-----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, JMdHvPvV7S7ws1yWQGJ8i0MFE7Kx7pbdBuJUpjjZSuzore0kn0aHxxY5GiFohrFA xlMgIWjZ/OAG3Xyjmueo4A== 0000950172-98-000638.txt : 19980701 0000950172-98-000638.hdr.sgml : 19980701 ACCESSION NUMBER: 0000950172-98-000638 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980630 SROS: NONE 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: 10-K SEC ACT: SEC FILE NUMBER: 001-12475 FILM NUMBER: 98657837 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 10-K 1 THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT ON FORM 10-K FILED ON JUNE 30TH, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1998. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________. Commission file number 0-22520 AMTEC, INC. (Exact name of registrant as specified in its charter) Delaware 52-1989122 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 599 Lexington Avenue, 44th Floor, New York, New York 10022 (Address of principal executive offices, including zip code) 212-319-9160 (Registrant's telephone number, including area code) Securities registered under Section 12(b) of the Exchange Act: Title of Each Name of Each Exchange Class so Registered On Which Registered Common Stock, $0.001 par value per share American Stock Exchange Securities registered under Section 12(g) of the Exchange Act: Indicate by check mark whether the registrant: (i) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The issuer's revenues for the fiscal year ended March 31, 1998 were $216,348. The number of shares outstanding of the registrant's common stock as of June 26, 1998 was 26,998,076 shares. The aggregate market value of the common stock (26,346,996 shares) held by non-affiliates, based on the closing price ($1.3125) of the common stock as of June 26, 1998 was approximately $34.6 million. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, the matters discussed in this Annual Report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental, international and technological factors affecting the Company's revenues, joint ventures, operations, markets and prices, and other factors discussed in this Annual Report. PART I ITEM 1. BUSINESS AmTec, Inc. ("AmTec" or "the Company") is a telecommunications company with operations in the People's Republic of China ( the "PRC" or "China"). The Company has focused its operations on China because of China's large and rapidly growing need for telecommunications services, China's requirement for foreign capital and technology to meet that need, and the opportunity to obtain cash flow sharing and technical services agreements with operators who hold exclusive or semi-exclusive communications licenses. The Company's current operations primarily consist of a series of cellular telephone networks in the northeastern province of Hebei, which has 11 major cities and a population of approximately 65 million people. In addition, the Company has interests in other projects and networks in various stages of development, including a multimedia network for cable television programming transmission. Developing existing network interests and obtaining additional interests in communications networks in China in the future are key components of the Company's business strategy. CHINA TELECOMMUNICATIONS MARKET Through the Company's interest in cellular telephone networks in Hebei Province and relationships that the Company has developed with key policy makers and decision makers in Chinese governmental agencies, AmTec has focused its business to capitalize on the growth of the Chinese telecommunications market, which is among the world's largest, fastest growing, and most under-serviced telecommunications markets. Due to the importance of a well-developed communications infrastructure to China's continuing economic development, the PRC government has targeted communications network development as a high priority in the country's economic reform program. It is expected that before the year 2000, China will surpass the United States as both the largest cellular telephone and cable television markets in the world. Since the establishment of China United Telecommunications, Incorporated ("Unicom") in 1994, China has had only two licensed competitors for cellular, fixed wire and long-distance telephony. The cable television market in China is a monopoly run by the Ministry of Information Industry, which also regulates telecommunications in China. While other communications markets in China have experienced greater competition, most notably paging and value-added services, communications licenses have generally been limited to a small number of competitors relative to markets in the United States. The Company believes that both the overall market size and the environment of limited competition are attractive aspects of the Chinese communications market. Although Chinese regulations currently prohibit direct foreign ownership or operation of communications networks, the regulatory environment has shown recent indications of continuing a policy of partial deregulation. And while there can be no assurance that this policy of partial deregulation will continue, the Company believes that it is well-positioned to benefit from deregulation permitting direct foreign ownership and operation of communications networks, if such deregulation were to occur in the future. JOINT VENTURES IN CHINA AmTec holds a 70% interest in Hebei United Telecommunications Equipment Company Limited ("Hebei Equipment"), a joint venture with a wholly-owned subsidiary of the Electronics Industry Department of Hebei Province. Hebei Equipment, in turn, holds a 51% interest in Hebei United Telecommunications Engineering Company Limited ("Hebei Engineering"), a joint venture with NTT International ("NTTI") and Itochu Corp. Both Hebei Equipment and Hebei Engineering are organized as Sino-foreign equity joint ventures under the laws of China and are headquartered in Shijiazhuang, the capital of Hebei Province. CELLULAR TELEPHONE NETWORKS Currently, legal restrictions in China prohibit foreign participation in the operation and ownership of communications networks. Therefore, the Company has established majority ownership in joint ventures with Chinese and other partners to provide financing, network construction and operational consulting services to licensed Chinese network operators. Substantially all of the Company's revenues are derived from contractual arrangements for the sharing of cash flow generated from network operations rather than from ownership or operation of the networks. Until regulations in China change to permit direct foreign ownership and operations of communications networks, all future revenues of the Company will continue to be derived from these contractual arrangements. Through Hebei Engineering, AmTec entered into an agreement (the "Unicom Agreement") on February 9, 1996 with Unicom to (i) finance and assist Unicom in the construction of cellular networks (the "GSM Networks" or "GSM Project") in the ten largest cities in Hebei Province and (ii) provide consulting and management support services to Unicom in its operation of the GSM Networks in the 10 largest cities of Hebei Province. This GSM Project will have a capacity of up to 70,000 subscribers. The first of these networks commenced operations in February 1997. Hebei Engineering is entitled to 78% of the distributable cash flow (defined as activation charges plus depreciation plus net income) from the GSM Networks for a 15-year period commencing February 9, 1996. The construction and operational plan for the GSM Networks consists of a "roll-out" across Hebei Province on a city-by-city basis. As of June 26, 1998 two cities, Shijiazhuang and Tangshan, were providing commercial service, with approximately 11,000 subscribers; construction in five additional cities was substantially completed, with commercial launch dates scheduled during 1998 for these additional five cities. As of March 31, 1998, construction of the GSM Networks had been financed by Hebei Engineering with $3 million of equity capital, approximately $11 million of vendor financing guaranteed by NTTI, and a $20 million Term Loan facility from Bank of Tokyo Mitsubishi also guaranteed by NTTI and Ito Chu. Of the $3 million of equity raised by Hebei Engineering, $1.17 million was contributed by Hebei Equipment. Achievement of the Company's business objectives is dependent upon Unicom's operation of the GSM Networks, among other factors. The implementation of the GSM Networks involves systems design, site procurement, construction, electronics installation, initial systems optimization and receipt of necessary permits and business licenses prior to commencing commercial service. Each stage can involve various risks and contingencies, the outcome of which cannot be predicted with a high degree of assurance as interconnection of the GSM Networks with the public switched telephone network is sometimes difficult and time consuming, and the successful completion of all planned sites of the GSM Networks will be dependent, to a significant degree, upon the ability of the parties to lease or acquire sites for the location of their base station equipment. While no difficulties have been encountered to date in procuring such sites, future site acquisition can not be assured. COMPETITION Unicom currently faces competition from China Telecom, which has substantially more experience in operating cellular telephone networks, greater financial resources, scientific and marketing personnel and facilities. China Telecom is the operating organization of the former Ministry of Posts and Telecommunications ("MPT"), previously the telecommunications policy setting and regulatory arm of the Chinese government. China Telecom has a dominant market share in all sectors of telecommunications in China, and already has established a fixed-wire network in the country. Formerly the MPT regulated and licensed all telecommunications networks in China, including network access, and the ability to make important regulatory decisions with respect to China Telecom's competitors. Although the MPT has been abolished and succeeded by the Ministry of Information Industry ("MII"), there can be no assurance that the new regulatory structure for telecommunications operations in China (i) will be more favorable to Unicom or the Company or (ii) will not be adverse to Unicom's operations in Hebei. In addition, new competitors may enter the market, including Code Division Multiple Access ("CDMA") cellular service offered by the People's Liberation Army and China Telecom through their joint venture, Great Wall Communications Group ("Great Wall"). At present there are four small commercial CDMA cellular trial networks being tested by Great Wall in China. None of these commercial trial networks are in Hebei, but there can be no assurances in the future that Great Wall will not enter the Hebei market. CONSTRUCTION AND OPERATION OF TELECOMMUNICATIONS NETWORKS The telecommunications networks in the PRC which the Company's joint ventures are currently engaged in developing may experience difficulties and delays relating to the construction and operation of such telecommunications networks. While Unicom has successfully commenced commercial operation in two cities in Hebei, and although Hebei Engineering has substantially completed network construction in five additional cities in Hebei, there can be no assurance that such additional networks will be completed and that commercial operations in these five cities will commence. Currently, the Company has no reason to believe that such additional networks will not commence commercial operations. ADDITIONAL FUNDING OF JOINT VENTURE PROJECTS At present, all network construction for a 40,000 subscriber capacity network in seven cities in Hebei has been funded. Expansion of network capacity from 40,000 subscribers to 70,000 subscribers will require additional capital. Since the Unicom Agreement contains no specified deadline for expansion of the GSM Network to 70,000 subscribers, these future capital requirements for the GSM Network will depend largely on the market acceptance of the Unicom GSM Network cellular service, among other factors. It is anticipated that debt or equity contributions made by the Company and its partners to the joint ventures, as well as potential investment from third parties, will be used to increase the capacity of the GSM Network as required. GOVERNMENT CONTROL OF CURRENCY CONVERSION AND EXCHANGE RATE RISKS The PRC government imposes control over its foreign currency reserves, in part through direct regulation of the conversion of Renminbi, the legal tender currency of the PRC, into foreign exchange and through restrictions on foreign trade. Unicom's revenues are denominated in Renminbi. The Company's joint ventures will consequently receive almost all of their joint venture distributions in Renminbi, which is freely convertible only for current accounts. Approval of the State Administration of Foreign Exchange will be needed under current regulations for conversion of Renminbi for foreign currencies. The Company believes that it will be able to obtain all required approvals for the conversion and remittance abroad of foreign currency necessary for the operations of the Company's business. However, such approvals do not guarantee the availability of foreign currency and no assurance can be given that the Company will be able to convert sufficient amounts of foreign currencies in the PRC's foreign exchange markets in the future at acceptable rates. Although the Renminbi to US dollar exchange rate has been relatively stable since January 1, 1994, there can be no assurance that exchange rates will not again become volatile or that the Renminbi will not devalue significantly against the US dollar. During late 1997 and early 1998, there have been a number of currency devaluations in Asia and unstable and volatile capital markets and foreign exchange markets. The PRC has not devalued the Renminbi. However, there can be no assurances that the Renminbi will not be devalued in the future. OTHER CONTRACTS AND PROJECTS In addition to the GSM network projects mentioned above, the Company has entered into a Long Term Cooperation Agreement with Hebei Province to finance and develop telecommunications projects designated for foreign investment, including a multimedia fiber optic and microwave network. See Footnote 4 to the Consolidated Financial Statements - "Investment in Multimedia Project." The Company is also considering several other opportunities in cellular, cable television and VSAT networks in other provinces in China. EMPLOYEES As of June 26, 1998, the Company had 13 full time employees in New York and China. The Company intends to hire additional personnel as the development of the Company's business continues and makes such action appropriate. The Company employs a policy of staffing and managing its joint-venture subsidiaries and hiring PRC nationals for its China operations. As of June 26, 1998, the Company's subsidiaries had 6 employees in Hebei Equipment and 17 employees in Hebei Engineering. It is the intention of the Company to add employees to its Chinese subsidiaries for operational purposes. The Company's employees are not represented by a labor union and are not covered by a collective bargaining agreement. The Company believes that its relations with its employees are good. FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE This document contains certain forward-looking statements and information relating to the Company that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this document, the words "anticipate," "believe," "estimate," "expect," "going forward" and similar expressions, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions, described in this Form 10-K. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements. ITEM 2. PROPERTIES The Company leases a 7,600 square foot office located at 599 Lexington Avenue, 44th Floor, New York, New York 10022. The facility serves as the Company's principal executive offices. The Company pays an annual rent of $334,400 on a lease which expires in May 2000. The Company has obtained an option to extend the lease for an additional five year term based on the fair market value of the leased premises at or about the time of the expiration of the initial term of the lease. ITEM 3. LEGAL PROCEEDINGS A first amended complaint, dated April 15, 1996, was filed against the Company, ITV Communications, Inc., a subsidiary of the Company ("ITV"), and other parties, including certain of the Company's officers, directors and principal stockholders, by Jacqueline Brandwynne, a stockholder of the Company, in a matter captioned "Jacqueline B. Brandwynne vs. AVIC Group International, Inc., et al," civil action number BC145036. The complaint, filed in the Superior Court of California, County of Los Angeles, alleges fraud, misrepresentation and breach of contract with respect to the sale of 666,667 shares of ITV stock for $1,000,000 prior to the completion of the Reorganization Agreement between the Company and ITV (the "Reorganization Agreement") in February 1995, in connection with which the shares of ITV were exchanged on a two for one basis for shares of the Company. The complaint alleges that certain misrepresentations were made in connection with the sale of the 666,667 shares and that the claimant was entitled to receive 666,667 shares of the Company after the completion of the Reorganization Agreement. The complaint seeks rescission of the transaction and damages of no less than $1,000,000. The complaint also alleges a claim in connection with an alleged oral employment agreement for 125,000 options to purchase shares of the Company's Common Stock at an exercise price of $0.35 per share and the right to purchase additional shares of Common Stock at $1.00 per share, plus other benefits, including a salary of no less than $130,000. Management of the Company believes that these claims are without merit, that there are valid defenses to each claim and is in the process of vigorously defending the matter. The matter is in the discovery phase and it is not possible to predict with any degree of certainty the likely outcome. The Company is represented by the law firm of Matthias & Berg LLP, 515 South Flower Street, Seventh Floor, Los Angeles, California 90071, on this matter. The Company is not aware of any pending litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of stockholders during the quarter ended March 31, 1998. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of June 26, 1998, the authorized capital stock of the Company consisted of 100,000,000 shares of common stock, par value $0.001 per share (the "Common Stock"), and 10,000,000 shares of preferred stock, par value $0.001 per share (the "Preferred Stock"). As of June 26, 1998, there were issued and outstanding 26,998,076 shares of Common Stock, options to purchase 12,460,102 shares of Common Stock, 69 shares of Series E Convertible Preferred Stock. Further, there were issued and outstanding warrants to purchase 4,206,375 shares of Common Stock. As of June 26, 1998, there were approximately 2,680 holders of record of the Common Stock. The Company's Common Stock was originally listed for trading in the over-the-counter market on March 4, 1996 under the name AVIC Group International, Inc. and was quoted on the NASDAQ Bulletin Board or in the "pink sheets" maintained by the National Quotation Bureau, Inc. under the symbol "AVIC." The Company changed its listing on November 20, 1996, when its Common Stock was approved for listing on the American Stock Exchange under the ticker symbol "AVI." On July 8, 1997, the Company changed its name to AmTec, Inc. and it currently trades on the American Stock Exchange under the symbol "ATC". The high and low sales prices of the Common Stock, as quoted on the American Stock Exchange, on June 26, 1998 were $1.375 and $1.250, respectively. No dividend has been declared or paid by the Company on its shares of Common Stock since its inception. The payment of dividends by the Company on its shares of Common Stock is within the discretion of the Company's Board of Directors and will depend on the earnings, capital requirements, restrictions in any future credit agreements and operating and financial condition of the Company, among other factors. Except for dividends which may be payable on and according to the terms of shares of Preferred Stock, which may be issued from time to time, the Company does not anticipate that any dividends will be declared or paid in the future. There can be no assurance that the Company will ever pay a dividend on its shares of Common Stock. The following table sets forth for the period indicated the high and low sales price of the Company's Common Stock as reported on the American Stock Exchange.
Fiscal Year Ending March 31 ---------------------------------------------- 1997 1998 ---------- ----------------------------------- 4th Q 1st Q 2nd Q 3rd Q 4th Q ---------- ----------- ----------- ------------------- --------- COMMON STOCK PRICE(1) High $6.250 $5.1875 $3.4375 $2.4375 $1.1875 Low $2.125 $2.8125 $1.8125 $0.5000 $0.5625 - --------------- (1) High and low sales price as reported on the American Stock Exchange.
