of assets transferred will not exceed 90% of the assets until termination of the Project Cooperation Contract. Upon the termination of the contract the remaining 10% of the network assets shall be assigned to UNICOM without any further consideration. Hebei Engineering will continue to receive 78% of the Distributable Cash Flow after transfer of all the assets for the remainder of the 15-year period. Under PRC law, foreign investment entities, such as Hebei Engineering, are not permitted to own or operate telecommunications networks. Substantially all of the Hebei Engineering's revenues are derived from contractual arrangements for the sharing of cash flow from network operations rather than from ownership or operation of the networks. Hebei Engineering has recorded its investment (GSM Construction Costs) as a right to receive future cash flow at cost and is amortizing its cost of these rights based upon the greater of the amount computed using (a) the ratio that current gross revenues from the GSM networks to the total of current and anticipated future gross revenues from the GSM networks or (b) the straight-line method over 15 years which was the remaining estimated economic life of the GSM networks at the inception of this investment. Amortization of the Investment in GSM Networks for the year ended March 31, 1999 amounted to approximately $4,600,000. Income from the GSM Networks is recognized at the time when Hebei Engineering can estimate or calculate the portion of its Distributable Cash Flow from the Networks. UNICOM commenced operation of the GSM Networks in February 1997. Net revenue from GSM Networks recognized by Hebei Engineering for the year ended December 31, 1998 and 1997 was $781,745 and $216,348, respectively. B. SUMMARY FINANCIAL INFORMATION FOR THE UNCONSOLIDATED SUBSIDIARY The following tables represent summary financial information of the Company's subsidiary, Hebei Equipment, and its indirect subsidiary, Hebei Engineering, as of and for the years ended December 31, 1998 and 1997: HEBEI HEBEI EQUIPMENT EQUIPMENT ------------------ ------------------ 1998 1997 Revenues................................ $ - $ - ================== ================ Net (loss) income....................... $ (548,806) $ (1,239,100) ================== ================ Current assets.......................... $ 2,698,980 $ 4,891,936 Non-current assets...................... 46,904 587,612 ------------------ ---------------- Total assets............................ $ 2,745,884 $ 5,479,548 ================== ================ Current liabilities..................... $ 1,530,994 $ 3,715,850 Non-current liabilities................. - - ------------------- ---------------- Total liabilities....................... $ 1,530,994 $ 3,715,850 =================== ================ Hebei Hebei Engineering Engineering -------------------- ------------------- 1998 1997 Revenues........................ $ 781,745 $ 216,348 ============== =============== Net (loss) income............... $ (1,729,431) $ (1,972,013) ============== =============== Current assets.................. $ 3,755,416 $ 3,642,561 Non-current assets.............. 29,605,048 29,093,456 -------------- --------------- Total assets.................... $ 33,360,464 $ 32,736,017 ============== =============== Current liabilities............. $ 5,385,717 $ 10,354,023 Non-current liabilities......... 28,653,783 21,331,600 ============== =============== Total liabilities............... $ 34,039,500 $ 31,685,623 ============== =============== 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following: 1999 1998 -------------- ------------ Furniture, fixtures and equipment............. $208,277 $201,258 Leasehold improvements........................ 18,009 17,498 Computer software............................. 15,385 12,273 -------------- ------------ 241,671 231,029 Less accumulated depreciation................. 144,745 91,893 -------------- ------------ $ 96,926 $139,136 ============== ============ Depreciation expense for fiscal years ended March 31, 1999, 1998 and 1997 was $55,250, $43,432 and $28,905 respectively. 4. COMMITMENTS AND CONTINGENCIES Leases. The Company leases a facility for its corporate and operations offices under a long-term lease agreement. Minimum annual rental commitments under this lease are as follows: MARCH 31, 2000............................................. $ 334,400 2001............................................. 55,733 ---------------------- $ 390,133 ====================== Rent expense for fiscal years ended March 31, 1999, 1998 and 1997 was $356,357, $337,763 and $369,969 respectively. Employment Agreements. The Company has entered into employment agreements with officers expiring through January 2001 with aggregate annual salaries of $1,000,000. Litigation. A first amended complaint, dated April 15, 1996, was filed against the Company, ITV, and other parties, including certain of the Company's officers, directors and principal stockholders, by Jacqueline Brandwynne, a stockholder of the Company, in a matter captioned "Jacqueline B. Brandwynne vs. AVIC Group International, Inc., et al." The complaint, filed in the Superior Court of California, County of Los Angeles, alleges fraud, misrepresentation and breach of contract with respect to the sale of 666,667 shares of ITV stock for $1,000,000 prior to the completion of the Reorganization Agreement between the Company and ITV (the "Reorganization Agreement") in February 1995, in connection with which the shares of ITV were exchanged on a two for one basis for shares of the Company. The complaint alleges that certain misrepresentations were made in connection with the sale of the 666,667 shares and that the claimant was entitled to receive 666,667 shares of the Company after the completion of the Reorganization Agreement. The complaint seeks rescission of the transaction and damages of no less than $1,000,000. The complaint also alleges a claim in connection with an alleged oral employment agreement for 125,000 options to purchase shares of the Company's Common Stock at an exercise price of $0.35 per share and the right to purchase additional shares of Common Stock at $1.00 per share, plus other benefits, including a salary of no less than $130,000. Management of the Company believes that these claims are without merit, that there are valid defenses to each claim and is in the process of vigorously defending the matter. (See note 10) The Company is not aware of any pending litigation that could have a materially adverse effect on the Company's business, financial condition or results of operations. Regulation. The PRC's legal system is a civil law system based on written statutes and is a system in which decided legal cases have little precedential value. The PRC Government began to promulgate a comprehensive system of laws in 1979. Many laws and regulations governing economic matters in general have been promulgated. The general effect of this legislation has been to enhance the protection afforded to foreign invested enterprises in the PRC. However, as these laws and regulations are relatively new, their interpretation and enforcement involve significant uncertainty. The current PRC regulations prohibit foreign investors and foreign invested enterprises from operating or participating in the operation of telecommunications networks in China. The relevant PRC laws and regulations do not define what constitutes foreign operations or participation in operations, and it is not clear what rights or actions would violate such laws and regulations. Based on advice of its Chinese legal counsel, the Company has structured its investments in China by establishing Chinese-foreign joint ventures in the PRC to provide financing and consultancy services to licensed telecommunications operators, i.e., utilizing the commonly-known Chinese-Chinese-Foreign ("CCF") structure. The PRC Government is currently undertaking a review of the CCF structure used by Unicom. It has been reported that Unicom has been instructed by the PRC Government not to use the CCF structure in the future and that the PRC Government is examining and evaluating the existing CCF contracts. It is unclear if, and to what extent, the existing CCF contracts entered into by Unicom will be required to be amended. It is also unclear whether foreign entities involved in the CCF structures will be required to divest themselves of their respective interests in the Chinese-foreign joint venture companies. The evaluation of the CCF structure by the PRC Government may have a material adverse impact on the contracts entered into by Hebei Engineering and by the Company which utilize the CCF structure and may have a material adverse effect on the Company's business, financial condition and results of operations. In order to provide a uniform regulatory framework to encourage the orderly development of the PRC telecommunications industry, the PRC authorities are currently preparing a draft Telecommunications Law. Once formulated, the draft law will be submitted to the National People's Congress for review and adoption. It is unclear if and when the Telecommunications Law will be adopted. The nature and the scope of the regulation envisaged by the Telecommunications Law is not fully known but the Company believes that, if adopted, the Telecommunications Law will have a positive effect on the overall development of the telecommunications industry in the PRC. However, the Telecommunications Law, if adopted, may have an adverse effect on the Company's business, financial condition or results of operations. The Chinese laws and regulations governing the telecommunications industry may also be changed or applied in a manner which would have a material adverse effect on the business, financial condition and results of operations of the Company. Each of the Company's joint ventures, Hebei Equipment and Hebei Engineering, is organized under the laws of the PRC as a Sino-foreign equity joint venture enterprise, a distinct legal entity with limited liability. Such entities are governed by the Law of the PRC on Joint Ventures Using Chinese and Foreign Investments, and implementing regulations related thereto. The parties to an equity joint venture have rights to the financial returns of the joint venture in proportion to the joint venture interests that they hold. The operation of equity joint ventures is subject to an extensive body of law governing such matters as formation registration, capital contribution, capital distributions, accounting, taxation, foreign exchange, labor and liquidation. The transfer or increase of an interest in a Sino-foreign equity joint venture enterprise requires agreement among the parties to the venture and is effective upon approval of relevant government agencies. Foreign Currency Exchange. The Company's joint ventures will receive nearly all of their revenue in Renminbi, which will need to be converted to other currencies, primarily U.S. dollars, and remitted outside of the PRC. Although the Renminbi is not a freely convertible currency at present, effective July 1, 1996, foreign currency "current account" transactions by foreign investment enterprises, including Sino-foreign joint ventures, are no longer subject to the approval of State Administration of Foreign Exchange ("SAFE", formerly, "State Administration of Exchange Control"). These transactions need only a ministerial review, according to the Administration of the Settlement, Sale and Payment of Foreign Exchange Provisions promulgated in 1996. "Current account" items include international commercial transactions, which occur on a regular basis, such as those relating to trade and provision of services. Distributions to joint venture parties also are considered a "current account transaction." Other noncurrent account items, known as "capital account" items, remain subject to SAFE approval. 5. STOCKHOLDERS' EQUITY Cancellation of Loans Payable to Shareholders. In fiscal 1999, loans payable and accrued interest in the amount of $2,359,621 were cancelled and credited to Additional Paid-In Capital account. Cancellation of Certain Shares of Common Stock. On December 8, 1997, the Company reduced its outstanding common stock and credited its Additional Paid in Capital $12,728 as a result of canceling 12,727,909 shares of its common stock and 318,182 options to purchase its common stock issued to Tweedia International, Ltd. The cancellation was based on a determination that the full purchase price for the shares was never paid. The 12,727,909 canceled shares represented approximately thirty-eight percent of the total number of the Company's common shares outstanding prior to the cancellation of such shares. Repurchase of Common Stock. On September 14, 1998 the Company announced its intention to purchase up to $1 million of its Common Stock on the open market. As of March 31, 1999, the Company had purchased 330,800 shares under this program for a total cost of approximately $383,383. All the common stock repurchased were cancelled as of March 31, 1999. Sale of Common Stock. In November 1996, the Company sold 1,000,000 shares of the Company's common stock through subscription agreements. The Company received $2 million in proceeds with respect to these subscriptions. The price per share reflected the quoted market value of the common shares at the time of the transactions. During fiscal 1998, 69,000 common shares were issued in connection with the exercise of certain employee stock options. Proceeds from these issuance aggregated $34,750. Series A Convertible Preferred Stock. On August 19, 1997, upon determination that the entire amount of a nonrefundable deposit had been forfeited by a former affiliate, the Company canceled all of the outstanding Series A Convertible Preferred Stock (the "Series A Shares"). On December 19, 1995, the Company had issued 1,524,178 shares of the Company's Series A Shares in consideration of the transfer of a $4,572,536 nonrefundable equipment purchase deposit to the Company from a former affiliate. The Subscription Agreement for the Series A Convertible Preferred Stock provided that, if all or any portion of the deposit should be forfeited at any time and for any reason whatsoever by the former affiliate an equivalent number of the Series A Shares issued to it would be canceled. Series B Convertible Preferred Stock. In June 1996, the Company completed a $2,500,000 offering of its Series B Convertible Preferred Stock ("Series B Preferred"). The net proceeds the Company received were approximately $2,341,000. The offering consisted of 100 shares of Series B Preferred at $25,000 per share and warrants to purchase common stock of the Company. Each warrant entitled the holder to purchase one share of common stock at a fixed conversion price. During fiscal 1997, all outstanding Series B shares were converted to 1,507,477 common shares. Series D Convertible Preferred Stock. In March 1997, the Company completed a $1,500,000 offering of its Series D Convertible Preferred Stock ("Series D Preferred"). The offering consisted of 150 shares of Series D Preferred at $10,000 per share and warrants to purchase common stock of the Company. The holder was entitled to cumulative dividends at the annual rate of 8% per annum per share, payable quarterly in shares of Common Stock or, in cash in connection with any payment pursuant to a Conversion Default at the election of the Company's board of directors. During fiscal 1998, the Series D Preferred was converted into common stock of the Company at a conversion rate equal to the lowest trading price of the Company's common stock during the 30 days preceding each conversion date. In addition, the Series D Preferred shareholders converted their warrants into common stock at prices aggregating $131,909. Such Series D Preferred and warrants conversions aggregated 2,236,507 shares. In connection with the discount for the above conversion, the Company credited Additional Paid in Capital $48,677 and charged preferred dividends in an equal amount. Series C Convertible Preferred Stock. In June 1997, the Company completed a $2,500,000 offering of its Series C Convertible Preferred Stock ("Series C Preferred"). The offering consisted of 250 shares of Series C Preferred at $10,000 per share and entitled the holder to cumulative dividends at an annual rate of 8% per annum per share. The dividends were payable quarterly in shares of Common Stock or, in cash in connection with any payment pursuant to a Conversion Default at the election of the Company's board of directors. Such Series C shares were converted at conversion rates equal to the lowest trading price of the Company's common stock during the 30 business days immediately preceding each conversion date. During fiscal 1998, 219 outstanding Series C shares were converted into 4,507,639 common shares. In addition, the Company repurchased for consideration of $406,100 and retired 31 Series C shares. In connection with the discount for the above conversion, the Company credited Additional Paid in Capital $260,784 and charged preferred dividends in an equal amount. Series E Convertible Preferred Stock. On October 22, 1997, the Company issued 74 shares of its Series E Convertible Preferred Stock (the "Series E Preferred"), par value $.001 per share and at a price of $100,000 per share and paying an 8% in-kind dividends. The net proceeds the Company received were approximately $6,759,000. The Series E Preferred has a stated liquidation preference value of $100,000 per share plus accrued in-kind 8% dividends since the date of issuance. Such liquidation preference is senior to all common stock but in parity with other series of preferred stock of the Company. The holders of Series E Preferred have no voting rights except with respect to certain matters that affect the rights related to the Series E Preferred. Conversion of the Series E Preferred into Common Stock, which are restricted by certain "lock-up" agreements, is based on the lower of: (i) the lesser of a 10% premium to the market price of the Company's Common Stock, as reported on the American Stock Exchange, at the time of the investment's closing or of a 10% premium to the 10 day average trading price six months after the close or (ii) a discount to the lowest trade during the five (5) trading days prior to each conversion. The discount, which ranges from 15% to 20%, depends upon the date of the shareholders' conversion of the Series E Preferred, with the discount increasing as the period the shares are held increases. Warrants were issued to five of the Series E Investors to purchase up to 1,236,364 shares of the Company's Common Stock at a price equal to 120% of the market price of the Company's Common Stock at the time of the investment's closing. The number of warrants issued to each investor depended upon the amount invested and the length of the "lock-up" agreed upon between the Company and investor. The Company registered 13,832,792 shares of common stock on January 16, 1998, to cover the common stock issuable to the Series E Holders upon conversion of their Series E shares and exercise of their warrants. As of March 31, 1999, 41.16 share of the Series E Preferred Stock was converted into 5,661,070 shares of the Company's common stock. On November 10, 1998, 38.5 shares of the Company's Series E Preferred were acquired from an investment fund by the Company and investors known to the Company. As a result of this transaction, the Company bought back 3.08 shares of its Series E Preferred for $100,000. All of the Series E Preferred repurchased by the Company, which have 53,655 warrants attached, were retired and cancelled on January 20, 1999. 35.42 of the Series E Preferred bought by other investors were converted to Common Stocks on November 11, 1998. In connection to the conversion, the investors entered into a non-binding agreement to hold the converted Common Stock for a specified period of time. An additional 141,680 shares of Common Stocks were issued to the investors with respect to the agreement entered and $144,375 was charged to expenses in the statement of operations. Series G Convertible Preferred Stock. In March 1999, the Company completed a $2,000,000 offering of its Series G Convertible Preferred Stock ("Series G Preferred"). The offering consisted of 20 shares of Series G Preferred at $100,000 per share and warrants to purchase common stock of the Company. Each warrant entitled the holder to purchase one share of common stock at a fixed exercise price of $1.25 per share. The Company allocated $210,400 for the warrants issued using a Black-Scholes model. The value allocated to the Series G Preferred was $1,789,600. In connection with the discount on the Series G Preferred, the Company credited Additional Paid-in Capital $210,400 and charged preferred dividends in an equal amount. The Series G Preferred has a stated liquidation preference value of $100,000 per share plus 8% accrued in-kind dividends since the date of issuance. Such liquidation preference is senior to all common stock but in parity with other series of preferred stock of the Company. The holders of Series G Preferred have no voting rights except with respect to certain matters that affect the rights related to the Series G Preferred. There was no conversion on Series G Preferred up to March 31, 1999. Stock Warrants. During fiscal 1999, the Company issued 600,000 warrants to purchase the Company's common stock at a fixed exercise price of $1.25 per share. The warrants were issued in connection with the Company's issuance of Series G Preferred (see Series G Convertible Preferred Stock). During fiscal 1998, the Company issued warrants to purchase 326,171 shares of the Company's Common Stock to the Placement Agent as fees for services in connection with the placement of the Series E Preferred described above. These warrants have an exercise price of $2.475 per share and expire on October 22, 2002. The Company has assigned a value of $161,450 to these warrants. During fiscal 1998, the Company rescinded an agreement it entered into in July 1996 with an investment banking firm in which such firm was to act as a financial advisor to the Company. As part of this rescission the Company canceled warrants to purchase 200,000 shares of the Company's common stock. Professional fees and Warrants were reduced by $147,000 to reflect this cancellation. During fiscal 1997, the Company issued 186,111 warrants to purchase the Company's common stock at a conversion price of 110% of the quoted market value at the time of grant. The warrants were issued in connection with the Company's issuance of Series B Preferred (see Series B Convertible Preferred Stock). On October 15, 1996, the Company agreed to issue warrants to purchase 200,000 shares of the Company's Common Stock to an advisor for services related to advising the Company with respect to its Sino-foreign joint ventures and marketing activities in the PRC. The warrants issued have a three year term and an exercise price of $1.50, which was the market value of the Company's Common Stock the warrants were issued. In connection with this agreement, the Company recorded $110,000 in professional fees which management determined to be the fair value of the warrants. In connection with a financial services agreement which has been cancelled during 1999, the Company issued 600,000 warrants to an investment banking firm, 300,000 of which vested at the time the agreement was entered into and 300,000 which were to vest when such firm had raised a minimum of $10 million. During fiscal 1997, with respect to the vested 300,000 warrants, the Company recorded $222,500 in professional fees which management determined to be the fair value of the warrants. The warrants were not exercised and were subsequently cancelled during fiscal 1999. The value of such warrants was credited to Additional Paid-In Capital upon cancellation. Issuance of Common Stock for Services - During the year ended March 31, 1998 the Company issued shares of its common stock for services rendered. The number of shares issued in each case was based upon the quoted market value of the stock at the issue date and the value of the services rendered. Total shares issued in connection with these services amounted to 63,233 covering the $151,957 of expenses which are included in the accompanying financial statements. In April 1996, two outside directors each received 5,000 shares of common stock for a total value of $90,000 which was recorded as compensation expense. The number of shares issued was based on the quoted market value of the common stock at the time of issuance. In May 1996, 5,000 shares of the Company's common stock were issued as payment for $45,625 of services rendered. In December 1996, 5,000 shares of the Company's common stock were issued as payment for $18,125 for services rendered. Both issuance have been recorded as professional fees at a value of the quoted market price of the common stock at the time of the transaction. In October 1996, the Company entered into agreements to settle $98,000 of outstanding professional fees through the issuance of options to purchase 44,962 common shares. The number of shares was determined based upon the quoted market value of the shares at the time of issuance. The Promethean Common Stock Equity Agreement. On March 31, 1997 the Company entered into a Common Stock Investment Agreement with Promethean Investment Group L.L.C. ("Promethean") pursuant to which Promethean would provide a $10 million equity line to the Company. The agreement was cancelled during fiscal year 1999 by the Company in accordance with the terms in the agreement. Initially, 1,570,998 shares were issued into escrow on behalf of Promethean. During the year ended March 31, 1998, none of the shares issued under this agreement were released from escrow. During the year ended March 31, 1999, this agreement was cancelled and all the shares issued into escrow on behalf of Promethean were cancelled. Stock Options. The Company has adopted two stock option plans (the AmTec, Inc. 1995 Stock Plan and the AmTec, Inc. 1996 Stock Option Plan). Incentive and nonqualified options and stock appreciation rights may be granted to employees, officers, directors, and consultants of the Company. There are 12,500,000 shares of common stock reserved for issuance under these plans. The exercise price of the options are determined by the board of directors, but in the case of an incentive stock option, the exercise price may not be less than 100% of the fair market value on the date of grant. Options vest over periods not to exceed ten years. A summary of the status of all of the Company's stock options issued as of March 31, 1999, 1998 and 1997 and changes during the years then ended is presented below:
March 31, 1999 March 31, 1998 March 31, 1997 ----------------------- --------------------- -------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE NUMBER PRICE NUMBER PRICE NUMBER PRICE ----------- ---------- ----------- ---------- -------------- ---------- 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 =========== =========== ==============
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:
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 - ------------------ ------------------- ---------------------- ------------- ------------------- -------------- $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 =================== ===================
The Company applies APB Opinion No. 25 and related Interpretations in accounting for its employee plans. Accordingly, no compensation cost has been recognized with respect to such plans. Had compensation cost for the Company's stock option plans been determined consistent with Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net earnings and earnings per share would have approximated the pro forma amounts indicated below:
1999 1998 ----------------- ---------------- Net loss applicable to common shares - as reported $ (6,251,901) $ (6,802,054) ================= ================ Net loss - pro forma $ (6,812,194) $ (8,635,367) ================= ================ Loss per common share - as reported $ (0.23) $ (0.23) ================= ================ Loss per common share - pro forma $ (0.25) $ (0.29) ================= ================
6. NONREFUNDABLE DEPOSIT On March 31, 1998, the Company reduced notes payable of $850,000 related to a nonrefundable deposit it received from a former affiliate. Additional Paid-In Capital was credited for an equal amount. 7. INCOME TAXES The Company had net losses for 1999, 1998 and 1997 and, therefore, no income taxes have been provided. As of March 31, 1999, the Company has federal net operating loss carry forwards of approximately $8,933,722 through 2014. Significant components of the Company's deferred assets and tax liabilities for federal income taxes consist of the following: 1999 1998 -------------- ------------- Deferred tax assets: Net operating loss carryforwards $ 4,125,593 $ 6,394,688 Start-up and other costs 6,623,557 3,027,575 Research credit 266,000 266,000 -------------- ------------- Total deferred tax assets (11,015,150) 9,688,263 Valuation allowance for deferred tax assets (11,015,150) (9,688,263) -------------- ------------- Net deferred tax assets $ - $ - ============== ============= The net change in the valuation allowance for the years ended March 31, 1999 and 1998 was an increase of $1,326,887 and $1,976,552, respectively. 8. ITEMS RECORDED IN THE FOURTH QUARTER The Company recorded the following noncash items in the fourth quarter of fiscal 1999: In connection to Series E Preferred conversion, an additional 141,680 shares of Common Stocks were issued to some investors with respect to a non-binding agreement to hold the converted Common Stock for a specified period of time and $144,375 was charged to expenses in the statement of operations. The Company recorded the following noncash items in the fourth quarter of fiscal 1998: Preferred stock dividends payable in the form of common stock of $1,399,000; A value of stock options awarded to non employees of $1,837,500 was recognized and $459,375 of such value was amortized, and Professional fees were reduced by $147,000 as a result of the cancellation of 200,000 warrants issued to an investment-banking firm. 9. SIGNIFICANT TRANSACTIONS On August 27, 1998 the Company signed an agreement with a subsidiary of Global TeleSystems, Inc. ("GTS"), under which a subsidiary of GTS will acquire approximately 5.9 million shares of the Company's common stock and the Company, through a subsidiary, will acquire GTS's 75% interest in a Shanghai-based joint venture. This joint venture hold the rights to a majority share of the cash flow generated by Shanghai VSAT Network Systems (SVC), the premier satellite-based telecommunications network operator in China. The consummation of this transaction with GTS is subject to various conditions, including receipt of necessary governmental approvals and other customary closing conditions. In addition, under the American Stock Exchange guidelines the Company will be required to obtain shareholder approval for the number of shares related to this issuance that are in excess of 19.9% of the Common Stock outstanding on the date of issuance. Once all of the conditions in China necessary for the consummation of the transaction are completed, the Company's shareholders will be asked to approve the necessary increase in the shares to be issued for such transaction. At present, GTS is working to complete the pre-closing conditions in China, including obtaining the necessary governmental approvals. The successful completion of this merger is subject to final due diligence and shareholder approval, among other conditions. On December 23, 1998, the company signed an agreement with UIHH, an indirect subsidiary of United International Holdings, Inc., under which AmTec will issue to UIHH's direct parent company $12 million of convertible preferred stock ("Series F Shares") in exchange for 100% of the common stock of UIHH. UIHH holds a 49% interest in a Sino-foreign joint venture with the Broadcasting Bureau of Hunan, the monopoly cable television operator in Hunan Province, People's Republic of China. The consummation of this transaction with UIHH is subject to various conditions, including receipt of necessary governmental approvals and other customary closing conditions. In addition, under the American Stock Exchange guidelines the Company will be required to obtain shareholder approval for the number of Common Stock related to this issuance that are in excess of 19.9% of the Common Stock outstanding on the date of issuance. Once all of the conditions in China necessary for the consummation of the transaction are completed, the Company's shareholders will be asked to approve the necessary increase in the shares to be issued for the transaction. At present, UIH is working to complete the pre-closing conditions in China, including necessary governmental approvals. The successful completion of this merger is subject to final due diligence and shareholder approval, among other conditions. 10. SUBSEQUENT EVENTS On April 28, 1999, the Company formed a 50-50% joint venture, IP.TEL, LLC with Fusion Telecommunications International, Inc. ("Fusion"), a private facilities-based, multinational long-distance company. Fusion's current service offerings include voice and data, switched and dedicated, domestic and international long-distance and domestic and international prepaid calling cards, provided through a network of owned and leased facilities, leased lines and resale agreements. The joint venture will provide value-added telecommunication services, including telephony and data, to and from Asia. Utilizing the Company's established presence in China and Fusion's telecommunications franchise, the companies plan to expand the service offerings of the joint venture to include a fully integrated Internet protocol based network to provide voice and fax services. The joint venture agreement includes language that gives both parties the right of first refusal regarding projects in China within the scope of IP.TEL, LLC's business proposition. During May 1999, the Company formed a three-way alliance with Fusion and IXS.NET, a private IP fax service provider, to develop IP fax services Asia. The Company and Fusion agreed to make an equal convertible debt investment into IXS.NET and the Company has an option to acquire up to 50% of IXS.NET. The Company has invested $175,000 under a loan agreement to IXS.NET and expects to enter into an eighteen months convertible debt agreement shortly. The convertible debt agreement will allow for the Company to advance up to $575,000 over the eighteen months period, subject to certain terms and conditions. The business is in the process of starting up in Hebei Province. During the next quarter, the Company anticipates obtaining licenses to expand the service in Sichuan, Beijing, Tanjain and other provinces in China. With respect to the complaint related to the "Jacqueline B. Brandwynne vs. AVIC Group International, Inc., et al.", on June 18, 1999, the Company and Jacqueline B. Brandwynne have reached a settlement in principle of the legal proceedings. Subject to documentation and signing of the final agreement, the parties have agreed to release each other from all claims. The Company has agreed to pay Ms. Brandwynne $250,000 in AmTec Common Stock, which includes her claim for attorney's fees. A full provision for the settlement amount was made during the year ended March 31, 1999. While the management of the Company believes that these claims are without merit, and that there are valid defenses to each claim, management believes it is in the best interest of the Company to settle the litigation, eliminate any possible liability exposure, and avoid additional legal fees to defend the litigation. INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD. We have audited the accompanying balance sheets of Hebei United Telecommunications Equipment Co., Ltd. as of December 31, 1998 and 1997 and the related statements of operations, investors' equity and cash flows for the year ended December 31, 1998 and the period April 29, 1997 (commencement of operations) to December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Hebei United Telecommunications Equipment Co., Ltd. as of December 31, 1998 and 1997 and the results of its operations and its cash flows for the year ended December 31, 1998 and the period April 29, 1997 (commencement of operations) to December 31, 1997 in conformity with accounting principles generally accepted in the United States of America. Deloitte Touche Tohmatsu Beijing, People's Republic of China June 1, 1999 HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD. BALANCE SHEETS DECEMBER 31, 1998 AND 1997
December 31, 1998 December 31, 1997 ------------------ ---------------- RMB RMB Assets Current Assets: Cash and cash equivalents 16,232,535 39,500,312 Other receivables 6,169,000 1,102,753 ------------------ ---------------- Total current assets 22,401,535 40,603,065 Property and equipment, net 389,305 493,430 Investments in a Joint Venture - 4,383,750 ------------------ ---------------- Total Assets 22,790,840 45,480,245 ================== ================ Liabilities and Investors' Equity Current Liabilities: Amount due to an investor 12,656,909 30,808,631 Other payables 50,340 32,925 ------------------ ---------------- Total current liabilities 12,707,249 30,841,556 ------------------ ---------------- Total Liabilities 12,707,249 30,841,556 ------------------ ---------------- Commitments and Contingencies Investors' Equity: Capital contribution 24,923,218 24,923,218 Accumulated deficit (14,839,627) (10,284,529) ------------------ ---------------- Total Investors' Equity 10,083,591 14,638,689 ------------------ ---------------- Total Liabilities and Investors' Equity 22,790,840 45,480,245 ================== ================ See notes to financial statements
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD APRIL 29, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
April 29, 1997 Year ended (commencement of December 31, operations) to 1998 December 31, 1997 --------------- ----------------- RMB RMB General and administrative expenses (1,508,326) (758,658) Other (expense) income: Operation set up expense - (2,000,000) Share of losses of investment in Joint Venture (4,383,750) (8,347,533) Exchange loss - (24,680) Interest income 1,336,978 846,342 --------------- ------------ Net loss (4,555,098) (10,284,529) =============== ============= See notes to financial statements
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD. STATEMENTS OF INVESTORS' EQUITY DECEMBER 31, 1998 AND 1997
Capital Accumulated Total Contribution Deficit ------------------ ------------------- ------------------ RMB RMB RMB Balance, April 29, 1997 - - - Capital contribution 24,923,218 - 24,923,218 Net loss - (10,284,529) (10,284,529) ------------------ ------------------- ------------------ Balance, December 31, 1997 24,923,218 (10,284,529) 14,638,689 Net loss - (4,555,098) (4,555,098) Balance, December 31, 1998 24,923,218 (14,839,627) 10,083,591 ================== =================== ================== See notes to financial statements
HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD. STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD APRIL 29, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
April 29, 1997 (commencement of Year ended operations) to December 31, 1998 December 31, 1997 ---------------------- ----------------- RMB RMB Cash flows from operating activities: Net loss (4,555,098) (10,284,529) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 95,981 37,928 Loss on disposal of equipment 10,944 - Equity in losses of investment in Joint Venture 4,383,750 8,347,533 Changes in assets and liabilities: Other receivables (5,066,247) (1,102,753) Amount due to an investor (18,151,722) 30,808,631 Other payables 17,415 32,925 ------------- -------------- Net cash (used in) provided by operating activities (23,264,977) 27,839,735 ------------- -------------- Cash flows from investing activities: Additions of property and equipment (2,800) (531,358) ------------- -------------- Net cash used in investing activities (2,800) (531,358) ------------- -------------- Cash flow from financing activities: Capital contribution - 12,191,935 ------------ ------------- Net cash provided by financing activities - 12,191,935 ------------ ------------- Net (decrease) increase in cash and cash equivalents (23,267,777) 39,500,312 Cash and cash equivalents, beginning of period 39,500,312 - ------------- ------------ Cash and cash equivalents, end of period 16,232,535 39,500,312 ============ ============
NON-CASH TRANSACTIONS: During the period ended December 31, 1997, DEVELOPMENT CO. and CATCH contributed their interest in a Joint Venture valued at RMB 12,731,283 into the Company as capital contribution. See notes to financial statements. HEBEI UNITED TELECOMMUNICATIONS EQUIPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD APRIL 29, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997 1. ORGANIZATION Hebei United Telecommunications Equipment Co., Ltd ("the Company") was established on April 29, 1997 as a limited liability joint venture company in the People's Republic of China ("PRC"). The period of operation is twenty years. The registered capital of the Company was US$3 million, of which 60.8% (US$ 1.824 million) was contributed by AmTec, Inc. (formerly known as AVIC Group International, Inc.), 9.2% (US$ 276,000) by CATCH Telecommunication Co., Ltd. (the "CATCH") and 30% (US$ 900,000) by Hebei United Telecommunications Development Co., Ltd. (the "DEVELOPMENT CO."). On November 7, 1997, CATCH agreed to transfer its interest in the Company to AmTec, Inc. Subsequent to the transfer (which occurred after December 31, 1997), AmTec, Inc. owns 70% (US$ 2.1 million) and DEVELOPMENT CO. owns 30% (US$900,000) of the Company's registered capital. The Company's major activity to date is an investment in a Chinese joint venture which is mainly engaged in the development and construction of telecommunication systems, and providing related technical consulting and repair services. 2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). This basis of accounting differs from that used in the statutory financial statements of the Company, which are required to be prepared in accordance with the accounting principles and relevant financial regulations as established by the Ministry of Finance of the PRC. The principal adjustments made to conform the statutory financial statements of the Company to US GAAP included the following: o Adjustment to write off organization and operation set up expenses. o Adjustment to write off exchange loss. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies which have been adopted in preparing the financial statements set out in this report, and which conform with accounting principles generally accepted in the United States of America are as follows: Cash and cash equivalents. Cash and cash equivalents include cash on hand, demand deposits and highly liquid instruments with a maturity of three months or less at the time of purchase. Property and equipment. Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method to write off the cost of property and equipment, net of the estimated residual value of 10% of cost, over their estimated useful lives as follows: Furniture, fixture and equipment 5 years Motor vehicles 5 years Long lived assets. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. When such events occur, the Company measures impairment by comparing the carrying value of the long-lived asset to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss. The impairment loss, if determined, would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Investment in Joint Venture. Hebei Equipment owns 51% of Hebei United Telecommunications Engineering Company, Ltd. ("Hebei Engineering"). Hebei Equipment accounts for its investment using equity method of accounting as minority shareholders of Hebei Engineering have substantive participating rights under the joint venture contracts. Under the equity method, the investment is carried at cost of acquisition, plus the Company's equity in undistributed earnings or losses since acquisition. Equity in the losses of the unconsolidated subsidiary is recognized according to the Company's percentage ownership in the unconsolidated subsidiary until the Company contributed capital has been fully depleted. Income tax. Deferred income taxes are provided for using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. The tax consequences of those differences are classified as current or non-current based upon the classification of the related assets or liabilities in the financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized. Foreign currency translation. The Company's financial statements are prepared using Renminbi as the reporting currency. Foreign currency transactions are translated at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the rates ruling on the balance sheet date. Exchange gains and losses are reported in the statement of operation. Comprehensive Income. Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" establishes new rules for reporting and display of comprehensive income and its components. The Company has no items of other comprehensive income and the net loss reported in the statement of operations is equivalent to the total comprehensive loss. Segments of an Enterprise and Related Information. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" requires the reporting of profit and loss, specific revenue and expense items, and assets for reportable segments. It also requires the reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments, in each case to the corresponding amounts in the general purpose financial statements. The Company adopted FASB 131 during the year and since the Company only invested in the Hebei Engineering, no other reportable segments were reported in the financial statements. Concentration of credit risk. Financial instruments that potentially subject the Company to concentrations of credit risk consists principally of temporary cash investments. The Company places its temporary cash investments with various financial institutions in the PRC. The Company believes that no significant credit risk exists as these investments are made with high-credit, quality financial institutions. Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosures of contingent assets and liabilities in the financial statements and recorded amounts of revenue and expenses during the period. Actual results could differ from these estimates. Fair value of financial instrument. The carrying values of cash and cash equivalents, other receivables, other payables, and amount due to an investor approximate fair value because of the short maturity of these instruments. New accounting standard not yet adopted. The Financial Accounting Standards Board has issued a new standard SFAS No. 133, "Derivative Instruments and Hedging Activities", which is effective for fiscal years beginning after June 15, 1999. Management has not yet completed the analysis of the impact this would have on the financial statements of the Company and has not yet adopted this standard. 4. OPERATION SET UP EXPENSE Amount represents payment to CATCH for services provided in connection with the formation of the Company. 5. INCOME TAX The statutory income tax rate of the Company is 33%. There is no provision for the income taxes during the year ended December 31, 1998 and the period from April 29, 1997 (commencement of operations) to December 31, 1997 as the Company incurred losses during the relevant periods. Deferred tax assets of RMB695,754 and RMB639,209 existed as at the end of 1998 and 1997, respectively, arising from a temporary difference. A valuation allowance has been established for the full amount of the deferred tax assets since it is considered more likely than not that all of the deferred assets will not be realized. Deferred tax assets are composed of the following: December 31, ------------------------------------- 1998 1997 --------------- ---------------- RMB RMB Operation set up expense 660,000 660,000 Organization expenses 20,948 (60,980) Exchange gain/loss 8,144 8,144 Other 6,662 32,045 Valuation allowance (695,754) (639,209) --------------- ---------------- - - =============== ================ 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following: DECEMBER 31, DECEMBER 31, 1998 1997 ------------------- -------------- RMB RMB At cost: Furniture, fixtures and equipment 222,358 233,958 Motor vehicles 297,400 297,400 ------------------- -------------- 519,758 531,358 Less: Accumulated depreciation 130,453 37,928 ------------------- -------------- 389,305 493,430 =================== ============== All assets are located in the PRC. 7. INVESTMENT IN A JOINT VENTURE The Company holds a 51% interest in Hebei Engineering, which is developing GSM networks in the ten largest cities in Hebei Province, PRC. Nippon Telegraph and Telephone International, Inc. ("NTTI") and Itochu Corporation hold the remaining 49% interest in Hebei Engineering. The Company's investment in the joint venture were accounted for by the equity method of accounting because minority shareholders of Hebei Engineering have substantive participating rights under the provision of the Joint Venture contracts.(See Note 3) DECEMBER 31, DECEMBER 31, 1998 1997 ------------------ ------------------- RMB RMB Cost 12,731,283 12,731,283 Less: Share of losses (12,731,283) (8,347,533) ------------------ -------------------- - 4,383,750 ================== =================== Hebei Engineering is a Sino-foreign equity joint venture established on January 31, 1996 in the PRC. The period of operation is twenty-five years. The registered capital of the Company is US$ 3 million. The Company is mainly engaged in the development and construction of telecommunication systems, and providing related technical consulting services. The summarized balance sheet of Hebei Engineering as of December 31, 1998 and 1997 and its statement of operations for the years ended December 31, 1998 and the period April 29, 1997 (commencement of operations) to December 31, 1997 are as follows:
BALANCE SHEET DECEMBER 31, DECEMBER 31, 1998 1997 --------------------- --------------------- RMB RMB 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 ===================== ===================== STATEMENT OF OPERATIONS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1997 --------------------- --------------------- RMB RMB Net revenue from GSM networks 6,488,482 1,706,499 Total expenses (22,726,394) (20,348,240) --------------------- --------------------- Net loss from operations (16,237,912) (18,641,741) Total other income, net 1,883,636 2,274,029 --------------------- --------------------- Net loss (14,354,276) (16,367,712) ===================== =====================
8. AMOUNT DUE TO AN INVESTOR The amount represents funds advanced to the Company by AmTec, Inc. These amounts are payable on demand and bear no interest. 9. CAPITAL CONTRIBUTION DECEMBER 31, 1998 AND 1997 ----------------------------------------- OWNERSHIP RMB ----------------- ----------------- CAPITAL CONTRIBUTED BY: DEVELOPMENT CO. 30% 7,480,150 AmTec Inc. 70% 17,443,068 ----------------- ----------------- 100% 24,923,218 ================= ================= 10. COMMITMENTS The Company leases certain buildings under operating leases, which expire through March 1999. Rental expense under operating leases was RMB 100,128 and RMB 62,580 in 1998 and 1997 respectively. The aggregate annual minimum operating lease commitments under all non-cancellable leases at December 31, 1998 is RMB 16,700 for a lease expiring during the fiscal year 1999. 11. RETIREMENT BENEFITS The Company's employees are entitled to a retirement pension calculated with reference to their basic salaries on retirement and their length of service in accordance with a government managed pension plan. The PRC government is responsible for the pension liability to these retired employees. The Company is required to make contributions to the state retirement plan at rates ranging from 18% to 20% of the adjusted monthly basic salaries of the current employees. The expense of such arrangements to the Company was insignificant for the periods presented. The Company is not obligated under any other post-retirement plans and post-employment benefits are not material. INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD. We have audited the accompanying balance sheets of Hebei United Telecommunications Engineering Co., Ltd. as of December 31, 1998 and 1997 and the related statements of operations, investors' equity and cash flows for the years ended December 31, 1998 and 1997 and the period from January 31, 1996 (commencement of operations) to December 31,1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Hebei United Telecommunications Engineering Co., Ltd. as of December 31, 1998 and 1997 and the results of its operations and its cash flows for the year ended December 31, 1998, 1997 and the period from January 31, 1996 (commencement of operations) to December 31, 1996 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 13 to the financial statements, the Company has suffered recurring losses from operations and has negative working capital that rises substantial doubt about the ability to continue as a going concern. Management's explanations in regard to these matters are also described in Note 13. The financial statements do not include any adjustments that might result from the outcome of the uncertainty. Deloitte Touche Tohmatsu Beijing, People's Republic of China June 1, 1999
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD. BALANCE SHEETS DECEMBER 31, 1998 AND 1997 DECEMBER 31 ------------------------------------ 1998 1997 ---------------- ---------------- RMB RMB Current Assets: Cash and cash equivalents 23,869,946 29,278,905 Accounts receivable 6,829,981 - Other receivables 470,023 954,348 ---------------- --------------- Total current assets 31,169,950 30,233,253 Property and equipment, net 5,273,129 5,783,117 Deferred assets 63,145 57,245 Investment in GSM networks, net 240,385,622 235,635,325 ---------------- ---------------- Total Assets 276,891,846 271,708,940 ================ ================ Liabilities and Investors' Equity (Deficiency) Current Liabilities: Amount due to investors 844,392 997,597 Other payables 10,675,770 84,888,076 Accrued expenses 66,492 52,720 Long-term loan due within 1 year 33,114,800 - ---------------- ---------------- Total current liabilities 44,701,454 85,938,393 ---------------- ---------------- Long-term Liabilities: Long-term loans 230,313,434 165,816,800 Other payables 7,512,964 11,235,477 ---------------- ---------------- 237,826,398 177,052,277 Total Liabilities 282,527,852 262,990,670 ---------------- ---------------- Commitments and Contingencies Investors' equity (deficit): Capital contribution 24,963,300 24,963,300 Capital reserve (4,800) (4,800) Accumulated deficit (30,594,506) (16,240,230) ---------------- ----------------- Total investors' (deficit) equity (5,636,006) 8,718,270 ---------------- ---------------- Total Liabilities and Investors' (Deficit) Equity 276,891,846 271,708,940 ================ ================ See notes to financial statements
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
JANUARY 31, 1996 (COMMENCEMENT YEAR ENDED YEAR ENDED OF OPERATIONS) DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 -------------------- -------------------- -------------------- RMB RMB RMB 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
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD. STATEMENTS OF INVESTORS' EQUITY/ (DEFICIT) DECEMBER 31, 1998, 1997 AND 1996
RETAINED EARNING/ CAPITAL CAPITAL (ACCUMULATED CONTRIBUTION RESERVE DEFICIT) TOTAL ------------- ------------- ------------- ---------------- RMB RMB RMB RMB 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
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
JANUARY 31, 1996 (COMMENCEMENT YEAR ENDED OF OPERATIONS) YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 -------------------- ------------------- ------------------- RMB RMB RMB 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.
