UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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: 0-17158
AMNEX, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
New York 11-2790221
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(State or Other Jurisdiction (I.R.S Employer Identification No.)
of Incorporation or Organization)
6 Nevada Drive, Lake Success, New York 11042
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(Address of Principal Executive Offices) (Zip Code)
(516) 326-2540
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Registrant's Telephone Number, Including Area Code
101 Park Avenue, Suite 2507, New York, New York 10178
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (X) Yes ( ) No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. ( )Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, $.001
par value: 30,629,924 shares at June 30, 1997.
<PAGE>
<TABLE>
AMNEX, INC.
Consolidated Balance Sheets
(In thousands, except share data)
<CAPTION>
June 30,
1997 December 31,
(unaudited) 1996
<S> <C> <C>
Assets
Current assets:
Cash $ 1,204 $ 4,947
Trade receivables, less allowance for doubtful accounts of $2,375
as of June 30, 1997 and $2,757 as of December 31, 1996 24,700 19,311
Parts inventory 883 739
Deferred income taxes 1,791 1,791
Customer advances 2,716 2,414
Deposits and other current assets 1,083 861
---------------------------
Total current assets 32,377 30,063
Investment in unconsolidated subsidiary 5,091 ---
Property and equipment, net 24,649 23,851
Deposits and other 2,303 1,543
Intangible assets, net 9,027 5,947
Goodwill, net 29,697 29,955
Total assets $ 103,144 $ 91,359
============================
</TABLE>
F-1
<PAGE>
<TABLE>
AMNEX, INC.
Consolidated Balance Sheets (continued)
(In thousands, except share data)
<CAPTION>
June 30,
1997 December 31,
(unaudited) 1996
Liabilities and shareholders' equity
----------------- -----------------
<S> <C> <C>
Current liabilities:
Short-term debt $ 13,561 $ 11,498
Accounts payable 6,489 3,651
Accrued expenses 8,489 7,733
Accrued network expenses 2,842 1,975
Accrued commissions 3,815 3,169
Accrued taxes payable 619 1,406
Due to related party 1,198 1,198
Current portion of capital lease obligations 1,849 2,179
Current portion of long-term debt 2,285 2,248
----------------- -----------------
Total current liabilities 41,219 35,057
Capital lease obligations 1,901 2,668
Long-term debt 13,284 13,530
Minority interest 431 10
Compensation payable 805 894
Obligations under renewal and modification agreement 1,125 ---
Obligations under non-compete agreement 1,314 2,630
Common stock subject to redemption 3,250 3,250
Commitments and contingencies
Shareholders' equity:
Voting Preferred Stock, $.001 par; authorized 5,000,000 shares: Series B
Preferred Stock, authorized 356,000 shares, issued and
outstanding 72,450 shares at June 30, 1997 and December 31,
1996 (liquidation preference $362) 362 362
Series D Preferred Stock, authorized 1,413,337 shares, issued and
outstanding 1,413,337 shares at June 30, 1997 and December
31, 1996 (liquidation preference $3,533) 3,533 3,533
Series E Preferred Stock, authorized 1,085,000 shares, issued and
outstanding 1,035,000 shares at June 30, 1997 and December
31, 1996 (liquidation preference $2,911) 2,911 2,911
Series F Preferred Stock, authorized 415,250 shares, issued and
outstanding 415,250 shares at June 30, 1997 and December 31,
1996 (liquidation preference $2,076) 2,076 2,076
Series G Preferred Stock, authorized 145,000 shares, issued and
outstanding zero shares at June 30, 1997 and 78,750 shares at December
31, 1996 (liquidation preference $1,575 at December
31, 1996) --- 1,179
Common stock, $.001 par; authorized 70,000,000, issued 30,648,174
at June 30, 1997 and 26,897,892 shares at December 31, 1996 31 27
Capital in excess of par value 64,670 56,093
Accumulated deficit (33,292) (32,385)
----------------- -----------------
40,291 33,796
Less 18,250 common shares held in treasury, at cost (476) (476)
----------------- -----------------
Total shareholders' equity 39,815 33,320
Total liabilities and shareholders' equity $ 103,144 $ 91,359
================= =================
See accompanying notes.
</TABLE>
F-2
<PAGE>
<TABLE>
AMNEX INC.
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 1997 and 1996
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenue $31,023 $26,426 $62,349 $50,758
Costs and expenses:
Cost of sales and service 24,757 21,369 50,546 40,780
Selling, general and administrative 2,762 2,938 5,318 5,514
Depreciation and amortization 2,180 1,222 4,191 2,366
Restructuring charge - 1,400 -
-----------------------------------------------------------------------------
29,699 25,529 61,455 48,660
Operating income 1,324 897 894 2,098
Interest expense 857 559 1,692 1,104
-----------------------------------------------------------------------------
Income (loss) before income taxes
and minority interest 467 338 (797) 994
Minority interest in (loss)
of subsidiaries (14) - (9) -
-----------------------------------------------------------------------------
Income (loss) before income taxes 453 338 (807) 994
Provision for income taxes 50 61 100 196
-----------------------------------------------------------------------------
Net income (loss) $ 403 $ 277 $ (907) $ 798
========================================= ===================================
Preferred share dividend $ 154 $ 154 $ 308 $ 308
----------------------------------------- -----------------------------------
Net income (loss) available
for common shares $ 249 $ 123 $ (1,215) $ 490
========================================= ===================================
Net income (loss) per common share $ .01 $ .01$ ( .04) $ .02
=============================================================================
Weighted average number of shares
outstanding used in computing net
income (loss) per common share: 29,156 21,371 29,247 20,923
</TABLE>
See accompanying notes.
F-3
<PAGE>
AMNEX, INC.
Consolidated Statement of Shareholders' Equity
December 31, 1996 through June 30,1997
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Preferred Preferred Preferred Preferred
$.001 par value Stock Stock Stock Stock Stock
Shares Amount Series B Series D Series E Series F Series G
------ ------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 26,897,892 $27.0 $ 362 $ 3,533 $ 2,911 $ 2,076 $ 1,179
Issuance of common shares 1,244,537 1.0
Exercise of stock options 15,448
Issuance of preferred shares and
warrant for investment
Vesting of stock grants 24,500
Issuance of warrants
Exercise of warrants 155,000 1.0
Conversion of preferred shares 2,310,797 2.0 (1,179)
Net loss
Balance, June 30, 1997 30,648,174 $31.0 $ 362 $ 3,533 $ 2,911 $ 2,076 -
========== ===== ===== ======= ======= ======= =======
Preferred Capital in Total
Stock Excess of Accumulated Treasury Shareholders'
Series L Par Value Deficit Stock Equity
---------------- -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $56,093 ($32,385) ($476) $33,320
Issuance of common shares 1,705 1,706
Exercise of stock options 45 45
Issuance of preferred shares and
warrant for investment $ 3,636 1,455 5,091
Vesting of stock grants 57 57
Issuance of warrants 400 400
Exercise of warrants 102 103
Conversion of preferred shares (3,636) 4,813 --
Net loss (907) (907)
Balance, June 30, 1997 $ - $64,670 ($33,292) ($476) $39,815
========== ======= ======== ===== =======
</TABLE>
F-4
<PAGE>
<TABLE>
AMNEX, INC.
Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996
(In thousands)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (907) $ 798
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 4,191 2,366
Minority interest (14)
Provision for losses on receivables (382) (72)
Changes in operating assets and liabilities:
Trade receivables (5,143) (3,034)
Parts inventory (119) (44)
Note receivable - 753
Customer advances, deposits and other current assets (1,239) 475
Deposits and other assets (552) (2,244)
Accounts payable and accrued expenses 3,066 785
Net cash used in operating activities (1,099) (217)
Cash flows from investing activities
Purchase of businesses, net of cash acquired (881) 476
Purchase of phones (475) -
Expenditures for property and equipment (1,290) (965)
Proceeds on sale of assets - 2,375
Net cash provided by (used in) investing activities (2,646) 1,886
Cash flows from financing activities
Proceeds from the exercise of common stock options 37 133
Proceeds from the sale of common stock 2 -
Borrowings under revolving credit, net 2,159 1,550
Payments on long-term debt (1,099) (364)
Principal payments under capital lease obligations (1,097) (416)
Net cash provided by financing activities 2 903
------------------ ------------------
Net increase (decrease) in cash (3,743) 2,572
Cash at beginning of period 4,947 94
Cash at end of period $ 1,204 $ 2,666
================== ==================
See accompanying notes.
</TABLE>
F-5
<PAGE>
Supplemental disclosure of cash flow information:
(In thousands, except share data)
Six months ended June 30, 1997:
1. The Company issued 100,000 Series L Preferred Shares convertible into
1,500,000 Common Shares.
2. The Company issued 810,797 Common Shares pursuant to the conversion of
78,750 Series G Preferred Shares.
3. The Company issued 1,500,000 Common Shares pursuant to the conversion of
100,000 Series L Preferred Shares.
4. The Company issued 94,369 Common Shares for the acquisition of pay
telephones.
5. The Company issued 526,168 Common Shares pursuant to agreement with
Teleplus, Inc.
6. The Company issued 624,000 Common Shares pursuant to the conversion of $96
of debt plus accrued interest thereon.
7. The Company issued 155,000 Common Shares pursuant to the exercise of
155,000 warrants.
8. The Company issued 24,500 Common Shares pursuant to the 1996 Restricted
Stock Grant.
9. Interest of approximately $1,748 was paid.
10. Income taxes of approximately $321 were paid.
Six months ended June 30, 1996:
1. The holder of an aggregate of 50,000 shares of the Company's Series E
Preferred Stock elected to convert such shares into 50,000 shares of the
Company's Common Stock.
2. Interest of approximately $930 was paid.
3. Income taxes of approximately $108 were paid.
4. Capital lease obligations incurred to acquire property and equipment was
approximately $1,405.
5. The Company issued 4,099,086 Common Shares upon acquisition of Capital
Network System, Inc.
F-6
<PAGE>
AMNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information in response to the requirements of Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position as of June 30, 1997; results of operations
for the three and six months ended June 30, 1997 and 1996; cash flows for
the six months ended June 30, 1997 and 1996; and changes in shareholders'
equity for the six months ended June 30, 1997. For further information,
refer to AMNEX's financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1996. The December 31,
1996 balance sheet has been derived from AMNEX's audited financial
statements as of that date. Certain prior year amounts were reclassified to
conform with the current period presentation.
2. Recently Issued Accounting Standards
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share," which
is effective for financial statements issued for periods ending after
December 15, 1997. This pronouncement establishes standards for computing
and presenting earnings per share ("EPS") for entities with publicly-held
common stock or potential common stock. SFAS 128 simplifies the standards
for computing EPS and makes them comparable to international EPS standards.
Early application of this statement is not permitted.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure, which is applicable to all companies. Capital
structure disclosures required by SFAS 129 include liquidation preferences
of preferred stock, information about the pertinent rights and privileges
of the outstanding equity securities, and the redemption amounts for all
issues of capital stock that are redeemable at fixed or determinable prices
on fixed or determinable dates. SFAS 129 is effective for financial
statements for periods ending after December 15, 1997.
In June, 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, which significantly changes the way
public companies report segment information in annual financial statements
and also requires those companies to report selected segment information in
interim financial reports to shareholders. SFAS No. 131 is effective for
periods beginning after December 15, 1997.
The Company intends to adopt the provisions of these standards in 1998 and
does not expect their application to have a material impact on the
financial statements of the Company.
3. Preferred Stock
During the six months ended June 30, 1997, the holder of an aggregate of
78,750 shares of the Company's Series G Preferred Stock elected to convert
such shares into 810,797 shares of the Company's Common Stock.
F-7
<PAGE>
Pursuant to a Stock Exchange Agreement, dated as of January 7, 1997,
between the Company and Francesco Galesi, a Director of the Company, the
Company acquired from Mr. Galesi 10% of the outstanding capital stock of
Elektra Communication, Inc. ("ECI"), a telecommunications company
controlled by him. Pursuant to the terms of the Stock Exchange Agreement,
(i) Mr. Galesi was issued 100,000 Series L Preferred Shares of the Company
which automatically converted in May 1997 into an aggregate of 1,500,000
Common Shares (the "Conversion Shares") upon the filing of a Certificate of
Amendment to the Certificate of Incorporation of the Company pursuant to
which the number of Common Shares authorized for issuance was increased
from 40,000,000 to 70,000,000; (ii) Mr. Galesi was issued a warrant which
entitles him to purchase 1,500,000 Common Shares (the "Warrant Shares") at
an exercise price of $3.03 per share (subject to reduction to zero in the
event, during any continuous six month period commencing with January 1,
1997 and ending on December 31, 1999, the consolidated revenues from
operations of ECI are at least $12,500,000); (iii) Mr. Galesi was granted
certain registration rights under the Securities Act with regard to the
Conversion Shares and Warrant Shares; (iv) Peter M. Izzo, Jr., then Chief
Executive Officer of the Company, was elected a Director of ECI; (v) Mr.
Galesi was elected a Director of the Company; (vi) Mr. Galesi agreed that
he would utilize ECI as his sole vehicle with regard to the conduct of
international telecommunications business; (vii) Mr. Galesi agreed to a two
year lock-up with regard to any securities acquired from the Company
pursuant to the transaction; and (viii) Mr. Galesi granted the Company
certain "tag along" rights with regard to the sale of the ECI capital stock
acquired.
The Company's 10% investment in ECI is accounted for on the cost method and
the value of the investment has been based on a preliminary estimate of the
fair value of the Series L Preferred Shares and warrant issued, based upon
the market prices of AMNEX's stock at the date of issuance, less a
discount, and using the Black- Scholes model to value the warrant.