The transfer agent for the Company is Chasemellon Shareholder Services, LLC, 450 West 33rd Street, New York, New York, 10001. Its telephone number is (800) 851-9677. CERTAIN SALES OF UNREGISTERED SECURITIES On October 22, 1997 the Company completed the sale of 74 shares of its Series E Convertible Preferred Stock (the "Series E Stock" or "Series E Shares") for gross proceeds of $7,400,000. The Series E Shares were sold pursuant to Reg. D at $100,000 per share and the holders of the Series E Stock have no rights to cash dividends but are entitled to an 8% in-kind dividend. Conversion of the Series E Shares into Common Stock is based on the lower of (i) a 10% premium to the market price of the Company's Common Stock, as reported on the American Stock Exchange, at the time of closing, or 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 the conversion. The discount, which ranges from 15% to 20%, is based on the date of the shareholder's conversion of the Series E shares, with the discount increasing as the period the shares are held increases. The Conversion of the Series E Shares is restricted by certain "lock-up" agreements between the Company and the holders of the Series E Stock by which fifty shares of the Series E Shares could not be converted prior to March 2, 1998, and the remaining twenty four shares may not be converted prior to the first anniversary of the close of the offering, October 22, 1998. In addition to the shares, warrants were issued to five of the Series E Investors to purchase 1,236,346 shares of the Company's Common Stock at a price equal to 120% of the market price of the Company's Common Stock at the time of closing based on the amount invested by the shareholders and the length of the "lock-up" agreed upon between the Company and certain investors. Holders of the Series E Shares also had a registration right requiring the Company to file a registration statement covering the Common Stock underlying the Series E Preferred Shares and related warrants with the Securities and Exchange Commission (the "SEC") no later than March 2, 1998. The shares were registered on January 16, 1998. Of the $7,400,000 gross proceeds from the sale of the Series E Shares, approximately $641,000 was distributed as fees and expenses to a placement agent for the offering, and the balance of approximately $6,759,000 was held by the Company for working capital and possible investment in additional projects. The Company also issued warrants to purchase 326,171 shares of the Company's Common Stock to the Placement Agent as fees for services. These Warrants have an exercise price of $2.475 per share. ITEM 6. SELECTED FINANCIAL DATA The Company has focused its business solely on establishing Sino-foreign joint ventures to develop telecommunications networks in the PRC, following the sale of the assets of its subsidiary ITV Communications, Inc. in January 1996. Accordingly, the following historical financial data is not necessarily indicative of future results of operations. The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Net Sales $ 216,348 $ -0- $ 683,733 $ 345,276 $ 194,885 (Loss) from operations (6,220,729) (3,996,151) (4,448,531) (5,585,596) (3,388,833) Net (Loss) (5,403,368) (4,064,885) (5,281,730) (5,538,303) (3,737,542) Net (Loss) per common (0.23) (0.14) (0.21) (0.32) (7,475.08) share Total Assets 40,392,720 29,418,203 1,660,000 3,267,488 3,094,157 Total Long Term Debt 22,458,303 24,233,781 4,081,606 -0- -0- Shareholders' Equity 4,896,911 548,088 (2,421,606) (1,255,412) 1,402,532
Financial information for the years 1994, 1995 and 1996, is not comparable to the financial information provided for 1997 and 1998, because prior to 1997 the Company was not engaged in the development of telecommunications networks in the PRC. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As of March 31, 1998, the Company had $10,442,334 in cash in United States and PRC banks of which approximately $5,100,000 can be used for operating expenses which can finance current operations until December 1999. The Company devotes substantially all of its efforts to financing and developing Sino-foreign joint ventures to establish telecommunications networks in the PRC. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations primarily through equity investments and bank and vendor financing. Approximately $4,634,000 of cash was provided by the Company's operations for the fiscal year ended March 31, 1998, compared to cash provided of approximately $3,558,000 for the year ended March 31, 1997. The cash flow from operating activities relates to increased expenses as a result of the continuing build out of the GSM networks and increased selling, general & administrative expenses. The cash provided by operations for the year ended March 31, 1997, (the first year the Company's Sino-foreign joint venture was consolidated) reflects increases in other current payables of approximately $9,784,000. During the fiscal year ended March 31, 1996, the Company used approximately $2,887,000 in its operating activities. The Company used approximately $7,993,000 in its investing activities in the year ended March 31, 1998, compared to approximately $15,715,000 in the year ended March 31, 1997. These uses are related primarily to the build out of the Company's GSM networks in Hebei province, PRC. The cash inflows from financing activities during the year ended March 31, 1998 were generated primarily from the following sources: (i) approximately $8,000,000 in loans from Bank of Tokyo Mitsubishi and vendor financing for the development of the Hebei GSM networks, which the Company has reported through the consolidation of its PRC joint ventures. The decrease in other payables is the result of approximately $10,000,000 of vendor financing becoming due in fiscal 1999 and thus reclassified as a current liability, and the sale of $9,900,000 of Preferred Stock through two offerings: (1) On June 12, 1997, the Company issued 250 shares of Series C Convertible Preferred Stock at a purchase price of $10,000 per share in consideration of $2,500,000. Proceeds from this offering were approximately $2,093,000, which is net of $406,100 of the Series C Shares which were repurchased by the Company. (2) On October 22, 1997, the Company issued 74 shares of the Company's Series E Convertible Preferred Stock, at a purchase price of $100,000 per share, for which the Company received $6,759,000 after placement agent's fees. On March 31, 1997, the Company issued 150 shares of the Company's Series D Convertible Preferred Stock at a purchase price of $10,000 per share in consideration of $1,500,000. During fiscal 1996, the Company received approximately $2,934,000 from its financing activities through: (i) the sale of approximately $2,194,000 in Common Stock, and (ii) the receipt of shareholder loans of approximately $740,000. The Company anticipates that its cash and cash equivalents should be adequate to finance the Company's operating requirements for the current fiscal year. EQUITY ISSUANCE AND SERVICE AGREEMENTS Common Stock issued in connection with conversion of Preferred Stock: During fiscal 1998, the Company issued 2,236,507 shares of its Common Stock upon conversion of all outstanding shares of the Company's Series D Convertible Preferred Shares, 4,507,639 shares of its Common Stock upon conversion of all shares of its Series C Convertible Preferred Stock and 106,646 shares of its Common Stock upon conversion of 0.8 share of the Company's Series E Preferred Stock. Common stock issued in connection with stock option plans and services performed: During fiscal 1998 the Company issued (i) 10,000 shares of common stock were issued to a former employee of the Company, upon the exercise of an option issued pursuant to the Company's 1996 Stock Option Plan. The option had an exercise price of $0.35 per share, (ii) 10,000 shares of common stock issued to each of its four outside directors as compensation for services. The shares issued had a combined value of $85,000, which was expensed as directors compensation, (iii) 8,500 shares of its common stock were issued at market to its legal firm in lieu of $25,500 of legal billings, and (iv) 14,734 shares issued in connection with other services at a market value of $41,457. During the fiscal year, the Company issued 1,019,465 shares of its Common Stock, net of cancellation, into escrow for Promethean Investment Group, LLC ("Promethean") pursuant to a Common Stock Investment Agreement entered into between the Company and Promethean. The shares will be issued to Promethean if the Company draws on funds from Promethean pursuant to the Common Stock Investment Agreement. On July 30, 1996, the Company entered into an agreement with Merrill Lynch (Asia Pacific) Limited ("Merrill Lynch") pursuant to which Merrill Lynch was to act as a financial advisor to the Company and was to assist the Company with strategic financing alternatives with respect to the Company's PRC projects. The agreement was terminated in accordance with its terms in December 1997. In October 1996, the Company entered into an agreement with two of its law firms, to settle a portion of their accrued fees through the issuance of stock options. Accordingly, the Company converted accrued legal fees in the aggregate of approximately $98,000 into options to purchase an aggregate of 65,064 shares of the Company's Common Stock at an exercise price of $1.50 per share, the market value of the Company's common stock at that time. A portion of the accrued legal fees were credited against gains made by actual resale price. In addition, one firm continues to hold options to purchase 10,102 additional shares of Common Stock against future legal fees. The Company also agreed to register the underlying shares with the Commission on Form S-8. The registration statement relating to these shares was filed with the Commission on or about November 11, 1996. On October 15, 1996, the Company agreed to issue warrants to an individual to purchase 200,000 shares of the Company's Common Stock. These warrants were issued 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 at the time of issuance of the warrants. On December 10, 1996, the Company agreed to issue to a consultant 5,000 shares of the Company's Common Stock with a market value of $18,125 (based on the fair market value at the time of issuance), in addition to 5,000 shares issued to the consultant in May 1996, which had a market value of $45,625 (based on the fair market value at the time of issuance), for professional executive search consulting services the consultant has been providing to the Company in developing the composition of its management and Board of Directors. The Company agreed to register shares of Common Stock underlying the warrants issued to the individual referenced above and shares of Common Stock issued to the consultant for consulting services, and certain shares of Common Stock issued to the Company's Chief Executive Officer in lieu of cash compensation. On or about December 31, 1996, the Company filed a registration statement on Form S-8. The total number of shares covered by the registration statement was 397,500. On or about October 19, 1996, the Company entered into a twelve month financial advisory services agreement with an investment bank. The services provided under this agreement relate to financial advisory services, including, but not limited to, the development of a financing strategy for the Company and the Company's projects in the PRC. The agreement called for a $50,000 retainer and the payment of success fees for raising capital for the Company and its projects. In addition, the Company issued a warrant to purchase up to 600,000 shares of the Company's Common Stock to the investment bank. This warrant has an exercise price of $2.00 per share, which was the market value of the Company's Common Stock at the time of the issuance of the warrant. 300,000 of the warrants are vested, and the additional 300,000 warrants will vest only if the investment bank has raised a minimum of ten million dollars in any form of financing for the Company. Future sales of shares of Common Stock by the Company and its stockholders could adversely affect the prevailing market price of the Common Stock. Pursuant to its Certificate of Incorporation, the Company has the authority to issue 73,001,924 additional shares of Common Stock and 8,475,248 additional shares of preferred stock. The issuance of such shares could result in the dilution of the voting power and other rights of the currently issued and outstanding shares of Common Stock. RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997 The Company has a limited operating history and has incurred cumulative net losses since its inception. To date, the Company has generated $216,348 of revenue from its telecommunications operations and has experienced net losses of $5,403,368 and $4,064,885 during the fiscal years ended March 31, 1998 and 1997, respectively. The Company reported revenues of $216,348 for the year ended March 31, 1998, from the operation of its GSM Network in Hebei. These were the first revenues related to the networks. Selling, general and administrative expenses ("SG&A") increased 6% from $3,996,151 during the year ended March 31, 1997, to $4,254,009 during the year ended March 31, 1998, due to increased operating levels as a result of the continuing build out of the GSM networks, increased levels of salaries paid to employees and legal and professional expenses incurred during the past year. Rental income during the year ended March 31, 1998, increased from $42,420 in 1997 to $95,667, as a result of the Company's real estate arrangements in the PRC. Interest income increased from approximately $153,000 during the year ended March 31, 1997, to approximately $239,000 during the year ended March 31, 1998, primarily due to funds on deposit in the United States and the PRC in anticipation of future funding requirements for new projects. Through consolidation of its Chinese subsidiaries, the Company initiated the amortization of the GSM Networks. This non-cash expense item amounted to approximately $2,183,000. The Company issued to the Hebei Provincial Government three million options to purchase an equal number of shares of the Company's Common Stock at a price of $3.0625 per share. In accordance with Generally Accepted Accounting Principles, the Company has recorded their value of $1,837,500 and has amortized approximately $459,000. The issuance of these options is a non-cash expense. Loss from abandoned assets relates to the assets of Netmatics which have been written off for the total amount of $87,441. Interest expense during the year ended March 31, 1998, decreased to approximately $125,000 from approximately $129,000 during the year ended March 31, 1997, due to a reduction in the outstanding balance of shareholder loans payable. Other income (net) increased by approximately $113,000 during the year ending March 31, 1998, as a result of refunds from costs previously paid. The Company's net loss increased 33% from $4,064,885 during the year ended March 31, 1997, to $5,403,368 during the year ended March 31, 1998. This increase in net loss was primarily due to the amortization of the GSM Networks, amortization of stock options issued to the Hebei Provincial Government, as well as increases in selling, general & administrative expenses. RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND MARCH 31, 1996 Following the sale by the Company of the assets of its subsidiary ITV in January 1996 (the "Asset Sale"), the Company has focused its business solely on establishing Sino-foreign joint ventures to develop telecommunications networks in the PRC. In light of this change in operations, net sales decreased from $683,733 during the year ended March 31, 1996 to $0 during the year ended March 31, 1997. Net sales during the year ended March 31, 1996 reflected the former operations of ITV. The decrease in net sales during the year ended March 31, 1997 is attributable to cessation of operations of the Company's ITV subsidiary after the Asset Sale of ITV. Selling, general and administrative expenses increased 25% from $3,207,570 during the year ended March 31, 1996 to $3,996,151 during the year ended March 31, 1997 due to increased levels of salaries paid to employees and legal and professional expenses incurred over the past year. Net research and development expenses decreased from $1,287,629 during the year ended March 31, 1996 to $0 during the year ended March 31, 1997. As a result of the closing of the Asset Sale Agreement in January 1996, the Company ceased all activities related to research and development. The equity in losses of unconsolidated subsidiary of $500,000 recorded during the year ended March 31, 1996 represents the Company's share of losses reported by Netmatics between January 17, 1996 and March 31, 1996, during which period the Company owned thirty-three percent (33%) of the issued and outstanding common shares of Netmatics. Through a series of secured debentures issued by Netmatics to its shareholders, and the conversion of a note in the amount of 2,250,000 to equity, the Company's ownership in Netmatics increased to 39%. Further, the Company has written off $198,538 of investments it has made in Netmatics. Interest expense during the year ended March 31, 1997 decreased to approximately $130,000 from approximately $241,856 during the year ended March 31, 1996 due to a reduction in outstanding balance of shareholder loans payable during the year ended March 31, 1997. The loss from abandoned assets of $130,840 recorded during the year ended March 31, 1996 represents a non-recurring "write-off" of certain remaining assets of ITV that were not sold in the ITV Asset Sale. The Company's net loss decreased 23% from $5,281,730 during the year ended March 31, 1996 to $4,064,885 during the year ended March 31, 1997. This decrease in net loss was due to reductions in losses and "write-offs" associated with the operations of ITV, which were terminated following the ITV Asset Sale. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The financial statements required by this Item 8 are attached hereto as "Exhibit (a)(1)". ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY The directors of the Company currently have terms which will end at the next annual meeting of the stockholders of the Company or until their successors are elected and qualified, subject to their prior death, resignation or removal. Officers are appointed by and serve at the discretion of the Board of Directors, subject to the rights of the officers under their respective employment agreements. There are no family relationships among any of the Company's directors and executive officers. NAME AGE POSITION --------------------- ----- ------------------------------------ Joseph R. Wright, Jr. 59 Chairman of the Board of Directors, Chief Executive Officer and President Richard T. McNamar 59 Vice Chairman of the Board of Directors Richard S. Braddock 56 Director Drew Lewis 66 Director Liang Jiangli 59 Director James R. Lilley 70 Director Michael H. Wilson 60 Director Michael J. Lim 34 Executive Vice President Albert G. Pastino 56 Senior Vice President, Chief Financial Officer and Treasurer James F. O'Brien 52 Senior Vice President, General Counsel and Corporate Secretary Xiao Jun 41 Executive Vice President - AVIC China Joseph R. Wright, Jr. has served as the Company's Chairman of the Board of Directors since May 1995, Chief Executive Officer since March 1996 and President since May 1996. Mr. Wright also serves as Chairman and member of the Board of GRC International, Inc. a U.S. public company that provides technical support to government and private entities, Co-Chairman of Baker & Taylor Holdings, Inc., an international book and video distribution company, a member of the Board of Travelers Group, a public company, and PanAm Sat, a public company. From 1989 to 1994, Mr. Wright served as Executive Vice President and Vice Chairman of W. R. Grace & Co., an international chemicals and health care company, President of Grace Energy Corporation and Chairman of Grace Environmental Company. From 1982 to 1989, Mr. Wright held the positions of Director and Deputy Director of the Office of Management and Budget, The White House, and was a member of President Reagan's cabinet. Prior to 1982, he served as Deputy Secretary, United States Department of Commerce, President of Citicorp Retail Services and Retail Consumer Services, held posts in the United States Department of Agriculture and the United States Department of Commerce, and was Vice President and Partner of Booz. Allen & Hamilton, a management consulting firm. He is also currently a member of the Board of Advisors of Barington Capital Corporation and Great Lakes Pulp and Fiber Corporation, and a Trustee of Hampton University. Richard T. McNamar has served as the Company's Vice Chairman of the Board of Directors since September 1996. He was the founder and Chairman of International Franchise, Inc., a firm that specialized in international financial transactions, from 1995 to 1997. He was a Managing Director of Oppenheimer & Co. from 1991 to 1994. Formerly, he was the Vice-Chairman of The Bank of New England Corporation and subsidiaries from 1990 to 1991. Mr. McNamar served as Deputy Secretary of the United States Treasury from 1981 to 1985. He served in the Nixon and Ford Administrations from 1972 to 1977, where he served as the Executive Director of the Federal Trade Commission from 1973 through 1977. Mr. McNamar is also currently a member of the Executive Board of the Bretton Woods Committee and the Board of the Institute of the Americas. Richard S. Braddock has served as a Director of the Company since August 1997. He has been the Chairman of True North Communications, Inc. (a public company) since 1997. He has served as a principal of Clayton, Dubilier & Rice, Inc. from 1994 to 1995 and as the Chief Executive Officer of Medco Containment Services from January 1993 to December 1993. Mr. Braddock held various positions at Citicorp from 1973 through 1992 including that of President and Chief Operating Officer of Citicorp and its principal subsidiary, Citibank, N.A., from January 1990 to November 1992 and as sector executive for worldwide consumer activities from 1985 to 1990. Mr. Braddock served as a director of Citicorp from 1985 to 1992. Mr. Braddock serves on the Board of Directors of E*Trade Group, Inc., Eastman Kodak