HEBEI UNITED TELECOMMUNICATIONS ENGINEERING CO., LTD. NOTES TO FINANCIAL STATEMENTS 1. GENERAL Hebei United Telecommunications Engineering Co., Ltd (the "Company") was established on January 31, 1996 as a limited liability joint venture company in the People's Republic of China ("PRC"). The period of operation is twenty-five years. The registered capital of the Company is US$3 million, of which 51% (US$1.53 million) was contributed by Hebei United Telecommunications Equipment Co., Ltd. ("Hebei Equipment"), and 49% (US$ 1.47 million) by NTT International Corporation ("NTT"). On October 18, 1996, NTT agreed to transfer 19.6% of the capital in the Company to Itochu Corporation ("ITOCHU") with effect from December 27, 1996. Subsequent to the transfer, Hebei Equipment owns 51% (US$1.53 million), NTT owns 29.4% (US$882,000) and ITOCHU owns 19.6% (US$588,000) of the Company's registered capital. The Company is mainly engaged in developing and assisting in construction of telecommunication systems, and providing related technical consulting services. The Company has invested approximately RMB 253 million in the construction of GSM telecommunications networks (the "GSM networks") in Hebei Province of the PRC. The GSM networks are being built pursuant to a 15-year Project Cooperation Contract with China United Communications Company ("UNICOM"), the operator of the GSM Networks. Terms of the contract include the following: Initially, UNICOM will own 30% of the assets while the Company will own 70% of the assets. Both parties agreed to distribute the profit according to the "Distributable Cash Flow" (as defined) with 22% going to UNICOM and 78% going to the Company. Each year, the Company will transfer ownership of assets to UNICOM equal in value to the Distributable Cash Flow received up to 60% of the assets. The maximum amount of assets transferred will not exceed 90% of the assets until termination of the Project Cooperation Contract.. Upon the termination of the contract the remaining 10% of the network assets shall be assigned to UNICOM without any further consideration. The Company will continue to receive 78% of the Distributable Cash Flow after transfer of all the assets for the remainder of the 15-year period. Under PRC law, foreign investment enterprises, such as the Company, are not permitted to own or operate telecommunications networks. Substantially all of the Company's revenues are derived from contractual arrangements for the sharing of cash flow from network operations rather than from ownership or operation of the networks. The Company has recorded its investment (GSM Construction Costs) at cost and is amortizing it over the remaining life of the project. Income from the GSM networks is recognized at the time when the Company can estimate or calculate the portion of its Distributable Cash Flow from the network. UNICOM commenced operation of the GSM networks in February 1997. 2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). This basis of accounting differs from that used in the statutory financial statements of the Company, which are required to be prepared in accordance with the accounting principles and relevant financial regulations as established by the Ministry of Finance of the PRC. The principal adjustments made to conform the statutory financial statements of the Company to US GAAP mainly included the following: o Adjustment to write off organization expenses. o Adjustment to write off exchange loss. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies which have been adopted in preparing the financial statements set out in this report, and which conform with accounting principles generally accepted in the United States of America are as follows: Cash and cash equivalents. Cash and cash equivalents include cash on hand, demand deposits and highly liquid instruments with a maturity of three months or less at the time of purchase. Property and equipment. Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method to write off the cost of property and equipment, net of the estimated residual value of 10% of cost, over their estimated useful lives as follows: Land and buildings 20 years Furniture, fixtures and equipment 5 years Motor vehicles 5 years Long lived assets. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. When such events occur, the Company measures impairment by comparing the carrying value of the long-lived asset to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss. The impairment loss, if determined, would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Investment in GSM networks. Investment in GSM networks is stated at cost less accumulated amortization. The investment in GSM networks is amortized on a straight-line basis over the remaining life of the Project Cooperation Contract between the Company and UNICOM. Capitalization of borrowing costs. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e. assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. Capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Interest capitalized at December 31, 1998 and 1997 was RMB20,524,439 and RMB8,144,426, respectively. Revenue recognition. Revenue related to the GSM networks is recognized at the time when the Company can estimate or calculate the portion of its distributable cash flow from the network. Income tax. Deferred income taxes are provided for using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. The tax consequences of those differences are classified as current or non-current based upon the classification of the related assets or liabilities in the financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized. Foreign currency translation. The Company's financial statements are prepared using Renminbi as the reporting currency. Foreign currency transactions are translated at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the rates ruling on the balance sheet date. Exchange gains and losses are taken to the statement of operations. Fair value of financial instruments. The carrying values of cash and cash equivalents, short-term investments, accounts receivable, other receivables, other payables, and amount due to investors approximate fair value because of the short maturity of these instruments. Concentration of credit risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade accounts receivable. The Company places its temporary cash investments with various financial institutions in the PRC. The Company believes that no significant credit risk exists as these investments are made with high-credit, quality financial institutions. The Company's account receivable represents revenue from GSM networks due from UNICOM, the operator of the GSM networks. The Company believes that no significant credit risk exists, as UNICOM is a high-credit PRC state-owned enterprise. Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosures of contingent assets and liabilities in the financial statements and recorded amounts of revenue and expenses during the period. Actual results could differ from these estimates. Comprehensive Income. Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" establishes new rules for reporting and display of comprehensive income and its components. The Company has no items of other comprehensive income and the net loss reported in the statement of operations is equivalent to the total comprehensive loss. Segments of an Enterprise and Related Information. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." This statement requires the reporting of profit and loss, specific revenue and expense items, and assets for reportable segments. It also requires the reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments, in each case to the corresponding amounts in the general purpose financial statements. The Company adopted FASB 131 during the year and since the Company only invested in the GSM networks, no other reportable segments were reported in the financial statements. New accounting standard not yet adopted. The Financial Accounting Standards Board has issued a new standard SFAS No. 133 "Derivative Instruments and Hedging Activities", which is effective for fiscal years beginning after June 15, 1999. Management has not yet completed the analysis of the impact this would have on the financial statements of the Company and has not adopted this standard. 4. INCOME TAX The statutory income tax rate of the Company is 33%. There is no provision for income taxes during the year ended December 31, 1998, 1997 and the period from January 31, 1996 (commencement of operations) to December 31, 1996 as the Company did not have any assessable income for the relevant periods. No provision for deferred taxation has been made in the financial statements for the period from January 31, 1996 (commencement of operations) to December 31, 1996 as no significant temporary differences arose during period and no significant deferred tax assets and liabilities existed at the relevant balance sheet date. Deferred tax assets of RMB10,096,188 and RMB5,359,276 existed as at the end of 1998 and 1997 arising from temporary differences. A valuation allowance has been established for the full amount of the deferred tax assets since it is considered more likely than not that all of the deferred assets will not be realized. Deferred tax assets are composed of the following:
DECEMBER 31, ----------------------------------------------- 1998 1997 --------------------- -------------------- RMB RMB Amortization of GSM networks 12,592,117 5,981,512 Organization expense 218,310 (126,321) Exchange (gain)loss (9,895) 67,230 GSM networks revenue (2,704,344) (563,145) Valuation allowance (10,096,188) (5,359,276) --------------------- -------------------- - - ===================== ====================
5. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, ---------------------------------------------- 1998 1997 --------------------- --------------------- RMB RMB AT COST: Land and buildings 4,629,909 4,629,909 Furniture, fixtures and equipment 641,751 656,751 Motor vehicles 973,738 973,738 --------------------- --------------------- 6,245,398 6,260,398 Less: accumulated depreciation (972,269) (477,281) --------------------- --------------------- 5,273,129 5,783,117 ===================== ===================== All assets are located in the PRC.
6. INVESTMENT IN GSM NETWORKS
DECEMBER 31, ---------------------------------------------- 1998 1997 --------------------- --------------------- RMB RMB Cost of investment 278,543,551 253,761,119 Less: accumulated amortization (38,157,929) (18,125,794) --------------------- --------------------- 240,385,622 235,635,325 ===================== =====================
The investment represents the investment in a GSM telecommunication networks in Hebei Province, PRC. The GSM networks were built pursuant to a 15-year agreement with UNICOM commencing in February 1996. UNICOM commenced operation of the GSM networks in February 1997. The investment is being amortized on a straight-line basis over the remaining 13-year life of the agreement commencing from the operation of the networks. 7. RELATED PARTY TRANSACTIONS DECEMBER 31, --------------------------------- COMPANY NAME 1998 1997 - ----------------------------------- -------------- -------------- RMB RMB Amount due to NTT 512,300 729,014 Amount due to ITOCHU 332,092 268,583 -------------- --------------- Total 844,392 997,597 ============== =============== Guarantee fees paid and payable to NTT and ITOCHU are as follows: YEAR ENDED DECEMBER 31, COMPANY NAME 1998 1997 - ----------------------------------- -------------- --------------- RMB RMB Amount paid and payable to NTT 1,541,283 2,167,260 Amount paid and payable to ITOCHU 755,081 467,482 -------------- -------------- Total 2,296,364 2,634,742 ============== ============== 8. OTHER PAYABLES The Company has acquired a digital microwave system and a GSM mobile phone system under deferred payment terms with the final installment payable in 2001 and 1998, respectively. The liabilities are guaranteed by NTT at December 31, 1998 and are payable as follows: RMB LIABILITIES PAYABLE: 1998 - 1999 3,756,482 2000 3,756,482 2001 3,756,482 ----------- 11,269,446 Less: Liabilities due within one year (included in other payables) 3,756,482 ----------- Long-term payables 7,512,964 =========== 9. LONG-TERM LOANS Scheduled repayments for the long-term loans are as follows: DECEMBER 31, 1998 ----------------------- RMB LIABILITIES PAYABLE: 1999 33,114,800 2000 66,229,600 2001 98,218,496 2002 43,281,044 2003 22,584,294 ---------------- 263,428,234 Less: Liabilities due within one year 33,114,800 ---------------- 230,313,434 =============== On August 5, 1996, the Company was granted a long-term loan facility of US$ 20,000,000 by the Bank of Tokyo-Mitsubishi, Ltd. Beijing Branch at an annual interest rate of 6.82%. The Company has utilized US$20,000,000 (RMB165,574,000). Interest shall be paid on the outstanding balance six months after the date of the agreement, every six months thereafter, and at maturity. On July 10, 1998, the Company was granted a long-term loan facility of US$5,000,000 by the Bank of Tokyo-Mitsubishi, Ltd. Beijing Branch at an annual interest equal to the bank's funding rate plus 0.625%. The Company has utilized US$ 5,000,000 (RMB 41,393,500 ) as of December 31, 1998. Interest shall be paid on the outstanding balance on February 5, 1999, every six months thereafter, and at maturity. On September 30, 1998, the Company was granted a long-term loan facility of US$6,820,000 by the Bank of Tokyo-Mitsubishi, Ltd. Beijing Branch at an annual interest equal to the bank's funding rate plus 0.75%. The Company has utilized US$ 6,820,000 (RMB 56,460,824 ) as of December 31, 1998. Interest shall be paid on the outstanding balance on February 5, 1999, every six months thereafter, and at maturity. All the obligations of the Company under the above agreements are guaranteed 60% by NTT and 40% by Itochu. 10. CAPITAL CONTRIBUTION DECEMBER 31, 1998 AND 1997 --------------------------------------- OWNERSHIP RMB --------------- ------------------ CAPITAL CONTRIBUTED BY: EQUIPMENT CO. 51.00% 12,731,283 NTT 29.40% 7,339,210 Itochu 19.60% 4,892,807 -------------- ------------------ 100% 24,963,300 =============== ================== 11. COMMITMENTS The Company leases certain buildings under operating leases, which expire through March 1999. Rental expense under these operating leases was both RMB 319,200 for the years 1998 and 1997. The aggregate annual minimum operating lease commitments under all non-cancellable leases at December 31, 1998 is RMB 79,800 for a lease expiring during the fiscal year 1999. The Company has entered into a Project Cooperation Agreement with UNICOM relating to the construction of a telecommunication network in Hebei Province, PRC. The total estimated investment under the terms of this agreement is RMB320 million for the first phase and RMB279 million has been incurred up to December 31, 1998. The term of this agreement is fifteen years. 12. EMPLOYEE RETIREMENT BENEFITS AND POST-RETIREMENT BENEFIT The Company's employees are entitled to a retirement pension calculated with reference to their basic salaries on retirement and their length of service in accordance with a government managed pension plan. The PRC government is responsible for the pension liability to these retired employees. The Company is required to make contributions to the state retirement plan at rates ranging from 18% to 20% of the adjusted monthly basic salaries of the current employees. The expense of such arrangements to the Company was immaterial in all the periods presented. The Company is not obligated under any other post-retirement plans and post-employment benefits are not material. 13. FINANCIAL RESULTS AND LIQUIDITY The Company has incurred net losses of RMB14,354,276 and RMB16,367,712 in 1998 and 1997, respectively. As of December 31, 1998, the Company's total liabilities exceeded its total assets by RMB5,636,006, and its total current liabilities exceeded its total current assets by RMB13,531,504. The Company recognized net revenue of RMB6,488,482 and RMB1,706,499 in 1998 and 1997, respectively. Since the business operation of the Company highly depends on the operation of GSM network run by UNICOM, which has made substantial progress in broadening its subscribers bases and its position in the cellular market, the Company is expecting share of a larger distributable cash flow in the following years. The Company will also attempt to obtain additional financing to support its operation in the future if necessary. AMTEC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DEC. 31, 1999 ------------------ (UNAUDITED) 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.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) NINE MONTHS ENDED DEC. 31 ---------------------------------------- 1999 1998 ------------------ ------------------ Revenues................................................................ $ - $ - Expenses General and administrative......................................... 2,402,917 2,849,742 ------------------ ------------------ Loss from Operations.................................................... (2,402,917) (2,849,742) ------------------ ------------------ Other Income (Expense): Amortization of stock options granted to non-employees............. - (459,376) Other - net........................................................ 46,435 37,304 ------------------ ------------------ Total other expense............................................ 46,435 (422,072) ------------------ ------------------ Loss Before Equity in Income (Losses) of Unconsolidated Subsidiary and Affiliate............................................................... (2,356,482) (3,271,814) Equity in Losses of Affiliate........................................... (171,730) - Equity in Income from (Losses of) Unconsolidated Subsidiary and Affiliate......................................................... 442,820 (1,412,881) ------------------ ------------------ Net Loss................................................................ (2,085,392) (,4,684,695) Preferred Stock Dividend................................................ 350,262 614,051 ------------------ ------------------ Loss Applicable to Common Shareholders.................................. $ (2,435,654) $ (5,298,746) ================== ================== Basic Loss per Common Share............................................. $ (0.07) $ (0.20) ================== ================== Weighted Average Common Shares Outstanding.............................. 32,924,478 26,458,488 ================== ================== See notes to consolidated financial statements.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DEC. 31 ------------------------------------------ 1999 1998 ------------------- -------------------- UNAUDITED UNAUDITED 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.
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL CASH INFORMATION: No interest or income taxes were paid during the first nine months of fiscal 1999 or 1998. NON CASH FINANCING ACTIVITIES: NINE MONTHS ENDED DECEMBER 31, 1999 29.8 shares of Series E Convertible Preferred Stock were converted into 3,858,346 shares of common stock. A total of 180,000 shares of Common Stock were issued to officers of the Company as stock awards pursuant to their employment agreements. And a total of 20,000 shares of its Common Stock were issued to some of its directors as compensations. On June 18, 1999, the Company and Jacqueline B. Brandwynne reached a settlement in principle of the legal proceedings filed against the Company on April 15, 1996. The Company has paid Ms. Brandwynne $250,000 in AmTec Common Stock, which includes her claim for attorney's fees. A total of 210,525 shares of Common Stock were issued to Ms. Brandwynne and her attorney in September 1999 pursuant to the settlement agreement. NINE MONTHS ENDED DECEMBER 31, 1998 Shareholder loans payable of $1,452,553 and related accrued interest of $906,488 were credited to Additional paid-in capital 34.9 shares of Series E Convertible Preferred Stock were converted into 4,776,188 shares of common stock (inclusive of conversions of preferred dividends). Warrants valued at $222,500 were cancelled and credited to Additional paid-in capital. The Company cancelled a Common Stock Investment Agreement, as permitted by the Agreement, with Promethean Investment Group on August 12, 1998. 1,019,465 shares previously held in escrow designated for issuance under terms of the agreement were cancelled. The option granted to the Hebei Provincial Government to acquire 3,000,000 shares of the Company's common stock at a price of $3.0625 per share was cancelled. Unamortized Deferred Option Cost valued at $918,751 was charged to Additional Paid in Capital. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements at December 31, 1999 are unaudited and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. All of the adjustments are of a normal recurring nature. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto together with management's discussion and analysis of financial condition and results of operations, contained in the Annual Report on Form 10-K/A filed by the Company on August 23, 1999 for the Company's fiscal year ended March 31, 1999. The results of operations for the nine months ended December 31, 1999 are not necessarily indicative of the results for the entire year ending March 31, 2000. Basis of Presentation - The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. Realization of a major portion of the assets in the accompanying balance sheet is dependent upon the Company's existing investments developing profitable operations. NOTE 2 - PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING Consolidation - The consolidated financial statements include the Company's wholly- owned subsidiary, ITV Communications, Inc. All significant intercompany accounts and transactions are eliminated in consolidation. Equity Method of Accounting - The Company accounts for its subsidiary Hebei United Telecommunications Equipment Co., Ltd. and subsidiary ("Hebei Equipment") (a limited life Sino-foreign joint venture) using the equity method of accounting, as minority shareholders of Hebei Equipment have substantive participating rights under the joint venture contract. The Company reports its investment in Hebei Equipment under the caption "Investment in and advances to unconsolidated subsidiary". Under the equity method, the investment is carried at cost of acquisition, plus the Company's equity in undistributed earnings or losses since acquisition. Equity in the losses of the unconsolidated subsidiary is recognized according to the Company's percentage ownership in the unconsolidated subsidiary until the Company's contributed capital has been fully depleted. Reserves are provided where management determines that the investment or equity in earnings is not realizable. The Company has used its ownership percentage of 70% for purposes of calculating the share of earnings of its unconsolidated subsidiary, Hebei Equipment. Hebei Equipment owns 51% of Hebei United Telecommunications Engineering Company, Ltd. ("Hebei Engineering"). Hebei Equipment also accounts for its investment in Hebei Engineering by using the equity method of accounting as minority shareholders of Hebei Engineering have substantive participating rights under the joint venture contract. Included in the financial statements are the financial statements of the Company for the nine months ended December 31, 1999 and 1998. The Company's share of equity in losses of Hebei Equipment included in the consolidated financial statements are as of and for the nine months ended September 30, 1999 and 1998. This is done so that the Company can ensure that delays in receiving information from China would not cause problems for the Company in meeting its reporting deadlines. However, the Company does monitor events in the lag period and, where appropriate, would disclose the occurrence of any significant event during such lag period under Subsequent Events. The summary financial information of Hebei Equipment and Hebei Engineering are included in Note 6 to the financial statements. The Company owns 50% of IP.Com, LLC and accounts for its investments using the equity method of accounting. The summary financial information of IP.Com, LLC are included in Note 7 to the financial statements. The Company reports its investment in IP.Com, LLC under the caption "Investment in affiliate." NOTE 3 - ASSETS The December 31,1999 consolidated balance sheet includes total current assets of approximately $0.7 million and total assets of approximately $4.4 million. Of these amounts, approximately $0.6 million of cash is planned for parent company operations, approximately $2.4 million represents an investment in and advance to Hebei Equipment and approximately $0.6 million represents a loan receivable from IXS.NET, a private IP fax service provider. See Note 8. NOTE 4 - LIABILITIES The December 31, 1999 consolidated balance sheet includes total liabilities of approximately $1.7 million. Approximately $0.6 million were accounts payable and accrued expenses which are mainly legal and professional fees payable. During the quarter ended December 31, 1999, Terremark Holdings, Inc. ("Terremark"), a privately held, full service real estate and development company based in Miami, Florida, agreed to provide short-term capital requirements and working capital needs. The bridge loan bears 10% annual interest and will become immediately due and payable if the merger agreement is not approved by AmTec's stockholders. Additionally, if the merger does not close by July 1, 2000, AmTec is obligated to repay, if any, the outstanding balance on the bridge loan. As of December 31, 1999, AmTec has obtained approximately $1.1 million under this facility. AmTec has collateralized the bridge financing by pledging all of its tangible and intangible assets to secure the bridge loan. NOTE 5 - CHANGES TO EQUITY The decrease in Stockholders' Equity of approximately $1.1 million for the nine months ended December 31, 1999 was primarily due to the operating net loss of approximately $2.1 million and was partly offset by the issuance of common stock for approximately $1.0 million. As per Section 5 (d) of the Certificate of Designations of Preferences of the Series E Convertible Preferred Stock, all Series E Shares outstanding as of the second anniversary of the issuance, which is October 22, 1999, were subject to automatic conversion into the Company's common stock. On October 22, 1999, the 19.404 Series E Preferred Shares outstanding all converted into 2,679,599 shares of Common Stock. During the nine months ended December 31, 1999, the Company issued a total of 3,858,346 shares of its Common Stock upon the conversion of 29.8 shares of its Series E Convertible Preferred Stock. On September 14, 1998 the Company announced its intention to purchase up to $1 million of its common stock on the open market. During the nine months ended December 31, 1999, the Company purchased 70,000 shares under this program for a total cost of approximately $89,000. All the common stock repurchased was cancelled as of December 31,1999. During the nine months ended December 31, 1999, the Company issued 1,373,597 shares of its Common Stock upon the exercise of stock options by former employees. The Company also issued 180,000 shares of its Common Stock as stock awards to some of its officers pursuant to their employment agreements. As of June 18, 1999, the Company and Jacqueline B. Brandwynne reached a settlement in principle of the legal proceedings filed against the Company on April 15, 1996. A final agreement has been signed and the parties have agreed to release each other from all claims. The Company has paid Ms. Brandwynne $250,000 in AmTec Common Stock, which included her claim for attorney's fees. A total of 210,525 shares of Common Stock were issued to Ms. Brandwynne and her attorney during the quarter ended September 30, 1999 pursuant to the settlement agreement. NOTE 6 - UNCONSOLIDATED SUBSIDIARIES The following tables represent summary financial information of the Company's subsidiary, Hebei Equipment, and its indirect subsidiary, Hebei Engineering, for the Company's nine months ended December 31, 1999 and 1998:
NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31 -------------------------------------- ------------------------------------------ UNAUDITED UNAUDITED 1999 1998 1999 1998 ------------------- ----------------- ------------------- --------------------- HEBEI EQUIPMENT Revenues $ - $ - $ - $ - =================== ================= =================== ===================== Net (loss) income $ 632,600 $ (1,982,181) $ 743,440 $ (1,505,256) =================== ================= =================== ===================== HEBEI ENGINEERING Revenues $ - $ 606,629 $ - $ 173,994 =================== ================= =================== ===================== Net (loss) income $ 3,292,534 $ (1,323,681) $ 3,887,384 $ (526,001) =================== ================= =================== =====================
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:
NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31 -------------------------------------- ------------------------------------------ UNAUDITED UNAUDITED 1999 1998 1999 1998 ------------------- ----------------- ------------------- --------------------- IP.COM Revenues $ 1,143,016 $ - $ 1,101,862 $ - =================== ================= =================== ===================== Net (loss) income $ (343,459) $ - $ (163,635) $ - =================== ================= =================== =====================
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:
NINE MONTHS ENDED DEC. 31 THREE MONTHS ENDED DEC. 31 UNAUDITED Unaudited Unaudited 1999 1998 1999 1998 ---- ---- ---- ---- IXS.NET Revenues $ 955,961 $ - $ 724,553 $ - ================ ================ ================ =============== Net loss $ (468,496) $ - $ (220,129) $ - ================ ================ ================ ===============
NOTE 9 - NEW ACCOUNTING STANDARD NOT YET ADOPTED The Financial Accounting Standards Board has issued a new standard SFAS No. 133 "Derivative Instruments and Hedging Activities", which is effective for fiscal years beginning after July 1, 2000. Management has not yet completed the analysis of the impact this would have on the financial statements of the Company and has not adopted this standard. NOTE 10 - UNCOMPLETED TRANSACTIONS During 1998, AmTec signed an agreement with a subsidiary of Global TeleSystems, Inc. ("GTS"), under which a subsidiary of GTS would acquire approximately 5.9 million shares of the Company's common stock and the Company would acquire GTS's 75% interest in a Shanghai-based joint venture. This joint venture hold the rights to a majority share of the cash flow generated by Shanghai VSAT Network Systems (SVC), the premier satellite-based telecommunications network operator in China. AmTec has terminated the agreement because, among other reasons, necessary governmental approvals were not granted. GTS has agreed to the termination. During 1998, AmTec entered into an agreement to acquire an investment in a cable television network venture located in Hunan province, PRC, from United International Holdings ("UIH"). AmTec terminated the agreement during the quarter ended December 31, 1999 because, among other reasons, the closing had not occurred by December 31, 1999 through no fault of AmTec. AmTec believes that it had the right to terminate the agreement. NOTE 11 - PROPOSED ACQUISITION On November 9, 1999, the Company announced it signed a Letter of Intent to acquire Terremark Holdings, Inc. ("Terremark"), a privately held, full service real estate and development company based in Miami, Florida. AmTec will be the surviving company and under the terms of the proposed acquisition, will acquire all existing Terremark's net assets, including real estate, development projects, management and construction contracts and brokerage operations. The two companies signed a definitive merger agreement on November 24, 1999. The transaction, which requires the approval of the stockholders is proceeding and is expected to close in the first half of 2000. Failure of the AmTec stockholders to approve the terms of the merger could result in material adverse change to AmTec, including an impaired ability to fund its capital expenditures to expand its business opportunities to expand its business opportunities. In turn, this could result in an inability to fund the Company's ongoing operations. Failure to repay this loan could have a material adverse effect on the Company's ability to continue as a going concern. NOTE 12 - SUBSEQUENT EVENTS Hebei Engineering ceased its operations and began its winding up procedures after the transfer of its interests in the cellular networks in Hebei Province to Unicom. As of January 24, 2000, Hebei Equipment received approximately $817,000 as a result of the liquidation of Hebei Engineering. During the month of January and through February 8, 2000, AmTec received $1,254,599 from a former employee upon the exercise of 590,434 stock options and $61,751 upon the conversion of 24,950 warrants. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Terremark Holdings, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Terremark Holdings, Inc. and its subsidiaries at March 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1999 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP October 28, 1999, except Note 13 dated December 22, 1999
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------------------------- MARCH 31, --------------------------------------------- 1999 1998 ----------------------- -------------------- Assets 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 ======================= ====================
The accompanying notes are an integral part of these consolidated financial statements.