F-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1997 Compared With
Three and Six Months Ended June 30, 1996
Results of Operations
For the three months ended June 30, 1997, the Company had operating income
of $1,324,000 as compared to operating income of $897,000 for the three months
ended June 30, 1996. This is a 47.6% improvement in operating income while net
income increased by 45.5% to $403,000 from $277,000 for the three months ended
June 30, 1997 and 1996, respectively. For the six months ended June 30, 1997 and
before one-time items discussed below, operating profit was $2,294,000 as
compared to $598,000 for the same period last year. The 1997 six month period
results include a restructuring charge of $1,400,000 representing the impact of
the decision by Company's management to embark on a restructuring plan including
the closure of certain of the Company's facilities, the elimination of certain
redundant functions and the payment of employee termination benefits. The
Company believes that the plan, which was substantially completed in May 1997,
will result in a significant reduction in selling, general and administrative
expenses. During the six months ended June 30, 1996, the Company sold certain
assets related to the validation and fraud management of its operator services
revenue base. This sale was part of the Company's plan of providing wholesale,
rather than retail, services to a certain group of domestic operator services
customers and generated a gain on sale of $1,500,000 in the first quarter of
1996.
Total revenues for the six months ended June 30, 1997 and 1996 were
$62,349,000 and $50,758,000 (including the $1,500,000 gain on sale discussed
above), respectively. The table below sets forth the Company's revenues by
product line.
For the six months ended
June 30,
1997 1996
(in thousands)
Domestic operator services $32,640 $41,707
International operator services 13,555 ---
Long distance services 3,933 3,844
1+ Coin services 3,451 1,335
Payphone ownership and
operation 7,313 2,329
PBX program services 153 43
Billing services 1,304 ---
Consistent with management's plan of strategically positioning the Company
in new businesses which it believes offer the potential for increased earnings
as well as synergies with its existing businesses, both the volume of business
and revenue mix have continued to change from the first six months of 1996.
Domestic operator services constituted 50.7% and 52.4% of total revenues for the
three and six months ended June 30, 1997, respectively, as compared to 84.2% and
82.2% for the same periods last year. In addition, international
telecommunications services resulting from the acquisition of Capital Network
System, Inc. ("CNSI") in June 1996 and billing services resulting from
F-9
<PAGE>
the acquisition of National Billing Exchange, Inc. in September 1996, provided a
total of $14,859,000 of revenues in 1997. Revenues from payphone operations for
the three and six months ended June 30, 1997 increased by 255.4% and 214.0%,
respectively, as compared to the same 1996 periods and revenues from 1+ Coin
services increased by 74.2% and 158.5% as compared to the same 1996 periods. The
increased payphone operation revenues were primarily the result of the
acquisition by the Company of an aggregate of 5,561 payphones during 1996 and
the first quarter of 1997 and the increase in dial around compensation payable
to payphone owners effective November 6, 1996. See "Regulatory Developments".
The Company's 1+ Coin revenues increased primarily due to an increase in the
number of local exchange carrier-owned payphones under contract with the Company
from approximately 350,000 on December 31, 1995 to approximately 600,000 on
December 31, 1996. Although profit margins for the domestic operator services
line of business continued the anticipated decline in the second quarter of
1997, the Company believes that, as a result of its new ten year agreement to be
the exclusive provider of operator services for phones owned or controlled by
National Telecom USA, Inc. (the "National Agreement"), profit margins for this
line of business may improve. See "Claims and Contingencies" below.
As a percentage of revenues, cost of sales and service decreased to 79.8%
for the three months ended June 30, 1997, as compared to 80.9% for the same
period last year, and increased to 81.1% for the six months ended June 30, 1997
as compared to 80.3% for the first half of 1996. There were significant changes
in certain of the components of cost of sales and service between the periods.
Network expenses increased to 20.9% and 20.5% of revenues for the three and six
months ended June 30, 1997 from 16.3% and 15.6% for the corresponding three and
six month periods of 1996 primarily due to the significant costs of transmission
of traffic out of Mexico for international telecommunications services. In
addition, origination and termination costs were higher due to increased direct
dial long distance traffic. Approximately 90% of the cost of delivering direct
dial long distance traffic are network costs. Commission expense decreased from
56.0% and 53.0% of total revenues for the three and six months ended June 30,
1996, respectively, to 40.4% and 39.4% for the three and six months ended June
30, 1997, respectively. This expense, as a percentage of revenues from
international telecommunications services, billing services, payphone operations
and 1+ Coin services, is considerably less than that for domestic operator
services.
Selling, general and administrative expenses, as a percentage of revenues,
decreased from 11.1% and 10.9% for the three and six months ended June 30, 1996
to 8.9% and 8.5%, respectively, for the same periods of 1997. The decrease was
primarily the result of the Company's implementation of its restructuring plan
discussed above. The Company believes that, as a result of the restructuring,
these expenses, as well as costs of sales and service, will continue to decline
as a percentage of revenues.
Interest expense increased from $559,000 in the second quarter of 1996 to
$857,000 for the current quarter and from $1,104,000 to $1,692,000 for the year
to date, primarily reflecting the cost of financing for payphones purchased by
the Company's PubCom Division during the last quarter of 1996. In addition,
during the second quarter of 1997, the Company incurred interest charges related
to debt assumed in the CNSI acquisition in June 1996.
Liquidity and Capital Resources
The Company had a working capital deficiency of approximately $8,842,000 as
of June 30, 1997 as compared to a working capital deficiency of approximately
$4,994,000 as of December 31, 1996. This change was due to, among other things,
the acquisition of payphones and related assets for an aggregate purchase price
of $1,356,000, obligations of $1,925,000 incurred in connection with the
National Agreement, expenditures for property, plant and equipment of
$1,290,000, the incurrence of restructuring charges of $1,400,000.
Trade receivables at June 30, 1997 were $24,700,000 as compared to
$19,311,000 at December 31, 1996. Receivables consist of uncollected revenues
and surcharges which the Company bills and collects on behalf of itself and its
customers and uncollected revenues for services provided to other interexchange
carriers. Trade receivables increased between December 31, 1996 and June 30,
1997 primarily due to seasonality factors, particularly in the
F-10
<PAGE>
international telecommunications services line of business. In addition, trade
receivables associated with the 1+ Coin and other payphone-related receivables
have increased as this service grows.
The Company currently has in place a lending agreement with one of its
billing and collection agents pursuant to which it is provided advances of up to
$21,000,000 at any one time outstanding based upon eligible receivables. Such
eligible receivables are purchased by the billing and collection agent, with
recourse, at the approximate rate of 76% of the gross amount thereof. The
Company generally pays interest for such advances at an effective rate equal to
the prime rate plus 1.5% per annum. At June 30, 1997, the approximate amount due
to the billing and collection agent under the agreement was $11,156,000. The
lending agreement extends through February 2000.
On June 3, 1997, the Company borrowed $2,000,000 for working capital
purposes from an irrevocable trust established by Mr. Galesi. The promissory
note evidencing the loan provides for interest at the rate of 10% per annum and
the payment of the principal amount thereof within 15 days following receipt of
demand for payment. The Company's repayment obligation is secured by a security
interest in certain accounts receivable of certain of its subsidiaries.
On July 30, 1997, the Company obtained a loan commitment for additional
working capital funds in the form of a $5,000,000 revolving line of credit,
secured by certain trade receivables. The commitment provides for interest at a
rate equal to the prime rate plus 1% per annum. It is anticipated that, upon
closing of the financing, approximately $3,500,000 will be drawn down against
the line of credit. The loan commitment is subject to certain conditions to
closing and no assurance can be given that the line of credit will be obtained.
The Company is presently contemplating an offering of convertible
subordinated debt securities (the "Convertible Debt Securities") in the
approximate principal amount of $20,000,000 to certain institutional and
qualified investors in the United States and certain investors outside the
United States (the "Offering"). It is contemplated that, if the Offering is
undertaken, the securities offered will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), and neither the Convertible Debt
Securities nor the common shares of the Company (the "Common Shares") issuable
upon the conversion of the Convertible Debt Securities (the "Underlying Offering
Shares") may be offered or sold in the United States absent registration under
the Securities Act or an exemption from the registration requirements thereof.
It is contemplated further that, in connection with the Offering, the Company
will agree to file a shelf registration statement under the Securities Act with
respect to the Convertible Debt Securities and Underlying Offering Shares within
a short period of time after completion of the Offering so as to permit the
purchasers of the Convertible Debt Securities to resell such Convertible Debt
Securities and the Underlying Offering Shares pursuant to an effective
registration statement. Any such resale may only be made by means of a
prospectus satisfying the requirements of the Securities Act.
The exact aggregate principal amount of the Convertible Debt Securities,
interest rate on the Convertible Debt Securities, price and other provisions
relating to conversion of the Convertible Debt Securities into Common Shares and
the other terms of the Convertible Debt Securities and the terms of such
registration will be determined in light of market conditions at the time of the
Offering.
The Company has no firm commitment for the purchase of any of the
Convertible Debt Securities. No assurance can be given that the Company will
undertake the Offering or, if the Offering is undertaken, that the Company will
consummate the Offering in the amount or on the other terms anticipated or
otherwise.
F-11
<PAGE>
The proceeds of any such Offering are intended to be used primarily to
repurchase certain outstanding convertible promissory notes and preferred shares
of the Company ("Preferred Shares"), and prepay certain other outstanding
promissory notes of the Company, held by clients of Friedli Corporate Finance AG
("Friedli AG") as discussed below. The Company intends to use the balance of the
proceeds to repay certain other indebtedness of the Company and pay certain
other obligations, each as discussed below, as well as for general corporate
purposes.
On June 18, 1997, the Company entered into agreements (the "Company
Agreements") that provide for, among other things, the repurchase of certain
outstanding convertible Preferred Shares, and the redemption of certain
outstanding convertible promissory notes of the Company, held by clients of
Friedli AG ("Friedli Clients"), as discussed below.
The Preferred Shares to be repurchased are as follows: (i) 1,413,337 Series
D Preferred Shares at a repurchase price of $2.50 per share; (ii) 1,035,000
Series E Preferred Shares at a repurchase price of $2.8125 per share; and (iii)
415,250 Series F Preferred Shares at a repurchase price of $5.00 per share. The
repurchase prices for the Preferred Shares are equal to the per share
liquidation values of the respective series. In the case of the Series D and
Series E Preferred Shares, in addition to the above amounts, the repurchase
price includes an amount equal to accrued but unpaid dividends ($1,688,000 as of
June 30, 1997). The Series F Preferred Shares do not have any dividend
preference. All of the Preferred Shares carry voting rights equal to the number
of Common Shares into which they are convertible, except that the Series D
Preferred Shares have six-for-one voting rights. The aggregate repurchase
obligation of the Company (based upon a repurchase date of June 30, 1997 and
including the payment of accrued and unpaid dividends) is approximately
$10,208,000.
The Company Agreements also provide for the following: (i) the conversion
of 72,450 Series B Preferred Shares into 724,500 Common Shares; (ii) the payment
of accrued and unpaid dividends with respect to the Series B Preferred Shares
(approximately $90,000 as of June 30, 1997); (iii) the payment of the principal
amount of, and accrued interest on, a certain $325,000 principal amount
promissory note of the Company that was due on May 1, 1997; (iv) the payment by
the Company of approximately $1,470,000 in connection with the prepayment of
certain outstanding promissory notes due in October 1999; (v) the payment by the
Company to Peter Friedli and Friedli AG (collectively with Friedli Corporate
Finance Inc., the "Friedli Group") of an aggregate of $360,000 representing the
settlement of any and all claims for past due consulting, advisory, investment
banking or similar or related fees and expenses, as well as financial consulting
fees for a two year period following the closing of the Company Agreements; and
(vi) the delivery of certain general releases (the Company release to include,
among others, the holders of the Preferred Shares).
Prior to the execution of the Company Agreements, the holder of a certain
$450,000 principal amount promissory note (the "$450,000 Note") elected to
convert, as of June 30, 1997, $96,000 of the principal amount thereof, together
with accrued and unpaid interest thereon, into 624,000 Common Shares at a
conversion price of $0.20 per share. Contemporaneously with the execution of the
Company Agreements, Mr. Galesi entered into a Note Purchase Agreement with the
holder of the $450,000 Note, as well as with the holder of a $50,000 principal
amount promissory note of the Company (the "$50,000 Note") (also convertible at
a price of $0.20 per share), to purchase the unconverted portion of the $450,000
Note, as well as the $50,000 Note (including all rights with regard to accrued
and unpaid interest), for an aggregate purchase price of $3,863,000. Mr. Galesi
has agreed with the Company that, immediately following his acquisition of the
notes, he will convert the principal amount thereof, together with accrued and
unpaid interest thereon, into Common Shares (approximately 2,650,000 based upon
a conversion date of June 30, 1997). Both the Company Agreements and the Note
Purchase Agreement are subject to the satisfaction of certain conditions to
closing. The conditions to the Company's obligations under the Company
Agreements and Mr. Galesi's obligations under the Note Purchase Agreement, which
may be waived, include the consummation by the Company of an equity or
convertible debt offering pursuant to which the Company shall have received
gross proceeds of at least $50,000,000.
Contemporaneously with the execution of the Company Agreements, the Company
and the Friedli Group agreed to terminate a certain January 13, 1997 agreement
between them which contemplated, among other things, the open market sale by
certain Friedli Clients of an aggregate of 9,000,000 Common Shares. The Company
Agreements, the Note Purchase Agreement and the related documents were executed
by Peter Friedli on behalf of, or as representative of, the various Friedli
Clients.
F-12
<PAGE>
Regulatory Developments
On September 20, 1996, the Federal Communications Commission (the "FCC")
adopted new rules pursuant to the Telecommunications Act that require providers
of long distance services to pay to payphone owners, including the Company,
compensation for "dial around" calls. Dial around is a term used to describe
calls placed from payphones that bypass the IXC presubscribed to that payphone.