Company, Cadbury Schweppes plc adr and True North Communications, Inc., all publicly-held companies, and of Lincoln Center for the Performing Arts. He is a trustee of the Cancer Research Institute. Mr. Braddock received his bachelors degree from Dartmouth College and his M.B.A from the Harvard Graduate School of Business Administration. Drew Lewis has served as a Director of the Company since May 1997. Mr. Lewis served as Chairman and Chief Executive Officer of Union Pacific Corporation from October 1987 to January 1997, and served as the Chief Operating Officer of Union Pacific Corporation from April 1986 to October 1987. Prior to his positions with Union Pacific Corporation, Mr. Lewis served as Chairman and Chief Executive Officer of Union Pacific Railroad Company from April to October 1986. From 1983 to 1986, Mr. Lewis was Chairman and Chief Executive Officer of Warner Amex Cable Communications. He served in the Reagan Administration from January 1981 to February 1983 as U.S. Secretary of Transportation. Mr. Lewis also serves as a director to American Express Company, FPL Group, Inc., Gannett Co., Inc., Gulfstream Aerospace Corporation, Lucent Technologies and Union Pacific Resources Group, Inc., all of which are publicly held companies. Liang Jiangli has served as a Director of the Company since October 1997. He has served as the Director of Hebei Electronics Industry Department since September 1993. Mr. Liang also serves as the Chairman of the Board of Hebei United Telecommunications Equipment Company Limited, the joint venture subsidiary of the Company. From 1987 to September 1993, Mr. Liang served as the Director of Hebei Electronics Bureau and the Deputy Director of Hebei Machinery and Electronics Industry Department. From 1983 to 1987, Mr. Liang served as the Deputy Director of Hebei Electronics Industry Bureau. From 1963 to 1983, Mr. Liang worked in a state owned institute, focusing on technology studies and management. Mr. Liang is a graduate of the Beijing Post and Telecommunications Institute. James R. Lilley has served as a Director of the Company since May 1997. Ambassador Lilley is currently a resident director at the American Enterprise Institute ("AEI") which he joined in January 1993, and has directed the Institute for Global Chinese Affairs at the University of Maryland since 1996. Prior to his joining AEI, Ambassador Lilley served in President Bush's Administration as the Assistant Secretary of Defense for International Security Affairs from November 1991 to January 1993. Ambassador Lilley was U.S. Ambassador to the People's Republic of China from April 1989 to May 1991, and to the Republic of Korea from 1986 to 1989. Ambassador Lilley is the co-editor of Beyond MFN: Trade with China and American Interests and is the author of the forward for the AEI publication, Chinese Military Modernization. He has represented Hunt Oil of Texas and United Technologies of Hartford, Connecticut in 1979 to 1980. Ambassador Lilley worked for Archer-Daniels-Midland Co. and Westinghouse as a business consultant. Michael H. Wilson has served as a Director of the Company since May 1997. He has been Vice-Chairman of RBC Dominion Securities, Inc. in Toronto, Canada since 1995. Prior to 1994, Mr. Wilson held senior Federal Cabinet posts with the Government of Canada in Finance, Industry, Science and Technology and International Trade. Prior to his career in public service, Mr. Wilson was Executive Vice-President of Dominion Securities Limited. Mr. Wilson also serves on the Board of Directors of Amoco Corporation and Rio Algom Limited, both publicly held companies. He is also active in a number of professional and community organizations, including The Clarke Institute of Psychiatry, The Aspen Institute and The Institute of the Americas. Michael J. Lim has served as the Executive Vice President of the Company since November 1995 and as the Chief Financial Officer from May 1996 through June 1997. Prior to his joining the Company, Mr. Lim was an investment banker with Bear, Stearns & Co., Inc. from 1986 to 1988 and from 1991 to 1995. During the two and a half years prior to his joining the Company, Mr. Lim served as Vice President of Bear Stearns Asia Limited, where he advised Asian enterprises on a wide variety of financing transactions, with particular focus on telecommunications and infrastructure financings. Mr. Lim also worked as an investment banker with the Chase Manhattan Bank from 1990 to 1991. Mr. Lim received his A.B. from Harvard College in English Literature in 1985 and his M.B.A. from the Amos Tuck School of Business Administration at Dartmouth in 1990. Albert G. Pastino was appointed in June 1997 to serve as a Senior Vice President and Chief Financial Officer of the Company and was appointed Treasurer of the Company in December 1997. From 1993 to 1997, Mr. Pastino served as the President of Kisco Capital Company, Inc., an affiliate of Kohlberg & Company, a private equity investment company. He also served on the boards of directors of a number of Kohlberg & Company's portfolio companies. From 1989 through 1992, Mr. Pastino served as Senior Vice President and Chief Operating Officer of Fortis Private Capital, Inc., a private equity investment company investing in expansion financing and management buyouts. Mr. Pastino began his business career at Deloitte & Touche LLP where he served as senior partner, and gained his investment banking experience at Alex Brown & Sons, Incorporated. Mr. Pastino received an M.B.A. from Fairleigh Dikinson University and a B.S. from St. Joseph's University. James F. O'Brien was appointed in June 1997 to serve as a Senior Vice President and General Counsel of the Company and was appointed Corporate Secretary of the Company in May 1998. Mr. O'Brien was a senior litigation partner at the law firm of Goulston and Storrs in Boston, Massachusetts where he founded the litigation practice in 1978 and specialized in complex financial transactions. He has served as an advisor to U.S. corporations seeking business opportunities in Southeast Asia. Mr. O'Brien received a J.D. from Boston College Law School and an A.B. from St. John's Seminary in Boston. Xiao Jun has served as Executive Vice President - AVIC China since December 1995. He also served as a Director from February 1995 through October 1997, the Company's Secretary from February 1995 to January 1996 and as Chief Financial Officer from June 1995 to May 1996. He has been the President of Xiao Hua International, Inc., an international steel trading business based in California since June 1993. He served as the Vice President of ITV from December 1994 to January 1996. From March 1990 to May 1993, Mr. Xiao was the Vice President of Chong Qing Special Metals Industry Co. From 1985 to 1990, Mr. Xiao served as an engineer and project manager at the representative office of IBM China/HK Corp. (Beijing). Mr. Xiao received a bachelor's degree in physics from the Beijing Polytechnic University in 1982. Timothy P. F. Crowley joined the Company in May 1995 and has served as the Assistant Secretary of the Company since May 1998, and served as the Secretary of the Company from January 1996 though May 1998. Prior to joining the Company, Mr. Crowley worked in Corporate Administration at Travelers Group. Mr. Crowley received his B.A. from Connecticut College in Anthropology and Art History, and was enrolled in a graduate program in the History of Art at New York University's Institute of Fine Arts from 1993 to 1994. The Board of Directors currently has an Audit Committee and a Compensation Committee. The members appointed to the Audit Committee of the Board of Directors during the fiscal year ended March 31, 1998 were Michael H. Wilson, Chairman of the Committee, James R. Lilley and Richard T. McNamar. The members appointed to the Compensation Committee of the Board of Directors during the fiscal year ended March 31, 1998 were Richard S. Braddock, Chairman of the Committee, Drew Lewis and Joseph R. Wright, Jr. Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers and beneficial holders of more than 10% of any class of the Company's equity securities to file with the Commission initial reports of ownership and reports of changes in ownership of such equity securities of the Company. Based solely upon a review of such forms furnished to the Company, and on written representations from certain reporting persons that no other reports were required for such persons, the Company believes that all reports required pursuant to Section 16(a) with respect to its executive officers, directors and 10% beneficial stockholders for the fiscal year ended March 31, 1997 were timely filed. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION The following tables set forth certain information concerning compensation for the fiscal years ended March 31, 1998, 1997 and 1996 of certain of the Company's executive officers, including the Company's Chief Executive Officer and all executive officers whose total annual salary and bonus exceeded $100,000, for the fiscal year ended March 31, 1998 (the "Named Executive Offices").
Long Term Compensation Annual Compensation Awards Name and Other Annual Stock Options/ Principal Position Year Salary ($) Bonus ($) Compensation Awards ($) SARS (#) - ------------------ ------ ----------- ---------- ------------- ----------- --------- Joseph R. Wright 1998 392,967 50,000 (2)$30,000 Chief Executive 1997 256,250 (2)$30,000 $281,250 3,000,000 Officer(1) 1996 143,750 (2)$30,000 3,000,000 R. T. McNamar 1998 100,000 (4)$37,500 Vice Chairman (3) 1997 500,000 1996 Michael J. Lim 1998 253,417 75,000 250,000 Executive Vice 1997 167,333 President (5) 1996 79,615 1,000,000 Albert G, Pastino 1998 125,000 50,000 467,500 Senior Vice 1997 President, Chief 1996 Financial Officer & Treasurer (6) James F. O'Brien 1998 125,000 50,000 467,500 Senior Vice 1997 President, General 1996 Counsel & Corporate Secretary(7) Xiao Jun 1998 175,000 Executive Vice 1997 123,958 President-AVIC 1996 57,990 400,000 China (8) - ----------------- (1) Mr. Wright has served as the Company's Chief Executive Officer since March 14, 1996. He joined the Company as the Chairman of the Board of Directors on May 1, 1995. (2) During fiscal 1996, 1997 and 1998, the Company paid approximately $30,000 per year on behalf of Mr. Wright for certain personal tax and accounting services rendered by third parties for Mr. Wright. (3) Mr. McNamar joined the Company on September 3, 1996 as Vice Chairman of the Board of Directors. (4) Mr. McNamar received 25,000 shares of the Company's Common Stock pursuant to his terms of employment with the Company, such shares having a value of $37,500 at the time of issuance in September 1997. (5) Mr. Lim joined the Company as the Executive Vice President - Operations on November 7, 1995 and served as the Company's Chief Financial Officer from May 1996 through June 15, 1997. (6) Mr. Pastino joined the Company as the Senior Vice President and Chief Financial Officer on June 16, 1997. He became the Treasurer of the Company on December 8, 1997. (7) Mr. O'Brien joined the Company as Senior Vice President and General Counsel on June 16, 1997. He became the Secretary of the Company on May 14, 1998. (8) Mr. Xiao joined the Company in 1995 as the Executive Vice President of AVIC-China.
OPTION AND SAR GRANTS DURING LAST FISCAL YEAR The Company issued 1,185,000 stock options and no SARs to its Named Executive Officers during the fiscal year ended March 31, 1998. OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth certain information regarding option exercises by the Named Executive Officers during the fiscal year 1998 and options held by such Named Executive Officers on March 31, 1998:
Number of Securities Value of Unexercised Shares Underlying Unexercised In-the-Money Options Acquired on Value Options at Fiscal Year End at Fiscal Year End(1) Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable Joseph R. Wright.... 6,000,000 $5,775,000 R. T. McNamar 250,000 250,000 Michael J. Lim...... 1,062,500 187,500 997,656 $105,469 Albert G. Pastino 300,625 166,875 James F. O'Brien 300,625 166,875 Xiao Jun............ 515,000 495,113 - ---------------- (1) Based on a per share price of $1.3125, the closing price of the Common Stock as reported on the American Stock Exchange on June 26, 1998, minus the exercise price of the option, multiplied by the number of shares underlying the Option.
EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with six of its executive officers, Messrs. Joseph R. Wright, Jr., Richard T. McNamar, Michael J. Lim, Albert G. Pastino, James F. O'Brien and Xiao Jun. The Company entered into a five year employment agreement dated as of April 15, 1995, and as amended on November 21, 1995 and September 6, 1996, with Joseph R. Wright, Jr., pursuant to which Mr. Wright agreed to serve as the Company's Chairman of the Board of Directors, Chief Executive Officer and President and to operate out of the Company's executive offices located in New York, New York. The employment agreement initially provided for an annual base salary of $50,000 during the year commencing April 15, 1995 and $300,000 during the year thereafter. The September 6, 1996 amendment to the employment agreement provides for the issuance of shares of Common Stock in lieu of cash compensation as payment for the salary that Mr. Wright had accrued from June 1995 through August 1996, at $1.50 per share, the market price of the Common Stock on September 6, 1996. Further, the amendment offers Mr. Wright an automatic extension of his contract of one year on each April 14, unless the Board of Directors notifies Mr. Wright 90 days prior to such date that such extension will not be made. The Board of Directors also approved revising his salary for the first year commencing on April 15, 1997 to $150,000, revising his salary for the second year to $300,000, and increasing his salary in each year thereafter by $100,000. The Board of Directors of the Company also approved the issuance of an additional three million options to Mr. Wright on September 12, 1996. These options have an exercise price of $3.00 per share, the fair market value on the date of grant, and vest with respect to fifty percent of said options on each April 15, 1997 and April 15, 1998. In September 1996 the Company approved the issuance of 187,500 shares of the Company's Common Stock to Mr. Wright, paid in lieu of a portion of cash compensation Mr. Wright had been accruing from June 1995 through October 15, 1996. The amount of salary accrued through October 15, 1996 was $281,250. The Common Stock was issued at $1.50 per share, the fair market value of such shares at the time of the grant. Pursuant to the employment agreement, Mr. Wright was granted an option to acquire 3,000,000 shares of Common Stock at an exercise price of $0.35 per share, and an additional 3,000,000 shares at an exercise price of $3.00 per share were granted on September 6, 1996. The option has vested with respect to the 3,000,000 shares which have an exercise price of $0.35 per share, and with respect to 3,000,000 shares which have an exercise price of $3.00 per share. The options issued to Mr. Wright have been issued pursuant to the Company's 1996 Stock Option Plan and were based on the market value of the Common Stock on the date of grant. On September 6, 1996, the Company entered into a one year verbal employment agreement with Richard T. McNamar pursuant to which Mr. McNamar will serve as Vice Chairman of the Company. He received 25,000 shares of the Company's Common Stock upon commencing employment. Initially, Mr. McNamar was part time, and negotiated to receive a contingent success fee for financings he introduced or arranged for the Company. On October 1, 1996 Mr. McNamar became a full time employee and waived his rights to any success fees. In his part time capacity, Mr. McNamar was issued an option to purchase 250,000 shares of the Company's Common Stock at an exercise price of $1.50 per share on September 6, 1996. He received an additional option for 250,000 shares at an exercise price of $1.50 per share when he became a full time employee on October 1, 1996. The exercise price of the options were based on the market value of the Common Stock on the date of grant. The Company and Mr. McNamar intend to sign a more definitive employment agreement during the current fiscal year. On January 23, 1998, the Company entered into a five-year contract with Mr. Lim, whereby Mr. Lim will serve as an Executive Vice President of the Company. In his first year, Mr. Lim will receive an annual base salary of $300,000 and stock options to acquire 250,000 shares of Common Stock at an exercise price of $0.75 per share, the market price of the Company's Common Stock, as reported on the American Stock Exchange, at the time the grant was made. The base salary and additional option grants for subsequent years of the contract will be determined by the Compensation Committee of the Board of Directors. On October 15, 1997, the Company entered into five-year employment agreements with each of Albert G. Pastino and James F. O'Brien. Mr. Pastino will serve as a Senior Vice President and Chief Financial Officer of the Company and will receive an annual base salary of $200,000 for the first year and stock options to acquire 467,500 shares of Common Stock at an exercise price of $2.125 per share. Mr. O'Brien will serve as a Senior Vice President and General Counsel of the Company and will receive an annual base salary of $200,000 for the first year and stock options to acquire 467,500 shares of Common Stock at an exercise price of $2.125 per share. The exercise price of the options for Mr. Pastino and Mr. O'Brien was based on the market price of the Company's Common Stock, as reported on the American Stock Exchange, at the time the grants were made EMPLOYEE STOCK OPTION PLANS As of February 8, 1995, the Company's Board of Directors and stockholders approved the Company's 1995 Stock Option Plan (the "1995 Stock Option Plan") in connection with the closing of the transactions contemplated by the Reorganization Agreement. The Company has reserved up to 500,000 shares of Common Stock for issuance under the 1995 Stock Option Plan. The Company has granted options to purchase up to 321,800 shares of Common Stock under the 1995 Stock Option Plan, 185,000 of which have been exercised as of June 26, 1998. The 1996 Stock Option Plan (the "1996 Stock Option Plan" and together with the 1995 Stock Option Plan, the "Stock Option Plans") was adopted by the Board of Directors on March 14, 1996 and by the Company's stockholders on May 7, 1996. The Company has reserved for issuance thereunder an aggregate of 12,000,000 shares of Common Stock. The Company has granted options to purchase up to 9,350,000 shares of Common Stock under the 1996 Stock Option Plan, 10,000 of which have been exercised. Of the 9,350,000 options granted as of the date of this Report, 8,578,750 options have vested, and the remaining 771,250 options may vest subject to certain schedules. The Board of Directors has approved a provision in the 1996 Stock Option Plan which will place a 6,000,000 share limit on the number of options that may be granted under the 1996 Stock Option Plan to an employee in the fiscal year ended March 31, 1996, and a 1,500,000 share limit in each fiscal year thereafter. A description of each of the Company's Stock Option Plans is set forth below. The description is intended to be a summary of the material provisions of the Company's Stock Option Plans and does not purport to be complete. Administration of and Eligibility Under Stock Option Plans. Each of the Stock Option Plans, as adopted, provides for the issuance of options to purchase shares of Common Stock to officers, directors, employees, independent contractors and consultants of the Company and its subsidiaries. The Stock Option Plans authorize the issuance of incentive stock options ("ISOs"), and non-qualified stock options ("NSOs") and stock appreciation rights ("SARs") to be granted by a committee (the "Committee") to be established by the Board of Directors to administer the Stock Option Plans. Subject to the terms and conditions of the Stock Option Plans, the Committee will have the sole authority to determine: (a) the persons ("optionees") to whom options to purchase shares of Common Stock and SARs will be granted, (b) the number of options and SARs to be granted to each such optionee, (c) the price to be paid for each share of Common Stock upon the exercise of such option, (d) the period within which each option and SAR will be exercised and any extensions thereof, and (e) the terms and conditions of each such stock option agreement and SAR agreement which may be entered into between the Company and any such optionee. All officers, directors and employees of the Company and its subsidiaries and certain consultants and other persons providing significant services to the Company and its subsidiaries will be eligible to receive grants of options and SARs under the Stock Option Plans. However, only employees of the Company and its subsidiaries are eligible to be granted ISOs. Stock Option Agreements. All options granted under the Stock Option Plans will be evidenced by an option agreement or SAR agreement between the Company and the optionee receiving such option or SAR. Provisions of such agreements entered into under the Stock Option Plans need not be identical and may include any term or condition which is not inconsistent with the respective Stock Option Plan and which the Committee deems appropriate for inclusion. Incentive Stock Options. Except for ISOs granted to stockholders possessing more than ten percent (10%) of the total combined voting power of all classes of the securities of the Company or its subsidiaries to whom such ownership is attributed on the date of grant ("Ten Percent Stockholders"), the exercise price of each ISO must be at least 100% of the fair market value of the Company's Common Stock as determined on the date of grant. ISOs granted to Ten Percent Stockholders must be at an exercise price of not less than 110% of such fair market value. Each ISO must be exercised, if at all, within ten (10) years from the date of grant, but, within five (5) years of the date of grant in the case of ISOs granted to Ten Percent Stockholders. An optionee of an ISO may not exercise an ISO granted under the Stock Option Plans so long as such person holds a previously granted and unexercised ISO. The aggregate fair market