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED MARCH 31, --------------------------------------------------- 1999 1998 1997 ----------------- --------------- ----------------- Revenues Real estate sales $ 42,041,391 $ 37,038,299 $ 300,000 Commission income 1,021,560 162,367 879,917 Development fees 625,000 - 333,000 Management fees 768,161 311,791 301,214 Construction fees - 120,000 814,949 ----------------- --------------- --------------- Operating revenues 44,456,112 37,632,457 2,629,080 ----------------- --------------- --------------- Expenses Cost of real estate sold 31,147,530 22,666,891 - Construction expenses - - 742,287 General and administrative expenses 6,020,047 7,023,862 976,115 Sales and marketing expenses 5,479,561 1,783,621 934,932 Provision for write down of real estate - 3,891,911 - Bad debt expense 71,472 81,900 - Depreciation 50,012 19,475 28,981 ----------------- --------------- --------------- Operating expenses 42,768,622 35,467,660 2,682,315 ----------------- --------------- --------------- Income (loss) from operations 1,687,490 2,164,797 (53,235) Other income (expense) Interest income 263,179 80,944 94,594 Interest expense (1,493,539) (1,210,191) (76,631) Other income 167,056 61,000 - Other expense - - (2,253) ----------------- --------------- --------------- Total other (expense) income (1,063,304) (1,068,247) 15,710 ----------------- -------------- -------------- Income (loss) before income taxes 624,186 1,096,550 (37,525) Income taxes Current tax expense - 106,924 - Deferred tax (benefit) - (106,924) - ----------------- --------------- --------------- Total income tax expense (benefit) - - - ----------------- --------------- --------------- Net income (loss) $ 624,186 $ 1,096,550 $ (37,525) ================= =============== =============== Basic and Diluted earnings (loss) per common share $ 0.56 $ 0.98 $ (0.03) ================= =============== =============== Weighted average common shares outstanding 1,121,250 1,121,250 1,125,000 ================= =============== =============== The accompanying notes are an integral part of these consolidated financial statements.
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 -------------- ------------ ------------- -------------- -------------- 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
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------ FOR THE YEARS ENDED MARCH 31, ------------------------------------------------- 1999 1998 1997 ----------------- --------------- -------------- Cash flows from operating activities: Net income (loss) $ 624,186 $ 1,096,550 $ (37,525) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation 38,847 19,475 29,959 Amortization of loan costs to interest expense 118,362 169,557 - Amortization of capital lease 11,165 - - Write off of bad debt 71,472 81,900 - Gain on sale of building - (61,690) - Provision for impairment - 3,891,911 - (Increase) decrease in: Restricted cash (14,317) 586,105 (4,000) Accounts receivable (598,887) 237,511 (320,954) Shareholder receivable 548,795 (1,377,657) 614,862 Notes receivable 387,592 (371,990) 92,498 Receivable from affiliate - 872,090 (872,090) Real estate under development: Additions to real estate inventories (8,940,739) (34,115,795) (4,521,368) Capitalized interest and real estate taxes (1,784,057) (2,816,879) (1,167,574) Cost of sales, including amortization of capitalized interest and real estate taxes 31,147,530 22,666,851 - Deferred tax asset - (106,924) - Other assets 973,703 (1,209,299) (614,142) (Decrease) increase in: Trade payable and other liabilities (1,880,818) 1,302,035 903,035 Customer deposits (2,343,056) 1,754,552 4,000 Deferred revenue (217,934) 317,934 - Interest payable (2,286,367) (66,025) 939,621 ----------------- --------------- -------------- Net cash provided by (used in) operating activities 15,855,477 (7,129,788) (4,953,678) ----------------- --------------- -------------- Cash flows from investing activities: Purchase of fixed assets (194,496) (13,290) (162,463) Sale of building - 564,884 - Cash acquired in acquisition of Grove Hill, Ltd. - 935,308 - ----------------- --------------- -------------- Net cash (used in) provided by investing activities (194,496) 1,486,902 (162,463) ----------------- --------------- -------------- Cash flows from financing activities: New borrowings 18,136,761 26,881,503 9,249,925 Payments on loans (37,410,591) (17,850,094) (1,218,000) Purchase of treasury stock - - (50,000) Cash overdraft 44,704 - - ----------------- --------------- -------------- Net cash (used in) provided by financing activities (19,229,126) 9,031,409 7,981,925 ----------------- --------------- -------------- Net (decrease) increase in cash (3,568,145) 3,388,523 2,865,784 Cash and cash equivalents at beginning of year 6,376,178 2,987,655 121,871 ----------------- --------------- -------------- Cash and cash equivalents at end of year $ 2,808,033 $ 6,376,178 $ 2,987,655 ================= =============== ============== Supplemental Disclosure Non-monetary transactions: Conversion of debt to equity Notes payable $ (3,597,474) $ - $ - Interest payable (579,219) - - Preferred stock 4,176,693 - - Assumption of debt Notes payable - (3,597,474) - Acquisition of Grove Hill, Ltd. - 3,597,474 - ----------------- --------------- -------------- $ - $ - $ - ================= =============== ============== Interest paid (net of amount capitalized) $ 990,245 $ 1,315,377 $ - ================= =============== ============== Taxes paid $ 320,375 $ - $ - ================= =============== ============== Asset acquired under capital lease $ 111,654 $ - $ - ================= =============== ==============
The accompanying notes are an integral part of these consolidated financial statements. TERREMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 1. BUSINESS AND ORGANIZATION Terremark Holdings, Inc. (formally known as Terremark Investment Services, Inc.) and its subsidiaries (the Company), are engaged in project management, development, construction, sales, leasing, management and financing of various real estate projects. The Company was founded in 1982. The Company has developed and is selling condominium units in Fortune House, a 29 story, 296 unit residential condominium building in the Brickell Avenue area of Miami, Florida. The Company purchased a controlling interest in the Grove Hill, Ltd. partnership effective April 15, 1997. This partnership developed a 77 unit multi-story residential condominium building in Coconut Grove, Florida, of which, four units remain to be sold at March 31, 1999. Under various project management agreements, the Company is overseeing development of the following real estate projects in the Miami-Dade County area: (a) Four Seasons Hotel and Tower, a 1.4 million square foot, mixed-use urban living center in the Brickell Avenue area, consisting of hotel, office, residential condominium, retail, sports club and interval ownership components; (b) 150 Alhambra, a major renovation of a landmark Coral Gables office building; (c) Royal Palm Doral Center III, a 110,000 square foot office building overlooking the Doral Golf Course; (d) Galloway Medical Park II, a 30,000 square foot medical office building in west Miami-Dade County and (e) a major mixed-use project on an assemblage of land in the Brickell Avenue area. As of March 31, 1999, the assemblage totaled 7.9 acres, with an additional 2.9 acres under contract. The Company currently has over 1.5 million square feet of commercial and residential property under management in South Florida. It is the leasing, management and/or sales agent for Terremark Centre, SunTrust International Center, 150 Alhambra, Snapper Creek Medical Center, Royal Palm Doral Center I and III, Galloway Medical Park I and II, The Four Seasons Hotel and Tower, Fortune House, Grove Hill, and Fortune House Condo Association. The Company has been retained to provide mortgage brokerage services for construction and/or permanent financing of approximately $260 million for The Four Seasons Hotel and Tower, Galloway Medical Park I and II, and Royal Palm Doral Center III. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Company's significant accounting principles and practices used in the preparation of the consolidated financial statements follows. BASIS OF FINANCIAL STATEMENT PRESENTATION The Company's consolidated financial statements include the Company's wholly-owned subsidiaries, including Terremark Group, Inc., Terremark Development, Inc., Terremark Realty, Inc., Terremark Management Services, Inc., Terremark Financial Services, Inc., Terremark Construction Services, Inc. and Terremark Brickell, Inc. All significant intercompany balances and transactions are eliminated in consolidation. The accounts of Grove Hill, Ltd., whose General Partner is also a shareholder of the Company, are also consolidated in these financial statements. The Company acquired a 49.5% interest in Grove Hill through the assumption of a $3,597,473 note due to a financial institution. At the time of acquisition the only significant assets of Grove Hill were 32 completed condominium units held for sale. The fair value of the liabilities assumed of $25,166,415 were greater than the fair value of the assets, and as a result an impairment of $3,891,911 was recorded. The Company also controls the partnership through a voting agreement, and is responsible for funding 100% of its cash deficits, and is allocated all of Grove Hill's losses. USE OF ESTIMATES The Company prepares its financial statements in conformity with generally accepted accounting principles. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," effective January 1, 1998. At March 31, 1999 and 1998, the Company had no comprehensive income. REVENUE AND PROFIT RECOGNITION Revenues from construction and development activities are recognized on a completed contract basis. The related profit is recognized in full when collectibility of the sale price is reasonably assured and the earnings process is substantially complete. Revenues and expenses related to the leasing, management, and financing activities are recognized at the time service is provided. CASH, CASH EQUIVALENTS AND RESTRICTED CASH The Company considers all amounts held in highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash and cash equivalents include cash balances maintained in the operating and interest-bearing money market accounts at the Company's banks. Restricted cash includes escrowed cash balances for tenant security deposits. FURNITURE AND EQUIPMENT, NET Furniture and equipment include acquired assets and those accounted for under a capital lease. These assets are depreciated on a straight-line method over their estimated remaining useful lives, which range from 3 to 5 years. In 1999, depreciation expense of $50,012 includes $11,165 of amortization expense associated with a capital lease asset. REAL ESTATE INVENTORIES AND COST OF REAL ESTATE SOLD Real estate inventories consist of completed condominiums and condominiums under development. Real estate inventories, including capitalized interest and real estate taxes, are carried at the lower of cost or fair value determined by evaluation of individual projects. Acquisition, development, interest and other indirect costs related to acquisition and development of real estate projects are capitalized. The capitalized costs are being charged to earnings as the related revenue is recognized. Sales and marketing costs and the carrying costs of condominium units completed and held for sale are expensed as incurred. Total land, development, and common costs are apportioned on the relative sales value method for each project. The Company subcontracts construction to third parties and the construction contracts require subcontractors to repair or replace deficiencies related to their trade. Whenever events or circumstances indicate that the carrying value of the real estate inventories may not be recoverable, impairment losses are recorded and the related assets are adjusted to their estimated fair market value, less selling costs. OTHER ASSETS Other assets primarily consist of prepaid commissions, receivable for income taxes, loan costs, utility advances and other prepaid expenses. Loan costs, principally loan origination and related fees, are deferred and amortized as interest expense over the life of the respective loan using the straight-line method, which approximates the effective interest method. CUSTOMER DEPOSITS Customer deposits represent amounts received from customers under condominium sales contracts. TRADE PAYABLE AND OTHER LIABILITIES Trade payable and other liabilities includes obligations under capital lease and license fees payable. EARNINGS PER SHARE In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (EPS). This statement supersedes Accounting Principles Board Opinion No. 15 and replaces primary and fully diluted EPS with a dual presentation of basic and diluted EPS. Basic EPS equals net income divided by the number of weighted average common shares. Diluted EPS includes potentially dilutive securities such as stock options and convertible securities. At March 31, 1999, 1998 and 1997, respectively, the Company had no potentially dilutive securities.
1999 1998 1997 ------------- ------------ ------------- 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) =============== =============== ================
The computation of diluted EPS for 1999 excludes the convertible preferred stock issued on March 31, 1999 because it is antidilutive. EMPLOYEE BENEFIT PLAN The Company's benefit plan is a Defined Contribution and Profit Sharing Plan ("401(K) Plan"). The 401(K) Plan is available to employees on January 1st or July 1st who have completed one year of service in which they worked at least 1,000 hours and attained the age of 21. Employees may contribute up to 15% of annual compensation to the maximum amount set by law. The Company may make matching contributions to the 401(K) Plan on employee contributions up to 8%, as determined by the Company. Vesting in Company matching contributions is at a rate of 20% after two years of service and 20% for each year thereafter. Company contributions for fiscal years 1999, 1998 and 1997 were approximately $12,540, $12,044 and $12,095, respectively. INCOME TAXES The Company recognizes income tax currently payable, as well as deferred tax assets and liabilities resulting from temporary differences, by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The differences related primarily to the timing of recognition on income from sale of real estate under development, including the effects of the provision for impairment. Income recognition is accelerated for tax under percentage of completion requirements. The deferred tax asset represents the future tax return consequences of these differences which reverse as real estate sales are reported for financial statement purposes. Deferred taxes are also recognized for operating losses and contribution carryovers which are available to offset future taxable income. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 (FASB 131), "Disclosures about Segments of an Enterprise and Related Information", which became effective for years beginning after December 15, 1997. FASB 131 establishes standards for the way that public business enterprises report information about segments. The Company believes it does not have any reportable segments. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (FASB 133), "Accounting for Derivative Instruments and Hedging Activities." FASB 133, as amended, becomes effective for years beginning after June 15, 2000. FASB 133 requires all derivatives to be recorded on the balance sheet at fair value. FASB 133 establishes the accounting procedures for hedges that will affect the timing of recognition and the manner in which hedging gains and losses are recognized in the Company's financial statements. Derivatives that are not hedges must be adjusted to fair value through income. If derivatives are hedges, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or will be recognized in other comprehensive income until the hedged item is recognized in earnings. The Company has no derivative instruments. 3. REAL ESTATE INVENTORIES Real estate inventories are summarized as follows: MARCH 31, --------------------------------- 1999 1998 ---------------- --------------- Work in progress $ - $ 29,999,695 Completed inventories 14,662,428 7,203,156 ---------------- --------------- 14,662,428 37,202,851 Less: impairment allowance (1,774,222) (3,891,911) ---------------- --------------- $ 12,888,206 $ 33,310,940 ================ =============== As of March 31, 1999, 20 condominium units are under contract in Fortune House and no units are under contract in the Grove Hill project. 4. NOTES RECEIVABLE Notes receivable consist of the following:
March 31, ------------------------ 1999 1998 ------------------------ 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 ========== ===========
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:
MARCH 31, ---------------------------------- 1999 1998 ---------------- ---------------- 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 ================ ================
At March 31, 1999 the Company has $10,000,000 available under the line of credit facility. Interest expense of $1,493,539, $1,210,191 and $76,631, net of amounts capitalized to real estate inventories totaling $1,657,948, $2,759,694 and $1,063,461, was recognized in fiscal years 1999, 1998 and 1997, respectively. The future maturities of the Company's borrowing as of March 31, 1999 are as follows: 2000 $ 8,390,556 2001 48,000 2002 48,000 2003 48,000 2004 48,000 Thereafter 48,000 ---------------------- Total $ 8,630,556 ====================== 7. CONCENTRATION OF RISK The Company has concentrated its credit risk for cash by maintaining deposits in banks in excess of federally insured limits. The maximum loss that would have resulted from the risk totaled $2.6 million as of March 31, 1999 and $6.9 million as of March 31, 1998, for the excess of the deposit liabilities reported by the banks over the amounts that would have been covered by federal insurance. The funds are on deposit in banks that have extended credit to the Company in excess of the amounts at risk. The Company business and customer base is primarily in the Miami, Florida area. Consequently, any significant economic downturn in this market could have an effect on the Company's business, results of operations and financial condition. 8. PREFERRED STOCK On March 31, 1999, the Company converted $3,597,474 of debt and $579,219 in accrued interest payable into 4,176,693 shares of Preferred Stock. The $1 par value preferred stock has a 10% cumulative preferred dividend, payable annually commencing March 31, 2000. The preferred stock is convertible into common stock, at the time of a merger transaction or beginning in 2002. The conversion price is based on the fair market value of the common stock at time of conversion. The stock has no voting rights and is callable by the Company at 105% of par plus accumulated but unpaid dividends beginning in 2002. Preferred stock has preference in liquidation. At March 31, 1999, there were no cumulative unpaid dividends. 9. TREASURY STOCK During fiscal year 1997, the Company bought back 3,750 shares of common stock and retired them upon acquisition. 10. INCOME TAXES The deferred tax provision consists of income taxes relating to differences between the tax bases of assets and liabilities and their financial reporting amounts.
MARCH 31, ------------------------------- 1999 1998 -------------- -------------- 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 ============== ==============
The Company provides a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has established a valuation allowance against deferred tax assets of $1,371,641 and $1,622,258 as of March 31, 1999 and 1998, respectively since the Company has a history of operating losses and in the near term does not expect future taxable income. Accordingly, there is uncertainty regarding their realizability. Federal and State net operating loss carryforwards of approximately $1,800,000 are available to offset future taxable income and expire in 2019. Utilization of these net operating losses may be limited if there is a significant change in ownership. The reconciliation between the statutory income tax provision and the actual tax provision for the years ended March 31, 1999 and 1998 is shown as follows: March 31, ------------------------- 1999 1998 1997 ------- -------- ------- Rate reconciliation Statutory rate 34.0% 34.0% (34.0%) State income taxes, net of federal income 3.0% 3.0% (3.0%) tax benefit Realization of deferred tax asset previously (37.0%) (37.0%) - subject to valuation allowance Increase in valuation allowance - - 37.0% ------- -------- ------- Total 0.0% 0.0% 0.0% ======= ======== ======= 11. COMMITMENTS AND CONTINGENCIES LEASING ACTIVITIES The Company leases space for its property management operations, office equipment and furniture under operating leases. Equipment is also leased under a capital lease which is summarized as follows: March 31, -------------------------- 1999 1998 ---------- --------- Equipment $ 111,654 $ - Less: accumulated amortization 11,165 - ---------- --------- Net capitalized leased asset $ 100,489 $ - ========== ========= At March 31, 1999, future minimum lease payments under operating and capital leases having a remaining term in excess of one year are as follows:
Capital Operating Leases Leases ------------------- ------------------- 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 ===================
Occupancy lease expense amounted to $33,824, $0 and $0 for fiscal years 1999, 1998 and 1997, respectively. LITIGATION The Company is a defendant in various lawsuits arising in the ordinary course of business. Management, after consultation with its legal counsel, believes its positions to be meritorious. However, if the decisions are adverse, management does not believe the outcome of these matters would have a material effect on the consolidated financial statements. CONTINGENT PROFIT In January 1998, the Company acquired for approximately $10,000 an interest in real estate. In August 1998, contemporaneously with the sale of such interest for approximately $1.1 million, the Company entered into an agreement with the buyer wherein the Company is entitled to an additional development payment of $2.75 million plus a 10% cumulative return on the payment. The fee is due once the buyer has recovered their invested capital plus a 10% return. The Company also has a right to share in additional funds distributed above these returns. While the Company has recognized the gain from the sale, it has not recognized any income under the development payment provisions as of March 31, 1999. 12. RELATED PARTY TRANSACTIONS Due to the nature of the following relationships, the terms of the respective agreements might not be the same as those which would result from transactions among wholly unrelated parties. All significant related party transactions require approval by the Company's board of directors. TERREMARK CENTRE In 1994, the Company entered into a property management and real estate brokerage services agreement with Terremark Centre, Ltd. whose Partners share an officer with the Company. The Company recorded as income, management fees of $320,964, $311,791 and $301,214 and brokerage commissions of $456,789, $133,517 and $167,522 in fiscal 1999, 1998 and 1997, respectively. In connection with providing these services, the Company also occupies space in the building rent free. GROVE HILL, LTD. In fiscal 1997, prior to its acquisition, the Company recognized $814,950 in construction management revenue, $706,268 in real estate brokerage revenue and $125,000 in development revenue to Grove Hill, Ltd. DEVELOPMENT FEES The Company recorded development fee income from an affiliate in the amount of $20,000 in fiscal 1999 and from a shareholder in the amount of $120,000 in fiscal 1998. MANAGEMENT FEES Certain officers and executives of the Company own partnership interests in One Merrick Way and Galloway Medical Park Associates, Ltd., which owns Alhambra Center and Galloway Medical Park, respectively. The Company provides management services to both partnerships for a fee. Management fees earned totaled $243,000, $0 and $0 for the years ended March 31, 1999, 1998 and 1997, respectively. In fiscal 1999, the Company provided management services to the Fortune House Condominium Association. The Company recorded as income $30,780 relating to the services performed. 13. SUBSEQUENT EVENTS On December 22,1999, the Company acquired for approximately $56.0 million all partnership interests of Terremark Centre, Ltd., ("TCL"). TCL is a single purpose entity and is fee simple owner of a 294,000 square foot 21-story Class A office building with 1100 parking spaces and 16 townhouses on approximately 3.2 acres known as Terremark Centre, located in Coconut Grove, Florida. The acquisition was financed primarily through assumption of an approximate $28.3 million first mortgage on Terremark Centre, and issuance of approximately $27.1 million in purchase money notes to the sellers. The purchase money notes are secured by all partnership interests in TCL , an unrecorded second mortgage and a pledge not to further encumber Terremark Centre. On November 24, 1999, the Company entered into an agreement to merge with AmTec, Inc. (AmTec), a public company, whereby all outstanding shares of the Company will be exchanged for shares of AmTec, the surviving company. The transaction is subject to satisfaction of certain conditions and approval from AmTec's shareholders. The Company anticipates the exchange will occur prior to June 30, 2000 and intends to account for the merger under the purchase method of accounting, with the Company treated as the acquirer. Prior to merger, the Company intends to sell Terremark Centre and repay the existing first mortgage and purchase money notes. Pursuant to an agreement dated November 24, 1999 between AmTec and the purchase money notes holders, AmTec has agreed to sell a 35.0% ownership interest in the merged company for all proceeds from repayment of the purchase money notes. Subsequent to the merger and the stock purchase transactions, the Company's shareholders will hold 40% of the merged company. The Company has also committed to provide AmTec with up to $1.5 million in bridge loans to assist AmTec in meeting its capital requirements and working capital needs. If the merger is unsuccessful, the loan is due five days from termination. The following summarized unaudited Pro Forma financial information includes the operations of the Company, which assumes that AmTec was acquired on April 1, 1998 and 1997, respectively. FOR THE YEARS ENDED MARCH 31, 1999 1998 ------------------- ------------------- (UNAUDITED) ------------------- ------------------- Revenue $ 44,456,000 $ 37,632,000 Net Loss $ (16,338,000) $ (14,594,000) These amounts include AmTec's actual results for the years ended March 31, 1999 and 1998, respectively. In preparing the pro forma information, various assumptions were made, and the Company does not purport this information to be indicative of what would have occurred had these transactions been made as of April 1, 1998 and 1997, nor is it indicative of the results of future combined operations. On December 17, 1999, the Company sold for approximately $1.2 million all assets of Grove Hill, Ltd., consisting primarily of three condominium units. The purchaser paid $100,000 in cash, assumed an existing first mortgage of approximately $740,000 and provided the Company with a $360,000 purchase money second mortgage. The Company continues to unconditionally guaranty payment of the first mortgage and recognized a $33,316 loss on the sale. * * * * * TERREMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, DECEMBER 31, ------------------- ----------------- ------------------- 1999 1999 1998 ------------------- ----------------- ------------------- (UNAUDITED) (UNAUDITED) 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.
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, ------------------------------------------------------------ 1999 1998 ----------------------------- ------------------------- (UNAUDITED) Revenues Real estate sales $ 10,396,157 $ 37,518,060 Commission income 570,176 807,239 Development fees 1,025,000 463,333 Management fees 1,006,079 529,219 Construction fees 392,185 - ----------------------------- ------------------------- Operating revenues 13,389,597 39,317,851 ----------------------------- ------------------------- Expenses Cost of real estate sold 8,778,438 27,699,541 Construction expenses 321,832 - General and administrative expenses 5,188,859 4,390,246 Sales and marketing expenses 1,751,897 4,730,943 Bad debt expense - 71,472 Depreciation 63,130 22,412 ----------------------------- ------------------------- Operating expenses 16,104,156 36,914,614 ----------------------------- ------------------------- (Loss) income from operations (2,714,559) 2,403,237 Other (expense) income Interest income 185,814 187,607 Interest expense (613,478) (1,115,985) Other (expense) income (4,979) 122,309 Dividend on preferred stock (313,252) - ----------------------------- ------------------------- Total other expense (745,895) (806,069) ----------------------------- ------------------------- (Loss) income before income taxes (3,460,454) 1,597,168 Income taxes Current tax expense - - Deferred tax expense - - ----------------------------- ------------------------- Total income tax expense - - ----------------------------- ------------------------- Net (loss) income (3,460,454) 1,597,168 Retained deficit at beginning of period (5,691,726) (6,315,912) ----------------------------- ------------------------- Retained deficit at end of period $ (9,152,180) $ (4,718,744) ============================= ========================= Basic and Diluted loss per common share $ (3.09) $ 1.42 ============================= ========================= Weighted average common shares outstanding 1,121,250 1,121,250 ============================= ========================= The accompanying notes are in integral part of these unaudited consolidated financial statements.
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN STOCKHOLDERS' EQUITY
FOR THE QUARTER ENDED DECEMBER 31, ------------------------------------------------------------ 1999 1998 ----------------------------- ------------------------- (UNAUDITED) Revenues Real estate sales $ 2,279,364 $ 20,990,379 Commission income 440,095 172,833 Development fees 341,666 203,333 Management fees 365,837 226,299 Construction fees 358,852 - ----------------------------- ------------------------- Operating revenues 3,785,814 21,592,844 ----------------------------- ------------------------- Expenses Cost of real estate sold 1,695,550 14,607,746 Construction expenses 321,832 - General and administrative expenses 2,549,979 1,491,042 Sales and marketing expenses 761,897 3,804,307 Depreciation 22,630 7,447 ----------------------------- ------------------------- Operating expenses 5,351,888 19,910,542 ----------------------------- ------------------------- (Loss) income from operations (1,566,074) 1,682,302 Other income (expense) Interest income 86,118 8,803 Interest expense (194,662) (670,605) Other (expense) income (94,382) 72,293 Dividend on preferred stock (104,417) - ----------------------------- ------------------------- Total other (expense) (307,343) (589,509) ----------------------------- ------------------------- (Loss) income before income taxes (1,873,417) 1,092,793 Income taxes Current tax expense - - Deferred tax expense - - ----------------------------- ------------------------- Total income tax expense - - ----------------------------- ------------------------- Net (loss) income (1,873,417) 1,092,793 Retained deficit at beginning of period (7,278,763) (5,811,537) ----------------------------- ------------------------- Retained deficit at end of period $ (9,152,180) $ (4,718,744) ============================= ========================= Basic and Diluted (loss) income per common share $ (1.67) $ 0.97 ============================= ========================= Weighted average common shares outstanding 1,121,250 1,121,250 ============================= ========================= The accompanying notes are an integral part of these unaudited consolidated financial statements.
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE FOR THE NINE MONTHS ENDED MONTHS ENDED DECEMBER 31, DECEMBER 31, 1999 1998 --------------------- --------------------- (Unaudited) 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.
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: 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 ===================
The accompanying notes are an integral part of these unaudited consolidated financial statements. 1. BUSINESS AND ORGANIZATION Terremark Holdings, Inc. (formally known as Terremark Investment Services, Inc.) and its subsidiaries (the "Company"), founded in 1982, are engaged in project management, development, construction, sales, leasing, management and financing of various real estate projects. 2. BASIS OF PRESENTATION The consolidated financial statements include the Company's wholly owned subsidiaries and Grove Hill, of which the Company had acquired 49.5% interest. The Company controlled the Grove Hill partnership through a voting agreement, was responsible for funding 100% of its cash deficit, and was allocated all of Grove Hill's losses. All significant intercompany balances and transactions are eliminated in consolidation. The Company's financial information contained in the financial statements and notes thereto as of December 31, 1999 and for the nine month periods ended December 31, 1999 and 1998, is unaudited. In the opinion of management, all adjustments necessary for the fair presentation of such financial information have been included. These adjustments are of a normal recurring nature. There have been no changes in accounting policies since the year ended March 31, 1999. The composition of accounts has not changed significantly since March 31, 1999. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Certain reclassifications have been made to the prior year's financial statements to conform with the 1999 presentation. These financial statements, footnotes and discussions should be read in conjunction with the financial statements and related footnotes and discussions contained in the Company's 1999 annual financial statements. The Company historically has experienced, and expects to experience, variability in quarterly results. The consolidated statement of operations for the nine months ended December 31, 1999 is not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. AMTEC TRANSACTION On November 24, 1999, the Company entered into an agreement to merge with AmTec, (AmTec), a public company, whereby all outstanding shares of the Company will be exchanged for shares of AmTec, the surviving company. The transaction is subject to satisfaction of certain conditions and approval from AmTec's shareholders. The Company anticipates the exchange will occur prior to June 30, 2000 and intends to account for the merger under the purchase method of accounting, with the Company treated as the acquirer. Prior to merger, the Company intends to sell Terremark Centre and repay the existing first mortgage and purchase money notes (Note 6). Pursuant to an agreement dated November 24, 1999 between AmTec and the purchase money note holders, AmTec has agreed to sell a 35.0% ownership interest in the merged company for all proceeds from repayment of the purchase money notes. Subsequent to the merger and the stock purchase transactions, the Company's shareholders will hold 40% of the merged company. The Company has also committed to provide AmTec with up to $1.5 million in bridge loans to assist AmTec in meeting its capital requirements and working capital needs. If the merger is unsuccessful, the loans will be due five days from termination. As of December 31, 1999, approximately $1.1 million has been funded under the Company's commitment and is included in notes receivable. 4. REAL ESTATE INVENTORIES Real estate inventories are summarized as follows: DECEMBER 31, ------------------------------------------- 1999 1998 ------------------- ------------------- Completed condominiums $ 5,316,889 $ 18,406,148 Less: impairment allowance -- (2,217,778) ------------------- ------------------- $ 5,316,889 $ 16,188,370 =================== =================== As of December 31, 1999 and 1998, 4 and 18 units, respectively, are under contract in Fortune House. On December 17, 1999, the Company sold for approximately $1.2 million the remaining three condominium units in the Grove Hill project. The purchaser paid $100,000 in cash, assumed an existing first mortgage of approximately $740,000 and provided the Company with a $360,000 second mortgage. The Company continues to unconditionally guaranty payment of the first mortgage and recognized a $33,316 loss on the sale. 5. REAL ESTATE HELD FOR SALE On December 22, 1999, the Company acquired for approximately $56.0 million all partnership interests of Terremark Centre, Ltd. ("TCL"). TCL is a single purpose entity and is fee simple owner of a 294,000 square foot 21-story Class A office building with 1100 parking spaces and 16 townhouses on approximately 3.2 acres known as Terremark Centre, located in Coconut Grove, Florida. The acquisition was financed through primarily assumption of a first mortgage of approximately $28.3 million on Terremark Centre and issuance of approximately $27.1 million in purchase money notes to the sellers. 6. NOTES PAYABLE Notes payable at December 31, 1999 consists primarily of a $28.3 million first mortgage payable to a commercial lender and $27.1 million in purchase money notes secured by TCL's partnership interests, an unsecured second mortgage and a pledge not to further encumber Terremark Centre for the acquisition of Terremark Centre, Ltd. The first mortgage accrues interest at 7.74% per annum payable monthly and requires monthly principal payments and interest of $254,000 with the remaining balance of $27.1 million due at maturity in May 2001. The purchase money notes accrue interest at the greater of 7% per annum or $1 million payable at the earlier of the sale of the building or December 31, 2000. 7. TAXES The deferred tax provision consists of income taxes relating to differences between the tax bases of assets and liabilities and their financial amounts.