Examples are 1-800-CALL-ATT, 1-800-COLLECT and 10-ATT. The FCC's rules called
for a substantial increase in dial around compensation from the $6.00 per month
per payphone flat fee in place since May 1992 to $45.85 per payphone per month
during the period November 6, 1996 to October 6, 1997. Beginning October 7,
1997, the monthly fee will be replaced by per call compensation which the FCC
set at $0.35 per call. The FCC determined further that, for periods after
October 6, 1998, compensation should be set at the cost of a local coin call,
which cost the FCC concluded should be determined by the marketplace and not by
regulation. A number of parties brought an action challenging the FCC's
decisions regarding dial around compensation in the United States Court of
Appeals for the D.C. Circuit, including the FCC's determination that (i) the
flat fee per payphone per month for the initial period should be $45.85; (ii)
the per call compensation beginning October 7, 1997 should be set at $0.35; and
(iii) compensation beginning October 6, 1998 should be set at the cost of a
local coin call. On July 1, 1997, the court remanded the case to the FCC to
further evaluate and justify the $45.85 and $0.35 rate levels it adopted as well
as its determination that compensation should be set at the cost of a local coin
call. The right to receive dial around compensation, the timing of the
introduction of per call compensation and the deregulation of the local coin
rate were not affected by the court's decision. On August 5, 1997, the FCC
issued a Public Notice clarifying the status of the requirements of its dial
around compensation rules and establishing a pleading cycle for comment on the
remanded issues. The FCC stated that all of the requirements of its order which
were remanded remain in effect pending further action, including the requirement
to pay dial around compensation. The FCC also stated that any adjustment in dial
around compensation may be applied retroactively. The FCC has indicated it
intends to resolve this matter expeditiously, but there can be no assurances as
to what the new rate levels will be, when they will go into effect or whether
the revised rate structure will be applied retroactively.
Claims and Contingencies
On July 2, 1997, D. Faye Manghir, the holder of a 50% equity interest in
the joint venture company formed by Community Network Services, Inc., MicroTel
Communications Corp. and the Company (which holds the remaining 50% equity
interest), filed suit against the Company in the Supreme Court of the State of
New York (the "Suit"). The Suit alleges, among other things, that the Company
made certain misrepresentations and committed certain breaches under the joint
venture agreement among the parties, and seeks rescission of such agreement,
compensatory damages in the sum of $10,000,000, punitive damages in the sum of
$25,000,000, and attorneys' fees. The Company has engaged outside litigation
counsel to handle the matter and has filed a motion to dismiss or in the
alternative to stay. The Company believes that the claims of D. Faye Manghir are
meritless and that it will ultimately prevail, resulting in dismissal of the
Suit and/or referral to arbitration.
Pursuant to the terms of the National Agreement, as of June 30, 1997,
approximately $1,500,000 was due and owing to National. The parties are
currently negotiating the long-term payout of such amount. No assurance can be
given that any such agreement will be entered into between the parties. It is
intended that a portion of the net proceeds of the Offering will be used to pay
to National the $1,500,000 due.
In connection with the Company's June 1996 CNSI acquisition, CNSI issued a
promissory note in favor of Robert A. Rowland (the "Rowland Note"), a principal
shareholder of the Company, in the principal amount of $1,197,691.82 payable on
July 31, 1997, with interest due on the unpaid principal balance at a rate of
10.5% per annum. On July 11, 1997, Mr. Rowland filed suit against the Company
and CNSI in the District Court of Travis County, Texas. Mr. Rowland asserts
several causes of action against the Company and seeks damages in the amount of
the principal and interest due under the Rowland Note, attorneys' fees and
F-13
<PAGE>
exemplary damages in an unstated amount. The causes of action asserted by Mr.
Rowland against CNSI relate to monies allegedly due under a consulting
agreement, and damages claimed include attorneys' fees. It is anticipated that a
portion of the net proceeds of the Offering will be used to pay the amounts due
under the Rowland Note.
Risks and Uncertainties
Except for historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that are subject to risks and uncertainties,
including seasonal variations in revenues, shifts in Company's business focus
from core domestic operator services, regulatory and legislative uncertainty,
technological change and new service, competition, risks associated with
international operations, service interruptions and equipment failures, change
in economic conditions of the various markets the Company serves, as well as the
other risks detailed in the Company's Form 10-K for the year ended December 31,
1996 filed with the Securities and Exchange Commission on April 15, 1997.
F-14
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On July 2, 1997, D. Faye Manghir, the holder of a 50% equity interest in
the joint venture company formed by Community Network Services, Inc., MicroTel
Communications Corp. and the Company (which holds the remaining 50% equity
interest), filed suit against the Company in the Supreme Court of the State of
New York (the "Suit"). The Suit alleges, among other things, that the Company
made certain misrepresentations and committed certain breaches under the joint
venture agreement among the parties, and seeks rescission of such agreement,
compensatory damages in the sum of $10,000,000, punitive damages in the sum of
$25,000,000, and attorneys' fees. The Company has engaged outside litigation
counsel to handle the matter and has filed a motion to dismiss or in the
alternative to stay. The Company believes that the claims of D. Faye Manghir are
meritless and that it will ultimately prevail, resulting in dismissal of the
Suit and/or referral to arbitration.
Item 2. Changes in Securities.
(a) None.
(b) None.
(c) During the quarter ended June 30, 1997, the Company issued or sold the
following equity securities other than in transactions registered under the
Securities Act:
(i) Between April 1997 and June 1997, the Company issued an aggregate
of 388,488 Common Shares to Southbrook International Investments, Ltd. upon
the conversion of 27,500 Series G Preferred Shares. Such Common Shares were
issued pursuant to the exemption from registration provided by Section
3(a)(9) of the Securities Act as such Common Shares were securities
exchanged by the Company with its existing preferred shareholder and no
commission or other remuneration was paid or given, directly or indirectly,
for soliciting such exchange.
(ii) Effective May 1997, the Company issued 1,500,000 Common Shares to
Francesco Galesi upon the conversion of 100,000 Series L Preferred Shares.
Such Common Shares were issued pursuant to the exemption from registration
provided by Section 3(a)(9) of the Securities Act as such Common Shares
were securities exchanged by the Company with its existing preferred
shareholder and no commission or other remuneration was paid or given,
directly or indirectly, for soliciting such exchange.
(iii) In June 1997, the Company issued 25,000 Common Shares to Kenneth
Baritz upon the exercise of a warrant. Such Common Shares were issued
pursuant to an exemption from registration provided by Section 4(2) of the
Securities Act as a transaction by an issuer not involving any public
offering.
Item 3. Defaults Upon Senior Securities.
(a) None.
(b) The following sets forth certain information with regard to accrued and
unpaid dividends on Preferred Shares of the Company:
(i) There are currently 72,450 Series B Preferred Shares issued and
outstanding. The holders of the Series B Preferred Shares, in preference to
the holders of the Common Shares, are entitled to receive, when and as
declared by the Board of Directors, dividends at the rate of $.40 per share
per anum. Dividends on the Series B Preferred Shares have been paid through
June 30, 1994. Accrued and unpaid dividends with regard to the Series B
Preferred Shares as of June 30, 1997 were approximately $86,940.
(ii) There are currently 1,413,337 Series D Preferred Shares issued
and outstanding. The holders of the Series D Preferred Shares, in
preference to the holders of the Common Shares, are entitled to receive,
<PAGE>
when and as declared by the Board of Directors, dividends at the rate of
$.25 per share per annum. No dividends have been paid to date on the Series
D Preferred Shares. Accrued and unpaid dividends with regard to the Series
D Preferred Shares as of June 30, 1997 were approximately $1,090,609.
(iii) There are currently 1,035,000 Series E Preferred Shares issued
and outstanding. The holders of the Series E Preferred Shares, in
preference to the holders of the Common Shares, are entitled to receive,
when and as declared by the Board of Directors, dividends at the rate of
$.225 per share per annum. No dividends on the Series E Preferred Shares
have been paid to date. Accrued and unpaid dividends with regard to the
Series E Preferred Shares as of June 30, 1997 were approximately $510,516.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 14, 1997, at an annual meeting of shareholders of the Company, the
shareholders of the Company elected a Board of three directors, consisting of
Kenneth G. Baritz, Peter M. Izzo, Jr. and Francesco Galesi, approved an
amendment to the Company's Certificate of Incorporation to increase the number
of authorized Common Shares of the Company from 40,000,000 to 70,000,000 and
approved an amendment to the Company's 1992 Stock Option Plan to increase the
number of Common Shares authorized to be issued thereunder from 2,250,000 to
4,250,000. The number of affirmative votes and negative votes with regard to the
foregoing was as follows:
(i) Election of Directors
Nominee Votes for Election
Kenneth G. Baritz 26,545,944
Peter M. Izzo, Jr. 26,545,944
Francesco Galesi 17,400,044
(ii) Approval of Amendment to Certificate of Incorporation
For: 26,503,798 Against: 45,769 Abstain: 2,697
(iii) Approval of Amendment to 1992 Stock Option Plan
For: 25,163,745 Against: 1,216,828 Abstain: 171,691
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Restated Certificate of Incorporation, as amended*
3.2 By-Laws, as amended
10.1 Form of Agreement, dated as of June 10, 1997, between the
Company and the holders of certain Preferred Shares and
promissory notes of the Company.
<PAGE>
10.2 Secured Demand Promissory Note, dated June 3, 1997, in the
principal amount of $2,000,000 issued by the Company and
certain subsidiaries thereof to Francesco Galesi Irrevocable
Grantor Trust dated October 18, 1991 (the "Galesi Trust").
10.3 Warranted, dated June 3, 1997, for the purchase of up to
500,000 Common Shares issued by the Company to the Galesi
Trust.
11 Statements Regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
- --------------
* Filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1997 (File No. 0-17158) and incorporated herein by
reference.
(b) Reports on Form 8-K.
During the quarter ended June 30, 1997, two Current Reports on
Form 8-K were filed by the Company as follows:
(i) Date of Report: May 3, 1997
Item Reported: 5
(ii) Date of Report: May 28, 1997
Item Reported: 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMNEX, INC.
August 8, 1997 By: /s/ Alan J. Rossi
-----------------
Alan J. Rossi
Chairman of the Board
and Chief Executive Officer
August 8, 1997 By: /s/ Richard L. Stoun
--------------------
Richard L. Stoun
Chief Accounting Officer
H:\USERS\LEGAL\AMY\WPDATA\CORPDOC\10Q697.A
<PAGE>
BY-LAWS
OF
AMNEX, INC.
(As Amended Through May 23, 1997)
ARTICLE I
OFFICES
Section 1. Principal Office
The principal office of the Corporation shall be in City of New York,
County of New York, State of New York.
Section 2. Additional Offices
The Corporation may also have offices and places of business at such other
places, within or without the State of New York, as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Time and Place
The annual meeting of the shareholders of the Corporation and all special
meetings of shareholders may be held at such time and place within or without
the State of New York as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Annual Meeting
The annual meeting of shareholders shall be held on the 3rd Tuesday in June
of each year, if not a legal holiday, and, if a legal holiday, then on the next
business day thereafter, or on such other date as shall be determined by the
Board of Directors, and the shareholders shall then elect a Board of Directors
1
<PAGE>
and transact such other business as may properly be brought before the meeting.
To be properly brought before an annual meeting, business must be (a) specified
in the notice of meeting (or any supplement thereto) given by, at the direction
of or upon authority granted by the Board of Directors, (b) otherwise brought
before the meeting by, at the direction of or upon authority granted by the
Board of Directors, or (c) subject to ARTICLE II, Section 10 hereof, otherwise
properly brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder must
have given timely notice thereof in writing to the Secretary of the Company. To
be timely, a shareholder's notice must be received at the principal executive
offices of the Company not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that, in the event that less than 70 days' notice of
the date of the meeting is given to shareholders and public disclosure of the
meeting date, pursuant to a press release, is either not made or is made less
than 70 days prior to the meeting date, then notice by the shareholder to be
timely must be so received not later than the close of business on the tenth day
following the earlier of (a) the day on which such notice of the date of the
annual meeting was mailed to shareholders or (b) the day on which any such
public disclosure was made.
A shareholder's notice to the Secretary must set forth as to each matter
the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting, and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Company's books, of the shareholder proposing
such business, (c) the class and number of shares of the Company which are
beneficially owned by the shareholder, and (d) any material interest of the
shareholder in such business. Notwithstanding anything in the By-Laws to the
contrary, but subject to ARTICLE II, Section 10 hereof, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section 2,
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.
2
<PAGE>
Section 3. Notice of Annual Meeting
Written notice of the place, date and hour of the annual meeting of
shareholders shall be given personally or by mail to each shareholder entitled
to vote thereat, not less than ten (10) nor more than fifty (50) days prior to
the meeting.
Section 4. Special Meetings
Special meetings of the shareholders, for any purposes, unless otherwise
prescribed by law or by the Certificate of Incorporation, may be called by the
President, Chairman of the Board or any Director of the Corporation. Such
request shall state the purpose or purposes of the proposed meetings.
Section 5. Notice of Special Meeting
Written notice of a special meeting of shareholders stating the place, date
and hour of the meeting, the purpose or purposes for which the meeting is
called, and by or at whose direction it is being issued, shall be given
personally or by mail to each shareholder entitled to vote thereat, not less
than ten (10) nor more than fifty (50) days prior to the meeting.
Section 6. Quorum
Except as otherwise provided by the Certificate of Incorporation, the
holders of a majority of the shares of the Corporation issued and outstanding
and entitled to vote thereat shall be necessary to and shall constitute a quorum
for the transaction of business at all meetings of the shareholders. If a quorum
shall not be present at any meeting of the shareholders, the shareholders
entitled to vote thereat present in person or represented by proxy shall have
power to adjourn the meeting from time to time until a quorum shall be present.
At any such adjourned meeting at which a quorum may be present, any business may
be transacted which might have been transacted at the meeting as originally
called.
Section 7. Voting
(a) At any meeting of the shareholders, every shareholder having the right
to vote shall be entitled to vote in person or by proxy. Except as otherwise
provided in the Certificate of Incorporation, each shareholder shall have one
(1) vote for each share of stock having voting power which is registered in his
name on the books of the Corporation.
3
<PAGE>
(b) Except as otherwise provided by law or by the Certificate of
Incorporation or these By-Laws, all elections of Directors shall be decided by a
plurality of the votes cast and all other matters shall be decided by a majority
of the votes cast.
(c) At each meeting of the shareholders, the polls shall be opened and
closed, the proxies and ballots shall be received and be taken in charge, and
all questions touching the qualification of voters, the validity of proxies and
the acceptance or rejection of votes shall be decided by one (1) or more
inspectors. Such inspector(s) shall be appointed by the Board of Directors or
the chairman of the meeting. If, for any reason, any inspector(s) appointed
shall fail to attend or refuse or be unable to serve, inspectors in place of any
so failing to attend or refusing or unable to serve shall be appointed in like
manner. Such inspector(s), before entering upon the discharge of his/their
duties, shall be sworn faithfully to execute the duties of inspector(s) at such
meeting with strict impartiality and according to the best of his/their ability,
and the oath so taken shall be subscribed by him/them.