value (determined as of time of the grant of the ISO) of the Common Stock with respect to which the ISOs are exercisable for the first time by the optionee during any calendar year shall not exceed $100,000. As of the date of this Report, ISOs have been granted under the 1995 Stock Option Plan, subject to certain vesting schedules, to purchase up to 300,000 shares of Common Stock, 185,000 of which have been exercised. The 300,000 ISOs have an exercise price of $0.3555 per share. Further, as of the date of the Report, ISOs have been granted under the 1996 Stock Option Plan, subject to certain vesting schedules, to purchase up to 622,380 shares of Common Stock. These options have the following per share exercise prices: 285,714 shares ($0.35), 250,000 shares ($0.75), 76,666 shares ($3.00) and 10,000 shares ($1.50). Non-Qualified Stock Options. The exercise price of each NSO will be determined by the Committee on the date of grant. However, the exercise price for the NSOs under the 1995 Stock Option Plan will in no event be less than 85% of the fair market value of the Common Stock on the date the option is granted, or not less than 110% of the fair market value of the Common Stock on the date such option is granted in the case of an option granted to a Ten Percent Stockholder. No such restriction exists with respect to the exercise prices of NSOs granted under the 1996 Stock Option Plan. The exercise period for each NSO will be determined by the Committee at the time such option is granted, but in no event will such exercise period exceed ten (10) years from the date of the grant. As of the date of this Report, NSOs have been granted under the 1995 Stock Option Plan, subject to certain vesting schedules, to purchase up to 20,000 shares of Common Stock at an exercise price of $0.15 per share and up to 1,800 shares of Common Stock at an exercise price of $5.00 per share. As of the date of this Report, NSOs have been granted under the 1996 Stock Option Plan to purchase up to 8,727,620 shares of Common Stock, subject to certain vesting schedules. These options have the following per share exercise prices: 2,966,667 shares ($3.00), 935,000 shares ($2.125), 515,000 shares ($1.50) and 4,310,953 shares ($0.35). Stock Appreciation Rights. Each SAR granted under the Stock Option Plans will entitle the holder thereof, upon exercise of the SAR, to receive from the Company, in exchange therefor, an amount equal in value to the excess of the fair market value on the date of exercise of one share of Common Stock over its fair market value on the date of grant (or in the case of an SAR granted in connection with an option, the excess of the fair market value of one share of Common Stock at the time of exercise over the option exercise price per share under the option to which the SAR relates), multiplied by the number of shares of Common Stock covered by the SAR or the option, or portion thereof, that is surrendered. SARs will be exercisable only at the time or times established by the Committee. If an SAR is granted in connection with an option, the SAR will be exercisable only to the extent and on the same conditions that the related option could be exercised. The Committee may withdraw any SAR granted under the Stock Option Plans at any time and may impose any conditions upon the exercise of an SAR or adopt rules and regulations from time to time affecting the rights of holders of SARs. As of the date of this Report, no SARs have been granted pursuant to the 1995 Stock Option Plan, as part of the issuance of the 20,000 NSOs and no SARs have been granted under the 1996 Stock Option Plan. Termination of Option and Transferability. In general, any unexpired options or SARs granted under the Stock Option Plans will terminate: (a) in the event of death or disability, pursuant to the terms of the option agreement or SAR agreement, but not less than six (6) months or more than twelve (12) months after the applicable date of such event, (b) in the event of retirement, pursuant to the terms of the option agreement or SAR agreement, but no less than thirty (30) days or more than three (3) months after such retirement date, or (c) in the event of termination of such person other than for death, disability or retirement, until thirty (30) days after the date of such termination. However, the Committee may in its sole discretion accelerate the exercisability of any or all options or SARs upon termination of employment or cessation of services. The options and SARs granted under the Stock Option Plans generally will be non-transferable, except by will or the laws of descent and distribution. Adjustments Resulting from Changes in Capitalization. The number of shares of Common Stock reserved under the Stock Option Plans and the number and price of Common Stock covered by each outstanding option or SAR under the Stock Option Plans will be proportionately adjusted by the Committee for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from any stock dividends, split-ups, consolidations, recapitalizations, reorganizations or like event. Amendment or Discontinuance of Stock Option Plan. The Board of Directors has the right to amend, suspend or terminate the Stock Option Plans at any time. Unless sooner terminated by the Board of Directors, the 1995 Stock Option Plan and the 1996 Stock Option Plan will terminate on February 8, 2005 and May 7, 2006, respectively, the tenth anniversary date of the effectiveness of each such Stock Option Plan. Directors and Officers Liability Insurance. The Company has obtained directors' and officers' liability insurance with an aggregate liability for the policy year, inclusive of costs of defense, in the amount of $3,000,000. The insurance policy ending April 3, 1998, was renewed as of April 4, 1998 and will expire April 3, 1999. Indemnification of Officers and Directors. The Company's Certificate of Incorporation and Bylaws designate the relative duties and responsibilities of the Company's officers, establish procedures for actions by directors and stockholders and other items. The Company's Certificate of Incorporation and Bylaws also contain extensive indemnification provisions that will permit the Company to indemnify its officers and directors to the maximum extent provided by Delaware law. In addition, the Company has adopted a form of indemnification agreement (the "Indemnification Agreement") which provides the indemnitee with the maximum indemnification allowed under applicable law. The Company has not entered into Indemnification Agreements with any of its directors, executives, employees or consultants as of the date of this Report. Since the Delaware statute is non-exclusive, it is possible that certain claims beyond the scope of the statute may be indemnifiable. The Indemnification Agreements provide a scheme of indemnification which may be broader than that specifically provided by Delaware law. It has not yet been determined, however, to what extent the indemnification expressly permitted by Delaware law may be expanded, and therefore the scope of indemnification provided by the Indemnification Agreements may be subject to future judicial interpretation. The Indemnification Agreement provides, in pertinent part, that the Company shall indemnify an indemnitee who is or was a party or is threatened, pending or completed action or proceeding whether civil, criminal, administrative or investigative by reason of the fact that the indemnitee is or was a director, officer, key employee or agent of the Company or any subsidiary of the Company. The Company shall advance all expenses, judgments, fines, penalties and amounts paid in settlement (including taxes imposed on indemnitee on account of receipt of such payouts) incurred by the indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding as described above. The indemnitee shall repay such amounts advanced only if it shall be ultimately determined that he or she is not entitled to be indemnified by the Company. The advances paid to the indemnitee by the Company shall be delivered within 20 days following a written request by the indemnitee. Any award of indemnification to an indemnitee, if not covered by insurance, would come directly from assets of the Company, thereby affecting a stockholder's investment. Termination of Employment and Change of Control Agreements. Except as set forth in employment agreements and stock option agreements of certain employees of the Company and its subsidiaries, the Company has no compensatory plans or arrangements which relate to the resignation, retirement or any other termination of an executive officer or key employee with the Company or a change in control of the Company or a change in such executive officer's or key employee's responsibilities following a change in control. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of Common Stock as of June 26, 1998 by: (i) each person known by the Company to beneficially own 5% or more of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) each Named Executive Officer of the Company and (iv) all directors and executive officers of the Company as a group. Unless otherwise indicated below, to the knowledge of the Company, all persons listed below have sole voting and investment power with respect to their shares of Common Stock, except to the extent authority is shared by spouses under applicable law. The information set forth in the table and accompanying footnotes has been furnished by the named beneficial owners: NAME OF NO. OF BENEFICIAL OWNER SHARES(1) PERCENT(1) ---------------- --------- ---------- Polmont Investments Limited(2) ........ 2,450,000 9.10 Jenny Sun(3) .......................... 2,450,000 9.10 Max Chian Yi Sun(4).................... 2,798,191 10.40 Joseph R. Wright, Jr.(5)............... 6,237,700 18.90 Richard T. McNamar(6).................. 275,000 1.01 Richard S. Braddock(7)................. 208,592 * Drew Lewis(8).......................... 197,518 * Liang Jiangli.......................... 0 * James R. Lilley(9)..................... 61,074 * Michael H. Wilson(10).................. 103,222 * Michael J. Lim(11)..................... 1,069,400 3.81 Albert G. Pastino(12) ................. 359,199 1.31 James F. O'Brien(13) .................. 338,125 1.24 Xiao Jun(14)........................... 525,000 1.91 All executive officers and 9,474,830 26.52 Directors as a group (12 persons)(15) - -------------- * 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 of Common Stock subject to options currently exercisable, or exercisable within 60 days of June 26, 1998, 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) The address of Polmont Investments Limited is c/o Havelet Trust Company, PO Box 3136, Road Town, Tortola, British Virgin Islands. (3) Includes 2,450,000 shares of Common Stock held by Polmont Investments Limited, of which Ms. Sun purports to have voting power. The address of Ms. Sun is 1052 North Beverly Drive, Beverly Hills, CA, 90210. (4) Includes 2,797,691 shares of Common Stock held by Occidental Worldwide Corporation of which Mr. Sun purports to have sole voting and investment power. The address of Mr. Sun is 126 JLN DEDAP, Taman Ampang Jaya, Trima Jaya, 68000 Ampang, Selangor, Malyasia. (5) Includes options to purchase 6,000,000 shares of Common Stock. The address of Mr. Wright is c/o AmTec, Inc., 599 Lexington Avenue, 44th Floor, New York, New York 10022. (6) Includes options to purchase 250,000 shares of Common Stock. (7) Includes options to purchase 30,000 shares of Common Stock. (8) Includes options to purchase 30,000 shares of Common Stock. (9) Includes options to purchase 30,000 shares of Common Stock. (10) Includes options to purchase 30,000 shares of Common Stock. (11) Includes options to purchase 1,062,500 shares of Common Stock. (12) Includes options to purchase 338,125 shares of Common Stock. (13) Includes options to purchase 338,125 shares of Common Stock. (14) Includes options to purchase 515,000 shares of Common Stock. (15) Includes options to purchase 8,723,750 shares of Common Stock of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See Footnote 16 to the Consolidated Financial Statements - "Related Party Transactions." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS: The following financial statements and supplemental data are filed: Report of Independent Auditors Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (2) FINANCIAL STATEMENT SCHEDULES: All applicable financial statement schedules have been omitted because the required information is included in the consolidated financial statements and notes thereto filed as Exhibit (a) (1). (b) REPORTS ON FORM 8-K. No Reports on Form 8-K were filed by the Company during the fourth quarter of the fiscal year ending March 31, 1998. (c) EXHIBITS The following exhibits, which are furnished with this Annual Report or incorporated herein by reference, are filed as part of this Annual Report: EXHIBIT NUMBER EXHIBIT DESCRIPTION 2.1 Agreement for Sale of Assets by and between ITV Communications, Inc. and Netmatics, Inc., dated January 11, 1996, and Promissory Note and Security Agreement dated January 16, 1996(1) 2.2 Agreement of Merger between AVIC Group International, Inc., a Colorado corporation, with and into AVIC Group International, Inc., a Delaware corporation dated July 10, 1996(8) 3.1 Amendments to Articles of Incorporation of the Company dated June 7, 1996 and June 10, 1996(5) 3.2 Restated Certificate of Incorporation of the Company(7) 3.3 Certificate of Ownership and Merger Merging China Telecommunications and Technologies, Inc. into the Company(9) 3.4 Certificate of Designations of Preferences of Series C Convertible Preferred Stock of the Company(9) 3.5 Certificate of Designations of Preferences of Series D Convertible Preferred Stock of the Company(7) 3.6 Certificate of Designations of Preferences of Series E Convertible Preferred Stock of the Company(10) 3.7 Restated Bylaws of the Company 4.1 Specimen Common Stock Certificate(9) 10.1 1995 Stock Option Plan(2) 10.2 1996 Stock Option Plan(2) 10.3 Real Property lease between Lexreal Associates and the Company dated May 8, 1995(2) 10.4 Employment Agreement between Joseph R. Wright, Jr. and the Company dated as of April 15, 1995(3), and amendments thereto dated as of November 21 1995(4) and September 12, 1996(6) 10.5 Employment Agreement between Michael J. Lim and the Company dated as of November 6, 1995(4) 10.6 Employment Agreement between Xiao Jun and the Company dated as of January 1, 1996(4) 10.7 Employment Agreement between Albert G. Pastino and the Company dated as of October 15, 1997(12) 10.8 Employment Agreement between James F. O'Brien and the Company dated as of October 15, 1997(12) 10.9 Employment Agreement between Michael J. Lim and the Company dated January 23, 1998 10.10 Form of Indemnification Agreement for directors and officers of the Company(8) 10.11 Common Stock Investment Agreement between Promethean Investment Group L.L.C. and the Company dated March 31, 1997, as amended on April 29, 1997(9) 10.12 China Paging Networks Preliminary Agreement between Beijing CATCH Communications Group Co. and the Company dated April 1995(3) 10.13 Mobile Telephone Network Preliminary Agreement between Beijing CATCH Communications Group Co. and the Company dated April 27, 1995(3) 10.14 Cellular Telephone Network Preliminary Agreement between Beijing CATCH Communications Group Co., Tweedia International Limited and the Company dated April 1995(3) 10.15 Memorandum of Understanding between Hebei United Communications Equipment Company and the Company dated May 1, 1995(3) 10.16 Letter of Intent between Hebei United Communications Equipment Company and the Company dated October 10, 1995(4) 10.17 Joint Venture Contract between Hebei United Communications Equipment Company and NTTI dated December 22, 1995(5) 10.18 Agreement between Hebei United Communications Equipment Company and the Company dated March 22, 1996(5) 10.19 Joint Venture Contract between Hebei United Telecommunications Development Company, Beijing CATCH Communications Group Co. and the Company dated September 20, 1996(9) 10.20 Project Cooperation Contract between China United Telecommunications Co. and Hebei United Telecommunications Engineering Company Limited dated February 9, 1996(9) 10.21 Term Loan Agreement between Hebei United Telecommunications Engineering Company Limited and Bank of Tokyo-Mitsubishi, Ltd. dated August 5, 1996(9) 10.22 Project Cooperation Contract between Hebei Cable Television Station and Hebei United Communications Equipment Company Limited dated April 8, 1997(9) 21.1 Subsidiaries of the Company 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Singer, Lewak, Greenbaum & Goldstein 27 Financial Data Schedule - --------------- (1) Previously filed as part of the Company's Current Report on Form 8-K dated January 19, 1996. (2) Previously filed as part of the Company's Transition Report on Form 10-KSB for the transition period from October 1, 1994 to March 31, 1995. (3) Previously filed as part of the Company's Current Report on Form 8-K dated May 1, 1995. (4) Previously filed as part of the Company's Current Report on Form 8-K dated December 22, 1995. (5) Previously filed as part of the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996. (6) Previously filed as part of the Company's Registration Statement on Form S-8 filed on January 31, 1997. (7) Previously filed as part of the Company's Current Report on Form 8-K dated March 6, 1997. (8) Previously filed as part of the Company's Definitive Proxy Statement dated April 18, 1996. (9) Previously filed as part of the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997. (10) Previously filed as part of the Company's Quarterly Report on Form 10-Q/A dated September 30, 1997. (11) Previously filed as part of the Company's Current Report on Form 8-K dated December 8, 1997. (12) Previously filed as part of the Company's Quarterly Report on Form 10-Q dated December 31, 1997. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMTEC, INC. By /s/ Joseph R. Wright, Jr. ____________________________ Joseph R. Wright, Jr. Chairman of the Board, Chief Executive Officer and President Date: June 26, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ Joseph R. Wright, Jr. - -------------------------------- Chairman of the Board of June 26, 1998 Joseph R. Wright, Jr. Directors, Chief Executive Officer and President (Principal Executive Officer) /s/Richard T. McNamar - -------------------------------- Vice Chairman of the Board of June 26, 1998 Richard T. McNamar Directors /s/Richard S. Braddock Director June 26, 1998 - ------------------------------- Richard S. Braddock /s/Drew Lewis Director June 26, 1998 - ------------------------------- Drew Lewis /s/Liang Jiangli Director June 25, 1998 - ------------------------------- Liang Jiangli /s/James R. Lilley Director June 25, 1998 - -------------------------------- James R. Lilley /s/Michael H. Wilson Director June 24, 1998 - --------------------------------- Michael H. Wilson /s/Albert G. Pastino - -------------------------------- Senior Vice President, Chief June 26, 1998 Albert G. Pastino Financial Officer and Treasurer (Principal Financial and Accounting Officer)
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders AmTec, Inc. (formerly AVIC Group International Inc. and subsidiaries) We have audited the accompanying consolidated balance sheets of AmTec, Inc. and subsidiaries (formerly AVIC Group International, Inc. and subsidiaries) as of March 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. 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 audit. 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, 1998 and 1997, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP June 11, 1998 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders AmTec, Inc. We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of AmTec, Inc. and Subsidiaries (formerly AVIC Group International, Inc. and Subsidiaries) for the year ended March 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 audit. We conducted our audit 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 audit provides a reasonable basis for opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of AmTec, Inc. and Subsidiaries (formerly AVIC Group International, Inc. and Subsidiaries) for the year ended March 31, 1996, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. During the year ended March 31, 1996, the Company had a net loss of $5,281,730. Recovery of the Company's assets is dependent upon future events, the outcome of which is indeterminable. In addition, successful completion of the Company's development program and its transition, ultimately, to the attainment of profitable operations is dependent upon obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company's cost structure. These factors, among others, as discussed in Note 1 to the financial statements raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from thew outcome of this uncertainty. /S/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP Los Angeles, California June 18, 1996
AMTEC INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1998, AND MARCH 31, 1997 MARCH 31, 1998 MARCH 31, 1997 - -------------------------------------------------------- -------------------------------------- ASSETS Current assets Cash $10,442,334 $5,390,871 Accounts receivable 114,661 Prepaid expenses and other current assets 356,554 182,090 --------------------------------- Total current assets 10,913,549 5,572,961 Property, plant & equipment, net 897,265 518,020 Investment in GSM network, net of amortization 28,461,810 22,017,869 Additional investment in joint-venture 1,192,000 Office lease deposit 113,180 111,500 Deferred expenses 6,916 5,853 ================================= TOTAL ASSETS $40,392,720 $29,418,203 ================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $551,705 $991,194 Accrued expenses 798,376 780,902 Loans payable - shareholders 1,452,553 2,413,553 Other current payables 10,234,872 450,685 --------------------------------- Total current liabilities 13,037,506 4,636,334 Loans payable 20,028,602 11,956,486 Other payables 1,487,727 10,290,128 Minority interest 941,974 1,987,167 --------------------------------- TOTAL LIABILITIES 35,495,809 28,870,115 STOCKHOLDERS' EQUITY Series A Convertible Preferred Stock: $.001 par value; authorized 10,000,000 shares; 0 and 1,524,178 shares issued and outstanding in 1998 and 1997, respectively 1,524 Series D Convertible Preferred Stock: $.001 par value; authorized 10,000,000 shares; 0 and 150 shares issued and outstanding in 1998 and 1997, respectively. 1 Series E Convertible Preferred Stock: $.001 par value; authorized 10,000,000 shares; 73 and 0 shares issued and outstanding in 1998 and 1997, respectively. 1 Common stock: $.001 par value; authorized 100,000,000 shares; 26,532,502 and 31,257,921 issued and outstanding in 1998 and 1997, respectively 26,533 31,258 Additional paid-in capital 33,148,529 25,202,108 Accumulated deficit (27,394,590) (20,592,536) Cumulative foreign currency exchange loss 613 (1,231) Non-refundable equipment purchase deposit (4,572,536) Non employee deferred option cost, net (1,378,125) Warrants 493,950 479,500 --------------------------------- TOTAL STOCKHOLDERS' EQUITY 4,896,911 548,088 ================================= TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $40,392,720 $29,418,203 ================================= See notes to consolidated financial statements