DECEMBER 31 --------------------------------- 1999 1998 ---------------- --------------- Excess of tax basis over book basis on real estate investment $ 296,756 $ 507,383 Charitable contributions 204,182 158,637 Deferred revenue (percentage of completion vs. completed contract) 309,548 278,908 Other 12,894 11,696 Net operating loss carryforwards 1,422,443 83,620 Tax credits 245,780 245,780 ---------------- --------------- Total deferred tax asset 2,491,603 1,286,024 Valuation allowance (2,491,603) (1,179,100) ---------------- --------------- Net deferred tax asset $ - $ 106,924 ================ ===============
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:
DECEMBER 31, 1999 1998 ------ -------- 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% ======== =========
8. SUBSEQUENT EVENTS In March, 2000, the Company received and accepted a letter of intent from a third party buyer to purchase Terremark Centre, subject to due diligence and negotiation. Management believes the buyer has financial resources to complete the transaction. The net sales price is expected to be $55.85 million, which is $150,000 less than cost. The difference between cost and net expected sales price is reflected as an expense in other income (expense) in these financial statements. Centre Credit Corporation, a foreign lender and investor, owns approximately 4,176,693 shares of Terremark Holdings, Inc.'s 10% cumulative convertible preferred stock. CCC's basis in the stock is $1.00 per share plus accrued dividends. It has agreed to enter into agreements with certain members of Terremark's management to sell the stock for approximately $4.2 million in total. These agreements will close only if and when the merger closes. The Company has agreed to acquire all outstanding stock of Telecom Real Estate Exchange Developers, Inc. (T-REX) in exchange for eight million shares of the post merged company of Terremark and AmTec, assuming the merger is consummated by December 31, 2000. T-REX's business is to provide operational support and development expertise in exchange for fees and a minority interest in profits to entities involved in acquiring, developing, renovating, managing and operating real property used as telecommunications routing exchange facilities. The post merged company will employ T-REX's two current shareholders. On March 10, 2000, the Company acquired the Riviera Hotel in Fort Lauderdale, Florida. The acquisition price was $8.0 million and was paid using a portion of a $15.0 million commercial bank line of credit at an interest rate of prime plus 1% for a term of one year. A principal shareholder is a co-maker of the line of credit. Undrawn amounts may be used for working capital purposes. The Company plans to demolish the existing hotel and replace it with a luxury condominium hotel containing 280 units. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners of Terremark Centre, Ltd. We have audited the accompanying historical statement of revenue and certain expenses of Terremark Centre, described in Note 1, for the period from January 1, 1999 to December 22, 1999 and for the years ended December 31, 1998 and 1997. This historical statement is the responsibility of Terremark Centre, Ltd.'s management. Our responsibility is to express an opinion on this historical statement based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the historical statement is free of material misstatement. An audit includes examining, on a test bases, evidence supporting the amounts and disclosures in the historical statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the historical statement. We believe that our audits provide a reasonable basis for our opinion. The accompanying historical statement was prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission (for inclusion in the Proxy Statement of AmTec, Inc.) as described in Note 2 and is not intended to be a complete presentation of Terremark Centre's revenues and expenses. In our opinion, the historical statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Terremark Centre, described in Note 2, for the period from January 1, 1999 to December 22, 1999 and for the years ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles. PricewaterhouseCoopers LLP Ft. Lauderdale, Florida December 22, 1999
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 ------------------- ------------------- ------------------- 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 =================== =================== ===================
The accompanying notes are an integral part of this financial statement. TERREMARK HOLDINGS, INC. TERREMARK CENTRE NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES 1. OPERATIONS AND ACQUISITION OF TERREMARK CENTRE The accompanying statement of revenue and certain expenses relates to the operations of Terremark Centre (the "Property"), a 294,000 square foot 21-story Class A office building with 1100 parking spaces and 16 townhouses on approximately 3.2 acres in Coconut Grove, Florida. The property is owned by Terremark Centre, Ltd. a Florida Limited Partnership. On December 22, 1999, Terremark Holdings, Inc. acquired for approximately $56.0 million all partnership interests of Terremark Centre, Ltd. The acquisition was financed primarily through assumption of an approximate $28.3 million first mortgage note and the giving of purchase money notes totaling $27.1 million which are secured by a pledge not to further encumber the Property and a pledge of partnership interests. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying statement of revenue and certain expenses has been prepared on the accrual basis of accounting. The accompanying financial statement is not representative of the actual operations for the periods presented as certain revenues and expenses, which may not be comparable to the revenues and expenses expected to be earned or incurred by Terremark Holdings, Inc. in future operations of the Property, have been excluded. Revenues excluded consist of interest and other revenues unrelated to the continuing operations of the Property. Expenses excluded consist of depreciation and other general and administrative expenses not directly related to the future operations of the Property. Income Recognition Rental income is recorded on the straight line basis over the term of the related lease, including option periods. Concentration of Risk The Property is located in Coconut Grove, Florida. The principal competitive factors in this market are price, location, quality of space and amenities. The Property represents a small portion of the total similar space in the market and competes with other properties for tenants. For the period from January 1, 1999 through December 22, 1999 and for the years ended December 31, 1998 and 1997, four tenants accounted for approximately 50% of the combined base rents. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. EX-99 2 ANNEX A - AGREEMENT AND PLAN OF MERGER ===================================================================== ANNEX A AGREEMENT AND PLAN OF MERGER BY AND BETWEEN TERREMARK HOLDINGS, INC. AND AMTEC, INC. Dated as of November 24, 1999 ===================================================================== TABLE OF CONTENTS Page ARTICLE I THE MERGER.....................................................1 1.1. The Merger........................................................1 1.2. Conversion of Stock...............................................2 1.3. Surrender of Certificates.........................................2 1.4. Fractional Shares.................................................3 1.5. Stock Options.....................................................3 1.6. Certificate of Incorporation of the Surviving Corporation.......................................................3 1.7. By-Laws of the Surviving Corporation..............................4 1.8. Directors and Officers of the Surviving Corporation...............4 1.9. Closing...........................................................4 1.10.Appraisal Rights..................................................4 1.11.Sale of Additional Shares.........................................4 ARTICLE II REPRESENTATIONS AND WARRANTIES.................................5 2.1. Representations and Warranties of the Company.....................5 (a) Due Organization, Good Standing and Corporate Power........................................................5 (b) Authorization and Validity of Agreement......................5 (c) Capitalization...............................................6 (d) Consents and Approvals; No Violations........................7 (e) Company Reports and Financial Statements.....................7 (f) Absence of Certain Changes...................................8 (g) Title to Properties; Encumbrances............................9 (h) Compliance with Laws.........................................9 (i) Litigation...................................................9 (j) Government Authorization....................................10 (k) Opinion of Financial Advisor................................10 (l) Takeover Statutes and Charter Provisions....................10 (m) Employee Benefit Plans......................................10 (n) Insurance...................................................11 (o) Casualties..................................................12 (p) Propriety of Past Payments..................................12 (q) Employment Relations and Agreements.........................12 (r) Client Relations............................................13 (s) Sufficiency of Assets.......................................13 (t) Contracts and Commitments...................................13 (u) Disclosure Documents........................................13 (v) Full Disclosure.............................................14 2.2. Representations and Warranties of Terremark......................14 (a) Due Organization; Good Standing and Corporate Power.......................................................14 (b) Authorization and Validity of Agreement.....................14 (c) Capitalization..............................................15 (d) Consents and Approvals; No Violations.......................16 (e) Real Property...............................................16 (f) Leases......................................................17 (g) Contracts and Commitments...................................17 (h) Insurance...................................................17 (i) Casualties..................................................18 (j) Propriety of Past Payments..................................18 (k) Financial Statements; Absence of Certain Changes.....................................................18 (l) Sufficiency of Assets.......................................19 (m) Information in Disclosure Documents and Registration Statement......................................19 (n) Broker's or Finder's Fee....................................20 (o) Compliance with Laws........................................20 (p) Litigation..................................................20 (q) Government Authorization....................................20 (r) Employee Benefit Plans......................................21 (i) List of Plans..........................................21 (ii) Status of Plans........................................21 (iii)Contributions..........................................21 (iv) Tax Qualification......................................21 (v) Transactions...........................................21 (vi) Documents..............................................22 (s) Employment Relations and Agreements.........................22 (t) Client Relations............................................22 (u) Environmental Laws and Regulations..........................22 (v) Full Disclosure.............................................23 ARTICLE III ADDITIONAL AGREEMENTS.........................................23 3.1. Access to Information Concerning Properties and Records..........................................................23 3.2. Confidentiality..................................................24 3.3. Registration Statement...........................................24 3.4. Conduct of the Business Pending the Effective Time...............24 3.5. Company Stockholder Meeting; Proxy Statement; Form S-4..............................................................25 3.6. Stock Exchange Listing...........................................26 3.7. Reasonable Best Efforts..........................................26 3.8. Supplemental Disclosure..........................................26 3.9. Officers' and Directors' Insurance; Indemnification..............26 3.10.Letters of Company's Accountants.................................27 3.11.Takeover Statutes................................................27 3.12.U.S. Real Property Holding Company Covenant......................27 ARTICLE IV CONDITIONS PRECEDENT TO MERGER................................28 4.1. Conditions Precedent to Obligations of Terremark and the Company......................................................28 (a) Approval of Company's Stockholders..........................28 (b) Registration Statement......................................28 (c) Litigation..................................................28 (d) Injunction..................................................28 (e) Statutes....................................................28 (f) AMEX Listing................................................29 4.2. Conditions Precedent to Obligations of Terremark.................29 (a) Accuracy of Representations and Warranties..................29 (b) Performance by Company......................................29 (c) Tax Opinion Letter..........................................29 (d) Letters of Company Accountants..............................29 (e) Employment Agreement........................................29 (f) Stock Purchase Agreement....................................30 4.3. Conditions Precedent to Obligation of the Company................30 (a) Accuracy of Representations and Warranties..................30 (b) Performance by Terremark....................................30 (c) Letters of Terremark Accountants............................30 (d) Lock Up Letters.............................................30 ARTICLE V TERMINATION AND ABANDONMENT...................................31 5.1. Termination......................................................31 5.2. Effect of Termination............................................31 ARTICLE VI MISCELLANEOUS.................................................32 6.1. Fees and Expenses................................................32 6.2. Negotiations.....................................................32 6.3. Survival of Representations and Warranties.......................34 6.4. Extension; Waiver................................................34 6.5. Public Announcements.............................................34 6.6. Notices..........................................................34 6.7. Entire Agreement; Severability...................................35 6.8. Binding Effect; Benefit; Assignment..............................36 6.9. Amendment and Modification.......................................36 6.10.Further Actions..................................................36 6.11.Interpretation; Headings.........................................36 6.12.Counterparts.....................................................37 6.13.Applicable Law...................................................37 6.14.Severability.....................................................37 6.15."Person" Defined.................................................37 DEFINITIONS Page ---- Acquisition Proposal (Section 6.2(a)).......................................34 - ------------------------------------- Affiliate (Section 4.3(d))..................................................32 Agents (Section 3.2)........................................................25 Agreement (Preamble).........................................................1 AMEX (Section 1.4)...........................................................3 - ------------------ Certificate of Merger (Section 1.1(a)).......................................1 - -------------------------------------- Closing (Section 1.9)........................................................4 - --------------------- Closing Date (Section 1.9)...................................................4 - -------------------------- Commission (Section 2.1(e))..................................................7 - --------------------------- Commission Filings (Section 2.1(e))..........................................8 - ----------------------------------- Common Stock (Section 1.2(a))................................................2 - ----------------------------- Company (Preamble)...........................................................1 Company Benefit Plans (Section 2.1(m)(i))...................................11 Company Proxy Statement (Section 2.1(u))....................................14 - ---------------------------------------- Company Stock Option (Section 1.5)...........................................3 - ---------------------------------- Company Stock Option Plans (Section 1.5).....................................3 - ---------------------------------------- Company Stockholders Approval (Section 2.1(b))...............................6 - ---------------------------------------------- DGCL (Section 1.1(a))........................................................1 - --------------------- EC Merger Regulation (Section 2.1(j)).......................................10 - ------------------------------------- Effective Time (Section 1.1(a))..............................................1 - ------------------------------- Environmental Laws (Section 2.2(u)(i))......................................23 ERISA (Section 2.1(m)(i))...................................................11 ERISA (Section 2.2(r)(i))...................................................22 Exchange Act (Section 2.1(d))................................................7 - ----------------------------- FBCA (Section 1.1(a))........................................................1 - --------------------- Foregone Commission (Section 6.2(e))........................................35 Form S-4 (Section 2.1(u))...................................................14 - ------------------------- Hazardous Material Section 2.2(a)1))........................................23 HSR Act (Section 2.1(d)).....................................................7 - ------------------------ Knowledge (Section 2.1(i))..................................................10 ----------------- Material Adverse Effect (Section 2.1(a)).....................................5 - ---------------------------------------- Maximum Amount (Section 3.9)................................................28 - ---------------------------- Merger (Preamble)............................................................1 - ----------------- Merger Consideration (Section 1.2(c))........................................2 - ------------------------------------- Notice of Superior Proposal (Section 6.2(b))................................34 - -------------------------------------------- Partners (Section 1.11)......................................................4 Permits (Section 2.1(h))....................................................10 Person (Section 6.15).......................................................39 - --------------------- Post Merger Common Stock (Section 1.2(a))....................................2 - ----------------------------------------- Predecessor (Section 2.2(u)(ii))............................................24 - -------------------------------- Preferred Stock (Section 2.1(c)).............................................6 - -------------------------------- Proceeds (Section 1.11)......................................................4 Securities Act (Section 2.1(d))..............................................7 Stock Purchase Agreement (Section 4.2(f))...................................31 Subsidiary (Section 2.1(a))..................................................5 - --------------------------- Superior Proposal (Section 6.2(a))..........................................34 - ---------------------------------- Surviving Corporation (Section 1.1(b)).......................................2 ----------------- Terremark (Preamble).........................................................1 Terremark Benefit Plans (Section 2.2(r)(i)).................................22 Terremark Common Stock (Section 1.2(b))......................................2 - --------------------------------------- Terremark Financial Statements (Section 2.2(k)).............................19 - ------------------------------ Terremark Preferred Stock (Section 2.2(c))..................................15 - ------------------------------------------ Vista Green (Section 4.2(f))................................................31 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of November 24, 1999 ("Agreement"), by and between Terremark Holdings, Inc., a Florida corporation ("Terremark"), and AMTEC, INC., a Delaware corporation (the "Company"). WHEREAS, Terremark desires to merge with and into the Company and the Company desires that Terremark be merged with and into it, with the Company being the surviving corporation; WHEREAS, the respective Boards of Directors of Terremark and the Company have approved the execution of this Agreement and the transactions contemplated hereby including the merger of Terremark into the Company pursuant to and subject to the terms and conditions of this Agreement and the laws of the States of Delaware and Florida (the "Merger"); WHEREAS, the Directors of the Company have determined that the terms of the Merger are in the best interests of, the holders of the issued and outstanding capital stock of the Company, approved the Merger and recommend the acceptance of the approval and adoption of this Agreement by the stockholders of the Company; and WHEREAS, the terms and conditions of the Merger and the mode of carrying the same into effect are set forth below. NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties, conditions and agreements herein contained, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1. The Merger. (a) Subject to the terms and conditions of this Agreement, at the time of the Closing (as defined in Section 1.9 hereof), a certificate of merger (the "Certificate of Merger") shall be duly prepared, executed and acknowledged by Terremark and the Company in accordance with the General Corporation Law of the State of Delaware (the "DGCL") and the Florida Business Corporation Act (the "FBCA") and shall be filed, together with all other filings or recordings required by the DGCL and the FBCA to be made in connection with the Merger, on the Closing Date (as defined in Section 1.9 hereof). The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware in accordance with the provisions and requirements of the DGCL. The date and time when the Merger shall become effective is hereinafter referred to as the "Effective Time." (b) At the Effective Time, Terremark shall be merged with and into the Company whereupon the separate corporate existence of Terremark shall cease, and the Company shall continue as the surviving corporation under the laws of the State of Delaware (the "Surviving Corporation"). (c) From and after the Effective Time, the Merger shall have the effects set forth in Section 607.1106 of the FBCA and Section 259 of the DGCL. 1.2. Conversion of Stock. At the Effective Time: ------------------- (a) Each share of the common stock of the Company, $0.001 par value (the "Common Stock") then issued and outstanding shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent one share of common stock, $0.001 par value, of the Surviving Corporation (the "Post Merger Common Stock") and any rights to receive Common Stock (including options, warrants and convertible preferred stock) shall automatically be converted to a right to receive an equal number of the Post Merger Common Stock, such that, immediately after the Effective Time, all holders of the Common Stock, together with the holders of any rights to receive Common Stock shall, in the aggregate and on a fully diluted basis, hold 38.5% of the Post Merger Common Stock of the Surviving Corporation; (b) Each share of common stock, par value $0.01 per share, of Terremark (the "Terremark Common Stock") then issued and outstanding shall, by virtue of the Merger and without any action on the part of the holder thereof, become the right to receive fully paid and nonassessable shares of the Post Merger Common Stock, such that, immediately after the Effective Time, all holders of the Terremark Common Stock shall, in the aggregate and on a fully diluted basis, hold 61.5% of the Post Merger Common Stock; and (c) Each share of the Post Merger Common Stock issued as provided in Sections 1.2 (a) and (b) shall be of the same class and shall have the same terms as the currently outstanding Common Stock. The shares of the Post Merger Common Stock to be received as consideration pursuant to the Merger with respect to the Common Stock (together with cash in lieu of fractional shares as set forth below) is referred to herein as the "Merger Consideration." 1.3. Surrender of Certificates. ------------------------- (a) At the Effective Time, each holder of a certificate or certificates theretofore representing issued and outstanding shares of the Terremark Common Stock may surrender such certificates to the Surviving Corporation and receive in exchange therefor certificates representing the appropriate number of shares of Post Merger Common Stock as provided in Section 1.2. In the event that the share certificates for the shares in the Surviving Corporation are to be registered to a holder other than the registered owner of a surrendered certificate, it shall be a condition of such issuance that the certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that all applicable transfer and other similar taxes shall have been paid. Until so surrendered, each such certificate shall, from and after the Effective Time, represent for all purposes, only the right to receive the shares of the Post Merger Common Stock. (b) At the Effective Time, the share certificates theretofore representing issued and outstanding shares of the Common Stock shall automatically be deemed to represent the same number of shares of Post Merger Common Stock. (c) No dividends or other distributions with respect to shares of the Post Merger Common Stock shall be paid to holders of any certificates representing the shares of Terremark Common Stock not surrendered as set forth in this Section 1.3. Subject to applicable laws, following such surrender, there shall be paid, without interest, to the record holder of the shares of the Post Merger Common Stock issued in exchange therefor (i) at the time of such surrender, all dividends and other distributions payable in respect of such Post Merger Common Stock with a record date after the Effective Time and a payment on or prior to the date of such surrender and not previously paid and (ii) at the appropriate payment date, the dividends or other distributions payable with respect to such Post Merger Common Stock with a record date after the Effective Time but with a payment date subsequent to such surrender. For the purposes of dividends or other distributions in respect of Post Merger Common Stock, all shares of Post Merger Common Stock to be issued pursuant to the Merger shall be entitled to dividends pursuant to the immediately preceding sentence as if issued and outstanding as of the Effective Time. 1.4. Fractional Shares. No fractional shares of the Post Merger Common Stock shall be issued in the Merger, but in lieu thereof, each holder of the Terremark Common Stock shall be entitled to receive, in lieu of the fractional shares, an amount of cash, without interest thereon (rounded to the nearest whole cent), equal to the product of (i) such fraction of a share of Post Merger Common Stock, multiplied by (ii) the average of the closing prices of the shares of the Common Stock on the American Stock Exchange (the "AMEX") as reported in The Wall Street Journal (subject to correction for typographical or other manifest errors in such reporting) over the ten trading-day period immediately preceding the Closing Date. 1.5. Stock Options. (a) At the Effective Time, each outstanding option to purchase Common Stock (a "Company Stock Option") granted under the Company's plans identified in Schedule 1.5 as being the only compensation or benefit plans or agreements pursuant to which Common Stock may be issued (collectively, the "Company Stock Option Plans"), whether vested or not vested, shall be deemed assumed by the Surviving Corporation and shall thereafter be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Company Stock Option prior to the Effective Date (in accordance with the past practice of the Company with respect to interpretation and application of such terms and conditions), the same number of shares of Post Merger Common Stock. In addition, prior to the Effective Time, the Company will make any amendments to the terms of such stock option or compensation plans or arrangements that are necessary to give effect to the transactions contemplated by this Agreement. The Company represents that no consents are necessary to give effect to the transactions contemplated by this Section. (b) Prior to the Effective Time, the Board of Directors of the Company shall or shall cause the Plan Committee (as defined in the Company Stock Option Agreements) to take all actions necessary to ensure that the Merger will not result in (i) an acceleration of the vesting of any Company Stock Options or (ii) a change in the number of shares for which outstanding options are exercisable. 1.6. Certificate of Incorporation of the Surviving Corporation. The Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation; provided, however, that it shall have been amended to reflect that the total number of shares of capital stock that the Company is authorized to issue is 300,000,000 shares of common stock. 1.7. By-Laws of the Surviving Corporation. The By-Laws of the Company, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation; provided, however, that the Directors of the Surviving Corporation shall take all such action as is necessary to increase the maximum number of directors of the Surviving Corporation to a number which is not less than 13. 1.8. Directors and Officers of the Surviving Corporation. The Company agrees to take all necessary actions so that, on the second Business Day after the Effective Time, the Company's board of directors shall include not less than seven persons designated by Terremark. 1.9. Closing. The closing of the Merger (the "Closing") shall take place at the offices of Greenberg Traurig, P.A., 1221 Brickell Avenue, Miami, Florida, as soon as practicable after the last of the conditions set forth in Article IV hereof is fulfilled or waived (subject to applicable law) but in no event later than the fifth business day thereafter, or at such other time and place and on such other date as Terremark and the Company shall mutually agree (the "Closing Date"). 1.10. Appraisal Rights. In accordance with Section 262 of the Delaware Law, no appraisal rights shall be available to holders of shares of the Common Stock, in connection with the Merger. 1.11. Sale of Additional Shares. The parties to this Agreement hereby acknowledge that Terremark at Bayshore, Inc., Terremark Centre, Inc. and ACGDI, Inc. (each of which is a Florida corporation and which are collectively referred to as the "Partners"), has sold to Terremark their interests in Terremark Centre Limited, a Florida limited partnership, the owner of certain real property referred to as the Terremark Centre located at 2601 South Bayshore Drive, Coconut Grove, Florida, for a purchase price equal to the difference between $56,000,000 and the (at the time of the sale) outstanding principal balance of the first mortgage loan in favor of Principal Mutual Insurance Company (the "Proceeds"). The Surviving Corporation hereby agrees to, at the Effective Time, sell to the Partners, or their assignees, for the Proceeds, such number of shares of Common Stock as shall be equal, in the aggregate and on a fully diluted basis, to 35% of the Post Merger Common Stock of the Surviving Corporation pursuant to that certain Stock Purchase Agreement which shall be executed contemporaneously herewith between the Company and Vistagreen Holdings (Bahamas), Ltd., a Bahamian international business corporation. Upon the closing of this Agreement and the Stock Purchase Agreement, the percentage ownership of the holders of the Company Common Stock prior to the Effective Time shall be 25%, the percentage ownership of the Partners shall be 35%, and the percentage ownership of the existing holders of the Terremark Common Stock shall be 40%, each such percentage representing the respective ownership of such persons of the Post Merger Common Stock. ARTICLE II REPRESENTATIONS AND WARRANTIES ------------------------------ 2.1. Representations and Warranties of the Company. The Company hereby represents and warrants to Terremark as follows: (a) Due Organization, Good Standing and Corporate Power. Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and each such corporation has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of the Company and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except in such jurisdictions where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect on the Company. For the purposes of this Agreement, "Material Adverse Effect" on any Person means a material adverse effect on the business, properties, assets, liabilities, operations, results of operations, condition (financial or otherwise) or prospects of the Person and its Subsidiaries taken as a whole (i) except to the extent resulting from (A) any change in general United States or global economic conditions or general economic conditions in industries in which the Person competes, or (B) the announcement of the transaction contemplated herein or any action required to be taken pursuant to the terms hereof, and (ii) except that the term Material Adverse Effect shall not include, with respect to the Company (A) any decreases in the Company's stock price in and of itself or (B) any deterioration in the Company's financial condition which is a direct and proximate result of its agreements with Hebei United Telecommunication Equipment Co. The Company has heretofore made available to Terremark true and complete copies of the Certificate of Incorporation and Bylaws (or equivalent documents), as amended to date, for itself and each of its Subsidiaries and copies of the minutes of its Board of Directors and committees of the Board of Directors (except as the same relate to transactions contemplated hereby). The term "Subsidiary," as used in this Agreement, refers to any Person in which the Company or Terremark, as the case may be, owns any equity interest and shall include all joint ventures. (b) Authorization and Validity of Agreement. The Company has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Company, and the consummation by it of the transactions contemplated hereby, have been duly authorized and approved by its Board of Directors and no other corporate action on the part of the Company is necessary to authorize the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby (other than the approval of this Agreement and the Merger by the holders of a majority of the shares of Common Stock (the "Company Stockholders Approval"), which is the only vote of the holders of any equity interest in the Company necessary in connection with the consummation of the Merger). This Agreement has been duly executed and delivered by the Company and is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. The Company's Board of Directors, at a meeting duly called and held, has, subject to the provisions of Section 6.2 hereof (i) determined that this Agreement and the transactions contemplated hereby are fair to and in the best interests of the Company's stockholders, (ii) approved and adopted this Agreement and the transactions contemplated hereby and authorized the execution of this Agreement, and (iii) resolved to recommend approval and adoption of this Agreement and the Merger by its stockholders. (c) Capitalization. (i) The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, $0.001 par value (the "Preferred Stock"). As of the close of business on November 22, 1999, 36,271,689 shares of Common Stock are issued and outstanding. Set forth on Schedule 2.2(c)(i) are (1) the number of shares of Common Stock reserved for issuance pursuant to outstanding Options granted under the Stock Incentive Plans, (2) the number of such shares which have been issued under such Plans, (3) the number of shares of Series G Preferred Stock issued and outstanding, and (4) the number of warrants to purchase the indicated number of shares of Common Stock. No shares of Common Stock are held in the Company's treasury. The Series G Preferred Stock converts at the option of the holder into 1,688,022 shares of Common Stock, which number of shares of Common Stock have been authorized and reserved for issuance by the Company. All issued and outstanding shares of capital stock of the Company have been validly issued and are fully paid and nonassessable, and are not subject to, nor were they issued in violation of, any preemptive rights. Except as set forth in this Section 2.1(c) or on Schedule 2.1(c) attached hereto, (x) there are no shares of capital stock of the Company authorized, issued or outstanding (except for shares subsequently issued pursuant to existing options, warrants and other rights described in Section 2.1(c)) and (y) there are not, as of the date hereof, and at the Effective Time there will not be, any outstanding or authorized options, warrants, rights, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities, or other commitments, contingent or otherwise, relating to Common Stock or any other shares of capital stock of the Company, pursuant to which the Company is or may become obligated to issue shares of Common Stock, any other shares of its capital stock or any securities convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of the capital stock of the Company. (ii) Schedule 2.1(c)(ii) lists all of the Company's Subsidiaries (as defined in Section 2.1(a) hereof). All of the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to, nor were they issued in violation of, any preemptive rights, and are owned, of record and beneficially, by the Company, except as otherwise set forth on Schedule 2.1(c)(ii), free and clear of all liens, encumbrances, options or claims whatsoever. No shares of capital stock of any of the Company's Subsidiaries are reserved for issuance and there are no outstanding or authorized options, warrants, rights, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities, or other commitments, contingent or otherwise, relating to the capital stock of any Subsidiary of the Company, pursuant to which such Subsidiary is or may become obligated to issue any shares of capital stock of such Subsidiary or any securities convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of such Subsidiary. Except for the Subsidiaries listed on Schedule 2.1(c)(ii), the Company does not own, directly or indirectly, any capital stock or other equity interest in any Person or have any direct or indirect equity or ownership interest in any Person and, except as set forth in Schedule 2.1(c)(ii), neither the Company nor any of its Subsidiaries is subject to any obligation or requirement to provide funds for or to make any investment (in the form of a loan, capital contribution or otherwise) to or in any Person. Schedule 2.1(c)(ii), sets forth the equity interests of each such Subsidiary owned by the Company. (d) Consents and Approvals; No Violations. Assuming (i) compliance with any applicable requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) compliance with any requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act") and any requirements of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Securities Act") relating to the Proxy Statement and registration of the Post Merger Common Stock to be issued to holders of Terremark Common Stock are met, (iii) the filing of the Certificate of Merger and other appropriate merger documents, if any, as required by DGCL, and (iv) approval of the Merger by a majority of the holders of Common Stock, is received, the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not: (1) violate any provision of the Certificate of Incorporation or By-Laws of the Company or any of its Subsidiaries; (2) violate any statute, ordinance, rule, regulation, order or decree of any court or of any governmental or regulatory body, agency or authority applicable to the Company or any of its Subsidiaries or by which any of their respective properties or assets may be bound; (3) require any filing with, or permit, consent or approval of, or the giving of any notice to, any governmental or regulatory body, agency or authority; or (4) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, payment or acceleration) under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, franchise, permit, agreement, lease, franchise agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party, or by which it or any of their respective properties or assets may be bound, excluding from the foregoing clauses (2), (3) and (4) filings, notices, permits, consents and approvals the absence of which, and violations, breaches, defaults, conflicts and liens which, in the aggregate, would not have a Material Adverse Effect on the Company. (e) Company Reports and Financial Statements. Since March 31, 1997, the Company has filed all forms, reports and documents with the Securities and Exchange Commission (the "Commission") required to be filed by it pursuant to the federal securities laws and the Commission rules and regulations thereunder, and, except to the extent revised or superseded by a subsequent filing filed with the Commission prior to the date hereof, all forms, reports and documents filed with the Commission have complied in all material respects with all applicable requirements of the federal securities laws and the Commission rules and regulations promulgated thereunder. The Company has heretofore made available to Terremark true and complete copies of all forms, reports, registration statements and other filings filed by the Company with the Commission since March 31, 1997 (such forms, reports, registration statements and other filings, together with any amendments thereto, are sometimes collectively referred to as the "Commission Filings"). As of their respective dates, except to the extent revised or superseded by a subsequent filing filed with the Commission prior to the date hereof, the Commission Filings did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the (i) consolidated balance sheets as of the end of the fiscal years ended March 31, 1997, 1998 and 1999 and as of the end of the fiscal quarters ended June 30, September 30, and December 31 of each such year, and (ii) the consolidated statements of operations, consolidated statements of stockholders' equity and consolidated statements of changes in financial position for the fiscal years ended March 31, 1997, 1998 and 1999 and for each of the fiscal quarters ended June 30, September 30 and December 31 of each such year, as included in the Commission Filings, were all prepared in accordance with generally accepted accounting principles (as in effect from time to time) applied on a consistent basis (except as may be indicated therein or in the notes or schedules thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the results of their operations and changes in financial position for the periods then ended (subject to normal year-end adjustments and the absence of notes in the case of any unaudited interim financial statements, none of which individually or in the aggregate had or could have a Material Adverse Effect). (f) Absence of Certain Changes. Except as previously disclosed in the Commission Filings, the Company and its Subsidiaries have (i) conducted their respective businesses in the ordinary course, consistent with past practice, and (ii) since March 31, 1999, there has not been: (i) any event, occurrence or development which, individually or in the aggregate, would have a Material Adverse Effect on the Company; (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company, or any repurchase, redemption or other acquisition by the Company or any of its Subsidiaries of any outstanding shares of their capital stock or any securities convertible into their capital stock; (iii) any amendment of any material term of any outstanding security of the Company or any of its Subsidiaries; (iv) any material transaction or commitment made, or any contract, agreement or settlement entered into, by (or judgment, order or decree affecting) the Company or any of its Subsidiaries relating to its assets or business (including the acquisition or disposition of any material amount of assets) or any relinquishment by the Company or any of its Subsidiaries of any contract or other right, in either case, material to the Company and its Subsidiaries, taken as a whole, other than transactions, commitments, contracts, agreements or settlements (including without limitation settlements of litigation and tax proceedings) in the ordinary course of business consistent with past practice and those contemplated by this Agreement; (v) any change in any method of accounting or accounting practice by the Company or any of its Subsidiaries, except for any such change which is not material or which is required by reason of a concurrent change in GAAP; (vi) any (1) grant of any severance or termination pay to (or amendment to any such existing arrangement with) any director, officer or employee of the Company or any of its Subsidiaries, (2) entering into of any employment, deferred compensation, supplemental retirement or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of the Company or any of its Subsidiaries, (3) increase in, or accelerated vesting and/or payment of, benefits under any existing severance or termination pay policies or employment agreements or (4) increase in or enhancement of any rights or features related to compensation, bonus or other benefits payable to directors, officers or employees of the Company or any of its Subsidiaries, in each case, other than in the ordinary course of business consistent with past practice or as permitted by this Agreement; or (vii) any material Tax election made or changed, any material audit settled or any material amended Tax Return filed. (g) Title to Properties; Encumbrances. The Company and each of its Subsidiaries has good, valid and marketable title to (i) all its material tangible properties and assets (real and personal), including, without limitation, all the properties and assets reflected in the consolidated balance sheet as of September 30, 1999 except as indicated in the notes thereto and except for properties and assets reflected in the consolidated balance sheet as of September 30, 1999 which have been sold or otherwise disposed of in the ordinary course of business, and (ii) all the tangible properties and assets purchased by the Company and any of its Subsidiaries since September 30, 1999 except for such properties and assets which have been sold or otherwise disposed of in the ordinary course of business; in each case subject to no encumbrance, lien, charge or other restriction of any kind or character, except for (1) liens reflected in the consolidated balance sheet as of September 30, 1999, (2) liens consisting of zoning or planning restrictions, easements, permits and other restrictions or limitations on the use of real property or irregularities in title thereto which do not materially detract from the value of, or impair the use of, such property by the Company or any of its Subsidiaries in the operation of its respective business, (3) liens for current taxes, assessments or governmental charges or levies on property not yet due and delinquent and (4) liens created in connection with the loan from Terremark to the Company. (h) Compliance with Laws; Permits. The Company and its Subsidiaries are in material compliance with all applicable laws, regulations, orders, judgments and decrees except where the failure to so comply would not have a Material Adverse Effect on the Company. The Company has not received any notice alleging non-compliance within the last two years. Each member of the Company Group (a) has all permits, approvals and other authorizations ("Permits") necessary for the conduct and operation of its businesses as currently conducted and (b) uses its assets in compliance with the terms of such Permits, except for any Permits not obtained or any noncompliance which would not, individually or in the aggregate, have a Material Adverse Effect. (i) Litigation. Except as disclosed in the Commission Filings, there is no and, in the past two years there has been no, action, suit, proceeding at law or in equity, or any arbitration or any administrative