Section 8. Proxies
A proxy, to be valid, shall be executed in writing by the shareholder or by
his attorney-in-fact. No proxy shall be valid after the expiration of eleven
(11) months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it, except
in those cases where an irrevocable proxy is permitted by law.
Section 9. Consents
Whenever by any provision of law or of the Certificate of Incorporation or
of these By-Laws the vote of shareholders at a meeting thereof is required or
permitted to be taken in connection with any corporate action, the meeting and
vote of shareholders may be dispensed with if all the shareholders who would
have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken. Nothing in this Section
9 shall be construed so as to alter or modify any provision of law under which
the written consent of the holders of less than all outstanding shares is
sufficient for corporate action.
4
<PAGE>
Section 10. Notice and Qualification of Shareholder Nominees to Board
Only persons who are nominated in accordance with the procedures set forth
in this Section 10 shall be qualified for election as Directors. Nominations of
persons for election to the Board of Directors of the Company may be made at a
meeting of shareholders by or at the direction of the Board of Directors or by
any shareholder of the Company entitled to vote for the election of Directors at
the meeting who complies with the procedures set forth in this Section 10. In
order for persons nominated to the Board of Directors, other than those persons
nominated by or at the direction of the Board of Directors, to be qualified to
serve on the Board of Directors, such nomination shall be made pursuant to
timely notice in writing to the Secretary of the Company. To be timely, a
shareholder's notice must be received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that, in the event that less than 70 days' notice of the date
of the meeting is given to shareholders and public disclosure of the meeting
date, pursuant to a press release, is either not made or is made less than 70
days prior to the meeting date, then notice by the shareholder to be timely must
be so received not later than the close of business on the tenth day following
the earlier of (a) the day on which such notice of the date of the meeting was
mailed to shareholders or (b) the day on which such public disclosure was made.
A shareholder's notice to the Secretary must set forth (a) as to each
person whom the shareholder proposes to nominate for election or re-election as
a Director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Company which are beneficially owned by such
person and (iv) any other information relating to such person that is required
to be disclosed in solicitation of proxies for election of Directors, or is
otherwise required, in each case pursuant to
5
<PAGE>
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
from time to time (including, without limitation, such documentation as is
required by Regulation 14A to confirm that such person is a bona fide nominee);
and (b) as to the shareholder giving the notice (i) the name and address, as
they appear on the Company's books, of such shareholder and (ii) the class and
number of shares of the Company which are beneficially owned by such
shareholder. 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 Company that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee. No person shall be qualified
for election as a Director of the Company unless nominated in accordance with
the procedures set forth in this Section 10. 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 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.
ARTICLE III
DIRECTORS
Section 1. Number; Tenure
(a) The number of Directors constituting the entire Board of Directors
shall be fixed from time to time by resolution of the Board but shall not be
less than three (3), except that where all the shares of the Corporation are
owned beneficially and of record by less than three (3) shareholders, the number
of Directors may be less than three (3) but not less than the number of
shareholders.
(b) Directors shall be elected at the annual meeting of the shareholders,
except as provided in Section 3 of this Article III, and each Director shall be
elected to serve until his successor has been elected and has qualified.
Section 2. Resignation; Removal
Any Director may resign at any time. The Board of Directors may remove a
Director for cause. Any or all of the Directors may be removed with or without
cause by a vote of the shareholders. These provisions for the removal of
Directors apply to the extent permitted by the laws of the State of New York.
6
<PAGE>
Section 3. Vacancies
If any vacancies occur in the Board of Directors by reason of the death,
resignation, retirement, disqualification or removal from office of any Director
with or without cause or if any new directorships are created, the Directors
then in office may choose successors, or fill the newly created directorships,
and the Directors so chosen shall hold office until the next annual meeting of
the shareholders and until their successors shall be duly elected and qualified,
unless sooner displaced.
Section 4. Executive Committee and Other Committees
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate from among its members an Executive Committee and other
committees, each consisting of three or more Directors, which committees shall
serve at the pleasure of the Board of Directors. The Board of Directors may
designate one or more Directors as alternate members of any such committee, who
may replace any absent member or members of such committee. The Board of
Directors, by resolution adopted by a majority of the entire Board, may remove a
member of any such committee with or without cause. To the extent provided in
said resolution and to the extent permitted by the laws of the State of New
York, each such committee shall have and may exercise the powers of the Board of
Directors. Each of such committees shall keep regular minutes of its proceedings
and shall report thereon to the Board from time to time as required.
ARTICLE IV
MEETINGS OF THE BOARD
Section 1. Place
The Board of Directors of the Corporation may hold meetings, both regular
and special, either within or without the State of New York.
7
<PAGE>
Section 2. Regular Meetings
Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by the
Board.
Section 3. Special Meetings
Special meetings of the Board of Directors may be called by the Chairman of
the Board or the President, and, upon the written demand of at least two (2)
Directors, shall be called by the Secretary, in each case on one (1) day's
notice to each Director, either personally, by overnight mail, by telegram, by
telecopier or by telephone. For purposes hereof, one (1) day's notice shall be
satisfied by the delivery of such notice as shall result in the Director
receiving notice by 5:00 p.m., New York City time, on the day immediately
preceding the date of the meeting (provided that the time of the meeting is no
earlier than 8:00 a.m., New York City time).
Section 4. Quorum
At all meetings of the Board of Directors, a majority of the Directors then
in office, shall be necessary to constitute a quorum for the transaction of
business. If a quorum shall not be present at any meeting of the Board of
Directors, a majority of the Directors present thereat may adjourn the meeting
from time to time until a quorum shall be present. One (1) day's notice of any
such adjournment shall be given, either personally, by mail, by telegram, by
telecopier or by telephone to each Director who was not present and, unless
announced at the meeting, to the other Directors.
Section 5. Action of the Board
Unless otherwise required by law, the vote of a majority of the Directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the Board.
Section 6. Participation in Meeting by Electronic Means
Any one or more members of the Board of Directors or any committee thereof
may participate in a meeting of the Board of Directors or any committee thereof
by means of a conference telephone or similar communication equipment allowing
all persons participating in such meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at such meeting.
8
<PAGE>
Section 7. Action in Lieu of 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
of Directors or the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the Board of Directors or committee shall be filed with the minutes
of the proceedings of the Board of Directors or committee.
Section 8. Compensation
Directors, as such, shall not receive any stated salary for their services,
but, by resolution of the Board of Directors, a fixed fee and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board; provided, however, that nothing herein contained shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE V
NOTICES
Section 1. Form; Delivery
Notices to Directors and shareholders shall be in writing (except as
provided herein) and may be delivered personally or by mail or, with respect to
Directors only, by telegram, telecopier or telephone. Such notice is deemed to
be given, if by mail, when deposited in the United States mail, with postage
thereon prepaid and, if by telegram, when ordered or, if a delayed delivery is
ordered, as of such delayed delivery time, and, if by telecopier, when
transmitted and directed to Directors at their addresses as they appear on the
records of the Corporation.
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Section 2. Waiver
Whenever a notice is required to be given by any statute, the Certificate
of Incorporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to such notice. In addition, any
shareholder attending a meeting of shareholders in person or by proxy without
protesting prior to the conclusion of the meeting the lack of notice thereof to
him, and any Director attending a meeting of the Board of Directors or committee
thereof without protesting prior to the meeting or at its commencement such lack
of notice shall be conclusively deemed to have waived notice of such meeting.
ARTICLE VI
OFFICERS
Section 1. Officers
The officers of the Corporation shall be a Chairman of the Board, a
President, one or more Vice-Presidents, a Secretary, a Treasurer, and such other
officers as may be determined by the Board of Directors.
Section 2. Authority and Duties
All officers, as between themselves and the Corporation, shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-Laws, or, to the extent not so provided, by the Board of
Directors.
Section 3. Term of Office; Removal
All officers shall be elected by the Board of Directors and shall hold
office for such time as may be prescribed by the Board. Any officer or agent
elected or appointed by the Board may be removed with or without cause at any
time by the Board.
Section 4. Compensation
The compensation of all officers of the Corporation shall be fixed by the
Board of Directors, and the compensation of agents shall either be so fixed or
shall be fixed by officers thereunto duly authorized. The fact that any officer
is a Director shall not preclude him from receiving a salary as an officer, or
from voting upon the resolution providing the same.
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Section 5. Vacancies
If an office becomes vacant for any reason, the Board of Directors may fill
the vacancy. Any officer so appointed or elected by the Board shall serve only
until the unexpired term of his predecessor shall have expired unless re-elected
by the Board.
Section 6. The Chairman of the Board
The Chairman of the Board of Directors shall be the Chief Executive Officer
of the Corporation; he shall preside at all meetings of the Board of Directors
and shareholders; he shall be ex-officio a member of all standing committees and
shall perform such other duties as from time to time may be assigned to him by
the Board of Directors.
Section 7. The President
The President shall be the Chief Operating Officer of the Corporation; he
shall have general and active management and control of the day-to-day business
and affairs of the Corporation, subject to the control of the Board of
Directors, and shall see that all orders and resolutions of the Board are
carried into effect.
Section 8. The Vice-President
The Vice-President or, if there be more than one, the Vice-Presidents in
the order of their seniority or in any other order determined by the Board of
Directors, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President, and shall generally assist the
President and perform such other duties as the Board, the Chairman of the Board
or the President shall prescribe.
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Section 9. The Secretary
The Secretary shall attend all meetings of the Board of Directors and all
meetings of the shareholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board,
and shall perform such other duties as may be prescribed by the Board, the
Chairman of the Board or the President, under whose supervision he shall act. He
shall keep in safe custody the seal of the Corporation and, when authorized by
the Board, affix the same to any instrument requiring it and, when so affixed,
it shall be attested by his signature or by the signature of the Treasurer or an
Assistant Treasurer or Assistant Secretary. He shall keep in safe custody the
certificate books and shareholder records and such other books and records as
the Board may direct and shall perform all other duties incident to the office
of the Secretary.
Section 10. The Assistant Secretary
During the absence or disability of the Secretary, any Assistant Secretary,
or if there be more than one, the one so designated by the Secretary or by the
Board of Directors, shall have all the powers and functions of the Secretary.
Section 11. The Treasurer
The Treasurer shall have the care and custody of the corporate funds and
other valuable effects, including securities, and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board, taking proper vouchers for such disbursements, and
shall render the Directors, at the regular meeting of the Board, or whenever
they may require it, an account of all his transactions as Treasurer and of the
financial condition of the Corporation.
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Section 12. The Assistant Treasurer
During the absence or disability of the Treasurer, any Assistant Treasurer,
or if there be more than one, the one so designated by the Treasurer or by the
Board of Directors, shall have all the powers and functions of the Treasurer.
Section 13. Bonds
In case the Board of Directors shall so require, any officer or agent of
the Corporation shall give the Corporation a bond for such term, in such sum and
with such surety or sureties as shall be satisfactory to the Board for the
faithful performance of the duties of his office, and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
ARTICLE VIII
SHARE CERTIFICATES
Section 1. Form; Signature
The certificates for shares of the Corporation shall be in such form as
shall be determined by the Board of Directors and shall be numbered
consecutively and entered in books of the Corporation as they are issued. Each
certificate shall exhibit the registered holder's name and the number and class
of shares, and shall be signed by the Chairman of the Board, the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary, and shall bear the seal of the Corporation or a
facsimile thereof. Where any such certificate is counter-signed by a transfer
agent, or registered by a registrar, the signature of any such officer may be a
facsimile signature. In case any officer who signed or whose facsimile signature
or signatures was placed on any such certificate shall have ceased to be such
officer before such certificate is issued, it may nevertheless be issued by the
Corporation with the same effect as if he were such officer at the date of
issue.
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Section 2. Lost Certificates
The Board of Directors may direct a new share certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost or destroyed.
Section 3. Registration of Transfer
Upon surrender to the Corporation or any transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation or such transfer agent to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
Section 4. Registered Shareholders
Except as otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends or other distributions and to vote as such owner,
and to hold liable for calls and assessments a person registered on its books as
the owner of shares, and shall not be found to recognize any equitable or legal
claim to or interest in such share or shares on the part of any other person,
whether or not it has actual or other notice thereof.
Section 5. Record Date
For the purpose of determining the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or to express
consent to or dissent from any proposal without a meeting, or for the purpose of
determining
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shareholders entitled to receive payment of any dividend or the allotment of any
rights, or for the purpose of any other action affecting the interest of
shareholders, the Board of Directors may fix, in advance, a record date. Such
date shall not be more than fifty (50) nor less than ten (10) days before the
date of any such meeting, nor more than fifty (50) days prior to any other
action.
In each such case, except as otherwise provided by law, only such persons
as shall be shareholders of record on the date so fixed shall be entitled to
notice of, and to vote at, such meeting and any adjournment thereof, or to
express such consent or dissent, or to receive payment of such dividend or such
allotment or rights, or otherwise to be recognized as shareholders for the
related purpose, notwithstanding any registration or transfer of shares on the
books of the Corporation after any such record date so fixed.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Fiscal Year
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
Section 2. Dividends
Dividends upon the capital stock of the Corporation may be declared by the
Board of Directors at any regular or special meeting and may be paid in cash, in
property, in shares of the capital stock or any combination thereof, subject to
the provisions of the laws of the State of New York.
Section 3. Reserves
Before payment of any dividend, there may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Directors from
time to time, in their absolute discretion, think proper as a reserve fund to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purposes as the Board shall
deem conducive to the interests of the Corporation, and the Board may modify or
abolish any such reserve in the manner in which it was created.
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Section 4. Check
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
Section 5. Seal
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal - New
York". The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or otherwise reproduced.