AMTEC INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDING YEAR ENDING YEAR ENDING MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996 - -------------------------------------------------------------------------------- ------------------- ------------------- Revenues $ 216,348 $ -- $ 683,733 ------------------- ------------------- ------------------- Expenses: Cost of revenues 637,065 Selling, general and administrative 4,254,009 3,996,151 3,207,570 Amortization of GSM networks 2,183,068 Research and development 1,287,629 ------------------- ------------------- ------------------- Total Expenses 6,437,077 3,996,151 5,132,264 ------------------- ------------------- ------------------- Loss from operations (6,220,729) (3,996,151) (4,448,531) ------------------- ------------------- ------------------- Other income (expense) Rental income 95,667 42,420 Interest income 239,067 152,824 Gain from sale of assets 31,880 Amortization stock options granted non employees (459,375) Loss from abandoned assets (87,441) (130,840) Equity in losses of unconsolidated subsidiary (500,000) Interest expense (125,586) (129,039) (241,856) Exchange loss (3,484) (19,490) Other - net 113,320 7,617 Write off investment in affiliate (198,538) ------------------- ------------------- ------------------- Total other income (expense) (227,832) (151,823) (833,199) ------------------- ------------------- ------------------- Loss before minority interest (6,448,561) (4,147,974) (5,281,730) Minority interest in loss of subsidiaries (1,045,193) 83,089 ------------------- ------------------- ------------------- Net loss (5,403,368) (4,064,885) (5,281,730) Preferred stock dividend 1,398,686 10,000 - =================== =================== =================== Loss applicable to common shares $ (6,802,054) $ (4,074,885) $ (5,281,730) =================== =================== =================== Basic loss per common share $ (0.23) $ (0.14) $ (0.21) =================== =================== =================== Weighted average common shares outstanding 29,843,712 29,102,347 25,651,045 =================== =================== ===================
AMTEC INC. AND SUBSIDIARIES CONSOLIDATED STAETMENTS OF STOCKHOLDERS' EQUITY/(DEFICIENCY) - ---------------------------------------------------------------------------------------------------------------------------- SERIES A SERIES B SERIES C SERIES D COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK --------------- ----------------- --------------- --------------- --------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT BALANCE, April 1, 1995 25,243,409 25,244 - - - - - - - - Issuance of Series A preferred stock for interest in deposit, December 1995 - - 1,524,178 1,524 - - - - Sale of common stock for cash 1,302,020 1,302 - - - - - - Conversion of stockholders' loans to common stock, February 1996 1,891,553 1,891 - - - - - - - - Exercise of options, February 1996 - - - - - - - - - - Equipment purchase deposit - - - - - - - - Net loss - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------- BALANCE, March 31, 1996 28,436,982 28,437 1,524,178 1,524 - - - - - - Issuances of Series B preferred stock - - - - 100 1 - - - - Conversion of Series B shares 1,507,477 1,507 - - (100) (1) - - - - Issuance of Series D preferred- stock - - - - - - - - 150 1 Common shares issued for services rendered 90,962 91 - - - - - - - - Common shares issued to employees 212,500 213 - - - - - - - - as compensation Common shares issued for directors fees 10,000 10 - - - - - - - - Sale of common shares 1,000,000 1,000 - - - - - - - - Preferred dividends - - - - - - - - - - Warrants - - - - - - - - - - Cumulative foreign exchange loss - - - - - - - - - - Net loss - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------- BALANCE, March 31, 1997 31,257,921 31,258 1,524,178 1,524 - - - - - 150 1 - ----------------------------------------------------------------------------------------------------------------------------- Exercise of employee stock options 69,000 69 - - - - - - - - Issuance of Series C preferred - - - - - - 250 -1 - - stock Common shares issued for services rendered 23,233 23 - - - - - - - - Conversion of Series D shares to 2,236,507 2,237 - - - - - - (150) (1) common stock Common stock investment agreement - net of cancellation 1,019,465 1,019 - - - - - - - - Common shares issued for 40,000 40 - - - - - - - - directors fees 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 stock 4,507,639 4,508 - - - - (219) (1) - - Issuance of Series E preferred - - - - - - - - - - stock Conversion of Series E shares to 106,646 107 - - - - - - - (1) common stock Buyback of Series C preferred - - - - - - (31) - - - stock Deferred financing costs, net of amortization - - - - - - - - - - Stock options issued to third party - - - - - - - - - - Advance to joint venture partner - - - - - - - - - - Preferred stock dividends Cancellation of Warrants - - - - - - - - - - Dividends related to discount on conversion of preferred shares - - - - - - - - - - Net loss - ----------------------------------------------------------------------------------------------------------------------------- BALANCE, March 31, 1998 26,532,502 $26,533 - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------ SERIES E CUMULATIVE ADVANCE PREFERRED STOCK ADDITIONAL FOREIGN TO JOINT EQUIPMENT ---------------- PAID-IN ACCUMULATED EXCHANGE VENTURE PURCHASE SHARES AMOUNT WARRANTS CAPITAL DEFICIT GAIN (LOSS) PARTNER DEPOSIT BALANCE, April 1, 1995 - - - 9,995,265 (11,245,921) - - - Issuance of Series A preferred stock for interest in deposit, December 1995 - - - 4,571,012 - - - - Sale of common stock for cash - - - 2,192,681 - - - - Conversion of stockholders' loans to common stock, February 1996 - - - 1,889,662 - - - - Exercise of options, February 1996 - - - - - - - - Equipment purchase deposit - - - - - - - (4,572,536) Net loss - - - - (5,281,730) - - - - --------------------------------------------------------------------------------------------------------------------------- BALANCE, March 31, 1996 - - - 18,648,620 (16,527,651) - - (4,572,536) 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 - - - 318,538 - - - - Common shares issued for directors fees - - - 89,990 - - - - Sale of common shares - - - 1,999,000 - - - - Preferred dividends (10,000) Warrants - - 479,500 - - - - - Cumulative foreign exchange loss - - - - - (1,231) - - Net loss - - - - (4,064,885) - - - - --------------------------------------------------------------------------------------------------------------------------- BALANCE, March 31, 1997 - - 479,500 25,202,108 20,592,536) (1,231) - (4,572,536) - --------------------------------------------------------------------------------------------------------------------------- Exercise of employee stock options - - - 34,681 - - - - Issuance of Series C preferred - - - 2,499,999 - - - - stock Common shares issued for services rendered - - - 66,934 - - - - Conversion of Series D shares to - - - 129,673 - - - - common stock Common stock investment agreement - net of cancellation - - - (1,019) - - - - Common shares issued for - - - 84,960 - - - - directors fees Cancellation of Series A preferred - - - (4,571,012) - - 4,572,536 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 stock - - - (4,507) - - - - Issuance of Series E preferred - - - 6,759,000 - - - - stock Conversion of Series E shares - - - - - - - to common stock (107) Buyback of Series C preferred - - - (406,100) - - - - stock Deferred financing costs, net of amortization - - 161,450 (229,415) - - - - Stock options issued to third 1,837,500 - - - - party - - Advance to joint venture partner - - - - (540,000) Preferred stock dividends 1,398,686 (1,398,686) - - - Cancellation of Warrants - - (147,000) - - - - Cumulative foreign exchange gain - - 1,844 Net loss - - - - (5,403,368) - - - - --------------------------------------------------------------------------------------------------------------------------- BALANCE, March 31, 1998 73 $1 $493,950 $33,688,529 ($27,394,590) $613 (540,000) $0 - ---------------------------------------------------------------------------------------------------------------------------
-------------------- DEFERRED OPTION COSTS TOTAL BALANCE, April 1, 1995 - (1,255,412) Issuance of Series A preferred stock for interest in deposit, December 1995 - 4,572,536 Sale of common stock for cash - 2,193,983 Conversion of stockholders' loans to common stock, February 1996 - 1,891,553 Exercise of options, February 1996 - - Equipment purchase deposit - (4,572,536) Net loss - (5,281,730) - ---------------------------------------------------------- BALANCE, March 31, 1996 - (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 service rendered - 316,340 Common shares issued to employee - 318,751 Common shares issued for directors fees - 90,000 Sale of common shares - 2,000,000 Preferred dividends - (10,000) Warrants - 479,500 Cumulative foreign exchange loss - (1,231) Net loss - (4,064,885) - ------------------------------------------------------------ BALANCE, March 31, 1997 - 548,088 - ------------------------------------------------------------ Exercise of employee stock options - 34,750 Issuance of Series C preferred - 2,500,000 stock Common shares issued for service rendered - 66,957 Stock options issued to employee - 250,000 Conversion of Series D shares to - 131,909 common stock Common stock investment agreemen - net of cancellation - 0 Common shares issued for - 85,000 directors fees - Cancellation of Series A preferred - - 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 stock - Issuance of Series E preferred - 6,759,001 stock Conversion of Series E shares - to common stock Buyback of Series C preferred - (406,100) stock Deferred financing costs, net of amortization - (67,965) Stock options issued to third (1,378,125) 459,375 party Advance to joint venture partner (540,000) Preferred stock dividends - - Cancellation of Warrants (147,000) Cumulative foreign exchange gain 1,844 Net loss (5,403,368) - ----------------------------------------------------------- BALANCE, March 31, 1998 ($1,378,125) $4,896,911 - -----------------------------------------------------------
AMTEC INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDING YEAR ENDING YEAR ENDING MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996 - --------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $ (5,403,368) $ (4,064,885) $ (5,281,730) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred option costs 459,375 Amortization of capitalized software development cost 281,250 Depreciation and amortization of GSM investment 2,274,443 43,193 346,005 Loss from abandoned assets 87,441 130,840 Gain from sale of assets (31,880) Minority Interest in net loss 83,089 Issuance of warrants for services rendered 479,500 Issuance of common stock and options for directors' fees, and professional services rendered 151,957 725,091 Equity in losses of unconsolidated subsidiary 500,000 (Increase) Decrease in: Accounts receivable (114,661) 98,895 Inventories (96,091) Prepaid expenses and other current assets (174,464) 5,948,801 (91,200) Office lease deposit (1,680) 55,700 Other assets (131,887) Deferred expenses (1,063) 59,412 Increase (decrease) in: Accounts payable and accrued expenses (422,015) 98,221 1,251,464 Other current payables 9,784,187 Loans payable - stockholders (111,000) 129,839 136,982 Minority Interest (1,045,193) --------------- --------------- --------------- Net cash provided by (used in) operating activities 5,483,959 3,557,961 (2,887,352) --------------- --------------- --------------- Cash flows from investing activities: Investment in Netmatics (87,441) Purchase of property and equipment (470,620) (362,417) (119,592) Joint venture deposit 1,170,000 (1,170,000) Proceeds from sale of assets 250,000 GSM construction cost (8,627,007) (21,880,584) Joint venture's net liabilities assumed 6,549,703 Timing reversal of investment in joint venture 1,192,000 (1,192,000) --------------- --------------- --------------- Net cash used in investing activities (7,993,068) (15,715,298) (1,039,592) --------------- --------------- --------------- Cash flows from financing activities Warrants issued for services rendered - net of charges to APIC (215,546) Borrowings 8,072,116 11,521,100 739,952 Other long term payables (8,802,401) Loans payable to stockholders 25,000 Advance to joint venture partner (540,000) Proceeds from sale of common stock 166,659 2,000,000 2,193,983 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 --------------- --------------- --------------- Net cash provided by financing activities 7,558,728 17,362,319 2,933,935 --------------- --------------- --------------- Effect of exchange rate changes on cash 1,844 -- -- -------------- --------------- -------------- Net increase (decrease) in cash and cash equivalents 5,051,463 5,204,982 (993,009) Cash and cash equivalents, beginning of period 5,390,871 185,889 1,178,898 --------------- --------------- --------------- Cash and cash equivalents, end of period $ 10,442,334 $ 5,390,871 $ 185,889 =============== =============== ===============
AMTEC., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - --------------------------------------------------------------------- SUPPLEMENTAL CASH INFORMATION: No interest or income taxes were paid during fiscal 1998, 1997, and 1996 NON CASH FINANCING ACTIVITIES: In fiscal 1998, preferred stock dividends of $1,398,686 were recognized upon conversion of the Convertible Preferred Series C, D, and E. 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 cancelled upon determination that the full purchase price for such shares was not paid. In fiscal 1998, $850,000 Notes Payable related to a non-refundable 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 cancelled 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. In fiscal 1996, loans from stockholders of $1,891,553 were converted into 1,891,553 shares of common stock. In fiscal 1996, 1,524,178 shares of Series A Preferred Stock were issued in exchange for the rights to a deposit totaling $4,572,536. In fiscal 1996, a deposit from a stockholder of $850,000 was converted to a note payable. See notes to consolidated financial statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND LINE OF BUSINESS - AmTec, Inc. (the "Company" or "AmTec") through its majority-owned subsidiary in the People's Republic of China ("PRC") is involved in providing financing and 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. 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, 1998. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the Company, its 70% owned subsidiary Hebei United Telecommunications Equipment Co., Ltd. and subsidiary ("Hebei Equipment") (a limited life Sino-foreign joint venture) and its wholly-owned subsidiary, ITV Communications, Inc. For the period ending March 31, 1998, the Company used an ownership percentage of 60.8% for purposes of consolidation since it did not increase its ownership percentage in Hebei Equipment until after the close of Hebei Equipment's fiscal year end on December 31, 1997. All significant intercompany accounts and transactions are eliminated in consolidation. Hebei Equipment owns 51% of Hebei United Telecommunications Engineering Company, Ltd. ("Hebei Engineering"). The financial statements of Hebei Equipment included in the consolidated financial statements are as of and for the periods ended December 31, 1997 and 1996, Hebei Equipment's year-end. During the period January 1, 1997 to March 31, 1997, the Company's fiscal year end, an additional $1,192,000 had been advanced by the Company to Hebei Engineering. Such amount did not eliminate in the 1997 consolidation due to the different year-end dates between AmTec and Hebei Equipment. As such, the amount has been included in the balance sheet at March 31, 1997, as Additional Investment in Joint Venture. 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: Land and buildings 20 years Furniture, fixtures and equipment 5 years Motor vehicles 5 years Leasehold improvements 5 years Computer equipment 3 years The Company evaluates the operating and financial performance of its long-lived assets for potential impairments in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which prescribes the method for measuring impairment. If an asset is determined to be impaired, the capitalized costs are written down to fair value. REVENUE RECOGNITION - Revenue related to the Company's cellular telephone networks is recognized only upon receipt of payment from the networks' operator. As such, the Company does not accrue revenue. (See Note 3 as to the current cellular telephone project.) Revenue related to the Company's former operations of ITV was derived primarily from product sales, and was recognized upon shipment of the products. RESEARCH AND DEVELOPMENT COSTS - Research and development costs of ITV were charged to expense as incurred. These costs consisted primarily of salaries and consulting fees. INCOME TAXES - The Company uses the asset and liability method of accounting for income taxes pursuant to Statement of Financial Accounting Standards, No. 109 "Accounting for Income Taxes." FOREIGN CURRENCY TRANSLATION - The functional currency for the Company's foreign operations is the applicable local currency. The translation of the applicable foreign currency into U.S. dollars is performed for the balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains and losses, net of applicable deferred income taxes if any, resulting from such translation are included in Stockholders' Equity. 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. RECLASSIFICATION - Certain amounts for the fiscal years ended March 31, 1997 and 1996 have been reclassified to conform to the current year's presentation. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Comprehensive Income - In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." This statement is effective for financial statements issued for periods beginning after December 15, 1997. Management has evaluated the effect on its financial reporting of the adoption of this statement and has found the majority of required disclosures not to be applicable and the remainder not to be significant. 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 is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 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 has not yet determined what additional disclosures may be required in connection with adopting SFAS 131. 2. CONSOLIDATION OF MAJORITY OWNED SUBSIDIARY The Company determined that it should conduct its operations in the PRC through a Sino Foreign Joint Venture ("SFJV"). 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%. 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. 3. INVESTMENT IN GSM PROJECT Hebei Equipment, through its 51%-owned subsidiary, Hebei Engineering, has invested approximately $30,650,000 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 agreement with China United Communications Company ("UNICOM"). Terms of the agreement include the following: o Initially, UNICOM will own 30% of the assets while Hebei Engineering will own 70% of the assets. o 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. o Each year, Hebei Engineering will transfer assets equal in value to the Distributable Cash Flow received up to 60% of the assets. o Upon the termination of the contract the remaining 10% of the network assets shall be assigned to UNICOM without any further consideration. o 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 entities, such as Hebei Engineering, 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 (Investment in GSM network) at cost and is amortizing it over the remaining life of the project beginning with the fiscal year ending March 31, 1998. Income is recognized on receipt of Distributable Cash Flow. Management's current cash flow projections indicate the investment is fully realizable. UNICOM commenced operation of the GSM network in February 1997. Amortization of the Investment in GSM network for the year ended March 31, 1998 amounted to approximately $2,183,000. 4. INVESTMENT IN MULTIMEDIA PROJECT Through Hebei Equipment, AmTec entered into a 20-year agreement (the "Hebei Multimedia Agreement") on April 8, 1997 with Hebei Cable Television Station ("Hebei CATV") to (i) finance and assist Hebei CATV in the construction of an advanced fiber-optic and microwave network (the "Multimedia Network") that will connect the existing cable television systems in the eleven major cities in Hebei Province, and (ii) provide consulting and management support services to Hebei CATV in its operation of the Multimedia Network. Hebei Equipment is entitled to a share of the distributable cash flow (defined as net income plus depreciation) from the Multimedia Network for a 20-year period commencing on the date of completion of the Multimedia Network. Prior to repayment of Hebei Equipment's investment, Hebei Equipment will receive 80% of distributable cash flow thereafter, Hebei Equipment will receive 30% of distributable cash flow. The Multimedia Network began operations in October 1997 and, upon completion, will be used to transmit cable television programming on a province-wide basis to the eleven cities connected by the Multimedia Network. Hebei CATV will derive revenues from the cable operators in the eleven cities for providing this programming and will also receive advertising revenues. Further, spare capacity will be available for leasing to telecommunications operators and data network users in Hebei. As of March 31, 1998, the Company had invested approximately $120,000 in the Multimedia Network in the form of a loan to Hebei CATV to fund construction work. The Company is currently in discussions, through Hebei Equipment, to determine the extent of its future involvement in this project. As of June 1998, Hebei CATV had completed substantial construction work on the Multimedia Network. However, due to the announced restructuring of the Ministry of Radio, Film and Television, the ultimate regulator of cable television operations in China, Hebei CATV has put further construction of the Multimedia Network on hold pending the completion of this restructuring. 