or other proceeding by or before (or to the Company's knowledge any investigation by) any governmental or other instrumentality or agency, pending, or, to the Company's knowledge, threatened, against or affecting the Company or any of its Subsidiaries, or any of their properties or rights which could have a Material Adverse Effect on the Company or prevent or delay the consummation of the Merger. There are no such suits, actions, claims, proceedings or investigations pending or, to the Company's knowledge, threatened, seeking to prevent or challenging the transactions contemplated by this Agreement. Except as disclosed in the Commission Filings, neither the Company nor any of its Subsidiaries is subject to any judgment, order or decree entered in any lawsuit or proceeding which could have a Material Adverse Effect on the Company or on the ability of the Company or any Subsidiary to conduct its business as presently conducted. For the purposes of this Agreement, the term "knowledge" shall mean actual knowledge. (j) Government Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental body, agency, official or authority other than (i) the filing of a certificate of merger in connection with the Merger in accordance with Delaware Law and Florida law, (ii) compliance with any applicable requirements of the HSR Act, (iii) compliance with any applicable requirements of Council Regulation No. 4064/89 of the European Community, as amended (the "EC Merger Regulation"), (iv) compliance with any other applicable requirements of foreign anti-trust or investment laws, (v) compliance with any applicable environmental transfer statutes, (vi) compliance with any applicable requirements of the Exchange Act, (vii) compliance with any applicable requirements of the Securities Act, or (viii) other actions or filings which if not taken or made would not, individually or in the aggregate, have a Material Adverse Effect on the Company or prevent or materially delay the Company's consummation of the Merger. (k) Opinion of Financial Advisor. The Company has received the opinion of Ramius Capital Group, L.L.C. to the effect that, as of the date of its opinion, the transactions contemplated herein are necessary to the Company. Except for Ramius Capital Group, L.L.C., the fees of which shall not exceed $150,000 and such number of shares of Post Merger Common Stock as shall have a value of $150,000 as determined based upon the closing price of Common Stock of the Company on the trading day immediately preceding the day of the Effective Time, no agent, broker, Person or firm acting on behalf of the Company is, or will be entitled to any fee, commission or broker's or finder's fees from any of the parties hereto, or from any Person controlling, controlled by, or under common control with any of the parties hereto, in connection with this Agreement or any of the transactions contemplated hereby. (l) Takeover Statutes and Charter Provisions. The Board of Directors of the Company has taken the necessary actions to render Section 203 of the DGCL, any other potentially applicable anti-takeover or similar statute or regulation and the provisions of the Company's charter, if any, inapplicable to this Agreement, the Merger and the transactions contemplated hereby. (m) Employee Benefit Plans. ---------------------- (i) List of Plans. Set forth in Schedule 2.1(m) attached hereto is an accurate and complete list of all employee benefit plans ("Company Benefit Plans") within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such Employee Benefit Plans are otherwise exempt from the provisions of ERISA, established, maintained or contributed to by the Company or any of its Subsidiaries (including, for this purpose and for the purpose of all of the representations in this Section 2.1(m), all employers (whether or not incorporated) which by reason of common control are treated together with the Company as a single employer within the meaning of Section 414 of the Code). (ii) Status of Plans. Neither the Company nor any of its Subsidiaries maintains or contributes to any Company Benefit Plan subject to ERISA which is not in substantial compliance with ERISA. None of the Company Benefit Plans are subject to the minimum funding requirements of Section 412 of the Code, or subject to Title IV of ERISA, or multiemployer plans (as defined in Section 4001(a)(3) of ERISA. (iii) Contributions. All amounts which the Company or any of its Subsidiaries is required, under applicable law or under any Company Benefit Plan or any agreement relating to any Company Benefit Plan to which Company or any of its Subsidiaries is a party, to have paid as contributions thereto as of the last day of the most recent fiscal year of such Company Benefit Plan ended prior to the date hereof, have either been paid or properly accrued on the Financial Statements. The Company has made any accruals on its Financial Statements that are required in accordance with generally accepted accounting principles for contributions that have not been made because they are not yet due under the terms of any Company Benefit Plan or related agreements. Benefits under all Company Benefit Plans are as represented and have not been increased subsequent to the date as of which documents have been provided to the Company. (iv) Tax Qualification. The Internal Revenue Service has issued a favorable determination letter that each Company Benefit Plan intended to be qualified under Section 401(a) of the Code is so qualified, and, to the knowledge of the Company, nothing has occurred since the date of the last such determination which resulted or is likely to result in the revocation of such determination. (v) Transactions. Neither the Company nor any of its Subsidiaries has engaged in any transaction with respect to the Company Benefit Plans which would subject it to a material tax, penalty or liability for prohibited transactions under ERISA or the Code nor has any of their respective directors, officers or employees to the extent they or any of them are fiduciaries with respect to such Plans, materially breached any of their responsibilities or obligations imposed upon fiduciaries under Title I of ERISA or would result in any material claim being made under or by or on behalf of any such Plans by any party with standing to make such claim. (n) Insurance. The Company has made available to Terremark a schedule of insurance and policies currently maintained by the Company and its Subsidiaries. Furthermore (a) neither the Company nor any of the Company's Subsidiaries has received any notice of cancellation or non-renewal of any such policy or arrangement nor is the termination of any such policies or arrangements threatened, (b) there is no claim pending under any of such policies or arrangements as to which coverage has been questioned, denied or disputed by the underwriters of such policies or arrangements, (c) neither the Company nor any of the Company's Subsidiaries has received any notice from any of its insurance carriers that any insurance premiums will be increased in the future or that any insurance coverage presently provided for will not be available to the Company or any of the Company's Subsidiaries in the future on substantially the same terms as now in effect and (d) none of such policies or arrangements provides for any retrospective premium adjustment, experienced-based liability or loss sharing arrangement affecting the Company or any of the Company's Subsidiaries. (o) Casualties. Neither the Company nor any of the Company's Subsidiaries has been affected in any way as a result of flood, fire, explosion or other casualty (whether or not material and whether or not covered by insurance). The Company is not aware of any circumstance which is likely to cause it to suffer any material adverse change in its business, operations or prospects. (p) Propriety of Past Payments. (i) No unrecorded fund or asset of the Company or any of the Company's Subsidiaries has been established for any purpose, (ii) no accumulation or use of corporate funds of the Company or any of the Company's Subsidiaries has been made without being property accounted for in the books and records of the Company or any of the Company's Subsidiaries, (iii) no payment has been made by or on behalf of the Company or any of the Company's Subsidiaries with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment and (iv) none of the Company, any of the Company's Subsidiaries, any director, officer, employee or agent of the Company of any of the Company's Subsidiaries has, directly or indirectly, made any illegal contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services, (A) to obtain favorable treatment for any stockholder, the Company, any of the Company's Subsidiaries or any affiliate of the Company in securing business, (B) to pay for favorable treatment for business secured for any stockholder, the Company, any of the Company's Subsidiaries or any affiliate of the Company, (C) to obtain special concessions, or for special concessions already obtained, for or in respect of any stockholder, the Company or any of the Company's Subsidiaries or any affiliate of the Company or (iv) otherwise for the benefit of any stockholder, the Company or any of the Company's Subsidiaries or any affiliate of the Company in violation of any federal, state, local, municipal, foreign, international, multinational or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty (including existing site plan approvals, zoning or subdivision regulations or urban redevelopment plans relating to Real Property). Neither the Company nor any of the Company's Subsidiaries nor any current directly, officer, agent, employee or other Person acting on behalf of the Company or any of the Company's Subsidiaries, has accepted or received any unlawful contribution, payment, gift, kickback, expenditure or other item of value. (q) Employment Relations and Agreements. (i) Each of the Company and its Subsidiaries is in substantial compliance with all foreign, federal, state or other applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not and is not engaged in any unfair labor practice; (ii) no unfair labor practice complaint against the Company or any of its Subsidiaries is pending before the National Labor Relations Board; (iii) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving the Company or any of its Subsidiaries; (iv) no representation question exists respecting the employees of the Company or any of its Subsidiaries; (v) no grievance which might have a Material Adverse Effect on the Company and its Subsidiaries or the conduct of their respective businesses exists, no arbitration proceeding arising out of or under any collective bargaining agreement is pending and no claim therefor has been asserted; (vi) no collective bargaining agreement is currently being negotiated by the Company or any of its Subsidiaries; and (vii) neither the Company nor any of its Subsidiaries has experienced any material labor difficulty during the last three years. There has not been, and to the Company's knowledge, there will not be, any change in relations with employees of the Company or any of its Subsidiaries as a result of the transactions contemplated by this Agreement which could have a Material Adverse Effect on the Company. Except as disclosed in Schedule 2.1(q) attached hereto, there exist no employment, consulting, severance or indemnification agreements between the Company and any director, officer or employee of the Company or any agreement that would give any Person the right to receive any payment from the Company as a result of the Merger. (r) Client Relations. There has not been, and to the Company's knowledge, there will not be, any change in relations with franchisees, customers or clients of the Company or any of its Subsidiaries as a result of the transactions contemplated by this Agreement which could have a Material Adverse Effect on the Company. (s) Sufficiency of Assets. The rights, properties and other assets presently owned, leased or licensed by the Company or its Subsidiaries include all such rights, properties and other assets necessary to permit the Company and its Subsidiaries to conduct their respective businesses in all material respects in the same manner as such businesses have been conducted prior to the date hereof. (t) Contracts and Commitments. Except as provided in Schedule 2.1(t): (i) No purchase contracts or commitments of the Company or any of its Subsidiaries are in excess of the normal, ordinary and usual requirements of business or at any excessive price. (ii) Neither the Company nor any Subsidiary has any outstanding contracts with Shareholders, directors, officers, employees, agents, consultants, advisors, salesmen, sales representatives, distributors or dealers that are in excess of the normal, ordinary and usual requirements of business or at any excessive price. (iii) Neither the Company nor any of its Subsidiaries is restricted by agreement from carrying on its business anywhere in the world. (iv) Neither the Company nor any of its Subsidiaries has outstanding any agreement to acquire any debt obligations of others. (u) Disclosure Documents. Neither the proxy statement of the Company (the "Company Proxy Statement") nor the Registration Statement on Form S-4 (the "Form S-4"), each to be filed with the Commission in connection with the Merger, nor any amendment or supplement thereto, will, at the date the Company Proxy Statement or any such amendment or supplement is first mailed to stockholders of the Company or at the time such stockholders vote on the adoption and approval of this Agreement and the transactions contemplated hereby, with respect to the Company Proxy Statement, or the date the Form S-4 or any amendment thereto is filed with the Commission, with respect to the Form S-4, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company Proxy Statement and the Form S-4 will, when filed, each comply as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act. Notwithstanding the foregoing, no representation or warranty is made by the Company in this Section 2.1(u) with respect to statements made or incorporated by reference therein based on information supplied by Terremark for inclusion or incorporation by reference in the Company Proxy Statement or the Form S-4, which shall be deemed to include information by any third party with respect to any of the assets directly or indirectly acquired by or furnished to Terremark after the date hereof. (v) Full Disclosure. The Company has not failed to disclose to Terremark any facts material to the business, results of operations, assets, liabilities, financial condition or prospects of the Company or its Subsidiaries. No representation or warranty by the Company contained in this Agreement and no statement contained in any document (including financial statements and the Schedules hereto), certificate, or other writing furnished or to be furnished by the Company to Terremark or any of its representatives pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. 2.2. Representations and Warranties of Terremark. Terremark represents and warrants to the Company as follows: (a) Due Organization; Good Standing and Corporate Power. Each of Terremark and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and each such corporation has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of Terremark and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except in such jurisdictions where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect on Terremark. Each member of the Terremark Group has made available to the Company true and complete copies of its certificate of incorporation, as amended to date, its by-laws, as amended to date and copies of the minutes of its Board of Directors and of committees of the Board of Directors (except as the same relate to the transactions contemplated hereby). (b) Authorization and Validity of Agreement. Terremark has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by Terremark, and the consummation by it of the transactions contemplated hereby, have been duly authorized and approved by its Board of Directors of Terremark. No other corporate action on the part of Terremark is necessary to authorize the execution, delivery and performance of this Agreement by Terremark and the consummation of the transactions contemplated hereby (other than the approval of this Agreement by the shareholders of Terremark, if required by the FBCA). This Agreement has been duly executed and delivered by Terremark and is a valid and binding obligation of Terremark, enforceable against Terremark in accordance with its terms, except that such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally, and general equitable principles. Terremark's Board of Directors, at a meeting duly called and held, has approved and adopted this Agreement and the transactions contemplated hereby, and resolved to recommend approval an adoption of this Agreement and the Merger by its shareholders. (c) Capitalization. (i) The authorized capital stock of Terremark consists of 5,000,000 shares of Terremark Common Stock and 4,176,693 shares of preferred stock, $1.00 par value, of which 4,176,693 shares of Series A Convertible Preferred Stock are outstanding (the "Terremark Preferred Stock"). As of November 23, 1999, 1,121,250 shares of Terremark Common Stock are issued and outstanding, and no shares of Terremark Common Stock are reserved for issuance. All issued and outstanding shares of Terremark Common Stock have been validly issued and are fully paid and nonassessable, and are not subject to, nor were they issued in violation of, any preemptive rights. Except as set forth in this Section 2.2(c), (x) there are no shares of capital stock of Terremark authorized, issued or outstanding (except for shares subsequently issued pursuant to existing options or other rights described in this Section 2.2(c)) and (y) there are not as of the date hereof, and at the Effective Time there will not be, any outstanding or authorized options, warrants, rights, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities, or other commitments, contingent or otherwise, relating to the Terremark Common Stock or any other shares of capital stock of Terremark, pursuant to which Terremark is or may become obligated to issue shares of Terremark Common Stock, any other shares of its capital stock or any securities convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of the capital stock of Terremark. (ii) Schedule 2.2(c)(ii) lists all of Terremark's Subsidiaries, the shareholders of each Subsidiary and the shares they own. All of the outstanding shares of capital stock of each of Terremark's Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to, nor were they issued in violation of, any preemptive rights, and are owned, of record and beneficially, by Terremark, free and clear of all liens, encumbrances, options or claims whatsoever. No shares of capital stock of any of Terremark's Subsidiaries are reserved for issuance and there are no outstanding or authorized options, warrants, rights, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities, or other commitments, contingent or otherwise, relating to the capital stock of any Subsidiary of Terremark, pursuant to which such Subsidiary is or may become obligated to issue any shares of capital stock of such Subsidiary or any securities convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of such Subsidiary. Except for the Subsidiaries listed on Schedule 2.2(c)(ii), Terremark does not own, directly or indirectly, any capital stock or other equity interest in any Person or have any direct or indirect equity or ownership interest in any Person and neither Terremark nor any of its Subsidiaries is subject to any obligation or requirement to provide funds for or to make any investment (in the form of a loan, capital contribution or otherwise) to or in any Person. With respect to each of its Subsidiaries, a member of the Terremark Group owns 100% of the stock of each such Person. (d) Consents and Approvals; No Violations. Assuming (i) compliance with any applicable requirements under the HSR Act, (ii) the filing of the Certificate of Merger and other appropriate merger documents, if any, as required by the laws of the FBCA is made and (iii) approval of this Agreement by the shareholders of Terremark if required by the laws of Florida, the execution and delivery of this Agreement by Terremark and the consummation by Terremark of the transactions contemplated hereby will not: (1) violate any provision of the Articles of Incorporation or By-Laws of Terremark; (2) violate any statute, ordinance, rule, regulation, order or decree of any court or of any governmental or regulatory body, agency or authority applicable to Terremark or by which its properties or assets may be bound; (3) require any filing with, or permit, consent or approval of, or the giving of any notice to any governmental or regulatory body, agency or authority; or (4) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Terremark or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, franchise, permit, agreement, lease or other instrument or obligation to which Terremark or any of its Subsidiaries is a party, or by which they or their respective properties or assets may be bound, excluding from the foregoing clauses (2), (3) and (4) violations, filings, notices, permits, consents and approvals the absence of which, and violations, breaches, defaults, conflicts and liens which, in the aggregate, would not have a Material Adverse Effect on Terremark. (e) Real Property. (i) All Real Property ("Real Property") that is owned by Terremark or any Terremark Subsidiary is reflected as an asset on the Balance Sheet of the Terremark Financial Statements. There are no proceedings, claims, disputes or conditions affecting any Real Property that will curtail or interfere with the use of such property. Neither the whole nor any portion of the Real Property nor any other assets of Terremark or any Terremark Subsidiary is subject to any governmental decree or order to be sold or is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefor, nor to the knowledge of Terremark has any such condemnation, expropriation or taking been proposed. (ii) Neither Terremark nor any Terremark Subsidiary has received any notice of, or other writing referring to, any requirements or recommendations by any insurance company that has issued a policy covering any part of the Real Property or by any board of fire underwriters or other body exercising similar functions, requiring or recommending any repairs or work to be done on any part of the Real Property, which repair or work has not been completed. (iii) Each of Terremark and each Terremark Subsidiary has obtained all appropriate certificates of occupancy, licenses, easements and rights of way, including proofs of dedication, required to use and operate the Real Property in the manner in which the Real Property is currently being used and operated, except where the failure to obtain the same would not have a Material Adverse Effect. Each of Terremark and each Terremark Subsidiary has all approvals, permits and licenses, and no such approvals, permits or licenses will be required, as a result of the Merger, to be issued after the date hereof in order to permit the Company, following the Closing, to continue to own or operate the Real Property in the same manner as heretofore, other than any such approvals, permits or licenses that are ministerial in nature and are normally issued in due course upon application therefore without the further action by the applicant or when the failure to obtain the same would not have a Material Adverse Effect. (f) Leases. Schedule 2.2(f) contains an accurate and complete description of the terms of each Lease ("Lease" shall mean each lease pursuant to which Terremark or any Terremark Subsidiary leases any real or personal property (excluding leases relating solely to personal property calling for rental or similar periodic payments not exceeding $100,000 per annum)). To Terremark's knowledge, each Lease is valid, binding and enforceable in accordance with its terms and is in full force and effect. The leasehold estate created by each Lease is free and clear of all encumbrances. Except for defaults which individually or in the aggregate have not had and will not have a Material Adverse Effect, there are no existing defaults by Terremark or any Terremark Subsidiary under any of the Leases. No event has occurred that (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a default under any Lease. Neither Terremark nor any of the Terremark Subsidiaries has received notice, or has any other reason to believe, that any lessor under any Lease will not consent (where such consent is necessary) to the consummation of the Merger without requiring any modification of the rights or obligations of the lessee thereunder. (g) Contracts and Commitments. Except as provided in the Terremark Financial Statements: (i) No purchase contracts or commitments of Terremark or any Terremark Subsidiary are in excess of the normal, ordinary and usual requirements of business or at any excessive price. (ii) Neither Terremark nor any Terremark Subsidiary has any outstanding contracts with Shareholders, directors, officers, employees, agents, consultants, advisors, salesmen, sales representatives, distributors or dealers that are in excess of the normal, ordinary and usual requirements of business or at any excessive price. (iii) Neither Terremark nor any Terremark Subsidiary is restricted by agreement from carrying on its business anywhere in the world. (iv) Neither Terremark nor any Terremark Subsidiary has outstanding any agreement to acquire any debt obligations of others. (h) Insurance. Terremark has made available to the Company a schedule of insurance and policies currently maintained by Terremark and its Subsidiaries. Furthermore (a) neither Terremark nor any Terremark Subsidiary has received any notice of cancellation or non-renewal of any such policy or arrangement nor is the termination of any such policies or arrangements threatened, (b) there is no claim pending under any of such policies or arrangements as to which coverage has been questioned, denied or disputed by the underwriters of such policies or arrangements, (c) neither Terremark nor any Terremark Subsidiary has received any notice from any of its insurance carriers that any insurance premiums will be increased in the future or that any insurance coverage presently provided for will not be available to Terremark or any Terremark Subsidiary in the future or that any insurance coverage presently provided for will not be available to Terremark or any Terremark Subsidiary in the future on substantially the same terms as now in effect and (d) none of such policies or arrangements provides for any retrospective premium adjustment, experienced-based liability or loss sharing arrangement affecting Terremark or any Terremark Subsidiary. (i) Casualties. Neither Terremark nor any Terremark Subsidiary has been affected in any way as a result of flood, fire, explosion or other casualty (whether or not material and whether or not covered by insurance). Terremark is not aware of any circumstance which is likely to cause it to suffer any material adverse change in its business, operations or prospects. (j) Propriety of Past Payments. (a) No unrecorded fund or asset of Terremark or any Terremark Subsidiary has been established for any purpose, (b) no accumulation or use of corporate funds of Terremark or any Terremark Subsidiary has been made without being properly accounted for in the books and records of Terremark or such Subsidiary, (c) no payment has been made by or on behalf of Terremark or any Terremark Subsidiary with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment and (d) none of Terremark, any Terremark Subsidiary, any director, officer, employee or agent of Terremark or any Terremark Subsidiary or any other Person associated with or acting for or on behalf of Terremark or any Terremark Subsidiary has, directly or indirectly, made any illegal contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services, (i) to obtain favorable treatment for any shareholder, Terremark, any Terremark Subsidiary or any affiliate of Terremark in securing business, (ii) to pay for favorable treatment for business secured for any shareholder, Terremark, any Terremark Subsidiary or any affiliate of Terremark, (iii) to obtain special concessions, or for special concessions already obtained, for or in respect of any shareholder, Terremark, any Terremark Subsidiary or any affiliate of Terremark or (iv) otherwise for the benefit of any shareholder, Terremark, any Terremark Subsidiary or any affiliate of Terremark in violation of any federal, state, local, municipal, foreign, international, multinational or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty (including existing site plan approvals, zoning or subdivision regulations or urban redevelopment plans relating to Real Property). Neither Terremark nor any Terremark Subsidiary nor any current director, officer, agent, employee or other Person acting on behalf of Terremark or any Terremark Subsidiary, has accepted or received any unlawful contribution, payment, gift, kickback, expenditure or other item of value. (k) Financial Statements; Absence of Certain Changes. The consolidated balance sheets provided by Terremark to the Company as of March 31, 1999 and 1998 and the consolidated income statements and statements of cash flow for the periods then ended and the unaudited balance sheet as of September 30, 1999 and the unaudited consolidated income statement for the period then ended (the "Terremark Financial Statements") fairly present the consolidated financial position of Terremark and its subsidiaries as of such dates and fairly present the results of operations and changes in cash flow for the periods then ended, in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in notes thereto and as for any unaudited financial statements, except for normal year-end adjustments and the absence of notes). Terremark and its Subsidiaries have since March 31, 1999 conducted in all material respects their respective businesses in the ordinary course, reasonably consistent with past practice, and there has not been: (i) any event, occurrence or development which, individually or in the aggregate, would have a Material Adverse Effect on Terremark; (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of Terremark, or any repurchase, redemption or other acquisition by Terremark or any of its Subsidiaries of any outstanding shares of their capital stock or any securities convertible into their capital stock; (iii) any amendment of any material term of any outstanding security of Terremark or any of its Subsidiaries; (iv) any transaction or commitment made, or any contract, agreement or settlement entered into, by (or judgment, order or decree affecting) Terremark or any of its Subsidiaries relating to its assets or business (including the acquisition or disposition of any material amount of assets) or any relinquishment by Terremark or any of its Subsidiaries of any contract or other right, in either case, material to Terremark and its Subsidiaries, taken as a whole, other than transactions, commitments, contracts, agreements or settlements (including without limitation settlements of litigation and tax proceedings) in the ordinary course of business consistent with past practice and those contemplated by this Agreement; (v) any change in any method of accounting or accounting practice (other than any change for tax purposes) by Terremark or any of its Subsidiaries, except for any such change which is not material or which is required by reason of a concurrent change in GAAP; (vi) any material Tax election made or changed, any material audit settled or any material amended Tax Returns filed. (l) Sufficiency of Assets. The rights, properties and other assets presently owned, leased or licensed by Terremark or the Terremark Subsidiaries include all such rights, properties and other assets necessary to permit Terremark and Terremark Subsidiaries to conduct their respective businesses in all material respects in the same manner as such businesses have been conducted prior to the date hereof. (m) Information in Disclosure Documents and Registration Statement. None of the information supplied or to be supplied by Terremark for inclusion in (i) the Form S-4, at the time it becomes effective or, in the case of the Proxy Statement or any amendments thereof or supplements thereto, at the time of the initial mailing of the Proxy Statement and any amendments or supplements thereto, and at the time of the meeting of shareholders of Terremark and the stockholders of the Company to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Form S-4, as of its effective date, will comply (with respect to the information relating to Terremark) as to form in all material respects with the requirements of the Securities Act, and the rules and regulations promulgated thereunder, and as of the date of its initial mailing and as of the date of the Company's stockholders' meeting, the Proxy Statement will comply (with respect to information relating to Terremark) as to form in all material respects with the applicable requirements of the Exchange Act, and the rules and regulations promulgated thereunder. Notwithstanding the foregoing, Terremark makes no representations as to any statement in the foregoing documents based on information supplied by the Company for inclusion therein. (n) Broker's or Finder's Fee. No agent, broker, Person or firm acting on behalf of Terremark is, or will be, entitled to any fee, commission or broker's or finder's fees from any of the parties hereto, or from any Person controlling, controlled by, or under common control with any of the parties hereto, in connection with this Agreement or any of the transactions contemplated hereby. (o) Compliance with Laws. Terremark and its Subsidiaries are in material compliance with all applicable laws, regulations, orders, judgments and decrees except where the failure to so comply would not have a Material Adverse Effect on Terremark. Terremark has not received any notice alleging non-compliance within the last two years. Each member of the Terremark Group (a) has all Permits necessary for the conduct and operation of its businesses as currently conducted and (b) uses its assets in compliance with the terms of such Permits, except for any Permits not obtained or any noncompliance which would not, individually or in the aggregate, have a Material Adverse Effect. (p) Litigation. Except as disclosed in the Terremark Financial Statements or as set forth in Schedule 2.2(p) attached hereto, there is no action, suit, proceeding at law or in equity, or any arbitration or any administrative or other proceeding by or before (or to Terremark's knowledge, any investigation by) any governmental or other instrumentality or agency, pending, or, to Terremark's knowledge, threatened, against or affecting Terremark or any of its Subsidiaries, or any of their properties or rights which could have a Material Adverse Effect on Terremark or prevent or delay the consummation of the Merger. There are no such suits, actions, claims, proceedings or investigations pending or, to Terremark's knowledge, threatened, seeking to prevent or challenging the transactions contemplated by this Agreement. Except as disclosed in the Terremark Financial Statements, neither Terremark nor any of its Subsidiaries is subject to any judgment, order or decree entered in any lawsuit or proceeding which could have a Material Adverse Effect on Terremark or on the ability of Terremark or any Subsidiary to conduct its business as presently conducted. (q) Government Authorization. The execution, delivery and performance by Terremark of this Agreement and the consummation by Terremark of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental body, agency, official or authority other than (i) the filing of a certificate of merger in connection with the Merger in accordance with Delaware Law and Florida law, (ii) compliance with any applicable requirements of the HSR Act, (iii) compliance with any applicable requirements of the EC Merger Regulation, (iv) compliance with any other applicable requirements of foreign anti-trust or investment laws, (v) compliance with any applicable environmental transfer statutes, (vi) compliance with any applicable requirements of the Exchange Act, (vii) compliance with any applicable requirements of the Securities Act, (viii) other actions or filings which if not taken or made would not, individually or in the aggregate, have a Material Adverse Effect on Terremark or prevent or materially delay Terremark's consummation of the Merger. (r) Employee Benefit Plans (i) List of Plans. Set forth in Schedule 2.2(r) attached hereto is an accurate and complete list of all employee benefit plans ("Terremark Benefit Plans") within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such Employee Benefit Plans are otherwise exempt from the provisions of ERISA, established, maintained or contributed to by Terremark or any of its Subsidiaries (including, for this purpose and for the purpose of all of the representations in this Section 2.2(r), all employers (whether or not incorporated) which by reason of common control are treated together with Terremark as a single employer within the meaning of Section 414 of the Code). (ii) Status of Plans. Neither Terremark nor any of its Subsidiaries maintains or contributes to any Terremark Benefit Plan subject to ERISA which is not in substantial compliance with ERISA. None of the Terremark Benefit Plans are subject to the minimum funding requirements of Section 412 of the Code, or subject to Title IV of ERISA, or multiemployer plans (as defined in Section 4001(a)(3) of ERISA. (iii) Contributions. All amounts which Terremark or any of its Subsidiaries is required, under applicable law or under any Terremark Benefit Plan or any agreement relating to any Terremark Benefit Plan to which Terremark or any of its Subsidiaries is a party, to have paid as contributions thereto as of the last day of the most recent fiscal year of such Terremark Benefit Plan ended prior to the date hereof, have either been paid or properly accrued on the Financial Statements. Terremark has made any accruals on its Financial Statements that are required in accordance with generally accepted accounting principles for contributions that have not been made because they are not yet due under the terms of any Terremark Benefit Plan or related agreements. Benefits under all Terremark Benefit Plans are as represented and have not been increased subsequent to the date as of which documents have been provided to Terremark. (iv) Tax Qualification. The Internal Revenue Service has issued a favorable determination letter that each Terremark Benefit Plan intended to be qualified under Section 401(a) of the Code is so qualified, and, to the knowledge of Terremark, nothing has occurred since the date of the last such determination which resulted or is likely to result in the revocation of such determination. (v) Transactions. Neither Terremark nor any of its Subsidiaries has engaged in any transaction with respect to the Terremark Benefit Plans which would subject it to a material tax, penalty or liability for prohibited transactions under ERISA or the Code nor has any of their respective directors, officers or employees to the extent they or any of them are fiduciaries with respect to such Plans, materially breached any of their responsibilities or obligations imposed upon fiduciaries under Title I of ERISA or would result in any material claim being made under or by or on behalf of any such Plans by any party with standing to make such claim. (vi) Documents. Terremark has delivered or caused to be delivered to Terremark and its counsel true and complete copies of (1) all Terremark Benefit Plans as in effect, together with all amendments thereto which will become effective at a later date, as well as the latest Internal Revenue Service determination letter obtained with respect to any such Terremark Benefit Plan qualified under Section 401 or 501 of the Code and (2) Form 5500 for the most recent completed fiscal year for each Terremark Benefit Plan required to file such form. (s) Employment Relations and Agreements. (i) Each of Terremark and its Subsidiaries is in substantial compliance with all foreign, federal, state or other applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not and is not engaged in any unfair labor practice; (ii) no unfair labor practice complaint against Terremark or any of its Subsidiaries is pending before the National Labor Relations Board; (iii) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving Terremark or any of its Subsidiaries; (iv) no representation question exists respecting the employees of Terremark or any of its Subsidiaries; (v) no grievance which might have a Material Adverse Effect on Terremark and its Subsidiaries or the conduct of their respective businesses exists, no arbitration proceeding arising out of or under any collective bargaining agreement is pending and no claim therefor has been asserted; (vi) no collective bargaining agreement is currently being negotiated by Terremark or any of its Subsidiaries; and (vii) neither Terremark nor any of its Subsidiaries has experienced any material labor difficulty during the last three years. There has not been, and to Terremark's knowledge, there will not be, any change in relations with employees of Terremark or any of its Subsidiaries as a result of the transactions contemplated by this Agreement which could have a Material Adverse Effect on Terremark. There exist no employment, consulting, severance or indemnification agreements between Terremark and any director, officer or employee of Terremark or any agreement that would give any Person the right to receive any payment from the Company as a result of the Merger. (t) Client Relations. There has not been, and to Terremark's knowledge, there will not be, any change in relations with franchisees, customers or clients of Terremark or any of its Subsidiaries as a result of the transactions contemplated by this Agreement which could have a Material Adverse Effect on Terremark. (u) Environmental Laws and Regulations. ---------------------------------- (i) The term "Environmental Laws" means any federal, state, local or foreign law, statute, treaty, ordinance, rule, regulation, permit, consent, approval, license, judgment, order, decree or injunction, each as currently in effect and applicable, relating to: (i) Releases (as defined in 42 U.S.C. sec. 9601(22)) or threatened Releases of Hazardous Material (as hereinafter defined) into the environment; (ii) the generation, treatment, storage, disposal, use, handling, manufacturing, transportation or shipment of Hazardous Material; (iii) the health or safety of employees in the workplace; (iv) protecting or restoring natural resources; or (v) the environment. The term "Hazardous Material" means: (1) hazardous substances (as defined in 42 U.S.C. sec. 9601(14)), including "hazardous waste" as defined in 42 U.S.C. sec. 6903; (2) petroleum, including crude oil and any fractions thereof; (3) natural gas, synthetic gas and any mixtures thereof; (4) asbestos and/or asbestos containing materials; (5) PCBs or materials containing PCBs; (6) any material regulated as a medical waste; (7) radioactive materials; and (8) "Hazardous Substance" or "Hazardous Material" as those terms are defined in any indemnification provision in any contract, lease, or agreement to which Terremark or any of its subsidiaries is a party. (ii) The representations in this Section 2.2(u) shall be deemed to apply to the Terremark Centre to the extent that it is an asset which Terremark owns as of the Closing. With respect to any property Terremark or any of its Subsidiaries currently or previously owned, to Terremark's knowledge (i) there have been no Releases of Hazardous Material in, on, under or affecting such properties or any surrounding site, and each property is in compliance in all material respects with applicable law, (ii) neither Terremark nor any of its Subsidiaries has disposed of any Hazardous Material in a manner that has led, or could reasonably be expected to lead, to a Release, except in each case for those Releases which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Terremark. There have been no Releases of Hazardous Material in, on, under or affecting their current or previously owned or leased properties or any surrounding site, except in each case for those Releases which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Terremark. Neither Terremark nor any of its Subsidiaries has received any written notice of, or entered into any order, settlement or decree relating to: (i) any violation of any Environmental Laws by Terremark or any of its Subsidiaries or the institution or pendency of any suit, action, claim, proceeding or investigation by any Governmental Entity or any third party against Terremark or any of its Subsidiaries; or (ii) the response to or remediation of Hazardous Material at or arising from any of Terremark's properties or any subsidiary's properties. To Terremark's knowledge, there have been no violations of any Environmental Laws by Terremark or any Subsidiary or any Predecessor (herein defined) which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Terremark. "Predecessor" means any Person which at any time directly or indirectly owned any of the properties leased or owned at any time by any member of the Terremark Group. (v) Full Disclosure. Terremark has not failed to disclose to the Company any facts material to the business, results of operations, assets, liabilities, financial condition or prospects of Terremark or Terremark Subsidiaries. No representation or warranty by Terremark contained in this Agreement and no statement contained in any document (including financial statements and the Schedules hereto), certificate, or other writing furnished or to be furnished by Terremark to the Company or any of its representatives pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. ARTICLE III ADDITIONAL AGREEMENTS 3.1. Access to Information Concerning Properties and Records. During the period commencing on the date hereof and ending at the Effective Time, each of the Company and Terremark shall, and shall cause each of their respective Subsidiaries to, upon reasonable notice, afford the other party, and its respective counsel, accountants and other authorized representatives, full access during normal business hours to the properties, books and records of itself and its Subsidiaries in order that they may have the opportunity to make such investigations as they shall desire. No such investigation shall, however, affect the representations and warranties made by each party to this Agreement. Each party hereto agrees to cause its officers and employees to furnish such additional financial and operating data and other information and respond to such inquiries as the other party may from time to time request. 3.2. Confidentiality. Prior to the Effective Time and after any termination of this Agreement each party hereto will hold, and will use its best efforts to cause its officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, including but not limited to, the Securities law, all confidential documents and information concerning the other parties hereto and the Subsidiaries furnished to such party in connection with the transactions contemplated by this Agreement, except to the extent that such information can be shown to have been (i) previously known on a nonconfidential basis by such party, (ii) in the public domain through no fault of such party, or (iii) later lawfully acquired by such party from sources other than the parties hereto; provided, however, that such party may disclose such information to its officers, directors, employees, accountants, counsel, consultants, advisors, agents and representatives (collectively, "Agents") in connection with the transactions contemplated by this Agreement so long as such Persons are informed by such party of the confidential nature of such information and are directed by such party to treat such information confidentially and any breach by any such Agent shall be deemed to conclusively be a breach by the applicable party hereto for whom such Agent is an Agent. If this Agreement is terminated for any reason, each party hereto will, and will use its best efforts to cause its Agents to, destroy or deliver to the party from whom such material was obtained, upon request, all documents and other materials, and all copies thereof, obtained by such party or on its behalf from any such other parties in connection with this Agreement that are subject to such confidence. 3.3. Registration Statement. As promptly as practicable, Terremark and the Company shall in consultation with each other prepare and file with the SEC the Proxy Statement in preliminary form. Each of them shall use its reasonable best efforts to have the Proxy Statement cleared by the SEC and the S-4 declared effective as soon as practicable. If at any time prior to the Effective Time any event or circumstances relating to the Company, any subsidiary of the Company or Terremark, any of their respective subsidiaries, or their respective officers or directors, should be discovered by such party which should be set forth in an amendment or a supplement to the Form S-4 or Proxy Statement, such party shall promptly inform the other thereof and take appropriate action in respect thereof. 