ARTICLE X
INDEMNIFICATION
Section 1. Actions by or in the right of the Corporation
Any person made, or threatened to be made, a party to an action by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he, his testator or intestate, is or was a Director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
Director or officer of any other corporation of any type or kind, domestic or
foreign, of any partnership, joint venture, trust, employee benefit plan or
other enterprise, shall be indemnified by the Corporation against amounts paid
in settlement and reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense or settlement of such
action, or in connection with an appeal therein, to the fullest extent permitted
by the laws of State of New York.
Section 2. Action or Proceeding Other than by or in the Right of the Corporation
Any person made, or threatened to be made, a party to an action or
proceeding (other than one by or in the right of the Corporation to procure a
judgment in its favor), whether civil or
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criminal, including an action by or in the right of any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any Director or officer of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that he, his testator or intestate, was a Director or officer of the
Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, shall be
indemnified by the Corporation against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorney's fees actually and
necessarily incurred as a result of such action or proceeding, or any appeal
therein, to the fullest extent permitted by the laws of the State of New York.
Section 3. Opinion of Counsel
In taking any action or making any determination pursuant to this Article,
the Board of Directors and each Director, officer or employee, whether or not
interested in any such action or determination, may rely upon an opinion of
counsel selected by the Board.
Section 4. Other Indemnification; Limitation
The Corporation's obligation under this Article shall not be exclusive or
in limitation of, but shall be in addition to, any other rights to which any
such person may be entitled by (i) a resolution of shareholders, (ii) a
resolution of Directors or (iii) an agreement providing for such
indemnification. All of the provisions of this Article X of the By-Laws shall be
valid only to the extent permitted by the Certificate of Incorporation and the
laws of the State of New York.
ARTICLE XI
AMENDMENTS
Section 1. Power to Amend
TheseBy-Laws shall be subject to amendment or repeal, and additional
By-Laws may be adopted, either by the Board of Directors at any regular or
special meeting of the Board or by written consent in lieu of a meeting, or by
the shareholders at any regular or special meeting of the shareholders, or by
written consent in lieu of a meeting
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AGREEMENT, dated as of June 10, 1997, by and between AMNEX, INC., a New
York corporation (the "Company"), and the person or entity whose name appears on
the signature page hereto (the "Holder"). -------------------
WHEREAS, Logitech Corp. ("Logitech") is the holder of a certain promissory
note of the Company, dated May 1, 1995, in the principal amount of three hundred
twenty-five thousand dollars ($325,000) (the "Logitech Note").
WHEREAS, the principal amount of the Logitech Note, together with accrued
and unpaid interest thereon, was due and payable on May 1, 1997.
WHEREAS, the Logitech Note provides for the payment of interest on the
principal amount thereof at the rate of eight percent (8%) per annum.
WHEREAS, no interest has been paid on the principal amount of the Logitech
Note.
WHEREAS, certain persons and entities (collectively, the "1995
Noteholders") are holders of certain promissory notes, dated October 4, 1995, in
the aggregate principal amount of one million four hundred thousand dollars
($1,400,000) as set forth on Schedule A attached hereto (the "1995 Notes").
WHEREAS, the 1995 Notes provide for the payment of interest on the
principal amount thereof at the rate of ten percent (10%) per annum.
WHEREAS, the principal amounts of the 1995 Notes, together with all accrued
and unpaid interest thereon, are due and payable on October 4, 1999.
WHEREAS, the Company has the right to prepay the principal amounts of the
1995 Notes, in whole or in part, at any time without premium or penalty.
WHEREAS, there are currently outstanding seventy-two thousand four hundred
fifty (72,450) Series B Preferred Shares of the Company (the "Series B Preferred
Shares"), one million four hundred thirteen thousand three hundred thirty-seven
(1,413,337) Series D Preferred Shares of the Company (the "Series D Preferred
Shares"), one million thirty-five thousand (1,035,000) Series E Preferred Shares
of the Company (the "Series E Preferred Shares") and four hundred fifteen
thousand two hundred fifty (415,250) Series F Preferred Shares of the Company
(the "Series F Preferred Shares" and collectively with the Series B Preferred
Shares, the Series D Preferred Shares and the Series E Preferred Shares, the
"Preferred Shares").
WHEREAS, each Series B Preferred Share is convertible into ten (10) Common
Shares of the Company ("Common Shares").
WHEREAS, the holders of the Series B Preferred Shares (the "Series B
Holders") and the number of Series B Preferred Shares held by them are set forth
on Schedule B attached hereto.
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WHEREAS, the Series B Holders are entitled to cumulative dividends at the
rate of forty cents ($.40) per share per annum.
WHEREAS, dividends with respect to the Series B Preferred Shares have been
paid through June 30, 1994.
WHEREAS, the holders of the Series D Preferred Shares (the "Series D
Holders") and the number of Series D Preferred Shares held by them are set forth
on Schedule C attached hereto.
WHEREAS, the Series D Holders are entitled to cumulative dividends at the
rate of twenty-five cents ($.25) per share per annum.
WHEREAS, no dividends have been paid with respect to the Series D Preferred
Shares.
WHEREAS, in the event of a liquidation of the Company, the Series D Holders
would be entitled to receive two dollars fifty cents ($2.50) per share and all
accrued and unpaid dividends thereon (the "Series D Liquidation Value").
WHEREAS, the holders of the Series E Preferred Shares (the "Series E
Holders") and the number of Series E Preferred Shares held by them are set forth
on Schedule D attached hereto.
WHEREAS, the Series E Holders are entitled to cumulative dividends at the
rate of twenty-two and one-half cents ($.225) per share per annum.
WHEREAS, no dividends have been paid with respect to the Series E Preferred
Shares.
WHEREAS, in the event of a liquidation of the Company, the Series E Holders
would be entitled to receive two dollars eighty-one and one-quarter cents
($2.8125) per share and all accrued and unpaid dividends thereon (the "Series E
Liquidation Value").
WHEREAS, the holders of the Series F Preferred Shares (the "Series F
Holders" and collectively with the Series B Holders, the Series D Holders and
the Series E Holders, the "Preferred Holders") and the number of Series F
Preferred Shares held by them are set forth on Schedule E attached hereto.
WHEREAS, the Series F Holders are not entitled to any preferential
dividends.
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WHEREAS, in the event of a liquidation of the Company, the Series F Holders
would be entitled to receive five dollars ($5.00) per share (the "Series F
Liquidation Value" and collectively with the Series D Liquidation Value and
Series E Liquidation Value, the "Liquidation Value").
WHEREAS, the Holder is Logitech and/or a Preferred Holder.
WHEREAS, upon the terms and subject to the conditions hereof, the Holder
(if a Series B Holder) has agreed to convert its Series B Preferred Shares into
Common Shares.
WHEREAS, upon the terms and subject to the conditions hereof, the Company
has agreed to repurchase from the Holder (other than the Series B Holders), and
the Holder (other than the Series B Holders) has agreed to sell to the Company,
the Logitech Note and/or the Holder's Preferred Shares, as the case may be.
WHEREAS, upon the terms and subject to the conditions hereof, the Company
has agreed to prepay the outstanding principal amounts of, and all accrued and
unpaid interest due under, the 1995 Notes.
WHEREAS, prior hereto, Spring Technology Corp. ("Spring") elected to
convert $96,000 principal amount of a certain $450,000 principal amount
promissory note of the Company dated March 8, 1993 (the "Spring Note"), together
with accrued interest thereon, into Common Shares in accordance with the
provisions of the Spring Note.
WHEREAS, concurrently herewith, Spring and Cofinvest 97 Ltd. ("Cofinvest")
are entering into a Note Purchase Agreement of even date (the "Note Purchase
Agreement") with, among others, Francesco Galesi ("Galesi") pursuant to which,
among other matters, Spring and Cofinvest are agreeing to sell to Galesi or his
designee, upon the terms and subject to the conditions thereof, the unconverted
portion of the Spring Note and a certain promissory note of the Company dated
July 13, 1993 in the principal amount of $50,000, respectively (collectively,
the "1993 Notes").
WHEREAS, concurrently herewith, the Company and Galesi are entering into an
agreement of even date (the "Conversion Agreement") pursuant to which, among
other matters, Galesi is agreeing to convert or cause the conversion of the
principal amounts of, and accrued interest on, the 1993 Notes into Common Shares
in accordance with the provisions of the 1993 Notes and the Conversion
Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto have
agreed, and do hereby agree, as follows:
1. Recitals. Each of the parties hereto acknowledges and agrees that each of
the above recitals is true and that each has relied upon the accuracy
thereof in entering into this Agreement.
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2. Conversion of Series B Preferred Shares; Sale of Logitech Note and
Preferred Shares; Escrow Agreement; Prepayment of 1995 Notes.
2.1 Conversion of Series B Preferred Shares. In the event the Holder
is a Series B Holder, upon the terms and subject to the conditions
hereinafter set forth, effective at the Closing (as hereinafter defined),
the Holder elects and agrees to convert all of its Series B Preferred
Shares into Common Shares (the "Series B Underlying Shares").
2.2 Sale of Logitech Note. In the event the Holder is Logitech, upon
the terms and subject to the conditions hereinafter set forth, at the
Closing, the Holder agrees to sell, transfer and deliver to the Company,
and the Company agrees to repurchase from the Holder, the Logitech Note,
free and clear of all liens, security interests, pledges, claims, charges
and encumbrances thereon (collectively, "Encumbrances"), at a purchase
price (the "Note Purchase Price") equal to the principal amount thereof
together with accrued and unpaid interest thereon through the day
immediately preceding the Closing.
2.3 Sale of Preferred Shares. (a) In the event the Holder is a
Preferred Holder (other than a Series B Holder), upon the terms and subject
to the conditions hereinafter set forth, at the Closing, the Holder agrees
to sell, transfer and deliver to the Company, and the Company agrees to
repurchase from the Holder, the Holder's Preferred Shares, free and clear
of all Encumbrances, at a purchase price (the "Preferred Purchase Price"
and collectively with the Note Purchase Price, the "Purchase Price") equal
to the Liquidation Value thereof.
2.4 Escrow Agreement. Simultaneously herewith, if the Holder is
Logitech, the Company, the Holder and Certilman Balin Adler & Hyman, LLP
(the "Escrow Agent") are entering into an Escrow Agreement pursuant to
which the original Logitech Note and an Assignment of Note are being
delivered to the Escrow Agent, to be held pursuant to the terms and
conditions of the Escrow Agreement.
2.5 Prepayment of 1995 Notes. Promptly following the Closing, the
Company agrees to send to the 1995 Noteholders a notice in the form of
Exhibit A hereto (the "Redemption Notice") to the effect that it will
redeem and prepay the outstanding principal amounts of, and all accrued and
unpaid interest under, the respective 1995 Notes for an aggregate
consideration to all of the 1995 Noteholders of one million four hundred
seventy thousand dollars ($1,470,000) plus the aggregate amount to all of
the 1995 Noteholders of three hundred eighty three dollars and fifty-six
cents ($383.56) per day from July 1, 1997 to the date of redemption, and
the Company shall redeem and prepay the 1995 Notes in accordance with the
provisions of the Redemption Notice.
3. Representations and Warranties of the Holder. As a material inducement to
the Company's entering into this Agreement, the Holder hereby represents
and warrants to the Company as follows:
3.1 Valid Existence; Authority; Binding Nature. The Holder, if other
than a natural person, is validly existing and in good standing under the
laws of the jurisdiction of
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its formation. The Holder has the power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by the Holder and the performance by the Holder
of its obligations hereunder have been duly authorized by the Board of
Directors or other governing body, if any, of the Holder and, if required,
its respective shareholders in conformity with applicable law. No other
corporate or other proceeding on the part of the Holder is necessary to
authorize the execution or delivery of this Agreement or the performance by
the Holder of its obligations hereunder. This Agreement is the valid and
binding obligation of the Holder and is enforceable against it in
accordance with the terms hereof. Each person executing this Agreement on
behalf of the Holder has been duly authorized to execute and deliver this
Agreement on the Holder's behalf.
3.2 Consent. Neither the execution and delivery of this Agreement by
the Holder, nor the performance by the Holder of its obligations hereunder,
requires the consent or approval of any third party or any foreign
governmental body or other foreign regulatory or administrative authority,
agency, bureau or commission (collectively, "Foreign Governmental Body").
3.3 No Breach. Neither the execution and delivery of this Agreement by
the Holder, nor the performance by the Holder of its obligations hereunder,
(i) violates, conflicts with or results in a breach of any provision of the
Certificate of Incorporation or By-Laws or other charter or organizational
document, if any, of the Holder; (ii) violates, breaches or is in conflict
with, or constitutes a default (or an event which, with notice or lapse of
time or both, would constitute a default) under any agreement or other
obligation to which the Holder is a party or by which it is otherwise
bound; or (iii) violates any order, writ, injunction, decree or judgment,
or any law, statute, rule or regulation of any Foreign Governmental Body
applicable to the Holder.
3.4 Litigation. There is no litigation or governmental proceeding
pending against the Holder or, to the knowledge of the Holder, pending
against any other person or entity or threatened, that seeks to restrain,
invalidate, prevent, or otherwise impede, or to obtain damages in respect
of, the carrying out by the Holder of the transactions contemplated hereby.
3.5 Title. The Holder owns the Logitech Note and/or its Preferred
Shares free and clear of any and all Encumbrances; the Holder has good and
marketable title to the Logitech Note and/or its Preferred Shares and has
the absolute and unqualified right to sell, transfer and deliver the
Logitech Note and/or its Preferred Shares to the Company; and the delivery
of the Logitech Note and/or its Preferred Shares to the Company pursuant to
the provisions hereof will transfer valid title thereto, free and clear of
all Encumbrances.
3.6 Receipt of SEC Reports. The Holder acknowledges receipt of, and
has reviewed, the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (including an accompanying letter to shareholders
sent in connection with the Company's Annual Meeting of Shareholders held
on May 14, 1997 (the "Meeting")), Quarterly Report on Form 10-Q for the
period ended March 31, 1997, Current Reports on Form 8-K for events dated
June 28,
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1996, as amended, May 3, 1997 and May 28, 1997 and Proxy Statement dated
May 3, 1997 with regard to the Meeting (the "Proxy Statement") and has been
afforded the opportunity to obtain such other information with respect to
the Company as the Holder determined was necessary in order to evaluate the
merits and risks of the sale of the Logitech Note and/or its Preferred
Shares to the Company on the terms and conditions hereof. The Holder also
acknowledges that, concurrently with its receipt of the initial draft of
this Agreement, it received a copy of the Company's preliminary Proxy
Statement with regard to the Meeting (as filed with the Securities and
Exchange Commission (the "SEC") on April 23, 1997).