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following: 1998 1997 ---- ---- Land and buildings $ 559,235 $ 195,350 Furniture, fixtures and equipment 240,197 249,268 Motor vehicles 153,538 111,298 Computer software 80,921 12,273 Leasehold improvements 17,498 12,580 -------------- ------------- 1,051,389 580,769 Less accumulated depreciation 154,124 62,749 ------------- ------------ $ 897,265 $ 518,020 ============== =========== Depreciation expense for fiscal 1998, 1997, and 1996 was $91,375, $43,193, and $346,005 respectively. 6. OTHER PAYABLES Included in Other Current Payables are amounts due for equipment purchases related to construction of the GSM network. These amounts are due vendors under deferred payment terms with such terms and payments being guaranteed by NTTI and Ito Chu Corporation with no recourse to the Company. Liabilities are payable as follows: LIABILITIES PAYABLE Current $ 10,234,872 1999 520,789 2000 495,909 2001 471,029 ---------- Total 11,722,599 Less: current portion 10,234,872 ---------- $1,487,727 =========== 7. LOANS PAYABLE Loans payable consists of the following: 1998 1997 ---- ---- Amounts due to $ 1,452,553 $ 2,413,553 shareholders(1) Bank loan(2) 20,028,602 11,956,486 ---------- ---------- 21,481,155 14,370,039 Less: current maturities 1,452,553 2,413,553 ----------- ---------- $20,028,602 $11,956,486 ============ =========== (1) The amounts are payable on demand by ITV, a wholly owned subsidiary, and bear interest at 8.5% per annum. There is no recourse to AmTec, Inc. for these loans. (2) On August 5, 1996, Hebei Engineering obtained a loan facility of approximately $20,000,000 from the Bank of Tokyo - Mitsubishi, Ltd. Beijing Branch at an annual rate of 6.82%, all of which was borrowed as of December 31, 1997. The obligation of the borrower under the agreement was guaranteed by NTTI, with no recourse to AmTec, Inc. The principal of the loan shall be repaid in five equal, consecutive, semi-annual installments, each in an amount equal to one-fifth of the principal amount of the loan outstanding on the third anniversary of the date of the agreement with subsequent installments on the last day of each of the next four six-month periods thereafter, provided, however, that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount of the loan. Borrowings under this facility are repayable as follows: YEAR ENDING MARCH 31, 1998 $ 0 1999 0 2000 8,000,000 2001 8,000,000 2002 4,028,602 --------- $ 20,028,602 ============ 8. 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, 1999 $ 334,400 2000 334,400 2001 139,332 -------- $ 808,132 ========= Rent expense for fiscal 1998, 1997 and 1996 was $337,763, $369,969 and $399,992 respectively. EMPLOYMENT AGREEMENTS - The Company has entered into employment agreements with officers expiring through April 2002 with aggregate annual salaries of $1,475,000. LITIGATION - The Company and its subsidiaries are involved in litigation matters which involve certain claims which arise in the normal course of business, none of which, in the opinion of management, is expected to have a materially adverse effect on the Company's consolidated financial statements. REGULATION - 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 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 non-current account items, known as "capital account" items, remain subject to SAFE approval. EMPLOYEE RETIREMENT BENEFITS AND POST-RETIREMENT BENEFITS - The Company's Chinese employees in the PRC are entitled to a retirement pension calculated with reference to their basic salaries on retirement and their length of services in accordance with a government managed pension plan. The PRC government is responsible for the pension liability to these retired staff. The Company is required to make contributions to the state retirement plan at 18% of the adjusted monthly basic salaries of the current employees. The Company is not obligated under any other post-retirement plans and post-employment benefits are not material. 9. STOCKHOLDERS' EQUITY CANCELLATION OF SERIES A CONVERTIBLE PREFERRED STOCK - On August 19, 1997, upon determination that the entire amount of a non-refundable deposit had been forfeited by a former affiliate, the Company cancelled 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 non-refundable 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 cancelled. 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 cancelled shares represented approximately thirty-eight percent of the total number of the Company's common shares outstanding prior to the cancellation of such shares. In addition, the Company cancelled an agreement with a former affiliate, which gave the Company a right of first refusal on certain investment opportunities in the Peoples Republic of China. (See Note 16-"Related Party Transactions".) CONVERSION OF LOANS PAYABLE - In December 1995, loans payable and accrued interest in the amount of $1,891,553 were converted to common stock at a price per share of $1.00 (based on other market sales at the time). SALE OF COMMON STOCK - In September and November 1995, and February 1996, the Company sold an aggregate of 976,000 shares of common stock for $976,000. In March 1996, the Company entered into a stock purchase agreement to sell 191,020 shares of common stock for $1,170,000, a price of $6.125 per share. 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 sold in connection with the exercise of certain employee stock options. Proceeds from these sales aggregated $34,750. 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 1,506,677 warrants to purchase common stock of the Company. Each warrant entitles 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 warrant 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 and retired 31 Series C shares for consideration of $406,100. 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, par value $.001 per share (the "Series E Preferred Shares") at a price of $100,000 per share and paying an 8% in-kind dividend. The net proceeds the Company received were approximately $6,759,000. The holders of Series E Preferred Stock have no voting rights except with respect to certain matters that affect the rights related to the Series E Preferred Stock. Conversion of the Series E Shares into Common Stock,which is 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 shares, 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, 1998, 0.8 share of the Series E Preferred Stock was converted into 106,646 shares of the Company's common stock. In connection with the discount for the above conversion, the Company credited Additional Paid in Capital $1,089,225 and charged preferred dividends in an equal amount. STOCK WARRANTS - 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 Convertible Preferred Stock described above. These warrants, which are exercisable one year from the closing date, 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 cancelled 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 Shares (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 when 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 since been cancelled, 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. 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. 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 issuances 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 will provide a $10 million equity line to the Company. The agreement, which is cancelable, by either party, was amended on April 29, 1997 to increase the equity line to $25 million. Pursuant to the Common Stock Investment Agreement, the Company may sell from time to time shares of Common Stock to Promethean by providing a notice (the "Put Notice") containing the dollar amount (the "Required Dollar Amount") of the shares of Common Stock to be sold during the thirteen business day period commencing after the date of the Put Notice (the "Purchase Period"). Promethean shall be obligated to purchase the shares of Common Stock in the Required Dollar Amount specified in the Put Notice with the election to purchase an additional 30% of the Required Dollar Amount during the Purchase Period. Each of the shares of Common Stock covered by the Required Dollar Amount (and any additional amount of the shares of Common Stock to be sold during the Purchase Period) shall be sold at 90% of the lowest of the daily low trading price of the Common Stock, as quoted on the American Stock Exchange, during the three trading days preceding the date of the Put Notice. The Required Dollar Amount for each Put Notice shall be in increments of $250,000 and shall not exceed the lesser of (i) $1,500,000, subject to reductions of $75,000 for each trading day during the Purchase Period in which the average per share dollar value of the Common Stock traded on the American Stock Exchange is less than $2.50, and (ii) 10% of the dollar value of the Common Stock traded on the American Stock Exchange during the first ten trading days of the Purchase Period if the average per share of such dollar value is equal to or greater than $2.50 (subject to certain adjustments to account for stock splits, stock dividends and other similar transactions). The Company may not deliver a Put Notice to sell the shares of Common Stock if the closing price of the Common Stock on the date prior to the date of the intended Put Notice as reported on the American Stock Exchange is less than $2.50 or if certain other conditions exist. The Company has agreed to provide a minimum of $4,000,000 in Put Notices to Promethean within two years following the effective date of a registration statement covering the shares to be sold pursuant to the Common Stock Investment 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. As of March 31, 1998, this agreement has not been utilized, no shares have been issued and no monies have been received under this agreement. 551,533 of the shares issued into escrow 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, 1998, 1997 and 1996 and changes during the years then ended is presented below:
MARCH 31, MARCH MARCH 1998 31, 1997 31, 1996 ------------- ----------- ----------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Number Price Number Price Number Price ------ --------- ------ --------- ------ --------- Outstanding at beginning of year 7,905,000 $ 1.40 7,635,000 $ 1.39 350,000 $ 0.36 Granted 4,624,102 2.55 280,000 1.74 7,520,000 1.41 Exercised (69,000) (185,000) 0.36 Cancelled (10,000) 8.25 Forefeited (50,000) 0.36 Expired ---------------------------------------------------------------------------- Outstanding at end of year 12,460,102 $ 1.42 7,905,000 $ 1.40 7,635,000 $ 1.39 ========== ======= ========= ======= ========= ======== Options exercisable at end of year 7,671,102 $ 1.28 4,155,000 $ 0.42 3,135,000 $ 0.35 ========= ======= ========= ========= ========= ========= Weighted average fair value of options granted during the year $ 0.53 $ 0.69 $ 0.44 ======= ======= =======
The above options include options 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. These options vest 25% every six months from the date of grant. 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 fiscal 1998, Deferred option cost was amortized by $459,375. The above options do not include 318,182 options granted and subsequently cancelled to Tweedia, a former affiliate. The fair value of a stock option or warrant has been determined by management. Management has developed an internal measure of fair value for its stock options and warrants which it believes approximates the fair value of such options and warrants in relation to the true value of the underlying equity instruments. The following table summarizes information about options outstanding at March 31, 1998:
WEIGHTED AVERAGE NUMBER RANGE OF NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE OUTSTANDING CONTRACTUAL EXERCISE OPTIONS EXERCISE PRICES AT 3/31/98 LIFE (YEARS) PRICE AT 3/31/98 PRICE -------------- --------------- ----------------- ------------------- ------------------- -------------- $0.35-0.355 4,625,000 8.11 0.350 4,625,000 0.350 0.750 250,000 10.00 0.750 125,000 0.750 1.500 520,102 9.00 1.500 145,102 1.500 2.125 1,055,000 10.00 2.125 523,500 2.125 3.000 3,010,000 9.00 3.000 1,502,500 3.000 3.05-3.10 3,000,000 9.00 3.0625 750,000 3.063 --------- ------- 12,460,102 7,671,102 ========== =========
The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized with respect to the 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:
1998 1997 Net loss applicable to common shares $(6,802,054) $(4,074,885) - as reported ============ ============ Net loss applicable to common shares pro forma $(8,635,367) $(4,268,970) ============ ============ Basic loss per common share - as $ (0.23) $ (0.14) reported ================ ============= Basic loss per common share share - $ (0.29) $ (0.15) pro forma ================ =============
10. NON-REFUNDABLE DEPOSIT On March 31, 1998, the Company reduced notes payable of $850,000 related to a non-refundable deposit it received from a former affiliate. Additional paid in capital was credited for an equal amount. 11. INCOME TAXES The Company had net losses for 1998, 1997 and 1996 therefore, no income taxes have been provided. As of March 31, 1998, the Company has federal net operating loss carryforwards of approximately $13,848,606 through 2012. Significant components of the Company's deferred assets and tax liabilities for federal income taxes consist of the following:
1998 1997 Deferred tax assets Net operating loss carryforwards $6,394,688 $ 5,085,404 Start-up and other costs 3,027,575 2,360,307 Research credit 266,000 266,000 ------------ ---------- Total deferred tax assets 9,688,263 7,711,711 Valuation allowance for deferred tax assets (9,688,263) (7,711,711) ----------- ----------- Net deferred tax assets $ -0- $ -0- =========== ============
The net change in the valuation allowance for the years ended March 31, 1998 and 1997 was an increase of $1,976,552 and $3,249,171, respectively. 12. SIGNIFICANT FOREIGN SUBSIDIARY As stated in Footnote 1, the Company provides financing and builds telecommunications networks for third parties in the PRC. Accordingly, substantially all of its revenues, assets and liabilities are held by its limited liability Sino-foreign joint venture subsidiary. A summary of revenues, net loss, assets and liabilities is as follows: 1998 1997 Revenues $216,348 $0 Net loss $997,774 $231,125 Total assets $37,782,997 $26,442,713 Total liabilities $36,003,069 $24,903,513 13. MAJOR CUSTOMERS During the year ended March 31, 1996, the Company's wholly owned subsidiary, ITV, conducted business with two customers whose sales comprised substantially all of the Company's revenues. In January 1996, the Company sold substantially all of the assets related to that business. 14. SALE OF BUSINESS In January 1996, the Company sold the business and the related operating assets in which its wholly owned subsidiary, ITV, was engaged. The sale price was $2,500,000 (which consisted of $250,000 in cash and $2,250,000 in the form of a note receivable). In addition, the Company received an equity interest in another company, which was valued at $500,000. Due to the uncertainty of the collection of the $2,250,000 note receivable, the amount of the note has not been recognized. The gain associated with the note will be recognized when the note receivable is collected. The sale of the assets resulted in a gain from sale of the assets of $31,880. (See Note 15 as to the write-off of the investment.) 15. INVESTMENT IN NETMATICS The Company held a 39% (as of March 31, 1997) ownership interest in Netmatics, Inc. ("Netmatics"), which it acquired in January 1996 in connection with the sale by the Company of the ITV business and operating assets. In fiscal 1996, the Company suspended the equity method of accounting for its investment in Netmatics when the Company's share of losses equaled the carrying amount of the investment. In fiscal 1996, the Company's share of Netmatics' loss charged to operations was $500,000. During fiscal 1997, the Company advanced $12,000 to and purchased $186,538 of debentures from Netmatics. Such amounts were written-off as of March 31, 1997. 16. RELATED PARTY TRANSACTIONS (SEE NOTE 9 REGARDING THE CANCELLATION OF THE 12,727,909 SHARES OF COMMON STOCK AND THE MASTER AGREEMENT) GENERAL - In February 1995, pursuant to a Reorganization Agreement, Tweedia International, Ltd. became the owner of approximately 12,727,909 shares, or 41%, of the Company's issued and outstanding Common Stock. The Company was informed that Beijing CATCH Communications Group Co. ("Beijing CATCH") has an option to acquire 100% of the outstanding capital stock of Tweedia. However, this option may not be exercised without the receipt by Beijing CATCH of all PRC regulatory approvals applicable to such exercise. After discussions with PRC counsel, management believes that these approvals to own securities listed on non-PRC stock exchanges are substantive in nature and are not normally readily obtained in the PRC. As of December 21, 1995, pursuant to the terms of a Master Agreement and Right of First Refusal (the "Master Agreement"), Beijing CATCH agreed to grant the Company a right of first refusal to participate as a majority investor and provide financial, operating and technical consulting services with respect to all rights granted, sold, licensed, or otherwise transferred to Beijing CATCH, directly or indirectly, that relate to the construction, operation or acquisition of any type of telephony, telecommunications, equipment, paging equipment or related forms of communication in the PRC. As consideration for this right of first refusal, the Company agreed to issue up to 50,000,000 shares of Common Stock to Tweedia based on the receipt of certain agreed upon amounts of net income by the Company relating to prospective Sino-foreign joint ventures involving the Company and Beijing CATCH. The Master Agreement supersedes certain terms of other prior agreements between the Company and Beijing CATCH concerning cooperation on telecommunications projects. The Company has not entered into, and management has no current intent of entering into, any Sino-foreign joint ventures with Beijing CATCH under the terms of the Master Agreement. As a result, no obligation for future issuances of Common Stock to Beijing CATCH under the Master Agreement exist or are contemplated. At the time of the Company's acquisition of the majority stake, Hebei Development held a 30% ownership of Hebei Equipment and Beijing CATCH held subscription rights to 9.2% ownership of Hebei Equipment. Subsequent to Hebei Equipment's conversion to a Sino-Foreign joint venture company, Beijing CATCH defaulted on its required capital contribution. On April 22, 1997, the Board of Directors of Hebei Equipment resolved to terminate Beijing CATCH's ownership participation in Hebei Equipment, and the Company and Hebei Development agreed to provide to Hebei Equipment the amount defaulted on by Beijing CATCH. (See Note 2 as to the Company's acquisition of Beijing Catch's interest.) 17. ITEMS RECORDED IN THE FOURTH QUARTER The Company recorded the following non-cash items in the fourth quarter: The initial annual amortization of its investment in the Hebei GSM networks of $2,183,000; 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. EX-3 2 EXHIBIT 3.7 - BY-LAWS AMENDED AND RESTATED BYLAWS OF AMTEC, INC. (a Delaware corporation) The following are the Bylaws of AMTEC, INC., a Delaware corporation (the "Corporation"), effective as of December 8, 1997, except with respect to those provisions which will require a stockholder approved amendment to the Certificate of Incorporation to become effective, and which, in the time preceding such amendment, will be construed in accordance with Article VII hereto: ARTICLE I Offices Section 1.01. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the Corporation shall be located at 599 Lexington Avenue, 44th Floor, New York, New York 10022. The Board of Directors of the Corporation (the "Board of Directors") may change the location of said principal executive office. Section 1.02. OTHER OFFICES. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II Meetings of Stockholders Section 2.01. ANNUAL MEETINGS. The annual meeting of stockholders of the Corporation shall be held at a date and at such time as the Board of Directors shall determine. At each annual meeting of stockholders, directors shall be elected in accordance with the provisions of Section 3.03 hereof and any other proper business may be transacted. Section 2.02. SPECIAL MEETINGS. Special meetings of stockholders for any purpose or purposes may be called at any time by a majority of the Board of Directors, by the Chairman of the Board or, by the President. Special meetings may not be called by any other person or persons. Each special meeting shall be held at such date and time as is requested by the person or persons calling the meeting, within the limits fixed by law. Section 2.03. PLACE OF MEETINGS. Each annual or special meeting of stockholders shall be held at such location as may be determined by the Board of Directors or, if no such determination is made, at such place as may be determined by the Chairman of the Board. If no location is so determined, any annual or special meeting shall be held at the principal executive office of the Corporation. Section 2.04. NOTICE OF STOCKHOLDER MEETINGS. Written notice of each annual or special meeting of stockholders stating the date and time when, and the place where, it is to be held shall be delivered either personally or by mail to stockholders entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. The purpose or purposes for which the meeting is called may, in the case of an annual meeting, and shall, in the case of a special meeting, also be stated. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it shall appear on the stock books of the Corporation, unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case such notice shall be mailed to the address designated in such request. Section 2.05. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS. (a) Nomination of Directors. Only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 2.5(a). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 5 days prior to that date which shall be set by the Board of Directors as the date by which information is required to be received for inclusion in the proxy statement; provided, however, that in the event that less than 55 days' notice or prior public disclosure of the date of the meeting or, of the date the proxy materials are due, is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the seventh day following the day on which such notice of the date of the meeting or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected), and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.5(a). The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-Laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 2.5(a), a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 2.5(a). (b) Notice of Business. At any meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Section 2.5(b), who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 2.5(b). For business to be properly brought before a stockholder meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 5 days prior to that date which shall be set by the Board of Directors as the date by which information is required to be received for inclusion in the proxy statement; provided, however, that in the event that less than 55 days' notice or prior public disclosure of the date of the meeting or, of the date the proxy materials are due, is given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the seventh day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at a stockholder meeting except (i) in accordance with the procedures set forth in this Section 2.5(b) or (ii) with respect to nominations of persons for election as directors of the Corporation, in accordance with the provisions of Section 2.5(a) hereof. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of the By-Laws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.5(b), a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. Section 2.06. CONDUCT OF MEETINGS. All actual and special meetings of stockholders shall be conducted in accordance with such rules and procedures as the Board of Directors may determine subject to the requirements of applicable law and, as to matters not governed by such rules and procedures, as the chairman of such meeting shall determine. The chairman of any annual or special meeting of stockholders shall be the Chairman of the Board. The Secretary, or in the absence of the Secretary, a person designated by the Chairman of the Board, shall act as secretary of the meeting. Section 2.07. QUORUM. At any meeting of stockholders of the Corporation, the presence, in person or by proxy, of the holders of record of a majority of the shares then issued and outstanding and entitled to vote at the meeting shall constitute a quorum for the transaction of business; provided, however, that this Section 2.07 shall not affect any different requirement which may exist under statute, pursuant to the rights of any authorized class or series of stock, or under the Certificate of Incorporation of the Corporation, as amended or restated from time to time (the "Certificate"), for the vote necessary for the adoption of any measure governed thereby. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, the stockholders present in person or by proxy, by majority vote and without further notice, may adjourn the meeting from time to time until a quorum is attained, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in this section. At any reconvened meeting following such adjournment at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 2.08. VOTES REQUIRED. The affirmative vote of a majority of the shares present in person or represented by proxy at a duly called meeting of stockholders of the Corporation, at which a quorum is present and entitled to vote on the subject matter, shall be sufficient to take or authorize action upon any matter which may properly come before the meeting, except that the election of directors shall be by plurality vote, unless the vote of a greater or different number thereof is required by statute, by the rights of any authorized class of stock or by the Certificate. Unless the Certificate or a resolution of the Board of Directors adopted in connection with the issuance of shares of any class or series of stock provides for a greater or lesser number of votes per share, or limits or denies voting rights, each outstanding share of stock, regardless of class or series, shall be entitled to one (1) vote on each matter submitted to a vote at a meeting of stockholders. Section 2.09. PROXIES. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the stockholder or the stockholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by, or as to any meeting by attendance at such meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of three (3) years from the date of the proxy, unless otherwise provided in the proxy. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. Section 2.10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Unless otherwise provided in the Certificate of Incorporation, and subject to the rights, if any, of the holders, if any, of Preferred Stock to take action by written consent, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Section 2.11. RECORD DATE FOR STOCKHOLDER NOTICE AND VOTING. For purposes of determining the stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor fewer than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such other action, and in this event only stockholders at the close of business on the record date are entitled to notice or to vote, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the General Corporation Law of the State of Delaware. If the board of directors does not so fix a record date: (a) The record date for determining the stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. (c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 2.12. LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make (or cause to be prepared and made), at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of, and the number of shares registered in the name of, each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the duration thereof, and may be inspected by any stockholder who is present. Section 2.13. VOTING. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12. The stockholders' vote may be by voice vote or by ballot. Any stockholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder's approving vote is with respect to all shares that the stockholder is entitled to vote. Section 2.14. WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS. The transactions of any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes. The waiver of notice, consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of stockholders. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person attends the meeting for the express purpose of objecting and objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by law to be included in the notice of the meeting but not so included if that objection is expressly made at the meeting. Section 2.15. INSPECTORS OF ELECTION. In advance of any meeting of stockholders, the Board of Directors shall appoint Inspectors of Election to act at such meeting or at any adjournment or adjournments thereof. If such Inspectors are not so appointed or fail or refuse to act, the chairman of any such meeting may (and, upon the demand of any stockholder or stockholder's proxy, shall) make such an appointment. The number of Inspectors of Election shall be one (1) or three (3). If there are three (3) Inspectors of Election, the decision, act or certificate of a majority shall be effective and shall represent the decision, act or certificate of all. No such Inspector need be a stockholder of the Corporation. Subject to any provisions of the Certificate of Incorporation, the Inspectors of Election shall determine the number of shares outstanding, the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; they shall receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close and determine the result; and finally, they shall do such acts as may be proper to conduct the election or vote with fairness to all stockholders. On request, the Inspectors shall make a report in writing to the secretary of the meeting concerning any challenge, question or other matter as may have been determined by them and shall execute and deliver to such secretary a certificate of any fact found by them. ARTICLE III Directors Section 3.01. POWERS. The business and affairs of the Corporation shall be managed by and be under the direction of the Board of Directors. The Board of Directors shall exercise all the powers of the Corporation, except those that are conferred upon or reserved to the stockholders by statute, the Certificate or these Bylaws. Section 3.02. NUMBER. The number of directors shall be fixed from time to time by resolution of the Board of Directors but shall not be less than three (3) nor more than nine (9). Section 3.03. ELECTION AND TERM OF OFFICE. Effective as of the date of the amendment to the Certificate of Incorporation which amendment shall reflect an article consistent with the terms of this Section 3.03 (the "Effective Date"), the Board of Directors shall consist of three classes of directors, such classes to be as nearly equal in number of directors as possible, having staggered three-year terms of office, the term of office of the directors of the first such class to expire at the first annual meeting of the Corporation's stockholders following the Effective Date, those of the second class to expire at the second annual meeting of the Corporation's stockholders following the Effective Date, and those of the third class at the third annual meeting of the Corporation's stockholders following the Effective Date, such that at each such annual meeting of stockholders, nominees will stand for election for three-year terms to succeed those directors whose terms are to expire at such meeting. Likewise, at each other annual meeting of stockholders held from and after the Effective Date, those nominees elected at such meeting to succeed those directors whose terms expire at such meeting, shall serve for a term expiring at the third annual meeting of stockholders following their election. Members of the Board of Directors shall hold office until the annual meeting of stockholders for the year in which their term is scheduled to expire as set forth above in this Section 3.03 and their respective successors are duly elected and qualified or until their earlier death, incapacity, resignation, or removal. No decrease in the authorized number of directors shall shorten the term of any incumbent director, and additional directors elected in connection with rights to elect such additional directors under specified circumstances which may be granted to the holders of any series of Preferred Stock shall not be included in any class, but shall serve for such term or terms and pursuant to such other provisions as are specified in the resolution of the Board of Directors establishing such series. Section 3.04. ELECTION OF CHAIRMAN OF THE BOARD. At the organizational meeting immediately following the annual meeting of stockholders, the directors shall elect a Chairman of the Board from among the directors who shall hold office until the corresponding meeting of the Board of Directors in the next year and until his successor shall have been elected or until his earlier resignation or removal. Any vacancy in such office may be filled for the unexpired portion of the term in the same manner by the Board of Directors at any regular or special meeting. Section 3.05. REMOVAL. Any director may be removed from office only as provided in the Certificate of Incorporation. Section 3.06. VACANCIES AND ADDITIONAL DIRECTORSHIPS. Except as the Delaware General Corporate Laws may otherwise require, and subject to the rights of the holders of any series of Preferred Stock with respect to the filling of vacancies or new directorships in the Board of Directors, newly created directorships resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 3.07. REGULAR AND SPECIAL MEETINGS. Regular meetings of the Board of Directors shall be held immediately following the annual meeting of the stockholders; without call at such time as shall from time to time be fixed by the Board of Directors; and as called by the Chairman of the Board in accordance with applicable law. Special meetings of the Board of Directors shall be held upon call by or at the direction of the Chairman of the Board, the President or any two (2) directors, except that when the Board of Directors consists of one (1) director, then the one director may call a special meeting. Except as otherwise required by law, notice of each special meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least three days before the day on which the meeting is to be held, or shall be sent to him at such place by telex, telegram, cable, facsimile transmission or telephoned or delivered to him personally, not later than the day before the day on which the meeting is to be held. Such notice shall state the time and place of such meeting, but need not state the purpose or purposes thereof, unless otherwise required by law, the Certificate of Incorporation or these Bylaws ("Bylaws"). Notice of any meeting need not be given to any director who shall attend such meeting in person (except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened) or who shall waive notice thereof, before or after such meeting, in a signed writing. Section 3.08. QUORUM. At all meetings of the Board of Directors, a majority of the fixed number of directors shall constitute a quorum for the transaction of business, except that when the Board of Directors consists of one (1) director, then the one director shall constitute a quorum. In the absence of a quorum, the directors present, by majority vote and without notice other than by announcement, may adjourn the meeting from time to time until a quorum shall be present. At any reconvened meeting following such an adjournment at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.09. VOTES REQUIRED. Except as otherwise provided by applicable law or by the Certificate of Incorporation, the vote of a majority of the directors present at a meeting duly held at which a quorum is present shall be sufficient to pass any measure. Section 3.10. PLACE AND CONDUCT OF MEETINGS. Each regular meeting and special meeting of the Board of Directors shall be held at a location determined as follows: The Board of Directors may designate any place, within or without the State of Delaware, for the holding of any meeting. If no such designation is made: (a) any meeting called by a majority of the directors shall be held at such location, within the county of the Corporation's principal executive office, as the directors calling the meeting shall designate; and (b) any other meeting shall be held at such location, within the county of the Corporation's principal executive office, as the Chairman of the Board may designate or, in the absence of such designation, at the Corporation's principal executive office. Subject to the requirements of applicable law, all regular and special meetings of the Board of Directors shall be conducted in accordance with such rules and procedures as the Board of Directors may approve and, as to matters not governed by such rules and procedures, as the chairman of such meeting shall determine. The chairman of any regular or special meeting shall be the Chairman of the Board, or, in his absence, a person designated by the Board of Directors. The Secretary, or, in the absence of the Secretary, a person designated by the chairman of the meeting shall act as secretary of the meeting. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting. Section 3.11. FEES AND COMPENSATION. Directors shall be paid such compensation as may be fixed from time to time by resolution of the Board of Directors: (a) for their usual and contemplated services as directors; (b) for their services as members of committees appointed by the Board of Directors, including attendance at committee meetings as well as services which may be required when committee members must consult with management staff; and (c) for extraordinary services as directors or as members of committees appointed by the Board of Directors, over and above those services for which compensation is fixed pursuant to items (a) and (b) in this Section 3.11. Compensation may be in the form of an annual retainer fee or a fee for attendance at meetings, or both, or in such other form or on such basis as the resolutions of the Board of Directors shall fix. Directors shall be reimbursed for all reasonable expenses incurred by them in attending meetings of the Board of Directors and committees appointed by the Board of Directors and in performing compensable extraordinary services. Nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity, such as an officer, agent, employee, consultant or otherwise, and receiving compensation therefor. Section 3.12. COMMITTEES OF THE BOARD OF DIRECTORS. To the full extent permitted by applicable law, the Board of Directors may from time to time establish committees, including, but not limited to, standing or special committees and an executive committee with authority and responsibility for bookkeeping, with authority to act as signatories on Corporation bank or similar accounts and with authority to choose attorneys for the Corporation and direct litigation strategy, which shall have such duties and powers as are authorized by these Bylaws or by the Board of Directors. Committee members, and the chairman of each committee, shall be appointed by the Board of Directors. The Chairman of the Board, in conjunction with the several committee chairmen, shall make recommendations to the Board of Directors for its final action concerning members to be appointed to the several committees of the Board of Directors. Any member of any committee may be removed at any time with or without cause by the Board of Directors. Vacancies which occur on any committee shall be filled by a resolution of the Board of the Directors. If any vacancy shall occur in any committee by reason of death, resignation, disqualification, removal or otherwise, the remaining members of such committee, so long as a quorum is present, may continue to act until such vacancy is filled by the Board of Directors. The Board of Directors may, by resolution, at any time deemed desirable, discontinue any standing or special committee. Members of standing committees, and their chairmen, shall be elected yearly at the regular meeting of the Board of Directors which is held immediately following the annual meeting of stockholders. The provisions of Sections 3.07, 3.08, 3.09 and 3.10 of these Bylaws shall apply, mutatis mutandis, to any such Committee of the Board of Directors. Section 3.13. WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, before or at its commencement, the lack of notice to that director. Section 3.14. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 3.15. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place are fixed at the meeting adjourned. Section 3.16. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board of directors or any committee thereof may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent or consents shall be filed with the minutes of the proceedings of the board. ARTICLE IV Officers Section 4.01. DESIGNATION, ELECTION AND TERM OF OFFICE. The Corporation shall have a Chairman of the Board, a President, a Treasurer, such senior vice presidents and vice presidents as the Board of Directors deems appropriate, a Secretary and such other officers as the Board of Directors may deem appropriate. These officers shall be elected annually by the Board of Directors at the organizational meeting immediately following the annual meeting of stockholders, and each such officer shall hold office until the corresponding meeting of the Board of Directors in the next year and until his successor shall have been elected and qualified or until his earlier resignation, death or removal. Any vacancy in any of the above offices may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. Any number of offices may be held by the same person in accordance with section 4.08 herein. Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors shall preside at all meetings of the directors and shall have such other powers and duties as may from time to time be assigned to him by the Board of Directors. Section 4.03. PRESIDENT. The President shall be the chief executive officer of the Corporation and shall, subject to the power of the Board of Directors, have general supervision, direction and control of the business and affairs of the Corporation. He shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, at all meetings of the directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other duties as may be assigned to him from time to time by the Board of Directors. Section 4.04. TREASURER. The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by the directors. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his transactions as the Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws. Section 4.05. SECRETARY. The Secretary shall keep the minutes of the meetings of the stockholders, the Board of Directors and all committees. He shall be the custodian of the corporate seal and shall affix it to all documents which he is authorized by law or the Board of Directors to sign and seal. He also shall perform such other duties as may be assigned to him from time to time by the Board of Directors or the Chairman of the Board or President. Section 4.06. ASSISTANT OFFICERS. The President may appoint one or more assistant secretaries and such other assistant officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as may be specified from time to time by the President. Section 4.07. WHEN DUTIES OF AN OFFICER MAY BE DELEGATED. In the case of absence or disability of an officer of the Corporation or for any other reason that may seem sufficient to the Board of Directors, the Board of Directors or any officer designated by it, or the President, may, for the time of the absence or disability, delegate such officer's duties and powers to any other officer of the Corporation. Section 4.08. OFFICERS HOLDING TWO OR MORE OFFICES. The same person may hold any two (2) or more of the above-mentioned offices. Section 4.09. COMPENSATION. The Board of Directors shall have the power to fix the compensation of all officers and employees of the Corporation. Section 4.10. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors, to the President, or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein unless otherwise determined by the Board of Directors. The acceptance of a resignation by the Corporation shall not be necessary to make it effective. Section 4.11. REMOVAL. Any officer of the Corporation may be removed, with or without cause, by the affirmative vote of a majority of the entire Board of Directors. Any assistant officer of the Corporation may be removed, with or without cause, by the President or by the Board of Directors. ARTICLE V Indemnification of Directors, Officers Employees and other Corporate Agents Section 5.01. ACTION, ETC., OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to hereinafter as an "Agent"), against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. Section 5.02. ACTION, ETC., BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was an Agent against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation by a court of competent jurisdiction, after exhaustion of all appeals therefrom, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Section 5.03. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification under Sections 5.01 or 5.02 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Agent is proper in the circumstances because the Agent has met the applicable standard of conduct set forth in Sections 5.01 and 5.02 hereof, which determination is made (a) by the Board of Directors, by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. Section 5.04. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article V, to the extent that an Agent has been successful on the merits or otherwise, including the dismissal of an action without prejudice or the settlement of an action without admission of liability, in defense of any action, suit or proceeding referred to in Sections 5.01 or 5.02 hereof, or in defense of any claim, issue or matter therein, such Agent shall be indemnified against expenses, including attorneys' fees actually and reasonably incurred by such Agent in connection therewith. Section 5.05. ADVANCES OF EXPENSES. Except as limited by Section 5.06 of this Article V, expenses incurred by an Agent in defending any civil or criminal action, suit, or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding, if the Agent shall undertake to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified as authorized in this Article V. Notwithstanding the foregoing, no advance shall be made by the Corporation if a determination is reasonably and promptly made by the Board of Directors by a majority vote of a quorum of disinterested directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel in a written opinion, that, based upon the facts known to the Board of Directors or counsel at the time such determination is made, such person acted in bad faith and in a manner that such person did not believe to be in or not opposed to the best interest of the Corporation, or, with respect to any criminal proceeding, that such person believed or had reasonable cause to believe his conduct was unlawful. Section 5.06. RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON APPLICATION. Any indemnification or advance under this Article V shall be made promptly, and in any event within ninety days, upon the written request of the Agent, unless a determination shall be made in the manner set forth in the second sentence of Subsection 5.05 hereof that such Agent acted in a manner set forth therein so as to justify the Corporation's not indemnifying or making an advance to the Agent. The right to indemnification or advances as granted by this Article V shall be enforceable by the Agent in any court of competent jurisdiction, if the Board of Directors or independent legal counsel denies the claim, in whole or in part, or if no disposition of such claim is made within ninety (90) days. The Agent's expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. Section 5.07. OTHER RIGHTS AND REMEDIES. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall not be deemed exclusive of any other rights to which an Agent seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors and administrators of such a person. All rights to indemnification under this Article V shall be deemed to be provided by a contract between the Corporation and the Agent who serves in such capacity at any time while these Bylaws and other relevant provisions of the Delaware General Corporation Law and other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing. Section 5.08. INSURANCE. Upon resolution passed by the Board of Directors, the Corporation may purchase and maintain insurance on behalf of any person who is or was an Agent against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article V. Section 5.09. CONSTITUENT CORPORATIONS. For the purposes of this Article V, references to "the Corporation" shall include, in addition to the resulting corporation, all constituent corporations (including all constituents of constituents) absorbed in a consolidation or merger as well as the resulting or surviving corporation, which, if the separate existence of such constituent corporation had continued, would have had power and authority to indemnify its Agents, so that any Agent of such constituent corporation shall stand in the same position under the provisions of the Article V with respect to the resulting or surviving corporation as that Agent would have with respect to such constituent corporation if its separate existence had continued. Section 5.10. OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S REQUEST. For purposes of this Article V, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to any employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article V. Section 5.11. SAVINGS CLAUSE. If this Article V or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or. investigative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article V that shall not have been invalidated, or by any other applicable law. ARTICLE VI Stock Section 6.01. CERTIFICATES. Except as otherwise provided by law, each stockholder shall be entitled to a certificate or certificates which shall represent and certify the number and class (and series, if appropriate) of shares of stock owned by him in the Corporation. Each certificate shall be signed in the name of the Corporation by the Chairman of the Board or a Vice-Chairman of the Board or the President or a Vice President, together with the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Any or all of the signatures on any certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 6.02. TRANSFER OF SHARES. Shares of stock shall be transferable on the books of the Corporation only by the holder thereof, in person or by his duly authorized attorney, upon the surrender of the certificate representing the shares to be transferred, properly endorsed, to the Corporation's transfer agent, if the Corporation has a transfer agent, or to the Corporation's registrar, if the Corporation has a registrar, or to the Secretary, if the Corporation has neither a transfer agent nor a registrar. The Board of Directors shall have power and authority to make such other rules and regulations concerning the issue, transfer and registration of certificates of the Corporation's stock as it may deem expedient. Section 6.03. TRANSFER AGENTS AND REGISTRARS. The Corporation may have one or more transfer agents and one or more registrars of its stock whose respective duties the Board of Directors or the Secretary may, from time to time, define. No certificate of stock shall be valid until countersigned by a transfer agent, if the Corporation has a transfer agent, or until registered by a registrar, if the Corporation has a registrar. The duties of transfer agent and registrar may be combined. Section 6.04. STOCK LEDGERS. Original or duplicate stock ledgers, containing the names and addresses of the stockholders of the Corporation and the number of shares of each class of stock held by them, shall be kept at the principal executive office of the Corporation or at the office of its transfer agent or registrar. ARTICLE VII Miscellaneous Section 7.01. RELATIONSHIP BETWEEN BYLAWS, CERTIFICATE OF INCORPORATION, AND DELAWARE GENERAL CORPORATE LAW. To the extent that the Certificate of Incorporation or the Delaware General Corporate Laws grant to any Person any rights which are restricted under these Bylaws and which are not permitted to be so restricted by the Certificate of Incorporation or the Delaware General Corporate Laws, than the extent of such right shall be as stated in the Certificate of Incorporation or the Delaware General Corporate Laws, as the case may be, and these Bylaws shall be so interpreted. EX-10 3 EXHIBIT 10.9 - EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This Employment Agreement is made on the 23rd day of January, 1998 between AmTec, Inc., a Delaware Corporation ("Employer"), and Michael J. Lim ("Executive"). 1. Term. Employer hereby employs Executive and Executive hereby accepts employment on the terms and conditions hereinafter set forth. Subject to the provisions of Section 7 hereof, the term of this Agreement shall be effective commencing as of November 8, 1997 and shall terminate on November 7, 2002. 2. Duties. Executive agrees to serve Employer as Executive Vice President of AmTec, Inc. and in such capacity Executive agrees to render his services to the best of his ability. Executive will report to the Chairman of the Board and the Chief Executive Officer of the Company. During the term of this Agreement, Executive will devote his full time (at least 35 hours per week) and attention to, and use his best efforts to advance the business and welfare of Employer, subject to the directions and control of the Board of Directors. 3. Confidential Information and Covenant Not to Compete. (a) Executive hereby agrees that, during the term of this Agreement and thereafter, he will not disclose to any person, or otherwise use or exploit any of the proprietary or confidential information or knowledge, including without limitation, trade secrets, processes, records of research, proposals, reports, methods, processes, techniques, computer software or programming, or budgets or other financial information, regarding Employer, its business, properties or affairs obtained by him at any time prior to or subsequent to the execution of this Agreement, except in the furtherance of the interests of Employer in the execution of Executive's duties hereunder or as may be required pursuant to a lawful order of a judicial tribunal or legislative body of competent jurisdiction. (b) Upon termination of employment, Executive will deliver to Employer all processes, records of research, proposals, reports, memoranda, computer software and programming, budgets and other financial information, and other materials or records or writings of any other type (including any copies thereof) made used or obtained by Executive in connection with his employment by Employer. (c) During the term of this Agreement, Executive agrees that he will: (I) neither authorize his name to be used by, (ii) nor engage in or carry on, directly or indirectly, for himself as a member of a partnership or as a stockholder (other than as a stockholder of less than five percent (5%) of the issued and outstanding stock of a publicly held corporation having assets in excess of $10,000,000), investor, officer, or director of a corporation (other than Employer, or any parent, subsidiary, affiliate or successor of Employer), or as an employee, agent, associate, or consultant of any person, partnership, corporation or other business entity, in competition with any business carried on, directly or indirectly, by Employer prior to the date hereof or hereafter conducted, directly or indirectly, by Employer during the term of this Agreement, in any county where business is then carried on or conducted by Employer. (d) Executive agrees that the remedy at law for any breach by him of any of the covenants and agreements set forth in this Section 3 will be inadequate and that in the event of any such breach, Employer may, in addition to the other remedies which may be available to it at law, obtain injunctive relief prohibiting him (together with all those persons associated with him) from the breach of such covenants and agreements. (e) The parties hereto intend that the covenants and agreements contained in this Section 3 shall be deemed to include a series of separate covenants and agreements. If, in any judicial proceeding, a court shall refuse to enforce all of the separate covenants deemed included in such action, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purposes of such proceeding to the extent necessary to permit the remaining separate covenants to be enforced in such proceeding. 4. Compensation. 4.1 Salary. For the services to be rendered by Executive during the first year of the term of this Agreement, Employer shall pay Executive an annual base salary of Three Hundred Thousand Dollars ($300,000), payable in cash in equal installments semi-monthly and subject to income tax withholdings and other payroll deductions as customary in respect of Employer's salaried employees in general. On the date of this agreement, January 23, 1998, Executive shall receive ten year options to purchase 250,000 shares of common stock of the Employer at a price of $0.75 per share, said options to vest 25% at the end of each of four (4) 180 day periods, the first such period commencing 180 days from November 8, 1997. While the amount of additional option awards will be determined at the discretion of the Compensation Committee of the Board of Directors, it is intended that Executive will receive stock options in each year of this Agreement. The annual base salary of Executive for the second, third, fourth and fifth years of the term of this Agreement will be determined by the Compensation Committee of the Board of Directors, but shall be no less than $350,000 in the second year and thereafter. 4.2 Bonus. Executive shall be entitled to participate in such bonus plans of Employer applicable to senior executives of Employer as determined by the Board of Directors of Employer in its sole discretion. Notwithstanding the foregoing, for the 1996-1997 year of employment, Employer shall pay Executive a bonus of $100,000, payable in cash on April 15, 1998. During the first year of the term of this Agreement, the bonus shall be no less than $50,000 and will be at least $100,000 if Employer obtains additional financing, payable in cash within thirty days of the closing of such financing. For the second year and each succeeding year of employment hereunder, the annual bonus will be determined by the Compensation Committee of the Board of Directors. All bonuses payable to Executive in the second year of the Agreement and thereafter will be payable on March 31 of 1999, 2000, 2001 and 2002. Criteria for the determination of the discretionary amount of bonus will be as agreed upon by the Executive and the Chairman of the Board within forty-five days of the date of this Agreement and within forty-five days of the commencement of each succeeding year of employment hereunder. 4.2 (a) Stock Options. The Executive shall receive stock options as described in section 4.1. It is expected that the Executive will receive additional option awards in the second, third, fourth and fifth years of the term of this Agreement as determined by the Compensation Committee of the Board of Directors. 4.2 (b) Long Term Compensation Plan. Executive shall be entitled to participate in a long-term compensation plan which will be multi-year performance based over a number of years starting with the first contract year. It is the intention of the Employer to pay the Executive on an incentive basis to be determined by the Compensation Committee of the Board of Directors under a performance based plan after a number of years stipulated by the Board of Directors. 4.3 Vacation. Executive shall be entitled to four weeks' paid vacation for each year during the term of this Agreement. 4.4 Medical Insurance. During the term of this Agreement Employer shall furnish Executive with the same medical and hospital insurance furnished to other employees of Employer. 4.5 Disability Insurance. During the term of this Agreement, Employer shall furnish Executive with Long Term Disability insurance on the same terms available to all senior executives of Employer. 4.6 Pension and Profit Sharing. Executive shall participate in such pension and profit sharing plans as are established for senior executives of Employer. 4.7 Other Rights and Options. In addition to the foregoing, Executive shall be entitled to such additional rights and options as may be granted or established for the benefit of senior executive officers of the Company, including, without limitation, in connection with, any recapitalization, reorganization, consolidation or merger of the Company. 5. Expenses. Employer will pay or reimburse Executive for such reasonable travel, entertainment, or other expenses as he may incur at the request of Employer during the term of this agreement in connection with the performance of his duties hereunder. Executive shall furnish Employer with such evidence that such expenses were incurred as Employer may from time to time require or request. 6. Death or Total Disability of Executive.If Executive dies, or becomes totally disabled (for a period of more than six(6) consecutive weeks), during the term of this Agreement, Executive's employment under this Agreement shall automatically terminate; provided that, in such event of death or total disability, Executive's stock options under paragraph 4.1 hereof, to the extent not already vested, shall vest immediately. 7. Termination for Cause. Executive's employment under this Agreement may be terminated by Employer for "good cause." The term "good cause" is defined as any one or more of the following occurrences: (a) Executive's breach of any of the covenants contained in Section 3 of this Agreement; (b) Executive's conviction by, or entry of a plea of guilty or nolo contendere to a felony; (c) Executive's commission of an act of fraud, whether prior to or subsequent to the date hereof, upon Employer; (d) Executive's continuing failure or refusal to perform his duties as required by this Agreement; (e) Executive's gross negligence, insubordination, material violation of any duty or loyalty to Employer or any other material misconduct relating to the business or good will of Employer. 8. Miscellaneous. 8.1 Modification and Waiver of Breach. No waiver or modification of this Agreement shall be binding unless it is in writing signed by the parties hereto. No waiver of a breach hereof shall be deemed to constitute a waiver of a future breach, whether of a similar or dissimilar nature. 8.2 Complete Agreement. The Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated by this Agreement and supersedes all previous oral and written and all contemporaneous negotiations, commitment, writings, and understandings and is and shall be binding upon the inure to the benefit of Employer, its successors and permitted assigns and Executive, his heirs, executors and administrators. 8.3 Legal Fees. If any legal action, arbitration or other proceeding is brought for the enforcement of this Agreement, or because of any alleged dispute, breach, default or misrepresentation in connection with this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs it incurred in that action or preceding, in addition to any other relief to which it may be entitled. 8.4 Assignment. This Agreement may not be assigned in any manner whatsoever. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. EXECUTIVE: EMPLOYER: AMTEC, INC. /s/ Michael J. Lim /s/ Joseph R. Wright, Jr. - ---------------------------- -------------------------------- MICHAEL J. LIM JOSEPH R. WRIGHT, JR. CHAIRMAN EX-21 4 EXHIBIT 21.1 - AmTec Hebei Telecom Holdings Ltd., British Virgin Islands AmTec Telecom Holdings Ltd., Bermuda Hebei United Communications Equipment Company Limited, People's Republic of China Hebei United Telecommunications Engineering Company Limited, People's Republic of China ITV Communications, Inc. California EX-23 5 EXHIBIT 23.1 - CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 333-15925, No. 333-26435 and No. 333-20839 of AmTec Inc, (formerly AVIC Group International, Inc.) on Form S-8 and No. 333-33235 and No. 333-44389 on form S-3 of our report dated June 11, 1998, appearing in this Annual Report on Form 10-K of AmTec Inc. (formerly AVIC Group International, Inc.) for the year ended March 31, 1998. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP New York, New York June 11, 1998 EX-23 6 EXHIBIT 23.2 - CONSENT EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated June 18, 1996 accompanying the consolidated financial statements included ion the Annual Report of AmTec, Inc. and Subsidiaries (formerly AVIC Group International, Inc. and Subsidiaries) on Form 10-K for the year ended March 31, 1998. We hereby consent to the incorporation by reference of said report in the Registration Statements of AmTec, Inc. on Forms S-8 (#333-15925, #333-26435, and #333-20839) and Forms S-3 (#333-33235 and #333-44389). /S/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP SINGER LEWAK GREENBAUM & GOLDSTEIN LLP Los Angeles, California June 25, 1998 EX-27 7 EXHIBIT 27 - FINANCIAL DATA SCHEDULE
5 12-mos MAR-31-1998 APR-01-1997 MAR-31-1998 $10,442,334 0 114,661 0 0 10,913,549 897,265 91,375 40,392,720 13,037,506 0 26,533 0 1 0 40,392,720 216,348 216,348 0 0 6,664,909 0 125,586 (6,802,054) 0 0 0 0 0 (6,802,054) (0.23) 0
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