3.4. Conduct of the Business Pending the Effective Time. The Company and Terremark each agrees that, except as permitted, required or specifically contemplated by, or otherwise described in, this Agreement or otherwise consented to or approved in writing by the other, such consent not to be unreasonably withheld or delayed, during the period commencing on the date hereof and ending at the Effective Time: (a) Each of them and their respective Subsidiaries will conduct their operations only according to their ordinary and usual course of business and will use their best efforts to preserve intact their respective business organization, keep available the services of their officers and employees and maintain satisfactory relationships with licensors, suppliers, distributors, clients and others having business relationships with them; (b) Neither of them nor any of their respective Subsidiaries shall, except as otherwise contemplated in this Agreement, (i) make any change in or amendment to their charter or by-laws (or comparable governing documents); (ii) issue or sell any shares of their capital stock (other than in connection with the exercise of Options outstanding on the date hereof) or any of its other securities, or issue any securities convertible into, or options, warrants or rights to purchase or subscribe to, or enter into any arrangement or contract with respect to the issuance or sale of, any shares of its capital stock or any of its other securities, or make any other changes in their capital structure; provided, however, that Terremark shall cause all outstanding shares of its Series A Convertible Preferred Stock to be converted to Terremark Common Stock prior to the Closing, (iii) declare, pay or make any dividend or other distribution or payment with respect to, or split, redeem or reclassify, any shares of their capital stock; (iv) enter into any contract or commitment except contracts in the ordinary course of business, including without limitation, any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or release or relinquish any material contract rights (it being understood that the acquisition, development, leasing, sale, mortgaging or other disposition of real property or rights with respect thereto is in the ordinary course of business of Terremark); (v) amend any employee or non-employee benefit plan or program, employment agreement, license agreement or retirement agreement, or pay any bonus or contingent compensation; provided, however, that Terremark may take such actions so long as and to the extent that the same are consistent with prior practices; (vi) agree to the settlement of any litigation involving a payment of more than $100,000 in the aggregate; (vii) change or permit to change any method of accounting or accounting practices used by it, except for any such change which is not material or which is required by reason of a concurrent change in GAAP, (viii) agree, in writing or otherwise, to take any of the foregoing actions or (ix) make or change any material tax election; and (c) Neither of them shall, nor permit any of their Subsidiaries to, take any action, engage in any transaction or enter into any agreement which would cause any of the representations or warranties set forth in this Agreement to be untrue as of the Closing Date. 3.5. Company Stockholder Meeting; Proxy Statement; Form S-4. ------------------------------------------------------ (a) The Company, acting through its Board of Directors, shall, subject to and in accordance with applicable law and its Certificate of Incorporation, as amended, and its By-Laws, promptly and duly call, give notice of, convene and hold as soon as practicable following the date upon which the Form S-4 becomes effective, a meeting of the holders of Company capital stock for the purpose of voting to approve and adopt this Agreement and the transactions contemplated hereby, and (i) except as required to comply with the fiduciary duties of the Board of Directors as advised by outside counsel, recommend approval and adoption of this Agreement and the transactions contemplated hereby, by the stockholders of the Company and include in the Proxy Statement such recommendation and (ii) except as required to comply with the fiduciary duties of the Board of Directors as advised by outside counsel, take all reasonable action to solicit and obtain such approval. Terremark, acting through its Board of Directors, shall, subject to and in accordance with applicable law and its Certificate of Incorporation, as amended, and its By-Laws, promptly and duly call, give notice of, convene and hold as soon a practicable following the date on which the Form S-4 becomes effective a meeting of the holders of Terremark Common Stock for the purpose of voting to approve and adopt this Agreement and the transactions contemplated hereby and (i) except as required to comply with the fiduciary duties of the Board of Directors as advised by outside counsel, recommend approval and adoption of this Agreement and the transactions contemplated hereby, by the shareholders of Terremark and include in the Proxy Statement such recommendation and (ii) except as required to comply with the fiduciary duties of the Board of Directors as advised by outside counsel, take all reasonable action to solicit and obtain such approval. (b) The Company, as promptly as practicable, shall cause the definitive Proxy Statement to be mailed to their respective stockholders. 3.6. Stock Exchange Listing. The Company shall use its reasonable best efforts to cause the Post Merger Common Stock to be issued in connection with the Merger to be approved for listing on AMEX, subject to official notice of issuance. 3.7. Reasonable Best Efforts. Each of the Company and Terremark shall, and each shall cause its respective Subsidiaries to, cooperate and use their respective reasonable best efforts to take, or cause to be taken, all appropriate action, and to make, or cause to be made, all filings necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, their respective reasonable best efforts to obtain, prior to the Closing Date, all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts with the Company and its Subsidiaries as are necessary for consummation of the transactions contemplated by this Agreement and to fulfill the conditions to the Merger; provided, however, that no loan agreement or contract for borrowed money shall be repaid except as currently required by its terms, in whole or in part, and no contract shall be amended to increase the amount payable thereunder or otherwise to be more burdensome to the Company or any of its Subsidiaries in order to obtain any such consent, approval or authorization without first obtaining the written approval of Terremark. 3.8. Supplemental Disclosure. Each of the Company and Terremark shall give the other party prompt notice of (i) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which would be likely to cause (x) any representation or warranty contained in this Agreement to be untrue or inaccurate or (y) any covenant, condition or agreement contained in this Agreement not to be complied with or satisfied and (ii) any failure of the Company or Terremark, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section shall not have any effect for the purpose of determining the satisfaction of the conditions set forth in Article IV of this Agreement or otherwise limit or affect the remedies available hereunder to any party. 3.9. Officers' and Directors' Insurance; Indemnification. The Surviving Corporation will, (i) for a period of three years commencing at the Effective Time, maintain all rights to indemnification now existing in favor of the directors and officers of the Company as provided in the Company's Certificate of Incorporation or By-Laws, with respect to acts and omissions occurring prior to the Effective Time; provided, however, that the Surviving Corporation will not be liable for any settlement effected without its consent; and (ii) for a period of three years commencing at the Effective Time, use its reasonable best efforts to maintain a policy or policies of directors' and officers' liability insurance covering directors and officers of the Company and having such terms no less favorable than the policies presently maintained by the Company on the date of this Agreement (true and correct copies of which have been delivered to Terremark) with respect to acts and omissions occurring prior to the Effective Time; provided further that such insurance coverage shall continue to be available and provided that the annual premium therefor shall not exceed $110,000 (the "Maximum Amount") to maintain or procure such insurance coverage; and provided further that if the Surviving Corporation shall be unable to maintain or obtain such insurance coverage as called for by this Section 3.9(ii), the Surviving Corporation will maintain or obtain, for the remainder of such three year period, as much comparable insurance as shall be available for the Maximum Amount. 3.10. Letters of Company's Accountants. -------------------------------- (a) The Company shall use reasonable best efforts to cause to be delivered to the Company and to Terremark two letters from Deloitte & Touche LLP, one dated no earlier than three business days prior to the date on which the Form S-4 shall become effective and one dated no earlier than three business days prior to the Closing Date, each addressed to the Boards of Directors of the Company and Terremark, in form reasonably satisfactory to the Company and Terremark and customary in scope for comfort letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. (b) Terremark shall use reasonable best efforts to cause to be delivered to the Company and to Terremark two letters from PricewaterhouseCoopers, one dated no earlier than three business days prior to the date on which the Form S-4 shall become effective and one dated no earlier than three business days prior to the Closing Date, each addressed to the Boards of Directors of the Company and Terremark, in form reasonably satisfactory to the Company and Terremark and customary in scope for comfort letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. 3.11. Takeover Statutes. If any anti-takeover or similar statute or regulation is or may become applicable to the transactions contemplated hereby, each of the parties and its Board of Directors shall grant such approvals and take all such actions as are legally permissible so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of any such statute or regulation on the transactions contemplated hereby. 3.12. U.S. Real Property Holding Company Covenant. For such period of time as the Vistagreen Group (as defined in the Purchase Agreement) holds, in the aggregate, Holders Stock acquired pursuant to the Purchase Agreement (as hereinafter defined) representing at least 1% of the outstanding shares of Common Stock of the Company, the Company shall not be or become a United States Real Property Holding Corporation as defined in Section 897(c)(2) of the Code nor shall the Holders Stock acquired pursuant to the Purchase Agreement be or become a United States Real Property Interest as defined in Section 897(c)(1)(A)(ii) of the Code. In addition, as of each determination date (as defined in Treasury Regulation Section 1.897-2(c)), including particularly a date of disposition, the Company shall provide to each member of the Vistagreen Group a statement complying with Treasury Regulation Section 1.897-2(g)(1)(ii) and shall also comply, on a timely basis, with the notice requirements of Treasury Regulation Section 1.897-2(h) including without limitation, timely notice to the Internal Revenue Service as provided in that Treasury Regulation, with a copy to each member of the Vistagreen Group, together with other Supporting Documents (as defined in that certain Stock Purchase Agreement by and between Vistagreen Holdings (Bahamas), Ltd. and the Company as of the date hereof (the "Purchase Agreement")), but dated as of the determination Date. Any notice conforming with or under Treasury Regulation Section 1.897-2(h) need address the status of the Company as a United States Real Property Holding Corporation and the status of the Company shares as a United States Real Property Interest only from a date that is no earlier than the day that is thirty days prior to the Effective Date. These covenants shall in all respects survive the Closing of this Agreement. The "Vistagreen Group," as used herein, shall have the same meaning as in the Purchase Agreement. ARTICLE IV CONDITIONS PRECEDENT TO MERGER 4.1. Conditions Precedent to Obligations of Terremark and the Company. The respective obligations of Terremark, on the one hand, and the Company, on the other hand, to effect the Merger are subject to the satisfaction or waiver (subject to applicable law), at or prior to the Effective Time, of each of the following conditions: (a) Approval of Company's Stockholders. This Agreement and the Merger shall have been approved and adopted by the requisite vote or consent of the stockholders of the Company in accordance with applicable law, the provisions of the Company's Certificate of Incorporation and By-Laws, and the requirements of the AMEX; (b) Registration Statement. The Form S-4 shall have become effective in accordance with the provisions of the Securities Act. No stop order suspending the effectiveness of the Form S-4 shall have been issued by the SEC and no proceedings for that purpose shall have been initiated by the SEC. (c) Litigation. There shall not have been instituted or be pending any suit, action or proceeding by any governmental entity as a result of this Agreement or any of the transactions contemplated hereby with questions the validity or legality of the transactions contemplated by this Agreement. (d) Injunction. No injunction or other order shall have been issued by any court or by any governmental or regulatory agency, body or authority which is then in effect and has the effect of making the Merger illegal or otherwise prohibiting the consummation of the Merger; (e) Statutes. No statute, rule, regulation, executive order, decree or order of any kind shall have been enacted, entered, promulgated or enforced by any court or governmental authority which prohibits the consummation of the Merger; and (f) AMEX Listing. The shares of Post Merger Common Stock to be issued pursuant to the Merger shall have been approved for listing on the AMEX, upon final notice of issuance. 4.2. Conditions Precedent to Obligations of Terremark. The obligations of Terremark to effect the Merger are also subject to the satisfaction or waiver by Terremark, at or prior to the Effective Time, of each of the following conditions: (a) Accuracy of Representations and Warranties. All representations and warranties of the Company contained herein shall be true and correct in all material respects as of the date hereof and at and as of the Closing, with the same force and effect as though made on and as of the Closing Date (except as to any such representation and warranty which relates to a specific date, which shall be true and correct as of such specific date), except with respect to any such items which do not have, individually or in the aggregate, a Material Adverse Effect on the Company; and Terremark shall have received a certificate signed on behalf of the Company by the chief executive officer or the chief financial officer of the Company to such effect; (b) Performance by Company. The Company shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to the Closing Date; and Terremark shall have received a certificate signed on behalf of the Company by the chief executive officer or the chief financial officer of the Company to such effect; (c) Tax Opinion Letter. Terremark shall have received the opinion of counsel reasonably satisfactory to Terremark in form and substance reasonably satisfactory to Terremark, on the basis of customary representations and assumptions set forth in such opinion, dated the Effective Time, to the effect that (i) the Merger will be treated for federal income tax purposes as a reorganization qualifying under the provisions of Section 368(a) of the Code, (ii) each of the Company and Terremark will be a party to the reorganization within the meaning of Section 368(b) of the Code, (iii) a Terremark shareholder will not recognize gain or loss on the receipt of Post Merger Common Stock in exchange for Terremark Common Stock pursuant to the Merger, except with respect to any cash received in lieu of a fractional share, (iv) the adjusted tax basis of the Post Merger Common Stock that a Terremark shareholder receives pursuant to the Merger will be equal to the adjusted tax basis of the Terremark Common Stock exchanged therefor, reduced by the amount of any basis allocable to any fractional share, and (v) the holding period of Post Merger Common Stock that a Terremark shareholder receives pursuant to the Merger will include the holding period of the Terremark common Stock exchanged therefor (provided that Terremark Common Stock is held as a capital asset at the Effective Time). In rendering its opinion, counsel shall be entitled to rely upon customary representations of officers of the Company and Terremark reasonably requested by counsel; (d) Letters of Company Accountants. Terremark shall have received the Accountants Letters set forth in Section 3.10; (e) Employment Agreement. Joseph Wright, Jr. Shall have entered into an employment contract in form and substance acceptable to Terremark which shall provide for, among other things, an annual salary of $250,000 and a surrender by him of all options to purchase shares of Common Stock other than 1,000,000 options exercisable at $3.00 per share and the 2,000,000 options exercisable at $0.35 per share, none of which shall be exercised until at least one year after the Effective Time; and (f) Stock Purchase Agreement. The Stock Purchase Agreement by and between the Company and Vistagreen Holdings (Bahamas), Ltd., a Bahamian international business corporation ("Vistagreen") executed concurrently herewith (the "Stock Purchase Agreement") shall be in full force and effect, with all conditions precedent thereto (other than the consummation of this Agreement) having been satisfied, all representations and warranties of Vistagreen true and correct and with the parties hereto having no reasonable basis to believe that the transactions contemplated in the Stock Purchase Agreement would not be closed immediately after the Effective Time. 4.3. Conditions Precedent to Obligation of the Company. The obligation of the Company to effect the Merger is also subject to the satisfaction or waiver by the Company, at or prior to the Effective Time, of each of the following conditions: (a) Accuracy of Representations and Warranties. All representations and warranties of Terremark contained herein shall be true and correct in all material respects as of the date hereof and at and as of the Closing, with the same force and effect as though made on and as of the Closing Date (except as to any such representation and warranty which relates to a specific date, which shall be true and correct as of such specific date), except with respect to any such items which do not have, individually or in the aggregate, a Material Adverse Effect on Terremark; and the Company shall have received a certificate signed on behalf of Terremark by the chief executive officer or the chief financial officer of Terremark to such effect; (b) Performance by Terremark. Terremark shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to the Closing Date; and the Company shall have received a certificate signed on behalf of Terremark by the chief executive officer or the chief financial officer of Terremark to such effect. (c) Letters of Terremark Accountants. The Company shall have received the Accountants Letters set forth in Section 3.10. (d) Lock Up Letters. Each holder of Terremark Common Stock immediately prior to the Effective Time ("Terremark Holder") shall have executed a letter in form and substance reasonably satisfactory to the Company providing that such holder shall not, except as provided below, sell, offer to sell, pledge or otherwise dispose of any interest in the Post Merger Common Stock for a period of not less than one (1) year after the Effective Time; provided, however, that nothing contained herein shall preclude (i) open market sales pursuant to Rule 144 or (ii) sales by any Terremark Holder to Terremark, any Affiliate of Terremark or another Terremark Holder, or to any member of the Vistagreen Group or Affiliate of the Vistagreen Group. The term "Affiliate" as used herein shall mean any person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such person. ARTICLE V TERMINATION AND ABANDONMENT 5.1. Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned, at any time prior to the Effective Time, whether before or after approval of the Merger by the Company's stockholders: (a) by mutual consent of the Board of Directors of the Company and Terremark; (b) by the Board of Directors of Terremark or the Company if the Effective Time shall not have occurred by July 1, 2000 through no fault of the terminating party; (c) by either of the parties, if any permanent injunction, order, decree or ruling by any governmental entity or competent jurisdiction preventing the consummation of the Merger shall become final and nonappealable; (d) by the Board of Directors of Terremark or the Company if there has been a material breach of any representation, warranty, obligation, covenant, agreement or condition set forth in this Agreement on the part of the other party; provided, however, that each of the Company and Terremark shall have the right to cure any such breach within three days of written notice of any such breach given by the other party; (e) by the Board of Directors of Terremark or the Company if the approval of this Agreement and the Merger by the required number of holders of the Common Stock shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting (including any adjournment or postponement thereof) of the Company's stockholders or any adjournment thereof; provided, however, that if the failure to obtain such required vote is the result of the failure of the Company to obtain a quorum at its meeting of stockholders, the Company will immediately call an additional meeting if so requested by Terremark; or (f) by the Board of Directors of Terremark or the Company if the Board of Directors of the Company shall have withdrawn or modified its approval or recommendation of the Merger in any manner adverse to Terremark; provided, however, that the right to terminate the Agreement shall not be available to a party that has breached in any material respect its obligations under the Agreement in any manner that shall have proximately contributed to the failure of the Merger to be consummated. 5.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 5.1 hereof by Terremark or the Company, written notice thereof shall promptly be given to the other party specifying the provision hereof pursuant to which such termination is made, and this Agreement shall become void and have no effect, and there shall be no liability hereunder on the part of Terremark or the Company, except that Sections 3.2, 6.1 and 6.2 hereof shall survive any termination of this Agreement. Nothing in this Section 5.2 shall relieve any party to this Agreement of liability for breach of this Agreement. ARTICLE VI MISCELLANEOUS 6.1. Fees and Expenses. (a) Except as set forth in Section 6.2 below, all costs and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. 6.2. Negotiations (a) The Company and its Agents shall immediately cease any discussions or negotiations with any parties that may be ongoing with respect to an Acquisition Proposal (as hereinafter defined). From and after the date hereof until the Closing, the Company shall not, nor shall it permit any of its Agents or any investment banker, financial advisor, attorney, accountant or other representative retained by it to, directly or indirectly, (i) solicit, initiate or knowingly encourage (including by way of furnishing non-public information or assistance), or knowingly take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any Acquisition Proposal, or (ii) participate in any discussions or negotiations regarding any Acquisition Proposal; provided, however, that if, at any time the Board of Directors of the Company determines in good faith, after consultation with independent legal counsel (who may be the Company's regularly engaged independent counsel), that it may be necessary to do so in order to comply with its fiduciary duties to the Company's stockholders under applicable law, the Company may, in response to an unsolicited Superior Proposal, and subject to compliance with Section 6.2(c), (x) furnish information with respect to the Company to the person making such unsolicited Superior Proposal pursuant to a confidentiality agreement in a form approved by the Company, and (y) participate in discussions or negotiations regarding such Superior Proposal. For purposes of this Agreement, "Acquisition Proposal" means any inquiry, proposal or offer from any person relating to any direct or indirect acquisition or purchase of 20% or more of the assets of the Company or 20% or more of any class of equity securities of the Company, any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of any class of equity securities of the Company, any merger, consolidation, business combination, sale of all or substantially all the assets, recapitalization, liquidation, dissolution or similar transaction involving the Company (other than the transactions between the parties hereto contemplated by this Agreement or ordinary course trading of the Common Stock on the AMEX), or any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Merger or which could reasonably be expected to materially dilute the benefits to the Terremark shareholders of the transactions contemplated hereby. For purposes of this Agreement, a "Superior Proposal" means any bona fide Acquisition Proposal made by a third party on terms which the Board of Directors of the Company determines in its good faith judgment (after consultation with an experienced investment banker) to be more favorable to the Company stockholders than the terms of the Merger set forth in this Agreement. (b) Except as set forth in this Section 6.2, neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to Terremark, the approval or recommendation of this Agreement or the Merger by such Board of Directors or such committee, (ii) approve or recommend, or propose to approve or recommend, any Acquisition Proposal, or (iii) cause the Company to enter into any agreement with respect to any Acquisition Proposal. Notwithstanding the foregoing, in the event that the Board of Directors of the Company determines in good faith, after consultation with independent legal counsel (who may be the Company's regularly engaged independent counsel), that it may be necessary to do so in order to comply with its fiduciary duties to the Company's stockholders under applicable law, the Board of Directors of the Company may (subject to the other provisions of this Article VI) withdraw or modify its approval or recommendation of this Agreement and the Merger, approve or recommend a Superior Proposal, cause the Company to enter into an agreement with respect to a Superior Proposal or terminate this Agreement, but in each case only at a time that is after the fifth business day following Terremark's receipt of written notice (a "Notice of Superior Proposal") advising Terremark that the Board of Directors of the Company has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal. Upon receiving the Notice of Superior Proposal, Terremark shall have the opportunity to amend this Agreement. If after such amendment, the Board of Directors of the Company still determines in good faith that the Acquisition Proposal constitutes a Superior Proposal, the Board may then (1) withdraw or modify, or propose to withdraw or modify, in a manner adverse to Terremark, the approval or recommendation of this Agreement or the Merger by such Board of Directors or such committee, (2) approve or recommend, or propose to approve or recommend, any Acquisition Proposal, or (3) cause the Company to enter into any agreement with respect to any Acquisition Proposal; provided, however, that in doing so, the Company shall concurrently pay, or cause to be paid, to Terremark the fees set forth below in this Section 6.2. (c) In addition to the obligations of the Company set forth in paragraphs (a) and (b) of this Section 6.2, the Company shall promptly advise Terremark orally and in writing of any request for information or of any Acquisition Proposal, the material terms and the financial consideration in respect of such request or Acquisition Proposal and the identity of the person making such request or Acquisition Proposal. (d) Nothing contained in this Section 6.2 shall prohibit the Company from taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders if, in the good faith judgment of the Board of Directors of the Company, after consultation with independent legal counsel (who may be the Company's regularly engaged independent counsel), failure so to disclose would be inconsistent with its fiduciary duties to the Company's stockholders under applicable law. (e) The Company acknowledges that Terremark, in proceeding with the transactions contemplated herein, has foregone the opportunity to consummate a transaction in which it would have earned a commission in the amount of $3.0 million (the "Foregone Commission"). (f) In the event the Company terminates this Agreement pursuant to Section 5.1(f), or Terremark terminates pursuant to Sections 5.1(d) or 5.1(f), the Company shall pay Terremark (A) all fees and expenses incurred by Terremark in connection with the transactions contemplated hereby, up to a limit of $200,000 and (B) an amount equal to the Foregone Commission, all within three (3) days of any such termination. In the event the Company executes a definitive agreement pursuant to a Superior Proposal within twelve (12) months after the termination of this Agreement pursuant to the first sentence of this Section 6.2(f), the Company shall, in addition to the applicable amounts set forth in the preceding sentence, also pay to Terremark an amount equal to 25% of the difference between (x) the valuation of the Company used to formulate the Superior Proposal and (y) the valuation of the Company used to formulate the transaction pursuant to this Agreement. The foregoing amount shall be due and owing to Terremark regardless of whether the transactions contemplated by the Superior Proposal are ultimately consummated by the Company. (g) The provisions of this Section 6.2 will survive the termination of this Agreement prior to the Closing. 6.3. Survival of Representations and Warranties. The respective representations and warranties of the Company and Terremark contained herein or in any certificates or other documents delivered prior to or at the Closing shall not be deemed waived or otherwise affected by any investigation made by any party. Each and every such representation and warranty shall expire with, and be terminated and extinguished by, the Closing and thereafter neither of the Company nor Terremark shall be under any liability whatsoever with respect to any such representation or warranty. This Section 6.3 shall have no effect upon any other obligation of the parties hereto, whether to be performed before or after the Effective Time. 6.4. Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken by or on behalf of the respective Boards of Directors of the Company or Terremark, may (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein by any other applicable party or in any document, certificate or writing delivered pursuant hereto by any other applicable party or (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of any party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. 6.5. Public Announcements. Terremark and the Company will consult with each other before issuing any press release or making any public statement with respect to this Agreement and the transactions contemplated hereby and shall not issue any press release or make any public statement without the prior consent of the other party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, any such press release or public statement as may be required by applicable law or any listing agreement with any national securities exchange may be issued (a) prior to such consultation, if the party making the release or statement has, in light of the applicable timing, used its reasonable efforts to consult with the other party and (b) without the consent of the other party. 6.6. Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered in person or mailed, certified or registered mail with postage prepaid, or sent by telecopier, as follows: (a) if to the Company, to it at: AMTEC, INC. 599 Lexington Avenue, 44th Floor New York, NY 10002 Facsimile Number: (212) 319-9288 Attention: Karin-Joyce Tjon with a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 Attention: Edmund C. Duffy, Esq. (b) if to Terremark, to it at: Terremark Holdings Inc. c/o Terremark Group, Inc. 2601 S. Bayshore Drive, PH-1B Coconut Grove, FL 33133 Facsimile: (305) 856-8190 Attention: Brian K. Goodkind, Esq. with a copy to: Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, FL 33131 Facsimile: (305) 579-0717 Attention: Paul Berkowitz, Esq. or to such other Person or address as any party shall specify by notice in writing to each of the other parties. All such notices, requests, demands, waivers and communications shall be deemed to have been received on the date of delivery unless if mailed, in which case on the third business day after the mailing thereof except for a notice of a change of address, which shall be effective only upon receipt thereof. 6.7. Entire Agreement; Severability. This Agreement and the annex, schedules and other documents referred to herein or delivered pursuant hereto, and the Promissory Note and Security Agreement executed by the Company in favor of Terremark collectively contain the entire understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior agreements and understandings, oral and written, with respect thereto, including the letter of intent dated November 9, 1999 previously entered into by the parties. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect (a) if such provision is enforceable in part, such provision shall be enforced to the maximum extent permissible under applicable law, and (b) the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect, provided, however, that if enforcement of the Agreement without giving effect to an invalid or unenforceable provision would deny either party the benefit of the transaction contemplated hereby, then the Agreement as a whole will terminate. 6.8. Binding Effect; Benefit; Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties. Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto or their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 6.9. Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified and supplemented in writing by the parties hereto in any and all respects before the Effective Time (notwithstanding any stockholder approval), by action taken by the respective Boards of Directors of Terremark and the Company or by the respective officers authorized by such Boards of Directors, provided, however, that after any such stockholder approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval. 6.10. Further Actions. Each of the parties hereto agrees that, subject to its legal obligations, it will use its best efforts to fulfill all conditions precedent specified herein, to the extent that such conditions are within its control, and to do all things reasonably necessary to consummate the transactions contemplated hereby. 6.11. Interpretation; Headings. Any matter required to be disclosed in any Schedule which was not disclosed therein shall be deemed to have been disclosed in the correct Schedule to the extent such matter was reasonably specifically cross-referenced to another Schedule containing such disclosure. The parties agree that certain agreements and other matters may be listed in a Schedule for informational purposes only, notwithstanding that, because they do not rise to the applicable materiality thresholds or otherwise, they are not required to be listed therein by the terms of this Agreement. In no event shall the listing of any such Contract or the inclusion of any other matter in any Schedule be deemed or interpreted to broaden or otherwise amplify the representations and warranties or covenants contained in this Agreement. Furthermore, the disclosure of any particular item or items of information in any Schedule shall not be taken as an admission that such disclosure is required to be made under the terms of any such representations and warranties (including any admission that any such items establish the required level of materiality). The descriptive headings of the several Articles and Sections of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 6.12. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 6.13. Applicable Law. This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws rules thereof. 6.14. Severability. If any term, provision, covenant or restriction contained in this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 6.15. "Person" Defined. "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, a group and a government or other department or agency thereof. IN WITNESS WHEREOF, each of Terremark and the Company have caused this Agreement to be executed by their respective officers thereunto duly authorized, all as of the date first above written. TERREMARK HOLDINGS, INC. /s/ Manuel D. Medina Chairman & Chief Executive Officer AMTEC, INC. /s/ Joseph R. Wright, Jr. Chairman & Chief Executive Officer AMENDMENT TO AGREEMENT AND PLAN OF MERGER THIS ADMENDMENT TO AGREEMENT AND PLAN OF MERGER is dated as of February 11, 2000 ("Amendment"), and is made by and between Terremark Holdings, Inc. a Florida Corporation ("Terremark'), and AmTec, Inc., a Delaware corporation ("AmTec"). WHEREAS, the parties entered into that certain Agreement and Plan of merger dated as of November 24, 1999 (the "Merger Agreement"); and WHEREAS, the parties desire to hereby amend the Merger Agreement, as set forth herein, effective as of the date forth set forth above. NOW THEREFORE, for good and valuable consideration, the parties hereto agree as follows (all capitalization terms not herein defined shall have the meaning set forth in the Merger Agreement): 1. Terremark and AmTec have determined to prepare and submit to the stockholders of AmTec a proxy statement and to delay the filing of a registration statement (which shall be made on a Form S-3 or similar form) with the SEC relating to the share to be issued in the Merger Agreement and to be sold pursuant to the Stock Purchase Agreement until the Effective Time. All references to the Form S-4, and all obligations, representations, warranties and references thereto are deemed to be eliminated from the Merger Agreement. 2. Section 1.6 is revised and restated in its entirety to read as follows: 1.6 Certificate of Incorporation of the Surviving Corporation. The Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation; provided, however, that the name of the Surviving Corporation shall be Terremark Worldwide, Inc. and that the total number of shares of capital stock that the Company is authorized to issue is 300,000,000 shares of common stock. 3. The following section is added as a new Section 2.2(w): Investment Intent. Terremark represents and warrants that, to its knowledge, the holders of Terremark Common Stock (i) are taking the Post Merger Common Stock issued to them for investment purposes and not with a view to distribution thereof, and that they (ii) agree not to make any sale, transfer or other disposition of the Post Merger Common Stock in violation of any applicable securities law. 4. Section 4.2 (c) is revised and restated in its entirety to read as follows: Tax Opinion Letter. Terremark shall have received the option of counsel reasonably satisfactory to Terremark in form and substance reasonably satisfactory to Terremark, on the basis of customary representations and assumptions set forth in or attached to such opinion, dated the Effective Time, to the effect that (i) the Merger will be treated for federal income tax purposes as a reorganization qualifying under the provisions of Section 368(a) of the code, (ii) each of the Company and Terremark will be a party to the reorganization within the meaning of Section 368(a) of the Code 368(b) of the Code, (iii) a Terremark shareholder that is a United States person within the meaning of Section 7701(a)(30) of the Code (a "U.S. Terremark Shareholder") will not recognize gain or loss on the receipt of Post Merger Common Stock in exchange for Terremark Common Stock pursuant to the Merger, except with respect to any cash received in lieu of a fractional share, (iv) the adjusted tax basis of the Post Merger Common Stock that a U.S. Terremark Shareholder receives pursuant to the Merger will be equal to the adjusted tax basis of the Terremark Common Stock exchanged therefor, reduced by the amount of any basis allocable to any fractional share, and (v) the holding period of Post Merger Common Stock that a U.S. Terremark shareholder receives pursuant to the Merger will include the holding period of the Terremark common Stock exchanged therefor (provided that Terremark Common Stock is held as a capital asset at the Effective Time.) In rendering its opinion, counsel shall be entitled to rely upon customary representations of officers of the Company and Terremark reasonably requested by counsel; 5. Section 4.3(d) is revised and restated in its entirety to read as follows: Lock Up Letters. Each holder of Terremark Common Stock immediately prior to the Effective Time ("Terremark Holder") shall have executed a letter in form and substance reasonably satisfactory to the Company providing that such holder shall not, except as provided below, sell offer to sell or otherwise dispose of any interest in the Post Merger Common Stock for a period of not less that one year after the Effective Time; provided, however, that nothing contained herein shall preclude (i) open market sales in an amount which would be permitted under that volume limitations of Rule 145, as if such rule were applicable, or (ii) sales by any Terremark Holder to Terremark, any Affiliate of Terremark or another Terremark Holder, or to any member of the Vistagreen Group of Affiliate of the Vistagreen Group. The term "Affiliate" as used herein shall mean any person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such person. 6. The following section is added as a new Section 4.3(e): Stock Purchase Agreement. The Stock Purchase Agreement shall be in full force and effect, with all conditions precedent thereto (other than the consummation of this Agreement) having been satisfied, all representations and warranties of this Agreement) having been satisfied, all representations and warranties of Vistagreen true and correct and with the parties hereto having no reasonable basis to believe that the transactions contemplated in the Stock Purchase Agreement would not be closed immediately after the Effective Time. 7. The following section is added as a new Section 3.13: Stock Option Grants. The parties agree to take all actions necessary or appropriate to cause the Company or the Surviving Corporation, as appropriate, to approve the grant of a total of up to 750,000 stock options to purchase Post Merger Common Stock under the Company's Amended and Restated 1996 Stock Option Plan (the "Plan") to such individuals as shall be designated by Terremark. Such grants shall be made as of the Closing Date, and shall be made in accordance with the following terms: (a) the options shall be granted with an exercise price equal to the Fair Market Value of Common Stock as defined in the Plan (i.e. the closing sales price of the shares on the date of grant on the American Stock Exchange), (b) the options shall vest over a three year period (i.e. at the rate of 1/3 on each anniversary of the date of grant), except as otherwise set forth herein, (c) in the event of a Change in Control of the Surviving Corporation (as defined in the Plan) the options shall expire in a ten (10) year period. 8. Each of the parties hereto agrees that it will use its commercially reasonable best efforts to do all things reasonably necessary to consummate the transactions contemplated hereby. 9. This Amendment may be executed in several counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 10. This Amendment and the legal relations between the parties hereto shall be goverened by and constructed in accordance with the laws of the State of Delaware, without regard to the conflict of the laws rules thereof. 11. Except as specifically amended by the Amendment, all terms and conditions of the Merger Agreement shall remain unchanged and in full force and effect. 