3.7 Negotiation of Terms; Powers of Representative. The purchase price
for the Logitech Note and/or Preferred Shares and the other terms and
conditions set forth herein were determined by negotiation between the
Company and Friedli Corporate Finance AG (the "Representative"), which the
Holder represents, warrants, acknowledges and agrees acted as
representative on behalf of the Holder in such regard. The Holder
acknowledges and agrees further that, pursuant to the terms of this
Agreement, the Representative has the right and power, and the Holder
hereby confirms that the Representative shall have the right and power, to,
among other things, receive, on behalf of the Holder, the Purchase Price
for the Logitech Note and/or its Preferred Shares, the Underlying Series B
Shares and the Series B Dividend (as hereinafter defined), and/or designate
the account(s) to which the Purchase Price and/or Series B Dividend is to
be sent (which account may or may not be in the name of or for the benefit
of the Holder), and/or designate the name(s) in which the Series B
Underlying Shares are to be registered (which may or may not be the names
of the Series B Holders) and/or the address to which the Purchase Price,
Series B Dividend and/or Series B Underlying Shares are to be delivered.
3.8 Opportunity to Evaluate Terms. The Holder was given ample and
adequate opportunity to evaluate the terms and conditions of this Agreement
and was not given any deadline or subjected to other pressure to execute
and deliver this Agreement.
3.9 Status of Holders. The Holder is an "accredited investor" (as such
term is defined in Rule 501 promulgated under the Securities Act of 1933,
as amended (the "Securities Act")), is not a "U.S. person" (as such term is
defined in Rule 902 promulgated under the Securities Act) and, either alone
or with the Representative, has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks
of the sale of the Logitech Note and/or its Preferred Shares to the Company
on the terms and conditions hereof.
3.10 Ownership of Securities. Except for the Logitech Note and/or the
Preferred Shares and except as set forth on Schedule 3.10 attached hereto,
the Holder does not own, beneficially or of record, any Common Shares or
Preferred Shares, any rights, options or warrants for the purchase of
Common Shares or Preferred Shares or any securities or instruments that are
convertible into or exchangeable for Common Shares or Preferred Shares.
4. Representations and Warranties of the Company. As a material inducement to
the Holder's entering into this Agreement, the Company hereby represents
and warrants to the Holder as follows:
6
<PAGE>
4.1 Valid Existence; Authority; Binding Nature. The Company is validly
existing and in good standing under the laws of the state of New York. The
Company has the power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this
Agreement by the Company and the performance by the Company of its
obligations hereunder have been duly authorized by the Board of Directors
of the Company in conformity with applicable law. No other corporate
proceeding on the part of the Company, including, without limitation,
shareholder approval, is necessary to authorize the execution or delivery
of this Agreement or the performance by the Company of its obligations
hereunder. This Agreement is the valid and binding obligation of the
Company and is enforceable against it in accordance with the terms hereof.
The person executing this Agreement on behalf of the Company has been duly
authorized to execute and deliver this Agreement on its behalf.
4.2 Consents. Neither the execution and delivery of this Agreement by
the Company, nor the performance by the Company of its obligations
hereunder, requires the consent or approval of any third party or any
United States governmental body or other United States regulatory or
administrative authority, agency, bureau or commission ("Domestic
Governmental Body"), except that the foregoing representation and warranty
with regard to the requirement of any consent or approval of the SEC is
subject to the accuracy of the Holder's representations and warranties in
Sections 3.6 through 3.9 hereof.
4.3 No Breach. Neither the execution and delivery of this Agreement by
the Company, nor the performance by the Company of its obligations
hereunder, (i) violates, conflicts with or results in a breach of any
provision of the Certificate of Incorporation or By-Laws of the Company;
(ii) violates, breaches or is in conflict with, or constitutes a default
(or an event which, with notice of lapse of time or both, would constitute
a default) under any agreement or other obligation to which the Company is
a party or by which the Company is otherwise bound; or (iii) violates any
order, writ, injunction, decree or judgment, or any law, statute, rule or
regulation of any Domestic Governmental Body applicable to the Company,
except that the foregoing representation and warranty with regard to any
law, statute, rule or regulation, as it applies to the SEC or any
securities laws, statutes, rules or regulations, is subject to the accuracy
of the Holder's representations in Sections 3.6 through 3.9 hereof.
4.4 Litigation. There is no litigation or governmental proceeding
pending against the Company or, to the knowledge of the Company, pending
against any other person or entity or threatened, that seeks to restrain,
invalidate, prevent, or otherwise impede, or to obtain damages in respect
of, the carrying out by the Company of the transactions contemplated
hereby.
5. Covenants; Lock-Up.
5.1 Holder Covenants. (a) The Holder hereby covenants that, from and
after the date hereof and until the Closing or earlier termination of this
Agreement:
7
<PAGE>
(i) The Holder will not exercise its right to convert the
Logitech Note and/or any of its Preferred Shares (other than the
Series B Preferred Shares as set forth herein) into Common Shares.
(ii) The Holder will not sell, transfer or otherwise dispose of,
or enter into or conduct negotiations, or enter into any agreement or
understanding, for the sale, transfer or disposition of, the Logitech
Note and/or any of its Preferred Shares.
(iii) The Holder will use its best efforts to ensure that all of
its representations and warranties contained herein are true in all
material respects as of the Closing as if repeated at and as of such
time.
(b) In the event the Holder is Spring, Cofinvest, Logitech, Eagle
Growth Ltd. or Joyce Ltd., each a Preferred Holder, or Pine Inc.,
concurrently with the execution of this Agreement, the Holder is executing
and delivering to the Company a letter in the form of Exhibit B hereto
addressed to the representative of the initial purchasers in the Offering
(as hereinafter defined).
(c) In the event the Holder is Spring or is otherwise a Series B
Holder, concurrently with the execution of this Agreement, the Holder is
executing and delivering to the Company a letter in the form of Exhibit C
hereto addressed to the representative of the initial purchasers in the
Offering.
5.2 Company Covenants. The Company hereby covenants that, from and
after the date hereof and until the Closing or earlier termination of this
Agreement, it will use its best efforts to ensure that all of its
representations and warranties contained herein are true in all material
respects as of the Closing as if repeated at and as of such time.
6. Conditions Precedent to the Obligation of the Company to Close. The
obligation of the Company to consummate the transactions contemplated
hereby is subject to the fulfillment prior to or on the Closing Date (as
hereinafter defined) of each of the following conditions, any one or more
of which may be waived by the Company:
6.1 Representations and Warranties. All representations and warranties
of the Holder contained in this Agreement shall be true in all material
respects as of the Closing Date, as if made at the Closing and as of the
Closing Date.
6.2 Covenants. The Holder shall have performed and complied in all
material respects with all covenants required by this Agreement to be
performed or complied with by it prior to or at the Closing.
6.3 Certificates. The Company shall have received a certificate, dated
the Closing Date, signed by or on behalf of the Holder by a duly authorized
officer or other duly authorized representative thereof, as to the
satisfaction of the conditions set forth in Sections 6.1 and 6.2.
8
<PAGE>
6.4 No Actions. No action, suit, proceeding or investigation shall
have been instituted, and be continuing, before a court or before or by a
governmental body or agency, or shall have been threatened and be
unresolved, to restrain, invalidate, prevent, or otherwise impede, or to
obtain damages in respect of, the carrying out by the Company of its
obligations hereunder.
6.5 Consummation of Offering. The Company shall have consummated the
convertible debt offering described in the Proxy Statement or other similar
equity or convertible debt offering (in either case, the "Offering") and,
in either case, shall have received gross proceeds of at least fifty
million dollars ($50,000,000) therefrom.
6.6 Delivery of Logitech Note and/or Preferred Shares. The Escrow
Agent shall have delivered to the Company the Logitech Note and/or the
Holder shall have delivered to the Company its Preferred Shares in
conformity with the provisions of Section 8.2 hereof.
6.7 Agreements with Logitech and Other Preferred Holders. The Company
shall have entered into agreements, in or substantially in the form of this
Agreement, with Logitech and all of the other Preferred Holders and the
Company's obligations to repurchase the Logitech Note and/or Preferred
Shares pursuant to such other agreements shall have been fulfilled or
waived by the Company.
6.8 Note Purchase Agreement; Conversion Agreement. Simultaneously with
the Closing, the Note Purchase Agreement and the Conversion Agreement shall
have been consummated in accordance with the provisions thereof.
7. Conditions Precedent to the Obligation of the Holder to Close. The
obligation of the Holder to consummate the transactions contemplated hereby
is subject to the fulfillment prior to or on the Closing Date of each of
the following conditions, any one or more of which may be waived by the
Holder:
7.1 Representations and Warranties. All representations and warranties
of the Company contained in this Agreement shall be true in all material
respects as of the Closing Date, as if made at the Closing and as of the
Closing Date.
7.2 Covenants. The Company shall have performed and complied in all
material respects with all covenants required by this Agreement to be
performed or complied with by it prior to or at the Closing.
7.3 Certificate. The Representative, on behalf of the Holder, shall
have received a certificate, dated the Closing Date, signed on behalf of
the Company by a duly authorized officer thereof, as to the satisfaction of
the conditions set forth in Sections 7.1 and 7.2.
9
<PAGE>
7.4 No Action. No action, suit, proceeding or investigation shall have
been instituted, and be continuing, before a court or before or by a
governmental body or agency, or shall have been threatened and be
unresolved, to restrain, invalidate, prevent or otherwise impede, or to
obtain damages in respect of, the carrying out by the Holder of its
obligations hereunder.
7.5 Tender of Purchase Price. The Company shall have tendered to the
Representative, on behalf of the Holder (other than a Series B Holder), the
Purchase Price for the Logitech Note and/or the Holder's Preferred Shares,
as the case may be, in accordance with the provisions of Sections 3.7 and
8.3 hereof.
7.6 Series B Dividends; Stock Certificate. If the Holder is a Series B
Holder, the Company shall have declared and tendered to the Representative,
on behalf of the Holder, in accordance with the provisions of Sections 3.7
and 8.3 hereof, a dividend on the Series B Preferred Shares covering the
period ending immediately preceding the Closing Date (the "Series B
Dividend") and shall have tendered to the Representative, on behalf of the
Holder, in accordance with the provisions of Sections 3.7 and 8.3 hereof, a
certificate representing the Series B Underlying Shares (which certificate
shall contain a legend to reflect the lock-up provided for in Section
5.1(c) hereof).
8. Closing.
8.1 Location Time and Date. Subject to the satisfaction or waiver of
the conditions to Closing set forth in Sections 6 and 7 hereof, the sale
and repurchase of the Logitech Note and/or Preferred Shares contemplated by
this Agreement shall be consummated at a closing (the "Closing") to be held
at the offices of Certilman Balin Adler & Hyman, LLP, 90 Merrick Avenue,
East Meadow, New York at 10:00 a.m. on the business day immediately
following the closing of the Offering or at such other time and place as
may be mutually agreed to by the Company and the Representative (the
"Closing Date").
8.2 Items to be Delivered by the Holder. At the Closing, the Holder
will deliver or cause to be delivered to the Company the following
documents, or, pursuant to the terms of the Escrow Agreement, the following
documents will be delivered to the Company:
(a) the original Logitech Note and the Assignment of Note; and/or
(b) for Holders other than Series B Holders, the Holder's
certificate(s) representing its Preferred Shares, duly endorsed in
blank, or accompanied by a stock power duly executed in blank, in
either case with (i) signature(s) guaranteed and notarized and
accompanied by such other evidence as is acceptable to the Company as
to the identity of the Holder or the authority of the person(s)
signing on behalf of the Holder and (ii) all necessary transfer tax
stamps affixed and cancelled; and/or
10
<PAGE>
(c) for Series B Holders, the Holder's certificate(s)
representing its Preferred Shares.
8.3 Items to be Delivered by the Company. At the Closing, the Company
will deliver or cause to be delivered to the Representative, on behalf of
the Holder, in accordance with the provisions of Section 3.7 hereof, the
following:
(a) the Purchase Price and/or Series B Dividend by bank or
certified check payable to the order of the Holder, or by wire
transfer to an account or accounts designated by the Representative,
in either case in immediately available funds; and/or
(b) a certificate representing the Series B Underlying Shares.
9. Survival of Representations. The parties hereby agree that their respective
representations and warranties shall survive the Closing.
10. Termination. This Agreement may be terminated and the transactions provided
for herein abandoned at any time prior to the Closing Date:
(a) by mutual consent of the Company and the Holder;
(b) by the Company if any of the conditions set forth in Section 6
hereof shall not have been fulfilled on or prior to July 31, 1997 (the
"Outside Date"), or shall become incapable of fulfillment, and shall not
have been waived by the Company; or
(c) by the Holder if any of the conditions set forth in Section 7
hereof shall not have been fulfilled on or prior to the Outside Date
(except that the Company shall have the right to extend the Outside Date to
a date no later than September 30, 1997 upon written notice to the Holder)
or shall have become incapable of fulfillment, and shall not have been
waived by the Holder.
In the event that this Agreement is terminated as provided for above,
this Agreement shall be of no further force and effect and no party shall
have any liability or obligation hereunder, except for any breach of this
Agreement that has occurred prior to the termination thereof.
11. Notices. Except as otherwise expressly provided for hereunder, any
communication or notice given hereunder shall be, and shall be deemed to be
given when, delivered by hand, or sent by certified or registered mail,
return receipt requested and postage being prepaid, overnight mail or
courier, or telecopier as follows:
If to the Company:
101 Park Avenue
Suite 2507
New York, New York 10178
Attn: Chief Executive Officer
Telecopier Number: (212) 867-0166
11
<PAGE>
With copies to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attn: Fred S. Skolnik, Esq.
Telecopier Number: (516) 296-7111
and
Amy S. Gross, Esq.
American Network Exchange, Inc.
