INAPPROPRIATE REPORT:Amtech Corp ructions

In a law suit against Amtech Corp, Jeffrey Wetherell former president and chief operating officer of Amtech Systems and a director of Amtech Corp charges that the leading US supplier of electronic toll equipment and a pioneer of electronic tolling is “currently being gravely mismanaged,” and that an illegal meeting was called to dismiss him as a director, and that it has denied him his rights as a member of the board. The suit says that Wetherell was “terminated, without reason expressed to him at the time from his job position as President and Chief Operating Officer...on or about Jan 22.” (Case 97-03432, District Court, Dallas County, Texas)

The suit seems directed mainly at the board chairman Russell Mortenson, who fired him. We have spoken to both sides and neither is exactly forthcoming or keen that we report the dispute but, sorry guys, it’s news. Mortenson did say that the suit is “another demonstration of how broken the US legal system is” but would not speak further about it. The talk of the trade has been that a major issue has been a suggestion by Mortenson that under Wetherell Amtech promised too much product, too quickly, for too little money in the SunPass contract in Florida. Put to him Mortenson said simply he couldn’t comment on any contract issue. Wetherell said the SunPass contract could have been “an issue” in the ructions at Amtech, but defended it, and would not elaborate on the charges of mismanagement under Mortenson that are made in the law suit. Amtech’s share price has declined dramatically over the past couple of years, and that decline continued after the Florida contract. A low share price makes raising new capital more difficult.

The $38.6m Florida contract is the largest single contract Amtech has obtained, but the $-amount was way below other bids and described as “crazy” by some outside the company. Combitech, the Swedish group that vies with Amtech for the title of the world’s leading supplier of e-toll gear thought it had put in a highly competitive bid at $67m, we were told. The job involves equipment for 455 toll lanes, 340,000 new design tags, video-enforcement in all lanes and some open road tolling. A Combitech rep told us that the only way Amtech will last in Florida is if the Turnpike gives Amtech “slack,” allowing it more time and not pushing it too hard to meet the performance specifications.

“There aren’t too many cases where these toll authorities have pushed a company out for non-performance in the US. They encourage a very low bid to get in the door because they then don’t hold the winner to his promises,” he said.

Just loser? Of course this could be just a loser speaking. Wetherell told us that Florida is getting a good deal and that the bid of $38.6m was "priced to win" and that Amtech is set to gain good service work and followup orders which could make it eventually a $100m job: "Our experience in Oklahoma showed that it is reasonable to see the eventual work as being a multiple of the original contract.” He said that though they didn’t know it at the time the bid was just a few hundred thousand dollars below the point at which the Florida Turnpike had decided it would reject all bids, triggering a whole new round of RFPs and bids.

Wetherell did not speak pessimistically about Amtech’s prospects. “The ongoing business of Amtech is very strong," said Wetherell. Amtech has been developing a new ASIC or basic circuitry for the Florida e-tags because the company has severed its link with Motorola. The Intellitag-2000 which Motorola manufactured for Amtech to sell in Georgia and Kansas cannot be produced economically enough, another source said. The new Florida tag, like the Intellitag is designed to be compatible with the Title 21 California standard as well as with existing Amtech systems, but has to be produced for about 40% less cost. The development of this economical multi-standard tag in time to meet the Florida contract is a technical challenge but if successfully accomplished could give the company a competitive advantage, especially in California, a major e-toll market presently served solely by Texas Instruments.

30% growth: Wetherell said that Amtech's transport systems group got orders of $65m in 1996 (not counting the $38m Florida order) compared to $28m in 1995 and that his group made a "respectable" profit of $1.5m on sales of $53m compared to a substantial loss in the year before he was chief. Wetherell says Amtech's prospects are "very good" with excellent chances for major e-toll sales in China and other Asian countries, Europe, South America and the US. Annual growth of business could be 30% a year for several years.

"I feel I did a good job and accomplished a lot. I expect that in the absense of specific information (about the firing) there is some speculation about why I left," Wetherell said. Amtech Corp overall announced a loss of $644k for the whole of 1996 with the last quarter loss being $914k but both were much less than the losses in 1995. Revenues for 1996 were $116m up 45% from $80m in 1995, when the loss was $4m.

Amtech president Mortenson said in an official report to shareholders that taken as a whole 1996 saw overall progress in improving profitability but that revenues in the last quarter were weaker than expected.

"In 1997 we are determined to return to bottom line profitability as soon as possible," Mortenson said. Wetherell’s replacement is John Wilson, who has been with the company since 1995 as senior VP sales & marketing. A renaming has the electronic tolling done by the Transportation Systems Group of Amtech. In another personnel change Paul Day, VP for Worldwide Toll sales for Amtech, retired and his position was taken by Rand Brown, formerly in charge of system development and one of the five co-founders of the company. Wetherell is looking for work.

Late interviews: Subsequent to writing the above at ITSA we met John Wilson, the new CEO, an engaging and sharp guy who obviously knows the business, and Rand Brown, an Amtech veteran. They told us the company’s most exciting opportunities for new business are now in Latin America and Asia. Amtech has installations and sales reps worldwide, unlike other US e-toll companies and it’s only real rival in this regard is Sweden’s Combitech. Wilson says the major oppportunities in the US are in extending the uses of the company’s existing technology. Amtech is marketing a version of its Intellitag for yard management and other trucking operations, and it is making moves to use its other VRC equipment for car parking. The Sunpass transponder is a modification of the Intellitag in that it has a 12 character display for customers to call up their account balance. The company plans to drive down production costs with a new ASIC, simplifying and reducing the physical size of the Intellitag, but the current transponder will meet Florida specs, so the company can do this bit of ‘value re-engineering’ on its own schedule. Amtech remains a supporter of the US embracing the European CEN standard for VRC. (Contact Beverly V. Fuortes, Investor Relations, Amtech Corp tel 972 733 6059, Jeffrey Wetherell 972 378 1527)