12. The parties hereby acknowledge and consent to the amendment as of the date hereof to that certain Stock Purchase Agreement by and between Vistagreen Holdings (Bahamas), Ltd., a Bahamian international business company and AmTec, Inc., a Delaware Corporation dated as of November 24, 1999. IN WITNESS WHEREOF, each of Terremark and AmTec have caused this Amendment to Agreement and Plan of Merger to be executed by their respective offices thereunto duly authorized, all as of the date first above written. TERREMARK HOLDINGS, INC. /s/ Brian K. Goodkind Executive Vice-President AMTEC, INC. /s/ Joseph R. Wright, Jr. Chairman & Chief Executive Officer EX-99 3 ANNEX B - LETTER November 24, 1999 Board of Directors AmTec, Inc. 599 Lexington Avenue 44th Floor New York, New York 10022-6030 Ladies and Gentlemen: We understand that AmTec, Inc. (the "Company") and Terremark Holdings, Inc. ("Terremark") have entered into an Agreement and Plan of Merger (the "Agreement") dated November __, 1999, pursuant to which Terremark will be merged with and into the Company, with the Company being the surviving entity (the "Merger"). Pursuant to the Agreement, each share of the common stock of the Company, $0.001 par value (the "Company Common Stock") then issued and outstanding shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent one share of common stock, $0.001 par value, of the Surviving Corporation (as defined in the Agreement) (the "Post Merger Common Stock") and any rights to receive Company Common Stock (including options, warrants and convertible preferred stock) shall automatically be converted to a right to receive an equal number of the Post Merger Common Stock, such that, immediately after the Effective Time (as defined in the Agreement), all holders of the Company Common Stock, together with the holders of any rights to receive Company Common Stock shall, in the aggregate and on a fully diluted basis, hold 38.5% of the Post Merger Common Stock of the Surviving Corporation. Furthermore, pursuant to the Agreement, each share of common stock, par value $0.01 per share, of Terremark (the "Terremark Common Stock") then issued and outstanding shall, by virtue of the Merger and without any action on the part of the holder thereof, become the right to receive fully paid and nonassessable shares of the Post Merger Common Stock, such that, immediately after the Effective Time, all holders of the Terremark Common Stock shall, in the aggregate and on a fully diluted basis, hold 61.5% of the Post Merger Common Stock. In addition, the parties to the Agreement have acknowledged that Terremark at Bayshore, Inc., Terremark Centre, Inc. and ACGDI, Inc. (each of which is a Florida corporation and which are collectively referred to as the "Partners"), has sold to Terremark their interests in Terremark Centre Limited, a Florida limited partnership, the owner of certain real property referred to as the Terremark Centre located at 2601 South Bayshore Drive, Coconut Grove, Florida, for a purchase price equal to the difference between $56,000,000 and the (at the time of the sale) outstanding principal balance of the first mortgage loan in favor of Principal Mutual Insurance Company (the "Proceeds"). The Company has agreed to, at the Effective Time, sell to the Partners, or their assignees, for the Proceeds, such number of shares of Post Merger Common Stock as shall be equal, in the aggregate and on a fully diluted basis, 35% of the Post Merger Common Stock of the Surviving Corporation (the "Stock Purchase") pursuant to a certain Stock Purchase Agreement which was executed contemporaneously with the Agreement between the Company and Vistagreen Holdings (Bahamas), Ltd., a Bahamian international business corporation. Upon the closing of the Merger and the Stock Purchase (collectively, the "Transaction"), the percentage ownership of the holders of the Company Common Stock shall be 25%, the percentage ownership of the Partners shall be 35%, and the percentage ownership of the existing holders of the Terremark Common Stock shall be 40%, each such percentage representing the respective ownership of such persons of the Post Merger Common Stock. You have requested our opinion and advice, as investment bankers, as to the Transaction, as set forth below. Please be aware that we have not been asked to render, and are not rendering, an opinion as to the fairness, from a financial point of view, to the holders of the Company Common Stock, of the consideration to be offered in the Transaction. In conducting our analysis and arriving at our conclusion as expressed herein, we have, among other things: (i) reviewed certain publicly available business and financial information relating to the Company and Terremark that we deemed to be relevant; (ii) read the letter of intent, memorandum of understanding and draft merger [and stock purchase]documents; (iii) reviewed the Base Case and Management Case valuation of the Company, dated November 1, 1999, compiled by the Company; (iv) spoke with CIBC World Markets regarding the activities they engaged in on behalf of the Company over the last year; (v) reviewed the terms of the financing alternatives as provided by the Company; (vi) visited Terremark Centre; (vii) visited potential development sites; (viii) reviewed the relevant documentation relating to the operating business of Terremark; (ix) reviewed certain internal information, primarily financial in nature, including financial forecasts and other financial and operating data relating to strategic implications and operational benefits anticipated to result from the Transaction, provided to us by management of the Company and Terremark; and (x) conducted discussions with members of senior management of the Company and Terremark concerning the operations, historical financial statements and future prospects of the Company and Terremark. We have also met with certain officers and employees of the Company and Terremark concerning its business and operations, properties, assets, present condition and prospects and undertook such other studies, analyses and investigations as we deemed appropriate. In formulating our opinion as to the Transaction as set forth below, we have considered, without independent investigation, the following information which was provided to us by the management of the Company and Terremark: (i) The Company, with CIBC World Market's assistance, has tried for over a year and a half to raise money but has not been successful; (ii) The Company currently has a serious liquidity problem that cannot be satisifed from its cash flows and accordingly, the Company needs a capital infusion to fund the new initiatives and operating expenses; (iii) The Company's urgent need for capital and lack of other options for raising funds; (iv) Terremark has been operating as a "pass through" real estate company with many different partnerships set up for which they do advisory business and financing; and (v) Based on information provided by Terremark, we estimate that Terremark's current actual value is approximately $10 million which may be viewed as conservative due to (a) the fact that many of Terremark's management agreements are not well documented and therefore, are not accurately reflected in the Company's value and (b) that such valuation does not take into account the goodwill developed by Terremark and its principal, Manny Medina, for its business. In the course of our review, we have relied upon and assumed the accuracy and completeness of the financial and other information that is publicly available or that has been provided to us by the Company and Terremark and have not attempted independently to verify such information, nor do we assume any responsibility to do so. With respect to financial forecasts, and other information provided to or reviewed by us, we have been advised by the management of the Company and Terremark that such forecasts and other information were reasonably prepared on bases reflecting the best currently available estimates and judgments of the Company and Terremark as to the expected future financial performance of the Company and Terremark and the strategic implications and operational benefits anticipated from the Transaction. We have not assumed any responsibility for the information provided to us and we have further relied on the assurances of managements of the Company and Terremark that they were unaware of any facts that would make the information or forecasts provided to us incomplete or misleading. We have also assumed with your consent that (i) the Transaction will be consummated in accordance with the terms described in the Agreement and (ii) the Stock Purchase will be consummated in accordance with the terms of the Stock Purchase. In arriving at our opinion, we have not performed or been furnished with any independent evaluation or appraisal of the assets, properties or liabilities (contingent or otherwise) of the Company or Terremark. We have visited but have not conducted any physical inspection of the properties or assets of the Company or Terremark. We have also taken into account our assessment of general economic, market and financial conditions and our experience in similar transactions, as well as our experience as investment bankers in general. Our opinion is necessarily based on economic, market, financial and other conditions, and the information made available to us, as they exist and can be evaluated as of the date hereof and we assume no responsibility to update or revise our opinion based upon events or circumstances occurring after the date hereof. We reserve, however, the right to withdraw, revise or modify our opinion based upon additional information which may be provided to or obtained by us, which suggests, in our judgment, a material change in the assumptions upon which our opinion is based. Our opinion as expressed below does not imply any conclusion as to the likely trading range of the Company Common Stock prior to or to Post Merger Common Stock subsequent to the consummation of the Transaction, which may vary depending upon, among other factors, changes in interest rates, dividend rates, market conditions, general economic conditions and other factors that generally influence the price of securities. We have acted as financial advisor to the Board of Directors of the Company in connection with the Transaction and will receive a fee for such services. In the ordinary course of our business, we actively trade the securities of the Company for our own account and for the accounts of others and, accordingly, may at any time hold a long or short position in such securities. It is understood that this letter is intended for the benefit and use of the Board of Directors of the Company and is not to be used for any other purpose, or reproduced, disseminated, summarized, quoted, excerpted from or referred to at any time, in whole or in part, without our prior written consent. Based upon and subject to the foregoing, it is our opinion as investment bankers, that, as of the date hereof, from a financial point of view, the Transaction is the Company's best alternative for carrying out its plans and programs. Very truly yours, RAMIUS CAPITAL GROUP, LLC By:_______________________________ Peter A. Cohen, Manager EX-99 4 ANNEX C - STOCK PURCHASE AGREEMENT ============================================================================== ANNEX C STOCK PURCHASE AGREEMENT BY AND BETWEEN VISTAGREEN HOLDINGS (BAHAMAS), LTD. AND AMTEC, INC. Dated as of November 24, 1999 ============================================================================== TABLE OF CONTENTS Page ARTICLE I PURCHASE AND SALE OF STOCK.....................................1 1.1. Note Proceeds.....................................................1 1.2. Purchase and Sale of Post-Merger Common Stock.....................2 1.3. Closing...........................................................2 ARTICLE II REPRESENTATIONS AND WARRANTIES.................................3 2.1. Representations and Warranties of the Company.....................3 (a) Due Organization, Good Standing and Corporate Power..........3 (b) Authorization and Validity of Agreement......................3 (c) Capitalization...............................................4 (d) Consents and Approvals; No Violations........................5 (e) Company Reports and Financial Statements.....................5 (f) Absence of Certain Changes...................................6 (g) Title to Properties; Encumbrances............................7 (h) Compliance with Laws.........................................7 (i) Litigation...................................................7 (j) Government Authorization.....................................8 (k) Insurance....................................................8 (l) Casualties...................................................8 (m) Propriety of Past Payments...................................8 (n) Employment Relations and Agreements..........................9 (o) Client Relations.............................................9 (p) Sufficiency of Assets.......................................10 (q) Contracts and Commitments...................................10 (r) Disclosure Documents........................................10 (s) Full Disclosure.............................................10 2.2. Representations and Warranties of the Vistagreen Group...........11 (a) Accredited Investor.........................................11 (b) Capitalization..............................................11 ARTICLE III REGISTRATION RIGHTS...........................................11 3.1. Shelf Registration...............................................11 3.2. Expenses of Registration.........................................12 3.3. Registration Procedures..........................................12 3.4. Indemnification..................................................14 3.5. Information by the Holders.......................................17 3.6. Holdback Agreement; Postponement.................................17 3.7. Assignment.......................................................17 3.8. Remedies.........................................................17 3.9. Lockup...........................................................17 ARTICLE IV ADDITIONAL AGREEMENTS.........................................18 4.1. United States Real Property Interests............................18 ARTICLE V CONDITIONS PRECEDENT..........................................18 5.1. Conditions Precedent to Obligations of Vistagreen Group..........18 (a) Closing of Merger Agreement.................................18 (b) Accuracy of Representations and Warranties..................18 (c) Sale of Property............................................18 (d) United States Real Property Holding Company.................18 (e) Legal Opinion...............................................19 (f) Approval of Company's Stockholders..........................19 (g) Registration Statement......................................19 (h) Litigation..................................................20 (i) Injunction..................................................20 (j) Statutes....................................................20 (k) AMEX Listing................................................20 (l) Performance by Company......................................20 (m) Letters of Company Accountants..............................20 (n) Employment Agreement........................................20 5.2. Conditions Precedent to Obligations of the Company...............21 (a) Accuracy of Representations and Warranties..................21 (b) Merger Agreement Closing....................................21 ARTICLE VI TERMINATION AND ABANDONMENT...................................21 6.1. Termination......................................................21 6.2. Effect of Termination............................................22 ARTICLE VII MISCELLANEOUS.................................................22 7.1. Fees and Expenses................................................22 7.2. Survival of Representations and Warranties.......................22 7.3. Extension; Waiver................................................23 7.4. Notices..........................................................23 7.5. Entire Agreement; Severability...................................24 7.6. Binding Effect; Benefit; Assignment..............................24 7.7. Amendment and Modification.......................................24 7.8. Further Actions..................................................25 7.9. Interpretation; Headings.........................................25 7.10.Counterparts.....................................................25 7.11.Applicable Law...................................................25 7.12.Severability.....................................................25 ARTICLE VIII DEFINITIONS...................................................26 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of November 24, 1999 ("Agreement"), by and between Vistagreen Holdings (Bahamas), Ltd., a Bahamian international business company ("Purchaser"), and AMTEC, INC., a Delaware corporation (the "Company"). WHEREAS, as of the date hereof, Terremark Holdings, Inc., a Florida corporation ("Terremark") and the Company have entered into that certain Agreement and Plan of Merger pursuant to which Terremark shall merge (the "Merger")with and into the Company with the Company being the surviving entity (the "Merger Agreement"); WHEREAS, as of the date hereof, Terremark and certain of its Affiliates (the "Terremark Group") and Purchaser and its Affiliates (the "Vistagreen Group") have entered into that certain Contract for Purchase and Sale, pursuant to which Terremark is purchasing, and the Vistagreen Group is selling, the general and limited partnership interests (the "Partnership Interests") of Terremark Center, Ltd., a Florida limited partnership (the "Purchase Contract"); WHEREAS, upon the closing of the Purchase Contract, the Vistagreen Group will receive certain promissory notes in the aggregate amount of $56,000,000 less the outstanding balance of the first mortgage loan on the property legally described in Exhibit A to the Purchase Contract (the "Property") in favor of Principal Mutual Insurance Company, in payment of the purchase price for the sale of the Partnership Interests to the Terremark Group (the "Note"); and WHEREAS, in connection with the sale of the Property, the Note shall be required to be satisfied in full and, subject to certain conditions, all such proceeds so paid to satisfy the Note in full ("Note Proceeds") shall be used to purchase certain shares of the Company as set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties, conditions and agreements herein contained, the parties hereto agree as follows (all capitalized terms not herein defined shall have the same meaning as set forth in the Merger Agreement): ARTICLE I PURCHASE AND SALE OF STOCK 1.1. Note Proceeds. The parties acknowledge that for the closing of the transactions contemplated by this Agreement (the "Closing") to occur, the Property must have been sold. Upon the sale of the Property, the Terremark Group shall be required to pay the Note Proceeds into an interest-bearing account in the name of ACGDI, Inc., Terremark at Bayshore, Inc. and Terremark Centre, Inc. or their permitted assignees, who at such time hold the note (the "Holders"), at Northern Trust Bank of Florida, N.A. (the "Escrow Account"). There shall be two authorized signatories (the "Representatives") with respect to such Escrow Account, one representing the Holders and the other representing Terremark. The initial Representative of the Holders shall be Joel J. Karp, Esq., and the initial Representative of Terremark shall be Brian K. Goodkind, Esq. Any withdrawals from the Escrow Account shall require the signature of both such Representatives. The Holders and Terremark, respectively, agree to cause their respective Representatives to disburse funds from the Escrow Account in accordance with the provisions of this Agreement. 1.2. Purchase and Sale of Post-Merger Common Stock. Upon the Merger Agreement Closing, the Surviving Corporation will sell to the Vistagreen Group and the Vistagreen Group will purchase from the Surviving Corporation such number of Registered shares of Post Merger Common Stock of the Surviving Corporation which represents 35% of the issued and outstanding Post-Merger Common Stock of the Surviving Corporation on a fully diluted basis ("Holders Stock"). As used herein, any calculation of shares on a "fully diluted basis" shall mean a calculation of share ownership that assumes that all options granted under any incentive or other plan of the Company have been exercised, that all warrants to purchase securities of the Company or the Surviving Corporation have been exercised and that all rights to convert any security or other instrument, including, without limitation, Series E and G Preferred Stock of the Company, into Common Stock or Post Merger Common Stock have been exercised, each such exercise to be deemed to have occurred immediately prior to the issuance of the Post-Merger Common Stock to the Holders. As used herein "Registered" shares shall mean shares which are registered for lawful public sale pursuant to a registration statement which has been declared effective by the SEC (and with respect to which no stop order suspending effectiveness of the same shall be in effect and no proceedings for such purpose shall be pending before or threatened by the SEC) under applicable federal and state securities laws and which have been approved for listing on the AMEX, subject to final notice of issuance. The purchase price to be paid by the Vistagreen Group for the Holders Stock shall be an amount equal to the Note Proceeds, together with all interest earned thereon. At the Closing, the Surviving Corporation shall deliver to the Vistagreen Group certificates in the aggregate representing the Holders Stock, which certificates shall be in such denominations as the Vistagreen Group reasonably request, such request to be delivered to the Surviving Corporation in writing at least three (3) business days prior to the Closing. Notwithstanding anything herein to the contrary, if the Merger Agreement Closing has not occurred on or before December 31, 2000, then the obligation of the Vistagreen Group to purchase the Holders Stock shall immediately terminate and be of no further force and effect. In such event, on the first business day in January 2001, Terremark and the Holders shall each cause their respective Representatives to disburse all funds which then remain in the Escrow Account to the Vistagreen Group in accordance with the Purchase Contract and such instructions as the Vistagreen Group shall deliver to such Representatives. 1.3. Closing. The Closing shall take place at the same place as and immediately following the Merger Agreement Closing. Notwithstanding anything herein to the contrary, in the event that any condition precedent to the obligation of the Vistagreen Group to purchase the Holders Stock hereunder is not satisfied as of the Merger Agreement Closing, the Vistagreen Group shall not be required to so purchase the Holders Stock regardless of whether Terremark and the Company elect to effect the Merger. Without limiting the foregoing, no waiver by Terremark of any condition precedent to Terremark's obligation to effect the Merger shall constitute or be deemed a waiver of the same condition by the Vistagreen Group. ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1. Representations and Warranties of the Company. The Company hereby represents and warrants to the Vistagreen Group as follows: (a) Due Organization, Good Standing and Corporate Power. Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and each such corporation has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of the Company and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except in such jurisdictions where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect on the Company. For the purposes of this Agreement, "Material Adverse Effect" on any Person means a material adverse effect on the business, properties, assets, liabilities, operations, results of operations, condition (financial or otherwise) or prospects of the Person and its Subsidiaries taken as a whole (i) except to the extent resulting from (A) any change in general United States or global economic conditions or general economic conditions in industries in which the Person competes, or (B) the announcement of the transaction contemplated herein or any action required to be taken pursuant to the terms hereof, and (ii) except that the term Material Adverse Effect shall not include, with respect to the Company (A) any decreases in the Company's stock price in and of itself or (B) any deterioration in the Company's financial condition which is a direct and proximate result of its agreements with Hebei United Telecommunication Equipment Co. The term "Subsidiary," as used in this Agreement, refers to any Person in which the Company owns any equity interest and shall include all joint ventures. (b) Authorization and Validity of Agreement. The Company has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Company, and the consummation by it of the transactions contemplated hereby, have been duly authorized and approved by its Board of Directors and no other corporate action on the part of the Company is necessary to authorize the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. (c) Capitalization. (i) The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, $0.001 par value (the "Preferred Stock"). As of the close of business on November 22, 1999, (1) 36,271,689 shares of Common Stock are issued and outstanding. Set forth on Schedule 2.2(c)(i) are (1) the number of shares of Common Stock reserved for issuance pursuant to outstanding Options granted under the Stock Incentive Plans, (2) the number of such shares which have been issued under such Plans, (3) the number of shares of Series G Preferred Stock issued and outstanding, and (4) the number of warrants to purchase the indicated number of shares of Common Stock. No shares of Common Stock are held in the Company's treasury. The Series G Preferred Stock converts at the option of the holder into 1,688,022 shares of Common Stock, which number of shares of Common Stock have been authorized and reserved for issuance by the Company. All issued and outstanding shares of capital stock of the Company have been validly issued and are fully paid and nonassessable, and are not subject to, nor were they issued in violation of, any preemptive rights. Except as set forth in this Section 2.1(c) or on Schedule 2.1(c) attached hereto, (x) there are no shares of capital stock of the Company authorized, issued or outstanding (except for shares subsequently issued pursuant to existing options, warrants and other rights described in Section 2.1(c)) and (y) there are not, as of the date hereof, and at the Effective Time there will not be, any outstanding or authorized options, warrants, rights, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities, or other commitments, contingent or otherwise, relating to Common Stock or any other shares of capital stock of the Company, pursuant to which the Company is or may become obligated to issue shares of Common Stock, any other shares of its capital stock or any securities convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of the capital stock of the Company. The Company will authorize and reserve and hereby covenants that it will continue to reserve, free of any preemptive rights or encumbrances, a sufficient number of its authorized but previously unissued shares of Common Stock to satisfy the purchase rights of the Vistagreen Group hereunder. The Holders Stock which is being purchased by the Vistagreen Group hereunder, when issued, sold and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and non-assessable and will be issued in compliance with all applicable federal and state securities laws. (ii) Schedule 2.1(c)(ii) lists all of the Company's Subsidiaries (as defined in Section 2.1(a) hereof). All of the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to, nor were they issued in violation of, any preemptive rights, and are owned, of record and beneficially, by the Company, except as otherwise set forth on Schedule 2.1(c)(ii), free and clear of all liens, encumbrances, options or claims whatsoever. No shares of capital stock of any of the Company's Subsidiaries are reserved for issuance and there are no outstanding or authorized options, warrants, rights, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities, or other commitments, contingent or otherwise, relating to the capital stock of any Subsidiary of the Company, pursuant to which such Subsidiary is or may become obligated to issue any shares of capital stock of such Subsidiary or any securities convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of such Subsidiary. Except for the Subsidiaries listed on Schedule 2.1(c)(ii), the Company does not own, directly or indirectly, any capital stock or other equity interest in any Person or have any direct or indirect equity or ownership interest in any Person and, except as set forth in Schedule 2.1(c)(ii), neither the Company nor any of its Subsidiaries is subject to any obligation or requirement to provide funds for or to make any investment (in the form of a loan, capital contribution or otherwise) to or in any Person. Schedule 2.1(c)(ii), sets forth the equity interests of each such Subsidiary owned by the Company. (d) Consents and Approvals; No Violations. Assuming (i) compliance with any applicable requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) compliance with any requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act") and any requirements of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Securities Act") relating to the Proxy Statement and registration of the Holders Stock to be issued to the Vistagreen Group are met, (iii) the filing of the Certificate of Merger and other appropriate merger documents, if any, as required by DGCL, and (iv) approval of the Merger by a majority of the holders of Common Stock, is received, the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not: (1) violate any provision of the Certificate of Incorporation or By-Laws of the Company or any of its Subsidiaries; (2) violate any statute, ordinance, rule, regulation, order or decree of any court or of any governmental or regulatory body, agency or authority applicable to the Company or any of its Subsidiaries or by which any of their respective properties or assets may be bound; (3) require any filing with, or permit, consent or approval of, or the giving of any notice to, any governmental or regulatory body, agency or authority; or (4) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, payment or acceleration) under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, franchise, permit, agreement, lease, franchise agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party, or by which it or any of their respective properties or assets may be bound, excluding from the foregoing clauses (2), (3) and (4) filings, notices, permits, consents and approvals the absence of which, and violations, breaches, defaults, conflicts and liens which, in the aggregate, would not have a Material Adverse Effect on the Company. (e) Company Reports and Financial Statements. Since March 31, 1997, the Company has filed all forms, reports and documents with the Securities and Exchange Commission (the "Commission") required to be filed by it pursuant to the federal securities laws and the Commission rules and regulations thereunder, and, except to the extent revised or superseded by a subsequent filing filed with the Commission prior to the date hereof, all forms, reports and documents filed with the Commission have complied in all material respects with all applicable requirements of the federal securities laws and the Commission rules and regulations promulgated thereunder. The Company has heretofore filed all forms, reports, registration statements and other filings required to be filed by the Company with the Commission since March 31, 1997 (such forms, reports, registration statements and other filings, together with any amendments thereto, are sometimes collectively referred to as the "Commission Filings"). As of their respective dates, except to the extent revised or superseded by a subsequent filing filed with the Commission prior to the date hereof, the Commission Filings did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the (i) consolidated balance sheets as of the end of the fiscal years ended March 31, 1997, 1998 and 1999 and as of the end of the fiscal quarters ended June 30, September 30, and December 31 of each such year, and (ii) the consolidated statements of operations, consolidated statements of stockholders' equity and consolidated statements of changes in financial position for the fiscal years ended March 31, 1997, 1998 and 1999 and for each of the fiscal quarters ended June 30, September 30 and December 31 of each such year, as included in the Commission Filings, were all prepared in accordance with generally accepted accounting principles (as in effect from time to time) applied on a consistent basis (except as may be indicated therein or in the notes or schedules thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the results of their operations and changes in financial position for the periods then ended (subject to normal year-end adjustments and the absence of notes in the case of any unaudited interim financial statements, none of which individually or in the aggregate had or could have a Material Adverse Effect). (f) Absence of Certain Changes. Except as previously disclosed in the Commission Filings, the Company and its Subsidiaries have (i) conducted their respective businesses in the ordinary course, consistent with past practice, and (ii) since March 31, 1999, there has not been: (i) any event, occurrence or development which, individually or in the aggregate, would have a Material Adverse Effect on the Company; (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company, or any repurchase, redemption or other acquisition by the Company or any of its Subsidiaries of any outstanding shares of their capital stock or any securities convertible into their capital stock; (iii) any amendment of any material term of any outstanding security of the Company or any of its Subsidiaries; (iv) any material transaction or commitment made, or any contract, agreement or settlement entered into, by (or judgment, order or decree affecting) the Company or any of its Subsidiaries relating to its assets or business (including the acquisition or disposition of any material amount of assets) or any relinquishment by the Company or any of its Subsidiaries of any contract or other right, in either case, material to the Company and its Subsidiaries, taken as a whole, other than transactions, commitments, contracts, agreements or settlements (including without limitation settlements of litigation and tax proceedings) in the ordinary course of business consistent with past practice and those contemplated by this Agreement; (v) any change in any method of accounting or accounting practice by the Company or any of its Subsidiaries, except for any such change which is not material or which is required by reason of a concurrent change in GAAP; (vi) any (1) grant of any severance or termination pay to (or amendment to any such existing arrangement with) any director, officer or employee of the Company or any of its Subsidiaries, (2) entering into of any employment, deferred compensation, supplemental retirement or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of the Company or any of its Subsidiaries, (3) increase in, or accelerated vesting and/or payment of, benefits under any existing severance or termination pay policies or employment agreements or (4) increase in or enhancement of any rights or features related to compensation, bonus or other benefits payable to directors, officers or employees of the Company or any of its Subsidiaries, in each case, other than in the ordinary course of business consistent with past practice or as permitted by this Agreement; or (vii) any material Tax election made or changed, any material audit settled or any material amended Tax Return filed. (g) Title to Properties; Encumbrances. The Company and each of its Subsidiaries has good, valid and marketable title to (i) all its material tangible properties and assets (real and personal), including, without limitation, all the properties and assets reflected in the consolidated balance sheet as of September 30, 1999 except as indicated in the notes thereto and except for properties and assets reflected in the consolidated balance sheet as of September 30, 1999 which have been sold or otherwise disposed of in the ordinary course of business, and (ii) all the tangible properties and assets purchased by the Company and any of its Subsidiaries since September 30, 1999 except for such properties and assets which have been sold or otherwise disposed of in the ordinary course of business; in each case subject to no encumbrance, lien, charge or other restriction of any kind or character, except for (1) liens reflected in the consolidated balance sheet as of September 30, 1999, (2) liens consisting of zoning or planning restrictions, easements, permits and other restrictions or limitations on the use of real property or irregularities in title thereto which do not materially detract from the value of, or impair the use of, such property by the Company or any of its Subsidiaries in the operation of its respective business, (3) liens for current taxes, assessments or governmental charges or levies on property not yet due and delinquent and (4) liens created in connection with the loan from Terremark to the Company. (h) Compliance with Laws; Permits. The Company and its Subsidiaries are in material compliance with all applicable laws, regulations, orders, judgments and decrees except where the failure to so comply would not have a Material Adverse Effect on the Company. The Company has not received any notice alleging non-compliance within the last two years. Each member of the Company Group (a) has all permits, approvals and other authorizations ("Permits") necessary for the conduct and operation of its businesses as currently conducted and (b) uses its assets in compliance with the terms of such Permits, except for any Permits not obtained or any noncompliance which would not, individually or in the aggregate, have a Material Adverse Effect. (i) Litigation. Except as disclosed in the Commission Filings, there is no and, in the past two years there has been no, action, suit, proceeding at law or in equity, or any arbitration or any administrative or other proceeding by or before (or to the Company's knowledge any investigation by) any governmental or other instrumentality or agency, pending, or, to the Company's knowledge, threatened, against or affecting the Company or any of its Subsidiaries, or any of their properties or rights which could have a Material Adverse Effect on the Company or prevent or delay the consummation of the Merger. There are no such suits, actions, claims, proceedings or investigations pending or, to the Company's knowledge, threatened, seeking to prevent or challenging the transactions contemplated by this Agreement. Except as disclosed in the Commission Filings, neither the Company nor any of its Subsidiaries is subject to any judgment, order or decree entered in any lawsuit or proceeding which could have a Material Adverse Effect on the Company or on the ability of the Company or any Subsidiary to conduct its business as presently conducted. For the purposes of this Agreement, the term "knowledge" shall mean actual knowledge. (j) Government Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental body, agency, official or authority other than (i) the filing of a certificate of merger in connection with the Merger in accordance with Delaware Law and Florida law, (ii) compliance with any applicable requirements of the HSR Act, (iii) compliance with any applicable requirements of Council Regulation No. 4064/89 of the European Community, as amended (the "EC Merger Regulation"), (iv) compliance with any other applicable requirements of foreign anti-trust or investment laws, (v) compliance with any applicable environmental transfer statutes, (vi) compliance with any applicable requirements of the Exchange Act, (vii) compliance with any applicable requirements of the Securities Act, or (viii) other actions or filings which if not taken or made would not, individually or in the aggregate, have a Material Adverse Effect on the Company or prevent or materially delay the Company's consummation of the Merger. (k) Insurance. The Company has made available to the Vistagreen Group a schedule of insurance and policies currently maintained by the Company and its Subsidiaries. Furthermore (a) neither the Company nor any of the Company's Subsidiaries has received any notice of cancellation or non-renewal of any such policy or arrangement nor is the termination of any such policies or arrangements threatened, (b) there is no claim pending under any of such policies or arrangements as to which coverage has been questioned, denied or disputed by the underwriters of such policies or arrangements, (c) neither the Company nor any of the Company's Subsidiaries has received any notice from any of its insurance carriers that any insurance premiums will be increased in the future or that any insurance coverage presently provided for will not be available to the Company or any of the Company's Subsidiaries in the future on substantially the same terms as now in effect and (d) none of such policies or arrangements provides for any retrospective premium adjustment, experienced-based liability or loss sharing arrangement affecting the Company or any of the Company's Subsidiaries. (l) Casualties. Neither the Company nor any of the Company's Subsidiaries has been affected in any way as a result of flood, fire, explosion or other casualty (whether or not material and whether or not covered by insurance). The Company is not aware of any circumstance which is likely to cause it to suffer any material adverse change in its business, operations or prospects. (m) Propriety of Past Payments. (i) No unrecorded fund or asset of the Company or any of the Company's Subsidiaries has been established for any purpose, (ii) no accumulation or use of corporate funds of the Company or any of the Company's Subsidiaries has been made without being property accounted for in the books and records of the Company or any of the Company's Subsidiaries, (iii) no payment has been made by or on behalf of the Company or any of the Company's Subsidiaries with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment and (iv) none of the Company, any of the Company's Subsidiaries, any director, officer, employee or agent of the Company of any of the Company's Subsidiaries has, directly or indirectly, made any illegal contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services, (A) to obtain favorable treatment for any stockholder, the Company, any of the Company's Subsidiaries or any affiliate of the Company in securing business, (B) to pay for favorable treatment for business secured for any stockholder, the Company, any of the Company's Subsidiaries or any affiliate of the Company, (C) to obtain special concessions, or for special concessions already obtained, for or in respect of any stockholder, the Company or any of the Company's Subsidiaries or any affiliate of the Company or (iv) otherwise for the benefit of any stockholder, the Company or any of the Company's Subsidiaries or any affiliate of the Company in violation of any federal, state, local, municipal, foreign, international, multinational or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty (including existing site plan approvals, zoning or subdivision regulations or urban redevelopment plans relating to Real Property). Neither the Company nor any of the Company's Subsidiaries nor any current directly, officer, agent, employee or other Person acting on behalf of the Company or any of the Company's Subsidiaries, has accepted or received any unlawful contribution, payment, gift, kickback, expenditure or other item of value. (n) Employment Relations and Agreements. (i) Each of the Company and its Subsidiaries is in substantial compliance with all foreign, federal, state or other applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not and is not engaged in any unfair labor practice; (ii) no unfair labor practice complaint against the Company or any of its Subsidiaries is pending before the National Labor Relations Board; (iii) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving the Company or any of its Subsidiaries; (iv) no representation question exists respecting the employees of the Company or any of its Subsidiaries; (v) no grievance which might have a Material Adverse Effect on the Company and its Subsidiaries or the conduct of their respective businesses exists, no arbitration proceeding arising out of or under any collective bargaining agreement is pending and no claim therefor has been asserted; (vi) no collective bargaining agreement is currently being negotiated by the Company or any of its Subsidiaries; and (vii) neither the Company nor any of its Subsidiaries has experienced any material labor difficulty during the last three years. There has not been, and to the Company's knowledge, there will not be, any change in relations with employees of the Company or any of its Subsidiaries as a result of the transactions contemplated by this Agreement which could have a Material Adverse Effect on the Company. Except as disclosed in Schedule 2.2(n) attached hereto, there exist no employment, consulting, severance or indemnification agreements between the Company and any director, officer or employee of the Company or any agreement that would give any Person the right to receive any payment from the Company as a result of the Merger Agreement Closing. (o) Client Relations. There has not been, and to the Company's knowledge, there will not be, any change in relations with franchisees, customers or clients of the Company or any of its Subsidiaries as a result of the transactions contemplated by this Agreement which could have a Material Adverse Effect on the Company. (p) Sufficiency of Assets. The rights, properties and other assets presently owned, leased or licensed by the Company or its Subsidiaries include all such rights, properties and other assets necessary to permit the Company and its Subsidiaries to conduct their respective businesses in all material respects in the same manner as such businesses have been conducted prior to the date hereof. (q) Contracts and Commitments. Except as provided in Schedule 2.1(q): (i) No purchase contracts or commitments of the Company or any of its Subsidiaries are in excess of the normal, ordinary and usual requirements of business or at any excessive price. (ii) Neither the Company nor any Subsidiary has any outstanding contracts with Shareholders, directors, officers, employees, agents, consultants, advisors, salesmen, sales representatives, distributors or dealers that are in excess of the normal, ordinary and usual requirements of business or at any excessive price. (iii) Neither the Company nor any of its Subsidiaries is restricted by agreement from carrying on its business anywhere in the world. (iv) Neither the Company nor any of its Subsidiaries has outstanding any agreement to acquire any debt obligations of others. (r) Disclosure Documents. Neither the proxy statement of the Company (the "Company Proxy Statement") nor the Registration Statement on Form S-4 (the "Form S-4"), each to be filed with the Commission in connection with the Merger, nor any amendment or supplement thereto, will, at the date the Company Proxy Statement or any such amendment or supplement is first mailed to stockholders of the Company or at the time such stockholders vote on the adoption and approval of this Agreement and the transactions contemplated hereby, with respect to the Company Proxy Statement, or the date the Form S-4 or any amendment thereto is filed with the Commission, with respect to the Form S-4, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company Proxy Statement and the Form S-4 will, when filed, each comply as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act. Notwithstanding the foregoing, no representation or warranty is made by the Company in this Section 2.1(u) with respect to statements made or incorporated by reference therein based on information supplied by Terremark or the Vistagreen Group for inclusion or incorporation by reference in the Company Proxy Statement or the Form S-4, which shall be deemed to include information by any third party with respect to any of the assets directly or indirectly acquired by or furnished to Terremark or the Vistagreen Group after the date hereof. (s) Full Disclosure. The Company has not failed to disclose to the Vistagreen Group any facts material to the business, results of operations, assets, liabilities, financial condition or prospects of the Company or its Subsidiaries. No representation or warranty by the Company contained in this Agreement and no statement contained in any document (including financial statements and the Schedules hereto), certificate, or other writing furnished or to be furnished by the Company to Terremark or any of its representatives pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. 2.2. Representations and Warranties of the Vistagreen Group. The Vistagreen Group represent and warrant to the Company as follows: (a) Accredited Investors. The Vistagreen Group and/or each constituent thereof, is an Accredited Investor as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of an investment in the Company and making an informed investment decision. (b) Investment Intent. The Vistagreen Group, and each constituent thereof, represents and warrants to the Company that it is purchasing the Holders Stock for investment purposes and not with a view to distribution thereof and agrees that it shall not make a sale, transfer or other disposition of the Holders Stock in violation of any applicable securities law. ARTICLE III REGISTRATION RIGHTS 3.1. Shelf Registration. If the Company shall receive from the holders in the aggregate of not less than twenty-five percent (25%) of the Registrable Securities (collectively, an "Initiating Holder"), at any time later than nine months after the Effective Date, a written request that the Company effect a registration of the Registrable Securities (a "Registration Requirement"), the Company will: (a) Within thirty (30) days of receipt of a Registration Request, the Company shall file a "shelf" registration statement on Form S-3, or other applicable form that is mutually satisfactory, pursuant to Rule 415 under the Securities Act (the "Shelf Registration") with respect to that portion of the Registrable Securities (which may be all but shall not be less than 25% of the Registrable Securities) included in the Registration Request. The Company agrees that the provisions of this Section 3.1(a) create a "demand" registration right for the Holders with respect to the Registrable Securities. The Company shall, subject to Section 3.1(e) hereof, use its reasonable best efforts to cause the Shelf Registration to become effective as soon as practicable after the filing thereof and shall use its reasonable best efforts to keep the Shelf Registration continuously effective from the date such Shelf Registration is effective until the date on which all Registrable Securities may be sold pursuant to Rule 144(k). (b) Subject to Section 3.2(f) hereof, the Company shall supplement or amend the Shelf Registration, (A) as required by the registration form utilized by the Company or by the instructions applicable to such registration form or by the Securities Act or the rules and regulations promulgated thereunder, and (B) to include in such Shelf Registration any additional unregistered securities that become Registrable Securities by operation of the definition thereof, unless such securities are otherwise registered under the Securities Act or may be sold pursuant to an exemption therefrom or (C) if and to the extent reasonably requested by the Holders of the Registrable Securities, provided however, that such request and any required supplement or amendment shall relate only to material information about such Holder and included in or omitted from such Shelf Registration. The Company shall furnish to the Holders of the Registrable Securities to which the Shelf Registration relates copies of any such supplement or amendment no less than five business days in advance of its use and/or filing with the Commission to allow the Holders to comment thereon. The failure of the Holders to provide written comments under such period shall be deemed agreement with such supplement or amendment. (c) The Shelf Registration may include other Securities of the Company which are held by Persons who, by virtue of agreements with the Company, are entitled to include their Securities in any such registration ("Other Stockholders"). 