100 West Lucerne Circle
Suite 600
Orlando, Florida 32801
Telecopier Number: (407) 481-2560
If to the Holder:
c/o Friedli Corporate Finance AG
Freigutstrasse 5, 8002
Zurich, Switzerland
Attn: Christa Wagner
Telecopier Number: 011 411 283 2901
or at such other address as any party may specify by notice given to the
other parties hereto in accordance with the provisions hereof.
12. Further Assurances. Each of the parties hereto will execute and deliver any
and all further documents as are reasonably necessary to carry out the
provisions hereof.
13. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, applicable to
agreements performed wholly within such state.
14. Entire Agreement. This Agreement sets forth the entire understanding of the
parties hereto with regard to the subject matter hereof and there are no
representations, warranties or commitments except as set forth herein. This
Agreement supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, relating to the subject matter
hereof. This Agreement may be modified only by a written agreement between
the Company and the Holder.
12
<PAGE>
15. Waiver of Breach; Partial Invalidity. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach. If any provision, or part thereof, of
this Agreement shall be held to be invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision and not
in any way affect or render invalid or unenforceable any other provisions
of this Agreement, and this Agreement shall be carried out as if such
invalid or unenforceable provision, or part thereof, had been reformed, and
any court of competent jurisdiction is authorized to so reform such invalid
or unenforceable provision, or part thereof, so that it would be valid,
legal and enforceable to the fullest extent permitted by applicable law.
16. Binding Nature. This Agreement shall be binding upon the successors,
assigns and legal representatives of the parties hereto.
17. Headings. The paragraph headings of this Agreement are for convenience and
reference only and do not in any way modify, interpret or construe the
intent of the parties or affect any of the provisions of this Agreement.
18. Counterparts; Effectiveness. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which taken
together shall constitute one agreement. This Agreement shall be effective
against the Holder in accordance with the terms and conditions hereof upon
its execution and delivery hereof (regardless of whether Logitech and/or
any other Preferred Holder shall execute and deliver an agreement in the
form executed by the Holder or otherwise).
19. Facsimile Signatures. Signatures transmitted by facsimile transmission
shall be deemed original signatures.
20. Third Party Beneficiary. This Agreement is for the sole benefit of the
parties hereto. No third party shall have any beneficial interest herein,
directly or indirectly, nor may any third party rely on the terms,
provisions, or conditions of this Agreement.
21. Materiality. All promises, covenants, agreements, understandings,
acknowledgments, representations, and warranties made in this Agreement
shall be deemed material and relied on by each party to this Agreement.
22. Remedies Cumulative. Each right, power, and remedy provided for herein or
now or hereafter existing at law or in equity, by statute or otherwise,
shall be cumulative and concurrent and shall be in addition to every other
right, power, and remedy provided for herein or now or hereafter existing
at law or in equity, by statute or otherwise, and the exercise or the
beginning of the exercise by any party of any one or more of such rights,
powers, or remedies shall not preclude the simultaneous or later exercise
by such party of any or all of such other rights, powers and remedies.
13
<PAGE>
23. Specific Performance; Jurisdiction.
23.1 Specific Performance. The parties hereby acknowledge and agree
that the failure of either party to this Agreement to perform the
provisions hereof in accordance with their specific terms or other breach
of such provisions will cause irreparable injury to the other party to this
Agreement for which damages, even if available, will not be an adequate
remedy. Accordingly, the parties hereby consent to the issuance of
injunctive relief by any court of competent jurisdiction to compel
performance of any party's obligations, including an injunction to prevent
breaches, and to the granting by any such court of the remedy of specific
performance of the terms and conditions hereof.
23.2 Jurisdiction. Each party hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the State
of New York and of the United States of America located in the State of New
York for any actions, suits or proceedings arising out of or relating to
this Agreement, the matters referred to herein or the transactions
contemplated hereby. Each party also hereby irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or
proceeding arising out of this Agreement, the matters referred to herein or
the transactions contemplated hereby in the courts of the State of New York
or of the United States of America located in the State of New York, and
hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
24. Confidentiality.
(a) Except as otherwise required by applicable law based upon a
written opinion of counsel to the disclosing party reasonably satisfactory
to the party affected by the disclosure and as otherwise hereinafter
provided, each party shall use Confidential Information (as hereinafter
defined) only in connection with the performance of its obligations under
this Agreement, shall not otherwise use Confidential Information to its own
advantage, shall not use Confidential Information in competition with or to
the detriment of the other party, shall hold and treat all Confidential
Information in confidence and shall not disclose or offer to disclose any
Confidential Information to any person or entity not a party to this
Agreement, except that the Holder may disclose Confidential Information to
a particular banking institution for whose benefit the Holder is holding
the Notes and/or Preferred Shares (an "Institution") or to others for whom
the Institutions hold the Notes and/or Preferred Shares (an "Ultimate
Beneficial Owner"), provided that, prior to such disclosure, such
Institution and/or Ultimate Beneficial Owner shall have executed and
delivered to the Company a writing, in form and substance reasonably
acceptable to the Company, in which it agrees to be bound by the provisions
hereof. The term "Confidential Information", as used in this section, means
all confidential or proprietary information and trade secrets of or
relating to any other party, an Institution or an Ultimate Beneficial
Owner. Confidential Information shall not include information generally
known or readily ascertainable by proper means. To the extent that
14
<PAGE>
Confidential Information, through no act or omission of a party, an
Institution or an Ultimate Beneficial Owner, or any of its affiliates,
employees or agents, becomes generally known or readily ascertainable by
proper means, such information shall no longer be considered Confidential
Information for purposes of this Agreement. If any party or its affiliates
or agents are requested or required (by oral questions, interrogatories,
requests for information or documents, subpoena or similar process) to
disclose any Confidential Information, it is agreed that such party (the
"disclosing party") will cooperate with the other party (the "protected
party") and provide it with prompt notice of such request(s) so that the
protected party may seek an appropriate protective order and/or waive
compliance by the disclosing party with the provisions of this Section
24(a). If, in the absence of a protective order or the receipt of a waiver
hereunder, the disclosing party or its affiliates or agents are
nonetheless, in the opinion of the disclosing party's counsel, legally
required to disclose Confidential Information to any tribunal or else stand
liable for contempt or suffer other censure or penalty, it may disclose
such information to such tribunal without liability hereunder.
(b) Nothing herein shall restrict the Company from disclosing publicly
this Agreement and/or the terms and conditions hereof.
25. Pronouns. Whenever the context requires, any pronoun used in this Agreement
shall be deemed to cover both gender forms as well as the neuter form.
26. Counsel. The Holder acknowledges that it has been given the opportunity,
and has been encouraged, to consult with counsel in connection with the
negotiation, execution and delivery of this Agreement and has determined
not to consult with counsel in connection therewith.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
AMNEX, INC.
By:
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
LOGITECH CORP.
By:/s/ Peter Friedli
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
AMNEX, INC.
By:
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
SPRING TECHNOLOGY CORP.
By:/s/ Peter Friedli
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
K:\WPDOC\CORP\AMNEX\FRIEDLI.2\AGREEMEN\AMDMAIN.8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
AMNEX, INC.
By:
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
COFINVEST 97 LTD.
By:
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
K:\WPDOC\CORP\AMNEX\FRIEDLI.2\AGREEMEN\AMDMAIN.8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
AMNEX, INC.
By:
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
EAGLE GROWTH LTD.
By:
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
K:\WPDOC\CORP\AMNEX\FRIEDLI.2\AGREEMEN\AMDMAIN.8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
AMNEX, INC.
By:
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
JOYCE LTD.
By:
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
K:\WPDOC\CORP\AMNEX\FRIEDLI.2\AGREEMEN\AMDMAIN.8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
AMNEX, INC.
By:
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
(Corporate Seal)
PETER FRIEDLI as representative of each of
BANCA NOVARA
BORDIER & CIE
EXPERTA TREUHAND AG
BARCLAYS BANK (SCHWEIZ) AG
HANS-JUERGEN BENZE
MR. BERNHEIM
EXPERTA TRUSTEE CO., LTD.
FINANZVERWALTUNG DES KANTONS
ZURICH
PETER HOERZ
I.A.A.C. INTERNATIONAL AUTOMOTIVE
ADVISORS CORP., PANAMA
INFIDAR AG
STEPHAN WULLINGER
HANS TANNER
GUISEPPE CASUTT
/s/Peter Friedli
Peter Friedli
K:\WPDOC\CORP\AMNEX\FRIEDLI.2\AGREEMEN\AMDMAIN.8
<PAGE>
June 3, 1997
$2,000,000
SECURED DEMAND PROMISSORY NOTE
AMNEX, INC., a New York corporation ("AMNEX"), AMERICAN NETWORK EXCHANGE,
INC., a Delaware corporation and wholly-owned subsidiary of AMNEX ("ANEI"), and
CRESCENT PUBLIC COMMUNICATIONS INC., a New York corporation and wholly-owned
subsidiary of AMNEX ("Crescent" and collectively with AMNEX and ANEI, the
"Makers"), for value received, hereby jointly and severally promise to pay to
the order of FRANCESCO GALESI IRREVOCABLE GRANTOR TRUST DATED OCTOBER 18, 1991
(the "Holder"), within fifteen (15) days following the date of receipt of demand
for payment (the "Due Date"), at the offices of the Holder indicated in
paragraph 6 hereof, the aggregate principal sum of TWO MILLION DOLLARS
($2,000,000) in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts and to pay interest on such principal sum at the rate of ten percent (10%)
per annum from the date hereof. Accrued interest on the unpaid principal balance
of this Secured Demand Promissory Note ("Note") shall be payable on the first
business day of each month and on the Due Date.
1. Registered Owner. The Makers may consider and treat the person in whose
name this Note shall be registered as the absolute owner thereof for all
purposes whatsoever (whether or not this Note shall be overdue) and the Makers
shall not be affected by any notice to the contrary. The registered owner of
this Note shall have the right to transfer it by assignment and the transferee
thereof, upon his registration as owner of this Note, shall become vested with
all the powers and rights of the transferor. Registration of any new owner shall
take place upon presentation of this Note to AMNEX at its offices together with
an assignment duly authenticated. In case of transfers by operation of law, the
transferee shall notify the Makers of such transfer and of his address, and
shall submit appropriate evidence regarding the transfer so that this Note may
be registered in the name of the transferee. This Note is transferable only on
the books of the Makers by the holder hereof, in person or by attorney, on the
surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of this Note not
registered at the time of sending the communication.
2. Security; Warrant.
(a) Payment of the principal amount of, and accrued interest on, this
Note is secured by a security interest in certain assets of ANEI and
Crescent pursuant to a certain Security Agreement of even date by and among
ANEI, Crescent and the Holder.
(b) Concurrently herewith, AMNEX is executing and delivering to the
Holder a Warrant for the purchase of up to five hundred thousand (500,000)
Common Shares of AMNEX, such Warrant to be exercisable during the eight (8)
year period commencing on June 3, 1999 at an exercise price of two dollars
and thirty one and one-quarter cents ($2.3125) per share (the "Initial
K:\WPDOC\CORP\AMNEX\NOTES\2M.697
1
<PAGE>
Warrant"). In the event this Note is not paid on or before the Due Date,
AMNEX shall issue to the Holder an additional Warrant, in form and
substance identical to the Initial Warrant, except that the number of
Common Shares subject to such additional Warrant shall be one hundred
thousand (100,000), subject to adjustment as set forth in the Initial
Warrant.
3. Redemption. The Holder, by its acceptance of this Note, hereby
acknowledges that, at any time, and from time to time, notwithstanding the lack
of demand for payment on the part of the Holder, any of the Makers may, at its
option, by written notice given to the Holder, elect to redeem and prepay all or
any portion of the outstanding principal indebtedness evidenced by this Note,
together with accrued interest thereon, without premium or penalty. Any such
notice of a Maker's election to redeem and prepay as provided for hereinabove
shall be given not less than five (5) days prior to the date fixed in such
notice as the date for the redemption of this Note (the "Redemption Date").
4. Default Rate of Interest; Late Charge. In the event the Makers shall
fail to pay all or any portion of the principal amount hereof on or before the
Due Date, any such unpaid amount shall bear interest, for each day from the Due
Date until paid in full, at the rate of fifteen percent (15%) per annum, instead
of ten percent (10%) per annum as hereinabove provided, payable upon demand. In
the event the Makers shall fail to pay timely any other amount due hereunder,
the Makers, jointly and severally, agree to make a payment, in addition to all
other required payments hereunder, equal to two percent (2%) of the overdue
payment.
5. Applicable Law. This Note is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the State of New York,
excluding choice of law rules thereof.
6. Notices. Any and all notices or other communications or deliveries
required or permitted to be given or made pursuant to any of the provisions of
this Note shall be in writing and shall be deemed to have been duly given or
made for all purposes when hand delivered or sent by certified or registered
mail, return receipt requested and postage prepaid, overnight mail or courier,
or telecopier as follows:
If to Lender at:
c/o Rotterdam Ventures, Inc.
Building 6
East Road
Rotterdam Industrial Park
Schenectady, New York 12306
Attention: David M. Buicko, Trustee
K:\WPDOC\CORP\AMNEX\NOTES\2M.697
2
<PAGE>
With copies to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104-0012
Attention: Joseph W. Bartlett, Esq.
Telecopier Number: (212) 468-7900
and
Steven Porter, Esq.
Rotterdam Industrial Park
Westcott Road
Building 6
Schenectady, New York 12306
Telecopier Number: (518) 356-5334
If to AMNEX at:
101 Park Avenue
Suite 2507
New York, New York 10178
Attention: Chairman
Telecopier Number: (212) 867-0092
With copies to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Fred S. Skolnik, Esq.
Telecopier Number: (516) 296-7111
and
Amy S. Gross, Esq.
American Network Exchange, Inc.
100 West Lucerne Circle
Suite 600
Orlando, Florida 32801
Telecopier Number: (407) 481-2560
K:\WPDOC\CORP\AMNEX\NOTES\2M.697
3
<PAGE>
If to ANEI at:
100 West Lucerne Circle
Suite 600
Orlando, Florida 32801
Attention: President
Telecopier Number: (407) 481-2560
With a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Fred S. Skolnik, Esq.