3.2. Expenses of Registration. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this Article III (including all Registration Expenses incurred in connection with the Shelf Registration and any supplements or amendments thereto, whether or not it becomes effective, and whether all, none or some of the Registrable Securities are sold pursuant to the Shelf Registration) shall be borne by the Company (provided, however, that the Holders shall bear the expenses of advisors, including investment bankers, retained by them, except that the Company shall pay the expenses of one counsel for the Holders in an amount not to exceed $10,000), and all Selling Expenses shall be borne by the Holders of the securities so registered pro rata on the basis of the number of their shares so registered. 3.3. Registration Procedures. In the case of the registration effected by the Company pursuant to this Article III, the Company will advise the Holders in writing as to the filing of the Shelf Registration and the effectiveness thereof. The Company will: (a) furnish to each Holder, and to any underwriter designated by the Holder a reasonable number of copies of any registration statement (including all exhibits) and any prospectus forming a part thereof and any amendments and supplements thereto (including all documents incorporated or deemed incorporated by reference therein) prior to the effectiveness of such registration statement and any prospectus filed under Rule 424 under the Securities Act, which documents, other than documents incorporated or deemed incorporated by reference, will be subject to the review of the Holders and any such underwriter for a period of at least five business days, and the Company shall not file any such registration statement or such prospectus or any amendment or supplement to such registration statement or prospectus to which any Holder or any such underwriter shall reasonably object in writing, specifying in detail the nature of such objection, within five business days after the receipt thereof; a Holder shall be deemed to have reasonably objected to such filing only if the registration statement, amendment, prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission; (b) furnish to each Holder and to any underwriter designated by the Holder a reasonable number of conformed copies of the applicable registration statement and of each amendment and supplement thereto (in each case including all exhibits) and such number of copies of the prospectus forming a part of such registration statement and prospectus filed under Rule 424 under the Securities Act, and such other documents, including without limitation documents incorporated or deemed to be incorporated by reference prior to the effectiveness of such registration, as each of the Holders or any such underwriter from time to time may reasonably request; (c) to the extent practicable, promptly prior to the filing of any document that is to be incorporated by reference into any registration statement or prospectus forming a part thereof subsequent to the effectiveness thereof, and in any event no later than the date such document is filed with the Commission, provide copies of such document to the Holders and to any underwriter, if requested, and make representatives of the Company available for discussion of such document and other customary due diligence matters; (d) make available at reasonable times for inspection by the Holders, any underwriter and any attorney or accountant retained by the Holders or any such underwriter all financial and other records, pertinent corporate documents and properties of the Company and cause the officers, directors and employees of the Company to supply all information reasonably requested by the Holders and any such underwriters, attorneys or accountants in connection with such registration subsequent to the filing of the applicable registration statement and prior to the effectiveness of the applicable registration statement; (e) use its reasonable best efforts (x) to register or qualify all Registrable Securities and other securities covered by such registration under such other securities or blue sky laws of such States of the United States of America where an exemption is not available and as the sellers of Registrable Securities covered by such registration shall reasonably request, (y) to keep such registration or qualification in effect for so long as the applicable registration statement remains in effect, and (z) to take any other action which may be reasonably necessary or advisable to enable such sellers to consummate the disposition in the United States of the securities to be sold by such sellers, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where it is not so qualified, or to subject itself to taxation in any such jurisdiction, or to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder; (f) promptly notify each Holder of Registrable Securities covered by a registration statement (A) upon discovery that, or upon the happening of any event as a result of which, the prospectus forming a part of such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (B) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of proceedings for that purpose, (C) of any request by the Commission for (1) amendments to such registration statement or any document incorporated or deemed to be incorporated by reference in any such registration statement, (2) supplements to the prospectus forming a part of such registration statement or (3) additional information, or (D) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction in which the Company has agreed hereunder to qualify such securities for sale or the initiation of any proceeding for such purpose, and at the request of any such Holder promptly prepare and furnish to it a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (g) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of any such registration, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which the Company has agreed hereunder to qualify such securities for sale; (h) if requested by any Initiating Holder, or any underwriter, promptly incorporate in such registration statement or prospectus, pursuant to a supplement or post effective amendment if necessary, such information as the Initiating Holder and any underwriter may reasonably request to have included therein relating to the "plan of distribution" of the Registrable Securities, the principal amount or number of shares of Registrable Securities being sold to such underwriter, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering and make all required filings of any such prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such prospectus supplement or post effective amendment; (i) provide promptly to the Holders upon request any document filed by the Company with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act; and (j) use its reasonable best efforts to cause all Registrable Securities included in any registration pursuant hereto to be listed on each securities exchange on which securities of the same class are then listed, or, if not then listed on any securities exchange, to be eligible for trading in any over-the-counter market or trading system in which securities of the same class are then traded. 3.4. Indemnification. (a) The Company will indemnify each of the Holders, as applicable, each of its officers, directors, members and partners, and each person controlling each of the Holders, with respect to each registration which has been effected pursuant to this Article III, and each underwriter, if any, and each person who controls any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or the Exchange Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each of the Holders, each such underwriter and each person who controls any such underwriter, each of its officers, directors, members and partners, and each person controlling each of the Holders for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by the Holders and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section 3.4(a) shall not apply to any amounts paid in settlement of any such claims, loss, damage, liability or expense if such settlement is effected without the consent of the Company (which consent has not been unreasonably withheld). (b) Each of the Holders will, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter, each Other Stockholder and each of their officers, directors, members and partners, and each person controlling such Other Stockholder against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document made by such Holder, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements by such Holder therein not misleading, and will reimburse the Company and such Other Stockholders, directors, officers, partners, members, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however, that the obligations of each of the Holders hereunder and under clause (f) below shall be limited to an amount equal to the net proceeds to such Holder of securities sold as contemplated herein. It is agreed that the indemnity agreement contained in this Section 3.4(b) shall not apply to any amount paid in settlement of any such claim, loss, damage, liability or expense if such settlement is effected without the consent of the majority of the Holders (which consent will not be unreasonably withheld). (c) Each party entitled to indemnification under this Section (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld) and the Indemnified Party may participate in such defense at such party's expense (unless the Indemnified Party shall have reasonably concluded, based upon an opinion of counsel, that there may be a conflict of interest between the Indemnifying Party and the Indemnified Party in such action, in which case the fees and expenses of one such counsel for all Indemnified Parties shall be at the expense of the Indemnifying Party), and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 3 unless the Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party (which consent shall not be unreasonably withheld or delayed), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 3.4 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue (or alleged untrue) statement of a material fact or the omission (or alleged omission) to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with any underwritten public offering contemplated by this Agreement are in conflict with the foregoing provisions, the provisions in such underwriting agreement shall be controlling. (f) The foregoing indemnity agreement of the Company and Holders is subject to the condition that, insofar as they relate to any loss, claim, liability or damage made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement in question becomes effective or the amended prospectus filed with the Commission pursuant to Commission Rule 424 (the "Final Prospectus"), such indemnity or contribution agreement shall not inure to the benefit of any underwriter or Holder (but only if such Holder was required to deliver such Final Prospectus) if a copy of the Final Prospectus was furnished to the underwriter and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. 3.5. Information by the Holders. Each of the Holders holding securities included in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Article III. 3.6. Holdback Agreement; Postponement. Notwithstanding the provisions of this Article III, if the Board of Directors of the Company determines in good faith that it is in the best interests of the Company (A) not to disclose the existence of facts surrounding any proposed or pending acquisition, disposition, strategic alliance or financing transaction involving the Company or (B) for any purpose relating to: (aa) a registration of equity securities of the Company, (bb) a registration of convertible securities of the Company (including any underlying equity securities), (cc) a registration of any securities sold pursuant to a Rule 144A transaction, or (dd) a registration of any securities relating to a transaction described in Rule 145(a), to suspend the registration rights set forth herein, the Company may, by notice to the Holders in accordance with the notice provisions hereof, suspend the rights of the Holders to make sales pursuant to the Shelf Registration for such a period of time as the Board of Directors may reasonably determine, provided however, that such suspension shall be terminated by the Company as soon as is reasonably practicable. 3.7. Assignment. The registration rights set forth in Article III hereof may be assigned, in whole or in part, to any transferee of Registrable Securities (who shall be considered thereafter to be a Holder (provided that any transferee who is not an affiliate of Holder shall be a Holder only with respect to such Registrable Securities so acquired and any stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, such Registrable Securities) and shall be bound by all obligations and limitations of this Agreement). 3.8. Remedies. Each Holder of Registrable Securities, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 3.9. Lockup. Notwithstanding the date of effectiveness of the Registration Statement filed pursuant to Section 3.1 hereof, the Holders agree that, except as provided below, no sale, offer to sell, pledge or other disposition of any interest in the Holders Stock shall be made by any Holder prior to the expiration of one (1) year after the Effective Time; provided, however, that nothing herein contained shall preclude (i) open market sales pursuant to Rule 144, or (ii) sales by any member of the Vistagreen Group to another member of such Group or any family member or Affiliate of any member of such Group or to Terremark or any Affiliate of Terremark. ARTICLE IV (a)ADDITIONAL AGREEMENTS 4.1. United States Real Property Interests . The Company covenants and agrees that for so long as the Vistagreen Group holds, in the aggregate, Holders Stock acquired pursuant to this Agreement representing at least 1% of the outstanding shares of Common Stock of the Company, the Company shall not be or become a United States Real Property Holding Corporation as defined in Section 897(c)(2) of the Code nor shall the Holders Stock acquired pursuant to this Agreement be or become a United States Real Property Interest as defined in Section 897(c)(1)(A)(ii) of the Code. In addition, as of each Determination Date (as defined in Treasury Regulation Section 1.897-2(c)), including particularly a date of disposition, the Company shall provide to each member of the Vistagreen Group a statement complying with Treasury Regulation Section 1.897-2(g)(1)(ii) and shall also comply, on a timely basis, with the notice requirements of Treasury Regulation Section 1.897-2(h) including without limitation, timely notice to the Internal Revenue Service as provided in that Treasury Regulation, with a copy to each member of the Vistagreen Group, together with other Supporting Documents (as hereinafter defined), but dated as of the determination date. Any notice conforming with or under Treasury Regulation Section 1.897-2(h) need address the status of the Company as a United States Real Property Holding Corporation and the status of the Company Shares as a United States Real Property Interest only from a date that is no earlier than the day that is thirty days prior to the Effective Time. These covenants shall in all respects survive the Closing of this Agreement. ARTICLE V CONDITIONS PRECEDENT 5.1. Conditions Precedent to Obligations of Vistagreen Group. The obligations of the Vistagreen Group to effect the transactions contemplated by this Agreement are subject to the satisfaction or waiver at or prior to the Closing, of each of the following conditions: (a) Closing of Merger Agreement. The Merger Agreement Closing shall have been effectuated; (b) Accuracy of Representations and Warranties. All representations and warranties of the Company contained herein shall be true and correct in all material respects as of the date hereof and at and as of the Closing, with the same force and effect as though made on and as of the Closing Date (except as to any such representation and warranty which relates to a specific date other than the date of signing this Agreement, which shall be true and correct as of such specific date); (c) Sale of Property. The Property or the Partnership Interests shall have been sold to a party which is not related to any of the parties to this Agreement prior to the Closing; (d) United States Real Property Holding Company. Neither the Surviving Corporation nor the Company, as of the Effective Time and for thirty days prior thereto, is or has been a United States real property holding corporation (as defined in Section 897(c)(2) of the Code), and the Holders Stock to be acquired by the Holders, at the Effective Time, does not constitute a United States real property interest (as defined in Section 897(c)(1)(A)(ii) of the Code) ("USRPHC Condition Precedent"). To assure that the USRPHC Condition Precedent has been met the following shall be delivered to the Holders at Closing: (i) an opinion of counsel to the Surviving Corporation on a "will" basis (which opinion shall be dated the Closing Date and may be based on representations of fact made under penalties of perjury by responsible officers of the Company and/or responsible officers of Terremark as defined under Treas. Reg. ss. 1.897-2(h)) and confirming the satisfaction of the USRPHC Condition Precedent (the form and content of which and the counsel rendering the opinion to be reasonably satisfactory to the Holders and their counsel); (ii) a statement under Treas. Reg.ss. 1.897-2(g)(1)(ii) executed by a responsible corporate officer of the Surviving Corporation to the Holders conforming with Treas. Reg. Section 1.897-2(h) to the effect that the Surviving Corporation is not a United States real property holding corporation as defined above and the Holders Stock being delivered to the Holders pursuant to the Merger Agreement is not a United States real property interest (as defined above) (in each case as of the Effective Time), together with a Notice to the U.S. Internal Revenue Service concerning the issuance of same which shall be forwarded to the IRS by legally authorized means on the Closing date; and (iii) a pro forma balance sheet of the Surviving Corporation dated as of the Closing date (or applicable determination date if other than the Closing Date), certified, under penalties of perjury, by a responsible officer as that term is defined under Treasury Regulation ss. 1.897-2(h), demonstrating that the USRPHC Condition Precedent has been satisfied (all of the foregoing documents referred to in clauses (i), (ii) and (iii) being hereinafter referred to as the "Supporting Documents"). (e) Legal Opinion. Holders shall have received a legal opinion from counsel to the Surviving Corporation in form and substance (and such counsel to be) reasonably satisfactory to the Holders to the effect that the Holders Stock which is being purchased by the Holders hereunder, when issued, sold and delivered in accordance with the terms hereof, will, assuming that the representations in Section 2.2 are correct, be duly and validly issued, fully paid and non-assessable and will be issued in compliance with all applicable federal and state securities laws; (f) Approval of Company's Stockholders. The Merger, the Merger Agreement and this Agreement shall have been approved and adopted by the requisite vote or consent of the stockholders of the Company in accordance with applicable law, the provisions of the Company's Certificate of Incorporation and By-Laws, and the requirements of the AMEX; (g) Registration Statement. The Form S-4 shall have become effective in accordance with the provisions of the Securities Act. No stop order suspending the effectiveness of the Form S-4 shall have been issued by the SEC and no proceedings for that purpose shall have been initiated by the SEC; (h) Litigation. There shall not have been instituted or be pending any suit, action or proceeding by any governmental entity as a result of this Agreement or any of the transactions contemplated hereby which questions the validity or legality of the transactions contemplated by the Merger Agreement or this Agreement; (i) Injunction. No injunction or other order shall have been issued by any court or by any governmental or regulatory agency, body or authority which is then in effect and has the effect of making the Merger or the transactions contemplated by this Agreement illegal or otherwise prohibiting the consummation of the Merger or this Agreement; (j) Statutes. No statute, rule, regulation, executive order, decree or order of any kind shall have been enacted, entered, promulgated or enforced by any court or governmental authority which prohibits the consummation of the Merger or this Agreement; (k) AMEX Listing. The shares of Post Merger Common Stock to be issued pursuant to the Merger and the Holders Shares shall have been approved for listing on the AMEX, upon final notice of issuance; (l) Performance by Company. The Company shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in the Merger Agreement and herein to be performed or complied with by it prior to the Closing, and the Vistagreen Group shall have received a certificate signed on behalf of the Company by the chief executive officer or the chief financial officer of the Company to such effect; (m) Letters of Company Accountants. ------------------------------ (i) The Company shall use reasonable best efforts to cause to be delivered to Purchaser two letters from Deloitte & Touche LLP, one dated no earlier than three business days prior to the date on which the Form S-4 shall become effective and one dated no earlier than three business days prior to the Closing Date, each addressed to the Purchaser, in form reasonably satisfactory to the Purchaser and customary in scope for comfort letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. (ii) Terremark shall use reasonable best efforts to cause to be delivered to Purchaser two letters from PricewaterhouseCoopers, one dated no earlier than three business days prior to the date on which the Form S-4 shall become effective and one dated no earlier than three business days prior to the Closing Date, each addressed to the Purchaser, in form reasonably satisfactory to the Purchaser and customary in scope for comfort letters delivered by independent public accountants in connection with registration statements similar to the Form S-4; and (n) Employment Agreement. Joseph Wright, Jr. shall have entered into an employment contract in form and substance acceptable to Terremark which shall provide for, among other things, an annual salary of $250,000 and a surrender by him of all options to purchase shares of Common Stock other than 1,000,000 options exercisable at $3.00 per share and the 2,000,000 options exercisable at $0.35 per share, none of which shall be exercised until at least one year after the Effective Time. 5.2. Conditions Precedent to Obligations of the Company. The obligations of the Company to effect the transaction contemplated by this Agreement are subject to the satisfaction or waiver by the Company, at or prior to the Closing, of each of the following conditions: (a) Accuracy of Representations and Warranties. All representations and warranties of the Vistagreen Group contained herein shall be true and correct in all material respects as of the date hereof and at and as of the Closing, with the same force and effect as though made on and as of the Closing Date (except as to any such representation and warranty which relates to a specific date, which shall be true and correct as of such specific date); and (b) Merger Agreement Closing. The Merger Agreement Closing shall have been effectuated. ARTICLE VI TERMINATION AND ABANDONMENT 6.1. Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned, at any time prior to the Closing: (a) by mutual consent of the Board of Directors of the Company and the Vistagreen Group; or (b) by the Board of Directors of Terremark or the Company if the Effective Time shall not have occurred by July 1, 2000 through no fault of the terminating party; (c) by the Vistagreen Group if the Merger Agreement Closing shall not have occurred on or before December 31, 2000; or (d) by either of the parties, if any permanent injunction, order, decree or ruling by any governmental entity or competent jurisdiction preventing the consummation of the Merger, or the transactions contemplated by this Agreement, shall become final and nonappealable; or (e) by the Board of Directors of the Company or Vistagreen Group if there has been a material breach of any representation, warranty, obligation, covenant, agreement or condition set forth in this Agreement on the part of the other party; provided, however, that each of the Company and Vistagreen Group shall have the right to cure any such breach within three days of written notice of any such breach given by the other party; or (f) by Vistagreen Group if there has been a material breach of any representation, warranty, obligation, covenant, agreement or condition set forth in the Merger Agreement on the part of the Company or Terremark; provided, however, that each of the Company and Terremark shall have the right to cure such breach within three days of written notice of any such breach; or (g) by the Board of Directors of the Company or Vistagreen Group if the approval of this Agreement and the Merger Agreement by the required number of holders of the Common Stock shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting (including any adjournment or postponement thereof) of the Company's stockholders or any adjournment thereof; provided, however, that if the failure to obtain such required vote is the result of the failure of the Company to obtain a quorum at its meeting of stockholders, the Company will immediately call an additional meeting if so requested by Vistagreen Group; or (h) by the Board of Directors of the Company or Vistagreen Group if the Board of Directors of the Company shall have withdrawn or modified its approval or recommendation of the Merger of this Agreement in any manner adverse to Terremark or Vistagreen Group; provided, however, that the right to terminate this Agreement shall not be available to a party that has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the failure of the Merger to be consummated. 6.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 6.1 hereof by Terremark, the Vistagreen Group or the Company, written notice thereof shall promptly be given to the other party specifying the provision hereof pursuant to which such termination is made, and this Agreement shall become void and have no effect, and there shall be no liability hereunder on the part of Terremark or the Company, except that Section 7.1 hereof shall survive any termination of this Agreement, and that, promptly upon any such termination, the Representatives shall disburse all funds which then remain in the Escrow Account to the Vistagreen Group in accordance with such instruction as the Vistagreen Group shall deliver to such Representatives. ARTICLE VII MISCELLANEOUS 7.1. Fees and Expenses. (a) All costs and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. 7.2. Survival of Representations and Warranties. The respective representations and warranties of the Company and the Vistagreen Group contained herein or in any certificates or other documents delivered prior to or at the Closing shall not be deemed waived or otherwise affected by any investigation made by any party. Each and every such representation and warranty shall expire with, and be terminated and extinguished by, the Closing and thereafter neither of the Company nor the Vistagreen Group shall be under any liability whatsoever with respect to any such representation or warranty. 7.3. Extension; Waiver. At any time prior to the Closing, the parties hereto, by action taken by or on behalf of the respective Boards of Directors of the Company or Terremark and by the Vistagreen Group, may (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein by any other applicable party or in any document, certificate or writing delivered pursuant hereto by any other applicable party or (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of any party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. 7.4. Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered in person or mailed, certified or registered mail with postage prepaid, or sent by telecopier, as follows: (a) if to the Company, to it at: AMTEC, INC. 599 Lexington Avenue, 44th Floor New York, NY 10002 Facsimile Number: (212) 319-9288 Attention: Karin-Joyce Tjon with a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 Attention: Edmund C. Duffy, Esq. with additional copies to: Terremark Holdings Inc. c/o Terremark Group, Inc. 2601 S. Bayshore Drive, PH-1B Coconut Grove, FL 33133 Facsimile: (305) 856-8190 Attention: Brian K. Goodkind, Esq. and to: Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, FL 33131 Facsimile: (305) 579-0717 Attention: Paul Berkowitz, Esq. (b) if to Vistagreen Group, to it at: c/o Karp & Genauer, P.A. 2 Alhambra Plaza, Suite 1202 Coral Gables, FL 33134 Facsimile: (305) 461-3545 Attention: Joel Karp, Esq. or to such other Person or address as any party shall specify by notice in writing to each of the other parties. All such notices, requests, demands, waivers and communications shall be deemed to have been received on the date of delivery unless if mailed, in which case on the third business day after the mailing thereof except for a notice of a change of address, which shall be effective only upon receipt thereof. 7.5. Entire Agreement; Severability. This Agreement and the annex, schedules and other documents referred to herein or delivered pursuant hereto, and the Merger Agreement and the Purchaser Contract and documents contemplated thereby contain the entire understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior agreements and understandings, oral and written, with respect thereto. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect (a) if such provision is enforceable in part, such provision shall be enforced to the maximum extent permissible under applicable law, and (b) the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect, provided, however, that if enforcement of the Agreement without giving effect to an invalid or unenforceable provision would deny either party the benefit of the transaction contemplated hereby, then the Agreement as a whole will terminate. 7.6. Binding Effect; Benefit; Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties. Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto or their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 7.7. Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified and supplemented in writing by the parties hereto in any and all respects before the Closing, by action taken by the respective Boards of Directors of Terremark and the Company or by the respective officers authorized by such Boards of Directors and by the Vistagreen Group. 7.8. Further Actions. Each of the parties hereto agrees that, subject to its legal obligations, it will use its best efforts to fulfill all conditions precedent specified herein, to the extent that such conditions are within its control, and to do all things reasonably necessary to consummate the transactions contemplated hereby. 7.9. Interpretation; Headings. Any matter required to be disclosed in any Schedule which was not disclosed therein shall be deemed to have been disclosed in the correct Schedule to the extent such matter was reasonably specifically cross-referenced to another Schedule containing such disclosure. The parties agree that certain agreements and other matters may be listed in a Schedule for informational purposes only, notwithstanding that, because they do not rise to the applicable materiality thresholds or otherwise, they are not required to be listed therein by the terms of this Agreement. In no event shall the listing of any such Contract or the inclusion of any other matter in any Schedule be deemed or interpreted to broaden or otherwise amplify the representations and warranties or covenants contained in this Agreement. Furthermore, the disclosure of any particular item or items of information in any Schedule shall not be taken as an admission that such disclosure is required to be made under the terms of any such representations and warranties (including any admission that any such items establish the required level of materiality). The descriptive headings of the several Articles and Sections of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 7.10. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 7.11. Applicable Law. This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws rules thereof. 7.12. Severability. If any term, provision, covenant or restriction contained in this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. ARTICLE VIII DEFINITIONS As used in this Agreement, the following terms have the respective meanings set forth below: Affiliates: the Affiliate of a person shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controllable by, or is under common control with such person; Commission: shall mean the Securities and Exchange Commission; Effective Date: shall mean the date on which the Closing of this Agreement occurs; Exchange Act: shall mean the Securities Exchange Act of 1934, as amended; Holder: shall mean any holder of Registrable Securities; Initiating Holder: shall mean any Holder or Holders who in the aggregate are Holders of more than 25% of the then outstanding Registrable Securities; Person: shall mean an individual, partnership, joint stock company, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof; register, registered and registration: shall mean a registration effected by preparing and filing a registration statement in compliance with the Securities Act (and any post-effective amendments filed or required to be filed) and the declaration or ordering of effectiveness of such registration statement; Registrable Securities: shall mean (A) the aggregate number of shares of Common Stock of the Surviving Company issued to the Vistagreen Group or their assignees pursuant to this Agreement, and (B) any securities of the Surviving Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Surviving Company Post Merger Common Stock referred to in clause (A); provided, that Registrable Securities shall not include (i) securities with respect to which a registration statement with respect to the sale of such securities has become effective under the Securities Act and all such securities have been disposed of in accordance with such registration statement, (ii) such securities as are actually sold pursuant to Rule 144 (or any successor provision thereto) under the Securities Act ("Rule 144"), or (iii) such securities as are acquired by the Surviving Company or any of its subsidiaries; Registration Expenses: shall mean all expenses incurred by the Company in compliance with Section 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, fees and expenses of one counsel for all the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company); Security, Securities: shall have the meaning set forth in Section 2(1) of the Securities Act; Securities Act: shall mean the Securities Act of 1933, as amended; and Selling Expenses: shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of counsel for each of the Holders other than fees and expenses of one counsel for all the Holders. IN WITNESS WHEREOF, each of Vistagreen Holdings (Bahamas) Ltd., and the Company have caused this Agreement to be executed by their respective officers thereunto duly authorized, all as of the date first above written. AMTEC, INC. /s/ Joseph R. Wright, Jr. Chairman & Chief Executive Officer VISTAGREEN HOLDINGS (BAHAMAS), LTD. /s/ Peter B. Evans President Terremark Holdings, Inc., a Florida corporation, hereby confirms its agreement to all of the provisions in the above Stock Purchase Agreement, including, without limitation, those contained in Sections 1.1 and 1.2 thereof. TERREMARK HOLDINGS, INC. /s/ Manuel D. Medina Chairman & Chief Executive Officer AMENDMENT TO STOCK PURCHASE AGREEMENT THIS AMENDMENT TO STOCK PURCHASE AGREEMENT is dated as of February 11, 2000 ("Amendment", and is made by and between Paradise Stream (Bahamas) Limited, a Bahamian international business company ("Paradise Stream"), Vistagreen Holdings (Bahamas), Ltd., a Bahamian international business company ("Vistagreen"), Moraine Investments, Inc., a British Virgin Islands company ("Moraine"), (Paradise Stream, Vistagreen and Moraine are collectively the "Purchaser"), and AMTEC, INC., a Delaware corporation ("Company"). WHEREAS, Vistagreen and the Company entered into that certain Stock Purchase Agreement dated as of November 24, 1999 (the "Stock Purchase Agreement"): and Vistagreen has assigned a portion of its rights and interests in the Stock Purchase Agreement to Paradise and Moraine; WHEREAS, Vistagreen, Paradise Stream and Moraine are the holders of such portion of the principal amount of the Note as are set forth in Exhibit "A" attached hereto and, as a result, Vistagreen, Paradise Stream and Moraine are entitled to receive the percentage interests in the Note Proceeds described in Exhibit "A" upon satisfaction of the Note; and WHEREAS, the parties desire to hereby amend the Stock Purchase Agreement, as set forth herein, effective as of the date first set forth above. NOW THEREFORE, for good and valuable consideration, the parties hereto agree as follows (all capitalized terms not herein defined shall have the meaning set forth in the Stock Purchase Agreement): 1. All referenced in the Stock Purchase Agreement to the "Vistagreen Group" shall be deemed to refer to Vistagreen, Paradise Stream and Moraine and, where applicable, in accordance with their respective percentage interests in the Note Proceeds described in Exhibit "A". 2. The fourth "Whereas" clause is hereby amended and restated in its entirety as follows: WHEREAS, in connection with and upon consummation of the sale of the Property, the Note shall be required to be satisfied in full and, subject to certain conditions, all such proceeds so paid to satisfy the Note in full, including any shortfall amount paid by Terremark in the event that the proceeds of the sale of the Property are not sufficient to satisfy the Note in full or a Terremark promissory note for such shortfall should the Vistagreen Group permit so in its sole discretion (the "Note Proceeds"), shall be used to purchase certain shares of the Company as set forth herein. 3. Section 1.2 is hereby amended and restated in its entirety as follows: 1.2 Purchase and Sale of Post-Merger Common Stock. Upon and subject to the Merger Agreement Closing, the Surviving Corporation will sell to the Vistagreen Group and the Vistagreen Group will purchase from the Surviving Corporation such number of shares of duly authorized, validly issued, fully paid and non-assessable Post Merger Common Stock of the Surviving Corporation which represents 35% of the issued and outstanding Post-Merger Common Stock of the Surviving Corporation on a fully diluted basis after giving effect to such issuance ("Holders Stock"). As used herein, any calculation of shares on a "fully diluted basis" shall mean a calculation of share ownership that assumes that all options granted under any incentive or other plan, agreement or arrangement of the Company or the Surviving Corporation have been exercised, that all warrants to purchase securities of the Company or the Surviving Corporation have been exercised, that all warrants to purchase securities of the Company or the Surviving Corporation have been exercised and that all rights to convert any security or other instrument, including, without limitation, Series E and G Preferred Stock of the Company or the Surviving Corporation into Common Stock or Post eager Common Stock have been exercised, and any right or obligation of the Company to discharge its obligation to pay dividends, interest or any other obligation of the Company by the issuance of Common Stock or Post Merger Common Stock shall be deemed to have been paid or discharged by the issuance of such Common Stock or Post Merger Common Stock and all other rights whatsoever to acquire any Common Stock or Post Merger Common Stock have been exercised (including, as to all of the foregoing, any unvested options or warrants or other rights to acquire Common Stock or Post Merger Common Stock have been exercised (including, as to all of the foregoing, any unvested options or warrants or other rights to acquire Common Stock or Post Merger Common Stock that are subject to the passage of time, the payment of money, or any other contingency whatsoever), each such exercise, conversion or issuance to be deemed to have occurred immediately prior to the issuance of the Post Merger Common Stock to the Holders. The total purchase price to be paid by the Vistagreen Group for the Holders Stock shall be an amount equal to the Note Proceeds, together with any and all interest earned thereon after the sale of the Property and before the Merger Agreement Closing. At the Closing,. the Surviving Corporation shall deliver to the Vistagreen Group original certificates in the aggregate representing the Holders Stock (with stamps or other evidence of payment of all taxes payable in respect of such issuance affixed thereto or accompanying the same), which certificates shall be in such denominations as the Vistagreen Group reasonably request, such request to be delivered to the Company (which shall be deemed notice to the Surviving Corporation) in writing at least three (3) business days prior to the Closing. Notwithstanding anything herein to the contrary, if the Merger Agreement Closing has not occurred on or before December 31, 2000 (time being of the essence of this provision), then the obligation of the Vistagreen Group to purchase the Holders Stock and the Surviving Corporation's right to sell the Holders Stock to the Vistagreen Group shall immediately terminate (without liability to any party) and be of no further force and effect. In such event, on the first business day in January 2001, Terremark and the Holders shall each cause their respective Representatives to disburse the Note Proceeds which then remain in the Escrow Account to the Vistagreen Group in accordance with the Purchase Contract and such instructions as the Vistagreen Group shall deliver to such Representatives. Provided that the Closing hereunder and the Merger Agreement Closing have each taken place by December 31, 2000, the Company agrees that the Surviving Corporation shall file with the SEC, within ten business days after the date of the later of the two closings to occur, a registration statement on Form S-3 (or similar form) registering the sale and disposition of all of the Holders Stock (the "Registration Statement"). 4. The following section is added as a new Section 2.2(c): Investment Intent. The Vistagreen Group represents and warrants that it is purchasing the Post Merger Common Stock issued to it for investment purposes and not with a view to distribution thereof and agrees that it shall not make any sale, transfer or other disposition of its Post Merger Common Stock in violation of any applicable securities law. 5. The following section is added as a new Section 3.1(d): The filing and effectiveness of the Form S-3 referenced in Section 1.2 above shall be deemed to satisfy the demand registration rights set forth in Section 3.1(a) hereof, with the terms and conditions of Sections 3.1 through 3.8 of this Agreement applying to the filing of such Form S-3. 6. Section 3.9 is hereby revised and restated in its entirety to read as follows: 3.9 Lockup. Notwithstanding the date of effectiveness of the Registration Statement filed pursuant to Section 1.2 hereof, the Holders agree that, except as provided below, no sale, offer to sell or other disposition of any interest in the Holders Stock shall be made by any Holder (without the consent of the Surviving Corporation, to be given or withheld in the Surviving Corporation's sole and absolute discretion) prior to the expiration of one (1) year after the Merger Agreement Closing; provided, however, that nothing herein contained shall impair or affect the Holder's rights to sell Holders Stock pursuant to I) open market sales in such amounts and at such times as would be permitted under the volume limitation of Rule 145, as if such rule were applicable, or (ii) sales by any member of the Vistagreen Group to another member of such Group or any family member or Affiliate of any member of such Group or to Terremark or any affiliate of Terremark (a "Permitted Transferee"). Any transfer to such Permitted Transferee may be made pursuant to the Registration Statement so that the Permitted Transferee (to the extent allowed by law) shall take unlegended shares of Holder Stock, provided that such Permitted Transferees shall take the Holders Stock so acquired subject to the applicable lock-up restrictions set forth in this paragraph. 7. Section 4.1 is hereby revised and restated in its entirety to read as follows: United States Real Property Interests. The Company covenants and agrees that for so long as the Vistagreen Group holds, in the aggregate, Holders Stock acquired pursuant to this Agreement representing at least 1% of the outstanding shares of Common Stock of the Company, the Company shall not be or become a United States Real Property Holding Corporation as defined in Section 897(c)(2) of the Code nor shall the Holders Stock acquired pursuant to this Agreement be or become a United States Real Property Interest as defined in Section 897(c)(1)(A)(ii) of the Code. In addition, as of each Determination Date (as defined in Treasury Regulation Section 1.897-2(c)), including particularly a date of disposition, the Company shall provide to each member of the Vistagreen Group a statement complying with Treasury Regulation Section 1.897(g)(1)(ii) and shall also comply, on a timely basis, with the notice requirements of Treasury Regulation Section 1.897-2(h) including without limitation, timely notice to the Internal Revenue Service as provided in that Treasury Regulation, with a copy to each member of the Vistagreen Group, together with other Supporting Documents (as hereinafter defined), but dated as of the determination date. Any notice conforming with or under Treasury Regulation Section 1.897-2(h) need to address the status of the Company as a United States Real Property Holding Corporation and the status of the Company Shares as a United States real property Interest only from a date that is no earlier than the date of the Effective Time. These covenants shall in all respects survive the Closing of this Agreement. 8. The introductory paragraph of Section 5.1(d) is hereby revised and restated in its entirety to read as follows (with subsections (i), (ii) and (iii) remaining unchanged: United Stated Real Property Holding Corporation. Neither the Surviving Corporation nor the Company is, as of the Effective Time, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code), and the Holders Stock to be acquired by the Holders, at the Effective Time, does not constitute a United States real property interest (as defined in Section 897(c)(1)(A)(ii) of the Code) ("USRPHC Condition Precedent"). To assure that the USRPHC Condition Precedent has been met the following shall be delivered to the Holders at Closing: 9. Section 6.1(b) is hereby deleted in its entirety and the remaining subsections of Section 6.1 are renumbered accordingly. 10. Each of the parties hereto agrees that it will use its commercially reasonable best efforts to do all things reasonably necessary to consummate the transactions contemplated hereby. 11. This Amendment may be executed in several counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 12. This Amendment and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws rules thereof. 13. Except as specifically amended by this Amendment, all terms and conditions of the Stock Purchase Agreement shall remain unchanged and in full force and effect. 14. The parties hereby acknowledge and consent to the amendment as of the date hereof to that certain Agreement and Plan of Merger by and between Terremark Holdings, Inc., a Florida corporation and the Company dated as of November 24, 1999. IN WITNESS WHEREOF, each of Purchaser and the Company have caused this Amendment to Stock Purchase Agreement to be executed by their respective officers thereunto duly authorized, all as of the date first above written. AMTEC, INC. /s/ Joseph R. Wright, Jr., Chairman & Chief Executive Officer VISTAGREEN HOLDINGS (BAHAMAS), LTD. /s/ Peter B Evans, President PARADISE STREAM (BAHAMAS) /s/ Peter B. Evans, President MORAINE INVESTMENTS, INC. /s/ Peter B. Evans, President Terremark Holdings, Inc., a Florida corporation, hereby acknowledges and consents to this Amendment to the Stock Purchase Agreement. TERREMARK HOLDINGS, INC. /s/ Brian K. Goodkind, Executive Vice President -----END PRIVACY-ENHANCED MESSAGE-----