Telecopier Number: (516) 296-7111
If to Crescent at:
6 Nevada Drive
Building C
Lake Success, New York 11042
Attention: President
Telecopier Number: (516) 326-7987
With a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Fred S. Skolnik, Esq.
Telecopier Number: (516) 296-7111
or at such other address as the Holder or any Maker may specify by notice given
to the other party in accordance with this paragraph 6.
7. Miscellaneous. This Note constitutes the rights and obligations of the
Holder and the Makers. No provision of this Note may be modified except by an
instrument in writing signed by the party against whom the enforcement of any
modification is sought.
Payment of interest due under this Note prior to the Due Date or Redemption
Date, as the case may be, shall be made to the registered holder of this Note.
Payment of principal and interest due hereunder on the Due Date or Redemption
Date, as the case may be, shall be made to the registered holder of this Note in
accordance with the terms hereof following presentation of this Note upon or
after such applicable date. No interest shall be due on this Note for such
period of time that
K:\WPDOC\CORP\AMNEX\NOTES\2M.697
4
<PAGE>
may elapse between the Due Date or Redemption Date, as the case may be, and its
presentation for payment.
No recourse shall be had for the payment of the principal of, or interest
on, this Note against any officer, director or agent of any Maker, past, present
or future, all such liability of the officers, directors and agents being
waived, released and surrendered by the Holder hereof by the acceptance of this
Note.
IN WITNESS WHEREOF, the Makers have caused this Note to be signed on its
behalf, in its corporate name, by its duly authorized officer, all as of the day
and year first above written.
AMNEX, INC.
By:
AMERICAN NETWORK EXCHANGE, INC.
By:
CRESCENT PUBLIC COMMUNICATIONS INC.
By:
K:\WPDOC\CORP\AMNEX\NOTES\2M.697
<PAGE>
AMNEX, INC.
AMERICAN NETWORK EXCHANGE, INC.
CRESCENT PUBLIC COMMUNICATIONS INC.
SECURED DEMAND PROMISSORY NOTE
JUNE 3, 1997
FOR USE ONLY UPON ASSIGNMENT
FOR VALUE RECEIVED
The undersigned (please print or
typewrite name of assignor) hereby sells, assigns and transfers unto
(please print or typewrite name, address and
social security or taxpayer identification number, if any, of assignee) the
within Note of AMNEX, Inc., American Network Exchange, Inc. and Crescent Public
Communications Inc. in the original principal amount of $2,000,000 and hereby
authorizes the Makers to transfer this Note on their books.
(Signature)
(Signature, if jointly held)
(Date)
(Signature(s) guaranteed)
K:\WPDOC\CORP\AMNEX\NOTES\2M.697
<PAGE>
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON JUNE 3, 2007.
NEITHER THIS WARRANT NOR THE WARRANT STOCK (AS HEREINAFTER DEFINED) HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS
WARRANT AND THE WARRANT STOCK MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
ACT. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS
WARRANT.
AMNEX, INC.
(Incorporated under the laws of the State of New York)
Warrant
June 3, 1997
FOR VALUE RECEIVED, AMNEX, INC., a New York corporation (the "Company"),
hereby certifies that FRANCESCO GALESI IRREVOCABLE GRANTOR TRUST DATED OCTOBER
18, 1991 (together with any person to whom or which this Warrant or any portion
thereof has been assigned or transferred, the "Holder") is entitled, subject to
the provisions of this Warrant, to purchase from the Company, during the period
commencing on June 3, 1999 and expiring at 5:00 P.M., New York City time, on
June 3, 2007, up to FIVE HUNDRED THOUSAND (500,000) COMMON SHARES of the Company
(the "Common Shares") at a price of TWO DOLLARS AND THIRTY-ONE AND ONE-QUARTER
CENTS ($2.3125) per Common Share (the "Exercise Price").
The number of Common Shares to be received upon the exercise of this
Warrant may be adjusted from time to time as hereinafter set forth. The Common
Shares deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Stock".
The Holder, by his acceptance hereof, agrees with the Company that this
Warrant is issued, and all the rights hereunder shall be held subject to, all of
the conditions, limitations and provisions set forth herein.
1. Exercise of Warrant. (a) This Warrant may be exercised by its
presentation and surrender to the Company at its principal office on or after
June 3, 1999 and before 5:00 P.M., New York City time, on June 3, 2007, with the
Warrant Exercise Form attached hereto duly executed and accompanied by payment
(either in cash or by certified or official bank check, payable to the order of
the Company) of the Exercise Price for the number of shares specified in such
Form. If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
shares purchasable hereunder.
1
<PAGE>
(b) Notwithstanding the foregoing, but subject to the provisions of
applicable law and regulations, including, without limitation, those
relating to margin requirements, the Exercise Price may be paid
concurrently with the sale of the Warrant Stock in a "cashless exercise"
transaction.
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all Common Shares or other
shares of capital stock of the Company (and other securities and property) from
time to time receivable upon exercise of this Warrant.
3. Fractional Shares. The Company shall not be required to issue
certificates representing fractions of Common Shares, nor shall it be required
to issue scrip or pay cash in lieu of fractional interests, it being the intent
of the Company and the Holder that all fractional interests shall be eliminated.
4. Exchange or Assignment of Warrant. This Warrant is exchangeable, without
expense, at the option of the Holder, upon presentation and surrender hereof to
the Company for other Warrants of different denominations, entitling the Holder
to purchase in the aggregate the same number of Common Shares purchasable
hereunder. Subject to the provisions of this Warrant and the receipt by the
Company of any required representations and agreements, upon surrender of this
Warrant to the Company with the Warrant Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without additional charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be cancelled.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. Anti-Dilution Provisions.
6.1 Adjustments for Stock Dividends; Combinations, Etc.
(a) In case the Company shall do any of the following (an
"Event"):
(i) declare a dividend or other distribution on its Common
Shares payable in Common Shares of the Company,
(ii) subdivide the outstanding Common Shares pursuant to a
stock split or otherwise,
(iii) combine the outstanding Common Shares into a smaller
number of shares pursuant to a reverse split or otherwise, or
2
<PAGE>
(iv) reclassify its Common Shares,
then the Exercise Price in effect at the time of the record date for
such dividend or other distribution or of the effective date of such
subdivision, combination or reclassification shall be changed to a
price determined by dividing (a) the product of the number of Common
Shares outstanding immediately prior to such Event, multiplied by the
Exercise Price in effect immediately prior to such Event by (b) the
number of Common Shares outstanding immediately after such Event. Each
such adjustment of the Exercise Price shall be calculated to the
nearest cent. No such adjustment shall be made in an amount less than
one cent ($.01), but any such amount shall be carried forward and
shall be given effect in connection with the next subsequent
adjustment. Such adjustment shall be made successively whenever any
Event listed above shall occur.
(b) Whenever the Exercise Price is adjusted as set forth in this
Section 6.1 (whether or not the Company then or thereafter elects to
issue additional Warrants in substitution for an adjustment in the
number of shares of Warrant Stock), the number of shares of Warrant
Stock specified in each Warrant which the Holder may purchase shall be
adjusted, to the nearest full share, by multiplying such number of
Common Shares immediately prior to such adjustment by a fraction, of
which the numerator shall be the Exercise Price immediately prior to
such adjustment and the denominator shall be the Exercise Price
immediately thereafter.
6.2 Adjustment for Reorganization, Consolidation or Merger. In case of
any reorganization of the Company (or any other corporation, the securities
of which are at the time receivable on the exercise of this Warrant) after
the date hereof or in case after such date the Company (or any such other
corporation) shall consolidate with or merge with or into another
corporation, then, and in each such case, the Holder of this Warrant, upon
the exercise thereof as provided in Section l at any time after the
consummation of such reorganization, consolidation or merger, shall be
entitled to receive, in lieu of the securities and property receivable upon
the exercise of this Warrant prior to such consummation, the securities or
property to which such Holder would have been entitled upon such
consummation if such Holder had exercised this Warrant immediately prior
thereto all subject to further adjustment as provided in Section 6.l, and
the terms of this Warrant shall be binding upon any successor to the
Company by way of consolidation or merger; in each such case, the terms of
this Warrant shall be applicable to the securities or property receivable
upon the exercise of this Warrant after such consummation.
7. Restrictions on Exercise; Registration Rights.
7.1 Investment Intent. Unless, prior to the exercise of the Warrant,
the issuance of the Warrant Stock has been registered with the Securities
and Exchange Commission pursuant to the Act, the notice of exercise shall
be accompanied by a representation of the Holder to the Company to the
effect that such shares are being acquired for investment and not with a
view to the distribution thereof, and such other documentation as may be
required by the Company, unless in the opinion of counsel to the Company
such representation or other documentation is not necessary to comply with
the Act.
3
<PAGE>
7.2 Listing; Qualification. The Company shall not be obligated to
deliver any shares of Warrant Stock until they have been listed on each
securities exchange or other self-regulatory body on which the Company's
Common Shares may then be listed or until there has been qualification
under or compliance with such federal or state laws, rules or regulations
as the Company may deem applicable, including, without limitation,
compliance with Rule 10b-17 promulgated under the Securities Exchange Act
of 1934, as amended. The Company shall use reasonable efforts to obtain
such listing, qualification and compliance.
7.3 Registration Rights. The Holder shall have registration rights
with regard to the Warrant Stock to the same extent as if the Warrant Stock
had been included within the definition of "Registration Stock" for
purposes of that certain Stock Exchange Agreement, dated as of January 7,
1997, by and between the Company and Francesco Galesi.
8. Lost, Stolen or Destroyed Warrants. In the event that the Holder
notifies the Company that this Warrant has been lost, stolen or destroyed and
provides (a) a letter, in form satisfactory to the Company, to the effect that
he will indemnify the Company from any loss incurred by it in connection
therewith, and/or (b) an indemnity bond in such amount as is reasonably required
by the Company, the Company having the option of electing either (a) or (b) or
both, the Company may, in its sole discretion, accept such letter and/or
indemnity bond in lieu of the surrender of this Warrant as required by Section 1
hereof.
9. Applicable Law. This Warrant is issued under, and shall for all purposes
be governed by and construed in accordance with, the laws of the State of New
York, excluding choice of law principles thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf, in its corporate name, by its duly authorized officer, all as of the day
and year first above written.
AMNEX, INC.
By:
<PAGE>
AMNEX, INC.
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant
dated June 3, 1997 to the extent of purchasing _______________ Common Shares of
AMNEX, Inc. indicated below. The undersigned hereby makes a payment of
$_________________ in payment therefor.
Name of Holder
Signature of Holder or Authorized
Representative
Signature, if jointly held
Name and Title of Authorized Representative
Address of Holder
Date
<PAGE>
AMNEX, INC.
WARRANT ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________________ hereby sells, assigns and
transfers unto
Name _________________________________________________________________________
(Please typewrite or print name of assignee in block letters)
Address________________________________________________________________________
the right to purchase Common Shares of AMNEX, Inc. represented by this Warrant
dated June 3, 1997 to the extent of _____________ Common Shares and does hereby
irrevocably constitute and appoint _______________ attorney to transfer the same
on the books of the Company with full power of substitution in the premises.
Name of Holder
Signature of Holder or Authorized
Representative
Signature, if jointly held
Name and Title of Authorized Representative
Date
Signature(s) guaranteed:
K:\WPDOC\CORP\AMNEX\GALESI\WARRANT.2M1
<PAGE>
<TABLE>
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
Exhibit 11
<CAPTION>
Three months Six months
ended ended
June 30, June 30,
1997 1996 1997 1996
(in thousands, except share data) (in thousands, except share data)
Primary Earnings Per Share:
<S> <C> <C> <C> <C>
Weighted average number of shares of
Common Stock outstanding 29,058,761 20,593,972 28,328,062 20,133,938
Net effect of dilutive stock options and warrants
based on the Treasury stock method using the
average fair market value in effect for the period 97,129 777,028 919,359 789,062
------ ------- ------- -------
Weighted Average Shares Outstanding 29,155,890 21,371,000 29,247,421 20,923,000
========== ========== ========== ==========
Net Income (Loss) $403 $277 ($907) $798
Less preferred stock dividends and deemed dividends 154 154 308 308
--- --- --- ---
Net Income (Loss) available for common shares $249 $123 ($1,215) $490
==== ==== ======= ====
Net Income (Loss) per share $0.01 $0.01 ($0.04) $0.02
===== ===== ====== =====
Fully Diluted Earnings Per Share:
Weighted average number of shares of
Common Stock outstanding 29,058,761 20,593,972 28,328,062 20,133,938
Net effect of dilutive stock options and
warrants based on the Treasury stock method
using the higher of average fair market value in effect
at the end of the period or the average during the period 97,129 777,235 919,359 789,389
Net effect of convertible securities 6,794,358 7,296,851 6,794,358 7,296,851
--------- --------- --------- ---------
Weighted Average Shares Outstanding 35,950,248 28,668,058 36,041,779 28,220,178
========== ========== ========== ==========
Net Income (Loss) $403 $277 ($907) $798
Add interest expense on convertible debt, net of tax 30 10 59 21
-- -- -- --
Net Income (Loss) available for common shares $433 $287 ($848) $819
==== ==== ===== ====
Net Income (Loss) per share $0.01 $0.01 ($0.02) $0.03
===== ===== ====== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> I
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> jun-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,204
<SECURITIES> 0
<RECEIVABLES> 27,075
<ALLOWANCES> 2,375
<INVENTORY> 883
<CURRENT-ASSETS> 32,377
<PP&E> 39,599
<DEPRECIATION> 14,950
<TOTAL-ASSETS> 103,144
<CURRENT-LIABILITIES> 41,219
<BONDS> 20,517
0
8,882
<COMMON> 64,701
<OTHER-SE> (33,768)
<TOTAL-LIABILITY-AND-EQUITY> 103,144
<SALES> 0
<TOTAL-REVENUES> 62,349
<CGS> 0
<TOTAL-COSTS> 50,546
<OTHER-EXPENSES> 10,909
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,692
<INCOME-PRETAX> (797)
<INCOME-TAX> 100
<INCOME-CONTINUING> (807)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (907)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.02)
</TABLE>
